in re: omnicom group, inc. securities litigation 02-cv-04483

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

IN RE OMNICOM GROUP, INC . Master File No. 02 Civ . 4483 (RCC)

SECURITIES LITIGATIO N

COMPENDIUM OF EXHIBITS TO LEAD PLAINTIFF'SLETTERS TO THE COURT DATED SEPTEMBER 9 ,2005

Confidential portions filed under seal pursuant to the ConfidentialityStipulation and Order of May 18, 2005, as amended by Order of January 10, 2006

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Exhibit 1to Compendium of Exhibits to Lead Plaintiff'sLetters to the Court, Dated September 9, 2005

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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YOR K

IN RE OMNICOM GROUP, INCSECURITIES LITIGATION

CIVIL ACTION NO.03-CV-8917 (RO )

DECLARATION OF SCOTT D. HAKALA, PH.D, CFA

I. Background and Qualifications of the Expert

1 . 1 am a director of CBIZ Valuation Group, LLC, a national business valuation an d

consulting firm that operates as a wholly owned subsidiary of Century Business Services,

Inc., a publicly traded business services firm (NASDAQ: CBIZ) . CBIZ Valuation Group

is one of the largest business valuation and consulting firms in the United States with

offices in Dallas, Chicago , Atlanta and Princeton (New Jersey) . CBIZ Valuation Group

employs approximately 80 individuals providing business valuation services to public

and private companies .

2 . I received a Doctor of Philosophy degree in Economics and a Bachelor's degre e

in Economics from the University of Minnesota . I have earned the professional

designation of Chartered Financial Analyst, awarded by the Association for Investment

Management and Research . I have taught courses on asset pricing and market efficiency

at the doctorate (Ph.D.) level in a Ph.D . granting institution . In addition, I have served as

a consultant and expert witness on numerous occasions regarding economic issues simila r

Expert Report and Declaration on Market Efficiency

by Scott D. Hakala, Ph .D., CFA

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to those in this litigation. A detailed summary of my qualifications, including prior

testimony and articles, is provided on the curriculum vitae attached hereto as Exhibit A .

Plaintiffs are being charged fees for my services in this engagement based on my hourly

billing rate of $450 per hour. I have received assistance from other staff employed by

CBIZ Valuation Group .

IL Information Considered

3 . My opinions are based on my professional experience, as well as a thorough

review of a substantial amount of available materials, including :

(a) The Corrected Consolidated Class Action Complaint ("Complaint") in thi s

matter;

(b) Securities filings of Omnicom Group, Inc . ("Omnicom") with the Securities and

Exchange Commission (SEC) from February 2000, through June 2003 ;

(c) Published news articles and press releases and other public news regarding

Omnicom from February 2000, through June 2003, found on Factiva an d

Bloomberg, L.P . ;

(d) Institutional trade data provided by Thomson Analytical Research ;

(e) Publicly available financial information and public trading price information o n

Omnicom, market indices and similar public companies as found on Bloomberg .

L.P . ; and

(f) Various academic texts and published articles as cited in the text .

Expert Report and Declaration on Market Efficiency 2

by Scott D. Hakala, Ph.D., CFA

111 . Summary of the Analyses and Conclusions

4, In addressing the factors outlined in Cammer v. Bloom, 711 F. Supp. (D.N.J .

1989), 1 found strong evidence for the level of market efficiency required for clas s

F certification.

(a) There was more than adequate trading volume, public float and market value t o

attract substantial investor interest and to ensure market efficiency . The trading

fundamentals and reasonably high turnover of the public float led ID substantia l

market maker and analyst coverage during the proposed Class Period .

F (b) Omnicom was widely followed by a number of institutional investor s

throughout the Class Period .

(c) The fact that Omnicom's shares are actively traded on the New York Stock

P Exchange and in good standing is, by itself, usually sufficient to conclude that th e

market for its shares is reasonably efficient.

(d) Omnicom's securities filings were timely and consistent with an efficientl y

Itraded security . Omnicon was eligible to file and did file a Form S-3 during th e

proposed Class Period . Omnicom also issued regular press releases an d

information regarding its earnings, guidance and commercial developments .1

(e) Finally, there is a "cause and effect relationship" between unexpected corporate

events and financial releases and movements in the security price . For example ,

0 Omnicom's share price fell dramatically and its trading volume increased

substantially in response to the news on June 12, 2002 .


by Scott D. Hakala, Ph .D., CFA

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5 . The public shares of Omnicom were traded in an efficient market .' Omnicom' s

Ishares were actively traded throughout the Class Period on the New York Stoc k

Exchange (NYSE). By itself, the listing on the NYSE is usually sufficient to ensur e

market efficiency. Omnicom had a substantial number of shares outstandin g

(198,669,254 shares outstanding as of December 31, 2001, according to Omnicom' s

form 10-K filed in March 2002)2 and a substantial public float (insiders held 2 .86% of

1 the common shares outstanding as of 3/3112001) . The reported average daily trading

volume during the proposed Class Period was 1,396,708 shares and trading ros e

substantially on days of important news events (such as 31 .26 million shares traded on

0 June 12, 2002). (See Exhibit B for daily price and volume data and a price chart . )

Omnicom was actively followed by institutional investors and there were substantia l

institutional holdings of shares by institutional investors throughout the Class Period (a s

of December 31, 2001, a total of 459 identified institutions held more than 155 million

shares of Omnicom according to Thompson Financial, as shown in Exhibit Q. Omnicom

was generally covered by the financial and general media . Omnicom's filings with the

SEC were timely and allowed for the registration of shares . As such the statement s

made by the Defendants and the financial performance of Omnicom were regularly

1 evaluated and effectively incorporated in the market price for Omnicom's shares .

6. When the alleged fraudulent nature of the transaction involving Seneca cited i n

1the Complaint ( as sustained by the court) was revealed (at least in part) on June 12, 2002 ,

1 In assessing the type of market efficiency required for the fraud-on-the-market presumption, I relied on

two decisions in the United States District Court, District of Massachusetts, in September 2004, In re

PolyMedica Corp. Securities Litigation (Civil Action No . 00-12426-REK) and In re Xcelera .com Securities

Litigation (Civil Action No. 00-I 1649-RWZ) .2 Approximately 188 million of these shares were available for public trading .

Expert Report and Dectaration on MarketEfficiency 4

by Scott D. Hakala, Ph.D., CFA

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the share price of Omnicon fell 19.7% (as compared with a 3 . 4% decline in the Standard

and Poor's Supercomposite Media Index, S 15MEDAX) and trading increased to over 31

million shares (as compared with an average volume of only 1 .4 million shares during the

proposed Class Period) . These changes are significant and evidence the fact tha t

Omnicom's share price reacted quickly to the relevant news .

7. I may perform additional analyses and review discovery . I, therefore, may amend

and supplement my conclusions based on subsequent analyses .

I declare under penalty of perjury under the laws of the State of Texas and the United

States that the foregoing is true and correct. If called as a witness I could and woul d

competently testify thereto .

Executed this 2"d day of June, 2005, at Dallas, Texas .

Z47~)9&

0 Scott D. Hakala, Ph .D., CFA

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by Scott D. Hakala, Ph .D., CFA5

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From : Michael Tierne ySent : Monday, December 11, 2000 9 :24 P MTo: Phil AngetastroCc : Jerry Neumann ; Andrew CaslellanetaSubject : RE: Revaluation Rationale s

It does, Phil . . {My type of approach .) I'm sure we'll be back to you with some real-lifescenarios soon .

Michae l

-------Original Message-----

From : Phil Angelastro

Sent : Monday, December 11, 2000 8 :07 PM

To . Michael Tierne y

Cc : Jerry Neumann ; Andrew Castellaneta

Subject : RE : Revaluation Rationale s

Michael,The most clear principal to follow in explaining how we need to go about approaching thisis - substance over form . As a result, the examples you give below would likely result : inour needing to record a provision of some amount, We wi ..ll have to deal with the specificfacts and circumstances of each case individually and internally before we make any final .

conclusions .Hope this helps .Best Regards ,

Phi l

- - Griginal Message------From : Michael Tierne y

Sent : Monday, December 11, 2000 5 :48 PM

To : Jerry Neuman n

Cc : Phil Angelastro; Bruce Redditt ; Allen Chi ; Jared Solomon

Subject : RE : Revaluation Rationales

Jerry :

My principal question, which I am asking Phil by copy of this memo, concerns the

term "bankruptcy" . Do we mean here a formal filing under Chapters 7 or 11, or is it

enough (at least to be worrisome) if we are aware of the existence of a basis for such afiling-"insolvency", liabilities exceed assets, unable to meet obligations as they come

due, etc .? A related question relates to "imminent" : If we know, for example, from ourcurrent cash burn analysis that an investee faces insolvency before, say March 31, whatare our disclosure obligations to our auditors ?

Michael

-------Original Message-=---

From : Jerry NeumannSent : Monday, December 11, 2000 4 :57 PM

To : Bruce Redditt ; Michael Tierney ; Allen Chi ; Jared SolomonCc : Phil Angelastro

Subject : Revaluation Rationale s

I spoke to Phil Angelastro about reasons we would have to write-down any of our existinginvestments . lie said the accounting standard that would force a write-down would be a"permanent impairment" of the value of the investee . Unarguable events that constitute a

CONFIDENTIAL OMC 0067109

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permanent impairment include bankruptcy, liquidation, or our knowledge that r,ithher of

these events is ituninent (through notification from tranege€renh or otherwi .se_ ) A forcash or public company equity at a loss would also necessitate lass recognition .

Events such as a down--round do not necessarily consitutee at permanent impairment.-., a[t.hoot.ughwe would need to explain our rationale for not writing the investment down . A sale foieprivate company equity at what could be considere1 a loss is arguable since there isprobably no independent valuation of the cons idEJrat_i_on received, but it there is somethird-party valuation (ie . a recent round) that suggests a loss, it could be a difficulLargument .

Any write-down that occurred before our earnings release on or about 2/20/2001 would hro a"subsequent event" and included in our year 2000 earnings . Any event that occurred beforeour 10-K release on or about- 3/31/2001 could be a problem but is not necessarily asubsequent event .

We should probably use the 3/31/2001 date as our cut-off for analysing the chance ofimmediate problems with any investee _

0 Please let me know if you have any questions ,

Jerry

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Statement ofFinancial Accounting

Standards No . 11 5FAS115 Status Page

FAS1 15 Summary

Accounting for Certain Investmentsin Debt and Equity Securitie s

May 1993

. 6& Financial Accounting Standards Board0 of the Financial Accounting Foundatio n

401 MERRITT 7, P .O . BOX 5116, NORWALK, CONNECTICUT 06856-511 6

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c. For a debt security transferred into the available-for-sal e category from the held-to-maturitycategory, the unrealized holding gain or loss at the date of the transfer shall be recognized ina separate component of shareholders' equity.

d. For a debt security transferred into the held-to-maturity category from the available-for-sale

category, the unrealized holding gain or loss at the date of the transfer shall continue to bereported in a separate component of shareholders' equity but shall be amortized over the

remaining life of the security as an adjustment of yield in a manner consistent with the

amortization of any premium or discount . The amortization of an unrealized holding gain or

loss reported in equity will offset or mitigate the effect on interest income of the

amortization of the premium or discount (discussed in footnote 3) for that held-to-maturity

security .

Consistent with paragraphs 7-9, transfers from the held -to-maturity category should be rare,except for transfers due to the changes in circumstances identified in subparagraphs 8(a)-8(f) .

Given the nature of a trading security, transfers into or from the trading category also should be

rare .

I Impairment of Securities

16. For individual securities classified as either available-for-sale or held-to-maturity, an

enterprise shall determine whether a decline in fair value below the amortized cost basis is other

than temporary . For example, if it is probable that the investor will be unable to collect all

amounts due according to the contractual terms of a debt security not impaired at acquisition, an

other-than-temporary impairment shall be considered to have occurred . 4 If the decline in fair

value is judged to be other than temporary, the cost basis of the individual security shall be

written down to fair value as a new cost basis and the amount of the write-down shall beincluded in earnings (that is, accounted for as a realized loss) . The new cost basis shall not be

changed for subsequent recoveries in fair value. Subsequent increases in the fair value of

available-for-sale securities shall be included in the separate component of equity pursuant to

paragraph 13 ; subsequent decreases in fair value, if not an other-than-temporary impairment,

also shall be included in the separate component of equity.

Financial Statement Presentation

17. An enterprise that presents a classified statement of financial position shall report alltrading securities as current assets and shall report individual held-to-maturity securities and

individual available-for-sale securities as either current or noncurrent, as appropriate, under the

provisions of ARB No. 43, Chapter 3A, "Working Capital-Current Assets and Current

Liabilities . "

18. Cash flows from purchases, sales, and maturities of available-for-sale securi ties andheld-to-maturity securities shall be classified as cash flows from investing activities and reported

gross for each security classi fication in the statement of cash flows . Cash flows from purchases,sales, and maturities of trading securities shall be classified as cash flows from operating

Copyright ®1993. Financial Accounting Standards Board Not for reds strtbution

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SEC Staff Accounting Bulletin :Codification of Staff Accounting Bulletin s

Topic 5 : .Miscellaneous Accounting

A . Expenses..of ..Offer ing

B . Gain orLoss From Dispos i tionofcuiPme .n

C . Cl ..Deleted by SAB 103

C.Z . Deleted by SAB 103

D . Organization a nd Offerin Expenses and Selling ._Com..., r...~issions--Limit.e....d Partne,rships Trading in Commodity Future s

E . Accounting for Divestiture of a-Subsidiary or Other- Business.Operation

F . Accountinq_Chang.es Not .. Retroactively Aimlied Due to immateriality

G . Transfers of Nonmonetary Assets by„_P ra moters or Shareholders

I . Accou nting. ..for_Sales of Stock by a Subsidiary

I . Deleted by SAD 7 0

J . Push. Down . Basis of Accounting Required in Cer tain Li mited

Circumstances1

K . Deleted by SAB 9 5

L . LI FO Inventory Practices

adE an Temporary Impairmen t of Certain Investments in DebtM . other

quity Securities.

Discount ng by P„r„©perty.-Casu,aIty I nsur..,ance Corn anie s

0 . Resea rch and Development Ar ra ngements

P. Restructuring Charges

1 . Deleted by SAB 103

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evaluate the realizable value of its investment .

There are numerous factors to be considered in such an evaluation andtheir relative significance will vary from case to case . The staff believes thatthe following are only a few examples of the factors which, individually or incombination, indicate that a decline is other than temporary and that awrite-down of the carrying value is required :

a . The length of the time and the extent to which the market value hasbeen less than cost ;

b . The financial condition and near-term prospects of the issuer,including any specific events which may influence the operations ofthe issuer such as changes in technology that may impair theearnings potential of the investment or the discontinuance of asegment of the business that may affect the future earningspotential ; or

c. The intent and ability of the holder to retain its investment in theissuer for a period of time sufficient to allow for any anticipatedrecovery in market value .

Unless evidence exits to support a realizable value equal to or greater thanthe carrying value of the investment, a write-down to fair value accountedfor as a realized loss should be recorded . In accordance with the guidanceof paragraph 16 of Statement 115, such loss should be recognized in thedetermination of net income of the period in which it occurs and the writtendown value of the investment in the company becomes the new cost basisof the investment .

N . Discounting by Property-Casualty Insurance Companies

Fa cts,, : A registrant which is an insurance company discounts certain unpaidclaims liabilities related to short-duration13 insurance contracts for purposesof reporting to state regulatory authorities, using discount rates permittedor prescribed by those authorities ('statutory rates") which approximate 31/2 percent . The registrant follows the same practice in preparing it sfinancial statements in accordance with GAAP . It proposes to change forGAAP purposes, to using a discount rate related to the historical yield on itsinvestment portfolio ("investment related rate") which is represented toapproximate 7 percent, and to account for the change as a change inaccounting estimate, applying the investment related rate to claims settledin the current and subsequent years while the statutory rate would continueto be applied to claims settled in all prior years .

Cjestion,1. : What is the staff's position with respect to discounting claimsliabilities related to short-duration insurance contracts ?

Interpretive,..._Re.sponse : The staff is aware of efforts by the accountingprofession to assess the circumstances under which discounting may beappropriate in financial statements . Pending authoritative guidanceresulting from those efforts however, the staff will raise no objection if aregistrant follows a policy for GAAP reporting purposes of :

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Exhibit 5to Compendium of Exhibits to Lead PlaintiffsLetters to the Court, Dated September 9, 2005

Statement ofFinancial Accounting

Standards No . 140FAS 140 Status Pace

FAS 140 Summary

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Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilitie s

(a replacement of FASB Statement No . 125 )

September 2000

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■Financial Accounting Standards Boardof the Financial Accounting Foundatio n401 MERRITT 7, P .O. BOX 5116, NORWALK, CONNECTICUT 06856-511 6

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Fair Value

68. The fair value of an asset (or liability) is the amount at which that asset (or liability) could

be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that

is, other than in a forced or liquidation sale . Quoted market prices in active markets are the best

evidence of fair value and shall be used as the basis for the measurement, if available . If aquoted market price is available, the fair value is the product of the number of trading units times

that market price .

69. If quoted market prices are not available, the estimate of ihir value shall be based on the

best information available in the circumstances . The estimate of fair value shall consider prices

for similar assets and liabilities and the results of valuation techniques to the extent available inthe circumstances . Examples of valuation techniques include the present value of estimated

future cash flows, 2'~ option-pricing models, matrix pricing, option-adjusted spread models, and

fundamental analysis . Valuation techniques for measuring financial assets and liabilities andservicing assets and liabilities shall be consistent with the objective of measuring fair value .

Those techniques shall incorporate assumptions that market participants would use in theirestimates of values, future revenues, and future expenses, including assumptions about interest

rates, default, prepayment, and volatility . In measuring financial liabilities and servicingliabilities at fair value, the objective is to estimate the value of the assets required currently to (a)

settle the liability with the holder or (b) transfer a liability to an entity of comparable credit

standing .

70. Estimates of expected future cash flows, if used to estimate fair value, shall be based onreasonable and supportable assumptions and projections . All available evidence shall be

considered in developing estimates of expected future cash flows . The weight given to the

evidence shall be commensurate with the extent to which the evidence can be verifiedobjectively. If a range is estimated for either the amount or timing of possible cash flows, the

likelihood of possible outcomes shall be considered either directly, if applying an expected cashflow approach, or indirectly through the risk-adjusted discount rate, if determining the best

estimate of future cash flows .

I If It Is Not Practicable to Estimate Fair Value s

71 . If it is not practicable to estimate the fair values of assets, the transferor shall record those

assets at zero . If it is not practicable to estimate the fair values of liabilities, the transferor shallrecognize no gain on the transaction and shall record those liabilities at the greater of

a. The excess, if any, of (1) the fair values of assets obtained less the fair values of otherliabilities incurred, over (2) the sum of the carrying values of the assets transferre d

b . The amount that would be recognized in accordance with FASB Statement No . 5,

Accounting for Contingencies, as interpreted by FASB Interpretation No. 14, Reasonable

0 Copyright 02000, Financial Accounting Standards Board Not for redistribution

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From: Jerry Neuman nSent: Tuesday, March 13, 2001 9 :49 AMTo : Phil AngelastroCc : Andrew Castel€anetaSubject: RE: schedule of investments

See attached .

Jerry

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Protorcna portfoliomodel Mar 5 . . .

-----Original Message ---- -

From : Phil AngelastroSent : Monday, March 12, 2001 8 :$6 PMTo : Jerry Neumann

cc: Andrew Castellaneta

Subject: schedule of investment

Jerry,Please update your schedule for the recent market prices .Best Regards ,

Phil

Confidential OMG 0033128

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M C ommunicade Holdings.Book Common Bk Vail % of Warrant Sh+Warr PrieeJSh Market Val'! Pre-tax Tax exp/(Ben) After-tax

Company Value E Shares Share Outstared Strike Warrants Percent 3/12)2001 Non Public Est . Unreal G L or Unreal G(L) Unreal . C-' L

Pubflc Companies

AGENCY .COM(ACOV) 73,406,063 14,760,278 4 .97 35.17% - - 35,17% 1 11116 24,907,969 (48,498,094) (16,974,333) (31,523,761 )Organic (OGNC) 27,646,678 15,283 .101 1,81 17.38% 1738% 314 11,462,326 (18,186,352) (5,665,223) (10,521,129)Razorish (RAZZ) 27,040,403 11,916,666 2 .27 12,27% 12.27% 1 11,915,665 (15,123,737) (5,293,308) (9,830,429 )

Subtotal public cos" 128,095,144 48,286,961 79,808,183 27 932,864 51,875,31 9

Private Companies

Cares©ft 10,499,998 3,937,007 2.67 16 .25% 2,918,400 768,000 18.83% 10,499,998 -

Dash .Coni 15,200,000 6,000,000 2 .53 19 .48% - - 19.46% 15,200,000 -

Domain Network 3,750,000 134,206 27 .94 20 .10% - - 20.10% 3,760,000 - -

eMedicine 10,500,000 9,000,000 1,17 21 .04% - 21 .04% 10,500,000 -

Heatthc!ogy 6,050,000 6,000,000 1 .01 2500% - - 25,00% 8,050,000 - -

ipNet arks 6,013,741 6,000,000 1 .00 18,08%a 300,000 300,000 18.81% 6,013,741 -t.iveTech 12,500,000 4,135,649 3 .02 10.00% 41,357 4,135,650 20 .00% 12,500,000 - -

MediaSpace 10,400,000 1,145,926 9.08 16 .24% 1,853,045 214,473 1872% 10,400,000 - -

Ntercept 2,514,585 3,179,044 0 .79 18.82% 504,638 903.075 20.80% 21514,585 - -

Oyster 14,299,296 4,924,000 2 .90 21 .60% 4,004,000 455,000 20.93% 14,299,296 - -

RecruitSafi 9,500,000 11,508,342 0 .83 13 .16% 1,749,954 2,891,530 15.91% 6,643,899 (2,856,101) (999,635) (1,858,486 )

Red Sky 20,107,578 10,078,789 2 .00 26 .51% 6,700,658 221,363 26 .94% 20,107,578 -

ReplayTV 3,100,000 274,725 11 .28 0 .53% - 0 .63% 1,002,471 (2,097,529) (734,135) (1,363,394 )

WortdMedical Leaders 16,000,000 2,300,613 6 .95 19,90% 19,846 1,984,561 31 . 68% 16,000,000 -

Subtotal, ivate cos'*' 140,435,198 135,481,568 4,953,630 1,733,771 3,219 86 0

Total, all investments 268,530,342 183,768,529 84,761,813 29,666,635 55,095,17 9

Est . legat and other costs (1,000,000) (350,000) (650,000 )

Subtota} 268 530342 183 768,529 85,761 813 30,016,635 `55 745,179)

Balance sheet liabilitie s

Accrued liabilities - Commun 6,271,865 6,271,865 2,195,153 4,076,?1 2

Comrnunicade Deferred Tax 44,000,000 44,0D0,000 15,400,000 28,6000 0

Omnicom imputed interest 30,514,000 30,514,000 10,679,900 19,834,10 0

ESOP cushion 24,000,000 24,000 .000 8,400,000 15,800,00 0

Subtotal, balance sheet liabs 104,785,865 104,785,865 36,675,053 68,110, 81 2fl

Net 183,744 477 19 024,052 6,658,416 12,365,83 3

(- )CD • Closing price on date noted if public or cash purchase price it not, except as noted. Warrants are treated as unexerclsed.

Excludes basket.Excludes eResearch Technologies. castanellaneta2001_11_08 .0705894-0001-Proforma portfolio model Mar 5 2001 .x1 s

4/27/20052 .52 PMtVto

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From: Jerry NeumannSent; Wednesday, March 28, 2001 7 :27 PMTo: Phil Ange[ast(oSubject: RE: Communicade Overview memo

Here is MediaSpace, Domain, and ReplayTV . And the spreadsheet to front the pages .

Cornmunicade CommunicadeDvennew memo.docummary portfolio . . .

-----Lkigirraf Message---From: PhiI AngelastraSent: Wednesday, March 28, 20014 :58 PM

To: Jerry Neumann ; Andrew CasteilanetaSubject: FW: Communicade [overview memo

Jerry/AndyAttached is the suggested format .Phil

« Message : Cornmunicade Overview memo > >

Confidential OMC 0033242

Commttnicade

Mediaspnee Solution s

1) Overview and Mission

The company offers a full-service outsource solution to advertisers to plan,create, place and complete advertising campaign in newspapers across the

country. They have demographic and gerographic information on more than1600 newspapers and use the existing AP AdSend in frastructure to place ads .

2) Current Statu s• At 2/28/01 the company currently had $7 .3 million of cash on hand and a $5

million revolver from Summit Banks, with no outstanding balance. Theaverage monthly cash use for January and February of this year was $450,000 .

3) Tactical Strategy - near term

The company is currently exploring a strategic alliance with the NewspaperAssociation of America, which runs a highly inefficient, but high revenue,competitor. The company is also reviewing possibilities for an AR line ofcredit, two financing companies have bid on the business .

4) Valuation (include basic financial information)

• Original Valuation $61 .5 millio n

• Current Valuation $61 .5 million

• Omnicom Share $10 .4 millio n• Omnicom Book Value $10 .4 million

Projections

Revenue: $46 .5 million forecast for 200 1

Operating income : $1 .3 million loss forecast for 2001, monthly profitabilitybeginning in September 2001 .

6) Conclusion & Follow-up• Company is growing revenues in a large niche while less-focussed

competitors are throwing in the towel . Company should be able to ride outthe current softness in the advertising market and be poised for strong growthin the second half of the year .


ComrnunicadeDomain Network

1 1} Overview and Missio n

• The company provides provides services related to trademark, naming anddomain name issues associated with the digital environment . The companyhas offices in Stockholm, London, Paris and Amsterdam ,

2) Current Status

As of 2/28101 the company had US$1 .8 million of cash on hand (UW - SEK10.38) and and a $2.5 million revolving line of credit . The company'saverage use of cash for January and February was $203,805 per month .

3) Tactical Strategy - near ter m

1 • Discuss clients{ revenue/ strategic alliances/ funding option s

4) Valuation (include basic financial information)

• Original Valuation $17.4 million

• Current Valuation $17 .4 million

• Omnicom Share $3 .8 million

• Omnicom Book Value $3 .8 millio n

5) Projections

• Revenue (if appropriate) : $11 .7 niillioiz projected for 2001

• Operating Income : $0.3 million loss projected for 200 1

6) Conclusion & Follow-up• Although not growing revenue as quickly as originally planned, the company

has cut expenses to keep not income on plan . Company's business has amaintenance component (maintaining multiple domain names across severalcountries for large multinationals) so has some stability-

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Com mu nieadeDomain Network

1) Overview and Mission

• The company creates Personal Video Recorder technology . It has signed aletter of intent to sell itself to SonicBlue .

2) Current Statu s

• Definitive documents for the sale of the company are being prepared. Thepreferred shareholders are being asked to waive their liquidation preferencesand approve the deal .

3) Tactical Strategy -- near term

• We are vigorously protesting what we view as an unfair dist ribution of thesale proceeds .

4) Valuation ( include basic financial information)

• Original Valuation : $475 million

• Current Valuation : $77.5 million (based on current SonicBlue price of$5/share )

. Omnicom Share : $0.8 million

• Omrticom Book Value $ 3 .1 million

5) Projection s

• N/A

6) Conclusion & Follow-u pWe will use all appropriate remedies to what we view as an unfair distributionof proceeds .

I

I

1

Confidential OMC 003324 5

0

w w w w w w - w -

n0

SiCp

Communloede HoidlrsasBock Common SkVaI/ /.of Warrant Sh+Warr PticeiSh Market Vat*(

Company Value t c~ Shares Share Outstand Strike Warrants Percent 3/27/01 Non Public Es t

Public Companies

AGENCY.GOM (ACOM) 73,405,963 14,760,278 4 .97 35 .17% 35 .17% 1 7/16 21,217,90 0

Organic (QONC) 27,648,678 75,283,101 1 .61 17 .34% 17 .38% 3!4 11,462,32 6

Razorfith (RAZF) 27,040,403 11,916,666 2 .27 12 .271Y. - - 12 .27% 1/2 5,958,333

Subtotal, public cas 128,095,144 - 36,638,558

Private Companies

Qash .Corn 15,200,000 6,000,000 2,53 19 .46% 18.46% 15,200,000

LlveTech 12,500,039 4,135,649 3 .02 10 .00% 41,357 4,135,650 20 .00% 12,500,000

O7slar 13,612,554 4,924,000 276 21 .69% 4,004,000 455,000 20793% 13,612,55 4

R ed Sky 20,107,578 10,078,769 2 .00 25 .51% 6,700,658 221,363 26 .S4% 20,107,57 9

Subtotal, private 005

T

61,420,132 61,420,13 2

Total, all investrnenta 189,515,276 106,058,69 1

Sale Pric e

Sale Price 169,515,27 6

Subtotal, sale price 189,515,27 6

Net

Ctosing pike on date noted if public or cash purchase puce if not, except as noted . Warrants are treated as unoxortised,

0KC)OOWW Comm 4 nlcade summary partfot;o .x#5N 4127120053:29 PM

w 1w

C )C

C,ro

snCommunicada Hofdln

PO OK Gomneon BkVail %of Warren S1+Warr V&uat+on Pretai Taxaxp!(Een) After-tax

Compar Valu e Eq Shares Share Outstand S trike Warrants Percent Estirmate * Unreal 0 (L on Unteel G(L) Unrea € . I. Comments _

Private Compatllea

Caresoft 10 ,499,998 3,937 ,007 2 ,67 16 .25 % 2,918 , 400 768,000 16 .83% 10,499 ,998

bomain Network 3 , 750,000 134 , 206 27 .94 20 . 10% - 20 .10% 3,750,000

eMedicine 10,500,000 9,000 , 000 1 , 17 21 .04% - 21 .04% 10,500 .000

#lealthology 8,060,000 6 , 000,000 1 .01 25 .00% 2 5 .00% 5,050,000

IpNetworks 6,013,741 6 , 000,000 1 .00 18 .08% 300 .000 300 ,000 18. 81% 6 , 013,74 1

MadiaSpace 10,400 ,000 1,145,926 9,05 16.24% 1,853,045 214,473 18 ,72% 10,400,00 0

Ntarcept 2 ,514,585 3,179,044 0 . 79 15 .82% 504,638 903,075 20 .90% 2,514,58 5

RecruitSoft 9,500 ,000 11 , 508,342 0 .53 13 .18% 1,749,954 2.891,530 15 .91% 6,643 ,899 (2,856,101) (999,635 ) ( 1,856,466) All stock valued at Series C price/shar e

Reptay T V 3,100 , 000 274 , 725 11 .28 0 .53% - - 0 .63 1/c 1 ,002,471 ( 2,097,529) (734 , 135) {1,363 , 394) Estimated proceeds from SBLU sco .

WortdMadicalLeaders 16,000, 000 2, 300,613 6 .95 19 .90% 19, 846 1,984 , 561 31 .66% 16 ,030,00 0

Est. legal and other costs(1,000,000) (350,000) (650,000 )

Subtotal 78,328,3 2 4 73,374,694 5,953,830 2,053,771 (0,609,86 0

Balance sheet 11eMIltle s

Accruedliabi€iScs-Ccmmurica4e 6,271,865 6,271,885 2,195,153 4,076,71 2

Conimunicade Deferred Taxes 44,000,000 44,000,000 15,400,000 26,600,00 0

Omnicam Imputed Interest 30,514,000 30,514,000 10,679,900 19,834,10 0

ESOP cushIon 24,000,000 24,000,000 8,400,000 15,600,00 0

Subtotal balance sheet Nabs 104,785,865 104 785,865 35,675,053 68,110,81 2

Not 26,457,541 98,832,235 34,591,282 64,240,95 3

' Purchase pAce, except as noted . Warrants are froated as unexercisad.

0Z

0© Communiaede summary portfolio -xIs© 4127 ;2005 329 PMCA)C.~t

M

CEO


Omnlcorn Group Inc .Accounting for Investment in Senec a

Background

• Omnicom had made investments in certain interactive! e-services companies . Theinvestments were held in the form of preferred and common stock and wereaccounted for using the cost method, except for one, which was accounted for usingthe equity method.

• Omnicom's acquisition strategy was to invest in e-business models that had a strongpotential for fit or synergy with Omnicom's core businesses . Omnicorn took aportfolio approach to its strategy and spread its risks across several business lineswithin the marketing services and communications sector (e .g. ; interactive agencies,web site development, health care specialty e-services, etc . )

s In calendar 2000, the market value of all e-business companies peaked and by theend of the year the entire sector began to experience significant declines values .While Otnnciom bad confidence in the portfolio, the systemic risk had reached levelsbeyond which Omnciorn had originally anticipated . Around this time Omnicombegan to cosider an exit strategy for its investments

• By early 2001, venture capital funding for e-businesses had ceased and it wasapparent that the only course of action for these fledgling companies would beconsolidation . Omnicom saw the inevitable consolidation as an exit opportunity thatcould maximize the value of its portfolio

- to May 2001, Onmicorn and Pegasus partners created Seneca Investments LLP .Seneca would be used as a catalyst to facilitate the industry consolidation . Pegasushad what Omnicotn lacked: venture capital expertise, industry know-how necessaryto make connections, as well as e-business investments of its own . Orr nicom wouldcontribute its e-business investments (book value of $277M) and cash of $47.5M andPegasus would contribute cash (up to $25M ) and conduct the day-to day operationsnecessary to orchestrate consolidations among e-businesses (within or outside of theSeneca portfolio).The investors agreed that the venture needed cash to execute its strategy , so therewere no distributions at formation . Omnciom held a $325Mpreferred in Seneca andPegasus held the voting common. Pegasus would be paid a market rate managementfee to operate the venture .

• There were no valuation issues with Omnicom's investments at the time the Senecaventure was created as all of these investments were acquired very early in thecapitalization process of the companies . Accordingly, Omnicorn 's basis was

Confidential OMC*000597I

significantly below the peak valuations that many of the e-business companies hadreceived . Omnciorn assigned its book value in the investments (ie; $277M) plus itscash contribution ($47.5M) to the Senecart preferred investment , which approximatedmarket value . (Discussed further below )

• The preferred stock would accrue an 8 .5% dividend annually . Omnicom intended tofully reserve against any accrued but unpaid dividends

Accounting

There are 3 accounting issues to consider : I - basis of Omnciom's investment in thepreferred, 2- ongoing accounting for the venture 3- valuation of Omnieom'sinvestment

• Omnicom believes that its basis in the preferred investment in Seneca is carry over

basis . The transactions was the formation of an ongoing business venture in whichOmnicorn contributed assets .

Since no cash was distributed to the investors at formation, realization/monetizationof the value of Omnicom's investments has not occurred and accordingly carry overbasis is required . . . . cut and paste from last memo

The investment in preferred will be accounted for at cost. The equity method will notbe applied as Omnicorn's preferred has no voting rights and Oranciom has noinfluence over the operations of Seneca . In fact, Pegasus we intentionally determinedto

+ Valuation we have obtained an appraisal which supports the carrying value of theinvestment in pre ferred at December 31, 2001 . . . . and cut and paste from last memo ?

Consideration of Special Purpose Entity Applicabilit y

• In evaluating the accounting for this transaction Omnicom considered theapplicability of the Special Purpose Entity (SPE) rules . The SPE rules can be foundin several topics in US GAAP and Omnciom considered each area to this transactionand our finding are summarized as follows :

• The SEC concerns with SPE's were first raised in 1989 . EITF topic D-14 summarizedtheir concerns . In topic D- 14 the SEC's concerns were related to receivables, leasing,and other transactions. The SEC issues focused on sales recognition upon transfers o f

Confidential oMc*0005972

assets to SPE's and consolidation of the SPE. In particular, the SEC expressed itsview, at that time, that non consolidation and sales recognition were not appropriatewhen the SPE is thinly capitalized, the risks and rewards of the SPE's assets or debtrest with the sponsor or transferor and the activities of the SPE are virtually all on the

sponsor's or transferor's behalf. In response to this concern the FASB came out witha series of pronouncements as indicated in EITF topic D-14 which were intended toaddress the transactions most troubling to the SEC. The most notable of which were(also see appendix a for summary of primary transactions a SPE is used in) :

EITF 90-15 "Impact of nonsubstantive lessors . . .and other provisions inleasing transactions " .While this matter dealt specifically with real estate financing transactions,some of the rules have been applied, by analogy, to other transactions (Seequestion 2 in EITE 90-15) . However the EITF specifically stipulated that thescope of the issue is limited to leasing transactions.

- FASB Statement 140 (which replaced FASB Statement 125) Accounting forTransfers and Servicing of Financial Assets and Extinguishment ofLiabilities . Par . 4 of the statement specifically excludes from the scope of thestatement : investments by owners or distribution to owners of a businessenterpris e

Based on our research the fundamental question as to the applicability of SPE rules tothe investment in Seneca is whether or not we have the formation of business for thesole benefit of Omnicom . In our opinion the Seneca venture is an arms- 'l engthbusiness venture with mutual risks and rewards to the investors . Oniniccm provided asubstantial portion of the investment capital and limited its return on its investment .Pegasus provided less investment capital but brings all of the know -how to theventure and is given complete autonomy to maximize the value of the contributedassets . Further, the venture is not intended to accommodate an off balance sheetfinancing arrangement, the most common application of a SPE, on behalf ofOmnicom. The investment in preferred is included on Omnicom 's balance sheet,there is no debt in Seneca and there were no cash distributions to Omnicom .

Confidential OMC*0005973

t-t

\43


From: Randall WeisenburgerSent: Friday, March 23, 2001 2 :52 PMTo; 'ABursky@Pegasusinvestors .com'Subject; FW: E-Investment Sales Letters - Revise d

Hi Andy ,

Attached is the Proposed Term Sheet as well as a couple of transmittal letters the attorneys have drafted . I hope this is anaccurate reflection of what I said it would be, but if you have any issues we will cure them .

Again, thank you for your assistance and your trust on this deal.

Have a great trip .

Randy

-----Original Message--From: Sandy FeuchtwangerSent. Friday, March 23, 2001 2 :26 PMTo: Randall WeisenburgerSubject: E-Investment Sales Letters- Revise d

E-Investment Sales E-Investment Sales E-Investment Sales E-investment Sales- Annex A . d. . . - Pegasus L . . - Ltr . to B . . . - Pegasus T.. .

I

I

0 Confidential OMC*0005596

ANNEX A

Issuer

Agency. com

Dash.corn

LiveTech

Organic

Oyster

Razortish

Red Sky

SECURITIES TO BE CONTRIBUTED

Number ofCommon Shares/

Equivalents % Egu

14,760,278

6,500,000

4,135,649

15, 283,101

4,924,000

11,916,666

10,078,789

35.17%

19 .46%

10.00%

17 .38%

21 .6%

12 .27%

26.5%

0Confidential OMC*0005597

March 29, 200 1

Pegasus Capital Advisors, L.P.99 River RoadCos Cob, Connecticut 06807Attention: Andrew Bursky

Ladies and Gentlemen :

This letter reflects our agreement in principle relating to the formation of an entity("Newco") to invest in the e-service companies listed on Annex A hereto on theterms we have discussed to date, including that Pegasus' common stockcommitment will be $25 million and that we would contribute the securitiesindicated on Annex A plus $55 million of cash or common stock for a $250 millionaggregate stated amount of preferred stock .

Our agreement in principle is subject to the execution of mutually satisfactorydefinitive documentation providing for the formation of Newco, in each case inform acceptable to each party in its respective sole discretion (the "DefinitiveAgreements") . Accordingly, except as provided in the next paragraph, this letteris a statement of current intention only and does not constitute a bindingobligation to effect the transactions herein contemplated or to take or omit to takeany action . Without limiting the foregoing, the failure of the parties to enter intothe Definitive Agreements will not be construed as a breach of this letter by anyparty hereto . A legally binding obligation with respect to the matters hereincontemplated will arise only upon execution and delivery of the DefinitiveAgreements, and then only on the terms and subject to the conditions thereincontained .

Each party agrees that, prior to the execution of Definitive Agreements, it will notpublish any press release or issue or make any other external communicationregarding this letter or the matters herein contemplated without the prior consentof the other party except as the disclosing party may determine is required by lawor legal process .


Pegasus Capital Advisors, L .P.March 29, 200 1Page 2

Our mutual objective is to sign Definitive Agreements by April 15, 2001 .

Very truly yours ,

COMMUNICADE INVESTMENT COMPANY OF NEVADA, INC .

By:Treasurer

Accepted and agreed to asof the date first above written :

PEGASUS CAPITAL ADVISORS, L .P .

By:Duly Authorized


March 29, 200 1

Mr. Andrew BurskyManaging Directo rPegasus Capital Advisors, L .P .99 River RoadCos Cob, Connecticut 0680 7

Dear Andy:

We have entered into an agreement in principle relating to the formation of a newcompany to invest in e-service companies . Attached is a summary setting forthcertain basic concepts about which we each believe we have a mutualunderstanding relating to this transaction .

This letter is subject to the limitations of the agreement in principle entered intoon the date hereof.

Very truly yours,

Randall J . WeisenburgerExecutive Vice Presidentand Chief Financial Officer

Accepted subject to theagreement in principle :

PEGASUS CAPITAL ADVISORS, L .P .

By:Duly Authorized


SUMMARY OF NEWCO TERM S

Underlying Concept : The parties desire to form a new company to exploitinvestment opportunities involving e-servicebusinesses . Accordingly, it is contemplated thatPegasus would form a Delaware limited liabilitycompany ("Holdings"), which in turn will organizeanother Delaware limited liabilities company("Investments") ; Holdings would own all of thecommon stock of Investments and Investments wouldown the e-service investments herein contemplateddirectly or through subsidiaries-

Pegasus Capital It is contemplated Pegasus would commit $25 millionCommitment : in equity capital to Holdings ; $12 .5 million of that

amount would be contributed to the capital ofInvestments at closing and held in an accountestablished for this purpose for 100% of the commonstock interest in Investments . The balance of thecommitment will be payable upon the call of theBoard of Directors of Investments .

Communicade"s Omnicom/Communicade would contribute toCapital : Investments the securities listed in Annex A an d

either $55 million in cash or an equivalent amount ofOmnicom shares for preferred shares of Investments .The preferred would :

• Have a $250 million aggregate liquidationpreference ;

• Have a dividend rate of 8 .5% per annum, payablesemiannually, which Investments may pay in cashor accrue at its option :

• Be nonvoting (except for customary protectivecovenants) :

• Be nonconvertible ;• Prohibit common stock dividends in excess of $8 .0

million and in the event of dividend arrearages andother customary events ;

• Be mandatorily redeemable upon a change ofcontrol and other customary events, includingmergers, sales of assets and other eventsspecified in the definitive documents ; and


• Be redeemable on customary terms at the optionof Investments beginning immediately and at theoption of the holder after 10 years .

Securities to be transferred to Investments would beso transferred pursuant to a stock transfer agreementwith customary full representations, warranties ,covenants and indemnities, including indemnities toofficers and directors of Holdings and Investmentsfrom Omnicom. Omnicom would transfer itsregistration and all other rights relating to thetransferred securities.

