<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[ ] 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 Rule 14a-11(c) or Rule 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:
- --------------------------------------------------------------------------------
<PAGE> 2
ADVANTAGE LEARNING SYSTEMS, INC.
2911 PEACH STREET
WISCONSIN RAPIDS, WISCONSIN 54495-8036
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 19, 2000
TO THE SHAREHOLDERS OF ADVANTAGE LEARNING SYSTEMS, INC.:
The 2000 Annual Meeting of Shareholders of Advantage Learning Systems, Inc.
will be held at the Company's offices, 2911 Peach Street, Wisconsin Rapids,
Wisconsin, on Wednesday, April 19, 2000 at 1:00 p.m., local time, for the
following purposes:
(1) To elect nine directors to serve until the 2001 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 February 28, 2000 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 CARD 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.
Steven A. Schmidt, Secretary
March 10, 2000
<PAGE> 3
ADVANTAGE LEARNING SYSTEMS, INC.
2911 PEACH STREET
WISCONSIN RAPIDS, WISCONSIN 54495-8036
MARCH 10, 2000
PROXY STATEMENT
Unless the context requires otherwise, all references to "the Company,"
"we," "us" or "our" refers to Advantage Learning Systems, Inc., a Wisconsin
corporation, and its consolidated subsidiaries. Except as otherwise indicated,
all share data has been adjusted for a two-for-one stock split in the form of a
stock dividend which was payable on February 26, 1999.
The enclosed proxy card is solicited by the Board of Directors of the
Company for use at the Annual Meeting of Shareholders to be held on Wednesday,
April 19, 2000 (the "Annual Meeting"). At the Annual Meeting, our shareholders
will elect nine directors, each of whom will hold office until April 2001 and
until his or her successor is duly elected and qualified.
The expense of printing and mailing proxy materials will be borne by us, as
will the expenses involved in forwarding materials to beneficial owners of our
common stock, $0.01 par value per share (the "Common Stock"), held in the name
of another person. No solicitation other than by mail is contemplated, except
that officers or employees of the Company may solicit the return of proxies from
certain shareholders by telephone. This proxy statement and the accompanying
proxy card are being sent to our shareholders commencing on or about March 10,
2000.
Only shareholders of record at the close of business on February 28, 2000
(the "Record Date") are entitled to notice of and to vote the shares of Common
Stock of the Company registered in their name at the Annual Meeting. As of the
Record Date, we had outstanding 34,214,773 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 card 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 OUR
COMMON STOCK ENTITLED TO VOTE AT A MEETING AT WHICH A QUORUM IS PRESENT. IN
OTHER WORDS, THE NINE DIRECTORS WHO RECEIVE THE LARGEST NUMBER OF VOTES WILL BE
ELECTED AS DIRECTORS. ANY SHARES NOT VOTED, WHETHER BY WITHHELD AUTHORITY,
BROKER NON-VOTES 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 (unless otherwise
indicated) information regarding the beneficial ownership of shares of Common
Stock by (i) each director and nominee for director, the Chief Executive Officer
and the next three most highly compensated executive officers of the Company
whose total annual compensation exceeded $100,000 last year (the "named
executive officers"), (ii) each person believed by us 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, P.O. Box 8036, 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............................................. 12,323,133(2) 36.0%
Terrance D. Paul........................................... 12,323,133(3) 36.0
Michael H. Baum............................................ 78,182(4) *
John R. Hickey............................................. 65,148(5) *
Timothy P. Welch........................................... 62,056(6) *
Perry S. Akins............................................. 18,000(7) *
John H. Grunewald.......................................... 13,000(8) *
Gordon H. Gunnlaugsson..................................... 2,000 *
Harold E. Jordan........................................... 1,000 *
All directors and executive officers as a group (10
persons)................................................. 24,857,752(9) 72.4
Mark J. Bradley, as Trustee of the Terrance and Judith Paul
Descendants' Trust....................................... 1,928,431(10) 5.6
</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 27,900 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. Also includes options for 6,431 shares of Common Stock
which are currently exercisable. 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 27,900 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. Also includes options for 6,431 shares of Common Stock
which are currently exercisable. 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) Includes options for 46,520 shares of Common Stock which are currently
exercisable.
(5) Includes options for 42,520 shares of Common Stock which are currently
exercisable.
(6) Includes 9,400 shares of Common Stock held by a family trust, of which Mr.
Welch is the trustee.
(7) Includes 5,000 shares of Common Stock held by a family trust, of which Mr.
Akins is the trustee. Also includes options for 3,000 shares of Common
Stock which are currently exercisable.
