-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ILEI1kRMRI4KFwmSpJHc5PkURHaU3MmaavUdPSCrDLSMH//mpl1wCNeBryOV6wdw KDQeUb0rkM3o8hXgFuzqIA== 0000883293-98-000018.txt : 19980812 0000883293-98-000018.hdr.sgml : 19980812 ACCESSION NUMBER: 0000883293-98-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980811 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALASSIS COMMUNICATIONS INC CENTRAL INDEX KEY: 0000883293 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 382760940 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10991 FILM NUMBER: 98682400 BUSINESS ADDRESS: STREET 1: 19975 VICTOR PARKWAY CITY: LIVONIA STATE: MI ZIP: 48152 BUSINESS PHONE: 3135913000 MAIL ADDRESS: STREET 1: 19975 VICTOR PARKWAY CITY: LIVONIA STATE: MI ZIP: 48152 10-Q 1 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________________ FORM 10-Q ___________________________ (Mark One) /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 1998 Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 1-10991 VALASSIS COMMUNICATIONS, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 38-2760940 (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 19975 Victor Parkway Livonia, Michigan 48152 (address of principal executive offices) Registrant's Telephone Number: (734) 591-3000 _______________________________________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and, (2) has been subject to such filing requirements for the past 90 days: Yes /X/ No ________ As of July 31, 1998, there were 38,652,946 shares of the Registrant's Common Stock outstanding. 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements VALASSIS COMMUNICATIONS, INC. Condensed Consolidated Balance Sheets (dollars in thousands)
June 30, December 31, 1998 1997 -------- -------- (unaudited) (note) ASSETS Current assets: Cash and cash equivalents $15,445 $35,437 Accounts receivable (less allowance for doubtful accounts of $1,597 at June 30, 1998 and $1,171 at December 31, 1997) 73,283 81,681 Inventories: Raw materials 15,932 10,975 Work in progress 7,975 15,720 Prepaid expenses and other 6,020 4,536 Deferred income taxes 1,966 1,966 Refundable income taxes --- 772 -------- -------- Total current assets 120,621 151,087 -------- -------- Property, plant and equipment, at cost: Land and buildings 20,133 20,133 Machinery and equipment 113,951 108,167 Office furniture and equipment 19,176 17,995 Automobiles 977 1,012 Leasehold improvements 1,007 1,022 -------- -------- 155,244 148,329 Less accumulated depreciation and amortization (109,725) (108,098) -------- -------- Net property, plant and equipment 45,519 40,231 -------- -------- Intangible assets: Goodwill 68,594 68,594 Other intangibles 85,387 83,387 -------- -------- 153,981 151,981 Less accumulated amortization (108,758) (104,709) -------- -------- Net intangible assets 45,223 47,272 -------- -------- Other assets (primarily debt issuance costs) 1,468 2,295 -------- -------- Total assets $212,831 $240,885 ======== ========
-2- 3 VALASSIS COMMUNICATIONS, INC. Condensed Consolidated Balance Sheets, Continued (dollars in thousands, except share data)
June 30, December 31, 1998 1997 --------- ------------ (unaudited) (note) LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion, long-term debt $107,644 $ --- Accounts payable 62,356 59,226 Accrued interest 4,973 5,098 Income taxes payable 1,484 --- Accrued expenses 24,564 25,890 Progress billings 30,426 58,239 --------- --------- Total current liabilities 231,447 148,453 --------- --------- Long-term debt 254,924 367,075 Deferred income taxes 2,315 2,315 Minority interest 2 9 Stockholders' deficit: Common stock of $.01 par value. Authorized 100,000,000 shares; issued 45,775,254 at June 30, 1998 and 44,515,599 at December 31, 1997; outstanding 38,871,354 at June 30, 1998 and 39,515,599 at December 31, 1997 458 445 Additional paid-in capital 104,263 72,399 Accumulated deficit (193,674) (236,625) Foreign currency translations (310) (146) Treasury stock, at cost (6,903,900 shares at June 30, 1998 and 5,000,000 shares at December 31, 1997) (186,594) (113,040) --------- --------- Total stockholders' deficit (275,857) (276,967) --------- --------- Total liabilities and stockholders' deficit $212,831 $240,885 ========= =========
NOTE: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes to condensed consolidated financial statements. -3 4 VALASSIS COMMUNICATIONS, INC. Condensed Consolidated Statements of Operations (dollar in thousands, except per share data) (unaudited)
