<PAGE> 1
ADVANCED MARKETING SERVICES, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 24, 1997
To the Stockholders of
Advanced Marketing Services, Inc.
The Annual Meeting of Stockholders of Advanced Marketing Services, Inc.
will be held on Thursday, July 24, 1997, at 10:00 a.m., P.D.T., at 5880 Oberlin
Drive, Suite 400, San Diego, California 92121 for the following purposes:
1. To elect three Class A Directors to serve for three-year terms; and
2. To transact any other business which may properly come before the
meeting and any adjournments or postponements thereof.
A proxy statement containing information for stockholders is annexed hereto
and a copy of the Annual Report of the Company for the fiscal year ended March
31, 1997 is enclosed herewith.
The Board of Directors has fixed the close of business, June 10, 1997, as
the record date for the determination of stockholders entitled to notice of and
to vote at the meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE DATE AND
SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENVELOPE ENCLOSED
FOR THAT PURPOSE.
By the order of the Board of Directors
Charles C. Tillinghast, III
Chairman
San Diego, California
June 20, 1997
<PAGE> 2
ADVANCED MARKETING SERVICES, INC.
5880 OBERLIN DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 457-2500
------------------------
PROXY STATEMENT
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Advanced Marketing Services, Inc. ("AMS" or
the "Company"), a Delaware corporation, for use only at its Annual Meeting of
Stockholders to be held on Thursday, July 24, 1997, and any adjournments or
postponements thereof (the "Annual Meeting").
Shares may not be voted unless the signed proxy card is returned or other
specific arrangements are made to have shares represented at the meeting. Any
stockholder of record giving a proxy may revoke it at any time before it is
voted by filing with the Secretary of AMS a notice in writing revoking it, by
duly executing a proxy bearing a later date, or by attending the Annual Meeting
and expressing a desire to revoke the proxy and vote the shares in person.
Stockholders whose shares are held in street name should consult with their
brokers or other nominees concerning procedures for revocation. Subject to such
revocation, all shares represented by a properly executed proxy card will be
voted as directed by the stockholder on the proxy card. IF NO CHOICE IS
SPECIFIED, PROXIES WILL BE VOTED FOR THE PERSONS NOMINATED BY THE BOARD OF
DIRECTORS FOR ELECTION AS DIRECTORS.
In addition to soliciting proxies by mail, Company directors, officers and
other regular employees, without additional compensation, may solicit proxies
personally or by other appropriate means. The total cost of solicitation of
proxies will be borne by AMS. Although there are no formal agreements to do so,
it is anticipated that AMS will reimburse banks, brokerage houses and other
custodians, nominees and fiduciaries for their reasonable expenses in forwarding
any proxy soliciting materials to their principals.
Only stockholders of record at the close of business on Tuesday, June 10,
1997 are entitled to receive notice of and to vote at the Annual Meeting. On
June 10, 1997, AMS had outstanding 5,515,609 shares of common stock (the "Common
Stock"), which constituted all of the outstanding voting securities of AMS,
excluding 717,511 shares of the Common Stock held in treasury and not permitted
to be voted at the Annual Meeting. Each share is entitled to one vote. A
majority of the outstanding shares of Common Stock will constitute a quorum.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business but will not be
counted for purposes of determining whether a proposal has been approved, and
thus will have the effect of a "No" vote. Directors are elected by a plurality
of votes cast. Stockholders may not cumulate their votes for any one or more
nominees for election. The affirmative vote of a majority of the shares present
is required for any other items which might be submitted to the stockholders for
consideration at the Annual Meeting.
It is anticipated that this proxy statement and accompanying proxy card
will first be mailed to stockholders on or about June 20, 1997.
ELECTION OF DIRECTORS
NOMINEES AND VOTING
Pursuant to the Company's Articles of Incorporation, the Board of Directors
of the Company is divided into three classes of directors, each class to be as
nearly equal in number as possible. Directors are elected to
<PAGE> 3
serve for three-year terms, with the elections staggered by class. The Board is
currently composed of eight directors; three of whom are Class A directors, two
of whom are Class B directors and three of whom are Class C directors. At the
Annual Meeting, three Class A directors are to be elected to a three-year term
until the Annual Meeting of Stockholders to be held in 2000 and until their
successors are duly elected and qualified. The Board of Directors has nominated
each of the following incumbent Class A directors for reelection as a Class A
director:
Charles C. Tillinghast, III
Loren C. Paulsen
Michael M. Nicita
Information concerning the nominees for election as Class A directors is
set forth under the caption "Management -- Directors and Executive Officers."
