SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ___)
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[_] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
ADVANCED MARKETING SERVICES, INC.
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[Advanced Marketing Services Logo]
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 14, 2003
To the Stockholders of
Advanced Marketing Services, Inc.
The Annual Meeting of Stockholders of Advanced Marketing Services, Inc.
will be held on Thursday, August 14, 2003, at 9:00 a.m., Pacific Daylight Time,
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 and restate our 1995 Stock Option
Plan;
3. To ratify the selection of Deloitte & Touche LLP as our independent
auditors for the fiscal year ending March 31, 2004; and
4. 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,
2003 is also enclosed.
The Board of Directors has fixed the close of business, June 30, 2003 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
/s/ Charles C. Tillinghast
CHARLES C. TILLINGHAST
Chairman
San Diego, California
June 30, 2003
[NYSE Logo]
TABLE OF CONTENTS
Page
----
PROXY STATEMENT ........................................................... 1
GENERAL INFORMATION ....................................................... 1
CORPORATE GOVERNANCE MATTERS .............................................. 1
ITEM 1. ELECTION OF DIRECTORS ............................................. 2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............ 3
MANAGEMENT ................................................................ 4
EXECUTIVE COMPENSATION .................................................... 9
ITEM 2. PROPOSED AMENDMENT TO AND RESTATEMENT OF THE COMPANY'S 1995
STOCK OPTION PLAN ........................................................ 15
ITEM 3. APPROVAL OF SELECTION OF INDEPENDENT AUDITORS ..................... 20
REPORT OF THE AUDIT AND COMPLIANCE COMMITTEE .............................. 21
FISCAL 2003 AUDIT FIRM FEE SUMMARY ........................................ 21
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ................... 22
FORM 10-K ................................................................. 22
CERTAIN TRANSACTIONS ...................................................... 22
FUTURE STOCKHOLDER PROPOSALS .............................................. 22
OTHER MATTERS ............................................................. 22
APPENDIX A ADVANCED MARKETING SERVICES, INC. EQUITY INCENTIVE PLAN ........ A-1
APPENDIX B ADVANCED MARKETING SERVICES AUDIT AND COMPLIANCE
COMMITTEE CHARTER ........................................................ B-1
APPENDIX C ADVANCED MARKETING SERVICES, INC. BOARD GUIDELINES ON
CORPORATE GOVERNANCE ISSUES .............................................. C-1
APPENDIX D ADVANCED MARKETING SERVICES, INC. CODE OF ETHICS ............... D-1
ADVANCED MARKETING SERVICES, INC.
5880 Oberlin Drive
San Diego, California 92121
(858) 457-2500
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PROXY STATEMENT
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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, August 14, 2003, 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 the
amendment to and restatement of the 1995 Stock Option Plan; (iii) FOR the
ratification of Deloitte & Touche LLP as independent auditors; and (iv) 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 30, 2003 are
entitled to receive notice of and to vote at the Annual Meeting. As of the
close of business on June 1, 2003, we had outstanding 19,055,455 shares of
Common Stock, which constituted all of our outstanding voting securities,
excluding 4,096,974 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 represented and voting
is required for approval of the proposed amendment to and restatement of the
1995 Stock Option Plan, the ratification of Deloitte & Touche LLP as
independent auditors and 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 July 14, 2003.
CORPORATE GOVERNANCE MATTERS
The Company is committed to the highest standards of integrity and
corporate governance and to full compliance with the Sarbanes-Oxley Act of 2002
and related rules and regulations of the Securities and Exchange Commission and
the New York Stock Exchange. Copies of the Company's Audit and Compliance
Committee Charter as well as our Board Guidelines on Corporate Governance
Issues and Code of Ethics are attached as appendices to this Proxy Statement.
ITEM 1. ELECTION OF DIRECTORS
Nominees
Pursuant to the Company's Certificate of Incorporation, our Board of
Directors 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 nine directors; three of whom are Class A directors, three 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 2006 and until their
successors are duly elected and qualified. The Governance and Nominating
Committee has recommended to the Board of Directors, and the Board of Directors
has nominated, each of the following incumbent Class A directors for reelection
as a Class A director:
Charles C. Tillinghast 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.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 2003
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.
Common Stock Percent of
Beneficially Outstanding
Name (and Address (1)) of Beneficial Owner Owned Common Stock
------------------------------------------ -------------- -------------
FMR Corp. ................................................ 2,148,500 11.3%
Charles C. Tillinghast, III (2) .......................... 2,099,088 11.0%
Loren C. Paulsen (3) ..................................... 1,641,524 8.6%
Grace & White, Inc. ...................................... 1,499,587 7.9%
ICM Asset Management, Inc. ............................... 1,122,550 5.9%
Kahn Brothers & Co., Inc. ................................ 986,840 5.2%
Edward J. Leonard (4) .................................... 205,500 1.1%
Michael M. Nicita (5) .................................... 182,711 1.0%
Kevan M. Lyon (6) ........................................ 153,322 *
James A. Leidich (7) ..................................... 69,675 *
Trygye E. Myhren (8) ..................................... 53,000 *
Lynn S. Dawson (9) ....................................... 52,050 *
William G. Berryman (10) ................................. 51,000 *
Robert F. Bartlett (11) .................................. 36,000 *
E. William Swanson (12) .................................. 17,625 *
All executive officers, officers, and directors as a group
(28 persons) (13) ....................................... 4,823,910 25.3%
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* 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 FMR
Corp. is 82 Devonshire Street; Boston, MA 02109. The address of Grace &
White, Inc. is 515 Madison Avenue; New York, NY 10022. The address of ICM
Asset Management, Inc. is 601 W. Main Avenue #600; Spokane, WA 99201. The
address of Kahn Brothers & Co. is 555 Madison Avenue; New York, NY 10022.
(2) Mr. Tillinghast's shares are held of record (i) 2,024,088 shares by a
Revocable Trust, dated April 7, 1988, of which Mr. Tillinghast and his wife
are trustees and (ii) 75,000 shares by a Charitable Remainder Unit Trust of
which neither Mr. Tillinghast nor his wife are trustees and as to which
they disclaim beneficial ownership. The first amount also includes 950
shares subject to options exercisable within 60 days held by Cynthia B.
Tillinghast, an Editor in the Advantage Publishing Group division of the
Company and the wife of Mr. Tillinghast. Mr. Tillinghast disclaims
beneficial ownership of such 950 shares. See "Certain Transactions."
(3) Of Mr. Paulsen's shares, 1,416,892 are held of record by a Revocable Trust,
dated July 12, 1999, the trustee of which is Mr. Paulsen, and 224,632 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 226,430 shares held by this Irrevocable Trust.
(4) Includes 205,500 shares subject to options exercisable within 60 days.
(5) Includes 180,988 shares subject to options exercisable within 60 days.
(6) Includes 142,250 shares subject to options exercisable within 60 days.
(7) Includes 33,000 shares subject to options exercisable within 60 days.
(8) Includes 33,000 shares subject to options exercisable within 60 days.
(9) Includes 51,750 shares subject to options exercisable within 60 days.
3
(10) Includes 51,000 shares subject to options exercisable within 60 days.
(11) Includes 33,000 shares subject to options exercisable within 60 days.
(12) 1500 of Mr. Swanson's shares are held of record by F.W. Cygnet Pension
Plan, of which Mr. Swanson is a trustee. 16,125 shares are subject to
options exercisable within 60 days.
(13) Includes 1,003,623 shares subject to options exercisable within 60 days.
MANAGEMENT
Directors and Executive Officers
The following sets forth certain information as of June 1, 2003 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.
Name Age Position
---- ----- ---------------------------------------------------------
Charles C. Tillinghast ........... 66 Chairman of the Board of Directors
Michael M. Nicita ................ 50 President, Chief Executive Officer and Director
Loren C. Paulsen ................. 53 Executive Vice President -- Facility Development and
Special Projects and Director
Robert F. Bartlett ............... 58 Director(2)(3)
Lynn S. Dawson ................... 52 Director(1)(3)
Bruce E. Grout ................... 56 Director(1)(2)
James A. Leidich ................. 60 Director(1)(3)
Trygve E. Myhren ................. 66 Director(2)(3)
E. William Swanson ............... 67 Director(1)(2)
William G. Berryman .............. 59 Executive Vice President and Chief Information Officer
Michael J. Focht ................. 46 Executive Vice President -- Operations
Edward J. Leonard ................ 52 Executive Vice President, Chief Financial Officer and
Secretary
Kevan M. Lyon .................... 44 Executive Vice President -- Distribution/Publisher
Services
Adam R. Zoldan ................... 50 Executive Vice President -- Wholesaler/Retailer Services
Steven T. Boyle .................. 40 Vice President -- Treasurer
Tara M. Catogge .................. 36 Vice President -- Sales, Clubs
Sandra Miller Christie ........... 48 Vice President -- Advertising
Mark J. Flournoy ................. 37 Vice President -- Controller
Colleen M. Hartwell .............. 43 Vice President -- Human Resources
Michael W. W. Kidd ............... 52 Vice President -- International
Thomas J. Leettola ............... 56 Vice President -- Facility and Systems Design
Christopher S. McKenney .......... 37 Executive Vice President & Chief Operating Officer --
Publishers Group West
Susan W. Naythons ................ 49 Executive Vice President of Sales -- Publishers Group
West
Mark S. Ouimet ................... 48 Executive Vice President of Marketing -- Publishers
Group West
John J. Rogers ................... 51 Vice President -- Partner Applications Services
Jacob S. Sherman ................. 51 Vice President -- Operations
Sydney J. Stanley ................ 54 Vice President -- Product Development
Martin S. Vrabel ................. 41 Vice President -- Financial Planning and Analysis
------------
(1) Member of the Audit and Compliance Committee.
(2) Member of the Compensation Committee.
(3) Member of the Governance and Nominating Committee.
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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 to that time, 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. 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 -- Facility Development
and Special Projects 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 has
served as Managing Director of Combined Resources International, a picture
frame manufacturing company, since 1996. 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, Traffic and Distribution, The Wholesale Club,
Inc. (1990-1991); and Executive Vice President of Merchandising, Traffic and
Distribution, The Price Club (1981-1990).
Ms. Dawson has been a Director of the Company since April 1994. From 2000
to June 2003, she served as Executive Vice President for Worldwide Dreams LLC,
a manufacturing company of quality fashion handbags, small leather goods and
accessories of licensed and private brands to all channels of distribution.
From 1997 through 1999, she was President, Small Leather Goods Division, at
Worldwide Dreams LLC and had been with the company since 1992. 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/General
Merchandise Manager, Broadway Department Store (1978-1990) and Buyer and
Department Manager, May Company Department Store (1972-1978).
Mr. Grout has been a Director of the Company since February 2002. Since
1999, he has served as Senior Vice President -- International of Airborne
Express, Inc., a global shipping company. From 1990 through 1998, Mr. Grout was
Vice President -- General Manager -- Asia-Pacific of Airborne Express, Inc. Mr.
Grout has over three decades of experience in the international shipping
industry, having guided sales strategies for Airborne Express across the United
States, the Far East, Singapore, Australia and New Zealand.
Mr. Leidich has been a Director of the Company since November 1986. Since
1983, he has served as President of Graywave, Inc., a management-consulting
firm. Mr. Leidich serves on the boards of numerous privately held companies.
From July 1994 to July 1999, he served as Chairman and Chief Executive Officer
of Bright Start, Inc., which operates childcare centers. 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 childcare 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 as a Director of the
Providence Journal Company, a diversified media company and concurrently as
President and CEO of King Broadcasting Corporation. Since 1998, he has been
President of Myhren Media, Inc., a media investment and consultation firm, and
Myhren Ventures, L.P. He is a trustee of the University of Denver and the U.S.
Ski and Snowboard Team. His other directorships include J.D. Edwards, Inc. and
Dreyfus Founders Funds, Inc. From 1975 until 1988, 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
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Systems, Inc., Continental Cablevision, Inc., Citizen's Bank Corp., Lifespan,
Inc., Verio, Inc., Peapod, 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 is
trustee of the Crescent Porter Hale Foundation in San Francisco. 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. 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 Senior Vice President and Chief Information
Officer for ProSource Distribution Services, a foodservice distributor to chain
restaurants. Mr. Berryman served for two years as Vice President and Chief
Information Officer for The Penn Traffic Company, a grocery retailer, from 1989
to 1993 and was employed by Dominick's Finer Foods as Vice President, MIS. In
addition, Mr. Berryman served Gateway Foods for 16 years as the Senior
Information Services Executive.
Mr. Focht joined the Company in August 2000 as Executive Vice President,
Operations. Prior to joining AMS, he was employed with Ingram Industries, Inc.
for 25 years. His most recent role at Ingram was as the Senior Vice President
-- Operations for their book group division and President, Ingram
Transportation Company.
Mr. Leonard joined the Company in April 1999 as Executive Vice President
and Chief Financial Officer. Mr. Leonard was appointed Secretary of the Company
in April 1999. 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 Timer 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 various 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 with
responsibility for buying, advertising and the Advanced Global Distribution
division of AMS. In January 2002, Ms. Lyon assumed responsibility for Publishers
Group West, in addition to her existing wholesale buying and advertising
activities for AMS. In January of this year, Ms. Lyon's title was changed to
Executive Vice President -- Distribution/Publisher Services. From 1983 through
1988, she worked for Allergan, Inc., a pharmaceutical company, in various sales
and product management positions.
Mr. Zoldan joined the Company in January 1995 as Vice President --
Marketing, was promoted to Executive Vice President in April 2001, and has
responsibility for sales and relations with the Company's major customers. In
January of this year, Mr. Zoldan's title was changed to Executive Vice
President -- Wholesale/Retailer Services. From 1988 to 1995, Mr. Zoldan was
General Sales Manager for Eastman, a division of Office Depot. From 1984-1986,
he served as General Sales Manager for Office Club (now Office Depot), and from
1981-1984 as District Sales Manager for McKesson Office Products.
Mr. Boyle joined the Company in 1995 as Controller. He was promoted to
Vice President and Controller in April 1999. In August 2002, he was appointed
to the newly created position of Vice President and Treasurer. 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. Catogge joined the Company in August 1994 as a Marketing Manager. In
December 1994, she was promoted to General Marketing Manager for the SAM'S CLUB
account and in 1998 became the Director of Club Sales with responsibility for
leading AMS's sales and marketing efforts in all club accounts. Prior to
joining AMS, she was employed by Harcourt Brace, Inc. as its Sales Director for
the Academic Press book division.
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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, she worked for other book retailers.
Mr. Flournoy joined the Company in October, 2001 as Director of Business
Systems and participated in the Company's Systems Implementation Team. When the
new system implementation was complete, Mr. Flournoy was promoted to Vice
President -- Controller in August, 2002. He was Assistant Controller at
Proxima, a manufacturer and distributor of desktop projectors, from 1999 to
2000. From 1996 through 1999, Mr. Flournoy served as Controller of
Adidas-Taylor Made Golf Company, a worldwide manufacturer and distributor of
golf equipment. From 1992 through 1996, Mr. Flournoy was an accountant with
Ernst & Young and is a CPA.
Ms. Hartwell joined the Company in February 2002 as Vice President of
Human Resources. Prior to joining AMS, she served as Vice President of Human
Resources for CompassLearning, an educational software company and division of
WRC Media from April 2000 to November 2001. From 1998 through 2000, Ms.
Hartwell was Director of Human Resources for Kelly Staff Leasing, a human
resource outsourcing company and a division of Kelly Services. From 1985
through 1996, she held a variety of human resource positions with Time Warner
Cable in San Diego, and in 1996 became Vice President of Human Resources for
Time Warner Cable (a business unit of AOL Time Warner Inc.) in Rochester, New
York.
Mr. Kidd joined the Company as Managing Director (U.K.) and (Europe) in
April 2000. While retaining this position, Mr. Kidd was also promoted to Vice
President -- International of the Company in August 2002. From 1996 to 2000, he
was Managing Director with Lloyds Chemist, plc, and from 1994 to 1996 he was
Managing Director within Spicers, Ltd., where he was responsible for sales,
marketing and distribution within the pharmaceutical and office equipment and
stationery industries, respectively. Mr. Kidd was Group General Manager at Dana
Corporation in Toledo, Ohio from 1984 to 1996 where he was responsible for the
sales, marketing and distribution of automotive parts and accessories within
the UK and Europe. From 1978 to 1984, he was Manager at Marks and Spencer, plc,
the leading retailer in the U.K., where he oversaw the management of various
retail stores in both fashion and food.
