As filed with the Securities and Exchange Commission on April 18, 1996
Registration Statement No. 333-01619
================================================================================
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 its charter)
New York 7311 13-1514814
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
----------------
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.
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
Telephone: (212) 415-3600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
MICHAEL D. DITZIAN, ESQ. RONALD W. FRANK, ESQ.
Davis & Gilbert Babst Calland Clements and Zomnir, P.C.
1740 Broadway Two Gateway Center
New York, New York 10019 Pittsburgh, Pennsylvania 15222
(212) 468-4800 (412) 394-5400
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective and all other conditions to the Merger pursuant to the Agreement and
Plan of Merger 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, 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
reimbursement 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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
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.
<TABLE>
<CAPTION>
Location or Heading in
S-4 Item Number and Caption Prospectus/Information Statement
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<S> <C>
A. Information about the Transaction
Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus..................................... Facing page; Cross Reference Sheet, Outside Front Cover
Page of Prospectus/Information Statement
Inside Front and Outside Back Cover Pages
of Prospectus................................................ Inside Front Cover Page of Prospectus/Information
Statement; "Available Information"; "Table of Contents"
Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information.................................................. "Summary"; " Comparative Per Share Data"; "Market Price
Data"; "Selected Financial Data Of Ketchum"
Terms of the Transaction..................................... "Summary"; "The Merger Agreement And The Merger--Background
of and Ketchum's Reasons for the Merger; Recommendation of
the Ketchum Board of Directors"; "--Omnicom's Reasons for
the Merger"; "--The Merger Agreement"; "--Other
Considerations"; "The Escrow Agreement and the Ketchum
Shareholder Representative"
Pro Forma Financial Information.............................. *
Material Contacts with the Company Being Acquired............ "Summary"; "The Merger Agreement And The Merger--Interests
of Ketchum's Management in the Merger"
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 S-3 Registrants.................. "Summary"; "Incorporation of Certain Documents by
Reference"; "Business Information Concerning Omnicom";
"Selected Financial Data of Omnicom"; "Description of
Omnicom Capital Stock"
Incorporation of Certain Information by Reference............ "Incorporation of Certain Documents by Reference"
Information with Respect to S-2 or S-3 Registrants........... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Location or Heading in
S-4 Item Number and Caption Prospectus/Information Statement
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<S> <C>
Incorporation of Certain Information by Reference............ *
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 Other Than
S-3 or S-2 Companies......................................... "Summary"; "Business Information Concerning Ketchum";
"Selected Financial Data of Ketchum"; "Management's
Discussion and Analysis of Financial Condition and Results
of Operations of Ketchum"; "Description of Ketchum Capital
Stock"; "Index to Ketchum Financial Statements"
D. Voting and Management Information
Information if Proxies, Consents or Authorizations are to
be Solicited................................................. *
Information if Proxies, Consents or Authorizations are not to
be Solicited or in Exchange Offer............................ "Summary"; "The Special Meeting"; "Business Information
Concerning Ketchum--Executive Officers and Directors,
Principal Shareholders"; "The Merger Agreement and the
Merger--Other Considerations--Rights of Dissenting Ketchum
Shareholders"
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* Not Applicable
</TABLE>
<PAGE>
[Letterhead of Ketchum Communications Holdings, Inc.]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On May 30, 1996
To The Shareholders of
Ketchum Communications Holdings, Inc.:
A Special Meeting of the Shareholders of Ketchum Communications Holdings,
Inc., a Pennsylvania corporation ("Ketchum"), will be held on May 30, 1996, at
5:00 p.m. (local time), at the offices of Ketchum, Six PPG Place, Pittsburgh,
Pennsylvania 15222, to consider and vote upon the following matters described in
the accompanying Prospectus/Information Statement:
1. To consider and act upon the approval of an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which a wholly-owned
subsidiary of Omnicom Group Inc., a New York corporation ("Omnicom"),
will be merged with and into Ketchum, such that the surviving
corporation of such merger shall be a wholly-owned subsidiary of
Omnicom and each outstanding share of capital stock of Ketchum will be
converted into the right to receive a certain amount of common stock
of Omnicom, all as more fully described in the accompanying
Prospectus/Information Statement; and
2. To consider and act upon the approval of an Escrow Agreement (the
"Escrow Agreement") to be entered into in connection with the Merger
Agreement and the appointment of Paul H. Alvarez as Ketchum
Shareholder Representative, and Edward L. Graf as alternate, to act as
the collective agent of the holders of Ketchum common stock under the
terms of the Escrow Agreement, all as more fully described in the
accompanying Prospectus Information Statement; and
3. To consider and act upon any other business which may properly come
before the Special Meeting or any adjournment thereof.
Only holders of record as of the close of business on April 15, 1996 of
common stock, stated value $0.005 per share, of Ketchum ("Ketchum Common Stock")
and of Series A Preferred Stock, $100 par value, of Ketchum ("Ketchum Preferred
Stock") are entitled to notice of and to vote at the Special Meeting.
The affirmative votes of the holders of a majority of the Ketchum Common
Stock, voting as a class, and of the holders of all of the Ketchum Preferred
Stock, voting as a class, are required to approve the Merger Agreement and the
transactions contemplated thereby. The affirmative vote of the holders of a
majority of the voting power represented by the outstanding shares of Ketchum
Common Stock and Ketchum Preferred Stock, voting together as a single class, is
necessary to approve the Escrow Agreement and the appointment of the Ketchum
Shareholder Representative. None of the proposals shall become effective unless
all of the proposals are adopted by the requisite vote of the shareholders of
Ketchum.
The Board of Directors of Ketchum believes that the foregoing transactions
are fair to, and in the best interests of, Ketchum and the shareholders of
Ketchum, and recommends that the shareholders of Ketchum vote FOR the approval
of the Merger Agreement and FOR the approval of the Escrow Agreement and the
appointment of the Ketchum Shareholder Representative. Shareholders who dissent
from the Merger in accordance with the Pennsylvania Business Corporation Law, a
copy of which appears as Annex 1 to the attached Prospectus/Information
Statement, shall have the right to seek appraisal of their capital stock of
Ketchum.
As of April 15, 1996, directors and executive officers of Ketchum as a
group owning approximately 56.70% of Ketchum Common Stock, have expressed an
intention to vote in favor of the transactions contemplated herein; and the
Trustee of the Ketchum 401(k) Profit Sharing Plan, as the sole holder of Ketchum
Preferred Stock, has expressed an intention to vote in favor of the transactions
contemplated herein. Accordingly, the proposals can be approved without the
affirmative vote of any other shareholder of Ketchum.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
By Order of The Ketchum Board of Directors
PAUL H. ALVAREZ
Chairman, Chief Executive Officer, and President
Dated: _____________, 1996
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
DATED APRIL 18, 1996
KETCHUM COMMUNICATIONS HOLDINGS, INC.
INFORMATION STATEMENT
-------------
OMNICOM GROUP INC.
PROSPECTUS
-------------
This Prospectus/Information Statement is being furnished to holders of
common stock, stated value $0.005 per share, of Ketchum Communications Holdings,
Inc., a Pennsylvania corporation ("Ketchum"), in connection with the special
meeting of shareholders of Ketchum to be held at Six PPG Place, Pittsburgh,
Pennsylvania 15222, on May 30, 1996 commencing at 5:00 p.m. (local time), and at
any adjournment thereof (the "Special Meeting"). The purpose of the Special
Meeting is to consider and vote upon proposals (a) to adopt an Agreement and
Plan of Merger (the "Merger Agreement") providing for the merger (the "Merger")
of KCI Acquisition Inc. ("OmniSub"), a Pennsylvania corporation and wholly-owned
subsidiary of Omnicom Group Inc., a New York corporation ("Omnicom"), with and
into Ketchum, and (b) to adopt an Escrow Agreement (the "Escrow Agreement")
pursuant to the Merger Agreement, and to appoint Paul H. Alvarez as
representative, and Edward L. Graf as alternate, to act as the collective agent
of the holders of Ketchum Common Stock under the terms of the Escrow Agreement
(the "Ketchum Shareholder Representative").
This Prospectus/Information Statement constitutes both an information
statement of Ketchum with respect to the Special Meeting and a prospectus of
Omnicom with respect to up to 1,500,000 shares of common stock, par value $0.50
per share, of Omnicom ("Omnicom Common Stock"), to be issued in connection with
the Merger.
Omnicom has filed a Registration Statement on Form S-4 with the Securities
and Exchange Commission covering the shares of Omnicom Common Stock to be issued
in connection with the Merger. This Prospectus/Information Statement, along with
the documents and portions of documents incorporated herein by reference,
constitutes the Prospectus of Omnicom filed as a part of such Registration
Statement.
THE SECURITIES OF OMNICOM TO BE OFFERED IN CONNECTION WITH THE MERGER HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. 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 __________, 1996
----------------
<PAGE>
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, Ketchum or any other
person. This Prospectus/Information Statement does not constitute an offer to
sell, or a solicitation of an offer to buy, any securities, in any jurisdiction
to or from any person to whom it is not lawful to make 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
Ketchum since the date hereof or that the information contained herein is
correct as of any time subsequent to the date hereof.
----------------
This Prospectus/Information Statement and the documents incorporated herein
by reference, contain certain forward-looking statements with respect to the
operations and business of Omnicom and Ketchum. Said forward-looking statements
are subject to risks and uncertainties (including, without limitation, the
effect of general economic conditions) that may cause actual results to differ
materially from those contemplated by such forward-looking statements.
----------------
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 and other information with the Securities and Exchange
Commission (the "SEC") under File No. 1-10551. 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 Citicorp 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 Merger. 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, 1995;
2. Omnicom's Proxy Statement dated April 8, 1996 for the Annual
Meeting of Shareholders to be held on May 20, 1996; and
3. 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 relating to
Omnicom 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 May 22, 1996.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SUMMARY .................................................................................................... 5
The Companies ........................................................................................ 5
The Special Meeting .................................................................................. 5
Description of Certain Terms of the Merger Agreement ................................................. 7
Other Considerations ................................................................................. 9
The Escrow Agreement and the Ketchum Shareholder Representative ...................................... 11
COMPARATIVE PER SHARE DATA ................................................................................. 13
MARKET PRICE DATA .......................................................................................... 14
THE SPECIAL MEETING ........................................................................................ 15
Date, Time and Place of Special Meeting .............................................................. 15
Business to be Transacted at the Special Meeting ..................................................... 15
Record Date; Voting Rights ........................................................................... 15
Voting Requirements .................................................................................. 15
Management Ownership ................................................................................. 16
THE MERGER AGREEMENT AND THE MERGER ........................................................................ 16
Background of and Ketchum's Reasons for the Merger; Recommendation of the
Ketchum Board of Directors ....................................................................... 16
Omnicom's Reasons for the Merger ..................................................................... 19
Interests of Ketchum's Management in the Merger ...................................................... 20
Procedure for Distributing Shares of Omnicom Common Stock to Ketchum Shareholders .................... 20
The Merger Agreement ................................................................................. 20
Other Considerations ................................................................................. 24
THE ESCROW AGREEMENT AND THE KETCHUM SHAREHOLDER REPRESENTATIVE ............................................ 28
BUSINESS INFORMATION CONCERNING OMNICOM .................................................................... 31
SELECTED FINANCIAL DATA OF OMNICOM ......................................................................... 32
BUSINESS INFORMATION CONCERNING KETCHUM .................................................................... 33
Description of Business .............................................................................. 33
Executive Officers and Directors, Principal Shareholders ............................................. 34
SELECTED FINANCIAL DATA OF KETCHUM ......................................................................... 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF KETCHUM ........... 37
Results of Operations ................................................................................ 37
Capital Resources and Liquidity ...................................................................... 40
DESCRIPTION OF OMNICOM CAPITAL STOCK ....................................................................... 42
DESCRIPTION OF KETCHUM CAPITAL STOCK ....................................................................... 42
COMPARISON OF SHAREHOLDER RIGHTS ........................................................................... 43
LEGAL MATTERS .............................................................................................. 49
EXPERTS .................................................................................................... 50
INDEX TO KETCHUM FINANCIAL STATEMENTS ...................................................................... F-1
</TABLE>
4
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SUMMARY
The following is a brief summary of certain information contained in this
Prospectus/Information Statement. This summary is not intended to be complete
and is qualified in its entirety by reference to the more detailed information
contained in or incorporated by reference in this Prospectus/Information
Statement.
The Companies
Omnicom Group Inc. ............. Omnicom, through its wholly and partially
owned companies (hereinafter collectively
referred to as the "Omnicom Group"), operates
advertising agencies which plan, create,
produce and place advertising in various
media such as television, radio, newspapers
and magazines. The Omnicom Group offers its
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 1996 in the trade
journal, Advertising Age, Omnicom is ranked
as the second largest advertising agency
group worldwide.
The Omnicom Group operates as three separate,
independent agency networks: the BBDO
Worldwide Network, the DDB Needham Worldwide
Network and the TBWA International Network.
The Omnicom Group also operates Goodby,
Silverstein & Partners as an independent
agency, and certain marketing service and
specialty advertising companies through
Omnicom's Diversified Agency Services
division.
The principal executive offices of Omnicom
are located at 437 Madison Avenue, New York,
New York 10022, telephone number (212)
415-3600.
KCI Acquisition Inc. ........... OmniSub was formed by Omnicom to effect the
proposed Merger with Ketchum and has not
engaged in any active business.
Ketchum Communications
Holdings, Inc. ................. Ketchum, through its subsidiaries, is a full
service communications company, which was
founded in 1923. Ketchum offers a full range
of communication services including public
relations, consumer advertising, direct
response, directory advertising and other
related activities.
The principal executive offices of Ketchum
are located at Six PPG Place, Pittsburgh,
Pennsylvania 15222, telephone number (412)
456-3500.
The Special Meeting
Date, Time and Place
of Special Meeting ............. The Special Meeting will be held on May 30,
1996 at 5:00 p.m. (local time), at Six PPG
Place, Pittsburgh, Pennsylvania 15222.
Record Date; Shares
Entitled To Vote ............... Holders of record at the close of business on
April 15, 1996 (the "Record Date") of shares
of common stock, stated value $0.005 per
share, of Ketchum ("Ketchum Common Stock"),
and of shares of Series A Preferred Stock,
par value $100 per share, of Ketchum
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5
<PAGE>
- --------------------------------------------------------------------------------
("Ketchum Preferred Stock"), are entitled to
notice of and to vote at the Special Meeting.
At such date there were outstanding 358,818
shares of Ketchum Common Stock and 6,282
shares of Ketchum Preferred Stock.
Ketchum Common Stock and Ketchum Preferred
Stock are collectively referred to herein as
"Ketchum Stock." Holders of shares of Ketchum
Common Stock are referred to herein as
"Ketchum Common Shareholders"; holders of
Ketchum Preferred Stock are referred to
herein as "Ketchum Preferred Shareholders";
and Ketchum Common Shareholders and Ketchum
Preferred Shareholders are collectively
referred to herein as "Ketchum Shareholders".
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 Merger
Agreement and the transactions
contemplated thereby, including
without limitation the Merger of
OmniSub with and into Ketchum pursuant
to the Merger Agreement, such that
Ketchum will be the surviving
corporation of such Merger and will
become a wholly-owned subsidiary of
Omnicom, and each share of Ketchum
Stock will be converted into the right
to receive shares of Omnicom Common
Stock, as more fully described herein.
(b) a proposal to approve the Escrow
Agreement and the transactions
contemplated thereby, and to appoint
Paul H. Alvarez as the Ketchum
Shareholder Representative, and Edward
L. Graf as alternate, to act on behalf
of the Ketchum Common Shareholders
under the terms of the Escrow
Agreement; and
(c) such other proposals as may properly
be brought before the Special Meeting.
None of these matters will become effective
unless all of the proposals are adopted by
the requisite votes of the Ketchum
Shareholders.
Vote Required .................. Pursuant to Pennsylvania law, the approval of
the Merger Agreement and the transactions
contemplated thereby will require the
affirmative votes of the holders of a
majority of the Ketchum Common Stock, voting
as a class, and of the holders of a majority
of the Ketchum Preferred Stock, voting as a
class; and the approval of the Escrow
Agreement and the appointment of the Ketchum
Shareholder Representative, or any other
proposals as may properly be brought before
the Special Meeting, will require the
affirmative vote of the holders of a majority
of the voting power represented by the
outstanding shares of Ketchum Common Stock
and Ketchum Preferred Stock, voting together
as a single class. However, the Merger
Agreement imposes, as an additional condition
to the vote required, that the Trustee of the
Ketchum 401(k) Profit Sharing Plan (the
"Ketchum Profit Sharing Plan") shall have
voted all the shares of Ketchum Stock owned
by the Ketchum Profit Sharing Plan in favor
of the Merger.
As of the Record Date, directors and
executive officers of Ketchum owned an
aggregate of 203,458 shares of Ketchum Common
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6
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Stock, representing 56.70% of the outstanding
Ketchum Common Stock as of such date; and the
Ketchum Profit Sharing Plan owned of record
an aggregate of 6,282 shares of Ketchum
Preferred Stock, representing 100% of the
outstanding Ketchum Preferred Stock as of
such date. Each of such individuals and the
Trustee of the Ketchum Profit Sharing Plan
has expressed an intention to vote in favor
of the various proposals. Accordingly, the
proposals can be approved without the
affirmative vote of any other Ketchum
Shareholders.
Description of Certain Terms of the Merger Agreement
The Proposed Merger ............ Subject to the approval of the Ketchum
Shareholders of the Merger Agreement, OmniSub
will be merged with and into Ketchum. As a
result of the Merger, the business of Ketchum
will be operated as a wholly-owned subsidiary
of Omnicom.
Conversion of Ketchum
Stock .......................... If the Merger is consummated, each share of
Ketchum Common Stock will be converted into
shares of Omnicom Common Stock, based upon
the "Common Stock Conversion Price" and the
"Market Value" of the Omnicom Common Stock.
If the Merger is consummated, each share of
Ketchum Preferred Stock will be converted
into shares of Omnicom Common Stock, based
upon the "Preferred Stock Conversion Price"
of $1,000 and the "Market Value" of the
Omnicom Common Stock. See "The Merger
Agreement and the Merger-- the Merger
Agreement -- Conversion Prices".
The actual "Common Stock Conversion Price"
will be an amount per share equal to
$44,940,000 divided by the outstanding number
of shares of Ketchum Common Stock at the time
the Merger is legally effective under the
laws of the Commonwealth of Pennsylvania (the
"Effective Time" of the Merger); the
"Preferred Stock Conversion Price" has been
set at the liquidation preference of the
Ketchum Preferred Stock and is fixed. The
total number of shares of Omnicom Common
Stock to be issued to the Ketchum
Shareholders based upon such Conversion
Prices will be dependent on the "Market
Value" of the Omnicom Common Stock, which
will be determined by the average of the
closing prices per share of the Omnicom
Common Stock on the New York Stock Exchange
during the 20 consecutive trading days ending
three business days immediately prior to the
date of the Special Meeting. Accordingly,
although the actual conversion exchange rates
cannot be calculated as of the date of this
Prospectus/Information Statement, such
conversion exchange rates will be known by
the date of the Special Meeting and will be
available to the attendees thereof.
In order to make certain estimates in this
Prospectus/Information Statement relating to
the consideration to be paid to the Ketchum
Shareholders, it has been assumed that at the
Effective Time of the Merger, 358,818 shares
of Ketchum Common Stock will be outstanding,
which would result in a "Common Stock
Conversion Price" of $125.24 per share of
Ketchum Common Stock. Assuming then that the
Market Value of the Omnicom Common Stock were
$41 (which was the closing price per share of
Omnicom Common Stock on the New York Stock
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7
<PAGE>
- --------------------------------------------------------------------------------
Exchange on the last full trading day prior
to the execution and delivery of the Merger
Agreement), each share of Ketchum Common
Stock would be converted into the right to
receive 3.05 shares of Omnicom Common Stock,
and each share of Ketchum Preferred Stock
would be converted into the right to receive
24.39 shares of Omnicom Common Stock.
The closing of the Merger Agreement (the
"Closing") has been scheduled for May 31,
1996, the day after the date of the Special
Meeting; however, this Closing may be delayed
beyond May 31, 1996 if all conditions of the
Merger have not been satisfied or waived by
such date. There will be no adjustment to the
Conversion Prices if this occurs,
notwithstanding that the actual value of the
Omnicom Common Stock could fluctuate between
the date of the Special Meeting and the date
of the Closing. At the time this
Prospectus/Information Statement is being
mailed to the Ketchum Shareholders, Omnicom
has no reason to believe that the date of the
Closing will not be May 31, 1996 as
scheduled.
Indemnification Obligations
and Escrow Agreement ........... Pursuant to the Merger Agreement, the Ketchum
Common Shareholders are required to indemnify
Omnicom and its affiliates against certain
losses and damages arising under the Merger
Agreement. Losses and damages may arise as a
result of (i) the inaccuracy or breach of any
representation or warranty or covenant of
Ketchum contained in the Merger Agreement, or
the breach of or failure by Ketchum to
perform or discharge any of its obligations
under the Merger Agreement, or (ii) any costs
incurred by Ketchum in connection with the
ongoing reorganization of the media buying
operations of its subsidiary, Ketchum
Communications, Inc. ("KCI"). Holders of
Ketchum Preferred Stock are not required to
provide any indemnification under the Merger
Agreement. With certain exceptions,
indemnification obligations arising under
clause (i) of this paragraph arise only to
the extent that such losses and damages
exceed $100,000.
To satisfy the indemnification obligations
arising under clause (i) of the preceding
paragraph, shares of Omnicom Common Stock
having an aggregate Market Value of
$4,400,0000 shall be placed into an escrow
account (the "General Escrow Fund") under the
terms of the Escrow Agreement among Omnicom,
Ketchum, the Ketchum Shareholder
Representative and The Chase Manhattan Bank,
N.A., as escrow agent (the "Escrow Agent").
To satisfy the indemnification obligations
arising under clause (ii) of the preceding
paragraph, shares of Omnicom Common Stock,
having an aggregate Market Value of
$2,500,000 will be placed into an additional
escrow account (the "Special Escrow Fund")
under the Escrow Agreement.
Each of the Ketchum Common Shareholders shall
be depositing his pro rata share of the
General Escrow Fund or Special Escrow Fund
based on the number of shares of Omnicom
Common Stock received in the Merger.
The indemnification obligations of the
Ketchum Common Shareholders will be limited
to and satisfied solely from, the General
Escrow Fund and Special Escrow Fund under the
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8
<PAGE>
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Escrow Agreement (such that neither Omnicom
nor any of its affiliates will have any
recourse for the payment of any losses or
other damages arising out of the transactions
contemplated by the Merger Agreement against
any Ketchum Shareholder nor shall any Ketchum
Shareholder be personally liable for any such
losses or damages). 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 the surviving corporation
following the Effective Time of the Merger or
one year from the Effective Time (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).
Indemnification obligations to be satisfied
out of the Special Escrow Fund will terminate
on December 31, 1996, being the latest date
by which it will be determined whether or not
costs have been incurred in connection with
the reorganization of KCI's media buying
operations (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).
See "The Merger Agreement and the
Merger--The Merger Agreement--Indemnification
Obligations" and "The Escrow Agreement and
the Ketchum Shareholder Representative".
Conditions to the Merger ....... Consummation of the Merger is contingent upon
satisfaction of certain conditions, including
without limitation, the SEC's not having
objected to Omnicom's treatment of the Merger
as a pooling-of-interests for accounting
purposes, the Registration Statement having
been declared effective by the SEC and not
subject to a stop order, or threatened stop
order; the Omnicom Common Stock being
registered thereunder having been approved
for listing on the New York Stock Exchange;
holders of fewer than 3% of the outstanding
shares of Ketchum Common Stock having elected
dissenters rights, as described more fully
herein; all governmental and regulatory
consent and approvals having been obtained,
and no court or governmental authority having
taken any action to prohibit or enjoin the
Merger; and other conditions usual and
customary in similar business transactions.
