<PAGE>
As filed with the Securities and Exchange Commission on ,1996
Registration No. 33-80629
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
ADVANTAGE MARKETING SYSTEMS, INC.
(Name of small business issuer in its charter)
OKLAHOMA 7319 73-1323256
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
2601 Northwest Expressway, Suite 1210W John W. Hail, Chief Executive Officer
Oklahoma City, Oklahoma 73112 Advantage Marketing Systems, Inc.
(405) 842-0131 2601 Northwest Expressway, Suite 1210W
Oklahoma City, Oklahoma 73112-7293
(405) 842-0131
(Address and telephone number, (Name, address and telephone number,
including area code, of registrant's of agent for service)
principal executive offices)
----------------------------------
Copies To:
Michael E. Dunn, Esq.
Dunn Swan & Cunningham
2800 Oklahoma Tower
210 Park Avenue
Oklahoma City, Oklahoma 73102-5604
----------------------------------
Approximate date of commencement of proposed sale to
the public: As soon as practicable after this Registration
Statement becomes effective.
----------------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================
Proposed Proposed
Title of each class of securities Amount to be maximum offering maximum aggregate Amount of
to be registered registered price per share(1) offering price registration fee
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
8,403,752 Units(2), each consisting of:
- -------------------------------------------------------------------------------------------------------------------
(a) One share of Common Stock........... 8,403,752 $ .75 $ 6,302,814 $2,173.38
- -------------------------------------------------------------------------------------------------------------------
(b) One 1996-A Warrant.................. 8,403,752 - - -
- -------------------------------------------------------------------------------------------------------------------
17,185,524 Units(3), each consisting of:
- -------------------------------------------------------------------------------------------------------------------
(a) One share of Common Stock........... 17,185,524 .80 13,748,419 4,740.83
- -------------------------------------------------------------------------------------------------------------------
(b) One 1996-A Warrant.................. 17,185,524 - - -
- -------------------------------------------------------------------------------------------------------------------
Shares of Common Stock Underlying
1996-A Warrants(4)...................... 25,589,276 1.50 38,383,914 13,235.83
- -------------------------------------------------------------------------------------------------------------------
Total..................................... $58,435,147 $20,150.04
===================================================================================================================
(Footnotes on following page)
</TABLE>
----------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
This Registration Statement contains a Prospectus which constitutes a
combined prospectus related to Registrant's Registration Statement No. 33-25701
in accordance with Rule 429.
Number of pages in sequential numbering system ____
Index to Exhibits appears on sequential page ____
<PAGE>
- ------------
(1) The offering price is based upon (i) the exercise price of outstanding
Class A Common Stock Purchase Warrants or Class B Common Stock Purchase
Warrants to purchase the shares of Common Stock, (ii) the subscription
price to purchase shares of Common Stock upon exercise of rights
distributed to Registrant's shareholders pursuant to rights offering,
or (iii) the exercise price of the 1996-A Warrants to purchase shares
of Common Stock.
(2) Issuable upon exercise of Class A Common Stock Purchase Warrants and
Class B Common Stock Purchase Warrants pursuant to Registrant's warrant
modification offer.
(3) Issuable upon exercise of rights distributed to shareholders pursuant
to Registrant's rights offering.
(4) Pursuant to Rule 416, includes such indeterminate number of additional
securities as may be required for issuance on exercise of Registrant's
1996-A Warrants as a result of adjustment in the number of securities
issuable on such exercise by reason of antidilution provisions of the
1996-A Warrants.
---------------------------------
ADVANTAGE MARKETING SYSTEMS, INC.
Cross Reference Sheet Showing Location
in Prospectus of Information Required by Items in Part I of Form SB-2
Included within this Registration Statement are two Prospectuses. One
Prospectus covers the offering of units comprised of one share of common stock
and one 1996-A Warrant ("Units") pursuant to a warrant modification offer
providing for the reduction of the exercise price of Registrant's outstanding
Class B Common Stock Purchase Warrants and the issuance of Units upon exercise
of the Registrant's outstanding Class A Common Stock Purchase Warrants and Class
B Common Stock Purchase Warrants (referred to hereinbelow as the "Warrant
Modification Offer Prospectus"). The second Prospectus covers the offering of
Units upon exercise of rights ("Rights") distributed to Registrant's
shareholders (referred to hereinbelow as the "Rights Offering Prospectus").
1
<PAGE>
EXPLANATORY NOTE
The financial statements of Advantage Marketing Systems, Inc. and Miracle
Mountain International, Inc. are contained in the Warrant Modification Offer
Prospectus first appearing in this Registration Statement and are incorporated
in the Prospectus by reference thereto and appear beginning at page F-2 of the
Warrant Modification Offer Prospectus.
<PAGE>
Warrant Modification Offer Prospectus - Cross Reference Sheet:
<TABLE>
<CAPTION>
Location in Warrant Modification Offer
--------------------------------------
Item in Part I of Form SB-2 Prospectus
--------------------------- ----------
<S> <C>
1. Front of Registration Statement and
Outside Front Cover Page of Prospectus................... Outside Front Cover Page.
2. Inside Front and Outside Back Cover
Pages of Prospectus...................................... Inside Front and Outside Back Cover Pages.
3. Summary Information and Risk Factors....................... "Prospectus Summary," "The Company," "Risk
Factors," "Selected Financial Information."
4. Use of Proceeds............................................ "Use of Proceeds."
5. Determination of Offering Price............................ Front Cover Page, "Prospectus Summary,"
"Terms of Warrant Modification Offer,"
"Description of Securities-Public Warrants."
6. Dilution................................................... *
7. Selling Security Holders................................... *
8. Plan of Distribution....................................... Front Cover Page, "Terms of the Warrant
Modification Offer."
9. Legal Proceedings.......................................... "Business-Litigation."
10. Directors, Executive Officers, Promoters
and Control Persons...................................... "Management."
11. Security Ownership of Certain Beneficial Owners
and Management........................................... "Security Ownership of Certain Beneficial
Owners and Management."
12. Description of Securities.................................. Outside Front Cover Page, "Capitalization,"
"Terms of the Warrant Modification Offer,"
"Description of Securities."
13. Interest of Named Experts and Counsel...................... "Legal Matters," "Experts."
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities........... "Management-Officer and Director Liability."
15. Organization Within Last Five Years........................ *
16. Description of Business.................................... "Prospectus Summary," "The Company,"
"Business."
17. Management's Discussion and Analysis or Plan of
Operations............................................... "Management's Discussion and Analysis of
Financial Condition and Results of Operations,"
"Business."
18. Description of Property.................................... "Business-Properties."
19. Certain Relationships and Related Transactions............. "Certain Transactions."
20. Market for Common Equity and Related
Stockholder Matters...................................... "Market Price of Common Stock and Public
Warrants and Dividends," "Risk
Factors-Absence of Prior Public Market for
Units and 1996-A Warrants; Possible Volatility
of Stock Price," "Description of Securities."
21. Executive Compensation..................................... "Management-Compensation of Executive
Officers."
22. Financial Statements....................................... "Unaudited Pro Forma Consolidated Financial
Information of the Company" and Financial
Statements.
23. Changes in Disagreements with Accountants on
Accounting and Financial Disclosure...................... *
</TABLE>
- -------------------
* Not Applicable
2
<PAGE>
Rights Offering Prospectus -- Cross Reference Sheet:
<TABLE>
<CAPTION>
Item in Part I of Form SB-2 Location in Rights Offering Prospectus
--------------------------- --------------------------------------
<S> <C>
1. Front of Registration Statement and
Outside Front Cover Page of Prospectus................... Outside Front Cover Page.
2. Inside Front and Outside Back Cover
Pages of Prospectus...................................... Inside Front and Outside Back Cover Pages.
3. Summary Information and Risk Factors....................... "Prospectus Summary," "The Company," "Risk
Factors," "Selected Financial Information."
4. Use of Proceeds............................................ "Use of Proceeds."
5. Determination of Offering Price............................ Front Cover Page, "Prospectus Summary,"
"Rights Offering," "Description of
Securities--Common Stock."
6. Dilution................................................... *
7. Selling Security Holders................................... *
8. Plan of Distribution....................................... Front Cover Page, "Rights Offering."
9. Legal Proceedings.......................................... "Business--Litigation."
10. Directors, Executive Officers, Promoters
and Control Persons...................................... "Management."
11. Security Ownership of Certain Beneficial Owners
and Management........................................... "Security Ownership of Certain Beneficial
Owners and Management."
12. Description of Securities.................................. Outside Front Cover Page, "Capitalization,"
"Rights Offering," "Description of
Securities--Common Stock."
13. Interest of Named Experts and Counsel...................... "Legal Matters," "Experts."
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities........... "Management--Officer and Director Liability."
15. Organization Within Last Five Years........................ *
16. Description of Business.................................... "Prospectus Summary," "The Company,"
"Business."
17. Management's Discussion and Analysis or Plan of
Operations............................................... "Management's Discussion and Analysis of
Financial Condition and Results of Operations,"
"Business."
18. Description of Property.................................... "Business--Properties."
19. Certain Relationships and Related Transactions............. "Certain Transactions."
20. Market for Common Equity and Related
Stockholder Matters...................................... "Market Price of Common Stock and Dividends,"
"Risk Factors--Absence of Prior Public Market
for Units and 1996-A Warrants; Possible
Volatility of Stock Price," "Description of
Securities."
21. Executive Compensation..................................... Management--Compensation of Executive
Officers.
22. Financial Statements....................................... "Unaudited Pro Forma Consolidated Financial
Information of the Company," Financial
Statements.
23. Changes in Disagreements with Accountants on
Accounting and Financial Disclosure...................... *
</TABLE>
- -------------------
* Not Applicable
3
<PAGE>
+ Information contained herein is subject to completion or amendment. A +
+ registration statement relating to these securities has been filed with the +
+ Securities and Exchange Commission. These securities may not be sold nor may +
+ offers to buy be accepted prior to the time the registration statement +
+ becomes effective. This prospectus shall not constitute an offer to sell or +
+ the solicitation of any offer to buy nor shall there be any sales of these +
+ securities in any State in which such offer, solicitation or sale would be +
+ unlawful prior to registration or qualification under the securities laws of +
+ any such State. +
SUBJECT TO COMPLETION, DATED JUNE 27, 1996
PROSPECTUS
8,403,752 Units
(Each consisting of one share of Common Stock and one 1996-A Warrants)
Issuable upon exercise of Class A and Class B Common Stock Purchase Warrants
NOTICE OF REDEMPTION OF
CLASS A AND CLASS B COMMON STOCK PURCHASE WARRANTS
ADVANTAGE MARKETING SYSTEMS, INC.
Advantage Marketing Systems, Inc., an Oklahoma corporation (the
"Company"), hereby notifies the holders (the "Warrant Holders") as of ,
1996 (the "Record Date") of the Company's election to redeem (the "Warrant
Redemption") the outstanding Class A Common Stock Purchase Warrants (the "Class
A Warrants") and the Class B Common Stock Purchase Warrants (the "Class B
Warrants") at $.0001 per warrant (the "Redemption Price") at 5:00 p.m., Central
Standard Time, on , 1996, unless extended (the "Redemption Date"). Each
of the Class A Warrants and Class B Warrant is exercisable at $.75 or $1.00,
respectively (the "Warrant Exercise Prices") to purchase one share of the
Company's common stock, par value $.0001 per share (the "Common Stock") at any
time on or before the Redemption Date. The Company's right to redeem the Class A
Warrants and the Class B Warrants (the "Public Warrants") is exercisable without
restriction and is not subject to any conditions other than the required notice
which is made pursuant hereto. The Redemption Price will be paid to the holder
of an unexercised Class A Warrant or Class B Warrant within not less than 15
days following expiration of the Redemption Date.
In connection with the Warrant Redemption, the Company offers in
accordance with the terms hereof (the "Warrant Modification Offer") to
temporarily reduce the exercise price (the "Warrant Exercise Price") of the
Class B Warrants to $.75 and, upon exercise, each Class A Warrant and Class B
Warrant will entitle the Warrant Holder to receive one unit consisting of one
share of Common Stock and one 1996-A Warrant (the "Unit") of the Company, from
the date hereof until expiration of the Redemption Date (the "Special Exercise
Period"). See "Terms of the Warrant Modification Offer" and "Description of
Securities--Public Warrants."
(Continued on inside cover)
See"Risk Factors," beginning at page 14, for a discussion of certain material
risks that should be considered in connection with an investment in the Units
offered hereby.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public (1) Commissions Company (1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit ................... $.75 -- $.75
- --------------------------------------------------------------------------------
Total ...................... $6,302,814 -- $6,302,814
================================================================================
</TABLE>
(1) Before deducting offering expenses payable by the Company estimated to
be $75,000. See "Use of Proceeds."
It is expected that delivery of the certificates representing the
Common Stock and 1996-A Warrants comprising the Units will be made immediately
following exercise of the Public Warrants and payment of the Warrant Exercise
Price.
