Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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OMNICOM GROUP INC.
(Exact Name of Registrant as Specified in Charter)
New York 7311 13-1514814
(State of Incorporation) (Primary Standard Industrial (I.R.S Employer
Classification Code Number) Identification No.)
437 Madison Avenue
New York, New York 10022
(212) 415-3600
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
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BARRY J. WAGNER, ESQ.
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
(212) 415-3600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Copies to:
MICHAEL D. DITZIAN, ESQ. D. RICHARD MCDONALD, ESQ.
Davis & Gilbert Dykema Gossett PLLC
1740 Broadway 1577 North Woodward Avenue, Suite 300
New York, New York 10019 Bloomfield Hills, Michigan 48304
(212) 468-4800 (810) 540-0700
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Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective and all other conditions to the Merger pursuant to the Agreement and
Plan of Merger described in the enclosed Prospectus/Information Statement have
been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reimbursement plans, please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
Amount maximum maximum Amount of
Title of securities to be offering price aggregate registration
being registered registered (1) per share (2) offering price (2) fee (2)
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<S> <C> <C> <C> <C>
Common Stock, $ .50 par value ....... 1,000,000 shares $58.75 $58,750,000 $20,258.63
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</TABLE>
(1) Estimated maximum number of shares issuable by Omnicom Group Inc. under
the Agreement and Plan of Merger described in this Registration Statement.
(2) Estimated solely for purposes of calculating the amount of the
registration fee. Pursuant to Rule 457(c), based on the average of the
high and low prices of the Common Stock of Omnicom on June 14, 1995, as
reported by the New York Stock Exchange.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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OMNICOM GROUP INC.
Cross Reference Sheet Pursuant to Rule 404(a) of the Securities Act of
1933 and Item 501(b) of Regulation S-K, Showing the Location or Heading in the
Prospectus/Information Statement of the Information Required by Part I of Form
S-4.
Location or Heading in
S-4 Item Number and Caption Prospectus/Information Statement
- --------------------------- --------------------------------
A. Information about the Transaction
Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus Facing page; Cross Reference
Sheet, Outside Front Cover Page of
Prospectus/Information Statement
Inside Front and Outside Back
Cover Pages of Prospectus Inside Front Cover Page of
Prospectus/Information Statement;
"Available Information"; "Table of
Contents"
Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information "Summary"; "Summary of
Comparative Per Share Data";
"Selected Financial Data of
Ross Roy"
Terms of the Transaction "Summary"; "The Merger
Agreement and the Merger--
Background of and Ross Roy's
Reasons for the Merger";
"--Opinion of Financial Advisor";
"--Omnicom's Reasons for the
Merger"; "--The Merger Agreement"
Pro Forma Financial Information *
Material Contacts with the
Company Being Acquired "Summary"; "The Merger Agreement
and the Merger--Interests of
Ross Roy's Management in the
Merger"; "--Opinion of Financial
Advisor"
Additional Information Required
for Reoffering by Persons
Parties Deemed to be
Underwriters *
Interests of Named Experts and
Counsel *
Disclosure of Commission Position
On Indemnification for
Securities Act Liabilities *
<PAGE>
Location or Heading in
S-4 Item Number and Caption Prospectus/Information Statement
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B. Information About the Registrant
Information with Respect to S-3
Registrants "Summary"; "Incorporation of
Certain Information by
Reference"; "Business Information
Concerning Omnicom"; "Selected
Financial Data of Omnicom";
"Description of Omnicom Capital
Stock"
Incorporation of Certain
Information by Reference "Incorporation of Certain
Information by Reference"
Information with Respect to S-2
or S-3 Registrants *
Incorporation of Certain
Information by Reference *
Information with Respect to
Registrants Other Than S-3
or S-2 Registrants *
C. Information About the Company Being Acquired
Information with Respect to S-3
Companies *
Information with Respect to
S-2 or S-3 Companies *
Information with Respect to
Companies Other Than
S-3 or S-2 Companies "Summary"; "Business Information
Concerning Ross Roy -- Executive
Officers and Directors, Principal
Shareholders";"Selected Financial
Data of Ross Roy"; "Management's
Discussion and Analysis of
Financial Condition and Results
of Operations of Ross Roy";
"Description of Ross Roy
Capital Stock"; "Index to Ross
Roy Financial Statements"
D. Voting and Management Information
Information if Proxies, Consents
or Authorizations are to be Solicited *
Information if Proxies, Consents
or Authorizations are not to be
Solicited or in Exchange Offer "Summary"; "Business Information
Concerning Ross Roy -- Executive
Officers and Directors, Principal
Shareholders"; "The Merger Agree-
ment and the Merger -- Other
Considerations - No Dissenters'
Rights"
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* Not applicable.
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[Letterhead of Ross Roy Communications, Inc.]
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On [_______, 1995]
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To The Shareholders of
Ross Roy Communications, Inc.
A Special Meeting of the shareholders of Ross Roy Communications, Inc., a
Michigan corporation ("Ross Roy"), will be held on ________, 1995, at _____ A.M.
(local time), at the offices of Ross Roy, 100 Bloomfield Hills Parkway,
Bloomfield Hills, Michigan, 48304, to consider and vote upon the following
matters described in the accompanying Prospectus/Information Statement:
1. To consider and act upon the approval of an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which a wholly-owned
subsidiary of Omnicom Group Inc., a New York corporation ("Omnicom"),
will be merged with and into Ross Roy, such that Ross Roy will be the
surviving corporation of such merger and will become a wholly-owned
subsidiary of Omnicom and each share of Ross Roy Common Stock will be
converted into the right to receive a certain number of shares of
Common Stock of Omnicom, all as more fully described in the
accompanying Prospectus/Information Statement; and
2. To consider and act upon the approval of an escrow agreement (the
"Escrow Agreement") to be entered into in connection with the Merger
Agreement, and the appointment of Chris A. Lawson as representative,
and Richard C. Ward as alternate, to act as the collective agent of the
shareholders of Ross Roy and certain others under the terms of the
Escrow Agreement, all as more fully described in the accompanying
Prospectus/Information Statement; and
3. To consider and act upon any other business which may properly come
before the Special Meeting or any adjournment thereof.
Only holders of record of Class A Common Stock, par value $1.00 per share
("Class A Common Stock"), and Class B Common Stock, par value $1.00 per share
("Class B Common Stock"), of Ross Roy as of the close of business on ______,
1995 are entitled to notice of and to vote at the Special Meeting.
The affirmative votes of the holders of a majority of the outstanding
shares of Class A Common Stock, voting as a class, and of the holders of a
majority of Class B Common Stock, voting as a class, are necessary to approve
the various proposals. None of the proposals shall become effective unless all
of the proposals are adopted by the requisite vote of the Ross Roy shareholders.
As of ___________, 1995, directors and executive officers of Ross Roy as a
group owning ___% of the Class A Common Stock and 100% of the Class B Common
Stock have expressed an intention to vote in favor of the transactions
contemplated herein.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
By Order of The Ross Roy Board of Directors
VERNE C. HAMPTON II
Secretary
Dated: _____________, 1995
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SUBJECT TO COMPLETION
DATED JUNE 19, 1995
ROSS ROY COMMUNICATIONS, INC.
INFORMATION STATEMENT
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OMNICOM GROUP INC.
PROSPECTUS
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This Prospectus/Information Statement is being furnished to holders of
Class A Common Stock, par value $1.00 per share ("Class A Common Stock"), and
Class B Common Stock, par value $1.00 per share ("Class B Common Stock")
(collectively, "Ross Roy Common Stock"), of Ross Roy Communications, Inc., a
Michigan corporation ("Ross Roy"), in connection with proposals (a) to adopt an
Agreement and Plan of Merger (the "Merger Agreement") providing for the merger
(the "Merger") of RRC Acquisition Inc. ("OmniSub"), a Michigan corporation and
wholly-owned subsidiary of Omnicom Group Inc., a New York corporation
("Omnicom"), with and into Ross Roy, with Ross Roy as the surviving corporation,
and (b) to adopt an Escrow Agreement (the "Escrow Agreement") pursuant to the
Merger Agreement and to appoint Chris A. Lawson as representative, and Richard
C. Ward as alternate, to act as the collective agent of the holders of Ross Roy
Common Stock and certain others under the terms of the Escrow Agreement.
Omnicom has filed a Registration Statement with the Securities and
Exchange Commission covering the shares of Omnicom Common Stock to be issued in
connection with the Merger. This Prospectus/Information Statement, along with
the documents and portions of documents incorporated herein by reference,
constitutes the Prospectus of Omnicom filed as a part of such Registration
Statement.
This Prospectus/Information Statement is also being furnished to the EPU
Holder and the Former Eligible Employee Holders, all as defined and more fully
described herein, who will receive shares of Omnicom Common Stock as payment of
rights owned by such individuals subject to the same terms and conditions as the
other shareholders of Ross Roy.
This Prospectus/Information Statement constitutes both an information
statement of Ross Roy with respect to the Special Meeting and a prospectus of
Omnicom with respect to up to 1,000,000 shares of Omnicom Common Stock which may
be issued in connection with the Merger.
THE SECURITIES OF OMNICOM TO BE OFFERED IN CONNECTION WITH THE MERGER HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
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The date of this Prospectus/Information Statement is [ ], 1995.
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No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus/Information
Statement in connection with the Special Meeting or the offering of securities
made hereby and, if given or made, such information or representation must not
be relied upon as having been authorized by Omnicom, Ross Roy or any other
person. This Prospectus/Information Statement does not constitute an offer to
sell, or a solicitation of an offer to buy, any securities, in any jurisdiction
to or from any person to whom it is not lawful to make such offer or
solicitation. Neither the delivery of this Prospectus/Information Statement, nor
any distribution of securities made hereunder, shall, under any circumstances,
create an implication that there has been no change in the affairs of Omnicom or
Ross Roy since the date hereof or that the information contained herein is
correct as of any time subsequent to the date hereof.
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AVAILABLE INFORMATION
Omnicom is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "SEC"). The reports, proxy statements and other information
filed by Omnicom with the SEC can be inspected and copied at the public
reference facilities maintained by the SEC at Judiciary Plaza, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
SEC at 7 World Trade Center, 13th Floor, New York, New York 10048-1102 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material also can be obtained from the Public
Reference Section of the SEC, Washington, D.C. 20549 at prescribed rates. In
addition, material filed by Omnicom can be inspected at the offices of the New
York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New York, New York
10005, on which the Omnicom Common Stock is listed.
Omnicom has filed with the SEC a Registration Statement on Form S-4
(together with all amendments, exhibits, annexes and schedules thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Omnicom Common Stock to be
issued pursuant to the Merger. This Prospectus/Information Statement does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the SEC. Such additional information may be obtained from the SEC's principal
office in Washington, D.C. Statements contained in this Prospectus/Information
Statement or in any document incorporated in this Prospectus/Information
Statement by reference as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC by Omnicom (File No. 1-10551)
pursuant to the Exchange Act are incorporated by reference in this
Prospectus/Information Statement:
1. Omnicom's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994;
2. Omnicom's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995;
3. Omnicom's Proxy Statement dated April 7, 1995, for the Annual
Meeting of Shareholders held on May 22, 1995; and
4. The description of Omnicom's Common Stock contained in Omnicom's
Registration Statement pursuant to the Exchange Act, together with all
amendments or reports filed for the purpose of updating such description.
2
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All documents and reports subsequently filed by Omnicom pursuant to
Sections 13(a), 13(c), l4 or 15(d) of the Exchange Act after the date of this
Prospectus/Information Statement shall be deemed to be incorporated by reference
in this Prospectus/Information Statement and to be a part hereof from the date
of filing of such documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus/Information Statement
to the extent that a statement contained herein or in any other subsequently
filed document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus/Information Statement.
This Prospectus/Information Statement incorporates documents relating to
Omnicom by reference that are not presented herein or delivered herewith. Such
documents (other than exhibits to such documents, unless such exhibits are
specifically incorporated herein by reference) are available to any person,
including any beneficial owner, to whom this Prospectus/Information Statement is
delivered, without charge, on written or oral request directed to Omnicom Group
Inc., 437 Madison Avenue, New York, New York 10022, Attention: Secretary
(telephone number (212) 415-3600). In order to ensure timely delivery of the
documents, any requests should be made by [ ], 1995.
This Prospectus/Information Statement incorporates documents relating to
Ross Roy by reference that are not presented herein or delivered herewith. Such
documents (other than exhibits to such documents, unless such exhibits are
specifically incorporated herein by reference) are available to any person,
including any beneficial owner, to whom this Prospectus/Information Statement is
delivered, without charge, on written or oral request directed to Ross Roy
Communications, Inc., 100 Bloomfield Hills Parkway, Bloomfield Hills, Michigan
48304, Attention: Chris A. Lawson (telephone number (810) 433-6000). In order to
ensure timely delivery of the documents, any requests should be made by
[ ], 1995.
3
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TABLE OF CONTENTS
AVAILABLE INFORMATION ..................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ........................... 2
SUMMARY ................................................................... 5
COMPARATIVE PER SHARE DATA ................................................ 13
MARKET PRICE DATA ......................................................... 14
THE SPECIAL MEETING ....................................................... 15
Date, Time and Place of Special Meeting ............................... 15
Business to be Transacted at the Special Meeting ...................... 15
Record Date, Voting Rights ............................................ 15
Voting Requirements ................................................... 15
Management Ownership .................................................. 15
THE MERGER AGREEMENT AND THE MERGER ....................................... 16
Background of and Ross Roy's Reasons for the Merger; Opinion of
Financial Advisor; Recommendation of the Ross Roy Board of
Directors ........................................................... 16
Omnicom's Reasons for the Merger ...................................... 19
Interests of Ross Roy's Management in the Merger ...................... 20
Procedure for Distributing Shares of Omnicom Common Stock
to Ross Roy Shareholders ............................................ 21
The Merger Agreement .................................................. 21
Other Considerations .................................................. 25
THE ESCROW AGREEMENT AND THE ROSS ROY SHAREHOLDER REPRESENTATIVE .......... 28
BUSINESS INFORMATION CONCERNING OMNICOM ................................... 30
SELECTED FINANCIAL DATA OF OMNICOM ........................................ 31
BUSINESS INFORMATION CONCERNING ROSS ROY .................................. 32
Description of Business ............................................... 32
Executive Officers and Directors; Principal Shareholders .............. 33
SELECTED FINANCIAL DATA OF ROSS ROY ....................................... 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ROSS ROY ..................................... 36
Results of Operations ................................................. 36
Capital Resources and Liquidity ....................................... 38
DESCRIPTION OF OMNICOM CAPITAL STOCK ...................................... 39
DESCRIPTION OF ROSS ROY CAPITAL STOCK ..................................... 39
COMPARISON OF SHAREHOLDER RIGHTS .......................................... 40
LEGAL MATTERS ............................................................. 45
EXPERTS ................................................................... 45
4
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SUMMARY
The following is a brief summary of certain information contained in this
Prospectus/Information Statement. This summary is not intended to be complete
and is qualified in its entirety by reference to the more detailed information
contained in or incorporated by reference in this Prospectus/Information
Statement.
The Companies
Omnicom Group Inc. .......... Omnicom, through its wholly and partially owned
companies, operates advertising agencies which
plan, create, produce and place advertising in
various media such as television, radio,
newspapers and magazines; and offers clients
such additional services as marketing
consultation, consumer market research, design
and production of merchandising and sales
promotion programs and materials, direct mail
advertising, corporate identification and public
relations. According to the unaudited
industry-wide figures published in the trade
journal, Advertising Age, in 1994 Omnicom was
ranked as the third largest advertising agency
group worldwide.
Omnicom operates three separate, independent
agency networks: the BBDO Worldwide Network, the
DDB Needham Worldwide Network and the TBWA
International Network. Omnicom also operates
independent agencies, Altschiller & Company and
Goodby, Silverstein & Partners, and certain
marketing service and specialty advertising
companies through its Diversified Agency
Services Division.
The principal executive offices of Omnicom are
located at 437 Madison Avenue, New York, New
York 10022, telephone number (212) 415-3600.
RRC Acquisition Inc. ....... OmniSub was formed by Omnicom to effect the
proposed Merger with Ross Roy and has not
engaged in any active business.
Ross Roy
Communications, Inc. ....... Ross Roy is a full service marketing
communications company, which was founded in
1926. Ross Roy offers a full range of services
that include both media advertising and
marketing communications and promotional
services. These services consist of direct
marketing, sales promotion, video production,
database management, telemarketing, training,
incentive administration, production of shows
and meetings, sales support services and
satellite teleconferencing. It is also active in
the development and use of new communications
technologies.
The principal executive offices of Ross Roy are
located at 100 Bloomfield Hills Parkway,
Bloomfield Hills, Michigan 48304, telephone
number (810) 433-6000.
The Special Meeting
Date, Time and Place
of Special Meeting ....... The Special Meeting will be held on ,
1995 at _____ A.M. (local time), at 100
Bloomfield Hills Parkway, Bloomfield Hills,
Michigan 48304.
Record Date; Shares
Entitled To Vote ......... Holders of record of shares of Class A
Common Stock and Class B Common Stock of Ross
Roy (collectively, "Ross Roy Shareholders") at
the close of business on [ ] 1995 (the "Record
Date"), are entitled to notice of and to vote at
the Special Meeting. At such date there were
outstanding [ ] shares of Class A Common Stock,
each of which will be entitled to one vote at
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the Special Meeting, and 54,800 shares of Class
B Common Stock, each of which will be entitled
to one vote at the Special Meeting.
Purpose of the
Special Meeting ........... The purpose of the Special Meeting is to
consider and vote upon the following matters:
(a) a proposal to approve the Merger Agreement
and the transactions contemplated thereby,
including without limitation the Merger of
OmniSub with and into Ross Roy pursuant to
the Merger Agreement, such that Ross Roy
will be the surviving corporation of such
Merger and will become a wholly-owned
subsidiary of Omnicom, and each share of
Ross Roy Common Stock will be converted into
the right to receive shares of Omnicom
Common Stock, as more fully described
herein;
(b) a proposal to approve the Escrow Agreement
and the transactions contemplated thereby,
and to appoint Chris A. Lawson as
representative, and Richard C. Ward as
alternate, to act on behalf of the Ross Roy
Shareholders and certain others under the
terms of the Escrow Agreement; and
(c) such other proposals as may properly be
brought before the Special Meeting and any
adjournment thereof.
None of these matters will become effective
unless all of the proposals are adopted by the
requisite vote of the Ross Roy Shareholders.
Vote Required ............... The approval of the various proposals by
Ross Roy Shareholders will require the
affirmative votes of the holders of a majority
of the outstanding shares of Class A Common
Stock voting as a class, and the holders of a
majority of the outstanding shares of Class B
Common Stock, voting as a class.
As of the Record Date, directors and executive
officers of Ross Roy owned, of record, an
aggregate of ________ shares of Class A Common
Stock, constituting ____% of the outstanding
Class A Common Stock as of such date, and an
aggregate of 54,800 shares of Class B Common
Stock, constituting 100% of the outstanding
Class B Common Stock as of such date. Each of
such individuals has expressed an intention to
vote in favor of the various proposals.
Accordingly, the proposals can be approved
without the affirmative vote of any other Ross
Roy Shareholders.
Description of Certain Terms of the Merger Agreement
The Proposed Merger ....... Subject to the approval of the Ross Roy
Shareholders of the Merger Agreement, OmniSub
will be merged with and into Ross Roy with Ross
Roy as the surviving corporation. As a result of
the Merger, the business of Ross Roy will be
operated as a wholly-owned subsidiary of
Omnicom, as part of Omnicom's Diversified Agency
Services Division.
Conversion of Ross Roy
Common Stock ............. If the Merger is consummated, each share of
Ross Roy Common Stock will be converted into
shares of Omnicom Common Stock, based upon a
formula Conversion Price described more fully
under "The Merger Agreement and the Merger--The
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Merger Agreement--Determination of Conversion
Price", and the "Market Value" of the Omnicom
Common Stock. The actual "Market Value" of the
Omnicom Common Stock shall be determined by the
average of the closing prices per share of
Omnicom Common Stock reported on the New York
Stock Exchange for the 20 consecutive trading
days ending two business days immediately prior
to the date the Merger Agreement is closed (the
"Closing Date"). Ross Roy Shareholders otherwise
entitled to a fractional share of Omnicom Common
Stock will be paid cash in lieu of such
fractional share.
The actual Conversion Price will be dependent
upon the outstanding number of shares of Ross
Roy Common Stock at the time the Merger is
legally effective under the laws of the State of
Michigan (the "Effective Time of the Merger"),
as well as the amounts payable to the EPU Holder
and the Former Eligible Employee Holders, as
defined and described more fully under "Payment
of Certain Obligations of Ross Roy" below, and
"The Merger Agreement and the Merger--The Merger
Agreement--Determination of Conversion Price".
The total number of shares of Omnicom Common
Stock to be issued to the Ross Roy Shareholders
based upon such Conversion Price will be
dependent on the Market Value of the Omnicom
Common Stock. In order to make certain estimates
in this Prospectus/Information Statement
relating to the consideration to be paid to the
Ross Roy Shareholders, it has been assumed that
at the Effective Time of the Merger (i) 428,453
shares of Ross Roy Common Stock will be
outstanding (consisting of the [403,253] shares
currently outstanding and an additional [25,200]
shares which may be issued between the date
hereof and the Effective Time of the Merger to
holders of rights and options to purchase Class
A Common Stock), (ii) there will be no change in
the amount payable to the EPU Holder by virtue
of the federal capital gains rate being
increased or decreased from the current 28%, and
(iii) there will be no persons in the category
of Former Eligible Employee Holders other than
the one person currently in that category and
from whom Ross Roy purchased 2,400 shares of
Ross Roy Common Stock upon his retirement in
December 1994. Based on these assumptions, each
share of Ross Roy Common Stock would be
converted into the right to receive shares of
Omnicom Common Stock having a Market Value of
$118.21. Assuming that the Market Value of the
Omnicom Common Stock were $58.875 (which was the
closing price per share of Omnicom Common Stock
on the New York Stock Exchange on the last full
trading day prior to the execution and delivery
of the Merger Agreement), each share of Ross Roy
Common Stock would be converted into the right
to receive 2.0078 shares of Omnicom Common
Stock.
Payment of Certain
Obligations of Ross Roy ... Ross Roy has outstanding obligations to make
certain payments as a result of the consummation
of the Merger, based upon the consideration
received by the Ross Roy Shareholders. These
obligations, and the manner in which they are
being satisfied, are as follows:
(a) Under Ross Roy's 1984 Equity Participation
Plan (the "EPU Plan"), a holder of equity
participation units ("EPUs") granted
thereunder has the right to receive, upon a
change in control of Ross Roy, payment in
respect of his EPUs in an amount equal to
the excess of the consideration received by
the Ross Roy Shareholders over the base
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7
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price of such EPUs ($21.62 per share), plus
a tax gross-up factor. There are currently
10,000 EPUs outstanding, all of which are
held by Chris A. Lawson (the "EPU Holder"),
the Executive Vice President and Chief
Financial Officer of Ross Roy. Accordingly,
at the Effective Time, Omnicom will satisfy
this obligation to the EPU Holder in shares
of Omnicom Common Stock as if such person
were a Ross Roy Shareholder, including the
indemnification obligations described below.
(b) Under Ross Roy's Articles of Incorporation
(the "Ross Roy Articles"), if an employee of
Ross Roy retires (after reaching normal
retirement age) or dies, his shares of Ross
Roy Common Stock are repurchased by Ross Roy
at their formula book value price as
calculated in accordance with the Ross Roy
Articles. If a change in control of Ross Roy
occurs within one year of such retirement or
death, such former employee (the "Former
Eligible Employee Holder") is entitled to
receive his pro rata share of the
consideration received by the other Ross Roy
Shareholders (as reduced by any amounts
theretofore paid to him by Ross Roy in
respect of his shares). There is currently
one Former Eligible Employee Holder from
whom Ross Roy purchased 2,400 shares of
Class A Common Stock in December 1994.
However, there could be more at the
Effective Time of the Merger (although no
current employee of the Company will attain
normal retirement age between the date
hereof and December 31, 1995). Accordingly,
at the Effective Time, Omnicom will satisfy
this obligation to the Former Eligible
Employee Holder and any other Ross Roy
Shareholder who becomes a Former Eligible
Employee Holder in shares of Omnicom Common
Stock as if such persons were Ross Roy
Shareholders, including the indemnification
obligations described below.
Indemnification
Obligations ................ Pursuant to the Merger Agreement, the Ross Roy
Shareholders are required to indemnify Omnicom
and its affiliates against certain losses and
damages arising under the Merger Agreement, and
the EPU Holder and Former Eligible Employee
Holders will share these indemnification
obligations of the Ross Roy Shareholders on a
pro rata basis. Losses and damages may arise as
a result of (i) the inaccuracy or breach of any
representation or warranty or covenant of Ross
Roy contained in the Merger Agreement, or the
breach of or failure by Ross Roy to perform or
discharge any of its obligations under the
Merger Agreement, or (ii) the payment of any
judgment or settlement in respect of litigations
and threatened litigations set forth on a
schedule to the Merger Agreement in excess of
the aggregate reserves recorded for such matters
in the financial records of Ross Roy, all of
which are contingencies whose outcomes could not
reasonably be determined at the time of the
execution of the Merger Agreement.
Indemnification obligations arising under clause
(i) of this paragraph arise only to the extent
that such losses and damages exceed $250,000.
To satisfy the indemnification obligations
arising under clause (i) of the preceding
paragraph, shares of Omnicom Common Stock having
a Market Value of $2,525,000 shall be placed
into an escrow account (the "General Escrow
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
Fund") under the terms of the Escrow Agreement
(the "Escrow Agreement") among Omnicom, Ross
Roy, the Ross Roy Shareholder Representative and
The Chase Manhattan Bank, N.A., as escrow agent
(the "Escrow Agent"). To satisfy the
indemnification obligations arising under clause
(ii) of the preceding paragraph, shares of
Omnicom Common Stock having a Market Value of
$1,300,000 will be placed into an additional
escrow account (the "Special Escrow Fund") under
the Escrow Agreement. Indemnification
obligations arising under clause (i) of the
preceding paragraph may be satisfied only from
the General Escrow Fund, and those arising under
clause (ii) of the preceding paragraph may be
satisfied only from the Special Escrow Fund.
Each of the Ross Roy Shareholders, the EPU
Holder and the Former Eligible Employee Holders
shall deposit his pro rata share of the General
Escrow Fund and Special Escrow Fund based on the
number of shares of Omnicom Common Stock
received in the Merger.
The indemnification obligations of the Ross Roy
Shareholders, the EPU Holder and the Former
Eligible Employee Holders will be limited to and
satisfied solely from, the General Escrow Fund
and Special Escrow Fund under the Escrow
Agreement (such that neither Omnicom nor any of
its affiliates will have any recourse for the
payment of any losses or other damages arising
out of the transactions contemplated by the
Merger Agreement against the Ross Roy
Shareholders, the EPU Holder or the Former
Eligible Employee Holders, nor shall any of such
persons be personally liable for any such losses
or damages). Indemnification obligations to be
satisfied out of the General Escrow Fund will
terminate on the earlier of the first
independent audit report, if any, of Ross Roy
following the Effective Time of the Merger or
one year from the Effective Time (except that
claims asserted in writing on or prior to such
date will survive until they are decided and are
final and binding on the parties).
Indemnification obligations to be satisfied out
of the Special Escrow Fund will terminate at
such time as all matters indemnifiable
thereunder shall have been fully paid or finally
settled.
See "The Merger Agreement and the Merger--The
Merger Agreement--Indemnification Obligations"
and "The Escrow Agreement and The Ross Roy
Shareholder Representative".
Conditions to the Merger ... Consummation of the Merger is contingent
upon satisfaction of certain conditions,
including without limitation, the SEC not having
objected to Omnicom's treatment of the Merger as
a pooling-of-interests for accounting purposes,
the Registration Statement having been declared
effective by the SEC and not subject to a stop
order, or threatened stop order, and the Omnicom
Common Stock being registered thereunder having
been approved for listing on the New York Stock
Exchange. In the event that a condition of the
Merger is not satisfied, the Merger may be
abandoned even if prior thereto the Merger has
been approved by the Ross Roy Shareholders.
Termination of the
Merger Agreement;
Termination Fee ............ The Merger Agreement is subject to termination
at the option of either Omnicom or Ross Roy if
the Merger is not consummated by December 29,
1995, and prior to such time upon the occurrence
of certain events. If the Merger Agreement is
terminated by either Omnicom or Ross Roy in
certain circumstances as a result of an
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9
<PAGE>
- --------------------------------------------------------------------------------
alternative acquisition proposal for Ross Roy
which is not rejected by the Ross Roy Board of
Directors, Ross Roy is required to pay Omnicom a
termination fee of $1,000,000. See "The Merger
Agreement and the Merger--The Merger
Agreement--Termination."
Other Considerations
Recommendation of the
Ross Roy Board of Directors .. The Board of Directors of Ross Roy has approved
the Merger Agreement and the transactions
contemplated thereby and recommends its approval
by the Ross Roy Shareholders.
Interests of Certain
Persons in the Merger ........ For a description of certain interests of
certain directors and executive officers of Ross
Roy in the Merger that are in addition to the
interests of Ross Roy Shareholders generally,
see "The Merger Agreement and the
Merger--Interests of Ross Roy's Management in
the Merger".
Certain Income Tax
Consequences ................ The Merger is intended to be a tax free
reorganization within the meaning of the United
States Internal Revenue Code of 1986, as amended
(the "Code"). In general, the Ross Roy
Shareholders will not recognize gain or loss as
a result of the exchange of shares of Ross Roy
Common Stock for shares of Omnicom Common Stock
pursuant to the Merger. However, the receipt of
cash in lieu of fractional shares may give rise
to taxable income. The Former Eligible Employee
Holder will recognize a gain to the extent of
the fair market value of the Omnicom Common
Stock received as a result of the Merger. The
fair market value of the Omnicom Common Stock
received in payment of the EPUs will be included
in gross income of the EPU Holder as taxable
compensation. With respect to Ross Roy
Shareholders who are Canadian residents, a
portion of the gain attributable to the Omnicom
Common Stock received in exchange for shares of
Ross Roy Common Stock will be included in gross
income of such Canadian Ross Roy Shareholders.
See "The Merger Agreement and the Merger--Other
Considerations--Certain Income Tax
Consequences". Ross Roy Shareholders should
consult their tax advisors regarding the tax
consequences of the Merger to them in their
particular circumstances.
Accounting Treatment ....... The Merger will be accounted for by Omnicom as a
pooling-of-interests for financial reporting
purposes in accordance with generally accepted
accounting principles. See "The Merger Agreement
and the Merger--Other Considerations--Accounting
Treatment".
Regulatory Approvals ........ Omnicom and Ross Roy each filed notification and
report forms under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended
(the "Hart-Scott-Rodino Act") with the Federal
Trade Commission (the "FTC") and the Antitrust
Division of the Justice Department (the
"Antitrust Division") on _________, 1995, and
each was advised that there was early
termination of the applicable waiting period on
_____________, 1995. See "The Merger Agreement
and the Merger--Other Considerations--Regulatory
Approvals".
Resales of Omnicom
Common Stock .............. Shares of Omnicom Common Stock received by Ross
Roy Shareholders as a result of the Merger will
be freely transferable, except that resales of
Omnicom Common Stock by Ross Roy Shareholders
who are deemed to be "affiliates" (as such term
is understood under the Securities Act)
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10
<PAGE>
- --------------------------------------------------------------------------------
of Ross Roy prior to the Merger may be subject
to certain restrictions. See "The Merger
Agreement and the Merger--Other
Considerations--Resales of Omnicom Common
Stock".
No Dissenters' Rights ...... Holders of Ross Roy Common Stock are not
entitled to dissenters' rights under Michigan
law in connection with the Merger. See "The
Merger Agreement and the Merger--Other
Considerations--No Dissenters' Rights".
The Escrow Agreement and
The Ross Roy Shareholder Representative
The Escrow Agreement ....... As described above under "Description of Certain
Terms of the Merger--Indemnification
Obligations", indemnification obligations
arising out of the Merger Agreement will be
satisfied from shares of Omnicom Common Stock
placed into the General and Special Escrow Funds
established under the Escrow Agreement. The
General Escrow Fund shall consist of shares of
Omnicom Common Stock having a Market Value of
$2,525,000; the Special Escrow Fund shall
consist of shares of Omnicom Common Stock having
a Market Value of $1,300,000.
Each of the Ross Roy Shareholders, the EPU
Holder and the Former Eligible Employee Holders
shall be depositing his pro rata share of the
General Escrow Fund or Special Escrow Fund
determined by multiplying the aggregate number
of shares of Omnicom Common Stock required to be
deposited into such Escrow Fund by a fraction,
the numerator of which is the number of shares
of Omnicom Common Stock issuable to such
individual in the Merger and the denominator of
which is the total number of shares of Omnicom
Common Stock issuable in the Merger to all such
individuals required to provide indemnification,
rounded up to the nearest whole share. Based
upon the assumptions set forth above under
"Conversion of Ross Roy Common Stock", of the
$118.21 Conversion Price payable in respect of
each share of Ross Roy Common Stock, Omnicom
Common Stock having a Market Value of $___ would
be deposited in the General Escrow Fund and
Omnicom Common Stock having a Market Value of
$___ would be deposited in the Special Escrow
Fund.
Since the amounts held in such Escrow Funds are
subject to claims in respect of contingent
liabilities, there can be no assurance that
amounts held therein will in fact be distributed
to the Ross Roy Shareholders, the EPU Holder and
the Former Eligible Employee Holders.
For purposes of satisfying any claims, each
share of Omnicom Common Stock deposited in
either Escrow Fund will be valued at the Market
Value, regardless of actual fluctuations in the
market value of the Omnicom Common Stock after
the Closing Date.
See "The Escrow Agreement and the Ross Roy
Shareholder Representative--The Escrow
Agreement".
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11
<PAGE>
- --------------------------------------------------------------------------------
Appointment of the
Ross Roy Shareholder
Representative ............ It is a condition to Closing under the Merger
Agreement that the Ross Roy Shareholders appoint
a representative (the "Ross Roy Shareholder
Representative") to act as their collective
agent in connection with the Escrow Agreement,
including one or more alternate individuals to
act as the Ross Roy Shareholder Representative
in the event that the designated Representative
shall have died, resigned, or otherwise become
incapable or unwilling to act as Representative.
The Ross Roy Shareholder Representative shall
also act as the agent for the Former Eligible
Employee Holders and the EPU Holder; the EPU
Holder has delivered to Ross Roy his written
agreement to such effect.
Appointment of the Ross Roy Shareholder
Representative shall include the specific
authorization for such Representative to (i)
execute and deliver the Escrow Agreement and any
documents incident or ancillary thereto,
including without limitation any amendments,
cancellations, extensions or waivers in respect
thereof; (ii) respond to and make determinations
in respect of the assertion of any and all
claims for indemnification by Omnicom, and to
assert claims on behalf of the Ross Roy
Shareholders, the EPU Holder and the Former
Eligible Employee Holders, pursuant to the terms
of the Escrow Agreement and the terms of the
Merger Agreement pertaining thereto; (iii)
execute and deliver any stock powers which may
be required to be executed by any Ross Roy
Shareholder, the EPU Holder or any Former
Eligible Employee Holder in order to permit the
delivery to Omnicom of any shares of Omnicom
Common Stock to be delivered to it pursuant to
the Escrow Agreement; and (iv) take all such
other actions as may be necessary or desirable
to carry out his responsibilities as collective
agent of the Ross Roy Shareholders, the EPU
Holder and Former Eligible Employee Holders in
respect of the Escrow Agreement. In addition,
the terms of the appointment shall be that the
Ross Roy Shareholder Representative shall not be
responsible to any Ross Roy Shareholder for any
loss or damage any such Ross Roy Shareholder may
suffer by reason of the performance of his
duties, other than loss or damage arising from
willful violation of the law or gross negligence
in the performance of his duties as the Ross Roy
Shareholder Representative. Finally, the
appointment shall also include the consent of
the Ross Roy Shareholders to the procedure to be
followed in the event that the Ross Roy
Shareholder Representative and any alternate
shall be unable or unwilling to serve or
continue to serve as such.
The proposal before the Ross Roy Shareholders is
that Chris A. Lawson be appointed as Ross Roy
Shareholder Representative, with Richard C. Ward
appointed as alternate. See "Ross Roy
Shareholder Representative--Appointment of the
Ross Roy Shareholder Representative."
Recommendation of
the Ross Roy Board
of Directors ............... The Board of Directors of Ross Roy recommends
that the Ross Roy Shareholders approve the
Escrow Agreement and the appointment of Chris A.
Lawson as the Ross Roy Shareholder
Representative, and Richard C. Ward as
alternate.
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12
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are unaudited income from continuing operations, cash
dividends declared and book value per common share data of Omnicom and Ross Roy
on both historical and pro forma combined bases. Pro forma combined income from
continuing operations per share is calculated under the pooling-of-interests
accounting method and assumes that the Merger had occurred immediately prior to
the period being reported upon. Pro forma combined cash dividends declared per
share reflects Omnicom cash dividends declared in the periods indicated. The pro
forma combined data has been calculated based upon the material assumptions that
the Conversion Price will be $118.21 per share of Ross Roy Common Stock and the
Market Value of the Omnicom Common Stock will be $58.875. The information set
forth below should be read in conjunction with the respective audited and
unaudited financial statements of Omnicom incorporated by reference in this
Prospectus/Information Statement and of Ross Roy included in this
Prospectus/Information Statement.
As of
As of December 31,
March 31, 1995 1994
-------------- -------------
Book Value per Share:
Omnicom ...................................... $ 15.86 $ 14.96
Ross Roy ..................................... $ 2.38 $ 7.97
Ross Roy Formula Value (A) ................... -- $ 34.62
Pro forma .................................... $ 15.51 $ 14.67
<TABLE>
<CAPTION>
Year Ended December 31,
Three Months ended --------------------------------
March 31, 1995 1992 1993 1994
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Dividends Declared
per Share:
Omnicom ................................. $ 0.31 $ 1.21 $1.24 $ 1.24
Ross Roy -- -- -- --
Pro forma ............................... $ 0.31 $ 1.21 $1.24 $ 1.24
Net Income (loss) per Share:
Omnicom:
Primary ............................... $ 0.68 $ 2.31 $2.79 $ 3.15
Fully diluted ......................... $ 0.68 $ 2.20 $2.62 $ 3.07
Ross Roy:
Primary ............................... $ 5.09 ($13.06) $9.23 $11.98
Fully diluted ......................... $ 5.09 ($13.06) $9.23 $11.71
Pro forma:
Primary ............................... $ 0.71 $ 2.00 $2.86 $ 3.15
Fully diluted ......................... $ 0.70 $ 1.96 $2.68 $ 3.07
</TABLE>
- --------------
(A) Represents the formula book value price as calculated under the Ross Roy
Articles. The formula is based upon actual book value as adjusted for
certain items determined by the Ross Roy Board of Directors and the fair
value of certain investments.
13
<PAGE>
MARKET PRICE DATA
There is no public market for Ross Roy Common Stock. Ross Roy has never
declared or paid any cash dividends on any shares of Ross Roy Common Stock. In
the event that the Merger is not consummated, it is not expected that any cash
dividends would be paid on any shares of Ross Roy Common Stock in the
foreseeable future.
Omnicom Common Stock is listed on the NYSE. The table below sets forth, for
the calendar quarters indicated, the reported high and low sale prices of
Omnicom Common Stock as reported on the NYSE Composite Tape, in each case based
on published financial sources, and the dividends paid per share on the Omnicom
Common Stock for such periods.
Omnicom Common Stock
-----------------------------------
High Low Dividends
---- --- ---------
1993
First Quarter .................... 47 1/2 38 3/8 .310
Second Quarter ................... 47 1/4 38 1/4 .310
Third Quarter .................... 46 1/4 37 .310
Fourth Quarter ................... 46 1/2 41 1/2 .310
1994
First Quarter ..................... 49 7/8 43 3/4 .310
Second Quarter .................... 49 1/2 44 7/8 .310
Third Quarter ..................... 51 1/2 48 .310
Fourth Quarter .................... 53 3/4 49 .310
1995
First Quarter ..................... 56 7/8 50 .310
Second Quarter (through _____, 1995)
On June 14, 1995, the last full trading day prior to the execution and
delivery of the Merger Agreement, the closing price of Omnicom Common Stock on
the NYSE Composite Tape was $58.875 per share.
On [ ], 1995, the most recent practicable date prior to the printing of
this Prospectus/Information Statement, the closing price of Omnicom Common Stock
on the NYSE Composite Tape was $[ _____] per share.
14
<PAGE>
THE SPECIAL MEETING
Date, Time and Place of Special Meeting
This Prospectus/Information Statement is being furnished to the holders of
Class A Common Stock and the holders of Class B Common Stock of Ross Roy in
connection with the Special Meeting of Ross Roy Shareholders to be held on
________ 1995 at ____ A.M. (local time), at 100 Bloomfield Hills Parkway,
Bloomfield Hills, Michigan 48304.
This Prospectus/Information Statement is first being mailed to the Ross Roy
Shareholders on or about ________, 1995.
Business to be Transacted at the Special Meeting
At the Special Meeting, Ross Roy Shareholders will consider and vote upon
the following matters (collectively the "Ross Roy Vote Matters"):
1. A proposal to approve the Merger Agreement and the transactions
contemplated thereby, including without limitation the Merger of OmniSub
with and into Ross Roy pursuant to the Merger Agreement such that the
surviving corporation of such Merger shall be a wholly-owned subsidiary of
Omnicom, and each share of Ross Roy Common Stock shall be converted into
the right to receive shares of Omnicom Common Stock, as more fully
described herein;
2. A proposal to approve the Escrow Agreement and the transactions
comtemplated thereby, and to appoint Chris A. Lawson as Ross Roy
Shareholder Representative and Richard C. Ward as alternate, to act on
behalf of the Ross Roy Shareholders and certain others under the terms of
the Escrow Agreement; and
3. Such other proposals as may properly come before the Special
Meeting or any adjournment thereof.
None of the proposals shall become effective unless all of the proposals
are adopted by the requisite vote of the Ross Roy Shareholders.
Record Date; Voting Rights
Only shareholders of record of Class A Common Stock and Class B Common
Stock as at the close of business on _________, 1995 will be entitled to vote at
the Special Meeting. On that Record Date there were issued and outstanding
______ shares of Class A Common Stock and 54,800 shares of Class B Common Stock.
Each share of each class of Ross Roy Common Stock is entitled to one vote per
share on the Ross Roy Vote Matters at the Special Meeting or any adjournment or
postponement thereof.
Voting Requirements
The presence of the holders of a majority of the voting power of all shares
of Class A Common Stock and Class B Common Stock entitled to vote on the Record
Date is necessary to constitute a quorum for the transaction of business at the
Special Meeting.
Under the Michigan Business Corporation Act (the "MBCA"), the affirmative
vote of the holders of a majority of the outstanding shares of Class A Common
Stock, voting as a class, and a majority of the outstanding shares of Class B
Common Stock, voting as a class, will be required to approve the Merger.
Abstentions have the effect of negative votes.
Management Ownership
As of the Record Date, directors and executive officers of Ross Roy as a
group owned ______ shares of Class A Common Stock and 54,800 shares of Class B
Common Stock, representing ___% and 100%, respectively, of the outstanding
shares of these classes of Ross Roy Common Stock. Each of these persons has
expressed an intention to vote in favor of the transactions contemplated herein.
Accordingly, the Ross Roy Vote Matters can be approved by the affirmative vote
of such persons even if all other Ross Roy Shareholders vote against the
proposals.
No proxies are being solicited in connection with the Special Meeting.
15
<PAGE>
THE MERGER AGREEMENT AND THE MERGER
(The information contained in this Registration Statement of which this
Prospectus/Information Statement forms a part is qualified in its entirety by
reference to the complete text of the Merger Agreement, which is filed as an
Exhibit thereto and is incorporated herein by reference.)
Background of and Ross Roy's Reasons for the Merger; Opinion of Financial
Advisor Recommendation of the Ross Roy Board of Directors
Overview
After the Effective Time of the Merger, Ross Roy, as the surviving
corporation in the Merger, will continue as a separate subsidiary of Omnicom and
conduct its business as part of the Diversified Agency Services Division of
Omnicom, under Ross Roy's current management. The Merger Agreement provides that
except with respect to the position of Secretary, which shall be held by Barry
J. Wagner, General Counsel to Omnicom, the officers of Ross Roy shall continue
as the officers of the surviving corporation, each to hold office, subject to
the applicable provisions of the surviving corporation's By-laws, at the
pleasure of the Board of Directors of the surviving corporation, and until his
or her successor shall be elected and duly qualified. See "The Merger Agreement
and the Merger -- Interests of Ross Roy's Management in the Merger" for a
description of proposed employment and non-competition agreements between Ross
Roy and certain executive officers and directors of Ross Roy, to be entered into
on the Closing Date.
The initial Board of Directors of Ross Roy immediately following the
Effective Time of the Merger will be composed of five directors: John D. Wren,
Chief Executive Officer of the Diversified Agency Services Division of Omnicom;
James A. Cannon, Vice Chairman and Chief Financial Officer of BBDO Worldwide
Inc.; J. Thomas Clark, Vice Chairman of BBDO Worldwide Inc. and Chairman and
Chief Executive Officer of BBDO North America Inc.; Peter Mills, Chairman,
President and Chief Executive Officer of Ross Roy; and Chris A. Lawson,
Executive Vice President and Chief Financial Officer of Ross Roy.