The Board of Directors has no reason to believe that its nominees will be
unable or unwilling to serve if elected. However, should the nominee named
herein become unable or unwilling to accept nomination or election, the Board's
proxies will vote instead for such other person as the Board of Directors may
recommend.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ELECTION OF THE
ABOVE MENTIONED NOMINEES AS DIRECTORS.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 10, 1997 with
regard to beneficial ownership of the Common Stock by (i) persons known by the
Company to be beneficial owners of more than five percent of the Common Stock,
(ii) the directors of the Company, (iii) the executive officers named in the
Summary Compensation Table below and (iv) all executive officers and directors
as a group.
<TABLE>
<CAPTION>
COMMON STOCK PERCENT OF
NAME (AND ADDRESS(1)) BENEFICIALLY OUTSTANDING
OF BENEFICIAL OWNER OWNED COMMON STOCK
------------------------------------------------ ------------ ------------
<S> <C> <C>
Charles C. Tillinghast, III..................... 912,700(2) 16.5%
Loren C. Paulsen................................ 921,500(3) 16.7%
Kahn Brothers & Co., Inc. ...................... 616,100 11.2%
Grace & White, Inc. ............................ 563,912 10.2%
Dimensional Fund Advisors, Inc. ................ 326,700 5.9%
Jon S. Fish..................................... 62,500(4) 1.1%
Michael M. Nicita............................... 60,511(5) 1.1%
Kevan M. Lyon................................... 26,700(6) *
John S. McGee................................... 3,600(7) *
E. William Swanson, Jr.......................... 25,000(8) *
James A. Leidich................................ 23,400(9) *
Trygve E. Myhren................................ 23,000(10) *
Lynn S. Dawson.................................. 6,200(11) *
Robert F. Bartlett.............................. 6,000(11) *
All executive officers and directors as a group
(14 persons).................................. 2,017,761(12) 36.6%
</TABLE>
- ---------------
* less than 1%.
(1) The address of Messrs. Tillinghast and Paulsen is c/o Advanced Marketing
Services, Inc., 5880 Oberlin Drive, San Diego, CA 92121. The address of
Kahn Brothers & Co., Inc. is 555 Madison Avenue, New York, NY 10022. The
address of Grace & White, Inc. is 515 Madison Avenue, New York, NY 10022.
The address of Dimensional Fund Advisors, Inc. ("Dimensional") is 1299
Ocean Avenue, Santa Monica, CA 90401. Dimensional, a registered investment
advisor, is deemed to have beneficial
2
<PAGE> 4
ownership of 326,700 shares, all of which shares are held in portfolios of
DFA Investment Dimensions Group Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and DFA Participation Group Trust,
investment vehicles for qualified employee benefit plans, all of which
Dimensional Fund Advisors Inc. serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
(2) Mr. Tillinghast's shares are held of record by a Revocable Trust dated
April 7, 1988 of which Mr. and Mrs. Tillinghast are trustees. This amount
also includes 400 shares subject to options exercisable within 60 days held
by Cynthia B. Tillinghast, Assistant Secretary and a General Marketing
Manager of the Company and the wife of Mr. Tillinghast. Mr. Tillinghast
disclaims beneficial ownership of such 400 shares.
(3) Of Mr. Paulsen's shares, 854,640 are held of record by a Revocable Trust
dated May 13, 1987, the trustees of which are Mr. Paulsen and his wife, and
66,860 are held of record by an Irrevocable Trust dated August 22, 1988,
the beneficiaries of which are Mr. Paulsen's children and the trustees of
which are unrelated to Mr. Paulsen. Mr. Paulsen disclaims beneficial
ownership of the 66,860 shares held by this Irrevocable Trust.
(4) Includes 61,000 shares subject to options which are exercisable within 60
days.
(5) Includes 60,000 shares subject to options which are exercisable within 60
days.
(6) Includes 26,000 shares subject to options which are exercisable within 60
days.
(7) Includes 3,600 shares subject to options which are exercisable within 60
days.
(8) Mr. Swanson's shares are held of record by F.W. Cygnet Pension Plan, of
which Mr. Swanson is a trustee. This amount also includes 15,000 shares
subject to options which are exercisable within 60 days.
(9) Includes 3,200 shares subject to options which are exercisable within 60
days.
(10) Includes 1,000 shares held of record by Mr. Myhren's wife and 15,000 shares
subject to options which are exercisable within 60 days.
(11) Includes 6,000 shares subject to options which are exercisable within 60
days.
(12) Includes 144,350 shares subject to options which are exercisable within 60
days.