, 1996
<PAGE>
(Continued from front cover)
The share of Common Stock and 1996-A Warrant comprising each Unit will
be separately transferable immediately after the sale of the Units to the
Warrant Holders. Each 1996-A Warrant is exercisable at any time on or before
June 30, 1998 to purchase one share of Common Stock for $1.50, subject to
adjustment in certain events, and may be redeemed by the Company at any time
upon 30 days' notice, at a price of $.0001 per 1996-A Warrant. The Warrant
Modification Offer is part of a plan of financing pursuant to which the Company
intends to raise additional capital through the issuance of the Units. As part
of such plan of financing, and concurrently with the Warrant Modification Offer,
the Company is distributing 17,185,524 rights to its shareholders which will
entitled each of its shareholders to purchase one Unit (the "Rights Offering
Units") for $.85 each (the "Rights Offering"). See "Use of Proceeds" and
"Description of Securities--Common Stock--Rights Offering."
Warrant Holders electing not to exercise the Public Warrants pursuant
to the Warrant Modification Offer on or before expiration of the Redemption Date
will be entitled to receipt of the Redemption Price per Public Warrant.
The Common Stock, Class A Warrants and Class B Warrants are quoted by
the National Daily Quotation Bureau, Incorporated under the symbols "AMSO,"
"AMSOW" and "AMSOZ," respectively. On June 24, 1996, the closing high bid prices
of the Common Stock, Class A Warrants and Class B Warrants were $.88, $.03 and
$.03, respectively. As of the date of this Prospectus, there is no public market
for the Units or the 1996-A Warrants, and none may develop. The Company has
applied for quotation of the Units and 1996-A Warrants by the National Quotation
Bureau, Incorporated to be quoted under the proposed symbols " " and " ,"
respectively. See "Description of Securities."
The Common Stock, Class A Warrants, Class B Warrants, Units and 1996-A
Warrants are or will be subject to the "penny stock" trading rules which impose
additional duties and responsibilities upon broker-dealers and salespersons
effecting purchase and sale transactions in such equity securities of the
Company, including determination of the purchaser's investment suitability,
delivery of certain information and disclosures to the purchaser, and receipt of
a specific purchase agreement from the purchaser prior to effecting the purchase
transaction, all of which affect or will affect the ability to resell the Common
Stock, Class A Warrants, Class B Warrants, Units and 1996-A Warrants. See "Risk
Factors--Over-the Counter Market; Penny Stock Trading Rules," and "Price Range
of Common Stock and Public Warrants--Penny Stock Trading Rules."
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.......................................................... 3
Risk Factors................................................................ 14
The Company................................................................. 19
Use of Proceeds............................................................. 20
Price Range of Common Stock and Public
Warrants and Dividends.................................................... 21
Capitalization.............................................................. 23
Selected Financial Information.............................................. 23
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 24
Unaudited Pro Forma Consolidated Financial
Information of the Company................................................. 29
Public Warrant Redemption................................................... 34
Purposes of Warrant Modification Offer...................................... 34
Terms of the Warrant Modification Offer..................................... 35
Certain Federal Income Tax Consequences..................................... 42
Business.................................................................... 44
Management.................................................................. 50
Certain Transactions........................................................ 55
Security Ownership of Certain Beneficial
Owners and Management...................................................... 56
Description of Securities................................................... 58
Shares Eligible for Future Sale............................................. 63
Legal Matters............................................................... 65
Experts..................................................................... 65
Additional Information...................................................... 65
Index to Financial Statements............................................... F-1
</TABLE>
-2-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Prospective investors should carefully consider the
information set forth in "Risk Factors." All references in this Prospectus to
fiscal years are to the Company's fiscal year ended December 31 of each year.
Unless otherwise indicated, all information in this Prospectus gives effect to
the issuance of 200,000 shares of Common Stock in connection with the
acquisition by the Company of Miracle Mountain International, Inc. on June 20,
1996.
The Company
The Company is a marketer of consumer oriented services and products
which are packaged together in special programs and sold to independent sales
associates who use the products and services themselves and also sell them to
others. The programs consist of various services which provide consumer savings
on items such as merchandise, groceries, nutritional supplements and travel, and
legal benefits furnished by certain third-party providers. These programs
represent the Company's one main class of products and services and account for
more than 96 percent of revenues. See "Business."
On the effective date of May 31, 1996, the Company acquired the issued
and outstanding capital stock of Miracle Mountain International, Inc., a
Colorado corporation ("MMI") (the "MMI Acquisition"). In connection with the MMI
Acquisition, the Company exchanged 160,000 shares of Common Stock and agreed to
issued an additional 40,000 shares on or before October 18, 1996, for the issued
and outstanding capital stock of MMI, and MMI became a wholly-owned subsidiary
of the Company. See "The Company--Recent Event-MMI Acquisition."
The Company's principal executive offices are located at 2601 Northwest
Expressway, Suite 1210W, Oklahoma City, Oklahoma 73112-7293 and its telephone
number is (405) 842-0131.
See "Risk Factors" for a discussion of certain factors to be considered
in evaluating the Company and its business.
Public Warrant Redemption
Pursuant to this Prospectus, the Company is notifying the holders (the
"Warrant Holders") of the Class A Common Stock Purchase Warrants (the "Class A
Warrants") and the Class B Common Stock Purchase Warrants (the "Class B
Warrants") as of , 1996 (the "Record Date"), of the election of the
Company to redeem (the "Warrant Redemption") the Class A Warrants and Class B
Warrants (collectively the "Public Warrants") for $.0001 per warrant (the
"Redemption Price") at 5:00 p.m., Central Standard Time, on , 1996 (the
"Redemption Date"). Each of the Class A Warrants and Class B Warrants is
exercisable for the purchase of one share of Common Stock for $.75 or $1.00,
respectively (the "Warrant Exercise Price"), on or before expiration of the
Redemption Date, without giving effect to the Warrant Modification Offer. See
"--Warrant Modification Offer." Pursuant to the Warrant Modification Offer, from
the date hereof until expiration of the Redemption Date (the "Special Exercise
Period"), the Warrant Exercise Price of the Class B Warrants is reduced from
$1.00 to $.75 and each Public Warrant will be exercisable to purchase one unit
consisting of one share of Common Stock and one 1996-A Warrants ("Unit") for
$.75. The Redemption Date may be extended by the Company such number of times as
determined in the sole discretion of the Company to a date that is not more than
days following the original Redemption Date. See "Public Warrant Redemption"
and "Terms of the Warrant Modification Offer."
The Public Warrants may only be exercised by a Warrant Holder in the
event the Registration Statement of which this Prospectus is a part is effective
with the Securities and Exchange Commission and the Units (or Common Stock and
1996-A Warrants) are qualified for sale in the state of residence of the Warrant
Holder. See "Risk Factors--Securities Laws Restrictions on Exercise of
Warrants," "Terms of Warrant Modification Offer--Acceptance of Public Warrants;
Delivery of Units," and "Description of Securities--Public Warrants."
-3-
<PAGE>
Subject to the foregoing, the Class A Warrants and Class B Warrants are
exercisable at any time by the Warrant Holders prior to the Redemption Date by
delivery of the warrant certificate evidencing the Public Warrant to U.S. Stock
Transfer Corporation (the "Warrant Agent") at 1745 Gardena Avenue, Glendale,
California 91204, with the "Form of Election to Purchase" on the reverse of the
certificate duly completed and signed, accompanied with payment of the Warrant
Exercise Price in cash or by certified check or bank draft payable to the order
of the Company.
Purpose of the Warrant Modification Offer
The purposes of the Warrant Modification Offer are to (i) strengthen
the Company's capital structure by increasing stockholders' equity and current
assets, (ii) provide the Company greater financial flexibility and (iii)
encourage the exercise of the Public Warrants prior to their redemption. See
"Use of Proceeds." In addition, with the net proceeds this offering and the
Warrant Modification Offer and from the concurrent offering for sale of the
Rights Offering Units pursuant to exercise of the Rights to be distributed to
the shareholders of the Company (see "--Rights Offering to Shareholders,"
below), although there is no assurance, it is anticipated that the Company's
total assets and stockholders equity will meet the minimum required levels for
consideration to be included on the NASDAQ Small Cap Market System.
Rights Offering to Shareholders
Concurrently with the Warrant Modification Offer, pursuant to a
separate prospectus included within the Registration Statement of which this
Prospectus is a part, the Company will issue 17,185,524 ("Rights") to its
shareholders, each Right exercisable to purchase one unit consisting of one
share of Common Stock and one 1996-A Warrant ("Rights Offering Unit") at $.85
(the "Rights Offering"). The Rights will be issued as a dividend to the holders
(the "Shareholders") on , 1996 (the "Record Date"), on the basis of one
Right per share of Common Stock outstanding on the Record Date. The Rights are
exercisable on or before , 1996, subject to extension by the Company
(the "Rights Exercise Date"). See "Description of Securities--Common Stock--
Rights Offering." Warrant Holders exercising their Public Warrants after the
Record Date will not be entitled to receive any Rights as a shareholder of the
Company.
The Warrant Modification Offer
In connection with the Warrant Redemption, the Company offers pursuant
hereto to reduce the Warrant Exercise Price of the Class B Warrants and upon
exercise of the Public Warrants (the Class A Warrants and the Class B Warrants)
prior to , 1996, in lieu of receipt of one share of Common Stock, the
holders of each Public Warrant will receive one Unit (one share of Common Stock
and one 1996-A Warrant) per Public Warrant. The Units are being offered on a
best efforts basis by the Company and its officers and directors, without
commissions, selling fees or direct or indirect remuneration. Holders of the
Public Warrants will not be required to pay any brokerage commissions or fees
with respect to the exercise of their Public Warrants; however, the holders of
the Public Warrants will be required to pay a $7.50 transfer fee for each
certificate of Common Stock and 1996-A Warrant issued in connection with the
exercise of the Public Warrants. The Company will pay all charges and expenses
of the Warrant Agent. See "The Warrant Modification Offer--Plan of Distribution"
and "--Acceptance of Public Warrants; Delivery of Units."
-4-
<PAGE>
This Offering
The Warrant Modification Offer.................. The Warrant Exercise Price of
the Class B Warrants has been
reduced from $1.00 to $.75
from the date hereof until the
Redemption Date (the "Special
Exercise Period"). Upon
exercise of either the Class A
Warrant or Class B Warrant
(collectively, the "Public
Warrants") during the Special
Exercise Period, the Company
will issue and deliver one
Unit per Public Warrant in
separate certificates of one
share of Common Stock and one
1996-A Warrant.
Expiration Date of the Offer.................... The Warrant Modification Offer
will expire on the Redemption
Date, subject to extension.
The Special Exercise Period
will effectively be extended
if and when the Redemption
Date is extended by the
Company. See "Terms of the
Warrant Modification Offer--
Expiration; Extensions;
Termination; Amendments."
Securities Offered.............................. 8,403,752 Units issuable upon
exercise of the Public
Warrants during the Special
Exercise Period, each Unit
consisting of one share of
Common Stock and one 1996-A
Warrant, each share of Common
Stock and each 1996-A Warrant
comprising the Units will be
immediately transferable after
issuance and delivery of the
Units to the Warrant Holders.
Each 1996-A Warrant is
exercisable at any time on or
before June 30, 1998, to
purchase one share of Common
Stock for $1.50, subject to
adjustment in certain events,
and may be redeemed by the
Company at any time upon 30
days' notice, at a price of
$.0001 per 1996-A Warrant. See
"Description of
Securities-Common Stock" and
"--1996-A Warrants."
Exercise Price.................................. $.75 per Public Warrant during
the Special Exercise Period.
-5-
<PAGE>
Securities outstanding:
Common Stock.................................. 17,185,524 shares at June 24,
1996 after giving effect to
the issuance of 200,000 shares
in connection with the MMI
Acquisition; 25,589,276 shares
assuming exercise of the
Public Warrants in full during
the Special Exercise Period
pursuant to the Warrant
Modification Offer; however,
there is no assurance that any
of the Public Warrants will be
exercised. Furthermore,
assuming and giving effect to
the issuance of the Rights and
exercise of the Rights in
full, the number of issued and
outstanding shares of Common
Stock and 1996-A Warrants will
be 34,371,048 and 17,185,524,
respectively. The forgoing
does not include (i)
12,321,412 shares reserved for
issuance to holders of
outstanding stock options and
other warrants, (ii)
17,185,524 shares of Common
Stock reserved for issuance to
the holders of the 1996-A
Warrants, and (iii) 9,000,000
shares reserved for issuance
pursuant to the Advantage
Marketing Systems, Inc. 1995
Stock Option Plan (the "Stock
Option Plan"). See
"Description of
Securities--Common Stock,"
"--Public Warrants," "--and
"--Other Stock Options and
Warrants" and
"Management--Stock Option
Plan."
Class A Warrants.............................. 4,196,876 at June 24, 1996;
none after the Redemption
Date.
