<PAGE>
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 March 31, 2000
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
requirements for the past 90 days:
Yes X No
----- -----
As of May 8, 2000, there were 54,783,316 shares of the Registrant's Common Stock
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VALASSIS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,684 $ 11,089
Accounts receivable (less allowance for doubtful
accounts of $1,468 at March 31, 2000 and $1,386 at
December 31, 1999) 106,011 94,105
Inventories:
Raw materials 14,171 11,729
Work in progress 13,962 17,498
Prepaid expenses and other 5,710 5,969
Deferred income taxes 1,473 1,473
Refundable income taxes --- 448
--------- ---------
Total current assets 149,011 142,311
--------- ---------
Property, plant and equipment, at cost:
Land and buildings 21,590 21,590
Machinery and equipment 122,278 121,956
Office furniture and equipment 23,065 21,909
Automobiles 1,041 1,116
Leasehold improvements 1,122 1,166
--------- ---------
169,096 167,737
Less accumulated depreciation and amortization (116,538) (114,926)
--------- ---------
Net property, plant and equipment 52,558 52,811
--------- ---------
Intangible assets:
Goodwill 72,754 72,754
Other intangibles 85,387 85,387
--------- ---------
158,141 158,141
Less accumulated amortization (118,901) (118,050)
--------- ---------
Net intangible assets 39,240 40,091
--------- ---------
Equity investments and advances to investees 9,130 9,580
Other assets 2,226 2,412
--------- ---------
Total assets $ 252,165 $ 247,205
========= =========
</TABLE>
2
<PAGE>
VALASSIS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' DEFICIT 2000 1999
------------ ------------
(unaudited) (note)
<S> <C> <C>
Current liabilities:
Accounts payable $ 66,643 $ 77,683
Accrued interest 2,286 3,645
Accrued expenses 16,640 30,503
Progress billings 54,873 57,733
Income taxes payable 29,252 ---
--------- ---------
Total current liabilities 169,694 169,564
--------- ---------
Long-term debt 268,163 291,354
Deferred income taxes 1,871 1,871
Commitments and contingencies
Stockholders' deficit:
Preferred stock of $.01 par value. Authorized 25,000,000 Shares; no shares
issued or outstanding at March 31, 2000 and December 31, 1999
Common stock of $.01 par value. Authorized 100,000,000 628 627
shares; issued 62,843,113 at March 31, 2000 and 62,715,893
at December 31, 1999; outstanding 55,487,193 at
March 31, 2000 and 56,128,478 at December 31, 1999
Additional paid-in capital 79,903 76,898
Retained earnings (accumulated deficit) 1,675 (51,736)
Foreign currency translations (487) (478)
Treasury stock, at cost (7,355,920 shares at March 31, 2000 and
6,587,415 shares at December 31, 1999) (269,282) (240,895)
--------- ---------
Total stockholders' deficit (187,563) (215,584)
--------- ---------
Total liabilities and stockholders' deficit $ 252,165 $ 247,205
========= =========
</TABLE>
NOTE: The balance sheet at December 31, 1999 has been derived from the
audited consolidated 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>
VALASSIS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, MARCH 31,
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Net sales $ 212,271 $ 222,009
Other (primarily legal settlement in 2000, see Note 2) 26,766 196
----------- -----------
Total revenues 239,037 222,205
----------- -----------
Costs and expenses:
Cost of products sold 128,838 138,421
Selling, general and administrative 18,274 19,737
Loss on investments 664 466
Amortization of intangible assets 865 1,299
Interest 5,285 7,391
----------- -----------
Total costs and expenses 153,926 167,314
----------- -----------
Earnings before income taxes 85,111 54,891
Income taxes 31,700 21,000
----------- -----------
Net earnings $ 53,411 $ 33,891
=========== ===========
Net earnings per common share, basic $ .96 $ .59
=========== ===========
Net earnings per common share, diluted $ .94 $ .58
=========== ===========
Shares used in computing net earnings per share, basic 55,663,375 57,118,800
=========== ===========
Shares used in computing net earnings per share, diluted 56,677,396 58,244,948
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
VALASSIS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------
MARCH 31, MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 53,411 $ 33,891
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 2,774 3,304
Provision for losses on accounts receivable 83 225
Gain on sale of property, plant and equipment (42) (65)
Stock-based compensation charge 2,520 823
Changes in assets and liabilities which increase (decrease) cash flow:
Accounts receivable (11,989) (7,984)
Inventories 1,094 8,602
Prepaid expenses and other 550 1,013
Other assets 636 (176)
Accounts payable (11,040) 874
Accrued expenses and interest (15,222) (4,331)
Income taxes 29,895 20,440
Progress billings (2,860) (9,149)
--------- ---------
Total adjustments (3,601) 13,576
--------- ---------
Net cash provided by operating activities 49,810 47,467
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (1,692) (1,864)
Investments and acquisitions --- (1,000)
Proceeds from sale of property, plant and equipment 64 110
Other (9) 16
--------- ---------
Net cash used in investing activities (1,637) (2,738)
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt (1,991) (108,380)
Borrowings of long-term debt --- 100,348
Net payments under revolving line of credit (21,200) (13,000)
Repurchase of common stock (29,098) (21,441)
Proceeds from the issuance of common stock 711 375
--------- ---------
Net cash used in financing activities (51,578) (42,098)
---------
---------
Net increase/(decrease) in cash (3,405) 2,631
Cash at beginning of period 11,089 6,939
--------- ---------
Cash at end of period $ 7,684 $ 9,570
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 6,644 $ 6,057
Cash paid during the period for income taxes $ 2,253 $ 560
Non-cash financing activities:
Stock issued under stock-based compensation plan $ 2,811 $ 2,169
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
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, 1999. Certain amounts for 1999 have been reclassified to conform to
current period classifications.
2. CONTINGENCIES
In February 1999, the Company filed a lawsuit alleging that Arthur
Andersen LLP repudiated a joint venture agreement with the Company relating to
the development of its Customer Relationship Marketing (CRM) product. The
lawsuit also named The News Corporation Limited and News America Incorporated as
defendants.
On February 9, 2000, by stipulation made in open court, followed by
execution of a settlement agreement on February 29, 2000, the Company settled
this litigation in the State of Michigan circuit court for the County of Wayne
and related litigation in the form of a declaratory judgment action that Arthur
Andersen had commenced against the Company in the State of Illinois Chancery
Court for Cook County. The amount paid to the Company by Arthur Andersen LLP
against the exchange of mutual releases and stipulations of dismissal with
prejudice and without costs as to Arthur Andersen LLP and The News Corporation
Limited and News America Incorporated is confidential under the terms of the
stipulated settlement. The proceeds of the settlement are included in other
revenues in the accompanying condensed consolidated statement of income for the
quarter ended March 31, 2000.
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, results of operations or liquidity.
3. SHARE REPURCHASE
The Company recently entered into a forward share repurchase agreement
with a financial institution allowing the Company to acquire approximately 1.7
million shares of its common stock at a price of $29.72 per share, plus
interest. The purchase of 0.7 million shares settled on April 3, 2000. The
purchase of the remaining 1 million shares settle on July 3, 2000 and October 2,
2000 in 0.5 million share increments. The agreement expires on October 2, 2000.
6
<PAGE>
4. SEGMENT REPORTING
The Company has two reportable segments, cooperative free-standing
inserts (FSIs) and Valassis Impact Promotions (VIP). FSIs are four-color
booklets containing promotions from multiple advertisers distributed through
Sunday newspapers. VIP offers its customers individualized specialty print
promotion products in customized formats. These reportable segments are
strategic business units that offer different products and services. They are
managed separately because each business requires different marketing strategies
and caters to a different customer base.
Assets are not allocated to reportable segments and are not used to assess the
performance of a segment. Intersegment sales are accounted for at cost.
<TABLE>
<CAPTION>
(IN MILLIONS) THREE MONTHS ENDED MARCH 31
----------------------------------------------------------------
FSI VIP ALL OTHERS* TOTAL
---------- --------- -------------- ----------
<S> <C> <C> <C> <C>
2000
Revenues from external customers $ 164.2 $ 34.1 $ 14.0 $ 212.3
Intersegment revenues --- --- --- ---
Depreciation/amortization 2.3 0.5 --- 2.8
Segment profit 51.3 4.5 2.6 58.4
1999
Revenues from external customers $ 167.7 $ 34.0 $ 20.3 $ 222.0
Intersegment revenues 2.2 --- --- 2.2
Depreciation/amortization 2.8 0.5 --- 3.3
Segment profit 50.9 3.1 0.7 54.7
</TABLE>
* Segments below the quantitative thresholds are primarily attributable to two
divisions of the Company. Those divisions are Targeted Marketing Services
which includes a product sampling and advertising business, a run-of-press
business, and a promotion security service, and Valassis of Canada, a sales
promotion business in Canada. None of these segments has met any of the
quantitative thresholds for determining reportable segments.
