SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
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[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
ADVO, INC.
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(Name of Registrant as Specified In Its Charter)
ADVO, INC.
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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(1) Title of each class of securities to which transaction applies:
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previously. Identify the previous filing by registration statement number,
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[ADVO LOGO]
December 19, 2003
Dear Stockholder:
You are cordially invited to the Annual Meeting of Stockholders of ADVO,
Inc., to be held on Friday, January 23, 2004, at the Company's corporate
headquarters, One Targeting Centre, Windsor, Connecticut, commencing at 11:30
A.M. (EST).
At the meeting, you will be asked to elect the members of the Board of
Directors; to authorize an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock; to
ratify the appointment of independent auditors for the fiscal year ending
September 25, 2004; and to transact such other business as may properly be
brought before the meeting.
In addition to the specific matters to be acted upon, there will be a
report on the progress of the Company and an opportunity for you to ask
questions of general interest. Important information is contained in the
accompanying proxy statement, which you are urged to read carefully.
It is important that your shares are represented and voted at the meeting,
regardless of the number you own and whether you plan to attend. Accordingly,
you are requested to mark, sign, date and return the enclosed proxy in the
envelope provided at your earliest convenience or submit your proxy
electronically through the Internet or by telephone.
Your interest and participation in the affairs of the Company are greatly
appreciated.
Sincerely,
/s/ Gary M. Mulloy
GARY M. MULLOY
Chairman and Chief
Executive Officer
[ADVO LOGO]
ADVO, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of ADVO, Inc. (the "Company") will be
held at the Company's corporate headquarters, One Targeting Centre, Windsor,
Connecticut, on Friday, January 23, 2004, at 11:30 A.M. (EST), to consider and
take action on the following items:
1. The election of seven directors, as described in the attached
proxy statement, to serve until the Annual Meeting of Stockholders in 2005;
2. The authorization of an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock,
$.01 par value per share, from 40,000,000 to 80,000,000 shares;
3. The ratification of the appointment of Ernst & Young LLP as the
Company's independent public accountants for the fiscal year ending
September 25, 2004; and
4. The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
Only holders of Common Stock of record at the close of business on November
28, 2003 are entitled to vote at the meeting or any adjournment thereof. A list
of the stockholders entitled to vote at the meeting will be available for
examination by any stockholder for any purpose related to the meeting during
ordinary business hours for ten days prior to the meeting at the Company's
corporate headquarters, One Targeting Centre, Windsor, Connecticut.
By Order of the Board of Directors
/s/ Stephen L. Palmer
STEPHEN L. PALMER
Secretary
Windsor, Connecticut
December 19, 2003
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE MARK, SIGN AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE AS PROMPTLY AS
POSSIBLE.
ADVO, INC.
ONE TARGETING CENTRE
WINDSOR, CONNECTICUT 06095-2639
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
to be used at the Annual Meeting of Stockholders of ADVO, Inc. (the "Company" or
"ADVO"), a Delaware corporation, to be held at the Company's corporate
headquarters, One Targeting Centre, Windsor, Connecticut, on Friday, January 23,
2004 at 11:30 A.M. (EST).
The solicitation of proxies on the enclosed form is made on behalf of the
Board of Directors of the Company.
The cost of soliciting proxies on the accompanying form will be borne by
the Company. The Company will request banks, brokers and other custodians,
nominees and fiduciaries to send proxy material to the beneficial owners of the
Company's Common Stock to secure their voting instructions, if necessary. The
Company will reimburse banks, brokers, custodians, nominees and fiduciaries for
their expenses in so doing. Directors, officers and regular employees of the
Company, who receive no compensation for their services other than their regular
salaries, may solicit proxies personally, by telephone and by electronic mail
from stockholders. The Company has retained Mellon Investors Services LLC to
assist in the solicitation of proxies at an estimated cost of $10,000, which
will be paid by the Company.
Instead of submitting proxies by mail on the enclosed proxy card,
stockholders have the option to submit their proxies or voting instructions
electronically through the Internet or by telephone. Please note that there may
be separate arrangements for using the Internet and telephone depending on
whether your shares are registered in the Company's stock records in your name
or in the name of a brokerage firm or bank. Stockholders should check their
proxy card or voting instructions forwarded by their broker, bank or other
holder of record to see which options are available.
The Internet and telephone procedures described below for submitting your
proxy are designed to authenticate stockholders' identities, to allow
stockholders to have their shares voted and to confirm that their instructions
have been properly recorded. Stockholders submitting proxies or voting
instructions via the Internet should understand that there might be costs
associated with electronic access, such as usage charges from Internet access
providers and telephone companies, that would be borne by the stockholder.
Stockholders of record who wish to vote via the Internet or telephone may
submit their proxies:
-- through the Internet by visiting a website established for that
purpose at http://www.eproxy.com/ad and following the instructions; or
-- by telephone by calling the toll-free number 1-800-435-6710 and
following the recorded instructions.
These proxy materials are first being mailed to stockholders on or about
December 19, 2003. The Company's Annual Report to Stockholders for the fiscal
year ended September 27, 2003 is being furnished concurrently herewith to
stockholders of record. Additional copies of the Annual Report may be obtained
upon written request to the Corporate Secretary, ADVO, Inc., One Targeting
Centre, Windsor, CT 06095-2639, or by telephone at 1-860-285-6100. The Annual
Report is also available on the Company's web site at www.advo.com.
A stockholder signing and returning a proxy on the enclosed form has the
power to revoke it at any time before the shares subject to it are voted, by
notifying the Corporate Secretary in writing of such revocation, by
filing a duly executed proxy bearing a later date or by attending the meeting
and voting in person. Properly executed proxies, not revoked, will be voted in
accordance with the instructions contained thereon. Unless a contrary
specification is made thereon, it is the intention of the attorneys named in the
enclosed form of proxy to vote FOR the election of the nominees named herein as
directors and FOR Proposals 2 and 3.
OUTSTANDING VOTING SECURITIES
Only holders of ADVO Common Stock, par value $.01 per share ("Common
Stock"), of record at the close of business on November 28, 2003 (the "Record
Date") are entitled to notice of and to vote at the meeting. On the Record Date,
there were 30,120,521 shares of Common Stock outstanding. Each share of Common
Stock is entitled to one vote. Where applicable, share amounts presented in this
proxy statement have been restated for a three-for-two stock split effected in
the form of a stock dividend distributed on November 7, 2003 to shareholders of
record on October 24, 2003.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of the Record Date, those persons known to the Company who beneficially
owned more than 5% of the outstanding Common Stock were as follows:
NAME AND ADDRESS NUMBER OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT
------------------- ------------------ -------
Barclays Global Investors Plc(1)............................ 2,015,205 6.7%
54 Lombard Street
London, England EC3P3AH
Artisan Partners Limited Partnership(1)..................... 1,707,900 5.7%
1000 North Water Street, Suite 1770
Milwaukee, WI 53202
Wellington Management Company LLP(1)........................ 1,706,700 5.7%
75 State Street
Boston, MA 02109
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(1) The information relating to the ownership of the Common Stock by this entity
is based on a statement on Form 13F for the quarter ended September 30, 2003
filed by such entity with the Securities and Exchange Commission ("SEC").
GOVERNANCE OF THE COMPANY
In accordance with the Company's By-laws and the applicable laws of
Delaware, responsibility for the management of the Company is vested in the
Board of Directors (the "Board"). During the fiscal year ended September 27,
2003, the Board of Directors met six times. Each Director attended all the
meetings of the Board of Directors and the committees of the Board of Directors
on which he or she served, except for Mr. Newman who missed two committee
meetings and therefore attended 88% of all meetings. John Vogelstein retired
from the Board on January 16, 2003. Karen Kaplan was appointed to the Board on
November 6, 2003 after participating in the formal orientation program that the
Company has for new directors. Mr. Rockwell will retire from the Board on
January 23, 2004 and is not standing for reelection.
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The Company has a standing Audit Committee. Information regarding the
functions performed by the Audit Committee, its membership, and the number of
meetings held during the fiscal year, is set forth in the "Audit Committee
Report," included in this annual proxy statement.
The Board has delegated responsibilities with respect to certain
compensation matters, selection of directors and other governance issues to the
Compensation and Nomination Committee. The members of the Compensation and
Nomination Committee were Messrs. Dyer (Chairman), Newman and Rockwell and Ms.
