AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 2002
REGISTRATION NO. 333-87600
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4 TO
FORM F-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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PUBLICIS GROUPE S.A.
(Exact Name of Registrant as Specified in Its Charter)
REPUBLIC OF FRANCE 7311 NOT APPLICABLE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer identification no.)
incorporation or organization) Classification Code Number)
133, AVENUE DES CHAMPS-ELYSEES
75008 PARIS, FRANCE
(33 1) 44 43 70 00
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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CT CORPORATION SYSTEM
111 EIGHTH AVENUE
NEW YORK, NEW YORK 10011
(212) 590-9100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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COPIES TO:
ELLIOTT V. STEIN, ESQ. JOY SAYOUR, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ DAVIS POLK & WARDWELL
51 WEST 52ND STREET 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10017
(212) 403-1000 (212) 450-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this registration
statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED AMOUNT TO BE REGISTERED PER SECURITY(3) PRICE(3) REGISTRATION FEE(4)
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Ordinary Shares E.40 par value(1)............ 115,200,000
Bare Legal Title (nue propriete) to Ordinary
Shares(1).................................... 7,000,000
Usufruct interests (usufruit) in Ordinary
Shares(1).................................... 7,000,000
Obligations Redeemable for Newly Issued or
Existing Shares (Obligations Remboursables en
Actions Nouvelles ou Existantes), nominal
value E549.00 each (ORAs).................... 1,600,000 Not applicable $1,306,776,000.00 $120,223.39(5)
Redeemable Notes and Warrants to Purchase
Ordinary Shares (Obligations a Bons de
Souscriptions d'Actions), nominal value
E305.00 each (OBSAs)(2)...................... 2,880,000
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(1) Represents approximately 57,600,000 ordinary shares to be issued upon
completion of the mergers, including the bare legal title (nue propriete)
and usufruct interests (usufruit) resulting from the split of approximately
7,000,000 of such shares for a two-year period, approximately 28,800,000
ordinary shares to be issued upon the redemption of ORAs and approximately
28,800,000 ordinary shares to be issued upon the exercise of warrants
associated with the OBSAs.
(2) Each OBSA consists of a redeemable note with a face amount of E305.00 and
ten detachable warrants. Each warrant represents the right to purchase one
Publicis ordinary share at a price of E30.50.
(3) Estimated solely for the purposes of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933
and calculated, in accordance with Rule 457(f)(2), on the basis of the book
value at December 31, 2001 of the Bcom3 Class A and Class B common stock.
(4) Determined in accordance with Section 6(b) of the Securities Act of 1933 at
a rate equal to $92.00 per $1,000,000 of the proposed maximum aggregate
offering price.
(5) The registration fee has previously been paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROXY
STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 14, 2002
[BCOM3 LOGO]
35 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601
August , 2002
Dear Stockholders:
Bcom3 is pleased to enclose information about a special meeting of Bcom3
stockholders, to be held at on September , 2002, at a.m., Central
Daylight Time.
At the special meeting, you will have the chance to vote on the proposed
combination of Publicis Groupe S.A. and Bcom3. The combination of Bcom3 with
Publicis will create one of the world's largest communications services groups.
The combination will be effected through two mergers. If the mergers are
completed, Bcom3's business will become wholly-owned by Publicis. For your
reference, Bcom3 has also enclosed a copy of Publicis's Annual Report on Form
20-F/A for the fiscal year 2001, which contains important information regarding
Publicis.
In the proposed mergers, shares of Bcom3 Class A and Class B common stock
will be converted into the right to receive a combination of Publicis ordinary
shares, other Publicis securities and cash. This proxy statement/prospectus
describes in detail the combination of securities and cash that each class of
stock will receive in the mergers. In the aggregate, Publicis will issue
approximately 56,250,000 ordinary shares, 1,562,500 securities redeemable for
28,125,000 newly issued or existing ordinary shares, and E857,812,500 in
principal amount of notes with detachable warrants to purchase 28,125,000
ordinary shares. Based on Publicis's and Bcom3's shares outstanding on August 9,
2002, on a non-diluted basis, the Bcom3 Class A stockholders will own
approximately 14.1% of the outstanding shares of Publicis and approximately 9.0%
of Publicis's voting power upon completion of the mergers. The Publicis ordinary
shares are traded on the Euronext Paris exchange.
Bcom3's board of directors has unanimously approved the mergers and
recommends that you vote in favor of the mergers. This document provides you
with detailed information about the mergers. I encourage you to read it
carefully.
IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS RELATING TO
THE MERGERS. PLEASE READ "RISK FACTORS RELATING TO THE MERGERS" BEGINNING ON
PAGE 24.
Please use this opportunity to take part in the affairs of Bcom3 by voting
on the mergers. Whether or not you plan to attend the Bcom3 special meeting, we
encourage you to complete, sign and date the accompanying voting card and return
it in the enclosed self-addressed stamped envelope. YOUR VOTE IS VERY IMPORTANT.
YOUR FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGERS.
We appreciate your support.
Cordially,
/s/ Roger A. Haupt
ROGER A. HAUPT
Chairman and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE PUBLICIS SECURITIES TO BE ISSUED
IN THE PUBLICIS/BCOM3 MERGER, OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION WHERE AN
OFFER OR SOLICITATION WOULD BE ILLEGAL.
This proxy statement/prospectus is dated August , 2002 and is first being
mailed to stockholders on August , 2002.
[BCOM3 LOGO]
35 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER , 2002
August , 2002
To Bcom3 Stockholders:
Bcom3 hereby gives you notice that a special meeting of its stockholders
will be held at on September , 2002, at a.m., Central Daylight Time.
At the meeting, Bcom3 will ask you to consider and vote upon two proposals
relating to the proposed combination of Bcom3 with Publicis Groupe S.A.:
- a proposal to adopt the merger agreement among Bcom3, Boston Three
Corporation and Dentsu Inc. and to approve the first step merger as
described in the attached proxy statement/prospectus; and
- a proposal to adopt the merger agreement among Bcom3, Publicis,
Philadelphia Merger Corp. and Philadelphia Merger LLC and to approve the
Publicis/Bcom3 merger as described in the attached proxy
statement/prospectus.
Although you are voting separately on the two mergers, neither merger will
occur unless they both receive the required stockholder approval.
Your board of directors recommends that you vote in favor of both of the
proposals. The close of business on August 5, 2002 has been fixed as the record
date to determine the holders of Bcom3 common stock entitled to notice of, and
to vote at, the special meeting. Under the terms of the voting trust relating to
Bcom3's Class A common stock, each beneficial owner of the Class A shares is
entitled to instruct the voting trustees on how to vote his or her Class A
shares on the mergers.
Adoption of the merger agreements and approval of the mergers require the
affirmative vote of a majority of the outstanding shares of Bcom3 Class A and B
common stock, voting as one class.
THE ATTACHED PROXY STATEMENT/PROSPECTUS CONTAINS DETAILED INFORMATION
RELATING TO THE PROPOSALS TO ADOPT THE MERGER AGREEMENTS AND APPROVE THE
MERGERS.
By order of the board of directors,
/s/ Christian E. Kimball
CHRISTIAN E. KIMBALL
Secretary
TABLE OF CONTENTS
PAGE
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ADDITIONAL INFORMATION...................................... 1
QUESTIONS AND ANSWERS ABOUT THE MERGERS..................... 2
SUMMARY..................................................... 4
RISK FACTORS RELATING TO THE MERGERS........................ 24
FORWARD-LOOKING STATEMENTS.................................. 30
THE BCOM3 SPECIAL MEETING................................... 32
Time and Place............................................ 32
Record Date............................................... 32
Purpose of the Special Meeting............................ 32
Vote Required to Approve the Merger Proposals............. 32
Quorum.................................................... 32
Instructions and Proxies.................................. 32
Solicitation of Proxies and Instructions.................. 34
THE MERGERS................................................. 35
Background of the Mergers................................. 35
Recommendations of the Special Committee and the Bcom3
Board.................................................. 41
The Special Committee's Reasons for the Mergers........... 41
Publicis's Reasons for the Mergers........................ 45
Opinion of Special Committee's Financial Advisor.......... 46
Appraisal Rights.......................................... 53
Accounting Matters........................................ 56
Governmental and Regulatory Approvals..................... 56
Other Effects of the Mergers.............................. 57
Dividends................................................. 58
INTERESTS OF CERTAIN PERSONS IN THE MERGERS................. 58
Stock Option Plans........................................ 58
Indemnification; Directors' and Officers' Insurance....... 60
Employment Agreements..................................... 60
Termination and Change in Control Benefits................ 61
Retirement Arrangements................................... 62
Interests of Dentsu's Designated Directors................ 63
Interests of Directors of Publicis........................ 63
MATERIAL TAX CONSEQUENCES................................... 64
Material U.S. Federal Income Tax Consequences of the First
Step Merger, of the Publicis/Bcom3 Merger and of
Holding Publicis Instruments........................... 64
Material French Tax Consequences of Holding and Disposing
of Publicis Ordinary Shares, ORAs, OBSAs and/or
Warrants (Bons De Souscription)........................ 68
i
PAGE
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THE FIRST STEP MERGER AGREEMENT............................. 74
The First Step Merger..................................... 74
Closing and Effective Time................................ 74
First Step Merger Consideration........................... 74
Delivery of First Step Merger Consideration............... 75
The Surviving Corporation................................. 75
Matters Relating to the Publicis/Bcom3 Merger............. 75
Conditions to Completion of the First Step Merger......... 75
Termination............................................... 76
Expenses.................................................. 76
Amendments and Waivers.................................... 76
THE PUBLICIS/BCOM3 MERGER AGREEMENT......................... 77
The Publicis/Bcom3 Merger................................. 77
Closing and Effective Time................................ 77
Publicis/Bcom3 Merger Consideration....................... 77
Sale of Debt Portion of the OBSAs......................... 78
Special Arrangements with Respect to Certain Publicis
Ordinary Shares........................................ 80
Bcom3 Voting Trust........................................ 80
Procedures for Delivery of the Merger Consideration....... 80
Fractional Interests...................................... 81
Dividends................................................. 82
Effect on Stock Options................................... 82
Representations and Warranties............................ 83
Covenants................................................. 83
Additional Agreements..................................... 84
Conditions to Completion of the Publicis/Bcom3 Merger..... 88
Termination............................................... 90
Effect of Termination..................................... 91
Termination Fee........................................... 91
Expenses.................................................. 92
Indemnification........................................... 92
Amendments and Waivers.................................... 93
SUPPORT AGREEMENTS.......................................... 94
Bcom3 Support Agreement................................... 94
Publicis Support Agreements............................... 94
SHAREHOLDERS' AGREEMENTS, ALLIANCE AGREEMENT AND ESCROW
AGREEMENT................................................. 95
Alliance Agreement between Publicis and Dentsu............ 95
Shareholders' Agreement between Publicis and Dentsu....... 96
Shareholders' Agreement between Elisabeth Badinter and
Dentsu................................................. 97
Escrow Agreement among Dentsu, Publicis and Elisabeth
Badinter............................................... 100
ii
PAGE
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TRANSFER RESTRICTIONS ON PUBLICIS SECURITIES AND OTHER
CONSIDERATION............................................. 101
Transfer Restrictions Applicable to Former Class A
Stockholders........................................... 101
Transfer Restrictions Applicable to Dentsu................ 105
Restrictions on Transfer of Right to Receive Net Proceeds
from the Sale of the Debt Portion of the OBSAs......... 105
DIRECTORS AND SENIOR MANAGEMENT OF PUBLICIS AFTER THE
MERGERS................................................... 106
Supervisory Board......................................... 106
Management Board.......................................... 111
Business Experience of Management Board Members........... 112
Compensation.............................................. 113
Publicis Share and Option Ownership....................... 115
COMPARATIVE MARKET PRICE, TRADING VOLUME AND DIVIDEND
DATA...................................................... 117
PUBLICIS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION..................................... 119
DESCRIPTION OF PUBLICIS SHARE CAPITAL....................... 131
General................................................... 131
Share Capital............................................. 131
Voting Rights............................................. 131
Amendments to Rights of Holders........................... 131
Changes in Share Capital.................................. 132
Preferential Right of Subscription........................ 132
Description of Recent Issuances of Publicis Ordinary
Shares................................................. 133
Repurchases of Publicis Ordinary Shares................... 133
Trading in Publicis's Own Shares.......................... 134
Form, Holding and Transfer of Publicis Ordinary Shares.... 134
Requirements for Holdings Exceeding Specified
Percentages............................................ 135
Dividends................................................. 136
Liquidation Rights........................................ 136
DESCRIPTION OF USUFRUCT INTEREST AND BARE LEGAL TITLE....... 137
General................................................... 137
Separation of Legal Title and Usufruct Interest........... 137
Term of the Usufruct Arrangement.......................... 137
Rights of the Bare Legal Title Holder..................... 138
Rights of the Usufruct Holder............................. 138
Rollover in the Event of a Merger......................... 139
No Transfer of Bare Legal Title by Dentsu................. 139
Binding Arbitration....................................... 139
iii
PAGE
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DESCRIPTION OF ORAS......................................... 140
Notional Amount........................................... 140
Notional Amount Never Paid in Cash, but in Publicis
Ordinary Shares........................................ 140
Annual Cash Amount........................................ 140
Rank; Negative Pledge..................................... 141
Suspension of Redemption.................................. 142
Modification of Terms and Waivers......................... 142
Meeting of Holders and Representatives of Holders......... 142
Accelerated and Automatic Redemption...................... 143
Shares Issued upon the Redemption of ORAs................. 144
Anti-Dilution Rights and Other Adjustments................ 145
Withholding Tax........................................... 145
Prescription Period....................................... 145
Transfer Restrictions..................................... 146
Listing................................................... 146
Governing Law and Forum................................... 146
DESCRIPTION OF OBSAS........................................ 147
Notional Amount Issued.................................... 147
Terms of Notes............................................ 147
Terms of Warrants......................................... 151
NATURE OF TRADING MARKET.................................... 154
Overview.................................................. 154
Euronext Paris............................................ 154
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
HOLDERS................................................... 155
Ownership of Publicis Shares by Non-French Persons........ 155
Exchange Controls......................................... 155
DESCRIPTION OF PUBLICIS..................................... 156
Description of Business................................... 156
Clients................................................... 156
Competition............................................... 156
Governmental Regulation................................... 157
Certain Financial Information............................. 157
DESCRIPTION OF BCOM3........................................ 157
General Background........................................ 157
Description of Bcom3's Business........................... 158
Competition and Other Factors............................. 159
Properties................................................ 159
Legal Proceedings......................................... 159
Certain Information About Bcom3........................... 160
iv
PAGE
----
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR BCOM3....................... 161
Overview.................................................. 161
Recent Developments....................................... 162
Results of Operations..................................... 162
Liquidity and Capital Resources........................... 165
Disclosures About Contractual Obligations and Commercial
Commitments............................................ 166
Critical Accounting Policies.............................. 167
Recent Accounting Principles.............................. 168
Related Party Transactions................................ 168
Conversion to the Euro.................................... 168
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 169
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOR BCOM3................................................. 169
Interest Rates............................................ 169
International Operations.................................. 170
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF BCOM3....................................... 171
DESCRIPTION OF CAPITAL STOCK OF BCOM3....................... 172
Certificate of Incorporation and Bylaws................... 172
Stock Purchase Agreement.................................. 173
Voting Trust Agreement.................................... 175
Changes in Connection with the Mergers.................... 176
COMPARATIVE RIGHTS OF PUBLICIS SHAREHOLDERS AND BCOM3
STOCKHOLDERS.............................................. 177
INFORMATION RELATING TO SALES OF THE DEBT PORTION OF THE
OBSAS..................................................... 207
Selling Securityholder.................................... 207
Plan of Distribution...................................... 207
ENFORCEABILITY OF CIVIL LIABILITIES......................... 210
FRENCH PROSPECTUS........................................... 210
WHERE YOU CAN FIND MORE INFORMATION......................... 210
EXPERTS..................................................... 212
LEGAL MATTERS............................................... 212
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE.................. F-1
ANNEX A Agreement and Plan of Merger, dated as of March 7, 2002, as
amended by Amendment No. 1 thereto, dated August 13, 2002,
by and among Publicis Groupe S.A., Bcom3 Group, Inc.,
Philadelphia Merger Corp. and Philadelphia Merger LLC
ANNEX B Terms of Transfer Restrictions on Class A Consideration, to
be included in Letter of Transmittal
ANNEX C Agreement and Plan of Merger, dated as of March 7, 2001,
among Bcom3 Group, Inc., Dentsu Inc. and Boston Three
Corporation
ANNEX D Opinion of Morgan Stanley & Co. Incorporated
ANNEX E Section 262 of the Delaware General Corporation Law
(Appraisal Rights)
v
ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Publicis from documents that Publicis has filed with the Securities and
Exchange Commission and that are not included in or delivered with this
document. Publicis will provide you with copies of this information relating to
Publicis, without charge, upon written or oral request to:
Publicis Groupe S.A.
133, Avenue des Champs-Elysees
75008 Paris, France
Attention: Pierre Benaich
Telephone Number: 33-144-43-74-11
IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE
SPECIAL MEETING, YOU SHOULD MAKE YOUR REQUEST NO LATER THAN SEPTEMBER , 2002.
See "Where You Can Find More Information" beginning on page 210.
1
QUESTIONS AND ANSWERS ABOUT THE MERGERS
Q: When and where is the Bcom3 stockholder meeting?
A: The Bcom3 stockholder meeting will take place on September , 2002 at
, in .
Q: What are the proposals on which I am being asked to vote?
A: We are asking you to vote on the proposed business combination of Bcom3 and
Publicis. The business combination will be effected by two mergers.
In the first merger, a wholly-owned subsidiary of Bcom3 will be merged into
Bcom3. In this merger, each Bcom3 Class A share will be converted into the
right to receive 0.813619 Bcom3 Class A shares plus about $32.62 in cash,
and each Bcom3 Class B share will be converted into the right to receive
1.665067 Bcom3 Class B shares. The cash paid in this merger will come from
Dentsu Inc., the only current holder of Class B shares. In the aggregate,
Dentsu will pay about $498.7 million to Bcom3 Class A stockholders and
receive about 2,850,000 additional Class B shares. Correspondingly, Class A
stockholders as a group will receive about $498.7 million from Dentsu and
the number of Class A shares outstanding will be reduced by about 2,850,000.
The purposes of this first merger are to provide immediate cash to Bcom3
Class A stockholders from Dentsu and to enable Dentsu to own a 15% voting
interest in Publicis after the combination of Bcom3 and Publicis.
In the second merger, Bcom3 will be merged into a wholly-owned subsidiary of
Publicis and Bcom3 stockholders will receive consideration consisting of
Publicis ordinary shares, other Publicis securities and cash, as described
more fully in this proxy statement/prospectus. Although you are voting
separately on the two mergers, neither merger will occur unless they both
receive the required stockholder approval.
Q: What is the record date for the special stockholder meeting?
A: The record date for the special meeting is August 5, 2002. Only holders of
Class A or Class B shares at the close of business on this date will be
eligible to vote at the special stockholder meeting.
Q: How do I vote my shares?
A: If you are a Bcom3 Class A stockholder, you have deposited your shares into
a voting trust. Under the terms of the voting trust agreement, the voting
trustees generally have the right to vote your shares whenever a vote of
Bcom3's stockholders is required. However, as an individual Bcom3 Class A
stockholder, you have the right to direct the voting of your shares by the
voting trustees with respect to, among other things, any proposals regarding
a merger. You will not vote your shares directly, but you will be entitled
to vote by instructing the voting trustees how to vote your shares on the
mergers. You should note that references to "Class A stockholders" or
"holders of Class A common stock" in this proxy statement/prospectus
generally describe the beneficial owners of the Class A common stock (i.e.,
those persons whose shares of Bcom3 Class A common stock are held in the
voting trust).
If you are a Bcom3 Class B stockholder, you vote your shares directly.
Q: What do I need to do now?
A: Mail your signed instruction card (Class A stockholders) or proxy card
(Class B stockholder) in the enclosed return envelope or send it via
facsimile, as soon as possible, so your shares will be represented at the
meeting. Faxes should be sent to Mr. Christian E. Kimball, Secretary of
Bcom3, at (312) 220-4029. Mail should be sent to Mr. Christian E. Kimball,
Secretary, Bcom3 Group, Inc., 35 West Wacker Drive, Chicago, Illinois 60601.
In order to be sure that your vote is counted, please submit your card in
the manner described on that card even if you plan to attend the meeting in
person.
Q: What do I do if I want to change my vote?
A: You can mail or fax a later-dated, signed instruction card (Class A
stockholders) or proxy card (Class B stockholder) to Bcom3's Secretary or
attend the meeting in person and instruct the voting trustees to vote (Class
A stockholders) or vote yourself (Class B stockholder) at the meeting. You
may also revoke
2
your instruction (Class A stockholders) or your vote (Class B stockholder) by
sending or faxing a notice of revocation to Bcom3's Secretary at the address or
fax number set forth above.
Q: Why is it important for me to vote?
A: We cannot complete the proposed mergers without obtaining the affirmative
vote of Bcom3 stockholders holding a majority of the outstanding Class A and
Class B common stock, voting together as a single class.
If you do not vote by giving voting instructions to the voting trustees
(Class A stockholders) or voting directly (Class B stockholder), you will,
in effect, be voting against the mergers.
Q: Do Publicis stockholders also vote on this transaction?
A: Yes. They approved the transaction at a separate meeting in Paris held on
June 18, 2002.
Q: When do you expect the mergers to occur?
A: Assuming we have received the required regulatory approvals and other
conditions to closing are satisfied, we intend to close the mergers on, or
as soon as possible after, the date of the Bcom3 stockholder meeting.
Q: Who do I call if I have questions about the stockholder meeting or the
mergers?
A: You may contact Mr. Christian E. Kimball at (312) 220-1235.
3
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus. It does not contain all of the information that is
important to you. To understand the mergers fully, we strongly encourage you to
carefully read this entire proxy statement/prospectus and the other documents
which we have filed with the Securities and Exchange Commission, which we often
refer to as the SEC in this document. We have included a copy of the agreement
and plan of merger, as amended, among Publicis, Bcom3, Philadelphia Merger Corp.
and Philadelphia Merger LLC, both newly formed wholly owned subsidiaries of
Publicis, as Annex A. We have also included a copy of the agreement and plan of
merger among Bcom3, Boston Three Corporation, a newly formed wholly owned
subsidiary of Bcom3, and Dentsu Inc., as Annex C. For more information on how
you can obtain the documents that we have filed with the SEC, see "Where You Can
Find More Information" on page 210.
THE COMPANIES
PUBLICIS GROUPE S.A.
133, AVENUE DES CHAMPS-ELYSEES
75008 PARIS, FRANCE
011-331-44-43-70-00
Publicis is the world's sixth largest advertising and communications firm
and operates two major global networks, Publicis Worldwide and Saatchi & Saatchi
Worldwide. Publicis is in the process of expanding Fallon, an advertising agency
with principal offices in Minneapolis, New York and London, into a third global
network. Publicis also has one of the world's largest healthcare communications
networks, combining Nelson Communications with the healthcare activities of the
Publicis and Saatchi & Saatchi networks. In addition, through the Zenith
Optimedia Group, Publicis is the world's third largest media buying group based
on billings. All references to Publicis's competitive position herein are based
on revenues generated unless otherwise indicated. Publicis has over 20,000
employees and operates in over 100 countries.
BCOM3 GROUP, INC.
35 WEST WACKER DRIVE
CHICAGO, IL 60601
312-220-1000
Bcom3 is one of the world's leading advertising and marketing
communications services holding companies. It was created through the business
combination of The Leo Group and The MacManus Group on January 31, 2000. As a
result of this business combination, Bcom3 has more than 500 offices in over 90
countries, and more than 17,000 employees. Bcom3's most significant global
agencies include Leo Burnett, D'Arcy Masius Benton & Bowles, Starcom MediaVest
Group, Manning Selvage & Lee, Medicus Group International and Bartle Bogle
Hegarty (a 49% owned affiliate). Bcom3 has more than 3,000 clients.
Bcom3 has a strategic relationship with Dentsu Inc., which is the largest
full-service advertising and marketing communications services company in Japan
and throughout Asia, and the single largest advertising agency brand in the
world, in each case based on revenues. This strategic relationship is focused on
aligning with Dentsu to serve significant Dentsu clients in markets outside of
Japan and Asia, as well as on increasing Bcom3's own presence in Japan. As part
of the strategic relationship, Dentsu purchased approximately 20% of Bcom3's
outstanding common stock (measured after dilution for Bcom3's management equity
incentive plan) in March 2000 as an equity investment.
THE MERGERS (SEE PAGES 35 THROUGH 58)
In connection with Bcom3's proposed combination with Publicis, Bcom3
entered into two merger agreements.
The first merger agreement is with Dentsu. This first step merger agreement
provides for the merger of Boston Three Corporation, a wholly-owned subsidiary
of Bcom3, into Bcom3. In this merger, Dentsu will pay approximately $498.7
million in cash to holders of Bcom3 Class A common stock, Dentsu will receive
additional shares of Bcom3 Class B common stock, and the number of shares held
by holders of Bcom3 Class A common stock will be reduced.
The second merger agreement is with Publicis. The Publicis/Bcom3 merger
agreement provides for the merger of Bcom3 into a wholly-owned subsidiary of
Publicis. In this merger, holders of Bcom3 Class A common stock and Class B
common stock will be entitled to receive Publicis ordinary shares and the other
merger consideration, as described
4
below, applicable to each class. See "The Publicis/Bcom3 Merger
Agreement -- Publicis/Bcom3 Merger Consideration," "Description of Publicis
Share Capital," "Description of Usufruct Interest and Bare Legal Title,"
"Description of ORAs," and "Description of OBSAs" starting on pages 77, 131,
137, 140 and 147 for a detailed description of the Publicis/Bcom3 merger
consideration.
The first step merger and the Publicis/Bcom3 merger are conditioned on each
other. Each of them will occur only if the other one does. For purposes of
assessing the effect of the two mergers on your current interest in Bcom3, you
should view them as one transaction.
WHAT BCOM3 CLASS A STOCKHOLDERS WILL RECEIVE IN THE MERGERS
As a result of the first step merger and based on the number of Bcom3
shares outstanding as of August 9, 2002, Bcom3 Class A stockholders will
receive, for each share of Bcom3 Class A common stock they own before the first
step merger, approximately $32.616664 in cash from Dentsu and 0.813619 shares of
Bcom3 Class A common stock.
In the Publicis/Bcom3 merger, Bcom3 Class A stockholders will receive, for
each share of Bcom3 Class A common stock that they hold after the first step
merger, merger consideration consisting of the following elements:
- 1.666464 Publicis ordinary shares;
- the economic interest (termed a "usufruct" or "usufruct interest" in this
document), but not the legal title or related voting rights, in 0.548870
Publicis ordinary shares for a two-year period. Two years after the
closing of the mergers, the bare legal title and related voting rights
will automatically revert back to the usufruct holders;
- 0.098108 ORAs, or equity-linked securities, which are automatically
redeemed for Publicis ordinary shares at a rate of one Publicis ordinary
share each year, beginning in 2005 and ending 20 years after the closing
date of the mergers;
- the net proceeds (i.e., net of the expenses of the sale and the cash
amount paid by Bcom3 in respect of its options, as described below) from
the sale of E53.861277 in principal amount of Publicis notes (which
proceeds will reflect a substantial discount to such principal amount for
the reasons described below under the caption "-- Net Proceeds from the
Sale of the Debt Portion of the OBSAs"); and
- warrants to purchase 1.765944 Publicis ordinary shares (each warrant is
exercisable for one Publicis ordinary share).
The notes and the warrants together constitute Publicis securities which
are referred to as OBSAs. A description of each of these securities can be found
below under the captions "Description of Publicis Share Capital," "Description
of Usufruct Interest and Bare Legal Title," "Description of ORAs," "Description
of OBSAs -- Terms of Notes," and "Description of OBSAs -- Terms of Warrants."
The merger consideration to be received by the Bcom3 Class A stockholders
in the Publicis/Bcom3 merger will be subject to the transfer restrictions
described under the caption "-- Transfer Restrictions for Bcom3 Class A
Stockholders" below.
EXAMPLE OF THE CONSIDERATION TO BE RECEIVED BY THE CLASS A STOCKHOLDERS IN THE
MERGERS
If you owned 1,000 shares of Bcom3 Class A common stock before the first
step merger, you would be entitled to receive the following consideration in the
mergers:
------------------------------------------------------
FIRST STEP MERGER
------------------------------------------------------
$32,616.66 in cash
------------------------------------------------------
813.619 Bcom3 Class A shares (note that these shares will be cancelled
in the Publicis/Bcom3 merger in exchange for the consideration described
below)
------------------------------------------------------
------------------------------------------------------
PUBLICIS/BCOM3 MERGER
------------------------------------------------------
1,355 Publicis ordinary shares
------------------------------------------------------
446 usufructs, resulting in 446 Publicis ordinary shares after two
years
----------------------------------------------------------
79 ORAs
- entitling the holder to 1,422 Publicis ordinary shares, to be
received in 18 equal annual installments of
----------------------------------------------------------
5
------------------------------------------------------
79 Publicis ordinary shares in each year from 2005 through 2022
- entitling the holder to annual cash payments of:
- E355.50 (equivalent to E0.25 per underlying share) in years
2003 (pro-rated for the period between closing and August 31,
2003), and 2004
- in years 2005 through 2022, an amount equal to 110% of the
historical three-year average of the per share dividend
declared on Publicis ordinary shares, recalculated every three
years, but at least E0.2501 per underlying share, multiplied
by the number of Publicis ordinary shares still to be received
under the ORAs
------------------------------------------------------
the net proceeds (i.e., net of the expenses of the sale and the cash
amount paid by Bcom3 in respect of its options, as described below)
from the sale of E43,822.56 principal amount of Publicis notes
------------------------------------------------------
1,436 warrants
------------------------------------------------------
cash in lieu of any fractional interest in the Publicis securities to
which you would be entitled.
------------------------------------------------------
The value of the Publicis ordinary shares, ORAs and warrants that you will
receive will change as the price of Publicis ordinary shares changes after the
mergers. See "Risk Factors Relating to the Mergers -- Bcom3's stockholders will
receive a fixed number of Publicis securities in the mergers even if the market
value of Publicis ordinary shares changes."
WHAT DENTSU WILL RECEIVE IN THE MERGERS
In the first step merger, Dentsu, as the sole Bcom3 Class B stockholder,
will receive 1.665067 shares of Class B common stock for each share of Class B
common stock it owns before the first step merger in consideration of a cash
payment by Dentsu of $498,702,393.
In the Publicis/Bcom3 merger, Dentsu will receive, for each share of Bcom3
Class B common stock it owns after completion of the first step merger, merger
consideration consisting of the following elements:
- 4.021399 Publicis ordinary shares;
- bare legal title (including voting rights) to 0.957024 additional
Publicis ordinary shares for a two-year period;
- 0.047940 ORAs, which are automatically redeemed for Publicis ordinary
shares at a rate of one Publicis ordinary share each year, beginning in
2005 and ending 20 years after the closing date of the mergers;
- the net proceeds (i.e., net of the expenses of the sale and the cash
amount paid by Bcom3 in respect of its options, as described below) from
the sale of E26.318797 in principal amount of Publicis notes (which
proceeds will reflect a substantial discount to such principal amount for
the reasons described below under the caption "-- Net Proceeds from the
Sale of the Debt Portion of the OBSAs"); and
- warrants to purchase 0.862911 Publicis ordinary shares (each warrant is
exercisable for one Publicis ordinary share).
Based on the number of Class A shares and Class B shares outstanding on
August 9, 2002, Dentsu is entitled to receive in total approximately: (1)
28,699,446 Publicis ordinary shares, (2) bare legal title and voting rights in
6,827,984 additional Publicis ordinary shares for a two-year period, (3) 342,133
ORAs representing 6,158,386 ordinary shares, (4) the net proceeds (less a pro
rata portion of the cash paid to Publicis with respect to the Bcom3 option
cancellation payments and certain expenses relating to the sale of the notes)
from the sale of E187,828,884 in principal amount of Publicis notes and (5)
warrants to purchase 6,158,321 ordinary shares. Dentsu will also receive cash in
lieu of fractional interests in Publicis securities to which it would be
entitled.
The merger consideration to be received by Dentsu in the Publicis/Bcom3
merger will be subject to the transfer restrictions described under the caption
"Shareholders' Agreements, Alliance
6
Agreement and Escrow Agreement -- Shareholders' Agreement Between Publicis and
Dentsu" starting on page 96.
TOTAL AMOUNT OF SECURITIES TO BE ISSUED IN THE PUBLICIS/BCOM3 MERGER
In the Publicis/Bcom3 merger, Publicis will issue an aggregate of
approximately 56,250,000 ordinary shares, which include 6,827,984 ordinary
shares split into bare legal title and usufruct interests, 1,562,500 ORAs and
2,812,500 OBSAs, consisting of approximately E857,812,500 principal amount of
notes and warrants to acquire 28,125,000 ordinary shares.
Because the exchange ratios in the Publicis/Bcom3 merger agreement are
fixed, the actual number of Publicis securities issued in the merger will depend
on the number of Bcom3 shares outstanding at the effective time of the
Publicis/Bcom3 merger.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BCOM3 BOARD (SEE PAGE 41)
The board of directors of Bcom3, which is referred to in this document as
the "Bcom3 board," established a special committee of directors independent from
Dentsu to review, evaluate and negotiate the terms of the mergers and report its
conclusions to the full Bcom3 board. The special committee unanimously
determined that the merger agreements and the mergers are fair to and in the
best interests of the holders of Bcom3's Class A common stock. It recommended
that the Bcom3 board approve the merger agreements and the mergers, and that the
Bcom3 board recommend approval and adoption of the merger agreements and the
mergers by Bcom3's stockholders. The Bcom3 board, acting on the recommendation
of the special committee, unanimously determined that it was advisable and in
the best interests of Bcom3 and its stockholders to enter into the merger
agreements and to effect the transactions contemplated thereby, and approved and
adopted the merger agreements and the mergers.
The Bcom3 board recommends that you vote FOR the approval and adoption of
the merger agreements and the mergers.
REASONS FOR THE MERGERS (SEE PAGES 41 THROUGH 46)
The boards of Publicis and Bcom3 believe that the combination of Publicis
and Bcom3 represents an excellent strategic fit because of the complementary
nature of the two businesses and strong opportunities for growth from greater
geographic coverage, brand diversification and stronger media buying power. Each
board considered a number of strategic and transaction-related factors in
evaluating the mergers. For a detailed review of the material factors considered
by each board and the Bcom3 special committee, see "The Mergers -- The Special
Committee's Reasons for the Mergers" and "-- Publicis's Reasons for the
Mergers."
OPINION OF FINANCIAL ADVISOR (SEE PAGES 46 THROUGH 53)
In deciding to recommend the mergers, the special committee considered the
opinion of its financial advisor, Morgan Stanley & Co. Incorporated. At a
meeting of the special committee on March 5, 2002, Morgan Stanley rendered its
oral opinion that as of that date, and subject to and based on the
considerations in its opinion, the consideration to be received by the holders
of shares of Bcom3's Class A common stock pursuant to the merger agreements
(considered as a single transaction) is fair from a financial point of view to
such holders. On March 7, 2002, Morgan Stanley confirmed its oral opinion at a
meeting of the Bcom3 board and in writing. This written opinion is attached as
Annex D.
CUSTODIAN (SEE PAGE 87)
Publicis has agreed to appoint and maintain at its expense a custodian to
assist former Bcom3 stockholders with matters relating to the ownership of
Publicis ordinary shares, usufructs, ORAs and warrants to be received in the
Publicis/Bcom3 merger. This will include assistance with the distribution of
voting materials, currency conversion of dividends and receipt of certain French
tax credits.
TRANSFER RESTRICTIONS FOR BCOM3 CLASS A STOCKHOLDERS (SEE PAGES 101 THROUGH 105)
All of the Publicis ordinary shares, usufructs, ORAs and warrants to be
received by Bcom3 Class A stockholders in the Publicis/Bcom3 merger will
initially be non-transferable.
7
The Publicis ordinary shares to be received by Bcom3 Class A stockholders
will become transferable on the following schedule: 25% after six months, 50%
after 12 months, 75% after 18 months, and 100% after 24 months, all measured
from the closing date of the mergers. This includes the shares which will result
from the reversion of bare legal title to the usufruct holders at the end of the
two-year period, which shares will be allocated to the last expiration date and
will therefore be transferable immediately upon reversion. The corresponding
usufruct interests that Bcom3 Class A stockholders will hold in these shares
during the two-year period will not be transferable.
The ORAs to be received by the Bcom3 Class A stockholders will become
transferable on the following schedule: 25% after 30 months, 50% after 36
months, 75% after 42 months and 100% after 48 months, all measured from the
closing date of the mergers.
The warrants to be received by the Bcom3 Class A stockholders will become
transferable on the following schedule: 25% after 30 months, 50% after 36
months, 75% after 42 months and 100% after 48 months, all measured from the
closing date of the mergers.
Any sale on the public markets by Class A stockholders of Publicis
securities that have become transferable in accordance with the above schedule
will have to be made through an orderly marketing process. This will involve the
use of a "polling agent" to determine the selling interest of former Bcom3 Class
A stockholders on a monthly basis. If the total amount of Publicis securities
requested to be sold on the public markets by the former Bcom3 Class A
stockholders in any one month period represents less than the equivalent of 1.4
million Publicis ordinary shares, these securities may be freely sold on the
public markets during that period. Otherwise, such sales will be made through a
process managed by investment banks. These orderly marketing procedures will
cease to apply to the ordinary shares on the 30-month anniversary of the closing
date of the mergers and to the ORAs and warrants on the 54-month anniversary of
the closing date of the mergers.
As a result of these restrictions, you may not be able to sell your
securities at the prices and in the amounts which you could sell if they were
freely transferable.
Important information on these restrictions can be found below under the
caption "Transfer Restrictions on Publicis Securities and Other Consideration."
USUFRUCTS (SEE PAGES 137 THROUGH 139)
The usufructs consist of all of the economic interest, but not the voting
interest, in Publicis ordinary shares (for example, rights to dividends). With
respect to designated Publicis ordinary shares, Bcom3 and Publicis have agreed
that Dentsu will receive legal title (including voting rights) to such shares on
the closing date of the Publicis/Bcom3 merger, and Bcom3 Class A stockholders
will receive the usufructs. On the second anniversary of the closing date of the
mergers, the usufruct arrangement will expire and all rights in this block of
Publicis ordinary shares will automatically revert to the former Bcom3 Class A
stockholders.
ORAS (SEE PAGES 140 THROUGH 146)
Each ORA received by Bcom3 stockholders has a face amount of E549 and is
automatically redeemable into 18 new or existing Publicis ordinary shares during
its 20-year term, with one existing or newly issued Publicis ordinary share
being delivered in partial redemption of the ORA in each year beginning in 2005
and ending 20 years after the closing date of the mergers. Each redemption will
be made on September 1, except for the final redemption, which will be made on
the 20th anniversary of the closing date of the mergers. For the period from the
date of issuance up to and including August 31, 2004, an annual amount will
accrue for the benefit of the holder of an ORA at an annualized rate equal to
E4.50 per ORA. Starting September 1, 2005, the annual amount payable each year
with respect to each E30.50 of face amount of the ORA will be equal to 110% of
the historical average of the annual dividend paid on each Publicis ordinary
share. The historical average will be recalculated every three years and will be
based on the actual dividends paid on each Publicis ordinary share during a
three-year period, which consists of the year of the annual amount's
determination and the preceding two years. The annual amount is payable with
respect to the face amount of the ORA then outstanding, determined by
multiplying the remaining balance of Publicis ordinary shares into which the
ORAs could then be redeemed by E30.50. The minimum annual amount payable on each
ORA is 0.82% of its face amount per year (with an
8
additional payment from Publicis to the extent of any withholding tax which may
be imposed). No payment in respect of an annual amount will be made in any year
in which no dividend is paid on the Publicis ordinary shares. Instead, the
payment in respect of such annual amount will accrue (but will not bear
interest) and will be payable in full with all arrearages in the first year in
which a dividend is paid on the Publicis ordinary shares. As described below, in
the event that no payment in respect of an annual amount is made for five
consecutive years, holders will be entitled to accelerate the redemption of the
ORAs for Publicis ordinary shares in full, but they will not be entitled to
receive any payments which would otherwise have accrued in such five-year
period.
Upon the occurrence of certain events, including:
- the failure to pay an annual amount or make a redemption payment when
due;
- the commencement of a public tender offer for all of Publicis's equity
securities;
- the transfer or proposed transfer of at least one-third of Publicis's
assets or business to a third party;
- if any party other than Madame Elisabeth Badinter, chair of the
supervisory board of Publicis, which supervises the management board of
Publicis (described below), and a significant Publicis shareholder, and
Dentsu comes to control Publicis;
- the failure to pay annual amounts for five consecutive years because no
dividend has been declared on the Publicis ordinary shares;
- the failure to comply with other obligations under the ORA issuance
contract; or
- Publicis's default under a material loan;
each ORA may be fully redeemed (subject to the transfer restrictions described
above), at the option of the holder, for all Publicis ordinary shares for which
it is then redeemable. In addition, if Publicis becomes insolvent, liquidates or
becomes bankrupt, each ORA will automatically be fully redeemed for that number
of ordinary shares for which it is then redeemable.
Appropriate adjustments to the number of Publicis ordinary shares for which
the ORAs redeem will be made upon the occurrence of certain events in order to
preserve their economic terms.
The ORAs will be listed for trading on Euronext Paris, although no trading
will occur until after expiration of the relevant transfer restrictions on the
ORAs. At such time, if the ORAs do trade, it is anticipated that they will
likely trade at a discount to the prices of Publicis ordinary shares due to,
among other things, the lack of liquidity of the trading market for the ORAs.
The amount of this discount cannot be estimated, but it may be significant. See
"Risk Factors Relating to the Mergers -- You may not be able to sell the ORAs or
the warrant portion of the OBSAs if no trading market develops or if one cannot
be sustained, and these securities may trade at a significant discount to the
trading price of the Publicis ordinary shares even if a market does develop."
NET PROCEEDS FROM SALE OF THE DEBT PORTION OF THE OBSAS (SEE PAGES 78 THROUGH
80)
Each OBSA to be issued in the Publicis/Bcom3 merger consists of a debt
security, which we also refer to as "notes" herein, with a face amount of E305
and detachable warrants (described below) exercisable to purchase 10 Publicis
ordinary shares.
The Publicis/Bcom3 merger agreement provides that the OBSAs will be issued
to a nominee selected by Bcom3 and reasonably satisfactory to Publicis. The
nominee will detach the warrants from the notes and will distribute the warrants
to the Bcom3 stockholders. If the Bcom3 board has not otherwise made definitive
arrangements to sell the notes by the closing of the mergers, Bcom3 will appoint
a marketing agent, reasonably acceptable to Publicis, for the sale. The
marketing agent will be instructed to use reasonable best efforts to sell the
notes for cash after the closing. The proceeds to be received in the sale may
also include non-cash components and/or the marketing agent may effect a
distribution-in-kind of the notes, so long as the marketing agent has received
the prior written consent of persons who held at least a majority of the Bcom3
shares outstanding immediately prior to the first step merger and, in certain
circumstances, the prior written consent of Publicis. It is expected that the
marketing agent will be one or more individuals or an entity, who will in turn
engage one or more financial institutions to act as underwriter or placement
agent for the sale. The terms, conditions,
9
timing and manner of the sale will be determined solely in the discretion of the
marketing agent.
The notes may be sold over time in one or more tranches. There can be no
assurance as to the timing of the sale. Because the notes will probably be sold
after closing, it is unlikely that Bcom3 shareholders will know on the closing
date of the mergers the amount of the net proceeds that they will ultimately
receive.
The net proceeds from the sale or sales, after payment of selling costs and
commissions and reimbursement of Publicis for the cash-out payments made to the
Bcom3 stock option holders described under the caption "-- Treatment of Bcom3
Stock Options" below, will be delivered to Bcom3 stockholders.
Because the notes bear a below-market 2.75% interest rate, the proceeds
from the sale will be less than the principal amount of the notes. Bcom3 also
believes that the sale of the notes presents several marketing challenges and
significant execution risk. In addition to the 2.75% interest rate, the notes
have unconventional terms for the relevant Eurobond market, including a 20-year
maturity and an amortizing principal amount, and Publicis will not seek a credit
rating of the notes. Each of these factors is likely to limit the attractiveness
of the notes to potential purchasers and the price that such purchasers would be
willing to pay. SEE "RISK FACTORS RELATING TO THE MERGERS -- THERE IS NO
CERTAINTY AS TO THE AMOUNT OF NET PROCEEDS THAT WILL RESULT FROM THE SALE OR THE
TIMING OF THE SALE OF THE OBSA NOTES. THE SALE OF THE NOTES WILL PRESENT
MARKETING CHALLENGES. THE NET PROCEEDS FROM THE SALE WILL REFLECT A SUBSTANTIAL
DISCOUNT TO THE PRINCIPAL AMOUNT OF THE NOTES AND MAY BE MATERIALLY LESS THAN
THE HYPOTHETICAL VALUATION REFLECTED IN THE PRO FORMA FINANCIAL STATEMENTS."
WARRANTS (SEE PAGES 151 THROUGH 153)
Each warrant to be received by Bcom3 stockholders will be detached by the
nominee from the associated note upon completion of the mergers. Each warrant
will be exercisable for one Publicis ordinary share at an exercise price of
E30.50 during the period beginning 11 years and ending 20 years after the
closing date of the mergers.
Upon the occurrence of certain events, including:
- the commencement of a public tender offer for all of Publicis's equity
securities;
- the transfer or proposed transfer of at least one-third of Publicis's
assets or business to a third party;
- if any party other than Madame Badinter and Dentsu comes to control
Publicis; or
- the insolvency or bankruptcy of Publicis;
each warrant shall become fully exercisable (subject to the transfer
restrictions noted below) at the option of the holder. Appropriate adjustments
to the number of Publicis ordinary shares for which the warrants may be
exercised will be made upon the occurrence of certain events in order to
preserve their economic terms.
The warrants will be listed for trading on Euronext Paris, although no
trading will occur until after expiration of the transfer restrictions on the
warrants. At such time, if the warrants do trade, the trading price will depend
on a number of factors, including, but not limited to, the financial condition
and the prospects of Publicis, the price and volatility of Publicis ordinary
shares, the rate at which Publicis pays dividends, the prevailing currency
exchange rate, the market for the warrants and similar securities, the remaining
life of the warrants, and other circumstances beyond Publicis's control,
including general economic conditions. The market value of the warrants will
fluctuate over time. See "Risk Factors Relating to the Mergers -- You may not be
able to sell the ORAs or the warrant portion of the OBSAs if no trading market
develops or if one cannot be sustained, and these securities may trade at a
significant discount to the trading price of the Publicis ordinary shares even
if a market does develop."
For a complete description of the warrants, please see the information
appearing under the caption "Description of OBSAs -- Terms of Warrants" below.
NO FRACTIONAL PUBLICIS ORDINARY SHARES, USUFRUCTS, ORAs OR WARRANTS (SEE
PAGES 81 AND 82)
Publicis will not issue any fractional Publicis ordinary shares, usufructs,
ORAs or warrants. With respect to fractional Publicis ordinary shares or
usufructs, Bcom3 stockholders will receive their pro rata portion, in cash, of
the aggregate proceeds from the sale of the fractional ordinary shares in the
market (which, in the case of the usufructs, will mean the sale of the Publicis
ordinary shares to which such usufructs relate). With respect to frac-
10
tional ORAs or warrants, Bcom3 stockholders will receive a cash payment equal to
the fair market value of such fractional ORAs or warrants, as determined in good
faith by the Bcom3 board.
TERMINATION OF THE BCOM3 VOTING TRUST AND WAIVER OF CERTAIN PROVISIONS OF THE
STOCK PURCHASE AGREEMENT
Immediately prior to the effective time of the Publicis/Bcom3 merger, the
voting trust established for the Bcom3 Class A common stock will be dissolved
and the related voting trust agreement will be terminated. As a result, at such
time, each beneficial owner of Bcom3 Class A common stock will be reflected on
the books and records of Bcom3 as a record holder of uncertificated shares of
Bcom3 Class A common stock.
It is anticipated that Bcom3 will unilaterally and irrevocably waive any
rights it may have under the stock purchase agreement between Bcom3 and each
Class A stockholder to repurchase the Publicis securities to be issued to Bcom3
Class A stockholders in the Publicis/Bcom3 merger and also waive any
restrictions on transfer of the Publicis securities that might otherwise be
imposed by the stock purchase agreement. There will, however, be new
restrictions on transfer, which are described under "-- Transfer Restrictions
for Bcom3 Class A Stockholders." The stock purchase agreement also contains
certain noncompetition, nonsolicitation, confidentiality and other covenants,
which Publicis expects will remain in full force and effect after the effective
time of the Publicis/Bcom3 merger.
TREATMENT OF BCOM3 STOCK OPTIONS (SEE PAGES 82 AND 83)
The total consideration to be paid for Bcom3 in both mergers is for all of
its stock and options, and is allocated among Class A stockholders, the Class B
stockholder and the option holders as provided in the Publicis/Bcom3 merger
agreement and the applicable stock option plan in effect on the closing date of
the mergers. The option holders' share of the total consideration will take the
form of a cash payment to each option holder in cancellation of his or her
options. The cash payment for each option, whether vested or unvested, will
reflect the immediate U.S. dollar cash value of the blended merger consideration
per Class A share paid in both mergers, as determined in good faith by the Bcom3
board, less the exercise price of the option.
The option cash payment will be effected in two stages. First, the Bcom3
board, pursuant to the applicable Bcom3 stock option plan, will make an
appropriate adjustment to the exercise price of and number of shares underlying
each outstanding stock option to reflect the treatment of Class A common stock
in the first step merger. Then, in the Publicis/Bcom3 merger, each outstanding
stock option so adjusted will be cancelled and option holders will receive a
cash payment equal to the product of (1) the adjusted total number of Bcom3
Class A shares subject to such stock option and (2) the excess, if any, of the
immediate U.S. dollar cash value of the consideration payable in the Publicis/
Bcom3 merger for each Class A share measured at the effective time of the
Publicis/Bcom3 merger, as determined in good faith by the Bcom3 board, over the
adjusted exercise price per share for the applicable stock option.
THE PUBLICIS/BCOM3 MERGER IS INTENDED TO BE A REORGANIZATION FOR FEDERAL INCOME
TAX PURPOSES (SEE PAGES 64 THROUGH 68)
It is a condition to the obligations of Bcom3 and Publicis to complete the
Publicis/Bcom3 merger that each receive a legal opinion from its outside counsel
that the merger will qualify as a reorganization for federal income tax
purposes. Accordingly, the transaction has been structured so that the companies
themselves will not recognize gain or loss as a result of the merger. Subject to
the assumptions set forth in the "Material Tax Consequences" section, holders of
Bcom3 Class A common stock will not recognize any gain or loss for federal
income tax purposes on the exchange of their Bcom3 stock for Publicis/Bcom3
merger consideration in the merger, except that they will recognize gain in
connection with the receipt of cash (or other proceeds, if any) from the sale of
the notes, and cash received in lieu of a fractional Publicis ordinary share,
usufruct, ORA or warrant.
The first step merger should be treated as a taxable sale by holders of
Bcom3 Class A common stock of a portion of their shares to Dentsu in exchange
for cash. Gain or loss should be recognized for U.S. federal income tax purposes
as a result of such sale in an amount equal to the excess of the cash received
in the first step merger over the holder's tax basis in the shares sold to
Dentsu. YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
THE MERGERS TO YOU.
11
OWNERSHIP INTEREST OF BCOM3 STOCKHOLDERS IN THE COMBINED COMPANY
On a non-diluted basis, former Bcom3 Class A stockholders will own
approximately 14.1% of the outstanding shares of Publicis and approximately 9.0%
of Publicis's outstanding voting power, and Dentsu will own approximately 14.6%
of the outstanding shares of Publicis and approximately 15.0% of Publicis's
outstanding voting power. This information was calculated by allocating to
Dentsu that number of shares subject to division into usufructs and bare legal
title and not allocating any portion of such shares to the former Bcom3 Class A
stockholders (recognizing Dentsu's ownership of the legal title to and voting
interests in such shares for a period of two years after the closing date of the
mergers). The calculation of outstanding shares of Publicis includes
approximately 6.9 million shares held in Publicis's treasury. These treasury
shares cannot be voted pursuant to French law and therefore were not included in
the calculation of Publicis's outstanding voting power. In addition, you should
note that this information is based on the number of Bcom3 and Publicis shares
outstanding on July 31, 2002 and does not take into account any other shares
which may be issued after this date and before completion of the mergers in
accordance with the Publicis/Bcom3 merger agreement.
STOCKHOLDER VOTE REQUIRED TO APPROVE THE MERGERS
Approval of both mergers requires the affirmative vote of a majority of the
outstanding shares of Bcom3's Class A and Class B common stock, voting together
as a single class. The presence of the holders of a majority of the shares
entitled to vote at the meeting constitutes a quorum at the Bcom3 stockholders
meeting. As of the record date for that meeting, Bcom3's directors, executive
officers and their affiliates beneficially owned in the aggregate approximately
32% of Bcom3's outstanding common stock entitled to vote on the mergers.
The Publicis/Bcom3 merger and certain corporate actions by Publicis related
to that merger required the approval by the affirmative vote of two-thirds of
the Publicis ordinary shares present or represented at a Publicis shareholder
meeting. The approval was obtained at Publicis's shareholder meeting on June 18,
2002. The presence of the holders of a third of the shares entitled to vote at
the meeting constituted a quorum at the Publicis shareholder meeting. As of the
date of the meeting, Publicis's directors, executive officers and their
affiliates beneficially owned in the aggregate approximately 27.8% of Publicis's
outstanding stock and approximately 44.5% of Publicis's total voting power
entitled to vote at the meeting.
Bcom3 will re-circulate revised proxy materials and re-solicit proxies to
the extent required by law, such as in the event of any material changes in the
terms of the merger agreement.
SUPPORT AGREEMENTS (SEE PAGE 94)
In connection with the Publicis/Bcom3 merger agreement, certain Publicis
shareholders representing about 45% of the voting power of all Publicis shares
as of June 18, 2002, the date of the Publicis shareholder meeting, and certain
Bcom3 stockholders (including Dentsu) representing about 31% of the voting power
of all Bcom3 shares as of August 9, 2002, have agreed to vote in favor of the
Publicis/Bcom3 merger.
SHAREHOLDERS' AGREEMENTS AND ALLIANCE AGREEMENT (SEE PAGES 95 THROUGH 100)
In connection with the Publicis/Bcom3 merger, Dentsu will enter into a
shareholders' agreement and an alliance agreement with Publicis, and into a
shareholders' agreement with Madame Badinter. Pursuant to the Publicis/Dentsu
shareholders' agreement, Dentsu will agree, among other things, not to transfer
the Publicis securities it will receive in the Publicis/Bcom3 merger until July
1, 2012 and to be subject to a "standstill" limiting its ownership of Publicis
to the number of ordinary shares that entitles it to 15% of the voting power of
Publicis. The Publicis/Dentsu alliance agreement will provide for the
establishment of a global strategic alliance between Publicis and Dentsu. Dentsu
will also enter into a shareholders' agreement with Madame Badinter regarding
the voting of Dentsu's and Madame Badinter's Publicis shares and other matters
relating to their ownership of Publicis shares after completion of the mergers.
APPRAISAL RIGHTS (SEE PAGES 53 THROUGH 56)
Holders of Bcom3 common stock have appraisal rights under Delaware law in
connection with the mergers. Any holder who wishes to exercise appraisal rights
with respect to a merger proposal must not vote in favor of that proposal and
must deliver a written demand for appraisal to Bcom3
12
prior to the Bcom3 stockholder vote. At that time, the holder will also need to
make special arrangements with the voting trustees under the voting trust. After
the relevant merger closes, the holder would then need to take additional steps
to perfect his or her appraisal rights, including filing a petition in the
Delaware Court of Chancery. For a complete description of all the required
procedures, please see the discussion under the caption "The Mergers --
Appraisal Rights."
Pursuant to the stock purchase agreement between Bcom3 and each Class A
stockholder, the amount in cash that Bcom3 Class A stockholders are entitled to
receive in any appraisal proceeding is limited to the number of their shares
multiplied by the Per Share Book Value (as such term is defined in the stock
purchase agreement) of Bcom3, as determined in accordance with the stock
purchase agreement. The Per Share Book Value as of December 31, 2001 was $26.30
for former stockholders of The Leo Group and $7.38 for former stockholders of
The MacManus Group.
BOARD COMPOSITION AND RELATED MATTERS AFTER THE MERGERS (SEE PAGES 106 THROUGH
113)
Following the mergers, Roger A. Haupt, the current chairman and CEO of
Bcom3, will join the Publicis management board, which is Publicis's governance
body which manages the day-to-day affairs of Publicis, as an additional member
and will serve as the President and Chief Operating Officer of Publicis. In
addition, Messrs. Narita and Oshima, as Dentsu designees, will serve on the
Publicis supervisory board after completion of the mergers.
THE INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGERS MAY DIFFER FROM YOUR
INTERESTS (SEE PAGES 58 THROUGH 63)
When you consider the mergers, you should be aware that a number of Bcom3
and Publicis directors and officers may have interests in the mergers that may
be different from, or in addition to, yours. These interests are described
starting on page 58.
CONDITIONS TO COMPLETION OF THE MERGERS (SEE PAGES 75, 76 AND 88 THROUGH 90)
The completion of the mergers depends upon meeting a number of conditions,
including the following:
- approval of the merger agreements and the mergers by the stockholders of
Bcom3;
- approval of the Publicis/Bcom3 merger agreement and related corporate
matters by the shareholders of Publicis;
- accuracy as of the closing date of the representations and warranties of
Publicis and Bcom3, except where the failure to be accurate would not
have a material adverse effect;
- compliance by Publicis and Bcom3 with their respective obligations under
the Publicis/Bcom3 merger agreement, except where the failure to comply
would not have a material adverse effect;
- absence of any law or court order prohibiting the mergers;
- receipt of all material regulatory approvals for the mergers, including
antitrust approvals in the United States and Europe;
- receipt of legal opinions relating to certain tax matters; and
- holders of not more than 5% of the outstanding Bcom3 common stock having
exercised appraisal rights.
The prior completion of the first step merger is a condition to the
completion of the Publicis/Bcom3 merger, and the satisfaction or waiver of the
closing conditions to the Publicis/Bcom3 merger is a condition to the closing of
the first step merger.
REGULATORY APPROVALS (SEE PAGES 56 AND 57)
Publicis and Bcom3 are not required to close the Publicis/Bcom3 merger
unless the regulatory conditions to completion of the mergers, including the
requisite antitrust clearances, are satisfied.
The applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, which is referred to in this document as
the HSR Act, expired on May 13, 2002. On June 18, 2002, Publicis and Bcom3
received notice
13
from the European Commission that it has terminated its review and granted its
approval of the Publicis/Bcom3 merger. Publicis and Bcom3 have also made the
required filings in other jurisdictions.
THE MERGER AGREEMENTS MAY BE TERMINATED (SEE PAGES 76, 90, AND 91)
Either Publicis or Bcom3 can terminate the Publicis/Bcom3 merger agreement
if any of the following occurs:
(1) the merger is not completed by September 30, 2002, or by December 7,
2002 if the reason for not closing by September 30, 2002 is that the
regulatory conditions specified in the Publicis/Bcom3 merger agreement
have not been satisfied (each date is referred to in this document as
an "outside date");
(2) the Publicis or Bcom3 stockholders do not give the required approvals;
(3) a final and nonappealable law or court order prohibits the
Publicis/Bcom3 merger; or
(4) there is a material breach by the other party of the representations
and warranties in the Publicis/Bcom3 merger agreement which is not
cured.
In addition, Bcom3 can terminate the Publicis/Bcom3 merger agreement if:
(5) the Publicis supervisory board or management board changes its
recommendation of the Publicis/Bcom3 merger in a manner adverse to
Bcom3;
(6) the Publicis supervisory board or management board recommends another
acquisition proposal to its shareholders; or
(7) a tender offer for 50% or more of the outstanding Publicis shares is
commenced, and the management or supervisory board of Publicis fails
to recommend against or takes no position with respect to the tender
offer.
Similarly, Publicis can terminate the Publicis/Bcom3 merger agreement if:
(8) the Bcom3 board changes its recommendation of the Publicis/Bcom3
merger in a manner adverse to Publicis;
(9) the Bcom3 board recommends another acquisition proposal to its
stockholders; or
(10) a tender offer for 50% or more of the outstanding Bcom3 shares is
commenced, and the board of directors of Bcom3 fails to recommend
against or takes no position with respect to the tender offer.
The board of directors of Bcom3 and the supervisory board and management
board of Publicis can also mutually agree to terminate the Publicis/Bcom3 merger
agreement, even if the merger has been approved by each company's stockholders.
The first step merger agreement can be terminated by Bcom3 or Dentsu upon
termination of the Publicis/Bcom3 merger agreement.
FEES MAY BE PAYABLE ON TERMINATION (SEE PAGES 91 AND 92)
Bcom3 must pay Publicis a termination fee of $90 million in cash in the
following circumstances:
- the Publicis/Bcom3 merger agreement is terminated as described under
items (8), (9) or (10) above;
- the Publicis/Bcom3 merger agreement is terminated as described under item
(2) above because the Bcom3 stockholders fail to approve the merger;
prior to the Bcom3 stockholder meeting a competing acquisition proposal
is made for Bcom3; and within 12 months after the termination of the
Publicis/Bcom3 merger agreement, Bcom3 enters into a definitive agreement
for any acquisition proposal or such a transaction is completed; or
- the Publicis/Bcom3 merger agreement is terminated as described under item
(1) above; prior to the applicable outside date, a competing acquisition
proposal is made for Bcom3; and within 12 months after the termination of
the Publicis/Bcom3 merger agreement, Bcom3 enters into a definitive
agreement for any acquisition proposal or such a transaction is
completed.
14
Publicis must pay Bcom3 a termination fee of $90 million in cash in the
following circumstances:
- the Publicis/Bcom3 merger agreement is terminated as described under
items (5), (6) or (7) above;
- the Publicis/Bcom3 merger agreement is terminated as described under item
(2) above because the Publicis stockholders fail to approve the merger;
prior to the Publicis stockholder meeting a competing acquisition
proposal is made for Publicis; and within 12 months after the termination
of the Publicis/Bcom3 merger agreement, Publicis enters into a definitive
agreement for any acquisition proposal or such a transaction is
completed; or
- the Publicis/Bcom3 merger agreement is terminated as described under item
(1) above; prior to the applicable outside date, a competing acquisition
proposal is made for Publicis; and within 12 months after the termination
of the Publicis/Bcom3 merger agreement, Publicis enters into a definitive
agreement for any acquisition proposal or such a transaction is
completed.
DIFFERENCES OF RIGHTS OF PUBLICIS AND BCOM3 STOCKHOLDERS
There are a number of material differences between the rights of
stockholders under Bcom3's governing instruments and Publicis's governing
instruments. Please refer to "Comparative Rights of Publicis Shareholders and
Bcom3 Stockholders" starting on page 177 for a description of these differences.
CURRENCIES AND EXCHANGE RATES
References in this document to "U.S. dollars," "dollars" and "$" are to the
currency of the United States and references to "euros" and "E" are to the
currency of the European Union. Solely for your convenience, this proxy
statement/prospectus contains translations of euro amounts into U.S. dollars at
specified rates. You should not take these translations as assurances that the
translated euro amounts represent current U.S. dollar amounts or that euro
amounts have been, could have been or could be converted into U.S. dollars at
the rate indicated or at any other rate, at any time.
Under the provisions of the Treaty on European Union negotiated at
Maastricht in 1991 and signed by the then 12 member states of the European Union
in early 1992, a European Monetary Union, known as EMU, was implemented on
January 1, 1999 and a single European currency, known as the euro, was
introduced. The following 12 member states participate in EMU and have adopted
the euro as their national currency: Austria, Belgium, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain. The
legal rate of conversion between the French franc and the euro was fixed on
December 31, 1998 at E1.00 = FF 6.55957, and we have translated French francs
into euros at that rate.
In this proxy statement/prospectus, unless otherwise stated, euros have
been translated, solely for your convenience, into U.S. dollars at a rate of
$0.8813 per E1.00, the noon buying rate in New York City on December 31, 2001
for cable transfers in euros as certified for customs purposes by the Federal
Reserve Bank of New York. On August 9, 2002, the latest practicable date for
which exchange rate information was available before the filing of this proxy
statement/prospectus, the noon buying rate in New York City for cable transfers
in euros as certified for customs purposes by the Federal Reserve Bank of New
York was $0.9714 per E1.00.
Share capital in Publicis is represented by ordinary shares with a nominal
value of E0.40 per share. Publicis's shares are denominated in euros. Because
Publicis intends to pay cash dividends denominated in euros, exchange rate
fluctuations will affect the U.S. dollar amounts that Publicis's shareholders
will receive on conversion of dividends from euros to dollars.
15
The following table shows the French franc/U.S. dollar exchange rate for
1997 and 1998 based on the noon buying rate expressed in French francs per
$1.00, and the U.S. dollar/euro exchange rate for 1999 through August 9, 2002
based on the noon buying rate expressed in U.S. dollars per one euro.
PERIOD AVERAGE
END RATE(1) HIGH LOW
------ ------- ---- ----
U.S. DOLLAR/EURO
August 2002 (through August 9, 2002)................... 0.97 0.98 0.99 0.96
July 2002.............................................. 0.98 0.99 1.02 0.97
June 2002.............................................. 0.99 0.96 0.99 0.94
May 2002............................................... 0.93 0.92 0.94 0.90
April 2002............................................. 0.90 0.89 0.90 0.88
March 2002............................................. 0.87 0.88 0.88 0.87
February 2002.......................................... 0.87 0.87 0.88 0.86
2001................................................... 0.89 0.89 0.95 0.84
2000................................................... 0.94 0.92 1.03 0.83
1999................................................... 1.01 1.06 1.18 1.00
FRENCH FRANC/U.S. DOLLAR
1998................................................... 5.62 5.90 6.17 5.41
1997................................................... 5.99 5.85 6.35 5.21
---------------
(1) For yearly totals, this is the average of the noon buying rates for French
francs or euros, as the case may be, on the last business day of each month
during the relevant period.
For a discussion of the impact of exchange rate fluctuations on Publicis's
results of operations, see "Operating and Financial Review and Prospects" in
Publicis's Annual Report on Form 20-F/A for its 2001 fiscal year that is
incorporated herein by reference.
16
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
PUBLICIS GROUPE S.A.
The selected historical consolidated financial data of Publicis presented
below for the fiscal years ended December 31, 2001, 2000 and 1999 were derived
from Publicis's historical consolidated financial statements and the related
notes contained in Publicis's Annual Report on Form 20-F/A for the fiscal year
ended December 31, 2001, which is incorporated by reference into this proxy
statement/prospectus. In addition, Publicis's selected historical consolidated
financial data below for the fiscal years ended December 31, 1998 and 1997 were
derived from Publicis's audited historical financial statements and the related
notes for the fiscal years 1998 and 1997. You should read the selected financial
data below in conjunction with these financial statements and notes. The
financial statements have been prepared in accordance with French GAAP, which
differs in certain significant respects from U.S. GAAP. Note 29 to Publicis's
consolidated financial statements as of December 31, 2001 describes the
principal differences between French GAAP and U.S. GAAP as they relate to
Publicis. The information below and Publicis's consolidated financial statements
are reported in euros. For your convenience, we have also presented U.S. dollar
amounts for fiscal year 2001, calculated at the rate of (a) U.S. $0.8813 per
E1.00, which was the Federal Reserve Bank of New York noon buying rate at
December 31, 2001, with respect to the balance sheet data, and (b) U.S. $0.8956
per E1.00, which was the average exchange rate for 2001, with respect to the
income statement data. Historical financial information may not be indicative of
future performance.
1997(2) 1998(2) 1999 2000(3) 2001 2001
------- ------- ----- ------- ----- ---------------
(IN E MILLIONS EXCEPT PER SHARE DATA (IN $ MILLIONS
AND AS OTHERWISE NOTED) EXCEPT PER
SHARE DATA AND
AS OTHERWISE
NOTED)
INCOME STATEMENT DATA:
Revenue............................. 663 851 1,042 1,770 2,434 $2,180
AMOUNTS IN ACCORDANCE WITH FRENCH
GAAP
Operating income.................... 86 116 156 275 342 306
Group net income.................... 35 47 74 128 151 135
Basic earnings per share(1)......... 0.51 0.59 0.85 1.18 1.09 0.98
Diluted earnings per share(1)....... 0.47 0.56 0.84 1.15 1.08 0.97
Dividends per share(1).............. 0.08 0.12 0.17 0.20 0.22 0.20
AMOUNTS IN ACCORDANCE WITH U.S. GAAP
Group net income.................... -- -- 73 34 (647) (579)
Basic earnings per share(1)......... -- -- 0.84 0.31 (4.76) (4.26)
Diluted earnings per share(1)....... -- -- 0.83 0.31 (4.76) (4.26)
BALANCE SHEET DATA:
AMOUNTS IN ACCORDANCE WITH FRENCH
GAAP
Tangible and intangible assets,
net.............................. 255 383 437 1,303 1,618 $1,426
Total assets........................ 1,290 1,604 2,077 4,130 4,896 4,315
Bank borrowings and overdrafts
(short-and long-term)............ 124 124 212 901 1,069 942
Shareholders' equity................ 240 314 345 299 283 249
AMOUNTS IN ACCORDANCE WITH U.S. GAAP
Shareholders' equity................ -- -- 580 2,622 1,890 1,666
---------------
(1) Per share data have been adjusted to reflect the 10-for-1 stock split that
occurred on August 29, 2000.
(2) Amounts have been restated from French francs into euros using the exchange
rate set by the Council of the European Union for use as of January 1, 1999
of E1 = FF 6.55957.
(3) 2000 amounts include the operations of Saatchi & Saatchi for the period from
the acquisition date in September 2000 through December 31, 2000.
17
BCOM3 GROUP, INC.
The following selected financial data of Bcom3 should be read in
conjunction with its financial statements and notes included elsewhere in this
proxy statement/prospectus. The financial data below were prepared in accordance
with U.S. GAAP. Historical financial information may not be indicative of
Bcom3's future performance.
LEO BURNETT WORLDWIDE, INC.
--------------------------------------- BCOM3 GROUP, INC.
(FORMERLY KNOWN AS THE LEO GROUP, INC.) ---------------------------------------------------
(PREDECESSOR COMPANY) SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- ------------------------- -----------------------
1997 1998 1999 2000(5) 2001 2001 2002
----------- ----------- ----------- ----------- ----------- ---------- ----------
(IN $ THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
OPERATING DATA:
Revenue...................... $ 811,300 $ 831,100 $ 934,200 $1,833,727 $1,917,343 $ 927,111 $ 932,375
Nonrecurring charge(1)....... $ -- $ -- $ -- $ 71,889 $ -- $ -- $ --
Amortization of
intangibles(2)............. $ 1,900 $ 5,700 $ 8,300 $ 71,468 $ 78,256 $ 38,990 $ 7,600
Restructuring and other
special charges............ $ -- $ -- $ -- $ -- $ 20,252 $ 3,248 $ --
Net income (loss)............ $ 17,000 $ 22,700 $ 28,500 $ (65,613) $ 26,081 $ 7,019 $ 54,236
Net loss per common share,
basic and diluted(3)....... $ -- $ -- $ -- $ (36.34) $ (11.36) $ (6.01) $ 1.42
Dividends declared per common
share(4)................... $ -- $ -- $ 0.60 $ -- $ 0.25 $ 0.25 $ 0.25
Cash distributions to S
corporation stockholders... $ 19,976 $ 11,901 $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA:
Working capital.............. $ 137,200 $ 44,200 $ 53,900 $ 264,116 $ (141,655) $ 196,450 $ (159,234)
Total assets................. $1,258,500 $1,338,000 $1,601,000 $4,433,879 $4,106,439 $4,322,981 $4,516,018
Long-term obligations:
Long-term debt less current
maturities............... $ 4,900 $ 7,800 $ 2,600 $ 389,128 $ 9,450 $ 342,382 $ 8,032
Real estate finance
obligation............... $ 219,500 $ 214,200 $ 203,400 $ 195,321 $ 187,714 $ 191,271 $ 183,171
Deferred compensation and
accrued retirement
benefits................. $ 49,400 $ 46,700 $ 45,100 $ 117,749 $ 110,309 $ 110,266 $ 110,883
Mandatorily redeemable
stock.................... $ 157,800 $ 151,200 $ 195,100 $ 239,126 $ 301,494 $ 257,979 $ 360,619
---------------
(1) The nonrecurring charge (with no associated tax benefit) is related to a Leo
Burnett stock redemption offer made in connection with the business
combination which created Bcom3. See Note 8 to the Consolidated Financial
Statements of Bcom3 for additional information.
(2) Of this amount, $64.9 million, $69.5 million, $34.8 million and $7.4 million
represent the amortization charge for the years ended December 31, 2000 and
2001 and the six months ended June 30, 2001 and 2002, respectively, which
resulted from the business combination. The remainder primarily represents
goodwill amortization related to other acquisitions.
(3) Net loss per common share is calculated only on the outstanding Class B
common stock, which was issued to Dentsu in March 2000 in connection with
its investment in Bcom3. All Class A common stock is treated as Mandatorily
redeemable stock and is excluded from the calculation.
(4) Dividends declared per common share for the year ended December 31, 1999
exclude distributions to stockholders when Leo Burnett was a Subchapter S
corporation. These distributions were primarily made to cover the
stockholders' tax liabilities with respect to the flow-through of S
corporation income to their individual income tax returns.
(5) The 2000 results include 11 months for MacManus and a full year for Leo
Burnett.
18
PRO FORMA INFORMATION:
Pursuant to accounting pronouncement SFAS No. 142, "Goodwill and Other
Intangible Assets," goodwill is no longer required to be amortized as of January
1, 2002, and the effect of the adoption of SFAS No. 142 by companies should be
reflected prospectively. Bcom3 has provided below supplemental comparative
disclosure as if the change required by SFAS 142 had been retroactively applied
for each of the three years ended December 31, 2001 and the six-month period
ended June 30, 2001, and the actual results for the six months ended June 30,
2002 (in thousands except per share data):
LEO BURNETT
WORLDWIDE, INC.
-----------------------
(FORMERLY KNOWN AS BCOM3 GROUP, INC.
THE LEO GROUP, INC.) --------------------------------------
(PREDECESSOR COMPANY) YEARS ENDED SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, JUNE 30,
----------------------- ------------------ -----------------
1999 2000 2001 2001 2002
----------------------- -------- ------- ------- -------
(UNAUDITED)
NET INCOME:
Reported net income.............. $28,500 $(65,613) $26,081 $ 7,019 $54,236
Goodwill amortization............ 6,400 47,542 51,061 29,759 --
------- -------- ------- ------- -------
Adjusted net income.............. $34,900 $(18,071) $77,142 $36,778 $54,236
======= ======== ======= ======= =======
BASIC AND DILUTED (LOSS) EARNINGS
PER CLASS B COMMON SHARE:
Reported basic and diluted (loss)
earnings per Class B common
share.......................... n/a $ (36.34) $(11.36) $ (6.01) $ 1.42
Goodwill amortization............ n/a 13.90 11.92 5.01 --
-------- ------- ------- -------
Adjusted basic and diluted (loss)
earnings per Class B common
share.......................... n/a $ (22.44) $ 0.56 $ (1.00) $ 1.42
======== ======= ======= =======
19
UNAUDITED PRO FORMA CONDENSED SELECTED FINANCIAL DATA
Publicis and Bcom3 are providing the following unaudited pro forma
condensed selected financial data to give you a better picture of what the
results of operations and financial position of the combined businesses of
Publicis and Bcom3 might have looked like had the mergers occurred on an earlier
date. We are providing this information for illustrative purposes only. This
information does not purport to represent what the results of operations or
financial position of Publicis would have been if the mergers had actually
occurred on that earlier date. This information is also not necessarily
indicative of what Publicis's future operating results or consolidated financial
position will be.
See "Publicis Unaudited Pro Forma Condensed Consolidated Financial
Information" beginning on page 119 for a more detailed explanation of this
analysis.
BASIS OF PREPARATION
The unaudited pro forma condensed selected financial data has been prepared
in accordance with French GAAP, which differs in certain significant respects
from U.S. GAAP. See Note 29 to the financial statements included in Publicis's
Annual Report on Form 20-F/A for the year ended December 31, 2001 for a
description of the principal differences between French GAAP and U.S. GAAP as
they relate to Publicis. The unaudited pro forma condensed consolidated
financial information has been derived from: (1) the historical consolidated
balance sheet of Publicis at December 31, 2001 from Publicis's Annual Report on
Form 20-F/A for the fiscal year 2001 incorporated herein by reference, (2) the
historical consolidated balance sheet of Bcom3 at December 31, 2001 from Bcom3's
Annual Report on Form 10-K for the year ended December 31, 2001, (3) the
historical consolidated income statement of Publicis for the year ended December
31, 2001, (4) the historical consolidated income statement of Bcom3 for the year
ended December 31, 2001, (5) certain reclassifications to align Bcom3's
historical financial information with Publicis's presentation under French GAAP,
(6) unaudited adjustments to align Bcom3's historical financial information with
Publicis's disclosed accounting policies under French GAAP, and (7) the
unaudited pro forma adjustments described in the notes to the unaudited pro
forma condensed consolidated financial information.
Publicis intends to account for the merger using the "purchase" method of
accounting for business combinations under French GAAP as well as U.S. GAAP. The
pro forma consolidated financial data has been prepared on this basis.
20
UNAUDITED PRO FORMA INCOME STATEMENT DATA
The unaudited pro forma income statement data for the year ended December
31, 2001 assume that the mergers took place on January 1, 2001.
YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2001
----------------- -----------------
(IN E MILLIONS (IN $ MILLIONS
EXCEPT PER SHARE EXCEPT PER SHARE
DATA) DATA)(1)
AMOUNTS UNDER FRENCH GAAP
Revenue............................................. E4,592 $4,113
Operating income.................................... 592 530
Group net income.................................... 151 135
Basic earnings per share............................ 0.75 0.67
Dividends per share................................. 0.18 0.17
AMOUNTS UNDER U.S. GAAP
Revenue............................................. E4,575 $4,097
Operating income.................................... (308) (275)
Group net income.................................... (597) (534)
Basic earnings per share............................ (3.14) (2.81)
Dividends per share................................. 0.18 0.16
---------------
(1) Average exchange rate for 2001 used: U.S. $0.8956 per E1.00.
UNAUDITED PRO FORMA BALANCE SHEET DATA
The unaudited pro forma balance sheet data we provide below assume that the
mergers took place on December 31, 2001.
AS OF AS OF
DECEMBER 31, 2001 DECEMBER 31, 2001
----------------- ------------------
(IN E MILLIONS) (IN $ MILLIONS)(1)
AMOUNTS UNDER FRENCH GAAP
Current assets...................................... E5,908 $5,207
Tangible and intangible assets, net................. 6,466 5,698
Total assets........................................ 12,374 10,905
Bank borrowings and overdrafts (short- and
long-term)........................................ 2,203 1,942
Shareholders' equity................................ 2,857 2,518
AMOUNTS UNDER U.S. GAAP
Currents assets..................................... 5,772 5,087
Tangible and intangible assets, net................. 9,125 8,041
Total assets........................................ 14,897 13,128
Total debt (short- and long-term)................... 1,795 1,582
Shareholders' equity................................ 5,353 4,718
---------------
(1) Exchange rate on December 31, 2001 used: U.S. $0.8813 per E1.00.
21
COMPARATIVE PER SHARE DATA
We present below historical and pro forma per share data and pro forma
equivalent per share data of Publicis and Bcom3 to reflect the completion of the
mergers, based upon the historical financial results of Publicis and Bcom3. The
pro forma data are not necessarily indicative of the results of future
operations or the actual results that would have occurred had the mergers been
completed at the beginning of the period presented. You should read the data
presented below together with the audited historical consolidated financial
statements, including applicable notes, of Publicis contained in the Annual
Report on Form 20-F/A for Publicis's 2001 fiscal year that are incorporated
herein by reference, the audited historical consolidated financial statements,
including applicable notes, of Bcom3 that are included elsewhere in this proxy
statement/prospectus, and the "Publicis Unaudited Pro Forma Condensed
Consolidated Financial Information" appearing in this proxy statement/prospectus
beginning on page 119. For the selected French GAAP amounts we present below,
Bcom3's historical audited financial position and results of operations include
unaudited adjustments to restate the amounts in French GAAP and conform with
Publicis's disclosed accounting policies under French GAAP as described in the
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information.
The amount of cash dividends per Publicis share reflects the E.22 dividend that
Publicis paid in respect of the year ended December 31, 2001.
YEAR ENDED DECEMBER 31, 2001
-----------------------------------------------------------
PRO
PRO FORMA FORMA
HISTORICAL PER HISTORICAL PER COMBINED EQUIVALENT
PUBLICIS BCOM3 PER PUBLICIS PER BCOM3
ORDINARY COMMON ORDINARY COMMON
SHARE SHARE SHARE SHARE(4)
-------------- -------------- ------------ ----------
AMOUNTS UNDER FRENCH GAAP
Income from continuing operations:
Basic................................... E 1.09 E 1.28 E 0.75(1) $ 1.46
Diluted................................. 1.08 1.28 0.67(1) 1.31
Book value................................. 2.03 75.55 14.59(2) 28.04
AMOUNTS UNDER U.S. GAAP
Income from continuing operations:
Basic................................... (4.39) 1.49 (3.14)(1) (6.19)
Diluted................................. (4.39) 1.49 (3.14)(1) (6.19)
Book value................................. 13.54 58.33 27.33 (2) 52.53
CASH DIVIDENDS DECLARED...................... 0.22 0.28 0.18 (3) 0.36
---------------
(1) From the pro forma condensed consolidated financial information (see pages
121 and 127).
(2) Represents the shareholders' equity divided by the outstanding numbers of
shares following the transaction.
(3) Dividends declared by Bcom3 and Publicis divided by the outstanding number
of shares following the transaction.
(4) Computed by multiplying the Pro Forma Combined per Publicis Ordinary Share
column, converted into U.S. $, by the weighted average exchange ratio of
2.18 Publicis shares for each Bcom3 share. The exchange ratio is calculated
based on a weighted average of Bcom3's outstanding Class A and Class B
shares as of December 31, 2001.
SEE PAGE 117 FOR HISTORICAL DIVIDEND DATA FOR PUBLICIS AND BCOM3 UNDER THE
CAPTION "COMPARATIVE MARKET PRICE, TRADING VOLUME AND DIVIDEND DATA."
22
MARKET PRICE DATA (SEE PAGE 117)
We present below the per share closing prices for Publicis ordinary shares
as quoted on the Premier Marche of Euronext Paris. These prices are presented
for March 6, 2002, the last trading day before the public announcement of the
signing of the merger agreements, and August 9, 2002. The Bcom3 common stock has
not been and is not currently publicly traded.
PUBLICIS
ORDINARY
SHARE
PRICE
--------
March 6, 2002............................................... E34.65
August 9, 2002.............................................. E21.07
BCOM3 STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
PUBLICIS ORDINARY SHARES BEFORE MAKING A DECISION WITH RESPECT TO THE MERGERS.
RATIO OF EARNINGS TO FIXED CHARGES
Publicis's ratio of earnings to fixed charges has been as follows:
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges -- French
GAAP........................................... 10.5 9.1 10.4 6.0 3.5
---- --- ---- --- ---
Ratio of Earnings to Fixed Charges -- U.S.
GAAP........................................... --(1) --(1) 10.3 3.8 --(2)
---- --- ---- --- ---
---------------
(1) Publicis did not reconcile its financial statements for the fiscal years
1997 and 1998 to U.S. GAAP.
(2) Earnings as defined below are negative, due to a non-recurring E584 million
goodwill impairment charge. The deficiency to a one-to-one ratio of earnings
to fixed charges is E560 million.
For the purpose of computing Publicis's ratio of earnings to fixed charges,
earnings consist of net group income before income taxes, minority interests and
fixed charges. Fixed charges consist of interest (including capitalized
interest) on all indebtedness and that portion of rental expense which we
believe to be representative of an interest factor.
During the period from January 1, 1997 until March 31, 2002, no shares of
Publicis preferred stock were issued or outstanding, and during that period
Publicis did not pay any preferred stock dividends.
DEREGISTRATION OF BCOM3 COMMON SHARES FOLLOWING THE MERGER
After the completion of the mergers, Bcom3 common shares will be
deregistered under the Exchange Act.
23
RISK FACTORS RELATING TO THE MERGERS
By voting in favor of the mergers, you will be choosing to invest in
Publicis ordinary shares and other Publicis securities. An investment in these
shares and other securities involves a high degree of risk. In addition to the
other information contained in or incorporated by reference into this document,
you should carefully consider the following risk factors in deciding whether to
vote for the matters presented in connection with the mergers.
BCOM3'S STOCKHOLDERS WILL RECEIVE A FIXED NUMBER OF PUBLICIS SECURITIES IN
THE MERGERS EVEN IF THE MARKET VALUE OF PUBLICIS ORDINARY SHARES CHANGES.
Upon the completion of the mergers, each share of Bcom3 common stock will
be exchanged for the right to receive, in addition to the net proceeds from the
sale of Publicis notes, a fixed number of Publicis equity securities (Publicis
ordinary shares, ORAs and warrants). There will be no adjustment to the amount
of these securities to be delivered to Bcom3 stockholders for changes in the
market price of Publicis ordinary shares, and neither Publicis nor Bcom3 may
terminate the merger agreement solely because of changes in the market price of
Publicis ordinary shares. Accordingly, the value of the securities you receive
as merger consideration at any time on or after the completion of the mergers
(including the time at which such securities become freely transferable) will
depend on the market value of Publicis ordinary shares at such time and may
decrease from the date you submit your proxy or instruction card.
The share price of Publicis ordinary shares is by nature subject to the
general price fluctuations in the market for publicly-traded equity securities
and has experienced volatility in the past. Among the factors which may
contribute to these price fluctuations and volatility are prevailing interest
and currency exchange rates, the rate at which Publicis pays dividends, the
financial condition and the prospects of Publicis and other circumstances beyond
its control, including general economic conditions.
Because the price of Publicis ordinary shares does fluctuate, and because
the value of the Publicis securities you receive in connection with the merger
depends, at least in part, on the market value of the Publicis ordinary shares,
the amount of cash which you could actually receive for any of the securities
offered in connection with the Publicis/Bcom3 merger at the time such securities
become available for sale may differ significantly from the amount which you
could have received if you had been able to sell the securities on the date you
submit your proxy or instruction card, at the time of the closing of the mergers
or at any time thereafter. Neither Publicis nor Bcom3 can predict or give
assurances as to the market price of Publicis ordinary shares at any time before
or after the mergers. For historical and current market prices of the Publicis
ordinary shares, see "Comparative Market Price, Trading Volume and Dividend
Data" starting on page 117.
BECAUSE THE PUBLICIS SECURITIES YOU RECEIVE IN THE MERGER WILL BE SUBJECT
TO TRANSFER RESTRICTIONS AND ORDERLY MARKETING PROCEDURES UPON COMPLETION OF THE
MERGERS, YOU MAY NOT BE ABLE TO SELL THEM AT THE TIME, IN THE AMOUNT AND AT THE
PRICE THAT MAY HAVE BEEN POSSIBLE IF THE SECURITIES HAD BEEN FREELY TRANSFERABLE
IMMEDIATELY AFTER CLOSING.
The Publicis/Bcom3 merger agreement provides that the Publicis ordinary
shares, including shares resulting from the reversion of the bare legal title to
usufruct holders, that are part of the merger consideration for Class A shares
will (subject to certain limited exceptions) become transferable only on the
following schedule: 25% after six months, 50% after 12 months, 75% after 18
months, and 100% after 24 months, all measured from the closing date of the
mergers. The ORAs and warrants that are part of the merger consideration will
become transferable on the following schedule: 25% after 30 months, 50% after 36
months, 75% after 42 months and 100% after 48 months, all measured from the
closing date of the mergers. Prior to the expiration of each of these lock-up
periods, holders of Bcom3 Class A common stock will be prohibited from selling
their Publicis securities. When those securities become transferable, they will
be subject to certain additional orderly marketing requirements concerning the
conditions under which Class A stockholders can sell their securities on the
public markets. These requirements will cease to apply to the Publicis ordinary
shares on the 30-month anniversary of the closing date of the mergers and to the
ORAs and warrants on the 54-month anniversary of the closing date of the
mergers. These restrictions are described in more detail under the caption
"Transfer Restrictions on Publicis Securities and Other Consideration." The
transfer restrictions may require that stockholders hold the securities for a
longer period than they desire and, if Publicis's stock
24
price were to decline, sell at a lower price than they would have been able to
receive if the securities had been freely transferable at the time of the
closing of the mergers or in the period thereafter during which these
restrictions apply. In addition, the requirements imposed upon the public sale
of the securities once they become transferable (i.e., until the 30-month
anniversary or the 54-month anniversary of the closing, as applicable) may, in
certain circumstances, result in Class A stockholders being unable to sell
securities in the amounts and at the price desired on the public market at a
time of their choosing. In any event, any expected value for the securities
portion of the Class A merger consideration may not be realizable when Bcom3
stockholders are free to transfer such securities.
YOU MAY NOT BE ABLE TO SELL THE ORAS OR THE WARRANT PORTION OF THE OBSAS IF
NO TRADING MARKET DEVELOPS OR IF ONE CANNOT BE SUSTAINED, AND THESE SECURITIES
MAY TRADE AT A SIGNIFICANT DISCOUNT TO THE TRADING PRICE OF THE PUBLICIS
ORDINARY SHARES EVEN IF A MARKET DOES DEVELOP.
Although Publicis has agreed to apply to have the ORAs and the warrants
admitted for trading on Euronext Paris within five business days after the
closing date, they are new issues for which there is currently no active trading
market and there is no guarantee that a market in these securities will develop.
There can be no assurance that any market that may develop once the ORAs and
warrants become free of transfer restrictions will be sustained, nor can there
be any assurance as to the prices at which the ORAs and warrants will trade. It
is anticipated, in any event, that the ORAs would likely trade at a discount to
the trading price of Publicis ordinary shares due to, among other reasons, the
lack of liquidity of the trading market for the ORAs. The amount of this
discount cannot be estimated, but it may be significant. The price in U.S.
dollars of the ORAs over time would depend on a number of factors, including the
price and volatility of the Publicis ordinary shares and the rate at which
Publicis pays dividends. Other factors include prevailing interest and currency
exchange rates, the market for the ORAs and similar securities, the remaining
life of the ORAs, the financial condition and the prospects of Publicis and
other circumstances beyond Publicis's control, including general economic
conditions. Similarly, the price of the warrants in U.S. dollars over time would
depend on a number of factors, including the price and volatility of Publicis
ordinary shares, the financial condition and the prospects of Publicis, the rate
at which Publicis pays dividends, the prevailing interest and currency exchange
rates, the market for the warrants and similar securities, the remaining life of
the warrants and other circumstances beyond Publicis's control, including
general economic conditions.
THERE IS NO CERTAINTY AS TO THE AMOUNT OF NET PROCEEDS THAT WILL RESULT
FROM THE SALE OR THE TIMING OF THE SALE OF THE OBSA NOTES. THE SALE OF THE NOTES
WILL PRESENT MARKETING CHALLENGES. THE NET PROCEEDS FROM THE SALE WILL REFLECT A
SUBSTANTIAL DISCOUNT TO THE PRINCIPAL AMOUNT OF THE NOTES AND MAY BE MATERIALLY
LESS THAN THE HYPOTHETICAL VALUATION REFLECTED IN THE PRO FORMA FINANCIAL
STATEMENTS.
One significant component of the consideration that Bcom3 stockholders are
to receive in the mergers is the net proceeds from the sale of the OBSA notes.
There is no existing trading market for the notes, and there can be no certainty
as to when the notes will be sold or the amount of net proceeds that will result
from the sale. The actual amount of net proceeds that holders of Bcom3 common
stock will receive will depend on market conditions, market demand for the
notes, the financial condition, credit profile and prospects of Publicis,
selling costs and expenses, and the size of the payment to Bcom3 option holders.
Because the notes bear a below-market 2.75% interest rate, the proceeds will be
less than the principal amount.
If the Bcom3 board has not otherwise made definitive arrangements to sell
the notes by the closing of the mergers, Bcom3 will appoint a marketing agent,
reasonably acceptable to Publicis, for the sale. The marketing agent will be
instructed to use reasonable best efforts to sell the notes for cash after the
closing. The proceeds to be received in the sale may also include non-cash
components and/or the marketing agent may effect a distribution-in-kind of the
notes, so long as the marketing agent has received the prior written consent of
persons who held at least a majority of the Bcom3 shares outstanding immediately
prior to the first step merger and, in certain circumstances, the prior written
consent of Publicis. It is expected that the marketing agent will be one or more
individuals or an entity, who will in turn engage one or more financial
institutions to act as underwriter or placement agent for the sale. The terms,
conditions, timing and manner of the sale will be determined solely in the
discretion of the marketing agent. Under the terms of the marketing agent
25
agreement, the marketing agent will have no liability to any person for its
actions in connection with the sale, except in the case of the marketing agent's
gross negligence or willful misconduct.
After discussions with various financial institutions, Bcom3 believes that
the sale of the notes presents several marketing challenges and significant
execution risk. In addition to the 2.75% interest rate, the notes have
unconventional terms for the relevant Eurobond market, including a 20-year
maturity and an amortizing principal amount, and Publicis will not seek a credit
rating of the notes. Each of these factors is likely to limit the attractiveness
of the notes to potential purchasers and the price that such purchasers would be
willing to pay. Any successful sale will depend on successfully educating
potential purchasers about Publicis, its prospects and credit profile,
especially since this will be a relatively large debt offering in the Eurobond
market, and Publicis's first straight debt offering. As a result, a successful
sale will require significant cooperation from Publicis and Publicis has agreed
in the merger agreement to take all reasonably necessary action to permit,
expedite and facilitate the sale of the notes.
Because of these factors, the sale may not occur at closing and may be
delayed for an extended period, and the marketing agent may be required to
pursue alternate or multiple structures in order to market the notes. In
addition, the notes may be sold in stages over time, with the result that you
would only receive proceeds in stages as sales are made. When a sale does occur,
the net proceeds from the sale will reflect a substantial discount to the
principal amount of the notes and may be materially less than the hypothetical
valuation reflected in the pro forma financial statements.
THE PERFORMANCE OF THE COMBINED COMPANY MAY SUFFER IF IT IS NOT ABLE TO
RETAIN KEY PERSONNEL AFTER COMPLETION OF THE MERGERS.
Because Publicis's and Bcom3's respective employees, including their
creative, research, media, account and practice group specialists, and their
skills and relationships with clients are among the companies' most important
assets, the performance of the combined company will be affected by the ability
of the combined company to retain these employees after the completion of the
mergers. Although retention is a key issue for any successful company, it is of
particular relevance in this transaction because the merger itself will alter
some of the long-term incentives that currently apply to many key employees of
Bcom3, as explained below.
Upon completion of the mergers, all holders of Bcom3 employee stock options
will receive, upon cancellation of each stock option, cash in an amount equal to
the immediate U.S. dollar cash value of the blended merger consideration per
Class A share paid in both mergers, as determined in good faith by the Bcom3
board, less the exercise price of the option. Upon cancellation of their stock
options and the immediate receipt of this cash payment, employees of Bcom3 who
formerly held employee stock options subject to a five-year vesting period may
have less of an incentive to remain with Bcom3.
In addition, Bcom3 currently has contractual rights to repurchase Class A
common stock at the Per Share Book Value (as such term is defined in the stock
purchase agreement between Bcom3 and each Class A stockholder) of such stock
from holders who resign their employment. Bcom3 believes this repurchase right
has served as an incentive for some employee stockholders to remain with the
company. In connection with the mergers, it is anticipated that Bcom3 will waive
its right to repurchase the Class A common stock from its stockholders.
Publicis and Bcom3 cannot assure you that employees of Publicis or Bcom3,
including senior executives and key employees, will not terminate their
employment in connection with or after completion of the mergers. If the
combined company is unable to retain Publicis's and Bcom3's senior executives
and key employees, or to attract qualified personnel to replace any employees
who leave, the business of the combined company may be materially and adversely
affected.
THE PERFORMANCE OF THE COMBINED COMPANY WILL BE AFFECTED BY ITS ABILITY TO
RETAIN THE EXISTING CLIENTS OF PUBLICIS AND BCOM3 AND ATTRACT NEW CLIENTS.
Publicis and Bcom3 believe that the structure of the combined company and
other actions taken will ensure no conflicts of interest will be created in
connection with the mergers. However, the combined company's ability to retain
existing clients and attract new clients may, in some cases, be limited by
clients' policies on conflicts of interest. These policies, which are determined
by clients and may vary substantially
26
among them, can in some cases prevent one agency and, in limited circumstances,
different agencies within the same group, from performing similar services for
competing products or companies. There can be no assurance that some clients
will not terminate or diminish their relationships with agencies of the combined
company because of conflicts of interest which they perceive in the combination.
Moreover, because of the combined company's larger number of clients, there
could be a greater likelihood of conflict with potential new clients in the
future. If the combined company fails to maintain existing clients or attract
new clients, its business may be materially and adversely affected.
PUBLICIS'S MARKET PRICE COULD SUFFER IF THE COMBINED COMPANY DOES NOT
REALIZE THE EXPECTED GROWTH SYNERGIES OR COST SAVINGS.
Publicis expects that the merger will result in growth synergies, cost
savings and other benefits to the combined company. Publicis and Bcom3 also
expect the combined company to realize the benefits described below under the
caption "The Mergers -- Publicis's Reasons for the Mergers," "-- Recommendation
of the Special Committee and the Bcom3 Board" and "-- The Special Committee's
Reasons for the Mergers." However, estimates of growth synergies, cost savings
and other potential benefits of the mergers are inherently subject to
significant uncertainties and contingencies, many of which are beyond the
control of Publicis and Bcom3. There can be no assurances that the combined
company will achieve the expected growth synergies, cost savings and other
potential benefits of the mergers, and actual results may vary materially from
estimates. In particular, the combined company's ability to successfully realize
such growth synergies, cost savings and other potential benefits and the timing
of this realization may be affected by a variety of factors, including:
- the failure to effectively coordinate the operations and personnel of the
two companies and the diversion of the attention of management to matters
relating to such coordination;
- the difficulty of implementing cost savings across its broad geographic
areas of operations;
- unexpected events, including major changes in the advertising, marketing
and communication services industries;
- resistance from clients of Bcom3 to Publicis's representation of
competing clients and vice versa; and
- the failure to retain management and creative personnel.
If the growth synergies, cost savings or other potential benefits that
Publicis expects are not realized or are delayed, the market price of the
Publicis ordinary shares could be adversely affected.
PROVISIONS IN THE PUBLICIS/BCOM3 MERGER AGREEMENT RELATING TO THE
TERMINATION FEE MAY DISCOURAGE OTHER COMPANIES FROM TRYING TO ACQUIRE BCOM3.
Bcom3 has agreed to pay a termination fee of $90 million to Publicis under
specified circumstances, including circumstances where a third party other than
Publicis acquires Bcom3 after the termination of the Publicis/Bcom3 merger
agreement or where the Bcom3 board changes its recommendation with respect to
the Publicis/Bcom3 merger. See "The Publicis/Bcom3 Merger
Agreement -- Termination" and "-- Termination Fee." Although the special
committee of Bcom3's board believes that this provision would not preclude bona
fide alternative proposals to acquire Bcom3, this provision may in fact
discourage other companies from attempting to do so. Companies that are
discouraged from trying to acquire Bcom3 as a result of these provisions may
have otherwise been willing to offer greater value to Bcom3 stockholders than
Publicis has offered in the Publicis/Bcom3 merger agreement.
YOUR INTEREST IN PUBLICIS WILL BE DILUTED IF YOU ARE NOT ABLE TO EXERCISE
PREEMPTIVE RIGHTS FOR PUBLICIS ORDINARY SHARES.
Under French law, shareholders have preemptive rights (droits preferentiels
de souscription) to subscribe for cash for issuances of new shares or other
securities giving rights, directly or indirectly, to acquire additional shares
on a pro rata basis. Shareholders may waive their preemptive rights specifically
in respect of any offering, either individually or collectively, at an
extraordinary general meeting. Preemptive rights, if not previously waived, are
transferable during the subscription period relating to a particular offering of
shares and may be quoted on the exchange for such securities in Paris. As a U.S.
holder of Publicis ordinary shares, you may not be able to exercise preemptive
rights for these shares unless a registration statement under the U.S.
27
Securities Act is effective with respect to such rights or an exemption from the
registration requirements is available.
If preemptive rights cannot be exercised by you, Publicis will make
arrangements to have your preemptive rights sold and the net proceeds of the
sale paid to you. If such rights cannot be sold for any reason, Publicis may
allow such rights to lapse. In either case, your interest in Publicis will be
diluted, and, if the rights lapse, you will not realize any value from the
granting of preemptive rights.
YOU MAY NOT BE ABLE TO EFFECT CLAIMS OR ENFORCE JUDGMENTS BROUGHT AGAINST
PUBLICIS FOR ALLEGED VIOLATIONS OF THE U.S. SECURITIES LAWS.
Publicis is a societe anonyme organized under the laws of France. Almost
all of its directors and officers, as well as certain of the experts named in
this proxy statement/prospectus, are not U.S. residents, and a substantial
portion of its assets and the assets of its directors and officers and these
experts are and will be located outside the United States. Although you would
likely be able to enforce claims against Publicis in French courts of competent
jurisdiction, it may not be possible for you to effect service of process within
the United States upon Publicis or most of these persons, or to enforce
judgments against Publicis or these persons in U.S. courts. Furthermore, there
is doubt as to the enforceability in France, in original actions or in actions
for the enforcement of judgments of U.S. courts, of civil liabilities predicated
solely upon the federal securities laws of the United States. French courts may
not have the requisite jurisdiction to grant the remedies sought in an original
action brought in France based solely upon the U.S. federal securities laws.
In order to effectively enforce in France judgments of U.S. courts rendered
against French officers and directors (and certain of the experts named in this
proxy statement/prospectus), these persons would have to waive their rights
under Article 15 of the French Civil Code, which provides that citizens of
France may be sued only in France unless they otherwise consent. Publicis is not
aware that any of these persons have waived this right with respect to actions
predicated solely upon U.S. federal securities laws. Furthermore, actions in the
United States could be adversely affected under certain circumstances by the
French law of July 26, 1968, as modified by a law of July 16, 1980, which may
preclude or restrict the obtaining of evidence in France or from French persons
in connection with such actions.
HOLDERS OF THE ORAS MAY BE LIMITED IN THE ENFORCEMENT OF THEIR RIGHTS
AGAINST PUBLICIS UNDER THE ISSUANCE CONTRACT IF LEGAL ACTION IS NOT AUTHORIZED
BY A MEETING OF HOLDERS OR IF THE REPRESENTATIVES FAIL TO ACT ON SUCH
AUTHORIZATION. HOLDERS OF THE OBSA NOTES MAY BE LIMITED IN THE ENFORCEMENT OF
CERTAIN OF THEIR RIGHTS AGAINST PUBLICIS UNDER THE OBSA ISSUANCE CONTRACT AND
THE INDENTURE (WHICH WE REFER TO COLLECTIVELY AS THE "COMBINED NOTE CONTRACT")
IF LEGAL ACTION IS NOT REQUESTED BY THE HOLDERS OF AT LEAST A MAJORITY OF THE
NOTES OR IF THE TRUSTEE FAILS TO ACT UPON REQUEST OF THE HOLDERS IN ACCORDANCE
WITH THE COMBINED NOTE CONTRACT.
Under applicable rules of French law, holders of the ORAs generally will
not be able to institute legal action against Publicis directly for any default
of Publicis under the issuance contract governing this instrument, except where
such default affects the rights of a holder individually and not all holders as
a group. Rather, any legal action against Publicis under the ORA issuance
contract can only be brought by the representatives of the holders, acting on an
authorizing resolution adopted at a meeting of holders. See "Description of
ORAs -- Meeting of Holders and Representatives of Holders." As a result, the
ability of holders of ORAs to enforce their rights under the ORA issuance
contract may be limited if the competent meeting of holders does not authorize
legal action against Publicis or if the representatives fail to act on an
authorizing resolution.
Individual holders of the OBSA notes will not be able to institute legal
action against Publicis under the combined note contract for certain defaults of
Publicis (other than payment default). Rather, any such legal action against
Publicis under the combined note contract can only be brought by the trustee
upon request by the holders of at least a majority of the principal amount of
the notes. The ability of holders of the OBSA notes to enforce certain of their
rights under the combined note contract may be limited if the holders of at
least a majority of the OBSA notes do not request that the trustee pursue a
remedy or the trustee fails to act upon any such request. See "Description of
the OBSAs -- Terms of Notes -- Control by Majority; Limitation on Suits."
28
IF HOLDERS OF PUBLICIS SHARES FAIL TO COMPLY WITH THE LEGAL NOTIFICATION
REQUIREMENTS UNDER FRENCH LAW AND PUBLICIS'S STATUTS, THEY COULD BE DEPRIVED OF
SOME OR ALL OF THEIR VOTING RIGHTS AND BE SUBJECT TO A FINE.
Under Publicis's statuts, if any person who becomes a direct or indirect
holder of more than 1%, or any multiple of 1%, of the share capital or voting
rights of Publicis fails to notify Publicis within 15 days of crossing each 1%
threshold, the holder could be deprived of the voting rights for all shares in
excess of the relevant notification threshold for up to two years, at the
request of any one or more Publicis shareholders owning at least 1% of the share
capital of Publicis. In addition, French law requires any person who acquires
more than 5%, 10%, 20%, 33.33%, 50% or 66.66% of the outstanding shares or
voting rights of Publicis, as a listed company, to file a report with Publicis
within 15 days of crossing any such threshold percentage and with the Conseil
des Marches Financiers, or CMF, within five days of the same event. The person
acquiring more than 10% or 20% of the share capital or voting rights of Publicis
must add to the report a statement of its intentions relating to future
acquisitions or participation in the management of Publicis for the following
12-month period. If any shareholder fails to comply with this legal notification
requirement under French law, the shares or voting rights in excess of the
relevant notification threshold will also be deprived of voting power for up to
two years on the demand of any shareholder. In addition, all or part of such a
shareholder's voting rights may be suspended for up to five years by the
relevant French commercial court, and the shareholder may be subject to a fine
of E18,000 at the request of Publicis's chairman, any Publicis shareholder or
the Commission des Operations de Bourse, or COB. Apart from Dentsu, Bcom3 does
not anticipate that any of Bcom3's stockholders will own more than 1% of the
share capital or voting rights of Publicis as of the closing date of the
Publicis/Bcom3 merger.
HOLDERS OF PUBLICIS SHARES WILL HAVE LIMITED RIGHTS TO CALL SHAREHOLDERS
MEETINGS OR TO SUBMIT SHAREHOLDER PROPOSALS, WHICH COULD ADVERSELY AFFECT THEIR
ABILITY TO PARTICIPATE IN THE GOVERNANCE OF PUBLICIS.
In general, only the Publicis management board may call a meeting of
Publicis's shareholders. In limited circumstances, a shareholders meeting may be
called by Publicis's shareholders at the request of the holders of 5% or more of
Publicis's capital stock or a duly qualified group of shareholders who have held
their shares in registered form for at least two years and together hold at
least 1% of Publicis's voting rights. See "Comparative Rights of Publicis
Shareholders and Bcom3 Stockholders -- Right to Call Meeting." In addition, only
shareholders or groups of shareholders representing at least E478,314 of the
share capital of Publicis may submit proposed resolutions for meetings of
shareholders. As a result, the ability of holders of Publicis shares to
participate in and influence the governance of Publicis shares will be limited.
PUBLICIS, AS A FOREIGN PRIVATE ISSUER, IS SUBJECT TO DIFFERENT CORPORATE
DISCLOSURE STANDARDS AND OTHER RULES UNDER THE EXCHANGE ACT WHICH, AMONG OTHER
THINGS, MAY LIMIT THE INFORMATION AVAILABLE TO HOLDERS OF PUBLICIS SECURITIES.
As a foreign private issuer, Publicis is not required to comply with the
notice and disclosure requirements under the Exchange Act relating to the
solicitation of proxies for shareholder meetings. In addition, Publicis's
officers, directors and principal shareholders will be exempt from the reporting
and "short-swing" profit recovery provisions of Section 16 of the Exchange Act
and the rules thereunder with respect to their purchases and sales of Publicis
shares. Although Publicis is subject to the periodic reporting requirements of
the Exchange Act, the periodic disclosure required of non-U.S. issuers under the
Exchange Act is more limited than the periodic disclosure required of U.S.
issuers. Therefore, there may be less publicly available information about
Publicis than is regularly published by or about other public companies in the
United States.
29
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus, and the documents we are incorporating by
reference, contain forward-looking statements about Publicis and Bcom3 which we
intend to be covered by the safe harbor for "forward-looking statements"
provided by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are statements that are not historical facts and
include financial projections and estimates and their underlying assumptions;
statements regarding plans, objectives and expectations with respect to future
operations, products and services; and statements regarding future performance.
Forward-looking statements are generally identified by the words "expects,"
"anticipates," "believes," "intends," "estimates" and similar expressions.
The forward-looking statements in this proxy statement/prospectus are
subject to various risks and uncertainties, most of which are difficult to
predict and generally beyond the control of Publicis and Bcom3. Accordingly,
actual results may differ materially from those expressed in, or implied by, the
forward-looking statements. The risks and uncertainties to which forward-looking
statements are subject include:
- those we discuss above under the caption "Risk Factors Relating to the
Mergers";
- those we discuss or identify in our public filings with the SEC;
- risks and uncertainties with respect to our expectations regarding:
- the timing and completion of the mergers;
- the value and marketability of the merger consideration;
- growth and expansion opportunities;
- market positions;
- the conduct of worldwide operations;
- earnings improvements;
- cost savings;
- revenue growth;
- other benefits anticipated from the mergers;
- gains and losses of clients and client business and projects;
- changes in the marketing and communications budgets of clients;
- changes in management or ownership of clients; and
- retention of, and ability to attract, qualified employees;
- the effects of:
- foreign exchange rate fluctuations;
- regional, national and international economic conditions, including
changes in interest rates and the performance of the financial markets;
- changes in industry-wide employee compensation levels;
- changes in regional, national and international laws;
- regulations and taxes;
- changes in competition and pricing environments;
- the occurrence of natural disasters and future terrorist acts;
30
- regional, national and international market and industry conditions;
and
- regional, national and international political conditions.
The actual results, performance or achievement by Publicis, Bcom3 or the
combined company could differ significantly from those expressed in, or implied
by, our forward-looking statements. Accordingly, we cannot assure you that any
of the events anticipated by the forward-looking statements will occur or, if
they do, what impact they will have on the results of operations and financial
condition of Publicis, Bcom3 or the combined company following the mergers.
31
THE BCOM3 SPECIAL MEETING
TIME AND PLACE
This proxy statement/prospectus is provided to you because the Bcom3 board
is soliciting proxies and the voting trustees are soliciting instructions for
use at the special meeting. The special meeting will be held on September ,
2002, at a.m., Central Daylight Time, at . This proxy
statement/prospectus is first being mailed to stockholders of Bcom3 on or about
August , 2002.
RECORD DATE
Bcom3 has established August 5, 2002 as the record date for the special
meeting. Only holders of Class A or Class B common stock at the close of
business on this date will be eligible to vote at the special meeting.
PURPOSE OF THE SPECIAL MEETING
The purpose of the Bcom3 special meeting is to consider and vote upon the
proposals to approve and adopt the merger agreements and the transactions
contemplated by these agreements. After completion of the mergers contemplated
by these agreements, the separate corporate existence of Bcom3 will cease and
all outstanding shares of Bcom3 common stock will be cancelled and converted
into the right to receive the merger consideration.
VOTE REQUIRED TO APPROVE THE MERGER PROPOSALS
The approval of the merger proposals will require, in each case, the
affirmative vote of a majority of the outstanding shares of Class A and Class B
common stock, voting together as a single class. As a result, abstentions will
have the same effect as votes against the proposals. Publicis and Bcom3 will
only proceed with the mergers if each proposal has been approved by holders of a
majority of the Bcom3 common stock on the record date and the other conditions
to the mergers have been satisfied or waived.
Bcom3's common stock consists of Class A and Class B common stock, and each
outstanding share of Bcom3 common stock is entitled to one vote on each
proposal. As of August 9, 2002, Bcom3 had issued and outstanding 15,289,804
shares of Class A common stock and 4,286,123 shares of Class B common stock.
These shares represent approximately 78.1% and 21.9%, respectively, of the
outstanding capital stock of Bcom3 as of this date.
Each of Dentsu, Roger Haupt, Craig Brown, Richard Fizdale and Roy Bostock
has agreed to vote such person's shares in favor of adoption of the mergers.
These shares represent 31.2% of the outstanding voting power of Bcom3's common
stock.
Please send in your proxy card or instruction card as soon as possible. In
any event, your proxy and instruction cards must be received by Bcom3 not later
than the time of the special meeting in order to have your shares voted at the
meeting.
QUORUM
In order to carry on the business of the special meeting, there must be a
quorum. This means that the holders of a majority of the voting rights
represented by the issued and outstanding shares of Bcom3 common stock entitled
to vote on the proposals at a meeting of the stockholders, considered together
as a single class, must be represented in person or by proxy at the special
meeting. Abstentions will count for quorum purposes.
INSTRUCTIONS AND PROXIES
HOLDERS OF CLASS A COMMON STOCK
If you properly fill in your instruction card and send it to Bcom3 in time
to vote, your shares will be voted by the voting trustees as you have directed.
If you sign the instruction card without making a choice concerning a proposal,
the voting trustees will vote your shares in favor of approval and adoption of
that
32
proposal. If you mark "abstain" on your instruction card, your shares will be
counted as present for purposes of determining the presence of a quorum, but
will count as a vote against the proposal. If necessary and if you so indicate
on your instruction card, the voting trustees may vote all shares represented by
your instruction card, whether it be an affirmative vote in favor of the
proposals or an abstention, in favor of a proposal to adjourn the special
meeting to a later date in order to solicit and obtain sufficient votes for the
proposals. If you fail to send in an instruction card, your shares will count as
a vote against the proposals.
An instruction card is enclosed for your use. To vote, you should complete,
sign, date and return the instruction card in the accompanying envelope, which
is postage-paid if mailed in the United States, and mail it directly to Bcom3
Group, Inc., at 35 West Wacker Drive, Chicago, Illinois 60601, Attention: Mr.
Christian E. Kimball, Secretary, or send it via facsimile to Mr. Kimball at
(312) 220-4029.
If you have completed and returned an instruction card, you can still
instruct the voting trustees in person at the meeting. You may revoke your
instruction at any time before it is voted, including on the day of the special
meeting, by:
- submitting a new instruction card, either by mail or by fax at the
address and fax number set forth above with a later date;
- instructing the voting trustees in person at the special meeting; or
- filing with Mr. Kimball, at the address and fax number set forth above, a
written revocation of your instruction.
Attendance at the special meeting will not of itself constitute revocation
of your instruction. Written notices of revocation must be received before the
voting trustees vote at the special meeting.
HOLDER OF CLASS B COMMON STOCK
If you properly fill in your proxy card and send it to Bcom3 in time to
vote, your shares will be voted as you have directed. If you sign the proxy card
without making a choice concerning either proposal, the individuals named on
your proxy card will vote your shares in favor of approval and adoption of that
proposal. If you mark "abstain" on your proxy card, for either one or both of
the proposals, your shares will be counted as present for purposes of
determining the presence of a quorum. If necessary and if you so indicate on
your proxy card, the individual named on your proxy card may vote all shares
represented by your proxy, whether it be an affirmative vote in favor of the
proposal or an abstention, in favor of a proposal to adjourn the special meeting
to a later date in order to solicit and obtain sufficient votes for the
proposals. If you fail to send in a proxy card, your shares will count as a vote
against the proposals.
A proxy card is enclosed for your use. To vote without attending the
special meeting in person, you should complete, sign, date and return the proxy
card in the accompanying envelope, which is postage-paid if mailed in the United
States, and mail it directly to Bcom3 Group, Inc., at 35 West Wacker Drive,
Chicago, Illinois 60601, Attention: Mr. Christian E. Kimball, Secretary, or send
it via facsimile to Mr. Kimball at (312) 220-4029.
If you have completed and returned a proxy card, you can still vote in
person at the special meeting. You may revoke your proxy, regardless of how you
submitted your previous proxy, before it is voted by:
- submitting a new proxy card, either by mail or by fax at the address and
fax number set forth above, with a later date;
- voting in person at the special meeting; or
- filing with Mr. Kimball at the address and fax number set forth above, a
written revocation of proxy.
Attendance at the special meeting will not of itself constitute revocation
of a proxy. Written notices of revocation must be received before stockholders
vote at the special meeting.
33
SOLICITATION OF PROXIES AND INSTRUCTIONS
The cost of soliciting proxies and instructions will be paid by Bcom3,
except that Publicis will share equally the expenses incurred in connection with
printing and filing this proxy statement/prospectus. In addition to solicitation
by mail, officers, directors, employees and agents of Bcom3 may solicit your
proxies or instructions by correspondence, telephone, telegraph, telecopy or
other electronic means, or in person, but without extra compensation. You are
urged to send in your proxy or instruction, as the case may be, without delay.
34
THE MERGERS
BACKGROUND OF THE MERGERS
On November 3, 1999, The Leo Group, Inc. and The MacManus Group, Inc.,
which we refer to as Leo Burnett and MacManus, announced their intention to
combine under a single holding company, forming Bcom3. At the same time, Dentsu
announced its intention to purchase a 20% interest in Bcom3. At the time of
these announcements, Leo Burnett and MacManus also announced an intention to
make an initial public offering, which we refer to as IPO, of Bcom3 shares
within 12 to 24 months after the formation of Bcom3.
The combination of Leo Burnett and MacManus was completed on January 31,
2000. As a result, Bcom3 became the 100% owner of both Leo Burnett and MacManus,
and the stockholders of Leo Burnett and MacManus became the stockholders of
Bcom3.
On March 14, 2000, Dentsu purchased 4,274,248 shares of Class B common
stock from Bcom3 for an aggregate purchase price of $493.2 million. This
represented 20% of the fully-diluted equity ownership of Bcom3, after taking
account of shares available for sale to employees or for option grants to
employees. As part of this investment, Dentsu acquired certain minority
stockholder protections, including the right to veto any change of control of
Bcom3 before March 14, 2002 and the right of first offer in the event of any
change of control occurring between March 14, 2002 and the earlier of an IPO and
March 14, 2005. Dentsu also acquired the right to designate two members of the
Bcom3 board and designated Mr. Fumio Oshima (a Senior Managing Director of
Dentsu) and Mr. Megumi Niimura (a Senior Executive Officer of Dentsu) as members
of the Bcom3 board from the time of Dentsu's investment in Bcom3. In January
2002, Dentsu designated Mr. Naoki Kobuse (a Senior Executive Officer of Dentsu)
to replace Mr. Niimura as a member of the Bcom3 board. The remaining four board
positions have, from inception of Bcom3 to the present time, been filled by Mr.
Roger Haupt (Chairman and Chief Executive Officer of Bcom3), Mr. Craig Brown
(President and Chief Operating Officer of Bcom3), Mr. Roy Bostock (former
Chairman and Chief Executive Officer of MacManus) and Mr. Richard Fizdale
(former Chairman and Chief Executive Officer of Leo Burnett).
In the latter part of 2000, the equity market weakened and a public
offering of Bcom3 stock became less attractive. In March 2001, the Bcom3 board
decided not to pursue a public offering during 2001. Mr. Haupt announced this
decision in a letter to employees on March 28, 2001, and the company issued a
press release to the same effect.
Soon after this announcement, Bcom3 management, together with the Bcom3
board, began to review its alternatives to address Bcom3's strategic position in
the rapidly consolidating advertising industry. In the spring and summer of
2001, management of Bcom3 and Dentsu began to discuss strategic alternatives,
including the possibility that Dentsu would acquire 100% of Bcom3, or that
Dentsu and Bcom3 would combine under a single holding company. Mr. Haupt met
with Mr. Yutaka Narita, President of Dentsu, over the course of several days in
June 2001 to discuss the future of the Dentsu/Bcom3 relationship. No proposals
were made by Dentsu with respect to any such combination.
At a regular meeting of the entire Bcom3 board on July 19, 2001, Mr. Haupt
reported on the ongoing discussions with Dentsu, and also discussed the changes
and continuing consolidation in the industry, including WPP's acquisition of
Young & Rubicam announced in May 2000 and Interpublic's acquisition of True
North announced in March 2001. In light of this consolidation, the Bcom3 board
believed that companies with the greatest geographic and functional scale were
likely to be at a competitive advantage. (Indeed, one of the principal purposes
of an IPO had been to create publicly traded stock that could be used as
currency to make acquisitions, enabling Bcom3 to participate more fully in the
consolidation trend.) The board discussed the possibility of a combination with
Dentsu and concluded that management should continue discussions with Dentsu
concerning such a transaction. Mr. Haupt reported to the board that, based on
his meetings with Dentsu in June, he believed there was a risk that a
combination with Dentsu would not likely occur in the near term. The board
expressed concern that if discussions with Dentsu continued for an extended
period but were ultimately not successful, Bcom3 could be left with limited
options due to the rapid pace of consolidation in the industry. The board was
concerned that not moving forward promptly could result in Bcom3 becoming too
small to compete effectively on its own, and with little or no opportunity to
combine with
35
another significant company to gain the scale and diversity of service offerings
required to compete effectively against its larger, well-diversified competitors
in the industry. The board determined to study other alternatives at the same
time as continuing discussions with Dentsu. Such possible alternatives included
remaining independent, pursuing an IPO, and exploring acquisitions of or
combinations with other companies in the industry.
After the July 19 board meeting, Mr. Haupt, Mr. Brown, Mr. Bostock and Mr.
Fizdale, constituting all of the non-Dentsu directors, engaged in frequent and
ongoing conversations, both as a group and on an individual basis, about Bcom3's
strategic alternatives, including possible strategic partners in the industry.
The conversations also addressed in greater detail the ongoing discussions with
Dentsu and possible alternative transactions.
During the summer and fall of 2001, Mr. Haupt spoke with the CEOs of a
number of companies in the industry, and in one case such contacts developed
into preliminary, exploratory conversations regarding the possibility of a
combination or acquisition. In that case, Bcom3 signed a non-disclosure
agreement. However, none of these discussions progressed beyond the preliminary
stage, and no proposals with respect to the financial terms of any possible
transaction were made. It was apparent that a combination with those parties
could not fulfill Bcom3's strategic objectives because of, among other things,
client conflicts, geographical or functional incompatibilities of the
businesses, or financial or operational concerns. Throughout this time
discussions with Dentsu continued. However, these discussions were inconclusive
and were suspended in the fall of 2001 when Dentsu focused its attention on its
own IPO.
In early October 2001, Maurice Levy, Chief Executive Officer and Chairman
of the management board of Publicis, called Mr. Haupt to ask for a meeting. Mr.
Haupt accepted that invitation, and in mid-October the two met in New York. At
the meeting, Mr. Haupt and Mr. Levy discussed on a preliminary basis the
possibility of a combination of Publicis and Bcom3, discussing in particular the
possible operational advantages of such a combination. Mr. Levy contacted Mr.
Haupt by e-mail on October 16, 2001 to determine whether there was interest, and
again on November 5, 2001 by telephone to suggest a further meeting in early
December. On December 6, 2001, Mr. Haupt and Mr. Levy met again to further
explore the possibility of a Publicis/Bcom3 combination, including their
respective roles. At that meeting, the possible role of Dentsu in such a
transaction was also discussed.
Dentsu completed its IPO on November 30, 2001. On December 10, 2001, Mr.
Haupt and Mr. Brown met with senior executives of Dentsu in Tokyo to renew
discussions about a possible Dentsu/Bcom3 combination. In the meeting, Mr.
Narita indicated that Dentsu was interested in continuing to work with Bcom3 and
would consider a variety of options, but that any acquisition of 100% of Bcom3
would be possible only in stages over an extended period of time. Mr. Haupt
raised with Mr. Narita in general terms the possibility of a Publicis/Bcom3
combination in which Dentsu would participate. Mr. Narita indicated an interest
in exploring such a transaction.
On December 13, 2001, Mr. Haupt and Mr. Levy spoke by telephone. Mr. Haupt
informed Mr. Levy that Dentsu might be interested in participating in a
Publicis/Bcom3 combination.
On December 18, 2001, Mr. Brown met with Mr. Jean-Paul Morin, a consultant
of Publicis in these discussions, in Paris to discuss the operational and
financial aspects of a possible combination. Mr. Brown and Mr. Morin also
discussed initial positions with regard to the valuation of Bcom3 relative to
Publicis.
Mr. Haupt and Mr. Levy met in London three days later, on December 21,
2001. They discussed the possibility of a Publicis/Bcom3 combination in terms of
the operations of a combined company, including the role of each of the CEOs and
the strategic alliance that Dentsu could have with a combined company. Mr. Haupt
and Mr. Levy also discussed on a preliminary basis their respective views as to
the valuation of Bcom3 relative to Publicis. Mr. Haupt indicated that receipt of
any non-cash consideration in any transaction would have to be tax-free to Bcom3
stockholders.
Mr. Levy met with Madame Elisabeth Badinter, chair of the supervisory board
of Publicis, on January 2, 2002, to discuss the possible combination of Publicis
and Bcom3.
36
On January 3, 2002, Mr. Levy sent a letter to Mr. Haupt suggesting an
implied price of three billion euros (which represented approximately $2.7
billion, based on the exchange rate for that day of $0.8989 per E1.00) for the
entire enterprise, to be paid in shares, deeply out-of-the-money convertible
debentures similarly structured to the OCEANES (bonds that are convertible into
or exchangeable for new or existing shares) Publicis planned to issue later that
month, and cash. Mr. Haupt expressed his view to Mr. Levy that this proposed
valuation and structure would not be an acceptable basis for a transaction. In
particular, this structure did not provide Bcom3 stockholders with sufficient
equity participation in the combined company and would have resulted in a
taxable transaction. Mr. Levy called Mr. Haupt on January 6, 2002 to express his
continuing enthusiasm for the transaction and to further discuss valuation,
Madame Badinter's reaction, and Dentsu's participation.
On January 9 and 10, 2002, Mr. Haupt and Mr. Brown met with Dentsu
management in Tokyo to ascertain Dentsu's interest in a possible Publicis/Bcom3
combination. In these meetings, Dentsu indicated that, while it would be willing
to consider such a transaction, if Dentsu were party to such a transaction it
would require a minimum 15% interest in the combined company and the right to
appoint members to the board of the combined company in order to achieve equity
accounting under Japanese GAAP for its investment. Moreover, Dentsu did not rule
out the possibility of making an alternative proposal whereby it would acquire a
controlling interest in Bcom3. Mr. Haupt responded that, for strategic reasons,
the Bcom3 board would not likely be interested in a deal for less than 100% of
the company. The board's strategic goal was a full merger or combination in the
near term, so that Bcom3 could participate fully in the consolidation trend.
On January 12, 2002, Mr. Haupt and Mr. Levy met briefly in London to
continue discussions and on January 15, Mr. Haupt and Mr. Brown met with Mr.
Morin in New York to discuss the financial performance of Bcom3, valuation, and
possible forms of consideration from Publicis.
On January 23, 2002, Mr. Levy met with Madame Badinter to advise Madame
Badinter of the status of the discussions. Madame Badinter expressed her view
about the agreement that she and Societe Anonyme Somarel, a French company
controlled by members of Madame Badinter's family, would enter into with Dentsu
as significant Publicis shareholders. On January 24, 2002, Mr. Haupt met with
Mr. Fumio Oshima, a Senior Managing Director of Dentsu (and also a member of the
Bcom3 board). Mr. Oshima repeated that Dentsu would seriously consider
participating in a Publicis/Bcom3 combination, but only on the condition that
Dentsu could be at least a 15% stockholder in the combined company and
participate in some way in the Publicis management or oversight. However, Mr.
