<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:
[ ] 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 240.14a-11(c) or 240.14a-12
ADVANCED MARKETING SERVICES, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE> 2
ADVANCED MARKETING SERVICES, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 22, 1999
To the Stockholders of
Advanced Marketing Services, Inc.
The Annual Meeting of Stockholders of Advanced Marketing Services, Inc.
will be held on Thursday, July 22, 1999, at 10:00 a.m., P.D.T., at 5880 Oberlin
Drive, San Diego, California 92121 for the following purposes:
1. To elect three Class C 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, 1999 is enclosed herewith.
The Board of Directors has fixed the close of business, June 9, 1999 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 18, 1999
<PAGE> 3
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 22, 1999, 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 Wednesday, June 9,
1999 are entitled to receive notice of and to vote at the Annual Meeting. On
June 9, 1999, AMS had outstanding 8,533,079 shares of common stock (the "Common
Stock"), which constituted all of the outstanding voting securities of AMS,
excluding 1,076,266 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.
The holders of a majority of the shares of Common Stock entitled to vote at the
Annual Meeting, present in person or by proxy, will constitute a quorum.
Directors are elected by a plurality of votes cast. Stockholders may not
cumulate their votes for any one or more nominees for election. If a quorum is
present, the affirmative vote of a majority of the shares represented and voting
is required for approval of any other matters which might be submitted to the
stockholders for consideration at the Annual Meeting. Abstentions and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum for the transaction of business but have the effect of a "No" vote for
purposes of determining whether a proposal has been approved.
It is anticipated that this proxy statement and accompanying proxy card
will first be mailed to stockholders on or about June 18, 1999.
<PAGE> 4
ELECTION OF DIRECTORS
NOMINEES
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 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 C directors are to be elected to a three-year term until
the Annual Meeting of Stockholders to be held in 2002 and until their successors
are duly elected and qualified. The Board of Directors has nominated each of the
following incumbent Class C directors for reelection as a Class C director:
Robert F. Bartlett Lynn S. Dawson Trygve E. Myhren
Information concerning the nominees for election as Class C 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 any 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 9, 1999 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.............................. 1,346,850(2) 15.9%
Loren C. Paulsen......................................... 1,359,298(3) 16.1%
Kahn Brothers & Co., Inc................................. 1,006,762 11.9%
Grace & White, Inc....................................... 930,843 11.0%
Dimensional Fund Advisors, Inc........................... 515,250 6.1%
Michael M. Nicita........................................ 175,016(4) 2.1%
Kevan M. Lyon............................................ 49,187(5) *
Adam R. Zoldan........................................... 6,750(6) *
E. William Swanson....................................... 167,250(7) 2.0%
James A. Leidich......................................... 36,600(8) *
Trygve E. Myhren......................................... 24,750(9) *
Lynn S. Dawson........................................... 16,800(10) *
Robert F. Bartlett....................................... 16,500(10) *
All executive officers and directors
as a group (19 persons)................................ 2,038,661(11) 38.4%
</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.
2
<PAGE> 5
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 ownership of 515,250 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. Tillinghast and his wife are trustees. This
amount also includes 900 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 900 shares.
(3) Of Mr. Paulsen's shares, 1,259,460 are held of record by a Revocable Trust
dated May 13, 1987, the trustees of which are Mr. Paulsen and his wife, and
99,838 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 99,838 shares held by this Irrevocable Trust.
(4) Includes 174,250 shares subject to options which are exercisable within 60
days.
(5) Includes 43,500 shares subject to options which are exercisable within 60
days.
(6) Includes 6,750 shares subject to options which are exercisable within 60
days.
(7) 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 12,750 shares
subject to options which are exercisable within 60 days.
(8) Includes 6,300 shares subject to options which are exercisable within 60
days.
(9) Includes 1,500 shares held of record by Mr. Myhren's wife and 15,000 shares
subject to options which are exercisable within 60 days.
(10) Includes 16,500 shares subject to options which are exercisable within 60
days.
(11) Includes 383,185 shares subject to options which are exercisable within 60
days.