Gaunt who joined January 30, 2003. The Compensation and Nomination Committee has
the responsibility to help formulate short and long-term compensation plans and
help develop the Company's compensation philosophy. The Committee also reviews
specific proposals regarding executive compensation and other aspects of the
terms of employment of the Company's senior management. The Compensation and
Nomination Committee met five times during the fiscal year ended September 27,
2003, and no member of the Committee missed a meeting except for Mr. Newman who
missed one meeting. The Compensation and Nomination Committee does not yet have
procedures in place to consider nominees recommended by stockholders but will
establish procedures as a result of recent SEC rulemaking.
In August 2003, the Board designated the Audit Committee to serve as the
Company's Qualified Legal Compliance Committee ("QLCC") in accordance with
Section 307 of the Sarbanes-Oxley Act of 2002 and the rules promulgated
thereunder by the SEC in 17 C.F.R. Part 205. For additional information on the
QLCC's responsibilities, see the "Audit Committee Report" included in this
annual proxy statement.
The Company has no executive committee or other committees, except for the
above. Total attendance was 98% for all board and committee meetings.
The Company has determined that all board members are independent
directors, with the exception of Gary M. Mulloy, Chairman and Chief Executive
Officer of the Company. The Company made this determination by reviewing
responses to a questionnaire circulated to all non-employee directors. The
questions relating to director independence included:
- existence of any family relationship with any director or officer
of ADVO or any of its subsidiaries.
- receipts from or payments to ADVO or any of its subsidiaries by the
director, immediate family member or any affiliated company for
goods or services exceeding 2% or $1 million of the company's
consolidated gross revenues, whichever is greater.
- indebtedness to the director, immediate family member or any
affiliated company by ADVO or any of its subsidiaries.
- whether the director was a member of a compensation committee or
committees that perform similar functions at another company.
- whether the director, immediate family member or any affiliated
company received any compensation from ADVO or any of its
subsidiaries, other than directors' fees.
- whether the director ever was an employee or officer of ADVO or any
of its subsidiaries.
- whether the director has been affiliated with or employed by a
present or former auditor of ADVO or any of it subsidiaries within
the past six years.
Mr. Mahoney was elected Lead Outside Director by all of the non-employee
directors. As such, Mr. Mahoney will chair all of the executive sessions of the
non-employee directors of the Board and act as
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primary spokesperson in communicating matters arising out of such meetings to
the Company. Executive sessions are held at every meeting that the Board members
attend in person.
Directors, other than those who are full-time employees of the Company or a
subsidiary, are each currently eligible to receive an annual fee of $30,000, a
fee of $1,000 for each Board meeting they attend and $500 for each committee
meeting they attend. Meetings attended via phone are compensated at half of the
regular meeting rate. Directors serving as chairperson of a committee of the
Board of Directors receive an additional $2,000 per year for each chairmanship
held. Directors who are full-time employees of the Company receive no
remuneration for serving on the Board of Directors or its committees. All
Directors' expenses for attending Board of Directors' meetings are reimbursed by
the Company.
Under the 1990 Non-Employee Directors' Restricted Stock Plan (the
"Non-Employee Directors' Plan"), restrictions lapsed in fiscal 2003 on 4,500
shares held by each of the following directors: Messrs. Brown, Dyer, Mahoney,
Newman, Rockwell, Vogelstein and Ms. Gaunt. In addition, grants of 4,500
restricted shares were made in fiscal 2003 to each of Messrs. Brown, Dyer,
Mahoney, Newman, Rockwell and Ms. Gaunt. These will vest over a one-year period
if the recipients remain on the Board. Upon appointment to the Board, Ms. Kaplan
received options to purchase 15,000 shares of Common Stock at an exercise price
of $30.73 per share, which will become exercisable after a one-year period.
Shortly after her appointment to the Board, Ms. Kaplan also received 4,500
shares of Common Stock, which will vest one year after the date of grant. During
fiscal 2003, Mr. Vogelstein exercised 3,750 stock options with an exercise price
of $18.88 and 2,813 stock options with an exercise price of $13.79.
1. ELECTION OF DIRECTORS
The By-laws of the Company provide for a Board of Directors consisting of
not less than three nor more than 15 members, the exact number to be fixed from
time to time by the Board of Directors. The Board of Directors has fixed the
number of Directors to be elected at this meeting at seven. Each person elected
as a director of the Company will hold office until the next Annual Meeting of
Stockholders or until his or her successor is duly elected and qualified.
The stockholders elected all of the nominees set forth below to their
present terms at the 2003 Annual Meeting except Ms. Kaplan who was appointed to
the Board on November 6, 2003. Each nominee has consented to being named herein
and has agreed to serve if elected.
The affirmative vote of a plurality of the voting power represented at the
meeting is required for a nominee to be elected as a Director of the Company.
"Plurality" means that the nominees who receive the largest number of votes cast
"FOR" are elected as directors up to the maximum number of Directors to be
elected at the meeting. Votes withheld and broker non-votes are not counted
towards the plurality vote calculation.
NOMINEES FOR ELECTION
GARY M. MULLOY, age 58. Mr. Mulloy became Chairman of the Board on June 28,
1999 and Chief Executive Officer on January 1, 1999. From November 1996 to
December 1998, he was President and Chief Operating Officer. Mr. Mulloy was
elected to the Board of Directors on December 3, 1996. From 1990 to October 1996
he was President and Chief Executive Officer of Pilkington Barnes-Hind, Inc., a
division of Pilkington Vision Care.
TODD C. BROWN, age 54. Mr. Brown has been a director of the Company since
April 2000. Mr. Brown became Vice Chairman of ShoreBank Corporation in August
2003. Prior to joining ShoreBank, Mr. Brown
4
held various positions with Kraft Foods, Inc. since 1985, and most recently
served as Executive Vice President and President of its e-Commerce Division. Mr.
Brown also serves on the Boards of Johnson Diversey, Inc., Colgate University
and the National Charter Schools Institute.
DAVID F. DYER, age 54. Mr. Dyer has been a director of the Company since
May 1997. Mr. Dyer became President and Chief Executive Officer of Tommy
Hilfiger Corporation in August 2003. Mr. Dyer was also appointed a Director of
Tommy Hilfiger Corporation. Previous to that, from 1998 to July 2003, he was
President and Chief Executive Officer of Lands' End, Inc., as well as Executive
Vice President and General Manager of Sears, Roebuck & Company's Customer Direct
business and the Great Indoors home business.
BOBBIE GAUNT, age 57. Ms. Gaunt was elected to the Board in August 2002.
Ms. Gaunt retired in December 2000, after over 28 years with Ford Motor Company
where she was President and Chief Executive Officer of Ford of Canada, Ltd.
since 1997 and elected an officer, Vice President, of the Ford Motor Company in
June 1999. Ms. Gaunt is also a Director of the Great Atlantic & Pacific Tea
Company, serves as chair of the Board of Directors for The Saugatuck Center for
the Arts and is a member of the Board of Advisors of the Katz Business School at
the University of Pittsburgh.
KAREN KAPLAN, age 43. Ms. Kaplan was appointed to the Board on November 6,
2003. Ms. Kaplan is the President of Hill, Holliday, Connors, Cosmopulos Inc., a
subsidiary of The Interpublic Group of Companies, Inc., which is a group of
advertising and specialized marketing and communication services companies. Ms.
Kaplan has been with Hill, Holliday, Connors, Cosmopulos Inc. since 1982. Ms.
Kaplan is vice chair of the Board of Directors of the Massachusetts Society for
the Prevention of Cruelty to Children, serves on the Board of Advisors of Urban
Improv and serves on the Executive Committee of public radio station WBUR-FM.
JOHN J. MAHONEY, age 52. Mr. Mahoney has been a director of the Company
since January 2001. He is Executive Vice President and Chief Administrative
Officer of Staples, Inc. Mr. Mahoney joined Staples as Chief Financial Officer
in September 1996 and was promoted to his current position in October 1997.
Prior to joining Staples, Mr. Mahoney was with Ernst & Young LLP for 20 years
and served in the Accounting and Auditing Group of the firm's National Office.
HOWARD H. NEWMAN, age 56. Mr. Newman has been a director of the Company
since August 1986. He has been associated with Warburg Pincus, LLC, a private
equity investment firm, since January 1984 and has been a partner of Warburg,
Pincus and Company since January 1987. Mr. Newman is also a Director of Newfield
Exploration Company, Cox Insurance Holdings, Plc., Encore Acquisition Company,
Spinnaker Exploration Company, and several privately owned companies. Mr. Newman
also serves as Chairman of the Yale Alumni Fund and is Trustee of the Salk
Institute for Biological Studies.
