<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S><C>
[ ] 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-11(c) or Section 240.14a-12
Advantage Learning Systems, Inc.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which
transaction applies:
-------------------------------------------------
2) Aggregate number of securities to which
transaction applies:
-------------------------------------------------
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11 (Set
forth the amount on which the filing fee is calculated and
state how it was determined):
-------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-------------------------------------------------
5) Total fee paid:
-------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-------------------------------------------------
3) Filing Party:
-------------------------------------------------
4) Date Filed:
-------------------------------------------------
</TABLE>
<PAGE> 2
ADVANTAGE LEARNING SYSTEMS, INC.
2911 PEACH STREET
WISCONSIN RAPIDS, WISCONSIN 54495-8036
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 28, 1998
TO THE SHAREHOLDERS OF ADVANTAGE LEARNING SYSTEMS, INC.:
The 1998 Annual Meeting of Shareholders of Advantage Learning Systems, Inc.
will be held at the Mead Inn, 451 East Grand Avenue, Wisconsin Rapids,
Wisconsin, on Tuesday, April 28, 1998 at 1:00 p.m., local time, for the
following purposes:
(1) To elect seven directors to serve until the 1999 Annual Meeting of
Shareholders and until their successors are elected and qualified; and
(2) To transact such other business as may properly come before the Annual
Meeting, all in accordance with the accompanying Proxy Statement.
Shareholders of record at the close of business on March 9, 1998 are
entitled to notice of and to vote at the Annual Meeting.
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES MUST BE PRESENT IN PERSON
OR BY PROXY IN ORDER FOR THE MEETING TO BE HELD. THEREFORE, SHAREHOLDERS ARE
URGED TO DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE
WHETHER OR NOT THEY EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON. IF YOU ATTEND
THE MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO BY REVOKING
YOUR PROXY AT ANY TIME PRIOR TO THE VOTING THEREOF.
Timothy Sherlock, Secretary
March 19, 1998
<PAGE> 3
ADVANTAGE LEARNING SYSTEMS, INC.
2911 PEACH STREET
WISCONSIN RAPIDS, WISCONSIN 54495-8036
MARCH 19, 1998
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Advantage
Learning Systems, Inc. (the "Company") for use at the Annual Meeting of
Shareholders to be held on Tuesday, April 28, 1998 (the "Annual Meeting"). At
the Annual Meeting, the shareholders of the Company will elect seven directors,
each of whom will hold office until April 1999 and until his or her successor is
duly elected and qualified.
The expense of printing and mailing proxy materials, including expenses
involved in forwarding materials to beneficial owners of common stock held in
the name of another person, will be borne by the Company. No solicitation other
than by mail is contemplated, except that officers or employees of the Company
or its subsidiaries may solicit the return of proxies from certain shareholders
by telephone. The Proxy Statement and the accompanying Proxy are being sent to
the Company's shareholders commencing on or about March 19, 1998.
Only shareholders of record at the close of business on March 9, 1998 (the
"Record Date") are entitled to notice of and to vote the shares of common stock,
$0.01 par value (the "Common Stock"), of the Company registered in their name at
the Annual Meeting. As of the Record Date, the Company had outstanding
16,902,383 shares of Common Stock. The presence, in person or by proxy, of the
holders of a majority of the shares of the Common Stock outstanding on the
Record Date is required for a quorum with respect to the matters on which action
is to be taken at the Annual Meeting.
Any shareholder executing and delivering the enclosed proxy may revoke the
same at any time prior to the voting thereof by written notice of revocation
given to the Secretary of the Company.
Abstentions and broker non-votes (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote shares as to a matter with respect to
which brokers or nominees do not have discretionary power to vote) will be
treated as present for purposes of determining the quorum. Abstentions and
broker non-votes will not be counted as voting on any matter at the Annual
Meeting. Each share of Common Stock entitles its holder to cast one vote on each
matter to be voted upon at the Annual Meeting.
