<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
FORM 10-Q
___________________________
(Mark One)
__X __ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1998
______ Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 1-10991
VALASSIS COMMUNICATIONS, INC.
(Exact Name of Registrant
as Specified in its Charter)
Delaware 38-2760940
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
19975 Victor Parkway
Livonia, Michigan 48152
(address of principal executive offices)
Registrant's Telephone Number: (734) 591-3000
_______________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and, (2) has been subject to such filing require-
ments for the past 90 days:
Yes ___X___ No ________
As of October 31, 1998, there were 38,154,006 shares of the Registrant's
Common Stock outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VALASSIS COMMUNICATIONS, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
______________ _____________
(unaudited) (note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $19,592 $35,437
Accounts receivable (less allowance for
doubtful accounts of $1,773 at
September 30, 1998 and
$1,171 at December 31, 1997) 93,807 81,681
Inventories:
Raw materials 10,647 10,975
Work in progress 18,357 15,720
Prepaid expenses and other 8,227 4,536
Deferred income taxes 1,966 1,966
Refundable income taxes 902 772
_____________ ______________
Total current assets 153,498 151,087
_____________ ______________
Property, plant and equipment, at cost:
Land and buildings 20,133 20,133
Machinery and equipment 115,382 108,167
Office furniture and equipment 19,342 17,995
Automobiles 1,057 1,012
Leasehold improvements 1,022 1,022
_____________ ______________
156,936 148,329
Less accumulated depreciation
and amortization (111,585) (108,098)
_____________ ______________
Net property, plant and equipment 45,351 40,231
_____________ ______________
Intangible assets:
Goodwill 68,594 68,594
Other intangibles 85,387 83,387
_____________ _____________
153,981 151,981
Less accumulated amortization (110,782) (104,709)
_____________ ______________
Net intangible assets 43,199 47,272
_____________ ______________
Other assets (primarily
debt issuance costs) 1,408 2,295
_____________ ______________
Total assets $243,456 $240,885
============= ==============
</TABLE>
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<PAGE> 3
VALASSIS COMMUNICATIONS, INC.
Condensed Consolidated Balance Sheets, Continued
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' DEFICIT 1998 1997
______________ ___________
(unaudited) (note)
<S> <C> <C>
Current liabilities:
Current portion, long-term debt $107,664 $ ---
Accounts payable 64,359 59,226
Accrued interest 8,544 5,098
Accrued expenses 24,194 25,899
Progress billings 57,437 58,239
______________ ___________
Total current liabilities 262,198 148,462
______________ ___________
Long-term debt 254,925 367,075
Deferred income taxes 2,315 2,315
Stockholders' deficit:
Common stock of $.01 par value.
Authorized 100,000,000 shares; issued
45,842,728 at September 30, 1998 and
44,515,599 at December 31, 1997;
outstanding 38,342,228 at September 30,
1998 and 39,515,599 at December 31, 199 458 445
Additional paid-in capital 106,221 72,399
Accumulated deficit (173,804) (236,625)
Foreign currency translations (291) (146)
Treasury stock, at cost (7,500,500 shares
at September 30, 1998 and 5,000,000 shares
at December 31, 1997)
(208,566) (113,040)
____________ __________
Total stockholders' deficit (275,982) (276,967)
____________ __________
Total liabilities and
stockholders' deficit $243,456 $240,885
============ ==========
</TABLE>
NOTE: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE> 4
VALASSIS COMMUNICATIONS, INC.
Condensed Consolidated Statements of Operations
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
______________________ _____________________
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997
__________ __________ __________ _________
<S> <C> <C> <C> <C>
Revenues:
Net sales $166,467 $152,619 $549,824 $505,755
Other 636 894 1,858 1,971
_________ __________ __________ _________
Total revenues 167,103 153,513 551,682 507,726
_________ __________ __________ _________
Costs and expenses:
Cost of products sold 107,377 97,861 359,412 327,538
Selling, general and
administrative 16,799 17,307 57,969 59,035
Amortization of
intangible assets 2,024 2,031 6,073 6,557
Interest 8,758 9,401 26,532 28,741
_________ __________ __________ _________
Total costs
and expenses 134,958 126,600 449,986 421,871
_________ __________ __________ _________
Earnings before
income taxes 32,145 26,913 101,696 85,855
Income taxes 12,275 9,100 38,875 34,000
_________ __________ __________ _________
Net earnings $19,870 $17,813 $62,821 $51,855
========= ========== ========== =========
Net earnings per common
share, basic $ .52 $ .44 $ 1.60 $ 1.26
========= ========== ========= ==========
Net earnings per common
share, diluted $ .51 $ .43 $ 1.58 $ 1.25
========= ========== ========== =========
Shares used in computing
net earnings per share
38,530,325 40,231,768 39,267,761 41,043,981
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE> 5
VALASSIS COMMUNICATIONS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
_________________________
Sept. 30, Sept. 30,
1998 1997
__________ __________
<S> <C> <C>
Cash flows from operating activities:
Net earnings $62,821 $51,855
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 11,822 11,585
Provision for losses on accounts
receivable 675 675
Minority interest 7 (35)
Loss (gain) on sale of property,
plant and equipment 1 (385)
Changes in assets and liabilities
which increase (decrease) cash flow:
Accounts receivable (12,801) 2,507
Inventories (2,309) (4,437)
Prepaid expenses and other (3,691) (88)
Other assets 887 2,789
Accounts payable 5,133 156
Accrued expenses and interest (266) 2,474
Income taxes (130) 1,251
Progress billings (802) (4,720)
__________ __________
Total adjustments (1,474) 11,772
__________ __________
Net cash provided by operating
activities 61,347 63,627
__________ __________
Cash flows from investing activities:
Additions to property, plant and equipment (10,454) (11,655)
Acquisitions (450) ---
Return of capital to minority shareholder
of Valcheck --- (500)
Proceeds from the sale of property, plant
and equipment 97 862
Other (145) 172
__________ __________
Net cash used in investing activities (10,952) (11,121)
__________ __________
Cash flows from financing activities:
Repayment of long-term debt (4,549) (19,990)
Proceeds from the issuance of common stock 33,835 23,912
Purchase of treasury shares (95,526) (65,458)
__________ __________
Net cash used in financing activities (66,240) (61,536)
__________ __________
Net decrease in cash (15,845) (9,030)
Cash at beginning of period 35,437 60,172
__________ __________
Cash at end of period $19,592 $51,142
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $23,086 $26,082
Cash paid during the period for income
taxes $30,213 $32,749
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE> 6
VALASSIS COMMUNICATIONS, INC.
Notes to Condensed Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the information contained
herein reflects all adjustments necessary for a fair presentation of the
information presented. All such adjustments are of a normal recurring nature.