3
<PAGE> 6
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information as of June 9, 1999 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.......... 62 Chairman of the Board of Directors
Michael M. Nicita.................... 46 President, Chief Executive Officer and
Director
Loren C. Paulsen..................... 49 Executive Vice President -- Operations
Robert F. Bartlett................... 54 Director(1)
Lynn S. Dawson....................... 48 Director(1)
James A. Leidich..................... 56 Director(1)
Trygve E. Myhren..................... 62 Director(1)
E. William Swanson................... 63 Director(1)
Edward J. Leonard.................... 48 Executive Vice President and Chief Financial
Officer
Kevan M. Lyon........................ 40 Executive Vice President -- Merchandising
Steven T. Boyle...................... 36 Vice President -- Controller
Sandra Christie...................... 44 Vice President -- Advertising
Bruce S. Derkash..................... 55 Vice President -- International
Kenneth C. Hayes..................... 53 Vice President -- Information Systems
Alisa R. Judge....................... 43 Vice President -- Human Resources
John S. McGee........................ 37 Vice President -- Operations
Sydney J. Stanley.................... 50 Vice President -- Product Development
Adam R. Zoldan....................... 46 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 as 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
4
<PAGE> 7
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).
Ms. Dawson has been a Director of the Company since April 1994. Since 1998,
Ms. Dawson has been the President of Roger Gimbel Associates, a division of
Worldwide Dreams LLC. From 1991 to 1998, she was Vice President and National
Sales Manager for B.H. Smith/Samsonite Handbags, which was merged into Worldwide
Dreams LLC in 1998. 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 Stores (1990 - 1991);
Senior Vice President, Broadway Department Stores (1978 - 1990) and Buyer and
Department Manager, May Company Department Stores (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 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. and Verio, Inc.
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. Leonard joined the Company in April 1999 as Executive Vice President
and Chief Financial Officer. From 1995 to 1999 Mr. Leonard was Vice President --
Financial Planning and Operations, North America for Warner Home Video. Mr.
Leonard worked in the automotive industry for Nissan and Ford Motor Company in a
variety of financial planning and analysis positions for 11 years. Mr. Leonard
also worked from 1984 to 1992 in a variety of financial positions for Taco Bell
Corporation.
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. From 1982 to 1986, Mr. Swanson was the President and Chief Executive
Officer 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. Boyle joined the Company in 1995 as Controller. He was promoted to Vice
President and Controller in April 1999. From 1992 to 1995 he worked for a
manufacturer and distributor of sportswear as Controller. Previously, Mr. Boyle
served as Controller and Internal Auditor for two computer manufacturing firms.
Mr. Boyle was with Arthur Andersen & Company for five years and is a CPA.
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
with responsibility for the Company's buying activities. In October 1997, Ms.
Lyon was promoted to Executive
5
<PAGE> 8
Vice President -- Merchandising. From 1983 through 1988, she worked for
Allergan, Inc., a pharmaceutical company, in various sales and product
management positions.
Ms. Christie joined the Company in 1986. She became Director of Advertising
in 1994 and was promoted to Vice-President -- Advertising in October 1997. Prior
to joining AMS, Ms. Christie managed Mysterious Bookshop in New York and prior
to 1980 worked for other book retailers.
Mr. Derkash joined the Company in December 1998 as Vice
President -- International. From 1984 to 1998 Mr. Derkash worked with Hasbro
International Inc. in a variety of management positions, including Vice
President, Latin America Business Development. From 1979 to 1984, Mr. Derkash
held marketing and business development management positions with PepsiCo
International and for PepsiCo's Food Service Division. Mr. Derkash also held
marketing positions for Colgate-Palmolive in both their domestic and
international divisions from 1972 to 1979.
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.
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 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
Manger 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, 1999.
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 1999. The functions of
6
<PAGE> 9
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 one meeting during fiscal 1999. The functions of the Compensation
Committee are to review and recommend changes in salaries and bonuses of key
employees, to review periodically, and make recommendations with respect to, the
compensation structure of the Company and to determine the amount of
contributions to the Company's profit sharing plan.
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 Company has no nominating committee or committee performing similar
functions.
EXECUTIVE COMPENSATION
BOARD AND 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 1999 concerning executive compensation.
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. The Company generally weights increases in executive compensation,
including salary and bonus, in favor of performance and, therefore, salary
increases are generally related to the tax adjusted inflation rate.
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. For fiscal 1999, payments under the Company's bonus plan to each executive
officer were based principally upon the Company exceeding the targeted net
income objective.
Long-Term Stock Option Compensation. The Company grants stock options to
its executive officers and other employees pursuant to its 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
7
<PAGE> 10
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 1999, the Board of Directors did not grant options to
purchase Common Stock to any Named Executive Officer. 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 and no options were granted to them during fiscal 1999.