All conditions to the Merger other than those
specifically listed here can be waived by one
of the parties to the Merger. In the event
that a condition of the Merger is not
satisfied, the Merger may be abandoned even
if prior thereto the Merger has been approved
by the Ketchum Shareholders. See "The Merger
Agreement and the Merger--Other
Considerations--Rights of Dissenting Ketchum
Shareholders."
Other Considerations
Recommendation of the
Ketchum Board of Directors ..... The Board of Directors of Ketchum believes
that the Merger is fair to and in the best
interests of, Ketchum and the Ketchum
Shareholders, from the point of view of
Ketchum's long-term strategic objectives, the
terms of the Merger Agreement, and Ketchum's
alternatives to the Merger, all of which are
more fully discussed under "The Merger
Agreement and the Merger--Background of the
Ketchum's Reasons for the Merger;
Recommendation of the Ketchum Board of
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9
<PAGE>
- --------------------------------------------------------------------------------
Directors." Accordingly, the Board of
Directors of Ketchum has unanimously approved
the Merger Agreement and the transactions
contemplated thereby and recommends its
approval by the Ketchum Shareholders.
Interests of Certain Persons
in the Merger .................. As of the Record Date, directors and
executive officers of Ketchum owned of record
an aggregate of approximately 56.70% of the
outstanding shares of Ketchum Common Stock,
and the Profit Sharing Plan owned 100% of the
outstanding shares of Ketchum Preferred
Stock. Each of such directors and executive
officers, and the Trustee of the Profit
Sharing Plan, has expressed an intention to
vote his or her shares of Ketchum Stock in
favor of the various proposals. Accordingly,
these proposals can be approved without the
affirmative vote of any other Ketchum
Shareholder.
For a description of certain interests of
certain directors and executive officers of
Ketchum in the Merger that are in addition to
the interests of Ketchum Shareholders
generally, see "The Merger Agreement and the
Merger--Interests of Ketchum's Management in
the Merger".
Certain Federal
Income Tax Consequences ........ The Merger is intended to be a tax free
reorganization within the meaning of Section
368(a) of the United States Internal Revenue
Code of 1986, as amended (the "Code"). In
general, the Ketchum Shareholders will not
recognize gain or loss as a result of the
exchange of Ketchum Stock for Omnicom Common
Stock as a result of the Merger. However,
receipt of cash in lieu of fractional shares
or in connection with appraisal rights as a
dissenting shareholder may give rise to
taxable income. See "The Merger Agreement and
the Merger--Other Considerations--Federal
Income Tax Consequences." Ketchum
Shareholders should consult their tax
advisors regarding the tax consequences of
the Merger to them in their particular
circumstances.
Accounting Treatment ........... The Merger will be accounted for by Omnicom
as a pooling-of-interests for financial
reporting purposes in accordance with
generally accepted accounting principles. See
"The Merger Agreement and the Merger--Other
Considerations--Accounting Treatment".
Regulatory Approvals ........... Omnicom and Ketchum each 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
March 13, 1996, and each was advised that the
applicable waiting period expired on April
13, 1996. See "The Merger Agreement and the
Merger--Other Considerations--Regulatory
Approvals".
Resales of Omnicom
Common Stock ................... Resales of Omnicom Common Stock by Ketchum
Shareholders who are deemed to be
"affiliates" (as such term is understood
under the Securities Act) of Ketchum prior to
the Merger may be subject to certain
restrictions. See "The Merger Agreement and
the Merger--Other Considerations--Resales of
Omnicom Common Stock".
Dissenters' Rights ............. Holders of Ketchum Stock who dissent from the
Merger in accordance with Pennsylvania law
are entitled to appraisal rights. See "The
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10
<PAGE>
- --------------------------------------------------------------------------------
Merger Agreement and the Merger--Other
Considerations--Rights of Dissenting Ketchum
Shareholders".
The Escrow Agreement and the Ketchum Shareholder Representative
The Escrow Agreement ........... As described above under "Description of
Certain Terms of the Merger-- Indemnification
Obligations", indemnification obligations
arising out of the Merger Agreement will be
satisfied from shares of Omnicom Common Stock
placed into the General and Special Escrow
Funds established under the Escrow Agreement.
The General Escrow Fund will consist of
shares of Omnicom Common Stock having an
aggregate Market Value of $4,400,000; the
Special Escrow Fund will consist of shares of
Omnicom Common Stock having an aggregate
Market Value of $2,500,000.
Each of the Ketchum Common Shareholders will
be depositing his pro rata share of the
General Escrow Fund or Special Escrow Fund
determined by multiplying the aggregate
number of shares of Omnicom Common Stock by a
fraction, the numerator of which is the
number of shares of Omnicom Common Stock
issuable to such individual in the Merger and
the denominator of which is the total number
of shares of Omnicom Common Stock issuable to
all Ketchum Common Shareholders, rounded up
to the nearest whole share.
Based upon the assumptions set forth above
under "Conversion of Ketchum Stock", of the
$125.24 Common Stock Conversion Price payable
in respect of each share of Ketchum Common
Stock, Omnicom Common Stock having an
aggregate Market Value of $12.26 would be
deposited in the General Escrow Fund, and
Omnicom Common Stock having an aggregate
Market Value of $6.97 would be deposited in
the Special Escrow Fund. Since the amounts
held in such Escrow Funds are subject to
claims in respect of contingent liabilities,
there can be no assurance that amounts held
therein will in fact be distributed to the
Ketchum Common Shareholders.
For purposes of satisfying any claims, each
share of Omnicom Common Stock deposited in
either Escrow Fund will be valued at the
Market Value, regardless of actual
fluctuations in the market value of the
Omnicom Common Stock after the date of the
Closing of the Merger Agreement.
See "The Escrow Agreement and the Ketchum
Shareholder Representative -- The Escrow
Agreement".
Appointment of the
Ketchum Shareholder
Representative ................. It is a condition to Closing under the Merger
Agreement that the Ketchum Shareholders
appoint the Ketchum Shareholder
Representative to act as their collective
agent in connection with the Escrow
Agreement, including one or more alternative
individuals to act as the Ketchum Shareholder
Representative in the event that the
designated Representative shall have died,
resigned, or otherwise become incapable or
unwilling to act as Representative.
Appointment of the Ketchum Shareholder
Representative shall include the specific
authorization for such Representative to (i)
execute and deliver the Escrow Agreement and
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11
<PAGE>
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any documents incident or ancillary thereto,
including without limitation any amendments,
cancellations, extensions or waivers in
respect thereof; (ii) respond to and make
determinations in respect of the assertion of
any and all claims for indemnification by
Omnicom, and to assert claims on behalf of
the Ketchum Shareholders, pursuant to the
terms of the Escrow Agreement and the terms
of the Merger Agreement pertaining thereto;
(iii) execute and deliver any stock powers
which may be required to be executed by any
Ketchum Shareholder in order to permit the
delivery to Omnicom of any shares of Omnicom
Common Stock to be delivered to it pursuant
to the Escrow Agreement; and (iv) take all
such other actions as may be necessary or
desirable to carry out his responsibilities
as collective agent of the Ketchum
Shareholders in respect of the Escrow
Agreement. The Ketchum Shareholder
Representative shall not be liable for any
mistake of fact or error of judgment or for
any acts or omissions unless caused by his
gross negligence or willful misconduct. In
addition, the current directors of Ketchum
and the holders of more than 5% of the
Ketchum Common Stock have executed a
Contribution Agreement pursuant to which they
have agreed to indemnify the Ketchum
Shareholder Representative against all losses
and expenses which may be incurred by him as
a result of any dispute arising from the
performance of his duties under the Escrow
Agreement, unless such dispute is the result
of his gross negligence or actions taken in
bad faith.
The proposal before the Ketchum Shareholders
is that Paul H. Alvarez be appointed as
Ketchum Shareholder Representative, with
Edward L. Graf appointed as alternate. See
"The Escrow Agreement and the Ketchum
Shareholder Representative -- Appointment of
the Ketchum Shareholder Representative."
Recommendation of the
Ketchum Board of Directors ..... The Board of Directors of Ketchum recommends
that the Ketchum Shareholders approve the
Escrow Agreement and the appointment of Paul
H. Alvarez as the Ketchum Shareholder
Representative, and Edward L. Graf as
alternate.
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12
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are unaudited book value, cash dividends declared and net
income (loss) per common share data of Omnicom and Ketchum on both historical
and pro forma combined bases, which information has been adjusted to give
retroactive effect to the two-for-one stock split in the form of a 100% stock
dividend paid to holders of record of Omnicom Common Stock on December 15, 1995.
Pro forma combined cash dividends declared per common share reflects Omnicom and
Ketchum cash dividends declared in the periods indicated. Pro forma net income
(loss) per common share is calculated under the pooling-of-interests accounting
method and assumes that the Merger had occurred immediately prior to the period
being reported upon. The pro forma combined data has been calculated based upon
the material assumptions that the Common Stock Conversion Price would be $125.24
per share of Ketchum Common Stock and the Preferred Stock Conversion Price would
be $1,000 per share of Ketchum Preferred Stock; and the Market Value of the
Omnicom Common Stock will be $41. 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 Ketchum included in this Prospectus/Information Statement.
As of December 31, 1995
-----------------------
Book Value per Common Share:
Omnicom ........................................ $7.39
Ketchum ........................................ (1.42)
Pro forma ...................................... 7.36
Equivalent pro forma ........................... 22.48
Year Ended December 31,
----------------------------
1995 1994 1993
---- ---- ----
Cash Dividends Declared per Common Share:
Omnicom .................................. $ 0.66 $ 0.62 $ 0.62
Ketchum .................................. 1.00 1.00 1.00
Pro forma ................................ 0.65 0.62 0.62
Equivalent pro forma ..................... 1.99 1.89 1.89
Net Income (Loss) per Common Share:
Omnicom
Primary ............................... 1.89 1.58 1.03
Fully diluted ......................... 1.85 1.54 1.01
Ketchum
Primary ............................... (21.82) 3.67 (10.55)
Fully diluted ......................... (21.82) 3.67 (10.55)
Pro forma
Primary ............................... 1.75 1.57 0.91
Fully diluted ......................... 1.72 1.53 0.91
Equivalent pro forma
Primary ............................... 5.35 4.80 2.78
Fully diluted ......................... 5.25 4.67 2.78
Note: Equivalent pro forma per share information has been calculated using an
exchange ratio of 3.054746 shares of Omnicom Common Stock for each share of
Ketchum Common Stock.
13
<PAGE>
MARKET PRICE DATA
There is no public market for Ketchum Common Stock or Ketchum Preferred
Stock. For each calendar quarter during 1993, 1994 and 1995, Ketchum has paid a
dividend on the Ketchum Common Stock in the amount of $.25 per share, and during
the fourth calendar quarter of 1993 and for each calendar quarter during 1994
and 1995 Ketchum has paid a dividend on the Ketchum Preferred Stock in the
amount of $22.50 per share.
Omnicom Common Stock is listed on the New York Stock Exchange. 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 New York Stock Exchange
Composite Tape, in each case based on published financial sources, and the
dividends paid per share on the Omnicom Common Stock for such periods. This
information has been adjusted to reflect the two for one stock split in the form
of a 100% stock dividend payable to holders of record of Omnicom Common Stock on
December 15, 1995.
Omnicom Common Stock
----------------------------------------
High Low Dividends
---- ---- ---------
1993
First Quarter ............... 23 3/4 19 3/16 $.155
Second Quarter .............. 23 5/8 19 1/8 .155
Third Quarter ............... 23 1/8 18 1/2 .155
Fourth Quarter .............. 23 1/4 20 3/4 .155
1994
First Quarter ............... 24 15/16 21 7/8 .155
Second Quarter .............. 24 3/4 22 7/16 .155
Third Quarter ............... 25 3/4 24 .155
Fourth Quarter .............. 26 7/8 24 1/2 .155
1995
First Quarter ............... 28 7/16 25 .155
Second Quarter .............. 30 13/16 27 1/16 .155
Third Quarter ............... 33 29 5/16 .175
Fourth Quarter .............. 37 1/4 31 3/16 .175
- ------------
On March 6, 1996, the last full trading day prior to the execution and
delivery of the Merger Agreement, the closing price of Omnicom Common Stock on
the New York Stock Exchange Composite Tape was $41 per share.
On [ ], 1996, the most recent practicable date prior to the printing
of this Prospectus/Information Statement, the closing price of Omnicom Common
Stock on the New York Stock Exchange Composite Tape was $[ _____] per share.
14
<PAGE>
THE SPECIAL MEETING
Date, Time and Place of Special Meeting
This Prospectus/Information Statement is being furnished to the holders of
Ketchum Common Stock and Ketchum Preferred Stock in connection with the Special
Meeting of Ketchum Shareholders to be held on May 30, 1996 at 5:00 p.m. (local
time), at Six PPG Place, Pittsburgh, Pennsylvania 15222.
This Prospectus/Information Statement is first being mailed to the Ketchum
Shareholders on or about May 1, 1996.
Business to be Transacted at the Special Meeting
At the Special Meeting, Ketchum Shareholders will consider and vote upon
the following matters (collectively the "Ketchum Vote Matters"):
1. A proposal to approve the Merger Agreement and the transactions
contemplated thereby, including without limitation the Merger of OmniSub
with and into Ketchum pursuant to the Merger Agreement such that the
surviving corporation of such Merger shall be a wholly-owned subsidiary of
Omnicom, and each share of Ketchum Stock shallI be converted into the right
to receive shares of Omnicom Common Stock, as more fully described herein;
2. A proposal to approve the Escrow Agreement and the transactions
contemplated thereby, and to appoint Paul H. Alvarez as Ketchum Shareholder
Representative and Edward L. Graf as alternate, to act on behalf of the
Ketchum Common Shareholders under the terms of the Escrow Agreement; and
3. Such other proposals as may properly come before the Special
Meeting or any adjournment thereof.
None of the proposals shall become effective unless all of the proposals
are adopted by the requisite vote of the Ketchum Shareholders.
Record Date; Voting Rights
Only shareholders of record of Ketchum Common Stock and Ketchum Preferred
Stock as at the close of business on April 15, 1996 will be entitled to vote at
the Special Meeting. On that Record Date there were issued and outstanding
358,818 shares of Ketchum Common Stock and 6,282 shares of Ketchum Preferred
Stock. Each share of Ketchum Stock is entitled to one vote per share on the
Ketchum Vote Matters at the Special Meeting or any adjournment thereof whether
such vote is cast as part of a vote of the Ketchum Common Stock or Ketchum
Preferred Stock voting separately as a class, or as part of a collective vote of
all Ketchum Stock.
Voting Requirements
The presence of the holders of a majority of the voting power of all shares
of Ketchum Common Stock and of the holders of a majority of the voting power of
all shares of Ketchum Preferred Stock, in each case entitled to vote on the
Record Date, is necessary to constitute a quorum for the transaction of business
at the Special Meeting.
Under the Pennsylvania Business Corporation Law of 1988 (the "PABCL") and
the Ketchum Articles of Incorporation (the "Ketchum Articles"), the approval of
the Merger Agreement and the transactions contemplated thereby will require the
affirmative votes of the holders of a majority of the Ketchum Common Stock,
voting as a class, and of the holders of a majority of the Ketchum Preferred
Stock, voting as a class. The approval of the Escrow Agreement and the
appointment of the Ketchum Shareholder Representative, or the approval of any
other proposals as may properly be brought before the Special Meeting, will
require the affirmative vote of the holders of a majority of the voting power
represented by the outstanding shares of Ketchum Common Stock and Ketchum
Preferred Stock, voting together as a single class. Abstentions have the effect
of negative votes.
Notwithstanding the provisions of Pennsylvania law, the Merger Agreement
requires as a condition of the Closing of the Merger Agreement that all of the
shares of Ketchum Stock held by the Ketchum Profit Sharing Plan shall have been
voted in favor of the Merger.
15
<PAGE>
Management Ownership
As of the Record Date, directors and executive officers of Ketchum as a
group owned an aggregate of 203,458 shares of Ketchum Common Stock, representing
56.70% of the outstanding shares of Ketchum Common Stock; and the Ketchum Profit
Sharing Plan owned an aggregate of 6,282 shares of Ketchum Preferred Stock,
representing 100% of the outstanding shares of Ketchum Preferred Stock. Each of
these persons and the Trustee of the Ketchum Profit Sharing Plan has expressed
an intention to vote in favor of the transactions contemplated herein.
Accordingly, the Ketchum Vote Matters can be approved by the affirmative vote of
such persons even if all other Ketchum Shareholders vote against the proposals.
No proxies are being solicited in connection with the Special Meeting.
THE MERGER AGREEMENT AND THE MERGER
(The information contained in this Registration Statement of which this
Prospectus/Information Statement forms a part is qualified in its entirety by
reference to the complete text of the Merger Agreement, which is filed as an
Exhibit thereto and is incorporated herein by reference.)
Background of and Ketchum's Reasons for the Merger; Recommendation of the
Ketchum Board of Directors
Overview
After the Merger is effective, Ketchum will continue as a separate
subsidiary of Omnicom and continue to conduct its business through three primary
operating divisions, Ketchum Public Relations, Ketchum Advertising and Ketchum
Directory Advertising. It is anticipated that the senior management of these
significant operating divisions of Ketchum will continue to serve as officers of
such operating divisions. Paul H. Alvarez, the Chairman, Chief Executive Officer
and President of Ketchum, will become employed by Omnicom as Vice Chairman of
its Diversified Agency Services division and will remain an officer and director
of Ketchum. See "The Merger Agreement and the Merger -- Interests of Ketchum
Management in the Merger" for a description of proposed employment and
non-competition agreements between Ketchum and certain officers of Ketchum, to
be entered into upon the Closing of the Merger Agreement.
The initial Board of Directors of Ketchum immediately following the
Effective Time of the Merger will be composed of three directors: Paul H.
Alvarez, Peter I. Jones (who is currently the President of Omnicom's Diversified
Agency Services division), and Barry J. Wagner (who is currently the Secretary
of Omnicom).
The terms of the Merger Agreement, including the terms of the Escrow
Agreement, are the result of arm's-length negotiations between representatives
of Omnicom and representatives of Ketchum.
Background of the Merger
In 1992, Ketchum's Board of Directors (sometimes referred to as the
"Ketchum Board") began a process of strategic planning for the corporation and
also had each of its divisions engage in similar planning. The divisions
included the largest two, Advertising and Public Relations, as well as Directory
Advertising and two smaller operations.
From an overall corporate standpoint, Ketchum recognized three major
challenges: (i) first, to make its advertising division competitive for mid-size
and larger clients; this required a substantial international network and a
strong presence in selected cities; (ii) second, to ensure the availability of
capital to allow Ketchum to purchase the shares of retiring shareholders and to
allow for normal capital replacement as well as for growth and expansion; and
(iii) third, the Ketchum Board determined that the communication opportunities
afforded in what has been called "interactive" communications represented an
excellent opportunity for all of the divisions of Ketchum.
16
<PAGE>
As a result of this analysis, Ketchum first formed an interactive unit to
serve as a resource to all of the divisions and to serve clients directly as
well. Next, the Executive Committee of the Ketchum Board (sometimes referred to
as the "Ketchum Executive Committee") reviewed several capital raising
alternatives, including an initial public offering, obtaining an individual or
institutional equity partner (not from the advertising or public relations
industries) and making use of an employee stock ownership plan ("ESOP"), to
provide continuing capital.
For a time, the Ketchum Executive Committee pursued the ESOP alternative.
In the spring of 1995 Ketchum received an unsolicited expression of interest
from a major advertising agency to acquire Ketchum. Senior financial officers of
Ketchum and such agency met on March 10, 1995 to review Ketchum's financial
information, and then held a meeting on April 11, 1995 among the senior officers
of such agency and Ketchum. The agency proposed to acquire only certain Ketchum
operating units, and its proposal did not assume Ketchum's long-term debt and
employee stock loans. The proposal was a taxable transaction at the Ketchum
level, with additional taxes accruing upon any distributions to the Ketchum
Shareholders. This proposal would have caused Ketchum to incur restructuring
costs, and would have exposed Ketchum to business risks regarding clients that
might not find the smaller Ketchum attractive. Ketchum informed the agency that
the proposal was unacceptable; however, the Ketchum Executive Committee
determined to consider other acquisition opportunities.
Ketchum retained AdMedia Corporate Advisors, Inc. ("AdMedia") in September
1995 to assist Ketchum in identifying acceptable purchasers of Ketchum and, to
the extent requested, to advise Ketchum in structuring and negotiating a
transaction. Ketchum's agreement with AdMedia contains usual confidentiality,
indemnification and other terms and conditions, and provides for a retainer of
$10,000 per month from September through November 1995, with the retainer
increasing to $15,000 per month in December 1995 and for each month thereafter.
The agreement also provides for a transaction fee based on the purchase price
received in any transaction, plus reimbursement of out-of-pocket costs. The fee
in respect of the Merger will be $1,200,000, provided that any retainer fees
paid after March 1996 will be credited against this transaction fee.
In September 1995 Ketchum was again approached by the advertising agency
that made the spring 1995 proposal, and negotiations commenced, with Ketchum
being assisted by AdMedia. Several meetings between the financial officers and
senior executive officers of the companies were held, and an exchange of
information occurred.
AdMedia initiated discussions with Omnicom in September 1995, and on
September 28, 1995 senior executives of Omnicom and Ketchum met to discuss a
possible transaction. Omnicom reviewed Ketchum's financial and business
information. On October 23 and 24, 1995, Ketchum's Executive Committee and Board
met to discuss the other agency's proposal and the Omnicom expression of
interest. The Ketchum Board encouraged the Ketchum senior officers to continue
discussions with the other agency and with Omnicom; AdMedia reported that none
of the other agencies it had contacted had expressed interest in exploring a
transaction.
In November 1995 and on December 4, 1995 the other agency submitted revised
proposals to Ketchum, in each case consisting of a non-taxable stock transaction
using unregistered stock, with escrows to secure Ketchum's financial statement
representations and warranties. These revised proposals continued to have as a
condition the acquisition of less than all of Ketchum's operating units and a
contingent valuation formula, which the Ketchum Board had previously found to be
unacceptable. In early December, Omnicom also submitted a proposal to Ketchum.
Ketchum reviewed both proposals with AdMedia. On December 12, 1995 Ketchum met
with senior Omnicom officers, and on December 13, 1995, Ketchum met with senior
officers of the other agency.
After several additional meetings with Omnicom and its representatives,
including detailed reviews of Ketchum's balance sheet and financial statements,
an agreement in principle was reached between the parties. Ketchum held a Board
meeting on January 4, 1996 at which the Ketchum Board approved in principle the
Merger and related transactions and determined to discontinue discussions with
the other agency, and a press release announcing the proposed Merger was issued
on January 10, 1996. A first draft of the Merger Agreement was circulated among
the parties on January 24, 1996. Several meetings were held, both among senior
financial officers of Ketchum and of Omnicom, and among their respective
attorneys, to propose, discuss and ultimately agree upon changes to the draft.
On March 5, 1996, the parties came to a final agreement on the purchase price
and other significant terms of the Merger, and on March 7, 1996 the Merger
Agreement was executed and delivered by the parties.
17
<PAGE>
Ketchum's Reasons for the Merger
The Ketchum Board of Directors has determined that the Merger Agreement and
the Merger are advisable and in the best interests of Ketchum and the Ketchum
Shareholders and has approved the Merger Agreement and Merger.