The terms of the Merger Agreement, including the terms of the Escrow
Agreement, are the result of arm's-length negotiations between representatives
of Omnicom and representatives of Ross Roy.
Background of the Merger
In early 1992, Ross Roy received an unsolicited expression of interest from
BBDO Worldwide Inc., a subsidiary of Omnicom ("BBDO"), to explore the
possibility of a merger transaction. Exploratory discussions were held from time
to time during the summer and fall of 1992 between senior management of BBDO and
Ross Roy. In early 1993, the parties agreed to terminate further discussions
concerning a merger transaction.
Beginning in late summer of 1994, senior management of Ross Roy began
evaluating strategic alternatives to address several significant developments in
its business. These developments included (i) a possible review of its agency
relationship with its then second largest client, Kmart Corporation, (ii) the
known preference of its largest client, Chrysler Corporation, to consolidate its
advertising account into fewer agencies, (iii) the need to enhance its
international capabilities to continue to provide competitive services to its
clients, and (iv) the need to make substantial capital investments in its
business. Included among the strategic alternatives being considered were the
strategic alliance of Ross Roy with a larger advertising agency as well as the
possible acquisition by Ross Roy of another advertising agency.
To assist in the evaluation of such strategic alternatives, Ross Roy
engaged McDonald & Company Securities, Inc. ("McDonald") in August 1994 as its
financial advisor. Between August and October 1994, McDonald met several times
with senior management and the Executive Committee of the Ross Roy Board of
Directors to evaluate strategic alternatives and to assess its competitive
position within the advertising industry. As a result of these discussions,
McDonald prepared a Confidential Descriptive Memorandum in November 1994
describing the business of Ross Roy and also developed a list of potential
merger partners and a list of potential acquisition candidates. Informal
exploratory discussions were held with several of the potential merger partners,
three of whom (including Omnicom) expressed interest in pursuing further
discussions.
In late November 1994, prior to providing a copy of the Confidential
Descriptive Memorandum to the three potential merger partners, Kmart announced
that it would review its agency relationship with Ross Roy. The Executive
Committee of the Ross Roy Board of Directors decided not to participate in the
review, the likely consequence of which would be the eventual termination of
16
<PAGE>
Ross Roy's client relationship with Kmart. As a result of the likely loss of the
Kmart account, Ross Roy believed that further efforts to explore a strategic
merger or other business combination with another agency would be negatively
affected. Accordingly, the Executive Committee suspended further discussions
with potential merger partners.
During December 1994, several of the potential merger partners (including
Omnicom) indicated to Ross Roy that the uncertainty surrounding the Kmart
account did not diminish their interest in proceeding with discussions
concerning a strategic combination or merger with Ross Roy. Accordingly, in
January 1995, the Executive Committee decided to move forward with discussions
with the three potential merger partners and proceeded to distribute the
Confidential Descriptive Memorandum. From late January through March l995, the
potential merger partners conducted business, accounting and legal due diligence
investigations of Ross Roy.
On March 16, 1995, Ross Roy sent to each of the three potential merger
partners a detailed letter (i) setting forth the auction procedure by which Ross
Roy would consider proposals for the purchase of Ross Roy and (ii) requesting
the submission of formal proposals concerning such a purchase. The letter also
contained forms of a merger agreement for a cash transaction and a stock
transaction which Ross Roy would consider as a basis for completing a merger
transaction.
Each of the potential merger partners responded by April 3, 1995 with a
written proposal letter setting forth in broad conceptual terms the general
structure for an acquisition of Ross Roy. The proposals varied significantly.
McDonald continued discussions with each of the potential merger partners to
clarify and refine their respective proposals.
On April 10, 1995, Ross Roy received a draft merger agreement from Omnicom.
During the remainder of April and through the latter part of May 1995, Ross Roy
and Omnicom conducted detailed negotiations as to price, terms and form of a
transaction. Discussions continued during this time period with the other two
potential merger partners as to the structure and feasibility of their
respective proposals for a merger transaction.
On May 9, 1995, Peter Mills, the Chairman, President and Chief Executive
Officer of Ross Roy, was informed by one of the other two potential merger
partners that it was withdrawing its proposal for a merger transaction.
Discussions with the other potential merger partner continued during the first
three weeks of May 1995.
During the period from April 3, 1995 to May 21, 1995, the Ross Roy Board of
Directors met on April 13, April 26, and May 16, to review the status of the
various proposals. At each of these meetings the Board of Directors met with its
financial advisors and legal counsel to review and discuss the terms, conditions
and negotiating positions with respect to each proposal.
The Ross Roy Board of Directors met on May 21, 1995 with its legal and
financial advisors to review Omnicom's proposal and the status of the other
proposal. At the meeting, copies of the proposed Merger Agreement and the Escrow
Agreement were made available to the Board. Following extensive discussion of
the terms of the proposed Merger and related transactions and of operational,
legal, and regulatory issues relating to Omnicom's proposal, a review of the
status of the other proposal, a presentation by McDonald regarding the financial
aspects of the Merger, and receipt of the verbal opinion of McDonald that the
consideration to be received by the Ross Roy Shareholders pursuant to the Merger
Agreement is fair from a financial point of view, the Board of Directors
approved the Merger Agreement and authorized its execution and delivery, based
on, among other things, the considerations set forth below under "--Ross Roy's
Reasons for the Merger." At the same time, the proposal of the other remaining
potential merger partner was officially rejected. A press release announcing the
proposed Merger was issued on May 22, 1995. The Merger Agreement was executed
and delivered by the parties on June 15, 1995.
Ross Roy's Reasons for the Merger
The Board of Directors has determined that the Merger Agreement and the
Merger are advisable and in the best interests of Ross Roy and the Ross Roy
Shareholders and has approved the Merger Agreement and Merger.
In reaching its determination that the Merger Agreement is in the best
interests of Ross Roy and the Ross Roy Shareholders, the Board considered a
number of factors, including, without limitation, the following:
17
<PAGE>
(i) The Board's assessment that Ross Roy could more fully realize its
long range strategic objectives through affiliation with a substantially
larger agency, such as Omnicom, thereby affording Ross Roy access to
Omnicom's financial and managerial resources, international service
facilities and access to new customers;
(ii) Ross Roy's dependence on its principal client, Chrysler, and the
possibility of strengthening the relationship with Chrysler by integrating
the delivery of services by Ross Roy and Omnicom;
(iii) Ross Roy Shareholders receiving dividend paying marketable
securities of Omnicom in exchange for their illiquid equity interest in
Ross Roy;
(iv) the opinion of McDonald (later confirmed in writing) that the
consideration to be received by the Ross Roy Shareholders pursuant to the
Merger Agreement is fair to such shareholders from a financial point of
view (see "--Opinion of Financial Advisor");
(v) the belief of the Ross Roy Board and executive management that
Omnicom's proposal was more favorable than any other potential merger
proposal (see "--Background of the Merger");
(vi) The terms of the Merger Agreement as reviewed by the Ross Roy
Board with its legal and financial advisors (see "--The Merger Agreement");
(vii) information relating to the financial condition, results of
operations, capital levels and prospects of Ross Roy (see "Selected
Financial Data of Ross Roy"), and management's best estimates of the
prospects of Ross Roy (see "--Opinion of Financial Advisor");
(viii) the current and prospective environment in which Ross Roy
operates, including national and local economic conditions, the competitive
environment for advertising generally;
(ix) information relating to the tax consequences of the Merger for
Ross Roy and for the Ross Roy Shareholders (see "--Other
Considerations--Certain Income Tax Consequences");
The foregoing discussion of the information and factors discussed by the
Board of Directors is not meant to be exhaustive but is believed to include all
material factors considered by the Ross Roy Board. The Board did not quantify or
attach any particular weight to the various factors that it considered in
reaching its determination that the Merger is in the best interest of the Ross
Roy Shareholders.
Opinion of Financial Advisor
McDonald was retained by Ross Roy to render an opinion to its Board of
Directors as to the fairness, from a financial point of view, to Ross Roy of the
Conversion Price to be paid by Omnicom. On May 21, 1995 McDonald delivered to
the Ross Roy Board of Directors an oral opinion (the "Opinion") (later confirmed
in writing) to the effect that, as of that date and based upon and subject to
certain matters stated therein, the Conversion Price to be received was fair,
from a financial point of view, to the Ross Roy Shareholders.
In arriving at its opinion, McDonald reviewed the financial terms of the
Merger and met with certain senior officers, directors and other representatives
and advisors of Ross Roy to discuss the business, operations and prospects of
Ross Roy. In addition, McDonald performed a variety of financial and comparative
analyses, including (i) an EBIT multiple analysis in which McDonald calculated a
range of value for Ross Roy based upon a multiple of historical earnings before
interest and taxes ("EBIT") in 1993, 1994 and projected EBIT for 1995; (ii) a
discounted cash flow analysis in which McDonald estimated the present value of
the future cash flows that Ross Roy could produce over a six-year period from
1995 through 2000, if Ross Roy were to perform on a stand-alone basis; (iii) a
comparable public company analysis in which McDonald reviewed and compared
selected actual and estimated financial, operating and stock market information
for Ross Roy in comparison with various companies whose stock is traded on
various stock exchanges and whose business is similar to that of Ross Roy; (iv)
a stock price and trading history in which McDonald reviewed the daily and
weekly trading activity, including price and volume statistics, of Omnicom for
the most recent four years since January 1990; and (v) a review of the
historical and projected results of Ross Roy.
In rendering its Opinion, McDonald assumed and relied, without independent
verification, upon the accuracy and completeness of the financial and other
information publicly available or furnished to or otherwise discussed with
McDonald. With respect to financial forecasts and other information provided to
or otherwise discussed with McDonald, McDonald assumed that such forecasts and
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other information were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Ross Roy.
McDonald did not express any opinion as to what the value of the Omnicom Common
Stock will be when issued to Ross Roy Shareholders pursuant to the Merger or the
price at which the Omnicom Common stock will trade or otherwise be transferable
subsequent to the Merger. In addition, McDonald did not make or obtain an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Ross Roy or Omnicom nor did McDonald make any physical inspection
of the properties or assets of Ross Roy or Omnicom. McDonald was not asked to
consider and its opinion does not address the relative merits of the Merger as
compared to any alternative business strategies that might exist for Ross Roy or
the effect of any other transaction in which Ross Roy might engage. In addition,
although McDonald evaluated the financial terms of the Merger, McDonald was not
asked to and did not recommend the specific consideration to be paid by Omnicom
in the Merger. No other limitations were imposed by Ross Roy on McDonald with
respect to the investigations made or procedures followed by McDonald in
rendering its opinion.
In arriving at its opinion, McDonald did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor. In
its analyses, McDonald made numerous assumptions with respect to Ross Roy,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Ross Roy
and Omnicom.
McDonald was retained based on its experience as a financial advisor in
connection with mergers and acquisitions. McDonald, as part of its investment
banking business, is customarily engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions or listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes.
McDonald was retained by Ross Roy in late summer 1994 as its financial
adviser to evaluate strategic alternatives being considered by Ross Roy at that
time. The terms of engagement of McDonald included the rendering of a fairness
opinion if requested by Ross Roy. For its services as financial advisor to Ross
Roy, Ross Roy agreed to pay McDonald a fee equal to .8% of the amount of
consideration up to $50 million received in a transaction plus 2% of the amount
of consideration between $50 million and $60 million received in a transaction.
In addition, Ross Roy agreed to reimburse McDonald for it reasonable
out-of-pocket expenses, not to exceed $15,000, and an additional $20,000 for
rendering a fairness opinion. Ross Roy has also agreed to indemnify and hold
McDonald, its officers, directors, employees, agents and controlling persons
harmless from and against all claims, liabilities, losses, damages and expenses
that they incur (including reasonable fees of counsel) related to, or arising
out of, its engagement.
A copy of the McDonald Opinion has been filed as an Exhibit to the
Registration Statement of which this Prospectus/Information Statement is a part
and is incorporated herein by reference.
Recommendation of the Ross Roy Board of Directors
For the reasons set forth above, the Ross Roy Board of Directors believes
that the Merger is fair to, and in the best interests of, Ross Roy and the Ross
Roy Shareholders and recommends that the Ross Roy Shareholders vote FOR the
approval of the Merger Agreement and the transactions contemplated thereby.
Omnicom's Reasons for the Merger
Omnicom's Board of Directors believes that the Merger represents an
opportunity to strengthen the reach of its Diversified Agency Services Division
through the acquisition of a full service marketing communication services
company with lines of business including training, direct response, advertising,
telemarketing, promotion and other related activities.
The Omnicom Board of Directors believes that the Merger will enhance its
relationship with Chrysler, Ross Roy's largest client, and a client which is
also serviced by BBDO, another Omnicom company.
Omnicom has not retained an outside party to evaluate the proposed Merger
but has instead relied upon the knowledge of its management in considering the
financial aspects of the Merger.
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In reaching its conclusion, the Omnicom Board of Directors considered,
among other things, (i) information concerning the financial performance,
condition, business operations and prospects of Ross Roy; and (ii) the proposed
terms and structure of the Merger. It is anticipated that the Merger will be
non-dilutive to Omnicom's results of operations. Accordingly, Omnicom's Board of
Directors has unanimously approved the Merger Agreement and the transactions
contemplated thereby.
Interests of Ross Roy's Management in the Merger
(The following describes certain interests of the directors and executive
officers of Ross Roy in the Merger that are in addition to the interests of Ross
Roy Shareholders generally.)
Employment and Non-Competition Arrangements
Pursuant to the Merger Agreement, Ross Roy will enter into employment
agreements with each of the following key executives who are also directors of
Ross Roy: Timothy G, Copacia, Paula A. Eridon, Chris A. Lawson, F. Peter
Middleton, Peter R. Mills, Janet C. Muhleman, Calvin L. Parent, Richard C. Ward
and Gary I. Wolfson. In the case of Messrs. Lawson, Mills, Middleton and
Wolfson, these employment agreements will replace existing agreements between
such individuals and Ross Roy. It is anticipated that, except as indicated
below, the new employment agreements will have a term commencing on the
Effective Date and ending on the first anniversary date thereof, and provide for
annual salary compensation and fringe benefits substantially the same as those
such persons were receiving immediately prior to the Merger. Such persons,
together with the other employees of Ross Roy, will also be eligible to
participate in the Ross Roy discretionary bonus plan. In respect of calendar
year 1994, Ross Roy paid discretionary bonuses of 22% of income before taxes, of
which 58% was paid to its executive officers and directors. It is anticipated
that the aggregate bonuses payable under the Ross Roy discretionary bonus plan
for 1995 as a percentage of income before taxes will be comparable to 1994. The
allocation of such bonuses to executive officers and directors is also
anticipated to be comparable to 1994.
The employment agreements for Messrs. Middleton and Wolfson will terminate
on May 23, 1997, and October 31, 1996, respectively, being the dates on which
their former employment agreements were scheduled to terminate. The employment
agreement for Mr. Lawson will terminate on the second anniversary date thereof
and provides for a severance payment (i) in the event his employment is
terminated by Ross Roy without cause or by Mr. Lawson for good reason during the
initial term thereof (a "wrongful termination"), or (ii) in the event such
agreement is not renewed beyond the initial term; such severance payment is less
than the severance payment that would have been payable under Mr. Lawson's
current agreement in the event of a wrongful termination following a change in
control of Ross Roy. The employment agreement for Mr. Mills will terminate on
the second anniversary date thereof and provides that his current deferred
compensation arrangement will remain in effect.
In addition, pursuant to the terms of the Merger Agreement, each of the
executives who is entering into an employment agreement as described above will
also enter into a non-competition agreement with Omnicom and Ross Roy which will
have a term commencing on the Closing Date and ending on the later of the third
anniversary of the Closing Date and two years after the termination of
employment. There is no additional consideration being paid in connection with
these non-competition agreements.
Other Interests
Mr. Lawson is the EPU Holder under the EPU Plan and will receive shares of
Omnicom Common Stock in payment of such EPUs as a result of the Merger. See "The
Merger Agreement and The Merger--Payment of Obligations Under EPU Plan".
Messrs. Lawson and Ward are also nominees to serve as the Ross Roy
Shareholder Representative and the alternate Ross Roy Shareholder
Representative, respectively. See "The Escrow Agreement and the Ross Roy
Shareholder Representative".
Messrs. Lawson and Mills are to continue to serve as directors of Ross Roy
following the Effective Time of the Merger. See "The Merger Agreement and the
Merger--Background of and Ross Roy's Reasons for the Merger; Opinion of
Financial Advisor; Recommendation of the Ross Roy Board of Directors--Overview".
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Procedure for Distributing Shares of Omnicom
Common Stock to Ross Roy Shareholders
A transmittal form will be furnished to the Ross Roy Shareholders prior to
the Effective Time of the Merger for use in transmitting their certificates
evidencing their shares of Ross Roy Common Stock to Omnicom to exchange them for
certificates evidencing the Omnicom Common Stock to which they are entitled as a
result of the Merger. The instructions on the form of transmittal must be
complied with by each surrendering shareholder. Pursuant to the transmittal
form, each Ross Roy Shareholder will also grant to Omnicom a first priority
security interest in his respective shares of Omnicom Common Stock which will be
held in accordance with the provisions of the Escrow Agreement described below.
See "The Escrow Agreement and the Ross Roy Shareholder Representative".
On or as soon as practicable after the Closing Date, each Ross Roy
Shareholder shall receive by first-class mail in accordance with the
instructions of such Ross Roy Shareholder as set forth in his transmittal form,
a certificate or certificates representing the next lower number of whole shares
of Omnicom Common Stock into which the shares of Ross Roy Common Stock
represented by the certificate or certificates of Ross Roy Common Stock so
surrendered shall have been converted pursuant to the Merger and, in addition,
cash in lieu of a fractional share that such Ross Roy Shareholder is entitled to
receive, subject to the provisions of the Escrow Agreement. Each Ross Roy
Shareholder will also receive a receipt indicating the number of shares of
Omnicom Common Stock being held in the General Escrow Fund and the Special
Escrow Fund in the name of such Ross Roy Shareholder.
Dividends and other distributions which may be payable by Omnicom to
holders of record of Omnicom Common Stock as of a date on or after the Closing
Date and which are paid prior to the delivery of Omnicom Common Stock to Ross
Roy Shareholders entitled thereto, will be paid to such former Ross Roy
Shareholders at the same time the Omnicom Common Stock is transferred to them
upon surrender of certificates representing their shares of Ross Roy Common
Stock. Such former shareholders will not be entitled to interest or earnings on
such dividends or other distributions pending receipt.
The Merger Agreement
The Merger
Under the terms of the Merger Agreement, at the Effective Time of the
Merger, OmniSub will be merged with and into Ross Roy, whose separate corporate
existence will continue as a wholly-owned subsidiary of Omnicom.
Determination of Conversion Price
Under the terms of the Merger Agreement, at the Effective Time each
outstanding share of Ross Roy Common Stock will be converted into shares of
Omnicom Common Stock, based upon the Conversion Price described below and the
average of the closing prices per share of Omnicom Common Stock as reported on
the New York Stock Exchange for the 20 consecutive trading days ending two
business days immediately prior to the Effective Time. No fractional shares of
Omnicom Common Stock will be issued but in lieu thereof each holder of shares of
Ross Roy Common Stock who otherwise would have been entitled to a fraction of a
share of Omnicom Common Stock will be paid the cash value of such fraction of a
share based upon the Market Value thereof.
The "Conversion Price" will result in an amount per share of Ross Roy
Common Stock equal to (x) the total of (i) $52,000,000, plus (ii) the total
repurchase price originally paid to Former Eligible Employee Holders, plus (iii)
the product of $216,200 (being the base value at the grant date of the EPU)
multiplied by the "tax gross up factor" described in "Payment of Obligations
Under EPU Plan" below (which is currently 1.1921), divided by (y) the total of
(iv) the number of shares of Ross Roy Common Stock outstanding at the Effective
Time of the Merger, plus (v) the total number of shares of Ross Roy Common Stock
repurchased from Former Eligible Employee Holders, plus (vi) the product of
10,000 (being the number of outstanding EPUs) multiplied by the tax gross-up
factor.
Based upon the assumptions set forth under "Summary -- Description of
Certain Terms of the Merger Agreement -- Conversion of Ross Roy Common Stock",
subject to the obligation to deposit shares of Omnicom Common Stock into the
Escrow Funds pursuant to the Escrow Agreement, each share of Ross Roy Common
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Stock would be converted into the right to receive shares of Omnicom Common
Stock having a Market Value of $118.21. Based upon the assumed Market Value of
$58.875, this would equate to 2.0078 shares of Omnicom Common Stock.
Payment of Obligations Under EPU Plan
Ross Roy has outstanding 10,000 EPUs under its EPU Plan. Under the terms of
the EPU Plan, the EPU Holder has the right to receive in respect of each EPU,
upon a change in control of Ross Roy, a payment in an amount equal to the excess
of the per share consideration received by the Ross Roy Shareholders in the
relevant transaction over the base price of such EPU, multiplied by a tax
gross-up factor. The tax gross-up factor equals the result of dividing the net
amount that would be received after applying the maximum capital gains tax rate
(currently 28%) by the amount that would be received after applying the maximum
ordinary income tax rate (currently 39.6%), using the rates in effect as of the
date of payment of the EPUs. Currently, the tax gross-up factor is 1.1921. At
the Effective Time of the Merger, Omnicom will satisfy the obligation of Ross
Roy to the EPU Holder in whole shares of Omnicom Common Stock, subject to the
same terms and conditions as if he were a Ross Roy Shareholder, including
without limitation the indemnification obligations described below. The EPU
Holder has delivered to Omnicom his written agreement to accept such
consideration subject to such obligations, and to accept the Ross Roy
Shareholder Representative as appointed by the Ross Roy Shareholders at the
Special Meeting as his agent on the same basis as the Ross Roy Shareholders.
Based upon the assumptions set forth under "Summary -- Description of
Certain Terms of the Merger Agreement -- Conversion of Ross Roy Common Stock",
subject to the obligation to deposit shares of Omnicom Common Stock into the
Escrow Funds pursuant to the Escrow Agreement, the EPU Holder would be entitled
to receive shares of Omnicom Common Stock having an aggregate Market Value of
$____. Based upon the assumed Market Value of $58.875, this would equate to ____
shares of Omnicom Common Stock in payment of his EPU.
Payment of Obligations to Former Eligible Employee Holders
There is currently one Former Eligible Employee Holder from whom Ross Roy
repurchased 2,400 shares of Ross Roy Common Stock (the "Current Holder").
Pursuant to the Ross Roy Articles, such Former Eligible Employee Holder is
entitled to receive his pro rata share of the consideration received by the Ross
Roy Shareholders in the Merger, as reduced by the amounts theretofore paid by
Ross Roy to him in respect of his repurchased shares. At the Effective Time of
the Merger, Omnicom will satisfy the obligation of Ross Roy to the Current
Holder, and to any other individual who becomes a Former Eligible Employee
Holder prior to the Effective Time of the Merger, in whole shares of Omnicom
Common Stock, subject to the same terms and conditions as if such person were a
Ross Roy Shareholder, including without limitation the indemnification
obligations described below.
Based upon the assumptions set forth under "Summary -- Description of
Certain Terms of the Merger Agreement -- Conversion of Ross Roy Common Stock",
subject to the obligation to deposit shares of Omnicom Common Stock into the
Escrow Funds pursuant to the Escrow Agreement, the Current Holder would be
entitled to receive shares of Omnicom Common Stock having an aggregate Market
Value of $_____. Based upon the assumed Market Value of $58.875, this would
equate to ____ shares of Omnicom Common Stock.
Indemnification Obligations
Under the Merger Agreement, the Ross Roy Shareholders, pro-rata together
with the EPU Holder and the Former Eligible Employee Holders, are required to
indemnify, defend and hold harmless Omnicom and OmniSub, and their affiliates,
directors, officers and employees for (i) liabilities, obligations, losses,
penalties, claims, actions, judgments or causes of action, assessments, costs or
expenses (including, without limitation, reasonable attorneys' fees and
disbursements) ("losses") as a consequence of or in connection with any
inaccuracy or breach of any representation, warranty or covenant of Ross Roy
contained in or made pursuant to the Merger Agreement, but only to the extent
that such losses exceed $250,000 and (ii) the payment of any judgment or
settlement in respect of any matter set forth on a specified schedule to the
Merger Agreement in excess of the aggregate reserves recorded for such matters
in the financial records of Ross Roy, all of which matters are contingencies
whose outcomes could not reasonably be determined at the time of the execution
of the Merger Agreement.
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To satisfy these indemnification obligations, the Ross Roy Shareholders,
together on a pro rata basis with the EPU Holder and the Former Eligible
Employee Holders, will deposit shares of Omnicom Common Stock into the General
Escrow Fund and the Special Escrow Fund under the Escrow Agreement. The General
Escrow Fund will contain shares of Omnicom Common Stock having an aggregate
Market Value equal to $2,525,000, and will be used to satisfy the
indemnification obligations described under clause (i) of the preceding
paragraph. The Special Escrow Fund will contain shares of Omnicom Common Stock
having an aggregate Market Value equal to $1,300,000, and will be used to
satisfy the indemnification obligations described under clause (ii) of the
preceding paragraph. Indemnification obligations arising under clause (i) may be
satisfied only from the General Escrow Fund, and those arising under clause (ii)
may be satisfied only from the Special Escrow Fund.
The indemnification obligations of the Ross Roy Shareholders, the EPU
Holder and the Former Eligible Employee Holders will be limited to and satisfied
solely from, the General Escrow Fund and Special Escrow Fund under the Escrow
Agreement (such that neither Omnicom nor any of its affiliates will have any
recourse for the payment of any losses or other damages arising out of the
transactions contemplated by the Merger Agreement against any such persons, nor
shall any of such persons be personally liable for any such losses or damages).
Indemnification obligations to be satisfied out of the General Escrow Fund will
terminate on the earlier of the first independent audit report, if any, of Ross
Roy following the Effective Time of the Merger or one year from the Effective
Time (except that claims asserted in writing on or prior to such date will
survive until they are decided and are final and binding on the parties).
Indemnification obligations to be satisfied out of the Special Escrow Fund will
terminate at such time as all such matters shall have been fully paid or finally
settled.
Representations and Warranties
The Merger Agreement contains various customary representations and
warranties of Ross Roy relating to, among other things: (a) the organization and
similar corporate matters of Ross Roy and each of its subsidiaries; (b) the
capital structure of Ross Roy and each of its subsidiaries; (c) authorization,
execution, delivery, performance and enforceability of the Merger Agreement and
related matters; (d) absence of conflicts under charters or by-laws, required
consents or approvals and no violations of any agreements or laws; (e) financial
statements provided to Omnicom by Ross Roy; (f) absence of certain material
adverse events, changes or effects; (f) certain accounting matters; (g) certain
contracts, including, but not limited to, certain real and personal property
leases, and employment, consulting and benefit matters; (h) litigation; (i)
certain tax matters; (j) undisclosed liabilities; (k) insurance; (l) compliance
with law and licenses, authorizations and permits held by Ross Roy necessary to
conduct its business; (m) client relations; (n) employment relations; (o)
retirement and other employee plans and matters relating to the Employee
Retirement Income Security Act of 1974, as amended; and () trademarks, trade
names, assumed or fictitious names, copyrights, logos, service marks and
slogans.
The Merger Agreement also contains various customary representations and
warranties of Omnicom relating to, among other things; (a) organization and
similar corporate matters of Omnicom and OmniSub; (b) authorization, execution
and delivery of the Merger Agreement and related matters; (c) absence of any
conflicts under charters or by-laws, required consents or approvals and no
violations of any agreements or laws; (d) the shares of Omnicom Common Stock to
be issued in the transaction; (e) fiancial statements provided to Ross Roy by
Omnicom; (f) absence of certain adverse events, changes or effects; and (g)
litigation.
Certain Covenants
Pursuant to the Merger Agreement, Ross Roy has agreed that, during the
period from the date of the Merger Agreement until the Closing Date, Ross Roy
and each of its subsidiaries will, among other things: (a) not solicit, initiate
or encourage any other offer or inquiry concerning the acquisition of Ross Roy
except as may be necessary to fulfill the fiduciary obligations of the Directors
of Ross Roy (in which case, if such an alternate transaction results in the
termination of the Merger Agreement, Omnicom will be entitled to receive a
$1,000,000 termination fee); (b) give timely notice of a meeting to its
shareholders to approve the Merger Agreement and the appointment of the Ross Roy
Shareholder Representative; (c) inform Omnicom's management as to the operation,
management and business of Ross Roy; (d) permit Omnicom to make such reasonable
investigation of the assets, properties and businesses of Ross Roy as they deem
necessary or advisable; and (e) except (i) as permitted by the Merger Agreement
and (ii) as otherwise consented to in writing by Omnicom, operate its businesses
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in the ordinary course and, to the extent consistent with past practice, and use
reasonable commercial efforts to preserve existing business organization,
existing business relationships, and goodwill intact.
Pursuant to the Merger Agreement, Omnicom has agreed to cause Ross Roy to
maintain in effect for six years (or a lesser period of time, in certain events)
the current policies of directors' and officers' liability insurance and
fiduciary liability insurance maintained by Ross Roy, or to substitute therefor
policies containing substantially the same coverage.
Pursuant to the Merger Agreement, Ross Roy and Omnicom have covenanted with
one another to take certain additional actions, including without limitation;
(a) Ross Roy and Omnicom each shall take all corporate and other action, make
all filings with governmental authorities and use its reasonable efforts to
obtain in writing all approvals and consents required to be taken, made or
obtained by it in order to effectuate the Merger; (b) to prepare this
Prospectus/Information Statement and the Registration Statement of which it is a
part, with each party representing and warranting to the other as to the
accuracy of the information supplied by it for inclusion herein; and (c) to each
use its reasonable efforts to consummate the Merger and the other transactions
contemplated by the Merger Agreement.
Certain Conditions to the Merger
In addition to approval of the Merger Agreement and the Merger and the
appointment of the Ross Roy Shareholder Representative by the Ross Roy
Shareholders at the Special Meeting, and to the required regulatory approvals,
the respective obligations of Omnicom, OmniSub and Ross Roy to consummate the
Merger are subject to the satisfaction of certain conditions, including without
limitation: (i) the accuracy in all material respects of the representations and
warranties made by the parties in the Merger Agreement; (ii) the performance by
the parties of their respective obligations under the Merger Agreement prior to
the Closing Date; (iii) the absence of any material adverse changes in the
condition of the businesses of Ross Roy on the one hand or Omnicom on the other
hand; (iv) the effectiveness of the Registration Statement under the Securities
Act with respect to the shares of Omnicom Common Stock to be issued pursuant to
the Merger Agreement and the approval of the listing of such Omnicom Common
Stock on the New York Stock Exchange; (v) the execution and delivery of the
Escrow Agreement; (vi) the absence of any action or proceeding enjoining the
transactions contemplated by the Merger Agreement; and (vii) the absence of any
action or proceeding by any governmental agency that might result in enjoining
the consummation of said transactions.
The obligations of Omnicom and OmniSub to effect the Merger are subject to
satisfaction of certain additional conditions including, without limitation: (i)
the SEC not having objected to Omnicom's treatment of the Merger as a
pooling-of-interests for accounting purposes; and (ii) the execution and
delivery of employment agreements with Ross Roy by each of Peter R. Mills, Chris
A. Lawson, F. Peter Middleton, Timothy G. Copacia, Paula A. Eridon, Calvin L.
Parent, Gary I. Wolfson, Richard C. Ward and Janet C. Muhleman, and the
execution and delivery of non-competition agreements by each of such nine
individuals.
The obligations of Ross Roy to effect the Merger are subject to the
satisfaction of certain additional conditions including, without limitation, the
receipt by Ross Roy of the McDonald fairness opinion.
Pursuant to the terms of the Merger Agreement, each of Omnicom and Ross Roy
is entitled to waive any of its conditions to consummation of the Merger to the
extent that any such condition is not satisfied in full by the other party,
other than conditions relating to the treatment of the Merger by the SEC as a
pooling-of-interests for accounting purposes and the approval of the Ross Roy
Vote Matters by the Ross Roy Shareholders.
Closing Date
The Closing Date shall occur on the fifth business day following the date
on which the last of the of the above-described conditions to the Merger shall
have been fulfilled or waived in accordance with the Merger Agreement or on such
other date as Omnicom and Ross Roy shall agree.
Termination
The Merger Agreement may be terminated and the contemplated Merger may be
abandoned at any time prior to the Closing, whether before or after approval by
the Ross Roy Shareholders, (a) by mutual consent of the Boards of Directors of
Omnicom, OmniSub and Ross Roy; (b) by either Omnicom and OmniSub, on the one
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hand, or Ross Roy, on the other hand, if there has been a breach of any
representation, warranty or covenant on the part of the other party set forth in
the Merger Agreement which breach has not been cured within 30 days following
receipt by the breaching party of notice of such breach, unless the breach of
any such representation, warranty, or covenant does not materially adversely
affect the business or assets of the breaching party or the ability of either
party or parties to consummate the Merger; (c) by the Board of Directors of
Omnicom, OmniSub or Ross Roy, if a final and nonappealable order, decree or
judgment of any court or other governmental authority is issued which would
enjoin the Merger; (d) by either Omnicom and OmniSub or Ross Roy if the Closing
Date shall not have occurred prior to the close of business on December 29, 1995
or if the conditions to such parties' obligation to close shall have become
incapable of being satisfied by December 29, 1995; or (e) by the Board of
Directors of Ross Roy if Ross Roy enters into a definitive agreement accepting
an acquisition proposal (or resolves to do so) which the Board of Directors
concludes in good faith on the basis of advice from independent counsel that (i)
such action is required in order for such Board of Directors to act in a manner
which is consistent with its fiduciary obligations imposed under applicable law
and (ii) the acquisition proposal would be an economically superior alternative
to the Merger for the Ross Roy Shareholders.
If either (i) Ross Roy or Omnicom terminates the Merger Agreement pursuant
to the provision described in clause (d) above following a failure of the Ross
Roy Shareholders to approve the Merger Agreement and the transactions
contemplated thereby, if before the Special Meeting there was a proposal or
offer for an acquisition proposal which at the time of the Special Meeting was
not rejected by the Board of Directors of Ross Roy, or (ii) Ross Roy terminates
the Merger Agreement pursuant to clause (e), then Ross Roy shall, within one
business day after receipt of a request from Omnicom, pay to Omnicom a
termination fee of $1,000,000.
Amendment
The Merger Agreement and the exhibits and schedules thereto may be amended,
supplemented or qualified by the parties only by an agreement in writing signed
by all parties with due authorization.
Other Considerations
Certain Income Tax Consequences
(The following is a brief summary of the income tax consequences of the
Merger. It is not intended to be a complete explanation thereof and is based
upon certain assumptions set forth in the opinion of Deloitte & Touche LLP filed
as an Exhibit to the Registration Statement of which this Prospectus/Information
Statement is a part. No opinion has been expressed as to the U.S. state or local
tax consequences or foreign tax consequences except in respect of Canadian
residents of these transactions. In addition, the following is necessarily
general in nature and does not take into account the particular tax
circumstances of any individual Ross Roy Shareholder. Each Ross Roy Shareholder
should consult his own tax advisors as to the specific consequences of the
proposed Merger for such Shareholder, including the application and effect of
state, local and foreign tax laws.)
The Merger has been structured to qualify as a "tax-free" reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"). Deloitte & Touche LLP, Ross Roy's tax advisors in the
Merger, has rendered its opinion as to the federal income tax consequences of
the Merger. The opinion of Deloitte & Touche LLP is based entirely upon the
Code, regulations now in effect thereunder, current administrative rulings and
practice, and judicial authority, all of which are subject to change. Unlike a
ruling from the Internal Revenue Service, an opinion is not binding on the
Internal Revenue Service and there can be no assurance, and none is hereby
given, that the Internal Revenue Service will not take a position contrary to
one or more positions reflected herein or that the opinion will be upheld by the
courts if challenged by the Internal Revenue Service.
In the opinion of Deloitte & Touche LLP, which opinion is based upon
various representations and subject to various assumptions and qualifications,
the following federal income tax consequences, among others, result from the
Merger:
1. No gain or loss will be recognized by Ross Roy as a result of the
Merger or the exchange of shares of Ross Roy Common Stock for shares of
Omnicom Common Stock.
25
<PAGE>
2. No gain or loss will be recognized by a Ross Roy Shareholder on the
exchange of Ross Roy Common Stock solely for Omnicom Common Stock.
3. The aggregate basis of the Omnicom Common Stock received by a Ross
Roy Shareholder (including any fractional share interest such Shareholder
might otherwise receive) will be the same as the aggregate basis for the
shares of Ross Roy Common Stock surrendered in exchange therefor.
4. The payments of cash in lieu of fractional shares will be treated
as if the fractional shares were distributed as part of the exchange and
then redeemed by Omnicom. Any Ross Roy Shareholder who receives cash in
lieu of a fractional share interest in Omnicom will recognize gain or loss
measured by the difference between the cash received in respect of such
fractional share and the portion of the basis of his Ross Roy Common Stock
allocable thereto.
5. The holding period of the Omnicom Common Stock received by a Ross
Roy Shareholder (including any fractional share interest such Shareholder
might otherwise receive) will include the holding period of the Ross Roy
Common Stock surrendered in the exchange therefor, provided that such
surrendered Ross Roy Common Stock was held by such Shareholder as a capital
asset on the date of the Merger.
No ruling will be sought from the Internal Revenue Service on any of the
foregoing federal tax consequences of the Merger.
With respect to the Omnicom Common Stock to be received by the Former
Eligible Employee Holder:
1. The Omnicom Common Stock received will be an additional
distribution for the previously redeemed Ross Roy Common Stock and will be
taxable to the extent of the fair market value, at the date distributed, of
the Omnicom Common Stock a portion of which may be characterized as
interest income.
2. The Former Eligible Employee Holder's basis in the Omnicom Common
Stock shall equal its fair market value, as determined on the date
received.
No ruling will be sought from the Internal Revenue Service on any of the
foregoing federal tax consequences to the Former Eligible Employee Holder.
With respect to the Omnicom Common Stock to be received by the EPU Holder:
1. The fair market value of the Omnicom Common Stock shall be included
in gross income of the EPU Holder as compensation.
2. The EPU Holder's basis in the Omnicom Common Stock shall equal the
amount included by the EPU Holder in gross income.
No ruling will be sought from the Internal Revenue Service on any of the
foregoing federal tax consequences to the EPU Holder.
With respect to certain Ross Roy Shareholders who are Canadian residents,
for Canadian tax purposes:
1. The fair market value of the Omnicom Common Stock received, as
determined on the date received, less the adjusted cost base in the Ross
Roy Common Stock exchanged, shall be gain, of which three-fourths shall be
included in gross income.
2. The adjusted cost base of the Omnicom Common Stock received shall
equal its fair market value, as determined on the date received.
No ruling will be sought from Revenue Canada on any of the foregoing
federal tax consequences to the Canadian resident Ross Roy Shareholders.
A copy of the opinion of Deloitte & Touche LLP has been filed as an Exhibit
to the Registration Statement of which this Prospectus/Information Statement is
a part and is incorporated herein by reference.
26
<PAGE>
Accounting Treatment
The Merger will be accounted for as a pooling-of-interests for financial
reporting purposes in accordance with generally accepted accounting principles.
Accordingly, upon consummation of the Merger, the assets and liabilities of Ross
Roy will be included in the consolidated balance sheet of Omnicom and its
subsidiaries in the amounts which were included in the books of Ross Roy
immediately before the Merger.
Regulatory Approvals
Under the Hart-Scott-Rodino Act and the rules promulgated therewith by the
FTC, the Merger may not be consummated until notifications have been given and
certain information has been furnished to the FTC and the Antitrust Division and
specified waiting period requirements have been satisfied. Omnicom and Ross Roy
each filed notification and report forms under the Hart-Scott-Rodino Act with
the FTC and the Antitrust Division on ____________, 1995. The required waiting
period under the Hart-Scott-Rodino Act was terminated early on _______________,
1995.
At any time before or after consummation of the Merger, the Antitrust
Division or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
consummation of the Merger or seeking divestiture of assets of Omnicom. At any
time before or after the Closing Date, and notwithstanding that the
Hart-Scott-Rodino Act waiting period has expired, any state could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
Merger or seeking divestiture of assets of Omnicom. Private parties may also
seek to take legal action under the antitrust laws under certain circumstances.
Based on information available to them, Omnicom and Ross Roy believe that
the Merger can be effected in compliance with Federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, Omnicom and Ross Roy would prevail or would not be required to accept
certain conditions, possibly including certain divestitures of assets of
Omnicom, in order to consummate the Merger.
Resales of Omnicom Common Stock
All shares of Omnicom Common Stock received by the Ross Roy Shareholders as
a result of the Merger will be freely transferable, except that shares of
Omnicom Common Stock received by persons who are deemed to be "affiliates" (as
such term is understood under the Securities Act) of Ross Roy prior to the
Merger ("Ross Roy Affiliates") shall be subject to certain restrictions, as more
fully described below. Persons who may be deemed to be affiliates of Ross Roy or
Omnicom generally include individuals or entities that control, are controlled
by, or are under common control with, such party and may include certain
officers and directors of such party as well as principal shareholders of such
party. The Merger Agreement provides that Ross Roy will furnish Omnicom with a
list identifying all persons who may be considered to be Ross Roy Affiliates,
and gives Omnicom the right to review such list and require changes. Ross Roy is
required to use its best efforts to cause each of the Ross Roy Affiliates to
execute a written agreement to comply fully with the restrictions described
below, and the receipt of such written agreements from each Ross Roy Affiliate
is a condition to Omnicom's obligation to consummate the Merger.
Federal Securities Laws. Shares of Omnicom Common Stock received by Ross
Roy Affiliates may be resold by such Ross Roy Affiliates only in transactions
permitted by the resale provisions of Rule 145 promulgated under the Securities
Act or as otherwise permitted under the Securities Act.
Pooling-of-Interests Rules. In order to satisfy a condition of the
pooling-of-interests rules as the accounting treatment to be accorded the
Merger, Ross Roy Affiliates may not sell, assign, transfer, convey, encumber or
dispose of, directly or indirectly, or otherwise reduce their risk relative to,
any shares of Omnicom Common Stock until the publication by Omnicom of its
financial results covering a period of at least thirty days of combined
operations of Ross Roy after the Closing Date. This prohibition precludes the
use of "hedging" techniques during this period.
27
<PAGE>
Stock Exchange Listing
It is a condition to the Merger that the shares of Omnicom Common Stock
required to be issued in connection with the Merger be authorized for listing on
the NYSE, subject to official notice of issuance. [An application has been filed
for listing such Omnicom Common Stock on the NYSE.]
No Dissenters' Rights
Holders of Ross Roy Common Stock are not entitled to any rights of
dissenting shareholders under Michigan law in connection with the Merger.
THE ESCROW AGREEMENT AND THE
ROSS ROY SHAREHOLDER REPRESENTATIVE
The Escrow Agreement
(The information contained in this Registration Statement of which this
Prospectus/Information Statement forms a part is qualified in its entirety by
reference to the complete text of the Escrow Agreement which is filed as an
Exhibit thereto and is incorporated herein by reference.)
As described under "--The Merger Agreement and the Merger--The Merger
Agreement--Indemnification Obligations", in order to satisfy indemnification
obligations under the Merger Agreement, the Ross Roy Shareholders, together on a
pro rata basis with the EPU Holder and the Former Eligible Employee Holders,
will deposit shares of Omnicom Common Stock into the General Escrow Fund and the
Special Escrow Fund under the Escrow Agreement. The General Escrow Fund will
contain shares of Omnicom Common Stock having an aggregate Market Value equal to
$2,525,000, and the Special Escrow Fund will contain shares of Omnicom Common
Stock having an aggregate Market Value equal to $1,300,000.
Each of the Ross Roy Shareholders, the EPU Holder and the Former Eligible
Employee Holders shall be depositing his pro rata share of the General Escrow
Fund or Special Escrow Fund (rounded up to the nearest whole share) determined
by multiplying the aggregate number of shares of Omnicom Common Stock required
to be deposited into such Escrow Fund by a fraction, the numerator of which is
the number of shares of Omnicom Common Stock issuable to such individual in the
Merger and the denominator of which is the total number of shares of Omnicom
Common Stock issuable in the Merger to all such individuals required to provide
indemnification.
Based upon the assumptions set forth above under "Conversion of Ross Roy
Common Stock", of the $118.21 Conversion Price payable in respect of each share
of Ross Roy Common Stock, Omnicom Common Stock having a Market Value of $___
would be deposited in the General Escrow Fund and Omnicom Common Stock having a
Market Value of $___ would be deposited in the Special Escrow Fund. Since the
amounts held in such Escrow Funds are subject to claims for contingent
liabilities, there can be no assurances that amounts held therein will be
returned to the Ross Roy Shareholders.
For purposes of satisfying any claims, each share of Omnicom Common Stock
deposited in either Escrow Fund will be valued at the Market Value, regardless
of actual fluctuations of the market value of the Omnicom Common Stock after the
Closing Date.
Pursuant to the Escrow Agreement, the Ross Roy Shareholder Representative,
on behalf of the Ross Roy Shareholders, shall grant to Omnicom a security
interest in the Escrow Funds to secure the performance of the indemnification
obligations of the Ross Roy Shareholders under the Merger Agreement and the
performance of their obligations to Omnicom under the Escrow Agreement.