5
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
Common Stock beneficially owned by the directors, nominees and persons named in
the Summary Compensation Table on page 7 of this proxy statement and by all
directors and executive officers as a group as of the Record Date. Except as
otherwise indicated, each person listed has sole voting and investment power
with respect to shares beneficially owned.
NUMBER OF SHARES
NAME OF INDIVIDUAL OF COMMON STOCK PERCENT
------------------ ---------------- -------
Gary M. Mulloy.............................................. 629,339(1) 2.1%
Myron L. Lubin.............................................. 78,242(2) .3
Donald E. McCombs........................................... 251,301(3) .8
Edwin Harless............................................... 108,187(4) .4
A. Brian Sanders............................................ 39,135(5) .1
Todd C. Brown............................................... 33,000(6) .1
David F. Dyer............................................... 41,250(7) .1
Bobbie Gaunt................................................ 21,750(8) .1
Karen Kaplan................................................ 4,500(9) *
John J. Mahoney............................................. 28,500(10) .1
Howard H. Newman............................................ 69,000(11) .2
All Directors and executive officers as a group (18
persons).................................................. 1,655,607(12) 5.3
---------------
* less than .1%
(1) Includes 30,000 restricted stock units awarded on January 30, 2003 and
543,600 shares Mr. Mulloy has the right to acquire within 60 days pursuant
to the exercise of options granted under the Company's stock option plans.
Does not include 93,044 shares owned by a family member who does not share
Mr. Mulloy's household and for which Mr. Mulloy disclaims beneficial
ownership.
(2) Includes 60,750 shares Mr. Lubin has the right to acquire within 60 days
pursuant to the exercise of options granted under the Company's stock
option plans.
(3) Includes 173,091 shares Mr. McCombs has the right to acquire within 60 days
pursuant to the exercise of options granted under the Company's stock
option plans.
(4) Includes 21,000 shares of restricted stock awarded on December 12, 2002 and
66,093 shares Mr. Harless has the right to acquire within 60 days pursuant
to the exercise of options granted under the Company's stock option plans.
(5) Includes 22,688 shares Mr. Sanders has the right to acquire within 60 days
pursuant to the exercise of options granted under the Company's stock
option plans.
(6) Includes 4,500 shares of restricted stock awarded on January 16, 2003 and
15,000 shares Mr. Brown has the right to acquire within 60 days pursuant to
options granted under the Company's stock option plans.
(7) Includes 4,500 shares of restricted stock awarded on January 16, 2003 and
11,250 shares Mr. Dyer has the right to acquire within 60 days pursuant to
option grants awarded by the Company.
(8) Includes 4,500 shares of restricted stock awarded on January 16, 2003 and
15,000 shares Ms. Gaunt has the right to acquire within 60 days pursuant to
options granted under the Company's stock option plans.
(9) Includes 4,500 shares of restricted stock awarded on November 17, 2003.
(10) Includes 4,500 shares of restricted stock awarded on January 16, 2003 and
15,000 shares Mr. Mahoney has the right to acquire within 60 days pursuant
to options granted under the Company's stock option plans.
(11) Includes 4,500 shares of restricted stock awarded on January 16, 2003 and
7,500 shares Mr. Newman has the right to acquire within 60 days pursuant to
option grants awarded by the Company.
(12) Includes 1,188,030 shares all directors and executive officers as a group
have the right to acquire within 60 days pursuant to the exercise of
options granted under the Company's stock option plans.
6
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive (and certain other) officers and any persons holding ten percent
or more of the Company's Common Stock are required to report their ownership of
the Company's Common Stock and any changes in that ownership to the SEC.
Specific due dates for these reports have been established. In fiscal 2003, all
required reports of beneficial ownership of the Company's Common Stock were
timely filed.
EXECUTIVE COMPENSATION
The following table shows compensation paid by the Company and its
subsidiaries for services in all capacities during fiscal 2003, 2002 and 2001 to
each of the following named executive officers of the Company, including the
Chief Executive Officer.
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
------------------- -----------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) AWARDS(2) OPTIONS(3) COMPENSATION(4)
--------------------------- ---- -------- -------- ---------- ---------- ---------------
Gary M. Mulloy................... 2003 $625,469 $193,750 $615,300 97,500 $12,800
Chairman and Chief 2002 592,419 -- -- 105,000 10,200
Executive Officer 2001 545,542 -- 162,000 97,500 10,500
Myron L. Lubin................... 2003 343,573 52,871 -- 22,500 20,254
Executive Vice President -- 2002 329,154 -- 153,160 24,000 20,146
President, Diversified Business 2001 311,962 -- 40,500 22,500 26,250
Group
Donald E. McCombs................ 2003 342,550 52,654 -- 30,000 18,622
Executive Vice President -- 2002 329,865 -- -- 104,469 19,432
President, Operations Group 2001 285,615 -- 40,500 71,261 23,823
Edwin Harless.................... 2003 340,500 52,390 472,080 30,000 23,070
Executive Vice President -- 2002 309,173 -- 229,740 30,000 16,096
Chief Administrative Officer 2001 281,000 -- 20,250 11,625 10,154
A. Brian Sanders................. 2003 299,638 41,264 -- 21,948 17,654
Senior Vice President -- 2002 286,335 -- -- 50,352 15,356
Chief Marketing Officer 2001 267,323 -- 40,500 32,148 12,115
---------------
(1) Amounts for each fiscal year represent bonus compensation earned for that
year payable in the subsequent year.
(2) The number of restricted shares of Common Stock held at fiscal year-end and
the value of such holdings, based on the number of restricted shares for
which restrictions have not lapsed multiplied by the closing market price at
September 26, 2003, was 30,000 restricted stock units and $824,100 for Mr.
Mulloy, 6,000 shares and $164,820 for Mr. Lubin and 30,000 shares and
$824,100 for Mr. Harless. During the fiscal year, Mr. Harless was granted
21,000 restricted shares that will vest in January 2006. Mr. Mulloy was
granted 30,000 restricted stock units which vest equally over a three-year
period from the date of
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grant and entitle Mr. Mulloy to receive stock at the end of a specified
deferral period. Holders of restricted shares are eligible to receive
dividends to the same extent as holders of Common Stock, when dividends are
declared and payable.
(3) Includes reload option grants received from surrendering previously owned
shares of ADVO Common Stock to pay the exercise price on option exercises
and shares withheld to satisfy income tax withholding requirements.
(4) Amounts represent contributions made on behalf of the named executives to
the Company's 401(k) plan and non-qualified savings plan.
OPTIONS
Set forth below is certain information concerning stock options granted
during fiscal 2003 by the Company to the named executive officers.
The hypothetical present values on the date of grant of stock options
granted in fiscal 2003 shown below are presented pursuant to the SEC proxy rules
and are calculated under the Black-Scholes model for pricing options. (See
footnote 3.) The actual before-tax amount, if any, realized upon the exercise of
stock options, will depend upon the excess of the market price of the Common
Stock over the exercise price per share of the stock option. There is no
assurance that the hypothetical present values of the stock options reflected in
this table will be realized.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR ($/SHARE) DATE VALUE(3)
---- ---------- ------------ --------- ---------- ----------
GRANTS(1)
Gary M. Mulloy....................... 97,500 17% $22.48 12/12/12 $1,441,050
Myron L. Lubin....................... 22,500 4 22.48 12/12/12 332,550
Donald E. McCombs.................... 30,000 5 22.48 12/12/12 443,400
Edwin Harless........................ 30,000 5 22.48 12/12/12 443,400
A. Brian Sanders..................... 21,000 4 22.48 12/12/12 310,380
RELOAD GRANTS(2)
A. Brian Sanders..................... 948 * $20.70 12/02/09 $ 5,043
---------------
* less than 1%
(1) Stock options granted in fiscal 2003 will become exercisable in 25%
increments at one-year intervals from the date of grant.
(2) Represents reload option grants received upon the exercise of previously
outstanding exercisable options (the "existing options"). The number of
reload options awarded upon the exercise of existing options is equal to the
number of previously held shares an optionee tenders to pay the exercise
price of the existing options and the number of shares an optionee elects to
have withheld from the exercise of the existing options to pay mandatory
statutory tax withholding requirements. The reload options retain the
expiration date of the existing options and have an exercise price equal to
the fair market value of the Common Stock on the date of exercise of the
existing options. Reload options become exercisable on the earlier of one
year from the date of grant or termination of employment with the Company.