Reconciliations to consolidated financial statement totals are as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Profit for reportable segments $ 55.8 $ 54.0
Profit for other segments 2.6 0.7
Unallocated amounts:
Interest income 0.2 0.2
Other income 26.5 ---
---------- ----------
Earnings before taxes $ 85.1 $ 54.9
========== ==========
</TABLE>
Domestic and foreign revenues for each of the three-month periods ended March 31
were as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
United States $ 237.6 $ 216.4
Canada 1.4 5.8
---------- ----------
Total $239.0 $ 222.2
========== ==========
</TABLE>
7
<PAGE>
5. Earnings Per Share
Earnings per common share ("EPS") data were computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------
2000 1999
-------- --------
(in thousands except for
per share amounts)
<S> <C> <C>
Net Earnings $ 53,411 $ 33,891
======== ========
Basic EPS:
Weighted average common shares outstanding 55,663 57,119
======== ========
Earnings per common share - basic $ 0.96 $ 0.59
======== ========
Diluted EPS:
Weighted average common shares outstanding 55,663 57,119
Weighted average shares purchased on exercise of dilutive options 3,903 4,364
Shares purchased with proceeds of options (2,908) (3,267)
Shares contingently issuable 19 29
-------- --------
Shares applicable to diluted earnings 56,677 58,245
======== ========
Earnings per common share - diluted $ 0.94 $ 0.58
======== ========
</TABLE>
8
<PAGE>
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 of the Company 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 war; new technology that would make free-standing inserts less
attractive; a shift in customer preference for different promotional materials,
promotional strategies or coupon delivery methods, including in-store
advertising systems and other forms of coupon delivery; an increase in the
Company's paper costs; or general business and economic conditions. The Company
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
RESULTS OF OPERATIONS
Net sales decreased 2.3% from $217.3 million for the first quarter of 1999
(after deducting $4.8 million to reflect the Company's Canadian direct
merchandising division, which was discontinued in the fourth quarter of 1999) to
$212.3 million for the first quarter of 2000. Free-standing insert (FSI)
revenues were down from $167.7 million for the quarter ended March 31, 1999 to
$164.2 million for the same quarter of 2000. This decrease is primarily the
result of a shift in spending from March to April as a result of the late Easter
Holiday. Valassis Impact Promotions (VIP) revenues were flat at $34.1 million
compared to $34.8 million in the prior-year period, in which VIP posted record
sales. Other revenues increased from $0.2 million for the first quarter of 1999
to $26.8 million for the first quarter of 2000, primarily as a result of the
settlement of a lawsuit.
Gross profit margin was 46.1% in the first quarter of 2000, up from 37.7% in the
first quarter of 1999. Excluding the impact of a lawsuit settlement in the first
quarter of 2000, gross margin would have increased 4.5% to 39.4%. This was
primarily the result of a slight decline in the Company's paper and printing
costs on a per unit basis. Although the Company received a paper price increase
in the fourth quarter of 1999, management expects flat paper costs in 2000.
Valassis has long-term contracts for 75% of its paper requirements, which
includes pricing collars that stabilize the Company's paper costs. Media costs
(newspaper insertion fees) were flat for the quarter, while printing costs
continued to decline.
Selling, general and administrative expenses decreased 7.1% from $19.7 million
in the first quarter of 1999 to $18.3 million in the first quarter of 2000. This
decrease is primarily the result of cost-containment initiatives observed during
the first quarter of 2000 in response to the softness in revenues, as well as
reduced bad debt expense versus the year-ago quarter.
Net earnings were $53.4 million for the first quarter of 2000 versus $33.9
million for the same period last year. Excluding the impact of the settlement of
a lawsuit in the first quarter of 2000, net earnings would have increased 8.3%
to $36.7 million. This increase is primarily the result of cost reductions.
9
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL
The Company's liquidity requirements arise mainly from its working capital
needs, primarily accounts receivable, inventory and debt service requirements.
The Company does not offer financing to its customers. FSI customers are billed
for 75% of each order eight weeks in advance of the publication date and are
billed for the balance immediately prior to the publication date. The Company
inventories its work in progress at cost while it accrues progress billings as a
current liability at full sales value. Although the Company receives
considerable payments from its customers prior to publication of promotions,
revenue is recognized only upon publication dates. Therefore, the progress
billings on the balance sheet include any profits in the related receivables and
accordingly, the Company can operate with low, or even negative, working
capital.
Cash and cash equivalents totaled $7.7 million at March 31, 2000 versus $11.1
million at December 31, 1999. This was the result of cash provided by operating
activities of $49.8 million, and cash used in investing activities and financing
activities of $1.6 million and $51.6 million, respectively, in the first quarter
of 2000.
Cash flow from operating activities increased from $47.5 million at March 31,
1999 to $49.8 million at March 31, 2000, primarily as a result of increased
earnings.
As of March 31, 2000, the Company's debt has been reduced to $268.2 million,
which consists of $152.7 million under its Revolving Credit Facility, $100
million of its 6-5/8% Senior Notes due 2009 and $15.5 million of its 9.55%
Senior Notes due 2003.
The Company intends to use cash generated by operations to meet interest and
principal repayment obligations, for general corporate purposes, to reduce its
indebtedness and from time to time to repurchase stock through the Company's
stock repurchase program. The Company intends to use proceeds of the settlement
paid by Arthur Andersen to accelerate the development of the Customer
Relationship Marketing initiative.
As of March 31, 2000, the Company had authorization to repurchase an additional
4.5 million shares of its common stock under its existing share repurchase
program, which includes the 1.7 million share repurchase agreement discussed in
Note 3 to the condensed consolidated financial statements.
Management believes that 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 payments of
indebtedness.
CAPITAL EXPENDITURES - The Company operates three printing facilities. Capital
expenditures were $1.7 million for the three month period ended March 31, 2000.
Management expects future capital expenditure requirements of approximately $15
million over each of the next three to five years to meet increased capacity
needs and to replace or rebuild equipment as required. It is expected that
equipment will be purchased using funds provided by operations.
10
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following exhibits are included herein:
(10) Forward Share Purchase Agreement dated February 22, 2000
(10.1) Valassis Communications, Inc. Broad-Based Incentive Plan dated
March 14, 2000
(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 March 31, 2000.
11
<PAGE>
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: May 12, 2000
Valassis Communications, Inc.
(Registrant)
By: /s/Robert L. Recchia
--------------------------------
Robert L. Recchia
V.P. of Finance - Chief Financial Officer
Signing on behalf of the Registrant and as
principal financial officer.
12
<PAGE>
EXHIBIT 10
February 22, 2000
Valassis Communications, Inc.
19975 Victor Parkway
Livonia, Michigan 48152
Re: PURCHASE AGREEMENT
Ladies and Gentlemen:
SECTION 1. Definitions.
Capitalized terms used herein and not otherwise defined have the
meanings specified in Appendix A.
SECTION 2. Purchase and Sale.
(a) Settlement Dates. The Company may, at any time following the
Effective Date on at least five Business Days' prior telephonic notice,
confirmed in writing, to the Seller (a "Settlement Notice"), declare any
Exchange Trading Day up to and including the Maturity Date to be a "Settlement
Date". The Settlement Notice shall specify:
(i) the Settlement Date;
(ii) the number of shares (the "Settlement Shares") with respect
to which settlement of this Letter Agreement is to be effected as of
such Settlement Date; and
(iii) the Settlement Method for such Settlement Date, which may,
subject to Sections 2(f) and 3(h) be Physical Settlement or Stock
Settlement.
The Company may withdraw any Settlement Notice upon telephonic notice, confirmed
in writing, to the Seller at least one Exchange Trading Day prior to the
<PAGE>
proposed Settlement Date. If a Settlement Notice does not specify a Settlement
Method, the Settlement Method shall be deemed to be Physical Settlement. If, on
the Maturity Date, the number of Underlying Shares is greater than zero, then
the Maturity Date shall be a Settlement Date with respect to a number of
Settlement Shares equal to such number of Underlying Shares and the Settlement
Method shall be Physical Settlement. If any Exchange Trading Day that would, but
for this sentence, be a Settlement Date occurs during an Unwind Period, the
Calculation Agent may, in its discretion, postpone such Settlement Date until
the Exchange Trading Day immediately following the last Exchange Trading Day of
such Unwind Period. Without limiting the rights of the Company hereunder, the
Company does not currently intend to elect Stock Settlement with respect to any
Settlement Date.
(b) Physical Settlement. If Physical Settlement is elected as the
Settlement Method for any Settlement Date, then, on the Exchange Trading Day
immediately following the Settlement Date, (i) the Company shall pay to the
Seller an amount in cash equal to the Settlement Amount and (ii) upon receipt of
such amount in immediately available funds, the Seller shall deliver to the
Company a number of shares of Common Stock equal to the number of Settlement
Shares for such Settlement Date.
(c) Stock Settlement. If Stock Settlement is elected as the Settlement
Method for any Settlement Date, then on each Exchange Trading Day during the
related Unwind Period:
(i) If the Realized Amount is greater than or equal to the
Settlement Amount for the related Settlement Date, then such Exchange
Trading Day shall be the last Exchange Trading Day of such Unwind
Period and the Seller shall deliver to the Company a number of shares
of Common Stock (and cash in lieu of fractional shares valued at the
Daily Average Price on such Exchange Trading Day) equal to
SA - RA
(SS + CS) - (NUS + -------)
DAP
where
SS = the number of Settlement Shares for the related
Settlement Date
2
<PAGE>
CS = the number of shares of Common Stock previously
delivered to the Seller in respect of such
Settlement Date pursuant to Section 2(c)(ii)
NUS = the Number of Unwound Shares on the Exchange Trading
Day immediately prior to such Exchange Trading Day
SA = the Settlement Amount for such Settlement Date
RA = the Realized Amount on the Exchange Trading Day
immediately prior to such Exchange Trading Day
DAP = the Daily Average Price on such Exchange Trading Day.
