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ADVO, Inc.
Form 10-K
September 30, 1995
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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1995
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________to __________
Commission file number 1-11720
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ADVO, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-0885252
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Univac Lane, P.O. Box 755, Windsor, CT 06095-0755
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(Address of principal executive offices)
Registrant's telephone number, including area code: (860) 285-6100
Securities registered pursuant to Section 12(b) of the Act:
Common Stock and Rights, par value $.01 per share
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant at November 24, 1995 was $445,950,003. On that date, there were
20,836,403 outstanding shares of the registrant's common stock.
Documents Incorporated by Reference:
Portions of the 1995 Annual Report to Stockholders are incorporated by
reference into Parts II and IV of this Report.
Portions of the Proxy Statement for the 1996 Annual Meeting of Stockholders
are incorporated by reference into Part III of this Report.
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ADVO, INC.
INDEX TO REPORT ON FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 30, 1995
PART I
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ITEM PAGE
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1. Business........................................................... 1
2. Properties......................................................... 4
3. Legal Proceedings.................................................. 5
4. Submission of Matters to a Vote of Security Holders................ 5
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................... 6
6. Selected Financial Data............................................ 6
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 6
8. Financial Statements and Supplementary Data........................ 6
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 7
PART III
10. Directors and Executive Officers of the Registrant................. 7
11. Executive Compensation............................................. 7
12. Security Ownership of Certain Beneficial Owners and Management..... 7
13. Certain Relationships and Related Transactions..................... 7
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 7
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
ADVO, Inc. ("ADVO" or the "Company") is a direct marketing firm primarily
engaged in soliciting and processing printed advertising from retailers,
manufacturers and service companies for targeted distribution by both shared
and solo mail to consumer households in the United States on a national,
regional and local basis. Founded in 1929 as a hand delivery company, the
Company entered the direct mail industry as a solo mailer in 1946 and began
its shared mail program in 1980. The Company currently is the largest
commercial user of third-class mail in the United States.
ADVO competes primarily with newspapers, direct mail companies, broadcast
media, periodicals and other local distribution entities for retail
advertising expenditures. The Company believes that direct mail, which enables
advertisers to target advertisements to specific customers or geographic
areas, is the most efficient vehicle for delivering printed advertising on a
saturation or full market coverage basis, as well as an effective means of
targeted coverage. ADVO has participated in several joint ventures in order to
expand its targeting capability by offering psychographic and product usage
information in addition to its geo-demographic database.
ADVO's principal executive offices are located at One Univac Lane, Windsor,
Connecticut, 06095.
In September of 1995, the Company announced plans to sell its in-store
marketing segment which provides marketing services to a wide range of
manufacturers and marketers using proprietary operating systems. From
September 30, 1995 (and by restatement of prior periods), the Company is
accounting for its in-store marketing segment as a discontinued operation in
this Annual Report on Form 10-K for the fiscal year ended September 30, 1995.
The discussion of the Company's business under Items 1 and 2 hereof includes
only the Company's continuing operations.
PRODUCTS AND SERVICES
ADVO's direct mail products and services include shared mail and solo mail.
ADVO also provides certain printing, transportation and ancillary services in
conjunction with its direct mail programs.
SHARED MAIL
In the Company's shared mail programs (Marriage Mail(R) and Mailbox
Values(R)), the advertisements of several advertisers are combined in a single
mail package.
Shared mail packages are assembled by the Company for distribution by ZIP
Code and, in most instances, each household within the ZIP Code will receive a
mail package. Individual customers can choose a portion of the designated
mailing area for their distributions, ranging from part of a ZIP Code to all
ZIP Codes covered by the program. This flexibility enables major customers,
such as retail store chains, to select ZIP Codes serviced by their retail
stores and, at the same time, distribute different versions of their
advertisements to accommodate the needs of their individual stores. It also
allows a smaller retailer to select only those ZIP Codes or portions of ZIP
Codes needed to accommodate its customer base, thereby reducing overall
advertising costs.
The Company's shared mail programs offer the features of penetration and
target marketing at a significant cost reduction when compared to mailing on
an individual or solo mail basis. This cost advantage is available because the
Company pays the total postage expense, and advertisers are generally charged
a selling price based upon, among other factors, the incremental weight of
their promotional pieces.
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As a part of its shared mail programs, the Company provides the addresses of
the households receiving the mail packages and sorts, processes and transports
the advertising material for ultimate delivery through the United States
Postal Service ("USPS"). Generally, larger businesses, such as food chains and
mass merchandisers, will provide the Company with preprinted advertising
materials in predetermined quantities. In the case of manufacturers and small
retail customers, the Company may perform graphics services and act as a
broker for the required printing. The Company also offers shared mail
customers numerous standard turnkey advertising products in a variety of sizes
and colors.
The Company believes its shared mail programs are the largest programs of
their kind.
Marriage Mail(R) is a weekly mail program with coverage, on average, of 61
million households in approximately 130 markets. This program is used by local
and national retailers. The ZIP Code configuration selected for each market is
normally determined by population density and by proximity to retail outlets.
Retailers with multiple locations and weekly frequency have a great influence
on the ZIP Codes chosen by the Company for its weekly mailings. The Company
derives most of its revenues from the Marriage Mail(R) program.
SOLO MAIL
Solo mail services include addressing and processing brochures and circulars
for an individual customer for distribution through the USPS. Each customer
bears the full cost of postage and handling for each mailing. Customers
choosing this form of direct mail are generally those who wish to maintain an
exclusive image and complete control over the timing and the target of their
mailings.
The Company processes solo mail using its own mailing list or lists supplied
by the customer. The Company charges a processing fee based on the solo mail
services rendered.
OTHER PRODUCTS AND SERVICES
The Company rents portions of its mailing list to organizations interested
in distributing their own solo mailings. The Company may or may not perform
the associated distribution services for the customer.
Mid Coast Press is a commercial web offset printer located in Maryland,
which produces general commercial printing as well as tabloids for local
customers participating in the Marriage Mail(R) program.
Trans-ADVO, Inc., a wholly-owned subsidiary of the Company, is a Class 1 ICC
Contract Carrier presently engaged in the transportation of time-sensitive
advertising material and general freight. Trans-ADVO, Inc., utilizes
contracted carriers to provide direct pickup and delivery services throughout
the 48 contiguous states.
ADVO Target Communications, Inc., and ADVOLink, Inc., based in Texas, are
wholly-owned subsidiaries of the Company which specialize in the coordination
and production of custom promotional magazines and circulars which, in most
cases, are then distributed by the Company.
MAILING LIST
ADVO's management believes its computerized mailing list is the largest
residential/household mailing list in the country. It contains over 111
million delivery points (constituting nearly all of the households in the
continental United States) and was used by the U.S. Census Bureau as a base
for developing the mailing list for its 1990 census questionnaire mailings.
The Company's management believes that the list is particularly valuable and
that replication in its entirety by competitors would be
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extremely difficult and costly. The list enables the Company to target
mailings to best serve its customers.
ADVO's list is updated on a regular basis with information supplied by the
USPS as follows. At least every three months, ADVO submits each address on its
mailing list to the USPS. The USPS then provides to ADVO any changes to the
addresses within the Zip Code. Such changes include whether the address is
still occupied, whether the addresses still exist at all (i.e. demolished
buildings) and any new addresses included in the Zip Code (i.e. new
construction). The USPS also indicates to ADVO whether carrier routes and/or
Zip Codes have changed so that ADVO can maintain its address list in walk
sequence order. The USPS provides these updates for a fee, provided that the
user's list is at least 90% accurate on a ZIP Code basis. ADVO believes its
list is nearly 100% accurate.
CLIENT BASE
Approximately 80% of the customers served by the Company throughout the
United States are smaller retail or service businesses. The remainder include
major food, drug or discount chains and manufacturing companies.
Typically, the Company's customers are those businesses whose products and
services are used by the general population. These businesses (supermarkets,
fast food, drug stores, discount and department stores and consumer products
manufacturers) require continuous advertising to a mass audience. No customer
accounted for more than 10% of the Company's sales in 1995, 1994 or 1993.
OPERATIONS
Customers' advertising circulars are processed by approximately 3,000
production employees who work at 20 mail processing facilities which are
strategically located throughout the nation. State-of-the-art inserting
machines (which combine the individual advertising pieces into the mailing
packages) and modern quarter-folding equipment are the principal equipment
used to process the Company's products and services. In nearly all 20 of
ADVO's mail processing facilities, the USPS accepts and verifies the Company's
mail to help ensure rapid package acceptance and distribution, which benefits
both the USPS and the Company. In most instances, the mail is then shipped by
the Company to the destination office of the USPS for final delivery.
ADVO's computer center is located in Hartford, Connecticut. The Company's
branches are on-line to this computer center which enables the day-to-day
processing functions to be performed and provides corporate headquarters with
management information. The systems include: order processing and production
control, transportation/distribution, address list maintenance, market
analysis, label printing and distribution, billing and financial systems, and
carrier routing of addresses received from customer files and demographic
analyses.
COMPETITION
In general, the printed advertising market is highly competitive with
companies competing primarily on basis of price, speed of delivery and ability
to target selected potential customers on a cost-effective basis. ADVO's
competitors for the delivery of retail and other printed advertising are
numerous and include newspapers, regional and local mailers, direct marketing
firms, "shoppers" and "pennysavers".
Newspapers represent the Company's most significant and direct competition.
Through the distribution of preprinted circulars, classified advertising and
run of press advertising ("ROP"), newspapers have been the traditional and
dominant medium for advertising by retailers for many years. Insertion rates
are highly competitive and many newspapers' financial resources are
substantial.
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ADVO's principal direct marketing competitors are other companies with
residential lists or similar cooperative mailing programs. These companies
have a significant presence in many of the Company's markets and represent
serious competition to the Company's Marriage Mail(R) programs in those
markets.
There are local mailers in practically every market of the country. In
addition to local mailers, there are many local private delivery services such
as "shoppers" and "pennysavers" which compete by selling ROP advertisements
and classified advertisements. ADVO believes that it competes effectively in
its various markets.
SEASONALITY
ADVO's business generally follows the trends of retail advertising spending.
The Company has historically experienced higher revenues in the second half of
the calendar year.
RESEARCH AND DEVELOPMENT
Expenditures of the Company in research and development during the last
three years have not been material.
ENVIRONMENTAL MATTERS
The Company believes that it is substantially in compliance with all
regulations concerning the discharge of materials into the environment, and
such regulations have not had a material effect on the capital expenditures or
operations of the Company.
RAW MATERIALS
The Company manages the direct purchasing of approximately 40,000 tons of
paper per year and another 10,000 tons through its printing network. ADVO has
agreements with various paper suppliers and print vendors to assure the supply
of proper paper grades at competitive prices.
These purchases enable ADVO to purchase the paper necessary for its turnkey
family products at favorable prices.
EMPLOYEES
As of September 30, 1995, the Company had a total of approximately 5,200
full and part-time employees. ADVO also uses outside temporary employees,
particularly during busy seasons.
ADVO has one union contract, covering production employees in the Hartford,
Connecticut branch. The Company believes that its relations with its employees
are satisfactory.
ITEM 2. PROPERTIES
ADVO does not own any real estate except for its corporate headquarters,
which the Company purchased in February of 1995. The corporate headquarters,
located in Windsor, Connecticut, consist of two buildings totaling
approximately 136,000 square feet. The Company leases 20 mail processing
facilities and 70 sales offices (which excludes the sales offices that are
located in the mail processing facilities) throughout the United States. The
Company believes its facilities are suitable and adequate for the purposes for
which they are used and are adequately maintained.
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ITEM 3. LEGAL PROCEEDINGS
ADVO is party to various lawsuits and regulatory proceedings which are
incidental to its business and which the Company believes will not have a
material adverse effect on its consolidated financial condition, liquidity or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
EXECUTIVE OFFICERS OF THE REGISTRANT
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NAME AGE POSITION WITH COMPANY
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Robert Kamerschen........... 59 Chairman and Chief Executive Officer
Joseph P. Durrett........... 50 President and Chief Operating Officer
Larry G. Morris............. 57 Senior Executive Vice President, Chief
Administrative and Process Development Officer
Lowell W. Robinson.......... 46 Executive Vice President and Chief Financial
Officer
Peter A. Corrao............. 41 Senior Vice President
Rick Kurz................... 55 Senior Vice President
Frederick Leick............. 51 Senior Vice President
Myron L. Lubin.............. 55 Senior Vice President
Frank J. Talz............... 51 Senior Vice President
Robert S. Hirst............. 49 Vice President and Controller
</TABLE>
Mr. Kamerschen has been the Chairman of the Board since January 1989. From
November 1988 to February 1989, he was President of the Company and he has
been Chief Executive Officer and a Director since November 1988. Mr.
Kamerschen is also a Director of Playboy Enterprises, Inc., Micrografx, Inc.
and Domain, Inc.
Mr. Durrett became President, Chief Operating Officer and a Director of the
Company on September 1, 1992. From February 1990 to August 1992, he was Senior
Vice President of Sales of Kraft General Foods Inc., the food segment
subsidiary of Philip Morris Companies Inc. Mr. Durrett is chairman-elect of
the Children's Miracle Network.
Mr. Morris has been Senior Executive Vice President, Chief Administrative
and Process Development Officer of the Company since May 1994 and a Director
since October 1989. From August 1989 to April 1994, he was Executive Vice
President, Chief Financial and Administrative Officer.
Mr. Robinson became Executive Vice President and Chief Financial Officer of
the Company on May 5, 1994. From April 1993 to April 1994, he was an
independent consultant. From April 1991 to March 1993, he was Vice President
and Chief Financial Officer for The Travelers Managed Care and Employee
Benefits Operations. From October 1988 to March 1991, he was Vice President
and Chief Financial Officer for Citicorp's Global Insurance and Capital
Investments Divisions and from June 1986 to September 1988, he was Vice
President and Controller for Citicorp's Consumer Services Group--
International.
Mr. Corrao became Senior Vice President--Special Accounts on December 4,
1995. From January 1990 to November 1995, he held the position of Senior Vice
President--President National Accounts Marketing Division.
Mr. Kurz became Senior Vice President--Chief Marketing Officer on April 19,
1993. Prior to that, he was a Managing Partner of Marketing Corporation of
America, a marketing consulting firm. He had held that position for the last
five years.
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Mr. Leick became Senior Vice President--Operations on December 4, 1995. From
February 1994 to November 1995, he held the position of Senior Vice
President--President Atlantic Division. Prior to that, he was President, Chief
Executive Officer, and a Director of Seneca Foods Corporation whose primary
business is a producer of fruit juices and vegetables. He had held those
positions for the last five years.
Mr. Lubin became Senior Vice President--Sales on December 4, 1995. From
January 1990 to November 1995, he held the position of Senior Vice President--
President Western Division.
Mr. Talz became Senior Vice President--Organizational Development on
December 4, 1995. From January 1990 to November 1995, he held the position of
Senior Vice President--President Central Division.
Mr. Hirst became Vice President and Controller on April 16, 1990. He has
held that position for the last five years.
The Company is not aware of any family relationships between any of the
foregoing officers and any of the Company's directors. Each of the foregoing
officers hold such office until his successor shall have been duly chosen and
shall have qualified, or until his earlier resignation or removal.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ADVO's 1995 Annual Report to Stockholders includes on page 35 under the
caption "Quarterly Financial Data (unaudited)" the reported high and low sales
prices of ADVO's Common Stock for the past two fiscal years, and such
information is incorporated herein by reference and made a part hereof (see
Exhibit 13). For the fiscal years ended September 30, 1995, September 24, 1994
and September 25, 1993, the Company declared cash dividends of $.10, $.095 and
$.06 per share, respectively, to holders of ADVO Common Stock.
The closing price as of November 24, 1995 of the Company's Common Stock,
under the symbol AD, on the New York Stock Exchange as reported in The Wall
Street Journal was $26 1/2 per share. The approximate number of holders of
record of the common stock on November 24, 1995 was 931.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in ADVO's 1995 Annual
Report to Stockholders on page 20 under the caption "Selected Financial Data"
and is incorporated herein by reference and made a part hereof (see Exhibit
13).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is included in ADVO's 1995 Annual
Report to Stockholders on pages 21 through 23 under the caption "Financial
Report" and is incorporated herein by reference and made a part hereof (see
Exhibit 13).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ADVO's consolidated financial statements, together with the Report of
Independent Auditors thereon dated October 24, 1995, appearing on pages 24
through 36 of ADVO's 1995 Annual Report to Stockholders, are incorporated
herein by reference and made a part hereof (see Exhibit 13).
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The selected quarterly information required by this item is included under
the caption "Quarterly Financial Data (unaudited)" on page 35 of ADVO's 1995
Annual Report to Stockholders and is incorporated herein by reference and made
a part hereof (see Exhibit 13).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item, to the extent not included under the
caption "Executive Officers of the Registrant" in Part I of this Annual Report
on Form 10-K, appears on pages 4 and 5 of the Company's definitive proxy
statement dated December 18, 1995 for the annual meeting of stockholders to be
held on January 18, 1996 (the "Proxy Statement"), under the caption "Election
of Directors", and on page 7 of the Proxy Statement under the subcaption
"Section 16 Reports", and is incorporated herein by reference and made a part
hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption
"Executive Compensation" on pages 8 through 19 (except for those portions
appearing under the subcaptions "Report of the Compensation Committee" and
"Company Financial Performance"), and "Governance of the Company" on pages 3
and 4, of ADVO's Proxy Statement and is incorporated herein by reference and
made a part hereof.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the captions
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" on pages 2 and 3 and on pages 6 and 7, respectively, of ADVO's
Proxy Statement and is incorporated herein by reference and made a part
hereof.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption "Related
Party Transactions" on page 19 of ADVO's Proxy Statement and in footnotes 2
and 3 under the caption "Security Ownership of Certain Beneficial Owners" on
pages 2 and 3 of ADVO's Proxy Statement and is incorporated herein by
reference and made a part hereof.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. See the Index to Financial Statements and
Financial Statement Schedules on page F-1.
(2) Financial Statement Schedules. See the Index to Financial Statements
and Financial Statement Schedules on page F-1.
(3) Exhibits. The following is a list of the exhibits to this Report:
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EXHIBIT NO. EXHIBIT WHERE LOCATED
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3(a) Restated Certificate of Incorporation Incorporated by reference to Exhibit
of ADVO. 3(a) to the Company's Form 10 filed
on September 15, 1986 (No. 1-11720).
3(b) Restated By-laws of ADVO. Incorporated by reference to Exhibit
3(b) to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1989 (No. 1-
11720).
3(c) Stockholder Protection Rights Incorporated by reference to Exhibit
Agreement, dated as of February 5, 4.1 of the Company's Form 8-K dated
1993, between the Company and Mellon February 5, 1993.
Securities Trust Company, as Rights
Agent, including Exhibit A and
Exhibit B.
10(a) Stock Subscription Warrants, as held Incorporated by reference to Exhibit
by Warburg Pincus Capital Partners, 10(c) to the Company's Form 10 filed
L.P. to subscribe for the Common on September 15, 1986.
Stock of ADVO.
10(b) Amendment dated August 18, 1992 of Incorporated by reference to Exhibit
Stock Subscription Warrants, as held 10(u) to the Company's Annual Report
by Warburg Pincus Capital Partners, on Form 10-K for the fiscal year
L.P. to subscribe for Common Stock ended September 26, 1992.
of ADVO.
10(c) 1986 Stock Option Plan of ADVO. * Incorporated by reference to Exhibit
4.1 to the Company's Form S-8 filed
on July 16, 1987 (No. 33-15856).
10(d) 1986 Employee Restricted Stock Plan Incorporated by reference to Exhibit
of ADVO, as amended. * A to the Company's definitive Proxy
Statement for the annual meeting
held on January 24, 1991.
10(e) 1988 Non-Qualified Stock Option Plan Incorporated by reference to Exhibit
and 1993 Stock Option Subplan of A to the Company's definitive Proxy
ADVO, as amended. * statement for the annual meeting
held on January 19, 1995.