Quarter Ended Six Months Ended ------------------- ------------------- June 30, June 30, June 30, June 30, 1998 1997 1998 1997 -------- -------- -------- -------- Revenues: Net sales $178,406 $164,038 $383,357 $343,135 Other 490 216 1,222 1,078 -------- -------- -------- -------- Total revenues 178,896 164,254 384,579 354,213 -------- -------- -------- -------- Costs and expenses: Cost of products sold 118,133 106,037 252,035 229,677 Selling, general and administrative 22,717 24,683 41,170 41,728 Amortization of intangible assets 2,025 2,015 4,049 4,526 Interest 8,767 9,241 17,774 19,340 -------- -------- -------- -------- Total costs and expenses 151,642 141,976 315,028 295,271 -------- -------- -------- -------- Earnings before income taxes 27,254 22,278 69,551 58,942 Income taxes 10,350 10,534 26,600 24,900 -------- -------- -------- -------- Net earnings $16,904 $11,744 $42,951 $34,042 ======== ======== ======== ======== Net earnings per common share, basic $ .43 $ .29 $ 1.08 $ .82 Net earnings per common share, diluted $ .43 $ .29 $ 1.07 $ .81 Shares used in computing net earnings per share 39,176,877 40,985,926 39,642,591 41,456,819 ========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements. -4- 5 VALASSIS COMMUNICATIONS, INC. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)
Six Months Ended --------------------- June 30, June 30, 1998 1997 -------- -------- Cash flows from operating activities: Net earnings $42,951 $34,042 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 7,819 7,850 Provision for losses on accounts receivable 450 451 Minority interest (7) 16 Loss (gain) on sale of property, plant and equipment 1 (207) Changes in assets and liabilities which increase(decrease) cash flow: Accounts receivable 7,948 21,799 Inventories 2,788 139 Prepaid expenses and other (1,484) (1,185) Other assets 827 2,945 Accounts payable 3,130 304 Accrued expenses and interest (3,451) 7,395 Income taxes 10,601 469 Progress billings (27,813) (24,597) -------- -------- Total adjustments 809 15,379 -------- -------- Net cash provided by operating activities 43,760 49,421 -------- -------- Cash flows from investing activities: Additions to property, plant and equipment (8,660) (10,453) Return of capital to minority shareholder of Valcheck --- (500) Proceeds from the sale of property, plant and equipment 93 224 Acquisitions (450) --- Other (164) 172 -------- -------- Net cash used in investing activities (9,181) (10,557) -------- -------- Cash flows from financing activities: Repayment of long-term debt (4,549) (19,990) Proceeds from the issuance of common stock 23,532 3,873 Purchase of treasury shares (73,554) (42,815) -------- -------- Net cash used in financing activities (54,571) (58,932) -------- -------- Net decrease in cash (19,992) (20,068) Cash at beginning of period 35,437 60,172 -------- -------- Cash at end of period $15,445 $40,104 ======== ========
-5- 6 VALASSIS COMMUNICATIONS, INC. Condensed Consolidated Statements of Cash Flows, Continued (in thousands) (unaudited)
Six Months Ended --------------------- June 30, June 30, 1998 1997 -------- -------- Supplemental disclosure of cash flow information: Cash paid during the period for interest $17,899 $19,866 Cash paid during the period for income taxes $15,999 $24,431
See accompanying notes to condensed consolidated financial statements. -6- 7 VALASSIS COMMUNICATIONS, INC. Notes to Condensed Consolidated Financial Statements 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the information contained herein reflects all adjustments necessary for a fair presentation of the information presented. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of results to be expected for the fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 2. Accounting Change During the quarter ended March 31, 1998, the Company changed its method of accounting for inventories from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. The Company believes the change is preferable because the FIFO method better reflects the economic reality of its inventory management practices and provides a better matching of current costs with revenues. The change in method of inventory costing has been applied retroactively. Due to debit balance LIFO reserves and corresponding lower-of-cost-or-market reserves, the change had no effect on the balance sheet at December 31, 1997 or the income statement for the quarter or six-month period ended June 30, 1997. 3. Contingencies The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position. 4. Earnings Per Share The Company adopted Statement of Financial Accounting Standards No. 128 "Earnings per Share," effective for the annual period ending after December 15, 1997. This standard revised the calculation of EPS and requires the Company to report diluted EPS in addition to basic EPS. Basic EPS is based on the average shares outstanding, while diluted EPS gives effect to all dilutive potential common shares outstanding. -7- 8 VALASSIS COMMUNICATIONS, INC. Notes to Condensed Consolidated Financial Statements 5. Comprehensive Income The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," beginning January 1, 1998. The effect of this pronouncement is not material to the Company's financial statements. -8- 9 