Oshima indicated that Dentsu continued to explore other alternatives.
Mr. Haupt and Mr. Levy met in Paris on January 25, 2002. At that meeting
Mr. Levy put forward a general proposal for a possible transaction. The most
significant aspects of this proposal included an implied price of $3 billion in
Publicis stock and other securities (the type and amount of which were
unspecified) for all outstanding Bcom3 shares and stock options (representing
approximately $150 per Bcom3 share), and the possibility that Dentsu could own
up to 15% of the resulting Publicis. This implied price reflected Publicis's
valuation of Bcom3 based on Bcom3's size, market share, profitability and the
then existing general economic conditions.
On January 30, 2002, Mr. Haupt and Mr. Brown met with representatives of
Morgan Stanley to brief them as to the outline of the proposal from Mr. Levy. In
early February 2002, Mr. Haupt met with Mr. Bostock and with Mr. Fizdale to
report on the discussions with Publicis and Dentsu to date, including Mr. Levy's
proposal. The conclusion of the discussions among Mr. Haupt, Mr. Brown, Mr.
Bostock, and Mr. Fizdale was that Bcom3 management should continue discussions
with both Publicis and Dentsu concerning such a transaction.
On February 4, 2002, Mr. Brown and a representative of Morgan Stanley, and
Mr. Levy and a representative of Lazard Freres & Co. LLC ("Lazard"), financial
advisor to Publicis, met in New York to discuss the outlines of the financial
aspects of a possible transaction, including valuation issues and the form of
consideration. In particular, they discussed the types of Publicis securities
that may be offered to Bcom3 stockholders. These included Publicis ordinary
shares, equity-linked securities and notes with detachable
37
warrants. The form of these securities resulted from negotiations between the
parties and were designed to address their various interests. On the one hand,
Bcom3 sought for its stockholders long-term equity participation in the combined
company, receipt of such equity on a tax-free basis and some cash to provide
liquidity. As compared to the January 3rd proposal, the equity-linked securities
and the detachable warrants represented a significant improvement in the equity
participation offered by Publicis, and made it possible for the non-cash portion
of the transaction to be received on a tax-free basis. The cash portion would
result from the expected monetization of the notes after the warrants had been
detached. For its part, Publicis's main objectives were to defer and minimize
the dilution of all of the holders of Publicis shares outstanding prior to the
merger and to obtain favorable accounting treatment for these securities. The
features of the equity-linked securities and detachable warrants, most notably
their conversion into ordinary shares over a 20-year term, addressed the
dilution issue while satisfying the criteria for the desired accounting
treatment. In addition, since the notes would be issued by Publicis and then
sold and the Bcom3 stockholders would be entitled to a portion of the proceeds
of such sales, the market risk of such monetization was allocated to the Bcom3
stockholders, not Publicis, which was unwilling to assume this risk.
Mr. Haupt returned to Tokyo to meet with Dentsu representatives on the
evening of February 6 and on February 7 and 8. These discussions were
wide-ranging, and, on February 8, President Narita indicated his support in
principle to Dentsu participation in a Publicis/Bcom3 combination, with Dentsu
becoming a 15% owner of the combined enterprise and forming a global alliance
with the combined enterprise.
Mr. Haupt and Mr. Oshima met in Paris on February 11, 2002 and then met
with Mr. Levy. Later all three met together with Madame Badinter. Discussions
focused on a number of issues, including governance of Publicis after the
possible transaction and the possible shareholder relationship between Madame
Badinter and Dentsu.
On February 14, Mr. Haupt and Mr. Levy spoke by telephone to discuss
further Mr. Levy's proposal of January 25th. This proposal had been premised on
an implied price of $3 billion payable in Publicis securities, which price
needed to be translated into a fixed number of securities for all of Bcom3's
equity based on an exchange ratio to be agreed. The discussions focused on the
Publicis stock price proposed to be used in fixing the exchange ratio. Mr. Levy
suggested a number of Publicis shares based on a price of E32.00 per Publicis
share. Mr. Haupt suggested a number of Publicis shares based on a price of
E29.00 per Publicis share. Mr. Levy and Mr. Haupt decided to proceed with
discussions assuming the number of shares would be based on a price of E30.50
per Publicis share. By way of comparison, the closing price of Publicis ordinary
shares on February 14, 2002 was E29.50 per share.
The executive committee of the Dentsu board met on February 15, 2002 to
discuss the proposal. The executive committee approved the transaction in
principle, subject to approval by the full Dentsu board, and subject to, among
other things, the condition that Dentsu achieve equity accounting under Japanese
GAAP for its shareholding in the combined company. Dentsu advised Bcom3 that,
among other things, Dentsu would need to own 15% of the outstanding Publicis
shares and 15% of the voting power of Publicis to achieve the desired accounting
treatment. However, the parties noted that Dentsu's existing 20% interest in
Bcom3 was not sufficient to translate into 15% of Publicis after the proposed
merger.
At meetings held in New York on February 19, 2002, advisors to Bcom3,
Publicis and Dentsu met to discuss the proposed time schedule of the transaction
and the proposed documentation.
At meetings held in Tokyo on February 19 and 20, 2002, Mr. Haupt and
representatives of Dentsu discussed the possibility that Dentsu could make an
additional investment in Bcom3 prior to a Publicis/ Bcom3 combination, both as a
means of meeting Dentsu's requirement to achieve the desired ownership level in
the combined company and also as a means of providing cash to holders of Class A
shares of Bcom3 in the transaction.
38
Mr. Levy arrived in Tokyo on February 20, 2002 and participated in
discussions with Mr. Haupt and Mr. Narita on February 20 and 21, 2002. At these
meetings, the parties agreed, subject to further discussion and approval from
their respective boards, to broad principles in areas such as:
- the scope of a strategic alliance between Dentsu and Publicis;
- the relationship between Dentsu and Madame Badinter as significant
Publicis shareholders;
- Dentsu's rights in the combined company, including two seats on the
supervisory board and anti-dilution rights, subject to obligations such
as a standstill;
- operating principles for the combined company, including that Paris would
be the global headquarters; and
- certain management issues, including the role of Mr. Haupt in the
combined company.
At a meeting on February 21, 2002, Mr. Haupt commenced discussions with Mr.
Narita over the price that Dentsu would pay for an additional interest in Bcom3.
The discussions focused on Dentsu's need for additional shares, the perceived
value of the Publicis offer and the Publicis securities in the short term and in
the long term, the value of immediate liquidity to Bcom3 stockholders and the
cost of immediate tax liability for the Bcom3 stockholders in receiving the
cash. Mr. Haupt suggested that Dentsu should pay a premium over the perceived
value of the Publicis offer given the strategic importance to Dentsu of the
additional shares. Mr. Narita suggested that Dentsu should pay a discount to
this value given that Dentsu would deliver immediate cash to Class A
stockholders at closing. After several days of such discussions, on February 25,
it appeared that, subject to further consideration and completion of Dentsu's
internal approval process, Dentsu might be willing to pay $175 per Bcom3 share
for approximately 2,850,000 additional shares (representing an aggregate cash
payment of approximately $498.7 million) in order to increase Dentsu's ownership
to the requisite level as part of a transaction involving a merger of Bcom3 with
Publicis. This aggregate cash payment, when divided by the number of currently
outstanding shares of Class A common stock, is equivalent to approximately
$32.62 per Class A share.
On February 22, 2002, lawyers for Publicis sent a draft merger agreement to
Bcom3 and its advisors. On the same day, Publicis and Bcom3 signed reciprocal
confidentiality agreements and representatives of the two companies commenced
business and financial due diligence on each other.
On February 25, 2002, representatives of Publicis and Bcom3 and their
advisors met in New York to discuss a number of issues in the transaction,
including the terms of the various Publicis securities, transfer restrictions on
Bcom3 stockholders, and the terms by which Dentsu could achieve 15% ownership
under French law in a way that satisfied Japanese accounting standards, and to
begin discussions of the merger agreement. Thereafter Bcom3, Dentsu, Publicis,
Madame Badinter and their respective advisors engaged in continuous negotiations
concerning the structure and terms of the transactions and the terms of the
merger agreement and other transaction documents.
On February 26, 2002, the Bcom3 board formally established a special
committee comprised of Mr. Bostock (chair), Mr. Fizdale and Mr. Brown to
negotiate, review and evaluate the terms and conditions of the Publicis/Dentsu
transaction, and to report to the board its recommendations and conclusions with
respect to the transaction. Mr. Haupt acted as special management liaison to the
special committee.
On the same day, Dentsu signed a confidentiality agreement with each of
Bcom3 and Publicis and, along with its advisors, commenced business and
financial due diligence of Bcom3 and Publicis.
The special committee of the Bcom3 board met on February 27, 2002 in New
York. At that meeting, Mr. Haupt described the status of discussions between
Bcom3, Publicis and Dentsu, and described the background and strategic rationale
for the proposed transaction. Representatives of Morgan Stanley described the
discussions to date in additional detail and provided a financial analysis of
the proposal made by Publicis. The special committee discussed the proposed
transaction in detail, including alternatives, the structure of the deal,
Dentsu's role, the value and liquidity of the securities offered by Publicis,
and the strategic benefits of the proposed transaction. The special committee
also discussed aspects of the proposal as to which efforts should
39
be made to enhance the value of the transaction to Bcom3 stockholders, including
the terms of the securities and the transfer restrictions. After deliberation,
the special committee authorized its legal and financial advisors and management
to continue negotiations concerning the proposed transaction.
Bcom3, Publicis, Dentsu and their respective advisors continued
negotiations over the next several days. During such negotiations, many new
issues were raised, including a discussion of Bcom3 stockholders taking a
portion of the Publicis ordinary shares received as merger consideration as
usufruct interests for a two-year period following the mergers, and a method to
achieve the parties' intent that the amount owed to option holders under Bcom3's
stock option plans would be paid out of the total merger consideration by
funding such amount out of the proceeds from the sale of the OBSA notes.
On March 1, Mr. Narita confirmed to Mr. Haupt in writing that Dentsu would
accept the $175 per Bcom3 share price as the price it would be willing to pay in
order to increase its ownership to the requisite level.
On Monday, March 4, 2002, the Publicis management board met in Paris. Mr.
Levy reported that the parties had reached an agreement on the terms of the
proposed combination with Bcom3. Mr. Levy then made a presentation about Bcom3
and its operations, outlined the business rationale of a transaction with Bcom3
and Dentsu and presented the main terms of the proposed transaction. The
management board considered and discussed the terms of the transaction. At the
conclusion of the meeting, the management board members voted unanimously to
approve the combination.
On March 5, 2002, the Publicis supervisory board met in Paris. Mr. Levy
made a presentation about Bcom3 and its operations, outlined the business
rationale of a transaction with Bcom3 and Dentsu and presented the main terms of
a possible transaction. Following the presentation, the Publicis supervisory
board discussed the main terms and other aspects of the combination with Mr.
Levy and representatives of Lazard Freres, Publicis's financial advisor. The
supervisory board considered and discussed the terms of the transaction. At the
conclusion of the meeting, the members attending the supervisory board meeting
then voted unanimously to approve the transaction.
On March 5, 2002, the board of directors of Societe Anonyme Somarel,
Publicis's largest shareholder with 35.6% of Publicis's voting power, met in
Paris. Mr. Levy made a presentation about the main terms of the proposed
transaction with Bcom3 and Dentsu. Following the presentation, the Somarel board
of directors unanimously voted in favor of the overall Publicis/Bcom3
combination.
On March 5, 2002, the Bcom3 board met in New York. At that meeting, Mr.
Haupt reported on the negotiations with Publicis and Dentsu, stating that those
negotiations had yielded a proposed transaction, which he outlined.
Representatives of Davis Polk & Wardwell and Morgan Stanley, Bcom3's legal and
financial advisors, respectively, described the transaction in additional
detail, including the fact that the transaction would involve two mergers, one
in which Dentsu would, in effect, acquire an increased ownership of Bcom3 from
the current holders of Class A common stock and Class A stockholders would
receive cash from Dentsu for such shares, and a second in which Publicis would
acquire all the outstanding equity of Bcom3 from the current Bcom3 stockholders
including Dentsu. In the Bcom3 board meeting, Morgan Stanley presented a
financial and strategic analysis of the transaction.
The board adjourned to allow a meeting of the special committee of the
board. At the special committee meeting, Mr. Haupt and the financial and legal
advisors further described the proposed transactions, including refinements and
changes that had been negotiated since the previous meeting of the special
committee. Morgan Stanley delivered to the special committee its oral opinion
that the consideration to be received by the holders of Class A common stock was
fair from a financial point of view to such holders. The special committee's
legal advisors reviewed various legal matters with the special committee, and
both the financial and legal advisors responded to questions from committee
members.
The special committee then excused Mr. Haupt and considered and discussed
the terms of the transaction and the financial, legal and management
presentations and analysis. At the conclusion of the special committee meeting,
the special committee unanimously determined that the proposed transaction was
fair to and in the best interests of the holders of Bcom3's Class A common
stock, and it recommended that the
40
board approve the transaction and that the board recommend approval of the
transaction to Bcom3's stockholders.
Following the special committee meeting, the Bcom3 board reconvened and
received the report of the special committee. The board then voted to approve
the mergers, subject to ratification and adoption of appropriate resolutions in
a subsequent meeting of the board to be held on the morning of March 7, 2002,
following approval of the transaction by the Dentsu board of directors.
On the morning of March 7, 2002, the Bcom3 board met by telephone
conference call. Mr. Haupt confirmed that the proposed transactions had been
approved by the boards of Publicis and Dentsu. Morgan Stanley reiterated its
opinion that the consideration to be received by the holders of Bcom3 Class A
common stock pursuant to the proposed transactions was fair from a financial
point of view for such holders. Mr. Bostock, chair of the special committee,
reaffirmed the resolutions of the special committee taken at its meeting on
March 5. After discussion, the Bcom3 board voted unanimously to approve the
mergers, and to present the mergers to the Bcom3 stockholders with a
recommendation that the Bcom3 stockholders approve the mergers.
At the same time, Dentsu agreed to vote its Bcom3 shares in favor of the
mergers, and Messrs. Haupt, Brown, Bostock and Fizdale, all members of the Bcom3
board and all significant Bcom3 stockholders in their own right, agreed to vote
their Bcom3 shares in favor of the mergers.
On March 7, 2002, Publicis, Bcom3 and Dentsu executed the agreements and
memoranda of understanding described in this proxy statement/prospectus and
issued a joint press release announcing the transactions.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BCOM3 BOARD
The special committee, at a meeting held on March 5, 2002, unanimously:
- determined that the merger agreements and the mergers are fair to and in
the best interests of the holders of Bcom3's Class A common stock;
- recommended that the Bcom3 board approve the merger agreements and the
mergers; and
- recommended that the Bcom3 board recommend approval and adoption of the
merger agreements and the mergers by Bcom3's stockholders.
The Bcom3 board, acting on the recommendation of the special committee, at
a meeting on March 7, 2002, unanimously:
- determined that it was advisable and in the best interests of Bcom3 and
its stockholders to enter into the merger agreements and to effect the
transactions contemplated thereby;
- approved and adopted the merger agreements and the mergers; and
- recommended that Bcom3's stockholders approve and adopt the merger
agreements and the mergers.
The Bcom3 board and the special committee unanimously recommend that you
vote FOR the approval and adoption of the merger agreements and the mergers.
THE SPECIAL COMMITTEE'S REASONS FOR THE MERGERS
In reaching its conclusions described above, the special committee
consulted with Bcom3's management, as well as with its financial and legal
advisors, and considered the following material factors:
STRATEGIC RATIONALE
- in light of continuing consolidation in the advertising and marketing
communications services industry, including recent large strategic
combinations such as Interpublic/True North, WPP/Young & Rubicam,
Publicis/Saatchi & Saatchi and Havas/Snyder Communications, and "fill-in"
acquisitions to strengthen specific offerings such as WPP's acquisition
of Tempus, the view of the special
41
committee and Bcom3 management that: (1) industry participants with the greatest
geographic and functional scale and diversity would likely be at a competitive
advantage relative to smaller competitors and be better positioned to take
advantage of long-term growth opportunities and (2) participating in the
consolidation trend through the combination with Publicis would have a
positive, stabilizing impact on Bcom3's business from a client and
employee perspective by defining Bcom3's long-term strategic direction;
- the view of the special committee and Bcom3 management that equity
investments in the combined company would have significant potential for
long-term appreciation, because, among other things:
- the combination between Bcom3 and Publicis would represent an
excellent strategic fit, with complementary businesses and
limited conflicts between their respective key clients, and
produce a strong and diversified combined company with a stable
client base, media services capabilities, a strong creative
reputation and quality management;
- the merger was expected to offer strong opportunities for growth
as a result of, for example, greater geographic coverage, brand
diversification and stronger media buying power; and
- the combination would create the fourth largest large-cap
advertising company after Omnicom, Interpublic and WPP, which is
significant given that a sizable valuation gap exists between
large- and mid-cap industry participants, indicating that the
market continues to accord higher valuation multiples to the
largest diversified agencies compared to the multiples for
smaller, stand-alone players, such as price-to-2002 estimated
earnings multiples, as of March 1, 2002, of 31.0 for Omnicom,
27.0 for Interpublic and 25.0 for WPP, compared to 23.8 for Havas
and 14.6 for Cordiant;
- the view of the special committee and Bcom3 management that the proposed
strategic alliance between Publicis and Dentsu would help differentiate
Publicis from other large advertising companies, provide Publicis with a
strong ally in Japan and permit the group to provide truly global service
to major clients;
- Bcom3 management's presentation to the special committee as to the
financial condition, business and operations of Publicis; and
- the fact that the Bcom3 board and Bcom3 management had investigated and
discussed a range of strategic alternatives over a lengthy period of
time, including (1) remaining independent, (2) pursuing an IPO and (3)
combining with other advertising companies, including Dentsu, as more
fully described under the caption "-- Background of the Mergers," and the
fact that none of these alternatives were as feasible and favorable to
Bcom3 stockholders as the mergers.
MERGER CONSIDERATION AND TRANSACTION STRUCTURE
- the analyses and presentations of Morgan Stanley on the financial aspects
of the mergers and the merger consideration, and its oral opinion
delivered on March 5, 2002 and its written opinion delivered on March 7,
2002 that, as of the applicable date of each such opinion, the
consideration to be received by the holders of shares of Class A common
stock pursuant to the merger agreements (considered as a single
transaction) is fair from a financial point of view to such holders;
- the expectation that the Publicis/Bcom3 merger would be treated as a
reorganization for U.S. federal income tax purposes, such that Bcom3
stockholders would be taxed on any gain realized only to the extent of
the cash consideration received by them;
- the form of the blended consideration to be received in the
mergers -- consisting of a combination of (1) cash from Dentsu and from
the sale of the debt portion of the OBSAs, (2) Publicis ordinary shares,
(3) the ORAs and (4) warrants to purchase Publicis ordinary
shares -- gives Class A stockholders the benefit of both receiving cash
and continuing to have a substantial long-term equity participation in
the combined company;
42
- the first step merger ensures that Class A stockholders receive a fixed
amount of cash proceeds ($498.7 million in total, or about $32.62 per
Class A share) at closing from Dentsu, which amount was fixed regardless
of fluctuations in the Publicis ordinary share price and provided Class A
stockholders with the benefit of immediate liquidity at closing, although
this benefit was partially offset by the fact that receipt of such cash
would be taxable to such stockholders;
- the possibility that, because the exchange ratio is fixed for each
component of the Publicis securities to be issued as merger
consideration, the value of the blended consideration could increase or
decrease prior to or after the completion of the mergers (including the
time at which the Publicis securities to be issued as consideration
become freely transferable) based on factors that include, for example,
fluctuations in the Publicis ordinary share price;
- the importance of obtaining Dentsu's approval of the transaction given
Dentsu's contractual rights under its investment agreement with Bcom3,
including (1) prior to March 14, 2002, the requirement that Bcom3 obtain
Dentsu's approval before entering into any agreement that would result in
a change of control of Bcom3 and (2) on and after March 14, 2002,
Dentsu's right of first offer with respect to any change of control
transaction, and the consequent time delays, risk and uncertainty which
complying with such right of first offer procedure would present for a
transaction with any other third party;
- the fact that certain Bcom3 stockholders, including Dentsu, representing
together about 31% of the voting power of all Bcom3 shares, and certain
Publicis stockholders representing together about 45% of the voting power
of all Publicis shares, were willing to sign support agreements agreeing
to vote in favor of the Publicis/Bcom3 merger and against any competing
proposal for a merger or business combination;
- the potential effect of the "deal protection" provisions on possible
third party proposals to acquire Bcom3 after execution of the
Publicis/Bcom3 merger agreement, including that if any third party made
an unsolicited competing proposal, the Bcom3 board could provide
information to and engage in negotiations with that third party and
decide not to recommend the Publicis/Bcom3 merger, but that the Bcom3
board could not terminate the Publicis/Bcom3 merger agreement until it
had been voted on by Bcom3 stockholders;
- that while the termination payment provisions of the Publicis/Bcom3
merger agreement could have the effect of discouraging some alternative
proposals for a business combination with Bcom3, the special committee's
belief that these provisions would not preclude bona fide alternative
proposals because the size of the termination fee was reasonable in light
of the size and benefits of the transaction; and
- both parties had reciprocal obligations to pay such a termination fee.
The Bcom3 board also considered the potential adverse consequences of other
factors in evaluating the proposed mergers, including:
- the fact that any estimated value of the blended consideration per Class
A share, including the reference value set forth in Morgan Stanley's
presentation to the special committee, depends on certain assumptions and
judgments, particularly since no trading market exists for certain of the
securities to be received in the merger, and so there can be no assurance
of such value. In particular, the special committee considered that:
- there is no certainty as to the amount of net proceeds that would
result from the sale of the debt portion of the OBSAs as
contemplated by the Publicis/Bcom3 merger agreement, and such
amount would depend on market conditions at the time of the sale,
market demand for such debt, the financial condition, credit
profile and prospects of Publicis, selling costs and expenses,
and the size of the payment to Bcom3 option holders, and, in any
event would reflect a substantial discount to the principal
amount given, among other things, the 2.75% interest rate;
43
- development of an active trading market for the ORAs would be
subject to market demand, any such market would not develop until
the transfer restrictions for the ORAs expired or sometime
thereafter, and in any event the ORAs would be linked to the
value of the underlying Publicis ordinary shares, but would
likely trade at a discount to such shares (which discount could
not be estimated, but which might be significant); and
- the value of the warrants over time would depend on a number of
factors, including the price and volatility of Publicis ordinary
shares, the financial condition and prospects of Publicis, the
rate at which Publicis pays dividends, prevailing interest and
currency exchange rates, and the remaining life of the warrants;
- the transfer restrictions imposed on the Publicis securities, the
orderly marketing procedures after each lock-up period, the redemption
schedule for the ORAs and the exercise period for the warrants, all of
which restrict the ability of each Class A stockholder to exit from his
or her investment in Publicis, and the fact that any reference or
estimated value of the Class A consideration may not be realizable at
the time when stockholders become free to transfer such securities;
- under the Publicis/Bcom3 merger agreement, Class A and Class B shares
are to receive the various forms of consideration in different
proportions, with Dentsu, as the sole holder of all Class B shares,
receiving proportionately more Publicis ordinary shares (as if the cash
paid by Dentsu in the first step merger had effectively been applied to
purchase the Publicis ordinary shares, but not the ORAs or OBSAs, that
would otherwise have been issued in respect of the Class A shares that
are canceled in the first step merger);
- the fact that holders of Class A common stock and Class B common stock
will vote together as a single class on the mergers and do not have a
separate class vote;
- the usufruct structure under which Dentsu receives the voting rights on
a portion of the Class A stockholders' Publicis ordinary shares for two
years while Class A stockholders retain all economic rights to such
shares, ameliorated by the fact that the Publicis ordinary shares to
which such usufruct structure applies would otherwise have been subject
to a two-year lock-up in any event and the fact that such holders
receive back the voting rights at the same time the lock-up on the
usufruct interest expires;
- the existence of risks associated with unexpected difficulties in
integrating the two companies or material liabilities undetected in the
due diligence process; and
- the interests that certain executive officers and directors of Bcom3 may
have with respect to the mergers in addition to their interests as
stockholders of Bcom3 generally, as described more fully under the
caption "Interests of Certain Persons in the Mergers."
The foregoing discussion addresses the material information and factors
considered by the special committee in its evaluation of the mergers, including
factors that support the transaction as well as those that may weigh against it.
In view of the variety of factors and the amount of information considered, the
special committee and the Bcom3 board did not find it practicable to quantify or
otherwise assign relative weights to, and did not specifically make assessments
of, the various factors and analyses considered in reaching its determination.
Individual directors may have given different weights to different factors. The
determination to approve the merger agreements was made after consideration of
all the factors as a whole.
In reaching its decision to approve and recommend the merger agreements,
the Bcom3 board relied on the special committee's recommendation and the factors
examined by the special committee as described above.
44
In addition, the Bcom3 board believes that sufficient safeguards were
present to ensure the procedural fairness of the mergers to the Class A
stockholders, including:
- the Bcom3 special committee consisted of three directors entirely
independent from Dentsu who have extensive knowledge about Bcom3 and
years of experience in the advertising and marketing communications
services industry, and who are among the largest individual stockholders
of Bcom3;
- the Bcom3 special committee was advised by and received the opinion of
its financial advisor, Morgan Stanley;
- the Bcom3 special committee was advised by outside legal counsel; and
- the non-Dentsu directors of Bcom3, members of management, the special
committee and the special committee's financial and legal advisers
conducted extensive and vigorous negotiations with Dentsu and Publicis.
PUBLICIS'S REASONS FOR THE MERGERS
At a meeting held on March 5, 2002, the supervisory board of Publicis
unanimously approved the Publicis/Bcom3 merger agreement and the Publicis/Bcom3
merger. In the course of reaching its conclusions on the merger, the Publicis
board consulted with Publicis's management as well as its outside advisors and
considered a number of factors. The material factors they considered are
summarized below:
- the board's view that the merger represents an excellent opportunity to
implement Publicis's long-term strategy of using acquisitions to
supplement the company's internal growth, and to provide clients with a
complete range of communication services throughout the world;
- the expectation that the merger will offer strong opportunities for
growth as a result of brand diversification, stronger media buying power,
a more balanced geographical coverage consistent with the breakdown of
world-wide advertising expenditures and strengthened specialized
communications capabilities;
- the highly complementary nature of Publicis's and Bcom3's businesses with
regard to alternative operating brands in the areas of advertising, media
investment management, information and consultancy, public relations and
public affairs, branding and identity, healthcare and specialist
communications;
- the similar philosophy and culture of Publicis and Bcom3 and their shared
approach to the integration of advertising and marketing services for
clients;
- the highly complementary nature of the businesses of Publicis and Dentsu,
the leading agency in Japan, with regard to their client base and
geographic reach and the expectation that the exclusive partnership
between Publicis and Dentsu will leverage each other's capabilities;
- the financial and operating performance and condition and long-term
prospects of Bcom3, Publicis and the combined company, including the
opportunity to achieve cost savings by consolidating selected corporate
functions at the two companies;
- current industry developments, including continuing consolidation;
- the commitment of each party to complete the merger as reflected in the
merger agreement, including:
- the conditions to closing;
- the requirement that the parties afford their respective shareholders
the opportunity to vote on the merger; and
- the parties' obligations to pay a termination fee if the merger
agreement is terminated under specified circumstances.
45
The Publicis supervisory board also considered potentially adverse
consequences in evaluating the proposed business combination, including:
- the potential problems inherent in effecting a transnational combination
of two organizations which may divert attention from the ongoing business
of the combined company;
- the risk that key employees of Bcom3 or of Publicis, who enjoy
relationships with existing clients or otherwise contribute to the
financial success of Bcom3 or Publicis, may not remain with the combined
company after the merger; and
- the risk that the combined company may lose clients as a result of the
transaction or otherwise.
The foregoing discussion of the factors considered by the supervisory board
of Publicis is not intended to be exhaustive but includes the material factors
considered by the Publicis supervisory board. In view of the wide variety of
factors considered by the Publicis supervisory board in connection with its
evaluation of the merger and the complexity of these matters, the Publicis
supervisory board did not consider it practical, and did not attempt, to
quantify, rank or otherwise assign relative weights to the specific factors it
considered in reaching its decision. The Publicis supervisory board conducted a
discussion of the factors described above, during which it posed questions to
Publicis's management and Publicis's outside advisors. The Publicis supervisory
board reached a unanimous consensus that the merger was in the best interests of
Publicis and its shareholders. In considering the factors described above,
individual members of the Publicis supervisory board may have given different
weights to different factors.
OPINION OF SPECIAL COMMITTEE'S FINANCIAL ADVISOR
Bcom3 retained Morgan Stanley to provide the special committee of the Bcom3
board with financial advisory services and a financial fairness opinion in
connection with the mergers. Bcom3 selected Morgan Stanley to act as the special
committee's financial advisor based on Morgan Stanley's qualifications,
expertise and reputation and its knowledge of the business and affairs of Bcom3.
At the meeting of the special committee on March 5, 2002, Morgan Stanley
rendered its oral opinion that as of that date, and subject to and based on the
considerations in its opinion, the consideration to be received by the holders
of shares of Bcom3's Class A common stock pursuant to the merger agreements
(considered as a single transaction) is fair from a financial point of view to
such holders. On March 7, 2002, Morgan Stanley confirmed its oral opinion at a
meeting of the Bcom3 board and in writing.
THE FULL TEXT OF MORGAN STANLEY'S OPINION, DATED AS OF MARCH 7, 2002, WHICH
SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY MORGAN STANLEY IS
ATTACHED AS ANNEX D TO THIS PROXY STATEMENT/PROSPECTUS. WE URGE YOU TO READ THIS
OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED TO
MEMBERS OF THE SPECIAL COMMITTEE AND MEMBERS OF THE BCOM3 BOARD, ADDRESSES ONLY
THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED
BY THE HOLDERS OF SHARES OF BCOM3'S CLASS A COMMON STOCK PURSUANT TO THE MERGER
AGREEMENTS (CONSIDERED AS A SINGLE TRANSACTION), AND DOES NOT ADDRESS:
- any other aspect of the mergers;
- Bcom3's underlying business decision to pursue the mergers; or
- the price at which Publicis ordinary shares or other securities will
trade following the mergers or at any other time.
Further, the opinion does not constitute a recommendation to any holder of
shares of Bcom3 as to how to vote at the Bcom3 stockholder meeting held in
connection with the mergers.
The summary of the opinion of Morgan Stanley set forth below is qualified
in its entirety by reference to the full text of the written opinion, which is
attached as Annex D.
46
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements of and other
information relating to Bcom3 and Publicis, respectively;
- reviewed certain internal financial statements and other financial and
operating data concerning Bcom3 and Publicis, respectively;
- reviewed certain financial projections prepared by the management of
Bcom3 and Publicis, respectively;
- discussed the past and current operations and financial condition and the
prospects of Bcom3, including information relating to certain strategic,
financial and operational benefits anticipated from the Publicis/Bcom3
merger, with senior executives of Bcom3;
- discussed the past and current operations and financial condition and the
prospects of Publicis, including information relating to certain
strategic, financial and operational benefits anticipated from the
Publicis/Bcom3 merger, with senior executives of Publicis;
- reviewed the pro forma impact of the Publicis/Bcom3 merger on Publicis's
cash earnings per share, cash flows, consolidated capitalization and
financial ratios;
- compared the financial performance of Bcom3 and Publicis with that of
certain other comparable publicly traded companies, respectively, and
their securities;
- compared the prices and trading performance of Publicis ordinary shares
with those of certain other comparable publicly traded companies and
their securities;
- reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
- participated in discussions and negotiations among representatives of
Bcom3 and Publicis and their financial and legal advisors;
- reviewed the merger agreements and the English language term sheets
relating to the ORA issuance contract and the OBSA issuance contract
attached to the Publicis/Bcom3 merger agreement; and
- considered such other factors and performed such other analyses as Morgan
Stanley deemed appropriate. These included review of equity research
commentary on Publicis and other industry participants; review of the
companies' geographic and business mixes; review of industry dynamics and
competitive landscape; review of other potential suitors/partners; and
review of other strategic alternatives.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by Morgan Stanley for
the purposes of its opinion. Morgan Stanley also relied upon, without
independent verification, the accuracy and completeness of the English language
term sheets relating to the ORA issuance contract and the OBSA issuance contract
attached to the Publicis/Bcom3 merger agreement, and assumed that such term
sheets set forth all material terms relating to the ORAs and the OBSAs. With
respect to the financial projections, Morgan Stanley assumed that they were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of Bcom3. In addition, Morgan
Stanley has assumed that the first step merger would be consummated in
accordance with the first step merger agreement and that the Publicis/Bcom3
merger would be consummated in accordance with the terms set forth in the
Publicis/Bcom3 merger agreement, including that the Publicis/Bcom3 merger would
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended.
Morgan Stanley did not make any independent valuation or appraisal of the
assets or liabilities of Bcom3 or Publicis, nor was Morgan Stanley furnished
with any appraisals. The opinion of Morgan Stanley is necessarily based on
financial, economic, market, foreign currency and other conditions as in effect
on, and the information made available to Morgan Stanley as of, the date of its
opinion.
47
The following is a summary of the material financial analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion. Some of these summaries of financial analyses include
information presented in tabular format. In order to understand fully the
financial analyses used by Morgan Stanley, the tables must be read together with
the text of each summary. The tables alone do not constitute a complete
description of the financial analyses.
In connection with the review of the mergers by the Bcom3 board and special
committee, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of rendering its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to a partial
analysis or summary description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any particular analysis or factor considered by it.
Morgan Stanley believes that the summary provided and the analyses described
below must be considered as a whole and that selecting any portion of its
analyses without considering all analyses would create an incomplete view of the
process underlying its analyses and opinion. In addition, Morgan Stanley may
have given various analyses and factors more or less weight than other analyses
and factors, and Morgan Stanley may have deemed various assumptions more or less
probable than other assumptions, so that the range of valuations resulting from
any particular analysis described below should not be taken to be Morgan
Stanley's view of the actual value of Bcom3 or Publicis.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Bcom3 or Publicis. Any
estimates contained in Morgan Stanley's analyses are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than those suggested by these estimates. These analyses were prepared
solely as a part of Morgan Stanley's analysis of the fairness from a financial
point of view of the consideration to be received by the holders of Bcom3 Class
A common stock pursuant to the merger agreements (considered as a single
transaction) and were conducted in connection with the delivery by Morgan
Stanley of its opinion to the Bcom3 board and special committee. Morgan
Stanley's analyses do not purport to be appraisals or to reflect the prices at
which shares of Bcom3 common stock or any Publicis securities might actually
trade. In addition, as described above, the Morgan Stanley opinion was one of
the many factors taken into consideration by the Bcom3 board and special
committee in making their respective determination to approve and recommend
approval of the mergers. The consideration and other terms of the mergers were
determined through arm's-length negotiations between Bcom3, Dentsu and Publicis
and were approved by the special committee and the Bcom3 board. Morgan Stanley
did not recommend any specific consideration to Bcom3 or that any specific
consideration constituted the only appropriate consideration for the mergers.
For purposes of its analyses, Morgan Stanley reviewed a financial forecast
for 2002 prepared by the management of Bcom3 adjusted, as appropriate, to
reflect Morgan Stanley's view of growth, excluding acquisitions (which we refer
to as the Adjusted Bcom3 Management Projections). The Adjusted Bcom3 Management
Projections were prepared in February 2002 and reflected management's view as of
that time and were provided to Morgan Stanley for use in its analysis in
connection with the mergers. For some of the pro forma combination analyses,
Morgan Stanley used publicly available equity research projections for Publicis
(which we refer to as the Publicis Projections).
For purposes of its analyses, Morgan Stanley focused solely on the
consideration to the Class A stockholders. As a result of the mergers, each
share of Bcom3 Class A common stock will be exchanged for a package of cash and
securities comprised of Publicis ordinary shares, ORAs and OBSAs. The cash
portion of the consideration includes both the cash to be received by Class A
stockholders in the first step merger as well as the cash proceeds resulting
from the sale of the debt portion of the OBSAs (also referred to herein as the
"notes") net of the costs and commissions associated with the monetization of
the notes and the cash payment to option holders in exchange for cancellation of
options. For purposes of establishing a reference point for its analyses, Morgan
Stanley made certain assumptions and estimations about the gross cash proceeds
obtainable upon the sale of the notes. In addition, because the amount which
would be available for distribution to the Class A stockholders and Class B
stockholders from the sale of the notes would be net of costs and commissions
related to the sale of the notes, as well as the amounts payable by Bcom3 in
order to cancel
48
outstanding Bcom3 stock options, Morgan Stanley also made certain assumptions
and estimations about the costs and commissions to be incurred in connection
with the sale of the notes and the amounts that would be required in order for
Bcom3 to pay for canceled stock options.
Because a large portion of the merger consideration is Publicis stock and
other equity-linked securities, the value of the merger consideration is subject
to change. For purposes of establishing a reference value for its analysis,
Morgan Stanley prepared an analysis of the indicative value of the Publicis
ordinary shares and ORAs to be received by each holder of a share of Bcom3 Class
A common stock. Among a number of other assumptions, this analysis was based on
a single-point value of Publicis ordinary shares (the March 4, 2002 Publicis
closing share price of E33.55) and a single assumed euro to dollar exchange rate
of $0.866 per E1. Morgan Stanley evaluated the warrants to be received by each
holder of a share of Bcom3 Class A common stock using the generally accepted
Black-Scholes option valuation model with single-point assumptions, including
the March 4, 2002 Publicis closing share price of E33.55. All of the values and
methodologies used to prepare this indicative value are subject to significant
variation based on a number of factors, including changes in the market value of
the Publicis ordinary shares, applicable exchange rates and interest rates, as
well as the numerous volatility and duration assumptions that are used to
prepare a Black-Scholes option valuation analysis. In addition, the reference
valuation developed by Morgan Stanley was not designed to quantify the amount
that holders of shares of Bcom3 Class A common stock could realize upon an
immediate sale of the merger consideration to be received by them in the
mergers. Rather, since Class A stockholders would not be in a position to sell
the Publicis securities received by them for a period of time pursuant to the
terms of the transaction, Morgan Stanley did not apply any discount to reflect
transfer restrictions, but looked at the values of underlying securities from
the perspective of long-term holders who do not apply a liquidity discount.
Using those assumptions, as of March 5, 2002, Morgan Stanley determined that the
indicative value of the consideration to be received by each holder of a share
of Bcom3 Class A common stock pursuant to the mergers was approximately $172. As
one indication of the sensitivity of this reference value to the underlying
assumptions, Morgan Stanley also advised that this reference value would have
increased to the range of $178 to $185 if the Publicis shares had traded in the
range of E35.00 to E37.00 and all other assumptions used (including as to
interest rates, exchange rates and volatility factors) remained constant. In
addition, Morgan Stanley had previously presented to the special committee on
February 27, 2002 an analysis showing that this reference value would have been
approximately $160 using the Publicis closing share price on February 26, 2002
of E29.77. As indicated above, given the numerous assumptions made and the high
degree of volatility of the above described values to the different parameters
used, such values were not intended as an appraisal of the value of the
consideration Class A shareholders would receive at the closing of the
transaction but rather to provide a reference point for Morgan Stanley's
analysis.
HISTORICAL SHARE PRICE PERFORMANCE
Morgan Stanley reviewed the price performance of the ordinary shares of
Publicis from January 1, 1999 through March 4, 2002. The table below shows the
daily high and low closing prices of Publicis ordinary shares for that period,
compared with a closing price on March 4, 2002 of E33.55 per share for Publicis
ordinary shares.
TABLE 1: SHARE PRICE PERFORMANCE: 1/1/1999-3/4/2002
(E) HIGH LOW
--- ----- -----
Publicis.................................................... 69.70 12.22
Morgan Stanley then compared the price performance of Publicis to the
Standard & Poor's 500 Common Stock Price Index, which we call the S&P 500 Index,
and two groups of selected advertising and marketing communications companies
with publicly traded common stock. One group included larger capitalization
companies, such as The Interpublic Group of Companies, Inc., Omnicom Group Inc.
and WPP Group PLC, which we refer to as the Large-Cap Comparables, and the other
group included mid-capitalization companies such as Cordiant Communications
Group PLC, Grey Global Group Inc., Havas Advertising and Dentsu Inc., which we
refer to as the Mid-Cap Comparables. The Large-Cap Comparables and the Mid-Cap
Comparables
49
were chosen because they participate in the global advertising and marketing
communications industry and possess financial and operating characteristics that
have similarities to those of Bcom3 and Publicis. None of the other companies
used in this analysis as a comparison is identical to Bcom3 or Publicis.
This analysis showed that the closing market price of Publicis appreciated
314.3% during the period from January 1, 1998 through March 1, 2002. The table
below shows the relative stock price appreciation of Publicis, the S&P 500 Index
and the Large-Cap Comparables and Mid-Cap Comparables from January 1, 1998
through March 1, 2002.
TABLE 2: INDEXED STOCK PRICE APPRECIATION: 1/1/1998-3/1/2002
Publicis.................................................... 314.3%
S&P 500 Index............................................... 16.6%
Large-Cap Comparables....................................... 114.2%
Mid-Cap Comparables......................................... 43.6%
COMPARABLE COMPANY ANALYSIS
Comparable company analysis examines a company's trading performance
relative to a group of publicly traded peers. Morgan Stanley performed a
comparable public company trading analysis pursuant to which it calculated and
compared prices to 2001 and 2002 estimated earnings multiples based on
Institutional Brokers Estimates System (also known as IBES) estimates and the
multiple of aggregate value as of March 1, 2002 to 2002 estimated earnings
before interest, taxes, depreciation and amortization (also known as EBITDA)
based on publicly available equity research estimates for a group of selected
advertising and marketing communications companies.
The group of selected advertising and marketing communications companies
included Omnicom, Interpublic, WPP, Cordiant, Havas, Dentsu and Publicis. Morgan
Stanley selected these companies because they are publicly traded companies with
advertising and marketing communications operations that, for purposes of this
analysis, may be considered similar to those of Bcom3.
The analysis showed the following multiples:
TABLE 3: COMPARABLE COMPANY TRADING MULTIPLES
AGGREGATE
PRICE/2001E PRICE/2002E VALUE/2002E
(X) EARNINGS EARNINGS EBITDA
--- ----------- ----------- -----------
Low.............................................. 22.8 14.6 6.6
Median........................................... 27.3 25.0 11.3
High............................................. 35.0 31.0 15.3
Based on an analysis of the comparable companies and the corresponding
information for Bcom3, including the Adjusted Bcom3 Management Projections,
Morgan Stanley estimated a per share value for Bcom3 common stock between
$145.50 and $162.50 (based on 9.0x to 10.0x 2002 estimated EBITDA) and between
$146.75 and $160.75 (based on 21.0x to 23.0x 2002 estimated cash earnings).
No company utilized in the comparable company analysis is identical to
Bcom3. In evaluating the comparable companies, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Bcom3, including the impact of competition on the business of Bcom3
and the industry generally, industry growth and the absence of any material
adverse change in the financial condition and prospects of Bcom3 or the industry
or in the financial markets in general, which could affect the public trading
value of the companies. Mathematical analysis, such as determining the average
or median, is not in itself a meaningful method of using comparable company
data.
50
DISCOUNTED CASH FLOW ANALYSIS
Morgan Stanley estimated the unlevered free cash flows that could be
produced by Bcom3 in fiscal years 2002 through 2011, based on a review of the
Adjusted Bcom3 Management Projections. Morgan Stanley calculated a discounted
cash flow analysis for Bcom3 assuming discount rates ranging from 8.5% to 9.5%,
based on Morgan Stanley's analysis of Bcom3's estimated weighted average cost of
capital, and terminal values for Bcom3 by applying multiples of unlevered EBITDA
in the year 2012 from 9.0x to 10.0x. This analysis produced an implied equity
value per share of Bcom3 common stock between approximately $176.75 and $189.75.
Morgan Stanley also observed that a $20 million reduction in annual EBITDA
reduces the implied per share value by $16.00 to $17.00.
SELECTED PRECEDENT TRANSACTIONS ANALYSIS
Using publicly available information, Morgan Stanley reviewed the terms of
selected announced, pending or completed transactions in the advertising
industry over the past 15 years. These transactions are:
- the WPP Group PLC/Tempus Group transaction;
- the Interpublic/True North Communications transaction;
- the Interpublic/Deutsch, Inc. transaction;
- the Publicis S.A./Saatchi & Saatchi PLC transaction;
- the WPP Group PLC/Young & Rubicam Inc. transaction;
- The Leo Group/The MacManus Group transaction;
- the Dentsu/Leo Group transaction;
- the Interpublic/International Public Relations PLC transaction;
- the Chancellor Media Corp./Martin Media LP transaction;
- the Chancellor Media Corp./Petry Media Corp. transaction;
- the Snyder Communications, Inc./Arnold Communications Inc. transaction;
- the Omnicom Group Inc./GGT Group PLC transaction;
- the CLT-UFA S.A./Havas Intermediation S.A. transaction;
- the True North/Bozell, Jacobs, Kenyon & Eckhardt, Inc. transaction;
- the Outdoor Systems, Inc./Van Wagner Communications, Inc. transaction;
- the GGT Group PLC/BDDP Worldwide transaction;
- the DLJ Merchant Banking Partners L.P./Katz Media Corporation
transaction;
- the Omnicom Group Inc./Boase Massimi Pollitt PLC transaction;
- the WPP Group PLC/Ogilvy Group, Inc. transaction;
- the WPP Group PLC/JWT Group, Inc. transaction; and
- the Saatchi & Saatchi Company PLC/Ted Bates Worldwide Inc. transaction.
Morgan Stanley determined that certain of the transactions, such as True
North/Interpublic, were more comparable due to their sizes and/or business
models. Morgan Stanley chose to exclude certain recent transactions including
Lighthouse Global Network/Cordiant Communications, Snyder Communications/Havas
Advertising, and Healthworld Corp./Cordiant Communications because the targets'
business models emphasized marketing services (or direct marketing) and were not
sufficiently comparable to Bcom3. Morgan Stanley also considered the timing of
the transactions, recognizing that in certain time periods (e.g.,
51
1999 to mid-2000) many economically sensitive stocks were trading at valuations
markedly different than in the 2002 time frame.
The table below presents the high, low and median ratios for these
transactions of aggregate value to each of the last twelve months (also known as
LTM) revenues, EBITDA and earnings before interest and taxes (also known as
EBIT) and equity value to LTM net income (excluding certain transaction
multiples deemed to be not meaningful).
TABLE 4: PRECEDENT TRANSACTIONS MULTIPLES
AGGREGATE VALUE/LTM
------------------------ EQUITY VALUE/
(X) REVENUES EBITDA EBIT LTM NET INCOME
--- -------- ------ ---- --------------
Low......................................... 0.4 7.2 10.0 13.6
Median...................................... 1.4 9.1 21.3 22.7
High........................................ 3.0 24.6 34.8 49.5
Based on the Adjusted Bcom3 Management Projections and median precedent
transaction multiples, Morgan Stanley estimated per share transaction values for
Bcom3 common stock ranging from approximately $117.25 to $172.75 (based on 9.0x
to 13.0x LTM EBITDA).
No company or transaction utilized as a comparison in the precedent
transactions analysis is identical to Publicis, Bcom3 or the merger transaction.
In evaluating the precedent transactions, Morgan Stanley made judgments and
assumptions regarding industry performance, general business, economic, market
and financial conditions and other matters, many of which are beyond the control
of Bcom3 or Publicis, including the impact of competition on Bcom3 and the
industry in general, industry growth and the absence of any material adverse
change in the financial condition and prospects of Bcom3, Publicis or the
industry or in the financial markets in general, which could affect the public
trading value of the companies and the aggregate value of the transactions to
which they are being compared. Mathematical analysis (such as determining the
average or median) is not in itself a meaningful method of using comparable
transaction data.
RELATIVE CONTRIBUTION ANALYSIS
Morgan Stanley compared the pro forma contributions of Bcom3 and Publicis,
based on the Adjusted Bcom3 Management Projections and the Publicis Projections,
to the combined company assuming consummation of the Publicis/Bcom3 merger.
Morgan Stanley observed, among other things, that based on the projected
revenue, EBITDA, EBIT, net income and cash net income for fiscal 2002 for each
company, Bcom3 would contribute between 33.2% and 47.7% to the combined
company's pro forma revenue, EBITDA, EBIT, net income and cash net income for
fiscal 2002. Morgan Stanley also observed, among other things, that based on the
projected revenue, EBITDA, EBIT, net income and cash net income for fiscal 2003
for each company, Bcom3 would contribute between 35.1% and 48.5% to the combined
company's projected revenue, EBITDA, EBIT, net income and cash net income for
fiscal 2003. These figures were compared to the pro forma fully diluted
ownership of the combined company by all holders of Bcom3 common stock of 42.2%.
PRO FORMA ANALYSIS OF THE PUBLICIS/BCOM3 MERGER
Morgan Stanley analyzed the pro forma effect of the Publicis/Bcom3 merger
on Publicis's estimated cash earnings per share for the fiscal years ending 2002
through 2004. The analysis was based on the Adjusted Bcom3 Management
Projections and the Publicis Projections. The analysis assumed the completion of
the mergers and excluded the value of certain cost savings benefits of the
combination as estimated by the managements of Bcom3 and Publicis. This analysis
indicated that the impact of the Publicis/Bcom3 merger on estimated cash
earnings per share of Publicis ordinary shares would be accretive (9.9% in
fiscal year 2002) in each year during the period.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking and financial
advisory business, is continuously involved in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings,
52
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of its business, Morgan Stanley or its affiliates may, at any
time, hold long or short positions in, and buy and sell the debt or equity
securities or senior loans of Bcom3, Dentsu or Publicis for its account or the
account of its customers. Morgan Stanley and its affiliates have, in the past,
provided financial advisory services to Bcom3 and have received fees for the
rendering of these services. From July 1, 2000 through July 1, 2002, Morgan
Stanley and its affiliates provided Bcom3 with financial advisory services
relating to mergers and acquisitions. The total fees paid by Bcom3 for such
services were $375,000. Morgan Stanley may also provide investment banking
services to the combined entity in the future.
Bcom3 has agreed to pay Morgan Stanley a financial advisory fee in the
amount of $15.75 million upon completion of the mergers. This amount reflects a
credit in the amount of $250,000 already paid to Morgan Stanley by Bcom3 in
connection with financial advisory services previously provided. Bcom3 has also
agreed to reimburse Morgan Stanley for its expenses incurred in connection with
its engagement and to indemnify Morgan Stanley and its affiliates, their
respective directors, officers, agents and employees and each person, if any,
controlling Morgan Stanley or any of its affiliates against various liabilities
and expenses, including various liabilities under the federal securities laws,
related to or arising out of Morgan Stanley's engagement and any related
transactions.
Bcom3 also provides traditional advertising services to Morgan Stanley and
its affiliates on an ongoing basis.
APPRAISAL RIGHTS
If the mergers are consummated, holders of shares of Bcom3 common stock are
entitled to appraisal rights under Section 262 of the Delaware General
Corporation Law, referred to in this proxy statement/prospectus as Section 262,
if they comply with the conditions established by Section 262.
Section 262 is reprinted in its entirety as Annex E to this proxy
statement/prospectus. The following discussion is not a complete statement of
the law relating to appraisal rights and is qualified in its entirety by
reference to Annex E. This discussion and Annex E should be reviewed carefully
by any holder who wishes to exercise statutory appraisal rights or who wishes to
preserve the right to do so, as failure to comply with the procedures set forth
herein or therein will result in the loss of appraisal rights.
PLEASE NOTE THAT UNDER THE TERMS OF THE STOCK PURCHASE AGREEMENT, EACH
HOLDER OF CLASS A COMMON STOCK HAS AGREED THAT THE PER SHARE BOOK VALUE (AS SUCH
TERM IS DEFINED IN THE STOCK PURCHASE AGREEMENT BETWEEN BCOM3 AND EACH CLASS A
STOCKHOLDER) OF EACH SUCH HOLDER'S SHARES SHALL BE DEEMED THE FAIR VALUE OF SUCH
SHARES FOR PURPOSES OF ANY APPRAISAL PROCEEDING. AS OF DECEMBER 31, 2001 THE PER
SHARE BOOK VALUE WAS $26.30 FOR FORMER STOCKHOLDERS OF THE LEO GROUP AND $7.38
FOR FORMER STOCKHOLDERS OF THE MACMANUS GROUP. PHILADELPHIA MERGER CORP., AS THE
ULTIMATE SURVIVING CORPORATION IN THE MERGERS, INTENDS TO ENFORCE THIS PROVISION
OF THE STOCK PURCHASE AGREEMENT. THEREFORE, ANY CURRENT HOLDER OF CLASS A COMMON
STOCK IS HEREBY ADVISED TO SEEK THE ADVICE OF COUNSEL BEFORE ATTEMPTING TO
ASSERT OR PERFECT APPRAISAL RIGHTS WITH RESPECT TO SUCH HOLDER'S SHARES OF CLASS
A COMMON STOCK.
A record holder of shares of common stock who makes the demand described
below with respect to such shares, who continuously is the record holder of such
shares through the effective date of the relevant merger, who otherwise complies
with the statutory requirements of Section 262 and who neither votes in favor of
the merger proposal for which such holder wishes to exercise appraisal rights
nor consents thereto in writing will be entitled to an appraisal by the Delaware
Court of Chancery, referred to as the Delaware Court in this discussion, of the
fair value of his or her shares of common stock. Because neither merger will be
effected if the other is not also effected and because the effective time of the
first step merger will occur immediately before the effective time of the
Publicis/Bcom3 merger, any holder of Bcom3 common stock who does not vote in
favor of nor consent to, and who asserts appraisal rights in connection with,
the first step merger would not be entitled to receive either the first step
merger consideration or the Publicis/Bcom3 merger consideration unless such
stockholder fails to perfect or later loses the right to seek appraisal.
Instead, such holder would be entitled to receive the fair value of his or her
shares of Bcom3 common stock at the effective date of
53
such first step merger as determined in the appraisal proceeding. Any holder of
Bcom3 common stock (1) who does not perfect his or her appraisal rights with
respect to the first step merger and (2) who does not vote in favor of nor
consent to, and who asserts appraisal rights in connection with, the
Publicis/Bcom3 merger would be entitled to receive the first step merger
consideration, but would not be entitled to receive the Publicis/Bcom3 merger
consideration unless such stockholder fails to perfect or later loses the right
to seek appraisal in connection with the Publicis/Bcom3 merger. Instead, such
holder would be entitled to receive the fair value of his or her shares of Bcom3
common stock (i.e. the shares remaining after consummation of the first step
merger) at the effective date of such Publicis/Bcom3 merger. Except as set forth
herein and in Section 262, stockholders of Bcom3 will not be entitled to
appraisal rights in connection with the mergers.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, such as the special meeting of the Bcom3 stockholders,
not less than 20 days prior to the meeting a constituent corporation must notify
each of the holders of its stock for whom appraisal rights are available that
such appraisal rights are available and include in each such notice a copy of
Section 262. This proxy statement/prospectus shall constitute such notice to the
record holders of Bcom3 common stock.
A holder of shares of Bcom3 common stock who desires to exercise his or her
appraisal rights must not vote in favor of the merger proposal for which such
holder wishes to exercise appraisal rights and must deliver a separate written
demand for appraisal to Bcom3 specifying the merger proposal for which he or she
is demanding appraisal rights prior to the vote by the stockholders of Bcom3 on
the mergers. A demand for appraisal must be executed by or on behalf of the
stockholder of record and must reasonably inform Bcom3 of the identity of the
stockholder of record and that such stockholder intends thereby to demand
appraisal of the common stock. A proxy, vote or instruction to vote against the
mergers will not by itself constitute such a demand. Within ten days after the
effective date of the relevant merger, Philadelphia Merger Corp., as the
ultimate surviving corporation in the mergers, must provide notice that the
effective date of the relevant merger has occurred to all stockholders who have
complied with Section 262.
A stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to Bcom3 Group, Inc., at 35 West Wacker Drive,
Chicago, Illinois 60601, Attention: Mr. Christian E. Kimball, Secretary.
Each current beneficial owner of Class A common stock is hereby advised
that Messrs. Haupt, Brown, Bostock and Fizdale, as voting trustees, are the
record holders of his or her Class A common stock. Any holder intending to
exercise appraisal rights with respect to his or her shares should contact the
voting trustees, c/o Bcom3 Group, Inc. at the address set forth above, as
promptly as possible so that appropriate arrangements may be made. In addition,
the voting trustees have advised Bcom3 that if their shares of common stock are
owned by more than one person, as in a joint tenancy or tenancy in common, any
instruction to the voting trustees to demand appraisal rights must be executed
by or for all joint owners.
Please note that Section 262 provides that in order to perfect his or her
appraisal rights, any record holder asserting appraisal rights with respect to
either merger must be the record holder on the date the demand for appraisal is
made and must continue as the record holder of the shares for which he or she is
seeking appraisal through the effective date of the relevant merger. The
Publicis/Bcom3 merger agreement provides that immediately prior to the effective
time of the Publicis/Bcom3 merger, the voting trust pursuant to which all
outstanding shares of Class A common stock of Bcom3 are held of record by the
voting trustees will be dissolved, and the related voting trust agreement will
be terminated. As a result, immediately prior to the effective time of the
Publicis/Bcom3 merger, unless other arrangements are made, each beneficial owner
of Bcom3 Class A common stock will become a record holder of uncertificated
shares of Class A common stock, and this change in record ownership would
preclude the perfection of appraisal rights with respect to such holder's
shares. Therefore, prior to the dissolution of the voting trust, special
arrangements should be made by the voting trustees and any Class A stockholder
intending to assert appraisal rights to ensure that such stockholder becomes the
record holder, prior to the time of his or her demand for appraisal, of any
shares for which such a demand is to be made. Please contact the voting trustees
if you intend to exercise appraisal rights. Even if such arrangements are made,
if you intend to pursue appraisal rights only with respect to the Publicis/Bcom3
merger, there may be an issue under Delaware law as to whether you have
continuously held
54
the shares through the effective date, given the conversion of your shares in
the first step merger. Please seek advice of counsel before attempting to demand
or perfect appraisal rights.
Within 120 days after the effective date of the relevant merger, either
Philadelphia Merger Corp. or any stockholder who has complied with the required
conditions of Section 262 may file a petition in the Delaware Court, with a copy
served on Philadelphia Merger Corp. in the case of a petition filed by a
stockholder, demanding a determination of the fair value of the shares of all
dissenting stockholders. There is no present intent on the part of Philadelphia
Merger Corp. to file an appraisal petition with respect to either merger
proposal, and stockholders seeking to exercise appraisal rights should not
assume that Philadelphia Merger Corp. will file such a petition or that
Philadelphia Merger Corp. will initiate any negotiations with respect to the
fair value of such shares. Accordingly, any holder of Bcom3 common stock who
desires to seek appraisal with respect to his or her shares should initiate any
petitions necessary for the perfection of their appraisal rights within the time
periods and in the manner prescribed in Section 262. Within 120 days after the
effective date of the relevant merger, any stockholder who has complied with the
applicable provisions of Section 262 will be entitled, upon written request, to
receive from Bcom3 or Philadelphia Merger Corp. a statement setting forth the
aggregate number of shares of Class A and Class B common stock not voting in
favor of the mergers and with respect to which demands for appraisal were
received by Bcom3 and the number of holders of such shares. Such statement must
be mailed (1) within 10 days after the written request therefor has been
received by Philadelphia Merger Corp. or (2) within 10 days after the expiration
of the period for the delivery of demands as described above, whichever is
later.
If a petition for an appraisal is timely filed, at the hearing on such
petition the Delaware Court will determine which stockholders are entitled to
appraisal rights. The Delaware Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Delaware Court may dismiss
the proceedings as to such stockholder. Where proceedings are not dismissed, the
Delaware Court will appraise the shares of common stock owned by such
stockholders, determining the fair value of such shares exclusive of any element
of value arising from the accomplishment or expectation of the mergers, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. PLEASE NOTE THAT PURSUANT TO THE STOCK PURCHASE AGREEMENT,
EACH CLASS A STOCKHOLDER HAS AGREED THAT THE PER SHARE BOOK VALUE OF SUCH
HOLDER'S SHARES SHALL BE DEEMED THE FAIR VALUE OF SUCH SHARES FOR PURPOSES OF
ANY APPRAISAL PROCEEDING.
The cost of the appraisal proceeding may be determined by the Delaware
Court and taxed against the parties as the Delaware Court deems equitable in the
circumstances. However, costs do not include attorneys' and expert witness fees.
Each dissenting stockholder seeking to have his or her shares appraised is
responsible for his or her attorneys' and expert witness' expenses, although,
upon application of such a stockholder of Bcom3, the Delaware Court may order
that all or a portion of the expenses incurred by any such stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, be charged pro
rata against the value of all shares of stock entitled to appraisal.
Any holder of shares of common stock who has duly demanded appraisal in
compliance with Section 262 will not, after the effective date of the relevant
merger, be entitled to vote for any purpose any shares subject to such demand or
to receive payment of dividends or other distributions on such shares, except
for dividends or distributions payable to stockholders of record at a date prior
to the effective date of the relevant merger.
At any time within 60 days after the effective date of the relevant merger,
any stockholder will have the right to withdraw such demand for appraisal and to
accept the terms offered in the mergers; after this period, the stockholder may
withdraw such demand for appraisal only with the consent of Philadelphia Merger
Corp. If no petition for appraisal is filed with the Delaware Court within 120
days after the effective date of the relevant merger, stockholders' rights to
appraisal shall cease, and all holders of shares of common stock will be
entitled to receive the consideration offered pursuant to the merger agreements.
Inasmuch as Philadelphia Merger Corp. has no obligation to file such a petition,
and Philadelphia Merger Corp. has no present intention to do so, any holder of
shares of common stock who desires such a petition to be filed is advised to
file it on a
55
timely basis. Any stockholder may withdraw such stockholder's demand for
appraisal by delivering to Bcom3, if before the effective date of the
Publicis/Bcom3 merger, and to Philadelphia Merger Corp., if after the effective
date of the Publicis/Bcom3 merger, a written withdrawal of his or her demand for
appraisal and acceptance of the applicable merger consideration, except (1) that
any such attempt to withdraw made more than 60 days after the effective date of
the relevant merger will require written approval of Philadelphia Merger Corp.
and (2) that no appraisal proceeding in the Delaware Court shall be dismissed as
to any stockholder without the approval of the Delaware Court, and such approval
may be conditioned upon such terms as the Delaware Court deems just.
ACCOUNTING MATTERS
Publicis has prepared and will prepare financial statements using French
GAAP. In accordance with the rules and regulations of the SEC, Publicis has
reconciled the financial statements it has filed with the SEC to U.S. GAAP and
it will do so in future SEC filings. See Note 29 to Publicis's financial
statements included in Publicis's Annual Report on Form 20-F/A for Publicis's
2001 fiscal year, which is incorporated herein by reference.
Publicis intends to account for the merger using the "purchase" method of
accounting for business combinations under French GAAP. When it reconciles its
financial statements to U.S. GAAP, it also intends to account for the merger
using the "purchase" method of accounting for business combinations.
GOVERNMENTAL AND REGULATORY APPROVALS
UNITED STATES
The merger transactions are subject to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, which prohibits the consummation of
reportable transactions until required information and materials are furnished
to the U.S. Department of Justice and the U.S. Federal Trade Commission and
specified waiting periods are terminated or expire. On April 11, 2002, Publicis
and Bcom3 each filed a pre-merger notification and report form under the HSR Act
with the FTC and the Department of Justice. The waiting period expired on May
13, 2002.
FRANCE
The acquisition by a French public company of another company, French or
otherwise, generally does not require prior approval from any regulatory
authorities in France, particularly where the acquisition requires notification
to and approval by the European Commission under Council Regulation (EEC)
4064/89, as amended.
Pursuant to regulations of the Commission des Operations de Bourse (or
COB), an independent French administrative body, Publicis filed on April 23,
2002 a French prospectus with the COB in respect of the Publicis/Bcom3 merger
and the listing on Euronext Paris of the Publicis shares and the other
securities to be received by the Bcom3 stockholders in the Publicis/Bcom3
merger. Publicis received the approval (visa) of the COB for that prospectus on
May 16, 2002. Publicis held an extraordinary and ordinary meeting of its
shareholders in connection with, and Publicis's shareholders approved, the
Publicis/Bcom3 merger agreement and merger and other related proposals on June
18, 2002.
In addition, Dentsu, Somarel and Madame Badinter petitioned the Conseil des
Marches Financiers (or CMF) for an exemption from the French law which requires
groups holding more than one-third of the outstanding voting power of a company
to launch a mandatory public offering for that company. Dentsu, Somarel and
Madame Badinter received the exemption on May 24, 2002.
EUROPEAN UNION
Publicis and Bcom3 each conduct business in member states of the European
Union. Council Regulation (EEC) 4064/89, as amended, requires notification to
and approval by the European Commission of mergers
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or acquisitions involving parties with aggregate worldwide sales and individual
European Union sales exceeding specified thresholds. Publicis and Bcom3 filed
their formal merger notification with the European Commission on May 15, 2002.
On June 18, 2002, Publicis and Bcom3 received notice from the European
Commission that it has terminated its review and granted its approval of the
merger.
OTHER JURISDICTIONS
Publicis and Bcom3 conduct operations in other jurisdictions where other
regulatory filings or approvals are required or advisable in connection with the
completion of the merger. Publicis and Bcom3 have made filings in other
jurisdictions as required.
Publicis and Bcom3 are working to obtain the required regulatory approvals
and consents. However, there is no assurance as to when or whether any of these
approvals and consents will be obtained or the terms and conditions that may be
imposed.
Both Publicis and Bcom3 have agreed to use reasonable best efforts to
complete the mergers, including to obtain required regulatory approvals.
However, pursuant to the Publicis/Bcom3 merger agreement, Publicis is not
obligated to agree to material restrictions on the conduct of its business
following the completion of the mergers or to divest any of its material assets
or the material assets of any of its affiliates, or of Bcom3 or any of its
affiliates.
OTHER EFFECTS OF THE MERGERS
LISTING OF ORDINARY SHARES, ORAS AND WARRANTS
Publicis will use its reasonable best efforts to obtain admission to
trading at the Premier Marche of Euronext Paris of the Publicis ordinary shares,
ORAs and warrants to be delivered by Publicis in the Publicis/Bcom3 merger
within five business days of the closing date of the mergers, and the Publicis
ordinary shares to be delivered upon redemption of the ORAs and exercise of the
warrants at the time of such redemption or at the time such warrants become
exercisable, as the case may be.
CONTENT AND TIMING OF REPORTS AND NOTICES OF THE COMPANIES
The content and timing of reports and notices that Publicis files with the
SEC differ in several respects from the reports and notices that Bcom3 currently
files. Publicis is a foreign private issuer for purposes of the reporting rules
under the Exchange Act. After the mergers, Bcom3 will no longer be required to
file reports with the SEC.
As a U.S. reporting company, Bcom3 currently must file with the SEC, among
other reports and notices:
- an Annual Report on Form 10-K within 90 days after the end of each fiscal
year;
- a Quarterly Report on Form 10-Q within 45 days after the end of each of
the first three quarters of the fiscal year; and
- current Reports on Form 8-K upon the occurrence of various corporate
events.
As a foreign private issuer, pursuant to the rules of the Exchange Act,
Publicis is required to:
- file with the SEC an annual report on Form 20-F within six months after
the end of each fiscal year; and
- furnish reports on Form 6-K relating to information material to Publicis
which is required to be publicly disclosed in France or filed with
Euronext Paris, or relating to information distributed or required to be
distributed by Publicis to its shareholders.
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As a foreign private issuer, Publicis is not required under the Exchange
Act to file quarterly reports on Form 10-Q after the end of each financial
quarter, although Publicis is required to file certain financial information on
Form 6-K within 90 days after the first six months of its fiscal year.
In addition, the content and timing of reports and notices that holders of
Publicis ordinary shares receive will differ from the reports and notices that
are currently received by Bcom3 stockholders. As a U.S. reporting company, Bcom3
must mail to its stockholders in advance of any annual meeting of stockholders:
- an annual report containing audited financial statements; and
- a proxy statement that complies with the requirements of the Exchange
Act.
As a foreign private issuer, Publicis is exempt from the rules under the
Exchange Act prescribing the furnishing and content of annual reports and proxy
statements to its shareholders. In addition, Publicis's officers, directors and
principal stockholders will not be subject to the reporting and "short-swing
profit recovery" provisions of Section 16 of the Securities Act with respect to
sales and purchases of Publicis shares. However, Publicis will cause registered
holders of Publicis ordinary shares to be furnished with an annual report in
French and in English which contains audited financial statements prepared in
conformity with French GAAP, together with a reconciliation of certain items to
U.S. GAAP. Publicis will also furnish registered holders of Publicis shares with
notices of meetings of shareholders and related documents in French and in
English in accordance with the requirements of French law.
Publicis also plans to allow copies of Publicis's annual reports and other
information to be ordered by mail from its Internet web site at
www.publicis.com.
DIVIDENDS
Publicis has historically paid dividends on an annual basis and expects to
continue to pay annual dividends on Publicis ordinary shares. The amount of
future dividends of Publicis will depend on its earnings and financial condition
and other factors affecting its businesses. Publicis's dividend for the year
ended December 31, 2000 was E.20 per ordinary share and the dividend for the
year ended December 31, 2001 was E.22 per ordinary share. For information on
dividends declared by Publicis for the fiscal years ended 1997 through 2001, see
"Comparative Market Price, Trading Volume and Dividend Data." Bcom3 paid a cash
dividend of $.25 per share to holders of its common stock on February 9, 2001.
On February 18, 2002, Bcom3 declared a cash dividend of $.25 per share of common
stock. This dividend was paid by March 18, 2002 to holders of its common stock
as of February 18, 2002. Other than these dividends, Bcom3 has not declared or
paid any dividends.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the respective recommendations of the Bcom3 and Publicis
boards of directors with respect to the merger agreements, stockholders should
be aware that certain directors and officers of both Bcom3 and Publicis have
interests in the mergers that may be different from, or in addition to, the
interests of the other stockholders of Bcom3 and Publicis generally.
STOCK OPTION PLANS
The total consideration to be paid for Bcom3 in both mergers is for all of
its stock and options, and is allocated among Class A stockholders, Class B
stockholders and option holders as provided in the Publicis/Bcom3 merger
agreement and the applicable stock option plan in effect at the time of the
mergers. The option holders' share of the total consideration will take the form
of a cash payment to each option holder in cancellation of his or her options.
The cash payment for each option, whether vested or unvested, will reflect the
immediate U.S. dollar cash value of the blended merger consideration per Class A
share paid in both mergers, as determined in good faith by the Bcom3 board, less
the exercise price of the option.
The option cash payment will be effected in two stages. First, the Bcom3
board, pursuant to Bcom3's 2000 Long-Term Equity Incentive Plan and 2001
California Stock Option Plan (collectively, the "stock
58
option plans"), will make an appropriate adjustment to the exercise price of and
number of shares underlying each outstanding stock option to reflect the
treatment of Class A common stock in the first step merger. Then, in the
Publicis/Bcom3 merger, each outstanding stock option so adjusted (whether vested
or not) will be cancelled and option holders will receive a cash payment equal
to the product of (1) the adjusted total number of Bcom3 Class A shares subject
to such stock option and (2) the excess, if any, of the immediate U.S. dollar
cash value of the consideration payable in the Publicis/Bcom3 merger for each
Class A share measured at the effective time of the Publicis/Bcom3 merger, as
determined in good faith by the Bcom3 board, over the adjusted exercise price
per share for the applicable stock option.
As of August 9, 2002, approximately 1,200 employees of Bcom3 and its
subsidiaries held Bcom3 stock options, giving such individuals the right to
acquire approximately 1,750,000 shares of Class A common stock in the aggregate,
at an exercise price of $130 per share. Of the persons who have been a Bcom3
director or executive officer at any time since the beginning of the last fiscal
year, Messrs. Haupt, Brown, Kimball, Bostock, Fizdale, Oshima, Niimura and
Kobuse have not received any grants or awards under the stock option plans.
Mmes. Kamerick and Reeves received nonqualified stock option grants during 2001
and 2002 under the stock option plans as set forth in the following tables:
INDIVIDUAL OPTION GRANTS DURING 2001
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES PERCENT OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE ---------------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% ($) 10% ($)
------------------------- ----------- ---------------- --------- --------------- ----------- -------------
Roger A. Haupt........... -- -- -- -- -- --
Craig D. Brown........... -- -- -- -- -- --
Eileen A. Kamerick(1).... 10,000 1.1% $130 08/31/11 $817,563 $2,071,865
Christian E. Kimball..... -- -- -- -- -- --
Elizabeth L.
Reeves(2)(3)........... 6,500 0.7% $130 12/29/10 $531,416 $1,346,712
Roy J. Bostock........... -- -- -- -- -- --
Richard B. Fizdale....... -- -- -- -- -- --
Fumio Oshima............. -- -- -- -- -- --
Megumi Niimura........... -- -- -- -- -- --
Naoki Kobuse............. -- -- -- -- -- --
---------------
(1) The nonqualified stock options granted to Ms. Kamerick vest in four equal
installments, such that they will be 25% vested on August 31, 2003, 50%
vested on August 31, 2004, 75% vested on August 31, 2005, and 100% vested on
August 31, 2006.
(2) The nonqualified stock options granted to Ms. Reeves vest in four equal
installments, such that they will be 25% vested on December 29, 2002, 50%
vested on December 29, 2003, 75% vested on December 29, 2004, and 100%
vested on December 29, 2005.
(3) As of August 9, 2002, Ms. Reeves does not serve as an executive officer of
Bcom3.
59
INDIVIDUAL OPTION GRANTS DURING 2002
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES PERCENT OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE ---------------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% ($) 10% ($)
----------------------- ----------- ---------------- --------- --------------- ------------ ------------
Roger A. Haupt......... -- -- -- -- -- --
Craig D. Brown......... -- -- -- -- -- --
Eileen A.
Kamerick(1).......... 35,000 4.1% $130 02/27/12 $2,861,471 $7,251,528
Christian E. Kimball... -- -- -- -- -- --
Elizabeth L.
Reeves(2)(3)......... 10,000 1.1% $130 02/27/12 $ 817,563 $2,071,865
Roy J. Bostock......... -- -- -- -- -- --
Richard B. Fizdale..... -- -- -- -- -- --
Fumio Oshima........... -- -- -- -- -- --
Megumi Niimura......... -- -- -- -- -- --
Naoki Kobuse........... -- -- -- -- -- --
---------------
(1) The non-qualified stock options granted to Ms. Kamerick vest in four equal
installments, such that they will be 25% vested on February 27, 2004, 50%
vested on February 27, 2005, 75% vested on February 27, 2006 and 100% vested
on February 27, 2007.
(2) The non-qualified stock options granted to Ms. Reeves vest in four equal
installments, such that they will be 25% vested on February 27, 2004, 50%
vested on February 27, 2005, 75% vested on February 27, 2006 and 100% vested
on February 27, 2007.
(3) As of August 9, 2002, Ms. Reeves does not serve as an executive officer of
Bcom3.
Because Bcom3 is a privately-held company with no trading in its shares of
common stock, there has been no market determination of the value of the shares
underlying the stock options held by, and therefore the value of the payments to
be made to, Mmes. Kamerick and Reeves as described above.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
Publicis is obligated, for six years after the merger, to maintain in
effect Bcom3's current directors' and officers' liability insurance covering
acts or omissions prior to the effective time of the Publicis/Bcom3 merger.
Publicis is obligated, to the fullest extent permitted by law, to indemnify
and hold harmless each person who is or has been an officer or director of Bcom3
or any of its subsidiaries with respect to acts or omissions by them in their
capacities as officers or directors at any time prior to the effective time of
the Publicis/Bcom3 merger, including for acts and omissions occurring in
connection with the mergers and the merger agreements. Publicis will also cause
Philadelphia Merger Corp., the surviving corporation in the Publicis/Bcom3
merger, to maintain in its bylaws for a period of six years provisions
reasonably satisfactory to Bcom3 regarding officers' and directors'
indemnification and insurance.
EMPLOYMENT AGREEMENTS
ROGER HAUPT'S EMPLOYMENT AGREEMENT WITH BCOM3
Bcom3 entered into an employment agreement with Roger Haupt on January 1,
2001 that entitles him to an annual salary of not less than $950,000, an annual
bonus and stock option awards (as recommended by Bcom3's board nominating and
compensation committee), as well as various employee benefits and perquisites.
Under the terms of his employment agreement, if the Bcom3 board terminates
Mr. Haupt's employment at any time during the period commencing three months
before a "change in control" and ending two years
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following a change in control or if Mr. Haupt terminates his employment at any
time during the 30-day period that begins six months after a change in control,
Mr. Haupt will be entitled to a lump sum payment equal to four times the sum of
his annual salary and bonus (which is defined as the greater of his target bonus
for the year in which the date of termination occurs, or the highest of the
actual bonus paid in the three years preceding the year in which the date of
termination occurs). Consummation of the Publicis/Bcom3 merger will constitute a
"change in control" under Mr. Haupt's agreement. Mr. Haupt will be entitled to
three times the sum of his annual base salary and bonus if the termination is by
action of the Bcom3 board for any reason other than death, disability, cause or
in connection with a change in control, or at the election of Mr. Haupt for
"good reason" if the board has not cured or resolved the good reason before the
end of 30 days after receiving notice. Under Mr. Haupt's agreement, "good
reason" means:
- a material diminution in his title, position, duties or responsibilities
or the assignment to him of duties that are materially inconsistent with
the position of CEO of the ultimate parent company of a group of
operating companies;
- a "fundamental disagreement" with the board (as defined in the
agreement);
- removal from, or failure to be reelected to, the position as CEO of Bcom3
(or its successor);
- a reduction in salary or a material reduction in benefits without a
reasonable substitution of additional cash salary or alternative
benefits;
- failure to continue participation in the annual bonus plan and long-term
incentive plan at levels described in the agreement;
- failure to continue any material perquisite without providing an
equivalent alternative perquisite;
- a relocation of his principal workplace without his consent to a location
more than 25 miles from its current location; or
- a material breach by Bcom3 of any of its obligations under the agreement.
Upon any such termination entitling him to severance pay, Mr. Haupt is also
entitled to (1) immediate vesting of any otherwise unvested benefits and (2)
continuation of all welfare benefits for a period of three years with an
additional three years of benefits under his executive employment consultancy
arrangement. The agreement further provides that if any of the payments made to
Mr. Haupt become subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code, Mr. Haupt will be entitled to receive an additional
gross-up payment such that, after payment by Mr. Haupt of all taxes, including
any excise tax imposed upon the gross-up payment, Mr. Haupt will receive the net
after-tax benefit that he would have received had the excise tax not been
imposed. Following the termination of his employment, Mr. Haupt has agreed to
non-competition and non-solicitation restrictions for a period of five years.
TERMINATION AND CHANGE IN CONTROL BENEFITS
EXECUTIVE CHANGE IN CONTROL AGREEMENTS
Fourteen Bcom3 executives, including Messrs. Brown and Kimball and Mmes.
Kamerick and Reeves, entered into change in control agreements with Bcom3 in
January and February of this year. Under the terms of each of the change in
control agreements, each executive is entitled to receive certain payments and
benefits if there is a "change in control" (as defined in the agreements) and
the executive's employment is terminated without "cause" or upon a "constructive
discharge" within the period beginning 90 days prior to a change in control and
ending on the third anniversary of such change in control. Approval by Bcom3's
stockholders of the Publicis/Bcom3 merger will constitute a "change in control"
under the change in control agreements.
61
Under the agreements, an executive's employment will have deemed to have been
terminated upon a constructive discharge after:
- a material diminution in the executive's reporting relationship;
- a material diminution in the executive's duties and responsibilities
taken as a whole (not taking into account changes, such as changes in
public reporting requirements, that occur solely by reason of Bcom3 being
a subsidiary of another company rather than the top-most company in a
group of companies);
- a reduction in his or her base salary;
- a material reduction in his or her bonus opportunity or level of benefits
other than a reduction in level of benefits that is reasonably consistent
with changes affecting all senior executives of the company; or
- a requirement that he or she relocate or commute to another metropolitan
area (whether or not such developments have also resulted in a
resignation by the executive).
Depending upon the date of termination, certain agreements provide for a
lump sum payment of up to two times (including agreements for Messrs. Brown and
Kimball) or up to three times (including agreements for Mmes. Kamerick and
Reeves) the sum of the executive's annual base salary plus the executive's
target incentive bonus for the year in which the date of termination occurs (or,
if greater, the highest aggregate cash compensation that the executive earned in
annual salary and bonuses with respect to any of the three calendar years before
the date of termination). In addition, each executive will be entitled to the
following benefits if such executive's employment is terminated within the
specified period before or following the change in control: (1) depending on the
date of termination, continuation of all welfare benefits and deferred
compensation, profit sharing, long-term incentive, defined contribution, defined
benefit, pension, retirement and other similar qualified and non-qualified
benefit plans for the executive for a period of up to two or three years; (2)
immediate vesting of any otherwise unvested benefits; (3) a pro rata portion of
the executive's aggregate target incentive bonus for the year in which the date
of termination occurs; (4) accrued but unpaid salary, annual bonuses, vacation
pay and unreimbursed expenses through the date of termination; and (5)
outplacement services for a period of 12 months.
The agreements further provide that if any of the payments made to the
executives become subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code, the executives will be entitled to receive an additional
gross-up payment such that, after payment by the executives of all taxes,
including any excise tax imposed upon the gross-up payment, the executives will
receive the net after-tax benefit that the executives would have received had
the excise tax not been imposed.
Upon the termination of their employment, the executives may be required to
sign a mutual legal release and agree to a one-year non-competition restriction
and a two-year non-solicitation restriction as a condition to receiving any
payments or benefits.
RETIREMENT ARRANGEMENTS
Messrs. Haupt and Kimball have letter agreements regarding executive
employment consultancy arrangements. Under these agreements, each will be
entitled to receive semi-monthly payments, at an annual rate equal to 30% of the
sum of his final annual base salary plus his final annual bonus (or, if greater,
the average of his final and immediately previous annual bonuses), along with
the continuation of certain employee benefits, for a period of five years
commencing upon his retirement. Mr. Haupt has already vested in this benefit,
having attained age 50, and Mr. Kimball will vest in this benefit beginning with
his retirement (at age 55 or later) or, pursuant to the terms of his change in
control agreement, upon his earlier termination of employment as a result of a
change in control.
Mr. Brown also has a salary continuation agreement. Under this agreement,
he will be entitled to receive monthly payments for a period of 10 years
following his death, disability or retirement. Mr. Brown is entitled to receive
monthly payments at the rate of $250,000 per annum, commencing upon (1) his
retirement (at age 55 or later); (2) his earlier death or disability (subject,
in the case of disability, to offset for certain disability
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insurance proceeds that Mr. Brown may be entitled to receive under company-paid
policies); or (3) pursuant to the terms of his change in control agreement, his
earlier termination of employment as a result of a change in control. Mr. Brown
shall forfeit his right to receive any of these payments should he breach
certain non-solicitation or non-competition restrictions that are applicable for
a period of two years after the termination of his employment.
INTERESTS OF DENTSU'S DESIGNATED DIRECTORS
Two members of Bcom3's board, Messrs. Oshima and Kobuse, have been
designated to the board by Dentsu and therefore may have interests different
from, or in addition to, the interests of other stockholders of Bcom3 and
Publicis generally. See "The First Step Merger Agreement," "The Publicis/Bcom3
Merger Agreement," and "Shareholders' Agreements, Alliance Agreement and Escrow
Agreement" below.
INTERESTS OF DIRECTORS OF PUBLICIS
Elisabeth Badinter, who is a member of Publicis's supervisory board and a
stockholder of Publicis, will enter into a shareholders' agreement with Dentsu
regarding the voting of Publicis shares owned directly by her and Somarel and
other matters relating to their ownership of Publicis shares after completion of
the mergers. See "Shareholders' Agreements, Alliance Agreement and Escrow
Agreement -- Shareholders' Agreement Between Elisabeth Badinter and Dentsu" for
a more detailed description of this agreement.
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MATERIAL TAX CONSEQUENCES
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE FIRST STEP MERGER, OF THE
PUBLICIS/BCOM3 MERGER AND OF HOLDING PUBLICIS INSTRUMENTS
OVERVIEW
The following discussion constitutes the opinion of Kirkland & Ellis,
special tax counsel to Bcom3, as to the material U.S. federal income tax
consequences of the first step merger, of the Publicis/Bcom3 merger and of
holding Publicis instruments to the U.S. holders of Bcom3 Class A common stock.
For purposes of this discussion, a U.S. holder means:
- an individual citizen or resident of the United States;
- a corporation or other entity taxable as a corporation organized under
the laws of the United States or any of its political subdivisions;
- a trust, if a United States court is able to exercise primary supervision
over the administration of the trust and one or more U.S. persons has the
authority to control all substantial decisions of the trust; or
- an estate that is subject to United States federal income tax on its
income regardless of its source.
This discussion is based upon the current provisions of the U.S. Internal
Revenue Code (the "Code"), existing regulations promulgated under the Code and
current administrative and judicial interpretations of the Code, all as in
effect as of the date hereof, and all of which are subject to change (possibly
with retroactive effect). No attempt has been made to comment upon all U.S.
federal income tax consequences of the mergers or of holding Publicis
instruments that may be relevant to particular holders in light of their
particular circumstances or to holders that are subject to special tax treatment
under the Code, for example, dealers in securities, foreign persons, mutual
funds, insurance companies, tax-exempt entities, and persons who hold their
shares as part of a "straddle," "hedge" or "conversion transaction." In
addition, this discussion does not address any tax consequences to Dentsu. This
discussion also does not consider the effect of any foreign, state or local laws
or any U.S. federal laws other than those pertaining to the income tax.
THE INDIVIDUAL CIRCUMSTANCES OF EACH U.S. HOLDER OF BCOM3 CLASS A COMMON
STOCK MAY AFFECT THE TAX CONSEQUENCES OF THE MERGERS OR OF HOLDING PUBLICIS
INSTRUMENTS TO SUCH HOLDER. THE PARTICULAR FACTS OR CIRCUMSTANCES OF A U.S.
HOLDER OF BCOM3 CLASS A COMMON STOCK THAT MAY SO AFFECT THE CONSEQUENCES ARE NOT
DISCUSSED HERE. ACCORDINGLY, ALL U.S. HOLDERS OF BCOM3 CLASS A COMMON STOCK ARE
ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE FIRST STEP MERGER, OF THE PUBLICIS/BCOM3 MERGER AND OF
HOLDING PUBLICIS INSTRUMENTS IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES AND THE
APPLICATION AND EFFECT OF FOREIGN, U.S. FEDERAL, STATE, LOCAL OR OTHER TAX LAWS.
It is a condition to the obligation of Bcom3 to consummate the
Publicis/Bcom3 merger that Bcom3 receive an opinion from its special tax
counsel, Kirkland & Ellis, to the effect that the Publicis/Bcom3 merger will be
treated as a "reorganization" within the meaning of Section 368(a) of the Code
and that each transfer of property to Publicis by a Bcom3 stockholder pursuant
to the Publicis/Bcom3 merger will not be subject to Section 367(a)(1) of the
Code. Section 367(a)(1) generally denies tax-free treatment to the U.S.
shareholders of a U.S. target company upon an acquisition of the U.S. target
company by a foreign acquiring company unless, among other things, the foreign
acquiror is larger than the U.S. target company. It is a condition to the
obligation of Publicis and Philadelphia Merger Corp. to consummate the merger
that Publicis receive an opinion from its counsel, Wachtell, Lipton, Rosen &
Katz, to the effect that the Publicis/Bcom3 merger will be treated as a
"reorganization" within the meaning of Section 368(a) of the Code.
In issuing such opinions, each of Kirkland & Ellis and Wachtell, Lipton,
Rosen & Katz are entitled to rely upon facts, representations, assumptions,
rulings, opinions and certificates of officers of Publicis, Bcom3 and others.
The opinions of counsel are not binding on the Internal Revenue Service (the
"IRS") or any court, and no assurance can be given that the IRS will not
challenge the tax treatment of the merger. Publicis and Bcom3 are seeking a
ruling from the IRS regarding the application of Section 367(a)(1) of the Code
to the Publicis/Bcom3 merger.
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The following discussion assumes that the first step merger and the
Publicis/Bcom3 merger will be consummated as described in the first step merger
agreement and the Publicis/Bcom3 merger agreement (including satisfaction of the
closing conditions set forth in such merger agreements) and this proxy
statement/prospectus, that Bcom3 will comply with the reporting requirements for
the transfer by U.S. persons of stock in a U.S. corporation to a foreign
corporation to qualify for an exception to the application of Section 367(a)(1)
of the Code, and that the terms of the Publicis ordinary shares, the usufruct
interests in Publicis ordinary shares, the ORAs and the warrants issued in the
Publicis/Bcom3 merger and the debt portion of the OBSAs correspond to the
description of such instruments set forth in the Publicis/Bcom3 merger agreement
(and exhibits thereto).
CONSEQUENCES OF THE FIRST STEP MERGER
It is the opinion of Kirkland & Ellis, special tax counsel to Bcom3, that
the first step merger should be treated as a purchase of a portion of Bcom3
Class A common stock from the holders of such stock by Dentsu for cash, followed
by a recapitalization of Bcom3. Nevertheless, there is a risk that the IRS may
attempt to recharacterize all or a part of the cash received from Dentsu because
of the proximity of the first step merger to the Publicis/Bcom3 merger. For
example, the IRS may attempt to treat a portion of that cash as a payment by
Dentsu for its right to receive bare legal title with respect to Publicis
ordinary shares from the holders of Bcom3 Class A common stock (which payment
could be characterized as ordinary income rather than capital gain). Counsel
believes that this risk, while difficult to quantify, would affect only a small
portion of the payment (i.e., the fair market value of the right to vote the
shares subject to the usufruct arrangement for two years), if any. The remaining
portion of this section will assume that the first step merger will be treated
as an acquisition of a portion of Bcom3 Class A common stock from the holders of
such stock by Dentsu for cash.
Each U.S. holder of Bcom3 Class A common stock will be treated for U.S.
federal income tax purposes as if such holder sold a portion of his or her
shares of Bcom3 Class A common stock to Dentsu for cash. Each such holder will
recognize gain or loss equal to the difference between the cash proceeds
received as a result of the first step merger less such holder's tax basis in
the shares sold to Dentsu. In general, a U.S. holder's tax basis in his or her
shares of Bcom3 Class A common stock will be equal to the amount paid for such
shares, plus any taxable income such holder was required to recognize upon
receipt of such shares. Kirkland & Ellis, special tax counsel to Bcom3, believes
that a U.S. holder of Bcom3 Class A common stock who holds blocks of stock with
different tax bases and/or different holding periods should be permitted to
identify the specific shares sold to Dentsu pursuant to the first step merger
for purposes of determining the amount of his or her gain or loss on such sale.
Unless a holder notifies Bcom3 to the contrary, Bcom3 will treat each U.S.
holder of Class A common stock as selling pursuant to the first step merger his
or her shares of Bcom3 Class A stock which have the highest cost basis of shares
with a holding period of more than 12 months. However, each U.S. holder should
consult with his or her tax advisor because the ability to use specific
identification to determine the shares of stock treated as sold pursuant to the
first step merger is not free from doubt.
Generally, gain or loss recognized with respect to Bcom3 Class A common
stock surrendered in the first step merger will be capital gain or loss. Capital
gain of a noncorporate U.S. holder will generally be subject to United States
federal income tax at a maximum rate of 20% where the Bcom3 Class A common stock
was held for more than one year. The gain or loss will generally be income from
sources within the United States for foreign tax credit limitation purposes.
In general, gain with respect to cash received in the first step merger by
a U.S. paying agent or other U.S. intermediary will be reported to the IRS and
to each U.S. holder of Bcom3 Class A common stock as may be required under
applicable United States Treasury Regulations. Backup withholding at a maximum
rate of 30% will apply to these payments if a U.S. holder fails to provide an
accurate taxpayer identification number or fails to report all interest and
dividends required to be shown on such holder's federal income tax return.
CONSEQUENCES OF THE PUBLICIS/BCOM3 MERGER
In General. As a result of the Publicis/Bcom3 merger, each U.S. holder of
Bcom3 Class A common stock will exchange each share of Bcom3 Class A common
stock held after giving effect to the first step
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merger for consideration consisting of Publicis ordinary shares, the usufruct
interest in additional Publicis ordinary shares and the right to receive bare
legal title to such shares on the second anniversary of the closing of the
Publicis/Bcom3 merger, ORAs, warrants, and proceeds generated from the sale of
the debt portion of the OBSAs. A U.S. holder of Bcom3 Class A common stock will
generally not be required to recognize any gain for U.S. federal income tax
purposes as a result of the receipt of Publicis ordinary shares or warrants in
the Publicis/Bcom3 merger.
It is the opinion of Kirkland & Ellis, special tax counsel to Bcom3, that
the ORAs and the usufruct interests (including the right to receive bare legal
title to such shares on the second anniversary of the closing date of the
Publicis/Bcom3 merger) constitute stock for U.S. federal income tax purposes and
that the receipt of these instruments will not give rise to gain recognition,
although this conclusion is not entirely free from doubt in light of the absence
of direct authority addressing the federal income tax characteristics of these
instruments. The following discussion assumes that such instruments are treated
as stock for U.S. federal income tax purposes.
Each U.S. holder of Bcom3 Class A common stock will be required to
recognize gain for U.S. federal income tax purposes to the extent of the cash
proceeds (and the fair market value of non-cash proceeds, if any, but net of the
amount of such proceeds which will be paid to Publicis with respect to the Bcom3
option cancellation payments) received by such U.S. holder from the sale of the
debt portion of the OBSAs. Such gain will be calculated separately with respect
to each block of Bcom3 Class A common stock (that is, shares acquired at
separate times and at different prices). Thus, a U.S. holder's gain recognized
with respect to a share of Bcom3 Class A stock will equal the lesser of (a) the
cash proceeds (plus the fair market value of non-cash proceeds, if any) received
from the sale of the debt portion of the OBSAs allocable to such share and (b)
the excess of (i) the aggregate value of the portion of the Publicis ordinary
shares, the usufruct interest in additional Publicis ordinary shares, the right
to receive bare legal title to such shares on the second anniversary of the
closing date of the Publicis/Bcom3 merger, the ORAs, the warrants and the cash
(plus the fair market value of non-cash proceeds, if any) received from the sale
of the debt portion of the OBSAs allocable to such share, over (ii) such
holder's tax basis in such share. In addition, gain will be recognized as a
result of cash received in lieu of fractional interests, as described below.
Bcom3 does not expect any U.S. holder of Bcom3 Class A common stock to
realize a loss in the Publicis/Bcom3 merger. However, in the event that the
adjusted basis of a U.S. holder in his or her Bcom3 Class A common stock is
greater than the sum of the amount of cash and the fair market value of the
other consideration received, such holder will realize a loss even though such
loss will not be currently allowed or recognized for U.S. federal income tax
purposes.
The aggregate tax basis of the Publicis ordinary shares, usufruct interests
in Publicis ordinary shares (and the right to receive bare legal title to such
shares), ORAs and warrants received by a U.S. holder of Bcom3 Class A common
stock (including any fractional interests in such instruments deemed to be
received and sold for cash, as described below) will be equal to such holder's
basis in the Bcom3 Class A common stock exchanged therefor, increased by the
amount of gain recognized by such holder and decreased by the amount of cash and
the fair market value of non-cash proceeds, if any, from the sale of the debt
portion of the OBSAs, received by such holder. Such basis must be allocated
among the various instruments (excluding cash and the fair market value of
non-cash proceeds, if any, from the sale of the debt portion of the OBSAs)
received by such holder in the Publicis/Bcom3 merger in proportion to the fair
market value of each such instrument. The holding period of the Publicis
ordinary shares, usufruct interests in Publicis ordinary shares (and the right
to receive bare legal title to such shares), ORAs and warrants received by a
U.S. holder of Bcom3 Class A common stock in the Publicis/Bcom3 merger will
include such holder's holding period in the Bcom3 Class A common stock
surrendered.
In addition, if a U.S. holder of Bcom3 Class A common stock exercises
appraisal rights and as a result receives only cash for his or her Bcom3 Class A
common stock, such holder will recognize gain or loss equal to the difference
between the amount of cash received and his or her tax basis in the Bcom3 Class
A common stock. Generally, for such a holder, any recognized gain or loss will
be capital gain or loss and will generally be
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long-term capital gain or loss if such holder's holding period in the Bcom3
Class A common stock is more than one year at the effective time of the
Publicis/Bcom3 merger.
Cash In Lieu of Fractional Interests. U.S. holders of Bcom3 Class A common
stock who receive cash in lieu of fractional interests in Publicis ordinary
shares, usufructs, ORAs or warrants will be treated as having first received
such fractional interests in the Publicis/Bcom3 merger and then as having
received cash in exchange for the applicable fractional interest. Gain or loss
will generally be recognized for U.S. federal income tax purposes by the U.S.
holder of Bcom3 Class A common stock, measured by the difference between the
amount of cash received and the portion of such holder's basis in his or her
Bcom3 Class A common stock allocable to such fractional interest. Any gain will
be capital gain provided that the shares of Bcom3 Class A common stock were held
as capital assets and will be long term capital gain if the Bcom3 Class A common
stock had been held for more than one year at the time of the Publicis/Bcom3
merger.
Backup Withholding. In general, payments made in connection with the
Publicis/Bcom3 merger by a U.S. paying agent or other U.S. intermediary will be
reported to the IRS and to each holder of Bcom3 Class A common stock as may be
required under applicable United States Treasury Regulations. Backup withholding
at a maximum rate of 30% may apply to such payments if a U.S. holder fails to
provide an accurate taxpayer identification number or fails to report all
interest and dividends required to be shown on such holder's federal income tax
return.
Five-Percent Shareholders. This discussion does not address the tax
consequences of the Publicis/Bcom3 merger to a holder of Bcom3 Class A common
stock if such holder will become a "five-percent transferee shareholder" of
Publicis within the meaning of the applicable Treasury Regulations under Section
367 of the Code. In general, a five-percent transferee shareholder is a person
that holds Bcom3 stock and will own, directly or indirectly through attribution
rules, at least five percent of either the total voting power or the total value
of Publicis shares immediately after the Publicis/Bcom3 merger. Based on the
current value and ownership of Publicis and Bcom3, Bcom3 does not expect that
any U.S. holder of Bcom3 Class A common stock will become a five-percent
transferee shareholder of Publicis in connection with the Publicis/Bcom3 merger.
However, the attribution rules for determining ownership are complex, and
neither Publicis nor Bcom3 can offer any assurance that a holder will not be a
five-percent transferee shareholder based on the particular facts and
circumstances applicable to such holder. If a U.S. holder of Bcom3 Class A
common stock believes he or she could become a five-percent transferee
shareholder of Publicis, such holder should consult his or her tax advisor about
the special rules and time-sensitive tax procedures that might apply to such
holder.
Reporting Requirements. Each U.S. holder of Bcom3 Class A common stock who
does not exercise his or her appraisal rights in connection with the
Publicis/Bcom3 merger will be required (i) to file a statement with his or her
U.S. federal income tax return for the year in which the Publicis/Bcom3 merger
occurs providing a complete statement of all facts pertinent to the
nonrecognition of gain upon the exchange of his or her Bcom3 Class A common
stock, including his or her tax basis in the Bcom3 Class A common stock that was
surrendered, and the fair market value of the Publicis ordinary shares, usufruct
interest in Publicis ordinary shares, ORAs and warrants and any cash received in
the merger and (ii) to retain permanent records of these facts relating to the
Publicis/Bcom3 merger.
Consequences If the Debt Portion of the OBSAs Is Not Sold at Closing. The
preceding discussion assumes that the debt portion of the OBSAs will be sold at
closing. However, the former holders of Bcom3 Class A common stock will not
receive their pro rata share of the net proceeds (including non-cash proceeds,
if any) from the sale of the debt portion of the OBSAs until it is sold, which
sale may not occur until after the effective time of the Publicis/Bcom3 merger.
If the debt portion of the OBSAs is not sold until after the effective time of
the Publicis/Bcom3 merger, then each U.S. holder of Bcom3 Class A common stock
would likely be required to recognize gain, in the year of the Publicis/Bcom3
merger, to the extent of the fair market value of such holder's payment rights
with respect to the debt portion of the OBSAs. The availability of the
installment method for reporting such gain and the possible treatment of a
portion of the net proceeds as ordinary income or short term capital gain will
depend upon facts that may not be known until after the effective time of the
Publicis/Bcom3 merger.
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CONSEQUENCES OF HOLDING PUBLICIS INSTRUMENTS
A U.S. holder of Publicis ordinary shares, the usufruct interest in
Publicis ordinary shares and ORAs must include in ordinary income the gross
amount of any distribution made by Publicis with respect to such instruments to
the extent of Publicis's current or accumulated earnings and profits (as
determined for U.S. federal income tax purposes), including any avoir fiscal (a
payment from the French treasury), precompte or French tax withheld, based upon
the U.S. dollar value of the distribution on the date it is actually or
constructively received. In determining the amount of dividend income received,
a U.S. holder will use the spot currency exchange rate on the day the dividend
is included in income. Any difference between the amount of dividend income and
the dollars actually received may constitute a foreign currency gain or loss,
which is an ordinary gain or loss. Individual U.S. holders, however, are not
required to recognize a gain of less than $200 from the exchange of foreign
currency in a "personal transaction" as defined in Section 988(e) of the Code.
Any distribution by Publicis in excess of current or accumulated earnings and
profits will be treated as a tax-free return of capital that reduces the tax
basis in the U.S. holder's Publicis ordinary shares, the usufruct interest in
Publicis ordinary shares or the ORAs, as applicable, and any remaining amount
will be treated as capital gain. A U.S. holder should consult his or her tax
advisor regarding the availability of any foreign tax credit resulting from any
French withholding tax imposed on any dividend or other payment to the U.S.
holder.
Upon a sale or other disposition of Publicis ordinary shares, the usufruct
interest in Publicis ordinary shares, the ORAs or the warrants in a taxable
transaction, a U.S. holder will recognize gain or loss for U.S. federal income
tax purposes in an amount equal to the difference between the U.S. dollar value
of the amount realized and the U.S. holder's tax basis in the Publicis ordinary
shares, the usufruct interest in Publicis ordinary shares, the ORAs or the
warrants, as applicable. Such gain or loss recognized will generally be a long-
term capital gain or loss with respect to instruments held for more than 12
months at the time of the sale or other disposition, and any gain or loss
recognized generally will be income or loss from sources within the U.S. for
foreign tax credit limitation purposes. Long-term capital gain of a
non-corporate U.S. holder is generally subject to tax at a maximum federal
income tax rate of 20%.
A U.S. holder of Publicis warrants will not recognize gain on the exercise
of the warrants. The holder's basis in the Publicis ordinary shares received on
the exercise of the warrants will equal the holder's basis in the warrants, plus
the price paid by the U.S. holder upon such exercise of the warrants.
Bcom3 does not believe that Publicis is a "passive foreign investment
company," or PFIC, as defined in Section 1297 of the Code. A foreign corporation
will generally be a PFIC with respect to a U.S. person if, for any taxable year
in which the U.S. person is a shareholder, either 75% or more of the
corporation's gross income for the year is passive income or 50% or more of the
value of the corporation's assets is attributable to assets that produce or are
held for the production of passive income. The treatment of a foreign
corporation as a PFIC is based on facts that may be subject to change, and
therefore there can be no assurance that Publicis will not become a PFIC in the
future. Each U.S. holder should consult his or her tax advisor about the
specific application of the PFIC rules, including time-sensitive filing
procedures, to such holder and possible elections or other methods of minimizing
the adverse tax consequences that could apply to such holder if Publicis were to
be treated as a PFIC.
MATERIAL FRENCH TAX CONSEQUENCES OF HOLDING AND DISPOSING OF PUBLICIS ORDINARY
SHARES, ORAS, OBSAS AND/OR WARRANTS (BONS DE SOUSCRIPTION)
The following discussion is a summary description of the material French
tax consequences of owning and disposing of Publicis ordinary shares, ORAs,
OBSAs and/or warrants (Bons de souscription).
This discussion is relevant only to individual holders of the Publicis
ordinary shares, ORAs, OBSAs and/or warrants (Bons de souscription) who received
such instruments in the Publicis/Bcom3 merger in exchange for their Bcom3 Class
A common stock, who are not French tax residents, who are tax residents of the
United States pursuant to article 4 of the Convention Between the Government of
the United States of America and the Government of the French Republic for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect
to Taxes on Income and Capital (the "U.S.-France tax treaty")
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("U.S. Tax Resident Individuals"), and who do not hold the Publicis ordinary
shares, ORAs, OBSAs and/or warrants (Bons de souscription) in connection with a
permanent establishment or a fixed base in France through which they carry on a
business or perform personal services.
This discussion does not address all aspects of French tax laws and tax
treaties that may be relevant in light of the particular circumstances of
holders of the Publicis ordinary shares, ORAs, OBSAs and/or warrants (Bons de
souscription). It is based on French tax law and conventions and treaties in
force as of the date of this proxy statement/prospectus, all of which are
subject to change, possibly with retroactive effect, or to different
interpretations.
On August 31, 1994, the United States and France signed the U.S.-France tax
treaty, which generally became effective on January 1, 1996.
Described hereunder are the principal French tax consequences that apply to
holders of the Publicis ordinary shares, ORAs, OBSAs and/or warrants (Bons de
souscription) for whom both of the following requirements are met:
- the holder is a U.S. Tax Resident Individual (and, in the case of a U.S.
Tax Resident Partnership as defined below, all owners will be U.S. Tax
Resident Individuals); and
- the ownership of the Publicis ordinary shares, ORAs, OBSAs and/or
warrants (Bons de souscription) is not effectively connected with a
permanent establishment or a fixed base in France.
THE INDIVIDUAL CIRCUMSTANCES OF EACH U.S. HOLDER MAY AFFECT THE TAX
CONSEQUENCES OF HOLDING AND DISPOSING OF THE PUBLICIS ORDINARY SHARES, ORAS,
OBSAS AND WARRANTS (BONS DE SOUSCRIPTION). THE PARTICULAR FACTS OR CIRCUMSTANCES
OF A U.S. HOLDER THAT MAY SO AFFECT THE CONSEQUENCES ARE NOT DISCUSSED HERE.
ACCORDINGLY, ALL U.S. HOLDERS OF THE PUBLICIS ORDINARY SHARES, ORAS, OBSAS
AND/OR WARRANTS (BONS DE SOUSCRIPTION) ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING AND DISPOSING
OF THE PUBLICIS ORDINARY SHARES, ORAS, OBSAS AND/OR WARRANTS (BONS DE
SOUSCRIPTION), INCLUDING THEIR ELIGIBILITY FOR THE BENEFITS OF THE U.S.-FRANCE
TAX TREATY, THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS AND POSSIBLE CHANGES IN TAX LAWS.
PUBLICIS ORDINARY SHARES
Dividends
Withholding Tax. Dividends paid to a shareholder having his or her tax
residence outside France by French companies are generally subject to a 25%
French withholding tax under French tax laws.
Under the U.S.-France tax treaty, this withholding tax is reduced to 15% if
the following conditions are met:
(i) the Publicis ordinary shares are beneficially owned by a U.S. Tax
Resident Individual;
(ii) such ownership is not effectively connected with a permanent
establishment or a fixed base that the holder has in France; and
(iii) the holder has previously established that he or she is a U.S.
Tax Resident Individual in accordance with the following procedures:
- the U.S. Tax Resident Individual must complete French Treasury Form
RF1 A EU-No. 5052 (or 5053 if the dividends do not give right to the
avoir fiscal, as discussed below) and send it to the paying
establishment before the date of payment of the dividend.
- if the U.S. Tax Resident Individual cannot complete French Treasury
Form RF1 A EU-No. 5052 before the date of payment of the dividend (and
provided that the dividend gives right to the avoir fiscal), he or she
may complete a simplified certificate and send it before receiving
such payment
69
to the institution which holds the shares on its behalf. This
certificate must state that the beneficial owner fulfills the
following conditions:
- the holder is a U.S. Tax Resident Individual;
- the holder's ownership of Publicis ordinary shares is not effectively
connected with a permanent establishment or a fixed base in France;
- the holder owns all the rights attached to the full ownership of
Publicis ordinary shares including, among other things, the dividend
rights;
- the holder fulfills all the requirements under the U.S.-France tax
treaty for the reduced rate of withholding tax; and
- the holder claims the reduced rate of withholding tax.
If a U.S. Tax Resident Individual has not completed French Treasury Form
RF1 A EU-No. 5052 (or 5053) or the simplified certificate before the dividend
payment date, the paying establishment will deduct French withholding tax at the
rate of 25%. In that case, the holder may claim a refund of the excess
withholding tax by completing French Treasury Form RF1 A-No. 5052 (or 5053) and
sending it, by intermediary of the paying establishment, to the French tax
authorities before December 31 of the second calendar year following the
calendar year during which the withholding tax is levied.
Under (i) and (ii) above, the 15% withholding rate may also apply to
dividends paid to a U.S. partnership or similar pass-through entity as described
in article 4.2.(b)(iv) of the U.S.-France tax treaty (including a limited
liability company that is treated as a partnership or other pass-through entity
for U.S. tax purposes) and whose income is subject to U.S. tax either in its
hands or in the hands of its partners who are U.S. Tax Resident Individuals
("U.S. Tax Resident Partnership").
Specific procedures will apply if the Publicis ordinary shares are held
through a U.S. Tax Resident Partnership. U.S. Tax Resident Individuals who will
own their Publicis ordinary shares through a U.S. Tax Resident Partnership
should consult with their own tax advisers as to the conditions and formalities
under which they may benefit from the above-mentioned reduction of the French
withholding tax.
Avoir fiscal. Under the U.S.-France tax treaty, U.S. Tax Resident
Individuals may be entitled to a payment from the French Treasury, called the
avoir fiscal, generally equal to 50% of the dividend paid.
If the holder is eligible, the holder may claim a payment equal to the
avoir fiscal, less a 15% withholding tax on this avoir fiscal, provided that all
the following conditions are met:
(i) the dividend, if received by a resident of France, would entitle
such a resident to a tax credit (avoir fiscal);
(ii) the Publicis ordinary shares are beneficially owned by a U.S.
Tax Resident Individual;
(iii) the holder's ownership of Publicis ordinary shares is not
effectively connected with a permanent establishment or a fixed base in
France;
(iv) the holder owns all the rights attached to the full ownership
of Publicis ordinary shares including, among other things, the dividend
rights;
(v) the holder or its partners (in the case of a U.S. Tax Resident
Partnership) is subject to U.S. income tax on the payment of the dividend
and the related avoir fiscal; and
(vi) the holder or its partners (in the case of a U.S. Tax Resident
Partnership) fulfills all the requirements under the U.S.-France tax treaty
for the transfer of the avoir fiscal.
If a holder is entitled, the avoir fiscal may be claimed by completing
French Treasury Form RF1 A EU-No. 5052 and (if not previously sent to claim the
benefit of the 15% withholding tax rate) sending it, by intermediary of the
paying establishment, to the French tax authorities before December 31 of the
second year following the year during which the dividend is paid.
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The avoir fiscal and any French withholding tax refund are generally
expected to be paid within 12 months after the holder of Publicis ordinary
shares files Form RF1 A EU-No. 5052. However, they will not be paid before
January 15 of the calendar year following the end of the calendar year in which
the dividend is paid.
U.S. Tax Resident Partnerships may also be entitled to the 50% avoir
fiscal, if any, under the above-mentioned conditions (i) to (vi).
Specific procedures will apply if Publicis ordinary shares are held through
a U.S. Tax Resident Partnership. U.S. Tax Resident Individuals who will own
their Publicis ordinary shares through a U.S. Tax Resident Partnership should
consult with their own tax advisors as to the conditions and formalities under
which they may benefit from the above-mentioned transfer of the avoir fiscal.
Usufruct Rights in Publicis Ordinary Shares
In the Publicis/Bcom3 merger, bare legal title of approximately 6.8 million
Publicis ordinary shares will be transferred to Dentsu and the usufruct rights
with respect to such Publicis ordinary shares will be retained and directly held
by Bcom3 Class A stockholders. Conveyance instruments as agreed to between
Dentsu and the special nominee (described below under the caption "The
Publicis/Bcom3 Merger Agreement -- Special Arrangements with Respect to Certain
Publicis Ordinary Shares") will contain all provisions that are necessary or
desirable to ensure that all economic interests in such shares shall be enjoyed
exclusively by the individual holders of the usufruct interest in such shares.
According to article 10.4.(g) of the U.S.-France tax treaty, the benefit of
the avoir fiscal is subject to the condition that the beneficial owner of the
dividends shows, where required by the French tax administration, that he is the
beneficial owner of the shareholding in respect of which the dividends are paid
and that such shareholding does not have as its principal purpose or one of its
principal purposes to allow another person to take advantage of the provisions
of that paragraph, regardless of whether that person is a resident of a
Contracting State.
An official request has been submitted to the French Tax Authorities for an
interpretation on this article in the present case. The French Tax Authorities
have confirmed that U.S. Bcom3 Class A stockholders will be entitled to the
transfer of the avoir fiscal attached to the dividends derived from the usufruct
rights on Publicis ordinary shares directly owned by individuals.
Capital Gains on the Sale of Publicis Ordinary Shares
Under French tax law, capital gains realized upon the sale of Publicis
ordinary shares by holders who are not French residents for French tax purposes
(and who do not hold their shares in connection with a permanent establishment
or a fixed base in France) are not taxable in France provided that the vendor
and any related person have not directly or indirectly held more than 25% of
rights to Publicis earnings (droits aux benefices sociaux), at any time during
the five years preceding the sale.
If the holder is a U.S. Tax Resident Individual, the holder will not be
subject to French tax on any capital gain if the holder sells or exchanges its
Publicis ordinary shares, unless the holder has a permanent establishment or
fixed base in France and the Publicis ordinary shares sold or exchanged were
part of the business property of that permanent establishment or fixed base.
ORAS
Interest
Interest paid to holders of ORAs who are U.S. Tax Resident Individuals
should be exempt from income tax in France, provided that ORAs are not held in
connection with a permanent establishment or a fixed base in France. This tax
exemption may be subject to the fulfillment of certain filing requirements. U.S.
Tax Resident Individuals should consult with their own tax advisers as to the
conditions under which they may benefit from the above-mentioned exemption.
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Capital Gains on the Sale of ORAs
Capital gains realized upon the sale of ORAs by a shareholder having his or
her tax residence outside France should be exempt from income tax in France
provided that the ORAs are not held in connection with a permanent establishment
or a fixed base in France.
If the holder is a U.S. Tax Resident Individual, the holder should not be
subject to French tax on any capital gain if the holder sells or exchanges its
ORAs, unless the holder has a permanent establishment or fixed base in France
and the ORAs sold or exchanged were part of the business property of that
permanent establishment or fixed base.
Redemption of ORAS
The premium, if any, earned by the U.S. Tax Resident Individual holders of
ORAs upon redemption of the ORAs into Publicis ordinary shares should be exempt
from income tax in France, provided that the ORAs are not held in connection
with a permanent establishment or a fixed base in France. This tax exemption may
be subject to the fulfillment of certain filing requirements. U.S. Tax Resident
Individuals should consult with their own tax advisers as to the conditions
under which they may benefit from the above-mentioned exemption.
OBSAS
Interest
Interest paid to holders of OBSAs who are U.S. Tax Resident Individuals
should be exempt from income tax in France, provided that OBSAs are not held in
connection with a permanent establishment or a fixed base in France. This tax
exemption may be subject to the fulfillment of certain filing requirements. U.S.
Tax Residents Individuals should consult with their own tax advisers as to the
conditions under which they may benefit from the above-mentioned exemption.
Capital Gains on the Sale of the Debt Portion of OBSAs
Capital gains, if any, realized upon the sale of the Debt Portion of OBSAs,
in the case of a shareholder having his or her tax residence outside France, are
exempt from income tax in France provided that the OBSAs are not held in
connection with a permanent establishment or a fixed base in France.
If the shareholder is a U.S. Tax Resident Individual, the shareholder will
not be subject to French tax on any capital gain on the sale of the OBSAs,
unless the holder has a permanent establishment or fixed base in France and the
OBSAs sold were part of the business property of that permanent establishment or
fixed base.
Exercise of the Warrants (Bons de souscription)
Under French tax law, the subscription of shares by a U.S. Tax Resident
Individual upon exercise of a warrant (Bon de souscription) should not be a
taxable event in France.
Sale of the Warrants (Bons de souscription)
Capital gains realized upon the sale of warrants (Bons de souscription) by
a U.S. Tax Resident Individual should be exempt from income tax in France
provided that the warrants (Bons de souscription) are not held in connection
with a permanent establishment or a fixed base in France.
If the holder is a U.S. Tax Resident Individual, the holder will not be
subject to French tax on any capital gain on the sale of the warrants (Bons de
souscription), unless the holder has a permanent establishment or fixed base in
France and the warrants (Bons de souscription) sold or exchanged were part of
the business property of that permanent establishment or fixed base.
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FRENCH ESTATE AND GIFT TAXES
Under The Convention Between the United States of America and the French
Republic for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Estates, Inheritance and Gifts of November 24,
1978, if an individual holder transfers its Publicis Ordinary shares, ORAs,
OBSAs and/or warrants (Bons de souscription) by gift, or if they are transferred
by reason of the holder's death, such transfer will only be subject to French
gift or inheritance tax if one of the following applies:
- the individual holder is domiciled in France at the time of making the
gift, or at the time of the individual holder's death; or
- the individual holder used the Publicis ordinary shares, ORAs, OBSAs
and/or warrants (Bons de souscription) in conducting a business through a
permanent establishment or fixed base in France, or the individual holder
held the Publicis ordinary shares, ORAs, OBSAs and/or warrants (Bons de
souscription) for that use.
FRENCH WEALTH TAX
The French wealth tax does not generally apply to the Publicis Ordinary
shares, ORAs, OBSAs and/or warrants (Bons de souscription) if the holder is a
U.S. Tax Resident Individual, provided that:
- the individual holder does not own, alone or with related persons,
directly or indirectly, shares, rights or interests the total of which
gives right to at least 25% of Publicis earnings; and
- the Publicis ordinary shares, ORAs, OBSAs and/or warrants (Bons de
souscription) are not held in connection with a permanent establishment
or a fixed base in France.
Under French tax law, an individual having his or her tax residence outside
France is taxable only on such individual's French assets. However, financial
investments made by such individuals, provided they represent less than 5% of
the share capital of the French company and are made in companies other than
real property companies, are exempt from wealth tax.
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THE FIRST STEP MERGER AGREEMENT
The following section describes the material terms of the first step merger
agreement. The complete text of the first step merger agreement is attached as
Annex C to, and is incorporated by reference into, this proxy
statement/prospectus. You are encouraged to read the entire first step merger
agreement because it is the legal document that governs the first step merger.
THE FIRST STEP MERGER
When the first step merger occurs, Boston Three Corporation, a newly formed
wholly owned subsidiary of Bcom3, will merge with and into Bcom3, with Bcom3
remaining as the surviving corporation in the first step merger. The purpose of
the first step merger is to effect a pro rata purchase of shares of Class A
common stock by Dentsu for cash and a recapitalization of the common stock of
Bcom3. Although a separate agreement governs the transactions contemplated by
the first step merger, the first step merger and the Publicis/Bcom3 merger are
conditioned upon each other, and so you should view the first step merger as an
integral part of the process by which the Publicis/Bcom3 merger will be
effected.
CLOSING AND EFFECTIVE TIME
The closing of the first step merger will take place as soon as practicable
after the satisfaction or waiver of the closing conditions.
At the closing of the first step merger, Bcom3 and Boston Three Corporation
will file a certificate of merger with the Secretary of State of the State of
Delaware. The first step merger will become effective when the certificate of
merger is duly filed with the Secretary of State of the State of Delaware or at
such later time as is specified in the certificate of merger. It is expected
that the closing of the first step merger will occur on the closing date of the
Publicis/Bcom3 merger.
FIRST STEP MERGER CONSIDERATION
The merger consideration offered in the first step merger will consist of
the following:
- each share of Class A common stock of Bcom3 will be converted into the
right to receive:
- from Dentsu, an amount of cash equal to $498,702,393 divided by the
total number of shares of Class A common stock outstanding immediately
prior to the effective time of the first step merger (which, based on
the number of shares outstanding as of August 9, 2002 is approximately
$32.62); and
- 0.813619 shares of Bcom3 Class A common stock.
- each share of Class B common stock of Bcom3 (all of which is held by
Dentsu) will be converted into the right to receive 1.665067 shares of
Bcom3 Class B common stock.
Prior to and after completion of the first step merger, Dentsu will own all
of Bcom3's Class B common stock. At the effective time of the first step merger,
each share of Bcom3 common stock held in the treasury of Bcom3 prior to the
first step merger will be cancelled without being converted into the right to
receive the first step merger consideration and without receipt of any other
payments. Each share of the capital stock of Boston Three Corporation
outstanding immediately prior to the effective time of the first step merger
will be cancelled without receipt of any payment.
The stock component of the first step merger consideration is subject to
adjustments for extraordinary events affecting the capital stock of Bcom3, such
as stock splits, recapitalizations, combinations or stock dividends.
In connection with the first step merger, the Bcom3 board will make an
appropriate adjustment to the exercise price of and number of shares underlying
each outstanding stock option to reflect the treatment of Class A common stock
in the first step merger, as described under the caption "The Publicis/Bcom3
Merger Agreement -- Effect on Stock Options."
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DELIVERY OF FIRST STEP MERGER CONSIDERATION
Prior to the effective time of the first step merger, a paying agent will
be appointed to pay the cash portion of the first step merger consideration.
Dentsu will pay to the paying agent $498,702,393 immediately after the effective
time of the first step merger. The paying agent will deliver to each holder of
Class A common stock the cash amount to which the holder is entitled, less any
tax withholdings. No merger consideration in the first step merger will be
delivered to Bcom3 stockholders exercising appraisal rights with respect to the
first step merger, as described under the caption "The Mergers -- Appraisal
Rights."
Immediately after the effective time of the first step merger, Bcom3 will
take all necessary action to reflect in the books and records the conversion of
the shares of Bcom3 common stock.
THE SURVIVING CORPORATION
The certificate of incorporation and bylaws of Bcom3 in effect at the
effective time of the first step merger will be the certificate of incorporation
and bylaws of the surviving corporation. The officers and directors of Bcom3 at
the effective time of the first step merger will be the officers and directors
of the surviving corporation.
MATTERS RELATING TO THE PUBLICIS/BCOM3 MERGER
The parties to the first step merger agreed with respect to several matters
related to the Publicis/Bcom3 merger, including the following:
INVESTMENT AGREEMENT
The investment agreement, dated March 14, 2000, between Dentsu and Bcom3,
will terminate immediately after the effective time of the Publicis/Bcom3
merger.
NOTICES UNDER AND AMENDMENT OF THE PUBLICIS/BCOM3 MERGER AGREEMENT
Bcom3 agreed to promptly forward to Dentsu any notices given or received by
Bcom3 under the Publicis/Bcom3 merger agreement and further agreed not to amend
or waive any provision of the Publicis/Bcom3 merger agreement without the prior
written consent of Dentsu, which consent will not be unreasonably withheld or
delayed.
"BARE LEGAL TITLE" MATTERS
As described more fully below under the caption "Description of Usufruct
Interest and Bare Legal Title," the parties have agreed that Dentsu will receive
bare legal title (nue propriete) to certain Publicis ordinary shares issued in
the Publicis/Bcom3 merger for a two-year period after the closing of the
Publicis/Bcom3 merger and that Dentsu will not transfer such interest to any
person or entity during this two-year period.
CONDITIONS TO COMPLETION OF THE FIRST STEP MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE FIRST STEP MERGER
The obligations of Bcom3, Boston Three Corporation and Dentsu to complete
the first step merger are subject to the satisfaction (or waiver by the party
for whose benefit the applicable condition exists) of the following conditions:
- the first step merger agreement has been approved and adopted by the
Bcom3 stockholders in accordance with Delaware Law;
- all of the conditions to the Publicis/Bcom3 merger agreement described
under the caption "The Publicis/Bcom3 Merger Agreement -- Conditions to
Completion of the Publicis/Bcom3 Merger" have been satisfied or waived,
except for the condition that relates to the completion of the first step
merger; and
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- no governmental entity or court of competent jurisdiction has issued any
rule or regulation which would make the first step merger illegal or
would otherwise prohibit the completion of the first step merger.
CONDITIONS TO THE OBLIGATIONS OF DENTSU
The obligations of Dentsu to complete the first step merger are subject to
the satisfaction or waiver of the following additional conditions:
- Dentsu or Publicis has received a certificate from Bcom3 meeting certain
specified requirements, to the effect that the Bcom3 shares disposed of
by Dentsu in connection with the transactions contemplated by the
Publicis/Bcom3 merger agreement do not constitute United States real
property interests within the meaning of the relevant section of the
Code; and
- none of the conditions to the Publicis/Bcom3 merger agreement described
under the caption "The Publicis/Bcom3 Merger Agreement -- Conditions to
Completion of the Publicis/Bcom3 Merger" has been waived by Bcom3 without
Dentsu's consent, which consent shall not be unreasonably withheld.
TERMINATION
The first step merger agreement may be terminated at any time prior to the
effective time of the first step merger by Bcom3, Boston Three Corporation or
Dentsu if the Publicis/Bcom3 merger agreement has been terminated in accordance
with its terms. Once terminated, the first step merger agreement will be void
and of no effect, without liability of any party.
EXPENSES
All costs and expenses incurred as a result of the first step merger
agreement and the transactions contemplated by the first step merger agreement
shall be paid by the party incurring the cost or expense.
AMENDMENTS AND WAIVERS
Any provision of the first step merger agreement may be amended or waived
prior to the effective time of the first step merger if, and only if, the
amendment or waiver is in writing and signed, in the case of an amendment, by
Bcom3, Boston Three Corporation and Dentsu or, in the case of a waiver, by the
party against whom the waiver is to be effective. Notwithstanding the foregoing,
it is a condition to the closing of the Publicis/Bcom3 merger that the first
step merger shall have been completed on substantially the terms set forth in
the first step merger agreement. After the adoption of the first step merger
agreement by the Bcom3 stockholders, there will be no amendment that by law
requires further approval by the Bcom3 stockholders without the approval of the
Bcom3 stockholders. As noted above, Bcom3 has also agreed that it will not amend
or waive any provision of the Publicis/Bcom3 merger agreement without the prior
written consent of Dentsu, which consent shall not be unreasonably withheld.
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THE PUBLICIS/BCOM3 MERGER AGREEMENT
The following section describes the material terms of the Publicis/Bcom3
merger agreement. The complete text of the Publicis/Bcom3 merger agreement is
attached as Annex A to, and is incorporated by reference into, this proxy
statement/prospectus. You are encouraged to read the entire Publicis/Bcom3
merger agreement because it is the legal document that governs the
Publicis/Bcom3 merger.
THE PUBLICIS/BCOM3 MERGER
When the Publicis/Bcom3 merger occurs, Bcom3 will merge with and into
Philadelphia Merger Corp., a newly formed wholly owned subsidiary of Publicis,
with Philadelphia Merger Corp. surviving as a wholly owned subsidiary of
Publicis.
CLOSING AND EFFECTIVE TIME
The closing of the Publicis/Bcom3 merger will take place as soon as
practicable, but in any event within three business days after the satisfaction
or waiver of the closing conditions set forth in the Publicis/Bcom3 merger
agreement, other than those conditions that by their nature are to be satisfied
at the closing.
At the closing of the Publicis/Bcom3 merger, the parties to the
Publicis/Bcom3 merger agreement will file a certificate of merger with the
Secretary of State of the State of Delaware. The Publicis/Bcom3 merger will
become effective when the certificate of merger is duly filed with the Secretary
of State of the State of Delaware or at such later time as is agreed by the
parties to the merger agreement and specified in the certificate of merger. It
is expected that the closing of the Publicis/Bcom3 merger will occur on the
closing date of the first step merger.
