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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ADVO, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF ADVO]
December 14, 2000
Dear Stockholder:
You are cordially invited to the Annual Meeting of Stockholders of ADVO,
Inc., to be held on Thursday, January 18, 2001, 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 1998 Incentive
Compensation Plan; to ratify the appointment of independent auditors for the
fiscal year ending September 29, 2001; 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/ Gary M. Mulloy
Gary M. Mulloy
Chairman and Chief
Executive Officer
<PAGE>
[LOGO OF ADVO]
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 18, 2001, at 10:30 A.M. (EST), to consider
and take action on the following items:
1. The election of eight directors, as described in the attached proxy
statement, to serve until the Annual Meeting of Stockholders in 2002;
2. The approval of an amendment to increase the number of shares of
Common Stock issuable under the Company's 1998 Incentive Compensation Plan;
3. The ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending September 29,
2001; and
4. 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
24, 2000 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 14, 2000
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 18, 2001 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 electronic mail from stockholders. The
Company has retained ChaseMellon Shareholder Services, L.L.C. 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, 2000. The Company's Annual
Report to stockholders for the fiscal year ended September 30, 2000 is being
furnished concurrently herewith to stockholders of record. Additional copies
of the Annual Report may be obtained upon written request to the Corporate
Secretary, ADVO, Inc., One Univac Lane, Windsor, CT 06095 or by telephone at
860-285-6100.
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 and 3.
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 24, 2000 (the "Record Date")
are entitled to notice of and to vote at the meeting. On the Record Date,
there were 20,129,113 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 5% or more of the outstanding Common Stock were as follows:
<TABLE>
<CAPTION>
Name and Address Number of Shares
of Beneficial Owner Beneficially Owned Percent
------------------- ------------------ -------
<S> <C> <C>
T. Rowe Price Associates, Inc.(1).................... 1,531,300 7.6%
100 East Pratt Street
Baltimore, Maryland 21202
David L. Babson & Company, Inc.(1)................... 1,415,690 7.0%
One Memorial Drive
Cambridge, Massachusetts 02142
FMR Corporation(1)................................... 1,287,200 6.4%
82 Devonshire St.
Boston, Massachusetts 02109
</TABLE>
--------
(1) The information relating to the ownership of the Common Stock by this
entity or individual is based on a statement on Form 13F for the quarter
ended September 30, 2000 filed by such entity or individual with the
Securities and Exchange Commission ("SEC").
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 30, 2000, the Board
of Directors met six times. Each Director attended all of the meetings of the
Board of Directors and the committees of the Board of Directors on which he
served, except Bruce Crawford and John Rockwell who attended 90% of the
meetings, and John Vogelstein who attended 67% of the meetings. Jack Fritz
retired from the Board of Directors on January 20, 2000. Todd Brown joined the
Board of Directors on April 25, 2000.
The Company has a standing Audit Committee. Information regarding the
functions performed by the Audit Committee, its membership, and the number of
meetings held during the fiscal year, is set forth in the "Audit Committee
Report", included in this annual proxy statement.
The Board has delegated responsibilities with respect to certain
compensation matters to the Compensation Committee. The members of the
Compensation Committee were Messrs. Newman (Chairman), Fritz, through his
January 20, 2000 retirement, Dyer, 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 four times during the fiscal year ended September
30, 2000, and no member of the Compensation Committee missed a meeting except
for Mr. Rockwell who missed one meeting.
The Board has delegated responsibilities with respect to the selection of
directors and other governance issues to the Nominating Committee. The members
of the Nominating Committee were Messrs. Vogelstein (Chairman) and Crawford.
The Nominating Committee held no meetings during the
2
<PAGE>
fiscal year ended September 30, 2000. The Nominating Committee does not
currently have procedures in place to consider nominees recommended by
stockholders.
The Company has no executive 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, are each currently eligible to receive an annual fee of $30,000, a
fee of $1,000 for each Board meeting they attend, and $500 for each committee
meeting they attend. Meetings attended via phone are compensated at half of
the regular meeting rate. 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. All Directors' expenses for attending Board of Directors' meetings
are reimbursed by the Company.
Under the 1990 Non-Employee Directors' Restricted Stock Plan (the "Non-
Employee Directors' Plan") restrictions lapsed in fiscal 2000 on 2,000 shares
held by Mr. Crawford and 2,000 shares held by Mr. Dyer. In addition, grants
were made in fiscal 2000 to each of Messrs. Newman, Vogelstein, Rockwell,
Crawford, Dyer and Brown of 3,000 restricted shares. These shares will vest
over a one-year period if the recipients remain on the Board. Upon election to
the Board, Mr. Brown received options to purchase 10,000 shares of Common
Stock at an exercise price of $30.5625 per share, which will become
exercisable after a one-year period.
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 eight Directors at this
time. 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.
The stockholders elected all of the nominees sets forth below to their
present terms at the 2000 Annual Meeting, except Mr. Brown, who became a
director of the Company on April 25, 2000, and Mr. Mahoney who is a new
candidate to be a director. Each nominee has consented to being named herein
and has agreed to serve if elected.
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
GARY M. MULLOY, age 55. Mr. Mulloy became Chairman of the Board on June 28,
1999 and Chief Executive Officer on January 1, 1999. From November 1996 to
December 1998, he was President and Chief Operating Officer. Mr. Mulloy 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.
3
<PAGE>
TODD C. BROWN, age 51. Mr. Brown has been a director of the Company since
April 25, 2000. Mr. Brown is Executive Vice President of Kraft Foods, Inc. and
President of Kraft Food Services Division. Mr. Brown has held various
positions at Kraft Foods, Inc. since 1985. Mr. Brown also serves on the Boards
of Food.com and the Jessie Owens Foundation.
BRUCE CRAWFORD, age 71. Mr. Crawford has been a director of the Company
since December 1996. Mr. Crawford is Chairman of Omnicom Group Inc., the
largest marketing communications company in the world. Mr. Crawford served as
CEO of Omnicom Group from 1989 to 1996. Mr. Crawford is also Honorary Chairman
of the New York Metropolitan Opera Association.
DAVID F. DYER, age 51. Mr. Dyer has been a director of the Company since May
1997. Mr. Dyer is President, Chief Executive Officer of Lands' End, Inc. an
international direct merchant of apparel and home furnishings. Mr. Dyer was
the Chief Operating Officer of the Home Shopping Network, Inc. from 1994 to
1995. Previous to that, from 1989 to 1994, Mr. Dyer held senior management
positions with Lands' End, Inc.
JOHN J. MAHONEY, age 49. Mr. Mahoney is a new candidate to be a director. He
is Executive Vice President and Chief Administrative Officer of Staples, Inc.
Mr. Mahoney joined Staples as Chief Financial Officer in September 1996, and
was promoted to his current position in October 1997. Prior to joining
Staples, Mr. Mahoney was with Ernst & Young LLP for 20 years, and served in
the Accounting and Auditing Group of the firm's National Office.
JOHN R. ROCKWELL, age 72. Mr. Rockwell has been a director of the Company
since May 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 The Forum Corporation and Tom's of Maine, Inc.
HOWARD H. NEWMAN, age 53. 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 partner of
Warburg, Pincus and Company ("Warburg") since January 1987. Mr. Newman is also
a Director of Newfield Exploration Company, Cox Insurance Holdings, Plc.,
Eagle Family Foods Holdings, Inc., EEX Corporation, Dime Bancorp Inc.,
Spinnaker Exploration Company, and several privately owned companies. Mr.
Newman also serves as Vice Chairman of the Yale Alumni Fund.
JOHN L. VOGELSTEIN, age 66. 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 Mattel, Inc., Journal Register Company and Knoll, Inc.
4
<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 6 of this Proxy Statement and by all
directors and executive officers as a group, as of the Record Date. Except as
otherwise indicated, each person listed has sole voting and investment power
with respect to shares beneficially owned.
<TABLE>
<CAPTION>
Number of Shares
Name of Individual of Common Stock Percent
------------------ ---------------- -------
<S> <C> <C>
Gary M. Mulloy....................................... 294,781(1) 1.5%
Myron L. Lubin....................................... 58,587(2) .3
Donald E. McCombs.................................... 58,709(3) .3
A. Brian Sanders..................................... 24,412(4) .1
B. Kabe Woods........................................ 22,363(5) .1
Todd C. Brown........................................ 3,000 *
Bruce Crawford....................................... 10,875(6) *
David F. Dyer........................................ 14,750(7) .1
John J. Mahoney...................................... -- --
John R. Rockwell..................................... 31,500(8) .2
Howard H. Newman..................................... 38,220(9) .2
John L. Vogelstein................................... 112,620(9) .6
All Directors and executive officers as a group (20
persons)............................................ 913,573(10) 4.2
</TABLE>
--------
* Less than .1%.
(1) Includes 234,450 shares Mr. Mulloy 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 41,750 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.
(3) Includes 23,335 shares Mr. McCombs 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 17,701 shares Mr. Sanders 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 10,882 shares Mr. Woods 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 1,875 shares Mr. Crawford has the right to acquire within 60
days of the Record Date pursuant to option grants awarded by the Company.
(7) Includes 3,750 shares Mr. Dyer has the right to acquire within 60 days of
the Record Date pursuant to option grants awarded by the Company.
(8) Includes 9,250 shares Mr. Rockwell has the right to acquire within 60
days of the Record Date pursuant to option grants awarded by the Company.
(9) Includes 32,000 and 106,400 shares owned directly by Mr. Newman and Mr.
Vogelstein, respectively, 1,875 shares Mr. Newman and Mr. Vogelstein have
the right to acquire within 60 days of the Record Date, and 4,345 shares
owned directly by 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. Messrs. Newman and Vogelstein are directors of the Company
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 a portion
5
<PAGE>
of the shares beneficially owned by WP. Messrs. Newman and Vogelstein
disclaim "beneficial ownership" of these shares within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934.
(10) Includes 397,440 shares all directors and executive 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.
Section 16(a) Beneficial Ownership Reporting Compliance
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 fiscal 2000,
all required reports of beneficial ownership of the Company's Common Stock
were timely filed.
EXECUTIVE COMPENSATION
The following table shows compensation paid by the Company and its
subsidiaries for services in all capacities during fiscal 2000, 1999, and 1998
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
Name and Principal Stock Underlying All Other
Position Year Salary Bonus(1) Awards(2) Options(3) Compensation(4)
------------------ ---- -------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Gary M. Mulloy.......... 2000 $521,815 $385,962 $ -- 57,000 $10,500
Chairman and Chief
Executive 1999 501,538 156,966 650,000 35,400 10,000
Officer 1998 420,423 232,851 184,900 170,000 10,000
Myron L. Lubin.......... 2000 298,308 131,538 -- 20,000 21,165
Executive Vice
President-- 1999 298,183 60,434 390,000 30,000 24,696
Strategic Business
Development 1998 248,777 123,091 -- 17,000 21,273
Donald E. McCombs....... 2000 266,962 117,433 -- 56,728 18,778
Executive Vice
President-- 1999 257,923 51,999 -- 23,051 21,326
Chief Financial Officer 1998 219,315 106,570 339,375 53,300 14,247
A. Brian Sanders........ 2000 242,708 94,923 -- 18,208 6,646
Senior Vice President-- 1999 230,061 41,196 -- 9,000 8,160
National Sales and
Client Marketing 1998 208,100 79,872 -- 6,500 3,764
B. Kabe Woods........... 2000 230,246 90,292 152,813 25,109 11,485
Senior Vice President-- 1999 200,615 35,871 -- 10,000 15,646
Targeting and
Technologies 1998 171,442 65,544 -- 4,500 --
</TABLE>
-------
(1) Amounts for each fiscal year represent bonus compensation earned for that
year payable in the subsequent year.
6
<PAGE>
(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
for which restrictions have not lapsed times the closing market price at
September 30, 2000, was 20,000 shares and $660,000 for Mr. Mulloy, 10,000
shares and $330,000 for Mr. Lubin, 5,000 shares and $165,000 for Mr.
McCombs, and 5,000 shares and $165,000 for Mr. Woods. During the fiscal
year, Mr. Woods was granted 5,000 restricted shares. These shares vest
equally over a three-year period from the date of grant (one-third on each
anniversary date). Holders of restricted shares are eligible to receive
dividends to the same extent as holders of Common Stock, when dividends
are declared and payable.
(3) Includes reload option grants received from surrendering previously owned
shares of ADVO Common Stock to pay the exercise price on option exercises
and shares withheld to satisfy income tax withholding requirements.
(4) Amounts represent contributions made on behalf of the named executives to
the Company's 401(k) plan and non-qualified savings plan.
Options
Set forth below is certain information concerning stock options granted
during fiscal 2000 by the Company to the named executive officers.
The hypothetical present values on the date of grant of stock options
granted in fiscal 2000 shown below are presented pursuant to the SEC proxy
rules and are calculated under the modified Black-Scholes model for pricing
options. (See footnote 3.) The actual before-tax amount, if any, realized upon
the exercise of stock options will depend upon the excess of the market price
of the Common Stock over the exercise price per share of the stock option.
There is no assurance that the hypothetical present values of the stock
options reflected in this table will be realized.