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 expressed or implied by such forward-looking statements. Such factors include, among others, the following: a new competitor in the Company's core free-standing insert business and consequent price competition; an increase in the Company's paper costs, new technology that would make free-standing inserts less attractive; a shift in customer preference for different promotional materials, promotional strategies or coupon delivery modes, including in-store advertising systems and other forms of coupon delivery; or general business and economic conditions. Results of Operations - ----------------------- Three Months Ended June 30, 1998 and June 30, 1997 - -------------------------------------------------- Total revenues for the quarter ended June 30, 1998 increased 8.9% to $178.9 million from $164.3 million for the year ago quarter. Total revenues rose primarily as a result of increased volume, despite the publication of one less FSI program. Free-standing insert (FSI) revenue increased 3.8% for the quarter ended June 30, 1998, rising to $135.1 million from $130.2 million for the quarter ended June 30, 1997. FSI pricing showed a modest improvement, and volume and market share were both up for the second quarter of 1998. VIP revenue was up 18.8% from $19.1 million for the second quarter 1997, to $22.7 million for the same quarter in 1998. Sampling revenue was $11.5 million for the quarter, versus $5.0 million in the prior year quarter. Paper costs were up significantly from the year ago period, contributing to an overall decrease in the gross profit margin to 34.0% in the quarter ended June 30, 1998, from 35.4% in the same quarter last year. Due to increased page volume, resulting in a greater average book size, media and print costs decreased on a unit basis for the second quarter of 1998 versus the same quarter last year. Selling, general and administrative expenses decreased to $22.7 million for the three months ended June 30, 1998, from $24.7 million in the comparable period of 1997. The three months ended June 30, 1998 included a one-time charge of $6.0 million related to the early retirement and resulting amendment to the employment contract of the former CEO, and the three months ended June 30, 1997, included a one- time charge of $7.3 million, for a non-recurring special payment to certain VCI executives, funded by Consolidated Press Holdings (CPH), the selling shareholder of the Company's secondary offering. Without these one-time charges, SG&A would have been $16.7 million in the -9- 10 quarter ended June 30, 1998 and $17.4 million in the quarter ended June 30, 1997. Management expects selling, general and administrative expenses to remain at similar levels during the remainder of the year. The effective tax rate for the quarter ended June 30, 1998 was 38%, compared to 47% in the quarter ended June 30, 1997. The decrease in the rate was due to a portion of the special one-time charge in 1997, referred to above, being considered non-deductible in calculating the necessary tax provision for the prior-year quarter. Net earnings were $16.9 million, compared to $11.7 million for the same quarter last year. Net earnings rose primarily as a result of strong FSI volume, and the after-tax effect of the one-time charges referred to earlier being greater on the prior year results than on the current year results. Six Months Ended June 30, 1998 and June 30, 1997 - ------------------------------------------------ The Company's revenue for the first six months of 1998 was up 8.6% to $384.6 million, as compared to $354.2 million for the same period in 1997. This increase was fueled by a 7.5% gain in FSI revenue from $271.6 million in the first six months of 1997, to $292.0 million in the comparable 1998 period. FSI revenue rose as a result of higher volume due, in part, to improved market share and slightly improved pricing during the first six months of 1998. In addition, stronger VIP and Sampling sales contributed to the overall increase in revenue. VIP revenue was up 18.7% to $52.6 million for the first six months of 1998, as compared to $44.3 million in the same period of 1997. Management expects continued growth for VIP due to the additional capacity provided by a new printing press installed in June 1998, as well as the addition of a large 1998 contract. Sampling revenue rose 100.0% from $10.8 million for the first six months of 1997, to $21.6 million for the first six months of 1998. Based on the current level of prebookings, management expects growth in excess of 50% for this division in 1998. ROP revenue decreased 60.0% to $5.8 million for the six months ended June 30, 1998, compared to $14.5 million for the six months ended June 30, 1997. Gross margin decreased from 35.2% during the first six months of 1997, to 34.5% for the same period in 1998, as increased sales