The Escrow Agreement shall automatically terminate if and when all the
shares of Omnicom Common Stock held in either Escrow Fund shall have been
distributed by the Escrow Agent in accordance with the terms of the Escrow
Agreement.
General Escrow Fund. The Escrow Agreement provides that, upon determination
that an indemnification payment is due to Omnicom from the General Escrow Fund,
the Escrow Agent shall, to the extent that the shares of Omnicom Common Stock
then on deposit in the General Escrow Fund shall be sufficient for the purpose,
28
<PAGE>
deliver to Omnicom the number of shares of Omnicom Common Stock, valued at the
original Market Value, equal to the indemnification payment. The Ross Roy
Shareholder Representative shall have the right to dispute any such claim by
Omnicom and require arbitration of the items in dispute; any such arbitration
shall cover all outstanding claims for indemnification by Omnicom and shall take
place on the second business day following the one year anniversary of the
Closing Date.
On the next business day following the earlier of (x) the first independent
audit report, if any, of Ross Roy following the Closing Date, or (y) one year
from the Closing Date, the Escrow Agent shall deliver to the Ross Roy
Shareholders the remaining shares of Omnicom Common Stock then on deposit in the
General Escrow Fund, as reduced by any amounts necessary to cover outstanding
claims, including claims then in dispute.
All dividends, interest and other amounts received with respect to shares
of Omnicom Common Stock held in the General Escrow Fund shall be income for tax
purposes to the Ross Roy Shareholders, shall be paid directly to the Ross Roy
Shareholders, and shall not constitute part of the General Escrow Fund.
Special Escrow Fund. The Escrow Agreement provides that, upon determination
that an indemnification payment is due to Omnicom from the Special Escrow Fund,
the Escrow Agent shall, to the extent that the shares of Omnicom Common Stock
then on deposit in the Special Escrow Fund shall be sufficient for the purpose,
deliver to Omnicom the number of shares of Omnicom Common Stock, valued at the
original Market Value, equal to the indemnification payment. The Ross Roy
Shareholder Representative shall have the right to dispute any such claim by
Omnicom and require arbitration of the items in dispute; any such arbitration
shall cover all outstanding claims for indemnification by Omnicom, and the first
such arbitration shall take place no earlier than the second business day
following the one year anniversary of the Closing Date.
At such time as all claims reimbursable out of the Special Escrow Fund
shall have been finally determined and all indemnification payments due to
Omnicom have been made to Omnicom, the Escrow Agent shall deliver to the Ross
Roy Shareholders the remaining shares of Omnicom Common Stock then on deposit in
the Special Escrow Fund.
All dividends, interest and other amounts received with respect to shares
of Omnicom Common Stock held in the Special Escrow Fund shall be income for tax
purposes to the Ross Roy Shareholders, shall be paid directly to the Ross Roy
Shareholders, and shall not constitute part of the Special Escrow Fund
Appointment of the Ross Roy Shareholder Representative
It is a condition to Closing under the Merger Agreement that the Ross Roy
Shareholders appoint the Ross Roy Shareholder Representative to act as their
collective agent in connection with the Escrow Agreement, including one or more
alternative individuals to act as the Ross Roy Shareholder Representative in the
event that the designated Representative shall have died, resigned, or otherwise
become incapable or unwilling to act as Representative.
The Ross Roy Shareholder Representative shall also act as the agent for the
Former Eligible Employee Holders and the EPU Holder; the EPU Holder has
delivered to Ross Roy his written agreement to such effect.
Appointment of the Ross Roy Shareholder Representative shall include the
specific authorization for such Representative to (i) execute and deliver the
Escrow Agreement at the Effective Time of the Merger and any documents incident
or ancillary thereto, including without limitation any amendments,
cancellations, extensions or waivers in respect thereof; (ii) respond to and
make determinations in respect of the assertion of any and all claims for
indemnification by Omnicom, and to assert claims on behalf of the Ross Roy
Shareholders, the EPU Holder and the Former Eligible Employee Holders, pursuant
to the terms of the Escrow Agreement and the terms of the Merger Agreement
pertaining thereto; (iii) execute and deliver any stock powers which may be
required to be executed by any Ross Roy Shareholder, the EPU Holder or any
Former Eligible Employee Holder in order to permit the delivery to Omnicom of
any shares of Omnicom Common Stock to be delivered to it pursuant to the Escrow
Agreement; and (iv) take all such other actions as may be necessary or desirable
to carry out his responsibilities as collective agent of the Ross Roy
Shareholders, the EPU Holder and Former Eligible Employee Holders in respect of
the Escrow Agreement.
In addition, the terms of the appointment shall be that the Ross Roy
Shareholder Representative shall not be responsible to any Ross Roy Shareholder
for any loss or damage any such Ross Roy Shareholder may suffer by reason of the
performance of his duties, other than loss or damage arising from willful
violation of the law or gross negligence in the performance of his duties as the
29
<PAGE>
Ross Roy Shareholder Representative. This term of appointment shall be confirmed
by each Ross Roy Shareholder in the transmittal form furnished by him to Omnicom
as described under "The Merger Agreement and the Merger--Procedure for
Distributing Shares of Omnicom Common Stock to Ross Roy Shareholders".
Finally, the appointment of the Ross Roy Shareholder Representative shall
also include the consent of the Ross Roy Shareholders to the procedure to be
followed in the event that the Ross Roy Shareholder Representative and any
alternate shall be unable or unwilling to serve or continue to serve as such.
Pursuant to such procedure, a new Ross Roy Shareholder Representative shall be
chosen by majority vote of those persons who were members of the Ross Roy Board
of Directors immediately prior to the Effective Time of the Merger, any of whom
shall be entitled to call a meeting for such purpose.
The proposal before the Ross Roy Shareholders is that Chris A. Lawson be
appointed as Ross Roy Shareholder Representative, with Richard C. Ward appointed
as alternate. Messrs. Lawson and Ward are directors and executive officers of
Ross Roy and Ross Roy Shareholders; Mr. Lawson is also the EPU Holder. See "The
Merger Agreement and the Merger--Interests of Ross Roy's Management in the
Merger" and "Business Information Concerning Ross Roy--Executive Officers and
Directors, Principal Shareholders" for more detailed descriptions of these
interests.
Recommendation of the Ross Roy Board of Directors
The Ross Roy Board of Directors believes that the appointment of the Ross
Roy Shareholder Representative is in the best interests of the Ross Roy
Shareholders and recommends that the Ross Roy Shareholders vote FOR the
appointment of Chris A. Lawson as Ross Roy Shareholder Representative, with
Richard C. Ward as alternate.
BUSINESS INFORMATION CONCERNING OMNICOM
(The information contained in this section is qualified in its entirety by
reference to documents incorporated by reference.)
Omnicom, through its wholly and partially owned companies, operates
advertising agencies which plan, create, produce and place advertising in
various media such as television, radio, newspaper and magazines; and offers
clients such additional services as marketing consultation, consumer market
research, design and production of merchandising and sales promotion programs
and materials, direct mail advertising, corporate identification, and public
relations. Omnicom offers these services to clients worldwide on a local,
national, pan-regional or global basis. Operations cover the major regions of
North America, the United Kingdom, Continental Europe, the Middle East, Latin
America, the Far East and Australia. In 1994 and 1993, 54% and 52%,
respectively, of Omnicom's billings came from its non-U.S. operations.
According to the unaudited industry-wide figures published in the trade
journal, Advertising Age, in 1994 Omnicom was ranked as the third largest
advertising agency group worldwide.
Omnicom operates three separate, independent agency networks: the BBDO
Worldwide Network, the DDB Needham Worldwide Network and the TBWA International
Network. Omnicom also operates independent agencies, Altschiller & Company and
Goodby, Silverstein & Partners, and certain marketing service and specialty
advertising companies through Diversified Agency Services.
BBDO Worldwide, DDB Needham Worldwide and TBWA International, by themselves
and through their respective subsidiaries and affiliates, independently operate
advertising agency networks worldwide. Their primary business is to create
marketing communications for their clients' goods and services across the total
spectrum of advertising and promotion media. Each of the agency networks has its
own clients and competes with each other in the same markets.
The BBDO Worldwide, DDB Needham Worldwide and TBWA International agencies
typically assign to each client a group of advertising specialists which may
include account managers, copywriters, art directors and research, media and
production personnel. The account manager works with the client to establish an
overall advertising strategy for the client based on an analysis of the client's
products or services and its market. The group then creates and arranges for the
production of the advertising and/or promotion and purchases time, space or
access in the relevant media in accordance with the client's budget.
30
<PAGE>
SELECTED FINANCIAL DATA OF OMNICOM
The following table summarizes certain selected consolidated financial data
of Omnicom and its subsidiaries and is qualified in its entirety by the more
detailed financial information and notes thereto incorporated by reference into
this Prospectus/Information Statement.
<TABLE>
<CAPTION>
(Dollars in Thousands Except Per Share Amounts)
--------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the year:
Commissions and fees ............... $1,756,205 $1,516,475 $1,385,161 $1,236,158 $1,178,233
Income before change
in accounting principles ........ 108,134 85,345 65,498 57,052 52,009
Net income ......................... 80,125 85,345 69,298 57,052 52,009
Earnings per common
share before change in
accounting principles:
Primary ........................ 3.15 2.79 2.31 2.08 2.01
Fully diluted .................. 3.07 2.62 2.20 2.01 1.94
Cumulative effect of
change in accounting
principles:
Primary .......................... (0.81) -- 0.14 -- --
Fully diluted .................... (0.81) -- 0.11 -- --
Earnings per common share after
change in accounting principles:
Primary .......................... 2.34 2.79 2.45 2.08 2.01
Fully diluted .................... 2.34 2.62 2.31 2.01 1.94
Dividends declared per common
share ............................ 1.24 1.24 1.21 1.10 1.07
At year end:
Total assets ....................... 2,852,204 2,289,863 1,951,950 1,885,894 1,748,529
Long-term obligations:
Long-term debt ................... 187,338 278,312 235,129 245,189 278,960
Deferred compensation and other
liabilities .................... 95,973 56,933 51,919 31,355 25,365
</TABLE>
31
<PAGE>
BUSINESS INFORMATION CONCERNING ROSS ROY
Description of Business
General
Ross Roy is a full service marketing communications company, which was
founded in 1926. Ross Roy offers a full range of services that include both
media advertising and marketing communications and promotional services. These
services consist of direct marketing, sales promotion, video production,
database management, telemarketing, training, incentive administration,
production of shows and meetings, sales support services and satellite
teleconferencing. It is also active in the development and use of new
communications technologies.
Products and Services
Direct Marketing -- Services provided in this area include list management,
prospect targeting, telemarketing and fulfillment. Some of the programs that
Ross Roy has developed for previous clients include MCI's "Friends & Family",
"GE Rewards" and the launch of Citibank's AAdvantage credit card. In addition,
Ross Roy currently serves as Chrysler Corporation's "Agency of Record" for its
Owner Communications Program and Target Direct Mail Program.
Database Management -- Ross Roy has developed and managed prospect and
customer databases for many of its principal clients. Three IBM AS/400 computers
are dedicated to this activity and Ross Roy employs over twenty five computer
programmers, each with an average of over ten years of experience, to deliver
this service.
Telemarketing -- A key aspect of direct marketing is telemarketing. Ross
Roy has a staff of over 140 who have the capability of handling over 25,000
inbound and outbound telephone calls daily. The information captured during
these telephone calls is added to the customer databases, analyzed, enhanced
with other demographic data and used for many different activities including the
development of targeted prospect lists and fulfillment.
Training -- Ross Roy provides a wide range of training services which
include product training, skills training, motivational training, sales training
and culture training. Its techniques include seminars, videocassettes for home
study, interactive videodiscs and a national satellite television network.
Incentive Administration -- This service includes the processing of rebates
and incentive payments for a number of different clients.
Shows and Meetings -- Ross Roy also creates and produces shows and
meetings. Its productions utilize the most effective, state-of-the-art audio and
video delivery systems which include television, entertainment, film, videodiscs
and satellite teleconferencing,
Clients
Ross Roy's clients include Chrysler Corporation, Domino's Pizza, Inc., The
Sports Authority, Inc., Medicine Shoppe International, Inc., Masco Corporation,
Nordic Track, Inc., NBD Bancorp, Inc., Sauder Woodworking Company, Detroit
Edison Company and Blue Cross/Blue Shield of Michigan. Its principal client is
Chrysler Corporation, which accounted for approximately 71% of total revenues
during 1994. Ross Roy services approximately 350 separate business units of
Chrysler. Chrysler, which has been a client since the Company was founded,
utilizes every service that Ross Roy offers.
Employees; Offices
Ross Roy is a private company whose stock is held by approximately 100
employee-stockholders. Ross Roy has over 800 employees, 700 of whom work at its
headquarters located in Bloomfield Hills, Michigan. Ross Roy also has offices in
Windsor, Ontario, Baltimore and Los Angeles.
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<PAGE>
Executive Officers and Directors; Principal Shareholders
The following table is furnished with respect to the executive officers and
directors of Ross Roy as of June 15, 1995. There are no family relationships
between any of the directors or executive officers. The table also shows the
name and address of each person known by Ross Roy to be the beneficial owners of
more than 5% of either class of Ross Roy Common Stock as of June 15, 1995.
<TABLE>
<CAPTION>
Shares of Shares of
Class A Class B
Position Common Common
with Stock Percent of Stock Percent
Name and Address Ross Roy Owned Class Owned of Class
- ---------------- ------------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Timothy G. Copacia Director and 5,000 1.43% 5,000 9.12%
c/o Ross Roy Communications, Inc. Executive Vice
100 Bloomfield Hills Parkway President--Director
Bloomfield Hills, Michigan 48304 Account Services
Paula A. Eridon Director and 830 0.24% 0 0.00%
c/o Ross Roy Executive Vice
Communications, Inc. President--Director
100 Bloomfield Hills Parkway Business Development
Bloomfield Hills, Michigan 48304
Verne C. Hampton, II Director and 0 0.00% 0 0.00%
c/o Ross Roy Secretary
Communications, Inc.
100 Bloomfield Hills Parkway
Bloomfield Hills, Michigan 48304
Chris A. Lawson Director and 37,946 10.89% 10,000 18.25%
c/o Ross Roy Executive Vice
Communications, Inc. President--Finance,
100 Bloomfield Hills Parkway Chief Financial
Bloomfield Hills, Michigan 48304 Officer, Treasurer
F. Peter Middleton Director and 5,000 1.43% 5,000 9.12%
c/o Ross Roy Communications, Inc. Executive Vice
100 Bloomfield Hills Parkway President--Director
Bloomfield Hills, Michigan 48304 Diversified Services
Peter R. Mills Director and 25,000(A) 6.97% 10,000 18.25%
c/o Ross Roy Chairman, President
Communications, Inc. and Chief Executive
100 Bloomfield Hills Parkway Officer
Bloomfield Hills, Michigan 48304
Janet C. Muhleman Director and 20,000 5.74% 0 0.00%
c/o Ross Roy Executive
Communications, Inc. Vice President
100 Bloomfield Hills Parkway
Bloomfield Hills, Michigan 48304
Calvin L. Parent Director and 19,500 5.60% 5,000 9.12%
c/o Ross Roy President--Ross
Communications, Inc. Roy Communications
100 Bloomfield Hills Parkway Canada
Bloomfield Hills, Michigan 48304
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Shares of Shares of
Class A Class B
Position Common Common
with Stock Percent of Stock Percent
Name and Address Ross Roy Owned Class Owned of Class
- ---------------- ------------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Peter Vetowich Director and 32,137 9.22% 4,800 8.77%
c/o Ross Roy Communications, Inc. Executive Vice
100 Bloomfield Hills Parkway President--Director
Bloomfield Hills, Michigan 48304 Retail Operations
Richard C. Ward Director and 48,070 13.80% 10,000 18.25%
c/o Ross Roy Communications, Inc. Vice Chairman
100 Bloomfield Hills Parkway
Bloomfield Hills, Michigan 48304
Gary I. Wolfson Director and 5,000 1.43% 5,000 9.12%
c/o Ross Roy Communications, Inc. Executive Vice
100 Bloomfield Hills Parkway President--Chief
Bloomfield Hills, Michigan 48304 Creative Officer
Peter Hirsch Co-Chairman/ 22,584 6.48% 0 0.00%
240 East 15th Street Executive Creative
New York, NY 10003 Director--Ross Roy
Communications/N.Y.
Executive Officers and Directors 198,483 55.37% 54,800 100.00%
as a group (11 persons)
</TABLE>
- ----------------
(A) Includes 10,000 shares of Class A Common Stock which Mr. Mills has the
right to acquire within 60 days pursuant to the exercise of stock options.
34
<PAGE>
SELECTED FINANCIAL DATA OF ROSS ROY
The following table summarizes certain selected financial data of Ross Roy
and is qualified in its entirety by the more detailed financial information and
notes thereto appearing elsewhere in this Prospectus/Information Statement. The
financial data as of and for each of the five years ended December 31, 1994 is
derived from audited consolidated financial statements. The financial data for
the three month periods ended March 31, 1994 and 1995 are derived from unaudited
financial statements and, in the opinion of Ross Roy, reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of results of operations for such periods. Operating results for the three
months ended March 31, 1995 are not necessarily indicative of the results that
may be achieved for the entire year ending December 31, 1995. The consolidated
financial statements as of and for the three years ended December 31, 1994 and
the independent auditors' report from Deloitte & Touche LLP thereon are included
as part of this Prospectus/Information Statement. See "Financial Statements of
Ross Roy", the related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Ross Roy".
<TABLE>
<CAPTION>
(Dollars in Thousands Except Per Share Amounts)
----------------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
For the year:
Commissions and fees ................. $65,727 $79,445 $86,443 $84,349 $84,491
Income (loss) before change
in accounting principles .......... 3,709 4,542 (7,044) (1,449) 1,381
Net income (loss) .................... 3,709 4,542 (7,644) (1,449) 1,381
Earnings per common share before
change in accounting principle:
Primary ........................ 11.98 9.23 (13.06) (2.46) 2.17
Fully Diluted .................. 11.71 9.23 (13.06) (2.47) 2.16
Cumulative effect of change
in accounting principle:
Primary ........................ -- -- (1.11) -- --
Fully Diluted .................. -- -- (1.11) -- --
Earnings per common share after
change in accounting principle:
Primary ........................ 11.98 9.23 (14.17) (2.46) 2.17
Fully Diluted .................. 11.71 9.23 (14.17) (2.47) 2.16
Dividends declared per
common share ...................... -- -- -- -- --
At December 31:
Total assets ......................... 73,994 97,279 115,387 121,779 114,922
Long-term obligations:
Long-term debt ..................... 3,259 6,487 17,581 19,633 13,918
Deferred compensation &
other liabilities ............... 6,929 8,267 4,752 6,666 6,321
</TABLE>
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ROSS ROY
Results of Operations
The following table sets forth certain Statement of Operations data as a
percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
Three Months
Year Ended December 31 Ended March 31
------------------------------------ ------------------
1994 1993 1992 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue .................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating Expenses ....................... (87.1) (105.1) (108.0) (81.1) (82.7)
Operating Income (Loss) .................. 12.9% (5.1)% (8.0)% 18.9% 17.3%
Other Income (Expense):
Interest expense ....................... (1.8) (2.0) (2.0) (1.1) (1.7)
Interest income ........................ .3 .3 .5 .2 .7
Life insurance proceeds and other ...... -- 10.6 (.7) -- --
Income (loss) before taxes ............... 11.4% 3.8% (10.2)% 18.0% 16.3%
(Provision) Credit for taxes:
Federal and Foreign Income Taxes ....... (4.6) 3.2 3.2 (6.2) (5.6)
Single Business Tax .................... (.8) (1.0) (1.0) (1.3) (1.3)
Net Income (Loss) Before Minority
Interest and Change in Accounting
Principle ........................... 6.0% 6.0% (8.0)% 10.5% 9.4%
Minority Interest ...................... (.3) (.3) (.2) (.6) (.9)
Change in Accounting Principle ......... -- -- (.7) (38.9) --
Net Income (Loss) ........................ 5.7% 5.7% (8.9)% (29.0)% 8.5%
</TABLE>
Comparison of Results of Operations for the Three Months
Ended March 31, 1995 and 1994
Ross Roy reported revenues from commissions and fees of $17.0 million and
net income before cumulative effect of change in accounting principle of $1.7
million for the three months ended March 31, 1995. There were no significant
changes in operations when compared to the same period in 1994.
In late 1994, Ross Roy was informed by its major retail client, Kmart, of
its decision to utilize another agency. Ross Roy expects to complete the
transition of its responsibilities to the successor agency in late 1995. The net
revenue and income impact from the loss of this client is not anticipated to be
significant to the results of operations for 1995.
Effective January 1, 1995, Ross Roy adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Accounting for Postretirement Benefits
Other Than Pensions", which requires accrual of retiree health care benefits
during the years the employees provide services. The impact of the adoption,
recognized as a one-time charge in the year of adoption, is $6.6 million (net of
applicable income taxes). This amount was determined based upon current
assumptions and, accordingly, is different than the one-time charge disclosed in
Ross Roy's consolidated financial statements as of December 31, 1994.
Implementation of the new Standard has no cash impact on Ross Roy.
Comparison of Results of Operations for the Years Ended
December 31, 1994 and 1993
Revenue -- Ross Roy reported revenues from commissions and fees of $65.7
million in 1994 compared with $79.4 million in 1993. This represented a decrease
of 17.3% and is solely attributable to the effect of Ross Roy's 1993
divestitures. As part of a business strategy that was developed in 1992, Ross
Roy began divesting or closing all noncore/nonstrategic business units. In 1993,
Ross Roy divested three such units which, in total, contributed approximately
$14 million of revenue in 1993. While on a net basis, Ross Roy's other business
showed little movement, its core business experienced substantial increases in
the areas of telemarketing and training. The increased volume in telemarketing
resulted from the launch of the Eagle Information Center for Chrysler and the
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<PAGE>
Teletouch Program for Chrysler dealers. The increase in training is attributable
to the development of a culture and product training program for Chrysler in
Europe and the Mideast. These increases, however, were offset by the full year
impact of the losses of two clients, Office Max and Builder's Square, to which
Ross Roy provided media advertising services.
Operating Income -- Operating income increased to $8.5 million in 1994 from
a loss of $4.1 million in 1993. Partially offsetting the 1994 increase, was a
special charge of $1.4 million (net of $600,000 of reversals of special charges
from prior years) which was comprised primarily of severance costs associated
with the loss of its client, Kmart. In 1993, Ross Roy recorded special charges
of $8.7 million; these charges included the write-off of fixed assets and the
accrual of lease abandonment charges and other costs related to the disposition
of three subsidiaries, as well as severance costs incurred during Ross Roy's
management reorganization. As of December 31, 1994, approximately $3.6 million
of the special charges remain unpaid and will be paid over the next five years.
Other operating expenses, exclusive of the impact of divestitures, were held to
1993 levels due to diligent cost control efforts.
Other Income (Expense) -- Interest expense decreased by 24.5% in 1994 and
reflects lower average borrowings during the year. Average borrowings were
reduced by the elimination of the need to fund the operations of business units
that were divested, a modified stock repurchase plan adopted in 1993 that
provided for the deferral of repurchase payments over a four year period and the
proceeds from certain life insurance policies that were received in late 1993.
Ross Roy also reported in 1993, approximately $8.3 million in life insurance
proceeds that were received upon the death of its former chairman.
Provision for Taxes -- Ross Roy reported a provision for income taxes of $3
million in 1994 and a credit for income taxes of $2.6 million in 1993. The 1994
tax provision reflects the income tax liability on pretax income of $7.5
million. In 1993, the credit for income taxes arose from the tax-exempt status
of the life insurance proceeds received in 1993.
Change in Accounting Principle -- Effective January 1, 1995, Ross Roy is
required to adopt Statement of Financial Accounting Standards (SFAS) No. 106,
"Accounting for Postretirement Benefits Other Than Pensions," which requires
accrual of retiree benefits during the years the employees provide services. The
estimated impact of the adoption will be $2.5 million (net of applicable income
taxes) if the transition obligation is recognized as a one-time charge in the
year of adoption. Implementation of the new Standard will have no cash impact on
Ross Roy.
Comparison of Results of Operations for the Years
Ended December 31, 1993 and 1992
Revenue -- In 1993, Ross Roy reported revenues from commissions and fees of
$79.4 million compared to $86.4 million in 1992. This represents an 8.0%
decrease from 1992. Approximately fifty percent of this decrease is attributable
to the revenue reduction resulting from the business units that were divested or
closed in 1992. The remainder of the decrease is due to spending reductions by
clients serviced by business units that were divested in 1993. While on a net
basis, Ross Roy's other business showed little movement, its core business
experienced a 12% increase in revenue over 1992. Revenue increased in the areas
of training, collateral services and rebate and incentive programs, among
others. Offsetting these major increases, was the loss of Office Max in mid
1993.
Operating Income -- Ross Roy reported an operating loss of $4.1 million in
1993 compared to a loss of $7.0 million in 1992. The major source of the
decrease in the loss, after considering the impact of divestitures, was a $1.9
million reduction in the amount of special charges and asset write-downs
recorded in 1993 as compared to 1992. In 1993, Ross Roy recorded special charges
of $8.7 million for expenses related to the divestitures. In 1992, Ross Roy
recorded special charges of $10.6 million. These charges included $4.4 million
for the impairment of intangible assets and a charge of $6.2 million resulting
from the accrual of costs and asset write-downs associated with divested or
closed subsidiaries and the write-off of a note receivable that was determined
to be uncollectible. After considering the impact of divestitures, 1993
operating expenses decreased by approximately $1.7 million from 1992 levels due
to the elimination of a profit sharing contribution and a reduction in the
amount of incentive compensation paid in 1993.
37
<PAGE>
Other Income (Expense) -- Interest expense decreased by 8.5% in 1993 when
compared to 1992. This decrease reflects lower average borrowings and lower
interest rates on borrowings. Average borrowings were reduced by the elimination
of the need to fund the operations of the business units that were divested, a
modified stock repurchase plan that provides for the deferral of repurchase
payments over a four year period and the proceeds from certain life insurance
policies that were received in late 1993. The interest rate on Ross Roy's bank
debt is tied to the prime rate. The reduction in its borrowing rate was due to a
reduction of the prime rate. In 1993, Ross Roy also reported approximately $8.3
million in life insurance proceeds upon the death of its former chairman.
Provision for Taxes -- Ross Roy reported a credit for income taxes of $2.6
million and $2.8 million in 1993 and 1992, respectively. Although the amounts
are similar, they arose for different reasons. In 1993, the credit arose from
the tax-exempt status of the life insurance proceeds received in 1993. In 1992,
the credit arose from the federal income tax benefits that will result in Ross
Roy's ability to reduce the taxation of future profits by the amount of its 1992
operating losses.
Change in Accounting Principle -- Effective January 1, 1992, Ross Roy
adopted SFAS No. 109, "Accounting for Income Taxes," which required the
liability method of accounting for deferred income taxes and the recognition of
net deferred tax assets subject to an ongoing assessment of realizability. At
January 1, 1992, the adjustment of deferred tax assets and liabilities resulted
in an unfavorable cumulative effect of the change in accounting principle of
approximately $600,000.
Capital Resources and Liquidity
Cash and equivalents at March 31, 1995 increased to $2.4 million from $1.9
million at December 31, 1994. This increase is due to the positive cash flow
attributable to net stock sales partially offset by the paydown of certain
year-end liabilities and payments of stock repurchase obligations.
Cash and cash equivalents decreased approximately $300,000 during 1994 or
to a level of $1.9 million at December 31, 1994. Ross Roy's positive net cash
flow provided by operating activities was offset by cash outlays for the
purchase of Ross Roy's stock net of stock sales, payments of stock repurchase
obligations, expenditures for property and equipment and repayment of its
long-term debt obligations.
At December 31, 1994, accounts receivable decreased by $16.4 million and
accounts payable decreased by $17.8 million from December 31, 1993 levels. This
decrease was primarily due to divestitures and differences in the dates on which
payments were made to media and other suppliers in 1994 compared to 1993.
Capital expenditures for 1993, 1994 and the three months ended March 31,
1995, were $479,000, $850,000 and $30,000, respectively. These expenditures were
made primarily to expand, upgrade or replace the computer equipment and software
used for telemarketing, database management, desktop publishing, fulfillment and
to a smaller extent, general office administration. Capital expenditures of
approximately $1 million are planned for 1995. The majority of the planned
spending is for telemarketing, database management and internal office
automation and should improve the efficiency and productivity of client-based
applications as well as Ross Roy's administrative functions.
As of December 31, 1994, Ross Roy had approximately $11 million of net
operating loss and capital loss carryforwards, subject to certain limitations,
that it will use to offset future federal income tax liabilities. The Company
anticipates the utilization of a portion of its loss carryforwards in 1995.
Ross Roy maintains a $20 million revolving line of credit with a bank which
is secured by the majority of Ross Roy's assets. At March 31, 1995 and December
31, 1994, respectively, Ross Roy had $13.1 million and $17.8 million available
to borrow. The line of credit agreement contains certain covenants including a
minimum tangible net worth requirement with which Ross Roy was not in compliance
as of December 31, 1994. The bank subsequently amended the agreement to adjust
this covenant whereby Ross Roy was in compliance. Ross Roy was in compliance
with all covenants as of March 31, 1995.
Ross Roy's management believes that its cash position and the available
line of credit are adequate to support Ross Roy's short-term cash requirements
for the maintenance of working capital and the acquisition of computer and other
capital equipment required to maintain its competitive advantage. It also
anticipates that its current cash position, together with the future cash flows
from operations and funds available under its existing facility will be adequate
to meet its long-term cash requirements as presently contemplated.
38
<PAGE>
DESCRIPTION OF OMNICOM CAPITAL STOCK
Each share of Omnicom Common Stock entitles the holder thereof to one vote
on all matters submitted to a vote of shareholders. All shares of Omnicom Common
Stock have equal rights and are entitled to such dividends as may be declared by
the Board of Directors out of funds legally available therefor and to share
ratably upon liquidation in the assets available for distribution to
stockholders. Omnicom is not aware of any restrictions on its present or future
ability to pay dividends. However, in connection with certain borrowing
facilities entered into by Omnicom and its subsidiaries, Omnicom is subject to
certain restrictions on current ratio, ratio of total consolidated indebtedness
to total consolidated capitalization, ratio of net cash flow to consolidated
indebtedness, and limitation of investments in and loans to affiliates and
unconsolidated subsidiaries. The Omnicom Common Stock is not subject to call or
assessment, has no preemptive conversion or cumulative voting rights and is not
subject to redemption. Omnicom's shareholders elect a classified board of
directors, and may not remove a director except by an affirmative two-thirds
vote of all outstanding shares. A two-thirds vote is also required for Omnicom's
shareholders to amend Omnicom's by-laws or certain provisions of its charter
documents, and to change the number of directors comprising the full board.
Omnicom may issue Omnicom Preferred Stock in series having whatever rights
and preferences the Board of Directors may determine. One or more series of
Omnicom Preferred Stock may be made convertible into Omnicom Common Stock at
rates determined by the Board of Directors, and Omnicom Preferred Stock may be
given priority over the Omnicom Common Stock in payment of dividends, rights on
liquidation, voting and other rights. Omnicom has no current plans to issue any
Omnicom Preferred Stock. Omnicom Preferred Stock may be issued from time to time
upon authorization of the Omnicom Board of Directors without action of the
shareholders.
Omnicom currently has outstanding $143,750,000 of 4.5%/6.25% Step-Up
Convertible Subordinated Debentures with a scheduled maturity in 2000, which are
convertible into Omnicom Common Stock at a conversion price of $54.88, subject
to adjustment in certain events.
Chemical Bank, 450 West 33rd Street, New York, New York 10001 is the
transfer agent and the registrar of the Omnicom Common Stock.
DESCRIPTION OF ROSS ROY CAPITAL STOCK
Ross Roy has an authorized capitalization consisting of 2,000,000 shares of
Class A Common Stock, par value $1.00 per share, of which as of June 15, 1995,
[348,453] were issued and outstanding, and 200,000 shares of Class B Common
Stock, par value $1.00 per share, of which as of June 15, 1995, 54,800 shares
were issued and outstanding.
Except as otherwise provided by law, the shares of Class A Common Stock
have no voting rights. Each share of Class B Common Stock entitles the holder
thereof to one vote on all matters submitted to a vote of shareholders. All
shares of Class A and Class B Common Stock have equal rights in the payment of
dividends, and the registered holders thereof are entitled to receive such
dividends as may from time to time be legally declared by the Board of
Directors. In connection with certain borrowing facilities entered into by Ross
Roy and its subsidiaries, Ross Roy is restricted from paying any dividends
without consent of certain lenders. In connection with those same borrowing
facilities, Ross Roy is further subject to certain restrictions on consolidated
tangible net worth, funded debt to consolidated tangible net worth ratio, fixed
charge coverage, and cash redemption coverage. Ross Roy Common Stock is not
subject to any call or assessment and has no preemptive conversion or cumulative
voting rights. In the event of dissolution, liquidation or winding up, each
share of Class A Common Stock and each share of Class B Common Stock has equal
rights with all other shares of Class A Common Stock and Class B Common Stock in
the distribution of the assets of the corporation. The shares of each class of
authorized but unissued Common Stock may be issued and/or sold by the
corporation only to employees of Ross Roy. The shares of each class of Common
Stock after original sale and issue to an employee may be sold, assigned and
delivered to Ross Roy only. Whenever a registered holder of either Class A
Common Stock or Class B Common Stock ceases to be an active employee of Ross
Roy, the holder must sell, assign and deliver all shares of Class A Common Stock
and Class B Common Stock registered in the holder's name to Ross Roy which must
purchase such stock at a formula repurchase price as described in the Ross Roy
Articles.
39
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
Upon consummation of the Merger, the shareholders of Ross Roy, a Michigan
corporation, will become shareholders of Omnicom, a New York corporation, and
their rights as such will be governed by New York law, as well as the Omnicom
Certificate of Incorporation (the "Omnicom Certificate") and By-laws (the
"Omnicom By-laws") as amended from time to time in accordance with New York law.
While it is not practical to describe all changes in the rights of Ross Roy
Shareholders that will result from the application of New York law in lieu of
Michigan law and the differences between the Omnicom Certificate and the Omnicom
By-laws and the Ross Roy Articles of Incorporation ("Ross Roy Articles") and the
Ross Roy By-laws (the "Ross Roy By-laws"), the following is a summary of
material differences.
References to the "NYBCL" are to the New York Business Corporation Law,
while references to the "MBCA" are to the Michigan Business Corporation Act.
Special Meetings of Shareholders
Under Michigan law, a special meeting of shareholders may be called by the
board of directors or by officers, directors or shareholders as may be provided
in the by-laws. The Ross Roy By-laws provide that a special meeting of
shareholders may be called by the Board of Directors, the Chairman of the Board,
the President or the Chief Executive Officer and shall be called by the Board
upon the written request of the holders of record of a majority of the
outstanding shares entitled to vote at the meeting requested to be called. In
addition, under the MBCA, upon application of the holders of not less than 10%
of all the shares entitled to vote at a meeting, the circuit court of the county
in which the principal place of business or registered office of the corporation
is located, for good cause shown, may order a special meeting of shareholders to
be called and held at such time and place, upon such notice and for the
transaction of such business as may be designated in the order.
Under New York law, a special meeting of shareholders may be called by the
board of directors and by such person or persons as may be authorized to do so
in the certificate of incorporation or by-laws. In addition, if an annual
shareholder meeting has not been held for a certain period of time and a
sufficient number of directors were not elected to conduct the business of the
corporation, the board shall call a special meeting for the election of
directors. If the board fails to do so, or sufficient directors are not elected
within a certain period, holders of 10% of the shares entitled to vote in an
election of directors may call a special meeting for such an election. The
Omnicom By-laws provide that a special meeting of shareholders may be called,
for any purpose or purposes, by the Board of Directors or by the President, or
by the Secretary upon the request of a majority of the Board of Directors.
Removal of Directors
Under the MBCA, the shareholders may remove one or more directors, with or
without cause, unless the articles of incorporation provide that directors may
be removed only for cause. The vote for removal shall be by a majority of shares
entitled to vote at an election of directors except that the articles may
require a higher vote for removal without cause. The MBCA also allows, in
certain circumstances, for by-law provisions to modify the statutory removal
provisions. The Ross Roy By-laws provide that a director may be removed from
office for any reason: (i) by a two-thirds vote of the full board in attendance
and voting at any meeting, but not by less than a majority of the entire board
then in office, or (ii) by a vote of the holders of two-thirds of the capital
stock then outstanding and entitled to vote, at a special meeting of the
shareholders called for that purpose.
Under New York law, (i) shareholders may remove any director for cause, and
the certificate or provision of a by-law adopted by the shareholders may give
the board such right; (ii) if the certificate or the by-laws so provide,
shareholders may remove directors without cause; and (iii) an action to remove a
director for cause may be brought by the attorney-general or by the holders of
ten percent of the outstanding shares, whether or not entitled to vote. Neither
the Omnicom Certificate nor the Omnicom By-Laws permit the removal of directors
other than for cause.
Vacancies On The Board
Under Michigan law, unless otherwise limited in the articles of
incorporation, any vacancy on the board (including vacancies resulting from an
increase in the number of directors) may be filled by the shareholders or the
40
<PAGE>
Board. If the directors remaining in office constitute fewer than a quorum, they
may fill the vacancy by the affirmative vote of a majority of all the directors
remaining in office. Under the Ross Roy By-laws, vacancies on the Board for any
reason (including vacancies resulting from an increase in the number of
directors) may be filled by vote of a majority of the directors then in office.
A director elected to fill a vacancy shall be elected to hold office only until
the next election of directors by the shareholders.
Under New York law, newly created directorships resulting from an increase
in the number of directors and vacancies occurring in the board for any reason
except the removal of directors without cause may be filled by vote of the
board. However, the certificate of incorporation or by-laws may provide that
such newly created directorships or vacancies are to be filled by vote of the
shareholders. Unless the certificate of incorporation or the specific provision
of a by-law adopted by the shareholders provide that the board may fill
vacancies occurring in the board by reason of the removal of directors without
cause, such vacancies may be filled only by vote of the shareholders. A director
elected to fill a vacancy, unless elected by the shareholders, will hold office
until the next meeting of shareholders at which the election of directors is in
the regular order of business and until his or her successor has been elected
and qualified. The Omnicom By-laws provide that any vacancy in the Omnicom Board
may be filled by a majority vote of the remaining directors or by the
shareholders.
Classification of the Board of Directors
Ross Roy's Board of Directors is not classified into classes.
Omnicom's Certificate of Incorporation provides that directors are to be
classified into three classes, which are to hold office in staggered three-year
terms.
Books and Records; Inspection
Under Michigan law, any person who is a shareholder of record has the right
to examine, for any purpose reasonably related to his or her interest as a
shareholder, a list of the corporation's shareholders and its other books and
records. Shareholders are also entitled to receive, upon written request: (i) a
balance sheet of the corporation at the end of the preceding fiscal year, (ii)
an income statement for the fiscal year, and (iii) if prepared by the
corporation, its statement of source and application of funds for the fiscal
year.
Under New York law, only shareholders of record for at least six months and
any person or the authorized agent of any person or persons holding at least
five percent of any class of the outstanding shares have the right to examine
the minutes of a corporation and the right to receive upon request certain
financial statements of the corporation. Under the federal securities laws,
shareholders of Omnicom receive financial information substantially more
extensive than that required under New York law.
Amendments of the Articles/Certificate of Incorporation
Under Michigan law, an amendment to the articles of incorporation requires
an affirmative vote of a majority of the outstanding stock entitled to vote
thereon, and a majority of the outstanding stock of each class entitled to vote
as a class thereon. Whether or not entitled by the articles, the holders of the
outstanding shares of a class are entitled to vote on a proposed amendment if
the amendment would increase or decrease the aggregate number of authorized
shares of such class or alter or change the powers, preferences or special
rights of such class so as to affect the class adversely. The Ross Roy Articles
do not provide for any voting rights for the holders of Class A Common Stock.
Under New York law, an amendment or change of the certificate of
incorporation may be authorized by vote of the Board, followed by vote of the
holders of a majority of all outstanding shares entitled to vote thereon.
Certain categories of amendments which adversely affect the rights of any
holders of shares of a class or series of stock require the affirmative vote of
the holders of a majority of all outstanding shares of such class or series,
voting separately. The Omnicom Certificate requires the affirmative vote of 66
2/3% of the voting power of all outstanding shares of voting stock of Omnicom in
order to amend or repeal the provisions of the Omnicom Certificate setting the
number of directors constituting the entire Board of Directors and dividing the
directors into classes, and absolving directors from personal liability pursuant
to Section 719 of the NYBCL.
41
<PAGE>
Amendments to By-Laws
Under Michigan law, the by-laws of a corporation generally may be amended
or repealed by the affirmative vote of the holders of a majority of the shares
entitled to vote thereon. The Ross Roy By-laws provide that the By-laws may be
amended, altered or repealed by the affirmative vote of the holders of
two-thirds of the shares entitled to vote thereon, or by the Board of Directors
by a majority vote of the members of the Board then in office.
Under New York law, except as otherwise provided in the certificate of
incorporation, by-laws may be amended, repealed or adopted by the holders of
shares entitled to vote in the election of any director. When so provided in the
certificate of incorporation or a by-law adopted by the shareholders, by-laws
may also be amended, repealed or adopted by the board by such vote as may be
therein specified, which may be greater than the vote otherwise prescribed by
law, but any by-law adopted by the board may be amended or repealed by the
shareholders entitled to vote thereon. Under the terms of the Omnicom
Certificate and Omnicom By-laws, Omnicom By-laws may be amended, repealed or
adopted only by the affirmative vote of at least 66 2/3% of the total voting
power of all outstanding shares of voting stock of Omnicom.
Dividends and Distributions
Under Michigan law, no distribution to a shareholder (i.e., a dividend,
repurchase of stock, or other payment to a shareholder in his or her capacity as
such) may be made if, after giving effect to the distribution, the corporation
would not be able to pay its debts as they become due in the usual course of
business, or the corporation's total assets would be less than the sum of its
total liabilities plus, unless the articles permit otherwise, the amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights that are superior to those
receiving the distribution.
Under New York law, dividends may be declared or paid and other
distributions may be made out of surplus only, so that the net assets of the
corporation remaining after such declaration, payment or distribution must at
least equal the amount of its stated capital. When any dividend is paid or any
other distribution is made from sources other than earned surplus, a written
notice must accompany such payment or distribution as provided by the NYBCL. A
corporation may declare and pay dividends or make other distributions except
when currently the corporation is insolvent or would thereby be made insolvent,
or when the declaration, payment or distribution would be contrary to any
restrictions contained in the corporation's certificate of incorporation.
State Takeover Legislation
Chapters 7A and 7B of the MBCA affect attempts to acquire control of
Michigan corporations. In general, under Chapter 7A, "business combinations"
(defined to include, among other transactions, certain mergers, dispositions of
assets or shares and recapitalizations) between covered Michigan business
corporations or their subsidiaries and an "interested shareholder" (defined as
the direct or indirect beneficial owner of at least 10% of the voting power of a
covered corporation's outstanding shares) can be consummated only if approved by
at least 90% of the votes of each class of the corporation's shares entitled to
vote and by at least two-thirds of such voting shares not held by the interested
shareholder or such shareholder's affiliates, unless five years have elapsed
after the person involved became an "interested shareholder" and unless certain
price and other conditions are satisfied. The Board may exempt "business
combinations" with a particular "interested shareholder" by resolution adopted
prior to the time the "interested shareholder" attained the status.
In general, under Chapter 7B of the MBCA, an entity that acquires "Control
Shares" of a corporation may vote the Control Shares on any matter only if a
majority of all shares, and of all non-"Interested Shares," of each class of
shares entitled to vote as a class, approve such voting rights. Interested
Shares are shares owned by officers, employees or directors of the corporation
and the entity making the Control Share Acquisition. Control Shares are shares
that, when added to shares already owned by an entity, would give the entity
voting power in the election of directors over any of three thresholds:
one-fifth, one-third and a majority. The effect of the statute is to condition
the acquisition of voting control of a corporation on the approval of a majority
of the pre-existing disinterested shareholders. The Board has the option of
choosing to amend the corporation's by-laws before a Control Share Acquisition
occurs to provide that Chapter 7B does not apply to the corporation.
The NYBCL prohibits any business combination (defined to include a variety
of transactions, including mergers, consolidations, sales or dispositions of
assets, issuances of stock, liquidations, reclassifications and the receipt of
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<PAGE>
certain benefits from the corporation, including loans or guarantees) with,
involving or proposed by any interested shareholder (defined generally as any
person who, (i) directly or indirectly, beneficially owns 20% or more of the
outstanding voting stock of a resident domestic New York corporation or (ii) is
an affiliate or associate of such resident domestic corporation and at any time
within the past five years was a beneficial owner of 20% or more of such stock)
for a period of five years after the date on which the interested shareholder
became such. After such five-year period a business combination between a
resident domestic New York corporation and such interested shareholder is
prohibited unless either certain "fair price" provisions are complied with or
the business combination is approved by a majority of the outstanding voting
stock not beneficially owned by such interested shareholder or its affiliates or
associates. The NYBCL exempts from its prohibitions any business combination
with an interested shareholder if such business combination, or the purchase of
stock by the interested shareholder that caused such shareholder to become such,
is approved by the board of directors of the resident domestic New York
corporation prior to the date on which the interested shareholder becomes such.