3
<PAGE> 5
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information as of June 10, 1997 with
regard to (i) each director, including the three nominees (who currently serve
as directors), and (ii) each executive officer of the Company who is neither a
director nor a nominee.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- --------------------------------------------------
<S> <C> <C>
Charles C. Tillinghast, III 60 Chairman of the Board of Directors
Michael M. Nicita 44 President, Chief Executive Officer and Director
Loren C. Paulsen 47 Executive Vice President -- Operations and
Director
Robert F. Bartlett 52 Director(1)
Lynn S. Dawson 46 Director(1)
James A. Leidich 54 Director(1)
Trygve E. Myhren 60 Director(1)
E. William Swanson, Jr. 61 Director(1)
Kenneth C. Hayes 51 Vice President -- Information Systems
Alisa R. Judge 41 Vice President -- Human Resources
Kevan M. Lyon 38 Vice President -- Merchandising
John S. McGee 35 Vice President -- Operations
Sydney J. Stanley 48 Vice President -- Product Development
Adam R. Zoldan 44 Vice President -- Marketing
</TABLE>
- ---------------
(1) Member of the Compensation and Audit Committees.
Mr. Tillinghast has served as Chairman of the Board of Directors since
November, 1994. He served as Chief Executive Officer of the Company from
November 1994 until December 31, 1996; prior thereto, Mr. Tillinghast served as
President, Chief Executive Officer and as a Director of the Company since its
inception in 1982. He served as President of Oak Tree Publications, Inc. from
1976 until 1981 and as President of CRM, a diversified publishing company, from
1971 through 1975. Mr. Tillinghast was employed by Boise Cascade Corporation for
10 years, where he served in various management positions, including Senior Vice
President from 1971 to 1973.
Mr. Nicita has served as Chief Executive Officer of the Company since
January 1, 1997 and as President, Chief Operating Officer and a Director of the
Company since November 1994. From 1978 to November 1994, he served in various
capacities at Golden-Lee Book Distributors, including MIS Director, Controller
and General Manager. In August 1995, Golden-Lee Book Distributors filed for
protection under the bankruptcy laws. Mr. Nicita was employed by Barnes & Noble
Book Stores, Inc. from 1977 to 1978. Mr. Nicita is the co-author of two books on
microcomputers and has also been a columnist for a national microcomputer
consumer magazine.
Mr. Paulsen has served as Executive Vice President -- Operations since
December 1989 and a Director of the Company since its inception in 1982. From
1982 to December 1989, Mr. Paulsen served as Vice President -- Operations of the
Company. Prior thereto, he was employed by Fed Mart Corp., a discount retail
chain, for 17 years in various capacities, including sundries and book buyer.
Mr. Bartlett has been a Director of the Company since April 1994. He is
presently Managing Director of Combined Resources International, a picture frame
manufacturing company. Mr. Bartlett has many years of experience in the
warehouse club industry, having served as Vice President, Divisional Manager of
Anderson Chamberlain, a warehouse club manufacturer's representative firm
(1993-1995); Senior Vice President of Merchandising, Operations, Traffic and
Distribution, SourceClub, Inc. (1991-1993); Executive Vice President of
Merchandising and Distribution, The Wholesale Club, Inc. (1990-1991); and
Executive Vice President of Merchandising, Traffic and Distribution, The Price
Club (1989-1990).
4
<PAGE> 6
Ms. Dawson has been a Director of the Company since April 1994. She is
presently employed as Vice President and National Sales Manager for B.H.
Smith/Samsonite. Ms. Dawson has many years of experience in department store
operations, having served in a variety of positions including Vice President,
Divisional Merchandise Manager with Foley's Department Store (1990-1991); Senior
Vice President, Broadway Department Store (1978-1990) and Buyer and Department
Manager, May Company Department Store (1972-1978).
Mr. Leidich has been a Director of the Company since November 1986. He has
served as President of Graywave, Inc., a management consulting firm, since 1983.
Since July of 1994 he has served as Chairman and Chief Executive Officer of
Bright Start, Inc., which operates child care centers. Mr. Leidich serves on the
boards of numerous privately held companies. From November 1989 to May 1993, he
served as an officer and partner in Colorado Venture Management, Inc., a venture
capital firm. Mr. Leidich was the Chairman of Children's World, Inc., a national
chain of child care centers, from 1975 to 1983. From 1980 to 1983, Mr. Leidich
was Executive Vice President of The Parker Pen Company.
Mr. Myhren has been a Director of the Company since February 1989. From
December 1990 to March 1996, he served as President and a Director of the
Providence Journal Company, a diversified media company and concurrently as
President and CEO of King Broadcasting Corporation. Since 1988 he has been
President of Myhren Media, Inc., a media investment and consultation firm. He is
a trustee of the University of Denver. His other directorships include Peapod,
Ltd., Cablelabs, Inc., J.D. Edwards, Inc., Founders Funds, Inc., Verio, Inc.,
and The Providence Journal Company. From 1975 until originally establishing
Myhren Media, Inc., he served as President and then Chairman and Chief Executive
Officer of American Television and Communications Corporation, a publicly traded
subsidiary of Time, Inc. and known today as Time/Warner Cable. From 1981 to
1991, Mr. Myhren served as a Director of the National Cable Television
Association and was its Chairman in 1986 and 1987. He has previously served as a
Director of Turner Broadcasting Systems, Inc., American TV & Communications,
Inc., Continental Cablevision, Inc., Citizen's Bank Corp., Lifespan, Inc., and
on Time's internal boards for Home Box Office, Temple-Eastex and Time Magazine
Group, and on the Federal Communications Commission's Advisory Committee on High
Definition Television.