In reaching the determination that the Merger Agreement is in the best
interests of Ketchum and the Ketchum Shareholders, the Ketchum Board consulted
with Ketchum management and with AdMedia. The Ketchum Board considered a number
of factors, including, without limitation, the following:
(i) Long-Term Strategic Objectives. The Ketchum Board believed that the
Merger would fulfill Ketchum's major long-term strategic objectives
by making its advertising division competitive for mid-size and
larger clients through Omnicom's substantial international network,
and by ensuring the availability of capital for a variety of
purposes, including growth and expansion.
(ii) Complementary Business Operating Units. Ketchum Advertising's
affiliation with a substantially larger agency, such as Omnicom,
would afford it access to Omnicom's international service
facilities, clients, and financial and managerial resources.
Ketchum's Public Relations Division would be able to work within
Omnicom, with access to Omnicom's financial resources and clients,
as well as Omnicom's extensive international service facilities.
Ketchum Directory Advertising would benefit from the opportunity to
service Omnicom clients.
(iii) Fairness of the Consideration. The establishment of a purchase price
carrying a substantial premium over the book value of the Ketchum
Common Stock as at December 31, 1995 and the opportunity for the
holders of the Ketchum Preferred Stock to receive the liquidation
preference on their shares, together with the provision for
Ketchum's obligations with respect to contingent liabilities related
primarily to "change of control" premiums to former shareholders and
pending litigation.
(iv) Unsatisfactory Alternatives. The proposal by Omnicom was deemed to
be more favorable than the offer of the other agency, since it
provided for more value to the Ketchum Shareholders without the risk
of a contingent valuation formula, was for all of Ketchum's
operating units, resulted in a better business fit among the Ketchum
and Omnicom operating units, had a better business culture fit with
Ketchum's managers, and provided a structure which avoided both
current taxation to Ketchum Shareholders and the expense to Ketchum
of restructuring its remaining operations. Ketchum management also
noted that the efforts of AdMedia and Ketchum management had not
identified any other acquisition candidates, principally due to the
insufficient size of potential purchasers or identified client
conflicts that would make a combination unlikely or impracticable.
(v) Financial Condition of Ketchum. Information relating to Ketchum's
financial condition, results of operations, capital levels and
management's best estimates of Ketchum's prospects.
(vi) Terms of the Merger Agreement. The terms and conditions of the
Merger Agreement, including (a) the condition that the Merger will
be a tax-free reorganization for federal tax purposes to the Ketchum
Shareholders and (b) the conversion of the Ketchum Shareholders'
shares of Ketchum Stock for Omnicom Common Stock, provide the
Ketchum Shareholders with liquidity in their investment at a fair
value, without resulting in a taxable event for Ketchum
Shareholders.
(vii) Value and Liquidity of Omnicom Common Stock. Omnicom Common Stock is
traded on the New York Stock Exchange; Ketchum Shareholders would
obtain a liquid security in exchange for their illiquid investment
in Ketchum.
Recommendation of the Ketchum Board of Directors
The decision of the Ketchum Board to approve and recommend the Merger
Agreement and the Merger was based on a number of factors, including the Ketchum
Board's knowledge of the business, operations, properties, assets and earnings
of Ketchum and its assessment of Ketchum's long-term prospects; the opportunity
for Ketchum to achieve long-term strategic and financial benefits by
consummating the Merger, including the condition that the Merger will be a
tax-free reorganization for federal income tax purposes to the Ketchum
Shareholders; the opportunity for the holders of the Ketchum Preferred Stock to
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receive the liquidation preference on such shares; the market prices at which
the shares of Omnicom Common Stock have traded during the past year; the fact
that Omnicom Common Stock is traded on the New York Stock Exchange and, thus, is
a liquid investment whereas Ketchum Stock has no trading activity; and the fact
that the Ketchum Shareholders would receive a substantial premium over the book
value of the Ketchum Common Stock as of December 31, 1995. The Ketchum Board did
not attach a relative weight to the factors it considered in reaching its
decision, but, considering all factors herein discussed, determined that the
Merger Agreement and the Merger are fair to and in the best interests of Ketchum
and the Ketchum Shareholders.
For the reasons set forth above, the Ketchum Board believes that the Merger
is fair to, and in the best interests of, Ketchum and the Ketchum Shareholders
and recommends that the Ketchum Shareholders vote FOR the approval of the Merger
Agreement and the transactions contemplated thereby.
Omnicom's Reasons for the Merger
Omnicom's Board of Directors believes that the Merger represents an
opportunity to strengthen the reach of its Diversified Agency Services division
through the acquisition of a full-service marketing communication services
company with particular strengths in public relations, consumer advertising,
directory advertising and other related activities.
Omnicom has not retained an outside party to evaluate the proposed Merger
but has instead relied upon the knowledge of its management in considering the
financial aspects of the Merger.
In reaching its conclusion, the Omnicom Board of Directors considered,
among other things, (i) information concerning the financial performance,
condition, business operations and prospects of Ketchum; and (ii) the proposed
terms and structure of the Merger. Although net income per share of Omnicom
Common Stock on a pro forma basis is lower than Omnicom's historical net income
per common share, it is anticipated, based upon Ketchum's anticipated net income
for 1996, that the Merger will be non-dilutive to Omnicom's results of
operations for 1996 and future years. Accordingly, Omnicom's Board of Directors
has unanimously approved the Merger and the transactions contemplated thereby.
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Interests of Ketchum's Management in the Merger
(The following describes certain interests of the directors and executive
officers of Ketchum in the Merger that are in addition to the interests of
Ketchum Shareholders generally.)
Pursuant to the Merger Agreement, Omnicom will enter into an employment
agreement with Paul H. Alvarez, the Chairman, Chief Executive Officer and
President of Ketchum and one of its directors, pursuant to which Mr. Alvarez
would be employed as the Vice Chairman of the Diversified Agency Services
division of Omnicom. In addition, pursuant to the Merger Agreement, KCI will
enter into employment agreements with each of the following executive officers
of Ketchum: David R. Drobis, John C. Joseph, Raymond L. Kotcher, Dianne
Snedaker, Lorraine Thelian, Lawrence R. Werner and Edward L. Graf.
It is anticipated that, except as indicated below, the new employment
agreements will have a term commencing at the Effective Time and ending three
years thereafter (subject to an "evergreen" provision terminable on one year's
notice by Ketchum and six months' notice by the executive), and provide for
annual salary compensation and fringe benefits substantially the same as such
persons were receiving immediately prior to the Merger. The employment agreement
for Mr. Graf will have a term commencing at the Effective Time and ending one
year thereafter (subject to the same "evergreen" provision terminable on 30 days
notice). In the event Mr. Graf's employment is terminated by Ketchum other than
for cause, Mr. Graf will be entitled to receive one year's severance pay. In
addition, on March 2, 1996 the existing employment agreement between KCI and J.
Craig Mathiesen, a director and key executive of Ketchum, was extended from its
March 2, 1996 expiration date for a period up to two years.
In addition, pursuant to the terms of the Merger Agreement, each of the
executives who is entering into an employment agreement as described above,
including Mr. Mathiesen, will also enter into a non-competition agreement with
Omnicom and Ketchum. Robert C. Feldman and James V. Ficco, who are directors of
Ketchum, will also enter into a non-competition agreement with Omnicom and
Ketchum. There is no additional consideration being paid in connection with
these non-competition agreements.
Finally, the current directors of Ketchum and the holders of more than 5%
of the Ketchum Common Stock have executed a Contribution Agreement pursuant to
which they have agreed to indemnify the Ketchum Shareholder Representative
against all losses and expenses which may be incurred by him as a result of any
dispute arising from the performance of his duties under the Escrow Agreement,
unless such dispute is the result of his gross negligence or actions taken in
bad faith. See "The Escrow Agreement and the Ketchum Shareholder
Representative--Appointment of the Ketchum Shareholder Representative".
Procedure for Distributing Shares of Omnicom
Common Stock to Ketchum Shareholders
A transmittal form will be furnished to Ketchum Shareholders prior to the
Effective Time of the Merger for use in transmitting their certificates
evidencing their shares of Ketchum Stock to Omnicom to exchange them for
certificates evidencing the Omnicom Common Stock to which they are entitled as a
result of the Merger. The instructions on the form of transmittal must be
complied with by each surrendering shareholder.
On or as soon as practicable after the Closing of the Merger Agreement,
each Ketchum Shareholder shall receive by first-class mail in accordance with
the instructions of such Ketchum Shareholder as set forth in his or her
transmittal form, a certificate or certificates representing the next lower
number of whole shares of Omnicom Common Stock into which the shares of Ketchum
Stock represented by the certificate or certificates of Ketchum Common Stock or
Ketchum Preferred Stock so surrendered shall have been converted pursuant to the
Merger and, in addition, cash in lieu of a fractional share that such Ketchum
Shareholder is entitled to receive, subject in the case of the Ketchum Common
Stock to the provisions of the Escrow Agreement described below. Each Ketchum
Common Shareholder will also receive a receipt indicating the number of shares
of Omnicom Common Stock being held in the General Escrow Fund and Special Escrow
Fund in the name of such Ketchum Shareholder.
Dividends and other distributions which may be payable by Omnicom to
holders of record of Omnicom Common Stock as of a date on or after the date of
the Closing of the Merger Agreement and which are paid prior to the delivery of
Omnicom Common Stock to Ketchum Shareholders entitled thereto, will be paid to
such former Ketchum Shareholders at the same time the Omnicom Common Stock is
transferred to them upon surrender of certificates representing their shares of
Ketchum Stock. Such former shareholders will not be entitled to interest or
earnings on such dividends or other distributions pending receipt.
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The Merger Agreement
The Merger
Under the terms of the Merger Agreement, at the Effective Time of the
Merger, OmniSub will be merged with and into Ketchum, whose separate corporate
existence will continue as a wholly-owned subsidiary of Omnicom.
Conversion Prices
Under the terms of the Merger Agreement, at the Effective Time, each
outstanding share of Ketchum Stock will be converted into shares of Omnicom
Common Stock based upon the Conversion Prices described below and the Market
Value of the Omnicom Common Stock. No fractional shares of Omnicom Common Stock
will be issued but in lieu thereof each holder of shares of Ketchum Stock who
would otherwise have been entitled to a fraction of a share of Omnicom Common
Stock will be paid the cash value of such fraction of a share based upon the
Market Value thereof.
The "Common Stock Conversion Price" will result in an amount per share of
Ketchum Common Stock equal to $44,940,000 divided by the number of outstanding
shares of Ketchum Common Stock; the "Preferred Stock Conversion Price" will
result in an amount per share of Ketchum Preferred Stock equal to its
liquidation preference of $1,000. These dollar amounts will then be converted
into a number of shares of Omnicom Common Stock based upon the average of the
closing prices per share of the Omnicom Common Stock on the New York Stock
Exchange during the 20 consecutive trading days ending three business days
immediately prior to the date of the Special Meeting. Accordingly, although the
actual conversion exchange rates cannot be calculated as of the date of this
Prospectus/Information Statement, they will be known by the date of the Special
Meeting and will be available to the attendees thereof.
Based upon the assumption as set forth in the Summary under "Description of
Certain Terms of the Merger Agreement -- Conversion of Ketchum Stock" that there
would be 358,818 shares of Ketchum Common Stock outstanding at the Effective
Time of the Merger, subject to the obligation to deposit shares of Omnicom
Common Stock into the Escrow Funds pursuant to the Escrow Agreement, each share
of Ketchum Common Stock would be converted into the right to receive shares of
Omnicom Common Stock having an aggregate Market Value of $125.24; based upon the
Market Value of $41, this would equate to 3.05 shares of Omnicom Common Stock
for each share of Ketchum Common Stock. Each share of Ketchum Preferred Stock
would be converted into the right to receive 24.39 shares of Omnicom Common
Stock.
The Closing of the Merger Agreement has been scheduled for May 31, 1996,
the day after the date of the Special Meeting. However, the Closing of the
Merger Agreement may be delayed beyond May 31, 1996 if all conditions of the
Merger have not been satisfied or waived by such date; there will be no
adjustment to the Conversion Prices if this occurs, notwithstanding that the
actual value of the Omnicom Common Stock could fluctuate between the date of the
Special Meeting and the date of the Closing of the Merger Agreement. At the time
this Prospectus/Information Statement is being mailed to the Ketchum
Shareholders, Omnicom has no reason to believe that the Closing of the Merger
Agreement will not be held on May 31, 1996 as scheduled.
Indemnification Obligations
Under the Merger Agreement, the Ketchum Common Shareholders are required to
indemnify, defend and hold harmless Omnicom and OmniSub, and their affiliates,
directors, officers and for (i) liabilities, obligations, losses, penalties,
claims, actions, judgments or causes of action, assessments, costs or expenses
(including, without limitation, reasonable attorneys' fees and disbursements) as
a consequence of or in connection with any inaccuracy or breach of any
representation, warranty or covenant of Ketchum contained in or made pursuant to
the Merger Agreement, but only to the extent, with certain exceptions, that such
losses exceed $100,000 and (ii) any expenses being incurred by Ketchum in
connection with the ongoing reorganization of the media buying operations of
KCI. Holders of Ketchum Preferred Stock are not required to provide any
indemnification under the Merger Agreement.
To satisfy these indemnification obligations, the Ketchum Common
Shareholders will deposit shares of Omnicom Common Stock into the General Escrow
Fund and the Special Escrow Fund under the Escrow Agreement. The General Escrow
Fund will contain shares of Omnicom Common Stock having an aggregate Market
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Value of $4,400,000 and will be used to satisfy the indemnification obligations
described under clause (i) of the preceding paragraph; the Special Escrow Fund
will contain shares of Omnicom Common Stock having an aggregate Market Value of
$2,500,000 and will be used to satisfy the indemnification obligations described
under clause (ii) of the preceding paragraph. Indemnification obligations
arising under clause (i) may be satisfied only from the General Escrow Fund, and
those arising under clause (ii) may be satisfied only from the Special Escrow
Fund. Each Ketchum Common Shareholder will be depositing his pro rata share of
the General Escrow Fund or Special Escrow Fund (rounded up to the nearest whole
share). Accordingly, of the shares of Omnicom Common Stock issuable in respect
of each share of Ketchum Common Stock, shares of Omnicom Common Stock having an
aggregate Market Value of $12.26 will be deposited into the General Escrow Fund
and shares of Omnicom Common Stock having an aggregate Market Value of $6.97
will be deposited into the Special Escrow Fund.
The indemnification obligations of the Ketchum Common Shareholders, will be
limited to and satisfied solely from, the General Escrow Fund and Special Escrow
Fund under the Escrow Agreement (such that neither Omnicom nor any of its
affiliates will have any recourse for the payment of any losses or other damages
arising out of the transactions contemplated by the Merger Agreement against any
Ketchum Shareholder, nor shall any Ketchum Shareholder be personally liable for
any such losses or damages). 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 the surviving corporation following the Effective Time
of the Merger or one year from the Effective Time (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). Indemnification obligations to be satisfied
out of the Special Escrow Fund will terminate on December 31, 1996, being the
latest date by which it will be determined whether or not costs have been
incurred in connection with the ongoing reorganization of the media buying
operations (except that claims asserted in writing on or prior to such date will
survive until they are decided and are final binding on the parties).
Representations and Warranties
The Merger Agreement contains various customary representations and
warranties of Ketchum relating to, among other things: (a) the organization and
similar corporate matters of Ketchum and each of the subsidiaries; (b) the
capital structure of Ketchum and each of its subsidiaries; (c) authorization,
execution, delivery, performance and enforceability of the Merger Agreement and
related matters; (d) absence of conflicts under charters or by-laws, required
consents or approvals and no violations of any agreements or laws; (e) financial
statements provided to Omnicom by Ketchum; (f) absence of certain material
adverse events, changes or effects; (g) certain contracts, including, but not
limited to, certain real and personal property leases and 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 Ketchum 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; and (p) trademarks, trade names, assumed or fictitious names,
copyrights, logos, service marks and slogans.
The Merger Agreement also contains various customary representations and
warranties of Omnicom relating to, among other things: (a) organization and
similar corporate matters of Omnicom and OmniSub; (b) authorization, execution
and delivery of the Merger Agreement and related matters; (c) absence of any
conflicts under charters or by-laws, required consents or approvals and no
violations of any agreements or laws; (d) the shares of Omnicom Common Stock to
be issued in the transaction; (e) financial statements provided to Ketchum by
Omnicom; (f) absence of certain adverse events, changes or effects; and (g)
litigation.
Certain Covenants
Pursuant to the Merger Agreement, Ketchum has agreed that, during the
period from the execution of the Merger Agreement until the Closing of the
Merger Agreement, Ketchum and each of its subsidiaries will, among other things:
(a) not solicit, initiate or encourage any other offer or inquiry concerning the
acquisition of Ketchum; (b) give timely notice of a meeting to its shareholders
to approve the Merger Agreement and the Escrow Agreement and to appoint the
Ketchum Shareholder Representative; (c) inform Omnicom's management as to the
operation, management and business of Ketchum; (d) permit Omnicom to make such
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reasonable investigation of the assets, properties and businesses of Ketchum as
they deem necessary or advisable; and (e) except (i) as permitted by the Merger
Agreement and (ii) as otherwise consented to in writing by Omnicom, operate its
businesses in the ordinary course and, to the extent consistent with past
practice, use reasonable commercial efforts to preserve the existing business
organization, existing business relationships, and goodwill intact.
Pursuant to the Merger Agreement, Omnicom has agreed to cause Ketchum to
maintain in effect for three years (or a lesser period of time, in certain
events) the current policies of directors' and officers' liability insurance and
fiduciary liability insurance maintained by Ketchum, or to substitute therefor
policies containing substantially the same coverage.
Pursuant to the Merger Agreement, Ketchum and Omnicom have covenanted with
one another to take certain additional actions, including without limitation:
(a) to each 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 Merger; (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; and (c) to each use its reasonable efforts to consummate
the Merger and the other transactions contemplated by the Merger Agreement.
Certain Conditions to the Merger
In addition to approval of the Merger Agreement, the Merger and the Escrow
Agreement and the appointment of the Ketchum Shareholder Representative by the
Ketchum Shareholders at the Special Meeting, and to the required regulatory
approvals, the respective obligations of Omnicom, OmniSub and Ketchum to
consummate the Merger 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 Merger Agreement; (ii)
the performance by the parties of their respective obligations under the Merger
Agreement prior to the Closing; (iii) the absence of any material adverse
changes in the condition of the businesses of Ketchum 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 Merger 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 Merger Agreement; and (vii) the
absence of any action or proceeding by any governmental agency that might result
in enjoining the consummation of said transactions.
The obligations of Omnicom and OmniSub to effect the Merger are subject to
satisfaction of certain additional conditions including, without limitation: (i)
the SEC's not having objected to Omnicom's treatment of the Merger as a
pooling-of-interests for accounting purposes; (ii) the execution and delivery of
employment agreements with key executives of Ketchum and the execution and
delivery of non-competition agreements by each of such individuals; (iii) there
not having been a material and adverse change in the business and affairs of
Ketchum; and (iv) holders of fewer than 3% of the outstanding shares of Ketchum
Common Stock having elected dissenters' rights, and the Trustee of the Ketchum
Profit Sharing Plan having voted all the shares of Ketchum Stock in favor of the
Ketchum Vote Matters.
The obligations of Ketchum to effect the Merger are subject to the
satisfaction of certain additional conditions including, without limitation,
Omnicom or Ketchum, as the case may be, having entered into the employment
agreements described above. See "The Merger Agreement and the Merger--Interests
of Ketchum Management in the Merger."
Pursuant to the terms of the Merger Agreement, each of Omnicom and Ketchum
is entitled to waive any of its conditions to consummation of the Merger to the
extent that any such condition is not satisfied in full by the other party,
other than conditions relating to the treatment of the Merger by the SEC as a
pooling-of-interests for accounting purposes, the approval of the Ketchum Vote
Matters by the Ketchum Shareholders and the absence of any action or proceeding
enjoining the transactions contemplated by the Merger Agreement.
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Closing Date
The Closing has been scheduled for May 31, 1996, assuming that all
conditions to closing the Merger Agreement have been satisfied or waived by such
date. At the time this Prospectus/Information Statement is being mailed to the
Ketchum Shareholders, Omnicom has no reason to believe that the Closing will not
take place on May 31, 1996 as scheduled.
Termination
The Merger Agreement may be terminated and the contemplated Merger may be
abandoned at any time prior to the Closing, whether before or after approval by
the Ketchum Shareholders, (a) by mutual consent of the Boards of Directors of
Omnicom, OmniSub and Ketchum; (b) by either Omnicom and OmniSub, on the one
hand, or Ketchum, 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 Merger 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 Merger; (c) by the Board of Directors of
Omnicom, OmniSub or Ketchum if a final and nonappealable order, decree or
judgment of any court or other governmental authority is issued which would
enjoin the Merger; or (d) by either Omnicom and OmniSub or Ketchum if the
Closing shall not have occurred prior to the close of business on December 31,
1996 or if the conditions to such parties' obligation to close shall have become
incapable of being satisfied by December 31, 1996.
Amendment
The Merger 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.
Other Considerations
Federal Income Tax Consequences
(The following is a summary of all federal income tax consequences of the
Merger that are material to the Ketchum Shareholders. It is based upon certain
representations and assumptions as set forth in the opinion of Deloitte & Touche
LLP filed as an Exhibit to this Registration Statement of which this
Prospectus/Information Statement is a part. No opinion has been expressed as to
the state, local or foreign tax consequences. In addition, the following is
general in nature and does not take into account the particular tax
circumstances of any individual Ketchum Shareholder. It is recommended that each
Ketchum Shareholder consult his own tax advisors as to the specific consequences
of the proposed Merger for such individual, including the application and effect
of state, local and foreign laws.)
The Merger has been structured to qualify as a "tax-free" reorganization
within the meaning of the Code. Deloitte & Touche LLP, Ketchum's tax advisor in
the Merger, has rendered its opinion as to the federal income tax consequences
of the Merger. The opinion of Deloitte & Touche LLP is based upon the Code,
regulations now in effect thereunder, current administrative rulings and
practice, and judicial authority, all of which are subject to change. Unlike a
ruling from the Internal Revenue Service, the opinion of Deloitte & Touche LLP
is not binding upon the Internal Revenue Service and there can be no assurance,
and none is hereby given, that the Internal Revenue Service will not take a
position contrary to one or more of the positions reflected therein or that the
opinion will be upheld by the courts if challenged by the Internal Revenue
Service.
In the opinion of Deloitte & Touche LLP, which opinion is based upon
various representations and subject to various assumptions and qualifications,
the following federal income tax consequences, among others, will result from
the Merger.
1. The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code.
2. No gain or loss will be recognized by Ketchum Shareholders upon the
exchange of their Ketchum Stock (including fractional share interests they
might otherwise be entitled to receive) solely for Omnicom Common Stock.
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3. The holding period of the Omnicom Common Stock will include the
holding period for the Ketchum Stock surrendered in exchange therefor,
provided the Ketchum Stock was held as a capital asset on the date of
exchange.
4. The aggregate basis of the Omnicom Common Stock received by a
Ketchum Shareholder (including any fractional share interest such
Shareholder might otherwise receive) will be the same as the aggregate
basis of the Ketchum Stock surrendered in exchange therefor.
5. The payment of cash in lieu of fractional shares will be treated as
if the fractional shares were distributed as part of the exchange and then
redeemed by Omnicom. Any Ketchum Shareholder who receives cash in lieu of a
fractional share interest in Omnicom Common Stock will recognize gain or
loss measured by the difference between cash received in respect of such
fractional share and the portion of the basis of Ketchum Stock allocable
thereto. Similarly, a Ketchum Shareholder who dissents from the Merger and
receives the "fair value" of his shares of Ketchum Stock in accordance with
the PABCL (see "Rights of Dissenting Ketchum Shareholders" below) will
recognize gain or loss measured by the difference between the cash received
and the basis of the Ketchum Stock.