Under the NYBCL, corporations may opt to not be governed by the statute;
Omnicom has not so elected.
Business Combinations
Generally, under the MBCA, the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote on the matter is required to
approve mergers, consolidations, and any sales, leases or exchanges of all or
substantially all of the assets of a corporation.
Under the NYBCL, the affirmative vote of the holders of two-thirds of all
outstanding shares of stock of a New York corporation entitled to vote thereon
is required to approve mergers and consolidations, and for sales, leases,
exchanges or other dispositions of all or substantially all the assets of a
corporation, if not made in the usual or regular course of the business actually
conducted by such corporation.
Rights of Dissenting Shareholders
Under the MBCA, a shareholder is entitled to dissent from, and obtain
payment of the fair value of his or her shares in the event of, certain mergers,
share exchanges, a sale or exchange of all (or substantially all) of the
property of the corporation, certain amendments to the articles which adversely
affect the shareholder, certain share issuances in connection with certain
acquisitions, certain "control share acquisitions," and other corporate actions
(to the extent the articles so provide). The MBCA also provides various
exceptions to dissenter's rights, including transactions wherein shareholders
are to receive shares listed on a national securities exchange (such as the
merger of OmniSub into Ross Roy). Accordingly, in the transaction being
submitted for approval by the Ross Roy shareholders, the shareholders do not
have dissenters' rights.
Shareholders of a New York corporation have the right to dissent not only
in the context of a merger or consolidation, but also in the event of certain
amendments or changes to the certificate of incorporation adversely affecting
their shares, certain sales, exchanges or other dispositions of all or
substantially all of the corporation's assets and certain share exchanges.
Indemnification of Directors, Officers and Employees
The MBCA generally provides that a corporation may, and in certain
circumstances, must, indemnify any person who is or was threatened with any
action, suit or proceeding by reason of the fact that he or she is or was a
director, officer, employee or agent of such corporation for expenses, judgments
or settlements actually and reasonably incurred by such person in connection
with suits and other legal action or proceedings if such person acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe their conduct was unlawful.
Unless indemnification is ordered by a court, the determination of whether a
director, officer, employee or agent has met the applicable standard of conduct
is made (i) by a majority vote of a quorum of the board consisting of directors
who are not parties or threatened to be made parties to the action, suit or
proceeding, (ii) if a quorum cannot be obtained under (i), by majority vote of a
committee duly designated by the board and consisting solely of two or more
directors not at the time parties or threatened to be made parties to the
action, suit or proceeding, (iii) by independent legal counsel in a written
opinion, (iv) by all independent directors who are not parties or threatened to
43
<PAGE>
be made parties to the action, suit or proceeding, or (v) by the shareholders
(but shares held by directors, officers, employees or agents who are parties or
threatened to be made parties to the action, suit or proceeding may not be
voted). The MBCA also permits a corporation to advance expenses to directors,
officers and others upon a determination of eligibility, so long as the
requesting party undertakes to repay the amounts advanced if it is ultimately
determined that the party was not entitled to be indemnified. The aforementioned
provisions relating to indemnification and advancement of expenses are not
exclusive and a corporation may provide additional rights to those seeking
indemnification or advancement of expenses. The Ross Roy By-laws provide for
indemnification of directors, officers, employees and agents to the fullest
extent authorized under the MBCA.
Under Section 722 of the NYBCL, a corporation may indemnify any person
made, or threatened to be made, a party to any action or proceeding, except for
shareholder derivative suits, by reason of the fact that he or she was a
director or officer of the corporation, provided such director or officer acted
in good faith for a purpose which he or she reasonably believed to be in the
best interests of the corporation and, in criminal proceedings, in addition, had
no reasonable cause to believe his or her conduct was unlawful. In the case of
shareholder derivative suits, the corporation may indemnify any person by reason
of the fact that he or she was a director or officer of the corporation if he or
she acted in good faith for a purpose which he or she reasonably believed to be
in the best interests of the corporation, except that no indemnification may be
made in respect of (i) a threatened action, or a pending action which is settled
or otherwise disposed of, or (ii) any claim, issue or matter as to which such
person has been adjudged to be liable to the corporation, unless and only to the
extent that the court in which the action was brought, or, if no action was
brought, any court of competent jurisdiction, determines upon application that,
in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
The indemnification described above under the NYBCL is not exclusive of
other indemnification rights to which a director or officer may be entitled,
whether contained in the certificate of incorporation or by-laws, or, when
authorized by (i) such certificate of incorporation or by-laws, (ii) a
resolution of shareholders, (iii) a resolution of directors, or (iv) an
agreement providing for such indemnification, provided that no indemnification
may be made to or on behalf of any director or officer if a judgment or other
final adjudication adverse to the director or officer establishes that his or
her acts were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that he
or she personally gained in fact a financial profit or other advantage to which
he or she was not legally entitled.
Any person who has been successful on the merits or otherwise in the
defense of a civil or criminal action or proceeding will be entitled to
indemnification. Except as provided in the preceding sentence, unless ordered by
a court pursuant to the NYBCL, any indemnification under the NYBCL pursuant to
the above paragraphs may be made only if authorized in the specific case and
after a finding that the director or officer met the requisite standard of
conduct (i) by the disinterested directors if a quorum is available, or (ii) in
the event a quorum of disinterested directors is not available or so directs by
either (A) the board upon the written opinion of independent legal counsel, or
(B) by the shareholders.
The Omnicom By-laws provide that Omnicom shall provide indemnification to
its directors and officers in respect of claims, actions, suits or proceedings
based upon, arising from, relating to or by reason of the fact that any such
director or officer serves or served in such capacity with Omnicom or at the
request of Omnicom in any capacity with any other enterprise, and permits
Omnicom to indemnify others and to advance expenses to the fullest extent
permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Omnicom or Ross
Roy pursuant to the foregoing provisions, Omnicom and Ross Roy have been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
Limitation of Personal Liability of Directors
The MBCA permits a corporation to include in its articles of incorporation
a provision that would eliminate a director's monetary liability for breaches of
his or her fiduciary duty in a lawsuit by or on behalf of the corporation or in
an action by stockholders of the corporation, provided that such provision may
not eliminate or limit the liability of a director (i) for any breach of the
44
<PAGE>
director's duty of loyalty, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or stock purchases or redemptions, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Ross Roy Articles contain such a provision providing for the limitation of
liability of directors for monetary damages for breach of fiduciary duty as a
director to the fullest extent permitted by the MBCA.
Section 402(b) of the NYBCL provides that a corporation's certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of directors to the corporation or its shareholders for damages for
any breach of duty in such capacity. However, no such provision can eliminate or
limit (i) the liability of any director if a judgment or other final
adjudication adverse to such director establishes that such director's acts or
omissions were in bad faith, or involved intentional misconduct or a knowing
violation of law, or that the director personally gained in fact a financial
profit or other advantage to which such director was not legally entitled or
that the director's acts violated certain provisions of the NYBCL or (ii) the
liability of any director for any act or omission prior to the adoption of such
a provision in the certificate of incorporation.
The Omnicom Certificate provides that no director shall be personally
liable to Omnicom or any of its shareholders for damages for any breach of duty
as a director, except for liability resulting from a judgment or other final
adjudication adverse to the director (i) for acts or omissions in bad faith or
which involve intentional misconduct or a knowing violation of the law, (ii) for
any transaction from which the director derived a financial profit or other
advantage to which the director was not legally entitled, or (iii) under Section
719 of the NYBCL.
LEGAL MATTERS
The legality of the issuance of the Common Stock to be issued in the Merger
will be passed upon by Davis & Gilbert, 1740 Broadway, New York, New York 10019,
counsel to Omnicom.
EXPERTS
The consolidated financial statements and schedules of Omnicom and its
subsidiaries incorporated by reference in this Prospectus/Information Statement
and the Registration Statement of which this Prospectus/Information Statement is
a part have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as an expert in giving said reports
The consolidated financial statements of Ross Roy contained in this
Prospectus/Information Statement and the Registration Statement of which this
Prospectus/Information Statement is a part have been audited by Deloitte &
Touche LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as an expert in giving said reports.
45
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
TABLE OF CONTENTS
Page
----
Independent Auditors' Report ............................................ F-1
Consolidated Balance Sheets as of December 31, 1994 and 1993 ............ F-2
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1994 .............................. F-3
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1994 ....................... F-4
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1994 .............................. F-5
Notes to Consolidated Financial Statements .............................. F-6
Consolidated Condensed Balance Sheets as of
March 31, 1995 and 1994 (unaudited) ................................ F-13
Consolidated Condensed Statements of Operations for the three months ended
March 31, 1995 and 1994 (unaudited) ................................ F-14
Consolidated Condensed Statements of Cash Flows for the three months ended
March 31, 1995 and 1994 (unaudited) ................................ F-15
Notes to Consolidated Condensed Financial Statements (unaudited) ........ F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Ross Roy Communications, Inc.
Bloomfield Hills, Michigan
We have audited the accompanying consolidated balance sheets of Ross Roy
Communications, Inc. (formerly known as Ross Roy Group, Inc.) as of December 31,
1994 and 1993, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Corporation as of December
31, 1994 and 1993, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
As discussed in Note 7 to the consolidated financial statements, effective
January 1, 1992, the Corporation changed its method of accounting for income
taxes to conform with Statement of Financial Accounting Standards No. 109.
Deloitte & Touche LLP
March 9, 1995
F-1
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (including restricted cash
of $1,768,000 in 1994 and $220,000 in 1993) ..................... $ 1,863,032 $ 2,181,338
Accounts receivable, net of allowance for doubtful accounts
of $278,000 in 1994 and $193,000 in 1993 ........................ 45,376,263 61,737,403
Billable production in process ..................................... 2,670,213 3,193,914
Refundable income taxes ............................................ 124,243 2,116,965
Deferred taxes ..................................................... 709,000 264,000
Prepaid expenses and other ......................................... 1,414,400 3,015,724
------------ ------------
Total current assets ...................................... 52,157,151 72,509,344
Property and equipment:
Leasehold improvements ............................................. 6,535,968 6,322,404
Furniture and equipment ............................................ 11,466,995 11,355,901
------------ ------------
Total ..................................................... 18,002,963 17,678,305
Less accumulated depreciation and amortization ..................... (9,156,723) (8,401,429)
------------ ------------
Net property and equipment ................................ 8,846,240 9,276,876
Other assets:
Cash value of life insurance, less policy loans
of $2,018,000 in 1994 and $2,592,000 in 1993 .................... 620,708 1,109,825
Notes receivable ................................................... 179,283 201,445
Cost of purchased assets in excess of fair value, net of accumulated
amortization of $276,000 in 1994 and $264,000 in 1993 ........... 512,663 780,281
Deferred taxes ..................................................... -- 2,786,000
Prepaid pension asset and other .................................... 11,678,228 10,615,045
------------ ------------
Total other assets ........................................ 12,990,882 15,492,596
------------ ------------
Total assets .............................................. $ 73,994,273 $ 97,278,816
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................................. $ 1,214,000 $ 4,930,000
Accounts payable ................................................... 45,809,479 63,639,499
Compensation and employee benefits ................................. 4,984,686 2,389,312
Clients' advances .................................................. 7,494,724 7,572,479
Other accrued liabilities .......................................... 1,832,235 3,870,150
Income taxes payable ............................................... 142,436 --
------------ ------------
Total current liabilities ................................. 61,477,560 82,401,440
Long-term liabilities:
Long-term debt ..................................................... 3,259,000 6,487,000
Deferred compensation .............................................. 3,280,190 3,592,851
Deferred income .................................................... 716,318 859,582
Deferred taxes ..................................................... 79,000 --
Other .............................................................. 2,853,113 3,814,464
------------ ------------
Total long-term liabilities ............................... 10,187,621 14,753,897
Stockholders' equity:
Common stock, $1 par value:
Class A, nonvoting; authorized 2,000,000 shares,
outstanding 224,950 shares in 1994 and 271,320 shares in 1993... 224,950 271,320
Class B, voting; authorized 200,000 shares,
outstanding 54,800 shares in 1994 and 49,800 shares in 1993 ... 54,800 49,800
Retained earnings (deficit) ........................................ 2,049,342 (197,641)
------------ ------------
Total stockholders' equity ................................ 2,329,092 123,479
------------ ------------
Total liabilities and stockholders' equity ................ $ 73,994,273 $ 97,278,816
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Revenue ................................................. $ 65,727,498 $ 79,444,554 $ 86,443,417
Operating expenses:
Compensation and employee benefits .................... 39,382,100 51,063,706 57,455,973
Occupancy expense ..................................... 6,550,670 9,348,406 10,699,532
General agency expense ................................ 7,925,201 11,116,803 11,501,131
Special charges, asset write-downs and losses
on sales of subsidiaries ........................... 1,418,820 8,732,454 10,622,594
Other ................................................. 1,951,983 3,248,300 3,202,992
------------ ------------ ------------
Total operating expenses ........................ 57,228,774 83,509,669 93,482,222
Operating income (loss) ................................. 8,498,724 (4,065,115) (7,038,805)
Other expense (income):
Interest expense ...................................... 1,215,190 1,610,459 1,759,088
Interest and investment income ........................ (174,450) (257,889) (389,828)
Life insurance proceeds and other ..................... -- (8,388,361) 384,834
------------ ------------ ------------
Total other expense ............................. 1,040,740 (7,035,791) 1,754,094
Income (loss) before single business tax and income
taxes, minority interest and cumulative effect of
change in accounting principle ....................... 7,457,984 2,970,676 (8,792,899)
Provision (credit), single business tax and income taxes:
Single business tax ................................... 520,000 826,000 864,400
Current ............................................... 602,685 (302,171) (680,000)
Deferred .............................................. 2,419,842 (2,312,040) (2,144,078)
------------ ------------ ------------
Total taxes ................................... 3,542,527 (1,788,211) (1,959,678)
------------ ------------ ------------
Net income (loss) before minority interest and
cumulative effect of change in accounting principle .. 3,915,457 4,758,887 (6,833,221)
Minority interest ....................................... 206,659 216,683 210,840
------------ ------------ ------------
Net income (loss) before cumulative change in
accounting principle ................................. 3,708,798 4,542,204 (7,044,061)
Cumulative effect of change in accounting principle ..... -- -- (600,000)
------------ ------------ ------------
Net income (loss) ....................................... $ 3,708,798 $ 4,542,204 $ (7,644,061)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Common Stock
---------------------------- Retained
Class A Class B Earnings Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1992 ........... $ 452,986 $ 89,800 $ 10,068,356 $ 10,611,142
Net loss ......................... -- -- (7,644,061) (7,644,061)
Purchase of 32,384 Class A shares (32,384) -- (887,030) (919,414)
Issuance of 24,100 Class A shares 24,100 -- 653,351 677,451
Translation adjustment ........... -- -- (394,854) (394,854)
------------ ------------ ------------ ------------
Balance, December 31, 1992 ......... 444,702 89,800 1,795,762 2,330,264
Net income ....................... -- -- 4,542,204 4,542,204
Purchase of 226,542 Class A shares (226,542) -- (6,573,919) (6,800,461)
Purchase of 55,000 Class B shares -- (55,000) (1,596,100) (1,651,100)
Issuance of 53,160 Class A shares 53,160 -- 1,390,334 1,443,494
Issuance of 15,000 Class B shares -- 15,000 435,300 450,300
Translation adjustment ........... -- -- (191,222) (191,222)
------------ ------------ ------------ ------------
Balance, December 31, 1993 ......... 271,320 49,800 (197,641) 123,479
Net income ....................... -- -- 3,708,798 3,708,798
Purchase of 50,300 Class A shares (50,300) -- (1,673,635) (1,723,935)
Purchase of 10,000 Class B shares -- (10,000) (336,200) (346,200)
Purchase of 21,257 Options ....... (21,257) -- (660,696) (681,953)
Issuance of 8,930 Class A shares . 8,930 -- 259,238 268,168
Issuance of 10,000 Class B shares -- 10,000 290,300 300,300
Exercise of 21,257 options ....... 21,257 -- 566,740 587,997
Transfer of shares ............... (5,000) 5,000 -- --
Translation adjustment ........... -- -- 92,438 92,438
------------ ------------ ------------ ------------
Balance, December 31, 1994 ......... $ 224,950 $ 54,800 $ 2,049,342 $ 2,329,092
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net income (loss) before cumulative effect of change
in accounting principle ........................... $ 3,708,798 $ 4,542,204 $ (7,044,061)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Pension income recognized .......................... (1,784,284) (1,333,331) (1,034,465)
Depreciation and amortization ...................... 1,081,593 1,916,872 2,617,301
Provision for losses on accounts receivable ........ 182,050 242,138 206,719
Provision (credit) for deferred taxes .............. 2,419,842 (2,481,040) (3,189,882)
Decrease (increase) in cash value of life insurance 489,117 2,309,614 (88,294)
Special charges, asset write-downs and losses on
sales of subsidiaries ........................... (1,613,872) 6,639,404 9,672,285
Changes in operating assets and liabilities that
provided (used) cash:
Accounts receivable ................................ 16,179,090 11,097,359 426,450
Billable production in process ..................... 523,701 150,343 2,244,176
Refundable income taxes and other current assets ... 3,594,046 (1,175,980) (2,860,381)
Accounts payable and other current liabilities ..... (15,936,193) (12,808,418) 1,264,815
------------ ------------ ------------
Total adjustments ........................... 5,135,090 4,556,961 9,258,724
------------ ------------ ------------
Net cash provided by operating activities ... 8,843,888 9,099,165 2,214,663
Cash Flow from Investing Activities:
Expenditures for property and equipment .............. (850,249) (478,866) (1,158,046)
Proceeds from disposals of property and equipment .... 22,289 5,291,055 77,586
Increase in other noncurrent assets .................. (29,738) (483,597) (351,307)
Other ................................................ 235,127 6,558 (288,077)
------------ ------------ ------------
Net cash provided by (used in) investing
activities ................................ (622,571) 4,335,150 (1,719,844)
Cash Flow from Financing Activities:
Proceeds from issuance of long-term debt ............. 1,700,000 -- 1,000,000
Repayments of long-term debt ......................... (8,679,000) (11,787,811) (1,528,511)
Purchases of stock ................................... (2,752,088) (5,312,593) (919,414)
Issuances of stock ................................... 1,156,465 1,893,794 677,651
Repayments of stock repurchase obligations ........... (983,000) -- --
Increase in stock repurchase obligations ............. 1,018,000 2,738,023 --
------------ ------------ ------------
Net cash used in financing activities .......... (8,539,623) (12,468,587) (770,274)
Net Increase (Decrease) in Cash and Cash Equivalents .... (318,306) 965,728 (275,455)
Cash and Cash Equivalents at Beginning of Year .......... 2,181,338 1,215,610 1,491,065
------------ ------------ ------------
Cash and Cash Equivalents at End of Year ................ $ 1,863,032 $ 2,181,338 $ 1,215,610
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1993 and 1992
1. Significant Accounting Policies
Principles of Consolidation -- Effective February 28, 1994, Ross Roy, Inc.
merged into Ross Roy Group, Inc. and became known as Ross Roy Communications,
Inc. The consolidated financial statements include the accounts of Ross Roy
Communications, Inc. and its subsidiaries (the "Corporation"). Upon
consolidation, all significant intercompany accounts and transactions have been
eliminated.
Revenue -- The Corporation is an agency rendering principally advertising,
merchandising and sales promotion services to domestic and Canadian clients
under various billing and fee arrangements. Revenue derived from advertising
placed with media is generally recognized based upon publication or broadcast
dates. Revenue related to outside services, materials and certain internal costs
billable to clients is recognized when billed or upon completion.
Billable Production in Process includes outside services and materials
which are stated at the lower of accumulated job costs or estimated realizable
amounts.
Cash and Cash Equivalents -- For the purpose of the statement of cash
flows, the Corporation considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Cost of Purchased Assets in Excess of Fair Value ("goodwill") is amortized
on a straight-line basis over its estimated useful life not to exceed a
forty-year period.
Property and Equipment are stated at cost. Provisions for depreciation and
amortization of leasehold improvements and furniture and equipment are computed
by the straight-line method over the estimated useful lives of the related
assets or over the lease term, whichever period is shorter.
Income Taxes have been accounted for according to the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, adopted effective
January 1, 1992, which requires the recognition of deferred tax assets and
liabilities at the effective federal tax rate.
Foreign Currency Translation -- The financial statements of the Canadian
subsidiaries are translated to United States dollars using the current rate
method. Under this method, translation adjustments are made directly to
stockholders' equity.
Reclassification -- Certain amounts in the previously issued consolidated
financial statements have been reclassified to conform with the presentation set
forth herein.
2. Major Clients
Approximately 83%, 67% and 56% of the Corporation's revenue in 1994, 1993
and 1992, respectively, was attributable to three major clients. These clients
are concentrated in the automobile manufacturing and distribution, and retail
industries.
In 1994 the Corporation was informed by their major retail client of its
decision to utilize another agency. It is anticipated that the Corporation will
transition its responsibilities to the new agency in mid to late 1995.
3. Common Stock and Repurchase Obligation
Under the Corporation's Articles of Incorporation, as amended, all of the
common stock of the Corporation is owned by the employees, and the Corporation
is obligated to repurchase its common stock from its shareholders upon
termination of employment. At December 31, 1994, 1993 and 1992, the repurchase
price was $34.62, $30.03 and $30.02 per share, respectively. The repurchase
price was determined by a formula, as amended and approved by the shareholders
based primarily upon book value, adjusted for certain items determined by the
Board of Directors (the "Board"), and the fair value of certain investments. At
the Corporation's option, amounts payable upon repurchase greater than $100,000
are payable in equal installments over a four year period. The Corporation has
F-6
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
an agreement with a bank whereby an employee may borrow funds from the bank to
purchase stock and the borrowings are guaranteed by the Corporation. These
guaranteed borrowings approximated $4,881,000 at the date of this report.
The Corporation maintains two stock option plans, adopted in 1990 and as
amended (the "1990 Plan") and in 1982 (the "1982 Plan"), in which 250,000 and
160,000 shares of the Corporation's common stock, respectively, were reserved
for sale to officers and other key employees at a price equal to the stock
repurchase price at the date of grant. Options are granted by the Stock Option
Committee of the Board. Options under the 1990 Plan expire eight years from the
date of grant and become exercisable in full or in such cumulative installments
as determined by the Stock Option Committee. Options under the 1982 Plan expire
seven years from the date of grant and become exercisable in 20% cumulative
installments beginning one year from the date of grant.
A summary of changes in outstanding options for the years ended December
31, 1994, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
1990 Plan 1982 Plan
--------------------------- ---------------------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Shares under option (at prices ranging
from $15.37 to $30.03) --
Beginning of year .................... 78,500 125,000 91,000 7,892 19,072 19,072
Options granted (at prices ranging from
$28.03 to $30.03) .................... 59,500 5,000 34,000 -- -- --
Options exercised (at prices ranging from
$15.37 to $28.11) .................... (13,100) (42,500) -- (3,157) (11,180) --
Options forfeited ....................... (9,400) (9,000) -- (789) -- --
------- ------- ------- ----- ------ ------
Options under option (at prices ranging
$15.37 to $30.03)-- End of year ...... 115,500 78,500 125,000 3,946 7,892 19,072
======= ======= ======= ===== ====== ======
Shares exercisable ...................... 99,000 68,100 105,000 3,946 6,312 17,492
======= ======= ======= ===== ====== ======
</TABLE>
All of the exercisable shares at December 31, 1994 under the 1990 and 1982
Plans were exercised subsequent to year-end.
As part of its program to retain key management employees, the Corporation
has a supplemental compensation plan which enables such key executives to earn
payments on units awarded under the plan. The payments are based on appreciation
in the repurchase price of the Corporation's common stock. The cost of the plan,
which is not significant, is accrued as earned.
4. Debt
Long-term debt consists of the following at December 31, 1994 and 1993:
1994 1993
----------- -----------
Term note payable to bank .................. $ -- $ 3,781,000
Revolving line of credit agreement ......... 1,700,000 4,802,000
Stock repurchase obligations ............... 2,773,000 2,738,000
Capital lease obligation ................... -- 96,000
----------- -----------
Total ................................... 4,473,000 11,417,000
Less current portion ....................... 1,214,000 4,930,000
----------- -----------
Long-term portion .......................... $ 3,259,000 $ 6,487,000
=========== ===========
F-7
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 1994, the Corporation negotiated a new revolving line of credit
agreement with a bank. The Corporation's revolving line of credit agreement with
the bank for $20,000,000 is effective through July 31, 1996. The facility allows
borrowings based on a calculation tied primarily to accounts receivable, work in
process and media payables. The interest rate on this revolver fluctuates
between prime and 0.5% above prime, based on the borrowing level. The interest
rate was 8.75% at December 31, 1994. As of December 31, 1994, $1,700,000 was
drawn on the line of credit by the Corporation and $500,000 of the revolver was
used for a letter of credit. The available line of credit is further reduced by
certain shareholder loans for which the Corporation serves as a guarantor. These
guaranteed borrowings approximated $3,072,000 as of the date of this report.
Borrowings under this agreement are collateralized by the majority of the
Corporation's assets. The lending agreement requires the Corporation to meet
certain financial covenants, including a minimum tangible net worth, a maximum
leverage ratio and a fixed charge coverage requirement. As of December 31, 1994,
the Corporation was not in compliance with its minimum tangible net worth
covenant. However, the bank has amended the Agreement subsequent to year-end to
adjust the minimum tangible net worth covenant whereby the Corporation is in
compliance.
The term note payable to a bank and the revolving credit agreement with the
prior lender were paid on June 30, 1994 coincident with the establishment of the
new bank facility.
Principal maturities of long-term debt during the three years following
1994 are as follows:
Revolving Stock
Credit Repurchase
Year Agreement Obligations Total
- ---- ---------- ----------- -----------
1995 ....................... $ -- $1,214,000 $1,214,000
1996 ....................... 1,700,000 885,000 2,585,000
1997 ....................... -- 674,000 674,000
---------- ---------- -----------
Total ............. $1,700,000 $2,773,000 $4,473,000
========== ========== ===========
5. Lease Arrangements
Certain operations of the Corporation and its subsidiaries are conducted on
premises under operating leases which expire at various dates through 1999,
including an operating lease for its major operating facility leased from a
partnership in which the Corporation owns a 50% interest. The Corporation also
has other noncancelable operating leases for the use of computers, automobiles,
telephones, and other equipment.
Future minimum payments under noncancelable lease obligations (net of
sublease income and including payments to related parties) as of December 31,
1994 are shown below. These amounts do not include $1,800,000 of other lease
costs that have been accrued as of December 31, 1994.
Year Operating
---- -----------
1995 .......................................... $ 6,377,000
1996 .......................................... 5,416,000
1997 .......................................... 4,876,000
1998 .......................................... 4,304,000
1999 .......................................... 4,389,000
-----------
Total minimum lease payment ................. $25,362,000
===========
At December 31, 1994 aggregate future minimum rentals to be received under
noncancelable subleases totaled approximately $1,495,000. During 1994, 1993 and
1992, $267,000, $63,000 and $76,000, respectively, in sublease rental income was
received. Rental expense aggregated $5,490,000, $7,890,000 and $8,272,000 during
the years ended December 31, 1994, 1993 and 1992, respectively (including
payments to the related partnership of $3,045,000, $2,659,000 and $2,678,000 for
1994, 1993 and 1992, respectively).
F-8
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 1993, equipment under a capital lease had a cost of
approximately $282,000 and accumulated depreciation of $207,000. The capital
lease was repaid in 1994.
6. Employee Benefit Plans
The Corporation has defined contribution plans covering substantially all
domestic and Canadian employees. All employees are permitted to make
contributions to the plans. Amounts of the employer contributions, if any, are
determined by each subsidiary. The cost of benefits under the defined
contribution plans totaled $1,289,000 in 1994, $213,000 in 1993 and $1,461,000
in 1992.
The Corporation also has a defined benefit pension plan covering certain
domestic salaried employees. Effective December 31, 1989, the Corporation
amended the defined benefit plan which fully vested all participants and froze
the Basic Retirement Benefits for most participants at the amount determined as
of that date. For certain employees meeting specified age and service
requirements, benefits continue to accrue on a revised formula. Benefits are
calculated based on a percentage of the participants' salary as defined in the
agreement.
The components of net periodic pension income related to the defined
benefit plan include the following:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits earned during the year) $ 58,000 $ 106,000 $ 113,000
Interest cost on projected benefit obligation. 1,443,000 1,578,000 1,568,000
Actual (return) loss on plan assets .......... 1,692,000 (2,690,000) (1,961,000)
Net amortization and deferral ................ (4,977,000) (295,000) (838,000)
----------- ----------- -----------
Net pension income ........................... $(1,784,000) $(1,301,000) $(1,118,000)
=========== =========== ===========
</TABLE>
Net amortization and deferral consists of amortization of the net asset or
overfunded position at the date of adoption of SFAS No. 87 and the deferral of
subsequent net gains and losses caused by the actual plan and investment
experience differing from that assumed. The assumptions used to determine gains
and losses are a discount rate of 8.5% in 1994, 7.5% in 1993 and 8.0% in 1992,
an expected annual long-term rate of return on plan assets of 9.5% and an annual
increase in the long-term level of compensation of 5.5% for all years. The plan
assets consist primarily of investments in equity securities.
The following table provides a reconciliation of the funded status of the
defined benefit pension plan with the amounts recognized in the balance sheet as
of December 31:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation .................... $ 17,601,000 $ 21,114,000 $ 20,028,000
============ ============ ============
Accumulated benefit obligation ............... $ 17,757,000 $ 21,343,000 $ 20,067,000
============ ============ ============
Projected benefit obligation ................. $ 17,964,000 $ 21,742,000 $ 20,407,000
Plan assets at fair value .................... 27,904,000 31,160,000 29,959,000
------------ ------------ ------------
Excess of assets over projected
benefit obligation .................... 9,940,000 9,418,000 9,552,000
Unrecognized prior service cost .............. 643,000 245,000 251,000
Unrecognized net loss ........................ 3,085,000 2,763,000 1,855,000
Unrecognized net asset ....................... (3,236,000) (3,776,000) (4,315,000)
------------ ------------ ------------
Prepaid pension costs recorded in other assets $ 10,432,000 $ 8,650,000 $ 7,343,000
============ ============ ============
</TABLE>
F-9
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In addition to the benefit plans described above, the Corporation provides
certain health and life insurance benefits to eligible employees and retirees.
The cost of these benefits, which approximated $1,644,000 in 1994, $2,029,000 in
1993 and $2,635,000 in 1992 are accounted for as expenses in the Corporation's
consolidated financial statements in the year they are incurred.
The Financial Accounting Standards Board has issued SFAS No. 106,
"Accounting for Postretirement Benefits Other Than Pensions," which requires
accrual of retiree benefits during the years the employees provide services,
which will be adopted by the Corporation effective January 1, 1995. The
estimated impact of the adoption will be $2,500,000 (net of applicable income
taxes) if the transition obligation is recognized as a one-time charge in the
year of adoption. Implementation of the new Standard will have no cash impact on
the Corporation.
7. Income Taxes
Effective January 1, 1992, the Corporation adopted SFAS No. 109,
"Accounting for Income Taxes," which requires the liability method of accounting
for deferred income taxes and the recognition of net deferred tax assets subject
to an ongoing assessment of realizability. At January 1, 1992, the adjustment of
deferred tax assets and liabilities resulted in an unfavorable cumulative effect
of the change in accounting principle of approximately $600,000.
Income (loss) before taxes and the provision (credit) for taxes consisted
of the amounts shown below:
<TABLE>
<CAPTION>
1994 1993 1992
-------------- ------------- -------------
<S> <C> <C> <C>
Income (loss) before single business tax
and income taxes, minority interest and cumulative
effect of change in accounting principle:
Domestic ......................................... $ 5,986,592 $ 2,237,817 $ (10,166,105)
International .................................... 1,471,392 732,859 1,373,206
-------------- ------------- -------------
Total ........................................ $ 7,457,984 $ 2,970,676 $ (8,792,899)
============= ============= =============
Provision (credit), single business tax and
income taxes:
Single business tax .............................. $ 520,000 $ 826,000 $ 864,400
------------- ------------- -------------
Current:
Federal ...................................... -- (547,901) (1,426,645)
State and local .............................. (61,361) (24,135) 53,077
International ................................ 664,046 269,865 693,568
-------------- ------------- -------------
602,685 (302,171) (680,000)
-------------- ------------- -------------
Deferred--Federal ................................ 2,419,842 (2,312,040) (2,144,078)
-------------- ------------- -------------
Total ........................................ $ 3,542,527 $ (1,788,211) $ (1,959,678)
============= ============= =============
</TABLE>
F-10
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Corporation's effective income tax rate varied from the statutory
federal income tax rate as a result of the following factors:
1994 1993 1992
---- ---- ----
Statutory federal income tax (benefit) rate ..... 34.0% 34.0 % (34.0)%
Single business tax, net of federal income tax
benefit ...................................... 4.6 18.3 6.5
International subsidiaries' tax rate in excess of
federal statutory rate ....................... 2.2 0.7 2.6
Nondeductible amortization of goodwill .......... 1.2 0.8 3.0
Nondeductible travel and entertainment expenses . 1.8 2.6 1.3
Receipts from life insurance policies, payment of
premiums for life insurance policies and other 3.7 (116.6) (1.7)
---- ----- ----
Effective rate ................................. 47.5% (60.2)% (22.3)%
==== ===== ====
Temporary differences and carryforwards which give rise to significant
deferred tax assets and liabilities at December 31, 1994 and 1993 are as
follows:
1994 1993
----------- -----------
Deferred tax assets:
Alternative minimum tax carryforwards .......... $ 414,000 $ 401,000
Net operating and capital loss carryforwards ... 3,714,000 4,584,000
Contribution carryforwards ..................... 213,000 274,000
Reserves ....................................... 2,202,000 3,325,000
Lease transactions ............................. 951,000 644,000
Bad debt expense ............................... 187,000 333,000
----------- -----------
Total deferred tax assets ................... 7,681,000 9,561,000
Less valuation allowance for certain carryforwards (570,000) (568,000)
----------- -----------
Net deferred tax assets ..................... 7,111,000 8,993,000
Current portion .................................. 735,000 274,000
----------- -----------
Long-term portion ................................ $ 6,376,000 $ 8,719,000
=========== ===========
Deferred tax liabilities:
Installment receivables ........................ $ 357,000 $ 357,000
Depreciation ................................... 902,000 962,000
Pension income ................................. 3,572,000 3,127,000
Deferred investment income ..................... 1,640,000 1,446,000
Other .......................................... 10,000 51,000
----------- -----------
Total deferred tax liabilities .............. 6,481,000 5,943,000
Current portion .................................. 26,000 10,000
----------- -----------
Long-term portion ................................ 6,455,000 5,933,000
----------- -----------
Deferred tax asset ............................... $ 630,000 $ 3,050,000
=========== ===========
At December 31, 1994, the Corporation had alternative minimum tax credit
carryforwards of approximately $414,000, which have no expiration dates, and net
operating loss and capital loss carryforwards of approximately $10,924,000
(which is a $3,714,000 benefit at a statutory tax rate of 34%), which expire in
1998 for the capital loss carryforwards and in the year 2008 for the net
operating loss carryforwards.
F-11
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Cash Flow Reporting
During 1994, 1993 and 1992, respectively, the Corporation made cash
payments of approximately $1,408,000, $1,462,000 and $2,006,000 for interest,
and $640,000, $1,510,000 and $330,000 for federal and international income
taxes.
9. Special Charges, Asset Write-Downs, and Losses on Sales of Subsidiaries
During 1994, the Corporation recorded a net special charge of approximately
$1,419,000. This charge resulted primarily from severance and other costs
related to the loss of a major client as described in Note 2 and was reduced by
approximately $600,000 in adjustments to charges recorded in prior years that
were settled for amounts less than originally estimated. As of December 31,
1994, approximately $3,600,000 of the total charges remain unpaid and will be
paid over the next five years.
During 1993 and 1992, the Corporation recognized costs and write-downs of
approximately $8,732,000 and $10,623,000, respectively, related to the sale of
certain subsidiaries, the divestiture of certain operations and the impairment
of certain assets. The 1993 losses were primarily the result of losses incurred
in the sale of subsidiaries, severance costs and the write-off of fixed assets
and accrual of lease charges at the disposed subsidiaries. The 1992 losses were
the result of the impairment of the value of a building of a former subsidiary,
write-off of notes receivable from the prior sale of the former corporate
headquarters which were determined to be uncollectible, write-off of intangible
assets related to disposed subsidiaries, and costs associated with the
reorganization of the Corporation including severance/settlement costs, and
charges relating to the combination of certain operations of the Corporation.
10. Other Income
Included in other income for 1993 are the tax-exempt proceeds of life
insurance policies of approximately $8,363,000 received during 1993 upon the
death of an officer of the Corporation.
F-12
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
March 31, 1995 and 1994
ASSETS 1995 1994
---- ----
Current assets:
Cash and cash equivalents (including
restricted cash of $1,847,000 in
1995 and $72,000 in 1994) ................ $ 2,400,405 $ 1,972,655
Accounts receivable, net of allowance
for doubtful accounts of $214,000
in 1995 and $247,000 in 1994 ............. 47,683,680 45,591,027
Billable production in process .............. 4,369,636 3,813,983
Refundable income taxes ..................... 14,880 1,455,423
Prepaid expenses and other .................. 1,318,562 1,225,979
------------ ------------
Total current assets ................ 55,787,163 54,059,067
------------ ------------
Property and Equipment:
Leasehold improvements ...................... 6,539,302 6,291,142
Furniture and fixtures ...................... 11,502,031 11,351,942
------------ ------------
Total .............................. 18,041,333 17,643,084
Less--accumulated depreciation
and amortization ......................... (9,415,070) (8,609,061)
------------ ------------
Net property and equipment ......... 8,626,263 9,034,023
------------ ------------
Other assets:
Cash value of life insurance, less
policy loans of $2,025,000 in
1995 and $2,669,000 in 1994 .............. 875,958 1,271,828
Notes receivable ............................ 179,283 179,283
Cost of purchases assets in
excess of fair value ..................... 508,741 750,067
Deferred taxes .............................. 3,121,000 2,786,000
Prepaid pension asset and other ............. 12,074,889 11,096,774
------------ ------------
Total other assets ....................... 16,759,871 16,083,952
------------ ------------
Total Assets ....................... $ 81,173,297 $ 79,177,042
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ........... $ 951,211 $ 4,879,749
Accounts payable ............................ 44,328,977 38,141,846
Compensation and employee benefits .......... 3,207,370 2,810,224
Clients' advances ........................... 9,388,414 5,318,719
Other accrued liabilities ................... 1,571,524 2,846,063
------------ ------------
Total current liabilities ........... 59,447,496 53,996,601
------------ ------------
Long-term liabilities:
Long-term debt .............................. 4,543,242 15,487,200
Deferred compensation ....................... 2,804,039 3,511,311
Deferred income ............................. 680,502 823,766
Deferred income taxes ....................... -- 616,528
Other ....................................... 12,746,049 3,909,682
------------ ------------
Total long-term liabilities ........ 20,773,832 24,348,487
------------ ------------
Stockholders' equity:
Common stock, $1 par value:
Class A, nonvoting; authorized
2,000,000 shares, outstanding
343,703 shares in 1995 and
251,420 shares in 1994 ................ 343,703 251,420
Class B, voting; authorized 200,000
shares, outstanding 54,800 shares
in 1995 and 1994 ...................... 54,800 54,800
Retained earnings ........................... 553,466 525,734
------------ ------------
Total stockholders' equity ......... 951,969 831,954
------------ ------------
Total Liabilities and
Stockholders' Equity ............ $ 81,173,297 $ 79,177,042
============ ============
See notes to consolidated condensed financial statements.
F-13
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Quarters ended March 31, 1995 and 1994
1995 1994
---- ----
Revenue ........................................ $ 16,988,442 $ 15,843,609
----------- -----------
Operating expenses:
Compensation and employee benefits ........... 10,071,735 9,443,097
Occupancy expense ............................ 1,642,722 1,657,072
General agency expense ....................... 1,567,556 1,682,668
Other ........................................ 491,712 324,200
----------- -----------
Total operating expenses ............... 13,773,725 13,107,037
----------- -----------
Operating income ............................... 3,214,717 2,736,572
----------- -----------
Other expense (income):
Interest expense ............................. 196,537 262,872
Interest and investment income ............... (32,643) (108,299)
----------- -----------
Total other expense .................... 163,894 154,573
----------- -----------
Income before income taxes, Michigan
single business tax, minority
interest and cumulative effect
of change in accounting principle ........... 3,050,823 2,581,999
Provision for Michigan single business tax,
federal and international taxes:
Single business tax ......................... 217,500 210,000
Deferred .................................... 1,053,415 880,528
----------- -----------
Total taxes .......................... 1,270,915 1,090,528
----------- -----------
Net income before minority interest
and cumulative effect of change
in accounting principle ..................... 1,779,908 1,491,471
Minority interest .............................. 91,719 142,549
----------- -----------
Net income before cumulative effect
of change in accounting principle ........... 1,688,189 1,348,922
Cumulative effect of change
in accounting principle ..................... (6,600,000) --
----------- -----------
Net (loss) income .............................. $ (4,911,811) $ 1,348,922
=========== ===========
See notes to consolidated condensed financial statements.
F-14
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Quarters Ended March 31, 1995 and 1994
1995 1994
---- ----
Cash Flow from Operating Activities:
Net (loss) income .............................. $ (4,911,811) $ 1,348,922
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Pension income recognized ................... (450,000) (300,000)
Depreciation and amortization ............... 250,303 280,398
Provision (credit) for losses on
accounts receivable ...................... 9,137 (10,165)
Provision (credit) for deferred taxes ....... (2,251,277) 880,528
Increase in cash value of life insurance .... (255,250) (162,003)
Increase in long-term liabilities ........... 9,900,000 --
Special charges, asset write-downs and
losses on sales of subsidiaries .......... (285,054) (779,243)
Changes in operating assets and liabilities
that provided (used) cash:
Accounts receivable ......................... (2,316,983) 15,993,527
Billable production in process .............. (1,699,423) (620,069)
Refundable income taxes and
other current assets ..................... 205,201 2,380,821
Accounts payable and other
current liabilities ...................... (2,032,511) (27,935,435)
------------ ------------
Total adjustments .................. 1,074,143 (10,271,641)
------------ ------------
Net cash provided by
operating activities ............ (3,837,668) (8,922,719)
------------ ------------
Cash Flow from Investing Activities:
Expenditures for property and equipment .... (28,652) (126,124)
Decrease in other noncurrent assets ........ 53,339 16,855
Other, net ................................. (189,237) 225,482
------------ ------------
Net cash provided by (used in)
investing activities .............. (164,550) 116,213
------------ ------------
Cash Flow from Financing Activities:
Proceeds from issuance of long-term debt .... 1,600,000 9,700,000
Repayments of long-term debt ................ -- (26,438)
Purchases of stock .......................... (152,328) (597,398)
Issuances of stock .......................... 3,670,190 150,100
Repayments to stock repurchase obligations .. (743,511) (628,441)
Increase in stock repurchase obligations .... 165,240 --
------------ ------------
Net cash used in financing activities 4,539,591 8,597,823
------------ ------------
Net Increase (Decrease) in Cash
and Cash Equivalents ........................ 537,373 (208,683)
Cash and Cash Equivalents
at Beginning of Year ........................ 1,863,032 2,181,338
------------ ------------
Cash and Cash Equivalents
at End of Quarter ........................... $ 2,400,405 $ 1,972,655
============ ============
See notes to consolidated condensed financial statements.
F-15
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The consolidated condensed interim financial statements included herein
have been prepared by the Corporation without audit. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission, although the Corporation believes that the disclosures are adequate
to make the information presented not misleading.
2. These statements reflect all adjustments consisting of normal recurring
accruals which, in the opinion of management, are necessary for a fair
presentation of the information contained therein. Certain reclassifications
have been made to the March 31, 1994 reported amounts to conform them to the
March 31, 1995 presentation. It is suggested that these consolidated condensed
financial statements be read in conjunction with the Corporation's audited
consolidated financial statements and notes thereto as of December 31, 1994.
3. Results of operations for the interim periods are not necessarily
indicative of annual results.
4. The Corporation's 1990 stock option plan, as amended, reserved 250,000
shares of Class A common stock for sale to key employees at a price equal to the
stock repurchase price at the date of grant. There were options for 115,500
shares outstanding as of January 1, 1995. Options for 102,300 shares were
exercised in February, 1995, at exercise prices ranging from $28.03 to $30.03
per share depending upon the date of grant. There were 3,600 options exercised
during the first quarter of 1994.
The Corporation's 1982 incentive stock option plan reserved 160,000 shares
of Class A common stock for sale to key employees at a price equal to the stock
repurchase price at the date of grant. There were options for 3,946 shares
outstanding at January 1, 1995. These options were exercised in February 1995 at
an exercise price of $25.34. There were 3,157 options exercised during the first
quarter of 1994.
5. The Corporation adopted the provisions of Statement of Financial
Accounting Standards No. 106, "Accounting for Postretirement Benefits Other Than
Pensions," effective January 1, 1995. The impact of the adoption is $6.6 million
(net of applicable income taxes) and is recognized as a one-time charge to net
income. This statement requires the accrual of postretirement benefits during
the years in which eligible employees provide services. Previously, such costs
were expensed as paid.