8
(3) The present values on grant date are calculated under the Black-Scholes
model, which is a mathematical formula used to value options traded on stock
exchanges, modified for pricing employee stock options. This formula
considers a number of factors in order to estimate the option's present
value, including the stock's historical volatility (41%), the exercise
period of the option, and the risk-free rate of return (ranging from 1.5% to
5.6% depending on the option's grant and expiration dates).
Set forth below is certain information concerning the number of shares
acquired, the amounts realized on the exercise of stock options by the named
executive officers during fiscal 2003 and the number and value of options held
by the named executive officers at September 27, 2003. The value of exercised
and unexercised in-the-money stock options at September 27, 2003 shown below is
presented pursuant to SEC rules. The actual before-tax amount, if any, realized
upon exercise of stock options will depend upon the excess, if any, of the
market price of the Common Stock over the exercise price per share of the stock
option at the time the stock option is exercised. There is no assurance that the
values of unexercised in-the-money stock options reflected in this table will
actually be realized.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
Gary M. Mulloy........ -- -- 597,225 246,375 $7,307,204 $937,849
Myron L. Lubin........ -- -- 36,000 59,250 233,558 251,798
Donald E. McCombs..... -- -- 133,716 97,500 382,822 354,488
Edwin Harless......... -- -- 48,187 69,938 15,257 190,007
A. Brian Sanders...... 1,200 $8,544 71,657 56,261 344,956 224,246
---------------
(1) Value is calculated by determining the difference between the fair market
value at September 26, 2003 of the securities underlying the options ($27.47
per share) and the exercise price of the options.
REPORT OF THE COMPENSATION AND NOMINATION COMMITTEE
A primary role of the Compensation and Nomination Committee of the Board of
Directors ("Committee") is to represent the Board of Directors in its dealings
with management in overseeing the process and substance of ADVO's Executive
Compensation Policy and Philosophy and in aligning the interests of stockholders
and the needs of management. The Compensation and Nomination Committee believes
that preserving full compensation deductibility as permitted under Section
162(m) of the Internal Revenue Code of 1986 (the "Code"), as amended, is one of
many factors to be considered in making compensation decisions. The Company
recognizes, however, that flexibility is necessary and must be maintained for
situations in which the interests of the Company are better served by foregoing
full deductibility. The Compensation and Nomination Committee is composed
entirely of non-employee directors.
Compensation Philosophy
ADVO's compensation programs are designed to:
-- provide a fair, competitive and dynamic compensation program;
-- attract, retain, and develop a highly skilled and motivated workforce;
9
-- tie compensation directly to the accomplishment of superior Company
performance, creation of long-term stockholder value and attainment of
specific strategic initiatives by emphasizing variable rather than
fixed compensation; and
-- align stockholders' and management's interests.
To accomplish these objectives, ADVO's executive compensation program is
composed of base salary, and short-term and long-term incentives, which taken
together, provide a competitive compensation package that is highly leveraged
toward the attainment of superior Company performance.
Cash Compensation
ADVO's philosophy is to pay competitive cash compensation as compared with
a broad spectrum of organizations. To assess its competitive position, ADVO
participates in and reviews salary surveys with participant companies from
multiple industry segments. These companies represent a cross section of
organizations in all industries and are of similar size and scope to ADVO. These
companies may or may not be included in the peer group analysis under "Company
Financial Performance," since many of the Company's competitors for executive
talent are outside the Company's business competitor peer group of companies or
are privately held companies. The surveys are professionally administered by
third parties and represent the different functional areas of ADVO's
organization. In general, ADVO's cash compensation position is within the third
quartile of the marketplace (better than the bottom 50% and less remunerative
than the top 25%). Based on these surveys, ADVO annually reviews its salary and
incentive structure and adjusts it as necessary to reflect the market.
Base Pay
Individual base pay is determined by considering:
-- the individual's background, competencies, experience and current
salary in relation to the market;
-- accomplishments as determined by the individual's performance
appraisal; and
-- the financial spending guidelines of the Company.
Short-Term Incentive
ADVO's philosophy is to provide significant financial incentives for its
associates to attain and exceed the Company's financial objectives. These
incentives are made under the 1998 Incentive Compensation Plan (the "1998
Plan"), which was approved by stockholders in 1999, and the ADVO Incentive Plan.
These plans provide a strong link between the associate's accountabilities and
impact and business performance through the use of operationally tailored
measurement criteria focusing on margin improvement and/or operating income
goals. These plans provide a competitively benchmarked target award based on the
level of the individual's job. The target awards range from 5% to 100% of
salary. To realize the target award, certain Company financial performance
objectives must be attained. These objectives include corporate and subsidiary
targets and are measured in terms of achievement versus the annually established
plan. The corporate measure is based on consolidated operating income.
Subsidiary goals incorporate profitability objectives that are in the form of
operating income.
The mix and weighting of these objectives is dependent on the
organizational role of the individual. All individuals have at least a portion
of their incentive based on the corporate measure as described above. The
specific plan targets are not disclosed herein because they are considered
confidential and their disclosure
10
could competitively injure ADVO's business. The performance attainment and
resulting payout for each objective is evaluated and calculated independently.
Performance below plan results in ratably lower payouts, and performance above
plan results in ratably higher payouts. The combined payout percentages based
upon these results are up to 150% of the associate's target award. A minimum
threshold of plan attainment is in place, therefore no payment is made when
attainment is below threshold. The Compensation and Nomination Committee has the
discretion to modify the actual awards. The bonuses of the Chief Executive
Officer ("CEO") and any associate subject to Section 162(m) of the Code are
based solely on corporate consolidated operating income financial results, as
defined above, and are subject to a capped individual payout. For fiscal 2003
the payout percentage was 31% of the eligible associates target award.
Long-Term Incentive
The 1998 Plan is the primary vehicle for long-term incentives. The Plan is
meant to:
-- link compensation opportunities to Company achievements;
-- balance annual results with ADVO's long-term performance; and
-- strengthen the partnership between ADVO's executives and stockholders.
Participation is limited to key management and executives in the Company.
Long-term compensation targets vary by the level of the individual's position
and are based on market analysis provided from independent consultants.
Periodically, these targets are reviewed. These targets are expressed as a fixed
share amount, based on the level of the associate's position. Stock options
granted in fiscal 2003 were granted with exercise prices equal to the fair value
of the Company's Common Stock at the date of grant and with 10-year terms.
The participants in the 1998 Plan, until June 30, 2002, were also given the
opportunity to receive "reload options." To receive such options, the Plan
requires executives to exercise their options by tendering mature shares of
stock to "pay" the exercise price for the options and to withhold shares from
the exercise to pay mandatory statutory withholding tax obligations. In return,
they receive reload options equal to the number of shares utilized in the
exercise. Any profit that results from the exercise is returned to the executive
in the form of stock which is to be retained for two years.
Restricted stock may also be granted under the 1998 Plan. Restricted stock
grants have primarily been made to non-employee directors as part of their
annual compensation and for hiring, promotion and retention of key personnel.
When the latter situations arise, the number of shares granted is based upon the
level of the job. The Company granted restricted stock to six non-employee
directors and for the purposes of hiring and retention to a limited number of
key individuals during fiscal 2003.
To foster greater alignment of the interests of executives and
stockholders, ADVO expects executives who receive stock options to also make a
personal financial commitment to acquire and hold significant amounts of ADVO
stock. Persons receiving stock options are asked to acquire ADVO stock over a
five-year period in an amount expressed as a portion of their annual base
salary. The guidelines range from 300% of base salary for the CEO to 25% of base
salary for entry level stock option recipients. These guidelines cover
approximately 120 persons.
11
CEO Compensation and Company Performance
The Chief Executive Officer's salary is reviewed annually and may be
increased, but not decreased, by the Committee. Independent executive
compensation consultants, at the request of the Board, prepared a comprehensive
analysis of the Chief Executive Officer. Based on this analysis, Mr. Mulloy was
granted a 4.2% increase, or $25,000, in fiscal 2003, bringing his base salary to
$625,000.
As provided in his employment agreement, Mr. Mulloy's short-term incentive
is determined under the 1998 Incentive Compensation Plan. Under the Plan, the
CEO's bonus is awarded at the discretion of the Board of Directors and, like
those of other executives is based solely upon the Company's financial
performance. Mr. Mulloy received a short-term incentive payment of $193,750 for
fiscal 2003.