Class B Warrants.............................. 4,206,876 at June 24, 1996;
none after the Redemption
Date.
1996-A Warrants............................... 8,403,752 assuming exercise of
the Public Warrants in full
during the Special Exercise
Period pursuant to the Warrant
Modification Offer; however,
there is no assurance that any
of the Public Warrants will be
exercised. Furthermore,
assuming and giving effect to
the issuance of the Rights and
exercise of the Rights in
full, the number of issued and
outstanding 1996-A Warrants
will be 25,589,276. See
"Description of
Securities--Common
Stock--Rights Offering" and
"--1996-A Warrants."
Estimated net proceeds.......................... $2,500,000 after deduction of
the Company's offering
expenses estimated at $75,000.
However, there is no assurance
that any of the Public
Warrants will be exercised
pursuant to the Warrant
Modification Offer, in which
case the Company will not
receive any proceeds from this
offering and the Warrant
Modification Offer.
-6-
<PAGE>
Use of proceeds................................. The net proceeds to be
received by the Company from
the sale of the Units pursuant
to exercise of the Public
Warrants during the Special
Exercise Period are estimated
to be approximately $2,500,000
(assuming exercise of
3,376,000 of the Public
Warrants). See "Public Warrant
Redemption." Concurrently with
this offering and the Warrant
Modification Offer, the
Company is distributing
17,185,524 Rights to its
shareholders each of which
will entitle the shareholder
to purchase one Unit (the
"Rights Offering Units") for
$.85 each (the "Rights
Offering"). See "--Rights
Offering to Shareholders,"
below, and "Description of
Securities--Common Stock--
Rights Offering." The Company
estimates that the net
proceeds to be received from
the Rights Offering will be $1
million. However, there is no
assurance that there will be
any net proceeds from the
Rights Offering or this
offering.
The net proceeds will be used
for general corporate
purposes, including working
capital and to fund the
Company's efforts to expand
sales and marketing
activities. The Company
estimates that it will use
approximately (i) $1.5 million
for expansion of its U.S.
distributor network and
enhancement of its marketing
materials, (ii) $.5 million to
develop new products and
enhance the packaging of its
existing products and (iii) $1
million for the expansion into
and development of
international markets. In the
event the Company receives
less than $3.5 million
pursuant to this offering and
the Rights Offering, the net
proceeds will be devoted to
each of these purposes in the
order in which presented. The
Company does not intend to use
any of the proceeds to
discharge existing debt.
Pending use of the net
proceeds, they will be
invested by the Company in
investment grade, short-term,
interest-bearing securities.
See "Use of Proceeds."
Consequences to Non-Exercising Warrant Holders.. The Public Warrants not
exercised or that are not
exercisable because of
securities laws restrictions
or limitations (see
"--Acceptance of Public
Warrants," below, and "Risk
Factors--Securities Laws
Restrictions on Exercise of
Warrants" and "Terms of the
Warrant Modification
Offer--Acceptance of Public
Warrants; Delivery of Units")
prior to the Redemption Date
will be redeemed by the
Company at $.0001 per Public
Warrant. See "Terms of the
Warrant Modification
Offer--Impact on Non-
Exercising Warrant Holders."
-7-
<PAGE>
How to Exercise Public Warrants................. Any holder of the Public
Warrants electing exercise of
the Public Warrants should
either (i) fill out the "Form
to Exercise for Purchase" on
the back of the Public Warrant
certificate and forward it
along with cash or a certified
or official bank check in the
amount of the proper exercise
price and any other required
documents to the Warrant
Agent, or (ii) request a
broker or bank to effect the
transaction. Holders of Public
Warrants registered in the
name of a broker, dealer,
bank, trust company or nominee
should instruct such
institutions to tender the
Public Warrants. See "Terms of
the Warrant Modification
Offer--How to Exercise."
Acceptance of Public Warrants................... The Company will accept any
and all Public Warrants duly
exercised and not withdrawn on
or prior to the Redemption
Date, subject to certain
conditions. In certain cases,
the sale of the Units (and the
shares of Common Stock and
1996-A Warrants comprising the
Units) pursuant to exercise of
the Public Warrants could
violate the securities laws of
certain states or other
jurisdictions. The Company has
undertaken registration or
qualification of the Units for
sale in California, Colorado,
Georgia, Kentucky, Illinois,
Louisiana, New Hampshire, New
York, Ohio, Oklahoma,
Pennsylvania, Tennessee,
Texas, Virginia, Washington
and Wisconsin; however, there
is no assurance that such
registration or qualification
will become effective in any
such states. In addition, the
Company may undertake
registration of the Units in
additional states as
determined in the sole
discretion of the Company.
Those Warrant Holders residing
in states in which the Units
have not been registered or
otherwise qualified for sale
in such state, will not be
permitted to exercise their
Public Warrants. Prior to
tendering of Public Warrants
for exercise, the Warrant
Holder should either contact
the Company or the Warrant
Agent to determine whether the
Units have been registered or
qualified in the state of such
Warrant Holder's residence.
The Company has used and will
continue to use its best
efforts to cause the sale of
the Units and shares of Common
Stock to be lawful.
-8-
<PAGE>
The Company is not required to
accept the exercise of the
Public Warrants, if, in the
opinion of counsel, the sale
of Units or Common Stock upon
such exercise would be
unlawful. In such cases, the
Public Warrants will not be
accepted for exercise, and the
Warrant Holder will be
required to sell such warrants
in the open market, subject to
the "penny stock" rules (see
"Price Range of Common Stock
and Public Warrants and
Dividends--Penny Stock
Rules"), or hold such warrants
until the Redemption Date and
receive the Redemption Price
per warrant. See "Risk
Factors--Securities Laws
Restrictions on Exercise of
Warrants," "Public Warrant
Redemption," "Terms of the
Warrant Modification
Offer--Conditions of the
Warrant Modification Offer"
and "--Acceptance of Public
Warrants; Delivery of
Securities" and "Description
of Securities--Public
Warrants."
Conditions of the Warrant Modification Offer.... The Company has reserved
certain rights and imposed
certain conditions with
respect to the Warrant
Modification Offer and the
Company's obligations
associated therewith,
including any prohibitive
injunction, suspension of
trading of the Common Stock
and enactment of any statute
or regulation prohibiting,
materially restricting or
delaying consummation of the
Warrant Modification Offer.
See "Terms of the Warrant
Modification Offer--Conditions
of the Warrant Modification
Offer."
Delivery of Securities.......................... The Company will deliver the
certificates for the shares of
Common Stock and the 1996-A
Warrants comprising the Units
issuable upon exercise of the
Public Warrants, as promptly
as practicable after the
Redemption Date. See "Terms of
the Warrant Modification Offer
--Acceptance of Public
Warrants; Delivery of
Securities."
Withdrawal Rights............................... Exercise of Public Warrants
pursuant to the Warrant
Modification Offer may be
withdrawn prior to the
Redemption Date. After the
Redemption Date, such tenders
will be irrevocable, except
that they may be withdrawn
after , 1996 (i.e., 40
business days from the date of
this Prospectus), unless
theretofore accepted for
exercise. See "Terms of the
Warrant Modification Offer--
Withdrawal Rights."
-9-
<PAGE>
Tax Consequences................................ The Company's tax counsel is
of the opinion that there is a
lack of definitive authority
addressing the tax
consequences to the Warrant
Holders of the Warrant
Modification Offer, and there
exists several reasonable and
diverse reporting positions.
Given the unclear state of the
law in this area, and the
technical intricacies of the
available reporting positions,
it is particularly important
that Warrant Holders consult
their own tax advisors
regarding the tax consequences
to them of the Warrant
Modification Offer and
exercise or nonexercise of the
Public Warrants.
For tax purposes only, the
Warrant Modification Offer may
be viewed as the grant of
additional rights to the
Warrant Holders which merely
modifies the securities to be
delivered upon exercise of the
Public Warrants and with
respect to the Class B
Warrants a reduction
modification of the Exercise
Price of the Public Warrants.
Pursuant to this theory, the
Public Warrants would be
valued as of the date the
Company announced the Warrant
Modification Offer and that
value would be reported by the
Warrant Holders as ordinary
income.
Alternatively, the Warrant
Modification Offer constitutes
the grant of additional
separate and independent
warrants to the Warrant
Holders. Under this theory,
the Public Warrants would be
deemed to have lapsed, which
would give rise to a loss to
the Warrant Holders on the
Redemption Date. In addition,
the Warrant Holders would be
required to recognize ordinary
income as a result of receipt
of the new warrant.
Another alternative is that
the Warrant Modification Offer
constitutes an exchange of the
Public Warrants as constituted
prior to the Warrant
Modification Offer for the
Public Warrants as modified by
the Warrant Modification
Offer. Under this theory, in
the event the amount realized
as a result of the transaction
(i.e., the trading price of
the Public Warrants as
modified pursuant to the
Warrant Modification Offer)
exceeds the Warrant Holder's
tax basis in the Public
Warrant, the Warrant Holder
would be required to recognize
taxable gain in the amount of
such excess.
Another alternative is that
the reduction in the Warrant
Exercise Price of the Class B
Warrants pursuant to the
Warrant Modification Offer
constitutes a dividend taxable
to each holder of the Class B
Warrants (whether or not the
Warrant Modification Offer is
accepted by exercising the
Class B Warrants) and which
would entitle each such
Warrant Holder to a
corresponding increase in the
tax basis of the Class B
Warrants.
-10-
<PAGE>
The proper date or dates for
recognition and measurement of
income possibly recognizable
by the Warrant Holders or loss
becoming available to the
Warrant Holders is uncertain,
and is, in part, dependent
upon whether the Public
Warrants are sold, exchanged,
lapse or are otherwise
disposed of and the timing of
when those events occur or are
deemed to occur. See "Certain
Federal Income Tax
Consequences" for a more
complete discussion.
In the opinion of the
Company's tax counsel, based
on information provided by the
Company with respect to the
ownership of the shares of
Common Stock and the Public
Warrants, the Warrant
Modification Offer will not
adversely affect the Company's
ability to preserve and
utilize it net operation loss
carryforwards.
Warrant Agent................................... U.S. Stock Transfer
Corporation. The Warrant Agent
may be contacted at the
address and telephone number
set forth on the back cover of
this Prospectus.
Additional Information.......................... The Company may be contacted
at the address and telephone
number set forth on the back
cover of this Prospectus.
National Daily Quotation Bureau symbols:........ Common Stock........... AMSO
Class A Warrant........ AMSOW
Class B Warrant........ AMSOZ
Unit.............. (proposed)
1996-A Warrant.... (proposed)
Summary Historical Financial and Operating Information of the Company
The following table sets forth summary historical financial and
operating information of the Company for the fiscal years ended December 31,
1994 and 1995, and the three months ended March 31, 1995 and 1996. See "Selected
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The financial and operating information
for the fiscal years ended December 31, 1994 and 1995, is derived from the
audited financial statements of the Company appearing elsewhere in this
Prospectus. The financial and operating information for the three months ended
March 31, 1995 and 1996, are derived from the unaudited financial statements of
the Company appearing elsewhere in this Prospectus which, in the opinion of
management, include all adjustment (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations of the Company for the unaudited interim periods. The
following information should be read in conjunction with the financial
statements and the related notes thereto of the Company, and other information
relating to the Company presented elsewhere in this Prospectus. The statements
of operations information for any particular period is not necessarily
indicative of the results of operation for any future period.
-11-
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended For the Three Months
December 31, Ended March 31,
------------------------ --------------------------
1994 1995 1995 1996
----------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Programs............................................... $2,564,542 $4,382,935 $ 804,637 $1,255,889
Promotional material................................... 82,780 109,733 20,126 62,684
Other.................................................. 30,625 25,535 6,007 13,876
---------- ---------- ---------- ----------
Total revenues..................................... 2,677,947 4,518,203 830,770 1,332,449
---------- ---------- ---------- ----------
Cost and expenses:
Programs............................................... 684,128 1,094,157 210,285 302,879
Promotional material................................... 83,964 92,087 17,217 35,745
Selling................................................ 1,289,616 2,201,510 396,579 683,164
General and administrative............................. 515,158 857,743 166,923 221,598
Interest expense....................................... 25,075 22,998 4,145 7,359
---------- ---------- ---------- ----------
Total expenses..................................... 2,597,941 4,268,495 795,149 1,250,745
---------- ---------- ---------- ----------
Net income................................................. $ 80,006 $ 249,708 $ 35,621 $ 81,704
========== ========== ========== ==========
Weighted average common shares outstanding(1).............. 16,954,848 21,301,441 16,965,524 24,588,424
Net income per common share................................ NIL $ .01 NIL NIL
Cash Flow Data:
Net cash provided by operating activities.................. $ 52,295 $ 316,958 $ 35,119 $ 161,284
Net cash used in investing activities...................... (6,689) (79,278) (2,697) (28,877)
Net cash used in financing activities...................... ( 45,606) (125,593) (32,422) (20,719)
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
---------------------------- ------------
1994 1995 1996
------------ ------------- ------------
<S> <C> <C> <C>
Balance Sheet Data:
Current assets........................................................... $117,796 $283,341 $471,279
Working capital deficiency............................................... (338,662) (170,734) (109,073)
Total assets............................................................. 176,969 532,996 737,325
Short-term debt.......................................................... 138,655 111,048 100,857
Long-term debt........................................................... 7,947 104,149 100,497
Stockholders' equity (deficiency)........................................ (287,436) (25,228) 56,476
</TABLE>
- -------------------
(1) Without giving effect to exercise of the Public Warrants pursuant to
the Warrant Modification Offer and exercise of the Rights pursuant to
the Rights Offering and the issuance of 200,000 shares in connection
with the MMI Acquisition, and does not include 9,000,000 shares
reserved for issuance pursuant to the Stock Option Plan. See
"Description of Securities--Common Stock--Rights Offering," and
"--Other Options and Warrants" and "Management--Stock Option Plan."