PUBLICIS/BCOM3 MERGER CONSIDERATION
The Publicis/Bcom3 merger consideration will consist of the following:
- each share of Class A common stock of Bcom3 outstanding after the
consummation of the recapitalization in the first step merger will be
converted into the right to receive:
- 1.666464 Publicis ordinary shares, which are described under the caption
"Description of Publicis Share Capital";
- the usufruct interest (usufruit) in 0.548870 additional Publicis
ordinary shares, together with the right to receive bare legal title to
these shares on the second anniversary of the closing date of the
mergers. The arrangements which will provide for the separation of the
usufruct interest and the bare legal title in these shares are described
below under the caption "Description of Usufruct Interest and Bare Legal
Title";
- 0.098108 obligations remboursables en actions (ORAs), which are
described under "Description of ORAs"; and
- the net proceeds from the sale of the debt portion of E53.861277 in
principal amount of obligations a bons de souscription d'actions
(OBSAs), together with warrants (detached from the OBSAs) to purchase
1.765944 Publicis ordinary shares (each warrant is exercisable for one
Publicis ordinary share). The OBSAs are described under "Description of
OBSAs." The sale of the debt portion of the OBSAs, also referred to
herein as "notes," is described under the caption "-- Sale of the Debt
Portion of the OBSAs";
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- each share of Class B common stock of Bcom3 outstanding after the
consummation of the recapitalization in the first step merger (all of
which is and will be held by Dentsu) will be converted into the right to
receive:
- 4.021399 Publicis ordinary shares;
- bare legal title (nue propriete) to 0.957024 additional Publicis
ordinary shares until the second anniversary of the closing date of the
mergers, which is described under the caption "Description of Usufruct
Interest and Bare Legal Title";
- 0.047940 ORAs; and
- the net proceeds from the sale of the debt portion of E26.318797 in
principal amount of OBSAs, together with warrants (detached from the
OBSAs) to purchase 0.862911 Publicis ordinary shares (each warrant is
exercisable for one Publicis ordinary share).
Notwithstanding the ratio set forth above, the aggregate number of Publicis
ordinary shares to which Dentsu will receive bare legal title shall equal the
aggregate number of Publicis ordinary shares actually delivered to the special
nominee as described below (which, for example, will not include any Publicis
ordinary shares to be sold under the fractional share provisions described
below).
The Publicis/Bcom3 merger consideration payable on shares of Class A common
stock and Class B common stock, and any other amounts payable pursuant to the
terms of the Publicis/Bcom3 merger agreement, are subject to adjustments for
extraordinary events affecting the capital stock of Bcom3 or Publicis, such as
stock splits, recapitalizations, combinations or stock dividends. The first step
merger will not constitute any such extraordinary event under the Publicis/Bcom3
merger agreement.
Under the Publicis/Bcom3 merger agreement, the Publicis/Bcom3 merger
consideration to be received by Class A stockholders will be subject to the
transfer restrictions described under the caption "Transfer Restrictions on
Publicis Securities and Other Consideration."
At the closing of the Publicis/Bcom3 merger, each share of Bcom3 common
stock held in the treasury of Bcom3 or owned by Publicis or any of its
subsidiaries prior to the Publicis/Bcom3 merger will be cancelled without being
converted into the right to receive the Publicis/Bcom3 merger consideration and
without receipt of any other payments. Each share of the capital stock of
Philadelphia Merger Corp. outstanding immediately prior to the effective time of
the Publicis/Bcom3 merger will remain issued and outstanding following the
Publicis/Bcom3 merger.
The certificate of incorporation and bylaws of Philadelphia Merger Corp. in
effect at the effective time of the Publicis/Bcom3 merger will be the
certificate of incorporation and bylaws of the surviving corporation. The
directors of Philadelphia Merger Corp. at the effective time of the
Publicis/Bcom3 merger will be the directors of the surviving corporation, and
the officers of Bcom3 at the effective time of the Publicis/Bcom3 merger will be
the officers of the surviving corporation.
SALE OF DEBT PORTION OF THE OBSAs
At the effective time of the Publicis/Bcom3 merger, a nominee, appointed by
Bcom3 and reasonably acceptable to Publicis, will receive the OBSAs, detach the
Publicis warrants attached to the OBSAs for deposit in the exchange funds from
which the Publicis/Bcom3 merger consideration will be paid to former Class A and
Class B stockholders of Bcom3, and hold the debt portion of the OBSAs (also
referred to herein as the "notes") until sold by the marketing agent as
described below.
If the Bcom3 board has not otherwise made definitive arrangements to sell
the notes by the closing of the mergers, Bcom3 will appoint a marketing agent,
reasonably acceptable to Publicis, for the sale. The marketing agent will be
instructed to use reasonable best efforts to sell the notes for cash after the
closing. The proceeds to be received in the sale may also include non-cash
components and/or the marketing agent may effect a distribution-in-kind of the
notes, so long as the marketing agent has received the prior written consent of
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persons who held at least a majority of the Bcom3 shares outstanding immediately
prior to the first step merger and, in certain circumstances, the prior written
consent of Publicis.
It is expected that the marketing agent will be one or more individuals or
an entity, who will in turn engage one or more financial institutions to act as
underwriter or placement agent for the sale. The terms, conditions, timing and
manner of the sale will be determined solely in the discretion of the marketing
agent. The manner of sale may include any one or combination of the following,
among other possibilities, as determined by the marketing agent:
- a public or private offering outside the United States, with or without a
listing;
- an offering in the United States;
- a sale of the notes to a newly-formed or existing "special purpose
entity," which would purchase the notes from the nominee using proceeds
from its own issuance of one or more series of securities; or
- a sale of the notes (or any securities issued by a special purpose
entity) in conjunction with one or more equity or equity-linked
securities.
The notes (or any securities issued by a special purpose entity) may, in
the discretion of the marketing agent, be sold to any person, including persons
that may be affiliated with Bcom3, such as Publicis or Dentsu, or investment
banks (or affiliates thereof) that may have rendered services to Publicis, Bcom3
or Dentsu.
The notes may be sold in one or more sales over time, and each sale may
occur at or after the closing date of the mergers, as determined by the
marketing agent. There can be no assurance as to the timing of the sale.
Publicis has agreed to take all reasonably necessary action to permit,
expedite and facilitate the sale of the notes in the manner determined by the
marketing agent. This action may include:
- submitting to Euronext a listing application covering the notes and
obtaining their admission to trading;
- assisting with preparation of offering materials, roadshows customary for
an offering of this type or other marketing efforts;
- cooperating with due diligence requests from the purchasers;
- preparing and filing with the SEC, until the earlier of such time as all
the notes have been sold and nine months after the closing of the
mergers, such amendments to the registration statement of which this
proxy statement/prospectus is a part and supplements to the prospectus as
may be necessary to keep the registration statement effective and to
comply with the provisions of the Securities Act with respect to the sale
of the notes; and
- entering into customary agreements and indemnities in connection with the
sale; provided that the representations, warranties, covenants and
indemnities contained in the agreements shall not be materially more
burdensome for Publicis than those given by Publicis in the Subscription
Agreement dated as of January 10, 2002 with Deutsche Bank AG London, BNP
Paribas and Merrill Lynch International, related to Publicis's offering
of OCEANES (bonds convertible into or exchangeable for new or existing
shares).
Notwithstanding the above, Publicis will not be obligated to seek or facilitate
or assist in obtaining a credit rating for the notes.
After the completion of each sale, the nominee will promptly distribute the
net proceeds from such sale (i.e., after any sales expenses or underwriting fees
have been paid), together with any interest payments or other distributions made
since the effective time of the Publicis/Bcom3 merger in respect of the notes,
as follows:
- a cash amount equal to the payment to be made to the Bcom3 stock option
holders, as described under the caption "-- Effect on Stock Options,"
plus any interest cost incurred in funding the payment, will be paid to
Publicis; and
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- all remaining proceeds will be transferred to the exchange agent for
deposit in the exchange funds from which the Publicis/Bcom3 merger
consideration will be paid to former Class A and Class B stockholders of
Bcom3.
All such proceeds will be paid solely to Publicis until Publicis has
received in the aggregate (whether through one or more sales) the entire amount
payable to it pursuant to the allocation set forth above. Once Publicis has been
so paid in full, all proceeds remaining from such sale, and arising from any
future sales, will be transferred to the exchange agent for distribution to the
former Class A and Class B stockholders.
Until the notes are sold, the nominee will be the sole holder of the notes
on behalf of the former Bcom3 stockholders and will take action as holder of the
notes only upon instructions from the marketing agent. No former Bcom3
stockholder will be entitled to exercise any rights or give any instructions to
the nominee with respect to the notes. The former Bcom3 stockholders will be
entitled only to receive the net proceeds from their portion of the sale of the
notes as described above. No certificates will be issued to represent this right
to receive the net proceeds. Moreover, each Bcom3 stockholder's right to receive
the net proceeds will not be transferable by such stockholder, except for
involuntary transfers occurring by operation of law or required by law.
Prior to appointment of the marketing agent and prior to the effective time
of the mergers, the Bcom3 board will function as the marketing agent. The terms
governing the marketing agent will be set forth in a marketing agent agreement
containing indemnities from Publicis in favor of the marketing agent for
liabilities arising in connection with the sale of the notes. Under this
agreement, the marketing agent will have no liability to any person for its
actions in connection with the sale, except in the case of the marketing agent's
gross negligence or willful misconduct.
SPECIAL ARRANGEMENTS WITH RESPECT TO CERTAIN PUBLICIS ORDINARY SHARES
As described above under the caption "-- Publicis/Bcom3 Merger
Consideration," Class A common stock and Class B common stock will each be
converted into, among other things, the right to receive the entire undivided
interest in a number of Publicis ordinary shares. However, with respect to
certain additional Publicis ordinary shares issued in connection with the
merger, Class A stockholders will obtain the right to receive the usufruct
interest in such shares (i.e., an economic interest), while Dentsu, as sole
Class B holder, will obtain the right to receive the bare legal title in these
shares, including the voting rights associated with them, for a period of two
years following the closing date of the mergers. The separation of the usufruct
from the bare legal title will be effected by a special nominee appointed by
Bcom3 that is reasonably acceptable to Publicis Class A stockholders. For a
description of the usufructs and the bare legal title, please refer to the
information under the caption "Description of Usufruct Interest and Bare Legal
Title."
BCOM3 VOTING TRUST
Immediately prior to the effective time of the Publicis/Bcom3 merger, the
voting trust pursuant to which all outstanding shares of Class A common stock of
Bcom3 are held of record by the voting trustees will be dissolved, and the
voting trust agreement which provides for these arrangements will be terminated.
As a result, at such time, each beneficial owner of Bcom3 Class A common stock
will be reflected on the books and records of Bcom3 as a record holder of
uncertificated shares of Bcom3 Class A common stock.
PROCEDURES FOR DELIVERY OF THE MERGER CONSIDERATION
All of the securities to be issued by Publicis in connection with the
Publicis/Bcom3 merger will be issued by Publicis to Philadelphia Merger LLC, a
newly formed indirect wholly owned subsidiary of Publicis which Publicis intends
to merge into Philadelphia Merger Corp. immediately after the effective time of
the Publicis/ Bcom3 merger. Publicis will cause Philadelphia Merger LLC to
deliver, at the effective time of the Publicis/ Bcom3 merger, the Publicis
ordinary shares (except those subject to the usufruct arrangement described
above under the caption "-- Special Arrangements With Respect to Certain
Publicis Ordinary Shares"), and the ORAs to the exchange agent, which will be
selected by Publicis and reasonably acceptable to Bcom3. The exchange agent will
hold these Publicis ordinary shares and ORAs, together with the other
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Publicis/Bcom3 merger consideration in separate exchange funds maintained for
the benefit of the former holders of the Bcom3 Class A and Class B common stock.
At the effective time, Philadelphia Merger LLC will further deliver the
Publicis ordinary shares subject to the usufruct arrangement to the special
nominee, which will in turn deliver the bare legal title to such shares to
Dentsu and transfer the usufruct interest in such shares to the exchange agent
for deposit in the exchange fund for the Class A stockholders. Also at the
effective time of the Publicis/Bcom3 merger, Publicis Merger LLC will deliver
the OBSAs to a nominee which will detach the Publicis warrants from the OBSAs,
deliver the warrants to the exchange agent for deposit in the exchange funds and
retain the debt portion of the OBSAs for sale in accordance with the
instructions of the marketing agent. After completion of each sale, the nominee
will transfer the portion of the proceeds from such sale to which the Bcom3
stockholders are entitled to the exchange agent for deposit in the exchange
funds. See "-- Sale of the Debt Portion of the OBSAs" above.
Publicis or Bcom3 will send, or will cause the exchange agent to send, to
each former Bcom3 Class A stockholder, a letter of transmittal for use in the
exchange of Class A common stock for the Publicis/Bcom3 merger consideration
that is payable on Class A common stock. This letter of transmittal will set
forth the agreement of the stockholder executing such letter to be bound by the
restrictions on transfer described below under the caption "Transfer
Restrictions on Publicis Securities and Other Consideration." Upon delivery to
the exchange agent of a letter of transmittal properly completed and signed by
any such holder, the exchange agent will deliver to such Class A stockholder the
Publicis/Bcom3 merger consideration to which he or she is entitled. As promptly
as practicable after the effective time of the Publicis/Bcom3 merger, the
exchange agent will deliver to Dentsu the Publicis/Bcom3 merger consideration
that is payable on Class B common stock. In each case, the exchange agent will
also deliver cash in lieu of any fractional interests (as described below under
the caption "-- Fractional Interests") and any dividends or distributions (as
described below under the caption "-- Dividends") to which holders of shares of
Bcom3 common stock may be entitled. No merger consideration in the
Publicis/Bcom3 merger will be delivered to Bcom3 stockholders exercising
appraisal rights with respect to the Publicis/Bcom3 merger as described under
the caption "The Mergers -- Appraisal Rights."
If any former holder of Class A common stock has not submitted a properly
completed and signed letter of transmittal to claim his or her Publicis/Bcom3
merger consideration by the 30-month anniversary of the closing date of the
Publicis/Bcom3 merger, the exchange agent will deliver to such stockholder on
that date (1) Publicis ordinary shares; (2) cash in lieu of fractional shares;
(3) any dividends or other distributions with respect to Publicis ordinary
shares or usufruct interests; and (4) the net proceeds from the sale of the OBSA
notes, all in the amounts to which such stockholder is entitled under the
Publicis/Bcom3 merger agreement. If any former holder of Class A common stock
has not submitted a properly completed and signed letter of transmittal to claim
his or her Publicis/Bcom3 merger consideration by the 54-month anniversary of
the closing date of the Publicis/Bcom3 merger, the exchange agent will deliver
to such stockholder on that date (1) ORAs; (2) warrants; (3) cash in lieu of
fractional ORAs and warrants; and (4) any dividends or other distributions with
respect to ORAs, all in the amount to which such stockholder is entitled under
the Publicis/ Bcom3 merger agreement.
At the effective time of the Publicis/Bcom3 merger, the stock transfer
books of Bcom3 will be closed and there will be no further registration of
transfer of shares of Bcom3 common stock thereafter. From and after the
completion of the Publicis/Bcom3 merger, each outstanding share of Bcom3 common
stock will entitle its holder to no rights other than those provided by the
Publicis/Bcom3 merger agreement or applicable law.
FRACTIONAL INTERESTS
Publicis will not issue any fractional Publicis ordinary shares, usufructs,
ORAs or warrants in the Publicis/Bcom3 merger. Each person who would otherwise
be entitled to receive a fraction of such a security will receive instead an
amount of cash as follows:
- in the case of Publicis ordinary shares and usufructs, each holder will
receive an amount equal to the holder's proportionate interest in the
proceeds from the sale by the exchange agent of all fractional shares
(including fractional shares in which Class A stockholders will receive
usufruct interests) that would otherwise be issued in connection with the
Publicis/Bcom3 merger. The exchange agent
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will sell these shares through Euronext Paris as soon as practicable
after the effective time of the Publicis/Bcom3 merger at then prevailing
market prices, and the proceeds will be converted from euros to U.S.
dollars at the then prevailing exchange rates.
- in the case of ORAs and Publicis warrants, each holder will receive an
amount in U.S. dollars (rounded down to the nearest whole cent), without
interest, equal to the product of the fractional ORA or Publicis warrant,
as the case may be, multiplied by the fair market value of each ORA or
Publicis warrant, as the case may be, as determined in good faith by
Bcom3's board.
DIVIDENDS
Publicis ordinary shares issued in connection with the Publicis/Bcom3
merger will not be eligible to receive the normal annual cash dividend declared
in 2002 related to Publicis's 2001 fiscal year. Subject to this limitation,
however, Bcom3 stockholders receiving Publicis ordinary shares or ORAs will be
entitled to receive at the time such securities are delivered, the amount of
dividends or other distributions payable in respect of such securities to the
extent the record dates for these dividends or other distributions are after the
effective time of the Publicis/Bcom3 merger.
EFFECT ON STOCK OPTIONS
The total consideration to be paid for Bcom3 in both mergers is for all the
stock and options, and is allocated among Class A stockholders, Class B
stockholders and option holders as provided in the Publicis/Bcom3 merger
agreement and the applicable stock option plan in effect at the time of the
mergers. The option holders' share of the total consideration will take the form
of a cash payment to each option holder in cancellation of his or her options.
The cash payment for each option, whether vested or unvested, will reflect the
immediate U.S. dollar cash value of the blended merger consideration per Class A
share paid in both mergers, as determined in good faith by the Bcom3 board, less
the exercise price of the option.
The option cash payment will be effected in two stages. First, the Bcom3
board, pursuant to the Bcom3 stock option plans, will make an appropriate
adjustment to the exercise price of and number of shares underlying each
outstanding stock option to reflect the treatment of Class A common stock in the
first step merger. Then, in the Publicis/Bcom3 merger, each outstanding stock
option so adjusted will be cancelled and option holders will receive a cash
payment equal to the product of (1) the adjusted total number of Bcom3 Class A
shares subject to such stock option and (2) the excess, if any, of the immediate
U.S. dollar cash value of the consideration payable in the Publicis/Bcom3 merger
for each Class A share measured at the effective time of the Publicis/Bcom3
merger, as determined in good faith by the Bcom3 board, over the adjusted
exercise price per share for the applicable stock option.
Optionees who are entitled to the cash payments described above who are
jointly selected by Publicis and Bcom3 and who consent thereto will be paid the
cash payment to which they are entitled over a period of time and on terms to be
determined.
Bcom3 has agreed to take all necessary action to terminate the Bcom3 stock
option plans, effective immediately prior to the effective time of the
Publicis/Bcom3 merger, except for certain contractual provisions described below
that will survive such termination.
Pursuant to the surviving provisions of the stock option plans, should an
option holder (1) within one year after the effective time of the Publicis/Bcom3
merger be terminated for cause; or (2) within two years after the effective time
of the Publicis/Bcom3 merger engage in "solicitation" (as defined in the stock
option plans) without having received the written consent of Publicis's board or
committee or (3) if applicable to such option holder, within one year after the
effective time of the Publicis/Bcom3 merger engage in "competition" (as defined
in the stock option plans) without having received the written consent of
Publicis' board or committee, then the option holder shall be required to repay
the option cash payment or, in accordance with the Publicis/Bcom3 merger
agreement, forfeit any option cash payments that the option holder has not yet
received. In addition, the surviving provisions of the stock option plans
provide that certain option holders are subject to a non-competition restriction
for a period of one year after their employment terminates for any
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reason (other than by reason of a termination without cause) and that all option
holders are subject to a non-solicitation restriction for a period of two years
after their employment ceases for any reason, including a termination without
cause.
REPRESENTATIONS AND WARRANTIES
In the Publicis/Bcom3 merger agreement, each of Bcom3 and Publicis makes
representations and warranties about itself and its business in favor of the
other party, which include representations and warranties about such matters as:
- the organization of the parties and their subsidiaries and similar
corporate matters;
- the parties' capital structures;
- authorization, execution, delivery, performance and enforceability of the
Publicis/Bcom3 merger agreement and related matters;
- absence of breach of or conflict with applicable laws, regulations,
organizational documents, agreements and other existing obligations;
- required governmental consents and approvals;
- compliance with applicable laws and contractual obligations;
- filing and accuracy of required reports and accuracy of financial
statements and the information used in their preparation;
- absence of certain adverse changes or events relating to the relevant
company since a specified date;
- absence of material litigation;
- employee matters and the Employee Retirement Income Security Act of 1974;
- contracts binding upon the relevant company;
- trademarks, patents and copyrights used in connection with the business
of the relevant company;
- status of client relations and the absence of material media-buying
agreements;
- status of key managers;
- tax matters;
- shareholder vote required;
- matters related to Section 368(a) of the Internal Revenue Code; and
- the absence of any broker or other party entitled to a brokerage or
similar fee in connection with the transactions contemplated by the
Publicis/Bcom3 merger agreement.
Bcom3 made additional representations with respect to the opinion of its
financial advisor. Publicis made additional representations with respect to the
operations of Philadelphia Merger Corp. and Philadelphia Merger LLC.
COVENANTS
Under the Publicis/Bcom3 merger agreement, each of the parties has agreed
that, between the date of the Publicis/Bcom3 merger agreement and the effective
time of the Publicis/Bcom3 merger, it will:
- operate its business in the ordinary course consistent with past
practice;
- use reasonable best efforts to preserve substantially intact its business
organization and current relationships with third parties and to keep
available the services of its current officers, employees and
consultants; and
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- promptly notify the other party of (1) any events, or non-occurrence of
events, that would reasonably be expected to cause the notifying party's
representations and warranties under the Publicis/Bcom3 merger agreement
to become inaccurate or its obligations under the Publicis/Bcom3 merger
agreement to become not satisfied and (2) any breach of the notifying
party's obligations under the Publicis/Bcom3 merger agreement.
In accordance with the foregoing principles, each of Bcom3 and Publicis
agreed to abide by certain customary restrictions on the conduct of each of
their businesses, including:
- amending organizational documents;
- issuing, selling or otherwise encumbering any shares of capital stock of
the relevant company or its subsidiaries, with some exceptions;
- declaring or making dividends and other distributions;
- splitting, redeeming, purchasing or acquiring its capital stock, with
some exceptions;
- acquiring interests in other entities and assets for consideration in
excess of $50 million;
- incurring indebtedness above specified thresholds;
- disposing of material assets;
- changing its accounting policies or procedures; or
- agreeing or committing to do any of the foregoing.
Bcom3 further agreed to restrictions on:
- entering into material contracts;
- making extraordinary capital expenditures;
- increasing director or employee compensation or benefits;
- granting severance benefits, entering into or amending employment
agreements and adopting or amending benefit plans;
- hiring directors, officers, employees, or consultants, other than in the
ordinary course of business consistent with past practice; or
- amending, modifying, or releasing any obligations under the stock
purchase agreement that it has in place with each of its Class A
stockholders.
ADDITIONAL AGREEMENTS
Publicis and Bcom3 have also agreed to the following additional items in
the merger agreement:
SHAREHOLDER MEETINGS
Each of Publicis and Bcom3 agreed to call and hold a meeting of its
shareholders as promptly as practicable for the purpose of voting upon the
merger agreement and the merger. Bcom3 agreed to use its reasonable best efforts
to solicit from its stockholders proxies in favor of the adoption of the merger
agreements and approval of the mergers. Publicis agreed to use its reasonable
best efforts to solicit from its stockholders proxies in favor of the adoption
of:
- the Publicis/Bcom3 merger agreement and the approval of the
Publicis/Bcom3 merger;
- the issuance of the Publicis securities in the Publicis/Bcom3 merger;
- the increase of the number of members of the Publicis supervisory board
by two, who will be designees of Dentsu; and
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- the modification of the Publicis statuts to provide that the respective
holders of the usufruct and bare legal title interests in the Publicis
ordinary shares are free to allocate the voting rights between
themselves.
Each party agreed that it would take all actions necessary or advisable to
secure a vote of its shareholders in favor of these proposals, except if the
relevant governing board determines in good faith, following consultation with
independent legal counsel, that doing so would breach its fiduciary duties to
its shareholders under applicable law. Even if the relevant governing board so
determines, each of the parties still agreed to hold the meeting of its
shareholders described in this paragraph.
PROXY STATEMENT AND REGISTRATION STATEMENT
Bcom3 agreed to prepare and file with the SEC this proxy
statement/prospectus and to mail it to its stockholders as promptly as
practicable after the date of the Publicis/Bcom3 merger agreement. Publicis
agreed to prepare, file and mail to its shareholders a proxy statement relating
to the Publicis proposals and the Publicis shareholder meeting, and to make all
other filings required by the Commission des Operations de Bourse, or "COB," as
promptly as practicable after the date of the Publicis/Bcom3 merger agreement.
Each of Publicis and Bcom3 agreed to promptly furnish information relating to
itself that the other party may reasonably request in connection with preparing
its proxy statement and other filings.
Bcom3 agreed that this proxy statement/prospectus would include the
recommendation of the Bcom3 board to the Bcom3 stockholders in favor of the
merger proposals, and Publicis agreed that its proxy statement would include the
recommendation of the Publicis supervisory board and management board in favor
of the Publicis proposals. In each case, however, the relevant governing board
may, prior to the effective time of the Publicis/Bcom3 merger, withdraw, modify
or change its recommendation if the governing board determines in good faith,
following consultation with independent legal counsel, that the failure to do so
would breach its fiduciary duties to its shareholders under applicable law.
Each of the parties also agreed that, with respect to the registration
statement of which this proxy statement/prospectus is part, it would use its
reasonable best efforts to cause it to become effective as promptly as
practicable, and that it would not amend or supplement the registration
statement without the approval of the other party, which will not be
unreasonably withheld. Each party will promptly notify the other party of
information it receives from the SEC relating to the effectiveness of the
registration statement, such as comments or requests for information from the
SEC or the issuance of any stop order relating to the registration statement.
Each of the parties further agreed that all information it supplied for
inclusion in this proxy statement/prospectus would be materially accurate as of
the following times:
- when the registration statement is declared effective;
- when the Bcom3 proxy statement is mailed to the Bcom3 stockholders;
- at the time of the Bcom3 stockholder meeting; and
- at the effective time of the Publicis/Bcom3 merger.
Each of the parties will promptly inform the other upon learning of any
information that would require an amendment or supplement to the registration
statement.
ACCESS TO INFORMATION; CONFIDENTIALITY
Publicis and Bcom3 agreed, subject to provisions of the confidentiality
agreements by which they are bound and applicable laws, to provide access to the
other party and its representatives, at reasonable times upon prior notice, to
each of its and its subsidiaries' officers, employees, agents, properties,
offices, facilities and books and records, and to furnish promptly information
about its business and other matters as is reasonably requested by the other
party. Publicis and Bcom3 also agreed to comply with all of their obligations
under the confidentiality agreements between the parties.
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BCOM3 AFFILIATES
Bcom3 agreed to use reasonable best efforts to have all of its affiliates
execute and deliver to Publicis prior to the effective date of the
Publicis/Bcom3 merger an affiliate letter, in customary form, which describes,
among other things, the transfer restrictions which will be imposed upon the
merger consideration received by Bcom3 affiliates under applicable provisions of
the Securities Act.
FURTHER ACTIONS; CONSENTS; FILINGS
Publicis and Bcom3 agreed to use reasonable best efforts to take all
appropriate actions necessary or advisable to complete the Publicis/Bcom3
merger, to obtain all consents, authorizations and orders required to be
obtained by Publicis or Bcom3 or any of their subsidiaries in connection with
the Publicis/Bcom3 merger and the other transactions contemplated by the
Publicis/Bcom3 merger agreement, and to make all necessary filings and requested
submissions with governmental entities in respect of the Publicis/Bcom3 merger
and the other transactions contemplated by the Publicis/Bcom3 merger agreement,
including those required under securities laws and antitrust laws. The
obligations described in the preceding sentence are subject, however, to the
proviso that Publicis is not obligated to agree to any material restrictions on
the conduct of its business after the effective time of the Publicis/Bcom3
merger, or to agree to divest any of its material assets, or material assets of
any of its affiliates or Bcom3 or any of Bcom3's affiliates. Publicis and Bcom3
agreed to make, as promptly as practicable after the date of the Publicis/Bcom3
merger agreement, required notifications under the HSR Act and with the European
Union antitrust authorities, and to promptly respond to requests for further
information from the relevant antitrust authorities. Publicis and Bcom3 each
filed their required notifications under the HSR Act with the FTC and the
Department of Justice on April 11, 2002, and filed a formal merger notification
with the European Commission on May 15, 2002. The applicable waiting period
under the HSR Act expired on May 13, 2002. On June 18, 2002, Publicis and Bcom3
received notice from the European Commission that it has terminated its review
and granted its approval of the merger.
PLAN OF REORGANIZATION; TAX TREATMENT
The parties agreed to use reasonable best efforts to cause the
Publicis/Bcom3 merger to qualify as a reorganization within the meaning of
Section 368(a) of the Code, and to cause the delivery of related opinions of
counsel and representations.
PUBLIC ANNOUNCEMENTS
The parties agreed to consult with each other, except as otherwise required
by applicable law or securities exchange requirements, prior to making or
releasing any public statements concerning the Publicis/Bcom3 merger or the
other transactions contemplated by the Publicis/Bcom3 merger agreement.
EURONEXT PARIS LISTING
Publicis agreed to use reasonable best efforts to obtain admission to
trading on Euronext Paris of the Publicis ordinary shares, ORAs and Publicis
warrants to be issued in connection with the merger within five business days of
the closing date of the mergers, and the Publicis ordinary shares to be issued
upon redemption of the ORAs or exercise of the warrants when the ORA redemption
occurs or when the warrants become exercisable, as the case may be.
PUBLICIS GOVERNANCE
Publicis agreed to take all necessary action to increase the number of
members on the Publicis supervisory board by two members as of the effective
time of the Publicis/Bcom3 merger, and to cause two designees of Dentsu to be
appointed to fill these two new positions. Publicis also agreed to take all
necessary action to increase the number of members on the Publicis management
board to five members as of the effective time of the Publicis/Bcom3 merger, and
to appoint Roger A. Haupt to the Publicis management board and as Publicis's
President and Chief Operating Officer.
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NOMINEE AGREEMENT
Bcom3 and Publicis agreed to use reasonable best efforts to enter into a
nominee agreement, relating to the purposes described under the caption "-- Sale
of Debt Portion of the OBSAs," on mutually satisfactory terms.
EMPLOYEE BENEFITS MATTERS
For at least one year after the effective time of the Publicis/Bcom3
merger, Publicis agreed to maintain the compensation levels and benefit plans
(other than equity-based compensation or benefits) of the employees and former
employees of Bcom3 and its subsidiaries, or to provide compensation and benefit
plans to them that are in the aggregate no less favorable than those provided to
them immediately prior to the effective time of the Publicis/Bcom3 merger.
Publicis also agreed to recognize (with an exception solely to avoid duplication
of benefits) periods of service under Bcom3 benefit plans for the purposes of
determining vesting, eligibility and levels of benefits under benefit plans
maintained by Publicis and its subsidiaries and affiliates (other than benefit
accrual (1) under plans for which similarly situated Publicis employees did not
receive credit for prior service upon establishment of the plans and (2) defined
benefit plans). Publicis further agreed that Bcom3 personnel will maintain,
administer and make all decisions relating to the Bcom3 Annual Incentive Plan
from the effective time of the Publicis/Bcom3 merger until December 31, 2002 for
all persons participating in this plan immediately prior to the effective time
of the Publicis/Bcom3 merger and for any newly hired employees in positions
which typically participate in similar plans. All participants in the Annual
Incentive Plan will be paid the entire amount of their cash bonus no later than
March 15, 2003.
Publicis and Philadelphia Merger Corp. agreed to use reasonable efforts to
cooperate to adopt stock option plans in compliance with French law for the
benefit of selected Bcom3 employees. Bcom3 and Publicis will use reasonable best
efforts to determine, prior to the effective time of the Publicis/Bcom3 merger,
the number of Publicis ordinary shares underlying the options which will be
granted under these plans.
Bcom3 agreed to use reasonable best efforts to submit its change in control
agreements and Roger A. Haupt's employment agreement, and, to the extent
necessary, the cash payments described under the caption "-- Effect on Stock
Options," for the approval of the voting trustees as required by applicable
sections of the Internal Revenue Code.
For more information on employee benefits matters, including a description
of the change in control agreements, see "Interests of Certain Persons in the
Mergers."
APPOINTMENT OF CUSTODIAN
Publicis agreed to appoint, after the effective time of the Publicis/Bcom3
merger, a custodian to assist former Bcom3 stockholders with issues related to
their ownership of Publicis ordinary shares, usufruct interests, ORAs and
warrants to be received in connection with the merger, such as assistance with
the distribution of voting materials, currency conversion of dividends and
receipt of certain French tax credits.
ADJUSTMENTS
If, prior to the effective time of the Publicis/Bcom3 merger or the
termination of the Publicis/Bcom3 merger agreement, the parties determine in
their reasonable judgment that the opinions of counsel relating to the tax
treatment of the merger cannot be delivered if the merger were completed in
accordance with the terms of the Publicis/Bcom3 merger agreement, the parties
agreed to negotiate adjustments to the Publicis/Bcom3 merger agreement in good
faith to address such matters in a manner that would substantially preserve the
economic benefits of the transaction for Publicis and the Bcom3 stockholders.
NO SOLICITATION
Until the termination of the Publicis/Bcom3 merger agreement, each of
Publicis and Bcom3 agreed that it will not, and each will instruct its
subsidiaries and the officers, directors, employees, investment bankers, agents,
attorneys, advisors and the other representatives of the party and its
subsidiaries not to, directly or
87
indirectly, solicit, initiate, knowingly encourage or knowingly facilitate any
inquiries or the making of any proposal or offer that constitutes, or may
reasonably be expected to lead to, a "Competing Transaction" or engage in
discussions or negotiate with any person with respect to a "Competing
Transaction."
The term "Competing Transaction" means any of the following involving
Publicis or Bcom3, as the case may be (other than the Publicis/Bcom3 merger and
the other transactions contemplated by the Publicis/Bcom3 merger agreement):
- a merger, consolidation, share exchange, business combination or other
similar transaction;
- any sale, lease, exchange, transfer or other disposition of 25% or more
of the assets of that party and its subsidiaries, taken as a whole;
- the acquisition of capital stock of that party by a person which would
result in that person becoming the beneficial owner of 25% or more of the
shares of capital stock of that party; or
- a tender offer or exchange offer by a person which would result in that
person becoming the beneficial owner of 25% or more of the outstanding
voting securities of that party.
However, the Publicis/Bcom3 merger agreement permits each of Bcom3 and
Publicis to furnish information to, or enter into negotiations with, any party
that has made an unsolicited (from the date of the merger agreement) proposal
for a Competing Transaction if:
- the Bcom3 board of directors or the Publicis management board or
supervisory board, as the case may be, has determined in good faith,
after consultation with independent legal counsel, that such action is
required for the relevant governing board to comply with its fiduciary
duties to its shareholders under applicable law; and
- prior to taking such actions:
- the relevant party obtains an executed confidentiality agreement from
the person proposing the Competing Transaction on terms no less
favorable to that party than the terms contained in the confidentiality
agreement between Publicis and Bcom3; and
- the relevant party promptly notifies the other party immediately of any
inquiries, proposals or offers received, any information requested, or
discussions or negotiations sought to be initiated or continued,
indicating in the notice the name of the person proposing the Competing
Transaction and the terms and conditions of any proposals or offers.
Bcom3 and Publicis have each agreed to promptly inform the other if any
proposal or offer or any inquiry or contact with any person regarding such a
proposal or offer relating to a Competing Transaction involving the relevant
party is made. Each party also agreed to cease and terminate any and all
discussions or negotiations regarding any Competing Transaction existing on
March 7, 2002. Each party further agreed not to release any third party from the
provisions of any confidentiality or standstill agreement, except, in the case
of Bcom3, for waivers and releases with respect to Dentsu which Bcom3 deems
reasonably necessary to complete the Publicis/Bcom3 merger and the other
transactions contemplated by the Publicis/Bcom3 merger agreement.
CONDITIONS TO COMPLETION OF THE PUBLICIS/BCOM3 MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE PUBLICIS/BCOM3 MERGER
The obligations of each party to complete the Publicis/Bcom3 merger are
subject to the satisfaction (or waiver if permissible) of the following
conditions:
- the registration statement of which this proxy statement/prospectus forms
a part shall have been declared effective by the SEC under the Securities
Act and no stop order suspending the effectiveness of the registration
statement shall have been issued and no proceeding for that purpose shall
have been initiated by the SEC;
- the Publicis/Bcom3 merger agreement shall have been duly approved and
adopted by the Bcom3 stockholders;
- the Publicis proposals shall have been approved and adopted by the
shareholders of Publicis;
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- no governmental entity or court of competent jurisdiction shall have
issued or enforced any law, judgment, or order which has the effect of
making the merger illegal or otherwise prohibiting completion of the
Publicis/Bcom3 merger;
- all consents, approvals and authorizations legally required to be
obtained to complete the merger including, but not limited to, antitrust
approval in the U.S. and Europe, shall have been obtained from all
governmental entities, except for such consents, approvals and
authorizations the failure of which to obtain should not have, and could
not reasonably be expected to have, a material adverse effect on Publicis
(giving effect to the mergers);
- the waiting period under the HSR Act has expired or been terminated and
the confirmation of compatibility with the common market has been
obtained from the European Commission;
- the nominee agreement described under the caption "-- Sale of Debt
Portion of the OBSAs" shall have been executed and delivered; and
- the first step merger shall have been completed on substantially the
terms set forth in the first step merger agreement, which is attached as
Annex C to this proxy statement/prospectus and is described under the
caption "The First Step Merger Agreement."
CONDITIONS TO THE OBLIGATIONS OF PUBLICIS
The obligations of Publicis and Philadelphia Merger Corp. to complete the
Publicis/Bcom3 merger are subject to the satisfaction or waiver of the following
additional conditions:
- the representations and warranties of Bcom3 contained in the
Publicis/Bcom3 merger agreement being true and correct as of the
effective time of the Publicis/Bcom3 merger as though made at such time
(other than made expressly as of an earlier date, in which case as of
such earlier date), except where the failure to be so true and correct
(without giving effect to any qualification as to "materiality" or
"material adverse effect" set forth therein) would not have or could not
reasonably be expected to have, individually or in the aggregate, a
material adverse effect on Bcom3, and Publicis receiving an officer's
certificate of Bcom3 to that effect;
- material compliance by Bcom3 with its obligations under the
Publicis/Bcom3 merger agreement on or prior to the effective time of the
Publicis/Bcom3 merger, except where the failure to so comply would not
have or could not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on Bcom3, and Publicis receiving an
officer's certificate of Bcom3 to that effect;
- Publicis having received the opinion of Wachtell, Lipton, Rosen & Katz,
dated as of the closing date of the Publicis/Bcom3 merger, to the effect
that for U.S. federal income tax purposes, the Publicis/Bcom3 merger
will qualify as a reorganization within the meaning of Section 368(a) of
the Code;
- the holders of not more than 5% of outstanding Bcom3 common stock having
exercised their appraisal rights under Delaware law; and
- Publicis and Bcom3 having received the opinion of Kirkland & Ellis, dated
as of the date of the Publicis/Bcom3 merger agreement and the closing
date of the mergers, relating to specific matters associated with the
stock purchase agreements and the ownership of Bcom3 common stock by the
persons who entered into the stock purchase agreements. For a description
of the stock purchase agreements, see "Description of Capital Stock of
Bcom3 -- Stock Purchase Agreement."
CONDITIONS TO THE OBLIGATIONS OF BCOM3
The obligations of Bcom3 to complete the Publicis/Bcom3 merger are subject
to the satisfaction or waiver of the following conditions beyond those set forth
under the caption "-- Conditions to Completion of the Publicis/Bcom3 Merger":
- the representations and warranties of Publicis and Philadelphia Merger
Corp. contained in the Publicis/Bcom3 merger agreement being true and
correct as of the effective time of the Publicis/Bcom3 merger as though
made at such time (other than made expressly as of an earlier date, in
which case as of such earlier date), except where the failure to be so
true and correct (without giving effect to any qualification as to
"materiality" or "material adverse effect" set forth therein) would not
have or
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could not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on Publicis, and Bcom3 receiving an
officer's certificate of Publicis to that effect;
- material compliance by Publicis and Philadelphia Merger Corp. with their
obligations under the Publicis/Bcom3 merger agreement on or prior to the
effective time of the Publicis/Bcom3 merger, except where the failure to
so comply would not have or could not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on Publicis,
and Bcom3 receiving an officer's certificate of Publicis to that effect;
and
- Bcom3 having received the opinion of Kirkland & Ellis, dated as of the
closing date of the Publicis/Bcom3 merger, to the effect that for U.S.
federal income tax purposes the Publicis/Bcom3 merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code; and each
transfer of property to Publicis by a Bcom3 stockholder pursuant to the
Publicis/Bcom3 merger will not be subject to Section 367(a)(1) of the
Code.
TERMINATION
The Publicis/Bcom3 merger agreement may be terminated and the
Publicis/Bcom3 merger and the other transactions contemplated by the
Publicis/Bcom3 merger agreement may be abandoned at any time prior to the
effective time of the Publicis/Bcom3 merger, notwithstanding any requisite
approval of the Publicis/Bcom3 merger agreement and the other transactions
contemplated by the Publicis/Bcom3 merger agreement:
- by mutual written consent of Bcom3 and Publicis;
- if there is an order that is final and nonappealable preventing the
completion of the Publicis/Bcom3 merger;
- by either Bcom3 or Publicis if:
- the Publicis/Bcom3 merger has not been completed by September 30, 2002,
which is the outside date; provided, however, that if (1) the
Publicis/Bcom3 merger has not been completed by that date because any
governmental orders and consents, including antitrust approvals, have
not been obtained; and (2) all other conditions have been satisfied or
waived or are capable of being satisfied, this outside date will be
extended to December 7, 2002; and, provided further, that this right to
terminate the Publicis/Bcom3 merger agreement will not be available to
any party whose failure to fulfill any obligation under the
Publicis/Bcom3 merger agreement resulted in the failure of the merger to
be completed by the applicable date;
- the stockholders of Bcom3 fail to approve the Publicis/Bcom3 merger
agreement at the Bcom3 special stockholder meeting;
- the shareholders of Publicis fail to approve the Publicis proposals at
the Publicis extraordinary shareholder meeting; or
- by Bcom3:
- if (1) Publicis's supervisory board or management board withdraws,
modifies or changes its recommendation of the Publicis/Bcom3 merger
agreement or the transactions contemplated by the Publicis/Bcom3 merger
agreement in a manner adverse to Bcom3 or shall have resolved to do so;
(2) Publicis's supervisory board or management board shall have
recommended to the shareholders of Publicis a Competing Transaction or
shall have resolved to do so; or (3) a tender offer or exchange offer
for 50% or more of the outstanding shares of capital stock of Publicis
is commenced, and the management board or the supervisory board of
Publicis fails to recommend against acceptance of such tender offer or
exchange offer by its shareholders (including by taking no position with
respect to the acceptance of such tender offer or exchange offer by its
shareholders); or
- upon a breach of any material representation, warranty, covenant or
agreement of Publicis or Philadelphia Merger Corp. under the
Publicis/Bcom3 merger agreement; provided that, if such breach is
curable by Publicis and Philadelphia Merger Corp., Bcom3 may not
terminate the
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Publicis/Bcom3 merger agreement for the breach for so long as Publicis
and Philadelphia Merger Corp. exercise their respective best efforts to
cure the breach; or
- by Publicis:
- if (1) the Bcom3 board withdraws, modifies or changes its recommendation
of the Publicis/Bcom3 merger agreement or the transactions contemplated
by the Publicis/Bcom3 merger agreement in a manner adverse to Publicis
or shall have resolved to do so; (2) the Bcom3 board shall have
recommended to the Bcom3 stockholders a Competing Transaction or shall
have resolved to do so; or (3) a tender offer or exchange offer for 50%
or more of the outstanding shares of capital stock of Bcom3 is
commenced, and the Bcom3 board fails to recommend against acceptance of
such tender offer or exchange offer by its stockholders (including by
taking no position with respect to the acceptance of such tender offer
or exchange offer by its stockholders); or
- upon a breach of any material representation, warranty, covenant or
agreement of Bcom3 under the Publicis/Bcom3 merger agreement; provided
that, if such breach is curable by Bcom3, Publicis may not terminate the
merger agreement for such breach for so long as Bcom3 exercises its best
efforts to cure the breach.
EFFECT OF TERMINATION
If the Publicis/Bcom3 merger agreement is terminated, there will be no
liability on the part of Publicis, Philadelphia Merger Corp. or Bcom3, except as
otherwise provided in the Publicis/Bcom3 merger agreement and subject to the
rights of the parties described below under the caption "-- Termination Fee."
Nothing, however, will relieve any party of any liability or damages resulting
from any willful material breach of the Publicis/Bcom3 merger agreement by that
party.
TERMINATION FEE
Publicis or Bcom3, as the case may be, will be required to pay the other
party a termination fee of $90 million under the following circumstances:
- Bcom3 will be required to pay Publicis if:
- Publicis terminates the Publicis/Bcom3 merger agreement because (1) the
Bcom3 board withdraws, modifies or changes its recommendation of the
Publicis/Bcom3 merger agreement or the transactions contemplated by the
Publicis/Bcom3 merger agreement in a manner adverse to Publicis or shall
have resolved to do so; (2) the Bcom3 board shall have recommended to
the Bcom3 stockholders a Competing Transaction or shall have resolved to
do so; or (3) a tender offer or exchange offer for 50% or more of the
outstanding shares of capital stock of Bcom3 is commenced, and the Bcom3
board fails to recommend against acceptance of such tender offer or
exchange offer by its stockholders (including by taking no position with
respect to the acceptance of such tender offer or exchange offer by its
stockholders);
- (1) Publicis or Bcom3 terminates the Publicis/Bcom3 merger agreement due
to the failure of the Bcom3 stockholders to approve the Publicis/Bcom3
merger agreement; (2) prior to the time the Bcom3 stockholders fail to
approve the Publicis/Bcom3 merger agreement, there has been made a
proposal for a Competing Transaction with respect to Bcom3; and (3)
within 12 months of the termination of the Publicis/Bcom3 merger
agreement, Bcom3 enters into an agreement with respect to, or
consummates, a Competing Transaction; or
- (1) Publicis or Bcom3 terminates the Publicis/Bcom3 merger agreement
because the effective time of the Publicis/Bcom3 merger has not occurred
on or before the applicable outside date described above under the
caption "-- Termination"; (2) on or before the applicable outside date
there has been made a proposal for a Competing Transaction with respect
to Bcom3; and (3) within 12 months of the termination of the
Publicis/Bcom3 merger agreement, Bcom3 enters into an agreement with
respect to, or consummates, a Competing Transaction.
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- Publicis will be required to pay Bcom3 if:
- Bcom3 terminates the Publicis/Bcom3 merger agreement because (1)
Publicis's supervisory board or management board withdraws, modifies or
changes its recommendation of the Publicis/Bcom3 merger agreement or the
transactions contemplated by the Publicis/Bcom3 merger agreement in a
manner adverse to Bcom3 or shall have resolved to do so; (2) the
Publicis supervisory board or management board shall have recommended to
the shareholders of Publicis a Competing Transaction or shall have
resolved to do so; or (3) a tender offer or exchange offer for 50% or
more of the outstanding shares of capital stock of Publicis is
commenced, and the management board or the supervisory board of Publicis
fails to recommend against acceptance of such tender offer or exchange
offer by its shareholders (including by taking no position with respect
to the acceptance of such tender offer or exchange offer by its
shareholders);
- (1) Bcom3 or Publicis terminates the Publicis/Bcom3 merger agreement due
to the failure of the Publicis shareholders to approve the Publicis
proposals; (2) prior to the time the Publicis shareholders fail to
approve the Publicis proposals, there has been made a proposal for a
Competing Transaction with respect to Publicis; and (3) within 12 months
of the termination of the Publicis/Bcom3 merger agreement, Publicis
enters into an agreement with respect to, or consummates, a Competing
Transaction; or
- (1) Bcom3 or Publicis terminates the Publicis/Bcom3 merger agreement
because the effective time of the Publicis/Bcom3 merger has not occurred
on or before the applicable outside date; (2) on or before the
applicable outside date there has been made a proposal for a Competing
Transaction with respect to Publicis; and (3) within 12 months of the
termination of the Publicis/Bcom3 merger agreement, Publicis enters into
an agreement with respect to, or consummates, a Competing Transaction.
In each case the payments made by Bcom3 and Publicis under the above
circumstances are the sole remedy available to the other party under these
scenarios, except in the event of a willful breach.
EXPENSES
Except as otherwise described above under the caption "-- Termination Fee,"
all costs and expenses incurred as a result of the Publicis/Bcom3 merger
agreement and the transactions contemplated by the Publicis/Bcom3 merger
agreement shall be paid by the party incurring the cost or expense, except that
each of Bcom3 and Publicis will pay one-half of:
- the expenses incurred in connection with printing, mailing and filing the
registration statement of which this proxy statement/prospectus forms a
part, this proxy statement/prospectus and the Publicis proxy statement
(which includes the prospectus relating to the issuance of the
Publicis/Bcom3 merger consideration); and
- all SEC, COB and other regulatory filing fees incurred in connection with
the registration statement, this proxy statement/prospectus and the
Publicis proxy statement.
INDEMNIFICATION
The Publicis/Bcom3 merger agreement provides that the bylaws of
Philadelphia Merger Corp. as the surviving corporation will contain provisions
regarding directors' and officers' indemnification and insurance reasonably
satisfactory to Bcom3. The provisions will not be changed for a period of six
years in any way adverse to the individuals who were directors, officers,
employees, fiduciaries or agents of Bcom3 prior to the effective time of the
Publicis/Bcom3 merger.
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Publicis and Bcom3 have agreed that prior to the effective time of the
Publicis/Bcom3 merger, Bcom3, and after the effective time of the Publicis/Bcom3
merger, Publicis and Philadelphia Merger Corp., will indemnify and hold harmless
to the fullest extent of the law:
- each present and former director and officer of Bcom3 and each of its
subsidiaries; and
- each person who served at the request of Bcom3 or any of its subsidiaries
as a director, officer, employee, trustee, partner, fiduciary or agent of
another corporation, partnership, joint venture, pension trust or other
employee benefit plan or enterprise;
against all costs and expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and settlement amounts
paid in connection with any claim, action, suit, proceeding or investigation
(whether arising before or after the effective time of the Publicis/Bcom3
merger) arising out of or pertaining to any action or omission in their
capacities as officers or directors, in each case occurring at or before the
effective time of the Publicis/Bcom3 merger (including the transactions
contemplated by the Publicis/Bcom3 merger agreement).
Publicis also will cause to be maintained Bcom3's existing directors' and
officers' liability insurance policy, or a substitute policy reasonably
satisfactory to the indemnified parties with at least the same coverage
containing terms and conditions that are no less advantageous, which insures the
indemnified parties for any losses arising out of facts or events that occurred
at or prior to the effective time of the Publicis/Bcom3 merger for not less than
six years after this effective time; provided that the aggregate annual premium
for maintaining the insurance during the six-year period does not exceed 250% of
the current aggregate annual premium paid by Bcom3 (which current aggregate
annual premium is approximately $440,000). If the aggregate annual premium
exceeds 250% of the current aggregate annual premium paid by Bcom3, Publicis
will provide the coverage then available at an annual premium of 250% of the
current premium.
AMENDMENTS AND WAIVERS
Any provision of the Publicis/Bcom3 merger agreement may be amended prior
to the effective time of the Publicis/Bcom3 merger if, and only if, the
amendment is in writing and signed by the parties to the Publicis/Bcom3 merger
agreement. After the approval of the Publicis/Bcom3 merger agreement by the
Bcom3 stockholders, Publicis and Bcom3 have agreed that there will be no
amendment that by law requires further approval by stockholders without the
approval of Bcom3 stockholders.
Any party to the merger agreement may extend the time for performance by
another party of its obligations under the merger agreement or otherwise waive
compliance with provisions of the merger agreement if such extension or waiver
is written and executed by the party or parties to be bound thereby.
Notwithstanding the foregoing, Bcom3 has agreed in the first step merger
agreement not to amend or waive any provision of the Publicis/Bcom3 merger
agreement without the prior written consent of Dentsu, which consent shall not
be unreasonably withheld.
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SUPPORT AGREEMENTS
Bcom3 SUPPORT AGREEMENT
In connection with the execution and delivery of the Publicis/Bcom3 merger
agreement, Bcom3 entered into a voting agreement with Madame Elisabeth Badinter
and Societe Anonyme Somarel (each of whom is a holder of Publicis ordinary
shares), under which these Publicis shareholders have agreed to vote their
Publicis ordinary shares in favor of the Publicis/Bcom3 merger and against any
action that would impede the Publicis/Bcom3 merger. These Publicis shareholders
collectively owned approximately 45% of the total voting power of Publicis
ordinary shares outstanding as of June 18, 2002, the date of the Publicis
shareholder meeting.
The voting agreement prohibits, subject to limited exceptions, any of such
Publicis shareholders from selling, transferring, assigning, pledging,
encumbering or otherwise disposing of any Publicis ordinary shares except for
pledges to secure indebtedness.
The voting agreement also prohibits such Publicis shareholders from
directly or indirectly negotiating with, soliciting, initiating or encouraging
the submission of proposals or offers from, or providing information to, any
person relating to an acquisition proposal with respect to Publicis.
The voting agreement terminates upon the earliest to occur of the
termination of the Publicis/Bcom3 merger agreement, the termination of the
voting agreement by Bcom3 and the effective time of the Publicis/Bcom3 merger.
PUBLICIS SUPPORT AGREEMENTS
In connection with the execution and delivery of the Publicis/Bcom3 merger
agreement, Publicis and Philadelphia Merger Corp. entered into voting agreements
with each of Roy J. Bostock, Craig D. Brown, Richard B. Fizdale and Roger A.
Haupt (each of such individuals is a member of Bcom3's board of directors) and
Dentsu, under which these Bcom3 stockholders have agreed to vote their Bcom3
common shares in favor of the Publicis/Bcom3 merger and against any action that
would impede the Publicis/Bcom3 merger. These Bcom3 stockholders collectively
own 31.2% of the total voting power of Bcom3's common stock outstanding as of
August 9, 2002.
The voting agreements prohibit, subject to limited exceptions, any of such
Bcom3 stockholders from selling, transferring, assigning, pledging, encumbering
or otherwise disposing of any Bcom3 common shares.
The voting agreements also prohibit each such Bcom3 stockholder (except in
such stockholder's capacity as a director, officer or employee of Bcom3 or as a
voting trustee) from directly or indirectly negotiating with, soliciting,
initiating or encouraging the submission of proposals or offers from, or
providing information to, any person relating to an acquisition proposal with
respect to Bcom3.
Each voting agreement terminates upon the earliest to occur of the
termination of the Publicis/Bcom3 merger agreement, the termination of such
voting agreement by Publicis and the effective time of the Publicis/Bcom3
merger.
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SHAREHOLDERS' AGREEMENTS, ALLIANCE AGREEMENT
AND ESCROW AGREEMENT
ALLIANCE AGREEMENT BETWEEN PUBLICIS AND DENTSU
Pursuant to a memorandum of understanding between Publicis and Dentsu,
dated March 7, 2002, Publicis and Dentsu have agreed to form a strategic
alliance for a 20-year term upon completion of the mergers on the following
terms:
Publicis will cause its affiliates Saatchi & Saatchi and Zenith &
Publicis to terminate in an orderly manner and with respect for its current
partners, within 12 to 18 months after the effective time of the
Publicis/Bcom3 merger, their respective current arrangements and agreements
with partners in Japan. Publicis has agreed to terminate its arrangements
relating to possible acquisitions of advertising agencies in Japan.
Publicis will partner exclusively with Dentsu in Japan and will not
initiate any new activity in Japan without prior consultation with Dentsu.
Publicis companies will, as and when requested by Dentsu, represent
Dentsu and its clients, subject to limitations imposed by client conflict
policies, in the Americas, Central, Eastern and Western Europe and
Australia and New Zealand, provided that:
- subject to conflict limitations, Dentsu may choose the member of the
Publicis group it wishes to partner with to develop global client
relationships; and
- where it is in the mutual interest of the parties, Dentsu will
consolidate its existing business with the operations of the Publicis
group in Europe and the Americas, on mutually acceptable terms and
conditions.
Dentsu will agree to consult with Publicis before making any
investments, initiating joint ventures or new ventures in Australia,
Central, Eastern and Western Europe, and the Americas, provided that Dentsu
and Publicis agree that:
- Dentsu may invest in such markets independently of Publicis if Dentsu
determines that it is in its best interest to do so, and if it so
determines it will inform Publicis of such determination before
entering into binding commitments therefor;
- Dentsu will not partner with the advertising companies WPP,
Interpublic Group, Omnicom or Havas; and
- Publicis will not partner with the advertising companies WPP,
Interpublic Group, Omnicom, Havas or Hakuhodo.
Publicis will agree to the continued expansion of the Dentsu Network
in Asia and acknowledge the existing Dentsu partnership with WPP and Dentsu
Young & Rubicam, but Dentsu will agree not to expand such partnership.
Dentsu and Publicis will agree to the mutual development of a global
media alliance on terms satisfactory to them respectively.
Dentsu and Publicis have agreed to share, on terms satisfactory to
them and to the extent permitted by relevant contractual obligations,
knowledge, research, and learning that can be used to develop and improve
services to multinational clients.
Publicis has agreed, whenever possible, to facilitate the continuation
of certain business relationships between Dentsu and Leo Burnett following
the mergers.
Dentsu and Publicis expect to conduct joint development activities of
various communication businesses internationally, including, in particular,
sport marketing businesses where Dentsu is the global
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leaders in the market, which may include the formation of one or more joint
ventures bearing the names of both Publicis and Dentsu.
Dentsu and Publicis have agreed to form an executive group to manage
the relationship described by this memorandum of understanding whose
members will be the CEO and COO of Publicis and two executives from Dentsu.
Dentsu and Publicis have also agreed to keep each other informed, through
the mechanism of the executive group, of their respective expansion plans
in Asia (excluding, in the case of Dentsu, Japan).
The term of the strategic alliance agreement will be 20 years, subject
to early termination by either party in the event that Dentsu ceases to own
at least 10% of the outstanding Publicis ordinary shares by reason of the
transfer by Dentsu of any of its Publicis ordinary shares, or by the
failure of Dentsu to exercise its preemptive rights or any rights of Dentsu
that would entitle it to subscribe for shares on the same terms and in the
same quantity as if it were exercising such preemptive right (droits
preferentiels de souscription), in each case with respect to any new
issuances of Publicis ordinary shares.
Dentsu and Publicis have agreed that, if any of the arrangements
contemplated by the memorandum of understanding would result in Dentsu's
inability to equity account for its investment in Publicis, Dentsu and
Publicis will use their respective best efforts to adjust such arrangements
to the extent necessary so as to permit Dentsu to equity account for its
investment in Publicis, provided that the economic and legal substance of
such adjusted arrangements will be substantially equivalent to that of the
arrangements contemplated initially by the memorandum of understanding.
SHAREHOLDERS' AGREEMENT BETWEEN PUBLICIS AND DENTSU
Pursuant to a memorandum of understanding between Publicis and Dentsu,
dated March 7, 2002, Publicis and Dentsu have agreed to enter into a
shareholders' agreement providing for the following principal terms:
So long as Dentsu owns directly or indirectly not less than 10% of the
outstanding ordinary shares of Publicis (taking into account only diminutions in
Dentsu's ownership by reason of any transfer of Publicis ordinary shares by
Dentsu or any failure by Dentsu to exercise its preemptive rights or any rights
of Dentsu that would entitle it to subscribe to shares on the same terms and in
the same quantity as if it were exercising such preemptive rights), Publicis
will present to its shareholders one or several resolutions for the appointment
of two members of the supervisory board of Publicis designated by Dentsu (one of
such designees to be a representative director of Dentsu) and such designees may
be replaced by Dentsu in its discretion. If the size of the Supervisory Board is
increased, the number of members that Dentsu may appoint will be increased so
that Dentsu will be entitled to appoint a number of members of the supervisory
board that is proportionate to its voting power in Publicis (rounded up to the
nearest whole number).
Until July 1, 2012, Dentsu will be subject to a "standstill" limiting its
ownership of Publicis shares to the number of shares that entitles it to 15% of
the voting power of Publicis, and to other customary standstill provisions such
as those provisions of the investment agreement dated as of March 14, 2000
between Dentsu and Bcom3, which has been filed by Bcom3 with the SEC, subject to
exceptions no less (or more) favorable to Dentsu than those set out in the
standstill provision of the investment agreement, except such provisions as
would not be relevant in the context of the merger, the other provisions of the
shareholders' agreement and the provisions of the contemplated shareholders'
agreement between Dentsu and Madame Elisabeth Badinter. Notwithstanding the
foregoing, Dentsu will be entitled to buy Publicis ordinary shares on the open
market to the extent it has not been given by Publicis the opportunity to keep
its level of voting power at 15% through the exercise of preemptive rights. To
permit Dentsu to comply with this provision, Publicis will give notice to Dentsu
not later than the fifteenth day of each month of the total number of voting
rights of all Publicis shareholders existing, to the best of its knowledge, as
of the first day of such month.
Publicis will present to its shareholder meetings such resolutions as may
be necessary or appropriate to protect Dentsu against any dilution resulting
from a capital increase in cash to which Dentsu may not subscribe by using
preemptive rights.
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Dentsu is contractually prohibited from holding in excess of 15% of
Publicis's voting power once its registered shares attain double voting rights
two years after the closing of the Publicis/Bcom3 merger.
Over time, Dentsu will be able to maintain its 15% voting interest in
Publicis based on several factors. First, Dentsu will receive approximately 22%
of the total ORAs and warrants issued in the merger, and thus 22% of the
underlying ordinary shares to be issued over time upon redemption or exercise of
these securities. In addition, the Publicis ordinary shares to be held by Dentsu
in registered form will attain double voting right status two years after the
closing. Furthermore, French corporate law and Dentsu's contractual arrangements
with Publicis protect Dentsu against dilution through preemptive rights, or, if
the preemptive rights are waived with regard to specific share or convertible
securities issuances, through subscription rights, and in any event through the
right to purchase Publicis ordinary shares in the open market. This will allow
Dentsu to sustain the 15% voting power that is required for the desired
accounting treatment in Japan.
Until July 1, 2012, Dentsu will be prohibited from transferring any
ordinary shares of Publicis. Thereafter, the transfer of ordinary shares of
Publicis by Dentsu will be subject to restrictions that are substantially
identical to those set out in the investment agreement, subject to modifications
necessary to reflect the structure of the Publicis/Bcom3 merger.
There is no current intent on the part of Publicis to shorten the period
during which Dentsu is subject to the "standstill" or to increase the number of
Publicis shares that Dentsu may purchase.
The term of the shareholders' agreement will expire on July 1, 2012, unless
it is renewed for an additional term of 10 years by agreement of Dentsu and
Publicis.
Dentsu and Publicis have agreed that, if any of the arrangements
contemplated by the memorandum of understanding would result in Dentsu's
inability to equity account for its investment in Publicis, Dentsu and Publicis
shall use their respective best efforts to adjust such arrangements to the
extent necessary so as to permit Dentsu to equity account for its investment in
Publicis, provided that the economic and legal substance of such adjusted
arrangements will be substantially equivalent to that of the arrangements
contemplated initially by the memorandum of understanding.
Dentsu and Publicis have instructed their respective advisers to negotiate
and draft expeditiously a shareholders' agreement giving effect to the
memorandum of understanding described herein. Absent the execution and delivery
of such shareholders' agreement on or prior to the date of Bcom3 stockholders
meeting, Dentsu and Publicis will continue to be bound by the terms of this
memorandum of understanding.
SHAREHOLDERS' AGREEMENT BETWEEN ELISABETH BADINTER AND DENTSU
Pursuant to a memorandum of understanding between Madame Elisabeth Badinter
and Dentsu, dated March 7, 2002, Madame Badinter and Dentsu have agreed to enter
into a shareholders' agreement providing for the following:
Dentsu will vote and will cause its representatives on the Publicis
supervisory board to vote, unless such vote would expose such representatives of
Dentsu to legal liability:
- to elect Madame Badinter (or any person designated by Madame Badinter)
chairperson (Presidente or President, as the case may be) of the
supervisory board, and to maintain her or such person in office;
- to elect to the supervisory board and maintain in office such persons
designated by her; and
- in favor of appointments of or changes in the members of management
(including the directoire) of Publicis proposed by Madame Badinter,
provided that Madame Badinter will have consulted Dentsu on such
appointments or changes.
A special committee of the supervisory board will be created consisting of
members appointed by Madame Badinter and members appointed by Dentsu (e.g., two
or three by Madame Badinter, one or two by Dentsu) and members appointed by the
management of Publicis equal in number to the number of Dentsu's
representatives, provided that Madame Badinter will appoint a majority of the
members of the special committee. The special committee will examine all
strategic decisions and determine the vote on matters on
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which Dentsu has agreed to vote as directed by Madame Badinter. The special
committee will act, after consultation, by consensus of its members, or, in the
absence of consensus, by a simple majority vote.
So long as Dentsu owns not less than 10% of the outstanding ordinary shares
of Publicis (taking into account only diminutions in Dentsu's ownership by
reason of any transfer of Publicis ordinary shares or any failure by Dentsu to
exercise its preemptive rights or any rights of Dentsu that would entitle it to
subscribe to shares on the same terms and in the same quantity as if it were
exercising such preemptive rights), Madame Badinter and Somarel will vote, and
Madame Badinter will cause Somarel to vote, the Publicis ordinary shares they
then own to elect and maintain in office two members of the supervisory board
chosen from among candidates designated by Dentsu or their respective
replacements designated by Dentsu (one of such designees to be a representative
director of Dentsu), provided that if Madame Badinter establishes at the time of
such election that any such designee (other than such representative director)
lacks reasonably appropriate qualifications to serve as a member of the
supervisory board, Dentsu will be entitled to designate a different person for
election to the supervisory board. If the size of the supervisory board is
increased, the number of members that Dentsu may appoint will be increased so
that Dentsu will be entitled to appoint a number of members of the supervisory
board that is proportionate to its voting power in Publicis (rounding up to the
nearest whole number).
Dentsu will vote its Publicis ordinary shares at any such shareholders
meeting in its own discretion, except only as set forth below. After due
consultation between Dentsu and Madame Badinter, Dentsu will vote its Publicis
ordinary shares as directed by Madame Badinter on the following matters:
- decisions to amend Publicis's charter to change Publicis's name or
headquarters, the number of members of the supervisory board or the
management board (directoire), the duration of the terms in office of any
such members, and the number of qualifying Publicis ordinary shares
required to be owned by any such member;
- any merger, consolidation or similar business combination of Publicis
with or into any other company as a result of which the shareholders of
Publicis immediately prior to such business combination will have a
majority of the outstanding votes and common equity interest of the
surviving entity in such business combination, provided that Dentsu will
vote in any event its Publicis ordinary shares as directed by Madame
Badinter with respect to any merger of Somarel and/or the management
companies holding certain Somarel shares, with and into Publicis;
- declaration of dividends, so long as Madame Badinter directs Dentsu to
vote in favor of reasonable dividends that do not exceed 40% of
Publicis's distributable profits for the applicable fiscal year;
- capital increases of less than 10% of the share capital or the voting
rights of Publicis where Dentsu is entitled to subscribe by using
preemptive rights, provided that the capital increases with respect to
which Madame Badinter may direct Dentsu will not exceed in the aggregate
10% of the capital of Publicis as constituted on March 7, 2002; and
- reductions of share capital of Publicis resulting from cancellation of
shares pursuant to Publicis's stock repurchase program.
After due consultation between Dentsu and Madame Badinter, Dentsu will vote
its Publicis ordinary shares as it will determine on each of the following:
- decisions to issue securities giving right to more than 10% of the share
capital or of the voting rights of Publicis;
- rights offerings without right to subscribe to, or participate in, such
offering;
- reserved capital increases to identified parties;
- public offers by Publicis of its securities with suppression of the
preferential rights of existing shareholders to subscribe, unless Dentsu
has the right to participate in such offer in proportion to its ownership
of Publicis;
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- decisions to contribute or transfer assets to a third party, to the
extent such decision is put to the shareholders; and
- decisions to approve any related party transaction involving Madame
Badinter or Dentsu or any other affiliate of Publicis.
In the event that members of the supervisory board designated by Dentsu are
members of the audit committee of the supervisory board, and (1) the statutory
auditors of Publicis (Commissaires aux Comptes) present accounts certified by
them, (2) any objections to such accounts raised by such Dentsu members of the
audit committee are considered by such statutory auditors and answered by them,
and (3) such statutory auditors maintain their certification of such accounts,
then Dentsu will vote at the shareholders meeting in favor of the acceptance of
such accounts.
Until July 12, 2012, Dentsu will not pledge or transfer Publicis ordinary
shares owned by Dentsu to any third party, except to comply with Dentsu's
obligations set forth below. From July 12, 2012, Dentsu may transfer all or any
portion of the Publicis ordinary shares held by it without restriction, except
that:
- if Dentsu receives from a third party an offer to purchase any Publicis
ordinary shares for cash, Madame Badinter will have the right to elect to
purchase all but not part of such shares from Dentsu on the same terms
within 45 days from the date of such offer. If Madame Badinter elects to
purchase such shares, she must consummate the purchase within 20 days
from the date of expiration of the 45-day period.
- if Dentsu wishes to sell any Publicis ordinary shares on the open market
or to an underwriter or in another organized selling effort (such as a
bookbuilding or a secondary offering), Madame Badinter will have the
right to elect to purchase all but not part of such shares from Dentsu on
the same terms within 30 days from the date Dentsu notifies Madame
Badinter of Dentsu's desire to sell such shares. If Madame Badinter
elects to purchase such ordinary shares, she must consummate the purchase
within 20 days from the date of such election.
Until July 12, 2012, Dentsu will be prohibited from owning, alone or in
concert, at any time more than a number of Publicis ordinary shares that
entitles it to 15% of the voting power of Publicis, except as may be otherwise
agreed with Publicis in the shareholders' agreement between Publicis and Dentsu.
For purposes of determining the 15% threshold, no ORAs (or ordinary shares
issuable in respect thereof) or warrants issued with the OBSAs (or ordinary
shares issuable in respect of such warrants) will be taken into account. Dentsu
will not be deemed to have violated the foregoing prohibition (1) if Dentsu
inadvertently or unintentionally exceeds the 15% level and, upon notice thereof
from Publicis or Madame Badinter, Dentsu promptly reduces its ownership of
shares of Publicis to the 15% level, or (2) to the extent Dentsu exceeds the 15%
level as a result of any repurchase of shares or other reduction of capital by
Publicis. If Dentsu exceeds the 15% level for any reason, Dentsu will not vote
at any shareholders meeting of Publicis such number of shares of Publicis owned
by Dentsu that represents voting power in excess of 15% of the voting power of
Publicis.
Dentsu will not enter into any agreement concerning the direction and
management of Publicis with any third party without the written permission of
Madame Badinter. Without Dentsu's written permission, Madame Badinter will not
enter into any agreement concerning the direction and management of Publicis
with any third party that would result in Dentsu's being required to join in
making a tender offer for Publicis. In case of a violation by Madame Badinter of
this provision, Dentsu may immediately, by notice, terminate the memorandum of
understanding and the shareholders' agreement.
Madame Badinter will cause her designees on the supervisory board of
Publicis to comply with the provisions of the shareholders' agreement. Madame
Badinter will use her best efforts to ensure that Dentsu will always be
protected against any dilution from a capital increase of Publicis in cash to
which Dentsu is not entitled to subscribe by using preemptive rights.
The term of the shareholders' agreement will be 12 years, subject to
renewal upon mutual agreement of the parties.
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Dentsu and Madame Badinter have agreed that, if any of the arrangements
contemplated in the memorandum of understanding would result in Dentsu's
inability to equity account for its investment in Publicis, Dentsu and Madame
Badinter shall use their respective best efforts to adjust such arrangements to
the extent necessary so as to permit Dentsu to equity account for its investment
in Publicis, provided that the economic and legal substance of such adjusted
arrangements will be substantially equivalent to that of the arrangements
contemplated initially by the memorandum of understanding.
Dentsu and Madame Elisabeth Badinter have instructed their respective
advisers to negotiate and draft expeditiously a shareholders' agreement giving
effect to the memorandum of understanding described herein. Absent the execution
and delivery of such shareholders' agreement on or prior to the date of Bcom3
stockholders meeting, Dentsu and Madame Elisabeth Badinter will continue to be
bound by the terms of this memorandum of understanding.
ESCROW AGREEMENT AMONG DENTSU, PUBLICIS AND ELISABETH BADINTER
Pursuant to a letter agreement among Dentsu, Publicis and Elisabeth
Badinter, dated March 7, 2002, Dentsu agreed to put in escrow a certain number
of Publicis ordinary shares which it receives in the Publicis/Bcom3 merger. As
a result of the Publicis/Bcom3 merger, Dentsu will hold, or have voting rights
to, Publicis ordinary shares representing slightly in excess of 15% of
Publicis's total voting power. Pursuant to the March 7 letter agreement, Dentsu
will put a number of ordinary shares representing such excess voting power in
escrow with a financial institution mutually acceptable to Dentsu, Publicis and
Elisabeth Badinter. The escrow agreement that Dentsu enters into with such
financial institution is to provide, among other things, that (1) as registered
shares of Publicis held by shareholders other than Dentsu attain double voting
rights, the escrow agent will release shares to Dentsu upon Dentsu's request
solely to enable Dentsu to maintain 15% of the total voting power of Publicis
ordinary shares and (2) the escrow agent will not vote the Publicis ordinary
shares held in escrow.
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TRANSFER RESTRICTIONS ON PUBLICIS SECURITIES AND OTHER CONSIDERATION
TRANSFER RESTRICTIONS APPLICABLE TO FORMER CLASS A STOCKHOLDERS
Under the Publicis/Bcom3 merger agreement, the Publicis ordinary shares,
usufruct interests, ORAs and warrants delivered to Class A stockholders in the
Publicis/Bcom3 merger will be subject to the transfer restrictions described
below.
LETTER OF TRANSMITTAL
In order to implement these transfer restrictions, Publicis, Bcom3 or the
exchange agent will send to each former Bcom3 Class A stockholder a letter of
transmittal for use in the exchange of Class A common stock for the
Publicis/Bcom3 merger consideration that is payable on Class A common stock.
This letter of transmittal will set forth the agreement of the stockholder
executing such letter to be bound by the restrictions on transfer described
below. Upon delivery to the exchange agent of a letter of transmittal properly
completed and signed by any such holder, the exchange agent will deliver to such
Class A stockholder the Publicis/Bcom3 merger consideration to which he or she
is entitled. Until such time as any former holder of Class A common stock
submits his or her properly completed and signed letter of transmittal, such
stockholder will not receive his or her Publicis/Bcom3 merger consideration.
If any former holder of Class A common stock has not submitted a properly
completed and signed letter of transmittal to claim his or her Publicis/Bcom3
merger consideration by the 30-month anniversary of the closing date of the
Publicis/Bcom3 merger, the exchange agent will deliver to such stockholder on
that date (1) Publicis ordinary shares; (2) cash in lieu of fractional shares;
(3) any dividends or other distributions with respect to Publicis ordinary
shares or usufruct interests; and (4) the net proceeds from the sale of the OBSA
notes, all in the amounts to which such stockholder is entitled under the
Publicis/Bcom3 merger agreement. If any former holder of Class A common stock
has not submitted a properly completed and signed letter of transmittal to claim
his or her Publicis/Bcom3 merger consideration by the 54-month anniversary of
the closing date of the Publicis/Bcom3 merger, the exchange agent will deliver
to such stockholder on that date (1) ORAs; (2) warrants; (3) cash in lieu of
fractional ORAs and warrants; and (4) any dividends or other distributions with
respect to ORAs, all in the amounts to which such stockholder is entitled under
the Publicis/Bcom3 merger agreement.
GENERAL
For purposes of this section, "transfer" means any transfer of the Publicis
securities received by the Class A stockholders, or of any interest in such
Publicis securities, whether voluntarily or involuntarily made:
- by way of sale, gift or other disposition;
- by way of pledge or hypothecation or the creation of a security interest;
- by way of attachment, levy or lien;
- in connection with insolvency;
- in connection with a divorce, decree of separate maintenance or any other
arrangement for the adjustment of marital rights;
- into, or out of, joint tenancy, tenancy in common, or tenancy by virtue
of community property or similar rights;
- to any trustee, receiver, administrator, executor, custodian, or guardian
of an estate or property; or
- into any trust, or in any form the effect of which, expressly or
constructively, would create a trust or a separation of the ownership of
the Publicis securities into legal interests and beneficial interests.
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LOCK-UP
All of the Publicis ordinary shares, ORAs, warrants and usufruct interests
in Publicis ordinary shares to be received by Class A stockholders will
initially be non-transferable subject to the exceptions described under the
caption "-- Exceptions to Lock-up." These securities will become transferable
(but will remain subject to the transfer terms and conditions described under
the caption "-- Public Sales after Expiration of Lock-up") as follows:
- blocks of 25% of the total number of Publicis ordinary shares to be
delivered to all former Class A stockholders will become transferable at
the end of each of the 6-, 12-, 18- and 24-month periods following the
closing date of the Publicis/Bcom3 merger; this includes the shares which
will result from the reversion of bare legal title to the usufruct
holders at the end of the two-year term of the usufruct arrangement,
which shares will be allocated to the last 25% block and will therefore
be transferable immediately upon reversion (the corresponding usufruct
interests that Bcom3 Class A stockholders will hold in these shares
during the two-year period will not be transferable).
- blocks of 25% of the total number of ORAs to be delivered to all former
Class A stockholders will become transferable at the end of each of the
30-, 36-, 42- and 48-month periods following the closing date of the
Publicis/Bcom3 merger; and
- blocks of 25% of the total number of warrants to be delivered to all
former Class A stockholders will become transferable at the end of each
of the 30-, 36-, 42- and 48-month periods following the closing date of
the Publicis/Bcom3 merger.
The expiration of the transfer restrictions provided for above shall
benefit all former Class A stockholders on a pro rata basis according to the
number of each type of Publicis securities held by each such person immediately
after the effective time of the Publicis/Bcom3 merger. If, however, at any given
time any of such persons is otherwise not permitted to transfer any of its
Publicis securities at such time because of separate contractual obligations to
Publicis that specifically waive the right to be included in such pro rata
determination, then the Publicis securities held by such person shall not be
included in such pro rata determination.
Publicis may elect in its sole discretion to increase the amount of
securities that become transferable in any block, but the amount of securities
that become transferable in the subsequent block (or blocks, if necessary) will
be correspondingly reduced. For example, if Publicis allows 30% of the Publicis
ordinary shares to become transferable during one such six-month period, only
20% of the Publicis ordinary shares is required to become transferable in the
following period. If Publicis subdivides or combines its outstanding ordinary
shares, ORAs or warrants such that a larger or smaller number of these
securities is outstanding after such an event, the number of securities eligible
for transfer in each block will be appropriately adjusted. Any securities as to
which the lock-up has expired will be freely transferable, except that sales by
a stockholder of such securities on any securities exchange or public quotation
system (which we refer to as a "public sale") will need to comply with the
procedures described under the caption "-- Public Sales after Expiration of
Lock-up."
The former Class A stockholders will hold the Publicis securities in pure
registered form (nominatif pur) with Euro Emetteurs Finance (or EEF), Publicis's
transfer agent, until the applicable lock-up periods expire.
None of the transfer restrictions described in this section will apply to
any Publicis ordinary shares issued upon the redemption of ORAs or upon exercise
of the warrants or to any Publicis securities which are not included in the
Publicis/Bcom3 merger consideration.
There is no current intent on the part of Publicis to shorten the lock-up
periods or release holders from the lock-ups early. Any decision to shorten
lock-up periods or release holders from the lock-ups early would be made by
Publicis's management.
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EXCEPTIONS TO LOCK-UP
The transfer restrictions described above in this section will not apply to
the following transfers:
- gifts or other transfers for estate planning purposes;
- gifts to charitable organizations;
- transfers to other former Class A stockholders for value or by a gift;
- transfers to a bank or financial institution as collateral, by pledge or
otherwise; and
- involuntary transfers occurring by operation or requirement of law;
provided that the transferee agrees in writing to hold the Publicis securities
in pure registered form (nominatif pur) with EEF until the applicable lock-up
periods expire, to be bound by the transfer restrictions described in this
section and not to enter into hedging transactions with respect to Publicis
ordinary shares in connection with or related to such transfer. Copies of this
agreement by the transferee must be provided to the transfer agent and Publicis
at the time of transfer.
In addition, the transfer restrictions described above will also not apply
to sales of securities into a public tender offer (offre publique d'achat ou
d'echange) or as part of the sale of Publicis, whether by merger, consolidation
or otherwise.
A former Class A stockholder who desires to transfer any Publicis
securities that are still subject to the lock-up in reliance on any of the above
exceptions will have to instruct the transfer agent accordingly. The instruction
will have to specify the name of the transferee and the applicable exception to
the lock-up. A copy of the transfer instruction will have to be sent to
Publicis.
PUBLIC SALES AFTER EXPIRATION OF LOCK-UP
Any public sales by a former Class A stockholder of Publicis securities
after expiration of the applicable lock-up described above will need to comply
with the orderly marketing procedures described below. These procedures do not
apply to any private sales of Publicis securities.
Starting on the five-month anniversary of the closing date of the
Publicis/Bcom3 merger, and continuing on each monthly anniversary thereafter
through the 53-month anniversary of such closing date, a polling agent (which
will be Publicis or a financial institution appointed by Publicis and reasonably
acceptable to the "stockholders committee" described below) will poll former
Class A stockholders to determine the number and type of such Publicis
securities that each such person desires to sell in a public sale within the
approximately 30-day period beginning on the upcoming monthly anniversary of the
closing date and ending on the following monthly anniversary of the closing date
(the "effective period"), and the minimum price at which such stockholder would
be willing to sell. Any former Class A stockholder who desires to sell any such
Publicis securities in a public sale within the effective period needs to
deliver within 15 days after the poll date a written response to the polling
agent providing the requested information. If a stockholder does not deliver a
timely response, he or she will not be eligible to make a public sale of such
Publicis securities within the effective period and will need to wait until the
next monthly poll.
With respect to any ORAs or warrants that former Class A stockholders
indicate they are willing to sell, if an "active public market" exists for these
securities, Publicis has a right of first refusal, exercisable until 20 days
after the poll date, to purchase, in whole or in part, such ORAs or warrants on
the upcoming monthly anniversary of the closing at the official closing price of
the security on Euronext on the date the right is exercised, subject to any
minimum sales price indicated by each stockholder. If no "active public market"
exists for the ORAs and warrants that the former Class A stockholders are
willing to sell, Publicis will have the right to make an offer to the former
Class A stockholders within 20 days of the poll date to purchase their ORAs and
warrants at a specified price, which the stockholders may accept until the 25th
day after the poll date. If a stockholder does not accept Publicis's offer, he
or she may sell the securities subject to such offer but not tendered to
Publicis either in the proposed sale for the following month (described below)
or, to the extent there is no proposed sale, in any public sale (subject to the
limitations on public sales described below), provided that the stockholder
sells such securities in a public sale at a price higher than Publicis's offer.
If
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Publicis elects to purchase some but not all of the securities which former
Class A stockholders are offering to sell, then Publicis will purchase the
securities it is willing to buy on a pro rata basis according to the number of
Publicis securities offered by each selling stockholder. An "active public
market" means, with respect to any security on any given date, that at least two
million euros worth in the aggregate of such security was traded on Euronext by
parties unaffiliated with Publicis in bona fide arms-length transactions during
the five consecutive trading days immediately preceding such date.
With respect to any monthly poll, if the aggregate number of Publicis
securities that all former Class A stockholders desire to sell within the
related effective period (excluding any Publicis securities that Publicis has
elected or offered to purchase as described above) represents fewer than the
equivalent of 1.4 million Publicis ordinary shares, all such Publicis securities
may be freely sold in a public sale during the applicable effective period
without further compliance with any orderly marketing procedures.
In the event that the 1.4 million share threshold is exceeded, the
following orderly marketing procedures will apply, provided that any stockholder
who is not notified within 20 days of the polling date as to the terms of any
proposed sale (to the extent he or she has timely delivered a written response
to the polling agent indicating an intent to sell Publicis securities) need not
comply with the following procedures. Designated investment banks will evaluate
market conditions and determine the appropriate method for sale and amount of
Publicis securities to be sold, consistent with maximizing the sale price and
amount of Publicis securities to be sold (which shall represent at least the
equivalent of 1.4 million Publicis ordinary shares). The investment banks may
consider a number of different methods of sale. Securities may be offered in
underwritten public offerings, to or through brokers or dealers who may act as
principal or agent, or in one or more negotiated transactions. Securities may be
offered at various prices, including at fixed prices, at prevailing market
prices at the time of sale, at prices related to prevailing market prices, or at
negotiated prices. The markets for the securities likely will be in Europe, but
could include other markets.
The designated investment banks will be Lazard Freres (or another
internationally-recognized investment bank designated by Publicis with the
consent of the Bcom3 stockholders committee, which may not be unreasonably
withheld) and Morgan Stanley (or another internationally-recognized investment
bank designated by the Bcom3 stockholders committee with the consent of
Publicis, which may not be unreasonably withheld). The Bcom3 stockholders
committee will be a committee consisting initially of the four Bcom3 Class A
stockholders who, immediately prior to the effective time of the mergers, hold
the greatest number of shares of Class A common stock. Any action by the
stockholders committee will require the approval of a majority of its members
then in office. The stockholders committee, acting by such majority, will have
the power to remove any member, increase or decrease the size of the
stockholders committee, fill vacancies and adopt its own internal organization
and decision-making procedures.
Within 20 days after the poll date, the polling agent will notify holders
who expressed a desire to sell of the material terms of the proposed sale,
including any applicable fees or sales commissions (which shall be reasonable
and customary). Each holder will have until the upcoming monthly anniversary of
the closing date to deliver an acceptance notice indicating the number and type
of Publicis securities that such person wants to include in the sale (which
shall not exceed the number and type indicated by such person in the initial
poll) and the minimum price at which he or she would be willing to sell. Any
holder who does not deliver a timely acceptance notice will not participate in
the proposed sale, will not be eligible to make a public sale of Publicis
securities within the effective period, and will need to wait until the next
monthly poll.
The investment banks will complete the proposed sale as soon as practicable
after the upcoming monthly anniversary of the closing date. The sale will
include all Publicis securities covered in any acceptance notice that contains
terms (e.g., minimum price) consistent with sale, subject to pro rata cutbacks
if the amount requested to be sold exceeds the actual amount to be sold. Any
excess Publicis securities that are not sold in the proposed sale will be given
priority in the next proposed sale. If the sale is not completed within 10 days
of the upcoming monthly anniversary of the closing date, any person who would
otherwise have participated in such sale will be free for the remainder of the
applicable effective period to make a public sale of his or her Publicis
securities, provided that the amount of securities sold in public sales by such
person in the remainder of the effective period shall not exceed his or her pro
rata portion of the difference between the equivalent of
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1.4 million shares and the actual number of securities sold in the proposed
sale. Stockholders shall, in any event, be permitted to make public sales of the
Publicis securities in an amount up to the equivalent of 1.4 million ordinary
shares during any month (but the amount of all Publicis securities publicly sold
in any month by the stockholders in the aggregate shall not exceed the
equivalent of 1.4 million shares except for sales pursuant to the terms of the
orderly marketing arrangements, including, without limitation, through a
proposed sale organized by the investment banks).
With respect to any proposed sale that involves an underwritten offering,
Publicis will have the right to select the managing or lead underwriter and to
delay the offering for a period of up to 60 days if it would materially
interfere with any material corporate event of Publicis.
Selling stockholders will be responsible for all fees and expenses in
connection with any such sale.
The orderly marketing procedures for the ordinary shares expire on the
30-month anniversary of the closing date of the mergers and the orderly
marketing procedures for the ORAs and warrants expire on the 54-month
anniversary of the closing date of the mergers.
Notwithstanding the above, if at any time any former Class A stockholder
wants to make a public sale outside the poll process of any Publicis securities
that are no longer subject to a lock-up but are still subject to the orderly
marketing procedures, such person may contact the polling agent. The polling
agent will permit such sale so long as it would not result in the 1.4 million
share threshold being exceeded during the current effective period and would not
interfere with any proposed sale.
TRANSFER RESTRICTIONS APPLICABLE TO DENTSU
For a description of the transfer restrictions applicable to the Publicis
ordinary shares and other Publicis securities to be received by Dentsu in the
Publicis/Bcom3 merger, see "Shareholders' Agreements, Alliance Agreement and
Escrow Agreement."
RESTRICTIONS ON TRANSFER OF RIGHT TO RECEIVE NET PROCEEDS FROM THE SALE OF THE
DEBT PORTION OF THE OBSAs
Each Bcom3 stockholder's right to receive the net proceeds from the sale of
the debt portion of the OBSAs will not be transferable by such stockholder,
provided that this obligation will not prohibit any involuntary transfer
occurring by operation or requirement of law.
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DIRECTORS AND SENIOR MANAGEMENT OF PUBLICIS AFTER THE MERGERS
Publicis has a two-tier management structure pursuant to which a management
board (directoire) manages the day-to-day affairs under the general supervision
of a supervisory board (conseil de surveillance), the members of which are
elected by the shareholders. The members of the management board are also
Publicis's senior managers. Publicis's management board and supervisory board
vote separately to approve transactions related to Publicis. Depending on the
nature of an action to be taken, approval of either only the management board or
the supervisory board alone, or of both the management board and the supervisory
board, are required. Generally, extraordinary actions specified in the French
Commercial Code and Publicis's statuts have to be approved by both the
management board and the supervisory board. For more details on the authority of
the boards, see "Comparative Rights of Publicis Shareholders and Bcom3
Stockholders." We refer to members of the supervisory board and management board
collectively as "directors."
SUPERVISORY BOARD
Upon completion of the mergers, the size of the supervisory board will be
increased to 15, and two nominees of Dentsu, Yutaka Narita and Fumio Oshima,
will be appointed as members of the supervisory board. The following table sets
forth, for each member of Publicis's supervisory board after completion of the
mergers, the member's current function in Publicis and principal business
activities outside of Publicis, the date the member's current term of office is
scheduled to expire and the date the member joined the supervisory board.
ELISABETH BADINTER
Initially Appointed................ November 1987 (appointed as Chair of the Supervisory Board
in April 1996)
Expiration Date of Current Term.... June 2006
Principal Function in Publicis..... Chair, Supervisory Board
Chair, Supervisory Board of Medias & Regies Europe
Principal Business Activities
Outside Publicis................. Lecturer, Ecole Polytechnique and author, Chair of Somarel
ROBERT BADINTER
Initially Appointed................ June 1996
Expiration Date of Current Term.... June 2008
Principal Function in Publicis..... Director
Principal Business Activities
Outside Publicis................. Professor Emeritus, University of Paris I
(Pantheon-Sorbonne)
SIMON BADINTER
Initially Appointed................ June 1999
Expiration Date of Current Term.... June 2005
Principal Function in Publicis..... Director
Director and Director of Development of Medias & Regies
Europe (U.S.A.)
Chair and Chief Executive Officer of Medias & Regies
America Inc. (U.S.A.)
Director of International Development Medias & Regies
(Europe)
Member of Management Board of Metrobus, Intervoz
Publicidade SA, Gestion Omni Media Inc. (Canada) and Omni
Cleveland Inc. (U.S.A.)
Principal Business Activities
Outside Publicis................. Member of the Management Board of Somarel
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MONIQUE BERCAULT
Initially Appointed................ June 1998
Expiration Date of Current Term.... June 2004
Principal Function in Publicis..... Director
Technical Consultant to the Chair of Medias & Regies Europe
Principal Business Activities
Outside Publicis................. None
MICHEL CICUREL
Initially Appointed................ June 1999
Expiration Date of Current Term.... June 2004
Principal Function in Publicis..... Director
Principal Business Activities
Outside Publicis................. Chair of the Management Board of Compagnie Financiere
Edmond de Rothschild Banque and Compagnie-Financiere
Saint-Honore
Chair of the Board of e-Rothschild Services
Director of Francarep
Member of the Board of Banque de Gestion Edmond de
Rothschild (Monaco), Banque Privee Edmond de Rothschild
(Geneva), LCF Rothschild Limited (London), Compagnie
Financiere Holding Edmond et Benjamin de Rothschild
(Geneva), Compagnie de Tresorerie Benjamin de Rothschild
(Geneva), Bouygues Telecom, Cdb Web Tech (Italy), Cir
International (Luxembourg) and Rexecode
Permanent representative of Compagnie Financiere Edmond de
Rothschild Banque on the board of Assurances Saint-Honore,
Bollore Investissement, E. de Rothschild Corporate Finance,
LCF Rothschild Asset Management, LCF Rothschild Financial
Services and Equity Vision
Permanent representative of Compagnie-Financiere
Saint-Honore on the board of Cogifrance, Compagnie de
Conseils des Assurances Saint-Honore and FCC (BFM)
Member of the Silent Board of Rothschild & Cie Banque
MICHEL DAVID-WEILL
Initially Appointed................ June 1990
Expiration Date of Current Term.... June 2008
Principal Function in Publicis..... Director
Principal Business Activities
Outside Publicis................. Chairman of Lazard
Chairman and Chief Executive Officer of Lazard Freres
Banque
Chairman and Managing Director of Maison Lazard SAS
Managing Director of Lazard Freres SAS
Managing Director of Lazard Freres & Co. LLC (U.S.A.) and
Lazard Brothers & Co. Ltd (U.K.)
Managing Partner of Partena and Partemiel
Manager of Parteman and Parteger
Member of the Board of Eurazeo and Fond Partenaires Gestion
Chairman of the Board of Rue Imperiale
Vice President and Director of the Danone Group
Member of Investment Advisory Board of Corporate Advisors
LP (U.S.A.)
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SOPHIE DULAC
Initially Appointed................... June 1998 (appointed as Vice President in June 1999)
Expiration Date of Current Term....... June 2004
Principal Function in Publicis........ Director, Vice President
Principal Business Activities
Outside Publicis.................... Manager -- Sophie Dulac Productions
Chair of the Board of Les Ecrans de Paris
YUTAKA NARITA
Initially Appointed................... Upon consummation of Publicis/Bcom3 merger
Expiration Date of Future Term........ June 2008
Future Principal Function
in Publicis......................... Director
Principal Function in Dentsu.......... Chairman & CEO
Principal Business Activities
Outside Dentsu...................... President of Japan Advertising Agencies Association
Chairman of The Tokyo Chamber of Commerce and Industry Tokyo Renovation
Committee
FUMIO OSHIMA
Initially Appointed................... Upon consummation of Publicis/Bcom3 merger
Expiration Date of Future Term........ June 2008
Future Principal Function
in Publicis......................... Director
Principal Function in Dentsu.......... Executive Vice President
Principal Business Activities
Outside Dentsu...................... Member of the Northwestern University Advisory Board
Member of the Pacific Asian Management Institute Global Advisory Board
HELENE PLOIX
Initially Appointed................... June 1998
Expiration Date of Current Term....... June 2004
Principal Function in Publicis........ Director
Principal Business Activities
Outside Publicis.................... Chair of Pechel Industries, Member of the Board of Lafarge, Aquarelle.com
Group, The Boots Company (U.K.), Ferring BV (Switzerland)
Permanent representative of Pechel Industries on the Board of Financiere
d'Or, Quinette Gallay, IDM, CVBG, Panoranet, CoSpirit, Xiring and
Homerider
FELIX GEORGE ROHATYN
Initially Appointed................... June 2001
Expiration Date of Current Term....... June 2007
Principal Function in Publicis........ Director
Principal Business Activities
Outside Publicis.................... Chair of Aton Pharma Inc., Director of Comcast Corporation and Fiat SpA
Member of the Board of Suez and LVMH Moet Hennessy Louis Vuitton
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ROBERT SEELERT
Initially Appointed................ June 1998
Expiration Date of Current Term.... June 2004
Principal Function in Publicis..... Director, Chair of Saatchi & Saatchi plc
Principal Business Activities
Outside Publicis................. None
AMAURY-DANIEL DE SEZE
Initially Appointed................ June 1998
Expiration Date of Current Term.... June 2004
Principal Function in Publicis..... Director
Principal Business Activities
Outside Publicis................. Chair of COBEPA
Member of the Board of Eiffage, International Metal
Service, Groupe Bruxelles Lambert, Groupe Industriel Marcel
Dassault, GIB Group, Power Corporation du Canada and
Pargesa Holding SA
Director of Gras Savoye
HENRI-CALIXTE SUAUDEAU
Initially Appointed................ November 1987
Expiration Date of Current Term.... June 2006
Principal Function in Publicis..... Director of Publicis Conseil
Director of Publicis Real Estate Department
Principal Business Activities
Outside Publicis................. None
GERARD WORMS
Initially Appointed................ June 1998
Expiration Date of Current Term.... June 2004
Principal Function in Publicis..... Director
Principal Business Activities
Outside Publicis................. Managing Partner of Rothschild et Cie Banque and Rothschild
et Cie
Chair of Chaine Thematique Histoire, S.G.I.M.
Member of the Board of Metropole Television, ODEO
Degremont, Mercapital S.A., Paris-Orleans, SIACI and
Editions Atlas
Director of Francarep
Elisabeth Badinter, born on March 5, 1944, is the daughter of Marcel
Bleustein-Blanchet. Ms. Badinter is a philosopher and lecturer at the Ecole
Polytechnique, and is the author of numerous books. She has been a member of
Publicis's supervisory board since 1987 and its chair since 1996.
Robert Badinter, born on March 30, 1928, is the husband of Elisabeth
Badinter. Mr. Badinter has served as the president of France's Constitutional
Court. He has also been a practicing attorney. He is now a professor of law at
the University of Paris I (Pantheon Sorbonne).
Simon Badinter, born on June 23, 1968, is the son of Elisabeth Badinter and
Robert Badinter. Mr. Badinter joined Medias & Regies Europe 1991. He was
appointed director of Medias & Regies Europe's international business
development department in 1996.
Monique Bercault, born on January 13, 1931, has held a variety of positions
with our company since joining Publicis in 1953. In 1972, she was named head of
human resources at the predecessor company of Medias & Regies Europe.
Michel Cicurel, born on September 5, 1947, is currently chair of Compagnie
Financiere Edmond de Rothschild Banque and Compagnie-Financiere Saint-Honore. He
was previously a senior official in the French Treasury Department, after which
he served as deputy general manager of Compagnie Bancaire,
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general manager of Cortal Bank, president of Dumenil-Leble Bank and
administrator, general manager and vice president of Cerus.
Michel David-Weill, born on November 23, 1932, has held a variety of senior
positions in the Lazard group, which he joined in 1961. Among other things, he
is currently Chairman of Lazard, Chairman of the board of Lazard LLC, the parent
company of Lazard Freres & Co. LLC, and a Managing Director of Lazard Freres &
Co. LLC. Lazard Freres & Co. LLC is Publicis's financial advisor in connection
with the mergers. He is also currently a vice president and director of the
Danone Group.
Sophie Dulac, born on December 26, 1957, is the niece of Elisabeth Badinter
and granddaughter of Marcel Bleustein-Blanchet. Ms. Dulac is the founder and
manager of a recruitment counselling company. She has been a member of
Publicis's supervisory board since 1997 and a vice president of Publicis since
1999.
Yutaka Narita, born on September 19, 1929, joined Dentsu in 1953. In 1971,
he became Director of Newspaper/Magazine Division and later Director of one of
Dentsu's Account Services Divisions. Since he became a member of the Dentsu
Board of Directors in 1981, he served as Managing Director from 1983-1989 and
was subsequently promoted to Senior Managing Director. In 1993 he became the
ninth President of Dentsu, and, as of June 27, 2002, he became Chairman and CEO
of Dentsu.
Fumio Oshima, born on August 19, 1937, has served as a director of Bcom3
since March 2000. Mr. Oshima has served as Managing Director of Dentsu since
1997 and Managing Director of Dentsu International Business Headquarters since
1999. He was appointed Senior Managing Director of Dentsu in June 2000, and, as
of June 27, 2002, he was promoted to Executive Vice President of Dentsu.
Previously, Mr. Oshima was Managing Director of an Account Planning Group and
Executive Director of the Asian region. He has sat on the Dentsu Board of
Directors since 1995.
Helene Ploix, born on September 25, 1944, has served as president of the
Banque Industrielle et Mobiliere Privee, adviser to the French Prime Minister,
director of the International Monetary Fund and the World Bank, deputy general
manager of the Caisse des Depots et Consignations and president of the Caisse
Autonome de Refinancement and CDC Participations. She has been president of
Pechel Industries since 1997.
Felix George Rohatyn, born on May 29, 1928, served as the U.S. Ambassador
to France from 1997 until 2000. He had previously been a managing director of
Lazard Freres and Company. He joined Lazard Freres in 1948 and became a partner
there in 1961. From 1968 to 1972, he also served as a member of the Board of
Governors of the New York Stock Exchange. From 1975 to 1993, he was chair of the
Municipal Assistance Corporation of the City of New York.
Robert Seelert, born on September 1, 1942, worked from 1966 to 1989 for
General Foods Corporation, serving as president and chief executive officer of
its Worldwide Coffee and International Foods subsidiary from 1986 until 1989. He
served as president and chief executive officer of Topco Associates, Inc. from
1989 to 1991 and held the same positions for Kayser Roth Corporation from 1991
to 1994. He became chief executive officer of Cordiant in 1995 and took the same
position with Saatchi & Saatchi in 1997. He was appointed chair of Saatchi &
Saatchi in 1999.
Amaury-Daniel De Seze, born on May 7, 1946, has held senior operating and
management positions in a number of major companies. He was appointed general
manager of Volvo France in 1981 and served as chair from 1986 to 1993. From 1990
to 1993, he was also president of Volvo's European operations, senior vice
president of AB Volvo and a member of the executive committee of the Volvo group
(AB Volvo). He has served on the boards of the French Postal Service, Schneider,
Sema Group, Bruxelles Lambert Group, Poliet, Clemessy, Compagnie de Fives Lille
and Eiffage, among others.
Henri-Calixte Suaudeau, born on February 4, 1936, joined Publicis in 1989
and served as president of Publicis's drugstore subsidiary until 1999. Prior to
1989, he was an estate administrator and real estate valuation consultant for
the French court system. He has led Publicis' real estate department since 1997.
Gerard Worms, born on August 1, 1936, began his career as a technical
adviser in the French civil service. Beginning in 1972, he held general
management positions at the Hachette Group, the Rhone Poulenc
110
Group and then at the Societe Generale de Belgique. From 1990 to 1995, he served
as Chair and Chief Executive Officer of the Compagnie de Suez and chair of the
Indosuez Bank. From 1995 to 1999, he was chair of the Conseil des Commanditaires
of Rothschild et Cie Banque (Paris).
MANAGEMENT BOARD
Upon completion of the mergers, the size of Publicis's management board
will be increased to five, and Roger A. Haupt will be appointed as a member of
the management board. The following table sets forth, for each member of the
management board after completion of the mergers, the member's current or future
function in Publicis and principal business activities outside of Publicis, the
date the member's term of office is scheduled to expire and the date the member
joined the management board.
MAURICE LEVY
Initially Appointed............ November 1987
Expiration Date of Current
Term......................... December 2003
Principal Function in
Publicis..................... Chair of the Management Board
Chair and Chief Executive Officer of Publicis Conseil, MLMS,
Publicis.Net, Inc. (U.S.A.), Publicis USA Holdings, Inc.
(U.S.A.)
Vice President of the Supervisory Board of Medias & Regies
Europe
Member of the Board of Publicis.Eureka (Singapore),
Publicis.Romero (Mexico), Publicis Communication (South
Africa), Publicis Johannesburg (South Africa), Publicis Cape
Town (South Africa), Publicis.Capurro (Argentina), Publicis
Communications (Australia), Publicis Communications (New
Zealand), Publicis (Canada), Publicis.Unitros (Chile),
Publicis.Welcomm (Korea), Publicis.Ariely (Israel), Publicis
USA Holdings, Inc. (U.S.A.), Fallon Worldwide (U.S.A.),
Frankel (U.S.A.), Publicis & Hal Riney (U.S.A.),
Publicis.Wet Desert (Malaysia), Publicis.Pakistan (Paki-
stan), Publicis.Ad-Link (China), Publicis Casadevall Pedreno
(Spain) and Publicis MMS (U.K.)
Director of Publicis Centre Media and Cereol
Manager of MLMS Gestion
Permanent Representative of Publicis Groupe SA on the board
of Publicis Technology
Permanent Representative of Publicis Conseil on the board of
Verbe
Permanent Representative of Publicis.net, Inc. on the board
of Publicis e.brand
Permanent Representative of MLMS Gestion on the board of
MLMS 2
Principal Business Activities
Outside Publicis............. None
111
BRUNO DESBARATS-BOLLET
Initially Appointed............ November 1987
Expiration Date of Current
Term......................... December 2003
Principal Function in
Publicis..................... Director
Chief Executive Officer of Medias & Regies Europe
Director of MLMS 2
Member of the Board of MLMS and S.O.P.A.C.T.
Member of the Management Committee of SAS Le Monde 2
Publicite and SAS 1-Regie.com
Manager of Regie 1, Espaces Liberation, Regiscope and
Consumer Medias
Permanent Representative of Medias & Regies Europe on the
board of Le Monde Publicite, SO.MU.PI, SAS Groupe Publicis
Services, Intervoz Publicidade (Portugal), Metrobus,
Mediavision SA, Promo Metro, S.M.A., SODEX and S.P.P.
Principal Business Activities
Outside Publicis............. None
ROGER A. HAUPT
Initially Appointed............ Upon consummation of Publicis/Bcom3 merger
Expiration Date of Future
Term......................... December 2003
Future Principal Function in
Publicis..................... President and Chief Operating Officer
Principal Function in Bcom3.... Chairman and Chief Executive Officer
Principal Business Activities
Outside Bcom3................ None
KEVIN ROBERTS
Initially Appointed............ September 2000
Expiration Date of Current
Term......................... December 2003
Principal Function in
Publicis..................... Director
Chief Executive Officer of Saatchi & Saatchi
Principal Business Activities
Outside Publicis............. Trustee -- Team New Zealand
BERTRAND SIGUIER
Initially Appointed............ June 1999
Expiration Date of Current
Term......................... December 2003
Principal Function in
Publicis..................... Director
Director Publicis BCP (Canada), Publicis & Hal Riney
(U.S.A.), Publicis (Italy), Optimedia Italia/More Media
Italia, Carmi & Ubertis Design (Italy), Publicis Hellas
Advertising (Greece) and Publicis Worldwide B.V.
(Netherlands)
Member of the Board of Publicis Cachemire, Publicis
Technology, Gantois SA and HM Editions
Permanent Representative of Publicis.Net, Inc. on the board
of Institutionnel Design
Principal Business Activities
Outside Publicis............. None
BUSINESS EXPERIENCE OF MANAGEMENT BOARD MEMBERS
Maurice Levy, born on February 18, 1942, joined Publicis in 1971 and was
given responsibility for Publicis's data processing and information technology
systems. He was successively appointed corporate
112
secretary (1973), managing director (1976) and chair and chief executive officer
(1981) of Publicis Conseil. He became vice chair of Publicis in 1986 and chair
of Publicis's management board in 1988.
Bruno Desbarats-Bollet, born on June 6, 1943, began working for Publicis
Conseil in 1970. He was appointed director of client service at Regie Presse,
since renamed Medias & Regies Europe, in 1977. He became administrator, general
manager and president of Regie Presse in 1984. His title became president of the
management board of Medias & Regies Europe in 1999. He has served as a member of
Publicis's management board since 1987.
Roger A. Haupt, born on November 14, 1947, currently serves as Bcom3's
Chairman and Chief Executive Officer, and he has been a Director of Bcom3 since
the January 2000 business combination in which Bcom3 was formed. Upon completion
of the mergers, he will be the President and Chief Operating Officer of
Publicis. Mr. Haupt was President and Chief Executive Officer of The Leo Group
in 2000, Chief Operating Officer in 1999, Chief Administrative Officer from 1997
to 1999, and an Executive Vice President from 1989 to 1997. He also served as
Vice Chairman from 1996 to 2000. Mr. Haupt joined Leo Burnett in 1984 after
working in various positions throughout Latin America.
Kevin Roberts, born on October 20, 1949, joined Saatchi & Saatchi Worldwide
as chief executive officer and Cordiant as a director in 1997. In 1999, he
became chief executive officer of Saatchi & Saatchi. Mr. Roberts had previously
been a group marketing manager for Procter & Gamble, which he left in 1982 to
become regional president of Pepsi-Cola Middle East. In 1987, he was appointed
regional president of Pepsi-Cola Canada. He became chief operating officer and
director of Lion Nathan Limited in 1989.
Bertrand Siguier, born on June 10, 1941, was a financial analyst at the
Neuflize Schlumberger Mallet Bank from 1967 to 1969. He joined Publicis's
account management department in 1969. Throughout his tenure with Publicis, Mr.
Siguier has been involved with managing some of Publicis's most important client
accounts. He served as deputy manager and international coordinator of Publicis
Intermarco Farner from 1974 until 1979, when he became deputy managing director
of Publicis's agency in London. He joined the board of directors of Publicis
Conseil in 1982, serving there until his appointment as vice president of
Publicis Communication in 1988. He has been a member of Publicis's management
board since 1999.
COMPENSATION
In compliance with the provisions of article L. 225-102-I of the French
Commercial Code, the table below sets out the total compensation and benefits of
all types paid to each member of the management board and supervisory board
during the 2001 fiscal year, both by Publicis and by companies controlled by
Publicis as defined by article 233-16 of the Commercial Code. For certain
members of the management board and the supervisory board, this compensation
includes a fixed and variable component, the amount of the fixed portion
included in the total compensation is disclosed below.
113
COMPENSATION (IN EUROS) PAID DURING THE 2001 FISCAL YEAR (GROSS AMOUNT BEFORE
DEDUCTION OF SOCIAL AND TAX CHARGES)
TOTAL GROSS INCLUDING FIXED
COMPENSATION PORTION OF
------------ ---------------
MEMBERS OF THE MANAGEMENT BOARD
Maurice Levy............................................... 1,541,969 480,000
Bruno Desbarats-Bollet..................................... 351,038 181,948
Kevin Roberts.............................................. 1,895,423 1,051,618
Bertrand Siguier........................................... 272,655 165,941
MEMBERS OF THE SUPERVISORY BOARD
Elisabeth Badinter......................................... 193,102 193,102
Sophie Dulac............................................... 7,622 7,622
Robert Badinter............................................ 7,622 7,622
Michel David-Weill......................................... 7,622 7,622
Henri-Calixte Suaudeau..................................... 136,391 136,391
Monique Bercault........................................... 7,622 7,622
Helene Ploix............................................... 7,622 7,622
Gerard Worms............................................... 10,163 10,163
Amaury-Daniel de Seze...................................... 7,622 7,622
Simon Badinter............................................. 305,431 220,887
Michel Cicurel............................................. 7,622 7,622
Robert L. Seelert.......................................... 802,542 358,976
Felix George Rohatyn....................................... -- --
SHARE SUBSCRIPTION OR PURCHASE OPTIONS
SHARE SUBSCRIPTION AND PURCHASE OPTIONS GRANTED
TO EACH MANAGEMENT BOARD AND SUPERVISORY NUMBER OF OPTIONS
BOARD MEMBER AND OPTIONS EXERCISED BY THE GRANTED, SUBSCRIBED OR PRICE IN
LATTER PURCHASED EUROS MATURITY PLAN
----------------------------------------------- ----------------------- -------- -------- ---------------
OPTIONS GRANTED DURING THE FISCAL YEAR
Maurice Levy............................ 200,000 33.18 2011 11(th) tranche
Bruno Desbarats-Bollet.................. 10,000 33.18 2011 11(th) tranche
Bertrand Siguier........................ 10,000 33.18 2011 11(th) tranche
Kevin Roberts........................... 278,057 29.79 (1) 12(th) tranche
OPTIONS EXERCISED DURING THE FISCAL YEAR
Kevin Roberts........................... 258,374 (2) (2) (2)
---------------
(1) Allotment of options are contingent upon achievement of objectives. The
options may be exercised within 10 years only after confirmation of the
allotment.
(2) Shares related to former Saatchi & Saatchi options were converted using the
same conversion ratio used at the time of the acquisition of Saatchi &
Saatchi by Publicis (18,252 Publicis shares for 100 Saatchi & Saatchi
shares).
Publicis's directors as a group (which includes its senior managers)
received aggregate compensation during the 2001 fiscal year of approximately
E5.5 million for services to Publicis and its subsidiaries. This amount includes
bonuses and directors' fees. Bonuses are paid to members of Publicis's
management board based upon an analysis of Publicis's performance for the year
conducted by its compensation committee. Publicis granted its directors as a
group 220,000 options in 2001. These options have an exercise price of
114
E33.18 and will expire in 2011. In addition, it conditionally granted its
directors as a group 278,057 options, each with an exercise price of E29.79. The
conditional grant will be finalized upon the satisfaction of specified
performance goals. The conditionally-granted options will expire 10 years after
a determination that the applicable goals have been reached.
Roger A. Haupt received a salary of $950,000, a bonus of $950,000, a
long-term incentive arrangement ("LTIP") payout of $475,000 and $18,260 in other
compensation in the 2001 fiscal year. Mr. Haupt's bonus for 2001 was pursuant to
a short-term incentive plan based on such factors as growth in revenues, growth
in profits before tax, and absolute attainment of margin targets. Bcom3's board
nominating and compensation committee approved the LTIP payout and determined
its amount based on Mr. Haupt's individual performance since the formation of
Bcom3 in January 2000, including his role in helping the Bcom3 board formulate
strategic alternatives culminating in the proposed merger with Publicis. The
other compensation referred to above includes $13,600 in contributions or other
allocations under tax-qualified defined contribution retirement plans and $4,660
in premium payments on various individual life insurance policies. Mr. Oshima
received no compensation from Bcom3 in respect of his service as a director in
the 2001 fiscal year.
PUBLICIS SHARE AND OPTION OWNERSHIP
As of December 31, 2001, approximately 17.9 million, or 12.8%, of
Publicis's shares (which is comprised of ordinary shares and ordinary shares
represented by ADSs) were held in the United States by approximately 500
holders. Except as described in the following paragraph, as of July 10, 2002,
none of Publicis's directors owned 1% or more of Publicis's outstanding ordinary
shares. Publicis's directors as a group directly owned approximately 6.3% of the
total number of Publicis shares outstanding on that date. Giving effect to the
provision of Publicis's statuts that grants double voting rights to shares held
by the same shareholder in registered form for at least two years, the directors
as a group directly held 9.6% of Publicis's total voting power.
As of July 10, 2002, Elisabeth Badinter, chair of Publicis's supervisory
board, directly owned 7,766,800 Publicis shares, or approximately 5.5% of the
total outstanding on that date. Giving effect to the double voting rights
provision of Publicis's statuts, Ms. Badinter held approximately 8.9% of
Publicis's total voting power. Ms. Badinter also held an indirect interest in
Publicis through her interest in Societe Anonyme Somarel, a Publicis shareholder
owned primarily by descendants of Publicis's founder and Publicis employees.
Including her indirect interest in Publicis held through Somarel, Ms. Badinter
held approximately 27.8% of Publicis's outstanding shares (and approximately
44.5% of Publicis's total voting power).
The ownership percentage of Somarel decreased from approximately 34.5% of
the total Publicis shares outstanding as of December 31, 1998 to approximately
22.2% as of December 31, 2001 and the ownership percentage of Madame Badinter
decreased from approximately 8.7% of the total Publicis shares outstanding as of
December 31, 1998 to approximately 5.6% as of December 31, 2001, in large part
due to the issuance of additional shares in connection with the acquisition of
Saatchi & Saatchi by Publicis in 2000.
Further information concerning Ms. Badinter's direct and indirect interests
in Publicis can be found in Publicis's annual report on Form 20-F/A for the year
ended December 31, 2001 under "Major Shareholders and Related Party
Transactions -- Major Shareholders."
Publicis maintains a number of stock option plans for the benefit of its
directors, managers and other employees. In addition, before Publicis acquired
them, Saatchi & Saatchi and Nelson Communications had in place stock option
plans for their directors and employees. When the acquisitions of each of those
firms were completed, options under the relevant plans were converted into
options to purchase Publicis shares. As of June 4, 2002, Publicis's directors as
a group owned options to purchase 841,227 Publicis shares. These options
115
have exercise prices ranging from E4.90 to E33.18 per share and will expire
between 2005 and 2015. The following is a summary of Publicis's stock option
plans as of December 31, 2001:
PUBLICIS PLANS
OPTIONS
REMAINING TO BE OPTIONS OPTIONS OUTSTANDING EXERCISE
EXERCISED AS OF GRANTED IN EXERCISED OPTIONS AS OF PRICE
TRANCHE OPTION TYPE GRANT DATE DECEMBER 31, 2000 2001 IN 2001 DECEMBER 31, 2001 (EUROS)
------- ------------ ----------------- ----------------- ---------- --------- ----------------- --------
Second............... Subscription February 20, 1992 17,700 17,700 7.17
Third................ Subscription December 15, 1992 25,450 25,450 6.88
Fourth............... Subscription March 22, 1994 28,760 28,760 6.37
Fifth................ Subscription March 30, 1995 93,970 (14,850) 79,120 6.63
Sixth................ Subscription April 26, 1996 87,260 (19,410) 67,850 4.91
Seventh.............. Subscription March 20, 1997 75,960 (20,190) 55,770 5.63
Eighth............... Subscription March 11, 1998 66,000 66,000 8.66
Ninth................ Subscription November 4, 1998 331,500 (20,000) 311,500 10.24
Tenth................ Purchase September 7, 2000 100,000 100,000 43.55
Eleventh............. Purchase April 23, 2001 380,000 380,000 33.18
Twelfth.............. Purchase November 26, 2001 2,943,135 2,943,135 29.79
Total................ 826,600 3,323,135 (74,450) 4,075,285
EXPIRATION
TRANCHE DATE
------- ----------
Second............... 2002
Third................ 2002
Fourth............... 2004
Fifth................ 2005
Sixth................ 2006
Seventh.............. 2007
Eighth............... 2008
Ninth................ 2008
Tenth................ 2010
Eleventh............. 2011
Twelfth.............. (1)
Total................
---------------
(1) Allotment of options is subject to the satisfaction of certain conditions.
The options may be exercised within 10 years of the confirmation of the
allotment.
FORMER SAATCHI & SAATCHI PLANS
WEIGHTED AVERAGE
EXERCISE PRICE OF OPTIONS
OUTSTANDING AS OF EXERCISED DURING OUTSTANDING AS OF OUTSTANDING AS OF
DECEMBER 31, 2000 2001 LAPSED IN 2001 DECEMBER 31, 2001 DECEMBER 31, 2001
----------------- ---------------- -------------- ----------------- -------------------------
1,595,773 (1,305,727) (24,000) 266,046(1) E11.71(2)
---------------
(1) The expiration date of these options ranges from 2003 to 2006.
(2) Represents the weighted average exercise price for 80,932 of the outstanding
options. The exercise price of the remaining 185,114 options (i.e., those
granted under Saatchi & Saatchi's "equity participation plan") was paid on
the date of grant.
FORMER NELSON PLAN
WEIGHTED AVERAGE
EXERCISE PRICE OF OPTIONS
OUTSTANDING AS OF EXERCISED DURING OUTSTANDING AS OF OUTSTANDING AS OF
DECEMBER 31, 2000 2001 LAPSED IN 2001 DECEMBER 31, 2001 DECEMBER 31, 2001
----------------- ---------------- -------------- ----------------- -------------------------
699,367 (98,733) (81,904) 518,730(1) E28.11
---------------
(1) The expiration date of these options ranges from 2002 to 2009.
Further information concerning Publicis's stock option plans can be found
in notes 26 and 29 to the financial statements included in Publicis's annual
report on Form 20-F/A for the year ended December 31, 2001.
116
COMPARATIVE MARKET PRICE, TRADING VOLUME AND DIVIDEND DATA
The Publicis ordinary shares trade on Euronext Paris under the ticker
symbol "PUB" and, since September 12, 2000, Publicis's American Depositary
Shares, or ADSs, trade on the New York Stock Exchange under the same symbol. The
American Depositary Shares are Publicis ordinary shares that are being held in
custody by The Bank of New York. The owners of the ADSs receive so-called
American Depositary Receipts, which are traded on the New York Stock Exchange
instead of the underlying shares which remain in custody. The tables below set
forth, for the periods indicated, the reported high and low sales prices and
average daily trading volume of Publicis ordinary shares on Euronext Paris and
the reported high and low sales prices and average daily trading volume of
Publicis's ADSs on the New York Stock Exchange. Each ADS represents one Publicis
ordinary share. Bcom3 has not been and is not currently publicly traded.
PUBLICIS ORDINARY SHARES PUBLICIS ADSs
-------------------------------- --------------------------------
MARKET PRICE MARKET PRICE
--------------- AVERAGE --------------- AVERAGE
HIGH LOW TRADING VOLUME HIGH LOW TRADING VOLUME
------ ------ -------------- ------ ------ --------------
(EURO PER ($ PER PUBLICIS
PUBLICIS ADS)
ORDINARY SHARE)
YEAR ENDED DECEMBER 31,
2000
First Quarter............. 69.70 33.00 272,453 -- -- --
Second Quarter............ 57.00 37.05 325,010 -- -- --
Third Quarter............. 45.89 33.50 818,422 -- -- --
Fourth Quarter............ 41.89 29.10 550,788 37.44 25.75 2,604
YEAR ENDED DECEMBER 31,
2001
First Quarter............. 39.27 31.35 354,913 36.88 28.00 4,232
Second Quarter............ 38.77 27.50 530,990 34.40 23.90 2,205
Third Quarter............. 30.70 16.12 436,421 26.45 16.40 1,688
Fourth Quarter............ 33.20 15.83 614,097 29.25 14.75 12,230
YEAR ENDED DECEMBER 31,
2002
First Quarter............. 39.45 26.80 819,048 34.95 23.00 4,620
Second Quarter............ 39.90 24.51 559,903 34.47 25.00 4,775
Third Quarter (until
August 9, 2002)......... 28.15 18.80 148,859 27.25 18.77 9,297
BCOM3 STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
PUBLICIS ORDINARY SHARES.
On March 6, 2002, the last trading day prior to the formal public
announcement of the signing of the merger agreements, the last middle market
quotation of the Publicis ordinary shares on the Premier Marche at Euronext
Paris was E34.65 per Publicis ordinary share. Publicis pays dividends in euros,
the currency of the European Union.
The table below sets forth the total cash dividends per share declared by
Publicis from 1997 through 2001. The dividend amounts shown for Publicis exclude
the avoir fiscal, a French tax credit described under the caption "Material Tax
Consequences -- Material French Tax Consequences of Holding and Disposing of
Publicis Ordinary Shares, ORAs, OBSAs and/or Warrants (Bons De
Souscription) -- Publicis Ordinary Shares -- Dividends" and does not reflect
withholding tax. For French companies, dividends in respect of a given year's
results are paid in the following year. Publicis has historically paid annual
dividends in respect of its prior fiscal year. The payment and amount of
Publicis's dividends will depend on Publicis's earnings, financial condition and
other factors. Bcom3 paid a cash dividend of $.25 per share to holders of its
common stock on February 9, 2001. On February 18, 2002, Bcom3 declared a cash
dividend of $.25 per share of common stock. This dividend was paid by March 18,
2002 to holders of its common stock as of February 18,
117
2002. Other than these dividends, Bcom3 has not paid any dividends with respect
to its common stock since the date of its inception.
PUBLICIS BCOM3
ORDINARY PUBLICIS COMMON
SHARE ADS SHARE
-------- -------- ------
E $ $
1997...................................................... 0.08* -- --
1998...................................................... 0.12* -- --
1999...................................................... 0.17* -- --
2000...................................................... 0.20* 0.14*+ 0.25
2001...................................................... 0.22 0.15+ 0.25
---------------
* Adjusted to reflect the 10-for-1 stock split that occurred on August 29,
2000.
+ Reflects a decrease of 15% from the dividend paid with respect to ordinary
shares due to the 15% withholding tax.
118
PUBLICIS UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
INTRODUCTORY NOTE
The following unaudited pro forma condensed consolidated financial
information gives pro forma effect to the mergers, after giving effect to the
pro forma adjustments described in the accompanying notes. We have prepared this
financial information from, and you should read it in conjunction with, the
historical consolidated financial statements, including applicable notes
thereto, of Publicis which are incorporated by reference into this proxy
statement/prospectus and the historical consolidated financial statements,
including applicable notes thereto, of Bcom3 which are included elsewhere in
this proxy statement/prospectus. For information on how to obtain any of the
documents incorporated by reference, see "Where You Can Find More Information."
We have provided the pro forma information in this section for illustrative
purposes only. This information does not purport to represent what the actual
results of operations or the financial position of Publicis would have been if
the mergers had actually occurred on the dates assumed and does not necessarily
indicate what Publicis's future operating results or consolidated financial
position will be.
We have prepared the pro forma information in accordance with French GAAP,
which differs in certain significant respects from U.S. GAAP. Note 29 to the
financial statements included in Publicis's Annual Report on Form 20-F/A for the
2001 fiscal year describes the principal differences between French GAAP and
U.S. GAAP as they relate to Publicis.
The historical consolidated financial statements of Bcom3 were prepared in
accordance with U.S. GAAP. For purposes of presenting the pro forma information,
we have adjusted Bcom3's historical audited consolidated statement of operations
for the year ended December 31, 2001 to include unaudited reclassifications to
align Bcom3's audited historical financial information with Publicis's
presentation under French GAAP and unaudited adjustments to align Bcom3's
historical financial information with Publicis's disclosed accounting policies
under French GAAP as described in the Notes to the Unaudited Pro Forma Condensed
Consolidated Financial Information.
The business combination will be accounted for using the purchase
accounting method under both French GAAP and U.S. GAAP. For explanation of
differences between the French GAAP and U.S. GAAP purchase accounting methods
affecting the companies, see "Summary of future differences between generally
accepted accounting principles in France and the United States resulting from
this transaction."
The purchase price that Publicis agreed to pay for Bcom3 included E2.342
billion of goodwill under French GAAP (E2.765 billion under U.S. GAAP), which is
the difference between the purchase price and the fair value of Bcom3's net
assets. The purchase price was based on a number of factors, which include:
- the reputation of leading brands, such as Burnett, MacManus and D'Arcy,
in the advertising industry;
- the fact that, upon completion of the acquisition, Publicis will be one
of the largest advertising agencies in the world;
- the expected growth of the combined entity from greater geographic
coverage, brand diversification and greater media buying power;
- the expected cost savings through economies of scale and by consolidating
selected corporate functions; and
- the financial and operating performance and condition and long-term
prospects of Bcom3, Publicis and the combined entity.
The pro forma adjustments reflected in the pro forma balance sheet data
reflect estimates made by Publicis's management and assumptions that it believes
to be reasonable. The pro forma information does not take into account any
synergies, including cost savings, or any severance and restructuring costs,
which may or are expected to occur as a result of the mergers. See "The
Mergers -- Publicis's Reasons for the Mergers" and "-- The Special Committee's
Reasons for the Mergers."
119
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2001
The unaudited pro forma consolidated balance sheet as of December 31, 2001
is derived from (1) the historical consolidated balance sheet of Publicis at
December 31, 2001, as contained in Publicis's Annual Report on Form 20-F/A for
the fiscal year ended December 31, 2001 incorporated herein by reference, (2)
the historical consolidated balance sheet of Bcom3 at December 31, 2001 included
elsewhere herein, (3) unaudited reclassifications to align Bcom3's audited
historical consolidated balance sheet with Publicis's presentation under French
GAAP, (4) unaudited adjustments to align Bcom3's historical consolidated balance
sheet with Publicis's disclosed accounting policies under French GAAP, and (5)
the unaudited pro forma adjustments described in the notes to the unaudited pro
forma condensed consolidated financial information. These unaudited pro forma
adjustments were determined as if the mergers had occurred on December 31, 2001.
Pro forma information in accordance with U.S. GAAP is also presented in the
notes to the unaudited pro forma consolidated financial information.