Mr. Mulloy was also awarded stock options under the 1998 Plan to purchase
97,500 shares of Common Stock. Mr. Mulloy was also granted 30,000 restricted
stock units with the Company's standard vesting over three years, commencing one
year from the date of grant. The size and type of grants are determined through
analysis of grants in companies of similar size and complexity and the
importance of linking a significant part of the CEO's total compensation to the
future performance of the Company.
Benefits
ADVO offers benefits to its key executives that are substantially similar
to those offered to all ADVO associates. These benefits provide a level of
security against financial misfortune that may result from illness, disability
or death. The differences generally promote tax efficiency and replacement of
benefit opportunities afforded other employees that are lost to executives due
to regulatory limits.
COMPENSATION AND NOMINATION COMMITTEE:
David F. Dyer (Chair)
Bobbie Gaunt
Howard H. Newman
John R. Rockwell
12
COMPANY FINANCIAL PERFORMANCE
The following graph compares the performance of the Company's Common Stock
with the S&P 500 Index and a Selected Peer Group Index constructed by the
Company. The comparison of total return for each of the years assumes $100 was
invested on October 1, 1998 in each of the Company, the S&P 500 Index and the
Selected Peer Group Index, with investment return weighted on the basis of
market capitalization. The Peer Group comprises Acxiom Corp., Catalina
Marketing, R.R. Donnelley & Sons Co., Dunn & Bradstreet, Information Resources,
Inc., Knight-Ridder, Inc., Readers Digest, Scholastic Corp., Tribune Co.,
Valassis Communications and the Washington Post. The Peer Group represents a mix
of newspaper, publishing, database and marketing services companies with which
ADVO competes in several of its major markets.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG ADVO, INC., S&P INDEX AND A SELECTED PEER GROUP**
[LINE GRAPH]
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
ADVO, Inc. $100.00 $ 81.59 $135.04 $139.13 $129.92 $170.35
S&P 500 100.00 127.81 144.78 106.24 84.48 105.09
Peer Group 100.00 131.90 130.22 121.30 140.84 147.08
Assumes $100 invested October 1, 1998 in ADVO, Inc. Common Stock, S&P 500
Index and the Peer Group Index.
* Total Return assumes reinvestment of dividends.
** ADVO's fiscal year ends on the last Saturday in September.
13
AUDIT COMMITTEE REPORT
In accordance with its written charter adopted by the Board of Directors,
the Audit Committee assists the Board in fulfilling its responsibility for the
oversight of the quality and integrity of the financial reporting process and
internal and financial controls. The Committee's function is fully described in
its charter which the Board has adopted and which is included as Exhibit A to
this Proxy Statement. The Audit Committee reviews the charter on an annual
basis.
The Audit Committee is composed entirely of non-employee Directors who have
no relationship to the Company that may interfere with the exercise of their
independence from management and the Company. The Audit Committee meets
independence standards established by the New York Stock Exchange and SEC.
Audit Committee members for the fiscal year ended September 27, 2003 were
Messrs. Mahoney (Chair), Brown and Newman. Mr. Newman resigned from the Audit
Committee and was replaced by Ms. Gaunt on April 24, 2003. The Audit Committee
met eight times during the fiscal year ended September 27, 2003, and no member
of the Audit Committee missed a meeting, except for Mr. Newman who missed one
meeting. The Board has determined that Mr. Mahoney, Chairman of the Audit
Committee, as defined by SEC rules, is both independent and has accounting and
financial management expertise.
The Board has designated the Audit Committee to also serve as the Company's
Qualified Legal Compliance Committee ("QLCC") in accordance with SEC rules and
regulations. The QLCC is responsible for handling reports of a material
violation of the securities laws or a breach of a fiduciary duty by the Company,
its officers, directors, employees, or agents. The QLCC has the authority and
responsibility to inform the Company's Chief Executive Officer and Chief Legal
Officer of any violations. It can determine whether an investigation is
necessary and can take appropriate action to address these reports. If an
investigation is deemed necessary or appropriate, the QLCC has the authority to
notify the Board, initiate an investigation and retain outside experts. The
charter of the QLCC is included as Exhibit B to this proxy statement.
The Audit Committee has received the written disclosures and the letter
from the Company's independent auditors, Ernst & Young LLP, as required by the
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees" and has discussed with the independent auditors the auditors'
independence from management and the Company, including matters in such written
disclosures, and has considered the compatibility of non-audit services with the
auditors' independence.
The Audit Committee discussed and reviewed with the Company's independent
auditors all communications required by generally accepted auditing standards,
including those described in Statement on Auditing Standards No. 61, as amended,
"Communications with Audit Committees" and, with and without management present,
discussed and reviewed, the overall scope and plans for the audit, the results
of their examination of the financial statements, their evaluation of the
Company's internal controls within the context of the audit performed, and the
overall quality of the Company's financial reporting. The Audit Committee meets
quarterly with independent auditors, internal auditors and senior management to
review the Company's interim financial results before the quarterly earnings
press release is published. Presentations and discussions by management and
independent auditors with the Audit Committee cover various topics and events
that may have significant financial impact and/or have been the subject of
previous discussions. The Audit Committee also discussed audit plans and results
of the internal audit examinations with the internal auditors.
In accordance with law, the Audit Committee is responsible for establishing
procedures relating to the receipt, retention and treatment of complaints
received by the Company pursuant to accounting, internal accounting controls and
auditing matters. These can include complaints submitted confidentially and
14
anonymously by the Company's employees regarding questionable accounting or
auditing matters. These complaints are processed through the appropriate Company
channels and follow established procedures.
The Audit Committee reviewed with management and the independent auditors
the audited financial statements of the Company as of and for the fiscal year
ended September 27, 2003. Management has the primary responsibility for the
preparation, presentation and integrity of the Company's financial statements,
accounting and financial reporting principles, internal controls and procedures
designed to ensure compliance with accounting standards and applicable laws and
regulations. The independent auditors have a responsibility to express an
opinion as to whether the financial statements present fairly, in a material
respect, the Company's financial position and the results of its operations and
its cash flows in conformity with generally accepted accounting principles in
the United States.
In reliance on reviews and discussions with management and the independent
auditors, the Audit Committee recommended to the Board that the Company's
audited financial statements be included in the Annual Report on Form 10-K for
the year ended September 27, 2003 for filing with the SEC. The Audit Committee
and the Board have also appointed the Company's independent auditors.
Principal Accounting Fees and Services
The Audit Committee has reviewed and discussed the fees paid to the
independent auditors during fiscal 2003 for the categories listed below. The
Audit Committee has determined that the provision for non-audit services is
compatible with Ernst & Young LLP's independence.
The following table represents fees for professional audit services
rendered by Ernst & Young LLP for the audit of the Company's annual financial
statements for the years ended September 27, 2003 and September 28, 2002, and
fees billed for other services performed by Ernst & Young LLP during these
periods. Certain amounts for fiscal year 2002 have been reclassified to conform
with fiscal year 2003 presentation.
2003 2002
(IN THOUSANDS) ---- ----
Audit fees:(1).............................................. $289 $241
Audit related fees:(2)...................................... 52 105
Tax fees:(3)................................................ 5 219
All other fees:(4).......................................... -- 319
---- ----
Total..................................................... $346 $884
==== ====
---------------
(1) Audit fees consisted of audit work performed in the preparation of financial
statements, quarterly reviews and audit committee meetings.
(2) Audit related fees consisted principally of audits of employee benefit plans
and technical guidance.
(3) Tax fees consisted principally of assistance with matters related to the
acquisition of corporate entities, tax compliance and reporting.
15
(4) All other fees in 2002 consisted principally of internal audit fees. As of
June 2002, the Company ceased to use its independent auditors to perform the
internal audit function. Beginning in July 2002, the Company's internal
audit function is being performed by PricewaterhouseCoopers.
AUDIT COMMITTEE:
John J. Mahoney (Chair)
Todd C. Brown
Bobbie Gaunt
EXECUTIVE AGREEMENTS
Employment Agreement -- Mulloy
On July 31, 1998, the Company entered into an employment agreement with Mr.
Mulloy, pursuant to which he is employed as Chief Executive Officer of the
Company. The employment agreement has a term of six years from its effective
date of January 1, 1999. The salary under the employment agreement is $500,000
per year, subject to increases as determined by the Board of Directors (or the
Compensation and Nomination Committee) plus bonuses pursuant to the Company's
bonus plan. In addition, Mr. Mulloy receives a housing allowance of $2,000 per
month throughout the employment period.