UNLESS OTHERWISE DIRECTED, ALL PROXIES WILL BE VOTED FOR THE ELECTION OF
EACH OF THE INDIVIDUALS NOMINATED TO SERVE AS A DIRECTOR. DIRECTORS ARE ELECTED
BY A PLURALITY OF THE VOTES CAST BY HOLDERS OF THE COMPANY'S COMMON STOCK
ENTITLED TO VOTE AT A MEETING AT WHICH A QUORUM IS PRESENT. IN OTHER WORDS, THE
SEVEN DIRECTORS WHO RECEIVE THE LARGEST NUMBER OF VOTES WILL BE ELECTED AS
DIRECTORS. ANY SHARES NOT VOTED, WHETHER BY WITHHELD AUTHORITY, BROKER NON-VOTE
OR OTHERWISE, WILL HAVE NO EFFECT IN THE ELECTION OF DIRECTORS EXCEPT TO THE
EXTENT THAT THE FAILURE TO VOTE FOR AN INDIVIDUAL RESULTS IN ANOTHER INDIVIDUAL
RECEIVING A LARGER NUMBER OF VOTES. ANY VOTES ATTEMPTED TO BE CAST "AGAINST" A
CANDIDATE ARE NOT GIVEN LEGAL EFFECT AND ARE NOT COUNTED AS VOTES CAST IN AN
ELECTION OF DIRECTORS.
<PAGE> 4
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table lists as of the Record Date information regarding the
beneficial ownership of shares of Common Stock by (i) each director and each of
the most highly compensated executive officers (the "named executive officers")
of the Company, (ii) each person believed by the Company to be a beneficial
owner of more than 5% of the Common Stock and (iii) all directors and executive
officers of the Company as a group. Except as otherwise indicated, the address
of each beneficial owner of more than 5% of the Common Stock listed below is
2911 Peach Street, Wisconsin Rapids, Wisconsin 54495-8036.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
------------------- ----------------------- ----------------
<S> <C> <C>
Judith A. Paul............................................. 6,390,429(2) 37.8%
Terrance D. Paul........................................... 6,390,429(3) 37.8
Mark J. Bradley, as Trustee of the Terrance and Judith Paul
Descendants' Trust....................................... 963,843(4) 5.7
Michael H. Baum............................................ 12,500 *
John R. Hickey............................................. 12,500 *
Timothy P. Welch........................................... 58,629 *
Richard W. Fickey.......................................... 3,400(5) *
Perry S. Akins............................................. 2,500 *
John H. Grunewald.......................................... 2,500(6) *
All directors and executive officers of the Company as a
group (8 persons)........................................ 12,732,537 75.3
</TABLE>
- -------------------------
* Less than 1% of the outstanding Common Stock.
(1) Except as otherwise noted, the persons named in this table have sole voting
and investment power with respect to all shares of Common Stock listed.
(2) Includes 140,350 shares of Common Stock held by the Terrance and Judith Paul
Foundation, Inc. as to which Judith and Terrance Paul share voting and
investment power. Ms. Paul is married to Terrance D. Paul, and Mr. Paul's
shares of Common Stock are not included in the number of shares beneficially
owned by Ms. Paul.
(3) Includes 140,350 shares of Common Stock held of record by the Terrance and
Judith Paul Foundation, Inc. as to which Judith and Terrance Paul share
voting and investment power. Mr. Paul is married to Judith A. Paul, and Ms.
Paul's shares of Common Stock are not included in the number of shares
beneficially owned by Mr. Paul.
(4) The address of the Trustee of the Terrance and Judith Paul Descendants'
Trust is 500 Third Street, Suite 700, Wausau, Wisconsin 54403.
(5) Mr. Fickey retired on January 30, 1998.
(6) Mr. Grunewald disclaims beneficial ownership of 500 of the 2,500 shares of
Common Stock indicated above, as such shares are held of record by his wife.
2
<PAGE> 5
ELECTION OF DIRECTORS
The number of directors constituting the whole Board of Directors is
currently fixed at seven. The Board of Directors has selected the seven members
currently serving on the Board as nominees for election at the 1998 Annual
Meeting. Directors elected at the Annual Meeting will hold office for a one-year
term and until their successors are duly elected and qualified.
All nominees have indicated a willingness to serve as directors, but if any
of them should decline or be unable to act as a director, the persons named in
the proxy will vote for the election of another person or persons as the Board
of Directors recommends.
NOMINEES STANDING FOR ELECTION
<TABLE>
<CAPTION>
NAME OF OFFICER OFFICE
--------------- ------
<S> <C>
Judith A. Paul Ms. Paul is the co-founder of the Company and has been
Age 51 Chairman of the Board of Directors since 1986. Ms. Paul acts
as the Company spokesperson and coordinates the Company's
public relations and customer communication policies. Ms.
