As filed with the Securities and Exchange Commission on July 21, 1995
Registration No. 33-60347
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
-----------------------
OMNICOM GROUP INC.
(Exact Name of Registrant as Specified in Charter)
New York 7311 13-1514814
(State of Incorporation) (Primary Standard Industri (I.R.S Employer
Classification Code Number) Identification No.)
437 Madison Avenue
New York, New York 10022
(212) 415-3600
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
BARRY J. WAGNER, ESQ.
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
(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
-----------------------
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: [ ]
-----------------------
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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<PAGE>
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
- --------------------------- --------------------------------
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"
- --------------
* Not applicable.
<PAGE>
[Letterhead of Ross Roy Communications, Inc.]
-----------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On August 29, 1995
-----------------------
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 August 29, 1995, at 9:30 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 July 24,
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 July 24, 1995, directors and executive officers of Ross Roy owning
in the aggregate approximately 55.37% 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
<PAGE>
SUBJECT TO COMPLETION
DATED JULY 21, 1995
ROSS ROY COMMUNICATIONS, INC.
INFORMATION STATEMENT
-----------------------
OMNICOM GROUP INC.
PROSPECTUS
-----------------------
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.
The Merger Agreement provides for an aggregate purchase price of
$52,000,000; with each share of Ross Roy Common Stock entitled to receive its
pro rata share based upon a formula conversion price more fully described herein
which will depend on the number of shares of Ross Roy Common Stock outstanding
at the time of the Merger, as well as on the amounts payable to certain persons
with contractual rights to receive certain payments from Ross Roy as a result of
the consummation of the Merger.
The approval of the proposals 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. Directors and executive officers of Ross Roy
owning in the aggregate as of July 24, 1995 approximately 55.37% of the
outstanding Class A Common Stock and 100% of the outstanding Class B Common
Stock, have expressed an intention to vote in favor of the various proposals and
accordingly the proposals can be approved by the affirmative vote of such
persons even if all other holders of Ross Roy Common Stock vote against the
proposals.
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.
-----------------------
The date of this Prospectus/Information Statement is [ ], 1995.
-----------------------
<PAGE>
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.
----------------
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
<PAGE>
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 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 August 22, 1995.
3
<PAGE>
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
General ............................................................... 36
Results of Operations ................................................. 36
Capital Resources and Liquidity ....................................... 39
DESCRIPTION OF OMNICOM CAPITAL STOCK ...................................... 40
DESCRIPTION OF ROSS ROY CAPITAL STOCK ..................................... 41
COMPARISON OF SHAREHOLDER RIGHTS .......................................... 41
LEGAL MATTERS ............................................................. 46
EXPERTS ................................................................... 47
4
<PAGE>
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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 August
29, 1995 at 9:30 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 July 24, 1995 (the
"Record Date"), are entitled to notice of and
to vote at the Special Meeting. At such date
there were outstanding 348,453 shares of
Class A Common Stock, each of which will be
entitled to one vote at 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.
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5
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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 an
aggregate of 198,483 shares of Class A Common
Stock, constituting approximately 55.37% 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 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
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6
<PAGE>
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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
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
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7
<PAGE>
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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. Based on
the assumptions set forth in
"Summary--Description of Certain Terms
of the Merger Agreement-- Conversion of
Ross Roy Common Stock", the obligation
would be $1,151,404.
(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. Based on the assumptions set
forth in "Summary--Description of
Certain Terms of the Merger
Agree-ment--Conversion of Ross Roy
Common Stock", the obligation as of June
30, 1995 would have been $200,616.
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
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8
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Escrow Fund") under the terms of 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 alternative acquisition
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9
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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 .................. As of July 24, 1995, directors and executive
officers of Ross Roy owned of record an
aggregate of approximately 55.37% of the
outstanding shares of Class A Common Stock
and 100% of the outstanding shares of Class B
Common Stock. Accordingly the various
proposals can be approved without the
affirmative vote of any other Ross Roy
Shareholder. Each of such directors and
executive officers has expressed an intention
to vote his or her shares of Ross Roy Common
Stock in favor of the proposals.
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--U.S. Federal and Canadian
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 June
29, 1995, and each was advised that there was
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10
<PAGE>
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early termination of the applicable waiting
period on July 11, 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) 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 $5.74 would be
deposited in the General Escrow Fund and
Omnicom Common Stock having a Market Value of
$2.96 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.
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11
<PAGE>
- --------------------------------------------------------------------------------
See "The Escrow Agreement and the Ross Roy
Shareholder Representative--The Escrow
Agreement".
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 liable for any
mistake of fact or error of judgment or for
any acts or omissions unless caused by the
gross negligence or willful misconduct of the
Shareholder Representative. The Shareholder
Representative will also be indemnified by
the Ross Roy Shareholders from all losses and
expenses incurred by him as a result of any
litigation arising from the performance of
his duties under the Escrow Agreement, unless
such litigation is the result of his gross
negligence or actions taken in bad faith.
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 "The
Escrow Agreement and the 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
March 31, 199 December 31, 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
Equivalent pro forma ............. $ 7.73 $ 7.31
Three Months Year Ended December 31,
ended -----------------------------
March 31,
1995 1992 1993 1994
------ ---- ---- ----
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
Equivalent pro forma ............ $ 0.15 $ 0.60 $ 0.62 $ 0.62
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
Equivalent Pro Forma:
Primary ....................... $ 0.35 $ 1.00 $ 1.42 $ 1.57
Fully diluted ................. $ 0.35 $ 0.98 $ 1.33 $ 1.53
(A) Represents the formula book value price as calculated under the Ross Roy
Articles. All Ross Roy Common Stock is owned by employees. Under the Ross
Roy Articles, Ross Roy is obligated to repurchase its Common Stock from a
shareholder at the formula book value price upon his or her termination of
employment. 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.
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<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 ........................... 62 53 7/8 .310
Third 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
Tuesday, August 29, 1995 at 9:30 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 August 1, 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 July 24, 1995 will be entitled to vote at
the Special Meeting. On that Record Date there were issued and outstanding
348,453 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 owned
an aggregate of 198,483 shares of Class A Common Stock and 54,800 shares of
Class B Common Stock, representing approximately 55.37% 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:
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(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
$1,151,404. Based upon the assumed Market Value of $58.875, this would equate to
19,556 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 $200,616. Based upon the assumed Market Value of $58.875, this would
equate to 3,407 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 (p) trademarks, trade
names, assumed or fictitious names, copyrights, logos, service marks and
slogans.
The Merger Agreement also contains various customary representations and
warranties of Omnicom relating to, among other things; (a) organization and
similar corporate matters of Omnicom and OmniSub; (b) authorization, execution
and delivery of the Merger Agreement and related matters; (c) absence of any
conflicts under charters or by-laws, required consents or approvals and no
violations of any agreements or laws; (d) the shares of Omnicom Common Stock to
be issued in the transaction; (e) financial statements provided to 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. It is anticipated that the
Closing Date shall be held on August 31, 1995.
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
U.S. Federal and Canadian Income Tax Consequences
(The following is a brief summary of the income tax consequences of the
Merger that are material to the Ross Roy Shareholders, the Former Eligible
Employee Holders and the EPU Holder. 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,
Former Eligible Employee Holder or the EPU Holder. Each Ross Roy Shareholder,
Former Eligible Employee Holder and the EPU Holder should consult his own tax
advisors as to the specific consequences of the proposed Merger for such
individual, including the application and effect of state, local and foreign 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 June 29, 1995. The required waiting period
under the Hart-Scott-Rodino Act was terminated early on July 11, 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 $5.74
would be deposited in the General Escrow Fund and Omnicom Common Stock having a
Market Value of $2.96 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 liable for any mistake of fact or error
of judgment or for any acts or omissions unless caused by the gross negligence
or willful misconduct of the Shareholder Representative. The Shareholder
Representative will also be indemnified by the Ross Roy Shareholders from all
losses and expenses incurred by him as a result of any litigation arising from
the performance of his duties under the Escrow Agreement, unless such litigation
is the result of his gross negligence or actions taken in bad faith. This term
29
<PAGE>
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)
-----------------------------------------------------------------------------
Three Months
Ended Year Ended December 31
---------------------------------------------------------------
March 31, 1995 1994 1993 1992 1991 1990
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
For the year:
Commissions and fees ........... $459,882 $1,756,205 $1,516,475 $1,385,161 $1,236,158 $1,178,233
Income before change
in accounting principles .... 24,142 108,134 85,345 65,498 57,052 52,009
Net income ..................... 24,142 80,125 85,345 69,298 57,052 52,009
Earnings per common
share before change in
accounting principles:
Primary .................... 0.68 3.15 2.79 2.31 2.08 2.01
Fully diluted .............. 0.68 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 .................... 0.68 2.34 2.79 2.45 2.08 2.01
Fully diluted .............. 0.68 2.34 2.62 2.31 2.01 1.94
Dividends declared per
common share ................ 0.31 1.24 1.24 1.21 1.10 1.07
At end of period:
Total assets ................... 2,961,570 2,852,204 2,289,863 1,951,950 1,885,894 1,748,529
Long-term obligations:
Long-term debt ............... 403,882 187,338 278,312 235,129 245,189 278,960
Deferred compensation and
other liabilities ........ 76,577 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 July 24, 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 July 24, 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 Communications, Inc. Executive Vice
100 Bloomfield Hills Parkway President--Director
Bloomfield Hills, Michigan 48304 Business Develop-
ment
Verne C. Hampton, II Director and 0 0.00% 0 0.00%
c/o Ross Roy Communications, Inc. Secretary
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 Communications, Inc. Executive Vice
100 Bloomfield Hills Parkway President--Finance,
Bloomfield Hills, Michigan 48304 Chief Financial
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 Communications, Inc. Chairman, President
100 Bloomfield Hills Parkway and Chief Executive
Bloomfield Hills, Michigan 48304 Officer
Janet C. Muhleman Director and 20,000 5.74% 0 0.00%
c/o Ross Roy Communications, Inc. Executive
100 Bloomfield Hills Parkway Vice President
Bloomfield Hills, Michigan 48304
Calvin L. Parent Director and 19,500 5.60% 5,000 9.12%
c/o Ross Roy Communications, Inc. President--Ross
100 Bloomfield Hills Parkway Roy Communica-
Bloomfield Hills, Michigan 48304 tions Canada
</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 Communica-
tions/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)
--------------------------------------------------------------------------
Three Months
Ended March 31 Year Ended December 31
------------------- ---------------------------------------------------
1995 (3) 1994 1994 (1) 1993 (1) 1992 (1)(2) 1991 1990
-------- ------ -------- ------- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
For the year:
Commissions and fees .............. $ 16,988 $15,844 $65,727 $79,445 $ 86,443 $ 84,349 $ 84,491
Income (loss) before change
in accounting principles ....... 1,688 1,349 3,709 4,542 (7,044) (1,449) 1,381
Net income (loss) ................. (4,912) 1,349 3,709 4,542 (7,644) (1,449) 1,381
Earnings per common share before
change in accounting principle:
Primary ..................... 5.09 4.25 11.98 9.23 (13.06) (2.46) 2.17
Fully Diluted ................. 5.09 4.25 11.71 9.23 (13.06) (2.47) 2.16
Cumulative effect of change
in accounting principle:
Primary ..................... (19.90) -- -- -- (1.11) -- --
Fully Diluted ............... (19.90) -- -- -- (1.11) -- --
Earnings per common share after
change in accounting principle:
Primary ....................... (14.81) 4.25 11.98 9.23 (14.17) (2.46) 2.17
Fully Diluted ................. (14.81) 4.25 11.71 9.23 (14.17) (2.47) 2.16
Dividends declared per
common share ................... -- -- -- -- -- -- --
At December 31:
Total assets ...................... 81,173 79,177 73,994 97,279 115,387 121,779 114,922
Long-term obligations:
Long-term debt .................. 4,543 15,487 3,259 6,487 17,581 19,633 13,918
Deferred compensation &
other liabilities ............ 16,231 8,861 6,929 8,267 4,752 6,666 6,321
</TABLE>
- --------------------
(1) The majority of the revenue and income variances from 1992 through 1994 are
the result of the divestiture of several subsidiaries which occurred as
part of Ross Roy's restructuring program which was initiated in 1992.
During 1992 Ross Roy recorded $10.6 million of special charges and
write-downs of intangible assets as a result of selling one and closing
three subsidiaries at significant losses and reducing the value of certain
assets to their net realizable values. During 1993, three additional
subsidiaries were sold at significant losses. The cost of divesting these
subsidiaries and the losses incurred upon their disposition totaled $8.7
million. During 1994, Ross Roy recorded a net special charge of $1.4
million due to the loss of a major client and the write-down of notes
receivable from the sale of previously divested subsidiaries that were
determined to be uncollectible. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Ross Roy".
(2) The Results of Operations for 1992 reflects the adoption of SFAS No. 109,
"Accounting for Income Taxes".
(3) The Results of Operations for the three months ended March 31, 1995,
reflects the adoption of SFAS No. 106, "Accounting for Postretirement
Benefits Other Than Pensions".
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ROSS ROY
General
During the last three years, Ross Roy has been involved in a restructuring
program, both organizationally and financially. The restructuring began in 1992
when Ross Roy developed a plan to refocus its business strategy to concentrate
on its core business (i.e., sales promotion, training, direct marketing,
database management and telemarketing). The objectives of the plan included the
completion of a management succession plan, and the divestiture or closing of
all noncore/nonstrategic business units. The financial impact of the actions
taken to achieve these objectives is shown in the Statements of Operations for
1992 and 1993.