PUBLICIS BCOM3 HISTORICAL PRO FORMA PRO
(FRENCH GAAP) HISTORICAL HISTORICAL COMBINED ADJUSTMENTS FORMA
------------- ---------- ---------- ---------- ----------- -------
(AMOUNTS IN MILLIONS)
Goodwill, net............................... E 993 E1,510 E2,503 E 832(A) E 3,335
Intangible assets, net...................... 199 41 240 1,957(A) 2,197
Property and equipment, net................. 351 427 778 -- 778
Investments and other financial assets,
net....................................... 67 21 88 -- 88
Investments accounted for by the equity
method.................................... 8 60 68 -- 68
Total noncurrent assets, net................ 1,618 2,059 3,677 2,789 6,466
Inventory and costs billable to clients..... 195 242 437 -- 437
Accounts receivable......................... 1,845 1,872 3,717 -- 3,717
Other receivables and other assets.......... 439 257 696 -- 696
Marketable securities....................... 178 -- 178 -- 178
Cash and cash equivalents................... 621 259 880 -- 880
Current assets.............................. 3,278 2,630 5,908 -- 5,908
------ ------ ------ ------- -------
Total assets................................ 4,896 4,689 9,585 2,789 12,374
------ ------ ------ ------- -------
Capital stock............................... 56 -- 56 23(C) 79
Additional paid in capital.................. 2,034 1,347 3,381 1,693(C) 5,074
Retained earnings (deficit)................. (1,807) (202) (2,009) (1,136)(C) (3,145)
Accumulated other comprehensive loss........ -- (9) (9) -- (9)
Mandatorily redeemable stock................ -- 342 342 (342)(C) 0
Other equity................................ -- -- -- 858(B) 858
Shareholders' equity........................ 283 1,478 1,761 1,096 2,857
Minority interests.......................... 89 21 110 -- 110
Provisions for contingencies and charges.... 266 313 579 775(E) 1,354
Bank borrowings and overdrafts.............. 1,069 276 1,345 858(D) 2,203
Accounts payable............................ 1,875 1,997 3,872 -- 3,872
Accrued expenses and other liabilities...... 1,314 604 1,918 60(F) 1,978
Bank borrowings and liabilities............. 4,258 2,877 7,135 918 8,053
------ ------ ------ ------- -------
Total liabilities and shareholders'
equity.................................... 4,896 4,689 9,585 2,789 12,374
------ ------ ------ ------- -------
120
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2001
The following unaudited pro forma consolidated income statement data for
the year ended December 31, 2001, presented as if the mergers took place on
January 1, 2001, are derived from (1) the historical consolidated income
statement in accordance with French GAAP of Publicis for that period, (2)
Bcom3's historical consolidated income statement in accordance with U.S. GAAP
for that period, (3) unaudited reclassifications to align Bcom3's audited
historical consolidated income statement with Publicis's presentation under
French GAAP, (4) unaudited adjustments to align Bcom3's historical consolidated
income statement with Publicis's disclosed accounting policies under French GAAP
and (5) the unaudited pro forma adjustments in accordance with French GAAP
described in the notes to the unaudited pro forma consolidated financial
information. These unaudited pro forma adjustments were determined as if the
mergers had occurred on January 1, 2001. Pro forma information in accordance
with U.S. GAAP is also presented in the notes to the unaudited pro forma
consolidated financial information.
PUBLICIS BCOM3 HISTORICAL PRO FORMA PRO
(FRENCH GAAP) HISTORICAL HISTORICAL COMBINED ADJUSTMENTS FORMA
------------- ---------- ---------- ---------- ----------- -------
(AMOUNTS IN MILLIONS EXCEPT PER SHARE DATA)
Revenues................................. E 2,434 E 2,158 E 4,592 E -- E 4,592
Salaries and related expenses............ (1,363) (1,280) (2,643) -- (2,643)
Other operating expenses................. (661) (549) (1,210) -- (1,210)
Total expenses........................... (2,024) (1,829) (3,853) -- (3,853)
Other operating income................... 16 -- 16 -- 16
Operating income before depreciation and
amortization........................... 426 329 755 -- 755
Depreciation and amortization expense.... (84) (79) (163) -- (163)
Operating income......................... 342 250 592 -- 592
Financial expense, net................... (30) (26) (56) (24)(H) (80)
Income of consolidated companies before
taxes, exceptional items and goodwill
amortization........................... 312 224 536 (24) 512
Income taxes............................. (99) (89) (188) 40 (I) (148)
Net income of consolidated companies
before exceptional items and goodwill
amortization........................... 213 135 348 16 364
Equity in net income of non-consolidated
companies.............................. 9 2 11 -- 11
Net income of consolidated companies
before exceptional items............... 222 137 359 16 375
Exceptional expense, net of taxes........ (3) (13) (16) -- (16)
Goodwill amortization and depreciation of
allocated intangibles.................. (49) (96) (145) (41)(G) (186)
Net income before minority interests..... 170 28 198 (25) 173
Minority interests....................... (19) (3) (22) -- (22)
Group net income......................... 151 25 176 (25) 151
Earnings per share before exceptional
items, goodwill amortization and
depreciation of allocated intangibles,
net of taxes
Basic.................................. 1.44 1.62
Diluted................................ 1.43 1.44
Earnings per share:
Basic.................................. 1.09 0.75
Diluted................................ 1.08 0.67
Weighted average shares outstanding (in
millions):
Basic.................................. 139 56 (C) 195
Diluted................................ 140 84 (J) 224
121
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(IN MILLIONS EXCEPT PER SHARE DATA)
BASIS OF PRESENTATION
The acquisition of Bcom3 is subject to approval at shareholder meetings of
Publicis and Bcom3. The pro forma financials assume that the Publicis and Bcom3
stockholders will approve the transaction and that the other conditions to the
closing of the mergers will be met or waived. The consideration for this
acquisition will be paid as follows:
- a capital increase of Publicis reserved for Bcom3 with issuance of new
shares (56.25 million); and
- the issuance of 1,562,500 bonds redeemable for new or existing shares
(ORAs) with a maturity period of 20 years, and the issuance of 2,812,500
bonds with warrants (OBSAs) for E858 million with a maturity of 20 years
and an exercise price of E30.50.
Following the acquisition, Dentsu will own a 15% interest in the new group.
The pro forma consolidated accounts were prepared using:
- the audited consolidated financial statements of Publicis under French
GAAP as of and for the fiscal year ended December 31, 2001, which are
contained in Publicis's Annual Report on Form 20-F/A for the fiscal year
ended December 31, 2001, which is incorporated by reference into this
proxy statement/prospectus; and
- the consolidated financial statements of Bcom3 under U.S. GAAP as of and
for the fiscal year ended December 31, 2001, which are included in this
proxy statement/prospectus, converted into euros using the December 31,
2001 exchange rate for the balance sheet (E1 = $0.8813) and the 2001
average exchange rate for the statement of income (E1 = $0.8956).
The pro forma information does not reflect the impact of the issuance by
Publicis of OCEANES (bonds that may be converted into or exchanged for new or
existing shares) in January 2002, as part of the debt restructuring program,
which amounts to E690 million with a maturity period of 16 years. If the impact
were taken into account, the resulting pro forma diluted earnings per share
would be E0.67.
PRO FORMA ADJUSTMENTS HAVE BEEN MADE TO THESE UNAUDITED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS TO REFLECT THE FOLLOWING:
(A) In accordance with the article 210 of 99-02 of the CRC (Comite de
Reglementation Comptable), the purchase price of the Bcom3 shares equals
the fair value of the securities issued in the exchange as of the date of
Publicis obtaining effective control of Bcom3, taking into account the
impact of the specific contract clauses relating to the lockup of the
securities. For the purpose of the pro forma financial information, it is
estimated that the specific contract clauses relating to the transfer
restrictions on the securities to be received by the Bcom3 stockholders in
accordance with the terms of the merger agreement will result in a E30.50
value per Publicis ordinary share. On this basis, the purchase price is
estimated to be E3,432 million (consisting of the issuance of 56,250,000
new Publicis ordinary shares at a share price of E30.50; issuance of
1,562,500 ORAs redeemable for 28,125,000 Publicis shares at a share price
of E30.50; and the issuance of 2,812,500 OBSAs). This amount will be
adjusted on the basis of the fair value of the securities issued in the
exchange.
Publicis made a preliminary evaluation of the identifiable assets and
liabilities of the Bcom3 group in accordance with the requirements of
Article 211 of rule 99-02 of the CRC. Based on information available to
date, restructuring costs could not be estimated. The purchase price and
preliminary
122
goodwill allocation in accordance with French GAAP have been determined as
follows (in million euros):
Publicis ordinary shares exchanged for Bcom3................ 1,716
ORAs issued................................................. 858
OBSAs issued................................................ 858
Total consideration......................................... 3,432
Add: net book value of net liabilities acquired............. 73
Goodwill before allocation.................................. 3,505
Preliminary allocation to assets and liabilities
Client relationships maintained for more than 20 years.... 1,038
Client relationships maintained for less than 20 years.... 131
Trade name................................................ 829
Accrued liabilities....................................... (60)
Deferred taxes............................................ (775)
Residual goodwill........................................... 2,342
Less: Bcom3, Inc. goodwill acquired......................... (1,510)
Total adjustment to goodwill................................ 832
Total adjustment to intangible assets (net of Bcom3
intangibles).............................................. 1,957
A more precise allocation will be prepared within the year that follows the
completion of the Bcom3 acquisition.
(B) In accordance with Avis n(DEGREE) 28 of OEC and following the detailed
analysis of the characteristics of the ORAs issued, these instruments have
been accounted for as equity instruments and presented separately in the
shareholders' equity at their estimated fair value. The remuneration given
to the holders of these redeemable bonds is classified accordingly.
(C) Impact of the Bcom3 shares exchanged for 56,250,000 Publicis ordinary
shares and additional paid-in capital (approximately E23 million of common
stock and E1,693 million additional paid-in capital) and the elimination of
Bcom3's shareholders' equity.
(D) Issuance of the bonds with warrants (OBSA) for E858 million, without
separate evaluation of the warrants on the balance sheet in accordance with
French GAAP.
(E) Deferred tax liabilities on acquired net assets.
(F) Estimated acquisition costs.
(G) Amortization expense for 2001 of the identified intangible assets and
goodwill following the preliminary allocation of the purchase price of
Bcom3 (refer to (A)). These assets are amortized using the straight line
method over their estimated useful life: goodwill and client relationships
maintained for more than 20 years -- amortized over 40 years, client
relationships maintained for less than 20 years -- amortized over 12 years,
trade name -- amortized over 20 years, for a net variation of the
depreciation expense on intangible assets and of goodwill amortization of
E41 million. The amortization expense of allocated intangibles has been
included in a separate line item with the amortization of goodwill.
(H) Interest expense for 2001 on the OBSA bearing interest at the rate of 2.75%
per annum.
(I) Income taxes on the above adjustments.
(J) Impact on weighted average shares outstanding of the issuance of 56,250,000
new Publicis ordinary shares resulting from this transaction and the
potential dilutive common shares effect of the ORAs redeemable for
28,125,000 Publicis shares. Under French GAAP, dividends paid or accrued on
the ORAs will reduce income available to common shareholders, and thus
impact basic earnings per share. For purposes of computing diluted earnings
per share, all outstanding ORAs will be assumed to have
123
been converted to Publicis common shares. This will result in an additional
28,125,000 weighted average diluted shares.
SUMMARY OF ADJUSTMENTS AND RECLASSIFICATIONS APPLIED TO BCOM3'S FINANCIAL
STATEMENT TO ACCOUNT FOR DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN FRANCE AND THE UNITED STATES
Publicis's consolidated financial statements are prepared in accordance
with French GAAP, which differs materially from U.S. GAAP. The unaudited
adjustments and reclassifications applied to Bcom3's historical audited
financial statements to conform them to Publicis's disclosed accounting policies
under French GAAP are summarized below:
CONTINGENT CONSIDERATION
Under U.S. GAAP, contingent consideration is not recorded as purchase price
until the contingency has been resolved. Whereas, under French GAAP, contingent
consideration is deemed to be part of the purchase price. Consequently, E30
million of net goodwill was recorded and the amortization expense was increased
by E1.7 million.
PENSION PLAN
In accordance with U.S. GAAP, Bcom3 recorded in 2001 an additional minimum
liability of E4.8 million to accrue for accumulated benefit obligations in
excess of the fair value of plan assets. The recognition of this additional
pension liability was reported as a reduction of equity through comprehensive
income, net of tax E3.3 million. Under French GAAP, additional minimum liability
is recognized as an expense.
ACCOUNTING FOR THE BUSINESS COMBINATION WITH NOVO MEDIA GROUP
In December 1999, The MacManus Group purchased a 57% interest in the Novo
Media Group. In January 2000, 15% of the interest was sold, but in 2001,
repurchased. Due to differences in consolidation methodologies between French
GAAP and U.S. GAAP, under French GAAP, the interest is consolidated in 2000,
whereas under U.S. GAAP, it is not. There is no impact on the consolidated net
income due to the differences.
MANDATORILY REDEEMABLE STOCK
The mandatorily redeemable stock reflected on Bcom3's financial statements
as a specific line item under U.S. GAAP was reclassified as shareholders'
equity.
COMPARATIVE CONDENSED FINANCIAL INFORMATION IN U.S. GAAP AND FRENCH GAAP
The historical consolidated balance sheet and income statement of Bcom3
have been adjusted to reflect the above differences from U.S. GAAP to French
GAAP as follows:
DECEMBER 31, 2001
-------------------------------------
BCOM3 BCOM3 BCOM3
HISTORICAL HISTORICAL HISTORICAL
U.S. GAAP U.S. GAAP FRENCH GAAP
---------- ---------- -----------
(AMOUNTS IN MILLIONS)
Total non-current assets, net................. $1,789 E2,030 E2,059
Current assets................................ 2,317 2,630 2,630
Total assets.................................. 4,106 4,660 4,689
Shareholders' equity.......................... 1,005 1,141 1,478
Mandatorily redeemable stock.................. 302 342 342
Minority interests............................ 18 20 21
Total long-term and short-term liabilities.... 2,781 3,157 3,190
Total liabilities and shareholders' equity.... 4,106 4,660 4,689
124
2001
-------------------------------------
BCOM3 BCOM3 BCOM3
HISTORICAL HISTORICAL HISTORICAL
U.S. GAAP U.S. GAAP FRENCH GAAP
---------- ---------- -----------
(AMOUNTS IN MILLIONS)
Revenues.......................................... $ 1,917 E 2,141 E 2,158
Total expenses.................................... (1,635) (1,826) (1,829)
Operating income before depreciation, interest and
taxes........................................... 282 315 329
Depreciation and amortization (refer to note 1)... (149) (166) (79)
Operating income (refer to note 1)................ 133 149 250
Net income........................................ 26 30 25
------- ------- -------
Note 1: The amortization of identified intangibles and goodwill has been
classified as a specific line below operating income under French GAAP.
Therefore, this item is not included in the historical operating income for
Bcom3 shown above.
125
PRO FORMA UNAUDITED FINANCIAL INFORMATION AS OF AND FOR THE YEAR ENDED DECEMBER
31, 2001 IN ACCORDANCE WITH U.S. GAAP IS AS FOLLOWS:
Pro forma unaudited balance sheet in accordance with U.S. GAAP (in millions
of euros):
PUBLICIS BCOM3 HISTORICAL PRO FORMA PRO
(U.S. GAAP) HISTORICAL(1) HISTORICAL COMBINED ADJUSTMENTS FORMA
----------- ------------- ---------- ---------- ----------- -------
Goodwill, net.................. E1,842 E1,481 E3,323 E1,284(K) E4,607
Intangible assets, net......... 1,401 41 1,442 1,998(K) 3,440
Property and equipment, net.... 360 427 787 -- 787
Investments and other financial
assets, net.................. 202 21 223 -- 223
Investments accounted for by
the equity method............ 8 60 68 -- 68
Total non-current assets,
net.......................... 3,813 2,030 5,843 3,282 9,125
Inventory and costs billable to
clients...................... 195 242 437 -- 437
Accounts receivable............ 1,845 1,872 3,717 -- 3,717
Other receivables and other
assets....................... 439 257 696 -- 696
Marketable securities.......... 42 -- 42 -- 42
Cash and cash equivalents...... 621 259 880 -- 880
Current assets................. 3,142 2,630 5,772 -- 5,772
------ ------ ------- ------- -------
Total assets................... 6,955 4,660 11,615 3,282 14,897
------ ------ ------- ------- -------
Capital stock.................. 56 -- 56 23(M) 79
Preferred stock................ -- -- -- 1,024(M) 1,024
Additional paid in capital..... 2,350 1,347 3,697 2,416(M) 6,113
Retained earnings (deficit).... (520) (197) (717) (1,141)(M) (1,858)
Accumulated other comprehensive
income (loss)................ 142 (9) 133 -- 133
Treasury stock................. (138) -- (138) -- (138)
Shareholders' equity........... 1,890 1,141 3,031 2,322 5,353
Mandatorily redeemable stock... -- 342 342 (342)(K) --
Minority interests............. 89 20 109 -- 109
Total long-term debt (excluding
current portion)............. 294 224 518 467(L) 985
Other long-term liabilities.... 735 280 1,015 775(K) 1,790
Total short-term debt.......... 758 52 810 -- 810
Accounts payable............... 1,875 1,997 3,872 -- 3,872
Accrued expenses and other
liabilities.................. 1,314 604 1,918 60(N) 1,978
Total liabilities.............. 4,976 3,157 8,133 1,302 9,435
------ ------ ------- ------- -------
Total liabilities and
shareholders' equity......... 6,955 4,660 11,615 3,282 14,897
------ ------ ------- ------- -------
---------------
(1) From Note 29 to the financial statements included in Publicis's Annual
Report on Form 20-F/A for the year ended December 31, 2001 incorporated
herein by reference.
126
Pro forma unaudited income statement in accordance with U.S. GAAP (in
millions of euros):
PUBLICIS BCOM3 HISTORICAL PRO FORMA PRO
(U.S. GAAP) HISTORICAL(1) HISTORICAL COMBINED ADJUSTMENTS FORMA
----------- ------------- ---------- ---------- ----------- -------
REVENUES........................ E 2,434 E 2,141 E 4,575 E -- E 4,575
Salaries and related expenses... (1,375) (1,276) (2,651) -- (2,651)
Office and general expenses..... (661) (550) (1,211) -- (1,211)
Depreciation and
amortization(2)............... (812) (166) (978) 9(O) (969)
Other operating expenses........ (52) -- (52) -- (52)
------- ------- ------- ---- -------
OPERATING INCOME................ (466) 149 (317) 9 (308)
------- ------- ------- ---- -------
Financial (expense) income,
net........................... (24) (26) (50) (33)(P) (83)
------- ------- ------- ---- -------
OTHER EXPENSES.................. (79) -- (79) -- (79)
------- ------- ------- ---- -------
INCOME (LOSS) OF CONSOLIDATED
COMPANIES BEFORE INCOME
TAXES......................... (569) 123 (446) (24) (470)
------- ------- ------- ---- -------
Income taxes.................... (68) (81) (149) 44(Q) (105)
------- ------- ------- ---- -------
INCOME OF CONSOLIDATED COMPANIES
AFTER INCOME TAXES............ (637) 42 (595) 20 (575)
------- ------- ------- ---- -------
Equity in net income of non-
consolidated companies........ 9 -- 9 -- 9
------- ------- ------- ---- -------
Minority interests.............. (19) (12) (31) -- (31)
------- ------- ------- ---- -------
NET INCOME...................... (647) 30 (617) 20 (597)
------- ------- ------- ---- -------
LOSS PER SHARE AS ADJUSTED FOR
U.S. GAAP
basic and diluted............. E (4.76) E (3.14)
------- ------- ------- ---- -------
WEIGHTED AVERAGE SHARES
OUTSTANDING AS ADJUSTED FOR
U.S. GAAP
basic and diluted (in
millions)..................... 136 56(R) 192
------- ------- ------- ---- -------
---------------
(1) From Note 29 to the financial statements included in Publicis's Annual
Report on Form 20-F/A for the year ended December 31, 2001 incorporated
herein by reference.
(2) Includes a E584 million non-recurring goodwill impairment charge related to
the acquisition of Saatchi & Saatchi.
127
(K) The purchase price and goodwill adjustment in accordance with U.S. GAAP
have been determined as follows (in millions of euros):
Publicis ordinary shares exchanged for Bcom3, Inc......... 2,048
ORAs issued............................................... 1,024
OBSAs issued.............................................. 858
------
Total consideration....................................... 3,930
Less: net book value of net assets acquired............... (2)
------
Goodwill before allocation................................ 3,928
Preliminary allocation to assets and liabilities:
Client relationships maintained for more than 20 years.. 1,038
Client relationships maintained for less than 20 years.. 131
Trade name.............................................. 829
Accrued liabilities....................................... (60)
Deferred taxes............................................ (775)
------
Residual goodwill......................................... 2,765
Less: Bcom3, Inc. goodwill acquired....................... (1,481)
------
Total adjustment to goodwill.............................. 1,284
The net book value of Bcom3, Inc.'s assets acquired is computed as:
Stockholders' equity.................................... 1,141
Write-off of goodwill................................... (1,481)
Mandatorily redeemable stock............................ 342
------
Total................................................. 2
The value of the ordinary shares exchanged for Bcom3's stock and the value
of the ORAs issued is based on a five-day average of Publicis's share price (two
trading days before the public announcement of the merger on March 7, 2002, the
day of the announcement and two trading days after announcement), or E36.41 per
share.
Each ORA is exchangeable into 18 shares of Publicis common stock beginning on
September 1, 2005 through 2021. As such, the ORAs have been valued as follows:
ORAs issued................................................. 1,562,500
Conversion ratio............................................ 18
--------------
28,125,000
Publicis share price........................................ E36.41
--------------
Total..................................................... E1,024,031,250
==============
(L) In accordance with U.S. GAAP, the notes and detachable warrants comprising
the OBSAs are recorded on a pro rata basis based on their relative fair
values at the announcement date as follows (in millions of euros):
Pro rata fair value of notes............................ 467
Pro rata fair value of detachable warrants.............. 391
---
Total fair value...................................... 858
The fair value of the notes prior to pro rata allocation has been determined
based on the present value of the future cash flows discounted at Publicis's
borrowing rate. The fair value of the detachable warrants
128
before the pro rata allocation has been determined based on a binomial pricing
methodology using the following inputs:
Share price on date of grant................................ 36.41
Strike price................................................ 30.50
Volatility.................................................. 30%
Risk free interest rate..................................... 4.5%
(M) The adjustments to shareholders' equity under U.S. GAAP can be summarized as
follows (in millions of euros):
Ordinary shares issued at par value......................... 23
Additional paid in capital and retained earnings
Issuance of ordinary shares............................... 2,025
Issuance of ORAs.......................................... 1,024
Issuance of detachable warrants associated with the
OBSAs.................................................. 391
Write-off of goodwill of Bcom3............................ (1,481)
Elimination of Bcom3's resultant net negative equity after
write-off of goodwill.................................. 340
------
Total increase in paid in capital........................... 2,299
(N) Estimated acquisition costs.
(O) Amortization on step-up in value of Bcom3 intangible assets acquired as
follows (in millions of euros):
Client relationships of more than 20 years.................. (26)
Client relationships of less than 20 years.................. (11)
Trade name.................................................. (41)
Less: Bcom3 amortization of acquired goodwill and intangible
assets................................................ 87
Total adjustment............................................ 9
No goodwill is amortized due to Publicis's adoption of SFAS 142 "Goodwill
and intangible assets," in 2002, which has been applied for the purposes
of these pro forma statements. Under SFAS 142, goodwill is no longer
amortized, but reviewed annually for impairment.
(P) Interest expense on the fair value of the note portion of the OBSAs
computed at 7%. The interest rate has been imputed based on the pro rata
allocation of the fair value to the notes (see (L)) and future cash flows.
(Q) Income taxes on the above adjustments.
(R) Represents Publicis common shares issued in exchange for Bcom3's stock. In
the future, and as presented here, dividends paid or accrued on the ORAs
will reduce income available to common shareholders, and thus impact basic
earnings per share. For purposes of computing diluted earnings per share,
if dilutive, all outstanding ORAs will be assumed to have been converted to
Publicis common shares. This will result in an additional 28,125,000
weighted average diluted shares.
129
SUMMARY OF FUTURE DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
IN FRANCE AND THE UNITED STATES RESULTING FROM THIS TRANSACTION
Publicis's consolidated financial statements are prepared in accordance
with French GAAP, which differs from U.S. GAAP. The new significant differences
applicable to the future group resulting from this transaction are summarized
below:
ACCOUNTING FOR THE BUSINESS COMBINATION WITH BCOM3
Under French GAAP, in accordance with the article 210 of rule 99-02 of the
CRC (Comite de Reglementation Comptable), the purchase price of the Bcom3 shares
equals the fair value of the securities issued in the exchange as of the date of
effective control, taking into account the impact of the specific contract
clauses relating to the lock up of the securities. Under U.S. GAAP, the value of
the ordinary shares exchanged for Bcom3 stock and ORAs issued is based on a
five-day average of Publicis's share price (2 days before the public
announcement of the acquisition on March 7, 2002, the day of announcement, and
two days after).
ACCOUNTING FOR GOODWILL
Under French GAAP, goodwill is generally capitalized and amortized over its
estimated useful life. It is also reviewed for impairment, if the estimated
useful life changes. Under U.S. GAAP, no goodwill will be amortized due to
Publicis's adoption of SFAS 142 "Goodwill and intangible assets," in 2002. Under
SFAS 142, goodwill is no longer amortized, but reviewed annually for impairment.
ACCOUNTING FOR OBSAS ISSUED
In accordance with U.S. GAAP, the notes and detachable warrants that form
part of the OBSAs are recorded on a pro rata basis based on their relative fair
values at the date of acquisition. Detachable warrants are considered to be
embedded derivative instruments and are required to be separately accounted for
under SFAS 133 at fair value with changes in fair value reflected through the
income statement. Additionally, to achieve a constant rate of interest, the
interest expense on the OBSAs is calculated using the fixed interest rate on the
face value of the notes plus amortization of a debt discount using the effective
interest method.
Under French GAAP, the detachable warrants are considered to be an
off-balance sheet commitment and are not recorded; the full fair value is
therefore attributed to the notes. Additionally, the interest expense on the
OBSAs is accrued based on the face interest rate of the notes.
130
DESCRIPTION OF PUBLICIS SHARE CAPITAL
GENERAL
Publicis is a societe anonyme (corporation) organized under the laws of
France. Copies of Publicis's statuts (which are the equivalent of bylaws) in
French may be obtained from the Registry of Commerce and Companies of Paris,
France.
Publicis's statuts specify that its corporate affairs are governed by the
French Company Law No. 66-537 of July 24, 1966 now incorporated in the French
Commercial Code and the statuts themselves. Publicis's duration is currently set
to end on October 3, 2037, unless it is dissolved at an earlier time or its
duration is extended to a later date by its shareholders.
On August 29, 2000, the shareholders of Publicis approved a 10-for-1 share
split. As a result, each Publicis ordinary share, nominal value French francs
25.00 per share, was exchanged for 10 Publicis ordinary shares, nominal value
French francs 2.50 per share. On January 1, 2001, the capital of Publicis was
converted from French Franc to euro, setting the current par value of each
Publicis ordinary share at E0.40 per share. Unless otherwise indicated, share
amounts set forth in this proxy statement/prospectus give effect to this 10-
for-1 share split.
SHARE CAPITAL
Publicis's share capital at December 31, 2001 (the date of the most recent
balance sheet incorporated into this proxy statement/prospectus) was
E55,839,998.40 represented by 139,599,996 shares of E0.40 each (140,518,192
Publicis ordinary shares on a fully diluted basis, assuming the exercise of all
outstanding options). Publicis's share capital at July 31, 2002 was E55,920,510
represented by 139,801,275 shares of E0.40 each (158,142,713 Publicis ordinary
shares on a fully diluted basis, assuming the exercise of all outstanding
options and conversion of all outstanding convertible bonds). All of the
Publicis ordinary shares are fully paid.
VOTING RIGHTS
Subject to the limitations on voting rights described below under the
caption "-- Requirements for Holdings Exceeding Specified Percentages," each
shareholder is entitled to one vote per share at any general meeting of
Publicis's shareholders. A double voting right is granted to holders of
fully-paid registered shares when those shares have been registered for more
than two years in the name of the same shareholder. Any share whose ownership is
transferred (certain intra-family transactions excepted) or which is converted
into a bearer share loses the right to the double vote. Double voting rights
also attach to any shares issued by right to shareholders in proportion to the
number of shares with double voting rights which such shareholders held prior to
the issuance. As of July 31, 2002, the total voting power of the outstanding
Publicis ordinary shares, taking into account the double voting rights, was
171,783,088. Votes can be cast by proxy or by mail. Proxies can only be
exercised by the shareholder's spouse or by another shareholder.
AMENDMENTS TO RIGHTS OF HOLDERS
The rights of holders of Publicis ordinary shares can be amended only by
action of an extraordinary general meeting. Extraordinary meetings must be held
for specific corporate actions as required by the French Commercial Code. For a
detailed description of the differences between ordinary and extraordinary
meetings, please refer to "Comparative Rights of Publicis Shareholders and Bcom3
Stockholders" starting on page 177. Two-thirds of the voting power of the shares
voting either in person or by mail or proxy must approve any proposal to amend
shareholder rights.
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CHANGES IN SHARE CAPITAL
INCREASES IN SHARE CAPITAL
As provided by the French Commercial Code, Publicis's share capital may be
increased only with the shareholders' approval at an extraordinary general
meeting. Increases in Publicis's share capital may be effected by:
- issuing additional shares;
- increasing the nominal value of existing shares; or
- creating a new class of equity securities.
Increases in share capital by issuing additional securities may be effected
through one or a combination of the following:
- for cash;
- for assets contributed in kind;
- by conversion of debt securities previously issued;
- by capitalization of profits, reserves or share premiums; or
- subject to various conditions, in satisfaction of debt incurred by
Publicis.
Capital increases require the approval of an extraordinary general
shareholders meeting, with the exception of decisions to increase the share
capital through the capitalization of reserves, profits and/or share premiums
which require the approval of an extraordinary general shareholders meeting,
acting under the quorum and voting requirements applicable to ordinary
shareholders meetings. Increases effected by an increase in the nominal value of
shares require an unanimous approval of the shareholders, unless effected by
capitalization of reserves, profits or share premiums.
The shareholders may delegate the right to carry out any increase in share
capital to the management board, provided that the increase has been previously
authorized by the shareholders. The management board may further delegate this
right to the chairman of the management board.
DECREASES IN SHARE CAPITAL
According to the French Commercial Code, any decrease in Publicis's share
capital requires approval by the shareholders entitled to vote at an
extraordinary general meeting. In the case of a capital reduction, other than a
reduction to absorb losses or a reduction as part of a program to purchase
Publicis's own shares, all shareholders must be offered the opportunity to
participate in such a reduction. The share capital may be reduced either by
decreasing the nominal value of the outstanding share capital or by reducing the
number of outstanding shares. The number of outstanding shares may be reduced,
among other things, by the repurchase and cancellation of shares.
The shareholders may delegate the right to carry out any decrease in share
capital to the management board, provided that the decrease has been previously
authorized by the shareholders.
PREFERENTIAL RIGHT OF SUBSCRIPTION
Under French law, shareholders have preemptive rights to subscribe for
issuances for cash of new shares or other securities giving rights, directly or
indirectly, to acquire additional shares on a pro rata basis for a limited
period of time. A two-thirds majority of the shares entitled to vote at an
extraordinary general meeting may vote to waive or grant preemptive subscription
rights with respect to any particular offering. French law requires that the
management board and Publicis's independent auditors present reports that
specifically address any proposal to waive preemptive subscription rights. In
the event of a waiver, the issue of securities must be completed within the
period prescribed by law. A shareholder may also notify Publicis that he or she
individually wishes to waive his or her own preemptive subscription rights with
respect to any particular
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offering if he or she so chooses. Preemptive subscription rights, if not
previously waived, are transferable during the subscription period relating to a
particular offering of shares and may be listed on Euronext Paris.
A two-thirds majority of the shares entitled to vote at an extraordinary
general meeting may also grant to existing shareholders a non-transferable
priority right to subscribe to any new securities that may affect Publicis's
share capital.
Please note that U.S. holders of Publicis ordinary shares may not be able
to exercise preemptive rights to which they otherwise would be entitled unless a
registration statement under the U.S. Securities Act is effective with respect
to such rights or an exemption from the registration requirements is available.
If preemptive rights cannot be exercised by any holder, Publicis will make
arrangements to have such holder's preemptive rights sold and the net proceeds
of the sale distributed to such holder. If such rights cannot be sold for any
reason, Publicis may allow such rights to lapse.
DESCRIPTION OF RECENT ISSUANCES OF PUBLICIS ORDINARY SHARES
Between January 1, 2002 and July 31, 2002, Publicis increased its share
capital by approximately E79,311.60 represented by 198,279 shares, par value
E0.40 each. Of this amount:
- E68,559.60 was attributable to the issuance of 171,399 shares upon the
contribution to Publicis of Saatchi & Saatchi plc shares held by
individuals as a result of their exercise of Saatchi & Saatchi stock
options;
- E10,752 was attributable to the issuance of 29,880 shares upon the
exercise of options by employees.
As of July 31, 2002, 100,000,000 Publicis ordinary shares were authorized
for future issuances (including 17,624,521 shares reserved for issuance upon
conversion of the 17,624,521 senior convertible unsecured bonds (obligations a
option de conversion en actions nouvelles et/ou d' echange en actions
existante), with an aggregate face value of E690 million, which we refer to as
OCEANES herein, that Publicis issued in January of 2002).
REPURCHASES OF PUBLICIS ORDINARY SHARES
Under French law, Publicis may not issue shares to itself. However,
Publicis may, either directly or through a financial intermediary acting on its
behalf, purchase Publicis ordinary shares for the following purposes, among
others:
- to provide shares to Publicis's employees under a profit-sharing plan or
stock option plan;
- to sell or keep its shares in treasury depending on market conditions;
- to transfer shares, by any means and for any purpose, including in
connection with acquisition transactions;
- to provide shares for issuance in connection with the redemption,
exercise, conversion or exchange of securities redeemable, exercisable,
convertible or exchangeable for its shares; and
- to reduce Publicis's share capital by canceling the shares it purchases
(with the approval of its shareholders obtained at an extraordinary
general shareholders meeting).
Subject to authorization by the shareholders of Publicis, any of the above
purposes may be modified.
Publicis may at any time hold up to 10% of its share capital in treasury
for so long as its ordinary shares are listed on a regulated market such as the
Premier Marche of Euronext Paris. To repurchase Publicis ordinary shares,
Publicis first must file a note d'information that has received the approval, or
visa, of the COB and obtain approval by its shareholders at an ordinary general
meeting (except if the purpose of the repurchase is to decrease the share
capital by canceling the shares).
Publicis has obtained five consecutive approvals from its shareholders to
buy back Publicis ordinary shares within the limits set by French law.
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TRADING IN PUBLICIS'S OWN SHARES
Under COB regulations, Publicis may not trade in its own shares for the
purpose of manipulating the market. There are three requirements for purchases
and sales by Publicis of its own shares to be deemed valid. Specifically, in
order to be deemed valid pursuant to the safe harbor provisions of COB
regulations:
- trades must generally be executed on behalf of Publicis by only one
intermediary in each trading session;
- any block trades, which means trades outside the public market, may not
be made at a price above the then current market price; and
- each trade must be made at a price that is between the lowest and the
highest trading price of the trading session during which it is executed.
If Publicis ordinary shares are continuously quoted (cotation en continu),
as they currently are, then a trade by Publicis of its own ordinary shares must
fulfill three requirements in order to be deemed valid pursuant to the safe
harbor provisions of COB regulations. Specifically, the trade must not:
- influence the determination of the quoted price before the opening of
trading, at the first trade of the shares, at the reopening of trading
following a suspension, or, as applicable, in the last half-hour of any
trading session or at the fixing of the closing price;
- be carried out in order to influence the price of a derivative instrument
relating to the Publicis shares; and
- account for more than 25% of the average total daily trading volume on
the Premier Marche of Euronext Paris in the shares during the three
trading days immediately preceding the trade.
This last requirement applies only to trades in shares, like Publicis
ordinary shares, that may be traded pursuant to the deferred settlement service
(service de reglement differe, or SRD).
However, there are two periods during which Publicis is not permitted to
trade in its own securities:
- the 15-day period before the date on which Publicis makes its
consolidated or annual accounts public; and
- the period beginning on the date at which Publicis becomes aware of
information that, if disclosed, would have a significant impact on the
market price of its securities and ending on the date this information is
made public.
After making an initial purchase of its own shares, Publicis must file
monthly reports with the COB and the Conseil des Marches Financiers, or CMF,
that contain specified information about subsequent transactions. The CMF makes
this information publicly available. In the U.S., any trades by Publicis in its
own securities are subject to the restrictions imposed by the U.S. securities
laws, including the anti-fraud provisions of the Exchange Act and the rules
promulgated thereunder.
FORM, HOLDING AND TRANSFER OF PUBLICIS ORDINARY SHARES
Publicis's statuts provide that Publicis ordinary shares may be held in
registered or bearer form.
In accordance with French law concerning dematerialization of securities,
shareholders' ownership rights are represented by book entry instead of share
certificates. Publicis maintains a share account with Euroclear France S.A. for
all shares in registered form, which is administered by Euro Emetteur Finance.
In addition, Publicis maintains separate accounts in the name of each of its
shareholders either directly, or, at a shareholder's request, through the
shareholder's accredited intermediary. Each shareholder account shows the name
of the holder and the number of shares held and, in the case of shares held
through an accredited intermediary, shows that they are so held. Euro Emetteur
Finance, as a matter of course, issues confirmations to each registered
shareholder as to shares registered in the shareholder's account, but these
confirmations are not documents of title.
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Shares held in bearer form are held by the shareholder in an account with
an accredited intermediary which in turn holds an account with Euroclear France
S.A. The account held by the accredited intermediary with Euroclear is separate
from any Publicis share account with Euroclear France S.A. Each accredited
intermediary maintains a record of shares held through it and will issue, upon
request, to each shareholder confirmations as to the shares held in the
shareholders' account, but these confirmations are not documents of title.
Shares held in bearer form may only be transferred through accredited
intermediaries. Publicis's statuts permit it to request that Euroclear France
S.A. provide it at any time with the identity of the holders of its shares or
other securities granting immediate or future voting rights, held in bearer form
and with the number of shares or other securities so held.
Publicis's statuts do not contain any restrictions relating to the transfer
of shares. Registered shares must be converted into bearer form before being
traded on the Premier Marche of Euronext Paris and, accordingly, must be
registered in an account maintained by an accredited intermediary. A shareholder
may initiate a transfer by giving instructions to the relevant accredited
intermediary. For dealings on the Premier Marche of Euronext Paris, a tax
assessed on the price at which the securities are traded, or impot sur les
operations de bourse, is payable at the rate of 0.3% on transactions of up to
E152,449 and at a rate of 0.15% on transactions exceeding this amount, capped at
E609.80 per transaction. This tax is subject to a rebate of E22.87 per
transaction. However, nonresidents of France are not required to pay this tax.
In addition, a fee or commission is payable to the broker involved in the
transaction, regardless of whether the transaction occurs within or outside
France. Normally, no registration duty is payable in respect of listed shares in
France, unless a transfer instrument has been executed in France.
REQUIREMENTS FOR HOLDINGS EXCEEDING SPECIFIED PERCENTAGES
The French Commercial Code provides that any individual or entity, acting
alone or in concert with others, that becomes the owner, directly or indirectly,
of more than 5%, 10%, 20%, one-third, 50% or two-thirds of the outstanding
shares or voting rights of a publicly listed company in France, such as
Publicis, or that increases or decreases its shareholding or voting rights above
or below any of those percentages, must notify the company within 15 calendar
days of the date it crosses the threshold, of the number of shares (and
equity-linked securities, such as warrants, convertible or redeemable bonds) it
holds and their voting rights. The individual or entity must also notify the CMF
within five trading days of the date it crosses the threshold.
French law and the COB regulations impose additional reporting requirements
on persons who acquire more than 10% or 20% of the outstanding shares or voting
rights of a publicly listed company. These persons must file a report with the
company, the COB and the CMF within 15 days of the date they cross any of these
thresholds. In the report, the acquirer must specify its intentions for the
following 12-month period, including whether or not it intends to continue its
purchases, to acquire control of the company in question or to seek nomination
to the board of directors (or to the management board and/or supervisory board).
The CMF makes the notice public. The acquirer may amend its stated intentions,
provided that it does so on the basis of significant changes in the situation of
the company, its environment or its shareholding structure. Upon any change of
intention, the acquirer must file a new report.
If any person fails to comply with the legal notification requirement, the
shares or voting rights in excess of the relevant threshold will be deprived of
voting rights for all shareholder meetings until the end of a two-year period
following the date on which the owner complies with the notification
requirements. In addition, any shareholder who fails to comply with these
requirements may have all or part of its voting rights suspended for up to five
years by the Tribunal de Commerce, which is a French commercial court, and may,
at the request of the company's chairman, any shareholder or the COB, be subject
to a E18,000 fine.
Under CMF regulations, and subject to limited exemptions granted by the
CMF, any person or persons acting in concert owning in excess of one-third of
the share capital or voting rights of a publicly listed French company must
initiate a public tender offer for the balance of the share capital of that
company. Dentsu and Madame Badinter received an exemption from this requirement
from the CMF on May 24, 2002.
In addition, Publicis's statuts require that any individual or entity,
acting alone or as member of a group of shareholders, who holds or becomes the
holder of, directly or indirectly, more than 1% of its share capital or
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voting rights must notify Publicis within 15 days by registered mail, return
receipt requested, of the number of shares it holds. The same notification
requirement applies to each subsequent increase or decrease in ownership of 1%
or whole multiples of 1%. If a person does not comply with this notification
requirement, one or more shareholders holding together 1% or more of its share
capital may call a shareholder meeting to deprive the shares in excess of the
relevant threshold of voting rights for all shareholder meetings for two years
following the date on which the owner complies with the notification
requirements.
In order to permit holders to give the required notice, Publicis must
publish in the Bulletin des Annonces Legales Obligatoires, or BALO, no later
than 15 calendar days after the annual ordinary general meeting of shareholders,
information regarding the total number of voting rights outstanding as of the
date of the meeting. In addition, if the number of outstanding voting rights
changes by 5% or more between two annual ordinary general meetings, Publicis
must publish in the BALO, within 15 calendar days of such change, the number of
voting rights outstanding and provide the CMF with a written notice. The CMF
publishes the total number of voting rights so notified by all listed companies
in a weekly notice, mentioning the date each number was last updated.
DIVIDENDS
Publicis may distribute dividends upon the recommendation of its management
board and the approval of its shareholders at their annual general meeting.
Under the French Commercial Code, a company's right to pay dividends is limited
in some circumstances. Pursuant to the French commercial code, the payment of
dividends is subject to the approval of the financial statements by the annual
shareholders meeting and the condition that sufficient funds are available for
the payment. In addition, various accounting requirements imposed by French law
may limit a company's right to pay dividends.
Dividends are paid in euros, the currency of the European Union. Any
dividends paid to shareholders who are not residents of France generally will be
subject to French withholding tax at a rate of 25%. Shareholders who qualify for
benefits under an applicable tax treaty and who comply with the procedures for
claiming treaty benefits may be entitled to a reduced rate of withholding tax.
In some circumstances, these shareholders also may be entitled to an additional
payment, net of withholding tax, representing all or part of the French avoir
fiscal, or tax credit. See "Material Tax Consequences -- Material French Tax
Consequences of Holding and Disposing of Publicis Ordinary Shares, ORAs, OBSAs
and/or Warrants (Bons De Souscription) -- Publicis Ordinary
Shares -- Dividends."
See "Comparative Market Price, Trading Volume and Dividend Data" for a
table showing the total dividends declared per share for each of the last five
years, without giving effect to the French avoir fiscal and before deduction of
any French withholding tax.
LIQUIDATION RIGHTS
If Publicis is liquidated, any assets remaining after payment of its debt,
liquidation expenses and all of its remaining obligations will be distributed
first to repay in full the nominal value of its outstanding shares. Any surplus
will be distributed pro rata among its shareholders in proportion to the
aggregate nominal value of their shareholdings.
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DESCRIPTION OF USUFRUCT INTEREST AND BARE LEGAL TITLE
GENERAL
The Publicis/Bcom3 merger agreement provides that about 6,827,984 of the
Publicis ordinary shares issued in the merger will be split into usufruct
interests and bare legal title for a two-year period. The usufruct interests
will go to former holders of Class A common stock and the bare legal title will
go to Dentsu, as the only holder of Class B common stock. At the end of the
two-year period, the bare legal title will automatically revert back to the
usufruct holder. When this happens, Dentsu will no longer have any interest in
these shares, and the usufruct holder will simply own whole Publicis ordinary
shares that are no longer split into usufruct and bare legal title.
Specifically, as part of the merger consideration, Dentsu, as the only holder of
Bcom3's Class B common stock, will receive the bare legal title (nue propriete)
to 0.957024 Publicis ordinary shares (which includes the voting rights of such
shares) for each share of Bcom3 stock owned by it immediately prior to the
effective time of the Publicis/Bcom3 merger (after consummation of the first
step merger) until the second anniversary of the closing date of the mergers,
and each holder of Bcom3 Class A common stock will receive the usufruct interest
(usufruit) in 0.548870 Publicis ordinary shares for each share of Bcom3 Class A
stock he or she owns immediately prior to the effective time of the
Publicis/Bcom3 merger (after consummation of the first step merger), together
with the right to receive bare legal title to such shares on the second
anniversary of the closing date of the mergers. Notwithstanding the ratio set
forth above, the aggregate number of Publicis ordinary shares to which Dentsu
will receive bare legal title shall equal the aggregate number of Publicis
ordinary shares actually delivered to the special nominee as described below
(which, for example, will not include any Publicis ordinary shares to be sold
under the fractional share provisions described above under the caption "The
Publicis/Bcom3 Merger Agreement -- Fractional Interests"). The holders of the
usufruct and the bare legal title will not be obligated to pay any additional
amounts to Publicis or Bcom3 based on their holding of the usufruct and bare
legal title. The rights associated with a usufruct interest and the nue
propriete (or bare legal title) of an ordinary share are described below.
SEPARATION OF LEGAL TITLE AND USUFRUCT INTEREST
The arrangements described above will be implemented by splitting the bare
legal title and usufruct interest in approximately 6,827,984 Publicis ordinary
shares (referred to as the "designated shares") to be issued in the
Publicis/Bcom3 merger.
Prior to the closing date of the Publicis/Bcom3 merger, Bcom3 will select a
nominee reasonably acceptable to Publicis to receive issuance of the designated
shares on behalf of holders of Class A common stock of Bcom3 immediately prior
to the effective time of the Publicis/Bcom3 merger. In this section, we refer to
this nominee as the "special nominee" and these holders as the "former holders."
Immediately after the effective time of the Publicis/Bcom3 merger, the
special nominee, on behalf of the former holders, will transfer to Dentsu by way
of pret de consommation, pursuant to Articles 1892 sq. of the French Civil Code,
the bare legal title to the designated shares. This transfer will be governed by
a French law conveyance agreement, which we refer to as the "transfer contract."
Immediately after this transfer, the special nominee shall transfer to the
exchange agent the remaining usufruct interest in the designated shares for
distribution to the former holders of Class A Common Stock as merger
consideration.
TERM OF THE USUFRUCT ARRANGEMENT
The usufruct arrangement described above will remain in place for two years
after the closing date of the mergers, subject to early termination upon the
occurrence of certain events set forth in the transfer contract.
Upon expiration or termination of the arrangement as described above, bare
legal title in all designated shares will automatically revert to the usufruct
holder. As a result of this reversion, the usufruct holder will have undivided
ownership of the designated shares and will be eligible for double voting rights
on those shares beginning two years after the reversion. Dentsu will have no
interest in the designated shares after the reversion.
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In addition to the foregoing, with respect to each former holder who is an
individual, in the event of the death of such former holder, the usufruct
arrangement relating to the usufruct received by such former holder in the
merger is automatically deemed terminated as of the day preceding his or her
death. Upon such termination, the bare legal title relating to such usufruct
shall automatically revert to the usufruct holder.
If you will hold your Class A shares in an entity (such as a trust,
corporation or limited liability company), rather than directly in your name, at
the effective time of the Publicis/Bcom3 merger, the usufruct interests will be
issued to that entity. PLEASE BE AWARE THAT UNDER FRENCH LAW, YOU RISK
FORFEITING THE USUFRUCT INTEREST IF YOU TERMINATE THE LEGAL EXISTENCE OF SUCH
ENTITY WHILE THE USUFRUCT ARRANGEMENT REMAINS IN EFFECT (EVEN IF, AT THE TIME OF
TERMINATION, THE ENTITY IS NO LONGER THE HOLDER OF THE USUFRUCT). AS SUCH, YOU
SHOULD PLAN TO MAINTAIN THE LEGAL EXISTENCE OF ANY SUCH ENTITY FOR TWO YEARS
AFTER THE MERGERS ARE CONSUMMATED.
RIGHTS OF THE BARE LEGAL TITLE HOLDER
Under the transfer contract, Dentsu, as the bare legal title holder, will
have all voting rights attached to the designated shares, including the right to
vote at ordinary, extraordinary and special general meetings, that may be
exercised by the holders of Publicis ordinary shares in accordance with the
provisions of the French Commercial Code and Publicis's statuts. Dentsu will
also be reflected as the registered holder of the designated shares in the share
register of Publicis.
RIGHTS OF THE USUFRUCT HOLDER
Under the transfer contract and in accordance with the provisions contained
in Article 582 of the French Civil Code, the usufruct holders will be entitled
to all economic rights attached to the designated shares. The transfer contract
contains specific provisions to address various kinds of economic rights,
including:
- Regular Dividends. Any dividends within the meaning of Article L. 232-12
of the French Commercial Code shall inure to the exclusive benefit of the
usufruct holder, including any cash dividends or any dividends for which
there is an option to be paid in shares. The transfer contract provides
that only the usufruct holder, and not Dentsu, shall have the right to
exercise an option to be paid dividends in the form of shares. In the
event this option is exercised, the new shares thereby acquired shall
inure to the exclusive benefit of the usufruct holder.
In the event of an amount distributed to shareholders from shareholders'
equity (distribution prelevee sur un compte de capitaux propres), in
respect of the designated shares apart from distributable profits, which
distribution supplements a dividend within the meaning of Article L.
232-12 of the French Commercial Code (regardless of the amount or
respective proportions of the distributable profits and such
supplementary amount), such distribution shall be deemed to constitute a
dividend for the purposes of the transfer contract and shall inure to the
exclusive benefit of the usufruct holder.
- Extraordinary Distribution in Cash. In addition to regular cash
dividends, the usufruct holder will also be entitled to receive any
extraordinary distribution in cash in respect of the designated shares,
including but not limited to distributions of reserves or premiums,
reduction of capital, reimbursement of capital, redemption of capital or
a distribution in liquidation (boni de liquidation).
- Extraordinary Distribution in Kind. In the event of any distribution in
kind (other than regular dividends) in respect of the designated shares,
including but not limited to distributions of reserves or premiums,
reduction of capital, reimbursement of capital, redemption of capital or
a distribution in liquidation, if and to the extent Dentsu acquires or is
deemed to hold any interest therein, such interest shall automatically be
transferred to the usufruct holder without further consideration, such
that the entire distribution in kind shall inure to the exclusive benefit
of the usufruct holder.
- Free Attribution of Shares. Any shares received in a free attribution of
shares (by way of capitalization of reserves, profits or premiums or by
way of reductions of the nominal value, in each case giving rise to newly
issued shares) (a French law concept similar to a stock split) will be
deemed to be designated shares subject to the usufruct/bare legal title
arrangement under the transfer contract.
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In the event of a capital increase in cash or of any other issue giving
rise to preferential subscription rights or priority rights for holders of
Publicis ordinary shares, the preferential subscription rights or priority
rights attached to the designated shares shall inure to the exclusive benefit of
the usufruct holder. If the usufruct holder exercises in whole or in part such
preferential subscription rights or priority rights, the newly subscribed shares
will be deemed to be designated shares subject to the usufruct/bare legal title
arrangement under the transfer contract.
ROLLOVER IN THE EVENT OF A MERGER
In the event of a merger of Publicis into another company or a split-up
(scission) of Publicis, in either case with the result that Publicis ceases to
exist as a legal entity, the shares of the surviving entity received in the
transaction as consideration for the designated shares will be deemed designated
shares subject to the usufruct/bare legal title arrangement under the transfer
contract. As a result, the former holders of usufruct interests in Publicis
shares will hold usufruct interests in the shares of the surviving entity
received in the transaction, and Dentsu will hold bare legal title to these
shares.
NO TRANSFER OF BARE LEGAL TITLE BY DENTSU
Dentsu will not transfer in any manner whatsoever the bare legal title to
the designated shares or any interest therein, including without limitation by
way of a sale, contribution, exchange, encumbrance, swap or otherwise (except
for transfers to wholly owned subsidiaries of Dentsu that have agreed to be
bound by the terms of the transfer contract).
BINDING ARBITRATION
The transfer contract provides that any dispute, controversy or claim
arising out of, relating to, or in connection with the transfer contract, or the
breach, termination or validity of the transfer contract, will be referred to
and finally settled by arbitration conducted in Paris under the rules of the
London Court of International Arbitration.
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DESCRIPTION OF ORAS
The particular ORA to be issued by Publicis in the merger is a unique
security issued pursuant to Section L228-91 of the French Commercial Code, it is
treated as "other shareholders' equity" (autres fonds propres) on Publicis's
consolidated balance sheet for French GAAP purposes, as equity for U.S. tax
purposes, and as an "Obligation Remboursable en Actions" (obligation redeemable
in stock) for French corporate law and tax purposes. Each Bcom3 Class A
stockholder will receive .098108 ORAs for each share of Class A common stock
such stockholder owns immediately prior to the effective time of the
Publicis/Bcom3 merger (after consummation of the first step merger).
NOTIONAL AMOUNT
Each ORA issued in the merger will have an initial notional amount of E549.
NOTIONAL AMOUNT NEVER PAID IN CASH, BUT IN PUBLICIS ORDINARY SHARES
The notional amount of the ORA is never paid in cash but rather in a
pre-agreed number of Publicis ordinary shares. Each ORA represents the right to
receive 18 newly issued ordinary shares or, at Publicis's option, ordinary
shares held in treasury over the term of the ORA. On September 1, 2005, and on
each September 1 thereafter through and including September 1, 2021, each holder
of an ORA will receive one Publicis ordinary share and the notional amount of
the ORA will be reduced by E30.50. The final redemption of the remaining
notional amount in Publicis ordinary shares will occur on the final maturity
date which is the 20th anniversary of the issuance of the ORAs (which issuance
will occur on the closing date of the Publicis/ Bcom3 merger).
The number of Publicis ordinary shares to be so received is subject to
customary anti-dilution adjustments to reflect events affecting the Publicis
ordinary shares as described below under the caption "-- Anti-Dilution Rights
and Other Adjustments."
ANNUAL CASH AMOUNT
An annual cash amount accrues each year on the outstanding ORAs as
described below, but accrued amounts are only paid in a given year if the
general meeting of Publicis shareholders, in its discretion, declares a dividend
on the Publicis ordinary shares between September 1 of the preceding year and
August 31 of that year. The annual amount accruing on each ORA is a minimum of
0.82% of its outstanding notional amount per annum (except as set forth below
for the period through August 31, 2004) and is payable annually on September 1
(or the following business day if such day is not a business day), except that
the final annual amount in 2022 will be payable on the 20th anniversary of the
issuance of the ORAs.
For the period from the date of issuance up to and including August 31,
2004, the annual amount will be E4.50 per ORA. The first annual amount payable
on September 1, 2003 will be calculated on a pro rata basis for the period from
the date of issuance through August 31, 2003.
For the period starting September 1, 2004, the annual amount accruing each
year with respect to each E30.50 of notional amount of the ORA will be equal to
110% of the historical average of the annual dividends declared on each Publicis
ordinary share (excluding the related tax credit (avoir fiscal)), but in each
year the annual amount will be at least the minimum rate. The historical average
will be recalculated every three years and will be based on the actual dividends
(excluding the related tax credit (avoir fiscal)) declared on each Publicis
ordinary share during a three-year period which consists of the year of the
annual amount determination and the preceding two years, but in each year will
be at least the minimum rate.
As an example, the annual amount payable on September 1, 2005, 2006 and
2007 will be calculated on the basis of the average of the actual dividends
declared on a Publicis ordinary share in the three twelve-month periods
preceding September 1 of the years 2003, 2004 and 2005 and the annual amount
payable on September 1, 2008, 2009 and 2010 will be calculated on the basis of
the average of the actual dividends declared on a Publicis ordinary share in the
three twelve-month periods preceding September 1 of the years
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2006, 2007 and 2008. The annual amount is payable with respect to the notional
amount then outstanding, determined by multiplying the remaining balance of
Publicis ordinary shares for which the ORAs could then be redeemed by E30.50.
The annual amount due in 2022 will be paid on the 20th anniversary of the
issuance of the ORAs and it will be calculated on a pro rata basis for the
period from September 1, 2021 through the 20th anniversary of the ORA issuance.
As mentioned above, the annual amount due for a given year will only be
paid if the general meeting of Publicis's shareholders has declared a dividend
between September 1 of the previous year and August 31 of the year in question.
Should no dividend be declared by the general meeting of Publicis's shareholders
between September 1 of the previous year and August 31 of the year in question,
the annual amount will be payable in full (without bearing interest), with all
arrearages, in the first year in which a dividend is declared by the Publicis
general shareholders meeting regardless as to what amount that dividend is.
In the event that no dividend is declared on the Publicis ordinary shares
for five consecutive years (other than the five consecutive years immediately
preceding the final maturity date)(see the first item under the caption
"-- Accelerated and Automatic Redemption" below), each holder will be entitled
to accelerate the redemption of the ORAs in full, but only for Publicis ordinary
shares, and will not receive any payment in respect of accumulated and unpaid
annual amounts. If redemption of the ORAs is accelerated for any other reason,
or if there are accrued and unpaid annual amounts in respect of any of the five
years prior to final maturity, Publicis will pay accrued and unpaid annual
amounts at its option in either cash or Publicis ordinary shares.
If the annual amount is paid in shares of Publicis, the value of the shares
shall be equal to the average of the opening trading prices of Publicis ordinary
shares on the Premier Marche of Euronext Paris on the 10 trading days
immediately prior to the accelerated redemption date or the final redemption
date, as applicable (but excluding that date).
RANK; NEGATIVE PLEDGE
The ORAs and the right to the annual cash amount (if any) will constitute
unsecured, direct, unconditional, unsubordinated obligations of Publicis and
will rank equal with all other current or future unsecured debt and guarantees
of Publicis.
As long as any ORAs remain outstanding, Publicis may not grant any mortgage
on its real property or pledge all or part of its goodwill or other intangibles
(fonds de commerce) or trade receivables (except for securitization transactions
of trade receivables or other transactions involving the issuance of securities
which represent trade receivables of Publicis) for the benefit of other
obligations without granting the same security interests in the same rank to the
holders of the ORAs. This restrictive covenant applies only to issues of other
obligations and does not affect Publicis's ability to make guarantees or grant
security interests to creditors other than holders of obligations, or to
otherwise transfer title to its assets.
Obligations are defined under Article L.213-5 of the Code Monetaire et
Financier as "negotiable securities which, when issued together, confer the same
rights to repayment for the same nominal value." Obligations encompass a broad
variety of instruments. The principal defining characteristics are (1)
negotiability and (2) equal rights for all holders of any instrument issued at
one time with the same nominal value. In contrast, Publicis could issue security
interests in respect of other debt that is not an obligation, such as loans
(pret). The French Civil Code defines a loan (pret) as an agreement providing
for (1) the creditor lending the object of the loan to the debtor and (2) the
debtor reimbursing the loan by returning the same object in the same quantity.
When applied to a loan of borrowed money, the Civil Code's definition means that
when a lender has extended funds to a borrower, the borrower must repay on the
maturity date the full amount of the principal.
As of March 31, 2002, Publicis had outstanding approximately E690 million
in principal amount of senior convertible unsecured notes, which we refer to
herein as OCEANES, E200 million in notes exchangeable for shares of the
Interpublic Group and E1.877 billion in unsecured bank debt, all of which rank
pari passu with the ORAs.
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SUSPENSION OF REDEMPTION
Publicis is entitled to suspend, upon proper notice, an annual redemption
of the ORAs, for a maximum period of three months, in the event of an increase
in Publicis's registered capital, merger, spin-off or other financial
transactions which confer on shareholders a preferential subscription right or
reserve the shareholders' priority subscription period. If an ORA is redeemed
for ordinary shares before a transaction triggering preemptive rights is
completed, ORA holders may exercise their preemptive rights with respect to the
shares issued upon redemption. If, however, the ORA is redeemed after such a
transaction is completed, as a result of the suspension or otherwise, the ORA
holders do not have preemptive rights with respect to shares that would have
been issued upon redemption but for the suspension.
Publicis's decision to suspend the exercise of the redemption must be
announced in the Bulletin des Announces Legales Obligatoires (BALO). The notice
must be published at least 15 days before the date on which the suspension takes
effect and must state the effective date of the suspension and the end of the
suspension period. This information will also be included in a notice in a
nationally distributed financial newspaper in France and to Euronext Paris.
MODIFICATION OF TERMS AND WAIVERS
Pursuant to applicable French law, any modification of the terms of the
ORAs (including the annual payment or the redemption provisions) requires
approval by a quorum present at a meeting of holders. See "-- Meeting of Holders
and Representatives of Holders" below. The consent of individual holders is not
required. Therefore, the terms of the ORAs may be modified without your consent.
However, any modification that increases the obligations of the holders is not
permitted, except with the unanimous consent of holders.
Similarly, a waiver of a default or other breach would require approval by
a meeting of holders, but not the consent of individual holders. Like an
amendment, a waiver could be approved by a majority vote without your consent.
MEETING OF HOLDERS AND REPRESENTATIVES OF HOLDERS
Under French law, the holders of the ORAs as a group constitute a masse,
which is an entity with legal personality. The group acts at meetings of holders
and is represented by two representatives (representants). A meeting of holders
requires a quorum of 25% of the outstanding notional amount and acts by the
affirmative vote of a majority of the notional amount present or represented at
the meeting.
A meeting of holders may be called at any time by the Publicis management
board, by the representatives of the holders or by Publicis's receiver in the
event of bankruptcy. Holders representing at least 1/30 of the outstanding
notional amount of the ORAs may require the management board or the
representatives to call a meeting. Any meeting requires 15 days prior written
notice. If a quorum is not present at a duly convened meeting, a second meeting
(with the same agenda) may be called upon six days prior written notice. No
quorum is required at such second meeting.
Holders cannot act by written consent without a meeting.
Any modification of the ORA issuance contract requires approval by the
meeting of holders. In addition, Publicis may not:
- change its corporate form or corporate purpose; or
- issue obligations secured by the assets of Publicis,
without first consulting the meeting of holders of the ORAs, but Publicis is not
bound by the resolution adopted by the meeting. If Publicis proceeds with the
contemplated transaction despite an opposing resolution, each holder has the
right to demand to have the outstanding notional amount of his ORAs redeemed in
Publicis ordinary shares. This right needs to be exercised within three months
from the publication of Publicis's decision to disregard the opposing resolution
of the meeting of holders.
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Any proposed plan of merger, demerger or spin-off of Publicis has to be
submitted to the meeting of holders for approval unless Publicis offers the
holders to redeem their ORAs on their demand. If the plan is submitted to the
meeting, but not approved, Publicis may nevertheless proceed with the
contemplated transaction. Irrespective of the opposing or approving vote of the
holders, the ORAs which are not redeemed will automatically be converted into
similar securities of the surviving entity of the merger or other successor
entity of Publicis. The number of shares of the successor entity into which they
can be redeemed will be adjusted based on the exchange ratio in the merger. The
meeting of holders may resolve to instruct the representatives to oppose the
transaction in court. The court may then, in its discretion, stay the
transaction pending the prior redemption of the outstanding notional amount of
the ORAs in Publicis ordinary shares or the posting of security for such
redemption. These rights of the meeting of holders with respect to a merger do
not affect the right of each holder to accelerated redemption in the event of a
merger as described above under the caption "-- Accelerated and Automatic
Redemption."
Any resolution adopted by the meeting of holders has to apply to and treat
all holders equally.
The initial representatives acting for the holders of the ORAs will be
selected by Publicis and Bcom3 jointly and appointed in the issuance contract.
The meeting of holders may at any time revoke this appointment and appoint
representatives of its own choice. Each representative must be an entity or a
citizen of the European Union domiciled in France.
The representatives, acting together, have broad authority to take any
actions to protect the interests of the ORA holders as a group. In particular,
the representatives are authorized to represent the ORA holders, as a group,
before the French courts. Any court action so taken by the representatives will
have to be authorized by a meeting of holders. Under French law, individual
holders are not authorized to sue the issuer directly for matters (including
payment default) that affect the holders as a group. Any such actions against
Publicis can only be brought by the representatives, acting on a majority vote
of the meeting of holders. An individual holder would be permitted to sue the
issuer with respect to any matter affecting only his or her interest in the
ORAs.
ACCELERATED AND AUTOMATIC REDEMPTION
As long as there are any ORAs outstanding, Publicis may not accelerate the
redemption of the ORAs. However, Publicis may, at any time and with no
limitation as to the price or quantity, purchase the ORAs privately, on the
public markets, or through a public tender or exchange offer. These transactions
will not affect the amortization schedule for the ORAs still outstanding. Any
ORAs purchased in this manner will be cancelled.
The redemption of the ORAs may be accelerated at the option of each holder
of an ORA upon the occurrence of any of the following events. These "accelerated
redemption events" include:
- the general shareholder meeting of Publicis has not declared a dividend
on the Publicis ordinary shares for five consecutive fiscal years
preceding the notice of accelerated redemption.
- a public tender offer for 100% of the equity securities of Publicis is
commenced after such public tender offer has been cleared by the relevant
stock market authorities and a notice signifying the opening of the offer
has been published by these authorities.
- Publicis transfers, or proposes to transfer, whether by means of a sale,
spin-off, merger, transfer of assets or other means, a substantial part
of Publicis's assets or business to a third party, with a "substantial
part" meaning any assets or business representing one-third or more of
the consolidated revenues of Publicis based on Publicis's most recent
financial statements.
- any person, directly or indirectly, alone or as part of a group of
shareholders, other than the group that consists of Elisabeth Badinter
(directly or indirectly through Somarel) and Dentsu, obtains or is
presumed to have acquired control of Publicis under applicable French
law. A change of control is also deemed to have occurred if a third party
acts in concert with the group consisting of Madame Badinter and Dentsu,
and (1) Mrs. Elisabeth Badinter no longer dominates such group, or (2)
the third party is
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a competitor of Publicis. "Control" has the meaning set forth in article
L.233-3 of the French Commercial Code.
- Publicis fails to pay an annual cash amount when due (subject to the
sixth paragraph under "-- Annual Cash Amount") or to redeem the ORAs when
required, and such failure continues for a period of 30 business days
after Publicis has received notice of such failure from the
representatives of the holders, provided that no meeting of holders needs
to be held for sending such notice.
- Publicis breaches any of its other obligations with respect to the ORAs,
and such breach continues for a period of 30 business days after Publicis
has received notice of such breach from the representatives of the
holders, provided that no meeting of holders needs to be held for sending
such notice.
- one of the following events occurs and continues for a period of 30
business days after Publicis has received notice of such event from the
representatives of the holders, provided that no meeting of holders needs
to be held for sending such notice:
- Publicis or one of its material subsidiaries (as defined below) fails
in the due repayment upon maturity of any indebtedness (as defined
below).
- any indebtedness of Publicis or one of its material subsidiaries is
accelerated due to a default by Publicis or the relevant material
subsidiary.
- Publicis or one of its material subsidiaries fails to honor a guarantee
or indemnity in respect of any indebtedness.
For purposes of determining an accelerated redemption event:
"indebtedness" means any debt (including in connection with leasing
transactions) resulting from any obligation to repay borrowed money with
a term of at least one year and a principal amount of at least E25
million and which is evidenced by contract or other written instrument,
but does not include trade debt and inter-company loans; and
"material subsidiary" means any subsidiary of Publicis that accounts for
at least 5% of the consolidated net income (on a pre-tax basis and
excluding extraordinary income) of Publicis or which accounts for at
least 5% of the consolidated gross assets of Publicis and its
subsidiaries (disregarding minority interests), calculated on the basis
of the most recent audited consolidated financial statements of Publicis
and the respective subsidiary.
Upon accelerated redemption, each ORA will be fully redeemed for all
Publicis ordinary shares for which the ORA is then redeemable.
A holder desiring to redeem ORAs upon an accelerated redemption event has
to submit a written request to the intermediary through which the ORAs are being
held, which intermediary shall transmit the request to the paying agent. Such a
request is irrevocable.
In the event of Publicis's insolvency, court-ordered or voluntary
liquidation, settlement with creditors or bankruptcy filing, the ORAs are
automatically redeemed for all Publicis ordinary shares for which the ORAs are
then redeemable.
Any accelerated redemption, whether upon request or automatic, will only be
made in Publicis shares.
SHARES ISSUED UPON THE REDEMPTION OF ORAS
The shares delivered upon the redemption of ORAs will be subject to the
statuts of Publicis and will accrue dividends in the current year. Each such
share has the right to the same dividend as is paid to the holders of the other
ordinary shares. The shares will be admitted to clearing by Euroclear France.
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ANTI-DILUTION RIGHTS AND OTHER ADJUSTMENTS
For as long as there are any ORAs outstanding, Publicis may not amortize
the corporate capital or modify the distribution of profits. Publicis may,
however, create priority dividend shares without voting rights, provided that
the rights of the ORA holders are preserved pursuant to the terms of the
issuance contract.
Upon the occurrence of certain dilutive events described in more detail
below, the number of ordinary shares into which an ORA can be redeemed will be
adjusted to maintain the rights of the ORA holders. Adjustment will be made in
accordance with French law and the terms of the issuance contract so that the
aggregate value of the number of shares into which an ORA is redeemable
immediately following such event is equal to the aggregate value of the number
of shares into which it was redeemable immediately prior to such event. Any
fractional interests in shares underlying the ORAs created by virtue of an
adjustment will be, at the option of the holder, either paid in cash (based on
the opening trading price of the Publicis ordinary shares on the trading day
immediately preceding the redemption date) or credited against the purchase of
an additional whole share. These events are:
- an issue of Publicis shares with a listed preferential subscription
right;
- a grant to Publicis shareholders of any financial instrument other than
shares of Publicis;
- a capital increase through capitalization of reserves, profits, or issue
premiums, and the grant of shares for no consideration, stock splits or
reverse stock splits;
- an increase in the nominal value of the shares as a result of
capitalization of reserves, profits or issue premiums;
- a distribution of reserves or premiums in cash or securities;
- a merger or spin-off;
- a repurchase by Publicis of its own shares at a price higher than the
market price; and
- a payment by Publicis of an extraordinary dividend.
In the event the registered share capital of Publicis is reduced due to
losses, whether by reducing the nominal value or the number of shares, the
nominal value or the number of Publicis ordinary shares into which the ORA can
be redeemed will be reduced proportionally, as if the ORA holders had been
shareholders as of the issue date of the ORAs.
Notice of an adjustment will be made through publication in the BALO, a
notice published in a financial newspaper of national circulation, and by a
notice to Euronext Paris.
WITHHOLDING TAX
The government of any jurisdiction in which Publicis is incorporated may
require Publicis to withhold amounts from payments on the ORAs for taxes or
other governmental charges. If such a withholding should be required, Publicis
will pay to each ORA holder an additional amount so that the net amount received
by the holder will be equal to the amount the holder would have received if no
withholding had been required.
PRESCRIPTION PERIOD
A holder's right to receive the Publicis ordinary shares to be delivered
upon redemption of the ORAs will expire 30 years after the applicable redemption
date, and a holder's right to receive payment for the annual payment relating to
the ORAs shall expire five years after the date such annual payment becomes due
and payable. Once the applicable prescription period has expired, unclaimed
amounts, subject to applicable provisions of French law, will become the
property of Publicis.
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TRANSFER RESTRICTIONS
The ORAs will be subject to the transfer restrictions described under the
caption "Transfer Restrictions on Publicis Securities and Other Consideration."
LISTING
Publicis will apply to have the ORAs listed on Euronext Paris and will use
its reasonable best efforts to obtain admission to trading for the ORAs within
five business days after the closing date of the mergers. Publicis will pay all
fees and charges related to the listing on Euronext Paris and the costs involved
in maintaining the listing.
GOVERNING LAW AND FORUM
The ORAs are governed by French law. Any actions against Publicis arising
out of the ORAs will have to be brought in the competent French court located at
Publicis's registered office, which is in Paris. Any such court would not,
however, have exclusive jurisdiction to decide claims predicated on violations
of the U.S. federal securities laws relating to the ORAs.
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DESCRIPTION OF OBSAS
The OBSA is a security which consists of a conventional debt security and
detachable warrants to subscribe for ten Publicis ordinary shares. The warrants
and the debt securities that constitute the OBSA will be issued under an
issuance contract, while the rights and obligations of the trustee for the debt
securities (which we also refer to as the "notes" or "OBSA notes" herein) will
be governed by an indenture meeting the requirements of the Trust Indenture Act
of 1939. The indenture also contains provisions dealing with waivers and
amendments to the issuance contract and the indenture. The provisions of the
indenture are incorporated in the issuance contract. We refer to the issuance
contract (to the extent it applies to the notes, but not the warrants) and the
indenture together as the "combined note contract."
Under the terms of the Publicis/Bcom3 merger agreement, the OBSA notes will
be sold on or after the closing date of the mergers, and the net proceeds will
be distributed to the former Bcom3 stockholders. Each Bcom3 Class A stockholder
will receive the net proceeds from the sale of E53.861277 in principal amount of
OBSA notes (which proceeds will reflect a substantial discount to this principal
amount) and warrants to purchase 1.765944 Publicis ordinary shares (each warrant
gives the right to purchase one ordinary share) for each share of Class A common
stock such stockholder owns immediately prior to the effective time of the
Publicis/Bcom3 merger (after the consummation of the first step merger). See
"The Publicis/Bcom3 Merger Agreement -- Sale of Debt Portion of the OBSAs"
above.
NOTIONAL AMOUNT ISSUED
Each OBSA issued in the merger will have a notional amount of E305. Each
OBSA will carry 10 detachable warrants with the terms described under the
caption "-- Terms of Warrants."
TERMS OF NOTES
FINAL MATURITY
The notes will mature 20 years from the date of the OBSA issuance.
INTEREST
The notes bear interest at a fixed rate of 2.75% per annum, payable
semi-annually on each June 30 and December 31 beginning December 31, 2002 and
ending December 31, 2021, and in 2022, on the 20th anniversary of the closing of
the mergers (or the following business day if such day is not a business day).
RANK; NEGATIVE PLEDGE
The notes and the interest payable thereon will constitute general
unsecured, direct, unconditional, unsubordinated obligations of Publicis and
will rank equal with all other current or future unsecured debts and guarantees
of Publicis.
As long as any of the notes are outstanding, Publicis may not grant any
mortgage on its real property or pledge all or part of its goodwill or other
intangibles (fonds de commerce) or trade receivables (except for any
securitization transaction of the trade receivables or other transactions
involving the issuance of securities which represent trade receivables of
Publicis) for the benefit of other bonds without granting the same security
interests in the same rank to the holders of the notes. This restrictive
covenant applies only to issues of other obligations and does not affect the
ability of Publicis to make guarantees or grant security interests to creditors
other than holders of obligations, or to otherwise transfer title to its assets.
Obligations are defined under Article L.213-5 of the Code Monetaire et
Financier as "negotiable securities which, when issued together, confer the same
rights to repayment for the same nominal value." Obligations encompass a broad
variety of instruments. The principal defining characteristics are (1)
negotiability and (2) equal rights for all holders of any instrument issued at
one time with the same nominal value. In contrast, Publicis could issue security
interests in respect of debt that is not an obligation, such as loans (pret).
The French Civil Code defines a loan (pret) as an agreement providing for (1)
the creditor lending the object of the loan to the debtor and (2) the debtor
reimbursing the loan by returning the same object in the same
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quantity. When applied to a loan of borrowed money, the Civil Code's definition
means that when a lender has extended funds to a borrower, the borrower must
repay on the maturity date the full amount of the principal.
As of March 31, 2002, Publicis had outstanding approximately E690 million
in principal amount of senior convertible unsecured notes, which we refer to
herein as OCEANES, E200 million in notes exchangeable for shares of the
Interpublic Group and E1.877 billion in unsecured bank debt, all of which will
rank pari passu with the OBSA notes at the time of their issuance.
REDEMPTION
On June 30, 2013, on each June 30 thereafter through and including June 30,
2021, and on the 20th anniversary of the issuance (which issuance will occur on
the closing date of the Publicis Bcom3 merger), each holder of a note will
receive an amount in cash equal to 10% of the initial notional amount of such
note, and the notional amount of the note will be reduced accordingly.
Publicis reserves the right, at any time and with no limitation as to price
or quantity, to purchase all or part of the notes, privately, on the public
markets, or by public tender or exchange offers. These transactions will not
affect the redemption schedule for the notes still outstanding.
MODIFICATION OF TERMS AND WAIVERS
There are three types of changes that Publicis can make to the notes and
the combined note contract.
Changes Requiring Approval of Each Noteholder. First, there are changes
that cannot be made to the notes or the combined note contract without the
approval of each noteholder. This type of changes extends to:
- reducing the principal of, or changing, or having the effect of changing
the fixed maturity of any notes or the amount due upon an event of
default, or changing the date on which the notes may be subject to
acceleration or redemption, or reducing the redemption price of the
notes;
- reducing the rate of, or changing, or having the effect of changing the
time for payment of the interest on any notes;
- changing currency or location of payment of the notes;
- impairing a noteholder's right to receive payment of principal or
interest once it has become due or a noteholder's right to bring suit to
enforce such payment; and
- reducing the principal amount of notes required to consent to an
amendment or waiver of the notes or the combined note contract, or
modifying any other aspect of the provisions dealing with modifications
and waivers of the combined note contract.
Changes Not Requiring Consent of Noteholders. The second type of changes
does not require any vote or consent by the noteholders. This type extends to:
- curing ambiguities, omissions, defects or inconsistencies in a manner
that does not adversely affect the holders of the notes in any material
respect;
- adding guarantees with respect to the notes or securing the notes;
- adding to the covenants of Publicis for the benefit of the holders or
surrendering any right or power conferred on Publicis in the indenture;
- adding additional events of default for the benefit of the holders; and
- making any change that does not adversely affect the rights of any holder
in any material respect.
Changes Requiring a Majority Vote. The third type of changes to the notes
or the combined note contract is the kind that requires a vote of the holders of
at least a majority of the outstanding principal amount of the notes. These are
any changes to the combined note contract other than changes that require the
consent of all noteholders (see above the first type of changes) or do not
require noteholder consent or vote at
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all (see above the second type of changes). For example, the vote of the holders
of a majority of the notes would be required for Publicis to obtain a waiver of
all or part of certain covenants or a waiver of a past default in performance of
a covenant. However, Publicis cannot obtain a waiver of a payment default or any
other aspect of the indenture or the notes listed in the bulleted list under the
first category above unless it obtains each holder's individual consent to the
waiver.
Further Details Concerning Voting. Noteholders may act by written consent.
Publicis will generally be entitled to set any day as a record date for the
purpose of determining the holders of outstanding notes that are entitled to
vote or take other action under the indenture. In limited circumstances, the
trustee will be entitled to set a record date for action by holders. If Publicis
or the trustee sets a record date for a vote or other action to be taken by
holders, that vote or action may be taken only by persons who are holders of
outstanding notes on the record date and must be taken within 180 days following
the record date or another shorter period that Publicis or the trustee,
respectively, may specify. Publicis may shorten or lengthen (but not beyond 180
days) this period from time to time.
TRUSTEE
As the notes will be issued outside France, pursuant to article L. 228-90
of the French Commercial Code the noteholders will not constitute a masse, i.e.,
an entity with legal personality. Accordingly, the authority granted to the
meeting of noteholders by the French Commercial Code for issues within France
does not apply to the issuance of the notes. Therefore, articles L. 228-46
through 228-69, article L. 228-71, article L. 228-72, articles L. 228-76 through
81 and articles L. 228-83 through 89 governing the authority and role of the
noteholder meeting will not apply to the notes and the holders. Instead, a U.S.
trustee will act for the benefit of the holders pursuant to the indenture.
The Bank of New York has been appointed as the trustee under the indenture.
The indenture contains provisions relating to the duties and responsibilities of
the trustee and its obligations to the holders of the notes.
The trustee may resign at any time and the holders of a majority in
aggregate principal amount of the notes may remove the trustee at any time.
Publicis will remove the trustee if the trustee becomes ineligible to serve as
trustee under the terms of the indenture, becomes incapable of acting as
trustee, or is adjudged insolvent or bankrupt. If the trustee resigns or is
removed, a successor trustee will be appointed in accordance with the terms of
the indenture.
CONTROL BY MAJORITY; LIMITATION ON SUITS
Holders of a majority in principal amount of the notes may direct the
trustee with respect to any legal proceeding or any other remedy or power of the
trustee with respect to the notes.
No holder will have a right to institute any proceeding with respect to the
combined note contract, unless:
- the holder has given to the trustee written notice of a continuing event
of default;
- holders of at least a majority in principal amount of the notes have made
a written request to the trustee to pursue the remedy in its own name as
trustee under the indenture and have provided reasonable indemnity to the
trustee; and
- the trustee does not comply within 60 days after its receipt of such
notice.
Otherwise, no holder will have any right to institute any proceeding with
respect to the combined note contract or for any remedy under it, except that
any holder may institute suit for enforcement of payment of the principal of or
interest on the notes on or after the respective due dates.
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CERTAIN ACTIONS BY PUBLICIS
The combined note contract contains specific provisions governing certain
significant corporate actions by Publicis.
Merger, Demerger, Spinoff or Partial Business Transfer. If Publicis
proposes to effect a merger, demerger or spin off (scission) that would result
in Publicis ceasing to exist as a legal entity, or to transfer part of its
business by an "apport partiel d'actifs soumis au regime des scissions", either
(1) Publicis must offer to redeem the notes or (2) the transaction must be
submitted to holders of the notes for approval. The combined note contract sets
forth the notice provisions and other required procedures that apply in these
circumstances. If the transaction is submitted to the noteholders but not
approved by holders of a majority in principal amount of the notes, Publicis may
nevertheless proceed with the proposed transaction. If the transaction is
ultimately consummated, the notes will automatically be converted into similar
securities of the surviving entity of the merger or other successor entity of
Publicis. The holders of a majority in principal amount of the notes, however,
would be entitled to instruct the trustee to file a claim before the Paris
Tribunal de Commerce requesting the court to order the repurchase of the notes
or the posting of security for such repurchase.
Change of Corporate Form or Corporate Purpose; Issuance of Secured
Bonds. If Publicis proposes to change its corporate form or corporate purpose,
or to issue bonds (obligations) secured by Publicis's assets (to the extent such
issuance would otherwise be permitted under the combined note contract), either
(1) Publicis must offer to redeem the notes or (2) the transaction must be
submitted to holders of the notes for approval. The combined note contract sets
forth the notice provisions and other required procedures that apply in these
circumstances. If the transaction is submitted to the noteholders but not
approved by holders of a majority in principal amount of the notes, Publicis may
nevertheless proceed with the proposed transaction. Each noteholder would,
however, have the right to demand that Publicis repurchase all or any portion of
such holder's notes.
EVENT OF DEFAULT
Upon an event of default, the trustee, at the instruction of the holders of
a majority in principal amount of the notes, must, or in the event of a
bankruptcy or an equivalent procedure of Publicis, may with or without such
instruction, by written notice to Publicis, demand the accelerated redemption of
all the notes, together with any accrued interest, in any of the following
cases:
- Publicis fails to pay interest or principal on the notes when due, and
such failure continues for 30 business days;
- Publicis breaches any of its other obligations with respect to the notes,
and such breach continues for a period of 30 business days after Publicis
has received notice of such breach from the trustee.
- one of the following events occurs:
- Publicis or one of its material subsidiaries fails in the due repayment
of any indebtedness.
- any indebtedness of Publicis or one of its material subsidiaries is
accelerated due to a default by Publicis or the relevant material
subsidiary and such indebtedness is not paid, or the relevant
acceleration cancelled, within 30 business days after Publicis receives
a notice of such acceleration from the trustee.
- Publicis or one of its material subsidiaries fails to honor a guarantee
or indemnity in respect of any indebtedness.
- Publicis or any of its material subsidiaries requests the appointment of
a conciliator, enters into an agreement with its principal creditors,
enters into voluntary or involuntary liquidation, bankruptcy proceeding,
total sale or any equivalent step or proceeding.
- any event occurs that has effect analogous or equivalent to any of the
foregoing.
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For purposes of determining an event of default:
- "indebtedness" means any debt (including in connection with leasing
transactions) resulting from any obligation to repay borrowed money with
a term of at least one year and a principal amount of at least E25
million and which is evidenced by a contract or other written instrument,
but does not include trade debt and inter-company loans; and
- "material subsidiary" means any subsidiary of Publicis which accounts for
at least 5% of the consolidated net income (on a pre-tax basis and
excluding extraordinary income) of Publicis or which accounts for at
least 5% of the consolidated gross assets of Publicis and its
subsidiaries (disregarding minority interests), calculated on the basis
of the most recent audited financial statements of Publicis and the
respective subsidiary.
WITHHOLDING TAX
The government of any jurisdiction in which Publicis is incorporated may
require Publicis to withhold amounts from payments on the notes for taxes or
other governmental charges. If such a withholding should be required, Publicis
will pay to each holder of notes an additional amount so that the net amount
received by the holder will be equal to the amount the holder would have
received if no withholding had been required.
PRESCRIPTION PERIOD
A holder's right to receive the principal on the notes will expire 30 years
after the applicable payment date, and a holder's right to receive payment for
the interest relating to the OBSAs shall expire five years after the date such
interest payment becomes due and payable. Once the applicable prescription
period has expired, unclaimed amounts, subject to applicable provisions of
French law, will become the property of Publicis.
ADMISSION TO LISTING; TRADING
If the marketing agent so requests, Publicis shall use reasonable best
efforts to have the notes listed on the Premier Marche of Euronext Paris,
separately from the warrants.
GOVERNING LAW AND FORUM
The issuance contract under which the notes will be issued will be governed
by French law, other than the provisions of the issuance contract that are
incorporated from the indenture. These incorporated provisions together with the
indenture itself (with certain exceptions, including those provisions described
under the caption "-- Certain Actions by Publicis," which shall be governed by
French law) will generally be governed by the laws of the State of New York. Any
actions against Publicis arising out of the notes will have to be brought in the
competent French court located at Publicis's registered office, which is in
Paris. Any such court would not, however, have exclusive jurisdiction to decide
claims predicated on violations of the U.S. federal securities laws relating to
the notes.
TERMS OF WARRANTS
SHARES FOR WHICH WARRANTS ARE EXERCISABLE
Each warrant entitles the holder to purchase one Publicis ordinary share at
a price of E30.50 per share. The number of Publicis ordinary shares to be
received upon exercise is subject to customary anti-dilution adjustments to
reflect events affecting the Publicis ordinary shares, as described below under
the caption "-- Anti-Dilution Rights and Other Adjustments."
EXERCISE SCHEDULE
Each warrant will be exercisable at any time after the 11th anniversary
through the 20th anniversary of the completion of the mergers. Warrants not
exercised by the 20th anniversary of the completion of the mergers will become
void.
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ACCELERATION OF EXERCISE RIGHTS
Upon any accelerated exercise event, warrants shall become immediately
exercisable at the option of each holder. An "accelerated exercise event" means
any of the following:
- a public tender offer for 100% of the equity securities of Publicis is
commenced after such public tender offer has been cleared by the relevant
stock market authorities and a notice signifying the opening of the offer
has been published by these authorities.
- Publicis transfers, or proposes to transfer, whether by means of a sale,
spin-off, merger, transfer of assets or other means, a substantial part
of Publicis's assets or business to a third party, with a "substantial
part" meaning any assets or business representing one-third or more of
the consolidated revenues of Publicis based on Publicis's most recent
financial statements.
- any person, directly or indirectly, alone or as part of a group of
shareholders, other than the group that consists of Elisabeth Badinter
(directly or indirectly through Somarel) and Dentsu, obtains or is
presumed to have acquired control of Publicis under applicable French
law. A change of control is also deemed to have occurred if a third party
acts in concert with the group consisting of Madame Badinter and Dentsu,
and (1) Mrs. Elisabeth Badinter no longer dominates such group, or (2)
the third party is a competitor of Publicis. "Control" has the meaning
set forth in article L.233-3 of the French Commercial Code.
- Publicis's insolvency, court-ordered or voluntary liquidation, settlement
with creditors or bankruptcy filing.
Each holder of warrants who wishes to exercise warrants upon an accelerated
exercise event shall make a written request to the intermediary holding his or
her warrants, who must submit the request to the institution responsible for
servicing the warrants. Such a request is irrevocable.
SUSPENSION OF EXERCISE OF WARRANTS
Publicis is entitled to suspend, upon proper notice, the exercise of
warrants, for a maximum period of three months, in the event of an increase of
its registered capital, merger, spin-off or other transaction which confers on
shareholders a preferential subscription right or reserves a priority
subscription period for shareholders. Publicis's decision to suspend the
exercise of the warrants must be announced in the BALO. The notice must be
published at least 15 days before the date on which the suspension takes effect
and must state the effective date of the suspension and the end of the
suspension period. This information will also be included in a notice in a
nationally distributed financial newspaper in France and to Euronext Paris.
If a warrant to purchase ordinary shares is exercised before a transaction
triggering preemptive rights is completed, warrant holders may exercise their
preemptive rights with respect to the shares issued upon exercise. If, however,
the warrant is exercised after such a transaction is completed, as a result of
the suspension or otherwise, the warrant holders do not have preemptive rights
with respect to shares that would have been issued upon exercise but for the
suspension.
ANTI-DILUTION RIGHTS AND OTHER ADJUSTMENTS
In compliance with French law, Publicis undertakes, so long as warrants
remain outstanding, to refrain from any amortization of its registered capital
or any modification in the distribution of profits.
Nevertheless, Publicis can create priority dividend rights shares without
voting rights, provided that the rights of the warrant holders are reserved
under the conditions outlined in the issuance contract.
Upon the occurrence of certain dilutive events described in more detail
below, the number of ordinary shares for which a warrant may be exercised will
be adjusted to maintain the rights of the warrant holders. Adjustment will be
made in accordance with French law and the terms of the issuance contract so
that the aggregate value of the number of shares for which a warrant is
exercisable immediately following such event is equal to the aggregate value of
the number of shares for which it was exercisable immediately prior to such
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event. Any fractional interests in shares underlying the warrants created by
virtue of an adjustment will be, at the option of the holder, either paid in
cash (based on the opening trading price of the Publicis ordinary shares on the
trading day immediately preceding the exercise date) or credited against the
purchase of an additional whole share. These events include the following:
- an issue of Publicis shares with a listed preemptive subscription right;
- a grant to Publicis shareholders of any financial instrument other than
shares of Publicis;
- a capital increase through capitalization of reserves, profits, or issue
premiums, and the grant of shares, stock splits or reverse stock splits;
- an increase in the nominal value of the shares as a result of
capitalization of reserves, profits or issue premiums;
- a distribution of reserves or premiums in cash or securities;
- a merger or spin-off;
- a repurchase by Publicis of its own shares at a price higher than the
market price; and
- the payment by Publicis of an extraordinary dividend.
In the event the registered share capital of Publicis is reduced due to
losses, whether by reducing the nominal value or the number of shares, the
nominal value or number of Publicis ordinary shares for which each warrant can
be exercised will be reduced in proportion, as though the warrant holders had
been shareholders as of the issue date of the OBSAs.
Notice of an adjustment will be made through publication in the BALO, a
notice published in a financial newspaper of national circulation, and by a
notice to Euronext Paris.
SHARES ISSUED UPON THE EXERCISE OF WARRANTS
The shares issued upon the exercise of warrants will be subject to the
statuts of Publicis and will accrue dividends in the current year. Each such
share has the right to the same dividend as is paid to the holders of the other
ordinary shares. The shares will be freely transferable and will be admitted to
clearing by Euroclear France. Publicis will take the necessary steps to have the
shares listed on the Premier Marche of Euronext Paris.
LISTING
Publicis will apply to have the warrants listed on the Premier Marche of
Euronext Paris and will use its reasonable best efforts to obtain admission to
trading within five business days after the closing date of the mergers.
Publicis will pay, among other things, but without limitation, all fees, charges
and commissions related to such listing.
TRANSFER RESTRICTIONS
The warrants will be subject to the transfer restrictions described in
"Transfer Restrictions on Publicis Securities and Other Consideration."
GOVERNING LAW AND FORUM
The warrants will be issued pursuant to and will be governed by French law.
Any actions against Publicis arising out of the warrants will have to be brought
in the competent French court located at Publicis's registered office, which is
in Paris. Any such court would not, however, have exclusive jurisdiction to
decide claims predicated on violations of the U.S. federal securities laws
relating to the warrants.
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NATURE OF TRADING MARKET
OVERVIEW
The principal trading market for Publicis ordinary shares is the Premier
Marche of Euronext Paris (which resulted from the merger of the Paris, Brussels
and Amsterdam stock exchanges in 2000), a self-regulatory organization
responsible for supervision of trading in listed securities in France. Publicis
ordinary shares have been traded on the Premier Marche since June 1970. Prior to
this date, Publicis ordinary shares were not publicly traded.
EURONEXT PARIS
Securities listed on Euronext Paris are officially traded through
authorized financial institutions that are members of Euronext Paris. Since
April 23, 2001, when changes to the trading hours of Euronext Paris and rules
for reservation of securities were implemented, securities have been traded
continuously on each business day from 9:00 a.m. to 5:25 p.m. (Paris time), with
a pre-opening session from 7:15 a.m. to 9:00 a.m. and a pre-closing from 5:25
p.m. to 5:30 p.m. during which trades are recorded but not executed, and a
closing auction at 5:30 p.m. Any trade of a security that occurs after a stock
exchange session closes is recorded on the next business day, at the previous
session's closing price for that security. Euronext Paris has introduced
continuous electronic trading during trading hours for most listed securities.
Euronext Paris publishes a daily official price list that includes price
information for listed securities.
Securities listed on Euronext Paris are traded on one of four markets. Most
large public companies list their securities on the Premier Marche (formerly
known as Cote Officielle) of Euronext Paris and most small and medium-sized
companies list their securities on the Second Marche of Euronext Paris.
Securities also may be traded on the Nouveau Marche, a regulated electronic
market that was established to allow small capitalization and start-up companies
to access the stock market as well as the Marche des EDR (European Depository
Receipts Market). Euronext Paris manages and operates the Premier Marche, the
Second Marche, the Nouveau Marche and the Marche des EDR.
Euronext Paris places securities listed on the Premier Marche or the Second
Marche in one of several categories, depending on their trading volume. Publicis
ordinary shares are classified in the category known as Groupe Continu 11.
Companies listed among the Groupe Continu 11 must have a market capitalization
in excess of E1 billion and a daily trading volume in excess of E1 million.
Euronext Paris may suspend trading in a security listed on the Premier
Marche if the quoted price of the security exceeds specified price limits
defined by its regulations. In particular, if the quoted price of a Groupe
Continu 11 security varies by more than 10% from the same day's opening price,
Euronext Paris may suspend trading in that security for up to 4 minutes. It may
suspend trading further for up to 4 minutes if the price again varies by more
than 10%. Euronext Paris also may suspend trading of a security listed on the
Premier Marche in other limited circumstances, including, for example, where
there is unusual trading activity in the security. In addition, in exceptional
cases, the Conseil des Marches Financiers (the CMF) and the COB may also suspend
trading.
A U.S. shareholder who would like to trade Publicis securities on Euronext
Paris may give instructions to his or her usual U.S. broker. The U.S. broker
would then forward the instruction to its affiliate or correspondent in France
(all major U.S. brokerage houses have either affiliates or correspondents in
France). Alternatively, particularly if the trade is significant, the U.S.
shareholder may directly instruct a French broker to effect the trade. In this
case, the U.S. shareholder must, within three business days of the date of the
trade, deposit the securities subject to the trade in a securities account
opened in his or her name at the selected French broker.
The fees depend on the U.S. broker's fee schedule. For foreign trades,
brokerage fees are typically higher than for domestic trades (although generally
not significantly), but they may be negotiated on a case-by-case basis depending
on the size of the trade.
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In addition, should the U.S. shareholder decide to directly instruct a
French broker to make a trade, the fee would be freely negotiable with that
broker.
Trading, clearance and settlement procedures are the same for all markets
on Euronext Paris, with cash settlement being the general rule within three days
of the trade. However, a deferred settlement service (service de reglement
differe) is offered by intermediaries for a selection of securities meeting
capitalization and liquidity criteria, regardless of the market on which they
are listed. To be eligible for clearance and settlement through the deferred
settlement service, securities must either be included in the "SBF 120" index, a
benchmark index which comprises the stocks in the "CAC 40" index and an
additional 80 of the most actively traded stocks listed on the Euronext Paris,
or show market capitalization of at least E1 billion and a daily trading volume
averaging at least E1 million on the Euronext Paris. A fee is charged for this
service. Publicis ordinary shares are eligible for clearance through the
deferred settlement service.
With a deferred settlement instruction, a purchaser may elect not to pay
and not to receive the securities until the end of the month. The transfer of
ownership of equity securities traded on Euronext Paris pursuant to a deferred
settlement instruction takes place the last business day of the month. The
purchaser may decide, five days before the end of the calendar month (the
determination date, or date de liquidation), either (1) to settle the trade no
later than on the last trading day of such month or (2) upon payment of an
additional fee, to extend settlement to the determination date of the following
month, with the option either to settle no later than the last trading day of
that month or to further postpone settlement until the next determination date.
The purchaser may maintain that option on each subsequent determination date
upon payment of an additional fee.
In accordance with French securities regulation, any sale of securities
executed with a deferred settlement instruction during the month of and prior to
a dividend payment date is deemed to occur before payment of the dividend. The
purchaser's account will be credited with an amount equal to the dividend paid
to the seller, and the seller's account will be debited in the same amount.
EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS
OWNERSHIP OF PUBLICIS SHARES BY NON-FRENCH PERSONS
The French Commercial Code currently does not limit the right of
nonresidents of France or non-French persons to own and vote shares. However,
nonresidents of France must file an administrative notice with French
authorities for any acquisition of a controlling interest in Publicis. Under
existing administrative rulings, ownership of 20% or more of a public company's
share capital or voting rights is regarded as a controlling interest, but a
lower percentage might be held to be a controlling interest in specified
circumstances depending upon factors such as:
- the acquiring party's intentions;
- the acquiring party's ability to elect directors; or
- financial reliance by the company on the acquiring party.
EXCHANGE CONTROLS
Under current French exchange control regulations, there are no limitations
on the import or export of capital or on the amount of payments that may be paid
by a French company to non-French residents. Laws and regulations concerning
foreign exchange controls do require, however, that all payments or transfers of
funds (including payments of dividends to foreign shareholders) made by a French
resident to a non-French resident be handled by an accredited intermediary. See
"Description of Publicis Share Capital -- Form, Holding and Transfer of Publicis
Ordinary Shares." In France, all registered banks and substantially all credit
establishments are accredited intermediaries.
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Pursuant to the Publicis/Bcom3 merger agreement, Publicis has agreed to
appoint and maintain at its expense a custodian to assist former Bcom3
stockholders with matters relating to the ownership of Publicis ordinary shares,
ORAs and warrants to be received in the Publicis/Bcom3 merger. This will include
assistance with the distribution of voting materials, currency conversion of
dividends and interest and receipt of certain French tax credits.
DESCRIPTION OF PUBLICIS
DESCRIPTION OF BUSINESS
Publicis is the world's sixth largest advertising and communications firm
and operates two major global networks, Publicis Worldwide and Saatchi & Saatchi
Worldwide. Publicis is currently in the process of expanding Fallon into a third
global network with regional hubs in several key countries. Publicis also has
one of the world's largest healthcare communications networks, combining Nelson
Communications with the healthcare activities of the Publicis and Saatchi &
Saatchi networks. In addition, through the Zenith Optimedia Group, Publicis is
the world's third largest media buying group.
Publicis has strong positions in key markets around the world. Publicis
ranks first in Europe overall, and is among the top five advertising and
communications companies in France, Germany, the United Kingdom, the
Netherlands, Spain, Italy and Switzerland. As a result of Publicis's recent
expansion, Publicis is now among the ten largest advertising and communications
firms in the United States and Canada as well. Publicis is also well represented
in Asia, where Saatchi & Saatchi gives Publicis a significantly expanded
presence, the Middle East and Latin America. The completion of the
Publicis/Bcom3 merger, and Publicis's related partnership with Dentsu, will
further enlarge the scope and reach of Publicis's services. Publicis provides
services primarily in the following areas:
- Traditional advertising services. Publicis provides traditional
advertising services through the Publicis, Saatchi & Saatchi and Fallon
Worldwide networks. These activities accounted for approximately
two-thirds of Publicis's total revenue in 2001.
- Specialized agencies and marketing services. Publicis provides
specialized communications services such as public relations, corporate
and financial communications, direct marketing, sales promotion,
interactive communications, design, media buying and media sales
(collectively referred to as "SAMS") through subsidiaries including
Nelson Communications, Frankel, Publicis Dialog, Publicis Consultants,
the Triangle Group and the Zenith Optimedia Group.
CLIENTS
Publicis provides advertising and communications services to national and
multinational clients around the world. In 2001, approximately one-third of
Publicis's revenue came from globally-managed accounts (i.e., those for which
Publicis provides services in five or more countries). Publicis generated the
remaining two-thirds from clients of Publicis's subsidiaries around the world.
This client mix, Publicis believes, is advantageous in that locally-managed
clients are often more profitable and tend to be focused on the discrete markets
in which they operate, therefore diversifying Publicis's exposure to
fluctuations in general market conditions. Locally-managed clients also give
Publicis an opportunity to take advantage of, and add to, Publicis's intimate
knowledge of national and local cultures and business environments and to raise
Publicis's profile in local markets. No one client accounted for more than 6% of
Publicis's total revenue in 2001.
COMPETITION
Publicis's principal competitors include major international advertising
and communications groups such as Omnicom Group, Inc., the Interpublic Group,
WPP Group plc and Havas Advertising, independent local advertising agencies in
markets around the world and SAMS businesses that focus on specialized areas of
communications services.
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Advertising and communications markets are generally highly competitive and
Publicis continuously competes with national and international agencies for
business. Competition may increase in the near future as a result of
multinational clients' increasing consolidation of their advertising accounts
with a very limited number of firms.
GOVERNMENTAL REGULATION
Publicis's business is subject to government regulation in France, the
United States and elsewhere. As the owner of advertising agencies operating in
the United States which create and place print, television, radio and internet
advertisements, Publicis is subject to the U.S. Federal Trade Commission Act.
This statute regulates advertising in all media, including the internet, and
requires advertisers and advertising agencies to be able to substantiate
advertising claims before disseminating advertisements. In the event that any
advertising Publicis creates is found to be false, deceptive or misleading, the
Federal Trade Commission Act could potentially subject Publicis to liability.
In France, media buying activities are subject to the Loi Sapin, a law
intended to require transparency in media buying transactions. Pursuant to the
Loi Sapin, an advertising agency may not purchase advertising space from media
companies and then resell the space on different terms to clients. Instead, the
agency must act exclusively as the agent of its clients when purchasing
advertising space. The Loi Sapin applies to advertising activities in France
when both the media company and the client or the advertising agency are French
or located in France. Publicis is not aware of any existing, or contemplated,
similar legislation in the other countries in which Publicis operates.
Governmental authorities in a variety of countries have proposed
limitations on the collection and use of information regarding internet users.
In October 1998, the European Union adopted a directive that limits the
collection and use of information regarding internet users in Europe. In
addition to government activity, a number of industry and privacy advocacy
groups are considering various new, additional or different self-regulatory
standards. Because Publicis's marketing services activities rely on the
collection and use of client data, new regulations or standards imposed in this
area could have a material adverse impact on Publicis's operations.
CERTAIN FINANCIAL INFORMATION
For information related to Publicis's historical financial statements,
please refer to "Selected Historical Consolidated Financial Data" on page 17. In
the first six months of 2002, Publicis announced an increase of 2.4% in
consolidated revenues, totaling E1.176 billion, compared to E1.148 billion for
the same period last year. On a fully comparative basis, revenues would have
decreased 3.6%, compared to the industry's worldwide slowdown estimated at
approximately 6% for the same period.
DESCRIPTION OF BCOM3
GENERAL BACKGROUND
Bcom3 is one of the world's leading advertising and marketing
communications services holding companies. Bcom3 was created through the
business combination of The Leo Group and The MacManus Group on January 31,
2000. As a result of this business combination, Bcom3 has more than 500 offices
in over 90 countries, and more than 17,000 employees. Bcom3's most significant
global agencies include Leo Burnett, D'Arcy Masius Benton & Bowles, Starcom
MediaVest Group, Manning Selvage & Lee, and Medicus Group International. Bcom3
has more than 3,000 clients.
As a result of the business combination, Bcom3 has assembled the
complementary resources needed to serve the advertising and marketing
communications requirements of its clients around the world. Bcom3's service
offerings include creation and production of advertising; branding and brand
building (including services to help create, build, and revitalize clients'
brands); strategic media planning and buying; marketing research and
consultation; public relations; healthcare marketing and communications;
multicultural and
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urban marketing; direct and database marketing; interactive and digital
communications; financial and business-to-business advertising; directory
advertising; field marketing (including marketing to and through a direct sales
force); integrated merchandising and sales promotion programs (including the
planning, design, and implementation of merchandising and sales promotions and
targeted interactive campaigns); sports and event marketing; telemarketing; new
product design and development; package design; and internet and digital media
development.
Bcom3 has a strategic relationship with Dentsu, which is the largest
full-service advertising and marketing communications services company in Japan
and throughout Asia, and the single largest advertising agency brand in the
world, in each case based on revenues. This strategic relationship is focused on
aligning with Dentsu to serve significant Dentsu clients in markets outside of
Japan and Asia, as well as on increasing Bcom3's own presence in Japan. As part
of the strategic relationship, Dentsu purchased approximately 20% of Bcom3's
common stock (measured after dilution for Bcom3's management equity incentive
plan) in March 2000 as an equity investment. Dentsu also shares certain
intellectual property and know-how with Bcom3. During 2001, Bcom3 merged its
operations in Japan with certain Dentsu operations to form Beacon
Communications. Bcom3 holds a majority interest in Beacon Communications. In
Australia, Bcom3 recently purchased certain advertising and media services
businesses from Dentsu, and combined them with its own operations.
Bcom3 is a privately-held company, and there is no trading in its shares.
Excluding Dentsu, all of Bcom3's stockholders (a total of approximately 650 of
its current and former employees) have deposited their shares into a voting
trust, with four of its directors serving as voting trustees. In addition, all
of Bcom3's stockholders, including Dentsu, have agreed to stock transfer and
other standstill restrictions on their shares.
DESCRIPTION OF Bcom3'S BUSINESS
Bcom3 provides advertising and marketing communications services to its
clients around the world through such well-known global agencies as Leo Burnett,
D'Arcy Masius Benton & Bowles, Starcom MediaVest Group, Manning Selvage & Lee,
Medicus Group International and Bartle Bogle Hegarty (a 49% owned affiliate).
Bcom3 also provides such services to its clients under a number of regional or
specialized agencies, including Beacon Communications, Bromley Communications,
Buehler & Partners, Capps Digital, Cartwright Williams Direct, Chemistri,
Clarion Marketing & Communications, D'Arcy Direct, IMP, Kaplan Thaler Group,
Lapiz, The Lab, Leo Burnett Customer Group, Leo Burnett Works, Masius, Moroch
Partners, NOVO, Pangea, Vigilante, and Williams-Labadie Advertising.
Bcom3's advertising agencies serve some of the world's leading advertisers
based on ad spending, including Allstate Insurance, Bristol-Myers Squibb,
Capital One, Diageo, Ernst & Young, Fiat, General Motors, Kellogg, Mars, Maytag,
McDonald's, Nintendo, Philip Morris, Philips, Pillsbury, Procter & Gamble and
Walt Disney. Bcom3 has long standing relationships with many of its clients,
extending back more than 25 years on average for its top 10 clients.
Bcom3's advertising agencies have produced well-known campaigns, such as
"Look, Ma. No Cavities!", for Crest; "A Diamond is Forever," for DeBeers; "This
Bud's for You," for Anheuser Busch; "The Pause that Refreshes," for Coca-Cola;
"Reach Out and Touch Someone," for AT&T; "The Best Part of Wakin' Up," for
Folgers; and "Please Don't Squeeze the Charmin" for Procter & Gamble. In
addition, Bcom3 has created such enduring brand icons as the Marlboro man, for
Philip Morris; Tony the Tiger, for Kellogg; the Jolly Green Giant, for
Pillsbury/Green Giant; the Pillsbury Doughboy, for Pillsbury; the Keebler elves,
for Keebler; and the Maytag repairman, for Maytag.
Bcom3 is also a leading global provider of strategic media planning and
buying services, based on revenues. Bcom3 helps its clients plan and place their
advertising and other marketing communications using television, print, radio,
and other major media. In March 2001, Bcom3's Starcom MediaVest Group won the
consolidated media assignment from Kraft Foods with billings estimated at $900
million. The magnitude of this assignment secures its ranking among the largest
in history, following the $2.9 billion General Motors consolidated strategic
planning assignment which Starcom MediaVest Group won in July 2000. In January
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2001, Ad Age Global named Starcom MediaVest Group the "Global Media Network of
the Year," and Adweek named it the "Media Company of the Year."
Bcom3 has operations in the United States, Europe, Asia Pacific, Latin
America, Canada, the Middle East and Africa. As noted above, Bcom3 has more than
500 offices in over 90 countries, and more than 17,000 employees, approximately
67% of whom work outside the United States.
COMPETITION AND OTHER FACTORS
The advertising and marketing communications services industry is highly
competitive. Bcom3's operating units must compete with other advertising
agencies and with other providers of marketing communications services that are
not advertising agencies in order to maintain existing client relationships and
obtain new clients.
Competition in the advertising business depends to a large extent on the
client's and the consumer's view of the quality of an agency's "creative
product." Another important competitive consideration is an agency's ability to
serve clients, particularly large multinational clients, on a broad geographic
basis. Increasing size can limit an agency's potential for securing new
business, however, because many clients prefer not to be represented by an
agency that also represents a competitor. Also, clients frequently wish to have
different products represented by different agencies. For this reason, major
advertising and marketing communications services groups such as Bcom3 tend to
operate multiple agencies.
Bcom3's top 20 clients accounted for 55.5% of its annual revenues in 2001
and, as a result, Bcom3 might suffer material adverse consequences if one of its
largest clients were to completely cease doing business with it. Although there
can be no assurance, Bcom3 believes there are several factors that would make
such an event unlikely. First, Bcom3 generally represents several different
brands or divisions within each of its largest clients, typically in a number of
different geographical markets, and often under more than one of Bcom3's own
brands. Moreover, Bcom3 normally deals with several different, independent
decision makers at each client. Furthermore, as noted above, Bcom3 has
long-standing relationships with its largest clients.
The advertising business is subject to significant government regulation,
both domestic and foreign. These regulations include specific rules,
prohibitions, media restrictions and labeling, disclosure and warning
requirements with respect to advertising directed at children; with respect to
the protection of consumer privacy; and with respect to the advertising for
certain products, such as tobacco and alcohol. Bcom3 provides services to
several clients affected by these regulations, including tobacco-related
advertising assignments for Philip Morris. Government regulators have proposed
further such restrictions from time to time, which, if adopted, may have an
adverse effect on Bcom3's advertising revenues. Bcom3's international operations
are also exposed to certain risks that affect international operations of all
kinds, such as local legislation, monetary devaluation, exchange control
restrictions, and unstable political conditions.
PROPERTIES
Bcom3's principal place of business, located at 35 West Wacker Drive,
Chicago, IL 60601, comprises 643,823 square feet of space, which includes its
corporate headquarters. Bcom3's main telephone number is 312-220-1000. Bcom3's
office at 825 Eighth Avenue, New York, NY 10019, comprising 104,359 square feet
of space, also includes corporate offices. Bcom3 also has offices in other
principal cities in the United States and in over 90 other countries. All of
Bcom3's offices are leased, with the exception of its facilities in Colombia,
Guatemala, Mexico, Venezuela, India and Sweden. For financial accounting
purposes, Bcom3's leased corporate headquarters building in Chicago is reflected
as an asset and the related financing obligation is reflected as a liability.
See Note 15 to Bcom3's Consolidated Financial Statements.
LEGAL PROCEEDINGS
Bcom3 is involved in various claims and lawsuits arising in the ordinary
course of business. Bcom3 does not expect any of these matters to have a
material adverse effect on its financial condition or results of operations.
159
CERTAIN INFORMATION ABOUT BCOM3
In the course of due diligence, Publicis and Bcom3 exchanged information
about their businesses. As part of this information exchange, Bcom3 shared with
Publicis its budget for 2002. Bcom3 prepared this budget for internal planning
purposes, primarily as a tool to establish appropriate staffing and expense
levels for the year. Consistent with common practice in the advertising industry
and Bcom3's regular procedures, the budget only reflected revenues that in
management's judgment were known or highly probable, taking in account the
nature of the business and client relationships. In applying this standard, the
budget generally included revenue only from existing clients and assumed no
revenue from new clients. Based on these assumptions, the Bcom3 2002 budget was
set at $1.891 billion of revenue and $314 million of EBITDA.
In February 2002, Bcom3 showed Publicis an illustrative projection for
2002. The numbers assumed 4% revenue growth over Bcom3's 2001 results, a growth
rate in line with industry expectations at that time for the largest advertising
companies. These assumptions resulted in hypothetical 2002 revenues for Bcom3 of
$1.994 billion and EBITDA of $340 million, illustrating what Bcom3's financial
performance would be if its growth rates were in line with the largest
competitors. However, Bcom3 is significantly smaller and less diversified than
the largest advertising companies. Given their hypothetical nature, neither
Bcom3 nor Publicis considered these numbers to be specific indications of
expected results, and Publicis did not rely on them.
The above numbers are included in this proxy statement/prospectus only
because Bcom3 gave the information to Publicis in connection with the merger.
Bcom3 does not in the ordinary course publicly disclose projections or budget
numbers. Bcom3 did not prepare these numbers with a view to public disclosure or
compliance with the guidelines of the SEC or the American Institute of Certified
Public Accountants regarding projections or forecasts. These numbers were based
on the assumptions and expectations described above, which may or may not prove
accurate. Publicis and Bcom3 have not made and do not make any representation to
any person regarding the ultimate performance of Bcom3, and neither of them
intends to publish an update of these numbers to reflect circumstances existing
after the date when made or to reflect the occurrence of future events, even in
the event that any or all of the assumptions underlying these numbers are shown
to be in error. The inclusion of these numbers in this proxy
statement/prospectus does not indicate that Publicis or Bcom3 considers these
numbers to be reliable predictions of future events, and these numbers should
not be relied upon as such. Bcom3's actual results may differ materially from
these numbers.
Financial projections and objectives are, in general, subjective in many
respects and thus susceptible to interpretations and periodic revision based on
actual experience and business developments. The numbers presented above also
reflect numerous assumptions with respect to industry performance, general
business, market, economic and financial conditions and other matters that are
difficult to predict, and many of which are beyond Bcom3's control. For factors
that could affect these numbers, see "Forward-Looking Statements."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR BCOM3
The following discussion should be read in conjunction with the
Consolidated Financial Statements of Bcom3 and its predecessor company, The Leo
Group, and the notes thereto included elsewhere in this proxy
statement/prospectus.
OVERVIEW
GENERAL
Bcom3 is one of the world's leading advertising and marketing
communications services holding companies. Bcom3 was created through the
business combination of The Leo Group and The MacManus Group on January 31,
2000. Bcom3 has more than 500 offices in over 90 countries, and more than 17,000
employees. Bcom3's service offerings include creation and production of
advertising; branding and brand building; strategic media planning and buying;
marketing research and consultation; public relations; healthcare marketing and
communications; multicultural and urban marketing; direct and database
marketing; interactive and digital communications; financial and
business-to-business advertising; directory advertising; field marketing;
integrated merchandising and sales promotion programs; sports and event
marketing; telemarketing; new product design and development; package design;
and internet and digital media development. Bcom3 has operations in the United
States, Europe, Asia Pacific, Latin America, Canada, the Middle East and Africa.
CLIENTS
Bcom3's top 20 clients accounted for 55.5% of its annual revenues in 2001
and, as a result, Bcom3 might suffer material adverse consequences if one of its
largest clients were to completely cease doing business with it. Although there
can be no assurance, Bcom3 believes there are several factors that would make
such an event unlikely. First, Bcom3 generally represents several different
brands or divisions within each of its largest clients, typically in a number of
different geographical markets, and often under more than one of its own
agencies. Moreover, Bcom3 normally deals with several different, independent
decision makers at each such client. Furthermore, Bcom3 has long-standing
relationships with its largest clients.
EMPLOYEES
Bcom3 employed over 17,000 employees as of December 31, 2001, approximately
67% of whom work outside of the United States.
REVENUES
Revenues consist principally of fees for services and for production of
advertisements. Additionally, revenue is derived from commissions for placement
of advertisements in various media. Revenues are diversified across geographic
regions, with various sectors of the economy and types of advertising and
marketing communications services provided. In 2001 and 2000, 53.1% and 52.1%,
respectively, of revenues were derived from U.S. operations, and 29.0% and
28.3%, respectively, from operations in Europe. The remainder was divided among
the operations in Asia Pacific, Latin America, Canada, the Middle East and
Africa. In addition, Bcom3 represents clients in a variety of industries,
including consumer-packaged goods, automotive, food and beverage, financial
services, technology and healthcare. Bcom3's largest client, Procter & Gamble,
individually accounted for approximately 12.7% and 12.0% of its revenues from
providing advertising and marketing communications services for 2001 and 2000,
respectively. Bcom3's second largest customer, Philip Morris, accounted for
approximately 11.2% and 9.0% of its revenues from providing advertising and
marketing communications services for 2001 and 2000, respectively.
161
RECENT DEVELOPMENTS
SPECIAL DIVIDEND
On February 18, 2002, Bcom3 declared a cash dividend of $.25 per share of
common stock. This dividend was paid by March 18, 2002 to holders of Bcom3's
common stock as of February 18, 2002.
GRANT OF STOCK OPTIONS
During February 2002, Bcom3 granted options to purchase 858,200 shares of
Class A common stock at an exercise price of $130 per share to approximately 400
employees.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 VS. SIX MONTHS ENDED JUNE 30, 2001
Revenues. For the six months ended June 30, 2002, Bcom3's consolidated
worldwide revenues increased 0.6% to $932.4 million from $927.1 million for the
comparable period in 2001. Bcom3's domestic revenues for the six months ended
June 30, 2002 increased 0.9% to $503.8 million from $499.3 million for the
comparable period in 2001. The effect of acquisitions, net of divestitures,
increased domestic revenues by $12.0 million or 2.4%. The effect of Bcom3's
adoption of EITF Issue 01-14 increased domestic revenues by $11.9 million or
2.4%. Domestic organic revenues declined by $19.4 million or 3.9% primarily as a
result of decreased spending by current clients. Bcom3's international revenues
for the six months ended June 30, 2002 increased 0.2% to $428.6 million from
$427.8 million for the comparable period in 2001. The effect of acquisitions,
net of divestitures, increased international revenues by $25.0 million or 5.8%.
Changes in translation of foreign currencies to the U.S. Dollar decreased
international revenues by $14.0 million or 3.3%. This decrease was primarily
caused by the strengthening of the U.S. Dollar against various Asia-Pacific and
Latin American currencies. The effect of Bcom3's adoption of EITF Issue 01-14
increased international revenues by $2.9 million or 0.7%. International organic
revenues declined by $13.1 million or 3.0% primarily due to decreased spending
by current clients.
Expenses. Operating expenses for the six months ended June 30, 2002
decreased 3.9% to $833.1 million from $866.9 million for the comparable period
in 2001. Excluding $3.2 million of restructuring and other special charges
recorded during the six months ended June 30, 2001 and $14.8 million of
additional costs included in operating expenses in 2002 associated with the
adoption of EITF Issue 01-14, operating expenses for the six months ended June
30, 2002 decreased 5.3% to $818.3 million from $863.7 million for the comparable
period in 2001. Compensation and employee benefits decreased 1.3% to $560.6
million in 2002 from $567.9 million in 2001 and represented 60.1% of revenues in
2002 compared to 61.3% of revenues for the comparable period in 2001. The
decrease in this ratio results principally from the adoption of EITF Issue
01-14. Other general expenses increased 0.3% to $153.8 million from $153.4
million primarily as a result of Bcom3's adoption of EITF Issue 01-14 partially
offset by savings primarily in travel and professional fees in 2002 in
comparison to the comparable period in 2001. Excluding the impact of the
adoption of EITF Issue 01-14, other general expenses decreased by $14.4 million.
Office and related expenses increased 6.1% to $75.3 million in the six months
ended June 30, 2002 from $71.0 million for the comparable period in 2001
primarily as a result of newly consolidated entities. Depreciation and
amortization expense increased 10.8% to $35.8 million in 2002 from $32.3 million
in 2001 as a result of newly consolidated entities. Amortization of goodwill and
intangible assets decreased 80.5% to $7.6 million in the six months ended June
30, 2002 from $39.0 million for the comparable period in 2001, and results
principally from the adoption of SFAS No. 142.
Operating Income. Operating income increased 64.7% to $99.3 million in the
six months ended June 30, 2002 from $60.3 million for the comparable period in
2001. Excluding $3.2 million of restructuring and other special charges incurred
during 2001 and the effects of the adoption of SFAS No. 142, operating income
increased 4.4% to $99.3 million in 2002 from $95.1 million in 2001.
Other Income (Expense). For the six months ended June 30, 2002, interest
income decreased 60.6% to $5.2 million from $13.2 million for the comparable
period in 2001 as cash balances were utilized to pay down debt and due to
reduced interest rates, particularly in the United States where the majority of
cash
162
investments were held. Interest expense decreased 54.4% to $11.5 million from
$25.2 million for the comparable period in 2001 for similar reasons. Bcom3
recognized a foreign currency gain of $1.7 million resulting primarily from
improved foreign exchange exposure management, particularly in Latin America.
Income Taxes. The effective tax rate was 38.0% through the six months
ended June 30, 2002 in comparison to 72.7% for the comparable period in 2001.
Excluding the effect of amortization of goodwill and intangible assets, the
effective tax rate through the six months ended June 30, 2001 was 46.9%. The
decrease in the effective tax rate in the six months ended June 30, 2002 over
the comparable period in 2001 results principally from Bcom3's tax planning
initiatives.
Minority Interest and Equity in Income (Loss) of Affiliates. Minority
interest decreased $0.1 million to $6.2 million in the six months ended June 30,
2002 from $6.3 million for the comparable period of 2001 as a result of
decreased profitability at certain minority owned companies partially offset by
decreased ownership in consolidated subsidiaries. Equity in income (loss) of
affiliates increased $1.8 million to income of $1.9 million in the six months
ended June 30, 2002 from income of $0.1 million for the comparable period of
2001, primarily as a result of affiliates previously accounted for under the
equity method which are consolidated subsidiaries in 2002 and increased
operational income from certain affiliates.
2001 VS. 2000
Revenues. For 2001, Bcom3's consolidated worldwide revenue increased 4.6%
to $1,917.3 million from $1,833.7 million in 2000, reflecting growth in both
domestic and international operations. This increase also reflects a full year
of operations in 2001 from the merger between The Leo Group and The MacManus
Group on January 31, 2000. Bcom3's domestic revenue for the year 2001 increased
6.5% to $1,017.3 million from $954.8 million in 2000. The effect of
acquisitions, net of divestitures, increased domestic revenues by 4.9%, and was
principally attributable to the effects of including one additional month of
operations of The MacManus Group. Net new business wins and higher net revenue
from existing clients accounted for the remaining 1.6% increase in domestic
revenues. Bcom3's 2001 international revenue for the year 2001 increased 2.4% to
$900.0 million from $878.9 million in 2000. The effect of acquisitions, net of
divestitures, increased international revenues by 7.5%, and was principally
attributable to the effects of including one additional month of operations of
The MacManus Group. Changes in translation of foreign currencies to the U.S.
Dollar decreased international revenue by 7.8%. This decrease was primarily
caused by the strengthening of the U.S. Dollar against various European and Asia
Pacific currencies. Net new business wins and higher net revenue from existing
clients accounted for the remaining 2.7% increase in international revenues.
Expenses. Operating expenses for 2001 decreased 1.0% to $1,784.0 million
from $1,801.5 million in 2000. Excluding $20.3 million of restructuring and
other special charges taken during 2001 and the $71.9 million nonrecurring
charge incurred in connection with the merger between The Leo Group and The
MacManus Group in 2000, operating expenses increased 2.0% to $1,763.8 million
from $1,729.6 million in 2000. Compensation and employee benefits increased 0.7%
to $1,142.4 million from $1,134.7 million and represented 59.6% of revenues
compared to 61.9% in 2000. The change was less than the rate of revenue growth
and was primarily attributable to a better alignment of compensation expense
with revenues. Other general expenses decreased by 3.1% to $320.6 million from
$330.8 million primarily as a result of higher post-merger integration costs
incurred in 2000. Office and related expenses increased 12.5% to $151.9 million
in 2001 from $135.0 million in 2000 primarily as a result of the inclusion of a
full year of operating results of the merger between The Leo Group and The
MacManus Group and increased rental costs incurred in 2001. Depreciation and
amortization expense increased 15.4% to $148.9 million in 2001 from $129.0
million in 2000 due to the inclusion of a full year of operating results of the
merger between The Leo Group and The MacManus Group and increased amortization
for computer software in 2001.
As part of Bcom3's operating initiatives related to the merged operations
of The Leo Group and The MacManus Group, Bcom3 incurred $20.3 million of
restructuring and other special charges during 2001 related to the streamlining
of certain of Bcom3's businesses in the United States, Europe and Australia.
These charges include costs associated with severance, leasehold consolidations,
fixed asset impairments, and other related costs of $5.3 million, $10.5 million,
$3.6 million and $0.9 million, respectively.
163
The severance charges represent costs incurred to sever approximately 300
employees in the aforementioned markets. Of these employees, approximately 250,
25 and 25 were employed in the United States, Europe and Australia respectively.
As of December 31, 2001, approximately 225 of the 300 employees had already been
terminated. Leasehold consolidations represents charges incurred in these
markets to exit certain locations as a result of merger-related decisions,
relocations or office closures. Fixed asset impairments and other related costs
represent leasehold improvement impairments and other costs incurred as a result
of the decision to exit these locations.
The 2000 results of operations included a $71.9 million nonrecurring charge
related to The Leo Group stock redemption offer, which immediately preceded the
business combination. The stock redemption was offered to employee stockholders
with loans outstanding under the Leo Burnett employee loan program to redeem a
number of shares sufficient to retire the amount of outstanding borrowings under
these loans. The nonrecurring charge was equal to the difference in the book
value and cash to be paid for the shares offered for redemption.
Operating Income. Operating income increased 314.0% to $133.3 million in
2001 from $32.2 million in 2000. Excluding $20.3 million of restructuring and
other special charges recorded during 2001 and the $71.9 million nonrecurring
charge recorded during 2000, operating income increased 47.6% to $153.6 million
for 2001 from $104.1 million for 2000.
Other Income (Expense). Interest income for 200l decreased 35.1% to $22.4
million from $34.5 million in 2000 as cash balances were utilized to pay down
debt and also due to reduced interest rates, particularly in the United States
where the majority of cash investments were held. Interest expense had a related
decrease of 24.9% to $44.0 million from $58.6 million in 2000 for similar
reasons. Bcom3's foreign currency loss decreased 56.7% to $1.3 million from $3.0
million for the year 2000 primarily as a result of reduced foreign exchange
exposure and greater stability between the U.S. Dollar and Bcom3's primary
trading currencies.