2
<PAGE> 5
(8) Includes options for 3,000 shares of Common Stock which are currently
exercisable. Mr. Grunewald disclaims beneficial ownership of 1,000 of the
shares of Common Stock indicated above, as such shares are held of record
by his wife.
(9) Includes options for 107,902 shares of Common Stock which are currently
exercisable.
(10) Based on information contained in a Schedule 13G reporting ownership as of
December 31, 1999. Includes 430 shares of Common Stock held directly in the
Trustee's name and 315 shares of Common Stock held in an account for the
Trustee's minor child. The address of the Trustee of the Terrance and
Judith Paul Descendants' Trust is 500 Third Street, Suite 700, Wausau,
Wisconsin 54403.
ELECTION OF DIRECTORS
The number of directors constituting the whole Board of Directors is
currently fixed at seven. The Board of Directors proposes to increase the size
of the Board to nine, and has accordingly selected the seven members currently
serving on the Board, plus two additional persons, as nominees for election at
the 2000 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 card will vote for the election of another person or persons as the
Board of Directors recommends.
NOMINEES STANDING FOR ELECTION
<TABLE>
<CAPTION>
NAME AND AGE
OF DIRECTOR OFFICE
------------ ------
<S> <C>
Judith A. Paul Ms. Paul is the co-founder of the Company and has been
Age 53 Chairman of the Board of Directors since 1986. Ms. Paul acts
as the Company's spokesperson and coordinates our public
relations and customer communication policies. Ms. Paul is a
leading teacher advocate, an education activist and the
Executive Editor of Horizons, a magazine published by the
Institute for Academic Excellence, Inc., one of our
wholly-owned subsidiaries (the "Institute"). Ms. Paul serves
on the Board of Trustees of Lawrence University, the
Advisory Board of the University of Wisconsin Children's
Hospital and the Board of Directors of the Community
Foundation of South Wood County. Ms. Paul holds a bachelors
degree in elementary education from the University of
Illinois.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
NAME AND AGE
OF DIRECTOR OFFICE
------------ ------
<S> <C>
Terrance D. Paul Mr. Paul is the co-founder of the Company and has been Vice
Age 53 Chairman of the Board of Directors since July 1996. Mr. Paul
is primarily responsible for our long-term strategic
planning and new product development strategy. He
conceptualized and led the development of Accelerated
Math(TM), STAR Reading(TM), STAR Math(TM) and
Renaissance(TM) professional development. Mr. Paul
coordinates the research activities conducted by the
Institute, and supervises the research activities of
Generation21 Learning Systems, LLC, which is one of our
wholly-owned subsidiaries. From November 1995 until July
1996, Mr. Paul served as our 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 systems. Mr. Paul has authored
numerous research reports, including Patterns of Reading
Practice (1996) and Theoretical Foundations of Learning
Information Systems (1997). Mr. Paul holds a law degree from
the University of Illinois and an MBA from Bradley
University. Terrance Paul is Judith Paul's husband.
Michael H. Baum Mr. Baum has been Chief Executive Officer of the Company
Age 52 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.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
NAME AND AGE
OF DIRECTOR OFFICE
------------ ------
<S> <C>
John R. Hickey Mr. Hickey has been President of the Company since July 1996
Age 44 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 Mr. Welch has been a Director of the Company since August
Age 57 1996. Mr. Welch is the founder of the predecessor to IPS
Publishing, Inc., which is one of our wholly-owned
subsidiaries ("IPS"). From June 1997 until October 1997, Mr.
Welch served as a consultant to IPS, and from November 1997
until August 1998, he 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>
5
<PAGE> 8
<TABLE>
<CAPTION>
NAME AND AGE
OF DIRECTOR OFFICE
------------ ------
<S> <C>
Perry S. Akins Mr. Akins has been a Director of the Company since September
Age 59 1997. From 1966 to September 1998, Mr. Akins was employed by
ELS Educational Services, Inc. ("ELS") (formerly known as
Washington Educational Research Associates, Inc.). He served
as President of ELS from 1977 until 1998. From 1997 until
his retirement in 1998, Mr. Akins also served as Chief
Executive Officer of ELS. Mr. Akins presently works for ELS
pursuant to a consulting agreement which continues through
December 2000. 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 currently serves as a director of
Chocolates a la Carte, Inc., a manufacturer of specialty
chocolates for hotels and restaurants, Digital Carpenters, a
web site developer, Western Overseas Corporation, a customs
brokerage service, and EducationConnect, LLC, a web-based
Internet company for colleges and student applicants. 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 63 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, Restaurant Technologies, Inc., a supplier
of full service cooking oil management systems to
restaurants, and Kinnard Investments, an investment banking
firm. Mr. Grunewald also serves on 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.