7
<PAGE>
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
Number of % of Total
Securities Options Grant
Underlying Granted to Exercise Date
Options Employees in Price Expiration Present
Name Granted Fiscal Year ($/Share) Date Value(3)
---- ---------- ------------ --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Grants(1)
Gary M. Mulloy............ 57,000 7% $20.3750 12/02/09 $510,150
Myron L. Lubin............ 20,000 2 20.3750 12/02/09 179,000
Donald E. McCombs......... 25,000 3 20.3750 12/02/09 223,750
A. Brian Sanders.......... 15,500 2 20.3750 12/02/09 138,725
B. Kabe Woods............. 13,000 2 20.3750 12/02/09 116,350
5,000 1 30.5625 04/05/10 65,350
Reload Grants (2)
Donald E. McCombs......... 894 * $27.3750 04/24/01 $ 4,980
669 * 27.3750 06/12/02 3,726
1,165 * 27.3750 02/04/04 6,489
383 * 27.3750 12/01/04 2,133
836 * 27.3750 01/24/05 4,657
409 * 27.3750 10/09/05 2,278
669 * 27.3750 03/12/06 3,726
2,406 * 27.3750 01/16/07 13,401
2,152 * 27.3750 12/02/07 11,987
634 * 30.0000 06/12/02 3,918
129 * 30.0000 12/01/04 797
284 * 30.0000 01/24/05 1,755
130 * 30.0000 10/09/05 803
634 * 30.0000 03/12/06 3,918
1,125 * 30.0000 01/16/07 6,953
14,657 2% 30.0000 11/06/07 90,580
4,552 1 30.0000 12/01/08 28,131
A. Brian Sanders.......... 2,708 * 30.0000 07/29/07 16,735
B. Kabe Woods............. 3,186 * 27.3750 09/05/07 17,746
1,297 * 42.4375 09/05/07 11,478
1,516 * 42.4375 12/02/07 13,417
1,110 * 42.4375 12/01/08 9,824
</TABLE>
--------
*less than 1%
(1) Stock options granted in fiscal 2000 will become exercisable in 25%
increments at one-year intervals from the date of grant. All options are
subject to the reload feature of the 1998 Incentive Compensation Plan.
(2) Represent reload option grants received upon the exercise of previously
outstanding exercisable options (the "existing options"). The number of
reload options awarded upon the exercise of existing options is equal to
the number of previously held shares an optionee tenders to pay the
exercise price of the existing options and the number of shares an
optionee elects to have withheld
8
<PAGE>
from the exercise of the existing options to pay statutory tax withholding
requirements. The reload options retain the expiration date of the existing
options and have an exercise price equal to the fair market value of the
Common Stock on the date of exercise of the existing options. Reload
options become exercisable on the earlier of one year from the date of
grant or termination of employment with the Company.
(3) The present values on the 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 (35%),
the exercise period of the option, and the risk free rate of return
(ranging from 5.3% to 6.5% depending on the option's grant and expiration
dates).
Set forth below is certain information concerning the number of shares
acquired and the amounts realized on the exercise of stock options by the
named executive officers during fiscal 2000, and the number and value of
options held by the named executive officers at September 30, 2000. The value
of exercised and unexercised in-the-money stock options at September 30, 2000
shown below is 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
Options at Year-End At Year-End(1)
------------------------- -------------------------
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary M. Mulloy.......... -- -- 143,850 218,550 $2,229,691 $2,333,697
Myron L. Lubin.......... 7,500 $124,219 46,480 54,500 826,268 573,813
Donald E. McCombs....... 39,167 283,115 3,039 93,478 31,700 785,246
A. Brian Sanders........ 3,694 44,790 16,806 33,208 224,269 364,483
B. Kabe Woods........... 9,743 155,273 4,007 37,859 50,237 316,203
</TABLE>
--------
(1) Value is calculated by determining the difference between the fair market
value at September 30, 2000 of the securities underlying the options
($33.00 per share) and the exercise price of the options.
Report of the Compensation Committee
The role of the Compensation Committee of the Board of Directors is to
represent the Board of Directors in its dealings with management in overseeing
the process and substance of ADVO's Executive Compensation Policy and
Philosophy and in aligning the interests of stockholders and the needs of
management. The Compensation Committee believes it is generally in the
Company's best interest, and it is the Company's intent, where possible, to
preserve full compensation deductibility as permitted under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"). However, the
Company recognizes that flexibility is necessary and must be maintained for
those extraordinary circumstances that may arise on occasion for which the
interests of the Company are better served by foregoing full deductibility.
The Compensation Committee is composed entirely of non-employee directors.
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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 stockholder value and attainment of
specific strategic initiatives by emphasizing variable rather than fixed
compensation.
. Align stockholders' and management's interests.
To accomplish these objectives, ADVO's executive compensation program is
composed of base salary, and short-term and long-term incentives, which taken
together provide a competitive compensation package that is highly leveraged
toward the attainment of superior Company performance.
Cash Compensation:
ADVO's philosophy is to pay competitive cash compensation 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 to ADVO.
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. In general, ADVO's cash compensation position is within
the third quartile of the marketplace (better than the bottom 50% and less
remunerative than the top 25%). Based on these surveys, ADVO annually reviews
its salary and incentive structure and adjusts it as necessary to reflect the
market.
Base Pay:
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.
Short-Term Incentive:
ADVO's philosophy is to provide significant financial incentives for key
managers to attain and exceed the Company's financial objectives. These
incentives are made under the 1998 Incentive Plan, approved by stockholders in
1999, and the Management Incentive Plan. These plans provide a strong link
between the associate's accountabilities, 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
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<PAGE>
individual's job. The target awards range from 15% to 75% of salary. To
realize the target award, certain Company financial performance objectives
must be attained. These objectives include corporate, regional and business
unit measures, and are measured in terms of achievement versus the annually
established plan. The corporate measure is based on consolidated operating
income. Regional and business unit objectives incorporate profitability
objectives that are margin-based in the form of operating income or margin.
The mix and weighting of these objectives is dependent on the organizational
role of the individual. All individuals have at least a portion of their
incentive based on the corporate measure as described above. The specific plan
targets are not disclosed herein because they are considered confidential and
their disclosure could competitively injure ADVO's business. The performance
attainment and resulting payout for each objective is evaluated and calculated
independently. Performance below plan results in ratably lower payouts, and
performance above plan results in ratably higher payouts. The combined payout
percentages based upon these results are limited only by the combined business
performance. 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 corporate consolidated operating income
financial results as defined above, and are subject to a capped individual
payout.
The Company's financial performance for the fiscal 2000 year exceeded its
operating income target. This resulted in adjusted corporate awards which
were, on average, higher than target awards. Regional performance varied, with
results both above and below target levels set under the plan. After adjusting
for corporate, regional and business unit financial results, individual award
payouts ranged from 33.75% to 189.85% (to participants in a specific business
unit who greatly exceeded plan) of target awards. Approved awards for those
disclosed in the Summary Compensation Table were 100% of target awards.
Long-Term Incentive:
The 1998 Incentive Compensation Plan is the primary vehicle for long-term
incentives. The plan 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.
Participation 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 fixed share amount, based on the level of the
associate's position. Stock options granted in fiscal 2000 were granted at
market price with 10-year terms.
Service-based options are also used for hiring, promotion and retention
situations and are determined in the same manner as described above.
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 withholding shares to meet mandatory federal tax
obligations. In return, they receive reload options in the same number as the
number of shares utilized
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<PAGE>
in the exercise. Any profit that results from the exercise is returned to the
executive in the form of stock, which is to be retained for two years.
Restricted stock may also be granted under the plan. While the governing
plan allows for broader usage, historically, this plan has been used for
hiring, promotion and retention situations. The Company granted restricted
stock for the purposes of hiring and promotion to a limited number of key
positions during fiscal 2000. When these situations arise, the number of
shares granted is based upon the level of the job.
To foster greater alignment with stockholders, ADVO expects that executives
who receive stock options should also make a personal financial commitment to
acquire and hold significant amounts of ADVO stock. These persons were asked
to acquire a portion or multiple of their salary in ADVO stock over a four-
year period. These guidelines range from 150% of base salary for the CEO to
12.5% of base salary for entry level stock option recipients. This plan covers
approximately 110 persons.
CEO Compensation and Company Performance:
Mr. Mulloy's salary is reviewed annually and may be increased, but not
decreased, by the committee. The committee reviewed Mr. Mulloy's salary at the
beginning of the calendar year using the same base salary guidelines utilized
for other executives as discussed in the "Base Pay" section on page 10, and
was granted an increase of 4% or $20,000 bringing his salary $520,000.
Under Mr. Mulloy's employment agreement discussed on page 15, Mr. Mulloy's
short-term incentive is determined under the 1998 Incentive Compensation 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. Mr.
Mulloy's incentive was $385,962, representing 100% of his target award.
Mr. Mulloy was awarded options under the 1998 Incentive Compensation Plan to
purchase 57,000 shares of Common Stock in the annual grant using the approach
described above.
Benefits:
ADVO offers benefits to its key executives, serving a different purpose than
do the above described elements of compensation. In general, these benefits
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 all ADVO employees, 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)
David F. Dyer
John R. Rockwell
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Audit Committee Report
In accordance with its written charter adopted by the Board of Directors
("Board"), the Audit Committee of the Board ("Audit Committee") assists the
Board in fulfilling its responsibility for the oversight of the quality and
integrity of the financial reporting process and internal and financial
controls. A copy of the charter is attached as Exhibit A to this Proxy
Statement.
The Audit Committee is composed entirely of non-employee Directors who have
no relationship to the Company which may interfere with the exercise of their
independence from management and the Company. Audit Committee members for the
fiscal year ended September 30, 2000 were Messrs. Fritz (Chairman) through his
January 20, 2000 retirement, Newman, and Crawford. Mr. Newman was assigned the
Chairmanship upon Mr. Fritz's retirement. The Audit Committee met five times
during the fiscal year ended September 30, 2000, and no member of the Audit
Committee missed a meeting.
The Audit Committee has received the written disclosures required by the
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees" and has discussed with the independent auditors the
auditors' independence from management and the Company, including matters in
such written disclosures.
The Audit Committee discussed and reviewed with the Company's independent
auditors all communications required by generally accepted auditing standards,
including those described in Statement on Auditing Standards No. 61, as
amended, "Communications with Audit Committees" and, with and without
management present, discussed and reviewed, the overall scope and plans for
the audit, the results of their examination of the financial statements, their
evaluation of the Company's internal controls, and the overall quality of the
Company's financial reporting. The Audit Committee also discussed audit plans
and results of the internal audit examinations.
The Audit Committee reviewed the audited financial statements of the Company
as of and for the fiscal year ended September 30, 2000 with management and
independent auditors. Management has the primary responsibility for the
financial statements and the reporting process including the systems of
internal controls. The independent auditors have a responsibility for
expressing an opinion on the conformity of the audited financial statements
with generally accepted accounting principles.
In reliance on reviews and discussions with management and independent
auditors, the Audit Committee recommended to the Board that the Company's
audited financial statements be included in the Annual Report on Form 10-K for
the year ended September 30, 2000 for filing with the Securities and Exchange
Commission. The Audit Committee and the Board have also recommended, subject
to stockholder approval, the reappointment of the Company's independent
auditors.
AUDIT COMMITTEE:
Howard H. Newman (Chair)
Bruce Crawford
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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, 1995 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, 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. In June
2000, Tribune Co. acquired Times Mirror Co., and the performance of the stock
of the combined entity is included in the results for periods after the
acquisition.
Comparison of Five year Cumulative Total Return*
Among ADVO, Inc., S&P 500 Index and a Selected Peer Group**
[GRAPH]
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
ADVO, Inc. $100.00 $101.38 $155.80 $208.63 $170.21 $281.73
S&P 500 100.00 120.33 169.00 184.29 235.53 266.82
Peer Group 100.00 103.14 130.74 168.66 228.88 273.53
Assumes $100 invested October 1, 1995 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.
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Executive Agreements
Employment Agreement--Mulloy
On July 31, 1998, the Company entered into an employment agreement with Mr.
Mulloy, pursuant to which he is employed as Chief Executive Officer of the
Company. The employment agreement has a term of six years from its effective
date on January 1, 1999. The salary under the employment agreement is $500,000
per year, subject to increases as determined by the Board of Directors (or the
Compensation Committee) plus bonuses pursuant to the Company's bonus plan. In
addition, Mr. Mulloy receives a housing allowance of $2,000 per month
throughout the employment period.
In accordance with the employment agreement, Mr. Mulloy received options to
purchase 100,000 shares of the Company's Common Stock at a price of $27.063
per share, such options becoming exercisable in installments of one-fourth
each year commencing on January 1, 2000, 2001, 2002 and 2003. Mr. Mulloy was
also granted 25,000 shares of restricted stock units on January 21, 1999.
Under the terms of the agreement, the restrictions will lapse one-third each
year on January 1, 2000, 2001, and 2002.
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 75% of such salary, and allow him to continue to participate in other
benefit programs for two years after the date of termination.
Executive Severance Agreements
The Board of Directors authorized the Company to enter into individual
Executive Severance Agreements (the "Agreements") with Messrs. Mulloy, Lubin,
McCombs, Sanders and Woods. These Agreements were dated as follows:
<TABLE>
<S> <C>
Mr. Mulloy................................................ November 4, 1996
Mr. Lubin................................................. October 17, 1995
Mr. McCombs............................................... January 4, 1999
Mr. Sanders............................................... May 19, 1997
Mr. Woods................................................. August 6, 1997
</TABLE>
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 Mr. Mulloy and Mr. McCombs, the severance period is two
years following a Change of Control. With regard to Messrs. Lubin, Sanders and
Woods, 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 Mr. Mulloy, 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
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<PAGE>
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, McCombs, Sanders and Woods, the
severance payment is equal to one and one-half times the foregoing sum.