Selected Pro Forma Financial Information (Unaudited)
The following table presents selected pro forma information for the
Company on the assumption that the MMI Acquisition occurred on the date of the
balance sheet and at the beginning of each period for which results of
operations are presented. The information presented below is derived from and
should be read in conjunction with, the consolidated financial statements of the
Company and MMI, the unaudited pro forma consolidated financial statements and
other information related to the Company and MMI, all presented elsewhere in
this Prospectus. The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the results of operations or
financial position that would have been achieved if the MMI Acquisition had been
consummated in accordance with the assumptions set forth in the notes to the
unaudited pro forma consolidated financial statements
-12-
<PAGE>
of the Company, nor is it necessarily indicative of future operating results or
financial position. See "Unaudited Pro Forma Consolidated Financial Information
of the Company."
<TABLE>
<CAPTION>
Pro Forma Combined
-----------------------------------
<S> <C> <C>
Statements of Operations Data: December 31, 1995 March 31, 1996
----------------- --------------
Revenues................................................................... $4,795,569 $1,454,697
Costs and expenses......................................................... 4,694,284 1,387,536
Net Income................................................................. 101,285 67,161
Weighted average common shares outstanding(1).............................. 21,501,441 24,788,424
Net income per common share................................................ NIL NIL
</TABLE>
<TABLE>
<CAPTION>
March 31,
----------
1996
----------
<S> <C>
Balance Sheet Data:
Current assets..................................................................................... $ 474,472
Working capital deficiency......................................................................... (122,164)
Total assets....................................................................................... 903,609
Short-term debt.................................................................................... 100,857
Long-term debt..................................................................................... 100,497
Stockholders' equity (deficiency).................................................................. 206,476
</TABLE>
- -------------------
(1) Without giving effect to exercise of the Public Warrants pursuant to
the Warrant Modification Offer and exercise of the Rights pursuant to
the Rights Offering and does not include 9,000,000 shares reserved for
issuance pursuant to the Stock Option Plan. See "Description of
Securities--Common Stock--Rights Offering," and "--Other Options and
Warrants" and "Management--Stock Option Plan."
-13-
<PAGE>
RISK FACTORS
Purchase of Units or shares of Common Stock, pursuant to exercise of
the Public Warrants, offered hereby involves a high degree of risk. In addition
to the other information set forth elsewhere in this Prospectus, the following
factors relating to the Company and exercise of the Public Warrants should be
considered when evaluating exercise of the Public Warrants and investment in the
Units and Common Stock offered hereby.
Deficit Working Capital. At March 31, 1996, the Company had a deficit
working capital of $109,073. Management believes that the deficit working
capital will be reduced by revenues from operating activities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Capital Resources and Liquidity." There is no assurance that revenues from
operations will be sufficient to cover the deficit working capital; however, the
net proceeds of the Warrant Modification Offer and the Rights Offering will
reduce and possibly eliminate the deficit working capital.
Management Discretion over Application of Proceeds. The Company will
allocate the net proceeds of exercise of the Public Warrants to general
corporate purposes and working capital. See "Use of Proceeds." The application
of such proceeds will be at the sole discretion of management of the Company.
Individual shareholders will have no control over decisions regarding the
application or use of the net proceeds obtained pursuant to exercise of the
Public Warrants.
Securities Laws Restrictions on Exercise of Warrants. In certain cases,
the sale of the Units and the Common Stock and 1996-A Warrants comprising the
Units by the Company upon exercise of Public Warrants could violate the
securities laws of certain states or other jurisdictions. The Company has used
and will continue to use its best efforts to cause the Registration Statement of
which this Prospectus is a part to be declared effective under the laws of
various states as may be required to cause the sale of securities upon exercise
of Public Warrants and the 1996-A Warrants to be lawful. However, the Company is
not required to accept the exercise of the Public Warrants, if, in the opinion
of counsel, the sale of Units and Common Stock and 1996-A Warrants comprising
the Units upon such exercise would be unlawful. In such cases, the Public
Warrants will not be accepted for exercise, and the holder of the Public
Warrants will be required to sell the Public Warrants in the open market, if
such market is available, or hold such warrants until expiration or redemption.
See "Warrant Redemption," and "Description of Securities--Public Warrants."
Consequences to Non-Exercising Warrant Holders. The Public Warrants
that are not exercised by a Warrant Holder prior to the Redemption Date (or that
are not exercisable because of securities laws restrictions or limitations) will
be redeemed by the Company at $.0001 per Public Warrant. The Warrant Holder will
be required to sell such Public Warrants in the open market, if such market is
available, or hold such Public Warrants and receive the Redemption Price. See
"Terms of the Warrant Modification Offer--Impact on Non-Exercising Warrant
Holders."
Absence of Prior Public Market for Units and 1996-A Warrants; Possible
Volatility of Stock Price. Although the Common Stock is currently traded in the
over-the-counter market, there currently is no public market for the Units or
the 1996-A Warrants offered pursuant to the Warrant Modification Offer, and
there is no assurance that a market will develop or be sustained. See "Price
Range of Common Stock and Public Warrants and Dividends." The market price of
the Common Stock (as well as the Units and 1996-A Warrants, if a market
develops) may be significantly affected by factors such as announcements of new
products, product lines or marketing strategies offered by the Company or its
competitors, increase or decrease in membership and sales associates of the
network purchasing programs offered by the Company, quarter-to-quarter
variations in the Company's anticipated or actual results of operations and
conditions in the marketing of products and product lines.
Over-the-Counter Market; Penny Stock Trading Rules. The Common Stock,
Class A Warrants and Class B Warrants are and it is anticipated, although there
is no assurance a market will develop, that the Units and 1996-A Warrants will
also be traded in the over-the-counter market and will be subject to the "penny
stock" trading rules.
-14-
<PAGE>
See "Price Range of Common stock and Public Warrants and Dividends--Penny Stock
Trading Rules." The over-the-counter market is characterized as volatile in that
securities traded in such market are subject to substantial and sudden price
increases and decreases and at times price (bid and asked) information for such
securities may not be available. In addition, when there are only one or two
market makers (a dealer holding itself out as ready to buy and sell the
securities on a regular basis), there is a risk that the dealer or group of
dealers may control the market in the security and set prices that are not based
on competitive forces and the available offered price may be substantially below
the quoted bid price. There is no assurance that immediately following exercise
of a Public Warrant, the Warrant Holder will be able to resell the Unit, Common
Stock and/or 1996-A Warrant or if sold whether a profit will be realized (i.e.,
sale of the Common Stock or 1996-A Warrant at a price, after dealer compensation
or markdown, in excess of the exercise price of the Public Warrant allocable to
the Common Stock or the 1996-A Warrant).
The Common Stock, Class A Warrants, Class B Warrants, Units, and 1996-A
Warrants are or will be subject to the "penny stock" trading rules. The penny
stock trading rules impose additional duties and responsibilities upon
broker-dealers and salespersons effecting purchase and sale transactions in such
equity securities of the Company, including determination of the purchaser's
investment suitability, delivery of certain information and disclosures to the
purchaser, and receipt of a specific purchase agreement from the purchaser prior
to effecting the purchase transaction. Compliance with the penny stock trading
rules affect or will affect the ability to resell the Common Stock, Class A
Warrants, Class B Warrants, Unit or 1996-A Warrants by a holder principally
because of the additional duties and responsibilities imposed upon the
broker-dealers and salespersons recommending and effecting sale and purchase
transactions in such securities. In addition, many broker-dealers will not
effect transactions in penny stocks, except on an unsolicited basis, in order to
avoid compliance with the penny stock trading rules. The penny stock trading
rules consequently may materially limit or restrict the ability of a holder to
resell the Company's equity securities, and the liquidity typically associated
with other publicly traded equity securities may not exist. Therefore, a Warrant
Holder electing to exercise a Public Warrant may be required to hold the Common
Stock and/or 1996-A Warrant for an indefinite time and even then may realize a
loss, which loss could be substantial. See "Price Range of Common Stock and
Public Warrants and Dividends--Penny Stock Trading Rules."
1996-A Warrant Exercise and Redemption Provisions. Each 1996-A Warrant
entitles the holder to purchase one share of Common Stock, subject to certain
anti-dilution adjustments, at a price of $1.50 per share, on or before June 30,
1998. See "Description of Securities--1996-A Warrants." Holders of 1996-A
Warrants may exercise such warrants only in the event a current prospectus
relating to the Common Stock underlying the 1996-A Warrants is then in effect
and only with respect to such shares that are qualified for sale under the state
securities laws of the states in which the holders of the 1996-A Warrants
reside. There can be no assurance that the Company will have a current
prospectus covering the shares underlying the 1996-A Warrants at all times that
the 1996-A Warrants are outstanding. However, the Company will make a good faith
effort to maintain an effective registration statement and current prospectus at
such time, if ever, that the price of the Common Stock exceeds the 1996-A
Warrant exercise price. The 1996-A Warrants may be deprived of any value in the
event this Prospectus or another prospectus covering the shares issuable upon
exercise of the 1996-A Warrants is not kept effective or if such shares are not
registered in the states in which the holders of the 1996-A Warrants reside. The
1996-A Warrants will initially be sold and issued only in those jurisdictions
that 1996-A Warrants are registered or otherwise qualified in connection with
the Warrant Modification Offer, which may not include a jurisdiction in which
the holder of a 1996-A Warrant currently resides and in which the Units (and the
share of Common Stock and 1996-A Warrant comprising each Unit) offered pursuant
to this Prospectus are registered or qualified. If the Company is unable or
chooses not to register or qualify or maintain the registration or qualification
of the Units (and the shares of Common Stock and 1996-A Warrant comprising each
Unit) offered pursuant to this Prospectus for sale in a state in which holders
of a 1996-A Warrant resides, the Company will not permit such 1996-A Warrants to
be exercised, and such holders may have no choice but to either sell their
Warrants in the open market or let them expire. A holder of 1996-A Warrants and
other interested persons who wish to know whether the Common Stock underlying
such warrants may be issued to the holder, upon the exercise, in a particular
state, should consult with the securities department of the particular state or
send a written inquiry to the Company. Additionally, the 1996-A Warrants may
-15-
<PAGE>
be redeemed by the Company, in whole but not in part, upon not less than 30
days' prior written notice at a price of $.0001 per 1996-A Warrant at such time
as the Common Stock trades in excess of the 1996-A Warrant exercise price for
five consecutive trading days. See "Description of Securities--1996-A Warrants."
Common Stock Eligible for Future Sale. Sales of substantial amounts of
the Common Stock in the public market following completion of the Warrant
Modification Offer and the Rights Offering could adversely affect the market
price of the Common Stock. See "Shares Eligible for Future Sale." At March 31,
1996, 5,022,667 shares of the Company's outstanding Common Stock were
"restricted securities" which may in the future be sold in compliance with Rule
144 as promulgated by the Commission pursuant to the 1933 Act. Rule 144
generally provides that beneficial owners of shares who have held such shares
for two years may sell within a three-month period a number of shares not
exceeding one percent of the total outstanding shares or the average trading
volume of the shares during the four calendar weeks preceding such sale. See
"Shares Eligible for Future Sale."
The executive officers and directors of the Company, who in the
aggregate hold of record 3,422,642 shares of Common Stock as of June 24, 1996
(see "Security Ownership of Certain Beneficial Owners and Management"), were
eligible for sale in the open market pursuant to an effective registration
statement under the 1933 Act or upon satisfaction of the applicable holding
period and other requirements of Rule 144. Subject to the Rule 144 sale
limitations, 5,022,667 outstanding shares of Common Stock were eligible for sale
under Rule 144. Future sales of substantial amounts of Common Stock in the
public market following completion of the Warrant Modification Offer and could
adversely affect the market price of the Common Stock. See "Shares Eligible for
Future Sale."