Paul has co-written 101 Ways to Motivate Students to
Read(1995), and is the author of The Family Reading Night
Kit (1996) and The Literacy Partnership Kit (1997). Ms. Paul
holds a bachelors degree in elementary education from the
University of Illinois.
Terrance D. Paul Mr. Paul is the co-founder of the Company and has been Vice
Age 51 Chairman of the Board of Directors since July 1996. Mr. Paul
is primarily responsible for the Company's long-term
strategic planning and new product development strategy. Mr.
Paul also coordinates the research activities conducted by
the Institute for Academic Excellence, Inc., a wholly-owned
subsidiary of the Company (the "Institute"). From November
1995 until July 1996, Mr. Paul served as the Company's Chief
Executive Officer. From January 1992 until August 1993 and
again from September 1994 until November 1995, Mr. Paul
served as President of the Company. For the 12 years prior
to 1992, Mr. Paul was President of Best Power Technology, a
manufacturer of uninterruptible power supplies. Mr. Paul is
the author of several publications, including How to Create
World-Champion Readers (1993), Patterns of Reading Practice
(1996) and The New Technology of Learning Information
Systems (1997). He is also the general editor of
Fundamentals of Reading Renaissance (1994-1996), the
textbook used in seminars on reading improvement by the
Institute. Mr. Paul holds a law degree from the University
of Illinois and an MBA from Bradley University. Terrance
Paul is Judith Paul's husband.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
NAME OF OFFICER OFFICE
--------------- ------
<S> <C>
Michael H. Baum Mr. Baum has been Chief Executive Officer of the Company
Age 50 since July 1996 and a Director since September 1994. Mr.
Baum served as President of the Company between November
1995 and June 1996. From September 1994 until November 1995,
Mr. Baum served as the Managing Director of the Institute
and from June 1994 until September 1994, he served as the
Director of Educational Consulting for the Institute. From
1984 until June 1994, Mr. Baum held a variety of positions
with Francorp, Inc., an international management consulting
firm based in Chicago, his last position being that of
Executive Vice President, which he held from September 1991
until June 1994. Mr. Baum holds a bachelors degree and a
masters degree in teaching from Yale University and an MBA
from Northwestern University.
John R. Hickey Mr. Hickey has been President of the Company since July 1996
Age 42 and a Director of the Company since October 1996. From
January 1996 until June 1996, Mr. Hickey served as Executive
Vice President of R.F. Technologies, Inc., a manufacturer of
protection devices, and from September 1995 until December
1995, he served as Executive Vice President of Liebert
Corporation (a subsidiary of Emerson Electric), a
manufacturer of uninterruptible power supplies. From January
1989 until June 1995, Mr. Hickey held various senior
management positions with Best Power Technology, including
Executive Vice President of Operations, Senior Vice
President of Sales and Marketing and Vice
President-International. In addition, Mr. Hickey spent
approximately ten years with Briggs and Stratton, a
manufacturer of air-cooled gasoline engines for outdoor
power equipment, headquartered in Milwaukee, Wisconsin.
While at Briggs and Stratton, Mr. Hickey served in various
management positions, eventually rising to the position of
the Director of International Sales and Finance
Administration, a position he held from October 1985 until
January 1989. Mr. Hickey holds a bachelors degree in
international business from the University of Wisconsin.
Timothy P. Welch Timothy P. Welch has been a Director of the Company since
Age 55 August 1996. Mr. Welch is the founder of the predecessor to
IPS Publishing, Inc., a wholly-owned subsidiary of the
Company ("IPS"). From June 1997 until October 1997, Mr.
Welch served as a consultant to IPS, and since November
1997, he has worked for the Company on special projects.
From August 1996 until June 1997, Mr. Welch served as the
Chief Executive Officer of IPS, and for the 15 years prior
thereto, he served as the President of its predecessor. Mr.