were offset by significant increases in paper costs. Although the Company has experienced higher paper costs in 1998 versus a year ago, management believes paper prices have peaked and expects no further increases for the year. In addition, management expects the cost of paper to decrease in 1999. Selling, general and administrative expenses were $41.2 million for the six months ended June 30, 1998, compared with $41.7 million for the same period last year. The six months ended June 30, 1998 included a one-time charge of $6.0 million related to the early retirement and resulting amendment to the employment contract of the former CEO, and the six months ended June 30, 1997, included a one-time charge of $7.3 million, for a non-recurring special payment to certain VCI executives, funded by Consolidated Press Holdings (CPH), the selling shareholder of the Company's secondary offering. Without these one-time charges, SG&A would have increased 2.0% for the six months ended June 30, 1998, versus the year-ago period, due primarily to additional advertising expenditures in the first half of 1998 versus the same period a year ago. -10- 11 The effective tax rate for the six months ended June 30, 1998 was 38.2%, compared with 42.2% for the six months ended June 30, 1997. The decrease was due to a portion of the special one-time charge in 1997, referred to above, being considered non-deductible for the year-ago quarter. For the six months, net earnings were $43.0 million, versus $34.0 million for the same six months last year. The increase in net earnings is attributable to increased volume and pricing in the FSI business, combined with the increased volume of VIP and Sampling sales. Financial Condition, Liquidity and Sources of Capital - ----------------------------------------------------- Cash and cash equivalents totaled $15.4 million at June 30, 1998, down $20.0 million from December 31, 1997. This was the result of cash provided by operating activities of $43.8 million, and cash used in investing activities and financing activities of $9.2 million and $54.6 million, respectively. Cash flow from operating activities decreased from $49.4 million for the six months ended June 30, 1997 to $43.8 million for the six months ended June 30, 1998, despite an increase in earnings. This decrease was mainly due to changes in accounts receivable and progress billings. The net receivable balance at December 31, 1996 was unusually high, leading to above average collections during the first half of 1997. A portion of the Company's debt(which totaled $362.6 million as of June 30, 1998), in the amount of $107.6 million, will be due in March of 1999. The Company is currently evaluating its options with respect to this debt, including refinancing or retiring some or all of this debt. The Company also had the ability as of June 30, 1998 to incur $40.0 million of additional indebtedness under its existing credit facility. Management believes the Company will generate sufficient funds from operations and will have sufficient lines of credit available to meet currently anticipated liquidity needs, including interest and required principal payments on indebtedness. Year 2000 Compliance - -------------------- The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than 2000. This problem could force computers to either shut down or provide incorrect data or information. In response to the Year 2000 issue, the Company has created two project plans; one for program modifications and the second for implementing new financial software upgrades. The Company estimates the costs related to the implementation of the program modification plan and the financial software upgrade plan to be approximately $550,000 and $350,000, respectively, which will be funded through operating cash flows. The Company plans for all critical systems to be Year 2000 compliant by the end of 1998. -11- 12 In addition, the Company has begun to ask its vendors, service providers and customers about their progress in identifying and addressing problems that their computer systems may face in correctly processing date information related to the Year 2000. It is not possible to quantify the aggregate cost to the Company with respect to vendors, service providers and customers with Year 2000 problems, although the Company does not anticipate it will have a material adverse impact on its business. -12- 13 Part II - Other Information item 4. Submission of Matters to a Vote of Security Holders a. The Company held its Annual Meeting of Stockholders on May 19, 1998. c. The election of the nominees for directors who will serve for a term to expire at the next Annual Meeting of Stockhoders or until their respective successors have been duly elected and qualified was voted on by the stock- holders. The nominees, all of whom were elected, were: David A. Brandon, Mark C. Davis, Jon M