10(f) The ADVO Savings Continuation Plan, Incorporated by reference to Exhibit
effective January 1, 1988. * 10(n) to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 24, 1988.
10(g) ADVO Long-term Compensation Plan. * Incorporated by reference to Exhibit
10(v) to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 28, 1991.
10(h) Employment Agreement, dated November Incorporated by reference to Exhibit
14, 1991 between ADVO and Robert 10(t) to the Company's Annual Report
Kamerschen. * on Form 10-K for the fiscal year
ended September 28, 1991.
10(i) Employment Agreement, dated August Incorporated by reference to Exhibit
21, 1991 between ADVO and Larry G. 10(u) to the Company's Annual Report
Morris. * on Form 10-K for the fiscal year
ended September 28, 1991.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT WHERE LOCATED
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10(j) Employment Agreement, dated July 13, Incorporated by reference to Exhibit
1992, between ADVO and Joseph P. 10(v) to the Company's Annual Report
Durrett. * on Form 10-K for the fiscal year
ended September 26, 1992.
10(k) Executive Severance Agreement, dated Filed herewith.
October 17, 1995 between ADVO and
Robert Kamerschen. *
10(l) Executive Severance Agreements, dated Filed herewith.
October 17, 1995 between ADVO and
the executive officer named therein.
*
10(m) Executive Severance Agreements, dated Filed herewith.
October 17, 1995 between ADVO and
the executive officer named therein.
*
10(n) Executive Severance Agreements, dated Filed herewith.
October 17, 1995 between ADVO and
Robert S. Hirst.
11 Computation of Per Share Earnings. Filed herewith.
13 1995 Annual Report to Stockholders Furnished herewith; however, such
report, except for those portions
thereof which are expressly
incorporated by reference into this
Annual Report on Form 10-K, is for
the information of the Commission
and is not deemed "filed".
21 Subsidiaries of the Registrant. Filed herewith.
23 Consent of Independent Auditors. Filed herewith.
27 Financial Data Schedule. Filed herewith.
</TABLE>
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* Management contract or compensatory plan required to be filed as an exhibit
pursuant to item 14(c) of this report.
(b)Reports on Form 8-K.
A report on Form 8-K dated September 26, 1995 was filed by the Company
during the quarter ended September 30, 1995. The Form 8-K reported under item
5 thereof the Company's announcement that it had retained Goldman, Sachs & Co.
as its investment advisor to assist its Board of Directors in exploring
strategic alternatives aimed at enhancing long-term shareholder value. The
Company also announced that it had elected to sell its Marketing Force
segment. For financial reporting purposes the sale would be treated as a
discontinued operation.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Date: December 15, 1995 ADVO, Inc.
--------------------------------
By: Robert S. Hirst /s/
----------------------------------
ROBERT S. HIRST
VICE PRESIDENT AND
CONTROLLER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
DATE SIGNATURE TITLE
---- --------- -----
December 15, 1995 Robert Kamerschen /s/ Chairman, Chief Executive
---------------------------- Officer and Director
ROBERT KAMERSCHEN (Principal Executive
Officer)
December 15, 1995 Joseph P. Durrett /s/ President, Chief
---------------------------- Operating Officer and
JOSEPH P. DURRETT Director
December 15, 1995 Larry G. Morris /s/ Senior Executive Vice
---------------------------- President, Chief
LARRY G. MORRIS Administrative and
Process Development
Officer and Director
December 15, 1995 Lowell W. Robinson /s/ Executive Vice President
---------------------------- and Chief Financial
LOWELL W. ROBINSON Officer (Principal
Financial Officer)
December 15, 1995 Robert S. Hirst /s/ Vice President and
---------------------------- Controller (Principal
ROBERT S. HIRST Accounting Officer)
December 15, 1995 Jack W. Fritz /s/ Director
----------------------------
JACK W. FRITZ
December 15, 1995 Lawrence Lachman /s/ Director
----------------------------
LAWRENCE LACHMAN
December 15, 1995 Howard H. Newman /s/ Director
----------------------------
HOWARD H. NEWMAN
December 15, 1995 John R. Rockwell /s/ Director
----------------------------
JOHN R. ROCKWELL
December 15, 1995 Richard H. Stowe /s/ Director
----------------------------
RICHARD H. STOWE
December 15, 1995 Director
----------------------------
JOHN L. VOGELSTEIN
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ADVO, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
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PAGE
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Report of independent auditors........................................... *
Consolidated statements of operations for the years ended September 30,
1995, September
24, 1994 and September 25, 1993........................................ *
Consolidated balance sheets at September 30, 1995 and September 24, 1994. *
Consolidated statements of cash flows for the years ended September 30,
1995, September
24, 1994 and September 25, 1993........................................ *
Consolidated statements of changes in stockholders' equity for the years
ended September 30, 1995, September 24, 1994 and September 25, 1993..... *
Notes to consolidated financial statements............................... *
Consolidated Schedules
II--Valuation and Qualifying Accounts.................................. F-2
</TABLE>
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or notes thereto.
- --------
* Incorporated herein by reference from pages 24 to 36 of the ADVO, Inc. 1995
Annual Report to Stockholders.
F-1
<PAGE>
ADVO, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- --------------------- ---------- ----------
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COST AND OTHER FROM END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES OF PERIOD
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended September 25,
1993:
Allowances for sales
adjustments.......... $ 2,348 $ -- $ 6,277(b) $ 5,738 $ 2,887
Allowances for
doubtful accounts.... 1,069 2,683 -- 2,167(a)(c) 1,585
Restructuring reserve. -- 25,750 -- -- 25,750
Accumulated
amortization--
Goodwill............. 302 340 -- -- 642
Accumulated
amortization--
Intangibles.......... 1,236 1,554 -- -- 2,790
------- ------- ------- ------- -------
$ 4,955 $30,327 $ 6,277 $ 7,905 $33,654
======= ======= ======= ======= =======
Year ended September 24,
1994:
Allowances for sales
adjustments.......... $ 2,887 $ -- $ 6,992(b) $ 6,558 $ 3,321
Allowances for
doubtful accounts.... 1,585 3,304 -- 3,105(a)(c) 1,784
Restructuring reserve. 25,750 -- -- 8,641 17,109
Accumulated
amortization--
Goodwill............. 642 331 -- 270 703
Accumulated
amortization--
Intangibles.......... 2,790 1,477 -- 280 3,987
------- ------- ------- ------- -------
$33,654 $ 5,112 $ 6,992 $18,854 $26,904
======= ======= ======= ======= =======
Year ended September 30,
1995:
Allowances for sales
adjustments.......... $ 3,321 $ -- $ 5,758(b) $ 6,953 $ 2,126
Allowances for
doubtful accounts.... 1,784 2,953 -- 3,445(a)(c) 1,292
Restructuring reserve. 17,109 -- -- 7,230 9,879
Accumulated
amortization--
Goodwill............. 703 329 -- -- 1,032
Accumulated
amortization--
Intangibles.......... 3,987 1,015 -- 604 4,398
------- ------- ------- ------- -------
$26,904 $ 4,297 $ 5,758 $18,232 $18,727
======= ======= ======= ======= =======
</TABLE>
- --------
(a) Write off of uncollectible accounts, net of recoveries on accounts
previously written off.
(b) Reduction of revenues.
(c) Reclassification of allowances related to discontinued operations.
F-2
<PAGE>
EXHIBIT 10(k)
- -------------
EXECUTIVE SEVERANCE AGREEMENT
-----------------------------
This EXECUTIVE SEVERANCE AGREEMENT (the "Agreement"), is made as of
October 17, 1995, by and between ADVO, Inc. (the "Company") and Robert
Kamerschen (the "Executive" ).
RECITALS:
--------
A. The Executive is an executive of the Company and has made and is expected
to continue to make major contributions to the short- and long-term
profitability, growth, and financial strength of the Company;
B. The Company recognizes that the possibility of a Change of Control (as
hereafter defined) exists;
C. The Company desires to assure itself of both present and future continuity
of its management and desires to establish certain severance benefits for key
executive officers of the Company, including the Executive, applicable in the
event of a Change of Control; and
D. The Company wishes to aid in assuring that such executives are not
practically disabled from discharging their duties in respect of a proposed or
actual transaction involving a Change of Control.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms: In addition to terms defined elsewhere herein,
---------------------
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Affiliate" means (i) each entity in which the Company, alone or
together with one or more other Affiliates of the Company, owns not less than
80% of the then outstanding voting securities or, for any entity that is not a
corporation, at least 80% of the then-outstanding capital interests of such
entity and (ii) any additional entity which is deemed by action of the Board to
be an Affiliate for the purposes of this Agreement.
(b) "Base Pay" means the Executive's annual aggregate fixed base
salary from the Company at the time in question.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means the occurrence during
<PAGE>
the Term of any of the following events:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), other than Warburg (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of voting securities of the Company where such acquisition causes
such Person to own 30% or more of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i), the following acquisitions
shall not be deemed to result in a Change of Control: (A) any acquisition
directly from the Company, (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (D)
any acquisition by any corporation pursuant to a transaction that complies with
clauses (A), (B) and (C) of subsection (iii) below; and provided, further, that
if any Person's beneficial ownership of the Outstanding Company Voting
Securities reaches or exceeds 30% as a result of a transaction described in
clause (A) or (B) above, and such Person subsequently acquires beneficial
ownership of additional voting securities of the Company, such subsequent
acquisition shall be treated as an acquisition that causes such Person to own
30% or more of the Outstanding Company Voting Securities; or
(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; and provided, further, than any partner, employee or representative of
Warburg proposed by Warburg to be elected to the Board shall be considered a
member of the Incumbent Board; or
(iii) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the acquisition of assets of
another corporation ("Business Combination") or, if consummation of such
Business Combination is subject, at the time of such approval by shareholders,
to the consent of any government or governmental agency, the obtaining of such
consent (either explicitly or implicitly by consummation); excluding, however,
such a Business Combination pursuant to which (A) all or substantially all of
the individuals and entities who were the beneficial owners of
<PAGE>
the Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership, im-
mediately prior to such Business Combination of the Outstanding Company Voting
Securities, (B) no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (C) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(e) "Cause" means that, prior to any Termination by the Executive
for Good Reason, the Executive shall have:
(i) committed an intentional act of fraud, embezzlement,
or theft in connection with the Executive's duties or in the course of his
employment with the Company;
(ii) committed intentional wrongful damage to property of
the Company; or
(iii) intentionally and wrongfully disclosed confidential
information of the Company; and any such act shall have been materially harmful
to the Company.
For purposes of this Agreement, no act on the part of the Executive shall be
deemed "intentional" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" only if done by the Executive not
in good faith and without reasonable belief that the Executive's action or
omission was in the best interests of the Company.
(f) "Date of Termination" means the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be; provided,
however, that if the
<PAGE>
Executive is Terminated by the Company other than for Cause or for disability
pursuant to Section 2(a)(ii), the Date of Termination will be the date on which
the Executive receives the Notice of Termination from the Company; and provided
further, if the Executive is Terminated by reason of death or disability
pursuant to Section 2(a)(i) or 2(a)(ii), the Date of Termination will be the
last day of the month in which occurs the date of death or the disability
effective date, as the case may be.
(g) "Employee Benefits" means the perquisites, benefits and service
credit for benefits as provided under the plans and programs maintained by the
Company, including, but not limited to, plans and programs which are "employee
benefit plans" under Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended, and any amendment, or successor, to such plans or
programs (whether insured, funded or unfunded).
(h) "Good Reason" means the occurrence of any of the events listed
in Sections 2(b)(i) through 2(b)(vii), inclusive.
(i) "Incentive Pay" means an annual amount equal to the aggregate
annual bonus, in addition to Base Pay, made or to be made in regard to services
rendered in any calendar year or performance period pursuant to any bonus plan
of the Company.
(j) "Notice of Termination" means a written notice which (i)
indicates the specific provision in this Agreement relied upon, (ii) sets forth
in reasonable detail the facts and circumstances claimed to provide a basis for
the Termination under the provision so indicated, and (iii) if the effective
date of the Termination is other than the date of receipt of such notice,
specifies the effective date of Termination (which date will be not more than
sixty (60) days after the giving of such notice). The failure by the Executive
to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing that the Executive is entitled to the benefits intended
to be provided by this Agreement will not constitute a waiver of any right of
the Executive hereunder or otherwise preclude the Executive from later asserting
such fact or circumstance in enforcing the Executive's rights hereunder.
(k) "Severance Period" means the period of time commencing on the
date of an occurrence of a Change of Control and continuing until the earlier of
(i) the date which is two years following the occurrence of the Change of
Control, and (ii) the Executive's death.
(l) "Subsidiary" means an entity, at least a majority of the total
voting power of the then-outstanding voting securities of which is held,
directly or indirectly, by the Company and/or one or more other Subsidiaries or,
for any entity that is not a corporation, at least a majority of the then-
outstanding capital interests of which is so held.
(m) "Term" means (A) the period commencing on the date hereof and
ending on the second anniversary of the date hereof; provided, however, that
commencing on the date one year
<PAGE>
after the date hereof, and on each annual anniversary of such date (such date
and each annual anniversary thereof shall be hereinafter referred to as the
"Renewal Date"), unless previously terminated, the Term shall be automatically
extended so as to terminate two years from such Renewal Date, unless at least
sixty (60) days prior to the Renewal Date the Company shall give notice to the
Executive that the Term shall not be so extended, (B) if, prior to a Change of
Control, for any reason the Executive is Terminated or Terminates, thereupon
without further action the Term shall be deemed to have expired and this
Agreement will immediately terminate and be of no further effect, and (C) in the
event of a Change of Control, the Term will, without further action, be
considered to terminate at the expiration of the Severance Period.
(n) "Terminate" and correlative terms mean the termination of the
Executive's employment with the Company and any Affiliate or Subsidiary.
(o) "Warburg" means Warburg, Pincus Capital Partners, L.P., and/or
any of its affiliates.
2. Termination Following a Change of Control: (a) If, during the
-----------------------------------------
Severance Period, the Executive is Terminated, the Executive will be entitled to
the benefits provided by Sections 3 and 4 unless such termination is by reason
of one or more of the following events:
(i) The Executive's death;
(ii) The permanent and total disability of the Executive
as defined in any long term disability plan of the Company, applicable to the
Executive, as in effect immediately prior to the Change of Control;
(iii) Cause; or
(iv) The Executive's voluntary Termination in
circumstances in which Good Reason does not exist.
(b) In the event of the occurrence of a Change of Control, the
Executive may Terminate during the Severance Period with the right to severance
compensation as provided in Sections 3 and 4 upon the occurrence of one or more
of the following events (regardless of whether any other reason, other than
Cause as hereinabove provided, for Termination exists or has occurred, including
without limitation other employment):
(i) An adverse change in the nature or scope of the
authorities, powers, functions, responsibilities, or duties attached to the
position with the Company, which the Executive held immediately prior to the
Change of Control;
(ii) A reduction in the Executive's Base Pay as in
effect immediately prior to any Change
<PAGE>
of Control, or as it may have been increased from time to time thereafter;
(iii) Any failure by the Company to continue in effect any
plan or arrangement providing Incentive Pay in which the Executive is
participating at the time of a Change of Control (or any other plans or
arrangements providing substantially similar benefits) or the taking of any
action by the Company, any Affiliate or Subsidiary which would adversely affect
the Executive's participation in any such plan or arrangement or reduce the
Executive's benefits under any such plan or arrangement in a manner inconsistent
with the practices of the Company prior to the Change of Control;
(iv) Any failure by the Company to continue in effect
any Employee Benefits in which the Executive is participating at the time of a
Change of Control (or any other plans or arrangements providing the Executive
with substantially similar benefits) or the taking of any action by the Company,
an Affiliate or Subsidiary which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under any
Employee Benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of a Change of Control;
(v) The liquidation, dissolution, merger, consolidation,
or reorganization of the Company or transfer of all or substantially all of its
business and/or assets, unless the successor or successors (by liquidation,
merger, consolidation, reorganization, transfer, or otherwise) to which all or a
significant portion of its business and/or assets have been transferred
(directly or by operation of law) assumed all duties and obligations of the
Company under this Agreement pursuant to Section 9;
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any successor
thereto; or
(vii) Any action by the Company which causes the
Executive's services to be performed at a location which is more than thirty
five (35) miles from the location where the Executive was employed immediately
preceding the date of the Change of Control.
(c) Any Termination will be communicated by Notice of Termination
hereto given in accordance with Section 10 of this Agreement.
3. Severance Compensation: (a) If, following the occurrence of a Change of
----------------------
Control, the Executive is Terminated by the Company during the Severance Period
other than in the circumstances set forth in Section 2(a)(i), 2(a)(ii), or
2(a)(iii), or if the Executive Terminates for Good Reason:
<PAGE>
(i) The Company will pay to the Executive in a lump sum
in cash within five (5) business days after the later of the date on which the
Company receives the determination of the Accounting Firm required in Section 4
hereof or the Date of Termination the aggregate of the amount (the "Severance
Payment") equal to two times the sum of (A) the Executive's Base Pay at the
highest rate in effect at any time within the 90-day period preceding the date
the Notice of Termination was given or, if higher, at the highest rate in effect
at any time within the 90-day period preceding the date of the first occurrence
of a Change of Control, and (B) an amount equal to the greatest amount of
Incentive Pay received by the Executive during any calendar year or portion
thereof from and including the third calendar year prior to the first occurrence
of a Change of Control; and
(ii) For the period of two years from the Date of
Termination, the Executive shall be eligible for participation in and shall
receive all benefits under such benefit plans, practices, policies and programs
of the Company that provide medical, prescription dental, or life insurance
coverage, with the costs of such participation to be paid by the Company to the
same extent as prior to the Executive's Termination. In the event that such
continued participation is not allowed under the terms and provisions of such
plans or programs, then in lieu thereof, the Company shall acquire individual
insurance policies providing comparable coverage for the Executive; provided
that if any such individual coverage is unavailable, the Company shall pay to
the Executive an amount equal to the contributions that would have been made by
the Company for such coverage on the Executive's behalf if the Executive had
remained in the employ of the Company for the period referred to in the
preceding sentence.
(b) There will be no right of set-off or counterclaim in respect of
any claim, debt, or obligation against any payment to or benefit for the
Executive provided for in this Agreement.
(c) Without limiting the rights of the Executive at law or in equity,
if the Company fails to make any payment or provide any benefit required to be
made or provided under this Agreement (including under this Section 3 or Section
6) on a timely basis, the Company will pay interest on the amount or value
thereof at an annualized rate of interest equal to the so-called composite
"prime rate" as quoted from time to time during the relevant period in the
Northeast Edition of The Wall Street Journal. Such interest will be payable as
-----------------------
it accrues on demand. Any change in such prime rate will be effective on and as
of the date of such change.
(d) Notwithstanding any other provision hereof, the parties,
respective rights and obligations under this Section 3 and under Sections 4 and
6 will survive any termination or expiration of this Agreement following a
Change of Control or any Termination following a Change of Control for any
reason
<PAGE>
whatsoever.
4. Excise and Other Taxes. The Executive shall bear all expense of, and
----------------------
be solely responsible for, all federal, state, local or foreign taxes due with
respect to any payment received hereunder, including, without limitation, any
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the Code); provided, however, that all payments under this Agreement
shall be reduced to the extent necessary so that no portion thereof shall be
subject to the excise tax imposed by Section 4999 of the Code but only if, by
reason of such reduction, the net after-tax benefit received by the Executive
shall exceed the net after-tax benefit received by the Executive if no such
reduction was made. For purposes of this Section 4, "net after-tax benefit"
shall mean (i) the total of all payments and the value of all benefits which the
Executive receives or is then entitled to receive from the Company that would
constitute "parachute payments" within the meaning of Section 280G of the Code,
less (ii) the amount of all federal, state and local income taxes payable with
respect to the foregoing calculated at the maximum marginal income tax rate for
each year in which the foregoing shall be paid to the Executive (based on the
rate in effect for such year as set forth in the Code as in effect at the time
of the first payment of the foregoing), less (iii) the amount of excise taxes
imposed with respect to the payments and benefits described in (i) above by
Section 4999 of the Code. The foregoing determination will be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive and reasonably acceptable to the Company (which may be, but will not
be required to be, the Company's independent auditors). The Executive will
direct the Accounting Firm to submit its determination and detailed supporting
calculations to both the Company and the Executive within fifteen (15) days
after the Date of Termination. If the Accounting Firm determines that such
reduction is required by this Section 4, the Company shall pay such reduced
amount to the Executive in accordance with Section 3(a). If the Accounting Firm
determines that no reduction is necessary under this Section 4, it will, at the
same time as it makes such determination, furnish the Company and the Executive
an opinion that the Executive will not be liable for any excise tax under
Section 4999 of the Code. The Company and the Executive will each provide the
Accounting Firm access to and copies of any books, records, and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by this Section 4. The fees and expenses of the
Accounting Firm for its services in connection with the determinations and
calculations contemplated by this Section 4 will be borne by the Company.
