-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Nnm28zmtoCc3AcBYZqs2xBT1qC+zTu5/Y0vULRWMGpHz/vPQh1JsTu2Os/bZfaxP lNOWkKyZrZ33HlEB7hBp7Q== 0000891092-95-000126.txt : 19950804 0000891092-95-000126.hdr.sgml : 19950804 ACCESSION NUMBER: 0000891092-95-000126 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19950803 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMNICOM GROUP INC CENTRAL INDEX KEY: 0000029989 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [7311] IRS NUMBER: 131514814 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-60347 FILM NUMBER: 95558801 BUSINESS ADDRESS: STREET 1: 437 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124153600 MAIL ADDRESS: STREET 1: 437 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: DOYLE DANE BERNBACH GROUP INC DATE OF NAME CHANGE: 19861117 FORMER COMPANY: FORMER CONFORMED NAME: DOYLE DANE BERNBACH INTERNATIONAL INC DATE OF NAME CHANGE: 19850604 FORMER COMPANY: FORMER CONFORMED NAME: DOYLE DANE BERNBACH INC DATE OF NAME CHANGE: 19781226 S-4/A 1 AMENDMENT NO. 3 As filed with the Securities and Exchange Commission on August 3, 1995 Registration No. 33-60347 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- AMENDMENT NO. 3 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. ================================================================================ 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 * 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. Ross Roy Communications, Inc. 100 Bloomfield Hills Parkway / Bloomfield Hills, Michigan 48304 / (810) 433-6000 ----------------------- NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To Be Held On August 31, 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 31, 1995, at 9:00 A.M. (local time), at the Bloomfield Hills Country Club, 350 West Long Lake Road, 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: August 3, 1995 SUBJECT TO COMPLETION DATED AUGUST 3, 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 August 3, 1995. ----------------------- 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 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 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 - -------------------------------------------------------------------------------- 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 31, 1995 at 9:00 A.M. (local time), at the Bloomfield Hills Country Club, 350 West Long Lake Road, 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. - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 6 - ------------------------------------------------------------------------------- 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. However, although the closing of the Merger Agreement is scheduled for August 31, 1995, such closing may be delayed beyond August 31, 1995 if all conditions of the Merger have not been satisfied or waived by such date; if this occurs the Ross Roy Shareholders would not be able to determine the exact Conversion Price at the time of the Special Meeting. At the time this Prospectus/Information Statement is being mailed to the Ross Roy Shareholders, Omnicom has no reason to believe that the Closing Date will not be August 31, 1995, as scheduled. See "The Merger Agreement and the Merger -- The Merger Agreement -- Certain Conditions of the Merger -- Closing Date." 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 ------------------------------------------------------------------------------- 7 - -------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------- 8 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 9 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 10 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 11 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 12 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. 13 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 July 31, 1995) .... 62 3/4 58 5/8 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 July 31, 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 $60.375 per share. 14 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 Thursday, August 31, 1995 at 9:00 A.M. (local time), at the Bloomfield Hills Country Club, 350 West Long Lake Road, Bloomfield Hills, Michigan 48304. This Prospectus/Information Statement is first being mailed to the Ross Roy Shareholders on August 3, 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 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 Ross Roy's client relationship with Kmart. As a result of the likely loss of the Kmart account, Ross Roy believed that further efforts to explore a strategic merger or other business combination with another agency would be negatively affected. Accordingly, the Executive Committee suspended further discussions with potential merger partners. During December 1994, several of the potential merger partners (including Omnicom) indicated to Ross Roy that the uncertainty surrounding the Kmart account did not diminish their interest in proceeding with discussions concerning a strategic combination or merger with Ross Roy. Accordingly, in January 1995, the Executive Committee decided to move forward with discussions with the three potential merger partners and proceeded to distribute the Confidential Descriptive Memorandum. From late January through March l995, the potential merger partners conducted business, accounting and legal due diligence investigations of Ross Roy. On March 16, 1995, Ross Roy sent to each of the three potential merger partners a detailed letter (i) setting forth the auction procedure by which Ross Roy would consider proposals for the purchase of Ross Roy and (ii) requesting the submission of formal proposals concerning such a purchase. The letter also contained forms of a merger agreement for a cash transaction and a stock transaction which Ross Roy would consider as a basis for completing a merger transaction. Each of the potential merger partners responded by April 3, 1995 with a written proposal letter setting forth in broad conceptual terms the general structure for an acquisition of Ross Roy. The proposals varied significantly. McDonald continued discussions with each of the potential