Rights Offering. Concurrently with the Warrant Modification Offer,
pursuant to a separate prospectus included within the Registration Statement of
which this Prospectus is a part, the Company will issue 17,185,524 rights
("Rights") to its shareholders, each Right exercisable to purchase one unit
comprised of one share of Common Stock and one 1996-A Warrant ("Rights Offering
Unit") at $.85 (the "Rights Offering"). The Rights will be issued as a dividend
to the holders of Common Stock (the "Rights Holders") on , 1996
(the "Record Date"), on the basis of one Right per share of Common Stock
outstanding on the Record Date. The Rights are exercisable on or before ,
1996, subject to extension by the Company. See "Description of Securities
- --Common Stock--Rights Offering." Warrant Holders exercising their Public
Warrants after the Record Date will not be entitled to receive any Rights as a
shareholder of the Company. Although there is no assurance that any of the
Rights will be exercised, in the event of exercise all or any portion of the
Rights, additional shares of Common Stock and 1996-A Warrants will be issued and
outstanding, which may be diluting on an earnings per share basis and in such
case may adversely affect the public market trading price of the Common Stock.
See "Description of Securities--Common Stock--Rights Offering."
Outstanding Stock Options and Warrants; Option and Warrant Offering.
Furthermore, as of June 24, 1996, there were 12,321,412 outstanding stock
options and other warrants (of which 4,480,000 are held by current management of
the Company) exercisable to purchase Common Stock at an exercise price of from
$.20 to $.81 per share during periods that expire in February 1997 through July
2005. See "Description of Securities--Other Stock Options and Warrants." During
the term of the outstanding stock options and other warrants, the holders are
given the opportunity to profit from a rise in the market price of the Common
Stock. Exercise of such stock options and warrants may dilute the net book value
per share of outstanding Common Stock at the time of exercise and will be
diluting on an earnings per share basis, which may adversely affect the public
market trading price of the Common Stock. The existence of these stock options
and warrants may adversely affect the terms on which the Company may obtain
additional equity financing. Furthermore, the holders are likely to exercise
their stock options or warrants at a time when the Company would otherwise be
able to obtain capital on terms more favorable than could be obtained through
the exercise of such stock options and warrants. See "Description of
Securities--Other Stock Options and Warrants."
Future Operating Results. The Company attained profitability in 1994,
and, as of March 31, 1996, the Company had an accumulated deficit stockholders'
equity of $1,803,618. See "Selected Financial Information."
-16-
<PAGE>
There can be no assurance that such profitability will be sustained. The
Company's expense levels are based, in part, on its expectations as to future
revenue levels, which can be difficult to predict due in part to the Company's
strategy of developing product marketing programs and the success of such
programs, which is also dependent upon the market demand developed for such
products through the marketing programs. If revenue levels are below
expectations, operating results will be adversely affected. In addition, the
Company's operating results may fluctuate as a result of many factors, including
price reductions, delays in the introduction of new products, delays in purchase
decisions due to new product announcements by the Company or its competitors,
increased competition by providers of marketing programs, failure to reduce
product costs or maintain production quality, cancellations or delays of orders,
interruptions or delays in supply of key components, changes in customer base or
product mix and seasonal patterns of customer spending. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Fluctuations in Operating Results. Demand for the products offered
through the Company's network purchasing programs is dependent on general
economic conditions. Recessionary periods generally result in fewer members
participating in the purchasing programs, and, therefore, may lead to a
reduction in membership in the respective network purchasing programs and the
membership fee revenues as well as less product purchasing which affect revenues
as well as the ability of the Company to introduce new products into the market
place through the purchasing programs. Because expenses associated with
maintaining the Company's administrative staff are relatively fixed over the
short term, the Company's revenues tend to increase in periods of membership and
product sales volume and decrease in periods of lower membership and product
sales volume. These effects are not always readily predictable and most are not
within the control of the Company. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Results of Operations."
Dependence on Key Personnel. The Company's future success depends on
the continued availability of certain key management personnel, including John
W. Hail, founder, chief executive officer and director of the Company, and Roger
P. Baresel, president, chief financial officer and director of the Company. The
Company does not maintain any life insurance covering the executive officers of
the Company. The Company's continued growth and profitability also depends on
its ability to attract and retain other management personnel and sales
associates. The Company has not had any difficulty to date in attracting and
retaining management personnel and sales associates, although there can be no
assurance it will continue to be successful in this regard in the future. See
"Business--Marketing" and "Management--Directors and Executive Officers."
Product Introduction, Obsolescence and Marketing. The marketing for
products with respect to which the Company develops marketing programs is in
most cases characterized by introduction of competing products. Product
introductions are generally characterized by increased functionality or enhanced
results achieved by use of the product compared to existing competitive
products. The introduction of products embodying increased functionality or
enhanced results from product use may render existing products obsolete and
unmarketable. The Company's ability to successfully develop a marketing
introduction into the market place of new products on a timely basis and achieve
levels of market demand will be a significant factor in the Company's ability to
grow and remain competitive and profitable. In addition, the nature and mix of
the products comprising the available products within the Company's various
product purchasing and distribution programs is a most important factor. The
nature, assortment and mix of products available for purchase through the
Company's marketing program networks affects membership maintenance and
development within the various marketing programs of the Company, which
consequently affects demand for the products offered within each such program.
In the event the Company is unable to successfully increase the product
assortment and mix and maintain competitive product replacement of the products
in a timely manner in response to changes in and introduction of new products,
competitive or otherwise, offered to members of a marketing program the
Company's business and operating results will be materially and adversely
affected. See "Business--Products and Services of the Company" and
"--Marketing."
Network Purchasing Programs; Loss of Sales Associates. The Company
relies on the members of its network purchasing programs and member sales
associates for the distribution and sale of the products offered
-17-
<PAGE>
pursuant to such programs. A reduction in the membership of the network
purchasing programs and loss of member sales associates could have a material
adverse effect on the Company's business and operating results. Certain of the
sales associates also represent or may in the future represent other lines of
products which are complementary to or competitive with those offered through
the Company's network purchasing programs. While the Company attempts to
encourage sales associates to focus on selling the products through the
Company's network purchasing programs, there is a risk that these sales
associates may give higher priority to other products, reducing their efforts
devoted to selling the products offered through the Company's network purchasing
programs. Typically, the Company has non-exclusive arrangements with its sales
associates which may be cancelled by either party at will and contain no minimum
purchase requirements on the part of the sales associates. There can be no
assurance that the Company's network purchasing programs will continue to be
successful or that the Company will be able to retain or increase its current
network purchasing membership or retain its sales associates, or retain or
increase the various product lines offered to the members of the purchasing
programs. See "Business--Products and Services of the Company" and
"--Marketing."
Dependency on Third-Party Providers; Availability of Product Sources.
Substantially all of the services and products offered and distributed by the
Company are provided by unrelated third-party providers over whom the Company
does not have control. In turn, such unrelated third-party providers may be
dependent upon other unrelated manufacturers or vendors to provide components
for manufacture or services. The Company does not generally enter into long-term
purchase commitments with respect to the consumer services of third-party
providers or the nutritional supplement products offered and distributed by the
Company; however, the Company customarily enters into contracts with such
third-party providers to establish the terms and conditions of service and/or
product sales made by the Company through its distributors and program
participants. See "Business--Products and Services of the Company" and
"--Contractual Arrangements."
Although the Company believes it would be able to obtain alternative
sources of its services and products, because the Company's services and
products are only available through single source or limited source third-party
providers, any future difficulty in obtaining any of the key services or
products offered and distributed by the Company could have a material adverse
effect on the Company's results of operations. In addition, the unavailability
of or interruptions in access to the services and products provided by
third-party providers involves certain risks, although the Company has not
previously experienced such unavailability or interruptions. In the event any of
the third-party providers, especially the provider of nutritional supplement
products, were to become unable or unwilling to continue to provide the services
or products in required volumes, the Company would be required to identify and
obtain acceptable replacements, which could be lengthy and no assurance can be
given that any additional sources would become available to the Company on a
timely basis. A delay or reduction in availability of the services and/or
products offered and distributed by the Company could materially and adversely
affect the Company's business, operating results and financial condition. See
"Business--Contractual Arrangements."
Multi-Level Marketing Regulation. The Company is required to comply
with state and federal laws governing the Company's multi-level marketing
activities. See "Business--Government Regulation." These laws generally relate
to unfair or deceptive trade practices, lotteries, business opportunities and
securities. The Company has not experienced any material problems with marketing
compliance. However, multi-level marketing regulation at the state and federal
level is subject to change through enactment of additional legislation and
adoption of regulations which may adversely affect the marketing activities of
the Company. The Company cannot predict with any accuracy if such legislation or
regulation will be enacted or adopted or the ultimate effect thereof on Company
operations, but expects to continue to fully comply with the legal requirements
of multi-level marketing to minimize any undesirable impact on the Company and
its operations.
Competition. Providers of product marketing services compete primarily
on the basis of marketing strategies, product advertising and packaging
development and cost of services. The Company believes it competes favorably in
each of these categories. The Company competes with a variety and number of
companies offering marketing programs and purchasing networks including discount
catalog companies, direct product purchasing, and
-18-
<PAGE>
retail discount stores, many of which have greater financial resources than the
Company. In addition, in some cases the products offered through the Company's
network purchasing programs are not exclusively offered through such programs.
See "Business--Competition."
Lack of Dividends. The Company does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The Company intends to
retain profits, if any, to fund growth and expansion in the future. See "Price
Range of Common Stock and Dividends."
Anti-Takeover Provisions. The Company's Certificate of Incorporation
and Bylaws and the provisions of the Oklahoma General Corporation Act may make
it difficult to effect a change in control of the Company and replace incumbent
management. See "Description of Securities--Anti-Takeover Provisions." The
Certificate of Incorporation authorizes the issuance of Preferred Stock in
classes or series, and the Board of Directors to set and determine voting,
redemption and conversion rights and other rights related to such class or
series of Preferred Stock, which in some circumstances, the Preferred Stock
could be issued and have the effect of preventing a merger, tender offer or
other takeover attempt which the Company's Board of Directors opposes. See
"Description of Securities--Anti-Takeover Provisions--Preferred Stock" and
"Description of Securities--Preferred Stock." The Company's directors are
elected for three-year terms, with approximately one-third of the Board standing
for election each year, which may make it difficult to effect a change of
incumbent management and control. See "Description of Securities--Anti-Takeover
Provisions--Classified Board." Following the Warrant Modification Offer or at
some time in the future, the Company may become subject to the anti-takeover
provisions of the Oklahoma General Corporation Act, which in such case and in
some circumstances may discourage a person from making a control share
acquisition (generally an acquisition of voting stock having more than 20
percent of all voting power in the election of directors) without shareholder
approval. See "Description of Securities--Anti-Takeover Provisions--Oklahoma
Anti-Takeover Statutes."
THE COMPANY
Advantage Marketing Systems, Inc., an Oklahoma corporation (the
"Company"), was organized in 1988 under the name AMS, Inc. and since that time
has been a marketer of consumer oriented services and products which are
packaged together in special programs and sold to independent sales associates
who use the products and services themselves and also sell them to others. The
programs consist of various services which provide savings on items such as
merchandise, groceries and travel, and legal benefits furnished by certain third
party providers as well as nutritional supplements. These programs represent the
Company's one main class of products and services and account for over 96
percent of its revenues. See "Business."
The Company's executive offices are located at 2601 Northwest
Expressway, Suite 1210W, Oklahoma City, Oklahoma 73112-7293 with a telephone
number of (405) 842-0131.
Background
Exchange. Pursuant to an Agreement and Plan of Reorganization, dated
May 1, 1989, the shareholders of the Company exchanged their common stock for
6,406,450 shares of the common stock of Pacific Coast International, Inc., a
Delaware corporation (the "Exchange"). Prior to the Exchange, the trade or
business activities of Pacific Coast International, Inc. had been limited to
those activities associated with a public offering of its securities and
investigation of corporate acquisition alternatives as a "blank check" company.
Upon consummation of the Exchange, (i) the officers and directors of the Company
assumed management of Pacific Coast International, Inc., (ii) the Company became
a wholly owned subsidiary of the Pacific Coast International, Inc., (iii) the
Company changed its name to Advantage Marketing Systems, Inc., and (iv) Pacific
Coast International, Inc. changed its name to Advantage Marketing Systems, Inc.
The Exchange was accounted for as a reverse acquisition of the Company.
-19-
<PAGE>
Initial Issuance of Public Warrants. Prior to the Exchange, Advantage
Marketing Systems, Inc. (formerly Pacific Coast International, Inc. and parent
of the Company) sold, in a public offering, 1,806,876 shares of Common Stock,
Class A Warrants and Class B Warrant in units, each unit consisting of one share
of Common Stock, one Class A Warrant and one Class B Warrant. See "Description
of Securities." The net proceeds from this offering were approximately $838,290.
