ADVANCED MARKETING SERVICES, INC.
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 27, 2000
To the Stockholders of
Advanced Marketing Services, Inc.
The Annual Meeting of Stockholders of Advanced Marketing Services, Inc.
will be held on Thursday, July 27, 2000, 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;
2. To vote upon a proposal to amend our Certificate of Incorporation
to increase the authorized number of shares of our common stock
from 20,000,000 to 100,000,000;
3. To vote upon a proposal to amend our Certificate of Incorporation
to authorize 2,000,000 shares of undesignated preferred stock;
4. To vote upon a proposal to amend our 1995 Stock Option Plan to
increase by 1,000,000 the number of shares of common stock
reserved for issuance;
5. To ratify the selection of Arthur Andersen LLP as our independent
auditors for the fiscal year ending March 31, 2001; and
6. To transact any other business which may properly come before the
meeting and any adjournments or postponements.
Our proxy statement containing information for stockholders accompanies
this Notice and a copy of our Annual Report for the fiscal year ended
March 31, 2000 is also enclosed.
The Board of Directors has fixed the close of business, June 13, 2000
as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL 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 26, 2000
<PAGE>
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 27, 2000, 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 our Corporate Secretary 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 (I) FOR THE PERSONS
NOMINATED BY THE BOARD OF DIRECTORS FOR ELECTION AS DIRECTORS; (II) FOR BOTH
OF THE PROPOSED AMENDMENTS TO THE CERTIFICATE OF INCORPORATION, (III) FOR THE
AMENDMENT TO THE 1995 STOCK OPTION PLAN, (IV) FOR THE RATIFICATION OF ARTHUR
ANDERSEN LLP AS INDEPENDENT AUDITORS, AND (V) IN THE DISCRETION OF THE PROXY
HOLDERS WITH RESPECT TO SUCH OTHER MATTERS AS MAY COME BEFORE THE ANNUAL
MEETING.
In addition to soliciting proxies by mail, our directors, officers and
other regular employees, without additional compensation, may solicit proxies
personally or by other appropriate means. We will bear the total cost of
solicitation of proxies. Although there are no formal agreements to do so,
it is anticipated that we 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 June 13, 2000
are entitled to receive notice of and to vote at the Annual Meeting. On
March 31, 2000, we had outstanding 12,906,988 shares of common stock, which
constituted all of our outstanding voting securities, excluding 1,897,049
shares of 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. If a
quorum is present, directors are elected by a plurality of votes cast and
cumulative voting is not permitted for directors. If a quorum is present,
the affirmative vote of holders of a majority of the shares outstanding and
entitled to vote thereon is required for any amendment to our Certificate of
Incorporation and the affirmative vote of holders 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.
We anticipate that this proxy statement and accompanying proxy card
will first be mailed to our stockholders on or about June 26, 2000.
<PAGE>
ITEM 1.
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 A directors are to be elected
to a three-year term until the Annual Meeting of Stockholders to be held in
2003 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
Michael M. Nicita
Loren C. Paulsen
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 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 "AUTHORITY GIVEN"
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 1, 2000
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<F1>) BENEFICIALLY OUTSTANDING
OF BENEFICIAL OWNER OWNED COMMON STOCK
------------------------------- ------------ ------------
<S> <C> <C>
Charles C. Tillinghast, III<F2>. 1,997,643 15.5%
Kahn Brothers & Co., Inc........ 1,106,165 8.6%
Loren C. Paulsen<F3>............ 1,094,350 8.5%
FMR Corp........................ 1,062,750 8.2%
Grace & White, Inc.............. 904,749 7.0%
Cathy Paulsen<F4>............... 794,595 6.2%
Dimensional Fund Advisors, Inc.. 742,500 5.8%
Michael M. Nicita<F5>........... 117,091 *
Kevan M. Lyon<F6>.............. 60,444 *
James A. Leidich<F7>............ 49,950 *
Edward J. Leonard<F8>........... 33,750 *
Lynn S. Dawson<F9>.............. 27,000 *
Robert F. Bartlett<F10>......... 19,500 *
Trygve E. Myhren<F11>........... 13,500 *
Adam R. Zoldan<F12>............. 13,000 *
E. William Swanson<F13>......... 7,250 *
William G. Berryman -- --
All executive officers and
directors as a group
(19 persons)<F14>............. 3,484,353 27.0%
Total Number of Shares
Outstanding................... 12,906,988
</TABLE>
<PAGE>
[FN]
----------
* less than 1%.