Huntsman, Jr., Larry L. Johnson, Brian M. Powers, Robert L. Recchia, Alan F. Schultz and Faith Whittlesey. The Inspector of Election certified the following vote tabulations with respect thereto: Director For Withheld Broker Non-Votes -------------------- ----------- -------------- ---------------- David A. Brandon 33,808,490 334,320 0 Mark C. Davis 33,812,489 330,321 0 Jon M. Huntsman, Jr. 33,851,135 291,675 0 Larry L. Johnson 33,815,680 327,130 0 Brian M. Powers 33,817,528 325,282 0 Robert L. Recchia 33,812,438 330,372 0 Alan F. Schultz 33,850,562 292,248 0 Faith Whittlesey 33,812,168 330,702 0 2. A proposal to approve Amendment Number 4 to the Company's 1992 Long-Term Incentive Plan to increase the number of shares reserved for issuance thereunder was approved by the stockholders. The Inspector of Election certified the following vote tabulations: For Against Abstain Broker Non-Votes --------- ----------- ----------- ---------------- 31,216,097 2,799,505 47,818 79,390 3. A proposal to ratify the selection of Deloitte & Touch LLP, as auditors of the Company for the 1998 fiscal year was approved by the stockholders. The Inspector of Election certified the following vote tabulations: For Against Abstain Broker Non-Votes -------- ----------- ----------- ---------------- 34,074,637 7,537 60,636 0 -13- 14 Item 6. Exhibits and Reports on Form 8-K a. Exhibits The following exhibits are included herein: 10.5 (d) Amendment to Employment Agreement of David A. Brandon dated as of June 3, 1998. (27) Financial Data Schedule b. Form 8-K The Company filed a report on Form 8-K, dated June 4, 1998, announcing that Alan F. Schultz had been named President and CEO, succeeding David A. Brandon. -14- 15 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: August 7, 1998 Valassis Communications, Inc. (Registrant) By: /s/ Robert L. Recchia ----------------------------- Robert L. Recchia Executive Vice President - Chief Financial Officer Signing on behalf of the Registrant and as principal financial officer. -15- EX-10 2 16 EXHIBIT 10 AMENDMENT TO EMPLOYMENT AGREEMENT AND NON-QUALIFIED STOCK OPTION AGREEMENTS THIS AGREEMENT, entered into as of the 2nd day of June, 1998, by and between DAVID A. BRANDON (hereinafter "Mr. Brandon" or the "Executive") and VALASSIS COMMUNICATIONS, INC., a Delaware corporation (hereinafter the "Corporation"). WHEREAS, Mr. Brandon has been employed by the Corporation as its President and Chief Executive Officer pursuant to an employment agreement dated March 18, 1992, as amended on June 18, 1993, July 9, 1995 and December 22, 1995, respectively (collectively referred to herein as the "Employment Agreement") and is a party to a Non-Qualified Stock Option Agreement with the Corporation dated March 18, 1992, as amended on June 18, 1993 and July 9, 1995 and a Non-Qualified Stock Option Agreement dated December 8, 1997 (each of such option agreements collectively referred to herein as the "Option Agreement") and has rendered valuable services to the Corporation; and WHEREAS, it is the desire of Mr. Brandon that he relinquish certain of his duties under the Employment Agreement, to amend the Employment Agreement and the Option Agreement in various respects and to resolve all matters arising out of or related to Mr. Brandon's employment with the Corporation and the change in his duties with the Corporation; NOW, THEREFORE, for and in consideration of the mutual covenants and promises contained herein, the parties hereby agree as follows: 1. VOLUNTARY RESIGNATION AND TERMINATION OF EMPLOYMENT. Mr. Brandon hereby voluntarily resigns as President and Chief Executive Officer of the Corporation. Mr. Brandon hereby agrees to continue to serve as Chairman of the Board of the Corporation until December 31, 1998 in a non-executive capacity at which point he will resign his positions as Chairman of the Board and a director of the Corporation. 2. AMENDMENTS TO AGREEMENTS. The Employment Agreement and Option Agreement are hereby amended in the following respects: (i) Section 1(b) of the Employment Agreement is hereby amended to provide that the Employment Period will terminate on December 31, 1998. The segment of the Employment Period between July 1, 1998 and December 31, 1998 shall be referred to as the "Transition Period". Notwithstanding any provision to the contrary, the Executive's resignation of his position as President and Chief Executive Officer of the Corporation shall be considered an event under Section 5(a) of the Employment Agreement, and the provisions of Section -16- 17 5(a), subject to amendments thereto contained in the June 2, 1998 Amendment to Employment Agreement and Non- Qualified Stock Option Agreements, shall apply. Further, the Executive's resignation of his position as Chairman of the Board and a director of the Corporation shall be considered an Expiration of the Employment Period under Section 5(a) of