merger partners to clarify and refine their respective proposals. On April 10, 1995, Ross Roy received a draft merger agreement from Omnicom. During the remainder of April and through the latter part of May 1995, Ross Roy and Omnicom conducted detailed negotiations as to price, terms and form of a transaction. Discussions continued during this time period with the other two potential merger partners as to the structure and feasibility of their respective proposals for a merger transaction. On May 9, 1995, Peter Mills, the Chairman, President and Chief Executive Officer of Ross Roy, was informed by one of the other two potential merger partners that it was withdrawing its proposal for a merger transaction. Discussions with the other potential merger partner continued during the first three weeks of May 1995. During the period from April 3, 1995 to May 21, 1995, the Ross Roy Board of Directors met on April 13, April 26, and May 16, to review the status of the various proposals. At each of these meetings the Board of Directors met with its financial advisors and legal counsel to review and discuss the terms, conditions and negotiating positions with respect to each proposal. The Ross Roy Board of Directors met on May 21, 1995 with its legal and financial advisors to review Omnicom's proposal and the status of the other proposal. At the meeting, copies of the proposed Merger Agreement and the Escrow Agreement were made available to the Board. Following extensive discussion of the terms of the proposed Merger and related transactions and of operational, legal, and regulatory issues relating to Omnicom's proposal, a review of the status of the other proposal, a presentation by McDonald regarding the financial aspects of the Merger, and receipt of the verbal opinion of McDonald that the consideration to be received by the Ross Roy Shareholders pursuant to the Merger Agreement is fair from a financial point of view, the Board of Directors approved the Merger Agreement and authorized its execution and delivery, based on, among other things, the considerations set forth below under "--Ross Roy's Reasons for the Merger." At the same time, the proposal of the other remaining potential merger partner was officially rejected. A press release announcing the proposed Merger was issued on May 22, 1995. The Merger Agreement was executed and delivered by the parties on June 15, 1995. Ross Roy's Reasons for the Merger The Board of Directors has determined that the Merger Agreement and the Merger are advisable and in the best interests of Ross Roy and the Ross Roy Shareholders and has approved the Merger Agreement and Merger. In reaching its determination that the Merger Agreement is in the best interests of Ross Roy and the Ross Roy Shareholders, the Board considered a number of factors, including, without limitation, the following: 17 (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 18 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. 19 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". 20 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 21 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. However, although the Closing of the Merger Agreement is scheduled for August 31, 1995, such Closing may be delayed beyond August 31, 1995 if all conditions have not been satisfied or waived by such date; if this occurs the Ross Roy Shareholders would not be able to determine the exact Conversion Price at the time of the Special Meeting. At the time this Prospectus/Information Statement is being mailed to the Ross Roy Shareholders, Omnicom has no reason to believe that the Closing Date will not be August 31, 1995 as scheduled. 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. 22 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 23 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 has been scheduled for August 31, 1995, immediately following the Special Meeting, assuming that all conditions to closing the Merger Agreement have been satisfied or waived by such date. At the time this Prospectus/Information Statement is being mailed to the Ross Roy Shareholders, Omnicom has no reason to believe that the Closing Date will not take place on August 31, 1995 as scheduled. 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 24 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 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 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 state or local tax consequences or except in respect of Canadian residents foreign tax consequences. 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. It is recommended that each Ross Roy Shareholder, Former Eligible Employee Holder and the EPU Holder 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 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 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 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 will be filed for listing such Omnicom Common Stock on the NYSE prior to the Closing Date. 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 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 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 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.
(Dollars in Thousands Except Per Share Amounts) ----------------------------------------------------------------------------- Three Months Ended Year Ended December 31 --------------------------------------------------------------- March 31, 1995 1994 1993 1992 1991 1990 -------------- ---- ---- ---- ---- ---- 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
31 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. 32 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.
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 - ---------------- -------- --------- ---------- --------- -------- 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
33
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 - ---------------- -------- --------- ---------- --------- -------- 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)
- ---------------- (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 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".
