Subsection 74(1) - Registration and prospectus relief granted in respect of trades inexchangeable securities of non-reporting Canadian issuer, common shares of non-reporting U.S. issuer and grant of various rights attached to the exchangeable securities -first trade relief also granted in respect of trades in exchangeable securities and underlyingcommon shares received upon exercise of rights attached to the exchangeable securities.
Securities Act, R.S.O. 1990, c.S.5, as am. ss. 25, 53, 72(5) and 74(1).
Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am.,
OSC Rule 45-501 - Exempt Distributions, (1998), 21 OSCB 6548.
OSC Rule 72-501 - Prospectus Exemption for First Trade over a Market Outside Ontario,(1998), 21 OSCB 3873.
R.S.O. 1990, CHAPTER S. 5, AS AMENDED (the "Act")
IN THE MATTER OF
OMNICOM GROUP INC. AND TAI ACQUISITION INC.
UPON the application of Omnicom Group Inc. ("Omnicom"), and TAI Acquisition Inc.("Acquisitionco") to the Ontario Securities Commission (the "Commission") for a ruling,pursuant to subsection 74(1) of the Act, that certain trades in securities made inconnection with an acquisition (the "Transaction") of Tudhope Associates Inc. ("Tudhope")by Acquisitionco pursuant to an agreement (the "Purchase Agreement") dated as of March1, 2000 among Omnicom, Acquisitionco and the shareholders of Tudhope Inc., beingBeverley W. Tudhope ("Bev"), The B.W. Tudhope Family Trust, Ian C. Tudhope ("Ian" and,together with Bev, the "Individual Vendors") and The I.C. Tudhope Family Trust (suchshareholders collectively referred to as the "Vendors"), shall not be subject to section 25or 53 of the Act;
AND UPON considering the application and the recommendation of the staff of theCommission;
AND UPON Omnicom and Acquisitionco having represented to the Commission asfollows:
1. Omnicom is a corporation organized under the laws of the state of New York.
2. The shares of common stock of Omnicom (the "Omnicom Shares") are listed andposted for trading on the New York Stock Exchange (the "NYSE"). Omnicom issubject to the informational requirements of the United States Securities ExchangeAct of 1934, as amended (the "Exchange Act"). Omnicom is not a "reporting issuer"under the Act or under the securities legislation of any other province of Canada.
3. Omnicom, through its wholly and partially owned subsidiaries, operates severaladvertising agency networks, numerous advertising and public relations agenciesand various related agency services from its executive offices in the city of NewYork.
4. As of February 21, 2000, the authorized capital stock of Omnicom consisted of300,000,000 Omnicom Shares, par value U.S. $0.50 per share, of which177,466,000 Omnicom Shares were issued and outstanding, and 7,500,000 sharesof preferred stock, par value U.S. $1.00 per share, issuable in series, of which nonewere issued and outstanding.
5. Acquisitionco was incorporated under the laws of the province of Ontario onFebruary 17, 2000.
6. Acquisitionco is a "private issuer" as defined in Rule 45-501 of the Commission (a"private issuer") and is not a "reporting issuer" under the Act or under the securitieslegislation of any other province in Canada.
7. Acquisitionco, with a registered office in the City of Toronto, is a wholly ownedsubsidiary of Interbrand Corporation, a corporation organized under the laws of thestate of New York. Interbrand, a private issuer, is a wholly owned subsidiary ofOmnicom and is not a reporting issuer in any jurisdiction. Interbrand's executiveoffices are located at Omnicom's offices in the city of New York.
8. The authorized capital of Acquisitionco consists of an unlimited number of commonshares and an unlimited number of Class A Special Shares (the "ExchangeableShares") exchangeable for Omnicom Shares, of which one common share and noExchangeable Shares were issued and outstanding as of the date hereof.
9. Tudhope is a private issuer incorporated under the laws of the province of Ontarioand is not a reporting issuer in any jurisdiction. Tudhope operates a strategicdesign and marketing consultancy in Canada and internationally whose primaryfocus is the creation, building and renewal of brand assets for its clients.Tudhope's executive offices are located in Toronto.
10. The authorized capital of Tudhope consists of an unlimited number of commonshares, an unlimited number of preference shares and an unlimited number ofClass A Preference Shares, of which 200 common shares, 6,400,000 preferenceshares and 2,000,000 Class A Preference Shares (collectively, the "TudhopeShares") were issued and outstanding as at February 21, 2000.