In accordance with the employment agreement, Mr. Mulloy received, on
January 1, 1999, options to purchase 150,000 shares (post-split) of the
Company's Common Stock at a price of $18.04 per share (post-split), with such
options becoming exercisable in installments of one-fourth each year from the
date of grant. Mr. Mulloy was also granted 37,500 shares (post-split) of
restricted stock units on January 21, 1999. Under the terms of the agreement,
the restrictions lapsed one-third each year on January 1, 2000, 2001 and 2002.
The employment agreement provides that if the Company terminates Mr.
Mulloy's employment for any reason other than for Cause (as defined), the
Company will continue to pay a salary to Mr. Mulloy at the same rate, plus a
bonus of 75% (subsequently changed by the Board to 100%) of such salary and
allow him to continue to participate in other benefit programs for two years
after the date of termination.
EXECUTIVE SEVERANCE AGREEMENTS
The Board of Directors authorized the Company to enter into individual
Executive Severance Agreements (the "Agreements") with Messrs. Mulloy, Lubin,
McCombs, Harless and Sanders. These Agreements were dated as follows:
Mr. Mulloy................................................ November 4, 1996
Mr. Lubin................................................. October 17, 1995
Mr. McCombs............................................... January 4, 1999
Mr. Harless............................................... August 14, 2000
Mr. Sanders............................................... May 19, 1997
The structure of the Agreements is substantially similar, but the terms of
the individual Agreements differ in some important respects as noted below.
The Agreements' provisions become effective upon the occurrence of a Change
of Control (as described below) and continue for the duration of the severance
period. With regard to Messrs. Mulloy, McCombs and Harless, the severance period
is two years following a Change of Control. With regard to Messrs. Lubin and
Sanders, the severance period is one and one-half years following a Change of
Control. In all cases, the
16
severance period ends with the death of the executive. If, during the severance
period, an executive's employment is terminated by the Company for any reason
other than death, disability or Cause (as described below), or if the executive
terminates his employment for Good reason (as described below), the Company must
pay to the executive a lump sum severance payment. With regard to Messrs. Mulloy
and Harless, the severance payment due upon such a termination of employment is
equal to two times the sum of (i) the executive's annual base pay at the highest
rate in effect at any time within the 90-day period preceding the date a notice
of termination of employment is given or, if higher, at the highest rate of base
pay in effect within the 90-day period immediately preceding the Change of
Control and (ii) the greatest amount of incentive (bonus) pay received by the
executive for any calendar year or portion thereof from and including the third
year prior to the first occurrence of a Change of Control. With regard to
Messrs. Lubin, McCombs and Sanders, the severance payment is equal to one and
one-half times the foregoing sum. Additionally, upon termination, Messrs.
Mulloy, McCombs and Harless will be entitled to receive medical and life
insurance benefits for the period of two years from the date of the termination
or cash in lieu thereof. Messrs. Lubin and Sanders will be entitled to receive
medical and life insurance benefits for the period of one and one-half years
from the date of termination or cash in lieu thereof.
Under the Agreements, "Cause" means an executive's intentional act of
fraud, embezzlement, theft, damage to Company property or disclosure of
confidential information that causes material harm to the Company. "Good reason"
means (i) an adverse change in the executive's responsibilities; (ii) a
reduction in the executive's base pay, bonus pay, or benefits; (iii) a failure
of any successor to the Company to assume the obligations under the Agreement;
(iv) any material breach of the Agreement by the Company; or (v) any action of
the Company requiring the executive to perform his or her services at a location
which is more than thirty-five miles from the location where the executive was
employed immediately preceding the date of the Change in Control.
A "Change in Control" means the occurrence of any of the following events:
(i) Any person (other than the Company, any trustee or other fiduciary
holding securities under any employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of the common
stock of the Company) acquires securities of the Company and immediately
thereafter is the beneficial owner (as defined) of securities of the
Company representing 30% or more of the combined voting power of the
Company's then outstanding securities (except that an acquisition of
securities directly from the Company shall not be deemed an acquisition for
purposes of this clause (i));
(ii) During any period of two consecutive years, individuals who at
the beginning of the period constitute the Board, plus any new directors
treated as continuing directors (as described below), cease to constitute
at least a majority of the Board (treating as continuing directors all
persons whose nomination or election was approved by a vote of at least
two-thirds of the directors then in office who either were directors of the
Company at the beginning of such two-year period or whose nomination or
election to the Board was previously so approved, but excluding any
director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (i), (iii) or (iv) of
this paragraph, and any director whose initial assumption of office occurs
as a result of either an actual or threatened election contest or actual or
threatened solicitation of proxies by or on behalf of any person other than
the Board);
(iii) The consummation of a merger or consolidation of the Company
with any other entity, other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or
by
17
being converted into voting securities of the surviving or resulting
entity) more than 50% of the combined voting power of the surviving or
resulting entity outstanding immediately after such merger or consolidation
or (ii) a merger or consolidation in which no premium is intended to be
paid to any shareholder participating in the merger or consolidation;
(iv) The stockholders of the Company approve a plan or agreement for
the sale or disposition of all or substantially all of the consolidated
assets of the Company (other than such a sale or disposition immediately
after which such assets will be owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of the common stock of the Company immediately prior to such sale
or disposition) in which case the Board shall determine the effective date
of the Change in Control resulting therefrom; or
(v) any other event occurs which the Board determines, in its
discretion, would materially alter the structure or its ownership.
Each executive is solely responsible for all federal, state, local or
foreign taxes due with respect to any payment received under the Agreements,
including, without limitation, any excise tax imposed by Section 4999 of the
Code. However, all payments under the Agreements would be reduced to the extent
necessary so that no portion of the payments would be subject to the excise tax
imposed by Section 4999 of the Code, but only if, by reason of such reduction,
the net after-tax benefit received by the executive exceeds the net benefit
received by the executive if no such reduction was made.
If the Company fails to comply with any of its obligations under the
Agreements or, in the event that the Company or any other person takes or
threatens to take action to declare the Agreements void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from the executive, the benefits provided or intended to be provided to
the executive by the Company, the executive is authorized by the Agreements to
retain counsel of the executive's choice, at the expense of the Company, to
advise and represent the executive in connection with any such interpretation,
enforcement, or defense, including without limitation the initiation or defense
of any litigation or other legal action, whether by or against the Company or
any member of the Board of Directors, officer, stockholder, or other person or
entity affiliated with the Company, in any jurisdiction.
Benefits under the Agreements are in addition to severance amounts payable
under an executive's employment agreement.
2. AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE
AUTHORIZED SHARES OF COMMON STOCK
On November 6, 2003, the Board of Directors approved and recommends to the
stockholders for adoption, an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
Common Stock from 40,000,000 shares to 80,000,000 shares.
Article IV of the Certificate of Incorporation, as restated and amended to
date, is amended so that the same shall be deleted in its entirety and a new
paragraph which reads as follows shall be inserted in place thereof:
"ARTICLE IV. Capital Stock. The total number of shares of stock which the
Corporation is authorized to issue is 85,000,000 shares, of which 80,000,000
shares shall be designated Common Stock, $.01 par value per share, and 5,000,000
shares shall be designated Preferred Stock, par value $.01 per share.
18
(A) The Board of Directors of the Corporation is hereby expressly vested
with the authority by resolution or resolutions to issue one or more
classes or series of Preferred Stock with such voting powers, full or
limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated
and expressed in such resolution or resolutions.
(B) Except as otherwise provided by statute or any resolution adopted by
the Board of Directors pursuant to Article IV (A) of this Certificate
of Incorporation, each holder of Common Stock shall be entitled to vote
and shall have one vote for each share thereof held."; and
As of November 28, 2003, of the 40,000,000 currently authorized shares of
Common Stock, 30,120,521 shares were outstanding, 4,315,111 shares were reserved
for issuance under the Company's stock option plans, of which, 2,819,234 were
covered by outstanding options and 1,495,877 are available for future grant.
Accordingly, 5,564,368 shares of Common Stock were available and not reserved
for future issuance at November 28, 2003.
The Board believes that the increase in the number of authorized shares of
Common Stock is in the best interests of the Company and its stockholders to
provide flexibility in its corporate planning. This would include items such as
declaration of future stock splits or stock dividends, raising additional equity
capital, providing equity incentives to employees, officers and directors,
establishing joint ventures and other strategic relationships with other
companies, expanding the Company's business through acquisitions, and for other
corporate purposes. At present the Company has no specific plans and is not a
party to any negotiations as to the issuance of any of the additional shares of
Common Stock, which are proposed to be authorized.
