-----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, TxPdSNezdOtq1lOZNe565vkVjx//Ane/nkoaKfhUCe3uf3/sh4uTzyNQV9gEN7Qn L3a8pqvJrmwOqojYpLjkag== 0001067312-00-000184.txt : 20000515 0001067312-00-000184.hdr.sgml : 20000515 ACCESSION NUMBER: 0001067312-00-000184 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 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: 628799 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 FORM 10-Q FOR PERIOD ENDING 3-31-2000 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. PART I - FINANCIAL INFORMATION Item 1. Financial Statements VALASSIS COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31, ASSETS 2000 1999 ----------- ------------ (unaudited) 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 ========= =========
2 VALASSIS COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31, LIABILITIES AND STOCKHOLDERS' DEFICIT 2000 1999 ------------ ------------ (unaudited) (note) 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 ========= =========
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 VALASSIS COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
QUARTER ENDED MARCH 31, MARCH 31, 2000 1999 ----------- ----------- 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 =========== ===========
See accompanying notes to condensed consolidated financial statements. 4 VALASSIS COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
QUARTER ENDED ------------------------- MARCH 31, MARCH 31, 2000 1999 --------- --------- 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
See accompanying notes to condensed consolidated financial statements. 5 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 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.
(IN MILLIONS) THREE MONTHS ENDED MARCH 31 ---------------------------------------------------------------- FSI VIP ALL OTHERS* TOTAL ---------- --------- -------------- ---------- 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
* 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:
2000 1999 ---------- ---------- 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 ========== ==========
Domestic and foreign revenues for each of the three-month periods ended March 31 were as follows:
2000 1999 ---------- ---------- United States $ 237.6 $ 216.4 Canada 1.4 5.8 ---------- ---------- Total $239.0 $ 222.2 ========== ==========
7 5. Earnings Per Share Earnings per common share ("EPS") data were computed as follows:
THREE MONTHS ENDED MARCH 31, ----------------------- 2000 1999 -------- -------- (in thousands except for per share amounts) 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 ======== ========
8 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 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 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 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 EX-10 2 FORWARD SHARE PURCHASE AGREEMENT 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 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 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 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 (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 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 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 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 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 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 10 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. 11 (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 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 13 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 14 (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 15 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: 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 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. A-2 "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 A-3 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 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 A-5 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 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 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 "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 SCHEDULE I MINIMUM AMORTIZATION DATE MINIMUM AMORTIZATION LEVEL April 3, 2000 .............. 673,800 July 3, 2000 ............... 505,300 A-10 EX-10.1 3 BROAD-BASED INCENTIVE PLAN DTD 3-14-2000 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 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 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 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 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 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 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 (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 EX-27 4 FINANCIAL DATA SCHEDULE
5 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. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 7,684 0 107,479 1,468 28,133 149,011 169,096 116,538 252,165 169,964 268,163 0 0 628 (188,191) 252,165 211,988 239,037 128,838 148,641 0 83 5,285 85,111 31,700 53,411 0 0 0 53,411 0.96 0.94
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