<F1>
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
FMR Corp. is 82 Devonshire Street, Boston, MA 02109. 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.
<F2>
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 450 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 450 shares. See "Certain Transactions."
<F3>
Of Mr. Paulsen's shares, 944,595 are held of record by a Revocable Trust
dated July 12, 1999, the trustee of which is Mr. Paulsen, and 149,755 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 149,755 shares held by this Irrevocable Trust.
<F4>
In connection with the dissolution of his marriage, on September 29, 1999 Loren
Paulsen transferred to his former wife, Cathy Paulsen, 944,595 shares of common
stock. The Company subsequently repurchased 150,000 shares of such common stock
from Ms. Paulsen, who retained 794,595 shares, representing approximately 6.2%
of the shares issued and outstanding. Ms. Paulsen is not a director, officer or
employee of the Company. Ms. Paulsen's shares are held by an Irrevocable Trust
dated August 20, 1999, the trustee of which is Ms. Paulsen.
<F5>
Includes 116,325 shares subject to options which are exercisable within 60 days.
<F6>
Includes 54,000 shares subject to options which are exercisable within 60 days.
<F7>
Includes 4,500 shares subject to options which are exercisable within 60 days.
<F8>
Includes 33,750 shares subject to options which are exercisable within 60 days.
<F9>
Includes 27,000 shares subject to options which are exercisable within 60 days.
<F10>
Includes 19,500 shares subject to options which are exercisable within 60 days.
<F11>
Includes 2,250 shares held of record by Mr. Myhren's wife and 11,250 shares
subject to options which are exercisable within 60 days.
<F12>
Includes 5,625 shares subject to options which are exercisable within 60 days.
<F13>
Mr. Swanson's shares are held of record by F.W. Cygnet Pension Plan, of which
Mr. Swanson is a trustee. Also includes 2,250 shares subject to options which
are exercisable within 60 days.
<F14>
Includes 322,575 shares subject to options which are exercisable within 60 days.
</FN>
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information as of June 1, 2000 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 63 Chairman of the Board of Directors
Michael M. Nicita 47 President, Chief Executive Officer and Director
Loren C. Paulsen 50 Executive Vice President--Operations
Robert F. Bartlett 55 Director <F1>
Lynn S. Dawson 49 Director <F1><F2>
James A. Leidich 57 Director <F1>
Trygve E. Myhren 63 Director <F1><F2>
E. William Swanson 64 Director <F1><F2>
Edward J. Leonard 49 Executive Vice President and Chief Financial Officer
Kevan M. Lyon 41 Executive Vice President--Merchandising
William G. Berryman 57 Executive Vice President and Chief Information Officer
Steven T. Boyle 37 Vice President--Controller
Sandra Christie 45 Vice President--Advertising
Bruce S. Derkash 56 Vice President--International
Kenneth C. Hayes 54 Vice President--Information Systems
Alisa R. Judge 44 Vice President--Human Resources
John S. McGee 38 Vice President--Operations
Sydney J. Stanley 51 Vice President--Product Development
Adam R. Zoldan 47 Vice President--Marketing
----------
<FN>
<F1>
Member of the Compensation Committee.
<F2>
Member of the Audit Committee.
</FN>
</TABLE>
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 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.
<PAGE>
(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. 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. 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. 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. 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, a division of Warner Bros. Studio, a business unit of Time Warner,
Inc. Mr. Leonard worked in the automotive industry for Ford Motor Company
and Nissan Motor Corporation USA in a variety of financial positions for 11
years. Mr. Leonard also worked from 1984 to 1992 in a variety of financial
positions for Taco Bell Corporation, a division of PepsiCo.
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 Vice President -- Merchandising. From 1983
through 1988, she worked for Allergan, Inc., a pharmaceutical company, in
various sales and product management positions.