Governance: Although Investments would be a Delaware limitedliability company, it would be governed in all respectsas if it were a corporation subject to the DelawareGeneral Corporation Law except as specified hereinor in the definitive documents . The Board of Directorsof Investments would be elected by its commonshareholders, investments' initial senior managerswould be designated in constituent documents andwould operate pursuant to a grant of authorityestablished in the constituent documents .Holdings/Investments will arrange for D&O insuranceto cover officers and directors .

Support Agreements : It is contemplated that Pegasus would be entitled to$1 .65 million in transaction/management fees .Omnicom/Communicade would enter into atransitional services agreement under which it wouldprovide accounting and other administrative servicesat its fully allocated cost. Investments will enter into acost reimbursement agreement with Holdingscovering Holdings' expenses relating to its ownershipof Investments .

£-Investrnent Sates - Pegasus Term Sheet - 203-22-01


M

wr.

F~+

Exhibit 1 0to Compendium of Exhibits to Lead PlaintiffsLetters to the Court, Dated September 9, 2005

OmnicomnewsCONTACT :Randall Weisenburger212,415 .3393

PEGASUS AND OMNICO MTO FORM E-SERVICES HOLDING COMPAN Y

April 2, 2001 - New York, NY - Pegasus Partners 11, L .P. and On nicom Group Inc .have entered into an agreement in principle to form a new e-services holdingcompany .

As part of the agreement in principle, Omnicom will contribute several of its existinginvestment positions in e-services consulting companies held by its Communicadeunit, including interests in publicly traded companies AGENCY.COM

(NASDAQ :ACOM), Organic (NASDAQ :OGNC) and Razorfish (NASDAQ :RAZF) .

In a joint statement, Pegasus and Omrticom said, "Our objective in forming thecompany is to maximize consolidation and other strategic opportunities amongcompanies in the currently depressed e-services consulting and professional servicesmarketplace . We will work with these companies to leverage their clientrelationships and infrastructure to create stronger, more substantial c-servicesconsulting networks . "

The agreement in principle is subject to definitive documentation, required approvalsand other conditions . The formation of the new holding company is expected to becompleted this month .

Omnicorn Group Inc. (NYSE :OMC) (v^vw.orrmicom roup.com) is a leading globalmarketing and corporate communications company, Omnicotn's branded networks

and numerous specialty firms provide advertising, strategic media planning andbuying, direct and promotional marketing, public relations and other specialty

communications services to over 5,000 clients in more than 100 countries .

OMC 005892 0

437 Madison Avenue, New York, N .Y . 10022 . (212) 415-3600Fax (212) 415-3530

}iW r

Exhibit 1 1to Compendium of Exhibits to Lead Plaintiff'sLetters to the Court, Dated September 9, 2005

MF MORANDUM'

January 34I, 2101

To: Torn I tisoxt, Randall Weisen1mrger, John Wre n

CA-- Bruce Redditt, Bob Profusek

F1; Michael Tierney

Re; EHealth Companica Opdosss

As mentioned before, these companies are troubled. My recommendation is to intervene;and I have a specific proposal at the end of this memo . However, :f that is not the zoutc we w2nt =o

take, I do not want to say or act in a manner inconsistent with how vzc do want to proceed We

should therefore agree on an approach as soon as possible .

To sum up the situation, issues and possible options, as I see them e

I. Three companies--Caresoh, WML and Hea3tholog'.-- are running out of money mit n thenext two to three months. Careso€t runs out in late February, is Urgently seeking b dgefinancing w2ei6 allegedly is lined up.sabject only to us participating.

2 These three companies, plus -Medicine, are too small, management is too weak, their

offerings too specific and their intended niche markets are too undeveloped .for ibexcompanies to succeed on their awn . Without s major outside action, we will more likely

than not have to recognize a substasatfsl if not complete route-off far two or three, if not alb

of these four. .

sues.

3. CaresoftBridge. I have said no, absent (at a minimum) a perfected security interest over

collateral with a real margin. They claim to have :receivables from executed contracts which .will be satisfactory, but I have no derails as of yet. The first and pressing question therefcis whether we want to go down this road with Caresoft

Material Redacted

6. OMC PR. By withdrawing all or most support whether do facto or expliddy..-whatdamage is done to the OMC and Commnunicade names as strategic investors, and otherwise?

7 . Baby and the bathwater. In retrospect, it is easy to judge that we may have invested too :

,much, at the wrong time and in some cases perhaps in the wrong companies, in this seeton


Confidential portions filed under seal pursuant to the Confidentiality Stipulation and Order of May 18, 2005, as amended by Order of January 10, 200 6

I

Messrs. Harrison, Weisenburger and Wren ConfidentialJanuary 30, 2041Page 2 of 2

However, if the broad instinct was correct that the e-health arena offers real growth and

profit opportunities for OMC and its agencies--might we not make the converse mistake byexiting too rashly ?

© t ions .

& Discontinue all support. While presumably retaining our board seats-although even thisshould be considered-we would involve ourselves only minimally in the investees' affairs .This would not only making clear our intent not to provide further financing of any type, butalso leave any efforts regarding joint sales efforts to initiatives between the investees and our

agencies. IF we are really worried about () the companies failing, and (ii) potential liabilityaccruing to us as a result, this is presumably an option to consider seriously . We shouldassume that the effect of this action would be fatal for the companies .

9 . Status Quo. This I would characterize as leaving matters up to management of the investees,with the occasional get together at OMC or DAS, encouraging phone calls, etc. Due to theinfirmities of the companies, this will likely lead to their failure . Therefore, if we worryabout legal liability in that event, we should carefully examine precisely how we proceed with

this option .

1 0 . Sale/Divestiture- It's a tough market, and I doubt any of the companies can be sold whole .Their "works in progress"--and Caresoft's Qwest and NDC contracts--probably have somevalue, but our pro-rata share would be far below the carrying cost of our investment .

11 . Sales/Marketing Assistance . (My memo of January 25th.) This, in my opinion, is the leastinterventionist approach which may lead to results . It certainly implies more involvementby OMC and therefore, if unsuccessful, more potential exposure to disgruntled co-investors .(Though, I assume this risk can be reduced by having those investors sign some form of

release in advance .) Another deficiency of this approach, I feel, is that it is only a temporary

fix. Even if we are able successfully to promote the offerings of these companies, they arestill are too small and fragmented to become interesting investments in their own righ t

12 . Consolidation . Three of the companies for sure (WML, Healthology and E-Medicine)belong under one roof, with one set of management, sale and technical overhead . Caresoftprobably fits into this entity as well, as would a few other quality companies in the e-healthspace I have seen. This begs a lot of questions, and one proposal follows .

Proposal.

13. Consolidating Entity . One interesting candidate is PMR Corporation, (NASDAQ :PMR.P),with whose senior management I have met . 2000 sales were $42 rn ., market cap is about $10m., they have $14 m in cash and allegedly a clean balance sheet. They used to be managersof psychiatric rehabilitation centers but, due to changes in Medicaid reimbursement rules,have switched to making money from psychiatric panels . They know OMC and its e-healthinvestments well, fully .recognize the gatekeeper nature of our off-line healthcare agencies,and are looking to use their publicly traded entity to form the basis of a major data-orientede-health company .

Confidential CMC*OD06528

Messrs . Harrison, Weisenburger and Wren

January 30, 2001Page 3of3

Confidential

Putting some or all of our e-health holdings within PMRP would give us the e-healthequivalent of Omnicom Digital. Given (i) the size of the healthcare market, (ii) the specificregulatory, marketing and other factors relevant to it, and ( iii) the desirability not tocontaminate with potential legal concerns other holding structures (whether OMC,Communicade or OMC Digital), this is a worthwhile objective .

14 . Structuring can take many forms, but the idea would be (i) to exchange our existing interests

in one or more of the c-health companies for shares of PMRP (or its wholly ownedsubsidiary, Infoscriber which it is preparing for spin-off, if we want to avoid mark-to-marketconsiderations), and (ii) dedicate some sales/marketing resources to the new entity, which

would then have some size and an assortment of offerings for healthcare clients .

15 . Proper use of remaining cash at the e-health companies is an issue . If we can get otherinvestors in, for example, E-Medicine to agree, we can transfer this meaningful amount ofremaining cash-which otherwise would probably be wasted-to the new entity .

16 . We could make clear to the management (as well as other investors) of the four e-health

companies that it is through this approach that we intend to make the investments work and,if they don't cooperate, they can not expect any support in other contexts .

I will be on the West Coast for the CaLresoft board meeting late next week, and can organize

preliminary discussions with PMRP if we want . Conversely, if we decide to pull in our horns on this

and other e-health investments, I will know to handle the many conversations coming up with them .


OWMo.


From, Michael TierneySent : Tuesday, January 09, 2001 2 :28 PMTo : Bruce Redditt ; Jerry Neumann, Jared Solomo nCc: John Doolittle; Robert Profusek ; Randall Weisenburger; John WrenSubject : FW: Recruitsoft

Importance: High

FYI . Merrill tells the that the waiver of our Series B anti-dilution rights is a deal breaker .saying they are about to run out of cash . (Otherwise, closing is scheduled for this Friday .)

Will keep you posted.

Michael

-----Original Message----From : Michael TierneySent : Tuesday, January 09, 2001 12 :22 PMTo: jmschwartz@baincap .com '

Cc : todd rudsenskeQmf .com <mailto :told rudsenske(cr~,ml .corn>Subject: RecruitsoftImportance : Hig h

Jeff:

Recruitsoft is also pressuring me,For now, I'm sticking to my guns .

I spoke with General Catalyst this morning concerning Recruitsoft ; it sounded like they are positively inclinedtowards an investment, but I'm sure you'll be hearing from them directly.

Meanwhile, on the proposed deal structure as it affects us, we currently have two principal business issues . (Ourcounsel, Jones Day, has just received the most recent set of documents, so this is subject to their review of them .) (i) We donot want to waive our anti-dilution rights as Series B shareholdcxs . Having said that, and as I mentioned to Merrill, we arewilling to discuss "sharing the pain" in the event the $25 in . pre-money valuation kicks in_ (ii) We do not agree with thetransferability restrictions on our Series B investments .

Both of these points are in the following context. Ours has been a substantial and strategic investment. In the spiritof getting a deal done--and although we certainly were tempted to do so--we made no issue of the complete subordination ofour investment to the Series C, not with respect to the pre-money valuation levels, nor with respect to the ratchet concept .Indeed, as you know, I was vocal with Recruitsoft management in supporting getting a deal done with Bain on the termsproposed by you_ Moreover, as a public corporate investor with EPS to protect, the anti-dilution and transferabilityprovisions provide important-albeit only partial-protection in the context of down rounds such as this and are a keycomponent of the consideration for any investment we make . We ate not crazy about the ratchet concept, and would preferto see Sain's clear incentive be to assist the company in achieving its revenue projections and beyond . Keeping the anti-dilution provisions in place helps in this regard in our opinion ,

I have conveyed the foregoing to Merrill, and understand they are looking at variations . Perhaps you, Todd and Ishould speak this afternoon to see whether it is possible to address the concerns of all involved .

Personal regards ,

Michael P . TierneyPresident, CommunicadeOmnicom Grou p437 Madison AvenueNew York, New York 10022212-415-3787 (t )

Confidential OMC*00065 1

212-415-3369 ()


M


From : Robert Profuse kSent ; Monday, March 12, 200t 7 :38 P MTo : Phil Angelastr oSubject : Wierd Question Departmen t

As an accounting matter, are we bett er or worse off if ReplayTV were to file for bankruptcy rather than approving adeal where we'd gat abvout 35 cents on the dollar (if they did the same deal in bankruptcy that they're proposing to do outof bankruptcy , we'd do about twice as good IF all other things stayed the same)-

P

i


O-Wrr


Omnicom Group Inc .

Robert A . ProfusekExecu" vice Re* dent

March 9, 200 1

Mr. Jeffrey BergChairman and Chief Executive OfficerInternational Creative Management8942 Wilshire BoulevardBeverly Hills, California 9021 1

Dear Jeff :

As we mentioned to you, ReplayTV management did speak with us on Wednesday withtheir lawyers and bankers . We have reflected on that conversation and what little other

information we have. Based on what we know at this juncture, we have no alternativebut to actively oppose the SONlCblue transaction as presently structured .

Before outlining our specific ideas, an overview of the deal from our perspective mightbe helpful :

• Management would keep their jobs, pay and perquisites ;

• Management would avoid the litigation risks, stigma and future businessproblems associated with a bankruptcy, which they've said is the only

alternative to the SONICblue deal ;

• The preferreds have been told to expect about 30 on the dollar, a loss of

$108 .9 million in the aggregate (and even this return is suspect because of

the lock-ups, lack of registered stock and indemnity arrangements) ;

• The common stock is, by management's own admission, presently worthlessand as a legal matter the common holders are not supposed to receiveanything upon the sale of the Company until the preferreds are paid back infull ;

• The common stock (a substantial portion of which is held by non-employees)would nonetheless receive 13 .5% of the value, about $12 .5 million based on

the present deal metrics ; and

437 Madison Avenue, New York, N .Y. 10022 (212) 4133737 Fox (212) 817-698 8

CONFIDENTIAL SEN 0067

JD 032915

Mr. Jeffrey BergMarch 9, 2001Page 2

• The Company's Chief Executive Officer would personally receive about $17 .5million, a 3,000% positive return on investment, despite the fact that thecompany he founded and is running again is essentially bankrupt .

Amount invested

Amount gotten indea l

Gain/(Loss)

CEO

$ 485,48 5

$17,478,224

$16,992,739

Preferreds

$158,678 .454

$ 49 .700,259

($108,978,195 )

We've previously told management that we would not oppose any transaction that wassubstantively and procedurally fair . The central problem with the deal as proposed isthat the allocation of consideration both violates the letter and spirit of the business dealwith the preferreds and, we feel, is wildly disproportionate to what is being given up bythe relative parties here .

We would urge that the proposed allocation of consideration be modified as follows :

• The common stock, which is now worthless, should receive not more than 2%of the total deal consideration (this would be solely to get a deal done), whichwould be about $1 .8 million ;

« Senior managers and employees who sign non-competes should receiveconsideration equal to not more than half the sala ry /bonus ( based on currentrates ) that they would have received from ReplayTV over the 1 .5 or 2 yearterms of their non-competes ,

• Non-management technical people should receive the minimum amount theBoard and SONICblue genuinely feel is required for the deal to be completed,the Board's sole duty in these circumstances being to maximize immediateshareholder value ;

• Costs should be limited to not more than 1 .5% of the deal consideration ($3 .5million is grossly excessive in these circumstances, particularly sinceSONlCblue was identified by management) ;

• If, as management has told us, the Board feels that Mr . Wood should becompensated for arranging the deal, he should share in Morgan Stanley's fee ;and

[1 NY - 1148387

CONFIDENTIAL SEN 006 8

iJD 032916

Mr. Jeffrey BergMarch 9, 2001Page 3

• All SONICblue shares issuable to the common shareholders andmanagement should be dedicated to the lock-up and indemnity hold-backbefore any shares issuable to outside preferred shareholders are so subject,and the SONICblue shares issuable to preferred shareholders should beregistered (or their resale exempt) under the securities laws .

These changes should not adversely affect SONICblue ; the technical people keep theirjobs and what equity is truly required for enough of them to stay ; the noncompetes willprotect SONICblue if the staff does not remain with the Company . We recognize .however, that this has to be confirmed with them (but any such confirmation should beby neutral parties) . Finally, the CEO obviously can't just walk away--he has fiduciaryduties to maximize value and has no more practical an alternative than the Companyitself has .

The foregoing is submitted for settlement purposes only .

Thank you in advance for giving this appropriate consideration .

Very truly yours,

Robert A . ProfusekExecutive Vice Presiden t

NY - 1148387

CONFIDENTIAL SEN 0069

JD 032917

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From: Randall Weisenburge rSent: Thursday , May 03, 2001 9 :49 AMTo: 'Beck, Jjm'Cc : Dole AdamsSubject : RE : Unpaid Balance

Hi Jim,

First, I don't believe anyone from Chsnicom ordered anyone to work forLiveTech or anyone else . A few questions can also be raised about theappropriateness of the services sold to Live given where the company wasat in its development . I can also know question our investment . Butfrankly, both where done in a different time . If you would like, we candiscuss those issues separately .

LiveTech is a company that we made an investment in, we don't controlit . It is also a company that has been caught up in the dot .comdownturn . While the company has some extremely good technology, it issafe to say that financially the company is in significant distress . Itdoes not have the money to pay you at this time and may never have .

Live has however been very responsive to the financial issues it faces .They have laid off all non-essential staff, cut the pay of the remainingstaff to subsistence levels (several of the staff have even moved in

together to save money), narrowed the focus of their business and tried

to sell-off pieces of their technology . Live has some unique technology

that with their current focus is starting to get some attention . If the

attention --urns into real assignments their financial position shouldimprove rather quickly (maybe by early next year) given the cost

reductions they have implemented .

As for Wayne's "gumption", we should both be happy that he tas it .Wayne is technologically brilliant, he is committed to achievi ng successand is tirelessly working to make that happen, which is good for you as

a creditor and us as an investor . Keep in mind, Wayne could walk awayand take another job making significantly more money, he is trulytechnically brilliant) and you and we would get nothing . As such, we

intend to continue to try to assist Live in finding the right client

situations for their capabilities or the right strategic partner foracquisition .

Live's success is far from certain and maybe not even probable .However, if forced into bankruptcy the recovery of your receivables and

the recovery of our investment is certainly going to be zero . Actually,if you decide to litigate, you will also have legal costs, so yourrecovery will be less than zero .

In conclusion, we didn't force you to take on the assignment, we didn'ttell you how to handle the engagement and we are not going to tell youto or not to litigate, those are your decisions .

If you would like to discuss this further, please give me a call . Mynumber is (212)415-3393 .

Randall Weisenburger

-----Original Message-----From : Beck, Jim [mailto :beckj@fleishman .com]Sent : Wednesday, May 02, 2001 2 :40 PMTo : Weisenburger, Randall OMNICOMSubject : FM : Unpaid Balance


Randy, I've about had it with Live Technology . I'm going to go aheadandsue them unless you can do something to get this settled- You know, we

wer ebasically ordered to work for this company by Qmnicom and now we aregettingno cooperation from them whatsoever . Funny that Wayne Ruevers has thegumption to show up at Omnicorr, meetings and sit across the table fromourpeople after they've screwed us like this .

Let me know if you can do anything here or if I should just go ahead andlitigate . Thanks .

> --- -Original Message-----> From : Beck, Jim> Sent : Thursday, April 26, 2001 2 :19 PM

> To : 'bmcgregor@mbt .co .za '> Subject : RE : Unpaid Balanc e

> Mr . McGregor?? ?

> ------Original Message---- -> From : Beck, Jim

> Sent : Thursday, April 19, 2001 6 :11 PM> To : 'bmcgregor@mbt .co .za '> Cc : Verrengia, Peter ; Hallman, Robert> Subject : Unpaid Balance

> Mr . McGregor, Fleishman-Hillard is owed a total of $181,918 .19 datingbac k> to July of last year . Over the past several months I have talked t o> numerous people from your firm trying to resolve this issue . Most> recently it was Shawn Hagedorn . Your firm seems to be a moving targetand> I am no longer aware of Shawn's ,hereabouts .

> We did not solicit any business Iron your firm, rather, we wereinstructed> to perform services for you by Omnicmn . We did so in good faith .Afte r> our bills were not being paid, Worth Linen assured us that they wer ei n

> process . We kept hearing this until Worth was no longer with you .Then I> started getting passed around among several people . All of a sudden

th e> billing was excessive and there was no value . I have to explain thatour> people suggested to your management last September that our work go on

> hiatus as we could clearly see that your firm was not yet ready t omove

> forward with our programs so that value could be maximized . Your> management was firm that they wanted us to continue our work eve nafter we> warned them that there may not be much immediate payoff from it .>> we warned you, it happened, and now we're being told that our servicesha d> "no value" . I have had some discussions with Randy Weisenburge rregarding> this situation and he told me that he arranged more funding for yo ufrom> Omnicom last year with part of that earmarked to pay our billing .> Apparently your management decided to spend that money elsewhere .

2

0 Con fidential OMC*0005694

> I need to get this situation resolved immediately . Please contact meso> that we may do so . If we cannot get this resolved, we are ready toturn> this matter for litigation which I probably should have done months

ago> but Randy advised me to hold off and try to work it out . This is my

last> attempt at making that happen . Please let me hear from you . Thankyou .

1

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f .

Jun-25-2002 09 :23am Frain-O?4ICOt T-518 P . 001 F-939

OMNICOM GROUP INC .437 Madison Avenue, New York, New York 10022

TEL# (212) 415-3098FAX# (212) 817-6993

TELECOFY COVER SHEET

This facsimile communication may contain privileged and confidential information and is intended only for theaddressee named below- Dissemination, copying or use of this document, or of the information contained herein, byother than the addressee is prohibited. If you are not the addressee (or authorized to receive for the addresser), youhave received the communication in error and are kindly asked to notify us immediately by telephone or return faxand to return the original document to us by mail to the above address . Thank you .

TO: Charlie Corben-y - Jones Day

FROM: Phil Angelastro

]FAX #: 212 / 755 - 7306

DATE: 25 June 2002

0 # OF PGS: 13 S z'~(Including Cover Sheet)

COMMENTS

rJD 070663

Jun-25 -2002 09 :24am From-01?liCOM + T-518 P. 002 F-988

Memo ANDERSE N

To -f7,e Files'

Ad-4e' en LE Ai .45 A .enue of the Mx~a e

F rom Jack Benedik , Dylan Havem -Starke and Mart Asl;ins . New n- Y m . NY ra,os-OM

York Tel121217a -40W

c rp.an=Faat :t217S3€r3B3 ~

Date February 5 . 200 2

s ua,ao Seneca Investments LL C

The following memo documents the transaction that our client . Ornnicom Group Inc, entered into in 2001 . Thefollowing information details the facts and circumstances of the transaction _

On April 2, 2001 . Ornnicom and Pegasus Partners 11 . L .P . (Pegasus) . an unrelated investrncni firm . announcedan agreement in principle to organize Seneca investments LLC (Seneca) with the objective of maximizingconsolidation and other strategic opportunities among companies in the e-str-vices consulting and professionalservices marketplace . On May 2, 2001 . Seneca was formed by Pegasus Parmers, a Pegasus subsidiary andQmnieotn . A Subsidiary of Pegasus Partners owns all of Seneca's common stock, which is the only class ofvoting stock, and Omnieom ovens 8 .5% cumulative noncom ertible preferred stock in Seneca with an aggregateliquidation preference of $325 .0 million .

In connection with Seneca 's formation, Omnicorn contributed all of the equity of Communicade LLC, its e-services investment division, to Seneca . At that time . Cornmunicade held investments in 16 e-servicescompanies .

In addition to the contribution of the Communicade business, which essentially was the venture capital arm ofOrnnicom (having reviewed over 400 business plans of differern Ventures and having invested in nearly 20 suchventures). Ornnicom contributed $47,5 million in cash to Seneca . Pegasus contributed S 12 .5 million cash toSeneca with a further $12 .5 million on cal l by Senecas management .

&co 3nii (}~, Sene(;8 laytStmeTli '

Accounting for this type of transactio n involves determining the proper treatment for the followin g1) Should Omnicom 's transfer of the assets to Seneca result in (he removal of those investments from

Omnieom 's consolidated balance sheet ; are there an y gain or loss recognition issues at the time of thetransfer or subsequentl y due to the possible impairment of the value of Orttnicom's preferred non .voting stock interest in Seneca and the cumulativ e dividend feature inherent in the preferred stock.

2) Should Omnicorn consolidate Seneca in its consolidated financial statements .

The first point is covered under SFAS 140 ("Accounting for Transfers and Servicing of Financial Assets andExtinguishnnents of Liabilities -- a replacement of SFAS 125") and depends on whether or not the reportingentity (Ornnicorn) has surrendered control . The SEC Staff's view' is that the transfer of stock of a subsidiary

k SEC staff member's speech; Armando Pimentet, 25th,4 nnuai National Conference on C rren! SECDevelopments, December 9. 1997

JD 070664

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3n,Ea February 5, 2002

Subject Seneca LL C

Page 2 of 5

T-518 P .CO3/013 F-93 9

whose only assets are financial assets falls under the scope of SFAS No . 140 . The fact that the subsidiary mcct~the definition of a business (see following) does not change the Stairs conclusion . This was discussed with DanPalomaki of Professional Standards Group (PSG) . who acreed .

The second point is based upon several tests that begin with dctermining if the transferee is a business or anSPE. .

Issue I : Accounting for the transfer of the assets. Determining whether the transfer is considered a sale orcontribution of assets to Seneca.

SFAS 140 "Accounting for Transfers and Servicing of Financial Assets and Irxtinguishrnents of Liabilities"paragraph 9 states the following :

t S

A transfer of financial assets (all of or a portion of a financial asset) in which the transferor surrenders controlover those financial assets shall be accounted for as a sale to the extent that consideration other than beneficialinterests in the transferred assets is received in exchange . The transferor has surrendered control over transferredassets if and only if all of the following condnions are met:

a) The transferred assets have been isolated from the transferor - put presumptively beyond the reach of thetransferor and its creditors, even in bankruptcy or other receivership . As we are not legal experts, werequested that Omnicom obtain a true sale or contribution opinion from its legal counsel (Jones Day),opining that the individual invesrees of Seneca and Seneca itsetj, are isolated from Omnieom creditors inthe event of a bankruptcy.

We noted an indemnity clause included in the Seneca formation document which provides that Onrnicomshall indemnify Pegasusfrom any legal actions that may arise, such as preexisting litigation, refuted tothe assets contributed However, this indemnifi cation does not relate to the value of the assets themselvesand is a common term in most sale or transfer of business transactions. This indemnification isconsidered by Jones Day in their opinion. Omnicom should consider the need to accrue for contingentlegal liabilities related to this indemnification in accordance with SFAS S .

b) Each transferee has the right to pledge or exchange the assets for beneficial interests) it received . and nocondition both constrains the transferee (or holder) from taking advantage of its nght to pledge or exchangeand provides more than a trivial benefit to the transferor . Seneca has the right to sell the investments or itsdiscretion. Omnicom has no control power over Seneca's sale or exchange of the assets other a protective

right to restrict the sale of assets to a related parry ofPegasus.

c) The transferor does not maintain effective control over the transferred assets through either (1) an agreementthat both entities and obligates the transferor to repurchase or redeem them before their maturity or (2) theability to unilaterally cause the holder to return specific assets, other than through a cleanup call- Omniromdoes not have the right to repurchase the assets contributed to Seneca.

JD 070665

F i

Jun-25-2002 O 9 : Z5am From -OIt1ICOM

o :n February 5, 2002

Seneca LLC3©f5

3

T-518 P .0O4/013 F-93 9

Based an the above criteria, the Company concluded, and f .-c concur that the transaction should be orrounted

for us a saleltransfer of assets to Seneca in return for the preferred stock interest We discussed thi sconclusion with David Thrope ofNew }arts On-Coll Group, who ergree d

According to paragraph 10 of SPAS 14 0

Upon completion of any transfer of financial assets the transferor shall :

a . Continue to carry in its statement of financial position any retained interest in the transfcrred assets .Omnicom 's investment is the preferred stock in Seneca . An independent valuation is in she process ofbeing completed to support the value of the preferred stock in restment (ie. no impairment or realizabilityissues)

b . Allocate the previous carrying amount between the assets sold, if a .ny. and the retained inrerests, if any,based on their relative fair values at the date of the transfer . By analogy to D-75 the care'-over basis inavailable-for-sale securities is required, with the gain or loss recognized upon the final sale of the securities .Since the ultimate realization of the preferred stock in Seneca is dependent upon the value of the investmentportfolio, the Company concluded, and we concurred, that the contribution of Cornmunicade and itsinvestments to Seneca should be on the carry-over basis (i .e . no gain or loss recognized at the formation ofSeneca) . We note that Pegasus and Omnicom agreed the fair value of the preferred stock received inexchange by Omnicom was equal to Omnicom's basis in the assets contributed . We have requestedOmnicom obtain an independent valuation by knowledgeable professionals to determine that no impairmentin value of the preferred stock has occurred since the Seneca formation, which could impact the preferredstock carrying value .

Issue 2: Non-Consolidatio n

Transferee is a Business : Consider consolidation under Statement 94 or ARJE 5 1Transferee is a SPE; Determine if the SPE. is qualifying (QSPE) . If the entity is not a QSPE

then follow the criteria under EITF 90-15 .

The first step in determining if consolidation is required is to determine whether or not the transferee is abusiness or a SEE:

According to EITF 98-3 "Determining whether a Nonmonetary Transactions Involves Receipt of ProductiveAssets or of a Business ", the Task F orce reached a consensus that the guidance below should be used toevaluate whether a business has been received in a nonmonetary exchange :

A business is a self-sustaining integrated set of activities and assets conducted and managed for the purpose ofproviding a return to investors . A business consists of (a) inputs, (b) processes applied to those inputs, and (c)resulting outputs that are used to generate revenues . For a transferred set of activities and assets to be a

0

0JD 070666

Jun-25-2002 0925am Froa-Otll1lCOM

4Date Fcbruaty 5 . 2002

sutyn a Seneca . .L CPig 4of5

T-518 P .0 05/ 01 3 F-938

business, it must contain all of the inputs and processes necessaiy for it to continue to conduct normal

operations after the transferred set is separated from the transferor, which includes the abthn• to sustain a

revenue su eam by providing its outputs to customers .

!) Seneca is in the business ofmairan ining'ntoniroring investments in an attempt to provide returns toinvesrprs , Seneca is considered a busuwss and. rhercfare, would have to follow the criteria defined in .4RBNo . 5 1 "Consolidated Financial Statements "and SFAS No . 94, "Consolidation of.lll hfajorin•-OwnedSubsidiaries ". SFAS 94 requires that majority - owned subsidiaries be consolidated in their parents`consolidated financials . SFAS 94 de fi nes majority - orwned subsidiar y as a company in which the parenthas a controlling financial interest through direct or ind t rcct ownership of a majority (i .e . . more than 50%)voting interest ,

Seneca meets the EITF 98-3 definition of a business because it has operations ; its goal is to activelymonitor its investment portfolio and provide return to its investors ; it has four full time employees; and itfollows a business plan . Since the transfer of assets, Seneca has made significant transactions en its ownaccount. These include the buyback of Agency .com shares from the public, buvback of Organic .comshares and the sale to Omnicom, based on a market valuation price, oftiveWeb (a wholly ownedsubsidiary formed by Seneca that acquired certain software rights from its 20% investee, LiveTech) .Several other investments have been put into pre-packaged bankruptcy to get out of unfavorable leases andtheir clients and personnel joined to other Seneca investees . Seneca continues to evaluate business plansfor other potential investments . While it has the authority and the cash to do so, no investments incompanies in which Ornnicom has had no previous involvement have been made .

The fact that substantially all of the assets of the business transferred by Ornnicom to Seneca werefinancial assets, and the fact we therefore concluded the transfer is within the scope of SFAS 140, is notinconsistent with this conclusion that Seneca is a business under EITF 98-3 . This conclusion wasdiscussed conceptually with Dan Palornaki of PSCi, who concurred .

SinceSeneca's voting stock is 100% owned byPegasus , Omnicom would no! concolidalethe operationsof Seneca under the guidance of SFAS 94. We noted no evidence that ©mniconn can exercise controlthrough non - equity rights and we will get appropriate representations from © nrnicom management tothat eject. We do note that ©mnicom does have terrain ' prDrective rights" common to a preferredshareholder although none of those rights enables control as indicated in the guidance of EITF 96-16.

Postscript :

In the light of the considerable scrutiny that is currently being paid to complex financial transactions weconsidered the likelihood of and the financial reporting impact of someone disagreeing with the Company'sconclusion that Seneca is a business and not an SPE . We consulted with David Thrope who concurred with usthat based on rhefacts above it is reasonablefor the Company to conclude that Seneca is a business and notart SFE.

JD 070667

Jun-25-21)02 O9 :26am~ From-Oit~1IC(Nt + 7-51$ P.006f613 F-939

February 5, 2002Dal esaa•Ct Scneca LLC

Pace 5 of 5

We did not consider it necessary to test the transaction aua :nst the crttcna for non-consolidation of an SPE h%the transferor of its principal assets fe .e EITF Topic D-14. and EITF's 90-15 and 9o-i2 t Hai%et er . uc did 'nowthat Pegasus" initial investment represented sltchtly more than 3° a of total capital at nst" in Seneca 3t the date ofthe transaction ,

We met With the CFO of Seneca, Jerry Neumann . in December 2001 . He eon1irrned that neither Seneca nor itsinvestees have any borrowings and are not le -, rratcd in any way . Further . he said that based on Seneca's owncash reserves, that of its wholly owned tm cstees and the 512 .5 million on call from Pegasus, it would be xcnunlikely that Seneca would have to borrow any funds in the foreseeable future . From this we note that Omntcornhas not moved any debt "off balance shcct" to the transaction .

Jerry Neumann informed us that the allocation of Seneca's retained earnings between Omnicom and Pegasus isbased on the theoretical book value liquidation approach. From our reading of the transaction documents . wenote that on liquidation . Orrtnicorn's preferred stock is the senior secunty° and is entitled to its liquidationpreference (S325 million) plus the cumulative unpaid dividend at SV,% . Seneca utilizes specialized investmentcompany accounting (mark to market) . From this, we note that if Seneca w ere not a business and considered anSPE, Omnicom's principal risk would remain the potential impairment orSeneca's underlying investmentsbelow Ornnicom's book basis in the investments transferred to Seneca . The Company is addressing this risk byobtaining an independent valuation of its Seneca invesitnent at 12 .'31101 . We will follow up on this withmanagement as past of our year-end audit work-

1

cc : David Thrope -- NY On-Call GroupDan Palomaki - PS G

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rJD 070668

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Exhibit 17 filed under sealpursuant to the Confidentiality

Stipulation and Order of May 18, 2005,as amended by Order of January 10, 2006

I

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0

0

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00


TO: The Files

FROM : Phil AngelastroAndrew Castellanet a

DATE: June 19, 2002

SUBJECT : Recap of Evaluation of Investments prior to Contribution to Senec a

Backgroun d

In connection with our change in auditors, we have prepared this summary /recap of ourreview and findings with respect to the valuation of the contributed investments inCommunicade just prior to the formation of Seneca . An understanding of the generalbackground behind these investments may be helpful . These investments were made byOmnicom's Cornmunicade subsidiary in companies that were strategically related toOmnicom's main advertising, marketing and specialty communications businesses,except that they were focused primarily on c-services marketing . As an early investor,Communicadc applied Omnicom's standard acquisition pricing model typically used inacquisitions of companies in Omnicom's industry, to many of these investments, Theseinvestments were made with the main objective of improving Cmnicom's understandingof the e-services business and its potential impact on Omnicom's more traditionalbusinesses .

Communicade basically made two groups of minority investments (of the 16 investmentsthat were contributed to Seneca) . The first group of investments (four of the investments)was made in late 1996, several of which subsequently became public companies . Thesecond group of investments was made between the first quarter of 2000 (four of theinvestments), and the remaining 8 investments were made between the 2d quarter of2000 and January of 2001 (a period of between 4 and 15 months prior to the contributionto Seneca), which were predominantly preferred equity stakes purchased early in thecompanies' fund raising initiatives . Communicade looked at over 500 potentialinvestments during this time and reviewed their business plans, content, tools,technologies, service approaches and the like, and met with all of their management

teams. This enabled them to gain insight and understanding of the emerging e-servicesmarket resulting in a detailed and highly selective process for making investmentdecisions .


Recap of Evaluation of InvestmentsPrior to Cont ribution to SenecaJune 19, 2002Page 2

Evaluation Proces s

Prior to the contribution of Communicade to Seneca, Omnicom reviewed all public andprivate cost method investments to determine if there were any declines in value thatwere other than temporary . The review was also performed for Agency .com, an equitymethod investment that was contributed to Seneca. The review, which was done by themanagement of Omnicom's Communicade subsidiary and reviewed with Omnicommanagement, consisted of

(l) an evaluation of the financial condition of the investee entity using the mostrecent financial information available ;

(2) an assessment of the business prospects of the investee entity, including itsbusiness plans and strategies and opportunities in the marketplace ;

(3) a review of other applicable factors, such as, for example, cash position andcapital resources, client relationships, management strengths, competitivelandscape, barriers and cost to duplicate the business and the like;

(4) a consideration of the period of time, if any, that Omnicom's cost was inexcess of any publicly quoted market price, if applicable ; and

(5) Omnicom's understanding of how to operate professional services businessesand the trends in the marketplace, as well as its investment intent - morespecifically, its intention to contribute Communicade to Seneca .

In addition, for the public company investments, although there was no formal guidance,consistent with the informal guidance published by the accounting profession and theSEC at the time, Omnicom considered the market trading price of a public security beingless than its cost basis for a period of 6 to 9 months as a benchmark for determining if another than temporary impairment in value had occurred .

Seneca 's Strategy

A significant strategic consideration in the formation of Seneca was that it provided avehicle for consolidation in the c-services marketplace . In fact, one of Seneca's primaryinitial objectives would be to find "synergy" within Communicade's existing portfoliocompanies . That is, Omnicom and Pegasus believed that certain companies within theportfolio would be better off combining operations with other companies in the portfolio,reducing non-value added infrastructure costs, combining sales forces and pooling capitalresources to better withstand what was believed to be an upcoming period of uncertaintyin this market . In addition, Seneca, would have the capital and know-how to seek out.'synergistic" opportunities outside of the portfolio .

OMC 0001512Confidential

Recap of Evaluation of Investments

Prior to Contribution to SenecaJune 19, 2002

Page 3

Further, by conserving resources and focusing them on the value -add components of theirbusiness and potentially acquiring the value-add components of distressed competitorssubstantial value could be accreted . It was believed that for the full value of thesignificant content or technology developed by these businesses to be realized, thecompanies would first have to be positioned to last through a potentially prolongedperiod where the capital markets were closed to them .

Because Communicade only held minority positions in its investments at the time, it wasuncertain if Seneca would be able to gain control of any of the businesses or convinceother investors and management to follow their strategy .

If there was any doubt in anyone's mind, especially that of the investees, the press releaseof April 2, 2001, announcing the formation of Seneca removed doubt in this regard -"Our objective in forming the company (Seneca) is to maximize consolidation and otherstrategic opportunities among companies in the currently depressed c-services consultingand professional services marketplace . We will work with these companies to leveragetheir client relationships and infrastructure to create strong or more substantial c-servicesconsulting networks." This strategy forms the cornerstone in the valuation of ourinvestments upon contribution to Seneca. The valuation, which is fully described below,was done in the context of the Seneca strategy .

Relevant Accounting Literatur e

The valuation of investments is addressed formally and informally in U .S . accountingliterature in several places . To be clear, the most often cited formal references arc : SFAS1 1 5 "Accounting for Certain Investments in Debt and Equity Securities" ; FASB Special

Report: "Guide to Implementation of Statement 115 on Accounting for CertainInvestments in Debt and .Equity Securities" ; Topic D-44, "Recognition of Other-thanTemporary Impairment Upon the Planned Sale of a Security Whose Cost Exceeds FairValue" ; SEC Staff Accounting Bulletin 59, "Accounting for Non-Current MarketableEquity Securities"; AICPA Statement on Auditing Standards No . 92, "AuditingDerivative Instruments, Hedging Activities and Investments in Securities"; and the singlemost often cited informal reference is an SEC staff speech given at the 28`x' AnnualAICPA National Conference on Current SEC Developments in December 2000 .

In all of the above references, the need for judgement in a systematic, disciplined mannerby responsible personnel is emphasized. The factors to consider in exercising thisjudgement are consistent with our evaluation process noted above and are listed as

follows:

(a) The equity issuer's financial performance, including such factors as earningstrends, dividend payments, asset quality and specific events .


Recap of Evaluation of InvestmentsPrior to Contribution to SenecaJune 19, 200 2Page 4

(b) The near term prospects of the issuer .

(c) A decline in the value of the issuer for an extended period of time (forpublicly traded securities a decline in value below cost for 6-9 months) .

(d) A determination of the financial condition and prospects of the issuer's regionand industry .

(e) The investor's investment intent and the ability to hold the security for aperiod of time sufficient to allow for any anticipation / recovery in fair value .

(f) The investor recorded losses from the security subsequent to the end of thereporting period .

Results of Review

For details see Attachments I & 2 and the valuation results binder attached .

(a) With regard to our evaluation of the financial performance of the individualinvestments contributed to Seneca, while there had been a deterioration in early 2001 inthe publicly held values of companies in the c-services marketplace, there remained asignificant difference in the value between public and private companies . It appeared atthe time that the market was primari ly -reducing the premium paid for publicly tradedbusinesses versus private businesses with similar technologies . It was not apparent thatthe value of early stage private businesses, where the vast majority of funds raised andtherefore, value, was going directly into the development of technology or content, was

declining . In most of these situations the total value of the business was not at asignificant premium to the funds raised . In addition, the investments were generallymade on a preferred basis so that the value of the investment was shielded to the extent ofa decline in the business . In addition, while many of our investees were experiencingoperating losses, for most of the private investments this was due to their stage ofdevelopment . These investees were still developing their content, tools and/ortechnology applications. As for the public investees, the losses were driven more by theexcessive infrastructure that these companies had amassed in anticipation of very rapidgrowth, rather than any deterioration in their performance or long-term value . It was ourbelief that if management of the investees and other investors accepted Seneca' sproposed strategy, that with proper execution, the businesses had substantial upsidepotential from their then current value .

With respect to our evaluation of financial performance of the (non-public) investccs inthe early stage of operations, there were no significant companies with historicaloperations with which to compare to identify if there was any deterioration, in addition,their business plans remained unchanged . Accordingly, we considered the fact that theoperations of all of these investments were in the marketing communications sector an d

confidential OMC 0001514

Recap of Evaluation of InvestmentsPrior to Contribution to SenecaJune 19, 2002Page 5

had some potential for further enhancing their values by combining operations with othere-services companies in Seneca's portfolio or outside of it .

(b) With regard to the near-term prospects of these investments (public and privatecompanies), our investment decisions were based on strategic assessments of theirbusiness models and plans and their content, tools and technology, as applicable . Webelieved these investments represented viable business models and/or had valuablecontent, tools or technology then and we still believed that to be the case uponcontribution to Seneca. It is the essence of why we did the Seneca transaction. Inaddition, we believed the very creation of Seneca improved the possibilities of the nearterm prospects of these companies .

(c) With respect to a decline in fair value of the investments for an extended period (6-9months for public companies) : at the time of contribution to Seneca there was asignificant amount of volatility in the public markets and venture capital for new dealshad dropped off significantly . Based on the market prices of the publicly tradedsecurities in the portfolio contributed to Seneca (see Attachment l), the prices had notfallen below our cost for six months . In two of the three cases, (Razorfish andAgency.com) the fair value had recovered to exceed our cost basis after having beenbelow it .