5. No Mitigation Obligation: The Company hereby acknowledges that
------------------------
it will be difficult, and may be impossible, for the Executive to find
reasonably comparable employment following the Date of Termination. The payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement will be liquidated damages, and the
<PAGE>
Executive will not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise, nor will any
profits, income, earnings, or other benefits from any source whatsoever create
any mitigation, offset, reduction, or any other obligation on the part of the
Executive hereunder or otherwise.
6. Legal Fees and Expenses: If the Company has failed to comply
------------------------
with any of its obligations under this Agreement or in the event that the
Company or any other person takes or threatens to take any action to declare
this Agreement void or unenforceable, or institutes any litigation or other
action or proceeding designed to deny, or to recover from, the Executive the
benefits provided or intended to be provided to the Executive hereunder, the
Company irrevocably authorizes the Executive from time to time to retain counsel
of the Executive's choice, at the expense of the Company, to advise and
represent the Executive in connection with any such interpretation, enforcement,
or defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
member of the Board, officer, stockholder, or other person or entity affiliated
with the Company, in any jurisdiction. The Company will pay and be solely
financially responsible for any and all attorneys' and related fees and expenses
incurred by the Executive in connection with such litigation.
7. Employment Rights: Nothing expressed or implied in this
-----------------
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company, or any
Affiliate or Subsidiary prior to or following any Change of Control.
8. Withholding of Taxes: The Company may withhold from any amounts
--------------------
payable under this Agreement all federal, state, city, or other taxes as the
Company is required to withhold pursuant to any law or government regulation
or ruling.
9. Successors and Binding Agreement: (a) The Company will require
--------------------------------
any successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization, or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. This Agreement will be binding upon and inure
to the benefit of the Company and any successor to the Company, including,
without limitation, any persons acquiring directly or indirectly all or
substantially all of the business and/or assets of the Company, whether by
purchase, merger, consolidation, reorganization, or otherwise (and such
successor will thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable, or delegable by
the Company.
<PAGE>
(b) This Agreement will inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, and/or legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto will, without the consent of the other, assign, transfer, or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Sections 9(a) and 9(b). Without limiting the generality or effect
of the foregoing, the Executive's right to receive payments hereunder will not
be assignable, transferable, or delegable, whether by pledge, creation of a
security interest, or otherwise, other than by a transfer by will or by the laws
of descent and distribution and, in the event of any attempted assignment or
transfer contrary to this Section 9(c), the Company will have no liability to
pay any amount so attempted to be assigned, transferred, or delegated.
10. Notices: For all purposes of this Agreement, all
-------
communications, including, without limitation, notices, consents, requests, or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof orally confirmed), or
two business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or one business day
after having been sent by a nationally recognized overnight courier service,
addressed to the Company (to the attention of the General Counsel of the
Company) at its principal executive office and to the Executive at the
Executive's principal residence, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address will be effective only upon receipt.
11. Governing Law: The validity, interpretation, construction, and
-------------
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Connecticut, without giving effect to
the principles of conflict of laws of such State, to the extent not preempted by
applicable federal law.
12. Validity: If any provision of this Agreement or the application
--------
of any provision hereof to any person or circumstances is held invalid,
unenforceable, or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable, or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid, or legal.
13. Non-Exclusivity of Rights: Nothing in this Agreement will
-------------------------
prevent or limit the Executive's present or future participation in any benefit,
bonus, incentive, or other plan or program provided by the Company or any
Affiliate or Subsidiary for which the Executive may qualify, nor will this
<PAGE>
Agreement in any manner limit or otherwise affect such rights as the Executive
may have under any stock option or other agreements with the Company or any
Affiliate or Subsidiary. Amounts or benefits which are vested or which the
Executive is otherwise entitled to receive under any plan or program of the
Company at or subsequent to the Date of Termination will be payable in
accordance with such plan or program, except as otherwise expressly provided in
this Agreement; provided, however, that any amounts received by the Executive
pursuant to this Agreement shall be in lieu of any benefits which the Executive
is entitled to receive or may become entitled to receive under any reduction-in-
force or severance pay plan or practice which the Company now has in effect or
may hereafter put into effect, any other benefits to which the Executive may be
entitled under any individual agreement of employment with the Company which
would provide a benefit to the Executive upon the occurrence of a Change of
Control of the Company, and any severance benefits required under federal or
state law to be paid to the Executive.
14. Miscellaneous: (a) No provision of this Agreement may be
-------------
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to Sections are to references to
Sections of this Agreement.
(b) The Executive and the Company acknowledge that this Agreement
supersedes any other agreement between them concerning the subject matter
hereof, other than the Employment Agreement between the Executive and the
Company dated as of November 14, 1991.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
ADVO, Inc.
By David M.Stigler/s/
--------------------------
Robert Kamerschen/s/
----------------------------
Robert Kamerschen
<PAGE>
EXHIBIT 10(l)
- -------------
Following is a copy of the Executive Severance Agreement, dated as of October
17, 1995, by and between ADVO, Inc. and each of the following executive
officers:
Joseph P. Durrett
Larry G. Morris
Lowell W. Robinson
<PAGE>
EXHIBIT 10(l)
- -------------
EXECUTIVE SEVERANCE AGREEMENT
-----------------------------
This EXECUTIVE SEVERANCE AGREEMENT (the "Agreement"), is made as of
October 17, 1995, by and between ADVO, Inc. (the "Company") and
______________(the "Executive").
RECITALS:
--------
A. The Executive is an executive of the Company and has made and is
expected to continue to make major contributions to the short- and long-term
profitability, growth, and financial strength of the Company;
B. The Company recognizes that the possibility of a Change of Control
(as hereafter defined) exists;
C. The Company desires to assure itself of both present and future
continuity of its management and desires to establish certain severance benefits
for key executive officers of the Company, including the Executive, applicable
in the event of a Change of Control; and
D. The Company wishes to aid in assuring that such executives are not
practically disabled from discharging their duties in respect of a proposed or
actual transaction involving a Change of Control.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms: In addition to terms defined elsewhere
---------------------
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Affiliate" means (i) each entity in which the Company, alone or
together with one or more other Affiliates of the Company, owns not less than
80% of the then outstanding voting securities or, for any entity that is not a
corporation, at least 80% of the then-outstanding capital interests of such
entity and (ii) any additional entity which is deemed by action of the Board to
be an Affiliate for the purposes of this Agreement.
(b) "Base Pay" means the Executive's annual aggregate fixed base
salary from the Company at the time in question.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means the occurrence during the Term of any
of the following events:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of
<PAGE>
1934, as amended (the "Exchange Act")), other than Warburg (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of voting securities of the
Company where such acquisition causes such Person to own 30% or more
of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i), the following
acquisitions shall not be deemed to result in a Change of Control: (A)
any acquisition directly from the Company, (B) any acquisition by the
Company, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (D) any acquisition by any corporation
pursuant to a transaction that complies with clauses (A), (B) and (C)
of subsection (iii) below; and provided, further, that if any Person's
beneficial ownership of the Outstanding Company Voting Securities
reaches or exceeds 30% as a result of a transaction described in
clause (A) or (B) above, and such Person subsequently acquires
beneficial ownership of additional voting securities of the Company,
such subsequent acquisition shall be treated as an acquisition that
causes such Person to own 30% or more of the Outstanding Company
Voting Securities; or
(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; and provided, further, than any partner,
employee or representative of Warburg proposed by Warburg to be
elected to the Board shall be considered a member of the Incumbent
Board; or
(iii) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of the Company or the
acquisition of assets of another corporation ("Busi-
<PAGE>
ness Combination") or, if consummation of such Business Combination
is subject, at the time of such approval by shareholders, to the
consent of any government or governmental agency, the obtaining of
such consent (either explicitly or implicitly by consummation);
excluding, however, such a Business Combination pursuant to which (A)
all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation that as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Voting Securities,
(B) no Person (excluding any employee benefit plan (or related trust)
of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 30% or more
of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(e) "Cause" means that, prior to any Termination by the
Executive for Good Reason, the Executive shall have:
(i) committed an intentional act of fraud, embezzlement, or
theft in connection with the Executive's duties or in the course of
his employment with the Company;
(ii) committed intentional wrongful damage to property of
the Company; or
(iii) intentionally and wrongfully disclosed confidential
information of the Company; and any such
<PAGE>
act shall have been materially harmful to the Company.
For purposes of this Agreement, no act on the part of the Executive shall be
deemed "intentional" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" only if done by the Executive not
in good faith and without reasonable belief that the Executive's action or
omission was in the best interests of the Company.
(f) "Date of Termination" means the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be; provided,
however, that if the Executive is Terminated by the Company other than for Cause
or for disability pursuant to Section 2(a)(ii), the Date of Termi nation will
be the date on which the Executive receives the Notice of Termination from the
Company; and provided further, if the Executive is Terminated by reason of death
or disability pursuant to Section 2(a)(i) or 2(a)(ii), the Date of Termination
will be the last day of the month in which occurs the date of death or the
disability effective date, as the case may be.
(g) "Employee Benefits" means the perquisites, ben efits and service
credit for benefits as provided under the plans and programs maintained by the
Company, including, but not limited to, plans and programs which are "employee
benefit plans" under Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended, and any amendment, or succes sor, to such plans or
programs (whether insured, funded or unfunded).
(h) "Good Reason" means the occurrence of any of the events listed in
Sections 2(b)(i) through 2(b)(vii), inclusive.
(i) "Incentive Pay" means an annual amount equal to the aggregate
annual bonus, in addition to Base Pay, made or to be made in regard to services
rendered in any calendar year or performance period pursuant to any bonus plan
of the Company.
(j) "Notice of Termination" means a written notice which (i)
indicates the specific provision in this Agreement relied upon, (ii) sets forth
in reasonable detail the facts and circumstances claimed to provide a basis for
the Termination under the provision so indicated, and (iii) if the effective
date of the Termination is other than the date of receipt of such notice,
specifies the effective date of Termination (which date will be not more than
sixty (60) days after the giving of such notice). The failure by the Executive
to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing that the Executive is entitled to the benefits intended
to be provided by this Agreement will not constitute a waiver of any right of
the Executive hereunder or otherwise preclude the Executive from later asserting
such fact or circumstance in enforcing the Executive's rights hereunder.
(k) "Severance Period" means the period of time com-
<PAGE>
mencing on the date of an occurrence of a Change of Control and continuing until
the earlier of (i) the date which is two years following the occurrence of the
Change of Control, and (ii) the Executive's death.
(l) "Subsidiary" means an entity, at least a majority of the total
voting power of the then-outstanding voting securities of which is held,
directly or indirectly, by the Company and/or one or more other Subsidiaries or,
for any entity that is not a corporation, at least a majority of the then-
outstanding capital interests of which is so held.
(m) "Term" means (A) the period commencing on the date hereof and
ending on the second anniversary of the date hereof; provided, however, that
commencing on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary thereof shall be
hereinafter referred to as the "Renewal Date"), unless previously terminated,
the Term shall be automatically extended so as to terminate two years from such
Renewal Date, unless at least sixty (60) days prior to the Renewal Date the
Company shall give notice to the Executive that the Term shall not be so
extended, (B) if, prior to a Change of Control, for any reason the Executive is
Terminated or Terminates, thereupon without further action the Term shall be
deemed to have expired and this Agreement will immediately terminate and be of
no further effect, and (C) in the event of a Change of Control, the Term will,
without further action, be considered to terminate at the expiration of the
Severance Period.
(n) "Terminate" and correlative terms mean the termination of the
Executive's employment with the Company and any Affiliate or Subsidiary.
(o) "Warburg" means Warburg, Pincus Capital Partners, L.P., and/or
any of its affiliates.
2. Termination Following a Change of Control: (a) If, during the
-----------------------------------------
Severance Period, the Executive is Terminated, the Executive will be entitled to
the benefits provided by Sections 3 and 4 unless such termination is by reason
of one or more of the following events:
(i) The Executive's death;
(ii) The permanent and total disability of the Executive as
defined in any long term disability plan of the Company, applicable to
the Executive, as in effect immediately prior to the Change of
Control;
(iii) Cause; or
(iv) The Executive's voluntary Termination in circumstances
in which Good Reason does not exist.
(b) In the event of the occurrence of a Change of Control, the
Executive may Terminate during the Severance Period with the right to severance
compensation as provided in Sections
<PAGE>
3 and 4 upon the occurrence of one or more of the following events (regardless
of whether any other reason, other than Cause as hereinabove provided, for
Termination exists or has occurred, including without limitation other
employment):
(i) An adverse change in the nature or scope of the
authorities, powers, functions, responsibilities, or duties attached
to the position with the Company, which the Executive held immediately
prior to the Change of Control;
(ii) A reduction in the Executive's Base Pay as in effect
immediately prior to any Change of Control, or as it may have been
increased from time to time thereafter;
(iii) Any failure by the Company to continue in effect any
plan or arrangement providing Incentive Pay in which the Executive is
participating at the time of a Change of Control (or any other plans
or arrangements providing substantially similar benefits) or the
taking of any action by the Company, any Affiliate or Subsidiary which
would adversely affect the Executive's participation in any such plan
or arrangement or reduce the Executive's benefits under any such plan
or arrangement in a manner inconsistent with the practices of the
Company prior to the Change of Control;
(iv) Any failure by the Company to continue in effect any
Employee Benefits in which the Executive is participating at the time
of a Change of Control (or any other plans or arrangements providing
the Executive with substantially similar benefits) or the taking of
any action by the Company, an Affiliate or Subsidiary which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any Employee Benefits or deprive the
Executive of any material fringe benefit enjoyed by the Executive at
the time of a Change of Control;
(v) The liquidation, dissolution, merger, consolidation, or
reorganization of the Company or transfer of all or substantially all
of its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer, or
otherwise) to which all or a significant portion of its business
and/or assets have been transferred (directly or by operation of law)
assumed all duties and obligations of the Company under this Agreement
pursuant to Section 9;
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this
<PAGE>
Agreement by the Company or any successor thereto; or
(vii) Any action by the Company which causes the Executive's
services to be performed at a location which is more than thirty five
(35) miles from the location where the Executive was employed
immediately preceding the date of the Change of Control.
(c) Any Termination will be communicated by Notice of Termination
hereto given in accordance with Section 10 of this Agreement.
3. Severance Compensation: (a) If, following the occurrence of a
----------------------
Change of Control, the Executive is Terminated by the Company during the
Severance Period other than in the circumstances set forth in Section 2(a)(i),
2(a)(ii), or 2(a)(iii), or if the Executive Terminates for Good Reason:
(i) The Company will pay to the Executive in a lump sum in
cash within five (5) business days after the later of the date on
which the Company receives the determination of the Accounting Firm
required in Section 4 hereof or the Date of Termination the aggregate
of the amount (the "Severance Payment") equal to two times the sum of
(A) the Executive's Base Pay at the highest rate in effect at any time
within the 90-day period preceding the date the Notice of Termination
was given or, if higher, at the highest rate in effect at any time
within the 90-day period preceding the date of the first occurrence of
a Change of Control, and (B) an amount equal to the greatest amount of
Incentive Pay received by the Executive during any calendar year or
portion thereof from and including the third calendar year prior to
the first occurrence of a Change of Control; and
(ii) For the period of two years from the Date of Termination,
the Executive shall be eligible for participation in and shall receive
all benefits under such benefit plans, practices, policies and
programs of the Company that provide medical, prescription dental, or
life insurance coverage, with the costs of such participation to be
paid by the Company to the same extent as prior to the Executive's
Termination. In the event that such continued participation is not
allowed under the terms and provisions of such plans or programs, then
in lieu thereof, the Company shall acquire individual insurance
policies providing comparable coverage for the Executive; provided
that if any such individual coverage is unavailable, the Company shall
pay to the Executive an amount equal to the contributions that would
have been made by the Company for such coverage on the Executive's
behalf if the Executive had remained in the employ of the Company for
the period referred to in the preceding sentence.
<PAGE>
(b) There will be no right of set-off or counterclaim in respect of
any claim, debt, or obligation against any payment to or benefit for the
Executive provided for in this Agreement.
(c) Without limiting the rights of the Executive at law or in equity,
if the Company fails to make any payment or provide any benefit required to be
made or provided under this Agreement (including under this Section 3 or Section
6) on a timely basis, the Company will pay interest on the amount or value
thereof at an annualized rate of interest equal to the so-called composite
"prime rate" as quoted from time to time during the relevant period in the
Northeast Edition of The Wall Street Journal. Such interest will be payable as
-----------------------
it accrues on demand. Any change in such prime rate will be effective on and as
of the date of such change.
(d) Notwithstanding any other provision hereof, the parties,
respective rights and obligations under this Section 3 and under Sections 4 and
6 will survive any termination or expiration of this Agreement following a
Change of Control or any Termination following a Change of Control for any
reason whatsoever.
4. Excise and Other Taxes. The Executive shall bear all expense of,
----------------------
and be solely responsible for, all federal, state, local or foreign taxes due
with respect to any payment received hereunder, including, without limitation,
any excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the Code); provided, however, that all payments under this Agreement
shall be reduced to the extent necessary so that no portion thereof shall be
subject to the excise tax imposed by Section 4999 of the Code but only if, by
reason of such reduction, the net after-tax benefit received by the Executive
shall exceed the net after-tax benefit received by the Executive if no such
reduction was made. For purposes of this Section 4, "net after-tax benefit"
shall mean (i) the total of all payments and the value of all benefits which the
Executive receives or is then entitled to receive from the Company that would
constitute "parachute payments" within the meaning of Section 280G of the Code,
less (ii) the amount of all federal, state and local income taxes payable with
respect to the foregoing calculated at the maximum marginal income tax rate for
each year in which the foregoing shall be paid to the Executive (based on the
rate in effect for such year as set forth in the Code as in effect at the time
of the first payment of the foregoing), less (iii) the amount of excise taxes
imposed with respect to the payments and benefits described in (i) above by
Section 4999 of the Code. The foregoing determination will be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive and reasonably acceptable to the Company (which may be, but will not
be required to be, the Company's independent auditors). The Executive will
direct the Accounting Firm to submit its determination and detailed supporting
calculations to both the Company and the Executive within fifteen (15) days
after the Date of Termination. If the
<PAGE>
Accounting Firm determines that such reduction is required by this Section 4,
the Company shall pay such reduced amount to the Executive in accordance with
Section 3(a). If the Accounting Firm determines that no reduction is necessary
under this Section 4, it will, at the same time as it makes such determination,
furnish the Company and the Executive an opinion that the Executive will not be
liable for any excise tax under Section 4999 of the Code. The Company and the
Executive will each provide the Accounting Firm access to and copies of any
books, records, and documents in the possession of the Company or the Executive,
as the case may be, reasonably requested by the Accounting Firm, and otherwise
cooperate with the Accounting Firm in connection with the preparation and
issuance of the determinations and calculations contemplated by this Section 4.
The fees and expenses of the Accounting Firm for its services in connection with
the determinations and calculations contemplated by this Section 4 will be borne
by the Company.