No ruling from the Internal Revenue Service will be sought on any of the
foregoing federal tax consequences of the Merger.
A copy of the opinion of Deloitte & Touche LLP has been filed as an Exhibit
to the Registration Statement of which this Prospectus/Information Statement is
a part and is incorporated herein by reference.
Accounting Treatment
Ketchum and Omnicom expect the Merger to be accounted for as a
pooling-of-interests for financial reporting purposes in accordance with
generally accepted accounting principles. Under pooling of interest accounting
upon consummation of the Merger, the assets and liabilities of Ketchum would be
included in the consolidated balance sheet of Omnicom and its subsidiaries in
the amounts which were included in the books of Ketchum immediately before the
Merger after conforming certain accounting policies and procedures to those
currently used by Omnicom.
Regulatory Approvals
Under the Hart-Scott-Rodino Act and the rules promulgated therewith by the
FTC, the Merger 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 Ketchum
each filed notification and report forms under the Hart-Scott-Rodino Act with
the FTC and the Antitrust Division on March 13, 1996. The required waiting
period under the Hart-Scott-Rodino Act expired on April 13, 1996.
At any time before or after consummation of the Merger, 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 Merger or seeking divestiture of assets of Omnicom. At any
time before or after the Closing, 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 Merger 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 Ketchum believe that
the Merger 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
Merger on antitrust grounds will not be made or that, if such a challenge were
made, Omnicom and Ketchum would prevail or would not be required to accept
certain conditions, possibly including certain divestitures of assets of
Omnicom, in order to consummate the Merger.
Resales of Omnicom Common Stock
All shares of Omnicom Common Stock received by Ketchum Shareholders as a
result of the Merger 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 Ketchum prior to the Merger ("Ketchum
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<PAGE>
Affiliates") shall be subject to certain restrictions, as more fully described
below. Persons who may be deemed to be affiliates of Ketchum 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
Merger Agreement provides that Ketchum will furnish Omnicom with a list
identifying all persons who may be considered to be Ketchum Affiliates, and
gives Omnicom the right to review such list and require changes. Ketchum is
required to use its best efforts to cause each of the Ketchum Affiliates to
execute a written agreement to comply fully with the restrictions described
below, and the receipt of such written agreements from each Ketchum Affiliate is
a condition to Omnicom's obligation to consummate the Merger.
Federal Securities Laws. Shares of Omnicom Common Stock received by Ketchum
Affiliates may be resold by such Ketchum 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
Merger, Ketchum 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 Ketchum after the Closing. This prohibition precludes
the use of "hedging" techniques during this period.
Stock Exchange Listing
It is a condition to the Merger that the shares of Omnicom Common Stock
required to be issued in connection with the Merger 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.]
Rights of Dissenting Ketchum Shareholders
If the Merger is consummated, under Section 1930 of the PABCL, holders of
shares of Ketchum Stock with respect to which appraisal rights are perfected and
not withdrawn or lost, will be entitled to have the "fair value" of their shares
of Ketchum Stock at the Effective Time (exclusive of any element of value
arising from the accomplishment or expectation of the Merger) judicially
determined and paid to them in cash by complying with the provisions of
Subchapter D of Chapter 15 of the PABCL ("Subchapter D").
The following is a brief summary of Subchapter D which sets forth the
procedures for dissenting from the Merger and demanding statutory appraisal
rights. This summary is qualified in its entirety by reference to Subchapter D,
a copy of the text of which is attached hereto as Annex I.
Ketchum Shareholders of record who desire to exercise their appraisal
rights must satisfy all of the conditions set forth in Section 1930 of the PABCL
and in Subchapter D, which conditions include the following requirements. A
written notice of intention to demand "fair value" for shares of Ketchum Stock
must be delivered to the Secretary of Ketchum before the taking of the vote on
the Merger Agreement. This written demand must be in addition to and separate
from any proxy or vote abstaining from or against the Merger Agreement. Neither
voting against, abstaining from voting, nor failing to vote on the Merger
Agreement will constitute a notice of intention to demand fair value within the
meaning of Subchapter D. Any Ketchum Shareholder seeking appraisal rights must
hold the shares of Ketchum Stock for which appraisal is sought on the date of
the making of the demand, continuously hold such shares through the Effective
Time, and otherwise comply with the provisions of Subchapter D.
Ketchum Shareholders electing to exercise their appraisal rights under
Subchapter D need not vote against the Merger in order to perfect such appraisal
rights; abstentions are acceptable. However, dissenting Ketchum Shareholders
must not vote for approval and adoption of the Merger Agreement nor consent
thereto in writing. Voting in favor of the Merger Agreement, or delivering a
proxy in connection with the Special Meeting (unless the proxy votes against, or
expressly abstains from the vote on, the Merger Agreement), will constitute a
waiver of a Ketchum Shareholder's right of appraisal and will nullify any
written demand for appraisal submitted by the shareholder.
26
<PAGE>
The notice of intention to demand fair value should specify the Ketchum
Shareholder's name and mailing address, the number of shares of Ketchum Stock
owned, and that the Ketchum Shareholder is thereby demanding appraisal of his or
her shares of Ketchum Stock. If the Merger is approved by Ketchum Shareholders,
Ketchum shall give notice to all Ketchum Shareholders who have delivered a
notice of intention to demand payment of the fair value of their shares of
Ketchum Stock and have otherwise complied with Subchapter D. The notice to be
delivered by Ketchum shall, among other things, state where and when the
dissenting Ketchum Shareholder should deliver (a) a demand for payment, and (b)
the certificates representing the dissenting shareholder's shares of Ketchum
Stock.
After the dissenting Ketchum Shareholder has received the notice from
Ketchum described in the preceding paragraph, the dissenting shareholder must
both make written demand for payment and deliver the certificates representing
the Ketchum Shareholders' Ketchum Stock in accordance with the instructions set
forth in the notice.
Promptly after consummation of the Merger and after timely receipt of a
proper demand of payment and of the share certificates representing the
dissenting shareholder's shares of Ketchum Stock, Ketchum shall remit to
dissenters the amount that it estimates to be the fair value of the shares, or
shall give written notice that no remittance shall be made; such remittance or
notice shall be accompanied, among other things, by the balance sheet and income
statement of Ketchum and its subsidiaries as at December 31, 1995, [together
with an interim balance sheet and income statement as at _______, 1996.] If the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares of Ketchum Stock, he may send to Ketchum his own estimate of
the fair value, which shall be deemed a demand for payment of the amount or the
deficiency. If such a demand is not made within 30 days after the remittance or
notice by Ketchum, the dissenter shall be entitled to no more than the amount
stated in the notice or remitted to him by Ketchum.
Within 60 days after the later of the Effective Time, the receipt of all
demands for payment, or timely receipt of any estimates by dissenting
shareholders of the fair value of their shares, Ketchum may file in court an
application for relief requesting a determination by the court of the fair value
of the shares; if Ketchum does not file an application, the dissenting
shareholder may file an application in Ketchum's name, subject to the time
restrictions set forth in Subchapter D.
The cost of the appraisal proceeding may be determined by the court and
assessed against the parties as the court deems equitable under the
circumstances; costs would be assessed against dissenting shareholders whom the
court finds to be dilatory, obdurate, arbitrary, vexatious or in bad faith.
Any Ketchum Shareholder who has duly demanded appraisal in compliance with
Subchapter D will not be entitled to vote for any purpose the shares of Ketchum
Stock subject to such demand or to receive payment of dividends or other
distributions on such shares, except for dividends or other distributions
payable to shareholders of record at a date prior to the Effective Time.
In view of the complexity of these provisions of the PABCL, Ketchum
Shareholders who are considering dissenting from the approval and adoption of
the Merger Agreement and exercising their rights under Subchapter D should
consult their legal advisors.
27
<PAGE>
THE ESCROW AGREEMENT AND THE
KETCHUM SHAREHOLDER REPRESENTATIVE
The Escrow Agreement
(The information contained in this Registration Statement of which this
Prospectus/Information Statement performs a part is qualified in its entirety by
reference to the complete text of the Escrow Agreement which is filed as an
Exhibit thereto and is incorporated herein by reference.)
As described above under "The Merger Agreement and the Merger--the Merger
Agreement--Indemnification Obligations", in order to satisfy indemnification
obligations under the Merger Agreement, the Ketchum Shareholders will deposit
shares of Omnicom Common Stock into the General Escrow Fund and the Special
Escrow Fund under the Escrow Agreement. The General Escrow Fund will contain
shares of Omnicom Common Stock having an aggregate Market Value of $4,400,000
and the Special Escrow Fund will contain shares of Omnicom Common Stock having
an aggregate Market Value of $2,500,000.
Each of the Ketchum Common Shareholders shall be depositing his or her pro
rata share of the General Escrow Fund or Special Escrow Fund (rounded up to the
nearest whole share) determined by multiplying the aggregate number of shares of
Omnicom Common Stock required to be deposited into such Escrow Fund by a
fraction, the numerator of which is the number of shares of Omnicom Common Stock
issuable to such individual in the Merger and the denominator of which is the
total number of shares of Omnicom Common Stock issuable to all such individuals
required to provide indemnification.
Based upon the assumed number of outstanding shares set forth above under
"Conversion of the Ketchum Common Stock", of the $125.24 Common Stock Conversion
Price payable in respect of each share of Ketchum Common Stock, Omnicom Common
Stock having an aggregate Market Value of $12.26 would be deposited in the
General Escrow Fund, and Omnicom Common Stock having an aggregate Market Value
of $6.97 would be deposited in the Special Escrow Fund. Based upon the assumed
Market Value of $41, this would result in 0.30 shares of Omnicom Common Stock
per share of Ketchum Common Stock being deposited in the General Escrow Fund,
and 0.17 shares of Omnicom Common Stock per share of Ketchum Common Stock being
deposited in the Special Escrow Fund. Since the amounts held in the Escrow Funds
are subject to claims in respect of liabilities, there can be no assurance that
amounts held therein will in fact be distributed to the Ketchum Common
Shareholders. If none of the amounts held therein are in fact distributed to the
Ketchum Common Shareholders, then the actual Common Stock Conversion Price will
have been only $106.01, equivalent to 2.59 shares of Omnicom Common Stock based
on the stated assumptions.
For purposes of satisfying any claims, each share of Omnicom Common Stock
deposited in either Escrow Fund will be valued at the Market Value, regardless
of actual fluctuations of the market value of the Omnicom Common Stock after the
Closing of the Merger Agreement.
Pursuant to the Escrow Agreement, the Ketchum Shareholder Representative,
on behalf of the Ketchum Common Shareholders, shall grant to Omnicom a security
interest in the Escrow Funds to secure the performance of the indemnification
obligations of the Ketchum Common Shareholders under the Merger Agreement and
the performance of their obligations to Omnicom under the Escrow Agreement.
The Escrow Agreement shall automatically terminate if and when all the
shares of Omnicom Common Stock held in either 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, upon determination
that an indemnification payment is due to Omnicom from the General Escrow Fund,
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. The Ketchum
Shareholder Representative shall have the right to dispute any such claim by
Omnicom and require arbitration of the items in dispute.
On the next business day following the earlier of (x) the first independent
audit report, if any, of Ketchum following the Closing or (y) one year from the
Closing, the Escrow Agent shall deliver to the Ketchum Common Shareholders the
remaining shares of Omnicom Common Stock then on deposit in the General Escrow
Fund, as reduced by any amounts necessary to cover outstanding claims, including
claims then in dispute.
28
<PAGE>
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 the Ketchum Common Shareholders, shall be paid directly to the
Ketchum Common Shareholders, and shall not constitute part of the General Escrow
Fund. Each Ketchum Common Shareholder shall be entitled to exercise all voting
rights with respect to the shares of Omnicom Common Stock deposited by such
Ketchum Shareholder in the General Escrow Fund.
Special Escrow Fund. The Escrow Agreement provided that, upon determination
that an indemnification payment is due to Omnicom from the Special Escrow Fund,
the Escrow Agent shall deliver to Omnicom the number of shares of Omnicom Common
Stock, valued at the original Market Value, equal to the indemnification
payment. The Ketchum Shareholder Representative shall have the right to dispute
any such claim by Omnicom and require arbitration of the items in dispute.
The parties have agreed that December 31, 1996 will be the latest date by
which it will be determined whether any costs, related to severance, excess
leased office space and asset write-offs, have been incurred in connection with
the ongoing reorganization of the Ketchum media buying operations. Accordingly,
on the next business day following December 31, 1996, the Escrow Agent shall
deliver to the Ketchum Common Shareholders the remaining shares then on deposit
in the Special Escrow Fund as reduced by any amounts necessary to cover
outstanding claims, including claims then in dispute.
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 the Ketchum Common Shareholders, shall be paid directly to the
Ketchum Common Shareholders and shall not constitute part of the Special Escrow
Fund. Each Ketchum Common Shareholder shall be entitled to exercise all voting
rights with respect to the shares of Omnicom Common Stock deposited by such
Ketchum Shareholder in the Special Escrow Fund.
Appointment of the Ketchum Shareholder Representative
It is a condition to Closing under the Merger Agreement that the Ketchum
Shareholders appoint the Ketchum Shareholder Representative to act as their
collective agent in connection with the Escrow Agreement, including one or more
alternative individuals to act as the Ketchum Shareholder Representative in the
event that the designated Representative shall have died, resigned, or otherwise
become incapable or unwilling to act as Representative.
Appointment of the Ketchum Shareholder Representative shall include the
specific authorization for such Representative to (i) execute and deliver the
Escrow Agreement at the Effective Time of the Merger and any documents incident
or ancillary thereto, including without limitation any amendments,
cancellations, extensions or waivers in respect thereof; (ii) respond to and
make determinations in respect of the assertion of any and all claims for
indemnification by Omnicom, and to assert claims on behalf of the Ketchum Common
Shareholders, pursuant to the terms of the Escrow Agreement and the terms of the
Merger Agreement pertaining thereto; (iii) execute and deliver any stock powers
which may be required to be executed by any Ketchum Common Shareholder, in order
to permit the delivery to Omnicom of any shares of Omnicom Common Stock to be
delivered to it pursuant to the Escrow Agreement; and (iv) take all such other
actions as may be necessary or desirable to carry out his responsibilities as
collective agent of the Ketchum Shareholders in respect of the Escrow Agreement.
The terms of the appointment of the Ketchum Shareholder Representative shall be
that he shall not be liable for any mistake of fact or error of judgment or for
any acts or omissions unless caused by his gross negligence or willful
misconduct; this term will be confirmed by each Ketchum Shareholder in the
transmittal form furnished by him to Omnicom as described under "The Merger
Agreement and the Merger--Procedure for Distributing Shares of Omnicom Common
Stock to Ketchum Shareholders". In addition, the current directors of Ketchum
and the holders of more than 5% of the shares of Ketchum Common Stock have
executed a Contribution Agreement pursuant to which they have agreed to
indemnify the Ketchum Shareholder Representative against all losses and expenses
which may be incurred by him as a result of any dispute arising from the
performance of his duties under the Escrow Agreement, unless such dispute is the
result of his gross negligence or action taken in bad faith.
29
<PAGE>
Finally, the appointment of the Ketchum Shareholder Representative shall
also include the consent of the Ketchum Shareholders to the procedure to be
followed in the event the Ketchum Shareholder Representative and any alternative
shall be unable or unwilling to serve or continue to serve as such. Pursuant to
such a procedure, a new Ketchum Shareholder Representative shall be chosen by
majority vote of those persons who were members of Ketchum Board of Directors
immediately prior to the Effective Time of the Merger, any of whom shall be
entitled to call a meeting for such a purpose.
The proposal before the Ketchum Shareholders is that Paul H. Alvarez be
appointed as Ketchum Shareholder Representative, with Edward L. Graf appointed
as alternate. Messrs. Alvarez and Graf are directors and executive officers of
Ketchum and Ketchum Shareholders. See "The Merger Agreement and the Merger --
Interests of Ketchum's Management in the Merger" and "Business Information
Concerning Ketchum -- Executive Officers and Directors, Principal Shareholders"
for more detailed descriptions of these interests.
Recommendation of the Ketchum Board of Directors
The Ketchum Board of Directors believes that the adoption of the Escrow
Agreement is in the best interests of the Ketchum Shareholders and recommends
that the Ketchum Shareholders vote FOR the approval of the Escrow Agreement and
the transactions contemplated thereby, and FOR the appointment of Paul H.
Alvarez as Ketchum Shareholder Representative, with Edward L. Graf as alternate.
30
<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. The Omnicom
Group offers its 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. The Omnicom Group 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, Africa, Latin America, the Far East and Australia. In
1995 and 1994, 53% and 51%, respectively, of Omnicom's billings came from its
non-U.S. operations.
According to the unaudited industry-wide figures published in 1996 in the
trade journal, Advertising Age, Omnicom is ranked as the second largest
advertising agency group worldwide.
The Omnicom Group operates as three separate, independent agency networks:
the BBDO Worldwide Network, the DDB Needham Worldwide Network and the TBWA
International Network. The Omnicom Group also operates Goodby, Silverstein &
Partners as an independent agency, and certain marketing service and specialty
advertising companies through Omnicom's Diversified Agency Services division.
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.
31
<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. This information has been adjusted to
reflect the two-for-one stock split in the form of a 100% stock dividend payable
to holders of Omnicom Common Stock on December 15, 1995.
<TABLE>
<CAPTION>
(Dollars in Thousands Except Per Share Amounts)
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
For the year:
Commissions and fees ............... $2,257,536 $1,907,795 $1,688,960 $1,600,326 $1,435,977
Income before change in
accounting principles ........... 139,955 111,495 65,568 59,650 48,457
Net income ......................... 139,955 83,486 65,568 56,250 48,457
Earnings per common share
before change in accounting
principles:
Primary ......................... 1.89 1.58 1.03 1.01 0.84
Fully diluted ................... 1.85 1.54 1.01 0.86 0.84
Cumulative effect of change in
accounting principles:
Primary ......................... -- (0.40) -- (0.06) --
Fully diluted ................... -- (0.40) -- (0.06) --
Earnings per common share
after change in accounting
principles:
Primary ......................... 1.89 1.18 1.03 0.95 0.84
Fully diluted ................... 1.85 1.18 1.01 0.81 0.84
Dividends declared per common
share ............................ 0.66 0.62 0.62 0.60 0.55
At year end:
Total assets ....................... 3,527,677 3,040,211 2,465,408 2,266,733 2,196,969
Long-term obligations:
Long-term debt ................... 290,379 199,487 301,044 324,133 335,220
Deferred compensation and
other liabilities .............. 122,623 150,291 113,197 102,814 82,948
</TABLE>
32
<PAGE>
BUSINESS INFORMATION CONCERNING KETCHUM
Description of Business
General
Ketchum, through its subsidiaries, is a full service communications
company. Ketchum is the successor corporation of KM&G International Inc., which,
in turn, was the successor corporation to Ketchum McLeod & Grove, Inc., a
Pennsylvania corporation incorporated in 1923.
Ketchum operates as a holding company and owns directly or indirectly four
subsidiary companies, Ketchum Communications, Inc., Ketchum Communications
(Delaware), Inc., Ketchum International, Inc. and Ketchum New York Advertising
Holdings, Inc. Ketchum offers a full range of communications services including
the creation of effective advertising in various media, such as direct response,
yellow pages, newspapers, magazines, outdoor, transit, radio and television, and
in public relations activities. More specifically, the business conducted by
Ketchum's subsidiaries, affiliates and divisions is as follows:
Ketchum Communications, Inc. KCI operates in various locations throughout
the United States under various trade names and performs a variety of services
to its clients. It operates through the following divisions and units:
Advertising Division. Ketchum's Advertising Division is a full service
agency which works with major advertisers in diverse fields, including
consumer products and services, business-to-business marketing, and
corporate advertising.
Public Relations Division. Ketchum's Public Relations Division
conducts a broad range of communications activities for a variety of
organizations. It provides assistance in promoting, marketing, publicity,
investor relations, government relations, social involvement, and
corporate, community and employee relations.
Directory Advertising Division. Ketchum's Directory Advertising
Division specializes in the design and placement of advertising in Yellow
Pages directories utilizing an extensive state-of-the-art computer system.
Ketchum Directory Advertising provides up-to-date consumer and industrial
information concerning the users of over 6,000 different directories
published annually.
Public Affairs Division. Ketchum's Public Affairs Division specializes
in communications surrounding public policy issues.
Health Care Division. Ketchum's Health Care Division, Ketchum BRH&M,
is a full service health care communications agency based in New York City.
Interactive Media Unit. Ketchum's Interactive Media Unit specializes
in finding new media applications for its clients and the agency.
Ketchum Communications (Delaware), Inc. Ketchum Communications (Delaware),
Inc. is a non-operating company which invests the excess cash of the Ketchum
U.S. subsidiaries.
Ketchum International, Inc. Ketchum International, Inc., a non-operating
wholly-owned subsidiary of Ketchum Communications (Delaware), Inc., provides,
through its subsidiaries, equity investments and affiliates, an integrated,
worldwide system of advertising and public relations agencies to meet the
marketing needs of clients selling products or services outside of the United
States, in a national, multi-national or international arena. Ketchum
International, Inc. is comprised of a network of fifteen agencies in ten
different countries and is supported by 49 affiliate agencies in 34 countries
throughout the world.
Ketchum New York Advertising Holdings, Inc. Ketchum New York Advertising
Holdings, Inc. is a non-operating company which owns an interest in a New York
partnership, Jerry & Ketchum. Jerry & Ketchum is an advertising agency, located
in New York, which works with advertisers in diverse fields, including consumer
products and services, business-to-business marketing, and corporate
advertising.
33
<PAGE>
Clients
Ketchum's ten largest clients in 1995 accounted for approximately 41.12% of
income from commissions and fees. American Honda Motor Company was the largest
client comprising 18% of commissions and fees. The second through tenth largest
clients individually comprised from 6% to 1% of commissions and fees. For the
purposes of the foregoing percentages, a foreign subsidiary of a domestic client
(or vice versa) is deemed to be a separate client where such subsidiary has a
right to select, and has selected, Ketchum's subsidiary abroad as its
advertising agency as a matter of independent choice. The major clients of
Ketchum's subsidiaries appear in various promotional materials. Foreign
subsidiaries and affiliates accounted for approximately 6.71% of the worldwide
total of income from commissions and fees of Ketchum in 1995.
Employees; Offices
Ketchum is a privately-owned company with over 1,000 employees, 240 of
which work at its Pittsburgh, Pennsylvania headquarters. The principal office of
Ketchum and one of its significant operating offices is located at Six PPG
Place, Pittsburgh, Pennsylvania, and contains approximately 77,000 square feet
of floor space. Ketchum's subsidiaries and affiliates lease additional office
space in New York (New York), Los Angeles and San Francisco (California),
Greenwich (Connecticut), Coral Gables (Florida), Chicago (Illinois), Atlanta
(Georgia), Louisville (Kentucky), Washington (D.C.), Kansas City (Kansas),
Dallas (Texas), as well as various foreign locations.
Executive Officers and Directors, Principal Shareholders
The Ketchum Profit Sharing Plan is the sole record holder of the Ketchum
Preferred Stock. The following table is furnished with respect to the directors
of Ketchum, and the directors and executive officers of Ketchum as a group, in
each case as of April 15, 1996. There are no family relationships between any of
the directors or executive officers. The table also shows the name and address
of each person known by Ketchum to be the beneficial owner of more than 5% of
Ketchum Common Stock as of April 15, 1996.