11. Pursuant to the Purchase Agreement, Acquisitionco will purchase all of theTudhope Shares from the Vendors, all of whom are residents of the province ofOntario, for a purchase price currently estimated at CDN $14 million, payable asfollows:
(a) on closing, the Vendors will receive:
(i) a cash payment of CDN $3,000,000 and Exchangeable Shareshaving a currently estimated value of CDN $3,000,000 based on themarket value (the "Market Value") of Omnicom Shares ("MarketValue", for purposes of the Purchase Agreement and this ruling,means the average of the closing prices per share in U.S. dollars ofOmnicom Shares for the 20 consecutive trading days ending on theday which leaves 5 full trading days between such date and theapplicable measuring date; if there is no transaction on any such dayon the NYSE Composite Transaction Index, the closing price will bethe average of the bid and ask prices on such day); and
(ii) 110,000 Exchangeable Shares, less the number of ExchangeableShares issued to the Individual Vendors as an advance payment asdescribed in paragraph (i) above, which balance of ExchangeableShares will be deposited in escrow on closing and delivered to theIndividual Vendors on an earn-out basis as set forth below in (b),subject to the terms of an escrow agreement (the "EscrowAgreement") among the Individual Vendors, Acquisitionco andGowling, Strathy & Henderson (the "Escrow Agent"), legal counsel toAcquisitionco.
(b) The balance of the purchase price will be calculated as follows:
(i) for each calendar year during the period January 1, 2000 to andincluding December 31, 2002 (the "Earn-Out Period"), ArthurAndersen LLP or another independent accounting firm chosen byOmnicom, shall prepare a report containing an audited consolidatedbalance sheet of Tudhope and its subsidiaries, if any, and a relatedaudited consolidated statement of income of Tudhope and itssubsidiaries, if any, for the calendar year then ended, prepared inaccordance with U.S. GAAP, together with a statement based uponsuch report, setting forth for the period under examination thecalculation of the amount of the payment (the "Annual Determination")to be made in each of the 3 years of the Earn-Out Period (the "FirstRelease Amount", the "Second Release Amount" and the "ThirdRelease Amount", respectively);
(ii) within 5 business days after the Annual Determination for each of the3 years of the Earn-Out Period, including any adjustments, theEscrow Agent shall be directed to release to the Individual Vendorson a pro rata basis such aggregate number of Exchangeable Sharesas shall be determined by dividing the First Release Amount, theSecond Release Amount and the Third Release Amount,respectively, by the Market Value;
(iii) the balance of Exchangeable Shares (if any) remaining in escrowfollowing the payment of the Third Release Amount (other than thosewhich would have been released to the Individual Vendors but for theprovisions of the Escrow Agreement permitting retention ofExchangeable Shares to secure any indemnity claims) shall be soldby the Individual Vendors to Acquisitionco for an aggregate purchaseprice of C$10; and
(iv) if, after giving effect to any such indemnity claims, the aggregatenumber of Exchangeable Shares to be delivered by the Escrow Agentto the Individual Vendors exceeds the number of ExchangeableShares held by the Escrow Agent (such excess number ofExchangeable Shares referred to as the "First Release AmountShortfall", the "Second Release Amount Shortfall" and the "ThirdRelease Amount Shortfall", as the case may be), then Acquisitioncoshall pay to the Individual Vendors an amount in Canadian dollarsdetermined by multiplying the applicable Market Value by the numberof Exchangeable Shares comprising the First Release Shortfall, theSecond Release Shortfall or the Third Release Shortfall, as the casemay be.
12. Omnicom has delivered to the Vendors copies of its Annual Reports on Form 10-Kfor the fiscal years ended December 31, 1996, 1997 and 1998 and copies of itsQuarterly Reports on Form 10-Q for the quarters ended March 31, 1999, June 30,1999 and September 30, 1999. Since September 30, 1999, there has been nomaterial adverse change in the assets or liabilities, or in the business or condition,financial or otherwise, or the results of consolidated operations of Omnicom and itssubsidiaries.
13. The Exchangeable Shares will provide the Individual Vendors with the ability to holdsecurities of a Canadian issuer (Acquisitionco) having economic and voting rightswhich are, as nearly as practicable, equivalent to those of Omnicom Shares, exceptthat such holders will not be able to vote at meetings of shareholders of Omnicomuntil they acquire Omnicom Shares through the exchange of Exchangeable Shares.The Exchangeable Shares will be exchangeable by the Vendors for OmnicomShares on a one-for-one basis at any time before January 1, 2010 at the option ofthe holders and will be required to be exchanged upon the occurrence of certainevents, as more fully described below. Subject to applicable law and to the right ofthe Board of Directors of Acquisitionco to defer the payment thereof on certainterms, dividends will be payable on the Exchangeable Shares contemporaneouslywith and in the equivalent amount per share as dividends on the Omnicom Shares.The number of Exchangeable Shares exchangeable for the Omnicom Shares issubject to adjustment or modification in the event of a stock split or other changeto the capital structure of Omnicom in order to maintain at all times the initial one-to-one relationship between the Exchangeable Shares and Omnicom Shares.