If the proposed amendment is authorized by the Company's stockholders, the
additional shares of Common Stock would be issuable at any time, and from time
to time, by action of the Board of Directors without further authorization from
the Company's stockholders except as otherwise required by applicable law or
rules and regulations (including those of stock exchanges) to which the Company
may be subject. Holders of the Common Stock have no preemptive rights therein.
The stockholders of the Company are not entitled to appraisal rights as a result
of the submission or authorization of the proposed amendment.
The Board could use the additional shares of Common Stock to discourage a
non-negotiated attempt to obtain control of the Company, although that is not
the Board's purpose in recommending the increase in authorized shares of Common
Stock. Under certain circumstances, such shares may be used (alone or in
conjunction with the Company's authorized and unissued Preferred Stock) to
create voting impediments or to deter persons seeking to effect a takeover or
otherwise to gain control of the Company.
The additional Common Stock to be authorized would have rights identical to
the currently outstanding Common Stock of the Company. Adoption of the proposed
amendment and issuance of Common Stock would not affect the rights of the
holders of currently outstanding Common Stock of the Company, except for effects
incidental to increasing the number of shares of the Company's Common Stock
outstanding, such as dilution of the earnings per share and voting rights of
current holders of Common Stock. If the amendment is adopted, it will become
effective upon filing of a certificate of Amendment to the Company's Certificate
of Incorporation with the State of Delaware.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote at the Meeting is required for the
authorization of the proposed amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
19
3. APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends that proxies be voted in favor of the
ratification of the appointment by the Company's Audit Committee of Ernst &
Young LLP, certified public accountants, as independent auditors for the fiscal
year ending September 25, 2004. Approval of this proposal will be determined by
a majority of votes cast. Abstentions and broker non-votes will have no effect
on the outcome of this proposal.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting where they will have an opportunity to make a statement if they
desire to do so and are expected to be available to answer appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 3.
OTHER BUSINESS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those set forth in the Notice of Annual Meeting of
Stockholders. However, if any other matters properly come before such meeting,
the persons named in the enclosed form of proxy will have discretionary
authority to vote all proxies on such matters in accordance with their judgment.
STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the Company's proxy statement
and form of proxy for the 2005 Annual Meeting of Stockholders, any stockholder
proposal must be received by the Secretary of the Company prior to August 19,
2004. In addition, the form of proxy issued with the Company's 2005 proxy
statement will confer discretionary authority to vote for or against any
proposal made by a stockholder at the 2004 Annual Meeting and which is not
included in the Company's proxy statement. However, under the rules of the SEC,
such discretionary authority may not be exercised if the stockholder proponent
has given the Secretary of the Company notice of such proposal prior to November
2, 2004, and certain other conditions provided for in the SEC rules have been
satisfied.
/s/ Stephen L. Palmer
Stephen L. Palmer
Secretary
December 19, 2003
20
EXHIBIT A
ADVO, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the audit committee. The committee
shall be appointed by the board of directors, on the recommendation of the
compensation and nomination committee, and shall comprise at least three
directors, each of whom are independent of management and the Company. The board
of directors shall designate one member of the committee to serve as chair of
the committee. Committee members may be replaced by the board of directors on a
vote of a majority of the independent directors.
Members of the committee shall be considered independent if they meet the
independence criteria of the New York Stock Exchange, Section 10A(m)(3) of the
Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and
regulations of the Securities and Exchange Commission (the "Commission"). All
committee members shall be financially literate, and at least one member shall
be an "audit committee financial expert" as defined by the Commission. Audit
committee members shall not simultaneously serve on the audit committees of more
than two other public companies unless the board of directors determines that
such simultaneous service would not impair the member's ability to serve on the
committee.
The committee shall meet as often as it determines, but not less frequently
than quarterly. The committee may form and delegate authority to a subcommittee
of one or more of its members when appropriate, provided that the decisions of
such subcommittee shall be reported to the full audit committee at its next
scheduled meeting.
The committee shall make regular reports to the board of directors.
STATEMENT OF POLICY AND PURPOSE
The primary purpose of the audit committee shall be to provide assistance
to the board of directors in fulfilling its responsibility to oversee the
integrity of the Company's financial statements and financial reporting process,
the performance of the Company's systems of internal accounting and financial
controls, the Company's internal audit function, the independent auditors'
qualifications, independence, and performance, the annual independent audit of
the Company's financial statements, and the Company's compliance with legal and
regulatory requirements. A purpose of the audit committee shall also be to
prepare the Audit Committee Report to be included in the Company's proxy
statement for each annual meeting of stockholders and any other meeting of
stockholders at which members of the board of directors are to be elected.
It is the responsibility of the committee to maintain free and open
communication between the committee, the independent auditors, the internal
auditors, and management of the Company. In discharging its oversight role, the
committee is empowered to investigate any matter brought to its attention with
full access to all books, records, facilities, and personnel of the Company. The
Committee shall have the power to retain (at the Company's expense) outside
counsel, auditors, or other advisors as it deems appropriate and to determine
the compensation and other terms of engagement of such outside counsel,
auditors, or other advisors.
A-1
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board and report the
results of the committee's activities to the board. Management is responsible
for preparing the Company's financial statements, and the independent auditors
are responsible for auditing those financial statements.
The committee in carrying out its responsibilities believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and circumstances. The committee should take the appropriate actions
to set the overall corporate "tone" for quality financial reporting, sound
business risk practices, and ethical behavior.
The following shall be principal recurring processes of the audit committee
in carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the committee may supplement them as
appropriate.
- The committee shall have sole authority and direct responsibility over
the selection of the Company's independent auditors, subject to
shareholder ratification if the committee so elects. The committee shall
also have sole authority and direct responsibility over the evaluation
and replacement (as the committee may deem appropriate) of the
independent auditors, and the determination of the compensation and other
terms of engagement of such independent auditors. The committee shall
review the selection of the Company's independent auditors on an annual
basis.
- The committee shall pre-approve all auditing services and permitted
non-audit services (including the fees and terms thereof) to be performed
for the Company by its independent auditors, subject to de minimis
exceptions for non-audit services described in Section 10A(i)(1)(B) of
the Exchange Act that are approved by the committee prior to the
completion of the audit. The committee shall consider whether any
provision of permitted non-audit services by the Company's independent
auditors is compatible with their independence.
- The committee shall be responsible for resolving any disputes between
management and the independent auditors concerning financial reporting.
- The committee shall discuss with the auditors their independence from
management and the Company and the matters included in the written
disclosures required by the Independence Standards Board.
- At least annually, the committee shall obtain and review a report by the
independent auditors describing: their internal quality-control
procedures; any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits carried
out by the firm, any steps taken to deal with such issues; and (to assess
the auditors' independence), all relationships between the independent
auditors and the Company.
- The committee shall review and evaluate the lead audit partner and ensure
the rotation of the lead (or coordinating) audit partner having primary
responsibility for the audit and the audit partner responsible for
reviewing the audit.
- The committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits, including the adequacy of staffing and compensation. Also, the
committee shall discuss with management, the internal auditors, and the
independent auditors the adequacy and effectiveness of the accounting and
financial controls, including the Company's system to monitor and manage
business risk, and legal and ethical compliance programs. Further, the
committee
A-2
shall meet separately with the internal auditors and the independent
auditors, with and without management present, to discuss the results of
their examinations.
- The committee shall review disclosures made to the committee by the
Company's Chief Executive Officer and Chief Financial Officer during
their certification process for the Form 10-K and the Form 10-Q about any
significant deficiencies in the design or operation of internal controls
or material weaknesses therein and any fraud involving management or
other employees who have a significant role in the Company's internal
controls.
- The committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report on
Form 10-K (or the annual report to shareholders if distributed prior to
the filing of Form 10-K), including disclosures made in management's
discussion and analysis, and recommend to the board of directors whether
the audited financial statements should be included in the Company's Form
10-K. Also, the committee shall discuss with the independent auditors the
results of the annual audit and any other matters required to be
communicated to the committee by the independent auditors under generally
accepted auditing standards.
- The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the committee by the independent auditors
under generally accepted auditing standards. The chair of the committee
may represent the entire committee for the purposes of this review.
- The committee shall discuss with management and the independent auditors
significant financial reporting issues and judgments made in connection
with the preparation of the Company's financial statements, including
their judgment about the quality, not just acceptability, of accounting
principles, the reasonableness of significant judgments, and the clarity
of the disclosures in the financial statements. The committee shall
review major changes to the Company's accounting principles and practices
as suggested by the independent auditors, internal auditors, or
management, as well as the expected impact of new accounting initiatives.