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 1999, the Compensation Committee reviewed Mr. Nicita's salary and
determined that his salary would be increased from $288,500 to $302,925. 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 exceeded the minimum net income objectives established by the
Compensation Committee, bonuses aggregating $186,463 were awarded under the
Company's bonus plan to Mr. Nicita for fiscal 1999.
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 1999, 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 $1,000,000.
The tables that follow reflect the decisions included in this report.
<TABLE>
<S> <C>
THE BOARD OF DIRECTORS THE COMPENSATION COMMITTEE
(WITH RESPECT TO OPTIONS) James A. Leidich, Chairman
Charles C. Tillinghast, III Robert F. Bartlett
Michael M. Nicita Lynn S. Dawson
Loren C. Paulsen Trygve E. Myhren
Robert F. Bartlett E. William Swanson
Lynn S. Dawson
James A. Leidich
Trygve E. Myhren
E. William Swanson
</TABLE>
8
<PAGE> 11
SUMMARY OF CASH AND OTHER COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services rendered in all capacities to the Company
for the fiscal years ended March 31, 1999, 1998 and 1997 of those persons who
were, at March 31, 1999, (i) the Chief Executive Officer and (ii) the four other
most highly paid executive officers of the Company (collectively the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------ ALL OTHER
NAME AND CAPACITY FISCAL -------------------------- OPTIONS/ COMPENSATION
IN WHICH SERVED YEAR SALARY($)(1) BONUS($)(1) SARS(#) ($)(2)
----------------- ------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Charles C. Tillinghast, III............. 1999 225,019 158,900 0 47,252
Chairman 1998 267,044 121,250 0 27,295
1997 265,635 0 0 26,350
Michael M. Nicita....................... 1999 288,085 186,463 0 67,283
Chief Executive Officer and President 1998 267,403 121,250 60,000 27,100
1997 251,658 0 0 25,680
Loren C. Paulsen........................ 1999 198,991 103,750 0 37,509
Executive Vice President -- Operations 1998 193,878 93,750 0 20,746
1997 183,757 0 0 20,461
Kevan M. Lyon........................... 1999 178,205 103,750 0 32,840
Executive Vice
President -- Merchandising 1998 157,347 82,585 15,000 15,976
1997 137,818 446 0 17,406
Adam R. Zoldan.......................... 1999 125,487 84,500 0 21,055
Vice President -- Marketing 1998 121,886 74,500 7,500 37,024(3)
1997 115,504 446 0 17,378
</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 1999 include, for Messrs. Tillinghast,
Nicita, Paulsen and Zoldan and Ms. Lyon respectively: profit sharing
contributions of $8,000, $8,000, $8,000, $8,000 and $8,000 (excluding the
allocable portion of accrued interest); Company matching 401(k) plan
contributions of $1,538, $1,653, $1,638, $1,169 and $1,600; and matching
contributions (excluding interest) of $37,714, $52,630, $27,871, $11,886 and
$23,240 under the Company's 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) Includes relocation expenses of $25,219.
EMPLOYMENT ARRANGEMENTS
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 2, 1997.
Pursuant to the terms of the Employment Agreement, effective January 2, 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 term of the Employment
Agreement, Mr. Tillinghast 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 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
9
<PAGE> 12
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 (which was increased by the Board
of Directors to $236,000) for the second year, $175,000 (which was increased by
the Board of Directors to $195,300) 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.
In July 1998, the Company entered into a termination benefits agreement
with Michael M. Nicita, the President and Chief Executive Officer of the
Company. The agreement was approved by the Compensation Committee and the Board
of Directors after having determined that it was in the best interests of the
Company to enter into the agreement to assure the retention of the unique
services of Mr. Nicita and provide reasonable protection for Mr. Nicita in the
event of a change of control. The agreement provides that in the event of a
change of control, as defined in the agreement, Mr. Nicita will be entitled to a
severance payment if he is discharged by the Company within one year for any
reason other than cause, as defined in the agreement, or he terminates his
employment with the Company within 90 days for any reason. In the event of a
change of control, any unvested options previously granted to Mr. Nicita and any
amount in his account under the Company's deferred compensation plan would
immediately vest. The severance payment would be equal to Mr. Nicita's base
salary in effect for the fiscal year in which the change of control occurs plus
a prorated bonus computed at budget, subject to adjustment under certain
circumstances.
Effective April 1, 1999, the Company entered into an agreement with Mr.
