As filed with the Securities and Exchange Commission on March 11, 1996
Registration Statement No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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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.)
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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:
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of maximum maximum
securities Amount offering aggregate Amount of
to be to be price offering registration
registered registered(1) per share(2) price(2) fee(2)
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Common Stock, $.50 par value............ 1,500,000 shares $41 $61,500,000 $21,207
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(1) Estimated maximum number of shares issuable by Omnicom Group Inc. under the
Agreement and Plan of Merger described in this Registration Statement.
(2) Estimated solely for purposes of calculating the amount of the registration
fee. Pursuant to Rule 457(c), based on the average of the high and low
prices of the Common Stock of Omnicom Group Inc. on March 6, 1996, as
reported by the New York Stock Exchange.
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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.
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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.
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<CAPTION>
Location or Heading in
S-4 Item Number and Caption Prospectus/Information Statement
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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........... *
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<TABLE>
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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
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[Letterhead of Ketchum Communications Holdings, Inc.]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On [_______, 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 ________, 1996, at
_____ a.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 ______, 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 ___________, 1996, directors and executive officers of Ketchum as a
group owning approximately [54.26%] of Ketchum Common Stock, have expressed an
intention to vote in favor of the transactions contemplated herein; and the
Trustee of the Ketchum Profit Sharing and 401(k) 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
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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 MARCH 11, 1996
KETCHUM COMMUNICATIONS HOLDINGS, INC.
INFORMATION STATEMENT
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OMNICOM GROUP INC.
PROSPECTUS
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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 __________, 1996 commencing at ___ a.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.
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The Date of this Prospectus/Information Statement is __________, 1996
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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.
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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"). 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
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC by Omnicom (File No. 1-10551)
pursuant to the Exchange Act are incorporated by reference in this
Prospectus/Information Statement:
1. Omnicom's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994;
2. Omnicom's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1995; June 30, 1995; and September 30, 1995;
3. Omnicom's Proxy Statement dated April 7, 1995 for the Annual Meeting
of Shareholders held on May 22, 1995, and Proxy Statement dated
October 24, 1995 for the Special Meeting of Shareholders held on
November 28, 1995; and
4. The description of Omnicom's Common Stock contained in Omnicom's
Registration Statement pursuant to the Exchange Act, together with all
amendments or reports filed for the purpose of updating such
description.
All documents and reports subsequently filed by Omnicom pursuant to
Sections 13(a), 13(c), l4 or 15(d) of the Exchange Act after the date of this
Prospectus/Information Statement shall be deemed to be incorporated by reference
in this Prospectus/Information Statement and to be a part hereof from the date
of filing of such documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus/Information Statement
to the extent that a statement contained herein or in any other subsequently
filed document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus/Information Statement.
This Prospectus/Information Statement incorporates documents 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 [five business days prior to Special
Meeting], 1996.
3
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TABLE OF CONTENTS
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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 ...................................... 10
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 ..................................................................... 18
Interests of Ketchum's Management in the Merger ...................................................... 19
Procedure for Distributing Shares of Omnicom Common Stock to Ketchum Shareholders .................... 19
The Merger Agreement ................................................................................. 20
Other Considerations ................................................................................. 23
THE ESCROW AGREEMENT AND THE KETCHUM SHAREHOLDER REPRESENTATIVE ............................................ 27
BUSINESS INFORMATION CONCERNING OMNICOM .................................................................... 30
SELECTED FINANCIAL DATA OF OMNICOM ......................................................................... 31
BUSINESS INFORMATION CONCERNING KETCHUM .................................................................... 32
Description of Business .............................................................................. 32
Executive Officers and Directors, Principal Shareholders ............................................. 33
SELECTED FINANCIAL DATA OF KETCHUM ......................................................................... 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF KETCHUM ........... 36
Results of Operations ................................................................................ 36
Capital Resources and Liquidity ...................................................................... 38
DESCRIPTION OF OMNICOM CAPITAL STOCK ....................................................................... 39
DESCRIPTION OF KETCHUM CAPITAL STOCK ....................................................................... 39
COMPARISON OF SHAREHOLDER RIGHTS ........................................................................... 40
LEGAL MATTERS .............................................................................................. 46
EXPERTS .................................................................................................... 46
INDEX TO KETCHUM FINANCIAL STATEMENTS ...................................................................... F-1
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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 the trade journal,
Advertising Age, in 1995 Omnicom was ranked
as the third 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
________1996 at _____ a.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 [ ] 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 ("Ketchum Preferred
Stock"), are entitled to notice of
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5
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and to vote at the Special Meeting. At such
date there were outstanding [374,967] 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 Profit Sharing and 401(k) 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 Stock, representing [54.26%] of the
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6
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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 dependent upon 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, [374,967]
shares of Ketchum Common Stock will be
outstanding, which would result in a "Common
Stock Conversion Price" of [$119.85] 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 Exchange on the last full trading
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7
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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 [2.92] 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
___________, 1996, the day after the date of
the Special Meeting; however, this Closing
may be delayed beyond ___________, 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 ___________,
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;
and holders of fewer than 3% of the
outstanding shares of Ketchum Common Stock
having elected dissenters rights, as
described more fully herein. 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 ..... As of the Record Date, directors and
executive officers of Ketchum owned of record
an aggregate of approximately [54.26%] 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.
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.
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9
<PAGE>
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Interests of Certain Persons
in the Merger .................. 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
_________, 1996, and each was advised that
there was early termination of the applicable
waiting period on _____________, 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 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.
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10
<PAGE>
- --------------------------------------------------------------------------------
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
[$119.85] Common Stock Conversion Price
payable in respect of each share of Ketchum
Common Stock, Omnicom Common Stock having an
aggregate Market Value of [$11.73] would be
deposited in the General Escrow Fund, and
Omnicom Common Stock having an aggregate
Market Value of [$6.67] 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
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.
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11
<PAGE>
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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
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 [$119.85]
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
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 0.61 0.61
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
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 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 ________ 1996 at ____ A.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 shall 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 _________, 1996 will be entitled to vote at
the Special Meeting. On that Record Date there were issued and outstanding
[374,967] 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 [54.26%] 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. This offer was for fewer
than all of the Ketchum operating units and involved a contingent valuation
formula; the discussions never reached a level which would lead to evaluation by
the Ketchum Board. However, it was this offer which led the Ketchum Executive
Committee to consider other acquisition opportunities. In pursuing this
alternative, Ketchum engaged AdMedia to assist them in finding a suitable
partner. In 1995, AdMedia initiated discussions with Omnicom.
After several meetings with Omnicom, 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 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. A
press release announcing the proposed Merger was issued on January 10, 1996, and
the parties executed and delivered the Merger Agreement on March 7, 1996.
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, the Ketchum Board considered a number of factors,
including, without limitation, the following:
(i) The Ketchum Board's assessment that the Ketchum Advertising
operations could more fully realize their long-term strategic
objectives by affiliating with a substantially larger agency, such
as Omnicom, thereby affording Ketchum access to Omnicom's
international service facilities, clients and financial and
managerial resources.
(ii) Ketchum's Public Relations agency could more fully realize its
long-range strategic objectives by working within Omnicom, with
access to Omnicom's financial resources and its clients. It would
also allow them to have access to Omnicom's extensive international
service facilities.
(iii) Ketchum Directory Advertising would benefit from the opportunity to
service Omnicom clients.
(iv) Ketchum Shareholders would receive a marketable security of Omnicom
in exchange for their illiquid interest in Ketchum.
(v) The belief of the Ketchum Board and Executive Committee that
Omnicom's proposal was more favorable than the purchase proposal of
the other agency.
(vi) The terms of the Merger Agreement as reviewed by the Ketchum Board
with its legal and financial advisors.
(vii) Information relating to the financial condition, results of
operations, capital levels and prospects of Ketchum and management's
best estimates of the prospects of Ketchum.
(viii) The current and prospective environment in which Ketchum Advertising
operates including national and local conditions, and the
competitive environment for advertising generally.
(ix) Information relating to the tax consequences of the Merger for
Ketchum and for the Ketchum Shareholders.
17
<PAGE>
The foregoing discussion of the information and factors discussed by the
Ketchum Board is not meant to be exhaustive but is believed to include all
material factors considered by the Ketchum Board. The Ketchum Board did not
quantify or attach any particular weight to the various factors that it
considered in reaching its determination that the Merger is in the best interest
of the Ketchum Shareholders.
Recommendation of the Ketchum Board of Directors
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. It is anticipated that the Merger will be
non-dilutive to Omnicom's results of operations. Accordingly, Omnicom's Board of
Directors has unanimously approved the Merger and the transactions contemplated
thereby.
18
<PAGE>
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.
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 [374,967] 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 [$119.85]; based upon
the Market Value of $41, this would equate to [2.92] 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 , 1996,
the day after the date of the Special Meeting. However, the Closing of the
Merger Agreement may be delayed beyond , 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 , 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 [$11.73] will be deposited into the General Escrow
Fund and shares of Omnicom Common Stock having an aggregate Market Value of
[$6.67] 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 and the approval of the Ketchum
Vote Matters by the Ketchum Shareholders.
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Closing Date
The Closing has been scheduled for ________, 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 ________, 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 the 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 ____________, 1996. The required waiting
period under the Hart-Scott-Rodino Act was terminated early on _______________,
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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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 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.
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,
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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.
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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 [$119.85] Common Stock
Conversion Price payable in respect of each share of Ketchum Common Stock,
Omnicom Common Stock having an aggregate Market Value of [$11.73] would be
deposited in the General Escrow Fund, and Omnicom Common Stock having an
aggregate Market Value of [$6.67] would be deposited in the Special Escrow Fund.
Based upon the assumed Market Value of $41, this would result in [0.29] shares
of Omnicom Common Stock per share of Ketchum Common Stock being deposited in the
General Escrow Fund, and [0.16] 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 [$101.44], equivalent
to [2.47] 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.
27
<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.
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 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.
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.
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.
28
<PAGE>
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.
29
<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 the trade
journal, Advertising Age, in 1995 Omnicom was ranked as the third 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.
30
<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 62,850 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) -- 0.05 --
Fully diluted ............... -- (0.40) -- 0.05 --
Earnings per common share
after change in accounting
principles:
Primary ..................... 1.89 1.18 1.03 1.06 0.84
Fully diluted ............... 1.85 1.18 1.01 0.90 0.84
Dividends declared per common
share ........................ 0.66 0.62 0.62 0.60 0.55
At year end:
Total assets ................... 3,555,961 3,040,211 2,465,408 2,266,733 2,196,969
Long-term obligations:
Long-term debt ............... 289,891 199,487 301,044 324,133 335,220
Deferred compensation and
other liabilities .......... 122,623 150,291 113,197 113,359 93,493
</TABLE>
31
<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 provides financial services to affiliates
of Ketchum.
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.
32
<PAGE>
Clients
Ketchum's ten largest clients in 1995 accounted for approximately 41.12% of
income from commissions and fees, with the largest representing 18.04% and the
tenth largest 1.25%. 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 [March 5, 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 [March 5, 1996.]
<TABLE>
<CAPTION>
Shares of
Ketchum
Common Stock Percent of
Name and Address Position with Ketchum Owned Class
- ---------------- --------------------- ------------ --------
<S> <C> <C> <C>
Edward L. Graf Director, 51,900 13.8%
6933 Church St. Vice Chairman,
Pittsburgh, PA 15202 Chief Financial Officer,
Secretary,
Executive Committee Member
J. Craig Mathiesen Director, 31,400 8.4%
6162 South Ramirez Canyon President, Ketchum
Malibu, CA 90265 Advertising/Los Angeles,
Executive Committee Member
Paul H. Alvarez Director, Chairman of the 27,400 7.3%
112 Hickory Hill Road Board, Chief Executive Officer,
Pittsburgh, PA 15238 Executive Committee Member
James K. Larkin Executive Vice President, 25,000 6.7%
21 Via Barcelona Ketchum Advertising U.S.A.
Moraga, CA 95466
Dianne Snedaker Director, 20,000 5.3%
66 Hanken Drive President, Ketchum
Kentfield, CA 94904 Advertising/San Francisco
David R. Drobis Director, Vice Chairman, 17,800 4.7%
47 Delafield Island Rd. Public Relations, Executive
Darien, CT 06820 Committee Member
James V. Ficco Director, President, 10,335 2.8%
311 Scarlet Cir. Ketchum Advertising/
Wexford, PA 15090 Pittsburgh
</TABLE>
33
<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 3.3%
335 West Pine Street Relations
Long Beach, NY 11561
Lawrence R. Werner Director, Executive Vice 8,800 2.3%
Gateway Tower Apartments President, Public Relations/
Pittsburgh, PA 15222 Pittsburgh
Lorraine Thelian Director, Executive Vice 6,664 1.8%
9516 Neuse Way President, Public Relations/
Great Falls, VA 22066 Washington, D.C.
Robert C. Feldman Director, Executive Vice 3,750 1.0%
465 West End Avenue President, Public Relations
New York, NY 10024
John C. Joseph Director, President, 3,700 1.0%
825 Lyndhurst Court Ketchum Directory Advertising
Naperville, IL 60563
Executive Officers and
Directors as a Group (14 persons) 203,458 54.26%
</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.
34
<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.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF KETCHUM
Results of Operations
Performance in 1995 compared to 1994
Commission and fee income for 1995 increased to $127.4 from $124.1 million
in 1994. The increase was primarily attributable to a significant increase in
income from the Public Relations Division which was partially offset by a
decrease in the income 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 revenue. 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, including legal fees,
against Ketchum related to a prior acquisition in the United Kingdom. Other
operating expense in 1995 also included charges of approximately $2.8 million
related to the impairment of the excess of cost over the fair value of net
assets, $1.1 million for the write-off of notes receivable from two equity
investments and $.4 million of increased losses related to investments in equity
investees.
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 $.4 million charge related to the refinancing of the
Company's primary debt instrument. The increase in other income in 1995 is
primarily due to a $.4 million dollar gain on the sale of the Chicago office.
The Company'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 $.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 expense discussed above.
Commission and fee income 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 attributable to the loss of two clients, as
well as lost commissions and fees as a result of the closing of offices in New
York and Philadelphia in 1994, and offices in Chicago and Singapore in 1995.
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 is expected to
have a more significant adverse impact on commissions and fees in 1996 as this
business was lost in the last quarter of 1995; however a less significant impact
is expected on operating income 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.
Commission and fee income 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 new clients and increased
business 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.
36
<PAGE>
The other divisions (primarily Directory Advertising and Health Care)
commissions and fees 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 closing of Ketchum Sales Promotions during 1995. 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
Commission and fee income 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.
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 revenues. 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 a
charge of $8.8 million related to restructuring, which included plans to close
offices in Philadelphia and New York. In 1993, operating expenses were
negatively impacted by $2.0 million, which included a charge of $.9 million
related to the write-off of a note receivable from an equity investee, $.7
million for the write down of an investment in an equity investee and $.3
million for the write-off of impaired excess of cost over the fair value of net
assets acquired. Operating expenses in 1994 included $.3 million for losses of
equity affiliates. 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 the impact of settlements with the
Internal Revenue Service for previous tax years which adversely affected net
income in 1994.
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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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 $.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. 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 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.
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. 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
Profit Sharing Plan. Ketchum has paid cash dividends on common and preferred
shares of approximately $.6 million in each of 1995, 1994 and 1993.
Management of Ketchum believes that sufficient taxable income will be
generated in 1996 to realize the net deferred tax asset recorded at December 31,
1995.
Ketchum anticipates that both current liquidity and long-term financial
resource issues will be addressed through institutional lending and merger
arrangements.
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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 [March 5, 1996,] there were
[374,967] shares of Ketchum Common Stock issued and outstanding and [989,033]
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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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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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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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
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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.
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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,
(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.
45
<PAGE>
The Omnicom By-laws provide that Omnicom shall provide indemnification to
its directors and officers in respect of claims, actions, suits or proceedings
based upon, arising from, relating to or by reason of the fact that any such
director or officer serves or served in such capacity with Omnicom or at the
request of Omnicom in any capacity with any other enterprise, and permits
Omnicom to indemnify others and to advance expenses to the fullest extent
permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Omnicom or
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.
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.
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.
46
<PAGE>
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 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. 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
F-7
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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.
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 is presently negotiating a possible merger with Omnicom Group Inc.
("Omnicom").
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.
F-8
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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 and
expected performance of the related operations which did not support that the
carrying value of the excess of cost over fair value of net assets acquired is
realizable. 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.
6. FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
Long-term debt consists of the following:
December 31,
------------------------------
1995 1994
------------ -------------
<S> <C> <C>
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
=========== ===========
</TABLE>
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.
F-9
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. 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.
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
F-10
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. 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. 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)
============ ========== ===========
F-11
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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)
=========== ========== ===========
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)
============= =============
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.
F-12
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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.
F-13
<PAGE>
KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 certain operations. A provision for the restructuring charges of $8,778,572
was recorded in 1993 and consists primarily of the write-offs of certain
intangible assets, office closing costs and employee termination costs. 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 $3,540,000 with respect to a
judgement received against the Company related to a prior acquisition in the
United Kingdom. Such judgement amount and approximately $450,000 of related
legal fees due to the plantiff are currently payable and are included in other
accrued expenses at December 31, 1995 (see Note 12).
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-14
<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
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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
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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.
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(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).
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(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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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Registrant's Certificate of Incorporation contains a provision limiting
the liability of directors (except for approving statutorily prohibited
dividends, share repurchases or redemptions, distributions of assets on
dissolution or loans to directors) to acts or omissions in bad faith, involving
intentional misconduct or a knowing violation of the law, or resulting in
personal gain to which the director was not legally entitled. The Registrant's
By-Laws provide that an officer or director will be indemnified against any
costs or liabilities, including attorneys fees and amounts paid in settlement
with the consent of the registrant in connection with any claim, action or
proceeding to the fullest extent permitted by the New York Business Corporation
Law.
Section 722(a) of the New York Business Corporation Law provides that a
corporation may indemnify any officer or director, made or threatened to be
made, a party to an action other than one by or in the right of the corporation,
including an action by or in the right of any other corporation or other
enterprise, which any director or officer of the corporation served in any
capacity at the request of the corporation, because he was a director or officer
of the corporation, or served such other corporation or other enterprise in any
capacity, against judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees actually and necessarily incurred as a
result of such action, or any appeal therein, if such director or officer acted,
in good faith, for a purpose which he reasonably believed to be in, or in the
case of service for any other corporation or other enterprise, not opposed to,
the best interests of the corporation and, in criminal actions, in addition, had
no reasonable cause to believe that his conduct was unlawful.
Section 722(c) of the New York Business Corporation Law provides that a
corporation may indemnify any officer or director made, or threatened to be
made, a party to an action by or in the right of the corporation by reason of
the fact that he is or was a director of the corporation, or is or was serving
at the request of the corporation as a director of officer of any other
corporation of any type or kind, or other enterprise, against amounts paid in
settlement and reasonable expenses, including attorneys' fees actually and
necessarily incurred by him in connection with the defense or settlement of such
action, or in connection with an appeal therein, if such director or officer
acted, in good faith, for a purpose which he reasonably believed to be in, or,
in the case of service for another corporation or other enterprise, not opposed
to, the best interests of the corporation. The corporation may not, however,
indemnify any officer or director pursuant to Section 722(c) in respect of (1) a
threatened action, or a pending action which is settled or otherwise disposed
of, or (2) any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that the
court in which the action was brought or, if no action was brought, any court of
competent jurisdiction, determines in its discretion, that the person is fairly
and reasonably entitled to indemnity for such portion of the settlement and
expenses as the court deems proper.
Section 723 of the New York Business Corporation Law provides that an
officer or director who has been successful on the merits or otherwise in the
defense of a civil or criminal action of the character set forth in Section 722
is entitled to indemnification as permitted in such section. Section 724 of the
New York Business Corporation Law permits a court to award the indemnification
required by Section 722.
The Registrant has entered into agreements with its directors to indemnify
them for liabilities or costs arising out of any alleged or actual breach of
duty, neglect, errors or omissions while serving as a director. The Registrant
also maintains and pays premiums for directors' and officers' liability
insurance policies.
Item 21. Exhibits and Financial Statement Schedules.
(a) See Exhibit Index
(b) See the financial statement schedules included in Omnicom's Annual
Report on Form 10-K for the year ended December 31, 1994 incorporated in the
Prospectus/Information Statement included in this Registration Statement.
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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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on March 8, 1996.
OMNICOM GROUP INC.
Registrant
By: /s/ JOHN D. WREN
-----------------------
John D. Wren
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each officer or director of Omnicom
Group Inc. whose signature appears below constitutes and appoints Bruce Crawford
and Barry J. Wagner, and each of them, his true and lawful attorney-in-fact and
agent, with full and several power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments, to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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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 March 8, 1996
- ----------------------------- and Director (Principal
Bruce Crawford Executive Officer)
/S/ FRED J. MEYER Chief Financial Officer and March 8, 1996
- ----------------------------- Director (Principal Financial
Fred J. Meyer Officer)
/S/ DALE A. ADAMS Controller (Principal Accounting March 8, 1996
- ----------------------------- Officer)
Dale A. Adams
/S/ BERNARD BROCHAND Director March 8, 1996
- -----------------------------
Bernard Brochand
/S/ ROBERT J. CALLANDER Director March 8, 1996
- -----------------------------
Robert J. Callander
/S/ JAMES A. CANNON Director March 8, 1996
- -----------------------------
James A. Cannon
/S/ LEONARD S. COLEMAN, JR. Director March 8, 1996
- -----------------------------
Leonard S. Coleman, Jr.
/S/ PETER I. JONES Director March 8, 1996
- -----------------------------
Peter I. Jones
/S/ JOHN R. PURCELL Director March 8, 1996
- -----------------------------
John R. Purcell
/S/ KEITH L. REINHARD Director March 8, 1996
- -----------------------------
Keith L. Reinhard
/S/ ALLEN ROSENSHINE Director March 8, 1996
- -----------------------------
Allen Rosenshine
/S/ GARY L. ROUBOS Director March 8, 1996
- -----------------------------
Gary L. Roubos
/S/ QUENTIN I. SMITH, JR. Director March 8, 1996
- -----------------------------
Quentin I. Smith, Jr.
/S/ ROBIN B. SMITH Director March 8, 1996
- -----------------------------
Robin B. Smith
/S/ WILLIAM G. TRAGOS Director March 8, 1996
- -----------------------------
William G. Tragos
/S/ JOHN D. WREN Director March 8, 1996
- -----------------------------
John D. Wren
/S/ EGON P.S. ZEHNDER Director March 8, 1996
- -----------------------------
Egon P.S. Zehnder
</TABLE>
II-4
AGREEMENT AND PLAN OF MERGER
by and among
OMNICOM GROUP INC.,
KCI ACQUISITION INC.
and
KETCHUM COMMUNICATIONS HOLDINGS, INC.
Dated March 7, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
Section 1.1 The Merger............................................... 1
Section 1.2 Effective Time........................................... 2
Section 1.3 Articles of Incorporation and By-Laws of the
Surviving Corporation.................................... 2
1.3.1 Articles of Incorporation................................ 2
1.3.2 By-Laws 2
Section 1.4 Directors and Officers of the Surviving Corporation...... 2
1.4.1 Directors of the Surviving Corporation................... 2
1.4.2 Officers of the Surviving Corporation.................... 2
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Conversion of Capital Stock.............................. 2
2.1.1 Conversion Prices; Market Value.......................... 2
2.1.2 Conversion of Capital Stock.............................. 3
Section 2.2 Surrender of Company Stock and Issuance of
Omnicom Stock............................................ 4
Section 2.3 No Fractional Shares..................................... 5
Section 2.4 Dividends................................................ 5
Section 2.5 Certificates in Shareholder's Name....................... 5
Section 2.6 Closing.................................................. 5
Section 2.7 Escrow Agreement......................................... 6
ARTICLE III
REPRESENTATIONS OF THE COMPANY
Section 3.1 Execution and Validity of Agreement...................... 6
Section 3.2 Capitalization, Existence and Good Standing of
the Company.............................................. 7
3.2.1 Capitalization .......................................... 7
3.2.2 Existence and Good Standing.............................. 7
Section 3.3 Subsidiaries and Investments............................. 7
Section 3.4 Financial Statements and No Material Changes............. 8
Section 3.5 Books and Records........................................ 9
Section 3.6 Title to Properties; Encumbrances........................ 9
Section 3.7 Owned and Leased Real Property and Leased
Personal Property........................................ 9
3.7.1 Real Property and Personal Property Leases............... 9
3.7.2 Owned Real Property...................................... 10
3.7.3 Environmental Matters.................................... 11
Section 3.8 Contracts................................................ 11
Section 3.9 Non-Contravention; Approvals and Consents................ 12
3.9.1 Non-Contravention........................................ 12
3.9.2 Approvals and Consents................................... 13
Section 3.10 Litigation............................................... 13
Section 3.11 Taxes.................................................... 14
3.11.1 Taxes ................................................... 14
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Section 3.12 Liabilities.............................................. 15
Section 3.13 Insurance................................................ 15
Section 3.14 Intellectual Properties.................................. 15
Section 3.15 Compliance with Laws; Licenses and Permits............... 16
3.15.1 Compliance .............................................. 16
3.15.2 Licenses ................................................ 16
Section 3.16 Client Relations......................................... 16
Section 3.17 Accounts Receivable; Work-in-Process;
Accounts Payable......................................... 16
Section 3.18 Employment Relations..................................... 17
Section 3.19 Employee Benefit Matters................................. 18
3.19.1 List of Plans ........................................... 18
3.19.2 Multi-Employer Plans..................................... 18
3.19.3 Severance ............................................... 19
3.19.4 Welfare Benefit Plans.................................... 19
3.19.5 Administrative Compliance................................ 19
3.19.6 Tax-Qualification........................................ 19
3.19.7 Funding; Excise Taxes.................................... 20
3.19.8 Tax Deductions .......................................... 20
Section 3.20 Interests in Customers, Suppliers, Etc................... 20
Section 3.21 Bank Accounts and Powers of Attorney..................... 21
Section 3.22 Compensation of Employees................................ 21
Section 3.23 No Changes Since the Balance Sheet Date.................. 21
Section 3.24 Vote Required............................................ 22
Section 3.25 Corporate Controls....................................... 22
Section 3.26 Information Supplied..................................... 22
Section 3.27 Brokers.................................................. 23
Section 3.28 Transaction Costs........................................ 23
Section 3.29 Accounting Matters....................................... 23
Section 3.30 Copies of Documents; Schedules........................... 23
ARTICLE IV
REPRESENTATIONS OF OMNICOM AND OMNISUB
Section 4.1 Existence and Good Standing.............................. 23
Section 4.2 Execution and Validity of Agreements..................... 24
Section 4.3 Non-Contravention; Approvals and Consents................ 24
4.3.1 Non-Contravention........................................ 24
4.3.2 Approvals and Consents................................... 24
Section 4.4 Omnicom Stock............................................ 24
Section 4.5 Financial Statements and No Material Changes............. 25
Section 4.6 Litigation............................................... 25
Section 4.7 Brokers.................................................. 25
Section 4.8 Information Supplied..................................... 25
Section 4.9 OmniSub.................................................. 26
Section 4.10 Copies of Documents; Schedules........................... 26
ii
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ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1 Regulatory and Other Approvals........................... 26
Section 5.2 HSR Filings.............................................. 27
Section 5.3 Full Access.............................................. 27
Section 5.4 No Solicitations......................................... 27
Section 5.5 Conduct of Business...................................... 27
Section 5.6 Financial Information.................................... 29
Section 5.7 Notice and Cure.......................................... 30
Section 5.8 Consultation............................................. 30
Section 5.9 Company Shareholders' Approval........................... 30
Section 5.10 Tax Returns.............................................. 31
Section 5.11 Fulfillment of Conditions................................ 31
Section 5.12 Repayment of Indebtedness................................ 31
Section 5.13 Tax Opinion.............................................. 31
Section 5.14 Amendment of Profit Sharing Plan......................... 31
ARTICLE VI
COVENANTS OF OMNICOM AND OMNISUB
Section 6.1 Regulatory and Other Approvals........................... 32
Section 6.2 HSR Filings.............................................. 32
Section 6.3 Financial Information and Reports........................ 32
Section 6.4 Notice and Cure.......................................... 32
Section 6.5 Fulfillment of Conditions................................ 33
Section 6.6 Blue Sky; New York Stock Exchange Listing................ 33
Section 6.7 Exchange Act Filings..................................... 33
Section 6.8 Indemnification of Directors and Officers................ 33
ARTICLE VII
MUTUAL COVENANTS
Section 7.1 Preparation of Registration Statement.................... 34
Section 7.2 Affiliates Representation Letters........................ 34
Section 7.3 Reasonable Efforts to Consummate Transaction............. 34
Section 7.4 Public Announcements..................................... 34
Section 7.5 Transfer Tax Compliance.................................. 35
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF OMNICOM AND OMNISUB
Section 8.1 Representations and Warranties........................... 35
Section 8.2 Good Standing Certificates............................... 35
Section 8.3 Performance.............................................. 35
Section 8.4 Certified Resolutions.................................... 36
Section 8.5 Registration Statement; New York Stock
Exchange Listing......................................... 36
Section 8.6 Company Shareholders' Approval and
Dissenters' Rights....................................... 36
Section 8.7 No Injunctions or Restraints............................. 36
Section 8.8 Regulatory Consents and Approvals........................ 36
Section 8.9 Required Approvals, Notices and Consents................. 36
Section 8.10 Pooling of Interests Accounting.......................... 36
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Section 8.11 Opinion of Counsel....................................... 37
Section 8.12 Escrow Agreement......................................... 37
Section 8.13 Employment Agreements.................................... 37
Section 8.14 Non-Competition Agreements............................... 37
Section 8.15 Affiliates Representation Letters........................ 37
Section 8.16 Material Adverse Effect.................................. 37
Section 8.17 Proceedings.............................................. 37
Section 8.18 No Withholding Certificate............................... 37
Section 8.19 Tax Opinion.............................................. 44
Section 8.20 Waivers.................................................. 37
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE COMPANY
Section 9.1 Representations and Warranties........................... 38
Section 9.2 Good Standing Certificates............................... 38
Section 9.3 Performance.............................................. 38
Section 9.4 Certified Resolutions.................................... 38
Section 9.5 Registration Statement, New York Stock
Exchange Listing......................................... 38
Section 9.6 Company Shareholders' Approval........................... 38
Section 9.7 No Injunctions or Restraints............................. 38
Section 9.8 Regulatory Consents and Approvals........................ 39
Section 9.9 Opinion of Counsel....................................... 39
Section 9.10 Escrow Agreement......................................... 39
Section 9.11 Material Adverse Effect.................................. 39
Section 9.12 Proceedings.............................................. 39
Section 9.13 Tax Opinion.............................................. 39
ARTICLE X
ADDITIONAL AGREEMENTS
Section 10.1 Termination.............................................. 39
Section 10.2 Effect of Termination.................................... 40
ARTICLE XI
SURVIVAL; INDEMNIFICATION
Section 11.1 Survival................................................. 40
Section 11.2 Obligation to Indemnify.................................. 41
Section 11.3 Indemnification Procedures............................... 41
11.3.1 Notice of Asserted Liability............................. 41
11.3.2 Defense of Asserted Liability............................ 41
11.3.3 Cooperation ............................................. 41
11.3.4 Settlements ............................................. 41
Section 11.4 Limitations on Indemnification........................... 42
11.4.1 Indemnity Cushion........................................ 42
11.4.2 Termination of Indemnification Obligations
and Other Limitations.................................... 42
11.4.3 Treatment ............................................... 42
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ARTICLE XII
MISCELLANEOUS
Section 12.1 Expenses................................................. 43
Section 12.2 Governing Law............................................ 43
Section 12.3 Person Defined........................................... 43
Section 12.4 Knowledge Defined........................................ 43
Section 12.5 Affiliate Defined........................................ 43
Section 2.6 Captions................................................. 43
Section 12.7 Confidentiality.......................................... 43
Section 12.8 Notices.................................................. 44
Section 12.9 Parties in Interest...................................... 44
Section 12.10 Severability............................................. 44
Section 12.11 Counterparts............................................. 45
Section 12.12 Entire Agreement......................................... 45
Section 12.13 Amendment................................................ 45
Section 12.14 Third Party Beneficiaries................................ 45
Section 12.15 Extension; Waiver........................................ 45
Section 12.16 Exchange Rate; Use of Terms.............................. 45
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EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Affiliates Representation Letter
Exhibit C-1 Opinion of Babst Calland Clements and Zomnir
Exhibit C-2 Opinion of Ronald G. Cruikshank, Esq.