Mr. Swanson has been a Director of the Company since April 1988. He has
served as President of F.W. Cygnet, Inc., an investment management firm, since
1986. Mr. Swanson was the President and Chief Executive Officer from 1982 to
1986 of St. Francis Associates, a private investment management firm in San
Francisco. From 1975 through 1982, he was employed by The Parker Pen Company,
serving in various capacities, including President, Chief Executive Officer and
Chief Operating Officer.
Mr. Hayes joined the Company in 1986 as Director of Management Information
Systems. He was promoted to Vice President -- Information Systems in July 1991.
From 1982 until 1986, he served as Data Processing Manager for Spectragraphics
Corporation, a computer graphics manufacturing company. Prior to 1982, Mr. Hayes
served in various technical and management positions with McDonnell Douglas
Automation, San Diego Data Processing Corporation and National Semiconductor.
Ms. Judge joined the Company in May 1991 as Manager of Human Resources. She
was promoted to Director of Human Resources in October 1992 and to Vice
President -- Human Resources in July 1994. From 1986 to 1991, she worked for the
Eastridge Group, an employment/temporary agency in a variety of management
positions.
Ms. Lyon joined the Company in 1988 as Marketing Director. In December
1989, Ms. Lyon was named Vice President -- Marketing with responsibility for
leading the sales and marketing efforts with respect to the Company's major
customers. In September 1994, Ms. Lyon became Vice President -- Merchandising
and has responsibility for the Company's buying activities. From 1983 through
1988, she worked for Allergan, Inc., a pharmaceutical company, in various sales
and product management positions.
Mr. McGee joined the Company in April 1994 as Distribution Center Manager
and was promoted to Vice President -- Operations in February 1996. From February
1984 until April 1994 he held a variety of
5
<PAGE> 7
positions, including Director of Operations and Divisional General Manager with
Bindagraphics, Inc., a book bindery company.
Ms. Stanley joined the Company in November 1990 as a General Merchandise
Manager with responsibility for the juvenile book category and was promoted to
Vice President -- Product Development in November 1996. From 1974 through 1989,
Ms. Stanley was employed by the City of San Diego in a variety of professional
managerial positions for the Library Department, including assignments in
children's literature and services, branch library management and fundraising.
Mr. Zoldan joined the Company in January 1995 as Vice
President -- Marketing and has responsibility for sales and relations with the
Company's major customers. From 1988 to 1995, Mr. Zoldan was General Sales
Manager for Eastman, a division of Office Depot. Prior to 1988, he served as
General Sales Manager for Office Club (now Office Depot) (1984-1986) and
District Sales Manager for McKesson Office Products (1981-1984).
Officers serve at the discretion of the Board of Directors.
BOARD OF DIRECTORS AND COMMITTEES
Directors are elected to serve staggered three-year terms and until their
successors are duly elected and qualified. Each director who is not otherwise
employed by the Company receives an annual director's fee of $10,000 plus $1,000
for each regular Board meeting attended. In addition, each outside director is
paid $500 for attendance at each special Board and Audit, Compensation or Stock
Option Committee meeting held on dates other than the regularly scheduled Board
meetings. The Company reimburses each director for reasonable out-of-pocket
expenses incurred in his capacity as a member of the Board of Directors. No
payments are made for participation in telephone meetings of the Board of
Directors or actions taken in writing. Each director attended at least 75% of
the total number of meetings of the Board of Directors and all committees
thereof on which such director served held during the year ended March 31, 1997.
The members of the Audit Committee of the Board of Directors are Messrs.
Bartlett, Leidich, Myhren and Swanson and Ms. Dawson. The Audit Committee held
one meeting during fiscal 1997. The functions of the Audit Committee are
primarily to recommend the selection of the Company's independent public
accountants, discuss with them the scope of the audit, consider matters
pertaining to the Company's accounting policies and internal controls and
provide a means for direct communication between the independent public
accountants and the Board of Directors.
The members of the Compensation Committee of the Board of Directors are
Messrs. Bartlett, Leidich, Myhren and Swanson and Ms. Dawson. The Compensation
Committee held two meetings during fiscal 1997. The functions of the
Compensation Committee are to review and recommend changes in salaries and
bonuses of key employees and to review periodically, and make recommendations
with respect to, the compensation structure of the Company.
