<PAGE>
[LOGO OF ADVO APPEARS HERE]
December 18, 1996
Dear Stockholder:
You are cordially invited to the Annual Meeting of Stockholders of ADVO,
Inc., to be held on Thursday, January 16, 1997, at the Sheraton Hotel at
Bradley International Airport, Windsor Locks, Connecticut, commencing at 10:30
A.M. (EST). Your Board of Directors and management look forward to greeting
personally those of you who are able to attend.
At the Meeting, you will be asked to elect the members of the Board of
Directors; to approve an amendment to the Company's 1986 Employee Restricted
Stock Plan, as amended; to approve an amendment to the Company's 1988 Non-
qualified Stock Option Plan and the 1993 Stock Option Subplan, as amended; to
ratify the appointment of independent auditors for the fiscal year ending
September 27, 1997; and to transact such other business as may properly be
brought before the Meeting.
In addition to the specific matters to be acted upon, there will be a report
on the progress of the Company and an opportunity for you to ask questions of
general interest. Important information is contained in the accompanying proxy
statement, which you are urged to read carefully.
It is important that your shares are represented and voted at the Meeting,
regardless of the number you own and whether or not you plan to attend.
Accordingly, you are requested to mark, sign, date and return the enclosed
proxy in the envelope provided at your earliest convenience.
Your interest and participation in the affairs of the Company are greatly
appreciated.
Sincerely,
/s/ Robert Kamerschen
Robert Kamerschen
Chairman and Chief Executive Officer
<PAGE>
[LOGO OF ADVO APPEARS HERE]
ADVO, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of ADVO, Inc. (the "Company") will be
held at the Sheraton Hotel at Bradley International Airport, Windsor Locks,
Connecticut, on Thursday, January 16, 1997, at 10:30 A.M. (EST), to consider
and take action on the following items:
1. The election of nine Directors, as described in the attached proxy
statement, to serve until the Annual Meeting of Stockholders in 1998;
2. The approval of an amendment to the 1986 Employee Restricted Stock
Plan, as amended;
3. The approval of an amendment to the 1988 Non-qualified Stock Option
Plan and the 1993 Stock Option Subplan, as amended;
4. The ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending September 27,
1997; and
5. The transaction of such other business as may properly come before
said meeting or any adjournment thereof.
Only holders of Common Stock of record at the close of business on November
22, 1996 are entitled to vote at the Meeting or any adjournment thereof. A
list of the stockholders entitled to vote at the Meeting will be available for
examination by any stockholder for any purpose germane to the Meeting during
ordinary business hours for ten days prior to the Meeting at the Sheraton
Hotel at Bradley International Airport, Windsor Locks, Connecticut.
By Order of the Board of Directors
/s/ David M. Stigler
David M. Stigler, Secretary
Windsor, Connecticut
December 18, 1996
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE MARK, SIGN AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE AS PROMPTLY
AS POSSIBLE.
<PAGE>
ADVO, INC.
ONE UNIVAC LANE
P.O. BOX 755
WINDSOR, CONNECTICUT 06095-0755
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
to be used at the Annual Meeting of Stockholders of ADVO, Inc. (the "Company"
or "ADVO"), a Delaware corporation, to be held at the Sheraton Hotel at
Bradley International Airport, Windsor Locks, Connecticut, on Thursday,
January 16, 1997 at 10:30 A.M. (EST).
The solicitation of proxies on the enclosed form is made on behalf of the
Board of Directors of the Company.
The cost of soliciting proxies on the accompanying form has been or will be
borne by the Company. In addition to solicitation by mail, the Company will
request banks, brokers and other custodians, nominees, and fiduciaries to send
proxy material to the beneficial owners and to secure their voting
instructions, if necessary. The Company will reimburse such banks, brokers,
custodians, nominees and fiduciaries for their expenses in so doing.
Directors, officers, and regular employees of the Company, who will receive no
compensation for their services other than their regular salaries, may solicit
proxies personally, by telephone and by telegram from stockholders. The
Company has retained Morrow & Co., Inc. to assist in the solicitation of
proxies at an estimated cost of $10,000 including expenses, which will be paid
by the Company. These proxy materials are first being mailed to stockholders
on or about December 18, 1996.
A stockholder signing and returning a proxy on the enclosed form has the
power to revoke it at any time before the shares subject to it are voted, by
notifying the Secretary of the Company in writing of such revocation, by
filing a duly executed proxy bearing a later date, or by attending the meeting
and voting in person. Properly executed proxies, not revoked, will be voted in
accordance with the instructions contained thereon. Unless a contrary
specification is made thereon, it is the intention of the attorneys named in
the enclosed form of proxy to vote FOR the election of the nominees named
herein as Directors and FOR Proposals 2, 3 and 4.
OUTSTANDING VOTING SECURITIES
Only holders of ADVO Common Stock, par value $.01 per share ("Common
Stock"), of record at the close of business on November 22, 1996 (the "Record
Date") are entitled to notice of and to vote at the Meeting. On the Record
Date, there were 24,260,666 shares of Common Stock outstanding. Each share of
Common Stock is entitled to one vote.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of the Record Date, those persons known to the Company who beneficially
owned more than 5% of the Common Stock were as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
------------------- ------------------ --------
<S> <C> <C>
Warburg, Pincus Capital Partners L.P.(1)
466 Lexington Avenue
New York, New York 10017......................... 5,590,085 23.0%
Howard H. Newman(2)
466 Lexington Avenue
New York, New York 10017......................... 5,590,085 23.0
John L. Vogelstein(2)
466 Lexington Avenue
New York, New York 10017......................... 5,590,085 23.0
FMR Corporation(3)
82 Devonshire Street
Boston, Massachusetts 02109...................... 2,233,000 9.2
T. Rowe Price Associates, Inc.(3)
100 East Pratt Street
Baltimore, Maryland 21202........................ 2,193,000 9.0
Robert Kamerschen(4)
ADVO, Inc.
One Univac Lane
Windsor, Connecticut 06095....................... 1,392,726 5.6
</TABLE>
- --------
(1) The sole general partner of Warburg, Pincus Capital Partners, L.P.
("Warburg") is Warburg, Pincus & Co., a New York general partnership
("WP"). Lionel I. Pincus is the managing Partner of WP and may be deemed
to control it. E.M. Warburg, Pincus & Co., Inc. ("E.M. Warburg"), through
a wholly owned subsidiary, manages Warburg. WP owns all of the outstanding
stock of E.M. Warburg and, as the sole general partner of Warburg, has a
20% interest in the profits of Warburg. E.M. Warburg owns 1.5% of the
limited partnership interests in Warburg. Messrs. Newman and Vogelstein,
directors of the Company, are Managing Directors of E.M. Warburg and
general partners of WP. As such, Messrs. Newman and Vogelstein may be
deemed to have an indirect pecuniary interest (within the meaning of Rule
16a-1 under the Securities Exchange Act of 1934) in an indeterminate
portion of the shares beneficially owned by Warburg, E.M. Warburg and WP.
See Note 2 below.
(2) All of the shares owned by Messrs. Newman and Vogelstein are owned
directly by Warburg and are included because of Messrs. Newman's and
Vogelstein's affiliation with Warburg. Messrs. Newman and Vogelstein
disclaim "beneficial ownership" of these shares within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934. See Note 1.
(3) The information relating to the ownership of the Common Stock by this
entity or individual is based on a statement on Schedule 13D or Schedule
13G filed by such entity or individual with the Securities and Exchange
Commission (the "SEC").
(4) Includes shares awarded under the 1986 Employee Restricted Stock Plan, as
amended, and 453,411 shares Mr. Kamerschen has the right to acquire within
60 days of the Record Date pursuant to the exercise of options granted
under the Company's stock option plans.
2
<PAGE>
GOVERNANCE OF THE COMPANY
In accordance with the Company's Bylaws, as amended, and the applicable laws
of Delaware, responsibility for the management of the Company is vested in the
Board of Directors. During the fiscal year ended September 28, 1996, the Board
of Directors met ten times. Each Director attended 100% of the aggregate
number of meetings of the Board of Directors and the total number of the
committees on which he served, except John Vogelstein who attended 60% of the
meetings. Messrs. Durrett, Morris and Stowe all resigned from the Board of
Directors during the fiscal year ended September 28, 1996 and each attended
100% of the aggregate number of meetings while they were on the Board of
Directors, except Mr. Stowe who attended 78% of the meetings.
The Board has delegated responsibilities with respect to certain audit
matters to the Audit Committee. The current members of the Audit Committee are
Messrs. Fritz (Chairman), Newman and Lachman. Lawrence Lachman was elected to
replace Mr. Stowe at the second Audit Committee meeting, which he attended.
The Audit Committee is responsible for reviewing the adequacy of financial
controls and the adequacy and accuracy of financial reporting. The Audit
Committee met two times during the fiscal year ended September 28, 1996, and
no member of the Audit Committee missed a meeting.
The Board has delegated responsibilities with respect to certain
compensation matters to the Compensation Committee. The members of the
Compensation Committee are Messrs. Newman (Chairman), Fritz, Lachman and
Rockwell. The Compensation Committee has the responsibility to help formulate
short and long-term compensation plans and help develop the Company's
compensation philosophy. The committee also reviews specific proposals
regarding executive compensation and other aspects of the terms of employment
of the Company's senior management. The Compensation Committee met two times
during the fiscal year ended September 28, 1996, and no member of the
Compensation Committee missed a meeting.
The Company has no executive committee, nominating committee or other
committees, except for the above. Total attendance was 94% for all board and
committee meetings.
Directors, other than those who are full-time employees of the Company or a
subsidiary, each are currently eligible to receive an annual fee of $20,000
and a fee of $1,000 for each Board and committee meeting attended. Directors
serving as chairmen of any committees of the Board of Directors receive an
additional $2,000 per year for each chairmanship held. Directors who are full-
time employees of the Company receive no remuneration for serving on the Board
of Directors or its committees. Messrs. Vogelstein and Newman have declined to
receive compensation as Directors due to their status as beneficial owners of
the Company's Common Stock. (See "Security Ownership of Certain Beneficial
Owners.") All Directors' expenses for attending Board of Directors' meetings
are reimbursed by the Company.
In fiscal 1996, restrictions lapsed on the following number of shares held
by the following directors: 1,000 held by Mr. Fritz, 1,000 held by Mr.
Rockwell, and 1,000 held by Mr. Lachman. In addition, grants were made in
fiscal 1996 to each of Mr. Fritz, Mr. Lachman and Mr. Rockwell of options to
purchase 4,500 shares at an exercise price of $10.25 per share. The options
will become exercisable in equal annual installments over the next four years.
3
<PAGE>
1. ELECTION OF DIRECTORS
The Bylaws of the Company, as amended, provide for a Board of Directors
consisting of not less than three nor more than 15 members, the exact number
to be fixed from time to time by the Board of Directors. The Board of
Directors has determined that the Company will have nine Directors. Each
person elected as a Director of the Company will hold office until the next
Annual Meeting of Stockholders or until his successor is duly elected and
qualified.
All of the nominees set forth below were elected by the stockholders to
their present terms at the 1996 Annual Meeting, except Mr. Eskridge and Mr.
Mulloy, who became Directors of the Company on July 30, 1996 and December 3,
1996, respectively. Each nominee has consented to being named herein and has
agreed to serve if elected. In case any such nominee shall have become, at the
time of the meeting, unable or unwilling to serve (an event which the Board of
Directors of the Company has no reason to expect), the attorneys named in the
enclosed form of proxy intend to vote for another person designated by the
Board of Directors.
The affirmative vote of a plurality of the voting power represented at the
meeting is required for a nominee to be elected as a Director of the Company.
"Plurality" means that the nominees who receive the largest number of votes
cast "FOR" are elected as directors up to the maximum number of Directors to
be chosen at the meeting. Votes withheld and broker non-votes are not counted
towards the plurality vote calculation.
NOMINEES FOR ELECTION
ROBERT KAMERSCHEN, age 60. 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 Micrografx, Inc., Domain,
Inc., and Cognizant Corporation.
GARY M. MULLOY, age 51. Mr. Mulloy became President and Chief Operating
Officer on November 4, 1996 and was elected to the Board of Directors on
December 3, 1996. From 1990 to October 1996 he was President and Chief
Executive Officer of Pilkington Barnes-Hind, Inc., a division of Pilkington
Vision Care.
JAMES A. ESKRIDGE, age 53. Mr. Eskridge was elected to the Board of
Directors on July 30, 1996. From 1988 to 1996 he held various senior executive
positions at Mattel, Inc. Mr. Eskridge is also a Director of Mattel, Inc.,
NeXstar and Golden Books Family Entertainment, Inc.
JACK W. FRITZ, age 69. Mr. Fritz has been a Director of the Company since
March 1984. Until January 1987, Mr. Fritz was President, Chief Executive
Officer and a Director of John Blair & Company, and had held those positions
for more than five years. Mr. Fritz serves as a Director on the Warburg,
Pincus Funds board, and is also a Director of Fritz Broadcasting, Inc. and
Fritz Communications.
JOHN R. ROCKWELL, age 68. Mr. Rockwell became a Director on May 5, 1990.
Until April 1, 1990, he was Senior Vice President, Group Executive and a
Director of Booz, Allen & Hamilton, Inc., a management consulting firm, a
position he held for more than five years. Mr. Rockwell is also a Director of
Forum Corporation, Tom's of Maine, Inc. and Zygo Corporation.
4
<PAGE>
BRUCE CRAWFORD, age 67. Mr. Crawford was nominated to be a Director at the
Board of Directors' meeting on December 3, 1996. As of January 1, 1997, Mr.
Crawford will be Chairman of Omnicom Group, the second largest marketing
communications company in the world. For a year prior to that, Mr. Crawford
was Chairman and Chief Executive Officer of Omnicom, and for five years prior
to that he was President and Chief Executive Officer of Omnicom. Mr. Crawford
is also President and Chief Executive Officer of the New York Metropolitan
Opera Company.
LAWRENCE LACHMAN, age 80. Mr. Lachman has been a Director of the Company
since December 1987. He is the retired Chairman of the Board and Chief
Executive Officer of Bloomingdale's, a department store. Mr. Lachman is
currently a business consultant. He is also a Director of DFS Group Limited.
HOWARD H. NEWMAN, age 49. Mr. Newman has been a Director of the Company
since August 1986. He has been associated with E.M. Warburg, a specialized
financial services company, since January 1984 and has been a Managing
Director since January 1987. Mr. Newman is also a Director of Newfield
Exploration Company, Renaissance Holdings Ltd., Comcast UK Cable Partners
Limited and Cox Insurance Holdings, plc.