Gordon H. Gunnlaugsson Since 1987, Mr. Gunnlaugsson has served as the Executive
Age 55 Vice President and Chief Financial Officer of Marshall &
Ilsley Corporation, a bank holding company headquartered in
Milwaukee, Wisconsin ("M&I"). In addition, Mr. Gunnlaugsson
has served as a member of the Board of Directors of M&I
since February 1994, and has been the Vice President of M&I
Marshall & Ilsley Bank, which is a subsidiary of M&I, since
1976. Mr. Gunnlaugsson serves as the Chairman of the
Milwaukee Economics Development Commission, and on the Board
of Directors of Luther Manor, Forward Wisconsin, Inc., Grede
Foundries, Inc. and West Bend Mutual Insurance Company. Mr.
Gunnlaugsson holds a bachelors degree in business and an MBA
from the University of Wisconsin, and is a Certified Public
Accountant.
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
NAME AND AGE
OF DIRECTOR OFFICE
------------ ------
<S> <C>
Harold E. Jordan Since December 1990, Mr. Jordan has served as the President
Age 49 and Chief Executive Officer of World Computer Systems, Inc.,
a computer programming services company, and from January
1986 until December 1990, he served as its Executive Vice
President. In addition, since October 1997, Mr. Jordan has
served as the President and Chief Executive Officer of
Madras Packaging, L.L.C., a plastic molding company. From
May 1987 until December 1996, Mr. Jordan practiced law with
Jordan & Keys, a law firm which he founded, and since
January 1997, has been of counsel to the firm. Mr. Jordan
serves as the Chairman of the Board of Trustees of Lawrence
University, a member of the Board of Visitors of the
University of Wisconsin Law School and a member of the Board
of Directors of Paramount Theater. Mr. Jordan holds a
bachelors degree from Lawrence University and a law degree
from the University of Wisconsin Law School.
</TABLE>
The Board of Directors has standing Compensation and Audit Committees. The
Board of Directors does not have a Nominating Committee. The Board of Directors
held four meetings in 1999. 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 1999.
The Compensation Committee is responsible for making recommendations to the
Board of Directors concerning compensation levels of our executive officers and
for administering our 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 four meetings in 1999.
The Audit Committee is responsible for selecting our independent auditors,
reviewing the scope, results and costs of the audit with our independent
auditors and reviewing our financial statements to ensure full compliance with
regulatory requirements and full disclosure of necessary information to our
shareholders. The members of the Audit Committee are Messrs. Grunewald
(Chairman), Akins and Paul. The Audit Committee held four meetings in 1999.
7
<PAGE> 10
EXECUTIVE COMPENSATION
Summary Compensation Information. The following table sets forth the
compensation for the past three years for the named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------
AWARDS PAYOUTS
ANNUAL ------------------ ----------
COMPENSATION SECURITIES
------------ UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) OPTIONS/SARS(#)(1) PAYOUTS($) COMPENSATION($)(3)
- --------------------------- ---- --------- ------------------ ---------- ------------------
<S> <C> <C> <C> <C> <C>
Judith A. Paul.............. 1999 $191,173 35,654 -- $6,600
Chairman of the Board 1998 181,186 25,724 -- 6,600
1997 176,046 -- -- 5,809
Terrance D. Paul............ 1999 191,173 35,654 -- 6,600
Vice Chairman of the Board 1998 181,186 25,724 -- 6,600
1997 176,046 -- -- 6,270
Michael H. Baum............. 1999 185,807 71,307 -- 6,600
Chief Executive Officer 1998 164,873 62,578 -- 6,509
1997 168,370 93,750 $324,665(2) 6,270
John R. Hickey.............. 1999 180,968 71,307 -- 6,600
President 1998 158,183 62,578 -- 6,244
1997 161,260 93,750 216,443(2) 6,270
</TABLE>
- -------------------------
(1) Reflects options granted under our 1997 Stock Incentive Plan.
(2) Reflects payout made by the Company upon termination of our phantom stock
plan in connection with our initial public offering in September 1997.
(3) Reflects 401(k) plan matching amount contributed by the Company.