Effective February 6, 1997, the Company elected to have the Board of
Directors, acting as a whole, assume responsibility for administering the
Company's 1987 and 1995 Stock Option Plans. The former Stock Option Committee
held one meeting during fiscal 1997.
The Company has no nominating committee or committee performing similar
functions.
EXECUTIVE COMPENSATION
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of five outside directors. The
Compensation Committee is responsible for determining executive officer salary
and bonus compensation and determining annual contributions to the Company's
profit sharing plan. Stock option grants are determined by the Board of
Directors. The following is a report of the Compensation Committee and, as it
relates to stock options, the Board as a whole, concerning their policies and
actions in fiscal 1997 concerning executive compensation.
6
<PAGE> 8
The Company's compensation programs are designed to (a) link executive
compensation to the performance of the Company and to stockholder value as
measured by the long-term price appreciation of the Company's common stock and
(b) attract, retain and motivate employees by providing for the vesting of
certain components of compensation over a number of years.
The Company's compensation of executive officers, including its Chief
Executive Officer, consists principally of two components: (a) annual cash
compensation, generally consisting of base salary and a bonus, and (b)
long-term, stock-based compensation. The policies governing these components, as
well as the basis for determining the compensation payable to the Chief
Executive Officer, are described below.
Annual Salary and Bonus Compensation. The salaries of executive officers
are determined on the basis of, in no particular order of importance, the
responsibilities of the position held, the prior experience and compensation of
the officer, the compensation practices of competitors, as determined from
publicly available information, discussions with knowledgeable consultants and
participants in the publishing and distribution industries and other marketplace
factors such as housing and relocation requirements. The Compensation Committee
also strives to compensate each executive officer at a level which is
appropriate in relation to the compensation of other executive officers of the
Company.
Under the Company's bonus plan, cash bonuses are earned if a minimum
targeted level of net income is attained. Bonus amounts increase if higher
target net income levels are attained. The Company's net income objectives are
established by the Compensation Committee at the commencement of each fiscal
year. Because the Company did not achieve the minimum net income objectives
established by the Compensation Committee, no significant bonuses were awarded
under the Company's bonus plan to any executive officer of the Company for
fiscal 1997.
Long-Term Stock Option Compensation. The Company grants stock options to
its executive officers and other employees pursuant to its 1987 Stock Option
Plan and 1995 Stock Option Plan. The Company believes that such options help to
more closely align the interests of its management employees with the long-term
interests of its stockholders by providing an incentive for increasing
stockholder value. Moreover, such options are believed to be instrumental in
retaining employees over the longer term, since full benefits of appreciated
options cannot be realized until the end of the applicable vesting period, which
is usually five years.
During fiscal 1997, no stock options were granted to executive officers.
The Board concluded that stock options previously granted to Mr. Michael M.
Nicita adequately provide appropriate long-term incentives and, therefore,
determined not to grant additional options to him in fiscal 1997. Messrs.
Tillinghast and Paulsen, who are founders of the Company, are eligible to
receive grants of options, but their significant equity positions in the Company
are currently believed to provide them with substantial incentives to enhance
stockholder value.
CEO Compensation. The Compensation Committee establishes the base salary
and bonus, if any, payable to Mr. Michael M. Nicita, the Company's Chief
Executive Officer, since January 1, 1997, based on the same factors applicable
to executive officer compensation generally.
In March 1996, the Compensation Committee reviewed Mr. Nicita's salary and
determined that his salary would be increased to $246,750 for fiscal 1997. Mr.
Nicita's salary is believed to be below the median of salaries paid to chief
executive officers of companies which have comparable sales volumes. Because the
Company did not achieve the minimum net income objectives established by the
Compensation Committee, no bonuses were awarded under the Company's bonus plan
to Mr. Nicita for fiscal 1997.
Mr. Tillinghast served as Chief Executive Officer of the Company until
January 1, 1997. In March 1996, the Compensation Committee reviewed Mr.
Tillinghast's salary and determined that his salary would be increased to
$262,500 for fiscal 1997. Mr. Tillinghast served as Chief Executive Officer of
the Company until January 1, 1997. In order to provide for an orderly transition
in management of the Company, in July 1996 the Company and Mr. Tillinghast
entered into an Employment Agreement covering the five-year period commencing
January 1, 1997. Pursuant to the terms of the Employment Agreement, effective
January 1, 1997, Mr. Tillinghast resigned from his position as Chief Executive
Officer of the Company, which position was filled by Mr. Michael M. Nicita who
also serves as President and a Director of the Company. During the
7
<PAGE> 9
term of the Employment Agreement, Mr. Tillinghast has agreed to serve as
Chairman of the Board of Directors (if re-elected as a director by the Company's
stockholders) and to perform certain other duties and responsibilities as
requested by the Board of Directors. Mr. Tillinghast has agreed to serve the
Company on a full-time basis during 1997; thereafter, Mr. Tillinghast's services
will decrease proportionately such that during the final year of his employment,
Mr. Tillinghast will only be required to serve the Company on an approximately
half-time basis, but not less than 1,000 hours per calendar year. Under the
terms of the Employment Agreement, Mr. Tillinghast's base salary was set at
$275,000 for the first year, $225,000 for the second year, $175,000 for the
third and fourth years and $150,000 for the fifth year of this employment,
subject to adjustment by the Board of Directors. He will be entitled to
participate in any Company compensation plan and receive fringe benefits,
generally on the same basis as other senior Company executives.