The results of operations for the interim periods are not necessarily
indicative of results to be expected for the fiscal year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
2. ACCOUNTING CHANGE
During the quarter ended March 31, 1998, the Company changed its method of
accounting for inventories from the last-in, first-out (LIFO) method to the
first-in, first-out (FIFO) method. The Company believes the change is
preferable because the FIFO method better reflects the economic reality of its
inventory management practices and provides a better matching of current costs
with revenues.
The change in method of inventory costing has been applied retroactively.
Due to debit balance LIFO reserves and corresponding lower-of-cost-or-market
reserves, the change had no effect on the balance sheet at December 31, 1997 or
the income statements for the quarter or nine-month period ended September 30,
1997.
3. CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position.
4. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share," effective for the annual period ending after December 15,
1997. This standard revised the calculation of EPS and requires the Company to
report diluted EPS in addition to basic EPS. Basic EPS is based on the average
shares outstanding, while diluted EPS gives effect to all dilutive potential
common shares outstanding.
5. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," beginning January 1, 1998. The effect of this
pronouncement is not material to the Company's financial statements.
-6-
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Certain statements under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations," constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks and
uncertainties and other factors which may cause the actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: a new competitor in the Company's
core free-standing insert business and consequent price competition; an
increase in the Company's paper costs, new technology that would make
free-standing inserts less attractive; a shift in customer preference for
different promotional materials, promotional strategies or coupon delivery
modes, including in-store advertising systems and other forms of coupon
delivery; the inability of material third parties upon which the Company
relies to be year 2000 compliant in a timely manner; or general business and
economic conditions.
Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
Total revenues rose nearly 9% for the quarter ended September 30, 1998 to
$167.1 million from $153.5 million for the year-ago quarter. Free-standing
insert (FSI) revenue rose 16.4% from $116.7 million for the three months ended
September 30, 1997 to $135.8 million for the quarter ended September 30, 1998.
This increase was attributable primarily to FSI industry page growth, as well
as slightly higher market share and moderate price increases during the quarter.
Valassis Impact Promotions (VIP) revenue was down 4.1% to $21.0 million for the
third quarter of 1998 compared to $21.9 million for the year-ago period.
Sampling revenues were down 22.6% to $2.4 million for the three months ended
September 30, 1998. Sampling revenues do not track quarter to quarter and are
typically lower in the second half of the year. ROP revenue was down 46.2%
to $3.5 lmillion for the three months ended September 30, 1998 versus the year-
ago period, which was benefited by strong demand in the health and beauty
category.
Although the gross profit margin was favorably impacted by the increase in FSI
pages, paper cost increases led to a decline in margin from 36.3% to 35.7%.
Third quarter 1998 paper costs were higher than second quarter 1998; however,
the Company has already experienced a decrease in paper prices and expects
average paper costs in 1999 to be lower than the average cost in 1998.
Selling, general and administrative expenses were down to $16.8 million for the
quarter ended September 30, 1998, compared to $17.3 million for the quarter
ended September 30, 1997. Management expects selling, general and administrative
expenses to remain at these levels for the remainder of the year.
Net earnings increased 11.8% from $17.8 million for the three months ended
September 30, 1997, to $19.9 million for the same period of 1998. This increase
is primarily due to the strong quarter experienced by the FSI product.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
For the nine months ended September 30, 1998, total revenues increased 8.7% to
$551.7 million from $507.7 million for the comparable period in 1997, primarily
as a result of a 10.2% rise in FSI revenue from $388.2 million in the first
nine months of 1997, to $427.8 million for the first nine months of 1998. The
FSI increase is attributable to overall industry page growth, as well as
slightly higher market share and moderate price increases. In addition, VIP
experienced an 11.2% increase in sales during the nine-month period ended
September 30, 1998 and is expected to exceed $100 million in revenue for the
year.
-7-
<PAGE> 8
Also, Valassis Sampling revenue rose 72.7% for the nine months ended
September 30, 1998 to $24.0 million, compared to $13.9 million for the nine
months ended September 30, 1997. Management expects growth in excess of 70% for
this division in 1998. ROP sales were $9.3 million for the nine months ended
Setember 30, 1998, down 55.7% from the same period last year, which was
benefited by strong demand in the health and beauty category. The Company does
not project the ROP division to be a growth area, but rather an additional
source offered to its customers.
The favorable impact of increased FSI volume and higher pricing was offset by
an increase in paper costs over last year. However, the Company believes that
the effect of paper price increases peaked in the third quarter. The Company
has already experienced paper price decreases and expects average paper costs
to be down in 1999 versus 1998. Gross margin decreased from 35.5% for the first
nine months of 1997, to 34.9% for the same period in 1998.
Selling, general and administrative expenses were down 1.7% to $58.0 million,
versus $59.0 million for the comparable prior-year period. The Company's
results for the nine months ended September 30, 1998 includes a one-time charge
of $6.0 million related to the early retirement of the former CEO, and the
results for the nine months ended September 30, 1997 includes a charge of $7.3
million for a non-recurring special payment to certain VCI executives, funded by
Consolidated Press Holdings (CPH), the parent of the selling shareholder in
the Company's secondary offering that was completed in July 1997. SG&A would
have increased 0.5% for the nine months ended September 30, 1998, versus the
prior year period, without these one-time charges. The effective tax rate
was 38.2% for the nine months ended September 30, 1998, compared with 39.6%
for the same period in 1997. The effective tax rate decrease is the result of
a portion of the special one-time charge in the nine months ended
September 30, 1997, referred to above, being non-deductible.
Net earnings for the first nine months of 1998 were up 21.0% to $62.8 million,
versus $51.9 million for the same nine-month period last year. This earnings
improvement is primarily the result of higher volumes and increased pricing in
the FSI business.
Financial Condition, Liquidity and Sources of Capital
Cash and cash equivalents totaled $19.6 million at September 30, 1998, down
$15.8 million from December 31, 1997. This was the result of cash provided by
operating activities of $61.3 million, and cash used in investing activities
and financing activities of $11.0 million and $66.2 million, respectively.
Cash flow from operating activities decreased from $63.6 million for the nine
months ended September 30, 1997 to $61.3 million for the nine months ended
September 30, 1998, despite an increase in earnings. This decrease was mainly
due to changes in accounts receivable. The net receivable balance at
December 31, 1996 was unusually high, leading to above average collections
during the first half of 1997.
A portion of the Company's debt (which totaled $362.6 million as of
September 30, 1998), in the amount of $107.7 million, will be due in March of
1999. The Company is currently evaluating its options with respect to this
current debt, including refinancing or retiring this debt. The Company also had
the ability as of September 30, 1998 to incur $40.0 million of additional
indebtedness under its existing credit facility, and is currently in
negotiations to increase this amount. During October 1998, the Company
drew down $40 million under such credit facility and used the proceeds to retire
a portion of its public debt.