Mr. Leettola joined the Company in June 1986 as Operations Manager of the
Northern California facility. He was promoted to Vice President -- Facilities
and Systems Design in January 2001. From 1972 through June 1986, he held a
variety of operational management positions with major retailers, including The
Bon Marche, Liberty House and Macy's. Prior to 1972, he was involved in the
support of oceanographic and environmental research programs through private
foundations and government agencies, including C&GS & E.S.S.A.
Mr. McKenney has served as Executive Vice President and Chief Operating
Officer of Publishers Group West since AMS acquired PGW in January of 2002. He
joined PGW as Executive Vice President and Chief Operating Officer in January
2001. From 1993 to 2000, Mr. McKenney held various positions at Digital Pond, a
graphic services and software company, including the position of President and
Chief Executive Officer from 1998 to 2000. From 1987 to 1993, Mr. McKenney
served as a newspaper publishing marketing manager, worked as an associate in a
consulting firm, and completed an MBA.
Ms. Naythons has served as Executive Vice President of Sales of Publishers
Group West, since joining the company in 2002. From 1995 to 2002, Ms. Naythons
was an independent literary agent, served as a consultant for BMR Associates, a
media consulting firm in Corte Madera, California, and as Director of Marketing
at HarperSanFrancisco, a division of HarperCollins Publishers. From 1986 to
1995, Ms. Naythons held managerial and executive positions with several New
York publishers including Warner Books, where she served as Vice President of
Sales and Marketing. Ms. Naythons began her book career in 1976 at Ingram Book
Company in Nashville, Tennessee.
Mr. Ouimet has served as Executive Vice President of Marketing of
Publishers Group West since June 2002. From July 1998 to June 2002, he served
as Executive Vice President, Sales and Marketing of PGW. He served as Senior
Vice President of Marketing, Vice President of Marketing and Director of
Marketing PGW from April 1990 to July 1998. From November 1977 until April
1990, he served in various buying, marketing and management capacities at the
Stanford Bookstore in Palo Alto, California.
Mr. Rogers joined the Company in March 1987 as an Order
Processing/Receiving Coordinator. In July of 1989, he became Special Projects
Coordinator, and in April 1990, was promoted to Operations Staff Manager. In
April 1994, John advanced to the executive position of Director of Logistics,
and then to Director of Systems
7
Development, where he developed and implemented the Company's proprietary
Vendor Managed Inventory (VMI) Software. He served in that position until his
most recent promotion in September 2000 to Vice President -- Partner
Application Services.
Mr. Sherman joined the company in June 2003 as Vice President --
Operations. Prior to joining AMS, he was Vice President -- Distribution at
Random House for two years. Prior to Random House, he worked in various
positions at Ingram Industries, most recently as Vice President -- Operations
with responsibility for establishing the Business to Consumer business. He also
established and managed the publisher distribution business for Ingram. Clients
included Houghton Mifflin, IDG Books, Microsoft Press, and Grove/Atlantic. Mr.
Sherman received his MBA from Owen Graduate School in 1987.
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.
Ms. Stanley is currently responsible for Advanced Marketing Services' Product
Development Program. This includes oversight of all proprietary publishing, as
well as the Company's imprints: Silver Dolphin, Laurel Glen, Portable Press and
Thunder Bay.
Mr. Vrabel joined the Company in September 1999 as Director of Finance and
was promoted to Vice President -- Financial Planning and Analysis in August
2002. From 1997 to 1999, Mr. Vrabel was a Director of Finance for Telespectrum
Worldwide, a telemarketing company. From 1992 to 1997, Mr. Vrabel served as
Worldwide Controller for Warner Home Video, a division of Warner Bros. Studio,
a business unit of Time Warner Inc. From 1988 to 1992, Mr. Vrabel served as
Assistant Controller and Controller for MCA Records, Inc./MCA Music Publishing,
a division of MCA Inc. Mr. Vrabel was an accountant with Ernst & Young from
1985 to 1988.
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. Effective October 1, 2002, each
director who is not otherwise employed by the Company receives an annual
director's fee of $18,000 plus $1,250 for each Board meeting attended in person
and $625 for each telephonic Board meeting attended in person or by telephone.
In addition, each outside director is paid $1,000 for each Audit and Compliance
Committee, Compensation Committee or Governance and Nominating Committee
meeting attended that is held on dates other than those of Board meetings and
$500 for each telephonic committee meeting attended in person or by telephone.
Committee chairs also receive an annual fee of $5,000 for serving in such
capacity. The Company reimburses each director for reasonable out-of-pocket
expenses incurred in his or her capacity as a member of the Board of Directors
and committee member. No payments are made for actions taken in writing.
Although there is no formal policy with regard thereto, from time-to-time
outside members of the Board are granted options to purchase shares of common
stock under the Company's stock option plan solely for their service as members
of the Board. The Board of Directors held a total of 8 regularly scheduled and
special meetings during the year ended March 31, 2003. Each director attended
at least 75% of the aggregate of the total number of meetings of the Board of
Directors and all committees thereof on which such director served held during
the fiscal year ended March 31, 2003.
Our Audit and Compliance Committee is composed of four outside directors
who are not officers or employees of our subsidiaries. In the opinion of the
Board of Directors, and as "independent" is defined under the standards of the
New York Stock Exchange, these directors are independent of management and free
of any relationship that would interfere with the exercise of independent
judgment as members of the Audit and Compliance Committee.
The members of the Audit and Compliance Committee of the Board of
Directors are Messrs. Leidich, Grout, Swanson and Ms. Dawson. Based on their
education and experience, Messrs. Leidich, who also serves as Chairman, and
Swanson, have been designated as Audit Committee Financial Experts. The Audit
and Compliance Committee held ten meetings during Fiscal 2003. The functions of
the Audit and Compliance Committee are primarily to select 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. Our Board of Directors has
adopted a written charter
8
for the Audit and Compliance Committee. A copy of the Audit and Compliance
Committee Charter is included as Appendix A to this Proxy Statement.
The members of the Compensation Committee of the Board of Directors are
Messrs. Bartlett, Grout, Myhren and Swanson. The Compensation Committee held
four meetings during Fiscal 2003. 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, to determine the amount of contributions
to the Company's profit sharing plan and, since September 2003, to grant
options and awards under the Company's 1995 Stock Option Plan. Members of the
committee are outside directors who are not officers or employees of the
Company or the Company's subsidiaries. In the opinion of the Board, these
directors are independent of management and free of any relationship that would
interfere with their exercise of independent judgment as members of this
committee.
The members of the Governance and Nominating Committee of the Board of
Directors are Messrs. Bartlett, Leidich, and Myhren and Ms. Dawson. The
Governance and Nominating Committee held six meetings during Fiscal 2003. The
functions of the Governance and Nominating Committee are to review the
practices and policies of the Board of Directors, recommend qualified
candidates for election to the Board of Directors, recommend and lead processes
for evaluating Board and Chief Executive Officer performance, monitor senior
management succession plans and monitor our policies with respect to
significant issues of corporate public responsibility. Members of the committee
are outside directors who are not officers or employees of the Company or the
Company's subsidiaries. In the opinion of the Board, these directors are
independent of management and free of any relationship that would interfere
with their exercise of independent judgment as members of this committee.
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
The following is a report of the Compensation Committee concerning its
policies and actions in Fiscal 2003 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 that is appropriate in relation to the compensation of other executive
officers of the Company. The Company generally weights increases in executive
compensation in favor of performance and, therefore, salary increases are
generally related to the tax adjusted inflation rate and bonuses are generally
related to performance.
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 2003, there were no payments under the Company's bonus plan to
executive officers because minimum targeted net income objectives were not met.
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
9
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 2003, based on the contributions of the employees and
performance of the Company, the Compensation Committee approved a grant of
options to purchase 70,000 shares of Common Stock to Michael M. Nicita. The
Compensation Committee also approved grants of options to purchase 25,000
shares of Common Stock each to the following Named Executive Officers: Edward
J. Leonard, Kevan M. Lyon and William G. Berryman. 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 2003.
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, based on the same factors applicable to executive officer
compensation generally.
As the Company did not meet the minimum net income objective established
by the Compensation Committee, there were no bonuses awarded under the
Company's bonus plan to Mr. Nicita for Fiscal 2003.
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. It is the policy of
the Compensation Committee 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 $1,000,000.
The Compensation Committee
Robert F. Bartlett, Chairman
Bruce E. Grout
Trygve E. Myhren
E. William Swanson
10
Summary of Cash and Other Compensation
The following table sets forth information concerning the annual and
long-term compensation for services rendered in all capacities to the Company
for the fiscal years ended March 31, 2003, 2002 and 2001 of those persons who
were, at March 31, 2003, (i) the Chief Executive Officer and (ii) the four
other most highly paid executive officers of the Company (collectively the
"Named Executive Officers").
Long-Term
Annual Compensation Compensation All Other
Fiscal ------------------------------ Options Compensation
Name and Capacity in Which Served Year Salary($)(1) Bonus($)(1) (#)(2) ($)(3)
----------------------------------- -------- -------------- ------------- -------------- ----------------
Charles C. Tillinghast ............ 2003 $204,961 $ -- -- $ 18,077
Chairman of the 2002 $199,346 $ 75,000 1,000(4) $ 65,266
Board of Directors 2001 $202,223 $176,570 3,750(4) $ 93,859
Michael M. Nicita ................. 2003 $444,468 $ -- 70,000 $ 38,071
Chief Executive Officer, 2002 $429,029 $163,500 85,000 $119,406
President and Director 2001 $363,575 $328,670 82,500 $134,976
Edward J. Leonard ................. 2003 $284,923 $ -- 25,000 $ 52,928
Executive Vice President 2002 $274,077 $ 62,500 30,000 $ 46,933
and Chief Financial Officer 2001 $250,384 $150,190 30,000 $ 35,165
Kevan M. Lyon ..................... 2003 $244,647 $ -- 25,000 $ 26,636
Executive Vice President -- 2002 $223,769 $ 62,500 -- $ 47,512
Distribution/Publisher Services 2001 $195,913 $126,790 60,000 $ 66,936
William G. Berryman ............... 2003 $232,500 $ -- 25,000 $ 24,465
Executive Vice President -- 2002 $224,039 $ 37,500 30,000 $ 17,266
Information Services 2001 $166,923 $ 78,625 75,000 $ 75,808(5)
------------
(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) Number of options shown reflects adjustments made in connection with three
three-for-two stock splits of the Company's Common Stock effected by the
Company in February 1999, January 2000 and May 2001.
(3) The amounts indicated for Fiscal 2003 include, for Messrs. Tillinghast,
Nicita, Leonard, Ms. Lyon and Mr. Berryman, respectively. No profit sharing
contributions were made on behalf of the above-mentioned executive officers
for Fiscal 2003. The Company match under the Company's deferred
compensation plan (excluding interest) was $1,580, $20,728, $38,995,
$13,089 and $11,139 for each individual, respectively. Automobile
allowances amounted to $14,740, $14,740, $11,390, $11,390 and $11,390, for
each individual, respectively. The Company made matching 401(k) plan
contributions of $1,757, $2,603, $2,543, $2,157 and $1,936 for each
individual, respectively. 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.
(4) Represents options held by Cynthia B. Tillinghast, an Editor in the
Advantage Publishing Group division of the Company. Ms. Tillinghast is the
wife of Mr. Tillinghast.
(5) Includes relocation expenses of $66,201.
11
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 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 decreased proportionately
such that during the final year of the term of his Employment Agreement, Mr.
Tillinghast was only 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
(which was increased by the Board of Directors to $200,000), subject to
adjustment by the Board of Directors. Mr. Tillinghast was also entitled to
participate in any Company compensation plan and receive fringe benefits,
generally on the same basis as other senior Company executives. Although the
Employment Agreement has expired, Mr. Tillinghast has continued to serve as
Chairman of the Board of Directors on substantially the same terms as the
expired agreement, and the Company has an understanding with Mr. Tillinghast
that he will continue in such capacity through the end of the Company's current
fiscal year and possibly on a year-to-year basis thereafter.
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 to 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 if 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 26, 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 a
current annual base salary of $295,000 and provides that if Mr. Leonard's
employment is involuntarily terminated for any reason, other than gross
negligence or fraud, his base salary will be continued for 6 months.
12
Option Grants
The following table sets forth with respect to the Named Executive
Officers certain information concerning grants of stock options in Fiscal 2003.
The Company has not granted stock appreciation rights to the Named Executive
Officers.
Potential Realized Value at
Number of % of Total Exercise Grant Assumed Annual Rate of
Securities Options or Date Stock Price Appreciation
Underlying Granted to Base Market for Option Term (1)
Options Employees in Price Price Expiration -------------------------------
Granted (#) Fiscal Year ($/Sh) ($/Sh) Date 0%($) 5%($) 10%($)
------------- -------------- ---------- ----------- ---------- ------- ----------- ----------
Charles C. Tillinghast (2) ......... 500 0.11% $ 13.70 $ 13.70 10/3/2012 $0 $ 4,308 $ 10,917
Michael M. Nicita .................. 70,000 15.11% $ 13.70 $ 13.70 10/3/2012 $0 $603,110 $1,528,399
Edward J. Leonard .................. 25,000 5.40% $ 13.70 $ 13.70 10/3/2012 $0 $215,396 $ 545,857
Kevan M. Lyon ...................... 25,000 5.40% $ 13.70 $ 13.70 10/3/2012 $0 $215,396 $ 545,857
William G. Berryman ................ 25,000 5.40% $ 13.70 $ 13.70 10/3/2012 $0 $215,396 $ 545,857
------------
(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.
(2) Options granted to Cynthia B. Tillinghast, an Editor in the Advantage
Publishing Group division of the Company. Ms. Tillinghast is the wife of
Mr. Tillinghast.
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
2003 and unexercised options held as of the end of the fiscal year.
Number of Value of Unexercised
Unexercised Options In-the-Money Options
Shares Fiscal Year End (#) at Fiscal Year End ($)(1)
Acquired on Value ----------------------------- -----------------------------
Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
-------------- -------------- ------------- --------------- ------------- --------------
Charles C. Tillinghast (2) ... 2,550 $ 20,607 950 3,100 $ 152 $ --
Michael M. Nicita ............ -- $ -- 180,988 232,500 $718,890 $ --
Edward J. Leonard ............ -- $ -- 205,500 117,625 $979,648 $121,318
Kevan M. Lyon ................ 10,000 $162,243 142,250 79,000 $761,493 $ --
William G. Berryman .......... -- $ -- 51,000 79,000 $ -- $ --
------------
(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, 2003 as reported by the New York Stock
Exchange ($11.19 per share).
(2) Represents options held by Cynthia B. Tillinghast, an Editor in the
Advantage Publishing Group division of the Company. Ms. Tillinghast is the
wife of Mr. Tillinghast.
13
Performance Graph
The following graph presents a comparison of the Company's stock
performance with the broad-based NASDAQ Market Index, the Dow Jones Industry
Group OTS-Other Specialty Retailers Index, the Standard & Poor's 500 Index, and
the Russell 2000 Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ADVANCED MARKETING SERVICES, INC., THE S & P 500 INDEX,
THE S & P SMALLCAP 600 INDEX
THE DOW JONES US RETAILERS, SPECIALTY (EXCLUDING DRUG & APPAREL) INDEX,
AND THE RUSSELL 2000 INDEX
[line graph]
------------
* $100 invested on 3/31/98 in stock or index -- including reinvestment of
dividends. Fiscal year ending March 31.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Cumulative Total Return
-----------------------------------------------------------------------
3/98 3/99 3/00 3/01 3/02 3/03
----------- ----------- ----------- ----------- ----------- -----------
ADVANCED MARKETING SERVICES, INC. ......... 100.00 104.58 251.40 284.11 437.82 204.94
S & P 500 ................................. 100.00 118.46 139.72 109.43 109.69 82.53
S & P SMALLCAP 600 ........................ 100.00 80.87 105.69 104.34 127.26 95.68
DOW JONES US RETAILERS, SPECIALTY
(EXCLUDING DRUG & APPAREL) ............... 100.00 141.99 168.78 115.57 148.34 100.26
RUSSELL 2000 .............................. 100.00 83.74 114.98 97.35 110.97 81.04
14
ITEM 2. PROPOSED AMENDMENT TO AND RESTATEMENT OF
THE COMPANY'S 1995 STOCK OPTION PLAN
The Board of Directors has amended and restated the amended Advanced
Marketing Services, Inc. 1995 Stock Option Plan (the "Plan") subject to
stockholder approval. The Board of Directors has determined that amending and
restating the Plan is necessary to reflect changes in applicable law, to update
and simplify the document and to make the amendments described below. Material
changes to the Plan include, but are not limited to: (1) adding additional
forms of equity compensation and (2) providing that the Plan will be of
unlimited duration. The changes to the Plan are intended to provide greater
flexibility as to the types of awards that may be granted and the manner in
which they are administered. Accordingly, the name of the Plan is being changed
to the Advanced Marketing Services, Inc. Equity Incentive Plan. No additional
shares of Common Stock will be reserved for insurance under the proposed
amendment and restatement of the Plan.