Internal Revenue Code Section 162(m). Internal Revenue Code Section 162(m),
enacted in 1993, provides that a public corporation generally may not deduct
compensation in excess of $1,000,000 payable to its chief executive officer or
any of its other four most highly compensated officers. Certain
performance-based compensation is specifically exempted. Since the Compensation
Committee currently does not anticipate that any executive officer of the
Company will receive compensation in excess of the deduction limitation in
fiscal 1998, it has not yet established a policy with respect to Section 162(m).
In future years, the Compensation Committee intends to take into account the
effect of Section 162(m) if the compensation payable to an executive officer
approaches $1,000,000. However, the provisions of Section 162(m) are not
expected to preclude the award of compensation believed to be merited, even if
in excess of $1,000,000.
The tables that follow reflect the decisions included in this report.
THE COMPENSATION COMMITTEE
James A. Leidich, Chairman
Robert F. Bartlett
Lynn S. Dawson
Trygve E. Myhren
E. William Swanson, Jr.
8
<PAGE> 10
SUMMARY OF CASH AND OTHER COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services rendered in all capacities to the Company
for the fiscal years ended March 31, 1997, 1996 and 1995 of those persons who
were, at March 31, 1997, (i) the Chief Executive Officer, (ii) the four other
most highly paid executive officers of the Company (which includes the former
Chief Executive Officer) and (iii) the former Executive Vice
President -- Finance and Chief Financial Officer, (collectively the "Named
Executive Officers).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION ALL OTHER
NAME AND CAPACITY FISCAL ---------------------------- OPTIONS/ COMPENSATION
IN WHICH SERVED YEAR SALARY($)(1) BONUS($)(1) SARS(#) ($)(2)(3)
- -------------------------------- ------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Charles C. Tillinghast, III, 1997 265,635 0 0 27,118
Chairman and Chief 1996 250,010 67,350 1,000(4) 9,879
Executive Officer(5) 1995 190,008 28,000 0 7,346
Michael M. Nicita, 1997 251,658 0 0 28,087
Chief Executive Officer 1996 235,003 68,475 0 2,532
and President(5) 1995 90,436 14,000 150,000 32,612
Loren C. Paulsen, 1997 183,757 0 0 21,218
Executive Vice President -- 1996 172,965 57,975 0 10,346
Operations 1995 168,006 28,000 0 9,286
Jon S. Fish, Executive Vice 1997 178,850 0 0 82,639
President -- Finance and 1996 170,006 58,350 10,000 9,636
Chief Financial Officer(6) 1995 158,006 28,000 0 8,416
Kevan M. Lyon, 1997 137,818 446 0 18,194
Vice
President -- Merchandising 1996 130,005 43,181 5,000 9,241
1995 113,755 20,000 10,000 6,362
John S. McGee, 1997 115,004 4,444 0 49,626(7)
Vice President -- Operations 1996 -- -- -- --
1995 -- -- -- --
</TABLE>
- ---------------
(1) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned and accrued but not yet paid, including
salary amounts deferred at their election under the Company's 401(k) plan
and deferred compensation plan.
(2) The amounts indicated for fiscal 1997 include, for Messrs. Tillinghast,
Nicita, Paulsen, Fish and McGee and Ms. Lyon, respectively: profit sharing
contributions of $4,750, $4,080, $6,000, $6,000, $4,669 and $6,000
(excluding the allocable portion of accrued interest); Company matching
401(k) plan contributions of $2,369, $2,375, $2,356, $2,375, $1,416 and
$2,388; and matching contributions (excluding interest) of $20,000, $21,632,
$12,861, $14,763, $2,500 and $9,806 under the Company's recently adopted
deferred compensation plan. The deferred compensation plan permits an
eligible employee to defer up to 50% of base salary and 100% of any bonus.
The Company is obligated to contribute an amount equal to an employee's
deferral up to a stated maximum and may, at its discretion, make additional
contributions. Company contributions generally vest over a five-year period
beginning on the date of an employee's entry into the plan.