(ii) If such Exchange Trading Day is not the last Exchange Trading
Day of such Unwind Period and the Number of Remaining Unwind Days is
less than or equal to five, then the Company shall elect either (A) to
issue and deliver to the Seller a number of shares of Common Stock
(rounded up to the next larger whole number) equal to the quotient of
(x) 120% of the Shortfall Amount divided by (y) the Daily Average
Price on such Exchange Trading Day, where the "SHORTFALL AMOUNT"
equals
MAX [ O, SA - (RA + (NRUD x DAP x DUN))]
where
SA = the Settlement Amount for such Settlement Date
RA = the Realized Amount on such Exchange Trading Day
NRUD = the Number of Remaining Unwind Days on such Exchange
Trading Day
DAP = the Daily Average Price on such Exchange Trading Day
3
<PAGE>
DUN = the Daily Unwind Number on such Exchange
Trading Day,
in which event such Unwind Period shall continue until the condition set forth
in Section 2(c)(i) or the condition set forth in this Section 2(c)(ii) is true,
or (B) (1) that the Unwind Period shall continue until the first Exchange
Trading Day on which the Number of Unwound Shares equals or exceeds the number
of Settlement Shares for such Settlement Date and (2) to pay, on the Business
Day immediately following the last Exchange Trading Day of such Unwind Period,
to the Seller an amount in cash equal to the Cash Delivery Amount; provided that
if the Cash Delivery Amount is a negative number, the Seller shall, on the
Business Day immediately following the last Exchange Trading Day of such Unwind
Period, pay to the Company an amount of cash equal to the absolute value of the
Cash Delivery Amount.
(d) Accretion Fee. If any Settlement Date occurs with respect to which
the Settlement Method is Stock Settlement, the Company shall pay to the Seller
on the Business Day immediately following the last Exchange Trading Day of the
related Unwind Period an accretion fee (the "ACCRETION FEE") in cash in an
amount equal to
LIBOR + SPREAD
((--------------) x (SA - RAi))
where
n = the number of calendar days in the Unwind Period
LIBOR = 3-Month LIBOR (determined as of the first day of the
Compounding Period that includes such Settlement Date)
Spread = the Spread
SA = the Settlement Amount for such Settlement Date
RAi the Realized Amount on the i th calendar day of such
Unwind Period (or, if such day is not an Exchange Trading
Day, on the Exchange Trading Day immediately prior to such
day).
4
<PAGE>
(e) Mandatory Early Settlement. If at any time prior to the Maturity
Date any of the following shall occur:
(i) the Daily Average Price on any Exchange Trading Day is less
than $12.00;
(ii) there shall exist any default or there shall happen any event
that would, with the passing of time or the giving of notice, become a
default under the financial covenants or payment covenants of the
Credit Agreement, regardless of whether any such defaults have been or
are waived by any party to the Credit Agreement;
(iii) any Event of Default (as defined in the Credit Agreement)
occurs and is continuing under the Credit Agreement;
(iv) any representation or warranty of the Company made or
repeated or deemed to be made or repeated under this Letter Agreement
or any certificate delivered by the Company hereunder would be
incorrect or misleading in any material respect if made or repeated as
of such time;
(v) the Company fails to fulfill or discharge when due any of its
obligations, covenants or agreements under or relating to this Letter
Agreement and such failure continues unremedied for one Business Day;
(vi) a Minimum Amortization Date shall occur and the number of
Underlying Shares on that Minimum Amortization Date shall be greater
than the Minimum Amortization Level for that Minimum Amortization
Date; or
(vii) the Closing Price of the Common Stock on any Exchange
Trading Day is less than or equal to the Draw-Down Reference Price;
then the Seller shall have the right, upon written notice to the Company, to
declare any Exchange Trading Day to be a Settlement Date with respect to a
number of Settlement Shares less than or equal to (A) in the case of clause
2(e)(vi) above, the excess of (1) the Underlying Shares on that Minimum
Amortization Date over (2) the Minimum Amortization Level for that Minimum
Amortization Date, (B) in the case of clause 2(e)(vii) above, the Draw-Down
Number with respect to such Settlement Date, or (C) otherwise, the number of
Underlying Shares on such Exchange Trading Day. The settlement effected on such
Settlement Date shall be effected pursuant to this Section 2; provided that the
Settlement Method shall be
5
<PAGE>
elected by the Seller; provided further that, in the case of any settlement
pursuant to clause 2(e)(vii) above the settlement shall be effected pursuant to
Section 2(m).
(f) Conditions Precedent to the Election of Certain Settlement Methods
and Deliveries of Common Stock. Notwithstanding any other provision of this
Letter Agreement, the Company shall not be permitted to elect Stock Settlement
with respect to any Settlement Date or to deliver shares of Common Stock unless
the following conditions have been satisfied with respect to both (1) all shares
of Common Stock delivered to the Seller pursuant to this Section 2 and (2) all
shares of Common Stock acquired by the Seller in open market transactions in
connection with the Seller's hedging activities in relation to this Letter
Agreement (the "HEDGE SHARES"):
(i) a registration statement covering public resale by the Seller
(or any other affiliate of the Seller designated by the Seller) of
such shares (a "REGISTRATION STATEMENT") shall have been filed with,
and declared effective by, the Commission under the Securities Act on
or prior to the date of delivery, and no stop order shall be in effect
with respect to such Registration Statement; a printed prospectus
relating to all such shares (including any prospectus supplement
thereto, a "PROSPECTUS") shall have been delivered to the Seller, in
such quantities as the Seller shall reasonably have requested, on or
prior to the date of delivery;
(ii) the form and content of such Registration Statement and such
Prospectus (including, without limitation, any sections describing the
plan of distribution) shall be satisfactory to the Seller;
(iii) BAS and the Seller shall have been afforded a reasonable
opportunity to conduct a due diligence investigation with respect to
the Company customary in scope for underwritten offerings of equity
securities and the results of such investigation shall be satisfactory
to BAS and the Seller, in their discretion;
(iv) an agreement (a "TRANSFER AGREEMENT") shall have been entered
into between the Company and the Seller in connection with the public
resale of such shares by the Seller substantially similar to
underwriting agreements customary for underwritten offerings of equity
securities, in form and substance satisfactory to the Seller, which
Transfer Agreement shall include, without limitation, provisions
substantially similar to those contained in such underwriting
agreements relating to the indemnification of, and contribution in
connection with the liability of, the Seller and its affiliates, and
shall provide for the payment by the Company
6
<PAGE>
of all expenses in connection with such resale, including all
registration costs and all fees and expenses of counsel for the
Seller; and
(v) the representations and warranties of the Company set forth in
this Letter Agreement and the relevant Transfer Agreement shall be
true and correct and the Company shall have performed its obligations
set forth in this Letter Agreement.
(g) Registration Failure. If, on any Exchange Trading Day during an
Unwind Period relating to a Settlement Date for which Stock Settlement is
elected as the Settlement Method, any of the conditions set forth in Section
2(f) is not satisfied (any such date, the "REGISTRATION FAILURE DATE"), then the
Company shall (i) pay to the Seller the Registration Failure Amount in cash,
upon receipt of which the Seller shall deliver to the Company the Remaining
Shares and (ii) pay the Accretion Fee as provided in Section 2(d), which
payments shall be in satisfaction of the Company's obligations under this
Section 2 in respect of the related Settlement Date. If a Registration Failure
Date occurs during an Unwind Period, then such Unwind Period shall end on the
Registration Failure Date.
(h) Delay of Settlement Date by the Seller. If in connection with any
proposed Settlement Date, in the Seller's reasonable judgment, the delivery of
shares of Common Stock to or by the Seller or the sale of shares of Common Stock
by the Seller or any of its affiliates in connection with the settlement of this
Letter Agreement on such Settlement Date would potentially violate or contravene
any legal or regulatory prohibition or requirement applicable to the Seller or
its affiliates or cause the Seller or its affiliates to contravene any
established corporate policy or compliance policy of the Seller or its
affiliates, then the Seller may, by telephonic notice to the Company, confirmed
in writing, at least three Business Days prior to the proposed Settlement Date,
delay such Settlement Date until a date on which the Seller notifies the Company
that the Seller and its affiliates are able to effect the proposed settlement.
(i) Unwind Blackout Periods. Prior to the opening of trading on the
Relevant Exchange on any Exchange Trading Day during any Unwind Period, the
Company may, by telephonic notice, confirmed in writing, to the Seller, direct
the Seller not to sell Common Stock in connection with the transactions
contemplated hereby for a period of consecutive Exchange Trading Days (an
"UNWIND BLACKOUT PERIOD") not to exceed 20 consecutive Exchange Trading Days.
Such notice shall not specify, and the Company shall not otherwise communicate
to the Seller, the reason for the Company's declaration of an Unwind Blackout
Period. Such Unwind Period shall be suspended during the Unwind Blackout Period.
The Company may declare only one Unwind Blackout Period during any Unwind
Period. Any Exchange Trading Day occurring during an Unwind Blackout Period
7
<PAGE>
shall not be considered one of the Exchange Trading Days in the relevant Unwind
Period.
(j) Adjustment of Terms. In the event of any corporate event involving
the Company or the Common Stock that has an effect on the nature or the
theoretical value of the Common Stock (including, without limitation, a stock
split, stock dividend, bankruptcy, insolvency, reorganization, merger, tender or
exchange offer, rights offering, recapitalization or spin-off), the terms of the
transaction (including, without limitation, the Initial Price, the Forward
Price, the number of Underlying Shares and the number of Exchange Trading Days
in any Unwind Period) described herein shall be subject to adjustment by the
Calculation Agent as in the exercise of its good faith judgment it deems
appropriate under the circumstances to preserve the economic terms of the
transaction described herein.