As part of its 1992 restructuring efforts, Ross Roy recorded a total of
$10.6 million of special charges and write-downs of intangible assets as a
result of selling one and closing three subsidiaries at significant losses and
reducing the value of certain assets to their net realizable values.
The restructuring continued during 1993 as Ross Roy sold three more
subsidiaries at significant losses. These subsidiaries were viewed to be noncore
business units which contributed large operating losses and required significant
cash infusions. The cost of divesting these subsidiaries and the losses incurred
upon their disposition totaled $8.7 million.
1994 represented Ross Roy's first year of operations after completion of
its restructuring program.
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:
Compensation, Occupancy,
General Agency and Other ................. (85.7) (95.1) (96.7) (82.4) (84.0)
Special Charges ............................. (2.2) (11.0) (12.3) -- --
Operating Income (Loss) ....................... 12.1% (6.1)% (9.0)% 17.6% 16.0%
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 .................... 10.6% 2.8% (11.2)% 16.7% 15.0%
Federal and Foreign Income Taxes .............. (4.6) 3.2 3.2 (6.2) (5.6)
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 revenue and net income before change in accounting principle when
compared to the same period in 1994.
36
<PAGE>
In late 1994, Ross Roy was informed by its major retail client, Kmart, of
its decision to utilize another agency. Revenue earned on this account
represented 12.0 percent of Ross Roy's revenue for the years ended 1994, 1993
and 1992. Ross Roy terminated approximately five percent of its staff and closed
its New York office in response to this account loss. 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 future operations as a result of the actions
taken by Ross Roy to reduce staff and operating expenses and the revenue
projected to be earned from new accounts that were won during the first six
months of 1995. These revenues will nearly replace the revenue previously earned
on the Kmart account.
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. Prior to this adoption, Ross
Roy recorded such costs on a pay-as-you-go basis. 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) and the periodic expense for postretirement health care
benefits is estimated to be $1.2 million (net of applicable income taxes) in
1995. The amount of the one-time charge 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. The
primary differences between the assumptions used to determine the accrual for
retiree health care benefits as of January 1, 1995 and the assumptions used to
determine the estimated liability disclosed in the financial statements as of
December 31, 1994 are an increase in the annual medical inflation rate, a
decrease in the Medicare offset assumption and a change in the eligibility
assumption. Ross Roy will fund such benefits from cash generated from operations
or reimbursements from the Ross Roy Pension Plan's Retiree Health Account
pursuant to Section 401(h) of the Internal Revenue Code of 1986, as available.
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
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 Expenses -- In 1994, operating expenses (i.e., compensation and
employee benefits, occupancy expense and general agency and other operating
expenses) decreased $19.3 million or 25.5 percent from 1993 levels exclusive of
the change in special charges which is discussed in more detail below. The 1993
divestitures accounted for this decrease. Other operating expenses were held to
1993 levels due to diligent cost control efforts.
Special Charges, Asset Write-Downs and Losses on Sales of Subsidiaries --
Ross Roy recorded special charges and asset write-downs of $1.4 million and $8.7
million in 1994 and 1993, respectively. The 1994 charges included $800,000 of
severance and employee termination costs and $300,000 of asset write-downs
associated with the closure of Ross Roy's New York office both of which result
from the loss of the Kmart account and a $900,000 write-down of notes receivable
from the sales of previously divested subsidiaries determined to be
uncollectible; these amounts were partially offset by a $600,000 adjustment to
lease accruals related to divested subsidiaries recorded in prior years that
were settled for amounts less than Corporate management originally estimated.
The special charges of $8.7 million recorded in 1993 resulted primarily from the
losses incurred on the sale of three subsidiaries ($2.8 million), severance
costs incurred during the management reorganization of Ross Roy ($1.8 million)
and the write-off of fixed assets and accrual of lease charges at the disposed
subsidiaries ($4.1 million). The basis upon which such charges were determined
was Management's best estimate at the time such charges were recorded. The
special charges and asset write-downs include $600,000 and $2.7 million of
noncash charges in 1994 and 1993, respectively.
37
<PAGE>
As of December 31, 1994, approximately $3.6 million of the total special
charges accrued during the years 1992 through 1994 remain unpaid. The
composition of this liability and expected payments dates are shown below.
Severance and
Employee
Expected Cash Termination Lease
Outlay in Years Costs Accrual Other Total
--------------- ------------- ------- ----- -----
1995 ............... $1,119,000 $ 428,000 $ 180,000 $1,727,000
1996 ............... 13,000 425,000 -- 438,000
1997 ............... 13,000 396,000 -- 409,000
1998 ............... 15,000 382,000 -- 397,000
1999 ............... 18,000 199,000 -- 217,000
Thereafter ......... 412,000 -- -- 412,000
---------- ---------- ---------- ----------
$1,590,000 $1,830,000 $ 180,000 $3,600,000
Operating Profit Margin -- Ross Roy's operating margin, which excludes
other income/expense, increased to 12.1 percent in 1994 from (6.1) percent in
1993. This increase was due to the divestiture of loss-generating subsidiaries,
revenue growth in specific areas and diligent cost control over operating
expenses.
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 $6.9
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 Expenses -- In 1993, operating expenses (i.e., compensation and
employee benefits, occupancy expense, general agency and other operating
expense) decreased $8.1 million or 9.7 percent from 1992 levels. The 1992
divestitures accounted for nearly two-thirds of this decrease. The remainder of
the decrease is attributable to the elimination of a profit sharing contribution
and a substantial reduction in the amount of incentive compensation paid in
1993.
38
<PAGE>
Special Charges, Asset Write-Downs and Losses on Sale of Subsidiaries -- In
1993, Ross Roy recorded special charges that totaled $8.7 million. These charges
included the write-off of fixed assets, the accrual of lease charges and the
recognition of losses resulting from the disposition of three subsidiaries as
well as severance costs incurred during its management reorganization. In 1992,
Ross Roy recorded special and asset impairment charges of $10.6 million. These
charges included $4.5 million for the impairment of intangible assets previously
recorded upon the purchase of certain subsidiaries, a charge of $2.5 million for
fixed asset write-downs and liabilities for lease obligations at closed
subsidiaries, $1.0 million for the write-off of a note receivable that was
determined to be uncollectible and $2.6 million of severance and related costs
associated with Ross Roy's corporate reorganization. The special charges and
asset write-downs include $2.7 million and $6.4 million of noncash charges in
1993 and 1992, respectively.
Operating Profit Margin -- Ross Roy's 1993 operating margin excluding other
income/expense increased nearly 3 percent over 1992. This increase represented
the initial impact of Ross Roy's effort to refocus its business strategy and
improve its profit margins.
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. The stock
repurchase obligations are recorded at the formula repurchase price set forth in
the Ross Roy Articles. See "Description of Ross Roy Capital Stock" and Note 3 of
Notes to Consolidated Financial Statements for a description of the stock
repurchase obligations and the formula repurchase price.
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
39
<PAGE>
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.
Pursuant to an agreement with a bank, Ross Roy guarantees borrowings from
such bank by Ross Roy employees for the purpose of purchasing Ross Roy Common
Stock. At March 9, 1995, such borrowings approximated $4,881,000. Upon
consummation of the Merger, such guarantee obligations of Ross Roy will
terminate. However, the provisions of the employee loan agreements provide Ross
Roy with recourse against an employee in the event of a default. Therefore,
management believes that the risk associated with guaranteeing this debt does
not pose a significant risk to the operations of Ross Roy.
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.
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.
40
<PAGE>
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 July 24, 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 July 24, 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. The formula repurchase price is based
primarily upon book value, as adjusted for certain items determined by the Ross
Roy Board of Directors and the fair value of certain investments.
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
41
<PAGE>
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
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.
42
<PAGE>
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.
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.
43
<PAGE>
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
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
44
<PAGE>
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
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
45
<PAGE>
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
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.
46
<PAGE>
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.
47
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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 Common Stock Subject to Repurchase Obligations
and Accumulated Deficit for each of the three years 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-15
Consolidated Condensed Statements of Operations for the three months ended
March 31, 1995 and 1994 (unaudited) .......................................................... F-16
Consolidated Condensed Statements of Cash Flows for the three months ended
March 31, 1995 and 1994 (unaudited) .......................................................... F-17
Notes to Consolidated Condensed Financial Statements (unaudited) .................................. F-18
</TABLE>
<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, common
stock subject to repurchase obligations and accumulated deficit 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
Detroit, Michigan
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, COMMON STOCK SUBJECT TO REPURCHASE OBLIGATIONS AND (ACCUMULATED DEFICIT)
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
Accrued 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
Common stock subject to repurchase obligations (Note 3):
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
Repurchase obligations in excess of par value ......................................... 9,405,195 9,322,114
------------ ------------
Total common stock subject to repurchase obligations ......................... 9,684,945 9,643,234
(Accumulated deficit):
Retained deficit ...................................................................... (6,720,313) (8,791,777)
Cumulative translation adjustment ..................................................... (635,540) (727,978)
------------ ------------
Total accumulated deficit ..................................................... (7,355,853) (9,519,755)
------------ ------------
Total liabilities; common stock subject to repurchase
obligations and (accumulated deficit)....................................... $ 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 ............................................ 8,445,201 11,942,803 12,365,531
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 .................................... 57,748,774 84,335,669 94,346,622
Operating income (loss) ............................................. 7,978,724 (4,891,115) (7,903,205)
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 income taxes, minority interest and
cumulative effect of change in accounting principle .............. 6,937,984 2,144,676 (9,657,299)
Provision (credit) income taxes:
Current ........................................................... 602,685 (302,171) (680,000)
Deferred .......................................................... 2,419,842 (2,312,040) (2,144,078)
------------ ------------ ------------
Total taxes ............................................... 3,022,527 (2,614,211) (2,824,078)
------------ ------------ ------------
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
------------ ------------ ------------
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)
============ ============ ============
NET INCOME PER COMMON SHARE:
Weighted Average Number of Shares Outstanding:
Primary ......................................................... 309,523 492,326 539,309
Fully Diluted ................................................... 316,863 492,326 539,309
Income Before Change in Accounting Principle:
Primary ......................................................... $11.98 $9.23 ($13.06)
Fully Diluted ................................................... $11.71 $9.23 ($13.06)
Cumulative Effect of Change in Accounting Principle:
Primary ......................................................... -- -- ($1.11)
Fully Diluted ................................................... -- -- ($1.11)
Net Income:
Primary ......................................................... $11.98 $9.23 ($14.17)
Fully Diluted ................................................... $11.71 $9.23 ($14.17)
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ROSS ROY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCK SUBJECT TO REPURCHASE OBLIGATIONS AND ACCUMULATED DEFICIT
Years ended December 31, 1994, 1993 and 1992
Common Stock Subject to Repurchase
Obligations (Note 3)
------------------------------------------------------------
Repurchase
Common Stock Obligation
---------------------------- in Excess of
Class A Class B Par Value Total
------- ------- ------------ -----
<S> <C> <C> <C> <C>
Balance, January 1, 1992 ................... $ 452,986 $ 89,800 $ 14,714,928 $ 15,257,714
Net loss ................................. -- -- -- --
Purchase of 32,384 Class A shares ........ (32,384) -- (887,030) (919,414)
Issuance of/Option exercise for 24,100
Class A shares ......................... 24,100 -- 653,351 677,451
Net increase in obligations due to
increase in repurchase price and other.. -- -- 1,029,999 1,029,999
Translation adjustment ................... -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1992 ................. 444,702 89,800 15,511,248 16,045,750
Net income ............................... -- -- -- --
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/Option exercise for 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
Net increase in obligations due to
increase in repurchase price and other.. -- -- 155,251 155,251
Translation adjustment ................... -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1993 ................. 271,320 49,800 9,322,114 9,643,234
Net income ............................... -- -- -- --
Purchase of 71,557 Class A shares ........ (71,557) -- (2,334,331) (2,405,888)
Purchase of 10,000 Class B shares ........ -- (10,000) (336,200) (346,200)
Issuance of/Option exercise for 30,187
Class A shares ....................... 30,187 -- 825,978 856,165
Issuance of 10,000 Class B shares ........ -- 10,000 290,300 300,300
Transfer of shares ....................... (5,000) 5,000 -- --
Net increase in obligations due to
increase in repurchase price and other.. -- -- 1,637,334 1,637,334
Translation adjustment ................... -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1994 ................. $ 224,950 $ 54,800 $ 9,405,195 $ 9,684,945
============ ============ ============ ============
(Accumulated Deficit)
----------------------------------------------------------------------------------
Retained Deficit
-----------------------------------------------
Repurchases of Stock
at Amounts in Excess
of Issuance Price Cumulative
Retained and Increases in Retained Translation
Earnings Repurchase Price Deficit Adjustment Total
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1992 ...................... $ 15,305,169 ($ 19,809,839) ($ 4,504,670) ($ 141,902) ($ 4,646,572)
Net loss .................................... (7,644,061) -- (7,644,061) -- (7,644,061)
Purchase of 32,384 Class A shares ........... -- -- -- -- --
Issuance of/Option exercise for 24,100
Class A shares ............................ -- -- -- -- --
Net increase in obligations due to
increase in repurchase price and other..... -- (1,029,999) (1,029,999) -- (1,029,999)
Translation adjustment ...................... -- -- -- (394,854) (394,854)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1992 .................... 7,661,108 (20,839,838) (13,178,730) (536,756) (13,715,486)
Net income .................................. 4,542,204 -- 4,542,204 -- 4,542,204
Purchase of 226,542 Class A shares .......... -- -- -- -- --
Purchase of 55,000 Class B shares ........... -- -- -- -- --
Issuance of/Option exercise for 53,160
Class A shares ............................ -- -- -- -- --
Issuance of 15,000 Class B shares ........... -- -- -- -- --
Net increase in obligations due to increase
in repurchase price and other.............. -- (155,251) (155,251) -- (155,251)
Translation adjustment ...................... -- -- -- (191,222) (191,222)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1993 .................... 12,203,312 (20,995,089) (8,791,777) (727,978) (9,519,755)
Net income .................................. 3,708,798 -- 3,708,798 -- 3,708,798
Purchase of 71,557 Class A shares ........... -- -- -- -- --
Purchase of 10,000 Class B shares ........... -- -- -- -- --
Issuance of/Option exercise for 30,187
Class A shares ............................ -- -- -- -- --
Issuance of 10,000 Class B shares ........... -- -- -- -- --
Transfer of shares .......................... -- -- -- -- --
Net increase in obligations due to increase
in repurchase price and other ............. -- (1,637,334) (1,637,334) -- (1,637,334)
Translation adjustment ...................... -- -- -- 92,438 92,438
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1994 .................... $ 15,912,110 ($ 22,632,423) ($ 6,720,313) ($ 635,540) ($ 7,355,853)
============= ============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ROSS ROY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net income (loss) ................................................... $ 3,708,798 $ 4,542,204 $ (7,644,061)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of change in accounting
principle ...................................................... -- -- 600,000
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 9,858,724
------------ ------------ ------------
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 generally billed and recognized when the service is
performed or cost incurred.