The Corporation offers postretirement health care benefits to certain
eligible employees and retirees in the United States. Such coverage is
self-insured but is administered by an insurance company. The pay-as-you-go cost
for postretirement health care benefits was $310,000 and $290,000 for the
calendar years ended 1994 and 1993, respectively, the majority of which was
funded by reimbursements from The Ross Roy Pension Plan's Retiree Health Account
pursuant to Section 401(b) of the Internal Revenue Code of 1986.
The components of periodic expense for postretirement health care benefits
for 1995 are estimated as follows:
1995
----
Service cost ....................................... $ 881,000
Interest cost ...................................... 906,000
-----------
Net periodic postretirement health care cost ....... 1,787,000
Recognition of initial transition obligation ....... 9,900,000
-----------
Total postretirement health care costs ............. $11,687,000
===========
F-16
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
The following table sets forth the funded status and amounts recognized for
the Corporations's postretirement health care benefits in its consolidated
balance sheet as of March 31, 1995:
Accumulated postretirement benefit obligation (APBO):
Retirees ............................................. $ 4,560,000
Fully eligible active plan participants .............. 2,041,000
Other active plan participants ....................... 3,714,000
-----------
10,315,000
Less market value of plan assets .......................... --
-----------
Postretirement benefit liability recognized
in the balance sheet as of March 31, 1995 .............. $10,315,000
===========
A discount rate of 8.5% was used in determining the APBO at March 31, 1995.
The calculation of postretirement health care benefits was based upon an
actuarial assumption of 9% for medical inflation in 1995. This rate is assumed
to decrease to 8% in 1996 and remain at that level thereafter. The effect of a
one-percentage-point annual increase in the assumed medical inflation rates
would increase the APBO by approximately $1.7 million; the annual service cost
would increase by approximately $400,000.
6. In late 1994, the Corporation was informed by its major retail client of
its decision to utilize another agency. The Corporation expects to complete the
transition of its responsibilities to the successor agency in late 1995.
7. In May 1995, the Corporation's Board of Directors approved a merger with
a subsidiary of Omnicom Group Inc. The merger is subject to shareholder approval
which is expected to be voted upon in August 1995.
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Registrant's Certificate of Incorporation contains a provision limiting
the liability of directors (except for approving statutorily prohibited
dividends, share repurchases or redemptions, distributions of assets on
dissolution or loans to directors) to acts or omissions in bad faith, involving
intentional misconduct or a knowing violation of the law, or resulting in
personal gain to which the director was not legally entitled. The Registrant's
By-Laws provide that an officer or director will be indemnified against any
costs or liabilities, including attorneys fees and amounts paid in settlement
with the consent of the registrant in connection with any claim, action or
proceeding to the fullest extent permitted by the New York Business Corporation
Law.
Section 722(a) of the New York Business Corporation Law provides that a
corporation may indemnify any officer or director, made or threatened to be
made, a party to an action other than one by or in the right of the corporation,
including an action by or in the right of any other corporation or other
enterprise, which any director or officer of the corporation served in any
capacity at the request of the corporation, because he was a director or officer
of the corporation, or served such other corporation or other enterprise in any
capacity, against judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees actually and necessarily incurred as a
result of such action, or any appeal therein, if such director or officer acted,
in good faith, for a purpose which he reasonably believed to be in, or in the
case of service for any other corporation or other enterprise, not opposed to,
the best interests of the corporation and, in criminal actions, in addition, had
no reasonable cause to believe that his conduct was unlawful.
Section 722(c) of the New York Business Corporation Law provides that a
corporation may indemnify any officer or director made, or threatened to be
made, a party to an action by or in the right of the corporation by reason of
the fact that he is or was a director of the corporation, or is or was serving
at the request of the corporation as a director of officer of any other
corporation of any type or kind, or other enterprise, against amounts paid in
settlement and reasonable expenses, including attorneys' fees actually and
necessarily incurred by him in connection with the defense or settlement of such
action, or in connection with an appeal therein, if such director or officer
acted, in good faith, for a purpose which he reasonably believed to be in, or,
in the case of service for another corporation or other enterprise, not opposed
to, the best interests of the corporation. The corporation may not, however,
indemnify any officer or director pursuant to Section 722(c) in respect of (1) a
threatened action, or a pending action which is settled or otherwise disposed
of, or (2) any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that the
court in which the action was brought or, if no action was brought, any court of
competent jurisdiction, determines in its discretion, that the person is fairly
and reasonably entitled to indemnity for such portion of the settlement and
expenses as the court deems proper.
Section 723 of the New York Business Corporation Law provides that an
officer or director who has been successful on the merits or otherwise in the
defense of a civil or criminal action of the character set forth in Section 722
is entitled to indemnification as permitted in such section. Section 724 of the
New York Business Corporation Law permits a court to award the indemnification
required by Section 722.
The Registrant has entered into agreements with its directors to indemnify
them for liabilities or costs arising out of any alleged or actual breach of
duty, neglect, errors or omissions while serving as a director. The Registrant
also maintains and pays premiums for directors' and officers' liability
insurance policies.
Item 21. Exhibits and Financial Statement Schedules.
(a) See Exhibit Index
(b) See the financial statement schedules included in the Annual Report on
Form 10-K incorporated in this Prospectus/Information Statement included in this
Registration Statement.
II-1
<PAGE>
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c) under
the Securities Act, the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(c) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415 under the Securities Act, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus/Information
Statement pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business
day of receipt of such requests, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of the responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 15, 1995.
OMNICOM GROUP INC.
Registrant
By: /S/ BRUCE CRAWFORD
------------------------------
Bruce Crawford
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each officer or director of Omnicom
Group Inc. whose signature appears below constitutes and appoints Bruce Crawford
and Barry J. Wagner, and each of them, his true and lawful attorney-in-fact and
agent, with full and several power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments, to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
II-3
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
---------- ----- ----
<S> <C> <C>
/S/ BRUCE CRAWFORD
-------------------------------------- President and Chief June 15, 1995
(Bruce Crawford) Executive Officer and Director
(Principal Executive Officer)
/S/ FRED J. MEYER
-------------------------------------- Chief Financial Officer June 15, 1995
(Fred J. Meyer) and Director
(Principal Financial Officer)
/S/ DALE A. ADAMS
-------------------------------------- Controller (Principal June 15, 1995
(Dale A. Adams) Accounting Officer)
/S/ BERNARD BROCHAND
--------------------------------------
(Bernard Brochand) Director June 15, 1995
/S/ LEONARD S. COLEMAN, JR.
--------------------------------------
(Leonard S. Coleman, Jr.) Director June 15, 1995
--------------------------------------
(Robert J. Callander) Director
/S/ JAMES A. CANNON
--------------------------------------
(James A. Cannon) Director June 15, 1995
/S/ PETER I. JONES
--------------------------------------
(Peter I. Jones) Director June 15, 1995
/S/ JOHN R. PURCELL
-------------------------------------- Director June 15, 1995
(John R. Purcell)
/S/ KEITH L. REINHARD
-------------------------------------- Director June 15, 1995
(Keith L. Reinhard)
/S/ ALLEN ROSENSHINE Director June 15, 1995
--------------------------------------
(Allen Rosenshine)
/S/ GARY L. ROUBOS Director June 15, 1995
--------------------------------------
(Gary L. Roubos)
-------------------------------------- Director
(Quentin I. Smith, Jr.)
/S/ ROBIN B. SMITH
-------------------------------------- Director June 15, 1995
(Robin B. Smith)
/S/ WILLIAM G. TRAGOS
-------------------------------------- Director June 15, 1995
(William G. Tragos)
/S/ JOHN D. WREN
-------------------------------------- Director June 15, 1995
(John D. Wren)
/S/ EGON P.S. ZEHNDER
-------------------------------------- Director June 15, 1995
(Egon P.S. Zehnder)
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Page
- -------- ----------- ----
2.1 Agreement and Plan of Merger dated as of June 15, 1995,
among Omnicom Group Inc., RRC Acquisition Inc. and Ross
Roy Communications, Inc.
2.2 Form of Escrow Agreement among Omnicom Group Inc., Ross
Roy Communications, Inc., the Ross Roy Shareholder
Representative, and The Chase Manhattan Bank, N.A. as
Escrow Agent
5.1* Opinion of Davis & Gilbert as to the legality of the
Omnicom Common Stock registered hereunder
8.1* Opinion of Deloitte & Touche LLP regarding tax matters
8.2 Form of opinion of McDonald & Company Securities, Inc.
as to the fairness from a financial point of view, of
the Merger
23.1 Consent of Arthur Andersen LLP as to financial
statements of Omnicom Group Inc.
23.2 Consent of Deloitte & Touche LLP as to financial
statements of Ross Roy Communications, Inc.
23.3 Consent of Davis & Gilbert (included in Exhibit 5.1)
23.4 Consent of Deloitte & Touche LLP
23.5 Consent of McDonald & Company Securities, Inc.
24 Power of Attorney (included on signature page)
- --------------
* To be filed by amendment.
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
by and among
OMNICOM GROUP INC.,
RRC ACQUISITION INC.
and
ROSS ROY COMMUNICATIONS, INC.
Dated June 15, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
Section 1.1 The Merger............................................... 2
Section 1.2 Effective Time........................................... 2
Section 1.3 Articles of Incorporation and By-Laws of the Surviving
Corporation.............................................. 2
1.3.1 Articles of Incorporation................................ 2
1.3.2 By-Laws.................................................. 2
Section 1.4 Directors and Officers of the Surviving Corporation...... 2
1.4.1 Directors of the Surviving Corporation................... 2
1.4.2 Officers of the Surviving Corporation.................... 3
ARTICLE II
MERGER CONSIDERATION; CONVERSION
OR CANCELLATION OF SHARES IN THE MERGER
Section 2.1 Conversion Price; Market Value........................... 3
2.1.1 Conversion Price......................................... 3
2.1.2 Market Value............................................. 3
Section 2.2 Consideration for the Merger; Conversion or
Cancellation of Stock in the Merger.................... 4
Section 2.3 Surrender of Company Stock and Issuance of
Omnicom Stock.......................................... 5
Section 2.4 No Fractional Shares..................................... 5
Section 2.5 Dividends................................................ 6
Section 2.6 Certificates in Stockholder's Name....................... 6
Section 2.7 Closing.................................................. 6
Section 2.8 Escrow Agreement......................................... 6
Section 2.9 Payment of Obligations to EPU Holder..................... 7
Section 2.10 Payment of Obligations ot Former Eligible
Employee Holders....................................... 8
ARTICLE III
REPRESENTATIONS OF THE COMPANY
Section 3.1 Execution and Validity of Agreement...................... 8
Section 3.2 Capitalization, Existence and Good Standing of
the Company.............................................. 8
3.2.1 Capitalization........................................... 8
3.2.2 Existence and Good Standing.............................. 9
Section 3.3 Subsidiaries and Investments............................. 9
i
<PAGE>
Section 3.4 Financial Statements and No Material Changes............. 10
Section 3.5 Books and Records........................................ 11
Section 3.6 Title to Properties; Encumbrances........................ 11
Section 3.7 Owned and Leased Real Property and Leased
Personal Property........................................ 12
3.7.1 Real Property and Personal Property Leases............... 12
3.7.2 Owned Real Property...................................... 13
3.7.3 Environmental Matters.................................... 13
Section 3.8 Contracts................................................ 14
Section 3.9 Restrictive Documents.................................... 15
Section 3.10 Litigation............................................... 16
Section 3.11 Taxes.................................................... 16
3.11.1 Taxes.................................................... 16
3.11.2 Additional Representations............................... 18
Section 3.12 Liabilities.............................................. 18
Section 3.13 Insurance................................................ 18
Section 3.14 Intellectual Properties.................................. 18
Section 3.15 Compliance with Laws; Licenses and Permits............... 19
3.15.1 Compliance............................................... 19
3.15.2 Licenses................................................. 19
Section 3.16 Client Relations......................................... 20
Section 3.17 Accounts Receivable; Work-in-Process; Accounts Payable... 20
Section 3.18 Employment Relations..................................... 20
Section 3.19 Employee Benefit Matters................................. 21
3.19.1 List of Plans............................................ 21
3.19.2 Multi-Employer Plans..................................... 22
3.19.3 Severance................................................ 22
3.19.4 Welfare Benefit Plans.................................... 22
3.19.5 Administrative Compliance................................ 22
3.19.6 Tax Qualification........................................ 23
3.19.7 Funding; Excise Taxes.................................... 23
3.19.8 Tax Deductions........................................... 23
3.19.9 Additional Representations............................... 24
Section 3.20 Interests in Customers, Suppliers, Etc................... 24
Section 3.21 Bank Accounts and Powers of Attorney..................... 24
Section 3.22 Compensation of Employees................................ 24
Section 3.23 No Changes Since the Balance Sheet Date.................. 25
Section 3.24 Required Approvals, Notices and Consents................. 26
Section 3.25 Corporate Controls....................................... 26
Section 3.26 Information Supplied..................................... 26
Section 3.27 Brokers.................................................. 27
Section 3.28 Opinion of Financial Advisor............................. 27
Section 3.29 Copies of Documents; Schedules........................... 27
ii
<PAGE>
ARTICLE IV
REPRESENTATIONS OF OMNICOM AND OMNISUB
Section 4.1 Existence and Good Standing.............................. 27
Section 4.2 Execution and Validity of Agreements..................... 27
Section 4.3 Restrictive Documents.................................... 28
Section 4.4 Omnicom Stock............................................ 28
Section 4.5 Financial Statements and No Material Changes............. 28
Section 4.6 Litigation............................................... 29
Section 4.7 Consents and Approvals of Governmental Authorities....... 29
Section 4.8 Brokers.................................................. 29
Section 4.9 Information Supplied..................................... 29
Section 4.10 OmniSub.................................................. 30
Section 4.11 Copies of Documents; Schedules........................... 30
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1 Regulatory and Other Approvals........................... 30
Section 5.2 HSR Filings.............................................. 31
Section 5.3 Full Access.............................................. 31
Section 5.4 No Solicitations......................................... 31
Section 5.5 Conduct of Business...................................... 32
Section 5.6 Financial Information.................................... 34
Section 5.7 Notice and Cure.......................................... 35
Section 5.8 Termination of Pension Plan.............................. 35
Section 5.9 Consultation............................................. 35
Section 5.10 Company Stockholder Approval............................. 35
Section 5.11 Tax Returns.............................................. 36
Section 5.12 Fulfillment of Conditions................................ 36
Section 5.13 Repayment of Indebtedness; Removal of Guarantee.......... 37
Section 5.14 Stock Repurchase Agreements.............................. 37
ARTICLE VI
COVENANTS OF OMNICOM AND OMNISUB
Section 6.1 Regulatory and Other Approvals........................... 37
Section 6.2 HSR Filings.............................................. 38
Section 6.3 Financial Information and Reports........................ 38
Section 6.4 Notice and Cure.......................................... 38
iii
<PAGE>
Section 6.5 Fulfillment of Conditions................................ 38
Section 6.6 Blue Sky; New York Stock Exchange Listing................ 39
Section 6.7 Exchange Act Filings..................................... 39
Section 6.8 Indemnification of Directors and Officers................ 39
ARTICLE VII
MUTUAL COVENANTS
Section 7.1 Preparation of Registration Statement.................... 40
Section 7.2 Affiliates' Representation Letters....................... 40
Section 7.3 Reasonable Efforts to Consummate Transaction............. 40
Section 7.4 Public Announcements..................................... 40
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF OMNICOM AND OMNISUB
Section 8.1 Representations and Warranties........................... 41
Section 8.2 Good Standing Certificates............................... 41
Section 8.3 Performance.............................................. 41
Section 8.4 Certified Resolutions.................................... 41
Section 8.5 No Litigation............................................ 42
Section 8.6 Regulatory Consents and Approvals........................ 42
Section 8.7 Registration Statement; New York Stock
Exchange Listing....................................... 42
Section 8.8 Company Stockholder Approval............................. 42
Section 8.9 Required Approvals, Notices and Consents................. 42
Section 8.10 Pooling of Interests Accounting.......................... 42
Section 8.11 Opinion of Counsel....................................... 42
Section 8.12 Escrow Agreement......................................... 43
Section 8.13 Employment Agreements.................................... 43
Section 8.14 Non-Competition Agreements............................... 43
Section 8.15 Affiliates Representation Letters........................ 43
Section 8.16 Material Adverse Effect.................................. 43
Section 8.17 Proceedings.............................................. 43
Section 8.18 No Withholding Certificate............................... 43
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE COMPANY
Section 9.1 Representations and Warranties........................... 44
Section 9.2 Good Standing Certificates............................... 44
iv
<PAGE>
Section 9.3 Performance.............................................. 44
Section 9.4 Certified Resolutions.................................... 44
Section 9.5 No Litigation............................................ 44
Section 9.6 Regulatory Consents and Approvals........................ 44
Section 9.7 Registration Statement, New York Stock
Exchange Listing....................................... 45
Section 9.8 Company Stockholder Approval............................. 45
Section 9.9 Opinion of Counsel....................................... 45
Section 9.10 Escrow Agreement......................................... 45
Section 9.11 Material Adverse Effect.................................. 45
Section 9.12 Fairness Opinion......................................... 45
Section 9.13 Proceedings.............................................. 45
ARTICLE X
ADDITIONAL AGREEMENTS
Section 10.1 Termination.............................................. 46
Section 10.2 Effect of Termination.................................... 47
ARTICLE XI
SURVIVAL; INDEMNIFICATION
Section 11.1 Survival................................................. 47
Section 11.2 Obligation to Indemnify.................................. 47
Section 11.3 Indemnification Procedures............................... 48
11.3.1 Notice of Asserted Liability............................. 48
11.3.2 Defense of Asserted Liability............................ 48
11.3.3 Cooperation.............................................. 49
Section 11.3.4 Settlements.............................................. 49
Section 11.4 Limitations on Indemnification........................... 49
11.4.1 Indemnity Cushion........................................ 49
11.4.2 Termination of Indemnification Obligations
and Other Limitations.................................. 49
11.4.3 Treatment................................................ 50
11.4.4 Effect of Taxes.......................................... 50
ARTICLE XII
MISCELLANEOUS
Section 12.1 Expenses................................................. 50
Section 12.2 Governing Law............................................ 50
Section 12.3 Person Defined........................................... 51
v
<PAGE>
Section 12.4 Knowledge Defined........................................ 51
Section 12.5 Affiliate Defined........................................ 51
Section 12.6 Captions................................................. 51
Section 12.7 Confidentiality.......................................... 51
Section 12.8 Notices.................................................. 51
Section 12.9 Parties in Interest...................................... 53
Section 12.10 Severability............................................. 53
Section 12.11 Counterparts............................................. 53
Section 12.12 Entire Agreement......................................... 53
Section 12.13 Amendment................................................ 53
Section 12.14 Third Party Beneficiaries................................ 53
Section 12.15 Extension; Waiver........................................ 53
vi
<PAGE>
EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Affiliates Representation Letter
Exhibit C Opinion of Dykema Gosset PLLC
Exhibit D Form Non-Competition Agreement
Exhibit E Opinion of Davis & Gilbert
ANNEXES
Annex I Additional Tax Representations
Annex II Additional Employee Benefit Plan Representations
SCHEDULES
Schedule 1.4 Directors and Officers
Schedule 3.2 Capitalization
Schedule 3.3 Subsidiaries
Schedule 3.4 Financial Statements
Schedule 3.5 Books and Records
Schedule 3.6 Title to Properties; Encumbrances
Schedule 3.7.1 Leases
Schedule 3.7.2 Owned Real Property
Schedule 3.7.3 Environmental Matters
Schedule 3.8 Contracts
Schedule 3.9 Restrictive Documents
Schedule 3.10 Litigation
Schedule 3.11 Taxes
Schedule 3.11.1 Leases
Schedule 3.13 Insurance
Schedule 3.14 Intellectual Properties
Schedule 3.16 Client Relations
Schedule 3.19 Employee Benefit Plans
Schedule 3.20 Interests in Customers; Suppliers
Schedule 3.21 Bank Accounts and Powers of Attorney
Schedule 3.22 Compensation of Employees
Schedule 3.23 Changes Since the Balance Sheet Date
Schedule 3.24 Approvals, Notices and Consents of Company
Schedule 3.27 Brokers
Schedule 4.7 Approvals, Notices and Consents of Purchaser
Schedule 5.5 Conduct of Business
Schedule 8.13 Employment Agreements
Schedule 8.14 Non-Competition Agreements
i
<PAGE>
Index of Defined Terms
Term Page
- ---- ----
Acquisition Proposal....................................................
Additional Escrow Fund..................................................
Advisors................................................................
Affiliate...............................................................
Agreement...............................................................
Asserted Liability......................................................
Balance Sheet...........................................................
Balance Sheet Date......................................................
Certificate of Merger...................................................
Claims Notice...........................................................
Closing.................................................................
Closing Date............................................................
Code....................................................................
Company.................................................................
Company Affiliates......................................................
Company Stock...........................................................
Conversion Price........................................................
Effective Time..........................................................
Environmental Laws......................................................
EPU Holder..............................................................
EPU Plan................................................................
ERISA...................................................................
Escrow Agent............................................................
Escrow Agreement........................................................
Exchange Act............................................................
Exchange Ratio..........................................................
Execution Date..........................................................
Former Eligible Employee Holders/FS.....................................
GAAP....................................................................
General Escrow Fund.....................................................
Hazardous Material......................................................
HSR Act.................................................................
Indemnified Parties.....................................................
Information Statement...................................................
Intellectual Property...................................................
Knowledge...............................................................
Leases..................................................................
i
<PAGE>
Letter of Transmittal...................................................
Liabilities.............................................................
Licenses................................................................
Liens...................................................................
Losses..................................................................
Market Value............................................................
Material Adverse Effect.................................................
MBCA....................................................................
Merger..................................................................
Omnicom.................................................................
Omnicom Certificates....................................................
Omnicom Stock...........................................................
OmniSub.................................................................
Options.................................................................
OS......................................................................
Owned Real Property.....................................................
PBGC....................................................................
Pension Plan............................................................
Permitted Lien..........................................................
Person..................................................................
Plan....................................................................
Potential Acquiror......................................................
Prospectus Materials....................................................
Registration Statement..................................................
Related Group...........................................................
Representative..........................................................
Repurchased Shares/FSS..................................................
Requirements of Law.....................................................
RP......................................................................
SEC.....................................................................
SEC Reports.............................................................
Securities Act..........................................................
Stockholders............................................................
Subsidiary..............................................................
Surviving Corporation...................................................
Taxes...................................................................
Tax Gross-Up Factor/G...................................................
Termination Date........................................................
Third Party Claim.......................................................
Title IV Plan...........................................................
Transaction Costs.......................................................
VAT.....................................................................
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated June 15, 1995 (the
"Execution Date") by and among OMNICOM GROUP INC., a New York corporation
("Omnicom"); RRC ACQUISITION INC., a Michigan corporation and wholly-owned
subsidiary of Omnicom ("OmniSub"); and ROSS ROY COMMUNICATIONS, INC., a Michigan
corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the authorized capital stock of the Company consists of 2,000,000
shares of Class A Common Stock, $1.00 par value per share, of which as of May
22, 1995, 345,453 shares were issued and outstanding, and 200,000 shares of
Class B Common Stock, $1.00 par value per share, of which as of May 22, 1995,
54,800 shares were issued and outstanding;
WHEREAS, the authorized capital stock of OmniSub consists of 200 shares of
common stock, of which 100 shares are issued and outstanding;
WHEREAS, the Boards of Directors of Omnicom, OmniSub and the Company each
have determined that it is in the best interests of their respective
shareholders for OmniSub to merge with and into the Company upon the terms and
subject to the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
(as defined in Section 1.1) shall qualify as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
and
WHEREAS, Omnicom, OmniSub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth herein, Omnicom, OmniSub and the Company
hereby agree as follows:
1
<PAGE>
ARTICLE I
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.2), OmniSub shall be
merged with and into the Company and the separate corporate existence of OmniSub
shall thereupon cease (the "Merger"). The Company shall be the successor or
surviving corporation in the Merger (sometimes herein referred to as the
"Surviving Corporation"), shall continue to be governed by the laws of the State
of Michigan, and the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger. The Merger shall have the effects specified in Section 724 of the
Michigan Business Corporation Act (the "MBCA").
Section 1.2 Effective Time. Omnicom, OmniSub and the Company will cause an
appropriate Certificate of Merger (the "Certificate of Merger") to be executed
and filed on the date of the Closing (as defined in Section 2.7) with the
Michigan Department of Commerce as provided in Section 707 of the MBCA. The
Merger shall become effective on the date on which the Certificate of Merger has
been duly filed with the Michigan Department of Commerce or such time as is
agreed upon by the parties and specified in the Certificate of Merger, and such
time is hereinafter referred to as the "Effective Time."
Section 1.3 Articles of Incorporation and By-Laws of the Surviving
Corporation.
1.3.1 Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation shall be amended and restated at and as of the Effective
Time to read as did the Articles of Incorporation of OmniSub immediately prior
to the Effective Time (except that the name of the Surviving Corporation shall
remain "Ross Roy Communications, Inc.").
1.3.2 By-Laws. The By-laws of the Surviving Corporation shall be amended at
and as of the Effective Time to read as did the By-laws of OmniSub immediately
prior to the Effective Time, and such By-laws shall become the By-laws of the
Surviving Corporation.
Section 1.4 Directors and Officers of the Surviving Corporation.
1.4.1 Directors of the Surviving Corporation. The directors of the
Surviving Corporation at the Effective Time shall, from and after the Effective
Time, be the persons listed on Schedule 1.4 until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's Articles
of Incorporation and By-laws.
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1.4.2 Officers of the Surviving Corporation. The officers of the Surviving
Corporation shall, from and after the Effective Time, be the persons listed on
Schedule 1.4 until their successors have been duly elected or appointed and
qualified or until their death, resignation or removal in accordance with the
Surviving Corporation's Articles of Incorporation and By-laws.
ARTICLE II
MERGER CONSIDERATION; CONVERSION OR CANCELLATION
OF SHARES IN THE MERGER
Section 2.1 Conversion Price; Market Value.
2.1.1 Conversion Price. The "Conversion Price" or "CP" shall be an amount
calculated as follows:
CP = 52,000,000 + RP(FSS) + 216,200G
--------------------------------
OS + 10,000G +FSS
For purposes of this Article II, the following terms shall have the following
meanings:
"RP" represents the repurchase price per share originally paid to the
Former Eligible Employee Holders, as such term is defined in the Company's
Articles of Incorporation as in effect immediately prior to the Effective
Time ("Former Eligible Employee Holders" or "FS").
"FSS" or "Repurchased Shares" represents the total number of shares of
Company Stock repurchased from the FS.
"G" represents the "tax gross-up factor" based upon tax rates described in
the Company's 1984 Equity Participation Plan (the "EPU Plan"; the equity
participation units granted thereunder the "EPUs"; and the holder of such
EPUs the "EPU Holder").
"OS" represents the number of shares of Company Stock outstanding at the
Effective Time of the Merger, which outstanding shares shall not include
any shares repurchased by the Company from an employee shareholder whose
employment has terminated or shall terminate prior to the Effective Time.
2.1.2 Market Value. The term "Market Value" as used in this Agreement shall
be the average of the closing prices per share of the common stock, $.50 par
value, of Omnicom ("Omnicom Stock") reported on the New York Stock Exchange for
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the 20 consecutive trading days ending two business days immediately prior to
the Closing Date. The closing price for each day shall be the closing price on
the New York Stock Exchange Consolidated Tape (or any successor composite tape
reporting transactions on the New York Stock Exchange) or, if such a composite
tape shall not be in use or shall not report transactions in the Omnicom Stock,
or if the Omnicom Stock shall be listed on a stock exchange other than the New
York Stock Exchange, the last reported sales price regular way on the principal
national securities exchange on which the Omnicom Stock shall be listed or
admitted to trading (which shall be the national securities exchange on which
the greatest number of shares of the Omnicom Stock has been traded during such
twenty consecutive business days), or, in either case, if there is no
transaction on any such day, the average of the bid and asked prices regular way
on such day. The New York Stock Exchange closing prices of the Omnicom Stock
used in determining the Market Value, as provided above, shall be appropriately
adjusted for the effect of any recapitalization, reclassification, split-up,
stock dividend, combination or reverse split with respect to the Omnicom Stock
which occurs during the 20 consecutive trading days ending two business days
immediately preceding the Closing Date.
Section 2.2 Consideration for the Merger; Conversion or Cancellation of
Stock in the Merger. The manner of converting or canceling shares of the Company
and OmniSub in the Merger shall be as follows:
(a) At the Effective Time, each share of Class A common stock, $1.00 par
value, and each share of Class B common stock, $1.00 par value, of the Company
("Company Stock") issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be canceled and converted into and represent the right to receive the
number of shares, subject to Section 2.4 (the "Exchange Ratio") of Omnicom Stock
which shall equal the Conversion Price as determined by using the Market Value.
All of such shares of Company Stock shall no longer be outstanding and shall
automatically be retired and cease to exist, and each holder of a certificate
representing such shares shall cease to have any rights with respect thereto,
except the right to receive the shares of Omnicom Stock and any cash in lieu of
fractional shares of the Omnicom Stock to be issued or paid in consideration
thereof (determined in accordance with Section 2.4, upon the surrender of such
certificate in accordance with Section 2.3, without interest).
(b) At the Effective Time, each share of common stock of OmniSub issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of OmniSub or the holder thereof, be
converted into the same number of shares of common stock of the Surviving
Corporation.
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Section 2.3 Surrender of Company Stock and Issuance of Omnicom Stock. At
the Closing, or as soon as practicable thereafter, each holder of record of
shares of Company Stock at the Effective Time shall surrender the certificate or
certificates representing such shares of Company Stock to Chemical Bank,
Omnicom's transfer agent, together with a duly executed letter of transmittal in
a form mutually acceptable to Omnicom and the Company (the "Letter of
Transmittal"), which certificate or certificates shall be duly endorsed in the
manner described in such Letter of Transmittal. In exchange therefor, subject to
the provisions of the Escrow Agreement described in Section 2.8 below, each of
the Company's stockholders shall receive, on or as soon as practicable after the
Closing Date, a certificate or certificates representing the number of whole
shares of Omnicom Stock into which the shares of the Company Stock theretofore
represented by the certificate or certificates so surrendered shall have been
converted and exchanged as provided in Section 2.2, and, in addition, cash in
lieu of any fractional shares of Omnicom Stock as provided in Section 2.4 below,
and the certificate(s) so surrendered shall forthwith be canceled. Prior to the
Closing Date, Omnicom shall requisition from Chemical Bank a sufficient number
of stock certificates (the "Omnicom Certificates") representing the total number
of shares of Omnicom Stock to which the stockholders of the Company are entitled
as provided in Section 2.2 above. On the Closing Date, subject to the provisions
of Section 2.8, Omnicom shall direct Chemical Bank pursuant to irrevocable
instructions reasonably acceptable to the Company to mail each stockholder of
the Company upon receipt by Chemical Bank of an executed Letter of Transmittal
from such stockholder, by first-class mail in accordance with the instructions
of such stockholder as set forth in his Letter of Transmittal, such Omnicom
Certificates, together with the cash payment in lieu of fractional shares (if
any) that such stockholder is entitled to receive pursuant to Section 2.4. If
any stockholder shall report to Chemical Bank that his failure to surrender
certificates representing shares of Company Stock registered in his name is due
to the loss, misplacement or destruction of such a certificate or certificates,
Omnicom shall require such stockholder to furnish an affidavit of loss and
indemnity satisfactory to it. Upon receipt by Chemical Bank of such affidavit
and indemnity, such stockholder shall be entitled to receive the Omnicom
Certificates and cash in lieu of fractional shares, if any, to which such
stockholder is entitled pursuant to the terms of this Article II and such lost,
misplaced or destroyed certificate(s) shall forthwith be canceled. Until
surrendered as contemplated by this Section 2.3, each certificate evidencing
shares of Company Stock shall be deemed at any time after the Effective Time for
all corporate purposes of Omnicom, except as limited by Section 2.5 below, to
represent ownership of the number of shares of Omnicom Stock into which the
number of shares of Company Stock shown thereon have been converted as
contemplated by this Article II.
Section 2.4 No Fractional Shares. In order to avoid the expense and
inconvenience of issuing fractional shares, neither certificates nor scrip for
fractional shares of Omnicom Stock will be issued, but in lieu thereof each
holder of shares of Company Stock who otherwise would have been entitled to a
fraction of a share of Omnicom Stock will be paid the cash value of such
fraction of a share based upon the Conversion Price. Prior to the Closing Date,
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Omnicom shall make available to Chemical Bank cash in an amount sufficient to
make the payments in lieu of fractional shares.
Section 2.5 Dividends. Omnicom will not pay any dividend or make any
distribution on the Omnicom Stock (with a record date at or after the Effective
Time) to any record holder of Company Stock until the holder surrenders for
exchange his or its certificates. Omnicom instead will pay the dividend or make
the distribution to Chemical Bank in trust for the benefit of the holder pending
surrender and exchange. In no event, however, will any holder of Company Stock
be entitled to any interest or earnings on the dividend or distribution pending
receipt. Neither Chemical Bank nor any party hereto shall be liable to a holder
of Company Stock for any Omnicom Stock or dividends thereon, or cash in lieu of
fractional Omnicom Stock, delivered to a public official pursuant to the
applicable escheat law. Chemical Bank shall not be entitled to vote or exercise
any rights of ownership with respect to the Omnicom Stock held by it. Omnicom
shall pay all charges and expenses of Chemical Bank.
Section 2.6 Certificates in Stockholder's Name.
Section 2.7 Closing. The closing of the Merger (the "Closing") shall take
place (i) at the offices of Dykema Gossett PLLC, 1577 North Woodward Avenue,
Suite 300, Bloomfield Hills, Michigan 48304, at 10:00 a.m. local time on the
fifth business day following the date on which the last of the conditions set
forth in Articles VIII and IX hereof shall be fulfilled or waived in accordance
with this Agreement, or (ii) at such other place and/or time and/or on such
other date as Omnicom and the Company shall agree (the "Closing Date").
Section 2.8 Escrow Agreement. Solely to fund and secure the indemnification
obligations described in Section 11.2, at the Closing Omnicom shall direct
Chemical Bank for and on behalf of the Company's stockholders, the EPU Holder
and the Former Eligible Employee Holders to deliver to The Chase Manhattan Bank,
N.A., as escrow agent (the "Escrow Agent") from the shares of Omnicom Stock
issuable to the stockholders under Section 2.2(a), to the EPU Holder under
Section 2.9 and to the Former Eligible Employee Holders under Section 2.10, (i)
shares of Omnicom Stock (for each stockholder, the EPU Holder and the Former
Eligible Employee Holders rounded-up to the nearest whole share) having a Market
Value of $2,525,000 to be held in an account (the "General Escrow Fund") created
pursuant to the terms of that certain Escrow Agreement (the "Escrow Agreement")
in the form attached hereto as Exhibit A among Omnicom, the Surviving
Corporation, the Escrow Agent and the Representative (as defined in Section 5.10
hereof) and (ii) shares of Omnicom Stock (for each stockholder, the EPU Holder
and the Former Eligible Employee Holders rounded-up to the nearest share) having
a Market Value of $1,300,000 to be held in an account (the "Additional Escrow
Fund") created pursuant to the terms of the Escrow Agreement. Each of the
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Company's stockholders, the EPU Holder and the Former Eligible Employee Holders
shall be depositing his pro-rata share of the General Escrow Fund or Additional
Escrow Fund determined by multiplying the total number of shares of Omnicom
Stock required to deposited into such Escrow Fund to create in the case of the
General Escrow Fund an escrow account having a Market Value of $2,525,000 and in
the case of the Additional Escrow Fund an escrow account having a Market Value
of $1,300,000 times a fraction, the numerator of which is number of shares of
Omnicom Stock issuable to such Person under Sections 2.2 (a), 2.9 and 2.10, as
the case may be, and the denominator of which is the total number of shares of
Omnicom Stock issuable to all such Persons under such Sections.
Section 2.9 Payment of Obligations to EPU Holder. On the Closing Date,
Omnicom shall satisfy the obligation of the Company to the EPU Holder in respect
of the 10,000 EPUs which will be outstanding at the Effective Time, by
delivering to the EPU Holder whole shares of Omnicom Stock (rounded up to the
nearest whole share) having an aggregate Market Value equal to "G x (10,000(CP -
$21.62))," subject to the obligation of the EPU Holder to deliver shares of
Omnicom Stock (rounded up to the nearest whole share) to the Escrow Agent as
described in Section 2.8 above. On the Execution Date, the EPU Holder entered
into an agreement with the Company, Omnicom and OmniSub under which the EPU
Holder agreed, conditioned only upon the occurrence of the Closing hereunder, to
the following: (i) the satisfaction of the Company's obligations to him under
the EPU Plan by payment of Omnicom Stock in the amount described above, (ii) the
transfer to the Escrow Agent of whole shares of Omnicom Stock in accordance with
the provisions of Section 2.8 and the Escrow Agreement solely to fund (pro rata
with the stockholders of the Company and the Former Employee Holders) and secure
the indemnification obligations described in Section 11.2 below and (iii) the
appointment of the Representative or his successor as determined in accordance
with the stockholder resolution referred to in Section 5.10, as his agent under
the Escrow Agreement, and authorizing the Representative to: (A) execute and
deliver the Escrow Agreement and any documents incident or ancillary thereto,
including without limitation, any amendments, cancellations, extensions or
waivers in respect thereof, (B) respond to and make determinations in respect of
the assertion of any and all claims for indemnification by Omnicom, and to
assert claims, pursuant to the terms of the Escrow Agreement and the provisions
of this Agreement pertaining thereto, (C) execute and deliver any stock powers
which may be required to be executed by him in order to permit the delivery to
Omnicom of any shares of Omnicom Stock to be delivered to Omnicom from the
General Escrow Fund and/or the Additional Escrow Fund in accordance with the
provisions of the Escrow Agreement and (D) take all such other actions as may be
necessary or desirable to carry out his responsibilities as Representative in
respect of the Escrow Agreement.
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Section 2.10 Payment of Obligations to Former Eligible Employee Holders. In
order to satisfy the obligations of the Company to each Former Eligible Employee
Holder under section F.7 of the Company's Articles of Incorporation, on the
Closing Date Omnicom shall deliver to each Former Eligible Employee Holder or
his fiduciary (as defined in the Company's Articles of Incorporation) whole
shares of Omnicom Stock (rounded up to the nearest whole share) having an
aggregate Market Value equal to (1) the product of (x) the number of shares of
Company Stock repurchased from such Former Eligible Employee Holder pursuant to
section F of the Company's amended Articles of Incorporation and (y) the
Conversion Price, less (2) the aggregate Repurchase Price (as defined in the
Company's Articles of Incorporation) paid in respect of such reacquired shares,
subject to the obligation of such Former Eligible Employee Holder to deliver
shares of Omnicom Stock (rounded up to the nearest whole share) to the Escrow
Agent as described in Section 2.8 above.
ARTICLE III
REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to Omnicom and OmniSub as follows
(provided, however, that all representations and warranties as they relate to
Bloomfield Parkway Associates are made to the best knowledge, information and
belief of the Company, other than those representations and warranties contained
in Section 3.7.2 which are not identified as being made to the best knowledge,
information and belief of the Company):
Section 3.1 Execution and Validity of Agreement. The Company has the full
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder, subject to approval by its stockholders as provided in
Section 5.10. The execution and delivery of this Agreement by the Company and
the consummation of the transactions contemplated hereby have been authorized by
the Board of Directors of the Company. This Agreement has been duly and validly
executed and delivered by the Company and, assuming due authorization, execution
and delivery by Omnicom and OmniSub, constitutes the legal, valid and binding
obligation of the Company enforceable against it in accordance with its terms,
subject to approval by its stockholders.
Section 3.2 Capitalization, Existence and Good Standing of the Company.
3.2.1 Capitalization. The Company has an authorized capitalization
consisting of 2,000,000 shares of Class A Common Stock, $1.00 par value per
share, of which as of May 22, 1995, 345,453 shares were issued and outstanding
and 200,000 shares of Class B Common Stock, $1.00 par value per share, of which
as of May 22, 1995, 54,800 shares were issued and outstanding. All such
outstanding shares have been duly authorized and validly issued and are fully
paid and non-assessable and have not been issued in violation of any preemptive
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rights of stockholders. No other class of capital stock of the Company is
authorized or outstanding. Except as set forth on Schedule 3.2, there are no
outstanding options, warrants, rights (including phantom stock rights or EPUs),
calls, commitments, conversion rights, rights of exchange, plans or other
agreements of any character (collectively, "Options") providing for the issuance
or sale of any shares of the capital stock of the Company, or outstanding
agreements or commitments to grant, extend or enter into any Option with respect
thereto, or outstanding Options providing for settlement in cash. Except as set
forth on Schedule 3.2, there are no outstanding contractual obligations of the
Company or any Subsidiary (as defined in Section 3.3) to repurchase, redeem or
otherwise acquire any shares of Company Stock or any capital stock of any
Subsidiary or which provide for the payment of any additional monies in respect
of the Company's previous repurchase of any shares of its capital stock. Except
for the 10,000 EPUs reflected in item 5 on Schedule 3.2 as of the Effective
Time, no Options will be outstanding. On the date hereof and as of the Effective
Time, the only Persons who own or are entitled to own Company Stock or
equivalents thereof are the stockholders of the Company, the EPU Holders, the
Former Eligible Employee Holders and the persons listed on items 4, 6 and 7 of
Schedule 3.2. Schedule 3.2 also contains an accurate list of all of the
stockholders of the Company. Each such stockholder is the record owner of the
number of shares of the Company Stock listed opposite his name in Schedule 3.2.
To the best knowledge, information and belief of the Company, each such
stockholder is a resident of the state or other jurisdiction indicated on
Schedule 3.2.
3.2.2 Existence and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Michigan, with the full corporate power and authority to own its property and to
carry on its business all as and in the places where such properties are now
owned or operated or such business is now being conducted. Except as set forth
on Schedule 3.2, the Company has not qualified to do business as a foreign
corporation in any jurisdiction, and neither the character nor location of the
properties owned or leased by the Company, nor the nature of the business
conducted by the Company, requires such qualification in any jurisdiction,
except for such failures to be so qualified which, individually or in the
aggregate, are not having and could not reasonably be expected to have a
material adverse effect on the properties, assets, condition (financial or
otherwise), business, liabilities or results of operations of the Company and
its Subsidiaries (as defined in Section 3.3) taken as a whole (a "Material
Adverse Effect"). The Company is in good standing in each state or other
jurisdiction in which it is qualified to do business as a foreign corporation or
foreign branch as set forth on Schedule 3.2.
Section 3.3 Subsidiaries and Investments. The term "Subsidiary" as used in
the Agreement shall mean any corporation, partnership, limited liability company
or other business entity of which 50% or more of the stock or other equity
interests entitled to vote for the election of the board of directors or other
governing body thereof is owned, directly or indirectly, by the Company;
provided, however, notwithstanding such definition, it is agreed that for all
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purposes of this Agreement the term Subsidiary shall include Bloomfield Parkway
Associates. Schedule 3.3 contains a true and complete list of all of the
Company's Subsidiaries. Except as set forth in Schedule 3.3, neither the Company
nor any Subsidiary owns any capital stock or other equity or ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity. Schedule 3.3 also sets forth the name, jurisdiction of
organization and number of outstanding shares of each of the Subsidiaries, and a
list of all of the stockholders of each Subsidiary (indicating the number of
shares owned by each such stockholder). Except for shares held by a nominee of
the Company or another Subsidiary to satisfy local law requirements, the Company
or another Subsidiary owns of record and beneficially and has valid title to
that percentage of the issued and outstanding shares of capital stock of each
Subsidiary as set forth on Schedule 3.3, free and clear of all Liens, except as
set forth on Schedule 3.6. The term "Liens" as used in this Agreement means any
mortgage, pledge, assessment, security interest, lease, lien, adverse claim,
levy, charge, hypothec or other encumbrance of any kind, or any conditional
sale, agreement, title retention agreement or other agreement to give any of the
foregoing. Each Subsidiary is a corporation duly incorporated and organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, with the full corporate power and authority to own its property
and to carry on its business all as and in the places where such properties are
now owned or operated or such business is now being conducted. Except as set
forth on Schedule 3.3, no Subsidiary has qualified to do business as a foreign
corporation or an Extra-Provincial corporation in any jurisdiction, and neither
the character nor the location of the properties owned or leased by the
Subsidiary, nor the nature of the business conducted by such Subsidiary,
requires such qualification in any jurisdiction, except for such failures to be
so qualified which, individually or in the aggregate, are not having and could
not reasonably be expected to have a Material Adverse Effect. Each Subsidiary is
in good standing in each state, Province, Territory or other jurisdiction in
which it is qualified to do business as a foreign corporation or foreign branch
as set forth on Schedule 3.3. Except as set forth on Schedule 3.3, neither the
Company nor any Subsidiary has a branch, agency, place of business or permanent
establishment outside of the United States. All of the outstanding shares of
capital stock of each Subsidiary have been duly authorized and validly issued
and are duly paid and non-assessable, and have not been issued in violation of
any preemptive rights of Stockholders. Except as set forth on Schedule 3.3,
there are no outstanding Options, providing for the purchase, issuance or sale
of any shares of the capital stock of any Subsidiary or outstanding agreement or
commitment to grant, extend or enter into any Option with respect thereto.