Management believes the Company will generate sufficient funds from operations
and will have sufficient lines of credit available to meet currently
anticipated liquidity needs, including interest and required principal
payments on indebtedness.
-8-
<PAGE> 9
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than 2000. This problem could force computers to
either shut down or generate erroneous data or information.
In response to the Year 2000 issue, the Company has implemented a
multi-faceted project plan, which covers both IT and non-IT systems. This
plan encompasses three areas: (1) program modifications; (2) implementing new
financial software upgrades; and (3) testing readiness of vendors and
customers. Phases associated with the project plan are : identification and
ranking of components of the Company's systems, equipment and suppliers that
may be vulnerable to Year 2000 problems; assessment of those components;
remediation or replacement of non-compliant systems and components; testing of
systems and components following remediation; and the development of
contigency plans.
With regard to program modification and implementing new software upgrades, the
Company is currently in the testing phase and expects to have all critical
systems Year 2000 compliant by the end of 1998. With regards to readiness of
vendors and customers, the Company is currently in the assessment phase and
plans to have testing completed by June 30, 1999.
The Company's plans include the development of a full contigency plan. The
Company believes that by June 30, 1999, it will be able to fully determine its
most likely worst case scenarios and will have its contingency plans in place.
Potential sources of risk include the inability of suppliers (principally paper
suppliers) to be Year 2000 compliant in a timely manner, which would result
in delays in product deliveries from such suppliers, the disruption of the
distribution of the Company's products to the consumer, and disruption of the
Company's own production facilities as a result of general failure of necessary
infrastructure such as electricity supply.
The Company estimates the total costs related to the implementation of the
program modification plan and the financial software upgrade plan to be
approximately $400,000 and $300,000, respectively, which will be funded through
operating cash flows. To date, expenses have totaled approximately $300,000 for
program modifications and $30,000 for financial software upgrades. It is not
possible to quantify the aggregate cost to the Company with respect to
vendors, service providers and customers who fail to become Year 2000 compliant.
-9-
<PAGE> 10
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following exhibits are included herein:
10.16(c) Amendment To Employment Agreement and Non-Qualified Stock Option
Agreements of Alan F. Schultz dated September 15, 1998.
10.32 Non-Qualified Stock Option Agreement of Richard N. Anderson dated
September 15, 1998.
10.33 Non-Qualified Stock Option Agreement of Barry P. Hoffman dated
September 15, 1998.
10.34 Non-Qualified Stock Option Agreement of Robert L. Recchia dated
September 15, 1998.
10.35 Non-Qualified Stock Option Agreement of Alan F. Schultz dated
September 15, 1998.
(27) Financial Data Schedule
b. Form 8-K
The Company did not file any current report on Form 8-K during the three months
ended September 30, 1998.
-10-
<PAGE> 11
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 11, 1998
Valassis Communications, Inc.
(Registrant)
By: \S\ROBERT L. RECCHIA
____________________
Robert L. Recchia
Executive Vice President -
Chief Financial Officer
Signing on behalf of the Registrant and
as principal financial officer.
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 19592
<SECURITIES> 0
<RECEIVABLES> 95580
<ALLOWANCES> 1773
<INVENTORY> 29004
<CURRENT-ASSETS> 153498
<PP&E> 156936
<DEPRECIATION> 111585
<TOTAL-ASSETS> 243456
<CURRENT-LIABILITIES> 262198
<BONDS> 254925
0
0
<COMMON> 458
<OTHER-SE> (276440)
<TOTAL-LIABILITY-AND-EQUITY> 243456
<SALES> 549824
<TOTAL-REVENUES> 551682
<CGS> 359412
<TOTAL-COSTS> 359412
<OTHER-EXPENSES> 63367
<LOSS-PROVISION> 675
<INTEREST-EXPENSE> 26532
<INCOME-PRETAX> 101696
<INCOME-TAX> 38875
<INCOME-CONTINUING> 62821
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62821
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.58
</TABLE>
<PAGE> 14
NON-QUALIFIED STOCK OPTION AGREEMENT
October 21, 1998
Mr. Richard N. Anderson
Executive Vice President of Manufacturing and Media
Valassis Communications, Inc.
19975 Victor Parkway
Livonia, MI 48152
Dear Dick:
This Agreement confirms the grant of a Non-Qualified Stock Option
to you effective as of September 15, 1998 (the "Effective Date')
under the Valassis Communications, Inc. Amended and Restated 1992
Long-Term Incentive Plan (the "Plan"), upon the following terms
and conditions:
1. GRANT OF OPTION. Pursuant to action of the
Compensation/Stock Option Committee of the Board of Directors (the
"Committee") under the Plan, Valassis Communications, Inc. (the
"Company") hereby grants to you a Non-Qualified Stock Option
(hereinafter called the "Option") to purchase, subject to the
terms and conditions hereinafter set forth, an aggregate 100,000
Common Shares of the Company at a per share purchase price equal to
thirty-two and five-eighths dollars ($32.625) (the "Purchase
Price"). The number of shares under the Option and the Purchase
Price thereof shall be adjusted by the Committee, and you shall be
entitled to such adjustment, upon the occurrence of any event
described in Section 8 of the Plan. An equitable adjustment shall
be determined by the Committee in good faith.
2. TIMES OF EXERCISE AND TERM OF THE OPTION.
(a)Subject to Paragraph 3 hereof, the Option may not
be exercised in any event for the first six months following the
Effective Date.
(b)Subject to Subsection 2(a) above, the Option shall
become exercisable by you according to the vesting schedule set
forth below at such time that the closing sales price per Common
Share on the New York Stock Exchange is equal to or exceeds the
following targets:
-14-
<PAGE> 15
October 21, 1998
Page 2
Percentage of Shares Subject to
OPTION THAT BECOME EXERCISABLE FAIR MARKET VALUE TARGET
33.333% $42.00
33.333% $47.00
33.334% $52.00
(c) Notwithstanding Subsections 2(a) and 2(b) above,
all Common Shares with respect to which the Option is not then
exercisable shall be come fully exercisable upon (i) termination of
your employment by the Company other than for Cause, as defined in
your Employment Agreement; (ii) termination of your employment for
Good Reason, as defined in your Employment Agreement; or (iii) a
Change in Control.