While we did not have the same market based evidence for our private investments, webelieved that a reasonable assumption was that due to the nature of these investments,that absent a change in the status of their content, tools and/or technology development,their values were not subject to the same level of volatility . In addition, the majority ofour private investments were made in mid-to-late 2000 and even in early 2001, when thepricing had already begun to soften (see Attachment 2) . Thus, i f there was a decline infair value below book value, our investments would not need a recovery to the peakvaluations achieved prior to our investments . Finally, while we did not necessarilybelieve that all of the investments would survive in the same form (given Seneca'sconsolidation strategy); we were convinced that it was probable that the aggregate valueof the preferred stock in Seneca that we would hold would, at a minimum retain the valueit had upon formation .

(d) With respect to the issuer's financial condition and prospects, the events surroundingthe decline in value in certain of the high-profile companies in the e-services sector hadlittle or no impact on companies with operating activities . Obviously, the impact of thereduction in trading values of public companies in the c-services sector had more to dowith the ability of those companies to raise capital, especially the private companies withlittle or no operating activity . We believed that the companies with sufficient resourcesto manage through the downturn would be in a better strategic position in the futuremarketplace . Further, we believed the creation of Seneca would facilitate opportunitiesfor the private companies within the portfolio, in addition, the fact that our portfolio o f

AMC 0001515Confidential


investments was in the marketing and communications e-services sector increased theprobability that longer-term, certain companies within the portfolio could combine toform stronger companies better able to manage through the downturn, thereby increasingthe prospects for these companies ,

(c) In terms of our intent and ability to hold the investments, we believe that theformation of Seneca is a clear indication of our intent . Seneca was not simply an exit

strategy. The formation of Seneca contemplated a period of time to undertake activities .including restructuring of operations, the taking of public companies private, merging ofoperations, acquisitions of other businesses and outright sales . Seneca was created tomanage and maximize the value of the investments we contributed which we believedwere being substantially discounted in the marketplace and the sector . While we did notexpect Seneca to be successful with every investment in the portfolio, we did believe itwas probable that the final aggregate value of the Seneca preferred stock after Senecaimplemented its strategy would be at least equal to the fair value upon contribution . Webelieved that what was needed to maximize the value of these investments was the propermanagement and time . We believed Seneca provided both .

(1) In terms of losses recorded after year-end, we did not believe that before thecontribution of Conimunicade to Seneca, that any of our e-services investments had animpairment that was other than temporary, if at all, and we therefore did not record anyreduction in value . The majority of our investments were made either very early (1996 !1997) or, for many of the private investments, after the market had begun to soften in mid2000. Furthermore, while it appeared by early 2001 that the peak valuations would notreturn, it was also clear that the internet as a medium of communication was here to stay .We knew that the companies who survived the industry shake-out would emerge strongerand more valuable . Accordingly, we embarked on a strategy - through the creation ofSeneca - to maximize the value of these investments. However, we recognized that infuture periods we would need to continue to evaluate the fair value of the investments toensure that an other than temporary decline in valued had not occurred .

Results of Financial Analysis

In addition to the above analysis of the qualitative aspects of our valuation judgements,we updated the financial analysis of our private investments prior to contribution toSeneca . We reviewed each individual holding in terms of its revised financialprojections, cash flow bum rate, subsequent rounds of financings and other relevantfinancial facts (see Atlacl neat 2) . We also estimated the value of these investmentsusing either the Modified Venture Capital Method approach - a straight forward andeffective valuation technique, and/or a comparable company revenue multiple approach(See valuation results binder) . Our objective was not to conclude on an opinion of valuebut to support the reasonableness of our conclusion that the book value of ou r

ConfidentialOMC 0001516


investments in these companies approximated its fair value upon contribution to Seneca .We felt that this approach was reasonable given that :

(a) We purchased the majority of these private investments within the 6 to 9months prior to the contribution to Seneca (there were 4 investmentspurchased 12 to 15 months prior) ;

(b) Our individual valuations did not identify any investments where the bookvalue significantly exceeded the estimated fair value where we concludedthat there was an impairment that was other than temporary ,

(c) Additionally, we considered that going forward under the Seneca model theseinvestments could be evaluated in the aggregate and it was probable that thetransaction was going to close .

Confidential OMC 000151 7

LCJ


UNITED STATE SSECURITIES AND EXCHANGE COMMISSION

Washington , D_C . 20549

[XI ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 193 4

For the fiscal year ended : December 31, 2001

OR

] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 193 4

Commission File Number: 1-10551

OMNICOM GROUP INC .(Exact name of registrant as specified in its charter )

New York 13-151481 4(State or other, jurisdictionof (1.R-S . Employer Identification No .)

incorporation or organization )

437 Madison Avenue, New York, NY 10022(Address of principal executive offices) (Zip Code )

Registrant ' s telephone number, including area code : (21.2) 415-3600

Securities Registered Pursuant to Section 12(b) of the Act :

Name of each Exchange

Title of each class on which Register ed

Common Stock, $ .15 Par Value New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: Non e

The registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months and (2) been subject to such filing requirements

for the past 90 days .

Disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein and

will not be contained in the definitive proxy or information statements incorporated by reference in

Part III of this form 10--K or any amendment to this Form 10-K .

At March 26, 2002 . 188,732,914 shares of Omnicom Common Stock, $ .15 par value, were

outstanding ; the aggregate market value of the voting stock held by nonaffiliates at Mauch 26, 2002 was

$16,920,464,000 .

Certain portions of Otnnicom's definitive proxy statement relating to its annual meeting ofshareholders scheduled to be held on May 21, 2002 are incorporated by reference into Part I ll of this

report .

PART III

Executive Officer s

Our executive officers are :

Name Pnsitian Age

Bruce Crawford . . . . . . . . . . . Chairman 72

John D. Wren . . . . . . . . . . . . . President and Chief Executive Officer 48

Randal] J . Weisenburger . . . . . Executive Vice President and Chief Financial Officer 42

Peter Mead . . . . . . . . . . . . . . . Vice Chairman 62

Barry J. Wagner . . . . . . . . . . . Secretary and General Counsel 60

Robert Profusek . . . . . . . . . . . Executive Vice President 50

Philip J . Angelastro . . . . . . . . Controller 36

Allen Rosenshine . . . . . . . . . . Chairman and Chief Executive Officer of BBDO Worldwide 62

James A . Cannon . . . . . . . . . . Vice Chairman and Chief Financial Officer of BBDO Worldwide 62

Keith L . Reinhard . . . . . . . . . . Chairman and Chief Executive Officer of DDB Worldwide 66

Thomas L . Harrison . . . . . . . . Chairman and Chief Executive Officer of Diversified Agency Services 5 3

Al] of the executive officers have held their present positions at Otnnicom for at least five years except as

specified below.

John Wren was appointed Chief Executive Officer of the Company effective January 1, 1997, succeeding

Bruce Crawford in the position . He had previously been President of the Company and Chairman of our

Diversified Agency Services Division .

Randall Weisenburger joined the Company in September 1998 and became Executive Vice President and

Chief Financial Officer on January 1, 1999 . Mr. Weisenburger was previously President and Chief Executive

Officer of Wasserstein Perella Management Partners, a merchant bank .

Peter Mead was appointed Vice Chairman on May 16, 2000 . He had previously been Group Chief

Executive of Abbot Mead Vickers plc and Joint Chairman of AMV BBDO .

Philip Angelastro was promoted to Controller February 1, 1999 . . Mr . Angelastro joined the Company in

June 1997 as Vice President of Finance of Diversified Agency Services after being a Partner at Coopers &

Lybrand LLP.

Robert Profusek joined the Company on May 15, 2000 as Executive Vice President and assumed oversight

responsibilities for corporate administrative matters in March 2001 . He previously headed the transactional

practice group of Jones, Day, Reavis & Pogue, a global law firm.

Thomas Harrison has served as Chairman and Chief Executive Officer of the Diversified Agency Services

since May 1998, having previously served as its President since February 1997 . He also has served as Chairman

of the Diversified Healthcare Communications Group since its formation in 1994 .

Additional information about our directors and executive officers appears under the captions "Election of

Directors," "Management's Stock Ownership," "Director Compensation" and "Executive Compensation" in our

2001 proxy statement.

OMNICOM GROUP INC . AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Equity and Cost Based Investments

Equity Investments . The Company has 1 I I unconsolidated affiliates accounted for under the equity

method . The affiliates offer marketing and corporate communications services similar to those offered by the

Company. The equity method is used when the Company has an ownership of less than 50% but exercises

significant influence over the operating and financial policies of the affiliate . The following table summarizes

the balance sheets and income statements of the Company's unconsolidated affiliates, as of December 31, 2001,

2000 and 1999 and for the years then ended :

(Dollars i n Th ousands )

2001 ~ ~ 2000 1999

Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $582,257 $926,792 $912,79 .1

Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,128 302,073 241,38 5

Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 443,461 682,719 692,92 7

Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 108,212 62 ,955 65,97 8

Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,734 7,796 1,002

Gross revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 378,423 816,717 522,10 3

Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316,132 740 .267 467,74 5

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 43,773 45,076 23,662

The Company's equity interest in the net income of these affiliates was $12 .7 million, $10 .9 million and

$15 .4 million for 2001, 2000 and 1999, respectively. The Company's equity interest in the net assets of these

affiliated companies was $116.8 million, $205 .2 million and $174 .0 million at December 31, 2001, 2000 and

1999, respectively. In addition, the Company's total investment in affiliates includes the excess of acquisition

costs over the fair value of tangible net assets acquired. These excess acquisition costs are being amortized on a

straight-line basis over a period not to exceed 40 years .

In 2001 . 2000 and 1999, the Company disposed of shares held in certain affiliates . The resulting impact of

these disposals was not material to the Company's consolidated results of operations or financial position .

Cost Based Investments . The Company's cost based investments at December 31, 2001 were primarily

comprised of preferred stock interests representing equity interests of less than 20% in various marketing and

corporate communications services companies . This method is used when the Company owns less than a 20%

equity interest and does not exercise significant influence over the operating and financial policies of the investee .

The total cost basis of these investments, which are included in other assets on the Company's balance

sheet, as of December 31, 2001 and 2000 was $318 .8 million and $238 .5 million, respectively. The following is

a summary of significant transactions involving cost based investments in the past three years .

2001 . In May 2001, the Company received a non-voting non-participating preferred stock interest in anewly formed company, Seneca Investments LLC, in exchange for its contribution of Communicade, the

Company's subsidiary that conducted its e-services industry investment activities . The common shareholder of

Seneca, who owns all the common stock, is an established private equity investment firm . Upon formation, no

debt was assumed by Seneca and no distributions were made to shareholders . The Company has no commitment

obligating it to advance funds or provide other capital to Seneca. The preferred stock is nonvoting (except on

certain extraordinary events) and is entitled to preferential dividends at a rate of 8 .5% compounded

semiannually and is redeemable on the 10th anniversary of issuance or earlier upon the occurrence of certain

extraordinary events . Unpaid dividends accrue on a cumulative basis . No dividends were paid by Seneca or

accrued by the Company in 2001 . Seneca had no outstanding indebtedness at December 31, 2001 .

The transaction was accounted for in accordance with SFAS 140, Accounting for Transfers and ServicingFinancial Assets and Extinguishments of Liabilities, and resulted in no gain or loss being recognized by the

Company on Seneca's formation . Management believes that the carrying value of its preferred investment in

Seneca of $280 million at December 31, 2001 approximated its fair value .

F-13

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Memo ANDERSEN

To The 11I~5 Arthur AJWtrun LL,P1345 A .vnut 01 VN Armen"$

F,om Jack Benedik . Dylan Haven y-Stackc and Matt Ask ns . New NY 1010$_0031

York To$12721rob-tpocCz4rva' Fa%(2121 706-363 v

bait Februar)' 5, 2002

suo,ea Seneca Investments LLC

The following memo documents the transaction that our client . Omnicom Group Inc, entered into in 2001 . Thefollowing information details the facts and circumstances of the transaction .

On April 2 . 2001, Omnicom and Pegasus Partners 11, L.P. (Pegasus), an unrelated investment Firm. announcedan agreement in principle to organize Seneca Investments LLC (Seneca) with the objective of maximizing .consolidation and other strategic opportunities among companies in the c-services consulting and professionalservices marketplace . On May 2 .-2001, Seneca was formed by Pegasus Partners, a Pceasus subsidiary andOrnriicom. A subsidiary of Pegasus Partners owns all ofSeneca's common stock, which is the only class ofvoting stock, and Ornnicom owns 8 .5% cumulative nonconv'ertibie preferred stock in Seneca with an aggregateliquidation preference of $325 .0 million .

In connection with Seneca's formation, Omnicom contributed all of the equity of-Communicadc LLC, its e-services investment division, to Seneca . At that time . Communicade held investments in 16 c-servicescompanies.

In addition to the contribution of the Communicadc business, which essentially was the venture capital arm ofOninicorn (having reviewed over 400 business plans of different ventures and having invested in nearly 20 suchventures) . Ornnicom contributed 547 .5 million in cash to Seneca . Pegasus contributed S 12 .5 million cash toSeneca with a further S 12 .5 million on call by Seneca's management .

Accounting for this type of transaction involves determining the proper treatment for the following :l) Should Omnicotn 's transfer of the assets to Seneca result in the removal of those investments from

Omnicom's consolidated balance sheet : are there any gain or loss recognition issues at the time or thetransfer or subsequently due to the possible impairment of the value of Omnicorn's preferred non-voting stock Interest in Seneca and the cumulative dividend feature inherent in the preferred stock .

2) Should Omnicom consolidate Seneca in its consolidated financial statements .

The first point is covered under SFAS 140 ("Accounting for Transfers and Servicing of Financial Assets andExiinguishrnents of Liabilities - a replacement of SFAS 125") and depends on whether or not the repo rt ingentity (Omnicom ) has surrendered control . The SEC Staffs view' is that the transfer of stock of a subsidiar y

' SEC staff member's speech: Armando Pimentel, 251h Annual National Conference on Current SECDevelopments, December 9, 1997

r


0

oat* February 5, 2002

sua,*a Seneca LLCP&" 2 of 5

3

whose only assets arc financial assets falls under the scope of SFAS No . 140 . The fact that the subsidiary meetsthe definition of a business ( see following) does not change the Staff's conclusion . Th is was discussed with DanPalomaki of Professional Standards Group (PSG ) . who agreed .

The second point is based upon several tests that begin with determining if the transferee is a business or anSPE.

Issue 1: Accounting for the transfer of the assets. Determining whether the transfer is considered a sale orcontribution of assets to Seneca.

SFAS 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"paragraph 9 states the following :

A transfer of financial assets (all of or a portion of a financial asset) in which the transferor surrenders controlover those financial assets shall be accounted for as a sale to the extent that consideration other than beneficialinterests in the transferred assets is received in exchange . The transferor has surrendered control over transferredassets if and only if all of the following conditions are met :

a) The transferred assets have been isolated from the transferor - put presumptively beyond the reach of thetransferor and its creditors, even in bankruptcy or other receivership . As we are not legal experts, werequested that Omnicom obtain a true sale or contribution opinion from its legal counsel (Jones Day),opining that the individual investees of Seneca and Seneca itself are isolated from Omnicom creditors inthe event of a bankrupts}:

We noted an indemnity' clause included in the Seneca formation document which provides that Omnicomshall indemnify Pegasus from any legal actions that may arise, such as preexisting litigation, related tothe assets contributed However, this indemnification does not relate to the value of the assets themselvesand is a common term in most sale or transfer of business transactions. This indemnification isconsidered by Jones Day in their opinion . Omnicoin should consider the need to accrue for contingentlegal liabilities related to this indemnification in accordance with SFAS

b) Each transferee has the right to pledge or exchange the assets (or bene ficial interests ) it received, and nocondition both constrains the transferee (or holder ) from taking advantage of its right to pledge or exchangeand provides more than a trivial benefit to the transferor . Seneca has the right to 'sell the investments at itsdiscretion. Omnicom has no controlpower over Seneca 's sate or exchange of the assess other a protectiveright to restrict the sale of assets to a rela ted parry of Pegasus.

c) The transferor does not maintain effective control over the transferred assets through either (1) an agreementthat both entities and obligates the transferor to repurchase or redeem them before their maturity or (2) theability to unilaterally cause the holder to return specific assets, other than through a cleanup call- Otnnicomdoes not have the right to repurchase the assets contributed to Seneca.


" . .

Da te February 5, 2002

su01+0 Seneca LLC

Page 3 of 5

Based on the above criteria, the Company concluded, and k'r concur that the transaction should be accountedfor as a sale transfer of assets to Seneca in return for the preferred stock interest . 4 "e discussed thisconclusion with David Thrope of, e'v York On-Call Group, who agreed.

According to paragraph 10 of SFAS 140

Upon completion of any transfer of financial assets the transferor shall :

a. Continue to carry in its statement of financial position any retained interest in the transferred assets .©mnieom's investment is the preferred stock in Seneca . An independent valuation is in the process of .being completed to support the value of the preferred stack investment (i.e. no impairment or reati ;.abilio.issues)

b. Allocate the previous carrying amount between the assets sold, if any, and the retained interests, if any .based on their relative fair values at the date of the transfer . By analogy to D-75 the care-over basis inavailable-for-sale securities is required, with the gain or loss recognized upon the final sale of the securities .Since the ultimate realization of the preferred stock in Seneca is dependent upon the value of the investmentportfolio, the Company concluded, and we concurred, that the contribution of Cotnrnunicadc and itsinvestments to Seneca should be on the carry-over basis (i .e . no gain or loss recognized at the formation of

Seneca) . We note that Pegasus and Otrtnicom agreed the fair value of the preferred stock received inexchange by Omnicom was equal to Ornnicom's basis in the assets contributed . We have requestedOmnicom obtain an independent valuation-by knowledgeable professionals to determine that no impairmentin value of the preferred stock has occurred since the Seneca formation . which could impact the preferredstock carrying value.

Issue 2 Non-Consolidation

Transferee is a Business : Consider consolidation under Statement 94 or ARB 5 1Transferee is a SPE: Determine if the SPE is qualifying IQSPE). If the entity is not a QSPE

then follow the criteria under EITF 90-15 .

Thefirst step in determining ifconsolidation is required is to determine whether or not the transferee is a

business or a SPE:

According to EITF 98 .3 "Determining whether a Nonmonetary Transactions Involves Receipt of ProductiveAssets or of a Business", the Task Force reached a consensus that the guidance below should be used toevaluate whether a business has been received in a nonmonctary exchange :

A business is a self-sustaining integrated set of activities and assets conducted and managed for the purpose of

providing a return to investors. A business consists of (a) inputs, (b) processes applied to those inputs, and (c)

resulting outputs that arc used to generate revenues . For a transferred set of activities and assets to be a


d r`

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$ub~Kt

Page

February 5 . 2002Seneca LLC4 of5

a

business, it must contain all of the inputs and processes necessary for it to continue to conduct normal

operations after the transferred set is separated from the transferor. which includes the ability to sustain arevenue stream by providing its outputs to customers .

1) Seneca is in the business of mointatning'nionitoring investments in an attempt to provide returns toinvestors. Seneca is considered a buslncss and, therefore, would have to follow the criteria defined in .4RBNa. j1 "'Consolidated Financial Statements " and SFAS No. 94, "Consolidation of.411 Afajorin--OtiwedSubsidiaries ". SFAS 94 requires that majority-owned subsidiaries be consolidated in their parents'consolidated financials . SFAS 94 defines majority-ousted subsidiary as a company in which the parenthas a control ling financial interest through direct or indirect ownership of a majority ( i .e ., more than 50%)voting interest .

Seneca Meets C EZTF 98-3 def anon ofa business because i t has operations ; its goal is to activelymonitor its inv cat o and provide return to its investors ; it has four full time employees, and itfollows a business plan. Since the transfer of assets , Seneca has made signi ficant transactions on its own

account . These include the buyback of Agcncy.com shares from the public, buyback of Organic.comshares and the sale to Omnicom, based on a market valuation p rice, of LivcWcb (a wholly ownedsubsidiary formed by Seneca that acquired certain so ftware rights from its 20%o invcstee, LiveTech) .Several other investments have been put into pre-packaged bankruptcy to get out of unfavorable leases andtheir clients and personnel joined to other Seneca investecs . Seneca continues to evaluate business plansfor other potential investments . While it has the authority and the cash to do so . no investments incompanies in which Omnnicom has had no previous involvement have been made .

The fact that substantially all of the assets of the business transferred by Ornnicom to Seneca werefinancial assets, and the fact we therefore concluded the transfer is within the scopc .of SFAS 140, is notinconsistent with this conclusion that Seneca is a business under EITF 98-3 . This conclusion wasdiscussed conceptually with Dan Palomaki of PSG, who concurred .

Since Seneca 's voting stock is 100% owned by Pegasus, Omnicom would not consolida te the operationsof Seneca under 1heguidance ofSFr1S 94. We noted no evidence that Omnicom can exercise controlthrough non -equity rights and we will get appropriate representations from Omnicom management tothat effect. We do note that Omnicom does have certain 'protective rights" common to a preferredshareholder although none of those rights enables control as indicated in the guidance uJEITF 96-16 .

Postscript :

In the light of the considerable scrutiny that is currently being paid to complex financial transactions weconsidered the likelihood of and the financial reporting impact of someone disagreeing with the Company'sconclusion that Seneca is a business and not an SPE . We consulted with David Thrope who concurred with usthat based on the facts above it is reasonable for the Company to conclude that Seneca is a business and notanSPL


Date

SUDIta

Page

February 5 .2002

Seneca LL C5 of 5

We did not consider it necessary to test the transaction against the criteria for non-consol idation of an SPE h %the transferor of its principal assets (e.g . EITF Topic D. 14 . and EITF's 90-15 and 96-12) . Hogs ever . %%e did notethat Pegasus ' initial investment represented slightly more than 3° o of total capital at nsk in Seneca at the date ofthe transaction .

We met with the CFO of Seneca . Jerry Neumann . in December 2001 . He confirmed that neither Seneca nor itsinvestecs have any borrowings and arc not lc .craged in any way . Further, he said that based on Seneca's owncash reserves, that of its wholly owned invcstces and the S12 .5 million on call from Pegasus. it would be % .cr1unlikely that Seneca would have to borrow any funds in the foreseeable future, from this we note that Omnicomhas not moved an,. debt "off balance sheet" in the transaction ,

Jerry Neumann informed us that the allocation of Senecas retained earnings between Omnicom and Pcsasus isbased on the theoretical book value liquidation approach . From our reading of the transaction documents, wenote that on liquidation, Omnicorn's preferred stock is the senior secunty and is entitled to its liquidationpreference (S32$ million) plus the cumulative unpaid dividend at 8t'% . Seneca utilizes specialized investmentcompany accounting (mark to market) . From this, we note that if Seneca were not a business and considered anSPE, Omnicom's principal risk would remain the potential impairment of Seneca's underlying investmentsbelow Omnicom's book basis in the investments transferred to Seneca . The Company is addressing this risk byobtaining an independent valuation of its Seneca investment at 12'31/01 . We will follow up on this withmanagement as part of our year-end audit work .

cc: David Thrope - NY On-Call GroupDan Palomaki - PSG

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Confidential

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OMC 0001525

M

war .


JONES, DAY, REAVIS & POGU Ea99 LEXINGTON AVENU E

NEW YORK . NEW YORK EOO22 .6070

TELEPHONE : 212 .326 .3939 • FACSIMILE, 212 .755 -7306 WRITER 'S DIRECT NUMBER :

February 6, 2002

Omnicom Group Inc.437 Madison Avenu eNew York, New York 10022

Attention : General Counse l


We acted as special counsel to Omnicom Group Inc . ("Omnicom"), a New Yorkcorporation, in connection with the formation of Seneca Investments LLC (the"Company"), a Delaware limited liability company (formerly known as Pegasus E-Services Investments LLC) pursuant to the Organization and Operating Agreement,dated May 2, 2001 (the "LLC Agreement"), among Omnicom, Pegasus Partners !i, L .P.("Pegasus") and Pegasus E-Services Holdings LLC ("Holdings "). (Terms used hereinwith initial capital letters that are defined in the LLC Agreement are used herein as sodefined .) Pursuant to the LLC Agreement, among other transactions, Omnicomtransferred to the Company all of the issued and outstanding equity of CommunicadeLLC ("Communicade "), a Nevada limited liability company which operated Omnicom'se-services investment business, and $47.5 million cash (together, the "CapitalContribution") and the Company issued to Omnicom 325,000 shares of its PreferredStock, without par value (the " Preferred Stock") .

The Company has, as of the date of the Capital Contribution, two members .Member one is Omnicom, the holder of 100% of the issued and outstanding nonvotingPreferred Stock. Member two is Holdings, the holder of 100% of the issued andoutstanding Common Stock, without par value, of the Company . Omnicom andHoldings are sometimes collectively referred to herein as the " Stockholders" (and in thesingular, a "Stockholder").

With your permission, all assumptions and statements of reliance herein havebeen made without any independent investigation or verification on our part, and weassume no responsibility with respect to the accuracy of these assumptions orstatements .

In connection with the Relevant Documents (as defined below), you haverequested that we express an opinion as to whether, under present reported decisionalauthority and statutes applicable to federal bankruptcy cases, if Omnicom were tobecome a debtor in a case under the United States Bankruptcy Code, 11 U.S.C. §§101-1330 (the "Bankruptcy Code"), a federal bankruptcy court of competent jurisdiction

NY-119634104ATLANTA • 8R U5S5LS • CHICAGO • CLEVELAND • COLUMBUS • DALLAS • FRANKFURT • GENEVA • HONG KONG • HOUSTON • IRVINE • LONDON • LOS ANGELES

MADRID • MUMLAI• • NEW DELH1• • NEW YORK • f'ALO ALTO • PARIS • PITTSBURGH • SHANGHAI • SINGAPORE • SYDNEY • TAIPEI • TOKYO • WASHINGTON

•,1.ssOCUTL MR "


February 6, 2002Page 2

JONES, DAY, REAVIS & POGU E

acting reasonably and correctly applying the law to the facts as set forth herein after fullconsideration of all relevant factors would, upon appropriate motion, disregard theseparate existence of the Company so as to order substantive consolidation of theassets and liabilities of the Company with those of Omnicom ,

In connection with the opinion expressed herein, we have examined suchdocuments, records and matters of law as we have deemed necessary for the purposesof this opinion letter, Specifically, we have examined, reviewed and relied on, amongother documents :

(1) The certificate of formation of the Company (the "Certificate ") ;

(2) The LLC Agreement, including the Exhibits thereto : Charter (the"Charter") (Exhibit A), Bylaws (Exhibit B), Accounting and Tax Matters(Exhibit C) and Grant of Authority (Exhibit D ) (collectively with the LLCAgreement and the Certificate , the "Constituent Documents ") ;

(3) The instrument of Contribution of Equity, dated May 2, 2001, evidencingOmnicom's transfer of all of its right, title and interest in and to the issuedand outstanding Membership Interests of Communicade to Seneca (the'Transfer Instrument") ; and

(4) The certificates of officers of the Company and Omnicom, a copy of eachis attached hereto as Exhibits A-1 and A-2, respectively (collectively, the"Opinion Certificates ") .

The Constituent Documents, the Transfer Instrument and the Opinion Certificatesare collectively referred to herein as the " Relevant Documents . "

In all of our examinations, we have assumed and relied upon the legal capacityof all natural persons executing documents, the genuineness and due authorization ofall signatures, the authenticity of original and certified documents and the conformity tothe original or certified copies of all copies submitted to us as conformed or reproductioncopies . As to various questions of fact relevant to the opinion expressed herein, wehave relied upon, and assumed the present and continuing accuracy of, therepresentations and warranties contained in the Relevant Documents .

We have assumed for purposes of our opinion expressed herein that to theextent applicable : (1) each of the Relevant Documents has been duly authorized andapproved by the parties thereto pursuant to applicable law ; (2) all filings, actions,approvals, consents and authorizations necessary for the execution and performance ofeach of the Relevant Documents have been property made, taken or obtained, as thecase may be, and remain in full force and effect ; (3) each Relevant Document is, andwill continue to be, a valid, binding and enforceable obligation of the parties thereto ; (4)each of the Relevant Documents is, and will continue to be (until terminated inaccordance with the terms thereof), in full force and effect and the parties to each such

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JONES . DAY. REAVIs & P©GU E

document will continue to be bound by the terms thereof and will comply with theircovenants and other obligations contained therein ; and (5) the applicable ownershipstructures existing on the date hereof will be those that exist at the time a federalbankruptcy court considers the issues relevant to a motion for substantive consolidation,We also have assumed that neither Omnicom nor the Company is insolvent (underSection 101 of the Bankruptcy Code, Section 3 of the Uniform Fraudulent Transfer Actor any other similar fraudulent conveyance or transfer law or statute applicable to thetransactions contemplated by the Relevant Documents) both immediately prior, andimmediately after giving effect, to the completion of the transactions contemplated bythe LLC Agreement (the " Closing") or as of the date of this opinion letter .

With your permission, we have assumed that : (1) the Stockholders would nothave executed the Relevant Documents, and entered into the transactionscontemplated thereby, if the assets and liabilities of the Company were now, or in thefuture to be, substantively consolidated with those of Omnicom in a case (a " BankruptcyCase") under the Bankruptcy Code filed by or against Omnicom ; (2) creditors of theCompany would be prejudiced if the assets and liabilities of the Company were now, orin the future, substantively consolidated with those of Omnicom in a Bankruptcy Caseunder the Bankruptcy Code filed by or against Omnicom, as the case may be ; (3) aparty in interest would have standing to oppose, and would oppose, any such attemptedsubstantive consolidation and/or any attempt to treat the Company's assets as propertyof the estate of Omnicom in the event that Omnicom were to become the subject of aBankruptcy Case under the Bankruptcy Code; (4) at the time of any such attemptedsubstantive consolidation, the Company is not itself a debtor in a case under theBankruptcy Code ; (5) the representations and statements of the Company andOrnnicom set forth in the Opinion Certificates are, and will continue to be, accurate, trueand correct ; and (6) each of the Company and Omnicom has compiled with, and willcontinue to comply with, all of the Separateness Covenants (as defined below)applicable to it and all other arrangements and agreements of or applicable to suchentities described and set forth herein and in the Relevant Documents, including,without limitation, the Constituent Documents .

We assume that each of the Company and Omnicom will at all times maintain itsvalid existence in good standing under the laws of the state of its organization, that ithas otherwise complied, and will comply, with the laws of the state of its organizationand with all other laws, federal, state or otherwise, applicable to it and its properties,and that the facts and assumptions outlined in this letter are, and will remain, correct(the facts and assumptions set forth in this letter are collectively referred to herein as

the "Opinion Assumptions ") .

In expressing our opinion, we have relied upon the present and continuingaccuracy of, and have assumed compliance by the Company with, certainrepresentations, warranties and covenants and other agreements of the Company setforth in its Constituent Documents and the other Relevant Documents, and as describedbelow (the provisions in Section 20 of the Charter are collectively referred to herein as

NY-11953410 4

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JONES . DAY, REAVIS & POGU E

the "Separateness Covenants"), and upon the present and continuing accuracy of, andhave assumed compliance by Omnicom with, certain representations, warranties andcovenants and other agreements of Omnicom set forth in the Relevant Documents,including statements that Omnicom has and will respect the separate existence of theCompany, and will not engage in any conduct that could compromise the integrity of theCompany as a separate entity . We have not made any independent inquiry with regardto compliance by the Company and/or Omnicom with such Separateness Covenantsand we have relied solely on the Relevant Documents (including the OpinionCertificates) with respect to such matters .

The Charter of the Company has been amended to add the SeparatenessCovenants to more explicitly assure the Company's separateness from other persons orentities, including, without limitation, Omnicom . In this regard, the Company hasrepresented to us that it has operated since its formation as if the SeparatenessCovenants had applied to it since its formation and we assume that the Company hassince its formation been, and will continue in the future to be, in compliance with theSeparateness Covenants . Additionally, we are assuming that the Company is solvent,as of the date hereof, and that the Company will continue to be solvent in the future .Finally, the Company has represented to us, and accordingly we assume, that it will notknowingly engage in any conduct that could be reasonably expected to compromise itsstatus as an entity separate and distinct from Omnicom and/or any other person orentity.

A . Discussion of Applicable Law :

Substantive consolidation is an equitable remedy in bankruptcy that results in thepooling of the assets and liabilities of the debtor and one or more of its debtor affiliatesor, in very rare circumstances, nondebtor affiliates, solely for purposes of th ebankruptcy case, including for purposes of distributions to creditors and voting on andtreatment under a reorganization plan . Union Savings Bank v . Augie/Restivo BakingCo. (in re Augie/Restivo Baking Co .) , 860 F .2d 515, 518 (2d Cir, 1988) (hereinafter,"Augie/Restivo "); see _generally In re Morfesis , 270 B .R. 28 (Bankr. D .N.J . 2001) .

The practice of substantive consolidation is not expressly authorized under theBankruptcy Code . Rule 1015 of the Federal Rules of Bankruptcy Procedure providesonly for the joint administration (as opposed to substantive consolidation) of two or morecases. The Advisory Committee Note to Rule 1015 states that "[c]onsolidation, asdistinguished from joint administration, is neither authorized nor prohibited by this rulesince the propriety of consolidation depends on substantive considerations and affectsthe substantive rights of creditors of the different estates ." Advisory Committee Note,Bankr, Rule 1015. Accordingly, the power to substantively consolidate derives from thegeneral equity jurisdiction of a court of bankruptcy under Section 105(a) of theBankruptcy Code . In re Richton International , 12 B .R. 555, 557 (S .D .N .Y . 1981) ; In reCircle Land and Cattle Corp . , 213 B.R. 870, 875 (Bankr . D . Kan, 1997) ; see enerall Inre Horsley , 2001 WL 1682013, *34 (Bankr . D . Utah 2001) ; Morfesis, 270 B .R. at 31 .

NY•119634Iv1 4




We note as an initial matter that the case law on substantive consolidationdeveloped under the Bankruptcy Code has not addressed, to our knowledge, the issueof substantive consolidation of a limited liability company . We believe, however, that abankruptcy court considering the issue would apply the general principles of substantiveconsolidation that have been developed in cases under the Bankruptcy Code, most ofwhich address consolidating a corporation with a corporation . As stated in Collier onBankruptcy , "in substantive consolidation cases, the relationship between entities withrespect to which consolidation is sought is far more important than the nature of suchentities." 5 Collier on Bankruptcy ¶1100.06 at 1100-35 (L. King 15th ed . 1991) . In thisregard, we note that courts have ordered substantive consolidation of a generalpartnership and its general partners ( FDIC v . Colonial Realty , 966 F .2d 57 (2d Cir.1992)), of a partnership, a corporation and individuals (Holywell Corp. v. Bank of NewYork , 59 B.R. 340 (S .D. Fla 1986), cert . denied , 488 U .S. 823 (1988)), and of individualsand corporations (in re Baker & Getty Financial Services, Inc. , 78 B.R. 139 (N .D. Ohio.1987)) . In each instance, courts employed the same type of analysis utilized whenconsidering whether to order the substantive consolidation of corporations. Forexample, the Court of Appeals for the Second Circuit has stated, while applyingprinciples of substantive consolidation to individual general partners and their generalpartnership, that "there is simply no basis, in either these critical factors or in theirunderlying equitable considerations, for a blanket proscription of their application to thebankruptcy estate of individuals ." Colonial Realty , 966 F .2d at 61 . Accordingly, wehave relied for our analysis on the general body of substantive consolidation case lawand have assumed that such law would be applicable to the court's determination as towhether to substantively consolidate the assets and liabilities of such limited liabilitycompany, as set forth herein .

There are no definitive rules as to when a court will order substantiveconsolidation. Courts agree, however, that substantive consolidation should be invokedsparingly . See, etc , Chemical Bank New York Trust Co . v, Kheel , 369 F .2d 845, 847(2d Cir . 1966) ; In re United Stairs Corp . , 176 B.R. 359, 368 (Bankr. D. N .J. 1995) citinIn re Snider Brothers, Inc . , 18 B.R. 230, 234 (Bankr. D. Mass . 1982)); Circle Land andCattle Corp . , 213 B.R. at 875-76 . Additionally, there are no prescribed standards in theBankruptcy Code for ordering substantive consolidation . Instead, judicially developedstandards control whether substantive consolidation should be granted in any givencase . Because it is a judicial creation, the contours of substantive consolidation areindefinite . In re Babcock and Wilcox Co . , 250 F .3d 955, 958 n .5 (5th Cir . 2001), Thefluidity and uncertainty associated with such standards have been noted by severalcourts, but are best typified by the often paraphrased comment "that as to substantiveconsolidation, precedents are of little value, thereby making each analysis on a case bycase basis ." In re Crown Mach . & Welding, Inc ., 100 B .R. 25, 27-28 (Bankr. D. Mont .1989), This case-by-case approach is largely responsible for the unsettled nature of theappropriate standards, the relevant factors, the weight to be attached to such factorsand the significance of competing considerations offered by movants and opponents tosubstantive consolidation motions . Accordingly, this opinion, as well as any otheranalysis of whether there is a risk of substantive consolidation, is necessarily subject t o

NY-1196341v14




the general qualification that there can be no certainty as to whether substantiveconsolidation would be granted by a particular court exercising its discretionaryequitable authority in any given instance . In this regard, we note that those courts an dcommentators that have considered the doctrine of substantive consolidation haveconcluded that substantive consolidation cases are to a great degree sui eneris and,as a result, case law is only a general guide to the potential applicability of this doctrineto any particular case. See 5 Collier on Bankruptcy 1100.6 (L. King 15th ed . 1991) .

Some courts have recognized that there is a "modern trend" toward allowingsubstantive consolidation when confronted with complex corporate structures . See,eg, Eastc roue Properties v . Southern Motel Association Ltd . , 935 F .2d 245 (11th Cir .1991). Some courts have indicated a willingness to approve substantive consolidationin light of the widespread use of interrelated entities operating under a common parentfor tax and business purposes . See id . at 248-49; In re Murray Indus . , 119 B.R. 820,828-29 (Bankr. M.D. Fla . 1990) ; In to Vecco Constr . Indus ., Inc . , 4 B.R. 407, 409(Bankr . E .D. Va. 1980). Notwithstanding these cases, courts continue to "conduct asearching inquiry to insure that consolidation yields benefits offsetting the harm it inflictson objecting parties" before ordering substantive consolidation . Eastgroup Properties ,935 F.2d at 249 uotin in re Auto-Train Corp . , 810 F .2d 270, 276 (D .C . Cir. 1987); seealso In re Reider, 31 F .3d 1102, 1109 (11th Cir. 1994) (requiring the court to bepersuaded that "the creditors will suffer greater prejudice in the absence ofconsolidation than the debtors (and any objecting creditors) will suffer from itsimposition") ( ug oting In re Steurlr, 94 B.R. 553, 554-55 (Bankr . N.D. Ind. 1988)) .

A court's decision whether to order substantive consolidation turns primarily onthe facts of the case . Circumstances that courts have generally taken into account indetermining whether to substantively consolidate the assets and liabilities of a debtorand one or more of its affiliated entities in cases under the Bankruptcy Code include :(1) whether such entities operate independently of one another ; (2) whether corporateor other applicable organizational formalities are observed in the operation of suchentities; (3) whether the assets of such entities are kept separate and whether recordsare kept that permit the segregation of the assets and liabilities of such'entities ;(4) whether such entities hold themselves out to the public as separate entities;(5) whether such entities have maintained separate financial statements ; (6) whethersuch entities have made intercompany guarantees on loans ; (7) whether such entitiesshare common officers, directors or employees ; (8) whether the creditors have relied onthe financial condition of an entity separately from the financial condition of the entityproposed to be consolidated in extending credit ; (9) whether the consolidation of, or thefailure to consolidate, the assets and liabilities of such entities will result in unfairness tocreditors ; and (10) whether consolidation of such entities will adversely impact thechances of a successful reorganization . See Augie/Restivo , 860 F .2d at 518 ; In re NewCtr. Hosp . , 179 B .R. 848 (Bankr . E.D . Mich . 1994), aff d in part, rev'd in part, 187 B .R .560 (E.D . Mich. 1995) ; Matter of Munford, Inc ., 115 B.R. 390, 395 (Bankr . N .D. Ga .1990) ; In re Baker & Getty Financial Servs . , 78 B .R. 139 (Bankr. N.D. Ohio 1987) ; In reVecco Constr . Indus., 4 B.R. 407 (E.D. Va. 1980) . Courts do not mechanically apply th e

NY-11963410 4




aforementioned considerations, but instead use them as guidelines in a substantiveconsolidation analysis . As the court in in re Snider Brothers, Inc. , 18 B .R. 230, 234(Bankr. D. Mass. 1982) observed, "[t]here is no one set of elements, which, i festablished, will mandate consolidation in every instance." The court in Murray Indus . ,119 B.R. at 829, agreed, noting that "there is no clear litmus test for determiningsubstantive consolidation, and cases are to a great degree sui generic . "

Because these consolidation factors are numerous and applied by a courtexercising its equity powers, there necessarily can be no certainty regarding the factorson which a court will focus in a particular case . The decisional authority suggests thatthe existence of some, or even most, of those factors should not, by themselves,necessarily result in the application of the doctrine. Many courts agree that the mereexistence of the factors alone does not mandate substantive consolidation ; the factorsare not dispositive and must not be applied mechanically . See Eastgroup Properties ,936 F .2d at 250; Snider Bros . , 18 B.R. at 234. Many courts also recognize that theabsence of one or more factors will not necessarily defeat a request for substantiveconsolidation, see in re Orfa Corp . of Philadelphia , 129 B.R. 404, 415 (Bankr. E .D. Pa .1991), while the presence of just a few factors may be sufficient to merit consolidation ina particular case .

Moreover , even when certain of the factors are present , the reported casessuggest that substantive consolidation should be ordered only where the benefits ofsubstantive consolidation outweigh the prejudice to creditors that would result from suchconsolidation . However, the cases do not articulate a consistent standard for the typeof prejudice that militates against consolidation . Some cou rts , in attempting to balancecreditor prejudice against the benefits of substantive consolidation , apply a subjectivestandard that measures prejudice caused by a creditor's subjective expectations at thetime credit was extended . See Snider Bros., 18 B.R. at 238 (reference to harm tocreditor who looked solely to credit of single debtor) ; In re Donut Queen, 41 B .R. 706,709 (Bankr. E.D.N.Y. 1984) (when creditors treat their debtor "as a distinct and separateentity , consolidation would be manifestly prejudicial ") ; see also In re Helms , 48 B.R .714, 717 ( Bankr. D . Conn . 1985) . Such courts have declined to order Substantiveconsolidation where doing so would operate as an injustice to persons who relied on thecreditworthiness or separate existence of the debtor . Other courts have applied a moreobjective standard to prejudice focusing squarely on the degree of adverse economicimpact that would result from consolidation . See Steu , 94 B.R. at 555 ("Beforeembarking upon a broad discussion of the intricacies of bankruptcy law, it is appropriateto first consider the relative rights of the debtors and their creditors under state law . Inthis way we will have a standard against which any prejudice , that might befall either ofthem, can be measured .") . Finally, some courts seem to apply subjective as well asobjective standards :

In this case there has been no proof offered that any creditorrelied on solely one or the other of the entities Tyler seeks toconsolidate . Further, there is no evidence that a

NY-11963410 4


February B, 2002Page 8


consolidation would tend to improve the financial position ofany group of creditors as compared with another .

in re Lewellyn , 26 B.R . 246, 252 (Bankr . S.D. Iowa 1982 ) (citations omitted ) . This lackof clarity on the appropriate standard for assessing an objecting creditor's defense tosubstantive consolidation contributes to the unpredictability of whether substantiveconsolidation should be granted under circumstances that may substantially impair therights of objectors who cannot demonstrate that they actually relied on their debtor'screditworthiness L,.q.,, creditors with affi liate guarantees , cross -defaults and cross-collateralization) .