5. No Mitigation Obligation: The Company hereby acknowledges that
------------------------
it will be difficult, and may be impossible, for the Executive to find
reasonably comparable employment following the Date of Termination. The payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement will be liquidated damages, and the Executive will
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits,
income, earnings, or other benefits from any source whatsoever create any
mitigation, offset, reduction, or any other obligation on the part of the
Executive hereunder or otherwise.
6. Legal Fees and Expenses: If the Company has failed to comply with
-----------------------
any of its obligations under this Agree ment or in the event that the Company
or any other person takes or threatens to take any action to declare this
Agreement void or unenforceable, or institutes any litigation or other action or
proceeding designed to deny, or to recover from, the Executive the benefits
provided or intended to be provided to the Executive hereunder, the Company
irrevocably authorizes the Executive from time to time to retain counsel of the
Executive's choice, at the expense of the Company, to advise and represent the
Executive in connection with any such interpretation, enforcement, or defense,
including without limitation the initiation or defense of any litigation or
other legal action, whether by or against the Company or any member of the
Board, officer, stockholder, or other person or entity affiliated with the
Company, in any jurisdiction. The Company will pay and be solely financially
responsible for any and all attorneys' and related fees and expenses incurred by
the Executive in connection with such litigation.
7. Employment Rights: Nothing expressed or implied in this
-----------------
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company, or any
Affiliate or Subsidiary prior to or following any Change of Control.
8. Withholding of Taxes: The Company may withhold
--------------------
<PAGE>
from any amounts payable under this Agreement all federal, state, city, or other
taxes as the Company is required to withhold pursuant to any law or government
regulation or ruling.
9. Successors and Binding Agreement: (a) The Company will require
--------------------------------
any successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization, or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. This Agreement will be binding upon and inure
to the benefit of the Company and any successor to the Company, including,
without limitation, any persons acquiring directly or indirectly all or
substantially all of the business and/or assets of the Company, whether by
purchase, merger, consolidation, reorganization, or otherwise (and such
successor will thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable, or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, and/or legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto will, without the consent of the other, assign, transfer, or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Sections 9(a) and 9(b). Without limiting the generality or effect
of the foregoing, the Executive's right to receive payments hereunder will not
be assignable, transferable, or delegable, whether by pledge, creation of a
security interest, or otherwise, other than by a transfer by will or by the laws
of descent and distribution and, in the event of any attempted assignment or
transfer contrary to this Section 9(c), the Company will have no liability to
pay any amount so attempted to be assigned, transferred, or delegated.
10. Notices: For all purposes of this Agreement, all communications,
-------
including, without limitation, notices, consents, requests, or approvals,
required or permitted to be given hereunder will be in writing and will be
deemed to have been duly given when hand delivered or dispatched by electronic
facsimile transmission (with receipt thereof orally confirmed), or two business
days after having been mailed by United States registered or certified mail,
return receipt requested, postage prepaid, or one business day after having been
sent by a nationally recognized overnight courier service, addressed to the
Company (to the attention of the General Counsel of the Company) at its
principal executive office and to the Executive at the Executive's principal
residence, or to such other address as any party may have furnished to the other
in writing and in
<PAGE>
accordance herewith, except that notices of changes of address will be effective
only upon receipt.
11. Governing Law: The validity, interpretation, construction, and
-------------
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Connecticut, without giving effect to
the principles of conflict of laws of such State, to the extent not preempted by
applicable federal law.
12. Validity: If any provision of this Agreement or the application
--------
of any provision hereof to any person or circumstances is held invalid,
unenforceable, or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable, or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid, or legal.
13. Non-Exclusivity of Rights: Nothing in this Agreement will
-------------------------
prevent or limit the Executive's present or future participation in any
benefit, bonus, incentive, or other plan or program provided by the Company or
any Affiliate or Subsidiary for which the Executive may qualify, nor will this
Agreement in any manner limit or otherwise affect such rights as the Executive
may have under any stock option or other agreements with the Company or any
Affiliate or Subsidiary. Amounts or benefits which are vested or which the
Executive is otherwise entitled to receive under any plan or program of the
Company at or subsequent to the Date of Termination will be payable in
accordance with such plan or program, except as otherwise expressly provided in
this Agreement; provided, however, that any amounts received by the Executive
pursuant to this Agreement shall be in lieu of any benefits which the Executive
is entitled to receive or may become entitled to receive under any reduction-in-
force or severance pay plan or practice which the Company now has in effect or
may hereafter put into effect, any other benefits to which the Executive may be
entitled under any individual agreement of employment with the Company which
would provide a benefit to the Executive upon the occurrence of a Change of
Control of the Company, and any severance benefits required under federal or
state law to be paid to the Executive.
14. Miscellaneous: (a) No provision of this Agreement may be
-------------
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to Sections are to references to
Sections of this Agreement.
<PAGE>
(b) The Executive and the Company acknowledge that this Agreement
supersedes any other agreement between them concerning the subject matter
hereof, other than the Employment Agreement between the Executive and the
Company dated as of July 13, 1992.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
ADVO, Inc.
By__________________________
Robert Kamerschen
____________________________
[Executive]
<PAGE>
EXHIBIT 10(m)
- -------------
Following is a copy of the Executive Severance Agreement, dated as of October
17, 1995, by and between ADVO, Inc. and each of the following executive
officers:
Peter A. Corrao
Rick Kurz
Fredrick Leick
Myron L. Lubin
Frank J. Talz
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
-----------------------------
This EXECUTIVE SEVERANCE AGREEMENT (the "Agreement"), is made as of
October 17, 1995, by and between ADVO, Inc. (the "Company") and
_______________(the "Executive").
RECITALS:
--------
A. The Executive is an executive of the Company and has made and is
expected to continue to make major contributions to the short- and long-term
profitability, growth, and financial strength of the Company;
B. The Company recognizes that the possibility of a Change of Control
(as hereafter defined) exists;
C. The Company desires to assure itself of both present and future
continuity of its management and desires to establish certain severance benefits
for key executive officers of the Company, including the Executive, applicable
in the event of a Change of Control; and
D. The Company wishes to aid in assuring that such executives are not
practically disabled from discharging their duties in respect of a proposed or
actual transaction involving a Change of Control.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms: In addition to terms defined elsewhere
---------------------
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Affiliate" means (i) each entity in which the Company, alone or
together with one or more other Affiliates of the Company, owns not less than
80% of the then outstanding voting securities or, for any entity that is not a
corporation, at least 80% of the then-outstanding capital interests of such
entity and (ii) any additional entity which is deemed by action of the Board to
be an Affiliate for the purposes of this Agreement.
(b) "Base Pay" means the Executive's annual aggregate fixed base
salary from the Company at the time in question.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means the occurrence during the Term of any
of the following events:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of
<PAGE>
1934, as amended (the "Exchange Act")), other than Warburg (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of voting securities of the
Company where such acquisition causes such Person to own 30% or more
of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i), the following
acquisitions shall not be deemed to result in a Change of Control: (A)
any acquisition directly from the Company, (B) any acquisition by the
Company, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (D) any acquisition by any corporation
pursuant to a transaction that complies with clauses (A), (B) and (C)
of subsection (iii) below; and provided, further, that if any Person's
beneficial ownership of the Outstanding Company Voting Securities
reaches or exceeds 30% as a result of a transaction described in
clause (A) or (B) above, and such Person subsequently acquires
beneficial ownership of additional voting securities of the Company,
such subsequent acquisition shall be treated as an acquisition that
causes such Person to own 30% or more of the Outstanding Company
Voting Securities; or
(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; and provided, further, than any partner,
employee or representative of Warburg proposed by Warburg to be
elected to the Board shall be considered a member of the Incumbent
Board; or
(iii) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of the Company or the
acquisition of assets of another corporation ("Busi-
<PAGE>
ness Combination") or, if consummation of such Business Combination
is subject, at the time of such approval by shareholders, to the
consent of any government or governmental agency, the obtaining of
such consent (either explicitly or implicitly by consummation);
excluding, however, such a Business Combination pursuant to which (A)
all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Voting Securities im-
mediately prior to such Business Combination beneficially own,
directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation that as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Voting Securities, (B)
no Person (excluding any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 30% or more
of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(e) "Cause" means that, prior to any Termination by the
Executive for Good Reason, the Executive shall have:
(i) committed an intentional act of fraud, embezzlement, or
theft in connection with the Executive's duties or in the course of
his employment with the Company;
(ii) committed intentional wrongful damage to property of the
Company; or
(iii) intentionally and wrongfully disclosed confidential
information of the Company; and any such
<PAGE>
act shall have been materially harmful to the Company.
For purposes of this Agreement, no act on the part of the Executive shall be
deemed "intentional" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" only if done by the Executive not
in good faith and without reasonable belief that the Executive's action or
omission was in the best interests of the Company.
(f) "Date of Termination" means the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be; provided,
however, that if the Executive is Terminated by the Company other than for Cause
or for disability pursuant to Section 2(a)(ii), the Date of Termination will
be the date on which the Executive receives the Notice of Termination from the
Company; and provided further, if the Executive is Terminated by reason of death
or disability pursuant to Section 2(a)(i) or 2(a)(ii), the Date of Termination
will be the last day of the month in which occurs the date of death or the
disability effective date, as the case may be.
(g) "Employee Benefits" means the perquisites, benefits and service
credit for benefits as provided under the plans and programs maintained by the
Company, including, but not limited to, plans and programs which are "employee
benefit plans" under Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended, and any amendment, or successor, to such plans or
programs (whether insured, funded or unfunded).
(h) "Good Reason" means the occurrence of any of the events listed in
Sections 2(b)(i) through 2(b)(vii), inclusive.
(i) "Incentive Pay" means an annual amount equal to the aggregate
annual bonus, in addition to Base Pay, made or to be made in regard to services
rendered in any calendar year or performance period pursuant to any bonus plan
of the Company.
(j) "Notice of Termination" means a written notice which (i)
indicates the specific provision in this Agreement relied upon, (ii) sets forth
in reasonable detail the facts and circumstances claimed to provide a basis for
the Termination under the provision so indicated, and (iii) if the effective
date of the Termination is other than the date of receipt of such notice,
specifies the effective date of Termination (which date will be not more than
sixty (60) days after the giving of such notice). The failure by the Executive
to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing that the Executive is entitled to the benefits intended
to be provided by this Agreement will not constitute a waiver of any right of
the Executive hereunder or otherwise preclude the Executive from later asserting
such fact or circumstance in enforcing the Executive's rights hereunder.
(k) "Severance Period" means the period of time com-
<PAGE>
mencing on the date of an occurrence of a Change of Control and continuing until
the earlier of (i) the date which is one and one-half years following the
occurrence of the Change of Control, and (ii) the Executive's death.
(l) "Subsidiary" means an entity, at least a majority of the total
voting power of the then-outstanding voting securities of which is held,
directly or indirectly, by the Company and/or one or more other Subsidiaries or,
for any entity that is not a corporation, at least a majority of the then-
outstanding capital interests of which is so held.
(m) "Term" means (A) the period commencing on the date hereof and
ending on the second anniversary of the date hereof; provided, however, that
commencing on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary thereof shall be
hereinafter referred to as the "Renewal Date"), unless previously terminated,
the Term shall be automatically extended so as to terminate two years from such
Renewal Date, unless at least sixty (60) days prior to the Renewal Date the
Company shall give notice to the Executive that the Term shall not be so
extended, (B) if, prior to a Change of Control, for any reason the Executive is
Terminated or Terminates, thereupon without further action the Term shall be
deemed to have expired and this Agreement will immediately terminate and be of
no further effect, and (C) in the event of a Change of Control, the Term will,
without further action, be considered to terminate at the expiration of the
Severance Period.
(n) "Terminate" and correlative terms mean the termination of the
Executive's employment with the Company and any Affiliate or Subsidiary.
(o) "Warburg" means Warburg, Pincus Capital Partners, L.P., and/or
any of its affiliates.
2. Termination Following a Change of Control: (a) If, during the
-----------------------------------------
Severance Period, the Executive is Terminated, the Executive will be entitled to
the benefits provided by Sections 3 and 4 unless such termination is by reason
of one or more of the following events:
(i) The Executive's death;
(ii) The permanent and total disability of the Executive as
defined in any long term disability plan of the Company, applicable to
the Executive, as in effect immediately prior to the Change of
Control;
(iii) Cause; or
(iv) The Executive's voluntary Termination in circumstances
in which Good Reason does not exist.
(b) In the event of the occurrence of a Change of Control, the
Executive may Terminate during the Severance Period with the right to severance
compensation as provided in Sections
<PAGE>
3 and 4 upon the occurrence of one or more of the following events (regardless
of whether any other reason, other than Cause as hereinabove provided, for
Termination exists or has occurred, including without limitation other
employment):
(i) An adverse change in the nature or scope of the
authorities, powers, functions, responsibilities, or duties attached
to the position with the Company, which the Executive held immediately
prior to the Change of Control;
(ii) A reduction in the Executive's Base Pay as in effect
immediately prior to any Change of Control, or as it may have been
increased from time to time thereafter;
(iii) Any failure by the Company to continue in effect any
plan or arrangement providing Incentive Pay in which the Executive is
participating at the time of a Change of Control (or any other plans
or arrangements providing substantially similar benefits) or the
taking of any action by the Company, any Affiliate or Subsidiary which
would adversely affect the Executive's participation in any such plan
or arrangement or reduce the Executive's benefits under any such plan
or arrangement in a manner inconsistent with the practices of the
Company prior to the Change of Control;
(iv) Any failure by the Company to continue in effect any
Employee Benefits in which the Executive is participating at the time
of a Change of Control (or any other plans or arrangements providing
the Executive with substantially similar benefits) or the taking of
any action by the Company, an Affiliate or Subsidiary which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any Employee Benefits or deprive the
Executive of any material fringe benefit enjoyed by the Executive at
the time of a Change of Control;
(v) The liquidation, dissolution, merger, consolidation, or
reorganization of the Company or transfer of all or substantially all
of its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer, or
otherwise) to which all or a significant portion of its business
and/or assets have been transferred (directly or by operation of law)
assumed all duties and obligations of the Company under this Agreement
pursuant to Section 9;
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this
<PAGE>
Agreement by the Company or any successor thereto; or
(vii) Any action by the Company which causes the Executive's
services to be performed at a location which is more than thirty five
(35) miles from the location where the Executive was employed
immediately preceding the date of the Change of Control.
(c) Any Termination will be communicated by Notice of Termination
hereto given in accordance with Section 10 of this Agreement.
3. Severance Compensation: (a) If, following the occurrence of a
----------------------
Change of Control, the Executive is Terminated by the Company during the
Severance Period other than in the circumstances set forth in Section 2(a)(i),
2(a)(ii), or 2(a)(iii), or if the Executive Terminates for Good Reason:
(i) The Company will pay to the Executive in a lump sum
in cash within five (5) business days after the later of the date on
which the Company receives the determination of the Accounting Firm
required in Section 4 hereof or the Date of Termination the aggregate
of the amount (the "Severance Payment") equal to one and one-half
times the sum of (A) the Executive's Base Pay at the highest rate in
effect at any time within the 90-day period preceding the date the
Notice of Termination was given or, if higher, at the highest rate in
effect at any time within the 90-day period preceding the date of the
first occurrence of a Change of Control, and (B) an amount equal to
the greatest amount of Incentive Pay received by the Executive during
any calendar year or portion thereof from and including the third
calendar year prior to the first occurrence of a Change of Control;
and
(ii) For the period of one and one-half years from the
Date of Termination, the Executive shall be eligible for participation
in and shall receive all benefits under such benefit plans, practices,
policies and programs of the Company that provide medical,
prescription dental, or life insurance coverage, with the costs of
such participation to be paid by the Company to the same extent as
prior to the Executive's Termination. In the event that such continued
participation is not allowed under the terms and provisions of such
plans or programs, then in lieu thereof, the Company shall acquire
individual insurance policies providing comparable coverage for the
Executive; provided that if any such individual coverage is
unavailable, the Company shall pay to the Executive an amount equal to
the contributions that would have been made by the Company for such
coverage on the Executive's behalf if the Executive had remained in
the employ of the Company for the period referred to in the preceding
sentence.
<PAGE>
(b) There will be no right of set-off or counterclaim in respect of
any claim, debt, or obligation against any payment to or benefit for the
Executive provided for in this Agreement.
(c) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit required
to be made or provided under this Agreement (including under this Section 3 or
Section 6) on a timely basis, the Company will pay interest on the amount or
value thereof at an annualized rate of interest equal to the so-called composite
"prime rate" as quoted from time to time during the relevant period in the
Northeast Edition of The Wall Street Journal. Such interest will be payable as
-----------------------
it accrues on demand. Any change in such prime rate will be effective on and as
of the date of such change.
(d) Notwithstanding any other provision hereof, the parties,
respective rights and obligations under this Section 3 and under Sections 4 and
6 will survive any termination or expiration of this Agreement following a
Change of Control or any Termination following a Change of Control for any
reason whatsoever.
4. Excise and Other Taxes. The Executive shall bear all expense of,
----------------------
and be solely responsible for, all federal, state, local or foreign taxes due
with respect to any payment received hereunder, including, without limitation,
any excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the Code); provided, however, that all payments under this Agreement
shall be reduced to the extent necessary so that no portion thereof shall be
subject to the excise tax imposed by Section 4999 of the Code but only if, by
reason of such reduction, the net after-tax benefit received by the Executive
shall exceed the net after-tax benefit received by the Executive if no such
reduction was made. For purposes of this Section 4, "net after-tax benefit"
shall mean (i) the total of all payments and the value of all benefits which the
Executive receives or is then entitled to receive from the Company that would
constitute "parachute payments" within the meaning of Section 280G of the Code,
less (ii) the amount of all federal, state and local income taxes payable with
respect to the foregoing calculated at the maximum marginal income tax rate for
each year in which the foregoing shall be paid to the Executive (based on the
rate in effect for such year as set forth in the Code as in effect at the time
of the first payment of the foregoing), less (iii) the amount of excise taxes
imposed with respect to the payments and benefits described in (i) above by
Section 4999 of the Code. The foregoing determination will be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive and reasonably acceptable to the Company (which may be, but will not
be required to be, the Company's independent auditors). The Executive will
direct the Accounting Firm to submit its determination and detailed supporting
calculations to both the Company and the Executive within fifteen (15) days
after the Date of Termination. If the
<PAGE>
Accounting Firm determines that such reduction is required by this Section 4,
the Company shall pay such reduced amount to the Executive in accordance with
Section 3(a). If the Accounting Firm determines that no reduction is necessary
under this Section 4, it will, at the same time as it makes such determination,
furnish the Company and the Executive an opinion that the Executive will not be
liable for any excise tax under Section 4999 of the Code. The Company and the
Executive will each provide the Accounting Firm access to and copies of any
books, records, and documents in the possession of the Company or the Executive,
as the case may be, reasonably requested by the Accounting Firm, and otherwise
cooperate with the Accounting Firm in connection with the preparation and
issuance of the determinations and calculations contemplated by this Section 4.
The fees and expenses of the Accounting Firm for its services in connection with
the determinations and calculations contemplated by this Section 4 will be borne
by the Company.
5. No Mitigation Obligation: The Company hereby acknowledges that
------------------------
it will be difficult, and may be impossible, for the Executive to find
reasonably comparable employment following the Date of Termination. The payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement will be liquidated damages, and the Executive will
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits,
income, earnings, or other benefits from any source whatsoever create any
mitigation, offset, reduction, or any other obligation on the part of the
Executive hereunder or otherwise.
6. Legal Fees and Expenses: If the Company has failed to comply with
-----------------------
any of its obligations under this Agreement or in the event that the Company
or any other person takes or threatens to take any action to declare this
Agreement void or unenforceable, or institutes any litigation or other action or
proceeding designed to deny, or to recover from, the Executive the benefits
provided or intended to be provided to the Executive hereunder, the Company
irrevocably authorizes the Executive from time to time to retain counsel of the
Executive's choice, at the expense of the Company, to advise and represent the
Executive in connection with any such interpretation, enforcement, or defense,
including without limitation the initiation or defense of any litigation or
other legal action, whether by or against the Company or any member of the
Board, officer, stockholder, or other person or entity affiliated with the
Company, in any jurisdiction. The Company will pay and be solely financially
responsible for any and all attorneys' and related fees and expenses incurred by
the Executive in connection with such litigation.