The revised document amends and restates the Plan, which was originally
effective as of July 25, 1995, and which was subsequently amended, with the
approval of the stockholders, as of January 19, 1999, December 10, 1999, July
27, 2000, April 18, 2001 and July 26, 2001.
The purposes of the Plan are to attract, retain and reward its employees,
officers, directors, consultants, advisors and suppliers and strengthen the
mutuality of interests between such persons and the Company's shareholders by
offering such persons an equity interest in the Company and thereby enabling
them to participate in the long-term success and growth of the Company.
The following is a description of the material terms of the Plan as
amended subject to shareholder approval, and as such is qualified by the actual
terms of the Plan, the full text of which is set forth in Exhibit A to this
Proxy Statement.
DESCRIPTION OF THE PLAN
Stock Subject to Plan
The total number of shares of Common Stock which may be issued Shares
awarded under the Plan is 4,693,750, subject to adjustment as provided under
the Plan. The shares may be authorized but unissued shares or shares that have
been issued and reacquired by the Company. The payment of any award in cash
will not count against the Plan's share limit. To the extent a stock option is
surrendered for cash or terminates without having been exercised, or an award
terminates without the holder having received payment of the award, or shares
awarded are forfeited, the shares subject to such award will be available for
future awards under the Plan. In addition, shares surrendered to the Company in
payment of the option price or withheld by the Company to satisfy the award
holder's tax liability with respect to an award will not count against the
share limit and will become available for issuance under the Plan.
Administration
The Plan is administered by a committee designated by the Board consisting
solely of independent directors, or if no committee is designated, then the
Plan is to be administered by the entire Board. (The Board of Directors or
committee so acting is referred to in this description as the "Administrator").
The Administrator is authorized to, among other things, grant and amend
(provided however that no amendment may impair the rights of the award holder
without his or her written consent) awards to eligible persons under the Plan;
to adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall deem advisable; to interpret the terms and
provisions of the Plan and any award granted under the Plan; and to make all
factual and other determinations necessary or advisable for the administration
of the Plan.
Eligibility
Awards under the Plan may be made by the Administrator, in its discretion,
to all employees, officers, directors, consultants, advisors and suppliers of
the Company or of any subsidiary of the Company. In addition, awards may be
granted to prospective employees, officers, directors, consultants, advisors
and suppliers but such awards may not become effective until the recipient's
commencement of employment or service with the Company or a subsidiary.
Incentive options may be granted only to employees and prospective employees.
15
Types of Awards
A summary of the types of awards available under the Plan is set forth
below. In general, the Administrator has the authority to grant awards on such
terms and conditions as it may determine in its sole discretion, except where
such discretion is limited by an express provision of the Plan.
1. STOCK OPTIONS. Incentive stock options ("ISOs") and non-qualified stock
options may be granted for such number of shares of Common Stock as the
Administrator determines, subject to Plan limits. A stock option will be
exercisable at such times, over such term and subject to such terms and
conditions as the Administrator determines, at an exercise price determined by
the Administrator. (ISOs are subject to restrictions as to exercise period and
price as required by the Internal Revenue Code and may be granted only to
employees.) Payment of the exercise price may be made in such manner as the
Administrator may provide, including one or more of cash, delivery of shares of
Common Stock already owned or subject to award under the Plan, broker-assisted
"cashless exercise," or any other manner determined by the Administrator. The
Administrator may provide that the stock options will be transferable. Upon an
optionee's termination of service, the option will be exercisable to the extent
determined by the Administrator, either in the initial grant or an amendment
thereto. The Administrator may provide that an option that is outstanding on
the date of an optionee's death will remain outstanding for an additional
period after the date of such death, notwithstanding that such option would
otherwise have expired earlier.
If the Company acquires another business, by merger or otherwise, the
Administrator may grant stock options in substitution for any options or other
stock awards or stock-based awards granted by the other business or an
affiliate thereof. The substitute stock options may be granted on such terms as
the Administrator deems appropriate in the circumstances, notwithstanding any
limitations on stock options contained in the Plan.
2. RESTRICTED STOCK. Restricted stock is stock that has been issued,
subject to forfeiture. In making an award of restricted stock, the
Administrator will determine the periods, if any, during which the stock is
subject to forfeiture, and the purchase price, if any, for the stock. The
vesting of restricted stock (i.e., the point at which it becomes
non-forfeitable) may be conditioned upon the completion of a specified period
of service with the Company or a related company, the attainment of specific
performance goals, or such other criteria as the Administrator may determine.
During the restricted period, the award holder may not sell, transfer, pledge
or assign the restricted stock, except as may be permitted by the
Administrator. The certificate evidencing the restricted stock will be
registered in the holder's name, although the Administrator may direct that it
remain in the possession of the Company until the restrictions have lapsed.
Except as may otherwise be provided by the Administrator, upon the termination
of the award holder's service for any reason during the period before the
restricted stock has vested, or in the event the conditions to vesting are not
satisfied, all restricted stock that has not vested will be subject to
forfeiture and the Administrator may provide that any purchase price paid by
the holder, or an amount equal to the restricted stock's fair market value on
the date of forfeiture, if lower, will be paid to the holder. During the
restricted period, the holder will have the right to vote the restricted stock
and to receive any cash dividends, if so provided by the Administrator. Stock
dividends will be treated as additional shares of restricted stock and will be
subject to the same terms and conditions as the initial grant, unless otherwise
provided by the Administrator.
3. PERFORMANCE STOCK. A performance stock award represents the Company's
agreement to deliver shares of Common Stock (or their cash equivalent) at a
specified future time. The delivery may be conditioned upon the completion of a
specified period of service, the attainment of specific performance goals, or
such other criteria as the Administrator may determine, or may provide for the
unconditional delivery of shares (or their cash equivalent) on the specified
date. In making an award of performance stock the Administrator will determine
the period during which receipt of the Common Stock will be deferred, and the
period, if any, during which the award is subject to forfeiture, and may
provide for the issuance of stock pursuant to the award without payment
therefore. At the end of the deferral period, and assuming the satisfaction of
any condition(s) to vesting of the award, the award will be settled in shares
of Common Stock, cash equal to the fair market value of such stock, or a
combination thereof, as provided by the Administrator. During the deferral
period set by the Administrator, the award holder may not sell, transfer,
pledge or assign the performance stock award. In the event of termination of
service before the performance stock award has vested, the award will be
forfeited, except as may be provided by the Administrator. Performance stock
will carry no voting rights until such time as shares of Common Stock are
actually issued. The Administrator has the right to determine whether and when
dividend equivalents will be paid with respect to a performance stock award.
16
4. STOCK APPRECIATION RIGHTS. A Stock Appreciation Right entitles the
holder thereof to receive, for each share as to which the award is granted,
payment of an amount, in cash, shares of Common Stock, or a combination
thereof, as determined by the Administrator, equal in value to the excess of
the fair market value of a share of Common Stock on the date of exercise over
an amount specified by the Administrator. Any such award will be in such form
and have such terms and conditions as the Administrator may determine. The
grant will specify the number of shares of Common Stock as to which the Stock
Appreciation Right is granted. The Administrator may provide that a Stock
Appreciation Right may be exercised only within the 60-day period following
occurrence of a change of control (as defined below). The Administrator may
also provide that in the event of a change of control the amount to be paid
upon exercise of a Stock Appreciation Right will be based on the change of
control price.
5. BONUS STOCK AWARDS. The Administrator may award Bonus Stock to any
eligible award recipient subject to such terms and conditions as the
Administrator shall determine. The grant of Bonus Stock may, but need not, be
conditioned upon the attainment of specified performance objectives or upon
such other criteria as the Administrator may determine. The Administrator may
waive such conditions in whole or in part (except that the Administrator may
not waive conditions or restrictions with respect to awards intended to qualify
under Section 162(m) of the Code unless such waiver would not cause the award
to fail to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code). Unless otherwise specified by the Administrator,
no money shall be paid by the recipient for the Bonus Stock. Alternatively, the
Administrator may, after considering any accounting impact to the Company,
offer eligible employees the opportunity to purchase Bonus Stock at a discount
from its fair market value. Bonus Stock awards will be satisfied by the
delivery of the designated number of shares of Common Stock which are not
subject to restriction.
Deferrals of Awards
The Administrator may permit an award recipient to elect to defer receipt
of any award for a specified period or until a specified event, upon such terms
as are determined by the Administrator.
Change of Control Provisions
The Plan authorizes the Administrator to grant awards that contain special
vesting provisions if there is a change of control. If and to the extent
provided in the award, upon a change of control stock options will become fully
exercisable, the restrictions and vesting conditions applicable to restricted
stock and deferred stock will lapse and such shares and awards will be deemed
fully vested, and the Administrator, in its sole discretion, may accelerate the
payment date of all vested restricted stock and deferred stock. A "change of
control" means generally (1) the acquisition of securities representing 35% or
more of the voting power of the Company's stock by a person, entity, or group
(with certain exceptions) unless at least 80% of the securities were acquired
directly from the Company; (2) the date on which one-third or more of the
members of the Board of Directors are not "Current Directors" (which term is
defined to mean the Company's current Directors and Directors whose nomination
or election was approved by a majority of the Directors who at the time were
"Current Directors"); (3) a merger or consolidation with another entity where
the Company's stockholders immediately prior to the merger or consolidation
would no longer comprise a majority of the voting shares of the surviving
corporation in substantially the same proportions as their prior ownership, or
where the directors of the Company would not constitute a majority of the Board
of Directors of the surviving corporation; (4) a sale of substantially all of
the assets of the Company; or (5) approval by the stockholders of a plan of
complete liquidation of the Company.
Amendment
The Plan may be discontinued or amended by the Board of Directors, except
that no amendment or discontinuation may adversely affect any outstanding award
without the holder's written consent. Amendments may be made without
stockholder approval except as required to satisfy stock exchange or regulatory
requirements.
Adjustment
In the case of certain changes in the Company's structure affecting the
Common Stock, appropriate adjustments may be made by the Board of Directors, in
its sole discretion, in order to prevent dilution or enlargement of benefits,
in the number of shares reserved under the Plan, the number of shares as to
which awards can be granted to any individual in any fiscal year, in the number
and kind of shares or other property subject to awards then outstanding under
the Plan and, where applicable, the amount to be paid by the award holders or
the Company pursuant to awards
17
under the Plan. In addition, upon certain corporate transactions the
Administrator may, in its discretion, (1) accelerate the vesting and/or payment
date of awards, (2) cash-out outstanding awards, (3) provide for the assumption
of outstanding awards by a surviving or transferee company, (4) provide that in
lieu of shares of Common Stock of the Company, the award recipient will be
entitled to receive the consideration he/she would have received for such
shares in the transaction (or the value of such consideration in cash), and/or
(5) require stock options to be either exercised prior to the transaction or
forfeited.
Awards Under the Plan
The following table sets forth the number of stock options granted to the
persons set forth below since the adoption of the Plan, including options that
have been exercised, and options that are outstanding.
Number of Shares
Name and Position Underlying Options
----------------- -------------------
Michael M. Nicita
President, Chief Executive Officer and Nominee for Election as Director .............. 1,058,750
Charles C. Tillinghast
Chairman of the Board and Nominee for Election as Director ........................... 8,625*
Edward J. Leonard
Executive Vice President, Chief Financial Officer and Secretary ...................... 338,125
Kevan M. Lyon
Executive Vice President -- Distribution/Publisher Services .......................... 180,625
William G. Berryman
Executive Vice President -- Information Services ..................................... 130,000
All current executive officers as a group ............................................. 2,018,438
All current directors who are not executive officers as a group ....................... 302,500
Loren C. Paulsen
Nominee for Election as Director ..................................................... --
Each associate of any such directors, executive officers or nominees .................. --
Each other person who received or is to receive 5 percent of such options,
warrants or rights ................................................................... --
All current employees, including all current officers who are not executive officers,
as a group ........................................................................... 2,009,946
------------
* Represents options held by Cynthia B. Tillinghast, an Editor in the Advantage
Publishing Group division of the Company. Ms. Tillinghast is the wife of Mr.
Tillinghast.
18
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax aspects of stock
options that may be awarded under the Plan based upon the laws in effect on the
date hereof.
Non-Qualified Stock Options
No income is recognized by the optionee at the time a non-qualified option
is granted. Upon exercise of the option, the optionee recognizes ordinary
income in an amount equal to the excess of the fair market value of the shares
on the date of exercise over the option price. At disposition of the shares,
any appreciation after the date of exercise is treated as capital gain.
Incentive Stock Options
An optionee generally will not recognize income upon the exercise of an
Incentive Stock Option during the period of his/her employment with the Company
or one of its subsidiaries or within three months after termination of
employment. (The optionee also will not recognize income upon the exercise of
an Incentive Stock Option within 12 months after the optionee's termination of
employment by reason of permanent and total disability, or within the remaining
term of the option following the optionee's death). However, the "spread"
between the fair market value of the shares at the time of exercise and the
exercise price is includible in the calculation of alternative minimum taxable
income for purposes of the alternative minimum tax. The exercise of an
Incentive Stock Option after the expiration of the specified time periods
results in such exercise being treated in the same manner as the exercise of a
non-qualified stock option.
If the optionee holds the shares received throughout the "ISO holding
period," which is both the two-year period after the ISO was granted and the
one-year period after the exercise of the ISO, the optionee will recognize
capital gain or loss when he/she disposes of the shares. Such gain or loss will
be measured by the difference between the exercise price and the amount
received for the shares at the time of disposition. If the shares acquired upon
exercise of an ISO are disposed of before the end of the ISO holding period,
the disposition is a "disqualifying disposition," which causes the optionee to
recognize ordinary income in an amount generally equal to the lesser of (i) the
excess of the value of the shares on the option exercise date over the exercise
price or (ii) the excess of the amount received upon disposition of the shares
over the exercise price. Any excess of the amount received upon disposition of
the shares over the value of the shares on the exercise date will be taxed to
the optionee as capital gain.
Company Deductions
As a general rule, the Company or one of its subsidiaries will be entitled
to a deduction for federal income tax purposes at the same time and in the same
amount that an employee or director recognizes ordinary income from awards
under the Plan, to the extent such income is considered reasonable compensation
under the Internal Revenue Code. The Company will not, however, be entitled to
a deduction with respect to payments that are contingent upon a change of
control if such payments are deemed to constitute "excess parachute payments"
pursuant to 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. In addition, the Company will not be entitled
to a deduction to the extent compensation in excess of $1 million is paid to an
executive officer named in 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. The Plan authorizes the Administrator to grant
awards that qualify as "performance based," as well as awards that do not
qualify.
19
Additional Information -- Stock Price and Equity Compensation Information
On March 31, 2003, the closing price of the Company's stock on the New
York Stock Exchange was $11.19 per share. The following table sets forth
information as of March 31, 2003 with respect to the Company's common stock
that may be issued as equity compensation upon the exercise of stock options
and warrants:
Number of securities Number of securities
to be issued Weighted-average remaining available
upon exercise of exercise price of for future issuance
outstanding options, outstanding options, under equity
Plan Category warrants and rights warrants and rights compensation plans*
------------- ---------------------- ---------------------- ---------------------
Equity compensation approved by security holders
-- 1995 Stock Option Plan ..................... 3,018,260 $ 10.82 1,675,490
-- 1987 Stock Option Plan ..................... 69,526 $ 1.95 2,211,974
-- Employee Stock Purchase Plan ............... -- $ -- 269,526
Equity compensation not approved by security
holders** ..................................... -- $ -- --
--------- ------- ---------
Total .......................................... 3,087,786 $ 10.62 4,156,990
========= ======= =========
------------
* Excludes securities to be issued upon exercise of outstanding options,
warrants and rights
** Not applicable
Vote Required
Approval of the proposed amendment to and restatement of the 1995 Stock
Option 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE PROPOSED AMENDMENT TO AND RESTATEMENT OF THE PLAN.
ITEM 3. APPROVAL OF SELECTION OF INDEPENDENT AUDITORS
Deloitte & Touche LLP has been selected as independent auditors to audit
the Company's financial records for the year ending March 31, 2004, and
management recommends that the selection be approved by the stockholders.
Representatives of Deloitte & Touche LLP will be present at the Annual
Meeting and will be given the opportunity to make a statement, if they desire,
and to respond to questions.