The Court of Appeals for the Second Circuit in AugiefRestivo determined that thesubstantive consolidation considerations enumerated in clauses (1) - (10) above (the"Consolidation Criteria") essentially distill to two more generalized factors : (1) whethercreditors dealt with the entities to be consolidated as a single economic unit and did notrely on their separate identity in extending credit and (2) whether the affairs of suchentities are so entangled that consolidation will benefit all creditors . Augie/Restivo , 860F.2d at 518 . The Augie/Restivo court went on to explain these two critical factors in thefollowing manner :

With regard to the first factor, creditors who make loans onthe basis of the financial status of a separate entity expect tobe able to look to the assets of their pa rt icular borrower forsatisfaction of that loan . Such lenders structure their loansaccording to their expectations regarding that borrower anddo not anticipate either having the assets of a more soundcompany available in the case of insolvency or having thecreditors of a less sound debtor compete for the borrower'sassets. Such expectations create significant equities .Moreover , lenders' expectations are central to the calculationof interest rates and other terms of loans , and fulfilling thoseexpectations is therefore important to the efficiency of creditmarkets . Such efficiency will be undermined by imposingsubstantive consolidation in circumstances in which creditorsbelieved they were dealing with separate entities . . . . Thesecond factor , entanglement of the debtor's affairs, involvescases in which there has been a commingling of two firms'assets and business functions . Resort to consolidation insuch circumstances , however , should not be Pavlovian .Rather , substantive consolidation should be used only after itis determined that a ll creditors will benefit becauseuntangling is either impossible or so costly as to consumethe assets .

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Con ridentialOMC 0001010



Augie/Restivo, 860 F.2d at 518-19 . See also In re 599 Consumer Electronics Inc . , 195B.R. 244, 248-51 (S .D .N.Y. 1996) ; In re The Leslie Fay Companies , 207 B.R. 764, 779-80 (Bankr. S.D.N.Y. 1997) .

B . Analysis :

If, as has been represented to us, the Opinion Assumptions and facts set forth inthe Relevant Documents are now, and in the future remain, true, correct and complete,then neither of the two critical factors set forth in Auc ie/Restivo, which could lead a courtto determine that substantive consolidation is appropriate, is present with regard to therelationship between Omnicom and the Company for the following reasons : (1) inextending credit, creditors should not have dealt with and relied on and should not dealwith and rely on Omnicom and the Company as a single economic unit or integratedentity and (2) the affairs of Omnicom are separate and distinct from the Company andnot so entangled as to render substantive consolidation beneficial to all creditors of theentities proposed to be consolidated . In addition, based on the Opinion Assumptionsand the Relevant Documents, if the Consolidation Criteria are applied individually to therelationship between Omnicom and the Company, a court should not find a compellingrationale to consolidate the assets and liabilities of Omnicom with those of the Companyfor the following reasons :

(1) Omnicom and the Company operate and will continue to operate asseparate and distinct entities ;

(2) Omnicom and the Company observe and will continue to observecorporate, limited liability company and other applicable organizationalformalities ;

(3) The assets of Omnicom and the Company are not commingled and willnot be commingled and each such entity maintains and will continue tomaintain separate bank and other accounts, financial statements andbooks and records ;

(4) Omnicom and the Company hold themselves out to the public as separateentities ;

(5) Omnicom and the Company maintain and will continue to maintainseparate financial statements ;

(6) Neither Omnicom nor the Company guarantees, indemnifies or otherwiseholds itself out as liable, and will not guarantee, indemnify, or otherwisehold itself out as liable, for the debts of the other;

(7) Omnicom and the Company do not share and will not share commonofficers, directors or employees ;

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February 6, 2002 JONES. DAY, REAVIS & POGUE

Page 1 0

(8) Creditors, in extending credit, should be relying on such separateness asopposed to treating Omnicom and the Company as a single economicunit; and

(9) Substantive consolidation of the assets and liabilities of Omnicom and theCompany would appear to be unfair to creditors of the Company and in alllikelihood impair the likelihood of a successful reorganization .

Although bankruptcy courts throughout the country have continued to employ thevarious criteria set forth in Augie/Restivo , recent decisions in other circuit courts ofappeal have embarked, as stated previously in this letter, on a more "modem" or"liberal" trend toward allowing substantive consolidation, recognizing the "widespreaduse of interrelated corporate structures by subsidiary corporations operating under aparent entity's corporate umbrella for tax and business purposes ." EastgroupProperties , 935 F .2d at 248-49 (guoting In re Murray Indus . , 119 B.R. 820, 828-29(Bankr . M .D. Fla. 1990)) . The Eleventh Circuit Court of Appeals, in EastgroupProperties , and the District of Columbia Circuit Court of Appeals, in In re Auto-TrainCorp . , 810 F.2d 270 (D .C. Cir. 1987), each have articulated a somewhat differentapproach than that set forth by the Second Circuit Court of Appeals in AupiefRestivoand seem to indicate a greater willingness to entertain motions for substantiveconsolidation .

The Eleventh Circuit held in Eastgroup Properties that a proponent of substantiveconsolidation must make a prima facie showing that "(1) there is substantial identitybetween the entities to be consolidated and (2) consolidation is necessary to avoidsome harm or to realize some benefit ." 935 F.2d at 249 (citing Auto-Train , 810 F .2d at276, and Murray Indus . , 119 B.R. at 829) . In making its prima facie case, the proponent"may want to frame his argument" using the several factors outlined In re VeccoConstruction and Augie/Restivo discussed above . Eastgroup Properties , 935 F .2d at249. The Eleventh Circuit also advised that although "no single factor is likely to bedeterminative in the court's inquiry," five additional factors should be considered : (1) thetransferor's ownership of a majority of the subsidiary's stock ; (2) the entities havingcommon officers and directors; (3) gross undercapitalization of the subsidiary; (4) thesubsidiary transacting business solely with the transferor ; and (5) both entitiesdisregarding the legal requirements of the subsidiary as a separate organization .Eastgroup Properties , 935 F.2d at 250 (citing Pension Benefit Guarantee Corp. v .Oulmet Corp . , 711 F.2d 1085, 1093 (1st Cir. 1983)) .

if the proponent succeeds in making that showing, a "presumption arises `thatcreditors have not relied solely on the credit of one of the entities involved.'" EastgroupProperties , 935 F .2d at 249 (quoting Matter of Lewellyn , 26 B .R. 246, 251-52 (Bankr.S .D. Iowa 1982)) . The burden then shifts to the party objecting to substantiveconsolidation to counter the prima facie case by showing that "(1) it has relied on theseparate credit of one of the entities to be consolidated and (2) it will be prejudiced bysubstantive consolidation ." Eastgroup Properties , 935 F .2d at 249. Even if theobjecting party establishes that it had relied solely on the credit of one entity, the

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JONES , DAY, REAVIS & POGU E

objecting party may nevertheless be estopped from overcoming the prima facie case if areasonable creditor in a similar position would not have relied on the sole credit of oneof the entities. }d . at 249 n. 11 . Finally, if the objecting party meets its burden, "the courtmay order substantive consolidation only if it determines that the demonstrated benefitsof consolidation 'heavily' outweigh the harm." Id. at 249 (quoting Auto-Train , 810 F .2dat 276).

With respect to the Eastgroup Properties analysis, we have been informed andassume that the Company and Omnicom do not have common officers and directors,the Company is not grossly undercapitalized, the Company does not conduct businesssolely with Omnicom and the Company has in the past and will continue to take steps togive effect to the legal requirements relating to its status as a separate entity . Inaddition, while Omnicom owns all of the Company's outstanding nonvoting PreferredStock, we have been informed and assume that it does not own any of the Company'sCommon Stock, which is the sole class of capital stock with the right to elect theCompany's Board of Directors . Therefore, the second through fifth additional factorsmentioned by the Bastgroup Properties court do not apply, and the first additional factormentioned by the Eastraroup Properties court likely does not apply .

It should be noted that limited case law specifically addresses the legality ofsubstantive consolidation of a bankrupt debtor and a nondebtor solvent affiliate .Although a split of authority exists, it has been held that creditors (who did not have aclaim against the nondebtor affiliates directly) could bring before the court partiesalleged to be the "alter ego" of the debtor . In re 1438 Meridian Place N .W., inc . , 15 B.R.89, 95-96 (Bankr . D.D.C . 1981) . See In re Crabtree, 39 B.R. 718, 722-26 (Bankr. E .D.Tenn . 1984) (the right to bring additional parties before the court who are the alter egoof the debtor is independent of the right of creditors to force a person into bankruptcyunder Section 303 of the Bankruptcy Code) .

However, in In re Alpha & Omega Realty, inc. , 36 B.R. 416 (Bankr . D . Idaho1984), the Idaho Bankruptcy Court held that a solvent affiliate of the debtor would not beconsolidated with the debtor's estate because the affiliate was not itself a debtor . Insupport of the position against consolidation of nondebtor parties, the Bankruptcy Courtfor the Northern District of Texas stated in In re DRW Property Co. 82, 54 B.R. 489, 497(Bankr . N.D. Tex. 1985), that it was "unaware of any statutory or common law authorityto substantively consolidate debtor and nondebtor partnerships . The nondebtorpartnerships are certainly well outside of the scope of this Court's jurisdiction ." See alsoIn re Circle Land and Cattle Carp . , 213 B.R. at 876-77 (court lacks jurisdiction overnondebtor for purposes of substantive consolidation with debtor) ; In re Colfor, Inc . ,1997 WL 605100, "4 (Bankr . N .D. Ohio Sept. 4, 1997) (upstream substantiveconsolidation of nondebtor originator into debtor-subsidiary's case not permitted as amatter of law) ; and In re The Julien Company , 120 B.R. 930 (Bankr. W.D. Tenn. 1990)(motion to consolidate debtor corporation with nondebtor shareholder violates dueprocess rights of nondebtor and its separate creditors) .

ICY-1196341v14




in the only decision of the United States Supreme Court on the issue, Sampsellv. Imperial Paper & Color Corporation , 313 U.S. 215 (1941), the Court held thatsubstantive consolidation of a nondebtor corporation into an individual bankrupt's estatewas proper where the transfer of property by the individual to the corporation was not ingood faith, was made for the purpose of placing it beyond the reach of the individual'screditors, and where the effect of the transfers was to hinder, delay or defraud theindividual's creditors, Id . at 217-18 (so holding despite the Court of Appeals' finding thatthe nondebtor corporation could not be deemed the alter ego of the individual bankruptunder California law). Thus, the decisions in favor of consolidation of a debtor's solventaffiliate at least require some sort of harm or fraud on creditors and typically include adetermination that the solvent entity was merely the "alter ego" of the debtor .

As explained above, in deciding whether to order substantive consolidation,courts have accorded different degrees of significance to a variety of factual elementsand it is difficult to predict the result that a court would reach on the basis of anyparticular set of facts . There are, moreover, certain facts connected with theorganization and further operation of Omnicom and the Company that might lead acourt to consider ordering the substantive consolidation of the assets and liabilities ofOmnicom and the Company. With respect to Omnicom and the Company, such factsinclude the following : (a) while the Company's stockholders are not involved in theconduct of the Company's day-to-day operations, employees of the Company'sstockholders have from time to time advised and assisted the Company andparticipated in negotiations with third parties in respect of transactions relating to certainof the Company's investments, (b) although the Company's offices have beenseparated from Omnicom's offices, Omnicom and the Company both sublease officespace in the same building from an Omnicom subsidiary ; and (c) the SeparatenessCovenants were not a part of the Company's Charter until February 1, 2002 .

In considering the question of whether a court would order the substantiveconsolidation of the assets and liabilities of the Company with those of Omnicom, weconsidered and analyzed the factual circumstances set forth in the precedingparagraphs, in the Relevant Documents, as well as applicable legal authority. Althoughthe facts described in the preceding paragraph create some uncertainty as to whether acourt would substantively consolidate the assets and liabilities of the Company withthose of Omnicom, we do not believe, as indicated in our opinion expressed below, thatthese facts in and of themselves, in view of all of the relevant facts described above, aswell as in the Relevant Documents, including that the Company has operated asreflected in the Opinion Certificate, would provide a court applying present reportedjudicial and statutory authority, in a properly presented case, with a sufficient basis onwhich to order substantive consolidation of the assets and liabilities of Omnicom withthose of the Company .

As previously stated, a determination as to the likelihood that a court would orderthe substantive consolidation of the assets and liabilities of Omnicom and the Companycannot be made in the abstract . All the facts and circumstances relating to Omnico m

NY.1196341v1 4

Confidential OMC0001014



and the Company, including without limitation, the organizational structure of Omnicomand the Company, the procedures that we understand Omnicom and the Companyfollow in conducting their businesses and the relationships that are established andmaintained between and among such entities and their respective creditors, must betaken into account. Accordingly, the opinion expressed herein is necessarily dependentupon the accuracy of the Opinion Assumptions . We note further that the opinionexpressed herein is based upon our analysis of cases decided under the laws of variousjurisdictions, and certain of such cases might not be regarded as controlling precedentin a Bankruptcy Case of Omnicom .

C. Conclusion and Opinion :

Based on the factual assumptions, limitations and qualifications set forth in thisopinion letter (including the Opinion Assumptions), and the discussion and analysisabove, and in reliance on the Opinion Assumptions and the representations andagreements set forth in the Relevant Documents, and subject to the qualification thatthere is no definitive judicial authority confirming that a court will apply the analysis setforth above to the facts of this transaction, we are of the opinion that, under presentreported decisional authority and statutes applicable to federal bankruptcy cases, and ina properly presented case, if Omnicom were to become a debtor in a case under theBankruptcy Code, a federal bankruptcy court acting reasonably and correctly applyingthe law to the facts as set forth herein after full consideration of all relevant factorswould not disregard the separate existence of the Company so as to order substantiveconsolidation of the assets and liabilities of the Company with those of Omnicom .

Because, however, we have not found any controlling legal precedent on theseissues in our examination of the relevant authority, and because a court's decision withrespect to substantive consolidation would be based upon its own analysis an dinterpretation of the facts before it, we note that a particular court could reach aconclusion different from ours, which conclusion would not necessarily constitutereversible error . This opinion letter is premised upon, and limited to, the law and therelevant contractual relationships and the transactions in effect as of the date hereof .Our opinion is limited to the specific conclusions set forth herein and is further limited inall respects, except as otherwise stated, to the facts assumed .

We have found no cases directly on point and it is, therefore, our and yourunderstanding that the opinion expressed herein is not a guaranty or other assuranceas to what any particular court would actually hold, but an opinion as to the decision acourt would reach if the issues are properly presented to it and the court followedexisting precedent as to legal and equitable principles applicable in bankruptcy cases .In this regard, we note that legal opinions on bankruptcy law matters unavoidably haveinherent limitations that generally do not exist in respect of other issues on whichopinions to third parties are typically given . These inherent limitations exist primarilybecause of the pervasive equity powers of bankruptcy courts, the overriding goal ofreorganization to which other legal rights and policies may be subordinated, thepotential relevance to the exercise of judicial discretion of future arising facts an d

NY .1196341 v14


February 6 2002Page 14

JONES . DAY, REAVIS & POGU E

circumstances and the nature of the bankruptcy process . You should consider theselimitations in analyzing the bankruptcy risks associated with the transactions describedherein .

The foregoing opinion assumes that the facts, factual representations,statements , covenants , assumptions and applicable ownership structures (andConstituent Documents ) set forth above will be those that exist at the time a federalbankruptcy court considers the issues relevant to a motion for substantive consolidation,and that the Opinion Assumptions are, and will continue to be, true and correct, and ispremised upon , and limited to , the law and the structure of the transactions outlined inthe Relevant Documents in effect as of the date hereof . Our opinion herein is based ona comparison of the facts and circumstances that cou rts have examined in the past todetermine whether to substantively consolidate entities with the facts and circumstancesthat are assumed to exist with respect to each of the Company and Omnicom. Thequestion of whether , in the future, a court would respect the separate existence of theCompany from Omnicom will be affected by the manner in which each of the Companyand Omnicom actually conduct their activities . We cannot opine as to what action acourt would take in the future when reviewing , from a historical perspective , facts,operations and relationships that differ in any respect from the Opinion Assumptions .However , subject to the foregoing qualifications , our opinion is not affected by the factthat the Separateness Covenants were not added to the Company 's Charter until afterthe Company 's formation . Finally, in reaching the conclusions expressed herein, wehave assumed that a party in interest would timely and properly present an objection toany motion (whether brought by a party in interest, the debtor , the cou rt (on its ownmotion ), or any other person or entity) seeking to substantively consolidate the assetsand liabilities of the Company with those of Omnicom and would timely and properlybrief and argue such objection . See, etc .,, In re Buckhead America Corp . , Chapter 11Case Nos . 91-978 through 91-986 (Bankr . D. Del., August 13, 1992 ) (courtsubstantively consolidated eight debtors after all objections by creditors had beenwithdrawn ) ; see also In re Standard Brands Paint Co . , 154 B.R. 563 , 571-72 (Bankr.C.D. Cal . 1993) (cou rt substantively consolidated five debtors for voting and distributionpurposes in the absence of any objection by creditors) .

Each of the matters set forth herein is as of the date hereof, and we herebyundertake no, and disclaim any, obligation to advise any party of any change in anymatters set forth herein or upon which this opinion is based. In expressing theforegoing opinion, our examination of matters of law has been limited to the federalbankruptcy laws of the United States of America, including decisional authoritythereunder, and we express no opinion regarding the laws of any other jurisdiction . Theforegoing opinion is expressly subject to there being no material change in theapplicable law . Further, the foregoing opinion is expressly subject to there being noadditional facts that could materially affect the validity of the assumptions andconclusions set forth herein or upon which the opinion expressed herein is based .

NY-119634104




We express no opinion as to the availability or effect of a preliminary injunction,temporary restraining order or other such temporary relief, or other equitable remedies,other than substantive consolidation . We express no opinion with respect to fraudulentconveyance, preference, or other similar theories under the Bankruptcy Code o rapplicable state law.

We express no opinion as to the compliance or noncompliance, or the effect ofthe compliance or noncompliance, of the addressee hereof or any other person or entitywith any state or federal laws or regulations applicable to each of them by reason oftheir status as or affiliation with a federally insured depository institution . Our opinion islimited to the opinion expressly set forth herein, and we express no opinions byimplication . The opinion expressed herein is not binding on any court, and may not bequoted in whole or in part or otherwise referred to in any legal opinion, document orother report to be furnished to any person or entity without our prior written consent .Each of the matters set forth in this opinion letter is as of the date hereof, and weundertake no, and disclaim any, obligation to advise the addressee hereof (or any otherperson or entity) of any change in any matters set forth in this letter or upon which thisopinion letter is based .

This opinion may be relied upon only by the addressee hereof and is solely for itsbenefit. This opinion may not be relied upon for any other purpose, or by any otherperson, firm or corporation for any purpose, without our prior written consent . You may,however, furnish this letter to your directors, officers or employees for any good faithbusiness purpose or your internal or independent auditors as an evidential matter insupport of their evaluation of management's determinations or conclusions in anyreview of Omnicom's financial statements . In granting such authorization, we are notundertaking or assuming any duty or obligation to any such person or entity orestablishing any lawyer-client relationship with any of them . Further, we do not have,and do not undertake or assume, any responsibility whatsoever with respect to financialstatements, reports or returns of Omnicom or any of Omnicom's subsidiaries or affiliatesor any disclosures with regard to any matters referred to herein or therein .

Very truly yours ,

NY-119634M4


EXHIBIT A-1

CERTIFICATE OF SENECA INVESTMENTS LL C

Reference is made to the Organization and Operating Agreement of Seneca Investments LLC (the"Company"), dated May 2, 2001 (the "LL C Agreement"), among Omnicom Group Inc. ("Omnicom"),Pegasus E-Services Holdings LLC ("Holdings"), and Pegasus Partners II, L.P . ("Pegasus ") . Capitalized termused in this Certificate and not otherwise defined have the meanings assigned to such terms in the LLCAgreement.

The undersigned, Chief Executive Officer of the Company , certifies on behalf of the Company that:

A. This Certificate is being furnished to Jones, Day, Reavis & Pogue in connection with such firm'srendering of a legal opinion (the "Opinion ') to Omnicom. The undersigned hereby authorizes Jones, Day,Reavis & Pogue to rely on this Certificate for purposes of rending the Opinion .

B. The Company, since its formation on May 2, 2001, has:

1 . Maintained its books, records and bank accounts separate from those of any otherperson or entity;

2 . Held all of its assets in its own name and not commingled its assets with those of anyother person or entity,

3. Conducted its business in its name ;4 . Maintained financial statements showing its assets and liabilities separate and apart

from those of any other person or entity and not listed its assets on the financialstatements of any other person or entity;

5 . Paid its liabilities and expenses, including salaries of its employees, only out of itsfunds ;

6 . Observed all limited liability company and other organizational forrnal .ities ;

7 . Maintained an arm's-length relationship with other persons and entities and enteredinto transactions with other persons and entities only on a commercially reasonablebasis ;

8 . Maintained a sufficient number of employees in light of its contemplated busines soperations ;

9 . Not held out its credit as being available to satisfy the obligationN of other persons o rentities, not pledged its assets for the benefit of other persons or entities and, ingeneral, held itself out as a separate entity and corrected any known misunderstandingregarding its separate identity,

10. Not acquired the obligations or securities of other persons or entities, guaranteed orbecome obligated for the debts of other persons or entities or made loans to otherpersons or entities or bought or held any evidence of indebtedness issued by otherpersons or entities;

11 . Allocated fairly and reasonably any overhead expenses that are shared with an y otherperson or entity, including paying for office space and services provided to theCompany by any other person or entity ; "

12 . Used separate stationery, invoices, checks and other business forms bearing theCompany's name and not the name of any other person or entity; not used a mailingaddress, e-mail address or telephone number of any other person or entity ; and notidentified itself as a division of any other person or entity;

13 . Maintained adequate capital in light of its contemplated business operations ;

NY-1198252v3


14. Been solvent as of or immediately after the Closing and is solvent as of the datehereof; and

15. Not knowingly engaged in conduct that could reasonably be expected to compromiseits status as an entity separate and distinct from Omnicom or any other person orentity.

For purposes hereof, (1) direct or indirect subsidiaries of the Company and (2) other entities in which theCompany has an equity interest will not be considered an "other person or entity" unless, in the case of clause(2), any direct or indirect stockholders of the Company or such stockholders' direct or indirect subsidiaries(other than the Company and its direct or indirect subsidiaries) also have an equity interest in such entity.

C. The undersigned is duly authorized to execute this Certificate on behalf of the Company .

D. The foregoing certifications have been true since the Company's organization and theundersigned has no reason to believe that such certifications will not continue to be true .

Executed and delivered as of this 6th day of February, 2002.

SENECA.INVES '

a-n. .. 4 IMichael P. TierneyChief Executive Officer

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Confidential

2

OMC 0001019

0

EXHIBIT A-2

CERTIFICATE OF OMNICOM GROUP INC.

Reference is made to the Organization and Operating Agreement of Senecainvestments LLC (the "Company "), dated May 2 , 2001, as amended (the "LLCAgreem "), among Omn icom Group Inc . ("Omnicom "), Pegasus E-Services HoldingsLLC ("Holdings"), and Pegasus Partners II, L .P. ("Pegasus") . Capitalized terms used inthis Certificate and not otherwise defined have the meanings assigned to such terms inthe LLC Agreement.

The undersigned, Executive Vice President, Chief Financial Officer of Omnicom,certifies on behalf of Omnicom that :

A. Omnicom is a holding company, having more than 1,400 subsidiariesconducting business in over 100 countries ;

B. Except for cash and cash-equivalent assets, Omnicom's only substantialassets are its direct and indirect equity ownership interests in other companies ; theundersigned believes that substantially all of Omnicom's creditors, including debtholders, are aware of this fact ;

C. In 1999, representatives of Omnicom and Pegasus began discussions ofpossible joint venture or other arrangements pursuant to which they might pursueinvestments or acquisition opportunities in the so-called e-services business ; suchdiscussions culminated in the formation of the Company on May 2, 2001 ;

D . The fact that Omnicom transferred its ownership interest in Communicade tothe Company and now has a preferred stock interest in the Company has been publiclydisclosed, including in footnotes to Omnicom's published financial statements ;

E. The undersigned believes that no reasonable lender or creditor has or couldadvance funds or otherwise extend credit to O mn icom or any of its subsidiaries basedon the assumption that the assets of the Company would be consolidated with theassets of Omnicorr or any of its subsidiaries in a bankruptcy proceeding ;

E . At the Closing of the formation of the Company, Omnicom transferred to theCompany, and the Company accepted, Omnicom's entire right, title and interest in andto the Capital Contribution, which included Omnicom's entire interest in Communicade ;neither the Company nor Omnicom was insolvent (within the meaning of Section 101 ofthe Bankruptcy Code, Section 3 of the Uniform Fraudulent Conveyance Act or anysimilar fraudulent conveyance or transfer law or statute applicable to the transactionscontemplated by the LLC Agreement) at the time of the Closing or the date hereof;

G . There is no agreement or commitment obligating Omnicom to advance fundsor provide other capital to the Company (directly or pursuant to a guarantee or similarassurance ), nor is the Company obligated to advance funds or provide other capita l

NY-I196344v1 3


(directly or pursuant to a guarantee or similar assurance ) to Omnicom or any of itsaffiliates ;

H . The consideration given by the Company for the Capital Contribution byOmnicom pursuant to the LLC Agreement constitutes fair consideration and reasonablyequivalent value ;

I . Omnicom has not taken, and will not take, any action inconsistent with themaintenance of the Company as a separate legal entity. Without limiting the foregoing,Omnicom has and will continue to : (1) hold the Company out to third parties as an entitywith assets and liabilities distinct from Omnicom and Omnicom's subsidiaries ; (ii) holditself out to lenders and other creditors as not being responsible for any indebtedness ofthe Company or for any decisions or actions relating to the Company; (iii) preparefinancial statements for Omnicom relating to its ownership interest in the Company inaccordance with GAAP ; (iv) not take any other actions inconsistent with assuring that allcorporate procedures required by its constituent documents and the Company'scertificate of formation, Charter, as amended and the LLC Agreement have been dulyand validly taken ; (v) keep correct, true and complete records and books of account ;and (vi) not act in any manner that could foreseeably mislead others with respect to theCompany's separate identity. In addition, notwithstanding anything to the contrary in theRelevant Documents (as defined in the Opinion, defined below), Omnicom has and willcontinue to :

1 . Maintain bank accounts, records, books and financialstatements separate from and independent of, the bank accounts,records, books and financial statements of the Company ;

2. Maintain the agreements and other instrumentsunderlying the transactions described in the LLC Agreement as officialrecords and observe all corporate and other organizational formalities ;

3 . Maintain an arm's-length relationship with the Company;

4 . Keep its assets and its liabilities wholly sdparate fromthose of the Company, and not commingle its assets with those of theCompany;

5. Not mislead third parties by conducting or appearing toconduct business on behalf of the Company or expressly or impliedlyrepresenting or suggesting that Omnicom is liable or responsible for anyindebtedness or other liabilities of the Company or that the assets ofOmnicom are available to pay the creditors of the Company ;

6. Present itself to the public and governmental agencies asan entity separate from the Company ;

NY-1196344v132


7. Use at all times stationery and other business forms anda mailing address, e-mail address and telephone number separate fromthose of the Company;

8 . Limit its transactions with the Company only to thosecontemplated by the LLC Agreement or otherwise on arm's-length termsand only on a commercially reasonable basis;

9. File its tax returns separate from those of the Company ;

10. Not file a consolidated tax return with the Company;

11 . Not pay the salaries of its own employees from thefunds of the Company ;

12. Not make loans to the Company, nor guarantee orbecome obligated for the debts of the Company ;

13. Not buy or hold evidences of indebtedness issued bythe Company ;

14. Not pledge its assets for the benefit of the Company ;

15. Correct any known misunderstanding regarding itsidentity as separate from that of the Company ; and

16 . Not identify the Company as a division of Omnicom.

J. Omnicom has not exercised, and has no present intention to exercise, itsrights under Section 7(i)(ii) of the Charter to consent to the Company incurring orbecome liable for, directly or indirectly, indebtedness in excess of $ 5 .0 million, and willnot exercise the foregoing consent if the incurrence of such debt would immediatelythereafter thereby render the Company insolvent .

The foregoing certifications have been true since the Company's organizationand the undersigned has no reason to believe that such certifications will not continue tobe true .

As used in this Certificate, the term " affiliateTM has the meaning ascribed thereto inRule 405 under the Securities Act of 1933, as amended.

This Certificate is being furnished to Jones, Day, Reavis & Pogue in connectionwith such firm's rendering of a legal opinion (the "O info ") to Omnicom . Theundersigned hereby authorizes Jones, Day, Reavis & Pogue to rely on this Certificatefor purposes of rending the Opinion and any other person or entity to whom or whichsuch Opinion is furnished is also authorized to rely hereon as if this Certificate wereaddressed to such person or entity . The facts and assumptions contained in theOpinion are true, correct and complete as of the date hereof .

NY-t 196344vi3

OMC 0001022

Confid ential

The undersigned is duly authorized to execute this Certificate on behalf ofOmnicom .

Executed and delivered as of this 6th day of February, 2002 .

OMNICOM GROUP INC.

By:andalI J . Weisenburger

Executive Vice President,Chief Financial Office r

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JONES, DAY, REAVIS Sc POGU E

599 LEXINGTON AVENU E

NEW YORK, NEW YORK 10022-607 0

TELEPHONE : 212.326 .3939 • FACSIMILE : 212.755-7306 WRITER ' S DIRECT NUMBER t

February 18, 2002

Omnicom Group Inc .437 Madison AvenueNew York, New York 10022

Attention: General Counse l


We acted as special counsel to Omnicom Group Inc., a New York corporation("Omnicom"), in connection with the formation of Seneca Investments LLC, a Delawarelimited liability company (formerly known as Pegasus E-Services Investments LLC) (the"Company"), pursuant to the Organization and Operating Agreement, dated May 2,2001 (the "LLC Agreement "), among Omnicom, Pegasus Partners II, L .P., a Delawarelimited partnership (" Pegasus"), and Pegasus E-Services Holdings LLC, a Delawarelimited liability company (" Holdings ") . (Terms used herein with initial capital letters thatare defined in the LLC Agreement are used herein as so defined .) Pursuant to the LLCAgreement, among other transactions, Omnicom transferred to the Company (the"Capital Contribution") all of the issued and outstanding equity of Communicade LLC, aNevada limited liability company ("Communicade"), which operated Omnicom's e-services investment business, and $47 .5 million cash (together, the " ContributedProperty") and the Company issued to Omnicom 325,000 shares of its Preferred Stock,without par value (the "Preferred Stock") .

The Company has, as of the date of the Capital Contribution, two members :Omnicom is the holder of 100% of the issued and outstanding nonvoting PreferredStock and Holdings is the holder of 100% of the issued and outstanding Common

b Stock, without par value, of the Company.

All assumptions and statements of reliance herein have been made without anyindependent investigation or verification on our part, and we express no opinion withrespect to the subject matter or accuracy of the assumptions or items on which we haverelied .

In connection with the Relevant Documents (as defined below), you haverequested that we express an opinion as to whether a court having jurisdiction over thebankruptcy case of Omnicom, acting reasonably and correctly applying the law to thefacts as set forth herein after full consideration of all relevant factors, would, uponappropriate motion, determine the Capital Contribution to be a true transfer, or wouldinstead determine that such Capital Contribution should be characterized as a secure d


A "T,ADM7I j$ELS - CHICAGO • CLEVELAND • COLUMBUS • DALLAS - FRANKFURT • GENEVA • HONG KONG • IRVINE - LONDON • LOS ANGELES

NEW DELHI IAN ASSOCIATE PPM) • NEW YORK • PARIS • PITTSBURGH • RIYADH • SHANGHAI • SYDNEY • TAIPEI • TOKYO • WASHINGTON

.A



borrowing . If such Capital Contribution is characterized as a secured borrowing, theContributed Property itself, rather than the Preferred Stock, would be deemed to be theproperty of the estate of Omnicom in a bankruptcy case commenced by or againstOmnicom . 1

In connection with the opinion expressed herein, we have examined suchdocuments, records and matters of law as we have deemed necessary for the purposesof this opinion letter . Specifically, we have examined, reviewed and relied on, amongother documents :

(1) The certificate of formation of the Company (the " Certificate") ;

(2) The LLC Agreement, including the Exhibits thereto : Charter (the"Charter") (Exhibit A), Bylaws (Exhibit B), Accounting and Tax Matters(Exhibit C) and Grant of Authority (Exhibit D) (collectively with the LLCAgreement and the Certificate, the "Constituent Documents") ;

(3) The instrument of Contribution of Equity, dated May 2, 2001, evidencingOmnicom's transfer of all of its right, title and interest in and to the issuedand outstanding Membership Interests of Communicade to Seneca (the"Transfer Instrument"); and

(4) The certificate of Omnicom, dated February 6, 2002 (the " OpinionCertificate" )

The Constituent Documents, the Transfer Instrument and the Opinion Certificateare collectively referred to herein as the "Relevant Documents . "

In all of our examinations, we have assumed and relied upon the following : (1)the legal capacity of all natural persons executing documents ; (2) the genuineness anddue authorization of all signatures ; (3) the authenticity of original and certifieddocuments and the conformity to the original or certified copies of all copies submittedto us as conformed or reproduction copies ; (4) the present and continuing accuracy of,the representations and warranties contained in each of the Relevant Documents ; (5)each of the Relevant Documents has been duly authorized and approved by the partiesthereto pursuant to applicable law; (6) all filings, actions, approvals, consents andauthorizations necessary for the execution and performance of each of the RelevantDocuments have been properly made, taken or obtained, as the case may be, andremain in full force and effect ; (7) each Relevant Document is, and will continue to be, avalid, binding and enforceable obligation of the parties thereto ; (8) each of the Relevant

1 The transfer at issue here was a capital contribution and not a "sale ." However, the analysis thatfollows, unless otherwise stated, does not treat the transfer at Issue here in connection with theCapital Contribution differently from "true sales" which are the subject of the legal discussions knownto us and believed to be potentially relevant to us in this context . We have assumed that a courtwould treat a contribution no differently than a true sale under the theories discussed herein .

Confidentia l

NY-1200371v4 OMC 0000991



Documents is, and will continue to be (until terminated in accordance with the termsthereof), in full force and effect and the parties to each such document will continue tobe bound by the terms thereof and will comply with their covenants and otherobligations contained therein; and (9) the applicable ownership structures existing onthe date hereof will be those that exist at the time a federal bankruptcy court considersthe relevant issues .

We have assumed that neither Omnicom nor the Company is insolvent (underSection 101 of the United States Bankruptcy Code, 11 U .S .C. §§ 101-1330 (the"Bankruptcy Code"), Section 3 of the Uniform Fraudulent Transfer Act or any othersimilar fraudulent conveyance or transfer law or statute applicable to the transactionscontemplated by the Relevant Documents) both immediately prior, and immediatelyafter giving effect, to the completion of the transactions contemplated by the LLCAgreement (the "Closing") or as of the date of this opinion letter . We have furtherassumed that the Capital Contribution will not be avoidable under Section 548 of theBankruptcy Code, Section 3 of the Uniform Fraudulent Transfer Act or any other similarfraudulent conveyance, transfer law or statute applicable to the transactionscontemplated by the Relevant Documents, or under other applicable law relevant to theopinions expressed in this letter .

Finally, we have also assumed that (1) the Company's board of directors hasconcluded that the Contributed Property constituted adequate consideration for theissuance of the Company's stock pursuant to Section 153 of Chapter 8 of the DelawareGeneral Corporation Law (assuming that the Company were a corporation thereunder)and the consideration received for the Contributed Property reflects the good faithdetermination by Omnicom and the Company of the fair market value of the ContributedProperty, and is equal to the consideration that the parties believe would have beenreceived in a transfer of the Contributed Property by Omnicom in the context of thetransactions contemplated by the Relevant Documents, (2) the Company did not payany money to Omnicom as part of the Capital Contribution and did not issue apromissory note or other similar instrument evidencing indebtedness to Omnicom forthe Contributed Property at the Closing or thereafter, (3) the Company'has complied inall material respects with its Constituent Documents in issuing stock in exchange for theContributed Property, (4) Omnicom has made the Capital Contribution otherwise inaccordance with New York law, (5) the Company and Omnicom have entered into theRelevant Documents in good faith, for legitimate business purposes and without theintent to hinder, delay or defraud any of their respective creditors, (6) the Company andOmnicom intended that the transfer of the Contributed Property from Omnicom to theCompany pursuant to the Relevant Documents to be a transfer to the Company and nota loan secured by the Contributed Property, and (7) Omnicom and the Company believethat Omnicom has transferred the benefits and risks of ownership of the ContributedProperty to the Company .

Confidential

NY-1200371v4 OMC 0000992

February 18, 2002 JONES, DAY, REAVIS Sc POGUE

Page 4

A. Discussion of Applicable La w

Relevant Bankruptcy Law Principle s

Section 541 of the Bankruptcy Code provides that the commencement of a caseunder the Bankruptcy Code creates an estate comprised of, inter alia, "all legal orequitable interests of the debtor in property as of the commencement of the case ." TheBankruptcy Code does not set forth the circumstances in which a debtor will be deemedto have an interest in property . Instead, state law generally determines the nature andextent of a debtor's interest in property . See Butner v. United States , 440 U .S . 48, 54-55 (1979); MNC Commercial Corp. v. Joseph T. Ryerson & Son, Inc . , 882 F.2d 615,619 (2d Cir. 1989) (applying Butner to Bankruptcy Code); Morton v . National Bank , 866F.2d 561, 563 (2d Cir. 1989) (same) ; Dewhirst v . Citibank (Arizona) (in re Contractor'sEquip. Supply Co . , 861 F.2d 241 (9th Cir. 1988); see also In re Stanley, 182 B .R. 241(Bankr. W.D. Ark. 1994) ; In re Rosenshein , 136 B.R. 368, 372 (Bankr. S .D.N .Y. 1992)("After the debtor's property interest is determined under state law, federal bankruptcylaw will dictate to what extent that interest is property of the estate .") . With rareexceptions, relevant decisions hold that property of a debtor that is the subject of a pre-bankruptcy true sale or transfer will not be deemed to be property of the debtor's estate .See In re Federated Dept Stores, Inc . , 1992 Bankr . LEXIS 392 (Bankr . S .D. Ohio Jan .10, 1992) (receivables purchased in true sale are sole property of purchaser, andneither seller nor creditors of seller retain any ownership rights in receivables orproceeds thereof pursuant to Section 541 of the Bankruptcy Code or otherwise) . Thus,if an order for relief is entered against a debtor in a voluntary or involuntary casecommenced under the Bankruptcy Code, and a court determines that the sales ortransfers of assets are true sales or transfers under state law, under the weight ofexisting authority, the property so sold would not constitute property of the bankruptcyestate of the debtor in its bankruptcy case . See Contractors Equip . Supply Co . , 861F .2d at 245 . Conversely, if such transactions are determined to be secured borrowingsunder applicable state law, the property would be deemed to be property of the estate ofthe debtor in its bankruptcy case . Id.

2 . Relevant State Law

The published cases relevant to the question of whether a transfer should betreated for bankruptcy purposes as such or as a secured borrowing generally involverelatively small-scale commercial transactions or consumer claims whose fact patternsare not closely analogous to the transaction at issue here . In general, courtsaddressing the issue of whether a transfer of assets constitutes a true sale or transferrather than a pledge to secure borrowings have focused on a number of differentfactors . The factors most relevant to the present transaction are discussed below . Wenote, however, that the reported decisions indicate that no single factor or combinationof factors is dispositive and, due to the "facts and circumstances" nature of the analysis,are not conclusive as to the relative weight to be accorded to the factors that arepresent in this transaction. We also note that the cases are not uniform in theirtreatment of the factors considered . The existing case law thus does not provid e

NY-1200371v4 OMC 0000993Confidential

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JONES, DAY, REAVIS & POGUT E

consistently applied general principles with which to analyze all of the factors present inthis transaction . 2

Nature and Level of Recourse . Probably the most important factor in resolvingthe sale or transfer-versus-pledge issue is the nature and level of recourse present in aparticular transaction . Where a transferee of financial assets has full recourse to thetransferor such that the transferee bears none of the risks generally associated withownership , such as uncollectibility due to the breach by, or insolvency of, an accountobligor, the transaction runs the risk of being treated as a secured borrowing .

The mere existence of some recourse to the transferor , without more, however,does not appear to prohibit the transaction from being a true sale or transfer . Forexample, the Uniform Commercial Code in effect in the State of New York (the "NYUCC") recognizes that a transfer may be characterized as a true sale even a securedparty has a right of recourse against the transferor (see Official Comment 9 to Section9-607 of the NY UCC).

Case law generally permits limited recourse to a seller of financial assets whilestill treating the transfer as a true sale or transfer. In Maior's Furniture Mart Inc. v .Castle Credit Corp, , 602 F.2d 538 (3d Cir . 1979), the court, in addressing the respectiverights of the parties under the UCC in effect in the State of Pennsylvania to a "surplus"held by a transferee under a "sale of receivables agreement," emphasized as a matterof contract law the full recourse nature of the transaction and deemed it to be a securedborrowing . The Major's case involved a transfer by Major's of receivables, with Major'swarranting account quality as well as assuming the responsibility to repurchase anyaccount after the customer was in default for more than 60 days . The court stated that"the presence of recourse in a sale agreement without more will not automaticallyconvert a sale into a security interest . . . . [T]he question for the court then is whetherthe nature of the recourse, and the true nature of the transaction, are such that the legalrights and economic consequences of the agreement bear a greater similarity to afinancing transaction or to a sale ." Id . at 544 (emphasis in original ; citations omitted) .The Third Circuit adopted the following findings and conclusions of the district court :

[Castle] imposed an obligation [on Major's] to indemnifyCastle out of a reserve account for losses resulting from acustomer's failure to pay, or for any breach of warranty, and a n

See, e .g,, to re Best Products Co ., Inc . , 157 B.R. 222 (Bankr . S.D.N .Y. 1993), in which the courtapplied a "substance over form" analysis to "collapse" a transaction in which a subsidiary served asa financing vehicle for its parent . In Best Products , a secured creditor had required the parent/"true"borrower to assign its rights as tenant under a ground lease to a "shell" subsidiary and to enter into asublease with the subsidiary, which was to serve as the "technical" borrower. The structure wasestablished to permit the creditor to "get around" stringent antideficiency rules under California lawby taking a security interest in the ground lease and the sublease payments . Id at 230. The partiesalso ignored the structure by causing the parent to make its "sublease" payments, to which thecreditor was looking as the source of debt service payments, directly to the creditor . Id Accordingly,the court set aside the sublease and deemed the transaction a loan to the parent .