the Agreement, and the provisions of Section 5(a), subject to amendments thereto contained in the June 2, 1998 Amendment to Employment Agreement and Non-Qualified Stock Option Agreements, shall apply. After the Expiration of the Employment Period, the Executive shall not be deemed to be employed by the Corporation, and the provisions pertaining to the Consulting Period shall apply. (ii) Section 2(a) of the Employment Agreement is hereby amended to read in its entirety as follows: "Effective immediately, the Executive shall serve as Chairman of the Board of Directors in a non-executive capacity with such authorities, duties and responsibilities as shall be reasonably determined by the Board of Directors from time to time. The Executive shall preside at Board meetings but shall have no executive duties and shall not be considered an employee of the Corporation. The Executive shall no longer be obligated to serve as a director of any of the Corporation's subsidiaries or affiliates." (iii) Sections 2(b) and 2(c) of the Employment Agreement are hereby deleted. (iv) Section 2(d) of the Employment Agreement is hereby amended to read in its entirety as follows: "During any severance period (as hereinafter defined) and for a period of ten years thereafter or for a period of ten years following the Expiration of the Employment Period or at the option of the Corporation for a period of ten years following the voluntary termination of employment by the Executive during the Employment Period (excluding a termination for Good Reason), the Executive shall serve as a Consultant to the Corporation (the "Consulting Period") on the terms hereinafter set forth. During the Consulting Period, the Executive shall not be required to serve as a Consultant to the Corporation during any period in which, as a result of any public office held by the Executive at that time, the Executive, in his sole discretion, determines that such consulting or service -17- 18 would be unethical or inappropriate. During the Consulting Period, the Executive shall furnish at the request of the Corporation advisory and consulting services. The Executive shall not be obligated to consult with the Corporation more than 48 hours in any one calendar quarter. During the Consulting Period, the Executive shall be free to accept other employment and engage in other business endeavors, subject in all respects to the other provisions of this Agreement, including, without limitation, the provisions of Section 8 hereof." (v) Section 3(a) of the Employment Agreement is hereby amended to read in its entirety as follows: "From the date hereof until June 30, 1998, the Executive shall be paid a salary at a rate of $1,000,000 per year. During the Transition Period, the Executive shall be paid an aggregate fee of $500,000 for his services as Chairman of the Board of the Corporation. The Corporation shall pay such amounts to the Executive on a biweekly basis. All other terms and provisions of Section 3(a) are hereby deleted." (vi) Section 3(b) of the Employment Agreement shall be amended to read in its entirety as follows: "With respect to the semi-annual period ending June 30, 1998, the Executive shall be entitled to receive a semi-annual cash bonus of up to $500,000 in accordance with the Valassis Communications, Inc. Senior Executives Annual Bonus Plan, as amended by Amendment 1 thereto. In addition, the Executive shall receive 15,000 shares of the Corporation's Common Stock under the Executive Restricted Stock Plan. The restrictions on such 15,000 shares shall be waived as of June 30, 1998." (vii) Section 3(e) of the Employment Agreement is hereby amended to read in its entirety as follows: "During the Transition Period segment of the Employment Period, the Executive shall be entitled to participate in the Corporation's medical, dental and prescription drug plans (the "Health Benefit Plans"), as well as the Corporation's disability and life insurance plans. During the Consulting Period, the Executive shall be entitled to participate in the Corporation's Health Benefit Plans. Such Health Benefit Plans shall be equal to -18- 19 the health benefit plans the Corporation generally provides to employees and/or other senior executives of the Corporation." (viii) Section 3(f) of the Employment Agreement shall be amended in its entirety to provide that the Executive shall be reimbursed for all reasonable expenses properly incurred by him in connection with the performance of his duties as Chairman of the Board, and the Executive shall account to the Corporation for such expenses. (ix) Section 3(h) of the Employment Agreement shall be amended in its entirety to provide that the Executive shall vacate his office at the Corporation's headquarters no later than July 31, 1998, and the Corporation shall have no obligation after such date to provide the Executive with office and support