Exhibit D-1 Opinion of Davis & Gilbert
Exhibit D-2 Opinion of Cohen & Grigsby, P.C.
SCHEDULES
Schedule 1.4 Directors and Officers
Schedule 3.2 Capitalization
Schedule 3.3 Subsidiaries
Schedule 3.4 Financial Statements
Schedule 3.5 Books and Records
Schedule 3.6 Title to Properties; Encumbrances
Schedule 3.7.1 Real Property and Personal Property Leases
Schedule 3.7.2 Owned Real Property
Schedule 3.7.3 Environmental Matters
Schedule 3.8 Contracts
Schedule 3.9.1 Restrictive Documents
Schedule 3.9.2 Regulatory and Other Approvals
Schedule 3.10 Litigation
Schedule 3.11 Taxes
Schedule 3.13 Insurance
Schedule 3.14 Intellectual Properties
Schedule 3.16.1 Twenty Largest Clients
Schedule 3.19 Employee Benefit Plans
Schedule 3.20 Interests in Customers, Suppliers, etc.
Schedule 3.21 Bank Accounts and Powers of Attorney
Schedule 3.22 Compensation of Employees
Schedule 3.23 Changes Since the Balance Sheet Date
Schedule 3.27 Brokers
Schedule 4.3.2 Approvals, Notices and Consents of Company
Schedule 5.12 Repayment of Indebtedness
Schedule 8.13 Employment Agreements
Schedule 8.14 Non-Competition Agreements
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Index of Defined Terms
Term Page
- ---- ----
Acquisition Proposal.........................................................33
Advisors.....................................................................33
Affiliate....................................................................53
Agreement.....................................................................1
Articles of Merger............................................................2
Asserted Liability...........................................................50
Balance Sheet................................................................10
Balance Sheet Date...........................................................11
Claims Notice................................................................50
Closing.......................................................................7
Closing Date..................................................................7
Code..........................................................................1
Common Stock Conversion Price.................................................3
Company.......................................................................1
Company Affiliates...........................................................42
Company Common Stock..........................................................4
Company Preferred Stock.......................................................4
Company Shareholders..........................................................5
Company Shareholders' Approval...............................................37
Company Stock.................................................................5
Constituent Corporations......................................................2
Contracts....................................................................16
Dissenting Share..............................................................5
Effective Time................................................................2
Environmental Laws...........................................................14
ERISA........................................................................21
ERISA Affiliate..............................................................22
Escrow Agent..................................................................7
Escrow Agreement..............................................................7
Exchange Act.................................................................16
Execution Date................................................................1
GAAP.........................................................................10
Gains Tax....................................................................42
General Escrow Fund...........................................................7
Governmental or Regulatory Authority.........................................16
HSR Act......................................................................16
Hazardous Material...........................................................14
Indemnified Parties..........................................................50
Information Statement........................................................27
Intellectual Property........................................................19
IRS..........................................................................18
KCI..........................................................................19
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Term Page
- ---- ----
Knowledge....................................................................52
Laws.........................................................................16
Leases.......................................................................12
Letter of Transmittal.........................................................5
Liabilities..................................................................18
Licenses.....................................................................20
Lien.........................................................................10
Losses.......................................................................50
Market Value..................................................................3
Material Adverse Effect.......................................................9
Merger........................................................................1
Multi-Employer Plan..........................................................22
Multiple Employer Plan.......................................................22
Omnicom.......................................................................1
Omnicom Certificates..........................................................5
Omnicom Stock.................................................................3
OmniSub.......................................................................1
OmniSub Common Stock..........................................................4
Options.......................................................................9
Orders.......................................................................16
Owned Real Property..........................................................12
PBGC.........................................................................24
PBCL..........................................................................2
Permitted Liens..............................................................11
Person.......................................................................52
Plan.........................................................................22
Potential Acquiror...........................................................33
Preferred Stock Conversion Price..............................................3
Profit Sharing Plan..........................................................27
Prospectus Materials.........................................................41
Registration Statement.......................................................27
Related Group................................................................25
Representative...............................................................37
SEC..........................................................................16
SEC Reports..................................................................30
Securities Act...............................................................16
Special Escrow Fund...........................................................7
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Term Page
- ---- ----
Special Meeting..............................................................37
Subsidiary....................................................................9
Surviving Corporation.........................................................2
Surviving Corporation Common Stock............................................4
Taxes........................................................................17
Termination Date.............................................................51
Third Party Claim............................................................50
Title IV Plan................................................................24
Transaction Costs............................................................28
Transfer Agent................................................................5
Transfer Taxes...............................................................42
VAT..........................................................................17
Voting Shareholders..........................................................37
ix
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated March 7, 1996 (the
"Execution Date") by and among OMNICOM GROUP INC., a New York corporation
("Omnicom"); KCI ACQUISITION INC., a Pennsylvania corporation and wholly-owned
subsidiary of Omnicom ("OmniSub"); and KETCHUM COMMUNICATIONS HOLDINGS, INC., a
Pennsylvania corporation (the "Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Omnicom, OmniSub and the Company each
have determined that it is advisable and in the best interests of the
corporations and their respective stockholders to consummate, and have approved,
the business combination transaction provided for herein in which OmniSub would
merge with and into the Company and the Company would become a subsidiary of
Omnicom (the "Merger") upon the terms and subject to the conditions of this
Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, Omnicom, OmniSub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger, and to prescribe various conditions to the Merger; and
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth herein, Omnicom, OmniSub and the Company
hereby agree as follows:
ARTICLE I THE MERGER
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.2), OmniSub shall be
merged with and into the Company and the separate corporate existence of OmniSub
shall thereupon cease. The Company shall be the successor or surviving
corporation in the Merger (sometimes herein referred to as the "Surviving
Corporation"), shall continue to be governed by the laws of the Commonwealth of
Pennsylvania, and the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger. The Merger shall have the effects specified in Section 1921 of
the Pennsylvania Business Corporation Law ("PBCL"). OmniSub and the Company are
sometimes herein referred to as the "Constituent Corporations".
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Section 1.2 Effective Time. Omnicom, OmniSub and the Company will cause an
appropriate Articles of Merger, including a summary Plan of Merger
(collectively, the "Articles of Merger") to be executed and filed on the date of
the Closing (as defined in Section 2.6) with the Pennsylvania Department of
State as provided in Section 1927 of the PBCL. The Merger shall become effective
on the date on which the Articles of Merger have been duly filed with the
Pennsylvania Department of State or such other time as is agreed upon by the
parties and specified in the Articles of Merger, and such time is hereinafter
referred to as the "Effective Time."
Section 1.3 Articles of Incorporation and By-Laws of the
Surviving Corporation
1.3.1 Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation shall be amended and restated at and as of the Effective
Time to read as did the Articles of Incorporation of OmniSub immediately prior
to the Effective Time (except that the name of the Surviving Corporation shall
remain "Ketchum Communications Holdings, Inc.").
1.3.2 By-Laws. The By-laws of the Surviving Corporation shall be amended at
and as of the Effective Time to read as did the By-laws of OmniSub immediately
prior to the Effective Time, and such By-laws shall become the By-laws of the
Surviving Corporation.
Section 1.4 Directors and Officers of the Surviving Corporation
1.4.1 Directors of tDirectors of the Surviving Corporation. The directors
of the Surviving Corporation at the Effective Time shall, from and after the
Effective Time, be the persons listed in Part 1 of Schedule 1.4 until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and By-laws.
1.4.2 Officers of the Surviving Corporation. The officers of the Surviving
Corporation shall, from and after the Effective Time, be the persons listed in
Part 2 of Schedule 1.4 until their successors have been duly elected or
appointed and qualified or until their death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation and
By-laws.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Conversion of Capital Stock
2.1.1 Conversion Prices; Market Value. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) The "Common Stock Conversion Price" shall be an amount calculated
by dividing $44,940,000 by the number of shares of Company Common Stock (as
defined below) outstanding at the Effective Time of the Merger.
(b) The "Preferred Stock Conversion Price" shall be $1,000.
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(c) The "Market Value" of shares of common stock, $0.50 par value, of
Omnicom ("Omnicom Stock") shall be the average of the closing prices per
share of the Omnicom Stock reported on the New York Stock Exchange for the
20 consecutive trading days ending three business days immediately prior to
the date of the Special Meeting referred to in Section 5.9. The closing
price for each day shall be the closing price on the New York Stock
Exchange Consolidated Tape (or any successor composite tape reporting
transactions on the New York Stock Exchange) or, if such a composite tape
shall not be in use or shall not report transactions in the Omnicom Stock,
or if the Omnicom Stock shall be listed on a stock exchange other than the
New York Stock Exchange, the last reported sales price regular way on the
principal national securities exchange on which the Omnicom Stock shall be
listed or admitted to trading (which shall be the national securities
exchange on which the greatest number of shares of the Omnicom Stock has
been traded during such twenty consecutive business days)or, in either
case, if there is no transaction on any such day, the average of the bid
and asked prices regular way on such day. The New York Stock Exchange
closing prices of the Omnicom Stock used in determining the Market Value,
as provided above, shall be appropriately adjusted for the effect of any
recapitalization, reclassification, split-up, stock dividend, combination
or reverse split with respect to the Omnicom Stock which occurs during the
20 consecutive trading days ending three business days immediately
preceding the date of the Special Meeting.
2.1.2 Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof:
(a) Each issued and outstanding share of the common stock, stated
value $0.005 per share, of OmniSub ("OmniSub Common Stock") shall be
converted into and become one fully paid and non-assessable share of common
stock, no par value per share, of the Surviving Corporation ("Surviving
Corporation Common Stock"). Each certificate representing outstanding
shares of OmniSub Common Stock shall at the Effective Time represent an
equal number of shares of Surviving Corporation Common Stock.
(b) All shares of common stock, stated value $0.005 per share, of the
Company ("Company Common Stock") that are owned by the Company as treasury
stock shall be canceled and retired and shall cease to exist and no stock
of Omnicom or other consideration shall be delivered in exchange therefor.
(c) Each issued and outstanding share of Company Common Stock (other
than shares to be canceled in accordance with Section 2.1.2(b) and other
than Dissenting Shares (as defined in Section 2.1.2(f)) shall be converted
into the right to receive such number of fully paid and non-assessable
shares of Omnicom Stock the value of which, determined by using the Market
Value, shall equal the Common Stock Conversion Price. All such shares of
Company Common Stock shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares, shall cease to have any rights
with respect thereto, except subject to the terms of the Escrow Agreement
referred to in Section 2.7, the right to receive the shares of Omnicom
Stock and any cash in lieu of fractional shares of Omnicom Stock to be
issued or paid in consideration therefor (determined in accordance with
Section 2.3), upon the surrender of such certificate in accordance with
Section 2.2, without interest.
(d) Each issued and outstanding share of Series A Preferred Stock,
$100 par value per share, of the Company ("Company Preferred Stock") shall
3
<PAGE>
be converted into the right to receive such number of shares of Omnicom
Stock the value of which, determined by using the Market Value, shall equal
the Preferred Stock Conversion Price.
(e) All shares of Company Preferred Stock that are owned by the
Company as treasury stock shall be canceled and retired and cease to exist
and no stock of Omnicom or other consideration shall be delivered in
exchange therefor.
(f) (i) Notwithstanding any provision of this Agreement to the
contrary, each outstanding share of Company Common Stock, the holder of
which has not voted in favor of the Merger, has perfected such holder's
right to an appraisal of such holder's shares in accordance with the
applicable provisions of the PBCL and has not effectively withdrawn or lost
such right of appraisal (a "Dissenting Share"), shall not be converted into
or represent a right to receive shares of Omnicom Stock pursuant to Section
2.1.2(c), but the holder thereof shall be entitled only to such rights as
are granted by the applicable provisions of the PBCL; provided, however,
that any Dissenting Shares held by a person at the Effective Time who
shall, after the Effective Time, withdraw the demand for appraisal or lose
the right of appraisal, in either case pursuant to the PBCL shall be deemed
to be converted into, as of the Effective Time, the right to receive shares
of Omnicom Stock pursuant to Section 2.1.2(c).
(ii) The Company shall give Omnicom (x) prompt notice of any written
demands for appraisal, withdrawals of demands for appraisal and any other
instruments served pursuant to the applicable provisions of the PBCL
relating to the appraisal process received by the Company and (y) the
opportunity to direct all negotiations and proceedings with respect to any
demands for appraisal under the PBCL. The Company will not voluntarily make
any payment with respect to any demands for appraisal and will not, except
with the prior written consent of Omnicom, settle or offer to settle any
such demands.
Section 2.2 Surrender of Company Stock and Issuance of Omnicom Stock. At
the Closing, or as soon as practicable thereafter, each holder of record of
shares of Company Common Stock and/or Company Preferred Stock (collectively,
"Company Stock") at the Effective Time (collectively, the "Company
Shareholders") whose shares are converted pursuant to Section 2.1.2(c) and/or
2.1.2(d), as the case may be, shall surrender the certificate or certificates
representing such shares of Company Stock to Omnicom's transfer agent (currently
Chemical Mellon Shareholder Services) (the "Transfer Agent"), together with a
duly executed letter of transmittal in a form mutually acceptable to Omnicom and
the Company (the "Letter of Transmittal"), which certificate or certificates
shall be duly endorsed in the manner described in such Letter of Transmittal. In
exchange therefor, subject to the provisions of the Escrow Agreement described
in Section 2.7 below, each of the Company Shareholders shall receive, on or as
soon as practicable after the Closing Date (as defined in Section 2.6), a
certificate or certificates representing the number of whole shares of Omnicom
Stock into which the shares of the Company Stock theretofore represented by the
certificate or certificates so surrendered shall have been converted and
exchanged as provided in Section 2.1.2(c) or 2.1.2(d), as the case may be, and,
in addition, cash in lieu of any fractional shares of Omnicom Stock as provided
in Section 2.3 below, and the certificate(s) so surrendered shall forthwith be
canceled. Prior to the Closing Date, Omnicom shall requisition from the Transfer
Agent a sufficient number of stock certificates (the "Omnicom Certificates")
representing the total number of shares of Omnicom Stock to which the Company
Shareholders are entitled as provided in Sections 2.1.2(c) and 2.1.2(d) above.
On the Closing Date, subject to the provisions of the Escrow Agreement described
in Section 2.7, Omnicom shall direct the Transfer Agent pursuant to irrevocable
4
<PAGE>
instructions reasonably acceptable to the Company to mail each Company
Shareholder upon receipt by the Transfer Agent of an executed Letter of
Transmittal from such Company Shareholder, by first-class mail in accordance
with the instructions of such Company Shareholder as set forth in his Letter of
Transmittal, such Omnicom Certificates, and Omnicom shall forward the cash
payment in lieu of fractional shares (if any) that such Company Shareholder is
entitled to receive pursuant to Section 2.3. If any Company Shareholder shall
report to the Transfer Agent that his failure to surrender certificates
representing shares of Company Stock registered in his name is due to the loss,
misplacement or destruction of such a certificate or certificates, Omnicom shall
require such Company Shareholder to furnish an affidavit of loss and indemnity
satisfactory to it. Upon receipt by the Transfer Agent of such affidavit and
indemnity, such Company Shareholder shall be entitled to receive the Omnicom
Certificates and cash in lieu of fractional shares, (if any) to which such
Company Shareholder is entitled pursuant to the terms of this Article II and
such lost, misplaced or destroyed certificate(s) shall forthwith be canceled.
Until surrendered as contemplated by this Section 2.2, each certificate
evidencing shares of Company Stock shall be deemed at any time after the
Effective Time for all corporate purposes of Omnicom, except as limited by
Section 2.4 below, to represent ownership of the number of shares of Omnicom
Stock into which the number of shares of Company Stock shown thereon have been
converted as contemplated by this Article II.
Section 2.3 No Fractional Shares. In order to avoid the expense and
inconvenience of issuing fractional shares, neither certificates nor scrip for
fractional shares of Omnicom Stock will be issued, but in lieu thereof each
Company Shareholder who otherwise would have been entitled to a fraction of a
share of Omnicom Stock will be paid the cash value of such fraction of a share
based upon the Market Value of the Omnicom Stock as determined under Section
2.1.1(c) or 2.1.1(d) above. Prior to the Closing Date, Omnicom shall make
available to the Transfer Agent cash in an amount sufficient to make the
payments in lieu of fractional shares. The fractional share interests of each
Company Shareholder will be aggregated, and no Company Shareholder will receive
cash in an amount equal to or greater than the value of one full share of
Omnicom Stock.
Section 2.4 Dividends. Omnicom will not pay any dividend or make any
distribution on the Omnicom Stock (with a record date at or after the Effective
Time) to any record holder of Company Stock until the holder surrenders for
exchange his or its certificates. Omnicom instead will pay the dividend or make
the distribution to the Transfer Agent in trust for the benefit of the holder
pending surrender and exchange. In no event, however, will any holder of Company
Stock be entitled to any interest or earnings on the dividend or distribution
pending receipt. Neither the Transfer Agent nor any party hereto shall be liable
to a holder of Company Stock for any Omnicom Stock or dividends thereon, or cash
in lieu of fractional Omnicom Stock, delivered to a public official pursuant to
the applicable escheat law. The Transfer Agent shall not be entitled to vote or
exercise any rights of ownership with respect to the Omnicom Stock held by it.
Omnicom shall pay all charges and expenses of the Transfer Agent.
Section 2.5 Certificates in Shareholder's Name. All certificates evidencing
Omnicom Stock to be issued as a result of the Merger will be issued in the exact
name which the certificates surrendered in exchange therefor are registered.
Section 2.6 Closing. The closing of this Agreement (the "Closing") shall
take place (a) at the offices of Davis & Gilbert, 1740 Broadway, New York, New
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York 10019, at 10:00 a.m. local time on May 31, 1996, or (b) at such other place
and/or time and/or on such other date as Omnicom and the Company shall agree
(the "Closing Date").
Section 2.7 Escrow Agreement. Solely to fund and secure the indemnification
obligations described in Section 11.2, at the Closing Omnicom shall direct the
Transfer Agent for and on behalf of the Company Shareholders to deliver to The
Chase Manhattan Bank, N.A., as escrow agent (the "Escrow Agent") from the shares
of Omnicom Stock issuable to the Company Shareholders under Section 2.1.2(c),
(a) shares of Omnicom Stock (for each Company Shareholder rounded up to the
nearest whole share) having a Market Value of $4,400,000 to be held in an
account (the "General Escrow Fund") created pursuant to the terms of that
certain Escrow Agreement (the "Escrow Agreement") in the form attached hereto as
Exhibit A among Omnicom, the Surviving Corporation, the Escrow Agent and the
Representative (as defined in Section 5.9 hereof) and (b) shares of Omnicom
Stock (for each Company Shareholder rounded up to the nearest whole share)
having a Market Value of $2,500,000 to be held in an account (the "Special
Escrow Fund") created pursuant to the terms of the Escrow Agreement. Each of the
Company Shareholders shall be depositing his pro-rata share of the General
Escrow Fund or Special Escrow Fund determined by multiplying the total number of
shares of Omnicom Stock required to be deposited into such Escrow Fund to create
in the case of the General Escrow Fund an escrow account having a Market Value
of $4,400,000 and in the case of the Special Escrow Fund an escrow account
having a Market Value of $2,500,000 times a fraction, the numerator of which is
the number of shares of Omnicom Stock issuable to such Company Shareholder under
Section 2.1.2(c), and the denominator of which is the total number of shares of
Omnicom Stock issuable to all Company Shareholders under Section 2.1.2(c).
ARTICLE III
REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to Omnicom and OmniSub as follows:
Section 3.1 Execution and Validity of Agreement. The Company has the full
corporate power and authority to enter into this Agreement, and subject to the
Company Shareholders' Approval (as defined in Section 5.9), to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by the Board of Directors of the Company, the Board
of Directors of the Company has recommended adoption of this Agreement by the
Company Shareholders and directed that this Agreement be submitted to the
Company Shareholders for their consideration, and no other corporate proceedings
on the part of the Company or its stockholders are necessary to authorize the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby other than
obtaining the Company Shareholders' Approval. This Agreement has been duly and
validly executed and delivered by the Company and, assuming due authorization,
execution and delivery by Omnicom and OmniSub, and subject to the obtaining of
the Company Shareholders' Approval, constitutes the legal, valid and binding
obligation of the Company enforceable against it in accordance with its terms.
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Section 3.2 Capitalization, Existence and Good Standing of the Company.
3.2.1 Capitalization. The Company has an authorized capitalization
consisting of 2,000,000 shares of common stock, without par value and having a
stated value of $.005 cents per share, of which as of the Execution Date,
374,967 shares were issued and outstanding and 989,033 shares were held in
treasury; and 50,000 shares of preferred stock, $100 par value per share, of
which as of the Execution Date, 6,282 shares of Company Preferred Stock were
issued and outstanding and no shares were held in treasury. All such outstanding
shares have been duly authorized and validly issued and are fully paid and
non-assessable and have not been issued in violation of any preemptive rights of
stockholders. No other class of capital stock or series of any class of capital
stock of the Company is authorized or outstanding. Except pursuant to this
Agreement and except as set forth on Schedule 3.2, there are no (a) outstanding
subscriptions, options, warrants, rights (including "phantom" stock rights),
calls, preemptive rights, or other contracts, commitments, understandings or
arrangements, including any right of conversion or exchange under any
outstanding security, instrument, plan or agreement (collectively, "Options"),
obligating the Company or any of its Subsidiaries (as defined in Section 3.3) to
issue or sell any shares of the capital stock of the Company, or to grant,
extend or enter into any Option with respect thereto, or (b) outstanding Options
providing for settlement in cash. Except as set forth on Schedule 3.2, there are
no outstanding contractual obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any shares of any capital stock of the
Company or any Subsidiary or which provide for the payment of any additional
monies in respect of its previous repurchase of any shares of its capital stock.
Schedule 3.2 also contains an accurate list of all of the holders of record of
capital stock of the Company. Each such stockholder is the record owner of the
number of shares of the Company Common Stock or Company Preferred Stock listed
opposite his name in Schedule 3.2. To the best knowledge, information and belief
of the Company, each such stockholder is a resident of the state or other
jurisdiction indicated on Schedule 3.2.
3.2.2 Existence and Good Standing. The Company is a corporation duly
organized and validly existing and for which no Articles of Dissolution have
been filed under the laws of the Commonwealth of Pennsylvania, with the full
corporate power and authority to own its property and to carry on its business
all as and in the places where such properties are now owned or operated or such
business is now being conducted. Except as set forth on Schedule 3.2, the
Company has not qualified to do business as a foreign corporation in any
jurisdiction, and neither the character nor location of the properties owned or
leased by the Company, nor the nature of the business conducted by the Company,
requires such qualification in any jurisdiction, except for such failures to be
so qualified which, individually or in the aggregate, are not having and could
not reasonably be expected to have a "Material Adverse Effect", defined as a
material adverse effect on the properties, assets, condition (financial or
otherwise), business, liabilities or results of operations of the Company and
its Subsidiaries taken as a whole. The Company is in good standing in each state
or other jurisdiction in which it is qualified to do business as a foreign
corporation or foreign branch as set forth on Schedule 3.2.
Section 3.3 Subsidiaries and Investments. The term "Subsidiary" as used in
the Agreement shall mean any Person in which the Company, directly or indirectly
through subsidiaries or otherwise, beneficially owns or controls more than fifty
percent of either the equity interests in, or the voting control of, such
Person. Schedule 3.3 contains a true and complete list of all of the Company's
Subsidiaries. Except as set forth in Schedule 3.3, neither the Company nor any
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Subsidiary owns any capital stock or other equity or ownership or proprietary
interest in any corporation, partnership, association, trust, joint venture or
other entity. Schedule 3.3 also sets forth the name, jurisdiction of
organization and number of outstanding shares of each of the Subsidiaries, and a
list of all of the stockholders of each Subsidiary (indicating the number of
shares owned by each such stockholder). Except for shares held by a nominee of
the Company or another Subsidiary to satisfy local law requirements, the Company
or another Subsidiary owns of record and beneficially and has valid title to
that percentage of the issued and outstanding shares of capital stock of each
Subsidiary as set forth on Schedule 3.3, free and clear of any mortgage, pledge,
assessment, security interest, lease, lien, adverse claim, levy, charge,
hypotheca or other encumbrance of any kind, or any conditional sale, agreement,
title retention agreement or other agreement to give any of the foregoing (each
a "Lien"). Each Subsidiary is a corporation duly incorporated and organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, with the full corporate power and authority to own its property
and to carry on its business all as and in the places where such properties are
now owned or operated or such business is now being conducted. Except as set
forth on Schedule 3.3, no Subsidiary has qualified to do business as a foreign
corporation in any jurisdiction, and neither the character nor the location of
the properties owned or leased by any Subsidiary, nor the nature of the business
conducted by such Subsidiary, requires such qualification in any jurisdiction,
except for such failures to be so qualified which, individually or in the
aggregate, are not having and could not reasonably be expected to have a
Material Adverse Effect. Each Subsidiary is in good standing in each state, or
other jurisdiction in which it is qualified to do business as a foreign
corporation or foreign branch as set forth on Schedule 3.3. Except as set forth
on Schedule 3.3, neither the Company nor any Subsidiary has a branch, agency,
place of business or permanent establishment outside of the United States. All
of the outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued and are fully paid and non-assessable, and have
not been issued in violation of any preemptive rights of stockholders. Except as
set forth on Schedule 3.3, there are no (a) outstanding Options obligating the
Company or any Subsidiary to purchase, issue or sell any shares of the capital
stock of any Subsidiary or other entity in which the Company or one of its
Subsidiaries owns a minority interest or outstanding agreement or commitment to
grant, extend or enter into any Option with respect thereto or (b) voting
trusts, proxies or other commitments, understandings, restrictions or
arrangements in favor of any Person other than the Company or a Subsidiary,
wholly-owned, directly or indirectly, by the Company with respect to the voting
of or the right to participate in dividends or other earnings on any capital
stock of any Subsidiary.
Section 3.4 Financial Statements and No Material Changes. Schedule 3.4 sets
forth the audited consolidated balance sheets of the Company and its
subsidiaries as at December 31, 1993, 1994 and 1995, and the related audited
statements of operations, stockholders' equity and cash flows for the years then
ended, reported on by Deloitte & Touche LLP, independent certified public
accountants. The consolidated balance sheet of the Company and its subsidiaries
as at December 31, 1995 is referred to in this Agreement as the "Balance Sheet".