Additionally, upon termination, Mr. Mulloy and Mr. McCombs 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, Sanders
and Woods 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 pay, 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 in Control" means the occurrence of any of the following events:
(i) Any Person (other than the Company, any trustee or other fiduciary
holding securities under any employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of the common
stock of the Company) acquires securities of the Company and immediately
thereafter is the beneficial owner (as defined) of securities of the
Company representing 30% or more of the combined voting power of the
Company's then outstanding securities (except that an acquisition of
securities directly from the Company shall not be deemed an acquisition for
purposes of this clause (i));
(ii) During any period of two consecutive years, individuals who at the
beginning of the period constitute the Board, plus any new directors
treated as continuing directors (as described below), cease to constitute
at least a majority of the Board ( treating as continuing directors all
persons whose nomination or election was approved by a vote of at least
two-thirds of the directors then in office who either were directors of the
Company at the beginning of such two-year period or whose nomination or
election to the Board was previously so approved, but excluding any
director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (i), (iii) or (iv) of
this paragraph, and any director whose initial assumption of office occurs
as a result of either an actual or threatened election contest or actual or
threatened solicitation of proxies by or on behalf of any person other than
the Board);
(iii) The consummation of a merger or consolidation of the Company with
any other entity, other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving or resulting
entity) more than 50% of the combined voting power of the surviving or
resulting entity outstanding immediately after such merger or consolidation
or (ii) a merger or consolidation in which no premium is intended to be
paid to any shareholder participating in the merger or consolidation;
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<PAGE>
(iv) The stockholders of the Company approve a plan or agreement for the
sale or disposition of all or substantially all of the consolidated assets
of the Company (other than such a sale or disposition immediately after
which such assets will be owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of
the common stock of the Company immediately prior to such sale or
disposition) in which case the Board shall determine the effective date of
the Change in Control resulting therefrom; or
(v) any other event occurs which the Board determines, in its discretion,
would materially alter the structure of the Company or its ownership.
Each executive is solely responsible for all federal, state, local or
foreign taxes due with respect to any payment received under the Agreements,
including, without limitation, any excise tax imposed by Section 4999 of the
Code. However, all payments under the Agreements 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
Agreements or in the event that the Company or any other person takes or
threatens to take action to declare the Agreements 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
Agreements 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.
2. APPROVAL OF AN AMENDMENT TO THE 1998 INCENTIVE COMPENSATION PLAN
On November 30, 2000, the Board of Directors approved an amendment to the
Company's 1998 Incentive Compensation Plan (the "1998 Incentive Plan" or the
"Plan"), subject to stockholder approval, to increase the number of shares
available for grant under the 1998 Plan from 1,000,000 to 1,550,000 shares.
Description of the 1998 Incentive Plan
The 1998 Incentive Plan is an unfunded plan which allows for the granting of
stock options, stock appreciation rights, restricted stock, restricted stock
units, bonus stock and awards in lieu of obligations, dividend equivalents,
other stock-based awards and annual incentive awards to directors and
employees of the Company and its subsidiaries and other individuals who
perform services for the Company and its subsidiaries. The Board believes that
the Plan strengthens the Company's ability to attract, retain and reward high-
quality executives, employees and other persons who provide services to the
Company and/or its subsidiaries, enabling such persons to acquire or increase
a proprietary interest in the Company and strengthen the mutuality of
interests between such persons and the Company's stockholders, and providing
such persons with annual and long-term performance incentives
17
<PAGE>
to expend their maximum efforts in creation of stockholder value. The Plan was
approved by stockholders of the Company at the Company's Annual Meeting of
Stockholders held on January 21, 1999.
The purpose of the proposed amendment is to enable the Company to continue
to grant new awards under the 1998 Incentive Plan and thus enable the Company
to attract and retain employees in a competitive market and align the
interests of employees with the interests of the Company's stockholders. There
are currently approximately 500,000 shares available for the granting of new
awards under the Plan.
Stock Reserved under the 1998 Incentive Plan
The 1998 Incentive Plan originally authorized the issuance of 1,000,000
shares of Common Stock. Shares of Common Stock remaining available under the
Company's preexisting incentive compensation plans (the "Preexisting Plans")
were also folded into the 1998 Incentive Plan. These shares consisted of
79,236 shares of Common Stock available for new grants under the Preexisting
Plans at the time of adoption of the 1998 Incentive Plan, plus additional
shares of Common Stock which thereafter become available as a result of the
termination of awards made under the Preexisting Plans without the issuance of
stock. The 1998 Incentive Plan provides that shares of Common Stock subject to
an award under the 1998 Incentive Plan or a Preexisting Plan which are
cancelled, expired, forfeited, settled in cash or otherwise terminated without
delivery of shares become available for new awards under the 1998 Incentive
Plan. 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 new awards under the 1998 Incentive Plan. If Proposal 2 is
adopted, the number of shares of Common Stock that may be issued under the
1998 Incentive Plan will be increased to 1,550,000 shares, plus shares under
the Preexisting Plans, as described above.
The 1998 Incentive Plan limits the number of shares of Common Stock that may
be issued under incentive stock options to 1,000,000 shares, and provides that
no more than 400,000 shares of Common Stock may be issued under awards other
than options. No one person may be granted any specific type of award relating
to more than 750,000 shares of Common Stock in a fiscal year. These
limitations will not be affected by proposed amendment.
The number and kind of shares of Common Stock to be delivered or used for
measurement under the 1998 Incentive Plan may be adjusted for stock splits,
stock dividends, recapitalizations, mergers and other changes affecting the
capital stock of the Company.
Eligibility and Awards Granted
All employees and officers of the Company or any of its subsidiaries, as
well as other persons who provide services to the Company or any of its
subsidiaries, including directors of the Company, are eligible to be selected
for awards under the 1998 Incentive Plan ("Eligible Persons"). As of November
24, 2000 there were approximately 110 Eligible Persons.
In fiscal 2000, the Company granted options to purchase an aggregate of
792,974 shares of Common Stock under the 1998 Incentive Plan to executive
officers and an aggregate of 10,000 shares of Common Stock under the Plan to
members of the Board of Directors who are not executive officers of the
Company. The Company also awarded 50,113 shares of restricted Common Stock
under the Plan to
18
<PAGE>
executive officers and to other employees of the Company and its subsidiaries
during fiscal 2000. As of the Record Date, awards covering 1,049,139 shares of
Common Stock had been granted under the Plan.
Administration of the Plan
The 1998 Incentive Plan is administered, except to the extent the Board
elects otherwise, by a committee of two or more directors (the "Committee")
designated by the Board. Each member of the Committee must be a "non-employee
director" within the meaning of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended ( the "Act") and an "outside director," as defined under
Section 162(m) of the Code if required in order to qualify for exemptions
under Rule 16b-3 under the Act or tax deductibility under Section 162(m) of
the Code, respectively.
The 1998 Incentive Plan Awards
Types of Awards. The types of awards that may be granted under the 1998
Incentive Plan include: (i) incentive stock options, as defined in Section 422
of the Code, (ii) stock options other than incentive stock options ("non-
qualified stock options" and, together with incentive stock options, "stock
options"), (iii) stock appreciation rights ("SARs"), (iv) restricted stock,
(v) restricted stock units, (vi) bonus stock and awards granted in lieu of
other compensation obligations of the Company, (vii) dividend equivalents,
(viii) other stock-based awards, and (ix) annual incentive awards.
Terms and Conditions of Stock Options. Under the 1998 Incentive Plan, the
Committee is authorized to grant stock options. The exercise price per share
of Common Stock purchasable under a stock option is determined by the
Committee, but may not be less than the fair market value of the Common Stock,
as determined by the Committee, on the date of grant. A non-qualified stock
option granted in lieu of cash compensation may have an exercise price less
than the fair market value of the Common Stock as of the date of grant. In
such case, the fair market value of the Common Stock as of the date of grant
may exceed the exercise price by the amount of cash compensation that would be
foregone. The Committee, however, determines the time or times, at which or
the circumstances under which, a stock option may be exercised. The Committee
also determines the methods by which the exercise price may be paid, the form
of payment and the methods by or forms in which Common Stock will be delivered
to participants. In no event may a Stock Option remain exercisable more than
ten years following the date of grant. The Committee may also determine to
grant reload options upon the exercise of a stock option under the Plan.
Terms and Conditions of Stock Appreciation Rights. Under the 1998 Incentive
Plan, the Committee is authorized to grant SARs (as well as certain "Limited
SARs' in connection with a change of control). A SAR is the right to receive
an amount equal to the excess of fair market value of a share of Common Stock
on the date of exercise (or, in the case of a "Limited SAR," the right to
receive the fair market value determined by reference to a change of control
price) over the grant price of the SAR as determined by the Committee. The
Committee determines at the date of grant or thereafter, the time or times at
which and the circumstances under which a SAR may be exercised. The Committee
also determines the method of exercise, method of settlement, form of payment
and form in which Common Stock will be delivered to participants.
Term and Conditions of Restricted Stock. Under the 1998 Incentive Plan, the
Committee is authorized to grant restricted stock. Grants of restricted stock
consist of shares of Common Stock subject to such restrictions as the
Committee may impose. Except to the extent set forth in a particular
19
<PAGE>
award, the holder of restricted stock has all of the rights of a stockholder
of the Company, including the right to vote the restricted stock and the
right, subject to possible reinvestment conditions, to receive dividends
thereon. However, during any period that a restricted stock award is subject
to restrictions imposed by the Committee, the restricted stock may not be
transferred or encumbered by the holder. Except as determined by the
Committee, upon termination of employment during the restricted period, awards
of restricted stock will be forfeited and reacquired by the Company. Award
certificates evidencing restricted stock may bear a legend making reference to
the restrictions imposed on such shares. The Committee will determine the time
or times at which and the circumstances under which any restrictions imposed
on restricted stock will lapse.
Terms and Conditions of Restricted Stock Units. Under the 1998 Incentive
Plan, the Committee is authorized to grant restricted stock units. Restricted
stock units are rights to receive Common Stock, cash, or a combination thereof
at the end of a deferral period. Restricted stock units will be subject to
such restrictions as the Committee may impose. Such restrictions, if any, may
lapse at the expiration of the deferral period or at earlier specified times.
Unless otherwise specified at the date of the grant, restricted stock units
also bestow on a participant the right to receive certain dividend equivalents
(described below). Except as determined by the Committee, upon termination of
employment, all restricted stock units that are at the time subject to
deferral (other than deferral at the recipient's election) will be forfeited.
Terms and Conditions of Bonus Stock and Awards in Lieu of Obligations. Under
the 1998 Incentive Plan, the Committee is authorized to grant Common Stock to
Eligible Persons as a bonus and to grant awards of Common Stock or other
awards in lieu of payment obligations under any Company compensation plan or
arrangement. An award granted as a bonus or in lieu of other compensation
obligations will be subject to such other terms and conditions as the
Committee may determine, including such conditions necessary to prevent the
recipient from incurring liability under Section 16(b) of the Act. However, in
the case of any grant of Common Stock to an officer of the Company in lieu of
salary or other cash compensation, the number of shares granted in place of
such compensation must be reasonable, as determined by the Committee.
Terms and Conditions of Dividend Equivalents. Under the 1998 Incentive Plan,
the Committee is authorized to grant to participants the right to receive
cash, Common Stock, other awards or other property equal in value to dividends
paid with respect to a specified number of shares of Common Stock, or other
periodic payments ("dividend equivalents"). Dividend equivalents may be
awarded independently or in connection with another Award. The Committee may
provide that dividend equivalents will be paid or distributed when accrued or
will be deemed to have been reinvested in additional Common Stock, awards, or
other investment vehicles, and subject to such restrictions on transferability
and risks of forfeiture, as the Committee may specify.
Terms and Conditions of Other Stock-Based Awards. Under the 1998 Incentive
Plan, the Committee also is authorized, subject to limitations under
applicable law, to make such other grants to participants which are payable
in, based on or related to, Common Stock, as the Committee deems to be
consistent with the purposes of the 1998 Incentive Plan, including, without
limitation, awards of convertible or exchangeable debt securities, other
rights convertible or exchangeable into Common Stock, purchase rights for
Common Stock, awards having a value and payment contingent upon performance of
specified objectives by the Company or any other factors designated by the
Committee, and awards valued by reference to the book value of Common Stock or
the value of securities of or the performance of specified subsidiaries of the
Company.
20
<PAGE>
Terms and Conditions of Annual Incentive Awards. Under the 1998 Incentive
Plan, the Committee has the authority to grant annual incentive awards. Annual
incentive awards are a conditional right to receive a cash payment, Common
Stock or other award after the end of a specified fiscal year if certain
performance conditions (described below) are fulfilled.
Performance Conditions
Performance Conditions in General. Under the 1998 Incentive Plan, the right
of a participant to exercise or receive a grant or settlement of an award, and
the timing thereof, may be subject to performance conditions specified by the
Committee (a "Performance Award"). The Committee may use any measures of
performance it deems appropriate in establishing performance conditions, and
may exercise its discretion, to the extent such discretion does not violate
applicable law, to reduce or increase the amounts payable under any
Performance Award based on such conditions. Further, if the Committee
determines that a participant is a "covered employee" under Section 162(m) of
the Code or the regulations thereunder (a "Covered Employee") and the
contemplated Performance Award should qualify as "performance-based
compensation" under such section, then the grant, exercise and/or settlement
of such Performance Award will be contingent upon achievement of one or more
preestablished performance goals. For purposes of Section 162(m) of the Code,
Covered Employees are the chief executive officer of a given corporation and
the four highest compensated officers other than the chief executive officer.