Approval of the selection of Deloitte & Touche LLP as the Company's
independent auditors 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS.
20
REPORT OF THE AUDIT AND COMPLIANCE COMMITTEE
The following is the report of the Audit and Compliance Committee with
respect to our audited financial statements for the fiscal year ended March 31,
2003. The Audit and Compliance Committee has reviewed and discussed our audited
financial statements with management. The Audit and Compliance Committee has
discussed with Deloitte & Touche LLP, our independent auditors, the matters
required to be discussed by Statement of Auditing Standards No. 61,
Communication with Audit Committees, which includes, among other items, matters
related to the conduct of the audit of our financial statements. The Audit and
Compliance Committee has also reviewed written disclosure and the letter from
Deloitte & Touche LLP required by Independence Standards Board Standard No. 1,
which relates to the auditors' independence, as discussed with Deloitte &
Touche LLP. The Audit and Compliance Committee acts pursuant to its written
Audit and Compliance Committee Charter, a copy of which is attached to this
Proxy Statement as Appendix B. Based on the review and discussion referred to
above, the Audit and Compliance Committee recommended to our Board of Directors
that our audited financial statements be included in our Annual Report on Form
10-K for the fiscal year ended March 31, 2003.
The Audit Committee
James E. Leidich, Chairman
Lynn S. Dawson
Bruce E. Grout
E. William Swanson
FISCAL 2003 AUDIT FIRM FEE SUMMARY
Audit Fees
Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and
their respective affiliates (collectively, "Deloitte & Touche"), billed us an
aggregate of approximately $235,000 in fees for professional services rendered
in connection with the audit of our financial statements for the fiscal year
ended March 31, 2003 and the reviews of the financial statements included in
each of our quarterly reports on Form 10-Q during the fiscal year ended March
31, 2003.
Deloitte & Touche LLP billed us an aggregate of approximately $176,000 in
fees for professional services rendered in connection with the audit of our
financial statements for the fiscal year ended March 31, 2002.
Arthur Andersen LLP billed us an aggregate of approximately $79,900 in
fees for professional services rendered in connection with the reviews of the
financial statements included in each of our quarterly reports on Form 10-Q
during the fiscal year ended March 31, 2002 and Australia audit services.
Audit Related Fees
Arthur Andersen LLP billed us an aggregate of approximately $132,000 in
fees for other services rendered to us during the fiscal year ended March 31,
2002, primarily related to acquisition/due diligence services (relating to our
acquisition of PGW).
Tax Fees
Deloitte & Touche LLP billed us an aggregate of approximately $179,000 in
fees for tax compliance and tax advice related to services provided during or
regarding the fiscal year ended March 31, 2003.
Arthur Andersen LLP billed us an aggregate of approximately $55,000 in
fees for tax compliance, tax advice, and tax planning related to services
provided during or regarding the fiscal year ended March 31, 2002.
All Other Fees
Deloitte & Touche LLP billed us an aggregate of approximately $5,000 in
fees for other services rendered to us during the fiscal year ended March 31,
2003, primarily related to additional consulting services provided.
Arthur Andersen LLP billed us an aggregate of approximately $85,000 in
fees for other services rendered to us during the fiscal year ended March 31,
2002, primarily related to additional consulting services provided.
21
Audit and Compliance Committee Pre-approval Policies and Procedures
In accordance with its charter, the Audit and Compliance Committee is
responsible for approving all terms relating to the engagement of our
independent auditors, including all non-audit, review or attest services to be
performed by the independent auditors.
The Audit and Compliance Committee has considered whether the provision of
non-audit services by Deloitte & Touche LLP is compatible with maintaining
auditor independence and has only approved such services when it was
specifically determined that the provision of such services would be compatible
with maintaining auditor independence.
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 2003 no person who at
any time during Fiscal 2002 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 2003.
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, 2003 (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.
FUTURE STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 2004 Annual
Meeting of Stockholders must be submitted sufficiently far in advance so that
it is received by AMS not later than March 2, 2004.
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, 2003 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
/s/ Charles C. Tillinghast
CHARLES C. TILLINGHAST
Chairman
San Diego, California
June 30, 2003
22
APPENDIX A
ADVANCED MARKETING SERVICES, INC.
EQUITY INCENTIVE PLAN
This is an amendment and restatement of the Advanced Marketing Services,
Inc., 1995 Stock Option Plan, as previously amended as of January 19, 1999,
December 10, 1999, July 27, 2000, April 18, 2001 and July 26, 2001 (the
"Previously Amended Plan"). This amendment and restatement amends and restates
the Previously Amended Plan in its entirety and changes its name to the
Advanced Marketing Services, Inc. Equity Incentive Plan.
SECTION 1. Purpose and Types of Awards
1.1 The purposes of the Amended and Restated Advanced Marketing Services,
Inc. 1995 Stock Option Plan (the "Plan") are to attract, retain and reward its
employees, officers, directors, consultants, advisors and suppliers and
strengthen the mutuality of interests between such persons and the Company's
shareholders by offering such persons an equity interest in the Company and
thereby enabling them to participate in the long-term success and growth of the
Company.
1.2 Awards under the Plan may be in the form of (i) Stock Options; (ii)
Stock Appreciation Rights; (iii) Restricted Stock; (iv) Performance Stock;
and/or (v) Bonus Stock.
SECTION 2. Definitions
"Board" shall mean the Board of Directors of the Company.
"Bonus Stock" shall mean an award described in Section 10 of the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time-to-time.
"Committee" shall mean the committee of the Board consisting solely of
independent directors in accordance with requirements of law and designated by
the Board to administer the Plan, or if no committee is designated, and in any
case with respect to awards to non-employee directors, the entire Board.
"Common Stock" shall mean the common stock of the Company, par value
$0.001 per share.
"Company" shall mean Advanced Marketing Services, Inc., a Delaware
corporation and its successors.
"Director Option" shall mean a Stock Option granted under Section 12 of
the Plan.
"Employee" shall mean an employee of the Company or of any Subsidiary of
the Company.
"Fair Market Value" of the Common Stock on any date shall mean the value
determined in good faith by the Committee, by formula or otherwise; provided,
however, that unless the Committee determines to use a different measure, the
fair market value of the Common Stock shall be the closing sales price of the
Common Stock (on such exchange or market as is determined by the Board to be
the primary market for the Common Stock) on the date in question (or if shares
of Common Stock were not traded on such date, then on the next preceding
trading day on which a sale of Common Stock occurred).
"Incentive Option" shall mean a Stock Option granted under the Plan which
both is designated as an Incentive Option and qualifies as an incentive stock
option within the meaning of Section 422 of the Code.
"Non-Employee Director" shall mean a director of the Company who is not
employed by the Company or any of its Subsidiaries.
"Non-Qualified Option" shall mean a Stock Option granted under the Plan
which either is designated as a Non-Qualified Option or does not qualify as an
incentive stock option within the meaning of Section 422 of the Code.
"Optionee" shall mean any person who has been granted a Stock Option under
the Plan or who is otherwise entitled to exercise a Stock Option.
"Option Period" shall mean, with respect to any portion of a Stock Option,
the period after such portion has become exercisable and before it has expired
or terminated.
"Performance Stock" shall mean an award described in Section 9 of the
Plan.
A-1
"Relationship" shall mean the status of employee, officer, or director of
the Company or any Subsidiary of the Company.
"Restricted Stock" shall mean an award described in Section 8 of the Plan.
"Stock Appreciation Right" shall mean an award described in Section 7 of
the Plan.
"Stock Option" shall mean an Incentive Option or a Non-Qualified Option,
and, unless the context requires otherwise, shall include Director Options.
"Subsidiary" shall mean any corporation, partnership, joint venture or
other entity in which the Company owns, directly or indirectly, more than 50%
of the ownership interests.
SECTION 3. Administration
3.1 The Plan shall be administered by the Committee. Notwithstanding
anything to the contrary contained herein, only the Board shall have authority
to grant awards to Non-Employee Directors and to amend and interpret such
awards.
3.2 The Committee shall have the following authority and discretion with
respect to awards under the Plan: to grant and amend (provided however that no
amendment shall impair the rights of the award holder without his or her
written consent) awards to eligible persons under the Plan; to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan
as it shall deem advisable; to interpret the terms and provisions of the Plan
and any award granted under the Plan; and to make all factual and other
determinations necessary or advisable for the administration of the Plan. In
particular, and without limiting its authority and powers, the Committee shall
have the authority and discretion:
(a) to select the persons to whom awards will be granted from among
those eligible;
(b) to determine the number of shares of Common Stock to be covered by
each award granted hereunder subject to the limitations contained herein;
(c) to determine the terms and conditions of any award granted
hereunder, including, but not limited to, any vesting or other restrictions
based on such continued employment, performance objectives and such other
factors as the Committee may establish, and to determine whether the terms
and conditions of the award have been satisfied;
(d) to determine the treatment of awards upon an Employee's
retirement, disability, death, termination for cause or other termination
of employment, or during a leave of absence or upon a Non-Employee
Director's termination of Relationship;
(e) to determine that the award holder has no rights with respect to
any dividends declared with respect to any shares covered by an award or
that amounts equal to the amount of any dividends declared with respect to
the number of shares covered by an award (i) will be paid to the award
holder currently or (ii) will be deferred and deemed to be reinvested or
(iii) will otherwise be credited to the award holder;
(f) to determine whether, to what extent, and under what circumstances
Common Stock and other amounts payable with respect to an award will be
deferred either automatically or at the election of an award holder,
including providing for and determining the amount (if any) of deemed
earnings on any deferred amount during any deferral period;
(g) to amend the terms of any award, prospectively or retroactively;
provided, however, that no amendment shall impair the rights of the award
holder without his or her written consent;
(h) to determine, pursuant to a formula or otherwise, the Fair Market
Value of the Common Stock on a given date;
(i) after considering any accounting impact to the Company, to provide
that the shares of Common Stock received as a result of an award shall be
subject to a right of repurchase by the Company and/or a right of first
refusal, in each case subject to such terms and conditions as the Committee
may specify;
A-2
(j) to adopt one or more sub-plans, consistent with the Plan,
containing such provisions as may be necessary or desirable to enable
awards under the Plan to comply with the laws of other jurisdictions and/or
qualify for preferred tax treatment under such laws; and
(k) to delegate such administrative duties as it may deem advisable to
one or more of its members or to one or more Employees or agents.
3.3 The Committee shall have the right to designate awards as
"Performance Awards." The grant or vesting of a Performance Award shall be
subject to the achievement of performance objectives established by the
Committee based on one or more of the following criteria, in each case applied
to the Company on a consolidated basis and/or to a business unit and which the
Committee may use as an absolute measure, as a measure of improvement relative
to prior performance, or as a measure of comparable performance relative to a
peer group of companies: sales, operating profits, operating profits before
taxes, operating profits before interest expense and taxes, earnings before
interest, taxes, depreciation and amortization, net earnings, earnings per
share, return on equity, return on assets, return on invested capital, total
shareholder return, cash flow, debt to equity ratio, margin, market share,
stock price, economic value added, and market value added.
3.4 All determinations and interpretations made by the Committee pursuant
to the provisions of the Plan shall be final and binding on all persons,
including the Company and award holders. Determinations by the Committee under
the Plan relating to the form, amount, and terms and conditions of awards need
not be uniform, and may be made selectively among persons who receive or are
eligible to receive awards under the Plan, whether or not such persons are
similarly situated.
3.5 The Committee shall act by a majority of its members at a meeting
(present in person or by conference telephone) or by unanimous written consent.
3.6 No member of the Board or the Committee, nor any officer or Employee
of the Company or its Subsidiaries acting on behalf of the Board or the
Committee, shall be personally liable for any action, determination or
interpretation taken or made with respect to the Plan or any award hereunder.
The Company shall indemnify all members of the Board and the Committee and all
such officers and Employees acting on their behalf, to the extent permitted by
law, from and against any and all liabilities, costs and expenses incurred by
such persons as a result of any act, or omission to act, in connection with the
performance of such persons' duties, responsibilities and obligations under the
Plan.
SECTION 4. Stock Subject to Plan
4.1 The total number of shares of Common Stock which may be issued under
the Plan shall be 4,693,700 shares, subject to adjustment as provided in
Section 4.4. Such shares may consist of authorized but unissued shares or
shares that have been issued and reacquired by the Company. The exercise of a
Stock Appreciation Right for cash or the payment of any award in cash shall not
count against this share limit.
4.2 To the extent a Stock Option is surrendered for cash or terminates
without having been exercised, or an award terminates without the holder having
received payment of the award, or shares awarded are forfeited, the shares
subject to such award shall again be available for distribution in connection
with future awards under the Plan. Shares of Common Stock equal in number to
the shares surrendered in payment of the option price, and shares of Common
Stock which are withheld in order to satisfy federal, state or local tax
liability, shall not count against the above limit, and shall again be
available for awards under the Plan.
4.3 No Employee shall be granted Stock Options and/or Stock Appreciation
Rights with respect to more than 300,000 shares of Common Stock in any fiscal
year, and no Employee shall be granted Restricted Stock, Performance Stock
and/or Bonus Stock awards with respect to more than 200,000 shares of Common
Stock in any fiscal year, subject to adjustment as provided in Section 4.4.
4.4 In the event of any merger, reorganization, consolidation, sale of
substantially all assets, recapitalization, stock dividend, stock split,
spin-off, split-up, split-off, distribution of assets or other change in
corporate structure affecting the Common Stock such that an adjustment is
determined by the Board in its discretion to be appropriate, after considering
any accounting impact to the Company, in order to prevent dilution or
enlargement of benefits under the Plan, then the Board shall, in such a manner
as it may in its discretion deem equitable, adjust any or all of (i) the
aggregate number and kind of shares reserved for issuance under the Plan, (ii)
the number and kind of shares as to which awards may be granted to any
individual in any fiscal year, (iii) the number and kind of shares
A-3
or other property subject to outstanding awards, and (iv) the exercise price of
outstanding Stock Options and any other amounts to be paid by award holders or
the Company, as the case may be, with respect to outstanding awards.
In addition, upon the dissolution or liquidation of the Company or upon
any reorganization, merger, or consolidation as a result of which the Company
is not the surviving corporation (or survives as a wholly-owned subsidiary of
another corporation), or upon a sale of substantially all the assets of the
Company, the Board may, after considering any accounting impact to the Company,
take such action as it in its discretion deems appropriate to (i) accelerate
the time when awards vest and/or may be exercised and/or may be paid, (ii) cash
out outstanding Stock Options and/or other awards at or immediately prior to
the date of such event, (iii) provide for the assumption of outstanding Stock
Options or other awards by surviving, successor or transferee corporations,
(iv) provide that in lieu of shares of Common Stock of Company, the award
recipient shall be entitled to receive the consideration he would have received
in such transaction in exchange for such shares of Common Stock (or the Fair
Market Value thereof in cash), and/or (v) provide that Stock Options shall be
exercisable for a period of at least 20 business days from the date of receipt
of a notice from the Company of such proposed event, following the expiration
of which period any unexercised Stock Options shall terminate.
The Board's determination as to which adjustments shall be made under this
Section 4.4 and the extent thereof shall be final, binding and conclusive.
4.5 No fractional shares shall be issued or delivered under the Plan. The
Committee shall determine whether the value of fractional shares shall be paid
in cash or other property, or whether such fractional shares and any rights
thereto shall be cancelled without payment.
SECTION 5. Eligibility
5.1 The persons who are eligible for awards hereunder are employees,
officers, directors, consultants, advisors and suppliers of the Company or of
any Subsidiary of the Company. In addition, awards under such Sections may be
granted to prospective employees, officers, directors, consultants, advisors
and suppliers but such awards shall not become effective until the recipient's
commencement of employment or service with the Company or a Subsidiary.
Incentive Options may be granted only to employees and prospective employees.
Award recipients under the Plan shall be selected from time to time by the
Committee, in its sole discretion, from among those eligible.
5.2 Non-Employee Directors shall be granted awards under Section 12 in
addition to any awards which may be granted to them under other Sections of the
Plan.
SECTION 6. Stock Options
6.1 The Stock Options awarded to employees under the Plan may be of two
types: (i) Incentive Options and (ii) Non-Qualified Options. To the extent that
any Stock Option granted to an employee does not qualify as an Incentive
Option, it shall constitute a Non-Qualified Option. All Stock Options awarded
to persons who are not employees shall be Non-Qualified Options.
6.2 Subject to the following provisions, Stock Options awarded under
Section 6 of the Plan shall be in such form and shall have such terms and
conditions as the Committee may determine.