14. Omnicom will file with the NYSE the required form of application for the listing of alladditional Omnicom Shares issuable in connection with the Transaction, includingpursuant to the exchange of all issuable Exchangeable Shares, and will pay to theNYSE all required fees in connection therewith.
15. The Exchangeable Shares rank ahead of the common shares of Acquisitionco withrespect to the distribution of property or assets in the event of the liquidation,dissolution or winding-up of Acquisitionco.
16. Holders of Exchangeable Shares are entitled to receive:
a. in the case of a cash dividend declared on the Omnicom Shares, for eachExchangeable Share, an amount in cash equal to such cash dividend;
b. in the case of a share dividend declared on Omnicom Shares to be paid inOmnicom Shares, for each Exchangeable Share, a number of ExchangeableShares equal to the number of Omnicom Shares to be paid in kind as adividend on each Omnicom Share; and
c. in the case of a dividend declared on the Omnicom Shares to be paid inproperty (other than cash or Omnicom Shares), for each ExchangeableShare, a type and amount of property which is the same as or economicallyequivalent to the type and amount of property declared as a dividend oneach Omnicom Share.
All dividends will be paid out of money, assets or property of Acquisitionco properlyapplicable to the payment of dividends, or out of authorized but unissued shares ofAcquisitionco.
17. So long as any of the Exchangeable Shares are outstanding, Acquisitionco may notwithout, but may at any time with, the approval of the holders of the ExchangeableShares, given as specified in the Exchangeable Share provisions, add, change orremove any of the rights, privileges, restrictions, and conditions attaching to theExchangeable Shares.
18. In the event of the liquidation, dissolution or winding-up of Acquisitionco or otherdistribution of its assets among its shareholders and/or creditors for the purpose ofliquidation of its assets or the winding-up of its affairs, the holders of ExchangeableShares shall be entitled to receive (the "Liquidation Right") for each ExchangeableShare held by them, in priority to the holders of common shares or any other sharesof Acquisitionco ranking junior to the Exchangeable Shares, an amount equal to:(1) the then Market Value of an Omnicom Share which shall be fully paid andsatisfied by the delivery to such holder of one Omnicom Share, plus (2) anadditional amount equivalent to the full amount of dividends declared and unpaidor otherwise accrued on each Exchangeable Share prior to the date of liquidation( in aggregate, the "Liquidation Price"), subject to Omnicom's overriding call right(the "Liquidation Call Right") to purchase all but not less than all of theExchangeable Shares for an amount per share equal to the Liquidation Price;
19. Exchangeable Shares may be retracted by the holder (the "Share Retraction Right")at any time until January 1, 2010 for a retraction price per share equal to theCanadian dollar equivalent of the Market Value of one Omnicom Share at the timeof retraction, to be fully paid and satisfied by the delivery of one Omnicom Share,plus an additional amount representing any declared and unpaid or otherwiseaccrued dividends on the Exchangeable Shares (collectively, the "RetractionPrice"), subject to Omnicom's overriding call right (the "Share Retraction CallRight") to acquire any or all of the Exchangeable Shares for a purchase price equalto the Retraction Price;
20. Acquisitionco will have the right at any time on or after January 1, 2010, to redeem(the "Redemption Right") all but not less than all of the then outstandingExchangeable Shares for an amount equal to the then Market Value of an OmnicomShare which shall be fully paid and satisfied by the delivery to each holder ofExchangeable Shares of one Omnicom Share for each Exchangeable Share plusan amount equivalent to the full amount of all dividends declared and unpaid orotherwise accrued on each Exchangeable Share prior to the date of redemption(collectively, the "Redemption Price"), subject to Omnicom's overriding call right(the "Redemption Call Right") to acquire all of the Exchangeable Shares for apurchase price per share equal to the Redemption Price;
21. Subject to applicable law, Acquisitionco may at any time and from time to time offerto purchase for cancellation all or any part of the Exchangeable Shares byagreement with a holder of record of Exchangeable Shares, at any price perExchangeable Share together with an amount equal to all declared and unpaiddividends thereon (the "Cancellation Price");
22. Subject to applicable law, the Exchangeable Shares are non-voting except incertain circumstances described in the Exchangeable Share provisions.
23. It is anticipated that, subject to applicable law, Omnicom (or its designee) willexercise the Liquidation Call Right, Share Retraction Call Right and theRedemption Call Right on each occasion when such rights are available.
24. On or before the closing of the Transaction, Omnicom and Acquisitionco will enterinto a support agreement (the "Support Agreement") which will provide:
a. that Omnicom will not declare or pay any dividends or make any distributionson the Omnicom Shares unless Acquisitionco is able to declare and pay, andsimultaneously declares and pays or makes, as the case may be, anequivalent dividend or distribution on the Exchangeable Shares; and
b. that Omnicom will ensure that Acquisitionco will be able to honour theRedemption Right, the Share Retraction Right and the Liquidation Right thatare attributes of the Exchangeable Shares under the Exchangeable Shareprovisions.