Furthermore, in conjunction with such offering, the holders of 2,400,000 Class A
Warrants and Class B Warrants sold such Public Warrants. As of the date of this
Prospectus, there are 4,196,876 outstanding Class A Warrants and 4,206,876
outstanding the Class B Warrants (collectively, the "Public Warrants"), all
which were issued in connection with initial public offering of Pacific Coast
International, Inc. that was completed in 1989. The Class A Warrants and the
Class B Warrants were issued pursuant to a Warrant Agreement with the Warrant
Agent dated as of January 26, 1989. Pursuant to amendment of the Warrant
Agreement, the period of exercise of the Class A Warrants and the Class B
Warrants was extended to July 26, 1996, and July 26, 1997, respectively. A copy
of the Warrant Agreement and the amendments thereto were filed as an exhibit to
the Registration Statement of the which this Prospectus is a part. A copy of the
Warrant Agreement and the amendments thereto may be examined at the offices, or
a copy may be obtained by written request, of the Company or the Warrant Agent.
Each Class A Warrant and Class B Warrant entitles the holder thereof to purchase
one share of Common Stock at an exercise price of $.75 and $1.00, respectively,
without giving effect to the Warrant Modification Offer.
Merger Reincorporation. Effective December 11, 1995, Advantage
Marketing Systems, Inc., the former parent of the Company(formerly Pacific Coast
International, Inc.) ("AMS Delaware"), merged with the Company pursuant to an
Agreement and Plan of Merger (the "Merger"), and the Company was the surviving
corporation. As a result of the Merger, AMS Delaware ceased to exist as a
Delaware corporation, and the Company succeeded to all rights, privileges,
powers, franchises, obligations, assets and properties of AMS Delaware. The
Merger was accounted for as a reorganization of entities under common control
and was recorded at historical cost. All references to the Company include its
former parent, AMS Delaware, unless otherwise indicated.
MMI Acquisition. Pursuant to a Stock Purchase Agreement having an
effective date of May 31, 1996 (the "Purchase Agreement"), the Company acquired
all of the issued and outstanding capital stock of Miracle Mountain
International, Inc., a Colorado corporation ("MMI"), and MMI became a
wholly-owned subsidiary of the Company (the "MMI Acquisition"). MMI is a
multi-level marketer of various third-party manufactured nutritional supplement
products. Pursuant to the Purchase Agreement and in connection with the MMI
Acquisition, the Company issued and delivered to the shareholders of MMI 160,000
shares of Common Stock. In addition, the Company agreed to issue and deliver an
additional 40,000 shares of Common Stock to the shareholders of MMI on or before
October 18, 1996, pending determination of certain liabilities.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Units pursuant to exercise of the Public Warrant during the Special Exercise
Period pursuant to the Warrant Modification Offer are estimated to be
approximately $2.5 million, assuming exercise of approximately 3,433,000 of the
Public Warrants during the Special Exercise Period; however, there is no
assurance that all or any portion of the Public Warrants will be exercised
pursuant to the Warrant Modification Offer. See "Public Warrant Redemption."
Concurrently with this offering and the Warrant Modification Offer, pursuant to
a separate prospectus which is a part of the Registration Statement of which
this Prospectus is a part, the Company is making the Rights Offering. See
"Description of Securities--Common Stock--Rights Offering." There is no
assurance that all or any portion of the Rights to be distributed to the
shareholders pursuant to the Rights Offering will be exercised.
The Company is attempting to raise funds through the concurrent
offering for sale of Units and Rights Offering Units pursuant to the exercise of
Public Warrants and Rights. The Company estimates that the net proceeds to be
received from these offerings will be $3.5 million consisting of $2.5 million
and $1 million from the sale of
-20-
<PAGE>
Units and Rights Offering Units pursuant to exercise of the Public Warrants and
Rights, respectively. However, there is no assurance that any net proceeds of
these offerings will be received by the Company.
The net proceeds will be used for general corporate purposes, including
working capital and to fund the Company's efforts to expand sales and marketing
activities. The Company estimates that it will use approximately $1.5 million
for expansion of its U.S. distributor network and enhancement of its marketing
materials. The Company intends to use approximately $.5 million to develop new
products and enhance the packaging of its existing products. The Company will
devote approximately $1 million for the expansion into and development of
international markets. In the event the Company raises less than $3.5 million
the funds will be devoted to each of these areas in the order in which they have
been presented. The Company does not intend to use any of the proceeds to
discharge existing debt. Pending use of the net proceeds, they will be invested
by the Company in investment grade, short-term, interest-bearing securities.
In the event that the Company does not obtain any net proceeds from
these offerings, it anticipates that it will be able to continue to operate on
internally generated cash. During the three months ended March 31, 1996, the
Company had an average monthly positive cash flow from operating activities of
approximately $53,700, and an average monthly net positive cash flow of
approximately $37,000, after investing and financing activities. See "Business."
PRICE RANGE OF COMMON STOCK AND PUBLIC WARRANTS AND DIVIDENDS
The Common Stock, Class A Warrants and Class B Warrants are traded in
the over-the-counter market and are quoted by the National Quotation Bureau,
Incorporated under the symbols "AMSO," "AMSOW" and "AMSOZ," respectively. The
following table sets forth, for the periods presented, the high and low closing
bid quotations in the over-the-counter market as quoted by the National
Quotation Bureau, Incorporated. The bid quotations reflect inter-dealer prices
without adjustment for retail markups, markdowns or commissions and may not
reflect actual transactions.
<TABLE>
<CAPTION>
Common Stock Class A Warrants Class B Warrants
-------------- ------------------ ------------------
Closing Bid Closing Bid Closing Bid
-------------- ------------------ ------------------
High Low High Low High Low
------ ----- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
1996:
First Quarter Ended March 31........ $ .81 $.63 $.06 $.03 $.06 $.03
1995:
First Quarter Ended March 31........ $ .25 $.22 $.02 $.02 $.01 $.01
Second Quarter Ended June 30........ $ .47 $.25 $.02 $.02 $.01 $.01
Third Quarter Ended September 30.... $1.25 $.45 $.13 $.06 $.03 $.01
Fourth Quarter Ended December 31.... $ .94 $.56 $.06 $.03 $.01 $.01
1994:
First Quarter Ended March 31........ $ .19 $.13 $.02 $.02 $.01 $.01
Second Quarter Ended June 30........ $ .25 $.19 $.02 $.02 $.01 $.01
Third Quarter Ended September 30.... $ .25 $.19 $.02 $.02 $.01 $.01
Fourth Quarter Ended December 31.... $ .31 $.19 $.02 $.02 $.01 $.01
</TABLE>
On June 24, 1996, the closing bid and asked prices, as quoted by the
National Quotation Bureau, Incorporated, of the Common Stock were $.88 and
$1.00, respectively, the Class A Warrants were $.03 and $.06, respectively, and
the Class B Warrants were $.03 and $.06, respectively. On June 24, 1996, there
were approximately 692, 215 and 215 holders of the Common Stock, the Class A
Warrants and Class B Warrants, respectively.
-21-
<PAGE>
Penny Stock Trading Rules
The Common Stock, Class A Warrants, Class B Warrants, Units and 1996-A
Warrants are or will be classified as "penny stocks" and are or will be subject
to the "penny stock" trading rules. The penny stock trading rules impose
additional duties and responsibilities upon broker-dealers recommending the
purchase of a penny stock (by a purchaser that is not an accredited investor as
defined by Rule 501(a) promulgated by the Commission under the 1933 Act) or the
sale of a penny stock. Among such duties and responsibilities, with respect to a
purchaser who has not previously had an established account with the
broker-dealer, the broker-dealer is required to (i) obtain information
concerning the purchaser's financial situation, investment experience, and
investment objectives, (ii) make a reasonable determination that transactions in
the penny stock are suitable for the purchaser and the purchaser (or his
independent adviser in such transactions) has sufficient knowledge and
experience in financial matters and may be reasonably capable of evaluating the
risks of such transactions, followed by receipt of a manually signed written
statement which sets forth the basis for such determination and which informs
the purchaser that it is unlawful to effectuate a transaction in the penny stock
without first obtaining a written agreement to the transaction. Furthermore,
until the purchaser becomes an established customer (i.e., have had an account
with the dealer for at least one year or, the dealer had effected three sales of
penny stocks on three different days involving three different issuers), the
broker-dealer must obtain from the purchaser a written agreement to purchase the
penny stock which sets forth the identity and number of shares or units of the
security to be purchased prior to confirmation of the purchase. A dealer is
obligated to provide certain information disclosures to the purchaser of a penny
stock, including (i) a generic risk discloser document which is required to be
delivered to the purchaser before the initial transaction in a penny stock, (ii)
a transaction-related disclosure prior to effecting a transaction in the penny
stock (i.e., confirmation of the transaction) containing bid and asked
information related to the penny stock and the dealer's and salesperson's
compensation (i.e., commissions, commission equivalents, markups and markdowns)
in connection with the transaction, and (iii) the purchaser-customer must be
furnished account statements, generally on a monthly basis, which include
prescribed information relating to market and price information concerning the
penny stocks held in his account. The penny stock trading rules do not apply to
those transactions in which a broker-dealer or salesperson does not make any
purchase or sale recommendation to the purchaser or seller of the penny stock.
Compliance with the penny stock trading rules affect or will affect the
ability to resell the Common Stock, Class A Warrants, Class B Warrants, Units,
or 1996-A Warrants by a holder principally because of the additional duties and
responsibilities imposed upon the broker-dealers and salespersons recommending
and effecting sale and purchase transactions in such securities. In addition,
many broker-dealers will not effect transactions in penny stocks, except on an
unsolicited basis, in order to avoid compliance with the penny stock trading
rules. The penny stock trading rules consequently may materially limit or
restrict the liquidity typically associated with other publicly traded equity
securities. In this connection, the holder of Common Stock, Class A Warrants,
Class B Warrants, Units, or 1996-A Warrants may be unable to obtain on resale
the quoted bid price because a dealer or group of dealers may control the market
in such securities and may set prices that are not based on competitive forces.
Furthermore, at times there may be a lack of bid quotes which may mean that the
market among dealers is not active, in which case a holder of Common Stock,
Class A Warrants, Class B Warrants, Units, or 1996-A Warrants may be unable to
sell such securities. Because market quotations in the over-the-counter market
are often subject to negotiation among dealers and often differ from the price
at which transactions in securities are effected, the bid and asked quotations
of the Common Stock, Class A Warrants, Class B Warrants, Units or 1996-A
Warrants may not be reliable. See "Risk Factors--Over-the-Counter Market; Penny
Stock Trading Rules."
Dividend Policy
The Company's dividend policy is to retain its earnings to support the
expansion of its operations. The Board of Directors of the Company does not
intend to pay cash dividends on the Common Stock in the foreseeable future. Any
future cash dividends will depend on future earnings, capital requirements, the
Company's financial condition and other factors deemed relevant by the Board of
Directors. See "Risk Factors--Future Operating
-22-
<PAGE>
Results," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996, giving effect to the MMI Acquisition (see "The Company--Recent
Events--MMI Acquisition"), however, without giving effect to or assuming
exercise of the Public Warrants pursuant to the Warrant Modification Offer or
the Rights pursuant to the Rights Offering. This table should be read in
conjunction with the unaudited pro forma consolidated financial statements and
notes thereto of the Company appearing elsewhere in this Prospectus. See
"Unaudited Pro Forma Consolidated Financial Information of the Company."
<TABLE>
<CAPTION>
As of
March 31,
1996
-----------
Pro Forma
Combined
-----------
<S> <C>
Current portion of long-term debt.............................. $ 100,857
-----------
Long-term debt, net of current portion......................... 100,497
-----------
Stockholders' equity:
Preferred Stock, $.0001 par value, 5,000,000
authorized; none outstanding............................... --
Common Stock, $.0001 par value, 495,000,000
shares authorized; 17,185,524 shares issued
and outstanding at March 31, 1996.......................... 1,718
Paid-in capital in excess of par, common stock............... 2,008,376
Retained earnings (deficit).................................. (1,803,618)
-----------
Total stockholders' equity................................. 206,476
-----------
Total capitalization........................................... $ 407,830
===========
</TABLE>
SELECTED FINANCIAL INFORMATION
The following selected financial information is qualified by reference
to, and should be read in conjunction with, the financial statements and related
notes of Advantage Marketing Systems, Inc. (formerly AMS, Inc.) and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere herein. The selected financial information
presented below is not necessarily indicative of the future results of
operations or financial performance of the Company. See "Risk Factors--Future
Operating Results." The selected financial information as of and for the years
ended December 31, 1994 and 1995, is derived from the audited financial
statements of Advantage Marketing Systems, Inc. (formerly AMS, Inc.) contained
elsewhere in this Prospectus. The selected financial information presented as of
and for the periods ended March 31, 1995 and 1996, is derived from the unaudited
financial statements of the Company, which financial statements are contained
elsewhere in this Prospectus. In the opinion of management of the Company, the
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of such
information.