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obligation to repurchase any account after the customer was indefault for more than 60 days . Castle only assumed the risk that theassignor itself would be unable to fulfill its obligations . Guaranties ofquality alone, or even guaranties of collectibility alone, might beconsistent with a true sale, but Castle attempted to shift all risk toMajor's, and incurred none of the risks or obligations of ownership .

Id . at 545 (quoting Major's Furniture Mart, Inc . v. Castle , 449 F. Supp . 538, 543 (E .D.Pa. 1978 )) . Because the transferees of receivables incurred none of the risks orobligations of ownership , the court determined that the transaction was a securedborrowing rather than a true sale .

The nature and level of recourse also was determinative in Lenes v. Dean, 64Cal. App. 3d 845, 848 (1976) (quoting Milana v . Credit Discount Co . , 27 Cal . 2d 335(1945)). In Lenes, the court, adjudicating a usury claim, held that the transactions atissue were not true sales of receivables, but instead borrowings secured b yassignments of the receivables . Id. The court based its holding on the transferor'sassumption of all risks of ownership of the receivables; the transferor warranted thesolvency of each debtor and guaranteed that each account would be paid within 60days of the assignment . Id. ; see also National Trust & Credit Co. v: F.H. Orcutt & SonCo., 259 F . 830 (7th Cir . 1919); Dorothy v. Commonwealth Commercial Co . , 278 Ili .629, 116 N .E . 143 (1917) ; Mercantile Trust Co . of Illinois v . Astor , 273 III . 332, 112 N.E.988 (1916) . By contrast, in Refinance Corp . v. Northern Lumber Sales, Inc,, 163 Cal .App. 2d 73, (1958), a case involving the sale and assignment of accounts to a factoringcompany, the sales agreement provided for a 20% reserve to be held by the buyer .Additionally, as to those accounts upon which the seller had extended credit with theapproval of buyer, the buyer "assumed any loss by reason of the insolvency of thecustomer." Id. at 111 (emphasis supplied) . The court held that such a transaction wasa true sale, noting that even full recourse to the seller in respect of certain defaultedaccounts (where the buyer had not preapproved the seller's extension of credit to itscustomers) was not determinative, but instead "an item of testimony which the trial courtmay consider in determining whether the transaction is in fact . . . a purchase and sale ."Id. at 113 (quoting, O .A. Graybeal Co. v. Cook, 111 Cal. App. 518, 531, 295 P. 1088,1093 (1931)) . For additional cases concluding that a transfer of receivablesrepresented a sale notwithstanding continued recourse (in varying degrees) against theseller, see Goldstein v . Madison National Bank of Washington . D.C . , 89 B.R. 274(D .D.C . 1988) ; In re Arithson , 175 B.R. 313, 320 (Bankr . D . N .D . 1994); CentralInvestors Real Estate Corp . v. Powell (In re Powell) , 54 B .R. 123 (Bankr . D. Or. 1983)(quoting Starker v. Heckart, 200 Or. 573, 267 P.2d 219 (1954)) ; Indian Lake EstatesInc. v . Special Investments, Inc . , 154 So. 2d 883 (Fla . Dist . Ct . App . 1963) ; CoastFinance Corp . v. Ira F . Powers Furniture Co ., 105 Or. 339, 209 P . 614, 615 (1922) . Seealso Equipment Finance Corp. v . Grannas , 207 Pa. Super. 363, 218 A.2d 81 (1966)(installment sale of goods not treated as secured loan subject to usury law).

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Right of Redemption . The existence of a right of redemption is another factorused in determining whether a transaction is a true sale or transfer rather than a pledgeto secure borrowings . "A pledge has been defined as a bailment of personal propertyas security for some debt . . . redeemable on ce rtain terms ." 4 Collier on Bankruptcy¶ 541 .08[9] (L. King ed ., 15th ed . 1995). In bankruptcy, the debtor-pledgor's estatesucceeds to the debtor-pledgor's right of redemption , and the estate is entitled torestoration of the pledged prope rty or its proceeds upon proper redemption . Id .Similarly, Section 9-623 of the NY UCC provides that a debtor may redeem collatera lby, among other things, "fulfillment of all obligations secured by the collateral . . . ." Theright of redemption of collateral upon payment to the pledgee is thus an importantcharacteristic of a pledge or security interest.

Adequacy of Consideration . Courts sometimes look to the adequacy of theconsideration paid in determining whether a transaction is a true sale or transfer ratherthan a pledge to secure a borrowing . In Fox v. Peck Iron & Metal Co ., 25 B .R . 674(Bankr. S .D . Cal. 1982), the court held that a transaction alleged to be a sale andleaseback by the debtor was instead a secured borrowing . The court emphasized,among other things, that the assets transferred by the debtor under the sale andleaseback agreement were worth at least twice what the debtor received for them . Thecourt remarked that "[such a large inequality or discrepancy in values . . . tends] to showthat the transaction was a disguised financing scheme ." Id . at 689 .

Servicing. Courts have, at times, viewed the nature and scope of a seller'scontinued servicing activities as relevant factors in the sale or transfer-versus-pledgeanalysis . Courts have looked favorably on the purchaser's ability to control the servicingand collection of transferred assets in deciding that-transfers were true sales ortransfers . See In re Carter Hawley Hale Stores , No. LA 91-64140 JD, slip op . at p . 8(Bankr. C .D. Cal . Apr. 8, 1991); Bear v. Cohen , 829 F.2d 705, 709-10 (9th Cir . 1986) .The transferor may agree with the purchaser to act as servicer (that is, as agent for thepurchaser) . The use of a segregated servicing account for collections from the soldassets supports the agency characterization . See In re Shulman Transp. Enters . , 744F.2d 293 (2d Cir. 1984) ; In re Ada Commercial Corp . , 327 F. Supp . 1315 (S .D.N.Y.1971) ; In re Farrell & Howard Auctioneers Inc . , 172 B .R. 712 (Bankr. D. Mass . 1994) .

Notification of Account Debtors . The failure to notify account debtors of thetransfer of their accounts is sometimes taken to be indicative of a pledge rather than atrue sale or transfer of an account receivable . See, eq., Commercial Security Co . v .Holcombe (In re F .E. Forbes Piano Co . ), 262 F . 657, 661 (5th Cir . 1920); New York v .Service Inst . . Inc . , 421 N.Y.S.2d 325 (1979) . Where there is a valid business reason fornot notifying account debtors, however, courts have been willing to find the existence ofa true sale or transfer notwithstanding such lack of notification . Retention of servicingby the transferor is one such valid business reason . See, p... A .B . Lewis Co. v .National Inv. Corp . of Houston , 421 S .W.2d 723 (Tex . Civ. App. 1967).

Intent of the Parties . Another important factor in a pledge-versus-sale or transferanalysis is the intent of the parties as manifested in their characterization and treatmen t

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JONES, DAY. REAVTS & POGU E

of the transaction . Courts accord respect to the stated intent of the parties and tend todefer to the structure selected by the parties, unless the structure of the transaction isclearly inconsistent with that stated intent, or unless giving effect to the structure of thetransaction would result in an evasion of public policy or perpetrate an injustice on oneof the parties . Courts have repeatedly recognized that, when determining the intent ofthe parties in the pledge-versus-sale or transfer context, a court should look through thelabels used by the parties and analyze the true nature of the transaction . See Fireman'sFund Ins . Cos, v . Grover (In re Woodson Co .), 813 F.2d 266, 272 (9th Cir. 1987);Maior's Furniture Mart , 602 F.2d at 543-45 ; Levin v . City Trust Co . (In re Joseph KannerHat Go.), 482 F.2d 937, 940 (2d Cir. 1973); First Nat'l Bank of Louisville v . HurricaneElkhorn Coal Corp . li , 19 B.R . 609, 616-17 (Bankr . W.D. Ky: 1982) ; Liona Corp . N .V . v .PCH Assocs . (In re PCH Assocs .l , 804 F.2d 193, 198 (2d Cir. 1986). Accordingly, anumber of courts have held that, notwithstanding language in a contract indicating asale or transfer of accounts, if the weight of the evidence indicates that the partiesintended the contract to be a pledge of accounts to secure a loan, the contract will beconstrued as a pledge . See , e.g„ Georgia-Pacific Corp . v . Lumber Prods . Co . . 590P.2d 661, 665 (Okla. Sup. Ct. 1979) (despite contracts containing words of assignment,where intent was to create security interest, intent controlled over form and securityinterest was created).

B. Analysis

As the preceding discussion illustrates, a court's conclusion as to whether atransfer is a true sale or transfer for the purpose of securing a loan is dependent uponthe facts surrounding that transfer . In analyzing a transfer, a court may conclude thatcertain facts are indicative of a sale or transfer while other facts are indicative of asecured loan . We would expect a court to ascertain the true nature of the transfer bycomparing those attributes indicative of a secured loan with those attributes indicative ofa true sale or transfer and then, on the basis of such comparison and on the basis of therelative importance that the court assigned to the various attributes, determine whetherthe transfer more closely resembles a true sale or transfer rather than a secured loan .The following discussion constitutes (1) our analysis of those attributes of the transfer ofthe Contributed Property which are indicative of a secured loan and which are indicativeof a true sale or transfer and (2) our conclusion as to how a court would ultimatelycharacterize the Capital Contribution .

No Money to Omnicom . We note at the outset, however, that the presentcircumstances do not involve a transaction in which the transferor (or pledgor) receivedmoney upon making the transfer . Although none of the cases we have reviewed sostate, it is the receipt of money by the transferor at the outset which is the mostsignificant factor in making a transfer potentially recharacterizable as a loan and, in ourview, the absence of the receipt of money or any other consideration (except for thePreferred Stock itself) by Omnicom for the transfer in connection with the CapitalContribution is the most significant fact in analyzing the transaction as a transfer versusa pledge in a secured borrowing .

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Nature and Degree of Recourse . In the present transaction, the assets includedin the Contributed Property are not collectible in nature and, as a result, Omnicom doesnot guarantee the collectibility of the Contributed Property transferred to the Company .In addition, Omnicom has not directly or indirectly guaranteed or insured the value ofthe Contributed Property . Omnicom's contractual recourse obligation is limited toOmnicom's breach of customary representations, warranties and covenants in the LLCAgreement, liabilities relating to the acquisition, ownership or transfer of securities inconnection with the Capital Contribution, liabilities relating to the agreements enteredinto at the Closing and liabilities relating to Omnicom's ownership of the ContributedProperty prior to the Closing Date or other property not included in the ContributedProperty (such liabilities of Omnicom to the Company, the " Indemnification

Obligations") . There is no reserve account, right of indemnification or other recoursearrangement entitling the Company to seek reimbursement from Omnicom for anylosses on any Contributed Property, other than the Indemnification Obligations .

Characteristically, a secured loan provides the secured party with full recourseagainst the debtor for any deficiency resulting from defaults in payment . In other words,the lender has recourse against the borrower to the extent that the lender's realizationon the collateral does not fully discharge the loan . However, Omnicom is not obligatedto repurchase any of the assets included in the Contributed Property under the RelevantDocuments. Rather, Omnicom is liable for certain limited and customaryIndemnification Obligations . As a result of this lack of recourse, after the Closing Date,all risks of ownership with respect to the Contributed Property were transferred to theCompany.

We believe that the representations, warranties, covenants and indemnitiesmade by Omnicom in the Relevant Documents are typical of those contained in a saleor transfer agreement and consistent with a characterization of the transfer of theContributed Property under the LLC Agreement as a transfer rather than a grant of asecurity interest. . We therefore do not regard the existence of the IndemnificationObligations as indicative of a significant level or type of recourse that would result in thecharacterization of the Capital Contribution as a secured loan .

Right of Redemption. The LLC Agreement does not entitle Omnicom to redeemor reacquire the Contributed Property transferred to the Company . The LLC Agreementlikewise does not contain a provision requiring the Company to account to Omnicom forany amounts corresponding to the "surplus" to which a borrower that had provided asecurity interest in its assets to a lender would be entitled under Section 9-608(a) of theNY UCC. This is consistent with a seller's nonentitlement to a surplus set forth inSection 9-608(b) of the NY UCC . We believe the lack of any right of redemption or rightto repurchase the Contributed Property in the LLC Agreement is indicative of a transferrather than a pledge of the Contributed Property to secure borrowings .

Adequacy of Consideration . In rendering this opinion letter, we have assumedthat the purchase price paid by the Company for the Contributed Property isapproximately equal to the amount that generally could have been obtained b y

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Page 10JONES, DAY, REAVIS & POGUE

Omnicom in the marketplace in comparable transactions . Such fair market valuepurchase price paid by the Company for the Contributed Property purchased fromOmnicom is an additional factor that we believe indicates a transfer rather than thepledge of the Contributed Property by Omnicom . As previously mentioned, the form o fconsideration received by Omnicom for the Contributed Property (Preferred Stock ratherthan cash) is inconsistent with the attributes of a borrowing transaction .

Servicing of Contributed Property by a Transferor . Although Omnicom hasprovided certain services to the Company at Omnicom's fully allocated costs, theseservices are administrative in nature, do not relate to the Contributed Property and areterminable by the Company at any time . The Company is responsible for theadministration and oversight of the Contributed Property. Although Omnicomrepresentatives assisted Seneca in respect of negotiations with third parties in respectof transactions relating to certain of the Company's investments, Omnicom is notinvolved in the day-to-day conduct of the Company's business and the Company'sbusiness is subject to the oversight of its Board of Directors (who are elected by thecommon stockholders). As a result, these arrangements provide further support as tothe transfer of ownership of the Contributed Property to the Company .

Intent of the Parties . The Relevant Documents are consistent with a sale ortransfer by Omnicom of the Contributed Property. Among other things, the TransferInstrument expressly provides that in the Capital Contribution Omnicom transferred tothe Company (and the Company accepted) Omnicom's entire ownership interest in andto the Contributed Property . Nothing in the Relevant Documents indicates anyinconsistent intention . Furthermore, public statements made by the Company andOmnicom in connection with the Capital Contribution and the characterization byOmnicom of the Capital Contribution as a capital contribution in Omnicom's publishedfinancial statements indicate that the parties intended that the Capital Contribution betreated as a transfer, rather than a secured borrowing .

C . Conclusion

Based upon the foregoing analysis, and in reliance on the factual representationsand agreements set forth in the Relevant Documents, and subject to the qualificationthat there is no definitive judicial authority confirming that a court will apply the analysisset forth above to the facts of this transaction, and subject as well to all of theassumptions, qualifications and limitations set forth in this letter, we are of the opinionthat, under present reported decisional authority and statutes applicable to federalbankruptcy cases, and in a properly presented case if Omnicom were to become adebtor in a case under the Bankruptcy Code, a federal bankruptcy court actingreasonably and correctly applying the law to the facts as set forth herein after fullconsideration of all relevant factors would hold that: (1) the transfer by Omnicom to theCompany of Omnicom's interest in the Contributed Property is a true transfer of suchinterests by Omnicom to the Company and not a pledge securing indebtedness ofOmnicom and (2) accordingly, such interests would not be property of Omnicom'sestate under Section 541 of the Bankruptcy Code .

NY-1200371v4 Confidential OMC 0000999



Because, however, we have not found any controlling legal precedent on theseissues in our examination of the relevant authority, and since a court's decision withrespect to a true sale or transfer would be based upon its own analysis andinterpretation of the facts before it, we note that a particular court could reach aconclusion different from ours, which conclusion would not necessarily constitutereversible error. This opinion letter is premised upon, and limited to, the law and theterms and structure of the transactions assumed herein .

Whether any particular transfer is a sale or transfer rather than a pledge will begenerally a matter of state law and may be governed by the laws of a particular state .Although we believe that our opinion respecting Section 541 of the Bankruptcy Code issupported by sound analysis of existing law, we have found no statutes or reportedjudicial authority that discuss directly whether transfers such as the transfers outlinedherein would be treated as sales or transfers rather than pledges and have found noreported judicial authority that has considered a transaction containing all the materialfacts and circumstances that are present in the transactions addressed herein . Inexpressing our opinion, we have thus relied on cases discussing certain of the facts andcircumstances that are present in the transactions addressed herein and casesdiscussing more generally whether the transfer of an asset was a transfer of ownershipor a transfer of a more limited interest . Accordingly, our opinion is not based on directlycontrolling precedent but rather on what we believe to be a sound analysis of existingauthorities. Also, the analysis of Bankruptcy Code Section 541 and opinions thereoncontained herein are based on general principles of law derived from a review of asignificant body of case law and are not based on the laws of any particular state .Therefore, the analysis and conclusions of this opinion are based solely upon thefederal bankruptcy laws of the United States of America and a general analysis ofrelevant judicial decisions under the laws of various states, which we believe a courtapplying New York law would look to for guidance in determining the nature of thetransfers outlined in this letter . We express no opinion as to the laws of any particularstate or jurisdiction other than (1) the federal bankruptcy laws of the United States ofAmerica and (2) the laws of the State of New York to the extent and within the contextdescribed in the preceding sentence .

We express no opinion with respect to whether, if Omnicorn were to become adebtor in a case under the Bankruptcy Code, any Contributed Property which isrepurchased or otherwise acquired by Omnicom, either due to a breach of certainrepresentations or warranties relating to the Contributed Property or otherwise, wouldbe property of the estate of Omnicom .

We express no opinion with respect to whether, if Omnicom were to become adebtor in a case under the Bankruptcy Code, any transfer of Contributed Property wouldbe avoided by a court as a fraudulent conveyance or under other similar theories underthe Bankruptcy Code or applicable state law. Our opinions are limited to the specificissues addressed and are further limited in all respects, except as otherwise stated, tothe facts assumed .

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We have found no cases directly on point and it is, therefore, our and yourunderstanding that the opinions expressed herein are not a guaranty as to what anyparticular court would actually hold, but opinions as to the decision a court may reach ifthe issues are properly presented to it and the court followed existing precedent as tolegal and equitable principles applicable in bankruptcy cases . In this regard, we notethat legal opinions on bankruptcy law matters unavoidably have inherent limitations thatgenerally do not exist in respect of other issues on which opinions to third parties aretypically given . These inherent limitations exist primarily because of the pervasiveequity powers of bankruptcy courts, the overriding goal of reorganization to which otherlegal rights and policies may be subordinated, the potential relevance to the exercise ofjudicial discretion of future arising facts and circumstances, and the nature of thebankruptcy process . The recipients of this opinion letter should take these limitationsinto account in analyzing the bankruptcy risks associated with the transactionsdescribed herein .

The foregoing opinions assume that the facts, factual representations,statements, covenants, assumptions and applicable ownership structures (and RelevantDocuments) set forth above will be those that exist at the time a federal bankruptcycourt considers the issues relevant to a motion concerning characterization of theownership of the Contributed Property, and that the assumptions relied upon herein are,and will continue to be, true and correct, and is premised upon, and limited to, the lawand the structure of the transactions outlined in the Relevant Documents in effect as ofthe date hereof (except as such assumptions pertain to the financial condition orsolvency of any entity as of any date hereafter) . Our opinions herein are based on acomparison of the facts and circumstances that courts have examined in the past (inorder to determine whether a transfer constitutes a true sale or transfer rather than apledge to secure borrowings) with the facts and circumstances that are assumed toexist with respect to Omnicom and the Company . We cannot opine as to what action acourt would take in the future when reviewing, from a historical perspective, facts,operations and relationships that differ in any material respect from the assumptionsrelied upon herein. i

In reaching the conclusions expressed herein, we have assumed that a party-in-interest would properly present an objection to any motion (whether brought by a party-in-interest, the debtor, the court (on its own motion), or any other person or entity )seeking characterization of the ownership of the Contributed Property other than asowned by the Company upon the transfer of the Contributed Property from Omnicom tothe Company (as outlined above), and would properly brief and argue such objection .

We express no opinion as to the availability or effect of a preliminary injunction,temporary restraining order or other such temporary relief, or other equitable remedies .

This opinion may be relied upon only by the addressee hereof and is solely for its

benefit . This opinion may not be relied upon for any other purpose, or by any otherperson, firm or corporation for any purpose, without our prior written consent . You may,however, furnish this letter to your directors, officers or employees for any good faith

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JONES. DAY, REAVIS & POGIJ E

business purpose or your internal or independent auditors as an evidential matter insupport of their evaluation of management's determinations or conclusions in anyreview of Omnicom's financial statements . In granting such authorization, we are notundertaking or assuming any duty or obligation to any such person or entity orestablishing any lawyer-client relationship with any of them . Further, we do not have,and do not undertake or assume, any responsibility whatsoever with respect to financialstatements, reports or tax returns of Omnicom, the Company or any of their respectivesubsidiaries or affiliates or any disclosures with regard to any matters referred to hereinor therein .

Very truly yours ,

I

:i~ R~UI4 T

4

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M

c-1-


SULLIVAN & CROMWELL LLPTELEPHONE' 1 .212-558-4000

FACSIMILE : 1-212-558-358 8

WWW .SULLCSOM .CO M

Via E-Mail and U .S. Mail

J . Erik Sandstedt, Esq .Bernstein Litowitz Berger & Grossman LLP,

1285 Avenue of the Americas ,New York, New York 10019 .

125 ,~i cacd Q

eus W c, -1W)'0004-24.98LOS ANGELES • PALO ALTO • WASHINGTON, O .C .

,PAI4KfUPT - LONOON . TAR N

BEUING • HONG KONG . TOKYO

MELBOURNE • SYDNEY

July 12, 2005

Re : In re Omnicom Group Inc . Securities Liti action, No. 02-4483

Dear Mr . Sandstedt:

I write in response to plaintiffs' inquiries as to whether the defendants intend topursue an "advice of counsel" defense. The defendants do not intend to pursue such a defense,nor do the defendants intend to put at issue any privileged advice that would result in a waiver ofthe attorney-client privilege .

With regard to your specific inquiries about the Jones Day opinion letters, thesubmission of these letters into evidence will not result in any privilege waiver .' The opinionletters themselves are not privileged . Jones Day provided these letters to Omnicom on theunderstanding that the letters would be (as they were) shared with Omnicom's auditors, who weregiving accounting advice . Because the defendants do not intend to rely on, or put at issue, anyprivileged advice given by Jones Day in connection with these letters, there is no privilege waiveras to that advice .

cc: Geoffrey J. Ritts, Esq .Bonnie Hemenway, Esq .(Jones Day)

Yours sincerely,

F9cey R.

I The fact that it is apparent that Omnicom Group Inc . ("Omnicom") wasrepresented by Jones Day, without disclosure of, or reliance on, privileged advice does not create

any privilege waiver,

M


FORMATION

OF

SENECA INVESTMENTS LLC

Closing

May 2, 2001

1 Transaction Documents Tab

Organization and Opera ting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Schedules to Organization and Operating Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1 Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 3

Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Accounting and Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1 Grant of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 6

Ancillary Documents

Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Reimbursement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Administrative Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . ._ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ._ . . . . . . . . . . . . . . . 9

Stockholder Indemnification Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

D&O Indemnification Agreement (Tierney) . . . . . . . . . . . . . . .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 11

D&O Indemni fication Agreement (Neumann) . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2

Contribution of Communicade PLC Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3

Acknowledgement of Record Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Common Stock Share Subscription Le tter . .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Certificates

Common Stock Ce rt ificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6

Preferred Stock Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 7

NY-1158346v 6


Exhibit Ato Formation of Seneca Investments LLC

ORGANIZATION AND OPERATING AGREEMENT

This Organization and Operating Agreement (this "Agreement"), dated as of May2, 2001, is among Omnicom Group Inc., a New York corporation (" Omnicom"), PegasusE-Services Holdings LLC, a Delaware limited liability company and a direct wholl yowned subsidiary of Pegasus ("Holdings"), and Pegasus Partners 11,-L .P., a Delawarelimited partnership ("P asus" and, together with Omnicom and Holdings, the "Parties") .

RECITALS

A. The Pa rties believe that there are substantial investment opportunities inintemet consultancy and related businesses , and the Parties desire to organize theCompany to pursue certain of those opportunities.

B . On the terms and subject to be conditions herein provided, Pegasus hasundertaken to contribute up to $25 million to the capital of Holdings upon the call of theManager, $12.5 million of which has been or will be funded to Holdings prior to theClosing provided for hereunder.

C. On the terms and subject to the conditions herein provided, Omnicom hasundertaken to effect the Capital Contribution provided for herein, including thecontribution of the Securities and $47 .5 million in cash .

D. Accordingly, the Parties have entered into this Agreement to establish theterms and conditions under which the Company will be organized and will operate .

E. Certain terms used herein with initial capital letters have the meaningsspecified below.

Now, therefore, in consideration of the foregoing and the mutual covenants andagreements hereinafter set forth, the Parties hereto agree as follows .

1 . ORGANIZATIONAL MATTERS

1 .1 . Formation; Name: The formation of Pegasus E-Services Investments LLCas a Delaware limited liability company under the Delaware Limited Liability CompanyAct of 1992, as amended (the "Act"), and all actions taken by the Person who executedand filed its certificate of formation are hereby adopted and ratified, such Person beingan "authorized person" within the meaning of the Act . The name of the Company as ofthe Closing is as specified in the preceding sentence. As promptly as practicable afterthe Closing, the Company will change its name to "Seneca Investments LLC" or anothername approved by the Board .

1 .2 . Governance as if a Delaware Corporation : Except as otherwiseexpressly set forth in the Constituent Documents or as required by law, the Companywill be governed in all respects as if it were a corporation organized under and governedby the Delaware General Corporation Law (the "DGCL"), and the rights of its

NY-1I55258v6


stockholders wi ll be governed by the DGCL and the applicable Constituent Documents,which will be interpreted as if the Company had been a corporation incorporated underthe DGCL and its stockholders were stockholders of such a corporation .Notwithstanding the foregoing:

(a) Except as required by the Act, neither the Charter, any amendmentsthereto nor any other instrument (other than the Certificate of Formation) will berequired to be filed with the Secretary of State of the State of Delaware pursuantto Sections 101, 103, 105, 106, 241 or 242 of the DGCL (any such documentwhich would otherwise be so required to be filed with the Secretary of State ofthe State of Delaware will be filed with the Secretary of the Company) ;

(b) All taxes and fees otherwise payable by the Company pursuant toSection 391 of the DGCL will be determined under and payable solely inaccordance with the Act ;

(c) Directors, officers, controlling Persons (if any) and direct and indirectholders of Common Stock of the Company (collectively, " Holdings Persons ") willnot have any duty, fiduciary or otherwise, to any entity comprising the CompanyGroup, other stockholders or any other Person or any of each of their respectiveAffiliates. Holdings Persons will not be personally liable to any entity comprisingthe Company Group, other stockholders or any other Person for any actual oralleged action or inaction taken or not taken on behalf of any entity comprisingthe Company Group whether arising under or relating to Transaction Documentsor otherwise, except for losses that resulted directly and solely from (1) theintentional breach of the Constituent Documents or (2) an action that a court ofcompetent jurisdiction finally determines in an order or opinion not subject tofurther appeal constituted an intentional and willful violation of law (each a "Non-indemnifiablle Loss") and, in any such case, the Holdings Person will be obligatedonly to return or repay the actual pecuniary benefit it wrongfully received and willnot be liable for any consequential, punitive or other damages ; and

(d) Notwithstanding any other provision hereof, neither the Company norany other Person will be subject to the provisions of DGCL Sections 102(b)(7),144, 145, 154, 160(a), 170, 172, 173, 174, 203 or 282 .

Notwithstanding anything contained herein, the Company, and each entity comprising apart of the Company Group in which the Company has a direct or indirect interest, willmake all necessary elections to be treated as a partnership (or entity disregarded asseparate from its owners) for federal income tax purposes . The preceding sentencedoes not apply to any Issuer to the extent it is presently treated as a corporation forfederal income tax purposes .

1 .3 . Competitive Activities, Etc. : (a) The direct or indirect stockholders,directors and officers of the Company, directly or through Affiliated entities, are or maybe engaged in businesses which may be competitive with the business of the Companyor companies it owns or in which it invests . Nothing herein, in the Act, the DGCL, any

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Constituent Document or otherwise (collectively, the "Applicable Rules") will be deemedto restrict any such direct or indirect stockholder, director, officer or Affiliate of theCompany (collectively, " Company Persons") from engaging in such other businessactivity (regardless of the effects thereof on the Company or companies it owns or inwhich it invests) and, notwithstanding any Applicable Rule to the contrary, in no eventwill any Company Person have any obligation to act or refrain from acting (includingwithout limitation presenting any opportunity or other matter to the Company for it toconsider or pursue or to maintain the confidentiality of, or not use, any confidential orproprietary information) by reason of any relationship with, or actual or alleged duty to,the Company. Each Party agrees that, in any such case, to the extent a court mightotherwise hold that the conduct of such activity is a breach of any Applicable Rule, ithas hereby irrevocably waived any and all rights of recovery it may otherwise have byreason thereof.

(b) Without limiting the generality or effect of any other provision hereof,Omnicom, directly or through Affiliates, may have and may in the future havecommercial relationships with or engage in commercial transactions involving one ormore of the Issuers. Neither Omnicom nor any of its Affiliates will have any liability toany Company Person or member of the Company Group by reason thereof, whetherdirectly or through one or more of the Issuers, on any theory whatsoever, rovided,however, that this limitation will not affect any contractual obligations that Omnicom orany of its Affiliates may have .

1 .4. Liability to Third Parties: Except as otherwise set forth in this Agreementand/or the other Transaction Documents, the debts, obligations and liabilities of theCompany, whether arising in contract, tort or otherwise, will be solely its Jebts,obligations and liabilities and none of its Company Persons will be personally obligatedfor any such debt, obligation or liability or any debt, obligation or liability of any entitycomprising the Company Group or any issuer of the Securities . Except as set forth inthis Agreement and/or the other Transaction Documents, no Holdings Persons shall be(i) liable for any debts, obligations, liabilities whether arising in contract, tort or otherwiseof any other Company Person or (ii) required to loan any funds to the Company .

1 .5. Powers: The Company will possess and may exercise all of the powersand privileges granted by the Act, the DGCL (assuming that the Company were acorporation), any other law or this Agreement, together with any powers incidentalthereto, so far as such powers and privileges are necessary or convenient to theconduct, promotion or attainment of its permitted business purposes or activities .

1 .6 . Initial Directors and Officers : The initial composition of the Board will beas specified on Schedule 1 .6. The authority of the officers of the Company will be asprovided in the Grant of Authority .

1 .7. Company Group Formation : Prior to the Closing, Holdings will cause tobe filed with the proper governmental authorities and/or duly execute, deliver and/oradopt the Constituent Documents for the Company and will receive a certificate

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representing 100% of the authorized shares of Common Stock, such Common Stockhaving the rights and preferences set forth in the Charter.

11 . CAPITALIZATION ; DISTRIBUTIONS ; FEES ; CLOSING

2 .1 . Capitalization, Distributions, Fees, Etc.: On the terms-and subject to theconditions herein, and in reliance on the representations, warranties and covenants setforth herein, at the Closing, the Parties will take or cause to be taken the actionsspecified below:

(a) Other Transaction Documents : At the Closing, the Parties willcause the entities contemplated to be signatories to the agreements listed on Schedule2.1 a to duly execute those documents, each in substantially the form attached toSchedule 2 .1(a) (collectively with any other agreements to which the Company orOmnicom is a party and which are delivered at the Closing, the " Other TransactionDocuments").

(b) Issuance of Preferred Stock: Omnicom will make the OmnicomCapital Contribution, and will receive a certificate representing 100% of the authorizedPreferred Stock, such Preferred Stock having the rights and preferences set forth in theCharter. The transfer of the Securities contributed as a part of Omnicom's CapitalContribution will include all registration and other rights associated with any particularSecurities, as well as any dividends or distributions on or in respect of such Securitiespaid or declared between the date hereof and the date of completion of the transfer ofsuch Securities. Effective as of the Closing, the Company (or any Securities HoldingCompany which is contributed to the Company) will assume only those contractualobligations of the Record Owners in respect of the Securities under the agreementslisted on Schedule 3 .3(b) (unless otherwise indicated thereon and excluding any liabilityfor a breach thereof prior to the Closing) (such assumed obligations, the " AssumedObligations") from and after the completion of the transfer of each such Securities .Without limiting the generality or effect of any other provision hereof, effectiveimmediately prior to the Closing, all Consent Liabilities and all liabilities, obligations andrelated rights in respect of the Securities or otherwise of any Record Owner orSecurities Holding Company (such liabilities and obligations, collectively with theConsent Liabilities, " Excluded Obligations ") other than the Assumed Liabilities, actual orcontingent, will be assumed by OMC E-Services Investments LLC (" OMC Sub"), awholly owned subsidiary of Omnicom . From and after the Closing, Omnicorn will causeOMC Sub to fully perform, pay and discharge all Excluded Liabilities in accordance withtheir respective terms.

(c) Stockholders: As a result of the transactions provided for herein,effective as of the Closing Date, Omnicom and Holdings will be admitted as theCompany's stockholders and will be shown as such on the Company's books andrecords. No other Person will be a stockholder of the Company, and no Capital Stock ofthe Company will be issued, without compliance with the terms and provisions of itsConstituent Documents and the execution by any such Person of a joinder to thi s

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Agreement whereby such Person agrees to be bound by this Agreement and the otherConstituent Documents .

(d) Distributions, Etc.: Distributions and allocations of Net Profits andNet Loss (as those terms are defined in Exhibit C) will be as provided in Exhjbbit C andthe Charter . Each Party represents and warrants that it is aware of the income taxconsequences of such allocations and hereby agrees to be bound by Exhibit C inreporting its share of such Net Profits and Net Loss for income tax purposes .

(e) Certain Fees: Notwithstanding any other provision hereof or of anyother Constituent Document, (1) the total fees payable to Pegasus Capital Advisors,L.P. ("Pegasus Capital ") in respect of the organization and management of theCompany and its operations will not exceed $6 .150 million within the 360 consecutivedays from the Closing Date ($1 .650 million of which amount will be paid at the Closingand $4.5 million of which will be paid on the 360 ' consecutive day following the ClosingDate or, if earlier, immediately prior to the termination of this Agreement or dissolution ofthe Company) plus the fees and expenses (A) contemplated by the ReimbursementAgreement (the form of which is attached to Schedule 2-1(a)) and (B) as set forth inSection 2.1 (f) below and (2) the total fees so payable in respect the management of theCompany's operations for any subsequent year may not exceed $1 .5 million for anysuch year (pro rated as to partial years) or such other amount as may be approved byPegasus Capital and the holders of a majority of the outstanding Preferred Stock . Nofee or other amount paid hereunder will be refundable (regardless of whether or not theperiod to which the fee relates was shortened for any reason, including, withoutlimitation, stockholder action) .

(f) Fees and Expenses: Irrespective of whether the Closing occurs, theCompany hereby agrees to pay and hold each of Pegasus, Pegasus Capital andHoldings harmless from liability for the payment of all reasonable expenses, includingout-of-pocket expenses, incurred by each of Pegasus, Pegasus Capital and Holdings inconnection with the preparation and negotiation of the Transaction Documents and theconsummation of the transactions contemplated thereby, including, but not limited to,the formation of Holdings and any company comprising the Company Group. Except asexpressly provided in Section 2 .1(e), all amounts required to be paid hereunder will bepaid at the Closing or as promptly as practicable thereafter . In the event this Agreementis terminated prior to the Closing, all amounts required to be paid hereunder in suchevent will be paid within five business days of the Company's receipt of an invoiceregarding the same.

(g) Excess Distributions: The Company will not make any ExcessDistribution without the prior written consent of the holders of a majority of the CommonStock, voting as a separate class , and the holders of a majority of the Preferred Stock,voting as a separate class . The Company will make Capital Payments to the holders ofCommon Stock which do not constitute Excess Distributions at the times and in themanner approved by the Board or the Manager .

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(h) Tangible Net Worth : The Company shall at all times maintain atangible net worth (tangible assets minus liabilities) greater than $25 million and a cashor cash equivalent balance of no less than $5 million . Notwithstanding the foregoing,nothing shall prevent the Company from (i) paying the fees, costs and expenses ascontemplated by Sections 2 .1(e) and 2.1(f), the Management Agreement and theReimbursement Agreement, each such agreement in the form attached to Schedule2.1(a), (ii) being dissolved pursuant to the Charter, or (iii) making any redemptionpermitted or required under the Transaction Documents which do not constitute ExcessDistributions ; provided, however, that any fees, costs and expenses earned or accruedbut unpaid under clause (I) will be paid prior to amounts due pursuant to clause (iii) .

2.2. Closing: (a) Subject to the satisfaction or waiver of the conditions set forthin Section 2.2(b), the dosing of the transactions contemplated herein (the "Closing") willtake place on such date (the "Closinct Date"), time and place as may be mutually agreedupon by Pegasus and Omnicom, it being the intent of the Parties that the Closing willoccur on the date hereof or as promptly as practicable thereafter .

(b) The obligations to proceed with the Closing will be subject to thefollowing conditions :

(i) The actions contemplated to have been taken at or prior to the Closingunder Articles I and II hereof, including without limitation the capitalization of theCompany, shall have been so taken ;

(ii) The representations and warranties herein of the other Party made toeither Holdings or Omnicom, as the case may be, including without limitation therepresentations as to capitalization of the Parties, shall be true and correct as ifmade anew, the other Party shall have performed all covenants herei ncontemplated to be performed by it; and

(iii) The consummation of the transactions contemplated by thisAgreement shall not be subject to any injunction, stay or restraining order or thesubject of any action, suit, investigation, arbitration or administrative or otherproceeding (any of the foregoing a "Proceeding") filed by any governmentalauthority.

If any consent or approval under any agreement is required to fully effect the transfer ofany of the Securities contemplated to be transferred hereunder and has not beenobtained prior to the Closing, and the other Closing conditions have been met, thennotwithstanding any other provision hereof the Closing will occur and such Securitiesand all related agreements will be deemed to have been transferred as contemplatedhereby but held in escrow pending receipt of the required consent or approval . Pendingreceipt of such consent or approval, such transferee of such Securities and relatedagreements will receive all of the economic benefits and consequences of ownershipthereof from and after the Closing and Omnicom will make such arrangements as arenecessary to enable the Company to receive all of the economic benefits of suchSecurity or such contractual rights . If the approval of the requisite party is obtained ,

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such approval will automatically constitute a confirmation that such Securities and anyrelated contract were assigned to the Company as of the Closing .

Ill . REPRESENTATIONS AND WARRANTIES OF OMNICO M

Omnicom represents and warrants to Holdings that :

3.1 . Organization and Corporate Power: Each of Omnicom and each RecordOwner is a corporation duly organized, validly existing and in good standing under thelaws of the respective jurisdictions under which it is incorporated . Each of Omnicomand each Record Owner has full legal right, authority and power to enter into andperform this Agreement and the Other Transaction Documents (collectively, the"Transaction Documents") to which it is contemplated to be a party and to carry out thetransactions contemplated hereby and thereby, including making the CapitalContribution .

3.2 . Authorization: The execution, delivery and performance by each ofOmnicom and each Record Owner of each of the Transaction Documents to which it iscontemplated to be a party, including without limitation making the Capital Contribution,has been duly authorized by all necessary corporate action on the part of Omnicom andeach Record Owner. Each Transaction Document to which each of Omnicom and eachRecord Owner is contemplated to be a party upon execution and delivery by each ofOmnicom and each Record Owner will be a valid and binding obligation of each ofOmnicom and each Record Owner, enforceable in accordance with its terms .

3.3 . Non-Contravention : Except for any consents , opink,ns of counsel orjoinder agreements required as a result of the transactions contemplated hereby as setforth on Schedule 3.3(a) (the "Joinder/Administrative Actions"), the execution , deliveryand performance by each of Omnicorn and each Record Owner of the TransactionDocuments to which it is contemplated to be a party , including without limitation makingthe Capital Contribution , do not and will not require any action under , violate or conflictwith or result in a breach of, any agreement , contract , instrument, license , order,regulation or law applicable to Omnicom or any of the Record Owners or by which anyproperty or asset of Omnicom or any Record Holder is bound or affected or requires anyconsent of authorization by, exemption from, filing with or notice to any gove rnmentalentity or any other Person . All of the agreements to which Omnicom or any RecordOwner is a party applicable to the ownership of Securities are listed on Schedule 3.3(b)and neither Omnicom nor any Record Owner is, or upon the comple tion of the CapitalContribution will be, in breach of any such agreement .

3.4. Ownership of Securities, Etc . : Except as set forth in Schedule 3 .4, as ofthe date hereof and the Closing, all of the Securities are owned of record by the RecordOwners and beneficially by Omnicom, in each case, free and clear of any Lien. EachRecord Owner has the full legal right, power and authority to contribute all of itsSecurities in accordance with the terms of this Agreement. Except as set forth inSchedule 3 .4, upon the acquisition of the Securities by the Company, the Company willacquire good title thereto free and clear of any Lien . To the actual knowledge of th e

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executive officers of Omnicom, (a) the Securities contemplated to be contributed to theCompany hereunder represent the percentage interest in the Capital Stock of theissuers thereof specified under the caption "% Ownership" on Schedule I and (b) allsuch Securities have been validly issued and are fully paid and nonassessable .

3-5. Omnlcom: Omnicom owns, directly or through wholly owned subsidiaries,all of the issued and outstanding Capital Stock of each Record Holder free and clear ofany Lien not listed on Schedule 3 .4. Each Record Owner agrees that Omnicom has, byvirtue of its ownership of all of the equity of each Record Owner, the sole power todispose of or direct the disposition of (or to vote or direct the vote of) all of theSecurities . Accordingly, each Record Owner agrees that any action taken by Omnicomin respect of Securities as to which a Record Owner may be the owner of record will bebinding upon such Record Owner.

3.6 . Litigation: There is no Proceeding pending or, to the actual knowledge ofthe executive officers of Omnicom, threatened, against or affecting the Securities,Omnicom, any Record Owner or any of their respective Affiliates before any court orarbitrator or any governmental authority which, if determined or resolved adversely toany such Person, could, individually or when considered together with all other suchmatters, adversely affect the validity of any Transaction Document or the right or abilityof each of Omnicom or any Record Owner to consummate the transactionscontemplated by the Transaction Documents to be consummated by it .

3.7. Liabilities : As of the date hereof, (a) except for liabilities described onSchedule .7 , no Securities Holding Company has any direct or indirect indebtedness,liability, Claim, loss, damage, deficienyy, obligation or responsibility, whether accrued,contingent, absolute, determined, determinable or otherwise, and (b) each SecuritiesHolding Company is solvent and, immediately after giving effect to the transactionscontemplated hereby, will be solvent, and, collectively with the Company, will have atangible net worth (tangible assets minus liabilities) greater than $47 million .