(k) Dividend Refund Amount. On the Business Day immediately following
each payment of the related dividend or dividends in connection with any
Settlement Date, the Seller shall pay to the Company the Dividend Refund Amount,
if any, for such Settlement Date.
(l) Security Entitlements. Any references in this Letter Agreement to
shares of Common Stock or other securities to be delivered or transferred
hereunder shall be deemed to include security entitlements in respect thereof.
(m) Draw-Down Settlement. If the Seller declares any Exchange Trading
Day to be a Settlement Date pursuant to clause 2(e)(vii), then on the third
Business Day immediately following such Settlement Date, the Company shall pay
to Seller an amount of cash (in immediately available funds) equal to the
Draw-Down Amount with respect to such Settlement Date.
SECTION 3. Representations, Warranties and Agreements.
(a) Basic Representations. Each party hereto represents and warrants
to and agrees with the other party as follows:
(i) Such party is duly organized and existing and in good standing
under the laws of the jurisdiction of its incorporation.
(ii) Such party has all corporate power and authority to enter
into this Letter Agreement and to consummate the transactions
contemplated hereby.
(iii) This Letter Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, such party,
8
<PAGE>
enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except
as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
(iv) The execution and delivery by such party of, and the
compliance by such party with all of the provisions of, this Letter
Agreement and the consummation of the transactions herein contemplated
are within such party's corporate powers and will not conflict with or
result in a breach of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement or any other agreement or instrument to which such party or
any of its subsidiaries is a party or by which such party or any of
its subsidiaries is bound or to which any of the property or assets of
such party or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws or other constitutive documents of such party
or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over such party or any
of its subsidiaries or any of their respective properties.
(v) No consent, approval, authorization, order, registration,
qualification or filing of or with any court or governmental agency or
body having jurisdiction over such party or any of its subsidiaries or
any of their respective properties is required for the execution and
delivery by such party of, and the compliance by such party with all
the terms of, this Letter Agreement or the consummation by such party
of the transactions contemplated hereby.
(vi) Such party is an "eligible swap participant" as defined in
Commodity Futures Trading Commission Rule 35.1(b)(2) (17 CFR
35.1(b)(2)) and it has entered into this Letter Agreement in
connection with its business or a line of business (including
financial intermediation). The parties acknowledge and agree that this
Letter Agreement is intended to constitute a "swap agreement" within
the meaning of the Policy Statement Concerning Swap Transactions, 54
Fed. Reg. 30694 (July 21, 1989). This Letter Agreement is not one of a
fungible class of agreements that are standardized as to their
material economic and credit terms, within the meaning of CFTC
Regulation Section 35.2(b); and the creditworthiness of the other
party was or will be a material consideration in entering into or
determining the terms of this Letter Agreement,
9
<PAGE>
including pricing, cost or credit enhancement terms of this Letter
Agreement, within the meaning of CFTC Regulation Section 35.2(c).
(vii) The parties acknowledge and agree that the Seller is a
"financial institution" within the meaning of Section 101(22) of the
Bankruptcy Code, that this Letter Agreement is a "securities contract"
within the meaning of Section 741(7) of the Bankruptcy Code entitled
to the protection of Section 555 of the Bankruptcy Code and a "swap
agreement" within the meaning of Section 101(53B) of the Bankruptcy
Code entitled to the protection of Section 560 of the Bankruptcy Code
and that each delivery of Common Stock or Settlement Amounts under
this Letter Agreement is a "settlement payment" within the meaning of
Section 741(8) of the Bankruptcy Code.
(b) Relationship Between the Parties. The Company acknowledges and
agrees that it is not relying, and has not relied, upon the Seller or
any affiliate of the Seller with respect to the legal, accounting, tax
or other implications of this Letter Agreement and that it has
conducted its own analyses of the legal, accounting, tax and other
implications hereof. The Company further acknowledges and agrees that
neither the Seller nor any affiliate of the Seller has acted as its
advisor in any capacity in connection with this Letter Agreement or
the transactions contemplated hereby. The Company is entering into
this Letter Agreement with a full understanding of all of the terms
and risks hereof (economic and otherwise), has adequate expertise in
financial matters to evaluate those terms and risks and is capable of
assuming (financially and otherwise) those risks.
(c) Limitation on Stock Repurchases. The Company shall not
repurchase any shares of Common Stock if, as a result of such
purchase, the number of Underlying Shares would be equal to or greater
than 4.7% of the number of outstanding shares of Common Stock.
(d) Solvency. The Company is, as of the date of this Letter
Agreement, and shall be, as of the date of any payment or delivery by
the Company hereunder, solvent and able to pay its debts as they come
due, with assets having a fair value greater than the amount of the
Company's liabilities and with capital sufficient to carry on the
businesses in which it engages.
(e) Payments and Share Deliveries. All payments hereunder will be
made by wire transfer of immediately available funds to the following
accounts:
For payments to the Company: Comerica Bank
Detroit MI
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ABA# 0720000960
Credit to: Valassis Communications,
Inc.
Acct# 1076122348
For delivery of shares of
Common Stock to the Company: shares should be delivered to
American Stock Transfer & Trust
Company through the DWAC system
For payments to the Seller: NationsBank NA
Charlotte, NC
Equity Derivatives - Bank
DDA# 000659795652
ABA# 053000196
For delivery of shares of
Common Stock to the Seller: To be provided upon request.
(f) Set-off. In addition to any rights of set-off a party hereto
may have as a matter of law or otherwise, upon the occurrence of any default
with respect to a party ("X") hereto, the other party ("Y") shall have the right
(but shall not be obliged) without prior notice to X or any other person to set
off any obligation of X or any affiliate of X owing to of Y or any affiliate of
Y (whether or not arising under this Letter Agreement, whether or not matured,
whether or not contingent and regardless of the currency, place of payment or
booking office of the obligation) against any obligations of Y or any affiliate
of Y owing to X or any affiliate of X (whether or not arising under this Letter
Agreement, whether or not matured, whether or not contingent and regardless of
the currency, place of payment or booking office of the obligation). For the
purpose of cross-currency set-off, Y may convert any obligation to another
currency at a market rate determined by Y. Nothing in this Section 3(f) will
have the effect of creating a charge or other security interest. This Section
3(f) shall be without prejudice and in addition to any right of set-off,
combination of accounts, lien or other right to which any party is at any time
otherwise entitled (whether by operation of law, contract or otherwise).
(g) Consent to Recording. Each party hereto (i) consents to the
recording of telephone conversations of trading and marketing personnel of the
parties and their affiliates in connection with this Letter Agreement and (ii)
agrees to obtain any necessary consent of, and give notice of such recording to,
such personnel of it and its affiliates.
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<PAGE>
(h) Material Nonpublic Information. The Company is not, on the
date hereof, and has not been, on any date from and including February 15, 2000
to but excluding the date hereof, in possession of any material nonpublic
information regarding the Company. Notwithstanding any other provision of this
Letter Agreement, the Company shall not elect Stock Settlement with respect to
any Settlement Date if the Company is, on such Settlement Date, in possession of
any material nonpublic information regarding the Company.
(i) Regulation M. The Company is not, on the date hereof, and has
not been, on any date from and including February 15, 2000 to but excluding the
date hereof, engaged in a distribution, as such term is used in Regulation M
under the Securities Act, of any securities of the Company. The Company shall
not, until the fifth Exchange Trading Day immediately following the Effective
Date, engage in any such distribution.
(j) Shares Duly Authorized. If shares of Common Stock are
delivered to the Seller pursuant hereto, such shares, when delivered, shall have
been duly authorized and shall be duly and validly issued, fully paid and
nonassessable and free of preemptive or similar rights, and such delivery shall
pass title thereto free and clear of any liens or encumbrances.
(k) No Distribution. The Company is not entering into this Letter
Agreement to facilitate a distribution of the Common Stock (or any security
convertible into or exchangeable for Common Stock) or in connection with a
future issuance of securities.
(l) No Manipulation. The Company is not entering into this Letter
Agreement to create actual or apparent trading activity in the Common Stock (or
any security convertible into or exchangeable for Common Stock) or to raise or
depress or otherwise manipulate the price of the Common Stock (or any security
convertible into or exchangeable for Common Stock).
SECTION 4. Indemnification and Contribution.