(d)If fewer than the number of Common Shares then
available for purchase pursuant to the Option are purchased at any
time under this Agreement, you may purchase the remaining Common
Shares at any subsequent time during the term of the Option. The
Option shall expire in its entirety on the fourth anniversary of
the Effective Date (the "Option Expiration Date") subject to
earlier termination as hereinafter provided. The Option shall not
be exercised for fractional shares. Notation of any partial
exercise will be made by the Company on Schedule 1 hereto.
3. CERTAIN EXERCISE REQUIREMENTS. The Option is
exercisable by you only while you are in the employ of the Company
or an Affiliate, except that:
(a)Upon termination of your employment (i) by reason
of death or Disability; or (ii) by the Company other than for
Cause, the Option shall become immediately exercisable with respect
to all Common Shares thereunder as of the date of such termination
and shall be exercisable by you (or your beneficiary, in the case
of your death) for a period of six months following the date of
such termination, but in no event beyond the Option Expiration
Date; and
(b)Upon termination of your employment by the
Company for Cause, or by you, the Option, to the extent exercisable
as of the date of such termination (taking into account any
acceleration of exercisability under Paragraph 2(c)), shall be
exercisable by you for a period of six months following the date of
such termination, but in no event beyond the Option Expiration
Date.
4. METHOD OF EXERCISE AND PAYMENT. Exercise of the Option shall
be by written notice, in a form substantially as attached to this
Agreement as Schedule A, delivered or mailed to the Secretary of
the Company at its principal office specifying the number of Common
Shares as to which the Option is being exercised and identifying
the Option by date of grant. Such notice shall be accompanied by
the full amount of the Option exercise price for the Common
-15-
<PAGE> 16
October 21, 1998
Page 3
Shares to be purchased in cash or by certified check or by delivery
of whole Common Shares owned by you ("Optionee Stock") in full or
partial payment of the exercise price. You will receive a credit
against the purchase price of the Common Shares as to which the
Option is being exercised equal to the Fair Market Value as defined
in the Plan of such Optionee Stock as of the close of the business
day immediately preceding the date of delivery of the notice of
election to exercise the Option. Any Common Shares of Optionee
Stock being delivered must be accompanied by a duly executed
assignment to the Company in blank or with stock powers attached,
together with a written representation that such Common Shares of
Optionee Stock are owned by you free and clear of all liens, claims
and encumbrances and such other representations as the Company
shall determine. Only whole Common Shares of Optionee Stock with a
Fair Market Value up to, but not exceeding, the Purchase Price of
the Common Shares as to which the Option is being exercised will be
accepted hereunder. Delivery of the Common Shares of Optionee
Stock may be made at the office of the Company or at the offices of
the transfer agent appointed for the transfer of Common Shares of
the Company. The Committee may, in its discretion, refuse to
accept any tendered payment in the form of Common Shares in which
case it shall deliver the tender back to you and notify you of its
refusal. In order to preserve your rights under any Option, you
must, within three business days after such notification, tender to
the Company the cash or certified check required to pay for the
Common Shares with respect to which such Option is being exercised.
It shall be a condition to the Company's obligation to deliver
Common Shares upon exercise of any portion of the Option that you
pay, or make provisions satisfactory to the Company for the payment
of any taxes which the Company is obligated to withhold or collect
with respect to such exercise or otherwise with respect to the
Option.
5. SECURITIES LAW REQUIREMENTS. The Company shall use
its best efforts to register the Common Shares covered by this
Agreement (including to qualify them for sale under any state law)
under the Securities Act of 1933, as amended (the "Act"), unless
the disposition thereof is exempt from the registration
requirements of the Act.
6. INCORPORATION OF PLAN PROVISIONS. This Agreement is
made pursuant to the Valassis Communications Inc. Amended and
Restated 1992 Long-Term Incentive Plan and is subject to all the
terms and provisions of such Plan as if the same were fully set
forth herein. Capitalized terms not otherwise defined herein shall
have the meanings set forth for such terms in the Plan.
7. SHAREHOLDER RIGHTS. You shall not be, nor have any
of the rights or privileges of, a holder of Common Shares in
respect of any Common Shares purchasable upon the exercise of the
Option, including any rights regarding voting or payment of
dividends, unless and until a certificate representing such Shares
has been delivered to you.
-16-
<PAGE> 17
October 21, 1998
Page 4
8. MISCELLANEOUS. This Agreement: (a) shall be binding
upon and inure to the benefit of any successor of the Company and
your successors, assigns and estate, including your executors,
administrators and trustees; (b) shall be governed by the laws of
the State of Delaware and any applicable laws of the United States;
and (c) may not be amended except in writing.
It is your intent and that of the Company that this Non-Qualified
Stock Option is not classified as an Incentive Stock Option and
that any ambiguities in construction shall be interpreted in order
to effectuate such intent.
To confirm your acceptance of the foregoing, please sign and return
this Agreement to Barry P. Hoffman, Secretary, Valassis
Communications, Inc., 19975 Victor Parkway, Livonia, Michigan,
48152.
VALASSIS COMMUNICATIONS, INC.
By:\s\Barry P. Hoffman
____________________________
AGREED:
\s\Richard N. Anderson
___________________________
Richard N. Anderson
Date: October 21, 1998
___________________________
-17-
<PAGE> 18
NON-QUALIFIED STOCK OPTION AGREEMENT
October 21, 1998
Mr. Barry P. Hoffman
Executive Vice President and General Counsel
Valassis Communications, Inc.
19975 Victor Parkway
Livonia, MI 48152
Dear Barry:
This Agreement confirms the grant of a Non-Qualified Stock Option
to you effective as of September 15, 1998 (the "Effective Date")
under the Valassis Communications, Inc. Amended and Restated 1992
Long-Term Incentive Plan (the "Plan"), upon the following terms
and conditions:
1. GRANT OF OPTION. Pursuant to action of the
Compensation/Stock Option Committee of the Board of Directors (the
"Committee") under the Plan, Valassis Communications, Inc. (the
"Company") hereby grants to you a Non-Qualified Stock Option
(hereinafter called the "Option") to purchase, subject to the
terms and conditions hereinafter set forth, an aggregate 100,000
Common Shares of the Company at a per share purchase price equal to
thirty-two and five-eighths dollars ($32.625) (the "Purchase
Price"). The number of shares under the Option and the Purchase
Price thereof shall be adjusted by the Committee, and you shall be
entitled to such adjustment, upon the occurrence of any event
described in Section 8 of the Plan. An equitable adjustment shall
be determined by the Committee in good faith.
2. TIMES OF EXERCISE AND TERM OF THE OPTION.
(a)Subject to Paragraph 3 hereof, the Option may not
be exercised in any event for the first six months following the
Effective Date.