3.8. Certain Tarr Matters: Each of Omnicom, OFI and each Record Ownerhereby represents and warrants that the transactions contemplated by the TransactionDocuments, including but not limited to making the Capital Contribution and thepayment to and receipt of fees by Pegasus Capital, do not constitute a tax shelter withinthe meaning of Section 6111 of the Internal Revenue Code and the TreasuryRegulations thereunder.

3.9 . No Constraints: Giving effect to the transactions contemplated by theTransaction Documents, there are no constraints at law, equity or otherwise that wouldin any manner prevent, hinder, delay or otherwise constrain (a) the return of capital withrespect to the shares of Common Stock or (b) the payment of fees, costs and expensesas contemplated by Sections 2 .1(e) and 2.1(f).

IV. REPRESENTATIONS AND WARRANTIES OF HOLDING S

Holdings represents and warrants to Omnicom that :

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4.1 . Organization and Corporate Power: Holdings is a limited liabilitycompany duly organized, validly existing and in good standing under the laws ofDelaware- Holdings has all requisite limited liability company power to enter into an dperform the Transaction Documents to which it is contemplated to be a party to and tocarry out the transactions contemplated thereby.

4.2. Authorization: The execution, delivery and performance by Holdings of theTransaction Documents to which it is contemplated to be a party to have been dulyauthorized by all necessary limited liability company action on the part of Holdings .Each Transaction Document to which it is contemplated that Holdings will be a partywill, when executed and delivered by Holdings, be a valid and binding obligation ofHoldings, enforceable in accordance with its terms .

4.3 . Non-Contraven tion : The execution, delivery and performance by Holdingsof each Transaction Document to which it is contemplated that Holdings will be a partydo not and will not require any action under, violate or conflict with or result in a breachof, any agreement, contract, instrument, license, order, regulation or law applicable toHoldings .

4.4. Litigation: There is no Proceeding pending or, to the actual knowledge ofthe executive officers of Holdings, threatened against or affecting Holdings before anycourt or arbitrator or any governmental authority which, if determined or resolve dadversely to Holdings could, individually or when considered together with all other suchmatters, adversely affect the right or ability of Holdings to consummate the transactionscontemplated by the Transaction Documents .

4.5 . Ownership of Holdings: Pegasus owns directly or through wholly ownedsubsidiaries all of the issued and outstanding Capital Stock of Holdings . Holdings willhave unrestricted capital of at least $12.5 million prior to the Closing and Pegasus hasunconditionally committed to make capital contributions in cash to Holdings of up to anadditional $12.5 million upon the call of the Manager .

V. COVENANTS

5.1 . Certain Actions: P rior to the Closing , neither Party will take any action thatwould result in a breach of any of its representations and warran ties set fo rth in ArticlesI Il and IV without the p rior written consent of the Party to which such representationsand warranties were made .

5.2 . Further Assurances: Omnicom will and will cause each Record Owner to,without further consideration, execute and deliver further instruments of transfer andassignment and take such other action as may reasonably be required to moreeffectively transfer and assign to, and vest in, the Company or, if directed by theCompany, an E-Services Sub, the Securities to be contributed hereunder (including theJoinder/Administrative Actions) and all rights incidental thereto (including withoutlimitation any registration rights relating to such Securities), and to fully implement theprovisions of this Agreement .

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5.3 . Certain Acknowledgements: The Parties acknowledge and agree, andeach member of the Company Group upon its formation will be deemed without furtheraction to have acknowledged and agreed, that (a) the transfers of interests in theSecurities by a member of the Company Group may be subject to limitations set forth inthe Constituent Documents of the Issuer and the agreements set forth on Schedule3.3(a), (b) certain of the Securities contributed as a part of Omnicorn's CapitalContribution have not been registered under the Securities Act of 1933, as amended(the "Securities Act"), or the securities laws of any state or other jurisdiction and cannotbe disposed of unless they are subsequently registered under the Securities Act andany applicable state laws or an exemption from such federal and state registration isavailable, (c) none of Omnicom, any Record Owner or any other Person has made anyrepresentation or warranty, express or implied, as to the business, financial condition,results of operations or prospects of any Issuer, and (d) the transfer of Capital Stock ofthe Company is subject to limitations on transfer set forth in the Charter .

5.4. Survival of Representations and Warranties : The provisions of ArticlesIII and IV will survive indefinitely, notwithstanding any termination hereof or the Closingof any of the transactions contemplated hereby .

Vi. INDEMNIFICATIO N

6.1 . Indemnification of Pegasus: (a) Right of Indemniflication: Omnicomwill indemnify and hold harmless each of Pegasus, Pegasus Capital, Holdings, theCompany, each entity comprising the Company Group and each of their respectiveAffiliates, partners, members, managers, direct and indirect stockholders, officers,directors, employees, attorneys, advisors, consultants and agents, and any person orentity controlling, controlled by or under common control with, any of the foregoingwithin the meaning of either Section 15 of the Securities Act or Section 20 of theSecurities Exchange Act of 1934, as amended (the " Exchange Act") (each an"Indemnified Party" and collectively, the 'Indemnified Parties"), from and against alllosses, suits, actions, judgments, penalties, fines, claims, liabilities, damages, costs,fees and expenses (including without limitation expenses incurred in connection withinvestigating, preparing or defending any Claim whether or not in connection withpending or threatened litigation in which any Indemnified Party is a party, and attorneys'fees and charges or actions in respect thereof but excluding lost profits or opportunitiesnot specifically referred to in Section 2 .1(e) or 2 .1 (f)) incurred by any Indemnified Party,to the extent relating to, resulting from or arising out of (i) any Assumed Liability orExcluded Obligation, (ii) any inaccuracy in or breach of any of the representations,warranties or covenants made or agreed to by Omnicom or any Record Owner in anyTransaction Document or any breach of any covenant of the Company in anyTransaction. Document, or (iii) any Claim against such Indemnified Party by any Person,including without limitation any governmental authority, but excluding another PegasusParty unless such Pegasus Party incurred a Loss by reason (in whole or in part) of aClaim made against another Person by a Person other than an Pegasus Party, to theextent relating to, resulting from or arising out of (A) any Transaction Document or anyact or failure to act by any Indemnified Party in connection with the transaction s

NY-115525M 10


contemplated hereby or thereby (whether or not the transactions contemplated herebyare consummated) (other than a Non-Indemnifiable Loss) or (B) the acquisition,ownership or transfer of any Securities Holding Company or the Securities, and therights, liabilities and obligations associated therewith and/or any transaction relatedthereto (each such individual occurrence is hereinafter referred to as a "Loss„ andcollectively, as "Losses") . Omnicom will promptly pay each Indemnified Party for allsuch Losses as they are incurred .

(b) Contribution: If the foregoing indemnity is legally unavailable to anyIndemnified Party or insufficient to hold any Indemnified Party harmless, then Omnicomwill contribute to the amount paid or payable by such Indemnified Party as a result ofsuch Loss in such proportion as is appropriate to reflect the relative interest ofOmnicom, on the one hand, and such Indemnified Party, on the other . The relativeinterest of Omnicom, on the one hand, and any Indemnified Party, on the other, will bedetermined by reference to the stated value of the Preferred Stock as of the Closing(regardless of subsequent events or transactions) compared to the value of theindemnified Party's direct equity interest in the Company, or, if it has no such interest,$100. The amount paid or payable by a Party as a result of any Losses will be deemedto include any legal or other fees or expenses incurred by such Party in connection withany action, suit or proceeding. The Parties hereto agree that it would not be just andequitable if contribution pursuant to this paragraph were determined by pro rataallocation or by any other method of allocation other than the agreed to equitableconsiderations referred to above .

(c) Limitation on Indemnity or Contribution: No Indemnified Party willbe entitled to indemnity or contribution hereunder in respect ci a Loss it incurs thatdirectly and solely resulted from an action by the Indemnified Party which a court ofcompetent jurisdiction finally determines in an order or opinion not subject to appealconstituted an intentional and willful violation of law by the Indemnified Party . Pendingsuch final judicial determination, the provisions of Sections 6.1(a) and 6.1(b) will apply .

(d) Procedure for Claims : (i) Notice of Claim: After obtainingknowledge of any claim or demand which has given rise to a claim for indemnificationunder this Article VI (referred to herein as an " Indemnification Claim"), an IndemnifiedParty will give written notice to Omnicom of such Indemnification Claim ('Notice ofClaim"), provided , however , that the failure to give the Notice of Claim to Omnicom willnot relieve Omnicom from any liability that it may have to an Indemnified Partyhereunder unless and only to the extent that Omnicom suffers a default judgment byreason of such failure . The Indemnified Party will furnish to Omnicom such information(in reasonable detail) as it may have in its actual possession or control with respect tosuch indemnification Claim (including copies of any summons, complaint or otherpleading which may have been served on it and any written claim, demand, invoice,billing or other document evidencing or asserting the same) .

(ii) Third-Party Claim: If the claim or demand set forth in the Notice ofClaim is made against an Indemnified Party by a third party (a "Third-Party Claim")Omnicom will have 15 calendar days after the Notice of Claim is given (the " Notice

NY•1155258v6 1 1


Date") to notify the Indemnified Parties in writing of the election by Omnicom to defendthe Third-Party Claim on behalf of the Indemnified Parties ; provided, however, thatOmnicom will be entitled to assume the defense of any such Third-Party Claim only if itunconditionally and irrevocably undertakes to indemnify all indemnified Parties inrespect thereof (subject to any applicable limitations set forth in this Section 6 .1) .

(iii) Settlements: In no event may Omnicom settle or compromise anyThird-Party Claim without the Indemnified Parties' consent, which consent may not beunreasonably withheld or delayed .

(iv) Defense: If Omnicom elects to defend a Third-Party Claim, theindemnified Parties will still have the right, if they so elect, to participate in the defenseof the Third-Party Claim at the Indemnified Parties' expense. If Omnicom does not electto defend a Third-Party Claim, or does not defend a Third-Party Claim in good faith, theIndemnified Parties will have the right, in addition to any other right or remedy it mayhave hereunder, at the sole and exclusive expense of Omnicom, to defend suchThird-Party Claim . Notwithstanding any other provision hereof, no Indemnified Party willhave any obligation to participate in the defense of or to defend any Third-Party Claimand no indemnified Parties' defense of, or their participation in, the defense of anyThird-Party Claim will in any way diminish or lessen their right to indemnification asprovided in this Agreement

6.2. Non-Exclusivity of Contractual Indemnification : The rights of anyIndemnified Party hereunder will not be exclusive of the rights of any Indemnified Partyunder any other agreement or instrument, including without limitation any otherTransaction Document. Nothing in such other agreement or instrument will beinterpreted as limiting or otherwise adversely affecting an Indemnified Party's rightshereunder or under any such other agreement or instrument ; provided, however, that noIndemnified Party will be entitled hereunder or thereunder to recover more than itsactual Losses. The indemnity, contribution and expense reimbursement obligation ofOmnicom in this Agreement will be in addition to any liability Omnicom may otherwisehave. The obligations of Omnicom to each Indemnified Party will be separateobligations, and the liability of Omnieom to any Indemnified Party will not beextinguished solely because any other Indemnified Party is not entitled to indemnity orcontribution hereunder.

6.3 . Survival of Indemnification: The provisions of this Article VI will surviveindefinitely, notwithstanding any termination hereof or the Closing of any of thetransactions contemplated hereby .

VII. GENERAL

7.1 . Amendments, Waivers and Consents: For the purposes of thisAgreement , no course of dealing between or among any of the Parties and no delay onthe part of any Party in exercising any rights hereunder or thereunder will operate as awaiver of the rights hereof and thereof . No provision hereof may be waived other thanby a written instrument signed by the party or pa rt ies so waiving such covenant or other

NY-1155258v6 12


provision . No amendment to this Agreement or the Company's Constituent Documentsmay be made without the written consent of Omnicom (on behalf of itself and theRecord Owners) and Pegasus (on behalf of itself and Holdings).

7.2. Governing Law: This Agreement will be deemed to be a contract madeunder, and will be construed in accordance with, the laws of the State of Delawarewithout giving effect to conflict of laws principles thereof.

7.3. Notices and Demands : Any notice or demand which is required orpermitted to be given under this Agreement must be given, and will be deemed to havebeen sufficiently given for all purposes of this Agreement, on the date delivered by handor distributed by fax or e-mail prior to 5 :00 p.m., Eastern Standard Time (otherwise,such notice will be deemed received on the next succeeding business day in the placeof receipt), or the next business day after being sent by overnight delivery by areputable overnight courier service providing receipt of delivery, to the principalexecutive offices of Pegasus (on behalf of itself and Holdings) or Omnicom (on behalf ofitself and all the Record Owners) .

7 .4. Remedies; Severability: It is specifically understood and agreed that anybreach of the provisions of this Agreement by any person subject hereto will result inirreparable injury to the other parties hereto, that the remedy at law alone will be aninadequate remedy for such breach and that, in addition to any other remedies whichthey may have, such other parties may enforce their respective rights by actions forspecific performance (to the extent permitted by law) . Whenever possible, eachprovision of this Agreement will be interpreted in such a manner as to be effective andvalid under applicable law, but if any provision of this Agreement is deemed prohibitedor invalid under such applicable law, such provision will be ineffective to the extent ofsuch prohibition or invalidity, and such prohibition or invalidity will not invalidate theremainder of such provision or the other provisions of this Agreement .

7.5. Integration : This Agreement, including the Exhibits and Schedules referredto herein or therein or attached thereto (each of which is a part of this Agreement andthe Other Transaction Documents), constitutes the entire agreement, and supersedesall other prior agreements and understandings, both written and oral, among the partieswith respect to the subject matter hereof.

7 .6 . Assignability; Binding Agreement: This Agreement may not beassigned , in whole or in part, by any Party, nor may any obligation hereunder bedelegated to a third party, in either case without the prior written consent of the otherParties. This Agreement will be binding upon and enforceable by, and will inure to thebenefit of, the Parties and their respective successors, heirs, executors, administratorsand permitted assigns , and no others. Except for Indemnified Parties and theCompany, each of whom is an intended third-party beneficiary of Omnicom'srepresentations, warranties and covenants applicable to it hereunder, nothing in thisAgreement is intended to give any other Person not named herein the benefit of anylegal or equitable right, remedy or claim under this Agreement .

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7.7. Termination : This Agreement will terminate upon the dissolution of theCompany pursuant to the Charter or may be terminated at any time by the mutualconsent of Pegasus and Omnicom hereto and in all events will terminate without furtheraction unless the Closing has occurred on or prior to July 31, 2001 . In the event of atermination of this Agreement pursuant to this Section 7 .7, all obligations of the Partieswill terminate, other than the provisions of Article VI, Article VII and Section 2.1(f). Inthe event of the dissolution or liquidation of the Company pursuant to the Charter, allobligations of the Parties will terminate, other than (i) any obligation to pay fees, costsand expenses earned or accrued but unpaid as of the date of termination under anyTransaction Document and (ii) the provisions of Article VI, Article VII, Sections 2 .1(e)and 2.1(f), the Stockholders Indemnification Agreement and the D&O IndemnificationAgreement, each such agreement in the form attached to Schedule 2 .1(a).

7.8. Counterparts : This Agreement may be executed simultaneously in two ormore counterparts (including facsimile copies), any one of which need not contain thesignatures of more than one Party, but all such counterparts taken together willconstitute one and the same Agreement .

7.9. Jurisdiction; Consent to Service of Process: (a) Each Party herebyirrevocably and unconditionally submits, for itself and its property, to the exclusivejurisdiction of the New York state court located in the Borough of Manhattan, City ofNew York or the United States District for the Southern District of New York (asapplicable, a "New York Court'), and any appellate court. from any such court, in anysuit, action or proceeding arising out of or relating to any Transaction Document, or forrecognition or enforcement of any judgment resulting from any such suit, action orproceeding, and each Party hereby irrevocably and unconditionally agrees that allclaims in respect of any such suit, action or proceeding may be heard and determined inthe New York Court .

(b) It will be a condition precedent to each Party's right to bring any suchsuit, action or proceeding that such suit, action or proceeding, in the first instance, bebrought in the New York Court (unless such suit, action or proceeding is brought solelyto obtain discovery or to enforce a judgment), and if each such court refuses to acceptjurisdiction with respect thereto, such suit, action or proceeding may be brought in anyother court with jurisdiction .

(c) No Party may move to (i) transfer any such suit, action or proceedingfrom the New York Court to another jurisdiction, (ii) consolidate any such suit, action orproceeding brought in the New York Court with a suit, action or proceeding in anotherjurisdiction unless such motion seeks solely and exclusively to consolidate such suit,action or proceeding in the New York Court, or (iii) dismiss any such suit, action orproceeding brought in the New York Court for the purpose of bringing or defending thesame in another jurisdiction .

(d) Each Party hereby irrevocably and unconditionally waives, to thefullest extent it may legally and effectively do so , (i) any objection which it may now orhereafter have to the laying of venue of any suit, action or proceeding arising out of or

NY-1155258v6 1 4


relating to this Agreement in the New York Court, (ii) the defense of an inconvenientforum to the maintenance of such suit, action or proceeding in the New York Court, and(iii) the right to object, with respect to such suit, action or proceeding, that such courtdoes not have jurisdiction over such Party. Each Party irrevocably consents to serviceof process in any manner permitted by law. Notwithstanding the foregoing, this Section7.9 will not apply to any suit, action or proceeding by a Party seeking indemnification orcontribution pursuant to this Agreement or otherwise in respect of a suit, action orproceeding against such Party by a third party if such suit, action or proceeding by suchParty seeking indemnification or contribution is brought in the same court as the suit,action or proceeding against such Party .

7.10. WAIVER OF JURY TRIAL : EACH OF THE PARTIES HERETOIRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT,AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THETRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATEDTHEREBY .

7.11 . No Strict Construction: The Parties hereto have participated jointly inthe preparation of the Transaction Documents . In the event an ambiguity or question ofintent or interpretation arises, any provision contained in the Transaction Documents willbe construed as if drafted jointly by the Parties hereto, and no presumption or burden ofproof will arise favoring or disfavoring any Party by virtue of the authorship of any of theprovisions of the Transaction Documents .

7.12 . Certain Other Interpretive Matters : (a) Titles and headings to Sectionsherein are inserted for convenience of reference only, and are not intended to be a partof or to affect the meaning or interpretation of this Agreement .

(b) Unless the context otherwise requires, (i) all references to Articles,Sections or Schedules are to Articles, Sections or Schedules of this Agreement, (ii)each term defined in this Agreement has the meaning assigned to it, and (iii) eachaccounting term not otherwise defined in this Agreement has the meaning assigned to i tin accordance with GAAP . All references to "$" or dollar amounts are references tolawful currency of the United States of America .

7 .13 . Expenses: Except as otherwise provided herein, each party hereto shallpay and be responsible for all expenses and fees (" Deal Costs") that it may incur inpreparation for the consummation of the transactions contemplated hereby, provided,however, that if the Closing occurs, all Deal Costs incurred by or on behalf of a Partywill be paid or reimbursed by the Company .

7.14. Definitions : For purposes of this Agreement, in addition to the termsdefined elsewhere herein, the following terms have the following meanings when usedherein with initial capital letters :

NY-1155258v6 15


"Affiliate " of a Person means (i) with respect to an individual, any memberof such person's family, (ii) with respect to an entity, any officer, director, direct orindirect shareholder, partner or permitted transferee in such entity or of or in any affiliateof such entity, and (iii) with respect to an individual or entity, any Person or entity whichdirectly or indirectly controls, is controlled by, or is under common control with (within

0 the meaning of either Section 15 of the Securities Act or Section 20 of the ExchangeAct) such Person or entity. Without limiting the foregoing, with respect to Pegasus, theterm "Affiliate " includes officers, directors, employees, agents, attorneys, advisors,consultants of Pegasus Partners II, LP and its partners, advisors and managers .

"Assumed Liabilities" means all Assumed Obligations plus any amounts0 payable under Section 2.1(e) or 2.1(f) or any agreement or instrument referred to

therein .

"Board " means the Company's Board of Directors .

'Bylaws' means the Company's bylaws, attached as Exhibit B .0

0

"Capital Contribution" means, in the case of Omnicom, the contribution ofthe entire ownership interest of Omniicorn and any of its subsidiaries in and to theSecurities and the rights associated therewith, plus $47.5 million in cash.Notwithstanding any other provision hereof, in lieu of directly contributing the Securitiesand associated rights to the Company, Omnicorn may, with the consent of Pegasus(such consent not to be unreasonably withheld and will be deemed given if the Closingoccurs), contribute to the Company all of the Capital Stock of one or more limitedliability companies or limited partnerships that are wholly owned direct or indirectsubsidiaries of Omnicom and own all such Securities and the rights associatedtherewith (a "Securities Holding Company"), in which event, without further action, (I) theimmediate parent company of the Securities Holding Company will be deemed to be theRecord owner hereunder for purposes of this Agreement, (ii) the term "Securities" willbe deemed to include all of the Capital Stock of each Securities Holding Company forpurposes of this Agreement, (iii) the term "Losses" will be deemed to include any and allliabilities, actual or contingent, known or unknown, of the Securities Holding Companyas of immediately prior to the Closing, and (iv) any indebtedness of the SecuritiesHolding Company or any of its subsidiaries to Omnicom or any of its other subsidiaries("Intercompany Debt") will be deemed for all purposes to have been contributed to thecapital of the Securities Holding Company (or repaid by such Securities HoldingCompany) and all such Intercompany Debt will be deemed without further action to befully discharged, each as of immediately prior to the Closing .

"Capital Payment" means a dividend, distribution, redemption, return ofcapital, repurchase or other event on or in respect of the Capital Stock of the Companyexcluding fees, costs and expenses .

"Capital Stock' includes all equity interests of any Person, includingcommon stock, preferred stock, membership interests, partnership interests and allother equity interests of any kind .

NY- 155258v6 1 6


"Charted' means the Company's charter, attached hereto as Exhibit A.

"Claim" means any potential, threatened, pending or completed claim,action, suit or proceeding, or any inquiry or investigation, whether instituted, made orconducted by the Company or any other party, including without limitation an ygovernmental entity, and including without limitation any such claim, action, suit orproceeding, inquiry or investigation that the Indemnified Party determines might lead tothe institution of any such claim, action, suit or proceeding, whether civil, criminal,administrative, arbitrative, investigative or other .

"Common Stock" means membership interests of the Company issuedpursuant to its Constituent Documents which will be designated as "common stock" forpurposes of the Transaction Documents .

"Company" means Pegasus E -Services Investments LLC .

"Company Group" means the Company, each E-Services Sub and eachSecurities Holding Company (if any) .

"Conflict-of-interest-Transaction " means (1) any transaction between theCompany or any of its subsidiaries (excluding any Issuer), on the one hand, andPegasus, any subsidiary or Affiliate of Pegasus (other than the Company and itssubsidiaries) or any officer, director, employee, shareholder or Affiliate of any of theforegoing, or in which any of the foregoing have a direct or indirect interest, on the otherhand, or which would be required to be disclosed if Section 402 of Regulation S-K of theSecurities Act applied to the Company (disregarding for this purpose any dollarthresholds), except for such of the foregoing as are provided hereunder or in anyTransaction Document, and (2) the appointment or election of any individual as anofficer of the Company.

"Consent Liabilities" means any Losses relating to, resulting from orarising out of the failure to obtain any consent or approval required to be obtained byany Record Owner or Securities Holding Company in order to effect any of thetransactions contemplated hereby .

"Constituent Documents " of an entity means the entity's certificate ofincorporation or formation, operating agreement, charter, bylaws and other documentspursuant to which the entity was legally formed and, as applied to the Company, thisAgreement and Exhibits A , B, C and D.

"E-Services Subs" means E-Services Investments Agency Sub LLC,E-Services Investments Organic Sub LLC, E-Services Investments Razorfish Sub LLCand E-Services Investments Private Sub LLC, each a Delaware limited liabilitycompany, and each other entity that constitutes a subsidiary of the Company underGAAP_

" Excess Distribu tion" means a Capital Payment which, when considered inthe aggregate with all distributions , dividends , purchases and other events to such date

NY-1155258v6 17


(excluding fees, costs and expenses), would result in either Omnicom or Holdings andtheir respective transferees (and any respective subsequent transferees) havingreceived, in respect of Preferred Stock, more than the Liquidation Preference Amount(assuming all dividends had accrued until the tenth anniversary of the date hereof andhad remained unpaid) and, in respect of Common Stock, more than the aggregate cashcapital contributions of Holdings in the Company plus, but only as applicable to any one-year period beginning after the first anniversary of the date hereof, a 25% annual rate ofreturn (compounded annually but excluding the Company's first year of operations)thereon for the period of time such capital remained invested in the Company.

"GAAP" means United States generally accepted accounting principles,consistently applied .

"Grant of Authority" means the authority specified in Exhibit D within whichofficers of the Company have authority to act on behalf of the Company withoutobtaining further approval of either the Board or the stockholders .

Schedule 1 ."Issuers" means the issuers of the Securities designated as such as o n

"Lien" means any lien, claim, option, charge, pledge, security interest,voting agreement, trust, encumbrance, right or restriction of any nature. -

"Manager" means the manager of Holdings .

"Pegasus Party" means Pegasus, Pegasus Capital, Holdings and each oftheir respective partners, members, managers, officers, directors and employees . Forthe avoidance of doubt, the term "Pegasus Party' shall not include the Company, anyentity comprising the Company Group or Omnicom, or any of their respective Affiliates(other than Pegasus, Pegasus Capital and Holdings), partners, members, managers,direct and indirect stockholders (other than Pegasus, Pegasus Capital and Holdings),officers, directors, employees, attorneys, advisors, consultants and agents .

"Person" means an individual, corporation, partnership, limited liabilitycompany, association, trust or any unincorporated organization .

"Preferred Stock" means the preferred membership interests in theCompany having the terms set forth in its Constituent Documents and which will bedesignated as "preferred stock" for purposes of the Transaction Documents .

"Record Owners" means the record owners of the Securities designatedas such on Schedule 1 .

"Securities" means the Securities listed on Schedule 1 .

[Signature page follows]

NY-1155258v6 1 8


I

i

1

Confidentia l

03-04-Di D7 :50sm Fran-D4tlIC t GROUP I NC212-817-6969 3-044 P.003AIZ F-531

T-031 P.002 T-51 i

Ex+sctjted as ofthe date first above written .

OMNICOM GROUP INC .

five Vice President

PEGASUS E-SERVICES HOLDINGS LLC

Bp_ Pegasus Partners 11, L.P., itsManaging Member

By:_ Pegasus Investors 11 , LP., itsGeneral Partner

By: Pegasus Investors II OP. LLC, itsGeneral Partner

By.Vice President

PEGASUS PARIWERS II, LP .

By: Pe~gssus Investors II, I-P., itsGeneral Partner

By. Pegasus Investors If GP. LLC, itsGeneral Partner

By.Vice President

Wv 7,ea28Ave

OMC*0006005

i

MAY-03-02 22 .13 FROM. 10 .20241SE271 PACE 2/4

E)wQ( as of d above wrtffen.

OMNICOM GROUP INC.

/

/

/

NY-'115S25Wv6

Fi re \ Ace

PEGASUS ESERVICES HOLDINGS LLC

By: Pegasus Partners 11, LP., iteManaging Member

By: Pegasus investors q , L.P., itsGeneral Partrw

6y: Pegasus bwesbots 11 GP, LLC, asGeneral Partner

ST. -e:~7~ , ~ ~~

Vice Pregiderd

PEGASUS PARTNERS tl, LP.

By: Pegasus Investors it, LP., ItsGeneral Partner

By. Pegasus Irwe to 11 GP. MC, itsGeneral Parbier

By. 6~2e. Ix ~~Mvim President


EXHIBITS

Charter of the Company. . . . . . . . . . . . . . . .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ABylaws of the Company . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . :. . . . . . . . . . .. . BAccounting and Tax Matters . . . . . . . . .. ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . CGrant of Authority . . . . . . . . . . . . . . . . . . . . . . . . . .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . : . . . . . . . . . . . . . . . . D

SCHEDULES

Ownership of Securities . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... .. . .1Initial Directors and Officers . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . .1 .6other Transaction Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)Consents and Joinder/Administrative Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3(a)Omnicom Agreements . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 3.3(b)Certain Claims . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . .3 .4Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 .7

MY-1 155258v6


Schedule 1 .6

INITIAL DIRECTORS AND OFFICER S

1

1

NY-i155258v6

Confidential

PersonMichael TierneyGerard Neumann

OfficeDirector & Chief Executive OfficerVice President, Chief Financial

Officer, Treasurer & Secretary

OMC*0006011

0 Schedule 3.7

CERTAIN LIABILITIE S

Effective as of the Closing, the below-listed individuals will become employees ofthe Company with compensation and benefits that, in the aggregate, are no lessfavorable to them than those applicable to them with their prior employers (except forstock options and other equity rights, including participation in any stock purchaseplans) :

0 Michael TierneyGerard NeumannJared SolomonNicole Blont

1

1

I

i

0

i

NY-1155258v6


Exhibit Bto Formation of Seneca Investments LLC

ADMINISTRATIVE SERVICES AGREEMEN T

This Administrative Services Agreement, effective as of May 2, 2001 (this" Agreement"), is made by and among Omnicom Group Inc., a New York corporation("Provider"), Pegasus E-Services Investments LLC, a Delaware limited liability company(investments"), and Pegasus E-Services Holdings LLC, a Delaware-limited liabilitycompany ("Holdings") (each of Holdings and Investments , a "Company ") .

RECITAL

Each Company desires to engage Provider to provide, and Provider agrees toprovide to each Company, the Services (as defined below) .

Now, therefore, the parties hereto hereby agree as follows :

I. SERVICES

1 .1 . Provision of Services, Office Facilities and Employees : On the termsand subject to the conditions set forth herein, Provider will offer and provide, or willcause its affiliates to offer and provide, to each Company the services on ExhibitAhereto to which such Company and Provider from time to time agree in connection withthe business operations of the relevant Company (the " Services"), provided that(a) such requested services are comparable to activities regularly engaged in byProvider in the conduct of Its own business or services and regularly provided byProvider to its wholly owned subsidiaries and (b) the provision of such requestedservices does not require Provider to make unbudgeted capital expenditures, to hireadditional personnel or otherwise to take any action it would not have taken in theordinary course of business had this Agreement not been in effect. Provider may useits employees or independent contractors or consultants to provide the Services.

1 .2 . Payment for Services: Provider will bill each Company monthly in arrears(or such other period as the parties may agree from time to time) for the Servicesprovided by Provider pursuant to this Agreement, which billings will be in amounts whichare sufficient to reimburse Provider for its fully allocated costs of providing suchServices (including fully allocated costs of personnel), but which do not provide Providerwith any profit in respect thereof . For the avoidance of doubt, in calculating the "fullyallocated costs" of time spent by personnel, the number of hours estimated to be spentby such personnel in any calendar month will be multiplied by an amount equal to 135%of the actual cash compensation (including a pro rata bonus calculation based on theprior year's bonus) and cost of benefits of such personnel . Each Company will pay orcause to be paid in full in United States dollars the amounts reflected in such billings asbeing due to Provider within 15 calendar days following such Company's receiptthereof.

II. INDEMNIFICATION AND DISCLAIME R

2.1 . Indemnification : Provider will indemnify and hold harmless eachCompany, their respective affiliates and its and their respective direct and indirec t

NY-1 153856V6


stockholders, directors, members, partners, officers, employees, agents and assigneesand will pay all losses, damages and out-of-pocket costs (including without limitationreasonable attorneys' fees and charges) incurred by them or any of them in any third-party action, suit, proceeding or claim (" Claim") to the extent based upon, relating to orarising out of Provider's provision of any of the Services . The relevant Company willpromptly notify Provider in writing of any such Claim. -

2.2. Limitation on Indemnification : To the extent a Claim is based upon,related to or arises out of Provider's provision of any Services, Provider will not be liablehereunder to either Company for any special, direct, incidental, consequential orpunitive damages, even if advised of the possibility thereof, whether foreseen orunforeseen, foreseeable or unforeseeable . The foregoing limitations of liability willapply regardless of the cause of action under which such damages are sought,including without limitation breach of contract, negligence, strict liability or other tort .

2.3. Exclusivity: The rights and remedies of the parties provided in thisAgreement are exclusive. No party will be entitled to any other rights or remediesprovided at law or in equity .

III. GENERAL

3.1 . Default: If at any time any party is in Material Breach of this Agreement,the other party will have the right to terminate this Agreement without further notice ordemand. "Material Breach " means a material failure of performance of a party' sobligations under this Agreement, if such failure remains uncured 30 calendar days afterreceipt of written notice of the failure .

3.2. Term: The initial term of this Agreement will be for a period of one year andwill be automatically renewed for additional one year periods, unless earlier terminated .Either Company may terminate this Agreement at any time upon at least 30 calendardays' prior written notice . Provider may terminate this Agreement upon at least 30calendar days' prior written notice after Provider and its affiliates no longer own capitalstock of either Company.

3.3 . Successors and Assigns: This Agreement will inure to the benefit of theparties hereto and their respective successors and permitted assigns . Rights andduties hereunder may not be assigned or delegated by Provider or by either Companywithout the prior written consent of the other, which consent will not be unreasonablywithheld .

3.4 . Relationship of Parties: Nothing herein will be construed to create anyrelationship of employer and employee, agent and principal, partnership or joint venturebetween the parties. Provider is an independent contractor . Neither party will assume,either directly or indirectly, any liability of or for the other party or any other duty to theother party, except as expressly provided herein . Neither party will have the authority tobind or obligate the other party and neither party will represent that it has such authority .

NY-1153856v6 2


3.5_ Notices: For all purposes of this Agreement, all communications, includingwithout limitation notices, consents, requests or approvals, required or permitted to begiven hereunder will be in writing and will be deemed to have been duly given whenhand delivered or dispatched by electronic facsimile transmission (with receipt thereofconfirmed), or five business days after having been mailed by United States registeredor certified mail, return receipt requested, postage prepaid or one business day afterhaving been sent for next-day delivery by a nationally recognized overnight courierservice, addressed to Provider and to each Company at the address shown on thesignature page hereto, or to such other address as any party may have furnished to theother in writing and in accordance herewith, except that notices of changes of addresswill be effective only upon receipt .

3.6. Severability: The illegality, invalidity or unenforceability of any part of thisAgreement will not affect the legality, validity or enforceability of the remainder of thisAgreement . If any part of this Agreement is found to be illegal, invalid or unenforceable,then this Agreement will be given such meaning as would make this Agreement legal,valid and enforceable in order to give effect to the intent of the parties .

3.7. Governing Law: This Agreement will be deemed to be a contract madeunder, and will be construed in accordance with, the laws of the State of Delaware,without giving effect to conflict of laws principles thereof.

3.8. Jurisdiction; Consent to Service of Process: (a) Each party herebyirrevocably and unconditionally submits, for itself and its property, to the exclusivejurisdiction of the New York state court located in the Borough of Manhattan, City ofNew York or the United States Distract for the Southern District of New York (asapplicable, a New York Court), and any appellate court from any such court, in anysuit, action or proceeding arising out of or relating to this Agreement, or for recognitionor enforcement of any judgment resulting from any such suit, action or proceeding, andeach party hereby irrevocably and unconditionally agrees that all claims in respect ofany such suit, action or proceeding may be heard and determined in the New YorkCourt.

(b) It will be a condition precedent to each party's right to bring any such suit,action or proceeding that such suit, action or proceeding, in the first instance, bebrought in the New York Court (unless such suit, action or proceeding is brought solelyto obtain discovery or to enforce a judgment), and if each such court refuses to acceptjurisdiction with respect thereto, such suit, action or proceeding may be brought in anyother court with jurisdiction; provided that the foregoing will not apply to any suit, actionor proceeding by a party seeking indemnification or contribution pursuant to thisAgreement or otherwise in respect of a suit, action or proceeding against such party bya third party if such suit, action or proceeding by such party seeking indemnification orcontribution is brought in the same court as the suit, action or proceeding against suchparty .

(c) No party may move to (i) transfer any such suit, action or proceeding fromthe New York Court to another jurisdiction, (ii) consolidate any such suit, action o r

NY-1153856v6 3


proceeding brought in the New York Court with a suit, action or proceeding in anotherjurisdiction, or (iii) dismiss any such suit, action or proceeding brought in the New YorkCourt for the purpose of bringing the same in another jurisdiction .

(d) Each party hereby irrevocably and unconditionally waives, to the fullestextent it may legally and effectively do so, (i) any objection which it may now orhereafter have to the laying of venue of any suit, action or proceeding arising out of orrelating to this Agreement in the New York Court, (ii) the defense of an inconvenientforum to the maintenance of such suit, action or proceeding in any such court, and (iii)the right to object, with respect to such suit, action or proceeding, that such court doesnot have jurisdiction over such party. Each party irrevocably consents to service ofprocess in any manner permitted by law.

3.9. Force Majeure: If Provider is unable to perform any of its covenants orobligations under this Agreement as a result of causes beyond its control, includingwithout limitation acts of God or government, earthquake, fire, flood, severe weather,civil disturbance or unrest, war or other armed hostilities and labor strife, then Provider(a) will not be deemed to be in breach or default of such covenants or obligations duringthe continuance of such events which rendered it unable to perform such covenants orobligations and for such period of time thereafter as may be reasonably necessary forthe resumption of the performance of the same and (b) will not incur any liability toeither Company or any other person or entity for such nonperformance or anyconsequences thereof.

3 .10. Waiver: Provider or either Company by written notice to the other may(a) extend the time for performance of any of the obligations or other actions of theother under this Agreement, (b) waive compliance with any of the covenants of the othercontained in this Agreement, or (c) waive or modify performance of any of theobligations of the other under this Agreement . Except as provided in the immediatelypreceding sentence, no action taken or not taken pursuant to this Agreement will bedeemed to constitute a waiver of any breach of any covenant contained in thisAgreement and will not operate or be construed as a waiver of any subsequent breach,whether of a similar or dissimilar nature .

3.11 . Entire Agreement: This Agreement, together with the TransactionDocuments (as defined in the Company's Organization and Operating Agreement),supersedes all prior oral and written understandings and agreements between theparties concerning the subject matter hereof and may not be modified except in awriting signed by the authorized representatives of the parties hereto .

3.12 . Amendments, Supplements, Etc: This Agreement may be amended orsupplemented from time to time by additional written agreements signed by Providerand each Company. No action or course of dealing will be deemed to amend thisAgreement in any respect unless set forth in a writing and signed by Provider and eachCompany.

NY-1153856v6 4


1

3.13. Headings: The headings to the Articles, Sections and subsectionscontained herein are for identification purposes only and are not to be construed as partof this Agreement.

3.14. Counterparts: This Agreement may be executed in one or morecounterparts, each of which shall be deemed to be an original, but all of which togethershall constitute one and the same instrument .

(Remainder of page intentiona lly left blank)

1

1

NY-1153856v6 5


IN WITNESS WHEREOF , the parties hereto have duly executed this Agreementeffective as of the date first above written .

OMNMCOM GROUP INC.

By:ive Vice President

Notice Address:

437 Madison AvenueNew York, NY 10019Attn: Randall J . WeisenburgerFacsimile No .: (212) 817-655 1

1 PEGASUS E-SERVICESINVESTMENTS LL C

By:1 Sole Director, ref E)Pcutive Officer

Notice Address:

1

437 Madison AvenueNew York, New York 10022Attn : Michael P . TierneyFacsimile No.: (212) 415-3369


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SERVICES

11 . Bookkeeping, accounting and internal auditing services.

2. Tax-related serv ices , including the preparation of required tax returns .

EXHIBIT A

3. Office space and related support for such personnel formerly dedicated to thebusiness of Communicade Inc . and hired by either Company, provided thatInvestments reimburses Omnicom (or an affiliate thereof) for the relevant portion ofall direct and indirect costs incurred in connection therewith and all costs of refittingor separating such space from other space .

4. Employee benefits which under the terms of the relevant plans may be extended toCompany employees .

5. Such other services as either Company may from time to time request and Providermay agree to provide (Provider hereby undertaking so to agree, subject to thisAgreement, if it provides the requested services to one or more subsidiaries in theordinary course of business) .

1

NY-1153856x6


Exhibit Cto Formation of Seneca Investments LLC

Exhibit C

ACCOUNTING AND TAX MATTER S

I . DEFINED TERMS

1 .1 . Definitions: Capitalized terms used herein but not de fined have themeanings set forth in the Company 's Organization and Operating Agreement (the "j,LCAareement"). In addition to capitalized terms defined elsewhere herein , the followingterms have the meanings indicated below when used herein with initial capital letters:

"Adiusted Capital Account Deficit' means, with respect to any Stockholder,the deficit balance, if any, in such Stockholder's Capital Account as of the end of therelevant Fiscal Year, after giving effect to the following adjustments: (i) credit suchCapital Account any amounts which such Stockholder is obligated to restore pursuant tothe penultimate sentences of Regulations Sections 1 .704-2(gx1) and 1 .704-2(i)(5) and(ii) debit such Capital Account the items described in Regulations Sections 1 .704-1(b)(2biii)(d)(4), 1 .704-1 (b)(2)(ii)(d)(5) and 1 .704-1 (b)(2)(ii)(d)(6). The foregoingdefinition of Adjusted Capital Account Deficit is intended to comply with the provisions ofSection 1 .704-1(b)(2)(ii)(d) of the Regulations and will be interpreted consistentlytherewith .

"Book Basis' of an asset means, wi th respect to any asset of theCompany, the adjusted basis of the asset for federal income tax purposes , except asfollows :

(a) The initial Book Basis of any asset contributed by a Stockholder to theCompany will be the gross fair market value of such asset, as determined by theStockholders, and consistent with the foregoing, the Stockholders agree that thefair market value of each of the Securities is equal to the adjusted tax basi sthereof in the hands of the contributors of such Securities immediately prior totheir contribution to the Company;

(b) The Book Basis of all assets of the Company will be adjusted to equaltheir respective gross fair market values (taking Code Section 7701(g) intoaccount), as determined by the Stockholders as of the following times : (i) theacquisition of an additional interest in the Company by any new or existingStockholder in exchange for more than a de minimis capital contribution ; (ii) thedistribution by the Company to a Stockholder of more than a de minimis amountof property as consideration for an interest in the Company ; and (iii) theliquidation of the Company within the meaning of Regulations Section 1 .704-1(bu2)(ii)(g), provided that an adjustment described in clauses (i) and (ii) of thisparagraph will be made only if Omnicom determines that such adjustment isnecessary to reflect the relative economic interests of the Stockholders ;

(c) The Book Basis of assets of the Company distributed to anyStockholder will be adjusted to equal the gross fair market value (taking Code

NY-115373$v 3


Section 7701(g) into account ) of such asset on the date of distribution asdetermined by the Stockholders ; and

(d) The Book Basis of assets of the Company will be increased (ordecreased) to reflect any adjustments to the adjusted basis of such assetspursuant to Code Section 734(b) or Code Section 743(b), but only to the exten tthat such adjustments are taken into account in determining Capital Accountspursuant to Regulations Section 1 .704-1(b)(2)(iv)(m) and subparagraph (vi) ofthe definition of "Profit" and "Loss" hereof; provided, however, that Book Basiswill not be adjusted pursuant to this subparagraph (d) to the extent that anadjustment pursuant to subparagraph (b) is required in connection with atransaction that would otherwise result in an adjustment pursuant to thissubparagraph (d) .

