-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IgT7m8u+KXqNHY2C5HGz6O+wQ4VYuxb2/kBVYnejQi6ChyXe/Zw4AI/28DlMgOar E26w13Ubl+JZVDoteJ6smA== 0000891092-96-000030.txt : 19960312 0000891092-96-000030.hdr.sgml : 19960312 ACCESSION NUMBER: 0000891092-96-000030 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19960311 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMNICOM GROUP INC CENTRAL INDEX KEY: 0000029989 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [7311] IRS NUMBER: 131514814 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-01619 FILM NUMBER: 96533281 BUSINESS ADDRESS: STREET 1: 437 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124153600 MAIL ADDRESS: STREET 1: 437 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: DOYLE DANE BERNBACH GROUP INC DATE OF NAME CHANGE: 19861117 FORMER COMPANY: FORMER CONFORMED NAME: DOYLE DANE BERNBACH INTERNATIONAL INC DATE OF NAME CHANGE: 19850604 FORMER COMPANY: FORMER CONFORMED NAME: DOYLE DANE BERNBACH INC DATE OF NAME CHANGE: 19781226 S-4 1 FORM S-4 REGISTRATION As filed with the Securities and Exchange Commission on March 11, 1996 Registration Statement No. 33- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM S-4 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ---------- OMNICOM GROUP INC. (Exact name of Registrant as specified in its charter) New York 7311 13-1514814 (State of Incorporation) (Primary Standard Industrial (I.R.S. Employer Classification Code Number) Identification No.) ---------- 437 Madison Avenue New York, New York 10022 (212) 415-3600 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) BARRY J. WAGNER, ESQ. Omnicom Group Inc. 437 Madison Avenue New York, New York 10022 Telephone: (212) 415-3600 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: MICHAEL D. DITZIAN, ESQ. RONALD W. FRANK, ESQ. Davis & Gilbert Babst Calland Clements and Zomnir, P.C. 1740 Broadway Two Gateway Center New York, New York 10019 Pittsburgh, Pennsylvania 15222 (212) 468-4800 (412) 394-5400 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and all other conditions to the Merger pursuant to the Agreement and Plan of Merger described in the enclosed Prospectus/Information Statement have been satisfied or waived. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reimbursement plans, please check the following box: CALCULATION OF REGISTRATION FEE
================================================================================================================ 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) - ---------------------------------------------------------------------------------------------------------------- Common Stock, $.50 par value............ 1,500,000 shares $41 $61,500,000 $21,207 ================================================================================================================
(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. ---------- 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. ================================================================================ 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.
Location or Heading in S-4 Item Number and Caption Prospectus/Information Statement - --------------------------- -------------------------------- 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........... *
Location or Heading in S-4 Item Number and Caption Prospectus/Information Statement - --------------------------- -------------------------------- 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" - ------------------- * Not Applicable
[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 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 ------------- OMNICOM GROUP INC. PROSPECTUS ------------- This Prospectus/Information Statement is being furnished to holders of common stock, stated value $0.005 per share, of Ketchum Communications Holdings, Inc., a Pennsylvania corporation ("Ketchum"), in connection with the special meeting of shareholders of Ketchum to be held at Six PPG Place, Pittsburgh, Pennsylvania 15222, on __________, 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. ------------- The Date of this Prospectus/Information Statement is __________, 1996 ------------- 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. ------------- 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 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 TABLE OF CONTENTS
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
4 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 7 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 8 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 9 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 10 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 11 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 12 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 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 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 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 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 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 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. 19 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 20 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 21 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. 22 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. 23 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 24 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, 25 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. 26 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 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 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 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 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.
(Dollars in Thousands Except Per Share Amounts) ----------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- 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
31 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 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.]
Shares of Ketchum Common Stock Percent of Name and Address Position with Ketchum Owned Class - ---------------- --------------------- ------------ -------- 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
33
Shares of Ketchum Common Stock Percent of Name and Address Position with Ketchum Owned Class - ---------------- --------------------- ------------ -------- 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%
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 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".