Welch is also the founder and Chief Executive Officer of
Curriculum Technologies, Inc., a firm specializing in
multi-media compact disk development for the adult literacy
and English as a second language markets. Mr. Welch holds a
bachelors degree in journalism from the University of
Wisconsin.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
NAME OF OFFICER OFFICE
--------------- ------
<S> <C>
Perry S. Akins Perry S. Akins has been a Director of the Company since
Age 57 September 1997. From 1966 to the present, Mr. Akins has been
employed by ELS Educational Services, Inc. ("ELS") (formerly
known as Washington Educational Research Associates, Inc.)
in various capacities. He is currently the President of ELS
and has served in that position since 1977. ELS teaches
English as a second language to students and professionals
at its various ELS Language Centers in the United States and
abroad. ELS also publishes and distributes English as a
second language materials worldwide. Mr. Akins holds a
bachelors degree in Russian language and history and a
masters degree in education with a minor in Russian language
from Southern Illinois University.
John H. Grunewald Mr. Grunewald has been a Director of the Company since
Age 61 September 1997. From September 1993 to January 1997, Mr.
Grunewald served as the Executive Vice President, Chief
Financial Officer and Secretary of Polaris Industries Inc.,
a manufacturer of snowmobiles, all-terrain vehicles and
personal watercraft. From June 1977 until June 1993, Mr.
Grunewald served as the Vice President of Finance, Chief
Financial Officer and Secretary of Pentair, Inc., a
diversified manufacturing company. Mr. Grunewald currently
serves as a director of the Nash Finch Company, a wholesale
food distributor, Braun Engineering, an environmental
engineering company, Hydrobikes, Inc., a manufacturer of
recreational water bikes, and Kinnard Investments, an
investment banking firm. Mr. Grunewald also serves as the
Chairman of the Board of Rise, Inc., a charitable
institution providing occupations for handicapped and
disabled children, and as a member of the Board of Governors
of the Bethel College Foundation. Mr. Grunewald holds a
bachelors degree in business from St. Cloud State University
and an MBA in business finance from the University of
Minnesota.
</TABLE>
The Board of Directors of the Company has standing Compensation and Audit
Committees. The Board of Directors does not have a Nominating Committee. The
Board of Directors held one meeting in 1997. Each director attended at least 75%
of the meetings of the Board of Directors held during the period for which he or
she served on the Board, and each director attended at least 75% of the meetings
of the Board Committees on which the director served in 1997.
The Compensation Committee is responsible for making recommendations to the
Board of Directors concerning compensation levels of executive officers of the
Company and for administering the Company's executive compensation plans,
including the 1997 Stock Incentive Plan. The members of the Compensation
Committee are Messrs. Akins (Chairman) and Grunewald, neither of whom is an
employee of the Company. The Compensation Committee held two meetings in 1997.
The Audit Committee is responsible for nominating the Company's independent
auditors, reviewing the scope, results and costs of the audit with the Company's
independent auditors and reviewing the financial statements of the Company to
ensure full compliance with regulatory requirements and full disclosure of
necessary information to the Company's shareholders. The members of the Audit
Committee are Messrs. Grunewald (Chairman) and Akins and Terrance D. Paul. The
Audit Committee held one meeting in 1997.
5
<PAGE> 8
TRANSACTIONS BETWEEN MANAGEMENT AND THE COMPANY
Pursuant to an Asset Purchase Agreement dated as of August 1, 1996, as
subsequently amended as of February 25, 1997 (the "Asset Purchase Agreement"),
by and among Welch Publishing, Inc. ("Welch Publishing"), IPS and Timothy P.
Welch, individually and as sole trustee of the Timothy Peter Welch Revocable
Trust (the "Welch Trust"), IPS purchased substantially all of the assets of
Welch Publishing for $5.0 million plus the assumption of certain of its
liabilities and the obligation to make certain future contingent payments in the
event of a closing of an initial public offering by the Company (the "Contingent
Payments"). IPS's obligations under the Asset Purchase Agreement have since been
assumed by the Company. Of the total purchase price, $3.1 million was paid to
the Welch Trust at closing, $1.5 million was deposited pursuant to an Escrow
Agreement, which amount was paid to the Welch Trust at the closing of the
Company's initial public offering in September 1997, and the remaining $350,000
was paid on August 1, 1997. In addition, upon the closing of the Company's
initial public offering, the Welch Trust and two employees of IPS received an
aggregate of 31,250 shares of Common Stock from the Company in satisfaction of
the Company's obligations with respect to the Contingent Payments. The Welch
Trust, of which Mr. Welch is the trustee and sole beneficiary, received 28,316
of these shares of Common Stock. Mr. Welch purchased $500,000 of Common Stock in
the Company's initial public offering pursuant to an understanding with the
Company.