Section 3.4 Financial Statements and No Material Changes. Schedule 3.4 sets
forth audited consolidated balance sheets of the Company and its subsidiaries as
at December 31, 1992, 1993 and 1994, and the related audited statements of
operations, stockholders' equity and cash flows for the years then ended,
reported on by Deloitte & Touche LLP, independent certified public accountants.
The consolidated balance sheet of the Company and its subsidiaries as at
December 31, 1994 is referred to in this Agreement as the "Balance Sheet". Such
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financial statements, including the footnotes thereto, are true and correct in
all material respects and have been prepared in accordance with generally
accepted accounting principles as applied in the United States ("GAAP")
consistently applied throughout the periods indicated except as set forth on
Schedule 3.4. Each of the consolidated balance sheets of the Company and its
subsidiaries fairly presents the consolidated financial position of the Company
and its subsidiaries at the respective date thereof and reflects all claims
against and all debts and liabilities of the Company and its subsidiaries, fixed
or contingent, as at the date thereof, required to be shown thereon under GAAP,
and the related statements of operations, stockholders' equity and cash flows
fairly present the consolidated results of operations of the Company and its
subsidiaries and the stockholders' equity and cash flows for the respective
periods indicated. Except as set forth on Schedule 3.23, since December 31, 1994
(the "Balance Sheet Date"), there has been no material adverse change in the
properties, financial condition, business or results of operations of the
Company and its Subsidiaries taken as a whole.
Section 3.5 Books and Records. All accounts, books and ledgers material to
the business of the Company and its Subsidiaries have been properly and
accurately kept and completed in all material respects, and there are no
material inaccuracies or discrepancies of any kind contained or reflected
therein. Except as set forth on Schedule 3.5, neither the Company nor any of its
Subsidiaries have any of its records, systems, controls, data or information
recorded, stored, maintained, operated or otherwise wholly or partly dependent
on or held by any means (including any electronic, mechanical or photographic
process, whether computerized or not) which (including all means of access
thereto and therefrom) are not under the exclusive ownership and direct control
of the Company or such Subsidiary. The Company has delivered to OmniSub complete
and correct copies of the Articles of Incorporation and By-laws (or equivalent
charter documents) of the Company and of each Subsidiary; and prior to the
Closing will deliver any approved amendments, changes or restatements of such
instruments.
Section 3.6 Title to Properties; Encumbrances. The Company and its
Subsidiaries have good and marketable title to, or enforceable leasehold
interests in, as the case may be, (a) all their properties and assets owned by
them (real and personal, tangible and intangible), including, without
limitation, all the properties and assets reflected in the Balance Sheet, and
(b) all the properties and assets purchased by the Company and its Subsidiaries
since the Balance Sheet Date except for properties and assets reflected in the
Balance Sheet or acquired since the Balance Sheet Date that have been sold or
otherwise disposed of in the ordinary course of business, free and clear of any
and all Liens, except for Permitted Liens (as hereinafter defined) and for Liens
reflected in the footnotes to the Balance Sheet or set forth in Schedule 3.6. As
used in this Agreement, the term "Permitted Lien" shall mean: (i) Liens for
Taxes (as defined in Section 3.11) not delinquent or for Taxes being contested
in good faith by appropriate proceedings and as to which adequate financial
reserves have been established on the books and records of the Company in
accordance with GAAP; (ii) Liens created by operation of law, such as
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materialmen's liens, mechanics' liens and other similar liens, arising in the
ordinary course of business and not having a Material Adverse Effect; (iii)
deposits, pledges or Liens securing (x) obligations incurred in respect of
workers' compensation, unemployment insurance or other forms of governmental
insurance or benefits, (y) the performance of bids, tenders, leases, contracts
(other than for the payment of money) and statutory obligations or (z)
obligations on surety or appeal bonds, but only to the extent such deposits,
pledges or Liens are incurred or otherwise arise in the ordinary course of
business and secure obligations which are not past due; or (iv) restrictions on
the use of real property or irregularities in the title thereto which do not (x)
secure obligations for the payment of money or (y) materially impair the value
of such property or its use by the Company or any Subsidiary in the normal
conduct of the Company's or such Subsidiary's business.
Section 3.7 Owned and Leased Real Property and Leased Personal Property.
3.7.1 Real Property and Personal Property Leases. Schedule 3.7.1 contains
an accurate and complete list of all personal property leases with a fixed
annual rental in excess of $20,000 and all real property leases, subleases,
licenses and other occupancy agreements (including, without limitation, any
modification, amendment or supplement thereto and any other document or
agreement executed or entered into by Company or a Subsidiary in connection
therewith, such as, without limitation, non-disturbance agreements and estoppel
certificates) (collectively, "leases") to which the Company or a Subsidiary is a
party, including without limitation, leases which the Company or a Subsidiary
has subleased or assigned to a third party and as to which the Company or a
Subsidiary remains liable. Each lease set forth on Schedule 3.7.1 (or required
to be set forth on Schedule 3.7.1) is valid, binding and in full force and
effect; all rents and additional rents and other sums, expenses and charges due
to date on each such lease have been paid; in each case, the lessee has been in
peaceable possession since the commencement of the original term of such lease
and no waiver, indulgence or postponement of the lessee's obligations thereunder
has been granted by the lessor; and, except as set forth in Schedule 3.7.1,
there exists no default or event of default by the Company or any Subsidiary or
to the best knowledge, information and belief of the Company, by any other party
to such lease; and there exists no occurrence, condition or act (including the
Merger hereunder) which, with the giving of notice, the lapse of time or the
happening of any further event or condition, would become a default or event of
default under any such lease; and there are no outstanding claims of breach or
indemnification or notice of default or termination of any such lease. No such
lease is subject and subordinate to any superior lease or mortgage except as set
forth in Schedule 3.7.1 and the Company and its Subsidiaries hold the leasehold
estate interest in all such leases free and clear of all Liens except for
Permitted Liens and except as set forth in Schedule 3.6. Except as set forth on
Schedule 3.7.1, the Company or a Subsidiary is in physical possession and actual
and exclusive occupation of the whole of each of their leased properties.
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3.7.2 Owned Real Property. Schedule 3.7.2 lists all real property owned by
the Company and its Subsidiaries or which the Company or a Subsidiary has an
option to purchase ("Owned Real Property"). With respect to each such parcel of
Owned Real Property, and except as set forth on Schedule 3.7.2:
(a) there are no pending or, to the best knowledge, information and belief
of the Company, threatened condemnation proceedings, lawsuits or administrative
actions relating to the Owned Real Property or entities owning same, materially
and adversely affecting the current or future use, occupancy or value thereof;
(b) no entity has an option to purchase the Owned Real Property or an
interest therein, except the Company or a Subsidiary, if applicable;
(c) all facilities have received all approvals of governmental authorities
(including material Licenses, as defined in Section 3.15.2) required in
connection with the ownership, operation thereof, and have been operated and
maintained in accordance with applicable laws, rules and regulations in all
material respects;
(d) no material default exists under any lease affecting the Owned Real
Property;
(e) the Company or its Subsidiaries maintain reasonably adequate casualty
and liability insurance with respect to their interests in the Owned Real
Property and leases;
(f) no prior assessments, additional contributions and capital calls
required of the Company or a Subsidiary or of the equity partner in Bloomfield
Parkway Associates remain unpaid and to the best knowledge, information and
belief of the Company, no assessments, additional contribution or capital calls
are currently anticipated.
3.7.3 Environmental Matters. Except as disclosed on Schedule 3.7.3:
(a) there are no inquiries, litigation or other proceedings pending, or, to
the best knowledge, information and belief of the Company threatened with regard
to the current or prior conduct of the Company's business or any Owned Real
Property with respect to any law, regulation or ordinance relating to the
regulation or protection of human health, safety or the environment
("Environmental Laws") concerning air, soil or water quality, or the emission,
discharge, release or threatened release of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes or words of similar
import (collectively, "Hazardous Material") into the environment;
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(b) the Company and its Subsidiaries have operated their businesses in
compliance with all Environmental Laws except where the failure to so comply
would not have a Material Adverse Effect;
(c) the Owned Real Property are not subject to any judgment, decree, order
or citation which relates to or arises out of a violation of any Environmental
Laws;
(d) all Licenses which are required under applicable Environmental Laws in
connection with the conduct of the business of the Company and its Subsidiaries
have been obtained. Each of such Licenses is in full force and effect. No
additional Licenses are required under any Environmental Law relative to any
Owned Real Property, the failure of which to obtain would have a Material
Adverse Effect;
(e) to the best knowledge, information and belief of the Company, no
Hazardous Materials have been recycled, treated, stored, disposed of or released
by the Company or any Subsidiary at any location; and
(f) no oral or written notification of a release of Hazardous Materials in
connection with the operation of the business of the Company and its
Subsidiaries has been filed on behalf of the Company or any Subsidiary, and no
site or facility now owned, or to the best knowledge, information and belief of
the Company, previously owned, operated or leased by the Company or any
Subsidiary or any of the Owned Real Property is listed or to the best knowledge,
information and belief of the Company proposed for listing on any federal,
state, provincial or local list of sites requiring investigation or clean-up.
Section 3.8 Contracts. Schedule 3.8 hereto contains an accurate and
complete list of the following agreements to which the Company or any Subsidiary
is a party: (a) all Plans (as such term is defined in Section 3.19), (b) any
agreement, contract or commitment relating to capital expenditures which involve
payments of $250,000 or more in any single or related transaction, (c) any
agreement, contract or commitment relating to the making of any loan, advance or
investment in any Person, which in any case involves more than $50,000, (d) any
agreement, instrument or arrangement evidencing or related in any way to
indebtedness (excluding intercompany indebtedness) for money borrowed or to be
borrowed, whether directly or indirectly, by way of loan, purchase money
obligation, guaranty (other than the endorsement of negotiable instruments for
collection in the ordinary course of business), conditional sale, purchase or
otherwise, which in any case involves $100,000 or more, (e) any management
service, employment, consulting or any other smilar type of contract which is
not cancelable without penalty or other financial obligation within 30 days and
which has total annual remuneration in excess of $100,000, (f) any agreement,
contract or commitment limiting its freedom to engage in any line of business or
to compete with any other Person, including agreements limiting its ability to
take on competitive accounts after the termination thereof or limiting the
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ability of its affiliates to take on competitive accounts during the term
thereof, but excluding standard exclusivity requirements in agency-client
agreements entered into in the ordinary course of business, (g) any agreement,
contract or commitment not covered by another clause of this Section 3.8 which
is material to the businesses of the Company and its Subsidiaries taken as a
whole, (h) any collective bargaining or union agreement, (i) any agreement with
any of its officers or directors or stockholders (including stockholder
agreements or indemnification agreements), (j) any secrecy or confidentiality
agreement (other than standard confidentiality agreements in computer software
license agreements or agency-client agreements entered into in the ordinary
course of business), (k) any licensing or franchise agreement (other than
computer software license agreements), (l) any agency/client agreement for the
twenty largest current clients (measured by commissions and fees generated
during 1994), (m) any agreements with media buying services, provided, however,
commitments to purchase media in the ordinary course of business do not have to
be set forth on Schedule 3.8, (n) any agreement, indenture or other instrument
which contains restrictions with respect to the payment of dividends or other
distributions in respect of the Company Stock, (o) all outstanding promissory
notes to the former stockholders of the Company in respect of the Company's
repurchase of Company Stock from such former stockholders (together with a
statement setting forth the outstanding balance of each such promissory note as
of April 30, 1995, the number of shares of Company Stock held in escrow relating
to each such repurchase and the name of the escrow agent), (p) any joint venture
or partnership agreement involving a sharing of profits not covered by (a)
through (o) above; provided, however, that (x) commitments to media and
production expenses which are fully reimbursable from clients, and (y) estimates
or purchase orders given in the ordinary course of business relating to the
execution of projects, do not have to be set forth on Schedule 3.8. Each
contract, agreement or commitment set forth on Schedule 3.8 (or required to be
set forth on Schedule 3.8) is in full force and effect, and there exists no
default or event of default by the Company or any Subsidiary or to the best
knowledge, information and belief of the Company, by any other party, or
occurrence, condition, or act (including the Merger hereunder) which, with the
giving of notice, the lapse of time or the happening of any other event or
condition, would become a default or event of default thereunder, and there are
no outstanding claims of breach or indemnification or notice of default or
termination of any such agreements, contracts or commitments.
Section 3.9 Restrictive Documents. Except for approvals required under the
HSR Act (as defined in Section 5.2 below) and the MBCA and except as set forth
on Schedule 3.9, neither the Company nor any of its Subsidiaries is subject to,
or a party to, any charter, by-law, mortgage, Lien, lease, license, permit,
agreement, contract, instrument, law, rule, ordinance, regulation, order,
judgment or decree, or any other restriction of any kind or character, which
would prevent consummation of the transactions contemplated by this Agreement or
any other agreement entered into by any of them in connection with the
transactions contemplated hereby. Except as set forth on Schedule 3.9, the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not (i) violate any provision of the
charter documents or by-laws of the Company or any Subsidiaries; (ii) violate,
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conflict with or result in the breach or modification of any of the terms of, or
constitute (or with notice or lapse of time or both constitute) a default under,
or otherwise give any other contracting party the right to accelerate or
terminate, any obligation, contract, agreement, Lien, judgment, decree or other
instrument to which the Company or any Subsidiary is a party or by or to which
the Company or any Subsidiary or any of their assets or properties may be bound
or subject; (iii) violate any order, writ, judgment, injunction, award or decree
of any court, arbitrator or governmental or regulatory body against, or binding
upon, the Company or any Subsidiary or any of their assets or properties; or
(iv) result in a violation by the Company or any Subsidiary of any statute, law
or regulation of any jurisdiction which is material to the business or
operations of the Company or such Subsidiary.
Section 3.10 Litigation. Except as set forth on Schedule 3.10, there is no
action, suit, proceeding at law or in equity by any Person, or any arbitration
or any administrative or other proceeding by or before (or to the best
knowledge, information and belief of the Company, any investigation by) any
governmental or other instrumentality or agency, pending or, to the best
knowledge, information and belief of the Company threatened, against the Company
or any of its officers, directors, employees or agents with respect to this
Agreement or the transactions contemplated hereby, or against or affecting the
Company or any of its Subsidiaries or any of their properties or rights; and no
acts, facts, circumstances, events or conditions occurred, or exist which are a
basis for any such action, proceeding or investigation. Neither the Company nor
any Subsidiary is subject to any judgment, order or decree entered in any
lawsuit or proceeding.
Section 3.11 Taxes.
3.11.1 Taxes. The Company and its Subsidiaries have timely filed or caused
to be filed, taking into account any valid extensions of due dates, completely
and accurately, all Federal and all material state, local and foreign tax or
information returns (including estimated tax returns) required under the
statutes, rules or regulations of such jurisdictions to be filed by the Company
and its Subsidiaries. The term "Taxes" means taxes, duties, charges or levies of
any nature imposed by any taxing or other governmental authority, including
without limitation income, gains, capital gains, surtax, capital, franchise,
capital stock, value-added taxes ("VAT"), taxes required to be deducted from
payments made by the payor and accounted for to any tax authority, employees'
income withholding, back-up withholding, withholding on payments to foreign
persons, social security, national insurance, unemployment, worker's
compensation, payroll, disability, real property, personal property, sales, use,
goods and services or other commodity taxes, business, occupancy, excise,
customs and import duties, transfer, stamp, Michigan single business tax and
other taxes (including interest, penalties or additions to tax in respect of the
foregoing), and includes all taxes payable by the Company or any Subsidiary
pursuant to Treasury Regulations ss.1.1502-6 or any similar provision of state,
local or foreign law. For the purposes of Canadian taxation the term "Taxes"
shall also include employer health taxes and Canada or Quebec Pension Plan
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contributions. All Taxes shown on said returns to be due have been paid and all
additional assessments received prior to the date hereof have been paid or are
being contested in good faith, in which case such contested assessments are
disclosed on Schedule 3.11. Except as described in item 4 of Schedule 3.11, the
amount set up as an accrual for Taxes on the Balance Sheet is sufficient for the
payment of all unpaid Taxes of the Company and its Subsidiaries, whether or not
disputed, for all periods ended on and prior to the date thereof. Since the
Balance Sheet Date, neither the Company nor any Subsidiary has incurred any
liabilities for Taxes other than in the ordinary course of business. The Company
and its Subsidiaries have withheld all amounts required to be withheld on
account of Taxes from amounts paid to employees, former employees, directors,
officers and residents and non-residents and remitted or will remit the same to
the appropriate taxing authority within the prescribed time periods. The Company
and its Subsidiaries have collected all sales, use, goods and services or other
commodity Taxes required to be collected and remitted or will remit the same to
the appropriate taxing authority within the prescribed time periods. The Company
and its Subsidiaries have delivered to Omnicom correct and complete copies of
all federal, state and foreign income tax returns and the Michigan single
business tax returns filed with respect to the Company and its Subsidiaries for
all taxable periods beginning on or after January 1, 1991. The Federal income
tax returns of the Company or its Subsidiaries have been audited by the Internal
Revenue Service for all periods through December 31, 1991. The Michigan single
business tax returns of the Company and its Subsidiaries have been audited by
the Revenue Division of the Michigan Department of Treasury for all periods
through December 31, 1992. The Company has delivered to Omnicom true and
complete copies of all notices of deficiencies or proposed deficiencies and of
all audit reports issued to the Company or any Subsidiary by (i) the Internal
Revenue Service for periods beginning on or after January 1, 1988 and (ii) any
other taxing authority for periods beginning on or after January 1, 1991. Except
as disclosed on Schedule 3.11, no examination by any taxing authority of any
return of the Company or any Subsidiary is currently in progress, and neither
the Company nor any Subsidiary has received written notice of any proposed audit
or examination. No deficiency in the payment of Taxes by the Company or any
Subsidiary for any period has been asserted in writing by any taxing authority
and remains unsettled at the date of this Agreement. Neither the Company nor any
Subsidiary has made any agreement, waiver or other arrangement providing for an
extension of time with respect to the assessment or collection of any Tax
against it or filed a consent with the Internal Revenue Service pursuant to
Section 341(f)(2) of the Code or made an election under Section 338 of the Code.
Neither the Company nor any Subsidiary is a party to any tax allocation or tax
sharing agreement or has any contractual obligation to indemnify any Person with
respect to Taxes, other than agreements or obligations between or among
corporations which are currently members of the affiliated group of corporations
(as defined in Section 1504 of the Code) of which the Company is the common
parent. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code within the
period specified in Section 897(c)(1)(A)(ii) of the Code. Neither the Company
nor any Subsidiary will be required as a result of a change in accounting method
for any period ending on or before the Closing Date to include any adjustment
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under Section 481 of the Code (or any similar provision of state, local or
foreign income tax law) in income for any period ending after the Closing Date.
Except as set forth on Schedule 3.11, neither the Company nor any Subsidiary is
obligated to make any payments or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Section 280G of the Code.
3.11.2 Additional Representations. The Company hereby further makes the
representations and warranties set forth on Annex I hereto with respect to the
Company's Canadian operations, which is incorporated herein and made a part
hereof as if set forth herein in its entirety.
Section 3.12 Liabilities. Except as set forth on the Balance Sheet or
referred to in the footnotes thereto, neither the Company nor any Subsidiary has
any outstanding claims, liabilities or indebtedness of any nature whatsoever
(collectively in this Section 3.12, "liabilities"), whether accrued, absolute or
contingent, determined or undetermined, asserted or unasserted, and whether due
or to become due, other than (i) liabilities disclosed in any Schedule hereto;
(ii) liabilities under contracts, agreements, licenses, leases, commitments and
undertakings of the type required to be disclosed on any Schedule but because of
the dollar amount or other qualifications are not required to be listed on such
Schedule and, (iii) liabilities incurred in the ordinary course of business and
consistent with past practice since the Balance Sheet Date not involving
borrowings by the Company and its Subsidiaries. Except as set forth in item (d)
of Schedule 3.8, neither the Company nor any Subsidiary has any outstanding
guarantee to any Person with respect to any obligation or liability of an
unrelated third party.
Section 3.13 Insurance. Schedule 3.13 is a schedule of all insurance
policies (including life insurance) or binders maintained by the Company and its
Subsidiaries. All such policies are valid, outstanding and enforceable policies
and all premiums that have become due have been currently paid. None of such
policies shall lapse or terminate by reason of the transactions contemplated
hereby. Neither the Company nor any Subsidiary has received any written notice
of cancellation or written non-renewal of any such policy or binder. Neither the
Company nor any Subsidiary has received written notice from any of its insurance
carriers that any premiums will be materially increased in the future or that
any insurance coverage listed on Schedule 3.13 will not be available in the
future on substantially the same terms now in effect. Except as set forth on
Schedule 3.13, within the last two years neither the Company nor any Subsidiary
has filed for any claim exceeding $50,000 against any of its insurance policies,
exclusive of automobile policies.
Section 3.14 Intellectual Properties. Schedule 3.14 hereto contains a list
of all patents, patent applications, trade name, trademark, copyright and
service mark registrations and applications (now pending) owned by the Company
and its Subsidiaries (collectively, the "Intellectual Property") and all
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agreements under which any Person has granted a license under any Intellectual
Property to the Company or any Subsidiary (other than "off-the-shelf" computer
software licenses). The term "Intellectual Property" as used in this Section
shall not include any of the foregoing listed items which are owned or licensed
by a client of the Company or any of its Subsidiaries and which are used by the
Company or one of its Subsidiaries in the rendering of services to such client,
provided that in all cases the Company and its Subsidiaries have the requisite
permission and authority to use such items as currently used or anticipated to
be used. No claim of infringement or misappropriation of Intellectual Property
is or has been pending or, to the best knowledge, information and belief of the
Company, threatened against the Company or any of its Subsidiaries and, to the
best knowledge, information and belief of the Company, neither the Company nor
any of its Subsidiaries is infringing or misappropriating any intellectual
property of others and none of the trademarks or trade names set forth in
Schedule 3.14 has been abandoned. Except as set forth on Schedule 3.14, neither
the Company nor any of its Subsidiaries has expressly granted any license,
franchise or permit in effect on the date hereof to any person or entity to use
any of the trade names or any of the trademarks owned by it.
Section 3.15 Compliance with Laws; Licenses and Permits.
3.15.1 Compliance. The Company and its Subsidiaries are, and their
businesses have been conducted, in compliance with all applicable laws,
regulations, orders, judgments, decrees, codes, and ordinances ("Requirements of
Law"), except in each case where the failure to so comply would not have a
Material Adverse Effect, including without limitation, (i) all Requirements of
Law promulgated by the Federal Trade Commission or any other Federal, state,
provincial, municipal or local governmental regulatory agency or enforcement
authority; (ii) all environmental Requirements of Law, whether regarding
Environmental Laws or otherwise; and (iii) all Requirements of Law relating to
labor, civil rights, and occupational safety and health laws, worker's
compensation, employment or pay equity. Neither the Company nor any Subsidiary
has been charged with, or, to the best information, knowledge and belief of the
Company threatened with, or is under any investigation with respect to, any
charge concerning any violation of any Requirements of Law.
3.15.2 Licenses. The Company and its Subsidiaries have all licenses,
permits and other governmental certificates, authorizations and approvals
(collectively "Licenses") required by any governmental or regulatory body for
the operation of their businesses and the use of their properties as presently
operated or used, except where the failure to have such Licenses would not have
a Material Adverse Effect. All of the Licenses are in full force and effect and
no action or claim is pending, nor to the best knowledge, information and belief
of the Company is threatened, to revoke or terminate any of the Licenses or
declare any License invalid in any material respect.
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Section 3.16 Client Relations.Schedule 3.16 sets forth for the Company and
the Subsidiaries taken as a whole, the twenty largest clients (measured by
commissions and fees generated) as at the date hereof and the revenues from each
such client and from all clients (in the aggregate) for the fiscal year ended
December 31, 1994. Except as set forth on Schedule 3.16, no current client of
the Company or any Subsidiary has advised the Company or any Subsidiary in
writing that it is terminating or considering terminating the handling of its
business by the Company or any Subsidiary, as a whole or in respect of any
material product, project or service, or is planning to reduce its future
spending with the Company or any Subsidiary in any material manner, and to the
best knowledge, information and belief of the Company, no client has orally
advised the Company or any Subsidiary of any of the foregoing events.
Section 3.17 Accounts Receivable; Work-in-Process; Accounts Payable. The
amount of all work-in-process, accounts receivable, expenditures billable to
clients and other debts due or recorded in the records and books of account of
the Company and the Subsidiaries as being due to the Company or any Subsidiary
arose from bona fide transactions in the ordinary course of business and, to the
best knowledge, information and belief of the Company, will be good and
collectible in full (less the amount of any provision, reserve or similar
adjustment therefor made in such records and books of account) in the ordinary
course of business, and, to the best knowledge, information and belief of the
Company none of such accounts receivable or other debts (or accounts receivable
arising from such work-in-process) is or will be subject to any counterclaim or
set-off except to the extent of any such provision, reserve or adjustment. There
has been no change since the Balance Sheet Date in the amount or aging of the
work-in-process, accounts receivable, expenditures billable to clients or other
debts due to the Company or any Subsidiary or the reserves with respect thereto,
or accounts payable of the Company or any Subsidiary, which is materially
adverse to the business, financial condition or results of operations of the
Company and its Subsidiaries taken as a whole.
Section 3.18 Employment Relations. (a) The Company and the Subsidiaries are
in compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages, hours and vacations, and are not engaged in any unfair labor practice;
(b) no unfair labor practice complaint against the Company or any Subsidiary is
pending before any applicable government entity and without limiting the
generality of the foregoing, no complaint has been filed by any Person alleging
a violation by the Company or any Subsidiary of the Employment Standards Act
(Ontario), Human Rights Act (Ontario) or any similar Canadian legislation; (c)
there is no organized labor strike, dispute, slowdown or stoppage actually
pending or to the best knowledge, information and belief of the Company
threatened against or involving the Company or any Subsidiary; (d) there are no
labor unions representing or, to the best knowledge, information and belief of
the Company, attempting to represent the employees of the Company or any
Subsidiary; (e) no claim or grievance nor any arbitration proceeding arising out
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of or under any collective bargaining agreement is pending and to the best
knowledge, information and belief of the Company, no such claim or grievance has
been threatened; (f) no collective bargaining agreement is currently being
negotiated by the Company or any of its Subsidiaries; (g) neither the Company
nor any Subsidiary has experienced any work stoppage or similar organized labor
dispute during the last three years; and (h) to the best knowledge, information
and belief of the Company, all filings and payments under the Worker's
Compensation Act (Ontario) have been filed or are made and up to date and there
are no claims made under this or similar legislation. There is no legal action,
suit, proceeding or claim pending or, to the best knowledge, information and
belief of the Company, threatened between the Company or any Subsidiary and any
of their employees, former employees, agents, former agents, job applicants or
any association or group of any of their employees, except as set forth on
Schedule 3.10.
Section 3.19 Employee Benefit Matters.
3.19.1 List of Plans. Schedule 3.8 lists all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) and all bonus, stock option, stock purchase, restricted
stock, stock appreciation rights, phantom stock rights, incentive compensation,
deferred compensation, retiree medical or life insurance, supplemental
retirement, severance or other benefit plans, programs or arrangements, and all
termination, severance or contracts or agreements, whether covering one person
or more than one person, and whether or not subject to any of the provisions of
ERISA, to which the Company or any Subsidiary is a party, with respect to which
the Company or any Subsidiary has any obligation or which are maintained,
contributed to or sponsored by the Company or any Subsidiary for the benefit of
any current or former employee, officer or director of the Company or any
Subsidiary (each aforementioned item listed or required to be listed on Schedule
3.8 being referred to herein individually, as a "Plan" and collectively, as the
"Plans"). The Company has delivered to Omnicom a complete and accurate copy of
(i) each written Plan and descriptions of any unwritten Plan (including all
amendments thereto whether or not such amendments are currently effective), (ii)
each trust agreement or other funding arrangement with respect to each Plan,
including insurance contracts, (iii) each summary plan description and summary
of material modifications relating to a Plan, (iii) the three most recently
filed IRS Form 5500 relating to each Plan, (iv) the most recently received IRS
determination letter for each Plan, and (v) the three most recently prepared
actuarial reports and financial statements, if applicable, in connection with
each Plan. Except as set forth on Schedule 3.8, neither the Company nor any
Subsidiary has any express or implied commitment, (i) to create, incur liability
with respect to or cause to exist any other employee benefit plan, program or
arrangement, or (ii) to modify, change or terminate any Plan. The information
reported on each such Form 5500 is accurate and true. To the best knowledge,
information and belief of the Company, no event has occurred or condition exists
that could adversely effect the results contained in such actuarial reports and
financial statements. Such financial statements fairly represent the financial
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condition and results of operations of each Plan as of the dates of
suchstatements, in accordance with generally accepted accounting principles.
3.19.2 Multi-Employer Plans. The Company and its Subsidiaries have not
maintained, contributed to or participated in a multi-employer plan (within the
meaning of Section 3(37) or 4001(a)(3) of ERISA or a multiple employer plan
subject to Sections 4063 and 4064 of ERISA) and have no obligations or
liabilities, including withdrawal or successor liabilities, regarding any such
plan.
3.19.3 Severance. Except as set forth on Schedule 3.8, none of the Plans,
nor any employment agreement or other agreement to which the Company or any
Subsidiary is a party or bound, provides for the payment of separation,
severance, termination or similar-type benefits to any Person or obligates the
Company or any Subsidiary to pay separation, severance, termination or
similar-type benefits solely as a result of any transaction contemplated by this
Agreement or as a result of a "change in control," within the meaning of such
term under section 280G of the Code. None of such Plans or other such agreements
referred to in this Section 3.19.3 are subject to the laws of any jurisdiction
outside of the United States.
3.19.4 Welfare Benefit Plans. Schedule 3.8 sets forth a complete and
accurate list of each Plan which provides or promises retiree medical,
disability or life insurance benefits to any current or former employee, officer
or director of the Company. Except as set forth on Schedule 3.19, the Company
has expressly reserved the right, in all Plan documents relating to welfare
benefits provided to employees, former employees, officers, directors and other
participants and beneficiaries, to amend, modify or terminate at any time the
Plans which provide for welfare benefits and the Company is not aware of any
fact, event or condition that could reasonably be expected to restrict or impair
such right.
3.19.5 Administrative Compliance. Each Plan is now and has been operated in
all material respects in accordance with the requirements of all applicable law,
including, without limitation, ERISA and the Code, and the regulations and
authorities published thereunder. The Company and the Subsidiaries performed all
material obligations required to be performed by it under, is not in any respect
in default under or in violation of, and the Company has no knowledge of any
default or violation by any party to, any Plan. Except as set forth on Item 2(b)
of Schedule 3.10, no legal action, suit, audit, investigation or claim is
pending or to the best knowledge, information and belief of the Company
threatened, with respect to any Plan (other than claims for benefits in the
ordinary course) and, to the best knowledge, information and belief of the
Company, and except as set forth on Schedule 3.19, no fact, event or condition
exists that could give rise to any such action, suit, audit, investigation or
claim. All reports, disclosures, notices and filings with respect to such Plans
required to be made to employees, participants, beneficiaries, alternate payees
and government agencies have been timely made or an extension has been timely
obtained.
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3.19.6 Tax-Qualification. Except as set forth on Schedule 3.19, each Plan
which is intended to be qualified under Section 401(a) of the Code has received
a favorable determination letter from the IRS that it is so qualified and each
trust established in connection with any Plan which is intended to be exempt
from federal income taxation under section 501(a) of the Code has received a
determination letter from the IRS that it is so exempt, and to the best
knowledge, information and belief of the Company, no fact or event has occurred
or condition exists since the date of such determination letter from the IRS
which could adversely affect the qualified status of any such Plan or the exempt
status of any such trust.
3.19.7 Funding; Excise Taxes. Except as set forth on Schedule 3.19, there
has been no prohibited transaction (within the meaning of Section 406 of ERISA
or Section 4975 of the Code) with respect to any Plan subject to ERISA. Neither
the Company nor any Subsidiary has incurred any liability for any excise tax
arising under Sections 4971, 4972, 4975, 4976,4977, 4978, 4978B, 4979, 4980 or
4980B of the Code or any civil penalty arising under Sections 502(i) or 502(l)
of ERISA, and, to the best knowledge, information and belief of the Company, no
fact, event or condition exists which could give rise to any such liability.
Neither the Company nor any ERISA Affiliate has incurred any liability under,
arising out of or by operation of Title IV of ERISA (other than liability for
premiums to the Pension Benefit Guaranty Corporation ("PBGC") arising in the
ordinary course), including, without limitation, any liability in connection
with the termination of any employee benefit plan subject to Title IV of ERISA
(a "Title IV Plan"); and, no fact, event or condition exists which could give
rise to any such liability. Except as set forth on Schedule 3.19, no complete or
partial termination has occurred within the five years preceding the date hereof
with respect to any Plan maintained by the Company or any ERISA Affiliate, and
no reportable event (within the meaning of Section 4043 of ERISA), notice of
which has not been waived by the PBGC, has occurred or except in respect of the
Pension Plan is expected to occur with respect to any Plan maintained by the
Company or any ERISA Affiliate. No Title IV Plan maintained by the Company or
any ERISA Affiliate had an accumulated funding deficiency (within the meaning of
Section 302 of ERISA or Section 412 of the Code), whether or not waived, as of
the most recently ended plan year of such Plan. None of the assets of the
Company or any ERISA Affiliate is the subject of any Lien arising under Section
302(f) of ERISA or Section 412(n) of the Code; neither the Company nor any ERISA
Affiliate has been required to post any security under Section 307 of ERISA or
Section 401(a) (29) of the Code; and to the best knowledge, information and
belief of the Company, no fact or event exists which could give rise to any such
Lien or requirement to post any such security. As of the Closing Date, no Plan
which is a Title IV Plan will have an "unfunded benefit liability" (within the
meaning of Section 4001(a)(18) of ERISA).
3.19.8 Tax Deductions. All contributions, premiums or payments required to
be made, paid or accrued with respect to any Plan have been made, paid or
accrued on or before their due dates, including extensions thereof. All such
contributions have been fully deducted for income tax purposes and no such
deduction has been challenged or disallowed by any government entity and to the
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best knowledge, information and belief of the Company, no fact or event exists
which could give rise to any such challenge or disallowance.
3.19.9 Additional Representations. The Company hereby further makes the
representations and warranties set forth on Annex II hereto with respect to any
Canadian Plan, which is incorporated by reference herein and made a part hereof
as if set forth herein in its entirety.
Section 3.20 Interests in Customers,Suppliers, Etc. Except as set forth on
Schedule 3.20, to the best knowledge, information and belief of the Company, no
officer, director, or employee of the Company or any Subsidiary (collectively,
the "Related Group"), or any entity controlled by anyone in the Related Group:
(i) owns, directly or indirectly, any interest in (excepting less than
1/4 of 1% stock holdings for investment purposes in securities of publicly
held and traded companies), or has any right to receive payments from, or
is an officer, director, employee or consultant of, any Person which is, or
is engaged in business as, a competitor, lessor, lessee, supplier,
distributor, sales agent, customer or Client of the Company or any
Subsidiary;
(ii) owns, directly or indirectly (other than through the ownership of
stock or other securities of the Company or any Subsidiary), in whole or in
part, any tangible or intangible property material to the Company or any
Subsidiary that the Company or any Subsidiary uses in the conduct of
business; or
(iii) has any cause of action or other claim whatsoever against, or
owes any amount in excess of $10,000 to, the Company or any Subsidiary,
except for claims in the ordinary course of business such as for accrued
vacation pay, accrued benefits under employee benefit plans, and similar
matters and agreements existing on the date hereof.
Section 3.21 Bank Accounts and Powers of Attorney. Set forth in Schedule
3.21 is an accurate and complete list showing (a) the name of each bank in which
the Company and its Subsidiaries have an account, credit line or safe deposit
box and the names of all persons authorized to draw thereon or to have access
thereto, and (b) the names of all persons, if any, holding powers of attorney
from the Company and its Subsidiaries and a summary statement of the terms
thereof.
Section 3.22 Compensation of Employees. Set forth in Schedule 3.22 is a
complete list showing the names and positions of all salaried employees and
exclusive consultants who are currently being compensated in the aggregate from
the Company or any Subsidiary at an annualized rate of $100,000 or more,
together with a statement of the current annual salary, the bonus compensation
paid or payable with respect to the fiscal year ended December 31, 1994 and the
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material fringe benefits of such employees and exclusive consultants not
generally available to all employees of the Company and its Subsidiaries. The
Company has made available to Omnicom a complete list showing (a) all bonus
compensation paid or payable in the aggregate (whether by agreement, custom or
understanding) to any salaried employees of the Company and its Subsidiaries for
services rendered during the fiscal years ended December 31, 1994, (b) the names
of all retired employees, if any, of the Company or its Subsidiaries who are
receiving or entitled to receive any healthcare or life insurance benefits or
any payments from the Company and its Subsidiaries not covered by any pension
plan to which the Company or its Subsidiaries are a party, their ages and
current unfunded pension rate, if any, and (c) a description of the Company's
normal severance benefits.
Section 3.23 No Changes Since the Balance Sheet Date. Since the Balance
Sheet Date, except as specifically stated on Schedule 3.23 (or another Schedule
to this Agreement) or as contemplated or otherwise permitted under the terms of
this Agreement, neither the Company nor any Subsidiary has (a) permitted any of
its assets to be subjected to any Lien other than a Permitted Lien, (b) sold,
transferred or otherwise disposed of any assets or properties except in the
ordinary course of business and which had an aggregate value of less than
$25,000, (c) made any capital expenditure or commitment therefor which
individually or in the aggregate exceeded $100,000, (d) declared or paid or set
aside for payment any dividends or made any distribution on any shares of
Company Stock, or redeemed, purchased or otherwise acquired any shares of the
Company Stock or any option, warrant or other right to purchase or acquire any
such shares other than stock repurchases in accordance with the Company's
Articles of Incorporation, (e) paid or incurred any obligation to pay any
bonuses to employees other than as accrued for on the Balance Sheet or for
"spot" bonuses incurred in the ordinary course of business aggregating less than
$50,000, (f) increased or prepaid its indebtedness for borrowed money, except
current borrowings in the ordinary course of business under credit lines
disclosed on the Balance Sheet, or made any loan to any Person other than to any
employee for normal travel and expense advances or relocation allowances
consistent with past practice, (g) written down the value of any
work-in-process, or written off as uncollectible any notes or accounts
receivable, except write-downs and write-offs in the ordinary course of
business, none of which individually or in the aggregate, is material to the
Company and its Subsidiaries taken as a whole (h) granted any increase in the
rate of wages, salaries, bonuses or other remuneration of any employee who,
whether as a result of such increase or prior thereto, receives aggregate
compensation from the Company or any Subsidiary at an annual rate of $200,000 or
more, or entered into any employment agreement which is not cancelable without
penalty or financial obligation within 30 day(s) and which has total
compensation of more than $500,000 over the term thereof, or except in the
ordinary course of business to any other employees, (i) canceled or waived any
claims or rights of substantial value, (j) made any change in any method of
accounting, (k) otherwise conducted its business or entered into any
transaction, except in the usual and ordinary manner and in the ordinary course
of its business, (l) amended in any material respect or terminated any agreement
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which is material to its business, (m) renewed, extended or modified in any
material respect any lease of real property or except in the ordinary course of
business any lease of personal property, (n) adopted, amended in any material
respect or terminated any Plan, or (o) agreed, whether or not in writing, to do
any of the foregoing.
Section 3.24 Required Approvals, Notices and Consents. Except as set forth
on Schedule 3.24 and except for approvals required under the HSR Act and the
MBCA, no consent, approval or authorization of, or declaration or registration
with, or action by, or notice to, any governmental or regulatory authority,
domestic or foreign, or any third party, is required in connection with the
execution and delivery by the Company of this Agreement and the consummation of
the transactions contemplated hereby.
Section 3.25 Corporate Controls. To the best knowledge, information and
belief of the Company, neither the Company, its Subsidiaries nor any director,
officer, agent, employee or other Person associated with or while acting on
behalf of the Company and its Subsidiaries, has, directly or indirectly: used
any corporate fund for unlawful contributions, gifts, or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on its books or records; made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment, or other payment of a
similar or comparable nature, to any person or entity, private or public,
regardless of form, whether in money, property, or services, to obtain favorable
treatment in securing business or to obtain special concessions, or to pay for
favorable treatment for business secured or for special concessions already
obtained, and neither the Company nor any Subsidiary has participated in any
boycott or other similar practices affecting any of its actual or potential
customers.
Section 3.26 Information Supplied. None of the information supplied or to
be supplied by the Company for inclusion in either (i) the registration
statement on Form S-4 to be filed with the Securities and Exchange Commission
("SEC") by Omnicom in connection with the issuance of Omnicom Stock (the
"Registration Statement") under this Agreement or (ii) the information statement
relating to the special meeting of stockholders of the Company to be held in
connection with this Agreement and the transactions contemplated hereby (the
"Information Statement"), contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, or will, at the time the Registration Statement
becomes effective under the Securities Act of 1933, as amended (the "Securities
Act"), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading.
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Section 3.27 Brokers. Except as set forth on Schedule 3.27, no broker,
finder, agent or similar intermediary has acted on behalf of the Company in
connection with this Agreement or the transactions contemplated hereby, and
except as set forth on Schedule 3.27 no brokerage commissions, finder's fees or
similar fees or commissions are payable by the Company or any Subsidiary in
connection therewith based on any agreement, arrangement or understanding with
any of them.
Section 3.28 Opinion of Financial Advisor. The Company has received the
oral opinion of McDonald & Company Securities, Inc., to the effect that the
consideration to be received in the Merger is fair from a financial point of
view to the stockholders of the Company, and a true and complete copy of its
written opinion will be delivered to Omnicom no later than the filing of the
Registration Statement with the SEC.
Section 3.29 Transaction Costs. The legal, accounting, other professional
fees and expenses, including the fees and expenses of McDonald & Company
Securities, Inc., incurred or to be incurred by the Company in connection with
this Agreement and the transactions contemplated hereby, including without
limitation the preparation of the Prospectus Materials as provided in Section
7.1 and the transactions contemplated thereby (collectively, the "Transaction
Costs") will not exceed $800,000.
Section 3.30 Copies of Documents; Schedules. The Company has caused to be
made available for inspection and copying by Omnicom and OmniSub and their
advisers, true, complete and correct copies of all documents referred to in this
Article III or in any Annex or Schedule. The Schedules referred to in this
Article III have been previously delivered to Omnicom and OmniSub by the
Company.
ARTICLE IV
REPRESENTATIONS OF OMNICOM AND OMNISUB
Omnicom and OmniSub, jointly and severally, represent and warrant to the
Company as follows:
Section 4.1 Existence and Good Standing. Omnicom is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York. OmniSub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Michigan. Each of Omnicom and OmniSub
has all requisite corporate power and authority to own its assets and to carry
on its business as presently conducted.
Section 4.2 Execution and Validity of Agreements. Each of Omnicom and
OmniSub has the full corporate power and authority to enter into this Agreement
and to perform its respective obligations hereunder. The execution and delivery
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of this Agreement by Omnicom and OmniSub and the consummation of the
transactions contemplated hereby have been duly authorized by all required
corporate action on behalf of Omnicom and OmniSub. This Agreement has been duly
and validly executed and delivered by Omnicom and OmniSub and, assuming due
authorization, execution and delivery by the Company, constitutes the legal,
valid and binding obligation of Omnicom and OmniSub, enforceable against each of
them in accordance with its terms.
Section 4.3 Restrictive Documents. Except for approvals required under the
HSR Act, neither Omnicom nor OmniSub is subject to, or a party to, any charter,
by-law, mortgage, Lien, lease, license, permit, agreement, contract, instrument,
law, rule, ordinance, regulation, order, judgment or decree, or any other
restriction of any kind or character, which would prevent consummation of the
transactions contemplated by this Agreement or any other agreement entered into
by it in connection with the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not (i) violate any provision of the
charter documents or by-laws of Omnicom or OmniSub; (ii) violate, conflict with
or result in the breach or modification of any of the terms of, or constitute
(or with notice or lapse of time or both constitute) a default under, or
otherwise give any other contracting party the right to accelerate or terminate,
any obligation, contract, agreement, Lien, judgment, decree or other instrument
to which Omnicom or OmniSub is a party or by or to which Omnicom or OmniSub or
their respective assets or properties may be bound or subject; (iii) violate any
order, writ, judgment, injunction, award or decree of any court, arbitrator or
governmental or regulatory body against, or binding upon, Omnicom or OmniSub or
their respective assets or properties; or (iv) result in a violation by Omnicom
or OmniSub of any statute, law or regulation of any jurisdiction which is
applicable to the business or operations of Omnicom or OmniSub.
Section 4.4 Omnicom Stock. The shares of Omnicom Stock to be delivered to
the stockholders of the Company pursuant to this Agreement, when delivered as
provided herein, will be validly issued and outstanding shares of voting common
stock of Omnicom, fully paid and non-assessable, and will not be subject to
preemptive rights of any Person. The Omnicom Stock to be so delivered will be
registered under the Registration Statement and duly listed for trading on the
New York Stock Exchange as of the Closing Date.