Mr. Berryman joined the Company in May 2000 as Executive Vice President
and Chief Information Officer. From 1998 to 2000 he served as Chief
Information Officer for Duke-Weeks Corporation, a real estate investment
trust. From 1996 to 1998, he served as Chief Information Officer and Senior
Vice President, Information Technology for Prosource Distribution Services, a
foodservice distributor for chain restaurants. Mr. Berryman worked in the
grocery and general merchandise industry for The Penn Traffic Company, as
Chief Information Officer and Vice President, MIS for two years and was
employed by Dominick's Finer Foods as Vice President, MIS from 1989 to 1993.
In addition, he worked for Gateway Foods for 16 years in various management
positions in information services and technology.
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,
<PAGE>
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. 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
$14,000 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 or Compensation 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. The Board of
Directors held a total of 12 regularly scheduled and special meetings during
the year ended March 31, 2000. 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, 2000.
The members of the Audit Committee of the Board of Directors during
fiscal 2000 were Messrs. Bartlett, Leidich, Myhren and Swanson and
Ms. Dawson. The Audit Committee held one meeting during fiscal 2000. The
current Audit Committee members are Messrs. Myhren and Swanson and Ms.
Dawson. 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.
<PAGE>
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 2000. 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 2000 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 2000, 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 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 2000, based on the contributions of the employees and
performance of the Company, the Board of Directors approved a grant of
options to purchase 75,000 shares of Common Stock to Michael M. Nicita. The
Board of Directors also approved grants of options to purchase the following
number of shares of Common Stock to the following Named Executive Officers:
Edward J. Leonard - 168,750; Kevan M. Lyon - 30,000. Messrs. Tillinghast and
Paulsen, who are founders of the Company, are eligible to receive grants of
<PAGE>
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 2000.
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 2000, the Compensation Committee reviewed Mr. Nicita's salary
and determined that his salary would be increased from $302,925 to $366,000.
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 $310,550 were awarded under
the Company's bonus plan to Mr. Nicita for fiscal 2000.
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 2000, 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 $1,000,000.
The tables that follow reflect the decisions included in this report.
THE BOARD OF DIRECTORS THE COMPENSATION COMMITTEE
(WITH RESPECT TO OPTIONS) James A. Leidich, Chairman
Charles C. Tillinghast, III Robert F. Bartlett
Michael M. Nicita Lynn S. Dawson
Loren C. Paulsen Trygve E. Myhren
Robert F. Bartlett E. William Swanson
Lynn S. Dawson
James A. Leidich
Trygve E. Myhren
E. William Swanson
SUMMARY OF CASH AND OTHER COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services rendered in all capacities to the Company
for the fiscal years ended March 31, 2000, 1999 and 1998 of those persons who
were, at March 31, 2000, (i) the Chief Executive Officer and (ii) the four other
most highly paid executive officers of the Company (collectively the "Named
Executive Officers").
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------ ALL OTHER
NAME AND CAPACITY FISCAL ------------------- OPTIONS/ COMPENSATION
IN WHICH SERVED YEAR SALARY($)<F1> BONUS($)<F1> SARS(#) ($)<F2>
---------------------------- ------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Charles C. Tillinghast, III, 2000 195,300 168,650 0 68,201
Chairman 1999 225,019 158,900 0 47,252
1998 267,044 121,250 0 27,295
Michael M. Nicita, Chief 2000 302,925 310,550 75,000 114,882
Executive Officer and President 1999 288,085 186,463 0 67,283
1998 267,403 121,250 135,000<F4> 27,100
Edward J. Leonard, Executive 2000 221,442 138,750 168,750 189,523<F3>
Vice President and Chief 1999 -- -- -- --
Financial Officer 1998 -- -- -- --
Loren C. Paulsen, Executive 2000 209,692 98,750 0 59,257
Vice President-- Operations 1999 198,991 103,750 0 37,509
1998 193,878 93,750 0 20,746
Kevan M. Lyon, Executive 2000 183,615 133,900 30,000 46,865
Vice President--Merchandising 1999 178,205 103,750 0 32,840
1998 157,347 82,585 33,750<F4> 15,976
----------
<FN>
<F1>
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.