In order to facilitate the purchase of the assets of the IPS business and
to provide working capital to IPS after the acquisition, Judith Paul and
Terrance Paul each (i) made a capital contribution of $100,000 to IPS, and (ii)
loaned IPS $2.35 million. In connection with the loans to IPS, IPS issued each
of the Pauls a promissory note in the principal amount of $2.35 million and
bearing interest at an annual rate of 6.5%. All amounts due under these notes
were paid on October 6, 1997.
Effective January 2, 1997, Judith Paul and Terrance Paul contributed all of
the outstanding stock of IPS and the Institute to ALS in return for an aggregate
of 319,948 shares of Common Stock.
In August 1997, the Company entered into an agreement with Judith Paul,
Terrance Paul and Mark J. Bradley, as trustee of the Terrance and Judith Paul
Descendants' Trust (collectively, the "Shareholders"), whereby the Company
agreed to indemnify the Shareholders for the taxes attributable to any increase
in taxable income allocable to them in the event of any audit of, or other
adjustment to, the Company's tax returns. The Shareholders entered into a
similar, separate agreement with the Institute for the years during which the
Institute filed an S corporation tax return.
6
<PAGE> 9
EXECUTIVE COMPENSATION
Summary Compensation Information. The following table sets forth the
compensation for the past two years (to the extent applicable) of each of the
named executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
AWARDS PAYOUTS
--------------- ----------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#) PAYOUTS($) COMPENSATION($)(5)
- --------------------------- ---- --------- -------- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Judith A. Paul.............. 1997 $176,046 -- -- -- $5,809
Chairman of the Board 1996 156,184 -- -- -- 5,230
Terrance D. Paul............ 1997 176,046 -- -- -- 6,270
Vice Chairman of the Board 1996 156,184 -- -- -- 5,969
Michael H. Baum............. 1997 168,370 -- 46,875 $324,665(3) 6,270
Chief Executive Officer 1996 141,080 -- -- 1,849(4) 5,587
John R. Hickey.............. 1997 161,260 -- 46,875 216,443(3) 6,270
President 1996 66,923 $15,000(2) -- -- 3,207
Richard W. Fickey........... 1997 101,932 -- 12,500 27,055(3) 4,308
Secretary, Vice President
of Finance(1)
</TABLE>
- -------------------------
(1) Mr. Fickey was appointed an executive officer of the Company in January
1997. Mr. Fickey retired from his position with the Company effective
January 30, 1998.
(2) Reflects a signing bonus that was paid to Mr. Hickey when he began his
employment with the Company in July 1996.
(3) Reflects payout made by the Company upon termination of its phantom stock
plan in connection with the initial public offering of the Company's Common
Stock in September 1997.
(4) Reflects payment made in connection with shares awarded under the Company's
phantom stock plan.
(5) Reflects 401(k) plan matching amount paid by the Company.
7
<PAGE> 10
Option Grants. The following table provides information on options granted
to the named executive officers during 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS/SARS GRANT DATE
SECURITIES UNDERLYING GRANTED TO EXERCISE OR PRESENT
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION VALUE
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(3) DATE ($)(4)
---- --------------------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Judith A. Paul................. -- -- -- -- --
Terrance D. Paul............... -- -- -- -- --
Michael H. Baum................ 46,875 21.2% $16.00 9/10/07 $512,344
John R. Hickey................. 46,875 21.2 16.00 9/10/07 512,344
Richard W. Fickey.............. 12,500(2) 5.6 16.00 1/30/98(2) 136,625
</TABLE>
- -------------------------
(1) Except as otherwise noted, the vesting schedule for options is 25% per year
with each option being fully exercisable four years from the date of grant.
(2) Upon Mr. Fickey's retirement in January 1998, the options granted to him
expired.
(3) All options have an exercise price equal to 100% of the fair market of the
Company's Common Stock on the date of grant.
(4) The grant date present values were determined using the Black-Scholes model
with the following common assumptions: a 10 year expected period of time to
exercise; a risk-free rate of return of 6.35%; an expected dividend yield of
0%; and a volatility factor of 48.14%.