7. Employment Rights: Nothing expressed or implied in this
-----------------
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company, or any
Affiliate or Subsidiary prior to or following any Change of Control.
8. Withholding of Taxes: The Company may withhold
--------------------
<PAGE>
from any amounts payable under this Agreement all federal, state, city, or other
taxes as the Company is required to withhold pursuant to any law or government
regulation or ruling.
9. Successors and Binding Agreement: (a) The Company will require
--------------------------------
any successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization, or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. This Agreement will be binding upon and inure
to the benefit of the Company and any successor to the Company, including,
without limitation, any persons acquiring directly or indirectly all or
substantially all of the business and/or assets of the Company, whether by
purchase, merger, consolidation, reorganization, or otherwise (and such
successor will thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable, or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, and/or legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto will, without the consent of the other, assign, transfer, or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Sections 9(a) and 9(b). Without limiting the generality or effect
of the foregoing, the Executive's right to receive payments hereunder will not
be assignable, transferable, or delegable, whether by pledge, creation of a
security interest, or otherwise, other than by a transfer by will or by the laws
of descent and distribution and, in the event of any attempted assignment or
transfer contrary to this Section 9(c), the Company will have no liability to
pay any amount so attempted to be assigned, transferred, or delegated.
10. Notices: For all purposes of this Agreement, all communications,
-------
including, without limitation, notices, consents, requests, or approvals,
required or permitted to be given hereunder will be in writing and will be
deemed to have been duly given when hand delivered or dispatched by electronic
facsimile transmission (with receipt thereof orally confirmed),
or two business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or one business day
after having been sent by a nationally recognized overnight courier service,
addressed to the Company (to the attention of the General Counsel of the
Company) at its principal executive office and to the Executive at the
Executive's principal residence, or to such other address as any party may have
furnished to the other in writing and in
<PAGE>
accordance herewith, except that notices of changes of address will be effective
only upon receipt.
11. Governing Law: The validity, interpretation, construction, and
-------------
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Connecticut, without giving effect to
the principles of conflict of laws of such State, to the extent not preempted by
applicable federal law.
12. Validity: If any provision of this Agreement or the application
--------
of any provision hereof to any person or circumstances is held invalid,
unenforceable, or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable, or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid, or legal.
13. Non-Exclusivity of Rights: Nothing in this Agreement will
-------------------------
prevent or limit the Executive's present or future participation in any benefit,
bonus, incentive, or other plan or program provided by the Company or any
Affiliate or Subsidiary for which the Executive may qualify, nor will this
Agreement in any manner limit or otherwise affect such rights as the Executive
may have under any stock option or other agreements with the Company or any
Affiliate or Subsidiary. Amounts or benefits which are vested or which the
Executive is otherwise entitled to receive under any plan or program of the
Company at or subsequent to the Date of Termination will be payable in
accordance with such plan or program, except as otherwise expressly provided in
this Agreement; provided, however, that any amounts received by the Executive
pursuant to this Agreement shall be in lieu of any benefits which the Executive
is entitled to receive or may become entitled to receive under any reduction-in-
force or severance pay plan or practice which the Company now has in effect or
may hereafter put into effect, any other benefits to which the Executive may be
entitled under any individual agreement of employment with the Company which
would provide a benefit to the Executive upon the occurrence of a Change of
Control of the Company, and any severance benefits required under federal or
state law to be paid to the Executive.
14. Miscellaneous: (a) No provision of this Agreement may be
-------------
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to Sections are to references to
Sections of this Agreement.
<PAGE>
(b) The Executive and the Company acknowledge that this Agreement
supersedes any other agreement between them concerning the subject matter
hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
ADVO, Inc.
By__________________________
Robert Kamerschen
____________________________
[Executive]
<PAGE>
EXHIBIT 10(n)
- -------------
EXECUTIVE SEVERANCE AGREEMENT
-----------------------------
This EXECUTIVE SEVERANCE AGREEMENT (the "Agreement"), is made as of
October 17, 1995, by and between ADVO, Inc. (the "Company") and Robert S. Hirst
(the "Executive").
RECITALS:
--------
A. The Executive is an executive of the Company and has made and is
expected to continue to make major contributions to the short- and long-term
profitability, growth, and financial strength of the Company;
B. The Company recognizes that the possibility of a Change of Control
(as hereafter defined) exists;
C. The Company desires to assure itself of both present and future
continuity of its management and desires to establish certain severance benefits
for key executive officers of the Company, including the Executive, applicable
in the event of a Change of Control; and
D. The Company wishes to aid in assuring that such executives are not
practically disabled from discharging their duties in respect of a proposed or
actual transaction involving a Change of Control.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms: In addition to terms defined elsewhere
---------------------
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Affiliate" means (i) each entity in which the Company, alone or
together with one or more other Affiliates of the Company, owns not less than
80% of the then outstanding voting securities or, for any entity that is not a
corporation, at least 80% of the then-outstanding capital interests of such
entity and (ii) any additional entity which is deemed by action of the Board to
be an Affiliate for the purposes of this Agreement.
(b) "Base Pay" means the Executive's annual aggregate fixed base
salary from the Company at the time in question.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means the occurrence during the Term of any
of the following events:
(i) The acquisition by any individual,
<PAGE>
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), other
than Warburg (a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of voting securities of the
Company where such acquisition causes such Person to own 30% or more of the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (i), the following acquisitions shall not be
deemed to result in a Change of Control: (A) any acquisition directly from
the Company, (B) any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (D) any acquisition
by any corporation pursuant to a transaction that complies with clauses
(A), (B) and (C) of subsection (iii) below; and provided, further, that if
any Person's beneficial ownership of the Outstanding Company Voting
Securities reaches or exceeds 30% as a result of a transaction described in
clause (A) or (B) above, and such Person subsequently acquires beneficial
ownership of additional voting securities of the Company, such subsequent
acquisition shall be treated as an acquisition that causes such Person to
own 30% or more of the Outstanding Company Voting Securities; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; and provided, further, than any partner,
employee or representative of Warburg proposed by Warburg to be elected to
the Board shall be considered a member of the Incumbent Board; or
(iii) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Company or the acquisition of
assets of another corporation ("Business Combination") or, if consummation
of such Busi-
<PAGE>
ness Combination is subject, at the time of such approval by shareholders,
to the consent of any government or governmental agency, the obtaining of
such consent (either explicitly or implicitly by consummation); excluding,
however, such a Business Combination pursuant to which (A) all or
substantially all of the individuals and entities who were the beneficial
owners of the Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation that as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Voting Securities, (B) no Person
(excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 30% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (C) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(iv) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(e) "Cause" means that, prior to any Termination by the
Executive for Good Reason, the Executive shall have:
(i) committed an intentional act of fraud, embezzlement, or
theft in connection with the Executive's duties or in the course of his
employment with the Company;
(ii) committed intentional wrongful damage to property of the
Company; or
<PAGE>
(iii) intentionally and wrongfully disclosed confidential
information of the Company; and any such act shall have been materially
harmful to the Company.
For purposes of this Agreement, no act on the part of the Executive shall be
deemed "intentional" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" only if done by the Executive not
in good faith and without reasonable belief that the Executive's action or
omission was in the best interests of the Company.
(f) "Date of Termination" means the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be; provided,
however, that if the Executive is Terminated by the Company other than for Cause
or for disability pursuant to Section 2(a)(ii), the Date of Termination will
be the date on which the Executive receives the Notice of Termination from the
Company; and provided further, if the Executive is Terminated by reason of death
or disability pursuant to Section 2(a)(i) or 2(a)(ii), the Date of Termination
will be the last day of the month in which occurs the date of death or the
disability effective date, as the case may be.
(g) "Employee Benefits" means the perquisites, benefits and service
credit for benefits as provided under the plans and programs maintained by the
Company, including, but not limited to, plans and programs which are "employee
benefit plans" under Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended, and any amendment, or successor, to such plans or
programs (whether insured, funded or unfunded).
(h) "Good Reason" means the occurrence of any of the events listed in
Sections 2(b)(i) through 2(b)(vii), inclusive.
(i) "Incentive Pay" means an annual amount equal to the aggregate
annual bonus, in addition to Base Pay, made or to be made in regard to services
rendered in any calendar year or performance period pursuant to any bonus plan
of the Company.
(j) "Notice of Termination" means a written notice which (i)
indicates the specific provision in this Agreement relied upon, (ii) sets forth
in reasonable detail the facts and circumstances claimed to provide a basis for
the Termination under the provision so indicated, and (iii) if the effective
date of the Termination is other than the date of receipt of such notice,
specifies the effective date of Termination (which date will be not more than
sixty (60) days after the giving of such notice). The failure by the Executive
to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing that the Executive is entitled to the benefits intended
to be provided by this Agreement will not constitute a waiver of any right of
the Executive hereunder or otherwise preclude the Executive from later asserting
such fact or circumstance in enforcing the Executive's rights hereunder.
(k) "Severance Period" means the period of time commencing on the
date of an occurrence of a Change of Control and
<PAGE>
continuing until the earlier of (i) the date which is one year following the
occurrence of the Change of Control, and (ii) the Executive's death.
(l) "Subsidiary" means an entity, at least a majority of the total
voting power of the then-outstanding voting securities of which is held,
directly or indirectly, by the Company and/or one or more other Subsidiaries or,
for any entity that is not a corporation, at least a majority of the then-
outstanding capital interests of which is so held.
(m) "Term" means (A) the period commencing on the date hereof and
ending on the second anniversary of the date hereof; provided, however, that
commencing on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary thereof shall be
hereinafter referred to as the "Renewal Date"), unless previously terminated,
the Term shall be automatically extended so as to terminate two years from such
Renewal Date, unless at least sixty (60) days prior to the Renewal Date the
Company shall give notice to the Executive that the Term shall not be so
extended, (B) if, prior to a Change of Control, for any reason the Executive is
Terminated or Terminates, thereupon without further action the Term shall be
deemed to have expired and this Agreement will immediately terminate and be of
no further effect, and (C) in the event of a Change of Control, the Term
will, without further action, be considered to terminate at the expiration of
the Severance Period.
(n) "Terminate" and correlative terms mean the termination of the
Executive's employment with the Company and any Affiliate or Subsidiary.
(o) "Warburg" means Warburg, Pincus Capital Partners, L.P., and/or
any of its affiliates.
2. Termination Following a Change of Control: (a) If, during the
-----------------------------------------
Severance Period, the Executive is Terminated, the Executive will be entitled to
the benefits provided by Sections 3 and 4 unless such termination is by reason
of one or more of the following events:
(i) The Executive's death;
(ii) The permanent and total disability of the Executive
as defined in any long term disability plan of the Company, applicable to
the Executive, as in effect immediately prior to the Change of Control;
(iii) Cause; or
(iv) The Executive's voluntary Termination in
circumstances in which Good Reason does not exist.
(b) In the event of the occurrence of a Change of
<PAGE>
Control, the Executive may Terminate during the Severance Period with the right
to severance compensation as provided in Sections 3 and 4 upon the occurrence of
one or more of the following events (regardless of whether any other reason,
other than Cause as hereinabove provided, for Termination exists or has
occurred, including without limitation other employment):
(i) An adverse change in the nature or scope of the authorities,
powers, functions, responsibilities, or duties attached to the position
with the Company, which the Executive held immediately prior to the Change
of Control;
(ii) A reduction in the Executive's Base Pay as in effect
immediately prior to any Change of Control, or as it may have been
increased from time to time thereafter;
(iii) Any failure by the Company to continue in effect any plan or
arrangement providing Incentive Pay in which the Executive is participating
at the time of a Change of Control (or any other plans or arrangements
providing substantially similar benefits) or the taking of any action by
the Company, any Affiliate or Subsidiary which would adversely affect the
Executive's participation in any such plan or arrangement or reduce the
Executive's benefits under any such plan or arrangement in a manner
inconsistent with the practices of the Company prior to the Change of
Control;
(iv) Any failure by the Company to continue in effect any Employee
Benefits in which the Executive is participating at the time of a Change of
Control (or any other plans or arrangements providing the Executive with
substantially similar benefits) or the taking of any action by the Company,
an Affiliate or Subsidiary which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under any
Employee Benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of a Change of Control;
(v) The liquidation, dissolution, merger, consolidation, or
reorganization of the Company or transfer of all or substantially all of
its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer, or otherwise)
to which all or a significant portion of its business and/or assets have
been transferred (directly or by operation of law) assumed all duties and
obligations of the Company under this Agreement pursuant to Section 9;
(vi) Without limiting the generality or effect of the foregoing, any
material breach of this Agreement by the Company or any successor thereto;
or
<PAGE>
(vii) Any action by the Company which causes the Executive's
services to be performed at a location which is more than thirty five (35)
miles from the location where the Executive was employed immediately
preceding the date of the Change of Control.
(c) Any Termination will be communicated by Notice of Termination
hereto given in accordance with Section 10 of this Agreement.
3. Severance Compensation: (a) If, following the occurrence of a
----------------------
Change of Control, the Executive is Terminated by the Company during the
Severance Period other than in the circumstances set forth in Section 2(a)(i),
2(a)(ii), or 2(a)(iii), or if the Executive Terminates for Good Reason:
(i) The Company will pay to the Executive in a lump sum in
cash within five (5) business days after the later of the date on
which the Company receives the determination of the Accounting Firm
required in Section 4 hereof or the Date of Termination the aggregate
of the amount (the "Severance Payment") equal to one times the sum of
(A) the Executive's Base Pay at the highest rate in effect at any time
within the 90-day period preceding the date the Notice of Termination
was given or, if higher, at the highest rate in effect at any time
within the 90-day period preceding the date of the first occurrence of
a Change of Control, and (B) an amount equal to the greatest amount of
Incentive Pay received by the Executive during any calendar year or
portion thereof from and including the third calendar year prior to
the first occurrence of a Change of Control; and
(ii) For the period of one year from the Date of Termination,
the Executive shall be eligible for participation in and shall receive all
benefits under such benefit plans, practices, policies and programs of the
Company that provide medical, prescription dental, or life insurance
coverage, with the costs of such participation to be paid by the Company to
the same extent as prior to the Executive's Termination. In the event that
such continued participation is not allowed under the terms and provisions
of such plans or programs, then in lieu thereof, the Company shall acquire
individual insurance policies providing comparable coverage for the
Executive; provided that if any such individual coverage is unavailable,
the Company shall pay to the Executive an amount equal to the contributions
that would have been made by the Company for such coverage on the
Executive's behalf if the Executive had remained in the employ of the
Company for the period
<PAGE>
referred to in the preceding sentence.
(b) There will be no right of set-off or counterclaim in respect of
any claim, debt, or obligation against any payment to or benefit for the
Executive provided for in this Agreement.
(c) Without limiting the rights of the Executive at law or in equity,
if the Company fails to make any payment or provide any benefit required to be
made or provided under this Agreement (including under this Section 3 or Section
6) on a timely basis, the Company will pay interest on the amount or value
thereof at an annualized rate of interest equal to the so-called composite
"prime rate" as quoted from time to time during the relevant period in the
Northeast Edition of The Wall Street Journal. Such interest will be payable as
-----------------------
it accrues on demand. Any change in such prime rate will be effective on and as
of the date of such change.
(d) Notwithstanding any other provision hereof, the parties,
respective rights and obligations under this Section 3 and under Sections 4 and
6 will survive any termination or expiration of this Agreement following a
Change of Control or any Termination following a Change of Control for any
reason whatsoever.
4. Excise and Other Taxes. The Executive shall bear all expense of,
----------------------
and be solely responsible for, all federal, state, local or foreign taxes due
with respect to any payment received hereunder, including, without limitation,
any excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the Code); provided, however, that all payments under this Agreement
shall be reduced to the extent necessary so that no portion thereof shall be
subject to the excise tax imposed by Section 4999 of the Code but only if, by
reason of such reduction, the net after-tax benefit received by the Executive
shall exceed the net after-tax benefit received by the Executive if no such
reduction was made. For purposes of this Section 4, "net after-tax benefit"
shall mean (i) the total of all payments and the value of all benefits which the
Executive receives or is then entitled to receive from the Company that would
constitute "parachute payments" within the meaning of Section 280G of the Code,
less (ii) the amount of all federal, state and local income taxes payable with
respect to the foregoing calculated at the maximum marginal income tax rate for
each year in which the foregoing shall be paid to the Executive (based on the
rate in effect for such year as set forth in the Code as in effect at the time
of the first payment of the foregoing), less (iii) the amount of excise taxes
imposed with respect to the payments and benefits described in (i) above by
Section 4999 of the Code. The foregoing determination will be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive and reasonably acceptable to the Company (which may be, but will not
be required to be, the Company's independent auditors). The Executive will
direct the Accounting Firm to submit its determination and detailed supporting
calculations to both the Company and the Executive within fifteen (15) days
after the Date of Termination. If the Accounting Firm determines that such
reduction is required by
<PAGE>
this Section 4, the Company shall pay such reduced amount to the Executive in
accordance with Section 3(a). If the Accounting Firm determines that no
reduction is necessary under this Section 4, it will, at the same time as it
makes such determination, furnish the Company and the Executive an opinion that
the Executive will not be liable for any excise tax under Section 4999 of the
Code. The Company and the Executive will each provide the Accounting Firm access
to and copies of any books, records, and documents in the possession of the
Company or the Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determinations and calculations
contemplated by this Section 4. The fees and expenses of the Accounting Firm for
its services in connection with the determinations and calculations contemplated
by this Section 4 will be borne by the Company.
5. No Mitigation Obligation: The Company hereby acknowledges that
------------------------
it will be difficult, and may be impossible, for the Executive to find
reasonably comparable employment following the Date of Termination. The payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement will be liquidated damages, and the Executive will
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits,
income, earnings, or other benefits from any source whatsoever create any
mitigation, offset, reduction, or any other obligation on the part of the
Executive hereunder or otherwise.
6. Legal Fees and Expenses: If the Company has failed to comply with
-----------------------
any of its obligations under this Agreement or in the event that the Company
or any other person takes or threatens to take any action to declare this
Agreement void or unenforceable, or institutes any litigation or other action or
proceeding designed to deny, or to recover from, the Executive the benefits
provided or intended to be provided to the Executive hereunder, the Company
irrevocably authorizes the Executive from time to time to retain counsel of the
Executive's choice, at the expense of the Company, to advise and represent the
Executive in connection with any such interpretation, enforcement, or defense,
including without limitation the initiation or defense of any litigation or
other legal action, whether by or against the Company or any member of the
Board, officer, stockholder, or other person or entity affiliated with the
Company, in any jurisdiction. The Company will pay and be solely financially
responsible for any and all attorneys' and related fees and expenses incurred by
the Executive in connection with such litigation.
7. Employment Rights: Nothing expressed or implied in this
-----------------
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company, or any
Affiliate or Subsidiary prior to or following any Change of Control.
<PAGE>
8. Withholding of Taxes: The Company may withhold from any amounts
--------------------
payable under this Agreement all federal, state, city, or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
9. Successors and Binding Agreement: (a) The Company will require
--------------------------------
any successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization, or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. This Agreement will be binding upon and inure
to the benefit of the Company and any successor to the Company, including,
without limitation, any persons acquiring directly or indirectly all or
substantially all of the business and/or assets of the Company, whether by
purchase, merger, consolidation, reorganization, or otherwise (and such
successor will thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable, or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, and/or legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto will, without the consent of the other, assign, transfer, or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Sections 9(a) and 9(b). Without limiting the generality or effect
of the foregoing, the Executive's right to receive payments hereunder will not
be assignable, transferable, or delegable, whether by pledge, creation of a
security interest, or otherwise, other than by a transfer by will or by the laws
of descent and distribution and, in the event of any attempted assignment or
transfer contrary to this Section 9(c), the Company will have no liability to
pay any amount so attempted to be assigned, transferred, or delegated.