(b)Subject to Subsection 2(a) above, the Option shall
become exercisable by you according to the vesting schedule set
forth below at such time that the closing sales price per Common
Share on the New York Stock Exchange is equal to or exceeds the
following targets:
-18-
<PAGE> 19
October 21, 1998
Page 2
Percentage of Shares Subject to
OPTION THAT BECOME EXERCISABLE FAIR MARKET VALUE TARGET
33.333% $42.00
33.333% $47.00
33.334% $52.00
Notwithstanding Subsections 2(a) and 2(b) above, all Common Shares
with respect to which the Option is not then exercisable shall be
come fully exercisable upon (i) termination of your employment by
the Company other than for Cause, as defined in your Employment
Agreement; (ii) termination of your employment for Good Reason, as
defined in your Employment Agreement; or (iii) a Change in Control.
If fewer than the number of Common Shares then available for
purchase pursuant to the Option are purchased at any time under
this Agreement, you may purchase the remaining Common Shares at any
subsequent time during the term of the Option. The Option shall
expire in its entirety on the fourth anniversary of the Effective
Date (the "Option Expiration Date") subject to earlier
termination as hereinafter provided. The Option shall not be
exercised for fractional shares. Notation of any partial exercise
will be made by the Company on Schedule 1 hereto.
3. CERTAIN EXERCISE REQUIREMENTS. The Option is
exercisable by you only while you are in the employ of the Company
or an Affiliate, except that:
Upon termination of your employment (i) by reason of death or
Disability; or (ii) by the Company other than for Cause, the Option
shall become immediately exercisable with respect to all Common
Shares thereunder as of the date of such termination and shall be
exercisable by you (or your beneficiary, in the case of your death)
for a period of six months following the date of such termination,
but in no event beyond the Option Expiration Date; and
Upon termination of your employment by the Company for Cause, or by
you, the Option, to the extent exercisable as of the date of such
termination (taking into account any acceleration of exercisability
under Paragraph 2(c)), shall be exercisable by you for a period of
six months following the date of such termination, but in no event
beyond the Option Expiration Date.
4. METHOD OF EXERCISE AND PAYMENT. Exercise of the Option
shall be by written notice, in a form substantially as attached to
this Agreement as Schedule A, delivered or mailed to the Secretary
of the Company at its principal office specifying the number of
Common Shares as to which the Option is being exercised and
identifying the Option by date of grant. Such notice shall be
accompanied by the full amount of the Option exercise price for
the Common Shares to be purchased in cash or by certified check or
by delivery of whole Common Shares owned by you ("Optionee
Stock") in full or partial payment of the exercise price. You
will receive a credit against the purchase price of the Common
-19-
<PAGE> 20
October 21, 1998
Page 3
Shares as to which the Option is being exercised equal to the Fair
Market Value as defined in the Plan of such Optionee Stock as of
the close of the business day immediately preceding the date of
delivery of the notice of election to exercise the Option. Any
Common Shares of Optionee Stock being delivered must be accompanied
by a duly executed assignment to the Company in blank or with stock
powers attached, together with a written representation that such
Common Shares of Optionee Stock are owned by you free and clear of
all liens, claims and encumbrances and such other representations
as the Company shall determine. Only whole Common Shares of
Optionee Stock with a Fair Market Value up to, but not exceeding,
the Purchase Price of the Common Shares as to which the Option is
being exercised will be accepted hereunder. Delivery of the Common
Shares of Optionee Stock may be made at the office of the Company
or at the offices of the transfer agent appointed for the transfer
of Common Shares of the Company. The Committee may, in its
discretion, refuse to accept any tendered payment in the form of
Common Shares in which case it shall deliver the tender back to you
and notify you of its refusal. In order to preserve your rights
under any Option, you must, within three business days after such
notification, tender to the Company the cash or certified check
required to pay for the Common Shares with respect to which such
Option is being exercised.
It shall be a condition to the Company's obligation to deliver
Common Shares upon exercise of any portion of the Option that you
pay, or make provisions satisfactory to the Company for the payment
of any taxes which the Company is obligated to withhold or collect
with respect to such exercise or otherwise with respect to the
Option.
5. SECURITIES LAW REQUIREMENTS. The Company shall use
its best efforts to register the Common Shares covered by this
Agreement (including to qualify them for sale under any state law)
under the Securities Act of 1933, as amended (the "Act"), unless
the disposition thereof is exempt from the registration
requirements of the Act.
6. INCORPORATION OF PLAN PROVISIONS. This Agreement is
made pursuant to the Valassis Communications Inc. Amended and
Restated 1992 Long-Term Incentive Plan and is subject to all the
terms and provisions of such Plan as if the same were fully set
forth herein. Capitalized terms not otherwise defined herein shall
have the meanings set forth for such terms in the Plan.
7. SHAREHOLDER RIGHTS. You shall not be, nor have any
of the rights or privileges of, a holder of Common Shares in
respect of any Common Shares purchasable upon the exercise of the
Option, including any rights regarding voting or payment of
dividends, unless and until a certificate representing such Shares
has been delivered to you.
-20-
<PAGE> 21
October 21, 1998
Page 4
8. MISCELLANEOUS. This Agreement: (a) shall be binding
upon and inure to the benefit of any successor of the Company and
your successors, assigns and estate, including your executors,
administrators and trustees; (b) shall be governed by the laws of
the State of Delaware and any applicable laws of the United States;
and (c) may not be amended except in writing.
It is your intent and that of the Company that this Non-Qualified
Stock Option is not classified as an Incentive Stock Option and
that any ambiguities in construction shall be interpreted in order
to effectuate such intent.
To confirm your acceptance of the foregoing, please sign and return
this Agreement to Barry P. Hoffman, Secretary, Valassis
Communications, Inc., 19975 Victor Parkway, Livonia, Michigan,
48152.
VALASSIS COMMUNICATIONS, INC.
By:\s\Robert L. Recchia
_________________________________
AGREED:
\s\Barry P. Hoffman
______________________________
Barry P. Hoffman
Date: October 21, 1998
______________________________
-21-
<PAGE> 22
NON-QUALIFIED STOCK OPTION AGREEMENT
October 21, 1998
Mr. Robert L. Recchia
Executive Vice President and Chief Financial Officer
Valassis Communications, Inc.
19975 Victor Parkway
Livonia, MI 48152
Dear Bob:
This Agreement confirms the grant of a Non-Qualified Stock Option
to you effective as of September 15, 1998 (the "Effective Date")
under the Valassis Communications, Inc. Amended and Restated 1992
Long-Term Incentive Plan (the "Plan"), upon the following terms
and conditions:
1. GRANT OF OPTION. Pursuant to action of the
Compensation/Stock Option Committee of the Board of Directors (the
"Committee") under the Plan, Valassis Communications, Inc. (the
"Company") hereby grants to you a Non-Qualified Stock Option
(hereinafter called the "Option") to purchase, subject to the
terms and conditions hereinafter set forth, an aggregate 100,000
Common Shares of the Company at a per share purchase price equal to
thirty-two and five-eighths dollars ($32.625) (the "Purchase
Price"). The number of shares under the Option and the Purchase
Price thereof shall be adjusted by the Committee, and you shall be
entitled to such adjustment, upon the occurrence of any event
described in Section 8 of the Plan. An equitable adjustment shall
be determined by the Committee in good faith.