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. Depreciation charges are
computed on a straight-line basis over the estimated useful lives of furniture
and equipment ranging from five to fifteen years. Leasehold improvements are
amortized on a straight-line basis over the lesser of the term of the related
lease or the useful life of these assets.
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.
Earnings Per Share -- Earnings per share is computed by dividing net income
(loss) by the weighted average number of common and common equivalent shares,
primarily stock options, outstanding during the periods presented.
Reclassification -- Certain amounts in the previously issued consolidated
financial statements have been reclassified to conform with the presentation set
forth herein.
2. Segment Data
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 as set forth below:
1994 1993 1992
---- ---- ----
Automobile manufacturing ............. 61% 45% 33%
Automobile distribution............... 10% 10% 11%
Retail industries .................... 12% 12% 12%
-- -- --
83% 67% 56%
== == ==
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.
F-6
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Domestic and Foreign Operations -- The following is the business segment
information related to domestic and foreign operations (Canada).
Domestic Foreign Eliminations Consolidated
---------- --------- ------------ ------------
December 31, 1994
Revenues ............ 59,981,929 5,745,569 -- 65,727,498
Net Income .......... 3,104,553 604,245 -- 3,708,798
Identifiable Assets . 65,257,611 8,736,662 -- 73,994,273
December 31, 1993
Revenues ............ 73,065,183 6,379,371 -- 79,444,554
Net Income .......... 4,295,892 246,312 -- 4,542,204
Identifiable Assets . 85,877,093 11,401,723 -- 97,278,816
December 31, 1992
Revenues ............ 79,937,806 6,505,611 -- 86,443,417
Net Income (Loss).... (8,112,859) 720,898 (252,100) (7,644,061)
Identifiable Assets . 104,255,141 10,916,185 -- 115,171,326
3. Common Stock and Repurchase Obligation
Under the Corporation's Stock Purchase Plan and Articles of Incorporation,
the common stock of the Corporation is issued and purchased at a price
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 December
31, 1994, 1993 and 1992, the issuance/repurchase price was $34.62, $30.03 and
$30.02 per share, respectively.
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 the Corporation's option,
amounts payable upon repurchase greater than $100,000 are payable in equal
installments over a four year period and are classified as long-term debt (See
Debt Footnote 4). Amounts payable upon repurchase less than $100,000 are
recorded in other accrued liabilities. The Corporation has an agreement with a
bank whereby an employee may borrow funds from the bank to purchase stock and
the borrowings are guaranteed by the 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.
F-7
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
========== ===========
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, which is accounted for
under the equity method of accounting. Rental payments made to this partnership
are accounted for as rent expense in the Corporation's financial statements. The
Corporation also has other noncancelable operating leases for the use of
computers, automobiles, telephones, and other equipment.
Future minimum payments under noncancelable operating lease obligations
(including payments to related parties) as of December 31, 1994 are shown below.
These amounts include $1,824,000 of lease costs that have been accrued as of
December 31, 1994.
F-8
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Year Gross Rent Sublease Income Net Rent
---- ---------- --------------- --------
1995 .......................... $ 7,087,000 $ 283,000 $ 6,804,000
1996 .......................... 6,149,000 308,000 5,841,000
1997 .......................... 5,618,000 345,000 5,273,000
1998 .......................... 5,055,000 370,000 4,685,000
1999 .......................... 4,772,000 189,000 4,583,000
----------- ---------- -----------
Total minimum lease payment . $28,681,000 $1,495,000 $27,186,000
=========== ========== ===========
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).
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:
F-9
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
Actuarial present value of:
<S> <C> <C> <C>
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>
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.
F-10
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 income taxes, minority
interest and cumulative effect of change
in accounting principle:
Domestic ................................ $ 5,466,592 $ 1,411,817 $(11,030,505)
International ........................... 1,471,392 732,859 1,373,206
------------ ------------ ------------
Total ............................... $ 6,937,984 $ 2,144,676 $ (9,657,299)
============ ============ ============
Provision (credit), income taxes:
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 ............................... $ 3,022,527 $ (2,614,211) $ (2,824,078)
============ ============ ============
</TABLE>
The Corporation's effective income tax rate varied from the statutory
federal income tax rate as a result of the following factors:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax (benefit) rate ................. 34.0% 34.0 % (34.0)%
International subsidiaries' tax rate in excess of
federal statutory rate ................................... 2.3 1.0 2.3
Nondeductible amortization of goodwill ...................... 1.3 1.1 2.7
Nondeductible travel and entertainment expenses ............. 2.0 3.7 1.2
Receipts from life insurance policies, payment of
premiums for life insurance policies and other ........... 4.0 (163.4) (1.4)
---- ------ -----
Effective rate ............................................. 43.6% (123.6)% (29.2)%
==== ====== =====
</TABLE>
F-11
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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. The 1994 charges included $800,000 of severance and
employee termination costs and $300,000 of asset write-downs associated with the
closure of Ross Roy's New York office both of which resulted from the loss of a
major client as described in Note 2 and a $900,000 write-down of notes
receivable from the sales of previously divested subsidiaries determined to be
uncollectible; these amounts were partially offset by a $600,000 adjustment to
lease accruals related to subsidiaries that were divested in 1992 and 1993 and
were settled for amounts less than Corporate management originally estimated.
The original estimates were recorded in 1992 and 1993, the years in which the
related subsidiaries were divested.
F-12
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1994, approximately $3.6 million of the total special
charges accrued during the years 1992 through 1994 (including $800,000 of the
severance costs recorded in 1994) remain unpaid. The composition of this
liability and expected payment dates are shown below:
<TABLE>
<CAPTION>
Severance and
Employee
Termination Lease
Year Costs Accrual Other Total
- ---- ----- ------- ----- -----
<C> <C> <C> <C> <C>
1995 ....................................... $1,119,000 $ 428,000 $ 180,000 $1,727,000
1996 ....................................... 13,000 425,000 -- 438,000
1997 ....................................... 13,000 396,000 -- 409,000
1998 ....................................... 15,000 382,000 -- 397,000
1999 ....................................... 18,000 199,000 -- 217,000
Thereafter ................................. 412,000 -- -- 412,000
---------- ---------- ---------- ----------
$1,590,000 $1,830,000 $ 180,000 $3,600,000
========== ========== ========== ==========
</TABLE>
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 following table sets forth the composition of such
charges as determined by the Corporation's management for 1993 and 1992.
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Losses incurred on the sale of subsidiaries ........................................ $ 2,800,000 $ --
Severance and other termination costs associated
with Corporate reorganization based upon Ross
Roy's severance practices or severance agreements,
where applicable ................................................................ 1,800,000 2,623,000
Write-down of fixed assets and other to net realizable
value based upon purchase offers at disposed
subsidiaries .................................................................... 1,300,000 1,400,000
Liabilities for lease obligations of disposed subsidiaries,
net of estimated sublease income, pursuant to terms
of lease and sublease agreements ................................................ 2,832,000 1,100,000
Impairment of intangible assets based upon decision
to close/sell certain subsidiaries and major client
losses at others ................................................................ -- 4,500,000
Write-off of uncollectible note receivable ......................................... -- 1,000,000
----------- -----------
$ 8,732,000 $10,623,000
=========== ===========
</TABLE>
F-13
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Sales of Subsidiaries
As discussed in Note 9, the Corporation has taken several steps to
reposition itself to concentrate on activities that management feels are in
fulfillment of its long-term goals and will maximize shareholder value. A major
factor in this repositioning was the sale of three subsidiaries which management
believed were not a part of the Corporation's long-term goals. Two of the
subsidiaries, Anthony M. Franco, Inc. and Griswold, Inc. were sold on December
31, 1993. The other subsidiary, Calet, Hirsch & Ferrell, Inc., was sold in the
first quarter of 1994. The unaudited proforma information below is intended to
show the results of these transactions as if the transactions had occurred on
January 1, 1993. Management believes the proforma results are fairly stated,
however, such results are not necessarily indicative of the results to be
expected for future years.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1993
------------------------------------------------
Unaudited Unaudited
Amounts of Proforma
Consolidated Disposed Amounts of
Amounts as or Sold Retained
Reported Subsidiaries Business
----------- ------------ ---------
<S> <C> <C> <C>
Revenue ........................................... $79,444,554 $ 13,949,649 $65,494,905
Operating Expenses:
Compensation and employee benefits ............. 51,063,706 12,277,053 38,786,653
Occupancy ...................................... 9,348,406 2,439,541 6,908,865
General agency expense ......................... 11,942,803 2,668,713 9,274,090
Special charges ................................ 8,732,454 7,540,654 1,191,800
Other .......................................... 3,248,300 1,248,484 1,999,816
----------- ------------ -----------
Total operating expenses .................. 84,335,669 26,174,445 58,161,224
----------- ------------ -----------
Operating Income (Loss) ........................... $(4,891,115) $(12,224,796) $ 7,333,681
=========== ============ ===========
</TABLE>
11. 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-14
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
March 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
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 purchased 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, COMMON STOCK SUBJECT TO REPURCHASE OBLIGATIONS AND (ACCUMULATED DEFICIT)
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
Accrued 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
------------ ------------
Common Stock subject to repurchase obligations:
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
Repurchase obligations in excess of par value ......................................... 13,397,671 8,889,566
------------ ------------
Total common stock subject to repurchase obligations .............................. 13,796,174 9,195,786
------------ ------------
(Accumulated deficit):
Retained deficit .................................................................... (12,225,490) (7,442,705)
Cumulative translation adjustment ................................................... (618,715) (921,127)
------------ ------------
Total accumulated deficit .................................................... (12,844,205) (8,363,832)
------------ ------------
Total liabilities, common stock subject to repurchase obligations
and (accumulated deficit) .............................................. $ 81,173,297 $ 79,177,042
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
F-15
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Quarters ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
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 ....................................................... 1,785,056 1,892,668
Other ........................................................................ 491,712 324,200
------------ ------------
Total operating expenses ............................................... 13,991,225 13,317,037
------------ ------------
Operating income ............................................................... 2,997,217 2,526,572
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, minority interest and
cumulative effect of change in accounting principle ......................... 2,833,323 2,371,999
Provision for federal and international taxes .................................. 1,053,415 880,528
------------ ------------
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
============ ============
NET INCOME PER COMMON SHARE:
Weighted Average Number of Shares Outstanding:
Primary .................................................................... 331,561 317,074
Fully Diluted .............................................................. 331,561 317,074
Income Before Change in Accounting Principle:
Primary .................................................................... $5.09 $4.25
Fully Diluted .............................................................. $5.09 $4.25
Cumulative Effect of Change in Accounting Principle:
Primary .................................................................... ($19.90) --
Fully Diluted .............................................................. ($19.90) --
Net Income:
Primary .................................................................... ($14.81) $4.25
Fully Diluted .............................................................. ($14.81) $4.25
</TABLE>
See Notes to consolidated condensed financial statements.
F-16
<PAGE>
ROSS ROY COMMUNICATIONS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH
FLOWS (Unaudited) Quarters Ended
March 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
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
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
F-17
<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(h) 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-18
<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. For the quarters ended March 31, 1995 and 1994, respectively, the
Corporation made cash payments of approximately $193,000 and $169,000 for
interest, and for the quarter ended March 31, 1995 the Corporation made cash
payments of $287,000 for income taxes.
During the quarter ended March 31, 1995, in accordance with the provisions
of a supplemental compensation plan, $585,000 of obligations under the plan were
paid by delivery of 16,907 shares of common stock.
7. 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.
8. 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-19
<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 Amendment No. 1 to Registration Statement No. 33-60347 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on July 20, 1995.
OMNICOM GROUP INC.
Registrant
By: /s/ BRUCE CRAWFORD
----------------------
Bruce Crawford
President and Chief
Executive Officer
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 July 20, 1995
- ------------------------------ Executive Officer and Director
(Bruce Crawford) (Principal Executive Officer)
/s/ (Fred J. Meyer) Chief Financial Officer July 20, 1995
- ------------------------------ and Director
(Fred J. Meyer) (Principal Financial Officer)
/s/ (Dale A. Adams) Controller (Principal July 20, 1995
- ------------------------------ Accounting Officer)
(Dale A. Adams)
/s/ (Bernard Brochand)* Director July 20, 1995
- ------------------------------
(Bernard Brochand)
/s/ (Leonard S. Coleman, Jr.)* Director July 20, 1995
- ------------------------------
(Leonard S. Coleman, Jr.)