(a) Option Price. The option price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee,
after considering any accounting impact to the Company; provided, however,
that the exercise price of any Incentive Option or Non-Qualified Option
shall not be less than the Fair Market Value of the Common Stock on the
date of the award thereof.
(b) The Committee shall not confer a benefit on any Optionee by
adjusting or amending the exercise price of any Option previously awarded
to any Optionee, whether through amendment, cancellation, replacement
grants or any other means ("repriced") without prior approval by
shareholders; provided, however, that the limitations of this Section
6.2(b) shall not be applicable to (i) adjustments pursuant to Section 4.4
of this Agreement or (ii) grants of Options to preserve the value of
outstanding options or similar rights assumed or replaced in connection
with any acquisition by the Company, regardless of the form which such
acquisition may take, where the Company issues Options to replace options
or similar rights granted by the entity or any affiliate of the entity
being acquired by the Company.
(c) Option Term. The term of each Stock Option shall be fixed by the
Committee, but in no event to exceed ten years from the date of grant.
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(d) Exercisability. Stock Options shall be exercisable and shall vest
at such time or times and subject to such terms and conditions as shall be
determined by the Committee. The Committee may impose different schedules
for exercisability and vesting. After considering any accounting impact to
the Company, the Committee may waive any exercise or vesting provisions or
accelerate the exercisability or vesting of the Stock Option at any time in
whole or in part.
(e) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the Option Period by giving the Company notice of
exercise in the form approved by the Committee (which may be written or
electronic) specifying the number of whole shares to be purchased,
accompanied by payment of the aggregate option price for such shares.
Payment of the option price shall be made in such manner as the Committee
may provide in the award, which may include (i) cash (including cash
equivalents), (ii) delivery (either by actual delivery of the shares or by
providing an affidavit affirming ownership of the shares) of shares of
Common Stock already owned by the Optionee for at least six months, (iii)
to the extent permitted by law, broker-assisted "cashless exercise" in
which the Optionee delivers a notice of exercise together with irrevocable
instructions to a broker acceptable to the Company to sell shares of Common
Stock (or a sufficient portion of such shares) acquired upon exercise of
the Stock Option and remit to the Company a sufficient portion of the sale
proceeds to pay the total option price and any withholding tax obligation
resulting from such exercise, (iv) any other manner permitted by law, or
(v) any combination of the foregoing.
(f) No Shareholder Rights. An Optionee shall have no rights to
dividends or other rights of a shareholder with respect to shares subject
to a Stock Option until the Optionee has duly exercised the Stock Option
and a certificate for such shares has been duly issued (or the Optionee has
otherwise been duly recorded as the owner of the shares on the books of the
Company).
(g) Termination of Employment or Relationship. Following the
termination of an Optionee's employment or other Relationship with the
Company or its Subsidiaries, the Stock Option shall be exercisable to the
extent determined by the Committee. The Committee may provide different
post-termination exercise provisions which may vary based on the nature of
and reason for the termination. The Committee may provide that,
notwithstanding the option term fixed pursuant to Section 6.2(c), a
Non-Qualified Option which is outstanding on the date of an Optionee's
death shall remain outstanding for an additional period after the date of
such death. The Committee shall have absolute discretion to determine the
date and circumstances of any termination of employment or other
Relationship.
(h) Non-transferability. Unless otherwise provided by the Committee,
(i) Stock Options shall not be transferable by the Optionee other than by
will or by the laws of descent and distribution, and (ii) during the
Optionee's lifetime, all Stock Options shall be exercisable only by such
Optionee. The Committee, in its sole discretion, may permit Stock Options
to be transferred to such other transferees and on such terms and
conditions as may be determined by the Committee.
(i) Surrender Rights. The Committee may, after considering any
accounting impact to the Company, provide that Stock Options may be
voluntarily surrendered for cash upon any terms and conditions set by the
Committee.
6.3 Notwithstanding the provisions of Section 6.2, Incentive Options
shall be subject to the following additional restrictions:
(a) Option Price. No Incentive Option shall have an option price which
is less than the Fair Market Value of the Common Stock on the date of the
award of the Incentive Option (or, with respect to awards to prospective
employees, on the first day of employment).
(b) Option Term. No Incentive Option shall be exercisable more than
ten years after the date such Incentive Stock Option is awarded.
(c) Additional Limitations for 10% Shareholders. No Incentive Option
granted to an Employee who owns more than 10% of the total combined voting
power of all classes of stock of the Company or any of its parent or
subsidiary corporations, as defined in Section 424 of the Code, shall (i)
have an option price which is less than 110% of the Fair Market Value of
the Common Stock on the date of award of the Incentive Option or (ii) be
exercisable more than five years after the date such Incentive Option is
awarded.
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(d) Exercisability. The aggregate Fair Market Value (determined as of
the time the Incentive Option is granted) of the shares with respect to
which Incentive Options (granted under the Plan and any other plans of the
Company, its parent corporation or subsidiary corporations, as defined in
Section 424 of the Code) are exercisable for the first time by an Optionee
in any calendar year shall not exceed $100,000.
(e) Notice of Disqualifying Disposition. An Optionee's right to
exercise an Incentive Option shall be subject to the Optionee's agreement
to notify the Company of any "disqualifying disposition" (for purposes of
Section 422 of the Code) of the shares acquired upon such exercise.
(f) Non-transferability. Incentive Options shall not be transferable
by the Optionee, other than by will or by the laws of descent and
distribution. During the Optionee's lifetime, all Incentive Options shall
be exercisable only by such Optionee.
(g) Last Grant Date. No Incentive Option shall be granted more than
ten years after the earlier of the date of adoption of the Plan by the
Board or approval of the Plan by the Company's shareholders.
The Committee may, with the consent of the Optionee, amend an Incentive
Option in a manner that would cause loss of Incentive Option status, provided
the Stock Option as so amended satisfies the requirements of Section 6.2.
6.4 Substitute Options. In connection with a merger or consolidation of
an entity with the Company or the acquisition by the Company of property or
stock of an entity, the Committee may grant Stock Options in substitution for
any options or other stock awards or stock-based awards granted by such entity
or an affiliate thereof. Such substitute Stock Options may be granted on such
terms as the Committee deems appropriate in the circumstances, notwithstanding
any limitations on Stock Options contained in other provisions of this Section
6.
SECTION 7. Stock Appreciation Rights
7.1 A Stock Appreciation Right shall entitle the holder thereof to
receive, for each share as to which the award is granted, payment of an amount,
in cash, shares of Common Stock, or a combination thereof, as determined by the
Committee, equal in value to the excess of the Fair Market Value of a share of
Common Stock on the date of exercise over an amount specified by the Committee.
Any such award shall be in such form and shall have such terms and conditions
as the Committee may determine. The grant shall specify the number of shares of
Common Stock as to which the Stock Appreciation Right is granted.
7.2 The Committee may provide that a Stock Appreciation Right may be
exercised only within the 60-day period following occurrence of a Change in
Control (as defined in Section 14.2) (such Stock Appreciation Right being
referred to herein as a "Limited Stock Appreciation Right"). The Committee may
also provide that in the event of a Change in Control the amount to be paid
upon exercise of a Stock Appreciation Right shall be based on the Change in
Control Price (as defined in Section 14.3).
SECTION 8. Restricted Stock
Subject to the following provisions, all awards of Restricted Stock shall
be in such form and shall have such terms and conditions as the Committee may
determine:
(a) The Restricted Stock award shall specify the number of shares of
Restricted Stock to be awarded, the price, if any, to be paid by the
recipient of the Restricted Stock and the date or dates on which, or the
conditions upon the satisfaction of which, the Restricted Stock will vest.
The grant and/or the vesting of Restricted Stock may be conditioned upon
the completion of a specified period of service with the Company and/or its
Subsidiaries, upon the attainment of specified performance objectives, or
upon such other criteria as the Committee may determine.
(b) Stock certificates representing the Restricted Stock awarded under
the Plan shall be registered in the award holder's name, but the Committee
may direct that such certificates be held by the Company on behalf of the
award holder. Except as may be permitted by the Committee, no share of
Restricted Stock may be sold, transferred, assigned, pledged or otherwise
encumbered by the award holder until such share has vested in accordance
with the terms of the Restricted Stock award. At the time Restricted Stock
vests, a certificate for such vested shares shall be delivered to the award
holder (or his or her designated beneficiary in the event of death), free
of all restrictions.
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(c) The Committee may provide that the award holder shall have the
right to vote and/or receive dividends on Restricted Stock. Unless the
Committee provides otherwise, Common Stock received as a dividend on, or in
connection with a stock split of, Restricted Stock shall be subject to the
same restrictions as the Restricted Stock.
(d) Except as may be provided by the Committee, in the event of an
award holder's termination of employment or other Relationship before all
of his or her Restricted Stock has vested, or in the event any conditions
to the vesting of Restricted Stock have not been satisfied prior to any
deadline for the satisfaction of such conditions set forth in the award,
the shares of Restricted Stock which have not vested shall be forfeited,
and the Committee may provide that (i) any purchase price paid by the award
holder shall be returned to the award holder or (ii) a cash payment equal
to the Restricted Stock's Fair Market Value on the date of forfeiture, if
lower, shall be paid to the award holder.
(e) The Committee may waive, in whole or in part, any or all of the
conditions to receipt of, or restrictions with respect to, any or all of
the award holder's Restricted Stock (except that the Committee may not
waive conditions or restrictions with respect to awards intended to qualify
under Section 162(m) of the Code unless such waiver would not cause the
award to fail to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code).
SECTION 9. Performance Stock Awards
Subject to the following provisions, all awards of Performance Stock shall
be in such form and shall have such terms and conditions as the Committee may
determine:
(a) The Performance Stock award shall specify the number of shares of
Performance Stock to be awarded and the duration of the period (the
"Deferral Period") during which, and the conditions under which, receipt of
the Common Stock will be deferred. The Committee may condition the grant or
vesting of Performance Stock, or receipt of Common Stock or cash at the end
of the Deferral Period, upon the completion of a specified period of
service with the Company and/or its Subsidiaries, upon the attainment of
specified performance objectives, or upon such other criteria as the
Committee may determine.
(b) Except as may be provided by the Committee, Performance Stock
awards may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Deferral Period.
(c) At the expiration of the Deferral Period, the award holder (or his
or her designated beneficiary in the event of death) shall receive (i)
certificates for the number of shares of Common Stock equal to the number
of shares covered by the Performance Stock award, (ii) cash equal to the
Fair Market Value of such Common Stock, or (iii) a combination of shares
and cash, as the Committee may determine.
(d) Except as may be provided by the Committee, in the event of an
award holder's termination of employment or other relationship before the
Performance Stock has vested, his or her Performance Stock award shall be
forfeited.
(e) The Committee may waive, in whole or in part, any or all of the
conditions to receipt of, or restrictions with respect to, Common Stock or
cash under a Performance Stock award (except that the Committee may not
waive conditions or restrictions with respect to awards intended to qualify
under Section 162(m) of the Code unless such waiver would not cause the
award to fail to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code).
SECTION 10. Bonus Stock Awards
The Committee may award Bonus Stock to any eligible award recipient
subject to such terms and conditions as the Committee shall determine. The
grant of Bonus Stock may, but need not, be conditioned upon the attainment of
specified performance objectives or upon such other criteria as the Committee
may determine. The Committee may waive such conditions in whole or in part
(except that the Committee may not waive conditions or restrictions with
respect to awards intended to qualify under Section 162(m) of the Code unless
such waiver would not cause the award to fail to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code). Unless
otherwise specified by the Committee, no money shall be paid by the recipient
for the Bonus Stock. Alternatively, the Committee may, after considering any
accounting impact to the Company, offer eligible employees the opportunity to
purchase Bonus Stock at a discount from its Fair Market Value. The Bonus Stock
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award shall be satisfied by the delivery of the designated number of shares of
Common Stock which are not subject to restriction.
SECTION 11. Election to Defer Awards
The Committee may permit an award recipient to elect to defer payment of
an award for a specified period or until a specified event, upon such terms as
are determined by the Committee.
SECTION 12. Non-Employee Director Options
12.1 Director Options shall be Non-Qualified Options and shall have the
following terms and conditions:
(a) Option Price. The option price per share of Common Stock
purchasable under a Director Option shall be the Fair Market Value of the
Common Stock on the date of grant.
(b) Option Term. The term of a Director Option shall be ten years
unless the Committee determines that a shorter term will be applicable.
(c) Exercisability. Each Director Option shall become exercisable and
shall vest with respect to all shares subject to such Director Option as
determined by the Committee, but except as otherwise provided herein in no
case prior to the first anniversary of the date of grant, provided that the
Optionee is a Non-Employee Director on such date.
(d) Method of Exercise. The Director Option may be exercised in whole
or in part at any time during the Option Period by giving the Company
notice of exercise in the form approved by the Committee (which may be
written or electronic) specifying the number of whole shares to be
purchased, accompanied by payment of the aggregate option price for such
shares. Payment of the option price may, at the election of the Optionee,
be made in any one or more of the following: (i) cash (including cash
equivalents), (ii) by delivery (either by actual delivery of the shares or
by providing an affidavit affirming ownership of the shares) of whole
shares of Common Stock already owned by the Optionee for at least six
months (which shares shall be valued at their Fair Market Value on the date
of exercise), or (iii) to the extent permitted by law, by broker-assisted
"cashless exercise" in which the Optionee delivers a notice of exercise
together with irrevocable instructions to a broker acceptable to the
Company to sell shares of Common Stock (or a sufficient portion of such
shares) acquired upon exercise of the Director Option and remit to the
Company a sufficient portion of the sales proceeds to pay the total option
price for such exercise.
(e) Termination of Service. Following the termination of an Optionee's
service on the Company's Board, such Optionee's Director Options shall be
exercisable to the extent determined by the Committee. The Committee may
provide different post-termination exercise provisions which may vary based
on the nature of and reason for the termination. The Committee may provide
that, notwithstanding the option term fixed pursuant to Section 12.1(b), a
Non-Qualified Option which is outstanding on the date of an Optionee's
death shall remain outstanding for an additional period after the date of
such death. The Committee shall absolute discretion to determine the date
and circumstances of any termination of such Optionee's service on the
Company's Board.
(f) Transferability. A Non-Employee Director may transfer a Director
Option to (i) a revocable trust or other "grantor trust" under Sections
671-677 of the Code for the benefit of the Non-Employee Director during his
lifetime, or (ii) one or more of his children, grandchildren and spouse
("family members") or to one or more trusts for the benefit of such family
members, or to one or more partnerships in which such family members and
the Non-Employee Director are the only partners, or (iii) such other
persons or entities as may be permitted by the Board. All transfers of
Director Options shall be subject to prior approval by the Board and any
terms and conditions as may be imposed by the Board. Except for options
transferred as provided in this Section 12.2(f), no Director Option shall
be transferable by the Optionee other than by will or by the laws of
descent and distribution, and during the Optionee's lifetime, all Director
Options shall be exercisable only by the Optionee.
(g) No Shareholder Rights. An Optionee shall have neither rights to
dividends nor other rights of a shareholder with respect to shares subject
to a Director Option until the Optionee has duly exercised the Director
Option and a certificate for such shares has been duly issued (or the
Optionee has otherwise been duly recorded as the owner of the shares on the
books of the Company).
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(h) Surrender Rights. The Committee may, after considering any
accounting impact to the Company, provide that Director Options may be
voluntarily surrendered for cash upon any terms and conditions set by the
Committee.
SECTION 13. Tax Withholding
13.1 Each award holder shall, no later than the date as of which an
amount with respect to an award first becomes includible in such person's gross
income for applicable tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of, any federal, state, local
or other taxes of any kind required by law to be withheld with respect to the
award.
The obligations of the Company under the Plan shall be conditional on such
payment or arrangements. The Company (and, where applicable, its Subsidiaries),
shall, to the extent permitted by law, have the right to deduct the minimum
amount of any required tax withholdings from any such taxes from any payment of
any kind otherwise due to the award holder.
13.2 To the extent permitted by the Committee, and subject to such terms
and conditions as the Committee may provide, an employee may elect to have the
minimum amount of any required tax withholdings with respect to any awards
hereunder, satisfied by (i) having the Company withhold shares of Common Stock
otherwise deliverable to such person with respect to the award or (ii)
delivering to the Company shares of unrestricted Common Stock already owned by
the employee for at least six months. Alternatively, the Committee may require
that a portion of the shares of Common Stock otherwise deliverable be applied
to satisfy the withholding tax obligations with respect to the award.