If the Book Basis of an asset has been determined or adjusted pursuant tosubparagraph (a), (b) or (d), such Book Basis will thereafter be adjusted by thedepreciation taken into account with respect to such asset under Treasury RegulationSection 1 .704-1 (b)(2)(iv)(g), for purposes of computing income and Losses .

"Capital Account" means , with respect to each Stockholder, suchStockholder 's capital account maintained pursuant to Treasury Regulation . Section1 .704-1 (b)(2)(iv) except as may otherwise be provided herein..

"Code" means the Internal Revenue Code of 1986, as amended (or anycorresponding provision or provisions of any succeeding law) .

tax purposes."Fiscal Year" means the taxable year of the Company for federal incom e

"Loss" means, for each Fiscal Year or other period of determination, anamount equal to the Company's items of taxable deduction and loss for such year orother period, determined in accordance with Section 703(a) of the Code (including allitems of loss or deduction required to be stated separately under Section 703(a)(1) ofthe Code), with the following adjustments :

(a) Any expenditures of the Company described in Section 705(a)(2XB) ofthe Code or treated as Section 705(a)(2)(B) expenditures under TreasuryRegulation Section 1 .704-1 (b)(2)(iv)(i), and not otherwise taken into account incomputing Loss, will be considered an item of Loss ;

(b) Loss resulting from any disposition of property of the Company withrespect to which gain or loss is recognized for federal income tax purposes willbe computed by reference to the Book Basis of such property, notwithstandingthat the adjusted tax basis of such property may differ from its Book Basis ;

(c) In lieu of depreciation, amortization and other cost recoverydeductions taken into account in computing taxable income or loss, there will b e

NY-1153738v32


taken into account depreciation for the taxable year or other period asdetermined in accordance with Treasury Regulation Section 1 .704-1(b)(2)(iv)(g);

(d) Any items of deduction and loss specially allocated pursuant toSection 2.4 will not be considered in determining Loss ; and

(e) Any decrease to Capital Accounts as a result of any adjustment to theBook Basis of the Company's assets pursuant to clauses (b), (c) or (d) of thedefinition of Book Basis will constitute an item of Loss .

"Net Loss" means, for any period, the excess of items of Loss over itemsof Profit, if applicable, for such period determined without regard to any items of Profit orLoss allocated pursuant to Section 2 .3 .

"Ne Proft" means, for any period, the excess of items of Profit over itemsof Loss, if applicable, for such period determined without regard to any items of Profit orLoss allocated pursuant to Section 2.3 .

"Profi_t" means , for each Fiscal Year or other period of determination, anamount equal to the Company 's taxable income and gain for such year or other period,determined in accordance with Section 703(a) of the Code (including all items of incomeand gain required to be stated separately under Section 703 (a)(1) of the Code), with thefollowing adjustments :

(a) Any income of the Company th at is exempt from federal income taxand not otherwise taken into account in computing Profit or Lost will be added totaxable income or loss ;

(b) Gain resulting from any disposition property of the Company withrespect to which gain or loss is recognized for federal income tax purposes willbe computed by reference to the Book Basis of such property, notwithstandingthat the adjusted tax basis of such property may differ from its Book Basis ;

(c) Any items specially allocated pursuant to Section 2 .4 will not beconsidered in determining Profit ; and

(d) Any increase to Capital Accounts as a result of any adjustment to theBook Basis of the Company's assets pursuant to clauses (b), (c) or (d) of thedefinition of Book Basis will constitute an item of Profit

"Stockholder" means any Person that owns Preferred Stock or CommonStock as of the date of the LLC Agreement .

H. ALLOCATIONS

2.1 . Allocation ofProfits and Losses . The items of Profit and Losscomprising Net Profit or Net Loss for a Fiscal Year will be allocated among theStockholders du ring such Fiscal Year in a manner that will, as nearly as possible, cause

NY-1153738x3 3


the Capital Account balance of each Stockholder at the end of such Fiscal Year to equalthe excess (which may be negative) of_

(a) the hypothetical distribution (if any) that such Stockholder wouldreceive if, on the last day of the Fiscal Year, (i) assets of the Company, includingcash, were sold for cash equal to their Book Basis, taking into-account anyadjustments thereto for such taxable year, (ii) all liabilities of the Company weresatisfied in cash according to their terms (limited, with respect to eachnonrecourse liability, to the Book Basis of the assets securing such liability). and(iii) the net proceeds thereof (after satisfaction of such liabilities) were distributedin full pursuant to Section 18(b) of the Charter, over,

(b) the sum of (i) the amount, if any, which such Stockholder is obligatedto contribute to the capital of the Company, (ii) such Stockholder's share of the"minimum gain" of the Company determined pursuant to Regulations Section1 .704-2(g), and (iii) such Stockholder's share of partner nonrecourse debtminimum gain determined pursuant to Regulations Section 1 .704-2(i)(5), allcomputed immediately prior to the hypothetical sale described in Section 2 .1(a) _

2.2. Determination of Items Comprising Allocations . (a) In the event thatthe Company has Net Profit for a Fiscal Year, _

(i) for any Stockholder as to whom the allocation pursuant to Section2.1(a) is negative , such allocation will be comp rised of a proportionate shareof each of the items of Loss ente ring into the computation of Net Profit forsuch Fiscal Year, an d

(ii) the allocation pursuant to Section 2 .1 in respect of each Stockholder(other than a Stockholder referred to in Section 2 .2(a)(i)) will be comprised ofa proportionate share of each item of Profit and Loss entering into thecomputation of Net Profit for such Fiscal Year (other than the portion of eachitem of Loss, if any, that is allocated pursuant to Section 2.2(aXi)) .

(b) In the event that the Company has a Net Loss for a Fiscal Year ,

(i) for any Stockholder as to whom the allocation pursuant to Section 2 .1is positive, such allocation will be comprised of a proportionate share of theitems of Profit entering into the computation of Net Loss for such Fiscal Year,and

(ii) the allocation pursuant to Section 2.1 in respect of each Stockholder(other than a Stockholder referred to in Section 2.2(b)(i)) will be comprised ofa proportionate share of each item of Profit and Loss entering into th ecomputation of Net Loss for such Fiscal Year (other than the portion of eachitem of Profit, if any, that is allocated pursuant to Section 2 .2(b)(i)) .

(c) For purposes of this Section 2 .2, a gain recognized by the Companyupon the disposition of an item of property will be considered to be a single item of gain

NY-1153738v34


regardless of whether, for federal income tax purposes, part of the gain is treateddifferently from the remainder.

2 .3. Special Allocations and Compliance with Section 704(b) : Thefollowing special allocations will, except as otherwise provided, be made in the followingorder

(a) Notwithstanding anything to the contrary contained in this Article 11, ifthere is a net decrease in "minimum gain" or in any "partner nonrecourse debtminimum gain" (both as determined pursuant to Treasury Regulation Section1 .704-2) during any Fiscal Year or other period, prior to any other allocationpursuant hereto, Stockholders will be specially allocated items of Profit for suchyear (and, if necessary, subsequent years) in an amount and manner required byTreasury Regulation Sections 1 .704-2(f) or 1 .704-2(i)(4) . The items to be soallocated will be determined in accordance with Treasury Regulation Section1 .704-2 ;

(b) "Nonrecourse deductions" (as defined in Treasu ry Regulation Section1 .704-2) for any Fiscal Year or other period will be allocated to the Stockholdersowning Common Stock QEQ rgta in proportion to their percentage ownershipthereof;

(c) Any "partner nonrecourse deductions" (as defined in TreasuryRegulation Section 1 .704-2) for any Fiscal Year or other period will be allocatedto the Stockholders that made or guaranteed or are o therwise liable with respectto the loan to which such partner nonrecourse deductions are attributable inaccordance with principles under Treasury Regulation Section 1 .704-2(i) ;

(d) Any Stockholder who unexpectedly receives an adjustment, allocationor distribution described in Treasury Regulation Section 1 .704-1 (b)(2)(ii)(d)(4),(5) or (6 ) which causes or increases a negative balance in his or its CapitalAccount wi ll be allocated items of Profit sufficient to eliminate such increase ornegative balance caused thereby , as quickly as possible , to the extent requiredby such Treasury Regulation ; and

(e) No allocation or loss or deduction will be made to any Stockholder if,as a result of such allocation, such Stockholder would have an Adjusted CapitalAccount Deficit.

Notwithstanding anything contained herein, deductions attributable to the fees payablepursuant to Section 2 .1(e) of the LLC Agreement shall be allocated to the holders of thePreferred Stock.

2.4. Section 704(c) Allocation: If any property of the Company is subject toCode Section 704(c) or is reflected in the Capital Accounts of the Stockholders and onthe books of the Company at a value that differs from the adjusted tax basis of suchproperty, then the tax items with respect to such property will, in accordance with therequirements of Treasury Regulations Section 1 .704-1 (b)(4)(i), be shared among the

NY-1153738x35


Stockholders in a manner that takes account of the variation between the adjusted taxbasis of the applicable property and its value in the same manner as variations betweenthe adjusted tax basis and fair market value of property contributed to the Company aretaken into account in determining the Stockholders' share of tax items under Cod eSection 704(c) .

2.5. Tax Matters: (a) Omnicom will be designated as 'Tax Matters Partner"(as defined in Code Section 6231) (the ' Tax Matters Partner), to represent theCompany (at the Company's expense) in connection with all examination of theCompany's affairs by tax authorities, including resulting judicial and administrativeproceedings, and to expend the Company funds for professional services and costsassociated therewith. In its capacity as Tax Matters Partner, Omnicom will oversee theCompany's tax affairs in the overall best interests of the Company as Omnicomdetermines in its sole discretion .

(b) The Tax Matters Partner on behalf of the Company may make allelections for federal income tax purposes and will be entitled to approve any tax returnof the Company prior to fling thereof .

2.6. Reports: (a) Within 30 calendar days after the end of each fiscal quarterand within 45 calendar days after the close of each Fiscal Year of the Company, theCompany will cause to be prepared and submitted to each Stockholder (i) the balancesheet as of the end of such period and a statement of income or loss and a statement ofcash flows for such period and (ii) in the case of any Fiscal Year, an opinion of anationally recognized accounting firm based upon their audit of the financial statementsreferred to in the preceding clause (i). Within 45 calendar days after the end of eachFiscal Year, the Company will provide to the Stockholders all information necessary forthem to complete federal and state income tax returns .

(b) For financial reporting purposes, the books and records of the Companywill be kept on the accrual method of accounting .

(c) To the extent permitted by the Code, the Regulations or other applicablelaw and regulations , the Company upon approval of the Board may elect to use amethod of accounting that permits accelerated deductions .

NY-1153T38v3 6


Exhibit Dto Formation of Seneca Investments LLC

MANAGEMENT AGREEMENT

This Management Agreement, effective as of May 2, 2001 (this " Aareement7.), ismade by and between Pegasus Capital Advisors, L.P, a Delaware limited partnership(KProv r~), and Pegasus E-Services Investments LLC, a Delaware limited liabilitycompany (the " Company"). -

RECITAL

In order to further the development of the Company and the development andgrowth of the Company's business, the Company desires to engage Provider to provide,and Provider agrees to provide, certain services to the Company in connectiontherewith .

Now, therefore, the parties hereto hereby agree as follows :

1 . SERVICES

1 .1 . Reten tion: The Company hereby retains Provider to provide or cause to beprovided to the Company and its subsidiaries strategic oversight and such otherservices as the parties may agree from time to time (the "Services'), and Providerhereby accepts such retention by the Company, all in accordance with the terms andconditions of this Agreement . Provider may use its employees or independentcontractors or consultants to provide the Services .

1 .2 . Compensation : In consideration of the Services provided by Provider,Provider has fully earned $4 .5 million at Closing payable as set forth in this Section 1 .2 .The Company will pay Provider (in addition to all amounts payable at Closing pursuantto Sections 2 .1(e) and 2.1(f) of the LLC Agreement) $4 .5 million on the 360'"consecutive day following the date hereof or, if earlier, immediately prior to thetermination of the LLC Agreement or dissolution of the Company . For any 12-monthperiod subsequent to the date of payment of the $4 .5 million fee, the Company will payProvider an annual management fee of $1 .50 million (or such other amount as may befixed in accordance with the LLC Agreement) (pro rated as the partial years) (the"Subseauent Management Fee " and collectively with the management fees payableunder Section 2 .1(e) of the LLC Agreement, the 'Management Fees"). The SubsequentManagement Fee shall be paid in advance semiannually on each 6-month anniversaryof the Closing Date for each year that this agreement is in effect, commencing on thefirst anniversary of the Closing Date . Any Management Fee so paid will not berefundable, regardless of whether this Agreement is thereafter terminated . The feespayable hereunder will be in addition to the amounts payable under Sections 2 .1(e) and2.1(f) of the LLC Agreement.

1 .3 . Limitation on Liability: Provider will not be liable to the Company for anyspecial, direct, incidental, consequential or punitive damages, even if advised of thepossibility thereof, whether foreseen or unforeseen, foreseeable or unforeseeable . The

NY-1155259v 5


foregoing limitations of liability will apply regardless of the cause of action under whichsuch damages are sought, including, without limitation, breach of contract, negligence,strict liability or other tort.

11. GENERAL

2.1 . Successors and Assigns: This Agreement will inure to the benefit of theparties hereto and their respective successors and permitted assigns . Rights andduties hereunder may not be assigned or delegated by the Company without the priorwritten consent of Provider, which consent will not be unreasonably withheld .

2.2. Relationship of Parties: Nothing herein will be construed to create anyrelationship of employer and employee, agent and principal, partnership or joint venturebetween the parties. Provider is an independent contractor . Neither party will assume,either directly or indirectly, any liability of or for the other party or any other duty to theother party, except-as expressly provided herein . Neither party will have the authority tobind or obligate the other party and neither party will represent that it has such authority .

2.3. Notices: For all purposes of this Agreement, all communications, includingwithout limitation notices, consents, requests or approvals, required or permitted to begiven hereunder will be in writing and will be deemed to have been duly given whenhand delivered or dispatched by electronic facsimile transmission (with receipt thereofconfirmed), or five business days after having been mailed by United States registeredor certified mail, return receipt requested, postage prepaid or one business day afterhaving been sent for next-day delivery by a nationally recognized overnight couriersen ►ice, addressed to Provider and to the Company at the address shown on thesignature page hereto, or to such other address as any party may have furnished to theother in writing and in accordance herewith, except that notices of changes of addresswill be effective only upon receipt.

2.4. Severability: The illegality, invalidity or unenforceability of any part of thisAgreement will not affect the legality, validity or enforceability of the remainder of thisAgreement . If any part of this Agreement is found to be illegal, invalid or unenforceable,then this Agreement will be given such meaning as would make this Agreement legal,valid and enforceable in order to give effect to the intent of the parties .

2 .5 . Governing Law: This Agreement will be deemed to be a contract madeunder, and will be governed by and construed in accordance with, the laws of the Stateof Delaware, without giving effect to conflict of laws principles thereof .

2.6 . Jurisdiction; Consent to Service of Process: (a) Each party herebyirrevocably and unconditionally submits, for itself and its property, to the exclusivejurisdiction of the New York state court located in the Borough of Manhattan, City ofNew York or the United States District for the Southern District of New York (asapplicable, a 'New York Court"), and any appellate court from any such court, in anysuit, action or proceeding arising out of or relating to this Agreement, or for recognitionor enforcement of any judgment resulting from any such suit, action or proceeding, an d

NY-1155259x5 2


each party hereby irrevocab ly and unconditionally agrees that all claims in respect ofany such suit, action or proceeding may be heard and determined in the New YorkCourt.

(b) It will be a condition precedent to each party's right to bring any such suit,action or proceeding that such suit, action or proceeding, in the first instance, bebrought in the New York Court (unless such suit, action or proceeding is brought solelyto obtain discovery or to enforce a judgment), and if each such court refuses to acceptjurisdiction with respect thereto, such suit, action or proceeding may be brought in anyother court with jurisdiction; provided that the foregoing will not apply to any suit, actionor proceeding by a party seeking indemnification or contribution pursuant to thisAgreement or otherwise in respect of a suit, action or proceeding against such party bya third party if such suit, action or proceeding by such party seeking indemnification orcontribution is brought in the same court as the suit, action or proceeding against suchparty .

(c) No party may move to (1) transfer any such suit, action or p roceeding fromthe New York Court to another ju risdiction , (ii) consolidate any such suit, action orproceeding brought in the New York Cou rt with a suit, action or p roceeding in anotherjurisdiction , or (iii) dismiss any such suit , action or proceeding brought in the New YorkCou rt for the purpose of bringing the same in ano ther jurisdiction .

(d) Each party hereby irrevocably and unconditionally waives, to the fullestextent it may legally and effectively do so, (i) any objection which it may now orhereafter have to the laying of venue of any suit , action or proceeding a rising out of orrelating to this Agreement in the New York Court, ( ii) the defense of an inconvenientforum to the maintenance of such suit, action or p roceeding in any such court, and (iii)the right to object , with respect to such suit , action or proceeding, that such court doesnot have ju risdiction over such party . Each party irrevocably consents to service ofprocess in any manner permitted by law .

2.7. Term: The initial term of this Agreement will be for a period of one year andmay not be terminated without the prior written consent of Provider . This Agreementwill automatically be renewed for additional one-year periods, unless earlier terminated .

2.8. Force Majeure: If Provider is unable to perform any of its covenants orobligations under this Agreement as a result of causes beyond its control, includingwithout limitation acts of God or government, earthquake, fire, flood, severe weather,civil disturbance or unrest, war or other armed hostilities and labor strife, then Provider(a) will not be deemed to be in breach or default of such covenants or obligations duringthe continuance of such events which rendered it unable to perform such covenants orobligations and for such period of time thereafter as may be reasonably necessary forthe resumption of the performance of the same and (b) will not incur any liability to theCompany or any other person or entity for such nonperformance or any consequencesthereof.

NY-1155259v5 3


2.9. Waiver: Provider or the Company by written notice to the other may (a)extend the time for performance of any of the obligations or other actions of the otherunder this Agreement, (b) waive compliance with any of the covenants of the othercontained in this Agreement, or (c) waive or modify performance of any of theobligations of the other under this Agreement . Except as provided in the immediatelypreceding sentence, no action taken or not taken pursuant to this Agreement will bedeemed to constitute a waiver of any breach of any covenant contained in thisAgreement and will not operate or be construed as a waiver of any subsequent breach,whether of a similar or dissimilar nature . Notwithstanding anything to the contrary, thisSection 2.9 will not apply to any costs, fees or expenses required to be paid inaccordance with Section 1.2.

2.10. Entire Agreement: This Agreement, together with the TransactionDocuments (as defined in the LLC Agreement), supersedes all p rior oral and writtenunderstandings and agreements between the pa rties concerning the subject matterhereof and may not be modified except in a writing signed by the authorizedrepresentatives of the parties hereto .

2.11 . Amendments, Supplements, Etc.: This Agreement may be amended orsupplemented from time to time by additional written agreements signed by Providerand the Company. No action or course of dealing will be deemed to amend thisAgreement in any respect unless set forth in a writing and signed by Provider and theCompany.

2.12. Headings: The headings to the Articles. Sections and subsectionscontained herein are for identification purposes only and are not to be construed as partof this Agreement

2.13. Counterparts: This Agreement may be executed in one or morecounterparts , each of which will be deemed to be an original, but all of which togetherwill constitute one and the same instrument .

2.14. Definitions: Capitalized terms used herein and not defined have themeanings set forth in the Company's Organization and Operating Agreement (the °L CAgreement"), dated as of the date hereof, by and among the parties thereto .

[Remainder of page intentionally left blank]

NY-11 55259v54


IN WITNESS WHEREOF , the parties hereby have duly executed this Agreementeffective as of the date first above written.

PEGASUS CAPITAL ADVISORS, L .P.

By: Pegasus Capital Advisors GP , LLC, itsGeneral Partne r

By:Vice President

Notice Address :

99 River RoadCos Cob, Connecticut 06807Attn : Andrew BurskyFacsimile No .: (203 ) 869-6940

PEGASUS E-SERVICE VESTMENTS LLC

By:Sole Directo , Chi Executive Office r

Notice Address:

1437 Madison AvenueNew York, New York 10022Attn: Michael P . TiemeyFacsimile No .: (212) 415-3369

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ORGANIC, INC.

1 BOARD MEETING

29 March 2001, 9 :00 a .m .

A special meeting of the Board of Directors of Organic, Inc ., was held on

Thursday, March 29, 2001 at the Company's headquarters located at 601 Townsend

Street, San Francisco, CA 94103, at 9 :00 a.m.

Directors attending :

Jonathan Nelson, Chairman, by telephon eMark Kingdon, Chief Executive Officer, by telephoneGary Hromadko, by telephon eBruce Redditt, by telephon eMichael Hudes, President, by telephon e

Also attending at the invitation of the Board was :

Margaret Maxwell Zagel, VP, Chief Legal andAdministrative Officer, by telephon e

Mr. Robert Profusek, Executive Vice President, by telephon e

Call to Order Mr. Nelson called the meeting to order and called the roll of

Board members and others present . Ms. Zagel acted as

Secretary .

Information requestedregarding ShareholderRights Plan andOmnicom Proposal Mr. Redditt reported to the Board the outline of Omnicom's

plans regarding on-line and interactive companies .

Mr. Redditt explained the potential structure and that part of

the plan involved contributing Organic shares to a new entity .

Mr_ Robert Profusek of Omnicom joined the meeting at the

invitation of the Board and further described the proposed

transfer and structure . Mr. Redditt and Mr. Profusek assure d

Page i of 4


the Board that Omnicom was continuing its stake in th e

Company through its ownership of the new entity and tha t

the new entity would abide by restrictions, if any, that were

applicable to Omnicom's ownership.

Mr. Profusek then left the meeting .

There followed substantial Board discussion conce rn ing the

specific information provided to it, the structure described ,

Omnicom's request for the Shareholders Rights Agreement

to be rescinded in all respects for present purposes and the

potential effect on the Company . The Board expressed its

interest in further considering. terminating the Shareholders

Rights Agreement under the current market conditions .

Upon motion duly made and seconded the Board adopted

the following resolution . Mr. Redditt abstained fro m

voting on the matter .

Possible Transfer of Share sby Communicade WHEREAS, Organic, Inc. (the "Company") has

previously entered into a Rights Agreement, dated as ofFebruary 9, 2000 (the "Agreement"), between theCompany and EquiServe Trust Corporation ;

WHEREAS, at the meeting of the Board of Directorsof the Company (the " Board") held on March 28 .2001,Omnicom Group Inc . ("Omnicom") notified the Board thatit is considering various alternatives in respect of theCompany common shares (the "Company Shares") held byCommunicade of Nevada. Inc. and CommunicadeInvestments Ltd. (together "Communicade") ;

WHEREAS, at such meeting , the Board requestedadditional information regarding the potential transfer (the"Transfer") of Company Shares held by Comrnunicade toanother entity (the "Transferee") ;

Page 2 o1 4


WHEREAS, Omnicom has provided the Board with

additional information regarding the Transfer of theCompany Shares held by Communicade, including the

anticipated identity of the Transferee and confirmation of

Omnicom's intent for effecting the Transfer ; and

WHEREAS, having reviewed the additional

information, the Board believes that the Transfer may bebeneficial to the Company and its stockholders .

NOW, TIiEREFORE, BE IT RESOLVED, that the Boardhereby agrees to amend the Agreement so that theTransferee, all Affiliates controlled by it and any

subsequent transferee of the Company Shares is not an"Acquiring Person" for purposes of the Agreement :

provided that the Transferee and any subsequent transfereeundertakes in a binding written agreement to which theCompany is given the tight to become a party that it willassume any and all contractual obligations ofCommunicade or the Transferee, as the case may be, to theCompany in respect of the Company Shares so transferred ;

RESOLVED FURTHER, that the Board has agreed toconsider amending the Agreement for other holders of

Company Shares if and to the extent that such amendmentis deemed to be in the best interest of the Company and itsstockholders and has further indicated its intent to considerabolishing the Agreement for all purposes ;

FEIRTHER RESOLVED, that the Board consents toany transaction referred to in the first Resolution so that noperson referred to therein would be an "interestedstockholder" for purposes of Section 203 of the DelawareGeneral Corporation Law and will, if required bySection 203 and prior to any subsequent transfer referred to

therein, take such further action to consent to suchsubsequent transfer ; and

FURTHER RESOLVED, that each of the officers of

the Company (each, an " Authorized Officer") be and

hereby is severally authorized to do and perform each andevery act to execute and deliver on behalf of the Companyany and all instruments and documents, as may benecessary or advisable to implement the intent and purposeof the preceding resolutions, and the execution by eachAuthorized Officer of any such instrument or document orthe doing by any of them of any act in connection with an y

Page 3of 4


of the foregoing matters shall conclusively establish eachsuch officer's authority to act for the Company and the

approval and ratification by the Company of the

instruments and documents so executed and the actions sotaken .

Adjournment Upon motion duly made and seconded, the Board meetin g

adjourned .

ec etary of the Me n

Page 4of 4


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<Page>

<Table>

SECURITIES AND EXCHANGE COMMISSIONSCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) ofthe Securities Exchange Act of 193 4

Filed by the Registrant /X /Filed by a Party other than the Registrant / /

Check the appropriate box ./ / Preliminary Proxy Statemen t

Con fidential, for Use of the Commission Only (as permittedby Rule 14a-6(e)(2) )

/X/ Definitive Proxy Statemen t/ / Definitive Additional Material s/ l So li cit in g Material Pursuant to Section240 . 14a-12

AGENCY.COMLT D

(Name of Registrant as Specified In Its Charter )

(Name of Person(s) Filing Proxy Statement , if other than theRegistrant )

</Table>

Payment of Filing Fee (Check the appropriate box) :

<Table>

/ / No fee required ./X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4)

and 0-1 1(1) Title of each class of securities to which transaction

applies :Common Stock , par value $0 .001 per share, of AGENCY.COM Ltd

(2) Aggregate number of securities to which transaction applies-14,932,119 shares of Common Stock and 8,887,516 shares ofCommon Stock subject to options

------------------------------------------------------------(3) Per unit price or other underlying value of transaction

computed pursuant to Exchange Act Rule 0-11 (set forth theamount on which the filing fee is calculated and state howit was determined) :The filing fee was determined based upon the sum of (a) theproduct of 14,932,119 shales of Common Stock and the mergerconsideration of $3 .35 per share and (b) the differenc ebetween the merger consideration of $3 35 per share and theexercise price per share of each of the 8,887,516 shares ofCommon Stock subject to options, provided that thedifference is greater than zero . In accordance withRule 0-11 under the Seem rtres Exchange Act of 1934, asamended, the filing fee was determined by multiplying the

JD 003004

pretax restructuring charge of $28 3 million, and in September 2001, weannounced another reduction in our workforce of approximately 200 employees,

resulting with other actions in anticipated additional pretax restructuring

charges between approximately $18 and $23 million .

We continue to believe that we are one of the leading e-business services

companies . However, in light of the dramatic change in current market conditionsand intermediate term prospects, early in 2001, our management, with the

assistance of Salomon Smith Barney Inc ., began to explore our strategic

alternatives on a preliminary basis . Among other things, Salomon Smith Barneycontacted 83 companies or investment firms seeking to determine whether any ofthem would be interested in pursuing a possible investment, business combination

or other strategic transaction with us . Five of these parties expressed some

preliminary interest in reviewing information about us . However, except for

Omnicom Group Inc ., none of them made any proposal for an acquisition of Agencyor other strategic transaction or, in the opinion of our management, expressedserious interest in pun suing a

13

<Page>possible transaction . Other than the efforts of Salomon Smith Barney, Agency didnot pursue any other specific alternative transactions in lieu of the proposed

merger .

Ornmcom had made a substantial equity investment in us prior to our initialpublic offering and two of Ommcom's executives, including Mr . Wren, were

members of our board of directors at the time of our initial public offering .

SENECA'S FORMATION

In an informal discussion in late March 2001, Mr . Wren indicated to ChanSuh, our chief executive officer, that Omnicom was considering the formation o f

a new company to hold certain of Omnicom's e-services investments, including our

shares of common stock . Mr . Wren also indicated that, if the new company was

formed, be anticipated that the new company would desire to engage i n

substantive discussions involving strategic transactions with us .

On April 2, 2001, Omnicom and Pegasus Partners II, LP, a private investmentfirm previously unaffiliated with us or Ommcom, announced an agreement inprinciple to organize Seneca with the objective of maximizing consolidation andother strategic opportunities among companies in the e-services consulting and

professional services marketplace . On May 2, 2001, Seneca was formed by PegasusPartners, Pegasus E-Services Holdings LLC and Omnicom.

Pegasus Partners is wholly owned by Pegasus Capital LLC, a privat e

investment firm. Pegasus E-Services Holdings owns all of Seneca's common stock .

Omnicom is one of the world's leading corporate communications companies Itsshares are traded on the New York Stock Exchange Omnicom owns 8 51% cumulativenonconvertible preferred stock in Seneca having an aggregate liquidatio n

preference of $325 .0 million .

In connection with Seneca's formation, Ommcom contributed all of the equityof Communicade LLC, a wholly owned subsidiary of Ommcom, to Seneca . At that

time, Communicade held investments in 16 e-services companies, including 33 5°/%of our outstanding shares of our common stock, assuming the exercise of

JD 003027

outstanding warrants to purchase shares of our common stock but not options .

Upon Seneca's formation, Bruce Redditt, one of the two Ormucom officers whowere members of our board of directors resigned, and Communicade's employeesbecame employees of Seneca . In addition, Seneca acquired beneficial ownership ofwarrants to purchase an additional 5,168,000 shales of our common stock inprivately negotiated transactions for a total price, including assumed debt, o f

$15 .5 million .

DISCUSSIONS LEADING TO THE SHARE PURCHASE AGREEMEN T

Following the April 2, 2001 announcement of the formation of Seneca,executives of Omnicom, including Mr . Wren, Omnicom's chief executive officer,approached Mr . Suh, Mr . Shannon and Mr. Trush with respect to preliminarydiscussions of basic concepts for Seneca's possible acquisition of the Agencycommon shares owned by certain management stockholders . The underlying conceptbeing discussed was that Messrs . Sub, Shannon and Trush, and possibly othermanagement stockholders, would sell their Agency shares to Seneca in exchang efor an initial cash payment, with subsequent payments based on Agency's futureresults of operations. On April 25, 2001, Messrs . Sub and Wren discussed variousterms for the possible earn-out structure which were eventually reflected in theshare purchase agreement described below, including the timing of the paymentsto be made, the multiple of profit before tax to be used in calculating th eearn-out payments and the structure for the initial payments to be made . As aresult, the parties agreed that the terms discussed would be adjusted toaccelerate the timing of certain of the earnout payments and the multiple ofAgency's profits would be lower. These discussions were preliminary in natureand Messrs . Sub, Shannon and Trush were informed that there could necessarily beno agreement on the possible transaction until Seneca was formally organized .

On April 26, 2001, Mr . Sub informed our board of directors of thediscussions relating to the possible sale of senior management's Agency share sto Seneca . Seneca was formally organized and acquired the Agency common sharespreviously owned by Communicade Investment Company o f

14<Page>

Nevada, Inc , an Ommcom subsidiary, on May 2, 2001 . From May 3, 2001 throughMay 12, 2001, the various parties and their counsel had ongoing discussions o fthe terms for Seneca's possible acquisition of the management shares .

Our board of directors met on May 12, 2001 . Mr . Wren did not attend orotherwise participate in the meeting . At that meeting, Messrs . Suh, Shannon andTrush informed the board of the terms being discussed for the possible sale oftheir shares to Seneca . Mr . Suh also informed the Board that he anticipated thata proposal to acquire the remaining outstanding shares of Agency was forthcomingfrom Seneca, although no details about such a proposal were currently availablefrom Seneca. The board of directors established a special committee of director scomposed of Messrs . Rayport and DeLong to consider the proposal and negotiate onbehalf of the unaffiliated stockholders .

During the period from May 2, 2001 through May 12, 2001, representatives ofthe parties had many discussions of numerous points relevant to the possiblestock sale ; no one meeting was pivotal to the progress of the discussions Theparties and their legal counsel negotiated the terms of the share purchase

JD 003028

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I

I THIS IS A DRAFT TRANSCRIPT'

2

3 This UNCERTIFIED rough draft transcript has4 not been proofread or corrected Thi s5 draft may contain computer-generate d6 mistranslations of stenotype code, resulting7 in inaccurate or nonsensical word8 combinations or untranslated stenotype9 symbols which cannot be deciphered b yIt) non-stenotypists Coriecnons will be madeI in the picparatton of the certifie d

12 transcript, resulting in differences in page13 and line numbers , punctuation an d14 formatting1 516

THIS DRAFT TRANSCRIPT IS SUPPLIE D17 TO YOU ON THE CONDITION THAT,

UPON RECEIPT OF THE CERTIFIE D18 TRANSCRIPT, THIS DRAFT AND ANY

COPIES THEREOF SHALL B E19 DESTROYED THE UNCERTIFIEDROUG H

DRAFT TRANSCRIPT CANNOT BE QUOTED20 IN ANY PLEADING OR FOR ANYOTHE R

PURPOSE AND MAY NOT BE FILED WITH21 ANY COURT OR OTHER TRIBUNAL22

23 Darlene Caiauo Sousa, RPR, CSR24

21 IN THE COURT OF CHANCERY

OF THE STATE OF DELAWAR E2 IN AND FOR NEWCASTLE COUNTY34 »«»««+++»«»+»«»««

5 DAVID SCHNEIDER,Plaintiff,

6 *vs *

7 *CHAN SUH, KYLE SHANNON, *

8 KENNETH TRUSH , GERALD BRUCEREDDITT, JOHN D WREN,

9 JEFFREY RAYPORT, THOMAS DELONG,AGENCY COM LTD, and SENEC A

10 INVESTMENTS, LLC *Defendant,, *

11

»»«»«++»»+»+««+»+1 2*

13 STEPHEN DINALLO, *Plaintiff,

14vs

15

CHAN SUH , KYLE SHANNON, *

16 KENNETH TRUSH, GERALD BRUCE *REDDITT, JOHN D WREN, *

17 JEFFREY RAYPORT, THOMAS DELONG,AGENCY COM LTD, and SENECA

18 INVESTMENTS, LLCDefendants. *

1 9 +»++++$$**$*+«»++

20

21222324 -~ - _.

I DEPOSI ON OF JEFFREY RAYPORT, a'ea2 witness call d on Behalf of the Plaintiffs ,3 pursuant to elaware Chancey4 Court, before o Sousa, a5 Registered Professional Reporter No 0040286 and Notary Public in and for th e7 Commonwealth of Massachusetts, at Ropes &8 Gray, One International Place, Boston ,9 Massachusetts, on Tuesday, September 25,10 2001, commencing at 8 40 a m1112

13

1415

16

1718

19

20

21

22

2324

41 APPEARANCES2 SCHIFFRIN & BARROWAY, LLP(By Patricia C . Weiser, Esq )3 Three Bala Plaza East, Suite 400Bala Cynwyd, PA 1900 44 For the Plaintiffs5

JONES, DAY, REAVIS & POGUE6 (By Barbra S . Levy, Esq )599 Lexington Avenu e7 New York, NY 1002 2For the Defendant Seneca Investments, LLC89 ROPES & GRAY(By Paul R Galvani, Esq ,10 Winthrop G Minot, EsqRobert G Jones, Esq )

I I One International PlaceBoston, MA 021 10-262412 For the Defendant Jeffrey Rayport13

BROBECK, PHLEGER & HARRISON14 (By Nicole M. Hunn, Esq )1633 Broadway, 47th Floor

JD 065231

14 with was basically about around 3 and 4 X I A I think on the Seneca side clearly it was

15 trailing 12-month revenues And their 2 Tierney who was delivering the officia l

16 offer, the Seneca offer, put us I believe 3 statements and Bob Profusek who was

17 just below 3 or right around 3 4 providing commentary from their point o f

18 There was one precedent transaction 5 view On our side it was my role to deliver

19 which was the Data Dimension acquisition of 6 the official statements, and then beyond

20 Proxicont that came in at a valuation of 1 8 7 that I don't think there was a great deal o f

21 times trailing 12-month revenues We had 8 distinction

22 hopes going into the negotiation that we 9 Q When was the next communication between th e

23 could make use of that In fairness it was 10 special committee and anyone from Seneca"

24 a special situation I I Again, I'm sorry, when I refer to Seneca

104 12 from here on in Seneca, Omntcom, any relate d

1 Dimension Data paid a huge control 13 entities

2 premium for Proxicom They were buying a 14 MR GALVANI• Well, I'd prefer yo u

3 great brand, but more to the point they were 15 ask it --

4 breaking up a marriage that was also already 16 MS WEISER: What's the best way to

5 in play and it was Compaq's acquisition of 17 do this')

6 Proxicom and Data Dimension outbid them at 18 MR GALVANI I prefer you ask i t

7 the last minute and basically broke it up 19 on a question-by-question basis because

8 and ran off with the prey 20 Agency is an affiliated entit y

9 Foi that reason in those special 21 MS WEISER. Okay

10 condition-, we couldn't use that top range 22 Q When was the next communication between th e

I I The other reason it was hard to push towards 23 special committee, anyone on the specia l

12 anything beyond 3, 4 X was the simple fact 24 committee and anyone from Seneca ?

13 that front the day on May 14 that the Seneca 10 7

14 offer became public information at $3 a I MR GALVANI After June 8

15 share what was at that time a 46 percent 2 Q After the June 8 meeting' )

16 premium to the previous trading day's 3 A We ended again that private conversation i n

17 closings price, not much happened 4 a sense, you know, agreeing to disagree wit h

18 The phone didn't ring Shares 5 whether the valuation range was relevant ,

19 didn't rise in value So we didn't have a 6 what it meant to get into the range There

20 lot we could point to in terms of either 7 was a clock next to Bob Profusek in thi s

21 public of private market interest in this 8 office that happened to be broken, and i t

22 company All we had was our own data and 9 was a digital clock, and it was frozen at

23 rhetoric And for that reason we were 10 3 50

24 forced to play the game of getting into the I I So I tried to, you know, impres s

) 05 12 Bob with the fact that, you know, the han d

I minimum of the range that was fair and 13 of divinity had set the price and that a

2 didn't have really the luxury of being able 14 number that was weird Iike 3 32 1/2 wa s

3 to shoot for the high end 15 likely to create more problems for u s

4 Q Was there any discussion of the shareholder 16 because it would look like some weird number

5 lawsuits at the June 8 meeting" 17 as opposed to a number that, you know, wa s

6 A Michael Tierney in making his opening and 18 fair and elegant and so forth .

7 second statements about the three and a 19 And so we were saying get us into

8 quarter offer essentially indicated that 20 the range but don't stop at 3 30, get us t o

9 Senecas willingness to go to that elevated 21 3 50 And at that time because it was

10 price level was predicated on several things 22 essentially an unofficial conversation an d

I I happening One was of course to get a 23 we had a clock I could joke about, that' s

12 fairness judgment from Salomon, Smith, 24 where we were

13 Barney, and another one was to see this deal 108

14 go through in a timely fashion And the I Michael Tierney made a commitmen t

15 third one was to see settlement of the 2 to get back to us after the weekend, yo u

16 lawsuits in the state of Delaware 3 know, with his further thoughts with n o

17 Q. Are you aware of any discussions with 4 promises of anything To my recollectio n

18 plaintiffs' counsel up to that point of the 5 either we missed each other or he calle d

19 June 8 meeting' 6 later, but we spoke I believe the followin g

20 A No 7 Tuesday at which time he called up and

21 Q When was the next communication -- let me 8 essentially said, you know what, I think we

22 just ask you Who were the primary 9 can go to 3 35 but that's i t

23 negotiators on behalf of the special 10 And because we were still pushin g

24 committee and Seneca if there were any'T I I for the 3 50 mark as a nice round number and106 12 to our eyes 3 35 still looked pretty weird,

JD 065252

13 I said, Thank you very much, talked to and14 Then subsequently DeLong and I contacte d15 John Wren, the chairman and CEO of Omntcom16 essentially to say this company is more17 valuable than 3 3 5I8 And it was to talking with John19 Wren which was on the evening of June 1420 that it became absolutely clear that Tierney21 wasn't going to budge and he certainl y22 wasn't going to move it 'Wren was unwilling23 to move And Wren made it very clear that24 Omnicom could just as soon walk away from

109this deal and do something with a competitor

2 at 25 cents instead of 3 3 53 And we, therefore, came back to our4 colleagues on June 15 for another meeting of5 the special committee as reflected in th e6 minutes essentially to say either we're done7 or we forgot that there's some highe r8 authority here, but we've kind of tried9 everything and it looks as if thi s10 negotiation process has reached itsII destinatio n12 Q How would you describe the negotiation13 process"14 A I'd say it was rigorous We spent a lot of15 time We had a lot of meetings We16 marshaled a lot of data Omnicom is a smart17 company and was not interested in paying18 more than they needed to pay for this s o19 call it a rigorous proces s20 Q If you could turn your attention to Exhibit21 7, the June 12, 2001 minutes The Bates22 number on the first page is A 2918 Do you23 recall participating in this meeting' )24 A Yes

110I Q Do you iccall if it was by phone or in2 person')3 A This was a phone meeting Sorry, a4 teleconference5 Q If you look at the last paragraph on that6 page, was Mr Suh asked to become involved7 in the negotiation process at some time "8 A He wa s9 Q How did that come about' )

I 0 A It happened in a meaningful way between this

I I meeting and the conversation with John Wren

12 on the evening of June 14 which is to sa y

13 that as board members of Agency corn DeLong14 and I had reason to talk to Chan about othe r15 matters over the weeks, and due to this datalb have to do with the operations of th e17 company until we ceased to be serving,18 ceased to be directors19 But after this meeting on June 12,20 on counsel's advice I gave Chan a call an d21 said, you know, you have a good relationship22 with John Wren, and you know better than23 anyone since you built this company wha t24 it's worth Why don't you take a run at

111I seeing whether there's any flexibility there2 on the up side and help us out3 Chan was not thrilled about doing4 this because he thought that we'd pushed5 this about as far as we could go, bu t6 asked him, you know, as a friend and a favor7 and all that to do it because we felt on th e8 committee that it was very important to try9 everything, and so he did He got to Wre n10 very quickly and came very quickly back andI I called me up and said, you know, nothin g12 doing here Wren said no And it was not13 phrased quite that politel y14 Q At any point in the negotiation process up15 to this June 12 meeting, did any members of16 management express to the special committee17 their opinion regarding a fair value of th e18 company')19 A No .20 Q Is that a no')21 A Sorry N o22 Q Okay After your discussion with Mr Wren23 on the 14th, what was the special --24 MR GALVANI- On the 14th'

112

1 THE WITNESS Yeah The night of

2 the 14th

3 Q How did the special committee -- what did4 the special committee do next after that5 call' )6 A We met by phone the following day on the7 15th essentially to say we had no more cards8 to play The conversation with Wren was a9 half hour conversation It was exceedingly10 cordial We got him at his home aroun d

seven o'clock, but he gave us lots o f12 reasons why we should be very happy about13 the price where it was, and we gave him lots14 of reasons why we should be more happy if15 the price hit 3 5 016 And as I said before we simpl y17 couldn't move So the meeting on the 15th18 was essentially called to say it's over and19 to ask Salamon if they would, in fact ,20 engage in producing a fairness opinion based21 on a share price of 3 3 522 Q What were some of the reasons that Mr Wren23 gave as to why 3 35, you know, was the best24 price"

113

A I'd say the most important reasons were

2 called Organic and Razorfish, both of which3 were trading at under a dollar a share, both4 of which were imploding rather rapidl y5 do not personally believe that those are6 fair comparisons, but they were the7 comparisons Wren knew best because they were8 part of the portfolio that was Communicad e9 that got rolled into Senecato The reason that we felt they wereI I valid was very simple which was that he

JD 065253

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1 8 1 .20p m1 9

1 0

2 IN THE COURT OF CHANCERY 1 1OF THE STATE OF DELAWARE 12 Deposition of MICHAEL P TIERNEY, hel d

3 IN AND FOR NEWCASTLE COUNTY 13 at 599 Lexington Avenue, New York, New York ,14 pursuant to Agreement, before DIANE HARTY, a

4 DAVID SCHNEIDER, ) 15 Notary Public of the State of New Yor k1 6

5 Plaintiff, 1 7I 8

6 vs. ) 1 920

7 CHAN SUH, KYLE SHANNON, ) 2 1KENNETH TRUSH, GERALD BRUCE ) 2 2

8 REDDITT, JOHN D . WREN, JEFFREY) 2 3REYPORT, THOMAS DELONG, ) 24

9 AGENCY COM LTD ., and SENECA ) 2 5INVESTMENTS, LLC, )10 ) 3

Defendants II1 2 APPEARANCE S

IN THE COURT OF CHANCERY 312 OF THE STATE OF DELAWARE 4 SCHIFFRIN & BARROWAY, LL P

IN AND FOR NEWCASTLE COUNTY Attorneys for Plaintiff13 5 Three Bala Plaza East, Suite 400

STEPHEN DINALLO, ) Bala Cynwyd, Pennsylvania 1900 414 ) 6 BY PATRICIA C . WEISER, ESQ

Plaintiff, 715 ) BROBECK PHLEGER & HARRISON, ESQ S

vs ) 8 Attorneys for Defendants Chan Sub, Kyl e16 ) Shannon, Kenneth Trush, Gerald Bruce Rcdditt ,

CHAN SUH, KYLE SHANNON, ) 9 John D Wren, Agency corn Ltd17 KENNETH TRUSH, GERALD BRUCE ) 1633 Broadwa y

REDDI TT, JOHN D WREN, JEFFREY) 10 New York, New York 1001 918 REYPORT, THOMAS DELONG, ) BY MAUREEN A . FLANIGAN, F,S Q

AGENCY.COM LTD ., and SENECA ) I I and NICOLE M HUNN, ES Q19 INVESTMENTS, LLC, ) 1 2

ROPES & GRAY, ESQ S20 Defendants. 13 Attorneys for Defendants Jeffrey Rcyport an d

} Thomas Delon g

21 14 One International Plac eBoston, Massachusetts 02 1 1 0-262 4

22 DEPOSITION OF MICHAEL P 15 BY PAUL B GALVANI, ES QTIERNEY 1 6

New York, New York JONES, DAY, REAVIS & POGUE, ESQS .23 Wednesday, September 19, 2001 17 Attorneys for Defendant Senec a

Investments, LL C24 Reported by: 18 901 Lakeside Avenu e

DIANE HARTY Cleveland, Ohio 44114-119 025 JOB NO. 125374 19 BY JOHN M. NEWMAN, JR, IiS Q

202 1

2 22

1 23 -000 -2 24

3 2545 46 I7 September 19, 2001 2 MICHAEL P T I E R N E Y, called as a

JD 002870

19 A. I think within the next few days,20 depending on SEC comment s21 Q Do you know if the shareholder vote, a22 date for that has been set?23 A. It has not been yet. I think it wil l24 be once we know when the proxy can be mailed .25 Q What is the expectation for the closin g

12

345678910111213141516171819202122

232425

123456789101112131415161718192021

22232425

36Tierney

of this merger, assuming shareholder approval isreceived?