1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- (Dollars in Thousands Except Per Share Amounts) 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 -- --
- ------------ (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 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 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. 37 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. 38 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. 39 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. 40 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 41 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 42 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 43 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. 44 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 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 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 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 KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994
1995 1994 ------------ ------------ 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 ============ ============
The accompanying notes to financial statements are an integral part of these statements F-3 KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ----------- ----------- ----------- 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 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements F-4 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
Redeemable Preferred Stock ---------------------------- Shares Outstanding Amount ----------- ---------- 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 ========= =========== 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 ------------ ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============ ============ Accumulated Deficit -------------------------------------------------------------------------------------------- Retained Deficit --------------------------------------------- Increase in Cumulative Unrealized Retained Repurchase Retained Translation Loss on Earnings Obligations Deficit Adjustment Investments Total ------------ ------------ ------------ ------------ ------------ ------------ 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) ============ ============ ============ ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements F-5 KETCHUM COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 -------------- -------------- -------------- 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 =========== =========== ===========
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 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 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 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
Long-term debt consists of the following: December 31, ------------------------------ 1995 1994 ------------ ------------- 9% unsecured senior notes due August 1, 2004, principal payable in equal annual installments of $1,653,061 beginning August 1, 1998 through August 1, 2004, interest payable semi-annually (see below) ..................................... $11,571,429 $11,571,429 Unsecured promissory notes, with interest rates ranging from approximately 7% to 10%, issued under the Company's common stock repurchase agreement, due through January 1, 2000 (see Note 8) .......................................... 5,749,433 5,660,682 Capital lease obligations, with interest rates ranging from 6% to 15%, net of imputed interest .......................................... 610,488 1,034,458 Other .................................................................... 199,439 327,771 ----------- ----------- 18,130,789 18,594,340 Less: Debt classified as current, due to covenant violations ................. 11,571,429 -- Currently scheduled maturities ......................................... 2,755,304 2,954,418 ----------- ----------- $ 3,804,056 $15,639,922 =========== ===========
Foreign subsidiaries have outstanding short-term notes payable of $1,769,582 and $1,816,117 with a weighted average interest rate of 9.4% and 9.9% at December 31, 1995 and 1994, respectively. F-9 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 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 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 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 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:
Year Ended December 31, ---------------------------------------- 1995 1994 1993 ------------ -------- ----------- 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 =========== ========= ===========
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 ANNEX I PENNSYLVANIA BUSINESS CORPORATION LAW Subchapter D. Dissenters Rights 1571 APPLICATION AND EFFECT OF SUBCHAPTER.--(a) General rule.-- Except as otherwise provided in subsection (b), any shareholder of a business corporation shall have the right to dissent from, and to obtain payment of the fair value of his shares in the event of, any corporate action, or to otherwise obtain fair value for his shares, where this part expressly provides that a shareholder shall have the rights and remedies provided in this subchapter. See: Section 1906(c) (relating to dissenters rights upon special treatment). Section 1930 (relating to dissenters rights). Section 1931(d) (relating to dissenters rights in share exchanges). Section 1932(c) (relating to dissenters rights in asset transfers). Section 1952(d) (relating to dissenters rights in division). Section 1962(c) (relating to dissenters rights in conversion). Section 2104(b) (relating to procedure). Section 2324 (relating to corporation option where a restriction on transfer of a security is held invalid). Section 2325(b) (relating to minimum vote requirement). Section 2704(c) (relating to dissenters rights upon election). Section 2705(d) (relating to dissenters rights upon renewal of election). Section 2907(a) (relating to proceedings to terminate breach of qualifying conditions). Section 7104(b)(3) (relating to procedure). (b) Exceptions.