Annual incentive awards may likewise be subject to performance conditions
specified by the Committee and may be designed to qualify as "performance-
based compensation" under Section 162(m) of the Code.
Performance goals will consist of one or more of the business criteria
described below and targeted levels of performance with respect to each of
such criteria, specified by the Committee. Performance goals will be
objective, "substantially uncertain" and will otherwise meet the requirements
of Section 162(m) of the Code and regulations thereunder. Performance goals
may vary among Participants or among Performance Awards to the same
participant.
Business Criteria. One or more of the following business criteria for the
Company, on a consolidated basis, and/or for specified subsidiaries or
business or geographical units of the Company (except with respect to the
total shareholder return and earnings per share criteria), will be used by the
Committee in establishing performance goals: (1) earnings per share; (2)
increase in revenues or margin; (3) increase in cash flow; (4) revenue per
piece and pieces per package; (5) return on net assets, return on assets,
return on investment, return on capital, return on equity; (6) operating
profits in excess of cost of capital employed; (7) direct contribution; (8)
net income; pretax earnings; pretax earnings before interest, depreciation and
amortization (EBITDA); pretax earnings after interest expense and before
incentives, service fees, and extraordinary or special items, operating
income; income before interest income or expense, unusual items and income
taxes (local, state or federal) and excluding budgeted and actual bonuses
which might be paid under any ongoing bonus plans of the Company; (9) working
capital; (10) management of fixed costs or variable costs; (11) identification
and/or consummation of investment opportunities or completion of specified
projects in accordance with corporate business plans, including strategic
mergers, acquisitions, or divestitures; (12) total stockholder return; (13)
debt reduction; and (14) any of the above goals determined on an absolute or
relative basis or as compared to the performance of a published or special
index deemed applicable by the Committee including, but not limited to, the
Standard & Poor's 500 Stock Index or a group of comparable companies
("Business Criteria").
21
<PAGE>
Establishment, Amount and Achievement of Performance Goals;
Pools. Achievement of performance goals will be measured over a performance
period of up to ten years, as specified by the Committee. Performance goals
will be established not later than 90 days after the beginning of any
performance period applicable to such awards, or at such other date as may be
required or permitted for "performance-based compensation" under Section
162(m) of the Code.
After each performance period, or at the end of each fiscal year in the case
of an annual incentive award, the Committee will determine the amount of any
performance awards payable to each Participant. These amounts will be settled,
in the Committee's discretion, in cash, Common Stock, other awards or other
property. The Committee may, at its discretion, decrease the amount of
performance awards but may not increase the amount of a performance award
payable to a Covered Employee.
All determinations by the Committee as to the establishment, amount and
achievement of performance goals by Covered Employees will be made in writing
and the Committee may not delegate any responsibility relating to such
performance awards. The Committee will specify the circumstances under which
performance awards will be paid or forfeited if a Participant is terminated
before settlement.
Other Provisions of the 1998 Incentive Plan
Change in Control. In the event of a Change in Control (defined below),
unless otherwise provided in the Award agreement: (i) any award that was not
previously exercisable will become fully exercisable at the time of the Change
in Control and remain so for the balance of the stated term of such award
except to the extent required by an applicable law, regulation or rule; (ii)
all restrictions applicable to any award will lapse except to the extent
waived by a participant or required by an applicable law, regulation or rule;
(iii) all performance conditions will be deemed met if and to the extent so
provided in the Award agreement relating to such award; and (iv) any optionee
who holds a stock option will be entitled to elect, during the 60-day period
immediately following a Change in Control, in lieu of acquiring shares, to
receive, and the Company will pay, in cash the excess of the highest price
paid for any share in any transaction triggering the Change in Control or the
highest fair market value per share at any time during the 60-day period
preceding and 60-day period following the Change in Control over the exercise
price of such stock option, multiplied by the number of shares covered by such
stock option.
A Change of Control will be deemed to have occurred if: (i) a person other
than certain companies affiliated with the Company or benefit plans becomes
the beneficial owner of 30% or more of the voting power of the Company's
outstanding voting securities (except as a result of acquisitions from the
Company); (ii) during any period of two consecutive years individuals who at
the beginning of such period constitute the Board (or certain other new
directors approved by the Board) cease to constitute a majority of the Board;
(iii) the Company merges or consolidates with another entity unless the
Company's voting securities outstanding immediately prior to the merger
continue to represent (converted or unconverted) more than 50% of the
surviving entity's voting power or no premium was intended to be paid to any
stockholder in the merger; (iv) the stockholders of the Company approve an
agreement to sell all or substantially all of the Company's assets, except
sales to an entity having substantially the same ownership as the Company; or
(v) any other event occurs which the Board determines, in its discretion,
would materially alter the structure of the Company or its ownership.
Transferability. Unless permitted by the Committee pursuant to the express
terms of an award agreement, awards are generally not transferable other than
by will or the laws of descent and distribution or to a named beneficiary.
22
<PAGE>
Amendment and Termination. The Board may amend or terminate the 1998
Incentive Plan without the consent of stockholders or participants, except
that any amendment to the Plan will be subject to the approval of the
Company's stockholders no later than the annual meeting next following such
Board action if such stockholder approval is required by any federal or state
law or regulation or the rules of any stock exchange or automated quotation
system on which the Common Stock may then be listed or quoted. The Board may,
in its discretion, submit other changes to the Plan to stockholders for
approval. However, without the consent of an affected participant, no Board or
stockholder action may materially and adversely affect the rights of such
participant under any previously granted and outstanding Award. The Committee
may amend or terminate any award provided that, and notwithstanding any other
provisions described herein, without the consent of an affected participant,
no such Committee action may materially and adversely affect the rights of
such participant under such award.
Vesting Limitations and Repricing. Restricted Stock, Restricted Stock Units,
and Other Stock-Based Awards generally vest over a minimum period of three
years except in the event of a Participant's death, disability, or retirement,
or in the event of a Change in Control or other special circumstances
(collectively "Special Circumstances"). However, such Awards that are
performance awards generally will vest over a minimum period of one year
except in the event of Special Circumstances. Further, up to 5% of the shares
of Common Stock authorized under the 1998 Incentive Plan may be granted as
restricted stock, restricted stock units, or other stock based awards without
any minimum vesting requirements. For purposes of this paragraph, vesting over
a three-year period or a one-year period will include periodic vesting over
such period if the rate of such vesting is proportional throughout such
period.
The Committee will not, without further approval of the Company
stockholders, grant any stock options under the 1998 Incentive Plan that would
constitute a "repricng" of such stock options and thereby trigger the
disclosure obligations under Item 402(i) of Regulation S-K or any successor
provision.
Tax Implications of Awards under the 1998 Incentive Plan
Set forth below is a summary of the federal income tax consequences to
participants in the 1998 Incentive Plan and to the Company as a result of the
grant and exercise of awards under the Plan. This summary is based on
statutory provisions, Treasury regulations thereunder, judicial decisions, and
IRS rulings in effect on the date of this Proxy Statement.
Non-Qualified Stock Options; Stock Appreciation Rights; Incentive Stock
Options. Participants will not realize taxable income upon the grant of a non-
qualified stock option or an SAR. Upon the exercise of an SAR or a non-
qualified stock option, a Participant will recognize ordinary compensation
income (subject to withholding by the Company) in an amount equal to the
excess of (i) the amount of cash and the fair market value of the Common Stock
received, over (ii) the exercise price (if any) paid therefor. A participant
will generally have a tax basis in any shares of Common Stock received
pursuant to the exercise of a SAR, or pursuant to the exercise of a non-
qualified stock option, that equals the fair market value of such shares on
the date of exercise. Subject to the discussion under "Tax Code Limitations on
Deductibility," the Company (or a subsidiary) will be entitled to a deduction
for federal income tax purposes that corresponds as to timing and amount with
the compensation income recognized by a participant under the foregoing rules.
23
<PAGE>
Participants eligible to receive an incentive stock option will not have
taxable income upon the grant or exercise of such option.
Upon exercise of an incentive stock option the excess of the fair market
value of the shares of Common Stock received ("ISO Stock") over the exercise
price will increase the alternative minimum taxable income of the participant,
which may cause such participant to incur alternative minimum tax. The payment
of any alternative minimum tax attributable to the exercise of an incentive
stock option would be allowed as a credit against the participant's regular
tax liability in a later year to the extent the participant's regular tax
liability is in excess of the alternative minimum tax for that year.
Upon the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the incentive stock option), a participant
will generally recognize capital gain (or loss) equal to the excess (or
shortfall) of the amount received in the disposition over the exercise price
paid by the participant for the ISO Stock. However, if a participant disposes
of ISO Stock that has not been held for the requisite holding period (a
"disqualifying disposition"), the participant will recognize ordinary
compensation income in the year of the disqualifying disposition in an amount
equal to the amount by which the fair market value of the ISO Stock at the
time of exercise of the incentive stock option (or, if less, the amount
realized in the case of an arm's length disqualifying disposition to an
unrelated party) exceeds the exercise price paid by the participant for such
ISO Stock. A participant would also recognize capital gain to the extent the
amount realized in the disqualifying disposition exceeds the fair market value
of the ISO stock on the exercise date.
The Company and its subsidiaries will generally not be entitled to any
federal income tax deduction upon the grant or exercise of an incentive stock
option, unless a participant makes a disqualifying disposition of the ISO
Stock. If a participant makes a disqualifying disposition, the Company (or a
subsidiary) will then, subject to the discussion below under "Tax Code
Limitations on Deductibility," be entitled to a tax deduction that corresponds
as to timing and amount with the compensation income recognized by a
participant under the rules described in the preceding paragraph.
Under current rulings, if a participant transfers previously held shares of
Common Stock (other than ISO Stock that has not been held for the requisite
holding period) in satisfaction of part or all of the exercise price of a non-
qualified stock option or incentive stock option, no additional gain will be
recognized on the transfer of such previously held shares in satisfaction of
the non-qualified stock option or incentive stock option exercise price
(although a participant would still recognize ordinary compensation income
upon exercise of a non-qualified stock option in the manner described above).
Moreover, that number of shares of Common Stock received upon exercise which
equals the number of shares of previously held Common Stock surrendered
therefor in satisfaction of the non-qualified stock option or incentive stock
option exercise price will have a tax basis that equals, and a holding period
that includes, the tax basis and holding period of the previously held shares
of Common Stock surrendered in satisfaction of an non-qualified stock option
or incentive stock option exercise price. Any additional shares of Common
Stock received upon exercise will have a tax basis that equals the amount of
cash (if any) paid by the participant, plus the amount of compensation income
recognized by the participant under the rules described above.
Restricted Stock Units, Restricted Stock, Annual Incentive Awards, Bonus
Stock, Dividend Equivalents. In general, a participant will realize ordinary
compensation income upon the lapse of restrictions tied to a restricted stock
unit equal to the fair market value of any Common Stock or cash such
restricted stock unit gives the participant the right to receive. For
instance, if the Company
24
<PAGE>
provides a vesting schedule setting forth the time or times at which the
participant has a right to actually receive Common Stock, cash or a
combination thereof, the participant will realize ordinary compensation income
equal to the amount of cash and the fair market value of any Common Stock the
participant is given the right to receive at the time such right vests
thereunder. In general, a participant will recognize ordinary compensation
income as a result of the receipt of restricted stock in an amount equal to
the fair market value of the Common Stock when such stock is received;
provided, however, that if the stock is not transferable and is subject to a
substantial risk of forfeiture when received, a participant will recognize
ordinary compensation income in an amount equal to the fair market value of
the Common Stock (a) when the Common Stock first becomes transferable or is no
longer subject to a substantial risk of forfeiture in cases where a
participant does not make a valid election under Section 83(b) of the Code or
(b) when the Common Stock is received in cases where a participant makes a
valid Section 83(b) election. An election pursuant to Section 83(b) of the
Code will allow a participant to realize ordinary income upon the grant of
restricted stock regardless of whether it is not transferable and subject to a
substantial risk of forfeiture. Unless subject to the restrictions of a given
award, a participant will realize ordinary compensation income upon the
receipt of an annual incentive award, bonus stock, or a dividend equivalent
equal to the amount of cash and the fair market value of any Common Stock or
other property received.
A participant will be subject to withholding for federal, and generally for
state and local, income taxes at the time he recognizes income under the rules
described above with respect to Common Stock or cash, or other property
received. Subject to the discussion immediately below, the Company (or a
subsidiary) will be entitled to a deduction for federal income tax purposes
that corresponds as to timing and amount with the compensation income
recognized by a participant under the foregoing rules.
Tax Code Limitations on Deductibility. In order for the amounts described
above to be deductible by the Company (or a subsidiary), such amounts must
constitute reasonable compensation for services rendered or to be rendered and
must be ordinary and necessary business expenses. The ability of the Company
(or a subsidiary) to obtain a deduction for future payments under the 1998
Incentive Plan could also be limited by the golden parachute payment rules of
Section 280G of the Code, which prevent the deductibility of certain excess
parachute payments made in connection with a change in control of a
corporation. Finally, the ability of the Company (or a subsidiary) to obtain a
deduction for amounts paid under the 1998 Incentive Plan could be limited by
Section 162(m) of the Code, which limits the deductibility, for federal income
tax purposes, of compensation paid to certain executive officers of the
Company to $1 million with respect to any such officer during any taxable year
of the Company. However, an exception applies to this limitation in the case
of certain performance-based compensation. The 1998 Incentive Plan is intended
to satisfy the requirements for the performance-based exception.