Income Taxes. Excluding the effect of the amortization of goodwill and
intangible assets of $78.3 million and the related tax benefits of $7.5 million,
the effective tax rate was 42.6% through 2001. Excluding the effect of the
amortization of goodwill and intangible assets of $71.4 million and related tax
benefits of $7.2 million and the 2000 nonrecurring charge recorded in connection
with the merger of The Leo Group and The MacManus Group of $71.9 million, the
effective tax rate through 2000 was 49.7%. The decrease in the effective tax
rate in 2001 over 2000 was a result of one-time nondeductible costs in 2000 and
a change in the source of earnings and corresponding weighting of tax rates on a
country-by-country basis.
Minority Interest and Equity in (Loss) Income of Affiliates. Minority
interest increased $2.7 million to $11.0 million in 2001 from $8.3 million in
2000 as a result of the reflection of the minority interest of previous equity
affiliates partially offset by increased ownership in consolidated subsidiaries.
Equity in (loss) income of affiliates decreased $4.4 million to a loss of $0.5
million in 2001 from income of $3.9 million in 2000, primarily as a result of
affiliates previously accounted for under the equity method, which are
consolidated subsidiaries in 2001, as well as increased operational losses of
certain affiliates.
2000 VS. 1999
Revenues. In 2000, consolidated worldwide revenue increased 96.3% to
$1,833.7 million from $934.2 million in 1999. Of this increase $785.0 million
was attributable to the acquisition of The MacManus Group and $18.6 million of
the increase was due to other acquisitions, net of divestitures, completed
during 2000. The remaining increase of $95.9 million was due to net new business
wins and higher revenue from existing clients.
Expenses. Operating expenses for 2000 increased 109.8% to $1,801.5 million
from $858.6 million in 1999. Of this increase, $838.2 million was attributable
to the acquisition of The MacManus Group, including goodwill amortization of
$64.9 million and a nonrecurring charge of $71.9 million related to The Leo
Group stock redemption offer, which immediately preceded the business
combination.
The stock redemption was offered to employee stockholders with loans
outstanding under the Leo Burnett employee loan program to redeem a number of
shares sufficient to retire the amount of outstanding
164
borrowings under these loans. The nonrecurring charge was equal to the
difference in the book value and cash to be paid for the shares offered for
redemption.
The remaining increase in expenses over 1999 of $104.7 million represented
$8.2 million attributable to acquisitions net of divestitures and $96.5 million
of operating expenses incurred to service new business wins and growth from
existing clients. Compensation and employee-related expenses in 2000 increased
93.0% to $1,134.7 million from $587.7 million primarily due to the acquisition.
The increase was slightly lower than the rate of revenue growth. These costs
represented 61.9% of revenues compared to 62.9% in 1999. Office and related
expenses in 2000 increased 77.5% to $135.0 million from $76.1 million also
primarily due to the acquisition of The MacManus Group.
Operating Income. The combination of stronger revenue growth and cost
management favorably impacted operating income.
Other Income (Expense). Interest income increased 336.5% to $34.5 million
in 2000 from $7.9 million in 1999 due to increased liquidity resulting from the
Dentsu investment. Interest expense increased 268.2% to $58.6 million from $15.9
million primarily due to increased levels of bank debt incurred at the time of
the merger. Significant levels of cash and debt were maintained throughout 2000
as the term-loan debt structure restricted debt retirement until 2001.
Income Taxes. The effective tax rate, calculated based upon the provision
for income taxes, was 1,235.9% in 2000 compared to 47.2% for the previous
period. The increase in the effective tax rate in 2000 was due to the impact of
nondeductible goodwill amortization and the nonrecurring charge.
Minority Interest and Equity in (Loss) Income of Affiliates. Minority
interest increased $2.9 million to $8.3 million in 2000 from $5.4 million in
1999, primarily due to lower aggregate profits at these subsidiaries. Equity in
(loss) income of affiliates increased $2.8 million to $3.9 million in 2000 from
$1.1 million in 1999 primarily as a result of the acquisition of The MacManus
Group.
LIQUIDITY AND CAPITAL RESOURCES
Bcom3 had cash and cash equivalents of $257.3 million and $227.7 million as
of June 30, 2002 and December 31, 2001, respectively. Net cash provided by
Bcom3's operating activities was $110.0 million for the six months ended June
30, 2002, which compared favorably to net cash used in operations of $181.3
million for the six months ended June 30, 2001. Improved working capital
management reduced the negative impact of the seasonality of Bcom3's media
activity on cash flow, particularly in the U.S. In addition, increased net
income had a beneficial impact on operating cash flow.
Cash flows used in Bcom3's investing activities during the six months ended
June 30, 2002 were $91.9 million, including $59.9 million used for acquisitions
net of cash acquired. Bcom3's net expenditures for property and equipment were
$32.0 million for the six months ended June 30, 2002. These expenditures were
primarily related to Bcom3's worldwide investment in technology, coupled with
leasehold improvements and are approximately 10.4% below the expenditure of
$35.7 million for the similar period in 2001.
Cash flows provided by Bcom3's financing activities during the six months
ended June 30, 2002 were $11.4 million, including $19.9 million of net proceeds
from borrowings, reduced by $9.5 million in dividends paid to minority
shareholders and common stockholders.
Bcom3 had cash and cash equivalents of $227.7 million and $598.2 million at
December 31, 2001 and 2000, respectively. Net cash provided by Bcom3's operating
activities was $258.9 million in 2001, compared to $2.0 million in 2000,
primarily reflecting net income growth and improved working capital management
during 2001.
Cash flows used in Bcom3's investing activities during 2001 were $154.8
million, including $75.2 million used for acquisitions net of cash acquired.
Bcom3's net expenditures for property and equipment were $83.1 million for 2001.
These expenditures primarily related to Bcom3's worldwide investment in
technology, coupled with leasehold improvements.
165
Cash flows used in Bcom3's financing activities during 2001 were $466.7
million, including $9.4 million used to repay short-term debt, $11.8 million
used to pay dividends, and $452.0 million used to repay long-term debt.
Bcom3 believes that its operating cash flow, combined with cash on hand and
access to its revolving credit facility, are sufficient to support its
foreseeable cash requirements, including dividends, capital expenditures,
acquisitions and working capital.
During 2001, certain merger-related restrictions lapsed, allowing for an
amendment to Bcom3's banking agreement to facilitate repayment of long-term
debt. On August 1, 2001, Bcom3 amended its $385.0 million term loan and $120.0
million revolving credit facility to provide for a new $450.0 million revolving
credit facility, of which $150.0 million was committed through July 2002 and
$300.0 million is committed through July 2004. In July 2002, the $150.0 million,
364-day facility was renewed to July 2003. Bcom3 had $27.0 million drawn under
the revolver at June 30, 2002.
In addition to Bcom3's committed revolver, Bcom3 maintains relationships
with a number of banks worldwide that have extended unsecured lines of credit
totaling $145.6 million, of which $41.4 million was outstanding short-term debt
at June 30, 2002, leaving $104.2 million unused.
As of June 30, 2002, Bcom3 had long-term debt of $16.0 million which was
primarily comprised of equipment financing and certain stockholder notes.
DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following tables summarize Bcom3's contractual obligations and
commercial commitments at December 31, 2001, and the effect such obligations and
commitments are expected to have on Bcom3's liquidity and cash flow in future
periods:
PAYMENTS DUE BY PERIOD
----------------------------------------------------------------------------------------------
TOTAL DUE IN 2002 DUE IN 2003 DUE IN 2004 DUE IN 2005 DUE IN 2006 THEREAFTER
-------- ----------- ----------- -------------- ----------- ----------- ----------
(IN THOUSANDS)
Contractual Obligations
Long-term debt............... $ 8,327 $ 2,211 $ 5,847 $ 10 $ 9 $ 26 $ 224
Capital lease obligations.... 7,139 3,805 3,204 115 15 -- --
Operating leases............. 629,753 92,423 84,464 72,819 66,629 63,027 250,391
Sale-leaseback transaction... 125,307 10,341 10,600 10,865 10,703 10,970 71,828
Other long-term
obligations................ -- -- -- -- -- -- --
-------- -------- -------- ------- ------- ------- --------
Total contractual cash..... $770,526 $108,780 $104,115 $83,809 $77,356 $74,023 $322,443
======== ======== ======== ======= ======= ======= ========
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
----------------------------------------------------------------------------------------------
TOTAL DUE IN 2002 DUE IN 2003 DUE IN 2004 DUE IN 2005 DUE IN 2006 THEREAFTER
-------- ----------- ----------- -------------- ----------- ----------- ----------
(IN THOUSANDS)
Other commercial commitments
Committed revolver........... $450,000 $150,000 $ -- $300,000 $ -- $ -- $ --
Lines of credit.............. 39,393 39,393 -- -- -- -- --
Standby letters of credit.... 8,889 6,878 2,011 -- -- -- --
Guarantees................... 19,252 19,252 -- -- -- -- --
-------- -------- ------ -------- ----- ----- -----
Total commercial
commitments.............. $517,534 $215,523 $2,011 $300,000 $ -- $ -- $ --
======== ======== ====== ======== ===== ===== =====
ACQUISITION RELATED OBLIGATIONS
Bcom3's acquisition agreements are generally structured to provide that a
portion of the purchase price is measured and paid in future periods. The amount
of the future obligations is determined based on the acquired
166
company's financial performance including revenue growth and profitability.
Bcom3 reflects these future obligations as liabilities in its financial
statements at the time such amounts become fixed and determinable. As of June
30, 2002, Bcom3 estimates that future obligations under such arrangements
approximate $55.0 million.
Additionally, in certain cases where Bcom3 does not own 100% of an entity,
it has entered into agreements with the other shareholder(s) that provide them
with the right to require Bcom3 to purchase the shares not previously sold to
Bcom3. These options are exercisable at various points over the next several
years and the amount of the future obligations is contingent upon the acquired
company's financial performance including revenue growth and profitability.
Bcom3 reflects these future obligations as liabilities in its financial
statements at the time such amounts become fixed and determinable. As of June
30, 2002, Bcom3 estimates that if exercised, such obligations under these
arrangements approximate $45.0 million.
CRITICAL ACCOUNTING POLICIES
Bcom3's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The process of
preparing financial statements in conformity with U.S. GAAP requires the use of
estimates and assumptions regarding certain types of assets, liabilities and
expenses. Bcom3 believes that of its Significant Accounting Policies (see Note 2
to Bcom3's Consolidated Financial Statements included elsewhere in this proxy
statement/prospectus), the following may involve a higher degree of judgment and
complexity.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are presented net of Bcom3's allowance for doubtful
accounts. The allowance for doubtful accounts is determined through a specific
identification process whereby management assesses the collectability of
receivables based in part on the financial condition of the client.
PROPERTY AND EQUIPMENT AND INTANGIBLES
Bcom3 depreciates property and equipment and amortizes intangibles over
their useful lives. Assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
FOREIGN CURRENCY TRANSLATION
Bcom3's consolidated financial statements are prepared in accordance with
the requirements of SFAS No. 52, "Foreign Currency Translation." Assets and
liabilities of Bcom3's foreign subsidiaries, other than those located in highly
inflationary countries, are translated at current exchange rates, while income
and expense are translated at average rates for the period. For entities in
highly inflationary countries, a combination of current and historical rates is
used to determine foreign currency gains and losses resulting from financial
statement translation. Resulting translation gains and losses are reported as a
component of stockholder's equity, except for those associated with highly
inflationary countries, which are reported directly in the consolidated
statements of operations. Certain of Bcom3's intercompany loans with
international subsidiaries are of a long-term investment nature since settlement
is not planned or anticipated in the foreseeable future. Accordingly, related
gains or losses are reported and accumulated in the same manner as currency
translation adjustments. Foreign currency transaction gains and losses are
included in the determination of net income.
LOSS LEASE PROVISIONS
Bcom3 will record a loss lease provision when it decides to abandon or
sublet rented office space. This provision will be equal to the lesser of the
difference between Bcom3's rent expense per the lease agreement less any
expected sublease income to be received during the remaining term of the lease
or any penalties which result from lease cancellation. Bcom3 will also evaluate
the realizability of any leasehold improvements
167
associated with the space and record a provision if it will not be able to
recover its remaining book value through sublease income.
DEFERRED TAXES
Bcom3 records a valuation allowance to reduce its deferred tax assets to
the amount that is likely to be realized. Bcom3 considers future taxable income
and ongoing tax planning strategies in assessing the required valuation
allowance. If Bcom3's future realizable deferred tax assets are in excess of its
net recorded amount, Bcom3 would increase deferred tax assets with a
corresponding increase to net income in such period. If Bcom3's future
realizable deferred tax assets are less than its net recorded amount, Bcom3
would reduce deferred tax assets with a corresponding reduction to net income in
such period.
USE OF ESTIMATES
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities and expenses. Such estimates
primarily relate to unsettled transactions and events as of the date of the
financial statements. Accordingly, upon settlement, actual results may differ
from estimated amounts.
RECENT ACCOUNTING PRINCIPLES
Several new accounting principles have been adopted during the year. Bcom3
has included a summary with the related impact on Bcom3's results of operations
in Note 2 to Bcom3's Consolidated Financial Statements included elsewhere in
this proxy statement/prospectus.
RELATED PARTY TRANSACTIONS
In January 2000, before the business combination in which Bcom3 was formed,
a subsidiary of The MacManus Group sold a portion of its shareholdings in a
majority-owned subsidiary called Novo MediaGroup to 25 managers of The MacManus
Group and its operating units (including Messrs. Bostock and Brown), in return
for consideration consisting of cash and non-recourse promissory notes. In March
2001, Bcom3 notified all of these managers that it was offering to rescind the
original transaction, in order to regain majority ownership and control of Novo
MediaGroup, and also in order to avoid certain potential disputes with the
managers. All 25 of the managers accepted Bcom3's rescission offer, with the
result that Bcom3 refunded each manager's original cash consideration and
cancelled his or her promissory note. Messrs. Bostock and Brown received cash
refunds in the respective amounts of $1,152,500 and $1,150,195, and Bcom3
cancelled their promissory notes in the respective principal amounts of
$1,152,500 and $1,154,805. For all 25 managers as a group, the total cash
refunded was $10,733,595, and the total principal amount of the cancelled notes
was $10,738,655.
CONVERSION TO THE EURO
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency, the euro. Bcom3 conducts business in member
countries. The transition period for the introduction of the euro was between
January 1, 1999 and June 30, 2002. On January 1, 2002, the Euro was introduced
as the official trading currency of the member countries, replacing the existing
currency in each country. We have completed our conversion to the Euro and it
has not had a material effect on our financial condition or results of
operations.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Effective at the close of business on May 22, 2002, Arthur Andersen LLP
("Arthur Andersen") was released from its obligations to Bcom3 as Bcom3's
independent accountants because of Arthur Andersen's inability to perform
ongoing auditing services for Bcom3's global operations. Bcom3's Board of
Directors and its Audit Committee approved the engagement of Ernst & Young LLP
("EY") to serve as Bcom3's independent public accountants, effective May 23,
2002.
Arthur Andersen's reports on Bcom3's consolidated financial statements for
each of the years ended 2001 and 2000 did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. During the years ended December 31, 2001
and 2000 and through May 22, 2002, there were no disagreements with Arthur
Andersen on any matter of accounting principle or practice, financial statement
disclosure, or auditing scope or procedure which, if not resolved to Arthur
Andersen's satisfaction, would have caused them to make reference to the subject
matter in connection with their report on Bcom3's consolidated financial
statements for such years; and there were no reportable events as defined in
Item 304(a)(1)(v) of Regulation S-K.
During the years ended December 31, 2001 and 2000 and through the date
hereof, Bcom3 did not consult EY with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on Bcom3's consolidated financial
statements or any other matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) of Regulation S-K.
Bcom3 has provided Arthur Andersen with a copy of the foregoing
disclosures, and a copy of Arthur Andersen's letter stating its agreement with
such statements has been filed with the SEC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK FOR BCOM3
Bcom3's policy is to use financial instruments to manage risk consistent
with its business plans and prudent practices. The risk inherent in Bcom3's
market risk sensitive instruments and positions is the potential loss arising
from adverse changes in interest rates and foreign currency exchange rates as
discussed below. Bcom3's senior management actively participates as a risk
oversight function to ensure compliance with corporate policies and prudent risk
management practices are adhered to.
Bcom3 periodically purchases derivative financial instruments as part of
managing exposures to currency exchange and market interest rates. Derivative
financial instruments are subject to market and counterparty risk. Market risk
is the potential for loss resulting from changes in market conditions. Since it
is Bcom3's practice that derivative instruments are only used to hedge specific
exposures of like amount and duration, the potential negative impact on future
earnings due to market risk is immaterial. Counterparty risk arises from the
inability of a counterparty to meet its obligations. To mitigate counterparty
risk, Bcom3 enters into derivative contracts with major financial institutions
that have credit ratings at least equal to Bcom3's own. Gains and losses on
hedging derivatives are equal to and offset the hedged positions.
INTEREST RATES
Bcom3 is subject to the risk of fluctuating interest rates in the normal
course of business. Bcom3's policy is to manage its interest rate exposure
through the use of fixed rate debt, floating rate debt placed in staggered
maturities and interest rate swaps. Bcom3 does not use financial instruments to
speculate in interest rates. At June 30, 2002 and December 31, 2001, Bcom3 had
no interest rate swaps outstanding. Assuming gross indebtedness at June 30, 2002
was carried throughout the entire year, a hypothetical 10% change in market
interest rates would result in a $0.3 million change in the annual interest
costs related to the floating rate debt. Conversely, the same hypothetical
change in interest rate applied to floating rate cash and marketable securities
at June 30, 2002 would result in a $1.0 million change in interest income over
the course of a year. Assuming gross indebtedness at December 31, 2001 was
carried throughout the entire year, a hypothetical 10% change in market interest
rates would result in a $0.2 million change in the annual interest costs related
to
169
the floating rate debt. Conversely, the same hypothetical change in interest
rate applied to floating rate cash and marketable securities at December 31,
2001 would result in a $0.9 million change in interest income over the course of
a year.
INTERNATIONAL OPERATIONS
Bcom3's results of operations are subject to the risk of currency exchange
rate fluctuations related to its international operations. This economic risk is
generally limited to the net income of the operations as the revenue and
expenses of the operations are generally denominated in the same currency.
Bcom3's major international markets are the United Kingdom, euro currency
countries, China/Hong Kong, Mexico, Brazil, Canada and Japan. While Bcom3 does
not hedge the net income of its international operations, in some cases Bcom3
enters into hedging transactions to mitigate the risk of adverse currency
exchange on certain cross border transactions such as intercompany settlements.
At June 30, 2002, Bcom3 had open forward foreign currency contracts, and at
December 31, 2001, Bcom3 had open forward foreign currency contracts for
approximately $11.0 million to hedge certain intercompany obligations. It is not
Bcom3's policy to use derivatives to hedge the net investment positions in its
international subsidiaries.
Investing in non-U.S. countries involves certain risks. As currencies
fluctuate against the U.S. Dollar, there is a corresponding change in Bcom3's
investment value in terms of the U.S. Dollar. Such change is reflected as an
increase or decrease in comprehensive income, a separate component of
stockholder's equity. Net foreign currency devaluations have reduced the
reported amount of total stockholder's equity by $6.5 million as of June 30,
2002 and $9.1 million as of December 31, 2001.
Bcom3 cannot predict foreign currency exchange rate movements, and
therefore cannot predict the impact of such movements on its financial
condition, results of operations and net cash flows.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF BCOM3
As of August 9, 2002, Bcom3 had outstanding 15,289,804 shares of Class A
common stock, par value $0.01 per share, and 4,286,123 shares of Class B common
stock, par value $0.01 per share. See "Description of Capital Stock of Bcom3."
The following table contains information regarding the beneficial ownership
of Bcom3's common stock as of August 9, 2002 by: (1) each person or entity whom
Bcom3 knows to be a beneficial owner of more than 5% of its common stock; (2)
each member of the Bcom3 board; (3) each of Bcom3's executive officers; and (4)
all of Bcom3's directors and executive officers as a group.
NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER(1) OWNED(2) OWNED
--------------------------- ------------ ------------
Dentsu Inc.(3).............................................. 4,286,123 21.89%
Roger A. Haupt(4)........................................... 15,289,804 78.11%
Roy J. Bostock(4)........................................... 15,289,804 78.11%
Richard B. Fizdale(4)....................................... 15,289,804 78.11%
Craig D. Brown(4)........................................... 15,289,804 78.11%
Eileen A. Kamerick.......................................... -- --
Christian E. Kimball........................................ * *
Fumio Oshima................................................ -- --
Naoki Kobuse................................................ -- --
All directors and executive officers as a group
(8 persons)............................................... 19,575,927 100.00%
---------------
* Less than 1% beneficial ownership
(1) The business address of Dentsu is 1-11, Tsukiji, Chuo-ku, Tokyo 104-8426,
Japan. The business address of Messrs. Oshima and Kobuse is c/o Dentsu at
the above address. The business address of Mmes. and Messrs. Haupt, Bostock,
Fizdale, Brown, Kamerick and Kimball is c/o Bcom3 Group, Inc., 35 West
Wacker Drive, Chicago, IL 60601.
(2) As used in this table, a beneficial owner of a security includes any person
who, directly or indirectly, through contract, arrangement, understanding,
relationship, or otherwise has or shares (a) the power to vote, or direct
the voting of, that security or (b) investing power which includes the power
to dispose of, or to direct the disposition of, that security. In addition,
a person is deemed to be the beneficial owner of a security if that person
has the right to acquire beneficial ownership of that security within 60
days of August 9, 2002. Except as otherwise noted, the persons and entity
listed in this table have sole voting and investment power with respect to
all of the shares of common stock owned by them.
(3) Dentsu holds all of the outstanding Class B common stock.
(4) Messrs. Haupt, Bostock, Fizdale and Brown, in their respective capacities as
the voting trustees under the voting trust agreement, share voting power
over all of Bcom3's outstanding Class A common stock. See "Description of
Capital Stock of Bcom3 -- Voting Trust Agreement." Messrs. Haupt, Bostock,
Fizdale and Brown disclaim beneficial ownership with respect to all but
1,816,622 shares of such Class A common stock in the aggregate.
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DESCRIPTION OF CAPITAL STOCK OF BCOM3
The following description of Bcom3's capital stock does not purport to be
complete, is subject to and qualified in its entirety by Bcom3's certificate of
incorporation, bylaws, the form of stock purchase agreement and the form of
voting trust agreement, copies of which have been filed with the SEC, and the
laws of the State of Delaware.
PLEASE NOTE THAT THE INFORMATION SET FORTH BELOW DESCRIBES BCOM3 CAPITAL
STOCK AS IT EXISTS ON THE DATE OF THIS PROXY STATEMENT/PROSPECTUS. IF THE MERGER
WITH PUBLICIS IS COMPLETED, BCOM3 STOCKHOLDERS WILL CEASE TO HOLD BCOM3 SHARES
AND WILL INSTEAD HOLD THE PUBLICIS SECURITIES ISSUED AS MERGER CONSIDERATION AS
DESCRIBED IN THIS DOCUMENT. SEE "COMPARATIVE RIGHTS OF PUBLICIS SHAREHOLDERS AND
BCOM3 STOCKHOLDERS." IN ADDITION, IN CONNECTION WITH THE MERGERS, THE VOTING
TRUST AGREEMENT WILL BE TERMINATED AND CERTAIN CHANGES WILL BE MADE TO THE STOCK
PURCHASE AGREEMENT. SEE "-- CHANGES IN CONNECTION WITH THE MERGERS" BELOW.
CERTIFICATE OF INCORPORATION AND BYLAWS
AUTHORIZED CAPITAL STOCK
Bcom3's certificate of incorporation authorizes Bcom3 to issue up to
50,000,000 shares of common stock, consisting of 40,000,000 shares of Class A
common stock and 10,000,000 shares of Class B common stock. The outstanding
shares of common stock are duly authorized, validly issued, fully paid, and
nonassessable.
VOTING RIGHTS
Holders of common stock will generally be entitled to one vote per share on
all matters that Bcom3 submits to a vote of stockholders; provided, however,
that holders of Class B common stock, voting as a separate class, will have the
right to approve certain amendments to Bcom3's certificate of incorporation that
would adversely affect them as a class. In addition, so long as the outstanding
Class B common stock comprises at least 15% of Bcom3's total common stock,
holders of Class B common stock, voting as a separate class, will have the right
to elect, remove, and replace two of Bcom3's six directors (or, if Bcom3 ever
has more than six directors, then one-third of its directors rounded up to the
next whole number). Alternatively, if the outstanding Class B common stock ever
comes to comprise less than 15%, but still comprises at least 5%, of Bcom3's
total common stock, then holders of Class B common stock, voting as a separate
class, will have the right to elect, remove, and replace one of Bcom3's six
directors (or, if Bcom3 ever has more than six directors, then one-sixth of its
directors rounded up to the next whole number). In any event, holders of Class A
common stock, voting as a separate class, will have the right to elect, remove,
or replace all of Bcom3's other directors. Currently, all outstanding shares of
Class B common stock are owned by Dentsu, and the Class B common stock
represents approximately 22% of Bcom3's outstanding common stock in total.
Bcom3's certificate of incorporation provides that its stockholders (and
therefore, given the voting trust agreement, the voting trustees) will have the
right to elect, remove, and replace specified corporate officers. See "-- Voting
Trust Agreement" below.
OTHER RIGHTS
Holders of common stock are entitled to share equally, without regard to
class, in any dividend declared by the Bcom3 board; provided that, in the event
of a dividend payable in additional shares of common stock, holders of Class A
common stock will be entitled to receive additional shares of Class A common
stock and holders of Class B common stock will be entitled to receive additional
shares of Class B common stock. Holders of common stock are also entitled to
share equally, without regard to class, in all assets available for distribution
to stockholders upon dissolution, liquidation, or winding up. Except for Dentsu,
which has certain contractual preemptive rights, no holder of common stock has
any preemptive right to subscribe for any common stock or other securities that
Bcom3 may choose to issue or sell. Bcom3 will not subdivide or combine the
outstanding shares of either the Class A common stock or the Class B common
stock without subdividing or combining the outstanding shares of the other
class.
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Holders of Class B common stock have the right to convert their shares of
Class B common stock into an equal number of shares of Class A common stock at
any time.
STOCK PURCHASE AGREEMENT
Because Bcom3 is a privately held company, it is Bcom3's general policy
that only employees of Bcom3 and its various subsidiaries may acquire shares of
its Class A common stock. All such persons who have acquired shares of Bcom3's
Class A common stock have also become a party to the stock purchase agreement.
Bcom3's stock purchase agreement contains stock transfer restrictions and stock
repurchase provisions, as well as restrictive covenants regarding
noncompetition, nonsolicitation and confidentiality, all as described below.
RESTRICTIONS ON TRANSFER OF SHARES
Under the stock purchase agreement, a stockholder may only transfer his or
her shares with Bcom3's prior written consent, which Bcom3 will normally grant
only for a transfer by the stockholder:
- to members of the stockholder's family, to a family limited partnership
or limited liability company, to a trust for the benefit of the
stockholder and his or her family members, or to a charitable trust; or
- to the stockholder's heirs and legatees upon the stockholder's death;
provided, in each instance, that the transferee agrees to be bound by the
terms of the stock purchase agreement.
Any other transfer of any shares, or any interest in any shares, whether
voluntarily or involuntarily made, is strictly prohibited. Prohibited transfers
include transfers by way of sale, gift, or other disposition; by way of pledge,
hypothecation, or the creation of a security interest; by way of attachment,
levy, or lien; in connection with insolvency; in connection with a divorce,
decree of separate maintenance, or any other arrangement for the adjustment of
marital rights; into, or out of, joint tenancy, tenancy in common, or tenancy by
virtue of community property or similar rights; to any trustee, receiver,
administrator, executor, custodian, or guardian of an estate or property; or
into any trust, or in any other manner so as to create a separation of the
ownership of the shares into legal interests and beneficial interests.
REPURCHASE OF SHARES
Under the stock purchase agreement, if a stockholder ceases to serve as an
employee, then as a general rule Bcom3 will repurchase all of his or her shares,
effective as of the date of his or her departure, at their then "Per Share Book
Value." See "-- Determination of Per Share Book Value" below.
If a stockholder is an employee of one of Bcom3's operating units, and
Bcom3 sells or otherwise divests itself of that operating unit, then the
stockholder will no longer be considered Bcom3's employee, generally with the
same consequences as if he or she had been discharged without cause (as
described below).
There is a special rule, however, if the stockholder ceases to serve as an
employee under the following circumstances:
- by reason of his or her death or "Permanent Disability";
- by reason of his or her discharge without "Cause"; or
- on terms that Bcom3, in its discretion, acknowledges in writing
constitute an "Agreed Separation."
If this special rule applies, then the former employee is entitled to
become a continuing stockholder and retain his or her shares for a holding
period of up to ten years after his or her departure. At the end of this holding
period, Bcom3 will repurchase all of his or her shares at their then Per Share
Book Value.
If the continuing stockholder breaches any applicable noncompete,
nonsolicitation, confidentiality, or other restrictive covenant during the
relevant post-employment period, however, Bcom3 may elect to repurchase his or
her shares immediately at their then Per Share Book Value. See "-- Restrictive
Covenants" below.
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Conversely, at any time during the ten-year holding period, the continuing
stockholder may elect to require Bcom3 to repurchase his or her shares by
delivering written notice to Bcom3. In the event the continuing stockholder
gives such notice, Bcom3 is required to repurchase his or her shares on the last
day of the fiscal year in which Bcom3 receives such written notice, or on such
earlier date as Bcom3 may select, at the then Per Share Book Value of such
shares.
The stock purchase agreement also grants Bcom3 an option to repurchase a
stockholder's shares immediately, at their Per Share Book Value, if the
stockholder becomes "Insolvent," or if he or she makes or attempts to make a
prohibited transfer of his or her shares (see "-- Restrictions on Transfer of
Shares" above) or if he or she breaches any applicable noncompete,
nonsolicitation, confidentiality or other restrictive covenant (see
"-- Restrictive Covenants" below).
DETERMINATION OF PER SHARE BOOK VALUE
Under the stock purchase agreement, the Per Share Book Value for shares as
of any date will generally be equal to the sum of:
(1) the amounts determined as of January 31, 2000 under the stock
purchase agreements then in place with respect to the former stockholders
of The Leo Group and The MacManus Group (or, in the case of shares acquired
after January 31, 2000, the original purchase price the stockholder paid
for such shares); plus or minus
(2) Bcom3's consolidated net income (or loss) per share of common
stock from January 31, 2000 (or, in the case of shares acquired after
January 31, 2000, from the acquisition date) through the applicable
determination date.
For purposes of this formula, consolidated net income (or loss) will be
reduced by dividends, and adjusted to eliminate changes due to non-recurring
items (net of taxes), changes arising from the application of purchase
accounting to the January 2000 business combination transactions, and changes
arising from Bcom3's issuance or repurchase of equity at prices other than book
value. Changes in book value during any period of less than one year will be
determined by proration (or by applying such other method as Bcom3 may select).
The Per Share Book Values as of December 31, 2001 were (1) $26.30 for
shares of common stock that the former stockholders of The Leo Group acquired on
January 31, 2000 and (2) $7.38 for shares of common stock that the former
stockholders of The MacManus Group acquired on January 31, 2000. In each case,
the Per Share Book Value has increased by $3.75 per share over the twelve months
ended December 31, 2001. The corresponding Per Share Book Values as of December
31, 2000 were (1) $22.55 for the shares of common stock that the former
stockholders of The Leo Group acquired in the business combination and (2) $3.63
for the shares of common stock that the former stockholders of The MacManus
Group acquired in the business combination.
PAYMENT OF THE REPURCHASE PRICE
The stock purchase agreement permits Bcom3 to pay the repurchase price for
shares in four equal annual installments, together with interest. If, in any
fiscal year, several former stockholders are entitled to receive such
installment payments, and the total amount of all payments due to former
stockholders would exceed 50% of Bcom3's consolidated net income for that year,
then Bcom3 may reduce the amount paid to each former stockholder during the year
accordingly. The right of former stockholders to receive payment for shares that
Bcom3 has repurchased is also subordinate to claims by the government for taxes
due and claims of Bcom3's trade creditors, bank lenders, and other creditors.
EFFECT OF A MERGER OR CONSOLIDATION
The stock purchase agreement provides that, in the event of a merger or
consolidation involving Bcom3, payment to a stockholder of the Per Share Book
Value of his or her shares shall be deemed to constitute payment of the fair
market value of such shares for the purpose of the stockholder's statutory
appraisal rights.
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RESTRICTIVE COVENANTS
The stock purchase agreement contains noncompete, nonsolicitation,
confidentiality, and other restrictive covenants, which are applicable to
Bcom3's stockholders and their successors and assigns while they are employees
of Bcom3 and its various subsidiaries, and also for various specified or
indefinite periods thereafter should they cease to be Bcom3's employees.
VOTING TRUST AGREEMENT
GENERAL
Because Bcom3 is a privately held company, it is Bcom3's general policy
that only employees of Bcom3 and its various subsidiaries may acquire shares of
its Class A common stock. Any such person who is to acquire shares of Bcom3's
Class A common stock must also become a party to its voting trust agreement.
Pursuant to the voting trust agreement, all of the holders of Bcom3's Class
A common stock have deposited their shares into a voting trust, with Roger
Haupt, Roy Bostock, Richard Fizdale, and Craig Brown as the voting trustees, all
as described below. These voting trustees are the current holders of record of
all Class A common stock.
VOTING RIGHTS
The voting trustees have the right to vote all of the shares of common
stock held by the voting trust whenever a vote of Bcom3's stockholders is
required; provided, however, that Bcom3's individual stockholders have the right
to direct the voting of their shares by the voting trustees with respect to any
proposal regarding a merger, consolidation, or dissolution of Bcom3 or any
proposal to sell all, or substantially all, of its assets. The affirmative vote
of a majority of the voting trustees is required to take action under the voting
trust agreement. The voting trustees may also take action by unanimous written
consent.
Although Bcom3's individual stockholders generally do not have any right to
vote their shares of common stock while such shares are deposited in the voting
trust, such stockholders retain the economic ownership of their shares
(including the right to receive any dividends in respect of their shares).
VOTING TRUSTEES
Currently, Messrs. Haupt, Bostock, Fizdale, and Brown serve as the voting
trustees, and each will serve until the earliest to occur of his death,
voluntary resignation, permanent disability, or removal by the unanimous vote of
the other three voting trustees. Messrs. Haupt and Fizdale are "paired" under
the voting trust agreement, so that if either of them ceases to serve as a
voting trustee, the other will have the right to appoint a successor voting
trustee. Similarly, if either Mr. Bostock or Mr. Brown ceases to serve as a
voting trustee, the other will have the right to appoint a successor voting
trustee. If both Messrs. Haupt and Fizdale, on the one hand, or Messrs. Bostock
and Brown, on the other hand, cease to serve as voting trustees, and no
successors have been appointed as described above, then their successors will be
selected by a panel of former stockholders of The Leo Group, in the case of
Messrs. Haupt and Fizdale, or of The MacManus Group, in the case of Messrs.
Bostock and Brown.
DURATION
The voting trust agreement has an unlimited duration; provided, however,
that the voting trust agreement may be terminated at any time, either by the
action of 75% of the voting trustees or by the action of the beneficial owners
of at least 75% of the shares of common stock held by the voting trust.
AMENDMENTS
The voting trust agreement may be amended by the action of 75% of the
voting trustees, other than those sections of the voting trust agreement
relating to the pass-through of dividends and the right of the beneficial owners
to direct voting on a merger, consolidation, or dissolution of Bcom3 or a sale
of all, or substantially all,
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of Bcom3's assets. See "-- General" and "-- Voting Rights" above. The beneficial
owners of at least 75% of the shares of common stock held by the voting trust
also have the right to amend the voting trust agreement.
BOARD OF DIRECTORS
The voting trust agreement requires the voting trustees to vote all shares
of common stock held by the voting trust in order to:
- set the size of the Bcom3 Board at six members; and
- elect as directors Messrs. Haupt, Bostock, Fizdale, and Brown.
Dentsu currently has the right to elect, remove, and replace the other two
members of the Bcom3 Board.
In the event Mr. Haupt or Mr. Fizdale dies, voluntarily resigns from the
Bcom3 board, becomes permanently disabled, or is removed by the unanimous vote
of the three other voting trustees, the voting trustees shall elect as a new
director another individual to be designated by Messrs. Haupt and Fizdale, to
the extent each remains a voting trustee.
In the event Mr. Bostock or Mr. Brown dies, voluntarily resigns from the
Bcom3 Board, becomes permanently disabled, or is removed by the unanimous vote
of the three other voting trustees, the voting trustees shall elect as a new
director another individual designated by Messrs. Bostock and Brown, to the
extent each remains a voting trustee.
The voting trust agreement also provides that all actions of the Bcom3
Board shall require the affirmative vote of both (1) a majority of all six
directors and (2) a majority of the four directors who have been elected by the
voting trustees, considered as a single group for this purpose.
MANAGEMENT
Bcom3's certificate of incorporation provides that its stockholders (rather
than the Bcom3 board) have the right to elect, remove, and replace specified
corporate officers.
The voting trust agreement provides that 75% of Bcom3's voting trustees
have the power to vote all shares of common stock held by the voting trust in
order to elect, remove, and replace Bcom3's Chairman, Vice Chairman, Chief
Executive Officer, President, Chief Operating Officer, Chief Administrative
Officer, and Secretary.
CHANGES IN CONNECTION WITH THE MERGERS
In connection with the mergers, the following changes will occur with
respect to the voting trust agreement and the stock purchase agreement:
- the voting trustees will terminate the voting trust agreement and the
voting trust immediately prior to the mergers; and
- it is anticipated that Bcom3 will unilaterally and irrevocably waive any
rights it may have under the stock purchase agreement to repurchase the
Publicis securities issued to Bcom3 Class A stockholders in the
Publicis/Bcom3 merger.
176
COMPARATIVE RIGHTS OF PUBLICIS SHAREHOLDERS
AND BCOM3 STOCKHOLDERS
As a result of the mergers, holders of Bcom3 common stock will receive
ordinary shares of Publicis, a societe anonyme a directoire et conseil de
surveillance (a limited liability company with management board and supervisory
board) organized under the laws of France. The following is a summary comparison
of the material differences between the rights of a holder of Bcom3 common stock
and a holder of Publicis ordinary shares arising from the differences between
the corporate laws of France and of Delaware, certain instruments and agreements
governing the rights of holders of Publicis ordinary shares and Bcom3 common
stock, respectively, and the securities laws and regulations governing Publicis
and Bcom3. For information as to where the Publicis statuts, the certificate of
incorporation and bylaws of Bcom3 and the agreements governing the rights of
holders of Bcom3 common stock may be obtained, see "Where You Can Find More
Information." Holders of shares of Bcom3 common stock are encouraged to obtain
and read these documents.
The following discussion addresses Dentsu's rights under the applicable
documents at its current ownership level (i.e., at least 15% of the total number
of shares of outstanding shares of common stock of Bcom3).
CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
AUTHORIZED CAPITAL STOCK
Bcom3's certificate of incorporation Publicis's statuts provide that the
authorizes 40,000,000 shares of Bcom3 Class share capital of Publicis as of January 9,
A common stock and 10,000,000 shares of 2002 was E55,839,998.40 divided into
Bcom3 Class B common stock, each having a 139,599,996 shares, with a nominal value of
par value of $0.01 per share. Pursuant to E0.40 per share. As of July 31, 2002,
the terms of the Investment Agreement with Publicis's share capital was E55,920,510,
Dentsu, no shares of Class B common stock represented by 139,801,275 shares of E0.40
may be issued to any party other than per share each.
Dentsu.
SIZE OF BCOM3 BOARD OF DIRECTORS AND PUBLICIS SUPERVISORY BOARD; TERM OF OFFICE
Bcom3's certificate of incorporation MANAGEMENT BOARD
provides that the board of directors must
consist of at least six directors, and its Publicis's statuts provide that its
bylaws provide that the board of directors management board must be composed of no
shall consist of not more than 15 members. fewer than two but no more than five
Bcom3's certificate of incorporation also directors. Publicis's management board
provides that the holders of a plurality of currently has four members. Pursuant to the
the shares of Class B common stock are French Commercial Code and subject to
entitled to elect two members of the board approval of Publicis's shareholders, such
of directors, and that the directors to be number may be increased to seven members.
elected by the holders of Class A common Members of the management board serve for
stock at each meeting held to elect such four-year terms.
directors will be Richard Fizdale, Roger
Haupt, Roy Bostock and Craig Brown. SUPERVISORY BOARD
The board of directors currently Publicis's statuts provide that its
consists of six members. In the event that supervisory board must be composed of no
the size of the board of directors is fewer than three but no more than 18
increased in accordance with Bcom3's bylaws, directors. Publicis's supervisory board
the holders of a plurality of the shares of currently consists of 13 members.
Class B common stock shall have the right to
elect a number of directors equal to Directors on Publicis's supervisory
one-third of the total size of the board, board serve for six-year terms. The French
and a special election shall immediately Commercial Code provides that directors may
thereafter be held to elect such additional be re-elected for an unlimited number of
directors as are necessary to fill the additional terms.
vacant
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CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
board positions to which the holders of
Class B common stock are entitled.
Subject to the foregoing provisions,
directors on Bcom3's board serve for
one-year terms, or until such director's
successor is elected and qualified or until
their earlier death, disability, resignation
or removal, except that the directors
elected by holders of Class B common stock
may be removed by the holders of a majority
of the outstanding shares of Class B common
stock at any time, with or without cause.
Each director may serve an unlimited number
of terms.
NOMINATION, ELECTION AND REMOVAL OF OFFICERS
Pursuant to the terms of the voting Pursuant to the French Commercial Code,
trust agreement, 75% or more of the voting the duties of the executive officers, such
trustees then in office may vote all shares as the chief executive officer or the chief
of common stock to elect or remove any of financial officer in a societe anonyme with
the Chairman of the board, the Vice Chairman directoire and conseil de surveillance
of the board, the Chief Executive Officer, (management board and supervisory board) are
the President, the Chief Operating Officer, exercised by the members of the management
the Chief Administrative Officer, and the board. The nomination, election and removal
Secretary. of the management board members are
described below.
These officers are elected annually by
the voting trustees at the annual meeting, Any other manager of the company is an
provided that no Chief Executive Officer may employee of Publicis appointed in such
be appointed without Dentsu's prior capacity by the management board and subject
approval. An officer elected shall serve to all applicable employment laws and
until the following annual meeting of employment contracts. Publicis's statuts
stockholders. Any officer elected by the provide that, in addition to appointing and
voting trustees may be removed with or removing all managers, deputy managers or
without cause, provided that the Chief other officers, the management board
Executive Officer may not be removed from determines their functions; compensation
office without Dentsu's prior approval. including salaries and bonuses; and the
other conditions of their employment or
retirement, by agreement or otherwise.
NOMINATION AND ELECTION OF DIRECTORS
Bcom3's certificate of incorporation MANAGEMENT BOARD
provides that the directors to be elected by
the holders of Class A common stock at each Publicis's supervisory board nominates
meeting held to elect such directors will be candidates for election or re-election to
Messrs. Fizdale, Haupt, Bostock and Brown. the management board. The supervisory board
Pursuant to the terms of the voting trust must also nominate a chairman of the
agreement, none of Messrs. Fizdale, Haupt, management board.
Bostock and Brown may be removed from
office, except by the vote of three out of SUPERVISORY BOARD
the four voting trustees. See "Description
of Capital Stock of Bcom3 -- Voting Trust Publicis's supervisory board members are
Agreement." In the event Mr. Haupt or Mr. elected by its shareholders at an ordinary
Fizdale dies, voluntarily resigns
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CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
from the board of directors, becomes shareholder meeting. Supervisory board members
permanently disabled, or is removed by the are elected by a majority of the votes cast.
unanimous vote of the three other voting The chairman and the vice-chairman of the
trustees, the voting trustees shall elect as supervisory board are designated by the
a new director another individual to be supervisory board and must be individuals.
designated by Messrs. Haupt and Fizdale, to
the extent each remains a voting trustee. In Information regarding the ages,
the event Mr. Bostock or Mr. Brown dies, backgrounds and professional activities
voluntarily resigns from the board of during the past five years of the
directors, becomes permanently disabled, or supervisory board nominees, and the number
is removed by the unanimous vote of the of Publicis shares they own, must be made
three other voting trustees, the voting available to Publicis's shareholders from
trustees shall elect as a new director the date on which the shareholders meeting
another individual designated by Messrs. is convened, and must be mailed to any
Bostock and Brown, to the extent each registered shareholder before the ordinary
remains a voting trustee. shareholder meeting upon a shareholder's
request which request must be made, no later
Directors to be elected by the holders than five days before the ordinary
of Class B common stock are selected for shareholder meeting. In addition, if the
election in accordance with the policies of election of supervisory board members is on
the only current holder of Class B common the agenda of the meeting, any shareholder
stock, Dentsu. may propose alternate or additional
candidates.
QUALIFICATIONS OF BOARD MEMBERS AND EMPLOYEE BOARD MEMBERS
Delaware law provides that directors MANAGEMENT BOARD
must be natural persons.
Management board members can only be
Neither Delaware law nor Bcom3's natural persons.
certificate of incorporation or bylaws
require board members to have any specific The French Commercial Code does not
qualifications. In particular, other than as require that management board members hold
described above, directors are not required any minimum number of shares.
to be stockholders or employees of Bcom3.
Publicis's statuts provide that no
member of the management board may serve
after the annual shareholders meeting
following his or her 70th birthday.
Pursuant to the French Commercial Code,
a member of the management board may not be
appointed as member of the supervisory board
and a member of the supervisory board may
not serve as a member of the management
board.
SUPERVISORY BOARD
Supervisory board members can be
individuals or entities, including
corporations. If an entity is a supervisory
board member, it must appoint an individual
to act as its permanent representative on
the supervisory board.
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CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
The French Commercial Code requires that
supervisory board members hold a minimum
number of shares which must be stated in the
company's statuts. Publicis's statuts
provide that a member of Publicis's
supervisory board must own at least 200
Publicis shares for the duration of his or
her term. Publicis's statuts provide that no
more than one-third of the supervisory board
members may be over 75 years of age. In the
event such limit is exceeded, the oldest
supervisory board member is automatically
retired. The age limit also applies to the
permanent representatives of legal entities
on the supervisory board.
Under the French Commercial Code, a
supervisory board member is not prohibited
from obtaining a remunerated employment
contract with the company during his or her
term in office, provided that the number of
supervisory board members having an
employment contract with the company does
not exceed one-third of the number of
supervisory board members then in office.
DUTIES AND POWERS OF THE BOARD MEMBERS
Delaware law provides that the board of MANAGEMENT BOARD
directors has the ultimate responsibility
for managing the business and affairs of a Publicis's statuts grant its management
corporation. In discharging this function, board the broadest powers available under
directors of Delaware corporations owe the French Commercial Code to act on behalf
fiduciary duties of care and loyalty to the of Publicis, provided that the action is
corporations for which they serve as within Publicis's corporate purpose and does
directors. Directors of Delaware not prejudice the powers expressly granted
corporations also owe fiduciary duties of to Publicis's shareholders. Pursuant to the
care and loyalty to stockholders. Delaware French Commercial Code, members of the
courts have held that the directors of a management board are deemed to act together.
Delaware corporation are required to Management tasks may be divided up among the
exercise an informed business judgment in members with the approval of the supervisory
the performance of their duties. An informed board. However, such allocation may not, in
business judgment means that the directors any case, result in depriving the management
have informed themselves of all material board of its authority to manage the
information reasonably available to them. company.
The chairman of the management board and
the members of the management board
appointed as general managers by the
supervisory board represent the company
vis-a-vis third parties.
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CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
Pursuant to Publicis's statuts, the
management board must receive the
supervisory board's prior approval on the
following matters:
- creation or assistance in the creation of
any French or foreign companies by way of
contribution, subscription or purchase of
shares, bonds, partnership interests or
rights of any kind; involvement in
investment holdings, syndicates or
economic interest grouping; authorization
of any direct or indirect ownership
interests or any industrial, commercial,
financial, real or personal property
transactions or individual undertakings
relating in any way to the purpose of
Publicis, either within or outside France;
and transfers, in whole or part, of any
interests;
- appointment of the person who acts as a
permanent representative of Publicis on the
board of directors or supervisory board of
any other corporation or changes in the
boards of directors and the managers of
subsidiaries;
- any purchases, exchanges, sales, and
contributions of real property; and
- any borrowings, loans or advances, in
particular to any of the subsidiaries,
exceeding five percent (5%) of Publicis's
equity.
Actions taken by Publicis's management
board that are outside the scope of its
corporate purpose are enforceable by third
parties against Publicis, unless Publicis
can prove that the third party knew or
should have known the act was beyond the
scope of Publicis's corporate purpose. The
fact that Publicis's statuts are publicly
available is not sufficient proof of that
knowledge.
SUPERVISORY BOARD
Under the French Commercial Code,
supervisory board members have a duty to
oversee and control the actions of the
management board. Each supervisory board
member has one vote on all matters before
the board.
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CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
REMOVAL OF DIRECTORS AND FILLING OF VACANCIES
Pursuant to the terms of the voting MANAGEMENT BOARD
trust agreement, none of Messrs. Fizdale,
Haupt, Bostock and Brown, the directors Any management board member of Publicis
required to be elected by the holders of may be removed at any time prior to the
Class A common stock, may be removed from expiration of his or her term of office by a
office, except by the vote of three out of majority vote of Publicis's shareholders or
the four voting trustees. See "Description by a decision of its supervisory board as
of Capital Stock of Bcom3 -- Voting Trust provided by its statuts.
Agreement." In the event Mr. Haupt or Mr.
Fizdale dies, voluntarily resigns from In the case such removal is not "for
Bcom3's board of directors, becomes good cause," the removed management board
permanently disabled, or is removed by the member may be entitled to indemnification by
unanimous vote of the three other voting the company.
trustees, the voting trustees shall elect as
a new director another individual to be In case of a vacancy, the supervisory
designated by Messrs. Haupt and Fizdale, to board must decide, within two months of the
the extent each remains a voting trustee. In creation of the vacancy, whether the vacant
the event Mr. Bostock or Mr. Brown dies, position shall be filled. The supervisory
voluntarily resigns from Bcom3's board of board is required to fill the vacancy within
directors, becomes permanently disabled, or two months if the vacancy would cause the
is removed by the unanimous vote of the number of members of the management board to
three other voting trustees, the voting fall below two. Any new member who fills a
trustees shall elect as a new director vacancy shall be appointed for the remaining
another individual designated by Messrs. term of office of his or her predecessor
Bostock and Brown, to the extent each until the renewal of the management board.
remains a voting trustee.
Under the French Commercial Code, any
Directors elected by holders of Class B change in the composition of the supervisory
common stock may be removed by the holders board or the management board caused by the
of a majority of the outstanding shares of removal, resignation or death of one or more
Class B common stock at any time, with or directors must be disclosed to the public
without cause. within one month of the change and Publicis
must file a modification form with the
Tribunal de Commerce of Paris.
SUPERVISORY BOARD
Any supervisory board member of Publicis
may be removed, with or without cause, at
any time prior to the expiration of his or
her term of office by a majority vote of
Publicis's shareholders. Dismissal or
removal of supervisory board members does
not need to appear in the agenda for the
shareholder meeting.
As long as at least three supervisory
board members remain on Publicis's
supervisory board, the remaining supervisory
board members may appoint new supervisory
board members to fill vacancies resulting
from resignation or death. Publicis's
shareholders must confirm the appointment of
new supervisory board members at the
shareholders
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CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
meeting following the appointment of new
members. The term of office of a supervisory
board member appointed to fill a vacancy
created by death or resignation expires at
the end of his or her predecessor's term. If
fewer than three supervisory board members
remain on the supervisory board, a
shareholder meeting must be called
immediately by the management board to elect
new supervisory board members.
CLASSIFICATION OF BOARD
Delaware law permits the certificate of The French Commercial Code does not
incorporation or an initial allow a supervisory board to be classified.
stockholder-adopted by-law to provide that However, the respective terms of supervisory
directors be divided into one, two or three board members may end in different years.
classes, with the term of office of one The term of each management board member
class of directors to expire each year. ends at the same time.
Bcom3's certificate of incorporation
does not provide for a classified board.
LIABILITY OF BOARD MEMBERS
Under Delaware law, the duty of the MANAGEMENT BOARD
board of directors of a Delaware corporation
may be enforced directly by the corporation Article L. 225-256 al. 1 of the French
or by a stockholder on behalf of the Commercial Code provides that management
corporation through a derivative action board members of a company can be civilly
against the board of directors. liable to the company or to third parties
for violations of the French Commercial
A corporation organized under Delaware Code, violations of Publicis's statuts or
law may limit a director's personal for mismanaging the company. Mismanagement
liability, with certain exceptions. Such a is broadly defined as any act, intentional
limitation must be set forth in the or unintentional, contrary to the interest
corporation's certificate of incorporation. of the company and which directly damages
Bcom3's certificate of incorporation the company. The indemnification of the
currently eliminates a director's personal company shall be proportionate to the damage
liability for monetary damages to the suffered by the company. If mismanagement
fullest extent permitted under Delaware law. results in the company's bankruptcy, the
As a result, a Bcom3 director presently has management board members themselves, in
no monetary liability except for liability their individual capacities, may be subject
for: to the bankruptcy proceedings.
- breach of the duty of loyalty; Management board members are generally
jointly and severally liable for misconduct
- acts or omissions not in good faith or by the board, unless misconduct can only be
which involve intentional misconduct or a attributed to certain directors. In
knowing violation of the law; particular, all of a company's management
board members will be jointly and severally
- declaration of an improper dividend or an liable for actions taken by the company's
improper redemption of stock; or management board unless individual
management board members can prove they did
not attend the
183
CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
- any transaction from which the director meeting in which such action was approved or
derived an improper personal benefit. they were against the action, made their
opposition known in the minutes of the
In addition, a director of a Delaware meeting and took all steps available to them
corporation, in the performance of his to prevent the action from being taken.
duties, is fully protected in relying, in Third parties, including a company's
good faith, upon the records of the shareholders, bringing suit against one or
corporation and upon the information, more management board members must prove
opinions, reports or statements presented to they have suffered a loss, either personally
the corporation by any of the corporation's or through the company, and the directors'
officers or employees, or committees of the action caused the loss.
board of directors, or by any other person
as to matters the director reasonably Management board members as well as
believes are within the other person's supervisory board members can incur criminal
professional or expert competence and who liability for violating certain provisions
has been selected with reasonable care by or of the French Commercial Code and other laws
on behalf of the corporation. and regulations, including employment laws
and securities laws and regulations specific
to a company's business. In particular, the
French Commercial Code provides that a
company's management board member can be
fined and/or sentenced to prison if he or
she, in bad faith and for his or her own
direct or indirect benefit, use the
company's assets or credit for purposes
which he or she knows are not to the
company's benefit.
The French Commercial Code prohibits
provisions of the statuts limiting director
liability.
SUPERVISORY BOARD
Article L. 225-257 al. 1 of the French
Commercial Code provides that supervisory
board members are individually liable to the
company or to third parties solely in the
case of their personal misconduct, as
distinguished from actions of the
supervisory board as a body. Misconduct,
when used in this context, generally implies
a material dereliction of a supervisory
board member's duties.
The supervisory board members are not,
absent exceptional circumstances, liable for
mismanagement of the company or for the
consequences of such mismanagement; provided
however, that they can be liable for not
having disclosed to the shareholders at a
shareholder meeting crimes or felonies
committed by the management board members of
which they had knowledge.
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CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Bcom3's bylaws require indemnification If a director or officer is sued by a
of its directors, officers and employees to third party and ultimately prevails in the
the fullest extent permitted under Delaware litigation on all counts, but is
law. nevertheless required to bear attorneys'
fees and costs, the company can in some
Under Delaware law, a corporation may circumstances reimburse those fees and costs
indemnify any director, officer, employee or under an indemnification arrangement with
agent involved in a third-party action by the director or officer. Any indemnification
reason of his or her serving or formerly arrangement between Publicis and any of its
serving as an officer, director, employee or directors or officers must be approved by
agent of the corporation, or serving or the management board, with the interested
formerly serving at the request of the director abstaining from the vote. In
corporation as a director, officer, employee addition, at the next shareholder meeting,
or agent of another corporation or other such decision must be ratified.
enterprise, against expenses, judgments,
fines and amounts paid in settlement which
are actually and reasonably incurred by the
person in connection with such action if the
director, officer, employee or agent acted
in good faith and in a manner he or she
reasonably believed to be in, or not opposed
to, the best interests of the corporation
and, with respect to any criminal
proceeding, had no reasonable cause to
believe that his or her conduct was
unlawful. In addition, a corporation may
indemnify any director, officer, employee or
agent involved in a derivative action
brought by or on behalf of the corporation
against expenses actually and reasonably
incurred with the defense or settlement of
the derivative action, if the director,
officer, employee or agent 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. However,
no indemnification for expenses in
derivative actions is permitted where the
person has been adjudged liable to the
corporation, unless a court finds him or her
entitled to indemnification. If a present or
former director or officer of a corporation
has been successful in defending a
third-party or derivative action,
indemnification for expenses actually and
reasonably incurred is mandatory under
Delaware law.
The statutory provisions for
indemnification are nonexclusive with
respect to any other rights, such as
contractual rights, to which a person
seeking indemnification may be entitled.
Bcom3 has not entered into any contractual
indemnity arrangements with any of its
directors, officers or employees.
Bcom3's bylaws provide that expenses
incurred in a proceeding are required to be
paid in advance of the final disposition
thereof upon receipt of an undertaking by
the person to repay such amount if and when
a determination is made that such person is
not entitled to indemnification. Bcom3 may
require security for any such undertaking.
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CURRENT RIGHTS RIGHTS OF HOLDERS OF
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---------------------------- ------------------------
STOCKHOLDER MEETINGS
MEETINGS
Delaware law and Bcom3's bylaws provide Two types of shareholder meetings exist
for two types of meetings, annual and under the French Commercial Code, ordinary
special. Bcom3 is required to hold an annual general meetings and extraordinary general
meeting on a date set by the board in order meetings. Publicis is required to hold an
to elect directors and conduct any other ordinary meeting of shareholders within six
business as may properly come before the months of the end of each fiscal year to
meeting. approve the prior year's financial
statements. This period may be extended by
A special meeting may be held for any an order of the President of the Tribunal de
purpose or purposes, such as the approval Commerce. Shareholder meetings whether
and adoption of a merger, charter amendment, ordinary or extraordinary may be convened at
sale of substantially all of the assets of any time of the year. Ordinary general
or any other matter requiring stockholder meetings of shareholders are required for
approval; however, the business transacted matters that are not specifically reserved
at any special meeting of stockholders is by law to extraordinary general meetings,
limited to the purposes stated in the notice such as:
of special meeting.
- electing, replacing and removing members
of the supervisory board;
- removing members of the management board;
- appointing independent auditors;
- declaring dividends or authorizing
dividends to be paid in shares;
- approving the corporate and consolidated
annual financial statements;
- approving share buy-back programs; and
- issuing debt securities.
Extraordinary general meetings of
shareholders are required for approval of
amendments to Publicis's statuts, including
any amendments of the statuts required in
connection with extraordinary corporate
actions. Extraordinary corporate actions
include:
- changing Publicis's name or corporate
purpose;
- increasing or decreasing Publicis's share
capital;
- creating a new class of equity securities;
- authorizing the issuance of investment
certificates or convertible or exchangeable
securities;
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CURRENT RIGHTS RIGHTS OF HOLDERS OF
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---------------------------- ------------------------
- establishing any other rights to equity
securities;
- selling or transferring all or
substantially all of Publicis's assets; and
- voluntarily liquidating Publicis.
Each of Publicis's ordinary shares
carries the right to cast one vote at
shareholder meetings, except that a share
held by the same shareholder in registered
form for at least two years carries the
right to cast two votes.
RIGHT TO CALL MEETING
A special meeting may be called by the The French Commercial Code requires the
Chairman of the board, the Vice Chairman of management board to convene an annual
the board or the Chief Executive Officer. A meeting of Publicis's shareholders for
special meeting shall be called by one of approval of the financial accounts. The
these officers or the Secretary upon the management board and supervisory board (or
request of the holders of 50% or more of the any member thereof) may also convene an
total voting power of Bcom3's outstanding ordinary or extraordinary meeting of
common stock, provided that such request shareholders for any other purpose upon
must state the purpose or purposes of the proper notice at any time during the year.
proposed special meeting. If the Publicis management board or
supervisory board fails to call the annual
ordinary meeting, Publicis's independent
auditors or a court-appointed agent may then
call the annual meeting. In addition, the
following persons may request that the
Tribunal de Commerce appoint an agent:
- one or a group of shareholders holding at
least 5% of Publicis's share capital;
- in cases of an emergency, by designated
employee representatives or any interested
party (such as a creditor of Publicis if
such creditor demonstrates a valid purpose
for the meeting);
- duly qualified associations of
shareholders who have held their shares in
registered form for at least two years,
who together hold at least 1% of the
voting rights of Publicis and who have
filed their statuts with the COB and
Publicis; and
- in bankruptcy, the liquidator or
court-appointed agent may also call a
shareholder meeting.
Shareholders holding more than 50% of
Publicis's share capital or voting rights
may also convene a shareholder meeting after
a public offer to acquire control of
Publicis or a sale of a controlling stake in
Publicis's capital.
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NOTICE OF MEETING
Notices of meetings of Bcom3's Publicis must announce general meetings
stockholders must generally be sent or at least 30 days in advance by means of a
otherwise given in accordance with Delaware preliminary notice published in the Bulletin
law not less than ten nor more than 60 days des Annonces Legales Obligatoires, or BALO.
before the date of the meeting (although The preliminary notice must first be sent to
meetings called to approve certain actions, the Commission des Operations de Bourse (the
such as mergers, require 20 days' prior "COB"). The COB also recommends that a
notice). The notice must specify the place, summary of such preliminary notice be
date and hour of the meeting and, in the published in a newspaper of national
case of a special meeting, the purpose or circulation in France. The preliminary
purposes for which the meeting is called. notice must disclose, among other things,
the time, date, and place of the meeting,
whether the meeting will be ordinary or
extraordinary, the agenda, a draft of the
resolutions to be submitted to the
shareholders, a description of the
procedures which holders of bearer shares
must follow to attend the meeting, the
procedure for voting by mail, and a
statement informing the shareholders that
they may propose additional resolutions to
the management board within 10 days of the
publication of the notice.
Publicis must send a final notice
containing the agenda and other information
about the meeting at least 15 days prior to
the meeting or at least six days prior to
resuming any meeting adjourned for lack of a
quorum. The final notice must be sent by
mail to all registered shareholders who have
held shares for more than one month prior to
the date of the preliminary notice. The
final notice must also be published in the
BALO and in a newspaper authorized to
publish legal announcements in the local
administrative department in which Publicis
is registered, with prior notice having been
given to the COB.
In general, shareholders can take action
at shareholders meetings only on matters
listed in the agenda for the meeting.
However, shareholders may take action with
respect to the dismissal of members of the
supervisory board and specified other
matters regardless of whether these actions
are on the agenda.
ATTENDANCE AND VOTING
Stockholders of record may vote in Shareholders may attend ordinary and
person or by written proxy signed by such extraordinary shareholders meetings and
stockholders. The holders of Bcom3's Class A exercise their voting rights subject to the
and Class B common stock vote together as a conditions specified in the French
single class, except in some Commercial Code and Publicis's
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situations set forth in Bcom3's certificate statuts. There is no requirement that
of incorporation, including the election and shareholders must have a minimum number of
removal of certain directors and any votes shares in order to attend or to be represented
to amend the certificate of incorporation in at an ordinary or extraordinary general meeting.
any way which alters the respective
preferences and rights of each class. On all To participate in any general meeting, a
matters as to which both classes of Bcom3 holder of shares held in registered form
common stock vote together as a single must have shares registered in his or her
class, each share of Bcom3 common stock will name in a shareholder account maintained by
have one vote. Publicis or on Publicis's behalf by an agent
appointed by Publicis at least five days
prior to the date set for the meeting. A
holder of bearer shares must obtain a
certificate from the accredited intermediary
with whom the holder has deposited his or
her shares. This certificate must indicate
the number of bearer shares the holder owns
and must state that these shares are not
transferable until the time fixed for the
meeting. The holder must deposit this
certificate at the place specified in the
notice of the meeting at least five days
before the meeting.
In general, all shareholders who have
properly registered their shares or duly
presented a certificate from their
accredited financial intermediary may
participate in general shareholder meetings.
Shareholders may participate in general
meetings either in person or by proxy.
Shareholders may vote in person, by proxy or
by mail.
Proxies will be sent to any shareholder
on request. To be counted, such proxies must
be received at Publicis's registered office,
or at any other address indicated on the
notice convening the meeting, three days
prior to the date of the meeting. A
shareholder may grant proxies to his or her
spouse or to another shareholder. A
shareholder that is a corporation may grant
proxies to a legal representative.
Alternatively, the shareholder may send
Publicis a blank proxy without nominating
any representative. In this case, the
chairman of the meeting will vote blank
proxies in favor of all resolutions proposed
by the management board and against all
others.
With respect to votes by mail, Publicis
is required to send shareholders a voting
form. The completed form must be returned to
Publicis at least three days prior to the
date of the shareholder meeting.
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QUORUM
Under Delaware law, the presence in The French Commercial Code requires that
person or by proxy of the holders of a shareholders having at least 25% of the
majority of the shares entitled to vote at shares entitled to voting rights must be
any meeting shall constitute a quorum for present in person or be voting by mail or by
the transaction of business. Where a proxy to fulfill the quorum requirement for:
separate vote of each class is required, a
majority of the outstanding shares of such - an ordinary general meeting; or
class, present in person or represented by
proxy, shall constitute a quorum for the - an extraordinary general meeting where an
purposes of such vote. increase in Publicis's share capital is
proposed through incorporation of
reserves, profits or share premium.
The quorum requirement is one-third of
the shares entitled to voting rights, on the
same basis, for any other extraordinary
general meeting.
If a quorum is not present at a meeting,
the meeting is adjourned. When an adjourned
meeting is resumed, there is no quorum
requirement for an ordinary meeting or for
an extraordinary general meeting where an
increase in Publicis's share capital is
proposed through reclassification of
reserves, profits or share premium. However,
only items that were on the agenda of the
adjourned meeting may be discussed and voted
upon. In the case of any other reconvened
extraordinary general meeting, shareholders
having at least 25% of outstanding voting
rights must be present in person or be
voting by mail or proxy for a quorum. If a
quorum is not present, the reconvened
meeting may be adjourned for a maximum of
two months. Any deliberation by the
shareholders taking place without a quorum
is void.
MAJORITY
Except as otherwise provided by Holders of a simple majority of the
applicable Delaware law or as set forth in voting power present in person voting by
other parts of this discussion, when a mail or proxy at the shareholder meeting may
quorum is present at any stockholders' pass any resolution on matters required to
meeting, the affirmative vote of the holders be considered at an ordinary general
of a majority of the voting rights meeting, or concerning a capital increase by
represented by the outstanding shares of reclassification of reserves, profits or
Bcom3 common stock present in person or share premium at an extraordinary general
represented by proxy at the stockholders' meeting. At any other extraordinary general
meeting and entitled to vote on the subject meeting, a two-thirds majority of the voting
matter is required to approve any action power present in person or voting by mail or
taken at an annual or special stockholders' proxy at the shareholders meeting is
meeting. required.
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A unanimous shareholder vote is required
to increase liabilities of shareholders.
Abstention from voting by those present
or from voting by mail or proxy is counted
as a vote against the resolution submitted
to the shareholders' vote.
In general, a shareholder is entitled to
one vote per share at any general meeting,
except that shares owned by the same
shareholder in registered form for at least
two years carry double voting rights. Under
the French Commercial Code, subject to
specific exceptions, shares of a company
held by entities controlled directly or
indirectly by the company are not entitled
to voting rights and are not considered for
quorum purposes.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Under Delaware law and pursuant to Shareholder action by written consent,
Bcom3's bylaws, stockholders may take any in lieu of a shareholders meeting, is not
action required or permitted to be taken at allowed under the French Commercial Code.
a stockholders' meeting without a meeting if
consented to in writing by the same number
of votes that would be required if the
action were to be taken at a stockholders'
meeting at which all shares entitled to vote
thereon were present and voted.
STOCKHOLDERS' PROPOSALS
At an annual meeting of the Generally, only actions listed on the
stockholders, only business which has been agenda for shareholder meetings may be
properly brought before the meeting may be discussed at a shareholder meeting. However,
conducted. To be properly brought before an under some circumstances, shareholders may
annual meeting, business must be (1) discuss and act on the dismissal and
specified in the notice of meeting given by replacement of supervisory board members
or at the direction of the board of that have not been included in the agenda
directors, and (2) otherwise properly for the meeting. Additional resolutions to
brought before the meeting by a stockholder be submitted for approval by the
who is a holder of record at the time notice shareholders at the meeting may be proposed
is given and who complies with the to the management board (within ten days of
procedures set forth in the company's bylaws the publication of the preliminary notice in
or as otherwise required by law. the BALO) by:
Because the four voting trustees and - designated employee representatives;
Dentsu are the only holders of record of
Bcom3's stock, stockholder proposals may - one shareholder or a group of shareholders
only be made by such persons. holding at least 0.5% of Publicis's share
capital; or
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- a duly qualified association of
shareholders who have held their shares in
registered form for at least two years,
who together hold at least 1% of
Publicis's voting rights and who have
filed their statuts with the COB and with
Publicis.
The management board must submit
properly proposed resolutions to a vote of
the shareholders.
During the two weeks preceding a
meeting of shareholders, any shareholder
may submit written questions to the
management board relating to the agenda
for the meeting. The management board must
respond to these questions during the
meeting.
AMENDMENT TO GOVERNING INSTRUMENTS
Under Delaware law, unless the A company's status can be amended only
certificate of incorporation requires a by action of an extraordinary meeting of the
greater vote, an amendment to the shareholders. Two-thirds of the shares
certificate of incorporation requires: voting either in person or by mail or proxy
must approve any proposal to amend the
- the recommendation of the board of statuts.
directors;
Except as described under the caption
- the affirmative vote of a majority of the "-- Anti- Takeover Measures," Publicis's
outstanding stock entitled to vote statuts do not contain any provisions that
thereon; and discriminate against existing or prospective
holders of a substantial amount of
- the affirmative vote of a majority of the Publicis's shares.
outstanding stock of each class entitled
to vote thereon as a class. The change of a company's nationality or
the increase of the liabilities of its
Bcom3's certificate of incorporation shareholders requires unanimous consent of
does not provide for the vote of a larger the shareholders under the French Commercial
portion of the stock for amending the Code.
certificate of incorporation.
Under Delaware law, stockholders have
the power to adopt, amend or repeal bylaws.
Bcom3's certificate of incorporation
prohibits the board of directors from
adopting, amending or repealing the bylaws.
PREFERRED STOCK
Bcom3's certificate of incorporation Publicis currently has issued ordinary
only authorizes the issuance of Class A and shares only.
Class B common stock.
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STOCK CLASS RIGHTS
Under Delaware law, any change to the Under the French Commercial Code, any
rights of holders of the Bcom3 common stock change in the rights attached to a class of
would require an amendment to Bcom3's stock must be approved by an extraordinary
certificate of incorporation. shareholders meeting composed of the holders
of the shares of the class. The change must
Delaware law provides that the holders be approved by a two-thirds majority of the
of shares of a class shall be entitled to votes cast.
vote as a class upon a proposed amendment if
the amendment will:
- increase or decrease the authorized shares
of the class unless the certificate of
incorporation otherwise provides;
- increase or decrease the par value of the
shares of the class;
- alter or change the powers, preferences or
special rights of the shares of the class
so as to affect them adversely.
Bcom3's certificate of incorporation
does not permit a separate class vote with
respect to amendments which increase or
decrease the number of authorized shares of
Class B common stock or which change the par
value of a share of Class B common stock to
the extent that such amendment is adopted by
a vote of the stockholders of Bcom3 for the
purpose of effecting a stock dividend on, or
a combination or subdivision of, the
outstanding Class A and Class B common stock
equally.
STOCKHOLDERS' VOTES ON CERTAIN TRANSACTIONS
Under the terms of the voting trust Under the French Commercial Code, the
agreement, in the event of a proposed sale following transactions, among others,
of all or substantially all of the assets require a shareholder meeting and the
of, a merger or consolidation of, or the approval by the shareholders at such
dissolution of Bcom3, the beneficial owners extraordinary general meeting:
of Class A common stock have the right to
direct the voting trustees in the voting of - selling or transferring all or
shares beneficially owned by such owner, and substantially all of Publicis's assets to
the voting trustees must solicit such the extent Publicis's purpose stated in
directions in writing and shall vote the its statuts would be affected;
shares in accordance with such directions.
Because the only holder of Class B common - voluntary liquidation of Publicis;
stock, Dentsu, is not a party to the voting
trust agreement, it may vote its shares with - completion of a merger or consolidation;
respect to such matters in the same manner and
as it votes its shares on other matters.
Under Delaware law, such transactions also - extending the term of Publicis's
require the approval of the board of existence.
directors.
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Under the terms of the investment
agreement with Dentsu, Bcom3 must obtain the
prior written approval of Dentsu for certain
acquisitions, dispositions, investments and
other changes to Bcom3's business. Under the
terms of the Investment Agreement, Dentsu
has a "right of first offer" with regard to
a change of control transaction involving
Bcom3. Dentsu has waived its right of first
offer in connection with the first step
merger and Publicis/Bcom3 merger.
RIGHTS OF INSPECTION
Under Delaware law, any stockholder, Under the French Commercial Code,
upon written demand under oath stating the Publicis's shareholders are entitled to
purpose thereof, has the right during the inspect copies of the following documents
usual hours for business to inspect, and to pertaining to the three most recent fiscal
make copies and extracts therefrom, for a periods at any time:
purpose reasonably related to such person's
interest as a stockholder: - the meeting minutes and the attendance
seats from shareholders meetings;
- the corporation's stock ledger;
- the inventories (no copy may be obtained)
- a list of its stockholders; and and the annual financial statements;
- its other books and records. - the list of directors;
- the consolidated financial statements;
- the reports of the management board and
the supervisory board;
- the independent auditors' reports;
- the text and the statement of the purpose
of the resolutions proposed;
- information concerning candidates for the
supervisory board;
- the total amount (certified by the
statutory auditors) of the remuneration paid
to the ten most well-paid employees;
- the total amount of money on which Article
238bis AA of the French General Tax Code
allows deductions to be taken and the list
of sponsoring and patronage assured by the
company; and
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- if applicable, the labor audit reports of
the company.
In addition, shareholders also have
inspection rights relating specifically to
information relating to shareholders
meetings. No later than 15 days prior to any
shareholder meeting, Publicis must make
available to any shareholder who makes such
a request at its offices a list of
shareholders with the name and address of
its registered shareholders.
APPRAISAL RIGHTS
The rights of stockholders to demand The French Commercial Code does not
payment in cash of the fair value of their provide for an appraisal procedure allowing
shares from a corporation under certain dissenting shareholders to have their shares
circumstances are called appraisal rights appraised in the context of a merger or
under Delaware law. In accordance with consolidation. The French Commercial Code
Delaware law, stockholders of Bcom3 will provides that, in certain circumstances,
have appraisal rights in connection with the including mergers, spin-offs, asset
votes relating to the merger agreements. contributions and transactions where
shareholders are given stock in exchange for
Pursuant to the terms of the stock their interests in the company, an
purchase agreement, however, each holder of independent expert must be appointed to pass
Class A common stock has agreed that the Per upon the fairness of the consideration being
Share Book Value (as such term is defined in offered.
the stock purchase agreement) of such
holder's share is the fair market value
which such holder would be entitled to
receive in any appraisal proceeding.
Furthermore, in order to perfect his or her
appraisal rights under Delaware law, a
stockholder must comply with each of the
conditions set forth in the section entitled
"The Mergers -- Appraisal Rights."
RIGHTS UPON LIQUIDATION
In the event of any liquidation, In the event of liquidation of Publicis,
dissolution or winding-up of the affairs of any assets remaining after payment of its
Bcom3, whether voluntary or involuntary, the debt, liquidation expenses and all of its
remaining assets of Bcom3 shall be remaining obligations will be distributed
distributed among the holders of Class A first to repay in full the nominal value of
common stock and holders of Class B common its outstanding shares. Any surplus will be
stock as the board of directors deems distributed pro rata among its shareholders
appropriate, provided that the holders of in proportion to the aggregate nominal value
Class A common stock and the holders of of the shareholdings.
Class B common stock will be entitled to
share equally, share for share, in such
distribution without distinction as to
class.
PREFERENTIAL SUBSCRIPTION RIGHTS
Under the terms of Bcom3's investment Under the French Commercial Code, if
agreement with Dentsu, Dentsu has the right Publicis issues additional shares, or any
to equity
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subscribe for a number of shares of Class securities or other specific kinds of
B common stock equal to 25% of any additional securities carrying a right,
additional shares of common stock offered directly or indirectly, to purchase equity
by Bcom3 to any third party. No other securities issued by Publicis for cash, its
preferential subscription rights current shareholders will have preferential
exist with respect to any Class of Bcom3's subscription rights to these securities on a
common stock. pro rata basis. These preferential rights
will require Publicis to give priority
treatment to those shareholders over other
persons wishing to subscribe for the
securities. The rights entitle the individual
or entity that holds them to subscribe to an
issue of any securities that may increase
Publicis's share capital by means of a cash
payment or a set-off of debt. Preferential
subscription rights are transferable during
the subscription period relating to a
particular offering. These rights may also be
listed on Euronext Paris. A two-thirds
majority of Publicis's shares entitled to
vote at an extraordinary general meeting may
vote to waive preferential subscription
rights with respect to any particular
offering. French law requires a company's
board of directors and independent auditors
to present reports that specifically address
any proposal to waive preferential
subscription rights. In the event of a
waiver, the issue of securities must be
completed within the period prescribed by
law. Shareholders may also notify Publicis
that he or she individually wishes to waive
his or her own preemptive subscription rights
with respect to any particular offering if he
or she so chooses. A two-thirds majority of
the shares entitled to vote at an
extraordinary general meeting may also grant
to existing shareholders a non-transferable
priority right to subscribe to any new
securities that may affect Publicis's share
capital. Shareholders may also waive their
own preferential subscription rights with
respect to any particular offering.
STOCK REPURCHASES
A Delaware corporation may not purchase
or redeem its own shares of capital stock
for cash or other property when the capital
of the corporation is impaired or when the
purchase or redemption would cause any
impairment of the capital of the
corporation. Bcom3's certificate of
incorporation does not provide for
redemption upon any specified event.
Under the stock purchase agreement, if a
stockholder ceases to serve as an employee,
then as a general rule Bcom3 will repurchase
all of his or her
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shares, effective as of the date of his or
her departure, at their then "Per Share Book
Value." See "Description of Capital Stock of
Bcom3 -- Stock Purchase Agreement" above.
There is a special rule if the stockholder
ceases to serve as an employee under the
following circumstances:
- by reason of his or her death or
"Permanent Disability";
- by reason of his or her discharge
without "Cause"; or
- on terms that Bcom3, in its
discretion, acknowledge in writing
constitute an "Agreed Separation."
In these cases, the former employee is
entitled to become a continuing stockholder
and retain his or her shares for a holding
period of up to ten years after his or her
departure. At the end of this holding
period, Bcom3 will repurchase all of his or
her shares at their then Per Share Book
Value. Notwithstanding the foregoing, the
continuing stockholder may elect to require
Bcom3 to repurchase his or her shares at any
time during this holding period by
delivering written notice to Bcom3. In the
event the continuing stockholder gives such
notice, Bcom3 is required to repurchase his
or her shares on the last day of the fiscal
year in which Bcom3 receives such written
notice, or on such earlier date as Bcom3 may
select, at the then Per Share Book Value of
such shares.
If the continuing stockholder breaches
any applicable noncompete, nonsolicitation,
confidentiality, or other restrictive
covenant during the relevant post-
employment period, however, Bcom3 may elect
to repurchase his or her shares immediately
at their then Per Share Book Value. See
"Description of Capital Stock of
Bcom3 -- Stock Purchase Agreement" above.
The stock purchase agreement also grants
Bcom3 an option to repurchase a
stockholder's shares immediately, at their
Per Share Book Value, if the stockholder
becomes "Insolvent," if he or she makes or
attempts to make a prohibited transfer of
his or her shares (see "Description of
Capital Stock of Bcom3 -- Restrictions on
Transfer of Shares" above), or if he or she
breaches any applicable noncompete,
nonsolicitation, confidentiality, or other
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---------------------------- ------------------------
restrictive covenant (see "Description of
Capital Stock of Bcom3 -- Stock Purchase
Agreement" above).
ANTI-TAKEOVER MEASURES
Under Delaware law, a corporation is Publicis's statuts provide double voting
subject to statutory anti-takeover rights for shares held by the same
provisions unless the corporation elects in shareholder for at least two years.
its certificate of incorporation or bylaws Publicis's statuts further provide that any
not to be governed by these anti-takeover person or group that fails to notify
provisions. Neither Bcom3's certificate of Publicis within 15 days of acquiring or
incorporation nor its bylaws contain an disposing of 1% or any multiple of 1% of
election not to be governed by these Publicis's share capital will be deprived of
provisions of Delaware law. Therefore, Bcom3 voting rights for shares in excess of the
is governed by the anti-takeover provisions unreported fraction. In addition, Publicis's
under Delaware law which preclude a shareholders have authorized Publicis's
corporation from engaging in any "business management board to increase the company's
combination" (i.e., mergers, consolidations capital in response to a third party tender
and certain asset sales) with any person offer for its shares. Finally, Publicis's
(other than the corporation and any direct statuts further provide that Publicis has
or indirect majority-owned subsidiary of the the right to request that legal entities who
corporation) that owns 15% or more of the own more than 2.5% of Publicis's economic or
outstanding voting stock of the corporation voting power identify the persons directly
(except for any person whose ownership of or indirectly holding more than one-third of
shares in excess of the 15% limitation is the share capital or voting power of such
the result of action taken solely by the entity.
corporation) for a period of three years
following the time that the stockholder The French Commercial Code provides that
obtained ownership of more than 15% of the any individual or entity, acting alone or in
outstanding voting stock of the corporation. concert with others, that becomes the owner,
The three-year waiting period does not directly or indirectly, of more than 5%,
apply, however, if: 10%, 20%, one-third, 50% or two-thirds of
the outstanding shares or voting rights of a
- prior to the time the person obtained listed company in France, such as Publicis,
ownership of more than 15% of the or that increases or decreases its
outstanding voting stock of the shareholding or voting rights above or below
corporation, the board of directors of the any of those percentages, must notify the
corporation approved either the business company within 15 calendar days of the date
combination or the transaction which it crosses such thresholds of the number of
resulted in the stockholder owning in shares it holds and their voting rights. The
excess of 15% of the outstanding voting individual or entity must also notify the
stock; Conseil des Marches Financiers, or CMF,
within five trading days of the date it
- upon completion of the transaction which crosses these thresholds.
resulted in the stockholder owning in
excess of 15% of the outstanding voting French law and COB regulations impose
stock of the corporation, the stockholder additional reporting requirements on persons
owned at least 85% of the voting stock of who acquire more than 10% or 20% of the
the corporation outstanding at the time outstanding shares or voting rights of a
that the transaction commenced, excluding, listed company. These persons must file a
for purposes of determining the voting report with the company, the COB and the CMF
stock outstanding, shares owned by persons within 15 days of the date they cross the
who are directors and also officers and threshold. In the report, the acquiror must
certain employee stock plans; or specify its intentions for the following
12-month period, including whether or not it
- at or subsequent to the time that the intends to continue its purchases, to
stockholder obtained more than 15% of the acquire control of the company in question
outstanding voting stock of the or to nominate candidates for
corporation, the business combination is
approved by the board of directors and
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authorized at an annual or special meetin the management board or the supervisory board.
of stockholders, and not by written The CMF makes the notice public. The acquiror
consent, by the affirmative vote of at must also publish a press release stating its
least 66 2/3% of the outstanding voting intentions in a financial newspaper of
stock that is not owned by the acquiring national circulation in France. The acquiror
stockholder. may amend its stated intentions, provided that
it does so on the basis of significant
changes in its own situation or that of its
shareholders. Upon any change of intention,
it must file a new report.
To permit holders to give the required
notice, Publicis is required to publish in
the BALO no later than 15 calendar days
after the annual ordinary general
shareholders meeting information with
respect to the total number of voting rights
outstanding as of the date of such meeting.
In addition, if the number of outstanding
voting rights changes by 5% or more between
two annual ordinary general meetings,
Publicis is required to publish in the BALO,
within 15 calendar days of such change, the
number of voting rights outstanding and
provide the CMF with written notice of such
information. The CMF publishes the total
number of voting rights so notified by all
listed companies in a weekly notice (avis),
noting the date each such number was last
updated.
If any person fails to comply with the
legal notification requirement, the shares
or voting rights in excess of the relevant
threshold will be deprived of voting rights
for all shareholder meetings until the end
of a two-year period following the date on
which their owner complies with the
notification requirements. In addition, any
shareholder who fails to comply with these
requirements may have all or part of the
shareholders' voting rights suspended for up
to five years by the Commercial Court at the
request of the chairman, any shareholder or
the COB, and may be subject to a fine.
Under CMF regulations, and subject to
limited exemptions granted by the CMF, any
person or persons acting in concert who
become the holder of in excess of one-third
of the share capital or voting rights
(including double voting rights, if any) of
a French listed company must initiate a
public tender offer for the balance of the
share capital of such company.
In addition, a number of provisions of
the French Commercial Code allow
corporations to
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---------------------------- ------------------------
adopt statuts that have anti-takeover
effects, including provisions that allow:
- limitations on the voting power of
shareholders; and
- shareholders' agreements that provide for
preemptive rights in case of a sale of
shares by a shareholder.
Publicis's shareholders have authorized
Publicis's management board to increase its
capital in response to a third party tender
offer for its shares.
CONFLICT OF INTEREST TRANSACTIONS
Delaware law generally permits Under the French Commercial Code, any
transactions between a corporation and a transaction directly or indirectly between a
director of that corporation if: company and one of its directors that cannot
be reasonably considered to be in the
- material facts as to the director's ordinary operations of the company, is
interest are disclosed to the board of subject to the prior consent of the
directors and a majority of disinterested supervisory board. Any such transaction
directors approve the transaction; concluded without the prior consent of the
supervisory board can be nullified if it
- the material facts as to the director's causes prejudice to the company. An
interest are disclosed to the stockholders interested director, or a person acting on
and the transaction is specifically such director's behalf, can be held liable
approved in good faith by a vote of the on this basis. In any case, a director must
stockholders; or abstain from voting at such supervisory
board meeting. The statutory auditor must be
- the transaction is fair to the corporation informed of the transaction within one month
at the time it is authorized by the board following its conclusion and must prepare a
of directors or the stockholders. report to be submitted to the shareholders
for approval at their next meeting. At the
meeting, the interested director may not
vote on the resolution approving the
transaction, nor may his or her shares be
taken into account in determining the
outcome of the vote or whether a quorum is
present. The interested director must
abstain from voting at the shareholders'
meeting ratifying such transaction. In the
event the transaction is not ratified by the
shareholders at a shareholders meeting, it
will remain enforceable by third parties
against the company, but the company may in
turn hold the interested director and, in
some circumstances, the other directors
liable for any damages it may suffer as a
result. In addition, the transaction may be
canceled if it is fraudulent. In the case of
transactions with directors that can be
considered within the company's ordinary
course of business, the interested director
must provide a copy of the governing
agreement to the chair of the supervisory
board, and the members of the
200
CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
supervisory board and the statutory auditors
must be informed of the principal terms of
each such transaction.
Similar limitations apply to transactions
between a company and a holder of shares
carrying 5% or more of such company's voting
power (or, if such shareholder is a legal
entity, the entity's parent, if any) and to
transactions between a company and another
company if the chairman of such company owns
the other company, is a member of its board
of directors or supervisory board, or acts as
a manager of the other company. Certain
transactions between a corporation and any of
its directors are prohibited under the French
Commercial Code. The compensation of members
of the management's board can only be decided
by the supervisory board.
LOANS TO DIRECTORS
Pursuant to a recently-enacted federal The French Commercial Code does not
law, an Exchange Act reporting company, such allow a company to make any loan to any
as Bcom3, is generally prohibited from individual member of the board of directors
making or maintaining personal loans to or or their dependents. A company may make
for any director or executive officer of loans to members of the supervisory board
such company. that are entities, but not to the individual
representing the entity, provided
transaction procedures and conditions
regarding conflicts of interest are
satisfied. See "-- Conflict of Interest
Transactions" for further description of
these conditions.
Publicis is also subject to the new law
that prohibits Exchange Act reporting
companies from making or maintaining
personal loans to or for any of its
directors or executive officers.
201
CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
DIVIDENDS
Delaware law permits a corporation to Dividends on Publicis's ordinary shares
pay dividends out of (1) surplus, which is are distributed to shareholders pro rata.
the excess of net assets of the corporation Outstanding dividends are payable to
over capital, or (2) net profits for the shareholders on the date of the
current and/or immediately preceding fiscal shareholders' meeting at which the
year if the corporation does not have distribution of dividends is approved,
adequate surplus, unless the net assets are subject to any conditions imposed by the
less than the capital of any outstanding shareholders at the meeting. The dividend
preferred stock. In determining the amount payment date is decided by the shareholders
of surplus of a Delaware corporation, the at an ordinary general meeting (or by the
assets of the corporation, including stock management board in the absence of such a
of subsidiaries owned by the corporation, decision by the shareholders). Subject to
must be valued at their fair market value as certain conditions, Publicis's management
determined by the board of directors, board can decide the distribution of interim
without regard to their historical book dividends during the course of the fiscal
value. year, but in any case before the approval of
the annual accounts by the annual ordinary
Bcom3's certificate of incorporation general meeting of shareholders. Dividends
provides that holders of Class A and Class B on shares that are not claimed within five
common stock shall be equally entitled to years of the date of declared payment revert
receive dividends if and when declared by to the French government.
the board of directors, payable in cash,
property or securities of Bcom3. To the Under the French Commercial Code, the
extent such dividends are paid in shares, ordinary shareholders meeting at which
Class A common stockholders will be entitled annual dividends may be declared must be
to receive Class A common stock, and Class B held within six months of the end of a
common stockholders will be entitled to company's fiscal year unless otherwise
receive Class B common stock, provided that authorized by court order. Annual dividends
each class shall be paid at an equal rate. must be paid within nine months of the end
of a company's fiscal year, unless otherwise
authorized by court order.
STOCKHOLDER SUITS
Under Delaware law, a stockholder may Under the French Commercial Code, one or
bring a derivative action on behalf of the more shareholders can sue the directors of
corporation to enforce the rights of the the company, on behalf of the company, for
corporation. A person may institute and damages suffered by the company. Any damages
maintain a derivative suit only if the awarded are paid to the company. One or more
person was a stockholder at the time of the shareholders can also sue the directors of
transaction which is the subject of the suit the company, in his or her own name, for
or its stock was transferred to it by damages personally suffered by him or her.
operation of law. Additionally, under In such a case, any damages awarded are paid
Delaware case law, the plaintiff generally to the dissenting shareholder or
must be a stockholder not only at the time shareholders. There are no class action
of the transaction which is the subject of lawsuits permitted under the French
the suit, but also through the duration of Commercial Code.
the derivative suit. Delaware law also
requires that the derivative plaintiff make
a demand on the directors of the corporation
to assert the corporate claim before the
suit may be prosecuted by the derivative
plaintiff, unless the demand would be
futile.
202
CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
LIMITATION ON ENFORCEABILITY OF CIVIL LIABILITIES
UNDER U.S. FEDERAL SECURITIES LAWS
ABILITY TO BRING SUITS, ENFORCE JUDGMENTS AND ENFORCE U.S. LAW
Bcom3 is a U.S. company incorporated See "Enforceability of Civil
under the laws of Delaware. All of its Liabilities."
directors and officers are residents of the
U.S., and Bcom3 has substantial assets
located in the U.S. As a result, U.S.
investors generally can initiate lawsuits in
the U.S. against Bcom3 and its directors and
officers and can enforce lawsuits based on
U.S. federal securities laws in U.S. courts.
SHORT-SWING PROFITS AND TRADING BY INSIDERS
Directors and officers of Bcom3 are Article L.225-109 of the French
governed by rules under the Exchange Act Commercial Code provides that the chairman
that may require directors and officers to of the supervisory board, the supervisory
forfeit any "short-swing" profits realized board members, the chairman of the
from purchases and sales, as determined management board, the management board
under the Exchange Act and the rules members, the officers and the permanent
thereunder, of Bcom3 equity securities. representatives of legal entities exercising
the aforementioned functions, are required
to register or deposit with a bank or a
broker their shares in the company, its
subsidiaries, its parent company or other
subsidiaries thereof. This requirement
extends as well to their minor children and
to spouses with whom they are married under
a community property regime. This
requirement is intended to permit the COB to
identify and verify the validity of any
transactions on the company's shares made by
these persons.
The COB recommends:
- that the above-mentioned chairman of the
supervisory board, the supervisory board
members, the chairman of the management
board, the management board members, the
officers and the permanent representatives
of legal entities exercising the
aforementioned functions:
- register their shares in the company
at the date of their appointment and at any
time they purchase shares;
- disclose to the company any sale or
purchase of securities; and
203
CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
- that the company file with the COB a
quarterly form describing, on an anonymous
basis, the total number of shares
transferred, the number of concerned
persons and the average price of transfer.
This COB recommendation is also
applicable to any security giving the right
to receive shares. Directors and officers of
Publicis are not governed by the
"short-swing" profit rules under the
Exchange Act and the rules promulgated
thereunder.
PROXY STATEMENTS AND REPORTS
NOTICES AND REPORTS TO STOCKHOLDERS
Under Delaware law and U.S. securities Under the French Commercial Code,
laws, Bcom3 must comply with notice and Publicis must comply with notice and
disclosure requirements prior to any disclosure requirements prior to any
stockholder meetings. shareholders' meetings.
For the U.S. securities laws
requirements on notices and reports, see
"The Mergers -- Other Effects of the
Mergers -- Content and Timing of Reports and
Notices of the Companies."
REPORTING REQUIREMENTS
As a U.S. public company, Bcom3 must Under the French Commercial Code, within
file with the SEC, among other reports and one month of its annual ordinary shareholder
notices: meeting, a French company is required to
file the following with the appropriate
- an annual report on Form 10-K within 90 Commercial Court:
days after the end of each fiscal year;
- the annual financial statements;
- quarterly reports on Form 10-Q within 45
days after the end of each fiscal quarter; - the management report;
and
- the independent auditors' report on the
- current reports on Form 8-K upon the annual financial statements; and
occurrence of important corporate events.
- the proposal for the allocation of the
result submitted to the shareholders and the
resolution passed.
As a company at the head of a group of
companies, Publicis must also file
consolidated financial statements, a group
management report, and the independent
auditors' report.
204
CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
As a company listed on a regulated
market, Publicis is also required to file
the inventory of the securities listed in
the corporate portfolio as of the close of
the fiscal year.
In addition, as a publicly-held company,
Publicis is required to:
- publish annually, in the BALO, within four
months of the close of the fiscal year and
at least 15 days prior to the annual
ordinary shareholder meeting, the
following documents and, in the event they
have not been verified by the independent
auditor, to clearly manifest on the face
thereof that they have not been verified
by the independent auditor:
- the annual financial statements;
- the proposal for the allocation of the
result, in table format proposed by the
general accounting form; and
- the consolidated financial statements;
- publish, within 45 days following the
approval of the annual financial statements
by the annual ordinary general
shareholders meeting, a separate insertion
in the BALO of:
- the approved annual financial statements;
- the decision of the allocation of the
result; and
- the consolidated accounts reviewed by the
independent auditor;
- publish within four months of the end of
the first six months of a fiscal year a
table of activity and results and a report
on the activity in that six month period;
- publish, within 45 days of the end of each
quarter, broken down by each branch of
activity:
- the amount of turnover for the quarter,
and, if applicable, the amount of turnover
for the previous quarters in that fiscal
period and a comparison of those figures
with those from the preceding year; and
205
CURRENT RIGHTS RIGHTS OF HOLDERS OF
OF BCOM3 COMMON STOCKHOLDERS PUBLICIS ORDINARY SHARES
---------------------------- ------------------------
- a consolidated statement of the net amount
of turnover.
As a foreign private issuer in the
United States, Publicis is required to file
with the SEC:
- an annual report on Form 20-F within six
months after the end of each fiscal year;
and
- reports on Form 6-K relating to
information material to Publicis which is
required to be publicly disclosed in
France or filed with Euronext Paris, or
relating to information distributed or
required to be distributed by Publicis to
its shareholders.
DISCLOSURE OF INTERESTS
Acquirors of Bcom3's equity securities Under the French Commercial Code, when a
are subject to disclosure requirements under shareholder gains possession of more than
Section 13(d)(1) of the Exchange Act and 5%, 10%, 20%, one-third, 50% or two-thirds
Rule 13d-1 thereunder, which provide that of the capital or the voting rights of a
any person who becomes the beneficial owner company, that shareholder is required to
of more than 5% of the outstanding common inform the company of the total number of
stock must, within 10 days after such shares held by it within 15 days of such
acquisition: acquisition and inform the CMF within five
trading days of such acquisition. The same
- file a Schedule 13D with the SEC disclosure is required in the event that a
disclosing specified information; and shareholder's interest drops below any one
of the specified levels.
- send a copy of the Schedule 13D to Bcom3.
For more information, see "Description
of Publicis Share Capital -- Requirements
for Holdings Exceeding Specified
Percentages."
Acquirors of Publicis's equity
securities are also subject to the
disclosure requirements under Section
13(d)(1) of the Exchange Act and Rule 13d-1
thereunder.
206
INFORMATION RELATING TO SALES OF THE DEBT PORTION OF THE OBSAS
This proxy statement/prospectus is part of a registration statement that
Publicis filed with the SEC using a "shelf" registration or continuous offering
process. If the mergers described herein are approved and consummated, it is
intended that the debt portion of the OBSAs (referred to herein as "notes") will
be sold on behalf of former Bcom3 stockholders in accordance with the process
described under the captions "The Publicis/Bcom3 Merger -- Sale of Debt Portion
of the OBSAs" and "-- Plan of Distribution." Each time notes are sold by the
nominee, who will be appointed by Bcom3 to act on behalf of the former Bcom3
stockholders in connection with the sale of the notes, the offerees of such
notes will be provided with a prospectus supplement containing specific
information about the transaction pursuant to which the notes are being offered
and related information. The prospectus supplement may add, update or change
information in this proxy statement/prospectus. If there is any inconsistency
between the information in this proxy statement/prospectus and any prospectus
supplement, any offeree of the notes should rely on the information in that
prospectus supplement. Such offeree should read both this proxy
statement/prospectus and any prospectus supplement together with the additional
information described under the caption "Where You Can Find More Information."
The registration statement containing this proxy statement/prospectus,
including the exhibits to the registration statement, provides additional
information about Publicis and the notes being registered for resale under this
proxy statement/prospectus. The registration statement, including the exhibits,
can be read on the SEC web site or at the SEC office mentioned under the caption
"Where You Can Find More Information."
Any offeree of the notes should rely only on the information contained in
this document and the information to which the offeree has been referred. None
of Publicis, Bcom3, the nominee or any Bcom3 stockholder have authorized anyone
to provide such offerees with information that is different. This proxy
statement/prospectus may only be used in connection with a sale of notes where
it is legal to sell the notes. The information in this proxy
statement/prospectus may only be accurate on the date of this proxy statement/
prospectus.
SELLING SECURITYHOLDER
In connection with the Publicis/Bcom3 merger, Publicis will issue
approximately E857,812,500 in principal amount of notes to the nominee, who in
turn will act as selling securityholder on behalf of the former Bcom3
stockholders in connection with the sale of the notes. In this proxy
statement/prospectus, when we refer to the selling securityholder, we are
referring to the nominee. Included among the former Bcom3 stockholders on behalf
of whom this sale would be made are the following persons and entities, each of
whom may be deemed an affiliate of Bcom3: Roger A. Haupt, Chairman, Chief
Executive Officer and a director of Bcom3; Craig D. Brown, President, Chief
Operating Officer and a director of Bcom3; Christian E. Kimball, Chief
Administrative Officer and Chief Legal Officer of Bcom3; Roy J. Bostock, a
director of Bcom3; Richard B. Fizdale, a director of Bcom3; and Dentsu Inc.
Any or all of the principal amount of notes may be offered for sale with
this prospectus by the nominee, as selling securityholder, from time to time.
Accordingly, no estimate can be given as to the amount of notes that will be
held by the nominee, as selling securityholder, upon consummation of any sales.
In addition, the nominee, as selling securityholder, may sell, in transactions
exempt from the registration requirements of the Securities Act, some or all of
the notes after the date of this proxy statement/prospectus.
Information about the selling securityholder and the amount of notes which
it holds may change over time. Any changed information will be set forth in
prospectus supplements.
PLAN OF DISTRIBUTION
Neither Publicis nor Bcom3 will receive any of the proceeds of the sale of
the notes offered by this proxy statement/prospectus and any prospectus
supplement hereto, except that Publicis will be reimbursed for payments which
will be made to the Bcom3 stock option holders, as described under the caption
"The Publicis/Bcom3 Merger -- Effect on Stock Options," plus any interest cost
incurred in funding the payment.
207
The aggregate proceeds to the selling securityholder from the sale of the notes
will be the purchase price of the notes, less such option reimbursement amount
and any discounts, commissions or other sale expenses. Under the terms of the
Publicis/Bcom3 merger agreement, the nominee will be instructed to distribute
the net proceeds of the sale of the notes to an exchange agent, who will in turn
distribute such proceeds to former Bcom3 stockholders as part of the
consideration they are to receive in the merger.
If the Bcom3 board has not otherwise made definitive arrangements to sell
the notes by the closing of the mergers, Bcom3 will appoint a marketing agent,
reasonably acceptable to Publicis, for the sale. The marketing agent will be
instructed to use reasonable best efforts to sell the notes for cash after the
closing. The proceeds to be received in the sale may also include non-cash
components and/or this marketing agent may effect a distribution-in-kind of the
notes, so long as the marketing agent has received the prior written consent of
persons who held at least a majority of the Bcom3 shares outstanding immediately
prior to the first step merger and, in certain circumstances, the prior written
consent of Publicis. The terms governing the marketing agent will be set forth
in a marketing agent agreement containing indemnities from Publicis in favor of
the marketing agent for liabilities arising in connection with the sale of the
notes. Under this agreement, the marketing agent will have no liability to any
person for its actions in connection with the sale, except in the case of the
marketing agent's gross negligence or willful misconduct. Prior to the
appointment of the marketing agent and prior to the effective time of the
mergers, the Bcom3 board will function as the marketing agent.
It is expected that the marketing agent will be one or more individuals or
an entity, who will in turn engage one or more financial institutions to act as
underwriter or placement agent for the sale. The terms, conditions and manner of
the sale will be determined solely in the discretion of the marketing agent.
The manner of sale may include any one or combination of the following,
among other possibilities, as determined by the marketing agent:
- a public or private offering outside the United States, with or without a
listing;
- an offering in the United States;
- a sale of the notes to a newly-formed or existing "special purpose
entity," which would purchase the notes from the nominee using proceeds
from its own issuance of one or more series of securities; or
- a sale of the notes (or any securities issued by a special purpose
entity) in conjunction with one or more equity or equity-linked
securities.
The notes (or any securities issued by a special purpose entity) may, in
the discretion of the marketing agent, be sold to any person, including persons
that may be affiliated with Bcom3, such as Publicis or Dentsu, or investment
banks (or affiliates thereof) that may have rendered services to Publicis, Bcom3
or Dentsu.
The notes may be sold in one or more sales over time, and each sale may
occur at or after the closing date of the mergers, as determined by the
marketing agent. The notes may be sold at fixed or varying prices or in
privately negotiated transactions. These sales may be effected in transactions
- on any securities exchange or quotation service on which the notes may be
listed or quoted at the time of the sale, including Euronext Paris;
- in the over-the-counter market; or
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market.
Any underwriters, broker-dealers or agents engaged by the marketing agent
may receive compensation in the form of discounts, concessions or commissions
from the selling securityholder or the purchasers of the notes. These discounts,
concessions or commissions may be in excess of those customary in the types of
transactions involved.
If the notes are sold through underwriters or broker-dealers, the nominee,
acting on behalf of the former Bcom3 stockholders, will be responsible for
paying underwriting discounts or commissions or agent's commissions from the
gross proceeds of any such sales.
208
At the time a particular offering of the notes is made, if required, a
prospectus supplement will be distributed which will set forth the name of the
selling securityholder, the aggregate amount and type of notes being offered and
the terms of the offering including, to the extent required, (1) the name or
names of any underwriters, broker-dealers or agents, (2) any discounts,
commissions and other terms constituting compensation from the selling
securityholders, (3) any discounts, commissions or concessions allowed or
reallowed to be paid to broker-dealers and (4) whether any persons involved may
be deemed an "underwriter" within the meaning of Section 2(11) of the Securities
Act.
If the marketing agent so requests, Publicis has agreed to apply for
listing of the notes on Euronext Paris. Notwithstanding this fact, no assurances
can be given as to the development of liquidity or any trading market for the
notes.
The nominee, as selling securityholder, may sell some or all of the notes
in transactions exempt from the requirements of the Securities Act after the
date of this proxy statement/prospectus.
The nominee, as selling securityholder, and any other person participating
in the sale of the notes will be subject to Regulation M under the Exchange Act,
which may limit the timing of purchases and sales of any of the notes by the
nominee, as selling securityholder, and any other such person. In addition,
Regulation M may restrict the ability of any person engaged in the distribution
of the notes to engage in market-making activities with respect to the
particular notes being distributed for a period of up to five business days
before the commencement of such distribution. This may affect the marketability
of the notes and the ability of any person or entity to engage in market-making
activities with respect to the notes.
Pursuant to the Publicis/Bcom3 merger agreement, Publicis may agree to
indemnify any underwriter or broker-dealer that participates in transactions
involving sales of the notes against certain liabilities, including liabilities
arising under the Securities Act. Publicis has agreed to prepare and file with
the SEC, until the earlier of such time as all the notes have been sold and nine
months after the closing of the mergers, such amendments to the registration
statement of which this proxy statement/prospectus is a part and any prospectus
supplements as may be necessary to keep the registration statement effective and
to comply with the provisions of the Securities Act with respect to the sale of
the notes.
209
ENFORCEABILITY OF CIVIL LIABILITIES
Publicis is a corporation organized under the laws of France. The majority
of its directors are citizens and residents of countries other than the United
States, and the majority of its assets are located outside of the United States.
Accordingly, it may be difficult for investors:
- to effect service of process on, and thereby obtain jurisdiction over,
Publicis or its directors in courts in the United States in actions
predicated on the civil liability provisions of the U.S. federal
securities laws;
- to enforce judgments obtained in such actions against Publicis or its
directors;
- to obtain judgments against Publicis or its directors in original actions
in non-U.S. courts predicated solely upon the U.S. federal securities
laws; or
- to enforce against Publicis or its directors in non-U.S. courts judgments
of courts in the United States predicated upon the civil liability
provisions of the U.S. federal securities laws.
Generally speaking, the process for obtaining judgments against Publicis or
its directors in French courts, for obtaining judgments in French courts based
on U.S. federal securities laws, and for obtaining judgments under French law
for claims brought with respect to the ORAs and the OBSAs would be substantially
similar to the process which would be used if such claims were or could be
brought in courts in the United States, subject to the requirement that claims
with respect to the ORAs can generally only be brought by the representatives of
the holders acting on an authorizing resolution adopted at a meeting of holders,
as described under the caption, "Description of the ORAs -- Meeting of Holders
and Representatives of Holders" above. Suits to enforce certain rights of the
holders of OBSA notes under the combined note contract can only be brought by
the trustee upon the request of the holders of at least a majority of the
principal amount of the notes, as described under the caption "Description of
the OBSAs -- Terms of Notes -- Control by Majority; Limitation on Suits" above.
FRENCH PROSPECTUS
Publicis has obtained approval (visa) of the document comprising the French
prospectus, which was included in Publicis's proxy statement mailed to its
shareholders in connection with the June 18, 2002 shareholder meeting in
accordance with French laws, from the Commission des Operations de Bourse (the
COB), and the document is available for inspection at the offices of Publicis,
133, Avenue des Champs-Elysees, 75008 Paris, France, on Publicis's website at
www.publicis.com, and on the COB's website at www.cob.fr. The French prospectus
does not form part of, and is not incorporated by reference into, this proxy
statement/prospectus. Publicis distributed to its stockholders a proxy statement
relating to the mergers, a copy of which is available for inspection at the
offices of Publicis.
WHERE YOU CAN FIND MORE INFORMATION
Publicis files annual and special reports and other information with the
SEC. Bcom3 files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document that either
company files at the Public Reference Room of the SEC at 450 Fifth Street, NW,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC filings are
also available to the public from commercial document retrieval services and at
the Internet world wide website maintained by the SEC at www.sec.gov.
Publicis has filed a registration statement on Form F-4 to register with
the SEC the Publicis ordinary shares and other Publicis securities to be
received by the holders of Bcom3 common stock in the Publicis/Bcom3 merger. This
proxy statement/prospectus is a part of that registration statement and
constitutes a prospectus of Publicis in addition to being a proxy statement of
Bcom3 for the special meeting of Bcom3 stockholders. The registration statement
of which this proxy statement/prospectus forms a part, including the exhibits,
is available at the SEC as discussed above.
210
The SEC permits Publicis to "incorporate by reference" information into
this proxy statement/prospectus. This means that Publicis can disclose important
information to you by referring you to another document filed separately with
the SEC. This proxy statement/prospectus incorporates by reference the documents
set forth below which Publicis previously filed with the SEC. These documents
contain important information about Publicis and its financial condition.
PUBLICIS SEC FILINGS PERIOD/FILING DATE
-------------------- -----------------------------------------
Annual Report on Form 20-F/A............. Year ended December 31, 2001
Current Reports on Form 6-K.............. Filed on January 10, 2002, January 24,
2002, February 8, 2002, February 13,
2002, March 7, 2002, March 12, 2002,
March 14, 2002, May 16, 2002, August 13,
2002
Publicis also incorporates by reference into this proxy
statement/prospectus additional documents that it may file with the SEC from the
date of this proxy statement/prospectus to the date of the special meeting of
Bcom3 stockholders. The information incorporated by reference into this proxy
statement/prospectus is deemed to be part of this proxy statement/prospectus,
except that any statement contained in a document incorporated by reference into
this proxy statement/prospectus shall be deemed to be modified or superseded for
purposes of this proxy statement/prospectus to the extent that a statement
contained in this proxy statement/prospectus, or in any other subsequently filed
document that also is incorporated by reference into this proxy
statement/prospectus, modifies or supersedes that statement. Any statement
modified or superseded in this manner shall not be deemed, except as so modified
or superseded, to constitute part of this proxy statement/prospectus.
Publicis ADSs are quoted on The New York Stock Exchange. You may inspect
any periodic reports and other information filed with the SEC by Publicis at the
offices of The New York Stock Exchange at 20 Broad Street, New York, New York
10005.
You may have previously received some of the documents incorporated by
reference, but you can obtain any of them through Publicis, the SEC or the SEC's
Internet world wide website as described above. Documents incorporated by
reference are available from Publicis without charge, except exhibits to the
documents that have not specifically been incorporated by reference in this
proxy statement/prospectus. In addition, Publicis also makes available to its
shareholders its annual report in French and English, and the "Reference
Document" filed with the COB in French. Shareholders may obtain these documents
by requesting them in writing or by telephone from Publicis at the following
address:
Publicis Groupe S.A.
133, Avenue des Champs-Elysees
75008 Paris, France
Attention: Pierre Benaich
If you would like to request documents from Publicis, please do so by
September , 2002 to receive them before the special meeting of Bcom3
stockholders.
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGERS. NEITHER
PUBLICIS NOR BCOM3 HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. THIS PROXY
STATEMENT/PROSPECTUS IS DATED AUGUST , 2002. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS PROXY
STATEMENT/PROSPECTUS TO BCOM3 STOCKHOLDERS NOR THE DELIVERY OF PUBLICIS ORDINARY
SHARES AND OTHER PUBLICIS SECURITIES TO BE RECEIVED IN THE MERGER SHOULD CREATE
ANY IMPLICATION TO THE CONTRARY.
211
EXPERTS
The consolidated financial statements of Publicis at December 31, 2001 and
2000 and for each of the two years in the period ended December 31, 2001
incorporated by reference in this proxy statement/prospectus from Publicis's
Annual Report on Form 20-F/A for the fiscal year 2001 have been audited by Ernst
& Young Audit and Mazars & Guerard S.A., independent auditors, as set forth in
their report which is incorporated herein by reference, and are so incorporated
in reliance upon such report given on the authority of such firms as experts in
accounting and auditing.
The consolidated financial statements of Publicis at December 31, 1999, and
for the year then ended, incorporated by reference in this proxy
statement/prospectus from Publicis's Annual Report on Form 20-F/A for the fiscal
year 2001 have been audited by Mazars & Guerard S.A., independent auditors, as
set forth in their report which is incorporated herein by reference, and are so
incorporated in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Bcom3 included in this proxy
statement/prospectus as of December 31, 2001 and 2000 and for each of the two
years ended December 31, 2001 have been so included in reliance on the report by
Arthur Andersen LLP, independent public accountants, given on the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of The Leo Group, Inc., included in
this proxy statement/prospectus as of December 31, 1999 and 1998 and for each of
the three years ended December 31, 1999 have been so included in reliance on the
report by Arthur Andersen LLP, independent public accountants, given on the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of The MacManus Group, Inc., included
in this proxy statement/ prospectus as of December 31, 1999 and 1998 and for
each of the three years ended December 31, 1999 have been so included in
reliance on the report by Arthur Andersen LLP, independent public accountants,
given on the authority of said firms as experts in accounting and auditing.
Effective at the close of business on May 22, 2002, Arthur Andersen LLP
("Arthur Andersen") was released from its obligations to Bcom3 as Bcom3's
independent accountants and the engagement of Ernst & Young LLP to serve as
Bcom3's independent public accounts, effective May 23, 2002, was approved.
Bcom3 has not been able to obtain, after reasonable efforts, the written
consent of Arthur Andersen LLP to Bcom3 naming it in this proxy
statement/prospectus as having certified (1) Bcom3's consolidated financial
statements for the two years ended December 31, 2001, (2) The Leo Group's
consolidated financial statements for the three years ended December 31, 1999
and (3) The MacManus Group's consolidated financial statements for the three
years ended December 31, 1999 as required by Section 7 of the Securities Act.
Accordingly, you will not be able to sue Arthur Andersen LLP pursuant to Section
11(a)(4) of the Securities Act and therefore your right to recovery under that
section may be limited as a result of the lack of consent. Bcom3 has also not
been able to obtain, after reasonable efforts, manually signed accountants'
reports from Arthur Andersen LLP, and, consequently, Bcom3 has included copies
of the latest signed and dated accountants' reports issued by Arthur Andersen
LLP for the periods to which such reports relate.
LEGAL MATTERS
Alain Schwindenhammer, General Counsel of Publicis, will pass upon the
validity of the Publicis ordinary shares, bare legal title and usufructs and the
enforceability of the OBSA notes, warrants and ORAs to be issued pursuant to the
merger under French law.
212
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
PAGE
----
BCOM3 GROUP, INC. AND SUBSIDIARIES
Report of Management...................................... F-2
Report of Independent Public Accountants.................. F-3
Consolidated Balance Sheets as of December 31, 2001 and
2000................................................... F-4
Consolidated Statements of Operations for the Years Ended
December 31, 2001 and 2000............................. F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2001 and 2000................. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001 and 2000............................. F-7
Notes to Consolidated Financial Statements................ F-8
Quarterly Results of Operations (Unaudited)............... F-28
Consolidated Balance Sheets as of June 30, 2002 and
December 31, 2001...................................... F-29
Consolidated Statements of Operations for the Six Months
Ended June 30, 2002 and 2001........................... F-30
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2002 and 2001........................... F-31
Notes to Consolidated Condensed Financial Statements...... F-32
LEO BURNETT WORLDWIDE, INC. (FORMERLY KNOWN AS THE LEO
GROUP, INC.)
Report of Independent Public Accountants.................. F-39
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-40
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997....................... F-41
Consolidated Statements of Shareholders' Investment for
the Years Ended December 31, 1999, 1998 and 1997....... F-42
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997....................... F-44
Notes to Consolidated Financial Statements................ F-45
THE MACMANUS GROUP, INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................. F-61
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-62
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997....................... F-63
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997........... F-64
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997....................... F-65
Notes to Consolidated Financial Statements................ F-66
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS.............. S-1
F-1
REPORT OF MANAGEMENT
The consolidated financial statements and other information included in
this Form 10-K have been prepared by management, which is responsible for its
fairness, integrity and objectivity. The consolidated financial statements have
been prepared in accordance with generally accepted accounting principles in the
United States applied on a basis consistent with prior years and, where
necessary, include amounts that are based on management's informed judgments and
estimates. The financial information contained elsewhere in this Form 10-K has
been prepared in a manner consistent with the preparation of the consolidated
financial statements.
The Company's system of internal controls is a major element in
management's responsibility to provide a fair presentation of the financial
statements. The system is designed to provide reasonable assurance that the
Company's assets are safeguarded, that transactions are properly recorded and
executed in accordance with management's authorization, that material errors are
prevented or detected within a timely period, and that records are sufficient to
produce reliable financial reports.
Elements of these control systems are the establishment and communication
of accounting and administrative policies and procedures and the selection and
training of qualified personnel.
The Audit Committee meets periodically with representatives of financial
management and the independent public accountants to assure that each is
properly discharging their responsibilities. In order to assure complete
independence, the Audit Committee communicates directly and separately with the
independent public accountants and financial management to discuss the results
of their audits, the adequacy of internal accounting controls and the quality of
financial reporting.
ROGER A. HAUPT EILEEN A. KAMERICK
------------------------------------------ ------------------------------------------
Roger A. Haupt Eileen A. Kamerick
Chairman and Executive Vice President and
Chief Executive Officer Chief Financial Officer
F-2
PLEASE NOTE THAT THIS REPORT IS A COPY OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN
LLP REPORT AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
BCOM3 GROUP, INC.:
We have audited the accompanying consolidated balance sheets of Bcom3
Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, stockholder's
equity, and cash flows for the years then ended. These financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bcom3 Group, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule on page S-1 is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in our audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
March 4, 2002 (except with respect to
the matters discussed in Note 20,
as to which the date is March 7, 2002)
F-3
BCOM3 GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 227,735 $ 598,159
Accounts receivable (less allowance for doubtful accounts
of $39,055 and $41,541, respectively).................. 1,649,273 1,618,925
Production expenditures billable to clients............... 213,527 186,292
Prepaid expenses and other assets......................... 105,309 133,642
---------- ----------
Total Current Assets................................... 2,195,844 2,537,018
Property and equipment...................................... 702,456 612,904
Less: Accumulated depreciation and amortization............. 326,014 260,210
---------- ----------
Property and equipment, net............................ 376,442 352,694
Goodwill (less accumulated amortization of $120,607 and
$65,074, respectively).................................... 1,304,723 1,266,955
Other....................................................... 229,430 277,212
---------- ----------
Total Assets........................................... $4,106,439 $4,433,879
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable.................................... $1,760,177 $1,631,048
Short-term borrowings..................................... 39,393 39,826
Current portion of long-term debt......................... 6,016 57,376
Accrued expenses and other payables....................... 531,913 544,652
---------- ----------
Total Current Liabilities.............................. 2,337,499 2,272,902
Long-term debt.............................................. 9,450 389,128
Real estate finance obligation.............................. 187,714 195,321
Deferred compensation and accrued retirement benefits....... 110,309 117,749
Other long-term liabilities................................. 105,286 118,677
Deferred rent............................................... 31,358 29,003
---------- ----------
444,117 849,878
Minority interest........................................... 18,047 14,141
Commitments and contingencies
Mandatorily redeemable stock................................ 301,494 239,126
Stockholder's equity:
Common Stock, Class B, $.01 par value, 10,000,000 shares
authorized, 4,284,248 and 4,274,248 shares issued and
outstanding at December 31, 2001 and 2000,
respectively........................................... 43 43
Additional paid-in capital................................ 1,187,279 1,185,979
Retained deficit.......................................... (174,048) (124,332)
Accumulated other comprehensive loss...................... (7,605) (3,858)
---------- ----------
1,005,669 1,057,832
Unearned compensation..................................... (387) --
---------- ----------
Total Stockholder's Equity............................. 1,005,282 1,057,832
---------- ----------
Total Liabilities and Stockholder's Equity............. $4,106,439 $4,433,879
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-4
BCOM3 GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
-------------------------
2001 2000
----------- -----------
REVENUES.................................................... $1,917,343 $1,833,727
OPERATING EXPENSES:
Compensation and employee benefits........................ 1,142,398 1,134,699
Other general expenses.................................... 320,567 330,836
Office and related expenses............................... 151,933 135,040
Depreciation and amortization............................. 148,866 129,016
Nonrecurring charge....................................... -- 71,889
Restructuring and other special charges................... 20,252 --
---------- ----------
Total operating expenses............................... 1,784,016 1,801,480
OPERATING INCOME............................................ 133,327 32,247
OTHER INCOME (EXPENSE):
Interest income........................................... 22,443 34,487
Interest expense.......................................... (44,007) (58,555)
Foreign currency loss..................................... (1,254) (2,980)
Other income.............................................. -- 193
---------- ----------
Total other expense.................................... (22,818) (26,855)
---------- ----------
INCOME BEFORE INCOME TAXES.................................. 110,509 5,392
INCOME TAXES................................................ 72,913 66,643
---------- ----------
INCOME (LOSS) AFTER INCOME TAXES............................ 37,596 (61,251)
MINORITY INTEREST........................................... (10,973) (8,288)
EQUITY IN (LOSS) INCOME OF AFFILIATES....................... (542) 3,926
---------- ----------
NET INCOME (LOSS)........................................... $ 26,081 $ (65,613)
========== ==========
NET LOSS PER COMMON SHARE:
NET INCOME (LOSS)........................................... $ 26,081 $ (65,613)
Exclude:
Net income allocable to Mandatorily redeemable Class A
common shares.......................................... (74,729) (58,719)
---------- ----------
Loss allocable to Class B common shares..................... $ (48,648) $ (124,332)
========== ==========
Weighted average Class B common shares outstanding.......... 4,281,289 3,421,734
========== ==========
LOSS PER CLASS B COMMON SHARE............................... $ (11.36) $ (36.34)
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-5
BCOM3 GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
LOANS TO
ADDITIONAL STOCKHOLDERS RETAINED
COMPREHENSIVE NUMBER OF PAR VALUE-- PAID-IN FOR STOCK EARNINGS
INCOME (LOSS) SHARES $.01 CAPITAL SALES (DEFICIT)
------------- ----------- ----------- ---------- ------------ ---------
BALANCE, DECEMBER 31, 1999............ 10,108,405 $100 $ 126,800 $(5,600) $ 64,200
Allocation of balances to Mandatorily
redeemable stock..................... (100) (126,800) 5,600 (64,200)
----------- ---- ---------- ------- ---------
BALANCE, JANUARY 1, 2000.............. 10,108,405 -- -- -- --
Net loss.............................. $(65,613) (65,613)
Other comprehensive loss:
Unrealized loss on investments (net
of tax benefit of $225)............ (417)
Foreign currency translation (net of
tax benefit of $2,010)............. (22,063)
Minimum pension liability............ 310
--------
Comprehensive loss.................... $(87,783)
========
Repayment of loans to stockholders.... 5,600
Issuance of Class B shares............ 4,274,248 43 485,994
Shares issued for acquisitions........ 6,013,300 60 701,733
Stock repurchases..................... (718,758) (7) (3,780)
Allocation to Mandatorily redeemable
stock................................ (15,402,947) (53) 2,032 (5,600) (58,719)
----------- ---- ---------- ------- ---------
BALANCE, DECEMBER 31, 2000............ 4,274,248 43 $1,185,979 -- $(124,332)
-------- ----------- ---- ---------- ------- ---------
Net income............................ $ 26,081 26,081
Other comprehensive income:
Unrealized loss on investments (net
of tax benefit of $1,133).......... (1,700)
Foreign currency translation (net of
tax benefit of $3,553)............. (12,560)
Minimum pension liability (net of tax
benefit of $1,336)................. (2,985)
--------
Comprehensive income.................. $ 8,836
========
Dividends paid........................ (4,919)
Employee loans to purchase stock...... (86)
Issuance of Class B shares............ 10,000 -- 1,300
Shares issued for acquisitions and
other................................ 44,500 -- 7,146
Stock repurchases..................... (152,613) (2) (2,070)
Allocation to Mandatorily redeemable
stock................................ 108,113 2 (5,076) 86 (70,878)
----------- ---- ---------- ------- ---------
BALANCE, DECEMBER 31, 2001............ 4,284,248 43 $1,187,279 -- $(174,048)
=========== ==== ========== ======= =========
ACCUMULATED
OTHER MANDATORILY
COMPREHENSIVE REDEEMABLE
INCOME (LOSS) STOCK
------------- -----------
BALANCE, DECEMBER 31, 1999............ $ 9,598 $ --
Allocation of balances to Mandatorily
redeemable stock..................... (9,598) 195,098
-------- --------
BALANCE, JANUARY 1, 2000.............. -- 195,098
Net loss..............................
Other comprehensive loss:
Unrealized loss on investments (net
of tax benefit of $225)............ (417)
Foreign currency translation (net of
tax benefit of $2,010)............. (22,063)
Minimum pension liability............ 310
Comprehensive loss....................
Repayment of loans to stockholders....
Issuance of Class B shares............
Shares issued for acquisitions........
Stock repurchases.....................
Allocation to Mandatorily redeemable
stock................................ 18,312 44,028
-------- --------
BALANCE, DECEMBER 31, 2000............ $ (3,858) $239,126
--------
Net income............................
Other comprehensive income:
Unrealized loss on investments (net
of tax benefit of $1,133).......... (1,700)
Foreign currency translation (net of
tax benefit of $3,553)............. (12,560)
Minimum pension liability (net of tax
benefit of $1,336)................. (2,985)
Comprehensive income..................
Dividends paid........................
Employee loans to purchase stock......
Issuance of Class B shares............
Shares issued for acquisitions and
other................................
Stock repurchases.....................
Allocation to Mandatorily redeemable
stock................................ 13,498 62,368
-------- --------
BALANCE, DECEMBER 31, 2001............ $ (7,605) $301,494
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-6
BCOM3 GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ 26,081 $ (65,613)
Reconciliation of net income (loss) to net cash provided
by operating activities:
Depreciation and amortization........................... 148,866 129,016
Provision for doubtful accounts......................... 13,598 16,219
Non-cash portion of restructuring and other special
charges................................................ 17,712 --
Net loss on divestments................................. 817 --
Decrease in deferred compensation and accrued retirement
benefits............................................... (10,406) (3,506)
Dividends in excess of earnings in affiliates........... 6,423 859
Minority interest....................................... 10,973 8,288
Changes in operating assets and liabilities, net of
effects from acquisitions:
Decrease/(increase) in accounts receivable.............. 57,056 (151,752)
(Increase)/decrease in production expenditures billable
to clients............................................. (31,303) 1,499
Increase in trade accounts payable...................... 39,783 139,685
Decrease in accrued expenses and other payables......... (86,792) (55,955)
Increase/(decrease) in accrued income taxes............. 19,292 (9,358)
Decrease/(increase) in prepaid expenses and other
current assets......................................... 42,944 (15,215)
Decrease in other assets................................ 3,863 7,864
--------- ---------
Net Cash Provided by Operating Activities............. 258,907 2,031
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Business acquisitions, net of cash acquired............... (75,246) (32,769)
Expenditures for property and equipment................... (83,061) (91,670)
Proceeds from sale of assets.............................. 3,553 7,982
Cash acquired in MacManus acquisition..................... -- 50,583
--------- ---------
Net Cash Used in Investing Activities................. (154,754) (65,874)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to minority stockholders................... (6,862) (7,149)
Dividends paid on Common Stock............................ (4,919) --
Repayment of short-term borrowings........................ (9,388) (70,719)
Proceeds from long-term debt.............................. 6,119 153,352
Repayment of long-term debt............................... (451,960) (68,269)
Repayment of stockholder loans............................ -- 5,600
Proceeds from sales of stock.............................. 2,746 486,037
Redemptions of stock...................................... (2,072) (32,284)
Other..................................................... (387) --
--------- ---------
Net Cash (Used in)/Provided by Financing Activities... (466,723) 466,568
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (7,854) (7,084)
--------- ---------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS........ (370,424) 395,641
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 598,159 202,518
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 227,735 $ 598,159
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid........................................... $ 26,757 $ 77,367
========= =========
Interest paid............................................... $ 26,827 $ 58,321
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-7
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Bcom3 Group, Inc. and subsidiaries ("Bcom3" or the "Company") is one of the
world's leading advertising and marketing communications services holding
companies. The Company was created through the business combination of Leo
Burnett Worldwide, Inc. ("Leo Burnett," formerly known as The Leo Group, Inc.)
and The MacManus Group, Inc. ("MacManus") on January 31, 2000. The Company's
service offerings include creation and production of advertising; branding and
brand building; strategic media planning and buying; marketing research and
consultation; public relations; healthcare marketing and communications;
multicultural and urban marketing; direct and database marketing; interactive
and digital communications; financial and business-to-business advertising;
directory advertising; field marketing; integrated merchandising and sales
promotion programs; sports and event marketing; telemarketing; new product
design and development; package design; and internet and digital media
development.