Director
- ------------------------------
(Robert J. Callander)
/s/ (James A. Cannon)* Director July 20, 1995
- ------------------------------
(James A. Cannon)
/s/ (Peter I. Jones)* Director July 20, 1995
- ------------------------------
(Peter I. Jones)
/s/ (John R. Purcell)* Director July 20, 1995
- ------------------------------
(John R. Purcell)
/s/ (Keith L. Reinhard)* Director July 20, 1995
- ------------------------------
(Keith L. Reinhard)
/s/ (Allen Rosenshine)* Director July 20, 1995
- ------------------------------
(Allen Rosenshine)
/s/ (Gary L. Roubos)* Director July 20, 1995
- ------------------------------
(Gary L. Roubos)
Director
- ------------------------------
(Quentin I. Smith, Jr.)
/s/ (Robin B. Smith)* Director July 20, 1995
- ------------------------------
(Robin B. Smith)
/s/ (William G. Tragos)* Director July 20, 1995
- ------------------------------
(William G. Tragos)
/s/ (John D. Wren)* Director July 20, 1995
- ------------------------------
(John D. Wren)
/s/ (Egon P.S. Zehnder)* Director July 20, 1995
- ------------------------------
(Egon P.S. Zehnder)
</TABLE>
- ----------
* By Barry J. Wagner, as Attorney-in-Fact
II-4
Exhibit A
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"); CHRIS A. LAWSON 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 15, 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
<PAGE>
Merger Agreement that are not otherwise defined herein are used herein with the
meanings ascribed to them therein; a list of such terms is attached hereto as
Exhibit 1.
The appointment of the Representative and the terms of this Escrow
Agreement were approved by the Shareholders of the Company at a Special Meeting
of Shareholders held on ________, 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".
2
<PAGE>
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 2 hereto to the Representative and to the Escrow Agent. The
General Claims Notice shall describe the General Claim in reasonable detail,
shall indicate the amount (estimated, if necessary, and to the extent feasible)
of the General Losses that have been or may be suffered by Omnicom and/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
Representative to make a determination required to be made by the Representative
3
<PAGE>
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
in respect of any Claim, Liquidated Request or other matter in dispute hereunder
4
<PAGE>
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 and the Surviving
Corporation, 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
5
<PAGE>
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
payment due and payable to Omnicom under this Escrow Agreement.
6
<PAGE>
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,
7
<PAGE>
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
<PAGE>
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
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
9
<PAGE>
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 (up or down) 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.
------------
(1) Insert the Market Value (as defined in the Merger Agreement)
11
<PAGE>
3.10 Distribution Consent. Any other provision of this Escrow Agreement to
the contrary notwithstanding, the Escrow Agent shall distribute the Escrow Fund
in such manner at such time or times as Omnicom and the Representative may, in
writing, jointly direct.
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
12
<PAGE>
still then held in escrow that are taxable dividends for Federal income tax
purposes (net of any taxes required to be withheld from such cash dividends or
other distributions by Omnicom), shall be paid by Omnicom 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
13
<PAGE>
security interest in the Escrow Fund to secure the performance of the
indemnification obligations under Section 11.2 of the Merger Agreement and this
Escrow Agreement. The Escrow Agreement shall constitute a security agreement
under applicable law.
(b) The parties agree that this security interest shall attach as of the
execution of this Escrow Agreement. The parties agree that, for the purpose of
perfecting Omnicom's security interest in the above designated Escrow Fund held
by the Escrow Agent pursuant to this Escrow Agreement, Omnicom designates the
Escrow Agent to acquire and maintain possession of the Escrow Fund and act as
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 the 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.
14
<PAGE>
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
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, jointly and
severally, hereby agrees to indemnify the Escrow Agent for, and to hold it
harmless against, any loss, liability, expense (including reasonable attorneys'
fees and expenses), third party claim and demand, incurred by it without gross
negligence or bad faith on its part, arising out of or in connection with its
entering into this Escrow Agreement and the carrying out of its duties hereunder
and in any event its liability shall be limited to direct damages and shall not
include special or consequential damages; 50% of any such losses shall be
payable by Omnicom and 50% shall be payable by the Surviving Corporation. The
15
<PAGE>
Escrow Agent may consult with counsel of its own choice, and shall have full and
complete authorization and protection for any action taken or suffered by it
hereunder in good faith and in accordance with the opinion of such counsel. The
foregoing indemnification shall survive the resignation of the Escrow Agent or
the termination of this Escrow Agreement.
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 and to pay or to
reimburse the Escrow Agent for all reasonable expenses, disbursements and
advances (including reasonable attorneys' fees) incurred or made by it in
connection with the carrying out of its duties hereunder.
7. WAIVERS
This Escrow Agreement may be amended, superseded or canceled, and any of
16
<PAGE>
the terms or conditions hereof may be waived, only by a written instrument
executed by the parties hereto or, in the case of a waiver, by the party waiving
compliance. The failure of any party at any time or times to require performance
of any provision hereof shall in no manner affect the right of such party at a
later time to enforce the same. No waiver of any nature, whether by conduct or
otherwise in any one or more instances, of any provision hereof, shall be deemed
to be, or construed as, a further or continuing waiver of any such provision or
of another provision hereof.
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:
---------------------------------------------
---------------------------------------------
---------------------------------------------
17
<PAGE>
and if to the Escrow Agent, to:
The Chase Manhattan Bank, N.A.
4 Chase MetroTech Center, 3rd floor
Brooklyn, New York 11245
Attention: Escrow Department
Fax No.: 718-242-3529
Any party may change the persons and addresses to which notices, payments,
instructions or other communications are to be sent to such party by giving
written notice of any such change in the manner provided herein for giving
notice. Notices sent by facsimile transmission shall be confirmed in writing by
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; provided, however, that disputes involving
the Escrow Agent (including the rights, duties and obligations of the Escrow
Agent) shall be governed by the laws of the State of New York 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.
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<PAGE>
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
for convenience of reference only, and shall not affect the meaning or
interpretation of this Escrow Agreement.
19
<PAGE>
WITNESS the execution of this Escrow Agreement as of the date first above
written.
OMNICOM GROUP INC.
By:
------------------------------------
ROSS ROY COMMUNICATIONS, INC.
By:
------------------------------------
---------------------------------------
Chris A. Lawson, as Representative
THE CHASE MANHATTAN BANK, N.A.
By:
------------------------------------
20
Exhibit 5.1
July 18, 1995
Omnicom Group Inc.
437 Madison Avenue
New York, NY 10022
Re: Registration Statement on Form S-4
----------------------------------
Gentlemen:
In our capacity as counsel to Omnicom Group Inc., a New York corporation
(the "Company"), we have been asked to render this opinion in connection with
Registration Statement No. 33-60347 on Form S-4 (the "Registration Statement")
filed by the Company with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, covering an aggregate of up to 1,000,000
shares of common stock, $0.50 par value, of the Company (the "Shares") to be
issued in connection with the acquisition by the Company, by way of merger, of
Ross Roy Communications, Inc.
In that connection, we have examined the Certificate of Incorporation and
the By-Laws, both as amended, of the Company, the Registration Statement,
corporate proceedings relating to the issuance of the Shares, and such other
instruments and documents as we deemed relevant under the circumstances.
In making the aforesaid examination, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies furnished to
us as original or photostatic copies. We have also assumed that the corporate
records furnished to us by the Company include all corporate proceedings taken
by the Company to date.
Based upon and subject to the foregoing, we are of the opinion that when
issued in accordance with the Merger Agreement, the Shares will have been
legally issued and be fully paid and non-assessable shares of common stock,
$0.50 par value, of the Company.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the Prospectus/Information Statement forming part of
the Registration Statement.
Very truly yours,
DAVIS & GILBERT
June 29, 1995
Board of Directors
Ross Roy Communications, Inc.
100 Bloomfield Hills Parkway
Bloomfield Hills, Michigan 48013
Dear Members of the Board:
This letter is in response to your request for our tax opinion on the Agreement
and Plan of Merger dated as of June 15, 1995 (the "Plan") by and among Omnicom
Group, Inc. ("Omnicom"), RRC Acquisition Inc. ("OmniSub"), and Ross Roy
Communications, Inc. ("Ross Roy"). The conclusions presented herein represent
our understanding of the transaction as represented in the Plan, the draft Form
S-4 of Omnicom dated as of June 19, 1995, (the "Form S-4"), the representations
of fact as set forth in Ross Roy's and Omnicom's letters dated June 14, 1995,
and June 19, 1995 respectively, the facts set forth herein, and the law as it
exists today.
FACTS
Omnicom, a New York corporation, is a corporation publicly traded on the New
York Stock Exchange. It operates, through its subsidiaries, a multitude of
advertising, promotional, and marketing agencies worldwide which provide
services to large multi-national companies. Omnicom has 36,115,328 shares of
common stock issued and outstanding as of March 15, 1995. The aggregate market
value of the common stock is approximately $1,927,100,000.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 2
Ross Roy, a Michigan corporation, is a full service marketing communications
company. It 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 an
industry leader in the development and use of new communications technologies
and has produced over 250 interactive video discs, developed online computer
applications for interactive kiosks and has created a number of marketing tools
for use on the Internet. Ross Roy has 2,000,000 shares of Class A nonvoting
common stock, $1.00 par value authorized, 373,653 of which are expected to be
issued as of the date of the transaction, and 200,000 shares of Class B voting
common stock, $1.00 par value authorized, of which 54,800 have been issued as of
June 29, 1995 (together referred to herein as the "common stock").
OmniSub, a Michigan corporation, was formed to effectuate this transaction.
OmniSub has 200 shares of common stock authorized, of which 100 shares have been
issued to Omnicom.
Omnicom recognizes the rapidly changing character of the advertising industry
worldwide and periodically reviews other companies with whom it may engage in
transactions or combinations to strengthen the services that it provides to its
customers. Omnicom believes that Ross Roy is one such company. Ross Roy believes
that the combined entity would be a preeminent provider of advertising,
promotional and marketing services worldwide, and that the combined entities
would have enhanced growth potential.
Accordingly, the following steps are proposed:
1. At the Effective Time:
a. OmniSub will be merged with and into Ross Roy and the separate
corporate existence of OmniSub shall thereupon cease (the "Merger").
Ross Roy will be the surviving corporation in the Merger.
b. The Articles of Incorporation of Ross Roy will be amended and restated
to read as did the Articles of Incorporation of OmniSub immediately
prior to the Effective Time (except that the name of Ross Roy will
remain "Ross Roy Communications, Inc.").
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 3
2. As of the Effective Time, by virtue of the Merger and without any action on
the part of the holder of any shares of either Ross Roy common stock or the
common stock of OmniSub:
a. Each issued and outstanding share of the common stock of OmniSub shall
be converted into the same number of shares of Ross Roy common stock.
b. Each issued and outstanding share of Ross Roy common stock shall be
canceled and converted into and represent the right to receive the
number of shares pursuant to Section 2.4 of the Plan ("Exchange Ratio")
of Omnicom common stock which shall equal the Conversion Price (as
defined in Section 2.1.1 of the Plan) by using the Market Value (as
defined in Section 2.1.2 of the Plan). All of such shares of Ross Roy
common 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 Omnicom common stock and cash
in lieu of fractional shares of the Omnicom common stock to be issued
or paid in consideration thereof.
3. Neither the shareholders of Ross Roy common stock ("Ross Roy shareholders")
nor the shareholders of Omnicom common stock have any dissenters' rights.
4. 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 equivalent to the excess of the consideration received by the Ross Roy
Shareholders over the base 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 one individual employee (the "EPU Holder") of Ross Roy.
Accordingly, at the Effective Time, Omnicom will satisfy this obligation to
the EPU Holder in shares of Omnicom common stock subject to the same terms
as the shares delivered to the Ross Roy shareholders, including the
indemnification obligations described below.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 4
Pursuant to the EPU Plan, the units are not transferable and become vested
and payable at the earlier of the completion of the tenth fiscal year of
employment with Ross Roy following the date of grant (which has not
occurred and will not prior to the Merger), the EPU Holder's retirement
date, provided such retirement date is not earlier than the EPU Holder's
normal retirement date, or upon a change in control. Pursuant to a letter
agreement entered into prior to the Merger, the EPU Holder agrees to
receive Omnicom common stock as consideration for his units. As a condition
to the Merger, the EPU Holder also will execute an Affiliates
Representation Letter ("Affiliates Letter") whereby the EPU Holder's
Omnicom common stock will be subject to a restriction against transfer for
a period of time (hereinafter referred to as the "Affiliates Restriction").
The EPU Holder under the Affiliates Restriction, represents and warrants
to, and covenants with Omnicom that he will not sell (either publicly or
privately), assign, transfer, convey, encumber, dispose of, directly or
indirectly, or otherwise reduce his risk relative to, any shares of Omnicom
common stock, until such time as Omnicom has publicly announced financial
results covering at least thirty days of post-Merger combined operations of
Omnicom and Ross Roy (the "Publication Date"). Until the Publication Date,
Omnicom has the right to place a "stop-transfer" notation on the transfer
records of Omnicom's transfer agent in order to implement the Affiliates
Restriction.