Such financial statements, including the footnotes thereto, are true and correct
in all material respects and except as set forth on Schedule 3.4 have been
prepared in accordance with generally accepted accounting principles as applied
in the United States ("GAAP") consistently applied throughout the periods
indicated. Each of the consolidated balance sheets of the Company and its
subsidiaries fairly presents the consolidated financial position of the Company
and its subsidiaries at the respective date thereof and reflects all claims
against and all debts and liabilities of the Company and its subsidiaries, fixed
or contingent, as at the date thereof, required to be shown thereon under GAAP,
and the related statements of operations, stockholders' equity and cash flows
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fairly present the consolidated results of operations of the Company and its
subsidiaries and the stockholders' equity and cash flows for the respective
periods indicated. Except as set forth on Schedule 3.23, since December 31, 1995
(the "Balance Sheet Date"), there has been no material adverse change in the
properties, financial condition, business or results of operations of the
Company and its Subsidiaries taken as a whole.
Section 3.5 Books and Records. All accounts, books and ledgers material to
the business of the Company and its Subsidiaries have been properly and
accurately kept and completed in all material respects, and there are no
material inaccuracies or discrepancies of any kind contained or reflected
therein. Except as set forth on Schedule 3.5, neither the Company nor any of its
Subsidiaries has any of its records, systems, controls, data or information
recorded, stored, maintained, operated or otherwise wholly or partly dependent
on or held by any means (including any electronic, mechanical or photographic
process, whether computerized or not) which (including all means of access
thereto and therefrom) are not under the exclusive ownership and direct control
of the Company or such Subsidiary. The Company has delivered to Omnicom and
OmniSub complete and correct copies of the Articles of Incorporation and By-laws
(or equivalent charter documents) of the Company and of each Subsidiary; and
prior to the Closing will deliver any approved amendments, changes or
restatements of such instruments.
Section 3.6 Title to Properties; Encumbrances. The Company and its
Subsidiaries have good and marketable title to, or enforceable leasehold
interests in, as the case may be, all the properties and assets owned or used by
them (real and personal, tangible and intangible), including, without
limitation, (a) all the properties and assets reflected in the Balance Sheet,
and (b) all the properties and assets purchased by the Company and its
Subsidiaries since the Balance Sheet Date except for properties and assets
reflected in the Balance Sheet or acquired since the Balance Sheet Date that
have been sold or otherwise disposed of in the ordinary course of business, free
and clear of any and all Liens, except for Permitted Liens (as hereinafter
defined) and for Liens reflected in the footnotes to the Balance Sheet or set
forth on Schedule 3.6. As used in this Agreement, the term "Permitted Liens"
shall mean: (i) Liens for Taxes (as defined in Section 3.11) not delinquent or
for Taxes being contested in good faith by appropriate proceedings and as to
which adequate financial reserves have been established on the books and records
of the Company in accordance with GAAP; (ii) Liens created by operation of law,
such as materialmen's liens, mechanics' liens and other similar liens, arising
in the ordinary course of business and not having a Material Adverse Effect;
(iii) deposits, pledges or Liens securing (x) obligations incurred in respect of
workers' compensation, unemployment insurance or other forms of governmental
insurance or benefits, (y) the performance of bids, tenders, leases, contracts
(other than for the payment of money) and statutory obligations or (z)
obligations on surety or appeal bonds, but only to the extent such deposits,
pledges or Liens are incurred or otherwise arise in the ordinary course of
business and secure obligations which are not past due; or (iv) restrictions on
the use of real property or irregularities in the title thereto which do not (x)
secure obligations for the payment of money or (y) materially impair the value
of such property or its use by the Company or any Subsidiary in the normal
conduct of the Company's or such Subsidiary's business.
Section 3.7 Owned and Leased Real Property and Leased Personal Property
3.7.1 Real Property and Personal Property Leases. Schedule 3.7.1 contains
an accurate and complete list of all personal property leases with a fixed
annual rental in excess of $20,000 and all real property leases, subleases,
licenses and other occupancy agreements (including, without limitation, any
modification, amendment or supplement thereto and any other document or
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agreement executed or entered into by Company or a Subsidiary in connection
therewith, such as, without limitation, non-disturbance agreements and estoppel
certificates) (collectively, "leases") to which the Company or a Subsidiary is a
party, including without limitation, leases which the Company or a Subsidiary
has subleased or assigned to a third party and as to which the Company or a
Subsidiary remains liable. Each lease set forth on Schedule 3.7.1 (or required
to be set forth on Schedule 3.7.1) is valid, binding and in full force and
effect; all rents and additional rents and other sums, expenses and charges due
to date on each such lease have been paid; in each case, the lessee has been in
peaceable possession since the commencement of the original term of such lease
and no waiver, indulgence or postponement of the lessee's obligations thereunder
has been granted by the lessor; and, except as set forth in Schedule 3.7.1,
there exists no default or event of default by the Company or any Subsidiary or
to the best knowledge, information and belief of the Company, by any other party
to such lease; and there exists no occurrence, condition or act (including the
Merger hereunder) which, with the giving of notice, the lapse of time or the
happening of any further event or condition, would become a default or event of
default under any such lease; and there are no outstanding claims of breach or
indemnification or notice of default or termination of any such lease. No such
lease is subject and subordinate to any superior lease or mortgage except as set
forth in Schedule 3.7.1 and the Company and its Subsidiaries hold the leasehold
estate interest in all such leases free and clear of all Liens except for
Permitted Liens and except as set forth in Schedule 3.6. Except as set forth on
Schedule 3.7.1, the Company or a Subsidiary is in physical possession and actual
and exclusive occupation of the whole of each of their leased properties.
3.7.2 Owned Real Property. Schedule 3.7.2 lists all real property
(including ground lease interests) owned by the Company and its Subsidiaries or
which the Company or a Subsidiary has an option to purchase ("Owned Real
Property"). With respect to each such parcel of Owned Real Property, and except
as set forth on Schedule 3.7.2:
(a) there are no pending or, to the best knowledge, information and
belief of the Company, threatened condemnation proceedings, lawsuits or
administrative actions relating to the Owned Real Property or entities
owning same, materially and adversely affecting the current or future use,
occupancy or value thereof;
(b) no entity has an option to purchase the Owned Real Property or an
interest therein, except the Company or a Subsidiary, if applicable;
(c) all facilities have received all approvals of Governmental or
Regulatory Authorities, as defined in Section 3.9.1, (including material
Licenses, as defined in Section 3.15.2) required in connection with the
ownership, operation thereof, and have been operated and maintained in
accordance with applicable laws, rules and regulations in all material
respects;
(d) no material default exists under any lease affecting the Owned
Real Property;
(e) the Company or its Subsidiaries maintain reasonably adequate
casualty and liability insurance with respect to their interests in the
Owned Real Property and leases;
(f) no prior assessments, additional contributions and capital calls
required of the Company or a Subsidiary remain unpaid and to the best
knowledge, information and belief of the Company, no assessments,
additional contribution or capital calls are currently anticipated.
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(g) no other occupants, subtenants, or licensees occupying all or any
portion of the Owned Real Property pursuant to written lease, agreement, or
otherwise; (h) no title or survey defects, liens of any kind or nature
(including, but not limited to, mortgages, or Deeds of Trust, real property
tax liens, or security interests) or encumbrances affecting the Owned Real
Property.
3.7.3 Environmental Matters. Except as disclosed on Schedule 3.7.3:
(a) there are no inquiries, litigation or other proceedings pending,
or, to the best knowledge, information and belief of the Company threatened
with regard to the current or prior conduct of the Company's business or
any Owned Real Property with respect to any law, regulation or ordinance
relating to the regulation or protection of human health, safety or the
environment ("Environmental Laws") concerning air, soil or water quality,
or the emission, discharge, release or threatened release of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes or words of similar import (collectively, "Hazardous Material") into
the environment;
(b) the Company and its Subsidiaries have operated their businesses in
compliance with all Environmental Laws except where the failure to so
comply would not have a Material Adverse Effect;
(c) the Owned Real Property is not subject to any judgment, decree,
order or citation which relates to or arises out of a violation of any
Environmental Laws;
(d) all Licenses which are required under applicable Environmental
Laws in connection with the conduct of the business of the Company and its
Subsidiaries have been obtained. Each of such Licenses is in full force and
effect. No additional Licenses are required under any Environmental Law
relative to any Owned Real Property, the failure of which to obtain would
have a Material Adverse Effect;
(e) to the best knowledge, information and belief of the Company, no
Hazardous Materials have been recycled, treated, stored, disposed of or
released by the Company or any Subsidiary at any location; and
(f) no oral or written notification of a release of Hazardous
Materials in connection with the operation of the business of the Company
and its Subsidiaries has been filed on behalf of the Company or any
Subsidiary, and no site or facility now owned, or to the best knowledge,
information and belief of the Company, previously owned, operated or leased
by the Company or any Subsidiary or any of the Owned Real Property is
listed or to the best knowledge, information and belief of the Company
proposed for listing on any federal, state, provincial or local list of
sites requiring investigation or clean-up.
Section 3.8 Contracts. Schedule 3.8 hereto contains an accurate and
complete list of the following agreements to which the Company or any Subsidiary
is a party: (a) all Plans (as such term is defined in Section 3.19), (b) any
agreement, contract or commitment relating to capital expenditures which
involves payments of $250,000 or more in any single or related transaction, (c)
any agreement, contract or commitment relating to the making of any loan,
advance or investment in any Person, which in any case involves more than
$50,000, (d) any agreement, instrument or arrangement evidencing or related in
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any way to indebtedness (excluding indebtedness from any wholly-owned
subsidiary) for money borrowed or to be borrowed, whether directly or
indirectly, by way of loan, purchase money obligation, guaranty (other than the
endorsement of negotiable instruments for collection in the ordinary course of
business), conditional sale, purchase or otherwise, which in any case involves
$100,000 or more, (e) any management service, employment, consulting or any
other similar type of contract which is not cancelable without penalty or other
financial obligation within 30 days and which has total annual remuneration in
excess of $100,000 or has total compensation over the term thereof in excess of
$300,000, (f) any agreement, contract or commitment limiting its freedom to
engage in any line of business or to compete with any other Person, including
agreements limiting its ability to take on competitive accounts after the
termination thereof or limiting the ability of its affiliates to take on
competitive accounts during the term thereof, but excluding standard exclusivity
requirements in agency-client agreements entered into in the ordinary course of
business, (g) any agreement, contract or commitment not covered by another
clause of this Section 3.8 which is material to the business of the Company or
any of its Subsidiaries, (h) any collective bargaining or union agreement, (i)
any agreement with any of its officers or directors or stockholders (including
stockholder agreements or indemnification agreements), (j) any secrecy or
confidentiality agreement (other than standard confidentiality agreements in
computer software license agreements or agency-client agreements entered into in
the ordinary course of business), (k) any licensing or franchise agreement
(other than "off the shelf" computer software license agreements), (l) all
agency-client agreements for each client of the Company and its subsidiaries
required to be listed in Schedule 3.16.1 hereof, (m) any agreements with media
buying services; provided, however, commitments to purchase media in the
ordinary course of business do not have to be set forth on Schedule 3.8, (n) any
agreement, indenture or other instrument which contains restrictions with
respect to the payment of dividends or other distributions in respect of the
Company Common Stock, (o) any outstanding promissory note to a former
stockholder of the Company in respect of the Company's repurchase of Company
Common Stock from such former stockholders (together with a statement setting
forth the outstanding balance of each such promissory note as of a date within
five days prior to the Execution Date, the number of shares of Company Common
Stock (if any) held in escrow relating to each such repurchase and the name of
the escrow agent), (p) any joint venture or partnership agreement involving a
sharing of profits not covered by (a) through (o) above; provided, however, that
(x) commitments to media and production expenses which are fully reimbursable
from clients, and (y) estimates or purchase orders given in the ordinary course
of business relating to the execution of projects, do not have to be set forth
on Schedule 3.8. Each contract, agreement or commitment set forth on Schedule
3.8 (or required to be set forth on Schedule 3.8) is in full force and effect,
and there exists no default or event of default by the Company or any Subsidiary
or to the best knowledge, information and belief of the Company, by any other
party, or occurrence, condition, or act (including the Merger hereunder) which,
with the giving of notice, the lapse of time or the happening of any other event
or condition, would become a default or event of default thereunder, and there
are no outstanding claims of breach or indemnification or notice of default or
termination of any such agreements, contracts or commitments.
Section 3.9 Non-Contravention; Approvals and Consents.
3.9.1 Non-Contravention. Except as set forth on Schedule 3.9.1, the
execution, delivery and performance by the Company of its obligations hereunder
and the consummation of the transactions contemplated hereby, will not conflict
with, result in a violation or breach of, constitute (with or without notice or
lapse of time or both) a default under, result in or give to any Person any
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right of payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien upon any of
the assets or properties of the Company or any Subsidiary under, any of the
terms, conditions or provisions of (a) the certificates or articles of
incorporation or by-laws (or other comparable charter documents) of the Company
or any Subsidiary, or (b) subject to the obtaining of the Company Shareholders'
Approval and the taking of the actions described in Section 3.9.2, (i) any
statute, law, rule, regulation or ordinance (collectively, "Laws"), or any
judgment, decree, order, writ, permit or license (collectively, "Orders"), of
any court, tribunal, arbitrator, authority, agency, commission, official or
other instrumentality of the United States, any foreign country or any domestic
or foreign state, county, city or other political subdivision (a "Governmental
or Regulatory Authority"), applicable to the Company or any Subsidiary or any of
their respective assets or properties, or (ii) any note, bond, mortgage,
security agreement, indenture, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind (collectively,
"Contracts") to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any of their respective assets or properties is
bound.
3.9.2 Approvals and Consents. Except (a) for the filing of a pre-merger
notification report by the Company under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(the "HSR Act"), (b) for the filing of the Information Statement and
Registration Statement (as those terms are defined in Section 3.26) with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), and the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), the declaration of the
effectiveness of the Registration Statement by the SEC and any filings with
state securities authorities that are required in connection with the
transactions contemplated by this Agreement, (c) for the filing of the Articles
of Merger and other appropriate merger documents required by the PBCL, with the
Pennsylvania Department of State and appropriate documents with the relevant
authorities of other states in which the Company and/or OmniSub is qualified to
do business, and (d) as disclosed on Schedule 3.9.2, no consent, approval or
action of, filing with or notice to any Governmental or Regulatory Authority or
other public or private third party is necessary or required under any of the
terms, conditions or provisions of any Law or Order of any Governmental or
Regulatory Authority or any Contract to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries or
any of their respective assets or properties is bound for the execution and
delivery of this Agreement by the Company, the performance by the Company of its
obligations hereunder or the consummation of the transactions contemplated
hereby.
Section 3.10 Litigation. Except as set forth on Schedule 3.10, there is no
action, suit, proceeding at law or in equity by any Person, or any arbitration
or any administrative or other proceeding by or before (or to the best
knowledge, information and belief of the Company, any investigation by) any
Governmental or Regulatory Authority, pending or, to the best knowledge,
information and belief of the Company threatened, against the Company or any of
its officers, directors, employees or agents with respect to this Agreement or
the transactions contemplated hereby, or against or affecting the Company or any
Subsidiary or any of their properties or rights; and no acts, facts,
circumstances, events or conditions occurred, or exist which are a basis for any
such action, proceeding or investigation. Except as set forth on Schedule 3.10,
neither the Company nor any Subsidiary is subject to any Order entered in any
lawsuit or proceeding.
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Section 3.11 Taxes
3.11.1 Taxes. The Company and its Subsidiaries have timely filed or caused
to be filed, taking into account any valid extensions of due dates, completely
and accurately, all federal and all material state, local and foreign tax or
information returns (including estimated tax returns) required under the
statutes, rules or regulations of such jurisdictions to be filed by the Company
and its Subsidiaries. The term "Taxes" means taxes, duties, charges or levies of
any nature imposed by any taxing or other governmental authority, including
without limitation income, gains, capital gains, surtax, capital, franchise,
capital stock, value-added taxes ("VAT"), taxes required to be deducted from
payments made by the payor and accounted for to any tax authority, employees'
income withholding, back-up withholding, withholding on payments to foreign
persons, social security, national insurance, unemployment, worker's
compensation, payroll, disability, real property, personal property, sales, use,
goods and services or other commodity taxes, business, occupancy, excise,
customs and import duties, transfer, stamp, and other taxes (including interest,
penalties or additions to tax in respect of the foregoing), and includes all
taxes payable by the Company or any Subsidiary pursuant to Treasury Regulations
(beta)1.1502-6 or any similar provision of state, local or foreign law. All
Taxes shown on said returns to be due have been paid and all additional
assessments received prior to the date hereof have been paid or are being
contested in good faith, in which case such contested assessments are disclosed
on Schedule 3.11. The amount set up as an accrual for Taxes on the Balance Sheet
is sufficient for the payment of all unpaid Taxes of the Company and its
Subsidiaries, whether or not disputed, for all periods ended on and prior to the
Balance Sheet Date. Since the Balance Sheet Date, neither the Company nor any
Subsidiary has incurred any liabilities for Taxes other than in the ordinary
course of business. The Company and its Subsidiaries have withheld all amounts
required to be withheld on account of Taxes from amounts paid to employees,
former employees, directors, officers and residents and non-residents and
remitted or will remit the same to the appropriate taxing authority within the
prescribed time periods. The Company and its Subsidiaries have collected all
sales, use, goods and services or other commodity Taxes required to be collected
and remitted or will remit the same to the appropriate taxing authority within
the prescribed time periods. The Company and its Subsidiaries have delivered to
Omnicom correct and complete copies of all federal, state and foreign income tax
returns filed with respect to the Company and its Subsidiaries for all taxable
periods beginning on or after January 1, 1991. The Federal income tax returns of
the Company or its Subsidiaries have been audited by the Internal Revenue
Service ("IRS") for all periods through 1991. The Company has delivered to
Omnicom true and complete copies of all notices of deficiencies or proposed
deficiencies and of all audit reports issued to the Company or any Subsidiary by
(a) the IRS for periods beginning on or after January 1, 1988 and (b) any other
taxing authority for periods beginning on or after January 1, 1991. Except as
disclosed on Schedule 3.11, no examination by any taxing authority of any return
of the Company or any Subsidiary is currently in progress, and neither the
Company nor any Subsidiary has received written notice of any proposed audit or
examination. No deficiency in the payment of Taxes by the Company or any
Subsidiary for any period has been asserted in writing by any taxing authority
and remains unsettled at the date of this Agreement. Neither the Company nor any
Subsidiary has made any agreement, waiver or other arrangement providing for an
extension of time with respect to the assessment or collection of any Tax
against it or filed a consent with the IRS pursuant to Section 341(f)(2) of the
Code or made an election under Section 338 of the Code. Neither the Company nor
any Subsidiary is a party to any tax allocation or tax sharing agreement or has
any contractual obligation to indemnify any Person with respect to Taxes, other
than agreements or obligations between or among corporations which are currently
members of the affiliated group of corporations (as defined in Section 1504 of
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the Code) of which the Company is the common parent. The Company has not been a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code within the period specified in Section 897(c)(1)(A)(ii) of
the Code. Neither the Company nor any Subsidiary will be required as a result of
a change in accounting method for any period ending on or before the Closing
Date to include any adjustment under Section 481 of the Code (or any similar
provision of state, local or foreign income tax law) in income for any period
ending after the Closing Date. Except as set forth on Schedule 3.11, neither the
Company nor any Subsidiary is obligated to make any payments or is a party to
any agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Section 280G of the Code.
Section 3.12 Liabilities. Except as set forth on the Balance Sheet or
referred to in the footnotes thereto, neither the Company nor any Subsidiary has
any outstanding claims, liabilities or indebtedness of any nature whatsoever
(collectively in this Section 3.12, "liabilities"), whether accrued, absolute or
contingent, determined or undetermined, asserted or unasserted, and whether due
or to become due, other than (a) liabilities disclosed on any Schedule hereto;
(b) liabilities under Contracts of the type required to be disclosed on any
Schedule but because of the dollar amount or other qualifications are not
required to be listed on such Schedule and, (c) liabilities incurred in the
ordinary course of business and consistent with past practice since the Balance
Sheet Date not involving borrowings by the Company and its Subsidiaries. Except
as disclosed on Schedule 3.8, neither the Company nor any Subsidiary has any
outstanding guarantee to any Person with respect to any obligation or liability
of an unrelated third party. The Company represents and warrants that no costs
or other liabilities will be incurred in connection with the reorganization of
the media buying operations of its subsidiary Ketchum Communications Inc.
("KCI").
Section 3.13 Insurance. Schedule 3.13 is a schedule of all insurance
policies (including life insurance) currently maintained by the Company or any
Subsidiary. All such policies are valid, outstanding and enforceable policies
and all premiums that have become due have been currently paid. None of such
policies shall lapse or terminate by reason of the transactions contemplated
hereby. Neither the Company nor any Subsidiary has received any written notice
of cancellation or written non-renewal of any such policy. Neither the Company
nor any Subsidiary has received written notice from any of its insurance
carriers that any premiums will be materially increased in the future or that
any insurance coverage listed on Schedule 3.13 will not be available in the
future on substantially the same terms now in effect. Except as set forth on
Schedule 3.13, within the last two years neither the Company nor any Subsidiary
has filed for any claim exceeding $50,000 against any of its insurance policies,
exclusive of automobile policies.
Section 3.14 Intellectual Properties. The Company and its Subsidiaries have
all right, title and interest in, or a valid and binding license to use, all
Intellectual Property (as defined below) used in the conduct of their businesses
(except for "off the shelf" computer software programs owned by employees of the
Company and used on their own behalf). Except as set forth on Schedule 3.10
hereto, no claim of infringement or misappropriation of Intellectual Property is
or has been pending or, to the best knowledge, information and belief of the
Company, threatened against the Company or any Subsidiary and, to the best
knowledge, information and belief of the Company, neither the Company nor any
Subsidiary is infringing or misappropriating any Intellectual Property of any
other Person. Except as set forth in Schedule 3.14, neither the Company nor any
Subsidiary has expressly granted any license, franchise or permit in effect on
the date hereof to any person or entity to use any Intellectual Property owned
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by it. The term "Intellectual Property" means patents and patent rights,
trademarks and trademark rights, tradenames and tradename rights, service marks
and service mark rights, service names and service name rights, copyrights and
copyright rights and other proprietary intellectual property rights and all
pending applications for and registrations of any of the foregoing.
Section 3.15 Compliance with Laws; Licenses and Permits.
3.15.1 Compliance. The Company and its Subsidiaries are, and their
businesses have been conducted, in compliance with all applicable Laws and
Orders, except in each case where the failure to so comply would not have a
Material Adverse Effect, including without limitation, (a) all Laws and Orders
promulgated by the Federal Trade Commission or any other Governmental or
Regulatory Authority; (b) all Environmental Laws and Orders; and (c) all Laws
and Orders relating to labor, civil rights, and occupational safety and health
laws, worker's compensation, employment and wages, hours and vacations, or pay
equity. Neither the Company nor any Subsidiary has been charged with, or, to the
best information, knowledge and belief of the Company threatened with, or is
under any investigation with respect to, any charge concerning any violation of
any Laws or Orders.
3.15.2 Licenses. The Company and its Subsidiaries have all licenses,
permits and other governmental certificates, authorizations and approvals
(collectively "Licenses") required by any Governmental or Regulatory Authority
for the operation of their businesses and the use of their properties as
presently operated or used, except where the failure to have such Licenses would
not have a Material Adverse Effect. All of the Licenses are in full force and
effect and no action or claim is pending, nor to the best knowledge, information
and belief of the Company is threatened, to revoke or terminate any of the
Licenses or declare any License invalid in any material respect.
Section 3.16 Client Relations. Schedule 3.16.1 sets forth for the Company
and the Subsidiaries taken as a whole, (a) the twenty largest clients (measured
by commissions and fees generated) as at December 31, 1995 and the commissions
and fees from each such client and from all clients (in the aggregate) for the
fiscal year ended December 31, 1995 and (b) the clients projected to be the
twenty largest clients (measured by commissions and fees) based on the Company's
current 1996 profit plan for the fiscal year ending December 31, 1996, together
with the estimated commissions and fees for each such client and all clients (in
the aggregate) for such fiscal year. Except as set forth on Schedule 3.16.1, no
current client of the Company or any Subsidiary which in 1995 generated
commissions and fees in excess of $100,000 or in 1996 is estimated to generate
commissions and fees in excess of $100,000 has advised the Company or any
Subsidiary in writing that it is terminating or considering terminating the
handling of its business by the Company or any Subsidiary, as a whole or in
respect of any material product, project or service, or is planning to reduce
its future spending with the Company or any Subsidiary in any material manner,
and to the best knowledge, information and belief of the Company, no such client
has orally advised the Company or any Subsidiary of any of the foregoing events.
Section 3.17 Accounts Receivable; Work-in-Process; Accounts Payable. The
amount of all work-in-process, accounts receivable, expenditures billable to
clients and other debts due or recorded in the records and books of account of
the Company and the Subsidiaries as being due to the Company or any Subsidiary
arose from bona fide transactions in the ordinary course of business and, to the
best knowledge, information and belief of the Company, will be good and
collectible in full (less the amount of any provision, reserve or similar
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adjustment therefor made in such records and books of account) in the ordinary
course of business, and, to the best knowledge, information and belief of the
Company, none of such accounts receivable or other debts (or accounts receivable
arising from such work-in-process) is or will be subject to any counterclaim or
set-off except to the extent of any such provision, reserve or adjustment. There
has been no change since the Balance Sheet Date in the amount or aging of the
work-in-process, accounts receivable, expenditures billable to clients or other
debts due to the Company or any Subsidiary or the reserves with respect thereto,
or accounts payable of the Company or any Subsidiary, which is materially
adverse to the business, financial condition or results of operations of the
Company and its Subsidiaries taken as a whole.
Section 3.18 Employment Relations. Relations (a) Neither the Company nor
any Subsidiary is engaged in any unfair labor practice; (b) no unfair labor
practice complaint against the Company or any Subsidiary is pending before any
Governmental or Regulatory Authority; (c) there is no organized labor strike,
dispute, slowdown or stoppage actually pending or to the best knowledge,
information and belief of the Company threatened against or involving the
Company or any Subsidiary; (d) there are no labor unions representing or, to the
best knowledge, information and belief of the Company, attempting to represent
the employees of the Company or any Subsidiary; (e) no claim or grievance nor
any arbitration proceeding arising out of or under any collective bargaining
agreement is pending and to the best knowledge, information and belief of the
Company, no such claim or grievance has been threatened; (f) no collective
bargaining agreement is currently being negotiated by the Company or any
Subsidiary; and (g) neither the Company nor any Subsidiary has experienced any
work stoppage or similar organized labor dispute during the last three years.
There is no legal action, suit, proceeding or claim pending or, to the best
knowledge, information and belief of the Company, threatened between the Company
or any Subsidiary and any of their employees, former employees, agents, former
agents, job applicants or any association or group of any of their employees,
except as set forth on Schedule 3.10.
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Section 3.19 Employee Benefit Matters.
3.19.1 List of Plans. Schedule 3.8 lists all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) and all bonus, stock option, stock purchase, restricted
stock, stock appreciation rights, phantom stock rights, incentive compensation,
deferred compensation, retiree medical or life insurance, supplemental
retirement, severance or other benefit plans, programs or arrangements, and all
termination, severance or contracts or agreements, whether covering one person
or more than one person, and whether or not subject to any of the provisions of
ERISA, to which the Company or any Subsidiary is a party, with respect to which
the Company or any Subsidiary has any obligation or which are maintained,
contributed to or sponsored by the Company or any Subsidiary for the benefit of
any current or former employee, officer or director of the Company or any
Subsidiary (each aforementioned item listed or required to be listed on Schedule
3.8 being referred to herein individually as a "Plan" and collectively as the
"Plans"). The Company has delivered to Omnicom a complete and accurate copy of
(a) each written Plan and descriptions of any unwritten Plan (including all
amendments thereto whether or not such amendments are currently effective), (b)
each trust agreement or other funding arrangement with respect to each Plan,
including insurance contracts, (c) each summary plan description and summary of
material modifications relating to a Plan, (d) the three most recently filed IRS
Form 5500 relating to each Plan, (e) the most recently received IRS
determination letter for each Plan, and (f) the three most recently prepared
actuarial reports and financial statements, if applicable, in connection with
each Plan. Except as set forth on Schedule 3.8, neither the Company nor any
Subsidiary has any express or implied commitment, (a) to create, incur liability
with respect to or cause to exist any other employee benefit plan, program or
arrangement, or (b) to modify, change or terminate any Plan. The information
reported on each such Form 5500 is accurate and true. To the best knowledge,
information and belief of the Company, no event has occurred or condition exists
that could adversely effect the results contained in such actuarial reports and
financial statements. Such financial statements fairly represent the financial
condition and results of operations of each Plan as of the dates of such
statements, in accordance with generally accepted accounting principles and
Department of Labor requirements.