--(1) Except as otherwise provided in paragraph (2), the holders of the shares of any class or series of shares that, at the record date fixed to determine the shareholders entitled to notice of and to vote at the meeting at which a plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to be voted on, are either: (i) listed on a national securities exchange; or (ii) held of record by more than 2,000 shareholders; shall not have the right to obtain payment of the fair value of any such shares under this subchapter. (2) Paragraph (1) shall not apply to and dissenters rights shall be available without regard to the exception provided in that paragraph in the case of: (i) Shares converted by a plan if the shares are not converted solely into shares of the acquiring, surviving, new or other corporation or solely into such shares and money in lieu of fractional shares. (ii) Shares of any preferred or special class unless the articles, the plan or the terms of the transaction entitle all shareholders of the class to vote thereon and require for the adoption of the plan or the effectuation of the transaction the affirmative vote of a majority of the votes cast by all shareholders of the class. (iii) Shares entitled to dissenters rights under section 1906(c) (relating to dissenters rights upon special treatment). (3) The shareholders of a corporation that acquires by purchase, lease, exchange or other disposition all or substantially all of the shares, property or assets of another corporation by the issuance of shares obligations or otherwise, with or without assuming the liabilities of the other corporation and A-1 with or without the intervention of another corporation or other person, shall not be entitled to the rights and remedies of dissenting shareholders provided in this subchapter regardless of the fact, if it be the case, that the acquisition was accomplished by the issuance of voting shares of the corporation to be outstanding immediately after the acquisition sufficient to elect a majority or more of the directors of the corporation. (c) Grant of optional dissenters rights.--The bylaws or a resolution of the board of directors may direct that all or a part of the shareholders shall have dissenters rights in connection with any corporate action or other transaction that would otherwise not entitle such shareholder to dissenters rights. (d) Notice of dissenters rights.--Unless otherwise provided by statute, if a proposed corporate action that would give rise to dissenters rights under this subpart is submitted to a vote at a meeting of shareholders, there shall be included in or enclosed with the notice of meeting: (1) A statement of the proposed action and a statement that the shareholders have a right to dissent and obtain payment of the fair value of their shares by complying with the terms of this subchapter; and (2) A copy of this subchapter. (e) Other statutes.--The procedures of this subchapter shall also be applicable to any transaction described in any statute other than this part that makes reference to this subchapter for the purpose of granting dissenters rights. (f) Certain provisions of articles ineffective.--This subchapter may not be relaxed by any provision of the articles. (g) Cross references.--See sections 1105 (relating to restriction on equitable relief), 1904 (relating to de facto transaction doctrine abolished) and 2512 (relating to dissenters rights procedure). (Last amended by Act 198, L. '90, eff. 12-19-90.) 1572 DEFINITIONS. The following words and phrases when used in this subchapter shall have the meanings given to them in this section unless the context clearly indicates otherwise: "Corporation." The issuer of the shares held or owned by the dissenter before the corporate action or the successor by merger, consolidation, division conversion or otherwise of that issuer. A plan of division may designate which of the resulting corporations is the successor corporation for the purposes of this subchapter. The successor corporation in a division shall have sole responsibility for payments to dissenters and other liabilities under this subchapter except as otherwise provided in the plan of division. "Dissenter." A shareholder or beneficial owner who is entitled to and does assert dissenters rights under this subchapter and who has performed every act required up to the time involved for the assertion of those rights. "Fair value." The fair value of shares immediately before the effectuation of the corporate action to which the dissenter objects taking into account all relevant factors, but excluding any appreciation or depreciation in anticipation of the corporate action. "Interest." Interest from the effective date of the corporate action until the date of payment at such rate as is fair and equitable under all the circumstances, taking into account all relevant factors including the average rate currently paid by the corporation on its principal bank loans. (Last amended by Act 198, L. '90, eff. 12-19-90.) 1573 RECORD AND BENEFICIAL HOLDERS AND OWNERS.--(a) Record holders of shares.--A record holder of shares of a business corporation may assert dissenters rights as to fewer than all of the shares registered in his name only if he dissents with respect to all the shares of the same class or series beneficially owned by any one person and discloses the name and address of the person or persons on whose behalf he dissents. In that event, his rights shall be determined as if the shares as to which he has dissented and his other shares were registered in the names of different shareholders. (b) Beneficial owners of shares.--A beneficial owner of shares of a business corporation who is not the record holder may assert dissenters rights with respect to shares held on his behalf and shall be treated as a dissenting shareholder under the terms of this subchapter if he submits to the corporation not later than the time of the assertion of dissenters rights a written consent A-2 of the record holder. A beneficial owner may not dissent with respect to some but less than all shares of the same class or series owned by the owner, whether or not the shares so owned by him are registered in his name. (Last amended by Act 169, L. '92, eff. 2-16-93.) 1574 NOTICE OF INTENTION TO DISSENT.--If the proposed corporate action is submitted to a vote at a meeting of shareholders of a business corporation, any person who wishes to dissent and obtain payment of the fair value of his shares must file with the corporation, prior to the vote, a written notice of intention to demand that he be paid the fair value for his shares if the proposed action is effectuated, must effect no change in the beneficial ownership of his shares from the date of such filing continuously through the effective date of the proposed action and must refrain from voting his shares in approval of such action. A dissenter who fails in any respect shall not acquire any right to payment of the fair value of his shares under this subchapter. Neither a proxy nor a vote against the proposed corporate action shall constitute the written notice required by this section. 1575 NOTICE TO DEMAND PAYMENT. --(a) General rule.--If the proposed corporate action is approved by the required vote at a meeting of shareholders of a business corporation, the corporation shall mail a further notice to all dissenters who gave due notice of intention to demand payment of the fair value of their shares and who refrained from voting in favor of the proposed action. If the proposed corporate action is to be taken without a vote of shareholders, the corporation shall send to all shareholders who are entitled to dissent and demand payment of the fair value of their shares a notice of the adoption of the plan or other corporate action. In either case, the notice shall: (1) State where and when a demand for payment must be sent and certificates for certificated shares must be deposited in order to obtain payment. (2) Inform holders of uncertificated shares to what extent transfer of shares will be restricted from the time that demand for payment is received. (3) Supply a form for demanding payment that includes a request for certification of the date on which the shareholder, or the person on whose behalf the shareholder dissents, acquired beneficial ownership of the shares. (4) Be accompanied by a copy of this subchapter. (5) Time for receipt of demand for payment.