JOHN L. VOGELSTEIN, age 62. Mr. Vogelstein has been a Director of the
Company since November 1988. Mr. Vogelstein was previously a Director of the
Company from August 1986 to December 1987. He has been Vice Chairman of the
Board of Directors of E.M. Warburg for more than the past five years and was
appointed President of E.M. Warburg on January 1, 1994. Mr. Vogelstein is also
a Director of Aegis Group plc, Value Health, Inc., Mattel, Inc., LCI
International, Golden Books Family Entertainment, Inc. and Vanstar
Corporation.
5
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
Common Stock beneficially owned by the Directors, nominees, the persons named
in the Summary Compensation Table on page 7 of this Proxy Statement and by all
Directors and officers as a group, as of the Record Date. Except as otherwise
indicated, each person listed has sole voting and investment powers with
respect to shares beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF INDIVIDUAL OF COMMON STOCK OF CLASS
- ------------------ ---------------- --------
<S> <C> <C>
Robert Kamerschen..................................... 1,392,726(1) 5.6%
Gary M. Mulloy........................................ 30,000(2) .1
Lowell W. Robinson.................................... 38,470(3) .2
Myron L. Lubin........................................ 19,016(4) .1
Rick Kurz............................................. 22,791(5) .1
Bruce Crawford........................................ -- --
James A. Eskridge..................................... -- --
Jack W. Fritz......................................... 40,578(6) .2
John R. Rockwell...................................... 19,500(7) .1
Lawrence Lachman...................................... 13,250(7) .1
Howard H. Newman...................................... 5,590,085(8) 23.0
John L. Vogelstein.................................... 5,590,085(8) 23.0
All Directors and officers as a group (13 persons).... 7,192,824(9) 29.0
</TABLE>
- --------
(1) Includes 222,716 shares awarded under the 1986 Employee Restricted Stock
Plan, as amended (the "Restricted Stock Plan"), and 453,411 shares Mr.
Kamerschen has the right to acquire within 60 days of the Record Date
pursuant to the exercise of options granted under the Company's stock
option plans.
(2) Includes 30,000 shares of restricted stock awarded by the Company.
(3) Includes 23,147 shares awarded under the Restricted Stock Plan and 13,750
shares Mr. Robinson has the right to acquire within 60 days of the Record
Date pursuant to the exercise of options granted under the Company's stock
option plans.
(4) Includes 3,437 shares awarded under the Restricted Stock Plan and 6,825
shares Mr. Lubin has the right to acquire within 60 days of the Record
Date pursuant to the exercise of options granted under the Company's stock
option plans.
(5) Includes 2,203 shares awarded under the Restricted Stock Plan, as amended,
and 20,588 shares Mr. Kurz has the right to acquire within 60 days of the
Record Date pursuant to the exercise of options granted under the
Company's stock option plans.
(6) Includes 13,000 shares awarded under the 1990 Non-Employee Directors'
Restricted Stock Plan (the "Non-Employee Directors' Plan"), 250 shares Mr.
Fritz has the right to acquire within 60 days of the Record Date pursuant
to option grants awarded by the Company and 18,347 shares owned by Mr.
Fritz's wife, as to which shares Mr. Fritz disclaims beneficial ownership.
(7) Includes 13,000 shares awarded under the Non-Employee Directors' Plan and
Mr. Rockwell and Mr. Lachman each have the right to acquire 250 shares
within 60 days of the Record Date pursuant to option grants awarded by the
Company.
(8) All of the shares indicated as owned by Messrs. Newman and Vogelstein are
owned directly by Warburg and are included because of Messrs. Newman's and
Vogelstein's affiliation with Warburg. Messrs. Newman and Vogelstein
disclaim "beneficial ownership" of these shares within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934. (See "Security Ownership
of Certain Beneficial Owners".)
(9) Includes 330,306 shares awarded under the Restricted Stock Plan and the
Non-Employee Directors' Plan, and 505,157 shares all officers as a group
have the right to acquire within 60 days of the Record Date pursuant to
the exercise of options granted under the Company's stock option plans.
6
<PAGE>
SECTION 16 REPORTS
Under the securities laws of the United States, the Company's Directors, its
executive (and certain other) officers and any persons holding ten percent or
more of the Company's Common Stock are required to report their ownership of
the Company's Common Stock and any changes in that ownership to the SEC.
Specific due dates for these reports have been established. In 1996, all
required reports of beneficial ownership of the Company's Common Stock were
timely filed, except for the Form 5 for Frank Talz which was not timely filed.
In addition, a report for James Eskridge was not timely filed upon his
election as a Director of the Company. Both of the above were ultimately filed
by the Company.
EXECUTIVE COMPENSATION
The following table shows compensation paid by the Company and its
subsidiaries for services in all capacities during fiscal 1996, 1995 and 1994
to each of the following named executive officers of the Company, including
the Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
----------------- ---------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL BONUS AWARDS OPTIONS COMPENSATION
POSITION YEAR SALARY (1) (2) (#)(3) (4)
- ------------------ ---- -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert Kamerschen, ..... 1996 $503,731 $ 93,274 -- 662,705 $ 40,067
Chairman and Chief 1995 481,303 196,076 -- 48,000 50,147
Executive Officer 1994 462,540 374,445 -- 488,136 49,751
Lowell W. Robinson, .... 1996 250,269 27,408 -- 93,552 11,668
Executive Vice Presi-
dent and 1995 237,442 57,096 -- 45,000 4,827
Chief Financial Officer 1994 95,343 39,981 $431,000 25,000 --
Myron L. Lubin, ........ 1996 232,931 25,568 -- 61,246 15,903
Senior Vice President-- 1995 219,357 49,458 -- 15,400 16,504
Sales 1994 200,490 133,485 -- 19,600 13,175
Rick Kurz, ............. 1996 211,246 23,192 -- 61,700 14,291
Senior Vice President-- 1995 199,883 32,330 -- 14,700 9,774
Chief Marketing Officer 1994 184,999 75,011 -- 15,000 4,574
Joseph P. Durrett, ..... 1996 233,209 183,500 -- 238,093 384,135
Former President and 1995 349,156 94,410 181,150 32,000 32,122
Chief Operating Officer 1994 325,871 197,719 -- 23,700 29,535
Larry G. Morris, ....... 1996 160,192 114,075 -- 98,860 287,371
Former Senior Executive 1995 248,496 53,203 -- 18,426 20,193
Vice President, Chief
Administrative 1994 240,099 102,757 -- 65,434 20,178
and Process Development
Officer
</TABLE>
- --------
(1) Amounts for each fiscal year represent bonus compensation earned for that
year payable in the subsequent year. Amounts for Mr. Durrett and Mr.
Morris represent their full bonus target as provided in their respective
severance agreements.
(2) The number of restricted shares of Common Stock held at fiscal year end
and the value of such holdings, based on the number of restricted shares
times the closing market price at September 28, 1996 are 8,333 shares and
$96,871 for Mr. Robinson. Restricted shares vest equally over a three-year
period from the date of grant (one-third on each anniversary date).
Holders of restricted shares are eligible to receive dividends to the same
extent as holders of Common Stock, when dividends are declared and
payable.
(3) Includes reload option grants received from surrendering previously owned
shares of ADVO Common Stock to pay the exercise price on option exercises
and shares withheld from option exercises to satisfy income tax
withholding requirements. Also includes options, the exercise prices of
which were adjusted in connection with the payment of a special $10
dividend in March 1996 (the "Special Dividend").
(4) Amounts represent contributions made on behalf of the named executives to
the Company's 401(k) plan and non-qualified savings plans. In addition,
$367,000 for Mr. Durrett and $253,500 for Mr. Morris represent wage
continuation and severance accrued per their respective agreements.
7
<PAGE>
OPTIONS
Set forth below is certain information concerning stock options granted
during fiscal 1996 by the Company to the named executive officers.
The hypothetical present value on the date of grant of stock options granted
in fiscal 1996 shown below are presented pursuant to the SEC proxy rules and
are calculated under the modified Black-Scholes model for pricing options. The
actual before-tax amount, if any, realized upon the exercise of stock options
will depend upon the excess, if any, of the market price of the Common Stock
over the exercise price per share of the stock option at the time the stock
option is exercised. There is no assurance that the hypothetical present
values of the stock options reflected in this table will be realized.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
GRANTED (#) FISCAL YEAR ($/SHARE) DATE VALUE (4)
GRANTS (1) ----------- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Robert Kamerschen...... 25,000 1% $12.000 6/12/2002 $ 141,000
25,000 1 12.000 3/12/2006 180,250
Lowell W. Robinson..... 8,500 * 12.000 6/12/2002 47,940
8,500 * 12.000 3/12/2006 61,285
Myron L. Lubin......... 10,000 * 12.000 6/12/2002 56,400
10,000 * 12.000 3/12/2006 72,100
Rick Kurz.............. 6,000 * 12.000 6/12/2002 33,840
6,000 * 12.000 3/12/2006 43,260
Joseph P. Durrett...... 14,550 1 12.000 6/12/2002 82,062
14,550 1 12.000 3/12/2006 104,906
Larry G. Morris........ 7,500 * 12.000 6/12/2002 42,300
7,500 * 12.000 3/12/2006 54,075
ADJUSTED OPTIONS (2)
Robert Kamerschen...... 27,150 1 8.625 5/04/2000 167,787
24,000 1 8.000 4/24/2001 165,840
27,150 1 8.625 2/04/2004 209,598
24,000 1 8.000 1/24/2005 198,720
433,836 17 8.625 11/14/1998 2,338,376
46,588 2 11.250 11/14/1998 184,954
11,929 * 11.250 1/25/2000 56,901
18,052 1 11.250 1/24/2001 96,037
Lowell W. Robinson..... 7,500 * 8.000 4/24/2001 51,825
25,000 1 7.250 5/05/2004 209,250
7,500 * 8.000 1/24/2005 62,100
30,000 1 8.250 7/24/2005 249,600
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
ADJUSTED OPTIONS (2) GRANTED (#) FISCAL YEAR ($/SHARE) DATE VALUE (4)
(CONT.) ----------- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Myron L. Lubin.......... 9,800 * $8.625 5/04/2000 $ 60,564
7,700 * 8.000 4/24/2001 53,207
9,800 * 8.625 2/04/2004 75,656
7,700 * 8.000 1/24/2005 63,756
2,752 * 11.250 1/25/2000 13,127
3,494 * 11.250 1/24/2001 18,588
Rick Kurz............... 7,500 * 8.625 5/04/2000 46,350
7,350 * 8.000 4/24/2001 50,789
20,000 1% 12.000 5/06/2003 124,000
7,500 * 8.625 2/04/2004 57,900
7,350 * 8.000 1/24/2005 60,858
Joseph P. Durrett....... 11,850 * 8.625 5/04/2000 73,233
11,000 * 8.000 4/24/2001 76,010
62,500 2 8.150 9/01/2002 462,500
35,000 1 7.125 9/01/2003 287,350
11,850 * 8.625 2/04/2004 91,482
10,000 * 8.125 12/01/2004 81,800
11,000 * 8.000 1/24/2005 90,750
Larry G. Morris......... 8,300 * 8.625 5/04/2000 51,294
7,500 * 8.000 4/24/2001 51,825
8,300 * 8.625 2/04/2004 64,076
7,500 * 8.000 1/24/2005 62,100
29,882 1 8.625 8/21/1999 173,913
9,241 * 8.625 1/25/2000 55,723
3,426 * 8.000 1/24/2001 23,331
9,711 * 8.625 1/24/2001 63,024
RELOAD GRANTS (3)
Lowell W. Robinson...... 4,972 * 10.500 5/05/2004 28,490
1,580 * 10.500 1/24/2005 9,448
Joseph P. Durrett....... 37,564 1 10.500 9/01/2002 188,947
13,785 1 10.500 9/01/2003 75,128
2,126 * 10.500 12/01/2004 12,628
2,318 * 10.500 1/24/2005 13,862
</TABLE>
- --------
* less than 1%
(1) Stock options granted in fiscal 1996 will become exercisable in 25%
increments at one-year intervals from the date of grant. The grants with
expiration dates of June 12, 2002 also stipulate that the market value of
the Company's Common Stock must reach specified levels in order to become
exercisable in addition to the time vesting provisions. These options
become exercisable six years from the grant date if the market price
provision is not met and expire ninety days later. All options are subject
to the reload feature of the 1988 Non-qualified Stock Option Plan and the
1993 Stock Option SubPlan. See Exhibit B attached hereto.
9
<PAGE>
(2) On March 6, 1996 the Board of Directors of the Company adjusted the
exercise prices of all of its outstanding employee stock options in
connection with the Special Dividend declared by the Company. The adjusted
options retained the original vesting schedule and expiration period of
the original options.
(3) Represent reload option grants received upon the exercise of previously
outstanding exercisable options (the "original options"). The number of
reload options awarded upon the exercise of original options is equal to
the number of previously held shares an optionee tenders to pay the
exercise price of the original options and the number of shares an
optionee elects to have withheld from the exercise of the original options
to pay statutory tax withholding requirements. The reload options retain
the expiration date of the original options and have an exercise price
equal to the fair market value of the Common Stock on the date of exercise
of the original options. Reload options must be held for one year from the
date of grant before they become exercisable or upon termination from the
Company.
(4) The present values on grant date are calculated under the modified Black-
Scholes model, which is a mathematical formula used to value options
traded on stock exchanges, modified for pricing employee stock options.
This formula considers a number of factors in order to estimate the
option's present value, including the stock's historical volatility (36%),
the exercise period of the option and the risk free rate of return (5.34%-
6.70% depending on the option's grant and expiration dates).
Set forth below is certain information concerning the named executive
officers and the number of shares acquired, and amounts realized on stock
option exercises during fiscal 1996 and the number and value of specified
options at September 28, 1996. The value of exercised and unexercised in-the-
money stock options at September 28, 1996 shown below are presented pursuant
to SEC rules. The actual before-tax amount, if any, realized upon exercise of
stock options will depend upon the excess, if any, of the market price of the
Common Stock over the exercise price per share of the stock option at the time
the stock option is exercised. There is no assurance that the values of
unexercised in-the-money stock options reflected in this table will actually
be realized.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR-END(#) AT YEAR-END (1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert Kamerschen....... 371,250 $6,261,938 453,411 209,294 $1,363,983 $303,138
Lowell W. Robinson...... 8,125 25,000 13,750 71,677 52,656 185,574
Myron L. Lubin.......... 15,000 185,996 6,825 54,421 21,678 95,289
Rick Kurz............... -- -- 20,588 41,113 17,913 80,378
Joseph P. Durrett....... 66,830 175,463 88,888 82,375(2) 183,927 188,731(2)
Larry G. Morris......... -- -- 58,285 40,575(2) 178,168 84,928(2)
</TABLE>
- --------
(1) Value is calculated by determining the difference between the fair market
value at September 28, 1996 of the securities underlying the options
($11.625) and the exercise price of the options.