(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 -------- ------ -------- ------- ---------- ---- ----- 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
- -------------------- (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 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:
Three Months Year Ended December 31 Ended March 31 ---------------------------------------- ----------------------- 1994 1993 1992 1995 1994 ----- ----- ----- ----- ----- 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%
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 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 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 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 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 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 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 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 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 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 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 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 ROSS ROY COMMUNICATIONS, INC. TABLE OF CONTENTS
Page ---- Independent Auditors' Report ...................................................................... F-1 Consolidated Balance Sheets as of December 31, 1994 and 1993 ...................................... F-2 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1994 ........................................................ F-3 Consolidated Statements of 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
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 ROSS ROY COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS December 31, 1994 and 1993
ASSETS 1994 1993 ---- ---- 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 ============ ============
See notes to consolidated financial statements. F-2 ROSS ROY COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1994, 1993 and 1992
1994 1993 1992 ---- ---- ---- 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)
See notes to consolidated financial statements. F-3
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 ------- ------- ------------ ----- 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 ------------- ------------- ------------- ------------- ------------- 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) ============= ============= ============= ============= =============
See notes to consolidated financial statements. F-4
ROSS ROY COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1994, 1993 and 1992 1994 1993 1992 ---- ---- ---- 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 ============ ============ ============
See notes to consolidated financial statements. F-5 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 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:
1990 Plan 1982 Plan ----------------------------------- ---------------------------------- 1994 1993 1992 1994 1993 1992 ---- ---- ---- ---- ---- ---- 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 ======= ====== ======= ===== ===== ======
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 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 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:
1994 1993 1992 ---- ---- ---- 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) =========== =========== ===========
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 ROSS ROY COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1994 1993 1992 ---- ---- ---- Actuarial present value of: Vested benefit obligation ..................................... $ 17,601,000 $ 21,114,000 $ 20,028,000 ============ ============ ============ Accumulated benefit obligation ................................ $ 17,757,000 $ 21,343,000 $ 20,067,000 ============ ============ ============ Projected benefit obligation .................................. $ 17,964,000 $ 21,742,000 $ 20,407,000 Plan assets at fair value ..................................... 27,904,000 31,160,000 29,959,000 ------------ ------------ ------------ Excess of assets over projected benefit obligation ..................................... 9,940,000 9,418,000 9,552,000 Unrecognized prior service cost ............................... 643,000 245,000 251,000 Unrecognized net loss ......................................... 3,085,000 2,763,000 1,855,000 Unrecognized net asset ........................................ (3,236,000) (3,776,000) (4,315,000) ------------ ------------ ------------ Prepaid pension costs recorded in other assets ................ $ 10,432,000 $ 8,650,000 $ 7,343,000 ============ ============ ============
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 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:
1994 1993 1992 ---- ---- ---- 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) ============ ============ ============
The Corporation's effective income tax rate varied from the statutory federal income tax rate as a result of the following factors:
1994 1993 1992 ---- ---- ---- Statutory federal income tax (benefit) rate ................. 34.0% 34.0 % (34.0)% 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)% ==== ====== =====
F-11 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. Twenty-seven employees are to be terminated to reduce the staffing levels as a result of the client loss. The employees that have been impacted by the staff reductions were in creative, account service, media, research and planning, broadcast production and accounting. Severance benefits varied by employee, but included severance pay, extended medical and dental insurance and unused vacation pay. The 1994 charges also included 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 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:
Severance and Employee Termination Lease Year 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 ========== ========== ========== ==========
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.
1993 1992 ---- ---- 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 =========== ===========
F-13 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.