The Company has operations in the United States, Europe, Asia Pacific,
Latin America, Canada, the Middle East and Africa.
The consolidated financial statements include the financial statements of
Bcom3 and its domestic and international subsidiaries. All significant
intercompany balances and transactions have been eliminated. These statements
reflect all adjustments, consisting of normal recurring accruals, which in the
opinion of management are necessary for a fair presentation, in all material
respects of the information contained therein.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments with
original maturities, when purchased, of three months or less. These investments
are stated at cost, which approximates fair value.
Allowance for Doubtful Accounts
Accounts receivable are presented net of an allowance for doubtful
accounts. The allowance for doubtful accounts is determined through a specific
identification process whereby management assesses the collectability of
receivables based in part on the financial condition of the client.
Production Expenditures Billable to Clients
Production expenditures billable to clients consist principally of costs
incurred in providing communications services to clients. Such amounts are
generally billed to clients when services are rendered, when costs are incurred
for radio and television production and when print production is completed.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation.
Expenditures for repairs and maintenance are charged to expense as incurred and
expenditures for additions and improvements that significantly extend the lives
of assets are capitalized. Upon sale or other retirement of depreciable assets,
the cost and accumulated depreciation are removed from the related accounts and
any gain or loss is reflected in operations. Most property and equipment is
depreciated utilizing the straight-line method over the estimated useful lives
of the depreciable assets, which range from 10 to 40 years for buildings and
improvements, and three to 10 years for furniture and equipment. Costs
associated with the acquisition or development of software for internal use are
capitalized in accordance with the provisions of AICPA Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Most capitalized software costs are amortized on a straight-line
basis over three to five years. Capitalized software costs include expenditures
for purchased software and for the design, development and testing of new
systems. Expenditures
F-8
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for consulting, training and reengineering efforts are expensed as incurred.
Leasehold improvements are amortized over their estimated useful lives or over
the terms of the lease, whichever is shorter, on a straight-line basis.
Intangibles
The Company makes acquisitions consistent with its strategy of enhancing
the value of its services capabilities and expanding its current ongoing client
relationships. The goodwill that results from these acquisitions primarily
represents acquisition costs in excess of fair value of tangible net assets and
identifiable intangible assets that are acquired in each transaction. Goodwill
consists primarily of the know-how, reputation, experience and geographic
location of the purchased businesses. Goodwill is amortized on a straight-line
basis over periods up to 25 years.
Included in "Other" assets is approximately $33.9 million and $44.9 million
of unamortized value ascribed to the customer base as of December 31, 2001 and
2000, respectively, and $2.6 million and $5.1 million, of unamortized value
ascribed to the assembled workforce as of December 31, 2001 and 2000,
respectively, which were acquired in the business combination between Leo
Burnett and MacManus. These amounts are being amortized on a straight-line basis
over five years and three years for customer base and assembled workforce,
respectively. The amount attributable to customer base represents the value of
the established relationships that the Company has with its current clients. The
value attributable to the assembled workforce was determined based upon the
estimated replacement cost of the key members of the management team.
In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations," the Company has assessed
each of its acquisitions since July 1, 2001 for any identifiable intangible
assets. The Company has identified $0.3 million of value which has been ascribed
to non-compete and non-solicit agreements related to these acquisitions. The
asset is being amortized on a straight-line basis over five years.
The Company periodically assesses the value of its intangible assets and to
the extent an impairment of these assets is identified, a write-down is
recorded.
Amortization expense related to intangible assets in the accompanying
consolidated income statements totaled $78.3 million and $71.5 million for the
years ended December 31, 2001 and 2000, respectively.
Measurement of Impairment
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company
records impairment losses on property and equipment used in operations, goodwill
and intangible assets when events and circumstances indicate the assets may be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than their carrying amounts. If an impairment has occurred, the
amount of the impairment recognized is determined by estimating the fair value
of the assets and recording a provision for loss if the carrying value is
greater than the fair value.
Financial Instruments
The Company manages its exposure to fluctuations in foreign currency
exchange rates and interest rates, primarily through the use of foreign exchange
contracts and interest rate swaps. The estimated fair values of derivative
positions represent the net amount required to terminate the position, taking
into consideration market rates and counterparty credit risk. While investing in
these financial instruments, the Company does not make any speculative
investment decisions.
F-9
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Compensation
The Company has certain compensation plans, which enable eligible employees
to defer a portion of their compensation into future periods. Amounts related to
these compensation arrangements are charged to expense as the related services
are performed.
Loss Lease Provisions
The Company will record a loss lease provision when it decides to abandon
or sublet rented office space. This provision will be equal to the lesser of the
difference between the Company's rent expense per the lease agreement less any
expected sublease income to be received during the remaining term of the lease
or any penalties which result from lease cancellation. The Company will also
evaluate the realizability of any leasehold improvements associated with the
space and record a provision if the Company will not be able to recover its
remaining book value through sublease income.
Income Taxes
Deferred income taxes are provided for the temporary difference between the
financial reporting basis and tax basis of the Company's assets and liabilities.
Investments in Affiliates
Investments in affiliated companies are accounted for by the equity method.
The equity method is used when the Company has a 20% to 50% ownership interest
and where significant influence over the operating and financial policies of
these investments exist. All other investments are generally accounted for under
the cost method.
Foreign Currency Translation
The Company's consolidated financial statements are prepared in accordance
with the requirements of SFAS No. 52, "Foreign Currency Translation." Assets and
liabilities of the Company's foreign subsidiaries, other than those located in
highly inflationary countries, are translated at current exchange rates, while
income and expense are translated at average rates for the period. For entities
in highly inflationary countries, a combination of current and historical rates
is used to determine foreign currency gains and losses resulting from financial
statement translation. Resulting translation gains and losses are reported as a
component of stockholder's equity except for those associated with highly
inflationary countries, which are reported directly in the accompanying
consolidated statement of operations. Certain of the Company's intercompany
loans with international subsidiaries are of a long-term investment nature since
settlement is not planned or anticipated in the foreseeable future. Accordingly,
related gains or losses are reported and accumulated in the same manner as
currency translation adjustments. Foreign currency transaction gains and losses
are included in the determination of net income.
Earnings Per Share
Basic and diluted loss per common share is calculated by dividing net
income, reduced by $74.7 million and $58.7 million of income allocable to
Mandatorily redeemable stock for the years ended December 31, 2001 and 2000,
respectively, by the weighted average number of Class B common shares
outstanding during each respective period. For the years ended December 31, 2001
and 2000, the weighted average number of Class B common shares used in the
earnings per share calculation is 4,281,289 and 3,421,734, respectively. No
Class B common shares existed prior to March 2000.
F-10
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Substantially all revenue is derived from fees for services and for
production of advertisements. Additionally, revenue is derived from commissions
for placement of advertisements in various media. Revenue is recognized when the
service is performed in accordance with the terms of the contractual arrangement
and collection is reasonably assured.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"). SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenues in financial statements and required adoption no later
than the fourth quarter of fiscal 2000. During 2000, the Company adopted SAB No.
101, which did not have a material impact on the Company's consolidated
financial position or results of operations.
Use of Estimates
The process of preparing financial statements in conformity with accounting
principles generally accepted in the United States requires the use of estimates
and assumptions regarding certain types of assets, liabilities and expenses.
Such estimates primarily relate to unsettled transactions and events as of the
date of the financial statements. Accordingly, upon settlement, actual results
may differ from estimated amounts.
Reclassifications
Certain reclassifications have been made in the 2000 financial statements
to conform to the 2001 presentation.
Recent Accounting Principles
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 requires the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not designated as part of a
hedging relationship must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, the effective
portion of the hedge's change in fair value is either (1) offset against the
change in fair value of the hedged asset, liability or firm commitment through
income or (2) held in equity until the hedged item is recognized in income. The
ineffective portion of a hedge's change in fair value is immediately recognized
in income. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133 -- an Amendment of FASB Statement No. 133" ("SFAS No.
137"). SFAS No. 137 deferred the effective date of SFAS No. 133 for one year to
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS
No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an amendment of FASB Statement No. 133" ("SFAS No. 138"). This
statement amended certain paragraphs within SFAS No. 133. The Company adopted
SFAS No. 133 and SFAS No. 138 effective January 1, 2001. The adoption of SFAS
No. 133 and SFAS No. 138 did not have a material effect on the Company's
consolidated financial position or results of operations.
In April 2001, the Emerging Issues Task Force ("EITF") issued Topic D-96,
"Accounting for Management Fees Based on a Formula." This pronouncement provides
guidance on revenue recognition under arrangements that contain
performance-based incentive fees that are not finalized until the end of a
period of time specified in the arrangement and gives the Company the option to
recognize the related revenue at the end of the contract year or alternatively
recognize revenue due at any point in time as if the contract were terminated at
the given reporting period date. The Company will adopt this pronouncement
beginning January 1, 2002. The Company does not anticipate that this will have a
material impact on its consolidated financial position or results of operations.
F-11
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS
No. 141"), and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). SFAS No. 141 requires that all business combinations be accounted for by
the purchase method and that intangible assets acquired in a business
combination be recognized as assets apart from goodwill. SFAS No. 142 requires
that goodwill and intangible assets that have indefinite useful lives not be
amortized but be tested at least annually for impairment. Intangible assets that
have finite useful lives will continue to be amortized over their useful lives.
SFAS No. 141 became effective for all business combinations initiated after June
30, 2001 and for all business combinations accounted for by the purchase method
for which the date of acquisition is July 1, 2001 or later. The provisions of
SFAS No. 142 are effective for fiscal years beginning after December 15, 2001.
SFAS No. 141 has been adopted by the Company effective July 1, 2001 and has
not had a material impact on the Company's consolidated financial position or
results of operations. The Company will adopt the provisions of SFAS No. 142
beginning in the first quarter of 2002. The full impact of adoption of the
provisions of SFAS No. 142 is yet to be determined; however, annual amortization
expense recorded in 2001 related to goodwill and intangible assets was $60.1
million and $18.4 million, respectively. SFAS No. 142 also contains certain
transition provisions that apply to acquisitions completed after June 30, 2001.
The adoption of the transition provisions has not had a material effect on the
Company's consolidated financial position or results of operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"), which is effective for fiscal years
beginning after June 15, 2002. SFAS No. 143 requires that the fair value of an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value of the obligation can be made. The
adoption of the provisions of SFAS No. 143 is not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which is
effective for fiscal years beginning after December 15, 2001. SFAS No. 144
addresses financial accounting and reporting for the impairment of long-lived
assets (excluding goodwill) or assets to be disposed of. The adoption of SFAS
No. 144 is not expected to have a material effect on the Company's consolidated
financial position or results of operations.
In November 2001, the EITF issued Topic D-103, "Income Statement
Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses
Incurred." This pronouncement provides guidance on the accounting treatment in
the income statement for reimbursements received for out-of-pocket expenses
incurred, and is effective for all financial reporting periods beginning after
December 15, 2001. The Company is currently in the process of quantifying the
financial impact of the application of this pronouncement on its revenues and
will adopt the provisions of this pronouncement beginning in the first quarter
of 2002. The adoption of its provisions will have no impact on the Company's
consolidated financial position. Beginning in 2002, the Company's statement of
operations will include a gross revenue and cost of sales account, however this
will have no impact on the Company's net income.
3. ACQUISITIONS
All acquisitions have been accounted for under the purchase method. The
results of operations of the acquired businesses are included in the
consolidated financial statements from the dates of the acquisition.
On January 27, 2000, the shareholders of Leo Burnett approved a business
combination with MacManus to create Bcom3 and on January 31, 2000, the business
combination occurred. Pursuant to the business combination, all of Leo Burnett's
approximately 9.5 million outstanding shares were exchanged for the same number
of shares in Bcom3; MacManus' shareholders exchanged approximately 700,000
outstanding shares for approximately 6.0 million shares of Bcom3 based on an
exchange ratio of 8.6:1. For accounting purposes, Leo Burnett was deemed to be
the acquirer principally because of the greater number of Bcom3 shares
F-12
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expected to be received by the stockholders of Leo Burnett. The purchase price
plus the liabilities assumed exceeded the fair value of the tangible assets and
identified intangible assets acquired by approximately $1,240 million
(goodwill). The goodwill is being amortized over a period of 25 years on a
straight-line basis.
During 2001 and 2000, the Company acquired other advertising and marketing
communications services businesses or interests in other advertising and
marketing communications services businesses for total cash consideration of
$75.2 million and $32.8 million, respectively. These acquisitions were accounted
for under the purchase method and have been included in the Company's
consolidated results of operations since the date of acquisition. The historical
and pro forma impact of these individual acquisitions on 2001 and 2000 results,
respectively, were not significant.
Certain acquisitions completed in 2001 and 2000 require payments in future
years to the former owners of the acquired companies based on the acquired
companies' future revenue and/or profits, as defined in the acquisition
agreements. In 2001 and 2000, the Company recorded $8.0 million and $29.2
million, respectively, as additional purchase price or compensation expense
related to acquisitions.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments as of December 31, 2001 and 2000 (in
thousands):
2001 2000
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
Cash and cash equivalents.................. $227,735 $227,735 $598,159 $598,159
Investments
Equity in marketable securities.......... 1,138 1,138 3,134 3,134
Equity investments including goodwill.... 51,985 51,985 94,947 94,947
Short-term borrowings...................... 39,393 39,393 39,826 39,826
Long-term debt............................. 15,466 15,466 446,504 446,504
Foreign exchange contracts................. 23 23 (256) (256)
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents
Cash and cash equivalents consist primarily of short-term interest bearing
highly liquid investments. The fair value of cash and cash equivalents
approximated carrying value due to the short-term maturity of these instruments.
Investments
The fair market value of equity in marketable securities is based on the
market prices for the last day of the period if the investment trades on quoted
exchanges. Unrealized gains and losses on these investments are included as a
separate component of stockholder's equity, net of any related tax effect. For
non-traded investments, fair value is estimated based on the underlying value of
the investment.
Short-term borrowings
The fair value of short-term borrowings approximated carrying value due to
the short-term maturity of these instruments.
F-13
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt
The Company's long-term debt was a combination of floating and fixed rate
debt and equipment lease obligations, the carrying value of which approximated
fair value.
Foreign exchange contracts
The estimated fair values of derivative positions represent the net amount
required to terminate the positions, taking into consideration market rates and
counterparty credit risk.
5. CONCENTRATION OF CREDIT RISK
The Company's largest customer, Procter & Gamble, accounted for
approximately 12.7% and 12.0% of revenues for the years ended December 31, 2001
and 2000, respectively, and 7.5% and 9.0% of accounts receivable balances at
December 31, 2001 and 2000, respectively. The Company's second largest customer,
Philip Morris, accounted for approximately 11.2% and 9.0% of revenues for the
years ended December 31, 2001 and 2000, respectively, and 6.9% and 7.0% of
accounts receivable balances at December 31, 2001 and 2000, respectively.
Credit risk represents the accounting loss that would be recognized at the
reporting date if counter-parties failed to perform as contracted. The Company
performs regular credit reviews of customers. Allowances are maintained for
potential credit losses. To date, such losses have been within the Company's
expectations and allowances for doubtful accounts are adequate to cover
foreseeable credit risk losses.
6. SEGMENT INFORMATION
The Company's wholly and partially-owned businesses operate within the
advertising and marketing communications services operating segment. All of
these services fall within one reportable segment as defined in SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
A summary of the Company's revenues and property and equipment by
geographic area as of December 31, 2001 and 2000 is as follows (in thousands):
UNITED ASIA LATIN
STATES EUROPE PACIFIC AMERICA OTHER TOTAL
---------- -------- -------- -------- ------- ----------
Revenue
2001............... $1,017,347 $554,125 $183,266 $121,826 $40,779 $1,917,343
2000............... 954,847 519,661 189,189 135,413 34,617 1,833,727
Property and
equipment, net
2001............... $ 288,987 $ 59,398 $ 15,256 $ 9,967 $ 2,834 $ 376,442
2000............... 270,148 55,493 13,795 9,972 3,286 352,694
7. INVESTMENTS IN AFFILIATES
Investments in affiliated companies are accounted for using the equity
method of accounting when the Company has a 20% to 50% ownership interest and
exercises significant influence over the operating and financial policies of the
affiliate. All other investments are generally accounted for under the cost
method.
The Company's equity in the net (loss) income of these affiliates amounted
to a loss of $0.5 million and income of $3.9 million for the years ended
December 31, 2001 and 2000, respectively. The Company's equity in the net
tangible assets of these affiliated companies was approximately $18.3 million
and $32.6 million as of December 31, 2001 and 2000, respectively. In addition,
the excess of acquisition costs over the fair value of
F-14
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tangible net assets acquired was approximately $33.7 million and $62.4 million
as of December 31, 2001 and 2000, respectively. These excess acquisition costs
are being amortized on a straight-line basis over periods of up to 25 years. In
2001 and 2000, the Company disposed of shares held in certain affiliates. The
resulting impact of these disposals was not material to the 2001 and 2000
consolidated results of operations or financial position.
8. RESTRUCTURING & OTHER SPECIAL CHARGES AND NONRECURRING CHARGE
As part of the Company's operational initiatives related to the merged
operations of Leo Burnett and MacManus, the Company incurred $20.3 million of
restructuring and other special charges during 2001 related to the streamlining
of certain of the Company's businesses. These charges include costs associated
with severance, fixed asset impairments, leasehold consolidations, and other
related costs of $5.3 million, $3.6 million, $10.5 million and $0.9 million,
respectively. Of these amounts, approximately $3.3 million, $2.9 million, $10.5
million and $0.6 million related to severance, fixed asset impairments,
leasehold consolidations and other related costs, respectively, remain as of
December 31, 2001.
The costs, liabilities and activity during 2001 for these charges are as
follows (in thousands):
DEDUCTIONS
-------------------------
BALANCE APPLIED BALANCE
DECEMBER 31, ADDITIONS AGAINST DECEMBER 31,
2000 EXPENSED RELATED ASSETS PAYMENTS 2001
------------ --------- -------------- -------- ------------
Severance................... $-- $ 5,283 $ -- $1,996 $ 3,287
Fixed asset impairments..... -- 3,603 726 -- 2,877
Leasehold consolidations.... -- 10,519 -- -- 10,519
Other related costs......... -- 847 -- 271 576
-- ------- ---- ------ -------
Totals.................... $-- $20,252 $726 $2,267 $17,259
== ======= ==== ====== =======
In connection with the business combination, Leo Burnett terminated its
employee loan program. This program guaranteed bank loans to employees to allow
the employees to purchase Leo Burnett's common stock. Leo Burnett extended an
offer to its shareholders with loans outstanding under the employee loan program
to redeem a number of shares of common stock sufficient to retire the amount of
outstanding borrowings under these loans. Related to this redemption offer, the
Company recognized a nonrecurring compensation charge of $71.9 million in 2000.
This charge was equal to the difference in the book value and cash to be paid
for the shares offered for redemption. There is no tax benefit associated with
this charge.
F-15
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. PROPERTY AND EQUIPMENT
Property and equipment and the related accumulated depreciation and
amortization as of December 31, 2001 and 2000 are summarized as follows (in
thousands):
2001 2000
--------- ---------
Furniture and equipment..................................... $ 249,720 $ 222,172
Building.................................................... 196,671 194,887
Land........................................................ 17,698 16,987
Leasehold improvements...................................... 141,743 118,169
Software.................................................... 79,762 43,400
Other....................................................... 16,862 17,289
--------- ---------
Total cost................................................ 702,456 612,904
Accumulated depreciation and amortization................... (326,014) (260,210)
--------- ---------
Property and equipment, net............................... $ 376,442 $ 352,694
========= =========
Depreciation and amortization expense for property and equipment totaled
$70.6 million and $57.5 million in 2001 and 2000, respectively.
10. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109 applies an asset
and liability approach that requires the recognition of deferred tax assets and
liabilities with respect to the expected future tax consequences of events that
have been recognized in the consolidated financial statements and tax returns.
Income (loss) before income taxes and the income taxes for the years ended
December 31, 2001 and 2000 consisted of the amounts as shown below (in
thousands):
2001 2000
-------- --------
Income (loss) before income taxes:
Domestic.................................................. $ 31,665 $(48,768)
International............................................. 78,844 54,160
-------- --------
Total.................................................. $110,509 $ 5,392
======== ========
Income taxes:
Current:
Federal................................................... $ 27,782 $ 37,429
State and local........................................... 3,658 8,293
International............................................. 31,268 31,057
-------- --------
62,708 76,779
-------- --------
Deferred:
Federal................................................... (2,843) (8,403)
State and local........................................... (408) (686)
International............................................. 13,456 (1,047)
-------- --------
10,205 (10,136)
-------- --------
Total.................................................. $ 72,913 $ 66,643
======== ========
F-16
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's effective income tax rate for the years ended December 31,
2001 and 2000, varied from the statutory federal income tax rate as a result of
the following factors:
2001 2000
---- -------
Statutory federal income tax rate........................... 35.0% 35.0%
State and local taxes on income, net of federal income tax
benefit................................................... 1.9 91.7
Impact of international tax rate differential............... 6.6 276.2
Nondeductible goodwill amortization......................... 18.1 363.0
Nonrecurring charge......................................... -- 466.6
Other....................................................... 4.4 3.4
---- -------
Effective rate.............................................. 66.0% 1,235.9%
==== =======
Deferred income taxes are provided for the temporary differences between
the financial reporting bases and tax bases of the Company's assets and
liabilities. Deferred tax benefits result primarily from recording certain
expenses in the financial statements, which are not currently deductible for tax
purposes. Deferred tax liabilities result primarily from the recording of
intangible assets, the deferred gain on the sale-leaseback transaction and the
recognition of income upon the change from cash to accrual basis reporting for
tax purposes.
Net deferred tax benefits (liabilities) as of December 31, 2001 and 2000
consisted of the amounts shown below (in thousands):
2001 2000
-------- --------
Tax loss/foreign tax credits carryovers..................... $ 28,386 $ 21,997
Allowance for doubtful accounts............................. 9,689 10,233
Employee compensation and benefit plans..................... 59,988 68,263
Other accrued expenses...................................... 22,429 16,067
Goodwill and intangible assets.............................. (8,565) (16,364)
Rent........................................................ 13,882 11,250
Real estate joint venture................................... 4,566 4,425
Foreign exchange............................................ 3,189 (774)
Accounting method change.................................... (1,953) (4,597)
Deferred gain on sale-leaseback............................. (9,996) (10,686)
Other....................................................... 5,199 (652)
-------- --------
Sub-total................................................... 126,814 99,162
Less: valuation allowance................................... (25,781) (24,308)
-------- --------
Total..................................................... $101,033 $ 74,854
======== ========
The Company has recorded deferred tax benefits as of December 31, 2001 and
2000 of $109.9 million and $93.1 million, respectively, which are net of
valuation allowances of $25.8 million and $24.3 million for the comparative
periods, respectively. The Company has recorded deferred tax liabilities as of
December 31, 2001 and 2000 of $8.9 million and $18.3 million, respectively.
Deferred tax benefits were recorded for foreign net operating loss
carryforwards, which were predominantly offset by valuation allowances due to
the uncertainty of realizing the future tax benefits. As of December 31, 2001,
there were net operating loss carryforwards of $75.8 million with various
expiration periods and foreign tax credit carryforwards of $4.4 million, which
expire in 2006 if unused.
F-17
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net current deferred tax benefits as of December 31, 2001 and 2000 were
$28.1 million and $19.2 million, respectively, of which $32.2 million and $22.5
million are included in prepaid expenses and other assets and $4.1 million and
$3.3 million is included in accrued expenses and other payables for the
comparative periods, respectively. Net non-current deferred tax benefits as of
December 31, 2001 and 2000 were $72.9 million and $55.6 million of which $77.7
million and $70.4 million are included in other assets, $0.0 million and $0.2
million are included in accumulated other comprehensive loss and $4.8 million
and $15.0 million are included in other long-term liabilities for the
comparative periods, respectively. The Company has concluded that it is probable
that the Company will be able to realize these net deferred tax benefits in
future periods.
The cumulative undistributed earnings of the Company's international
operations totaled approximately $92.7 million as of December 31, 2001. The
Company has made a provision for the additional taxes on the earnings of the
international subsidiaries that will be distributed. Income taxes have not been
provided on the remaining undistributed earnings of international subsidiaries
because these earnings are considered to be permanently invested or will not be
repatriated unless any additional federal income taxes would be offset by
foreign tax credits.
11. SHORT-TERM BORROWINGS AND LINES OF CREDIT
Short-term borrowings of $39.4 million and $39.8 million existed as of
December 31, 2001 and 2000, respectively. Short-term borrowings consisted
principally of amounts borrowed under domestic and international bank overdraft
facilities and lines of credit used for local working capital purposes. The
weighted average interest rates on outstanding short-term borrowings as of
December 31, 2001 and 2000 were 6.0% and 7.3%, respectively. The fair value of
short-term borrowings approximated carrying value due to the short-term maturity
of these instruments.
In August 2001, MacManus and DMB&B USA, Inc., a subsidiary of MacManus,
entered into the Second Amended and Restated Credit Agreement ("Second Amended
Credit Agreement"). The Second Amended Credit Agreement includes a $200.0
million revolving credit facility (facility A), which includes a $100.0 million
swing line to provide overnight borrowing capabilities and is committed through
July 2004. This Second Amended Credit Agreement also includes a $150.0 million
revolving credit facility (facility B) which is committed through July 2002. The
Second Amended Credit Agreement is cross-guaranteed by Leo Burnett and Leo
Burnett USA, Inc.
In August 2001, Leo Burnett entered into the First Amended and Restated
Credit Agreement ("First Amended Credit Agreement"). The First Amended Credit
Agreement is comprised of a $100.0 million revolving credit facility, which
included a $50.0 million swing line to provide overnight borrowing capabilities
and is committed through July 2004. The First Amended Credit Agreement is
cross-guaranteed by MacManus and DMB&B USA, Inc.
The interest rate on both the Second Amended Credit Agreement and the First
Amended Credit Agreement is set as a margin over LIBOR. This margin is
structured to reduce when certain consolidated indebtedness ratios are achieved.
As of December 31, 2001, there were no short-term borrowings outstanding under
these agreements.
Both the Second Amended Credit Agreement and the First Amended Credit
Agreement contain financial covenants regarding the ratio of total consolidated
indebtedness and gross interest expense to cash flow. In addition, these credit
agreements contain certain restrictive covenants including restrictions on
liens. All covenant compliance calculations are made on a combined MacManus and
Leo Burnett basis and had been met as of year end. As of December 31, 2001 and
2000, subsidiaries of the Company also had unsecured lines of credit of $275.5
million and $251.3 million, respectively, of which $236.1 million and $211.5
million were unused as of the respective dates.
F-18
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 2001 and 2000
(in thousands):
2001 2000
------- --------
Term debt payable to banks in installments with maturities
through 2003. The average interest rate on outstanding
principal as of December 31, 2000 was 7.9%................ $ -- $435,000
Notes payable to financing company, weighted average
interest rate of 7.0% and 9.0%, as of December 31, 2001
and 2000, respectively, payable in monthly installments
through 2004.............................................. 7,139 3,377
Notes payable to banks by foreign subsidiaries at applicable
banks' base lending rates 2.5% to 18.0% and 4.1% to 19.4%
as of December 31, 2001 and 2000, respectively, payable in
varying installments through 2003......................... 1,141 2,636
Notes payable to former stockholders, variable interest 3.7%
and 7.7% as of December 31, 2001 and 2000, respectively,
payable in varying installments........................... 7,186 5,491
------- --------
15,466 446,504
Less, current portion....................................... 6,016 57,376
------- --------
Long-term debt.............................................. $ 9,450 $389,128
======= ========
AGGREGATE MATURITIES ON LONG-TERM DEBT ARE AS FOLLOWS (IN THOUSANDS):
2002........................................................ $6,016
2003........................................................ 9,051
2004........................................................ 125
2005........................................................ 24
2006........................................................ 26
Thereafter.................................................. 224
13. FINANCIAL INSTRUMENTS AND MARKET RISK
The Company selectively utilizes derivative financial instruments solely to
reduce certain market risks, including the impact of currency rate changes.
These hedging activities are limited in volume and confined to the management of
specific interest rate and foreign exchange risks. Senior management actively
participates in the quantification, monitoring, and control of all significant
risks.
As of December 31, 2001 and 2000, the Company had open forward foreign
currency contracts for approximately $11.0 million and $18.0 million,
respectively to hedge certain known foreign currency assets and liabilities.
The Company enters into forward foreign exchange contracts primarily to
hedge certain intercompany payables and receivables typically deemed to be
short-term in nature. The forward contract terms are typically six months or
less in duration and structured to facilitate the payment of the intercompany
obligation with the resulting gain or loss included in the basis of the
transaction upon settlement. When the underlying intercompany obligation is
long-term in nature a hedge may be used to equalize the interest rate
differential. In these instances a one-year forward contract is entered into.
Counterparty risk is managed by entering into arrangements of this nature with
relationship banks, which are known to have strong credit ratings.
F-19
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES
The Company is obligated under a number of operating lease agreements for
office space, office equipment, computers, and automobiles. Generally, office
space leases require the payment of base rents plus escalations for increases in
building operating costs and real estate taxes. Rent expense under these leases
amounted to $102.0 million and $76.3 million in 2001 and 2000, respectively.
Expense under operating leases, principally for office equipment, amounted to
$25.0 million and $26.7 million in 2001 and 2000, respectively. Minimum lease
payments to outside parties under all non-cancelable operating leases having
initial or remaining terms in excess of one year as of December 31, 2001
(excluding future minimum lease payments relating to the sale-leaseback
transaction) are as follows (in thousands):
2002........................................................ $92,423
2003........................................................ 84,464
2004........................................................ 72,819
2005........................................................ 66,629
2006........................................................ 63,027
Thereafter.................................................. 250,391
The Company is party to certain legal proceedings incidental to its
business. While it is not feasible to predict or determine the final outcome of
these proceedings, management does not believe that the outcome will have a
material effect on the Company's consolidated financial position, results of
operations, or cash flows.
15. SALE-LEASEBACK TRANSACTION
In 1987, Leo Burnett constructed an office building that served as its
corporate headquarters. During 1997, Leo Burnett contributed its corporate
headquarters to a joint venture (the "Venture") substantially owned by Starwood
Capital Group, L.L.C. and the John Buck Company. In exchange for its
contribution, Leo Burnett acquired a 3.6% interest in the Venture, and the
Venture assumed Leo Burnett's building mortgage debt of $219.5 million. In
conjunction with this transaction, Leo Burnett entered into a 15-year lease for
the portion of the building that it occupies. This transaction was accounted for
as a financing lease, with the building and the building mortgage debt
obligation continuing to be reflected in the Company's financial statements. The
Company's only continuing obligation is its annual lease payments shown below
since the Venture has fully assumed the building mortgage debt. In addition, the
operating results of the Venture are included in the Company's accompanying
consolidated statements of operations, with the 96.4% interest not owned by the
Company reflected as minority interest expense.
Significant accounting policies of the Venture are as follows:
- Rental income is recognized on a straight-line basis over the terms of
the respective leases.
- Depreciation expense is provided on a straight-line basis over the
estimated useful lives of the depreciable assets, which range from 10 to
40 years for buildings and improvements and three to 15 years for
furniture and equipment.
F-20
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As mentioned above, the Company has a continuing obligation for annual lease
payments. In 2001 and 2000, the lease payment was $10.1 million and $9.8
million, respectively. The Company's remaining future minimum lease payments as
of December 31, 2001 are as follows (in thousands):
2002........................................................ $10,341
2003........................................................ 10,600
2004........................................................ 10,865
2005........................................................ 10,703
2006........................................................ 10,970
Thereafter.................................................. 71,828
16. MANDATORILY REDEEMABLE STOCK
Each owner of the Company's Class A common stock has entered into a stock
purchase agreement with the Company. The Company's Class A common stock is
referred to as "Mandatorily redeemable stock" in these Consolidated Financial
Statements, due to the repurchase features described below. All of Leo Burnett's
9,491,560 outstanding shares were exchanged for an equal number of the Company's
shares in the business combination. MacManus stockholders exchanged 695,492
MacManus shares for 5,981,100 of the Company's shares in the business
combination. At the time of the business combination, the Mandatorily redeemable
stock was deemed to have a value of $115.38 per share. During the eleven-month
period ended December 31, 2000, Bcom3 repurchased 69,713 shares of Mandatorily
redeemable stock at prices ranging from $1.17 per share to $3.63 per share, and
from $20.09 per share to $22.55 per share for the former stockholders of
MacManus and Leo Burnett, respectively. During the year ended December 31, 2001,
Bcom3 repurchased 152,613 shares of Mandatorily redeemable stock at prices
ranging from $3.63 per share to $6.25 per share, and from $22.55 per share to
$25.17 per share for the former stockholders of MacManus and Leo Burnett,
respectively. Under the stock purchase agreements, in the event an individual
owner of Mandatorily redeemable stock ceases to be an employee, the Company will
generally repurchase his or her shares at a specified formula price based on the
Per Share Book Value of the Company's common stock at the time of the
repurchase. In certain circumstances, however, including death, permanent
disability, or termination without cause, former employees (or their heirs or
devisees) are allowed to become continuing owners for up to ten additional years
before such repurchase occurs. The Company generally pays cash for repurchased
shares at the time of the repurchase. Redemption amounts relating to the stock
purchase agreements are included in "Mandatorily redeemable stock" in the
accompanying consolidated balance sheets.
The Per Share Book Value as of any date equals the Starting Per Share Book
Value plus or minus Per Share Book Value Changes through such date. The Starting
Per Share Book Value is either (a) $20.09 for shares of Mandatorily redeemable
stock that the former stockholders of Leo Burnett acquired on January 31, 2000;
or (b) $1.17 for shares of Mandatorily redeemable stock that the former
stockholders of MacManus acquired on January 31, 2000; or (c) the actual
purchase price for any shares of Mandatorily redeemable stock that a stockholder
acquired after January 31, 2000. Per Share Book Value Changes are calculated
based on the consolidated net income (or loss) per Share of Bcom3 (treating
shares of Mandatorily redeemable stock and shares of Class B common stock as a
single class of shares for this purpose), from January 31, 2000 (or, in the case
of shares acquired after January 31, 2000, the date of such acquisition) through
the date of determination, but reduced by dividends and adjusted to eliminate
(1) nonrecurring items (net of taxes), including but not limited to gains or
losses on sales of securities, real estate, business units or other assets
outside the ordinary course of business, (2) any changes as a result of the
application of purchase accounting to the business combination of Leo Burnett
and MacManus into subsidiaries of the Company and (3) any charges arising from
issuances or repurchases of equity at prices other than book value. Per Share
Book Value Changes during any period of less than a full year are determined by
pro ration (or another method selected by the Company).
F-21
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All components of comprehensive income have been allocated between the
Class A common stockholders (Mandatorily redeemable stock) and the Class B
common stockholders based on proportional ownership, except for items (1), (2)
and (3) discussed above as provided for in the stock purchase agreement.
Transaction activity in the equity accounts pertaining to Class A common
stockholders, other than items described in the preceding paragraph, are
allocable to Mandatorily redeemable stock except for items (1), (2) and (3)
discussed above. Transaction activity in the equity accounts pertaining to Class
B common stockholders, other than items described in the preceding paragraph,
remains in the respective equity accounts.
17. RETIREMENT AND POSTRETIREMENT PLANS
The Company maintains retirement plans covering substantially all U.S.
employees and certain foreign employees. Some of these are defined benefit
pension plans ("Defined Benefit Pensions") which require disclosure of assets
and obligations and others are defined contribution plans which by definition
have assets equal to liabilities and therefore the Company shows only the annual
expense associated with such plans. During the fourth quarter of 2001 the
Company's domestic retirement plans were amended to provide a cash balance
benefit formula for service after January 1, 2002. This amendment reduced the
benefit obligation for the domestic retirement plans by approximately $24.7
million, primarily because plan benefits for service rendered through December
31, 2001 are no longer affected by future salary increases.
The Company also provides certain healthcare and life insurance benefits
("Postretirement Plans") to certain retired U.S. employees. Employees hired by
MacManus before January 1, 1993 may be eligible for certain postretirement life
insurance and medical benefits depending on years of service and other
requirements. Employees hired by Leo Burnett before January 1, 2002 may be
eligible for certain postretirement medical benefits depending on years of
service and other requirements.
F-22
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The changes in the assets and benefit obligations and the reconciliation of
the Company's Defined Benefit Pensions and Postretirement Plans in the
accompanying consolidated balance sheets as of December 31, 2001 and 2000 were
as follows (in thousands):
DEFINED BENEFIT PENSIONS
------------------------------ POSTRETIREMENT
U.S. NON-U.S. PLANS
------------------- ------------------- -------------------
2001 2000 2001 2000 2001 2000
-------- -------- -------- -------- -------- --------
Change in benefit obligation --
Benefit obligation at beginning of year........ $156,725 $ 52,118 $ 92,873 $ 46,129 $ 24,892 $ 16,225
Acquisitions................................... -- 93,191 10 50,138 -- 5,484
Divestitures................................... -- -- (86) -- -- --
Service cost................................... 11,378 10,741 2,714 3,078 459 453
Interest cost.................................. 11,371 10,559 5,167 5,044 1,837 1,804
Benefits and lump sums paid.................... (13,539) (7,900) (3,861) (3,377) (2,708) (2,242)
Participant contributions...................... -- -- 502 525 827 683
Effect of exchange rates....................... -- -- (2,928) (4,126) -- --
Actuarial loss (gain).......................... 11,077 (1,984) (4,242) (4,571) 2,589 2,485
Special termination benefits................... -- -- -- -- 288 --
Curtailments................................... (1,230) -- -- (5) 238 --
Plan amendments................................ (24,666) -- 1,652 38 -- --
-------- -------- -------- -------- -------- --------
Benefit obligation at end of year.............. $151,116 $156,725 $ 91,801 $ 92,873 $ 28,422 $ 24,892
======== ======== ======== ======== ======== ========
Change in plan assets --
Fair value at beginning of year................ $158,067 $ 87,649 $ 70,913 $ 45,862 $ -- $ --
Acquisitions................................... -- 82,353 -- 27,732 -- --
Actual return on assets........................ (19,842) (10,871) (6,503) 488 -- --
Company contributions.......................... 9,333 6,836 5,849 3,585 1,881 1,559
Benefits and lump sums paid.................... (13,539) (7,900) (3,861) (3,377) (2,708) (2,242)
Participant contributions...................... -- -- 502 525 827 683
Effect of exchange rates....................... -- -- (2,055) (3,902) -- --
-------- -------- -------- -------- -------- --------
Fair value of plan assets at end of year....... $134,019 $158,067 $ 64,845 $ 70,913 $ -- $ --
======== ======== ======== ======== ======== ========
Fair value of plan assets (less) greater than
benefit obligation........................... $(17,097) $ 1,342 $(26,956) $(21,960) $(28,422) $(24,892)
Unrecognized net actuarial loss (gain)......... 30,547 (13,345) 6,136 (1,201) (6,434) (9,652)
Unrecognized prior service costs............... (24,637) (528) 547 512 -- --
Unrecognized transition obligation (asset)..... (2,963) (3,704) 28 31 9,694 11,433
-------- -------- -------- -------- -------- --------
Net amount recognized.......................... $(14,150) $(16,235) $(20,245) $(22,618) $(25,162) $(23,111)
======== ======== ======== ======== ======== ========
Amounts recognized in the consolidated balance
sheets consist of:
Prepaid benefit cost........................... $ 12,024 $ 8,594 $ 2,000 $ 1,422 $ -- $ --
Accrued benefit liability...................... (27,958) (26,203) (27,228) (24,901) (25,162) (23,111)
Intangible asset............................... 1,175 1,340 15 15 -- --
Accumulated other comprehensive income......... 609 34 4,968 846 -- --
-------- -------- -------- -------- -------- --------
Net amount recognized.......................... $(14,150) $(16,235) $(20,245) $(22,618) $(25,162) $(23,111)
======== ======== ======== ======== ======== ========
F-23
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Defined Benefit Pensions with accumulated benefit obligations in excess of
plan assets consist of the following as of December 31, 2001 and 2000 (in
thousands):
DEFINED BENEFIT PENSIONS
-------------------------------------
U.S. NON-U.S.
----------------- -----------------
2001 2000 2001 2000
------- ------- ------- -------
Accumulated benefit obligation.............................. $27,630 $25,573 $53,379 $53,314
Projected benefit obligation................................ $27,630 $25,573 $53,887 $53,696
Plan assets at fair value................................... $ -- $ -- $26,545 $28,678
The components of net periodic benefit costs for the Defined Benefit
Pensions and Postretirement Plans for the years ended December 31, 2001 and 2000
are as follows (in thousands):
DEFINED BENEFIT PENSIONS
--------------------------------------- POSTRETIREMENT
U.S. NON-U.S. PLANS
------------------- ----------------- ---------------
2001 2000 2001 2000 2001 2000
-------- -------- ------- ------- ------ ------
Service cost for benefits
earned during the year.... $ 11,378 $ 10,741 $ 2,714 $ 3,078 $ 459 $ 453
Interest cost on projected
benefit obligation........ 11,371 10,559 5,167 5,044 1,837 1,804
Expected return on plan
assets.................... (13,057) (14,504) (5,130) (5,041) -- --
Amortization of transition
(asset) obligation........ (741) (741) 1 2 897 968
Recognized actuarial (gain)
loss...................... 83 (1,510) 1 (2) (391) (382)
Amortization of prior
service cost.............. (469) (101) 94 85 -- --
-------- -------- ------- ------- ------ ------
Net periodic benefit cost... 8,565 4,444 2,847 3,166 2,802 2,843
Curtailment (gain) loss..... (1,317) -- -- -- 842 --
Special termination benefit
charge.................... -- -- -- -- 288 --
Defined contribution cost... 11,772 18,058 3,040 2,989 -- --
-------- -------- ------- ------- ------ ------
Total retirement cost..... $ 19,020 $ 22,502 $ 5,887 $ 6,155 $3,932 $2,843
======== ======== ======= ======= ====== ======
The weighted average assumptions used in determining the benefit obligation
as of December 31, 2001 and 2000 are:
DEFINED BENEFIT PENSIONS
------------------------- POSTRETIREMENT
U.S. NON-U.S. PLANS
----------- ----------- ---------------
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ------ ------
Discount rate................................. 7.25% 7.75% 5.69% 5.75% 7.25% 7.75%
Expected rate of future compensation
increases................................... N/A 5.78% 4.08% 4.14% N/A N/A
F-24
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average assumptions used in determining the net periodic
benefit costs for the years ended December 31, 2001 and 2000 are:
DEFINED BENEFIT PLANS
------------------------- POSTRETIREMENT
U.S. NON-U.S. PLANS
----------- ----------- ---------------
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ------ ------
Discount rate................................. 7.75% 7.68% 5.75% 5.76% 7.75% 7.87%
Expected rate of future compensation
increases................................... 5.50% 5.78% 4.14% 4.12% N/A N/A
Expected long-term rate on plan assets........ 9.00% 8.74% 7.30% 7.31% N/A N/A
The Company also sponsors a non-qualified pension plan for which payments
are discretionary. No payments were made and no liability exists as of the year
ended December 31, 2001. The amount paid and the liability as of the year ended
December 31, 2000 was $0.7 million and $1.4 million, respectively.
As of December 31, 2001, the medical inflation rates were assumed to be
10%, gradually declining to 5% in 2007, and remaining at that rate thereafter. A
one-percentage-point increase in the medical inflation rate would increase the
accumulated postretirement benefit obligation as of December 31, 2001 by
approximately $3.3 million and increase the net periodic benefit cost by $0.3
million. A one-percentage-point decrease in the medical inflation rate would
decrease the accumulated postretirement benefit obligation as of December 31,
2001 by approximately $2.6 million and decrease the net periodic benefit cost by
approximately $0.3 million.
18. STOCK OPTIONS
The Company has adopted the Bcom3 2000 Long-Term Equity Incentive Plan and
the Bcom3 2001 California Stock Option Plan (collectively, the "Plans"), amended
and restated as of January 1, 2001 and adopted as of January 1, 2001,
respectively. These Plans permit the Company to grant incentive or non-
qualified stock options, stock appreciation rights (either alone or in tandem
with stock options), restricted stock, performance awards, or any combination of
the foregoing, covering up to 1,606,617 shares of Class A Common Stock in the
aggregate.
During 2001, the Company granted stock options to approximately 920
employees of the Company and its subsidiaries, giving such individuals the right
to acquire 1,052,521 shares of Class A common stock, primarily at an exercise
price of $130. Such options generally vest and become exercisable cumulatively,
25% on the two year anniversary of the effective date, 50% on the three year
anniversary of the effective date, 75% on the four year anniversary of the
effective date, and 100% on the five year anniversary of the effective date,
subject to earlier forfeiture or vesting in certain prescribed circumstances.
The options will expire on the ten year anniversary of the effective date if not
previously exercised or forfeited.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), and in accordance with its provisions, the
Company applies APB Opinion No. 25, and related interpretations, in accounting
for the Plan. If the Company had elected to recognize compensation expense based
upon the fair value at the grant date for awards under the Plans consistent with
the methodology prescribed by SFAS No. 123, the Company's net income would have
been decreased by $4.0 million for the year ended December 31, 2001, and the
basic and diluted net loss per Class B common share would be increased by $0.93
for the year ended December 31, 2001.
These SFAS No. 123 pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may by granted in future
years. The weighted average fair value of options granted during 2001 was
$42.99.
F-25
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value for these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following assumptions for the year
ended December 31, 2001:
2001
--------------
Expected option term........................................ 5 years
Risk-Free interest rate..................................... 3.66% - 4.94%
Dividend yield.............................................. 0.0%
Expected volatility......................................... 27.0% - 28.4%
As the Company does not have a publicly traded market for its securities,
it does not yet have sufficient information to make a reasonable assumption as
to the expected volatility of its common stock price in the future. As a result,
the assumption in the table above reflects the expected volatility of stock
prices of entities similar to the Company.
The Black-Scholes option-pricing model was developed for use in estimating
the weighted average fair value of traded options that have no vesting
restrictions and are fully transferable. Because the Company's employee stock
options have characteristics significantly different than those of traded
options, and because changes in subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing model does
not necessarily provide a reliable single measure of the fair value of the
employee stock options.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
NUMBER NUMBER
OUTSTANDING WEIGHTED WEIGHTED EXERCISABLE WEIGHTED
AS OF AVERAGE AVERAGE AS OF AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 2001 LIFE PRICE 2001 PRICE
--------------- ------------ ----------- -------- ------------ --------
$115.38 - $130 911,716 9.07 years $129.44 45,456 $118.74
19. RELATED PARTY TRANSACTIONS
In January 2000, before the business combination in which Bcom3 was formed,
a subsidiary of MacManus sold a portion of its shareholdings in a majority-owned
subsidiary called Novo MediaGroup to 25 managers of MacManus and its operating
units in return for consideration consisting of cash and non-recourse promissory
notes. In March 2001, the Company notified all of these managers that it was
offering to rescind the original transaction, in order to regain majority
ownership and control of Novo MediaGroup, and also in order to avoid certain
potential disputes with the managers. All 25 of the managers accepted the
rescission offer, with the result that each manager's original cash
consideration was refunded and each promissory note was cancelled. For all 25
managers as a group, the total cash refunded and the total principal amount of
the cancelled notes were each $10.7 million.
20. SUBSEQUENT EVENTS
During 2002, the Company has adopted change in control agreements for 14
key executives. Under the agreements, if the executive's employment is
terminated without "Cause" or upon a "Constructive Discharge" (as such terms are
defined in the agreements) within the period beginning 90 days prior to a change
in control and ending on the third anniversary of such change in control (an
"Eligible Termination"), the executive will be entitled to certain cash payments
depending on the date of termination together with accelerated vesting of any
otherwise unvested benefits. In addition, in the event of an Eligible
Termination, the executive may continue to participate in all company-sponsored
employee benefit plans for up to 3 years depending on the date employment is
terminated. The Company does not expect that the amount ultimately required to
be paid under these agreements in connection with the proposed merger with
Publicis Groupe S.A. ("Publicis") described below would have a material impact
on the Company's results of operations or cash flow.
F-26
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During February 2002, the Company granted options to purchase 843,900
shares of Class A Common Stock at an exercise price of $130 per share to
approximately 400 employees.
On February 18, 2002, the Board of Directors declared a cash dividend of
$.25 per share of Common Stock. This dividend is payable by March 18, 2002 to
holders of our Common Stock as of February 18, 2002.
On March 7, 2002, Bcom3 entered into two merger agreements, both of which
are related to the Company's proposed merger with Publicis.
The first merger agreement is with Dentsu Inc. ("Dentsu"). This agreement
provides for the merger of Boston Three Corporation, a wholly-owned subsidiary
of Bcom3, into Bcom3 (the "First Step Merger"). In this merger, (1) Dentsu will
pay approximately $498.7 million in cash to holders of the Company's Class A
Common Stock, (2) Dentsu will receive additional shares of the Company's Class B
Common Stock and (3) the number of shares held by holders of Class A Common
Stock will be correspondingly reduced. The closing of the First Step Merger is
conditioned, among other things, on approval by Bcom3's stockholders and
satisfaction of the conditions to closing of the merger of Publicis and Bcom3
(other than the condition that the First Step Merger has closed).
The second merger agreement is with Publicis. This agreement provides for
the merger of Bcom3 into a wholly-owned subsidiary of Publicis (the
"Publicis/Bcom3 Merger"). In this merger, holders of the Company's Class A
Common Stock and Class B Common Stock will be entitled to receive ordinary
shares of Publicis and other merger consideration, as described for each Class
in the merger agreement. The closing of the Publicis/Bcom3 Merger is
conditioned, among other things, on approval by stockholders of Bcom3 and
Publicis, regulatory approvals, receipt of opinions as to the tax treatment of
the merger, and the closing of the First Step Merger. Certain Publicis
stockholders representing about 45% of the voting power of all Publicis shares,
and certain Bcom3 stockholders representing about 31% of the voting power of all
Bcom3 shares, have agreed to vote in favor of the Publicis/Bcom3 Merger. The
merger agreement provides for a $90.0 million termination fee to be paid by
either company if the merger agreement is terminated in certain circumstances,
including if such company's Board of Directors changes its recommendation with
respect to the transaction or if such company receives a competing proposal and,
after the merger agreement terminates for certain reasons, such company agrees
to a business combination with a third party within 12 months of the
termination.
F-27
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth a summary of the Company's unaudited
quarterly results of operations for the years ended December 31, 2001 and 2000,
in thousands of dollars except for per share amounts:
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
Revenue
2001..................................... $447,220 $479,891 $456,609 $533,623
2000..................................... $380,788 $469,945 $434,262 $548,732
Income (loss) before income taxes
2001..................................... $ 17,385 $ 30,781 $ 23,522 $ 38,821
2000..................................... $(48,419) $ 25,483 $ 6,576 $ 21,752
Income taxes
2001..................................... $ 13,298 $ 21,724 $ 15,369 $ 22,522
2000..................................... $ 15,183 $ 17,737 $ 12,127 $ 21,596
Income (loss) after income taxes
2001..................................... $ 4,087 $ 9,057 $ 8,153 $ 16,299
2000..................................... $(63,602) $ 7,746 $ (5,551) $ 156
Minority interests
2001..................................... $ (2,179) $ (4,086) $ (1,570) $ (3,138)
2000..................................... $ (1,855) $ (2,771) $ (2,328) $ (1,334)
Equity in (loss) income of affiliates
2001..................................... $ 666 $ (526) $ (1,916) $ 1,234
2000..................................... $ 664 $ 2,181 $ 2,591 $ (1,510)
Net income (loss)
2001..................................... $ 2,574 $ 4,445 $ 4,667 $ 14,395
2000..................................... $(64,793) $ 7,156 $ (5,288) $ (2,688)
Net loss per common share--
Basic and Diluted
2001..................................... $ (3.11) $ (2.89) $ (2.93) $ (2.42)
2000..................................... $ (97.71) $ (2.88) $ (3.51) $ (3.38)
F-28
BCOM3 GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, DECEMBER 31,
2002 2001
----------- ------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 257,280 $ 227,735
Accounts receivable (less allowance for doubtful accounts
of $45,935 and $39,055, respectively).................. 1,958,161 1,649,273
Production expenditures billable to clients............... 189,340 213,527
Prepaid expenses and other assets......................... 123,358 105,309
---------- ----------
Total Current Assets................................... 2,528,139 2,195,844
Property and equipment...................................... 736,448 702,456
Less: Accumulated depreciation and amortization............. 359,169 326,014
---------- ----------
Property and equipment, net............................... 377,279 376,442
Goodwill (less accumulated amortization of $115,473 and
$120,607, respectively)................................... 1,382,201 1,304,723
Intangibles (less accumulated amortization of $37,191 and
$35,816, respectively).................................... 40,179 50,555
Other....................................................... 188,220 178,875
---------- ----------
Total Assets........................................... $4,516,018 $4,106,439
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Trade accounts payable.................................... $2,050,701 $1,760,177
Short-term borrowings..................................... 68,426 39,393
Current portion of long-term debt......................... 7,977 6,016
Accrued expenses and other payables....................... 560,269 531,913
---------- ----------
Total Current Liabilities.............................. 2,687,373 2,337,499
Long-term debt.............................................. 8,032 9,450
Real estate finance obligation.............................. 183,171 187,714
Deferred compensation and accrued retirement benefits....... 110,883 110,309
Other long-term liabilities................................. 102,781 105,286
Deferred rent............................................... 31,868 31,358
---------- ----------
436,735 444,117
Minority interest........................................... 20,555 18,047
Commitments and contingencies...............................
Mandatorily redeemable stock................................ 360,619 301,494
Stockholder's equity:
Common Stock, Class B, $.01 par value, 10,000,000 shares
authorized, 4,286,123 and 4,284,248 shares issued and
outstanding at June 30, 2002 and December 31, 2001,
respectively........................................... 43 43
Additional paid-in capital................................ 1,213,269 1,187,279
Retained deficit.......................................... (172,865) (174,048)
Accumulated other comprehensive loss...................... (4,691) (7,605)
---------- ----------
1,035,756 1,005,669
Unearned compensation..................................... (25,020) (387)
---------- ----------
Total Stockholder's Equity............................. 1,010,736 1,005,282
---------- ----------
Total Liabilities and Stockholder's Equity............. $4,516,018 $4,106,439
========== ==========
The accompanying Notes to Consolidated Condensed Financial Statements are an
integral part of these statements.
F-29
BCOM3 GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-----------------------
2002 2001
---------- ----------
REVENUES.................................................... $ 932,375 $ 927,111
OPERATING EXPENSES:
Compensation and employee benefits........................ 560,556 567,916
Other general expenses.................................... 153,772 153,428
Office and related expenses............................... 75,313 70,999
Depreciation and amortization............................. 35,849 32,272
Amortization of goodwill and intangible assets............ 7,600 38,990
Restructuring charge...................................... -- 3,248
---------- ----------
Total operating expenses............................... 833,090 866,853
OPERATING INCOME............................................ 99,285 60,258
OTHER INCOME (EXPENSE):
Interest income........................................... 5,154 13,165
Interest expense.......................................... (11,523) (25,232)
Foreign currency gain (loss).............................. 1,688 (24)
---------- ----------
Total other expense.................................... (4,681) (12,091)
---------- ----------
INCOME BEFORE INCOME TAXES.................................. 94,604 48,167
INCOME TAXES................................................ 35,985 35,022
---------- ----------
INCOME AFTER INCOME TAXES................................... 58,619 13,145
MINORITY INTEREST........................................... (6,247) (6,265)
EQUITY IN INCOME (LOSS) OF AFFILIATES....................... 1,864 139
---------- ----------
NET INCOME.................................................. $ 54,236 $ 7,019
========== ==========
EARNINGS (LOSS) PER COMMON SHARE:
NET INCOME.................................................. $ 54,236 $ 7,019
Exclude:
Net income allocable to Mandatorily redeemable Class A
common shares.......................................... (48,158) (32,728)
---------- ----------
Income (loss) allocable to Class B common shares............ $ 6,078 $ (25,709)
========== ==========
Weighted average Class B common shares outstanding.......... 4,284,921 4,278,281
========== ==========
EARNINGS (LOSS) PER CLASS B COMMON SHARE
Basic and Diluted......................................... $ 1.42 $ (6.01)
========== ==========
The accompanying Notes to Consolidated Condensed Financial Statements are an
integral part of these statements.
F-30
BCOM3 GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
---------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 54,236 $ 7,019
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization.......................... 43,449 71,262
Provision for doubtful accounts........................ 510 2,856
Restructuring and other special charges................ (4,152) 2,448
Net loss on divestments................................ -- 1,137
Dividends in excess of earnings in affiliates.......... 2,299 1,611
Minority interest...................................... 6,247 6,265
Changes in operating assets and liabilities, net of
effects from acquisitions:
(Increase) Decrease in accounts receivable............. (232,460) 36,272
Decrease (Increase) in production expenditures billable
to clients............................................ 27,203 (70,864)
Increase (Decrease) in trade accounts payable.......... 211,742 (144,015)
Decrease in accrued expenses and other payables........ (8,153) (133,881)
Increase (Decrease) in deferred compensation and
accrued retirement benefits........................... 172 (11,910)
Increase in accrued income taxes....................... 7,734 5,209
Decrease in prepaid expenses and other current
assets................................................ (569) 26,475
(Increase) Decrease in other assets.................... 1,778 18,847
--------- ---------
Net Cash Provided (Used) in Operating Activities..... 110,036 (181,269)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Business acquisitions, net of cash acquired............... (59,890) (27,226)
Expenditures for property and equipment................... (32,013) (35,695)
--------- ---------
Net Cash Used in Investing Activities................ (91,903) (62,921)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to minority stockholders................... (4,629) (5,688)
Dividends paid on Common Stock............................ (4,894) (4,919)
Proceeds from short-term borrowings....................... 25,058 104,117
Proceeds from long-term debt.............................. 26,950 6,326
Repayment of long-term debt............................... (32,121) (58,890)
Proceeds from sales of Common Stock....................... 244 1,300
Redemptions of Common Stock............................... (226) (1,801)
Other..................................................... 1,046 --
--------- ---------
Net Cash Provided by Financing Activities............ 11,428 40,445
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (16) (1,718)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 29,545 (205,463)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 227,735 598,159
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 257,280 $ 392,696
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid........................................... $ 24,519 $ 15,278
========= =========
Interest paid............................................... $ 5,022 $ 12,731
========= =========
The accompanying Notes to Consolidated Condensed Financial Statements are an
integral part of these statements.
F-31
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
1. The consolidated condensed interim financial statements included herein
have been prepared by Bcom3 Group, Inc. ("Bcom3" or the "Company"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to such
rules and regulations.
2. These statements reflect all adjustments, consisting of normal
recurring accruals, which in the opinion of management are necessary for a fair
presentation, in all material respects, of the information contained therein.
These consolidated condensed financial statements should be read in conjunction
with the consolidated financial statements for the year ended December 31, 2001
and notes thereto included in the Company's Form 10-K.
3. Results of operations for interim periods are not necessarily
indicative of annual results.
4. Basic and diluted earnings (loss) per common share is calculated by
dividing net income, reduced by $48.2 million of income allocable to Mandatorily
redeemable stock for the six months ended June 30, 2002 and by $32.7 million for
the comparable period in 2001, by the weighted average number of Class B common
shares outstanding during each respective period. For the six months ended June
30, 2002, the weighted average number of Class B common shares used in the basic
and diluted earnings (loss) per common share calculation is 4,284,921 and
4,278,281 for the comparable period in 2001.
5. Certain reclassifications have been made in the 2001 financial
statements to conform to the 2002 presentation.
2. COMPREHENSIVE INCOME
A summary of increases (decreases) in stockholder's equity that do not
result directly from transactions with share owners, net of income taxes, is as
follows (in thousands):
SIX MONTHS ENDED
JUNE 30,
------------------
2002 2001
------- --------
Net income.................................................. $54,236 $ 7,019
Unrealized loss on investments (net of tax benefits of $12
and $278, respectively)................................... (22) (516)
Foreign currency translation gain (loss) (net of tax
(expense) benefits of $(4,737) and $5,155,
respectively)............................................. 13,329 (16,633)
------- --------
Comprehensive income (loss)................................. $67,543 $(10,130)
======= ========
An analysis of the changes in accumulated other comprehensive loss
(income), net of income taxes, is as follows (in thousands):
2002 2001
-------- --------
Accumulated other comprehensive loss as of January 1........ $ (7,605) $ (3,858)
Unrealized (loss) on investments (net of tax (expense)
benefits of $12 and $278, for the six months ended,
respectively)............................................. (22) (516)
Foreign currency translation gain (loss) (net of tax
(expense) benefits of $(4,737) and $5,155 for the six
months ended, respectively)............................... 13,329 (16,633)
Allocation to Mandatorily redeemable stock.................. (10,393) 13,423
-------- --------
Accumulated other comprehensive loss as of June 30.......... $ (4,691) $ (7,584)
======== ========
F-32
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
3. SEGMENT INFORMATION
The Company's wholly and partially-owned businesses operate within the
advertising and marketing communications services operating segment. All of
these services fall within one reportable segment as defined in Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information."
A summary of the Company's revenues and property and equipment by
geographic area as of and for the six months ended June 30, 2002 and 2001 is as
follows (in thousands):
UNITED ASIA LATIN
STATES EUROPE PACIFIC AMERICA OTHER TOTAL
-------- -------- ------- ------- ------- --------
Revenues
Six months ended June 30,
2002........................ $503,812 $261,741 $93,387 $53,573 $19,862 $932,375
2001........................ $499,334 $258,916 $89,881 $59,211 $19,769 $927,111
Property and equipment, net
As of June 30,
2002........................ $278,319 $ 62,003 $23,096 $11,113 $ 2,748 $377,279
2001........................ $278,528 $ 48,959 $14,860 $10,629 $ 3,081 $356,057
4. MERGER AGREEMENTS
On March 7, 2002, Bcom3 entered into two merger agreements, both of which
are related to the Company's proposed merger with Publicis Groupe S.A.
("Publicis").
The first merger agreement is with Dentsu Inc. ("Dentsu"). This agreement
provides for the merger of Boston Three Corporation, a wholly-owned subsidiary
of Bcom3, into Bcom3 (the "First Step Merger"). In this merger, (1) Dentsu will
pay approximately $498.7 million in cash to holders of the Company's Class A
Common Stock, (2) Dentsu will receive additional shares of the Company's Class B
Common Stock and (3) the number of shares held by holders of Class A Common
Stock will be correspondingly reduced. The closing of the First Step Merger is
conditioned, among other things, on approval by Bcom3's stockholders and
satisfaction of the conditions to closing of the merger of Publicis and Bcom3
(other than the condition that the First Step Merger has closed).
The second merger agreement is with Publicis. This agreement provides for
the merger of Bcom3 into a wholly-owned subsidiary of Publicis (the
"Publicis/Bcom3 Merger"). In this merger, holders of the Company's Class A
Common Stock and Class B Common Stock will be entitled to receive ordinary
shares of Publicis and other merger consideration, as described for each Class
in the merger agreement. The closing of the Publicis/Bcom3 Merger is
conditioned, among other things, on approval by stockholders of Bcom3 and
Publicis, regulatory approvals, receipt of opinions as to the tax treatment of
the merger, and the closing of the First Step Merger. Certain Publicis
stockholders representing about 45% of the voting power of all Publicis shares,
and certain Bcom3 stockholders representing about 31% of the voting power of all
Bcom3 shares, have agreed to vote in favor of the Publicis/Bcom3 Merger. The
merger agreement provides for a $90.0 million termination fee to be paid by
either company if the merger agreement is terminated in certain circumstances,
including if such company's Board of Directors changes its recommendation with
respect to the transaction or if such company receives a competing proposal and,
after the merger agreement terminates for certain reasons, such company agrees
to a business combination with a third party within 12 months of the
termination.
F-33
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
5. RESTRUCTURING AND OTHER SPECIAL CHARGES
As part of the Company's operational initiatives related to the merged
operations of Leo Burnett and MacManus, the Company incurred $20.3 million of
restructuring and other special charges during 2001 related to the streamlining
of certain of the Company's businesses in the United States, Europe and
Australia. These charges included costs associated with severance, leasehold
consolidations, fixed asset impairments, and other related costs of $5.3
million, $10.5 million, $3.6 million and $0.9 million, respectively. Of these
amounts, accruals of approximately $0.9 million, $8.8 million and $0.6 million
related to severance, leasehold consolidations and other related costs,
respectively, remain as of June 30, 2002.
The severance charges represent costs incurred to sever approximately 300
employees in the aforementioned markets. Of these employees, approximately 250,
25 and 25 were employed in the United States, Europe and Australia,
respectively. As of June 30, 2002, approximately 280 of the 300 employees had
already been terminated. Leasehold consolidations represents charges incurred in
these markets to exit certain locations as a result of merger-related decisions,
relocations or office closures. Fixed asset impairments and other related costs
represent leasehold improvement impairments and other costs incurred as a result
of the decision to exit these locations.
The opening balances, activity during 2002 and remaining liabilities as of
June 30, 2002 for these charges are as follows (in thousands):
DEDUCTIONS
-------------------------
BALANCE APPLIED BALANCE
DECEMBER 31, ADDITIONS AGAINST JUNE 30,
2001 EXPENSED RELATED ASSETS PAYMENTS 2002
------------ --------- -------------- -------- --------
Severance........................ $ 3,287 $ -- $ -- $2,404 $ 883
Leasehold consolidations......... 10,519 -- -- 1,748 8,771
Other related costs.............. 576 -- -- -- 576
------- ----- ----- ------ -------
Totals...................... $14,382 $ -- $ -- $4,152 $10,230
======= ===== ===== ====== =======
6. GOODWILL
The changes in the carrying amount of goodwill for the six months ended
June 30, 2002, are as follows (in thousands):
Balance as of January 1, 2002............................... $1,304,723
Goodwill acquired during the six months ended June 30,
2002...................................................... 62,061
Currency translation adjustments............................ 12,781
Reclassification of workforce from intangible assets, net of
deferred tax benefits of $923............................. 2,636
Impairment losses........................................... --
----------
Balance as of June 30, 2002................................. $1,382,201
==========
F-34
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
7. INTANGIBLE ASSETS
For the six months ended June 30, 2002, the Company's acquisitions resulted
in increases in goodwill and intangible assets of $62.1 million and $0.7
million, respectively. As of June 30, 2002 and December 31, 2001, other
intangibles consisted of the following (in thousands):
JUNE 30, 2002 DECEMBER 31, 2001
-------------------------------------- --------------------------------------
GROSS OTHER GROSS OTHER
CARRYING ACCUMULATED INTANGIBLES, CARRYING ACCUMULATED INTANGIBLES,
AMOUNT AMORTIZATION NET AMOUNT AMORTIZATION NET
-------- ------------ ------------ -------- ------------ ------------
Contract-based................... $ 964 $ 86 $ 878 $ 268 $ 22 $ 246
Customer-related................. 74,716 35,998 38,718 74,688 28,535 46,153
Other............................ 1,690 1,107 583 1,560 963 597
Assembled workforce.............. -- -- -- 9,855 6,296 3,559
------- ------- ------- ------- ------- -------
Other intangibles................ $77,370 $37,191 $40,179 $86,371 $35,816 $50,555
======= ======= ======= ======= ======= =======
AGGREGATE AMORTIZATION EXPENSE (IN THOUSANDS):
For the six months ended June 30, 2002.................... $ 7,600
ESTIMATED AMORTIZATION EXPENSE (IN THOUSANDS):
For the year ended December 31, 2002...................... $15,200
For the year ended December 31, 2003...................... 15,300
For the year ended December 31, 2004...................... 15,300
For the year ended December 31, 2005...................... 1,600
For the year ended December 31, 2006...................... 200
8. OPTION GRANTS
During the first quarter of 2002, the Company granted 858,200 options at an
exercise price of $130.00 per share, a price below fair market value. As a
result, the Company will be amortizing approximately $25.7 million as a charge
to income over the vesting period for those options. For the six-month period
ending June 30, 2002, the Company recorded $1.1 million of compensation expense
associated with these option grants. The unamortized portion of this charge is
included in stockholder's equity.
9. ACQUISITION RELATED OBLIGATIONS
The Company's acquisition agreements are generally structured to provide
that a portion of the purchase price is measured and paid in future periods. The
amount of the future obligations is determined based on the acquired company's
financial performance including revenue growth and profitability. The Company
reflects these future obligations as liabilities in its financial statements at
the time such amounts become fixed and determinable. As of June 30, 2002, the
Company estimates that future obligations under such arrangements approximate
$55.0 million.
Additionally, in certain cases where Bcom3 does not own 100% of an entity,
the Company has entered into agreements with the other shareholder(s) that
provide them with the right to require Bcom3 to purchase the shares not
previously sold to Bcom3. These options are exercisable at various points over
the next several years and the amount of the future obligations is contingent
upon the acquired company's financial performance including revenue growth and
profitability. The Company reflects these future obligations as
F-35
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities in its financial statements at the time such amounts become fixed
and determinable. As of June 30, 2002, the Company estimates that if exercised,
such obligations under these arrangements approximate $45.0 million.
10. RECENT ACCOUNTING PRINCIPLES
In April 2001, the Emerging Issues Task Force ("EITF") issued Topic D-96,
"Accounting for Management Fees Based on a Formula" ("EITF Topic D-96"). This
pronouncement provides guidance on revenue recognition under arrangements that
contain performance-based incentive fees that are not finalized until the end of
a period of time specified in the arrangement and gives the Company the option
to recognize the related revenue at the end of the contract year or
alternatively recognize revenue due at any point in time as if the contract were
terminated at the given reporting period date. The Company adopted EITF Topic
D-96 effective January 1, 2002 and has elected to record revenue associated with
such arrangements at the amount that would be due under the formula as of the
end of the interim reporting period as if the contract was terminated at that
date. The amount of revenue at risk under such arrangements is not material.
Effective July 1, 2001 the Company adopted certain provisions of SFAS No.
141, "Business Combinations" ("SFAS No. 141"), and effective January 1, 2002,
the Company adopted the full provisions of SFAS No. 141 and SFAS No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and broadens the criteria for recording
intangible assets apart from goodwill. The Company evaluated its goodwill and
intangibles acquired prior to June 30, 2001 using the criteria set forth in SFAS
No. 141, which resulted in $3.6 million of other intangibles (comprised entirely
of assembled workforce intangibles) being re-characterized into goodwill at
January 1, 2002. SFAS No. 142 requires that purchased goodwill and certain
indefinite-lived intangibles no longer be amortized, but instead be tested for
impairment at least annually. The Company evaluated its intangible assets and
determined that all such assets have determinable lives.
SFAS No. 142 prescribes a two-phase process for impairment testing of
goodwill. The first phase, which was required to be completed by June 30, 2002,
screens for impairment; while the second phase (if necessary), required to be
completed by December 31, 2002, measures the impairment. The Company completed
its first phase impairment analysis during the current quarter and determined
that there was no impairment of its recorded goodwill; accordingly, the second
testing phase, absent future indicators of impairment, is not necessary at this
time.
F-36
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with SFAS No. 142, the effect of this accounting change is
reflected prospectively. Supplemental comparative disclosure as if the change
had been retroactively applied to the prior year period is as follows (in
thousands, except per share amounts):
SIX MONTHS ENDED
JUNE 30,
-----------------
2002 2001
------- -------
NET INCOME:
Reported net income......................................... $54,236 $ 7,019
Goodwill amortization (net of tax benefit of $0 and
$1,806(1), respectively).................................. -- 29,759
------- -------
Adjusted net income......................................... $54,236 $36,778
======= =======
BASIC AND DILUTED EARNINGS (LOSS) PER CLASS B COMMON SHARE:
Reported basic and diluted earnings (loss) per Class B
common share.............................................. $ 1.42 $ (6.01)
Goodwill amortization(1).................................... -- 5.01
------- -------
Adjusted basic and diluted earnings (loss) per Class B
common share.............................................. $ 1.42 $ (1.00)
======= =======
---------------
(1) Includes $1.6 million, or $0.30 per share, related to amortization of other
intangibles that has been re-characterized as goodwill effective January 1,
2002 for the six months ended June 30, 2001.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"), which is effective for fiscal years
beginning after June 15, 2002. SFAS No. 143 requires that the fair value of an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value of the obligation can be made. The
adoption of the provisions of SFAS No. 143 is not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which is
effective for fiscal years beginning after December 15, 2001. SFAS No. 144
addresses financial accounting and reporting for the impairment of long-lived
assets (excluding goodwill) or assets to be disposed of. The adoption of SFAS
No. 144 has not had a material effect on the Company's consolidated financial
position or results of operations.
In November 2001, the EITF released Issue 01-14, "Income Statement
Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses
Incurred" ("EITF Issue 01-14"), formerly EITF Topic D-103. This pronouncement
provides guidance on the accounting treatment in the income statement for
reimbursements received for out-of-pocket expenses incurred, and is effective
for all financial reporting periods beginning after December 15, 2001. The
Company has adopted the provisions of this pronouncement effective January 1,
2002. Consistent with the provisions of EITF Issue 01-14, approximately $14.8
million of reimbursed "out-of-pocket" costs have been included in both revenue
and other general expenses for the six months ended June 30, 2002. Although the
adoption of this pronouncement has no impact on net income, it results in the
Company reporting higher revenues with a corresponding increase in other general
expenses. While operating income remains the same, our operating profit margin
decreased by 0.2% for the six months ended June 30, 2002 as a result of
adoption. As permitted under the provisions of EITF Issue 01-14, the Company has
not reclassified prior period financial statements due to the impracticability
of obtaining the information related to 2001 "out-of-pocket" expenses.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). This statement,
which is effective for exit or disposal activities initiated after December 31,
2002, addresses financial accounting and reporting for costs associated with
exit or disposal activities. SFAS No. 146 requires companies to record a
liability for costs associated with an exit or disposal
F-37
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
activity in the period in which the liability is incurred. This differs from
current practice which requires the liability to be recognized at the date of
commitment. The adoption of the provisions of SFAS No. 146 is not expected to
have a material effect on the Company's consolidated financial position or
results of operations.
11. SUBSEQUENT EVENT
On July 24, 2002 the Company renewed the $150.0 million, 364 day commitment
portion of The MacManus Group and DMB&B USA, Inc. Second Amended and Restated
Credit Agreement for another 364 day period until July 23, 2003.
F-38
PLEASE NOTE THAT THIS REPORT IS A COPY OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN
LLP REPORT AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
The Leo Group, Inc.:
We have audited the accompanying consolidated balance sheets of The Leo
Group, Inc. (a Delaware corporation) as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' investment and cash
flows for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Leo Group, Inc. as of
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 31, 2000
F-39
THE LEO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
1999 1998
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 202.5 $ 172.0
Accounts receivable (net of allowances of $8.8 in 1999 and
$6.2 in 1998)........................................... 753.1 592.1
Billables pending, at cost................................ 111.5 85.1
Other current assets...................................... 74.0 56.8
Prepaid taxes, net........................................ 1.4 1.8
-------- --------
Total current assets.................................... 1,142.5 907.8
PROPERTY AND EQUIPMENT, AT COST:
Land...................................................... 14.6 14.6
Building.................................................. 205.0 203.6
Furniture and equipment................................... 212.4 186.6
Leasehold improvements.................................... 75.0 64.8
Less: accumulated depreciation and amortization........... (239.1) (205.3)
-------- --------
Net property and equipment.............................. 267.9 264.3
OTHER ASSETS:
Investments............................................... 4.3 5.1
Goodwill (net of accumulated amortization)................ 49.9 44.9
Other long-term assets.................................... 98.1 97.8
Deferred taxes, net....................................... 38.3 18.1
-------- --------
Total other assets...................................... 190.6 165.9
-------- --------
TOTAL ASSETS................................................ $1,601.0 $1,338.0
======== ========
LIABILITIES AND MANDATORILY REDEEMABLE STOCK
CURRENT LIABILITIES:
Trade accounts payable.................................... $ 700.0 $ 493.0
Accrued expenses.......................................... 144.0 144.2
Cash overdraft............................................ 96.7 88.7
Accrued payroll and benefits.............................. 69.5 37.1
Current portion of long-term debt......................... 6.0 8.4
Notes payable and lines of credit......................... 13.1 43.9
Accrued income taxes...................................... 14.5 10.8
Other current liabilities................................. 44.8 37.5
-------- --------
Total current liabilities............................... 1,088.6 863.6
OTHER LIABILITIES:
Reserve for deferred compensation and employee benefits... 45.1 46.7
Real estate finance obligation............................ 203.4 214.2
Long-term debt............................................ 2.6 7.8
Other long-term liabilities............................... 61.4 50.0
-------- --------
Total other liabilities................................. 312.5 318.7
MINORITY INTEREST........................................... 4.8 4.5
MANDATORILY REDEEMABLE STOCK, at book value, $.01 par value;
11,000,000 shares authorized at December 31, 1999 and
1998; 10,108,405 shares and 9,203,240 shares issued and
outstanding at December 31, 1999 and 1998, respectively... 195.1 151.2
-------- --------
TOTAL LIABILITIES AND MANDATORILY REDEEMABLE STOCK.......... $1,601.0 $1,338.0
======== ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-40
THE LEO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS)
1999 1998 1997
------ ------ ------
REVENUES:
Commissions and fees earned............................... $912.8 $810.7 $793.9
Rental and other income................................... 21.4 20.4 17.4
------ ------ ------
Total revenues......................................... 934.2 831.1 811.3
OPERATING EXPENSES:
Compensation and employee benefits........................ 587.7 533.4 534.2
Office and related expenses............................... 76.1 70.1 62.5
Depreciation and amortization expense..................... 46.4 37.2 33.3
Other general expenses.................................... 148.4 144.8 127.6
------ ------ ------
Total operating expenses............................... 858.6 785.5 757.6
------ ------ ------
OPERATING INCOME............................................ 75.6 45.6 53.7
OTHER INCOME (EXPENSE):
Interest income........................................... 7.9 12.0 11.2
Interest expense.......................................... (15.9) (17.4) (18.0)
Foreign currency loss..................................... (5.6) (0.7) (17.2)
------ ------ ------
Total other expense.................................... (13.6) (6.1) (24.0)
INCOME BEFORE TAXES/MINORITY INTEREST AND EQUITY IN
AFFILIATES................................................ 62.0 39.5 29.7
PROVISION FOR INCOME TAXES.................................. 29.2 9.1 9.3
------ ------ ------
INCOME BEFORE MINORITY INTEREST AND EQUITY IN AFFILIATES.... 32.8 30.4 20.4
MINORITY INTEREST EXPENSE, NET OF TAX....................... (5.4) (10.1) (3.4)
EQUITY IN AFFILIATES........................................ 1.1 2.4 --
------ ------ ------
NET INCOME.................................................. $ 28.5 $ 22.7 $ 17.0
====== ====== ======
UNAUDITED PRO FORMA TAX PROVISION (AS IF A C CORPORATION)... N/A $ 14.6 $ 17.0
====== ====== ======
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-41
THE LEO GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
LOANS TO ACCUMULATED ALLOCATION TO
PAR ADDITIONAL SHAREHOLDERS OTHER MANDATORILY
NUMBER VALUE PAID-IN FOR STOCK COMPREHENSIVE COMPREHENSIVE RETAINED REDEEMABLE
OF SHARES ($.01) CAPITAL SALES INCOME (LOSS) INCOME EARNINGS COMMON STOCK
---------- ------ ---------- ------------ ------------- ------------- -------- -------------
BALANCE, DECEMBER 31,
1996............... 8,501,540 $0.1 $118.3 $(1.0) $1.4 $37.6 $(156.4)
Net income........... $17.0 17.0
Gain on
investments........ 0.1 0.1
Foreign currency
translation........ 2.1 2.1
-----
Comprehensive
income............. $19.2
=====
Stock repurchases.... (1,973,200) -- (30.9) (5.0)
Sales of stock....... 2,376,300 -- 37.7
Cash dividends
($14.31 per
share)............. (20.0)
Repayment of loans to
shareholders for
stock sales........ 0.4
Retained earnings
allocable to
mandatorily
redeemable common
stock.............. (1.4)
---------- ---- ------ ----- ---- ----- -------
BALANCE, DECEMBER 31,
1997............... 8,904,640 0.1 125.1 (0.6) 3.6 29.6 (157.8)
Net income........... $22.7 22.7
Gain on
investments........ 0.6 0.6
Foreign currency
translation........ (2.4) (2.4)
-----
Comprehensive
income............. $20.9
=====
Stock repurchases.... (1,466,000) -- (24.0) (2.3)
Sales of stock....... 1,764,600 -- 29.8
Capital transfer..... (22.2) 22.2
Distribution payable
($19.26 per
share)............. (19.1)
Cash dividends
($10.90 per
share)............. (11.9)
Retained earnings
allocable to
mandatorily
redeemable common
stock.............. 6.6
---------- ---- ------ ----- ---- ----- -------
TOTAL
SHAREHOLDERS'
INVESTMENT
-------------
BALANCE, DECEMBER 31,
1996............... $ --
Net income........... 17.0
Gain on
investments........ 0.1
Foreign currency
translation........ 2.1
Comprehensive
income.............
Stock repurchases.... (35.9)
Sales of stock....... 37.7
Cash dividends
($14.31 per
share)............. (20.0)
Repayment of loans to
shareholders for
stock sales........ 0.4
Retained earnings
allocable to
mandatorily
redeemable common
stock.............. (1.4)
-----
BALANCE, DECEMBER 31,
1997............... --
Net income........... 22.7
Gain on
investments........ 0.6
Foreign currency
translation........ (2.4)
-----
Comprehensive
income.............
Stock repurchases.... (26.3)
Sales of stock....... 29.8
Capital transfer..... --
Distribution payable
($19.26 per
share)............. (19.1)
Cash dividends
($10.90 per
share)............. (11.9)
Retained earnings
allocable to
mandatorily
redeemable common
stock.............. 6.6
-----
F-42
LOANS TO ACCUMULATED ALLOCATION TO
PAR ADDITIONAL SHAREHOLDERS OTHER MANDATORILY
NUMBER VALUE PAID-IN FOR STOCK COMPREHENSIVE COMPREHENSIVE RETAINED REDEEMABLE
OF SHARES ($.01) CAPITAL SALES INCOME (LOSS) INCOME EARNINGS COMMON STOCK
---------- ------ ---------- ------------ ------------- ------------- -------- -------------
BALANCE, DECEMBER 31,
1998............... 9,203,240 0.1 108.7 (0.6) 1.8 41.2 (151.2)
Net income........... $28.5 28.5
Gain on
investments........ 0.2 0.2
Foreign currency
translation........ 7.6 7.6
-----
Comprehensive
income............. $36.3
=====
Stock repurchases.... (566,110) -- (9.9)
Sales of stock....... 1,471,275 -- 28.0
Cash dividends ($0.60
per share)......... (5.5)
Increase in loans to
shareholders for
stock sales........ (5.0)
Retained earnings
allocable to
mandatorily
redeemable common
stock.............. (43.9)
---------- ---- ------ ----- ---- ----- ----- -------
BALANCE, DECEMBER 31,
1999............... 10,108,405 $0.1 $126.8 $(5.6) $9.6 $64.2 $(195.1)
========== ==== ====== ===== ==== ===== ===== =======
TOTAL
SHAREHOLDERS'
INVESTMENT
-------------
BALANCE, DECEMBER 31,
1998............... --
Net income........... 28.5
Gain on
investments........ 0.2
Foreign currency
translation........ 7.6
Comprehensive
income.............
Stock repurchases.... (9.9)
Sales of stock....... 28.0
Cash dividends ($0.60
per share)......... (5.5)
Increase in loans to
shareholders for
stock sales........ (5.0)
Retained earnings
allocable to
mandatorily
redeemable common
stock.............. (43.9)
-----
BALANCE, DECEMBER 31,
1999............... $ --
=====
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-43
THE LEO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(DOLLARS IN MILLIONS)
1999 1998 1997
------- ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 28.5 $ 22.7 $ 17.0
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense.................. 46.4 37.2 33.3
Deferred income taxes.................................. (17.5) (11.7) (4.7)
Foreign currency loss.................................. 5.6 0.7 17.2
Decrease (increase) in assets:
Accounts receivable.................................. (161.0) (22.1) (36.0)
Billables pending.................................... (26.4) (18.8) 1.2
Other assets......................................... (2.8) 10.3 (6.6)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses................ 262.0 49.5 46.7
Other liabilities.................................... (1.7) (8.3) 0.7
Deferred compensation and employee benefits.......... (1.6) (2.7) 8.4
------- ------ ------
Total adjustments................................. 103.0 34.1 60.2
------- ------ ------
Net cash provided by operating activities......... 131.5 56.8 77.2
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (41.7) (36.4) (27.3)
Sales of investments...................................... -- -- 0.6
Acquisition of businesses................................. (45.1) (42.3) (20.7)
------- ------ ------
Net cash used in investing activities............. (86.8) (78.7) (47.4)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Collections (issuances) of shareholder loans.............. (5.0) -- 0.4
Proceeds from short-term borrowings, net.................. 2.9 -- --
Proceeds from issuance of long-term debt.................. -- 15.3 8.1
Repayments of long-term debt.............................. (7.6) (11.6) (15.3)
Repayment of shareholder notes............................ (19.1) 0.0 0.0
Dividends paid............................................ (5.5) (11.9) (20.0)
Sales of stock............................................ 28.0 29.8 37.7
Redemptions of stock...................................... (9.9) (26.3) (35.9)
------- ------ ------
Net cash used in financing activities............. (16.2) (4.7) (25.0)
------- ------ ------
Effect of exchange rates on cash and cash equivalents....... 2.0 1.1 (3.2)
------- ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 30.5 (25.5) 1.6
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 172.0 197.5 195.9
------- ------ ------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 202.5 $172.0 $197.5
======= ====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 13.0 $ 14.3 $ 15.6
======= ====== ======
Income taxes paid......................................... $ 38.6 $ 14.4 $ 12.6
======= ====== ======
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-44
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
1. DESCRIPTION OF BUSINESS AND CORPORATE ORGANIZATION
The Leo Group, Inc. ("The Leo Group" or the "Company") is a holding company
for a global network of marketing and communications operating units that plan,
create, produce and place numerous forms of communication on behalf of clients
in a broad spectrum of media including television, radio, newspaper, magazine,
outdoor and interactive. The Company also provides specialized services to its
clients including direct marketing, database marketing, interactive and digital
communications, development and production of merchandising and sales promotion
programs and materials, health care marketing, public relations, market
research, new product development and introduction, corporate
branding/identification and package design.
The Leo Group was formed on January 1, 1999, when Leo Burnett Company
("LBCo.") was merged into Leo Burnett Worldwide ("LBW") and renamed The Leo
Group. The Board of LBCo. approved the merger into LBW through an irrevocable
Board resolution on December 28, 1998. LBCo. provided marketing and
communication services within the United States. LBW provided marketing and
communications services to clients outside the United States.
The merger was effected through an exchange of shares in which each
outstanding share of LBCo. was exchanged for 1.79 shares of LBW Series B common
stock. In return, LBW received all 555,000 outstanding shares of LBCo.
In anticipation of the merger, LBCo., by Board resolution effective
December 28, 1998, transferred all but $0.001 of capital from common stock to
retained earnings. In addition, LBCo. declared a premerger dividend payable in
the form of a Promissory Note to each shareholder of record on December 28,
1998. The Promissory Notes, totaling $19.1 plus accrued interest, were paid in
full during 1999. The Promissory Notes provide that proceeds from the notes
shall first be applied to outstanding loans secured by shares of LBCo. and LBW,
with the balance paid in cash to other holders.
The merger of LBCo. into LBW was accounted for as a reorganization of
companies under common control. Accordingly, the financial statements for LBCo.
and LBW have been consolidated for all periods presented at historical cost. As
a result, all share and per share data has been restated to reflect the exchange
into LBW Series B common stock at 1.79 shares per outstanding share of LBCo.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of The Leo Group
and all its controlled subsidiaries. All significant intercompany balances and
transactions have been eliminated. Acquired businesses are included in the
results of operations since their acquisition dates. Investments in companies in
which less than a controlling interest is held are accounted for by the equity
method.
Cash and Cash Equivalents
Cash and cash equivalents are composed of cash and any short-term
investments with original maturities less than three months. Checks issued but
not presented to the banks for payment may create negative book cash balances.
Such negative cash balances are recorded in "Cash overdraft" in the accompanying
consolidated balance sheets.
Long-Lived Assets
Long-lived assets are comprised of property and equipment and goodwill.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. An estimate of undiscounted future cash flows produced by the
asset, or the
F-45
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
appropriate grouping of assets, is compared to the carrying amount to determine
whether an impairment exists. If an asset is determined to be impaired, the loss
is measured based on quoted market prices in active markets, if available. If
quoted market prices are not available, the estimate of fair value is based on
the best information available, including considering prices for similar assets
and the results of valuation techniques to the extent available.
Property and Equipment and Capitalized Software Costs
Property and equipment are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred and expenditures for additions
and improvements that significantly extend the lives of assets are capitalized.
Upon sale or other retirement of depreciable property, the cost and accumulated
depreciation are removed from the related accounts and any gain or loss is
reflected in operations. Depreciation is provided on the straight-line method
over the estimated useful lives of the depreciable assets, which range from 10
to 40 years for buildings and improvements, and 3 to 15 years for furniture and
equipment. Capitalized software costs are amortized on a straight-line basis
over 7 years. Capitalized software costs include expenditures for purchased
software and for the design, development and testing of new systems.
Expenditures for consulting, training, and reengineering efforts are expensed as
incurred. Capitalized hardware costs are depreciated under the
sum-of-the-years-digits method over 3 to 5 years. Leasehold improvements are
amortized over their estimated useful lives or over the terms of the lease,
whichever is shorter, on a straight-line basis. Depreciation and amortization
expense totaled $38.1, $31.5 and $31.4 in 1999, 1998 and 1997, respectively.
Goodwill
The Company generally amortizes goodwill on a straight-line basis over 20
years. Amortization expense totaled $8.3, $5.7 and $1.9 in 1999, 1998 and 1997,
respectively.
Income Taxes
The Company uses an asset and liability approach to financial accounting
and reporting for income taxes. Deferred income taxes are provided when tax laws
and financial accounting standards differ with respect to the amount of income
for a year and the bases of assets and liabilities. Current deferred tax assets
and liabilities are netted in the consolidated balance sheets as are long-term
deferred tax assets and liabilities. Taxes are not provided on earnings expected
to be indefinitely reinvested. To the extent tax accruals differ from actual
payments or assessments, the accruals will be adjusted through the provision for
income taxes.
Revenue Recognition
Commissions and fees are recognized by the Company when billed to clients.
Billings to clients occur for media advertising at the time of publication or
presentation to the media audience, except for magazine billings, which occur on
the closing date of the publication. Billings to clients for print, radio and
television production occur in the month in which costs are incurred or paid, or
at the completion of the job, in accordance with individual client arrangements.
Interactive, direct and promotional marketing and all other services are billed
as services are rendered.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries, other than
those located in highly inflationary countries, are translated at current
exchange rates in effect at the end of the period, while income and expense are
translated at average rates for the period. For entities in highly inflationary
countries, a combination of current and historical rates is used to determine
foreign currency gains and losses resulting from financial statement
translation. Translation gains and losses are reported as a component of
shareholders' investment,
F-46
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
except for those associated with highly inflationary countries, which are
reported directly in the accompanying consolidated statements of income.
Use of Estimates
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the period reported. Actual results could differ from those
estimates.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments. SFAS No. 133 requires
derivatives to be measured at fair value and changes in the derivative's fair
value to be recognized currently in earnings unless specific hedge accounting
criteria are met. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133 -- an amendment of FASB Statement No. 133." SFAS No.
137 defers the effective date of SFAS No. 133 for one year to fiscal years
beginning after June 15, 2000. Given the Company's limited usage of derivative
instruments, this standard is not expected to have a material impact on the
Company's results of operations or financial position.
Reclassified Prior-Year Amounts
Certain prior-year amounts have been reclassified to conform to the current
year's presentation.
3. ACQUISITIONS
On March 6, 1998, the Company acquired a 49% interest in BBH Communications
Limited ("BBH"), a London-based global marketing and communications business for
a total purchase price of $50.6. Approximately half of the purchase price
($25.8) was paid at closing, with the balance covered by a promissory note and a
letter of credit guaranty. The second installment ($24.8) was paid on January
15, 1999, and is included in the accompanying financial statements within "Notes
payable and lines of credit" at December 31, 1998. The Company's investment in
BBH is accounted for using the equity method of accounting. The excess of the
cost of the Company's investment over the underlying equity in the net assets of
BBH was $38.6 and $43.3 in 1999 and 1998, respectively, and is included in
"Other long-term assets." This excess amount is being amortized over 20 years.
The following table summarizes specific balance sheet and income statement
data of BBH as of June 30, 1999 and for the fiscal year then ended.
Revenues.................................................... $61.3
Income before taxes......................................... 11.0
Net income.................................................. 7.3
Current assets.............................................. 70.3
Total assets................................................ 78.7
Current liabilities......................................... 57.2
Total liabilities........................................... 57.5
During 1999, 1998 and 1997, the Company acquired other marketing and
communications businesses or interests in other marketing and communications
businesses for total cash consideration of $20.3, $16.5 and
F-47
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$20.7, respectively. These acquisitions were accounted for as purchases and have
been included in results of operations since the date of acquisition. The
proforma impact of these acquisitions on 1999, 1998 and 1997 results were not
significant.
In addition, the Company made several acquisitions during 1999 for which
certain payments were contingent upon the continued employment of the former
shareholders for a preestablished period of time. These payments are being
amortized over the related employment period as compensation expense. The total
compensation expense recognized in 1999 for these acquisitions was $8.9.
4. INVESTMENTS
The Company holds a number of investments in equity securities which have
been classified as available for sale. These investments have been valued at
fair market value in the accompanying balance sheets. Unrealized holding gains
have been recorded in accumulated other comprehensive income. A summary of the
fair market values and cost bases of the Company's investments is as follows:
1999 1998
---- ----
Fair market value of investment in equity securities........ $4.3 $5.1
Cost basis of investment in equity securities............... 1.3 2.3
---- ----
Unrealized holding gain..................................... $3.0 $2.8
==== ====
5. PENSION AND POSTRETIREMENT PLANS
The Company has various benefit plans covering substantially all U.S.
employees and certain foreign employees. The Company's defined benefit plans
provide benefits based on years of service and compensation levels. The
Company's U.S. funding policy has been to contribute the maximum amount
deductible for federal income tax purposes. Due to the overfunded status of the
U.S. defined benefit plan, no Company contribution has been required since 1982.
Plan assets consist primarily of various securities, real estate and other
investments.
The Company also provides certain health care and life insurance benefits
to retired U.S. employees. The Company charges to expense the expected costs of
postretirement benefits during the years that the employees render service.
F-48
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total Company Benefit Costs
The components of net periodic benefit costs for the pension and
postretirement plans were as follows:
1999 1998 1997
------ ------ ------
PENSION PLAN BENEFITS--
Service cost for benefits earned during the year......... $ 5.8 $ 5.9 $ 5.6
Interest cost on projected benefit obligation............ 6.5 7.7 7.3
Expected return on plan assets........................... (14.6) (12.1) (10.8)
Amortization of transition asset......................... (0.7) (0.7) (0.7)
Recognized actuarial (gain).............................. (0.9) (0.3) (0.5)
Other.................................................... 3.9 2.2 1.3
------ ------ ------
Net pension benefits expense.......................... $ -- $ 2.7 $ 2.2
====== ====== ======
POSTRETIREMENT PLAN BENEFITS--
Service cost for benefits earned during the year......... $ 0.4 $ 0.4 $ 0.5
Interest cost on accumulated postretirement benefit
obligation............................................ 1.2 1.3 1.3
Amortization of transition obligation.................... 1.0 1.0 1.0
Recognized actuarial (gain).............................. (0.5) (0.4) (0.5)
------ ------ ------
Net postretirement benefits expense................... $ 2.1 $ 2.3 $ 2.3
====== ====== ======
F-49
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Domestic Obligations and Funded Status
The changes in the benefit obligations and the reconciliation of the funded
status of the Company's domestic plans to the accompanying consolidated balance
sheets were as follows:
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- ---------------
1999 1998 1999 1998
------- ------- ------ ------
CHANGE IN BENEFIT OBLIGATION--
Benefit obligation at beginning of year.......... $ 54.6 $ 46.1 $ 17.9 $ 16.9
Service cost..................................... 3.2 3.4 0.4 0.4
Interest cost.................................... 4.3 4.6 1.2 1.3
Benefits paid.................................... (6.7) (8.0) (1.4) (0.7)
Plan participant contributions................... -- -- 0.7 0.5
Actuarial (gain) loss............................ (3.3) 8.5 (2.6) (0.5)
------ ------ ------ ------
Benefit obligation at end of year................ $ 52.1 $ 54.6 $ 16.2 $ 17.9
====== ====== ====== ======
CHANGE IN PLAN ASSETS--
Fair value at beginning of year.................. $ 82.0 $ 75.6 $ -- $ --
Actual return on assets.......................... 12.3 14.4 -- --
Company contributions............................ -- -- 0.7 0.2
Benefits paid.................................... (6.7) (8.0) (1.4) (0.7)
Participant contributions........................ -- -- 0.7 0.5
------ ------ ------ ------
Fair value at end of year........................ $ 87.6 $ 82.0 $ -- $ --
====== ====== ====== ======
Fair value of plan assets greater (less) than
benefit obligation............................ $ 35.5 $ 27.4 $(16.2) $(17.9)
Unrecognized net actuarial (gain)................ (29.4) (21.6) (12.0) (9.9)
Unrecognized prior service cost.................. (1.3) (1.5) -- --
Unrecognized transition obligation (asset)....... (4.4) (5.2) 12.4 13.4
------ ------ ------ ------
Net amounts recognized........................... $ 0.4 $ (0.9) $(15.8) $(14.4)
====== ====== ====== ======
Weighted average assumptions as of December 31 are as follows:
PENSION POSTRETIREMENT
BENEFITS BENEFITS
----------- ---------------
1999 1998 1999 1998
---- ---- ------ ------
Discount rate............................................. 8.0% 8.0% 8.0% 8.0%
Expected long-term rate of return on plan assets.......... 8.5% 8.5% N/A N/A
Expected rate of future compensation increases............ 5.5% 5.5% N/A N/A
=== === === ===
At December 31, 1999, the health care cost trend rates were assumed to be
8.0%, gradually declining to 5.0% in 2004. A 1.0% increase in the medical
inflation rate would increase the accumulated postretirement benefit obligation
as of December 31, 1999, by approximately $2.8 and increase the net periodic
cost by $0.3. A 1.0% decrease in the medical inflation rate would decrease the
accumulated postretirement benefit obligation as of December 31, 1999, by
approximately $2.6 and decrease the net periodic cost by approximately $0.3.
F-50
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Obligations and Funded Status
The changes in benefit obligations and the reconciliations of the funded
status of the Company's foreign pension plans to the accompanying consolidated
balance sheets were as follows:
PENSION BENEFITS
-----------------
1999 1998
------- -------
CHANGE IN BENEFIT OBLIGATION--
Benefit obligation at beginning of year................... $37.3 $35.8
Service cost.............................................. 2.6 2.5
Interest cost............................................. 2.2 3.1
Benefits paid............................................. (1.8) (1.7)
Actuarial loss (gain)..................................... 7.0 (3.5)
Other..................................................... (1.2) 1.1
----- -----
Benefit obligation at end of year......................... $46.1 $37.3
===== =====
CHANGE IN PLAN ASSETS--
Fair value at beginning of year........................... $38.4 $32.2
Actual return on assets................................... 3.1 3.0
Company contributions..................................... 1.5 1.2
Participant contributions................................. 0.6 0.7
Benefits paid............................................. (1.4) (1.3)
Other..................................................... 3.7 2.6
----- -----
Fair value at end of year................................. $45.9 $38.4
===== =====
Fair value of plan assets greater than benefit
obligation............................................. $(0.2) $ 1.1
Unrecognized net actuarial gain........................... (1.6) (4.0)
Unrecognized prior service cost........................... 0.5 0.6
----- -----
Net amounts recognized.................................... $(1.3) $(2.3)
===== =====
Weighted average assumptions as of December 31 are as follows:
PENSION
BENEFITS
-----------
1999 1998
---- ----
Discount rate............................................... 6.2% 6.5%
Expected long-term rate of return on plan assets............ 7.7% 8.2%
Expected rate of future compensation increases.............. 4.3% 4.4%
=== ===
In addition to the plans described above, the Company has certain other
defined benefit and retirement plans. The total expense for these plans was
$4.8, $4.0, and $3.9 in 1999, 1998 and 1997, respectively. The Company also has
deferred compensation plans for certain employees to defer a portion of their
compensation to future years. The total expense related to these plans was
approximately $0.7, $1.3, and $1.1 in 1999, 1998 and 1997, respectively.
F-51
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMPENSATION PLANS
The Company has a special bonus plan and grants awards for certain key
executives and employees. The costs of the special bonus plan and other awards
are charged to income on a current basis. These costs are included in
"Compensation and employee benefits" in the accompanying consolidated statements
of income.
The Company also has a profit-sharing plan covering most of its U.S.
employees. The total profit-sharing expense in 1999, 1998 and 1997 was $16.8,
$15.9 and $16.5, respectively.
Through the first quarter of 1999, certain key employees were designated
participants in the Star Reachers Compensation Plan and were allocated annual
awards as determined by the Board of Directors. The annual awards may be
distributed to the participants or deferred at the discretion of the Board. The
plan was terminated at the end of the first quarter of 1999 in connection with
the merger of LBCo. into LBW.
During 1999, 1998 and 1997 the Board elected to distribute a substantial
portion of the awards ($2.1, $29.6, and $39.0, respectively) allocated to the
participants noted above. The portion of the award which was deferred ($0.0,
$1.0, and $1.2 as of December 31, 1999, 1998 and 1997, respectively) is
reflected in "Other current liabilities" and "Other long-term liabilities" in
the accompanying consolidated balance sheets.
7. INCOME TAXES
Income before taxes/minority interest and equity in affiliates and the
provision for U.S. federal, state, and foreign taxes on these earnings were the
following:
1999 1998 1997
------ ------ -----
Income before taxes/minority interest and equity in
affiliates--
United States............................................. $ 37.2 $ 26.0 $12.1
Foreign................................................... 24.8 13.5 17.6
------ ------ -----
$ 62.0 $ 39.5 $29.7
====== ====== =====
Income taxes--
Currently payable--
Federal................................................ $ 26.1 $ 1.0 $ 0.6
State.................................................. 6.3 0.2 0.1
Foreign................................................ 14.3 19.6 13.3
------ ------ -----
$ 46.7 $ 20.8 $14.0
====== ====== =====
Deferred--
Federal................................................ $(16.2) $ (7.6) $ --
State.................................................. (1.7) -- --
Foreign................................................ 0.4 (4.1) (4.7)
------ ------ -----
$(17.5) $(11.7) $(4.7)
------ ------ -----
Total income tax provision.................................. $ 29.2 $ 9.1 $ 9.3
====== ====== =====
F-52
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between income taxes at the federal statutory income tax
rate and the provision for income taxes included in the accompanying
consolidated statements of income is reconciled as follows:
1999 1998 1997
--------------- --------------- ---------------
TOTAL PERCENT TOTAL PERCENT TOTAL PERCENT
----- ------- ----- ------- ----- -------
At statutory rate..................... $21.7 35.0% $13.9 35.0% $10.4 35.0%
Increase (decrease) resulting from--
Nondeductible expenses.............. 0.7 1.1 1.0 2.5 0.7 2.5
Foreign losses not deductible....... 2.2 3.6 3.4 8.7 3.9 13.3
Foreign losses utilized............. (1.4) (2.3) (0.4) (1.0) (0.7) (2.4)
Goodwill amortization............... 1.9 3.1 1.0 2.5 0.7 2.2
Higher aggregate effective tax rate
on foreign operations............ 0.2 0.3 1.6 4.0 0.9 2.9
S Corporation federal tax paid at
shareholder level................ -- -- (5.0) (12.7) (7.4) (24.9)
State and local taxes on income, net
of federal tax benefit........... 3.0 4.9 -- -- -- --
Tax benefit of restructuring........ -- -- (7.6) (19.2) -- --
Foreign currency losses............. -- -- 0.6 1.5 0.4 1.3
Other, net.......................... 0.9 1.5 0.6 1.6 0.4 1.4
----- ---- ----- ----- ----- -----
Provision for income taxes............ $29.2 47.2% $ 9.1 22.9% $ 9.3 31.3%
===== ==== ===== ===== ===== =====
1998 Merger of LBW-LBCo.
In conjunction with the Board's irrevocable actions and the merger
previously described in Note 1, LBCo., by law, returned to a C Corporation for
U.S. Federal income tax purposes. As a result, certain prepaid and deferred tax
items were recorded in the Company's balance sheet at December 31, 1998.
Deferred income taxes are provided for the temporary differences between
financial and tax reporting. Deferred tax benefits totaling $29.9 resulted
principally from recording expenses in the financial statements that are not
currently deductible for tax purposes. In addition, deferred tax liabilities of
$22.3 resulted primarily from deferred gain on the sales-leaseback transaction
(discussed in Note 13) and the recognition of income upon the change from cash
to accrual basis reporting for tax purposes. Internal Revenue Code Section
481(a) allows the tax liability arising from the cash to accrual accounting
method change to be paid in equal installments over four years. The deferred tax
liability associated with the Section 481(a) adjustment will be paid in four
installments in the tax years 1999-2002.
F-53
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred tax assets and liabilities included in the accompanying
consolidated balance sheets were the following:
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
------------- -------------
1999 1998 1999 1998
----- ----- ----- -----
Current--
Postretirement benefits.............................. $ 1.7 $ 1.9 $ -- $ --
Other benefit plans.................................. 0.4 0.5 -- --
Other accrued expenses............................... 1.6 1.8 -- --
Section 481(a) income................................ -- -- 2.3 2.4
----- ----- ----- -----
Total current..................................... 3.7 4.2 2.3 2.4
----- ----- ----- -----
Noncurrent--
Depreciation and amortization........................ 1.5 0.7 -- --
Postretirement benefits.............................. 12.8 11.7 -- --
Other benefit plans.................................. 5.0 6.1 -- --
Other accrued expenses............................... 16.8 7.2 -- --
Section 481(a) income................................ -- -- 4.5 7.2
Deferred gain on sale-leaseback...................... -- -- 11.3 11.9
Nondeductible expenses............................... 19.0 13.1 1.0 1.6
----- ----- ----- -----
Total noncurrent.................................. 55.1 38.8 16.8 20.7
----- ----- ----- -----
Total deferred taxes (net of valuation allowance)...... $58.8 $43.0 $19.1 $23.1
===== ===== ===== =====
At December 31, 1999, a valuation allowance of $15.4 existed, as it is more
likely than not that certain foreign net operating losses will not be recognized
in the future. At December 31, 1998, the valuation allowance was $14.5.
At December 31, 1999, 1998 and 1997, the cumulative undistributed earnings
of the Company's foreign operations totaled approximately $56.0, $54.0 and
$50.0, respectively, for which no provisions for foreign withholding or U.S.
income taxes have been made. These amounts have been permanently reinvested in
working capital and property and equipment.
At December 31, 1999, certain of the Company's foreign subsidiaries had net
operating loss carryforwards aggregating approximately $34.3, which are
available to offset future taxable income. These loss carryforwards are
scheduled to expire as follows:
2000........................................................ $ 0.6
2001........................................................ 2.0
2002........................................................ 1.9
2003........................................................ 1.2
2004 and subsequent......................................... 5.3
Indefinite.................................................. 23.3
-----
$34.3
=====
F-54
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term bank borrowings consist principally of amounts borrowed under
domestic and international bank overdraft facilities and lines of credit. The
Company had $93.8 available under various lines of credit at December 31, 1999.
A total of $2.9 was outstanding under various lines of credit at December 31,
1999, and is included in "Notes payable and lines of credit" in the accompanying
consolidated balance sheet.
In connection with the BBH acquisition, the Company also had a $25.0 letter
of credit guaranty in place as of December 31, 1998. Upon payment of the second
installment to BBH on January 15, 1999, the letter of credit guaranty was
automatically terminated.
At December 31, 1999 and 1998, long-term debt consisted of the following:
1998 1999
---- ----
Notes payable of various domestic subsidiaries.............. $2.8 $6.0
Other domestic obligations.................................. 3.6 4.6
Notes payable at foreign locations, at varying interest
rates and due dates (payable in various foreign
currencies)............................................... 2.2 5.6
---- ----
Total debt................................................ 8.6 16.2
Less-Current portion........................................ 6.0 8.4
---- ----
Total long-term debt...................................... $2.6 $7.8
==== ====
Scheduled maturities of long-term debt are as follows:
2000........................................................ $6.0
2001........................................................ 2.4
2002........................................................ 0.2
2003........................................................ --
2004 and thereafter......................................... --
----
$8.6
====
Domestic debt consists of bank borrowings held by subsidiaries, shareholder
redemption notes, and other debt.
The carrying value of the long-term debt approximates fair value.
9. MANDATORILY REDEEMABLE STOCK
The Leo Group Voting Trust (the "Trust") is the owner of record of all
issued and outstanding shares of mandatorily redeemable stock of the Company.
The Trust has issued Voting Trust Certificates, which represent a beneficial
interest in the common stock of the Company. Purchases and sales of the
Company's common stock are governed by the provisions of the Stock Purchase
Agreement. In the event of death or termination of employment with the Company,
the certificates owned by such individuals are purchased by the Company at the
then-current book value per share of the Company's common stock after reflecting
shareholder distributions. Payment for shares is generally made upon redemption.
Redemption amounts relating to the stock purchase agreements are included in
"Mandatorily redeemable stock" in the accompanying consolidated balance sheets.
F-55
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. TRANSACTIONS WITH RELATED PARTIES
During 1991, the Company executed a promissory note, whereby it borrowed
$14.1 from Starplan Limited Partnership ("Starplan"), a Delaware limited
partnership. This note is a demand note, and interest is computed at the prime
rate in effect at the beginning of each quarter. Interest is due and payable to
Starplan at the end of each quarter. As of December 31, 1999 and 1998, $1.8 and
$2.4, respectively, remains outstanding. Interest expense of $0.2, $0.4 and $0.5
was incurred during 1999, 1998 and 1997, respectively.
11. SEGMENT INFORMATION
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The adoption of this standard
requires that reportable segments be reported on a basis consistent with how
management assesses segment performance. The Company operates and manages its
business within two business segments: Global Marketing and Communications and
Real Estate. The Global Marketing and Communications segment conducts its
business as a global network using an integrated and multidisciplinary approach.
The Real Estate segment has been disclosed as a separate reportable segment as
its activities are unrelated to the Company's core business segment. The Real
Estate operations reflect the Company's residual ownership interest in its
corporate headquarters building (see Note 13). Prior to the merger of LBCo. into
LBW in 1999, LBCo. was an S Corporation for federal income tax purposes which
allowed its income to be taxed directly to its shareholders. Unaudited pro forma
tax provision and pro forma
F-56
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
segment net income are shown below for 1998 and 1997 as if LBCo. had been taxed
as a C Corporation. Comparable segment data and the related enterprise-wide
disclosures are summarized below:
OPERATING SEGMENT INFORMATION
GLOBAL MARKETING AND
COMMUNICATIONS REAL ESTATE RECLASSES/ELIMINATIONS
------------------------------ ------------------------ ------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- -------- ------ ------ ------ ------ ------ ------
Revenues............. $ 912.8 $ 810.7 $ 793.9 $ 42.7 $ 41.0 $ 45.6 $(21.3) $(20.6) $(28.2)
Operating expense.... (856.4) (783.6) (759.8) (23.5) (22.5) (26.0) 21.3 20.6 28.2
-------- -------- -------- ------ ------ ------ ------ ------ ------
Operating income..... 56.4 27.1 34.1 19.2 18.5 19.6 -- -- --
Interest income...... 7.9 12.0 11.2 -- -- -- -- -- --
Interest expense..... (4.7) (6.2) (4.6) (11.2) (11.2) (13.4) -- -- --
Foreign currency
loss............... (5.6) (0.7) (17.2) -- -- -- -- -- --
Other, net........... (0.4) (0.1) -- 0.4 0.1 -- -- -- --
-------- -------- -------- ------ ------ ------ ------ ------ ------
Income before
taxes/minority
interest and equity
in affiliates...... 53.6 32.1 23.5 8.4 7.4 6.2 -- -- --
Provision for income
taxes.............. 29.2 9.1 9.3 -- -- -- -- -- --
-------- -------- -------- ------ ------ ------ ------ ------ ------
Income before
minority interest.. 24.4 23.0 14.2 8.4 7.4 6.2 -- -- --
Minority interest
expense, net of
tax................ 1.6 (3.5) (3.4) (7.0) (6.6) -- -- -- --
Equity in
affiliates......... 1.1 2.4 --
-------- -------- -------- ------ ------ ------ ------ ------ ------
Net income........... $ 27.1 $ 21.9 $ 10.8 $ 1.4 $ 0.8 $ 6.2 $ -- $ -- $ --
======== ======== ======== ====== ====== ====== ====== ====== ======
Unaudited pro forma
tax provision (as
if a C
Corporation)....... N/A $ 14.6 $ 17.0 N/A $ -- $ -- N/A $ -- $ --
Unaudited pro forma
net income (as if a
C Corporation)..... N/A 16.4 3.1 N/A 0.8 6.2 N/A -- --
Total assets......... 1,434.6 1,162.9 1,075.2 166.4 175.1 183.3 -- -- --
Star Reachers expense
(included in
operating expense
above)............. 2.1 30.6 40.2 -- -- -- -- -- --
Depreciation and
amortization....... 38.3 29.1 26.9 8.1 8.1 6.4 -- -- --
Capital
expenditures....... 41.7 36.4 27.3 -- -- -- -- -- --
======== ======== ======== ====== ====== ====== ====== ====== ======
THE LEO GROUP
------------------------------
1999 1998 1997
-------- -------- --------
Revenues............. $ 934.2 $ 831.1 $ 811.3
Operating expense.... (858.6) (785.5) (757.6)
-------- -------- --------
Operating income..... 75.6 45.6 53.7
Interest income...... 7.9 12.0 11.2
Interest expense..... (15.9) (17.4) (18.0)
Foreign currency
loss............... (5.6) (0.7) (17.2)
Other, net........... -- -- --
-------- -------- --------
Income before
taxes/minority
interest and equity
in affiliates...... 62.0 39.5 29.7
Provision for income
taxes.............. 29.2 9.1 9.3
-------- -------- --------
Income before
minority interest.. 32.8 30.4 20.4
Minority interest
expense, net of
tax................ (5.4) (10.1) (3.4)
Equity in
affiliates......... 1.1 2.4 --
-------- -------- --------
Net income........... $ 28.5 $ 22.7 $ 17.0
======== ======== ========
Unaudited pro forma
tax provision (as
if a C
Corporation)....... N/A $ 14.6 $ 17.0
Unaudited pro forma
net income (as if a
C Corporation)..... N/A 17.2 9.3
Total assets......... 1,601.0 1,338.0 1,258.5
Star Reachers expense
(included in
operating expense
above)............. 2.1 30.6 40.2
Depreciation and
amortization....... 46.4 37.2 33.3
Capital
expenditures....... 41.7 36.4 27.3
======== ======== ========
F-57
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC INFORMATION
REVENUES LONG-LIVED ASSETS
------------------------ -----------------
1999 1998 1997 1999 1998
------ ------ ------ ------- -------
United States............................. $445.9 $382.5 $381.9 $250.4 $260.2
Foreign................................... 488.3 448.6 429.4 102.4 90.5
------ ------ ------ ------ ------
Total..................................... $934.2 $831.1 $811.3 $352.8 $350.7
====== ====== ====== ====== ======
12. COMMITMENTS AND CONTINGENCIES
The Company leases office space, a portion of office equipment, computers
and automobiles. Total rental expense under lease obligations in 1999, 1998 and
1997 was $29.9, $23.9, and $25.1, respectively, excluding amounts related to the
Company's corporate headquarters (see Note 13). The Company's remaining future
minimum rental payments to outside parties as of December 31, 1999, for all
leases having initial or remaining noncancelable lease terms in excess of one
year are as follows:
2000........................................................ $ 29.2
2001........................................................ 25.3
2002........................................................ 21.6
2003........................................................ 19.8
2004........................................................ 12.9
Thereafter.................................................. 11.1
------
Total..................................................... $119.9
======
The Company is involved in various legal matters which are being defended
and handled in the ordinary course of business. Although it is not possible to
predict the outcome of these matters, management believes that the results will
not have a material impact on its financial statements.
Several of the Company's clients individually represent a significant
source of revenue for the Company. Two clients accounted for 16% and 11% of
total 1999 revenues, and 18% and 11% of revenues in both 1998 and 1997.
As is common industry practice, contracts can generally be terminated by
clients with 30 to 90 days notice. The loss of a major client of the Company
could have a significant negative impact on the Company's business.
As of December 31, 1999, the Company had certain media guarantees in effect
totaling approximately $20.0. These guarantees are in effect, where required by
local media or advertising industry practice, to ensure that liabilities owed to
media vendors are paid. During 1999, the Company has not been required to
perform on any of these guarantees.
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed to perform as contracted. The clients of
the Company consist mainly of major consumer products companies. The Company
performs regular credit reviews of customers. Allowances are maintained for
potential credit losses. To date, such losses have been within management's
expectations and allowances for doubtful accounts are adequate to cover
foreseeable credit risk losses. Notwithstanding the fact that the nature of the
industry presents inherent risks, management believes that the likelihood of any
significant loss resulting from a concentration of credit is minimal.
The Company provides loans to certain key shareholders for the purchase of
the Company's stock. These loans are in the form of demand notes and generally
bear interest at the U.S. prime rate less 0.5%. As of
F-58
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1999, $5.6 is outstanding and has been reflected as a reduction to
"Shareholders' Investment". In addition, the Company guarantees loans made to
shareholders by various banks to finance the purchases of the Company's stock.
As of December 31, 1999, the Company had guarantees in effect totaling $55.4
(see Note 14). During 1999, the Company was not required to perform on any of
these guarantees.
13. SALE-LEASEBACK TRANSACTION
Beginning in 1987, the Company constructed the 1.1 million rentable square
foot office building that serves as its corporate headquarters. Prior to
December 1997, the Company operated as the owner and landlord of the building.
During 1997, the Company decided to transfer substantially all of the ownership
of the building. As a result, in December 1997, the Company contributed its
corporate headquarters to a joint venture (the "Venture") substantially owned by
Starwood Capital Group, L.L.C. and the John Buck Company. In exchange for the
Company's contribution, the Venture assumed the Company's building-related debt
of $219.5. In conjunction with this transaction, the Company entered into a
15-year lease for the portion of the building that it occupies. The Company also
retained a 3.6% interest in the Venture. For accounting purposes, due to the
Company's continuing ownership interest in the building, this transaction was
accounted for as a financing, with the building and the finance obligation
continuing to be reflected in the Company's financial statements. Even though
the building obligation is reflected on the Company's balance sheet, the
Company's only continuing obligation is its annual lease payments shown below
since the Venture has fully assumed the building mortgage. In addition, for
accounting purposes, the operating results of the Venture are included in the
Company's consolidated income statements, with the 96.4% interest not owned by
the Company reflected as minority interest expense.
Significant accounting policies of the Venture are as follows:
- Rental income is recognized on a straight-line basis over the terms of
the respective leases.
- Depreciation expense is provided on a straight-line basis over the
estimated useful lives of the depreciable assets which range from 10 to
40 years for buildings and improvements and 3 to 15 years for furniture
and equipment.
Total rental expense under lease obligations in 1999, 1998 and 1997 was
$11.2, $11.2, and $13.4, respectively. The Company's remaining future minimum
lease payments as of December 31, 1999 are as follows:
2000........................................................ $ 9.8
2001........................................................ 10.1
2002........................................................ 10.3
2003........................................................ 10.6
2004........................................................ 10.8
Thereafter.................................................. 93.4
------
Total..................................................... $145.0
======
14. SUBSEQUENT EVENTS
On January 31, 2000, the Company's shareholders approved a business
combination with The MacManus Group, Inc. ("MacManus"). This combination was
effected by the formation of a new holding company named BDM. All of the
Company's 9,491,560 outstanding shares were exchanged for the same number of BDM
shares. MacManus shareholders exchanged 695,492 MacManus shares for 5,981,100
BDM shares based on an exchange ratio of 8.6:1. The BDM Board of Directors will
be comprised of four seats with the
F-59
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company having two seats and MacManus having two seats. This combination will be
accounted for as a purchase with the Company deemed to be the acquiror for
accounting purposes.
In connection with the combination, the Company offered to redeem 752,525
shares from selected shareholders at fair value on January 1, 2000. This offer
resulted in a compensation charge of approximately $71.9. On January 31, 2000,
selected shareholders elected to redeem 649,045 shares for cash. To finance this
redemption, the Company borrowed $100.0 under a 3-year term loan at an interest
rate of LIBOR plus 112.5 basis points (initially at 7.455%). A portion of the
proceeds were used by shareholders to pay loans previously guaranteed by the
Company.
Subsequent to the issuance of BDM shares, Bcom3 was selected as the new
name of the holding company. Effectively, the Company became a wholly owned
subsidiary of Bcom3. Bcom3 announced it intends to pursue an initial public
offering within the next 12 to 24 months.
On March 14, 2000, Dentsu Inc. ("Dentsu") purchased approximately 20% of
Bcom3's common shares for $493.2 in cash. As a result, Dentsu received two seats
on the Bcom3 Board of Directors, increasing the total number of seats on the
Board from four to six.
F-60
PLEASE NOTE THAT THIS REPORT IS A COPY OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN
LLP REPORT AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
The MacManus Group, Inc.:
We have audited the accompanying consolidated balance sheets of The
MacManus Group, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The MacManus Group, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
NEW YORK, NEW YORK
MAY 10, 2000
F-61
THE MACMANUS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
1999 1998
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 187,084 $ 222,750
Accounts receivable (less allowance for doubtful accounts
of $10,187 and $9,365, respectively).................... 775,316 678,124
Production expenditures billable to clients............... 88,257 78,669
Prepaid expenses and other assets......................... 17,818 19,731
Deferred income taxes..................................... 11,819 2,072
---------- ----------
Total current assets.................................... 1,080,294 1,001,346
PROPERTY AND EQUIPMENT, AT COST............................. 183,640 162,763
Less: Accumulated depreciation and amortization........... 103,023 90,826
---------- ----------
80,617 71,937
OTHER ASSETS:
Goodwill, at cost (net of accumulated amortization of
$43,941 and $37,998, respectively)...................... 186,578 153,743
Deferred income taxes..................................... 30,339 34,267
Other..................................................... 34,611 25,471
---------- ----------
251,528 213,481
---------- ----------
TOTAL ASSETS................................................ $1,412,439 $1,286,764
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings..................................... $ 42,372 $ 33,870
Current portion of long-term debt......................... 91,021 23,542
Trade accounts payable.................................... 827,657 767,159
Accrued expenses and other payables....................... 226,757 155,889
Accrued income taxes...................................... 9,611 11,177
---------- ----------
Total current liabilities............................... 1,197,418 991,637
OTHER LIABILITIES:
Deferred compensation and accrued retirement benefits..... 55,450 59,557
Long-term debt............................................ 5,113 118,519
Deferred rent............................................. 23,278 23,595
Other long-term liabilities............................... 62,792 56,244
Deferred income taxes..................................... 359 808
---------- ----------
146,992 258,723
MINORITY INTEREST........................................... 8,992 9,681
COMMITMENTS AND CONTINGENCIES............................... -- --
MANDATORILY REDEEMABLE STOCK................................ 30,245 26,555
STOCKHOLDERS' EQUITY:
Preferred stock, 6%, 500,000 shares authorized, none
issued.................................................. -- --
Preferred stock, $8 stated value, 1,000,000 shares
authorized; 850,138 issued; 16,000 and 18,700 shares
outstanding at December 31, 1999 and 1998, respectively,
after deducting 834,138 and 831,438 shares held in
treasury, respectively.................................. 128 150
Convertible preferred stock, Series A and B, 96,050 shares
authorized and issued, no shares outstanding after
deducting 96,050 shares held in treasury................ -- --
Common stock, Series A and B, $1 par value, 1,000,000
shares authorized; 598,283 shares issued; 25,845 and
31,845 shares outstanding at December 31, 1999 and 1998,
respectively, after deducting 572,438, and 566,438
shares held in treasury, respectively................... 26 32
Common stock, Class C, $.05 par value, 1,700,000 shares
authorized; 1,165,580 and 1,091,750 shares issued at
December 31, 1999 and 1998, respectively; 1,102,930 and
1,056,980 shares outstanding at December 31, 1999 and
1998, respectively, after deducting 62,650 and 34,770
shares held in treasury, respectively................... 55 53
Paid-in capital............................................. 1,653 1,653
Redemption premium on certain shares of common stock........ 323 323
Retained earnings........................................... 46,671 13,071
Accumulated other comprehensive loss........................ (20,064) (15,114)
Total stockholders' equity.............................. 28,792 168
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $1,412,439 $1,286,764
========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
F-62
THE MACMANUS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
1999 1998 1997
-------- -------- --------
COMMISSION AND FEE REVENUES................................. $787,461 $730,275 $731,455
OPERATING EXPENSES:
Compensation and employee benefits........................ 485,403 458,991 459,222
General agency............................................ 149,087 135,983 137,050
Occupancy................................................. 62,220 62,480 63,764
Depreciation and amortization............................. 23,404 21,018 20,331
Nonrecurring charge....................................... -- 97,350 --
-------- -------- --------
Total operating expenses............................... 720,114 775,822 680,367
-------- -------- --------
OPERATING INCOME/(LOSS)..................................... 67,347 (45,547) 51,088
OTHER INCOME/(EXPENSE):
Interest income........................................... 6,851 8,038 4,702
Interest expense.......................................... (12,397) (13,412) (12,556)
Foreign currency gain (loss).............................. 869 376 (1,179)
-------- -------- --------
Total other expense.................................... (4,677) (4,998) (9,033)
Income/(loss) before provision for income taxes........ 62,670 (50,545) 42,055
PROVISION FOR INCOME TAXES.................................. 25,772 10,260 18,135
-------- -------- --------
Income/(loss) after provision for income taxes......... 36,898 (60,805) 23,920
MINORITY INTEREST........................................... (4,757) (6,642) (3,282)
EQUITY IN AFFILIATES........................................ 920 889 1,527
-------- -------- --------
NET INCOME/(LOSS)........................................... $ 33,061 $(66,558) $ 22,165
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-63
THE MACMANUS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK
--------------------------
PREFERRED SERIES A AND CLASS C
COMPREHENSIVE STOCK ($8 B ($1 PAR ($.05 PAR PAID-IN REDEMPTION RETAINED
(LOSS)/INCOME STATED VALUE) VALUE) VALUE) CAPITAL PREMIUM EARNINGS
------------- ------------- -------------- --------- ------- ---------- --------
BALANCES, DECEMBER 31,
1997...................... $397 $45 $49 $2,393 $323 $85,327
Comprehensive loss:
Net loss.................... $(66,558) (66,558)
Other comprehensive loss,
net of tax:
Foreign currency
translation
adjustment.............. (1,599)
Minimum pension liability
adjustment, net of
$2,741 tax benefit...... (6,489)
--------
Comprehensive loss: ........ $(74,646)
========
Cost of 30,897 shares of $8
preferred stock, 12,500
shares of Series A and B
common stock, and 140,550
shares of Class C common
stock, in each case
repurchased for
treasury.................. (247) (13) (6) (740) (15,895)
Issuance of 195,500 shares
of Class C common stock
from treasury............. 10
Retained earnings allocable
to mandatorily redeemable
stock..................... 10,197
---- --- --- ------ ---- -------
BALANCES, DECEMBER 31,
1998...................... 150 32 53 1,653 323 13,071
Comprehensive income:
Net income.................. $ 33,061 33,061
Other comprehensive loss,
net of tax:
Foreign currency
translation
adjustment.............. (4,837)
Minimum pension liability
adjustment, net of $81
tax benefit............. (113)
--------
Comprehensive income: ...... $ 28,111
========
Cost of 2,700 shares of $8
preferred stock, 6,000
shares of Series A and B
common stock, and 205,250
shares of Class C common
stock, in each case
repurchased for
treasury.................. (22) (6) (10)
Issuance of 251,200 shares
of Class C common stock
from treasury............. 12
Retained earnings allocable
to mandatorily redeemable
stock..................... 539
---- --- --- ------ ---- -------
BALANCES, DECEMBER 31,
1999...................... $128 $26 $55 $1,653 $323 $46,671
==== === === ====== ==== =======
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
-------------
BALANCES, DECEMBER 31,
1997...................... $ (7,026)
Comprehensive loss:
Net loss....................