(2) Subsequent to September 28, 1996, 82,375 shares with a value of $188,731
and 40,575 with a value of $84,928 for Mr. Durrett and Mr. Morris,
respectively, were cancelled in conjunction with the severance of their
respective employment relationship with the Company.
10
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The role of the Compensation Committee of the Board of Directors is to act
as a liaison between the Board of Directors and management in all matters of
executive compensation, balancing the interests of stockholders and the needs
of management. As such, the governance and administration of executive
compensation programs and the development of compensation policy and
philosophy are the domain of the Compensation Committee. The Compensation
Committee undertakes this role by reviewing and approving governing plan
documents and individual compensation issues for certain executives. The
Compensation Committee's policy regarding Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), is that any compensation above
the threshold specified in that Section be based on performance objectives in
order to retain the Company's Federal tax deduction as permitted under the
Code. The Compensation Committee is composed entirely of non-employee
Directors.
Compensation Philosophy:
ADVO's compensation programs are designed to:
. Provide a fair, competitive and dynamic compensation program.
. Attract, retain, and develop a highly skilled and motivated workforce.
. Tie compensation directly to the accomplishment of superior Company
performance, creation of long-term shareholder value and attainment of
specific strategic initiatives by emphasizing variable rather than fixed
compensation.
. Align stockholders' and management's interests.
To accomplish this philosophy, ADVO's executive compensation program is
composed of base salary, short-term incentives and long-term incentives, which
taken together provide a competitive compensation package that is highly
leveraged toward the attainment of superior Company performance.
Base Salary:
ADVO's philosophy is to pay competitive base salaries as compared with a
broad spectrum of organizations. To assess its competitive position, ADVO
participates in and reviews salary surveys with participant companies from
multiple industry segments. These companies represent a cross section of
organizations in all industries and are of similar size and scope. These
companies may or may not be included in the peer group analysis under "Company
Financial Performance," since many of the Company's competitors for executive
talent are outside the Company's business competitor peer group of companies
or are privately held companies. The surveys are professionally administered
by third parties and represent the different functional areas of ADVO's
organization, e.g., marketing, finance and information systems. In general,
ADVO's salary position is approximately at the median of the marketplace.
Based on these surveys, ADVO annually reviews its salary structure and adjusts
it as necessary to reflect the market. Individual base pay is determined by
considering:
. The individual's background, experience and current salary in relation
to the market (as represented by the salary range assigned to the
individual's position).
. Accomplishments as determined by the individual's performance appraisal.
. The financial spending guidelines of the Company.
11
<PAGE>
Short-Term Incentive:
ADVO's philosophy is to provide significant financial incentives for key
managers to attain and exceed the Company's financial objectives. As a result
of organizational restructuring within ADVO, for fiscal 1996 and beyond, the
Corporate Management Incentive Plan for its eligible associates and the
Division/Regional Plan for certain associate populations remain intact, while
new regional and middle management plans were created. These plans provide a
strong link between the associate's accountabilitites, scope of impact and
business performance through the use of operationally tailored measurement
criteria focusing on margin improvement and/or operating income goals. These
plans provide a competitively benchmarked target award based on the level of
the individual's job. The target awards range from 10% to 75% of salary. To
realize the target award, certain Company financial performance objectives
must be attained. ADVO annually establishes operating income and profitability
goals at the corporate and regional levels or business unit levels. The
corporate performance objective is based on consolidated operating income and
is measured in terms of actual operating income achieved versus the annually
established plan. Additionally, the Regional Incentive Plan incorporates
regional profitability objectives that are margin based in the form of either
operating income or contribution margin. The specific objective targets are
not disclosed herein because they are considered confidential and disclosure
of such could competitively injure ADVO's business. The corporate, regional
and business unit results are evaluated independently. The combined payout
percentage based upon these results are limited only by the combined business
performance. To determine actual awards, the target award amounts are factored
by the payout percentages. A minimum threshold of plan attainment is in place,
below which no payout is made. The Compensation Committee has the discretion
to modify the actual awards. The bonuses of the CEO and any associate subject
to Section 162(m) of the Code are based solely on financial results as defined
above, and are subject to a capped individual payout.
The Company's financial performance for the fiscal 1996 year was below its
operating income target. This resulted in adjusted corporate awards which
were, on average, less than target awards. Regional performance varied, with
results both above and below target levels set under the plan. After adjusting
for corporate and regional financial results, individual award payouts ranged
from 22.4% to 273.5% (to participants in a specific business unit who greatly
exceeded plan) of target awards. Approved awards for those disclosed in the
Summary Compensation Table range from 25% to 100% of target awards. Mr. Morris
and Mr. Durrett received 100% of their bonus in conjunction with their related
severance agreements.
Long-Term Incentive:
The 1988 Non-qualified Stock Option Plan, as amended, and the 1993 Stock
Option Subplan are the primary vehicles for long-term incentives. The plans
allow for the granting of:
1.Options with service requirements for vesting.
2.Options with performance requirements as well as service requirements for
vesting.
3.Reload options which require the purchase and retention of ADVO Common
Stock.
All three types of options were granted this year. This mix of option types
is meant to:
. Link compensation opportunities to Company achievements.
. Balance annual results with ADVO's long-term performance.
. Strengthen the partnership between ADVO's executives and stockholders.
12
<PAGE>
Participation in this plan is limited to key management and executives in
the Company. Long-term compensation targets vary by the level of the
individual's position and were established based on market analysis provided
from third party external consultants. Periodically these targets will be
reviewed. These targets are expressed as a percentage of base pay. The
resulting target values are translated into shares based on the fair market
value of the shares. In fiscal 1996, of the resulting number of shares granted
as options, 50% were granted as service based vesting non-qualified options,
and 50% were granted with a performance criterion in addition to the service
requirement. The performance criterion is achieved only when the stock has
appreciated to $15.00 per share and remained at or above that price for 90 out
of 180 consecutive days. If this criterion is not met, the options vest in 6
years and expire 90 days later.
The Company's executives were also given the opportunity to receive "reload
options." To receive such options, the plan requires executives to exercise
their options by tendering mature shares of stock to "pay" for the underlying
cost of the options and mandatory federal tax obligations. In return, they
receive reload options in the same number as the number of mature shares they
tendered for payment. Any profit that resulted from the exercise was returned
to the executive in the form of stock, which is to be retained for two years.
Service based options are also used for employment, promotion and retention
situations and are determined in the same manner as described above.
Due to the recapitalization this fiscal year, the Board of Directors reduced
the strike price of options for all holders by $10.00 per share to reflect the
Special Dividend. In addition, ADVO has a restricted stock plan. While the
governing plan allows for broader usage, historically, this plan has been used
for employment, promotion and retention situations. When these situations
arise, the number of shares granted is based upon the level of the job.
To foster greater alignment with shareholders, ADVO expects that executives
who receive stock options should also make a personal financial commitment to
acquire and hold significant amounts of ADVO stock.
CEO Compensation and Company Performance:
As discussed on page 16, the Company and Mr. Kamerschen entered into an
employment agreement on May 29, 1996, outlining some specific conditions of
employment concerning compensation arrangements, not all of which are under
the governance of the Compensation Committee. Under this agreement Mr.
Kamerschen's salary is reviewed annually, and may be increased, but not
decreased by the Committee. As such, the Committee reviews Mr. Kamerschen's
salary at the beginning of the calendar year using the same base salary
guidelines utilized for other executives as described in the "Base Salary"
section on page 11, and adjusts his salary in light of Company performance for
the preceding fiscal year. His increase during fiscal 1996 was based upon
fiscal 1995 performance. Fiscal 1995 was a year of both significant
accomplishments and some disappointments. The business was challenged by a
soft retail economy, a substantial increase in both postal rates and paper
prices, and intense competition. ADVO's continuing direct mail operations
produced strong financial results during fiscal 1995 including both price and
volume growth allowing ADVO to exceed $1 billion in revenue for the first
time. In addition, the Company's operating income increased 22.3% over prior
years direct mail
13
<PAGE>
operations. These factors were taken under consideration qualitatively and at
the discretion of the Committee. Accordingly, this past year this Committee
approved an increase of $22,000 per year for Mr. Kamerschen, or 4.6%.
As provided in the Agreement, Mr. Kamerschen's short-term incentive is
determined under the Corporate Management Incentive Plan. Under this plan, the
CEO's bonus is determined based solely on financial results and is awarded at
the discretion of the Board of Directors. Consistent with the plan as
described previously, as measured by Company performance in fiscal 1996, Mr.
Kamerschen was granted an incentive award of $93,274, representing 25% of his
target award.
Mr. Kamerschen was awarded 50,000 options in the annual grant using the
approach described above, of which 25,000 were options with performance
requirements.
Benefits:
ADVO offers benefits to its key executives, serving a different purpose than
do the above described elements of compensation. In general, these provide a
level of security against financial misfortune which may result from illness,
disability or death. The benefits are principally those that are offered to
the ADVO employee population, with some variations, and generally promote tax
efficiency and replacement of benefit opportunities afforded other employees,
but which are lost to executives due to regulatory limits.
COMPENSATION COMMITTEE
Howard H. Newman (Chair)
Jack W. Fritz
Lawrence Lachman
John R. Rockwell
14
<PAGE>
COMPANY FINANCIAL PERFORMANCE
The following graph compares the performance of the Company's Common Stock
with the S&P 500 Index and a Selected Peer Group Index constructed by the
Company. The comparison of total return for each of the years assumes $100 was
invested on October 1, 1991 in each of the Company, the S&P 500 Index and the
Selected Peer Group Index with investment return weighted on the basis of
market capitalization. The Peer Group is comprised of Acxiom Corp., Catalina
Marketing, R.R. Donnelley & Sons Co., Dunn & Bradstreet, Heritage Media, Inc.,
Information Resources, Inc., Knight-Ridder, Inc., Readers Digest, Scholastic
Corp., Times Mirror Co., Tribune Co., Valassis Communications and the
Washington Post. The Peer Group represents a mix of newspaper, publishing,
database and marketing services companies that ADVO competes with in several of
its major markets.
Comparison of Five Year Cumulative Total Return *
Among ADVO, Inc., S&P 500 Index and a Selected Peer Group * *
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ADVO, Inc.........$100.00 $141.01 $114.57 $123.38 $173.24 $175.63
S&P 500............100.00 111.05 125.49 130.11 168.82 203.14
Peer Group.........100.00 113.56 114.47 116.29 126.31 133.68
</TABLE>
Assumes $100 invested on October 1, 1991 in ADVO, Inc. Common Stock, S&P 500
Index & the Peer Group Index.
* Total Return assumes reinvestment of dividends.
** ADVO's fiscal year ends on the last Saturday in September.
15
<PAGE>
EMPLOYMENT AGREEMENTS
On May 29, 1996, the Company renewed its employment agreement with Mr.
Kamerschen pursuant to which he is employed as Chief Executive Officer of the
Company. The employment agreement has a term of five years, continuing through
November 14, 2001. Under the employment agreement, Mr. Kamerschen receives an
annual salary of $500,000 per year, subject to annual increases as determined
by the Board of Directors. The employment agreement provides that annual
bonuses may be awarded under the Company's bonus plan. The employment
agreement also provides that if the Company terminates Mr. Kamerschen's
employment for any reason other than for cause (as defined), the Company shall
continue to pay a salary to Mr. Kamerschen at the same rate, plus a bonus of
75% of such salary, and allow him to continue to participate in other benefit
programs for the duration of the employment period. For the duration of the
severance period, Mr. Kamerschen's granted, but unvested stock rights, shall
continue to vest on their regularly scheduled dates. If at the time of
termination there are more than two years left in the employment period, for
the period in excess of two years, the severance compensation will not include
any bonus. In addition, Mr. Kamerschen receives a housing allowance (currently
$3,191 per month) as long as he remains employed by the Company.
On November 4, 1996, the Company entered into an employment agreement with
Mr. Mulloy, pursuant to which he is employed as President and Chief Operating
Officer of the Company for a term of three years, at a salary of $400,000 per
year, subject to increases as determined by the Board of Directors plus
bonuses pursuant to the Company's bonus plan. Per the employment agreement,
Mr. Mulloy received 30,000 restricted shares of Common Stock. Under the terms
of the agreement, the restrictions on such shares will lapse one-third each on
December 3, 1997, 1998 and 1999. Mr. Mulloy also received options under the
1988 Non-qualified Stock Option Plan, as amended, to purchase 100,000 shares
of the Company's Common Stock at a price of $12.25 per share, such options
becoming exercisable in installments of one-fourth each on December 3, 1997,
1998, 1999 and 2000. In addition, Mr. Mulloy received a cash payment of
$100,000 upon signing of the agreement. This agreement provides for automatic
renewal every two years, on the anniversary date of the agreement, unless the
Company gives Mr. Mulloy six months' notice prior to a renewal date that it
does not intend to renew the agreement. The employment agreement also provides
that if the Company terminates Mr. Mulloy's employment for any reason other
than for cause (as defined), the Company shall continue to pay a salary to Mr.
Mulloy at the same rate, plus a bonus of 50% of such salary, and allow him to
continue to participate in other benefit programs for one year after the date
of termination.
Under an employment agreement, dated September 1, 1994, between Joseph P.
Durrett, former President and Chief Operating Officer, and the Company, Mr.
Durrett was entitled to severance pay for one year after the date of
termination of his employment with the Company which was on May 3, 1996. Mr.
Durrett received approximately $367,000 as severance pay under this agreement.
Under an employment agreement dated August 21, 1991 between Larry G. Morris,
former Senior Executive Vice President, Chief Administrative and Process
Development Officer, and the Company, Mr. Morris was entitled to severance pay
for one year after the date of termination of his employment with the Company
which was on April 30, 1996. Mr. Morris received approximately $253,500 during
fiscal 1996 as severance pay under this agreement.
EXECUTIVE SEVERANCE AGREEMENTS
The Board of Directors has authorized the Company to enter into individual
Executive Severance Agreements (the "Agreements") with Messrs. Kamerschen,
Mulloy, Robinson, Lubin and Kurz (the
16
<PAGE>
"Executives"). The structure of the Agreements is substantially similar, but
the terms of the individual Agreements differ in some important respects as
noted below.