staff. (x) Section 3(i) of the Employment Agreement shall be hereby modified to provide that the Executive's use of the corporate plane for both business and non-business reasons (provided that the Executive shall reimburse the Corporation as the Corporation may direct for the direct costs of any such non-business related use) shall extend only until June 30, 1998. (xi) The Executive shall be entitled to the vacation and other benefits provided in Section 3(j) until June 30, 1998 at which time such benefits shall cease. (xii) Section 5 of the Employment Agreement is hereby amended to provide that all references to the Executive's Annual Base Salary shall mean salary at a rate of $1,000,000 per year and all references to the Executive's Annual Cash Bonus shall be to the $500,000 bonus that the Executive is eligible to receive under Section 3(b); provided, however, that the date of termination is prior to June 30, 1998. In addition, Section 5(a)(iv)(b) shall be deleted in its entirety. The last two sentences of Section 5(b) shall be amended to read as follows: "Notwithstanding the foregoing, if the Corporation exercises its option under Section 2(d) for a Consulting Period or if the Consulting Period otherwise applies (provided, however, that in no circumstance will the Executive be entitled to receive compensation under this section and Section 5(a)(iii)), the Corporation shall pay to the Executive for the duration of any such Consulting Period as follows: For the first three years of any such Consulting Period, the Corporation shall pay to the Executive an amount equal to the biweekly installment of the -19- 20 Executive's rate of Annual Base Salary in effect as of the date the Executive terminates employment. If the Consulting Period continues thereafter, the Corporation shall pay to the Executive at the same frequency an amount equal to one-half of such biweekly installment for the balance of the term of the Consulting Period." (xiii) Section 11(b) of the Employment Agreement is hereby amended to change the addresses of the parties as follows: If to the Executive: David A. Brandon 12028 Hunters Creek Drive Plymouth, MI 48170 If to the Corporation: c/o Valassis Communications, Inc. 19975 Victor Parkway Livonia, MI 48152 Attn: Barry P. Hoffman, Esq. The reference to CPH shall be hereby deleted. (xiv) Section 14 of the Employment Agreement shall be deleted in its entirety. 3. AMENDMENTS TO THE OPTION AGREEMENT. The Non-Qualified Stock Option Agreement dated as of December 8, 1997, between the Executive and the Corporation (the "December Option Agreement") is hereby amended in the following respects: (i) Section 2 of the December Option Agreement is hereby amended to provide that the Option shall be exercisable for 100% of the Common Shares which are subject to the Option as of the date hereof. (ii) Section 3 of the December Option Agreement is hereby amended to add a new subsection (c) to read as follows: "The Option shall be exercisable by you until June 30, 1999." 4. UNAMENDED TERMS; EFFECTIVENESS. All other terms of the Employment Agreement and the Option Agreement shall remain in full force and effect. The amendments to the Employment Agreement and the Option Agreement contained in this Agreement shall be effective from and after the date of this Agreement. 5. RESTRICTED STOCK. The Corporation confirms to the Executive that as of June 30, 1998, the one-year restriction -20- 21 lapses with respect to (i) the 30,000 shares of restricted stock issued to the Executive for Fiscal Year 1997 pursuant to the Employment Agreement and (ii) all outstanding matches of restricted stock issued to Mr. Brandon pursuant to the Corporation's Employee and Director Restricted Stock Award Plan. 6. SETTLEMENT PROVISIONS. The Executive shall promptly settle all matters relating to travel and entertainment expenses incurred prior to the date hereof. 7. NON-DISCLOSURE OF THIS AGREEMENT. The Corporation and the Executive agree to keep confidential and not disclose or divulge the terms and conditions of this Agreement to any third party, except: (a) in connection with any actions or proceedings to enforce the terms and conditions of this Agreement; (b) as compelled by a court of competent jurisdiction; (c) to their respective accountants and lawyers; (d) reporting the income payable to the Executive under this Agreement to the Internal Revenue Service; and/or (e) in accordance with the Corporation's disclosure policies and as may be required by applicable securities laws or stock exchange rules; and/or (f) the Company and the Executive shall mutually agree on the text of a press release to be issued immediately following the execution of this Agreement. 8. MUTUAL RELEASE. 