Section 4.5 Financial Statements and No Material Changes. Omnicom has
previously furnished to the Company true and complete copies of its Annual
Reports on Form 10-K for the three fiscal years ended December 31, 1992, 1993
and 1994, as amended by the Reports on Form 10-K/A filed in respect of the 1992
and 1993 Annual Reports. Since December 31, 1994, there has been no material
adverse change in the assets or liabilities, or in the business or condition,
financial or otherwise, or the results of consolidated operations of Omnicom and
its subsidiaries. Since December 31, 1991, Omnicom has filed all forms, reports
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and documents with the SEC required to be filed by it pursuant to the federal
securities laws and the SEC rules and regulations thereunder (the "SEC
Reports"), all of which complied in all material respects with the applicable
requirements of the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). None of the SEC Reports, at the time filed (and in
the case of the 1992 and 1993 Annual Reports on Form 10-K, as amended by the
applicable Form 10-K/A) contained any untrue statement of a material fact, or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, or in which they will be made, not misleading. The audited financial
statements included in such SEC Reports have been prepared in accordance with
GAAP applied on a consistent basis (except as stated therein) and present
fairly, in all material respects, the consolidated financial position of Omnicom
and its subsidiaries as of the respective dates thereof, and the consolidated
results of operations and cash flows for each of the periods then ended.
Section 4.6 Litigation. There is no action, suit, proceeding at law or in
equity by any Person, or any arbitration or any administrative or other
proceeding by or before (or to the best knowledge, information and belief of
Omnicom and OmniSub, any investigation by), any governmental or other
instrumentality or agency, pending or, to the best knowledge, information and
belief of Omnicom and OmniSub, threatened against Omnicom or OmniSub with
respect to this Agreement or the transactions contemplated hereby, or against or
affecting Omnicom or any of its subsidiaries or any of their properties or
rights which, if adversely determined, would be reasonably likely to have a
material and adverse effect on the financial condition, results of operations,
assets, properties or businesses of Omnicom and its subsidiaries taken as a
whole.
Section 4.7 Consents and Approvals of Governmental Authorities. Except as
set forth on Schedule 4.7 and except for approvals required under the HSR Act,
no consent, approval or authorization of, or declaration or registration with,
or action by, or notice to, any governmental or regulatory authority, domestic
or foreign, or any third party, is required in connection with the execution and
delivery by Omnicom and OmniSub of this Agreement and the consummation of the
transactions contemplated hereby.
Section 4.8 Brokers. No broker, finder, agent or similar intermediary has
acted on behalf of Omnicom or OmniSub or their affiliates in connection with
this Agreement or the transactions contemplated hereby, and no brokerage
commissions, finder's fees or similar fees or commissions are payable by Omnicom
or OmniSub in connection therewith based on any agreement, arrangement or
understanding with any of them.
Section 4.9 Information Supplied. None of the information supplied or to be
supplied by Omnicom for inclusion in either (a) the Registration Statement or
(b) the Information Statement contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
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which they were made, not misleading, or will, at the time the Registration
Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Registration Statement will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations promulgated
thereunder.
Section 4.10 OmniSub. OmniSub was formed solely for the purpose of the
Merger and engaging in the transactions contemplated hereby. As of the date
hereof and the Effective Time, the capital stock of OmniSub is and will be
directly owned 100% by Omnicom. Further, there are not as of the date hereof and
there will not be at the Effective Time any outstanding or authorized options,
warrants, calls, rights, commitments or any other agreements requiring OmniSub
to issue, transfer, sell, purchase, redeem or acquire any shares of capital
stock. As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated hereby, OmniSub has not and will not have
incurred, directly or indirectly through any subsidiary or affiliate, any
obligations or liabilities or engaged in any business or activities of any type
of kind whatsoever or entered into any agreements or arrangements with any
person or entity.
Section 4.11 Copies of Documents; Schedules. Omnicom and OmniSub have
caused to be made available for inspection and copying by the Company and its
advisers, complete and correct copies of all documents referred to in this
Article IV or in any Schedule. The Schedules referred to in this Article IV have
been previously delivered to the Company by Omnicom or OmniSub.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with Omnicom and OmniSub that, at all
times from and after the Execution Date until the Closing, the Company will
comply with all covenants and provisions of this Article V, except to the extent
Omnicom (on behalf of itself and OmniSub) may otherwise consent in writing.
Section 5.1 Regulatory and Other Approvals. The Company will (a) take all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith and use all commercially reasonable efforts, as promptly as
practicable to obtain all consents, approvals or actions of, to make all filings
with and to give all notices to governmental or regulatory authorities or any
other Person required of the Company to consummate the transactions contemplated
hereby including without limitation those described on Schedule 3.24, (b)
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provide such other information and communications to such governmental or
regulatory authorities or other Persons as such governmental or regulatory
authorities or other Persons may reasonably request in connection therewith and
(c) provide reasonable cooperation to Omnicom and OmniSub in obtaining all
consents, approvals or actions of, making all filings with and giving all
notices to governmental or regulatory authorities or other Persons required of
Omnicom or OmniSub to consummate the transactions contemplated hereby, including
without limitation complying, if necessary, with the Workers Adjustment and
Retraining Notification Act (P.L. 100-379). The Company will provide prompt
notification to Omnicom when any such consent, approval, action, filing or
notice referred to in clause (a) above is obtained, taken, made or given, as
applicable, and will advise Omnicom of any communications (and, unless precluded
by law, provide copies of any such communications that are in writing) with any
governmental or regulatory authority or other Person regarding any of the
transactions contemplated by this Agreement.
Section 5.2 HSR Filings. In addition to and not in limitation of the
Company's covenants contained in Section 5.1, the Company will (a) take promptly
all actions necessary to make the filings required of the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (b) comply at the earliest practicable date with any request for
additional information received by the Company from the Federal Trade Commission
or the Antitrust Division of the Department of Justice pursuant to the HSR Act
and (c) cooperate with Omnicom in connection with Omnicom's filing under the HSR
Act and in connection with resolving any investigation or other inquiry
concerning the transactions contemplated by this Agreement commenced by either
the Federal Trade Commission or the Antitrust Division of the Department of
Justice or state attorneys general.
Section 5.3 Full Access. The Company will (a) provide Omnicom and OmniSub
and their respective officers, employees, counsel, accountants, financial
advisors, consultants and other representatives (collectively, "Advisors") with
full access, upon reasonable prior notice and during normal business hours, to
the executive officers and agents of the Company who have any material
responsibility for the conduct of the business of the Company and its
Subsidiaries, to the Company's accountants and their work papers, but only to
the extent that such access does not unreasonably interfere with the business of
the Company and its Subsidiaries and (b) furnish Omnicom, OmniSub and the
Advisors with all such information and data concerning the Company as Omnicom,
OmniSub or the Advisors reasonably may request in connection with such
investigation, except to the extent that furnishing any such information or data
would violate any law, order, contract or License applicable to the Company or
any Subsidiary.
Section 5.4 No Solicitations.The Company will not take, nor will it permit
any affiliate (or authorize or permit any investment banker, financial advisor,
attorney, accountant or other Person retained by or acting for or on behalf of
it or any such affiliate) to take, directly or indirectly, any action to
solicit, encourage, receive, negotiate, assist or otherwise facilitate
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(including by furnishing confidential information with respect to the Company)
any offer or inquiry concerning the acquisition of the Company from any Person
(a "Potential Acquiror") other than Omnicom or OmniSub (an "Acquisition
Proposal"); provided, however, that the Board of Directors on behalf of the
Company may furnish or cause to be furnished information concerning the Company
pursuant to appropriate confidentiality agreements and may engage in discussions
or negotiations with a Potential Acquiror concerning an Acquisition Proposal
through its representatives provided that prior to furnishing such information
or entering into such negotiations and discussions the Board of Directors of the
Company shall conclude in good faith on the basis of advice from independent
counsel that such action is required in order for such Board of Directors to act
in a manner which is consistent with its fiduciary obligations under applicable
law. The Company shall promptly inform Omnicom, orally and in writing, of the
material terms and conditions of any proposal or offer for, or which may
reasonably be expected to lead to, an Acquisition Proposal that it receives and
the identity of the Potential Acquiror. The Company shall immediately cease any
existing activities, discussions or negotiations with any parties with respect
to any Acquisition Proposal.
Section 5.5 Conduct of Business. From the Execution Date to the Closing
Date, except as contemplated or otherwise permitted under the terms of this
Agreement, the Company will operate the business of the Company and the
Subsidiaries only in the ordinary course consistent with past practice. Without
limiting the generality of the foregoing, except required by Section 5.14 and as
contemplated by or otherwise permitted by the terms of this Agreement or any
Schedule hereto, the Company will refrain, and will cause its subsidiaries to
refrain, from taking any of the following actions unless consented to in writing
by Omnicom (on behalf of itself and OmniSub), which consent shall not be
unreasonably withheld:
(i) other than pursuant to this Agreement, selling, leasing or
otherwise disposing of all or a substantial part of its assets or business;
(ii) amending its Articles of Incorporation or by-laws (or equivalent
charter documents);
(iii) changing its equity capitalization;
(iv) engaging in any acquisition of the stock, assets or business of
another corporation or entity or making any equity investment of corporate
funds in another corporation or entity other than short-term investments in
cash equivalents;
(v) merging or consolidating with and into any corporation, limited
liability company or other entity, or merging or consolidating any
corporation, limited liability company or other entity with and into it;
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(vi) engaging in any liquidation or dissolution;
(vii) engaging in any transaction involving an amount in excess of
$250,000, other than in the ordinary course of business to service its
clients;
(viii) engaging in the issuance or sale of stock or securities, or
options, warrants or obligations convertible into such stock or securities,
or issuing any phantom stock, equity participation units, stock
appreciation rights or similar rights;
(ix) entering into any new line of business;
(x) prepaying any indebtedness for borrowed money; or creating or
modifying any of the terms of any of the following financial arrangements:
any Lien on any of its assets or properties other than a Permitted Lien;
any guarantee by it of the obligations of any third party, whether a
director, officer or employee of the Company or any Subsidiary, or
otherwise; and any indebtedness for borrowed money except in the ordinary
course of its business under credit lines set forth on Schedule 3.8;
(xi) except as set forth on Schedule 5.5, entering into any
arrangement with any employee or consultant pursuant to which the
compensation or fee payable to such employee or consultant shall wholly or
partially be contingent upon (a) a percentage of its revenues or the
revenues generated by it relating to any of its clients or (b) its profits,
except for renewals in the ordinary course of business and consistent with
past practice of outstanding arrangements of such type;
(xii) making any loans to any employee other than normal travel and
expense advances or relocation allowances, in each case consistent with
past practices, or to any other Person;
(xiii) except as disclosed in Schedule 3.8 hereto, entering into any
lease or purchase of real property or commitment to construct real
property;
(xiv) granting any compensation increase to any existing employee
whose total annual compensation would after such increase exceed $200,000;
paying bonuses to any existing employees except to the extent accrued for
on the Balance Sheet and spot bonuses aggregating not more than $50,000; or
entering into any employment agreement which is not cancelable without
penalty or financial obligation within 30 days and which has total
compensation of more than $500,000 over the term thereof;
(xv) entering into any contract or agreement with any officer or
director;
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(xvi) except as set forth on Schedule 5.5, entering into any
affiliation arrangement with any advertising agency, other than Omnicom or
any affiliate thereof;
(xvii) declaring or paying any dividends to its stockholders or making
other distributions in respect of its capital stock, splitting, combining
or reclassifying any of its capital stock, or issuing or authorizing or
proposing the issuance of any other securities in respect of, in lieu of,
or in substitution for, shares of its capital stock; or repurchasing,
redeeming or otherwise acquiring any of its shares of capital stock (other
than under stock repurchase agreements existing as of the date hereof and
described on Schedule 3.8); or repurchasing any outstanding units issued
under the EPU Plan;
(xviii) amending in any material respect any contract or agreement
material to its business;
(xix) entering into any severance agreement involving a payment, or
obligation to pay any amount in excess of the Company's normal severance
benefit as set forth on Schedule 3.22 except in respect of arrangements
relating to the Kmart reduction in force, as set forth on Schedule 3.22;
(xx) releasing, canceling or assigning any indebtedness for borrowed
money owed to it, or waiving any material right relating to its properties;
(xxi) accepting as a client any Person that the Chief Executive
Officer of Omnicom, in his reasonable discretion, determines to be contrary
to the best interests of Omnicom and its subsidiaries;
(xxii) except as set forth on Schedule 5.5, creating or modifying any
Plan or entering into or modifying any employment agreement which is not
cancelable without penalty or other obligation on 30 days notice;
(xxiii) entering into any transaction or performing any act which
would be reasonably likely to result in any of the representations and
warranties of the Company contained in this Agreement not being true and
correct in any material respect; or agreeing to take any of the actions
that are prohibited herein or which would constitute a violation of any of
the covenants of the Company contained herein; and
(xxiv) delegating to directors the power to take any of the actions
prohibited by any of the foregoing clauses.
Section 5.6 Financial Information. Within 10 business days after the close
of each month between the Execution Date and the Closing Date, the Company shall
furnish to Omnicom the unaudited consolidated balance sheets of the Company and
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the Subsidiaries, as at the close of such month, and the related consolidated
statements of income and (with respect to quarterly consolidated statements)
cash flows for the period then ended and the fiscal year-to-date. The unaudited
financial statements referred to in this Section 5.6 shall be prepared in
accordance with GAAP applied on a consistent basis with the audited financial
statements provided to Omnicom and OmniSub pursuant to Section 3.4 above,
provided that such unaudited financial statements shall not contain footnotes
and shall be subject to normal year-end adjustments and accruals.
Section 5.7 Notice and Cure. The Company will notify Omnicom in writing
(where appropriate and only with respect to matters occurring after the
Execution Date, through updates to the Schedules) of, and contemporaneously will
provide Omnicom with true and complete copies of any and all information or
documents relating to, and will use all commercially reasonable efforts to cure
before the Closing, any event, transaction or circumstance, as soon as
practicable after it becomes known to the Company, occurring after the Execution
Date that causes or will cause any covenant or agreement of the Company under
this Agreement to be breached or that renders or will render untrue in any
material respect any representation or warranty of the Company contained in this
Agreement as if the same were made on or as of the date of such event,
transaction or circumstance. The Company also will notify Omnicom in writing of,
and will use all commercially reasonable efforts to cure, before the Closing,
any other violation or breach, as soon as practicable after it becomes known to
the Company, of any representation, warranty, covenant or agreement made by the
Company in this Agreement. No notice given pursuant to this Section shall have
any effect on the representations, warranties, covenants or agreements contained
in this Agreement for purposes of determining satisfaction of any condition
contained herein or shall in any way limit Omnicom's right to seek indemnity
under Article XI.
Section 5.8 Termination of Pension Plan. The Company shall not undertake
any action to terminate the Ross Roy, Inc. Pension Plan (the "Pension Plan")
without and in accordance with the prior written consent and instructions of
Omnicom.
Section 5.9 Consultation. Between the Execution Date and the Closing Date,
the Company will consult with management of Omnicom and the Diversified Agency
Services Division of Omnicom with a view to informing such management as to the
operation and management of the Company and the Subsidiaries. The Company will
use commercially reasonable efforts to preserve the business organization of the
Company and the Subsidiaries, to preserve the present business relationships of
the Company and the Subsidiaries, and to preserve all of the confidential
information and trade and business secrets of the Company and the Subsidiaries.
Section 5.10 Company Stockholder Approval. Within five days after the
Registration Statement becomes effective, the Company shall give notice of a
special meeting of its stockholders to be held not more than 30 days from the
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date of such notice for the purpose of voting on and approving, inter alia, (i)
this Agreement and the transactions contemplated hereby, and (ii) the Escrow
Agreement and the transactions contemplated thereby, and the designation of a
representative (the "Representative") to act on behalf of the holders of the
Company Stock immediately prior to the Effective Time (the "Stockholders") and
the Former Eligible Employee Holders, including naming one or more alternative
individuals to act as Representative in the event that the designated
Representative shall have died, resigned or otherwise become incapable or
unwilling to act as Representative and providing for an appropriate selection
procedure if all of such named alternatives are unwilling or unable to serve as
Representative. Approval of the Escrow Agreement and the selection of the
Representative (and successors) shall be included in a resolution to be acted
upon by the Stockholders. Such resolution shall provide for, inter alia, the
Stockholders acceptance of the Representative as the collective agent of the
Stockholders and the Former Eligible Employee Holders under the terms of the
Escrow Agreement; and authorize such Representative to (w) execute and deliver
the Escrow Agreement and any documents incident or ancillary thereto, including
without limitation, any amendments, cancellations, extensions or waivers in
respect thereof, (x) respond to and make determinations in respect of the
assertion of any and all claims for indemnification by Omnicom, and to assert
claims, pursuant to terms of the Escrow Agreement and the provisions of this
Agreement pertaining thereto, (y) execute and deliver any stock powers which may
be required to be executed by any Stockholder or any Former Eligible Employee
Holder in order to permit the delivery to Omnicom of any shares of Omnicom Stock
to be delivered to Omnicom from the Escrow Fund in accordance with the
provisions of the Escrow Agreement, and (z) take all such other actions as may
be necessary or desirable to carry out his responsibilities as collective agent
of the Stockholders and Former Eligible Employee Holders in respect of the
Escrow Agreement. The Company shall use its best efforts to obtain such
stockholder approval. Subject to the exercise of fiduciary obligations imposed
under applicable law as advised by independent counsel, the Company will,
through its Board of Directors, recommend to its stockholders approval of the
Merger, the transactions contemplated by this Agreement and the Escrow
Agreement, and the appointment of the Representative.
Section 5.11 Tax Returns. The Company will cause to be prepared all tax
returns of the Company and its Subsidiaries required to be filed prior to the
Effective Time with respect to the taxable year ended December 31, 1994. Except
as Omnicom and the Company may agree, such returns will be prepared in
accordance with the past practices of the Company (including tax accounting
methods, tax elections and similar items), to the extent permitted by law. Such
returns shall be furnished to Omnicom no later than 15 days prior to the due
date thereof for Omnicom's approval, which approval shall not be unreasonably
withheld or delayed.
Section 5.12 Fulfillment of Conditions.Subject to the terms and conditions
of this Agreement, the Company will execute and deliver at the Closing each
agreement that the Company is required hereby to execute and deliver as a
condition to the Closing, will take all commercially reasonable steps necessary
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or desirable and proceed diligently and in good faith to satisfy each other
condition to the obligations of Omnicom and OmniSub contained in this Agreement
and will not take or fail to take any action that could reasonably be expected
to result in the nonfulfillment of any such condition.
Section 5.13 Repayment of Indebtedness; Removal of Guarantee. All
indebtedness of directors, officers and employees of the Company or any
Subsidiary to the Company or any Subsidiary shall be repaid in full prior to
December 31, 1995, other than routine travel and expense advances or relocation
allowances made (x) in the ordinary course of business, (y) within the 90 days
prior to the Closing Date, and (z) consistent in amount with past practice.
Effective no later then the Effective Time, the Company's guarantee of the
borrowings by certain executive officers referred to in item (d)(5) of Schedule
3.8, has been terminated.
Section 5.14 Stock Repurchase Agreements. The Company shall have paid in
full all obligations owing by it under promissory notes to former stockholders
of the Company in respect of the Company's repurchase of Company Stock from such
former stockholders so that the shares of Company Stock held in escrow to secure
all such payments have been released to the Company and retired.
ARTICLE VI
COVENANTS OF OMNICOM AND OMNISUB
Omnicom and OmniSub covenant and agree with the Company that, at all times
from and after the Execution Date until the Closing, Omnicom and OmniSub will
comply with all covenants and provisions of this Article VI, except to the
extent the Company may otherwise consent in writing.
Section 6.1 Regulatory and Other Approvals. Omnicom and OmniSub will (a)
take all commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all commercially reasonable efforts, as
promptly as practicable to obtain all consents, approvals or actions of, to make
all filings with and to give all notices to governmental or regulatory
authorities or any other Person required of Omnicom or OmniSub to consummate the
transactions contemplated hereby, including without limitation those described
on Schedule 4.7, (b) provide such other information and communications to such
governmental or regulatory authorities or other Persons as such governmental or
regulatory authorities or other Persons may reasonably request in connection
therewith and (c) provide reasonable cooperation to the Company in obtaining all
consents, approvals or actions of, making all filings with and giving all
notices to governmental or regulatory authorities or other Persons required of
the Company to consummate the transactions contemplated hereby. Omnicom will
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provide prompt notification to the Company when any such consent, approval,
action, filing or notice referred to in clause (a) above is obtained, taken,
made or given, as applicable, and will advise the Company of any communications
(and, unless precluded by law, provide copies of any such communications that
are in writing) with any governmental or regulatory authority or other Person
regarding any of the transactions contemplated by this Agreement.
Section 6.2 HSR Filings. In addition to and without limiting the covenants
contained in Section 6.1, Omnicom will (a) take promptly all actions necessary
to make the filings required of Omnicom under the HSR Act, (b) comply at the
earliest practicable date with any request for additional information received
by Omnicom from the Federal Trade Commission or the Antitrust Division of the
Department of Justice pursuant to the HSR Act and (c) cooperate with the Company
in connection with the Company's filing under the HSR Act and in connection with
resolving any investigation or other inquiry concerning the transactions
contemplated by this Agreement commenced by either the Federal Trade Commission
or the Antitrust Division of the Department of Justice or state attorneys
general.
Section 6.3 Financial Information and Reports. As soon as reasonably
practicable after it becomes publicly available, Omnicom shall furnish to the
Company any Form 10-Q or other registration statement or report filed by Omnicom
with the SEC following the Execution Date and prior to the Closing Date.
Section 6.4 Notice and Cure. Omnicom or OmniSub will notify the Company in
writing of any and all information or documents relating to, and will use all
commercially reasonable efforts to cure before the Closing, any event,
transaction or circumstance, as soon as practicable after it becomes known to
Omnicom or OmniSub, occurring after the Execution Date that causes or will cause
any covenant or agreement of Omnicom or OmniSub under this Agreement to be
breached or that renders or will render untrue in any material respect any
representation or warranty of Omnicom or OmniSub contained in this Agreement as
if the same were made on or as of the date of such event, transaction or
circumstance. Omnicom or OmniSub also will notify the Company in writing of, and
will use all commercially reasonable efforts to cure, before the Closing, any
other violation or breach, as soon as practicable after it becomes known to
Omnicom or OmniSub, of any representation, warranty, covenant or agreement made
by Omnicom or OmniSub in this Agreement. No notice given pursuant to this
Section shall have any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of determining satisfaction
of any condition contained herein.
Section 6.5 Fulfillment of Conditions. Subject to the terms and conditions
of this Agreement, Omnicom and OmniSub will execute and deliver or cause the
execution and delivery at the Closing each agreement that Omnicom and OmniSub or
one of their affiliates is hereby required to execute and deliver as a condition
to the Closing, will take all commercially reasonable steps necessary or
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desirable and proceed diligently and in good faith to satisfy each other
condition to the obligations of the Company contained in this Agreement and will
not take or fail to take any action that could reasonably be expected to result
in the nonfulfillment of any such condition.
Section 6.6 Blue Sky; New York Stock Exchange Listing. Omnicom and OmniSub
will use their best efforts to (a) obtain no later than the effective date of
the Registration Statement all necessary state securities and blue sky
authorizations required to issue the Omnicom Stock as contemplated by this
Agreement (and pay all expenses incident thereto) and (b) cause such shares of
Omnicom Stock to be listed on the New York Stock Exchange, subject only to
official notice of issuance.
Section 6.7 Exchange Act Filings. For a period of three years immediately
following the Closing Date, Omnicom shall file in a timely manner all reports
required to be filed pursuant to and in accordance with Section 13 and Section
15(d) of the Exchange Act.
Section 6.8 Indemnification of Directors and Officers.
(a) Except to the extent required by law, for as long as the directors
and officers liability insurance is required to be maintained under clause
(b) below, Omnicom will not take any action so as to amend, modify or
repeal the provisions for indemnification of directors, officers, employees
or agents contained in the articles of incorporation or bylaws (or other
comparable charter documents) of the Surviving Corporation and its
Subsidiaries (which as of the Effective Time shall be no less favorable to
such individuals than those maintained by the Company and its Subsidiaries
on the date hereof) in such a manner as would materially and adversely
affect the rights of any individual who shall have served as a director,
officer, employee or agent of the Company or any of its Subsidiaries prior
to the Effective Time to be indemnified by such corporations in respect of
their serving in such capacities prior to the Effective Time.
(b) Except as provided in the next sentence, Omnicom shall cause the
Surviving Corporation to maintain in effect for not less than six years the
current policies of directors' and officers' liability insurance and
fiduciary liability insurance maintained by the Company and the Company's
Subsidiaries with respect to matters occurring prior to the Effective Time;
provided, however, that Omnicom, at the Surviving Corporation's cost, may
substitute therefor policies of substantially the same coverage containing
terms and conditions which are no less favorable than any such insurance in
effect immediately prior to the Effective Time. Notwithstanding the
foregoing, Omnicom shall not be required to pay in any year an annual
premium for such insurance in excess of $50,000, and shall cease to have
any obligation under this Section 6.8 as soon as it (or the Surviving
Corporation) shall have expended an aggregate of $275,000 for such
insurance. In any year in which the annual premium shall exceed $50,000,
Omnicom shall maintain (if insurance is obtainable) at least the level of
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such insurance as may be obtained at an annual premium of $50,000.
ARTICLE VII
MUTUAL COVENANTS
Omnicom, OmniSub and the Company mutually covenant and agree with each
other as follows:
Section 7.1 Preparation of Registration Statement. Omnicom and the Company
shall prepare the Registration Statement to be filed with the SEC under the
Securities Act for the registration of the Omnicom Stock to be issued in
connection with this Agreement. The Registration Statement and the related
Information Statement and prospectus forming a part of the Registration
Statement shall be mailed to stockholders of the Company in connection with the
special meeting of stockholders, more fully described in Section 5.10, to be
held for the purpose of authorizing the transactions contemplated by this
Agreement (the Registration Statement and the Information Statement and
prospectus are hereinafter referred to collectively as the "Prospectus
Materials"). Omnicom and the Company shall cooperate with each other in the
preparation of the Prospectus Materials and any related filings as shall be
necessary under the securities laws of any state. Omnicom shall prepare and file
the Registration Statement and shall use its best efforts to cause it to become
effective as promptly as possible. Omnicom, OmniSub and the Company shall
furnish all information relating to Omnicom, OmniSub or the Company and its
Subsidiaries, as the case may be, reasonably necessary in order to prepare the
Prospectus.
Section 7.2 Affiliates' Representation Letters. Prior to the Closing Date,
the Company shall furnish Omnicom with a list identifying all persons who may be
considered, in its opinion, to be "affiliates" of the Company, as the term
"affiliates" is used in Paragraphs (c) and (d) of Rule 145 under the Securities
Act or in SEC ASR No. 135 (the "Company Affiliates"). The Company shall use its
best efforts to cause each Person who it has identified as a Company Affiliate
and each additional Person, if any, that Omnicom has identified in writing to
the Company as a Company Affiliate, to deliver to Omnicom on or before the
Closing Date the Affiliates Representation Letter attached hereto as Exhibit B.
Section 7.3 Reasonable Efforts to Consummate Transaction. Omnicom, OmniSub
and the Company will each use its reasonable efforts and will fully cooperate
with each other to consummate the transactions contemplated by this Agreement.
Section 7.4 Public Announcements. Omnicom, OmniSub and the Company will
consult with each other before issuing any press releases or otherwise making
any public statements with respect to this Agreement or any of the transactions
contemplated hereby and shall not issue any such press release or make any
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public statement without the prior consent of the other parties which shall not
be unreasonably withheld, except as may be required by law or by obligations
pursuant to any listing agreements with any national securities exchange.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF OMNICOM AND OMNISUB
The obligations of Omnicom and OmniSub hereunder to effect the Merger on
the Closing Date are subject to the fulfillment, at or before the Closing, of
each of the following conditions (except with respect to Sections 8.8 and 8.10,
all or any of which may be waived in whole or in part by Omnicom, on behalf of
itself and OmniSub, in its sole discretion):
Section 8.1 Representations and Warranties. The representations and
warranties made by the Company in this Agreement, or in any Schedule delivered
pursuant hereto, shall be true and correct in all material respects on and as of
the Closing Date with the same force and effect as though made on and as of the
Closing Date or, in the case of representations and warranties made as of a
specified date earlier than the Closing Date, on and as of such earlier date,
and the Company shall have delivered to Omnicom and OmniSub a certificate, dated
the Closing Date, to such effect.
Section 8.2 Good Standing Certificates. The Company shall have delivered to
Omnicom and OmniSub a certificate from the Department of Commerce (or comparable
official) of the State of Michigan and each jurisdiction in which the Company is
qualified to do business, to the effect that the Company is in good standing in
such jurisdiction (together with the applicable tax status certificate). The
Company shall have delivered to Omnicom and OmniSub a certificate from the
Secretary of State (or comparable official) of each jurisdiction in which a
Subsidiary is organized or qualified to do business, to the effect that such
Subsidiary is in good standing in such jurisdiction (together with the
applicable tax status certificate).
Section 8.3 Performance.The Company shall have performed and complied with
the agreements, covenants and obligations required by this Agreement to be so
performed or complied with by the Company at or before the Closing, and the
Company shall have delivered to Omnicom and OmniSub a certificate, dated the
Closing Date, to such effect.
Section 8.4 Certified Resolutions. The Company shall have delivered to
Omnicom and OmniSub copies of resolutions of the boards of directors and of the
stockholders of the Company authorizing the execution, delivery and performance
of this Agreement and the transactions contemplated hereby, certified to by the
secretary of the Company.
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Section 8.5 No Litigation. There shall not be pending any litigation,
proceeding, investigation, review, arbitration or claim by governmental
representatives or authorities, and no preliminary or permanent injunction or
other order shall have been issued and remain in effect, in each case to
restrain or invalidate the consummation by the Company of this Agreement and the
transactions contemplated hereby.
Section 8.6 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any governmental or regulatory authority
necessary to permit Omnicom, OmniSub and the Company to perform their
obligations under this Agreement and to consummate the transactions contemplated
hereby shall have been duly obtained, made or given and shall be in full force
and effect, and all terminations or expirations of waiting periods imposed by
any governmental or regulatory authority necessary for the consummation of the
transactions contemplated by this Agreement, including under the HSR Act, shall
have occurred.
Section 8.7 Registration Statement; New York Stock Exchange Listing. The
Registration Statement shall have been declared effective by the SEC and on the
Closing Date shall remain effective and shall not be subject to a stop order or
any threatened stop orders. All necessary state securities and blue sky
authorizations required to carry out the transactions contemplated by this
Agreement shall have been obtained. The Omnicom Stock issuable in connection
with this Agreement shall have been duly listed on the New York Stock Exchange,
subject only to official notice of issuance.
Section 8.8 Company Stockholder Approval. The special meeting of
stockholders of the Company shall have been duly held and at such meeting the
requisite affirmative vote of the Company's stockholders shall have been
recorded to authorize and to approve the transactions contemplated hereby in
accordance with applicable provisions of Michigan law.
Section 8.9 Required Approvals, Notices and Consents. The Company shall
have obtained or given, as the case may be, at no expense to Omnicom or OmniSub
and there shall not have been withdrawn or modified any notices, consents,
approvals or other actions listed on Schedule 3.24 hereof. Each such consent
shall be in form reasonably satisfactory to counsel for Omnicom and OmniSub.
Section 8.10 Pooling of Interests Accounting. The SEC shall not have
objected to Omnicom's treatment of the Merger as a pooling-of-interests for
accounting purposes.
Section 8.11 Opinion of Counsel. Omnicom and OmniSub shall have received
the opinions of counsel to the Company, dated the Closing Date, substantially in
the forms and to the effect of Exhibits C-1, C-2 and C-3 hereto.
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Section 8.12 Escrow Agreement. The Representative and the Escrow Agent
shall have entered into the Escrow Agreement.
Section 8.13 Employment Agreements. The Company and each of the individuals
listed on Schedule 8.13 shall have entered into an employment agreement,
substantially in the form previously approved by each such individual and
Omnicom.
Section 8.14 Non-Competition Agreements. Each of the individuals listed on
Schedule 8.14 shall have entered into a non-competition agreement in
substantially the form of Exhibit D hereto.
Section 8.15 Affiliates Representation Letters. Each of the Company
Affiliates shall have executed and delivered to Omnicom the Affiliates
Representation Letter referred to in Section 7.2.
Section 8.16 Material Adverse Effect. Except for the execution and delivery
of this Agreement and the transactions to take place pursuant hereto on or prior
to the Closing Date, since the Execution Date there shall not have occurred any
Material Adverse Effect, or any event or development which, individually or in
the aggregate, could reasonably be expected to result in a Material Adverse
Effect.
Section 8.17 Proceedings. All proceedings to be taken on the part of the
Company in connection with the transactions contemplated by this Agreement and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Omnicom and OmniSub, and Omnicom and OmniSub shall have received
copies of all such documents and other evidences as Omnicom and OmniSub may
reasonably request in order to establish the consummation of such transactions
and the taking of all proceedings in connection therewith.
Section 8.18 No Withholding Certificate. The Company shall have delivered
to Omnicom the statement described in Section 1445(b)(3) of the Code and the
regulations thereunder, to the effect that the Company is not, and has not been
during the period specified in Section 897(c)(1)(A)(ii) of the Code, a United
States real property holding corporation as defined in Section 897(c)(2) of the
Code.
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ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company hereunder to effect the Merger are subject
to the fulfillment, at or before the Closing, of each of the following
conditions (except with respect to Section 9.8, all or any of which may be
waived in whole or in part by the Company in its sole discretion):
Section 9.1 Representations and Warranties. The representations and
warranties made by Omnicom and OmniSub in this Agreement, taken as a whole,
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though made on and as of the Closing Date, and
Omnicom and OmniSub shall have delivered to the Company a certificate, dated the
Closing Date, to such effect.
Section 9.2 Good Standing Certificates. Omnicom shall have delivered to the
Company a certificate from the Secretary of State of the State of New York to
the effect that Omnicom is in good standing in such state; and OmniSub shall
have delivered to the Company a certificate from the Department of Commerce of
the State of Michigan to the effect that OmniSub is in good standing in such
state.
Section 9.3 Performance. Omnicom and OmniSub shall have performed and
complied with the agreements, covenants and obligations required by this
Agreement to be so performed or complied with by Omnicom and OmniSub at or
before the Closing, and Omnicom and OmniSub shall have delivered to the Company
a certificate, dated the Closing Date, to such effect.
Section 9.4 Certified Resolutions. Omnicom and OmniSub shall have delivered
to the Company a copy of the resolutions of the boards of directors of each of
Omnicom and OmniSub authorizing the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, certified to by the
secretary or assistant secretary of Omnicom and OmniSub, respectively.
Section 9.5 No Litigation. There shall not be pending any litigation,
proceeding, investigation, review, arbitration or claim by governmental
representatives or authorities, and no preliminary or permanent injunction or
other order shall have been issued and remain in effect, in each case, to
restrain or invalidate the consummation by Omnicom or OmniSub of this Agreement
and the transactions contemplated hereby, and Omnicom and OmniSub shall have
delivered to the Company a certificate, dated the Closing Date, to such effect.
Section 9.6 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any governmental or regulatory authority
necessary to permit the Company, Omnicom and OmniSub to perform their
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obligations under this Agreement and to consummate the transactions contemplated
hereby shall have been duly obtained, made or given and shall be in full force
and effect, and all terminations or expirations of waiting periods imposed by
any governmental or regulatory authority necessary for the consummation of the
transactions contemplated by this Agreement, including under the HSR Act, shall
have occurred.
Section 9.7 Registration Statement, New York Stock Exchange Listing. The
Registration Statement shall have been declared effective by the SEC and on the
Closing Date shall remain effective and shall not be subject to a stop order or
any threatened stop orders. All necessary state securities and blue sky
authorizations required to carry out the transactions contemplated by this
Agreement shall have been obtained. The Omnicom Stock issuable in connection
with this Agreement shall have been duly listed on the New York Stock Exchange,
subject only to official notice of issuance.
Section 9.8 Company Stockholder Approval. The special meeting of
stockholders of the Company shall have been duly held and at such meeting the
requisite affirmative vote of the Company's stockholders shall have been
recorded to authorize and to approve the transactions contemplated hereby in
accordance with applicable provisions of Michigan law.
Section 9.9 Opinion of Counsel. The Company shall have received the
opinions of Davis & Gilbert, counsel to Omnicom and OmniSub, dated the Closing
Date, substantially in the form and to the effect of Exhibits E-1 and E-2
hereto.
Section 9.10 Escrow Agreement. Omnicom and the Escrow Agent shall have
entered into the Escrow Agreement.
Section 9.11 Material Adverse Effect.Except for the execution and delivery
of this Agreement and the transactions to take place pursuant hereto on or prior
to the Closing Date, since the Execution Date there shall not have occurred with
respect to Omnicom any material adverse change in the condition (financial or
otherwise), liabilities, results of operations, assets, properties or businesses
of Omnicom and its subsidiaries taken as a whole, or any events or developments
which, individually or in the aggregate, could reasonably be expected to have a
material adverse change in the condition (financial or otherwise), liabilities,
results of operations, assets, properties or businesses of Omnicom and its
subsidiaries taken as a whole .
Section 9.12 Fairness Opinion. The Company shall have received the written
opinion from McDonald & Company Securities, Inc. referenced in Section 3.28.
Section 9.13 Proceedings. All proceedings to be taken on the part of
Omnicom and OmniSub in connection with the transactions contemplated by this
Agreement and all documents incident thereto shall be reasonably satisfactory in
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form and substance to the Company, and the Company shall have received copies of
all such documents and other evidences as the Company may reasonably request in
order to establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
ARTICLE X
ADDITIONAL AGREEMENTS
Section 10.1 Termination. This Agreement may be terminated and the Merger
and other transactions contemplated herein may be abandoned at any time prior to
the Closing, notwithstanding the adoption of this Agreement by the stockholders
of the Company by:
(a) mutual consent of the Boards of Directors of each of the Company,
Omnicom and OmniSub;
(b) either Omnicom and OmniSub, on the one hand, or the Company, on
the other hand, (provided the terminating party is not then in breach
hereof) if the other party breaches its representations, warranties or
covenants hereunder in any material respect and such breach is not cured
within 30 days after the delivery of written notice thereof to such
breaching party unless the breach of any such representation, warranty, or
covenant does not materially adversely affect the financial condition,
business or assets of the breaching party or the ability of any or all
parties to consummate the transactions contemplated hereby;
(c) the Boards of Directors of either Omnicom and OmniSub or the
Company in the event a final and nonappealable order, decree or judgment of
any court, agency, commission or governmental authority is issued or
existing against the parties or any of them or any of their directors which
would enjoin the transactions contemplated hereby;
(d) either Omnicom and OmniSub, on the one hand, or the Company, on
the other hand, if the Closing Date has not occurred prior to the close of
business on December 29, 1995;
(e) either Omnicom and OmniSub, on the one hand, or the Company, on
the other hand, at any time prior to the scheduled Closing Date if the
conditions to such parties' obligation to close set forth in Article VIII
or IX, respectively, shall have become incapable of being satisfied by the
close of business on December 29, 1995; or
(f) by the Board of Directors of the Company if the Company enters
into a definitive agreement accepting an Acquisition Proposal (or resolves
to do so) which the Board of Directors concludes in good faith on the basis
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of advice from independent counsel that (i) such action is required in
order for such Board of Directors to act in a manner which is consistent
with its fiduciary obligations imposed under applicable law and (ii) the
Acquisition Proposal would be an economically superior alternative to the
Merger for the Company's stockholders.
Section 10.2 Effect of Termination. (a) If this Agreement is terminated as
provided in Section 10.1 hereof, except as provided in Section 10.2(b) below and
as otherwise provided in this clause (a), this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or its
respective officers or directors arising from the act of such permitted
termination. Nothing herein shall preclude, however, any action or claim for
damages to which any party is otherwise entitled as a result of breach by the
other party hereto.
(b) In the event that either (i) the Company or Omnicom terminates this
Agreement pursuant to Section 10.1 (e) following a failure of the stockholders
of the Company to approve this Agreement and the transactions contemplated
hereby, if before the special meeting of stockholders of the Company to approve
this Agreement and the transactions contemplated hereby there shall have been a
proposal or offer for an Acquisition Proposal which at the time of the such
stockholders meeting shall not have been rejected by the Board of Directors of
the Company, or (ii) the Company terminates this Agreement pursuant to Section
10.1(f), then the Company shall, within one business day after receipt of a
request from Omnicom, pay to Omnicom in cash a termination fee of $1,000,000.
ARTICLE XI
SURVIVAL; INDEMNIFICATION
Section 11.1 Survival. Subject to the limitations set forth in Section 11.4
hereof, the respective representations, warranties, covenants and agreements of
the Company, Omnicom and OmniSub contained in this Agreement (including the
Annexes hereto) or in any Schedule, or in any certificate delivered at the
Closing, shall survive the Closing. Notwithstanding any right of any party
hereto fully to investigate the affairs of any other party, and notwithstanding
any knowledge of facts determined or determinable pursuant to such investigation
or right of investigation, each party hereto shall have the right to rely fully
upon the representations, warranties, covenants and agreements of any other
party contained in this Agreement or in any Schedule furnished by another party
or in any certificate delivered at the Closing by any other party.
Section 11.2 Obligation to Indemnify. Subject to the limitations set forth
in Section 11.4 hereof, the Stockholders, pro-rata together with the EPU Holder
and the Former Eligible Employee Holders, through the provisions of the Escrow
Agreement, agree to indemnify Omnicom, OmniSub and their respective affiliates,
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directors, officers and employees (collectively the "Indemnified Parties")
against, and to protect, save and keep harmless the Indemnified Parties from,
and to assume liability for, (i) payment of all liabilities (including
liabilities for Taxes), obligations, losses, damages, penalties, claims,
actions, suits, judgments, settlements, out-of-pocket costs, expenses and
disbursements (including reasonable costs of investigation, and reasonable
attorneys', accountants' and expert witnesses' fees, except that if a suit is
commenced against the Surviving Corporation the reasonable attorneys' fees of
the Surviving Corporation to defend such suit shall not be included within the
definition of Losses and only payments of a judgment or settlement of such suit
shall be included within such definition) of whatever kind and nature, to the
extent not covered by insurance maintained for the benefit of the applicable
Indemnified Parties (collectively, "Losses"), that may be imposed on or incurred
by the Indemnified Parties as a consequence of or in connection with any
inaccuracy or breach of any representation or warranty or covenant of the
Company contained in or made pursuant to this Agreement, or the breach of or
failure by the Company to perform or discharge any of its obligations under this
Agreement or under the transactions contemplated hereby, and (ii) payment of any
judgment or settlement in respect of any matter set forth on Schedule 3.10 in
excess of the $400,000 aggregate reserves recorded for such matters on the
Company's financial records, all of which are contingencies whose outcomes
cannot reasonably be determined as at the date hereof. The term "Losses" as used
herein is not limited to matters asserted by third parties against an
Indemnified Party but includes Losses incurred or sustained by an Indemnified
Party in the absence of third party claims.
Section 11.3 Indemnification Procedures.
11.3.1 Notice of Asserted Liability. Omnicom shall promptly give notice
(the "Claims Notice") to the Representative of any demand, claim or
circumstances which gives rise, or with the lapse of time would or might give
rise to a claim or the commencement (or threatened commencement) of any action,
proceeding or investigation that may result in any Losses (an "Asserted
Liability") without regard to the limitations on indemnification set forth in
Section 11.4 below. The Claims Notice shall describe the Asserted Liability in
reasonable detail, shall indicate the amount (estimated if necessary, and to the
extent feasible) of the Losses that have been or may be suffered by an
Indemnified Party. The Claims Notice with respect to the matters set forth in
Section 3.10 shall be deemed to have been given by Omnicom.
11.3.2 Defense of Asserted Liability. If the facts giving rise to the claim
for indemnification shall involve any actual or threatened claim or demand by
any third party against any Indemnified Party or by an Indemnified Party against
any third party (a "Third Party Claim"), Omnicom shall have the right to defend
or prosecute such Third Party Claim through counsel of Omnicom's own choosing.
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11.3.3 Cooperation. The Representative, on behalf of the Stockholders, the
EPU Holder and the Former Eligible Employee Holders, shall be entitled to
participate in the defense or prosecution of any such claim, demand or
litigation at his own expense and through counsel of his own choosing, but
control thereof shall remain with Omnicom.
11.3.4 Settlements. Omnicom may not settle any claim, demand or litigation
which would give rise to an indemnification claim hereunder without the consent
of the Representative, which consent may not be unreasonably withheld or
delayed.
Section 11.4 Limitations on Indemnification.
11.4.1 Indemnity Cushion. Except as provided in the next sentence, no
claim, action or other Asserted Liability (other than an Asserted Liability
under Sections 3.26 and 3.27 hereof) with respect to Losses arising out of any
of the matters referred to in clause (i) of Section 11.2 may be reimbursed until
such time as claims, actions or other Asserted Liabilities with respect to
Losses arising out of any of the matters referred to in Section 11.2 shall
exceed $250,000 in the aggregate (in which case the Company shall be liable only
for all Losses in excess of $250,000). Losses arising out of an Asserted
Liability under Sections 3.26 or 3.27, and judgments or settlements (in excess
of the $400,000 aggregate reserve) arising out of the matters referred to under
clause (ii) of Section 11.2 shall be reimbursable without regard to the $250,000
cushion.