The Agreements' provisions become effective upon the occurrence of a Change
of Control (as described below) and continue for the duration of the Severance
Period. With regard to Messrs. Kamerschen, Mulloy and Robinson, the Severance
Period is two years following a Change of Control. With regard to Messrs.
Lubin and Kurz, the Severance Period is one and one-half years following a
Change of Control. In all cases, the Severance Period ends with the death of
the Executive. If, during the Severance Period, an Executive's employment is
terminated by the Company for any reason other than death, disability or cause
(as described below), or if the Executive terminates his employment for good
reason (as described below) the Company must pay to the Executive a lump sum
severance payment. With regard to Messrs. Kamerschen, Mulloy and Robinson, the
severance payment due upon such a termination of employment is equal to two
times the sum of (i) the Executive's annual base pay at the highest rate in
effect at any time within the 90-day period preceding the date a notice of
termination of employment is given or, if higher, at the highest rate of base
pay in effect within the 90-day period immediately preceding the Change of
Control and (ii) the greatest amount of incentive (bonus) pay received by the
Executive for any calendar year or portion thereof from and including the
third year prior to the first occurrence of a Change of Control. With regard
to Messrs. Lubin and Kurz the severance payment is equal to one and one-half
times the foregoing sum. Additionally, upon termination, Messrs. Kamerschen,
Mulloy and Robinson will be entitled to receive medical and life insurance
benefits for the period of two years from the date of the termination or cash
in lieu thereof. Messrs. Lubin and Kurz will be entitled to receive medical
and life insurance benefits for the period of one and one-half years from the
date of termination or cash in lieu thereof.
Under the Agreements, "cause" means an Executive's intentional act of fraud,
embezzlement, theft, damage to Company property or disclosure of confidential
information that causes material harm to the Company. "Good reason" means (i)
an adverse change in the Executive's responsibilities; (ii) a reduction in the
Executive's base, bonus pay, or benefits; (iii) a failure of any successor to
the Company to assume the obligations under the Agreement; (iv) any material
breach of the Agreement by the Company; or (v) any action of the Company
requiring the Executive to perform his or her services at a location which is
more than thirty five miles from the location where the Executive was employed
immediately preceding the date of the Change in Control.
A "Change of Control" means the occurrence of any of the following events:
(i) the acquisition by any individual , entity or group other than Warburg (a
"Person"), of beneficial ownership 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") other than certain acquisitions; or (ii) individuals who
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board. Any individual becoming a
Director whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the Directors
then comprising the Incumbent Board shall be considered as though such
individuals were a member of the Incumbent Board, (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 any
nominee 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
17
<PAGE>
stockholders 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 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 then 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 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 stockholders of the
Company of a complete liquidation or dissolution of the Company.
Each Executive is solely responsible for all federal, state, local or
foreign taxes due with respect to any payment received under the Agreement,
including, without limitation, any excise tax imposed by Section 4999 of the
Code. However, all payments under the Agreement would be reduced to the extent
necessary so that no portion of the payments would 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 exceeds the net
benefit received by the Executive if no such reduction was made.
If the Company fails to comply with any of its obligations under the
Agreement or in the event that the Company or any other person takes or
threatens to take action to declare the 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 by the Company, the Executive is authorized by the
Agreement 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 of Directors, officer,
stockholder, or other person or entity affiliated with the Company, in any
jurisdiction.
Benefits under the Agreements are in addition to severance amounts payable
under an Executive's employment agreement.
RELATED PARTY TRANSACTIONS
At November 22, 1996, the Company had $10,012,000 invested in money market
mutual funds managed by Warburg, Pincus Counsellors, Inc. ("Counsellors").
Income earned on such investments
18
<PAGE>
during fiscal 1996 amounted to approximately $1,200,000. Counsellors is
controlled by WP, the general partner of Warburg (see "Security Ownership of
Certain Beneficial Owners"). The Company bases all investment decisions upon
the available rates of return, and the investments described above were made
because of the competitive rates available from Counsellors.
2. APPROVAL OF AMENDMENTS TO THE
1986 EMPLOYEE RESTRICTED STOCK PLAN, AS AMENDED
On July 30, 1996, the Board of Directors approved amendments to the
Company's Restricted Stock Plan to extend the life of the plan for an
additional ten years from September 22, 1996 to September 22, 2006 and subject
to shareholder approval, to increase the number of shares available for grant
pursuant to such Plan from 2,437,500 to 2,467,500 shares, to liberalize
vesting provisions and to make certain changes occasioned by the recent
amendment of Rule 16b-3 under the Act as described below.
The following description of the Restricted Stock Plan as proposed to be
amended is a summary and is qualified in its entirety by reference to the text
of such plan, a copy of which is attached hereto as Exhibit A. The Restricted
Stock Plan is sometimes referred to in this Proposal 2 as the "Plan".
Purpose: The purpose of the Plan is to advance the interests of the Company
by encouraging and enabling the acquisition of a larger personal proprietary
interest in the Company by officers and employees of the Company and its
subsidiaries. All employees of the Company and its subsidiaries are eligible
to receive shares pursuant to the Plan. Directors who are not employees are
not eligible to receive shares under the Plan.
Administration: The Plan is currently administered by the Board of
Directors. The Board may, however, appoint a committee of at least two Non-
employee Directors as defined in Rule 16b-3 under the Securities Exchange Act
of 1934, as amended, (the "Act") to administer the Plan (the "Committee"). The
Board of Directors or the Committee has the authority to determine the
participants to whom shares are issued under the Plan and the number of shares
issued to each participant, subject to the terms and conditions of the Plan.
Shares Subject to Award: Currently, a maximum of 2,437,500 shares of Common
Stock may be awarded under the Plan, except that such amount may be adjusted
for stock dividends, stock splits, stock conversions, exchanges,
reclassifications or substitutions. (If this Proposal 2 is adopted by the
stockholders, an additional 30,000 shares would be available for award under
the Plan.) As of the Record Date, 2,390,417 shares have been awarded under the
Plan. Approximately 35 persons are eligible to participate in the plan.
Awards of Shares: Under the Plan, the Board of Directors or the Committee
may in its sole discretion award to a participant the right to receive a
number of shares specified by the Board of Directors or the Committee. The
Plan provides that the participant has 30 business days (the "Payment Period")
from the date of such award to pay to the Company an amount equal to the par
value of a share multiplied by the number of shares issued to such participant
by the Board of Directors or the Committee. Upon receipt of the payment, the
Company is required to issue to the participant a certificate representing the
shares. If a participant fails to make the required payment within the Payment
Period, the award of the shares may lapse and the Board or the Committee may
again issue the shares to participants pursuant to the Plan. No shares may be
awarded after September 22, 2006.
19
<PAGE>
Restrictions, Voting, Dividend, and Vesting: The Board of Directors or the
Committee may provide that the shares issued to the participant may not be
sold, assigned, transferred or otherwise disposed of or encumbered until the
expiration of time (the "Restricted Period") or the satisfaction of conditions
specified by the Board or the Committee at the time the shares are issued.
(Such shares are hereinafter referred to as "Restricted Shares".) Each holder
of Restricted Shares is the beneficial and record owner of such Restricted
Shares and has full voting rights with respect thereto. During the Restricted
Period, all dividends and distributions paid on any Restricted Shares are held
by the Company for the account of the holder. The Board of Directors may in
its sole discretion permit reinvestment of cash dividends paid on any
Restricted Shares. Such Shares shall be treated as subject to the same terms
and restrictions as the Restricted Shares upon which the reinvested cash
dividend was paid, including cash dividend reinvestment. Upon the expiration
of the Restricted Period, all dividends and shares purchased through the
reinvestment of cash dividends and distributions are paid to the holder,
unless such shares are forfeited, as described below.
Forfeiture of Restricted Shares: If a participant who has been issued
Restricted Shares thereafter during the Restricted Period ceases to be
eligible to receive shares under the Plan, or if any of the conditions imposed
upon the issue of such shares by the Board of Directors or Committee are not
satisfied during the time prescribed by the Board of Directors or Committee,
the Restricted Shares held by such participant which are subject to such
restrictions automatically revert to and become the property of the Company.
However, in the event of a participant's death or the termination of his
eligibility to receive shares under the Plan due to his disability (the
existence of which disability shall be determined by the Board of Directors or
Committee, in its sole discretion), all restrictions on the Restricted Shares
held by such Participant shall immediately cease. In the sole discretion of
the Board of Directors or Committee, the restrictions upon the shares may
lapse, in whole or in part, and upon such conditions as the Board of Directors
or Committee may impose and such Restricted Shares may be retained by the
participant irrespective of his continued eligibility to receive shares under
the Plan. (Prior to amendment, the Plan permitted discretionary vesting only
upon the participant's retirement from the Company and its subsidiaries, or
upon the occurrence of such special circumstances or event as, in the sole
discretion of the Board of Directors or the Committee, merits special
consideration.) In addition, restrictions on any outstanding Restricted Shares
lapse in the event of "Change of Control" as defined under "Executive
Severance Agreements" above. In the event that any Restricted Shares revert to
and become the property of the Company, the stock certificate or certificates
representing such Restricted Shares must be returned to the Company. Upon the
reversion of shares, the Company is required to repay to the participant the
full amount paid to the Company for such shares.
Amendment: The Board of Directors or the Committee may at any time withdraw
or, from time to time, amend the Plan as it relates to, and the terms and
conditions of, any shares not theretofore issued. The Board of Directors or
the Committee may withdraw or from time to time amend the Plan as it relates
to, and the terms and conditions of, any Restricted Shares issued pursuant to
the Plan with the consent of each holder of Restricted Shares adversely
affected thereby.
Withholding: When a participant is required to pay the Company an amount
required to be withheld under the applicable income tax laws in connection
with the lapse of restrictions on Restricted Shares under the Plan, the
participant may satisfy the obligation, in whole or in part, by electing to
have the Company withhold shares of Common Stock or by delivering shares
already owned by the participant having a fair market value sufficient to
satisfy the applicable withholding taxes.
20
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Federal Income Tax Consequences: A recipient of Restricted Shares will have
ordinary income in an amount equal to the fair market value of the shares at
the time of the lapse of restrictions on the shares plus the amount of any
dividends or other distributions received with respect to such shares, less
the amount paid for the Restricted Shares, unless the recipient makes an
election to include such award in ordinary income at the time of award. In
addition, unless such an election is made, a recipient subject to Section
16(b) of the 1934 Act who receives Restricted Shares will recognize ordinary
income at the later of the time of the lapse of restrictions or six months
after the date of the award. The Company is entitled to a Federal income tax
deduction in the same amount and at the same time the participant recognizes
ordinary income.
Reason for Amendments: Currently, there are only 47,083 shares available
under the Plan. The Board of Directors and management believe that the
availability of an additional 30,000 shares for grant under the Plan is
necessary to allow the Company to continue to attract and retain qualified
executives. Management believes that the award of restricted stock is an
accepted compensation procedure used to attract top management candidates. In
addition, the Plan is being amended to conform its provisions regarding Plan
administration to Rule 16b-3 as it has been amended by the SEC, to provide the
Board with broader authority to allow vestings in its discretion and to allow
the Board to permit reinvestment of cash dividends payable on Restricted
Shares.
Vote Required: The affirmative vote of the holders of a majority of the
voting power of the shares of outstanding Common Stock represented at the
Annual Meeting in person or by proxy is required for approval of the proposed
amendment to the Plan. Abstaining votes and broker non-votes are counted as
votes cast in tabulating the majority requirements and have the same effect as
a vote cast against this Proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
3. APPROVAL OF AMENDMENTS TO THE
1988 NON-QUALIFIED STOCK OPTION PLAN
AND 1993 STOCK OPTION SUBPLAN, AS AMENDED
On July 30, 1996, the Board of Directors approved an amendment to the
Company's 1988 Non-qualified Stock Option Plan and the 1993 Stock Option
Subplan, as amended (the "1988 Plan"), subject to stockholder approval, to
increase the number of shares available for grant under the 1988 Plan from
4,300,000 to 4,800,000 shares, to approve a change in the associate option
limits under the Subplan from 150,000 to 750,000 and to make other changes
occasioned by the recent amendment of Rule 16b-3 under the Act as described
below. The following discussion is a summary of the 1988 Plan as proposed to
be amended, a copy of which is attached hereto as Exhibit B.
Administration: The 1988 Plan is administered by the Board of Directors. The
Board may appoint a Stock Option Committee composed of not less than two
members of the Board of Directors who are "Non-Employee Directors" as defined
in Rule 16b-3 under the Act. The Board or Committee, as applicable, determines
those individuals to whom options are granted under the 1988 Plan.
Subplans: The Board of Directors or the Committee may establish such
subplans under the Plan as it may deem desirable in order to qualify options
thereunder as "performance-based compensation" as defined in the Code. The
Board has established the 1993 Stock Option Subplan (the "1993 Subplan").
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Options: Options granted under the 1988 Plan are non-qualified stock
options; that is, they are not qualified for special tax treatment under the
Code.
The 1988 Plan, permits the granting of "reload" options with respect to
options granted under the 1988 Plan (the "original options"). A "reload"
option is an option granted on the date of exercise of an original option to
purchase a number of shares which is equal to the number of shares surrendered
to pay the exercise price of the original option, the number of shares
surrendered or withheld to pay tax withholding due on exercise of the original
options or such other number of shares not to exceed the total number of
shares with respect to which the original option is exercised. The expiration
date of a reload option would be the same as that of the original option
unless otherwise determined by the Board or Committee. "Reload" options may be
authorized with respect to options that are themselves granted as reload
options.
Eligibility: One or more options may be granted under the 1988 Plan by the
Committee to such officers or key employees of the Company, or of a parent or
subsidiary of the Company, at such time and in such amounts as the Board or
Committee determines. A member of the Board of Directors is eligible to
participate in the 1988 Plan only if such Board member is also an employee of
the Company. Approximately 100 persons are eligible to participate in the 1988
Plan.
Shares Subject to Options: Currently, the 1988 Plan provides that an
aggregate of 4,300,000 shares of Common Stock, subject to adjustment to
prevent dilution in the event of stock splits, stock dividends or other
changes in the Company's capitalization, may be subject to options under the
1988 Plan. Such shares may be treasury shares or authorized but unissued
shares. If any outstanding option expires or terminates prior to its exercise
in full, or if any option exercise is settled in cash, the shares of Common
Stock that are allocable to the unexercised portion of such option will become
available for the grant of other options. In addition, if in connection with
any option exercises, any shares of Common Stock are tendered to the Company
in satisfaction of tax withholding obligations or in payment of the option
price, an equal number of shares shall be available for option grants under
the Plan. If Proposal 3 is adopted by the stockholders, the number of shares
that may be subject to options under the 1988 Plan would be increased from an
aggregate of 4,300,000 shares to an aggregate of 4,800,000 shares. As of the
Record Date, options to purchase 3,832,092 shares had been issued under the
1988 Plan.
Option Price: The price at which shares may be purchased pursuant to an
option cannot be less than the greater of the par value of the shares of
Common Stock or the fair market value of the Common Stock on the date the
option is granted. Optionees may be granted, in exchange for the surrender and
cancellation of outstanding options, new options having option prices lower
than the option price of the options so surrendered and cancelled.