SECTION 14. Change in Control
14.1 In the event of a Change in Control, unless otherwise determined by
the Committee at the time of grant or by amendment (with the award holder's
consent) of such grant:
(a) all outstanding Stock Options (including Director Options) and all
outstanding Stock Appreciation Rights (including Limited Stock Appreciation
Rights) awarded under the Plan shall become fully exercisable and vested;
(b) the restrictions and vesting conditions applicable to any
outstanding Restricted Stock and Performance Stock awards under the Plan
shall lapse and such shares and awards shall be deemed fully vested;
(c) the Committee may, in its sole discretion, accelerate the payment
date of all Restricted Stock and Performance Stock awards; and
(d) to the extent the cash payment of any award is based on the Fair
Market Value of Common Stock, such Fair Market Value shall be the Change in
Control Price.
14.2 A "Change of Control" shall be deemed to occur on:
(a) the date that any person or group deemed a person under Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, other than the
Company and its Subsidiaries as determined immediately prior to that date
or an employee benefit plan of the Company or its Subsidiaries, has become
the beneficial owner, directly or indirectly (with beneficial ownership
determined as provided in Rule 13d-3, or any successor rule, under the
Securities Exchange Act of 1934) of securities of the Company representing
35% or more of the total combined voting power of all classes of stock of
the Company having the right under ordinary circumstances to vote at an
election of the Board, unless such person has acquired 80% or more of such
securities directly from the Company;
(b) the date on which one-third or more of the members of the Board
shall consist of persons other than Current Directors (for these purposes a
"Current Director" shall mean any member of the Board on the effective date
specified in Section 17 hereof and any member of the Board whose nomination
or election has been approved by a majority of the Current Directors then
on the Board);
(c) the date of approval by the stockholders of the Company of an
agreement providing for the merger or consolidation of the Company with
another corporation where (i) the stockholders of the Company, immediately
prior to the merger or consolidation, would not beneficially own,
immediately after the merger or consolidation, shares entitling such
stockholders to 50% or more of all votes (without consideration of the
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rights of any class of stock to elect directors by a separate class vote)
to which all stockholders of the corporation issuing cash or securities in
the merger or consolidation would be entitled in the election of directors,
or (ii) where the members of the Board, immediately prior to the merger or
consolidation, would not, immediately after the merger or consolidation,
constitute a majority of the board of directors of the corporation issuing
cash or securities in the merger or consolidation; or
(d) the date of approval by the stockholders of the Company of the
liquidation of the Company or the sale or other disposition of all or
substantially all of the assets of the Company.
14.3 "Change in Control Price" means the highest price per share of
Common Stock paid in any transaction reported on any national market or
securities exchange where the Common Stock is traded, or paid or offered in any
transaction related to a Change in Control at any time during the 90-day period
ending with the Change in Control. Notwithstanding the foregoing sentence, in
the case of Stock Appreciation Rights granted in tandem with Incentive Options,
the Change in Control Price shall be the highest price paid on the date on
which the Stock Appreciation Right is exercised.
SECTION 15. General Provisions
15.1 Each award under the Plan shall be subject to the requirement that,
if at any time the Committee shall determine that (i) the listing, registration
or qualification of the Common Stock subject or related thereto upon any
securities exchange or market or under any state or federal law, or (ii) the
consent or approval of any government regulatory body or (iii) an agreement by
the recipient of an award with respect to the disposition of Common Stock, is
necessary or desirable in order to satisfy any legal requirements, or (iv) the
issuance, sale or delivery of any shares of Common Stock is or may in the
circumstances be unlawful under the laws or regulations of any applicable
jurisdiction, the right to exercise such Stock Option shall be suspended, such
award shall not be granted and such shares will not be issued, sold or
delivered, in whole or in part, unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Committee, and the
Committee determines that the issuance, sale or delivery of the shares is
lawful.
The application of this Section shall not extend the term of any Stock
Option or other award. The Company shall have no obligation to effect any
registration or qualification of the Common Stock under federal or state laws
or to compensate the award holder for any loss caused by the implementation of
this Section 15.1.
15.2 The Committee may provide, at the time of grant or by amendment with
the award holder's consent, that an award and/or Common Stock acquired under
the Plan shall be forfeited, including after exercise or vesting, if within a
specified period of time the award holder engages in any of the conduct
described below ("Disqualifying Conduct"). Disqualifying Conduct shall mean (i)
the award holder's performance of service for a competitor of the Company
and/or its Subsidiaries, including service as an employee, director, or
consultant, or the establishing by the award holder of a business which
competes with the Company and/or its Subsidiaries, (ii) the award holder's
solicitation of employees or customers of the Company and/or its Subsidiaries
(iii) the award holder's improper use or disclosure of confidential information
of the Company and/or its Subsidiaries or (iv) material misconduct by the award
holder in the performance of such award holder's duties for the Company and/or
its Subsidiaries, as determined by the Committee.
15.3 Nothing set forth in this Plan shall prevent the Board from adopting
other or additional compensation arrangements.
15.4 Nothing in the Plan nor in any award hereunder shall confer upon any
award holder any right to continuation of his or her employment by or other
Relationship with the Company or its Subsidiaries, or interfere in any way with
the rights of any such company to terminate such employment or other
Relationship.
15.5 Neither the Plan nor any award shall create or be construed to
create a trust or separate fund of any kind or a fiduciary relationship between
the Company or Subsidiary and an award recipient, and no award recipient will,
by participation in the Plan, acquire any right in any specific Company
property, including any property the Company may set aside in connection with
the Plan. To the extent that any award recipient acquires a right to receive
payments from the Company or any Subsidiary pursuant to an award, such right
shall not be greater than the right of an unsecured general creditor of the
Company or its Subsidiaries.
15.6 The Plan and all awards hereunder shall be governed by the laws of
the State of Delaware without giving effect to conflict of laws principles.
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SECTION 16. Amendments and Termination
16.1 The Plan shall be of unlimited duration. The Board may discontinue
the Plan at any time and may amend it from time to time. No amendment or
discontinuation of the Plan shall adversely affect any award previously granted
without the award holder's written consent. Amendments may be made without
shareholder approval except as required to satisfy applicable laws or
regulations or the requirements of any stock exchange or market on which the
Common Stock is listed or traded.
16.2 The Committee may amend the terms of any award prospectively or
retroactively; provided, however, that no amendment shall impair the rights of
the award holder without his or her written consent.
SECTION 17. Effective Date of Plan
17.1 The Plan shall be effective on June 25, 2003, subject to approval by
the Company's shareholders within 12 months of such date.
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APPENDIX B
ADVANCED MARKETING SERVICES
AUDIT AND COMPLIANCE COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit and Compliance Committee is to assist
the Board of Directors in fulfilling its oversight responsibilities by
reviewing: the financial reports and other financial information provided by
the Corporation to certain governmental bodies or the public; the Corporation's
system of internal controls regarding finance, accounting, legal compliance and
ethics that management and the Board have established; and the Corporation's
auditing, accounting and financial reporting processes generally. Consistent
with this function, the Audit and Compliance Committee should encourage
continuous improvement of, and should foster adherence to, the Corporation's
policies, procedures and practices at all levels. The Audit and Compliance
Committee's primary duties and responsibilities are to:
Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control system.
Review and appraise the audit efforts and independence of the
Corporation's independent public accountants.
Provide an open avenue of communication among the independent public
accountants, financial and senior management and the Board of Directors.
Ensure that the public accountants are ultimately accountable to the Board
of Directors and the Audit and Compliance Committee, as representatives of
the Corporation's shareholders.
The Audit and Compliance Committee will primarily fulfill these
responsibilities by carrying out the activities enumerated in Section IV of
this Charter.
II. COMPOSITION
The Audit and Compliance Committee shall be composed of three or more
directors as determined by the Board, each of whom shall be independent
directors, and free from any relationship that, in the opinion of the Board,
would interfere with the exercise of his or her independent judgment as a
member of the Audit and Compliance Committee, and each of whom is able to read
and understand fundamental financial statements, including the Corporation's
balance sheet, income statement and cash flow statement or will become able to
do so within a reasonable period of time after his or her appointment to the
Audit and Compliance Committee. Additionally, at least one member of the Audit
and Compliance Committee shall have past experience in finance or accounting,
requisite professional certification in accounting or any other comparable
experience or background, including being or having been a chief executive
officer, chief financial officer or other senior officer with financial
oversight responsibilities, which results in such member's being an "audit
committee financial expert" as defined by the Securities and Exchange
Commission. The Board's definition of independence shall be a member who is not
an affiliate of the Corporation and who has not: been an employee of the
Corporation or an affiliate within the last 5 years; had a direct business
relationship with the Corporation within the last 5 years, unless the Board
determines in its business judgment that the relationship does not interfere
with the Director's exercise of independent judgment; been a member of the
immediate family of an individual who is, or over the last 5 years has been, an
executive officer of the Corporation or an affiliate; been employed as an
executive of another entity where any of the Corporation's executives serve on
that entity's compensation committee; received (or had an immediate family
member receive) any compensation from the Corporation or any of its affiliates
during the previous fiscal year (including payments accepted by an entity in
which such member is a partner, member or principal, or occupies a similar
position, and which provides accounting, consulting, legal, investment banking
or other advisory services, or any similar services, to the Corporation), other
than compensation for board service, benefits under a tax-qualified retirement
plan, or non-discretionary compensation; been a partner, controlling
shareholder or executive officer of an organization to which the Corporation
made, or from which it received, payments (excluding dividends paid to the
organization) exceeding (i) 5% of the Corporation's or the other organization's
consolidated gross revenues or (ii) $200,000, whichever is more, in any of the
last 5 years.
B-1
The members of the Audit and Compliance Committee shall be elected by the
Board at the annual organizational meeting of the Board and their terms shall
run until the next such meeting or until their respective successors shall be
duly elected and qualified. Unless a Chair is elected by the full Board, the
members of the Audit and Compliance Committee may designate a Chair by majority
vote of the full Audit and Compliance Committee membership.
III. MEETINGS
The Audit and Compliance Committee shall meet in person at least two times
annually, or more frequently as circumstances dictate. As part of its job to
foster open communication, the Audit and Compliance Committee should meet at
least annually with management, and the independent public accountants in
separate executive sessions to discuss any matters that the Audit and
Compliance Committee or each of these groups believe should be discussed
privately. In addition, the Audit and Compliance Committee or at least its
Chair should meet with the independent accountants and management quarterly to
review the Corporation's quarterly financial statements consistent with section
IV. 4 below.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit and Compliance
Committee shall:
Documents/Reports Review
1. Review the performance of the Audit and Compliance Committee and
reassess the adequacy of this Charter periodically, at least once a year, and
recommend or implement changes as appropriate.
2. Review the Corporation's annual financial statements and certain other
financial information submitted to any governmental body, or the public,
including any certification, report, opinion or review rendered by the
independent public accountants, as deemed necessary by management of the
Corporation.
3. Review with financial management and the independent public accountants
the Forms 10-K, 10-Q and 8-K as applicable prior to their filing or prior to
the release of earnings. The Chair of the Audit and Compliance Committee may
represent the entire Audit and Compliance Committee for purpose of this review.
Independent Public Accountants
4. Select the independent public accountants, considering independence and
effectiveness, and approve the fees and other compensation to be paid to, and
all other terms of engagement of, the independent public accountants. On an
annual basis, the Audit and Compliance Committee should review and discuss with
the accountants all significant relationships the accountants have with the
Corporation to determine the accountants' independence. In connection with such
review and discussion, the Audit and Compliance Committee shall be provided
with a formal written statement by the independent public accountants
delineating all relationships between the independent public accountants and
the Corporation.
5. Approve all non-audit related work performed by the independent public
accountants.
6. Review the performance of the independent public accountants and
approve any proposed discharge of the independent public accountants when
circumstances warrant.
7. Periodically consult with the independent public accountants out of the
presence of management about internal controls and the fullness and accuracy of
the Corporation's financial statements.
Financial Reporting Processes
8. In consultation with the independent public accountants, review the
integrity of the Corporation's financial reporting processes, both internal and
external.
9. Consider the independent public accountants' judgments about and
discuss the quality and appropriateness of the Corporation's accounting
principles as applied in its financial reporting process.
10. Consider and approve, if appropriate, major changes to the
Corporation's auditing and accounting principles and practice as suggested by
the independent public accountants or management.
11. Review the release of information to the public or to regulatory
authorities.
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Process Improvement
12. Establish regular and separate systems of reporting to the Audit and
Compliance Committee by each of management and the independent public
accountants regarding significant judgments, if any, made in management's
preparation of the financial statements and the view of each as to
appropriateness of such judgments.
13. Following completion of the annual audit, review separately with each
of management and the independent public accountants significant difficulties,
if any, encountered during the course of the audit, including any restrictions
on the scope of the work or access to required information.
14. Review significant disagreements, if any, among management and the
independent public accountants in connection with the preparation of the
financial statements.
15. Review with the independent public accountants and management the
extent to which changes or improvements in financial accounting practices, as
approved by the Audit and Compliance Committee, have been implemented.
Internal Audit
16. Establish the objectives for, and monitor, the activities of the
Corporation's Internal Audit Department which shall have a direct reporting
relationship to the Audit and Compliance Committee and, through it, to the
Board of Directors. The Internal Audit Department will report administratively
to the Corporation's CFO.
17. Meet independently with the head of the Internal Audit Department at
least two times annually and review the results of all of the significant
internal audit projects.
18. Establish policies and procedures that help ensure the independence
and objectivity of the Internal Audit Department.
Ethical and Legal Compliance
19. Establish, review and update periodically the Corporation's Standards
of Business Conduct and ensure that management has established a system to
enforce this code.
20. Review management's monitoring of the Corporation's compliance with
the Corporation's Standards of Business Conduct and ensure that management has
the proper monitoring controls in place to ensure that the Corporation's
financial statements, reports and other financial information disseminated to
governmental organizations, and the public satisfy legal requirements.
21. Establish procedures for the receipt, retention and treatment of
complaints received by the Corporation regarding accounting, internal
accounting controls or auditing matters, and the confidential, anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters.
22. Review, with the Corporation's legal counsel, legal compliance matters
including corporate securities trading policies.
23. Review with the Corporation's legal counsel, legal matters that, in
management's opinion, may have a significant impact on the Corporation's
financial statements.
24. The Audit and Compliance Committee shall have the authority, to the
extent it deems necessary or appropriate, to retain independent legal,
accounting or other advisors. The Corporation shall provide for appropriate
funding, as determined by the Audit and Compliance Committee, for payment of
compensation to the independent auditor for the purpose of rendering or issuing
an audit report and to any advisors employed by the Audit and Compliance
Committee.
25. Perform other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Audit and Compliance Committee
or the Board deem necessary or appropriate.
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APPENDIX C
ADVANCED MARKETING SERVICES, INC.
BOARD GUIDELINES ON
CORPORATE GOVERNANCE ISSUES
On November 12, 2002, the Board of Directors of Advanced Marketing
Services, Inc. (the "Company") adopted, and on June 4, 2003 amended, the
following Corporate Governance Guidelines:
Board Mission and Responsibilities
Mission Statement. The Company's primary objective is to maintain its
reputation and improve its position as the leading global provider of
customized services to book retailers and publishers. It is the Company's
policy to scrupulously adhere to the laws of the jurisdictions in which it
operates and diligently observe the highest ethical standards. In doing so, the
Company believes that it will be most effective in maximizing long-term
stockholder value.
Corporate Authority and Responsibility. All corporate authority resides in
the Board of Directors (the "Board") as fiduciaries on behalf of the
stockholders, except with regard to those matters reserved to the stockholders
under Delaware law. The Board selects and delegates authority to management to
conduct the Company's business and pursue its mission. Management, not the
Board, is responsible for managing the Company and is expected to be
scrupulously correct in its financial reporting and ethical standards. The
Board retains responsibility to recommend candidates to the stockholders for
election to the Board. The Board retains responsibility for selection and
evaluation of the Chief Executive Officer, selection and retention of
independent auditors, oversight of succession plans, determination of senior
management compensation, approval of the annual budget, review of quarterly
performance and review of systems, procedures and controls. The Board also
advises management with respect to strategic plans. Through its Audit
Committee, the Board maintains a direct reporting relationship with the
Company's internal audit function.
Board Operations
The Chairman of the Board, in coordination with the Chief Executive
Officer, shall set the agenda for each Board meeting, taking into account input
and suggestions from the members of the Board. Any member of the Board may
request that an item be included on the agenda.