The closing market value of Common Stock as of November 24, 2000 was $39
13/16 per share as reported on the New York Stock Exchange.
Vote Required and Recommendation for the amendment to the 1998 Incentive
Compensation Plan.
To be approved by the stockholders, the amendment to the 1998 Incentive Plan
must receive the approval of stockholders holding at least a majority of the
outstanding shares of Common Stock present at the Annual Meeting and entitled
to vote on the 1998 Incentive Plan. Abstentions and broker non-votes are
tabulated separately, with abstentions being counted in tabulations of the
votes cast on a proposal
25
<PAGE>
for purposes of determining whether a proposal has been approved and broker
non-votes will not be counted as a vote cast with respect to that proposal.
Because abstentions are counted as present and entitled to vote on the 1998
Incentive Plan Amendment, they will have the effect of votes AGAINST this
Proposal. If a stockholder executes and returns a Proxy but does not specify
otherwise, the shares represented by such stockholder's Proxy will be voted
FOR the amendment to the 1998 Incentive Plan.
Because the 1998 Incentive Plan will increase the kinds and potentially the
number of Awards that may be granted to all executive officers and Directors
of ADVO, each of the executive officers and Directors of ADVO has an interest
in, and may benefit from, the amendment to the 1998 Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
3. 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 29,
2001. Approval of this proposal will be determined by a majority of votes
cast. Abstentions and broker non-votes will have no effect on the outcome of
this proposal.
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 3.
26
<PAGE>
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
In order to be considered for inclusion in the Company's proxy statement and
form of proxy for the 2002 Annual Meeting of Stockholders, any stockholder
proposal must be received by the Secretary of the Company prior to August 16,
2001. In addition, the form of proxy issued with the Company's 2002 proxy
statement will confer discretionary authority to vote for or against any
proposal made by a stockholder at the 2002 Annual Meeting and which is not
included in the Company's proxy statement. However, under the rules of the
SEC, such discretionary authority may not be exercised if the stockholder
proponent has given the Secretary of the Company notice of such proposal prior
to October 30, 2001, and certain other conditions provided for in the
Commission's rules have been satisfied.
/s/ David M. Stigler
David M. Stigler
Secretary
December 14, 2000
27
<PAGE>
Exhibit A
ADVO, INC.
AUDIT COMMITTEE CHARTER
Organization
This charter governs the operations of the audit committee. The committee
shall review and reassess the charter at least annually and obtain the
approval of the board of directors. The committee shall be appointed by the
board of directors and shall comprise at least three directors, each of whom
are independent of management and the Company. Members of the committee shall
be considered independent if they have no relationship that may interfere with
the exercise of their independence from management and the Company. All
committee members shall be financially literate, [or shall become financially
literate within a reasonable period of time after appointment to the
committee], and at least one member shall have accounting or related financial
management expertise.
Statement of Policy
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the board. In
so doing, it is the responsibility of the committee to maintain free and open
communication between the committee, independent auditors, the internal
auditors, and management of the Company. In discharging its oversight role,
the committee is empowered to investigate any matter brought to its attention
with full access to all books, records, facilities, and personnel of the
Company and the power to retain outside counsel, or other experts for this
purpose.
Responsibilities and Processes
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board and report the
results of their activities to the board. Management is responsible for
preparing the Company's financial statements, and the independent auditors are
responsible for auditing those financial statements. The committee in carrying
out its responsibilities believes its policies and procedures should remain
flexible, in order to best react to changing conditions and circumstances. The
committee should take the appropriate actions to set the overall corporate
"tone" for quality financial reporting, sound business risk practices, and
ethical behavior.
The following shall be principal recurring processes of the audit committee
in carrying out its oversight responsibilities. The processes are set forth as
a guide with the understanding that the committee may supplement them as
appropriate.
. The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the audit committee, as representatives of
the Company's shareholders. The committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate, replace
the independent auditors. The committee shall discuss with the auditors
their independence from management and the Company and the matters
included in the written disclosures required by the Independence
Standards Board. Annually, the committee shall review and recommend to
the board the selection of the Company's independent auditors, subject to
shareholders' approval.
A-1
<PAGE>
. The committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits including the adequacy of staffing and compensation. Also, the
committee shall discuss with management, the internal auditors, and the
independent auditors the adequacy and effectiveness of the accounting and
financial controls, including the Company's system to monitor and manage
business risk, and legal and ethical compliance programs. Further, the
committee shall meet separately with the internal auditors and the
independent auditors, with and without management present, to discuss the
results of their examinations.
. The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the committee by the independent auditors
under generally accepted auditing standards. The chair of the committee
may represent the entire committee for the purposes of this review.
. The committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report on
Form 10-K (or the annual report to shareholders if distributed prior to
the filing of Form 10-K), including their judgment about the quality, not
just acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements. Also, the committee shall discuss the results of
the annual audit and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards.
. The committee shall also:
-- Review and reassess the adequacy of this Charter annually and submit
it to the Board for approval.
-- Review major changes to the Company's accounting principles and
practices as suggested by the independent auditor, internal
auditors, or management.
-- Approve the appointment of the outsourced internal audit firm
annually.
-- Review the significant reports to management prepared by the
internal auditing department and management's responses.
-- Obtain from the independent auditor a representation that they noted
no violations of Section 10A of the Private Securities Litigation
Reform Act of 1995.
-- Obtain representations from management, the Company's senior
internal auditing executive, and the independent auditor that they
did not note any violations of the Company's subsidiary/foreign
affiliated entities with applicable legal requirements and the
Company's Code of Conduct.
-- Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy
statement.
-- Advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and regulations
and with the Company's Code of Conduct.
-- Review with the Company's General Counsel legal matters that may
have a material impact on the financial statements, the Company's
compliance policies, and any material reports or inquiries received
from regulators or governmental agencies.
A-2
<PAGE>
EXHIBIT B
ADVO, INC.
1998 INCENTIVE COMPENSATION PLAN
<PAGE>
ADVO, Inc.
1998 Incentive Compensation Plan
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Purpose...................................................................... A-1
2. Definitions.................................................................. A-1
3. Administration............................................................... A-3
(a) Authority of the Committee.............................................. A-3
(b) Manner of Exercise of Committee Authority............................... A-3
(c) Limitation of Liability................................................. A-4
4. Stock Subject to Plan........................................................ A-4
(a) Overall Number of Shares Available for Delivery......................... A-4
(b) Application of Limitation to Grants of Awards........................... A-4
(c) Availability of Shares Not Delivered under Awards....................... A-5
5. Eligibility; Per-Person Award Limitations.................................... A-5
6. Specific Terms of Awards..................................................... A-5
(a) General................................................................. A-5
(b) Options................................................................. A-5
(c) Stock Appreciation Rights............................................... A-6
(d) Restricted Stock........................................................ A-6
(e) Restricted Stock Units.................................................. A-7
(f) Bonus Stock and Awards in Lieu of Obligations........................... A-8
(g) Dividend Equivalents.................................................... A-8
(h) Other Stock-Based Awards................................................ A-8
7. Certain Provisions Applicable to Awards...................................... A-9
(a) Stand-Alone, Additional, Tandem, and Substitute Awards.................. A-9
(b) Term of Awards.......................................................... A-9
(c) Form and Timing of Payment under Awards; Deferrals...................... A-9
(d) Exemptions from Section 16(b) Liability................................. A-9
(e) Non-Competition Agreement............................................... A-9
(f) Limitations on Vesting of Certain Awards and Repricing.................. A-10
8. Performance and Annual Incentive Awards...................................... A-10
(a) Performance Conditions.................................................. A-10
(b) Performance Awards Granted to Designated Covered Employees.............. A-10
(c) Annual Incentive Awards Granted to Designated Covered Employees......... A-12
(d) Written Determinations.................................................. A-13
(e) Status of Section 8(b) and 8(c) Awards under Code Section 162(m)........ A-13
9. Change in Control............................................................. A-13
(a) Effect of "Change in Control"............................................ A-13
(b) Definition of "Change in Control"........................................ A-14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(c) Definition of "Change in Control Price".................................. A-15
10. General Provisions............................................................ A-15
(a) Compliance with Legal and Other Requirements............................. A-15
(b) Limits on Transferability; Beneficiaries................................. A-15
(c) Adjustments.............................................................. A-16
(d) Taxes.................................................................... A-16
(e) Changes to the Plan and Awards........................................... A-16
(f) Limitation on Rights Conferred under Plan................................ A-17
(g) Unfunded Status of Awards; Creation of Trusts............................ A-17
(h) Nonexclusivity of the Plan............................................... A-17
(i) Payments in the Event of Forfeitures; Fractional Shares.................. A-17
(j) Governing Law............................................................ A-17
(k) Awards under Preexisting Plans........................................... A-17
(l) Plan Effective Date and Shareholder Approval............................. A-17
</TABLE>
<PAGE>
1. Purpose. The purpose of this 1998 Incentive Compensation Plan (the
"Plan") is to assist ADVO, Inc., a Delaware corporation (the "Company"), and its
subsidiaries in attracting, retaining, and rewarding high-quality executives,
employees, and other persons who provide services to the Company and/or its
subsidiaries, enabling such persons to acquire or increase a proprietary
interest in the Company in order to strengthen the mutuality of interests
between such persons and the Company's shareholders, and providing such persons
with annual and long-term performance incentives to expend their maximum efforts
in the creation of shareholder value. The Plan is also intended to qualify
certain compensation awarded under the Plan for tax deductibility under Code
Section 162(m) (as hereafter defined) to the extent deemed appropriate by the
Committee (or any successor committee) of the Board of Directors of the Company.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:
(a) "Annual Incentive Award" means a conditional right granted to a
Participant under Section 8(c) hereof to receive a cash payment, Stock or
other Award, unless otherwise determined by the Committee, after the end of
a specified fiscal year.
(b) "Award" means any Option, SAR (including Limited SAR), Restricted
Stock, Restricted Stock Unit, Stock granted as a bonus or in lieu of
another award, Dividend Equivalent, Other Stock-Based Award, Performance
Award or Annual Incentive Award, together with any other right or interest
granted to a Participant under the Plan.
(c) "Beneficiary" means the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards
or other rights are transferred if and to the extent permitted under
Section 10(b) hereof. If, upon a Participant's death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means person, persons, trust or trusts entitled by will or the
laws of descent and distribution to receive such benefits.
(d) "Beneficial Owner" shall have the meaning ascribed to such term
in Rule 13d-3 under the Exchange Act and any successor to such Rule.
(e) "Board" means the Company's Board of Directors.
(f) "Change in Control" means Change in Control as defined with
related terms in Section 9 of the Plan.
(g) "Change in Control Price" means the amount calculated in
accordance with Section 9(c) of the Plan.
(h) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, including regulations thereunder and successor provisions and
regulations thereto.
(i) "Committee" means a committee of two or more directors designated
by the Board to administer the Plan; provided, however, that, unless
otherwise determined by the Board, the Committee shall consist solely of
two or more directors, each of whom shall be (i) a "non-employee director"
within the meaning of Rule 16b-3 under the Exchange Act, unless
administration of the Plan by "non-employee directors" is not then required
in order for exemptions under Rule 16b-3 to apply to transactions under the
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Plan, and (ii) an "outside director" as defined under Code Section 162(m),
unless administration of the Plan by "outside directors" is not then
required in order to qualify for tax deductibility under Code Section
162(m).
(j) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 8(e) of the Plan.
(k) "Dividend Equivalent" means a right, granted to a Participant
under Section 6(g), to receive cash, Stock, other Awards or other property
equal in value to dividends paid with respect to a specified number of
shares of Stock, or other periodic payments.
(l) "Effective Date" means November 6, 1998.
(m) "Eligible Person" means each Executive Officer and other officers
and employees of the Company or of any subsidiary, and other persons who
provide services to the Company or any of its subsidiaries including
directors of the Company. An employee on leave of absence may be considered
as still in the employ of the Company or a subsidiary for purposes of
eligibility for participation in the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(o) "Executive Officer" means an executive officer of the Company as
defined under the Exchange Act.
(p) "Fair Market Value" means the fair market value of Stock, Awards
or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee,
the Fair Market Value of Stock shall be the closing price of a share of
Stock, as quoted on the composite transactions table on the New York Stock
Exchange, on the date on which the determination of fair market value is
being made, or if no shares of Stock were traded on such date, then the
last trading date prior thereto.
(q) "Incentive Stock Option" or "ISO" means any Option intended to be
and designated as an incentive stock option within the meaning of Code
Section 422 or any successor provision thereto.
(r) "Limited SAR" means a right granted to a Participant under
Section 6(c) hereof.
(s) "Option" means a right, granted to a Participant under Section
6(b) hereof, to purchase Stock or other Awards at a specified price during
specified time periods.
(t) "Other Stock-Based Awards" means Awards granted to a Participant
under Section 6(h) hereof.
(u) "Participant" means a person who has been granted an Award under
the Plan which remains outstanding, including a person who is no longer an
Eligible Person.
(v) "Performance Award" means a right, granted to a Participant under
Section 8 hereof, to receive Awards based upon performance criteria
specified by the Committee.
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(w) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
and shall include a "group" as defined in Section 13(d) thereof.
(x) "Preexisting Plans" mean the ADVO, Inc. 1986 Employee Restricted
Stock Plan (as amended and restated effective January 22, 1998); the ADVO,
Inc. 1988 Non-Qualified Stock Option Plan and 1993 Stock Option Subplan (as
amended and restated effective January 22, 1998); the ADVO, Inc. 1986 Stock
Option Plan, as amended; and the Corporate Management and Division/Regional
Incentive Plans.