8.1. BY THE CORPORATION. The Corporation, for itself, its successors and its assigns, hereby releases and forever discharges the Executive and his successors and assigns from any and all claims, actions, suits, proceedings, agreements, debts, promises, judgments and demands whatsoever, known or unknown, which the Corporation ever had, now has or hereafter can, shall or may have, from the beginning of time through the date of this Agreement, from whatever source arising, including, but not limited to, any claims which the Corporation may have under any contract or policy, whether such contract or policy is written or oral, express or implied, and any claims which the Corporation may have based upon any federal, state or local statutes, orders or regulations concerning discrimination -21- 22 on any account or claims of libel, slander, defamation or damage to professional reputation. 8.2. BY THE EXECUTIVE. The Executive, for himself, his successors and his assigns hereby releases and forever discharges the Corporation, its subsidiaries and each of their respective directors, officers and employees from any and all claims, actions, suits, proceedings, agreements, debts, promises, judgments and demands whatsoever, known or unknown, which the Executive ever had, now has or hereafter can, shall or may have, from the beginning of time through the date of this Agreement, from whatever source arising, including, but not limited to, any claims which the Executive may have under any contract or policy, whether such contract or policy is written or oral, express or implied, and any claims which the Executive may have based upon any federal, state or local statutes, orders or regulations concerning discrimination on account of race, color, creed or religion, sex, national origin, age, handicap or disability, marital status, height, weight, sexual preference or sexual orientation, equal pay or any other category protected by law, including the Federal Age Discrimination in Employment Act; any claim relating to claims of libel, slander, defamation or damage to professional reputation; and any vacation pay, sick leave, health insurance, life insurance, disability benefits, severance or unemployment insurance benefits, retirement or social security benefits, workers' compensation or any other form of fringe, welfare, or retirement benefits paid or given to the Executive prior to the date of this Agreement. 8.3. EFFECT. The releases set forth in Sections 8.1 and 8.2 shall not release any claim, demand, right, or cause of action of any kind that either the Executive or the Corporation may have on account of or in any way arising out of or related to a breach of the terms and provisions of this Agreement or any breach of the terms and provisions of the Employment Agreement and the Option Agreement arising after the date hereof. 9. ACKNOWLEDGEMENT. The Executive understands and agrees that he: (a) has carefully read and understands all of the provisions of this Agreement; (b) is by this Agreement releasing the Corporation from any and all claims he may have against it; (c) knowingly and voluntarily agrees to all of the terms set forth in this Agreement; (d) knowingly and voluntarily intends to be legally bound by the same; -22- 23 (e) has been separately represented by his respective legal counsel prior to executing this Agreement. 10. MISCELLANEOUS. 10.1. NOTICES. The provisions regarding notices in the Employment Agreement are hereby incorporated in this Agreement as though set forth in full herein. 10.2. ENTIRE AGREEMENT. This instrument, together with the Employment Agreement and the Option Agreement, contains the entire agreement of the parties with respect to the subject matter hereof. The provisions of this Agreement may not be amended, modified or waived orally but only by an instrument in writing signed by the party to be charged. 10.3. SEVERABILITY. In case any one or more of the terms or provisions contained in this Agreement shall for any reason be held invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other terms or provisions hereof, but such term or provision shall be deemed modified or deleted as or to the extent required by applicable law, and such modification or deletion shall not affect the validity of the other terms or provisions of this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. VALASSIS COMMUNICATIONS, INC. By: _________________________________ _____________________________________ David A. Brandon -23- EX-27 3
5 This schedule contains summary information extracted from the Condensed Consolidated Statement of Financial Condition at June 30, 1998 (unaudited) and the Condensed Consolidated Statement of Income for the Six Months Ended June 30, 1998 (unaudited) and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1998 JUN-30-1998 15445 0 74880 1597 23907 120621 155244 109725 212831 231447 254924 0 0 458 (276315) 212831 383357 384579 252035 296804 0 450 17774 69551 26600 42951 0 0 0 42951 1.08 1.07
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