Other comprehensive loss,
net of tax:
Foreign currency
translation
adjustment.............. (1,599)
Minimum pension liability
adjustment, net of
$2,741 tax benefit...... (6,489)
Comprehensive loss: ........
Cost of 30,897 shares of $8
preferred stock, 12,500
shares of Series A and B
common stock, and 140,550
shares of Class C common
stock, in each case
repurchased for
treasury..................
Issuance of 195,500 shares
of Class C common stock
from treasury.............
Retained earnings allocable
to mandatorily redeemable
stock.....................
--------
BALANCES, DECEMBER 31,
1998...................... (15,114)
Comprehensive income:
Net income..................
Other comprehensive loss,
net of tax:
Foreign currency
translation
adjustment.............. (4,837)
Minimum pension liability
adjustment, net of $81
tax benefit............. (113)
Comprehensive income: ......
Cost of 2,700 shares of $8
preferred stock, 6,000
shares of Series A and B
common stock, and 205,250
shares of Class C common
stock, in each case
repurchased for
treasury..................
Issuance of 251,200 shares
of Class C common stock
from treasury.............
Retained earnings allocable
to mandatorily redeemable
stock.....................
--------
BALANCES, DECEMBER 31,
1999...................... $(20,064)
========
The accompanying notes are an integral part of these consolidated financial
statements.
F-64
THE MACMANUS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
1999 1998 1997
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 33,061 $(66,558) $ 22,165
Reconciliation of net income (loss) to net cash provided
by operating activities:
Depreciation and amortization.......................... 23,404 21,018 20,331
Nonrecurring charge.................................... -- 97,350 --
(Decrease)/increase in deferred compensation and
accrued retirement benefits.......................... (4,166) 10,013 (3,797)
Decrease in deferred income taxes...................... (2,864) (9,284) (2,073)
(Decrease)/increase in deferred rent liability......... (317) (685) 431
Changes in operating assets and liabilities, net of
effects from acquisition
(Increase)/decrease in accounts receivable, net........ (95,327) 94,709 (39,164)
Increase in production expenditures billable to
clients.............................................. (5,854) (6,503) (729)
Increase/(decrease) in trade accounts payable.......... 65,534 (41,884) 45,197
Increase in accrued expenses and other payables........ 43,225 1,990 2,121
(Decrease)/increase in accrued income taxes............ (1,520) 3,400 (783)
Other, net............................................. 8,739 9,498 6,947
-------- -------- --------
Net cash provided by operating activities............ 63,915 113,064 50,646
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired............... (39,529) (20,319) (14,970)
Expenditures for property and equipment, net.............. (27,524) (22,522) (15,683)
Other..................................................... 132 475 366
-------- -------- --------
Net cash used in investing activities................ (66,921) (42,366) (30,287)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of shares for Treasury, net...................... (1,713) (3,240) (5,973)
Proceeds from short-term debt, net........................ 10,691 13,485 3,984
Proceeds from long-term debt.............................. 152 -- 52,318
Repayment of long-term debt............................... (37,389) (22,214) (24,154)
-------- -------- --------
Net cash (used in) provided by financing activities.... (28,259) (11,969) 26,175
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (4,401) (6,236) (2,808)
-------- -------- --------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS........ (35,666) 52,493 43,726
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 222,750 170,257 126,531
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $187,084 $222,750 $170,257
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid......................................... $ 20,146 $ 16,319 $ 14,833
Interest paid............................................. $ 12,350 $ 12,973 $ 11,799
The accompanying notes are an integral part of these consolidated financial
statements.
F-65
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The MacManus Group, Inc. (the "Company") is a worldwide holding company
comprised of operating entities which provide advertising, marketing and
communications services in every major world market. The business is conducted
through D'Arcy Masius Benton & Bowles Communications and N.W. Ayer & Partners
(two advertising agency networks), Medicus Group International, Inc. (medical
advertising network), Manning Selvage & Lee (public relations firm), MediaVest,
formerly known as TeleVest, (broadcast placement and programming firm) and other
wholly owned companies.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated.
Investments in Affiliates
Investments in unconsolidated companies are accounted for by the equity
method. The equity method is used when the Company has an ownership interest of
greater than 20% and less than 50% and exercises significant influence over the
operating and financial policies of these investments.
Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," issued by the Financial Accounting
Standards Board ("FASB") which establishes standards for reporting and
displaying comprehensive income and its components in a financial statement that
is displayed with the same prominence as other financial statements.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments with
original maturities, when purchased, of three months or less.
Production Expenditures Billable to Clients
Production expenditures billable to clients consist of third party vendor
costs incurred in providing corporate communications services to clients.
Revenue Recognition
Revenues are principally derived from commissions for placement of
advertisements in various media and from fees for manpower and production of
advertisements. Revenue is realized when the service is performed, in accordance
with the terms of the contractual agreement, and collection is reasonably
assured.
Financial Instruments
The Company uses financial derivatives to manage its exposure to
fluctuations in foreign currency exchange rates and interest rates. The
instruments used are primarily foreign exchange contracts and cross currency
interest rate swaps.
Foreign currency gains and losses on forward contracts designated as hedges
of existing foreign currency assets and liabilities are recognized in income
while foreign currency gains and losses on forward contracts designated as
hedges of net investments in foreign subsidiaries are recognized as a component
of stockholders'
F-66
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equity. Foreign currency gains and losses on contracts designated as hedges of
identifiable foreign currency firm commitments are not recognized until included
in the measurement of the related foreign currency transactions.
Cross currency interest rate swaps are bifurcated at inception. Gains and
losses on the interest component of the swap are recognized as a yield
adjustment in the income statement. Gains and losses on the currency component
are recognized in other comprehensive income as these instruments are designated
and effective as a hedge of foreign currency denominated net assets of
subsidiaries.
To qualify as a hedge, the item to be hedged must expose the Company to
price, interest rate or foreign currency exchange rate risk and the hedging
instrument must reduce that exposure in a highly correlated manner. Any
contracts held or issued that do not meet the requirements of a hedge are
recorded at fair value in the balance sheet and any changes in that fair value
recognized in income. If a contract designated as a hedge of price risk or
foreign currency exchange risk is terminated, the associated gain or loss is
deferred and recognized in income in the same manner as the hedged item. Also, a
contract designated as a hedge of an anticipated transaction that is no longer
likely to occur is recorded at fair value and the associated changes in fair
value recognized in income. The gain or loss associated with a terminated
interest rate swap that has been designated as a hedge of interest rate risk
will continue to be recognized in interest expense over the life of the
agreement.
Property and Equipment
Property and equipment is recorded at cost and is depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to ten years. Leasehold improvements are amortized over the
shorter of the estimated useful lives or the related lease terms. Company policy
provides for capitalization of all major expenditures for renewal and
improvements, and for current charges to income for repairs and maintenance.
Capitalized Software Costs
Costs associated with the acquisition or development of software for
internal use are capitalized in accordance with the provisions of AICPA
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," and amortized using the straight-line
method over the expected useful life of the software, which ranges from 5 to 7
years.
Goodwill
Goodwill represents the excess of purchase price over the fair value of net
assets of acquired companies. The Company amortizes goodwill on a straight-line
basis, over periods up to 40 years.
Deferred Compensation
The Company has certain compensation plans which enable eligible employees
to defer a portion of their compensation into future periods. Amounts related to
these compensation arrangements are charged to expense as the related services
are performed.
Income Taxes
Deferred tax liabilities and assets are recognized as the difference
between the financial statement and tax bases of assets and liabilities
multiplied by tax rates applicable to the year in which the differences are
expected to reverse.
F-67
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Actual results
could differ from those estimates.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries, other than
those located in highly inflationary countries, are translated at current
exchange rates, while income and expense are translated at average rates for the
period. For entities in highly inflationary countries, a combination of current
and historical rates is used to determine foreign currency gains and losses
resulting from financial statement translation. Translation gains and losses are
reported as a component of stockholders' equity except for those associated with
highly inflationary countries, which are reported directly in the accompanying
statements of operations. Foreign currency transaction gains and losses are
included in the determination of net income in the period incurred.
Reclassifications
Certain prior year amounts have been reclassified to conform to current
year presentation.
2. NONRECURRING CHARGE
In the fourth quarter of 1998, the Company recorded a nonrecurring charge
of $97.4 million. Of the nonrecurring charge, $78.4 million was noncash, and
represented a write-down due to the impairment of goodwill and other long-lived
assets based on management's beliefs that the carrying value of goodwill
relating to certain investments was no longer recoverable. $7.7 million of the
nonrecurring charge represented a write-off of accounts receivable and unbilled
inventory recognized in connection with the change in management at one of the
Company's project-based operating subsidiaries. The remaining $11.2 million of
the nonrecurring charge was comprised of other charges related to planned office
closures and contractual obligations from which the Company does not anticipate
the receipt of any future benefits.
The write-down of goodwill was done in accordance with Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of, ("SFAS No. 121"). In
accordance with SFAS No. 121, the carrying value of the impaired asset,
specifically the goodwill associated with each identified operating unit, was
determined to be in excess of its fair value. The fair value of the goodwill was
determined based on the undiscounted projected future cash flows of the
associated operating unit. The fair values estimated by the Company's management
were based on the trend in profitability of each of the operating units, changes
in client relationships, and trends in clients' spending patterns. The goodwill
impairment amount was determined as the difference between the discounted
projected future cash flows of the operating units and the carrying value of the
associated goodwill.
3. ACQUISITIONS
During each of the three years ended December 31, 1999, the Company
completed several unrelated acquisitions and increased its ownership in selected
foreign investments. The aggregate purchase price for all acquisitions
approximated $47.3 million, $10.9 million and $17.2 million for 1999, 1998 and
1997, respectively.
The Company has accounted for these acquisitions by the purchase method
and, accordingly, the results of operations of the acquired companies have been
included in the consolidated statements of operations from the closing dates of
the acquisitions. The effect of these acquisitions is immaterial to the
consolidated financial position and results of operations of the Company.
F-68
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is required to make contingent payments to former owners of
certain acquired companies based on the acquired companies' future profits, as
defined in the agreements. Such payments are recorded in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations". In 1999,
1998 and 1997, the Company recorded $10.7 million, $5.1 million and $4.0
million, respectively, as additional purchase price related to acquisitions.
4. FOREIGN OPERATIONS
The Company's foreign subsidiaries are primarily engaged in providing
advertising, marketing and communication services. Combined condensed financial
information for such subsidiaries is as follows (dollars in thousands):
1999 1998 1997
-------- -------- --------
Total assets......................................... $494,190 $438,125 $410,522
Total liabilities.................................... $397,607 $360,687 $328,654
Commission and fee revenues.......................... $362,551 $348,599 $343,509
Total net foreign currency transaction gains (losses) included in the
consolidated statements of operations were $.9 million, $.4 million and $(1.1)
million in 1999, 1998 and 1997, respectively.
5. CONCENTRATION OF CREDIT RISK
For the years ended December 31, 1999, 1998 and 1997, the Company's five
largest customers accounted for approximately 39%, 36% and 34.6%, respectively,
of total commission and fee revenues. The five largest accounts receivable
balances accounted for approximately 32%, 27% and 26.7%, respectively, of net
receivables as of December 31, 1999, 1998 and 1997. The Company's largest and
second largest customers accounted for approximately 17% and 11% of commission
and fee revenues, respectively, for the year ended December 31, 1999. The
largest customer accounted for approximately 15% of outstanding accounts
receivable as of December 31, 1999. The Company's largest and second largest
customers accounted for approximately 16% and 10% of commission and fee
revenues, respectively, for the year ended December 31, 1998. The largest
customer accounted for approximately 14% of outstanding accounts receivable as
of December 31, 1998. The Company's largest and second largest customers
accounted for approximately 14% and 10% of commission and fee revenues,
respectively, for the year ended December 31, 1997. The largest customer
accounted for approximately 13% of outstanding accounts receivable as of
December 31, 1997.
6. SEGMENT REPORTING
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company's wholly-owned and
partially-owned businesses operate within the corporate communications services
operating segment. These businesses provide a variety of communications services
to clients through several worldwide, national and regional independent agency
brands. A summary of the
F-69
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's commission and fee revenues, and long-lived assets by geographic area
as of December 31, 1999 and 1998, and for the years then ended is as follows
(dollars in thousands):
UNITED UNITED ALL OTHER ASIA LATIN
STATES KINGDOM EUROPE PACIFIC AMERICA OTHER TOTAL
-------- -------- --------- ------- ------- ------- --------
1999
Commission and Fees........... $424,910 $101,110 $149,307 $48,745 $50,477 $12,912 $787,461
Long-lived Assets............. $ 59,627 $ 4,767 $ 8,465 $ 3,539 $ 2,177 $ 2,042 $ 80,617
1998
Commission and Fees........... $381,676 $ 95,185 $150,049 $44,269 $48,382 $10,714 $730,275
Long-lived Assets............. $ 49,270 $ 6,395 $ 9,472 $ 2,624 $ 2,305 $ 1,871 $ 71,937
1997
Commission and Fees........... $387,946 $ 98,475 $147,525 $43,770 $43,079 $10,660 $731,455
Long-Lived Assets............. $ 40,241 $ 7,620 $ 8,663 $ 2,726 $ 1,646 $ 2,016 $ 62,912
7. PROPERTY AND EQUIPMENT
Property and equipment and the related accumulated depreciation and
amortization as of December 31, 1999 and 1998 are summarized as follows (dollars
in thousands):
1999 1998
--------- -------
Furniture and fixtures...................................... $ 39,101 $36,984
Equipment................................................... 35,513 33,323
Vehicles.................................................... 3,076 3,000
Leases...................................................... 2,736 1,115
Leasehold improvements...................................... 69,416 65,850
Software.................................................... 33,798 22,491
--------- -------
Total cost................................................ 183,640 162,763
Accumulated depreciation and amortization................... (103,023) (90,826)
--------- -------
Property and equipment, net............................... $ 80,617 $71,937
========= =======
8. INCOME TAXES
Income/(loss) before provision for income taxes and the provision for
income taxes for the years ended December 31, 1999, 1998 and 1997 consisted of
the amounts shown below (dollars in thousands):
1999 1998 1997
------- -------- -------
Income/(loss) before provision for income taxes:
Domestic............................................. $23,349 $(39,718) $17,172
Foreign.............................................. 39,321 (10,827) 24,883
------- -------- -------
Total............................................. $62,670 $(50,545) $42,055
======= ======== =======
F-70
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 1998 1997
------- ------- -------
Provision for income taxes:
Current:
Federal............................................... $10,693 $ 4,920 $ 6,329
State and local....................................... 1,043 1,986 1,326
Foreign............................................... 16,564 12,638 12,553
------- ------- -------
28,300 19,544 20,208
------- ------- -------
Deferred:
Federal, state and local.............................. (3,169) (6,082) (2,847)
Foreign............................................... 641 (3,202) 774
------- ------- -------
(2,528) (9,284) (2,073)
------- ------- -------
$25,772 $10,260 $18,135
======= ======= =======
The Company's effective income tax rate for the years ended December 31,
1999, 1998 and 1997 varied from the statutory federal income tax rate as a
result of the following factors:
1999 1998 1997
---- ----- ----
Statutory federal income tax rate........................... 35.0% 35.0% 35.0%
State and local taxes on income, net of federal income tax
benefit................................................... 1.1 2.5 2.0
Foreign subsidiaries' tax rate differentials................ 5.1 1.6 5.4
Foreign losses not benefited................................ 1.3 4.5 1.8
Nonrecurring charge......................................... -- (61.5) --
Other....................................................... (1.4) (2.4) (1.1)
---- ----- ----
Effective rate.............................................. 41.1% (20.3)% 43.1%
==== ===== ====
Deferred income taxes are provided for the temporary difference between the
financial reporting bases and tax bases of the Company's assets and liabilities.
Deferred tax benefits result primarily from recording certain expenses in the
financial statements which are not currently deductible for tax purposes.
Deferred tax liabilities result from expenses which are currently deductible for
tax purposes but have not yet been expensed in the financial statements.
The Company has recorded deferred tax benefits as of December 31, 1999 and
1998 of $42.1 million and $36.3 million, respectively, which are net of
valuation allowances of $12.7 million and $14.6 million, respectively. The
deferred tax assets relate principally to deferred compensation and deferred
rent expense. Also, deferred tax assets were recorded for foreign net operating
loss carryforwards, which were predominantly offset by valuation allowances due
to the uncertainty of realizing the future tax benefits. In 1999, the valuation
allowance decreased by $1.9 million due principally to the decrease of certain
net operating losses.
The Company has recorded deferred tax liabilities as of December 31, 1999
and 1998 of $.4 million and $.8 million, respectively.
F-71
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax benefits as of December 31, 1999 and 1998 consisted of the
amounts shown below (dollars in millions):
1999 1998
------ ------
Compensation................................................ $ 21.5 $ 19.3
Rent........................................................ 10.5 10.7
Tax Loss Carryovers......................................... 10.6 13.0
Other....................................................... 12.2 7.9
------ ------
Sub-Total................................................. 54.8 50.9
Less: Valuation Allowance................................... (12.7) (14.6)
------ ------
Total..................................................... $ 42.1 $ 36.3
====== ======
Net current deferred tax benefits as of December 31, 1999 and 1998 were
$11.8 million and $2.1 million, respectively. Net non-current deferred tax
benefits as of December 31, 1999 and 1998 were $30.3 million and $34.2 million,
respectively. The Company has concluded that it is probable that it will be able
to realize these net deferred tax benefits in future periods.
At December 31, 1999, there were net operating loss carryforwards of $27.2
million with various expiration periods.
The Company has not accrued U.S. Federal income taxes on cumulative
undistributed earnings of foreign subsidiaries of approximately $48.7 million as
of December 31, 1999. It is the Company's intention to reinvest undistributed
earnings of its foreign subsidiaries and thereby indefinitely postpone their
remittance. The Company anticipates that there would be no material foreign
withholding taxes or United States income taxes which would become payable if
undistributed earnings of foreign subsidiaries were paid as dividends.
9. SHORT-TERM BORROWINGS AND LINES OF CREDIT
Bank loans of $42.4 million and $33.9 million at December 31, 1999 and
1998, respectively, are primarily attributed to unsecured overdrafts of the
international subsidiaries used for local working capital purposes. The weighted
average interest rate on outstanding debt at December 31, 1999 and 1998 was
5.61% and 4.84%, respectively.
At December 31, 1999 and 1998 the Company had unsecured lines of credit of
$142.3 million and $138.0 million, respectively, of which $99.9 million and
$104.1 million were unused. In 1996, the Company put in place a $120.0 million
revolving Multi-currency Credit Agreement (the "Credit Facility"). At December
31, 1999 this Credit Facility was still in place and was due to expire December
3, 2000. In addition, the Company maintains uncommitted lines of credit for its
international subsidiaries local working capital needs. Drawings under such
local credit lines held with syndicate banks reduce availability under the
Credit Facility.
The Credit Facility contains restrictive covenants that require, among
other things, the maintenance of minimum working capital and consolidated net
worth as well as certain defined ratios. At December 31, 1999, the Company was
in compliance with all of the covenants.
In January 2000, the Credit Facility was restructured as the revolving
tranche of a $630.0 million Amended and Restated Credit Agreement (the "Restated
Credit Agreement"). The Restated Credit Agreement includes a $120.0 million
revolving credit facility principally comprised of a $100.2 million swing line
to provide overnight borrowing capabilities and is committed through January
2003. In addition, the Restated Credit Agreement contained a $175.0 million
Short-term Working Capital Facility which expired on
F-72
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
April 30, 2000, and a $335.0 million Term Loan with required repayments of $50.0
million in January 2001 and January 2002 and a $235.0 million repayment in
January 2003.
10. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1999 and 1998
(dollars in thousands):
1999 1998
-------- --------
Notes payable to insurance companies (7.02%), payable in
annual installments commencing in 2001 through 2007....... $ 50,000 $ 50,000
Notes payable to insurance companies (6.95%), payable in
annual installments through 2003.......................... 13,600 15,300
Notes payable to insurance companies (6.57%), payable in
annual installments through 2002.......................... 12,000 16,000
Notes payable to insurance companies (7.98%), payable in
annual installments through 2001.......................... 11,000 16,000
Notes payable to insurance company (10.43%), payable in
semiannual installments through 2000...................... -- 2,307
Notes payable to financing company (3.9%), payable in
monthly installments through 1999......................... -- 1,043
Notes payable to banks by foreign subsidiary (3.88% to
3.89%), payable in 2000................................... -- 19,643
Notes payable to banks by foreign subsidiaries at applicable
banks' base lending rates (4.73% to 24.00% and 4.20% to
27.60% at December 31, 1999 and 1998, respectively),
payable in varying installments through 2003.............. 1,430 2,554
Notes payable relating to stock redemptions, variable
interest (5.74% and 8.00% at December 31, 1999 and 5.17%
and 8.00% at December 31, 1998, respectively), generally
payable over four years................................... 8,104 19,214
-------- --------
96,134 142,061
Less, current portion....................................... (91,021) (23,542)
-------- --------
Long-term debt............................................ $ 5,113 $118,519
======== ========
At December 31, 1999, maturities of long-term debt are $91.0 million, $2.4
million, $1.7 million, and $1.0 million from 2000 to 2003, respectively.
The long-term notes contain restrictive covenants which require, among
other things, the maintenance of minimum working capital and consolidated net
worth, as well as certain defined ratios. At December 31, 1999, the Company was
in compliance with all of the covenants.
When the Restated Credit Agreement was put in place in January 2000, the
entire outstanding balance of long-term notes was repaid out of existing
operating cash. The total payment to the noteholders was $89.0 million which
included a make-whole of $.1 million and accrued interest payable of $2.3
million. The repayment of this debt enabled the Company to negotiate an updated
covenant package in the Restated Credit Agreement.
F-73
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments as of December 31, 1999 and 1998 (dollars
in thousands):
1999 1998
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
Cash and cash equivalents.................. $187,084 $187,084 $222,750 $222,750
Short-term borrowings...................... $ 42,372 $ 42,372 $ 33,870 $ 33,870
Long-term debt............................. $ 96,134 $ 96,585 $142,061 $149,326
Financial commitments
Cross currency interest rate swaps....... -- $ 520 -- --
Foreign exchange contracts............... -- $ (493) -- $ 129
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS:
The fair value of cash and cash equivalents approximated carrying value due
to the short-term maturity of these instruments.
SHORT-TERM BORROWINGS:
The fair value of short-term borrowings approximated carrying value due to
the short-term maturity of these instruments.
LONG-TERM DEBT:
Fair values for long-term debt were determined based on currently available
treasury rates with similar terms and remaining maturities.
FINANCIAL COMMITMENTS:
The estimated fair values of derivative positions represent the net amount
required to terminate the position, taking into consideration market rates and
counterparty credit risk.
12. FINANCIAL INSTRUMENTS AND MARKET RISK
The Company utilizes derivative financial instruments predominantly to
reduce certain market risks, including the impact of currency rate and interest
rate changes. Derivative activities are limited in volume and confined to risk
management activities. Senior management of the Company actively participates in
the quantification, monitoring, and control of all significant risks.
At December 31, 1999, the Company had Euro 20.0 million notional principal
amount of cross currency swaps. The swaps convert a portion of the Company's
fixed rate US$ denominated debt into floating rate Euro denominated debt. These
swaps were terminated in January 2000 in conjunction with the repayment of the
long-term notes. There was a gain of $.9 million recognized at termination.
As of December 31, 1998, the Company had an open forward foreign currency
contract for approximately $11.8 million of a speculative nature.
F-74
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company enters into forward foreign exchange contracts primarily to
hedge intercompany payables and receivables. The forward contract terms are
typically 3 months or less and structured to facilitate the payment of the
intercompany obligation with the resulting gain or loss included in the basis of
the transaction upon settlement. When the underlying intercompany obligation is
long-term in nature a 1-year forward contract is entered into and revalued on a
quarterly mark-to-market basis.
Counterparty risk is managed by entering into arrangements of this nature
with well-known banks which are known to have credit ratings equal to or better
than that of the Company.
13. CAPITAL STOCK
Holders of the $8 preferred stock are entitled to receive noncumulative
cash dividends up to a maximum of 9.5% of stated value. The holders of $8
preferred stock are not entitled to voting rights. In the event of the Company's
liquidation, the holders of the $8 preferred stock, Class A (Series A and B)
common stock and Class C common stock are entitled to receive all of the
remaining assets of the Company, based on the proportion that the sum of the
book value of their shares bears to the sum of the aggregate book value of all
outstanding shares of these three classes of stock. In conjunction with the
merger transaction (see note 17), all of the preferred stock was redeemed in
January 2000.
When a shareholder/employee ceases full-time employment with the Company,
the common shares are redeemed at the original purchase price plus the
employee's share of accumulated retained earnings during the holding period,
payable over a period of up to five years at the option of the Company.
Redemption amounts relating to the common shares are included in "Mandatorily
redeemable stock" in the accompanying balance sheets.
14. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are obligated under a number of lease
agreements for office space. Generally, the leases require the payment of base
rents plus escalations for increases in building operating costs and real estate
taxes. Rent expense under these leases amounted to $49.5 million and $48.5
million in 1999 and 1998, respectively. In addition, the Company is obligated
under operating lease agreements, principally for equipment. Expense under these
leases amounted to $23.3 million and $22.8 million in 1999 and 1998,
respectively. Minimum lease payments under all noncancelable operating leases as
of December 31, 1999 are as follows (dollars in thousands):
YEAR AMOUNT
---- --------
2000........................................................ $ 53,183
2001........................................................ 47,098
2002........................................................ 41,473
2003........................................................ 35,523
2004........................................................ 32,310
Thereafter.................................................. 134,193
--------
$343,780
========
The Company is party to certain legal proceedings incidental to its
business. While it is not feasible to predict or determine the final outcome of
these proceedings, management does not believe that the outcome will have a
material effect on the Company's consolidated financial position, results of
operations, or cash flows.
F-75
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. EMPLOYEE BENEFIT PLANS
US Pension Plans
The Company sponsors a funded defined benefit pension plan (the "Plan") in
the United States, which covers substantially all of its full-time employees.
The Company makes annual contributions to the Plan in accordance with amounts
actuarially determined by an independent consulting actuary. Plan assets consist
primarily of investments in equity securities, bonds and equity mutual funds.
The Company also has unfunded, nonqualified domestic pension plans to
provide benefits in excess of Internal Revenue Code limitations and to provide
US equivalent benefits for domestic employees on temporary overseas assignments.
US Postretirement Benefits
The Company provides postretirement medical and life insurance benefits for
substantially all domestic employees who are at least 55 years of age and have
at least 15 years of service who were hired before various specified dates. The
Company contributes a fixed amount based on the age of the retiree and the
service at retirement. Since employer contributions are fixed, the aging and
health care cost trend rates are not applicable.
The significant components of the above mentioned plans as of and for the
years ended December 31, 1999 and 1998 are summarized as follows (dollars in
thousands):
SUPPLEMENTAL
PENSION PLAN POSTRETIREMENT PLANS PENSION PLANS
------------------ --------------------- -------------------
1999 1998 1999 1998 1999 1998
-------- ------- --------- --------- -------- --------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of
year................................ $ 55,225 $49,271 $ 5,656 $ 6,417 $ 23,029 $ 22,677
Service cost........................ 6,273 6,110 70 88 456 514
Interest cost....................... 4,244 3,627 398 418 1,791 1,666
Actuarial loss/(gain)............... 3,583 (1,423) (149) (33) 1,265 (541)
Other............................... -- -- -- (742) 37 11
Net benefits paid................... (2,667) (2,360) (487) (492) (1,377) (1,298)
-------- ------- ------- ------- -------- --------
Benefit obligation at end of year..... $ 66,658 $55,225 $ 5,488 $ 5,656 $ 25,201 $ 23,029
-------- ------- ------- ------- -------- --------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning
of year............................. $ 68,721 $57,581 -- -- -- --
Actual return on plan assets........ 17,668 8,951 -- -- -- --
Employer contribution............... 1,756 4,549 487 492 -- --
Net benefits paid................... (2,667) (2,360) (487) (492) -- --
-------- ------- ------- ------- -------- --------
Fair value of plan assets at end of
year................................ $ 85,478 $68,721 -- -- -- --
-------- ------- ------- ------- -------- --------
Fair value of plan assets greater
(less) than benefit obligation...... $ 18,820 $13,496 $(5,488) $(5,656) $(25,201) $(23,029)
Unrecognized actuarial (gain)/loss.... (12,871) (4,914) (861) (754) 390 (875)
Unrecognized prior service costs...... (852) (1,075) (608) (675) 1,186 1,341
Unrecognized transition obligation.... -- -- 4,129 4,447 (12) (14)
-------- ------- ------- ------- -------- --------
Net amount recognized................. $ 5,097 $ 7,507 $(2,828) $(2,638) $(23,637) $(22,577)
-------- ------- ------- ------- -------- --------
F-76
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL
PENSION PLAN POSTRETIREMENT PLANS PENSION PLANS
------------------ --------------------- -------------------
1999 1998 1999 1998 1999 1998
-------- ------- --------- --------- -------- --------
Additional minimum liability.......... (1,788) (1,756)
Accumulated other comprehensive
income.............................. (449) --
-------- --------
$(25,874) $(24,333)
======== ========
In accordance with FASB Statement No. 87, the Company has recorded the
additional minimum liability for underfunded plans of $2.2 million and $1.8
million, respectively, at December 31, 1999 and 1998, representing the excess of
unfunded accumulated benefit obligation over previously recorded pension cost
liabilities. A corresponding amount has been recognized as an intangible asset
except to the extent that these additional liabilities exceed related
unrecognized prior service cost and net transition obligation, in which case the
increase in liabilities is recognized in other comprehensive income.
The components of net periodic pension benefit cost and the
weighted-average assumptions are as follows (dollars in thousands):
POSTRETIREMENT SUPPLEMENTAL
PENSION PLAN PLANS PENSION PLANS
--------------------------- ------------------ ------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------- ------- ------- ---- ---- ---- ------ ------ ------
COMPONENTS OF NET PERIODIC PENSION
BENEFIT COST
Service Cost........................ $ 6,273 $ 6,110 $ 5,442 $ 70 $ 88 $126 $ 455 $ 514 $ 600
Interest cost....................... 4,244 3,627 3,185 398 418 476 1,791 1,666 1,638
Expected return on assets........... (6,128) (5,202) (4,275) -- -- -- -- -- --
Amortization of:
Transition obligation/(asset)..... -- -- -- 318 318 318 (2) (2) (2)
Prior service cost................ (222) (222) (200) (67) (67) -- 191 188 186
Net amortization of unrecognized
gain............................ -- -- -- (42) (17) (23) -- (16) (40)
------- ------- ------- ---- ---- ---- ------ ------ ------
Net periodic benefit cost........... $ 4,167 $ 4,313 $ 4,152 $677 $740 $897 $2,435 $2,350 $2,382
======= ======= ======= ==== ==== ==== ====== ====== ======
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate....................... 7.50% 7.75% 7.75% 7.50% 7.75% 8.00% 7.50% 7.75% 7.50%
Expected return on assets........... 9.00% 9.00% 9.00% N/A N/A N/A N/A N/A N/A
Rate of compensation increase....... 6.00% 6.00% 6.00% N/A N/A N/A N/A N/A N/A
US 401K Plan
The Company sponsors a 401K plan which allows participants to make
voluntary pre-tax contributions, via payroll deductions, of between 1% and 15%
of total compensation subject to IRS limitations. The Company matches 50% of
each participant's contributions, up to 6% of compensation and up to a maximum
annual contribution of $1,800 per employee. All domestic employees who are at
least 21 years of age and have completed at least one year of service are
eligible to participate in this plan. Participants who have completed five years
of service are 100% vested in Company contributions. The expense for this plan
was $1.9 million, $1.6 million and $1.1 million for the years ended December 31,
1999, 1998 and 1997, respectively.
Foreign Retirement Plans
Certain of the Company's foreign subsidiaries have adopted retirement
plans, the provisions of which vary to reflect practices under local laws and
customs. It is the practice of these subsidiaries to generally fund
F-77
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pension costs accrued. Total pension expense for the Company's foreign
subsidiaries was $9.1 million, $7.1 million and $7.0 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
Deferred Compensation Plans
In the US the Company has several deferred compensation arrangements, which
enable eligible employees to defer a portion of their compensation into future
periods. The Company accrues for the deferred compensation and interest thereon
as the related services are performed. The amounts accrued under these plans
were $22.2 million and $25.5 million as of December 31, 1999 and 1998,
respectively. The expense for the years ended December 31, 1999, 1998 and 1997
was $2.1 million, $7.2 million and $1.8 million, respectively.
Defined Contribution Plan for Former Shareholders
The Company has a nonqualified defined contribution benefit plan for
employees who were shareholders of D'Arcy Masius MacManus and Benton & Bowles
who did not become shareholders of the combined Company in 1985. The Board
declares an amount each year that is accrued by the Company and credited to each
employee's account along with interest earned on unpaid balances. The liability
at December 31, 1999 and 1998 was $4.3 million and $3.5 million, respectively.
Expense for the years ended December 31, 1999, 1998 and 1997 was $1.9 million,
$.8 million and $.6 million, respectively.
16. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards of derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities.
In July 1999, the FASB approved SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133 -- an Amendment of FASB Statement No. 133," effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The Company
does not expect the adoption of this standard to have a material effect on the
Company's consolidated financial position, results of operations or cash flows.
17. SUBSEQUENT EVENT
On January 31, 2000, the Company's shareholders approved a merger between
the Company and The Leo Group, Inc. to form a new entity called Bcom3 Group,
Inc. ("Bcom3"). Immediately prior to the merger, the Company redeemed all of its
preferred shares and a portion of its common shares. Also immediately prior to
the merger, the Company's Multi-currency Credit Agreement was restructured as
the revolving tranche of a $630.0 million Amended and Restated Credit Agreement.
The Amended and Restated Credit Agreement replaced the Multi-currency Credit
Agreement, financed the MacManus Shareholder Redemption plan and will provide
temporary liquidity reserves during the transition phase of the merger. On March
14, 2000, Dentsu Inc. made an investment in Bcom3 for $493.2 million, the
proceeds of which will be used to fund the general working capital needs of
Bcom3.
F-78
SCHEDULE II
BCOM3 GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
ADDITIONS DEDUCTIONS
------------------------- ----------
ACCOUNTS CURRENCY
BALANCE CHARGED TO WRITTEN TRANSLATION BALANCE
JANUARY 1, ACQUISITIONS EXPENSES OFF/OTHER ADJUSTMENT DECEMBER 31,
---------- ------------ ---------- ---------- ----------- ------------
YEAR ENDED DECEMBER 31, 2001:
Trade receivables -- allowance for doubtful
accounts..................................... $41,541 $ 4,206 $11,697 $(17,724) $(665) $39,055
Long-term receivables -- allowance for doubtful
accounts..................................... $ 264 $ -- $ 1,901 $ -- $ 3 $ 2,168
YEAR ENDED DECEMBER 31, 2000:
Trade receivables -- allowance for doubtful
accounts..................................... $ 8,778 $20,507(1) $16,219 $ (3,936) $ (27) $41,541
Long-term receivables -- allowance for doubtful
accounts..................................... $ -- $ 264 $ -- $ -- $ -- $ 264
YEAR ENDED DECEMBER 31, 1999:
Trade receivables -- allowance for doubtful
accounts..................................... $ 6,200 $ -- $ 3,353 $ (735) $ (40) $ 8,778
---------------
(1) Acquisition of The MacManus Group
S-1
ANNEX A
AGREEMENT AND PLAN OF MERGER*
AMONG
PUBLICIS GROUPE S.A.,
PHILADELPHIA MERGER CORP.,
PHILADELPHIA MERGER LLC
AND
BCOM3 GROUP, INC.
DATED AS OF MARCH 7, 2002
* CONSOLIDATED VERSION REFLECTING THE CHANGES EFFECTED BY THE AMENDMENT NO. 1
TO AGREEMENT AND PLAN OF MERGER DATED AS OF AUGUST 13, 2002.
TABLE OF CONTENTS
PAGE
----
ARTICLE I
THE MERGER
SECTION 1.01 The Merger.................................................. A-1
SECTION 1.02 Effective Time; Closing..................................... A-2
SECTION 1.03 Effect of the Merger........................................ A-2
SECTION 1.04 Certificate of Incorporation; By-Laws....................... A-2
SECTION 1.05 Directors and Officers...................................... A-2
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Securities.................................... A-2
SECTION 2.02 Sale of Debt Portion of Parent OBSAs........................ A-3
SECTION 2.03 Separation of Legal Title and Usufruct in Certain Shares.... A-5
SECTION 2.04 Dissolution of Voting Trust................................. A-6
SECTION 2.05 Exchange of Shares.......................................... A-6
SECTION 2.06 Stock Transfer Books........................................ A-9
SECTION 2.07 Adjustments................................................. A-9
SECTION 2.08 Company Stock Options....................................... A-9
SECTION 2.09 Parent ORAs and Parent OBSAs................................ A-10
SECTION 2.10 Dentsu Payment.............................................. A-10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01 Organization and Qualification; Subsidiaries................ A-10
SECTION 3.02 Capitalization.............................................. A-10
SECTION 3.03 Authority Relative to This Agreement........................ A-11
SECTION 3.04 No Conflict; Required Filings and Consents.................. A-11
SECTION 3.05 Compliance with Laws........................................ A-12
SECTION 3.06 SEC Filings; Financial Statements........................... A-12
SECTION 3.07 Absence of Certain Changes or Events........................ A-13
SECTION 3.08 Absence of Litigation....................................... A-13
SECTION 3.09 Employee Benefit Plans; Labor Matters....................... A-13
SECTION 3.10 Contracts................................................... A-15
SECTION 3.11 Trademarks, Patents and Copyrights.......................... A-16
SECTION 3.12 Client Relations; Media Buying.............................. A-16
SECTION 3.13 Key Managers................................................ A-16
SECTION 3.14 Taxes....................................................... A-16
SECTION 3.15 Vote Required............................................... A-17
SECTION 3.16 Accounting and Reorganization Matters....................... A-17
SECTION 3.17 Opinion of Financial Advisor................................ A-17
SECTION 3.18 Brokers..................................................... A-18
A-i
PAGE
----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 4.01 Organization and Qualification; Subsidiaries................ A-18
SECTION 4.02 Capitalization.............................................. A-18
SECTION 4.03 Authority Relative to this Agreement........................ A-19
SECTION 4.04 No Conflict; Required Filings and Consents.................. A-19
SECTION 4.05 Compliance with Laws........................................ A-20
SECTION 4.06 Parent Reports; Financial Statements........................ A-20
SECTION 4.07 Absence of Certain Changes or Events........................ A-21
SECTION 4.08 Absence of Litigation....................................... A-21
SECTION 4.09 Contracts................................................... A-21
SECTION 4.10 Trademarks, Patents and Copyrights.......................... A-21
SECTION 4.11 Client Relations; Media Buying.............................. A-22
SECTION 4.12 Key Managers................................................ A-22
SECTION 4.13 Taxes....................................................... A-22
SECTION 4.14 Employee Benefits Plans; Labor Matters...................... A-22
SECTION 4.15 Vote Required............................................... A-23
SECTION 4.16 Operations of Merger Sub and Parent LLC..................... A-23
SECTION 4.17 Reorganization Matters...................................... A-23
SECTION 4.18 Brokers..................................................... A-23
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01 Conduct of Business by the Company Pending the Merger....... A-23
SECTION 5.02 Conduct of Business by Parent Pending the Merger............ A-25
SECTION 5.03 Notification of Certain Matters............................. A-26
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 Registration Statement; Proxy Statements.................... A-26
SECTION 6.02 Shareholders' Meetings...................................... A-29
SECTION 6.03 Access to Information; Confidentiality...................... A-29
SECTION 6.04 No Solicitation of Transactions............................. A-29
SECTION 6.05 Directors' and Officers' Indemnification and Insurance...... A-31
SECTION 6.06 Obligations of Merger Sub and Parent LLC.................... A-32
SECTION 6.07 Company Affiliates.......................................... A-32
SECTION 6.08 Further Action; Consents; Filings........................... A-32
SECTION 6.09 Plan of Reorganization; Tax Treatment....................... A-33
SECTION 6.10 Public Announcements........................................ A-33
SECTION 6.11 Euronext Listing............................................ A-33
SECTION 6.12 Parent Governance........................................... A-33
SECTION 6.13 Nominee Agreement........................................... A-33
SECTION 6.14 Issuance of Securities to Parent LLC........................ A-33
SECTION 6.15 Employee Benefits Matters................................... A-34
A-ii
PAGE
----
SECTION 6.16 Appointment of Custodian.................................... A-34
SECTION 6.17 Further Assurances.......................................... A-35
SECTION 6.18 Adjustments................................................. A-35
SECTION 6.19 Reporting Requirements...................................... A-35
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01 Conditions to the Obligations of Each Party................. A-35
SECTION 7.02 Conditions to the Obligations of Parent and Merger Sub...... A-36
SECTION 7.03 Conditions to the Obligations of the Company................ A-36
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 Termination................................................. A-37
SECTION 8.02 Effect of Termination....................................... A-38
SECTION 8.03 Amendment................................................... A-38
SECTION 8.04 Waiver...................................................... A-38
SECTION 8.05 Expenses.................................................... A-39
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01 Non-Survival of Representations, Warranties and
Agreements................................................ A-40
SECTION 9.02 Notices..................................................... A-40
SECTION 9.03 Certain Definitions......................................... A-41
SECTION 9.04 Severability................................................ A-41
SECTION 9.05 Assignment; Binding Effect; Benefit......................... A-41
SECTION 9.06 Incorporation of Exhibits................................... A-42
SECTION 9.07 Specific Performance........................................ A-42
SECTION 9.08 Governing Law; Forum........................................ A-42
SECTION 9.09 Waiver of Jury Trial........................................ A-42
SECTION 9.10 Headings.................................................... A-42
SECTION 9.11 Counterparts................................................ A-42
SECTION 9.12 Entire Agreement............................................ A-42
EXHIBITS
Exhibit A Bcom3 Merger Agreement
Exhibit B Terms of Transfer Restrictions on Class A Consideration
Exhibit C-1 Parent ORA Issuance Contract (in French)
Exhibit D-1 Parent OBSA Issuance Contract and related Indenture
Exhibit E Parent Tax Matters Certificate
Exhibit F Company Tax Matters Certificate
A-iii
GLOSSARY OF DEFINED TERMS
LOCATION OF
DEFINED TERMS DEFINITION
------------- -----------
affiliate................................................... 9.03(a)
Agencies.................................................... 4.06(a)
Agreement................................................... Preamble
beneficial owner............................................ 6.04(c)
Blue Sky Laws............................................... 3.04(b)
Bcom3 Merger................................................ Recitals
Bcom3 Merger Agreement...................................... Recitals
Bcom3 Merger Sub............................................ Recitals
business day................................................ 9.03(b)
Cash Payment................................................ 2.08(a)
Certificate of Merger....................................... 1.02(a)
Change in Control Agreements................................ 5.01(a)(ii)
Class A Common Stock........................................ 2.01(a)(i)
Class A Consideration....................................... 2.01(a)(i)
Class A Exchange Fund....................................... 2.05(a)(i)
Class B Common Stock........................................ 2.01(a)(ii)
Class B Consideration....................................... 2.01(a)(ii)
Class B Exchange Fund....................................... 2.05(a)(ii)
Closing..................................................... 1.02(b)
Closing Date................................................ 1.02(b)
COB......................................................... 4.04(b)
Code........................................................ Recitals
Company..................................................... Preamble
Company Benefit Plans....................................... 3.09(a)
Company Common Stock........................................ 2.01(a)(ii)
Company Disclosure Schedule................................. Article III
Company Foreign Benefit Plan................................ 3.09(i)
Company Material Adverse Effect............................. 3.01
Company Proxy Statement..................................... 6.01(a)
Company SEC Reports......................................... 3.06(a)
Company Stock Option Plans.................................. 2.08(a)
Company Stock Options....................................... 2.08(a)
Company Stockholders' Meeting............................... 6.01(a)
Company Subsidiaries........................................ 3.01
Company Subsidiary.......................................... 3.01
Company 2001 Financial Statements........................... 3.06(c)
Competing Transaction....................................... 6.04(c)
Confidentiality Agreements.................................. 6.03(b)
control..................................................... 9.03(c)
controlled by............................................... 9.03(c)
A-iv
LOCATION OF
DEFINED TERMS DEFINITION
------------- -----------
Dentsu...................................................... Recitals
DGCL........................................................ Recitals
Dissenting Shares........................................... 2.05(i)
EC.......................................................... 3.04(b)
Effective Time.............................................. 1.02(a)
ERISA....................................................... 3.09(a)
Euronext.................................................... 2.05(e)(ii)
Excess Shares............................................... 2.05(e)(ii)
Exchange Act................................................ 3.04(b)
Exchange Agent.............................................. 2.05(a)
Exchange Funds.............................................. 2.05(a)(ii)
Expenses.................................................... 8.05(a)
FTC......................................................... 6.08(b)
GAAP........................................................ 3.06(b)
Governmental Entity......................................... 3.04(b)
HSR Act..................................................... 3.04(b)
Incentive Plan.............................................. 6.15(b)
Indemnified Parties......................................... 6.05(b)
IRS......................................................... 3.09(a)
knowledge................................................... 9.03(d)
Law......................................................... 3.04(a)
Marketing Agent............................................. 2.02(b)
Marketing Agent Agreement................................... 2.02(b)
Merger...................................................... Recitals
Merger Consideration........................................ 2.01(a)(ii)
Merger Sub.................................................. Preamble
Morgan Stanley.............................................. 3.17
Net Cash Proceeds........................................... 2.02(d)
Nominee..................................................... 2.02(a)
Nominee Agreement........................................... 2.02(a)
NYSE........................................................ 4.04(b)
OBSA Issuance Contract...................................... 2.09
ORA Issuance Contract....................................... 2.09
Order....................................................... 7.01(d)
Other Parent Filings........................................ 6.01(e)
Outside Date................................................ 8.01(b)
Parent...................................................... Preamble
Parent Benefit Plan......................................... 4.14(a)
Parent Reports.............................................. 4.06(a)
Parent Disclosure Schedule.................................. Article IV
Parent LLC.................................................. Preamble
Parent Material Adverse Effect.............................. 4.01
Parent OBSAs................................................ 2.01(a)(i)
Parent OCEANES.............................................. 4.02
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LOCATION OF
DEFINED TERMS DEFINITION
------------- -----------
Parent ORAs................................................. 2.01(a)(i)
Parent Ordinary Share....................................... 4.02
Parent Proposals............................................ 6.02
Parent Proxy Statement...................................... 6.01(e)
Parent Reports.............................................. 4.06(a)
Parent Shareholders' Meeting................................ 6.01(e)
Parent Stock Options........................................ 4.02
Parent Stock Option Plans................................... 4.02
Parent Subsidiaries......................................... 4.01
Parent 2001 Financial Statements............................ 4.06(c)
PBGC........................................................ 3.09(b)
person...................................................... 9.03(f)
Proxy Statements............................................ 6.01(e)
Registration Statement...................................... 6.01(c)
Regulation 4064/89.......................................... 3.04(b)
Representatives............................................. 6.03(a)(i)
SEC......................................................... 3.06(a)
Securities Act.............................................. 3.04(b)
Shareholders' Meetings...................................... 6.01(e)
Shares...................................................... 2.01(a)(ii)
Special Nominee............................................. 2.03(a)
Special Nominee Agreement................................... 2.03(a)
subsidiary.................................................. 9.03(f)
subsidiaries................................................ 9.03(f)
Surviving Corporation....................................... 1.01
Taxes....................................................... 3.14(a)
Terminating Company Breach.................................. 8.01(h)
Terminating Parent Breach................................... 8.01(i)
Third Party Provisions...................................... 9.05
Trust Indenture Act......................................... 6.01(b)
2000 Stock Purchase Agreements.............................. 7.02(e)
under common control with................................... 9.03(c)
Voting Trust................................................ 2.04
Voting Trustees............................................. 2.04
Voting Trust Agreement...................................... 2.04
A-vi
AGREEMENT AND PLAN OF MERGER dated as of March 7, 2002 (this "Agreement")
among PUBLICIS GROUPE S.A., a societe anonyme organized under the laws of the
Republic of France ("Parent"), PHILADELPHIA MERGER CORP., a Delaware corporation
and a wholly owned subsidiary of Parent ("Merger Sub"), PHILADELPHIA MERGER LLC,
a Delaware limited liability company ("Parent LLC") and BCOM3 GROUP, INC., a
Delaware corporation (the "Company").
W I T N E S S E T H
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), Parent and the Company will enter into a business combination
transaction pursuant to which the Company will merge with and into Merger Sub
(the "Merger");
WHEREAS, the Board of Directors of the Company, acting on the
recommendation of a special committee thereof, (i) has determined that the
Merger is fair to, and in the best interests of, the Company and its
stockholders and has approved and adopted this Agreement, the Merger and the
other transactions contemplated by this Agreement and (ii) has recommended the
approval of this Agreement by the stockholders of the Company;
WHEREAS, the Supervisory Board and the Management Board of Parent (i) have
determined that the Merger is consistent with and in furtherance of the
long-term business strategy of Parent and fair to, and in the best interests of,
Parent and its shareholders and have approved and adopted this Agreement, the
Merger and the other transactions contemplated by this Agreement and (ii) have
approved the execution of this Agreement and agreed to recommend for approval to
the shareholders of Parent the transactions contemplated hereby;
WHEREAS, concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's and the Company's willingness to enter into
this Agreement, (i) the Company and certain shareholders of Parent have entered
into a support agreement and (ii) Parent has entered into support agreements
with Dentsu Inc., a Japanese corporation ("Dentsu"), and certain other
stockholders of the Company, in each case pursuant to which, among other things,
such holders have agreed to vote their shares of Parent and the Company,
respectively, in favor of the Merger and the other transactions contemplated by
this Agreement;
WHEREAS, immediately prior to the Effective Time, Boston Three Corporation,
a Delaware corporation and wholly owned subsidiary of the Company ("Bcom3 Merger
Sub"), will merge with and into the Company, with the Company as the surviving
corporation in accordance with the Agreement and Plan of Merger attached as
Exhibit A (the "Bcom3 Merger Agreement"), between the Company, Dentsu and Bcom3
Merger Sub (the "Bcom3 Merger"); and
WHEREAS, for United States federal income tax purposes, the Merger is
intended to qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub, Parent LLC and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Upon the terms and subject to the conditions set
forth in Article VII, and in accordance with the DGCL, at the Effective Time (as
defined below in Section 1.02(a)), the Company shall be merged with and into
Merger Sub. As a result of the Merger, the separate corporate existence of the
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Company shall cease and Merger Sub shall continue as the surviving corporation
of the Merger (the "Surviving Corporation").
SECTION 1.02 Effective Time; Closing. (a) On the Closing Date, as
promptly as practicable after the Closing, the parties hereto shall cause the
Merger to be consummated by filing a certificate of merger or other appropriate
documents (in any case, the "Certificate of Merger") with the Secretary of State
of the State of Delaware in such form as is required by, and executed in
accordance with, the relevant provisions of the DGCL. The term "Effective Time"
means the date and time of the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware (or such later time as may be agreed
in writing by each of the parties hereto and specified in the Certificate of
Merger).
(b) The closing of the Merger (the "Closing") shall take place at 10:00 AM
(New York City time) at the offices of Wachtell, Lipton, Rosen & Katz, 51 West
52nd Street, New York, New York as soon as practicable, but in any event within
three business days after satisfaction or, if permissible, waiver of the
conditions set forth in Article VII (other than those conditions that by their
nature are to be fulfilled at the Closing), unless otherwise agreed in writing
by Parent and the Company (the date upon which the Closing occurs, the "Closing
Date").
SECTION 1.03 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the DGCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities, obligations, restrictions, disabilities and duties of each
of the Company and Merger Sub shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 1.04 Certificate of Incorporation; By-Laws. (a) At the Effective
Time, the Certificate of Incorporation of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Certificate of Incorporation.
(b) At the Effective Time, the By-Laws of Merger Sub, as in effect
immediately prior to the Effective Time, shall, subject to Section 6.05(a), be
the By-Laws of the Surviving Corporation until thereafter amended as provided by
law, the Certificate of Incorporation of the Surviving Corporation and such
By-Laws.
SECTION 1.05 Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of Merger Sub, the Company or
the holders of any of the following securities:
(a) (i) Each share of Class A common stock, par value $0.01 per share
(the "Class A Common Stock") of the Company issued and outstanding
immediately prior to the Effective Time shall be canceled and shall be
converted into the right to receive: (A) 1.666464 fully paid and
non-assessable Parent Ordinary Shares (as defined in Section 4.02); (B) the
usufruct (usufruit) interest in 0.548870 fully paid and non-assessable
Parent Ordinary Shares, together with the right to receive bare legal title
(nue propriete) to such shares on the second anniversary of the Closing
Date, as provided in Section 2.03; (C) 0.098108 obligations remboursables
en actions with a nominal value of E549.00 each (the "Parent ORAs"); and
(D) the Net Cash Proceeds from the sale of the debt portion of E53.861277
in principal amount of obligations a bons de souscription d'actions with a
nominal value of E305.00 each (the "Parent OBSAs"), together with warrants
to purchase 1.765944 Parent Ordinary Shares detached from such
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Parent OBSAs, as provided in Section 2.02, which securities in each case of
clauses (A) through (D) are to be issued by Parent and delivered by Parent
LLC as set forth in Sections 2.02, 2.03 and 2.05. The right to receive the
securities and cash described in clauses (A) through (D) of this paragraph
is collectively referred to herein as the "Class A Consideration."
(ii) Each share of Class B common stock, par value $0.01 per share
(the "Class B Common Stock", and collectively with the Class A Common
Stock, the "Company Common Stock"; the issued and outstanding shares of
Company Common Stock being herein collectively referred to as the "Shares")
of the Company issued and outstanding immediately prior to the Effective
Time shall be canceled and shall be converted into the right to receive:
(A) 4.021399 fully paid and non-assessable Parent Ordinary Shares; (B) bare
legal title (nue propriete) to 0.957024 Parent Ordinary Shares until the
second anniversary of the Closing Date, as provided in Section 2.03; (C)
0.047940 Parent ORAs; and (D) the Net Cash Proceeds from the sale of the
debt portion of E26.318797 in principal amount of Parent OBSAs, together
with warrants to purchase 0.862911 Parent Ordinary Shares detached from
such Parent OBSAs, as provided in Section 2.02, which securities in each
case of clauses (A) through (D) are to be issued by Parent and delivered by
Parent LLC as set forth in Sections 2.02, 2.03 and 2.05. The right to
receive the securities and cash described in clauses (A) through (D) of
this paragraph is collectively referred to herein as the "Class B
Consideration." The Class A Consideration and the Class B Consideration
shall collectively be referred to as the "Merger Consideration."
(b) Each share of Company Common Stock held in the treasury of the
Company, or held by Parent or any Parent Subsidiary, immediately prior to
the Effective Time shall be canceled and extinguished without any
conversion thereof and no payment or distribution shall be made with
respect thereto.
(c) Each share of capital stock of Merger Sub that is outstanding
immediately prior to the Effective Time shall remain issued and outstanding
immediately after the Effective Time.
SECTION 2.02 Sale of Debt Portion of Parent OBSAs.
(a) Appointment of Nominee. Prior to Closing, a person selected by the
Company and reasonably acceptable to Parent shall be appointed as nominee (the
"Nominee") to receive the Parent OBSAs, detach the warrants attached to the
Parent OBSAs for deposit in the Exchange Funds and hold the debt portion of the
Parent OBSAs until sold in accordance with this Section 2.02. The definitive
terms governing the Nominee will be determined by Parent and the Company
consistent with this Section 2.02 and will be set forth in an agreement among
Parent, the Company and the Nominee (the "Nominee Agreement"). The Nominee
Agreement shall contain customary provisions providing for payment of a fee to
the Nominee, customary indemnification and hold harmless provisions in favor of
the Nominee and otherwise be on terms satisfactory to the Company and Parent. At
the Effective Time, all Parent OBSAs referenced in Section 2.01(a) will be
issued by Parent and delivered by Parent LLC to the Nominee, which shall act for
the benefit of and on behalf of former holders of Shares.
(b) Appointment of Marketing Agent. Prior to Closing, a person selected
by the Company and reasonably acceptable to Parent shall be appointed as
marketing agent for the debt portion of the Parent OBSAs (the "Marketing
Agent"). The definitive terms governing the responsibilities of the Marketing
Agent will be determined by the Company consistent with this Section 2.02 and
will be set forth in an agreement with the Marketing Agent (the "Marketing Agent
Agreement"). The Marketing Agent Agreement shall include provisions providing
for payment of a fee to the Marketing Agent to be paid out of the proceeds from
the sale of the debt portion of the Parent OBSAs, indemnification and hold
harmless provisions from Parent in favor of the Marketing Agent for liabilities
arising out of or in connection with the Marketing Agent Agreement or
performance of the Marketing Agent's duties thereunder, and otherwise be on
terms satisfactory to the Company and Parent. The Marketing Agent will be one or
more individuals or an entity, appointed as described above, who will in turn
engage one or more financial institutions to effect the sale of the debt portion
of the Parent OBSAs as contemplated by Section 2.02(c). Notwithstanding the
foregoing provisions of this Section 2.02(b), the Board of Directors of the
Company may in its discretion determine that (x) the appointment of the
Marketing Agent shall take effect only at the Effective Time or (y) no Marketing
Agent
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need be appointed at all, if in the judgment of such Board, appropriate
arrangements have been made prior to Closing such that the entire debt portion
of the Parent OBSAs will be sold at or promptly after the Effective Time. At all
times prior to any such appointment and prior to the Effective Time, the Board
of Directors of the Company will function as the "Marketing Agent" of the debt
portion of the Parent OBSAs for all purposes under Section 2.02(c), and any
reference to the "Marketing Agent" in Section 2.02(c) shall be deemed a
reference to the Board of Directors of the Company acting in such capacity.
(c) Sale of Debt Portion of Parent OBSAs. After the Effective Time, the
Marketing Agent will use reasonable best efforts to effect the sale of the debt
portion of the Parent OBSAs for cash in accordance with the Marketing Agent
Agreement. The terms, conditions, timing and manner of such sale shall be
determined solely in the discretion of the Marketing Agent. For the avoidance of
doubt, the parties agree that the disposition of the full amount of the debt
portion of the Parent OBSAs may be effected through one or more sales over time,
and that each such sale may occur at or after the Effective Time and outside or
within the United States, in each case as determined in the sole discretion of
the Marketing Agent. The Marketing Agent may, if it so determines, arrange for a
definitive placement or underwriting agreement to be executed for any such sale
prior to the Effective Time; provided, however, that the execution of such
agreement shall not be a condition to the obligations of the parties to effect
the Merger. Immediately after the Effective Time and prior to any such sale, the
Nominee will take all necessary action to detach the warrants from such Parent
OBSAs, such that only the debt portion of such Parent OBSAs will be sold. Parent
shall take all reasonably necessary action to permit, expedite and facilitate
such sale or sales in the manner determined by the Marketing Agent, which may
include a public or private offering outside the United States with or without a
listing and/or an offering in the United States, which action shall include,
without limitation, as directed by the Marketing Agent (i) submitting to
Euronext a listing application covering the debt portion of the Parent OBSAs and
obtaining their admission to trading, (ii) assisting with preparation of
offering materials, roadshows customary for an offering of this type or other
marketing efforts, (iii) cooperating with due diligence requests from the
purchasers, (iv) preparing and filing with the SEC, until the earlier of the
sale of the entire amount of the debt portion of the Parent OBSAs and the
9-month anniversary of the Closing Date, such amendments to the Registration
Statement and supplements to the prospectus contained therein as may be
necessary to keep the Registration Statement effective and to comply with the
provisions of the Securities Act with respect to such sale or sales and (v)
entering into customary agreements and indemnities in connection with such sale
or sales; provided that the representations, warranties, covenants and
indemnities contained in such agreements shall not be materially more burdensome
for Parent than those given by Parent in the Subscription Agreement dated as of
January 10, 2002 with Deutsche Bank AG London, BNP Paribas and Merrill Lynch
International, related to Parent's offering of OCEANES; and provided further
that Parent shall not be obligated to seek or facilitate or assist in obtaining
a credit rating for the debt portion of the Parent OBSAs. At the request of the
Company, Parent shall execute at or prior to the Effective Time an agreement
with the Marketing Agent providing for such obligations of Parent.
(d) Distribution of Proceeds and Warrants. The Nominee shall (i)
immediately after the Effective Time transfer to the Exchange Agent for deposit
in the Class A Exchange Fund and the Class B Exchange Fund, as applicable, in
accordance with Section 2.01(a), the warrants detached from the Parent OBSAs for
distribution as set forth in Section 2.05(b), and (ii) immediately after the
closing of the sale of the debt portion of the Parent OBSAs, distribute the
proceeds from the sale of the debt portion of the Parent OBSAs, together with
any interest payments or other distributions made with respect to the Parent
OBSAs since the Effective Time, net of any costs, expenses or sale commissions
or underwriting fees as follows: (x) an amount equal (after conversion into U.S.
dollars at the then-prevailing euro/U.S. dollar exchange rate) to the aggregate
Cash Payment payable under Section 2.08 (plus any interest costs incurred by the
Surviving Corporation to fund the payments required by Section 2.08 between the
date of such payment and the date on which such payment is made to the Parent
pursuant to this Section 2.02(d)) shall be paid to Parent and (y) the remaining
proceeds (the "Net Cash Proceeds", which term shall include any consideration
permitted pursuant to Section 2.02(e)) shall be transferred to the Exchange
Agent for deposit in the Class A Exchange Fund and the Class B Exchange Fund, as
applicable in accordance with Section 2.01(a), for distribution as set forth in
Section 2.05(b). If the disposition of the debt portion of the Parent OBSAs is
effected through multiple sales, the proceeds from any given sale (together with
any interest payments or other distributions
A-4
made since the Effective Time in respect of the debt portion of the Parent OBSAs
sold in such sale, and net of any costs, expenses or sale commissions or
underwriting fees) will be distributed, in the manner described above,
immediately after the closing of such sale. For the avoidance of doubt, all such
proceeds will be paid solely to Parent until Parent has received in the
aggregate (whether through one or more sales) the entire amount payable to it
pursuant to clause (x). Once Parent has been so paid in full, all proceeds
remaining from such sale, and arising from any future sales, will be transferred
to the Exchange Agent pursuant to clause (y).
(e) Non-Cash Consideration. Notwithstanding any provision in this
Agreement to the contrary, to the extent permitted by applicable law (i) the
Marketing Agent shall be permitted to effect the sale of the debt portion of the
Parent OBSAs for consideration that includes non-cash components and/or to
effect a distribution-in-kind to former Company stockholders of part of the debt
portion of the Parent OBSAs, and (ii) the Nominee shall be permitted
correspondingly to distribute cash, any such non-cash components and any
remaining debt portion of the Parent OBSAs as "Net Cash Proceeds" under Section
2.02(d), in each case so long as the Marketing Agent has received the prior
written consent of persons who held at least a majority of the Shares
outstanding immediately prior to the Bcom3 Merger; provided that the
consideration received from the sale shall include a cash component that is in
the aggregate at least equal to the amount to which Parent is entitled under
clause (x) of Section 2.02(d); and provided further that the prior written
consent of Parent (which, in the case of consideration being received from any
Person other than a party to this Agreement, shall not be unreasonably withheld)
shall be required for any non-cash component of such consideration consisting of
equity, debt or other obligations of any party to this Agreement.
SECTION 2.03 Separation of Legal Title and Usufruct with Respect to
Certain Shares. (a) Prior to Closing, a person selected by the Company and
reasonably acceptable to Parent shall be appointed as nominee (the "Special
Nominee") to perform the functions described in this Section 2.03. The
definitive terms governing the responsibilities of the Special Nominee will be
determined by the Company consistent with this Section 2.03 and will be set
forth in an agreement (the "Special Nominee Agreement"). The Special Nominee
Agreement shall contain customary provisions providing for payment of a fee to
the Special Nominee, customary indemnification and hold harmless provisions in
favor of the Special Nominee and otherwise be on terms satisfactory to the
Company. At the Effective Time, all Parent Ordinary Shares referenced in Section
2.01(a)(i)(B) will be issued by Parent and delivered by Parent LLC to the
Special Nominee, which shall act for the benefit of and on behalf of the former
holders of Class A Common Stock.
(b) On the Closing Date, the Special Nominee will convey to Dentsu,
pursuant to conveyance instruments as agreed between the Special Nominee and
Dentsu, bare legal title (nue propriete) to the Parent Ordinary Shares
referenced in Section 2.01(a)(i)(B) for a two-year period, with automatic
reversion of the nue propriete to the holder of the usufruct interest in such
shares at the expiration of such two-year period. Such conveyance instruments
will result in Dentsu, for such two-year period, being the registered holder of
such Parent Ordinary Shares on the books and records of Parent and having the
right to exercise all voting rights attached thereto at all meetings of Parent
shareholders. The conveyance instruments shall contain all provisions that are
necessary or desirable to ensure that all economic interests in such shares
shall be enjoyed exclusively by the holder of the usufruct interest in such
shares. Such conveyance instruments shall further provide that in the event that
any holder of the usufruct exercises in whole or in part its preferential
subscription rights to subscribe to newly issued Parent Ordinary Shares, the nue
propriete thereof shall automatically be transferred to Dentsu, with automatic
reversion to the usufruct holder at the end of the two-year period following the
Closing Date and all other provisions governing the respective rights of the
usufruct holders and the holder of the nue propriete that apply to the Parent
Ordinary Shares referenced in Section 2.01(a)(i)(B) shall apply mutatis mutandis
to such new shares. The Special Nominee shall transfer to the Exchange Agent,
for deposit in the Class A Exchange Fund, the usufruct interest in such shares.
Notwithstanding anything to the contrary in Section 2.01(a)(ii), the aggregate
number of Parent Ordinary Shares to which Dentsu shall receive the nue propriete
as provided above shall equal the aggregate number of Parent Ordinary Shares
actually delivered to the Special Nominee pursuant to Section 2.03(a) (which,
for the avoidance of doubt, shall not include any Parent Ordinary Shares to be
sold under the fractional share provisions of Section 2.05(e)(v)).
A-5
SECTION 2.04 Dissolution of Voting Trust. As of the date hereof, all
outstanding shares of Class A Common Stock are held of record by voting trustees
(the "Voting Trustees") pursuant to the Amended and Restated Voting Trust
Agreement dated as of January 31, 2000 and amended and restated as of April 18,
2001 (the "Voting Trust Agreement"). Immediately prior to the Effective Time,
the Voting Trust Agreement shall be terminated and the related trust (the
"Voting Trust") dissolved, such that at the Effective Time the former holders of
trust certificates are reflected on the books and records of the Company as
record holders of uncertificated shares of Class A Common Stock.
SECTION 2.05 Exchange of Shares. (a) Exchange Funds. (i) At the
Effective Time, for the benefit of holders of Class A Common Stock converted in
accordance with Section 2.01(a)(i), Parent shall cause Parent LLC to deposit
with a bank or trust company selected by Parent and reasonably satisfactory to
the Company (the "Exchange Agent") the Parent Ordinary Shares (other than shares
delivered under Section 2.03) and the Parent ORAs to be received by the holders
of Class A Common Stock pursuant to Section 2.01(a)(i) (such securities,
together with any dividends or distributions with respect thereto, the Net Cash
Proceeds and warrants deposited pursuant to Section 2.02(d) and the usufruct
interests deposited pursuant to Section 2.03(b), being hereinafter referred to
as the "Class A Exchange Fund").
(ii) At the Effective Time, for the benefit of holders of Class B Common
Stock converted in accordance with Section 2.01(a)(ii), Parent shall cause
Parent LLC to deposit with the Exchange Agent the Parent Ordinary Shares (other
than shares delivered under Section 2.03) and the Parent ORAs to be received by
the holders of Class B Common Stock pursuant to Section 2.01(a)(ii) (such
securities, together with any dividends or distributions with respect thereto
and the Net Cash Proceeds and warrants deposited pursuant to Section 2.02(d),
being hereinafter referred to as the "Class B Exchange Fund"; the Class A
Exchange Fund and the Class B Exchange Fund are collectively referred to herein
as the "Exchange Funds").
(b) Exchange Procedures. Parent or the Company will send, or will cause
the Exchange Agent to send, to each holder of Class A Common Stock, as reflected
in the books and records of the Company at the Effective Time, a letter of
transmittal for use in the exchange of Class A Common Stock for the Class A
Consideration. Such letter of transmittal shall set forth the agreement of the
stockholder executing such letter to be bound by the restrictions on transfer
set forth in Exhibit B (with such changes as are agreed upon by Parent and the
Company), and otherwise shall contain provisions reasonably acceptable to Parent
and the Company. Upon delivery to the Exchange Agent of a letter of transmittal
properly completed and signed by any such holder, the Exchange Agent shall
deliver to such holder the Merger Consideration in the Class A Exchange Fund
attributable to such holder's Shares, together with cash in lieu of any
fractional security to which such holder is entitled pursuant to Section 2.05(e)
and any dividends or other distributions to which such holder is entitled
pursuant to Section 2.05(c). As promptly as practicable after the Effective
Time, the Exchange Agent shall deliver to Dentsu the Merger Consideration in the
Class B Exchange Fund, together with cash in lieu of any fractional security to
which such holder is entitled pursuant to Section 2.05(e) and any dividends or
other distributions to which such holder is entitled pursuant to Section
2.05(c). To the extent that the debt portion of the Parent OBSAs is sold after
the Effective Time, as promptly as practicable after each deposit in the
Exchange Funds of any Net Cash Proceeds from such sale pursuant to Section
2.02(d), the Exchange Agent shall deliver to each former holder of Class A
Common Stock who has delivered a properly completed and signed letter of
transmittal and to Dentsu such person's applicable portion of such Net Cash
Proceeds. In the event of a transfer of Shares which is not registered in the
transfer records of the Company, the Merger Consideration may be delivered to a
transferee if, in addition to a letter of transmittal, all documents required to
evidence and effect the transfer are presented to the Exchange Agent,
accompanied by evidence that any applicable stock transfer taxes have been paid.
(c) Distributions with Respect to Unexchanged Shares. No dividends,
interest payments or other distributions declared or paid after the Effective
Time with respect to Parent Ordinary Shares, usufruct interests or Parent ORAs
with a record date after the Effective Time shall be paid to any former holder
of Shares with respect to Parent Ordinary Shares, usufruct interests or Parent
ORAs represented thereby, until the Merger Consideration shall be delivered to
such holder by the Exchange Agent. Subject to the effect of escheat, tax or
other applicable Laws (as defined in Section 3.04(a)), following such delivery,
there shall be paid to the holder of Parent Ordinary Shares, usufruct interests
or Parent ORAs, without interest, (i) at the
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time of such delivery, the amount of dividends or other distributions payable in
respect of such Parent Ordinary Shares, usufruct interests or Parent ORAs with a
record date after the Effective Time and a payment date on or prior to the date
of such delivery and (ii) at the appropriate payment date, the amount of
dividends, interest payments or other distributions, with a record date after
the Effective Time but a payment date occurring after delivery, payable with
respect to such Parent Ordinary Shares, usufruct interests or Parent ORAs;
provided, however, that Parent Ordinary Shares issued in connection with the
Merger (including shares subject to the usufruct arrangement set forth in
Section 2.03) shall not be entitled to the normal annual cash dividend declared
in 2002 related to Parent's 2001 fiscal year.
(d) No Further Rights in Company Common Stock. The Merger Consideration
shall be deemed to have been issued in full satisfaction of all rights
pertaining to any Shares.
(e) No Fractional Parent Ordinary Shares, Parent ORAs or Parent
Warrants. (i) No fractional Parent Ordinary Share, Parent ORA or Parent warrant
(after aggregating all fractional Parent Ordinary Shares, Parent ORA or Parent
warrants to be received by a particular holder) shall be issued, and such
fractional Parent Ordinary Share, Parent ORA or Parent warrant will not entitle
the owner thereof to any rights of a holder thereof. Each holder of Shares
otherwise entitled to receive a fractional Parent Ordinary Share, Parent ORA or
Parent warrant will be entitled to receive in accordance with the provisions of
this Section 2.05(e) a cash payment in lieu of that fractional Parent Ordinary
Share, Parent ORA or Parent warrant.
(ii) With respect to a fractional Parent Ordinary Share, such cash-in-lieu
payment shall represent the holder's proportionate interest in the proceeds from
the sale by the Exchange Agent, on behalf of all holders otherwise entitled to
fractional Parent Ordinary Shares, of the fractional Parent Ordinary Shares
which would otherwise be issued pursuant to the Merger (the "Excess Shares").
The sale of the Excess Shares by the Exchange Agent, as agent for the holders of
Shares, shall be executed through Euronext Paris SA ("Euronext") as soon as
practicable after the Effective Time at the then prevailing market prices and
the proceeds of such sale shall be converted from Euros into U.S. Dollars at the
then prevailing exchange rates. Until the proceeds of any such sale shall have
been distributed to the holders of Shares, the Exchange Agent shall hold such
proceeds in trust for such holders.
(iii) The Surviving Corporation shall pay all commissions, transfer taxes,
foreign exchange fees, and other out-of-pocket expenses and the Exchange Agent's
compensation and expenses in connection with such sale or sales of Parent
Ordinary Shares pursuant to this Section 2.05(e). The Exchange Agent shall
determine the portion of such proceeds to which each holder of Shares shall be
entitled, if any, by multiplying the amount of the aggregate proceeds by a
fraction, the numerator of which is the amount of the fractional Parent Ordinary
Share to which such holder of Shares is entitled and the denominator of which is
the aggregate amount of fractional Parent Ordinary Shares to which all holders
of Shares are entitled. As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of Shares with respect to any
fractional Parent Ordinary Shares, the Exchange Agent shall promptly pay such
amounts to such holders of Shares subject to and in accordance with this Section
2.05(e).
(iv) With respect to fractional Parent ORAs and Parent warrants, each
holder of a fractional Parent ORA or a fractional Parent warrant shall be paid
an amount in cash (rounded down to the nearest whole cent), without interest,
equal to the product of (i) such fractional Parent ORA or fractional Parent
warrant, as the case may be, multiplied by (ii) the fair market value of the
Parent ORA and Parent warrant as determined in good faith by the Board of
Directors of the Company at the Effective Time expressed in U.S. dollars and
using the same methodology as used by the Board of Directors of the Company
under Section 2.08(a). As promptly as practicable after the determination of the
amount of cash, if any, to be paid to holders of fractional Parent ORAs and
Parent warrants, the Exchange Agent shall so notify Parent, and Parent shall
deposit such amount with the Exchange Agent and shall cause the Exchange Agent
to forward payments to such holders of fractional Parent ORAs and Parent
warrants subject to and in accordance with the terms of Sections 2.05(a) and
(b).
(v) With respect to the Parent Ordinary Shares to be delivered to the
Special Nominee pursuant to Section 2.03(a), to the extent any holder of Shares
would under Section 2.01(a)(i)(B) otherwise be entitled to receive a usufruct
interest in a fractional Parent Ordinary Share, no such fractional Parent
Ordinary Share
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shall be issued and delivered. In lieu of any usufruct interest in such
fractional Parent Ordinary Share, such holder will be entitled to receive a cash
payment from the sale of such fractional Parent Ordinary Share in accordance
with Sections 2.05(e)(ii) and (iii); provided that for this purpose the
fractional Parent Ordinary Shares arising under Section 2.01(a)(i)(A) to be
received by a particular holder shall not be aggregated with the fractional
Parent Ordinary Shares arising under Section 2.01(a)(i)(B) to be received by
such holder.
(f) Termination of Class A Exchange Fund. In the event that any former
holder of Class A Common Stock has not submitted a properly completed and signed
letter of transmittal to claim his or her Merger Consideration by the 30-month
anniversary of the Closing Date, the Exchange Agent will on such date deliver to
such person:
(i) the Parent Ordinary Shares to which such person is entitled under
Section 2.01(a)(i)(A) and Section 2.01(a)(i)(B),
(ii) cash in lieu of fractional shares to which such person is entitled
under Sections 2.05(e)(ii), (iii) and (v),
(iii) any dividends or other distributions with respect to Parent Ordinary
Shares or usufruct interests to which such person is entitled under Section
2.05(c), and
(iv) the Net Cash Proceeds to which such person is entitled under Section
2.01(a)(i)(D).
In the event that any former holder of Class A Common Stock has not submitted a
properly completed and signed letter of transmittal to claim his or her Merger
Consideration by the 54-month anniversary of the Closing Date, the Exchange
Agent will on such date deliver to such person:
(i) the Parent ORAs to which such person is entitled under Section
2.01(a)(i)(C),
(ii) the Parent warrants to which such person is entitled under Section
2.01(a)(i)(D),
(iii) cash in lieu of Parent ORAs and Parent warrants to which such person
is entitled under Sections 2.05(e)(iv), and
(iv) any dividends or other distributions with respect to Parent ORAs to
which such person is entitled under Section 2.05(c).
(g) No Liability. To the extent permitted by applicable Law (as defined in
Section 3.04(a)), neither Parent nor the Surviving Corporation shall be liable
to any holder of Shares for any portion of the Merger Consideration (or
dividends or distributions with respect thereto), or cash required by Law to be
surrendered to a public official pursuant to any abandoned property, escheat or
similar Law.
(h) Withholding Rights. Each of the Surviving Corporation and Parent shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Shares or Company Stock Options,
such amounts as it is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by the Surviving Corporation or
Parent, as the case may be, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of Shares or
Company Stock Options in respect of which such deduction and withholding was
made by the Surviving Corporation or Parent, as the case may be.
(i) Dissenting Shares. Notwithstanding Section 2.01, Shares outstanding
immediately prior to the Effective Time and held by a holder who has not voted
in favor of the Merger or consented thereto in writing and who has demanded
appraisal for such Shares in accordance with the DGCL (collectively, the
"Dissenting Shares") shall not be converted into a right to receive the Merger
Consideration, unless such holder fails to perfect, withdraws or otherwise loses
its right to appraisal. If, after the Effective Time, any such holder fails to
perfect, withdraws or loses its right to appraisal, such Shares shall be treated
as if they had been converted as of the Effective Time into a right to receive
the Merger Consideration. The Company shall give Parent prompt notice of any
demands received by the Company for appraisal of Shares, and Parent shall have
the right to participate in all negotiations and proceedings with respect to
such demands. Except with the prior written
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consent of Parent, neither the Company nor the Surviving Corporation shall make
any payment with respect to, or settle or offer to settle, any such demands. The
Exchange Agent shall withhold the Merger Consideration for each Dissenting Share
and, upon demand, shall promptly return to Parent LLC the Merger Consideration
made available to the Exchange Agent by Parent LLC pursuant to Section 2.05(a)
to pay for Shares for which appraisal rights have been perfected. The amount any
holder of Class A Common Stock is entitled to receive in an appraisal proceeding
is set forth in Section 6.6 of each holder's 2000 Stock Purchase Agreement.
SECTION 2.06 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of Shares thereafter on the records of the Company.
From and after the Effective Time, the holders of Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Shares, except as otherwise provided in this Agreement or by Law.
SECTION 2.07 Adjustments. Without duplication of any required adjustments
under French Law, if after the date of this Agreement and prior to the Effective
Time, any change (other than the change effected by the Bcom3 Merger) in the
outstanding shares of capital stock of the Company or Parent shall occur,
including by reason of any reclassification, recapitalization, stock split or
combination, exchange or readjustment of shares, or any stock dividend thereon
with a record date during such period, the Class A Consideration and the Class B
Consideration and any other amounts payable pursuant to this Agreement shall be
appropriately adjusted to provide the holders of Shares the same economic effect
as contemplated by this Agreement prior to such event.
SECTION 2.08 Company Stock Options. (a) Each option to purchase Shares (a
"Company Stock Option") that is outstanding immediately prior to the Effective
Time pursuant to the Company's 2000 Long-Term Equity Incentive Plan and the 2001
California Stock Option Plan (collectively, the "Company Stock Option Plans"),
by virtue of the Merger and without any action on the part of the holder
thereof, shall be cancelled (and any Company stock appreciation right that was
granted in tandem with a Company Stock Option shall also be cancelled)
immediately prior to the Effective Time, and shall, subject to Section 2.08(c),
entitle the holder thereof, in cancellation and settlement therefor, to a
payment, if any, in cash by the Company (less any applicable withholding taxes)
equal to the product of (i) the total number of shares of Company Common Stock
subject to such Company Stock Option and (ii) the excess, if any, of the fair
market value of the Class A Consideration at the Effective Time over the
exercise price per share of Company Common Stock under the applicable Company
Stock Option (the "Cash Payment"). For purposes of this Section 2.08, the fair
market value of the Class A Consideration shall be expressed in U.S. dollars and
determined in good faith by the Board of Directors of the Company pursuant to
its authority as administrator of the Company Stock Option Plans.
(b) Notwithstanding anything in Section 2.08(a) to the contrary, optionees
jointly selected by Parent and the Company shall, subject to the consent of such
optionees, be paid the Cash Payment over a set period of time and on terms to be
determined. The Company shall deliver to Parent prior to the Effective Time a
true and complete list of the Company Stock Options that remain outstanding as
of immediately prior to the Effective Time. Prior to the Effective Time, the
Company shall take all necessary action to terminate the Company Stock Option
Plans, and any other plan, program or arrangement providing for the issuance or
grant of any other interest (including phantom interest) in the capital stock of
the Company or any Subsidiary, in each case effective immediately prior to the
Effective Time, except for Sections 6(e)(vi) and 6(f) of the 2001 California
Stock Option Plan and Section 6(f) of the 2000 Long-Term Equity Incentive Plan,
which shall survive in their entirety and shall continue to apply to the former
option holders, except that instead of applying exclusively to the "Option Gain"
(as defined in the Company Stock Option Plans), the sections shall apply to the
Option Gain and the Cash Payments (and solely for purposes of interpreting such
sections, any previously paid Cash Payment shall be treated as Option Gain, and
any Cash Payment due in the future will be treated as if it were an outstanding
Company Stock Option), and any such payments shall be forfeited in the event
that a former option holder engages in the activities prohibited by such
sections. The Company and Parent agree that the Cash Payments are the sole
payments or consideration that will be made or provided with respect to or in
relation to the Company Stock Options.
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(c) The Cash Payments shall be subject to the provisions of Section
6.15(e).
SECTION 2.09 Parent ORAs and Parent OBSAs. The Parent ORAs to be issued
pursuant to the Merger shall have the terms set forth in the contrat d'emission
governing such Parent ORAs in substantially the form attached as Exhibit C-1,
and the Parent OBSAs to be issued pursuant to the Merger shall have the terms
set forth in the issuance contract and related indenture governing such parent
OBSAs in substantially the form attached as Exhibit D-1, in each case with such
changes and insertions as are agreed upon by Parent and the Company.
SECTION 2.10 Dentsu Payment. It is agreed and understood that neither
Parent nor the Company shall directly or indirectly be required to, nor shall
they, provide any funds or other property (other than the conversion of Dentsu's
shares of Class B Common Stock into Class B Consideration (as defined in the
Bcom3 Merger Agreement) pursuant to the Bcom3 Merger and the issuance of the
Class B Consideration to Dentsu pursuant to the Merger in exchange for its
shares of Class B Common Stock) to Dentsu in connection with the Merger,
reimburse Dentsu in cash or other property for the payment of the cash
consideration required to be paid by Dentsu in the Bcom3 Merger or otherwise
assist Dentsu in financing or funding such payment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the Company SEC Reports (as defined in Section
3.06(a)) or as set forth in the Disclosure Schedule delivered by the Company to
Parent and Merger Sub concurrently with the execution of this Agreement (the
"Company Disclosure Schedule") and making reference to the particular section of
this Agreement to which exception is being taken, the Company hereby represents
and warrants to Parent and Merger Sub that:
SECTION 3.01 Organization and Qualification; Subsidiaries. Each of the
Company and each subsidiary of the Company (each such subsidiary a "Company
Subsidiary", and collectively the "Company Subsidiaries") is a corporation or
other entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization and has all
requisite corporate or other power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failures to be so organized, existing or in good standing or to have
such corporate or other power, and authority have not had, and could not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect (as defined below). Each of the Company and the Company
Subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that have not had, and could not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. The term "Company Material Adverse Effect" means any
change in or effect on the business of the Company and the Company Subsidiaries
that is materially adverse to the business, assets, financial condition or
results of operations of the Company and the Company Subsidiaries taken as a
whole, except for any such change or effect resulting from or arising out of (i)
changes in circumstances or conditions affecting the advertising industry in
general, (ii) changes in general United States or global economic or business
conditions or financial markets or (iii) the announcement of this Agreement or
the transactions contemplated hereby. The Company has heretofore made available
to Parent a complete and correct copy of the Amended and Restated Certificate of
Incorporation and the Amended and Restated By-Laws of the Company. Such Amended
and Restated Certificate of Incorporation and Amended and Restated By-Laws are
in full force and effect.
SECTION 3.02 Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of capital stock, consisting of (a) 40,000,000
shares of Class A Common Stock, par value $0.01 per share and (b) 10,000,000
shares of Class B Common Stock, par value $0.01 per share. As of March 5, 2002,
(i) 15,289,804 shares of Class A Common Stock and 4,284,873 shares of Class B
Common Stock were issued and outstanding, all of which are validly issued, fully
paid and nonassessable, (ii) no shares
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of Company Common Stock were held in the treasury of the Company or by the
Company Subsidiaries, and (iii) 1,846,660 shares were reserved for future
issuance pursuant to the Company Stock Options. As of March 5, 2002, Company
Stock Options to acquire 1,742,796 shares of Class A Common Stock were issued
and outstanding. All outstanding Shares have been duly authorized and validly
issued and are fully paid and nonassessable. Except as set forth in this Section
3.02 and for changes since March 5, 2002 resulting from the exercise of Company
Stock Options outstanding on such date, there are no outstanding shares of
capital stock or voting securities of the Company, and there are no options,
warrants or other subscription rights, preemptive or similar rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or any Company Subsidiary or obligating the Company
or any Company Subsidiary to issue, transfer or sell any shares of capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of the Company or any Company Subsidiary or
obligating the Company or any Company Subsidiary to grant, extend or enter into
any such option, warrant, subscription or other right, convertible security,
agreement, arrangement or commitment. All shares of Company Common Stock subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are no outstanding
obligations of the Company or any Company Subsidiary to repurchase, redeem or
otherwise acquire any shares of Company Common Stock or any capital stock of any
Company Subsidiary, except as provided in stock purchase agreements entered into
between the Company and each shareholder substantially in the form included as
an exhibit in the Company's registration statement on Form 10, filed with the
SEC (as defined in Section 3.06(a)) on April 30, 2001 and in stock purchase
agreements entered into between the Company and holders of Company Stock
Options. Each outstanding share of capital stock of each Company Subsidiary is
duly authorized, validly issued, fully paid and nonassessable and each such
share owned by the Company or another Company Subsidiary is free and clear of
any security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on the Company's or such other Company
Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever, except where the failure to own such shares free and clear would
not, individually or in the aggregate, have a Company Material Adverse Effect.
SECTION 3.03 Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
and, subject to obtaining the necessary approvals of the Company's stockholders,
to perform its obligations hereunder and to consummate the Merger and the other
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the Merger and
the other transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the Merger and the other transactions contemplated by this Agreement
(other than, with respect to the Merger, the approval of this Agreement by the
holders of a majority of then outstanding Shares, and the filing and recordation
of appropriate merger documents as required by the DGCL). This Agreement has
been duly and validly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by Parent, Merger Sub and Parent LLC,
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
SECTION 3.04 No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Amended and Restated Certificate of Incorporation or Amended and
Restated By-Laws of the Company or any equivalent organizational documents of
any Company Subsidiary, (ii) assuming that all consents, approvals,
authorizations and other actions described in Section 3.04(b) have been obtained
and all filings and obligations described in Section 3.04(b) have been made and
complied with, conflict with or violate any foreign or domestic law, statute,
ordinance, rule, regulation, order, judgment or decree ("Law") applicable to the
Company or any Company Subsidiary or by which any property or asset of the
Company or any Company Subsidiary is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of the Company
or any Company Subsidiary pursuant to, any
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note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation binding upon the Company or any
Company Subsidiary, except, (x) with respect to clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other occurrences that have
not had, and could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, and that could not reasonably be
expected to prevent or materially delay the consummation of the transactions
contemplated by this Agreement, and (y) with respect to clause (iii), for any
such conflicts, violations, breaches, defaults or other occurrences arising
under or out of (A) agreements the loss of the net income from which,
individually or in the aggregate, would not have a Company Material Adverse
Effect or (B) agreements the Company has the right or ability to terminate
without cause with less than six months' notice.
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
domestic or foreign governmental or regulatory authority ("Governmental
Entity"), except (i) for applicable requirements, if any, of the Securities
Exchange Act of 1934, as amended (together with the rules and regulations
promulgated thereunder, the "Exchange Act"), the Securities Act of 1933, as
amended (together with the rules and regulations promulgated thereunder (the
"Securities Act"), state securities or "blue sky" laws ("Blue Sky Laws"), state
takeover laws, the pre-merger notification requirements of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations thereunder (the "HSR Act"), the filing of a notification with the
European Commission ("EC") under Council Regulation (EEC) No. 4064/89
("Regulation 4064/89"), the applicable requirements of laws, rules and
regulations in other non-U.S. jurisdictions governing antitrust or merger
control matters and the filing and recordation of appropriate merger documents
as required by the DGCL and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
has not had, and could not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, and could not reasonably be
expected to prevent or materially delay the consummation of the transactions
contemplated by this Agreement.
SECTION 3.05 Compliance with Laws. Neither the Company nor any Company
Subsidiary is in conflict with, or in default or violation of, any Law
applicable to the Company or any Company Subsidiary or by which any property or
asset of the Company or any Company Subsidiary is bound or affected, except for
any such conflicts, defaults or violations that have not had, and could not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
SECTION 3.06 SEC Filings; Financial Statements. (a) The Company has filed
all forms, reports and documents required to be filed by it with the Securities
and Exchange Commission (the "SEC") since April 30, 2001 through the date of
this Agreement (collectively, the "Company SEC Reports"). As of the respective
dates they were filed (or, if amended or superseded by a filing prior to the
date hereof, on the date of such filing), (i) the Company SEC Reports were
prepared, and all forms, reports and documents filed with the SEC after the date
of this Agreement and prior to the Effective Time will be prepared, in all
material respects in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and (ii) none of the Company SEC Reports
contained, nor will any forms, reports and documents filed after the date of
this Agreement and prior to the Effective Time contain, any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. No Company Subsidiary
is required to file any form, report or other document with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Company SEC Reports and in any form, report
or document filed after the date of this Agreement and prior to the Effective
Time was, or will be, as the case may be, prepared in accordance with generally
accepted accounting principles ("GAAP") in the U.S. applied on a consistent
basis throughout the periods indicated (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) and each presented or will present fairly, in all material respects,
the consolidated financial position of the Company and the consolidated Company
Subsidiaries as at the respective dates thereof and their consolidated results
of operations for the respective periods indicated therein, except as
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otherwise noted therein (subject, in the case of unaudited statements, to normal
and recurring year-end adjustments which were not and are not expected,
individually or in the aggregate, to have a Company Material Adverse Effect).
(c) Schedule 3.06(c) sets forth the Company's preliminary consolidated
balance sheet as of December 31, 2001, which preliminary balance sheet is
subject to non-material reclassifications, and the Company's consolidated income
statements for each of the years in the two-year period then ended (the "Company
2001 Financial Statements"). The Company 2001 Financial Statements have been
prepared in accordance with U.S. GAAP (except that such statements lack
footnotes and other presentation items) applied on a consistent basis throughout
the periods indicated and presented and present fairly, in all material
respects, the consolidated financial position of the Company and the
consolidated Company Subsidiaries as at the respective dates thereof and their
consolidated results of operations for the respective periods indicated therein.
The Company 2001 Financial Statements will not be materially different from the
corresponding items included in the audited financial statements of the Company
to be included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
SECTION 3.07 Absence of Certain Changes or Events. Since April 30, 2001,
except as contemplated by or as disclosed in this Agreement, the Company and the
Company Subsidiaries have conducted their businesses only in the ordinary course
and in a manner consistent with past practice and, since such date, there has
not been (a) any event, occurrence, development or state of circumstances or
facts that, either individually or in the aggregate, has had, or is reasonably
likely to have, a Company Material Adverse Effect, (b) any material change by
the Company in its accounting methods, principles or practices, except for any
such change required by reason of a concurrent change in GAAP or Regulation S-X
under the Exchange Act, or (c) any declaration, setting aside or payment of any
dividend or distribution in respect of the Shares or any redemption, purchase or
other acquisition of any of the Company's securities.
SECTION 3.08 Absence of Litigation. There is no litigation, suit, claim,
action, proceeding or investigation pending or, to the knowledge of the Company,
threatened against the Company or any Company Subsidiary, or any property or
asset of the Company or any Company Subsidiary, before any court, arbitrator or
Governmental Entity, domestic or foreign, which has had, or could reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect. Neither the Company nor any Company Subsidiary nor any property or asset
of the Company or any Company Subsidiary is subject to any continuing order of,
or consent decree, settlement agreement or other similar written agreement with,
any Governmental Entity, or any order, writ, judgment, injunction, decree,
determination or award of any Governmental Entity or arbitrator having or which
could reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
SECTION 3.09 Employee Benefit Plans; Labor Matters. (a) With respect to
each employee benefit plan, program, policy, agreement, arrangement and contract
(including, without limitation, any "employee benefit plan," as defined in
section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) maintained or contributed to by the Company or any Company Subsidiary
on behalf of any current or former director, officer, employee, consultant or
shareholder of the Company or any Company Subsidiary, or with respect to which
the Company or any Company Subsidiary could incur liability under Section 4069,
4212(c) or 4204 of ERISA or otherwise, including, without limitation, any bonus
plan, consulting, employment or other compensation agreement, incentive, stock
option or other equity or equity-based compensation or deferred compensation
arrangement, stock purchase, severance pay, change of control, sick leave,
vacation pay, salary continuation, disability, hospitalization, medical
insurance, life insurance, scholarship program and any "employee pension plan,"
as defined in Section 3(2) of ERISA (the "Company Benefit Plans"), the Company
has made available to Parent a true and correct copy of (i) each material
Company Benefit Plan, (ii) each trust agreement relating to such Company Benefit
Plan, if any, (iii) the most recent annual report (Form 5500) filed with the
Internal Revenue Service (the "IRS"), if any, (iv) the most recent summary plan
description for such Company Benefit Plan for which a summary plan description
is required, (v) the most recent actuarial report or valuation relating to a
Company Benefit Plan subject to Title IV of ERISA, and (vi) the most recent
determination letter, if any, issued by the IRS with respect to any Company
Benefit Plan intended to be qualified under Section 401(a) of the Code. Schedule
3.09(a) sets forth
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a complete list of all material Company Benefit Plans. Except as specifically
provided in the foregoing documents delivered to Parent, there are no amendments
to any material Company Benefit Plan that have been adopted or approved nor has
the Company or any Company Subsidiary undertaken to make any such amendments or
to adopt or approve any new material Company Benefit Plan.
(b) With respect to each Company Benefit Plan which is subject to Title IV
of ERISA, (i) the present value of accrued benefits under such Company Benefit
Plan, based upon the actuarial assumptions used for funding purposes in the most
recent actuarial report prepared by such Company Benefit Plan's actuary with
respect to such Company Benefit Plan, did not, as of its latest valuation date,
exceed the then current value of the assets of such Company Benefit Plan
allocable to such accrued benefits, and to the Company's knowledge, no events
have occurred that would change such calculations as of the date hereof, (ii) no
"reportable event" (within the meaning of Section 4043 of ERISA) has occurred
with respect to any Company Benefit Plan for which the 30-day notice requirement
has not been waived and the consummation of the transactions contemplated by
this Agreement will not result in the occurrence of any such reportable event,
except where such reportable event would not have a Company Material Adverse
Effect, (iii) all premiums to the Pension Benefit Guaranty Corporation (the
"PBGC") have been timely paid in full, (iv) no liability (other than for
premiums to the PBGC) under Title IV of ERISA has been or is expected to be
incurred by the Company or any Company Subsidiary, (v) the PBGC has not
instituted proceedings to terminate any such Company Benefit Plan and, to the
Company's knowledge, no condition exists that presents a risk that such
proceedings will be instituted or which would constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any such Company Benefit Plan, and (vi) no condition exists which
would subject the Company or any Company Subsidiary to any fine under Section
4071 of ERISA, except where such condition would not have a Company Material
Adverse Effect. No Company Benefit Plan is a "multiemployer plan" (as such term
is defined in section 3(37) of ERISA).
(c) With respect to the Company Benefit Plans, no event has occurred, and
there exists no condition or set of circumstances, in connection with which the
Company or any Company Subsidiary could reasonably be expected to be subject to
any actual or contingent liability under the terms of such Company Benefit
Plans, ERISA, the Code or any other applicable law which has had, or could
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Each of the Company Benefit Plans has been operated and
administered in all material respects in accordance with applicable laws and
administrative or governmental rules and regulations, including, but not limited
to, ERISA and the Code, except where a violation of any such law, rule or
regulation would not have a Company Material Adverse Effect. Each of the Company
Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of
the Code has received a favorable determination letter as to such qualification
from the IRS, and no event has occurred, either by reason of any action or
failure to act, and no condition exists which would cause the loss of any such
qualification, except where such loss of qualification would not have a Company
Material Adverse Effect. All contributions or other amounts payable by the
Company or any Company Subsidiary with respect to each Company Benefit Plan in
respect of current or prior plan years have been paid or accrued in accordance
with GAAP and Section 412 of the Code.
(d) Neither the Company nor any Company Subsidiary is a party to any
collective bargaining or other labor union contract applicable to persons
employed by the Company or any Company Subsidiary and no collective bargaining
agreement is being negotiated by the Company or any Company Subsidiary. During
the past three years, neither the Company nor any Company Subsidiary has
experienced any work stoppage or other labor difficulty, and as of the date of
this Agreement, there is no effort by or on behalf of any labor union to
organize any persons employed by the Company and there is no labor dispute,
strike or work stoppage against the Company or any Company Subsidiary pending or
threatened in writing, except where such dispute, strike or work stoppage has
not had, and could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. As of the date of this Agreement,
none of the Company, any Company Subsidiary, or their respective representatives
or employees, has committed any unfair labor practices in connection with the
operation of the respective businesses of the Company or any Company Subsidiary,
and there is no charge or complaint against the Company or any Company
Subsidiary by the National Labor Relations Board or any comparable state agency
pending or threatened in writing, except
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where such unfair labor practice, charge or complaint has not had, and could not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(e) The Company and the Company Subsidiaries have no liability for life,
health, medical or other welfare benefits to former directors, officers,
employees or consultants or beneficiaries or dependents thereof, except for
health continuation coverage as required by Section 4980B of the Code or Part 6
of Title I of ERISA and arrangements provided to individuals at a cost that is
not material to the Company. No condition exists that would prevent the Company
or any Company Subsidiary from amending or terminating any Company Benefit Plan
providing for health, medical or life insurance benefits in respect of any
active employee, director, officer, or consultant of the Company or any Company
Subsidiary other than limitations imposed under the terms of a collective
bargaining agreement.
(f) Neither the execution and delivery of this Agreement nor the
shareholder approval, or the consummation, of the transactions contemplated
hereby will (either alone or in conjunction with any other event) result in,
cause the accelerated vesting, funding or delivery of, or increase the amount or
value of, any payment or benefit to any director, officer, employee or
consultant of the Company or any Company Subsidiary, or result in any limitation
on the right of the Company or any Company Subsidiary to amend, merge, terminate
or receive a reversion of assets from any Company Benefit Plan or related trust.
Without limiting the generality of the foregoing, no amount paid or payable
(whether in cash, in property, or in the form of benefits) by the Company or any
Company Subsidiary in connection with the transactions contemplated hereby
(either solely as a result thereof or as a result of such transactions in
conjunction with any other event) will be an "excess parachute payment" within
the meaning of Section 280G of the Code.
(g) None of the Company and any Company Subsidiary nor any other person,
including any fiduciary, has engaged in any "prohibited transaction" (as defined
in Section 4975 of the Code or Section 406 of ERISA), which could reasonably be
expected to subject any of the Company Benefit Plans or their related trusts,
the Company, any Company Subsidiary or any person that the Company or any
Company Subsidiary has an obligation to indemnify, to any material tax or
penalty imposed under Section 4975 of the Code or Section 502 of ERISA.
(h) There are no material pending or threatened claims (other than claims
for benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted, and, to the Company's knowledge, no set of circumstances
exists which may reasonably give rise to a claim or lawsuit, against the Company
Benefit Plans, or any fiduciaries thereof, with respect to their duties to the
Company Benefit Plans or the assets of any of the trusts under any of the
Company Benefit Plans that could reasonably be expected to result in any
material liability of the Company or any Company Subsidiary to the PBGC, the
Department of Treasury, the Department of Labor, any Multiemployer Plan, any
Company Benefit Plan, any participant in a Company Benefit Plan, or any other
party.
(i) Each Company Benefit Plan that is subject to or governed by the law of
any jurisdiction other than the United States or any State or Commonwealth of
the United States (each, a "Company Foreign Benefit Plan"), has been maintained
in material compliance with its terms and conditions and in material compliance
with the requirements prescribed by any and all statutory and regulatory laws
that are applicable to such Company Foreign Benefit Plan (including, without
limitation, establishing book reserves in accordance with normal accounting
practices and qualifying for special tax treatment if such treatment was
intended), except that would not, individually or in the aggregate, be expected
to have a Company Material Adverse Effect. Except as disclosed on Schedule
3.09(i), no material Company Foreign Benefit Plan is a defined benefit pension
plan.
(j) Each of the Company and the Company Subsidiaries is in compliance with
all applicable Laws and collective bargaining agreements respecting employment
and employment practices, terms and conditions of employment, wages (including
withholding) and hours and occupational safety and health, except as could not,
individually or in the aggregate, have a Company Material Adverse Effect.
SECTION 3.10 Contracts. Except as disclosed in the Company SEC Reports,
there is no contract or agreement that is material to the financial condition or
results of operations of the Company and the Company
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Subsidiaries taken as a whole. Neither the Company nor any Company Subsidiary is
in violation of or in default under (nor does there exist any condition which
upon the passage of time or the giving of notice would cause such a violation of
or default under) any loan or credit agreement, note, bond, mortgage, indenture
or lease, or any other contract, agreement, arrangement or understanding to
which it is a party or by which it or any of its properties or assets is bound,
except for violations or defaults that have not had, and could not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect. Neither the Company nor any Company Subsidiary is party to any agreement
restricting the right of the Company or any Company Subsidiary to compete with
another person or restricting the conduct of the business of the Company or any
Company Subsidiary in any geographical area, not including exclusivity or
similar agreements that are customary in the advertising industry. Except as
disclosed in the Company SEC Documents, the Company is not a party to any
contract, understanding, arrangement, letter agreement, letter of intent,
memorandum of understanding or similar arrangement with Dentsu.
SECTION 3.11 Trademarks, Patents and Copyrights. Except as would not,
individually or in the aggregate, have a Company Material Adverse Effect, the
Company and the Company Subsidiaries own or possess adequate licenses or other
valid rights to use all patents, patent rights, trademarks, trademark rights,
trade names, trade dress, trade name rights, copyrights, service marks, trade
secrets, applications for trademarks and for service marks, know-how and other
proprietary rights and information used or held for use in connection with the
business of the Company and the Company Subsidiaries as currently conducted, and
no assertion or claim has been made in writing challenging the validity of any
of the foregoing which would have a Company Material Adverse Effect. The conduct
of the business of the Company and the Company Subsidiaries as currently
conducted does not conflict in any way with any patent, patent right, license,
trademark, trademark right, trade dress, trade name, trade name right, service
mark or copyright of any third party that has had, or could reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
SECTION 3.12 Client Relations; Media Buying. (a) As of the date hereof,
to the Company's knowledge, except as would not reasonably be expected,
individually or in the aggregate, to have a Company Material Adverse Effect, no
material client of the Company or any of the Company Subsidiaries has advised
the Company or such Company Subsidiary orally or in writing that it is (x)
terminating or considering terminating the handling of its business by the
Company or such Company Subsidiary as a whole or in any substantial part or (y)
planning to reduce its future spending with the Company or such Company
Subsidiary in any manner which was not reflected in the 2002 revenue budget of
the Company.
(b) The Company is not a party to any long-term media-buying agreements
material to the business of the Company.
SECTION 3.13 Key Managers. As of the date hereof, to the Company's
knowledge, except as would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect, none of the key account
managers of the Company or any of the Company Subsidiaries has advised the
Company or such Company Subsidiary orally or in writing that he or she is
terminating or considering terminating his or her employment with the Company or
such Company Subsidiary.
SECTION 3.14 Taxes. (a) Except for such matters that would not have, and
could not reasonably be expected to have, a Company Material Adverse Effect, (i)
the Company and each of the Company Subsidiaries have timely filed all returns
and reports required to be filed by them with any taxing authority with respect
to Taxes (as defined below), all such returns and reports are complete and
accurate and all Taxes shown to be due on such returns have been timely paid,
(ii) all Taxes (whether or not shown on any Tax return) owed by the Company or
any Company Subsidiary and required to have been paid have been timely paid or,
in the case of Taxes which the Company or a Company Subsidiary is presently
contesting in good faith, the Company or such Company Subsidiary has established
an adequate reserve for such Taxes, (iii) there are no pending proceedings by
any taxing authority for the assessment or collection of Taxes against the
Company or any of the Company Subsidiaries and (iv) the Company and each of the
Company Subsidiaries have provided adequate reserves in their financial
statements for any accrued Taxes (or Taxes otherwise due) that have not been
paid. As used in this Agreement, "Taxes" shall mean any and all taxes,
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fees, levies, duties, tariffs, imposts and other charges of any kind (together
with any and all interest, penalties, additions to tax and additional amounts
imposed with respect thereto) imposed by any government or taxing authority,
including, without limitation: taxes or other charges on or with respect to
income, franchises, windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value added or gains taxes;
license, registration and documentation fees; and customers' duties, tariffs and
similar charges.
(b) Leo Burnett Company, Inc. was classified as an "S corporation" within
the meaning of Section 1361 of the Code for all periods from January 1, 1987
through December 31, 1998 (and for any other period, if any, as to which it
reported as an "S corporation") for US federal income tax purposes and during
such periods validly elected to be classified as an "S corporation" in each
state where it filed a Tax return on such basis. Leo Burnett Company, Inc. and
each of its subsidiaries, was classified as an "S corporation" or a "qualified
subchapter S subsidiary" within the meaning of Section 1361 of the Code for any
period as to which it reported as an "S corporation" or a "qualified subchapter
S subsidiary," respectively, for U.S. federal income tax purposes and during
such period validly elected to be classified as an "S corporation" or a
"qualified subchapter S subsidiary," respectively, in each state where it filed
a Tax return on such basis. Neither the Company nor any Company Subsidiary
(other than Leo Burnett Company, Inc. and its subsidiaries) has ever filed a Tax
return reporting that such corporation was classified as an "S corporation" or a
"qualified subchapter S subsidiary" within the meaning of Section 1361 of the
Code.
(c) Neither the Company nor any Company Subsidiary has constituted either a
"distributing corporation" or a "controlled corporation" within the meaning of
Section 355(a)(1)(A) of the Code in a distribution of stock intended to qualify
for tax-free treatment under Section 355 of the Code (x) in the two years prior
to the date of this Agreement (or will constitute such a corporation in the two
years prior to the Closing Date) or (y) which otherwise constitutes part of a
"plan" or "series of related transactions" within the meaning of Section 355(e)
of the Code in conjunction with the Merger.
(d) The Company and its Subsidiaries have not made any payments, are not
obligated to make any payments, and are not a party to any agreements that under
any circumstances could obligate any of them to make any payments that would
constitute compensation in excess of the limitation set forth in Section 162(m)
of the Code.
SECTION 3.15 Vote Required. The only vote of the holders of any class or
series of capital stock of the Company necessary to approve this Agreement, the
Merger and the other transactions contemplated by this Agreement is the
affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock, voting as one class in favor of the approval of this
Agreement. Pursuant to the Voting Trust Agreement, each holder of record of
trust certificates of the Voting Trust has the right to direct the Voting
Trustees in the voting on the Merger of shares of Class A Common Stock
attributable to such holder, and the Voting Trustees, as record holders of all
outstanding shares of Class A Common Stock, shall solicit such directions in
writing and shall vote (or refrain from voting) such shares in accordance with
such directions.
SECTION 3.16 Accounting and Reorganization Matters. To the knowledge of
the Company, neither the Company nor any of its affiliates has taken or agreed
to take any action that would prevent or impede the Merger from constituting a
reorganization within the meaning of Section 368(a) of the Code. The Company is
not aware of any agreement, plan or other circumstance that would prevent or
impede the Merger from constituting a reorganization within the meaning of
Section 368(a) of the Code.
SECTION 3.17 Opinion of Financial Advisor. The Company has received the
opinion, to be confirmed in writing, of Morgan Stanley & Co. Incorporated
("Morgan Stanley") to the effect that, as of the date of this Agreement, the
consideration to be received by holders of Class A Common Stock in the Merger is
fair to such holders from a financial point of view, a copy of which opinion
will be delivered to Parent promptly after the date of this Agreement.
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SECTION 3.18 Brokers. No broker, finder or investment banker (other than
Morgan Stanley) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the other transactions contemplated
by this Agreement based upon arrangements made by or on behalf of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as disclosed in the publicly available Parent Reports filed with the
Agencies or as set forth in the Disclosure Schedule delivered by Parent and
Merger Sub to the Company concurrently with the execution of this Agreement (the
"Parent Disclosure Schedule") and making reference to the particular subsection
of this Agreement to which exception is being taken, Parent and Merger Sub
hereby jointly and severally represent and warrant to the Company that:
SECTION 4.01 Organization and Qualification; Subsidiaries. Each of Parent
and each subsidiary of Parent (the "Parent Subsidiaries") is a societe anonyme,
corporation or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate or other power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except where the failures to be so organized, existing or in good
standing or to have such corporate or other power and authority have not had,
and could not reasonably be expected to have, individually or in the aggregate,
a Parent Material Adverse Effect (as defined below). Each of Parent and the
Parent Subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that have not had, and could not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. The term "Parent Material Adverse Effect" means any
change in or effect on the business of Parent and the Parent Subsidiaries that
is materially adverse to the business, assets, financial condition or results of
operations of Parent and the Parent Subsidiaries taken as a whole, except for
any such change or effect resulting from or arising out of (i) changes in
circumstances or conditions affecting the advertising industry in general, (ii)
changes in general United States or global economic or business conditions or
financial markets or (iii) the announcement of this Agreement or the
transactions contemplated hereby. Parent has heretofore made available to the
Company a complete and correct copy of Parent's statuts and Certificate of
Incorporation (Kbis) and the Certificate of Incorporation and By-Laws of Merger
Sub. Such statuts, Certificate of Incorporation (Kbis), Certificate of
Incorporation and By-Laws are in full force and effect.
SECTION 4.02 Capitalization. As of March 5, 2002, (i) Parent had issued
and outstanding 139,781,849 ordinary shares having a nominal value of 0.40 Euros
per ordinary share (each a "Parent Ordinary Share"), all of which are validly
issued, fully paid and nonassessable, and (ii) 4,758,024 Parent Ordinary Shares
were held in the treasury of Parent or owned by Parent Subsidiaries. As of March
5, 2002, Parent had outstanding stock options under stock option plans, programs
and arrangements of Parent and the Parent Subsidiaries (the "Parent Stock Option
Plans") (i) to purchase 3,423,135 Parent Ordinary Shares held in the treasury of
Parent and (ii) to subscribe for 760,343 newly issued Parent Ordinary Shares
(collectively, the "Parent Options"). As of February 26, 2002, 45,349,849
Contingent Value Rights of Parent were outstanding. As of March 1, 2002, Parent
had outstanding 648,379 of each of ADSs and ADRs and 423,847 American Depositary
Contingent Value Rights and American Depositary Contingent Value Right Receipts.
As of January 18, 2002, Parent had issued and outstanding 17,624,521 obligations
a option de conversion en actions nouvelles et/ou d'echange en actions
existantes ("Parent OCEANES") convertible into 17,624,521 Parent Ordinary
Shares. All outstanding Parent Ordinary Shares have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth in this
Section 4.02 and for changes since March 5, 2002 resulting from the exercise of
Parent Stock Options outstanding on such date which were granted pursuant to
Parent Stock Option Plans, there are no outstanding shares of capital stock or
voting securities of the Company, and there are no options, warrants or other
subscription rights, preemptive or similar rights agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
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Parent or any Parent Subsidiary or obligating Parent or any Parent Subsidiary to
issue, transfer or sell any shares of capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Parent or any Parent Subsidiary or obligating the Parent or
any Parent Subsidiary to grant, extend or enter into any such option, warrant,
subscription or other right, convertible security, agreement, arrangement or
commitment. All Parent Ordinary Shares subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. There are no outstanding obligations of Parent or any Parent
Subsidiary to repurchase, redeem or otherwise acquire any Parent Ordinary Shares
or any capital stock of any Parent Subsidiary. Each outstanding share of capital
stock of each Parent Subsidiary is duly authorized, validly issued, fully paid
and nonassessable and each such share owned by Parent or another Parent
Subsidiary is free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on Parent's or such
other Parent Subsidiary's voting rights, charges and other encumbrances of any
nature whatsoever, except where failure to own such shares free and clear would
not, individually or in the aggregate, have a Parent Material Adverse Effect.
The authorized capital stock of Merger Sub consists of 100 shares of common
stock, par value $.01 per share, all of which are duly authorized, validly
issued, fully paid and nonassessable and free of any preemptive rights in
respect thereof and all of which are owned by Parent. Each of the Parent
Ordinary Shares, Parent ORAs and Parent OBSAs, when issued pursuant to the terms
of this Agreement, and the Parent Ordinary Shares when issued upon redemption of
Parent ORAs or exercise of Parent warrants, shall be validly issued, fully paid
and nonassessable and, subject to the terms of this Agreement, will provide its
holders with the same rights as the rights of the holders of securities of the
same category.
SECTION 4.03 Authority Relative to this Agreement. Each of Parent, Merger
Sub and Parent LLC has all necessary corporate or other power and authority to
execute and deliver this Agreement, and, subject to obtaining the necessary
approvals of Parent's shareholders, to perform its obligations hereunder and to
consummate the Merger and the other transactions contemplated by this Agreement.
The execution and delivery of this Agreement by each of Parent, Merger Sub and
Parent LLC and the consummation by each of Parent, Merger Sub and Parent LLC of
the Merger and the other transactions contemplated by this Agreement have been
duly and validly authorized by all necessary corporate or other action and no
other corporate proceedings on the part of Parent are necessary to authorize
this Agreement or to consummate the Merger and the other transactions
contemplated by this Agreement (other than, with respect to the Merger, the
filing and recordation of appropriate merger documents as required by the DGCL,
the approval of the issuance to Parent LLC of (i) Parent Ordinary Shares or
obligations remboursables en actions immediately redeemable into Parent Ordinary
Shares, (ii) Parent ORAs and (iii) Parent OBSAs pursuant to the Merger by the
holders of two-thirds (2/3) of the shares present or represented at the Parent
Shareholders' Meeting (as defined in Section 6.01(e)) as required by French law)
and the approval of such issuance by the Management Board of Parent by virtue of
the power given to it by the Parent Shareholders' Meeting or by the Chairman of
the Management Board by virtue of the power given to him by the Management
Board, as the case may be. This Agreement has been duly and validly executed and
delivered by each of Parent, Merger Sub and Parent LLC and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of each of Parent, Merger Sub and Parent LLC, enforceable
against each of Parent, Merger Sub and Parent LLC in accordance with its terms.
SECTION 4.04 No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by each of Parent, Merger Sub and
Parent LLC do not, and the performance of this Agreement by each of Parent,
Merger Sub and Parent LLC will not, (i) conflict with or violate the statuts and
Certificate of Incorporation (Kbis) of Parent, the Certificate of Incorporation
or By-Laws of Merger Sub or any equivalent organizational documents of any other
Parent Subsidiary, (ii) assuming that all consents, approvals, authorizations
and other actions described in Section 4.04(b) have been obtained and all
filings and obligations described in Section 4.04(b) have been made, conflict
with or violate any Law applicable to Parent or any Parent Subsidiary or by
which any property or asset of Parent or any Parent Subsidiary is bound or
affected, or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or other encumbrance on any property or
asset of Parent or
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any Parent Subsidiary pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation binding upon Parent or any Parent Subsidiary, except, with respect to
clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults,
or other occurrences that have not had, and could not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect, and
that could not reasonably be expected to prevent or materially delay the
consummation of the transactions contemplated by this Agreement and (y) with
respect to clause (iii), for any such conflicts, violations, breaches, defaults
or other occurrences arising under or out of (A) agreements the loss of the net
income from which, individually or in the aggregate, would not have a Parent
Material Adverse Effect or (B) agreements the Parent has the right or ability to
terminate without cause with less than six months' notice.
(b) The execution and delivery of this Agreement by each of Parent, Merger
Sub and Parent LLC do not, and the performance of this Agreement by each of
Parent, Merger Sub and Parent LLC will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Entity, except (i) for applicable requirements, if any, of the Exchange Act,
Blue Sky Laws, the Securities Act, the New York Stock Exchange, Inc. ("NYSE"),
Euronext, state takeover laws, the HSR Act, the filing of a notification with
the Commission of the European Union under Regulation 4064/89, the applicable
requirements of Laws, rules and regulations in other non-U.S. jurisdictions
governing antitrust or merger control matters, the filing and recordation of
appropriate merger documents as required by the DGCL, compliance with applicable
requirements of the Commission des Operations de Bourse (the "COB") relating to
the Parent Ordinary Shares, Parent ORAs and Parent OBSAs to be issued pursuant
to or in connection with the Merger and compliance with any other applicable
French companies or securities or takeover laws and regulations, and (ii) where
the failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, has not had, and could not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect, and could not reasonably be expected to prevent or materially delay the
consummation of the transactions contemplated by this Agreement.
SECTION 4.05 Compliance with Laws. Neither Parent nor any Parent
Subsidiary is in conflict with, or in default or violation of, any Law
applicable to Parent or any Parent Subsidiary or by which any property or asset
of Parent or any Parent Subsidiary is bound or affected, except for any such
conflicts, defaults or violations that have not had, and could not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect.
SECTION 4.06 Parent Reports; Financial Statements. (a) Parent has filed
all forms, reports and documents required to be filed by it with the SEC, the
COB, the Conseil des Marches Financiers and Euronext (the "Agencies") since
December 31, 2000 through the date of this Agreement (collectively, the "Parent
Reports"). As of the respective dates they were filed (or, if amended or
superseded by a filing prior to the date hereof, on the date of such filing),
(i) the Parent Reports were prepared, and all forms, reports and documents filed
with the Agencies after the date of this Agreement and prior to the Effective
Time will be prepared, in all material respects in accordance with the
requirements of applicable Law and (ii) none of the Parent Reports contained,
nor will any forms, reports and documents filed after the date of this Agreement
and prior to the Effective Time contain, any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. No Parent Subsidiary is required to file
any form, report or other document with any Agency.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Parent Reports and in any form, report or
document filed after the date of this Agreement and prior to the Effective Time
(i) was, or will be, as the case may be, prepared in accordance with French GAAP
applied on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Agency rules), (ii) in the case of Parent Reports filed with the
SEC, was, or will be, reconciled to U.S. GAAP as required by and in accordance
with the requirements of the Exchange Act, and (iii) presented or will present
fairly, in all material respects, the consolidated financial position of the
Parent and the consolidated Parent Subsidiaries as at the respective dates
thereof and their consolidated results of operations and cash flows for the
respective periods indicated therein, except as
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otherwise noted therein (subject, in the case of unaudited statements, to normal
and recurring year-end adjustments which were not and are not expected,
individually or in the aggregate, to have a Parent Material Adverse Effect).
(c) Schedule 4.06(c) sets forth Parent's consolidated balance sheets as of
December 31, 2001, 2000 and 1999 and Parent's consolidated income statements for
each of the years in the three-year period ended December 31, 2001 (the "Parent
2001 Financial Statements"). The Parent 2001 Financial Statements have been
prepared in accordance with French GAAP (except that such statements lack notes
and other presentation items) applied on a consistent basis throughout the
periods indicated and presented and present fairly, in all material respects,
the consolidated financial position of Parent and the consolidated Parent
Subsidiaries as at the respective dates thereof and their consolidated results
of operations for the respective periods indicated therein. The Parent 2001
Financial Statements will not be materially different from the corresponding
items included in the audited financial statements of Parent to be included in
Parent's Document de Reference for the year ended December 31, 2001.
SECTION 4.07 Absence of Certain Changes or Events. Since December 31,
2000, except as contemplated by or as disclosed in this Agreement, Parent and
the Parent Subsidiaries have conducted their businesses only in the ordinary
course and in a manner consistent with past practice and, since such date, there
has not been (a) any event, occurrence, development or state of circumstances or
facts that, either individually or in the aggregate, has had or is reasonably
likely to have, a Parent Material Adverse Effect, (b) any material change by
Parent in its accounting methods, principles or practices, or (c) any
declaration, setting aside or payment of any dividend or distribution in respect
of the Parent Ordinary Shares or any redemption, purchase or other acquisition
of any of Parent's securities.
SECTION 4.08 Absence of Litigation. There is no litigation, suit, claim,
action, proceeding or investigation pending or, to the knowledge of the Parent,
threatened against Parent or any Parent Subsidiary, or any property or asset of
the Parent or any Parent Subsidiary, before any court, arbitrator or
Governmental Entity, domestic or foreign, which has had or could reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect. Neither the Parent nor any Parent Subsidiary nor any property or asset
of the Parent or any Parent Subsidiary is subject to any continuing order of,
consent decree, settlement agreement or other similar written agreement with any
Governmental Entity, or any order, writ, judgment, injunction, decree,
determination or award of any Governmental Entity or arbitrator having or which
would reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
SECTION 4.09 Contracts. Except as disclosed in the Parent Reports, there
is no contract or agreement that is material to the financial condition or
results of operations of Parent and the Parent Subsidiaries taken as a whole.
Neither Parent nor any Parent Subsidiary is in violation of or in default under
(nor does there exist any condition which upon the passage of time or the giving
of notice would cause such a violation of or default under) any loan or credit
agreement, note, bond, mortgage, indenture or lease, or any other contract,
agreement, arrangement or understanding to which it is a party or by which it or
any of its properties or assets is bound, except for violations or defaults that
have not had, and could not reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect. Neither Parent nor any Parent
Subsidiary is a party to any agreement restricting the right of Parent or any
Parent Subsidiary to compete with another person or restricting the conduct of
the business of the Parent or any Parent Subsidiary in any geographical area,
not including exclusivity or similar agreements that are customary in the
advertising industry. There are no contracts, understandings, arrangements,
letter agreements, letters of intent, memoranda of understanding or similar
arrangements between Parent and Societe Anonyme Somarel.
SECTION 4.10 Trademarks, Patents and Copyrights. Except as would not,
individually or in the aggregate, have a Parent Material Adverse Effect, Parent
and the Parent Subsidiaries own or possess adequate licenses or other valid
rights to use all patents, patent rights, trademarks, trademark rights, trade
names, trade dress, trade name rights, copyrights, service marks, trade secrets,
applications for trademarks and for service marks, know-how and other
proprietary rights and information used or held for use in connection with the
business of Parent and the Parent Subsidiaries as currently conducted, and no
assertion or claim has been made in writing challenging the validity of any of
the foregoing which would have a Parent Material Adverse
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Effect. The conduct of the business of Parent and the Parent Subsidiaries as
currently conducted does not conflict in any way with any patent, patent right,
license, trademark, trademark right, trade dress, trade name, trade name right,
service mark or copyright of any third party that has had, or could reasonably
be expected to have, individually or in the aggregate, a Parent Material Adverse
Effect.
SECTION 4.11 Client Relations; Media Buying. (a) As of the date hereof,
to Parent's knowledge, except as would not reasonably be expected, individually
or in the aggregate, to have a Parent Material Adverse Effect, no material
client of Parent or any of the Parent Subsidiaries has advised Parent or such
Parent Subsidiary orally or in writing that it is (x) terminating or considering
terminating the handling of its business by Parent or such Parent Subsidiary as
a whole or in any substantial part or (y) planning to reduce its future spending
with Parent or such Parent Subsidiary in any manner which was not reflected in
the 2002 revenue budget of Parent.
(b) Parent is not a party to any long-term media-buying agreements
material to its business.
SECTION 4.12 Key Managers. As of the date hereof, to Parent's knowledge,
except as would not reasonably be expected, individually or in the aggregate, to
have a Parent Material Adverse Effect, none of the key account managers of
Parent or any of the Parent Subsidiaries has advised Parent or such Parent
Subsidiary orally or in writing that he or she is terminating or considering
terminating his or her employment with Parent or such Parent Subsidiary.
SECTION 4.13 Taxes. Except for such matters that would not have, and
could not reasonably be expected to have, a Parent Material Adverse Effect, (i)
Parent and each of the Parent Subsidiaries have timely filed all returns and
reports required to be filed by them with any taxing authority with respect to
Taxes, all such returns and reports are complete and accurate and all Taxes
shown to be due on such returns have been timely paid, (ii) all Taxes (whether
or not shown on any Tax return) owed by Parent or any Parent Subsidiary and
required to have been paid have been timely paid or, in the case of Taxes which
Parent or a Parent Subsidiary is presently contesting in good faith, Parent or
such Parent Subsidiary has established an adequate reserve for such Taxes, (iii)
there are no pending proceedings by any taxing authority for the assessment or
collection of Taxes against the Parent or any of the Parent Subsidiaries and
(iv) Parent and each of the Parent Subsidiaries have provided adequate reserves
in their financial statements for any accrued Taxes (or Taxes otherwise due)
that have not been paid.
SECTION 4.14 Employee Benefits Plans; Labor Matters. (a) "Parent Benefit
Plan" shall mean each "employee benefit plan," as defined in Section 3(3) of
ERISA, whether or not subject to ERISA, and each employment, severance or
similar contract, plan, arrangement or compensation, bonuses, profit-sharing,
stock option or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance (including any self-insured
arrangements), health or medical benefits, employee assistance program,
disability or sick leave benefits, workers' compensation, supplemental
unemployment benefits, severance benefits and post-employment or retirement
benefits (including compensation, pension, health, medical or life insurance
benefits) which is maintained, administered or contributed to by Parent or any
Parent Subsidiary and covers any employee or former employee of Parent or any
Parent Subsidiary, or with respect to which Parent or any Parent Subsidiary has
any liability.