For the Year Ended December 31, 1993 ------------------------------------------------ Unaudited Unaudited Amounts of Proforma Consolidated Disposed Amounts of Amounts as or Sold Retained Reported Subsidiaries Business ----------- ------------ --------- 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 =========== ============ ===========
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 ROSS ROY COMMUNICATIONS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) March 31, 1995 and 1994
ASSETS 1995 1994 ---- ---- Current assets: Cash and cash equivalents (including restricted cash of $1,847,000 in 1995 and $72,000 in 1994) ......................................... $ 2,400,405 $ 1,972,655 Accounts receivable, net of allowance for doubtful accounts of $214,000 in 1995 and $247,000 in 1994 ........................................... 47,683,680 45,591,027 Billable production in process ........................................................ 4,369,636 3,813,983 Refundable income taxes ............................................................... 14,880 1,455,423 Prepaid expenses and other ............................................................ 1,318,562 1,225,979 ------------ ------------ Total current assets .......................................................... 55,787,163 54,059,067 ------------ ------------ Property and Equipment: Leasehold improvements ................................................................ 6,539,302 6,291,142 Furniture and fixtures ................................................................ 11,502,031 11,351,942 ------------ ------------ Total ........................................................................ 18,041,333 17,643,084 Less--accumulated depreciation and amortization ....................................... (9,415,070) (8,609,061) ------------ ------------ Net property and equipment ................................................... 8,626,263 9,034,023 ------------ ------------ Other assets: Cash value of life insurance, less policy loans of $2,025,000 in 1995 and $2,669,000 in 1994 ....................................... 875,958 1,271,828 Notes receivable ...................................................................... 179,283 179,283 Cost of 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 ============ ============
See notes to consolidated condensed financial statements. F-15 ROSS ROY COMMUNICATIONS, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Quarters ended March 31, 1995 and 1994
1995 1994 ---- ---- Revenue ........................................................................ $ 16,988,442 $ 15,843,609 Operating expenses: Compensation and employee benefits ........................................... 10,071,735 9,443,097 Occupancy expense ............................................................ 1,642,722 1,657,072 General agency expense ....................................................... 1,785,056 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
See Notes to consolidated condensed financial statements. F-16 ROSS ROY COMMUNICATIONS, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Quarters Ended March 31, 1995 and 1994
1995 1994 ---- ---- Cash Flow from Operating Activities: Net (loss) income .................................................... $ (4,911,811) $ 1,348,922 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Pension income recognized ......................................... (450,000) (300,000) Depreciation and amortization ..................................... 250,303 280,398 Provision (credit) for losses on accounts receivable .............. 9,137 (10,165) Provision (credit) for deferred taxes ............................. (2,251,277) 880,528 Increase in cash value of life insurance .......................... (255,250) (162,003) Increase in long-term liabilities ................................. 9,900,000 -- Special charges, asset write-downs and losses on sales of subsidiaries ................................................ (285,054) (779,243) Changes in operating assets and liabilities that provided (used) cash: Accounts receivable ............................................... (2,316,983) 15,993,527 Billable production in process .................................... (1,699,423) (620,069) Refundable income taxes and other current assets .................. 205,201 2,380,821 Accounts payable and other current liabilities .................... (2,032,511) (27,935,435) ------------ ------------ Total adjustments ........................................ 1,074,143 (10,271,641) ------------ ------------ Net cash provided by operating activities ................ (3,837,668) (8,922,719) ------------ ------------ Cash Flow from Investing Activities: Expenditures for property and equipment .......................... (28,652) (126,124) Decrease in other noncurrent assets .............................. 53,339 16,855 Other, net ....................................................... (189,237) 225,482 ------------ ------------ Net cash provided by (used in) investing activities ....... (164,550) 116,213 ------------ ------------ Cash Flow from Financing Activities: Proceeds from issuance of long-term debt .......................... 1,600,000 9,700,000 Repayments of long-term debt ...................................... -- (26,438) Purchases of stock ................................................ (152,328) (597,398) Issuances of stock ................................................ 3,670,190 150,100 Repayments to stock repurchase obligations ........................ (743,511) (628,441) Increase in stock repurchase obligations .......................... 165,240 -- ------------ ------------ Net cash used in financing activities ...................... 4,539,591 8,597,823 ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents ................. 537,373 (208,683) Cash and Cash Equivalents at Beginning of Year ....................... 1,863,032 2,181,338 ------------ ------------ Cash and Cash Equivalents at End of Quarter .......................... $ 2,400,405 $ 1,972,655 ============ ============