-23-
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended For the Three Months
December 31, Ended March 31,
-------------------------- --------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Programs............................................... $ 2,564,542 $ 4,382,935 $ 804,637 $ 1,255,889
Promotional material................................... 82,780 109,733 20,126 62,684
Other.................................................. 30,625 25,535 6,007 13,876
----------- ----------- ----------- -----------
Total revenues....................................... 2,677,947 4,518,203 830,770 1,332,449
----------- ----------- ----------- -----------
Cost and expenses:
Programs............................................... 684,128 1,094,157 210,285 302,879
Promotional material................................... 83,964 92,087 17,217 35,745
Selling................................................ 1,289,616 2,201,510 396,579 683,164
General and administrative............................. 515,158 857,743 166,923 221,598
Interest expense....................................... 25,075 22,998 4,145 7,359
----------- ----------- ----------- -----------
Total expenses....................................... 2,597,941 4,268,495 795,149 1,250,745
----------- ----------- ----------- -----------
Net income............................................... $ 80,006 $ 249,708 $ 35,621 $ 81,704
=========== =========== =========== ===========
Weighted average common shares outstanding(1)............ 16,954,848 21,301,441 16,965,524 24,588,424
Net income per common share.............................. NIL $ .01 NIL NIL
Cash Flow Data:
Net cash provided by operating activities................ $ 52,295 $ 316,958 $ 35,199 $ 161,284
Net cash used in investing activities.................... (6,689) (79,278) (2,697) (28,877)
Net cash used in financing activities.................... (45,606) (125,593) (32,422) (20,719)
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
--------------------- ---------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance Sheet Data:
Current assets........................................................... $ 117,796 $ 283,341 $ 471,279
Working capital deficiency............................................... (338,662) (170,734) (109,073)
Total assets............................................................. 176,969 532,996 737,325
Short-term debt.......................................................... 138,655 111,048 100,857
Long-term debt........................................................... 7,947 104,149 100,497
Stockholders' equity (deficiency)........................................ (287,436) (25,228) 56,476
</TABLE>
- ---------------
(1) Without giving effect to exercise of the Public Warrants pursuant to
the Warrant Modification Offer and exercise of the Rights pursuant to
the Rights Offering and the issuance of 200,000 shares in connection
with the MMI Acquisition, and does not include 9,000,000 shares
reserved for issuance pursuant to the Stock Option Plan. See
"Description of Securities--Common Stock--Rights Offering," and "--
Other Options and Warrants" and "Management--Stock Option Plan."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and notes thereto of the Company and "Selected Financial
Information" appearing elsewhere in this Prospectus.
Effective December 11, 1995, Advantage Marketing Systems, Inc., a
Delaware corporation ("AMS Delaware") and the former parent of the Company,
merged with and into the Company, with the Company being the surviving
corporation (the "Merger Reincorporation"). Prior to the Merger Reincorporation,
all operations of AMS (Delaware) were conducted solely as a holding company of
the Company as its wholly-owned subsidiary, and
-24-
<PAGE>
AMS (Delaware) did not have any other operating activities. Following the Merger
Reincorporation, all operating activities of AMS Delaware and the Company as its
wholly-owned subsidiary, were continued by the Company. The following discussion
and analysis of results of operations of the Company are the consolidated
results of operations of AMS Delaware and the Company prior to the Merger
Reincorporation, the predecessor of the Company. See "The Company--Background
- --Merger Reincorporation."
Results of Operations
The following table sets forth selected results of operations for (i)
the fiscal years ended December 31, 1994 and 1995, which are derived from the
audited consolidated financial statements of the Company, and (ii) for the three
months ended March 31, 1995 and 1996, which are derived from the unaudited
consolidated financial statements of the Company, which include, in the opinion
of management of the Company, all normal recurring adjustments considered
necessary for a fair statement of results for such periods. The results of
operations for the periods presented are not necessarily indicative of the
Company's future operations.
<TABLE>
<CAPTION>
For the Year Ended December 31, For the Three Months Ended March 31,
----------------------------------------- ----------------------------------------
1994 1995 1995 1996
------------------- -------------------- ----------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- -------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Programs......................... $2,564,542 95.8% $4,382,935 97.0% $804,637 96.9% $1,255,889 94.3%
Promotional material............. 82,780 3.1 109,733 2.4 20,126 2.4 62,684 4.7
Other............................ 30,625 1.1 25,535 .6 6,007 .7 13,876 1.0
---------- ----- ---------- ----- -------- ----- ---------- -----
Total revenues................. 2,677,947 100.0 4,518,203 100.0 830,770 100.0 1,332,449 100.0
---------- ----- ---------- ----- -------- ----- ---------- -----
Costs and Expenses
Programs......................... 684,128 25.6 1,094,157 24.2 210,285 25.3 302,879 22.7
Promotional material............. 83,964 3.1 92,087 2.1 17,217 2.1 35,745 2.7
Selling.......................... 1,289,616 48.2 2,201,510 48.7 396,579 47.7 683,164 51.3
General and administrative....... 515,158 19.2 857,743 19.0 166,923 20.1 221,598 16.6
Interest Expense................. 25,075 .9 22,998 .5 4,145 .5 7,359 .6
---------- ----- ---------- ----- -------- ----- ---------- -----
Total expenses................. 2,597,941 97.0 4,268,495 94.5 795,149 95.7 1,250,745 93.9
---------- ----- ---------- ----- -------- ----- ---------- -----
Net income......................... $ 80,006 3.0% $ 249,708 5.5% $ 35,621 4.3% $ 81,704 6.1%
========== ===== ========== ===== ======== ===== ========== =====
</TABLE>
During 1994, 1995 and the three months ended March 31, 1996, the
Company experienced increases in revenues from programs and net income compared
to the preceding year or period. The increases were principally the result of
introduction of the Company's NewTrition Plan in October 1993 and expansion of
the Company's network of its independent sales representatives and associates,
which resulted in achieving substantial increased sales volume of the NewTrition
Plan. The Company expects to continue to expand its network of independent sales
representatives and associates, which is in part dependent upon the market
demand for the consumer products and services offered by the Company through its
various purchasing programs, and such expansion should result in increased sales
volume. However, there is no assurance that increased sales volume will be
achieved through expansion of the selling network of the Company's programs, or
that, if sales volume increases, the Company will realize increased
profitability due to the costs and expenses associated with increased sales and
the general and administrative expenses.
Comparison of Three Month Period Ended March 31, 1995 and 1996
During the three months ended March 31, 1996 (the "1996 Interim
Period"), total revenues increased $501,679 (a 60.4 percent increase) as
compared to the same period in 1995 (the "1995 Interim Period"). The increase
was principally attributable to the increased sales volume of the Company's
NewTrition Plan, which was introduced in October 1993, and expansion of the
Company's network of its independent sales representatives and associates.
During the 1996 Interim Period, the Company made aggregate sales under its
NewTrition Plan of $1,200,450 to 8,269 distributors, compared to aggregate sales
in the 1995 Interim Period of $641,196 to 3,845
-25-
<PAGE>
distributors. Promotional material revenue increased $42,558 (a 211.5 percent
increase) to $62,684 in 1996 Interim Period from $20,126 in the 1995 Interim
Period. In addition, other revenue increased by $7,869 (a 131.0 percent
increase) from $6,007 in the 1995 Interim Period to $13,876 in 1996 Interim
Period as a result of a special promotion during 1996.
Total costs and expenses of programs, promotional material and selling
during the 1996 Interim Period increased by $397,707 (a 63.7 percent increase)
to $1,021,788 from $624,081 during the 1995 Interim Period. This increase was
attributable to an increase of (i) $92,594 (a 44.0 percent increase) in costs of
programs and (ii) $286,585 (a 72.3 percent increase) in selling expenses, while
promotional material expenses increased $18,528 (a 107.6 percent increase). The
costs and expenses of programs, promotional materials and selling, as a
percentage of program sales revenue, increased from 77.6 percent during the 1995
Interim Period to 81.4 percent during the 1996 Interim Period which resulted
from a decrease in the costs of programs as a percentage of program sale revenue
from 26.1 percent to 24.1 percent due to price reductions obtained from vendors
on the program costs associated with the Company's NewTrition Plan, offset by an
increase in selling costs as a percentage of program sale revenue from 49.3
percent to 54.3 percent. The Company achieved a net profit on sales of
promotional materials of $26,939 during the 1996 Interim Period compared to a
net profit of $2,909 during the 1995 Interim Period as a result of the Company's
curtailed practice of providing promotional materials at reduced cost during
special promotions.
The Company's gross profit on program and promotional material revenues
(program and promotional material revenue less program costs, promotional
material costs and selling expenses) increased $96,103 (a 47.9 percent increase)
to $296,785 in the 1996 Interim Period from $200,682 in the 1995 Interim Period.
The gross profit on program and promotional material revenues decreased as a
percentage of total revenue from 24.2 percent in the 1995 Interim Period to 22.3
percent in the 1996 Interim Period. The decrease in the Company's gross profit
margin on program and promotional material revenues resulted from the
combination of a decrease in program and promotional materials costs as a
percentage of programs and promotional material revenues, offset by an increase
in selling costs and expenses as a percentage of programs and promotional
material revenues.
General and administrative expenses increased $54,675 (a 32.8 percent
increase) to $221,598 during the 1996 Interim Period from $166,923 during the
1995 Interim Period. This increase was attributable to the Company's
administrative infra-structure necessary to support increased levels of sales.
The Company expanded its administrative infra-structure by hiring six additional
employees. Consequently, payroll and employee costs increased by $52,738 during
the 1996 Interim Period as the Company increased its number of employees from 10
to 16. Interest expense during the 1996 Interim Period increased $3,214 (a 77.6
percent increase) to $7,359 from $4,145 during the 1995 Interim Period.
Net income increased $46,083 (a 129.4 percent increase) to $81,704
during the 1996 Interim Period from $35,621 during the 1995 Interim Period. Net
income as a percentage of total revenue increased from 4.3 percent during the
1995 Interim Period to 6.1 percent during the 1996 Interim Period.
Comparison of Fiscal 1994 and 1995
During 1995, total revenues increased $1,840,256 (a 68.7 percent
increase) as compared to 1994. The increase was principally attributable to the
increased sales volume of the Company's NewTrition Plan, which was introduced in
October 1993, and expansion of the Company's network of its independent sales
representatives and associates. During 1995 the Company made aggregate sales
under its NewTrition Plan of $4,064,216 to 5,783 distributors, compared to
aggregate sales in 1994 of $1,817,947 to 2,650 distributors. Promotional
material revenue increased $26,953 (a 32.6 percent increase) to $109,733 in 1995
from $82,780 in 1994. In addition, other revenue decreased by $5,090 (a 16.6
percent decrease) from $30,625 in 1994 to $25,535 in 1995, as a result of a
special promotion during 1994 that was not repeated in 1995.
Total costs and expenses of programs, promotional material and selling
during 1995 increased by $1,330,046 (a 64.6 percent increase) to $3,387,754 from
$2,057,708 during 1994. This increase was attributable to an increase
-26-
<PAGE>
of (i) $410,029 (a 59.9 percent increase) in costs of programs and (ii) $911,894
(a 70.7 percent increase) in selling expenses, while promotional material
expenses increased $8,123 (a 9.7 percent increase). The costs and expenses of
programs, promotional materials and selling, as a percentage of program sales
revenue, decreased from 80.2 percent during 1994 to 77.3 percent during 1995
which resulted from a decrease in the costs of programs as a percentage of
program sale revenue from 26.7 percent to 25 percent due to increased program
costs associated with the Company's NewTrition Plan, offset by a decline in
selling costs as a percentage of program sale revenue from 50.3 percent to 50.2
percent. The Company achieved a net profit on sales of promotional materials of
$17,646 during 1995 compared to a net loss of $1,184 during 1994 as a result of
the Company's curtailed practice of providing promotional materials at reduced
cost during special promotions periods.
The Company's gross profit on program and promotional material revenues
(program and promotional material revenue less program costs, promotional
material costs and selling expenses) increased $515,308 (an 87.4 percent
increase) to $1,104,914 in 1995 from $589,614 in 1994. The gross profit on
program and promotional material revenues increased as a percentage of total
revenue from 22 percent in 1994 to 24.5 percent in 1995. The increase in the
Company's gross profit margin on program and promotional material revenues
resulted from the combination of an increase in program and promotional
materials costs as a percentage of programs and promotional material revenues,
offset by a decrease in selling costs and expenses as a percentage of programs
and promotional material revenues.
General and administrative expenses increased $342,585 (a 66.5 percent
increase) to $857,743 during 1995 from $515,158 during 1994. This increase was
attributable to the Company's administrative infra-structure necessary to
support increased levels of sales. The Company expanded its administrative
infra-structure by hiring eight additional employees. Consequently, payroll and
employee costs increased by $208,169 during 1995 as the Company increased its
number of employees from six to 14. The balance of the increase resulted from
increases in supplies, postage and other operating expenses associated with the
increased sales levels. Interest expense during 1995 decreased $2,077 (an 8.3
percent decrease) to $22,998 from $25,075 during 1994.