Board Agenda. The Chairman of the Board will communicate the agenda to all
Board members at least one week in advance for comments and suggestions. In the
event of a disagreement regarding the addition or deletion of an agenda item,
the Chairman of the Corporate Governance and Nominating Committee shall be
asked to discuss resolution with the Chairman of the Board. Board materials
related to agenda items should generally be provided by Board members
sufficiently in advance of Board meetings where necessary or appropriate to
allow directors to adequately prepare for and participate in discussions at the
Board meeting. All directors are expected to review such materials in advance
of the meetings and attend such meetings, absent unforeseen circumstances of an
urgent nature.
Prior to or at the last Board meeting of the fiscal year an annual agenda
shall be presented by the Chairman of the Board for the upcoming year's
meetings, scheduling all standard issues and allowing for timely additions.
Strategic Planning. The Board shall hold an annual strategic planning
session. The timing and agenda for this meeting are to be suggested by the
Chief Executive Officer.
Independent Advice. The Board or any Board committee may seek legal or
other expert advice from a source independent of management. Generally, this
would be with the knowledge of the Chief Executive Officer and the Chairman of
the Board.
Access to Top Management. Board members are free to contact members of
senior management and are encouraged to coordinate their contacts with the
Chief Executive Officer. Additionally, at the invitation of the Board, to be
communicated through the Chief Executive Officer or Chairman of the Board,
members of senior management may be invited to attend Board meetings or
portions thereof for the purpose of participating in discussions. Generally,
presentations of matters to be considered by the Board should be made by the
managers responsible for the specific area of the Company's operations.
C-1
Executive Meetings of Independent Directors. An executive meeting of
Independent Directors should be held during each Board meeting. Additional
executive sessions or meetings of the Independent Directors without management
may be held from time-to-time as deemed necessary or appropriate. The Chairman
of the Corporate Governance and Nominating Committee shall chair the executive
meeting except during portions of such meetings where the items to be
considered or discussed are solely within the scope of responsibility of
another committee, in which event the chairman of that committee shall chair
that portion of the executive meeting.
Board Evaluation. The Corporate Governance and Nominating Committee shall
be responsible for evaluating Directors as part of its process for recommending
Director nominees to the Board and will also coordinate evaluations of all
individual directors every two years. The Corporate Governance and Nominating
Committee shall be responsible for coordinating an annual evaluation by the
Directors of the Board's performance and procedures.
Written Guidelines and Policies. The Board shall maintain written
corporate governance guidelines and operational policies which will be reviewed
annually by the Corporate Governance and Nominating Committee.
Board Structure
Board Composition. It is the policy of the Company that Independent
Directors, whom the Board has affirmatively determined to have no material
relationship or conflict with the Company, shall constitute no less than
two-thirds of the Board. The Chief Executive Officer and possibly one or two
other, at most, members of management may sit on the Board.
Number and Qualification of Directors. The Board shall assess its size
from time-to-time. It is the Board's philosophy that the number of Directors
not exceed a number that can operate efficiently as a body. The Company's
Articles of Incorporation provide that the Board is divided into three classes
of directors, each class to be as nearly equal in number as possible. Directors
will be elected annually by the stockholders to serve for three-year terms,
with the elections staggered by class.
The Corporate Governance and Nominating Committee, in consultation with
the Chairman of the Board and the Chief Executive Officer, shall consider and
make recommendations to the Board concerning such matters as the size and needs
of the Board and committees, rotation of terms of members, frequency of
meetings, evaluation procedures and other appropriate matters. The Corporate
Governance and Nominating Committee shall also consider candidates to fill new
positions created by expansion and vacancies that occur by resignation,
retirement or for any other reason. Candidates are considered based on their
character, judgment, business experience and acumen, industry and functional
experience, regulatory needs and other factors considered relevant. Final
approval of Board candidates will be determined by the full Board.
Committees. It is the general policy of the Company that most major
decisions be considered and made by the Board as a whole. As a consequence, the
committee structure of the Board should be limited to those committees
considered to be basic or to be required for the operation of a publicly-owned
company.
The standing Board committees shall be the Audit and Compliance Committee,
the Compensation Committee and the Corporate Governance and Nominating
Committee. All standing committees shall be made up of three or more
Independent Directors. The members and chairs of each committee are to be
recommended to the Board by the Corporate Governance and Nominating Committee,
in consultation with the Chairman of the Board and the Chief Executive Officer.
Each standing committee shall maintain a written charter approved by the Board.
Such charters shall be modified or amended from time to time as deemed
necessary or appropriate by the Board or to comply with evolving corporate
governance standards and other requirements adopted by Congress, the Securities
and Exchange Commission and the New York Stock Exchange. Committees shall
receive authority exclusively through delegation from the Board. All Committee
actions must be ratified by the Board before becoming effective, unless taken
pursuant to an express delegation of authority or other legal or regulatory
requirements. A Director may attend any Board committee meeting. The Chairman
of the Board shall recommend periodic rotation of Committee assignments.
Independent Directors. "Independent Director" means a person who is
independent of management and free from any relationship with the Company or
otherwise (including serving as consultants or service providers to the Company
except as approved by the Independent Directors for special projects) that, in
the opinion of the Board, would interfere in the exercise of independent
judgment as a Director. No officer or employee of the Company or its
subsidiaries shall be qualified as an Independent Director. No former officer
or employee of the Company
C-2
may qualify as an Independent Director until 5 years have elapsed since his
last employment or payment by the Company. Each Independent Director must also
satisfy any additional standards for "independence" promulgated by the New York
Stock Exchange.
Directors
Nominees for Election to the Board. The Corporate Governance and
Nominating Committee shall recommend nominees to the full Board for annual
elections of Directors. The Committee will welcome input from all Directors and
stockholders.
Board Orientation. In furtherance of its policy of having major decisions
made by the Board as a whole, the Company shall maintain a full orientation
process for new Board members that includes appropriate corporate materials,
meetings with key management and visits to Company facilities. Directors are
also expected to participate in continuing education programs as deemed
necessary or appropriate.
It is the policy of the Company that the Chairmen of the Audit,
Compensation and Corporate Governance and Nominating Committees of the Board
each act as the chair at meetings of their Committees or at meetings or
executive sessions or portions of executive sessions of the Independent
Directors at or during which the items to be considered or discussed are solely
within the scope of the responsibility of their committee. This practice is
designed to provide for leadership at all meetings or executive sessions of the
Independent Directors without the need to designate a chairman at each such
meeting.
Retirement. Retirement age shall occur at the end of the term which spans
the 72nd birthday. Each Director shall submit a letter of resignation not less
than 90 days before their 72nd birthday. The full Board may request an
additional full or partial term of service from an individual director, in the
exceptional event of its determination that this would be unusually beneficial
to the Company's shareholders.
Changes in Professional Responsibility. The Board should consider whether
a change in an individual's professional responsibilities directly or
indirectly impacts that person's ability to fulfill the obligations of a
Director. To facilitate the Board's consideration, Directors shall submit a
letter of resignation as a matter of course upon retirement, resignation or
other significant change in professional roles.
Director Compensation and Stock Ownership. The compensation of Directors
shall be reviewed annually by the Compensation Committee, which shall make
recommendations to the full Board. Compensation will be in the range of that
being paid by comparable companies, in order to attract and retain outstanding
directors. No later than November 12, 2002 each current director (and within
one year following election, each new director) will be expected to own common
stock of the Company in an amount which, at time of purchase, costs no less
than $30,000 or which has a fair market value of $100,000.
Chief Executive Officer Evaluation. The Corporate Governance and
Nominating Committee shall be responsible for coordinating an annual evaluation
of the Chief Executive Officer by the Independent Directors. The Independent
Directors will also provide guidance for the Compensation Committee with
respect to the Chief Executive Officer's compensation. The Chairman of the
Corporate Governance and Nominating Committee shall be the liaison with the
Chief Executive Officer.
Management Succession. The Compensation Committee shall coordinate with
the Chief Executive Officer to ensure that a successor for emergencies is
designated at all times and that a formalized process governs long-term
management development and succession. The Chief Executive Officer shall report
to the Board annually about development of senior management personnel and
succession plans, which plans shall be subject to the approval of the Board.
Outside Board Memberships. The Chief Executive Officer and other members
of senior management shall seek the approval of the Board before accepting
outside board memberships, and the Board generally discourages management from
more than one corporate board membership. Non-management Board members with
full-time employment obligations are discouraged from holding more than two
other corporate board memberships. Non-management Board members without
full-time employment obligations are discouraged from holding more than four
other corporate board memberships.
C-3
Board Guidelines
These Board Guidelines are to be reviewed from time-to-time by the Board
with a view to making such modifications or amendments as may be deemed
necessary or appropriate.
C-4
APPENDIX D
ADVANCED MARKETING SERVICES, INC.
CODE OF ETHICS
I. INTRODUCTION
Advanced Marketing Services, Inc., Worldwide (the "Company") has a firmly
established policy of conducting its affairs in compliance with all applicable
laws and regulations and observing the highest standards of business ethics.
Integrity, honesty, forthrightness and fairness are of primary importance in
all business relationships involving the Company. The Company expects each
director, officer and associate, including without limitation its senior
financial officers, (each, an "associate") to perform his or her duties in such
a manner as to preserve the Company's good name and reputation. The Company
intends that every associate shall follow the letter, as well as the spirit, of
these Standards of Business Conduct.
These Standards have been adopted by the Board of Directors of the Company
and apply to the Company, its subsidiaries and divisions and their associates.
Accordingly, references to the Company include its subsidiaries and divisions.
These Standards are not intended to be all encompassing. Situations may arise
that are not expressly covered or where the proper course of action is unclear.
Associates should consult with their supervisors if any questions as to
interpretation of these Standards arise. Any associate may bring problems to
the attention of higher management such as the Vice President of Human
Resources or Chief Executive Officer for review and the Company maintains an
open door policy in that regard.
The Company may modify or supplement these Standards from time-to-time, to
comply with evolving corporate governance standards, to comply with applicable
corporate governance or other requirements adopted by Congress, the SEC or the
New York Stock Exchange and otherwise as it deems appropriate. Accordingly, all
associates must review these Standards at least once every year. Additionally,
some Company subsidiaries or divisions may adopt more restrictive or
supplemental rules governing certain matters. Associates of these subsidiaries
or divisions have the obligation to become familiar with and observe any such
rules as well.
Any associate of the Company having information or knowledge regarding a
violation, or potential violation, of these Standards should immediately report
the same to his or her supervisor. If an associate has reason to believe that
it would be inappropriate to report the relevant information to his or her
supervisor, then the information should be reported in confidence directly to
another high-level authority within the Company. Retaliation or reprisal of any
kind against an associate who reports a violation (or, in good faith, potential
violation) of these Standards is strictly prohibited.
The Company may regard any associate's acts in violation of these
Standards to be outside the course and scope of that associate's employment.
Any associate found to have violated these Standards may be subject to
immediate disciplinary action, including reassignment, demotion or, when
appropriate, dismissal. Legal proceedings may also be commenced against such
individual to recover the amount of any improper expenditures, any other losses
which the Company may have incurred or other appropriate relief. Public
officials under applicable criminal statutes may also prosecute violators.
Any waiver of any provision of these Standards for a director or executive
officer of the Company may be made only by the Board of Directors or an
appropriate committee thereof and will be promptly disclosed to the Company's
shareholders.
II. CORPORATE ASSETS AND INFORMATION
A. COMPANY FUNDS AND PROPERTY
Associates of the Company are responsible and accountable for the proper
expenditure of funds and use of Company assets under their control, including
all funds and assets entrusted to the Company's custody by customers and
others. The Company's assets are to be used only for legitimate business
purposes both during and following employment with the Company, and should be
used efficiently. Examples of improper uses include unauthorized taking or use
of corporate property or other resources, and the disbursement of corporate
funds, directly or indirectly, for any form of payment that is illegal, for
personal gain or otherwise not in accordance with Company policy. Unless
authorized by appropriate Company officers, the sale, loan or gift of Company
assets to Company associates, customers or suppliers is prohibited.
D-1
B. CORPORATE RECORDS AND ACCOUNTING
Data, Records and Reports
It is the Company's policy to maintain the highest level of integrity and
accountability with respect to all financial reporting, including reports to
regulatory authorities, auditors and the Company's stockholders.
All Company data, records and reports must be accurate and truthful and
prepared in a proper manner. These include everyday documents such as expense
reports and accounting entries, as well as cost estimates, contract proposals
and other presentations to management, customers, and the public. It is
essential that those who rely on these records and reports -- managers,
creditors, customers, auditors and other decision makers -- have truthful and
accurate information. The integrity of the Company's accounting, technical,
personnel, financial and other records is based on their validity, accuracy and
completeness.
Anyone preparing the type of information described above must be diligent
in assuring its integrity and anyone representing or certifying the accuracy of
such information should make an inquiry or review adequate to establish a good
faith belief in the accuracy of the information. Custodians of the Company's
data, records and reports must be sure that such information is released,
whether internally or outside the Company, only if adequately protected and
only for authorized purposes.
C. NON-SOLICITATION, CONFIDENTIAL AND PROPRIETARY INFORMATION
The Company's associates are responsible for protecting the Company's
confidential and proprietary information. No associate shall disclose
confidential or proprietary information to a third party without proper
authorization or use such information for his or her own personal benefit, or
in any manner inconsistent with the Company's interest. In addition, no
associate will share our customers' proprietary information (to include
pricing) with anyone including other customers we serve.
Confidential information includes, without limitation, information or data
relating to the Company's planning, business strategy, projects, existing or
potential customers, competitors or suppliers, financial results of operations,
or any other information that is not generally known to the public. This
prohibition also applies to the confidential information of the Company's
customers, suppliers and other parties with whom the Company does business.
Proprietary information includes, without limitation, information relating
to trade secrets, patents, research studies and results, manufacturing
techniques and marketing strategies. It includes records, practices, letters,
plans, drawings, software and data stored on electronic or magnetic media.
Proprietary information also includes inventions and other information
associates may create or develop which relate to the Company's business.
Proprietary information is a Company asset. Associates are required to report
the creation or development of proprietary information to permit the Company to
take the necessary steps to protect its assets. Improper disclosure or use
could destroy the value of such information to the Company, and subject the
Company to substantial liability to any third-party licensor of such
information.
Access to confidential and proprietary information must be limited to
authorized persons with a need to know that particular information.
Unauthorized disclosure even to other Company associates, for example, in
non-job related discussions, is prohibited. Associates should take care not to:
(1) discuss Company matters in public places where discussions can be
overheard; (2) read Company documents where others can see them; or (3) discard
Company documents where they can be retrieved. Associates should also be aware
of the insecure nature of conversation conducted on car, airplane, mobile and
cellular telephones, and act accordingly.
At the conclusion of employment with the Company, associates are required
to return all Company documents, records and other property in their
possession, including those that contain confidential or proprietary
information. After leaving the Company, former associates have a continuing
obligation to safeguard confidential and proprietary information, including
keeping it confidential and avoiding its unauthorized use.
Non-Solicitation:
During the period beginning upon the date of hire and ending on the first
anniversary of the date of termination of an associate's employment with the
Company, (the "Non-Solicitation Period"), and to the fullest extent permitted
under applicable law, the associate agrees that he/she shall not, directly or
indirectly, solicit, recruit or hire any associates of or persons who are
currently employed by the Company. Furthermore, the associate agrees not to
solicit or encourage any such associate of the Company to leave the employment
of the Company.
D-2
D. INSIDER TRADING
The purchase or sale of securities while possessing material non-public
information or the selective disclosure of such information to others who may
trade is prohibited by federal and state laws. Advanced Marketing Services,
Inc. has adopted the following policy with respect to purchases and sales of
the Company's securities by directors, officers, associates, advisors and
consultants of the Company and its subsidiaries who have material non-public
information about the Company and about other firms with which it works
closely. Outside directors, advisors and consultants are included within the
term "associate." Each associate is responsible for ensuring that he or she
does not violate federal or state securities laws or the Company's policy
concerning securities trading. This policy is designed to promote compliance
with federal securities laws and to protect the Company, as well as those
persons, from the very serious liabilities and penalties that can result from
violations of these laws.
Company associates may not trade in the stock of any firm when they know
"material non-public information" about the firm. This restriction on "insider
trading" is not limited to trading in the Company's securities. It includes
trading in the securities of other firms such as customers, suppliers or
vendors of the company and those with which the Company may not be negotiating
major transactions, such as an acquisition, investment or sale. Information
that is not material to the Company may nevertheless be material to one of
those other firms.
"Trading" includes purchases and sales of stocks, bonds, debentures,
options, puts, calls and other similar securities. This policy includes trades
made pursuant to any investment direction under associate benefit plans as well
as trades in the open market. This policy also applies to the exercise of
options with an immediate sale of some or all of the shares through a broker (a
"cashless exercise").