10. Notices: For all purposes of this Agreement, all communications,
-------
including, without limitation, notices, consents, requests, or approvals,
required or permitted to be given hereunder will be in writing and will be
deemed to have been duly given when hand delivered or dispatched by electronic
facsimile transmission (with receipt thereof orally confirmed), or two business
days after having been mailed by United States registered or certified mail,
return receipt requested, postage prepaid, or one business day after having been
sent by a nationally recognized overnight courier service, addressed to the
Company (to the attention of the General Counsel of the Company) at its
principal executive office and to the Executive at the Executive's principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
will be effective only upon receipt.
<PAGE>
11. Governing Law: The validity, interpretation, construction, and
-------------
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Connecticut, without giving effect to
the principles of conflict of laws of such State, to the extent not preempted by
applicable federal law.
12. Validity: If any provision of this Agreement or the application
--------
of any provision hereof to any person or circumstances is held invalid,
unenforceable, or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable, or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid, or legal.
13. Non-Exclusivity of Rights: Nothing in this Agreement will
-------------------------
prevent or limit the Executive's present or future participation in any
benefit, bonus, incentive, or other plan or program provided by the Company or
any Affiliate or Subsidiary for which the Executive may qualify, nor will this
Agreement in any manner limit or otherwise affect such rights as the Executive
may have under any stock option or other agreements with the Company or any
Affiliate or Subsidiary. Amounts or benefits which are vested or which the
Executive is otherwise entitled to receive under any plan or program of the
Company at or subsequent to the Date of Termination will be payable in
accordance with such plan or program, except as otherwise expressly provided in
this Agreement; provided, however, that any amounts received by the Executive
pursuant to this Agreement shall be in lieu of any benefits which the Executive
is entitled to receive or may become entitled to receive under any reduction-in-
force or severance pay plan or practice which the Company now has in effect or
may hereafter put into effect, any other benefits to which the Executive may be
entitled under any individual agreement of employment with the Company which
would provide a benefit to the Executive upon the occurrence of a Change of
Control of the Company, and any severance benefits required under federal or
state law to be paid to the Executive.
14. Miscellaneous: (a) No provision of this Agreement may be
-------------
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to Sections are to references to
Sections of this Agreement.
<PAGE>
(b) The Executive and the Company acknowledge that this Agreement
supersedes any other agreement between them concerning the subject matter
hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
ADVO, Inc.
By Robert Kamerschen/s/
--------------------------
Robert Kamerschen
Robert S. Hirst/s/
-----------------------------
Robert S. Hirst
<PAGE>
EXHIBIT 11
----------
PAGE 1 OF 2
ADVO, INC.
COMPUTATION OF PRIMARY PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 24, SEPTEMBER 25,
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
EARNINGS APPLICABLE TO COMMON STOCK.. $24,951 $25,171 $ 5,351
======= ======= =======
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES
Average common shares outstanding.... 20,663 21,104 20,631
Assumed conversion or exercise of:
Warrants........................... 2,272 2,236 2,303
Stock options...................... 310 496 1,097
Series A Preferred Stock........... -- -- 1,229
Restricted stock................... 41 50 129
------- ------- -------
Weighted average common and common
equivalent shares................... 23,286 23,886 25,389
======= ======= =======
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARES................... $ 1.07 $ 1.05 $ .21
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 11
----------
PAGE 2 OF 2
ADVO, INC.
COMPUTATION OF FULLY DILUTED PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 24, SEPTEMBER 25,
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
EARNINGS APPLICABLE TO FULLY DILUTED
SHARES.............................. $24,951 $25,171 $ 5,351
======= ======= =======
FULLY DILUTED SHARES
Average common shares outstanding.... 20,663 21,104 20,631
Assumed conversion or exercise of:
Warrants........................... 2,354 2,242 2,303
Stock options...................... 606 512 1,097
Series A Preferred Stock........... -- -- 1,229
Restricted stock................... 74 66 152
------- ------- -------
Fully diluted shares................. 23,697 23,924 25,412
======= ======= =======
EARNINGS PER SHARE ASSUMING FULL
DILUTION............................ $ 1.05 $ 1.05 $ .21
======= ======= =======
</TABLE>
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
Selected Financial Data
<TABLE>
<CAPTION>
Year ended Year ended Year ended Year ended Year ended
September 30, September 24, September 25, September 26, September 28,
(In millions, except per share data) 1995 1994 1993 1992 1991
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Summary of Operations
Revenues $1,011.9 $920.3 $856.6 $787.6 $697.4
Operating income 48.5 39.7 2.3(1) 28.6 25.7
Income from continuing operations 30.9 24.6 2.8 20.5 19.3
Net income 25.0 25.2 5.4 22.5 19.2
Earnings per share from continuing operations (2):
Primary 1.33 1.03 .11 .81 .78
Fully diluted 1.31 1.03 .11 .80 .77
Net earnings per share(2)(3):
Primary 1.07 1.05 .21 .89 .78
Fully diluted 1.05 1.05 .21 .88 .77
Cash dividends declared per share .10 .095 .06 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average common and
common equivalent shares (2) 23.7 23.9 25.4 25.4 24.9
===================================================================================================================================
<CAPTION>
September 30, September 24, September 25, September 26, September 28,
(In millions, except per share data) 1995 1994 1993 1992 1991
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash, cash equivalents and marketable securities $ 54.5 $ 71.1 $ 71.4 $ 65.7 $ 52.6
Total assets 234.2 225.7 226.5 201.1 163.7
Long-term debt -- -- -- .2 .4
Preferred stock (4) -- -- -- 13.1 12.7
Stockholders' equity 130.4 108.0 118.3 112.7 91.3
Book value per share (2) 6.26 5.17 5.32 5.08 4.19
</TABLE>
On August 19, 1993, a merger ("the Merger") was consummated between ADVO, Inc.
and Marketing Force, Inc. (see Note 2 to the consolidated financial statements).
The Merger was accounted for under the pooling of interests method and,
accordingly, selected financial data for the fiscal years presented above
reflect the combined financial position and share data of the two corporations
as if the Merger had been consummated as of the beginning of each of the periods
presented. In September 1995, the Company's management decided that this in-
store marketing segment was not consistent with the Company's future strategy
and initiated a plan to sell this segment. As a result, this segment has been
excluded from continuing operations for the fiscal years presented. (See Note 3
to the consolidated financial statements.)
(1) Reflects a one-time restructuring charge to operations of $25.8 million in
fiscal 1993 (See Note 11 to the consolidated financial statements).
(2) Fiscal years 1992 and 1991 were restated for 5-for-4 stock split effected in
the form of a dividend on March 5, 1993.
(3) Reflects a charge for cumulative effect of accounting change of $1.5
million, net of tax, or $.07 per share in fiscal 1995. (See Note 9 to the
consolidated financial statements).
(4) All outstanding preferred shares were converted to ADVO Common Stock in
February 1993.
20
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
Financial Report
BASIS OF PRESENTATION
In September 1995 ADVO, Inc. (the "Company") announced its plan to sell its in-
store marketing segment. (See Note 3 to the consolidated financial statements.)
As a result, the Company's results of operations for all years presented have
been restated to separately reflect continuing and discontinued operations in
the consolidated statements of operations and cash flows. In addition, the
fiscal 1995 consolidated balance sheet has been reclassified to reflect the
assets and liabilities of the discontinued operation under separate captions.
The fiscal 1994 consolidated balance sheet has not been restated. The following
discussion on the results of operations excludes the revenues, cost of sales,
selling, general and administrative costs, interest income and other expense of
this discontinued segment.
FINANCIAL OVERVIEW
Fiscal 1995 was another year in which the Company was able to demonstrate its
commitment to competitive fitness. The Company was able to maintain its revenue
and income growth despite simultaneous increases in postage and paper costs.
These adversities and the sluggish retail environment of fiscal 1995
notwithstanding, the Company's income from continuing operations experienced a
26% profit growth. The continued implementation of company-wide cost control
initiatives both in operational and administrative areas contributed to the
successes of fiscal 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
CONTINUING OPERATIONS
REVENUES Fiscal 1995 revenues from continuing operations increased $91.6 million
over fiscal 1994. Price and volume growth contributed to the 10.0% increase in
revenues. The volume growth was achieved through increased shared mail packages
delivered, which grew 2.9% to 3.2 billion packages, and shared mail piece
distribution which increased 5.3% over the comparable period of a year earlier
to 25.5 billion pieces. For fiscal 1995, the key indicator of average shared
mail pieces per package increased from 7.69 pieces per package to 7.88,
representing a 2.4% growth over the prior year. The pricing gains were primarily
the result of the 14% increase in postal rates instituted on January 1, 1995 and
the approximate 35% increase in paper costs experienced throughout the year.
OPERATING EXPENSES Cost of sales increased $84.9 million or 12.5% over fiscal
1994. As a percentage of revenues, cost of sales was 75.5% for the year ended
September 30, 1995 and 73.8% for the year ended September 24, 1994. The increase
in absolute terms, and as a percentage of revenues, was reflective of the
January 1, 1995 14% increase in postal costs and, to a lesser extent, paper cost
increases. Postage expense increased 11.9% which was reflective of the postal
rate increase and to a lesser degree the volume growth experienced in shared
mail pieces and package volume. Print expense, inclusive of paper costs,
increased 16.6% over the prior year as a result of higher paper costs and the
shared mail volume growth.
During fiscal 1995, selling expense, including the provision for bad debts,
increased $6.2 million or 5.1%. Increases in commission expense and related
sales support costs, resulting from the revenue growth, were the major elements
in the selling expense increase. As a percentage of revenues, selling expense
decreased from 13.3% in fiscal 1994 to 12.7% in fiscal 1995.
General and administrative costs declined $6.2 million or 7.9% in fiscal 1995
over fiscal 1994. As a percentage of revenues, general and administrative costs
were 7.2% for the year ended September 30, 1995 versus 8.6% for the year ended
September 24, 1994. The decrease was due to the Company's selected consolidation
of operating facilities and the downsizing of its administrative offices, as
well as overall cost control initiatives.
GAIN ON SALE OF INTEREST IN JOINT VENTURE During the first quarter of fiscal
1995, the Company sold its 50% ownership in InfoBase Services to Acxiom
Corporation and recognized a before tax gain on this transaction of $2.2
million ($1.4 million after tax or $.06 per share).
OPERATING INCOME As a result of the aforementioned, the Company reported a $8.8
million increase in operating income from direct mail operations to $48.5
million compared to $39.7 million in fiscal 1994, a 22.3% improvement.
INTEREST INCOME Interest income results primarily from the investment of excess
cash and amounted to $2.8 million in fiscal 1995 versus $1.9 million in fiscal
1994. The increase was primarily due to the general increase in interest rates.
INCOME TAXES The Company's effective tax rate for continuing operations for both
fiscal 1995 and fiscal 1994 was approximately 39%.
EARNINGS PER SHARE Earnings per share from continuing operations, on a fully
diluted basis, increased to $1.31 per share in fiscal 1995 from $1.03 per share
in fiscal 1994 primarily related to the improved operating results.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE During the first quarter of fiscal 1995
the Company adopted Statements of Financial Accounting Standards No. 112 ("SFAS
No. 112"), "Employers' Accounting for Postemployment Benefits" and No. 115,
"Accounting for Certain Investments in Debt and Equity
21
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
Securities". The cumulative effect of adopting SFAS No. 112 was an after tax
charge of $1.5 million or $.07 per share.
RESTRUCTURE RESERVE During fiscal 1993 the Company recorded a $25.8 million
charge to operations in connection with a plan of restructuring (see Note 11 to
the consolidated financial statements). As of September 30, 1995 the Company had
utilized $15.9 million of this reserve for the reorganization and upgrade of the
Company's management team; the shutdown and consolidation of its Indianapolis
production facility into pre-existing facilities; the downsizing of its former
Atlantic Division office; and the abandonment of certain non-core Micromarketing
projects that had not proven profitable. Most of the remaining reserve will be
utilized in fiscal 1996 for severance benefits related to the ongoing
centralization and strengthening of the Company's operations under its
clientizing initiative. Management believes that this restructuring project will
reduce future annual operating costs.
FISCAL 1994 COMPARED TO FISCAL 1993
CONTINUING OPERATIONS
REVENUES Fiscal 1994 revenues from continuing operations increased 7.4% or $63.7
million to $920.3 million. Both pricing and volume growth contributed to the
increase with volume gains being the more significant contributor. Overall,
shared mail distribution increased 7.4% to 24.2 billion pieces mailed and shared
mail packages distributed grew to 3.1 billion from 3.0 billion in fiscal 1993.
Shared mail pieces per package increased to 7.69 in fiscal 1994 from 7.61 in
fiscal 1993.
OPERATING EXPENSES Cost of sales as a percentage of revenues decreased to 73.8%
in fiscal 1994 from 75.2% in fiscal 1993. This improvement was mainly due to
improved postage utilization as reflected in fiscal 1994's shared mail pieces
per package growth and operational efficiencies. In absolute terms, cost of
sales increased $35.2 million or 5.5% over the prior year. The majority of the
increase was attributable to a 5% increase in shared mail delivery costs and a
12% increase in print costs. These increases were a result of the Company's
fiscal 1994 shared mail package and turnkey product piece growth over fiscal
1993's volumes.
Selling expense, including the provision for bad debts, remained consistent as a
percentage of revenues at 13.3% in fiscal 1994 and fiscal 1993. Overall, selling
expense increased $8.3 million in fiscal 1994 over the prior year mainly as a
function of increased commission costs resulting from the revenue growth over
fiscal 1993.
As a percentage of revenue, general and administrative costs increased from 8.2%
in fiscal 1993 to 8.6% in fiscal 1994. General and administrative costs
increased $8.6 million or 12.2% in fiscal 1994 over fiscal 1993. The increase
was primarily related to increases in promotional costs, system development
expenditures and wages.
OPERATING INCOME As a result of the aforementioned and the 1993 restructuring
reserve, the Company reported a $37.4 million increase in operating income from
continuing operations to $39.7 million versus $2.3 million in fiscal 1993.
INTEREST INCOME AND OTHER EXPENSE Interest income results primarily from the
investment of excess cash and amounted to $1.9 million in fiscal 1994 versus
$2.0 million in fiscal 1993. Other expense increased $0.8 million in fiscal 1994
to $1.3 million primarily due to increased non-income related taxes and fees.
INCOME TAXES The Company's effective tax rate for continuing operations in
fiscal 1994 was 39% while the rate in fiscal 1993 was 26%. The fiscal 1993
effective rate was favorably impacted by the recognition of tax benefits
associated with certain amortizable assets. Since these benefits were
substantially utilized in fiscal 1993 and prior periods the Company's effective
tax rate, starting with fiscal 1994, will more closely reflect the statutory tax
rates. During the first quarter of fiscal 1994, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". The
effect of this accounting change was not material to either the Company's
results of operations or financial position.
EARNINGS PER SHARE Earnings per share from continuing operations increased to
$1.03 in fiscal 1994 versus $.11 in fiscal 1993 ($.86 adjusted for fiscal 1993's
restructuring charge) on a fully diluted basis. The increase was due to the
increase in net income and in part to the approximate 1.5 million share decrease
in the weighted average common and common equivalent shares outstanding. This
decrease was primarily a result of the Company's stock repurchase program
undertaken in October 1993 to repurchase 2.1 million shares of ADVO common
stock.
FINANCIAL POSITION
WORKING CAPITAL Working capital increased to $58.9 million at September 30, 1995
from $46.7 million at September 24, 1994. The increase in working capital was
primarily attributable to the improvement in continuing operating results which,
along with the timing of customer receipts, accounted for the increase in
accounts receivable. In addition, the increase in
22
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
working capital is also due to the decrease in current liabilities related to
reduced future cash outlay requirements associated with brokered trucking, legal
and consulting fees, and taxes other than income.
As a result of the aforementioned improvement in continuing operating results
and the decrease in current liabilities, the Company experienced an increase in
its working capital ratio to 1.61 at September 30, 1995 versus 1.45 at
September 24, 1994.
PROPERTY, PLANT AND EQUIPMENT Capital additions from continuing operations in
fiscal 1995 totaled $20.3 million compared to $10.4 million in fiscal 1994. The
expenditures were primarily for the purchase of the Company's corporate
facilities in Windsor, Connecticut to save lease costs, the replacement of
existing production equipment and the upgrading and replacement of computer
hardware. Cash provided from operating activities has been sufficient to cover
the financing of these capital expenditures.
For fiscal 1996, capital additions for new equipment are expected to approximate
$12.0 million. In addition, there are significant potential capital expenditures
related to the design and development of new financial and operational systems
intended to improve operating efficiency and reduce overhead.
The book value of disposals aggregated $1.6 million in fiscal 1995 and
$.6 million in fiscal 1994.
STOCKHOLDERS' EQUITY Stockholders' equity increased $22.4 million in fiscal 1995
to $130.4 million at September 30, 1995 compared to $108.0 million at September
24, 1994. The increase was primarily related to the Company's fiscal 1995 net
income of $25.0 million, the $2.5 million recorded for the exercise of stock
options and related tax benefit under the Company's employee stock plans and
$1.3 million for the amortization of deferred compensation. These increases were
offset in part by $4.3 million used for the purchase of the Company's common
stock for treasury and $2.1 million for the Company's normal quarterly dividend.
In fiscal 1994, stockholders' equity decreased $10.3 million from $118.3 million
at September 25, 1993. The decrease was mainly attributable to the Company's
purchase of common stock for treasury under a repurchase program announced by
the Company in October of 1993. The purchases were partially offset by the
Company's fiscal 1994 net income of $25.2 million and the $8.2 million tax
benefit realized on the exercise of employee stock options and the vesting of
restricted stock.
Book value per common share at September 30, 1995 was $6.26 compared with $5.17
at September 24, 1994.
LIQUIDITY The Company's main source of liquidity continues to be funds from
continuing operating activities. Cash provided by continuing operating
activities was $14.0 million during fiscal 1995 compared with $47.5 million in
fiscal 1994. The decrease in cash provided by operating activities is due
primarily to the increase in accounts receivable, which was related to the
revenue growth from the increased pricing and the timing of customer receipts.
Also contributing to the decrease was a reduction in other current liabilities
which was reflective of reduced requirements for brokered trucking, legal and
consulting fees, and taxes other than income at fiscal 1995 year end versus
fiscal 1994.
Overall, cash and cash equivalents decreased $15.9 million. Offsetting the cash
provided from the continuing operating activities described above was cash used
in investing activities of $13.3 million. Included in the investing activities
was the purchase of $20.3 million in property, plant and equipment, partially
offset by the proceeds received from the sale of the Company's 50% interest in
its InfoBase Services joint venture. The effect of the $12.8 million used in the
discontinued in-store marketing segment also contributed to the decrease in cash
and cash equivalents.
During fiscal 1993, the Company recorded a $25.8 million charge to operations
for restructuring. Funds provided by operating activities have been sufficient
to cover the fiscal 1995 cash requirements of the restructuring plan and the
Company's management believes that cash generated by operations will be
sufficient to provide for all future expenditures related to the restructuring
plan.
On May 24, 1995, the Company replaced its existing $25 million credit facility.
The new Revolving Credit Agreement expires April 30, 2000 and provides up to $50
million of combined borrowing availability with a bank. Borrowings under the
agreement may take the form of either a domestic loan or a Eurodollar loan, as
defined in the agreement. The interest rate for such borrowings will be at least
equal to the bank's base rate for the particular type of loan and will vary from
the rate depending upon the borrowing period. The Company pays a commitment fee
of one-eighth of one percent on the average daily balance of the unused portion
of the commitment. The terms of the agreement include certain covenants which
provide restrictions to the maintenance of net worth and include requirements to
maintain certain financial ratios. At September 30, 1995, there are no
borrowings under the Revolving Credit Agreement. The Company has outstanding
letters of credit of approximately $5.9 million under separate agreements
primarily related to its workers' compensation program.