Option Exercises. The following table provides information on options
exercised during 1997, and options held at year end, by the named executive
officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FY- OPTIONS/SARS
SHARES END(#) AT FY-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Judith A. Paul............ -- -- -- -- -- --
Terrance D. Paul.......... -- -- -- -- -- --
Michael H. Baum........... -- -- -- 46,875 -- $251,953
John R. Hickey............ -- -- -- 46,875 -- 251,953
Richard W. Fickey......... -- -- -- 12,500 -- 67,188
</TABLE>
- -------------------------
(1) For valuation purposes, a December 31, 1997 market price of $21.375 was
used.
8
<PAGE> 11
LTIP Awards. The following table provides information on long-term
incentive plan awards to the named executive officers in 1997.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES, PERFORMANCE OR OTHER PERIOD
NAME UNITS OR OTHER RIGHTS(#) UNTIL MATURATION OR PAYOUT(1)
- ---- ------------------------ -----------------------------
<S> <C> <C>
Judith A. Paul.................................... -- --
Terrance D. Paul.................................. -- --
Michael H. Baum................................... 20 --
John R. Hickey.................................... 40 --
Richard W. Fickey................................. 10 --
</TABLE>
- -------------------------
(1) The LTIP awards set forth above were made in connection with the Company's
phantom stock plan. Under the plan, each share of phantom stock granted
entitled the owner of such share to an annual payment equal to 0.001% of the
Company's net profits before taxes. Upon the occurrence of certain
"triggering events," including the effectiveness of a registration statement
filed in connection with an initial public offering of Common Stock, each
share of phantom stock entitled the holder thereof to a payment equal to
.001% of the market capitalization of the Company immediately after
completion of the public offering. As a result of the Company's initial
public offering in September 1997, the phantom stock plan was terminated and
payments of $324,665, $216,443 and $27,055 were made to Messrs. Baum, Hickey
and Fickey, respectively.
9
<PAGE> 12
EMPLOYMENT AGREEMENTS
The Company has not entered into employment agreements with any of the
named executive officers. However, IPS, one of the Company's wholly-owned
subsidiaries, has entered into an employment agreement with Timothy Welch. This
agreement was executed in connection with the Company's acquisition of
substantially all of the assets of the IPS business on August 1, 1996. Pursuant
to such agreement, Mr. Welch agreed to serve as IPS's Chief Executive Officer
and to serve as a member of the Board of Directors of both IPS and the Company,
subject to shareholder approval, for the term of his employment agreement. The
employment agreement has a term of two years and originally provided for an
annual salary of $125,000. Effective June 1, 1997, Mr. Welch resigned as Chief
Executive Officer of IPS; however, the employment agreement was not terminated.
From June 1, 1997 until October 31, 1997, Mr. Welch continued to receive his
regular salary under the agreement for his services as a consultant to IPS.
Effective November 1, 1997, Mr. Welch agreed to work for the Company on special
projects. His annual salary was reduced at that time to $75,000. This revised
arrangement will terminate on August 1, 1998 (the termination date of the
employment agreement). With the exception of Mr. Welch's duties and his salary,
all other terms of the original employment agreement remain unchanged. For his
services to the Company during 1997, Mr. Welch received $122,827. Under the
employment agreement, Mr. Welch is entitled to receive such benefits as are
generally available to executive employees of the Company, including deferred
compensation under certain employee benefit plans adopted by the Company, and to
participate in such stock-based incentive plans as the Company may adopt,
including the 1997 Stock Incentive Plan. In 1997, Mr. Welch was awarded options
under the 1997 Stock Incentive Plan to purchase an aggregate of 15,625 shares of
Common Stock at $16 per share, which options vest 25% per year and expire ten
years from the date of grant. In the event Mr. Welch's employment terminates
before these options fully vest, such options will become immediately
exercisable, assuming the non-competition provisions are complied with. Mr.
Welch received a payment of $135,277 in September 1997 in connection with the
termination of the Company's phantom stock plan.
NON-EMPLOYEE DIRECTOR COMPENSATION
Directors of the Company who are not employees receive a fee of $1,000 for
each Board meeting which they attend and $500 for each Committee meeting which
they attend, plus out-of-pocket expenses incurred in connection with attendance
at each such meeting. In addition, upon completion of the Company's initial
public offering in September 1997, each non-employee director received options
under the 1997 Stock Incentive Plan to purchase a total of 5,000 shares of
Common Stock at the initial public offering price of $16.00 per share, which
options vest 50% after one year and 50% after two years. The Company will grant
an additional 3,000 shares to each such director at the conclusion of each of
the first and second years of service with the Company (i.e., 6,000 shares total
per director), both of which grants have two year vesting schedules.