3.19.2 Multi-Employer Plans. Schedule 3.8 includes a complete and accurate
list of each multi-employer plan (within the meaning of Section 3(37) or 4001(a)
(3) of ERISA) (a "Multi-employer Plan") and each single employer pension plan
(within the meaning of Section 4001(a) (15) of ERISA) (a) that is subject to
Sections 4063 and 4064 of ERISA (a "Multiple Employer Plan") which is
maintained, contributed to or participated in by the Company or any ERISA
Affiliate, or (b) with respect to which the Company or any ERISA Affiliate, has
incurred or could incur any liability under, arising out of or by operation of
Title IV of ERISA. Neither the Company nor any ERISA Affiliate has incurred any
liability (including any contingent or secondary liability) which has not been
satisfied in full in connection with (i) the full or partial withdrawal from or
termination of any Multi-employer Plan or Multiple Employer Plan, or (ii) the
reorganization of any Multi-employer Plan, and no fact or event exists which
could give rise to any such liability. For purposes of this Section 3.19, the
term "ERISA Affiliate" means the Company, each Subsidiary, if any, and each
trade or business (whether or not incorporated) that is a member of a group of
which the Company is a member and that is treated as a single employer under
Sections 414(b), (c), (m), (n) or (o) of the Code. The Company and its
Subsidiaries have not maintained, contributed to or participated in a
multi-employer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA
or a multiple employer plan subject to Sections 4063 and 4064 of ERISA) and have
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no obligations or liabilities, including withdrawal or successor liabilities,
regarding any such plan.
3.19.3 Severance. Except as set forth on Schedule 3.8, none of the Plans,
nor any employment agreement or other agreement to which the Company or any
Subsidiary is a party or bound, provides for the payment of separation,
severance, termination or similar-type benefits to any Person or obligates the
Company or any Subsidiary to pay separation, severance, termination or
similar-type benefits solely as a result of any transaction contemplated by this
Agreement or as a result of a "change in control," within the meaning of such
term under section 280G of the Code. None of such Plans or other such agreements
referred to in this Section 3.19.3 are subject to the Laws of any jurisdiction
outside of the United States. The total liability of the Company to former
shareholders under paragraph 9 of the shareholder agreements to which is was a
party, or under any agreements entered into in settlement of such contractual
rights, shall not exceed $5,278,000.
3.19.4 Welfare Benefit Plans. Schedule 3.8 also sets forth a complete and
accurate list of each Plan which provides or promises retiree medical,
disability or life insurance benefits to any current or former employee, officer
or director of the Company. Except as set forth on Schedule 3.19, the Company
has expressly reserved the right, in all Plan documents relating to welfare
benefits provided to employees, former employees, officers, directors and other
participants and beneficiaries, to amend, modify or terminate at any time the
Plans which provide for welfare benefits and the Company is not aware of any
fact, event or condition that could reasonably be expected to restrict or impair
such right.
3.19.5 Administrative Compliance. Each Plan is now and has been operated in
all material respects in accordance with the requirements of all applicable law,
including, without limitation, ERISA and the Code, and the regulations and
authorities published thereunder. The Company and the Subsidiaries have each
performed all material obligations required to be performed by it under, is not
in any respect in default under or in violation of, and the Company has no
knowledge of any default or violation by any party to, any Plan. Except as set
forth on Schedule 3.10, no legal action, suit, audit, investigation or claim is
pending or to the best knowledge, information and belief of the Company
threatened, with respect to any Plan (other than claims for benefits in the
ordinary course) and, to the best knowledge, information and belief of the
Company, and except as set forth on Schedule 3.19, no fact, event or condition
exists that could give rise to any such action, suit, audit, investigation or
claim. All reports, disclosures, notices and filings with respect to such Plans
required to be made to employees, participants, beneficiaries, alternate payees
and Governmental or Regulatory Authorities have been timely made or an extension
has been timely obtained.
3.19.6 Tax-Qualification. Except as set forth on Schedule 3.19, each Plan
which is intended to be qualified under Section 401(a) of the Code has received
a favorable determination letter from the IRS that it is so qualified and each
trust established in connection with any Plan which is intended to be exempt
from federal income taxation under section 501(a) of the Code has received a
determination letter from the IRS that it is so exempt, and to the best
knowledge, information and belief of the Company, no fact or event has occurred
or condition exists since the date of such determination letter from the IRS
which could adversely affect the qualified status of any such Plan or the exempt
status of any such trust.
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3.19.7 Funding; Excise Taxes. Except as set forth on Schedule 3.19, there
has been no prohibited transaction (within the meaning of Section 406 of ERISA
or Section 4975 of the Code) with respect to any Plan subject to ERISA. Neither
the Company nor any Subsidiary has incurred any liability for any excise tax
arising under Sections 4971, 4972, 4975, 4976, 4977, 4978, 4978B, 4979, 4980 or
4980B of the Code or any civil penalty arising under Sections 502(i) or 502(l)
of ERISA, and, to the best knowledge, information and belief of the Company, no
fact, event or condition exists which could give rise to any such liability.
Neither the Company nor any ERISA Affiliate has incurred any liability under,
arising out of or by operation of Title IV of ERISA (other than liability for
premiums to the Pension Benefit Guaranty Corporation ("PBGC") arising in the
ordinary course), including, without limitation, any liability in connection
with the termination of any employee benefit plan subject to Title IV of ERISA
(a "Title IV Plan"); and, no fact, event or condition exists which could give
rise to any such liability. Except as set forth on Schedule 3.19, no complete or
partial termination has occurred within the five years preceding the date hereof
with respect to any Plan maintained by the Company or any ERISA Affiliate, and
no reportable event (within the meaning of Section 4043 of ERISA), notice of
which has not been waived by the PBGC, has occurred or is expected to occur with
respect to any Plan maintained by the Company or any ERISA Affiliate. No Title
IV Plan maintained by the Company or any ERISA Affiliate had an accumulated
funding deficiency (within the meaning of Section 302 of ERISA or Section 412 of
the Code), whether or not waived, as of the most recently ended plan year of
such Plan. None of the assets of the Company or any ERISA Affiliate is the
subject of any Lien arising under Section 302(f) of ERISA or Section 412(n) of
the Code; neither the Company nor any ERISA Affiliate has been required to post
any security under Section 307 of ERISA or Section 401(a) (29) of the Code; and
to the best knowledge, information and belief of the Company, no fact or event
exists which could give rise to any such Lien or requirement to post any such
security. As of the Closing Date, no Plan which is a Title IV Plan will have an
"unfunded benefit liability" (within the meaning of Section 4001(a)(18) of
ERISA).
3.19.8 Tax Deductions. All contributions, premiums or payments required to
be made, paid or accrued with respect to any Plan have been made, paid or
accrued on or before their due dates, including extensions thereof. All such
contributions have been fully deducted for income tax purposes and no such
deduction has been challenged or disallowed by any government entity and to the
best knowledge, information and belief of the Company, no fact or event exists
which could give rise to any such challenge or disallowance.
Section 3.20 Interests in Customers, Suppliers, Etc. Except as set forth on
Schedule 3.20, to the best knowledge, information and belief of the Company, no
officer, director, or employee of the Company or any Subsidiary, or the parent,
brother, sister, child or spouse of any such officer, director or employee
(collectively, the "Related Group"), or any entity controlled by anyone in the
Related Group:
(a) owns, directly or indirectly, any interest in (excepting less than
1/4 of 1% stock holdings for investment purposes in securities of publicly
held and traded companies), or has any right to receive payments from, or
is an officer, director, employee or consultant of, any Person which is, or
is engaged in business as, a competitor, lessor, lessee, supplier,
distributor, sales agent, customer or client of the Company or any
Subsidiary;
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(b) owns, directly or indirectly (other than through the ownership of
stock or other securities of the Company or any Subsidiary), in whole or in
part, any tangible or intangible property, that the Company or any
Subsidiary uses in the conduct of its business; or
(c) has any cause of action or other claim whatsoever against, or owes
any amount to the Company or any Subsidiary, except for claims in the
ordinary course of business such as for accrued vacation pay, accrued
benefits under employee benefit plans, and similar matters and agreements
existing on the date hereof.
Section 3.21 Bank Accounts and Powers of Attorney. Set forth in Schedule
3.21 is an accurate and complete list showing (a) the name of each bank in which
the Company and its Subsidiaries have an account, credit line or safe deposit
box and the names of all persons authorized to draw thereon or to have access
thereto, and (b) the names of all persons, if any, holding powers of attorney
from the Company and its Subsidiaries and a summary statement of the terms
thereof.
Section 3.22 Compensation of Employees. Set forth in Schedule 3.22 is a
complete list showing the names and positions of all salaried employees and
exclusive consultants who are currently being compensated in the aggregate from
the Company or any Subsidiary at an annualized rate of $100,000 or more,
together with a statement of the current annual salary, the bonus compensation
paid or payable with respect to the fiscal year ended December 31, 1995 and the
material fringe benefits of such employees and exclusive consultants not
generally available to all employees of the Company and its Subsidiaries.
Schedule 3.22 also sets forth a complete list showing (a) all bonus compensation
paid or payable in the aggregate (whether by agreement, custom or understanding)
to any salaried employees of the Company and its Subsidiaries for services
rendered during the fiscal year ended December 31, 1995, (b) the names of all
retired employees, if any, of the Company or its Subsidiaries who are receiving
or entitled to receive any healthcare or life insurance benefits or any payments
from the Company and its Subsidiaries not covered by any pension plan to which
the Company or its Subsidiaries are a party, their ages and current unfunded
pension rate, if any, and (c) a description of the normal severance benefits of
the Company and each Subsidiary.
Section 3.23 No Changes Since the Balance Sheet Date. Since the Balance
Sheet Date, except as specifically stated on Schedule 3.23 or as contemplated or
otherwise permitted under the terms of this Agreement, neither the Company nor
any Subsidiary has (a) permitted any of its assets to be subjected to any Lien
other than a Permitted Lien, (b) sold, transferred or otherwise disposed of any
assets or properties except in the ordinary course of business and which had an
aggregate value of less than $25,000, (c) made any capital expenditure or
commitment therefor which individually or in the aggregate exceeded $100,000,
(d) declared or paid or set aside for payment any dividends or made any
distribution on any shares of its capital stock, or redeemed, purchased or
otherwise acquired any shares of its capital stock or any option, warrant or
other right to purchase or acquire any such shares, (e) paid or incurred any
obligation to pay any bonuses to employees other than as accrued for on the
Balance Sheet, (f) increased or prepaid its indebtedness for borrowed money,
except current borrowings in the ordinary course of business under credit lines
disclosed on the Balance Sheet, or made any loan to any Person other than to any
employee for normal travel and expense advances or relocation allowances
consistent with past practice, (g) written down the value of any
work-in-process, or written off as uncollectible any notes or accounts
receivable, except write-downs and write-offs in the ordinary course of
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business, none of which individually or in the aggregate, is material to the
Company and its Subsidiaries taken as a whole (h) granted any increase in the
rate of wages, salaries, bonuses or other remuneration of any employee who,
whether as a result of such increase or prior thereto, receives aggregate
compensation from the Company or any Subsidiary at an annual rate of $100,000 or
more, or entered into any employment agreement which is not cancelable without
penalty or financial obligation within 30 days and which has total compensation
of more than $300,000 over the term thereof, or except in the ordinary course of
business to any other employees, (i) canceled or waived any claims or rights of
substantial value, (j) made any change in any method of accounting, (k)
otherwise conducted its business or entered into any transaction, except in the
usual and ordinary manner and in the ordinary course of its business, (l)
amended in any material respect or terminated any agreement which is material to
its business, (m) renewed, extended or modified in any material respect any
lease of real property or except in the ordinary course of business any lease of
personal property, (n) adopted, amended in any material respect or terminated
any Plan, or (o) agreed, whether or not in writing, to do any of the foregoing.
Section 3.24 Vote Required. Pursuant to Pennsylvania law and the condition
to Omnicom's obligation to consummate the Merger as set forth in Section 8.6
below, (a) the affirmative votes of the holders of record of at least a majority
of the outstanding shares of Company Common Stock, voting as a class, and of the
sole holder of record of all of the Company Preferred Stock, voting as a class,
with respect to the adoption of this Agreement,(b) the affirmative vote of the
Trustee of the Company 401(k) Profit Sharing Plan (the "Profit Sharing Plan")
with respect to all shares of Company Common Stock owned by it with respect to
the adoption of this Agreement, and (c) the affirmative vote of the holders of a
majority of the voting power represented by the outstanding shares of Company
Common Stock and Company Preferred Stock, voting together as a single class,
with respect to the adoption of the Escrow Agreement and the appointment of the
Shareholder Representative, are the only votes of the holders of any class or
series of any class of the capital stock of the Company required to adopt the
Agreement and approve the Merger and the other transactions contemplated hereby.
Section 3.25 Corporate Controls. To the best knowledge, information and
belief of the Company, neither the Company, any Subsidiary nor any director,
officer, agent, employee or other Person associated with or while acting on
behalf of the Company or any Subsidiary, has, directly or indirectly: used any
corporate fund for unlawful contributions, gifts, or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on its books or records; made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment, or other payment of a
similar or comparable nature, to any Person or entity, private or public,
regardless of form, whether in money, property, or services, to obtain favorable
treatment in securing business or to obtain special concessions, or to pay for
favorable treatment for business secured or for special concessions already
obtained, and neither the Company nor any Subsidiary has participated in any
boycott or other similar practices affecting any of its actual or potential
customers.
Section 3.26 Information Supplied. None of the information supplied or to
be supplied by the Company for inclusion in either (i) the registration
statement on Form S-4 to be filed with the SEC by Omnicom in connection with the
issuance of Omnicom Stock under this Agreement (the "Registration Statement") or
(ii) the information statement relating to the Special Meeting to be held in
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connection with this Agreement and the transactions contemplated hereby (the
"Information Statement"), contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, or will, at the time the Registration Statement
becomes effective under the Securities Act and at the date on which the
Information Statement is mailed to the Company Shareholders, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
Section 3.27 Brokers. Except as set forth on Schedule 3.27, no broker,
finder, agent or similar intermediary has acted on behalf of the Company in
connection with this Agreement or the transactions contemplated hereby, and
except as set forth on Schedule 3.27 no brokerage commissions, finder's fees or
similar fees or commissions are payable by the Company or any Subsidiary in
connection therewith based on any agreement, arrangement or understanding with
any of them.
Section 3.28. Transaction Costs. The legal, accounting, other professional
fees and expenses, including the fees and expenses of Ad Media Corporate
Advisors, Inc., incurred or to be incurred by the Company and the Subsidiaries
in connection with this Agreement and the transactions contemplated hereby,
including without limitation the preparation of the Prospectus Materials as
provided in Section 7.1 and the transactions contemplated thereby (collectively,
the "Transaction Costs") will not exceed $1,500,000.
Section 3.29 Accounting Matters. To the best knowledge, information and
belief of the Company, neither the Company nor any of its affiliates has taken
or agreed to take any action which would prevent Omnicom from accounting for the
business combination to be effected by the Merger as a pooling-of-interests.
Section 3.30 Copies of Documents; Schedules. The Company has caused to be
made available for inspection and copying by Omnicom and OmniSub and their
advisers, true, complete and correct copies of all documents referred to in this
Article III or in any Annex or Schedule. The Schedules referred to in this
Article III have been previously delivered to Omnicom and OmniSub by the
Company.
ARTICLE IV
REPRESENTATIONS OF OMNICOM AND OMNISUB
Omnicom and OmniSub, jointly and severally, represent and warrant to the
Company as follows:
Section 4.1 Existence and Good Standing. Omnicom is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York. OmniSub is a corporation duly organized and validly existing and for
which no Articles of Dissolution have been filed under the laws of the
Commonwealth of Pennsylvania. Each of Omnicom and OmniSub has all requisite
corporate power and authority to own its assets and to carry on its business as
presently conducted.
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Section 4.2 Execution and Validity of Agreements. Each of Omnicom and
OmniSub has the full corporate power and authority to enter into this Agreement,
to perform its respective obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by Omnicom and OmniSub and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all required
corporate action on behalf of Omnicom and OmniSub. This Agreement has been duly
and validly executed and delivered by Omnicom and OmniSub and, assuming due
authorization, execution and delivery by the Company, constitutes the legal,
valid and binding obligation of Omnicom and OmniSub, enforceable against each of
them in accordance with its terms.
Section 4.3 Non-Contravention; Approvals and Consents.
4.3.1 Non-Contravention. The execution, delivery and performance by Omnicom
and OmniSub of their obligations hereunder and the consummation of the
transactions contemplated hereby will not conflict with, result in a violation
or breach of, constitute (with or without notice or lapse of time or both) a
default under, result in or give to any Person any right of payment or
reimbursement, termination, cancellation, modification or acceleration of, or
result in the creation or imposition of any Lien upon any of the assets or
properties of Omnicom or OmniSub under, any of the terms, conditions or
provisions of (a) the certificate or articles of incorporation or by-laws of
Omnicom or OmniSub, or (b) subject to the taking of the actions described in
Section 4.3.2, (i) any Laws or Orders of any Governmental or Regulatory
Authority applicable to Omnicom or OmniSub or any of their respective assets or
properties, or (ii) any Contract to which Omnicom or OmniSub is a party or by
which Omnicom or OmniSub or any of their respective assets or properties is
bound.
4.3.2 Approvals and Consents. Except (a) for the filing of a pre-merger
notification report by Omnicom under HSR Act, (b) for the filing of the
Information Statement and Registration Statement with the SEC pursuant to the
Exchange Act and the Securities Act, the declaration of the effectiveness of the
Registration Statement by the SEC and any filings with various state securities
authorities that are required in connection with the transactions contemplated
by this Agreement, (c) for the filing of the Articles of Merger and other
appropriate merger documents required by the PBCL with the Pennsylvania
Department of State and appropriate documents with the relevant authorities of
other states in which the Company and/or OmniSub is qualified to do business,
and (d) as disclosed on Schedule 4.3.2, no consent, approval or action of,
filing with or notice to any Governmental or Regulatory Authority or other
public or private third party is necessary or required under any of the terms,
conditions or provisions of any Law or Order of any Governmental or Regulatory
Authority or any Contract to which Omnicom or OmniSub is a party or by which
Omnicom or OmniSub or any of their respective assets or properties is bound for
the execution and delivery of this Agreement by Omnicom or OmniSub, the
performance by Omnicom and OmniSub of their respective obligations hereunder or
the consummation of the transactions contemplated hereby.
Section 4.4 Omnicom Stock. The shares of Omnicom Stock to be delivered to
the holders of the Company Stock pursuant to this Agreement, when delivered as
provided herein, will be validly issued and outstanding shares of voting common
stock of Omnicom, fully paid and non-assessable, and will not be subject to
preemptive rights of any Person. The Omnicom Stock to be so delivered will be
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registered under the Registration Statement and duly listed for trading on the
New York Stock Exchange as of the Closing Date.
Section 4.5 Financial Statements and No Material Changes. Omnicom has
previously furnished to the Company true and complete copies of its Annual
Reports on Form 10-K for the three fiscal years ended December 31, 1992, 1993
and 1994, as amended by the Reports on Form 10-K/A filed in respect of the 1992
and 1993 Annual Reports, and complete copies of its Quarterly Reports on Form
10-Q for the three quarters ended March 31, June 30 and September 30, 1995.
Since September 30, 1995, there has been no material adverse change in the
assets or liabilities, or in the business or condition, financial or otherwise,
or the results of consolidated operations of Omnicom and its subsidiaries. Since
December 31, 1992, Omnicom has filed all forms, reports and documents with the
SEC required to be filed by it pursuant to the federal securities laws and the
SEC rules and regulations thereunder (the "SEC Reports"), all of which complied
in all material respects with the applicable requirements of the Securities Act
and the Exchange Act. None of the SEC Reports, at the time filed (and in the
case of the 1992 and 1993 Annual Reports on Form 10-K, as amended by the
applicable Form 10-K/A) contained any untrue statement of a material fact, or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, or in which they will be made, not misleading. The audited financial
statements included in such SEC Reports have been prepared in accordance with
GAAP applied on a consistent basis (except as stated therein) and present
fairly, in all material respects, the consolidated financial position of Omnicom
and its subsidiaries as of the respective dates thereof, and the consolidated
results of operations and cash flows for each of the periods then ended.
Section 4.6 Litigation. There is no action, suit, proceeding at law or in
equity by any Person, or any arbitration or any administrative or other
proceeding by or before (or to the best knowledge, information and belief of
Omnicom and OmniSub, any investigation by), any Governmental or Regulatory
Authority, pending or, to the best knowledge, information and belief of Omnicom
and OmniSub, threatened against Omnicom or OmniSub with respect to this
Agreement or the transactions contemplated hereby, or against or affecting
Omnicom or any of its subsidiaries or any of their properties or rights which,
if adversely determined, would be reasonably likely to have a material and
adverse effect on the financial condition, results of operations, assets,
properties or businesses of Omnicom and its subsidiaries taken as a whole.
Section 4.7 Brokers. No broker, finder, agent or similar intermediary has
acted on behalf of Omnicom or OmniSub or their affiliates in connection with
this Agreement or the transactions contemplated hereby, and no brokerage
commissions, finder's fees or similar fees or commissions are payable by Omnicom
or OmniSub in connection therewith based on any agreement, arrangement or
understanding with any of them.
Section 4.8 Information Supplied. None of the information supplied or to be
supplied by Omnicom for inclusion in either (a) the Registration Statement or
(b) the Information Statement, contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, or will, at the time the Registration
Statement becomes effective under the Securities Act and at the date on which
the Information Statement is mailed to the Company Shareholders, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
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The Registration Statement will comply as to form in all material respects with
the provisions of the Securities Act and the rules and regulations promulgated
thereunder.
Section 4.9 OmniSub. OmniSub was formed solely for the purpose of the
Merger and engaging in the transactions contemplated hereby. As of the date
hereof and the Effective Time, the capital stock of OmniSub is and will be
directly owned 100% by Omnicom. Further, there are not as of the date hereof and
there will not be at the Effective Time any outstanding or authorized options,
warrants, calls, rights, commitments or any other agreements requiring OmniSub
to issue, transfer, sell, purchase, redeem or acquire any shares of capital
stock. As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated hereby, OmniSub has not and will not have
incurred, directly or indirectly through any subsidiary or affiliate, any
obligations or liabilities or engaged in any business or activities of any type
of kind whatsoever or entered into any agreements or arrangements with any
person or entity.
Section 4.10 Copies of Documents; Schedules. Omnicom and OmniSub have
caused to be made available for inspection and copying by the Company and its
advisers, complete and correct copies of all documents referred to in this
Article IV or in any Schedule. The Schedules referred to in this Article IV have
been previously delivered to the Company by Omnicom or OmniSub.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with Omnicom and OmniSub that, at all
times from and after the Execution Date until the Closing, the Company will
comply with all covenants and provisions of this Article V, except to the extent
Omnicom (on behalf of itself and OmniSub) may otherwise consent in writing.
Section 5.1 Regulatory and Other Approvals. The Company will (a) take all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith and use all commercially reasonable efforts, as promptly as
practicable to obtain all consents, approvals or actions of, to make all filings
with and to give all notices to Governmental or Regulatory Authorities or any
other Person required of the Company to consummate the transactions contemplated
hereby including without limitation those described on Schedule 3.9.2, (b)
provide such other information and communications to such Governmental or
Regulatory Authorities or other Persons as such Governmental or Regulatory
Authorities or other Persons may reasonably request in connection therewith and
(c) provide reasonable cooperation to Omnicom and OmniSub in obtaining all
consents, approvals or actions of, making all filings with and giving all
notices to Governmental or Regulatory Authorities or other Persons required of
Omnicom or OmniSub to consummate the transactions contemplated hereby, including
without limitation complying, if necessary, with the Workers Adjustment and
Retraining Notification Act (P.L. 100-379). The Company will provide prompt
notification to Omnicom when any such consent, approval, action, filing or
notice referred to in clause (a) above is obtained, taken, made or given, as
applicable, and will advise Omnicom of any communications (and, unless precluded
by law, provide copies of any such communications that are in writing) with any
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Governmental or Regulatory Authority or other Person regarding any of the
transactions contemplated by this Agreement.
Section 5.2 HSR Filings. In addition to and without limiting the covenants
contained in Section 5.1, the Company will (a) take promptly all actions
necessary to make the filings required of the Company under the HSR Act, (b)
comply at the earliest practicable date with any request for additional
information received by the Company from the Federal Trade Commission or the
Antitrust Division of the Department of Justice pursuant to the HSR Act and (c)
cooperate with Omnicom in connection with Omnicom's filing under the HSR Act and
in connection with resolving any investigation or other inquiry concerning the
transactions contemplated by this Agreement commenced by either the Federal
Trade Commission or the Antitrust Division of the Department of Justice or state
attorneys general.
Section 5.3 Full Access. The Company will (a) provide Omnicom and OmniSub
and their respective officers, employees, counsel, accountants, financial
advisors, consultants and other representatives (collectively, "Advisors") with
full access, upon reasonable prior notice and during normal business hours, to
the executive officers and agents of the Company who have any material
responsibility for the conduct of the business of the Company and its
Subsidiaries, to the Company's accountants and their work papers, but only to
the extent that such access does not unreasonably interfere with the business of
the Company and its Subsidiaries and (b) furnish Omnicom, OmniSub and the
Advisors with all such information and data concerning the Company as Omnicom,
OmniSub or the Advisors reasonably may request in connection with such
investigation, except to the extent that furnishing any such information or data
would violate any Law, Order, Contract or License applicable to the Company or
any Subsidiary.
Section 5.4 No Solicitations. The Company will not take, nor will it permit
any affiliate (or authorize or permit any investment banker, financial advisor,
attorney, accountant or other Person retained by or acting for or on behalf of
it or any such affiliate) to take, directly or indirectly, any action to
solicit, encourage, receive, negotiate, assist or otherwise facilitate
(including by furnishing confidential information with respect to the Company)
any offer or inquiry concerning the acquisition of the Company from any Person
(a "Potential Acquiror") other than Omnicom or OmniSub (an "Acquisition
Proposal"). The Company shall promptly inform Omnicom, orally and in writing, of
the material terms and conditions of any proposal or offer for, or which may
reasonably be expected to lead to, an Acquisition Proposal that it receives and
the identity of the Potential Acquiror. The Company shall immediately cease any
existing activities, discussions or negotiations with any parties with respect
to any Acquisition Proposal.
Section 5.5 Conduct of Business. From the Execution Date to the Closing
Date, except as contemplated or otherwise permitted under the terms of this
Agreement, the Company will operate the business of the Company and the
Subsidiaries only in the ordinary course consistent with past practice. Without
limiting the generality of the foregoing, except as required by Section 5.12 and
as contemplated by or otherwise permitted by the terms of this Agreement or any
Schedule hereto, the Company will refrain, and will cause its Subsidiaries to
refrain, from taking any of the following actions unless consented to in writing
by Omnicom (on behalf of itself and OmniSub), which consent shall not be
unreasonably withheld:
(a) selling, leasing or otherwise disposing of all or a substantial
part of its assets or business;
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(b) amending its Articles of Incorporation or By-laws (or equivalent
charter documents);
(c) changing its equity capitalization;
(d) engaging in any acquisition of the stock, assets or business of
another corporation or entity or making any equity investment of corporate
funds in another corporation or entity other than short-term investments in
cash equivalents;
(e) merging or consolidating with and into any corporation, limited
liability company or other entity, or merging or consolidating any
corporation, limited liability company or other entity with and into it;
(f) engaging in any liquidation or dissolution;
(g) engaging in any transaction involving an amount in excess of
$100,000, other than in the ordinary course of business to service its
clients;
(h) engaging in the issuance or sale of stock or securities, or
options, warrants or obligations convertible into such stock or securities,
or issuing any phantom stock, equity participation units, stock
appreciation rights or similar rights;
(i) entering into any new line of business;
(j) prepaying any indebtedness for borrowed money; creating or
modifying any of the terms of any of the following financial arrangements:
any Lien on any of its assets or properties other than a Permitted Lien;
any guarantee by it of the obligations of any third party, whether a
director, officer or employee of the Company or any Subsidiary, or
otherwise; and any indebtedness for borrowed money except in the ordinary
course of its business under credit lines set forth on Schedule 3.8;
(k) entering into any arrangement with any employee or consultant
pursuant to which the compensation or fee payable to such employee or
consultant shall wholly or partially be contingent upon (a) a percentage of
its revenues or the revenues generated by it relating to any of its clients
or (b) its profits, except for renewals in the ordinary course of business
and consistent with past practice of outstanding arrangements of such type;
(l) making any loans to any employee other than normal travel and
expense advances or relocation allowances, in each case consistent with
past practices, or to any other Person;
(m) except as disclosed in Schedule 3.8 hereto, entering into any
lease, or purchase of real property or commitment to construct real
property;
(n) granting any compensation increase to any existing employee whose
total annual compensation would after such increase exceed $100,000; paying
bonuses to any existing employees except to the extent accrued for on the
Balance Sheet; or entering into any employment agreement which is not
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cancelable without penalty or financial obligation within 30 days and which
has total compensation of more than $300,000 over the term thereof;
(o) entering into any contract or agreement with any officer or
director;
(p) entering into any affiliation arrangement with any advertising
agency, other than Omnicom or any affiliate thereof;
(q) declaring or paying any dividends to its stockholders or making
other distributions in respect of its capital stock, splitting, combining
or reclassifying any of its capital stock, or issuing or authorizing or
proposing the issuance of any other securities in respect of, in lieu of,
or in substitution for, shares of its capital stock; or repurchasing,
redeeming or otherwise acquiring any of its shares of capital stock;
(r) amending in any material respect any contract or agreement
material to its business;
(s) entering into any severance agreement involving a payment or
obligation to pay any amount in excess of the normal severance benefit of
the Company or the applicable Subsidiary, as the case may be, as set forth
on Schedule 3.22;
(t) releasing, canceling or assigning any indebtedness for borrowed
money owed to it, or waiving any material right relating to its properties;
(u) accepting as a client any Person that the President of Omnicom, in
his reasonable discretion, determines to be contrary to the best interests
of Omnicom and its subsidiaries;
(v) creating or modifying any Plan or increasing the fringe benefits
of any director or officer;
(w) entering into any transaction or performing any act which would be
reasonably likely to result in any of the representations and warranties of
the Company contained in this Agreement not being true and correct in any
material respect; or agreeing to take any of the actions that are
prohibited herein or which would constitute a violation of any of the
covenants of the Company contained herein; and
(x) delegating to directors or officers the power to take any of the
actions prohibited by any of the foregoing clauses.