23
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 24, September 25,
(In thousands, except per share data) 1995 1994 1993
=============================================================================================================================
<S> <C> <C> <C>
Revenues $1,011,904 $ 920,325 $ 856,626
Costs and expenses:
Cost of sales 764,198 679,258 644,096
Selling, general and administrative 198,496 198,113 181,800
Restructuring charge -- -- 25,750
Provision for bad debts 2,953 3,304 2,683
Gain on sale of interest in joint venture (2,243) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Operating income 48,500 39,650 2,297
Interest income (1) 2,817 1,936 1,970
Other expense 772 1,266 486
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 50,545 40,320 3,781
Provision for income taxes 19,596 15,693 983
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 30,949 24,627 2,798
- -----------------------------------------------------------------------------------------------------------------------------
Discontinued operations:
(Loss) income from discontinued operations, net of tax (3,522) 544 2,553
Estimated loss on disposal of discontinued operations, net of tax (931) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 26,496 25,171 5,351
Cumulative effect of change in accounting for post-employment
benefits, net of tax (1,545) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 24,951 $ 25,171 $ 5,351
=============================================================================================================================
Earnings per share:
Primary:
Earnings from continuing operations $ 1.33 $ 1.03 $ .11
Discontinued operations:
(Loss) income from discontinued operations, net of tax (.15) .02 .10
Estimated loss on disposal, net of tax (.04) -- --
Cumulative effect of change in accounting for post-employment
benefits, net of tax (.07) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 1.07 $ 1.05 $ .21
- -----------------------------------------------------------------------------------------------------------------------------
Fully diluted:
Earnings from continuing operations $ 1.31 $ 1.03 $ .11
Discontinued operations:
(Loss) income from discontinued operations, net of tax (.15) .02 .10
Estimated loss on disposal, net of tax (.04) -- --
Cumulative effect of change in accounting for post-employment
benefits, net of tax (.07) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 1.05 $ 1.05 $ .21
- -----------------------------------------------------------------------------------------------------------------------------
Dividends declared per share $ .10 $ .095 $ .06
Weighted average common and common equivalent shares:
Primary 23,286 23,886 25,389
Fully diluted 23,697 23,924 25,412
=============================================================================================================================
</TABLE>
(1) Includes interest income from related party of $2,757,000, $1,885,000 and
$1,932,000 in fiscal 1995, 1994 and 1993, respectively.
See accompanying Notes to Consolidated Financial Statements
24
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, September 24,
(In thousands, except share data) 1995 1994
=========================================================================================================================
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (1) $ 23,849 $ 39,748
Available-for-sale securities -- related party 30,611 31,392
Accounts receivable, less allowances of $3,418 in 1995 and $5,105 in 1994 61,089 55,340
Inventories 8,742 5,138
Prepaid expenses and other current assets 4,369 4,863
Deferred income taxes 13,049 14,619
Current assets of discontinued operations 13,950 --
- -------------------------------------------------------------------------------------------------------------------------
Total Current Assets 155,659 151,100
Property, plant and equipment:
Land, building and building improvements 6,744 --
Machinery and equipment 108,538 102,141
Leasehold improvements 13,579 15,307
- -------------------------------------------------------------------------------------------------------------------------
128,861 117,448
Accumulated depreciation and amortization (68,385) (60,939)
- -------------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 60,476 56,509
Other assets 10,848 18,100
Non-current assets of discontinued operations 7,220 --
- -------------------------------------------------------------------------------------------------------------------------
Total Assets $234,203 $225,709
- -------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 24,556 $ 28,540
Accrued compensation and benefits 25,482 28,121
Customer advances 10,309 16,516
Federal and state income taxes payable 4,364 4,159
Restructure reserve -- short-term 9,015 8,371
Accrued other expenses 14,951 18,646
Current liabilities of discontinued operations 8,118 --
- -------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 96,795 104,353
Deferred liabilities 352 573
Deferred income taxes 5,786 4,047
Restructure reserve -- long-term 864 8,738
Stockholders' equity:
Series A Convertible Preferred Stock,
$.01 par value (Authorized 5,000,000 shares, none issued) -- --
Common Stock, $.01 par value (Authorized 40,000,000 shares,
Issued 24,583,092 in 1995 and 24,393,108 in 1994) 246 244
Additional paid-in capital 138,735 134,881
Unrealized losses on available-for-sale securities, net of tax (62) --
Retained earnings 55,020 32,146
Less shares of common stock held in treasury at cost,
3,759,449 in 1995 and 3,521,186 in 1994 (63,533) (59,273)
- -------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 130,406 107,998
- -------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $234,203 $225,709
=========================================================================================================================
</TABLE>
(1) Includes cash and cash equivalents invested with related party of
$12,905,000 at September 30, 1995 and $10,891,000 at September 24, 1994.
See accompanying Notes to Consolidated Financial Statements
25
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 24, September 25,
(In thousands) 1995 1994 1993
===============================================================================================================================
<S> <C> <C> <C>
Cash flows from continuing operating activities:
Net income $ 24,951 $ 25,171 $ 5,351
Less: (Loss) income from discontinued operations (4,453) 544 2,553
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations (includes accounting change) 29,404 24,627 2,798
Adjustments to reconcile net income to
net cash flows from continuing operating activities:
Cumulative effect of change in accounting
for post-employment benefits 1,545 -- --
Depreciation and amortization 12,985 11,955 10,589
Amortization of deferred compensation 1,346 1,662 2,350
Deferred income taxes 4,232 1,556 (10,884)
Provision for bad debts 2,953 3,304 2,683
Restructuring charge -- -- 25,750
Gain on sale of interest in joint venture (2,243) -- --
Other 361 997 265
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable (16,188) (4,237) (1,949)
Inventories (3,533) 1,483 (1,070)
Prepaid expenses and other current assets 131 413 (766)
Other assets 458 (395) (2,056)
Accounts payable (157) 2,849 175
Accrued compensation and benefits (2,232) 4,836 (8)
Customer advances (2,890) 1,635 (867)
Federal and state income taxes payable 205 (1,292) (381)
Other current liabilities (4,915) 5,704 633
Restructure reserve (7,230) (7,617) --
Deferred liabilities (222) 20 (132)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operating activities 14,010 47,500 27,130
- -------------------------------------------------------------------------------------------------------------------------------
Cash flows from continuing investing activities:
Proceeds from sale of interest in joint venture 9,000 -- --
Acquisitions, net of cash acquired (2,448) (546) (7,576)
Expenditures for property, plant and equipment (20,315) (10,357) (12,525)
Proceeds from disposals of property and equipment 11 85 74
Available-for-sale securities - purchases (55,899) (47,388) (73,743)
Available-for-sale securities - sales and maturities 56,355 35,874 53,626
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in continuing investing activities (13,296) (22,332) (40,144)
- -------------------------------------------------------------------------------------------------------------------------------
Cash flows from continuing financing activities:
Tax effect - vesting of restricted stock/options exercised 699 8,244 1,150
Proceeds from exercise of stock options and warrants 1,811 832 486
Purchases of common stock for treasury (4,260) (44,173) (1,603)
Cash dividends paid (2,078) (1,920) (803)
Other -- -- (10)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in continuing financing activities (3,828) (37,017) (780)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by discontinued operations (12,785) 517 (875)
- -------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (15,899) (11,332) (14,669)
Cash and cash equivalents at beginning of year 39,748 51,080 65,749
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 23,849 $ 39,748 $ 51,080
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information--
Income tax payments $ 11,829 $ 7,810 $ 11,705
===============================================================================================================================
</TABLE>
26
See accompanying Notes to Consolidated Financial Statements
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Series A Convertible Additional on available-
(In thousands, except Preferred stock Common stock Treasury stock paid-in for-sale Retained Total
per share data) Shares Amount Shares Amount Shares Amount capital securities earnings equity
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance --
September 26, 1992 2,233 $13,071 16,528 $165 (949) $(13,642) $110,640 $0 $ 2,463 $112,697
Purchase of common
stock for treasury (67) (1,603) (1,603)
Cancellation of
restricted stock (12)
Grants of restricted stock 54
Exercise of stock options 61 1 485 486
Conversion of
preferred stock (2,233) (9,700) 2,594 26 9,674
Tax effect --
employee stock plans 1,150 1,150
Amortization of deferred
compensation (1) 2,350 2,350
Accretion of
preferred stock (3,371) 3,371
Cash dividends declared
($.06 per share) (1,245) (1,245)
Stock split 4,010 40 (40)
Cash settlement for
fractional shares
on stock split (10) (10)
Cash distributions
to satisfy subchapter S
tax liability (2,614) (2,614)
Pro forma provision for
income taxes 1,696 1,696
Net Income 5,351 5,351
====================================================================================================================================
Balance --
September 25, 1993 0 $0 23,235 $232 (1,016) $(15,245) $124,299 $0 $ 8,972 $118,258
Purchase of common
stock for treasury (2,514) (44,173) (44,173)
Grants of restricted stock 44 1 9 145 (145) 1
Exercise of stock options 1,114 11 821 832
Tax effect --
employee stock plans 8,244 8,244
Amortization of deferred
compensation (1) 1,662 1,662
Cash dividends declared
($.095 per share) (1,997) (1,997)
Net Income 25,171 25,171
====================================================================================================================================
</TABLE>
27
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Series A Convertible Additional on available-
(In thousands, except Preferred stock Common stock Treasury stock paid-in for-sale Retained Total
per share data) Shares Amount Shares Amount Shares Amount capital securities earnings equity
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance --
September 24, 1994 0 $0 24,393 $244 (3,521) $(59,273) $134,881 $0 $32,146 $107,998
Purchase of common
stock for treasury (238) (4,260) (4,260)
Grants of restricted stock 11
Exercise of stock options 179 2 1,809 1,811
Tax effect --
employee stock plans 699 699
Amortization of deferred
compensation (1) 1,346 1,346
Cash dividends declared
($.10 per share) (2,077) (2,077)
Unrealized losses on
available-for-sale
securities (62) (62)
Net Income 24,951 24,951
Balance --
September 30, 1995 0 $0 24,583 $246 (3,759) $(63,533) $138,735 $(62) $55,020 $130,406
====================================================================================================================================
</TABLE>
(1) Unamortized deferred compensation at September 30, 1995, September 24,
1994 and September 25, 1993 was $836,000, $1,991,000 and $2,726,000,
respectively.
See accompanying Notes to Consolidated Financial Statements
28
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of ADVO and its subsidiaries. All significant intercompany transactions
and balances among ADVO and its subsidiaries have been eliminated. Certain
reclassifications have been made in the fiscal 1994 and 1993 financial
statements to conform with the fiscal 1995 presentation. ADVO's fiscal closing
date is the last Saturday in September. The fiscal year includes operations for
a 53-week period in 1995 and a 52-week period in 1994 and 1993.
CASH AND CASH EQUIVALENTS Cash and cash equivalents include highly liquid
investment instruments with original maturities of three months or less. These
investments are valued at cost, which approximates market.
AVAILABLE-FOR-SALE SECURITIES In May 1993 the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". The Company
adopted the provisions of the new standard in the first quarter of fiscal 1995.
In accordance with the Statement, prior period financial statements have not
been restated.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
The Company's securities are classified as available-for-sale at September 30,
1995. Available-for-sale securities are carried at fair value, with unrealized
gains and losses, net of tax, reported as a separate component of stockholders'
equity. The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest income. At September 24, 1994,
marketable securities were carried at cost which approximated market.
INVENTORIES Inventories, which consist of raw materials, finished goods and
spare parts, are valued at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at
cost. Depreciation and amortization are computed generally by the straight-line
method over the estimated useful lives of the respective assets (ranging from 5
to 35 years) or over the terms of the related leases of the leasehold
improvements.
INTANGIBLE ASSETS The excess of cost over net assets acquired and other
intangible assets related to acquisitions are being amortized over their
expected useful lives which range from 3 to 20 years.
REVENUES Revenues are recognized when services are rendered and are presented in
the financial statements net of sales allowances and adjustments. The Company's
services are considered rendered when all printing, sorting, labeling and
ancillary services have been provided and the mailing material has been received
by the United States Postal Service.
EARNINGS PER COMMON SHARE Earnings per common share is computed based on the
weighted average number of common and common equivalent shares outstanding
during the year. Common share equivalents consist of the average number of
shares issuable upon the exercise of warrants and options, and the assumed
conversion of preferred stock.
NOTE 2 ACQUISITIONS
On August 19, 1993 a plan of merger was consummated between the Company and
Marketing Force, Inc., ("MF" or "Marketing Force") a privately held in-store
specialty marketing company located in Michigan through the exchange of
2,115,956 shares of ADVO Common Stock for all of the outstanding stock of MF.
The merger was accounted for as a pooling of interests and, accordingly, the
Company's consolidated financial statements were restated to include the
accounts and operations of MF for all periods presented. MF's fiscal year end
and reported financial results were adjusted to conform to the financial
presentation of the Company. There were no significant intercompany transactions
or differences in accounting policies between the Company and MF. (See Note 3 to
the consolidated financial statements.)
During the three year period ended September 30, 1995, the Company has also made
certain acquisitions aimed at expanding its direct mail operations. These
acquisitions have been accounted for under the purchase method of accounting
and, accordingly, the results of operations of the acquired companies have been
included in the consolidated statements of operations from their acquisition
dates. The acquired assets have been recorded at their estimated fair values.
These acquisitions did not have a material pro forma effect on operations for
periods prior to the acquisition.
29
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
The excess of the purchase price over the estimated fair values of net assets
acquired of $5.3 million and $4.3 million, net of accumulated amortization is
reflected in other assets at September 30, 1995 and September 24, 1994,
respectively. Also included in other assets at September 30, 1995 and
September 24, 1994 is $4.5 million and $7.6 million, respectively, of other
intangible assets, net of accumulated amortization, which were acquired in the
acquisitions. As of September 30, 1995 and September 24, 1994, accumulated
amortization of goodwill and other intangibles was $5.4 million and $4.7
million, respectively.
NOTE 3 DISCONTINUED OPERATIONS
In September of 1995, the Company initiated a plan to sell its in-store
marketing segment. As a result, the Company recorded an estimated loss on
disposal of $1,432,000 ($931,000 net of tax) which consists of a provision for
anticipated operating losses during the phase out period and other costs
directly related to the sale. The Company anticipates the sale will be completed
by early 1996 and anticipates no further significant gain or loss on the sale.
However, the ultimate gain or loss is dependent on the actual timing of the
disposition. The disposition is being treated as a discontinued operation and
prior year consolidated statements of operations have been restated to reflect
this treatment.
The results of the discontinued operations reflected in the consolidated
statements of operations are as follows:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 24, September 25,
(In thousands) 1995 1994 1993
===================================================================================================
<S> <C> <C> <C>
Net Revenues $57,668 $55,168 $54,168
- ---------------------------------------------------------------------------------------------------
(Loss) income before
income taxes $(5,361) $ 944 $ 4,326
Provision (benefit) for
income taxes (1,839) 400 1,773
- ---------------------------------------------------------------------------------------------------
(Loss) income from
discontinued operations $(3,522) $ 544 $ 2,553
===================================================================================================
Operating loss from
October 1, 1995 to
anticipated disposal date $(1,432) -- --
Income tax benefit (501) -- --
- ---------------------------------------------------------------------------------------------------
Estimated loss on
disposal of discontinued
operations, net of tax $ (931) -- --
===================================================================================================
</TABLE>
The assets and liabilities of discontinued operations have been segregated in
the September 30, 1995 consolidated balance sheet as current assets, non-current
assets and current liabilities of discontinued operations. These amounts consist
of the assets and liabilities associated with the operations to be sold,
including the estimated loss on disposal of $1,432,000. The major components of
the assets and liabilities of discontinued operations are as follows:
<TABLE>
<CAPTION>
(In thousands)
==========================================================================================
<S> <C>
Accounts receivable-net $13,342
Prepaid expenses and other current assets 608
- ------------------------------------------------------------------------------------------
Current assets of discontinued operations $13,950
==========================================================================================
Property, plant & equipment-net $ 7,033
Other non-current assets 187
- ------------------------------------------------------------------------------------------
Non-current assets of discontinued operations $ 7,220
==========================================================================================
Accounts payable $ 2,794
Accrued compensation & benefits 1,695
Customer advances 1,550
Other current liabilities 647
Estimated loss on disposal 1,432
- ------------------------------------------------------------------------------------------
Current liabilities of discontinued operations $ 8,118
==========================================================================================
</TABLE>
NOTE 4 AVAILABLE-FOR-SALE SECURITIES
The following is a summary of available-for-sale securities at
September 30, 1995:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
(In thousands) Cost Gains (Losses) Value
===========================================================================================
<S> <C> <C> <C> <C>
U.S. Government
Obligations $ 4,001 $ -- $ (11) $ 3,990
Municipal Bonds 17,211 11 (9) 17,213
U.S. Corp. Debt Securities 9,494 -- (86) 9,408
- -------------------------------------------------------------------------------------------
Total securities $30,706 $ 11 $(106) $30,611
===========================================================================================
</TABLE>
All but approximately $1.8 million of the above securities mature within one
year.
NOTE 5 ACCRUED COMPENSATION AND BENEFITS
The composition of accrued compensation and benefits is as follows:
<TABLE>
<CAPTION>
September 30, September 24,
(In thousands) 1995 1994
================================================================================
<S> <C> <C>
Compensation $15,427 $18,839
Workers' compensation 5,247 5,798
Employee withholdings and
other benefits 4,808 3,484
- --------------------------------------------------------------------------------
Total $25,482 $28,121
================================================================================
</TABLE>
30
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
NOTE 6 FINANCING ARRANGEMENTS
On May 24, 1995, the Company replaced its existing $25 million credit facility.
The new Revolving Credit Agreement expires April 30, 2000 and provides up to $50
million of combined borrowing availability with a bank. Borrowings under the
agreement may take the form of either a domestic loan or a Eurodollar loan, as
defined in the agreement. The interest rate for such borrowings will be at least
equal to the bank's base rate for the particular type of loan and will vary from
the rate depending upon the borrowing period. The Company pays a commitment fee
of one-eighth of one percent on the average daily balance of the unused portion
of the commitment. The terms of the agreement include certain covenants which
provide restrictions to the maintenance of net worth and include requirements to
maintain certain financial ratios. At September 30, 1995, there are no
borrowings under the Revolving Credit Agreement. The Company has outstanding
letters of credit of approximately $5.9 million under separate agreements
primarily related to its workers' compensation program.
NOTE 7 STOCKHOLDERS' EQUITY
The Series A Convertible Preferred Stock (the "Preferred Stock") was held by
Warburg, Pincus Capital Partners, L.P. ("Warburg"), Welsh, Carson, Anderson &
Stowe IV (WCAS IV) and WCAS Venture Partners (WCAS VP) (together, the
"Investors"). On February 11, 1993 the holders of ADVO preferred stock converted
all such shares to 2,594,212 shares (3,242,765 shares after the 5-for-4 stock
split) of Company Common Stock. The Preferred Stock had five votes per share,
and the holders had the right to elect a majority of the Board of Directors as
long as at least half of the Preferred Stock was outstanding.
On August 27, 1986, 2,301,780 warrants to purchase shares of ADVO common stock
were issued to the Investors for $1,000,000 and are exercisable at any time
through August 27, 1996. In the event the Company issues common stock or
equivalents at a price below either current market price or the exercise price
of the warrants, the number of shares issuable in exchange for the warrants and
the warrant exercise price are subject to adjustment. At September 30, 1995, the
exercise price is $2.71 per share and the number of common shares issuable upon
exercise of the warrants is 2,656,827.
On March 5, 1993 a 5-for-4 stock split was effected in the form of a 25% stock
dividend for the holders of Company Common Stock which resulted in the issuance
of 4,009,499 shares of Common Stock. Where applicable share data have been
restated to reflect the stock split.