Exercise of Options: No option may be exercised after the expiration of ten
years from the date it is granted. Currently, the 1988 Plan provides that no
option may be granted under the 1988 Plan after January 31, 1998.
Each optionee to whom an option is granted, who has not already done so,
must agree in writing, as a condition to the granting of the option, not to
enter into a business in direct competition with the Company for one year
after the termination of employment with the Company. Each option shall be
exercisable as determined by the Committee. In addition to vesting based upon
future service, the Plan permits vesting to be conditioned upon the
achievement of performance objectives or other events. Under certain
conditions, such as the receipt of approval from the Committee, or in the
event of certain
22
<PAGE>
mergers, consolidations, reorganizations, the approval by the stockholders of
the Company of the liquidation or dissolution of the Company or the sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the consolidated assets of the
Company, the time at which an option is exercisable may be accelerated to
allow the exercise of the option, in whole or in part, at a time earlier than
that otherwise provided at the time of the original grant of the option. In
addition, all or any part of any remaining unexercised options may be
exercised in full, whether or not then exercisable, upon a "Change of Control"
as defined under "Executive Severance Agreements".
The option price for the number of shares with respect to which the option
is exercised shall be paid in full to the Company upon exercise of an option.
The optionee may pay all or part of the option price by delivering shares of
the Company's Common Stock which shall be credited against the option price at
the fair market value of such stock on the date of exercise. In addition, the
optionee may use the shares received upon the exercise of an option to pay the
option price and acquire additional shares. This technique allows optionees to
exercise the option which they have been granted by using any appreciation
present in the shares which they own. The Plan also permits payment to be made
by a full resource promissory note for a term of up to two years for the
lesser of up to 90% of the option price or that portion of the option price
which exceeds par value of the shares at an interest rate equal to or greater
than the applicable federal rate determined under Section 1274(d) of the Code.
Withholding Tax: Under the 1988 Plan, optionees have the opportunity to
satisfy withholding tax obligations, in whole or in part, either by having the
Company withhold from the shares to be issued upon exercise that number of
shares that would satisfy the withholding amount due or by delivering to the
Company already owned Common Stock to satisfy the withholding amount.
Transfer: Unless the Board or Committee otherwise determines, options are
not transferable by the optionee other than by will or under the laws of
descent and distribution and are exercisable, during the optionee's lifetime,
only by the optionee. The amendments gave the Board or Committee such
discretionary authority.
Termination: Options shall terminate, unless exercised, upon the earlier of
the date of expiration of the option or three months after the date of the
severance of the employment relationship between the optionee and the Company,
or a parent or subsidiary of the Company; provided, however, that all options
held by an optionee shall terminate immediately upon receipt by an optionee of
notice of termination if the optionee is terminated for deliberate, willful or
gross misconduct as determined by the Company.
If, before the date of expiration of the option, the optionee retires from
the employ of the Company, or a parent or subsidiary of the Company, for
reasons of age or for reasons of disability, the option shall terminate on the
earlier of such date of expiration or one year after the date of such
retirement. In the event of such retirement, the optionee shall have the right
prior to the termination of such option to exercise the option to the extent
to which the optionee was entitled to exercise such option immediately prior
to such retirement provided that in the event of retirement due to disability
all options then held by the optionee shall become immediately exercisable. If
the retired optionee shall die before the termination of the option, the
optionee's executors, administrators or any person or persons to whom the
option may be transferred by will or by the laws of descent and distribution
shall have the right, at any time prior to the earlier of the date of the
expiration of the option or the end of
23
<PAGE>
the one-year period beginning on the date of the optionee's death, to exercise
the option to the same extent as said retired optionee.
In the event of the death of the holder of an option while in the employ of
the Company, or a parent or subsidiary of the Company, and before the date of
expiration of such option, such option shall become immediately exercisable.
Such option shall terminate on the earlier of such date of expiration or one
year following the date of such death. After the death of the optionee, the
optionee's executors, administrators or any person or persons to whom the
option may be transferred by will or by the laws of descent and distribution
shall have the right, at any time prior to such termination, to exercise the
option to the same extent to which the deceased optionee was entitled to
exercise such option.
Modification: The Board of Directors may amend, suspend or terminate the
1988 Plan at any time; subject to applicable law. The amendments to the 1988
Plan deleted the requirement of shareholder approval to (a) increase the
aggregate number of shares which may be issued under options pursuant to the
provisions of the 1988 Plan (except for the adjustment provisions), (b) reduce
the minimum option price at which options may be granted, or (c) change the
class of employees eligible to receive options. Such approval is no longer
required under recently amended Rule 16b-3, although stockholder approval will
still be required to increase the number of shares which may be issued under
the Plan pursuant to New York Stock Exchange guidelines.
Registration of Option Shares: No shares shall be issued and delivered upon
exercise of any option unless a registration statement under the Securities
Act of 1933 with respect to the shares of Common Stock to be reserved for
issuance upon the exercise of options to be granted under the 1988 Plan has
become effective, and unless all other applicable laws and regulations have
been complied with.
Federal Income Tax Consequences: Upon the exercise of an option, an optionee
will recognize ordinary compensation income in an amount equal to the excess
of the fair market value of the Common Stock on the date of exercise over the
option price. Any gain or loss recognized by the optionee on the subsequent
disposition of the stock will be a capital gain or loss.
The Company will generally be entitled to a deduction for Federal income tax
purposes at the same time and in the same amount as an optionee is required to
recognize ordinary compensation income as described above. However, Section
162(m) of the Code provides that no deduction will be allowed for certain
compensation paid to "covered employees", as defined in Section 162(m)(3), to
the extent such compensation exceeds $1,000,000 in a taxable year. It is
intended that this limitation will not apply with respect to options granted
pursuant to the 1993 Subplan by reason of the options constituting
"performance based compensation" as described in Section 162(m)(4)(c) of the
Code. However, due to the recent enactment of Section 162(m) of the Code, and
in the absence of the issuance of any guidance by the Treasury Department
under Section 162(m) of the Code to date, this cannot be assured. As part of
satisfying this Code, individual grant limitations over a period of time must
be specified. To accommodate reloads under the Subplan, the Company is
changing this limit to 750,000 options per year.
To the extent that an employee recognizes a capital gain as described above,
the Company will not be entitled to a deduction for Federal income tax
purposes.
Market Price: The last sales price on the Record Date of the Company's
Common Stock on the New York Stock Exchange as reported in The Wall Street
Journal was $12.625 per share.
24
<PAGE>
Vote Required: The affirmative vote of the holders of a majority of the
voting power of the outstanding shares of Common Stock represented at the
Annual Meeting in person or by proxy is required for approval of the proposed
amendment to the 1988 Plan. Abstaining votes and broker non-votes are counted
as votes cast in tabulating the majority requirement and have the same effect
as a vote cast against this Proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 3.
4. APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends that proxies be voted in favor of the
ratification of the appointment of Ernst & Young LLP, certified public
accountants, as independent auditors for the fiscal year ending September 27,
1997.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting where they will have an opportunity to make a statement if they
desire to do so and are expected to be available to answer appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 4.
OTHER BUSINESS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those set forth in the Notice of Annual Meeting of
Stockholders. However, if any other matters properly come before such meeting,
the persons named in the enclosed form of proxy will have discretionary
authority to vote all proxies on such matters in accordance with their
judgment.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Annual Meeting of
Stockholders in 1998 must be received by the Company no later than August 20,
1997 in order to be considered for inclusion in the Company's proxy statement
and form of proxy relating to the Annual Meeting of Stockholders in 1998. Any
such proposal must comply with Rule 14a-8 promulgated by the Securities and
Exchange Commission pursuant to the Act.
/s/ David M. Stigler
David M. Stigler
Secretary
December 18, 1996
25
<PAGE>
EXHIBIT A
The portion of the Plan that is proposed to be amended pursuant to Proposal
2 is indicated by brackets and the text of the proposed amendment is
underlined.
ADVO, INC.
1986 EMPLOYEE RESTRICTED STOCK PLAN
AS AMENDED AND RESTATED EFFECTIVE JANUARY 16, 1997
1. PURPOSE
The purpose of this Employee Restricted Stock Plan is to advance the
interests of the Company and its Subsidiaries by encouraging and enabling the
acquisition of a larger personal proprietary interest in the Company by
officers and employees of the Company and its Subsidiaries upon whose judgment
and keen interest the Company and its Subsidiaries are largely dependent for
the successful conduct of their operations. It is anticipated that the
acquisition of such proprietary interest in the Company will stimulate the
efforts of such officers and employees on behalf of the Company and its
Subsidiaries and strengthen their desire to remain with the Company and its
Subsidiaries. It is also expected that the opportunity to acquire such a
proprietary interest will enable the Company and its Subsidiaries to attract
desirable personnel.
2. DEFINITIONS
When used in this Plan, unless the context otherwise requires:
(a) "Anniversary Date" shall mean the anniversary of the date Restricted
Shares are granted to a Participant.
(b) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted at any time.
(c) "Committee" shall mean a committee of the Board of Directors, as
described in Section 3 hereof.
(d) "Company" shall mean ADVO, Inc., a Delaware corporation.
(e) "Participant" shall mean any one who is eligible to receive Shares
and who has been issued Shares pursuant to the Plan, as specified in
Section 4 hereof.
(f) "Plan" shall mean this 1986 Employee Restricted Stock Plan of ADVO,
Inc., as adopted by the Board of Directors at its meeting held on September
23, 1986, as such Plan from time to time may be amended.
(g) "President" shall mean the person who at the time shall be the
President of the Company.
(h) "Restricted Period" shall mean the period of time during which
Restrictions shall apply to a Restricted Share, as determined by the Board
of Directors or Committee pursuant to Section 8 hereof.
(i) "Restricted Shares" shall mean the Shares issued pursuant to Section
7 hereof.
A-1
<PAGE>
(j) "Restrictions" shall mean the restrictions upon the sale, assignment,
transfer, pledge or other disposal or encumbrance of a Share as set forth
in Section 7 hereof.
(k) "Share" shall mean a share of common stock of the Company, par value
$.01 per share.
(l) "Subsidiary" shall mean any corporation, in an unbroken chain of
corporations, fifty percent (50%) or more of which common stock is owned by
the Company, as such terms is defined herein.
3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors or in the
alternative, the Board of Directors may appoint a committee consisting of at
least two (2) [three (3)] members of the Board of Directors, each of whom is a
-------
"Non-Employee Director" ["disinterested party"] within the meaning of Rule
- -----------------------
16b-3(d)(3) under the Securities Exchange Act of 1934. [If the President is
not a member of the Committee, he shall meet with the Committee ex officio and
act as advisor to the Committee]. The Board of Directors or Committee, if any,
shall have the authority to exercise all of the responsibilities and duties
under this plan. Each member of the Committee shall hold office until the next
regular annual meeting of the Board of Directors following his designation and
until his successor is designated as a member of the Committee. Any vacancy in
the Committee may be filled by a resolution adopted by a majority of the full
Board of Directors. Any member of the Committee may be removed at any time,
with or without cause, by resolution adopted by a majority of the full Board
of Directors. A member of the Committee may resign from the Committee at any
time by giving such written notice to the President or Secretary of the
Company and, unless otherwise specified therein, such resignation shall take
effect upon receipt thereof. The acceptance of such resignation shall not be
necessary to make it effective. The Board of Directors or Committee, if any,
shall establish such rules and procedures as are necessary or advisable to
administer the Plan.
4. PARTICIPANTS
Except as hereinafter provided, all employees of the Company or of any
Subsidiary shall be eligible to receive Shares pursuant to the Plan. The
Participants to whom Shares are issued under this Plan and the number of
Shares issued to each Participant shall be determined by the Board of
Directors or Committee, if any, in its sole discretion, subject, however to
the terms and conditions of this Plan.
Shares may be issued pursuant to the Plan to employees who are also
directors of the Company, but not to directors who are not also employees.
Nothing contained in this Plan shall be construed to prohibit the issue of
Shares at different times to the same employee.
5. SHARES
The Board of Directors or Committee, if any, may, but shall not be required
to, issue, in accordance with this Plan, an aggregate of up to 2,467,500
---------
[2,437,500] Shares, which may be either treasury Shares or authorized but
unissued Shares. If any Restricted Shares shall revert to the Company pursuant
to Section 8 hereof, the Board of Directors or Committee, if any, may again
issue such Shares pursuant to the Plan.
6. ISSUE OF SHARES
From time to time the Board of Directors or Committee, if any, may, in its
sole discretion, issue to a Participant the right to receive the number of
shares specified by the Board of Directors or
A-2
<PAGE>
Committee, in its sole discretion. The Participant shall have thirty (30)
business days from the date of such issue to pay to the Company, in cash or by
check, an amount equal to the par value of a Share multiplied by the number of
Shares which have been issued to him by the Board of Directors or Committee.
Subject to the provisions of Section 7 and Section 12, upon receipt of such
payment the Company shall issue to such Participant a certificate representing
such Shares. In the event such a Participant fails to make payment to the
Company for such Shares within thirty (30) business days after the issue
thereof, the issue of the Shares may lapse and the Board of Directors or
Committee may again issue such Shares to Participants pursuant to the Plan.
7. RESTRICTED SHARES
If the Board of Directors or Committee so provides at the time that Shares
are issued to a Participant, such Shares may not be sold, assigned,
transferred, pledged or otherwise disposed of or encumbered until the
expiration of the period of time or the satisfaction of the conditions
specified by the Board of Directors or Committee at the time the Shares are
issued (such Shares being hereinafter referred to as "Restricted Shares"). The
terms and conditions of the issue of such Restricted Shares and the
Restrictions applicable to such Shares shall be set forth, in writing, in an
agreement signed by the Participant and, on behalf of the Company, by the
President or a Vice President of the Company (the "Restricted Shares
Agreement"). If the Board of Directors or Committee does not provide for any
Restrictions with respect to a Participant's Shares at the time the Shares are
issued, such Shares shall not be subject to forfeiture to the Company and
shall be freely transferable by the Participant.