25. On or before the closing of the Transaction, a shareholders' agreement (the"Shareholders' Agreement") will be entered into by the Individual Vendors,Acquisitionco and Interbrand Corporation, which shall provide, among other things,for restrictions on the right of the holders of the Exchangeable Shares to transfer,assign, pledge, charge, mortgage or otherwise dispose of or encumber theExchangeable Shares and the waiver by such holders of their rights to receivedividends in respect of those Exchangeable Shares deposited in escrow and to votetheir Exchangeable Shares, until the earlier of:
i. the date on which no one holds any Exchangeable Shares; and
ii. the date on which Acquisitionco is wound up or dissolved.
26. The steps under the Transaction and the attributes of the Exchangeable Sharescontained in the Exchangeable Share provisions, the Purchase Agreement and theSupport Agreement involve or may involve a number of trades of securities,including trades related to the issuance of the Exchangeable Shares pursuant tothe Transaction or upon the issuance of Omnicom Shares in exchange forExchangeable Shares. The trades and possible trades in securities (collectively,the "Trades") to which the Transaction gives rise are the following:
(a) the transfer by the Vendors to Acquisitionco of the Tudhope Shares pursuantto the Purchase Agreement;
(b) the issuance to the Individual Vendors by Acquisitionco of the ExchangeableShares;
(c) pursuant to the Purchase Agreement, the creation by the Individual Vendorsof the Liquidation Call Right, the Share Retraction Call Right and theRedemption Call Right in favour of Omnicom pursuant to the PurchaseAgreement and the Exchangeable Share provisions;
(d) the creation by Omnicom of certain voting rights in respect of theExchangeable Shares pursuant to the Purchase Agreement and theShareholders' Agreement;
(e) the issuance and intra-group transfers of Omnicom Shares from time to timeto enable Acquisitionco to deliver Omnicom Shares to a holder ofExchangeable Shares upon the exercise of the Liquidation Right or ShareRetraction Right by that holder and the subsequent delivery thereof byAcquisitionco upon such exercise;
(f) the transfer of Exchangeable Shares by the holder to Acquisitionco upon theholder's exercise of the Liquidation Right or Share Retraction Right;
(g) the issuance of Omnicom Shares to enable Omnicom to deliver OmnicomShares to a holder of Exchangeable Shares in connection with Omnicom'sexercise of its overriding Liquidation Call Right, Redemption Call Right orShare Retraction Call Right, and the subsequent delivery thereof upon suchexercise;
(h) the transfer of Exchangeable Shares by the holder to Omnicom uponOmnicom exercising its overriding Liquidation Call Right, Redemption CallRight or Share Retraction Call Right;
(i) the issuance and intra-group transfers of Omnicom Shares to enableAcquisitionco to deliver Omnicom Shares upon the exercise of theRedemption Right and the subsequent delivery thereof by Acquisitioncoupon such exercise;
(j) the transfer of Exchangeable Shares by the holders to Acquisitionco uponthe exercise of the Redemption Right; and
(k) the first trades of Omnicom Shares received upon the retraction orredemption of Exchangeable Shares, upon the exercise by Omnicom of itscall rights or in connection with the liquidation, dissolution or winding-up ofAcquisitionco.
27. If the holders of Exchangeable Shares acquired the maximum number of OmnicomShares to which they would be entitled pursuant to the Exchangeable Shareprovisions, if exercised today, the number of holders who are in Ontario and whowould beneficially own Omnicom Shares would constitute less than 10% of the totalnumber of beneficial holders of Omnicom Shares, holding in the aggregate lessthan 10% of the total issued and outstanding Omnicom Shares.
AND UPON the Commission being satisfied that to do so would not be prejudicialto the public interest;
IT IS RULED pursuant to subsection 74(1) of the Act that, to the extent there areno exemptions available from the registration and prospectus requirements of the Act inrespect of any of the Trades, such Trades are not subject to sections 25 or 53 of the Act,provided that the first trade in Exchangeable Shares or Omnicom Shares receivedpursuant to the Transaction shall be a distribution unless:
1. such trade is made in compliance with section 72(5) of the Act and section 2.18(3)of Ontario Securities Commission Rule 45-501 - Exempt Distributions as if thesecurities had been issued pursuant to one of the exemptions referenced in section72(5) of the Act; or
2. that trade is executed through the facilities of the NYSE or other stock exchange ormarket outside of Ontario and such trade is made in accordance with the rules ofthe NYSE or such other stock exchange or market upon which such trade is madein accordance with the laws applicable to the NYSE or other stock exchange ormarket.
March 17th, 2000.
"J. A. Geller" "Robert W. Davis"