<F2>
The amounts indicated for fiscal 2000 include, for Messrs. Tillinghast, Nicita,
Leonard and Paulsen 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 $1,608, $1,558,
$509, $1,621 and $1,618; and matching contributions (excluding interest) of
$51,592, $92,671, $1,660, $40,069 and $34,618 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.
<F3>
Includes relocation expenses of $176,726.
<F4>
Number of options shown reflects adjustments made in connection with two
three-for-two stock splits of the Company's Common Stock effected by the Company
in February 1999 and January 2000.
</FN>
</TABLE>
EMPLOYMENT ARRANGEMENTS
Mr. Tillinghast served as Chief Executive Officer of the Company until
December 31, 1996. 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
<PAGE>
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 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 for each of the third and four years (which was
increased by the Board of Directors to $195,300 and $208,000, respectively),
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. The agreement provides
for an annual base salary of $235,000 per year and provides that if Mr.
Leonard's employment is involuntarily terminated for any reason, other than
gross negligence or fraud, during, respectively, the first or second 12
months of employment, his base salary will be continued for, respectively, 12
months or 9 months, and that if his employment is involuntarily terminated
for any reason, other than gross negligence or fraud, after the first 24
months, his base salary will be continued for 6 months.
OPTION GRANTS
The following table sets forth with respect to the Named Executive
Officers certain information concerning grants of stock options in fiscal
2000. The Company has never granted stock appreciation rights.
OPTION GRANTS IN FISCAL 2000
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZED VALUE AT ASSUMED
SECURITIES GRANTED TO EXERCISE GRANT DATE ANNUAL RATES OF STOCK PRICE
UNDERLYING EMPLOYEES OR BASE MARKET APPRECIATION FOR OPTION TERM<F1>
OPTIONS IN PRICE PRICE EXPIRATION -----------------------------------
GRANTED(#) FISCAL YEAR ($/SH) ($/SH) DATE 0%($) 5%($) 10%($)
----------- ----------- -------- ---------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles C. Tillinghast, III... -- 0.00% $ -- -- N/A $ 0 $ 0 $ 0
Michael M. Nicita............. 75,000 12.76% $11.33 $13.33 10/23/09 $150,000 $ 778,892 $1,743,737
Loren C. Paulsen.............. -- 0.00% $ -- N/A $ 0 $ 0 $ 0
Edward J. Leonard............. 168,750 28.70% $ 8.71 $10.25 04/27/09 $259,453 $1,347,244 $3,016,130
Kevan M. Lyon................. 30,000 5.10% $11.33 $13.33 10/23/09 $ 60,000 $ 311,557 $ 697,495
----------
<FN>
<F1>
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.
</FN>
</TABLE>
<PAGE>
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
2000 and unexercised options held as of the end of the fiscal year. The
Company has never granted stock appreciation rights.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES AND
FISCAL 2000 YEAR-END OPTION VALUES
NUMBER VALUE OF
OF UNEXERCISED UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT OPTIONS AT
ACQUIRED VALUE FISCAL YEAR END(#) FISCAL YEAR END(#)<F1>
ON REALIZED --------------------------- --------------------------
EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
C. Tillinghast, III<F2>............. - $ - 450 450 $ 7,106 $ 7,106
Michael M. Nicita................... 254,000 $3,158,112 116,325 156,000 $ 1,976,812 $1,956,801
Loren C. Paulsen ................... - $ - - - $ - $ -
Edward J. Leonard .................. - $ - 33,750 135,000 $ 406,266 $1,625,063
Kevan M. Lyon ...................... 20,250 $ 188,664 54,000 52,500 $ 916,794 $ 606,275
----------------
<FN>
<F1>
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, 2000 as reported by NASDAQ ($20.75 per share).
<F2>
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.
</FN>
</TABLE>
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).
PERFORMANCE TABLE
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
AMS ........... $100.00 $191.83 $153.06 $306.12 $319.98 $768.75
PEER .......... $100.00 $118.77 $119.04 $179.22 $250.18 $309.51
NASDAQ ........ $100.00 $134.51 $150.48 $227.41 $297.18 $547.25
</TABLE>
The graph assumes $100 invested on April 1, 1995 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.