8. FORFEITURE OF RESTRICTED SHARES
If a Participant who has been issued Restricted Shares thereafter during the
Restricted Period ceases to be eligible to receive Shares under the Plan or if
any of the conditions imposed upon the issue of such Shares by the Board of
Directors or Committee pursuant to Section 7 are not satisfied during the time
prescribed by the Board of Directors or Committee, the Restricted Shares held
by such Participant which are subject to such Restrictions shall automatically
revert to and become the property of the Company. However, in the event of a
Participant's death or the termination of his eligibility to receive Shares
under the Plan is due to his disability (the existence of which disability
shall be determined by the Board of Directors or Committee, in its sole
discretion), all restrictions on the Restricted Shares held by such
Participant shall immediately cease. In the sole discretion of the Board of
Directors or Committee, the Restrictions upon the Shares shall cease in whole
or in part and upon such conditions as the Board of Directors or Committee may
impose and such Restricted Shares may be retained by the Participant
irrespective of his continued eligibility to receive Shares under the Plan.
[(i) upon the employee's retirement from the Company and its Subsidiaries, or
(ii) upon the occurrence of such special circumstance or event, as, in the
sole discretion of the Board of Directors or Committee, merits special
consideration.] In addition, except in the case of an Exempt Reorganization,
in the event of
(a) a reorganization, merger or consolidation of the Company in which the
Company is not the surviving or resulting corporation or pursuant to which
the Common Stock would be converted into cash, securities or other property
(other than a merger or other business combination involving the Company in
which the holders of the Common Stock of the Company immediately prior to
the merger have the same proportionate ownership of the Common Stock of the
surviving corporation immediately after the merger),
(b) the approval by the stockholders of the Company of any plan or
proposal for the dissolution or liquidation of the Company, or
A-3
<PAGE>
(c) a sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all of the
Company's consolidated assets, then the Restrictions upon the Shares shall
cease in whole and such Restricted Shares may be retained by the
Participant irrespective of his continued eligibility to receive Shares
under the Plan on a date fixed by the Board of Directors prior to the
effective time of such reorganization, merger, consolidation, dissolution,
liquidation, sale, lease, exchange or transfer. For purposes of the
preceding sentence:
(1) "Exempt Reorganization" means a Reorganization in which either
(x) the election or appointment of the individuals who immediately
after the effective time of the Reorganization constitute the directors
of the Continuing Corporation was approved by a vote of at least two-
thirds of the individuals constituting the directors of the Company
immediately prior to such effective time (each such individual in
office immediately prior to the effective time, a "Prior Director") or
(y) a majority of the directors of the Continuing Corporation
immediately after such effective time were Prior Directors.
(2) "Reorganization" means:
(A) a reorganization, merger or consolidation of the Company in
which the Company is not the surviving or resulting corporation
pursuant to which the Common Stock would be converted into
securities or other property or
(B) a reorganization of the Company into a holding company
structure, including such a reorganization involving a business
combination with another corporation or entity, or
(C) a sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all of
the Company's consolidated assets or a dissolution or liquidation of
the Company, in each case pursuant to which the holders of the
Common Stock receive securities of another entity.
(3) "Continuing Corporation" means the entity surviving a
Reorganization.
(4) "Prior Director" shall be deemed to include any individual
proposed by Warburg, Pincus Capital Partners, L.P. ("Warburg") as a
substitute for a Prior Director and elected a director of the
Continuing Corporation.
In addition, subject to the foregoing, the Restrictions upon the Shares
shall cease in whole and such Restricted Shares may be retained by the
Participant irrespective of his continued eligibility to receive Shares under
the Plan, if (A) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended), other than
Warburg and its affiliates, shall become the beneficial owner (within the
meaning of Rule 13d-3 under such Act) of 30% or more of the Company's Common
Stock or (B) at any time Eligible Directors shall cease for any reason to
constitute a majority of the entire Board of Directors of the Company. An
"Eligible Director" shall mean (i) any individual who was a director at
September 27, 1990 (a "1990 Director"), (ii) any individual proposed by
Warburg and elected as a director in place of a 1990 director, (iii) any
director elected by, or nominated for election by the Company's stockholders
by, the vote of at least two-thirds of the directors who at the time of such
vote were Eligible Directors.
In the event that any Restricted Shares shall revert to and become the
property of the Company pursuant to this Section 8, any stock certificate or
certificates representing such Restricted Shares shall be returned to the
Company. Upon the reversion of such Shares, the Company shall repay to such
Participant or (in the case of his death) the representative of such
Participant's estate the full amount paid to the Company for such Shares.
A-4
<PAGE>
9. RIGHT TO VOTE AND TO RECEIVE DIVIDENDS ON RESTRICTED SHARES
Each holder of Restricted Shares shall be the beneficial and record owner of
such Restricted Shares and shall have full voting rights with respect thereto.
During the Restricted Period, all dividends and distributions paid upon any
Restricted Share shall be paid to the Company for the account of the holder of
such Restricted Share. The Board of Directors may in its sole discretion
-------------------------------------------------
permit reinvestment of cash dividends paid on any Restricted Shares in Shares
- -----------------------------------------------------------------------------
on behalf of the participant. Such Shares shall be treated as subject to the
- ----------------------------------------------------------------------------
same terms and restrictions as the Restricted Shares upon which the reinvested
- ------------------------------------------------------------------------------
cash dividend was paid, including cash dividend reinvestment. Such dividends
- -------------------------------------------------------------
and Shares purchased through the reinvestment of cash dividends and
- ---------------------------------------------------------------
distributions shall be retained by the Company if for any reason the
Restricted Shares upon which such dividends and distributions were paid and
---
Shares purchased through the reinvestment of cash dividends reverts to the
- -----------------------------------------------------------
Company. Upon the expiration of the Restricted Period, all dividends and
distributions made on such Restricted Share and Shares purchased through the
--------------------------------
reinvestment of cash dividends and retained by the Company shall be paid to
- ------------------------------
the holder.
10. ADJUSTMENT OF SHARES
If, during the Restricted Period, there shall be declared and paid a stock
dividend upon the Shares or if the Shares shall be split up, converted,
exchanged, reclassified, or in any way substituted for, the holder of a
Restricted Share shall receive, subject to the provisions of Section 9, the
same securities or other property as are received by the other holders of the
Company's Shares pursuant to such stock dividend, split-up, conversion,
exchange, reclassification or substitution. If any such event should occur,
the number of shares which remain to be issued, or which may be reissued,
under the Plan shall be adjusted by the Committee in a similar manner.
11. NO RIGHT TO CONTINUED EMPLOYMENT
Nothing contained herein or in the Restricted Shares Agreement shall be
construed to confer on any employee any right to continue in the employ of the
Company or any Subsidiary or confer on any officer of the Company or
Subsidiary any right to remain as such, or derogate from any right of the
Company and any Subsidiary to retire, request the resignation or discharge
such individual at any time, with or without cause.
12. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES LAWS
Each stock certificate representing Restricted Shares shall contain an
appropriate legend referring to the Plan and the Restrictions upon such
Restricted Shares. Simultaneously with delivery of each stock certificate for
Restricted Shares, the Company may cause a stop transfer order with respect to
such certificate to be placed with the transfer agent of the Shares. Before
issuing a certificate with respect to any Shares, the Company may: (i) require
the holder to give satisfactory assurances that the Shares are being purchased
for investment and not with a view to resale or distribution, and will not be
transferred in violation of applicable securities laws; (ii) restrict the
transferability of such Shares and require a legend to be endorsed on the
certificates representing the Shares; and (iii) condition the issuance and
delivery of Shares upon the listing, registration or qualification of such
Shares upon a securities exchange or under applicable securities laws.
A-5
<PAGE>
13. INCOME TAX WITHHOLDING
If the Company or a Subsidiary shall be required to withhold any amounts by
reason of any federal, state or local tax rules or regulations in respect to
the issue of Shares pursuant to the Plan, or when the Restrictions on such
Shares cease, the Company or the Subsidiary shall be entitled to deduct and
withhold such amounts from any cash payments to be made to the Participant. In
any event, the Participant shall make available to the Company or Subsidiary,
promptly when requested by the Company or such Subsidiary, sufficient funds to
meet the requirements of such withholding and the Company or Subsidiary shall
be entitled to take and authorize such steps as it may deem advisable in order
to have such funds made available to the Company or Subsidiary out of any
funds or property due or to become due to the Participant.
The Participant may satisfy the obligation to pay such withholding tax
amounts, in whole or in part, in connection with the lapse of Restrictions on
Shares, by electing to have the Company withhold Shares of Common Stock on
which Restrictions have lapsed or by delivering Shares then owned by the
Participant. The value of such Shares shall be the fair market value of the
Shares on the date the amount of such withholding tax is to be determined.
The fair market value of a share on a specified date shall mean the closing
price for a Share on the stock exchange, if any, on which the Shares are
primarily traded, but if no Shares were traded on such date, then on the last
previous date on which a Share was so traded, or if Shares are not primarily
traded on a stock exchange, the average of the high and low sales prices at
which one share is traded on the over the counter market, as reported on the
National Association of Securities Dealers Automated Quotation System, or, if
none of the above is applicable, the value of a Share as established by the
Board of Directors for such date using any reasonable method of valuation.
14. ADMINISTRATION AND AMENDMENT OF THE PLAN
Except as hereinafter provided, the Board of Directors or the Committee, if
any, may at any time withdraw or from time to time amend the Plan as it
relates to, and the terms and conditions of, any Shares not theretofore
issued, and the Board of Directors or Committee, with the consent of each
adversely affected holder of any Restricted Shares, may at any time withdraw
or from time to time amend the Plan as it relates to and the terms and
conditions of, any Restricted Shares issued pursuant to the Plan.
Determinations of the Board of Directors or Committee as to any questions
which may arise with respect to the interpretation of the provisions of the
Plan or any issue of Shares shall be final. The Board of Directors or
Committee may authorize and establish such rules, regulations and revisions
thereof, not inconsistent with the provisions of the Plan, as it may deem
advisable to make the Plan and any Shares issued thereunder effective or
provide for their administration, and may take such other action with regard
to the Plan and any Shares issued thereunder, as it shall deem desirable to
effectuate their purpose.
15. FINAL ISSUANCE DATE
No Shares shall be issued under the Plan after September 22, 2006 [1996].
----
A-6
<PAGE>
EXHIBIT B
The portions of the 1988 Plan as proposed to be amended pursuant to Proposal
3 is indicated by brackets and the text of the proposed amendment is
underlined.
ADVO, INC.
1988 NON-QUALIFIED STOCK OPTION PLAN AND 1993 STOCK OPTION SUBPLAN
AS AMENDED AND RESTATED EFFECTIVE JANUARY 16, 1997
1. PURPOSES
The purposes of this Stock Option Plan (the "Plan") are (a) to secure for
ADVO, Inc. (the "Company") and its stockholders the benefits arising from
officers and other key employees of the Company, and any parent or subsidiary
of the Company, who will be responsible for its future growth and continued
success, having an ownership interest in the Company and (b) to enable the
Company to attract, retain and motivate top caliber officers and key employees
by providing them with competitive long term equity opportunities under the
terms and conditions and in the manner contemplated by this Plan.
2. ADMINISTRATION
The Plan shall be administered by the Board of Directors. In the
alternative, the Board may appoint a Stock Option Committee (the "Committee"),
consisting of not less than two members of the Board of Directors appointed by
the Board of Directors, who may but are not required to be members of the
Board of Directors. Any Committee so appointed shall have the sole authority
to exercise all of the responsibilities and duties of the Board of Directors
under this Plan, except for the appointment, removal or replacement of members
of the Committee and except as otherwise provided herein. A member of the
Committee may only serve on the Committee if he or she is, at the time of
taking any discretionary action relating to an optionee who is then subject to
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), a "Non-Employee Director" ["disinterested person"] within the meaning
-----------------------
of Rule 16b-3 under the Exchange Act (as then applicable to the Plan). Each
member of the Committee shall hold office until his or her successor is
designated as a member of the Committee by the Board of Directors. Any vacancy
in the Committee may be filled by a resolution adopted by a majority of the
Board of Directors. Any member of the Committee may be removed at any time,
with or without cause, by a resolution adopted by a majority of the Board of
Directors. Any action of the Committee with respect to the administration of
the Plan shall be taken by majority vote. In the event the Board of Directors
appoints a Committee to administer the Plan pursuant to this Section 2, then,
except to the extent specified in this paragraph and in Sections 7 and 16
hereof, for purposes of administering the Plan, the term "Committee" shall be
substituted for the term "Board of Directors" wherever it appears hereinafter.
Whether or not the Board of Directors has appointed a Committee to administer
the Plan, the Board of Directors or the Committee may establish such subplans
under the Plan as it may deem desirable in order to qualify options thereunder
as "performance-based compensation" as defined under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), or for any other
purpose, provided that stockholder approval of any such subplan shall be
obtained if and to the extent deemed necessary or advisable by the Board of
Directors.
B-1
<PAGE>
Subject to the express provisions of the Plan, the Board of Directors shall
have authority to (i) construe and interpret the Plan, (ii) prescribe, amend
and rescind rules and regulations relating to the Plan, (iii) determine the
individuals to whom, and the time or times at which options shall be granted,
the number of shares to be subject to each option, the option price, and the
duration of each option, and (iv) make all other determinations necessary or
advisable for the administration of the Plan. All determinations and
interpretations made by the Board of Directors shall be binding and conclusive
on all participants in the Plan and on their legal representatives and
beneficiaries.
3. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN
Subject to adjustment as provided in Section 14 hereof, the shares of stock
to be offered under the Plan may be authorized but unissued shares of the
Company's Common Stock, $.01 par value, or issued shares which have been
reacquired. The aggregate amount of Common Stock to be delivered upon exercise
of all options granted under the Plan shall not exceed 4,800,000 [4,300,000]
---------
shares. If any option granted hereunder shall expire or terminate for any
reason without having been exercised in full, or if any option exercise is
settled in cash under Section 9, the unpurchased shares subject thereto shall
again be available for the purposes of this Plan. If, in connection with any
option granted hereunder, any shares of Common Stock are tendered to the
Company in payment of the option price under Section 9 or are surrendered to
or withheld by the Company in satisfaction of tax withholding obligations
under Section 17 hereof, a number of shares equal to the number of shares
tendered, surrendered, or withheld shall again be available for option grants
under this Plan.
4. NON-QUALIFIED OPTIONS
Options granted under the Plan shall not be incentive stock options for
purposes of Section 422 of the Code.