See notes to consolidated condensed financial statements. F-17 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 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 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 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 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 3 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 August 3, 1995. OMNICOM GROUP INC. Registrant By: /s/ BRUCE CRAWFORD ---------------------- Bruce Crawford President and Chief Executive Officer II-3 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:
Signature Title Date --------- ----- ---- /s/ (Bruce Crawford) President and Chief August 3, 1995 - ------------------------------ Executive Officer and Director (Bruce Crawford) (Principal Executive Officer) /s/ (Fred J. Meyer) Chief Financial Officer August 3, 1995 - ------------------------------ and Director (Fred J. Meyer) (Principal Financial Officer) /s/ (Dale A. Adams) Controller (Principal August 3, 1995 - ------------------------------ Accounting Officer) (Dale A. Adams) /s/ (Bernard Brochand)* Director August 3, 1995 - ------------------------------ (Bernard Brochand) /s/ (Leonard S. Coleman, Jr.)* Director August 3, 1995 - ------------------------------ (Leonard S. Coleman, Jr.) Director - ------------------------------ (Robert J. Callander) /s/ (James A. Cannon)* Director August 3, 1995 - ------------------------------ (James A. Cannon) /s/ (Peter I. Jones)* Director August 3, 1995 - ------------------------------ (Peter I. Jones) /s/ (John R. Purcell)* Director August 3, 1995 - ------------------------------ (John R. Purcell) /s/ (Keith L. Reinhard)* Director August 3, 1995 - ------------------------------ (Keith L. Reinhard) /s/ (Allen Rosenshine)* Director August 3, 1995 - ------------------------------ (Allen Rosenshine) /s/ (Gary L. Roubos)* Director August 3, 1995 - ------------------------------ (Gary L. Roubos) Director - ------------------------------ (Quentin I. Smith, Jr.) /s/ (Robin B. Smith)* Director August 3, 1995 - ------------------------------ (Robin B. Smith) /s/ (William G. Tragos)* Director August 3, 1995 - ------------------------------ (William G. Tragos) /s/ (John D. Wren)* Director August 3, 1995 - ------------------------------ (John D. Wren) /s/ (Egon P.S. Zehnder)* Director August 3, 1995 - ------------------------------ (Egon P.S. Zehnder)
- ---------- * By Barry J. Wagner, as Attorney-in-Fact II-4 EXHIBIT INDEX
Exhibit No. Description Page - ------- ----------- ---- 2.1* Agreement and Plan of Merger dated as of June 15, 1995, among Omnicom Group Inc., RRC Acquisition Inc. and Ross Roy Communications, Inc. 2.2* Form of Escrow Agreement among Omnicom Group Inc., Ross Roy Communications, Inc., the Ross Roy Shareholder Representative, and The Chase Manhattan Bank, N.A. as Escrow Agent 5.1* Opinion of Davis & Gilbert as to the legality of the Omnicom Common Stock registered hereunder 8.1 Opinion of Deloitte & Touche LLP regarding tax matters 8.2 Opinion of McDonald & Company Securities, Inc. as to the fairness from a financial point of view, of the Merger 23.1* Consent of Arthur Andersen LLP as to financial statements of Omnicom Group Inc. 23.2* Consent of Deloitte & Touche LLP as to financial statements of Ross Roy Communications, Inc. 23.3* Consent of Davis & Gilbert (included in Exhibit 5.1) 23.4 Consent of Deloitte & Touche LLP 23.5* Consent of McDonald & Company Securities, Inc. 24* Power of Attorney (included on signature page)
- -------------- * Previously filed. EX-8 2 EXHIBIT 8.1 August 3, 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. August 3, 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."). August 3, 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. August 3, 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. August 3, 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"). August 3, 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. August 3, 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. August 3, 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. August 3, 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: August 3, 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. August 3, 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). August 3, 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." August 3, 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. August 3, 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. August 3, 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. August 3, 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. August 3, 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). August 3, 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. August 3, 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. August 3, 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. August 3, 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. August 3, 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. August 3, 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. August 3, 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. August 3, 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. August 3, 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. August 3, 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. August 3, 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. August 3, 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). August 3, 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. August 3, 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. August 3, 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. August 3, 1995 Ross Roy Communications, Inc. Page 33 This opinion letter is for your information and may be included in Form S-4 as filed with the Securities and Exchange Commission with regard to the transaction described herein. Our opinion may not be relied upon, other than by you, the Ross Roy Shareholders, the EPU Holders and the Former Eligible Employee Holders, and may not be distributed, or disclosed by anyone without the prior written consent of Deloitte & Touche LLP. Very truly yours, DELOITTE & TOUCHE LLP EX-8 3 EXHIBIT 8.2 [Letterhead of McDonald & Company Securities. Inc.] As of August 3, 1995 PERSONAL & CONFIDENTIAL Board of Directors Ross Roy Communications, Inc. 100 Bloomfield Hills Parkway Bloomfield Hills, Michigan 48304 Ladies and