In the event that the Seller or any of its affiliates becomes
involved in any capacity in any action, proceeding or investigation brought by
or against any person in connection with any matter referred to in this Letter
Agreement, the Company shall reimburse the Seller or such affiliate for its
reasonable legal and other out-of-pocket expenses (including the cost of any
investigation and preparation) incurred in connection therewith within 30 days
of receipt of notice of such expenses, and shall indemnify and hold the Seller
or such affiliate harmless on an after-tax basis against any losses, claims,
damages or liabilities to which the Seller or such affiliate may become subject
in connection with any such action, proceeding or investigation. If for any
reason the foregoing
12
<PAGE>
indemnification is unavailable to the Seller or such affiliate or insufficient
to hold it harmless, then the Company shall contribute to the amount paid or
payable by the Seller or such affiliate as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Seller or such
affiliate on the other hand in the matters contemplated by this Letter Agreement
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits received by the Company on the one hand and the Seller or such
affiliate on the other hand in the matters contemplated by this Letter Agreement
but also the relative fault of the Company and the Seller or such affiliate with
respect to such losses, claims, damages or liabilities and any other relevant
equitable considerations. The relative benefits received by the Company, on the
one hand, and the Seller, the Calculation Agent or such affiliate, on the other
hand, shall be in the same proportion as the product of the Starting Initial
Price and the number of Underlying Shares on the date hereof bears to the market
value of this Letter Agreement to the Seller on the date hereof (as determined
by the Calculation Agent). The reimbursement, indemnity and contribution
obligations of the Company under this Section 4 shall be in addition to any
liability that the Company may otherwise have, shall extend upon the same terms
and conditions to the partners, directors, officers, agents, employees and
controlling persons (if any), as the case may be, of the Seller and its
affiliates and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, the Seller, any such
affiliate and any such person. The Company also agrees that neither the Seller
nor any of such affiliates, partners, directors, officers, agents, employees or
controlling persons shall have any liability to the Company for or in connection
with any matter referred to in this Letter Agreement except to the extent that
any losses, claims, damages, liabilities or expenses incurred by the Company
result from the gross negligence or bad faith of the Seller or a breach by the
Seller of any of its covenants or obligations hereunder. The foregoing
provisions shall survive any termination or completion of this Letter Agreement.
SECTION 5. Governing Law.
THIS LETTER AGREEMENT SHALL BE GOVERNED BY THE LAW OF THE STATE OF NEW
YORK WITHOUT REFERENCE TO THE CHOICE OF LAW RULES THEREOF.
SECTION 6. Assignment and Transfer.
The rights and duties under this Letter Agreement may not be assigned
or transferred by either party hereto without the prior written consent of the
other
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<PAGE>
party hereto; provided that the Seller may assign any of its rights or duties
hereunder to any of its affiliates without the prior written consent of the
Company.
SECTION 7. Confidentiality.
Except as required by law or judicial or administrative process, or as
requested by a regulatory authority or self-regulatory organization, each party
hereto agrees to keep this Letter Agreement and the transactions contemplated
hereby confidential. In the event disclosure is permitted pursuant to the
immediately preceding sentence, the disclosing party shall (i) provide prior
notice of such disclosure to the other party, (ii) use its best efforts to
minimize the extent of such disclosure and (iii) comply with all reasonable
requests of the other party to minimize the extent of such disclosure. This
Section 7 shall not prevent either party from disclosing information as
necessary to third-party advisors in connection with the transactions
contemplated hereby; provided that such advisors shall be bound by this Section
7 as if a party hereto.
SECTION 8. Calculations.
The Calculation Agent shall make all calculations in respect of this
Letter Agreement, which calculations shall be made in a commercially reasonable
manner and shall be binding on the parties absent manifest error.
SECTION 9. Notices.
Unless otherwise specified, notices under this contract may be made by
telephone, to be confirmed in writing to the address below. Changes to the
information below must be made in writing.
(a) If to the Company:
Valassis Communications, Inc.
19975 Victor Parkway
Livonia, Michigan 48152
Attn: Pat Randall
Telephone: (734) 591-4949
Facsimile: (734) 462-2513
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(b) If to the Seller:
Bank of America, N.A.
c/o Banc of America Securities LLC
9 W. 57th Street
New York, NY 10019
Attn: Christopher J. Innes
Telephone: (212) 583-8173
Facsimile: (212) 583-8457
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<PAGE>
Please confirm your agreement to the foregoing by signing and
returning to us the enclosed duplicate of this Letter Agreement.
Very truly yours,
BANK OF AMERICA, N.A.
By:
-----------------------------
Name:
Title:
Acknowledged and agreed to as of
the date first above written,
VALASSIS COMMUNICATIONS, INC.
By:
-----------------------------
Name:
Title:
<PAGE>
APPENDIX A
DEFINITIONS
As used in this Letter Agreement, the following terms shall have the
following meanings:
"3-MONTH LIBOR" means USD-LIBOR-BBA for a Designated Maturity of three
months, as such terms are defined in the 1991 ISDA Definitions published by the
International Swaps and Derivatives Association, Inc., provided, however, that
3-month LIBOR as of the Effective Date shall be 6.11%.
"ACCRETION FEE" has the meaning specified in Section 2(d).
"BANKRUPTCY CODE" means Title 11 of the United States Code.
"BAS" means Banc of America Securities LLC.
"BUSINESS DAY" means any day that is not a Saturday, a Sunday or a day
on which banking institutions or trust companies in The City of New York are
authorized or obligated by law or executive order to close.
"CALCULATION AGENT" means BAS.
"CASH DELIVERY AMOUNT" means, with respect to any Settlement Date,
SA - (RA + (DAP x (SS - NUS))
where
SA = the Settlement Amount with respect to such Settlement Date
RA = the Realized Amount on the Exchange Trading Day
immediately prior to the last Exchange Trading Day of the
relevant Unwind Period
DAP = the Daily Average Price on the last Exchange Trading Day of
the relevant Unwind Period
SS = the number of Settlement Shares for such Settlement Date
<PAGE>
NUS = the Number of Unwound Shares on the Exchange Trading Day
immediately prior to the last Exchange Trading Day of the
relevant Unwind Period.
"CLOSING PRICE" of any security means, on any Exchange Trading Day,
the closing sale price (or, if no closing sale price is reported, the last sale
price) of such security for the regular trading session on the Relevant Exchange
for such security on such Exchange Trading Day or, if no closing sale price or
last sale price is reported, the closing market price of such security for the
regular trading session on the Relevant Exchange for such security on such
Exchange Trading Day as determined by the Calculation Agent in a commercially
reasonable manner.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $0.01 per share, of
the Company.
"COMPANY" means Valassis Communications, Inc., a Delaware corporation.
"COMPOUNDING PERIOD" means, with respect to the first Compounding
Period, the period beginning on the Effective Date and ending on the day
immediately prior to the first Reset Date and, with respect to each following
Compounding Period, the period beginning on a Reset Date and ending on the day
immediately prior to the next following Reset Date or, if there is no following
Reset Date, the Maturity Date.
"CREDIT AGREEMENT" means the Credit Agreement by and among Comerica
Bank, Harris Trust and Savings Bank, Keybank National Association, Michigan
National Bank, Bank One, Michigan (f/k/a NBD Bank) (the "Revolving Credit
Banks") and Comerica Bank, in its capacity as lender of the Swing Line Credit
and together with the Revolving Credit Banks (collectively referred to as the
"Banks"), Comerica Bank as agent for the Banks, and Valassis Communications,
Inc. dated as of November 16, 1998 as amended as of November 25, 1998 and August
19, 1999 and as amended from time to time or, if at any time such agreement is
no longer the principal bank credit agreement of the Company, the principal bank
credit agreement of the Company then in effect.
"DAILY AVERAGE PRICE" means, on any Exchange Trading Day, an amount
equal to 98% of the volume weighted average sale price per share for sales on
the Exchange Trading Day by the Seller of Hedge Shares or shares of Common Stock
delivered to the Seller pursuant to Section 2.
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"DAILY MAXIMUM NUMBER" means, on any Exchange Trading Day, 25% of the
average daily trading volume in the Common Stock for the 20 Exchange Trading
Days immediately prior to such Exchange Trading Day.
"DAILY UNWIND NUMBER" means, initially, 100,000, which amount may be
changed on any day by the Calculation Agent; provided that in no event (except
as provided in the further proviso to this sentence) shall the Daily Unwind
Number on any day be less than 75,000 or greater than the Daily Maximum Number;
and provided further that, notwithstanding the foregoing, in the event a
Settlement Date occurs as a result of Section 2(e), the Daily Unwind Number may
be increased at the option of the Seller.
"DIVIDEND AMOUNT" means, for any day (the "Calculation Day"), an
amount equal to the sum of the per share amounts of all cash dividends paid on
the Common Stock during the period beginning on the first day of the Compounding
Period that includes the Calculation Day (unless the Calculation Day is the
first day of such Compounding Period, in which case such period shall begin on
the first day of the immediately prior Compounding Period) and ending on the day
immediately prior to the Calculation Day.
"DIVIDEND REFUND AMOUNT" means, with respect to any Settlement Date,
the product of (i) the per share amount of any cash dividend on the Common Stock
for which the record date for determining shareholders entitled to receive such
dividend is prior to such Settlement Date but the payment date for such dividend
is on or after such Settlement Date times (ii) the number of Settlement Shares
for such Settlement Date.
"DRAW-DOWN AMOUNT" means, with respect to any Settlement Date,
(DDRP-CP) x US
where
DDRP = with respect to any Settlement Date, (i) if such
Settlement Date is a Reset Date or the Maturity Date, the
Draw-Down Reference Price immediately prior to the Seller's
declaration of such Settlement Date pursuant to clause
2(e)(vii), or (ii) if such Settlement Date is any other
day, the Draw-Down Reference Price immediately prior to the
Seller's declaration of
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such Settlement Date pursuant to clause 2(e)(vii) adjusted
for any LIBOR breakage adjustments (determined by the
Calculation Agent in accordance with normal industry
standards) for the period from such Settlement Date to the
next following Reset Date or, if there is no following
Reset Date, the Maturity Date
CP = the Closing Price on such Settlement Date
US = the Underlying Shares on such Settlement Date.
"DRAW-DOWN NUMBER" means, with respect to any Settlement Date, the
Draw-Down Amount with respect to such Settlement Date divided by the Closing
Price of the Common Stock on such Settlement Date.