8
<PAGE> 11
Option Grants. The following table provides information on options granted
to the named executive officers during 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2) DATE VALUE($)(3)
---- -------------------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Judith A. Paul................ 6,623 1.03% $ 37.75 03/01/09 $191,603
6,667 1.04 18.75 06/14/09 99,938
5,780 0.90 21.625 09/01/09 102,884
5,714 0.89 21.875 10/20/09 103,423
10,870 1.69 11.50 12/20/09 111,744
Terrance D. Paul.............. 6,623 1.03 37.75 03/01/09 191,603
6,667 1.04 18.75 06/14/09 99,938
5,780 0.90 21.625 09/01/09 102,884
5,714 0.89 21.875 10/20/09 103,423
10,870 1.69 11.50 12/20/09 111,744
Michael H. Baum............... 13,245 2.06 37.75 03/01/09 383,178
13,333 2.08 18.75 06/14/09 199,862
11,561 1.80 21.625 09/01/09 205,786
11,429 1.78 21.875 10/20/09 206,865
21,739 3.38 11.50 12/20/09 223,477
John R. Hickey................ 13,245 2.06 37.75 03/01/09 383,178
13,333 2.08 18.75 06/14/09 199,862
11,561 1.80 21.625 09/01/09 205,786
11,429 1.78 21.875 10/20/09 206,865
21,739 3.38 11.50 12/20/09 223,477
</TABLE>
- -------------------------
(1) The vesting schedule for options is 25% per year with each option being
fully exercisable four years from the date of grant.
(2) All options have an exercise price equal to 100% of the fair market of the
Common Stock on the date of grant.
(3) The grant date present values were determined using the Black-Scholes model
with the following common assumptions: a 10 year expected period of time to
exercise; a weighted average risk-free rate of return of 6.23%; an expected
dividend yield of 0%; and a weighted average volatility factor of 76.73%.
9
<PAGE> 12
Option Exercises. The following table provides information on options
exercised during 1999, and options held at year end, by the named executive
officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT FY-END(#) AT FY-END($)(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Judith A. Paul............ -- -- 6,431 54,947 N/A N/A
Terrance D. Paul.......... -- -- 6,431 54,947 N/A N/A
Michael H. Baum........... 16,000 $161,500 46,520 165,115 $98,414 $149,414
John R. Hickey............ 20,000 66,250 42,520 165,115 85,664 149,414
</TABLE>
- -------------------------
(1) For valuation purposes, a December 31, 1999 market price of $11.1875 was
used.
From time to time, directors and officers of the Company and their
associates may sell shares of their Common Stock to the Company pursuant to our
stock repurchase program. The purchase price for any such sales is the
prevailing market price at the time of such sale.
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, in October 1999 each non-employee director
received options under the 1997 Stock Incentive Plan to purchase a total of
6,000 shares of Common Stock, which options vest 50% after one year and 50%
after two years.
COMPENSATION COMMITTEE REPORT
The Compensation Committee was established after completion of our 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 our executive officers. The
Compensation Committee also administers our 1997 Stock Incentive Plan, with
responsibility for determining the awards to be made under such plan to our
executive officers and to other eligible individuals. The Compensation Committee
reviews compensation programs for executive officers in July of each year, with
any changes to such compensation programs generally commencing in September of
each year. This results in compensation decisions impacting portions of two
different calendar years. For example, compensation changes effective in
September of 1999 will effect four months of 1999 and eight months of 2000.
In 1999, the Compensation Committee made compensation decisions with
respect to the base salaries of and the stock option grants to our executive
officers. We generally do not have a cash bonus program for executive officers.
In making compensation decisions, the Compensation Committee retained Towers
Perrin, an independent professional compensation consultant, to assist the
Compensation Committee in fulfilling its duties. The consultant provided, among
other things, a comparison of the compensation levels of our executive officers
with the compensation levels of executive officers of the peer group of
companies used in the
10
<PAGE> 13
performance graph. The report examined the relative revenues, duties of the
executive officers and compensation levels of the peer group of companies in
making its assessment.
Based on the consultant's report, the total annual cash compensation (base
salary plus annual incentives) of our executive officers was less than the
median total annual cash compensation of executive officers in our peer group.
However, long-term incentive compensation (i.e., stock option grants) of our
executive officers was greater than the median long-term incentive compensation
of executive officers in our peer group. The report concluded that the current
compensation of our executive officers appears reasonable from an overall cost
perspective and parallels market practice with respect to its emphasis on
long-term incentives. After reviewing the consultant's report, the Committee did
not set the compensation of our executive officers at any specific level as
compared to the peer group of companies. Also, in making its decisions, the
Committee did not assign relative weights or importance to any specific measure
of financial performance of the Company.
Base Salary. The Compensation Committee sets the base salaries of our
executive officers at levels designed to attract and retain highly qualified
individuals. Based on the consultant's report and the other information
available to it, the Committee determined to increase base salaries for our
executive officers. The Committee believes that the base salary increases were
appropriate relative to our financial performance compared with the peer group
of companies.