(y) "Qualified Member" means a member of the Committee who is a "Non-
Employee Director" within the meaning of Rule 16b-3(b)(3) and an "outside
director" within the meaning of Regulation 1.162-27 under Code Section
162(m).
(z) "Restricted Stock" means Stock granted to a Participant under
Section 6(d) hereof, that is subject to certain restrictions and to a risk
of forfeiture.
(aa) "Restricted Stock Unit" means a right, granted to a Participant
under Section 6(e) hereof, to receive Stock, cash or a combination thereof
at the end of a specified deferral period.
(bb) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(cc) "Stock" means the Company's Common Stock, and such other
securities as may be substituted (or resubstituted) for Stock pursuant to
Section 10(c) hereof.
(dd) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c) hereof.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by
the Committee except to the extent the Board elects to administer the Plan,
in which case references herein to the "Committee" shall be deemed to
include references to the "Board". The Committee shall have full and final
authority, in each case subject to and consistent with the provisions of
the Plan, to select Eligible Persons to become Participants, grant Awards,
determine the type, number and other terms and conditions of, and all other
matters relating to, Awards, prescribe Award agreements (which need not be
identical for each Participant) and rules and regulations for the
administration of the Plan, construe and interpret the Plan and Award
agreements and correct defects, supply omissions or reconcile
inconsistencies therein, and to make all other decisions and determinations
as the Committee may deem necessary or advisable for the administration of
the Plan.
(b) Manner of Exercise of Committee Authority. At any time that a
member of the Committee is not a Qualified Member, any action of the
Committee relating to an Award granted or to be granted to a Participant
who is then subject to Section 16 of the Exchange Act in respect of the
Company, or relating to an Award intended by the Committee to qualify as
"performance-based compensation" within the meaning of Code Section 162(m)
and regulations thereunder, may be taken either (i) by a subcommittee,
designated by the Committee, composed solely of two or more Qualified
Members, or (ii) by the Committee but with
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each such member who is not a Qualified Member abstaining or recusing
himself or herself from such action; provided, however, that, upon such
abstention or recusal, the Committee remains composed solely of two or more
Qualified Members. Such action, authorized by such a subcommittee or by the
Committee upon the abstention or recusal of such non-Qualified Member(s),
shall be the action of the Committee for purposes of the Plan. Any action
of the Committee shall be final, conclusive and binding on all persons,
including the Company, its subsidiaries, Participants, Beneficiaries,
transferees under Section 10(b) hereof or other persons claiming rights
from or through a Participant, and shareholders. The express grant of any
specific power to the Committee, and the taking of any action by the
Committee, shall not be construed as limiting any power or authority of the
Committee. The Committee may delegate to officers or managers of the
Company or any subsidiary, or committees thereof, the authority, subject to
such terms as the Committee shall determine, to perform such functions,
including administrative functions, as the Committee may determine, to the
extent that such delegation will not result in the loss of an exemption
under Rule 16b-3(d)(1) for Awards granted to Participants subject to
Section 16 of the Exchange Act in respect of the Company and will not cause
Awards intended to qualify as "performance-based compensation" under Code
Section 162(m) to fail to so qualify. The Committee may appoint agents to
assist it in administering the Plan.
(c) Limitation of Liability. The Committee and each member thereof
shall be entitled to, in good faith, rely or act upon any report or other
information furnished to him or her by any executive officer, other officer
or employee of the Company or a subsidiary, the Company's independent
auditors, consultants or any other agents assisting in the administration
of the Plan. Members of the Committee and any officer or employee of the
Company or a subsidiary acting at the direction or on behalf of the
Committee shall not be personally liable for any action or determination
taken or made in good faith with respect to the Plan, and shall, to the
extent permitted by law, be fully indemnified and protected by the Company
with respect to any such action or determination.
4. Stock Subject to Plan.
(a) Overall Number of Shares Available for Delivery. Subject to
adjustment as provided in Section 10(c) hereof, the total number of shares
of Stock reserved and available for delivery in connection with Awards
under the Plan shall be (i) 1,550,000 [1,000,000], plus (ii) the number of
---------
shares of Stock remaining available under Preexisting Plans immediately
prior to the date on which shareholders of the Company approve the adoption
of the Plan, plus (iii) the number of shares of Stock subject to awards
under Preexisting Plans which become available in accordance with Section
4(c) hereof after the date on which shareholders of the Company approve the
adoption of the Plan; provided, however, that the total number of shares of
Stock with respect to which ISOs may be granted shall not exceed 1,000,000
and the total number of shares of Stock issuable under the Plan in
connection with Awards other than Options shall not exceed 400,000. Any
shares of Stock delivered under the Plan shall consist of authorized and
unissued shares or treasury shares.
(b) Application of Limitation to Grants of Awards. No Award may be
granted if the number of shares of Stock to be delivered in connection with
such Award or, in the case of an Award relating to shares of Stock but
settleable only in cash (such as cash-only SARs), the number of shares to
which such Award relates, exceeds the number of shares of Stock remaining
available under the Plan minus the number of shares of Stock issuable in
settlement of or relating to then-outstanding Awards. The Committee may
adopt reasonable counting procedures to ensure appropriate counting, avoid
double counting (as, for example, in the case of tandem or substitute
awards) and make adjustments if the number
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of shares of Stock actually delivered differs from the number of shares
previously counted in connection with an Award.
(c) Availability of Shares Not Delivered under Awards. Shares of
Stock subject to an Award under the Plan or award under a Preexisting Plan
that is canceled, expired, forfeited, settled in cash or otherwise
terminated without a delivery of shares to the Participant, including (i)
the number of shares withheld in payment of any exercise or purchase price
of an Award or award or taxes relating to Awards or awards, and (ii) the
number of shares surrendered in payment of any exercise or purchase price
of an Award or award or taxes relating to any Award or award, will again be
available for Awards under the Plan, except that if any such shares could
not again be available for Awards to a particular Participant under any
applicable law or regulation, such shares shall be available exclusively
for Awards to Participants who are not subject to such limitation.
5. Eligibility; Per-Person Award Limitations. Awards may be granted
under the Plan only to Eligible Persons. In each fiscal year during any part of
which the Plan is in effect, an Eligible Person may not be granted Awards
relating to more than 750,000 shares of Stock, subject to adjustment as provided
in Section 10(c), under each of Sections 6(b), 6(c), 6(d), 6(e), 6(f), 6(g),
6(h), 8(b) and 8(c). In addition, the maximum cash amount that may be earned
under the Plan as a final Annual Incentive Award or other cash annual Award in
respect of any fiscal year by any one Participant shall be $2 million, and the
maximum cash amount that may be earned under the Plan as a final Performance
Award or other cash Award in respect of a performance period other than an
annual period by any one Participant on an annualized basis shall be $2 million.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award
or the exercise thereof, at the date of grant or thereafter (subject to
Section 10(e)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including
terms requiring forfeiture of Awards in the event of termination of
employment by the Participant and terms permitting a Participant to make
elections relating to his or her Award. The Committee shall retain full
power and discretion to accelerate, waive or modify, at any time, any term
or condition of an Award that is not mandatory under the Plan; provided,
however, that the Committee shall not have any discretion to accelerate,
waive or modify any term or condition of an Award that is intended to
qualify as "performance-based compensation" for purposes of Code Section
162(m) if such discretion would cause the Award not to so qualify. Except
in cases in which the Committee is authorized to require other forms of
consideration under the Plan, or to the extent other forms of consideration
must by paid to satisfy the requirements of the Delaware General Company
Law, no consideration other than services may be required for the grant
(but not the exercise) of any Award.
(b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee,
provided that such exercise price shall be not less than the Fair
Market Value of a share of Stock on the date of grant of such Option
except as provided under Section 7(a) hereof.
(ii) Time and Method of Exercise. The Committee shall determine
the time or times at
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which or the circumstances under which an Option may be exercised in
whole or in part (including based on achievement of performance goals
and/or future service requirements), the methods by which such
exercise price may be paid or deemed to be paid, the form of such
payment, including, without limitation, cash, Stock, other Awards or
awards granted under other plans of the Company or any subsidiary, or
other property (including notes or other contractual obligations of
Participants to make payment on a deferred basis), and the methods by
or forms in which Stock will be delivered or deemed to be delivered to
Participants. In no event may an Option remain exercisable more than
ten years following the date of grant.
(iii) ISOs. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Code Section 422.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to ISOs (including any SAR in tandem therewith) shall be
interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify either the
Plan or any ISO under Code Section 422, unless the Participant has
first requested the change that will result in such disqualification.
(c) Stock Appreciation Rights. The Committee is authorized to grant
SAR's to Participants on the following terms and conditions:
(i) Right to Payment. A SAR shall confer on the Participant
to whom it is granted a right to receive, upon exercise thereof, the
excess of (A) the Fair Market Value of one share of Stock on the date
of exercise (or, in the case of a "Limited SAR," the Fair Market Value
determined by reference to the Change in Control Price, as defined
under Section 9(c) hereof) over (B) the grant price of the SAR as
determined by the Committee.
(ii) Other Terms. The Committee shall determine at the date of
grant or thereafter, the time or times at which and the circumstances
under which a SAR may be exercised in whole or in part (including
based on achievement of performance goals and/or future service
requirements), the method of exercise, method of settlement, form of
consideration payable in settlement, method by or forms in which Stock
will be delivered or deemed to be delivered to Participants, whether
or not a SAR shall be in tandem or in combination with any other
Award, and any other terms and conditions of any SAR. Limited SARs
that may only be exercised in connection with a Change in Control or
other event as specified by the Committee may be granted on such
terms, not inconsistent with this Section 6(c), as the Committee may
determine. SARs and Limited SARs may be either freestanding or in
tandem with other Awards.
(d) Restricted Stock. The Committee is authorized to grant
Restricted Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject
to such restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which restrictions
may lapse separately or in combination at such times, under such
circumstances (including based on achievement of performance goals
and/or future service requirements), in such installments or
otherwise, as the Committee may determine at the date of grant or
thereafter. Except to the extent restricted under the terms of the
Plan and any Award agreement relating to the Restricted Stock, a
Participant granted Restricted Stock shall have all of the rights of a
shareholder, including the right to vote the Restricted Stock and the
right to receive dividends thereon (subject to any mandatory
reinvestment or other requirement imposed by the Committee). During
the restricted
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period applicable to the Restricted Stock, subject to Section 10(b)
below, the Restricted Stock may not be sold, transferred, pledged,
hypothecated, margined or otherwise encumbered by the Participant.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment during the applicable
restriction period, Restricted Stock that is at that time subject to
restrictions shall be forfeited and reacquired by the Company;
provided that the Committee may provide, by rule or regulation or in
any Award agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted Stock
shall be waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in other cases
waive in whole or in part the forfeiture of Restricted Stock.
(iii) Certificates for Stock. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are
registered in the name of the Participant, the Committee may require
that such certificates bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such Restricted
Stock, that the Company retain physical possession of the
certificates, and that the Participant deliver a stock power to the
Company, endorsed in blank, relating to the Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of an
Award of Restricted Stock, the Committee may require or permit a
Participant to elect that any cash dividends paid on a share of
Restricted Stock be automatically reinvested in additional shares of
Restricted Stock or applied to the purchase of additional Awards under
the Plan. Unless otherwise determined by the Committee, Stock
distributed in connection with a Stock split or Stock dividend, and
other property distributed as a dividend, shall be subject to
restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which such Stock or other property
has been distributed.
(e) Restricted Stock Units. The Committee is authorized to grant
Restricted Stock Units to Participants, which are rights to receive Stock,
cash, or a combination thereof at the end of a specified deferral period,
subject to the following terms and conditions:
(i) Award and Restrictions. Satisfaction of an Award of
Restricted Stock Units shall occur upon expiration of the deferral
period specified for such Restricted Stock Units by the Committee (or,
if permitted by the Committee, as elected by the Participant). In
addition, Restricted Stock Units shall be subject to such restrictions
(which may include a risk of forfeiture) as the Committee may impose,
if any, which restrictions may lapse at the expiration of the deferral
period or at earlier specified times (including based on achievement
of performance goals and/or future service requirements), separately
or in combination, in installments or otherwise, as the Committee may
determine. Restricted Stock Units may be satisfied by delivery of
Stock, cash equal to the Fair Market Value of the specified number of
shares of Stock covered by the Restricted Stock Units, or a
combination thereof, as determined by the Committee at the date of
grant or thereafter.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment during the applicable
deferral period or portion thereof to which forfeiture conditions
apply (as provided in the Award agreement evidencing the Restricted
Stock Units), all Restricted Stock Units that are at that time subject
to deferral (other than a deferral at the election of the Participant)
shall be forfeited; provided that the Committee may provide, by rule
or regulation or in
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any Award agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted Stock
Units shall be waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in other cases
waive in whole or in part the forfeiture of Restricted Stock Units.