A My recollection is mid to late OctoberQ. I Just want to ask you generally i f

you can explain the process that followed thisMay 14th, 2001 letter proposal ?

A . May I refer to the proxy ?Q You may. I will let you know the

background of the merger section begins on page13 Specifically I will ask you, did you receivea response to this letter from someone atAgency com ?

A We were reminded that a specialcommittee had been forme d

I was told and I can't remember bywhom, it may have been by Mr Imbrioca, thegeneral counsel of the Agency, that the specialcommittee was in the process of engaging counseland engaging an investment bank and that theywould be reviewing the offer and would get back tous. That was the first communication I recall .

Q At some point in time did someone fromthe special committee contact you or someone elsefrom Seneca ?

37Tierney

A I think the next substantivecommunication that I recall was a meeting to

discuss this, an all-hands meeting among counsel,

especially ourselves and Seneca, and I think the

communication came through counsel, that is their

counsel to our counsel, and then to me with

respect to that meeting.Q Were you the main contact for the

special committee at Seneca?A Yes .Q Was anyone else at Seneca intimately

involved in negotiations of this particular deal?A . Not intimately involved . We are a

small group . Gerald Newman, our CFO was certainly

involved .Q The meeting that you had just made

reference to, do you recall approximately when

that occurred ?

A. It was a Wednesday up in Boston and myrecollection is June 6th

Q Did Seneca retain a financial advisorfor this proposal ?

A. NoQ. Why not?

381 Tierney2 A Our business really as I mentioned3 earlier is financial analysis and we were4 comfortable, we had a good grip on the financial5 analysis of this company as any outside part y6 could7 Q Were there any particular analyses that8 Seneca performed in order to arrive at the $3 per9 share offer price"10 A There were many analyses that wereI I excluded because there wasn't sufficient data to

12 perform them, discounted cash flow analysis,

13 forward revenue, EBIT multiples, et cetera

14 The principal analysis that we ended up15 performing was stock price analysis, what the16 stock had been trading at, on the thcoi y tha t17 what -- a willing buyer and seller value of a18 particular asset is ultimately what the best19 indication of value is So that in the case o f20 this particular company was the chief metric that21 we felt we had available22 Q Was there any comparable companies23 analysis performed by Seneca ?24 A Yes. We regularly maintained at Seneca

25 a list of comparable companies in the space,

391 Tierney2 publicly traded companies, their multiples i n3 terms of revenues, EBITA, et cetera We had that

4 overtime with respect to Agency and othe r

5 companies.6 Q How about a comparable transactions

7 analysis ?8 A I'm trying to recal I whether we had an9 ongoing program to maintain that as well The10 difficulty in that particular case was findin g11 truly comparable transactions, not only companies

12 in the industry but where the form o f

13 consideration was such that you could compare14 apples to apple s15 1 can't recall a specific comparabl e16 transaction for Agency I do recall that we were17 aware of transactions that had occurred and looked18 at them, but in terms of relying on them as a n19 indicator of value, I don't believe so20 Q. Was there any type of a premium paid21 analysis as far as the premium that you wer e22 offering to the public shareholders in Agency com23 versus what other premiums had been paid to other24 people in transactions'?25 A Certainly

401 Tierney2 Q Do you recall what the premium was to3 the most recent trading price of Agency coin, the4 $3 offer ?5 A It was Exhibit I here. It was just a

JD 002878

678910111213141516171819202122232425

1

2

3

4

56

7

8

9

1011

1213

14

15

16

1718

19

20

21

22

23

2425

123456789101112

quote from the letter, 84 9 percent over theaverage market price for the 60 calendar daysending May 1 Ith in the 46 .3 percent to the closingprice on May 1 I th, which is the last business day

prior to the offerQ Do you have any recollection as to

whether those premiums were comparable to anycomparable transactions you were able todetermine?

A . My recollection is they were comparableto -- generous compared to other premiums.

Q Was it your understanding that Solomonwas continuing to explore other strategies afterthe May 2000 letter was sent9

A My understanding was their brief -- astheir brief change from financial advisor to thecompany to financial advisor of the specialcommittee and their brief to the special committeewas to, number one, determine whether this wasfair and as part of that determine whether ther e

41Tierney

were other willing buyers out there at a higherprice . That was my understandin g

I do not think I ever saw theengagement letter signed but that was what Ithought their brief was

Q. Did Seneca have a range of values thatthey attributed to Agency? Did it come that theywere willing to pay somewhere in between ?

A No.MS WEISER• Let's mark this(Tierney Exhibit 5, documents dated

May 30, 2001, marked for identification, asof this date )Q Just take a look at this document and

when you are ready I will start questioning .A Okay .Q. Do you recognize this document?A . I recognize portions of it I don't

recall all of these pieces as a single documentbut I'm sure I have seen it before.

Q . Do you know who prepared this document?A. I can only assume Agency corn.Q Do you know if Seneca had any input

into the drafting of this document'?

42Tierney

A I do notQ At some point in time did Seneca enter

into an agreement with members of management of

Agency .com regarding the purchase of their shares

in the company'?

A. YesQ. Could you explain to me how that

happened, how that came about ?A . Well, as I mentioned earlier in our

decision-making process as to what to do with ourportfolio companies in the context of Agency,

13 feeling that that had potential as a company in14 this space, one of our first goals was to mak e15 sure if we were going to invest more in it, we had16 the right management team on board and the right17 incentives in place for them to be on board .18 And a traditional approach to that fo r19 Omnt .com had been and us at Seneca continues to be20 what is called the earn-out structure where yo u21 purchase what entrepreneurs have but It at a total22 price which is spread out over time and is23 dependent on in part performance, in this case24 profit net income, bottom net performanc e25 So once we continue the analysis tha t

43Tierney

2 it started in January or February that I mentioned3 with Agency and determined we wanted to do

4 something, it would be in discussions with5 management as to whether they would be amenable to6 an arrangement like that, and that started I'm7 going to guess in late February, early Marc h8 Q. Ultimately was an agreement reached'?9 A. Yes10 Q And who were the members of managementI I that were part of this agreement?12 A The key members were Chan Suh who is

13 the CEO, his fellow co-founder Kyle Shannon, Ken14 Trush who is the early CFO of the company, Eamon

15 Wilmont

16 Those were the key members but our goal17 was to bring in other members also which came in18 Q Ultimately was an agreement entere d19 into between Seneca and these members of

20 management 921 A Yes.22 Q There were more members of management23 than the ones you just identified ?24 A Yes, we -- actually additiona l25 management has Just recently agreed to come into

441 Tierney

2 that deal .

3 Q How did Seneca determine the payments4 to be made, what those payments would be, to th e5 members of management pursuant to that agreement'?6 A it was a negotiation of course but i t7 was a multi-part analysis One is some part down8 which we felt was probably the current value of9 their shares or close to their current value o f10 their shares and then an additional amount to beI 1 paid over time depending on performanc e12 So one key part of the negotiation wa s13 how much time there would be in order to achieve

14 profitability This management agreement goes out

15 to 2006, which is an unusual amount of time, but

16 we in management felt it would may well take that

17 long to achieve that level of profitability t o

18 make it attractive to management .19 Q Does the price being paid to these

JD 002879

M


251485-6000015/ 1 /2003

To: File

Re : Omnicom/Agency.com

1

Tom Smith spoke with Michael Verne of the FTC Premerger Notification Office on May

1, 2003 regarding a transaction whereby Omnicom is proposing to acquire all of Agency.com

from Seneca' in consideration for the redemption of more than $50 million in preferred stock .

While noting that technically a filing would be required since Omnicom is acquiring an entity

which it does not control by means of voting securities, Michael Verne advised that in this

situation the FTC "would blink" (meaning a filing is not necessary) for the following reasons : (i)

control of Agency.com is only being moved between entities already controlled by Omnicom,

and (ii) Omnicom had already filed HSR Notification with respect to its acquisition of

Agency .com2. Further, even though prernerger notification with respect to the Agency .com

transaction expired on June 18, 2002, Michael Verne advised that a filing is not necessary .

Thomas Dinh202-879-5479

4-5479

May 1, 2003

cc: Thomas Bark

' Both Agency .com and Seneca are entities controlled by Omnicom, although Omnicom only controlsAgency.com indirectly through its majority economic interest holdings in Seneca.

2 The HSR for the acquisition of Agency .com was filed on June 5, 2001, with early termination beinggranted on June 18, 2001 .

JD 024970

M

e-t-


From: Randall WeisenburgerSent : Tuesday, December 19, 2000 5 :53 P MTo : Michael Tierney; Bruce Redditt ; Tom Watson; Allen Chi ; Jerry Neumann ; Jared SolomonCc: Tom Carey ; John WrenSubject : RE : Oyster Urgent Buisness Update

Hi ,

Everyone probably already knows this, but just in case . I heard that BAwas turning off there on-line venture which I was also told accountedfor about 30% to 40% of Oyster's revenues . I don't know if any of thisis accurate but we should try to confirm one way or the other, if it hasnot already been done .

Randy

-----Original Message-----From : Michael TierneySent : Friday, December 15, 2000 9 :07 AMTo : Bruce Redditt ; Tom Watson; Allen Chi ; Jerry Neumann; Jared SolomonCc : Tom Carey; Randall Weisenburger ; John WrenSubject : FW : Oyster Urgent Buisness UpdateImportance : High

For your information .

Michael

-----Original Message-----From : Michael TierneySent : Friday, December 15, 2000 9 :04 AMTo : 'Noel Penrose 'Subject : Oyster Urgent Buisness UpdateImportance : High

Noel :This is not only a serious development in its own right, but a harbingerof likely future trends for at least the next six months . While majorclients will certainly need qualified e-consultancy services, for nowthey are "hunkering down" and I believe it is prudent for Oyster to doso as well . Accordingly, I propose to make clear to Alan our desirefor a definitive and quickly implemented plan addressing (i) costs, (ii)wrapping up the "tails" on outstanding projects, (iii) specific newbusiness objectives, and (iv) closing down Oyster Active . I would liketo bring such influence as we have on this issue quickly, including theconvening of an emergency board meeting in mid-January at which specificaction points can be presented, debated and approved . Despite Oyster'sadmirable record of profitability, they should not underestimate howquickly things can spiral downwards, especially given their ambitiousexpansion plans .

If you agree, I will make these points immediately to Alan and Richard .Let's discuss today when we review the Cable & Wireless request .Michael-----Original Message-----From: Noel Penrose tmailto :npenrose@omnicomeurope .com)Sent : Friday, December 15, 2000 3 :30 AMTo : Alan .Bell@oyster .co .ukCc : Michael Tierney@omnicomny .comSubject : Re : Urgent Buisness Update

OMC 0064319CONFIDENTIAL

Ala thanks for the epdate . Hopefully yc' will be ak ie `tv use thenewly freed capacity on other billable programs .Cheers>>> Alan Bell <Alan . Bell@oyster .co .uk> 12/15 / 00 08 : 05AM >> >

On the 13th Dec 2000 we received a Fax from Barry Hill the CEO of

Transaffinity notifiying Oyster to stop work on the Quicksilver projectwitheffect from Friday 15th Dec .We have since learnt that Bristish Airways has terminated the

Quicksilverproject and has given notice to the 50 employees .

The loss of this account will have a major impact on Oyster ' s financialsituation , this project was billing at a monthly average of £550K andwa sforecasted to continue at this rate for at least Feb/Mar 2001 . This lossi seffectively 45% of our total revenue stream . In addition we have a debtposition to resolve with BA ( 3 months ) and Transaffinity ( 2 monthsthi sproblem if not solved will put Oyster into a loss for this year and putpressure on our cash reserves .

We are studying our options with the clients and have several meetingssetup to better understand the situation and whether anything can besalvaged.In paralell we are studying the impact to the business plan and whatactions will be required to get the company back to profit .

Given the severity of the situation i felt obligated to keep you allapprised , we will continue to work the problem and when i havesubstantivenews i will update you further .

regardsalan

Alan BellChief Executive OfficerOyster Partners Ltd

t . +44 (0)20 7446 7500

m .+44 (0)468 351902

f . +44 (0)20 7446 7555h . +44 (0)1372 45042 1

www .oyster .co .uk

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F-+


From : Andrew Levine [[email protected]]Sent: Tuesday, December 26, 2000 9 :28 AMTo : Paul KingsleyCc: 'Jerry Neumann'; 'Martin Bowen'Subject: RE: Oyster Equity Method

Paul -- In response to your questions . . .

(1) Everything held by Omnicom above 18% of the outstanding shares shouldbecome non-voting .(2) With respect to the wording for the rights to be attached to theshares, I unfortunately will need more information as I don't have copies

of the documents (i .e ., what is written on the current shares, what rightscurrently are attached to the shares) . As a general matter, we'd like tohave all the rights that Omnicom has with respect to its shares travel (tothe extent of the transferred shares only) except the voting rights (which

should probably somehow automatically switch back to voting shares in theevent the shares are transferred outside of the Omnicom family at a later

date) .

Please call me with questions and thanks for your help ,

Andrew M. Levine

Jones, Day, Reavis & Pogu e

599 Lexington Avenue, 30th FloorNew York, New York, 10022212 .326 .3662

212 .755 .7306 (fax )

Dear Andy,

Paul Kingsley<Paul .Kingsley@oys To : "Andy Levine (E-mail) "ter .co .uk> <alevine@jonesday .com>, 'Jerry Neumann'

<[email protected]>cc : 'Martin Bowen '

12/22/00 12 :20 PM <martin .bowen@sjberwin .com>,"'board@oyster .co .uk"' <board@oyster .co .uk>

Subject : RE : Oyster Equity Method

I are attempting to achieve the request from Omnicom with regards changing asmall proportion of their existing voting shares into non-voting shares soas to enable them to state a shareholding less than 20% and account for

their shareholding in Oyster on a cost basis rather than equity accountingfor the interest .

I have spoken to Oyster's lawyers and Martin Bowen of S .J.Berwin (whom I

have copied on this e-mail) will be assisting with the mechanics ofeffecting this change .

We will need to know the following :

- the proportion of equity against which you wish to amend the voting

right s


- the wording for any rights you wish to be attached to the share s

S .J .Berwin will assist in arranging the consent required from the existing

shareholders and the mechanics for effecting the necessary change . To make

sure we can do this we need very clear direction as to exactly what Omnicom

want .

Please be aware that we only have 2/3 working days next week in which to dothis and we will probably need an EGM, which at such short notice will .

require 95% of the voting rights to be in agreement and a majority of the

shareholders . In order to speed the process I am copying the Board ofOyster which includes all the shareholders, assuming FINAD is represented

bya Board member .

I would appreciate it if each shareholder could confirm that they consent

tosuch an EGM next week by fax or e-mail and where possible to clarify

whetheror not they are available either in person or via telephone to be present

atan EGM next week (I will need to verify the format for this in due course)If there are any queries I can be contacted on the mobile telephone number

below or via e-mail . We will need 75% agreement at the EGM to the change

inshareholder rights .

I am assuming that the accounting treatment desired (Cost accounting) hasbeen considered by Omnicom and that an adjustment to the voting rights at atime so late in the year will not adversely effect the intended accounting

treatment Omnicom wish to achieve .

Please copy Martin Bowen on all correspondence . Jerry I am sure the costs

for this will be minimal but I would be grateful if you could confirm thatany costs Oyster incurs in relation to this will be borne by Omnicom _

RegardsPaul

Paul Kingsley

Chief Financial OfficerOyster Partner s

t . (0)20 7446 7450

m . (0)7770 970 840

f . (0)20 7446 755 5

www .oyster .com

-----Original Message-----From : Jerry Neumann [mailto :Jerry Neumann@omnicomny .com]

Sent : Friday, December 22, 2000 1 :38 PM

To : 'Paul Kingsley '

Cc : Andy Levine (E-mail )

Subject : RE : Oyster Equity Method

2


Paul. -

Thank you for the help . I am sorry to be so last minute about this, but we

need this to be effective before the end of the year (at least dated in2000) . If Andy Levine at Jones Day can take any of the burden, please letus know .

Jerry

-----Original Message-----From : Paul Kingsley [mailto :Paul .Kingsley@oyster .co .uk]

Sent : Friday, December 22, 2000 5 :53 AMTo : 'Noel Penrose' ; jerry neumann@omnicomny .com ; Alan Bel l

Cc : Andy Levine (E-mail) ; jrsd@macfarlanes .com; Fiona Pool ; Sally-Ann

Bray ; Michael Tierne ySubject : RE : Oyster Equity Metho d

Noel ,

I will get right onto this .

RegardsPaul

Original Message-----From : Noel Penrose [mailto :npenrose@omnicomeurope .com)Sent : Friday, December 22, 2000 8 :59 AM

To : jerry_neumann@omnicomny .com; Alan Bell ; paul .kingsley@oyster .co .uk

Cc : Andy Levine (E-mail) ; jrsd@macfarlanes .com ; Fiona Pool ; Sally-Ann

Bray; Michael TierneySubject : RE : Oyster Equity Method

Paul, Jerry Neumann has requested that we seek to agree that a number ofOmnicom-owned shares in Oyster be reclassed as non-voting to allow us to

formally state that our shareholding interest is below 20% so that we canaccount for the investment on a cost basis .

Can you consider this request with Alan Bell as a matter of urgency andeither speak directly to Andy Levine, Communicade's legal counsel or haveyour own lawyer contact Andy to obtain details etc .

Thanks, and have a great Christmas

Noel

******k*********** k*******k* ******************** it4***********r ****** k *

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are addressed . If you have received this email in error please notifythe system manager .

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From : Noel Penrose [npenrose@omnicomeurope .com]Sent: Thursday, December 21, 2000 1 :23 AMTo: jerry_neumann@omnicomny .comCc: Andy Levine (E-mail); Bruce Redditt ; Michael Tierney; phii_ange(astro@omnicomny .comSubject: Re: Oyster Equity Metho d

Jerry, why wouldn't we wait to see what the board has to say about the loss of Quicksilverand their revised plans for 2001 rather than reacting at this stage ?

There are 12 board directors of which we have 2 so we do not need to resign one in any

case .

Our interest at present ignoring warrants is 19 .3% so there is possibly no need to doanything at all ?

>> > "Jerry Neumann" <Jerry Neumann@omnicomny .com> 12/21/00 12 :15AM >>>Noel -

Due to Oyster's loss of Quicksilver, we probably need to move from theequity method to the cost method . To do this we need to lower our votinginterest below 20% (preferably down to the 18% range) and have fewer than20% of the board seats . I assume this means we can have only one board

seat .

I think there are two ways to get the voting interest below 20% . One is tosell stock, which might be difficult right now, and the other is to agreewith Oyster that our stock has less voting rights than ownership rights(either by simply limiting our voting rights to 18% or by having each of ourshares have only 90% of a vote . )

We will also have to resign one of our board seats .

Please let me know how we should proceed . If you would like Jones Day toorganize this with the UK attorneys, email us back with the name of thecorrect person .

Thanks,

Jerry Neumann

[ALERT] -- Content Manager :This e-mail is intended only for the person or entity to which it is addressed and may

contain information that is privileged, confidential or otherwise protected fromdisclosure . Dissemination, distribution or copying of this e-mail or the informationherein by anyone other than the intended recipient, or an employee, or agent responsiblefor delivering the message to the intended recipient, is prohibited . If you have receivedthis e-mail in error, please immediately notify us by calling our Help Desk at (212) 415-3055, or e-mail to helpdesk@omnicomgroup .com

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OMNICOM CORPORATE TELEPHONE DIRECTORY 15-Oct-0 1437 Madison Avenue, Now Y ork, NY 10022, Telephone (2 12) 415-3600 Main Fax# (212) 415-353 0

EXT. NAME DEPT. FLOOR EXT . NAME DEPT. FLOOR3617 Adams, Dale DAS 9 3773 Koedatich, Patty CEO 93612 Ahern, Diane SAS 10 3653 Kwok, Curran CONT 1 03354 Amabile, Mark OMG 10 3389 Leonardini, Francesca CEO 93098 Angelastro, Phil CONT 10 3623 Libertoff, Dana SAS 103628 Aven, Richard CONT 10 3684 Lindo, George CONT 103634 Azzopardi, Steven CONT 10 3636 Lorfink, Robert DAS 92303 Baez, Carmen DAS 9 3614 MacDougall, Joan CEO 93673 Baglioni, Gianluca OMG 10 3775 Magee, Patrice DAS 93649 Bedard, Greg DAS 9 3027 Mandelbaum, David INT AUD 103068 Bedell, Diane DAS 9 3252 Marino, Michele INT AUD 103611 Birdsall, Kali INT AUD 10 3660 Marricco, Sandra HR 103671 Birkin, Michael DAS 9 3372 McCormick, Ellen DAS 93619 Byme, Lisa LEGAL 10 3756 McGovern, Skip LEGAL 103792 Canoro, Fred DAS 9 3784 McGuire, Jim TREAS 103657 Carey, Tom CEO 9 3396 Melillo, Tais DAS 93314 Case, Greg DAS 9 3631 Meyer, Fred CEO 93739 Cassidy, Lori LEGAL 10 3603 Morrisey, Kim DAS 93651 Castellaneta, Andrew CONT 10 3291 Natale, John CONT 1 03643 Chin, Diane CONT 10 3622 Norsworthy, Bob DAS 93605 Chiocco, Leslie HR 10 3639 Oakes, Jennifer SAS 103368 Cohen, Jason DAS 9 3625 Occhipinti, Tony SAS 103362 Cornish, Elizabeth DAS 9 3704 Olivera, Evelyn DAS 93746 Costantini, Mike CONT 10 2050 Parache, Arelis TREAS 103336 Coulthurst, Roslyn DAS 9 3711 Patterson, Sandy CONT 1 03794 Crane, Ron LEGAL 10 3633 Peters, Frani DAS 93620 Crawford, Bruce CEO 9 2687 Poole, Jodie OMG 1 03742 Cruikshank, Ron LEGAL 10 3360 Previtali, Francesca CFO 93339 Cuccurutlo, Anthony DAS 9 3737 Profusek, Robert CEO 93782 Currie, Tom DAS 9 3645 Ramdeen, Vick DAS 93609 DeLucca, Keith CONT 10 3668 Reddift, Bruce CEO 93661 DeShazo-White, Joyce OMG 10 3738 Roche, Tracy LEGAL 103722 Dhoble, Rob DAS 9 3371 Roily, Ben DAS 93374 Dial (Van Dyke), Jill DAS 9 3255 Rubinstein, Matthew CONT 103616 Doolittle, John DAS 9 3663 Schubel, Brendan CONT 1 03090 Dosch, Henry DAS 9 3686 Schultz, Wayne DAS 93602 Drzewicki, Paula CONT 10 3758 Sebbag, Deborah OMG 103630 Ellis, Susan Smith DAS 9 3715 Seiler, Matthew DAS 93768 Fedor, Carolyn CEO 9 3302 Sharer, Marshall HR 103749 Fehlman, Charlene DAS 9 3701 Shields, Andrea HR 103367 Feldberg, Scott DAS 9 3696 Shields, Mavis OFF SERV 1 03387 Fernandez, Denise SAS 10 3766 Simm, Daryl OMG 93772 Ferrara, Fran CEO 9 3327 Sinatra, Louis INT AUD 103092 Feuchtwanger, Sandy CEO 9 3730 Sparaco, Paul DAS 93744 Fitzgerald, Glo CFO 9 3759 Stair, Bonnie CONT 103163 Flissier, Allen CONT 10 3373 Taylor, Christine DAS 93732 Flores, Susie HR 10 3681 Thomas, Marlene CONT 1 03672 Fordham, Diana HR 9 3324 Urciuoli, Chris DAS 93646 Fuel, Denise CONT 10 3723 Vanek, John OFF SERV 1 03677 Gamez, Marisa CONT 10 3719 Veziris, Tony SAS 103767 Gordon, Sharon DAS 9 3685 Visone, Bill CONT 1 03687 Govemale, Greg INT AUD 10 3638 Vivona, Dario CONT 1 03695 Greenlees, Michael 10 3778 Wagner, Barry LEGAL 103789 Harrison, Ron OMG 10 3690 Walter, Beverly CONT 1 03064 Harrison, Tom DAS 9 3769 Watson, Tom CEO 92361 Held, Tracy IT 4 3669 Webster, Carol OMG 93725 Hewitt, Dennis OCI 3393 Weisenburger, Randall CFO 93692 Jackson, Darren CONT 10 3665 Williamson, Tyrone HR 103752 Joseph, Manish CONT 10 3776 Wren, John CEO 9

3308 Zahorsky, Karen DAS 9


OMNICOM CORPORATE TELEPHONE DIRECTORY 15-Oct-0 1437 Madison Avenue , New York, NY 10022 , Telephone ( 212) 415-3600 Main Fax # (212) 415-3530

E )(T . W .F. REALTY FLOOR 203-618- OMNICOM - GREENWICH, CT OFFICE3310 Beckler, Andrew 32 1501 Wren, Joh n3320 Castillo, Julissa 32 1502 Koedatich, Patty3388 Feld, Lee 32 1505 Weisenburger, Rand y3377 Haag, Becky 32 1506 Fitzgerald, Gl o3399 Karmin, Shelley 323355 LaSane, RoseMarie 32 203-618-1515 FAX NUMBE R3727 Resnick, Jeff 323322 Wendy, Howard 32 203-618 - TAX DEPARTMENT , GREENWICH . CT

1533 Blieden, Gladis1520 Conzelmann, Kevin

EXT. SENECA INVESTMENTS LLC FLOOR 1532 DeLuca, David3641 Blount , Nicole 3 1521 Hartshorn, Stacie3095 Neumann, Jerry 3 1525 Holzmann, Fran k3745 Solomon, Jared 3 1540 Meditz, Han k3787 Tierney, Michael 3 1535 Miller, Robert

1536 Wiltshire, Mia212-415-3369 FAX NUMBER 1530 Wynne, John

203-61 8 -1555 TAX FAX NUMBE REXT. CONFERENCE ROOMS

Board Room : Regular Phone3535 Board Room: Voice Point Unit Phone 203 -625- OMNICOM CAPITAL INC .3637 Main Conference Room (9th) : Regular Phone 3014 Aziz-Antal, Zsol t3644 Main Conference Room (9th) : Voice Point Unit 3071 Crowle, Patty3395 Conference Room A (10th Floor) 3033 Gilho~otey, John3306 Conference Room B (10th Floor) 3043 Grzybowski, Gle n3366 Conference Room C (10th Floor) 3036 Held, Tracy

3010 Hewitt, Dennis3040 Lee, Will

FAX # DEPT. FAX NUMBERS 3020 Mevay, Jim415-3536 C E 0 (J . Wren, B . Crawford) 3034 Piro, Keil i817-6551 C F 0 (R. Weisenburger) 3030 Robinson, Maev e415-3541 Controllers 3037 Scala, Joanne415-3376 DAS 3012 Scott, Lynd a817-6553 Human Resources 3032 Voorhis, John817-6575 Internal Audit 3035 Ward, Dorothy415-3470 Legal415-3670 B. Wagner 203-618 -1550 CAPITAL FAX NUMBE R817-6988 R . Pro fusek 203 - 61 8-1511 CASH DES K817-6552 M . Birkin / T . Harriso n415-3629 B. Redditt415-3576 S . Gordon, B . Norsworth y

EXT . MISCELLANEOU S3675 10th Floor Kitchen2195 11th Floor Kitchen

(Lorraine , Mary, Lewis )3672 9th Floor Reception1392 9th Floor Lobby Telephon e3153 Arthur Andersen Audit Room


M


From: Jerry NeumannSent: Tuesday, January 29, 200212:38 P MTo: Michael Tierney, Robert Profusek ; Phi[ AngelastroSubject: FW: [Fwd : FW : Letter of support]

FW: Letter ofsupport

~,atetia~ e&Cted

--Original Message-----

From : Michael Jackson [mailto :mjjackson@agency .com]

Sent : Friday, January 25, 2002 12 :05 PM

To : Jerry Neumann

Cc : Joon Park; Nick Anderson

Subject : [Fwd: FW : Letter of support ]

Jerry,

This is a sample of what the letter would look like . I have an idea ofthe type of support AA would be looking for from Seneca and we can

discuss if you want .

Mike

Michael J . Jackson, CPA, MBA

Chief Accounting officer, vice President and Corporate ControllerCorporate Financ eAGENCY .COM LTD .

E-mail : mjjackson@agency .com

Direct Phone : 212 358-2706

Direct fax : 212 651-3701

Main switchboard 212 358-260 0

20 Exchange PlaceNew York, N .Y . 10005

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CONFIDENTIAL OM00061200

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From: Jerry NeumannSent: Tuesday, January 29, 2002 12 :38 P MTo: Michael Tierney; Robert Profusek; Phil AngelastroSubject: FW: [Fwd : FW: Letter of support)

FAFW: Letter of

supportAgency .com is asking us to sign a letter of support so that AA can give them a

clean bill of health in their UK statutory reports . I don't want to sign it, since itseems to bind us to something we don't want to be bound to . On the other hand, I don'twant a going concern opinion in the public records in the UK either . Is there a third wayyou have seen? Perhaps different wording ?

The letter Agency proposed would say, basically :

"We hereby confirm that we will continue to give Agency.com Limited financial support asnecessary to permit Agency .com Limited to carry on its business in a lawful and propermanner, and to meet all third' party liabilities in full as and when they fall due .

"This will continue for the foreseeable future, being in any case a period of not lessthan 12 months from the date of the signing of the statutory accounts for Agency .comLimited for the year ended 31 December 2001 . "

Jerry

-----Original Message-----From: Michael Jackson [mailto :mjjackson@agency .comlSent : Friday, January 25, 2002 12 :05 PMTo : Jerry NeumannCc : Joon Park ; Nick AndersonSubject ; [Fwd : FW : Letter of support ]

Jerry,

This is a sample of what the letter would look like . I have an idea ofthe type of support AA would be looking for from Seneca and we candiscuss if you want .

Mike

Michael J . Jackson, CPA, MBAChief Accounting Officer, Vice President and Corporate ControllerCorporate Finance

AGENCY .COM LTD .

E-mail : mjjackson@agency .comDirect Phone : 212 358-2706Direct fax : 212 651-3701Main switchboard 212 358-260 0

20 Exchange PlaceNew York, N .Y . 1000 5


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IFrom: Randall WeisenburgerSent Friday, April 20,200111'47 AMTo: Michael Tierney

S~sbjec RE: Pegasus •

Sensttlvity: . . Confidential

Michael,

These are some very good points . Lets discuss in person or by phone.

Randy

M ---Original Message-

From :sent:

Mid>aelTiemeyMonday. April 16; 20017:30 PM

To, Randall Welsenburger; RobertProftEeig Bruce Reddltt

Cc: Jotm Wren; Tom Watson3kbl PegasusImportances t»ghSerssltivitr Confidential

Can we spend 45 minutes or so tomorrow discussing the following :

a. Most if not all of the companies transferred to Pegasus will require active strategic management to preserve,let alone enhance, the value of our investments . We will, I take it be responsible for that management

Material Redacted

b. Recent developments at Red Sky have thrown a spotlight on potential director's liability .

Material Redacted

1.

c. Some of these companies are plainly in serious straits. Unlike a year ago, we will be listened to bylly now. Indeed, -we may want to change senior management-of course in concert wit h=nag===t carefuj

vi 4- 0141 ~ .& J(%buJ members-I nQing in a t~'hichh can C.B .`x ite pix , v-!: :.Xe~:~ S~ _. .:. th .̀=gut rtr :." .

of all shareholders. Do we Want to do zo-? Do we have such a plan for the most critical of our .investments?'Who among us is to be responsive for developing and implementing each such plan?

d. I think I know the answer, but is there zoom in Pegasus, or a similar vehicle, for other Commnnicad einvestments (some of the e-health entities, IP Networks, etc.) If not, what are the sensitivities we need to be

Mcbzet

alive to in managing these investments over the nest two to three quarters ?

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Confidential portions filed under-seal pursuant to the Confidentiality Stipulation and Order of May 18,2005, as amended by Order of January 10, 2006

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ORGANIC, INC.

1 BOARD MEETIN G

29 March 2001, 9 :00 a .m .

A special meeting of the Board of Directors of Organic, Inc ., was held on

Thursday, March 29, 2001 at the Company's headquarters located at 601 Townsend

Street, San Francisco, CA 94103, at 9 :00 a .m.

Directors attending :

Jonathan Nelson, Chairman, by telephon eMark Kingdon, Chief Executive Officer, by telephoneGary Hromadko, by telephon eBruce Redditt, by telephoneMichael Hudes, President, by telephone

Also attending at the invitation of the Board was :

Margaret Maxwell Zagel, VP, Chief Legal andAdministrative Officer, by telephon e

Mr. Robert Profusek, Executive Vice President, by telephone

Call to Order Mr. Nelson called the meeting to order and called the roll of

Board members and others present . Ms. Zagel acted as

Secretary .

Information requestedregarding ShareholderRights Plan and

Omnicom Proposal Mr. Redditt reported to the Board the outline of Omnicom's

plans regarding on-line and interactive companies .

Mr. Redditt explained the potential structure and that part of

the plan involved contributing Organic shares to a new entity .

Mr. Robert Profusek of Omnicom joined the meeting at the

invitation of the Board and further described the proposed

transfer and structure . Mr. Redditt and Mr. Profusek assured

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the Board that Omnicom was continuing its stake in the

Company through its ownership of the new entity and that

the new entity would abide by restrictions, if any, that were

applicable to Omnicom's ownership .

Mr. Profusek then left the meeting .

There followed substantial Board discussion concerning the

specific information provided to it, the structure described ,

Omnicom's request for the Shareholders Rights Agreement

to be rescinded in all respects for present purposes and the

potential effect on the Company . The Board expressed its

interest in further considering. terminating the Shareholders

Rights Agreement under the current market conditions .

Upon motion duly made and seconded the Board adopted

the following resolution . Mr. Redditt abstained from

voting on the matter .

Possible Transfer of Share sby Communicade WHEREAS, Organic, Inc . (the "Cow") has

previously entered into a Rights Agreement, dated as ofFebruary 9, 2000 (the "Agreement'), between theCompany and EquiServe Trust Corporation ;

WHEREAS, at the meeting of the Board of Directorsof the Company ( the "Board") held on March 28, 2001,Omnicom Group Inc . ("Omnicom") notified the Board thatit is conside ri ng various alte rnatives in respect of theCompany common shares (the "Company Shares") held byCommunicade of Nevada . Inc . and CommunicadeInvestments Ltd . (together "Communicade ") ;

WHEREAS, at such meeting, the Board requestedadditional information regarding the potential transfer (the"Transfer") of Company Shares held by Communicade toanother entity (the ' T'ransferee");

Page2of 4


WHEREAS, Omnieom has provided the Board withadditional information regarding the Transfer of theCompany Shares held by Communicade, including theanticipated identity of the Transferee and confirmation ofOmnicom's intent for effecting the Transfer ; and

WHEREAS, having reviewed the additional

information, the Board believes that the Transfer may bebeneficial to the Company and its stockholders .

Now, TIEEREF'ORE, BE IT RESOLVED, that the Boardhereby agrees to amend the Agreement so that theTransferee, all Affiliates controlled by it and anysubsequent transferee of the Company Shares is not an"Acquiring Person" for purposes of the Agreement :provided that the Transferee and any subsequent transfereeundertakes in a binding written agreement to which theCompany is given the right to become a party that it willassume any and all contractual obligations ofCommunicade or the Transferee, as the case may be, to theCompany in respect of the Company Shares so transferred ;

RESOLVED FURTHER, that the Board has agreed toconsider amending the Agreement for other holders of

Company Shares if and to the extent that such amendmentis deemed to be in the best interest of the Company and itsstockholders and has further indicated its intent to considerabolishing the Agreement for all purposes ;

FURTHER RESOLVED, that the Board consents toany transaction referred to in the first Resolution so that noperson referred to therein would be an "interestedstockholder" for purposes of Section 203 of the DelawareGeneral Corporation Law and will, if required bySection 203 and prior to any subsequent transfer referred totherein, take such further action to consent to such

subsequent transfer ; and

FURTHER RESOLVED, that each of the officers ofthe Company (each, an " Authorized Officer") be andhereby is severally authorized to do and perform each andevery act to execute and deliver on behalf of the Companyany and all instruments and documents, as may benecessary or advisable to implement the intent and purposeof the preceding resolutions, and the execution by eachAuthorized Officer of any such instrument or document orthe doing by any of them of any act in connection with an y

Page 3of 4


of the foregoing matters shall conclusively establish eachsuch officer's authority to act for the Company and theapproval and ratification by the Company of theinstruments and documents so executed and the actions sotaken .

Adjournment Upon motion duly made and seconded, the Board meetin g

adjourned .

x~" ;~Q -

ec etary of the Me n !

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From: Randall WeisenburgerSent: Monday, April 16, 2001 10:14 AM

To: Michael Tierney, Robert Profuse k

Michael ,

A couple ofedits to your response . The edits are in [ ] .

Randy

From my conversations with the Oyster shareholders, obtaining consents in the near future will hinge on our

responding to their questions substantively . Is there any objection to saying something like the following.

Our overall objective remains to [create] value from and indeed grow our e-

services investments . In the current environment, [we believe a significantopportunity to develop at least two significant e-services global networks .

While, at this time, we have not agreed upon a difinitive course of actionwith our existing portfolio companies nor identified specific potentialacquisitions, we want to make sure that we are in a position to move quickly

when opportunities avail themselves .

We have also elected to work with a financial group, Pegasus, the principalsof which we have known and worked with for several years . We are hopeful

that the relationship with Pegasus provides us additional opportunities andresources to take full advantage of the opportunities as they may arise .

By establishing a special vechile -- "e-Services Acquisitirn Co" we believewe will be better positioned to act quickly as opportunities arise and to

take any restructuring actions necessary post any acquisitions . Ornnicom

expects to have a continuing cross-marketing relationship with e-Services Co

and its portfolio companies going forward . ]

[Pegasus is a venture capital fund based in Greenwich Connecticut, with whom

we have worked before, and whose principals are well known to Omnicom . The

principals have been leaders in the private equity community since the early

1980's . Pegasus it self has two private equity funds total more than $1

billion in equity capital . ]

[If asked, we will acknowledge that we have no voting control, but do havecontrol over certain material actions with respect to the investments . We

will also say that we have the right to purchase the investments bac k

according to a pre-determined formula -- We Don 't .] Moreover, through a

management agreement , [No agreement -- but we will stay

involved .] Omnicom will continue to be involved in the oversight of the

investments . Pegasus and Omnicom are still discussing who, if anyone, will

occupy the board seats which are associated with the investments . [We

don't currently expect to make any changes] We expect to

determine this within the next days . Overall, we expect that there willbe minimal communications, or need for communications, between Oyster and

Pegasus . [None -- communications will be with the management


of Newco ]

Omnicom will still be in a position to provide logistical support (as DAS UK hasdone for oyster during the past year . )

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