Equity Based Compensation. Stock option grants are the primary form of
long-term incentive compensation for our executive officers. The Compensation
Committee believes stock options are an effective means of incenting senior
management to increase the long-term value of our Common Stock. Based on the
information described above, including the consultant's report, the Committee
determined not to change the current annual dollar value of stock option grants
to executive officers (i.e., the annual dollar value of the shares subject to
option at the date of grant). In recent years, we have made semi-annual option
grants in March and September of each year. Due to market conditions, the grants
originally scheduled for all participating employees in March 2000 were made in
1999. The Committee believes that the total compensation package provided to
executive officers, including options, is appropriate relative to all factors
considered by the Committee.
CEO Compensation. In evaluating Mr. Baum's compensation, the Committee
reviewed the compensation levels for the chief executive officers of the peer
group of companies described above and the financial performance of those peer
group companies. Based on the consultant's report, Mr. Baum's salary and stock
option grants were 63% and 87% of the median salary and stock option grants,
respectively, for the chief executive officers of the peer group of companies.
As a result, the Committee determined to increase Mr. Baum's base salary and to
make no change in the annual dollar value of the annual stock option grants to
Mr. Baum. Mr. Baum's compensation was not specifically tied to any specific
financial performance criteria. The Committee believes Mr. Baum's compensation
is appropriate given our financial performance.
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 our Common
Stock since our initial public offering on September 25, 1997 with that of the
Nasdaq Stock Market Index and two peer group indices constructed by us. The
companies included in our old 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 companies included in our new peer group index are the same as
the companies included in our old peer group index, except that National
Computer Systems, Inc. (NLCS) has been substituted for The Learning Company,
Inc.
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, 1999. Since our initial public offering was
effected in September 1997, the information in the graph is provided at quarter
end intervals. The stock price performance shown in the graph below should not
be considered indicative of potential future stock price performance.
COMPARISON OF 27 MONTH CUMULATIVE TOTAL RETURN
AMONG ADVANTAGE LEARNING SYSTEMS, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX, A NEW PEER GROUP
AND AN OLD PEER GROUP
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
ADVANTAGE LEARNING NASDAQ STOCK MARKET
SYSTEMS, INC. NEW PEER GROUP OLD PEER GROUP* (U.S.)
------------------ -------------- --------------- -------------------
<S> <C> <C> <C> <C>
9/25/97 100 100 100 100
9/97 158 105 105 100
12/97 134 111 111 94
3/98 215 119 118 110
6/98 171 124 122 113
9/98 238 97 89 102
12/98 411 117 106 132
3/99 388 103 98 148
6/99 277 103 93 162
9/99 233 95 82 166
12/99 140 100 87 239
</TABLE>
- -------------------------
* The figures in the old peer group index have been restated to exclude The
Learning Company, Inc. because it was acquired during 1999 and is no longer
publicly traded.
12
<PAGE> 15
SUBMISSION OF SHAREHOLDER PROPOSALS
In accordance with our 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 2001 Annual Meeting of Shareholders and any other
shareholder proposed business to be brought before the 2001 Annual Meeting of
Shareholders must be submitted to us not later than December 20, 2000.
Shareholder proposed nominations and other shareholder proposed business must be
made in accordance with our 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 2001 Annual
Meeting of Shareholders must be received by us at our principal executive
offices, 2911 Peach Street, P.O. Box 8036, Wisconsin Rapids, Wisconsin
54495-8036 on or before November 10, 2000. Proposals should be directed to Mr.
Steven A. Schmidt, 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
We have selected Arthur Andersen LLP as our independent auditors for the
fiscal year ending December 31, 2000. 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 us in any material pending legal proceeding.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our 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 us. Based
solely on a review of these copies, we believe that during 1999, all filing
requirements were complied with, except that Judith A. Paul and Terrance D. Paul
each filed one report late.
13
<PAGE> 16
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 card intend to vote such proxy in accordance with
their best judgment.
Shareholders may obtain a copy of our Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 at no cost by writing to Mr. Steven A.
Schmidt, Secretary, Advantage Learning Systems, Inc., 2911 Peach Street, P.O.
Box 8036, Wisconsin Rapids, Wisconsin 54495-8036.
By Order of the Board of Directors,
Steven A. Schmidt, Secretary
14
<PAGE> 17
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
February 28, 2000 at the 2000 Annual Meeting of Shareholders of Advantage
Learning Systems, Inc. to be held on April 19, 2000 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> 18
Advantage Learning Systems, Inc. 2000 Annual Meeting
<TABLE>
<S><C>
1. ELECTION OF DIRECTORS:
(To serve until the 2001 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
8-Gordon H. Gunnlaugsson
9-Harold E. Jordan
</TABLE>
(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.