(iii) Dividend Equivalents. Unless otherwise determined by the
Committee at date of grant, Dividend Equivalents on the specified
number of shares of Stock covered by an Award of Restricted Stock
Units shall be either (A) paid with respect to such Restricted Stock
Units at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of
such dividends, or (B) deferred with respect to such Restricted Stock
Units and the amount or value thereof automatically deemed reinvested
in additional Restricted Stock Units, other Awards or other investment
vehicles, as the Committee shall determine or permit the Participant
to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of obligations to pay cash or deliver other property under the Plan or
under other plans or compensatory arrangements, provided that, in the case
of Participants subject to Section 16 of the Exchange Act, the amount of
such grants remains within the discretion of the Committee to the extent
necessary to ensure that acquisitions of Stock or other Awards are exempt
from liability under Section 16(b) of the Exchange Act. Stock or Awards
granted hereunder shall be subject to such other terms as shall be
determined by the Committee. In the case of any grant of Stock to an
officer of the Company in lieu of salary or other cash compensation, the
number of shares granted in place of such compensation shall be reasonable,
as determined by the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to a Participant, entitling the Participant to receive
cash, Stock, other Awards, or other property equal in value to dividends
paid with respect to a specified number of shares of Stock, or other
periodic payments. Dividend Equivalents may be awarded on a free-standing
basis or in connection with another Award. The Committee may provide that
Dividend Equivalents shall be paid or distributed when accrued or shall be
deemed to have been reinvested in additional Stock, Awards, or other
investment vehicles, and subject to such restrictions on transferability
and risks of forfeiture, as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject
to limitations under applicable law, to grant to Participants such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including,
without limitation, convertible or exchangeable debt securities, other
rights convertible or exchangeable into Stock, purchase rights for Stock,
Awards with value and payment contingent upon performance of the Company or
any other factors designated by the Committee, and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries. The Committee shall determine the
terms and conditions of such Awards. Stock delivered pursuant to an Award
in the nature of a purchase right granted under this Section 6(h) shall be
purchased for such consideration, paid for at such times, by such methods,
and in such forms, including, without limitation, cash, Stock, other
Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may also
be granted pursuant to this Section 6(h).
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7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of
the Company, any subsidiary, or any business entity to be acquired by the
Company or a subsidiary, or any other right of a Participant to receive
payment from the Company or any subsidiary. Such additional, tandem, and
substitute or exchange Awards may be granted at any time. If an Award is
granted in substitution or exchange for another Award or award, the
Committee shall require the surrender of such other Award or award in
consideration for the grant of the new Award. In addition, Awards may be
granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any subsidiary, in which the
value of Stock subject to the Award is equivalent in value to the cash
compensation (for example, Restricted Stock Units or Restricted Stock), or
in which the exercise price, grant price or purchase price of the Award in
the nature of a right that may be exercised is equal to the Fair Market
Value of the underlying Stock minus the value of the cash compensation
surrendered (for example, Options granted with an exercise price
"discounted" by the amount of the cash compensation surrendered).
(b) Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee; provided that in no event shall the
term of any Option or SAR exceed a period of ten years (or such shorter
term as may be required in respect of an ISO under Code Section 422).
(c) Form and Timing of Payment under Awards; Deferrals. Subject to
the terms of the Plan and any applicable Award agreement, payments to be
made by the Company or a subsidiary upon the exercise of an Option or other
Award or settlement of an Award may be made in such forms as the Committee
shall determine, including, without limitation, cash, Stock, other Awards
or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any Award may be
accelerated, and cash paid in lieu of Stock in connection with such
settlement, in the discretion of the Committee or upon occurrence of one or
more specified events (in addition to a Change in Control). Installment or
deferred payments may be required by the Committee (subject to Section
10(e) of the Plan, including the consent provisions thereof in the case of
any deferral of an outstanding Award not provided for in the original Award
agreement) or permitted at the election of the Participant on terms and
conditions established by the Committee. Payments may include, without
limitation, provisions for the payment or crediting of reasonable interest
on installment or deferred payments or the grant or crediting of Dividend
Equivalents or other amounts in respect of installment or deferred payments
denominated in Stock.
(d) Exemptions from Section 16(b) Liability. It is the intent of the
Company that the grant of any Awards to or other transaction by a
Participant who is subject to Section 16 of the Exchange Act shall be
exempt from Section 16 pursuant to an applicable exemption (except for
transactions acknowledged in writing to be non-exempt by such Participant).
Accordingly, if any provision of this Plan or any Award agreement does not
comply with the requirements of Rule 16b-3 as then applicable to any such
transaction, such provision shall be construed or deemed amended to the
extent necessary to conform to the applicable requirements of Rule 16b-3 so
that such Participant shall avoid liability under Section 16(b).
(e) Non-Competition Agreement. Each Participant to whom an Award is
granted under the Plan, who has not already done so at the time of such
grant, may be required to agree in writing as a condition to the granting
of such Award not to engage in conduct in direct competition with the
Company or any of its subsidiaries for one year after the termination of
such Participant's employment with the Company and its subsidiaries.
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(f) Limitation on Vesting of Certain Awards and Repricing.
(i) Vesting Limitations. Restricted Stock, Restricted Stock Units,
and Other Stock-Based Awards, as described in Section 6(d), 6(e) and 6(h)
of the Plan, respectively, generally will vest over a minimum period of
three years except in the event of a Participant's death, disability, or
retirement, or in the event of a Change in Control or other special
circumstances. The foregoing notwithstanding, (i) Restricted Stock,
Restricted Stock Units, and Other-Stock Based Awards as to which either
the grant or vesting is based on the achievement of one or more
performance conditions generally will vest over a minimum period of one
year except in the event of a Participant's death, disability, or
retirement, or in the event of a Change in Control or other special
circumstances, and (ii) up to 5% of the shares of Stock authorized under
the Plan may be granted as Restricted Stock, Restricted Stock Units, or
Other Stock-Based Awards without any minimum vesting requirements. For
purposes of this Section 7(f), vesting over a three-year period or one-
year period will include periodic vesting over such period if the rate of
such vesting is proportional throughout such period.
(ii) Repricing. The Committee will not, without further approval of
the Company's stockholders, grant any Options under the Plan that would
constitute a "repricing" of such Options and thereby trigger the
disclosure obligations under Item 402(i) of Regulation S-K or any
successor provision.
8. Performance and Annual Incentive Awards.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Committee.
The Committee may use such business criteria and other measures of
performance as it may deem appropriate in establishing any performance
conditions, and may exercise its discretion to reduce or increase the amounts
payable under any Award subject to performance conditions, except as limited
under Sections 8(b) and 8(c) hereof in the case of a Performance Award or
Annual Incentive Award intended to qualify under Code Section 162(m).
(b) Performance Awards Granted to Designated Covered Employees. If the
Committee determines that a Performance Award to be granted to an Eligible
Person who is designated by the Committee as likely to be a Covered Employee
should qualify as "performance-based compensation" for purposes of Code
Section 162(m), the grant, exercise and/or settlement of such Performance
Award shall be contingent upon achievement of preestablished performance
goals and other terms set forth in this Section 8(b).
(i) Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section
8(b). Performance goals shall be objective and shall otherwise meet the
requirements of Code Section 162(m) and regulations thereunder (including
Regulation 1.162-27 and successor regulations thereto), including the
requirement that the level or levels of performance targeted by the
Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that such
Performance Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant, exercise
and/or settlement of such Performance Awards.
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Performance goals may differ for Performance Awards granted to any one
Participant or to different Participants.
(ii) Business Criteria. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for specified
subsidiaries or business or geographical units of the Company (except
with respect to the total shareholder return and earnings per share
criteria), shall be used by the Committee in establishing performance
goals for such Performance Awards: (1) earnings per share; (2) increase
in revenues or margin; (3) increase in cash flow; (4) revenue per piece;
pieces per package; (5) return on net assets, return on assets, return on
investment, return on capital, return on equity; (6) operating profits in
excess of cost of capital employed; (7) direct contribution; (8) net
income; pretax earnings; pretax earnings before interest, depreciation
and amortization (EBITDA); pretax earnings after interest expense and
before incentives, service fees, and extraordinary or special items;
operating income; income before interest income or expense, unusual items
and income taxes (local, state or federal) and excluding budgeted and
actual bonuses which might be paid under any ongoing bonus plans of the
Company; (9) working capital; (10) management of fixed costs or variable
costs; (11) identification and/or consummation of investment
opportunities or completion of specified projects in accordance with
corporate business plans, including strategic mergers, acquisitions or
divestitures; (12) total shareholder return; (13) debt reduction; and
(14) any of the above goals determined on an absolute or relative basis
or as compared to the performance of a published or special index deemed
applicable by the Committee including, but not limited to, the Standard &
Poor's 500 Stock Index or a group of comparator companies. One or more
of the foregoing business criteria shall also be exclusively used in
establishing performance goals for Annual Incentive Awards granted to a
Covered Employee under Section 8(c) hereof.
(iii) Performance Period; Timing for Establishing Performance Goals.
Achievement of performance goals in respect of such Performance Awards
shall be measured over a performance period of up to ten years, as
specified by the Committee. Performance goals shall be established not
later than 90 days after the beginning of any performance period
applicable to such Performance Awards, or at such other date as may be
required or permitted for "performance-based compensation" under Code
Section 162(m).
(iv) Performance Award Pool. The Committee may establish a
Performance Award pool, which shall be an unfunded pool, for purposes of
measuring performance of the Company in connection with Performance
Awards. The amount of such Performance Award pool shall be based upon
the achievement of a performance goal or goals based on one or more of
the business criteria set forth in Section 8(b)(ii) hereof during the
given performance period, as specified by the Committee in accordance
with Section 8(b)(iii) hereof. The Committee may specify the amount of
the Performance Award pool as a percentage of any of such business
criteria, a percentage thereof in excess of a threshold amount, or as
another amount which need not bear a strictly mathematical relationship
to such business criteria.
(v) Settlement of Performance Awards; Other Terms. After the end of
each performance period, the Committee shall determine the amount, if
any, of (A) the Performance Award pool, and the maximum amount of
potential Performance Award payable to each Participant in the
Performance Award pool, or (B) the amount of potential Performance Award
otherwise payable to each Participant. Settlement of such Performance
Awards shall be in cash, Stock, other Awards or other property, in the
discretion of the Committee. The Committee may, in its discretion, reduce
the amount of a settlement otherwise to be made in connection with such
Performance Awards, but may
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not exercise discretion to increase any such amount payable to a Covered
Employee in respect of a Performance Award subject to this Section 8(b).
The Committee shall specify the circumstances in which such Performance
Awards shall be paid or forfeited in the event of termination of
employment by the Participant prior to the end of a performance period or
settlement of Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered Employees. If
the Committee determines that an Annual Incentive Award to be granted to an
Eligible Person who is designated by the Committee as likely to be a Covered
Employee should qualify as "performance-based compensation" for purposes of
Code Section 162(m), the grant, exercise and/or settlement of such Annual
Incentive Award shall be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(c).
(i) Annual Incentive Award Pool. The Committee may establish an
Annual Incentive Award pool, which shall be an unfunded pool, for
purposes of measuring performance of the Company in connection with
Annual Incentive Awards. The amount of such Annual Incentive Award pool
shall be based upon the achievement of a performance goal or goals based
on one or more of the business criteria set forth in Section 8(b)(ii)
hereof during the given performance period, as specified by the Committee
in accordance with Section 8(b)(iii) hereof. The Committee may specify
the amount of the Annual Incentive Award pool as a percentage of any of
such business criteria, a percentage thereof in excess of a threshold
amount, or as another amount which need not bear a strictly mathematical
relationship to such business criteria.
(ii) Potential Annual Incentive Awards. Not later than the end of
the 90th day of each fiscal year, or at such other date as may be
required or permitted in the case of Awards intended to be "performance-
based compensation" under Code Section 162(m), the Committee shall
determine the Eligible Persons who will potentially receive Annual
Incentive Awards, and the amounts potentially payable thereunder, for
that fiscal year, either out of an Annual Incentive Award pool
established by such date under Section 8(c)(i) hereof or as individual
Annual Incentive Awards. In the case of individual Annual Incentive
Awards intended to qualify under Code Section 162(m), the amount
potentially payable shall be based upon the achievement of a performance
goal or goals based on one or more of the business criteria set forth in
Section 8(b)(ii) hereof in the given performance year, as specified by
the Committee; in other cases, such amount shall be based on such
criteria as shall be established by the Committee. In all cases, the
maximum Annual Incentive Award of any Participant shall be subject to the
limitation set forth in Section 5 hereof.
(iii) Payout of Annual Incentive Awards. After the end of each
fiscal year, the Committee shall determine the amount, if any, of (A) the
Annual Incentive Award pool, and the maximum amount of potential Annual
Incentive Award payable to each Participant in the Annual Incentive Award
pool, or (B) the amount of potential Annual Incentive Award otherwise
payable to each Participant. The Committee may, in its discretion,
determine that the amount payable to any Participant as a final Annual
Incentive Award shall be increased or reduced from the amount of his or
her potential Annual Incentive Award, including a determination to make
no final Award whatsoever, but may not exercise discretion to increase
any such amount in the case of an Annual Incentive Award intended to
qualify under Code Section 162(m). The Committee shall specify the
circumstances in which an Annual Incentive Award shall be paid or
forfeited in the event of termination of employment by the Participant
prior to the end of a fiscal year or settlement of such Annual Incentive
Award.
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(d) Written Determinations. All determinations by the Committee as to the
establishment of performance goals, the amount of any Performance Award pool or
potential individual Performance Awards and as to the achievement of performance
goals relating to Performance Awards under Section 8(b), and the amount of any
Annual Incentive Award pool or potential individual Annual Incentive Awards and
the amount of final Annual Incentive Awards under Section 8(c), shall be made in
writing in the case of any Award intended to qualify under Code Section 162(m).
The Committee may not delegate any responsibility relating to such Performance
Awards or Annual Incentive Awards.