COMPENSATION COMMITTEE REPORT
The Compensation Committee was established after completion of the
Company's initial public offering in September 1997. The Compensation Committee
consists of Messrs. Akins (Chairman) and Grunewald, neither of whom is an
employee of the Company. The Compensation Committee is responsible for making
recommendations to the Board concerning the compensation levels of the executive
officers of the Company. The Compensation Committee also administers the
Company's 1997 Stock Incentive Plan and determines awards to be made under such
plan to the Company's executive officers and to other eligible individuals. It
is
10
<PAGE> 13
currently expected that the Compensation Committee will review compensation
programs for executive officers annually, commencing in the fall of 1998.
With respect to 1997, virtually all of the compensation decisions for
executive officers, including base salary levels and stock option awards for Mr.
Baum, were made by the Company's Board of Directors prior to the completion of
the initial public offering. The Compensation Committee did, however, approve
increases in the base salaries of each of Ms. Paul, Mr. Paul and Mr. Baum in the
amount of $10,000 effective August 25, 1997. These increases were recommended by
management and awarded on the basis of the Company's performance and the
performance of each of the executives. None of the Company's executive officers
have entered into employment agreements with the Company.
Described below are the different forms of compensation, both short and
long-term, that the Compensation Committee may consider in making future
recommendations to the Board.
Base Salary. The Compensation Committee intends to set (and periodically
adjust) the base salaries of the Company's executive officers at levels designed
to attract and retain highly qualified individuals. The Compensation Committee
expects to review information on the compensation levels of comparable public
companies and to consider that information together with the executives' and the
Company's performance in determining salary levels.
Bonus Compensation. Historically, the Company has not had an established
bonus program for its executive officers. The Compensation Committee expects to
review all of the Company's compensation programs for executive officers to
determine if such programs are furthering the long-term interests of the Company
and its shareholders.
Equity Based Compensation. The Company adopted the 1997 Stock Incentive
Plan in connection with the Company's initial public offering. The Compensation
Committee expects that stock option grants will be the primary form of long-term
incentive compensation for the Company's executive officers. The Compensation
Committee believes stock options are an effective means of incenting senior
management to increase the long-term value of the Company's Common Stock.
In making compensation decisions, it is the Compensation Committee's
current intention to recommend plans and awards which will meet the requirements
for deductibility for tax purposes under Section 162(m) of the Internal Revenue
Code of 1986, as amended.
THE COMPENSATION COMMITTEE:
Perry S. Akins, Chairman John H. Grunewald
11
<PAGE> 14
PERFORMANCE GRAPH
The following graph compares the total stockholder return on the Company's
Common Stock since the Company's initial public offering on September 25, 1997
with that of the Nasdaq Stock Market Index and a Company constructed peer group
index. The issuers included in the peer group index are Apollo Group, Inc.
(APOL), CBT Group PLC (CBTSY), Computer Learning Centers, Inc. (CLCX), Learning
Tree International, Inc. (LTRE), Sylvan Learning Systems, Inc. (SLVN), The
Learning Company, Inc. (TLC), Education Management Corporation (EDMC) and TRO
Learning, Inc. (TUTR). The total return calculations set forth below assume $100
invested on September 25, 1997, with reinvestment of dividends into additional
shares of the same class of securities at the frequency with which dividends
were paid on such securities through December 31, 1997. Since the Company
effected its initial public offering in September 1997, the information in the
graph is provided at month end intervals. The stock price performance shown in
the graph below should not be considered indicative of potential future stock
price performance.
COMPARISON OF 3 MONTH CUMULATIVE TOTAL RETURN*
AMONG ADVANTAGE LEARNING SYSTEMS, INC., THE NASDAQ STOCK MARKET
(U.S.) INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
ADVANTAGE NASDAQ
LEARNING STOCK
MEASUREMENT PERIOD SYSTEMS, PEER MARKET
(FISCAL YEAR COVERED) INC. GROUP (U.S.)