ITEM 2.
PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
The Board of Directors has approved and is submitting to the
stockholders a proposed amendment to the Certificate of Incorporation that
would increase the authorized Common Stock from 20,000,000 shares to
100,000,000 shares.
The Company's authorized capital stock currently consists of 20,000,000
shares of Common Stock. On March 31, 2000, there were 12,906,988 shares of
Common Stock outstanding. In addition, 1,312,625 shares of Common Stock were
reserved for issuance under the Company's Stock Option Plan and Employee
Stock Purchase Plan. Therefore, only 5,780,387 shares of Common Stock remain
available for other purposes. There are no preemptive or other subscription
rights, conversion rights, or redemption or sinking fund provisions with
respect to the Common Stock. All outstanding shares of Common Stock are
fully paid and non-assessable.
<PAGE>
Management believes that it is desirable and in the best interest of
the Company to increase the number of authorized shares of Common Stock which
may be issued in the future. Authorized but unissued shares would be
available for issuance by action of the Board of Directors without
stockholder approval (except when required by law or by the rules of the
Nasdaq National Market) for such proper corporate purposes as the Board of
Directors may determine, including stock splits, stock dividends, convertible
securities, acquisitions, private placements, public offerings and stock
option and other employee benefit plans. In February 1999 and January 2000
the Company effected three-for-two stock splits of its Common Stock and, if
the proposed amendment is approved, may, in the discretion of the Board of
Directors, do so in the future as conditions warrant.
The affirmative vote of holders of a majority of the shares outstanding
and entitled to vote thereon is required for approval of the amendment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED COMMON
STOCK.
ITEM 3.
PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO AUTHORIZE PREFERRED STOCK
The Board of Directors has approved and is submitting to the
stockholders a proposed amendment to the Certificate of Incorporation that
would authorize 2,000,000 shares of undesignated Preferred Stock.
If the proposed amendment is approved, the Board of Directors, without
further stockholder approval, would be authorized to designate one or more
series of Preferred Stock to be issued from time to time and to establish the
number of shares, rights, preferences and limitations of each series of
Preferred Stock. Therefore, the Board of Directors would have the authority
to determine the terms of the Preferred Stock, including dividend or interest
rates, conversion prices, voting rights, redemption prices, maturity dates
and similar matters.
The Board of Directors believes that it is prudent and in the best
interests of the Company to authorize shares of Preferred Stock to provide
enhanced flexibility in connection with possible future corporate actions.
Such actions may include stock splits or stock dividends, financings, mergers
and acquisitions and other actions deemed to be in the best interests of the
Company. In addition, because the Board of Directors will have the authority
to designate the rights, preferences and limitations of each series of
Preferred Stock without further stockholder approval, the Preferred Stock
will enhance the Company's ability to accomplish these actions by avoiding
the delay and expense that could be occasioned by the necessity of holding a
special meeting of stockholders. Currently there are no plans to use the
Preferred Stock.
Under certain circumstances, the Preferred Stock could be used to deter
persons seeking to effect a takeover or to otherwise gain control of the
Company. For example, a class or series of Preferred Stock could be
designated that would be convertible by existing stockholders into Common
Stock upon the acquisition by a third party of a specified percentage of the
Company's voting stock. The conversion of the Preferred Stock would dilute
the voting power of the acquirer and could make subsequent transactions the
acquirer might wish to effect more difficult or costly. That use of the
Preferred Stock could be deemed to be disadvantageous to stockholders who
might believe the attempted takeover efforts desirable. (The Board of
Directors is not currently aware of any planned takeover efforts.) The
proposal could also be deemed disadvantageous to stockholders in that
Preferred Stock with disproportionate voting rights could be used to entrench
management, making it more difficult to remove directors at a time when the
stockholders would prefer to do so. Preferred Stock may also be used to
prevent or discourage offers to purchase blocks of Common Stock, the results
of which purchases could cause uncharacteristic changes in the market place
of the Common Stock. However, in issuing Preferred Stock, the Board of
Directors would be obligated to observe its fiduciary duty to act in a manner
believed to be in the best interests of the Company.