Edward J. Leonard in connection with his employment as Executive Vice President
and Chief Financial Officer of the Company, at an annual base salary of $235,000
per year. The agreement provides that if Mr. Leonard's employment is
involuntarily terminated for any reason other than gross negligence or fraud,
his base salary will be continued for 12 months, during the first 12 months of
employment, for 9 months, during the second 12 months of employment, and for 6
months thereafter.
OPTION GRANTS
The following table sets forth with respect to the Named Executive Officers
certain information concerning grants of stock options in fiscal 1999. No stock
appreciation rights were granted in fiscal 1999.
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZED VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO EXERCISE GRANT DATE STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE MARKET OPTION TERM(1)
OPTIONS IN PRICE PRICE EXPIRATION ----------------------------
GRANTED(#) FISCAL YEAR ($/SH) ($/SH) DATE 0%($) 5%($) 10%($)
---------- ----------- -------- ---------- ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles C. Tillinghast, III... 0 -- -- -- -- -- -- --
Michael M. Nicita............. 0 -- -- -- -- -- -- --
Michael M. Nicita............. 0 -- -- -- -- -- -- --
Loren C. Paulsen.............. 0 -- -- -- -- -- -- --
Kevan M. Lyon................. 0 -- -- -- -- -- -- --
Adam R. Zoldan................ 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.
10
<PAGE> 13
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 1999 and
unexercised options held as of the end of the fiscal year. The Company has never
granted stock appreciation rights.
AGGREGATED OPTION EXERCISES AND
FISCAL 1999 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER VALUE OF
OF UNEXERCISED UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES VALUE FISCAL YEAR END(#) FISCAL YEAR END($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles C. Tillinghast,
III(2)...................... 0 0 900 900 5,004 6,280
Michael M. Nicita............. 12,750 132,342 185,250 117,000 1,660,526 784,803
Loren C. Paulsen.............. 0 0 0 0 0 0
Kevan M. Lyon................. 4,500 33,069 40,500 24,000 342,432 103,363
Adam R. Zoldan................ 6,000 80,351 6,750 18,000 32,280 105,440
</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, 1999 as reported by NASDAQ ($13 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.
11
<PAGE> 14
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 235 specialty
retail companies (including the Company).
<TABLE>
<CAPTION>
AMS PEER NASDAQ
--- ---- ------
<S> <C> <C> <C>
'1994' 100.00 100.00 100.00
'1995' 119.51 100.09 106.09
'1996' 229.27 120.45 142.70
'1997' 182.92 122.39 159.64
'1998' 365.85 183.64 241.26
'1999' 382.42 245.96 315.28
</TABLE>
The graph assumes $100 invested on April 1, 1994 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5 (and amendments thereto)
furnished to the Company during or with respect to fiscal 1999, no person who at
any time during fiscal 1999 was a director, officer or beneficial owner of more
than 10 percent of the Common Stock, failed to file on a timely basis reports
required by Section 16(a) of the Securities Exchange Act, as amended, during
fiscal 1999.
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, San
Diego, California 92121, a copy of its Annual Report on Form 10-K for the fiscal
year ended March 31, 1999 (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 obtained from
unaffiliated parties. In connection with his relocation to San Diego, CA, 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, 1999 was $40,608.
12
<PAGE> 15
FUTURE STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 2000 Annual
Meeting of Stockholders must be submitted sufficiently far in advance so that it
is received by AMS not later than February 19, 2000.
OTHER MATTERS
The Company's independent public accountants for the fiscal year ended
March 31, 1999 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, 1999
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 18, 1999
13
<PAGE> 16
REVOCABLE PROXY
ADVANCED MARKETING SERVICES, INC.
ANNUAL MEETING OF STOCKHOLDERS -- JULY 22, 1999
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 the Company's facility at
5880 Oberlin Drive, San Diego, California 92121 on Thursday, July 22, 1999, at
10:00 a.m., 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:
1. ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] AUTHORITY GIVEN [ ] WITHHOLD AUTHORITY
to vote for all nominees listed below to vote for all nominees.
(except as indicated to the contrary below).
</TABLE>
(INSTRUCTIONS): TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
Robert F. Bartlett Lynn S. Dawson Trygve E. Myhren
2. To transact such other business as may properly come before the Meeting and
any adjournment or postponement thereof, Management at present 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> 17
THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF "AUTHORITY GIVEN" FOR PROPOSAL
1. THE PROXY CONFERS AUTHORITY TO AND WILL BE VOTED "AUTHORITY GIVEN" FOR
PROPOSAL 1 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 WILL BE VOTED
IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
Dated: , 1999
-------------------------------
(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
Person _________________