(e) Status of Section 8(b) and Section 8(c) Awards under Code Section
162(m). It is the intent of the Company that Performance Awards and Annual
Incentive Awards under Sections 8(b) and 8(c) hereof granted to persons who are
designated by the Committee as likely to be Covered Employees within the meaning
of Code Section 162(m) and regulations thereunder (including Regulation 1.162-27
and successor regulations thereto) shall, if so designated by the Committee,
constitute "performance-based compensation" within the meaning of Code Section
162(m) and regulations thereunder. Accordingly, the terms of Sections 8(b), (c),
(d) and (e), including the definitions of Covered Employee and other terms used
therein, shall be interpreted in a manner consistent with Code Section 162(m)
and regulations thereunder. The foregoing notwithstanding, because the Committee
cannot determine with certainty whether a given Participant will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the term
Covered Employee as used herein shall mean only a person designated by the
Committee, at the time of grant of Performance Awards or an Annual Incentive
Award, as likely to be a Covered Employee with respect to that fiscal year. If
any provision of the Plan as in effect on the date of adoption or any agreements
relating to Performance Awards or Annual Incentive Awards that are designated as
intended to comply with Code Section 162(m) does not comply or is inconsistent
with the requirements of Code Section 162(m) or regulations thereunder, such
provision shall be construed or deemed amended to the extent necessary to
conform to such requirements.
9. Change in Control.
(a) Effect of "Change in Control." In the event of a "Change in Control,"
the following provisions shall apply unless otherwise provided in the Award
agreement:
(i) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested as of the
time of the Change in Control and shall remain exercisable and vested for
the balance of the stated term of such Award without regard to any
termination of employment by the Participant, subject only to applicable
restrictions set forth in Section 10(a) hereof;
(ii) Any optionee who holds an Option shall be entitled to elect,
during the 60-day period immediately following a Change in Control, in lieu
of acquiring the shares of Stock covered by such Option, to receive, and the
Company shall be obligated to pay, in cash the excess of the Change in
Control Price over the exercise price of such Option, multiplied by the
number of shares of Stock covered by such Option;
(iii) The restrictions, deferral of settlement, and forfeiture
conditions applicable to any other Award granted under the Plan shall lapse
and such Awards shall be deemed fully vested as of the
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time of the Change in Control, except to the extent of any waiver by the
Participant and subject to applicable restrictions set forth in Section
10(a) hereof; and
(iv) With respect to any outstanding Award subject to achievement of
performance goals and conditions under the Plan, such performance goals
and other conditions will be deemed to be met if and to the extent so
provided in the Award agreement relating to such Award.
(b) Definition of "Change in Control." A "Change in Control" shall be
deemed to have occurred if:
(i) any Person (other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan of the
Company, or any company owned, directly or indirectly, by the
stockholders of the Company immediately prior to the occurrence with
respect to which the evaluation is being made in substantially the same
proportions as their ownership of the common stock of the Company)
acquires securities of the Company and immediately thereafter is the
Beneficial Owner (except that a Person shall be deemed to be the
Beneficial Owner of all shares that any such Person has the right to
acquire pursuant to any agreement or arrangement or upon exercise of
conversion rights, warrants or options or otherwise, without regard to
the sixty day period referred to in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company's then outstanding
securities (except that an acquisition of securities directly from the
Company shall not be deemed an acquisition for purposes of this clause
(i));
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in clause
(i), (iii), or (iv) of this paragraph) whose election by the Board or
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the two-year period or whose
election or nomination for election was previously so approved but
excluding for this purpose any such new director whose initial assumption
of office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of an individual,
corporation, partnership, group, associate or other entity or Person
other than the Board, cease for any reason to constitute at least a
majority of the Board;
(iii) the consummation of a merger or consolidation of the Company
with any other entity, other than (i) a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
or resulting entity) more than 50% of the combined voting power of the
surviving or resulting entity outstanding immediately after such merger
or consolidation or (ii) a merger or consolidation in which no premium is
intended to be paid to any shareholder participating in the merger or
consolidation;
(iv) the stockholders of the Company approve a plan or agreement for
the sale or disposition of all or substantially all of the consolidated
assets of the Company (other than such a sale or disposition immediately
after which such assets will be owned directly or indirectly by the
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stockholders of the Company in substantially the same proportions as
their ownership of the common stock of the Company immediately prior to
such sale or disposition) in which case the Board shall determine the
effective date of the Change in Control resulting therefrom; or
(v) any other event occurs which the Board determines, in its
discretion, would materially alter the structure of the Company or its
ownership.
(c) Definition of "Change in Control Price." The "Change in Control
Price" means an amount in cash equal to the higher of (i) the amount of cash
and fair market value of property that is the highest price per share paid
(including extraordinary dividends) in any transaction triggering the Change
in Control or any liquidation of shares following a sale of substantially all
assets of the Company, or (ii) the highest Fair Market Value per share at any
time during the 60-day period preceding and 60-day period following the
Change in Control.
10. General Provisions.
(a) Compliance with Legal and Other Requirements. The Company may, to the
extent deemed necessary or advisable by the Committee, postpone the issuance
or delivery of Stock or payment of other benefits under any Award until
completion of such registration or qualification of such Stock or other
required action under any federal or state law, rule or regulation, listing
or other required action with respect to any stock exchange or automated
quotation system upon which the Stock or other securities of the Company are
listed or quoted, or compliance with any other obligation of the Company, as
the Committee may consider appropriate, and may require any Participant to
make such representations, furnish such information and comply with or be
subject to such other conditions as it may consider appropriate in connection
with the issuance or delivery of Stock or payment of other benefits in
compliance with applicable laws, rules, and regulations, listing
requirements, or other obligations. The foregoing notwithstanding, in
connection with a Change in Control, the Company shall take or cause to be
taken no action, and shall undertake or permit to arise no legal or
contractual obligation, that results or would result in any postponement of
the issuance or delivery of Stock or payment of benefits under any Award or
the imposition of any other conditions on such issuance, delivery or payment,
to the extent that such postponement or other condition would represent a
greater burden on a Participant than existed on the 90th day preceding the
Change in Control.
(b) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan shall be pledged, hypothecated or
otherwise encumbered or subject to any lien, obligation or liability of such
Participant to any party (other than the Company or a subsidiary), or
assigned or transferred by such Participant otherwise than by will or the
laws of descent and distribution or to a Beneficiary upon the death of a
Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or
his or her guardian or legal representative, except that Awards and other
rights (other than ISOs and SARs in tandem therewith) may be transferred to
one or more Beneficiaries or other transferees during the lifetime of the
Participant, and may be exercised by such transferees in accordance with the
terms of such Award, but only if and to the extent such transfers are
permitted by the Committee pursuant to the express terms of an Award
agreement (subject to any terms and conditions which the Committee may impose
thereon). A Beneficiary, transferee, or other person claiming any rights
under the Plan from or through any Participant shall be subject to all terms
and conditions of the Plan and any Award agreement applicable to such
Participant, except as otherwise determined by the Committee, and to any
additional terms and conditions deemed necessary or appropriate by the
Committee.
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<PAGE>
(c) Adjustments. In the event that any dividend or other distribution
(whether in the form of cash, Stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other
similar transaction or event affects the Stock such that an adjustment is
determined by the Committee to be appropriate under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all
of (i) the number and kind of shares of Stock which may be delivered in
connection with Awards granted thereafter, (ii) the number and kind of shares
of Stock by which annual per-person Award limitations are measured under
Section 5 hereof, (iii) the number and kind of shares of Stock subject to or
deliverable in respect of outstanding Awards and (iv) the exercise price,
grant price or purchase price relating to any Award and/or make provision for
payment of cash or other property in respect of any outstanding Award. In
addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards (including Performance
Awards and performance goals, and Annual Incentive Awards and any Annual
Incentive Award pool or performance goals relating thereto) in recognition of
unusual or nonrecurring events (including, without limitation, events
described in the preceding sentence, as well as acquisitions and dispositions
of businesses and assets) affecting the Company, any subsidiary or any
business unit, or the financial statements of the Company or any subsidiary,
or in response to changes in applicable laws, regulations, accounting
principles, tax rates and regulations or business conditions or in view of
the Committee's assessment of the business strategy of the Company, any
subsidiary or business unit thereof, performance of comparable organizations,
economic and business conditions, personal performance of a Participant, and
any other circumstances deemed relevant; provided that no such adjustment
shall be authorized or made if and to the extent that such authority or the
making of such adjustment would cause Options, SARs, Performance Awards
granted under Section 8(b) hereof or Annual Incentive Awards granted under
Section 8(c) hereof to Participants designated by the Committee as Covered
Employees and intended to qualify as "performance-based compensation" under
Code Section 162(m) and regulations thereunder to otherwise fail to qualify
as "performance-based compensation" under Code Section 162(m) and regulations
thereunder.
(d) Taxes. The Company and any subsidiary is authorized to withhold from
any Award granted, any payment relating to an Award under the Plan, including
from a distribution of Stock, or any payroll or other payment to a
Participant, amounts necessary to satisfy the Company's required tax
withholding (e.g., the amount defined by IRS Guidelines for the employer's
minimum statutory withholding) in connection with any transaction involving
an Award, and to take such other action as the Committee may deem advisable
to enable the Company and Participants to satisfy obligations for the payment
of such withholding taxes and other tax obligations relating to any Award.
This authority shall include authority to withhold or receive Stock or other
property and to make cash payments in respect thereof in satisfaction of a
Participant's tax obligations, either on a mandatory or elective basis in the
discretion of the Committee.
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee's authority to grant
Awards under the Plan without the consent of shareholders or Participants,
except that any amendment or alteration to the Plan shall be subject to the
approval of the Company's shareholders not later than the annual meeting next
following such Board action if such shareholder approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted,
and the Board may otherwise, in its discretion, determine to submit other
such changes to the Plan to shareholders for approval; provided that, without
the consent of an affected Participant, no such Board action may materially
and adversely affect the rights of such Participant under any previously
granted and outstanding
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Award. The Committee may waive any conditions or rights under, or amend,
alter, suspend, discontinue or terminate any Award theretofore granted and
any Award agreement relating thereto, except as otherwise provided in the
Plan; provided that, without the consent of an affected Participant, no such
Committee action may materially and adversely affect the rights of such
Participant under such Award. Notwithstanding anything in the Plan to the
contrary, if any right under this Plan would cause a transaction to be
ineligible for pooling of interest accounting that would, but for the right
hereunder, be eligible for such accounting treatment, the Committee may
modify or adjust the right so that pooling of interest accounting shall be
available, including the substitution of Stock having a Fair Market Value
equal to the cash otherwise payable hereunder for the right which caused the
transaction to be ineligible for pooling of interest accounting.
(f) Limitation on Rights Conferred under Plan. Neither the Plan nor any
action taken hereunder shall be construed as (i) giving any Eligible Person
or Participant the right to continue as an Eligible Person or Participant or
in the employ or service of the Company or a subsidiary, (ii) interfering in
any way with the right of the Company or a subsidiary to terminate any
Eligible Person's or Participant's employment or service at any time, (iii)
giving an Eligible Person or Participant any claim to be granted any Award
under the Plan or to be treated uniformly with other Participants and
employees, or (iv) conferring on a Participant any of the rights of a
shareholder of the Company unless and until the Participant is duly issued or
transferred shares of Stock in accordance with the terms of an Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended
to constitute an "unfunded" plan for certain incentive awards and deferred
compensation. With respect to any payments not yet made to a Participant or
obligation to deliver Stock pursuant to an Award, nothing contained in the
Plan or any Award shall give any such Participant any rights that are greater
than those of a general creditor of the Company.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the shareholders of the Company for approval
shall be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements as it may deem
desirable including incentive arrangements and awards which do not qualify
under Code Section 162(m).
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an
Award with respect to which a Participant paid cash or other consideration,
the Participant shall be repaid the amount of such cash or other
consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether
cash, other Awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction and effect of the Plan,
any rules and regulations under the Plan, and any Award agreement shall be
determined in accordance with the Delaware General Corporation Law, without
giving effect to principles of conflicts of laws, and applicable federal law.
(k) Awards under Preexisting Plans. Upon approval of the Plan by
shareholders of the Company as required under Section 10(l) hereof, no
further awards shall be granted under the Preexisting Plans.
(l) Plan Effective Date and Shareholder Approval. The Plan was adopted
by the Board effective November 6, 1998, and was approved by the shareholders
of the Company at the Company's Annual meeting of Shareholders held on
January 21, 2000.
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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 Julie A. Abraham, 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 18,
2001 at the Sheraton Hotel at Bradley International Airport, Windsor Locks, CT,
commencing at 10:30 a.m. (EST) 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 and
3.
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 .
<PAGE>
The Board of Directors recommends that you vote "FOR" Items 1, 2 and 3.
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 listed to the right (except as marked to the contrary)
[_]
WITHHOLD AUTHORITY to vote for all nominees listed to the right
[_]
Nominees for election by holders of Common Stock: Todd Brown, Bruce Crawford,
David F. Dyer, John Mahoney, 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 ADVO, Inc. 1998 Incentive Compensation
Plan, as described in the Proxy.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Ratification of the Appointment of Ernst & Young LLP as the Company's
Independent Auditors for fiscal 2001.
FOR AGAINST ABSTAIN
[_] [_] [_]
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Signature __________________ Signature __________________Date _________________
Please sign exactly as name appears above. 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.
................................................................................
. FOLD AND DETACH HERE .