<TABLE>
<CAPTION>
Shares of
Ketchum
Common Stock Percent of
Name and Address Position with Ketchum Owned Class
- ---------------- ------------------- ------------ --------
<S> <C> <C> <C>
Directors and Executive Officers:
Edward L. Graf Director, 51,900 14.46%
6933 Church St. Vice Chairman,
Pittsburgh, PA 15202 Chief Financial Officer,
Secretary,
Executive Committee Member
J. Craig Mathiesen Director, 31,400 8.75%
6162 South Ramirez Canyon President, Ketchum
Malibu, CA 90265 Advertising/Los Angeles,
Executive Committee Member
Paul H. Alvarez Director, Chairman of the 27,400 7.64%
112 Hickory Hill Road Board, Chief Executive Officer,
Pittsburgh, PA 15238 Executive Committee Member
Dianne Snedaker Director, 20,000 5.57%
66 Hanken Drive President, Ketchum
Kentfield, CA 94904 Advertising/San Francisco
David R. Drobis Director, Vice Chairman, 17,800 4.96%
47 Delafield Island Rd. Public Relations, Executive
Darien, CT 06820 Committee Member
James V. Ficco Director, President, 10,335 2.88%
311 Scarlet Cir. Ketchum Advertising/
Wexford, PA 15090 Pittsburgh
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Shares of
Ketchum
Common Stock Percent of
Name and Address Position with Ketchum Owned Class
- ---------------- ------------------- ------------ --------
<S> <C> <C> <C>
Raymond L. Kotcher Director, President, Public 12,400 3.46%
335 West Pine Street Relations
Long Beach, NY 11561
Lawrence R. Werner Director, Executive Vice 8,800 2.45%
Gateway Tower Apartments President, Public Relations/
Pittsburgh, PA 15222 Pittsburgh
Lorraine Thelian Director, Executive Vice 6,664 1.86%
9516 Neuse Way President, Public Relations/
Great Falls, VA 22066 Washington, D.C.
Robert C. Feldman Director, Executive Vice 3,750 1.05%
465 West End Avenue President, Public Relations
New York, NY 10024
John C. Joseph Director, President, 3,700 1.03%
825 Lyndhurst Court Ketchum Directory Advertising
Naperville, IL 60563
Executive Officers and
Directors as a Group (14 persons) 203,458 56.70%
Principal Shareholders:
James K. Larkin Executive Vice President, 25,000 6.70%
21 Via Barcelona Ketchum Advertising U.S.A.
Moraga, CA 95466
Ketchum Communications -- 29,761 8.29%
Holdings, Inc. 401(k)
Profit Sharing Plan
Six PPG Place
Pittsburgh, PA 15222-5406
</TABLE>
Ketchum pays, on an annual basis, a director's fee of $25,000 in the form
of cash which is applied to a purchase of Ketchum Common Stock. This fee is
paid, and the stock purchase is made, on a quarterly basis. This director's fee
will be discontinued after the Effective Time of the Merger.
35
<PAGE>
SELECTED FINANCIAL DATA OF KETCHUM
The following table summarizes certain selected financial data of Ketchum
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 in the period ended December
31, 1995 is derived from the audited financial statements. The financial data as
of December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995 is derived from the financial statements included herein
audited by Deloitte & Touche LLP, independent public accountants. See "Financial
Statements of Ketchum", the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Ketchum".
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(Dollars in Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
For the year ended December 31:
Commissions and fees .............. $127,388 $124,061 $129,510 $119,819 $116,476
Income (loss) from continuing
operations (1) ................ (7,540) 2,092 (5,535) 2,795 2,316
Net income (loss) (2) ............. (7,540) 2,092 (5,535) 2,795 1,540
Income (loss) from continuing
operations per
common share ................... (21.82) 3.67 (10.55) 4.22 3.22
Net income (loss) per common
share .......................... (21.82) 3.67 (10.55) 4.22 2.14
Dividends declared per
common share ................... 1.00 1.00 1.00 1.00 1.00
Balance Sheet Data:
At December 31:
Total assets ...................... 127,622 124,766 123,929 137,378 127,503
Long-term debt (3) ................ 3,804 15,640 14,653 14,906 14,530
Redeemable Preferred Stock ........ 8,035 4,991 2,471 -- --
</TABLE>
- ---------------
(1) 1993 results of operations include the impact of restructuring charges. See
audited financial statements for further information.
(2) 1991 net income includes loss from discontinued operations.
(3) Excluding $11,571 of debt classified as current due to covenant violations
at December 31, 1995.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF KETCHUM
Results of Operations
Performance in 1995 compared to 1994
Revenues from commissions and fees for 1995 increased to $127.4 from
$124.1 million in 1994. The increase was primarily attributable to a significant
increase in commissions and fees from the Public Relations Division which was
partially offset by a decrease in the commissions and fees from the Advertising
Division, due primarily to the impact of closing certain offices in 1994 and
1995.
Operating loss was $6.9 million in 1995 compared with operating income of
$6.6 million in 1994. The $13.5 million change consists of $16.8 million
increase in total operating expense partially offset by the $3.3 million
increase in commissions and fees. With respect to the increase in operating
expenses, $7.5 million results from increases in compensation and employee
benefits and general agency expense which are discussed below. Further, $9.3
million results from the increase in other expense and includes a charge of
approximately $5.0 million related to settled and pending litigation matters,
the most significant of which was an approximate $4.0 million charge for a
judgment against Ketchum related to a prior acquisition in the United Kingdom.
This case was a contract dispute between the majority owners and Ketchum
relative to the exercise of a put option requiring Ketchum to purchase the
majority stake as well as a dispute relating to certain dividends declared and
paid prior to the put without Ketchum's consent. Judgment was rendered against
Ketchum on February 21, 1996 for approximately $3.5 million. Additionally,
Ketchum was subsequently ordered to pay $0.5 million for a cost contribution to
the plaintiffs' legal costs. The remaining $1.0 million of the litigation charge
primarily relates to two cases where judgments have been rendered against
Ketchum and loss is considered probable, although appeals are pending. An
additional reserve of $0.5 million was recorded in 1995, in addition to $0.2
million previously accrued, for the first case, a case in which Ketchum was a
minority shareholder of a Parisian advertising agency which went bankrupt and
where Ketchum may be required to contribute to the full amount of the shortfall
in net assets. The potential range of loss in this case is between $0.7 million
and $1.2 million. A charge of $0.3 million was recorded for the second case
which is related to Ketchum holding over in certain New York office space for
one month. In management's opinion, Ketchum's exposure for unrecorded losses of
all litigation matters is insignificant.
Other operating expenses in 1995 also included charges resulting from
management's periodic analysis of the recoverability of the carrying value of
the excess of cost over the fair value of net assets acquired. Management wrote
down approximately $2.8 million of the carrying value at December 31, 1995.
Management's analysis was based on undiscounted cash flows of expected future
performance of the related operations. Expected future cash flows were based
upon internal projections considering past trends, general business economic
conditions and discussions with key management personnel. To the extent that the
cash flows did not support the carrying value of the excess of cost over the
fair value of net assets acquired, write downs were recorded. The $2.8 million
write down relates principally to two domestic operations which have incurred
significant losses since 1992. $1.1 million of the charge relates to Ketchum's
Public Relations Division and $1.4 million relates to its Health Care Division.
Prior to 1995, management believed that these operations could be turned around.
However, poor 1995 results of operations and projected losses led management to
conclude that write downs should be made in 1995. Additionally, other operating
expenses in 1995 included $1.1 million for the write off of notes receivable
from equity investees, primarily from an investee which has incurred significant
losses since its formation and which continues to have significant cash flow
shortfalls. Finally, other operating expenses included $0.7 million for equity
in the net loss of equity investees. This represented an increase of $0.4
million from 1994, primarily related to increased losses of the same investees
discussed above.
Partially offsetting the factors negatively impacting operations in 1995
was decreased interest expense and an increase in other income. Interest expense
in 1994 included a $0.4 million charge related to the refinancing of Ketchum's
primary debt instrument, a 9% unsecured senior note due August 1, 2004, with
principal payable in equal annual installments beginning August 1, 1998 through
August 1, 2004 and interest payable semi-annually. The increase in other income
37
<PAGE>
in 1995 is primarily due to a $0.4 million dollar gain on the sale of the
Chicago office.
Ketchum's net loss in 1995 was $7.5 million compared to net income of $2.1
million in 1994. The income tax benefit in 1995 of approximately $0.2 million
was less than that calculated using the U.S. federal statutory rate. Ketchum's
effective income tax rate was negatively impacted principally by the effects of
certain nondeductible expenses and an increased valuation allowance for deferred
tax assets.
The discussion of results of operations of the operating divisions which
follows excludes the impact of other operating expenses discussed above.
Commissions and fees for the Advertising Division were $58.1 million in
1995 compared to $61.4 million in 1994 and operating income for the
corresponding periods was $1.0 million and $5.4 million, respectively. The
decrease in commissions and fees was comprised of $3.5 million from the loss of
two clients, as well as lost commissions and fees of $2.2 million and $2.4
million, respectively, as a result of the closing of offices in New York and
Philadelphia in 1994, and offices in Chicago and Singapore in 1995. The
decreases were partially offset by the growth of existing businesses of $4.8
million. Operating income in 1995 was negatively impacted by the loss of the two
clients, which resulted in employee severance costs, increased business
development costs and a self promotion project. The loss of one of the two
clients in the fourth quarter of 1995 is expected to reduce commissions and fees
in 1996 by $4.4 million; however it is expected that operating income will
decrease by only $0.3 million as related costs have also been reduced. The
increases in business development costs and the self promotion project were
aimed at generating new business and creating general market awareness for the
Advertising Division in the very competitive advertising industry. Costs
associated with closing the Singapore office also further reduced operating
income. Operating income in 1995 was favorably impacted by savings associated
with the closings of the New York, Philadelphia and Chicago offices which had
previously incurred operating losses.
Commissions and fees for the Public Relations Division increased to $52.8
million in 1995 from $45.0 million in 1994 while operating income for the
corresponding periods increased to $3.1 million from $2.9 million, respectively.
The increase in commissions and fees was due to the growth of existing
businesses, including net new business gains and higher net spending from
existing clients. The operating profit percentage decreased to 5.9% in 1995 from
6.4% in 1994. Operating income was negatively impacted by increased legal costs
associated with a lawsuit related to a previous acquisition in the United
Kingdom, the results of which is discussed above in other operating expense.
Commissions and fees of the other divisions (primarily Directory
Advertising and Health Care) were $16.5 million in 1995 compared to $17.7
million in 1994 and operating losses were $1.4 million in both 1995 and 1994.
The decrease in commissions and fees was attributable to a decrease in the
Health Care Division and the closing of Ketchum Sales Promotions, an operating
division which comprised less than 1% of consolidated commissions and fees, due
to continued operating losses in 1995. The impact of closing this division was
immaterial with respect to consolidated results of operations. Reduced operating
losses in the Health Care Division were offset by increased losses associated
with increased activity of the Interactive Media Unit which was formed in 1994
for the purpose of serving existing and new clients in the emerging interactive
technology market, primarily associated with the Internet. The improvement in
the Health Care Division in 1995 reflected a recovery from very poor 1994
results. The 1994 results were adversely impacted by an industry wide trend of
reduced advertising expenditures by pharmaceutical companies as a result of
public scrutiny of these companies' spending practices. Directory Advertising
operating income was comparable in 1995 and 1994.
Performance in 1994 compared to 1993
Commissions and fees for 1994 decreased to $124.1 million from $129.5
million in 1993. The decrease was primarily attributable to the impact of lost
commissions and fees due to restructuring which occurred in the last quarter of
1993 and involved the closing of certain offices during 1994. Decreases in
commissions and fees in the other divisions, also contributed to the overall
decrease. Partially offsetting these decreases was an increase in the Public
Relations Division's commissions and fees.
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<PAGE>
Operating income in 1994 was $6.6 million compared to an operating loss of
$5.1 million in 1993. The $11.7 million change is comprised of a $17.1 million
decrease in total operating expenses partially offset by the $5.4 million
decrease in commissions and fees. With respect to the decrease in operating
expenses, $6.6 million of the decrease represents decreases in compensation and
employee benefits and general agency expense related to the closure of offices
as discussed below. Results of operations in 1993 were negatively impacted by
charges of $8.8 million related to restructuring. The restructuring was the
result of a Board of Directors decision, made in 1993, to sell the operations in
Philadelphia (both public relations and advertising); close the New York
advertising operation or partner it with another agency in New York; and to
conditionally continue the Chicago advertising and New York sales promotions
operations. All of these operations were related to acquisitions made by Ketchum
to obtain a presence in a city for the first time or to increase Ketchum's
presence which formerly had been insignificant. The reasons for the decision to
restructure were primarily related to poor results of these operations for a
number of years, but more specifically the magnitude of losses in 1993. As a
result of this restructuring, a write down of $6.0 million of the excess cost
over the fair value of net assets acquired was recorded. Additionally there was
a $1.9 million lease abandonment charge recorded in connection with vacating the
Philadelphia office space upon the sale of the operations as well as $0.4
million in severance pay covering 53 people in the Philadelphia and New York
advertising operations, all of which was paid during 1994. Philadelphia
operations were sold during the first quarter of 1994 and New York Advertising,
through Ketchum New York Advertising Holdings, Inc., was partnered with Jerry
Inc. to form Jerry & Ketchum during the second quarter of 1994. Chicago
Advertising was ultimately sold in 1995 and New York sales promotion was closed
during 1995. The final portion of the $8.8 million restructuring charge was a
$0.5 million write-off of the net book value of computer equipment no longer in
use. All significant aspects of the restructuring had been completed during
1995. The effect of these 1993 restructuring charges was to increase operating
income by $1.1 million in 1994.
In 1993, operating expenses were negatively impacted by $2.0 million, which
included a charge of $0.9 million related to the write-off of a note receivable
from an equity investee in France. The note was determined to be uncollectible
as a result of the investee's poor financial condition and negative cash flows
in recent years. $0.7 million of the $2.0 million impact represented the write
down of the equity investment in the same French operation, which management
believed to be necessary, based on past results of operations and projections of
future results. The remaining $0.4 million primarily represented the write-off
of excess of cost over the fair value of net assets acquired of an inactive
operation in the Netherlands that was determined to no longer be useful for the
purpose it was originally intended. Improved results of the Public Relations
Division and reduced losses of the offices which were closed in the
restructuring contributed to improved results of operations in 1994.
Net income in 1994 was $2.1 million compared with a net loss of $5.5
million in 1993. Partially offsetting the factors affecting operating income was
an increased effective tax rate due to additional contingency reserves recorded
for probable specific federal and state exposures in open tax years.
The discussion of results of operations of the operating divisions which
follows excludes the impact of other operating expense and restructuring charges
which were discussed above.
Commissions and fees for the Advertising Division were $61.4 million in
1994 compared with $65.4 million in 1993. Operating income for the corresponding
periods was $5.4 million and $2.6 million, respectively. The decrease in
commissions and fees was attributable to lost commissions and fees associated
with closing the Philadelphia and New York offices. This impact was partially
offset by an increase in commissions and fees attributable to expanded business
in the Advertising Division's production units which allowed the division to
better serve existing clients and to capture revenues that had gone outside the
agency. This expansion included new technology which allowed the division to do
typesetting internally. Operating income increased primarily due to reduced
losses related to offices which were closed.
Commissions and fees of the Public Relations Division increased to $45.0
million in 1994 from $41.9 million in 1993 while operating income increased to
$2.9 million from $2.7 million. The increase in commissions and fees was
primarily due to strong demand for services in the United States, both from
existing clients and new clients. Commissions and fees related to an additional
investment in an agency in France also contributed to the increase. The increase
in operating income was a result of the factors that contributed to the
commissions and fees increase. The operating profit percentage was approximately
6.4% for both 1994 and 1993.
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<PAGE>
Commissions and fees for the other divisions were $17.7 million in 1994
compared to $22.2 million in 1993. Operating loss was $1.4 million in 1994 and
operating income was $0.4 million in 1993. The decrease in commissions and fees
was due to the impact of lost commissions and fees in both the Directory
Advertising and Health Care Divisions. The decrease in Directory Advertising was
primarily related to the loss of a significant client. The decrease in the
Health Care Division was due to an industry wide trend of reduced advertising
expenditures by pharmaceutical companies as a result of public scrutiny of these
companies' spending practices. Operating income was negatively impacted by lost
revenues and costs associated with a severe decline in business in the Health
Care Division. Directory Advertising operating income was comparable in 1994 and
1993.
Impact of Inflation
Ketchum's financial statements are prepared on a historical cost basis
which does not completely account for the effects of inflation. The impact of
inflation on the Ketchum's results was not significant in 1995, 1994 and 1993
due to the low inflation rates in those years.
Accounting Standard
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No.121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of". This standard is
effective for years beginning after December 15, 1995. The general requirements
of SFAS No.121 apply to non-current assets and require impairment to be
considered whenever evidence suggests that future cash flows will not result in
an amount at least equal to the carrying value of the asset. Ketchum has not
adopted SFAS No. 121 at December 31, 1995. Management of Ketchum does not
believe the adoption of this standard will have a material effect on financial
condition or results of operations.
Capital Resources and Liquidity
Cash and cash equivalents increased to $2.9 million from $2.5 million in
1994. Ketchum's primary source of cash and cash equivalents has historically
been from operations. Cash flow from operations was $8.1 million, $6.0 million
and $7.8 million in 1995, 1994 and 1993, respectively. Cash and cash equivalents
have been utilized to fund investing activities, primarily capital expenditures
and additional investments in affiliates and acquisitions. Cash flow used in
investing activities totaled $3.5 million, $7.4 million and $6.3 million in
1995, 1994 and 1993, respectively. Ketchum also had available $7.0 million of
capacity, net of a $1 million reserve against guarantees, on its revolving
credit agreement at December 31, 1995. However, as a result of additional
borrowings subsequent to December 31, 1995 Ketchum had approximately $80,000 of
additional borrowings available as of March 6, 1996. Ketchum is also in
violation of certain covenants of this revolving credit agreement as of March 6,
1996. At December 31, 1995, Ketchum was also in violation of certain covenants
pertaining to its senior notes payable; specifically, requirements related to
Ketchum's current ratio, debt to capitalization ratio, calculated consolidated
net worth, fixed charge coverage ratio and interest coverage ratio. Other
violations included exceeding the limitations for other minority investments,
other investments and permitted debt of subsidiaries. As a result of these
covenant violations, the holder of the notes may call the debt and declare the
entire amount of the indebtedness and a penalty, due and payable immediately.
The total amount outstanding on the notes is approximately $11.6 million and
management estimates the penalty, if the note would be called, would approximate
$1.5 million. Ketchum has had several discussions with the senior note holder
concerning the covenant violations. In these discussions, the senior note holder
has not disclosed its intentions concerning calling the notes. Ketchum is also
required to currently pay $4.0 million related to a judgment for a prior
acquisition in the United Kingdom. These factors contribute to a working capital
deficiency at December 31, 1995.
The report of Ketchum's independent auditors includes an explanatory
paragraph expressing substantial doubt regarding Ketchum's ability to continue
as a going concern. Note 2 to Ketchum's financial statements describes the
conditions that give rise to the going concern uncertainty. In response to these
conditions, management has initiated discussions with its principal lender and
has also contacted another lender regarding the possibility of obtaining
financing. In addition, Ketchum has negotiated a possible merger with Omnicom
which management believes will be finalized. Management believes that the
financial strength of Omnicom, pending closing of the deal, the reasonable
40
<PAGE>
probability related to refinancing long-term debt, the relief of the
repurchasing obligation of shares of Ketchum Common Stock as a result of the
Merger and increased future profitability resulting from recent restructuring
and impairment charges, will address Ketchum's current and long-term liquidity
needs.
Cash and cash equivalents have been generated by Ketchum from the sale of
common stock to employees including payments received on related notes. Ketchum
also has agreements to repurchase Ketchum Common Stock and has utilized cash and
cash equivalents to repurchase shares and to pay related notes. Under Ketchum's
shareholder agreements, the Ketchum Common Stock is both sold and repurchased by
Ketchum at a price determined by a formula based primarily upon book value,
adjusted for certain items determined by the Board of Directors. The Common
Stock of Ketchum is owned by the employees and Ketchum is obligated to
repurchase its common stock from the holders upon termination of employment. The
total repurchase obligation is recorded based upon the formula price and number
of shares outstanding at each balance sheet date. At Ketchum's option these
repurchases are paid either by cash in a lump sum or over a three to five year
period. In 1994 and 1993 Ketchum issued 20,000 shares of Ketchum Preferred Stock
to generate additional cash and cash equivalents. The Ketchum Preferred Stock is
held only by the Ketchum Profit Sharing Plan. Ketchum has paid cash dividends on
common and preferred shares of approximately $0.6 million in each of 1995, 1994
and 1993.
In order to provide sufficient cash flow from operating activities it is
the policy of Ketchum to bill in advance of payments due for services it
provides as often as possible in order that cash receipts can closely match
payment requirements. All general advertising broadcast media and substantially
all general advertising print media costs are invoiced in the month in which the
commercial airs or the ad is inserted. Directory advertising costs are all
billed any where from 0 to 4 months in advance of when a directory is issued.
Production costs are generally billed in advance under the installment method
based on estimated costs of the work to be performed.
Management of Ketchum believes that due to the renewed efforts of cost
cutting and cost containment used in developing the 1996 plan, which projects
increased profits, sufficient taxable income will be generated in 1996 to
realize the net deferred tax asset recorded at December 31, 1995. Management
believes the 1996 plan and the assumptions underlying it are reasonable and
believes it is more likely than not that the deferred tax asset will be
realized.
41
<PAGE>
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 Omnicom 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 of 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.
Omnicom may issue preferred stock in series having whatever rights and
preferences the Omnicom Board of Directors may determine. One or more series of
preferred stock may be made convertible into Omnicom Common Stock at rates
determined by the Board of Directors, and preferred stock may be given priority
over the Omnicom Common Stock in payment of dividends, rights on liquidation,
voting and other rights. Preferred stock may be issued from time to time upon
authorization of the Omnicom Board of Directors without action of the
shareholders, Omnicom has no current plans to issue any preferred stock.
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 $27.44, subject
to adjustment in certain events.
Chemical Mellon Shareholder Services, 450 West 33rd Street, New York, New
York 10001 is the transfer agent and the registrar of the Omnicom Common Stock.
DESCRIPTION OF KETCHUM CAPITAL STOCK
Ketchum is a privately-owned company and there is no established public
trading market for its capital stock. Ketchum's authorized capital is 2,000,000
shares of common stock, stated value of $0.005 per share and 50,000 shares of
preferred stock, par value $100 per share. As of April 15, 1996, there were
358,818 shares of Ketchum Common Stock issued and outstanding and 1,005,182
shares of Ketchum Common Stock held in treasury; and 6,282 shares of Series A
Preferred Stock issued and outstanding and no shares of Series A Preferred Stock
held in treasury.
Under provisions of the Ketchum Articles, only (a) employees of Ketchum or
an entity owned by Ketchum, or in which Ketchum, directly or indirectly, has an
interest, (b) non-employees approved by the Ketchum Executive Committee, and (c)
a trust(s) established as a part of a qualified retirement plan maintained by
Ketchum, are entitled to become shareholders of Ketchum. No more than 10% of
Ketchum's issued and outstanding capital stock can be owned by non-employees and
employees of entities which are less than 100% owned by Ketchum or a corporation
owned directly or indirectly by Ketchum.
Shares of stock held by employees of Ketchum are subject to the terms of
shareholder agreements, which restrict the sale, transfer, pledge, hypothecation
or other disposition of shares. Pursuant to the shareholder agreements,
transfers of shares are prohibited except to Ketchum or to other employees upon
Ketchum's approval. An employee, or his estate, is obligated to sell his shares
to Ketchum upon termination of employment, death or bankruptcy. Those shares are
repurchased by Ketchum at a price to be determined in accordance with the terms
of the shareholder agreement. This determination is based primarily upon book
value, as adjusted by the Ketchum Board of Directors.