The affirmative vote of holders of a majority of the shares outstanding
and entitled to vote thereon is required for approval of the amendment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO AUTHORIZE PREFERRED STOCK.
<PAGE>
ITEM 4.
PROPOSED AMENDMENT TO THE COMPANY'S 1995 STOCK OPTION PLAN
The Board of Directors has approved an amendment to the 1995 Stock
Option Plan, subject to stockholder approval, to increase by 1,000,000 the
number of shares of Common Stock issuable upon exercise of options granted
under the 1995 Plan. The purpose of the amendment is to enable the Company
to grant additional options in the future in order to attract and retain key
employees. The Company currently has outstanding options under the 1995 Plan
covering 1,393,675 shares of Common Stock (including 291,725 options granted
subject to stockholder approval of the amendment to the 1995 Plan).
DESCRIPTION OF THE 1995 PLAN
The 1995 Plan was adopted by the Board of Directors in March 1995 and
approved by the stockholders in July 1995. The Board of Directors believes
that the selective grant of stock options is an effective and efficient means
of attracting, motivating and retaining key employees, officers and
directors. The 1995 Plan provides for the grant of options to purchase
Common Stock either that are intended to qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or that are not intended to so qualify ("non-qualified
stock options"). All officers, directors and employees are eligible to
receive options under the 1995 Plan, except that only employees may receive
incentive stock options. The maximum number of shares available for issuance
under the 1995 Plan is 1,462,500 (2,462,500 if the proposed amendment is
approved). No person eligible to receive options under the 1995 Plan may
receive options for the purchase of more than an aggregate of 675,000 shares.
The 1995 Plan is currently administered by the Board of Directors and
may, in the Board's discretion, be administered by a committee of the Board
of Directors appointed for that purpose (the "Committee"), which, subject to
the terms of the 1995 Plan, has the authority in its sole discretion to
determine: (a) the individuals to whom options shall be granted; (b) the
time or times at which options may be exercised; (c) the number of shares
subject to each option, the option price and the duration of each option
granted; and (d) all of the other terms and conditions of options granted
under the 1995 Plan.
The exercise price of incentive stock options granted under the 1995
Plan must be at least equal to the fair market value of the shares on the
date of grant (110% of fair market value in the case of participants who own
shares possessing more than 10% of the combined voting power of the Company)
and may not have a term in excess of 10 years from the date of grant (five
years in the case of participants who are more than 10% stockholders). The
aggregate fair market value (determined as of the time the Option is granted)
of the shares with respect to which incentive stock options (granted under
all plans of the Company or its subsidiaries) are exercisable for the first
time by an optionee in any calendar year may not exceed $100,000.
Non-qualified options may be granted at prices not less than 85% of the fair
market value of such shares at the date of grant.
Options granted under the 1995 Plan are not transferable other than by
will or the laws of descent and distribution. Unless otherwise determined by
the Board of Directors or the Committee in connection with the grant of any
non-qualified stock options, all stock options granted under the 1995 Plan
expire one month after the date of the optionee's termination of employment
with the Company for any reason other than death or permanent disability and
six months after the optionee's termination of employment by reason of death
or permanent disability but not, in either case, later than the scheduled
expiration date). Upon termination of employment the number of shares with
respect to which a stock option may be exercised shall be limited to that
number of shares which could have been purchased pursuant to the option had
the option been exercised by the optionee on the date of such termination of
employment. In the case of death, options may be exercised by the person or
persons to whom the rights under the options pass by will or by the laws of
descent or distribution.
Payment of the exercise price upon exercise of an option must be made
in cash or, in the discretion of the Board of Directors or the Committee, in
shares of Common Stock. Where payment is made in Common Stock, such Common
Stock is valued for such purpose at the fair market value of such shares
(determined as specified in the 1995 Plan) on the date of exercise.