Gentlemen: You have requested our opinion as to the fairness, from a financial point of view as of the date hereof, to the holders of the outstanding shares of common stock, par value $1.00 per share of Ross Roy Communications, Inc., a Michigan corporation ("Ross Roy" or the "Company"), of the consideration to be paid by Omnicom Group, Inc., a New York corporation ("Omnicom"), to the holders of Ross Roy common stock in connection with the proposed merger (the "Merger") of Ross Roy with and into Omnicom pursuant to the Agreement and Plan of Merger dated June 15, 1995 between Ross Roy and Omnicom (the "Agreement"). You have advised us that under the terms of the Agreement, upon consummation of the Merger (the "Closing"), the issued and outstanding aggregate shares of Ross Roy common stock will be converted into the equivalent of $52 million of Omnicom common stock (as described in the Agreement), subject to adjustment in certain events as provided in the Agreement (the "Conversion Price"). McDonald & Company Securities, Inc., as part of its investment banking business is customarily engaged in the valuation of business and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. In connection with rendering this opinion, we have reviewed and analyzed, among other things, the following: (i) the Agreement, including the exhibits and schedules thereto; (ii) certain information concerning the Company, including its audited financial statements for fiscal years ending December 31, 1992, 1993 and 1994; (iii) certain other internal information, primarily financial in nature concerning the business and operations of the Company furnished to us by the Company for purposes of our analysis; (iv) certain publicly available information regarding Omnicom, including the Annual Report on Form 10-K of Omnicom, for the year ended December 31, 1994 and the Quarterly Report on Form 10-Q of Omnicom for the quarter ended March 31, 1995; (v) certain publicly available information with respect to certain other companies that we believe to be comparable to the Company or to Omnicom and the trading markets for certain of such other companies' securities; and (vi) certain publicly available information concerning the nature and terms of certain other transactions that we consider relevant to our inquiry. We have also met with certain officers and employees of the Company to discuss the business and prospects of the Company as well as other matters that we believe to be relevant to our inquiry. In our review and analysis and in arriving at our opinion we have assumed and relied upon the accuracy and completeness of all of the financial information and other information provided us or publicly available and have assumed and relied upon the representations and warranties of the Company and Omnicom contained in the Agreement. We have not been engaged to, and have not independently attempted to, verify any such information. We have also relied upon the management of the Company and Omnicom as to the reasonableness and acheivability of the financial and operating projections (and the assumptions and bases therefor) associated with the Merger provided to us and, with your consent, we have assumed that such projections, reflect the best currently available estimates and judgments of management. We express no view as to such projections or the assumptions on which they are based. In addition, we have not conducted a physical inspection or appraisal of any of the assets, properties or facilities of either the Company or Omnicom nor have we been furnished with any such evaluation or appraisal. We have also assumed that the conditions to the Merger as set forth in the Agreement would be consummated on a timely basis in the manner contemplated by the Agreement. It should be noted that this opinion is based on economic and market conditions and other circumstances existing on, and information made available as of, the date hereof and does not address any matters subsequent to such date, including the value of the Omnicom Common Stock at the time of issuance thereof to the holders of the Company's common stock. In addition, our opinion is, in any event, limited to the fairness, from a financial point of view, as of the date hereof, of the Conversion Price to be received by the holders of the Company's common stock pursuant to the Merger and does not address the Company's underlying business decision to effect the Merger, or any other terms of the Merger (including, without limitation, the covenants and agreements set forth in, or contemplated by, the Agreement and the related effects, if any, on the value of the Conversion Price to be received in connection with the Merger, as to which we express no opinion). We have acted as financial advisor to the Company in connection with the Merger and will receive from the Company a fee for our services upon completion of the Merger, and the Company has agreed to indemnify us under certain circumstances. Our opinion is directed to the Board of Directors and does not constitute a recommendation to any shareholder of the Company as to how such shareholder should vote at the shareholders' meeting held in connection with the Merger. 2 Based upon and subject to the foregoing in such other matters as we consider relevant, it is our opinion that as of the date hereof, the Conversion Price to be received by the holders of the Company common stock is fair to the holders of the Company common stock, from a financial point of view. Very truly yours, McDONALD & COMPANY SECURITIES, INC. EX-23 4 EXHIBIT 23.4 INDEPENDENT TAX ADVISORS' CONSENT We hereby consent to the summarization of our tax opinion and the use of our name as they appear under the "U.S. Federal and Canadian Income Tax Consequences" section of the Registration Statement of Omnicom Group Inc. on Form S-4 as filed with the Securities and Exchange Commission on June 19, 1995, as amended. We also consent to the filing of our tax opinion as an exhibit to the Registration Statement of Omnicom Group Inc. on Form S-4 as filed with the Securities and Exchange Commission on June 19, 1995, as amended. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Detroit, Michigan August 3, 1995 -----END PRIVACY-ENHANCED MESSAGE-----