(3) The Company has determined that it is more appropriate to disclose the full
amount of the Company's matching contributions under its 401(k) plan (prior
to 1996, the Company has disclosed vested portions only) and has restated
prior year amounts accordingly.
(4) Represents options held by Cynthia B. Tillinghast, Assistant Secretary and a
General Marketing Manager of the Company. Mrs. Tillinghast is the wife of
Mr. Tillinghast.
(5) Effective January 1, 1997, Mr. Tillinghast resigned as Chief Executive
Officer of the Company and Mr. Nicita was elected to hold that additional
title by the Board of Directors.
(6) Effective March 21, 1997, Mr. Fish resigned as Executive Vice President --
Finance and Chief Financial Officer of the Company. A severance payment of
$59,501 is included in All Other Compensation above.
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<PAGE> 11
(7) Includes (i) relocation expenses of $39,166 and (ii) imputed interest of
$1,875 on a promissory note from Mr. McGee to the Company in connection with
such relocation, which amount represents the difference between the interest
rate on the note and Internal Revenue Service mandated rates.
OPTION GRANTS
The following table sets forth with respect to the Named Executive Officers
certain information concerning grants of stock options in fiscal 1997. No stock
options were granted to any Named Executive Officer in fiscal 1997. No stock
appreciation rights were granted in fiscal 1997.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL POTENTIAL REALIZED VALUE
SECURITIES OPTIONS GRANT AT ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE DATE STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES OR BASE MARKET FOR OPTION TERM(1)
GRANTED IN FISCAL PRICE PRICE EXPIRATION --------------------------
($) YEAR ($/SH) ($/SH) DATE 0%($) 5%($) 10%($)
---------- ----------- -------- ------ ---------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles C. Tillinghast, III 0 -- -- -- -- -- -- --
Michael M. Nicita 0 -- -- -- -- -- -- --
Loren C. Paulsen 0 -- -- -- -- -- -- --
Jon S. Fish 0 -- -- -- -- -- -- --
Kevan M. Lyon 0 -- -- -- -- -- -- --
John S. McGee 0 -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Amounts shown represent the potential value of granted options if the
assumed annual rates of stock appreciation are maintained over the 10-year
terms of the granted options. The assumed rates of appreciation are
established by regulation and are not intended to be a forecast of the
Company's performance or to represent management's expectations with respect
to the appreciation, if any, of the Common Stock.
OPTION EXERCISES AND HOLDINGS
The following table sets forth with respect to the Named Executive Officers
information concerning the exercise of stock options during fiscal 1997 and
unexercised options held as of the end of each fiscal year. The Company has
never granted stock appreciation rights.
AGGREGATED OPTION EXERCISES AND
FISCAL 1997 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS AT THE-MONEY OPTIONS/SARS AT
FISCAL YEAR END FISCAL YEAR END
SHARES ACQUIRED VALUE (#) ($)(1)
ON EXERCISE REALIZED --------------------------- ---------------------------
(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles C. Tillinghast, 0 919
III(2) 12,800 0 200 1,000
Michael M. Nicita 0 0 60,000 90,000 237,300 355,950
Loren C. Paulsen 0 0 0 0 0 0
Jon S. Fish 0 0 61,000 8,000 356,945 0
Kevan M. Lyon 0 0 23,200 10,800 95,529 28,726
John S. McGee 800 7,440 3,600 9,600 10,550 22,160
</TABLE>
- ---------------
(1) Before taxes. The dollar value indicated is based on the difference between
the exercise price of the outstanding option and the closing market price of
the Common Stock on March 31, 1997 ($9.375 per share).
(2) Represents options held by Cynthia B. Tillinghast, Assistant Secretary and a
General Marketing Manager of the Company. Mrs. Tillinghast is the wife of
Mr. Tillinghast.
10
<PAGE> 12
PERFORMANCE GRAPH
The following graph presents a comparison of the Company's stock
performance with the broad-based NASDAQ Market Index and with the Dow Jones
Industry Group OTS -- Other Specialty Retailers Index, an index compiled by
Media General Financial Services which currently covers approximately 220
specialty retail companies (including the Company).
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) ADMS PEER NASDAQ
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 113.40 122.97 111.91
1994 84.54 129.30 129.33
1995 101.03 122.96 137.21
1996 193.81 142.04 184.56
1997 154.64 145.14 206.47
</TABLE>
The graph assumes $100 invested on April 1, 1992 in the Company's Common
Stock and $100 invested at that time in each of the indexes shown. The
comparison assumes that all dividends are reinvested.