If the number of outstanding shares of Common Stock is increased or
decreased, or if such shares are exchanged for a different number or kind of
shares through reorganization, merger, recapitalization, reclassification, stock
dividend, stock split, combination of shares or other similar transaction, the
aggregate number of shares available for issuance under the 1995 Plan, the
<PAGE>
number of shares subject to outstanding options, the per share exercise price of
outstanding options and the aggregate number of shares with respect to which
options may be granted to a single participant will be appropriately adjusted by
the Board of Directors or the Committee.
No grant of options may be made under the 1995 Plan more than 10 years
after its date of adoption. The Board of Directors has authority to
terminate or to amend the 1995 Plan, subject to the approval of the Company's
stockholders under certain specified circumstances, provided that such action
does not impair the rights of any holder of outstanding options without the
consent of such holder.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the principal federal income
tax consequences of the 1995 Plan based on current provisions of the Code and
applicable regulations thereunder.
INCENTIVE STOCK OPTIONS. No income is recognized by an optionee at the
time of grant of an incentive stock option or at the time of exercise of such
option while employed by the Company (or within limited periods after
termination of employment). However, the exercise of an incentive stock
option may result in an alternative minimum tax liability for the optionee.
If the optionee continues to hold the shares received upon the exercise of
the option for at least two years from the date the option was granted and
one year from the date the option was exercised, the optionee will recognize
capital gain or loss when he disposes of the shares. Such gain or loss will
be measured by the difference between the option price and the amount
received for the shares at the time of disposition.
If the optionee disposes of shares acquired upon exercise of an
incentive stock option before the expiration of the one-year and two-year
holding periods described above, the optionee will recognize ordinary income
in the year of disposition, in an amount equal to the excess of the fair
market value of the shares on the date the option was exercised (or, if less,
the amount received upon disposition of the shares) over the option price.
Any amount realized upon such a disposition in excess of the fair market
value of the shares on the date of exercise will be treated as capital gain.
NON-QUALIFIED STOCK OPTIONS. An optionee recognizes no income at the
time a non-qualified stock option is granted. At the time a non-qualified
stock option is exercised, an optionee will recognize ordinary income in an
amount equal to the excess of the fair market value of the shares on the date
of exercise over the exercise price. An optionee will recognize capital gain
or loss on the subsequent sale of the option shares in an amount equal to the
difference between the amount realized and the tax basis of such shares. The
tax basis will equal the option price paid plus the amount included in the
optionee's income by reason of the exercise of the option.
COMPANY DEDUCTIONS. As a general rule, the Company will be entitled to
a deduction for federal income tax purposes at the same time and in the same
amount that an employee recognizes ordinary income from options granted under
the Plan, to the extent such income is considered reasonable compensation
under the Code. The Company will not, however, be entitled to a deduction to
the extent compensation in excess of $1 million is paid during any year to an
executive officer named in the Summary Compensation Table of the proxy
statement who was employed by the Company at year-end, unless the
compensation qualifies as "performance-based" under Section 162(m) of the
Code or certain other exceptions apply. In addition, the Company will not be
entitled to a deduction with respect to payments to employees which are
deemed to constitute "excess parachute payments" under Section 280G of the
Code and do not qualify as reasonable compensation pursuant to that Section;
such payments will subject the recipients to a 20% excise tax.
OPTIONS GRANTED SUBJECT TO STOCKHOLDER APPROVAL
Subject to stockholder approval of the proposed amendment to the 1995
Plan, the Company granted stock options to purchase 291,725 shares of Common
Stock, to 98 employees other than the Company's Executive Officers or
Directors, in fiscal 2000. Such options, generally, are exercisable for ten
years from the date of grant, were granted with exercise price equal to the
fair market value of the Common Stock on the date of grant, and vest as to
20% thereof on each anniversary of the date of grant. The Company has not
granted any stock options to its Executive Officers or Directors which are
subject to stockholder approval.
VOTE REQUIRED
Approval of the proposed amendment to the 1995 Plan requires the
affirmative vote of the holders of at least a majority of the shares of
Common Stock represented and voting at the Annual Meeting.
<PAGE>
ITEM 5.