Common Stock
All outstanding shares of Ketchum Common Stock are fully paid and
nonassessable. The holders of Ketchum Common Stock are entitled to one vote for
each share held of record and on all matters voted by the Ketchum Shareholders.
There are no cumulative voting rights for the election of directors.
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<PAGE>
There are no redemption, sinking fund, conversion or preemptive rights with
respect to shares of Ketchum Common Stock. All shares of Ketchum Common Stock
have equal rights and preferences. In the event of the liquidation of Ketchum,
each outstanding share is entitled to participate pro rata in the assets
remaining after payment of, or adequate provision for, all known preferences
(including the Ketchum Preferred Stock), debts and liabilities of Ketchum.
Dividends are payable only when and if declared by the Board of Directors
of Ketchum out of funds legally available therefor and are necessarily dependent
upon earnings, the general financial status of the company and various other
factors. A small cash dividend was historically paid with respect to the shares
of Ketchum Common Stock so as to preserve corporate funds for growth and to
increase the potential for long-term capital gain treatment. The regular Ketchum
Common Stock dividend has been paid in four equal quarterly installments. In
1994 and 1995, a $1.00 dividend was paid with respect to the Ketchum Common
Stock. A special Ketchum Common Stock dividend is paid only if actual financial
performance is substantially above projected performance, and only if Ketchum's
capital requirements do not require retention of the cash. No special Ketchum
Common Stock dividend has been declared in the past five years.
Preferred Stock
Ketchum has designated 20,000 shares of Series A Preferred Stock, par value
$100 per share, as a series of its authorized preferred stock; this is the only
preferred stock outstanding and is referred to in this document as the "Ketchum
Preferred Stock". The Ketchum Preferred Stock has a dividend, if and when
declared by the Ketchum Board of Directors, of $90 per annum per share, payable
in quarterly payments of $22.50 on March 15, June 15, September 15, and December
15 of each year. Such dividends are senior to dividends on Ketchum Common Stock,
and are cumulative and accrue on a day-to-day basis whether or not earned from
and after the date of issuance or the date to which dividends have been paid.
Accrued but unpaid dividends do not bear interest. The quarterly dividends on
the Ketchum Preferred Stock as described above were paid by Ketchum as required
for each quarter of 1994 and 1995.
Late dividends (those paid on the 30th or following date after the dividend
payment date) accrue at the rate of $100 per annum for a period of 90 days
following such dividend payment date, and $90 per annum thereafter. The Ketchum
Preferred Stock has a liquidation preference over the holders of Ketchum Common
Stock of $1,000, plus all accrued but unpaid dividends, per share of Ketchum
Preferred Stock. Except for such liquidation preference, the holders of Ketchum
Preferred Stock are not entitled to any distribution in the event of the
liquidation, dissolution or winding up of Ketchum. If the assets of Ketchum are
not sufficient to pay such liquidation preference, the holders of Ketchum
Preferred Stock share ratably in any such distribution in accordance with the
amount that would have been paid if such liquidation preference were paid in
full. After the liquidation preference is paid in full, all remaining assets are
to be distributed to the holders of the Ketchum Common Stock.
Ketchum may redeem the Ketchum Preferred Stock at any time after January
1, 2003 at the option of the Ketchum Board of Directors, in whole or in part, at
a redemption price of $1,045 per share of Ketchum Preferred Stock plus accrued
and unpaid dividends to the redemption date.
Each share of Ketchum Preferred Stock has one vote, which shall vote
together with the Ketchum Common Stock on all matters submitted to the Ketchum
Shareholders, except for matters, such as the Merger, as to which the PABCL
provides for a special class vote.
COMPARISON OF SHAREHOLDER RIGHTS
Upon consummation of the Merger, the shareholders of Ketchum, a
Pennsylvania 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
Ketchum Shareholders that will result from the application of New York law in
lieu of Pennsylvania law and the differences between the Omnicom Certificate and
the Omnicom By-laws and the Ketchum Articles and the Ketchum By-laws (the
"Ketchum By-Laws"), the following is a summary of material differences.
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References to the "NYBCL" are to the New York Business Corporation Law,
while references to the "PABCL" are to the Pennsylvania Business Corporation
Law.
Special Meetings of Shareholders
The PABCL provides that a special meeting of the shareholders may be called
at any time by the board of directors, by such other officers and persons as may
be provided in the by-laws of the corporation, or by shareholders entitled to
cast at least 20% of the votes which all shareholders are entitled to cast at
such a meeting. The Ketchum By-laws provide that a special meeting of
shareholders may be called at any time by the Chairman of the Board, the
President, any Vice Chairman of the Board, the Secretary, the Board of Directors
or the holders of not less than ten percent of all outstanding shares entitled
to vote at the special meeting. Under the Ketchum By-laws, if the Secretary of
Ketchum fails to schedule a special meeting of the shareholders after such a
meeting had been requested by a person or persons entitled to do so, the person
or persons making the request for a special meeting may schedule the meeting.
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.
Removal of Directors
Under Pennsylvania law, the entire board of directors, a class of the board
of directors or any individual director may be removed without cause by a vote
of the shareholders entitled to vote for the election of directors. Further, the
board of directors may be removed at any time, with or without cause, on the
unanimous vote or consent of the shareholders. The Ketchum By-laws are otherwise
silent as to the removal of directors.
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 such Shares are 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
Pennsylvania law provides that vacancies on the board of directors,
including vacancies resulting from an increase in the number of members of the
board of directors, may be filled by a majority vote of the remaining members of
the board of directors, even if the remaining members constitute less than a
quorum. The PABCL also states that the person selected to fill the vacancy on
the board of directors then serves the balance of the unexpired term on the
board. The Ketchum By-laws provide that a vacancy on the Board of Directors
shall be filled by a majority vote of the remaining directors, even if they
comprise less than a quorum. Under the Ketchum By-laws, the newly elected
director then serves until the next annual meeting of the shareholders and until
a successor is elected and qualified or until the newly elected director's
earlier death, resignation or removal.
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
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<PAGE>
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
The Ketchum By-laws do not provide for the classification of the Board of
Directors.
The Omnicom Certificate provides that directors are to be classified into
three classes, which are to hold office in staggered three-year terms.
Inspection of the Books and Records
Under Pennsylvania law, a shareholder has the right to examine, during
normal business hours, the share register, the books and records of account of
the corporation, the records of proceedings of the incorporators, shareholders
and directors, and to make copies and extracts therefrom, if the shareholder
makes a written, verified demand to inspect. The shareholder's written demand
must state a purpose for the inspection that is reasonably related to the
shareholder's status as a shareholder. If the inspection is to be made by an
attorney or agent of the shareholder, the demand must be accompanied by a
verified power of attorney authorizing the attorney or agent to act on behalf of
the shareholder. If the corporation or an officer or agent of the corporation
has refused to permit the inspection or does not reply to the demand within five
business days after the demand was made, the shareholder may apply to the court
of common pleas to enforce the right of inspection, and the court of common
pleas will determine if the inspection is being made for a proper purpose. Other
than specifically enumerating the shareholders' rights to receive annual
financial statements, the Ketchum By-laws do not otherwise refer to the rights
of shareholders to inspect the corporate books and records.
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 Articles of Incorporation/Certificate of Incorporation
Pennsylvania law states that amendments to the articles of incorporation
shall be proposed by resolution of the board of directors or by petition of
shareholders entitled to cast at least ten percent of the shares entitled to
vote. The board of directors must provide a summary or copy of the proposed
amendment and information regarding dissenters' rights, if applicable, to the
shareholders. Except in limited cases, amendments to the articles of
incorporation must be approved by a majority of shares entitled to vote and by a
majority of any class or series of shares that is entitled to vote on the
proposed amendment as a class or series. Certain amendments to the articles of
incorporation that would adversely affect a series or class or which would alter
the preferences of a series or class also must be approved by a majority vote of
that series or class. The Ketchum By-laws do not otherwise provide for
amendments to the Articles of Incorporation.
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
Pennsylvania law provides that the shareholders have the power to amend or
repeal the by-laws of the corporation. However, the power to amend or repeal the
by-laws can be expressly vested by the by-laws in the board of directors,
subject to the power of the shareholders to change such action by the board. The
Ketchum By-laws provide that the By-laws may be amended or altered by a majority
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<PAGE>
vote of the members of the Board of Directors at any regular or special meeting,
subject to the power of the shareholders to change such action by the Board of
Directors.
Under Pennsylvania law, the board of directors lacks the power to amend
by-laws relating to a variety of subjects that can be amended only by the
shareholders, including provisions governing the powers of the board of
directors, limiting the personal liability of members of the board of directors,
classification of the board of directors, removal of directors and quorums and
certain other matters relating to shareholder meetings.
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
Under Pennsylvania law and unless the by-laws state otherwise, the board of
directors is empowered to authorize distributions to or for the benefit of its
shareholders. The PABCL prohibits a distribution if, after it is made (i) the
corporation would be unable to pay its debts as they become due in the ordinary
course of business or (ii) the total assets of the corporation would be less
than the sum of (A) its total liabilities and (B) the amount that would be
needed, if the corporation were to be dissolved at the time as of which the
distribution is measured, to satisfy the preferential rights upon dissolution of
the shareholders whose preferential rights are superior to those receiving the
distribution.
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.
State Takeover Legislation
In certain instances, Pennsylvania's takeover legislation restricts the
ability of a person or entity to acquire control of a Pennsylvania corporation
through a business combination, such as a merger, consolidation or share
exchange, or through the acquisition of shares constituting at least twenty
percent of the votes that can be cast in the election of directors of the
corporation. The takeover provisions of the PABCL apply, however, only to
registered corporations, which are defined as (i) those corporations which have
registered securities under the Exchange Act, (ii) those corporations that have
reporting requirements under the Exchange Act by virtue of a registration filed
under the Securities Act, (iii) certain corporations that have registered as a
management company under the Investment Company Act of 1940 or (iv) a
Pennsylvania corporation all of whose shares are owned, either directly or
indirectly, by a domestic or foreign registered corporation. Because Ketchum has
no reporting or registration requirements, is not a registered management
company and is not owned, either directly or indirectly, by a domestic or
foreign registered corporation, the Pennsylvania takeover legislation is
inapplicable to Ketchum.
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
46
<PAGE>
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.
Under the NYBCL, corporations may opt to not be governed by the statute;
Omnicom has not so elected.
Business Combinations
Under the PABCL, the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote on the matter is required to approve mergers
or consolidations, and certain sales, leases, exchanges and other distributions
of all or substantially all of the property and assets of a corporation. In
addition, if any class or series of shares is entitled to vote on the merger or
consolidation as a class, a majority of the votes cast in each class is
necessary to approve the merger or consolidation.
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
Under Pennsylvania law, a shareholder can dissent from, and receive payment
of the fair value of his or her shares in the event of, certain mergers,
consolidations, share exchanges, asset transfers and corporate divisions.
Further, a corporation may, in its by-laws or by resolution of the board of
directors, provide for dissenters' rights that are more expansive than those
granted by the PABCL. Neither the Ketchum By-laws nor any board resolutions
provide for any such expanded dissenters' rights. A shareholder who wishes to
dissent from a corporate action and to receive the fair value of his or her
shares must (i) make a written demand therefor prior to the shareholder vote on
the action, (ii) retain ownership of the shares through the effective date of
the proposed action and (iii) refrain from voting his or her shares in approval
of the action. The shareholder then must make a demand for payment and deposit
his or her share certificates with the corporation within the time period
allotted by the corporation. If the shareholder fails to make a timely demand
for payment or fails to deposit stock certificates with the corporation in
accordance with instructions by the corporation, the shareholder loses his or
her right to receive payment for the fair value of his or her share under
Pennsylvania law.
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
Absent contrary provisions in the corporation's by-laws, Pennsylvania law
provides that a corporation has the power to, and in some cases must, indemnify
any person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action or proceeding, including a derivative
action, by reason of the fact that the person is, was or functions as a
director, officer, employee or agent of the corporation. Such indemnification,
against reasonable expenses, attorneys' fees, judgments, fines and amounts paid
in settlements, is permitted only if the person to be indemnified 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 or, in the case of a criminal proceeding,
if he or she had no reasonable cause to believe that his or her conduct was
unlawful.
A determination that the officer, director, employee or agent has met the
required standard of conduct, and that indemnification therefore is proper, must
be made (i) by a majority vote of a quorum comprised of disinterested directors,
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(ii) in writing by independent legal counsel if a quorum of disinterested
directors cannot be achieved or, if a quorum of disinterested directors exists,
a majority of such quorum votes to seek a written determination by independent
legal counsel or (iii) by the shareholders. In the case of a derivative action,
the PABCL bars indemnification when the representative has been adjudged liable
unless and to the extent the court of common pleas or other court determines
that indemnity is proper.
A corporation may advance expenses incurred by a director, officer,
employee or agent in defending an action or proceeding in the event the
director, officer, employee or agent has provided to the corporation an
undertaking to repay the advanced expenses if it is later determined that he or
she was not entitled to indemnification. The PABCL also provides that a
corporation must indemnify a director, officer, employee or agent from expenses
incurred in defense of any action or proceeding described above when the
director, officer, employee or agent has been successful on the merits or
otherwise.
The statutory indemnification rights are not exclusive and can be expanded
by the corporation's by-laws, by agreement or by vote of the shareholders or
disinterested directors. Such expanded indemnification rights will be
unavailable, however, if a court of common pleas finds that the act or failure
to act giving rise to the purported right of indemnification constituted willful
misconduct or recklessness. Finally, unless the by-laws of the corporation
provide otherwise, a corporation may purchase insurance on behalf of any
officer, director, employee or agent.
The Ketchum By-laws provide that indemnification shall be made to a
director or officer to the fullest extent permitted by law for expenses and
other costs incurred in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, and whether or not such suit was derivative in
nature. In addition, the Ketchum By-laws provide that an officer or director may
be entitled to indemnification in connection with a proceeding he or she
initiated only if such proceeding was authorized by the Ketchum Board of
Directors.
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
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
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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
Ketchum pursuant to the foregoing provisions, Omnicom and Ketchum 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
Under Pennsylvania law, a by-law adopted by the shareholders may provide
that, except in the case of responsibility or liability under a criminal statute
or liability for payment of local, state or federal taxes, a director shall not
be personally liable for monetary damages for any action taken unless the
director has breached or failed to perform his or her fiduciary duties and the
breach or failure to perform constituted self dealing, willful misconduct or
recklessness. The Ketchum By-laws provide that a director shall not be
personally liable for monetary damages for any action taken or the failure to
take any action unless the director breached his or her fiduciary duties and
such breach constituted self-dealing, willful misconduct or recklessness. In
addition, the Ketchum By-laws provide that such limitations on the personal
liability of directors does not extend to liability under a criminal statute or
for the liability for payment of taxes under local, state or federal law.
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, which Section establishes liability of directors of a
corporation to that corporation in the event that they approve statutorily
prohibited dividends, share repurchases, share redemptions, distributions of
assets on dissolution or loans to directors.
LEGAL MATTERS
The legality of the issuance of the Omnicom Common Stock to be issued in
the Merger will be passed upon by Davis & Gilbert, 1740 Broadway, New York, New
York 10019, counsel to Omnicom.
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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 an expert in giving said reports.
The consolidated financial statements of Ketchum contained in this
Prospectus/Information Statement and the Registration Statement of which this
Prospectus/Information Statement is a part have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports with respect
thereto, and are included herein in reliance upon the authority of such firm as
experts in accounting and auditing. In addition, the description of the federal
income tax consequences of the Merger provided by Deloitte & Touche LLP and
based on their opinion with respect thereto attached as an exhibit to this
Registration Statement, is included in this Prospectus/Information Statement
upon the authority of said firm as experts in said matter.
50
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INDEX TO KETCHUM FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report ........................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994 ........... F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 ..................................... F-4
Consolidated Statements of Redeemable Preferred
and Common Stock and Accumulated
Deficit for the years ended December 31, 1995, 1994 and 1993 ......... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 ..................................... F-6
Notes to Consolidated Financial Statements ............................. F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Ketchum Communications Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Ketchum
Communications Holdings, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, redeemable preferred and
common stock and accumulated deficit, and cash flows for each of the three years
in the period ended December 31, 1995. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Ketchum Communications
Holdings, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As indicated in the
accompanying consolidated financial statements, the Company incurred a net loss
for the year ended December 31, 1995 and has an accumulated deficit.
Additionally, as discussed in Note 2, the Company was not in compliance with
certain terms of a long-term debt agreement at December 31, 1995, and as a
result, the holder of the debt has the right to declare the entire amount of
such indebtedness and a penalty, due and payable immediately. Further, as
described in Note 14, the Company has lost a judgement which will require it to
pay approximately $4,000,000 currently and, as described in Note 6, as a result
of borrowings subsequent to December 31, 1995, the Company has approximately
$80,000 of available borrowing capacity and is in violation of certain covenants
under its revolving credit agreement as of March 6, 1996. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 2. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 6, 1996
F-2
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 2,878,839 $ 2,492,123
Investments--at market value................................. 1,552,702 1,241,992
Accounts receivable, net of allowance for
doubtful accounts of $617,000 and $180,000
in 1995 and 1994, respectively............................. 63,539,028 58,999,876
Billable production in process, net of allowance
for unrealizable amounts of $144,000 in 1995 .............. 28,753,299 26,298,872
Prepaid expenses and other assets............................ 1,598,783 1,993,652
Deferred income taxes........................................ 1,704,824 --
------------ ------------
Total current assets ..................................... 100,027,475 91,026,515
------------ ------------
Property and equipment--at cost:
Leasehold improvements ..................................... 8,758,872 10,845,410
Furniture and equipment .................................... 24,149,017 25,859,995
------------ ------------
32,907,889 36,705,405
Less accumulated depreciation and amortization ............. 21,533,577 21,779,347
------------ ------------
Net property and equipment ............................... 11,374,312 14,926,058
Excess of cost over fair value of net assets acquired,
less accumulated amortization of $3,829,466 and
$3,531,636 in 1995 and 1994, respectively ................. 9,339,536 12,565,338
Other assets ................................................. 6,881,065 6,247,993
------------ ------------
Total assets ........................................... $127,622,388 $124,765,904
============ ============
LIABILITIES AND ACCUMULATED DEFICIT
Current liabilities:
Debt classified as current, due to covenant violations...... $ 11,571,429 $ --
Notes payable--short-term .................................. 1,769,582 1,816,117
Current maturities of long-term debt ....................... 2,755,304 2,954,418
Accounts payable ........................................... 67,927,190 60,195,861
Client deposits ............................................ 12,796,597 10,849,559
Other accrued expenses ..................................... 11,058,237 5,700,498
Accrued employee benefit plan contributions ................ 1,544,871 2,075,796
Accrued income taxes ....................................... 2,500,782 554,727
------------ ------------
Total current liabilities ................................ 111,923,992 84,146,976
------------ ------------
Long-term debt ............................................... 3,804,056 15,639,922
Deferred income taxes ........................................ 556,133 2,390,109
Other liabilities............................................. 3,795,148 4,208,091
Redeemable cumulative preferred stock, voting, $100 par,
$1,000 redemption value; authorized 50,000 shares:
Series A, 20,000 shares authorized, outstanding 8,035
and 4,990.5 shares in 1995 and 1994, respectively
--at redemption value .................................. 8,035,000 4,990,500
Common stock subject to repurchase obligations:
Common stock, no par value (stated value $.005);
authorized 2,000,000 shares; issued 1,364,000 shares,
outstanding 347,125 and 460,412 shares in 1995
and 1994, respectively.................................... 6,820 6,820
Repurchase obligations in excess of stated value ........... 20,824,151 25,817,689
Notes receivable for common stock .......................... (3,373,721) (3,823,379)
------------ ------------
Common stock subject to repurchase obligations--net....... 17,457,250 22,001,130
------------ ------------
Accumulated deficit:
Retained deficit ........................................... (18,154,220) (8,282,950)
Cumulative translation adjustment .......................... 205,029 161,427
Unrealized loss on investments ............................. -- (489,301)
------------ ------------
Total accumulated deficit................................. (17,949,191) (8,610,824)
------------ ------------
Total liabilities and accumulated deficit................. $127,622,388 $124,765,904
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements
F-3
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Commissions and fees.............................. $127,387,710 $124,060,534 $129,510,331
----------- ----------- -----------
Operating expenses:
Compensation and employee benefits.............. 75,245,914 73,826,994 76,229,397
General agency expense.......................... 49,476,176 43,355,612 47,597,260
Other expense................................... 9,562,184 252,834 1,958,932
Restructuring charges........................... -- -- 8,778,572
----------- ----------- -----------
Total operating expenses...................... 134,284,274 117,435,440 134,564,161
----------- ----------- -----------
Operating (loss) income........................... (6,896,564) 6,625,094 (5,053,830)
Interest expense.................................. 2,029,160 2,667,644 2,435,243
Other income, net................................. (1,203,632) (714,094) (685,503)
----------- ----------- -----------
(Loss) income before income taxes................. (7,722,092) 4,671,544 (6,803,570)
Income tax (benefit) expense...................... (182,331) 2,579,241 (1,269,052)
----------- ----------- -----------
Net (loss) income................................. $(7,539,761) $ 2,092,303 $(5,534,518)
=========== =========== ===========
Net (loss) income applicable to common stock...... $(8,144,944) $ 1,724,529 $(5,590,550)
=========== =========== ===========
Net (loss) income per common share................ $ (21.82) $ 3.67 $ (10.55)
=========== =========== ===========
Weighted average number of shares outstanding..... 373,342 470,100 529,983
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements
F-4
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED AND COMMON STOCK
AND ACCUMULATED DEFICIT
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Redeemable Preferred Stock
----------------------------
Shares
Outstanding Amount
----------- ----------
<S> <C> <C>
Balance, January 1, 1993 ..................... -- $ --
Net loss ................................... -- --
Dividends on common stock .................. -- --
Dividends on preferred stock ............... -- --
Purchase of common shares .................. -- --
Sale of common shares ...................... -- --
Net increase in obligations due to
increase in repurchase price ............. -- --
Payments received on notes
receivable for common stock .............. -- --
Sale of preferred shares ................... 2,500.5 2,500,500
Purchase of preferred shares ............... (30.0) (30,000)
Translation adjustment ..................... -- --
Unrealized market value adjustment ......... -- --
--------- -----------
Balance, December 31, 1993 ................... 2,470.5 2,470,500