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
Based solely upon a review of Forms 3, 4 and 5 (and amendments thereto)
furnished to the Company during or with respect to fiscal 1997, no person who at
any time during fiscal 1997 was a director, officer, beneficial owner of more
than 10 percent of the Common Stock, failed to file on a timely basis, as
disclosed in the above Forms, reports required by Section 16(a) of the
Securities Exchange Act, as amended, during fiscal 1997 or prior fiscal years,
except as provided herein. Ms. Dawson failed to file timely a Form 4 with
respect to fiscal 1997 to report a purchase of 200 shares of Common Stock.
FORM 10-K
AMS will furnish without charge to each stockholder, upon written request
addressed to The Investor Relations Department of AMS at 5880 Oberlin Drive,
Suite 400, San Diego, California 92121, a copy of its Annual Report on Form 10-K
for the fiscal year ended March 31, 1997 (excluding the exhibits thereto), as
filed with the Securities and Exchange Commission.
CERTAIN TRANSACTIONS
All transactions between the Company and its officers, directors or any
affiliate of any such person have been, and all such future transactions will
be, on terms no less favorable to the Company than could be
11
<PAGE> 13
obtained from unaffiliated parties. In connection with his relocation to San
Diego, California, in May 1996, the Company loaned $75,000 to Mr. McGee. This
loan is secured by real estate and bears interest at the rate of 5% per annum.
The outstanding principal balance of the loan as of March 31, 1997 was $74,407.
FUTURE STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 1998 Annual
Meeting of Stockholders must be submitted sufficiently far in advance so that it
is received by AMS not later than February 20, 1998.
OTHER MATTERS
The Company's independent public accountants for the fiscal year ended
March 31, 1997 were Arthur Andersen LLP, which firm has been appointed to serve
in such capacity for the current fiscal year. A representative of Arthur
Andersen LLP is expected to be present at the meeting with the opportunity to
make a statement if he or she so desires and to respond to appropriate
questions.
Neither the Company nor any of the persons named as proxies knows of
matters other than those stated above to be voted on at the Annual Meeting.
However, if any other matters are properly presented at the meeting, the persons
named as proxies are empowered to vote in accordance with their discretion on
such matters.
The Annual Report of AMS for the fiscal year ended March 31, 1997
accompanies this proxy statement, but it is not to be deemed a part of the proxy
soliciting material.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY.
ADVANCED MARKETING SERVICES, INC.
By order of the Board of Directors
Charles C. Tillinghast, III
Chairman
San Diego, California
June 20, 1997
12
<PAGE> 14
REVOCABLE PROXY
ADVANCED MARKETING SERVICES, INC.
ANNUAL MEETING OF STOCKHOLDERS -- JULY 24, 1997
The undersigned stockholder(s) of Advanced Marketing Services, Inc. (the
"Company") hereby nominates, constitutes and appoints Charles C. Tillinghast,
III and James A. Leidich, and each of them, the attorney, agent and proxy of the
undersigned, with full power of substitution, to vote all stock of Advanced
Marketing Services, Inc. which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at 5880 Oberlin Drive, Suite
400, San Diego, California 92121 at 10:00 a.m., P.D.T., and any and all
adjournments or postponements thereof, with respect to the matters described in
the accompanying Proxy Statement, and in their discretion, on such other matters
which properly come before the meeting, as fully and with the same force and
effect as the undersigned might or could do if personally present thereat, as
follows:
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS [ ] AUTHORITY GIVEN [ ] WITHHOLD AUTHORITY
to vote for the nominees listed to vote for the nominees.
below (except as indicated to the
contrary below).
</TABLE>
(INSTRUCTIONS: To withhold authority to vote for any nominee, strike a line
through such nominee's name below.)
Class A: Charles C. Tillinghast, III; Loren C. Paulsen; Michael M. Nicita
2. To transact such other business as may properly come before the Meeting and
any adjournments or postponements thereof. Management presently knows of no
other business to be presented by or on behalf of the Company or its Board of
Directors at the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE. PLEASE SIGN AND DATE ON THE REVERSE SIDE.
<PAGE> 15
THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF "AUTHORITY GIVEN" FOR THE
ELECTION OF DIRECTORS. THE PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED
"AUTHORITY GIVEN" FOR THE ELECTION OF DIRECTORS UNLESS OTHER INSTRUCTIONS ARE
INDICATED, IN WHICH CASE THE PROXY WILL BE VOTED IN ACCORDANCE WITH SUCH
INSTRUCTIONS.
IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY SHALL BE VOTED
IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
Dated:
----------------------------
(Please print name)
----------------------------
(Signature of Stockholder)
----------------------------
(Please print name)
----------------------------
(Signature of Stockholder)
(Please date this Proxy and
sign your name as it appears
on your stock certificates.
Executors, administrators,
trustees, etc., should give
their full titles. All joint
owners should sign.)
I (We) do [ ] do not [ ]
expect to attend the Meeting.
Number of Persons __________