APPROVAL OF SELECTION OF INDEPENDENT AUDITORS
Arthur Andersen LLP has been selected as independent auditors to audit
the Company's financial records for the year ending March 31, 2001, and
management recommends that the selection be approved by the stockholders.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do
so and are expected to be available to answer appropriate questions. Arthur
Andersen LLP have audited the Company's financial statements since 1987, and
management considers Arthur Andersen LLP to be well qualified. The
affirmative vote of a majority of the votes cast by the holders of shares
present or represented and entitled to vote at the Annual Meeting is required
for the ratification of the appointment of Arthur Andersen LLP as independent
auditors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
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 2000 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 2000.
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, 2000 (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 in May 1996, the Company
loaned $75,000 to John S. McGee, Vice President -- Operations. The 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, 2000 was $25,285.
On March 27, 2000, the Company entered into an agreement with
Charles C. Tillinghast, III, Chairman of the Board of Directors of the
Company. Under the agreement, the Company repurchased from Mr. Tillinghast
200,000 shares of common stock at a price per share equal to a 10% discount
from the average of the closing prices for the common stock on the Nasdaq
National Market for each trading day from March 27, 2000 through March 31,
2000. The average price of the Company's common stock on the Nasdaq National
Market for that period was $19.29 per share. Accordingly, the purchase price
for the 200,000 shares of common stock was $17.36. In addition, the Company
agreed to purchase from Mr. Tillinghast up to an additional 256,100 shares of
common stock by not later than December 31, 2000. The purchase price for the
additional shares of common stock will be equal to a 10% discount from the
average closing prices for the stock on the Nasdaq National Market for each
trading day of the week prior to the date of sale. Mr. Tillinghast will not
be obligated to sell any such shares if the market price is less than 75% of
the price of the March transaction; and the Company will not be obligated to
purchase any additional shares if the market price is more than 125% of the
price of the March transaction or if the Company has filed a registration
statement covering those shares prior to December 31, 2000.
FUTURE STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 2001 Annual
Meeting of Stockholders must be submitted sufficiently far in advance so that
it is received by AMS not later than February 27, 2001.
<PAGE>
OTHER MATTERS
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.
Our Annual Report for the fiscal year ended March 31, 2000 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 26, 2000
<PAGE>
REVOCABLE PROXY
ADVANCED MARKETING SERVICES, INC.
ANNUAL MEETING OF STOCKHOLDERS-- JULY 27, 2000
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, Suite 400, San Diego,
California 92121 on Thursday, July 27, 2000, 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:
Item 1. ELECTION OF DIRECTORS
|_| AUTHORITY GIVEN |_| WITHHOLD AUTHORITY
to vote for all nominees to vote for all nominees.
listed below (except as
indicated to the
contrary below).
(INSTRUCTIONS): TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
Charles C. Tillinghast, III
Michael M. Nicita
Loren C. Paulsen
Item 2. Approval of amendment to the Certificate of Incorporation to
increase the authorized number of shares of common stock from 20,000,000 to
100,000,000.
FOR |_| AGAINST |_| ABSTAIN |_|
Item 3. Approval of amendment to the Certificate of Incorporation to
authorize 2,000,000 shares of undesignated Preferred Stock.
FOR |_| AGAINST |_| ABSTAIN |_|
Item 4. Approval of amendment to the 1995 Stock Option Plan to increase
by 1,000,000 the number of shares of Common Stock reserved for issuance.
FOR |_| AGAINST |_| ABSTAIN |_|
Item 5. Ratification of Arthur Andersen LLP as independent auditors.
FOR |_| AGAINST |_| ABSTAIN |_|
Item 6. To transact any other business as may properly come before the
meeting and any adjournment or postponement.
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
THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF "AUTHORITY GIVEN" FOR
PROPOSAL 1 AND "FOR" PROPOSALS 2, 3, 4 AND 5. THE PROXY CONFERS AUTHORITY TO
AND WILL BE VOTED "AUTHORITY GIVEN" FOR PROPOSAL 1 AND "FOR" PROPOSALS 2, 3,
4 AND 5 UNLESS OTHER INSTRUCTIONS ARE INDICATED, IN WHICH CASE THE PROXY WILL
BE VOTED IN ACCORDANCE WITH SUCH INSTRUCTIONS.
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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:_______________________________, 2000
___________________________________________
(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 __________________________