Net income ................................. -- --
Dividends on common stock .................. -- --
Dividends on preferred stock ............... 229.0 229,000
Purchase of common shares .................. -- --
Sale of common shares ...................... -- --
Net increase in obligations due to
increase in repurchase price ............. -- --
Payments received on notes
receivable for common stock .............. -- --
Sale of preferred shares ................... 2,366.0 2,366,000
Purchase of preferred shares ............... (75.0) (75,000)
Translation adjustment ..................... -- --
Unrealized market value adjustment ......... -- --
--------- -----------
Balance, December 31, 1994 ................... 4,990.5 4,990,500
Net loss ................................... -- --
Dividends on common stock .................. -- --
Dividends on preferred stock ............... 378.0 378,000
Purchase of common shares .................. -- --
Sale of common shares ...................... -- --
Net increase in obligations due to
increase in repurchase price ............. -- --
Payments received on notes
receivable for common stock .............. -- --
Translation adjustment ....................... -- --
Sale of preferred shares ..................... 3,265.5 3,265,500
Purchase of preferred shares ................. (599.0) (599,000)
Write-down of investment ..................... -- --
--------- -----------
Balance, December 31, 1995 ................... 8,035.0 $ 8,035,000
========= ===========
<CAPTION>
Common Stock Subject to Repurchase Obligations
-------------------------------------------------------------------------
Stated Repurchase Notes
Common Value of Obligations Receivable
Shares Common In Excess of for Common
Outstanding Stock Stated Value Stock Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 ........... 617,614 $ 6,820 $ 31,472,966 $ (5,519,459) $ 25,960,327
Net loss ......................... -- -- -- -- --
Dividends on common stock ........ -- -- -- -- --
Dividends on preferred stock ..... -- -- -- -- --
Purchase of common shares ........ (147,496) -- (7,625,094) -- (7,625,094)
Sale of common shares ............ 19,210 -- 965,879 (898,001) 67,878
Net increase in obligations due to
increase in repurchase price ... -- -- 1,387,837 -- 1,387,837
Payments received on notes
receivable for common stock .... -- -- -- 1,717,905 1,717,905
Sale of preferred shares ......... -- -- -- -- --
Purchase of preferred shares ..... -- -- -- -- --
Translation adjustment ........... -- -- -- -- --
Unrealized market value adjustment -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1993 ......... 489,328 6,820 26,201,588 (4,699,555) 21,508,853
Net income ....................... -- -- -- -- --
Dividends on common stock ........ -- -- -- -- --
Dividends on preferred stock ..... -- -- -- -- --
Purchase of common shares ........ (57,600) -- (2,995,227) -- (2,995,227)
Sale of common shares ............ 28,684 -- 1,466,825 (494,854) 971,971
Net increase in obligations due to
increase in repurchase price ... -- -- 1,144,503 -- 1,144,503
Payments received on notes
receivable for common stock .... -- -- -- 1,371,030 1,371,030
Sale of preferred shares ......... -- -- -- -- --
Purchase of preferred shares ..... -- -- -- -- --
Translation adjustment ........... -- -- -- -- --
Unrealized market value adjustment -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 ......... 460,412 6,820 25,817,689 (3,823,379) 22,001,130
Net loss ......................... -- -- -- -- --
Dividends on common stock ........ -- -- -- -- --
Dividends on preferred stock ..... -- -- -- -- --
Purchase of common shares ........ (140,103) -- (7,798,915) -- (7,798,915)
Sale of common shares ............ 26,816 -- 1,446,618 (1,222,297) 224,321
Net increase in obligations due to
increase in repurchase price ... -- -- 1,358,759 -- 1,358,759
Payments received on notes
receivable for common stock .... -- -- -- 1,671,955 1,671,955
Translation adjustment ............. -- -- -- -- --
Sale of preferred shares ........... -- -- -- -- --
Purchase of preferred shares ....... -- -- -- -- --
Write-down of investment ........... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 ......... 347,125 $ 6,820 $ 20,824,151 $ (3,373,721) $ 17,457,250
============ ============ ============ ============ ============
<CAPTION>
Accumulated Deficit
--------------------------------------------------------------------------------------------
Retained Deficit
---------------------------------------------
Increase in Cumulative Unrealized
Retained Repurchase Retained Translation Loss on
Earnings Obligations Deficit Adjustment Investments Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 ........... $ 39,974,427 $(40,888,951) $ (914,524) $ 174,906 $ (387,500) $ (1,127,118)
Net loss ......................... (5,534,518) -- (5,534,518) -- -- (5,534,518)
Dividends on common stock ........ (509,107) -- (509,107) -- -- (509,107)
Dividends on preferred stock ..... (56,032) -- (56,032) -- -- (56,032)
Purchase of common shares ........ -- -- -- -- -- --
Sale of common shares ............ -- -- -- -- -- --
Net increase in obligations due to
increase in repurchase price ... -- (1,387,837) (1,387,837) -- -- (1,387,837)
Payments received on notes
receivable for common stock .... -- -- -- -- -- --
Sale of preferred shares ......... -- -- -- -- -- --
Purchase of preferred shares ..... -- -- -- -- -- --
Translation adjustment ........... -- -- -- 113,051 -- 113,051
Unrealized market value adjustment -- -- -- -- (84,309) (84,309)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1993 ......... 33,874,770 (42,276,788) (8,402,018) 287,957 (471,809) (8,585,870)
Net income ....................... 2,092,303 -- 2,092,303 -- -- 2,092,303
Dividends on common stock ........ (460,958) -- (460,958) -- -- (460,958)
Dividends on preferred stock ..... (367,774) -- (367,774) -- -- (367,774)
Purchase of common shares ........ -- -- -- -- -- --
Sale of common shares ............ -- -- -- -- -- --
Net increase in obligations due to
increase in repurchase price ... -- (1,144,503) (1,144,503) -- -- (1,144,503)
Payments received on notes
receivable for common stock .... -- -- -- -- -- --
Sale of preferred shares ......... -- -- -- -- -- --
Purchase of preferred shares ..... -- -- -- -- -- --
Translation adjustment ........... -- -- -- (126,530) -- (126,530)
Unrealized market value adjustment -- -- -- -- (17,492) (17,492)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 ......... 35,138,341 (43,421,291) (8,282,950) 161,427 (489,301) (8,610,824)
Net loss ......................... (7,539,761) -- (7,539,761) -- -- (7,539,761)
Dividends on common stock ........ (367,567) -- (367,567) -- -- (367,567)
Dividends on preferred stock ..... (605,183) -- (605,183) -- -- (605,183)
Purchase of common shares ........ -- -- -- -- -- --
Sale of common shares ............ -- -- -- -- -- --
Net increase in obligations due to
increase in repurchase price ... -- (1,358,759) (1,358,759) -- -- (1,358,759)
Payments received on notes
receivable for common stock .... -- -- -- -- -- --
Translation adjustment ............. -- -- -- 43,602 -- 43,602
Sale of preferred shares ........... -- -- -- -- -- --
Purchase of preferred shares ....... -- -- -- -- -- --
Write-down of investment ........... -- -- -- -- 489,301 489,301
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 ......... $ 26,625,830 $(44,780,050) $(18,154,220) $ 205,029 $ -- $(17,949,191)
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements
F-5
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net (loss) income............................................. $ (7,539,761) $2,092,303 $(5,534,518)
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization............................... 5,350,692 6,089,247 6,312,604
Loss on disposal of property and equipment.................. 450,001 -- 14,487
Write-off of excess of cost over fair value of net
assets acquired and investments in equity investees........ 2,759,426 -- 1,054,541
Provision for bad debts..................................... 581,000 (145,322) 41,455
Gain on sale of investments................................. -- (43,452) --
Restructuring charges....................................... -- -- 8,778,572
Write-off of notes receivable from equity investees......... 1,118,051 -- 893,870
Write-down of marketable equity security.................... 504,301 -- --
Gain on sale of office...................................... (400,000) -- --
Deferred taxes.............................................. (3,538,800) 680,241 (3,010,452)
Other-net................................................... 142,884 (1,105,017) (699,015)
Changes in operating assets and liabilities:
Accounts receivable........................................ (4,976,152) (2,088,640) 4,684,478
Billable production in process............................. (2,598,427) 1,695,205 (3,936,725)
Prepaid expenses and other assets.......................... 394,869 203,743 461,702
Accounts payable........................................... 7,731,329 (4,619,593) 803,253
Client deposits............................................ 1,947,038 2,152,275 (316,678)
Other accrued expenses..................................... 4,801,240 491,135 554,458
Accrued employee benefit plan contributions................ (530,925) 35,334 (1,730,091)
Accrued income taxes....................................... 1,946,055 554,727 (602,564)
----------- ----------- -----------
Net cash provided by operating activities.................. 8,142,821 5,992,186 7,769,377
----------- ----------- -----------
Cash Flow from Investing Activities:
Additions to property and equipment........................... (854,027) (4,580,550) (2,547,129)
Payments for acquisitions and equity investments.............. (1,560,904) (2,388,427) (3,234,524)
Dividends received from equity investees...................... -- 120,064 473,646
Purchase of investments....................................... (831,727) (1,186,352) (229,902)
Sale of investments........................................... 505,977 589,612 105,438
Proceeds from sale of office.................................. 400,000 -- --
Advances to equity investees.................................. (1,118,051) -- (893,870)
----------- ----------- -----------
Net cash used in investing activities....................... (3,458,732) (7,445,653) (6,326,341)
----------- ----------- -----------
Cash Flow from Financing Activities:
Proceeds from long-term borrowings............................ -- 3,000,000 1,519,202
Repayments of long-term debt.................................. (2,822,012) (4,340,857) (5,473,142)
Cash dividends paid........................................... (594,750) (599,732) (565,137)
Repurchases of preferred stock................................ (599,000) (75,000) (30,000)
Proceeds from sales of preferred stock........................ 3,265,500 2,366,000 2,500,500
Purchases of common stock..................................... (5,486,989) (1,872,273) (4,117,596)
Payments received on notes receivable for common stock........ 1,671,955 1,371,030 1,717,905
Proceeds from sale of common stock............................ 224,321 971,971 67,878
----------- ----------- -----------
Net cash (used in) provided by operations................... (4,340,975) 821,139 (4,380,390)
----------- ----------- -----------
Effect of Currency Exchange Rates on Cash and Cash Equivalents.. 43,602 (126,530) 113,051
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents............ 386,716 (758,858) (2,824,303)
Cash and Cash Equivalents at Beginning of Year.................. 2,492,123 3,250,981 6,075,284
----------- ----------- -----------
Cash and Cash Equivalents at End of Year........................ $ 2,878,839 $ 2,492,123 $ 3,250,981
=========== =========== ===========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
The Company incurred liabilities of $770,499 for acquisitions and equity
investments during 1995.
The Company issued preferred stock of $378,000 and $229,000 for payment of
dividends on preferred stock during 1995 and 1994, respectively.
The Company received notes of $1,222,296, $494,854 and $898,001 for the issuance
of common stock during 1995, 1994 and 1993, respectively.
The Company issued notes payable of $2,311,926, $1,122,954 and $3,507,498 for
the repurchase of common stock during 1995, 1994 and 1993, respectively.
The Company entered into capital lease obligations for property and equipment of
$557,272 and $271,054 in 1994 and 1993, respectively.
The accompanying notes to financial statements
are an integral part of these statements
F-6
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation -- The consolidated financial statements
include the accounts of Ketchum Communications Holdings, Inc. ("Ketchum" or the
"Company") and subsidiaries, U.S. and non-U.S., for which ownership exceeds 50%
of the voting stock. Investments in companies ranging from 20% to 50% of the
voting stock are carried at equity, and a proportionate share of the earnings or
losses of such equity investees is included in the statements of operations.
Transactions between Ketchum and its subsidiaries are eliminated in
consolidation.
b. Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
c. Cash Equivalents -- The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
d. Revenue Recognition -- Revenue is derived from commissions and fees for
production and placement of advertising, public relations, sales promotion,
research and other services. Depending upon the nature of the service, revenue
is recognized in the month in which advertisements appear, when services are
rendered or when costs are incurred.
e. Billable Production in Process -- Billable production in process
includes outside services and materials plus commissions and fees, where
applicable, and the value of internal time incurred and are stated at the lower
of accumulated charges or estimated realizable amounts.
f. Depreciation and Amortization of Property and Equipment -- Furniture and
equipment are depreciated on the straight-line basis over their estimated useful
lives which range from five to ten years. Leasehold improvements are amortized
on the straight-line basis over the shorter of the lives of the related leases
or the estimated useful lives of the improvements, which range from three to
twenty years.
Included in property and equipment are leased assets at December 31, 1995
and 1994 of $1,136,800 and $2,470,700, respectively. Leased assets are amortized
on the straight-line basis over the lives of the related leases which range from
three to five years. Accumulated amortization at December 31, 1995 and 1994 was
$495,700 and $916,400, respectively.
g. Excess of cost over fair value of net assets acquired -- The Company's
policy is to periodically evaluate the carrying value of the excess of the cost
over the fair value of net assets of businesses acquired based on estimated
future results of operations and cash flows of the related subsidiaries.
The excess of cost over fair value of net assets of businesses acquired is
amortized on the straight-line method over the expected periods of future
benefit, which range from five to twenty years.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This statement is
effective for years beginning after December 15, 1995. The general requirements
of SFAS No. 121 apply to non-current assets and require impairment to be
considered whenever evidence suggests that future cash flows will not at least
equal the carrying value of the asset. Goodwill not associated with long-lived
assets or identifiable intangibles is excluded from the scope of SFAS No. 121.
Ketchum has not adopted SFAS No. 121 at December 31, 1995. Management does not
believe the adoption of this standard will have a material impact on the
Company's financial condition or the results of its operations.
h. Income Taxes -- Effective January 1, 1993, the Company adopted SFAS No.
109, "Accounting for Income Taxes." The Company had previously recorded income
taxes in accordance with SFAS No. 96, "Accounting for Income Taxes." Deferred
income taxes reflect the future tax consequences of differences between the
financial reporting and tax reporting bases of assets and liabilities. The
cumulative effect of this 1993 change in accounting principle was insignificant.
The change had no effect upon 1993 results of operations.
F-7
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
i. Foreign Currency Translation -- The Company translates foreign currency
assets and liabilities using the exchange rates in effect at the balance sheet
date. Results of operations are translated using the average exchange rates
prevailing throughout the year. Translation adjustments are deferred as a
separate component in accumulated deficit.
j. Net (Loss) Income Per Common Share -- Net (loss) income per common
share is based on net (loss) income after dividends on preferred stock and the
weighted average number of common shares outstanding during the year.
The Company does not have common stock equivalents.
k. Investments -- Effective January 1, 1994 the Company adopted SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities" to
account for its investments. This statement expands the use of fair value
accounting for certain investments while retaining the amortized cost method for
investments in certain debt securities based on a company's intent and ability
to hold the investments to maturity. The adoption of this standard had no effect
upon 1994 results of operations.
The Company's investments consist primarily of certificates of deposit and
marketable equity securities. The marketable equity securities are classified
based on SFAS No. 115 as "available-for-sale" and are stated at market value. At
December 31, 1995 the carrying value of all investments approximates their
market value. The aggregate carrying value and market value of marketable equity
securities at December 31, 1994 was $504,301 and $15,000, respectively.
Unrealized holding losses of $489,301 net of deferred taxes, including a 100%
tax asset valuation allowance of $201,380, was included in the accumulated
deficit section of the consolidated balance sheet at December 31, 1994. The
market value of other investments at December 31, 1994 approximated cost.
During 1995 the Company recorded an approximately $500,000 write-down for a
certain marketable equity security as it was determined this investment was
permanently impaired due to what the Company considers to be a permanent decline
in market value and no readily available market for sale.
l. Financial Instruments -- The Company's financial instrument portfolio,
excluding investments, consists primarily of cash and cash equivalents and
short- and long-term debt instruments. The most significant instrument,
long-term debt, had a carrying value which approximated the fair market value.
The fair market value was determined based upon a present value technique of
estimating future cash flows using a discount rate commensurate with the risks
involved. The fair values of the other instruments approximated carrying value.
2. GOING CONCERN
The Company incurred a net loss for the year ended December 31, 1995 and
has an accumulated deficit. In addition, the Company was not in compliance with
certain terms of a long-term debt instrument at December 31, 1995 and the holder
of the debt has the right to declare the entire amount of such indebtedness and
a penalty, due and payable immediately (see Note 6). Further, as described in
Note 14, the Company has lost a judgement which will require it to pay
approximately $4,000,000 currently and, as described in Note 6, as a result of
borrowings subsequent to December 31, 1995, the Company has approximately
$80,000 of available borrowing capacity and is in violation of certain covenants
under its revolving credit agreement as of March 6, 1996. As a result of these
factors, substantial doubt exists about the Company's ability to continue as a
going concern. The financial statements have been prepared assuming the Company
will continue as a going concern and do not contain any adjustments that might
result from this uncertainty.
In response to these conditions, the Company's management has initiated
discussions with its principal lender and has also contacted another lender
regarding the possibility of obtaining financing. As discussed in Note 15, the
Company has negotiated a possible merger with Omnicom Group Inc. ("Omnicom"),
which management believes will be finalized. Management believes that the
financial strength of Omnicom, pending the closing of the deal, the reasonable
probability related to refinancing long-term debt, the relief of the
repurchasing obligation of shares of the Company's common stock as a result of
the merger and increased future profitability resulting from recent
restructuring and impairment charges will address the Company's current and
long-term liquidity needs.
F-8
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. NATURE OF OPERATIONS
Ketchum is an agency comprised of four autonomous operating divisions,
advertising, public relations, directory advertising and health care.
Advertising and public relations are the largest divisions as measured by
commissions and fees. Ketchum's primary operations are based in the United
States. International operations comprised 7%, 6% and 5% of total commissions
and fees for the years ended December 31, 1995, 1994 and 1993, respectively.
International assets were approximately 8% and 6% of total assets at December
31, 1995 and 1994, respectively. Approximately 18% of total commissions and fees
was attributable to one major client for each of the years ended December 31,
1995, 1994 and 1993. A portion of the business for this major client,
representing approximately 3% of total commissions and fees on an annualized
basis for the year ended December 31, 1995, was lost in the fourth quarter of
1995.
4. IMPAIRMENT OF EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
As a result of management's periodic analysis of the recoverability of the
carrying value of the excess of cost over the fair value of net assets acquired,
management wrote down the carrying value at December 31, 1995 in the amount of
$2,759,426. Management's analysis was based on undiscounted cash flows of
expected future performance of the related operations. Expected future cash
flows were based upon internal projections considering past trends, general
business economic conditions and discussions with key management personnel. To
the extent that the cash flows did not support the carrying value of the excess
of cost over the fair value of net assets acquired, write downs were recorded.
The $2.8 million write down relates principally to two domestic operations which
have incurred significant losses since 1992. $1.1 million of the charge relates
to the Company's Public Relations Division and $1.4 million relates to its
Health Care Division. Prior to 1995, management believed that these operations
could be turned around. However, poor 1995 results of operations and projected
losses led management to conclude that write downs should be made in 1995. There
was no impairment loss in 1994. A similar analysis at December 31, 1993 resulted
in an impairment loss of $340,076.
5. OTHER ASSETS
Other assets include approximately $4,111,000 and $3,774,000 of investments
in equity investees at December 31, 1995 and 1994, respectively. Approximately
$3,182,000 and $2,985,000 of the recorded cost at December 31, 1995 and 1994,
respectively, represents cost in excess of the equity in the underlying net
assets of these investees. The excess of cost over equity in net assets is being
amortized on a straight-line basis over periods ranging from ten to fifteen
years. The Company's share of net loss in equity investees, which is included in
other expense in the consolidated statements of operations, was approximately
$723,273 and $252,834 for the years ended December 31, 1995 and 1994,
respectively. The Company's share of net loss in equity investees for 1993 was
insignificant. Notes receivable from certain equity investees have been written
off in 1995 and 1993 (see Note 14). The Company did not receive dividends from
equity investees in 1995. The Company received dividends of approximately
$120,000 and $474,000 in 1994 and 1993, respectively.
F-9
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FINANCING ARRANGEMENTS
Long-term debt consists of the following:
December 31,
-------------------------
1995 1994
---------- -----------
9% unsecured senior notes due
August 1, 2004, principal payable
in equal annual installments of $1,653,061
beginning August 1, 1998 through
August 1, 2004, interest payable
semi-annually (see below) ....................... $11,571,429 $11,571,429
Unsecured promissory notes, with interest
rates ranging from approximately 7% to 10%,
issued under the Company's common stock
repurchase agreement, due through
January 1, 2000 (see Note 8) .................... 5,749,433 5,660,682
Capital lease obligations, with interest
rates ranging from 6% to 15%, net of
imputed interest ................................ 610,488 1,034,458
Other .............................................. 199,439 327,771
----------- -----------
18,130,789 18,594,340
Less:
Debt classified as current, due to covenant
violations ...................................... 11,571,429 --
Currently scheduled maturities .................. 2,755,304 2,954,418
----------- -----------
$ 3,804,056 $15,639,922
=========== ===========
Foreign subsidiaries have outstanding short-term notes payable of
$1,769,582 and $1,816,117 with a weighted average interest rate of 9.4% and 9.9%
at December 31, 1995 and 1994, respectively.
The Company has an $8,000,000 revolving credit agreement which expires on
September 30, 1996, at which time any outstanding balance is due and payable. Of
this amount, approximately $1,000,000 is reserved against guarantees for foreign
credit facilities. In connection with the agreement, the Company is required to
pay a .5% commitment fee on any unused portion. No amounts were outstanding
under the revolving credit agreement at December 31, 1995 and under a similar
agreement at December 31, 1994. As a result of borrowings subsequent to December
31, 1995, the Company has approximately $80,000 of available borrowing capacity
and is in violation of certain covenants under the revolving credit agreement as
of March 6, 1996.
On August 9, 1994, the Company repaid certain existing senior debt and
obtained additional financing, via the issuance and sale by the Company of its
9% unsecured senior notes. The unsecured senior notes require compliance with
certain financial and other covenants. The Company was not in compliance with
certain of these covenants at December 31, 1995, specifically requirements
related to the Company's current ratio, debt to capitalization ratio, calculated
consolidated net worth, fixed charge coverage ratio and interest coverage ratio.
Other violations included exceeding the limitations on other minority
investments, other investments and permitted debt of subsidiaries. As a result
of these covenant violations, the holder of the senior notes may declare the
outstanding amount of the indebtedness due and payable immediately and,
accordingly, the outstanding amount of $11,571,429 has been classified as
current in the consolidated balance sheet at December 31, 1995. If the holder of
the senior notes were to call the notes, an early payment penalty would be due,
which management of the Company estimates to be approximately $1,529,000 at
March 6, 1996. In management's opinion, it is reasonably possible that the
holder will call the notes and assess the penalty. No provision has been made
for any penalty that might ultimately be assessed.
F-10
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 1995 scheduled maturities of long-term debt together with
amounts classified as current due to covenant violations are as follows:
Year Ending December 31,
-----------------------
1996 .......................................... $14,326,733
1997 .......................................... 1,854,448
1998 .......................................... 1,140,079
1999 .......................................... 431,895
2000 .......................................... 340,622
Thereafter .................................... 37,012
------------
$ 18,130,789
============
Interest paid was approximately $1,963,000, $2,796,000 and $2,455,000 for
the years ended December 31, 1995, 1994 and 1993, respectively.
The Company is a guarantor of approximately $1,557,000 in credit facilities
available to equity investees in France, Canada and New York. Approximately
$882,000 has been drawn on these facilities as of December 31, 1995. The credit
facilities bear interest at rates ranging from 8.5% to 10.5%.
7. REDEEMABLE PREFERRED STOCK
In November 1993, the Company authorized 50,000 shares of preferred stock.
The first series, Series A, was authorized at 5,000 shares of cumulative
preferred stock with a par value of $100 per share. In December 1994, the
Company authorized an additional 15,000 shares of the Series A preferred stock.
The Company's profit sharing and 401(k) plan is the only holder of the preferred
stock. The Series A cumulative preferred stock dividend is $90 per annum per
share, payable quarterly when declared by the Board of Directors. The Company
repurchases preferred stock from the profit sharing and 401(k) plan when
participants in the plan elect to purchase an investment option other than
preferred stock, and when participants terminate employment with the Company and
leave the plan. The preferred stock is sold and repurchased at $1,000 per share,
the price established by an agreement between the Company and the profit sharing
and 401(k) plan. The Company may redeem the preferred stock at any time after
January 1, 2003, at the option of the Board of Directors, at a price of $1,045
per share plus all accrued and unpaid dividends. The stock has a liquidation
preference over holders of common stock of $1,000 per share plus all accrued and
unpaid dividends.