5. ELIGIBILITY AND PARTICIPATION
Officers and other key employees of the Company or of any parent or
subsidiary of the Company, whether or not directors of the Company, shall be
eligible to participate in the Plan. Directors who are not also employees are
not eligible to participate in the Plan. An individual who has been granted an
option may, if he is otherwise eligible, be granted additional options.
Nothing in the Plan shall be deemed to give any employee any right to
participate in this Plan or to receive an option hereunder.
6. OPTION PRICE
The purchase price per share of Common Stock (the "option price") covered by
each option shall be determined by the Committee, but shall not be less than
the greater of the par value of the Common Stock or the fair market value of
the Common Stock at the time such option is granted (except as provided in
Section 8 with respect to options substituted for options to purchase stock of
other issuers). The fair market value of the Common Stock on a specified date
shall mean the closing price for a share of the Common Stock on the stock
exchange, if any, on which the Common Stock is primarily traded, but if no
shares of Common Stock were traded on such date, then on the last previous
date on which a share was so traded, or, if shares of Common Stock are not
primarily traded on a stock exchange, the average of the high and low sales
prices at which one share of Common Stock is traded on the over-the-counter
market, as reported on the National Association of Securities Dealers
Automated Quotation System, or, if none of the above is applicable, the value
of a share of Common Stock as established by the Board of Directors for such
date using any reasonable method of valuation.
B-2
<PAGE>
7. DURATION AND TIME OF EXERCISE OF OPTIONS
Each option and all rights thereunder shall expire on such date as the Board
of Directors may determine, but in no event later than ten (10) years from the
date on which the option is granted, and shall be subject to earlier
termination as provided herein.
Each option shall be exercisable in such installments during the period
prior to its expiration date as the Board of Directors shall determine, or
may, if so determined by the Board of Directors, be exercisable either in
whole or in part at any time prior to its expiration date. If the option is
made exercisable in installments and the optionee shall not in any given
installment period purchase all of the shares which the optionee is entitled
to purchase in such installment period, then the optionee shall have the right
cumulatively thereafter to purchase any shares not so purchased and such right
shall continue until the expiration date or sooner termination of such option.
In addition to vesting based upon future service, the Board of Directors may
condition the right to exercise options upon the achievement of performance
objectives or other events.
Except in the case of an Exempt Reorganization, in the event of:
(a) a reorganization, merger or consolidation of the Company in which the
Company is not the surviving or resulting corporation or pursuant to which
the Common Stock would be converted into cash, securities or other property
(other than a merger or other business combination involving the Company in
which the holders of the Common Stock of the Company immediately prior to
the merger have the same proportionate ownership of the Common Stock of the
surviving corporation immediately after the merger),
(b) the approval by the stockholders of the Company of any plan or
proposal for the dissolution or liquidation of the Company, or
(c) a sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all of the
Company's consolidated assets, then all or any part of the remaining
unexercised options granted to any person shall be exercisable in full,
whether or not then exercisable, during a period commencing on a date fixed
by the Board of Directors prior to the effective time of such
reorganization, merger, consolidation, dissolution, liquidation, sale,
lease, exchange or transfer and continuing to the time which is immediately
prior to such effective time (and upon such effective time any unexercised
options shall expire). For purposes of the preceding sentence:
(1) "Exempt Reorganization" means a Reorganization in which either
(x) the election or appointment of the individuals who immediately
after the effective time of the Reorganization constitute the directors
of the Continuing Corporation was approved by a vote of at least two-
thirds of the individuals constituting the directors of the Company
immediately prior to such effective time (each such individual in
office immediately prior to the effective time, a "Prior Director") or
(y) a majority of the directors of the Continuing Corporation
immediately after such effective time were Prior Directors.
(2) "Reorganization" means:
(A) a reorganization, merger or consolidation of the Company in
which the Company is not the surviving or resulting corporation or
pursuant to which the Common Stock would be converted into
securities or other property or
(B) a reorganization of the Company into a holding company
structure, including such a reorganization involving a business
combination with another corporation or entity, or
B-3
<PAGE>
(C) a sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all of
the Company's consolidated assets or a dissolution or liquidation of
the Company, in each case pursuant to which the holders of the
Common Stock receive securities of another entity.
(3) "Continuing Corporation" means the entity surviving a
Reorganization.
(4) "Prior Director" shall be deemed to include any individual
proposed by Warburg, Pincus Capital Partners, L.P. ("Warburg") as a
substitute for a Prior Director and elected a director of the
Continuing Corporation.
In addition, subject to the foregoing, all or any part of any remaining
unexercised options may be exercised in full whether or not then exercisable,
if (A) any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act), other than Warburg and its affiliates, shall become the
beneficial owner (within the meaning of Rule 13d-3 under such Act) of 30% or
more of the Company's Common Stock or (B) at any time Eligible Directors shall
cease for any reason to constitute a majority of the entire Board of Directors
of the Company. An "Eligible Director" shall mean (i) any individual who was a
director at September 27, 1990 (a "1990 Director"), (ii) any individual
proposed by Warburg and elected as a director in place of a 1990 Director, or
(iii) any director elected by, or nominated for election by the Company's
stockholders by, the vote of at least two-thirds of the directors who at the
time of such vote were Eligible Directors. For purposes of clause (B) of this
paragraph the term "Committee" may not be substituted for the term "Board of
Directors".
The Board of Directors may, at any time, in its absolute discretion,
accelerate the time at which an outstanding option can be exercised, in whole
or in part.
8. REPLACEMENT AND SUBSTITUTE OPTIONS: RELOAD OPTIONS
The Board of Directors may, in its absolute discretion, grant to optionees,
in exchange for the surrender and cancellation of their outstanding options to
purchase the Company's Common Stock, new options having option prices lower
than the option price of the options so surrendered and cancelled and
containing such other terms and conditions as the Board of Directors may deem
appropriate, provided that such new options shall comply with all terms and
conditions of the Plan. Options may be granted under the Plan in substitution
for options to purchase stock of other issuers held by persons who become
employees of the Company or any parent or subsidiary of the Company, in which
case the option price per share may be adjusted downward from the minimum
option price specified in Section 6 hereof to reflect the value, as determined
by the Board of Directors, of any options surrendered or forfeited by such
persons.
The Board of Directors may grant "reload" options with respect to options
granted hereunder (the "original options"). A "reload" option shall be an
option, granted on the date of exercise of an original option, to purchase a
number of shares which may be equal to the number of shares surrendered to pay
the exercise price of the original option, the number of shares surrendered or
withheld to pay tax withholding relating to the exercise of the original
option, or such other number of shares not to exceed the total number of
shares with respect to which the original option is exercised. The expiration
date of a "reload" option shall be the same as that of the original option,
unless otherwise determined by the Board of Directors. "Reload" options may be
authorized with respect to options that are themselves granted as "reload"
options. The terms of "reload" options shall meet all requirements applicable
to options granted under the Plan, including the requirements of Section 6. In
connection with the grant
B-4
<PAGE>
of a reload option, the Board of Directors may require that a specified number
of shares acquired upon exercise of the original option or prior "reload"
option shall be non-transferable for a period of time that the Board of
Directors may specify.
9. EXERCISE OF OPTIONS
Options shall be exercised by the delivery of written notice to the officer
of the Company designated by the Board of Directors setting forth the number
of shares with respect to which the option is to be exercised, and specifying
the address to which the certificates for such shares are to be mailed.
The option price of an option granted hereunder shall be paid in full at the
time of exercise (i) in cash by United States currency, certified check or
money order, (ii) by tendering to the Company shares of Stock having a fair
market value on the date of exercise equal to the option price, (iii) by a
full recourse promissory note for a term of up to two years for the lesser of
up to 90% of the option price or that portion of the option price which
exceeds par value of the shares at an interest rate equal to or greater than
the applicable Federal rate determined under Section 1274(d) of the Code, or
(iv) a combination of cash, Stock valued at fair market value and such
promissory note. As promptly as practicable after receipt of such written
notification of the exercise of an option and payment, the Company shall make
delivery to the optionee or as instructed by the optionee of certificates for
the number of transferable shares with respect to which such option has been
so exercised, issued in the optionee's name or as otherwise instructed by the
optionee.
The Board of Directors may, in its discretion, in lieu of delivery of any
shares upon option exercise, make a cash payment in an amount equal to the
difference between the fair market value of the Common Stock on the date of
exercise and the option price per share multiplied by the number of shares for
which the option is being exercised for which the Board of Directors has
determined to pay cash.
10. NON-TRANSFERABILITY OF OPTIONS
The Board may determine in connection with any grant of an option or other
-------------------------------------------------------
right which may constitute a derivative security granted under the Plan
whether such option or right shall, by its terms, be nontransferable by the
- ----------------------------
optionee, either voluntarily or by operation of law, otherwise than by will or
the laws of descent and distribution, and whether such option or right shall
----------------------------
be exercisable during the optionee's lifetime only by the optionee, regardless
of any community property interest therein of the spouse of the optionee, or
such spouse's successors in interest.
11. NON-COMPETITION AGREEMENT; CONTINUANCE OF EMPLOYMENT
Each person to whom an option is granted under the Plan, who has not already
done so at the time of such grant, must agree in writing as a condition to the
granting of the option not to enter into a business in direct competition with
the Company for one year after the termination of his employment with the
Company. Nothing contained in the Plan or in any option granted under the Plan
shall confer upon any optionee any right with respect to the continuation of
employment by the Company or any parent or subsidiary of the Company, or
interfere in any way with the right of the Company or of any parent or
subsidiary of the Company (subject to the terms of any separate employment
agreement to the contrary) at any time to terminate such employment or to
increase or decrease the compensation of the optionee from the rate in
existence at the time of the granting of an option.
B-5
<PAGE>
12. TERMINATION OF EMPLOYMENT, DISABILITY OR DEATH OF OPTIONEE
Except as may be otherwise expressly provided herein, options shall
terminate, unless exercised, three (3) months after the date of the severance
of the employment relationship between the optionee and the Company, or a
parent or subsidiary of the Company; provided however, that all options held
by an optionee shall terminate immediately upon receipt by an optionee of the
notice of termination if the optionee is terminated for deliberate, willful or
gross misconduct as determined by the Company. Absence on leave approved by
the Board of Directors shall not be considered the severance of employment.
If, before the date of expiration of the option, the optionee shall retire
from the employ of the Company, or a parent or subsidiary of the Company, for
reasons of age pursuant to a defined benefit or defined contribution plan of
the Company, or a parent or subsidiary of the Company, or for reasons of
disability as defined in Section 105(d)(4) of the Code, the option shall
terminate on the earlier of such date of expiration or one year after the date
of such retirement. In the event of such retirement, the optionee shall have
the right prior to the termination of such option to exercise the option to
the extent to which the optionee was entitled to exercise such option
immediately prior to such retirement provided that in the event of retirement
due to disability all options then held by the optionee shall become
immediately exercisable. If the retired optionee shall die before the
termination of the option, the optionee's executors, administrators or any
person or persons to whom the option may be transferred by will or by the laws
of descent and distribution shall have the right, at any time within the
earlier of the date of expiration of the option or the one-year period
beginning on the date of the optionee's death, to exercise the option to the
same extent as said retired optionee.
In the event of the death of the holder of an option while in the employ of
the Company, or a parent or subsidiary of the Company, and before the date of
expiration of such option, such option shall become immediately exercisable.
Such option shall terminate on the earlier of such date of expiration or one
year following the date of such death. After the death of the optionee, the
optionee's executors, administrators or any person or persons to whom the
option may be transferred by will or by the laws of descent and distribution
shall have the right, at any time prior to such termination, to exercise the
option to the same extent to which the deceased optionee was entitled to
exercise such option.
13. PRIVILEGE OF STOCK OWNERSHIP
No person entitled to exercise any option granted under the Plan shall have
any of the rights or privileges of a stockholder of the Company in respect of
any shares of stock issuable upon exercise of such option until such option
shall have been validly exercised and the option price paid. The Company shall
have no obligation to issue or deliver shares upon exercise of any option
unless and until, in the opinion of counsel for the Company, any applicable
registration requirements of the Securities Act of 1933, any applicable
listing requirements of any national securities exchange on which stock of the
same class is then listed, and any other requirements of law or of any
regulatory bodies having jurisdiction over such issuance and delivery, shall
have been fully complied with.
14. ADJUSTMENTS
If the outstanding shares of Common Stock of the Company are increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities of the Company as a result of a reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse
stock split, an appropriate and proportionate adjustment shall be made in the
maximum number and kind of shares as
B-6
<PAGE>
to which options may be granted under this Plan. A corresponding adjustment
changing the number or kind of shares allocated to unexercised options or
portions thereof, which shall have been granted prior to any such change,
shall likewise be made. Any such adjustment in the outstanding options shall
be made without change in the aggregate purchase price applicable to the
unexercised portion of the option but with a corresponding adjustment in the
price for each share covered by the option.
In addition, in the event the Company declares and pays an extraordinary
cash dividend or distribution, repurchases a significant portion of its stock
or engages in any other action having an effect similar to a recapitalization,
the Board of Directors or Committee may make such substitutions or adjustments
as it may determine to be appropriate in its sole discretion to preserve the
economic value of the options granted under the Plan.
Adjustments under this Section shall be made by the Board of Directors or
Committee, whose determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive. No fractional shares
of stock shall be issued under the Plan for any such adjustment.
15. WRITTEN AGREEMENT
Each option granted hereunder shall be embodied in a written Option
Agreement which shall be subject to the terms and conditions prescribed
herein, and shall be signed by the optionee and by an officer of the Company
for and on behalf of the Company. An Option Agreement shall contain such other
provisions as the Board of Directors in its discretion shall deem advisable so
long as the same are not contrary or inconsistent with the terms and
provisions of the Plan.
16. AMENDMENT AND TERMINATION OF PLAN
The Board of Directors of the Company may at any time amend, suspend or
terminate the Plan, subject to applicable law. For the purposes of this
Section, the term "Committee" may not be substituted for the term "Board of
Directors."
No amendment, suspension or termination of the Plan shall, without the
consent of the optionee, materially impair any rights of such optionee under
any outstanding Option Agreement.
17. WITHHOLDING
Any person exercising an option shall be required to pay in cash to the
Company the amount of any taxes the Company is required by law to withhold
with respect to the exercise of such option. Such payment shall be due on the
date the Company is required by law to withhold such taxes. Such payment may
also be made at the election of the optionee by the surrender of shares of
Common Stock then owned by the optionee, or the withholding of shares of
Common Stock otherwise to be issued to the optionee on exercise, in an amount
that would satisfy the withholding amount due. The value of such shares
withheld or delivered shall be equal to the fair market value of such shares
on the date of exercise. In the event that such payment is not made when due,
the Company shall have the right to deduct, to the extent permitted by law,
from any payment of any kind otherwise due to such person from the Company,
all or part of the amount required to be withheld.