2. TIMES OF EXERCISE AND TERM OF THE OPTION.
(a)Subject to Paragraph 3 hereof, the Option may not
be exercised in any event for the first six months following the
Effective Date.
(b)Subject to Subsection 2(a) above, the Option shall
become exercisable by you according to the vesting schedule set
forth below at such time that the closing sales price per Common
Share on the New York Stock Exchange is equal to or exceeds the
following targets:
-22-
<PAGE> 23
October 21, 1998
Page 2
Percentage of Shares Subject to
OPTION THAT BECOME EXERCISABLE FAIR MARKET VALUE TARGET
33.333% $42.00
33.333% $47.00
33.334% $52.00
Notwithstanding Subsections 2(a) and 2(b) above, all Common Shares
with respect to which the Option is not then exercisable shall be
come fully exercisable upon (i) termination of your employment by
the Company other than for Cause, as defined in your Employment
Agreement; (ii) termination of your employment for Good Reason, as
defined in your Employment Agreement; or (iii) a Change in Control.
If fewer than the number of Common Shares then available for
purchase pursuant to the Option are purchased at any time under
this Agreement, you may purchase the remaining Common Shares at any
subsequent time during the term of the Option. The Option shall
expire in its entirety on the fourth anniversary of the Effective
Date (the "Option Expiration Date") subject to earlier
termination as hereinafter provided. The Option shall not be
exercised for fractional shares. Notation of any partial exercise
will be made by the Company on Schedule 1 hereto.
3. CERTAIN EXERCISE REQUIREMENTS. The Option is
exercisable by you only while you are in the employ of the Company
or an Affiliate, except that:
Upon termination of your employment (i) by reason of death or
Disability; or (ii) by the Company other than for Cause, the Option
shall become immediately exercisable with respect to all Common
Shares thereunder as of the date of such termination and shall be
exercisable by you (or your beneficiary, in the case of your death)
for a period of six months following the date of such termination,
but in no event beyond the Option Expiration Date; and
Upon termination of your employment by the Company for Cause, or by you,
the Option, to the extent exercisable as of the date of such termination
(taking into account any acceleration of exercisability under Paragraph
2(c)), shall be exercisable by you for a period of six months following the date
of such termination, but in no event beyond the Option Expiration Date.
4. METHOD OF EXERCISE AND PAYMENT. Exercise of the Option shall
be by written notice, in a form substantially as attached to
this Agreement as Schedule A, delivered or mailed to the
Secretary of the Company at its principal office specifying
the number of Common Shares as to which the Option is being
exercised and identifying the Option by date of grant. Such
notice shall be accompanied by the full amount of the Option
exercise price for the Common Shares to be purchased in cash
or by certified check or by delivery of whole Common Shares
owned by you ("Optionee Stock") in full or partial payment of
the exercise price. You will receive a credit against the
purchase price of the Common
-23-
<PAGE> 24
October 21, 1998
Page 3
Shares as to which the Option is being exercised equal to the Fair
Market Value as defined in the Plan of such Optionee Stock as of
the close of the business day immediately preceding the date of
delivery of the notice of election to exercise the Option. Any
Common Shares of Optionee Stock being delivered must be accompanied
by a duly executed assignment to the Company in blank or with stock
powers attached, together with a written representation that such
Common Shares of Optionee Stock are owned by you free and clear of
all liens, claims and encumbrances and such other representations
as the Company shall determine. Only whole Common Shares of
Optionee Stock with a Fair Market Value up to, but not exceeding,
the Purchase Price of the Common Shares as to which the Option is
being exercised will be accepted hereunder. Delivery of the Common
Shares of Optionee Stock may be made at the office of the Company
or at the offices of the transfer agent appointed for the transfer
of Common Shares of the Company. The Committee may, in its
discretion, refuse to accept any tendered payment in the form of
Common Shares in which case it shall deliver the tender back to you
and notify you of its refusal. In order to preserve your rights
under any Option, you must, within three business days after such
notification, tender to the Company the cash or certified check
required to pay for the Common Shares with respect to which such
Option is being exercised.
It shall be a condition to the Company's obligation to deliver
Common Shares upon exercise of any portion of the Option that you
pay, or make provisions satisfactory to the Company for the payment
of any taxes which the Company is obligated to withhold or collect
with respect to such exercise or otherwise with respect to the
Option.
5. SECURITIES LAW REQUIREMENTS. The Company shall use
its best efforts to register the Common Shares covered by this
Agreement (including to qualify them for sale under any state law)
under the Securities Act of 1933, as amended (the "Act"), unless
the disposition thereof is exempt from the registration
requirements of the Act.
6. INCORPORATION OF PLAN PROVISIONS. This Agreement is
made pursuant to the Valassis Communications Inc. Amended and
Restated 1992 Long-Term Incentive Plan and is subject to all the
terms and provisions of such Plan as if the same were fully set
forth herein. Capitalized terms not otherwise defined herein shall
have the meanings set forth for such terms in the Plan.
7. SHAREHOLDER RIGHTS. You shall not be, nor have any
of the rights or privileges of, a holder of Common Shares in
respect of any Common Shares purchasable upon the exercise of the
Option, including any rights regarding voting or payment of
dividends, unless and until a certificate representing such Shares
has been delivered to you.
-24-
<PAGE> 25
October 21, 1998
Page 4
8. MISCELLANEOUS. This Agreement: (a) shall be binding
upon and inure to the benefit of any successor of the Company and
your successors, assigns and estate, including your executors,
administrators and trustees; (b) shall be governed by the laws of
the State of Delaware and any applicable laws of the United States;
and (c) may not be amended except in writing.
It is your intent and that of the Company that this Non-Qualified
Stock Option is not classified as an Incentive Stock Option and
that any ambiguities in construction shall be interpreted in order
to effectuate such intent.
To confirm your acceptance of the foregoing, please sign and return
this Agreement to Barry P. Hoffman, Secretary, Valassis
Communications, Inc., 19975 Victor Parkway, Livonia, Michigan,
48152.
VALASSIS COMMUNICATIONS, INC.