"DRAW-DOWN REFERENCE PRICE" means initially $18.00 per share of Common
Stock and following the declaration of any Settlement Date pursuant to clause
2(e)(vii) the Closing Price on such Settlement Date for all times prior to the
declaration of a subsequent Settlement Date pursuant to such clause.
"DRAW-DOWN SETTLEMENT" means any settlement pursuant to Section 2(m).
"EARLY TERMINATION FEE" means, with respect to any Settlement Date,
the greater of (x) zero and (y) the difference of $75,000.00 minus the Early
Termination Accrual Amount as of such Settlement Date.
"EARLY TERMINATION ACCRUAL AMOUNT" means, for any day (the
"Calculation Day"), the amount equal to
1
US X IP X SPREAD X -----
360
where
US = the Underlying Shares on the day immediately preceding the
i th day after the Effective Date
A-4
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IP = the Initial Price for the Compounding Period that includes
the calendar day immediately preceding the i th day after
the Effective Date or, if such calendar day is the first
day of such Compounding Period, the Initial Price for the
immediately preceding Compounding Period
Spread = the Spread
n = the number of calendar days in the period beginning on the
Effective Date and ending on the day immediately prior to
the Calculation Day.
"EFFECTIVE DATE" means February 22, 2000.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE TRADING DAY" means any day other than (i) a Saturday, a
Sunday or a day on which the Relevant Exchange is not open for business, (ii) a
day during which trading of any securities of the Company on any national
securities exchange has been suspended or (iii) a day during which there has
been, in the Calculation Agent's judgment, a material limitation in the trading
of Common Stock.
"FORWARD PRICE" means, for any day (the "Calculation Day"), the amount
equal to
n
(IP X (1 + (LIBOR + SPREAD) x ---)) - DA
360
where
IP = the Initial Price for the Compounding Period that includes
the Calculation Day or, if the Calculation Day is the first
day of such Compounding Period, the Initial Price for the
immediately preceding Compounding Period
LIBOR = 3-Month LIBOR (determined as of the first day of such
Compounding Period)
Spread = the Spread
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n = the number of calendar days in the period beginning on the
first day of such Compounding Period and ending on the day
immediately prior to the Calculation Day
DA = the Dividend Amount on the Calculation Day.
"HEDGE SHARES" has the meaning specified in Section 2(f).
"INITIAL PRICE" means, for the first Compounding Period, the Starting
Initial Price, and, for each following Compounding Period, the Forward Price
calculated on the first day of such Compounding Period; provided, however, that
if the Company makes any Draw-Down Settlement payment pursuant to Section 2(m)
hereof with respect to a Settlement Date occurring in any Compounding Period,
then for each calendar day from and including the Settlement Date (X) the
Initial Price for such Compounding Period shall be reduced by the excess, if
any, of (i) the Draw-Down Reference Price immediately prior to the Seller's
declaration of such Settlement Date pursuant to clause 2(e)(vii) over (ii) the
Closing Price on such Settlement Date and (Y) for purposes of determining (i) IP
and n for such Compounding Period in the calculation of the Forward Price and
(ii) IP for such Compounding Period in the calculation of the Early Termination
Accrual Amount on any such calendar day, such Compounding Period shall be deemed
to have commenced on such Settlement Date.
"MATURITY DATE" means October 2, 2000.
"MINIMUM AMORTIZATION DATE" means each of the dates appearing under
the heading "Minimum Amortization Date" on Schedule I hereto.
"MINIMUM AMORTIZATION LEVEL" means, with respect to any Minimum
Amortization Date, that number indicated by the entry appearing under the
heading "Minimum Amortization Level" opposite such Minimum Amortization Date
on Schedule I hereto.
"NUMBER OF REMAINING UNWIND DAYS" means, on any Exchange Trading Day
during an Unwind Period,
(SS + CS) - NUS
MAX [ O, ---------------]
DUN
where
A-6
<PAGE>
SS = the number of Settlement Shares for the related Settlement
Date
CS = the number of shares of Common Stock previously delivered
to the Seller in respect of such Settlement Date pursuant
to Section 2(c)(ii)
NUS = the Number of Unwound Shares on such Exchange Trading Day
DUN = the Daily Unwind Number on such Exchange Trading Day.
"NUMBER OF UNWOUND SHARES" means, on any Exchange Trading Day during
an Unwind Period (the "CALCULATION DAY"),
DUNi
where
n = the number of Exchange Trading Days in such Unwind Period
up to and including the Calculation Date
DUNi = the Daily Unwind Number on the i th Exchange Trading Day in
such Unwind Period.
"PHYSICAL SETTLEMENT" means the Settlement Method described in Section
2(b).
"PROSPECTUS" has the meaning specified in Section 2(g)(i).
"REALIZED AMOUNT" means, on any Exchange Trading Day during an Unwind
Period (the "CALCULATION DAY"),
(DAPi x DUNi)
where
A-7
<PAGE>
n = the number of Exchange Trading Days in such Unwind Period
up to and including the Calculation Date
DAPi = the Daily Average Price on the i th Exchange Trading Day in
such Unwind Period
DUNi = the Daily Unwind Number on the i th Exchange Trading Day in
such Unwind Period.
"REGISTRATION FAILURE AMOUNT" means, for any Registration Failure
Date, the excess of the Settlement Amount for the relevant Settlement Date over
the Realized Amount on the Exchange Trading Day immediately prior to the
Registration Failure Date.
"REGISTRATION FAILURE DATE" has the meaning specified in Section 2(h).
"REGISTRATION STATEMENT" has the meaning specified in Section 2(g)(i).
"RELEVANT EXCHANGE" means the principal national securities exchange
or automated quotation system on which the Common Stock is listed or quoted.
"REMAINING SHARES" means, with respect to any Registration Failure
Date, a number of shares of Common Stock equal to (i) the number of Settlement
Shares for the related Settlement Date plus (ii) the number of shares of Common
Stock delivered to the Seller pursuant to Section 2(c)(ii) in respect of such
Settlement Date minus (iii) the Number of Unwound Shares on the Exchange Trading
Day immediately prior to the Registration Failure Date.
"RESET DATE" means April 3, 2000 and July 3, 2000.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"Seller" means Bank of America, N.A.
"SETTLEMENT AMOUNT" means, with respect to any Settlement Date, the
product of (i) the Settlement Price times (ii) the number of Settlement Shares;
provided that with respect to any Settlement Date immediately following which
the number of Underlying Shares is equal to zero, the Settlement Amount shall be
deemed to be equal to the sum of (x) the product of (i) the Settlement Price
times (ii) the number of Underlying Shares as of such Exchange Trading Day and
(y) any Early Termination Fee.
"SETTLEMENT DATE" has the meaning specified in Section 2(a).
A-8
<PAGE>
"SETTLEMENT METHOD" means Physical Settlement or Stock Settlement.
"SETTLEMENT NOTICE" has the meaning specified in Section 2(a).
"SETTLEMENT PRICE" means, with respect to any Settlement Date, (i) if
such Settlement Date is a Reset Date or the Maturity Date, the Forward Price, or
(ii) if such Settlement Date is any other day, the Forward Price adjusted for
any LIBOR breakage adjustments (determined by the Calculation Agent in
accordance with normal industry standards) for the period from such Settlement
Date to the next following Reset Date or, if there is no following Reset Date,
the Maturity Date.
"SETTLEMENT SHARES" has the meaning specified in Section 2(a).
"SHORTFALL AMOUNT" has the meaning specified in Section 2(c).
"SPREAD" means 0.90%.
"STARTING INITIAL PRICE" means $29.7208.
"STOCK SETTLEMENT" means the Settlement Method described in Section
2(c).
"UNDERLYING SHARES" means, initially, a number of shares of Common
Stock equal to 1,684,400, reduced as of each Settlement Date by the number of
Settlement Shares with respect to such Settlement Date, except that no reduction
shall be made for any settlement effected pursuant to Section 2(m) hereof.
"UNWIND BLACKOUT PERIOD" has the meaning specified in Section 2(n).
"UNWIND PERIOD" means, with respect to any Settlement Date for which
Stock Settlement is elected as the Settlement Method, a period of consecutive
Exchange Trading Days beginning on such Settlement Date and ending on a date
determined as set forth in Section 2(c).
A-9
<PAGE>
SCHEDULE I
MINIMUM AMORTIZATION DATE MINIMUM AMORTIZATION LEVEL
April 3, 2000 .............. 673,800
July 3, 2000 ............... 505,300
A-10
<PAGE>
EXHIBIT 10.1
VALASSIS COMMUNICATIONS, INC.
Broad-Based Incentive Plan
1. Purpose. The purpose of the Broad-Based Incentive Plan (the
"Plan") is to advance the interests of Valassis Communications, Inc. (the
"Company") and its shareholders by providing incentives to employees of the
Company and its affiliates and to certain other individuals who perform services
for these entities.
2. Administration. The Plan shall be administered solely by the
Compensation/Stock Option Committee (the "Committee") of the Board of Directors
(the "Board") of the Company, as such Committee is from time to time
constituted, or any successor committee the Board may designate to administer
the Plan; provided that the Committee may delegate the administration of the
Plan in whole or in part, on such terms and conditions, and to such person or
persons as it may determine in its discretion.