18. EFFECTIVE DATE OF PLAN
This Plan shall become effective on January 14, 1988, subject to its
approval by the holders of a majority of the voting power of the outstanding
shares of Common Stock of the Company and the
B-7
<PAGE>
Company's Series A Convertible Preferred Stock, voting together and without
regard to classes, present in person or by proxy and entitled to vote at the
1988 Annual Meeting of Shareholders. No option shall be granted pursuant to
the Plan after January 31, 1998.
19. CONSTRUCTION
The Plan and options granted hereunder shall be governed by and construed in
accordance with the laws of the State of Delaware and in accordance with such
Federal laws as may be applicable.
It is the intent of the Company that the Plan shall comply in all respects
with applicable provisions of Rule 16b-3 under the Exchange Act, so that any
grant of options to or other transaction by an optionee who is subject to the
reporting requirements of Section 16(a) of the Exchange Act shall not result
in short-swing profits liability under Section 16(b) (except for any
transaction exempted under alternative Exchange Act rules or intended by such
optionee to be a non-exempt transaction). Accordingly, if any provision of
this Plan or any agreement relating to an option does not comply with such
requirements of Rule 16b-3 as then applicable to any such transaction so that
such an optionee would be subject to Section 16(b) liability, such provision
shall be construed or deemed amended to the extent necessary to conform to
such requirements, and the optionee shall be deemed to have consented to such
construction or amendment.
1993 STOCK OPTION SUBPLAN
1. PURPOSE OF SUBPLAN
This 1993 Stock Option Subplan (the "Subplan") is implemented under the 1988
Non-Qualified Stock Option Plan (the "Plan") of ADVO, Inc. (the "Company") in
order to promote the purposes of the Plan while ensuring that, with respect to
options granted hereunder to persons who constitute "covered employees" within
the meaning of Section 162(m)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"), the Company will be entitled to fully deduct for tax
purposes any remuneration to such covered employees arising under the Plan.
Capitalized terms used in the Subplan but not defined herein shall have the
same meanings as defined in the Plan.
2. ADMINISTRATION
The Subplan shall be administered by the Committee or, if the Committee
should at any time not consist solely of "outside directors" within the
meaning of Section 162(m)(4)(C)(i) of the Code, by a subcommittee of the
Committee consisting of all members of the Committee who are such "outside
directors;" provided, however, that, if such subcommittee would not have at
least two members, the Board of Directors shall designate additional directors
who are both such "outside directors" and Non-Employee Directors
----------------------
["disinterested persons" ]within the meaning of Rule 16b-3 under the Exchange
Act (as then applicable to the Subplan) to serve on such subcommittee, so that
the subcommittee has at least two members. References in the Plan and the
Subplan to the "Committee" shall be deemed to mean such subcommittee,
operating pursuant to delegated authority, at any time it is administering the
Subplan. The Committee shall have all authority under the Subplan as it has
under the Plan, except that terms of options granted hereunder may not be
inconsistent, with the express terms set forth in the Subplan. Any reference
to the Board of Directors in a Plan provision applicable to the Subplan shall
mean the Committee.
B-8
<PAGE>
3. STOCK SUBJECT TO SUBPLAN; LIMITATIONS ON INDIVIDUAL GRANTS
Subject to adjustment as provided in Section 14 of the Plan, the total
number of shares of the Company's common stock, $.01 par value (the "Stock"),
that may be delivered upon exercise of all options granted under the Subplan
shall be 4,800,000 [4,300,000]. The shares of Stock reserved and available for
---------
issuance hereunder represent an allocation of the shares reserved and
available for issuance under the Plan. Accordingly, no option may be granted
hereunder if sufficient shares for such grants are not then available under
both the Subplan and the Plan, and grants of options may be made under the
Plan even though the effecting of such grants will be to reduce the number of
shares remaining available for issuance hereunder. Likewise, shares issued
hereunder shall be counted against the number of shares reserved and available
under the Plan. Shares subject to an option that is forfeited or otherwise
terminated without a distribution of shares will again be available for grants
of options under the Subplan and the Plan (to the extent specified in the
Plan). Except as modified by this Section 3, the provisions of Section 3 of
the Plan shall apply equally to the Subplan.
Subject to adjustment as described below, the total number of shares of
Stock that may be subject to options that any one person may receive under the
Subplan shall not exceed 750,000 [150,000] during any calendar year under the
-------
Subplan. The number of shares set forth in the preceding sentence shall be
adjusted proportionately with any adjustment (made in accordance with Section
14 of the Plan) to the number of shares reserved and available for issuance
under the Plan.
4. ELIGIBILITY
Any person eligible to be granted an option under the Plan will likewise be
eligible for option grants under the Subplan.
5. SPECIFIC TERMS OF OPTION GRANTS
(a) Option Grants. The Committee is authorized to grant non-qualified stock
options to persons eligible to participate hereunder ("Optionees"), including
grants of "reload" options to the extent specified in Section 8 of the Plan,
on the terms and conditions set forth in this Section 5.
(b) Option Price. The option price per share of Stock purchasable under an
option granted hereunder shall be the greatest of (i) 100% of the fair market
value of a share on the date of grant of such option, determined by the
Committee in accordance with Section 6 of the Plan, (ii) 100% of the "fair
market value" of Stock determined in such manner as is necessary to qualify
the option as "performance-based compensation" under Section 162(m)(4)(C) of
the Code, or (iii) par value of the Stock.
(c) Term. Options granted hereunder shall expire ten years after the date of
grant by the Committee, unless earlier terminated under Section 5(e) below;
provided, however, that unless otherwise determined by the Committee, any
option granted as a "reload" option hereunder shall expire not later than the
expiration date of the original option, the exercise of which results in the
grant of such "reload" option or options.
(d) Payment of the Option Price; Exercise Procedures. The option price of an
option granted hereunder shall be paid in full at the time of exercise (i) in
cash by United States currency, certified check or money order, (ii) by
tendering to the Company shares of Stock having a fair market value on
B-9
<PAGE>
the date of exercise equal to the option price, (iii) by a full recourse
promissory note for a term of up to two years for the lesser of up to 90% of
the option price or that portion of the option price which exceeds par value
of the shares at an interest rate equal to or greater than the applicable
Federal rate under Section 1274(d) of the Code, or (iv) a combination of cash,
Stock valued at fair market value, and such promissory note. Options granted
hereunder shall be exercised by the delivery of written notice to the officer
of the Company designated under Section 9 of the Plan, setting forth the
number of shares with respect to which the option is to be exercised, and
specifying the address to which the certificates for such shares are to be
mailed. As promptly as practicable after receipt of such written notification
of the exercise of an option and payment, the Company shall make delivery to
the Optionee or as instructed by the Optionee of certificates for the number
of transferable shares with respect to which such option has been so
exercised, issued in the Optionee's name or as otherwise instructed by the
Optionee.
(e) Vesting and Termination of Employment. Any option granted hereunder
shall be exercisable only as follows (in addition to any condition on
exercisability imposed under Section 5(f) hereof):
(i) on or after the first anniversary of the date of grant, the option
may be exercised for up to one-fourth ( 1/4) of the shares subject thereto;
(ii) on or after the second anniversary of the date of grant, the option
may be exercised for up to one-half ( 1/2) of the shares subject thereto,
reduced by the amount of any shares with respect to which the option has
previously been exercised;
(iii) on or after the third anniversary of the date of grant, the option
may be exercised for up to three-fourths ( 3/4) of the shares subject
thereto, reduced by the amount of any shares with respect to which the
option has previously been exercised; and
(iv) on or after the fourth anniversary of the date of grant, the option
may be exercised for all shares subject thereto with respect to which the
option has not previously been exercised; provided, however, that options
shall be subject to all other terms and conditions, including without
limitation terms providing for accelerated exercisability, set forth in the
third and fourth Paragraphs of Section 7 of the Plan, but shall not be
subject to the discretionary acceleration of exercisability under the fifth
paragraph of Section 7 of the Plan; and provided further, that options may
be exercised only for whole shares. In the event the employment
relationship between the Optionee and the company, or a parent or
subsidiary of the Company, is severed, options granted hereunder shall be
exercisable only for such periods, and only to the extent, provided under
Section 12 of the Plan. At any time options granted hereunder cease to be
exercisable by operation of the provisions of Section 12 of the Plan, such
options shall terminate.
(f) Performance Conditions on Vesting. One-half of the options granted to
any Optionee during the 1994 calendar year shall, in addition to any vesting
requirements imposed under Section 5(e) hereof, not become exercisable until
the following performance condition has been satisfied: During any period of
180 consecutive trading days on which actual trades in the Stock are reported
on the composite tape for the New York Stock Exchange-listed securities, the
closing price of Stock on any 90 of such trading days equals or exceeds an
--
amount determined by the Committee with respect to such grant. Options subject
- --------------------------------------------------------------
to the foregoing performance condition shall be subject to accelerated
exercisability in accordance with the terms of the third or fourth paragraph
of Section 7 of the Plan. The performance conditions contained herein may be
revised periodically by the Committee.
B-10
<PAGE>
(g) Non-Transferability. The Committee may determine in connection with any
--------------------------------------------------
grant of an option or other right which may constitute a derivative security
- --------
granted under the Subplan whether such option or right shall, by its terms, be
----------------------------
non-transferable by the Optionee, either voluntarily or by operation of law,
otherwise than by will or the laws of descent and distribution, and whether
-------
such option or right shall be exercisable during the Optionee's lifetime only
- --------------------
by the Optionee, regardless of any community property interest therein of the
spouse of the Optionee, or such spouse's successors in interest.
6. APPLICABLE PLAN PROVISIONS
The provisions of Sections 11 (including the requirement that the agreement
evidencing options contain a non-competition covenant), 13, 14, 15, 17, and 19
of the Plan shall apply equally to the Subplan.
7. EFFECTIVE DATE, TERMINATION, AND AMENDMENT OF SUBPLAN
This Subplan shall become effective on January 20, 1994; provided, however,
that the Subplan shall be approved by the vote of stockholders of the Company
sufficient to meet the applicable requirements of Section 162(m)(4)(C)(ii) of
the Code, the rules of the New York Stock Exchange, and any other applicable
law, regulation, or contractual provision imposing a stockholder approval
requirement; and provided further that such approval shall be obtained in such
manner as will satisfy such requirements (including a separate vote if
required to meet the requirements of Section 162(m)(4)(C)(ii)). The Subplan
shall terminate at such time as no shares remain available for issuance
pursuant to Section 3 and the Company has no further obligation with respect
to any previously granted option; provided, however, that no options may be
granted hereunder at any time after the Plan has been terminated. The Board of
Directors of the Company may at any time amend, suspend, or terminate the
Subplan; provided, however, that any such amendment shall be approved by vote
of stockholders of the Company if and to the extent required to meet the
requirements of any applicable law, regulation, or contractual provision,
including without limitation those specified in the first sentence of this
Section 7.
8. STATUS OF OPTIONS AS "PERFORMANCE-BASED COMPENSATION"; SAVINGS PROVISION
It is the intention of the Company that options granted under the Subplan
constitute "performance-based compensation" under Section 162(m)(4)(C) of the
Code, so that the Company will be allowed a full deduction for any
remuneration relating to such option without restriction under Section 162(m)
of the Code. Accordingly, any term, condition, or provision of the Subplan,
the Plan, or any agreement relating to an option granted hereunder that would
cause the Company, by operation of Section 162(m) of the Code, to not be able
to fully deduct remuneration relating to an option granted hereunder shall be
inapplicable to such option or shall be deemed modified and amended to the
extent necessary to preserve such full deductibility under Section 162(m). To
the extent that any provision of the Subplan, whether or not rendered
inapplicable or modified by operation of this Section 8, is inconsistent with
the express grant of rights or other provisions of the Plan, the Plan shall be
deemed amended insofar as such provisions would otherwise apply to the Subplan
and options awarded hereunder. As a condition to his or her receipt of options
hereunder, each Optionee shall be deemed to have consented to any modification
or amendment resulting from this Section 8 and shall be deemed to have waived
any rights under the Plan that may be inconsistent with the provisions of the
Subplan.
B-11
<PAGE>
The Board of Directors recommends that you vote "FOR" Items 1, 2, 3 and 4.
PLEASE MARK YOUR CHOICE LIKE
THIS X IN BLUE OR BLACK INK.
I Plan to attend the meeting [_]
1. Election of Directors:
FOR all nominees WITHHOLD
listed to the right AUTHORITY
(except as marked to vote for all nominees
to the contrary) listed to the right
[_] [_]
Nominees for election by holders of Common Stock: Bruce Crawford, James A.
Eskridge, Jack W. Fritz, Robert Kamerschen, Lawrence Lachman, Gary M. Mulloy,
Howard H. Newman, John R. Rockwell, John L. Vogelstein.
INSTRUCTION: To withhold your vote for any nominee(s), write that nominee's name
on the line below.
- --------------------------------------------------------------------------------
2. Approval of an Amendment to the 1986 Employee Restricted Stock Plan, as
Amended, as described in the Proxy Statement.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Approval of an Amendment to the 1988 Non-Qualified Stock Option Plan and
1993 Stock Option Subplan as Amended, as described in the Proxy Statement.
FOR AGAINST ABSTAIN
[_] [_] [_]
4. Ratification of the appointment of Ernst & Young LLP as the Company's
Independent Auditors for fiscal 1997.
FOR AGAINST ABSTAIN
[_] [_] [_]
Dated: , 199
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- -------------------------------------------------------------------------------
Signature
- -------------------------------------------------------------------------------
Signature if held jointly
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
.FOLD AND DETACH HERE.
<PAGE>
PROXY ADVO, INC. PROXY
One Univac Lane, P.O. Box 755, Windsor, Connecticut 06095-0755
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints David M. Stigler and Robert S. Hirst, and each
of them, with full power of substitution, the proxies of the undersigned to vote
all the shares of the Common Stock of ADVO, Inc. which the undersigned is
entitled to vote at the Annual Meeting of Stockholders to be held on January 16,
1997 or any adjournment thereof.
In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this proxy will be
voted "FOR" ALL NOMINEES FOR DIRECTOR AND WILL BE VOTED "FOR" Proposals 2, 3
and 4.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the related Proxy Statement.
(PLEASE VOTE, SIGN AND DATE ON REVERSE SIDE)
FOLD AND DETACH HERE