Section 5.6 Financial Information. Within 10 business days after the close
of each month between the Execution Date and the Closing Date, the Company shall
furnish to Omnicom the unaudited consolidated balance sheets of the Company and
its subsidiaries, as at the close of such month, and the related consolidated
statements of income and (with respect to quarterly consolidated statements)
cash flows for the period then ended and the fiscal year-to-date. The unaudited
financial statements referred to in this Section 5.6 shall be prepared in
accordance with GAAP applied on a consistent basis with the audited financial
statements provided to Omnicom and OmniSub pursuant to Section 3.4 above,
provided that such financial statements shall not contain footnotes and shall be
subject to normal year-end adjustments and accruals.
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Section 5.7 Notice and Cure. The Company will notify Omnicom in writing of,
and contemporaneously will provide Omnicom with true and complete copies of any
and all information or documents relating to, and will use all commercially
reasonable efforts to cure before the Closing, any event, transaction or
circumstance, as soon as practicable after it becomes known to the Company,
occurring after the Execution Date that causes or will cause any covenant or
agreement of the Company under this Agreement to be breached or that renders or
will render untrue in any material respect any representation or warranty of the
Company contained in this Agreement as if the same were made on or as of the
date of such event, transaction or circumstance. The Company also will notify
Omnicom in writing of, and will use all commercially reasonable efforts to cure,
before the Closing, any other violation or breach, as soon as practicable after
it becomes known to the Company, of any representation, warranty, covenant or
agreement made by the Company in this Agreement. No notice given pursuant to
this Section shall have any effect on the representations, warranties, covenants
or agreements contained in this Agreement for purposes of determining
satisfaction of any condition contained herein or shall in any way limit
Omnicom's right to seek indemnity under Article XI.
Section 5.8 Consultation. Between the Execution Date and the Closing Date,
the Company will consult with management of Omnicom and the Diversified Agency
Services Division of Omnicom with a view to informing such management as to the
operation and management of the Company and the Subsidiaries. The Company will
use commercially reasonable efforts to preserve the business organization of the
Company and the Subsidiaries, to preserve the present business relationships of
the Company and the Subsidiaries, and to preserve all of the confidential
information and trade and business secrets of the Company and the Subsidiaries.
Section 5.9 Company Shareholders' Approval. Within five days after the
Registration Statement becomes effective, the Company shall give notice to the
holders of Company Stock as of a record date not less than ten days nor more
than twenty days prior to such mailing (the "Voting Shareholders") of a special
meeting of its stockholders (the "Special Meeting") to be held not less than 20
business days nor more than 30 days from the mailing of such notice for the
purpose of voting on and approving, inter alia, (a) this Agreement and the
transactions contemplated hereby, and (b) the Escrow Agreement and the
transactions contemplated thereby, and the designation of a representative (the
"Representative") to act on behalf of the Company Shareholders, including naming
one or more alternative individuals to act as Representative in the event that
the designated Representative shall have died, resigned or otherwise become
incapable or unwilling to act as Representative and providing for an appropriate
selection procedure if all of such named alternatives are unwilling or unable to
serve as Representative (the "Company Shareholders' Approval"). Approval of the
Escrow Agreement and the selection of the Representative (and successors) shall
be included in a resolution to be acted upon by the Company Shareholders. Such
resolution shall provide for, inter alia, the Company Shareholders' acceptance
of the Representative as the collective agent of the Company Shareholders under
the terms of the Escrow Agreement; and authorize such Representative to (w)
execute and deliver the Escrow Agreement and any documents incident or ancillary
thereto, including without limitation, any amendments, cancellations, extensions
or waivers in respect thereof, (x) respond to and make determinations in respect
of the assertion of any and all claims for indemnification by Omnicom, and to
assert claims, pursuant to the terms of the Escrow Agreement and the provisions
of this Agreement pertaining thereto, (y) execute and deliver any stock powers
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which may be required to be executed by any Company Shareholder in order to
permit the delivery to Omnicom of any shares of Omnicom Stock to be delivered to
Omnicom from an Escrow Fund in accordance with the provisions of the Escrow
Agreement, and (z) take all such other actions as may be necessary or desirable
to carry out his responsibilities as collective agent of the Company
Shareholders in respect of the Escrow Agreement. The Company shall use its best
efforts to obtain the Company Shareholders' Approval. The Company will, through
its Board of Directors, include in the Information Statement, the recommendation
of the Board of Directors of the Company that the Voting Shareholders adopt this
Agreement and the Escrow Agreement, and approve the Merger, the transactions
contemplated by this Agreement and the Escrow Agreement, and the appointment of
the Representative.
Section 5.10 Tax Returns. The Company will cause to be prepared all tax
returns of the Company and its Subsidiaries required to be filed prior to the
Effective Time (taking into account any valid extensions of due dates) with
respect to the taxable year ended December 31, 1995. Except as Omnicom and the
Company may agree, such returns will be prepared in accordance with the past
practices of the Company (including tax accounting methods, tax elections and
similar items), to the extent permitted by law. Such returns shall be furnished
to Omnicom no later than 15 days prior to the due date thereof (taking into
account any valid extensions of due dates) for Omnicom's approval, which
approval shall not be unreasonably withheld or delayed.
Section 5.11 Fulfillment of Conditions. Subject to the terms and conditions
of this Agreement, at the Closing the Company will execute and deliver each
agreement that the Company is required hereby to execute and deliver as a
condition to the Closing, will take all commercially reasonable steps necessary
or desirable and proceed diligently and in good faith to satisfy each other
condition to the obligations of Omnicom and OmniSub contained in this Agreement
and will not take or fail to take any action that could reasonably be expected
to result in the nonfulfillment of any such condition.
Section 5.12 Repayment of Indebtedness. Between the Execution Date and the
Closing Date, all indebtedness of directors, officers and employees of the
Company or any Subsidiary to the Company or any Subsidiary shall be repaid in
full, other than (a) as set forth on Schedule 5.12 and (b) routine travel and
expense advances or relocation allowances made (x) in the ordinary course of
business, (y) within the 90 days prior to the Closing Date, and (z) consistent
in amount with past practice. Section 5.13 Tax Opinion. The Company will provide
Omnicom with the written opinion of Deloitte & Touche LLP regarding tax matters
for inclusion in the initial filing of the Registration Statement.
Section 5.14 Amendment of Profit Sharing Plan. Between the Execution Date
and the Closing Date, the Company shall take such action as may be required to
amend the Profit Sharing Plan to eliminate the minimum contribution each year of
20% of pre-tax consolidated income, with respect to all or any portion of the
calendar year commencing January 1, 1996 and to all years thereafter.
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ARTICLE VI
COVENANTS OF OMNICOM AND OMNISUB
Omnicom and OmniSub covenant and agree with the Company that, at all times
from and after the Execution Date until the Closing, Omnicom and OmniSub will
comply with all covenants and provisions of this Article VI, except to the
extent the Company may otherwise consent in writing.
Section 6.1 Regulatory and Other Approvals. Omnicom and OmniSub will (a)
take all commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all commercially reasonable efforts, as
promptly as practicable to obtain all consents, approvals or actions of, to make
all filings with and to give all notices to Governmental or Regulatory
Authorities or any other Person required of Omnicom or OmniSub to consummate the
transactions contemplated hereby, including without limitation those described
on Schedule 4.3.2, (b) provide such other information and communications to such
Governmental or Regulatory Authorities or other Persons as such Governmental or
Regulatory Authorities or other Persons may reasonably request in connection
therewith and (c) provide reasonable cooperation to the Company in obtaining all
consents, approvals or actions of, making all filings with and giving all
notices to Governmental or Regulatory Authorities or other Persons required of
the Company to consummate the transactions contemplated hereby. Omnicom will
provide prompt notification to the Company when any such consent, approval,
action, filing or notice referred to in clause (a) above is obtained, taken,
made or given, as applicable, and will advise the Company of any communications
(and, unless precluded by law, provide copies of any such communications that
are in writing) with any Governmental or Regulatory Authority or other Person
regarding any of the transactions contemplated by this Agreement.
Section 6.2 HSR Filings. In addition to and without limiting the covenants
contained in Section 6.1, Omnicom will (a) take promptly all actions necessary
to make the filings required of Omnicom under the HSR Act, (b) comply at the
earliest practicable date with any request for additional information received
by Omnicom from the Federal Trade Commission or the Antitrust Division of the
Department of Justice pursuant to the HSR Act and (c) cooperate with the Company
in connection with the Company's filing under the HSR Act and in connection with
resolving any investigation or other inquiry concerning the transactions
contemplated by this Agreement commenced by either the Federal Trade Commission
or the Antitrust Division of the Department of Justice or state attorneys
general.
Section 6.3 Financial Information and Reports. As soon as reasonably
practicable after it becomes publicly available, Omnicom shall furnish to the
Company any Report on Form 10-K or other registration statement or report filed
by Omnicom with the SEC following the Execution Date and prior to the Closing
Date.
Section 6.4 Notice and Cure. Omnicom or OmniSub will notify the Company in
writing of any and all information or documents relating to, and will use all
commercially reasonable efforts to cure before the Closing, any event,
transaction or circumstance, as soon as practicable after it becomes known to
Omnicom or OmniSub, occurring after the Execution Date that causes or will cause
any covenant or agreement of Omnicom or OmniSub under this Agreement to be
breached or that renders or will render untrue in any material respect any
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representation or warranty of Omnicom or OmniSub contained in this Agreement as
if the same were made on or as of the date of such event, transaction or
circumstance. Omnicom or OmniSub also will notify the Company in writing of, and
will use all commercially reasonable efforts to cure, before the Closing, any
other violation or breach, as soon as practicable after it becomes known to
Omnicom or OmniSub, of any representation, warranty, covenant or agreement made
by Omnicom or OmniSub in this Agreement. No notice given pursuant to this
Section shall have any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of determining satisfaction
of any condition contained herein.
Section 6.5 Fulfillment of Conditions. Subject to the terms and conditions
of this Agreement, at the Closing Omnicom and OmniSub will execute and deliver,
or cause the execution and delivery of, each agreement that Omnicom and OmniSub
or one of their affiliates is hereby required to execute and deliver as a
condition to the Closing, will take all commercially reasonable steps necessary
or desirable and proceed diligently and in good faith to satisfy each other
condition to the obligations of the Company contained in this Agreement and will
not take or fail to take any action that could reasonably be expected to result
in the nonfulfillment of any such condition.
Section 6.6 Blue Sky; New York Stock Exchange Listing. Omnicom and OmniSub
will use their best efforts to (a) obtain no later than the effective date of
the Registration Statement all necessary state securities and blue sky
authorizations required to issue the Omnicom Stock as contemplated by this
Agreement (and pay all expenses incident thereto) and (b) cause such shares of
Omnicom Stock to be listed on the New York Stock Exchange, subject only to
official notice of issuance.
Section 6.7 Exchange Act Filings. For a period of three years immediately
following the Closing Date, Omnicom shall file in a timely manner all reports
required to be filed pursuant to and in accordance with Section 13 and Section
15(d) of the Exchange Act.
Section 6.8 Indemnification of Directors and Officers.
(a) Except to the extent required by law, for as long as the
directors' and officers' liability insurance is required to be maintained
under clause (b) below, Omnicom will not take any action so as to amend,
modify or repeal the provisions for indemnification of directors, officers,
employees or agents contained in the Articles of Incorporation or By-laws
(or other comparable charter documents) of the Surviving Corporation and
its Subsidiaries (which as of the Effective Time shall be no less favorable
to such individuals than those maintained by the Company and its
Subsidiaries on the date hereof) in such a manner as would materially and
adversely affect the rights of any individual who shall have served as a
director, officer, employee or agent of the Company or any of its
Subsidiaries prior to the Effective Time to be indemnified by such
corporations in respect of their serving in such capacities prior to the
Effective Time.
(b) Except as provided in the next sentence, Omnicom shall cause the
Surviving Corporation to maintain in effect for three years the current
policies of directors' and officers' liability insurance and fiduciary
liability insurance maintained by the Company and the Company's
Subsidiaries with respect to matters occurring prior to the Effective Time;
provided, however, that Omnicom, at the Surviving Corporation's cost, may
substitute therefor policies of substantially the same coverage containing
terms and conditions which are no less favorable than any such insurance in
effect immediately prior to the Effective Time. Notwithstanding the
foregoing, Omnicom shall not be required to pay in any year an annual
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premium for such insurance in excess of $50,000, and shall cease to have
any obligation under this Section 6.8 as soon as it (or the Surviving
Corporation) shall have expended an aggregate of $150,000 for such
insurance. In any year in which the annual premium shall exceed $50,000,
Omnicom shall maintain (if insurance is obtainable) at least the level of
such insurance as may be obtained at an annual premium of $50,000.
ARTICLE VII
MUTUAL COVENANTS
Omnicom, OmniSub and the Company mutually covenant and agree with each
other as follows:
Section 7.1 Preparation of Registration Statement. Omnicom and the Company
shall prepare the Registration Statement to be filed with the SEC under the
Securities Act for the registration of the Omnicom Stock to be issued in
connection with this Agreement. The Registration Statement and the related
Information Statement and prospectus forming a part of the Registration
Statement shall be mailed to the Voting Shareholders in connection with the
Special Meeting, to be held for the purpose of authorizing the transactions
contemplated by this Agreement (the Registration Statement and the Information
Statement and prospectus are hereinafter referred to collectively as the
"Prospectus Materials"). Omnicom and the Company shall cooperate with each other
in the preparation of the Prospectus Materials and any related filings as shall
be necessary under the securities laws of any state or other jurisdiction.
Omnicom shall prepare and file the Registration Statement and shall use its best
efforts to cause it to become effective as promptly as possible. Omnicom and
OmniSub and the Company shall furnish all information relating to Omnicom,
OmniSub or the Company and its Subsidiaries, as the case may be, reasonably
necessary in order to prepare the Prospectus Materials.
Section 7.2 Affiliates Representation Letters. Prior to the Closing Date,
the Company shall furnish Omnicom with a list identifying all persons who may be
considered, in its opinion, to be "affiliates" of the Company, as the term
"affiliates" is used in Paragraphs (c) and (d) of Rule 145 under the Securities
Act or in SEC ASR No. 135 (the "Company Affiliates"). The Company shall use its
best efforts to cause each Person who it has identified as a Company Affiliate
and each additional Person, if any, that Omnicom has identified in writing to
the Company as a Company Affiliate, to deliver to Omnicom on or before the
Closing Date the Affiliates Representation Letter attached hereto as Exhibit B.
Section 7.3 Reasonable Efforts to Consummate Transaction. Omnicom, OmniSub
and the Company will each use its reasonable efforts and will fully cooperate
with each other to consummate the transactions contemplated by this Agreement.
Section 7.4 Public Announcements. Omnicom, OmniSub and the Company will
consult with each other before issuing any press releases or otherwise making
any public statements with respect to this Agreement or any of the transactions
contemplated hereby and shall not issue any such press release or make any
public statement without the prior consent of the other parties which shall not
be unreasonably withheld, except as may be required by law or by obligations
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pursuant to any listing agreements with any national securities exchange.
Section 7.5 Transfer Tax Compliance. The Company and Omnicom shall comply
with Article 31-B of the New York State Tax Law (the "Gains Tax"), relating to
the New York State Real Property Transfer Gains Tax, Section 14.15 of the New
York State Tax Law relating to the New York State Real Estate Transfer Tax and
Chapter 21, Title 11 of the Administrative Code of the City of New York relating
the New York City Real Property Transfer Tax and any similar taxes of other
applicable jurisdictions (all such taxes collectively, the "Transfer Taxes").
For such purposes, the Company and Omnicom agree that the leasehold interests of
the Company in New York have no value and that no portion of the conversion
price for the Company Stock is allocable thereto. If transferor and transferee
questionnaires are required for compliance with the Gains Tax, the Company and
Omnicom shall promptly complete and execute such questionnaires, and the Company
shall cause the questionnaires to be filed with the New York State Department of
Taxation not later than twenty days prior to the Closing Date. Any similar
pre-Closing filing required under the laws of any other applicable jurisdiction
shall be made not later than the due date therefor. At the Closing, the Company
shall deliver and cause to be filed all returns required to be filed in
connection with the Transfer Taxes.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF OMNICOM AND OMNISUB
The obligations of Omnicom and OmniSub hereunder to effect the Merger on
the Closing Date are subject to the fulfillment, at or before the Closing, of
each of the following conditions (except with respect to Sections 8.5, 8.6, 8.7,
8.8 and the first sentence of 8.10, all or any of which may be waived in whole
or in part by Omnicom, on behalf of itself and OmniSub, in its sole discretion):
Section 8.1 Representations and Warranties. The representations and
warranties made by the Company in this Agreement, or in any Schedule delivered
pursuant hereto, shall be true and correct in all material respects on and as of
the Closing Date with the same force and effect as though made on and as of the
Closing Date or, in the case of representations and warranties made as of a
specified date earlier than the Closing Date, on and as of such earlier date,
and the Company shall have delivered to Omnicom and OmniSub a certificate, dated
the Closing Date, to such effect.
Section 8.2 Good Standing Certificates. The Company shall have delivered to
Omnicom and OmniSub a certificate of existence from the Pennsylvania Department
of State and a certificate from the Secretary of State (or comparable official)
of each jurisdiction in which the Company is qualified to do business, to the
effect that the Company is in good standing in such jurisdiction (in each case
together with the applicable tax status certificate). The Company shall have
delivered to Omnicom and OmniSub a certificate from the Secretary of State (or
comparable official) of each jurisdiction in which a Subsidiary is organized or
qualified to do business, to the effect that such Subsidiary is in good standing
in such jurisdiction (together with the applicable tax status certificate).
Section 8.3 Performance. The Company shall have performed and complied with
the agreements, covenants and obligations required by this Agreement to be so
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performed or complied with by the Company at or before the Closing, and the
Company shall have delivered to Omnicom and OmniSub a certificate, dated the
Closing Date, to such effect.
Section 8.4 Certified Resolutions. The Company shall have delivered to
Omnicom and OmniSub copies of resolutions of the Boards of Directors and of the
stockholders of the Company authorizing the execution, delivery and performance
of this Agreement and the transactions contemplated hereby, certified to by the
Secretary of the Company.
Section 8.5 Registration Statement; New York Stock Exchange Listing. The
Registration Statement shall have been declared effective by the SEC and on the
Closing Date shall remain effective and shall not be subject to a stop order or
any threatened stop orders. All necessary state securities and blue sky
authorizations required to carry out the transactions contemplated by this
Agreement shall have been obtained. The Omnicom Stock issuable in connection
with this Agreement shall have been duly listed on the New York Stock Exchange,
subject only to official notice of issuance.
Section 8.6 Company Shareholders' Approval and Dissenters' Rights. The
Special Meeting shall have been duly held and at such meeting the requisite
affirmative vote of the Voting Shareholders shall have been recorded to
authorize and to approve the transactions contemplated hereby in accordance with
applicable provisions of Pennsylvania law. The aggregate number of Dissenting
Shares shall not exceed 3% of the total number of shares of Company Common Stock
outstanding on the Closing Date. The Trustee of the Profit Sharing Plan shall
have voted all shares of Company Stock held by the Profit Sharing Plan in favor
of the Merger.
Section 8.7 No Injunctions or Restraints. No court of competent
jurisdiction or other competent Governmental or Regulatory Authority shall have
enacted, insured, promulgated, enforced or entered by Law or Order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making or otherwise restricting, preventing or prohibiting consummation of
the Merger or the other transactions contemplated by this Agreement.
Section 8.8 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Omnicom, OmniSub and the Company to perform their
obligations under this Agreement and to consummate the transactions contemplated
hereby shall have been duly obtained, made or given and shall be in full force
and effect, and all terminations or expirations of waiting periods imposed by
any Governmental or Regulatory Authority necessary for the consummation of the
transactions contemplated by this Agreement, including under the HSR Act, shall
have occurred.
Section 8.9 Required Approvals, Notices and Consents. The Company shall
have obtained or given, as the case may be, at no expense to Omnicom or OmniSub
and there shall not have been withdrawn or modified any notices, consents,
approvals or other actions listed on Schedule 3.9.2 hereof. Each such consent
shall be in form reasonably satisfactory to counsel for Omnicom and OmniSub.
Section 8.10 Pooling of Interests Accounting. The SEC shall not have
objected to Omnicom's treatment of the Merger as a pooling-of-interests for
accounting purposes. Omnicom shall have received a letter from each of Deloitte
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& Touche LLP and Arthur Andersen LLP, in a form acceptable to Omnicom,
confirming that the Company and Omnicom, respectively, are poolable entities as
provided in APB No. 16.
Section 8.11 Opinion of Counsel. Omnicom and OmniSub shall have received
the opinions of counsel to the Company, dated the Closing Date, substantially in
the forms and to the effect of Exhibits C-1 and C-2 hereto.
Section 8.12 Escrow Agreement. The Representative and the Escrow Agent
shall have entered into the Escrow Agreement.
Section 8.13 Employment Agreements. The Company and each of the individuals
listed on Schedule 8.13 shall have entered into an employment agreement,
substantially in the form previously approved by each such individual and
Omnicom.
Section 8.14 Non-Competition Agreements. Each of the individuals listed on
Schedule 8.14 shall have entered into a non-competition agreement substantially
in the form previously approved by each such individual and Omnicom.
Section 8.15 Affiliates. Representation Letterss. Each of the Company
Affiliates shall have executed and delivered to Omnicom the Affiliates
Representation Letter referred to in Section 7.2.
Section 8.16 Material Adverse Effect. Except for the execution and delivery
of this Agreement and the transactions to take place pursuant hereto on or prior
to the Closing Date, since the Execution Date there shall not have occurred any
Material Adverse Effect, or any event or development which, individually or in
the aggregate, could reasonably be expected to result in a Material Adverse
Effect.
Section 8.17 Proceedings. All proceedings to be taken on the part of the
Company in connection with the transactions contemplated by this Agreement and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Omnicom and OmniSub, and Omnicom and OmniSub shall have received
copies of all such documents and other evidences as Omnicom and OmniSub may
reasonably request in order to establish the consummation of such transactions
and the taking of all proceedings in connection therewith.
Section 8.18 No Withholding Certificate. The Company shall have delivered
to Omnicom the statement described in Section 1445(b)(3) of the Code and the
regulations thereunder, to the effect that the Company is not, and has not been
during the period specified in Section 897(c)(1)(A)(ii) of the Code, a United
States real property holding corporation as defined in Section 897(c)(2) of the
Code.
Section 8.19 Tax Opinion. The Company shall have received the opinion of
Deloitte and Touche LLP, dated the Closing Date, confirming the tax opinions set
forth in its opinion delivered pursuant to Section 5.13.
Section 8.20 Waivers. The Company shall have delivered to Omnicom a fully
executed copy of the "Consent Regarding Agreement Among Ketchum International,
Inc., Newscan Company Ltd., Kenneth Chu and Betty Lo".
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ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company hereunder to effect the Merger are subject
to the fulfillment, at or before the Closing, of each of the following
conditions (except with respect to Sections 9.5, 9.6, 9.7 and 9.8, all or any of
which may be waived in whole or in part by the Company in its sole discretion):
Section 9.1 Representations and Warranties. The representations and
warranties made by Omnicom and OmniSub in this Agreement, or in any Schedule
delivered pursuant hereto, shall be true and correct in all material respects on
and as of the Closing Date with the same force and effect as though made on and
as of the Closing Date, or, in the case of representations and warranties made
as of a specified date earlier than the Closing Date, on and as of such earlier
date, and Omnicom and OmniSub shall have delivered to the Company a certificate,
dated the Closing Date, to such effect.
Section 9.2 Good Standing Certificates. Omnicom shall have delivered to the
Company a certificate from the Secretary of State of the State of New York to
the effect that Omnicom is in good standing in such state; and OmniSub shall
have delivered to the Company a certificate of existence from the Pennsylvania
Department of State.
Section 9.3 Performance. Omnicom and OmniSub shall have performed and
complied with the agreements, covenants and obligations required by this
Agreement to be so performed or complied with by Omnicom and OmniSub at or
before the Closing, and Omnicom and OmniSub shall have delivered to the Company
a certificate, dated the Closing Date, to such effect.
Section 9.4 Certified Resolutions. Omnicom and OmniSub shall have delivered
to the Company a copy of the resolutions of the Boards of Directors of each of
Omnicom and OmniSub authorizing the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, certified to by the
Secretary of Omnicom and OmniSub, respectively.
Section 9.5 Registration Statement, New York Stock Exchange Listing. The
Registration Statement shall have been declared effective by the SEC and on the
Closing Date shall remain effective and shall not be subject to a stop order or
any threatened stop orders. All necessary state securities and blue sky
authorizations required to carry out the transactions contemplated by this
Agreement shall have been obtained. The Omnicom Stock issuable in connection
with this Agreement shall have been duly listed on the New York Stock Exchange,
subject only to official notice of issuance.
Section 9.6 Company Shareholders' Approval. The Special Meeting shall have
been duly held and at such meeting the requisite affirmative vote of the Voting
Shareholders shall have been recorded to authorize and to approve the
transactions contemplated hereby in accordance with applicable provisions of
Pennsylvania law.
Section 9.7 No Injunctions or Restraints. No court of competent
jurisdiction or other competent Governmental or Regulatory Authority shall have
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enacted, insured, promulgated, enforced or entered by Law or Order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making or otherwise restricting, preventing or prohibiting consummation of
the Merger or the other transactions contemplated by this Agreement.
Section 9.8 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit the Company, Omnicom and OmniSub to perform their
obligations under this Agreement and to consummate the transactions contemplated
hereby shall have been duly obtained, made or given and shall be in full force
and effect, and all terminations or expirations of waiting periods imposed by
any Governmental or Regulatory Authority necessary for the consummation of the
transactions contemplated by this Agreement, including under the HSR Act, shall
have occurred.
Section 9.9 Opinion of Counsel. The Company shall have received the
opinions of counsels to Omnicom and OmniSub, dated the Closing Date,
substantially in the form and to the effect of Exhibits D-1 and D-2 hereto.
Section 9.10 Escrow Agreement. Omnicom and the Escrow Agent shall have
entered into the Escrow Agreement.
Section 9.11 Material Adverse Effect. Except for the execution and delivery
of this Agreement and the transactions to take place pursuant hereto on or prior
to the Closing Date, since the Execution Date there shall not have occurred with
respect to Omnicom any material adverse change in the condition (financial or
otherwise), liabilities, results of operations, assets, properties or businesses
of Omnicom and its subsidiaries taken as a whole, or any events or developments
which, individually or in the aggregate, could reasonably be expected to have a
material adverse change in the condition (financial or otherwise), liabilities,
results of operations, assets, properties or businesses of Omnicom and its
subsidiaries taken as a whole.
Section 9.12 Proceedings. All proceedings to be taken on the part of
Omnicom and OmniSub in connection with the transactions contemplated by this
Agreement and all documents incident thereto shall be reasonably satisfactory in
form and substance to the Company, and the Company shall have received copies of
all such documents and other evidences as the Company may reasonably request in
order to establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
Section 9.13 Tax Opinion. The Company shall have received the opinion of
Deloitte & Touche LLP, dated the Closing Date, to the effect that the Merger is
a reorganization within the meaning of Section 368 of the Code.
ARTICLE X
ADDITIONAL AGREEMENTS
Section 10.1 Termination. This Agreement may be terminated and the Merger
and other transactions contemplated herein may be abandoned at any time prior to
the Closing, notwithstanding the adoption of this Agreement by the Company
Shareholders by:
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(a) mutual consent of the Boards of Directors of each of the Company,
Omnicom and OmniSub;
(b) either Omnicom and OmniSub, on the one hand, or the Company, on
the other hand, (provided the terminating party is not then in breach
hereof) if the other party breaches its representations, warranties or
covenants hereunder in any material respect and such breach is not cured
within 30 days after the delivery of written notice thereof to such
breaching party unless the breach of any such representation, warranty, or
covenant does not materially adversely affect the financial condition,
business or assets of the breaching party or the ability of any or all
parties to consummate the transactions contemplated hereby;
(c) the Boards of Directors of either Omnicom and OmniSub or the
Company in the event a final and nonappealable order, decree or judgment of
any court, agency, commission or governmental authority is issued or
existing against the parties or any of them or any of their directors which
would enjoin the transactions contemplated hereby;
(d) either Omnicom and OmniSub, on the one hand, or the Company, on
the other hand, if the Closing Date has not occurred prior to the close of
business on December 31, 1996;
(e) either Omnicom and OmniSub, on the one hand, or the Company, on
the other hand, at any time prior to the scheduled Closing Date if the
conditions to such parties' obligation to close set forth in Article VIII
or IX, respectively, shall have become incapable of being satisfied by the
close of business on December 31, 1996.