The Committee has all the powers vested in it by the terms of the Plan
set forth herein, such powers to include exclusive authority (except as may be
delegated as permitted herein and described in the foregoing paragraph) to
select the employees and other individuals to be granted options under the Plan
("Option"), to determine the type, size and terms of the grant of Options to be
made to each individual selected, to modify the terms of any Option that has
been granted, to determine the time when Options will be granted, to make any
adjustments necessary or desirable as a result of the granting of Options to
eligible individuals located outside the United States and to prescribe the form
of the instruments embodying Option Agreements (as hereinafter defined) made
under the Plan. The Committee is authorized to interpret the Plan and the
Options granted under the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan, and to make any other determination, which it
deems necessary or desirable for the administration of the Plan. The Committee
(or its delegate as permitted herein) may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Option in the
manner and to the extent the Committee deems necessary or desirable to carry it
into effect. Any decision of the Committee (or its delegate as permitted herein)
in the interpretation and administration of the Plan, as described herein, shall
lie within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned. The Committee may act only by a majority of
its members in office, except that the members thereof may authorize any one or
more of their members or any officer of the Company or its Affiliates (as
hereinafter defined) to execute and deliver documents or to take any other
ministerial action on behalf of the Committee with respect to Options granted or
to be granted to Plan participants. No member of the Committee and no officer of
the Company or its Affiliates shall be liable for anything done or omitted to be
done by him or her, by any other member of the Committee or by any officer of
the Company or its Affiliates in connection with the performance of duties under
the Plan, except for his or her own willful misconduct or as expressly provided
by statute.
3. Participation.
(a) Affiliates. If an Affiliate of the Company wishes to
participate in the Plan and its participation shall have been approved by the
Board upon the recommendation of the Committee, the board of directors or other
governing body of the Affiliate shall adopt a resolution in form and substance
satisfactory to the Committee authorizing participation by the
<PAGE>
Affiliate in the Plan with respect to its employees or other individuals
performing services for it. As used herein, the term "Affiliate" means any
entity that directly or indirectly through one or more intermediaries, controls,
is controlled by or is under common control with the Company as determined by
the Committee in its discretion. Notwithstanding the foregoing, all of the
Company's wholly-owned subsidiaries are deemed to be Affiliates entitled to
participate in the Plan, subject to any additional conditions as may be required
by any applicable foreign laws.
An Affiliate participating in the Plan may cease to be a participating
company at any time by action of the Board or by action of the board of
directors or other governing body of such Affiliate, which latter action shall
be effective not earlier than the date of delivery to the Secretary of the
Company of a certified copy of a resolution of the Affiliate's board of
directors or other governing body taking such action. If the participation in
the Plan of an Affiliate shall terminate, such termination shall not relieve it
of any obligations theretofore incurred by it, except as may be approved by the
Committee in its discretion.
(b) Participants. All employees and independent contractors of
both the Company and participating Affiliates are eligible to participate in the
Plan, provided they are not (i) officers (as defined by Rule 16a-1(f) under the
Securities Exchange Act of 1934, as amended, (the "Exchange Act")) or directors
of the Company, (ii) an owner of at least 5% of the outstanding Common Shares,
or (iii) a closely related person of any person described in (i) or (ii) of this
paragraph. Consistent with the purposes of the Plan, the Committee shall have
exclusive power (except as may be delegated as permitted herein) to select the
eligible employees and other individuals performing services for the Company,
including consultants or independent contractors and others who perform services
for the Company and its Affiliates, who may be granted Options under the Plan.
Eligible individuals may be selected individually or by groups or categories, as
determined by the Committee in its discretion.
4. Options under the Plan.
(a) Options. Options are rights to purchase common shares of the
Company, par value $0.01 per share (the "Common Shares"), and they are not to be
treated as "incentive stock options" within the meaning of Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code"). Options are subject to
the terms, conditions and restrictions specified in Paragraph 5.
(b) Options that May Be Issued. There may be issued under the
Plan an aggregate of not more than 150,000 Common Shares, subject to adjustment
as provided in Paragraph 8.
(c) Rights with respect to Common Shares and Other Securities.
Unless otherwise determined by the Committee in its discretion, a participant to
whom a grant of an Option is made (and any person succeeding to such a
participant's rights pursuant to the Plan) shall have no rights as a stockholder
with respect to any Common Shares or as a holder with respect to other
securities, if any, issuable pursuant to any such Option until the date of the
issuance of a stock certificate to him or her for such Common Shares or other
instrument of ownership, if any. Except as provided in Paragraph 8, no
adjustment shall be made for dividends, distributions or other rights (whether
ordinary or extraordinary, and whether in cash, securities, other property or
other forms of consideration, or any combination thereof) for which the record
date is prior to the
2
<PAGE>
date such stock certificate or other instrument of ownership, if any, is issued.
5. Conditions and Restrictions. Each Option granted under the
Plan shall be evidenced by an instrument ("Option Agreement") in such form as
the Committee shall prescribe from time to time in accordance with the Plan and
shall comply with the following terms and conditions, and with such other terms
and conditions, including, but not limited to, restrictions upon the Option or
the Common Shares issuable upon exercise thereof, as the Committee, in its
discretion, shall establish:
(a) The Option exercise price may be equal to, or greater than,
the Fair Market Value (as hereinafter defined) of the Common Shares subject to
such Option at the time the Option is granted;
(b) The Committee shall determine the number of Common Shares to
be subject to each Option. Options shall become exercisable in installments, if
any, as provided by the Committee.
(c) Any Option offered pursuant to the Plan shall not be
transferable other than by will or the laws of descent and distribution and
shall be exercisable during the participant's lifetime only by him or her, and a
participant's rights and interest under the Plan may not be assigned or
transferred, hypothecated or encumbered in whole or in part either directly or
by operation of law or otherwise (except in the event of a participants death)
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner.
(d) The Option shall not be exercisable:
(i) other than during such period, at such time or times and
in such installments, as the Committee may establish;
(ii) unless payment in full is made for the shares being
acquired thereunder at the time of exercise. Such payment shall be
made in such form (including, but not limited to, cash, Common Shares
owned by the participant for at least six months, or any combination
thereof) as the Committee may determine in its discretion; and
(iii) unless the person exercising the Option has been, at all
times during the period beginning with the date of the grant of the
Option and ending on the date of such exercise, employed by or
otherwise performing services for the Company or an Affiliate, or a
corporation, or a parent or subsidiary of a corporation, substituting
or assuming the Option, except that, in the discretion of the
Committee:
(A) if such person shall cease such employment or
performance of services by reason of his Disability (as
defined in Paragraph 7) or early, normal or deferred
retirement under an approved retirement program of the Company
or an Affiliate (or such other plan or arrangement as may be
approved by the Committee, in its discretion, for this
purpose) while holding an Option which has not expired and has
not been fully exercised, such person may exercise the Option
with respect to any Common Shares as to which he or she could
have exercised
3
<PAGE>
the Option on the date he ceased such employment or
performance of services (and, if the Committee so determines,
with respect to any or all Common Shares under such Option as
to which he could not then have otherwise exercised such
Option) for an additional period of up to three years after
the date he or she ceased such employment or performance of
services (but in no event after the expiration date of the
Option); or
(B) if such person shall cease such employment or
performance of services by reason of death while holding an
Option that has not expired and has not been fully exercised,
his or her executors, administrators, heirs or distributees,
as the case may be, may, at any time within one year (or such
other period determined by the Committee) after the date of
death (but in no event after the expiration date of the
Option), exercise the Option with respect to any Common Shares
as to which the decedent could have exercised the Option at
the time of his or her death (and if the Committee so
determines, with respect to any or all Common Shares subject
to such Option as to which the decedent could not then have
otherwise exercised such Option); and
(C) if such person shall cease such employment or
performance of services for any reason other than Disability,
early, normal or deferred retirement or death, while holding
an Option which has not expired and has not been fully
exercised, such person may exercise the Option with respect to
any Common Shares as to which he or she could have exercised
the Option on the date he or she ceased such employment or
performance of services (and, if the Committee so determines,
with respect to any or all Common Shares under the Option as
to which he or she could not then have otherwise exercised the
Option) for such additional period, if any, following the date
he or she ceased such employment or performance of services,
that the Committee may determine (but in no event after the
expiration date of the Option).
(e) For purposes of this Plan, "Fair Market Value" per Common
Share as of a particular date shall mean (i) the closing sales price per Common
Share on a national securities exchange for the last preceding date on which
there was a sale of such Common Shares on such exchange, or (ii) if Common
Shares are then traded on an over-the-counter market, the average of the closing
bid and asked prices for the Common Shares in such over-the-counter market for
the last preceding date on which there was a sale of such Common Shares in such
market, or (iii) if the shares of Common Shares are not then listed on a
national securities exchange or traded in an over-the-counter market, such value
as the Committee in its discretion may determine.
(f) The Option Agreements shall provide that Options are not
"incentive stock options" for purposes of Section 422 of the Code. Furthermore,
the intent of the Company is that all Options granted under this Plan shall have
fixed and determinable terms, and not options with variable terms, within the
meaning of Accounting Principles Board Opinion No. 25; all ambiguities in
construction of Option Agreements shall be so interpreted, and all Option
Agreements shall be deemed supplemented to the extent necessary to effectuate
this intent and contrary provisions disregarded.