- The committee shall obtain reports from the independent auditors on: all
critical accounting policies and practices to be used; all alternative
treatments of financial information within generally accepted accounting
principles that have been discussed with management, the ramification of
such alternative disclosures and treatments, and the treatment preferred
by the independent auditors; and other material written communications
between the independent auditors and management, such as any management
letter or schedule of unadjusted differences.
- The committee shall discuss with management the Company's earnings press
releases, as well as any financial information and earnings guidance
provided by the Company to analysts and ratings agencies, and any use of
non-GAAP financial information. This discussion may be done generally
through a discussion of the types of information to be disclosed and the
types of presentations to be made.
- The committee shall also:
- Recommend to the board of directors policies for the hiring of employees
or former employees of the independent auditor.
- Have ultimate control of, and full oversight authority over, the
appointment of the outsourced internal audit firm.
A-3
- Have the authority to review and set the scope of reports to management
prepared by the internal auditing department, and management's
responses.
- Obtain from the independent auditor a representation that they noted no
matters required to be reported under Section 10A(b) of the Exchange
Act.
- Review and oversight over the Company's processes to assure that its
management, its internal auditors, and the independent auditor provide
representations that they did not note any violations of the Company of
applicable legal requirements.
- Provide oversight to the Company's legal counsel and others regarding
their monitoring compliance with the Company's Code of Conduct.
- Provide oversight and review of the Company's processes, and work with
the Company's legal counsel identifying and assessing any transactions
that may involve a conflict of interest on the part of a director or
executive officer.
- Review and provide ongoing oversight over the implementation of the
Company's procedures for the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters, and the confidential,
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters.
- Review with the Company's legal counsel legal matters that may have a
material impact on the financial statements, the Company's compliance
policies, and any material reports or inquiries received from regulators
or governmental agencies.
QUALIFIED LEGAL COMPLIANCE COMMITTEE
The committee shall also serve as the Company's Qualified Legal Compliance
Committee in accordance with the Qualified Legal Compliance Committee Charter.
EVALUATION OF THE CHARTER AND COMMITTEE PERFORMANCE
The committee shall review and reassess the charter at least annually and
obtain the approval of the board of directors for any proposed changes to the
charter. The committee shall evaluate its own performance on an annual basis.
A-4
EXHIBIT B
ADVO, INC.
QUALIFIED LEGAL COMPLIANCE COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the Qualified Legal Compliance
Committee (the "QLCC"). The Audit Committee of the Company shall serve as the
QLCC. The chair of the Audit Committee shall serve as the chair of the QLCC.
STATEMENT OF POLICY AND PURPOSE
The QLCC shall review any report by an attorney employed or retained by the
Company or its subsidiaries of a material violation of U.S. federal or state
securities law, a material breach of fiduciary duty arising under U.S. federal
or state law or a similar material violation of any U.S. federal or state law (a
"material violation"), all in accordance with the provisions of 17 CFR Part 205,
as amended from time to time ("Part 205"). Any terms not otherwise defined in
this charter shall have the definitions given them, if any, in Part 205.
RESPONSIBILITIES AND PROCESSES
In addition to any other responsibilities which may be assigned from time
to time by the board of directors, the QLCC has the authority and responsibility
for the following matters:
- The QLCC shall adopt written procedures for the confidential receipt,
retention and consideration of any report of evidence of a material
violation under Part 205 (a "report").
- Upon receipt of a report, the QLCC shall:
- inform the Company's Chief Legal Officer ("CLO") and Chief Executive
Officer ("CEO") of such report, unless such notification would be
futile; and
- determine whether an investigation is necessary regarding any report of
evidence of a material violation by the Company, its officers,
directors, employees or agents.
- If the QLCC determines an investigation is necessary or appropriate, the
QLCC shall:
- notify the full board of directors; and
- initiate an investigation, which may be conducted either by the CLO or
by outside attorneys.
- At the conclusion of any such investigation, the QLCC shall:
- recommend that the Company implement an appropriate response to the
evidence of a material violation, which appropriate response may
include:
- a finding that no material violation has occurred, is ongoing or is
about to occur;
- the adoption of appropriate remedial measures, including appropriate
steps or sanctions to stop any material violations that are ongoing,
to prevent any material violation that has yet to occur, and to remedy
or otherwise appropriately address any material violation that has
already occurred and to minimize the likelihood of its recurrence; or
B-1
- retaining or directing an attorney to review the reported evidence of
a material violation and then either: (i) the Company substantially
implements any remedial recommendations made by such attorney after a
reasonable investigation and evaluation of the reported evidence; or
(ii) the attorney advises the Company that such attorney may,
consistent with his or her professional obligations, assert a
colorable defense on behalf of the Company or its officers, directors,
employees or agents, in any investigation or judicial or
administrative proceeding relating to the reported evidence of a
material violation.
- inform the CLO, the CEO and the board of directors of the results of any
such investigation initiated by the QLCC and the appropriate remedial
measures to be adopted.
- The QLCC may take all other appropriate action, including notifying the
Securities and Exchange Commission, if the Company fails in any material
respect to implement an appropriate response that the QLCC has
recommended that the Company take.
In addition to the written procedures regarding the confidential receipt,
retention and consideration of any report of evidence of a material violation
under Part 205 as described above, the QLCC shall abide by the following
procedures:
- The QLCC may act only by majority vote.
- The QLCC shall meet at least annually and as often as it determines is
appropriate to carry out its responsibilities under this charter. The
chair of the QLCC, in consultation with the other members of the QLCC,
shall determine the frequency and length of the meetings of the QLCC and
shall set meeting agendas consistent with this charter.
- The QLCC is authorized (without seeking the approval of the board of
directors) to retain outside attorneys and other expert personnel to
assist the QLCC as it deems necessary.
EVALUATION OF THE CHARTER AND QLCC PERFORMANCE
The QLCC shall review and reassess the charter at least annually and obtain
the approval of the board of directors for any proposed changes to the charter.
The QLCC shall evaluate its own performance on an annual basis.
B-2
ADVO, INC.
PROXY PROXY
One Targeting Centre, Windsor, Connecticut 06095-2639
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Stephen L. Palmer and John D. Speridakos,
each of them, with full power of substitution, the proxies of the undersigned to
vote all the shares of the Common Stock of ADVO, Inc. which the undersigned is
entitled to vote at the Annual Meeting of Stockholders to be held on January 23,
2004 at the Company's corporate headquarters, One Targeting Centre, Windsor, CT
commencing at 11:30 a.m. (EST) or any adjournment thereof.
In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted "FOR" ALL NOMINEES FOR DIRECTORS AND WILL BE VOTED "FOR" Proposals 2
and 3.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and the related Proxy Statement.
(PLEASE VOTE, SIGN AND DATE REVERSE SIDE)
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| Address Change/Comments (Mark the corresponding box on the reverse side) |
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* FOLD AND DETACH HERE *
Please Mark Here for Address Change or Comments SEE REVERSE SIDE / /
The Board of Directors recommends that you vote "FOR" Items 1, 2 and 3.
1. Election of Directors:
FOR all nominees listed to below (except as marked to the contrary) / /
WITHHOLD AUTHORITY to vote for all nominees listed below / /
Nominees for election by holders of Common Stock: 01 Todd Brown, 02 David F.
Dyer, 03 Bobbie Gaunt, 04 Karen Kaplan, 05 John Mahoney, 06 Gary M. Mulloy,
07 Howard H. Newman.
INSTRUCTION: To withhold your vote for any nominee(s), write that nominee's
name on the line below.
__________________________________________________________________________
2. Amendment to the Certificate of Incorporation to increase authorized shares
of Common Stock from 40,000,000 to 80,000,000 shares.
For Against Abstain
/ / / / / /
3. Ratification of the Appointment of Ernst & Young LLP as the Company's
Independent Auditors for fiscal 2004.
For Against Abstain
/ / / / / /
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Consenting to receive all future annual meeting materials and shareholder
communications electronically is simple and fast! Enroll today at
www.melloninvestor.com/ISD for secure online access to your proxy material,
statements, tax documents and other important shareholder correspondence.
I plan to attend the meeting / /
Signature ____________________Signature ___________________Date __________
Please sign exactly as name appears above. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
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* FOLD AND DETACH HERE *
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INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11:59 PM EASTERN TIME
THE DAY PRIOR TO ANNUAL MEETING DAY.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
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Have your proxy card in hand when
you access the web site.
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Use any touch-tone telephone to
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return it in the
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