Section 10.2 Effect of Termination. If this Agreement is terminated as
provided in Section 10.1 hereof, then except for the provisions of Sections 12.1
and 12.7, which shall survive such termination, and as otherwise provided in
this Section, this Agreement shall forthwith become void and there shall be no
liability on the part of any party hereto or its respective officers or
directors arising from the act of such permitted termination. Nothing herein
shall preclude, however, any action or claim for damages to which any party is
otherwise entitled as a result of breach by the other party hereto.
ARTICLE XI
SURVIVAL; INDEMNIFICATION
Section 11.1 Survival. Subject to the limitations set forth in Section 11.4
hereof, the respective representations, warranties, covenants and agreements of
the Company, Omnicom and OmniSub contained in this Agreement or in any Schedule,
or in any certificate delivered at the Closing, shall survive the Closing.
Notwithstanding any right of any party hereto fully to investigate the affairs
of any other party, and notwithstanding any knowledge of facts determined or
determinable pursuant to such investigation or right of investigation, each
party hereto shall have the right to rely fully upon the representations,
warranties, covenants and agreements of any other party contained in this
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Agreement or in any Schedule furnished by another party or in any certificate
delivered at the Closing by any other party.
Section 11.2 Obligation to Indemnify. Subject to the limitations set forth
in Section 11.4 hereof, the Company Shareholders, through the provisions of the
Escrow Agreement, agree to indemnify Omnicom, OmniSub and their respective
affiliates, directors, officers and employees (collectively the "Indemnified
Parties") against, and to protect, save and keep harmless the Indemnified
Parties from, and to assume liability for, (a) payment of all liabilities
(including liabilities for Taxes), obligations, losses, damages, penalties,
claims, actions, suits, judgments, settlements, out-of-pocket costs, expenses
and disbursements (including reasonable costs of investigation, and reasonable
attorneys', accountants' and expert witnesses' fees) of whatever kind and
nature, to the extent not covered by insurance maintained for the benefit of the
applicable Indemnified Parties (collectively, "Losses"), that may be imposed on
or incurred by the Indemnified Parties as a consequence of or in connection with
any inaccuracy or breach of any representation or warranty (other than the
representation made in the last sentence of Section 3.12) or covenant of the
Company contained in or made pursuant to this Agreement, or the breach of or
failure by the Company to perform or discharge any of its obligations under this
Agreement or under the transactions contemplated hereby, and (b) any Losses in
connection with the reorganization of the media buying operations of KCI. The
term "Losses" as used herein is not limited to matters asserted by third parties
against an Indemnified Party but includes Losses incurred or sustained by an
Indemnified Party in the absence of third party claims.
Section 11.3 Indemnification Procedures.
11.3.1 Notice of Asserted Liability. Omnicom shall promptly give notice
(the "Claims Notice") to the Representative of any demand, claim or
circumstances which gives rise, or with the lapse of time would or might give
rise to a claim or the commencement (or threatened commencement) of any action,
proceeding or investigation that may result in any Losses (an "Asserted
Liability") without regard to the limitations on indemnification set forth in
Section 11.4 below. The Claims Notice shall describe the Asserted Liability in
reasonable detail, shall indicate the amount (estimated if necessary, and to the
extent feasible) of the Losses that have been or may be suffered by an
Indemnified Party.
11.3.2 Defense of Asserted Liability. If the facts giving rise to the claim
for indemnification shall involve any actual or threatened claim or demand by
any third party against any Indemnified Party or by an Indemnified Party against
any third party (a "Third Party Claim"), Omnicom shall have the right to defend
or prosecute such Third Party Claim through counsel of Omnicom's own choosing.
11.3.3 Cooperation. The Representative, on behalf of the Company
Shareholders, shall be entitled to participate in the defense or prosecution of
any such claim, demand or litigation at his own expense and through counsel of
his own choosing, but control thereof shall remain with Omnicom.
11.3.4 Settlements. Omnicom may not settle any claim, demand or litigation
which would give rise to an indemnification claim hereunder without the consent
of the Representative, which consent may not be unreasonably withheld or
delayed.
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Section 11.4 Limitations on Indemnification.
11.4.1 Indemnity Cushion. Except as provided in the next sentence, no
claim, action or other Asserted Liability (other than an Asserted Liability
under Sections 3.27 or 3.28 or the last sentence of Section 3.19.3 hereof) with
respect to Losses arising out of any of the matters referred to in clause (a) of
Section 11.2 may be reimbursed until such time as claims, actions or other
Asserted Liabilities with respect to Losses arising out of any of the matters
referred to in clause (a) of Section 11.2 (other than Asserted Liabilities under
Sections 3.27 or 3.28 or the last sentence of Section 3.19.3 hereof) shall
exceed $100,000 in the aggregate (in which case the Company Shareholders shall
be liable only for all Losses in excess of $100,000). Losses arising out of an
Asserted Liability arising out of the matter referred to in clause (b) of
Section 11.2 or under Sections 3.27 or 3.28 or the last sentence of Section
3.19.3, shall be reimbursable without regard to the $100,000 cushion.
11.4.2 Termination of Indemnification Obligations and Other Limitations.
(a) Except as provided in the next sentence, the obligation of the Company
Shareholders to indemnify shall terminate and be of no further force and effect
on the "Termination Date," which shall be earlier to occur of (x) the date of
the first independent audit report, if any, of the financial results of the
Surviving Corporation following the Effective Time or (y) one year from the
Effective Time; provided, however, that (A) claims for Losses arising under
clause (a) of Section 11.2 asserted in writing on or prior to the Termination
Date shall survive until they are decided and are final and binding upon Omnicom
and the Representative (on behalf of the Company Shareholders) as contemplated
by the Escrow Agreement, and (B) no claim for Losses arising under clause (a) of
Section 11.2 may be asserted after the Termination Date. The foregoing
limitation shall not apply with respect to matters as to which an Indemnified
Party is entitled to be indemnified under clause (b) of Section 11.2.
(b) The parties agree that the satisfaction of liabilities under the Escrow
Agreement, and the procedures to be followed in respect thereof, are subject to
the specific provisions of such Escrow Agreement relating to the release of the
Escrow Funds.
(c) The rights of Omnicom and the other Indemnified Parties set forth in
this Article XI are the exclusive remedy and in lieu of any and all other rights
and remedies with respect to Losses arising out of the matters specified in
Section 11.2, and such Losses shall be satisfied solely from the Escrow Funds in
accordance with the provisions of this Article XI and the provisions of the
Escrow Agreement, and Omnicom and OmniSub agree that none of the Indemnified
Parties shall have any recourse for the payment of any Losses of any kind
whatsoever arising under Section 11.2 against the past, present or future
stockholders, directors, officers and employees of the Company, nor shall any of
such persons be personally liable for any such Losses, it being expressly
understood that the sole remedy of the Indemnified Parties shall be against the
Escrow Funds in accordance with the Escrow Agreement.
11.4.3 Treatment. Any payments to an Indemnified Party under this Article
XI (or under the Escrow Agreement) shall be treated by the parties as an
adjustment to purchase price.
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ARTICLE XII
MISCELLANEOUS
Section 12.1 Expenses. The parties hereto shall pay all of their own
expenses relating to the transactions contemplated by this Agreement, including,
without limitation, the fees and expenses of their respective counsel, financial
advisors and accountants.
Section 12.2 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
Commonwealth of Pennsylvania without reference to its conflict of laws
provisions.
Section 12.3 Person Defined. "Person" shall mean and include an individual,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or other department or agency thereof.
Section 12.4 Knowledge Defined. Where any representation and warranty
contained in this Agreement is expressly qualified by reference to best
knowledge, information and belief of a party, such term shall be limited to the
actual knowledge of the executive officers of the party making the
representation and warranty and such knowledge that would have been discovered
by such executive officers after due and reasonable inquiry.
Section 12.5 Affiliate Defined. As used in this Agreement, an "affiliate"
of any Person, shall mean any Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with such Person.
Section 12.6 Captions. Captions The Article and Section captions used
herein are for reference purposes only, and shall not in any way affect the
meaning or interpretation of this Agreement.
Section 12.7 Confidentiality. Unless and until the Closing shall have
occurred and except as may be required in connection with (i) any public
announcement that Omnicom, OmniSub and the Company have executed this Agreement,
or (ii) any governmental filings contemplated under this Agreement, Omnicom,
OmniSub and the Company shall, and shall cause their respective employees,
agents, consultants and representatives to, maintain in confidence and not
otherwise use or permit the use of information, documents, and data respecting
any other party to this Agreement furnished to them, or to any person or entity
on their behalf. If this Agreement is terminated pursuant to Section 10.1 hereof
or otherwise, each party shall (and Omnicom and OmniSub shall cause any third
party to whom it has made permitted disclosures to) (i) return to the other
party or destroy all written information, documents, and data furnished to it or
to any person or entity on its behalf, and (ii) maintain in confidence all
information received by it, or by any person or entity on its behalf, and shall
not use or permit the use of such information by others except to the extent
that such information is elsewhere available to the public or otherwise
rightfully obtained without violation of this Section 12.7 or any other
agreement. Notwithstanding the foregoing, the foregoing provision shall not
apply to the extent that Omnicom is required to make any announcement or file
information relating to or arising out of this Agreement by virtue of the
federal securities laws of the United States or the rules and regulations
promulgated thereunder or other rules of the New York Stock Exchange, or to any
announcement by any party pursuant to applicable law or regulations.
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Section 12.8 Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to any
other party shall be in writing and shall be deemed to have been given (a) upon
personal delivery, if delivered by hand, (b) three days after the date of
deposit in the mails, postage prepaid, if mailed by certified first class mail,
or (c) the next business day if sent by facsimile transmission (if receipt is
electronically confirmed) or by a prepaid overnight courier service, and in each
case at the respective addresses or numbers set forth below or such other
address or number as such party may have fixed by notice:
If to either Omnicom or to OmniSub, addressed to:
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
Attention: Secretary
Fax: (212) 415-3670
with a copy to:
Davis & Gilbert
1740 Broadway
New York, New York 10019
Attention: Michael D. Ditzian, Esq.
Fax: (212) 468-4888
If to the Company, addressed to:
Ketchum Communications Holdings, Inc.
Six PPG Place
Pittsburgh, PA 15222-5488
Attention: Chief Executive Officer
Fax: (412) 456-3588
with a copy to:
Babst Calland Clements and Zomnir
Two Gateway Center
Pittsburgh, Pennsylvania 15222
Attention: Ronald W. Frank, Esq.
Fax: (412) 394-6576
Section 12.9 Parties in Interest. This Agreement and the rights and
obligations of the parties hereunder shall not be assignable to any Person
without the written consent of all parties.
Section 12.10 Severability. In the event any provision of this Agreement is
found to be void and unenforceable by a court of competent jurisdiction, the
remaining provisions of this Agreement shall nevertheless be binding upon the
parties with the same effect as though the void or unenforceable part had been
severed and deleted.
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Section 12.11 Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Section 12.12 Entire Agreement. This Agreement, including the Schedules and
Exhibits, and other documents referred to herein which form a part hereof,
contains the entire understanding of the parties hereto with respect to the
subject matter contained herein and therein. The Company makes no representation
or warranty to Omnicom or OmniSub except as set forth in this Agreement and the
Schedules hereto. This Agreement supersedes all prior oral and written
agreements and understandings between the parties with respect to such subject
matter.
Section 12.13 Amendment. This Agreement and the Schedules attached hereto
or heretofore delivered may be amended, supplemented or modified by the parties
hereto only by an agreement in writing signed on behalf of each of the parties
hereto following due authorization at any time.
Section 12.14 Third Party Beneficiaries. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto and their respective
successors and assigns as permitted under Section 12.9.
Section 12.15 Extension; Waiver. The Company, on the one hand, and Omnicom
(on behalf of itself and OmniSub), on the other hand, each may, by instrument
duly authorized in writing signed on behalf of each party, (a) extend the time
for performance of any of the obligations or other acts of such other party, (b)
waive any inaccuracies in the representations and warranties of such other party
contained herein or in any document delivered pursuant hereto, or (c) except as
set forth in the first paragraph of each of Articles VIII and IX, waive
compliance with any of the agreements or conditions of such other party
contained herein. No such waiver or extension shall be effective unless in
writing (and specifically describing the provision or provisions being waived)
and signed by the party or parties sought to be bound thereby, and any such
waiver or extension on a specific occasion shall not imply a waiver or extension
on a future occasion.
Section 12.16 Exchange Rate; Use of Terms. Where a Section of this
Agreement provides amounts in U.S. Dollars for purposes of determining the
disclosures required to be made thereunder, it is understood that the equivalent
amounts in foreign currencies shall be calculated based on the exchange rates in
effect at the close of business on December 31, 1995. Similarly, references to
any U.S. legal term for any action, remedy, method of judicial proceeding, legal
document, legal status, court, official or any other legal concept or thing
shall in respect of any jurisdiction other than the United States, be deemed to
include what nearly approximates in that jurisdiction to the U.S. legal term.
45
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IN WITNESS WHEREOF, Omnicom, OmniSub and the Company have each caused its
corporate name to be hereunto subscribed by its officer thereunto duly
authorized on the day and year first above written.
OMNICOM GROUP INC.
By:
-------------------------------
KCI ACQUISITION INC.
By:
-------------------------------
KETCHUM COMMUNICATIONS
HOLDINGS, INC.
By:
-------------------------------
46
ESCROW AGREEMENT
ESCROW AGREEMENT, dated ___________, 1996 (the "Escrow Agreement"), among
OMNICOM GROUP INC., a New York corporation ("Omnicom"); KETCHUM COMMUNICATIONS
HOLDINGS, INC., a Pennsylvania corporation (the "Surviving Corporation"); PAUL
H. ALVAREZ, as Representative (the "Representative") of the former shareholders
of Ketchum Communications Holdings, Inc., a Pennsylvania corporation (the
"Company"); and THE CHASE MANHATTAN BANK, N.A., as Escrow Agent (the "Escrow
Agent").
Omnicom, KCI Acquisition Inc. ("OmniSub") and the Company are parties to a
certain Agreement and Plan of Merger dated March __ 1996 (the "Merger
Agreement"), pursuant to which Omnicom acquired the Company through the merger
of OmniSub with and into the Company. Under the Merger Agreement, the Company
has made certain representations and warranties, and undertaken certain
obligations, to Omnicom, and the former shareholders of the Company
(collectively referred to herein as the "Shareholders") through the mechanism of
this Escrow Agreement have approved the indemnification of Omnicom against
certain Losses which Omnicom or other Indemnified Parties may sustain or to
which Omnicom or other Indemnified Parties may be subjected (as more fully set
forth in the Merger Agreement). Pursuant to the Merger Agreement, the
Shareholders have approved the creation of an "Escrow Fund" in accordance with
the terms of this Agreement to secure Omnicom against such Losses. Any claims
made by Omnicom against the Escrow Fund are herein collectively called "Claims",
and individually a "Claim"; however, a Claim shall become reimbursable hereunder
only if, and to the extent that, it becomes a "Final General Claim for
Reimbursement", as defined in Section 2.2 hereof, or a "Final Special Claim for
Reimbursement", as defined in Section 4.2 hereof. Terms defined in the Merger
Agreement that are not otherwise defined herein are used herein with the
<PAGE>
meanings ascribed to them therein; a list of such terms is attached hereto as
Exhibit 1.
The appointment of the Representative and the terms of this Escrow
Agreement were approved by the Shareholders of the Company at a Special Meeting
of Shareholders held on May __, 1996.
Accordingly, the parties hereby agree as follows:
1. ESTABLISHMENT OF ESCROW FUND
1.1 Establishment of Escrow Fund. Simultaneously herewith, pursuant to the
Merger Agreement, Chemical Mellon Shareholder Services, in accordance with
instructions from Omnicom, is depositing with the Escrow Agent on behalf of the
Shareholders, certificates registered in the name of the Shareholders,
representing in the aggregate the number of shares of Omnicom Stock set forth
opposite each Shareholder's name in Schedules A and B hereto, and the
Representative (on behalf of the Shareholders) is depositing stock powers in
respect of such certificates, duly executed in blank. Such Omnicom Stock, and
any other property distributable with respect thereto or in exchange therefor
and held in the Escrow Fund as provided in Section 7.2 hereto, are herein
collectively referred to as the "Common Stock". The Escrow Fund shall be held by
the Escrow Agent and shall be dealt with by the Escrow Agent in accordance with
the terms and conditions of this Escrow Agreement.
1.2 Specific Funds within the Escrow Fund. The Omnicom Stock set forth in
Schedule A hereto ( _______ shares of Omnicom Stock having an aggregate value
(computed in accordance with Section 6.1 hereof) of $4,400,000) shall constitute
that portion of the Escrow Fund which is sometimes hereinafter referred to as
the "General Escrow Fund"; and the Omnicom Stock set forth in Schedule B hereto
( ________ shares of Omnicom Stock having an aggregate value (computed in
accordance with Section 6.1 hereof) of $2,500,000) shall constitute that portion
of the Escrow Fund which is sometimes hereinafter referred to as the "Special
Escrow Fund".
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2. PROCEDURES WITH RESPECT TO GENERAL CLAIMS
2.1 General Claims by Omnicom. (a) If an Indemnified Party has a Claim,
including a Claim arising from a suit, action, proceeding or investigation by a
third party that may result in any Losses under clause (a) of Section 11.2 of
the Merger Agreement ("General Losses" and the Claims with respect thereto,
"General Claims"), Omnicom shall give notice thereof (the "General Claims
Notice") substantially in the form of and in conformity with the instructions
contained in Exhibit 2 hereto to the Representative and to the Escrow Agent. The
General Claims Notice shall describe the General Claim in reasonable detail,
shall indicate the amount (estimated, if necessary, and to the extent feasible)
of the General Losses that have been or may be suffered by Omnicom and for the
applicable Indemnified Party, as the case may be. General Losses shall be
reimbursed solely out of the General Escrow Fund.
(b) Within 30 days after Omnicom shall give the Representative a General
Claims Notice (or sooner, if the nature of the Asserted Liability so requires),
the Representative, by notice to Omnicom with a copy to the Escrow Agent (the
"Representative's Notice"), either shall (i) concede liability in whole with
respect to such General Claim, (ii) demand that an arbitration proceeding under
Section 13 hereof be held to determine whether such General Claim is one covered
by Section 11.2(a) of the Merger Agreement and this Escrow Agreement and/or in
the case of matters other than Third Party Claims to determine the amount of the
General Claim, or (iii) concede liability in part and demand such arbitration in
part. The failure by the Representative to give the Representative's Notice
within the specified period shall be deemed a concession of liability in whole.
The Representative shall be afforded reasonable access by Omnicom to the
documentation relating to any Asserted Liability included in a General Claims
Notice as may under the circumstances reasonably be required by the
Representative to make a determination required to be made by the Representative
under this Section 2.1.
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2.2 Final General Claims for Reimbursement. All General Claims for which
the Representative shall have conceded liability, or shall have been deemed to
have conceded liability pursuant to the provisions of Section 2.1, shall be
final and binding upon the Representative, the Shareholders, Omnicom and the
Surviving Corporation. If the Representative shall demand arbitration as
provided in Section 2.1, the General Claim that was objected to shall become
final and binding upon Omnicom, the Surviving Corporation, the Representative
and the Shareholders upon (a) a final decision in arbitration as provided in
Section 13 hereof, or (b) upon the matter being otherwise agreed to in writing
by Omnicom and the Representative. A General Claim which is final and binding
upon Omnicom, the Surviving Corporation, the Shareholders and the Representative
as of any given time is hereinafter called a "Final General Claim for
Reimbursement".
2.3 Limitation of General Claims. Notwithstanding anything to the contrary
herein, none of the General Escrow Fund will be released and delivered to
Omnicom pursuant to any General Claim (other than a General Claim under Section
3.27 or 3.28 or the last sentence of Section 3.19.3 of the Merger Agreement)
except to the extent that the aggregate amount of all Final General Claims for
Reimbursement (ignoring any General Claim(s) under Section 3.27 or 3.28 or the
last sentence of Section 3.19.3 of the Merger Agreement) exceeds the sum of
$100,000 and then only to the extent of such excess. As a General Claim becomes
a Final General Claim for Reimbursement, Omnicom and the Representative (or the
arbitrator, as the case may be) shall provide the Escrow Agent with a
certificate with respect to the compliance of the Final General Claim for
Reimbursement with this Section 2.3.
3. DISTRIBUTIONS FROM GENERAL ESCROW FUND
3.1 Definitions. As used herein: "First General Distribution Date" shall
mean the business day next following the earlier of (i) the date following the
first independent audit report, if any, of the financial results of the
Surviving Corporation following the Effective Time or (ii) one year from the
date hereof; and "Final General Distribution Date" shall mean the first business
4
<PAGE>
day on which all matters reserved against in respect of General Claims shall
have been finally determined or settled. If no matters are or remain reserved
against on the First General Distribution Date, the First General Distribution
Date shall also be the Final General Distribution Date. Omnicom shall give
notice to the Escrow Agent, with a copy to the Representative, five business
days prior to the occurrence of the First General Distribution Date.
3.2 Reimbursement of Final General Claims for Reimbursement Before or On
First General Distribution Date. From the date of this Escrow Agreement to and
including the First General Distribution Date, the Escrow Agent from time to
time shall (subject to Section 2.3) transfer and deliver to Omnicom such number
of shares of Common Stock forming the General Escrow Fund as shall have a value
(computed in accordance with Section 6.1 hereof) equal to the Final General
Claims for Reimbursement which have not previously been paid to Omnicom;
provided however, that in no event shall Omnicom receive any distribution from
the General Escrow Fund prior to such time as Omnicom releases and publishes
financial results of the combined operations of Omnicom and the Surviving
Corporation covering a period of at least 30 days after the Effective Time of
the Merger (such time being hereinafter referred to as the "Publication Date").
Omnicom shall promptly give notice (the "Publication Notice") to the Escrow
Agent, with a copy to the Representative, of the release and publishing of such
financial results and the occurrence of the Publication Date substantially in
the form of Exhibit 3 hereto including an authorization and direction to release
the shares of Omnicom Stock set forth on Schedule C hereto; and within five days
after the Publication Date, the Escrow Agent shall mail or deliver to each
Company Affiliate (as such term is used in Section 8) the stock certificate(s)
identified next to his or her name on Schedule C hereto.
3.3 Reservation of Amounts at First General Distribution Date. On the First
General Distribution Date, the Escrow Agent shall reserve in the General Escrow
Fund such number of shares of Common Stock as shall have a value (computed in
accordance with Section 6.1 hereof) equal to the sum of (i) an amount in respect
5
<PAGE>
of the amounts claimed in all General Claims Notices given pursuant to Section
2.1 hereof which have not become Final Claims for Reimbursement, but which are
still asserted by Omnicom and are then pending and undecided ("Pending General
Claims") as set forth in a certificate signed by Omnicom and delivered to the
Escrow Agent (provided, that if the Representative does not agree on such
amount, the dispute shall be submitted by the Representative to arbitration in
accordance with Section 13 hereof and the determination of the arbitrator shall
be final and conclusive; and further provided that pending the determination of
the arbitrator, the amount to be reserved shall be the amount certified in
writing to the Escrow Agent by Omnicom); and (ii) the aggregate amount of all
Final General Claims for Reimbursement not theretofore paid to Omnicom.
3.4 Distribution at First General Distribution Date. On the First
Distribution Date, the Escrow Agent shall deliver to Omnicom from the General
Escrow Fund any shares reserved pursuant to 3.3(ii) and shall deliver to the
Shareholders in accordance with their respective interests that portion of the
General Escrow Fund equal to the entire amount of the General Escrow Fund as
originally deposited in accordance with Section 1 hereof, less the sum of (a)
all amounts theretofore delivered from the General Escrow Fund to Omnicom
pursuant to Section 3.2 hereof or this Section 3.4 and (b) the amount of the
General Escrow Fund reserved pursuant to Section 3.3(i) hereof. If the foregoing
calculation results in a negative amount, no portion of the General Escrow Fund
shall be delivered to the Shareholders at the First General Distribution Date.
3.5 Distributions As to Pending General Claims After the First General
Distribution Date. After the First General Distribution Date, as each Pending
General Claim reserved for on the First General Distribution Date becomes (x) a
Final General Claim for Reimbursement, or (y) is withdrawn by Omnicom, or (z) is
determined pursuant to a final decision in arbitration (as described in Section
13) not to be a proper General Claim, the Escrow Agent shall, subject to Section
2.3, deliver (a) to Omnicom, such number of shares of Common Stock as shall have
6
<PAGE>
a value (computed in accordance with Section 6.1 hereof) equal to the Final
General Claim for Reimbursement which results from the determination of such
Pending General Claim (and not previously paid to Omnicom), and (b) to the
Shareholders in accordance with their respective interests, such number of
shares of Common Stock as shall have a value (computed in accordance with
Section 6.1 hereof) equal to the amount, if any, of the excess of the reserve
for such Pending General Claim over the Final General Claim for Reimbursement,
if any, with respect to such Pending General Claim; provided, however, that no
delivery shall be made hereunder to the Shareholders unless the aggregate amount
reserved (after giving effect to such delivery) for all Pending General Claims
is at least equal to the aggregate amount of such Pending General Claims.
3.6 Distribution at Final General Distribution Date. On the Final General
Distribution Date, the Escrow Agent shall deliver to Omnicom such number of
shares of Common Stock as shall have a value (computed in accordance with
Section 6.1 hereof and subject to Section 2.3 hereof) equal to the Final General
Claims for Reimbursement which have not previously been paid to Omnicom, and
shall deliver to the Shareholders in accordance with their respective interests
the balance, if any, of the General Escrow Fund.
4. PROCEDURES WITH RESPECT TO SPECIAL ESCROW FUND
4.1 Special Claims by Omnicom. (a) If an Indemnified Party has a Claim that
may result in any Losses under clause (b) of Section 11.2 of the Merger
Agreement ("Special Losses" and the Claims with respect thereto, "Special
Claims"), Omnicom shall give notice thereof (the "Special Claims Notice")
substantially in the form of and in conformity with the instructions contained
in Exhibit 2 hereto to the Representative and to the Escrow Agent. The Special
Notice shall describe the Special Claim in reasonable detail, shall indicate the
amount (estimated, if necessary, and to the extent feasible) of the Special
Losses that have been or may be suffered by Omnicom and for the applicable
Indemnified Party, as the case may be. Special Losses shall be reimbursed solely
out of the Special Escrow Fund.
7
<PAGE>
(b) Within 30 days after Omnicom shall give the Representative a Special
Claims Notice (or sooner, if the nature of the Asserted Liability so requires),
the Representative shall give a Representative's Notice in which he shall either
(a) concede liability with respect to the Special Claim or (b) if he shall
dispute the Special Claim demand that an arbitration proceeding under Section 13
be held to resolve such dispute. The failure of the Representative to give the
Representative's Notice within the specified period shall be deemed a concession
of liability in whole with respect to the Special Claim. The Representative
shall be afforded reasonable access by Omnicom to the documentation relating to
a Special Claim as may under the circumstances reasonably be required by the
Representative to make a determination required to be made by the Representative
under this Section 4.1.
4.2 Final Special Claims for Reimbursement. A Special Claim for which the
Representative shall have conceded liability, or shall have been deemed to have
conceded liability pursuant to the provisions of Section 4.1, shall be final and
binding upon the Representative, the Shareholders, Omnicom and the Surviving
Corporation. If the Representative shall demand arbitration as provided in
Section 4.1, the Special Claim shall become final and binding upon Omnicom, the
Surviving Corporation, the Representative and the Shareholders upon (a) a final
decision in arbitration as provided in Section 13 hereof, or (b) upon the matter
being otherwise agreed to in writing by Omnicom and the Representative. A
Special Claim which is final and binding upon Omnicom, the Surviving
Corporation, the Shareholders and the Representative as of any given time is
hereinafter called a "Final Special Claim for Reimbursement".
5. DISTRIBUTIONS FROM SPECIAL ESCROW FUND
5.1 Definitions. As used herein: "First Special Distribution Date" shall
mean the business day next following December 31, 1996; and "Final Special
Distribution Date" shall mean the first business day on which all matters
reserved against in respect of Special Claims shall have been finally determined
8
<PAGE>
or settled. If no matters are or remain reserved against on the First Special
Distribution Date, the First Special Distribution Date shall also be the Final
Special Distribution Date.
5.2 Reimbursement of Final Special Claims for Reimbursement Before or On
First Special Distribution Date. From the date of this Escrow Agreement to and
including the First Special Distribution Date, the Escrow Agent from time to
time shall transfer and deliver to Omnicom such number of shares of Common Stock
forming the Special Escrow Fund as shall have a value (computed in accordance
with Section 6.1 hereof) equal to the Final Special Claims for Reimbursement
which have not previously been paid to Omnicom; provided however, that in no
event shall Omnicom receive any distribution from the Special Escrow Fund prior
to the Publication Date.
5.3 Reservation of Amounts at First Special Distribution Date. On the First
Special Distribution Date, the Escrow Agent shall reserve in the Special Escrow
Fund such number of shares of Common Stock as shall have a value (computed in
accordance with Section 6.1 hereof) equal to the sum of (i) an amount in respect
of the amounts claimed in all Special Claims Notices given pursuant to Section
4.1 hereof which have not become Final Claims for Reimbursement, but which are
still asserted by Omnicom and are then pending and undecided ("Pending Special
Claims") as set forth in a certificate signed by Omnicom and delivered to the
Escrow Agent (provided, that if the Representative does not agree on such
amount, the dispute shall be submitted by the Representative to arbitration in
accordance with Section 13 hereof and the determination of the arbitrator shall
be final and conclusive; and further provided that pending the determination of
the arbitrator, the amount to be reserved shall be the amount certified in
writing to the Escrow Agent by Omnicom); and (ii) the aggregate amount of all
Final Special Claims for Reimbursement not theretofore paid to Omnicom.