4
<PAGE>
6. Amendment or Substitution of Options under the Plan. The terms
of any outstanding Option under the Plan may be amended from time to time by the
Committee in its discretion in any manner that it deems appropriate (including,
but not limited to, acceleration of the date of exercise of any Option) provided
that no such amendment shall adversely affect in a material manner any right of
a participant under the Option without his or her written consent, unless the
Committee determines in its discretion that there have occurred or are about to
occur significant changes in the participant's position, duties or
responsibilities, or significant changes in economic, legislative, regulatory,
tax, accounting or cost/benefit conditions which are determined by the Committee
in its discretion to have or to be expected to have a substantial effect on the
performance of the Company, Affiliate, division or department thereof, on the
Plan or on any Option under the Plan. The Committee may, in its discretion,
permit holders of Options under the Plan to exchange outstanding Options for the
grant of new Options, or require holders of Options to surrender outstanding
Options as a condition precedent to the grant of new Options under the Plan.
7. Disability. For the purposes of this Plan, a participant shall
be deemed to have terminated his employment or performance of services for the
Company and its Affiliates by reason of Disability, if the participant is absent
from his or her duties with the Company or an Affiliate for a period of at least
180 days during any 12 month period as a result of incapacity due to a mental or
physical illness. The method of establishing Disability shall be a good faith
determination by the Committee.
8. Dilution and Other Adjustments. In the event of any change in
the outstanding Common Shares of the Company by reason of any stock split, stock
dividend, split-up, split-off, spin-off, recapitalization, merger,
consolidation, rights offering, share offering, reorganization, combination or
exchange of shares, a sale by the Company of all or part of its assets, or in
the event of any distribution to stockholders other than a normal cash dividend,
or other extraordinary or unusual event, if the Committee shall determine, in
its discretion, that such change equitably requires an adjustment in the terms
of any Option or the number of Common Shares available for Options, such
adjustment may be made by the Committee and shall be final, conclusive and
binding for all purposes of the Plan.
9. Designation of Beneficiary by Participant. A participant may
name a beneficiary to receive any payment to which he or she may be entitled in
respect of any Option under the Plan in the event of his or her death, on a
written form to be provided by and filed with the Committee, and in a manner
determined by the Committee in its discretion. The Committee reserves the right
to review and approve beneficiary designations. A participant may change his or
her beneficiary from time to time in the same manner, unless such participant
has made an irrevocable designation. Any designation of beneficiary under the
Plan (to the extent it is valid and enforceable under applicable law) shall be
controlling over any other disposition, testamentary or otherwise, as determined
by the Committee in its discretion. If no designated beneficiary survives the
participant and is living on the date on which any amount becomes payable to
such participant's beneficiary, such payment will be made to the legal
representatives of the participants estate, and the term "beneficiary" as used
in the Plan shall be deemed to include such person or persons. If there is any
question as to the legal right of any beneficiary to receive a distribution
under the Plan, the Committee in its discretion may determine that the amount in
question be paid to the legal representatives of the estate of the participant,
in which
5
<PAGE>
event the Company, the Board and the Committee and the members thereof will have
no further liability to anyone with respect to such amount.
10. Change in Control.
(a) Upon the occurrence of a Change in Control (as hereinafter
defined), each Option that is outstanding on the date of such Change in Control
shall be exercisable in full immediately (whether or not then exercisable).
(b) For this purpose, a Change in Control shall be deemed to have
occurred if:
(i) any Person (as defined below) is or becomes the beneficial
owner, as defined in Rule 13d-3 under the Exchange Act, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its Affiliates) representing more than
50% of the combined voting power of the Company's then outstanding
securities; or
(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 shareholders was
approved by a vote of a majority of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof, or
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, which merger
or consolidation is consummated, other than (A) 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 entity), in combination with newly
acquired ownership acquired in such transaction by any trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or an Affiliate, at least 50% of the combined voting power
of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or (B) a
merger or consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no Person acquires more
than 50% of the combined voting power of the Company's then
outstanding securities; or
(iv) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company to any Person of all or substantially all
the Company's assets, which liquidation, sale or disposition is
consummated.
For purposes of this subsection 10(b), Person shall have the meaning
given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, however, a Person shall not include (1) the Company or
any of its Affiliates; (2) a trustee or other fiduciary
6
<PAGE>
holding securities under an employee benefit plan of the Company or any of its
Affiliates; (3) an underwriter temporarily holding securities pursuant to an
offering of such securities; or (4) a corporation owned, directly or indirectly,
by the shareholders of the Company in substantially the same proportion as their
ownership of stock of the Company.
11. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or right to
be granted an Option under the Plan. Determinations made by the Committee under
the Plan need not be uniform and may be made selectively among eligible
individuals under the Plan, whether or not such eligible individuals are
similarly situated. Neither the Plan nor any action taken hereunder shall be
construed as giving any employee or other person any right to continue to be
employed by or perform services for the Company or any Affiliate, and the right
to terminate the employment of or performance of services by any participant at
any time and for any reason is specifically reserved.
(b) No participant or other person shall have any right with
respect to the Plan, the Common Shares reserved for issuance under the Plan or
in any Option, contingent or otherwise, until written evidence of the Option
shall have been delivered to the recipient and all the terms, conditions and
provisions of the Plan and the Option applicable to such recipient (and each
person claiming under or through him or her) have been met.
(c) No Common Shares, other Company securities or property, or
other forms of payment shall be issued hereunder with respect to any Option
unless counsel for the Company shall be satisfied that such issuance will be in
compliance with applicable federal, state, local and foreign legal, securities
exchange and other applicable requirements.
(d) The Company and its Affiliates shall have the right to deduct
from any payment made under the Plan any federal, state, local or foreign income
or other taxes required by law to be withheld with respect to such payment. It
shall be a condition to the obligation of the Company to issue Common Shares,
other securities or property, or other forms of payment, or any combination
thereof, upon exercise of any Option under the Plan, that the participant (or
any beneficiary or person entitled to act) pay to the Company, upon its demand,
such amount as may be requested by the Company for the purpose of satisfying any
liability to withhold federal, state, local or foreign income or other taxes. If
the amount requested is not paid, the Company may refuse to issue Common Shares,
other securities or property, or other forms of payment, or any combination
thereof. Notwithstanding anything in the Plan to the contrary, the Committee
may, in its discretion, permit a participant (or any beneficiary or person
entitled to act) to elect to pay a portion or all of the amount requested by the
Company for such taxes with respect to such Option, at such time and in such
manner as the Committee shall deem to be appropriate, including, but not limited
to, by authorizing the Company to withhold, or agreeing to surrender to the
Company on or about the date such tax liability is determinable, Common Shares,
other Company securities or property, or other forms of payment, or any
combination thereof, owned by such person or a portion of such forms of payment
that would otherwise be distributed, or have been distributed, as the case may
be, pursuant to such Option to such person, having a fair market value equal to
the amount of such taxes.
7
<PAGE>
(e) The expenses of the Plan shall be borne by the Company.
(f) By accepting any Option under the Plan, each participant and
each person claiming under or through him or her shall be conclusively deemed to
have indicated his or her acceptance and ratification of, and consent to, any
action taken by the Company, the Board or the Committee or its delegates.
(g) Fair market value in relation to securities (other than Common
Shares) or property or other forms of payment of Options under the Plan, or any
combination thereof, as of any specific time shall mean such value as determined
by the Committee in accordance with applicable law.
(h) The masculine pronoun includes the feminine and the singular
includes the plural wherever appropriate.
(i) The appropriate officers of the Company shall cause to be
filed any reports, returns or other information regarding Options hereunder or
any Common Shares issued pursuant hereto as may be required by Section 13 or
15(d) of the Exchange Act (or any successor provision) or any other applicable
statute, rule or regulation.
(j) The validity, construction, interpretation, administration and
effect of the Plan, and of its rules and regulations, and rights relating to the
Plan and to Options granted under the Plan, shall be governed by the substantive
laws, but not the choice of law rules, of the State of Delaware.
12. Plan Amendment or Suspension. The Plan may be amended or
suspended in whole or in part at any time and from time to time by the Board. No
amendment or suspension of the Plan shall adversely affect in a material manner
any right of any participant with respect to any Option theretofore granted
without such participant's written consent, except as permitted under Paragraph
8.
13. Effective Date and Duration of Plan.
(a) This Plan shall be effective as of March 14, 2000.
(b) This Plan shall terminate upon the earlier of the following
dates or event to occur:
(i) upon the adoption of a resolution of the Board terminating
the Plan; or
(ii) ten years from the effective date of the Plan, provided,
however, that the Board may, prior to the expiration of such ten-year
period, extend the term of the Plan for an additional period of up to
five years. No termination of the Plan shall materially alter or
impair any of the rights or obligations of any person, without his or
her consent, under any Option theretofore granted under the Plan
except that subsequent to termination of the Plan, the Committee may
make amendments permitted under Paragraph 8.
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 2000 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,684
<SECURITIES> 0
<RECEIVABLES> 107,479
<ALLOWANCES> 1,468
<INVENTORY> 28,133
<CURRENT-ASSETS> 149,011
<PP&E> 169,096
<DEPRECIATION> 116,538
<TOTAL-ASSETS> 252,165
<CURRENT-LIABILITIES> 169,964
<BONDS> 268,163
0
0
<COMMON> 628
<OTHER-SE> (188,191)
<TOTAL-LIABILITY-AND-EQUITY> 252,165
<SALES> 211,988
<TOTAL-REVENUES> 239,037
<CGS> 128,838
<TOTAL-COSTS> 148,641
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 83
<INTEREST-EXPENSE> 5,285
<INCOME-PRETAX> 85,111
<INCOME-TAX> 31,700
<INCOME-CONTINUING> 53,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,411
<EPS-BASIC> 0.96
<EPS-DILUTED> 0.94
</TABLE>