5. 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 are repurchased by Ross Roy at formula value pursuant to
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 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 Ross Roy 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 subject to the same terms as the
shares delivered to the Ross Roy shareholders, including the
indemnification obligations described below.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 5
6. Pursuant to the Ross Roy Articles, Ross Roy stock may only be issued and/or
sold to employees of Ross Roy, and once issued to an employee can only be
sold, assigned and delivered to Ross Roy. Also, pursuant to the Ross Roy
Articles, whenever a Ross Roy shareholder ceases to be an active employee
on a full-time basis for any reason whatsoever, they are required to sell
the stock and Ross Roy is required to repurchase the stock based on a
formula prescribed by the Ross Roy Articles. Certain Ross Roy shareholders
are Canadian residents.
7. Pursuant to Section 2.8 of the Plan, the Ross Roy shareholders are required
to indemnify Omnicom and its affiliates against certain losses and damages
arising under the Merger, and the EPU Holder and Former Eligible Employee
Holder 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 Plan, or the breach of or failure by
Ross Roy to perform or discharge any of its obligations under the Plan, or
(ii) the payment of any judgment or settlement in respect of litigations
and threatened litigations set forth on a schedule to the Plan in excess of
the aggregate reserves provided for such matters (on the balance sheet of
Ross Roy as of December 31, 1994) all of which are contingencies whose
outcomes could not reasonably be determined at the time of the Merger.
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
Fund") under the terms of an 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. Each of the Ross Roy
shareholders, the EPU Holder and the Former Eligible Employee Holder shall
be depositing his pro rata share of the General Escrow Fund or Special
Escrow Fund. The result of which will be that 7.356%, of all Omnicom common
stock to be issued to each Ross Roy shareholder, EPU Holder and Former
Eligible Employee Holder in the Merger will be placed is escrow (the
"Escrow Stock").
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 6
The indemnification obligations of the Ross Roy shareholders, the EPU
Holder and the Former Eligible Employee Holder will be limited to and
satisfied solely from, the General Escrow Fund and Special Escrow Fund
under the Escrow Agreement (such that neither Omnicom no 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 Plan against
the Ross Roy shareholders, the EPU Holder or the Former Eligible Employee
Holder, 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 on the earlier of
the first independent audit report, if any, of the surviving corporation
following the Effective Time of the Merger or one year from the Effective
Time (except that claims asserted in writing on or prior to such date will
survive until they are decided and are final and binding on the parties).
Indemnification obligations to be satisfied out of the Special Escrow Fund
will terminate at such time as all such matters shall have been fully paid
or finally settled.
Four 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.
Pursuant to Section 4.1 of the Escrow Agreement, all dividends paid on the
Escrow Stock shall be distributed currently to the Ross Roy shareholders,
EPU Holder and Former Eligible Employee Holder. Each Ross Roy shareholder,
EPU Holder and Former Eligible Employee Holder will be entitled to exercise
all voting rights with respect to the Escrow Stock.
REPRESENTATIONS
In order to determine the federal income tax consequences of the Merger of
OmniSub with and into Ross Roy, the following representations of fact have been
made to us by Ross Roy in its representation letter dated June 14, 1995.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 7
1. The fair market value of Omnicom voting common stock received by each Ross
Roy shareholder will be approximately equal to the fair market value of the
Ross Roy common stock surrendered in the exchange.
2. There is no plan or intention on the part of the Ross Roy shareholders to
sell, exchange, or otherwise dispose of a number of shares of Omnicom
voting common stock received in the transaction that would reduce the Ross
Roy shareholders' ownership of Omnicom voting common stock to a number of
shares having a value, as of the date of the transaction, of less than 50%
of the value of the formerly outstanding stock of Ross Roy as of the same
date. For purposes of this representation, shares of Ross Roy common stock
exchanged for cash in lieu of fractional shares of Omnicom will be treated
as outstanding Ross Roy common stock on the date of the transaction.
Moreover, shares of Ross Roy common stock and shares of Omnicom stock held
by Ross Roy shareholders and otherwise sold, redeemed, or disposed of prior
or subsequent to the transaction will be considered in making this
representation.
3. Following the transaction, Ross Roy will hold at least 90% of the fair
market value of its net assets and at least 70% of the fair market value of
its gross assets and at least 90% of the fair market value of OmniSub's net
assets and at least 70% of the fair market value of OmniSub's gross assets
held immediately prior to the transaction. For purposes of this
representation, amounts used by Ross Roy or OmniSub to pay reorganization
expenses, and all redemptions and distributions (except for regular,
normal, dividends) made by Ross Roy or OmniSub will be included as assets
of Ross Roy or OmniSub, respectively, immediately prior to the transaction.
4. In the transaction, shares of Ross Roy stock representing control of Ross
Roy, as defined in Section 368(c) of the Internal Revenue Code of 1986 (the
"Code"), will be exchanged solely for voting common stock of Omnicom.
Section 368(c) of the Code defines control to mean the ownership of stock
possessing at least 80% of the total combined voting power of all classes
of stock entitled to vote and at least 80% of the total number of shares of
each other class of stock of the corporation.
5. Following the transaction, Ross Roy will continue its historic business or
use a significant portion of its historic business assets in a business.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 8
6. On the date of the transaction, the fair market value of the assets of Ross
Roy will exceed the sum of its liabilities, plus the amount of liabilities,
if any, to which the assets are subject.
7. No two parties to the proposed transaction will be investment companies
within the meaning of Section 368(a)(2)(F)(iii) and (iv) of the Code. An
investment company is defined, in general terms, as (a) a regulated
investment company, (b) a real estate investment trust, or (c) a
corporation 50% or more of the value of whose total assets are stock and
securities and 80% or more of the value of whose total assets are assets
held for investment. Total assets exclude cash and cash items. In making
the 50% and 80% determinations, stock and securities in any subsidiary
corporation should be disregarded and the parent corporation is deemed to
own its ratable share of the subsidiaries assets.
8. There is no intercorporate debt between Omnicom and Ross Roy or between
OmniSub and Ross Roy, which was issued, acquired, or will be settled at a
discount.
9. Omnicom, OmniSub, Ross Roy and Ross Roy's shareholders will each pay their
own expenses, if any, which are incurred in connection with the proposed
transaction. Expenses incurred in connection with the listing of Omnicom
common stock on the New York Stock Exchange, including all fees paid to the
New York Stock Exchange, shall be borne by Omnicom.
10. Ross Roy is not under the jurisdiction of a court in a Title 11, or similar
case within the meaning of Section 368(a)(3)(A) of the Code.
11. Ross Roy has no plan or intention to issued additional shares of its stock
that would result in Omnicom's losing control of Ross Roy within the
meaning of Section 368(c) of the Code.
12. At the time of the transaction, Ross Roy will not have outstanding any
warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire stock in Ross Roy that, if
exercised or converted, would affect Omnicom's acquisition of Ross Roy's
stock and the retention of control of Ross Roy, as defined in Section
368(c) of the Code.
13. Omnicom and its subsidiaries do not own, nor have they owned during the
past five years, any shares of the stock of Ross Roy.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 9
14. The merger of OmniSub with and into Ross Roy will qualify as a statutory
merger under the laws of the State of Michigan.
15. None of the compensation received by any shareholder-employees of Ross Roy
will be separate consideration for, or allocable to, any of their shares of
Ross Roy common stock; none of the shares of Omnicom stock received by any
shareholder-employees will be separate consideration for, or allocable to,
any employment agreement except those Omnicom shares received by the Equity
Participation Holder pursuant to Section 2.9 of the Plan.
16. There is a valid business reason for establishing the Escrow Agreement
pursuant to Section 2.8 of the Plan ("Escrow Stock").
17. The Escrow Stock will appear as issued and outstanding on the balance sheet
of Omnicom and such stock is legally outstanding under New York law.
18. The Escrow Stock is not subject to restrictions requiring its return to
Omnicom because of death, failure to continue employment, or similar
restrictions.
19. The return of the Escrow Stock will not be triggered by an event the
occurrence or nonoccurrence of which is within the control of shareholders.
20. The return of the Escrow Stock will not be triggered by the payment of
additional tax or reduction in tax paid as a result of a Service audit of
the shareholders or the corporations either (a) with respect to the
reorganization in which the escrowed stock will be issued, or (b) when the
reorganization in which the escrowed stock will be issued involves persons
related within the meaning of section 267(c)(4) of the Code.
21. The cancellation of the restrictions pursuant to Article III F of the
Articles of Incorporation of Ross Roy, by virtue of the Merger will not be
treated as a compensatory event, and no deduction will be taken by Ross
Roy, OmniSub or Omnicom with respect to such cancellation.
In order to determine the federal income tax consequences of the Merger of
OmniSub with and into Ross Roy the following representations have been made to
us by Omnicom in its representation letter dated June 19, 1995:
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 10
1. Following the transaction, Ross Roy will hold (i) at least 90% of the fair
market value of its net assets and at least 70% of the fair market value of
its gross assets held immediately prior to the Merger and (ii) at least 90%
of the fair market value of OmniSub's net assets and at least 70% of the
fair market value of OmniSub's gross assets held immediately prior to the
Merger. For purposes of this representation, amounts used by Ross Roy or
OmniSub to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by Ross Roy or
OmniSub will be included as assets of Ross Roy or OmniSub, respectively,
immediately prior to the Merger.
2. The "Omnicom Stock" to be exchanged for the Ross Roy common stock pursuant
to Section 2.2(a) of the Plan is voting stock of Omnicom.
3. Following the transaction, Ross Roy will continue its historic business or
use a significant portion of its historic business assets in a business.
4. Omnicom has no plan or intention to liquidate Ross Roy, to merge Ross Roy
with or into another corporation, to sell or otherwise dispose of the stock
of Ross Roy except for transfers of stock to corporations controlled by
Omnicom, or to cause Ross Roy to sell or otherwise dispose of any of its
assets or of any of the assets acquired from OmniSub, except for
dispositions made in the ordinary course of business or transfers of assets
to a corporation controlled by Ross Roy.
5. Neither Omnicom nor OmniSub will be investment companies within the meaning
of Section 368(a)(2)(F)(iii) and (iv) of the Code. An investment company is
defined, in general terms, as (a) a regulated investment company, (b) a
real estate investment trust, or (c) a corporation 50% or more of the value
of whose total assets are stock and securities and 80% or more of the value
of whose total assets are assets held for investment. Total assets exclude
cash and cash items. In making the 50% and 80% determinations, stock and
securities in any subsidiary corporation should be disregarded and the
parent corporation is deemed to own its ratable share of the subsidiaries
assets.
6. As of the date of the Merger, there is no intercorporate debt between
Omnicom and Ross Roy or between OmniSub and Ross Roy, which will be settled
at a discount.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 11
7. Omnicom has no plan or intention to reacquire any of its stock issued in
the Merger. However, Omnicom may from time to time repurchase its stock in
market transactions in the ordinary course of its business.
8. Omnicom and OmniSub will each pay their own expenses, if any, which are
incurred in connection with the proposed transaction. Expenses incurred in
connection with the listing of Omnicom stock on the New York Stock
Exchange, including all fees paid to the New York Stock Exchange, shall be
borne by Omnicom.
9. Prior to the transaction, Omnicom will be in control of OmniSub within the
meaning of Section 368(c) of the Code. Section 368(c) of the Code defines
control to mean the ownership of stock possessing at least 80% of the total
combined voting power of all classes of stock entitled to vote and at least
80% of the total number of shares of each other class of stock of the
corporation.
10. After the Merger, there is no plan or intention for Ross Roy to issued
additional shares of Ross Roy stock that would result in Omnicom's losing
control of Ross Roy within the meaning of Section 368(c) of the Code.
11. The payment of cash in lieu of fractional shares of Omnicom stock is solely
for the purpose of avoiding the expense and inconvenience to Omnicom of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the
transaction to the Ross Roy shareholders instead of issuing fractional
shares of Omnicom common stock will not exceed 1% of the total
consideration that will be issued in the transaction to the Ross Roy
shareholders in exchange for their shares of Ross Roy common stock. The
fractional share interests of each Ross Roy shareholder will be aggregated,
and no Ross Roy shareholder will receive cash in an amount equal to or
greater than the value of one full share of Omnicom common stock.
12. The cancellation of the restrictions pursuant to Article III F of the
Articles of Incorporation of Ross Roy by virtue of the Merger will not be
treated by Omnicom, OmniSub, and Ross Roy as a compensatory event, and no
deduction will be taken by Ross Roy, OmniSub or Omnicom with respect to
such cancellation (except as a result of action by the Internal Revenue
Service brought against Ross Roy shareholders treating such event as
compensatory or as a result of changes in applicable law).
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 12
APPLICABLE LAW
The Merger
The Ross Roy stock held by the Ross Roy shareholders if received in connection
with the performance of services is property subject to Section 83 of the Code.
Since the Ross Roy stock, by virtue of the Ross Roy Articles, can only be held
by employees and is required to be sold back to Ross Roy upon termination of
employment at a price determined by a formula, the Ross Roy stock is subject to
a nonlapse restriction pursuant to Section 1.83- 3(h) of the Regulations.
Pursuant to the Merger, and by virtue of the fact that the Ross Roy Articles
will be amended and restated to read as did the Articles of OmniSub, the
nonlapse restrictions under the Ross Roy Articles will be canceled. Pursuant to
Section 83(d)(2) of the Code, and Section 1.83-5(b) of the Regulations if a
nonlapse restriction imposed on property subject to section 83 is canceled, then
unless the taxpayer establishes (i) that such cancellation was not compensatory,
and (ii) that the person who would be allowed a deduction, if any, if the
cancellation were treated as compensatory, will treat the transaction as not
compensatory, the excess of the fair market value of such property (computed
without regard to such restriction) at the time of cancellation, over the sum of
(iii) the fair market value of such property (computed by taking the restriction
into account) immediately before the cancellation, and (iv) the amount, if any,
paid for the cancellation, shall be treated as compensation for the taxable year
in which such cancellation occurs.