11.4.2 Termination of Indemnification Obligations and Other Limitations.
(i) Except as provided in the next sentence, the obligation of the
Stockholders, the EPU Holder and the Former Eligible Employee Holders to
indemnify shall terminate and be of no further force and effect on the
"Termination Date," which shall be earlier to occur of (x) the date of the
first independent audit report, if any, of the financial results of the
Surviving Corporation following the Effective Time or (y) one year from the
Effective Time; provided, however, that (A) claims for Losses arising under
clause (i) of Section 11.2 asserted in writing on or prior to the
Termination Date shall survive until they are decided and are final and
binding upon Omnicom and the Representative (on behalf of the Stockholders,
the EPU Holder and the Former Eligible Employee Holders) as contemplated by
the Escrow Agreement, and (B) no claim for Losses arising under clause (i)
of Section 11.2 may be asserted after the Termination Date. The foregoing
limitation shall not apply with respect to matters as to which an
Indemnified Party is entitled to be indemnified under clause (ii) of
Section 11.2.
(ii) The parties agree that the satisfaction of liabilities under the
Escrow Agreement, and the procedures to be followed in respect thereof, are
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subject to the specific provisions of such Escrow Agreement relating to the
release of the Escrow Fund.
(iii) The rights of Omnicom and the other Indemnified Parties set
forth in this Article XI are the exclusive remedy and in lieu of any and
all other rights and remedies with respect to Losses arising out of the
matters specified in Section 11.2, and such Losses shall be satisfied
solely from the Escrow Fund in accordance with the provisions of this
Article XI and the provisions of the Escrow Agreement, and Omnicom and
OmniSub agree that none of the Indemnified Parties shall have any recourse
for the payment of any Losses of any kind whatsoever arising under Section
11.2 against the past, present or future stockholders, directors, officers
and employees of the Company, nor shall any of such persons be personally
liable for any such Losses, it being expressly understood that the sole
remedy of the Indemnified Parties shall be against the Escrow Fund in
accordance with the Escrow Agreement.
11.4.3 Treatment. Any payments to an Indemnified Party under this Article
XI (or under the Escrow Agreement) shall be treated by the parties as an
adjustment to purchase price.
11.4.4 Effect of Taxes. A payment due and payable by the Stockholders, the
EPU Holder and the Former Eligible Employee Holders hereunder (or under the
Escrow Agreement) with respect to the matters set forth under Section 11.2 shall
be decreased to the extent of any net reduction in Taxes actually realized by
Omnicom or one of its subsidiaries upon its payment of Losses, and taking into
account the tax consequences to the Indemnified Party of the receipt of any
payment due and payable by the Stockholders, the EPU Holder and the Former
Eligible Employee Holders under this Article XI (or under the Escrow Agreement).
ARTICLE XII
MISCELLANEOUS
Section 12.1 Expenses. The parties hereto shall pay all of their own
expenses relating to the transactions contemplated by this Agreement, including,
without limitation, the fees and expenses of their respective counsel, financial
advisors and accountants.
Section 12.2 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of Michigan without reference to its conflict of laws provisions.
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Section 12.3 "Person" Defined. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
Section 12.4 "Knowledge" Defined. Where any representation and warranty
contained in this Agreement is expressly qualified by reference to best
knowledge, information and belief of a party, such term shall be limited to the
actual knowledge of the executive officers of the party making the
representation and warranty and such knowledge that would have been discovered
by such executive officers after due and reasonable inquiry.
Section 12.5 "Affiliate" Defined. As used in this Agreement,an "affiliate"
of any Person, shall mean any Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with such Person.
Section 12.6 Captions.The Article and Section captions used herein are for
reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 12.7 Confidentiality. Unless and until the Closing shall have
occurred and except as may be required in connection with (i) any public
announcement that Omnicom, OmniSub and the Company have executed this Agreement,
or (ii) any governmental filings contemplated under this Agreement, Omnicom,
OmniSub and the Company shall, and shall cause their respective employees,
agents, consultants and representatives to, maintain in confidence and not
otherwise use or permit the use of information, documents, and data respecting
any other party to this Agreement furnished to them, or to any person or entity
on their behalf. If this Agreement is terminated pursuant to Section 10.1 hereof
or otherwise, each party shall (and Omnicom and OmniSub shall cause any third
party to whom it has made permitted disclosures to) (i) return to the other
party or destroy all written information, documents, and data furnished to it or
to any person or entity on its behalf, and (ii) maintain in confidence all
information received by it, or by any person or entity on its behalf, and shall
not use or permit the use of such information by others except to the extent
that such information is elsewhere available to the public or otherwise
rightfully obtained without violation of this Section 12.7 or any other
agreement. Notwithstanding the foregoing, the foregoing provision shall not
apply to the extent that Omnicom is required to make any announcement or file
information relating to or arising out of this Agreement by virtue of the
federal securities laws of the United States or the rules and regulations
promulgated thereunder or other rules of the New York Stock Exchange, or any
announcement by any party pursuant to applicable law or regulations.
Section 12.8 Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to any
other party shall be in writing and shall be deemed to have been given (a) upon
personal delivery, if delivered by hand, (b) three days after the date of
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deposit in the mails, postage prepaid, if mailed by certified first class mail,
or (c) the next business day if sent by facsimile transmission (if receipt is
electronically confirmed) or by a prepaid overnight courier service, and in each
case at the respective addresses or numbers set forth below or such other
address or number as such party may have fixed by notice:
If to either Omnicom or to OmniSub, addressed to:
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
Attention: Chief Executive Officer, Diversified Agency Services
Fax: (212) 415-3536
with a copy to:
Davis & Gilbert
1740 Broadway
New York, New York 10019
Attention: Michael D. Ditzian, Esq.
Fax: (212) 468-4888
If to the Company, addressed to:
Ross Roy Communications, Inc.
100 Bloomfield Hills Parkway
Bloomfield Hills, Michigan 48304
Attention: Chief Executive Officer
Fax: (810) 433-6421
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with a copy to:
Dykema Gossett PLLC
Suite 300
1577 North Woodward Avenue
Bloomfield Hills, Michigan 48304
Attention: Rex E. Schlaybaugh, Jr.
Fax: (810) 540-0763
Section 12.9 Parties in Interest. This Agreement and the rights and
obligations of the parties hereunder shall not be assignable to any Person
without the written consent of all parties.
Section 12.10 Severability. In the event any provision of this Agreement is
found to be void and unenforceable by a court of competent jurisdiction, the
remaining provisions of this Agreement shall nevertheless be binding upon the
parties with the same effect as though the void or unenforceable part had been
severed and deleted.
Section 12.11 Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Section 12.12 Entire Agreement. This Agreement, including the Annexes,
Schedules and Exhibits, and other documents referred to herein which form a part
hereof, contains the entire understanding of the parties hereto with respect to
the subject matter contained herein and therein. The Company makes no
representation or warranty to Omnicom or OmniSub except as set forth in this
Agreement (including the Annexes) and the Schedules hereto. This Agreement
supersedes all prior oral and written agreements and understandings between the
parties with respect to such subject matter.
Section 12.13 Amendment. This Agreement and the Annexes and Schedules
attached hereto or heretofore delivered may be amended, supplemented or modified
by the parties hereto only by an agreement in writing signed on behalf of each
of the parties hereto following due authorization at any time.
Section 12.14 Third Party Beneficiaries. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in or
onbehalf of any person other than the parties hereto and their respective
successors and assigns as permitted under Section 12.9.
Section 12.15 Extension; Waiver. The Company, on the one hand, and Omnicom
(on behalf of itself and OmniSub), on the other hand, each may, by instrument
duly authorized in writing signed on behalf of each party, (a) extend the time
for performance of any of the obligations or other acts of such other party, (b)
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waive any inaccuracies in the representations and warranties of such other party
contained herein or in any document delivered pursuant hereto, or (c) except as
set forth in the first paragraph of each of Articles VIII and IX, waive
compliance with any of the agreements or conditions of such other party
contained herein. No such waiver or extension shall be effective unless in
writing (and specifically describing the provision or provisions being waived)
and signed by the party or parties sought to be bound thereby, and any such
waiver or extension on a specific occasion shall not imply a waiver or extension
on a future occasion.
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IN WITNESS WHEREOF, Omnicom, OmniSub and the Company have each caused its
corporate name to be hereunto subscribed by its officer thereunto duly
authorized on the day and year first above written.
OMNICOM GROUP INC.
By: /S/ JOHN D. WREN
---------------------------------------
Name: John D. Wren
Title: Chief Executive Officer,
Diversified Agency Services
Division of Omnicom Group, Inc.
RRC ACQUISITION INC.
By: /S/ JOHN D. WREN
---------------------------------------
Name: John D. Wren
Title: President
ROSS ROY COMMUNICATIONS, INC.
By: /S/ PETER MILLS
---------------------------------------
Name: Peter Mills
Title: Chief Executive Officer
55
Exhibit 2.2
ESCROW AGREEMENT
ESCROW AGREEMENT, dated ________, 1995 (the "Escrow Agreement"), among
OMNICOM GROUP INC., a New York corporation ("Omnicom"); ROSS ROY COMMUNICATIONS,
INC., a Michigan corporation (the "Surviving Corporation"); ___________________
as Representative (the "Representative") of the former stockholders of Ross Roy
Communications, Inc., a Michigan corporation (the "Company"); and THE CHASE
MANHATTAN BANK, N.A., as Escrow Agent (the "Escrow Agent").
Omnicom, RRC Acquisition Inc. ("OmniSub") and the Company are parties to a
certain Agreement and Plan of Merger dated June __, 1995 (the "Merger
Agreement"), pursuant to which Omnicom acquired the Company through the merger
of OmniSub with and into the Company. Under the Merger Agreement, the Company
has made certain representations and warranties, and undertaken certain
obligations, to Omnicom, and the former stockholders of the Company, together
with the former holder of the Company's equity participation units and Former
Eligible Employee Holders (as such term is defined in the Company's Articles of
Incorporation immediately prior to the Effective Time), whose rights were
settled in shares of Omnicom Stock (collectively referred to herein as the
"Shareholders") through the mechanism of this Escrow Agreement have approved the
indemnification of Omnicom against certain Losses which Omnicom or other
Indemnified Parties may sustain or to which Omnicom or other Indemnified Parties
may be subjected (as more fully set forth in the Merger Agreement). Pursuant to
the Merger Agreement, the Shareholders have approved the creation of an "Escrow
Fund" in accordance with the terms of this Agreement to secure Omnicom against
such Losses. Any claims made by Omnicom against the Escrow Fund are herein
collectively called "Claims", and individually a "Claim"; however, a Claim shall
become reimbursable hereunder only if, and to the extent that, it becomes "Final
Claim for Reimbursement", as defined in Section 2.4 hereof. Terms defined in the
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Merger Agreement that are not otherwise defined herein are used herein with the
meanings ascribed to them therein.
The appointment of the Representative and the terms of this Escrow
Agreement were approved by the Shareholders of the Company at a Special Meeting
of Shareholders held on ________, 1995.
Accordingly, the parties hereby agree as follows:
1. ESTABLISHMENT OF ESCROW FUND
1.1 Simultaneously herewith, pursuant to the Merger Agreement, Chemical
Bank, in accordance with instructions from Omnicom, is depositing with the
Escrow Agent on behalf of the Shareholders, certificates registered in the name
of the Shareholders, representing in the aggregate the number of shares of
Omnicom Stock set forth opposite each Shareholder's name in Column I of Schedule
A hereto, together with stock powers in respect of such certificates, duly
executed in blank. Such Omnicom Stock, and any other property distributable with
respect thereto or in exchange therefor and held in the Escrow Fund as provided
in Section 4.2 hereto, are herein collectively referred to as the "Common
Stock". The Escrow Fund shall be held by the Escrow Agent and shall be dealt
with by the Escrow Agent in accordance with the terms and conditions of this
Escrow Agreement.
1.2 Specific Funds within the Escrow Fund. The Omnicom Stock set forth in
Column I of Schedule A hereto (having an aggregate Market Value of $2,525,000)
shall constitute that portion of the Escrow Fund which is sometimes hereinafter
referred to as the "General Escrow Fund" and the Omnicom Stock set forth in
Column II of Schedule A hereto (having an aggregate Market Value of $1,300,000)
shall constitute that portion of the Escrow Fund which is sometimes hereinafter
referred to as the "Additional Escrow Fund".
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2. PROCEDURES WITH RESPECT TO CLAIMS
2.1 General Claims by Omnicom. (a) If an Indemnified Party has a Claim,
including a Claim arising from a suit, action, proceeding or investigation by a
third party that may result in any Losses under clause (i) of Section 11.2 of
the Merger Agreement ("General Losses" and the Claims with respect thereto,
"General Claims"), Omnicom shall give notice thereof (the "General Claims
Notice") substantially in the form of and in conformity with the instructions
contained in Exhibit 1 hereto to the Representative and to the Escrow Agent. The
General Claims Notice shall describe the General Claim in reasonable detail,
shall indicate the amount (estimated, if necessary, and to the extent feasible)
of the General Losses that have been or may be suffered by Omnicom and/or the
applicable Indemnified Party, as the case may be. General Losses shall be
reimbursed solely out of the General Escrow Fund.
(b) Within 30 days after Omnicom shall give the Representative a General
Claims Notice (or sooner, if the nature of the Asserted Liability so requires),
the Representative, by notice to Omnicom with a copy to the Escrow Agent (the
"Representative's Notice"), either shall (a) concede liability in whole with
respect to such General Claim, (b) demand that an arbitration proceeding under
Section 2.3 hereof be held within 30 days after the Determination Date (as
defined in Section 2.3(b)) to determine whether such General Claim is one
covered by Section 11.2 of the Merger Agreement and this Escrow Agreement and/or
in the case of matters other than Third Party Claims to determine the amount of
the General Claim, or (c) concede liability in part and demand such arbitration
in part. The failure by the Representative to give the Representative's Notice
within the specified period shall be deemed a concession of liability in whole.
The Representative shall be afforded reasonable access by Omnicom to the
documentation relating to any Asserted Liability included in a General Claims
Notice as may under the circumstances reasonably be required by the
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Representative to make a determination required to be made by the Representative
under this Section 2.1.
2.2 Special Claims by Omnicom. (a) It is agreed that the matters listed on
Schedule 3.10 to the Merger Agreement set forth contingencies whose outcomes
cannot reasonably be determined as at the date hereof, and that the Shareholders
have conceded that judgments or settlements with respect to such matters in
excess of the $400,000 aggregate reserves recorded for such matters on the
Company's financial records are indemnifiable Losses covered by Section 11.2 of
the Merger Agreement. All such judgments and settlements are herein referred to
as "Special Losses", and the Claims with respect thereto, "Special Claims."
Special Losses shall be reimbursed solely out of the Additional Escrow Fund.
(b) At such time as the outcome of a Special Loss has been determined, such
that the contingency with respect thereto shall have become liquidated in
amount, Omnicom shall give notice thereof to the Representative requesting a
distribution to it out of the Additional Escrow Fund of a specified dollar
amount (the "Liquidated Request"). Within 30 days thereafter, the Representative
shall give a Representative's Notice in which he either shall (a) concede
liability with respect to the Liquidated Request, in whole or in part, and/or,
(b) if any part of the Liquidated Request is disputed, demand that an
arbitration proceeding under Section 2.3 be held within 30 days after the
Determination Date or thereafter to resolve the dispute in respect of the
Liquidated Request. The failure of the Representative to give the
Representative's Notice within the specified period shall be deemed a concession
of liability in whole with respect to the Liquidated Request. The Representative
shall be afforded reasonable access by Omnicom to the documentation relating to
any Special Claim as may under the circumstances reasonably be required by the
Representative to make a determination required to be made by the Representative
under this Section 2.2.
2.3 Arbitration. (a) If any demand shall be made for arbitration hereunder
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in respect of any Claim, Liquidated Request or other matter in dispute hereunder
between the Representative and Omnicom, such Claim, Liquidated Request or matter
shall be settled by arbitration in Detroit, Michigan, before one arbitrator
chosen from the Commercial Panel in accordance with the Rules then pertaining of
the American Arbitration Association. Omnicom and the Surviving Corporation
shall each pay one-half of the fees and expenses of the arbitrator. The
arbitrator shall consider only the items in dispute and shall be instructed to
act within thirty days to resolve all items in dispute. The "final decision" of
the arbitrator shall be a conclusive determination of the matter and shall be
binding upon the Representative, the Shareholders, Omnicom, the Surviving
Corporation and the Escrow Agent, and shall not be contested by any of them. In
making its determination the arbitrator shall be instructed to take into account
the definition of Losses, the limitations of liability applicable to Losses, and
other provisions of Article XI of the Merger Agreement.
(b) Notwithstanding anything to the contrary contained in this Agreement,
the first date on which an arbitration shall take place pursuant to a party's
demand therefor shall be on the "Determination Date", which shall be the second
business day following the date one year from the date hereof. All Claims or
Liquidated Requests as to which a party shall have theretofore demanded
arbitration (in whole or in part) shall be submitted to the Arbitrator at that
time for final determination. Demands for arbitration made after the
Determination Date shall be submitted to arbitration as and when such demands
are made.
2.4 Final Claims for Reimbursement. All Claims or Liquidated Requests for
which the Representative shall have conceded liability, or shall have been
deemed to have conceded liability pursuant to the provisions of Section 2.1 or
2.2, shall be final and binding upon the Representative, the Shareholders,
Omnicom and the Surviving Corporation. If the Representative shall demand
arbitration as provided in Section 2.1 or 2.2, the Claim or Liquidated Request
that was objected to shall become final and binding upon Omnicom, the Surviving
Corporation, the Representative and the Shareholders upon (a) a final decision
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in arbitration as provided in Section 2.3 hereof, or (b) upon the matter being
otherwise agreed to in writing by Omnicom and the Representative. A Claim or
Liquidated Request which is final and binding upon Omnicom, the Surviving
Corporation, the Shareholders and the Representative as of any given time is
hereinafter called a "Final Claim for Reimbursement"; Final Claims for
Reimbursement may be "Final General Claims for Reimbursement" if they relate to
General Losses or may be "Final Special Claims for Reimbursement" if they relate
to Special Losses. Upon compliance with the procedures prescribed in Sections
2.1, 2.2 and 2.3 hereof, to the extent applicable, Omnicom, from time to time,
shall give notice to the Escrow Agent, with a copy to the Representative,
setting forth all Final Claims for Reimbursement in their respective exact
aggregate amounts.
2.5 Limitation of Claims. Notwithstanding anything to the contrary herein:
(a) None of the General Escrow Fund will be released and delivered to
Omnicom pursuant to any Claim (other than a Claim under Section 3.26 or
3.27 of the Merger Agreement) except to the extent that the aggregate
amount of all Final General Claims for Reimbursement (ignoring any Claim(s)
under Section 3.26 or 3.27 of the Merger Agreement) exceeds the sum of
$250,000 and then only to the extent of such excess. Special Losses may be
asserted against the Additional Escrow Fund, and Final Special Claims for
Reimbursement shall be reimbursed out of the Additional Escrow Fund,
without regard to the $250,000 "cushion."
(b) Any payment to be made from, or any reservation to be made in or
against, the General Escrow Fund or the Additional Escrow Fund in
accordance with Section 3 hereof shall be decreased to the extent of any
net reduction in taxes actually realized by Omnicom or one of its
subsidiaries upon its payment of Losses or judgments or settlements, and
taking into account the tax consequences to Omnicom of the receipt of any
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payment due and payable to Omnicom under this Escrow Agreement.
3. DISTRIBUTIONS FROM ESCROW FUND
3.1 Definitions. As used herein: "First Distribution Date" shall mean the
business day next following the earlier of (i) the date following the first
independent audit report, if any, of the financial results of the Surviving
Corporation following the Effective Time or (ii) one year from the date hereof;
and "Final Distribution Date" shall mean the first business day on which all
matters reserved against in respect of General Claims and Special Claims shall
have been finally determined or settled. If no matters are or remain reserved
against on the First Distribution Date, the First Distribution Date shall also
be the Final Distribution Date. Omnicom shall give notice to the Escrow Agent,
with a copy to the Representative, five business days prior to the occurrence of
the First Distribution Date.
3.2 Reimbursement of Final Claims for Reimbursement Before or On First
Distribution Date. From the date of this Escrow Agreement to and including the
First Distribution Date, the Escrow Agent from time to time shall (subject to
Section 2.5) transfer and deliver to Omnicom (a) such number of shares of Common
Stock forming the General Escrow Fund as shall have a value (computed in
accordance with Section 3.7 hereof) equal to the Final General Claims for
Reimbursement which have not previously been paid to Omnicom and (b) such number
of shares of Common Stock forming the Additional Escrow Fund as shall have a
value (computed in accordance with Section 3.7 hereof) equal to the Final
Special Claims for Reimbursement which have not previously been paid to Omnicom;
provided however, that in no event shall Omnicom receive any distribution from
the Escrow Fund prior to such time as Omnicom releases and publishes financial
results of the combined operations of Omnicom and the Surviving Corporation
covering a period of at least 30 days after the Effective Time of the Merger
Agreement. Omnicom shall promptly give notice to the Escrow Agent, with a copy
to the Representative, of the release and publishing of such financial results.
Omnicom and the Representative agree that it is the intent of this Section 3.2,
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that no distribution of Common Stock will be made to Omnicom out of the General
Escrow Fund or the Special Escrow Fund prior to the First Distribution Date
unless the Representative shall have otherwise agreed in writing.
3.3 Reservation of Amounts at First Distribution Date. On the First
Distribution Date:
(a) the Escrow Agent shall reserve in the General Escrow Fund such number
of shares of Common Stock as shall have a value (computed in accordance with
Section 3.7 hereof) equal to the sum of (i) an amount in respect of the amounts
claimed in all General Claims Notices given pursuant to Section 2.1 hereof which
have not become Final Claims for Reimbursement, but which are still asserted by
Omnicom and are then pending and undecided ("Pending General Claims") as set
forth in a certificate signed by Omnicom and delivered to the Escrow Agent
(provided, that if the Representative does not agree on such amount, the dispute
shall be submitted by the Representative to arbitration in accordance with
Section 2 hereof and the determination of the arbitrator shall be final and
conclusive; and further provided that pending the determination of the
arbitrator, the amount to be reserved shall be the amount certified in writing
to the Escrow Agent by Omnicom);and (ii) the aggregate amount of all Final
General Claims for Reimbursement not theretofore paid to Omnicom; and
(b) the Escrow Agent shall reserve the Additional Escrow Fund in full,
unless all Special Losses shall have theretofore become Final Claims for
Reimbursement, in which case the Escrow Agent shall reserve in the Additional
Escrow Fund such number of shares of Common Stock as shall have a value
(computed in accordance with Section 3.7 hereof) equal to the aggregate amount
of all Final Special Claims for Reimbursement not theretofore paid to Omnicom.
3.4 Distribution at First Distribution Date. On the First Distribution
8
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Date, the Escrow Agent shall deliver to Omnicom any shares reserved pursuant to
3.3(a)(ii) or 3.3(b) with respect to Final Claims for Reimbursement above, and
shall deliver to the Shareholders in accordance with their respective interests
that portion of the General Escrow Fund equal to the entire amount of the
General Escrow Fund as originally deposited in accordance with Section 1 hereof,
less the sum of (a) all amounts theretofore delivered from the General Escrow
Fund to Omnicom pursuant to Section 3.2 hereof and (b) the amount of the General
Escrow Fund reserved pursuant to Section 3.3 hereof. If the foregoing
calculation results in a negative amount, no portion of the General Escrow Fund
shall be delivered to the Shareholders at the First Distribution Date. In
addition, if all Special Losses shall have theretofore become Final Claims for
Reimbursement, the Escrow Agent shall deliver to the Shareholders in accordance
with their respective interests that portion of the Additional Escrow Fund equal
to the entire amount of the Additional Escrow Fund as originally deposited in
accordance with Section 1 hereof, less the sum of (c) all amounts theretofore
delivered from the Additional Escrow Fund to Omnicom pursuant to Section 3.2
hereof and (d) the amount of the Additional Escrow Fund reserved pursuant to
Section 3.3 hereof. If not all Special Losses shall have theretofore become
Final Claims for Reimbursement or if the foregoing calculation as to the
Additional Escrow Fund results in a negative amount, no portion of the
Additional Escrow Fund shall be delivered to the Shareholders at the First
Distribution Date.
3.5 Distributions after the First Distribution Date
(a) As to Pending General Claims, after the First Distribution Date, as
each Pending General Claim reserved for on the First Distribution Date becomes
(x) a Final Claim for Reimbursement, or (y) is withdrawn by Omnicom, or (z) is
determined pursuant to a final decision in arbitration (as described in Section
2.3) not to be a proper Claim, the Escrow Agent shall, subject to Section 2.5,
deliver (a) to Omnicom, such number of shares of Common Stock as shall have a
value (computed in accordance with Section 3.7 hereof) equal to the Final Claim
9
<PAGE>
for Reimbursement which results from the determination of such Pending General
Claim (and not previously paid to Omnicom), and (b) to the Shareholders in
accordance with their respective interests, such number of shares of Common
Stock as shall have a value (computed in accordance with Section 3.7 hereof)
equal to the amount, if any, of the excess of the reserve for such Pending
General Claim over the General Final Claim for Reimbursement, if any, with
respect to such Pending General Claim; provided, however, that no delivery shall
be made hereunder to the Shareholders unless the aggregate amount reserved
(after giving effect to such delivery) for all Pending General Claims is at
least equal to the aggregate amount of such Pending General Claims; provided
further, that it is understood that no Common Stock retained after the First
Distribution Date in respect of Pending General Claims shall be available for
the settlement of any Special Claims.
(b) As to Special Claims, after the First Distribution Date, as each
Special Claim becomes (x) a Final Claim for Reimbursement or (y) is withdrawn by
Omnicom, the Escrow Agent shall from time to time transfer and deliver to
Omnicom such number of shares of Common Stock forming the Additional Escrow Fund
as shall have a value (computed in accordance with Section 3.7 hereof) equal to
such Final Special Claim for Reimbursement. No delivery shall be made to the
Shareholders out of the Additional Escrow Fund unless and until all Special
Losses shall have become Final Claims for Reimbursement, in which case and at
which time the Escrow Agent shall deliver (a) to Omnicom, such number of shares
of Common Stock as shall have a value (computed in accordance with Section 3.7
hereof) equal to the Final Claims for Reimbursement relating to such Special
Losses (and not previously paid to Omnicom), and (b) to the Shareholders in
accordance with their respective interests, the balance, if any, of the
Additional Escrow Fund.
3.6 Distribution at Final Distribution Date. On the Final Distribution
Date, the Escrow Agent shall deliver to Omnicom such number of shares of Common
Stock as shall have a value (computed in accordance with Section 3.7 hereof and
subject to Section 2.5 hereof) equal to the Final Claims for Reimbursement which
10
<PAGE>
have not previously been paid to Omnicom, and shall deliver to the Shareholders
in accordance with their respective interests the balance, if any, of the Escrow
Fund.
3.7 Valuation. For all purposes of this Escrow Agreement, each share of
Omnicom Stock shall be valued at $_____.(1) If, at any time after the Closing
Date and prior to the date of any distribution of Common Stock, Omnicom shall
effect a stock dividend, stock split or combination of the Common Stock, or
other recapitalization affecting the Common Stock, or shall effect a
distribution (other than a distribution of cash dividends as described in
Section 4.1 hereof) with respect to the Common Stock, or if Omnicom shall fix a
record date falling on or prior to the date of any distribution of Common Stock
from the Escrow Fund for any such stock dividend, stock split, combination,
recapitalization, or distribution to take place after the date of such
distribution, the foregoing valuation shall be adjusted appropriately by Omnicom
(but subject to arbitration in accordance with Section 2.3 above in the event of
a dispute).
3.8 Fractional Shares. No fractional shares of the Common Stock shall be
issued or delivered pursuant to any provision of this Escrow Agreement. In
making delivery of the Common Stock to Omnicom or the Representative, the Escrow
Agent shall round off any fractional share resulting from any calculation
hereunder to the nearest whole share.
3.9 Allocation. To the extent practicable all distributions made under this
Escrow Agreement, whether to Omnicom or to the Shareholders, shall be taken
proportionately from the Common Stock held in the General Escrow Fund or
Additional Escrow Fund, as the case may be, registered in the name of each
Shareholder as his respective interest appears on Schedule A hereto.
3.10 Distribution Consent. Any other provision of this Escrow Agreement to
- ------------
(1) Insert the Market Value (as defined in the Merger Agreement)
11
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the contrary notwithstanding, the Escrow Agent shall distribute the Escrow Fund
in such manner at such time or times as Omnicom and the Representative may, in
writing, jointly direct.
3.11 Limitation to Escrow Fund; No Recourse.
(a) If the aggregate of all Final General Claims For Reimbursement exceeds
the value of the General Escrow Fund (valued in accordance with Section 3.7)
then the total balance of such Final General Claims For Reimbursement shall be
deemed to be satisfied on the release by the Escrow Agent to Omnicom of all of
the Common Stock out of the General Escrow Fund in accordance with the
provisions of this Agreement.
(b) If the aggregate of all Final Special Claims For Reimbursement exceeds
the value of the Additional Escrow Fund (valued in accordance with Section 3.7)
then the total balance of such Final Special Claims For Reimbursement shall be
deemed to be satisfied on the release by the Escrow Agent to Omnicom of all of
the Common Stock out of the Additional Escrow Fund in accordance with the
provisions of this Agreement.
(c) Anything contained in this Escrow Agreement to the contrary
notwithstanding, none of the Indemnified Parties shall have any recourse for any
Losses arising under Section 11.2 of the Merger Agreement against past, present
or future directors, officers or employees of the Company, the Shareholders, or
the Representative, nor shall any of such persons be personally liable for any
such Losses, it being expressly understood that the sole remedy of the
Indemnified Parties for such Losses shall be against the Escrow Fund in
accordance with this Escrow Agreement.
4. DIVIDENDS AND OTHER DISTRIBUTIONS; VOTING RIGHTS
4.1 Cash Dividends. All cash dividends in respect of the Common Stock still
then held in escrow, and all other distributions in respect of the Common Stock
still then held in escrow that are taxable dividends for Federal income tax
purposes (net of any taxes required to be withheld from such cash dividends or
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<PAGE>
other distributions by Omnicom), shall be paid directly to the applicable
Shareholder and shall be the sole property of such Shareholder, and the Escrow
Agent shall have no duty, liability or obligation whatsoever with respect
thereto.
4.2 Distributions. Distributions of any kind, other than those described in
Section 4.1, shall be made by Omnicom, if practicable, directly to the Escrow
Agent or, if made to any Shareholder, shall be delivered by such Shareholder,
upon request from Omnicom, to the Escrow Agent. All such distributions shall be
held in escrow pursuant to the provisions of this Escrow Agreement, but the
Escrow Agent shall have no duty or obligation whatsoever to require that such
distributions be delivered to it. Any delivery of the Common Stock to Omnicom or
the Representative after any and all such distributions shall be appropriately
adjusted so that the distributee will be in the same position as if such
distributee had been, on any record date for any such distribution with respect
to the Common Stock, the holder of record of the number of shares of Omnicom
Stock distributable to him prior to any such distributions. Omnicom shall give
notice to the Escrow Agent, with a copy to the Representative, of the occurrence
of any such distributions, at least five business days prior to the occurrence
thereof.
4.3 Voting. Each Shareholder shall be entitled to exercise all voting
rights with respect to the Common Stock registered in his name and constituting
the Escrow Fund so long as such Common Stock continues to be held in escrow, and
the Escrow Agent shall deliver to such Shareholder any proxies with respect
thereto which the Escrow Agent receives.
5. SECURITY INTEREST
(a) The Shareholders hereby grant to Omnicom a first priority perfected
security interest in the Escrow Fund to secure the performance of the
indemnification obligations under Section 11.2 of the Merger Agreement and this
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Escrow Agreement. The Escrow Agreement shall constitute a security agreement
under applicable law.
(b) The parties agree that this security interest shall attach as of the
execution of this Escrow Agreement. The parties agree that, for the purpose of
perfecting Omnicom's security interest in the above designated Escrow Fund held
by the Escrow Agent pursuant to this Escrow Agreement, Omnicom designates the
Escrow Agent to acquire and maintain possession of the Escrow Fund and act as
bailee for Omnicom with notice of Omnicom's security interest in said property
under the Uniform Commercial Code and that by possession of the Escrow Fund, the
Escrow Agent acknowledges that it holds the Escrow Fund for Omnicom for purposes
of perfecting the security interest. The Representative and the Escrow Agent
shall take all other actions requested by Omnicom to maintain the perfection and
priority of the security interest in the Escrow Fund; provided that the Escrow
Agent and the Representatives do not make any representation or warranty with
regard to the creation or perfection, hereunder or otherwise, of any such
security interest, and shall have no responsibility at any time to ascertain
whether or not any security interest exists.
(c) Omnicom shall release the security interest herein granted and the
security interest shall be terminated to the extent of any disbursement of the
Escrow Fund hereunder by Escrow Agent in accordance with the terms of this
Escrow Agreement. Upon final disbursement of the Escrow Fund to Omnicom or the
Shareholders, Omnicom shall do all acts and things reasonably necessary to
release and extinguish such security interest. The parties hereto specifically
agree that the grant of this security interest pursuant to this Section 5 shall
not in any way modify the procedures the parties hereto must follow with respect
to the release of Common Stock from the Escrow Fund.
6. ESCROW AGENT'S DUTIES AND FEES
6.1 Duties Limited. The Escrow Agent undertakes to perform only such duties
as are expressly set forth herein, and shall not be required to refer to the
Purchase Agreement in carrying out its duties hereunder. The Escrow Agent shall
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<PAGE>
not be bound by, or have any responsibility with respect to, any other agreement
between any of the parties. The Escrow Agent shall have no duty or
responsibility with regard to any loss resulting from the decline in the market
value of the Escrow Fund in accordance with the terms of this Agreement. The
Escrow Agent need not maintain any insurance with respect to the Escrow Fund.
6.2 Reliance. The Escrow Agent, acting (or refraining from acting) in good
faith, shall not be liable for any mistake of fact or error of judgment by it or
for any acts or omissions by it of any kind unless caused by gross negligence or
willful misconduct, and the Escrow Agent may rely, and shall be protected in
acting or refraining from acting, upon any written notice, instruction or
request furnished to it hereunder and believed by it to be genuine and to have
been signed or presented by the proper party or parties; provided that, as set
forth below, modification of this Escrow Agreement shall be signed by all of the
parties hereto. The Escrow Agent is hereby authorized to comply with any
judicial order or legal process which stays, enjoins, directs or otherwise
affects the transfer or delivery of any part of the Escrow Fund to any party
hereto and shall incur no liability for any delay or loss which may occur as a
result of such compliance.
6.3 Good Faith. Each of Omnicom and the Surviving Corporation, severally,
hereby agrees to indemnify the Escrow Agent for, and to hold it harmless
against, 50% of any loss, liability, expense (including reasonable attorneys'
fees and expenses), third party claim and demand, incurred by it without gross
negligence or bad faith on its part, arising out of or in connection with its
entering into this Escrow Agreement and the carrying out of its duties hereunder
and in any event its liability shall be limited to direct damages and shall not
include special or consequential damages. The Escrow Agent may consult with
counsel of its own choice, and shall have full and complete authorization and
protection for any action taken or suffered by it hereunder in good faith and in
accordance with the opinion of such counsel. The foregoing indemnification shall
15
<PAGE>
survive the resignation of the Escrow Agent orthe termination of this Escrow
Agreement
6.4 Successor Escrow Agents. The Escrow Agent may resign and be discharged
from its duties or obligations hereunder at any time by giving 30 days' notice
in writing of such resignation to the Representative and Omnicom. The
Representative and Omnicom, together, shall have the right to terminate the
appointment of the Escrow Agent hereunder by giving to it notice in writing of
such termination specifying the date upon which such termination shall take
effect. In either such event, the Representative and Omnicom hereby agree to
promptly appoint a successor escrow agent; if the Representative and Omnicom are
unable to appoint a successor escrow agent within 25 days after the Escrow
Agent's notice of resignation, the Escrow Agent may petition a court of
competent jurisdiction to appoint a successor. The parties hereto agree that,
upon demand of such successor escrow agent, all property in the Escrow Fund
shall be turned over and delivered to such successor escrow agent, which
thereupon shall become bound by all of the provisions hereof.
6.5 Fees and Expenses. Omnicom and the Surviving Corporation each agrees to
pay to the Escrow Agent one-half of the fees determined in accordance with, and
payable as specified in, the Schedule of Fees attached hereto as Attachment 1 as
compensation for the services to be rendered by it hereunder.
7. WAIVERS
This Escrow Agreement may be amended, superseded or canceled, and any of
the terms or conditions hereof may be waived, only by a written instrument
executed by the parties hereto or, in the case of a waiver, by the party waiving
compliance. The failure of any party at any time or times to require performance
of any provision hereof shall in no manner affect the right of such party at a
later time to enforce the same. No waiver of any nature, whether by conduct or
otherwise in any one or more instances, of any provision hereof, shall be deemed
to be, or construed as, a further or continuing waiver of any such provision or
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<PAGE>
of another provision hereof.
8. NOTICES
Any notice, instructions or other communication required or which may be
given hereunder (including without limitation the delivery of Common Stock to
the Representative out of the Escrow Fund) shall be in writing and either
delivered personally or mailed by certified or registered mail, postage prepaid,
or sent by facsimile transmission, and shall be deemed given when so delivered
personally, mailed or sent by facsimile, as follows:
If to Omnicom or the Surviving Corporation, to:
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
Attention: Chief Executive Officer, Diversified Agency Services
Fax No.: 212-415-3536
if to the Representative, to:
-------------------------------------
-------------------------------------
-------------------------------------
and if to the Escrow Agent, to:
The Chase Manhattan Bank, N.A.
4 Chase Manhattan Center, 3rd floor
Attention: Escrow Department
Fax No.: 718-242-3529
Any party may change the persons and addresses to which notices, payments,
instructions or other communications are to be sent to such party by giving
written notice of any such change in the manner provided herein for giving
notice. Notices sent by facsimile transmission shall be confirmed in writing by
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<PAGE>
registered or certified mail, return receipt requested.
9. GOVERNING LAW
This Escrow Agreement shall be governed by, and construed in accordance
with, the laws of the State of Michigan applicable to agreements made and to be
performed entirely within such State.
10. NO ASSIGNMENT
This Escrow Agreement shall be binding upon, and inure to the benefit of
the Representative (or his successor) and the successors and assigns of Omnicom,
and the Escrow Agent, but no delegation of any obligations provided for herein
may be made by any party hereto without the express written consent of the other
parties hereto, except for the provisions of Section 6.4 hereof respecting
successor escrow agents.
11. JURY WAIVER
All parties to this Agreement waive any rights they may have to a jury
trial.
12. MISCELLANEOUS
(a) The Surviving Corporation agrees to bear up to $100,000 of the
reasonable fees and disbursements of any attorneys, accountants or financial
advisors engaged by the Representative in connection with his responding to and
making determinations on behalf of the Shareholders in respect of the assertion
of any claims for indemnification by Omnicom, and to assert claims on behalf of
the Shareholders, pursuant to the terms of this Escrow Agreement.
Notwithstanding the foregoing, Omnicom shall have the right to satisfy such
obligation by the release to the Representative of Common Stock from the General
Escrow Fund.
(b) The section headings contained in this Escrow Agreement are inserted
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for convenience of reference only, and shall not affect the meaning or
interpretation of this Escrow Agreement.
WITNESS the execution of this Escrow Agreement as of the date first above
written.
OMNICOM GROUP INC.
By:
--------------------------
ROSS ROY COMMUNICATIONS, INC.
By:
--------------------------
--------------------------
[The Representative]
THE CHASE MANHATTAN BANK, N.A.
By:
--------------------------
19
[Letterhead of McDonald & Company Securities. Inc.]
As of May 21, 1995
PERSONAL & CONFIDENTIAL
Board of Directors
Ross Roy Communications, Inc.
100 Bloomfield Hills Parkway
Bloomfield Hills, Michigan 48304
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view as of the date hereof, to the holders of the outstanding shares of common
stock, par value $ per share of Ross Roy Communications, Inc., a
Michigan corporation ("Ross Roy" or the "Company"), of the consideration to be
paid by Omnicom Group, Inc., a New York corporation ("Omnicom"), to the holders
of Ross Roy common stock in connection with the proposed merger (the "Merger")
of Ross Roy with and into Omnicom pursuant to the Agreement and Plan of Merger
dated , 1995 between Ross Roy and Omnicom (the "Agreement").
You have advised us that under the terms of the Agreement, upon consummation of
the Merger (the "Closing"), each issued and outstanding share of Ross Roy common
stock will be converted into the right to receive shares of common
stock, $ par value, of Omnicom, subject to adjustment in certain events
as provided in the Agreement (the "Conversion Price").
McDonald & Company Securities, Inc., as part of its investment banking business
is customarily engaged in the valuation of business and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
In connection with rendering this opinion, we have reviewed and analyzed, among
other things, the following: (i) the Agreement, including the exhibits and
schedules thereto; (ii) certain information concerning the Company, including
its audited financial statements for fiscal years ending December 31, 1992, 1993
and 1994; (iii) certain other internal information, primarily financial in
nature concerning the business and operations of the Company furnished to us by
<PAGE>
the Company for purposes of our analysis; (iv) certain publicly available
information regarding Omnicom, including the Annual Report on Form 10-K of
Omnicom, for the year ended December 31, 1994 and the Quarterly Report on Form
10-Q of Omnicom for the quarter ended March 31, 1995; (v) certain publicly
available information with respect to certain other companies that we believe to
be comparable to the Company or to Omnicom and the trading markets for certain
of such other companies' securities; and (vi) certain publicly available
information concerning the nature and terms of certain other transactions that
we consider relevant to our inquiry. We have also met with certain officers and
employees of the Company to discuss the business and prospects of the Company as
well as other matters that we believe to be relevant to our inquiry.
In our review and analysis and in arriving at our opinion we have assumed and
relied upon the accuracy and completeness of all of the financial information
and other information provided us or publicly available and have assumed and
relied upon the representations and warranties of the Company and Omnicom
contained in the Agreement. We have not been engaged to, and have not
independently attempted to, verify any such information. We have also relied
upon the management of the Company and Omnicom as to the reasonableness and
acheivability of the financial and operating projections (and the assumptions
and bases therefor) associated with the Merger provided to us and, with your
consent, we have assumed that such projections, reflect the best currently
available estimates and judgments of management. We express no view as to such
projections or the assumptions on which they are based. In addition, we have not
conducted a physical inspection or appraisal of any of the assets, properties or
facilities of either the Company or Omnicom nor have we been furnished with any
such evaluation or appraisal. We have also assumed that the conditions to the
Merger as set forth in the Agreement would be consummated on a timely basis in
the manner contemplated by the Agreement.
It should be noted that this opinion is based on economic and market conditions
and other circumstances existing on, and information made available as of, the
date hereof and does not address any matters subsequent to such date, including
the value of the Omnicom Common Stock at the time of issuance thereof to the
holders of the Company's common stock. In addition, our opinion is, in any
event, limited to the fairness, from a financial point of view, as of the date
hereof, of the Conversion Price to be received by the holders of the Company's
common stock pursuant to the Merger and does not address the Company's
underlying business decision to effect the Merger, or any other terms of the
Merger (including, without limitation, the covenants and agreements set forth
in, or contemplated by, the Agreement and the related effects, if any, on the
value of the Conversion Price to be received in connection with the Merger, as
to which we express no opinion).
We have acted as financial advisor to the Company in connection with the Merger
and will receive from the Company a fee for our services upon completion of the
Merger, and the Company has agreed to indemnify us under certain circumstances.
It is understood that this opinion was prepared solely for the confidential use
by the Board of Directors of the Company and may not be disclosed, summarized,
excerpted from or otherwise publicly referred to without our prior consent.
2
<PAGE>
Based upon and subject to the foregoing in such other matters as we consider
relevant, it is our opinion that as of the date hereof, the Conversion Price to
be received by the holders of the Company common stock is fair to the holders of
the Company common stock, from a financial point of view.
Very truly yours,
McDONALD & COMPANY SECURITIES, INC.
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report, dated February 20, 1995
included in the Omnicom Group Inc. Form 10-K for the year ended December 31,
1994 and to all references to our Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
New York, New York
June 16, 1995
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Omnicom Group Inc. on
Form S-4 of our report dated March 9, 1995, appearing in the Prospectus, which
is part of this Registration Statement.
We also consent to the reference to us under the heading "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Detroit, Michigan
June 12, 1995
INDEPENDENT TAX ADVISORS' CONSENT
We hereby consent to the summarization of our tax opinion as it appears
under the "Certain Income Tax Consequences" section of the Registration
Statement of Omnicom Group Inc. on Form S-4 as filed with the Securities and
Exchange Commission on June 19, 1995. We also consent to the filing of our tax
opinion as an exhibit to the Registration Statement of Omnicom Group Inc. on
Form S-4 as filed with the Securities and Exchange Commission on June 19, 1995.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Detroit, Michigan
June 19, 1995
[LETTERHEAD OF McDONALD & COMPANY SECURITIES, INC.]
CONSENT
McDonald & Company Securities, Inc. hereby consents to the summarization of
its fairness opinion to Ross Roy Communications, Inc., dated as of May 21, 1995,
as such summarization appears in the Registration Statement on Form S-4 of
Omnicom Group Inc. as filed with the Securities and Exchange Commission on June
19, 1995. McDonald & Company Securities Inc. also hereby consents to allow
fairness opinion to be filed as an exhibit to the Registration Statement on Form
S-4.
/s/ MCDONALD & COMPANY SECURITIES, INC.
MCDONALD & COMPANY SECURITIES, INC.
Dated: June 19, 1995