--The time set for receipt of the demand and deposit of certificated shares shall be not less than 30 days from the mailing of the notice. 1576 FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC. --(a) Effect of failure of shareholder to act.--A shareholder who fails to timely demand payment, or fails (in the case of certificated shares) to timely deposit certificates, as required by a notice pursuant to section 1575 (relating to notice to demand payment) shall not have any right under this subchapter to receive payment of the fair value of his shares. (b) Restriction on uncertificated shares.--If the shares are not represented by certificates, the business corporation may restrict their transfer from the time of receipt of demand for payment until effectuation of the proposed corporate action or the release of restrictions under the terms of section 1577(B) (relating to failure to effectuate corporate action). (c) Rights retained by shareholder.--The dissenter shall retain all other rights of a shareholder until those rights are modified by effectuation of the proposed corporate action. (Last amended by Act 198, L. '90, eff. 12-19-90.) 1577 RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES. --(a) Failure to effectuate corporate action.--Within 60 days after the date set for demanding payment and depositing certificates, if the business corporation has not effectuated the proposed corporate action, it shall return any certificates that have been deposited and release uncertificated shares from any transfer restrictions imposed by reason of the demand for payment. A-3 (b) Renewal of notice to demand payment.--When uncertificated shares have been released from transfer restrictions and deposited certificates have been returned, the corporation may at any later time send a new notice conforming to the requirements of section 1575 (relating to notice to demand payment), with like effect. (c) Payment of fair value of shares.--Promptly after effectuation of the proposed corporate action, or upon timely receipt of demand for payment if the corporate action has already been effectuated, the corporation shall either remit to dissenters who have made demand and (if their shares are certificated) have deposited their certificates the amount that the corporation estimates to be the fair value of the shares, or give written notice that no remittance under this section will be made. The remittance or notice shall be accompanied by: (1) The closing balance sheet and statement of income of the issuer of the shares held or owned by the dissenter for a fiscal year ending not more than 16 months before the date of remittance or notice together with the latest available interim financial statements. (2) A statement of the corporation's estimate of the fair value of the shares. (3) A notice of the right of the dissenter to demand payment or supplemental payment, as the case may be, accompanied by a copy of this subchapter. (d) Failure to make payment.--If the corporation does not remit the amount of its estimate of the fair value of the shares as provided by subsection (c), it shall return any certificates that have been deposited and release uncertificated shares from any transfer restrictions imposed by reason of the demand for payment. The corporation may make a notation on any such certificate or on the records of the corporation relating to any such uncertificated shares that such demand has been made. If shares with respect to which notation has been so made shall be transferred, each new certificate issued therefor or the records relating to any transferred uncertificated shares shall bear a similar notation, together with the name of the original dissenting holder or owner of such shares. A transferee of such shares shall not acquire by such transfer any rights in the corporation other than those that the original dissenters had after making demand for payment of their fair value. (Last amended by Act 198, L. '90, eff. 12-19-90.) 1578 ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES. --(a) General rule.--If the business corporation gives notice of its estimate of the fair value of the shares, without remitting such amount, or remits payment of its estimate of the fair value of a dissenter's shares as permitted by section l577(c) (relating to payment of fair value of shares) and the dissenter believes that the amount stated or remitted is less than the fair value of his shares, he may send to the corporation his own estimate of the fair value of the shares, which shall be deemed a demand for payment of the amount or the deficiency. (b) Effect of failure to file estimate.--Where the dissenter does not file his own estimate under subsection (a) within 30 days after the mailing by the corporation of its remittance or notice, the dissenter shall be entitled to no more than the amount stated in the notice or remitted to him by the corporation. (Last amended by Act 198, L, '90, eff. 12-19-90.) 1579 VALUATION PROCEEDINGS GENERALLY.--(a) General rule.--Within 60 days after the latest of: (1) Effectuation of the proposed corporate action; (2) Timely receipt of any demands for payment under section 1575 (relating to notice to demand payment); or (3) Timely receipt of any estimates pursuant to section 1578 (relating to estimate by dissenter of fair value of shares); If any demands for payment remain unsettled, the business corporation may file in court an application for relief requesting that the fair value of the shares be determined by the court. (b) Mandatory joinder of dissenters.--All dissenters, wherever residing, whose demands have not been settled shall be made parties to the proceeding as in an action against their shares. A copy of the application shall be served on each such dissenter. If a dissenter is a nonresident, the copy may be served on him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and international procedure). A-4 (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. A-5 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. II-1 Item 22. Undertakings. (a) The undersigned Registrant hereby undertakes that, for the purpose of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) under the Securities Act, the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (c) The Registrant undertakes that every prospectus that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415 under the Securities Act, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (d) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (e) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the Prospectus/Information Statement pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such requests, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of the responding to the request. (f) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. II-2 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. II-3 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:
Signature Title Date --------- ----- ---- /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
II-4 EX-2 2 EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGER by and among OMNICOM GROUP INC., KCI ACQUISITION INC. and KETCHUM COMMUNICATIONS HOLDINGS, INC. Dated March 7, 1996 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 i 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 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 iii 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 iv 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 v 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 vi 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 vii 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 viii 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 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". 1 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. 2 (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 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 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 5 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. 6 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 7 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 8 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 9 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. 10 (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 11 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 12 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. 13 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 14 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 15 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 16 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. 17 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 18 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. 19 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; 20 (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 21 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 22 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. 23 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 24 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. 25 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 26 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; 27 (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 28 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. 29 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 30 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. 31 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 32 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 33 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 34 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 35 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 36 & 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". 37 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 38 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: 39 (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 40 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. 41 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. 42 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. 43 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. 44 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 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 EX-2 3 EXHIBIT 2.2 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 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". 2 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. 3 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 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 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 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 (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 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 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 10 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) 11 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 12 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 13 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 14 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 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 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 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 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 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 Schedule A to Escrow Agreement Shares Subject to General Escrow Fund [To be completed] Schedule B to Escrow Agreement Shares Subject to Special Escrow Fund [To be completed] -ii- Schedule C to Escrow Agreement Additional Shares to be Held Until the Publication Date [To be completed] -iii- 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- 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- 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- EX-5 4 EXHIBIT 5.1 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 EX-8 5 EXHIBIT 8.1 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. 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. 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. 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. 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: 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 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. 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. 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, 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. 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. 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 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. 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, 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. 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 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 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 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 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. Board of Directors Ketchum Communications Holdings, Inc. March 7, 1996 Page 21 Deloitte & Touche LLP EX-23 6 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Registration Statement of our report, dated February 20, 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 EX-23 7 EXHIBIT 23.2 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 EX-23 8 EXHIBIT 23.4 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 -----END PRIVACY-ENHANCED MESSAGE-----