Regulation Section 1.83-5(b) continues;
"Whether there has been a noncompensatory cancellation of a
nonlapse restriction under section 83(d)(2) depends upon the
particular facts and circumstances. Ordinarily the fact that
the employee or independent contractor is required to
perform additional services or that the salary or payment of
such a person is adjusted to take the cancellation into
account indicates that such cancellation has a compensatory
purpose. On the other hand, the fact that the original
purpose of a restriction no longer exists may indicate that
the purpose of such cancellation is noncompensatory. Thus,
for example, if a so-called "buy-sell" restriction was
imposed on a corporation's stock to limit ownership of such
stock and is being canceled in connection with a public
offering of the stock, such cancellation will generally be
regarded as noncompensatory."
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 13
The purpose behind Section 83(d)(2) of the Code, is to prevent a possible device
to minimize taxation under Section 83 of Code, by transferring nonforfeitable
property subject to a nonlapse restriction (including a formula price recognized
under Section 83(d)(1)), and then later to cancel the restriction. The price
determined under the formula would normally be deemed the fair market value of
the property when the transfer is taxed under Section 83. Without special
statutory treatment, however, the increase in the value of the property as a
result of the later cancellation of the restriction might not be taxed at the
time of the cancellation, and the increase in value would be eligible for
capital gain treatment when the property eventually is disposed of.
The abuse is clearly not the case at hand. There has been no overt action on the
part of Ross Roy to provide any beneficial treatment to individual employees.
The original purpose for the ownership restriction was to maintain employee only
ownership of Ross Roy. However, by virtue of the Merger, Ross Roy will be wholly
owned by Omnicom, a company traded on the New York Stock Exchange, and thus, the
original purpose for the restriction no longer exists.
This case is similar to the public offering scenario as described above. This,
coupled with the fact that the nonlapse restriction is being canceled with
respect to all shareholders is evidence that the cancellation should be regarded
as noncompensatory.
Since the cancellation is noncompensatory, and it has been represented that Ross
Roy, OmniSub and Omnicom will treat the cancellation as noncompensatory and
accordingly will take no deduction, the cancellation will not be treated as
compensation to the Ross Roy shareholders.
Section 368(a)(1)(A) of the Code provides that the term "reorganization" means a
statutory merger or consolidation.
Section 368(a)(2)(E) of the Code provides that a transaction otherwise
qualifying under Section 368(a)(1)(A) shall not be disqualified by reason of the
fact that stock of a corporation (referred to in this subparagraph as the
"controlling corporation") which before the merger was in control (as defined in
Section 368(c)) of the merged corporation is used in the transaction if after
the transaction, the corporation surviving the merger holds substantially all of
its properties and all of the properties of the merged corporation (other than
stock of the controlling corporation distributed in the transaction); and in the
transaction, former shareholders of the surviving corporation exchanged, for an
amount of voting stock of the controlling corporation, an amount of stock in the
surviving corporation which constitutes control of such corporation.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 14
Section 368(c) of the Code defines control to mean the ownership of stock
possessing at least 80% of the total combined voting power of all classes of
stock entitled to vote and at least 80% of the total number of shares of each
other class of stock of the corporation.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the "substantially all"
requirement is satisfied if there is an acquisition of assets representing at
least 90% of the fair market value of the net asset and at least 70% of the fair
market value of the gross assets held by the corporations immediately prior to
the transfer. All payments to dissenters and all redemptions and distributions
(except for regular, normal distributions) made by the corporation immediately
preceding the transfer and which are part of the plan of reorganization will be
considered as assets held by the corporation immediately prior to the transfer.
It has been represented that the merger of OmniSub with and into Ross Roy will
qualify as a merger under the laws of the State of Michigan. At the time of this
transaction Omnicom will own 100% of the issued and outstanding stock of
OmniSub. Therefore, Omnicom will be in control of OmniSub within the meaning of
Section 368(c) of the Code. It has been represented that following the
transaction, Ross Roy will hold at least 90% of the fair market value of its net
assets and at least 70% of the fair market value of its gross assets and at
least 90% of the fair market value of OmniSub's net assets and at least 70% of
the fair market value of OmniSub's gross assets held immediately prior the
transaction. For purposes of this representation, amounts used by Ross Roy or
OmniSub to pay reorganization expenses, and all redemptions and distributions
(except for regular, normal, dividends) made by Ross Roy or OmniSub will be
included as assets of Ross Roy, or OmniSub, respectively, immediately prior to
the transaction. Thus, the substantially all requirement of Section
368(a)(2)(E)(i) will be met.
Additionally, because it has been represented that Omnicom does not own any
stock of Ross Roy, Omnicom will acquire in the reverse merger 100% of the stock
of Ross Roy solely for voting stock of Omnicom. Thus, the requirement in Section
368(a)(2)(E)(ii) of the Code will be met.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 15
In addition to the requirements set forth in the statute, in order for a
transaction to be a tax-free reorganization, certain requirements set forth in
the regulations under Section 368 of the Code must also be met. Section
1.368-l(b) of the Regulations excepts from the general rule of taxability
certain specifically described exchanges incident to such readjustments of
corporate structures made in one of the particular ways specified in the Code as
are required by business exigencies and which affect only a readjustment of
continuing interest in property under modified corporate form. Requisite to a
reorganization are a continuity of business enterprise and a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization.
Section 1.368-l(d) of the Regulations provides that continuity of business
enterprise requires that the acquiring corporation either (i) continue the
acquired corporation's historic business or (ii) use a significant portion of
the acquired corporation's historic assets in a business. It has been
represented that Ross Roy will continue its historic business or use a
significant portion of its historic business assets in a business; thus, the
continuity of business enterprise requirement will be met.
Under Section 1.368-l(b) of the Regulations, the continuity of interest doctrine
requires that in a reorganization there must be a continuity of interest therein
on the part of those persons who, directly or indirectly, were the owners of the
enterprise prior to the reorganization. Rev. Proc. 77-37 provides that the
"continuity of interest" requirement of Section 1.368-l(b) is satisfied if there
is continuing interest through stock ownership in the acquiring or transferee
corporation (or a corporation in "control" thereof within the meaning of Section
368(c) of the Code) on the part of the former shareholders of the acquired or
transferor corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same date.
It is not necessary that each shareholder of the acquired or transferor
corporation receive in the exchange stock of the acquiring or transferee
corporation, or a corporation in "control" thereof, which is equal in value to
at least 50% of the value of such shareholder's former stock interest in the
acquired or transferor corporation, so long as one or more of the shareholders
of the acquired or transferor corporation have a continuing interest through
stock ownership in the acquiring or transferee corporation or a corporation in
"control" thereof which is, in the aggregate, equal to at least 50 percent of
the value of all of the formerly outstanding stock of the acquired or transferor
corporation. Sales, redemptions, and other dispositions which are part of the
plan of reorganization will be considered in determining whether there is a 50%
continuing interest through stock ownership as of the effective date of the
reorganization.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 16
It has been represented that there is no plan or intention by the shareholders
of Ross Roy to sell, exchange or otherwise dispose of a number of shares of
Omnicom voting stock received in the transaction that would reduce the Ross Roy
shareholders' ownership of Omnicom voting common stock to a number of shares
having a value, as of the date of the transaction, of less than 50% of the value
of the formerly outstanding stock of Ross Roy as of the same date. For purposes
of this representation, shares of Ross Roy common stock exchanged for cash in
lieu of fractional shares of Omnicom will be treated as outstanding Ross Roy
common stock on the date of the transaction. Moreover, shares of Ross Roy common
stock and shares of Omnicom common stock held by Ross Roy shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the transaction
will be considered in making this representation. Thus, the continuity of
interest requirement will be met for the transaction.
In order to qualify as a reorganization described in Sections 368(a)(1)(A) and
368(a)(2)(E), of the Code, there must be a genuine business purpose for this
transaction. Omnicom wants to acquire a corporation to strengthen the
advertising, promotional, and marketing services that it provides to its
customers. Ross Roy believes that the combined entity would be the preeminent
provider of advertising, promotional and marketing services with a significant
opportunity for growth. Thus, this requirement will be met.
Based on the above, the merger of OmniSub with and into Ross Roy will qualify as
a reorganization described in Sections 368(a)(1)(A) and 368(a)(2)(E) of the
Code.
Section 1032(a) of the Code provides that no gain or loss shall be recognized to
a corporation on the receipt of money or other property in exchange for stock of
such corporation. OmniSub will merge with and into Ross Roy in exchange for Ross
Roy common stock. Accordingly, Ross Roy should not recognize any gain or loss on
the exchange of its common stock for the property of OmniSub.
Section 368(b)(2) of the Code provides that the term "a party to a
reorganization" includes both corporations in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another. In the case of a reorganization qualifying under Section 368(a)(1)(A)
by reason of Section 368(a)(2)(E), the term "a party to reorganization" includes
the controlling corporation referred to in Section 368(a)(2)(E). Thus, Ross Roy,
Omnicom and OmniSub are each a party to a reorganization.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 17
Section 362(b) of the Code provides that if property was acquired by a
corporation in connection with a reorganization, then the basis of such property
shall be the same as it would be in the hands of the transferor, increased by
the amount of gain recognized to the transferor on such transfer. Since Ross Roy
will receive property from OmniSub in connection with a reorganization within
the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E), the basis of the assets
to be received by Ross Roy will equal the basis of those assets in the hands of
OmniSub immediately prior to the merger increased by the amount of gain
recognized, if any, to OmniSub in the Merger.
Section 1223(2) of the Code provides that in determining the period for which
the taxpayer has held property however acquired, there shall be included the
period for which such property was held by any other person, if such property
has, for purposes of determining gain or loss from a sale or exchange, the same
basis in whole or in part in his hands as it would have had in the hands of such
other person. Since the basis of the assets to be received by Ross Roy from
OmniSub will have the same basis as those assets in the hands of OmniSub
immediately prior to the transfer, the holding period for the assets of OmniSub
to be received by Ross Roy will include the period during which such assets were
held by OmniSub.
Section 354(a)(1) of the Code provides that no gain or loss shall be recognized
to a shareholder if stock or securities in a corporation a party to a
reorganization are, in pursuance of the plan of reorganization, exchanged solely
for stock or securities in such corporation or in another corporation a party to
the reorganization. In Rev. Rul. 67-275, 1967-2 C.B. 142, the Internal Revenue
Service ("Service") held that the acquiring corporation's cost of registering
its own stock are properly attributable to it and are not other property
received in the reorganization by the shareholders of the acquired corporation.
Thus, the registration expenses incurred by Ross Roy and Omnicom are not
considered other property received in the reorganization by the shareholders. As
Ross Roy and Omnicom are parties to a reorganization and the Ross Roy
shareholders will receive solely stock, no gain or loss will be recognized by
Ross Roy shareholders upon the exchange of their Ross Roy common stock solely
for Omnicom common stock (including fractional share interests that they might
otherwise be entitled to receive).
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 18
Section 358(a)(1) of the Code provides that in the case of an exchange to which
Section 354 applies, the basis of the property to be received without the
recognition of gain or loss shall be the same as that of the property exchanged,
decreased by (i) the fair market value of any other property (except money)
received by the taxpayer, (ii) the amount of money received by the taxpayer, and
(iii) the amount of loss to the taxpayer which was recognized on such exchange,
and increased by (i) the amount which was treated as a dividend, and (ii) the
amount of gain to the taxpayer which was recognized in such exchange (not
including any portion of such gain which was treated as a dividend). In the
reorganization, the shareholders of Ross Roy will receive only Omnicom common
stock. Therefore, the basis of the Omnicom common stock (including fractional
share interests that they might otherwise be entitled to receive) in the hands
of the former Ross Roy shareholders will be the same, in each instance, as the
basis of the Ross Roy common stock surrendered in exchange therefore.
Section 1223(1) of the Code provides that in determining the period for which
the taxpayer has held property received in an exchange, there shall be included
the period for which the taxpayer held the property exchanged if the property
has, for the purpose of determining gain or loss from a sale or exchange, the
same basis (in whole or in part) in its hands as the property exchanged. In the
case of such exchanges after March 1, 1954, the property exchanged at the time
of such exchange must be a capital asset as defined in Section 1221 or property
described in Section 1231. Because the basis of the Omnicom common stock held by
the Ross Roy shareholders will have the same basis as the Ross Roy common stock
exchanged, the holding period of the Omnicom common stock (including fractional
share interests that they might otherwise be entitled to receive), will include
the period for which the Ross Roy common stock was held, provided that such
stock was a capital asset on the date of the exchange.
Rev. Rul. 66-365, 1966-l C.B. 116, provides that cash received by a target
shareholder as part of a plan of reorganization under Section 368(a)(1)(A) of
the Code, when the target shareholder is otherwise entitled to receive a
fractional share of stock of the acquiring corporation in exchange for the
target stock, will be treated as if the fractional shares were distributed as
part of the exchange and then were redeemed by the acquirer. These cash payments
will be treated as having been received as distributions in full payment in
exchange for the stock redeemed as provided in Section 302(a), provided the
redemption is not essentially equivalent to a dividend. Thus, the receipt of
cash will result in gain or loss measured by the difference between the basis of
such fractional share interest and the cash received, and such gain or loss will
be capital gain or loss to the target shareholder, provided the target stock was
a capital asset in the shareholder's hands and, as such, would be subject to the
provisions and limitations of Subchapter P of Chapter 1 of the Code.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 19
Rev. Proc. 77-41, 1977-2, C.B. 574, provides that the Service will issue an
advance ruling under Section 302(a) of the Code that cash to be distributed to
shareholders in lieu of fractional share interests arising in corporate
reorganizations will be treated as having been received in part or full payment
in exchange for the stock redeemed if the cash distribution is undertaken solely
for the purpose of saving the corporation the expense and inconvenience of
issuing and transferring fractional shares, and is not separately bargained for
consideration. The purpose of the transaction giving rise to the fractional
share interest, the maximum amount of cash that may be received by any one
shareholder, and the percentage of the total consideration that will be cash are
among the factors that will be considered in determining whether a ruling is to
be issued.