The Company has a Shareholder Protection Rights Plan (the "Rights Plan") to
protect shareholders from potential unfair hostile takeovers. Pursuant to the
Rights Plan, common shareholders have one Right for each share of Common Stock
held. The Rights become exercisable only in the event that any person acquires
or commences a tender offer to acquire 20% or more of the Company's Common
Stock, as defined.
At September 30, 1995 there are 5,359,035 shares of common stock reserved for
issuance upon the exercise of stock options and the exercise of warrants.
NOTE 8 GAIN ON SALE OF INTEREST IN JOINT VENTURE
During the first quarter of fiscal 1995, the Company sold its 50% ownership in
InfoBase Services to Acxiom Corporation and recognized a before tax gain on this
transaction of $2.2 million ($1.4 million after tax or $.06 per share).
NOTE 9 POSTEMPLOYMENT BENEFITS
The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("SFAS No. 112") in
accounting for short-term disability benefits and severance and related medical
benefits during the Company's first quarter of fiscal 1995. Under SFAS No. 112,
the Company accrues these benefits when it becomes probable that such benefits
will be paid and when sufficient information exists to make reasonable estimates
of the amounts to be paid. The Company previously recognized the cost of
providing these benefits on a cash basis.
The cumulative effect of this change in accounting for postemployment benefits
resulted in a one-time after-tax charge of $1.5 million or $.07 per share. The
Company estimates that the ongoing annual effect of this accounting change will
not be material to the Company's financial statements. As required by SFAS No.
112, prior year financial statements have not been restated to reflect the
change in accounting principle.
31
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
NOTE 10 BENEFIT PLANS
The Company has a savings plan for salaried employees which qualifies as a
profit sharing plan under the Internal Revenue Code of 1986, as amended, and a
non-qualified savings plan for the commissioned sales staff. Both plans permit
contributions by employees of up to 10% of their compensation. The Company
matches up to 6% of employees' compensation, depending upon the level of
employee contribution. The expense for matching contributions was $3,796,000,
$3,590,000 and $3,025,000 for fiscal 1995, 1994 and 1993, respectively.
During fiscal 1994 the Company made certain amendments to its employee stock
option plans with respect to options granted under the plans to make available
reload options. The reload option feature allows for the exercise of options in
"stock-for-stock" transactions enabling the employee to retain any further
appreciation in the market value of shares traded in to pay the exercise price
of the options and to satisfy tax withholding requirements. The expiration date
of a reload option would be the same as that of the original option unless
otherwise determined by the Company's Compensation Committee or Board of
Directors. Reload options may be authorized with respect to options that are
themselves granted as reload options.
The 1986 Stock Option Plan provides for the granting of non-qualified options
for the purchase of up to 625,000 shares of common stock to key employees. The
terms of the options may not exceed ten years, and the option prices shall not
be less than the fair market value of the common stock on the date of grant.
Options generally are exercisable 25% each year, cumulatively, beginning one
year from date of grant. Certain grants also stipulate that the market price of
the Company's common stock must reach certain levels before the options become
exercisable in addition to the 25% per year time vesting provisions. These
options will become exercisable for 90 days at six years from the grant date if
the market price provision is not met. At September 30, 1995 there were 91,186
options exercisable and 12,488 options available for future grant under this
plan. At September 24, 1994 there were 103,393 options exercisable and 13,988
options available for future grant under this plan.
<TABLE>
<CAPTION>
Option price
Shares per share
================================================================================
<S> <C> <C>
Outstanding at September 26, 1992 296,921 $ 3.60-17.35
Exercised (37,991) 3.60-8.10
- --------------------------------------------------------------------------------
Outstanding at September 25, 1993 258,930 4.20-17.35
Granted 64,761 17.63-18.75
Cancelled (25,411) 4.60-18.63
Exercised (122,725) 4.20-14.35
- --------------------------------------------------------------------------------
Outstanding at September 24, 1994 175,555 4.20-18.75
Granted 16,825 18.00-18.63
Cancelled (1,500) 18.63
Exercised (49,843) 4.20-18.63
- --------------------------------------------------------------------------------
Outstanding at September 30, 1995 141,037 $ 7.10-18.75
================================================================================
</TABLE>
The 1988 Stock Option Plan provides for the granting of non-qualified options
for the purchase of up to 3,800,000 shares of common stock to key employees. The
terms of the options may not exceed ten years, and the option prices shall not
be less than the fair market value of the common stock on the date of the grant.
Each option granted is exercisable at a specified rate each year, generally 25%,
as determined by the Board of Directors at the date of grant. Certain grants
also stipulate that the market price of the Company's common stock must reach
certain levels before the options become exercisable in addition to the 25% per
year time vesting provisions. These options will become exercisable for 90 days
at six years from the grant date if the market price provision is not met. At
September 30, 1995 there are 1,395,346 options exercisable and 163,192 options
available for future grant under this plan. At September 24, 1994 there were
662,161 options exercisable and 181,185 options available for future grant under
this plan.
<TABLE>
<CAPTION>
Option price
Shares per share
================================================================================
<S> <C> <C>
Outstanding at September 26, 1992 2,155,235 $ 3.30-19.10
Granted 209,875 17.13-22.00
Cancelled (6,250) 19.25
Exercised (30,985) 4.80-13.80
- --------------------------------------------------------------------------------
Outstanding at September 25, 1993 2,327,875 3.30-22.00
Granted 1,228,099 15.75-18.63
Cancelled (49,999) 4.80-21.30
Exercised (1,330,376) 3.30-16.30
- --------------------------------------------------------------------------------
Outstanding at September 24, 1994 2,175,599 3.30-22.00
Granted 612,271 16.38-20.50
Cancelled (64,207) 9.90-21.50
Exercised (162,492) 4.80-18.63
- --------------------------------------------------------------------------------
Outstanding at September 30, 1995 2,561,171 $ 3.30-22.00
================================================================================
</TABLE>
32
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
The 1986 Employee Restricted Stock Plan provides for the granting of up to
2,437,500 shares of common stock to executives who, with certain exceptions, are
subject to specified periods of continuous employment (generally vesting one-
third per year over three years). The market value of shares at the date of
award in excess of cash consideration received is being amortized as
compensation expense over the restriction period. These shares are votable by
the holders, and the vesting period is determined by the Board of Directors at
the date of the grant. The charge to operations in connection with the
restricted stock was $1,288,000, $1,554,000, and $2,286,000 for the years ended
September 30, 1995, September 24, 1994 and September 25, 1993, respectively.
Unamortized deferred compensation is $811,000 at September 30, 1995. There are
41,754 shares available for future grant under this plan at September 30, 1995.
<TABLE>
<CAPTION>
Shares
================================================================================
<S> <C>
Outstanding at September 26, 1992 2,298,955
Granted 55,000
Cancelled (12,709)
- --------------------------------------------------------------------------------
Outstanding at September 25, 1993 2,341,246
Granted 44,000
- --------------------------------------------------------------------------------
Outstanding at September 24, 1994 2,385,246
Granted 10,500
- --------------------------------------------------------------------------------
Outstanding at September 30, 1995 2,395,746
================================================================================
</TABLE>
The 1990 Non-employee Directors' Restricted Stock Plan provides for an aggregate
maximum of up to 125,000 shares of common stock to be issued under stock awards.
During fiscal 1995, no shares were awarded or canceled. Shares are vesting in
installments over a period of two years. The market value of shares at the date
of award is being charged to operations over the restriction period with
$58,000, $108,000 and $64,000 charged for the fiscal years ended September 30,
1995, September 24, 1994 and September 25, 1993, respectively. Unamortized
deferred directors' compensation is $25,000 at September 30, 1995. There are
97,500 shares available for future grant under this plan at September 30, 1995.
During fiscal 1995, three directors were each granted 1,000 stock options. The
options will become exercisable in equal annual installments over the next four
years.
NOTE 11 RESTRUCTURING
During the fourth quarter of the fiscal year ended September 25, 1993, ADVO
recorded a one-time restructuring charge to operations of $25.8 million. The
charge consisted of three elements; the shutdown/relocation of several regional
facilities aimed at repositioning their location in a more geographically
strategic area; the reorganization of certain management groups to enhance the
Company's cost containment initiatives as well as restructure the current
management team; and the discontinuation of several Micromarketing initiatives
that had proven unprofitable.
During fiscal 1995 and 1994 the Company recorded reductions of $7.2 million and
$8.6 million, respectively, to the reserve in accordance with its plan of
restructure. The fiscal 1995 and 1994 charges to the reserve included costs
related to the shutdown and consolidation of the Indianapolis facility;
severance and related costs for upgrades to the Company's sales management team
and various other management groups; and the abandonment of certain
nonprofitable Micromarketing programs. In addition, fiscal 1994 charges also
included costs related to the downsizing of its former Atlantic Division office.
During fiscal 1995, management reallocated approximately $9 million of the
original restructuring charge from the regional facility relocation project to
severance arrangements associated with the Company's ongoing initiative to
centralize and streamline its operations, in connection with the reorganization
of certain management groups and the restructuring of the current management
team.
NOTE 12 INCOME TAXES
During fiscal 1994, the Company changed its method of accounting for income
taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes". As permitted by Statement 109,
the Company has elected not to restate prior years. The effect of the change was
not material to the Company's results of operations or financial position.
The components of the provision for income taxes on continuing operations were
as follows:
<TABLE>
<CAPTION>
Liability Method Deferred Method
Year ended Year ended Year ended
September 30, September 24, September 25,
(In thousands) 1995 1994 1993
====================================================================================
<S> <C> <C> <C>
Federal:
Current $12,910 $ 11,677 $9,513
Deferred 3,429 951 (8,748)
- ------------------------------------------------------------------------------------
Total Federal 16,339 12,628 765
- ------------------------------------------------------------------------------------
State:
Current 2,454 2,460 2,354
Deferred 803 605 (2,136)
- ------------------------------------------------------------------------------------
Total State 3,257 3,065 218
Total Provision $19,596 $15,693 $ 983
====================================================================================
</TABLE>
33
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
The Company's effective income tax rate for continuing operations differed from
the Federal statutory rate for the following reasons:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 24, September 25,
1995 1994 1993
=========================================================================================
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 34.0%
State income taxes,
net of federal benefit 4.1 4.9 3.8
Tax benefits related
to Section 338 basis
adjustment -- -- (26.4)
Targeted jobs tax credit (.2) (.2) (1.9)
Other (.1) (.8) 16.5
- -----------------------------------------------------------------------------------------
Effective income tax rate 38.8% 38.9% 26.0%
=========================================================================================
</TABLE>
Significant components of the Company's deferred tax assets and liabilities as
required by FASB Statement No. 109 are as follows:
<TABLE>
<CAPTION>
September 30, September 24,
(In thousands) 1995 1994
================================================================================
<S> <C> <C>
Deferred Tax Assets:
Reserve for restructure $ 4,001 $ 7,119
Reserve for deferred compensation 2,785 2,247
Reserve for employee benefits 4,246 3,838
Other 2,996 4,941
- --------------------------------------------------------------------------------
Total deferred tax assets 14,028 18,145
================================================================================
Deferred Tax Liabilities:
Tax over book depreciation
and amortization (6,765) (7,573)
- --------------------------------------------------------------------------------
Net federal and state deferred assets $ 7,263 $10,572
================================================================================
</TABLE>
Deferred income taxes (benefits) in fiscal 1993 represent the tax effects of
transactions which are reported in different periods for tax and financial
reporting purposes. Changes in deferred federal and state income taxes include
the effects of:
<TABLE>
<CAPTION>
Year ended
September 25,
(In thousands) 1993
================================================================================
<S> <C>
Amortization of deferred compensation $ (657)
Reserve for restructuring (9,979)
Various accrued expenses (248)
- --------------------------------------------------------------------------------
$ (10,884)
================================================================================
</TABLE>
NOTE 13 COMMITMENTS AND CONTINGENCIES
ADVO leases property and equipment under noncancelable operating lease
agreements which expire at various dates through 2005. The leases generally
provide that the Company pay the taxes, insurance and maintenance expenses
related to the leased assets. Rental commitments at September 30, 1995 under
long term noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
(In thousands)
================================================================================
<S> <C>
Fiscal year:
1996 $15,681
1997 11,896
1998 9,910
1999 7,842
2000 5,880
Thereafter 14,165
- --------------------------------------------------------------------------------
Total minimum lease payments $65,374
================================================================================
</TABLE>
Certain of these leases contain renewal options and certain leases also provide
for cost escalation payments. Rental expense for the years ended September 30,
1995, September 24, 1994 and September 25, 1993 was approximately $22,845,000,
$24,947,000 and $24,487,000, respectively.
ADVO is party to various legal proceedings and claims related to its normal
business operations, including several suits in which it is a defendant. In the
opinion of management, the Company has substantial and meritorious defenses for
these claims and proceedings in which it is a defendant, and believes these
matters will be ultimately resolved without material adverse effect on the
consolidated financial position of the Company.
Outstanding commitments for capital expenditures at September 30, 1995 totaled
$6.3 million.
NOTE 14 RELATED PARTY TRANSACTIONS
The Company invests in money market mutual funds and available-for-sale
securities through an investment advisor, Warburg, Pincus Counsellors, Inc.
("Counsellors"). The general partner of Warburg, Pincus Capital Partners, L.P.
("Warburg") who is
34
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
the Company's largest shareholder, owns a majority interest in Counsellors.
Income earned on investments managed by Counsellors was $2,757,000, $1,885,000
and $1,932,000 in fiscal 1995, 1994 and 1993, respectively. At September 30,
1995 and September 24, 1994, $43,516,000 and $42,283,000, respectively, were
being managed by Counsellors. Two Directors of the Company are officers of
Warburg and another Director is a Director of the various Counsellors managed
mutual funds.
NOTE 15 RECENT ACCOUNTING PRONOUNCEMENTS
In March of 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of". The long-lived assets
covered by the Statement include plant and equipment, certain identifiable
intangibles and goodwill. Under Statement 121, the Company is not required to
actively search for impairments of assets that are employed in the business. A
review is necessary only when events indicate that an impairment may exist. The
Statement will be adopted by the Company in fiscal 1997. The Company expects
that there will not be a material impact to the Company's consolidated financial
position or results of operations as a result of the adoption.
In October of 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". The Statement establishes the financial accounting and reporting
standards for stock based compensation plans, including stock purchase plans,
stock options and restricted stock. These plans allow for certain associates to
receive shares of the Company's stock. The Statement requires that these
transactions be accounted for based on the fair value of the consideration
received, or continue to be accounted for based on the method as prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees". The Company
will adopt this Statement in fiscal 1997 and plans to continue accounting for
these transactions in accordance with APB 25, however proforma disclosures of
net income and earnings per share, using the fair value based method described
in Statement No. 123 will be disclosed in fiscal 1997.
NOTE 16 QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(In millions, except per share data)
Fiscal year ended First Second Third Fourth
September 30, 1995 (1) Quarter Quarter Quarter Quarter
===============================================================================================
<S> <C> <C> <C> <C>
Revenues $248.1 $239.6 $256.7 $267.5
Gross profit 65.7 55.8 63.8 62.4
Operating income 16.2 4.8 15.4 12.1
Income before cumulative
effect of accounting change 10.2 2.8 9.2 4.3
Net income 8.7 2.8 9.2 4.3
Earnings per share: (2)
Before cumulative effect
of accounting change .44 .12 .39 .18
Net income .37 .12 .39 .18
Common stock price
High 18 3/4 19 1/4 21 7/8 23 3/4
Low 15 1/4 16 1/2 17 3/4 16 5/8
===============================================================================================
<CAPTION>
Fiscal year ended First Second Third Fourth
September 24, 1994 (1) Quarter Quarter Quarter Quarter
===============================================================================================
<S> <C> <C> <C> <C>
Revenues $231.1 $217.1 $241.1 $231.0
Gross profit 58.5 52.9 67.5 62.2
Operating income 10.0 3.7 14.6 11.4
Net income 7.3 2.4 8.9 6.6
Earnings per share: (2)
Net income .29 .10 .38 .28
Common stock price
High 17 1/2 20 18 1/2 18 3/4
Low 14 1/4 16 3/4 15 7/8 15
===============================================================================================
</TABLE>
(1) Quarterly data has been restated to exclude the results of the in-store
marketing segment from revenues, gross profit, and operating income, as a
result of the Company's plan to sell this segment. (See Note 3 to the
consolidated financial statements.) In addition, certain reclassifications
have been made to the first and second quarter of 1995 and all of the fiscal
1994 data to conform with the fiscal 1995 year end presentation.
(2) Both primary and fully diluted.
35
<PAGE>
1995 ANNUAL REPORT
ADVO, INC.
Report of Independent Auditors / Financial Responsibility
TO THE BOARD OF DIRECTORS AND
STOCKHOLDERS OF ADVO, INC.
We have audited the accompanying consolidated balance sheets of ADVO, Inc. at
September 30, 1995 and September 24, 1994, and the related consolidated
statements of operations, cash flows, and changes in stockholders' equity for
each of the three years in the period ended September 30, 1995. These financial
statements are the responsibility of the Company'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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ADVO, Inc. at
September 30, 1995 and September 24, 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1995 in conformity with generally accepted accounting principles.
/s/ Ernst & Young
Hartford, Connecticut
October 24, 1995
TO THE STOCKHOLDERS OF ADVO, INC.
The management of ADVO, Inc. is responsible for the integrity and objectivity of
the consolidated financial statements and other financial information presented
in this report. These statements have been prepared in accordance with generally
accepted accounting principles and necessarily include amounts based on
judgements and estimates by management.
ADVO maintains internal accounting control policies and related procedures
designed to provide reasonable assurance that assets are safeguarded, that
transactions are executed in accordance with management's authorization and
properly recorded, and that accounting records may be relied upon for the
preparation of reliable published annual and interim financial statements and
other financial information. The design, monitoring, and revision of internal
accounting control systems involve, among other things, management's judgement
with respect to the relative cost and expected benefits of specific control
measures. The Company also maintains an internal auditing function which
evaluates and reports on the adequacy and effectiveness of internal accounting
controls and policies and procedures.
The Company's consolidated financial statements have been audited by independent
auditors who have expressed their opinion with respect to the fairness of these
statements.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with ADVO's management, internal auditors and
independent auditors to review matters relating to the quality of financial
reporting and internal accounting controls. Both the internal auditors and the
independent auditors have unrestricted access to the Committee.
/s/ Robert Kamerschen
Robert Kamerschen
Chairman and Chief Executive Officer
/s/ Lowell W. Robinson
Lowell W. Robinson
Executive Vice President and
Chief Financial Officer
/s/ Robert S. Hirst
Robert S. Hirst
Vice President and Controller
October 24, 1995
36
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF ADVO, INC.
AS OF SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PERCENT OF VOTING
STATE OF SECURITIES OWNED AS
INCORPORATION NAME OF SUBSIDIARY OF SEPTEMBER 30, 1995
------------- ------------------ ---------------------
<C> <S> <C>
Delaware Trans-ADVO, Inc. 100
Delaware ADVO Target Communications 100
Delaware ADVO Investment Company, Inc. 100
Delaware ADVOLink, Inc. 100
Delaware Value Fair, Inc. 100
Delaware MBV, Inc. 100
Delaware Marketing Force, Inc. 100(1)
</TABLE>
- --------
(1)Owned by ADVO Investment Company, Inc.
<PAGE>
EXHIBIT 23
----------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-
K) of ADVO, Inc. ("ADVO") of our report dated October 24, 1995, included in
the 1995 Annual Report to Stockholders of ADVO.
Our audits also included the financial statement schedule of ADVO listed in
Item 14(a). This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Post-Effective Amendment No. 3 to the ADVO Form S-8 No. 33-40402)
pertaining to the 1986 Employee Restricted Stock Plan, as amended, (Form S-8
No. 33-15856) pertaining to the 1986 Stock Option Plan, and (Post-Effective
Amendment No. 5 to the ADVO Form S-8 No. 33-58483) pertaining to the 1988 Non-
Qualified Stock Option Plan, as amended, of ADVO and in the related
Prospectuses of our report dated October 24, 1995, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of ADVO.
Ernst & Young LLP
Hartford, Connecticut
December 13, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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0
0
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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