<S> <C> <C> <C>
9/25/97 100 100 100
9/97 158 105 100
10/97 158 109 95
11/97 142 104 96
12/97 134 111 94
</TABLE>
* $100 invested on 9/25/97 in Stock or Index -- including reinvestment of
dividends. Fiscal year ending December 31.
SUBMISSION OF SHAREHOLDER PROPOSALS
In accordance with the Company's Amended and Restated By-Laws, nominations,
other than by or at the direction of the Board of Directors, of candidates for
election as directors at the 1999 Annual Meeting of
12
<PAGE> 15
Shareholders and any other shareholder proposed business to be brought before
the 1999 Annual Meeting of Shareholders must be submitted to the Company not
later than December 29, 1998. Shareholder proposed nominations and other
shareholder proposed business must be made in accordance with the Company's
Amended and Restated By-Laws which provide, among other things, that shareholder
proposed nominations must be accompanied by certain information concerning the
nominee and the shareholder submitting the nomination, and that shareholder
proposed business must be accompanied by certain information concerning the
proposal and the shareholder submitting the proposal. To be considered for
inclusion in the proxy statement solicited by the Board of Directors,
shareholder proposals for consideration at the 1999 Annual Meeting of
Shareholders of the Company must be received by the Company at its principal
executive offices, 2911 Peach Street, Wisconsin Rapids, Wisconsin 54495-8036 on
or before November 17, 1998. Proposals should be directed to Mr. Timothy
Sherlock, Secretary. To avoid disputes as to the date of receipt, it is
suggested that any shareholder proposal be submitted by certified mail, return
receipt requested.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has selected Arthur Andersen LLP as the Company's independent
auditors for the fiscal year ending December 31, 1998. Representatives of Arthur
Andersen LLP will be present at the Annual Meeting to make any statement they
may desire and to respond to questions from shareholders.
PENDING LEGAL PROCEEDINGS
No director or executive officer of the Company is an adverse party or has
an interest adverse to the Company or its subsidiaries in any material pending
legal proceeding.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, among others, to file reports with the Securities and
Exchange Commission disclosing their ownership, and changes in their ownership,
of stock in the Company. Copies of these reports must also be furnished to the
Company. Based solely on a review of these copies, the Company believes that
during 1997, all filing requirements were complied with, except that Richard W.
Fickey filed one late report.
OTHER MATTERS
Although management is not aware of any other matters that may come before
the Annual Meeting, if any such matters should be presented, the persons named
in the accompanying proxy intend to vote such proxy in accordance with their
best judgment.
Shareholders may obtain a copy of the Company's Annual Report as filed on
Form 10-K at no cost by writing to Mr. Timothy Sherlock, Secretary, Advantage
Learning Systems, Inc., 2911 Peach Street, Wisconsin Rapids, Wisconsin
54495-8036.
By Order of the Board of Directors,
Timothy Sherlock, Secretary
13
<PAGE> 16
PROXY CARD
ADVANTAGE LEARNING SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Michael H. Baum and John R. Hickey, and each of
them, as proxies, each with the power to appoint his substitute, and authorizes
each of them to represent and to vote, as designated below, all of the shares
of stock of Advantage Learning Systems, Inc. held of record by the undersigned
on March 9, 1998 at the 1998 Annual Meeting of Shareholders of Advantage
Learning Systems, Inc. to be held on April 28, 1998 or at any adjournment
thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF ALL NOMINEES FOR DIRECTORS.
(Detach below and return using the envelope provided.)
<PAGE> 17
<TABLE>
<S><C>
ADVANTAGE LEARNING SYSTEMS, INC. 1998 ANNUAL MEETING
1. ELECTION OF DIRECTORS:
(To serve until the 1999 1-Judith A. Paul FOR all nominees WITHHOLD AUTHORITY
Annual Meeting and until 2-Terrance D. Paul listed to the left to vote for all
their successors are 3-Michael H. Baum (except as specified nominees listed
elected and qualified) 4-John R. Hickey below). to the left.
5-Timothy P. Welch
6-Perry S. Akins
7-John H. Grunewald
(Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right.
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
No. of Shares ________
Date: _______________________
Check appropriate box
Indicate changes below:
_____________________________________
(Signature of Shareholder)
Address Change? Name Change?
________________________________________________________
(Signature of Shareholder - if held jointly)
Please sign exactly as name appears hereon.
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.
</TABLE>