It has been represented that the payment of cash in lieu of fractional shares of
Omnicom stock is solely for the purpose of avoiding the expense and
inconvenience to Omnicom of issuing fractional shares and does not represent
separately bargained-for consideration. The total cash consideration that will
be paid in the transaction to the Ross Roy shareholders instead of issuing
fractional shares of Omnicom common stock will not exceed 1% of the total
consideration that will be issued in the transaction to the Ross Roy
shareholders in exchange for their shares of Ross Roy common stock. The
fractional share interests of each Ross Roy shareholder will be aggregated, and
no Ross Roy shareholder will receive cash in an amount equal to or greater than
the value of one full share of Omnicom common stock.
Accordingly, cash received by a shareholder of Ross Roy otherwise entitled to
receive a fractional share of Omnicom common stock in the exchange for Ross Roy
common stock will be treated as if the fractional shares were distributed as
part of the exchange and then redeemed by Omnicom. These cash payments will be
treated as having been received as distributions in full payment in exchange for
the stock redeemed as provided in Section 302(a) of the Code. This receipt of
cash will result in gain or loss measured by the difference between the basis of
such fractional share interest and the cash received. Such gain or loss will be
capital gain or loss to a Ross Roy shareholder, provided the Ross Roy common
stock was a capital asset in the shareholder's hands and, as such, would be
subject to the provisions and limitations of Subchapter P of Chapter 1 of the
Code.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 20
Pursuant to Rev. Proc. 84-42, 1984-1 C.B. 521, in transactions under Section
368(a)(1)(A) of the Code, a portion of the stock issued in exchange for the
requisite stock or property may be placed in escrow by the exchanging
shareholders, for possible return to the issuing corporation under specified
conditions without impacting the nature of the transaction under section
368(a)(1)(A) nor subjecting those shares to a treatment different from the
shares issued outright. This will be the case provided, (1) there is a valid
business reason for establishing the arrangement; (2) the stock subject to such
arrangement appears as issued and outstanding on the balance sheet of the
issuing corporation and such stock is legally outstanding under applicable state
law; (3) all dividends paid on such stock will be distributed currently to the
exchanging shareholders; (4) all voting rights of such stock (if any) are
exercisable by or on behalf of the shareholders or their authorized agent; (5)
no shares of such stock are subject to restrictions requiring their return to
the issuing corporation because of death, failure to continue employment, or
similar restrictions; (6) all such stock is released from the arrangement within
5 years from the date of consummation of the transaction (except where there is
a bona fide dispute as to whom the stock should be released); (7) at least 50
percent of the number of shares of each class of stock issued initially to the
shareholders (exclusive of shares of stock to be issued at a later date) is not
subject to the arrangement; (8) the return of stock will not be triggered by an
event the occurrence or nonoccurrence of which is within the control of
shareholders; (9) the return of stock will not be triggered by the payment of
additional tax or reduction in tax paid as a result of a Service audit of the
shareholders or the corporation either (a) with respect to the reorganization or
section 351 transaction in which the escrowed stock will be issued, or (b) when
the reorganization or section 351 transaction in which the escrowed stock will
be issued involves persons related within the meaning of section 267 (c) (4) of
the Code; and (10) the mechanism for the calculation of the number of shares of
stock to be returned is objective and readily ascertainable.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 21
It has been represented that there is a valid business reason for establishing
the Escrow Agreement and that the Escrow Stock will appear as issued and
outstanding on the balance sheet of Omnicom and will be legally outstanding
under New York law. Pursuant to the Escrow Agreement, all dividends are
distributed to and voting rights exercisable by the Ross Roy shareholders. There
is no provision in the Escrow Agreement requiring the return of Omnicom common
stock because of death, failure to continue employment or similar restrictions
and only 7.356% of the Omnicom common stock, issued in the Merger, is Escrow
Stock. It has been represented that the return of Escrow Stock will not be
triggered by an event the occurrence or non-occurrence of which is within the
control of the Ross Roy shareholders nor by the payment of additional tax or a
reduction in taxes paid due to a Service audit of the Ross Roy shareholders or
the corporation with respect to the Merger transaction or persons related within
the meaning of Section 276(c)(4) of the Code. The Escrow Agreement does have a
mechanism for calculating the number of shares of Escrow Stock to be returned
based on objective criteria which is readily ascertainable by virtue of the loss
sustained or binding arbitration. Although the General Escrow Fund will
terminate within five years from the date of the Merger (except for claims in
dispute which will be retained until final determination) the Special Escrow
Fund could continue beyond five years of the Merger. This is due to the fact
that the Special Escrow Fund is being created for the sole purpose of
indemnifying Omnicom for pre-existing litigation and threatened litigation all
of which are contingencies where outcomes cannot reasonably be determined at the
time of the Merger.
Whether or not the Escrow Agreement is a "conditional right" to acquire
additional stock and thus constituting boot is only an issue since it does not
satisfy the five year requirement of Rev. Proc. 84-42. The five year limitation
required for IRS ruling purposes seems concerned with the requirement that stock
be issued pursuant to a plan of reorganization and not as perpetual rights which
tend to resemble royalty or profit sharing arrangements rather than closed
exchanges for present value. In the case at hand, the purpose of the Special
Escrow Fund is not a profit sharing arrangement but rather a means of estimating
certain contingent liabilities that are being assumed in the Merger due to
pending litigation. Such amount is limited to a maximum of $1,300,000. Pursuant
to James Hamrick, 43 T.C. 21 (1964), and Revenue Ruling, 66-112, 1966-1 C.B. 68,
if the taxpayer's rights could give rise to nothing, other than stock under the
agreement, then the agreement would not give rise to boot. See also Rev. Rul.
67-90, 1967-1 C.B. 79 and Rev. Rul. 73-205, 1973-1 C.B. 188.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 22
In the instant case, the Ross Roy shareholders can receive nothing but Omnicom
common stock. They have the right to vote the shares and receive dividends.
Omnicom has taken a security interest in the Escrow Stock. The Ross Roy
shareholders' rights under the Escrow Agreement are generally not readily
marketable. As such, the Escrow Stock will not be considered a contingent right
and thus will not be boot.
Even if the Escrow Stock were to be considered boot it would have no adverse
impact on the tax-free nature of the transaction since the amount of Escrow
Stock is not significant enough to violate the continuity of interest or the
control requirements as previously discussed.
The EPU Holder
The EPU Plan is an unsecured and unfunded promise by Ross Roy to pay deferred
compensation to the EPU Holder at a later date based upon the appreciation in
the Ross Roy common stock. To the extent the EPU Holder is a cash basis
taxpayer, no income will be included until payment is received.
Section 61 of the Code provides that, except at otherwise provided, income means
all income from whatever source derived.
Section 451(a) of the Code provides that the amount of any item of gross income
is includible in gross income for the taxable year in which received by the
taxpayer, unless, under the method of accounting used in computing taxable
income, the amount is to be properly accounted for as of a different period.
Section 1.451-2(a) of the Regulations provides that income, although not
actually reduced to a taxpayer's possession, is constructively received in the
taxable year during which it is credited to the taxpayer's account, set apart
for the taxpayer, or otherwise made available so that the taxpayer may draw upon
it at any time, or so that the taxpayer could have drawn upon it during the
taxable year if notice of intention to withdraw had been given. However, income
is not constructively received if the taxpayer's control of its receipt is
subject to substantial limitations or restrictions.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 23
The courts and the Internal Revenue Service have recognized that a requirement
of surrender or forfeiture of a valuable right is a sufficient restriction to
make inapplicable the doctrine of constructive receipt. See Hales v.
Commissioner, 40 B.T.A. 1245 (1939), acq., 1940-1 C.B. 2.
Under the EPU Plan, the EPU Holder would forfeit the entire amount of
appreciation if he terminated employment. The EPU Plan is unfunded and not
available for the EPU Holder to draw upon.
Therefore, the EPU Holder is not in constructive receipt of income by virtue of
the appreciation of the Ross Roy common stock (see Revenue Ruling 80-300, 1980-2
C.B. 165) and will only recognize income upon payment of the EPU units.
Although under the aforementioned principles the EPU Holder would be required to
include in income the value of the Omnicom common stock on the date received,
such will not be the case in this instance. Generally, Section 83 of the Code
does not apply to deferred compensation arrangements by virtue of Section
1.83-3(e) of the Regulations, because Section 83 of the Code only applies to
"property" transferred for services which does not include an unfunded unsecured
promise to pay money or property in the future. However, upon transfer of
"property", the Omnicom common stock, such stock will be subject to the
Affiliates Restriction. Such restriction was put in place to comply with the
pooling of interest accounting rules set forth in Accounting Series Release
Number l35 ("ARS 135"). Pursuant to 1.83-3(k)(1) of the Regulations:
"For purposes of section 83 and the regulations thereunder,
property is subject to substantial risk of forfeiture and is
not transferable so long as the property is subject to a
restriction on transfer to comply with the "Pooling-
of-Interests Accounting" rules set forth in Accounting
Series Release Numbered 130 ((10/5/72) 37 FR 20937; 17 CFR
211.130) and Accounting Series Release Numbered 135
((1/18/73) 38 FR 1734; 17 CFR 211.135)."
As such, Section 83, of the Code, will apply to the Omnicom common stock once
received by the EPU Holder, and provided the EPU Holder does not make an
election pursuant to Section 83(b) of the Code, there will be no income
inclusion to the EPU Holder until the Affiliates Restriction lapses. At that
time, the fair market value of the Omnicom common stock shall be includible in
gross income as compensation to the EPU Holder.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 24
The EPU Holder's basis in the Omnicom common stock will equal the amount
included in gross income pursuant to Section 83(a) of the Code. See, Section
1.61-2(d)(2) of the Regulations.
Provided the EPU Holder does not make an election pursuant to Section 83(b) of
the Code, the holding period for such Omnicom common stock pursuant to Section
83(f) of the Code will begin once the Omnicom common stock is no longer subject
to the Affiliates Restriction.
The Escrow Stock will be includible in gross income to the EPU Holder at the
same time as the other Omnicom common stock received or upon its distribution to
the EPU Holder from the General Escrow Fund or the Special Escrow Fund. The
timing and amount of income will be based upon all facts and circumstances. We
express no opinion as to the timing and amount includible in gross income by the
EPU Holder with respect to the Escrow Stock. The EPU Holder should consult with
his own tax advisor as to the timing and amount of income to be included with
respect to the Escrow Stock.
We also express no opinion on the deductibility to Omnicom, OmniSub or Ross Roy
or the assessment of excise tax, if any, to the EPU Holder with respect to the
Omnicom common stock and the Escrow Stock to be received by the EPU Holder. The
aforementioned parties should consult with their own tax advisors as to these
items.
The Former Eligible Employee
Holder The tax treatment of the receipt of Omnicom common stock by a Former
Eligible Employee Holder will depend upon the character of the initial amounts
received from Ross Roy in exchange of his Ross Roy stock when the Former
Eligible Employee Holder terminated. See Arrowsmith v CIR, 344 US 6 (1952).
The Arrowsmith doctrine provides that the character of a subsequent portion of a
single transaction is controlled by the prior related elements of the
transaction. Under Section III F3 of the Ross Roy Articles, the Former Eligible
Employee Holder was required to have his shares redeemed by Ross Roy upon
termination of employment due to retirement. Only by virtue of this initial
redemption does the Former Eligible Employee Holder have a right to receive the
Omnicom stock. This is explicitly provided for in Section III F7 of the Ross Roy
Articles. As such, the distribution of Omnicom common stock is controlled by the
treatment of the original redemption.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 25
Since Section III F3 of the Ross Roy Articles required all the Ross Roy stock
held by the Former Eligible Employee Holder in the initial transaction to be
redeemed, the initial transaction should have been treated as a distribution
pursuant to Sections 302(a) and 302(b)(3) of the Code, provided that the Former
Eligible Employee Holder is not deemed to constructively own any additional Ross
Roy common stock pursuant to Section 302(c)(1) of the Code, or if so, meets the
requirements of Section 302(c)(2) of the Code.
In that instance, the distribution of cash would have resulted in gain or loss
measured by the difference between the basis of such Ross Roy common stock
redeemed and the cash received, and such gain or loss would have been capital
gain or loss to the Former Eligible Employee Holder, provided the Ross Roy
common stock was a capital asset in the Former Eligible Employee Holder's hands
and as such, would be subject to the provisions and limitations of Subchapter P
of Chapter 1 of the Code.
Pursuant to Arrowsmith, the receipt by the Former Eligible Employee Holder of
the Omnicom common stock will be treated as a distribution of additional
property, as defined in Section 317(a) of the Code, in exchange for Ross Roy
common stock under Sections 302(a), and 302(b)(3) of the Code, provide that the
Former Eligible Employee Holder is not deemed to constructively own additional
Ross Roy common stock pursuant to Section 302(c)(1), or if so, meets the
requirements of Section 302(c)(2) of the Code.