8. COMMON STOCK SUBJECT TO REPURCHASE OBLIGATIONS
Under the Company's shareholder agreements, the common stock of the Company
is both sold and repurchased by the Company at a price determined by a formula
based primarily upon book value, adjusted for certain items determined by the
Board of Directors. The adjustment from book value in determining the formula
price is primarily related to the restructuring charges recorded by the Company
in 1993 (see Note 13). These charges have been added back to book value and are
being amortized over 15 years for purposes of determining the formula price.
Other adjustments are insignificant. At December 31, 1995, 1994 and 1993, the
formula prices were $60.01, $56.09 and $53.56 per share, respectively.
The common stock of the Company is owned by the employees and the Company
is obligated to repurchase its common stock from the holders upon termination of
employment. The total repurchase obligation is recorded on the consolidated
balance sheets based on the formula price and number of outstanding shares at
each balance sheet date. Changes in the repurchase obligation resulting from
changes in the number of shares outstanding or formula price of the shares are
accounted for by a charge or credit to equity (accumulated deficit) in the
period that such change occurs. As shares are repurchased, the repurchase
F-11
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
obligation is accordingly reduced by the number of shares repurchased multiplied
by the formula price which was utilized to determine the obligation in the
period the shares were repurchased. A substantial number of employees finance
all or part of the stock purchases with recourse notes issued to the Company.
The notes, which are collateralized by the stock, bear interest at market rates
and are payable over five to twenty years. The Company has an agreement with a
bank whereby an employee may borrow funds from the bank to purchase stock, and
the borrowings are guaranteed by the Company. These guaranteed borrowings
approximated $1,869,000 at December 31, 1995.
At the Company's option, amounts payable upon repurchase of common shares
are paid either by cash in a lump sum or over three to five years (see Note 6).
9. INCOME TAXES
(Loss) income before income taxes and income tax (benefit) expense are as
follows:
Year Ended December 31,
------------------------------------------
1995 1994 1993
------------ -------------- -------------
(Loss) income before income taxes
Domestic ....................... $(8,887,926) $4,170,272 $(6,327,745)
International .................. 1,165,834 501,272 (475,825)
------------ ---------- -----------
Total ....................... $(7,722,092) $4,671,544 $(6,803,570)
=========== ========== ===========
Income tax (benefit) expense
Current:
U.S.-federal ................... $ 1,797,911 $1,556,900 $ 1,384,100
State .......................... 1,191,425 200,400 205,000
International .................. 367,133 141,700 152,300
------------ ---------- -----------
Total current ............... 3,356,469 1,899,000 1,741,400
------------ ---------- -----------
Deferred:
U.S.-federal ................... (3,326,472) 639,427 (2,829,824)
State .......................... (212,328) 40,814 (180,628)
------------ ---------- -----------
Total deferred .............. (3,538,800) 680,241 (3,010,452)
------------ ---------- -----------
Total income tax
(benefit) expense ........... $ (182,331) $2,579,241 $(1,269,052)
============ ========== ===========
Income tax expense applicable to consolidated income differs from income
tax expense calculated by using the U.S. federal statutory income tax rate for
the following reasons:
Year Ended December 31,
------------------------------------------
1995 1994 1993
----------- ---------- -----------
Income tax (benefit) expense
at U.S. federal statutory rate .... $(2,621,858) $1,588,325 $(2,313,213)
Nondeductible expenses .............. 811,882 144,991 792,377
State and local taxes, net
of U.S. federal tax benefit ....... 50,106 66,264 147,708
International taxes ................. (15,904) (22,931) (308,959)
Change in valuation allowance ....... 644,346 33,611 567,950
Write-off of prior year tax asset ... 505,864 -- --
Reserve for income tax
contingencies ..................... 483,772 716,585 (125,600)
Other ............................... (40,539) 52,396 (29,315)
----------- ---------- -----------
Income tax (benefit) expense ........ $ (182,331) $2,579,241 $(1,269,052)
=========== ========== ===========
F-12
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Temporary differences and carryforwards which give rise to net deferred
income tax assets and liabilities at December 31, 1995 and 1994 are as follows:
Year Ended December 31,
-------------------------------
1995 1994
------------- -------------
Deferred income tax assets:
Deferred compensation ................. $ 231,495 $ 277,406
Lease abandonment ..................... 456,957 555,104
Litigation accrual .................... 1,848,800 --
Impairment write-down ................. 185,345 --
Amortization .......................... -- 27,714
Allowances for doubtful accounts ...... 1,049,852 402,242
Other ................................. 22,184 5,060
------------- -------------
3,794,633 1,267,526
Valuation allowance ................... (1,245,908) (601,562)
------------- -------------
2,548,725 665,964
------------- -------------
Deferred income tax liabilities:
Depreciation .......................... (1,347,381) (3,056,073)
Amortization .......................... (52,653) --
------------- -------------
(1,400,034) (3,056,073)
------------- -------------
Deferred tax asset (liability), net ... $ 1,148,691 $( 2,390,109)
============= =============
The Company has established a valuation allowance for deferred income tax
assets primarily for losses recognized for book purposes, which when realizable
for tax purposes will be capital losses. As the generation of capital gains to
offset these capital losses is not certain, a valuation allowance is needed.
Based on the Company's history of taxable income and profit projections for
1996, management believes it is more likely than not that the Company will
realize the benefit of the remaining net deferred tax assets.
No domestic income taxes have been provided on approximately $1,595,000 and
$719,000 of unremitted earnings of foreign subsidiaries at December 31, 1995 and
1994, respectively, since such earnings have been or are intended to be
permanently reinvested. It is not practicable to determine the deferred income
tax liability for these earnings.
Income taxes paid were approximately $1,177,000, $1,708,000 and $2,473,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
10. EMPLOYEE BENEFIT PLANS
During 1995 the Company combined its profit sharing and 401(k) plans into a
single plan. The Company contribution to the 401(k) portion of the plan has been
increased from $0.33 to $0.50 for every dollar of employee contributions. The
Company will match up to 4% of the employee's base salary. The Company also
contributes, at the direction of the Board of Directors, a minimum of 20% of
pre-tax consolidated income. Plan expense for 1995 was $2,213,000.
The Company previously maintained a profit sharing plan for salaried
employees who had completed six months of service without incurring a one-year
interruption in employment. The plan provided for contributions, at the
discretion of the Board of Directors, at a minimum of 20% of pre-tax
consolidated income. Contributions paid to the profit sharing plan were
allocated among participants on the basis of eligible compensation paid. Profit
sharing expense was $1,250,000 and $1,100,000 in 1994 and 1993, respectively.
F-13
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company previously also maintained a salary reduction profit sharing
plan under Section 401(k) of the Internal Revenue Code. This plan allowed
employees to defer compensation through contributions to the plan. At the
discretion of the Board of Directors, the Company contributed $0.33 for every
dollar of employee contributions up to a maximum of 2% of the employee's base
salary. Plan expense was $610,000 and $565,000 in 1994 and 1993, respectively.
11. LEASE COMMITMENTS
The Company has operating leases for its office facilities and certain
equipment, which require minimum monthly rental payments and a pro-rata share of
common operating expenses for office rentals. Operating lease expense was as
follows:
Year Ended December 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
Minimum lease expense .............. $ 9,467,600 $ 9,932,200 $ 10,530,100
Common operating lease expenses .... 1,297,700 1,578,200 2,517,900
------------ ------------ ------------
$ 10,765,300 $ 11,510,400 $ 13,048,000
============ ============ ============
Future minimum lease payments for all noncancelable office and equipment
leases in effect at December 31, 1995 are as follows:
Year Ending December 31, Rentals
------------------------ ------------
1996 ..................................... $ 8,659,000
1997 ..................................... 7,369,000
1998 ..................................... 4,779,000
1999 ..................................... 3,160,000
2000 ..................................... 1,849,000
Thereafter ............................... 2,229,000
12. COMMITMENTS AND CONTINGENCIES
Ketchum is the subject of, or party to, a number of lawsuits and claims.
Included in other accrued expenses is $4,961,434 and $200,000 for outstanding
and settled litigation matters at December 31, 1995 and 1994, respectively (see
Note 14). In the opinion of management, any ultimate liabilities arising from
these contingencies, to the extent not provided for, will not have a material
effect on the Company's financial position or results of operations.
Under the terms of prior agency acquisition and investment agreements,
additional payments may be required, contingent upon future revenues and
earnings of these agencies. Any additional payments are recorded as increases in
the excess of cost over the fair value of net assets acquired at the time in
which such payments are determined. Additional payments on prior year
acquisitions made in 1995 and 1994 approximated $342,000 and $1,708,000,
respectively.
In the event the Company is sold, the Company is obligated, under the terms
of agreements with certain parties who have sold shares of the Company's common
stock to the Company within the past five years, to pay such parties an amount
based upon the difference between the Company's formula price per share at the
month end preceding the sale and the price received for shares in a sale of the
Company. The Company estimates that the potential settlement with parties who
may have claims because they sold shares within the previous five years would
approximate $5 million in the event the merger with Omnicom is consummated (see
Note 15).
In 1995, management made a decision to reorganize its media buying
operations. A detailed plan has yet to be developed; however management believes
that any expenses to be incurred in connection with the reorganization will not
have a material effect on the Company's financial condition or the results of
its operations.
F-14
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. RESTRUCTURING CHARGES
In 1993, the Company developed a formal plan to significantly reduce the
Company's cost structure. The restructuring plan involved the sale or close-down
of four operations. A provision for the restructuring charges of $8,778,572 was
recorded in 1993 and consists primarily of the write-offs of approximately
$6,000,000 of the excess of cost over the fair value of net assets acquired
related to certain business acquisitions and approximately $1,900,000 in lease
abandonment charges in connection with vacating the leased space of one of the
closed operations. At December 31, 1995, approximately $821,000 remains in other
liabilities related to a lease abandonment which is expected to be paid out over
a two year period.
14. OTHER EXPENSE
Other expense is comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1995 1994 1993
------------ -------- -----------
<S> <C> <C> <C>
Litigation matters (see below) ................................... $ 4,961,434 $ -- $ --
Write-down of the excess of cost over the fair value of net
assets acquired ............................................... 2,759,426 -- 340,076
Write-off of notes receivable from equity investees .............. 1,118,051 -- 893,870
Write-off of equity investment ................................... -- -- 714,465
Equity in net loss of equity investees ........................... 723,273 252,834 10,521
----------- --------- -----------
$ 9,562,184 $ 252,834 $ 1,958,932
=========== ========= ===========
</TABLE>
Included in litigation matters in 1995 is a $4.0 million charge for a
judgment against Ketchum related to a prior acquisition in the United Kingdom.
This case was a contract dispute between the majority owners and Ketchum
relative to the exercise of a put option requiring Ketchum to purchase the
majority stake as well as a dispute relating to certain dividends declared and
paid prior to the put without Ketchum's consent. Judgment was rendered against
Ketchum on February 21, 1996 for approximately $3.5 million. Additionally,
Ketchum was subsequently ordered to pay $0.5 million for a cost contribution to
the plaintiffs' legal costs. The remaining $1.0 million of the litigation charge
primarily relates to two cases where judgments have been rendered against
Ketchum and loss is considered probable, although appeals are pending. An
additional reserve of $0.5 million was recorded in 1995, in addition to $0.2
million previously accrued, for the first case, a case in which Ketchum was a
minority shareholder of a Parisian advertising agency which went bankrupt and
where Ketchum may be required to contribute to the full amount of the shortfall
in net assets. The potential range of loss in this case is between $0.7 million
and $1.2 million. A charge of $0.3 million was recorded for the second case
which is related to Ketchum holding over in certain New York office space for
one month. These amounts are included in accrued expenses (see Note 12). In
management's opinion Ketchum's exposure for unrecorded losses of all litigation
matters is insignificant.
The write-off of notes receivable from equity investees and the equity in
net loss of equity investees arises primarily from an investee which has
incurred significant losses since its formation and which continues to have
significant cash short falls.
15. SUBSEQUENT EVENT
During 1996 Ketchum has entered into negotiations for a merger with
Omnicom. The terms of the merger agreement being discussed provide for Omnicom
to acquire all of the outstanding common and preferred stock of Ketchum in
exchange for common shares of Omnicom as based upon the market value of Omnicom
common shares and the "Common Stock Conversion Price" for the common and
preferred stock of Ketchum at the merger date, as defined in the draft merger
agreement.
F-15
<PAGE>
ANNEX I
PENNSYLVANIA BUSINESS CORPORATION LAW
Subchapter D. Dissenters Rights
1571 APPLICATION AND EFFECT OF SUBCHAPTER.--(a) General rule.-- Except as
otherwise provided in subsection (b), any shareholder of a business corporation
shall have the right to dissent from, and to obtain payment of the fair value of
his shares in the event of, any corporate action, or to otherwise obtain fair
value for his shares, where this part expressly provides that a shareholder
shall have the rights and remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--(1) Except as otherwise provided in paragraph (2), the
holders of the shares of any class or series of shares that, at the record date
fixed to determine the shareholders entitled to notice of and to vote at the
meeting at which a plan specified in any of section 1930, 1931(d), 1932(c) or
1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such
shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the case
of:
(i) Shares converted by a plan if the shares are not converted solely into
shares of the acquiring, surviving, new or other corporation or solely into such
shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles, the plan
or the terms of the transaction entitle all shareholders of the class to vote
thereon and require for the adoption of the plan or the effectuation of the
transaction the affirmative vote of a majority of the votes cast by all
shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c) (relating
to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares obligations or
otherwise, with or without assuming the liabilities of the other corporation and
A-1
<PAGE>
with or without the intervention of another corporation or other person, shall
not be entitled to the rights and remedies of dissenting shareholders provided
in this subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to elect a
majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights.--The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholder to dissenters rights.
(d) Notice of dissenters rights.--Unless otherwise provided by statute, if
a proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) A statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value of
their shares by complying with the terms of this subchapter; and
(2) A copy of this subchapter.
(e) Other statutes.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective.--This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure). (Last amended by Act 198, L.
'90, eff. 12-19-90.)
1572 DEFINITIONS. The following words and phrases when used in this
subchapter shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects taking into account all
relevant factors, but excluding any appreciation or depreciation in anticipation
of the corporate action.
"Interest." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors including the average
rate currently paid by the corporation on its principal bank loans. (Last
amended by Act 198, L. '90, eff. 12-19-90.)
1573 RECORD AND BENEFICIAL HOLDERS AND OWNERS.--(a) Record holders of
shares.--A record holder of shares of a business corporation may assert
dissenters rights as to fewer than all of the shares registered in his name only
if he dissents with respect to all the shares of the same class or series
beneficially owned by any one person and discloses the name and address of the
person or persons on whose behalf he dissents. In that event, his rights shall
be determined as if the shares as to which he has dissented and his other shares
were registered in the names of different shareholders.
(b) Beneficial owners of shares.--A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
A-2
<PAGE>
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name. (Last amended by
Act 169, L. '92, eff. 2-16-93.)
1574 NOTICE OF INTENTION TO DISSENT.--If the proposed corporate action is
submitted to a vote at a meeting of shareholders of a business corporation, any
person who wishes to dissent and obtain payment of the fair value of his shares
must file with the corporation, prior to the vote, a written notice of intention
to demand that he be paid the fair value for his shares if the proposed action
is effectuated, must effect no change in the beneficial ownership of his shares
from the date of such filing continuously through the effective date of the
proposed action and must refrain from voting his shares in approval of such
action. A dissenter who fails in any respect shall not acquire any right to
payment of the fair value of his shares under this subchapter. Neither a proxy
nor a vote against the proposed corporate action shall constitute the written
notice required by this section.
1575 NOTICE TO DEMAND PAYMENT. --(a) General rule.--If the proposed
corporate action is approved by the required vote at a meeting of shareholders
of a business corporation, the corporation shall mail a further notice to all
dissenters who gave due notice of intention to demand payment of the fair value
of their shares and who refrained from voting in favor of the proposed action.
If the proposed corporate action is to be taken without a vote of shareholders,
the corporation shall send to all shareholders who are entitled to dissent and
demand payment of the fair value of their shares a notice of the adoption of the
plan or other corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and certificates
for certificated shares must be deposited in order to obtain payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(5) Time for receipt of demand for payment.--The time set for receipt of
the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
1576 FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC. --(a) Effect of
failure of shareholder to act.--A shareholder who fails to timely demand
payment, or fails (in the case of certificated shares) to timely deposit
certificates, as required by a notice pursuant to section 1575 (relating to
notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(B) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action. (Last amended by Act 198, L. '90, eff. 12-19-90.)
1577 RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES. --(a) Failure to
effectuate corporate action.--Within 60 days after the date set for demanding
payment and depositing certificates, if the business corporation has not
effectuated the proposed corporate action, it shall return any certificates that
have been deposited and release uncertificated shares from any transfer
restrictions imposed by reason of the demand for payment.
A-3
<PAGE>
(b) Renewal of notice to demand payment.--When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
(c) Payment of fair value of shares.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of the
shares held or owned by the dissenter for a fiscal year ending not more than 16
months before the date of remittance or notice together with the latest
available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment.--If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenters had
after making demand for payment of their fair value. (Last amended by Act 198,
L. '90, eff. 12-19-90.)
1578 ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES. --(a) General rule.--If
the business corporation gives notice of its estimate of the fair value of the
shares, without remitting such amount, or remits payment of its estimate of the
fair value of a dissenter's shares as permitted by section l577(c) (relating to
payment of fair value of shares) and the dissenter believes that the amount
stated or remitted is less than the fair value of his shares, he may send to the
corporation his own estimate of the fair value of the shares, which shall be
deemed a demand for payment of the amount or the deficiency.
(b) Effect of failure to file estimate.--Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the corporation.
(Last amended by Act 198, L, '90, eff. 12-19-90.)
1579 VALUATION PROCEEDINGS GENERALLY.--(a) General rule.--Within 60 days
after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section 1575 (relating
to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section 1578 (relating to
estimate by dissenter of fair value of shares);
If any demands for payment remain unsettled, the business corporation may
file in court an application for relief requesting that the fair value of the
shares be determined by the court.
(b) Mandatory joinder of dissenters.--All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
A-4
<PAGE>
(c) Jurisdiction of the court.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application.--If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall, be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
1580 COSTS AND EXPENSES OF VALUATION PROCEEDINGS.--(a) General rule.--The
costs and expenses of any proceeding under section 1579 (relating to valuation
proceedings generally), including the reasonable compensation and expenses of
the appraiser appointed by the court, shall be determined by the court and
assessed against the business corporation except that any part of the costs and
expenses may be apportioned and assessed as the court deems appropriate against
all or some of the dissenters who are parties and whose action in demanding
supplemental payment under section 1578 (relating to estimate by dissenter of
fair value of shares) the court finds to be dilatory, obdurate, arbitrary,
vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears.-- Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the corporation
and in favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner in
respect to the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
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<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 schedule included in Omnicom's Annual
Report on Form 10-K for the year ended December 31, 1995 incorporated in the
Prospectus/Information Statement included in this Registration Statement.
II-1
<PAGE>
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13 or Section 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 that purports to meet
the requirements of Section 10(a)(3) of the Securities 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/Information
Statement 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 to Registration Statement No. 333-01619 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on April 17, 1996.
OMNICOM GROUP INC.
Registrant
By: /s/ Bruce Crawford
------------------------
Bruce Crawford
Chairman & Chief Executive Officer
II-3
<PAGE>
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 Chairman, Chief Executive Officer April 17, 1996
- ----------------------------- and Director (Principal
Bruce Crawford Executive Officer)
/S/ FRED J. MEYER Chief Financial Officer and April 17, 1996
- ----------------------------- Director (Principal Financial
Fred J. Meyer Officer)
/S/ DALE A. ADAMS Controller (Principal Accounting April 17, 1996
- ----------------------------- Officer)
Dale A. Adams
/S/ BERNARD BROCHAND* Director April 17, 1996
- -----------------------------
Bernard Brochand
/S/ ROBERT J. CALLANDER* Director April 17, 1996
- -----------------------------
Robert J. Callander
/S/ JAMES A. CANNON* Director April 17, 1996
- -----------------------------
James A. Cannon
/S/ LEONARD S. COLEMAN, JR.* Director April 17, 1996
- -----------------------------
Leonard S. Coleman, Jr.
/S/ PETER I. JONES* Director April 17, 1996
- -----------------------------
Peter I. Jones
/S/ JOHN R. PURCELL* Director April 17, 1996
- -----------------------------
John R. Purcell
/S/ KEITH L. REINHARD* Director April 17, 1996
- -----------------------------
Keith L. Reinhard
/S/ ALLEN ROSENSHINE* Director April 17, 1996
- -----------------------------
Allen Rosenshine
/S/ GARY L. ROUBOS* Director April 17, 1996
- -----------------------------
Gary L. Roubos
/S/ QUENTIN I. SMITH, JR.* Director April 17, 1996
- -----------------------------
Quentin I. Smith, Jr.
/S/ ROBIN B. SMITH* Director April 17, 1996
- -----------------------------
Robin B. Smith
/S/ WILLIAM G. TRAGOS* Director April 17, 1996
- -----------------------------
William G. Tragos
/S/ JOHN D. WREN* Director April 17, 1996
- -----------------------------
John D. Wren
/S/ EGON P.S. ZEHNDER* Director April 17, 1996
- -----------------------------
Egon P.S. Zehnder
</TABLE>
- -----------
* By Barry J. Wagner, pursuant to Power of Attorney
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
------- ----------
2.1* Agreement and Plan of Merger dated as of March 7, 1996, among Omnicom
Group Inc., KCI Acquisition Inc. and Ketchum Communications Holdings,
Inc.
2.2* Form of Escrow Agreement among Omnicom Group Inc., Ketchum
Communications Holdings, Inc., the Ketchum Shareholder Representative
and The Chase Manhattan Bank N.A., as Escrow Agent
5.1* Opinion of Davis & Gilbert as to the legality of the Omnicom Common
Stock registered hereunder
8.1* Opinion of Deloitte & Touche regarding tax matters
23.1 Consent of Arthur Andersen LLP as to financial statements of Omnicom
Group Inc.
23.2 Consent of Deloitte & Touche LLP as to financial statements of Ketchum
Communications Holdings, Inc.
23.3 Consent of Davis & Gilbert (Included in Exhibit 5.1)
23.4* Consent of Deloitte & Touche LLP
23.5 Consent of Coopers & Lybrand LLP
23.6 Consent of Deloitte & Touche LLP
24* Power of Attorney
- --------------
*Previously filed.
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,
1996 (except for Note 14 as to which the date is March 1, 1996) included in the
Omnicom Group Inc. Form 10-K for the year ended December 31, 1995 and to all
references to our Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
New York, New York
April 17, 1996
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-01619 of Omnicom Group Inc. on Form S-4 of our report dated March 6, 1996
(which expresses an unqualified opinion and includes an explanatory paragraph
relating to substantial doubt about the Company's ability to continue as a going
concern), on the consolidated financial statements of Ketchum Communications
Holdings, Inc. and subsidiaries (the "Company") as of December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995 appearing
in this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data of Ketchum" and "Experts" in such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 17, 1996
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-4 (File No. 333-01619) of our report dated April 7, 1995, which
includes an explanatory paragraph concerning the company's ability to continue
as a going concern, of our audits of the consolidated financial statements of
Chiat/Day Holdings, Inc. for the years ended October 31, 1994.
Coopers & Lybrand LLP
Sherman Oaks, California
April 17, 1996
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-01619 of Omnicom Group Inc. on Form S-4 of our
report dated March 9, 1995 (relating to the consolidated financial statements of
Ross Roy Communications, Inc. as of December 31, 1994 and for the two years in
the period ended December 31, 1994 not presented separately therein), appearing
in the Annual Report on Form 10-K of Omnicom Group Inc. for the year ended
December 31, 1995.
Deloitte & Touche LLP.
Detroit, Michigan
April 17, 1996