By\s\ Barry P. Hoffman
_____________________________
AGREED:
\s\Robert L. Recchia
______________________________
Robert L. Recchia
Date: October 21, 1998
______________________________
-25-
<PAGE> 26
AMENDMENT
TO
EMPLOYMENT AGREEMENT
AND
NON-QUALIFIED STOCK OPTION AGREEMENTS
This AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment")
is made September 15, 1998 by and between Valassis
Communications, Inc. (the "Corporation") and Alan F. Schultz
(the "Executive).
WHEREAS, the Corporation and the Executive entered into
that certain Employment Agreement effective March 18, 1992, as
amended January 3, 1995 and December 19, 1995 (the "Employment
Agreement"); and
WHEREAS, the Corporation entered into a NON-QUALIFIED
STOCK OPTION AGREEMENT with the Executive effective March 18,
1992, May 10, 1994 and December 8, 1997 (the "Option
Agreements"); and
WHEREAS, the Corporation and the Executive desire to amend
the Employment Agreement and the Option Agreements to extend the
term of employment under the Employment Agreement and conform the
Employment Agreement to certain revised terms as specifically
amended herein.
NOW THEREFORE, in consideration of the mutual covenants
and promises contained herein, the parties hereby agree as
follows:
1. Section 1.(b) of the Employment Agreement shall be
amended to read in its entirety as follows:
"The Employment Period shall commence as of the
consummation date (the "Effective Date") of the
initial public offering of the common stock of the
Corporation (the "IPO") and shall continue until the
close of business on December 31, 2003."
2. The first sentence of Section 3.(a) of the Employment
Agreement shall be amended to read as follows:
"SALARY. The Executive's Annual Base Salary
("Annual Base Salary"), payable on a biweekly basis,
shall be at the annual rate of not less than $550,000
effective September 15, 1998."
3. Section 3. of the Employment Agreement shall be amended
to insert a new sub-section (h) to read in its entirety as
follows:
-26-
<PAGE> 27
"The Executive shall be eligible to receive for Fiscal
Year (calendar) 1999 and for each fiscal year thereafter during
the Employment Period up to 15,000 shares of the Corporation's
Common Stock (the "Performance Restricted Stock Award") under
the Valassis Communications, Inc. Executive Restricted Stock Plan
adopted July 10, 1995 (the "Executive Restricted Stock Plan")
on the following basis: (i) If the Compensation/Stock Option
Committee (the "Committee") determines that eighty percent
(80%) or more of the applicable performance targets set by the
Board of Directors for such fiscal year have been met, the
Executive shall receive 7,500 shares; and (ii) if the Committee
determines that one hundred fifteen percent (115%) or more of the
applicable performance targets set by the Board of Directors for
such fiscal year have been met, the Executive shall receive an
additional 7,500 shares. The disposition of such shares by the
Executive shall be restricted for a period of one year and no
longer. Each Performance Restricted Stock Award shall be awarded
to the Executive promptly after the end of the applicable fiscal
year as soon as the Committee has determined that the applicable
targets have been met but in no event later than sixty (60) days
after the end of the applicable fiscal year."
4. Section 8.(b) of the Employment Agreement shall be
amended to read in its entirety as follows:
"COVENANT NOT TO COMPETE OR SOLICIT. During the
Employment Period, the Executive shall not offer or sell any
products or services, including without limitation a free-
standing insert business directly competitive in any market with
the business of the Corporation, nor shall he render services to
any firm, person or corporation so competing with the
Corporation, nor shall he have any interest, direct or indirect,
in any business that is so competing with the business of the
Corporation; provided, however, that ownership of five percent
(5%) or less of any class of debt or equity securities which are
publicly-traded security shall not be a violation of this
covenant. The foregoing provisions of this Section 8.(b) shall
apply during the Severance Period, if any, so long as the
Corporation fulfills its obligations to the Executive Section 5.
and shall extend for an additional period of seven years (the
"Mandatory Non-Competition Period") after the expiration of the
Employment Period or the Severance Period, as the case may be,
and the Corporation shall pay an amount to the Executive equal to
Annual Base Salary in biweekly installments during each of the
first three years of such Mandatory Non-Competition Period and an
amount equal to one-half of Annual Base Salary during each of the
last four years of such Mandatory Non-Competition Period. So
long as the Executive is employed hereunder and for any
additional period of time described in the preceding sentences,
the Executive shall not, directly or indirectly, (i) solicit any
employee of the Corporation with a view to inducing or
encouraging such employee to leave the employ of the Corporation
for the purpose of being hired by the Executive or any employer
affiliated with the Executive; or (ii) solicit, take away,
-27-
<PAGE> 28
attempt to take away, or otherwise interfere with the
Corporation's business relationships with any of its respective
customers."
5. Section 2.(a) of the Employment Agreement shall be
amended to read in its entirety as follows:
"(a) POSITION; LOCATION. During the Employment Period,
the Executive shall serve as the President and Chief Executive
Officer of the Corporation and shall continue to have such
authority, duties and responsibilities which shall be at least
commensurate in all material respects with those held and
exercised as of September 15, 1998 with the Corporation. During
the Employment Period, the Executive shall, without compensation
other than that herein provided, also serve and continue to
serve, if and when elected and re-elected as an officer or
director, or both, of any subsidiary, affiliate or division of
the Corporation. The Executive's services shall be performed at
the location where the Executive is currently employed or any
office which is the headquarters of the Corporation and is not
more than twenty-five miles from such location unless such
requirement is waived by the Executive."
6. All other terms of the Employment Agreement and the
Option Agreements shall remain in full force and effect.
IN WITNESS WHEREOF, the Executive and the Corporation have caused
this Agreement to be executed as of the day and year first above
written.
VALASSIS COMMUNICATIONS, INC.
By:\s\ Barry P. Hoffman
________________________________
Name: Barry P. Hoffman
______________________________
Title: Secretary
______________________________
\s\Alan F. Schultz
____________________________________
Alan F. Schultz
-28-
<PAGE> 29
NON-QUALIFIED STOCK OPTION AGREEMENT
October 21, 1998
Mr. Alan F. Schultz
President and Chief Executive Officer
Valassis Communications, Inc.
19975 Victor Parkway
Livonia, MI 48152
Dear Al:
This Agreement confirms the grant of a Non-Qualified Stock Option
to you effective as of September 15, 1998 (the "Effective Date")
under the Valassis Communications, Inc. Amended and Restated 1992
Long-Term Incentive Plan (the "Plan"), upon the following terms
and conditions:
1. GRANT OF OPTION. Pursuant to action of the
Compensation/Stock Option Committee of the Board of Directors (the
"Committee") under the Plan, Valassis Communications, Inc. (the
"Company") hereby grants to you a Non-Qualified Stock Option
(hereinafter called the "Option") to purchase, subject to the
terms and conditions hereinafter set forth, an aggregate 250,000
Common Shares of the Company at a per share purchase price equal to
thirty-two and five-eighths dollars ($32.625) (the "Purchase
Price"). The number of shares under the Option and the Purchase
Price thereof shall be adjusted by the Committee, and you shall be
entitled to such adjustment, upon the occurrence of any event
described in Section 8 of the Plan. An equitable adjustment shall
be determined by the Committee in good faith.