The gain with respect to the Omnicom common stock received will be equal to its
fair market value on the date received, reduced by any amount treated as imputed
interest (see supra). Such gain will be capital gain to the Former Eligible
Employee Holder, provided the Ross Roy common stock was a capital asset in the
Former Eligible Employee Holder's hands and, as such, would be subject to the
provisions and limitations of Subchapter P of Chapter 1 of the Code.
The Former Eligible Employee Holder's basis is to be determined pursuant to the
general rule of Section 1012, of the Code. For this purpose, the basis in the
Omnicom common stock will equal its fair market value at the date received. The
holding period for the Omnicom common stock will not include the period in which
the Former Eligible Employee Holder held the Ross Roy common stock since the
transaction is not governed by Section 1223 of the Code.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 26
Pursuant to Section 483(a) of the Code, a portion of the Omnicom common stock
received will be recast and includible in gross income to the Former Eligible
Employee Holder as interest income provided the requirements of Sections
483(c)(1) and 483(d) of the Code are satisfied. See Rev. Rul. 70-300, 1970-1
C.B. 125 and Rev. Rul 73-298, 1973-2 C.B. 173. Since the receipt of the Omnicom
common stock was a contingent payment pursuant to Section III F 3 of the Ross
Roy Articles, Section 483(f)(2) will apply and a portion of the Omnicom common
stock received will be recast as imputed interest income provided the
requirements of Section 483(c) and 483(d) of the Code are met.
The Escrow Stock will be includible in gross income to the Former Eligible
Employee Holder at the same time as the other Omnicom common stock received or
upon its distribution to the Former Eligible Employee Holder from the General
Escrow Fund or the Special Escrow Fund. The timing and amount of income will be
based upon all facts and circumstances. We express no opinion as to the timing
and amount includible in gross income by the Former Eligible Employee Holder
with respect to the Escrow Stock. The Former Eligible Employee Holder should
consult with his own tax advisor as to the timing and amount of income to be
included with respect to the Escrow Stock.
- -----------------------
(1) Due to the uncertainty as to the closing of this transaction, it cannot be
determined with certainty whether the six month or the one year
requirements of Section 483(c) of the Code will be met.
(2) Contingent-stock transactions more likely than not should be handled under
the contingent-payment rules of Section 483(f) of the Code, although
Section 1275(d) of the Code similarly envisions application of the
Original Issue Discount ("OID") rules to contingent-payment obligations.
This appears to be true, eventhough the OID rules specifically take
priority over Section 483 of the Code under Section 483(d)(1) of the Code.
Although Section 1.1275-1(b)(1) of the Proposed Regulations (1986) stated
that deferred payments in stock were debt instruments for purposes of the
OID rules, Section 1.1275-1(d) of the revised Proposed Regulations (1992)
defines "debt" by reference to "general principles of ... tax law." This
seems to send the contingent-stock transaction back to Section 483 since
there is no portion that is unconditionally payable, as would be required
under general principles of tax law. See Section 1.483-4(b) Ex. (2) of the
Proposed Regulations applyingss.483 in contingent stock transactions.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 27
Canadian Income Tax to Canadian Resident Shareholders
The Income Tax Act, Canada imposes an income tax on the taxable income for each
taxation year of every person resident in Canada at any time in the year.
Section 3 of the Act provides that the income of a taxpayer for a taxation year
includes all of the taxpayer's taxable capital gains for the year from the
dispositions of property.
Paragraph 38(a) of the Act provides that a taxpayer's taxable capital gain for a
taxation year from the disposition of property is 3/4 of the taxpayer's capital
gain for the year from the disposition of that property.
Sections 39 and 40 provide that a taxpayer's capital gain for a taxation year
from the disposition of any property is the amount by which the proceeds of
disposition exceed the total of the adjusted cost base to the taxpayer of the
property and any outlays and expenses made or incurred by the taxpayer for the
purpose of making the disposition.
Section 54 of the Act defines a disposition as including any transaction or
event entitling a taxpayer to proceeds of disposition, and any transaction or
event by which any property of a taxpayer that is a share is redeemed in whole
or in part or is canceled.
Section 54 of the Act also defines proceeds of disposition as including the sale
price of property that has been sold, and compensation for property taken under
statutory authority or the sale price of property sold to a person by whom
notice of an intention to take it under statutory authority was given.
Proceeds of disposition is also considered to be money or money's worth or
property received in exchange for property that has been disposed of.
The adjusted cost base of a property is generally the original cost to the
taxpayer. There may be adjustments to the original cost to arrive at adjusted
cost base, and these issues should be reviewed by each Canadian shareholder with
his or her income tax advisor.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 28
As a result of the above, a Canadian resident individual owning Ross Roy common
stock will dispose of his/her Ross Roy common stock for proceeds of disposition
equal to the fair market value of the Omnicom common stock received as
consideration therefor at the time of the transaction. The fair market value of
Omnicom stock received, as determined on the date received, less the adjusted
cost base in the Ross Roy common stock exchanged, shall be a capital gain, 3/4
of which will be includible in the Canadian resident individual's taxable income
for the year of disposition.
OPINION
Based on the facts contained herein, the Plan, the Form S-4 and the
representations set forth in the Ross Roy and Omnicom letters dated June 14,
1995, and June 19, 1995, respectively, it is our opinion that the federal income
tax consequences of the Merger of OmniSub with and into Ross Roy in exchange for
Omnicom common stock are as follows:
The Merger
The restatement of the Ross Roy Articles pursuant to the merger will be a
noncompensatory cancellation of a nonlapse restriction and since it will be
treated as such, with no deduction taken by Ross Roy, OmniSub and Omnicom, there
will be no compensation to the Ross Roy shareholders as a result of the Merger.
Since after the proposed transaction, Ross Roy will hold substantially all its
properties and substantially all the properties of OmniSub and in the
transaction, the Ross Roy shareholders will exchange an amount of stock
constituting control of Ross Roy solely for common stock of Omnicom, the
proposed merger will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code. The reorganization will not be disqualified by reason
of the fact that common stock of Omnicom is used in the transaction by reason of
the application of Section 368(a)(2)(E). For purposes of this opinion,
"substantially all" means at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross assets of both
Ross Roy and OmniSub. Ross Roy, Omnicom and OmniSub will each be "a party to a
reorganization" within the meaning of Section 368(b).
No gain or loss will be recognized by Ross Roy on the receipt of the assets of
OmniSub in exchange for Ross Roy common stock, by reason of the application of
Section 1032(a) of the Code.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 29
The basis of the assets of OmniSub to be received by Ross Roy will be the same
as the basis of those assets in the hands of OmniSub immediately before the
exchange, increased by the amount of gain recognized, if any, to OmniSub in the
Merger, by reason of the application of Section 362(b) of the Code.
The holding periods of assets to be received by Ross Roy will include the period
during which such assets were held by OmniSub, by reason of the application of
Section 1223(2) of the Code.
No gain or loss will be recognized by Ross Roy's shareholders upon the exchange
of their Ross Roy common stock (including fractional share interests that they
might otherwise be entitled to receive) solely for Omnicom common stock by
reason of the application of Section 354(a)(1) of the Code.
The basis of Omnicom common stock (including fractional share interests that
they might otherwise be entitled to receive) received by Ross Roy shareholders
will be the same, in each instance, as the basis of Ross Roy common stock
surrendered in exchange therefor, by reason of the application of Section
358(a)(1) of the Code.
The holding period of the Omnicom common stock (including fractional share
interests that they might otherwise be entitled to receive) will include the
holding period of the Ross Roy common stock surrendered in exchange therefor,
provided that Ross Roy common stock was held as a capital asset on the date of
exchange, by reason of the application of Section 1223(1) of the Code.
Cash received by a shareholder of Ross Roy otherwise entitled to receive a
fractional share of Omnicom common stock in the exchange for his Ross Roy stock
will be treated as if the fractional shares were distributed as part of the
exchange and then were redeemed by Omnicom. These cash payments will be treated
as having been received as distributions in full payment in exchange for the
stock redeemed as provided in Section 302(a) of the Code. This receipt of cash
will result in gain or loss measured by the difference between the basis of such
fractional share interest and the cash received. Such gain or loss will be
capital gain or loss to the Ross Roy shareholder, provided the Ross Roy stock
was a capital asset in such shareholder's hands and, as such, will be subject to
the provisions and limitations of Subchapter P of Chapter 1 of the Code (Rev.
Rul. 66-365 and Rev. Proc. 77-41).
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 30
The Escrow Stock will receive the same treatment as those shares received
outright under Section 368(a)(1)(A) and section 368(a)(2)(E) of the Code. (Rev.
Proc. 84-42, James Hamrick, Rev. Rul. 66-112, Rev. Rul. 76-334, Rev. Rul. 76-42
and Rev. Rul. 78-726).
EPU Holder
Provided the EPU Holder does not make an election pursuant to Section 83(b) of
the Code, the EPU Holder will include the fair market value of the Omnicom
common stock in gross income as compensation at the time the Affiliates
Restriction lapses. See Section 1.83-3(k) of the Regulations.
The EPU Holder's basis in the Omnicom common stock will equal the amount
included in gross income pursuant to Section 83(a) of the Code. See Section
1.61-2(d)(2) of the Regulations.
Provided the EPU Holder does not make an election pursuant to Section 83(b) of
the Code, the holding period for such Omnicom common stock pursuant to Section
83(f) of the Code will begin once the Omnicom common stock is no longer subject
to the Affiliates Restriction.
We express no opinion as to the timing and amount includible in gross income by
the EPU Holder with respect to the Escrow Stock. The EPU Holder should consult
with his own tax advisor as to the timing and amount of income to be included
with respect to the Escrow Stock.
We also express no opinion on the deductibility to Omnicom, OmniSub or Ross Roy
or the assessment of excise tax, if any, to the EPU Holder with respect to the
Omnicom common stock and the Escrow Stock to be received by the EPU Holder. The
aforementioned parties should consult with their own tax advisors as to these
items.
Former Eligible Employee Holder
The receipt of Omnicom common stock by the Former Eligible Employee Holder will
be treated as a distribution of additional property, as defined in Section
317(a) of the Code, in exchange for Ross Roy common stock pursuant to Sections
302(a) and 302(b)(3) of the Code, provided that the Former Eligible Employee
Holder is not deemed to constructively own additional Ross Roy common stock
pursuant to Section 302(c)(1), or if so, meets the requirements of Section
302(c)(2) of the Code.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 31
Gain with respect to the Omnicom common stock received will be equal to its fair
market value on the date received, reduced by any amount treated as imputed
interest pursuant to Section 483 of the Code.
Provided the Ross Roy common stock was a capital asset in the Former Eligible
Employee Holder hands, such gain will be capital gain and will be subject to the
provisions and limitations of Subchapter P of Chapter 1 of the Code.
The basis in the Omnicom common stock received by the Former Eligible Employee
Holder will equal its fair market value at the date received.
The holding period for the Omnicom common stock will not include the period in
which the Former Eligible Employee Holder held the Ross Roy common stock since
the transaction is not governed by Section 1223 of the Code.
A portion of the Omnicom common stock received may be recharacterized as imputed
interest income pursuant to Section 483 of the Code.
We express no opinion as to the timing and amount includible in gross income by
the Former Eligible Employee Holder with respect to the Escrow Stock. The Former
Eligible Employee Holder should consult with his own tax advisor as to the
timing and amount of income to be included with respect to the Escrow Stock.
Canadian income Tax to Canadian Resident Shareholders
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 a gain, of which 3/4 shall be included in
Canadian income for income tax purposes.
2. The adjusted cost base of the Omnicom common stock received shall equal
their fair market value as determined on the date received.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 32
Our opinion is based solely upon:
The representations, information, documents, and facts ("representations")
referred to in this letter;
Our assumption (without independent verification or review) that all
of the representations and all of the original, copies, and signatures
of documents are accurate, true and authentic;
Our assumption (without independent verification or review) that there
will be timely execution and delivery of, and performance as required
by the representations and documents;
Our assumption (without independent verification or review) that all
documents pertaining to the proposed transaction and provided for our
review are accurate, true and authentic.
Our opinion is limited to those expressed above and we express no opinion with
regard to any sections of the Internal Revenue Code other than those referred to
above. We express no opinion with regard to the taxation of the proposed
transaction described herein under the laws of any state, local or foreign
jurisdiction. We express the opinions contained herein as of the date of this
letter only.
In rendering our opinion, we have necessarily relied on the relevant provisions
of the Internal Revenue Code of 1986, as amended, the regulations thereunder,
and judicial and administrative interpretations thereof which exist as of the
date of this letter, all of which are subject to change or modification by
subsequent legislative, regulatory, administrative, or judicial decisions. If
there are any significant changes to the federal income tax authorities cited
above (changes for which we have no responsibility to advise you), our opinion
may become invalid and/or necessitate (upon your request) reconsideration. Our
opinion is not binding on the IRS or the courts.
<PAGE>
June 29, 1995
Ross Roy Communications, Inc.
Page 33
This opinion letter is solely for your information and inclusion in Form S-4 as
filed with the Securities and Exchange Commission with regard to the transaction
described herein. Other than the uses indicated in the preceding sentence, our
opinion may not be relied upon, distributed, or disclosed by anyone without the
prior written consent of Deloitte & Touche LLP.
Very truly yours,
DELOITTE & TOUCHE LLP
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 Omnicom Group Inc.'s Form 10-K for the year ended December 31,
1994 and to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
New York, New York
July 20, 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 regarding our audit of Ross Roy
Communications, Inc. financial statements for the years ended December 31, 1994
and 1993, 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
July 20, 1995