(b) Except as could not reasonably be expected to have a Parent Material
Adverse Effect, (i) each Parent Benefit Plan is in compliance with all
applicable Laws (including, without limitation, ERISA and the Code) and has been
administered and operated in accordance with its terms; (ii) each Parent Benefit
Plan, which is intended to be "qualified" within the meaning of Section 401(a)
of the Code has received a favorable determination letter from the IRS and, no
event has occurred, either by reason of any action or failure to act, and no
condition exists which would cause the loss of any such qualification; (iii) the
actuarial present value of the accumulated plan benefits (whether or not vested)
under each Parent Benefit Plan covered by Title IV of ERISA, or which otherwise
is a pension plan (as defined in Section 3(2) of ERISA) or provides for
actuarially-determined benefits as of the close of its most recent plan year did
not exceed the market value of the assets allocable thereto; (iv) the PBGC has
not instituted proceedings to terminate any Parent Benefit Plan, and to Parent's
knowledge, no condition exists that presents a risk that such proceedings will
be instituted or which would constitute grounds under Section 402 of ERISA for
the termination of, or the
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appointment of a trustee to administer any such Parent Benefit Plan; (v) no
"accumulated funding deficiency," as defined in Section 412 of the Code, has
been incurred with respect to any Parent Benefit Plan subject to Section 412;
(vi) no "reportable event" within the meaning of Section 4043 of ERISA, and no
event described in Section 4062 or 4063 of ERISA, has occurred in connection
with any Parent Benefit Plan; and (vii) no material liability, claim, action,
litigation, audit, examination, investigation or administrative proceeding has
been made, commenced or, to the knowledge of Parent, threatened with respect to
any Parent Benefit Plan (other than routine claims for benefits payable in the
ordinary course);
(c) Except as could not reasonably be expected, individually or in the
aggregate, to have a Parent Material Adverse Effect, (i) each of Parent and
Parent Subsidiaries is, and at all times has been, in compliance with all
federal, state or other applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and has not
and is not engaged in any unfair labor practice; (ii) no unfair labor practice
complaint against Parent or any Parent Subsidiary is pending before the National
Labor Relations Board or its foreign equivalent; (iii) during the last three
years there has not been any labor strike, dispute, slowdown or stoppage or, to
Parent's knowledge, threatened against or involving Parent or any Parent
Subsidiary; (iv) there is no effort by or on behalf of any labor union to
organize any persons employed by Parent; and (v) no arbitration proceeding
arising out of or under any collective bargaining agreement is pending and no
claim therefore has been asserted.
SECTION 4.15 Vote Required. No vote of the stockholders of Parent is
required by Law, Parent's statuts or otherwise in order for Parent, Merger Sub
and Parent LLC to consummate the Merger and the transactions contemplated hereby
other than the affirmative vote of two-thirds (2/3) of the shares present or
represented at the Parent Shareholders' Meeting, provided that the shares
present or represented on the proposal represent at least one-third (1/3) of the
outstanding Parent Ordinary Shares on first notice and one-quarter (1/4) of the
outstanding Parent Ordinary Shares if the meeting is held on second notice.
SECTION 4.16 Operations of Merger Sub and Parent LLC. Merger Sub is a
direct, wholly owned subsidiary of Parent, was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement, has engaged in no
other business activities and has conducted no business operations. Parent LLC
is an indirect, wholly owned subsidiary of Parent, was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted no business
operations.
SECTION 4.17 Reorganization Matters. To the knowledge of Parent, neither
Parent nor any of its affiliates has taken or agreed to take any action that
would prevent or impede the Merger from constituting a reorganization within the
meaning of Section 368(a) of the Code. Parent is not aware of any agreement,
plan or other circumstance that would prevent or impede the Merger from
constituting a reorganization within the meaning of Section 368(a) of the Code.
SECTION 4.18 Brokers. No broker, finder or investment banker (other than
Lazard Freres & Co. LLC) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the other transactions contemplated
by this Agreement based upon arrangements made by or on behalf of Parent.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01 Conduct of Business by the Company Pending the Merger. (a)
The Company agrees that, between the date of this Agreement and the Effective
Time, except as set forth in Section 5.01 of the Company Disclosure Schedule or
as contemplated by any other provision of this Agreement, unless Parent shall
otherwise consent in writing (such consent not to be unreasonably withheld or
delayed):
(i) the businesses of the Company and the Company Subsidiaries shall
be conducted only in, and the Company and the Company Subsidiaries shall
not take any action except in, the ordinary course of business and in a
manner consistent with past practice; and
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(ii) the Company shall use its reasonable best efforts to preserve
substantially intact its business organization, to keep available the
services of the current officers, employees and consultants of the Company
and the Company Subsidiaries and to preserve the current relationships of
the Company and the Company Subsidiaries with customers, suppliers and
other persons with which the Company or any Company Subsidiary has
significant business relations, and shall not take any actions to terminate
any employee or officer prior to the Effective Time to cause severance
payments to be due under the Company's change in control agreements (the
"Change in Control Agreements").
By way of amplification and not limitation (but subject to the above
exceptions), neither the Company nor any Company Subsidiary shall, between the
date of this Agreement and the Effective Time, directly or indirectly, do any of
the following without the prior written consent of Parent (such consent not to
be unreasonably withheld or delayed):
(b) amend or otherwise change its Amended and Restated Certificate of
Incorporation or By-Laws or equivalent organizational documents;
(c) issue, sell, pledge, dispose of, grant, encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of any shares of its
capital stock of any class, or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of such capital stock, or any
other ownership interest (including, without limitation, any phantom interest),
of the Company or any Company Subsidiary (except (A) for the issuance of shares
of Company Common Stock pursuant to the Company Stock Options in accordance with
their terms, or (B) securities of Company Subsidiaries for internal
restructurings solely involving the Company and/or direct or indirect
wholly-owned Company Subsidiaries);
(d) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock, other than dividends declared and paid in accordance with past
practice and dividends from a direct or indirect wholly-owned Company Subsidiary
to the Company or any other Company Subsidiary;
(e) reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock except pursuant to (i)
the 2000 Stock Purchase Agreements in the form filed with the Company SEC
Reports and (ii) the stock purchase agreements between the Company and holders
of Company Stock Options;
(f) (i) acquire (including, without limitation, by merger, consolidation,
or acquisition of stock or assets, but not including internal restructurings
solely involving the Company and/or direct or indirect wholly-owned Company
Subsidiaries) any interest in any corporation, partnership or other business
organization or any division thereof, or any assets, other than acquisitions of
assets in the ordinary course of business consistent with past practice and any
other acquisitions for consideration which are not, in the aggregate, in excess
of $50 million;
(ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any person, or make any loans or
advances, except for (A) indebtedness incurred in the ordinary course of
business and consistent with past practice and other indebtedness incurred under
the Company's $350 million debt facility or (B) any indebtedness solely
involving the Company and/or direct or indirect wholly-owned Company
Subsidiaries;
(iii) enter into any contract or agreement material to the business,
results of operations or financial condition of the Company and the Company
Subsidiaries taken as a whole other than in the ordinary course of business and
consistent with past practice;
(iv) authorize any capital expenditure, other than capital expenditures
in the ordinary course of business and consistent with past practice;
(v) sell, lease, license or otherwise dispose of any material assets,
except in the ordinary course of business and in a manner consistent with past
practice (except for internal restructurings solely involving the Company and/or
direct or indirect wholly-owned Company Subsidiaries); or
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(vi) enter into or amend any contract, agreement, commitment or
arrangement that, if fully performed, would not be permitted under this Section
5.01(f);
(g) except (i) in the ordinary course of business consistent with past
practice, (ii) as required by applicable law, or (iii) to the extent required
under existing plans, agreements or arrangements, increase the compensation
payable or to become payable or the benefits provided or to become provided to
current or former directors, officers, employees, or consultants of the Company
or any Company Subsidiary, or increase the compensation payable or benefits
provided under any Company Benefit Plan or collective bargaining agreement or
otherwise increase or accelerate the vesting or payment of the compensation
payable or the benefits provided or compensation or benefits to become payable
or provided to any current or former director, officer, employee or consultant
of the Company or any Company Subsidiary;
(h) except (i) in the ordinary course of business consistent with past
practice, (ii) as required by applicable law, or (iii) to the extent required
under existing plans, agreements or arrangements, grant any severance or
termination pay to, or enter into or amend any employment, consulting or
severance agreement with, any director, officer, employee or consultant of the
Company or any Company Subsidiary or establish, adopt, enter into or amend, any
Company Benefit Plan;
(i) hire or retain the services of any director, officer, employee or
consultant other than in the ordinary course of business consistent with past
practice;
(j) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice and any change
required by reason of a concurrent change in GAAP or Regulation S-X under the
Exchange Act, with respect to accounting policies or procedures;
(k) amend or modify, or release any obligations under, any of the 2000
Stock Purchase Agreements, except in the case of departing employees consistent
with past practice or as set forth in Schedule 5.01; or
(l) agree or commit to do any of the foregoing.
SECTION 5.02 Conduct of Business by Parent Pending the Merger. (a) Parent
agrees that, between the date of this Agreement and the Effective Time, except
as set forth in Section 5.02 of the Parent Disclosure Schedule or as
contemplated by any other provision of this Agreement, unless the Company shall
otherwise consent in writing (such consent not to be unreasonably withheld or
delayed):
(i) the business of Parent and the Parent Subsidiaries shall be
conducted only in, and Parent and the Parent Subsidiaries shall not take
any action except in the ordinary course of business and in a manner
consistent with past practice; and
(ii) Parent shall use its reasonable best efforts to preserve
substantially intact its business organization, to keep available the
services of the current officers, employees and consultants of Parent and
the Parent Subsidiaries and to preserve the current relationships of Parent
and the Parent Subsidiaries with customers, suppliers and other persons
with which Parent or any Parent Subsidiary has significant business
relations.
By way of amplification and not limitation (but subject to the above
exceptions), neither Parent nor any Parent Subsidiary shall, between the date of
this Agreement and the Effective Time, directly or indirectly, do any of the
following without the prior written consent of the Company (such consent not to
be unreasonably withheld):
(b) amend or otherwise change its statuts or Certificate of Incorporation
(Kbis), By-Laws or equivalent organizational documents;
(c) issue, sell, pledge, dispose of, grant, encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of, any shares of its
capital stock of any class, or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of such capital stock, or any
other ownership interest (including, without limitation, any phantom interest),
of Parent or any Parent Subsidiary (except for the issuance of (A) Parent
Ordinary Shares pursuant to the Parent Stock Options outstanding on the date of
this Agreement and the issuance, in the ordinary course of business and
consistent with past practice, of Parent
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Stock Options to purchase a maximum of 500,000 Parent Ordinary Shares pursuant
to the Parent Stock Option Plans in effect on the date of this Agreement and
Parent Ordinary Shares issuable pursuant to such Parent Stock Options, in
accordance with the terms of the Parent Stock Option Plans, (B) Parent Ordinary
Shares in the ordinary course of business and consistent with past practice
pursuant to the Parent's Employee Stock Purchase Plan as in existence at the
Effective Time, (C) Parent Ordinary Shares upon conversion at the option of the
holders of Parent OCEANES pursuant to their terms, or (D) securities of Parent
Subsidiaries for internal restructurings solely involving Parent and/or direct
or indirect wholly-owned Parent Subsidiaries);
(d) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock, other than dividends declared and paid in accordance with past
practice and dividends from a direct or indirect wholly-owned Parent Subsidiary
to Parent or any Parent Subsidiary;
(e) reclassify, combine, split or subdivide any of its capital stock;
(f) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice and any change
required by reason of a concurrent change in GAAP or Regulation S-X under the
Exchange Act, with respect to accounting policies or procedures;
(g) sell, lease, license or otherwise dispose of any material assets,
except in the ordinary course of business and in a manner consistent with past
practice (except for internal restructurings solely involving Parent and/or
direct or indirect wholly-owned Parent Subsidiaries);
(h) acquire (including, without limitation, by merger, consolidation, or
acquisition of stock or assets, but not including internal restructurings solely
involving Parent and/or direct or indirect wholly-owned Parent Subsidiaries) any
interest in any corporation, partnership or other business organization or any
division thereof, or any assets, other than acquisitions of assets in the
ordinary course of business consistent with past practice and any other
acquisitions for consideration which are not, in the aggregate, in excess of $50
million;
(i) incur any indebtedness for borrowed money or issue any debt securities
or assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person, or make any loans or advances,
except for (A) indebtedness incurred in the ordinary course of business and
consistent with past practice and other indebtedness with a maturity of not more
than one year in a principal amount not, in the aggregate, in excess of $100
million or (B) any indebtedness solely involving Parent and/or direct or
indirect wholly-owned Parent Subsidiaries; or
(j) agree or commit to do any of the foregoing.
SECTION 5.03 Notification of Certain Matters. Parent shall give prompt
notice to the Company, and the Company shall give prompt notice to Parent, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which could reasonably be expected to cause (x) any
representation or warranty contained in this Agreement to be untrue or
inaccurate or (y) any covenant, condition or agreement contained in this
Agreement not to be complied with or satisfied and (ii) any failure of Parent or
the Company, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.03
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 Registration Statement; Proxy Statements. (a) As promptly as
practicable after the execution of this Agreement, the Company shall prepare and
file with the SEC a Company proxy statement (together with any amendments
thereof or supplements thereto, the "Company Proxy Statement") relating to the
meetings of the Company's stockholders (the "Company Stockholders' Meeting") to
be held to consider approval of this Agreement and the transactions contemplated
hereby. Parent shall promptly furnish all
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information concerning itself as the Company may reasonably request in
connection with such actions and the preparation of the Registration Statement
and the Company Proxy Statement. As promptly as practicable after the applicable
requirements of the SEC have been satisfied, the Company shall mail the Company
Proxy Statement to its stockholders. Parent and its counsel shall be given a
reasonable opportunity to review and comment on the Company Proxy Statement
prior to its being filed with the SEC.
(b) As promptly as practicable after the execution of this Agreement,
Parent and the Company will use reasonable best efforts to obtain a no-action
letter from the SEC to permit registration of the Parent OBSAs on a registration
statement on Form F-4 without compliance with the Trust Indenture Act of 1939
(the "Trust Indenture Act"). If such no-action letter is granted, Parent shall
prepare and file with the SEC a registration statement on Form F-4 for the
registration under the Securities Act of the Parent Ordinary Shares, Parent
OBSAs and Parent ORAs to be issued pursuant to the Merger. If such no-action
letter is not granted, then at the option of the Company either (i) if permitted
under applicable Law, the offer and sale of Parent Ordinary Shares, Parent OBSAs
and Parent ORAs will not be registered under the Securities Act, but shall be
made in a private placement in reliance upon the exemption from registration
provided by Regulation D promulgated thereunder or (ii) Parent shall prepare and
file a registration statement on Form F-4 for the registration under the
Securities Act of Parent Ordinary Shares, Parent OBSAs and Parent ORAs, and the
form and terms of the Parent OBSAs shall be modified as necessary to comply with
the Trust Indenture Act.
(c) In the event a registration statement on Form F-4 (together with all
amendments thereto, the "Registration Statement") is filed, (i) each of Parent
and the Company shall use its reasonable best efforts to cause the Registration
Statement to become effective as promptly as practicable, (ii) prior to the
effective date of the Registration Statement, Parent shall take all or any
action required under any applicable U.S. federal or state and non-U.S.
securities laws in connection with the issuance of Parent Ordinary Shares,
Parent ORAs and Parent OBSAs pursuant to the Merger and (iii) the Company shall
furnish all information concerning itself as Parent may reasonably request in
connection with such actions and the preparation of the Registration Statement.
(d) In the event of a private placement, (i) Parent shall take all or any
action required under any applicable U.S. federal or state and non-U.S.
securities laws to permit the issuance of Parent Ordinary Shares, Parent ORAs
and Parent OBSAs pursuant to the Merger in accordance with such laws without
registration under the Securities Act and (ii) if at any time after the Closing
any former holder of Shares (other than any such holder who is an affiliate of
Parent at such time) proposes to resell, in a manner consistent with the terms
of Exhibit B, Parent Ordinary Shares, Parent ORAs or the warrant portion of the
Parent OBSAs outside the United States but, in the opinion of counsel to such
holder, cannot do so in reliance on Regulation S or any other exemption from
registration under the Securities Act, Parent shall register such securities
pursuant to the Securities Act to permit such person to resell such securities.
(e) As promptly as practicable after the execution of this Agreement, (i)
Parent shall prepare, file, publish, make available and/or mail to Parent
Shareholders, as applicable, the resolutions related to the Parent Proposals,
the rapport du directoire et du conseil de surveillance a l'assemblee, the
rapports des commissaires and the note d'operation (together with any amendments
thereof or supplements thereto, the "Parent Proxy Statement" and, together with
the Company Proxy Statement, the "Proxy Statements") relating to the meeting of
Parent's shareholders (the "Parent Shareholders' Meeting" and, together with the
Company Stockholders' Meeting, the "Shareholders' Meetings") to be held to
consider approval of the Parent Proposals (as defined in Section 6.02); and (ii)
Parent shall prepare and file with the COB all filings required by COB
regulations (the "Other Parent Filings") in connection with the Parent
Shareholders' Meeting to be held to consider approval of the Parent Proposals.
The Company shall promptly furnish all information concerning the Company as
Parent may reasonably request in connection with such actions and the
preparation of the Parent Proxy Statement and the Other Parent Filings. The
Company and its counsel shall be given a reasonable opportunity to review and
comment on the Registration Statement, the Parent Proxy Statement and the Other
Parent Filings prior to them being filed with the applicable agency.
(f) The Company Proxy Statement shall include the recommendation of the
Board of Directors of the Company to the shareholders of the Company in favor of
approval of this Agreement; provided, however, that
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the Board of Directors of the Company may, at any time prior to the Effective
Time, withdraw, modify or change any such recommendation to the extent that the
Board of Directors of the Company determines in good faith after consultation
with independent legal counsel that the failure to so withdraw, modify or change
its recommendation would cause the Board of Directors of the Company to breach
its fiduciary duties to the Company's shareholders under applicable Law.
(g) The Parent Proxy Statement shall include the recommendation of the
Supervisory Board and the Management Board of Parent to the shareholders of
Parent in favor of the Parent Proposals; provided, however, that the Supervisory
Board or the Management Board of Parent may, at any time prior to the Effective
Time, withdraw, modify or change any such recommendation to the extent that the
Supervisory Board or the Management Board of Parent determines in good faith
after consultation with independent legal counsel that the failure to so
withdraw, modify or change its recommendation would cause the Supervisory Board
or the Management Board of Parent to breach its fiduciary duties to Parent's
shareholders under applicable Law.
(h) No amendment or supplement to the Company Proxy Statement or the
Registration Statement will be made by the Company or Parent without the
approval of the other party (such approval not to be unreasonably withheld or
delayed). Parent and the Company each will advise the other, promptly after they
receive notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, of the issuance of any
stop order, of the suspension of the qualification of Parent Ordinary Shares,
Parent ORAs or Parent OBSAs issuable in connection with the Merger for offering
or sale in any jurisdiction, or of any request by the SEC for amendment of the
Registration Statement or the Company Proxy Statement or comments thereon and
responses thereto or requests by the SEC for additional information.
(i) The information supplied by Parent for inclusion in the Registration
Statement and the Company Proxy Statement shall not, at (i) the time the
Registration Statement is declared effective, (ii) the time the Company Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of the Company, (iii) the time of the Company Stockholders'
Meeting and (iv) the Effective Time, contain any untrue statement of a material
fact or fail 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. If, at any time prior to the
Effective Time, any event or circumstance relating to Parent or any Parent
Subsidiary, or their respective officers or directors, should be discovered by
Parent which should be set forth in an amendment or a supplement to the
Registration Statement or the Company Proxy Statement, Parent shall promptly
inform the Company. All documents that Parent is responsible for filing with the
SEC in connection with the Merger or the other transactions contemplated by this
Agreement will comply as to form and substance in all material aspects with the
applicable requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and regulations thereunder.
(j) The information supplied by the Company for inclusion in the
Registration Statement and the Company Proxy Statement shall not, at (i) the
time the Registration Statement is declared effective, (ii) the time the Company
Proxy Statement (or any amendment thereof or supplement thereto) is first mailed
to the stockholders of the Company, (iii) the time of the Company Stockholders'
Meeting, and (iv) the Effective Time, contain any untrue statement of a material
fact or fail 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. The information supplied by the
Company for inclusion in the Parent Proxy Statement shall not, at (i) the time
the Parent Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to the stockholders of Parent, and (ii) the time of the Parent
Stockholders' Meeting, and the information supplied by the Company for inclusion
in the Other Parent Filings at the time such Other Parent Filings are filed with
the COB shall not, contain any untrue statement of a material fact or fail 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. If, at any time prior to the Effective Time, any event or
circumstance relating to the Company or any Company Subsidiary, or their
respective officers or directors, should be discovered by the Company which
should be set forth in an amendment or a supplement to the Registration
Statement, the Proxy Statements or the Other Parent Filings, the Company shall
promptly
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inform Parent. All documents that the Company is responsible for filing with the
SEC in connection with the Merger or the other transactions contemplated by this
Agreement will comply as to form and substance in all material respects with the
applicable requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and regulations thereunder.
SECTION 6.02 Shareholders' Meetings. The Company shall call and hold the
Company Stockholders' Meeting as promptly as practicable for the purpose of
voting upon, and shall use its reasonable best efforts to solicit from its
stockholders proxies in favor of, the approval of this Agreement and the
transactions contemplated by this Agreement. Parent shall call and hold the
Parent Shareholders' Meeting, as promptly as practicable for the purpose of
voting upon, and shall use its reasonable best efforts to solicit from its
stockholders proxies in favor of, (i) the approval of this Agreement and the
transactions contemplated by this Agreement, (ii) the approval of the issuance
of Parent Ordinary Shares (or of obligations remboursables en actions
immediately redeemable into Parent Ordinary Shares), Parent ORAs and Parent
OBSAs pursuant to or in connection with the Merger, (iii) the increase of the
number of members of the Supervisory Board of Parent by two, who shall be
designees of Dentsu and (iv) the approval of the modification of the Parent
statuts to provide that the respective holders of the usufruct and nue propriete
interests in the Parent Ordinary Shares are free to allocate the voting rights
between themselves and shall notify Parent of the same (collectively, the
"Parent Proposals"). Parent and the Company shall take all other action
necessary or advisable to secure the vote or consent of shareholders required by
French law or the DGCL, as applicable, to obtain such approvals, except to the
extent that the Board of Directors of the Company or the Management Board or the
Supervisory Board of Parent, as the case may be, determines in good faith after
consultation with independent legal counsel that doing so would cause the Board
of Directors of the Company, or the Management Board or the Supervisory Board of
Parent, as the case may be, to breach its fiduciary duties to such party's
shareholders under applicable Law. The Company shall call and hold the Company
Stockholders' Meeting for the purpose of considering approval of this Agreement
and the transactions contemplated hereby regardless of whether the exception in
the immediately preceding sentence applies or the proviso in Section 6.01(f)
applies, and Parent shall call and hold the Parent Shareholders' Meeting for the
purpose of considering approval of the matters set forth above regardless of
whether the exception in the immediately preceding sentence applies or the
proviso in Section 6.01(g) applies.
SECTION 6.03 Access to Information; Confidentiality. (a) Except as
required pursuant to any confidentiality agreement or similar agreement or
arrangement to which Parent or the Company or any of their respective
subsidiaries is a party or pursuant to applicable Law, from the date of this
Agreement to the Effective Time, Parent and the Company shall (and shall cause
their respective subsidiaries to): (i) provide to the other (and its officers,
directors, employees, accountants, consultants, legal counsel, agents and other
representatives, collectively, "Representatives") access at reasonable times
upon prior notice to the officers, employees, agents, properties, offices and
other facilities of the other and its subsidiaries and to the books and records
thereof and (ii) furnish promptly such information concerning the business,
properties, contracts, assets, liabilities, personnel and other aspects of the
other party and its subsidiaries as the other party or its Representatives may
reasonably request.
(b) Subject to Section 6.04(d), Parent and the Company shall comply with,
and shall cause their respective Representatives to comply with, all of their
respective obligations under the Confidentiality Agreements, dated February 22,
2002 (the "Confidentiality Agreements") between the Company and Parent.
SECTION 6.04 No Solicitation of Transactions. (a) Parent will not,
directly or indirectly, and Parent will instruct its officers, directors,
employees, subsidiaries, agents or advisors or other representatives (including,
without limitation, any investment banker, attorney or accountant retained by
it), not to, directly or indirectly, solicit, initiate or knowingly encourage
(including by way of furnishing nonpublic information), or knowingly facilitate,
any inquiries or the making of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) that constitutes, or may
reasonably be expected to lead to, any Competing Transaction (as defined below)
involving Parent, or engage in discussions or negotiate with any person or
entity with respect to a Competing Transaction involving Parent, or authorize or
permit any of the officers, directors or employees of Parent or any Parent
Subsidiary, or any investment banker, financial advisor, attorney, accountant or
other representative retained by Parent or any Parent Subsidiary, to take any
such
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action; provided, however, that nothing contained in this Section 6.04 shall
prohibit Parent from furnishing information to, or entering into discussions or
negotiations with, any person in connection with an unsolicited (from the date
of this Agreement) proposal for a Competing Transaction involving Parent, if,
and only to the extent that, (i) the Supervisory Board or the Management Board
of Parent, after consultation with independent legal counsel, determines in good
faith that such action is required for the Supervisory Board or the Management
Board of Parent to comply with its fiduciary duties to its shareholders imposed
by applicable Law and (ii) prior to furnishing such information to, or entering
into discussions or negotiations with, such person, (x) Parent obtains from such
person an executed confidentiality agreement on terms no less favorable to
Parent than those contained in the Confidentiality Agreement and (y) Parent
notifies the Company immediately of inquiries, proposals or offers received, any
information requested, or discussions or negotiations sought to be initiated or
continued, indicating, in connection with such notice, the name of such person
and the terms and conditions of any proposals or offers. Parent shall notify the
Company promptly if any proposal or offer, or any inquiry or contact with any
person with respect thereto regarding a Competing Transaction involving Parent
is made. Parent shall cease and cause to be terminated all existing discussions
or negotiations with any parties conducted heretofore with respect to a
Competing Transaction involving Parent. Parent agrees not to release any third
party from, or waive any provision of, any confidentiality or standstill
agreement to which it is a party.
(b) The Company will not, directly or indirectly, and the Company will
instruct its officers, directors, employees, subsidiaries, agents or advisors or
other representatives (including, without limitation, any investment banker,
attorney or accountant retained by it), not to, directly or indirectly, solicit,
initiate or knowingly encourage (including by way of furnishing nonpublic
information), or knowingly facilitate, any inquiries or the making of any
proposal or offer (including, without limitation, any proposal or offer to its
stockholders) that constitutes, or may reasonably be expected to lead to, any
Competing Transaction (as defined below) involving the Company, or engage in
discussions or negotiate with any person or entity with respect to a Competing
Transaction involving the Company, or authorize or permit any of the officers,
directors or employees of the Company or any Company Subsidiary, or any
investment banker, financial advisor, attorney, accountant or other
representative retained by the Company or any Company Subsidiary, to take any
such action; provided, however, that nothing contained in this Section 6.04
shall prohibit the Company from furnishing information to, or entering into
discussions or negotiations with, any person in connection with an unsolicited
(from the date of this Agreement) proposal for a Competing Transaction involving
the Company, if, and only to the extent that, (i) the Board of Directors of the
Company, after consultation with independent legal counsel, determines in good
faith that such action is required for the Board of Directors of the Company to
comply with its fiduciary duties to its shareholders imposed by applicable Law
and (ii) prior to furnishing such information to, or entering into discussions
or negotiations with, such person, (x) the Company obtains from such person an
executed confidentiality agreement on terms no less favorable to the Company
than those contained in the Confidentiality Agreement and (y) the Company
notifies Parent immediately of inquiries, proposals or offers received, any
information requested, or discussions or negotiations sought to be initiated or
continued, indicating, in connection with such notice, the name of such person
and the terms and conditions of any proposals or offers. The Company shall
notify Parent promptly if any proposal or offer, or any inquiry or contact with
any person with respect thereto, regarding a Competing Transaction involving the
Company is made. The Company shall cease and cause to be terminated all existing
discussions or negotiations with any parties conducted heretofore with respect
to a Competing Transaction involving the Company. The Company agrees not to
release any third party from, or waive any provision of, any confidentiality or
standstill agreement to which it is a party, other than such releases or waivers
of obligations of Dentsu to the Company which the Company deems reasonably
necessary to consummate the Merger and the transactions contemplated by this
Agreement. Nothing contained in this Agreement shall prevent the Board of
Directors of the Company from complying with Rule 14d-9 or 14e-2 under the
Exchange Act with respect to any Competing Transaction.
(c) A "Competing Transaction" means any of the following involving Parent
or the Company, as the case may be (other than the Merger and the other
transactions contemplated by this Agreement): (i) a merger, consolidation, share
exchange, business combination or other similar transaction; (ii) any sale,
lease, exchange, transfer or other disposition of 25% or more of the assets of
such party and its subsidiaries, taken as
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a whole, (iii) the acquisition of capital stock of such party by a person as a
result of which such person would become the beneficial owner of 25% or more of
the shares of capital stock of such party; or (iv) a tender offer or exchange
offer by a person as a result of which such person would become the beneficial
owner of 25% or more of the outstanding voting securities of such party. For
purposes of this Section 6.04, the term "beneficial owner" shall have the
meaning ascribed to it in Rule 13d-3 promulgated under the Exchange Act.
(d) This Section 6.04 supersedes Section 10 of each of the Confidentiality
Agreements, which Section 10 shall have no further force or effect as of the
date hereof.
SECTION 6.05 Directors' and Officers' Indemnification and Insurance. (a)
The By-Laws of the Surviving Corporation shall contain provisions regarding
directors' and officers' indemnification and insurance reasonably satisfactory
to the Company which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would affect adversely the rights thereunder of individuals who at or at any
time prior to the Effective Time were directors, officers, employees,
fiduciaries or agents of the Company.
(b) Prior to the Effective Time, the Company shall, to the fullest extent
permitted under applicable Law and regardless of whether the Merger becomes
effective, indemnify and hold harmless, and, after the Effective Time, Parent
and the Surviving Corporation shall, to the fullest extent permitted under
applicable Law, indemnify and hold harmless, each present and former director or
officer of the Company and each Company Subsidiary and each such person who
served at the request of the Company or any Company Subsidiary as a director,
officer, trustee, partner, fiduciary, employee or agent of another corporation,
partnership, joint venture, trust, pension or other employee benefit plan or
enterprise (collectively, the "Indemnified Parties") against all costs and
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and settlement amounts paid in connection with any
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), whether civil, administrative or investigative,
arising out of or pertaining to any action or omission in their capacities as
officers or directors, in each case occurring before the Effective Time
(including the transactions contemplated by this Agreement). Without limiting
the foregoing, in the event of any such claim, action, suit, proceeding or
investigation, to the fullest extent permitted under applicable Law (i) the
Company or Parent and the Surviving Corporation, as the case may be, shall pay
the fees and expenses of counsel selected by any Indemnified Party, which
counsel shall be reasonably satisfactory to the Company or to Parent and the
Surviving Corporation, as the case may be, promptly after statements therefor
are received (unless the Surviving Corporation shall elect to defend such
action) and (ii) the Company and Parent and the Surviving Corporation shall
cooperate in the defense of any such matter, provided, however, that none of the
Company, Parent or the Surviving Corporation shall be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld or delayed).
(c) For a period of six years after the Effective Time, Parent shall cause
to be maintained in effect the current directors' and officers' liability
insurance policies maintained by the Company (provided that Parent may
substitute therefor policies reasonably satisfactory to the Indemnified Parties
of at least the same coverage containing terms and conditions which are no less
advantageous) with respect to claims arising from facts or events that occurred
prior to the Effective Time; provided, however, that in no event shall Parent be
required to expend pursuant to this Section 6.05(c) more than an amount per year
equal to 250% of current annual premiums paid by the Company for such insurance
(which premiums the Company represents and warrants to be approximately $440,000
per year in the aggregate), and if the annual premium for such insurance at any
time during such period shall exceed 250% of such rate, Parent shall provide
such coverage as shall then be available at an annual premium equal to 250% of
such rate.
(d) This Section 6.05 is intended to be for the benefit of, and shall be
enforceable by, the Indemnified Parties, their heirs and personal
representatives and shall be binding on the Surviving Corporation and its
respective successors and assigns. In the event Parent, the Company or the
Surviving Corporation or any of their respective successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity in such consolidation or merger or
(ii) transfers all or substantially all its properties and assets to any person,
then, and in each case, proper provision shall be made
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so that the successors and assigns of Parent, the Company or the Surviving
Corporation, as the case may be, honor the indemnification obligations set forth
in this Section 6.05. The rights of each of the Indemnified Parties under this
Section 6.05 shall be in addition to any rights such person may have under the
Certificate of Incorporation or By-Laws of the Company or any of its
Subsidiaries, or under Delaware Law or any other applicable laws or under any
agreement of any Indemnified Party with the Company or any of its Subsidiaries.
SECTION 6.06 Obligations of Merger Sub and Parent LLC. Parent shall take
all action necessary to cause Merger Sub and Parent LLC to perform their
obligations under this Agreement and to consummate the Merger on the terms and
subject to the conditions set forth in this Agreement.
SECTION 6.07 Company Affiliates. No later than 30 days after the date of
this Agreement, the Company shall deliver to Parent a list of names and
addresses of those persons who were, in the Company's reasonable judgment, on
such date, affiliates (within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act) of the Company. The Company
shall provide Parent with such information and documents as Parent shall
reasonably request for purposes of reviewing such list. The Company shall use
its reasonable best efforts to deliver or cause to be delivered to Parent, prior
to the Effective Time, an affiliate letter in the form customarily obtained from
such affiliates for purposes of Rule 145, executed by each of the affiliates of
the Company identified in the foregoing list and any person who shall, to the
knowledge of the Company, have become an affiliate of the Company subsequent to
the delivery of such list.
SECTION 6.08 Further Action; Consents; Filings. (a) Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to (i) take, or cause to be taken, all appropriate
action and do, or cause to be done, all things necessary, proper or advisable
under applicable law or otherwise to consummate and make effective the Merger
and the other transactions contemplated by this Agreement, (ii) obtain from
Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations, rulings or orders required to be obtained or made by Parent or
the Company or any of their subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement (in the case of any such
application for a ruling from the Internal Revenue Service, such application
shall be made jointly by Parent and the Company) and (iii) make all necessary
filings, and thereafter make any other submissions requested by any Governmental
Entities in connection with such filings, with respect to this Agreement, the
Merger and the other transactions contemplated by this Agreement required under
(A) the Exchange Act and the Securities Act and the rules and regulations
thereunder and any other applicable federal or state securities laws, (B) the
HSR Act and (C) any other applicable Law; provided, however, that Parent shall
not be obligated to agree to material restrictions on the conduct of its
business following the Effective Time or to divest any of its material assets or
material assets of any of its affiliates, or the Company or any of its
affiliates. The parties hereto shall cooperate with each other in connection
with the making of all such filings, including by providing copies of all such
documents to the nonfiling party and its advisors prior to filing and, if
requested, by accepting all reasonable additions, deletions or changes suggested
in connection therewith. The parties may, as each deems advisable and necessary,
reasonably designate any competitively sensitive material provided to the other
under this Section as "outside counsel only." Such materials and the information
contained therein shall be given only to the outside legal counsel of the
recipient and will not be disclosed by such outside counsel to employees,
officers, or directors of the recipient unless express permission is obtained in
advance from the source of the materials or its legal counsel.
(b) Parent and the Company shall file as soon as practicable after the
date of this Agreement notifications under the HSR Act and shall respond as
promptly as practicable to all inquiries or requests received from the Federal
Trade Commission (the "FTC") or the Antitrust Division of the Department of
Justice for additional information or documentation and shall respond as
promptly as practicable to all inquiries and requests received from any State
Attorney General or other Governmental Entity in connection with antitrust
matters. Parent and the Company shall file as promptly as practicable following
the execution of this Agreement, a notification with the EC under Regulation
4064/89 and any notifications or other filings required in other non-U.S.
jurisdictions under antitrust or merger control Laws, rules or regulations.
Parent and the Company shall respond as promptly as practicable to all inquiries
and requests received from the FTC
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and the EC. The parties shall cooperate with each other in connection with the
making of all such filings or responses, including providing copies of all such
documents to the other party and its advisors prior to filing or responding.
SECTION 6.09 Plan of Reorganization; Tax Treatment. (a) This Agreement is
intended to constitute a "plan of reorganization" within the meaning of Treasury
Regulation Section 1.368-2(g). Each party hereto shall use its reasonable best
efforts to cause the Merger to qualify as a reorganization within the meaning of
Section 368(a) of the Code. Each party hereto shall use its reasonable best
efforts to cause the delivery of the opinions referred to in Sections 7.02(c)
and 7.03(c) and the delivery of representations substantially in the forms set
forth in Exhibits E and F hereto.
(b) The parties agree to report the Parent ORAs as stock for U.S. federal
income tax purposes unless otherwise required by a "determination" within the
meaning of Section 1313(a) of the Code or by law, provided that the holders
thereof report the Parent ORAs as stock for such purposes.
(c) For United States federal income tax purposes, the parties agree to
report the Parent OBSAs as two separate instruments with the debt component
treated as indebtedness and the warrant component treated as a zero principal
amount security, unless otherwise required by a determination within the meaning
of Section 1313(a) of the Code or by law, provided that the holders thereof so
treat the Parent OBSAs for United States federal income tax purposes.
SECTION 6.10 Public Announcements. The initial press release relating to
this Agreement shall be a joint press release the text of which has been agreed
to by each of Parent and the Company. Thereafter, unless otherwise required by
applicable Law or the requirements of the NYSE or Euronext, Parent and the
Company shall each use their reasonable best efforts to consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement, the Merger or any of the other transactions
contemplated by this Agreement.
SECTION 6.11 Euronext Listing. (a) Parent shall prepare and submit to
Euronext a listing application covering the Parent Ordinary Shares, Parent ORAs
and Parent warrants to be issued pursuant to the Merger and shall use its
reasonable best efforts to obtain admission to trading of such Parent Ordinary
Shares, Parent ORAs and Parent warrants at Euronext within five business days
from the Closing Date, including without limitation the payment of costs, fees
and commissions required to obtain and maintain such admission to trading.
(b) Parent shall prepare and submit to Euronext a listing application
covering the Parent Ordinary Shares issuable upon redemption of the Parent ORAs
and shall use its reasonable best efforts to obtain admission to trading of such
Parent Ordinary Shares at Euronext at the time such shares are issued upon
redemption of the Parent ORAs.
(c) Parent shall prepare and submit to Euronext a listing application
covering the Parent Ordinary Shares issuable upon exercise of the Parent
warrants to be issued pursuant to the Merger, and shall use its reasonable best
efforts to obtain admission to trading of such Parent Ordinary Shares at
Euronext at the time such Parent warrants become exercisable.
SECTION 6.12 Parent Governance. Parent shall take all necessary action to
cause the number of members of the Supervisory Board to be increased by two as
of the Effective Time, and to cause two designees of Dentsu to be appointed to
the Supervisory Board. Parent shall take all necessary action to cause as of the
Effective Time the number of members of Parent's Management Board to be
increased to five and Roger A. Haupt to be appointed to the Management Board and
as the President and Chief Operating Officer of Parent.
SECTION 6.13 Nominee Agreement. The Company and Parent shall use its
reasonable best efforts to execute and deliver a nominee agreement on terms
satisfactory to Parent and the Company.
SECTION 6.14 Issuance of Securities to Parent LLC. At or immediately
prior to the Effective Time, Parent shall issue to Parent LLC the Parent
Ordinary Shares, the Parent ORAs and the Parent OBSAs, in each case to which the
holders of Company Common Stock shall become entitled pursuant to the Merger.
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SECTION 6.15 Employee Benefits Matters. (a) From and after the Effective
Time until at least the first anniversary of the Effective Time, Parent shall or
shall cause the Surviving Corporation to either maintain the Company's
compensation levels and Company Benefit Plans (other than equity or equity-based
compensation or benefits) or provide compensation and employee benefits under
employee benefit plans to the employees and former employees of the Company and
the Company Subsidiaries that are in the aggregate no less favorable than those
provided to such persons pursuant to the Company Benefit Plans as in effect
immediately prior to the Effective Time (other than equity or equity-based
compensation or benefits). Parent and the Surviving Corporation shall recognize
(or cause to be recognized) service with the Company and the Company
Subsidiaries and any predecessor entities for purposes of vesting, eligibility
and level of benefits (but not benefit accrual under (i) plans for which
similarly situated employees of Parent and any Parent Subsidiary did not receive
credit for prior service upon establishment of the plan and (ii) any defined
benefit pension plans) under any plan or arrangement maintained by Parent, the
Surviving Corporation or any Parent Subsidiary or affiliate of Parent; provided,
however, that solely to the extent necessary to avoid duplication of benefits,
amounts payable under employee benefit plans provided by Parent, the Surviving
Corporation or a Parent Subsidiary may be reduced by amounts payable under
similar Parent Benefit Plans with respect to the same periods of service.
(b) The cost of the Company's Annual Incentive Plan (the "Incentive Plan")
has been included in the Company's 2002 budget, which has been provided to
Parent prior to the date hereof. From and after the Effective Time until
December 31, 2002, Parent shall or shall cause the Surviving Corporation to
maintain the Incentive Plan in accordance with its terms and conditions for all
eligible employees who participate in the Incentive Plan immediately prior to
the Effective Time and any newly hired employees who will be performing in
positions in which competitive market data supports bonus participation. Such
employees shall be paid the entire amount of his or her cash bonus no later than
March 15, 2003.
(c) Following the Effective Time, Parent and the Surviving Corporation
shall use reasonable efforts to cooperate to adopt or maintain stock option
plans compliant with applicable requirements of French law, for the benefit of
selected Company employees who are key employees and who continue employment
with Parent or one of its Subsidiaries. Prior to the Effective Time, Parent and
the Company shall use reasonable best efforts to determine the number of Parent
Ordinary Shares underlying options that will be granted under such plans for the
benefit of such selected Company employees.
(d) Parent and the Company hereby agree that the transactions contemplated
by this Agreement shall not constitute a "Hostile Change in Control" under the
Change in Control Agreements.
(e) The Company shall use its reasonable best efforts to submit the Change
in Control Agreements and Roger A. Haupt's employment agreement, as set forth in
Section 3.09(a) of the Company Disclosure Schedule, to the eligible Voting
Trustees for shareholder approval in accordance with the shareholder approval
requirements of Section 280G(b)(5)(B) of the Code. In addition, the Company
shall use its reasonable best efforts to submit the Cash Payments, to the extent
such payments constitute "excess parachute payments" (as defined in Section
280G(b)(1) of the Code), to the eligible Voting Trustees for shareholder
approval in accordance with the shareholder approval requirements of Section
280G(b)(5)(B) of the Code.
SECTION 6.16 Appointment of Custodian. From and after the Effective Time,
Parent shall appoint and maintain at its expense a custodian to assist former
stockholders of the Company with matters relating to the ownership of Parent
Ordinary Shares, usufruct interests, Parent ORAs and warrants detached from
Parent OBSAs received in the Merger. Such custodian shall provide services
similar to those provided by a depositary of American Depositary Receipts,
including with respect to distribution of voting materials, currency conversion
of dividends and receipt of avoir fiscal. It is agreed and understood that the
custodian shall not have legal, beneficial, equitable or other ownership of the
Parent Ordinary Shares, usufruct interests, Parent ORAs and warrants detached
from Parent OBSAs. In the event that any former stockholder of the Company
cannot, under applicable United States laws, exercise preemptive rights (droits
preferentiels de souscription) which may be associated with Parent Ordinary
Shares after the Effective Time, Parent will make arrangements to sell such
preemptive rights for the benefit of such former stockholder and pay the cash
proceeds therefrom to such person.
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SECTION 6.17 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger Sub, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or Merger Sub, any other actions and things to
vest, perfect or confirm of record or otherwise in the Surviving Corporation any
and all right, title and interest in, to and under any of the rights, properties
or assets of the Company acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger.
SECTION 6.18 Adjustments. If, after the date hereof and prior to the
earlier of the termination of this Agreement in accordance with its terms or the
Effective Time, Parent and the Company determine in their reasonable judgment
that consummation of the Merger on the terms contemplated by this Agreement
would not permit delivery of the opinions contemplated by Sections 7.02(c) or
7.03(c), Parent and the Company agree to negotiate in good faith adjustments to
this Agreement to address such matters in a manner that would substantially
preserve the economic benefits of this transaction for Parent and the
shareholders of the Company.
SECTION 6.19 Reporting Requirements. From and after the Closing, Parent
shall use reasonable best efforts to cause the Surviving Corporation to satisfy
the reporting requirements set forth in Treas. Reg. sec.1.367(a)-3(c)(6).
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01 Conditions to the Obligations of Each Party. The obligations
of the Company, Parent and Merger Sub to consummate the Merger are subject to
the satisfaction or waiver (where permissible) of the following conditions:
(a) either (i) if filed, the Registration Statement shall have been
declared effective by the SEC under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceeding for that purpose shall have been
initiated by the SEC, or (ii) the offer and sale of the Merger
Consideration under this Agreement shall have been validly made pursuant to
an exemption from Section 5 of the Securities Act;
(b) this Agreement shall have been approved and adopted by the
stockholders of the Company in accordance with the DGCL and the Voting
Trust Agreement;
(c) the Parent Proposals shall have been approved and adopted by the
requisite affirmative vote of the shareholders of Parent in accordance with
applicable French Laws and regulations, COB rules and regulations and
Parent's statuts;
(d) no Governmental Entity or court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, judgment, decree, executive order or award (an "Order") which
is then in effect and has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger;
(e) all consents, approvals and authorizations legally required to be
obtained to consummate the Merger shall have been obtained from and made
with all Governmental Entities, except for such consents, approvals and
authorizations the failure of which to obtain could not have or could not
reasonably be expected to have a Parent Material Adverse Effect (assuming
for purposes of this paragraph (e) that the Merger shall have been
effected);
(f) any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated, and, if applicable, confirmation shall have been received, by
way of a decision from the Commission of the European Union under
Regulation 4064/89 (with or without the initiation of proceedings under
Article 6(1)(c) thereof), that the Merger is compatible with the common
market (it being understood for the avoidance of doubt that this condition
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does not depend on receipt of any required approval for agreements or
arrangements between Parent and Dentsu);
(g) the respective parties thereto shall have executed and delivered
the Nominee Agreement; and
(h) the Bcom3 Merger shall have been completed on substantially the
terms set forth in the Bcom3 Merger Agreement.
SECTION 7.02 Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) the representations and warranties of the Company contained in
this Agreement shall be true and correct as of the Effective Time as though
made on and as of the Effective Time (except to the extent expressly made
as of an earlier date, in which case as of such date), except where the
failure to be so true and correct (without giving effect to any
qualification as to "materiality" or "Company Material Adverse Effect" set
forth therein) would not have or could not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, and
Parent shall have received a certificate of the Chief Executive Officer or
Chief Financial Officer of the Company to such effect;
(b) the Company shall have performed or complied with all agreements
and covenants required by this Agreement to be performed or complied with
by it on or prior to the Effective Time, except where the failure to so
comply would not have or could not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, and
Parent shall have received a certificate of the Chief Executive Officer or
Chief Financial Officer of the Company to that effect;
(c) Parent shall have received the opinion of Wachtell, Lipton, Rosen
& Katz, counsel to Parent, dated as of the Closing Date, based upon facts,
representations and assumptions set forth in or referred to in such
opinion, to the effect that for U.S. federal income tax purposes, the
Merger will qualify as a reorganization within the meaning of Section
368(a) of the Code. In rendering such opinion, Wachtell, Lipton, Rosen &
Katz may require and shall be entitled to rely upon representations,
rulings and opinions of Parent, the Company or others, including
representations substantially in the form of Exhibits E and F,
respectively;
(d) The holders of not more than 5% of the outstanding Company Common
Stock shall have demanded appraisal of their Shares in accordance with the
DGCL; and
(e) Parent and the Company shall have received the opinion of Kirkland
& Ellis, counsel to the Company, dated as of the date hereof and as of the
Closing Date, reasonably satisfactory in form and substance to Parent and
the Company, to the effect that, for United States federal income tax
purposes: (i) the limitations on each transferee's ownership rights set
forth in the 2000 Stock Purchase Agreements between the Company and the
holders of Class A Common Stock (the "2000 Stock Purchase Agreements")
constitute "nonlapse restrictions" within the meaning of Treasury
Regulation Section 1.83-3(h), (ii) each person who has entered into a 2000
Stock Purchase Agreement with the Company owns the Class A Common Stock
covered by such person's 2000 Stock Purchase Agreement (and owned such
stock as of the date of this Agreement), and (iii) such stock was
"transferred" to such person prior to the date of this Agreement and such
stock is "substantially vested" and not subject to a "substantial risk of
forfeiture" in the hands of such person (and became so prior to the date of
this Agreement), in each case, within the meaning of Code Section 83 and
the Treasury Regulations thereunder.
SECTION 7.03 Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) each of the representations and warranties of Parent and Merger
Sub contained in this Agreement shall be true and correct as of the
Effective Time as though made on and as of the Effective Time (except to
the extent expressly made as of an earlier date, in which case as of such
date), except where failure to be so true and correct (without giving
effect to any qualification as to "materiality" or
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"Parent Material Adverse Effect" set forth therein) would not have or could
not reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect and the Company shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of
Parent to such effect;
(b) Parent and Merger Sub shall have performed or complied with all
agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time, except where the
failure to so comply would not have or could not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect,
and the Company shall have received a certificate of the Chief Executive
Officer or Chief Financial Officer of Parent to that effect; and
(c) the Company shall have received the opinion of Kirkland & Ellis,
special tax counsel to the Company, dated as of the Closing Date, based
upon facts, representations and assumptions set forth in or referred to in
such opinion, to the effect that for U.S. federal income tax purposes, (i)
the Merger will qualify as a reorganization within the meaning of Section
368(a) of the Code and (ii) each transfer of property to Parent by a
stockholder of the Company pursuant to the Merger will not be subject to
Section 367(a)(1) of the Code. In rendering such opinion, Kirkland & Ellis
may require and shall be entitled to rely upon representations, rulings and
opinions of Parent, the Company or others including representations
substantially in the form of Exhibits E and F, respectively. The opinion
set forth in clause (ii) above may assume that any stockholder who is a
"five-percent transferee shareholder" within the meaning of Treasury
Regulation Section 1.367(a)-3(c)(5)(ii) will file the agreement described
in Treasury Regulation Section 1.367(a)-3(c)(1)(iii)(B).
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 Termination. This Agreement may be terminated and the Merger
and the other transactions contemplated by this Agreement may be abandoned at
any time prior to the Effective Time, notwithstanding any requisite approval and
adoption of this Agreement and the transactions contemplated by this Agreement,
as follows:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the Effective Time shall not
have occurred on or before September 30, 2002 (the "Outside Date");
provided, however, that if (x) the Effective Time has not occurred by such
date by reason of non-satisfaction of any of the conditions set forth in
Sections 7.01(d), 7.01(e) or 7.01(f) and (y) all other conditions in
Article VII have theretofore been satisfied or (to the extent legally
permissible) waived or are then capable of being satisfied, the Outside
Date shall be December 7, 2002; and provided further, that the right to
terminate this Agreement under this Section 8.01(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before the applicable Outside Date;
(c) there shall be any Order which is final and nonappealable
preventing the consummation of the Merger;
(d) by the Company if (i) the Supervisory Board or the Management
Board of Parent withdraws, modifies or changes its recommendation of this
Agreement or the transactions contemplated hereby in a manner adverse to
the Company or shall have resolved to do so; (ii) the Supervisory Board or
the Management Board of Parent shall have recommended to the shareholders
of Parent a Competing Transaction or shall have resolved to do so; or (iii)
a tender offer or exchange offer for 50% or more of the outstanding shares
of capital stock of Parent is commenced, and the Management Board or the
Supervisory Board of Parent fails to recommend against acceptance of such
tender offer or exchange offer by its shareholders (including by taking no
position with respect to the acceptance of such tender offer or exchange
offer by its shareholders);
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(e) by Parent if (i) the Board of Directors of the Company withdraws,
modifies or changes its recommendation of this Agreement or the
transactions contemplated hereby in a manner adverse to Parent or shall
have resolved to do so, (ii) the Board of Directors of the Company shall
have recommended to the shareholders of the Company a Competing Transaction
or shall have resolved to do so or (iii) a tender offer or exchange offer
for 50% or more of the outstanding shares of capital stock of the Company
is commenced, and the Board of Directors of the Company fails to recommend
against acceptance of such tender offer or exchange offer by its
shareholders (including by taking no position with respect to the
acceptance of such tender offer or exchange offer by its shareholders);
(f) by either Parent or the Company if this Agreement shall fail to
receive the requisite vote for approval at the Company Stockholders'
Meeting;
(g) by either Parent or the Company if the resolutions set forth in
the Parent Proxy Statement related to the approval of the Parent Proposals
shall fail to receive the requisite vote at the Parent Shareholders'
Meeting;
(h) by Parent upon a breach of any material representation, warranty,
covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have
become untrue, in either case such that the conditions set forth in Section
7.02(a) and Section 7.02(b) would not be satisfied ("Terminating Company
Breach"); provided, however, that, if such Terminating Company Breach is
curable by the Company through the exercise of its best efforts and for so
long as the Company continues to exercise such best efforts, Parent may not
terminate this Agreement under this Section 8.01(h); or
(i) by the Company upon a breach of any material representation,
warranty, covenant or agreement on the part of Parent and Merger Sub set
forth in this Agreement, or if any representation or warranty of Parent and
Merger Sub shall have become untrue, in either case such that the
conditions set forth in Section 7.03(a) and Section 7.03(b) would not be
satisfied ("Terminating Parent Breach"); provided, however, that, if such
Terminating Parent Breach is curable by Parent and Merger Sub through the
exercise of their respective best efforts and for so long as Parent and
Merger Sub continue to exercise such best efforts, the Company may not
terminate this Agreement under this Section 8.01(i).
SECTION 8.02 Effect of Termination. Except as provided in Section 9.01,
in the event of termination of this Agreement pursuant to Section 8.01, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of Parent, Merger Sub or the Company or any of their
respective officers or directors, and all rights and obligations of each party
hereto shall cease, subject to the remedies of the parties set forth in Sections
8.05(b) and (c), provided, however, that nothing herein shall relieve any party
from liability for the willful breach of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
SECTION 8.03 Amendment. This Agreement may be amended by the parties
hereto prior to the Effective Time; provided, however, that, after the approval
of this Agreement by the shareholders of the Company, no amendment shall be made
which by Law requires further approval by such shareholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 8.04 Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto,
and (c) waive compliance with any agreement or condition contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby. No failure or delay by any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by Law.
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SECTION 8.05 Expenses. (a) Except as set forth in this Section 8.05, all
Expenses (as defined below) incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be paid by the party incurring
such Expenses, whether or not the Merger or any other transaction is
consummated, except that the Company and Parent each shall pay one-half of all
Expenses relating to printing, filing and mailing the Registration Statement (if
required) and the Proxy Statements and all SEC, COB and other regulatory filing
fees incurred in connection with the Registration Statement and the Proxy
Statements. "Expenses" as used in this Agreement shall include all reasonable
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement, the preparation, printing, filing and mailing of
the Registration Statement (if required) and the Proxy Statements, the
solicitation of shareholder approvals, the filing of any required notices under
the HSR Act, European Regulation 4064/89 or other similar regulations and all
other matters related to the closing of the Merger and the other transactions
contemplated by this Agreement.
(b) The Company agrees that, if: (A) Parent shall terminate this Agreement
pursuant to Section 8.01(e); (B)(i) Parent or the Company shall terminate this
Agreement pursuant to Section 8.01(f) due to the failure of the Company's
shareholders to approve this Agreement, and (ii) prior to the time of such
failure to so approve this Agreement there shall have been made a proposal for a
Competing Transaction with respect to the Company, and (iii) within twelve (12)
months following the termination of this Agreement the Company executes a
definitive agreement providing for, or consummates, a Competing Transaction; or
(C)(i) Parent or the Company shall terminate this Agreement pursuant to Section
8.01(b) because the Effective Time has not occurred on or before the applicable
Outside Date, (ii) on or before the applicable Outside Date there shall have
been made a proposal for a Competing Transaction with respect to the Company,
and (iii) within twelve (12) months following the termination of this Agreement
the Company executes a definitive agreement providing for, or consummates, a
Competing Transaction, then the Company shall pay to Parent an amount equal to
$90 million.
(c) Parent agrees that, if: (A) the Company shall terminate this Agreement
pursuant to Section 8.01(d); (B)(i) Parent or the Company shall terminate this
Agreement pursuant to Section 8.01(g) due to the failure of Parent's
shareholders to approve the Parent Proposals, (ii) prior to the time of such
failure to so approve the Parent Proposals, there shall have been made a
proposal for a Competing Transaction with respect to Parent, and (iii) within
twelve (12) months following the termination of this Agreement, Parent executes
a definitive agreement providing for, or consummates, a Competing Transaction;
or (C)(i) Parent or the Company shall terminate this Agreement pursuant to
Section 8.01(b) because the Effective Time has not occurred on or before the
applicable Outside Date, (ii) on or before the applicable Outside Date there
shall have been made a proposal for a Competing Transaction with respect to
Parent, and (iii) within twelve (12) months following the termination of this
Agreement Parent executes a definitive agreement providing for, or consummates,
a Competing Transaction, then Parent shall pay to the Company an amount equal to
$90 million.
(d) Parent agrees that the payment set forth in Section 8.05(b) shall be
the sole and exclusive remedy of Parent upon a termination of this Agreement
pursuant to Sections 8.01(b), (e) and (f), and such remedy shall be limited to
the sum stipulated in Section 8.05(b), regardless of the circumstances giving
rise to such termination; provided, however, that nothing herein shall relieve
the Company from liability for the willful breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
(e) The Company agrees that the payment provided for in Section 8.05(c)
shall be the sole and exclusive remedy of the Company upon a termination of this
Agreement pursuant to Sections 8.01(b), (d) and (g), and such remedy shall be
limited to the sum stipulated in Section 8.05(c), regardless of the
circumstances giving rise to such termination; provided, however, that nothing
herein shall relieve Parent from liability for the willful breach of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
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(f) Except as otherwise required by Section 8.01, any payment required to
be made pursuant to Section 8.05(b) or 8.05(c) shall be made to the receiving
party not later than two business days after delivery to the paying party of
notice of demand for payment, and shall be made by wire transfer of immediately
available funds to an account designated by the notice of demand for payment
delivered pursuant to this Section 8.05(f). In the case of a payment pursuant to
Section 8.05(b)(A) or 8.05(c)(A), such notice of demand may be delivered on or
after termination of this Agreement. In the case of a payment pursuant to
Sections 8.05(b)(B), 8.05(b)(C), 8.05(c)(B) or 8.05(c)(C) hereof, such notice of
demand may be delivered on or after the earlier of execution of the definitive
agreement providing for, or the consummation of, the Competing Transaction.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
and in any certificate delivered pursuant hereto shall terminate at the
Effective Time or upon the termination of this Agreement pursuant to Section
8.01, as the case may be, except that the agreements set forth in Articles I and
II and Sections 6.01(d), 6.03(b), 6.05, 6.06, 6.09(b), 6.09(c), 6.11, 6.12,
6.15, 6.16, 6.17 and 6.19 and this Article IX shall survive the Effective Time
and those set forth in Sections 6.03(b), 8.02 and 8.05 and this Article IX shall
survive termination.
SECTION 9.02 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, facsimile, telegram or telex or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 9.02):
if to Parent or Merger Sub or Parent LLC:
Publicis Groupe S.A.
Avenue des Champs Elysees
75008 Paris, France
Facsimile No.: 011-331-44-43-75-50
Attention: M. Maurice Levy
M. Jean-Paul Morin
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Facsimile No.: (212) 403-2000
Attention: Martin Lipton
Elliott V. Stein
if to the Company:
Bcom3 Group, Inc.
35 West Wacker Drive
Chicago, IL 60601
Facsimile No.: (312) 220-6545
Attention: Roger A. Haupt
Christian E. Kimball
A-40
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Facsimile No.: (212) 450-4800
Attention: Joseph Rinaldi
SECTION 9.03 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by,
or is under common control with such specified person;
(b) "business day" means any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in The City of New York;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise;
(d) "knowledge" means, with respect to any matter in question, that
the named executive officers of the Company, as identified in its
registration statement on Form 10 filed with the SEC on April 30, 2001, or
Parent, as identified in its annual report on Form 20-F, as the case may
be, have actual knowledge of such matter;
(e) "person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person"
as defined in Section 13(d)(3) of the Exchange Act), trust, association or
entity or government, political subdivision, agency or instrumentality of a
government; and
(f) "subsidiary" or "subsidiaries" of any person means any
corporation, partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary)
owns, directly or indirectly, more than 50% of the stock or other equity
interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such
corporation or other legal entity.
SECTION 9.04 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement
be consummated as originally contemplated to the fullest extent possible.
SECTION 9.05 Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Article II, Section 6.01(d), Section 6.05 and Section 6.16 (collectively, the
"Third Party Provisions"), nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement. The Third Party Provisions may
be enforced by the beneficiaries thereof. Subject to Section 6.05, Parent shall
reimburse all expenses, including reasonable attorneys' fees, that are incurred
by any person who prevails in any litigation or other proceeding required to
enforce the obligations of the Surviving Corporation and Parent under the Third
Party Provisions.
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SECTION 9.06 Incorporation of Exhibits. The Company Disclosure Schedule,
the Parent Disclosure Schedule and all Exhibits attached hereto and referred to
herein are hereby incorporated herein and made a part hereof for all purposes as
if fully set forth herein.
SECTION 9.07 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 9.08 Governing Law; Forum. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware applicable
to contracts executed in and to be performed in that state and without regard to
any applicable conflicts of law. All actions and proceedings arising out of or
relating to this Agreement shall be heard and determined in the courts of the
State of Delaware or the United States District Court for the State of Delaware.
Each of the parties to this Agreement (a) consents to submit itself to the
personal jurisdiction of the courts of the State of Delaware and the United
States District Court for the State of Delaware in the event any dispute arises
out of this Agreement or any of the transactions contemplated by this Agreement,
(b) agrees that it will not attempt to deny or defeat such personal jurisdiction
by motion or other request for leave from any such court and (c) agrees that it
will not bring any action in relation to this Agreement, the Merger or any of
the other transactions contemplated by this Agreement in any court other than
the courts of the State of Delaware and the United States District Court for the
State of Delaware. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 9.02 shall be deemed
effective service of process on such party.
SECTION 9.09 Waiver of Jury Trial. Each of the parties hereto hereby
irrevocably waives any and all right to trial by jury in any legal proceeding
arising out of or related to this agreement or the transactions contemplated
hereby.
SECTION 9.10 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.11 Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement. This Agreement shall become
effective when each party hereto shall have received counterparts hereof signed
by all of the other parties hereto.
SECTION 9.12 Entire Agreement. This Agreement (including the Exhibits,
the Company Disclosure Schedule and the Parent Disclosure Schedule) and the
Confidentiality Agreements constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
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IN WITNESS WHEREOF, Parent, Merger Sub, Parent LLC and the Company have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
PUBLICIS GROUPE S.A.
By: /s/ MAURICE LEVY
------------------------------------
Name: Maurice Levy
Title: President du Directoire
PHILADELPHIA MERGER CORP.
By: /s/ JEAN-PAUL MORIN
------------------------------------
Name: Jean-Paul Morin
Title: Treasurer and Secretary
PHILADELPHIA MERGER LLC
By: /s/ JEAN-PAUL MORIN
------------------------------------
Name: Jean-Paul Morin
Title: Treasurer and Secretary
BCOM3 GROUP, INC.
By: /s/ ROGER A. HAUPT
------------------------------------
Name: Roger A. Haupt
Title: Chairman and CEO
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ANNEX B
TRANSFER RESTRICTIONS IN LETTER OF TRANSMITTAL
Each letter of transmittal will set forth the agreement of the holder of
Class A Common Stock executing such letter to be bound by the restrictions on
transfer set forth below as a "Stockholder" thereunder and will be countersigned
by Publicis.
SECTION 1. Certain Defined Terms. The following terms as used herein
shall have the following meanings:
"Class A Common Stock" means the Class A common stock, par value $0.01 per
share, of the Company.
"Class A Consideration" means the consideration that Stockholders are
entitled to receive under Section 2.01(a)(i) of the Merger Agreement in exchange
for shares of Class A Common Stock.
"Closing Date" means that date upon which the closing of the Merger occurs
under the Merger Agreement.
"Effective Time" means the effective time of the Merger under the Merger
Agreement.
"Merger" means the merger of the Company into Philadelphia Merger Corp. as
provided for in the Merger Agreement.
"Merger Agreement" means the Agreement and Plan of Merger dated as of March
7, 2002, as amended, among Publicis Groupe S.A. ("Parent"), Philadelphia Merger
Corp., Philadelphia Merger LLC, and Bcom3 Group, Inc. (the "Company").
"Parent Securities" means (i) ordinary shares of Parent having a nominal
value of E0.40 per share ("Parent Ordinary Shares"), (ii) usufruct (usufruit)
interests ("Usufructs") in Parent Ordinary Shares, (iii) obligations
remboursables en actions having a nominal value of E549.00 each ("Parent ORAs")
and (iv) warrants to purchase Parent Ordinary Shares ("Warrants"), in each case
to be received by the Stockholders as Class A Consideration.
"Stockholder" means each holder of Class A Common Stock immediately prior
to the Effective Time.
"Transfer Agent" means Euro Emetteurs Finance, or its successor, serving as
transfer agent for the Parent Securities.
SECTION 2. Transfer Restrictions. (a) General. For purposes of this
Letter of Transmittal (this "Agreement"), "Transfer" means any transfer of
Parent Securities, or of any interest in any Parent Securities, whether
voluntarily or involuntarily made, (i) by way of sale, gift or other
disposition, (ii) by way of pledge or hypothecation or the creation of a
security interest, (iii) by way of attachment, levy or lien, (iv) in connection
with insolvency, (v) in connection with a divorce, decree of separate
maintenance or any other arrangement for the adjustment of marital rights, (vi)
into, or out of, joint tenancy, tenancy in common, or tenancy by virtue of
community property or similar rights, (vii) to any trustee, receiver,
administrator, executor, custodian, or guardian of an estate or property or
(viii) into any trust, or in any form the effect of which, expressly or
constructively, would create a trust or a separation of the ownership of the
Parent Securities into legal interests and beneficial interests. The
restrictions on Transfer set forth in this Section 2 are hereinafter referred to
as the "Transfer Restrictions."
(b) Parent Ordinary Shares and Usufructs. No Stockholder may Transfer any
Parent Ordinary Shares or Usufructs received by such Stockholder as Class A
Consideration; provided that such Transfer Restriction shall cease to apply:
(i) on the date that is six months after the Closing Date, to 25% of
the aggregate number of Parent Ordinary Shares to be received by the
Stockholders in the aggregate as Class A Consideration;
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(ii) on the date that is twelve months after the Closing Date, to an
additional 25% of the aggregate number of Parent Ordinary Shares to be
received by the Stockholders in the aggregate as Class A Consideration;
(iii) on the date that is eighteen months after the Closing Date, to
an additional 25% of the aggregate number of Parent Ordinary Shares to be
received by the Stockholders in the aggregate as Class A Consideration; and
(iv) on the date that is twenty-four months after the Closing Date, to
the remaining 25% of the aggregate number of Parent Ordinary Shares to be
received by the Stockholders in the aggregate as Class A Consideration;
provided further that, for purposes of clauses (i) through (iv) above, the
Parent Ordinary Shares to be received as Class A Consideration shall include the
Parent Ordinary Shares which will result from the reversion of bare legal title
to the holders of the Usufructs at the end of the term of the usufruct
arrangement set forth in Section 2.03(b) of the Merger Agreement, which shares
shall be allocated entirely to the last 25% block referenced in clause (iv)
above; and provided further, for the avoidance of doubt, that no Stockholder may
Transfer any corresponding Usufructs during the term of such usufruct
arrangement.
(c) Parent ORAs. No Stockholder may Transfer any Parent ORAs received by
such Stockholder as Class A Consideration; provided that such Transfer
Restriction shall cease to apply:
(i) on the date that is thirty months after the Closing Date, to 25%
of the aggregate number of Parent ORAs to be received by the Stockholders
in the aggregate as Class A Consideration;
(ii) on the date that is thirty-six months after the Closing Date, to
an additional 25% of the aggregate number of Parent ORAs to be received by
the Stockholders in the aggregate as Class A Consideration;
(iii) on the date that is forty-two months after the Closing Date, to
an additional 25% of the aggregate number of Parent ORAs to be received by
the Stockholders in the aggregate as Class A Consideration; and
(iv) on the date that is forty-eight months after the Closing Date, to
the remaining 25% of the aggregate number of Parent ORAs to be received by
the Stockholders in the aggregate as Class A Consideration.
(d) Warrants. No Stockholder may Transfer any Warrants received by such
Stockholder as Class A Consideration; provided that such Transfer Restriction
shall cease to apply:
(i) on the date that is thirty months after the Closing Date, to 25%
of the aggregate number of Warrants to be received by the Stockholders in
the aggregate as Class A Consideration;
(ii) on the date that is thirty-six months after the Closing Date, to
an additional 25% of the aggregate number of Warrants to be received by the
Stockholders in the aggregate as Class A Consideration;
(iii) on the date that is forty-two months after the Closing Date, to
an additional 25% of the aggregate number of Warrants to be received by the
Stockholders in the aggregate as Class A Consideration; and
(iv) on the date that is forty-eight months after the Closing Date, to
the remaining 25% of the aggregate number of Warrants to be received by the
Stockholders in the aggregate as Class A Consideration.
(e) Accelerated Expiration. The percentage of any type of Parent
Securities with respect to which the Transfer Restrictions shall expire at any
date as provided for in paragraphs (b) through (d) may be increased at the sole
option of Parent prior to the expiration of the relevant six-month period, in
which event the percentage of such type of Parent Securities with respect to
which the Transfer Restrictions shall expire at the conclusion of the
immediately subsequent six-month period (and, if necessary, in any subsequent
six-month
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periods) shall be reduced by a corresponding amount. (For example, if Parent
chooses to permit the Transfer Restrictions to expire with respect to 30% of the
Parent Ordinary Shares during one such six-month period, the Transfer
Restrictions shall expire with respect to only 20% of the Parent Ordinary Shares
in the following period.)
(f) Allocation Among Stockholders. The expiration of Transfer Restrictions
provided for in paragraphs (b) through (e) shall inure to the benefit of all
Stockholders on a pro rata basis according to the number of each class of Parent
Securities to be received by each Stockholder immediately following the
Effective Time; provided that if at any given time any Stockholder is otherwise
not permitted to Transfer any of its Parent Securities at such time (in spite of
such expiration of the Transfer Restrictions on such Parent Securities) as a
result of separate contractual obligations to Parent that specifically waive the
right to be included in such pro rata determination hereunder, then such Parent
Securities of such Stockholder shall not be included in such pro rata
determination. Such pro rata expiration of Transfer Restrictions shall apply to
each Stockholder as set forth in the previous sentence, whether or not such
Stockholder determines to Transfer such Parent Securities upon such expiration.
(g) Certain Events. The number of Parent Securities with respect to which
the Transfer Restrictions will cease to apply pursuant to paragraphs (b) through
(e) shall be appropriately adjusted in the event that after the Effective Time
Parent (i) subdivides its outstanding Parent Securities into a larger number of
Parent Securities or (ii) combines its outstanding Parent Securities into a
smaller number of Parent Securities.
(h) Permitted Transfers. (i) Notwithstanding the foregoing, no Transfer
Restrictions shall apply to, and each Stockholder may in its sole discretion
make, any Transfer of any Parent Securities comprising the Class A Consideration
(A) by way of gift or other transfer for estate planning purposes, (B) by way of
gift to any charitable organization, (C) to any other Stockholder for value or
by gift, (D) to a bank or other financial institution as collateral, by pledge
or otherwise or (E) to any transferee in an involuntary Transfer that occurs by
operation of law or is required by law; provided that the transferee in any such
Transfer agrees in writing (x) to be bound by the terms and conditions relating
to Transfers of Parent Securities set forth in this Agreement, (y) to hold the
Parent Securities received in such Transfer in pure registered form (nominatif
pur) with the Transfer Agent for so long as such Parent Securities are subject
to the Transfer Restrictions and (z) not to enter into hedging transactions with
respect to any Parent Ordinary Shares or Usufructs in connection with or related
to such Transfer.
(ii) Notwithstanding the foregoing, no Transfer Restrictions shall
apply to, and each Stockholder may in its discretion make, a Transfer of
Parent Securities comprising the Class A Consideration (A) that is a tender
or sale into a public tender offer (offre publique d'achat ou d'echange)
for such Parent Securities or (B) as part of the sale of Parent, whether by
merger, consolidation or otherwise.
(iii) Any instruction by a Stockholder to the Transfer Agent to effect
a Transfer pursuant to the foregoing provisions of this Section 2(h) shall
(A) set forth the name of the transferee in such Transfer, (B) identify the
specific provision of this Section 2(h) that permits such Transfer and (C)
only in the case of any Transfer pursuant to Section 2(h)(i), be
accompanied by a copy of the written agreement of the transferee
contemplated by such Section 2(h)(i). At the time such instruction is sent
to the Transfer Agent, the Stockholder effecting such Transfer shall also
send a copy of such instruction and, if applicable, such written agreement,
to Parent.
(i) No Application to Other Parent Securities. For the avoidance of doubt,
neither the Transfer Restrictions in this Section 2 nor the provisions of
Section 3 shall apply to Parent Ordinary Shares that are issued upon the
redemption of Parent ORAs, Parent Ordinary Shares that are issued upon the
exercise of Warrants, or any Parent Securities not comprising the Class A
Consideration.
(j) Holding in Pure Registered Form. Each Stockholder agrees to hold such
Stockholder's Parent Securities comprising the Class A Consideration in pure
registered form (nominatif pur) with the Transfer Agent for so long as such
Parent Securities are subject to the Transfer Restrictions.
SECTION 3. Orderly Marketing Procedures for Public Sales. (a) General.
Until the applicable expiration date set forth in Section 3(i), any and all
sales by a Stockholder (whether directly or through an
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agent) of Parent Securities comprising the Class A Consideration on any
securities exchange or public quotation system (a "Public Sale") after
expiration of the applicable Transfer Restrictions set forth in Section 2 (other
than sales pursuant to Section 2(h)) shall be executed in accordance with the
procedures contained in this Section 3 (collectively, the "Orderly Marketing
Procedures"). For the avoidance of doubt, this Section 3 shall not apply to any
sale that is not a Public Sale by a Stockholder.
(b) Monthly Polling. Commencing on the five-month anniversary of the
Closing Date, and continuing on each monthly anniversary thereafter through the
fifty-three month anniversary of the Closing Date (each such date, a "Poll
Date"), Parent or a financial institution appointed by Parent and reasonably
acceptable to the Stockholders Committee (the "Polling Agent") shall deliver to
each Stockholder a written questionnaire (each, a "Poll") (i) specifying the
number and type of Parent Securities held by such Stockholder with respect to
which the Transfer Restrictions will have ceased to apply under Sections 2(b)
through 2(e), but which will still be subject to the Orderly Marketing
Procedures contained in this Section 3, in each case effective as of the
upcoming monthly anniversary of the Closing Date following the Poll Date (the
"Effective Date"), and (ii) requesting information as to the number and type of
such Parent Securities that such Stockholder desires to sell for cash within the
approximately 30-day period beginning on the Effective Date and ending on the
next monthly anniversary of the Closing Date (the "Effective Period"), and the
minimum price at which such Stockholder would be willing to consummate such sale
within the Effective Period. (By way of example, the first Poll Date will occur
on the five-month anniversary of the Closing Date, the related Effective Date
will occur on the six-month anniversary of the Closing Date, and the related
Effective Period will be the one-month period commencing on such Effective
Date.) Any Stockholder so desiring to sell any such Parent Securities within the
Effective Period shall deliver within 15 days after the Poll Date (each such
15th day after the Poll Date being referred to as a "Response Date") a written
response (each, a "Stockholder Response") to the Polling Agent providing the
information requested in the Poll. Subject to Section 3(h) and Section 3(i), any
Stockholder that does not deliver a timely Stockholder Response shall not be
eligible to make a Public Sale of such Parent Securities within the Effective
Period (and will need to wait until the next monthly Poll). The Polling Agent
shall provide a copy of all Stockholder Responses (or a summary thereof) to
Parent.
(c) Right of First Refusal or Right of First Offer for Parent ORAs and
Warrants. With respect to any Stockholder Response delivered on or prior to the
Response Date that indicates a desire to sell Parent ORAs or Warrants (each, an
"Offered Security"), either (A) the provisions of Section 3(c)(i) shall apply,
if there is an Active Public Market for such Offered Security on the Response
Date or (B) the provisions of Section 3(c)(ii) shall apply, if there is no
Active Public Market for such Offered Security on the Response Date. For
purposes of this Agreement, an "Active Public Market" means, with respect to any
Offered Security on any Response Date, that at least two million Euros worth in
the aggregate of such Offered Security was traded on Euronext by parties
unaffiliated with Parent in bona fide arms-length transactions during the five
consecutive trading days immediately preceding the Response Date.
(i) Right of First Refusal. (A) If there is an Active Public Market
for the applicable Offered Security on the Response Date, the delivery of a
Stockholder Response with respect to such Offered Security on or prior to
the Response Date shall constitute an offer (an "Offer") by the Stockholder
(in such capacity, a "Seller") delivering such Stockholder Response to sell
such Offered Security, in an amount up to the maximum number indicated in
such Stockholder Response, to Parent for cash at the Market Price (as
defined below), subject to any minimum price at which such Seller indicated
it would be willing to sell such Offered Securities in its Stockholder
Response. Such Offer shall be irrevocable until the 20th day after the Poll
Date. An Offer may be accepted, in whole or in part, by the delivery by
Parent of an irrevocable notice of acceptance to such Seller on or prior to
such 20th day (the date such notice is delivered, the "Acceptance Date").
If Parent fails to so notify the Seller by such 20th day, Parent shall be
deemed to have declined the Offer.
(B) If Parent accepts an Offer, Parent shall purchase and pay in
immediately available funds, by bank or certified check or other means
specified by the Seller, for the aggregate number of Offered Securities it
has elected to purchase on the third business day in Paris, France
following the Acceptance Date; provided that if Parent elects to purchase
some, but not all, Offered Securities of the same type
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being offered by multiple Sellers in response to the same Poll, then Parent
shall purchase such Offered Securities from such Sellers on a pro rata
basis according to the number of such Offered Securities offered by each
such Seller at or below the Market Price. The purchase price for the
Offered Securities from each Seller that Parent elects to purchase shall be
the aggregate Market Price for such Offered Securities on the Acceptance
Date; provided that if such Market Price is less than the minimum price at
which such Seller indicated it would be willing to sell such Offered
Securities in its Stockholder Response, then such purchase and payment
shall not be consummated unless such Seller agrees to sell to Parent at the
Market Price. The "Market Price" for each Offered Security shall be the
official closing price of such security on Euronext on the Acceptance Date
(or, if there was no trading in the Offered Security on Euronext on the
Acceptance Date, the closing price of such security on Euronext on the last
day such trading occurred prior to the Acceptance Date).
(ii) Right of First Offer. (A) If there is no Active Public Market
for the applicable Offered Security on the Response Date, the delivery of a
Stockholder Response with respect to such Offered Security by any
Stockholder shall entitle Parent to make an offer to purchase such Offered
Security, in an amount up to the maximum number indicated in such
Stockholder Response, for cash. If Parent desires to exercise such right,
it shall do so by delivering to such Stockholder, on or prior to the 20th
day after the Poll Date, a written notice (a "Parent Offer") setting forth
the number of Offered Securities that Parent desires to purchase and the
purchase price per Offered Security that Parent is willing to pay (the
"Parent Offer Price"). Parent shall offer the same price to all
Stockholders with respect to any given Poll, and if Parent offers to
purchase some, but not all, Offered Securities of the same type being
offered by multiple Stockholders in response to the same Poll, then Parent
shall offer to purchase such Offered Securities from such Stockholders on a
pro rata basis according to the number of such Offered Securities each such
Stockholder indicated it desired to sell in its Stockholder Response. Such
Parent Offer shall be irrevocable until the 25th day after the Poll Date. A
Parent Offer may be accepted, in whole or in part, by the delivery by a
Stockholder of an irrevocable notice of acceptance to Parent on or prior to
such 25th day (the "Parent Offer Acceptance Date"). If a Stockholder fails
to so notify Parent by such 25th day, such Stockholder shall be deemed to
have declined the Parent Offer.
(B) If a Stockholder accepts a Parent Offer, Parent shall purchase and
pay in immediately available funds, by bank or certified check or other
means specified by the Stockholder, for the aggregate number of Offered
Securities the Stockholder has elected to sell, on the third business day
in Paris, France following the Parent Offer Acceptance Date. The purchase
price shall equal the aggregate Parent Offer Price for all Offered
Securities that are purchased.
(C) If a Stockholder does not accept a Parent Offer (or accepts a
Parent Offer only in part), any Offered Securities covered by, but not sold
into, such Parent Offer shall be eligible for sale during the Effective
Period either (1) in the Proposed Sale for that Effective Period, if
Section 3(e) applies in that Effective Period or (2) in any Public Sale for
that Effective Period, if Section 3(d) applies in that Effective Period;
provided that in the case of clause (2), such Stockholder shall only be
permitted to make a Public Sale at a price per Offered Security greater
than the Parent Offer Price.
(d) Direct Sale of Securities. With respect to any Poll, if the aggregate
number of such Parent Securities that all Stockholders desire to sell within the
related Effective Period (excluding any Parent Securities that Parent has
elected to purchase under Section 3(c)(i) or any Parent Securities that Parent
has offered to purchase under Section 3(c)(ii)) represents less than 1.4 million
Parent Ordinary Shares, assuming redemption of all Parent ORAs and exercise of
all Warrants desired to be sold (the "Direct Sale Threshold"), then all such
Parent Securities (excluding any Parent Securities that Parent has elected to
purchase under Section 3(c), but including any Parent Securities eligible for
sale under Section 3(c)(ii)(C)(2)) may be freely sold in a Public Sale during
the applicable Effective Period without compliance with Section 3(e). In the
event that the Direct Sale Threshold has been exceeded, Section 3(e) shall
apply; provided that each Stockholder who has delivered a Stockholder Response
need not comply with Section 3(e) unless such Stockholder receives a Sales
Notice (as defined below) no later than the 20th day after the Poll Date.
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(e) Sale Amount and Method. (i) With respect to any Poll, if the aggregate
number of Parent Securities that the Stockholders desire to sell within the
related Effective Period represents at least the Direct Sale Threshold, the
Investment Banks shall evaluate the then existing market conditions for the sale
of Parent Securities and determine the appropriate method for sale and amount of
Parent Securities to be sold consistent with maximizing the sales price and
amount of Parent Securities to be sold; provided that such amount of Parent
Securities to be sold within such Effective Period shall in no event be less
than the Direct Sale Threshold (the "Proposed Sale"). For purposes of this
Agreement:
"Investment Banks" means Lazard Freres & Co. LLC (or such other
internationally-recognized investment bank designated by Parent with the consent
of the Stockholders Committee, which shall not be unreasonably withheld) and
Morgan Stanley & Co. Incorporated (or such other internationally-recognized
investment bank designated by the Stockholders Committee with the consent of
Parent, which shall not be unreasonably withheld).
"Stockholders Committee" means a committee consisting initially of the four
Stockholders who, immediately prior to the Effective Time, hold the greatest
number of shares of Class A Common Stock. Any action by the Stockholders
Committee shall require the approval of a majority of its members then in
office. The Stockholders Committee, acting by such majority, shall have the
power to remove any member, increase or decrease the size of the Stockholders
Committee, fill vacancies and adopt its own internal organization and
decisionmaking procedures.
(ii) Within 20 days after the Poll Date, the Polling Agent shall
deliver a notice from the Investment Banks (a "Sales Notice") describing
the material terms of the Proposed Sale, including any applicable fees or
sales commissions (which shall be reasonable and customary), to all
Stockholders expressing in such Poll a desire to sell Parent Securities
within the Effective Period. Each such Stockholder shall have until the
Effective Date (the "Response Period") to deliver a notice (an "Acceptance
Notice") to the Polling Agent indicating the number and type of Parent
Securities that such Stockholder has elected to include in the Proposed
Sale (which shall not exceed the number and type indicated by such
Stockholder in the initial Poll) and the minimum price at which such
Stockholder would be willing to sell. Each Stockholder delivering an
Acceptance Notice shall deliver with such Acceptance Notice a limited
power-of-attorney authorizing the Investment Banks to sell such Parent
Securities in the Proposed Sale on the terms set forth in the Acceptance
Notice. Any Stockholder that does not deliver an Acceptance Notice within
the Response Period shall be deemed to have elected not to participate in
the Proposed Sale and shall not be eligible to make a Public Sale of Parent
Securities within the Effective Period (and will need to wait until the
next monthly Poll).
(iii) The Investment Banks shall consummate the Proposed Sale
described in the Sales Notice as soon as practicable following the
Effective Date. If the Proposed Sale is not consummated in its entirety
within 10 days after the Effective Date, any Stockholder who would
otherwise have participated in such Proposed Sale shall be free for the
remainder of the applicable Effective Period to effect a Public Sale of his
or her Parent Securities that would have otherwise been sold in the Public
Sale; provided that the amount of Parent Securities sold in Public Sales by
such Stockholder in the remainder of the Effective Period shall not exceed
his or her pro rata portion of the difference between the Direct Sale
Threshold and the actual number of Parent Securities, if any, sold in the
Proposed Sale. For the avoidance of doubt, the Stockholders shall, through
one or more of the procedures set forth in this Section 3, be permitted to
make Public Sales of Parent Securities in an amount up to the Direct Sale
Threshold during each Effective Period (but such amount shall not be
exceeded in any Effective Period except pursuant to the terms hereof,
including, without limitation, through a Proposed Sale organized by the
Investment Banks).
(iv) The Proposed Sale shall include all Parent Securities covered in
any Acceptance Notice that contains terms (e.g. minimum price) consistent
with the Proposed Sale; provided that if the aggregate number of Parent
Securities in all such Acceptance Notices exceeds the actual number to be
sold in the Proposed Sale, the number of Parent Securities to be sold shall
be allocated among the Requesting Stockholders on a pro rata basis
according to the number of Parent Securities requested to be sold by
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each Requesting Stockholder. Any excess Parent Securities that are not sold
in the Proposed Sale shall be given priority for sale in the next Proposed
Sale.
(f) Underwriters; Black-out Period. With respect to any Proposed Sale that
involves an underwritten offering of Parent Securities, Parent shall have the
right, exercisable in its sole discretion, (i) to select the managing or lead
underwriter with respect to such Proposed Sale and (ii) to delay such offering
for a period of up to 60 days if such offering would, in Parent's good faith
judgment, materially interfere with any material corporate event relating to
Parent.
(g) Fees and Expenses. All fees and expenses incurred in connection with
any Proposed Sale pursuant to Section 3(e) (including the fees and expenses of
any underwriter selected in accordance with Section 3(f)) shall be borne by the
Stockholders that participated in such Proposed Sale pro rata based on the
amount of proceeds received by each Stockholder from such Proposed Sale.
(h) Other Sales. Notwithstanding the foregoing, if at any time any
Stockholder desires to effect a Public Sale outside of the Poll process of any
Parent Securities no longer subject to Transfer Restrictions set forth in
Section 2, but still subject to the Orderly Marketing Procedures contained in
this Section 3, such Stockholder may so notify the Polling Agent and the Polling
Agent shall permit such sale so long as it would not result in the Direct Sale
Threshold being exceeded during the then current Effective Period (taking into
account all Public Sales in such Effective Period) and would not interfere with
any Proposed Sale.
(i) Expiration. This Section 3 shall cease to apply to the sale of any
Parent Ordinary Shares on the 30-month anniversary of the Closing Date and to
the sale of any Parent ORAs or Warrants on the 54-month anniversary of the
Closing Date.
SECTION 4. Dividends; Voting Rights. For the avoidance of doubt, nothing
in this Agreement shall affect the right of any Stockholder (a) to receive
dividends, coupon payments or other distributions in respect of the Parent
Securities owned by such Stockholder or (b) to exercise voting rights in respect
of such Parent Securities.
SECTION 5. No Transfer of Right to Receive Net Cash Proceeds. No
Stockholder may Transfer its right to receive Net Cash Proceeds (as defined in
the Merger Agreement) from the sale of the debt portion of the Parent OBSAs (as
defined in the Merger Agreement) pursuant to Section 2.02 of the Merger
Agreement; provided that the foregoing shall not prohibit any involuntary
Transfer that occurs by operation of law or is required by law.
SECTION 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
SECTION 7. Counterparts. This Agreement may be executed in counterparts,
each of which so executed shall be deemed to be an original, and such
counterparts shall together constitute one and the same instrument.
SECTION 8. Notices. All notices, requests, claims, demands and other
communications hereunder (including without limitation Polls, notices of
acceptance pursuant to Section 3(c)(i)(A), Parent Offers and Sales Notices)
shall be in writing and shall be given (and shall be deemed to have been duly
given at the applicable time specified hereafter)
(a) by email (deemed given upon dispatch, unless the sender receives a
message indicating that email did not reach intended recipient);
(b) by facsimile (deemed given upon receipt, as established by confirmation
of transmission by the sender's facsimile machine); or
(c) by delivery in person or by regular, registered or certified mail
(postage prepaid) (in each case, deemed given upon actual receipt)
to the respective parties at the following addresses (or at such other address
for a party as shall be specified in a notice given in accordance with this
Section 8):
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if to Parent:
Publicis Groupe S.A.
Avenue des Champs Elysees
75008 Paris, France
Facsimile No.: [to come]
Email: [to come]
Attention: [to come]
if to the Transfer Agent:
[name]
[address]
Facsimile No.: [to come]
Email: [to come]
Attention: [to come]
if to the Polling Agent:
[name]
[address]
Facsimile No.: [to come]
Email: [to come]
Attention: [to come]
if to any Stockholder:
The mailing address, facsimile number and email address for such Stockholder
listed in the books and records of Company at the Effective Time. (Parent
shall update this information from time to time per instructions from such
Stockholder or to reflect broad-based changes for employees, such as changes
to email addresses.)
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ANNEX C
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of March 7, 2002 among Bcom3 Group,
Inc., a Delaware corporation (the "Company"), Boston Three Corporation, a
Delaware corporation and a wholly-owned subsidiary of the Company ("Merger
Sub"), and Dentsu Inc., a company organized under the laws of Japan ("Dentsu").
WHEREAS, concurrently with the execution of this Agreement, the Company,
Publicis Groupe S.A., Philadelphia Merger Corp. and Philadelphia Merger LLC
("Publicis Merger Sub") are entering into an Agreement and Plan of Merger dated
as of the date hereof (the "Publicis Merger Agreement"), pursuant to which,
immediately following consummation of the Merger (as defined below) contemplated
by this Agreement, the Company will merge with and into Publicis Merger Sub (the
"Publicis Merger");
WHEREAS, the purpose of the Merger is to effect a pro rata purchase of
shares of Class A Common Stock (as defined below) by Dentsu from the holders
thereof, followed by a recapitalization of the common stock of the Company.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. (a) At the Effective Time, Merger Sub shall be
merged (the "Merger") with and into the Company in accordance with the General
Corporation Law of the State of Delaware ("Delaware Law"), whereupon the
separate existence of Merger Sub shall cease, and the Company shall be the
surviving corporation (the "Surviving Corporation").
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, the Company and Merger Sub
will file a certificate of merger with the Delaware Secretary of State and make
all other filings or recordings required by Delaware Law in connection with the
Merger. The Merger shall become effective at such time (the "Effective Time") as
the certificate of merger is duly filed with the Delaware Secretary of State (or
at such later time as may be specified in the certificate of merger).
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, powers, privileges and franchises and be subject to all
of the obligations, liabilities, restrictions and disabilities of the Company
and Merger Sub, all as provided under Delaware Law.
SECTION 1.02. Conversion of Shares. At the Effective Time,
(a) except as otherwise provided in 1.02(c) or Section 1.03(d), each
share of Class A common stock, par value $0.01 per share, of the Company
(the "Class A Common Stock") outstanding immediately prior to the Effective
Time shall be cancelled and shall be converted into the right to receive
(i) an amount in cash equal to the Aggregate Cash (as defined below)
divided by the total number of shares of Class A Common Stock then
outstanding, which cash shall be paid directly from Dentsu as provided in
Section 1.03(b) and (ii) 0.813619 shares of Class A Common Stock (together,
the "Class A Consideration");
(b) except as otherwise provided in 1.02(c) or Section 1.03(d), each
share of Class B common stock, par value $0.01 per share, of the Company
(the "Class B Common Stock") outstanding immediately prior to the Effective
Time shall be cancelled and shall be converted into the right to receive
1.665067 shares of Class B Common Stock (the "Class B Consideration");
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(c) each share of Class A Common Stock or Class B Common Stock held by
the Company as treasury stock immediately prior to the Effective Time shall
be canceled, and no payment shall be made with respect thereto; and
(d) each share of common stock, par value $0.01 per share, of Merger
Sub outstanding immediately prior to the Effective Time shall be canceled,
and no payment shall be made with respect thereto.
The shares of Class A Common Stock outstanding immediately prior to the
Effective Time and the shares of Class B Common Stock outstanding immediately
prior to the Effective Time are referred to herein collectively as the "Shares".
The Class A Consideration and the Class B Consideration are referred to herein
collectively as the "Merger Consideration".
SECTION 1.03. Delivery of Merger Consideration. (a) Except as set forth
in Section 1.03(d), immediately after the Effective Time, the Company shall take
all necessary action to reflect on the books and records of the Company the
conversion of Shares provided for in Section 1.02, such that each person who
held Shares immediately prior to the Effective Time will be reflected in such
books and records as the record holder of the number of shares (including
fractional shares, if any) of Class A Common Stock or Class B Common Stock to
which such person is entitled by virtue of the Merger.
(b) Prior to the Effective Time, a paying agent shall be appointed (the
"Paying Agent") for the purpose of paying the cash portion of the Class A
Consideration. Dentsu hereby agrees, for its own benefit and the benefit of the
holders of Shares and not for the benefit of Publicis or the Company, to pay
$498,702,393 (the "Aggregate Cash") to the Paying Agent immediately after the
Effective Time. It is agreed and understood that neither Publicis nor the
Company shall directly or indirectly be required to, nor shall they, reimburse
Dentsu in cash or other property for the payment of the Aggregate Cash or
otherwise assist Dentsu in financing or funding such payment.
(c) Except as set forth in Section 1.03(d), as promptly as practicable
after the Effective Time, the Paying Agent shall deliver to each holder of
Shares of Class A Common Stock, as reflected in the books and records of the
Company at the Effective Time, such holder's applicable cash portion of the
Class A Consideration. The Paying Agent shall be entitled to deduct and withhold
from the cash otherwise payable pursuant to this Agreement to any holder of
Shares, such amounts as it is required to deduct and withhold with respect to
the making of such payment under the Internal Revenue Code of 1986, as amended,
or any provision of state, local or foreign tax law. To the extent that amounts
are so withheld, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of Shares in respect of which such
deduction and withholding was made.
(d) Notwithstanding Section 1.02, Shares outstanding immediately prior to
the Effective Time and held by a holder who has not voted in favor of the Merger
or consented thereto in writing and who has demanded appraisal for such Shares
in accordance with the Delaware Law (collectively, the "Dissenting Shares")
shall not be converted into a right to receive the applicable Merger
Consideration, unless such holder fails to perfect, withdraws or otherwise loses
its right to appraisal. If, after the Effective Time, any such holder fails to
perfect, withdraws or loses its right to appraisal, such Shares shall be treated
as if they had been converted as of the Effective Time into a right to receive
the applicable Merger Consideration. The Merger Consideration shall be withheld
for each Dissenting Share. The amount any holder of Class A Common Stock is
entitled to receive in an appraisal proceeding is set forth in Section 6.6 of
each holder's 2000 Stock Purchase Agreement with the Company.
SECTION 1.04. Adjustments. If, during the period between the date of this
Agreement and the Effective Time, any change in the outstanding shares of
capital stock of the Company shall occur, including by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period, the Merger Consideration shall be appropriately adjusted; provided
that no additional cash shall be payable by Dentsu pursuant to any such
adjustment.
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ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.01. Certificate of Incorporation. The certificate of
incorporation of the Company in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 2.02. Bylaws. The bylaws of the Company in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 2.03. Directors And Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of the Company at the Effective Time shall be
the directors of the Surviving Corporation and (ii) the officers of the Company
at the Effective Time shall be the officers of the Surviving Corporation.
ARTICLE III
CONDITIONS TO THE MERGER
SECTION 3.01. Conditions to Obligations of Each Party. The obligations of
the Company, Merger Sub and Dentsu to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) this Agreement shall have been approved and adopted by the
stockholders of the Company and Merger Sub in accordance with Delaware Law;
(b) satisfaction or, if permissible, waiver by the applicable party of
all conditions set forth in Article VII of the Publicis Merger Agreement
(other than the condition relating to the completion of the Merger
contemplated by this Agreement); and
(c) no governmental entity or court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, decree, executive order or award which is then in effect and
has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger.
SECTION 3.02. Conditions To Obligations Of Dentsu. The obligations of
Dentsu to consummate the Merger are subject to the satisfaction of the following
conditions:
(a) the Company shall have provided to Dentsu or Publicis a
certificate meeting the requirements of Treas. Reg. Sections 1.1445-2(c)(3)
and 1.897-2(h) to the effect that the shares of the Company disposed of by
Dentsu in the transactions contemplated by the Publicis Merger Agreement do
not constitute a United States real property interest within the meaning of
Section 897(c)(1)(A) of the Internal Revenue Code of 1986, as amended; and
(b) none of the conditions set forth in Article VII of the Publicis
Merger Agreement shall have been waived by the Company without the consent
of Dentsu (such consent not to be unreasonably withheld or delayed).
ARTICLE IV
MATTERS RELATING TO PUBLICIS MERGER
SECTION 4.01. Investment Agreement. The Company and Dentsu agree that the
Investment Agreement between Dentsu and the Company dated as of March 14, 2000
shall terminate immediately after the effective time of the Publicis Merger.
SECTION 4.02. Ownership Statement. Dentsu shall, if it is able to do so,
deliver to Publicis and the Company an ownership statement, dated as of the
Closing Date (as defined in the Publicis Merger Agreement), satisfying the
requirements of Treasury Regulation Section 1.367(a)-3(c)(5)(i) (provided that
C-3
the "related" person statement required by Treasury Regulation Section
1.367(a)-3(c)(5)(i)(C)(2) may be made to Dentsu's best knowledge), in form and
substance reasonably acceptable to Publicis and the Company.
SECTION 4.03. Notices Under Publicis Merger Agreement. The Company agrees
to promptly forward to Dentsu a copy of any notices given to Publicis or
Publicis Merger Sub pursuant to Section 9.02 of the Publicis Merger Agreement
and to provide a copy of any notices it receives from Publicis or Publicis
Merger Sub pursuant to Section 9.02 of the Publicis Merger Agreement.
SECTION 4.04. Amendment To Publicis Merger Agreement. The Company will
not amend any provision of the Publicis Merger Agreement without the prior
written consent of Dentsu (such consent not to be unreasonably withheld or
delayed, it being acknowledged that the refusal to consent to any amendment that
would in the good faith opinion of Dentsu's accountants jeopardize Dentsu's
ability to equity account, without the payment of any additional sum of money,
for its investment in Publicis after the Publicis Merger will be per se
reasonable).
SECTION 4.05. Company Proxy Statement. Dentsu and its counsel shall be
given a reasonable opportunity to review and comment on the Company Proxy
Statement (as defined in the Publicis Merger Agreement) prior to its being filed
with the Securities and Exchange Commission.
SECTION 4.06. "Bare Legal Title" Matters.
(a) Pursuant to Section 2.03 of the Publicis Merger Agreement, Dentsu will
receive bare legal title (nue propriete) to certain Parent Ordinary Shares in
the Publicis Merger for a two-year period after the closing of the Publicis
Merger. Dentsu shall not transfer such bare legal title in such shares to any
person or entity during such two-year period.
(b) The transfer of bare legal title to such shares to Dentsu will be
effected pursuant to conveyancing instruments between Dentsu and the Special
Nominee. Dentsu agrees that such instruments will contain all provisions that
are necessary or desirable to ensure that all economic interests in such shares
shall be enjoyed exclusively by the holder of the usufruct interest in such
shares (or such holder's successors or assigns) at all times during such
two-year period.
SECTION 4.07. Capital Stock Outstanding. As of March 5, 2002, (i)
15,289,804 shares of Class A Common Stock were issued and outstanding, (ii)
4,284,873 shares of Class B Common Stock were issued and outstanding, (iii) no
shares of Class A Common Stock or Class B Common Stock were held in the treasury
of the Company or by any subsidiary of the Company, (iv) options to purchase
1,742,796 shares of Class A Common Stock were outstanding and (v) options to
purchase 103,864 shares of Class A Common Stock were available for future grant
under the Company's stock option plans.
ARTICLE V
TERMINATION
SECTION 5.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any approval of this Agreement by the stockholders of the Company) by the
Company, Merger Sub or Dentsu if and at such time as the Publicis Merger
Agreement has terminated in accordance with its terms.
SECTION 5.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 4.01, this Agreement shall become void and of no effect
without liability of any party (or any stockholder, director, officer, employee,
agent, consultant or representative of such party) to the other party hereto.
The provisions of this Section 4.02 shall survive any termination hereof
pursuant to Section 4.01.
C-4
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Amendments; No Waivers. Any provision of this Agreement may
be amended or waived prior to the Effective Time if, but only if, such amendment
or waiver is in writing and is signed, in the case of an amendment, by each
party to this Agreement or, in the case of a waiver, by each party against whom
the waiver is to be effective, provided that, after the adoption of this
Agreement by the stockholders of the Company, no amendment shall be made which
by law requires further approval by such stockholders without such further
approval.
SECTION 6.02. Expenses. All costs and expenses incurred in connection
with the transactions contemplated by this Agreement shall be paid by the party
incurring such costs and expenses.
SECTION 6.03. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether pursuant to a merger, by operation of law or otherwise), without
the prior written consent of the other parties.
SECTION 6.04. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
SECTION 6.05. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof for which money damages would
not be an adequate remedy and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or in
equity. Each of the parties further agrees that in any proceeding seeking
specific performance such party will waive (a) the defense of adequacy of a
remedy at law and (b) any requirement for the securing or posting of any bond.
SECTION 6.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the conflicts of law rules of such state.
SECTION 6.07. Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto. Except as
provided in Article II, no provision of this Agreement is intended to confer any
rights, benefits, remedies, obligations or liabilities hereunder upon any Person
other than the parties hereto and their respective successors and assigns.
SECTION 6.08. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 6.09. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
a determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner so that the transactions contemplated hereby be
consummated as originally contemplated to the fullest extent possible.
[remainder of page intentionally left blank]
C-5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
BCOM3 GROUP, INC.
By: /s/ ROGER A. HAUPT
------------------------------------
Name: Roger A. Haupt
Title: Chairman and CEO
BOSTON THREE CORPORATION
By: /s/ ROGER A. HAUPT
------------------------------------
Name: Roger A. Haupt
Title: CEO
DENTSU INC.
By: /s/ YUTAKA NARITA
------------------------------------
Name: Yutaka Narita
Title: President
C-6
ANNEX D
One Financial Place
440 South LaSalle
Street
Chicago, IL 60605
tel: 312 706-4000
(MORGAN STANLEY LOGO)
March 7, 2002
Special Committee of the Board of Directors
and Board of Directors
Bcom3 Group, Inc.
35 West Wacker Drive
Chicago, IL 60601
Members of the Special Committee of the Board and Members of the Board:
We understand that Publicis Groupe S.A. ("Parent"), Philadelphia Merger
Corp., a wholly owned subsidiary of Parent ("Merger Sub"), Philadelphia Merger
LLC and Bcom3 Group, Inc. ("Bcom3" or the "Company"), propose to enter into an
Agreement and Plan of Merger dated as of March 7, 2002 (the "Merger Agreement"),
which provides, among other things, for the merger of the Company with and into
Merger Sub (the "Merger"). We also understand that, as contemplated by the
Merger Agreement, the Company, Boston Three Corporation, a wholly-owned
subsidiary of the Company ("Boston Merger Sub"), and Dentsu Inc. ("Dentsu"),
propose to enter into an Agreement and Plan of Merger dated as of March 7, 2002
(the "Boston Merger Agreement"), which provides, among other things, for the
merger of Boston Merger Sub with and into the Company (the "Boston Merger"). It
is anticipated that the Boston Merger will be consummated immediately prior to
the Effective Time (as defined in the Merger Agreement) of the Merger (the time
at which the Boston Merger is consummated is referred to as the "Boston
Effective Time").
Pursuant to the Boston Merger Agreement, each share of the Company's Class
A common stock, par value $.01 per share (the "Class A Common Stock"), issued
and outstanding immediately prior to the Boston Effective Time, other than
shares of Class A Common Stock held in the Company's treasury and shares of
Class A Common Stock in respect of which appraisal rights have properly been
demanded in accordance with the Delaware General Corporation Law (the "DGCL"),
will be converted into the right to receive (i) an amount in cash equal to
$498,702,393 divided by the total number of shares of Class A Common Stock then
outstanding, which cash shall be paid directly from Dentsu, as provided in
Section 1.03(b) of the Boston Merger Agreement and (ii) 0.813619 shares of Class
A Common Stock (together, the "First Step Class A Consideration"), and each
share of the Company's Class B common stock, par value $0.01 per share (the
"Class B Common Stock"), issued and outstanding immediately prior to the Boston
Effective Time, other than shares of Class B Common Stock held in the Company's
treasury and shares of Class B Common Stock in respect of which appraisal rights
have properly been demanded in accordance with the DGCL, will be converted into
the right to receive 1.665067 shares of Class B Common Stock. We understand that
Dentsu currently owns all of the outstanding shares of the Company's Class B
Common Stock. The terms and conditions of the Boston Merger are more fully set
forth in the Boston Merger Agreement.
Pursuant to the Merger Agreement, each share of the Company's Class A
Common Stock issued and outstanding immediately prior to the Effective Time of
the Merger, other than shares of Class A Common Stock held in the Company's
treasury and shares of Class A Common Stock in respect of which appraisal
D-1
rights have properly been demanded in accordance with the DGCL, will be
converted into the right to receive merger consideration (the "Second Step Class
A Consideration") composed of (i) 1.666464 fully paid and non-assessable Parent
ordinary shares having a nominal value of E.40 per share (the "Parent Ordinary
Shares"), (ii) the usufruct (usufruit) interest in 0.548870 fully paid and
non-assessable Parent Ordinary Shares, together with the right to receive bare
legal title (nue propriete) to such shares on the second anniversary of the
Closing Date (as defined in the Merger Agreement), (iii) 0.098108 Parent
obligations remboursables en actions, with a nominal value of E549.00 each (the
"Parent ORAs"), and (iv) the Net Cash Proceeds (as defined in the Merger
Agreement) from the sale, as contemplated in the Merger Agreement, of the debt
portion of E53.861277 in principal amount of Parent obligations a bons de
souscription d'actions with a nominal value of E305.00 each (the "Parent
OBSAs"), together with warrants detached from such principal amount of Parent
OBSAs to purchase 1.765944 Parent Ordinary Shares at an exercise price of E30.50
per Parent Ordinary Share (the "Warrants"), and each share of the Company's
Class B Common Stock issued and outstanding immediately prior to the Effective
Time of the Merger, other than shares of Class B Common Stock held in the
Company's treasury and shares of Class B Common Stock in respect of which
appraisal rights have properly been demanded in accordance with the DGCL, will
be converted into the right to receive merger consideration (the "Second Step
Class B Consideration") composed of (i) 4.021399 fully paid and non-assessable
Parent Ordinary Shares, (ii) bare legal title (nue propriete) to 0.957024 Parent
Ordinary Shares until the second anniversary of the Closing Date, (iii) 0.047940
Parent ORAs, and (iv) the Net Cash Proceeds from the sale, as contemplated in
the Merger Agreement, of the debt portion of E26.318797 in principal amount of
Parent OBSAs, together with warrants detached from such principal amount of
Parent OBSAs to purchase 0.862911 Parent Ordinary Shares at an exercise price of
E30.50 per Parent Ordinary Share. The terms and conditions of the Merger are
more fully set forth in the Merger Agreement.
We understand that (i) the Parent ORAs will be issued under and will have
the terms set forth in the contrat d'emission relating to the Parent ORAs (the
"ORA Issuance Contract"), a copy of which is attached as Exhibit C-1 to the
Merger Agreement and an English language term sheet of which is attached as
Exhibit C-2 to the Merger Agreement, and that the Parent OBSAs will be issued
under and will have the terms set forth in the contrat d'emission relating to
the Parent OBSAs (the "OBSA Issuance Contract"), a copy of which is attached as
Exhibit D-1 to the Merger Agreement and an English language term sheet of which
is attached as Exhibit D-2 to the Merger Agreement, (ii) the Merger Agreement
contemplates that a Marketing Agent (as such term is defined in the Merger
Agreement) selected by the Company and reasonably acceptable to Parent will use
its reasonable best efforts to effect the sale for cash of the debt portion of
the Parent OBSAs on or promptly after the Effective Time, and (iii) that all of
the securities to be received as part of the Second Step Class A Consideration
will be subject to certain transfer restrictions as described in Exhibit B to
the Merger Agreement. With respect to the determination of the Net Cash
Proceeds, we note that (x) under the terms of the Merger Agreement, there will
be deducted from the proceeds from sale of the debt portion of the Parent OBSAs
effected by the Marketing Agent (a) any costs, expenses or sale commissions or
underwriting fees incurred in connection with the sale of the debt portion of
the Parent OBSAs, and (b) an amount equal to the aggregate Cash Payment (as
defined in the Merger Agreement) payable pursuant to Section 2.08 of the Merger
Agreement to holders of Company Stock Options (as defined in the Merger
Agreement)(plus any interest costs incurred by the Surviving Corporation to fund
the payments required by Section 2.08 of the Merger Agreement between the date
of such payment and the date on which such payment is made to the Parent
pursuant to Section 2.02(d) of the Merger Agreement), and (y) the amount of the
aggregate Cash Payment under the Merger Agreement will be based upon the
determination of the Company's Board of Directors as to the fair market value of
the Second Step Class A Consideration. With respect to the ORA Issuance Contract
and the English language term sheet relating to it and the OBSA Issuance
Contract and the English language term sheet relating to it, we note that
pursuant to the terms of the Merger Agreement, in the case of conflict, the
applicable English term sheet shall govern.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of the Company's Class A Common Stock pursuant
to the Boston Merger Agreement and the Merger Agreement (considered as a single
transaction) is fair from a financial point of view to such holders.
D-2
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other information of the Company and Parent, respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company and Parent,
respectively;
(iii) reviewed certain financial projections prepared by the
management of the Company and Parent, respectively;
(iv) discussed the past and current operations and financial
condition and the prospects of the Company, including information relating
to certain strategic, financial and operational benefits anticipated from
the Merger, with senior executives of the Company;
(v) discussed the past and current operations and financial
condition and the prospects of Parent, including information relating to
certain strategic, financial and operational benefits anticipated from the
Merger, with senior executives of Parent;
(vi) reviewed the pro forma impact of the Merger on Parent's cash
earnings per share, cash flows, consolidated capitalization and financial
ratios;
(vii) compared the financial performance of the Company and Parent
with that of certain other comparable publicly-traded companies,
respectively, and their securities;
(viii) compared the prices and trading performance of Parent Ordinary
Shares with that of certain other comparable publicly-traded companies and
their securities;
(ix) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(x) participated in discussions and negotiations among
representatives of the Company and Parent and their financial and legal
advisors;
(xi) reviewed the Boston Merger Agreement, the Merger Agreement and
the English language term sheets relating to the ORA Issuance Contract and
the OBSA Issuance Contract attached to the Merger Agreement; and
(xii) considered such other factors and performed such other analyses
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. We have also relied upon without independent verification upon the
accuracy and completeness of the English language term sheets relating to the
ORA Issuance Contract and the OBSA Issuance Contract attached as Exhibits C-2
and D-2 to the Merger Agreement, and have assumed that such term sheets set
forth all material terms relating to the Parent ORAs and the Parent OBSAs which
may be set forth in the ORA Issuance Contract and the OBSA Issuance Contract.
With respect to the financial projections, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of the Company. In addition,
we have assumed that the Boston Merger will be consummated in accordance with
the Boston Merger Agreement and that the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement, including that the
Merger will qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended. Our opinion is necessarily based
on economic, market, foreign currency and other conditions as in effect on, and
the information made available to us as of, the date hereof.
We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company in connection with this transaction and will receive a
fee for our services, including a transaction fee which is contingent upon
consummation of the Merger. In the past, Morgan Stanley & Co. Incorporated and
its affiliates have provided financial advisory services for the Company and
have received fees for the rendering of
D-3
these services. In the ordinary course of our businesses, we and our affiliates
may actively trade the debt and equity securities of the Company, Dentsu and
Parent for our account or for the accounts of customers and, accordingly, we or
our affiliates may at any time hold long or short positions in such securities.
It is understood that this letter is for the information of the addressees
hereof only and may not be used for any other purpose without our prior written
consent, except that this opinion may be included in its entirety in any filing
made by the Company (as well as in Parent's Form F-4 Registration Statement
under the Securities Act of 1933) in respect of the transaction with the
Securities and Exchange Commission so long as this opinion is reproduced in such
filing in full and any description of or reference to us or summary of this
opinion and the related analyses in such filing is in a form acceptable to us
and our counsel. In addition, this opinion does not in any manner address (a)
the prices at which the Parent Ordinary Shares, the Parent ORAs or the Warrants
will trade at any time, including following consummation of the Merger, or (b)
the actual amount of the Net Cash Proceeds which will be received by the holders
of the Class A Shares as part of the Second Step Class A Consideration, and
Morgan Stanley expresses no opinion or recommendation as to how the shareholders
of the Company should vote at the shareholders' meeting in connection with
either the Boston Merger or the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of the Company's Class A
Common Stock pursuant to the Boston Merger Agreement and the Merger Agreement
(considered as a single transaction) is fair from a financial point of view to
such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ FRANCIS J. OELERICH III
------------------------------------
Francis J. Oelerich III
Managing Director
D-4
ANNEX E
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
Section 262 Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
(a) Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
(b) Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
(c) Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
(d) Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
E-1
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, then, either a constituent corporation before the
effective date of the merger or consolidation, or the surviving or
resulting corporation within ten days thereafter, shall notify each of the
holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall,
also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise
E-2
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
E-3
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
E-4
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. The French commercial code prohibits provisions of statuts that limit
the liability of directors. However, if a director is sued by a third party and
ultimately prevails in the litigation on all counts, but is nevertheless
required to bear attorneys' fees and costs, the company may reimburse those fees
and costs pursuant to an indemnification arrangement with the director.
2. The French Commercial Code permits a company to purchase directors and
officers insurance for all or part of the members of its management. A French
corporation is responsible to third parties for the consequences of the
decisions of its management board. However, if those decisions qualify as
mismanagement, the relevant member of the management board may have to fully or
partly indemnify the company. Publicis has purchased insurance for all of its
directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NO. DESCRIPTION
------- -----------
2.1 Agreement and Plan of Merger, dated March 7, 2002, among
Publicis Groupe S.A., Philadelphia Merger Corp.,
Philadelphia Merger LLC and Bcom3 Group, Inc., as amended on
August 13, 2002, (attached as Annex A to the Proxy
Statement/Prospectus included in this registration
statement)
2.2 Agreement and Plan of Merger, dated March 7, 2002, among
Bcom3 Group, Inc., Boston Three Corporation and Dentsu Inc.
(attached as Annex C to the Proxy Statement/Prospectus
included in this registration statement)
3.1 Statuts (bylaws) of Publicis Groupe S.A. (unofficial English
translation) (incorporated by reference from Exhibit 1 to
the Annual Report of Publicis Groupe S.A. on Form 20-F/A for
the fiscal year ended December 31, 2001)
4.1 Form of Issuance Contract for the issuance of the ORAs
(unofficial English translation)
4.2 Form of Issuance Contract for the issuance of the OBSAS*
4.3 Form of Indenture made by and between Publicis Groupe S.A.
and The Bank of New York, as trustee*
4.4 Prospectus defining the terms and conditions of Publicis
Groupe S.A.'s 1.0% notes due 2018 (unofficial English
translation) (incorporated by reference from Exhibit 2.1 to
the Annual Report of Publicis Groupe S.A. on Form 20-F/A for
the fiscal year ended December 31, 2001)
4.5 Support Agreement, dated as of March 7, 2002, among Publicis
Groupe S.A., Philadelphia Merger Corp. and Dentsu Inc.
(incorporated by reference from Exhibit 99.1 to the report
on Form 6-K of Publicis Groupe S.A. dated March 7, 2002)
4.6 Support Agreement, dated as of March 7, 2002, between
Publicis Groupe S.A. and Philadelphia Merger Corp., on the
one hand, and Roy J. Bostock, Craig D. Brown, Richard B.
Fizdale and Roger A. Haupt, on the other hand (incorporated
by reference from Exhibit 99.2 to the report on Form 6-K of
Publicis Groupe S.A. dated March 7, 2002)
4.7 Support Agreement, dated as of March 7, 2002, between Bcom3
Group, Inc., on the one hand, and Somarel and Elisabeth
Badinter, on the other hand (incorporated by reference from
Exhibit 99.3 to the report on Form 6-K of Publicis Groupe
S.A. dated March 7, 2002)
4.8 Terms of Transfer Restrictions on Class A Consideration, to
be included in Letter of Transmittal (attached as Annex B to
the Proxy Statement/Prospectus included in this registration
statement)
4.9 Form of Agreement for the Transfer of the Nue Propriete of
certain Publicis Shares*
5.1 Opinion of Alain Schwindenhammer regarding the validity of
the securities being registered
8.1 Opinion of Kirkland & Ellis regarding certain United States
federal income tax matters*
II-1
EXHIBIT
NO. DESCRIPTION
------- -----------
10.1 Memorandum of Understanding, dated March 7, 2002, between
Dentsu Inc. and Madame Elisabeth Badinter*
10.2 Memorandum of Understanding, dated March 7, 2002, between
Dentsu Inc. and Publicis Groupe S.A. (Shareholders
Agreement) (incorporated by reference from Exhibit 99.4 to
the report on Form 6-K of Publicis Groupe S.A. dated March
7, 2002)
10.3 Memorandum of Understanding, dated March 7, 2002, between
Dentsu Inc. and Publicis Groupe S.A. (Strategic Alliance)
(incorporated by reference from Exhibit 99.5 to the report
on Form 6-K of Publicis Groupe S.A. dated March 7, 2002)
12.1 Computation of Ratio of Earnings to Fixed Charges*
16.1 Letter from Arthur Andersen LLP regarding change in
certifying accountant, dated May 29, 2002 (incorporated by
reference from Exhibit 16.1 to the Report on Form 8-K of
Bcom3 Group, Inc. dated May 29, 2002, as amended on June 3,
2002)
21.1 List of subsidiaries (incorporated by reference from Note 28
to the financial statements of Publicis Groupe S.A. included
in the Annual Report of Publicis Groupe S.A. on Form 20-F/A
for the fiscal year ended December 31, 2001)
23.1 Consent of Ernst & Young Audit and Mazars & Guerard,
independent auditors for Publicis Groupe S.A.
23.2 Consent of Mazars & Guerard LLP and Mazars & Guerard, S.A.,
independent auditors for Publicis Groupe S.A.
23.3 Consent of Alain Schwindenhammer (included in the opinion
filed as Exhibit 5.1)
23.4 Consent of Kirkland & Ellis (included in the opinion filed
as Exhibit 8.1)
23.5 Consent of Roger A. Haupt*
23.6 Consent of Yutaka Narita*
23.7 Consent of Fumio Oshima*
24 Power of Attorney (included on signature page)*
25 Statement of Eligibility Under the Trust Indenture Act of a
Corporation Designated to Act as Trustee on Form T-1,
executed by The Bank of New York as of August 5, 2002*
99.1 Consent of Morgan Stanley & Co. Incorporated
99.2 Form of Proxy Card*
99.3 Form of Instruction Card*
99.4 Letter to Commission Pursuant to Temporary Note 3T, dated
March 27, 2002 (incorporated by reference to Exhibit 99.4 to
Bcom3's Annual Report on Form 10-K dated March 27, 2002)
------------------------
* Previously filed
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) (i) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means,
and (ii) to arrange or provide for a facility in the United States for the
purpose of responding to such requests. The undertaking in subparagraph (i)
above include information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(2) 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
(3) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(4) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Exchange Act; and, where interim financial information
required to be presented by Article 3 of Regulation S-X under the Exchange
Act is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(5) 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.
(6) That every prospectus: (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) 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, 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.
(7) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(8) That, for the purpose 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.
II-3
(9) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(10) To file a post-effective amendment to the registration statement
to include any financial statements required by Item 8.A. of Form 20-F at
the start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section 10(a)(3)
of the Act need not be furnished, provided, that the registrant includes in
the prospectus, by means of a post-effective amendment, financial
statements required pursuant to this paragraph (a)(4) and other information
necessary to ensure that all other information in the prospectus is at
least as current as the date of those financial statements. Notwithstanding
the foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act or Rule 3-19 of
this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Form F-3.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Paris, France, on August
14, 2002.
PUBLICIS GROUPE S.A.
By: /s/ MAURICE LEVY
------------------------------------
Name: Maurice Levy
Title: Chief Executive Officer and
Chairman of the Management
Board
Attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on August 14, 2002.
SIGNATURE TITLE
--------- -----
* Chair of the Supervisory Board
------------------------------------------------
Elisabeth Badinter
* Member of the Supervisory Board
------------------------------------------------
Robert Badinter
* Member of the Supervisory Board
------------------------------------------------
Simon Badinter
* Member of the Supervisory Board
------------------------------------------------
Monique Bercault
* Member of the Supervisory Board
------------------------------------------------
Michel David-Weill
* Member of the Supervisory Board
------------------------------------------------
Helene Ploix
* Member of the Supervisory Board
------------------------------------------------
Amaury-Daniel de Seze
* Member of the Supervisory Board
------------------------------------------------
Gerard Worms
/s/ MAURICE LEVY Principal Executive Officer
------------------------------------------------
Maurice Levy
II-5
SIGNATURE TITLE
--------- -----
* Chief Financial Officer and Chief Accounting
------------------------------------------------ Officer
Jean-Michel Etienne
* Authorized Representative in the U.S., Chief
------------------------------------------------ Financial Officer and Treasurer of Publicis USA
Douglas Henderson Holdings, Inc.
---------------
* Executed on behalf of such person by attorney-in-fact.
II-6
EXHIBIT LIST
EXHIBIT
NO. DESCRIPTION
------- -----------
2.1 Agreement and Plan of Merger, dated March 7, 2002, among
Publicis Groupe S.A., Philadelphia Merger Corp.,
Philadelphia Merger LLC and Bcom3 Group, Inc., as amended on
August 13, 2002, (attached as Annex A to the Proxy
Statement/Prospectus included in this registration
statement)
2.2 Agreement and Plan of Merger, dated March 7, 2002, among
Bcom3 Group, Inc., Boston Three Corporation and Dentsu Inc.
(attached as Annex C to the Proxy Statement/Prospectus
included in this registration statement)
3.1 Statuts (bylaws) of Publicis Groupe S.A. (unofficial English
translation) (incorporated by reference from Exhibit 1 to
the Annual Report of Publicis Groupe S.A. on Form 20-F/A for
the fiscal year ended December 31, 2001)
4.1 Form of Issuance Contract for the issuance of the ORAs
(unofficial English translation)
4.2 Form of Issuance Contract for the issuance of the OBSAS*
4.3 Form of Indenture made by and between Publicis Groupe S.A.
and The Bank of New York, as trustee*
4.4 Prospectus defining the terms and conditions of Publicis
Groupe S.A.'s 1.0% notes due 2018 (unofficial English
translation) (incorporated by reference from Exhibit 2.1 to
the Annual Report of Publicis Groupe S.A. on Form 20-F/A for
the fiscal year ended December 31, 2001)
4.5 Support Agreement, dated as of March 7, 2002, among Publicis
Groupe S.A., Philadelphia Merger Corp. and Dentsu Inc.
(incorporated by reference from Exhibit 99.1 to the report
on Form 6-K of Publicis Groupe S.A. dated March 7, 2002)
4.6 Support Agreement, dated as of March 7, 2002, between
Publicis Groupe S.A. and Philadelphia Merger Corp., on the
one hand, and Roy J. Bostock, Craig D. Brown, Richard B.
Fizdale and Roger A. Haupt, on the other hand (incorporated
by reference from Exhibit 99.2 to the report on Form 6-K of
Publicis Groupe S.A. dated March 7, 2002)
4.7 Support Agreement, dated as of March 7, 2002, between Bcom3
Group, Inc., on the one hand, and Somarel and Elisabeth
Badinter, on the other hand (incorporated by reference from
Exhibit 99.3 to the report on Form 6-K of Publicis Groupe
S.A. dated March 7, 2002)
4.8 Terms of Transfer Restrictions on Class A Consideration, to
be included in Letter of Transmittal (attached as Annex B to
the Proxy Statement/Prospectus included in this registration
statement)
4.9 Form of Agreement for the Transfer of the Nue Propriete of
certain Publicis Shares*
5.1 Opinion of Alain Schwindenhammer regarding the validity of
the securities being registered
8.1 Opinion of Kirkland & Ellis regarding certain United States
federal income tax matters*
10.1 Memorandum of Understanding, dated March 7, 2002, between
Dentsu Inc. and Madame Elisabeth Badinter*
10.2 Memorandum of Understanding, dated March 7, 2002, between
Dentsu Inc. and Publicis Groupe S.A. (Shareholders
Agreement) (incorporated by reference from Exhibit 99.4 to
the report on Form 6-K of Publicis Groupe S.A. dated March
7, 2002)
10.3 Memorandum of Understanding, dated March 7, 2002, between
Dentsu Inc. and Publicis Groupe S.A. (Strategic Alliance)
(incorporated by reference from Exhibit 99.5 to the report
on Form 6-K of Publicis Groupe S.A. dated March 7, 2002)
12.1 Computation of Ratio of Earnings to Fixed Charges*
16.1 Letter from Arthur Andersen LLP regarding change in
certifying accountant, dated May 29, 2002 (incorporated by
reference from Exhibit 16.1 to the Report on Form 8-K of
Bcom3 Group, Inc. dated May 29, 2002, as amended on June 3,
2002)
EXHIBIT
NO. DESCRIPTION
------- -----------
21.1 List of subsidiaries (incorporated by reference from Note 28
to the financial statements of Publicis Groupe S.A. included
in the Annual Report of Publicis Groupe S.A. on Form 20-F/A
for the fiscal year ended December 31, 2001)
23.1 Consent of Ernst & Young Audit and Mazars & Guerard,
independent auditors for Publicis Groupe S.A.
23.2 Consent of Mazars & Guerard LLP and Mazars & Guerard, S.A.,
independent auditors for Publicis Groupe S.A.
23.3 Consent of Alain Schwindenhammer (included in the opinion
filed as Exhibit 5.1)
23.4 Consent of Kirkland & Ellis (included in the opinion filed
as Exhibit 8.1)
23.5 Consent of Roger A. Haupt*
23.6 Consent of Yutaka Narita*
23.7 Consent of Fumio Oshima*
24 Power of Attorney (included on signature page)*
25 Statement of Eligibility Under the Trust Indenture Act of a
Corporation Designated to Act as Trustee on Form T-1,
executed by The Bank of New York as of August 5, 2002*
99.1 Consent of Morgan Stanley & Co. Incorporated
99.2 Form of Proxy Card*
99.3 Form of Instruction Card*
99.4 Letter to Commission Pursuant to Temporary Note 3T, dated
March 27, 2002 (incorporated by reference to Exhibit 99.4 to
Bcom3's Annual Report on Form 10-K dated March 27, 2002)
------------------------
* Previously filed