Associates must not pass material non-public information on to others or
recommend to anyone the purchase or sale of any securities on the basis of such
information. This practice, which is known as "tipping," also violates the
securities laws and can result in the same civil and criminal penalties that
apply to insider trading whether or not the associate derives any benefit from
another's actions.
The same restrictions apply to family members and other persons living in
an associate's household. Associates are expected to be responsible for the
compliance of the members of their immediate family and personal household.
Transactions that may be necessary or justifiable for independent reasons (such
as the need to raise money for an emergency expenditure) are no exception to
the policy.
Because of the unique potential for abuse of material non-public
information, it is also the Company's policy that directors, officers and
associates may not engage in short-term speculative transactions involving
"trading" in the Company's securities. This would include short sales and
buying or selling puts or calls. In addition, the purchase of the Company's
securities on margin (except in connection with the exercise of associate stock
options) is prohibited.
Definition of Material, Non-public Information
Information is material if there is a substantial likelihood that a
reasonable investor would consider it important in deciding whether to buy,
hold or sell a security. Therefore, any information that could reasonably be
expected to affect the price of the security is material. Common examples of
material information are:
o Projections of future earnings or losses or changes in such
projections.
o Actual Earnings.
o A pending or prospective joint venture, merger, acquisition, tender
offer or financing.
o A significant sale of assets or disposition of a subsidiary.
o A gain or loss of a material contract, customer or supplier, or
material changes in the profitability status of a current contract.
o The development or release of a new product or service.
o Changes in a previously announced schedule for the development or
release of a new product or service.
o Changes in senior management or other major personnel changes or labor
negotiations.
D-3
o Significant increases or decreases in dividends or the declaration of
a stock split or the offering of additional securities.
o Financial liquidity problems.
Both positive and negative information can be material. Because any
trading that receives scrutiny will be evaluated after the fact (with the
benefit of hindsight), questions concerning the materiality of particular
information should be resolved in favor of materiality, and trading should be
avoided.
Non-public information is information that is not generally known or
available to the public. Information is considered to be available to the
public only when it has been released to the public through the appropriate
channels, e.g., by means of a press release or a statement from one of the
Company's senior officers, and enough time has elapsed to permit the investment
market to absorb and evaluate the information. As a general rule, information
is considered non-public until the third business day after public disclosure.
Additionally, associates may not trade during "blackout" periods or if there is
a no-trading directive in effect. A calendar of blackout periods and notice of
any no-trading directives are provided to all associates from time to time.
Unauthorized Disclosure
Maintaining the confidentiality of Company information is essential for
competitive, security and other business reasons, as well as to comply with
securities laws. Information an associate learns about the Company or its
business plans in connection with his or her employment is potentially "inside"
information until publicly disclosed or made available by the Company. The
associate should treat all such information as confidential and proprietary to
the Company. The associate may not disclose the "inside" information to others,
such as family members, other relatives, or business or social acquaintances,
who do not need to know it for legitimate business reasons.
The timing and nature of the Company's disclosure of material information
to outsiders is subject to legal rules, the breach of which could result in
substantial liability to the associate, the Company and its management.
Accordingly, it is important that only specifically designated representatives
of the Company discuss the business of the Company and its affiliates and
subsidiaries with the news media, securities analysts and investors. If you
receive any inquiry of this type, you should refer the inquiry to the Director
of Investor Relations.
Responsibility for adhering to this policy and avoiding improper trading
rests with the associate. If an associate violates this policy, the Company may
take disciplinary action, including termination for cause. Any person who has
any questions about the application of this policy should contact the Director
of Investor Relations.
E. LEGAL DISPUTES
Associates involved with a Company lawsuit or other legal dispute may not
discuss it with outsiders or other Company associates without the prior
approval of the Company's Chief Executive Officer or Vice President of Human
Resources.
Failure to follow these restrictions could constitute a breach of the
Company's attorney-client privilege and result in the loss of confidential
information. Additionally, any associate contacted by any regulatory or law
enforcement authority seeking Company information should promptly contact his
or her supervisor who should immediately bring the matter to the attention of
Company's Chief Executive Officer or Vice President of Human Resources. No
associate should respond to any such inquiry regarding the Company without
first consulting with and obtaining the approval of the Company's Chief
Executive Officer or Vice President of Human Resources.
III. CONFLICTS OF INTEREST
A. Conflicts of Interest
Although Company associates are generally free to engage in personal
financial and business transactions, there are certain limitations. All
associates have a duty to avoid situations where their loyalties may be divided
between the Company's interests and their own interests. Associates should
avoid even the appearance of such a conflict of interest.
While it is impossible to outline every situation that may give rise to a
conflict of interest or the appearance of impropriety, the following are some
examples:
D-4
1. No associate or closely related family member may have a financial
interest or stock ownership in, or obligation to, or receive a loan or
guarantee from, a competitor, customer, or supplier of the Company,
where the interest, obligation, loan or guarantee might cause divided
loyalty or even the appearance of divided loyalty.
2. No associate may perform services as an associate, independent
contractor, advisor or consultant for any competitor of the Company.
No associate may perform such services for a customer or supplier of
the Company without the prior written approval of the Company's Chief
Executive Officer.
3. No associate may serve as a Director of any competitor of the Company.
No associate may serve as a Director of any customer or supplier of
the Company without the prior written approval of the Company's Chief
Executive Officer.
4. No associate may accept a position with another company if doing so
would impair the associate's ability to fulfill his or her obligations
to the Company.
5. No associate may deprive the Company of a business opportunity, or
divert a business opportunity to such associate's own benefit.
B. Dealing with Government Officials
Associates who have dealings with government officials must conform to the
following standards:
1. All associates who contact public officials must be familiar with the
applicable lobbying laws and public disclosure requirements,
particularly those laws or regulations that pertain to registrations
or filings that must be made by the Company.
2. No payment may be made to, or for the benefit of, any public official
in order to induce or entice such official to enact, defeat or violate
any law or regulation for the Company's benefit; to influence any
official act; or to obtain any favorable action by a governmental
agency or official on behalf of the Company.
3. Social amenities, entertainment and other courtesies may be extended
to government officials or associates only to the extent appropriate
and reasonable under applicable laws and customs. Gifts of greater
than nominal value to, or lavish entertainment of, public officials
are prohibited. No gifts in the form of cash, stock or other similar
consideration shall be given, regardless of amount. Any gift about
which an associate is uncertain should not be made without the prior
written approval of the Company's Chief Executive Officer. Any
expenses incurred by a Company associate in connection with the
matters discussed herein shall be accurately recorded on the Company's
books and records.
C. Business Hospitality
Good relationships with the Company's suppliers and customers are
important and in the long-term best interests of the Company. Business
entertainment (including meals and transportation), gratuities and gifts,
whether offered by Company associates or their families to third parties or
extended to Company associates or their families by third parties, are
permitted, provided the entertainment, meal or transportation provided is not
lavish or excessive and the gift or gratuity given is of nominal value (less
than $200) and does not consist of cash or cash equivalents (e.g., gift
certificates). Neither should exceed the bounds of good taste or customary
business standards in the community. Care should be exercised to ensure that
any business entertainment or gift could not reasonably be construed by the
recipient as a bribe or improper inducement.
The nature of the transactions should be such that their public disclosure
would not be embarrassing to the Company or the recipient. All funds expended
for business entertainment and gifts must be documented accurately and
reflected in the books and records of the Company.
D. Prohibited Payments
Bribery and Kickbacks
No associate of the Company may, directly or indirectly, offer, give,
solicit or accept any money, privilege, special benefit, gift, or other item of
value for the purpose of obtaining, retaining, or directing business, or
bestowing or receiving any kind of special or favored treatment for the
Company. The Company does not permit or condone the use or receipt of bribes,
kickbacks, or any other illegal or improper payments or transfers in the
transaction
D-5
of its business. The use of any outside consultant, attorney, accountant, or
agent in any manner or for any purpose that would be contrary to this
prohibition will not be permitted.
Business Dealings Outside the United States
The Foreign Corrupt Practices Act (the "Act") prohibits a U.S. citizen
from engaging in certain types of activities while conducting business outside
the United States.
In accordance with the provisions of the Act, no director, officer,
associate, or agent of the Company may give or offer to give, directly or
indirectly, anything of value to any foreign official (including an official of
any political party or candidate for any political office) for the purpose of
(i) influencing any act or decision of the recipient in his official capacity;
(ii) inducing the recipient to use his influence to affect any act or decision
of any foreign government; or (iii) inducing the recipient to do or omit to do
any act in violation of the lawful duty of such person. The Act provides that
an individual may be fined up to $100,000 and imprisoned for up to five years
for violations of the Act. In addition, the Company may be subject to
substantial monetary penalties for violations of the Act by its associates or
agents and is prohibited from directly or indirectly paying the monetary fines
imposed on individual violators of the law. Modest gratuities and tips may be
paid solely for the purpose of expediting or securing the performance of a
routine action required to be taken by foreign governmental officials,
representatives of customers or suppliers or other persons whose duties are
essentially ministerial or clerical in nature.
However, such payments may not be made if they are in violation of local
law or in order to influence a foreign official or other person to make a
decision that the individual is not required to make, such as any decision
whether, or on what terms to award new business to or to continue business with
a particular party.
Political Contributions
No corporate funds or services shall be paid or furnished to any political
party or any candidate for, or incumbent in, any public office except as
permitted by law and as approved by the Board of Directors.
The prohibitions and limitations on political contributions outlined above
relate only to the use of corporate funds and services and are not intended to
discourage associates from making personal contributions to candidates or
political parties of their choice. Personal involvement in political activity
is permitted as long as the activity does not interfere with or impair the
performance of the associate's duties for the Company.
In addition, any associate who becomes involved with a political group
must make it clear that his or her activities are being conducted purely in a
personal capacity and not on behalf of or in connection with the Company.
IV. EQUAL EMPLOYMENT OPPORTUNITY AND UNLAWFUL HARASSMENT
The Company maintains a strong policy of equal employment opportunity for
all associates and applicants for employment. The Company hires, trains,
promotes and compensates associates on the basis of individual competence and
potential without regard for race, color, religion, sex, sexual orientation,
national origin, citizenship, age, marital status, or non-job related
disability, as well as all other classifications protected by applicable laws.
The Company's equal employment opportunity philosophy applies to all
aspects of employment with the Company, including but not limited to
recruiting, hiring, training, transfer, promotion, associate benefits and
compensation, termination, educational assistance, leave of absence and social
and recreational activities.
The Company is committed to adhering to and enforcing its obligations
under applicable non-discrimination laws including the Americans with
Disabilities Act (ADA). All associates are expected to help implement the
Company's goals with regard to equal employment opportunity. Disabled
associates and job applicants who want to request reasonable accommodations
from the Company are encouraged to consult with their supervisors or Human
Resources Department. In addition, associates and job applicants who feel that
they have been discriminated against because of a disability should register a
complaint with the head of the Human Resources Department, or with the
appropriate supervisory executive.
The Company opposes harassment of others on the basis of sex, sexual
orientation, age, race, color, national origin, religion, marital status,
citizenship, disability and other characteristics protected by applicable laws.
Harassment includes making derogatory remarks about such characteristics,
using negative epithets, making "jokes" about ethnic or other groups, and other
verbal and physical behavior.
D-6
It is the policy of the Company to provide a non-discriminatory work
environment free of intimidation and harassment. All associates are expected to
cooperate in maintaining this work environment.
The Company will not tolerate any form of unlawful harassment, whether
verbal or physical, at any level. Sexual harassment includes unwelcome sexual
advances, requests for sexual favors or other verbal or physical conduct of a
sexual nature when: (1) submission to such conduct is made either explicitly or
implicitly a term or condition of an individual's employment; (2) submission to
or rejection of such conduct by an individual is used as the basis of
employment decisions affecting such individual; or (3) such conduct has the
purpose or effect of substantially interfering with the affected person's work
performance or creating an intimidating, hostile or offensive work environment.
It is the Company's policy to investigate thoroughly and remedy any
incidents of harassment. In order to accomplish this, however, harassment must
be brought to the attention of the Company. Accordingly, associates who feel
aggrieved because of harassment have an obligation to communicate their
problems immediately. An associate who feels he or she has been harassed should
immediately notify their immediate supervisor or Human Resources. All
complaints will be treated as confidentially as possible and all investigations
will be conducted expeditiously. There will be no retaliation against a person
who, in good faith, files a complaint or participates in any way in the
investigation of a complaint.
Any associate who has been found, after appropriate investigation, to have
harassed another associate will be subject to appropriate sanctions depending
on the circumstances, up to and including dismissal.
V. FAIR DEALING
Each associate shall endeavor to deal fairly with the Company's customers,
suppliers, competitors and associates. No associate shall take unfair advantage
of anyone through manipulation, concealment, abuse of privileged information,
misrepresentation of material facts or any other unfair-dealing practice.
VI. ACCOUNTING MATTERS
Every associate must cooperate fully with the Company's internal
accounting process and its independent auditors. Any associate who becomes
aware of a questionable accounting or auditing practice, or has a complaint
regarding the Company's accounting, internal accounting controls or auditing
matters, should immediately make a report to one of his or her supervisors or,
if such associate desires, he or she may contact any member of the Company's
Audit Committee.
Any supervisor receiving a report from a subordinate must in turn make a
report to any member of the Audit Committee. All reports will be treated as
confidentially as possible and no associate will be subject to any retaliation
or adverse consequence for making any such report in good faith.
It is the Company's policy that all records that form the basis of an
audit or review be retained for a reasonable period of time. Any associate who
is unsure whether a particular record must be retained should consult his or
her supervisor or the Company's Chief Financial Officer.
VII. COMPLIANCE WITH STANDARDS
If associates know of or suspect a violation of applicable laws and
regulations, these Standards, or the Company's related policies, they should
immediately report that information to their supervisor or a higher level of
management. No associate reporting a suspected violation will be subject to
retaliation because of a good faith report.
Reported violations will be promptly investigated and treated
confidentially to the greatest extent possible. It is imperative that the
associate reporting the violation not conduct a preliminary investigation of
their own. Investigations of alleged violations may involve complex legal
issues. Associates who act on their own may compromise the integrity of an
investigation and adversely affect both themselves and the Company.
The Company intends to use every reasonable effort to prevent the
occurrence of conduct not in compliance with these Standards and to halt any
such conduct that may occur as soon as reasonably possible after its discovery.
Associates who violate these Standards and other Company policies and
procedures may be subject to disciplinary action, up to and including
discharge. In addition, disciplinary action, up to and including discharge, may
be taken against anyone who directs or approves infractions or has knowledge of
them and does not move promptly to correct them in accordance with the
Company's policies.
D-7
Ultimate responsibility to ensure that the Company complies with the laws
and ethical standards affecting its business rests on each of its associates.
Associates must become familiar with and conduct themselves strictly in
compliance with such laws and ethical standards as well as the Company's
policies and guidelines pertaining to them.
CERTIFICATION
I acknowledge that I have received a copy of the Advanced Marketing
Services, Inc. Ethics Policy. I certify that I have read, understand and will
comply with the policies and procedures set forth in that document. I
understand that, if I am an associate of the Company, my failure to comply in
all respects with the Company's policies, is a basis for termination of my
employment.
-------------------------------
Associate Signature/Date
-------------------------------
Print Name
D-8
REVOCABLE PROXY
ADVANCED MARKETING SERVICES, INC.
ANNUAL MEETING OF STOCKHOLDERS -- AUGUST 14, 2003
The undersigned stockholder(s) of Advanced Marketing Services, Inc. (the
"Company") hereby nominates, constitutes and appoints Charles C. Tillinghast 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, August
14, 2003, at 9:00 a.m., Pacific Daylight Time, 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 to vote for all
nominees listed nominees.
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
Michael M. Nicita
Loren C. Paulsen
Item 2. Approval of amendment to and FOR [_] AGAINST [_] ABSTAIN [_]
restatement of the 1995 Stock Option Plan
Item 3. Ratification of Deloitte & Touche LLP FOR [_] AGAINST [_] ABSTAIN [_]
as independent auditors
Item 4. To transact any other business as may properly come before the meeting
and any adjournment or postponement.
Please sign and date on the reverse side
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE
REVOKED PRIOR TO ITS EXERCISE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF "AUTHORITY GIVEN" FOR PROPOSAL
1 AND "FOR" PROPOSALS 2 AND 3. THE PROXY CONFERS AUTHORITY TO AND WILL BE VOTED
"AUTHORITY GIVEN" FOR PROPOSAL 1 AND "FOR" PROPOSALS 2 AND 3 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: _____________________________, 2003
____________________________________________
(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(s) _____________