2. TIMES OF EXERCISE AND TERM OF THE OPTION.
(a)Subject to Paragraph 3 hereof, the Option may not
be exercised in any event for the first six months following the
Effective Date.
(b)Subject to Subsection 2(a) above, the Option shall
become exercisable by you according to the vesting schedule set
forth below at such time that the closing sales price per Common
Share on the New York Stock Exchange is equal to or exceeds the
following targets:
-29-
<PAGE> 30
October 21, 1998
Page 2
Percentage of Shares Subject to
OPTION THAT BECOME EXERCISABLE FAIR MARKET VALUE TARGET
33.333% $42.00
33.333% $47.00
33.334% $52.00
Notwithstanding Subsections 2(a) and 2(b) above, all Common Shares
with respect to which the Option is not then exercisable shall be
come fully exercisable upon (i) termination of your employment by
the Company other than for Cause, as defined in your Employment
Agreement; (ii) termination of your employment for Good Reason, as
defined in your Employment Agreement; or (iii) a Change in Control.
If fewer than the number of Common Shares then available for
purchase pursuant to the Option are purchased at any time under
this Agreement, you may purchase the remaining Common Shares at any
subsequent time during the term of the Option. The Option shall
expire in its entirety on the fourth anniversary of the Effective
Date (the "Option Expiration Date") subject to earlier
termination as hereinafter provided. The Option shall not be
exercised for fractional shares. Notation of any partial exercise
will be made by the Company on Schedule 1 hereto.
3. CERTAIN EXERCISE REQUIREMENTS. The Option is
exercisable by you only while you are in the employ of the Company
or an Affiliate, except that:
Upon termination of your employment (i) by reason of death or
Disability; or (ii) by the Company other than for Cause, the Option
shall become immediately exercisable with respect to all Common
Shares thereunder as of the date of such termination and shall be
exercisable by you (or your beneficiary, in the case of your death)
for a period of six months following the date of such termination,
but in no event beyond the Option Expiration Date; and
Upon termination of your employment by the Company for Cause, or by
you, the Option, to the extent exercisable as of the date of such
termination (taking into account any acceleration of exercisability
under Paragraph 2(c)), shall be exercisable by you for a period of
six months following the date of such termination, but in no event
beyond the Option Expiration Date.
4. METHOD OF EXERCISE AND PAYMENT. Exercise of the
Option shall be by written notice, in a form substantially as
attached to this Agreement as Schedule A, delivered or mailed to
the Secretary of the Company at its principal office specifying the
number of Common Shares as to which the Option is being exercised
and identifying the Option by date of grant. Such notice shall be
accompanied by the full amount of the Option exercise price for
the Common Shares to be purchased in cash or by certified check or
by delivery of whole Common Shares owned by you ("Optionee
Stock") in full or partial payment of the exercise price. You
will receive a credit against the purchase price of the Common
-30-
<PAGE> 31
October 21, 1998
Page 3
Shares as to which the Option is being exercised equal to the Fair
Market Value as defined in the Plan of such Optionee Stock as of
the close of the business day immediately preceding the date of
delivery of the notice of election to exercise the Option. Any
Common Shares of Optionee Stock being delivered must be accompanied
by a duly executed assignment to the Company in blank or with stock
powers attached, together with a written representation that such
Common Shares of Optionee Stock are owned by you free and clear of
all liens, claims and encumbrances and such other representations
as the Company shall determine. Only whole Common Shares of
Optionee Stock with a Fair Market Value up to, but not exceeding,
the Purchase Price of the Common Shares as to which the Option is
being exercised will be accepted hereunder. Delivery of the Common
Shares of Optionee Stock may be made at the office of the Company
or at the offices of the transfer agent appointed for the transfer
of Common Shares of the Company. The Committee may, in its
discretion, refuse to accept any tendered payment in the form of
Common Shares in which case it shall deliver the tender back to you
and notify you of its refusal. In order to preserve your rights
under any Option, you must, within three business days after such
notification, tender to the Company the cash or certified check
required to pay for the Common Shares with respect to which such
Option is being exercised.
It shall be a condition to the Company's obligation to deliver
Common Shares upon exercise of any portion of the Option that you
pay, or make provisions satisfactory to the Company for the payment
of any taxes which the Company is obligated to withhold or collect
with respect to such exercise or otherwise with respect to the
Option.
5. SECURITIES LAW REQUIREMENTS. The Company shall use
its best efforts to register the Common Shares covered by this
Agreement (including to qualify them for sale under any state law)
under the Securities Act of 1933, as amended (the "Act"), unless
the disposition thereof is exempt from the registration
requirements of the Act.
6. INCORPORATION OF PLAN PROVISIONS. This Agreement is
made pursuant to the Valassis Communications Inc. Amended and
Restated 1992 Long-Term Incentive Plan and is subject to all the
terms and provisions of such Plan as if the same were fully set
forth herein. Capitalized terms not otherwise defined herein shall
have the meanings set forth for such terms in the Plan.
7. SHAREHOLDER RIGHTS. You shall not be, nor have any
of the rights or privileges of, a holder of Common Shares in
respect of any Common Shares purchasable upon the exercise of the
Option, including any rights regarding voting or payment of
dividends, unless and until a
certificate representing such Shares has been delivered to you.
8. MISCELLANEOUS. This Agreement: (a) shall be
binding upon and inure to the benefit of any successor of the
Company and your successors, assigns and estate, including your
executors, administrators and trustees; (b) shall be governed by
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October 21, 1998
Page 4
the laws of the State of Delaware and any applicable laws of the
United States; and (c) may not be amended except in writing.
It is your intent and that of the Company that this Non-Qualified
Stock Option is not classified as an Incentive Stock Option and
that any ambiguities in construction shall be interpreted in order
to effectuate such intent.
To confirm your acceptance of the foregoing, please sign and return
this Agreement to Barry P. Hoffman, Secretary, Valassis
Communications, Inc., 19975 Victor Parkway, Livonia, Michigan,
48152.
VALASSIS COMMUNICATIONS, INC.
By: \s\Barry P. Hoffman
____________________________
AGREED:
\s\Alan F. Schultz
______________________________
Alan F. Schultz
Date: October 21, 1998
______________________________
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