5.4 Distribution at First Special Distribution Date. On the First Special
Distribution Date, the Escrow Agent shall deliver to Omnicom from the Special
Escrow Fund any shares reserved pursuant to 5.3(ii) and shall deliver to the
Shareholders in accordance with their respective interests that portion of the
9
<PAGE>
Special Escrow Fund equal to the entire amount of the Special Escrow Fund as
originally deposited in accordance with Section 1 hereof, less the sum of (a)
all amounts theretofore delivered from the Special Escrow Fund to Omnicom
pursuant to Section 5.2 hereof or this Section 5.4 and (b) the amount of the
Special Escrow Fund reserved pursuant to Section 5.3(i) hereof. If the foregoing
calculation results in a negative amount, no portion of the Special Escrow Fund
shall be delivered to the Shareholders at the First Special Distribution Date.
5.5 Distributions As to Pending Special Claims After the First Special
Distribution Date. After the First Special Distribution Date, as each Pending
Special Claim reserved for on the First Special Distribution Date becomes (x) a
Final Special Claim for Reimbursement, or (y) is withdrawn by Omnicom, or (z) is
determined pursuant to a final decision in arbitration (as described in Section
13) not to be a proper Special Claim, the Escrow Agent shall deliver (a) to
Omnicom, such number of shares of Common Stock as shall have a value (computed
in accordance with Section 6.1 hereof) equal to the Final Special Claim for
Reimbursement which results from the determination of such Pending Special Claim
(and not previously paid to Omnicom), and (b) to the Shareholders in accordance
with their respective interests, such number of shares of Common Stock as shall
have a value (computed in accordance with Section 6.1 hereof) equal to the
amount, if any, of the excess of the reserve for such Pending Special Claim over
the Final Special Claim for Reimbursement, if any, with respect to such Pending
Special Claim; provided, however, that no delivery shall be made hereunder to
the Shareholders unless the aggregate amount reserved (after giving effect to
such delivery) for all Pending Special Claims is at least equal to the aggregate
amount of such Pending Special Claims.
5.6 Distribution at Final Special Distribution Date. On the Final Special
Distribution Date, the Escrow Agent shall deliver to Omnicom such number of
shares of Common Stock as shall have a value (computed in accordance with
Section 6.1 hereof) equal to the Final Special Claims for Reimbursement which
have not previously been paid to Omnicom, and shall deliver to the Shareholders
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in accordance with their respective interests the balance, if any, of the
Special Escrow Fund.
6. PROCEDURES WITH RESPECT TO DISTRIBUTION
6.1 Valuation. For all purposes of this Escrow Agreement, each share of
Omnicom Stock shall be valued at $________.(1) If, at any time after the Closing
Date and prior to the date of any distribution of Common Stock, Omnicom shall
effect a stock dividend, stock split or combination of the Common Stock, or
other recapitalization affecting the Common Stock, or shall effect a
distribution (other than a distribution of cash dividends as described in
Section 7.1 hereof) with respect to the Common Stock, or if Omnicom shall fix a
record date falling on or prior to the date of any distribution of Common Stock
from the Escrow Fund for any such stock dividend, stock split, combination,
recapitalization, or distribution to take place after the date of such
distribution, the foregoing valuation shall be adjusted appropriately by Omnicom
(but subject to arbitration in accordance with Section 13 in the event of a
dispute).
6.2 Fractional Shares. No fractional shares of the Common Stock shall be
issued or delivered pursuant to any provision of this Escrow Agreement. In
making delivery of the Common Stock to Omnicom or the Representative, the Escrow
Agent shall round off (up or down) any fractional share resulting from any
calculation hereunder to the nearest whole share.
6.3 Allocation. To the extent practicable all distributions made under this
Escrow Agreement from the General Escrow Fund or the Special Escrow Fund, as the
case may be, and whether payable to Omnicom or to the Shareholders, shall be
taken proportionately from the Common Stock held in such Fund, registered in the
name of each Shareholder as his respective interest appears on Schedule A or
Schedule B hereto, respectively.
- --------
(1) Insert the Market Value (as defined in the Merger Agreement)
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6.4 Distribution Consent. Any other provision of this Escrow Agreement to
the contrary notwithstanding, the Escrow Agent shall distribute the Escrow Fund
in such manner at such time or times as Omnicom and the Representative may, in
writing, jointly direct.
6.5 No Recourse. Anything contained in this Escrow Agreement to the
contrary notwithstanding, none of the Indemnified Parties shall have any
recourse for any Losses arising under Section 11.2 of the Merger Agreement
against past, present or future directors, officers or employees of the Company,
the Shareholders, or the Representative, nor shall any of such persons be
personally liable for any such Losses, it being expressly understood that the
sole remedy of the Indemnified Parties for such Losses shall be against the
Escrow Fund in accordance with this Escrow Agreement.
7. DIVIDENDS AND OTHER DISTRIBUTIONS; VOTING RIGHTS
7.1 Cash Dividends. All cash dividends in respect of the Common Stock still
then held in escrow, and all other distributions in respect of the Common Stock
still then held in escrow that are taxable dividends for Federal income tax
purposes (net of any taxes required to be withheld from such cash dividends or
other distributions by Omnicom), shall be paid directly to the applicable
Shareholder and shall be the sole property of such Shareholder, and the Escrow
Agent shall have no duty, liability or obligation whatsoever with respect
thereto.
7.2 Distributions. Distributions of any kind, other than those described in
Section 7.1, shall be made by Omnicom, if practicable, directly to the Escrow
Agent or, if made to any Shareholder, shall be delivered by such Shareholder,
upon request from Omnicom, to the Escrow Agent. All such distributions shall be
held in escrow pursuant to the provisions of this Escrow Agreement, but the
Escrow Agent shall have no duty or obligation whatsoever to require that such
distributions be delivered to it. Any delivery of the Common Stock to Omnicom or
the Representative after any and all such distributions shall be appropriately
adjusted so that the distributees will be in the same position as if such
distributees had been, on any record date for any such distribution with respect
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to the Common Stock, the holders of record of the number of shares of Omnicom
Stock distributable to them prior to any such distributions.
7.3 Voting. Each Shareholder shall be entitled to exercise all voting
rights with respect to the Common Stock registered in his name and constituting
the Escrow Fund so long as such Common Stock continues to be held in escrow, and
the Escrow Agent shall deliver to such Shareholder any proxies with respect
thereto which the Escrow Agent receives.
8. COMPANY AFFILIATES' DEPOSIT OF OMNICOM STOCK
Simultaneously herewith, pursuant to the Merger Agreement and paragraph 3
of the Affiliates Representation Letter referred to in Section 7.2 of the Merger
Agreement, all of the shares of Omnicom Stock issued to the Company Affiliates
under Article II of the Merger Agreement have been deposited with the Escrow
Agent. All such shares of Omnicom Stock not part of the Escrow Fund shall be
subject to the provisions of Section 7 and Sections 10 through 15 of this
Agreement; and shall be released by the Escrow Agent within five days after the
Publication Date by the mailing or delivery to each Company Affiliate of the
stock certificate(s) identified next to his or her name on Schedule C hereto.
9. SECURITY INTEREST IN ESCROW FUND
(a) The Shareholders hereby grant to Omnicom a first priority perfected
security interest in the Escrow Fund to secure the performance of the
indemnification obligations under Section 11.2 of the Merger Agreement and this
Escrow Agreement. The Escrow Agreement shall constitute a security agreement
under applicable law.
(b) The parties agree that this security interest shall attach as of the
execution of this Escrow Agreement. The parties agree that, for the purpose of
perfecting Omnicom's security interest in the above designated Escrow Fund held
by the Escrow Agent pursuant to this Escrow Agreement, Omnicom designates the
Escrow Agent to acquire and maintain possession of the Escrow Fund and act as
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bailee for Omnicom with notice of Omnicom's security interest in said property
under the Uniform Commercial Code and that by possession of the Escrow Fund, the
Escrow Agent acknowledges that it holds the Escrow Fund for Omnicom for purposes
of perfecting the security interest. The Representative and the Escrow Agent
shall take all other actions requested by Omnicom to maintain the perfection and
priority of the security interest in the Escrow Fund; provided that the Escrow
Agent and the Representatives do not make any representation or warranty with
regard to the creation or perfection, hereunder or otherwise, of any such
security interest, and shall have no responsibility at any time to ascertain
whether or not any security interest exists.
(c) Omnicom shall release the security interest herein granted and the
security interest shall be terminated to the extent of any disbursement of the
Escrow Fund hereunder by Escrow Agent in accordance with the terms of this
Escrow Agreement. Upon final disbursement of the Escrow Fund to Omnicom or the
Shareholders, Omnicom shall do all acts and things reasonably necessary to
release and extinguish such security interest. The parties hereto specifically
agree that the grant of this security interest pursuant to this Section 8 shall
not in any way modify the procedures the parties hereto must follow with respect
to the release of Common Stock from the Escrow Fund.
10. ESCROW AGENT'S DUTIES AND FEES
10.1 Duties Limited. The Escrow Agent undertakes to perform only such
duties as are expressly set forth herein, and shall not be required to refer to
the Purchase Agreement in carrying out its duties hereunder. The Escrow Agent
shall not be bound by, or have any responsibility with respect to, any other
agreement between any of the parties. The Escrow Agent shall have no duty or
responsibility with regard to any loss resulting from the decline in the market
value of the Escrow Fund in accordance with the terms of this Agreement. The
Escrow Agent need not maintain any insurance with respect to the Escrow Fund.
10.2 Reliance. The Escrow Agent, acting (or refraining from acting) in good
faith, shall not be liable for any mistake of fact or error of judgment by it or
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for any acts or omissions by it of any kind unless caused by gross negligence or
willful misconduct, and the Escrow Agent may rely, and shall be protected in
acting or refraining from acting, upon any written notice, instruction or
request furnished to it hereunder and believed by it to be genuine and to have
been signed or presented by the proper party or parties; provided that, as set
forth below, modification of this Escrow Agreement shall be signed by all of the
parties hereto. The Escrow Agent is hereby authorized to comply with any
judicial order or legal process which stays, enjoins, directs or otherwise
affects the transfer or delivery of any part of the Escrow Fund to any party
hereto and shall incur no liability for any delay or loss which may occur as a
result of such compliance.
10.3 Good Faith. Each of Omnicom and the Representative, on behalf of the
Shareholders, jointly and severally, hereby agrees to indemnify the Escrow
Agent, its officers, directors, agents or employees for, and to hold the Escrow
Agent, its officers, directors, agents or employees for, harmless against, any
loss, liability, expense (including reasonable attorneys' fees and expenses),
third party claim and demand, incurred by it without gross negligence or bad
faith on its part, arising out of or in connection with its entering into this
Escrow Agreement and the carrying out of its duties hereunder and in any event
its liability shall be limited to direct damages and shall not include special
or consequential damages; 50% of any such losses shall be payable by Omnicom and
50% shall be payable by the Representative on behalf of the Shareholders. The
Escrow Agent may consult with counsel of its own choice, and shall have full and
complete authorization and protection for any action taken or suffered by it
hereunder in good faith and in accordance with the opinion of such counsel. The
foregoing indemnification shall survive the resignation of the Escrow Agent or
the termination of this Escrow Agreement.
10.4 Successor Escrow Agents. The Escrow Agent may resign and be discharged
from its duties or obligations hereunder at any time by giving 30 days' notice
in writing of such resignation to the Representative and Omnicom. The
15
<PAGE>
Representative and Omnicom, together, shall have the right to terminate the
appointment of the Escrow Agent hereunder by giving to it notice in writing of
such termination specifying the date upon which such termination shall take
effect. In either such event, the Representative and Omnicom hereby agree to
promptly appoint a successor escrow agent; if the Representative and Omnicom are
unable to appoint a successor escrow agent within 25 days after the Escrow
Agent's notice of resignation, the Escrow Agent may petition a court of
competent jurisdiction to appoint a successor. The parties hereto agree that,
upon demand of such successor escrow agent, all property in the Escrow Fund
shall be turned over and delivered to such successor escrow agent, which
thereupon shall become bound by all of the provisions hereof. Notwithstanding
any of the foregoing, no appointment of a successor Escrow Agent shall become
effective until all fees, charges and expenses of the original Escrow Agent have
been paid. The original Escrow Agent will not be liable for the acts or
omissions of any successor hereunder.
10.5 Fees and Expenses. Omnicom and the Surviving Corporation each agrees
to pay to the Escrow Agent one-half of the fees determined in accordance with,
and payable as specified in, the Schedule of Fees attached hereto as Attachment
1 as compensation for the services to be rendered by it hereunder and to pay or
reimburse the Escrow Agent for all reasonable expenses, disbursements and
advances (including reasonable attorneys' fees) incurred or made by it in
connection with the carrying out of its duties hereunder.
11. WAIVERS
This Escrow Agreement may be amended, superseded or canceled, and any of
the terms or conditions hereof may be waived, only by a written instrument
executed by the parties hereto or, in the case of a waiver, by the party waiving
compliance. The failure of any party at any time or times to require performance
of any provision hereof shall in no manner affect the right of such party at a
later time to enforce the same. No waiver of any nature, whether by conduct or
otherwise in any one or more instances, of any provision hereof, shall be deemed
to be, or construed as, a further or continuing waiver of any such provision or
of another provision hereof.
16
<PAGE>
12. NOTICES
Any notice, instructions or other communication required or which may be
given hereunder (including without limitation the delivery of Common Stock to
the Representative out of the Escrow Fund) shall be in writing either delivered
personally or mailed by certified or registered mail, return receipt requested,
or sent by facsimile transmission, and shall be deemed given when so delivered
personally, mailed or sent by facsimile, as follows:
If to Omnicom or the Surviving Corporation, to:
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
Attention: Secretary
Fax No.: 212-415-3536
if to the Representative, to:
Mr. Paul H. Alvarez
c/o Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
Fax No.: 212-415-3530
and if to the Escrow Agent, to:
The Chase Manhattan Bank, N.A.
4 Chase Manhattan Center, 3rd floor
Brooklyn, New York 11245
Attention: Escrow Department
Fax No.: 718-242-3529
Any party may change the persons and addresses to which notices, payments,
instructions or other communications are to be sent to such party by giving
written notice of any such change in the manner provided herein for giving
17
<PAGE>
notice. Notices sent by facsimile transmission shall be confirmed in writing by
registered or certified mail, return receipt requested.
13. ARBITRATION
If any demand shall be made for arbitration hereunder in respect of any
Claim or other matter in dispute hereunder between the Representative and
Omnicom, such Claim or matter shall be settled by arbitration in New York, New
York, before one arbitrator chosen from the Commercial Panel in accordance with
the Rules then pertaining of the American Arbitration Association. The
arbitrator shall consider only the items in dispute and shall be instructed to
act within thirty days to resolve all items in dispute. The "final decision" of
the arbitrator shall be a conclusive determination of the matter and shall be
binding upon the Representative, the Shareholders, Omnicom, the Surviving
Corporation and the Escrow Agent, and shall not be contested by any of them. In
making its determination the arbitrator shall be instructed to take into account
the definition of Losses, the limitations of liability applicable to Losses, and
other provisions of Article XI of the Merger Agreement. The arbitrator shall
determine the party (Omnicom or the Representative, as the case may be) whose
asserted positions before the arbitrator are in the aggregate further from the
aggregate resolutions determined by the arbitrator, which non-prevailing party
shall pay the costs and expenses of the arbitrator.
14. JURY WAIVER
All parties to this Agreement waive any rights they may have to a jury
trial.
15. MISCELLANEOUS
(a) This Escrow Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York applicable to agreements made and to be
performed entirely within such State.
(b) This Escrow Agreement shall be binding upon, and inure to the benefit
of the Representative (or his successor) and the successors and assigns of
18
<PAGE>
Omnicom, and the Escrow Agent, but no delegation of any obligations provided for
herein may be made by any party hereto without the express written consent of
the other parties hereto, except for the provisions of Section 9.4 hereof
respecting successor escrow agents.
(c) The section headings contained in this Escrow Agreement are inserted
for convenience of reference only, and shall not affect the meaning or
interpretation of this Escrow Agreement.
19
<PAGE>
WITNESS the execution of this Escrow Agreement as of the date first above
written.
OMNICOM GROUP INC.
By:
--------------------------------------
KETCHUM COMMUNICATIONS
HOLDINGS, INC.
By:
-------------------------------------
Paul H. Alvarez
THE CHASE MANHATTAN BANK, N.A.
By:
--------------------------------------
20
<PAGE>
Schedule A to Escrow Agreement
Shares Subject to General Escrow Fund
[To be completed]
<PAGE>
Schedule B to Escrow Agreement
Shares Subject to Special Escrow Fund
[To be completed]
-ii-
<PAGE>
Schedule C to Escrow Agreement
Additional Shares to be Held Until
the Publication Date
[To be completed]
-iii-
<PAGE>
Exhibit 1 to Escrow Agreement
Terms Defined in the Merger Agreement
and their Meanings
"Affiliates Representation Letter" means the letter delivered by each
Company Affiliate pursuant to Section 7.2 of the Merger Agreement.
"Asserted Liability" means any demand, claim or circumstances which gives
rise, or with lapse of time would or might give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation that may result in any Losses.
"Closing Date" means ________, 1996, or such other date chosen by the
parties to the Merger Agreement for the closing of the transactions contemplated
by the Merger Agreement in accordance with Section 2.2 of the Merger Agreement.
"Company Affiliate" means those persons identified on Schedule C hereto as
"affiliates" of the Company, as the term "affiliate" is used in Paragraphs (c)
and (d) of Rule 145 under the Securities Act of 1933 or in SEC ASR No. 135.
"Effective Time" means the time when the Merger shall have become
effective.
"Indemnified Parties" mean Omnicom and its affiliates, directors, officers
and employees.
"Losses" mean all liabilities (including liabilities for taxes),
obligations, bonuses, damages, penalties, claims, actions, suits, judgments,
settlements, out-of-pocket costs, expenses and disbursements (including
reasonable costs of investigation, and reasonable attorneys', accountants' and
expert witnesses' fees, whether or not suit is brought) of whatever kind and
nature, to the extent not covered by insurance which the applicable Indemnified
Parties will be entitled to obtain the benefits.
"Omnicom Stock" means shares of Omnicom common stock, par value $.50 per
share.
"Subsidiary" means all of the Company's directly and indirectly owned
subsidiaries.
-iv-
<PAGE>
Exhibit 2 to Escrow Agreement
GENERAL CLAIMS NOTICE
[Paul H. Alvarez] [Edward Graf], as Shareholder Representative
Ketchum Communications Holdings, Inc.
Six, PPG Place
Pittsburgh, Pennsylvania 15222
The Chase Manhattan Bank, N.A.
4 Chase MetroTech Center, 3rd Floor
Brooklyn, New York 11245
Attention: Escrow Department
Gentlemen:
The undersigned refers to the Escrow Agreement by and among Omnicom Group
Inc., Ketchum Communications Holdings, Inc., Paul H. Alvarez as Representative,
and The Chase Manhattan Bank, N.A. dated ___ __, 1996 (the "Escrow Agreement";
the terms defined therein being used herein as therein defined) and hereby gives
you notice, pursuant to Section 2.1 of the Escrow Agreement that [Name of
Indemnified Party] has suffered General Losses in the [approximate] amount of
$_______. The General Losses are in the nature of [provide description of the
General Losses].
Very truly yours,
OMNICOM GROUP INC.
By
------------------------------------
-v-
<PAGE>
Exhibit 3 to Escrow Agreement
PUBLICATION NOTICE
The Chase Manhattan Bank, N.A.
4 Chase MetroTech Center, 3rd Floor
Brooklyn, New York 11245
Attention: Escrow Department
Gentlemen:
The undersigned refers to the Escrow Agreement by and among Omnicom Group
Inc., Ketchum Communications Holdings, Inc., Paul H. Alvarez as Representative,
and The Chase Manhattan Bank, N.A. dated ___ __, 1996 (the "Escrow Agreement";
the terms defined therein being used herein as therein defined) and hereby gives
you notice, that Omnicom has released and published financial results of the
combined operations of Omnicom and the Surviving Corporation covering a period
of at least 30 days after the Effective Time of the Merger.
Accordingly, the Publication Date has occurred. You are hereby authorized
and directed to mail or deliver to each Shareholder the stock certificate(s)
identified next to his or her name on Schedule C hereto.
Very truly yours,
OMNICOM GROUP INC.
By
----------------------------------
-vi-
March 8, 1996
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
Re: Registration Statement of Form S-4
----------------------------------
Gentlemen:
In our capacity as counsel to Omnicom Group Inc., a New York corporation
(the "Company"), we have been asked to render this opinion in connection with a
Registration Statement on Form S-4 (the "Registration Statement") being filed by
the Company contemporaneously with the Securities and Exchange Commission under
the Securities Act of 1993, as amended, covering an aggregate of up to 1,500,000
shares of common stock, $.50 par value, of the Company (the "Shares") to be
issued in connection with the acquisition by the Company of Ketchum
Communications Holdings, Inc. pursuant to an Agreement and Plan of Merger dated
March 7, 1996 (the "Merger Agreement").
In that connection, we have examined the Certificate of Incorporation and
the By-Laws, both as amended, of the Company, the Registration Statement,
corporate proceedings relating to the issuance of the Shares, and such other
instruments and documents as we deemed relevant under the circumstances.
In making the aforesaid examinations, we have assumed the genuineness of
all signatures and the conformity to original documents of all copies furnished
to us as original or photostatic copies. We have also assumed that the corporate
records furnished to us by the Company include all corporate proceedings taken
by the Company to date.
Based upon and subject to the foregoing, we are of the opinion that when
issued in accordance with the Merger Agreement, the Shares will have been
legally issued and will be fully paid and non-assessable shares of common stock,
$.50 par value, of the Company.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the Prospectus/Information Statement forming part of
the Registration Statement.
Very truly yours,
/s/ Davis & Gilbert
March 7, 1996
Board of Directors
Ketchum Communications Holdings, Inc.
Six PPG Place
Pittsburgh, PA 15222
Dear Board:
This letter is in response to your request for our tax opinion on the federal
income tax consequences of the merger (the "Merger") of KCI Acquisition, Inc.
("OmniSub") into Ketchum Communications Holdings, Inc. ("Ketchum") with Ketchum
surviving and the former shareholders of Ketchum receiving shares of Omnicom
Group, Inc. ("Omnicom") pursuant to the Agreement and Plan of Merger (the
"Plan") by and among Ketchum, Omnicom, and OmniSub dated March 7, 1996.
Our opinion is based upon the representations provided and our understanding of
the facts. Specifically, we have relied upon the Ketchum and Omnicom
representations provided in the letters ("Representation Letters") dated March
6, 1996 and March 6, 1996, respectively, and the statements of fact in the
following documents: the Plan, the Escrow Agreement (attached as an exhibit to
the Plan) to be signed at closing, the Form S-4 Registration Statement to be
filed March 8, 1996 with the Securities and Exchange Commission, and a sample
agreement between Ketchum and former shareholders of Ketchum relating to the
change of control premium (collectively "Documents").
FACTS
Ketchum is a corporation organized under the laws of the Commonwealth of
Pennsylvania. As of March 7, 1996, Ketchum had 374,967 shares of Common Stock
outstanding and 6,282 shares of Voting Preferred Stock outstanding. As of
February 29, 1996, Ketchum's Common Stock is held by approximately 230 Ketchum
employees, and those shareholders owning approximately five percent or more of
the Ketchum Common Stock are the following: Edward L. Graf, J. Craig Mathiesen,
Paul H. Alvarez, James K. Larkin, Dianne Snedaker, KCHI 401(k) Profit Sharing
Plan, and David R. Drobis.
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 2
As of February 29, 1996, Ketchum's 401(k) Profit-Sharing Plan was the sole
shareholder of the Preferred Stock. On February 29, 1996, 1,604 shares of
Ketchum Preferred Stock were exchanged for 29,761 shares of Ketchum Common Stock
and $10,893.67 in lieu of fractional shares in a transaction intended to qualify
as tax-free recapitalization under section 368(a)(1)(E)1.
Ketchum has historically purchased shares owned by employees upon the death or
termination of the employment of the employee. Most of these repurchases have
been accompanied by an agreement which provided for a premium to be paid upon a
change in control of Ketchum within the five year period after the repurchase of
the shares.
Ketchum has either entered into contracts or has offered to enter into contracts
with some of its former shareholders to terminate each former shareholder's
rights under the existing shareholder change of control agreement to receive a
premium in the event Ketchum is sold in exchange for a cash payment that is to
be made by Ketchum to the former shareholder. Some of the former shareholders
have accepted Ketchum's offer.
Ketchum's principal businesses are advertising, public relations and directory
advertising. These services are offered domestically through offices in San
Francisco, Los Angeles, New York, Chicago and Pittsburgh. Ketchum's
international operations include the United Kingdom, France, Germany and the
Netherlands.
Omnicom is a corporation organized under the laws of the State of New York.
Omnicom Common Stock is publicly traded and widely held. Omnicom, through its
wholly and partially-owned companies, operates advertising agencies which plan,
create, produce and place advertising in various media and offers clients such
additional services as marketing consultation, consumer market research, design
and production of merchandising and sales promotion programs and materials,
direct mail advertising, corporate identification and public relations.
Operations cover the major regions of North America, the United Kingdom,
Continental Europe, the Middle East, Latin America, the Far East and Australia.
OmniSub, a Pennsylvania corporation, was formed as a wholly owned subsidiary of
Omnicom to effectuate this transaction.
- ----------
1 Unless otherwise stated, all section references contained herein refer to the
Internal Revenue Code of 1986, as amended, and the Income Tax Regulations
thereunder.
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 3
The Boards of Directors of Omnicom and Ketchum have determined that it is in the
best interests of their respective companies and stockholders that the Merger
take place. The Ketchum Board considered a number of factors, including, without
limitation, the following:
(i) The Board's assessment that the Ketchum Advertising operations could more
fully realize their long-term strategic objectives by affiliating with a
substantially larger agency, such as Omnicom, thereby affording Ketchum
access to Omnicom's international service facilities, access to new
clients and Omnicom's financial and managerial resources.
(ii) Ketchum's Public Relations agency could more fully realize its long-range
strategic objectives by working within Omnicom. This will afford it access
to Omnicom's financial resources and its clients. It will also allow them
to have access to Omnicom's extensive international service facilities.
(iii) Ketchum Directory Advertising will benefit from the opportunity to service
Omnicom clients.
(iv) The current and prospective environment in which Ketchum Advertising
operates, including national and local conditions, and the competitive
environment for advertising generally.
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
lines of business including public relations, consumer advertising, directory
advertising and other related activities.
TRANSACTION
Pursuant to one overall plan, the following transactions will take place:
1. OmniSub will merge with and into Ketchum. Ketchum will be the surviving
corporation, and OmniSub will cease to exist as a separate corporate
entity.
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 4
2. By virtue of the Merger:
(a) Each issued and outstanding share of the Common Stock of OmniSub shall
be converted into and become one share of Common Stock of Ketchum.
(b) Any dissenting shareholder's Ketchum Common Stock shall not be
converted into shares of Omnicom Common Stock, but the holder thereof
shall be entitled to such rights as are granted by the applicable
provisions of the Pennsylvania Business Corporation Law ("PBCL").
(c) All shares of Ketchum Common Stock owned as treasury stock by Ketchum
shall be canceled and retired and shall cease to exist and no stock of
Omnicom or other consideration shall be delivered in exchange
therefor.
(d) All of the issued and outstanding shares of Ketchum Common Stock
(other than shares to be canceled in accordance with Section (c)
above) shall be converted into the right to receive shares of Omnicom
Common Stock having a value in the aggregate of $44,940,000. All such
shares of Ketchum Common Stock shall no longer be outstanding and
shall automatically be canceled and retired and cease to exist. Each
holder of a certificate representing any such shares shall cease to
have any rights with respect thereto, except for the right to receive
the shares of Omnicom Common Stock and any cash in lieu of fractional
shares of Omnicom Common Stock to be issued or paid in consideration
therefor and except for those rights subject to the terms of the
Escrow Agreement referred to in Section 2.7 of the Plan.
(e) All shares of Ketchum Preferred Stock owned as treasury stock by
Ketchum shall be canceled and retired and shall cease to exist and no
stock of Omnicom or other consideration shall be delivered in exchange
therefor.
(f) Each issued and outstanding share of Series A Preferred Stock of
Ketchum shall be converted into the right to receive the number of
shares of Omnicom Common Stock, the value of which shall equal $1,000.
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 5
3. No fractional shares of Omnicom Common Stock shall be issuable. Each
Ketchum stockholder who would otherwise be entitled to a fractional share
shall, in lieu thereof, be paid in cash in an amount equal to the value of
such fractional share based on the market value of the Omnicom Common
Stock.
4. In order to fund the indemnification obligations described in Section 11.2
of the Plan, shares of Omnicom stock issuable to Ketchum Common
shareholders will be held in escrow as follows:
(a) Omnicom Common Stock having a market value of $4,400,000 to cover
breaches of representations and warranties (the "General Escrow
Fund").
(b) Omnicom Common Stock having a market value of $2,500,000 to cover any
costs incurred by Ketchum in connection with the reorganization of
Ketchum's media buying operations of its subsidiary Ketchum
Communications Inc. (the "Special Escrow Fund").
Each of the Ketchum Common shareholders will be depositing into escrow
his pro-rata share of the General Escrow Fund and the Special Escrow
Fund.
5. Consummation of the Merger is contingent upon the 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, Omnicom's having received a letter from each of Deloitte &
Touche LLP and Omnicom's independent accountants, confirming that Ketchum
and Omnicom, respectively, are poolable entities, and the aggregate number
of dissenting shares does not exceed 3 percent of the total number of
shares of Ketchum Common Stock outstanding as of the Merger.
The Ketchum Common Stock and the Ketchum Preferred Stock exchanged in the Merger
will herein be referred to collectively as "Ketchum Stock."
OPINION
In our opinion, based on the Representation Letters, the information and facts
contained in the Documents and the information, facts and assumptions contained
herein:
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 6
1. The Merger of OmniSub with and into Ketchum will constitute a
reorganization within the meaning of section 368(a)(1)(A). The
reorganization will not be disqualified by reason of the fact that Common
Stock of Omnicom is used in the transaction by reason of the application
of section 368(a)(2)(E) as
(a) subsequent to the proposed transaction, Ketchum will hold
substantially all its properties and substantially all the properties
of OmniSub (other than the Omnicom Common Stock distributed as part of
the transaction), and
(b) in the transaction, the Ketchum shareholders will exchange an amount
of stock constituting control solely for voting Common Stock of
Omnicom.
Omnicom, OmniSub and Ketchum will each be "a party to a reorganization"
within the meaning of section 368(b).
2. No gain or loss will be recognized by Ketchum on the receipt of the assets
of OmniSub in exchange for Ketchum Stock. Section 1032(a).
3. No gain or loss will be recognized by Ketchum's shareholders upon the
exchange of their Ketchum Stock (including fractional share interests they
might otherwise be entitled to receive) solely for Omnicom Common Stock.
Section 354(a)(1).
4. The holding period of the Omnicom Common Stock (including fractional share
interests they might otherwise be entitled to receive) will include the
holding period of the Ketchum Stock surrendered in exchange therefor,
provided that Ketchum Stock was held as a capital asset on the date of
exchange. Section 1223(1).
5. The aggregate basis of the Omnicom Common Stock (including fractional
share interests they might otherwise be entitled to receive) received by
the Ketchum shareholders will be the same, in each instance, as the
aggregate basis of the Ketchum Stock surrendered in exchange therefor.
Section 358(a).
6. Cash received by a Ketchum shareholder otherwise entitled to receive a
fractional share of Omnicom Common Stock in the exchange will be treated
as if the fractional shares were distributed as part of the exchange and
were then redeemed by Omnicom. These cash payments will be treated as
having been received as distributions in full payment in exchange for the
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 7
stock redeemed as provided in Section 302(a). This receipt of cash will
result in gain or loss measured by the difference between the basis of
such fractional share interest and the cash received. Such gain or loss
will be capital gain or loss to the Ketchum shareholder, provided the
Ketchum Stock was a capital asset in the hands of such shareholder.
7. Where cash is received by a dissenting shareholder of Ketchum, such cash
will be treated as received by the dissenting shareholder as a
distribution in redemption of the shareholder's Ketchum stock, subject to
the provisions and limitations of Section 302.
REPRESENTATIONS
We have relied on the following representations of fact made by Ketchum and/or
Omnicom in connection with the Merger:
a. The fair market value of Omnicom Voting Common Stock received by each
Ketchum shareholder will be approximately equal to the fair market value
of the Ketchum Stock surrendered in the exchange.
b. The following representations relate to the "Substantially All" test:
1. The net fair market value of Ketchum's assets, as evidenced by the
fair market value of Omnicom stock to be issued in the transaction,
will be approximately $51,222,000. Net fair market value means gross
assets less liabilities. For purposes of this representation, the net
fair market value of Ketchum's assets includes approximately
$56,500,000 of net assets less approximately $5,278,000 to pay amounts
owed to former shareholders under their shareholder agreements for a
final net fair market value of approximately $51,222,000 immediately
prior to the transaction. In the transaction, $6,900,000 of Omnicom
stock will be placed in escrow. In the event that none of the Omnicom
stock placed in escrow is ultimately distributed to Ketchum
shareholders, then the net fair market value of Ketchum's assets would
be approximately $44,322,000.
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 8
2. The total of amounts paid by Ketchum to dissenters, amounts used by
Ketchum to pay its reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends and payments to
former shareholders under their shareholder agreements) made by
Ketchum immediately preceding the transaction which are part of the
transaction will not exceed $4,432,200 of Ketchum's assets immediately
before the transaction.
3. Following the Merger, the Company will hold at least 90% of the fair
market value of OmniSub's net assets and at least 70% of the fair
market value of OmniSub's gross assets held immediately prior to the
Merger. For purposes of this representation, amounts used by OmniSub
to pay reorganization expenses, and all redemptions and distributions
(except for regular, normal dividends) made by OmniSub will be
included as assets of OmniSub immediately prior to the Merger.
c. In the transaction, shares of Ketchum Stock representing control of
Ketchum, as defined in Section 368(c), will be exchanged solely for
Omnicom Voting Common Stock. For this purpose "control" means stock
possessing at least 80% of the combined voting power of all voting stock
and at least 80% of the total number of shares of each other class of
stock.
d. Following the transaction, Ketchum will continue its historic businesses
or use a significant portion of its historic business assets in its
business.
e. On the date of the transaction, the fair market value of the assets of
Ketchum will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
f. Ketchum, OmniSub and Omnicom are not investment companies within the
meaning of Section 368(a)(2)(F)(iii) and (iv). The term investment company
in this context means a corporation 50 percent or more of the value of
whose total assets are stock and securities and 80 percent or more of the
value of whose total assets are assets held for investment. In making the
50-percent and 80-percent determinations under the preceding sentence,
stock and securities in any subsidiary corporation shall be disregarded
and the parent corporation shall be deemed to own its ratable share of the
subsidiary's assets.
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 9
g. Ketchum, OmniSub, Omnicom and Ketchum's shareholders will each pay their
own expenses, if any, which are incurred in connection with the proposed
transaction.
h. Ketchum is not under the jurisdiction of a court in a Title 11, or similar
case within the meaning of Section 368(a)(3)(A) .
i. Ketchum has no plan or intention to issue additional shares of its stock
that would result in Omnicom's losing control of Ketchum within the
meaning of Section 368(c) .
j. At the time of the transaction, Ketchum will not have outstanding any
warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire stock in Ketchum that, if
exercised or converted, would affect Omnicom's acquisition of Ketchum's
stock and the retention of control of Ketchum by Omnicom, as defined in
Section 368(c) .
k. Omnicom has no plan or intention to liquidate Ketchum; to merge Ketchum
with or into another corporation; to sell or otherwise dispose of the
stock of Ketchum except for transfers of stock to corporations controlled
by Omnicom; or to cause Ketchum to sell or otherwise dispose of any of its
assets or of any of the assets acquired from OmniSub, except for
dispositions made in the ordinary course of business or transfers of
assets to a corporation controlled by Ketchum.
l. Omnicom has no plan or intention to reacquire any of its stock issued in
the transaction.
m. Prior to the transaction, Omnicom will be in control of OmniSub within the
meaning of Section 368(c) .
n. Omnicom does not own, nor has it owned during the past five years, any
shares of the stock of Ketchum.
o. None of the compensation received by any shareholder-employees of Ketchum
will be separate consideration for, or allocable to, any of their shares
of Ketchum Stock; none of the shares of Omnicom Common Stock received by
any shareholder-employees of Ketchum will be separate consideration for,
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 10
or allocable to, any employment agreement; and the compensation paid to
any shareholder-employees will be for services actually rendered and will
be commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
p. The 5% shareholders of Ketchum and, to the best of the knowledge of
Ketchum's management, the remaining shareholders of Ketchum, have no plan
or intention to sell or otherwise dispose of the Common Stock of Omnicom
to be received in the transaction that would reduce the Ketchum
shareholders' ownership of Omnicom Voting Common Stock to a number of
shares having a value, as of the date of the transaction, of less than 50%
of the value of the formerly outstanding stock of Ketchum as of the same
date. For purposes of this representation, shares of Ketchum Stock
exchanged for cash in lieu of fractional shares of Omnicom will be treated
as outstanding Ketchum Stock on the date of the transaction. Moreover,
shares of Ketchum Stock and shares of Omnicom Common Stock held by Ketchum
shareholders and otherwise sold, redeemed or disposed of prior or
subsequent to the transaction will be considered in making this
representation.
q. The payment of cash in lieu of fractional shares of Omnicom Common Stock
is solely for the purpose of avoiding the expense and inconvenience to
Omnicom of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be
paid in the transaction to the Ketchum shareholders instead of issuing
fractional shares of Omnicom Common Stock will not exceed one percent of
the total consideration that will be issued in the transaction to the
Ketchum shareholders in exchange for their shares of Ketchum stock. The
fractional share interests of each Ketchum shareholder will be aggregated,
and no Ketchum shareholder will receive cash in an amount equal to or
greater than the value of one full share of Omnicom Common Stock.
r. The merger of OmniSub with and into Ketchum will qualify as a statutory
merger under the laws of the Commonwealth of Pennsylvania.
s. The following representations pertain to the terms and conditions
associated with the Escrow Agreement:
1. There is a valid business reason for establishing the escrow.
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 11
2. The stock subject to the Escrow Agreement will appear as issued and
outstanding on the balance sheet of Omnicom and such stock is legally
outstanding under applicable state law.
3. All dividends paid on such stock will be distributed currently to the
Ketchum shareholders.
4. All voting rights of such stock are exercisable by or on behalf of the
Ketchum shareholders or their authorized agent.
5. No shares of such stock are subject to restrictions requiring their
return to Omnicom because of death, failure to continue employment, or
similar restrictions.
6. All such stock will be released from the arrangement within 5 years
from the date of consummation of the transaction (except where there
is a bona fide dispute as to whom the stock should be released).
7. At least 50 percent of the number of shares of the Omnicom Common
Stock issued initially to the Ketchum shareholders in the transaction
is not subject to the Escrow Agreement.
8. The return of Omnicom Common Stock will not be triggered by an event
the occurrence or nonoccurrence of which is within the control of the
Ketchum shareholders.
9. The return of stock will not be triggered by the payment of additional
tax or reduction in tax paid as a result of a Internal Revenue Service
audit of the Ketchum shareholders or Ketchum either (a) with respect
to the reorganization transaction in which the escrowed stock will be
issued, or (b) when the reorganization transaction in which the
escrowed stock will be issued involves persons related within the
meaning of section 267(c)(4).
10. The mechanism for the calculation of the number of shares of stock to
be returned is objective and readily ascertainable.
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 12
t. The prior redemptions of Ketchum stock over the past five years were done
pursuant to the terms of the shareholder agreements which require the
return of Ketchum stock for redemption in the year in which the
shareholders terminate their employment, and include a provision allowing
the redeemed shareholder to receive additional amounts if Ketchum has a
change in ownership within five years of the redemption date.
LAW AND ANALYSIS
Section 368(a)(1)(A) provides that the term "reorganization" means a statutory
merger or consolidation. Section 368(a)(2)(E) provides that a transaction
otherwise qualifying under section 368(a)(1)(A) shall not be disqualified by
reason of the fact that stock of a corporation (the "controlling corporation"),
which before the merger was in control (as defined in section 368(c)) of the
merged corporation, is used in the transaction if (i) after the transaction, the
corporation surviving the merger holds substantially all of its properties and
of the properties of the merged corporation (other than stock of the controlling
corporation distributed in the transaction); and (ii) in the transaction, former
shareholders of the surviving corporation exchanged, for an amount of voting
stock of the controlling corporation, an amount of stock in the surviving
corporation which constitutes control of such corporation.
Regulation ss. 1.368-2(b)(1) provides that, in order to qualify as a
reorganization under section 368(a)(1)(A), the transaction must be a merger or
consolidation effected pursuant to the corporation laws of the United States or
a State or Territory or the District of Columbia.
It has been represented that the merger of OmniSub with and into Ketchum will
qualify as a merger under the laws of the Commonwealth of Pennsylvania. At the
time of this transaction, Omnicom will own 100% of the issued and outstanding
stock of OmniSub and, thus, will be in control of OmniSub within the meaning of
section 368(c).
Revenue Ruling 57-518, 1957-2 C.B. 253, provides that the test for substantially
all "will depend upon the facts and circumstances in each case rather than upon
any particular percentage. Among the elements of importance that are to be
considered in arriving at the conclusion are the nature of the properties
retained by the transferor, the purpose of the retention, and the amount
thereof." For ruling purposes the Internal Revenue Service ("IRS") has indicated
that the "substantially all" requirement of section 368(a)(2)(E)(i) of the Code
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 13
is satisfied if there is a transfer (and in the case of a surviving corporation
under section 368(a)(2)(E)(i), the retention) of assets representing at least 90
percent of the fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets held by the corporation immediately
prior to the transfer. For purposes of satisfying the advancing ruling
requirement of the IRS the amounts paid by Ketchum to dissenters, amounts used
by Ketchum to pay its reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by Ketchum immediately
preceding the transaction which are part of the transaction will be considered
as assets held by Ketchum immediately prior to the transaction. Additionally,
Reg. Section 1.368-2(j)(3)(iii) provides that "[i]n applying the `substantially
all' test to the merged corporation, assets transferred from the controlling
corporation to the merged corporation in pursuance of the plan of reorganization
are not taken into account." Therefore, any amounts transferred from Omnicom to
OmniSub are not taken into account for purposes of the substantially all test.
Ketchum has represented the following:
1. The net fair market value of Ketchum's assets, as evidenced by the
fair market value of Omnicom stock to be issued in the transaction,
will be approximately $51,222,000. Net fair market value means gross
assets less liabilities. For purposes of this representation, the net
fair market value of Ketchum's assets includes approximately
$56,500,000 of net assets less approximately $5,278,000 to pay amounts
owed to former shareholders under their shareholder agreements for a
final net fair market value of approximately $51,222,000 immediately
prior to the transaction. In the transaction, $6,900,000 of Omnicom
stock will be placed in escrow. In the event that none of the Omnicom
stock placed in escrow is ultimately distributed to Ketchum
shareholders, then the net fair market value of Ketchum's assets would
be approximately $44,322,000.
2. The total of amounts paid by Ketchum to dissenters, amounts used by
Ketchum to pay its reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends and payments to
former shareholders under their shareholder agreements) made by
Ketchum immediately preceding the transaction which are part of the
transaction will not exceed $4,432,200 of Ketchum's assets immediately
before the transaction.
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 14
Accordingly, under the representations given by Ketchum, at least 90 percent of
the fair market value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Ketchum immediately prior to the
transaction will be retained in the Merger. Omnicom has represented that
"[f]ollowing the Merger, Ketchum will hold at least 90% of the fair market value
of OmniSub's net assets and at least 70 percent of the fair market value of
OmniSub's gross assets held immediately prior to the Merger. For purposes of
this representation, amounts used by OmniSub to pay reorganization expenses, and
all redemptions and distributions (except for regular, normal dividends) made by
OmniSub will be included as assets of OmniSub immediately prior to the Merger."
Thus, the "substantially all" requirement of section 368(a)(2)(E)(i) will be
met.
Additionally, Omnicom will not own any Ketchum Stock prior to this transaction.
Thus, in the reverse triangular merger, Omnicom will acquire 100% of the stock
of Ketchum solely for voting stock of Omnicom. Accordingly, the requirement in
section 368(a)(2)(E)(ii) will be met.
In addition to the requirements set forth in the statute certain requirements
set forth in the regulations under section 368 must also be met in order for a
transaction to be a tax-free reorganization. Regulation ss. 1.368-1(b) excepts
from the general rule of taxability certain specifically described exchanges
incident to such readjustments of corporate structures made in one of the
particular ways specified in the Code as are required by business exigencies and
which affect only a readjustment of a continuing interest in property under
modified corporate form. Requisite to a reorganization are a continuity of
business enterprise and a continuity of interest therein on the part of those
persons who, directly or indirectly, were the owners of the enterprise prior to
the reorganization.
Under Reg. ss. 1.368-1(b), the continuity of interest doctrine requires that in
a reorganization there must be a continuity of interest therein on the part of
those persons who, directly or indirectly, were the owners of the enterprise
prior to the reorganization. Rev. Proc. 77-37, 1977-2 C.B. 568, provides that
the "continuity of interest" requirement of Reg. ss. 1.368-1(b) is satisfied if
there is continuing interest through stock ownership in the acquiring or
transferee corporation (or a corporation in "control" thereof within the meaning
of section 368(c) ) on the part of the former shareholders of the acquired or
transferor corporation which is equal in value, as of the effective date of the
reorganization, to at least 50% of the value of all of the formerly outstanding
stock of the acquired or transferor corporation as of the same date. Sales,
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 15
redemptions, and other dispositions which are part of the plan of reorganization
will be considered in determining whether there is a 50% continuing interest
through stock ownership as of the effective date of the reorganization.
Ketchum's shareholders will receive Common Stock in Omnicom, the corporation in
control of the acquiring or transferee corporation, which is equal in value to
approximately 100% of all the formerly outstanding Ketchum Stock. Ketchum has
represented the following:
The 5% shareholders of Ketchum and, to the best of the knowledge of
Ketchum's management, the remaining shareholders of Ketchum, have no plan
or intention to sell or otherwise dispose of the Common Stock of Omnicom to
be received in the transaction that would reduce the Ketchum shareholders'
ownership of Omnicom Voting Common Stock to a number of shares having a
value, as of the date of the transaction, of less than 50% of the value of
the formerly outstanding stock of Ketchum as of the same date. For purposes
of this representation, shares of Ketchum Stock exchanged for cash in lieu
of fractional shares of Omnicom will be treated as outstanding Ketchum
Stock on the date of the transaction. Moreover, shares of Ketchum Stock and
shares of Omnicom Stock held by Ketchum shareholders and otherwise sold,
redeemed or disposed of prior or subsequent to the transaction will be
considered in making this representation.
Accordingly, the continuity of interest requirement will be met.
Regulation ss. 1.368-1(d) provides that continuity of business enterprise
requires that the acquiring corporation either (i) continue the acquired
corporation's historic business or (ii) use a significant portion of the
acquired corporation's historic assets in a business. It has been represented
that, following the transaction, Ketchum will continue its historic businesses
or use of a significant portion of its historic business assets in its
businesses; thus, the continuity of business enterprise requirement will be met.
In order to qualify as a reorganization described in section 368, there must be
a genuine business purpose for this transaction. The Boards of Directors of
Omnicom and Ketchum have determined that it is in the best interests of the
corporations and their respective stockholders that the Merger take place.
Specifically, the Boards believe that the Merger will result in business
synergies which are necessary in order to remain competitive in the media
industry. Furthermore, the Merger will enable both parties to offer their
specific services to a broader base of contacts. Therefore, this requirement
will be met.
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 16
In Rev. Proc. 84-42, the Internal Revenue Service provides guidelines with
respect to escrow arrangements in the context of certain reorganization
transactions, including 368(a)(1)(A). The Revenue Procedure provides that a
portion of the stock issued in the reorganization may be placed in escrow by the
exchanging shareholders for possible return to the issuing corporation under
specified conditions, provided that the terms of the escrow are consistent with
certain requirements. These requirements are as follows:
1. There must be a valid business reason for establishing the
arrangement.
2. The stock subject to such arrangement must appear as issued and
outstanding on the balance sheet of the issuing corporation and such
stock must be legally outstanding under applicable state law.
3. All dividends paid on such stock must be distributed currently to the
exchanging shareholders.
4. All voting rights of such stock (if any) must be exercisable by, or on
behalf of, the shareholders or their authorized agent.
5. No shares of such stock may be subject to restrictions requiring their
return to the issuing corporation because of death, failure to
continue employment, or similar restrictions.
6. All such stock must be released from the arrangement within five years
from the date of consummation of the transaction (except where there
is a bona fide dispute as to whom the stock should be released).
7. At least 50 percent of the number of shares of each class of stock
issued initially to the shareholders cannot be subject to the
arrangement.
8. The return of stock cannot be triggered by an event, the occurrence or
nonoccurrence of which is within the control of shareholders.
9. The return of stock cannot be triggered by the payment of additional
tax or reduction in tax paid as a result of an Internal Revenue
Service audit of the shareholders or the corporation either (a) with
respect to the reorganization transaction in which the escrowed stock
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 17
will be issued, or (b) when the reorganization transaction in which
the escrowed stock will be issued involves persons related within the
meaning of section 267(c)(4).
10. The mechanism for the calculation of the number of shares of stock to
be returned must be objective and readily ascertainable.
Based on the factual information provided in the Plan, the Escrow Agreement and
the representations above, the requirements of Revenue Procedure 84-42 will be
satisfied.
Based on the above law and analysis, the merger of OmniSub with and into Ketchum
and the exchange of Ketchum Stock by the Ketchum Shareholders for Omnicom Common
Stock will qualify as a reorganization described in sections 368(a)(1)(A) and
368(a)(2)(E).
Section 1032(a) provides that no gain or loss shall be recognized to a
corporation on the receipt of money or other property in exchange for stock of
such corporation. OmniSub will merge with and into Ketchum in exchange for
Ketchum Stock. Accordingly, Ketchum will not recognize any gain or loss on the
exchange of its Common Stock for the property of OmniSub.
Section 361(a) provides that no gain or loss shall be recognized to a
corporation if such corporation is a party to a reorganization and exchanges
property in pursuance of the plan of reorganization, solely for stock or
securities in another corporation that is a party to the reorganization.
Section 368(b)(2) provides that the term "a party to a reorganization" includes
both corporations in the case of a reorganization resulting from the acquisition
by one corporation of stock or properties of another. In the case of a
reorganization qualifying under section 368(a)(1)(A) by reason of section
368(a)(2)(E), the term "a party to a reorganization" also includes the
controlling corporation referred to in section 368(a)(2)(E). Accordingly,
Ketchum, OmniSub, and Omnicom will each be a party to a reorganization.
Section 354(a)(1) provides that no gain or loss shall be recognized to a
shareholder if stock or securities in a corporation a party to a reorganization
are, in pursuance of the plan of reorganization, exchanged solely for stock or
securities in such corporation or in another corporation a party to the
reorganization. Because Ketchum and Omnicom will each be parties to a
reorganization, no gain or loss will be recognized by the Ketchum shareholders
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 18
upon the exchange of their Ketchum Stock solely for Omnicom Common Stock
(including fractional share interests they might otherwise be entitled to
receive).
Section 358(a)(1) provides that, in the case of an exchange to which section 354
applies, the basis of the property to be received without the recognition of
gain or loss shall be the same as that of the property exchanged, decreased by
(i) the fair market value of any other property (except money) received by the
taxpayer, (ii) the amount of money received by the taxpayer, and (iii) the
amount of loss to the taxpayer which was recognized on such exchange, and
increased by (i) the amount which was treated as a dividend, and (ii) the amount
of gain to the taxpayer which was recognized in such exchange (not including any
portion of such gain which was treated as a dividend). In the reorganization,
Ketchum's shareholders will receive only Omnicom Common Stock. Accordingly, the
basis of the Omnicom Common Stock (including fractional share interests that
they might otherwise be entitled to receive) in the hands of the Ketchum
shareholders will be the same, in each instance, as the basis of the Ketchum
Stock surrendered in exchange therefor.
Revenue Ruling 66-365, 1966-1 C.B. 116, provides that cash received by a
shareholder as part of a plan of reorganization under section 368(a)(1)(A),
which is attributable to fractional shares of stock of the acquiring
corporation, will be treated as if the fractional shares were distributed as
part of the exchange and then were redeemed by the acquirer. Under section
302(a), such cash payments will be treated as having been received as
distributions in full payment in exchange for the stock redeemed provided the
redemption is not essentially equivalent to a dividend.
Revenue Procedure 77-41, 1977-2 C.B. 574, provides that the IRS will issue an
advance ruling under section 302(a) that cash to be distributed to shareholders
in lieu of fractional share interest arising in corporate reorganizations will
be treated as having been received in part or in full payment in exchange for
the stock redeemed if the cash distribution is undertaken solely for the purpose
of saving the corporation the expense and inconvenience of issuing and
transferring fractional shares, and is not separately bargained-for
consideration. The purpose of the transaction giving rise to the fractional
share interest, the maximum amount of cash that may be received by any one
shareholder, and the percentage of the total consideration that will be cash are
among the factors that will be considered in determining whether a ruling is to
be issued.
It has been represented that the payment of cash in lieu of fractional shares of
Omnicom Common Stock is solely for the purpose of avoiding the expense and
inconvenience to Omnicom of issuing fractional shares and does not represent
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 19
separately bargained-for consideration. The total cash consideration that will
be paid in the transaction to the Ketchum shareholders instead of issuing
fractional shares of Omnicom Common Stock will not exceed one percent of the
total consideration that will be issued in the transaction to the Ketchum
shareholders in exchange for their shares of Ketchum Stock. The fractional share
interest of each Ketchum shareholder will be aggregated, and no Ketchum
shareholder will receive cash in an amount equal to or greater than the value of
one full share of Omnicom Common Stock.
Accordingly, cash received by a shareholder of Ketchum otherwise entitled to
receive a fractional share of Omnicom Common Stock in the exchange for Ketchum
Stock will be treated as if the fractional shares were distributed as part of
the exchange and then were redeemed by Omnicom. These cash payments will be
treated as having been received as distributions in full payment in exchange for
the stock redeemed as provided in section 302(a). The receipt of cash will
result in gain or loss measured by the difference between the shareholder's
basis of such fractional share interest exchanged and the cash received. Such
gain or loss will be capital gain or loss to a Ketchum shareholder, provided the
Ketchum shareholder's stock was a capital asset in the shareholder's hands and,
as such, would be subject to the provisions and limitations of Subchapter P of
Chapter 1 of the Code.
Section 1223(1) provides that, in determining the period for which the taxpayer
has held property received in an exchange, there shall be included the period
for which the taxpayer held the property exchanged if the property has, for the
purpose of determining gain or loss from a sale or exchange, the same basis (in
whole or in part) in its hands as the property exchanged. In the case of such
exchanges after March 1, 1954, the property exchanged at the time of such
exchange must be a capital asset as defined in section 1221 or property
described in section 1231. Because the basis of the Omnicom Common Stock
(including fractional share interests that they might otherwise be entitled to
receive) held by Ketchum's shareholders will have the same basis as the Ketchum
Stock exchanged, the holding period of the Omnicom Common Stock will include the
period for which the Ketchum Stock was held, provided that such stock was a
capital asset on the date of the exchange.
Section 302(b)(3) provides that if a redemption is in complete redemption of all
of the stock of a corporation owned by a shareholder, such redemption shall be
treated as a distribution in part or in full payment in exchange for such stock.
In the proposed transaction, former shareholders of Ketchum who dissent to the
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 20
Merger will receive only that which is provided under PBCL. Accordingly, to the
extent cash is received by a dissenting Ketchum shareholder, such cash will be
treated as received by the Ketchum shareholder as a distribution in redemption
of the shareholder's stock subject to the provisions and limitations of Section
302.
GENERAL
Our opinion is based upon our assumption (without independent investigation or
review) that all of the representations and all of the original, copies, and
signatures of documents are accurate, true and authentic and our assumption that
there will be timely execution and delivery of, and performance as required by
the representations and documents.
Our opinion is based the upon the law, regulations, cases, rulings and other tax
authorities in effect as of the date of this letter. If there are any
significant changes of the foregoing tax authorities (for which we shall have no
responsibility to advise you), it may result in our opinion being rendered
invalid or necessitate, upon your request, a reconsideration of the opinion.
Our opinion is limited to the specific federal income tax consequences of the
Merger as opined in paragraphs 1 through 7 above. We have not considered the
consequences to the parties involved of any tax besides the federal income tax.
We note that the federal income tax consequences to the parties involved
relating to the transactions described herein are complex and subject to varying
interpretations. While this opinion letter represents our considered judgment as
to the proper tax treatment to the parties concerned, it is not binding on the
IRS or the courts and should not be considered a guarantee that the IRS or the
courts will concur with our opinion.
This opinion letter is solely for the benefit of Ketchum and its shareholders
and inclusion in the Form S-4 Registration Statement relating to the transaction
described herein to be filed with the Securities and Exchange Commission. Other
than the uses indicated in the preceding sentence, this opinion may not be
relied upon, distributed, or disclosed by anyone without the prior written
consent of Deloitte & Touche LLP.
<PAGE>
Board of Directors
Ketchum Communications Holdings, Inc.
March 7, 1996
Page 21
Deloitte & Touche LLP
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,
1995 included in the Omnicom Group Inc. Form 10-K for the year ended December
31, 1994 and to all references to our Firm included in this Registration
Statement.
/s/ ARTHUR ANDERSEN LLP
New York, New York
March 8, 1996
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement 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 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
Deloitte & Touche LLP.
Pittsburgh, Pennsylvania
March 6, 1996
EXHIBIT 23.4
March 7, 1996
We hereby consent to the incorporation by reference in this Registration
Statement of Omnicom Group Inc. of our tax opinion to the Board of Ketchum
Communications Holdings, Inc. dated March 7, 1996, to the filing of our opinion
as an exhibit to the Registration Statement, to the summarization of this
opinion in the "Federal Income Tax Consequences" section of the Registration
Statement and to all references to our Firm included in this Registration
Statement.
Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