Net income increased $169,702 (a 212.1 percent increase) to $249,708
during 1995 from $80,006 during 1994. Net income as a percentage of total
revenue increased from three percent during 1994 to 5.5 percent during 1995.
Quarterly Results of Operations
The Company's operations appear not to be significantly affected by
seasonal trends. No pattern of seasonal fluctuations exists due to the growth
patterns that the Company is currently experiencing. However, there can be no
assurance that once the Company's current growth patterns peak that the company
will not be subject to seasonal fluctuations in operations.
Income Taxes
The Company has net operating loss carryforwards at March 31, 1996, of
approximately $1,698,000 which are available to reduce federal income tax in
future periods and which will expire commencing in 2003. During 1995, the
Company's deferred tax assets and valuation allowance were decreased by
approximately $120,700 and $116,200, respectively. Management has determined
that it is more likely than not that the Company will be able to realize the tax
benefits fROm the net operating loss carryforwards and has therefore, provided a
valuation allowance of approximately $570,000 to reduce the net deferred tax
asset to zero.
Liquidity and Capital Resources
Historically, the Company has relied on short-term loans from its
shareholders, exercise of stock options, and the sales of Common Stock, to meet
its cash operating needs. As a result of improvement in the Company's
-27-
<PAGE>
cash flows, since April 1994, the Company has generally been able to meet its
cash operating needs with cash flows from operations. At March 31, 1996, and
December 31, 1995, the balance due on a short-term loan from the Company's Chief
Executive Officer and major shareholder was $64,648 and $81,929, respectively.
During 1995, the Company combined interest payable of approximately $52,000 with
the principal due under the loan and began making weekly interest and principal
payments of $1,500. See "Certain Transactions." During the three months ended
March 31, 1996, the Company did not receive any advances under the loan, while
during 1995, the Company received aggregate advances of $31,963 under the loan.
During the three months ended March 31, 1996 and the year ended December 31,
1995, the Company made principal payments of $17,281 and $127,615, respectively,
thereon to the Company's Chief Executive Officer and major shareholder. The
outstanding balance of loan bears interest at 12 percent per annum and is due on
demand.
At March 31, 1996, the Company had a deficit working capital of
approximately $109,100, compared to a deficit of approximately $170,700 at
December 31, 1995, which included the $64,600 outstanding balance on the
short-term loan from the Company's Chief Executive Officer and major
stockholder. Management believes that cash flows from operations will be
sufficient to fund its working capital needs over the next 12 months. During the
three months ended March 31, 1996 and the year ended December 31, 1995, net cash
provided by operating activities was $161,284 and $316,958, respectively, of
which $28,877 and $79,278, respectively, were used for the purchase of property
and equipment and $20,719 and $125,593, respectively, were used in financing
activities (consisting primarily of repayments of the note of the Company's
Chief Executive Officer and major shareholder). The Company had a net increase
in cash during the three months ended March 31, 1996, and the year ended
December 31, 1995, of $111,688 and $112,087, respectively. See "Selected
Financial Information." The Company's working capital needs over the next 12
months consist primarily of administrative and operating overhead. For the three
months ended March 31, 1996, the Company's administrative and operating overhead
averaged approximately $76,000 per month. The Company anticipates that this
level of administrative and operating overhead will continue over the next 12
months.
During 1994, the Company received advance annual payment for certain
program memberships. Receipts representing payment for future months programs
services were deferred and recognized over the 12 month period covered by the
membership. The Company recorded a liability representing the deferred revenue
associated with annual prepayments of $40,852 at December 31, 1994. At December
31, 1995, the Company did not have any deferred revenues requiring recording of
a liability for deferred revenues associated with annual prepayments.
The Company has outstanding 4,196,876 Class A Warrants and 4,206,876
Class B Warrants which entitle the holder thereof to purchase one share of the
Company's Common Stock. The Class A Warrant is exercisable at $.75 per share and
the Class B Warrant is exercisable at $1.00 per share. The exercise of the
Public Warrants, without giving effect to the Warrant Modification Offering,
would result in gross proceeds of $7,354,533 to the Company. However, this is a
hypothetical calculation because at the present time the exercise price exceeds
the current market value of the underlying stock. There can be no assurance that
any Public Warrants will be exercised. The Class A Warrants and Class B Warrants
are exercisable on or before July, 1996 and 1997, respectively, without giving
effect to the Warrant Redemption. See "Price Range of Common Stock and Public
WarrantS and Dividends" and "Description of Securities--Public Warrants."
At March 31, 1996, the Company had 12,321,412 stock options and certain
warrants outstanding at an average exercise price of $.31 per share of Common
Stock. These stock options and warrants will expire in February 1997 through
July 2005. See "Description of Securities--Other Options and Warrants."
The Company's primary source of liquidity is net cash provided by
operating activities. During the three months ended March 31, 1996, and the year
ended December 31, 1995, the Company had net cash provided by operating
activities of $161,284 and $354,958, respectively. Other than loans made
available to the Company by its Chief Executive Officer and major shareholder,
the Company does not have any outside liquidity sources. As of March 31, 1996,
the Company did not have any material commitments for capital expenditures.
-28-
<PAGE>
The Company is attempting to raise funds through the concurrent sale of
Units and Rights Offering Units pursuant to the Warrant Modification Offering
and the Rights Offering. The Company estimates that the net proceeds to be
received from these offerings will be $3.5 million consisting of $2.5 million
and $1.0 million from the sale of Units and Rights Offering Units pursuant to
exercise of the Public Warrants and Rights, respectively. However, there is no
assurance that the Company will receive any net proceeds from these offerings.
See "Use of Proceeds."
In the event that the Company does not obtain any net proceeds from
these offerings it anticipates that the Company will be able to continue its
operations on internally generated cash flows. During the three months ended
March 31, 1996, and the 12 months ended December 31, 1995, the Company had
average monthly positive cash flows from operating activities of approximately
$53,700 and $26,400, respectively, and average monthly net positive cash flows
of approximately $37,200 and $9,300, respectively, after investing and financing
activities.
Furthermore, the Company signed a letter of intent on May 24, 1996,
with an underwriter which sets forth in principle the terms and conditions
pursuant to which investment banking services are to be provided and, subject to
a number of conditions, Common Stock is to be purchased from the Company and
sold to the public by the underwriter during 1996. Until a definitive
underwriting agreement is executed with the underwriter, which generally will be
following the declaration of effectiveness of the registration statement filed
by the Company with the Securities and Exchange Commission covering the Common
Stock, the underwriter will have no obligation to purchase the Common Stock.
Therefore, there is no assurance that this offering will be completed.
Effect of Inflation
As the costs of products and services and other expenses of the Company
have increased, the Company has been generally able to increase the selling
prices of the products and services marketed by the Company; therefore, in the
view of management, inflation has not had a significant effect on gross margins.
In periods of high inflation, the costs and expenses of the products and
services marketed by the Company could adversely affect the Company's
profitability.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
Set forth below are certain unaudited pro forma consolidated financial
statements of the Company, presenting the pro forma effects of the MMI
Acquisition, assuming the MMI Acquisition occurred on the date of the balance
sheet and at the beginning of each period for which results of operations are
presented. The MMI Acquisition was accounted for using the purchase method of
accounting. The information presented below is derived from, and should be read
in conjunction with, the financial statements of the Company and MMI presented
elsewhere in this Prospectus. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the results of
operations or financial position that would have been achieved if the
transactions included in the pro forma adjustments had been consummated in
accordance with the assumptions set forth below, nor is it necessarily
indicative of future operating results or financial position.
-29-
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
Historical
------------------------------------
Advantage
Marketing Miracle Mountain
Systems, Inc. International, Inc.
------------- -------------------
March 31, March 31, Pro Forma Pro Forma
1996 1996 Adjustments Combined
------------- ------------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash ......................................... $ 223,775 $ -- $ -- $ 223,775
Receivables - net of allowance of $27,434 .... 22,365 -- -- 22,365
Receivable from affiliate .................... 59,757 -- -- 59,757
Inventory .................................... 160,572 3,193 -- 163,765
Prepaid expenses ............................. 4,810 -- -- 4,810
----------- --------- --------- -----------
Total current assets ....................... 471,279 3,193 -- 474,472
----------- --------- --------- -----------
COMMISSION ADVANCES TO RELATED
PARTIES -- NONCURRENT ........................ 1,790 -- -- 1,790
RECEIVABLES -- NONCURRENT ...................... 20,972 -- -- 20,972
PROPERTY AND EQUIPMENT, net .................... 159,136 37,807 -- 196,943
OTHER ASSETS ................................... 84,148 725 -- 84,873
GOODWILL ....................................... -- -- 124,559 (a) 124,559
----------- --------- --------- -----------
TOTAL ASSETS ................................... $ 737,325 $ 41,725 $ 124,559 $ 903,609
=========== ========= ========= ===========
LIABILITIES & STOCKHOLDERS'
--------------------------
EQUITY (DEFICIENCY)
------------------
CURRENT LIABILITIES:
Bank overdrafts .............................. $ -- $ 513 $ (513)(b) $ --
Accounts payable ............................. 145,187 8,238 (8,238)(b) 145,187
Accrued expenses ............................. 225,318 16,284 241,602
Accrued interest expense ..................... -- 2,584 (2,584)(b) --
Accrued promotion expense .................... 108,990 -- -- 108,990
Notes payable:
Stockholder ................................ 64,648 62,174 (62,174)(c) 64,648
Other ...................................... 12,370 -- -- 12,370
Current obligations under capital lease ...... 23,839 -- -- 23,839
----------- --------- --------- -----------
Total current liabilities ................ 580,352 89,793 (73,509) 596,636
LONG-TERM LIABILITIES:
Notes payable - other ........................ 26,232 -- -- 26,232
Capital lease ................................ 74,265 -- -- 74,265
----------- --------- --------- -----------
Total long-term liabilities .............. 100,497 -- -- 100,497
----------- --------- --------- -----------
TOTAL LIABILITIES .............................. 680,849 89,793 (73,509) 697,133
----------- --------- --------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock - $.0001 par value; authorized
5,000,000 shares; none issued .............. -- -- -- --
Common stock - $.0001 par value; authorized
495,000,000 shares; 16,985,524 shares
issued and outstanding ..................... 1,698 92,655 62,174 (c)
(154,829)(a)
20 (d) 1,718
Paid-in capital .............................. 1,858,396 -- 149,980 (d) 2,008,376
Accumulated deficit .......................... (1,803,618) (140,723) 140,723 (a) (1,803,618)
----------- --------- --------- -----------
Total stockholders' equity (deficiency) .... 56,476 (48,068) 198,068 206,476
----------- --------- --------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ......................... $ 737,325 $ 41,725 $ 124,559 $ 903,609
=========== ========= ========= ===========
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
-30-
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Historical
---------------------------------------
Advantage Miracle
Marketing Mountain
Systems, Inc. International, Inc. Pro Forma Pro Forma
December 31, 1995 December 31, 1995 Adjustments Combined
----------------- ------------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES: Note 2
Programs ............................... $ 4,382,935 $ 277,366 $ -- $ 4,660,301
Promotional material ................... 109,733 -- -- 109,733
Other .................................. 25,535 -- -- 25,535
----------- --------- -------- -----------
Total revenues ....................... 4,518,203 277,366 -- 4,795,569
----------- --------- -------- -----------
COSTS AND EXPENSES:
Programs ............................... 1,094,157 103,217 -- 1,197,374
Promotional material ................... 92,087 -- -- 92,087
Selling ................................ 2,201,510 145,650 -- 2,347,160
General and administration ............. 857,743 157,725 17,794 (e) 1,033,262
Interest expense ....................... 22,998 1,403 -- 24,401
----------- --------- -------- -----------
Total expenses ....................... 4,268,495 407,995 17,794 4,694,284
----------- --------- -------- -----------
NET INCOME (LOSS) ........................ $ 249,708 $(130,629) $(17,794) $ 101,285
=========== ========= ======== ===========
Weighted average common shares outstanding 21,301,441 200,000 21,501,441
Net income per common share .............. $ 0.01 NIL
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
-31-
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1996
<TABLE>
<CAPTION>
Historical
---------------------------------------
Advantage Miracle
Marketing Mountain
Systems, Inc. International, Inc. Pro Forma Pro Forma
March 31, 1996 March 31, 1996 Adjustments Combined
----------------- ------------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES: Note 2
Programs ............................... $ 1,255,889 $ 122,248 $ -- $ 1,378,137
Promotional material ................... 62,684 -- -- 62,684
Other .................................. 13,876 -- -- 13,876
----------- ----------- ----------- -----------
Total revenues ....................... 1,332,449 122,248 -- 1,454,697
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Programs ............................... 302,879 39,602 -- 342,481
Promotional material ................... 35,745 -- -- 35,745
Selling ................................ 683,164 67,343 -- 750,507
General and administration ............. 221,598 24,131 4,449(e) 250,178
Interest expense ....................... 7,359 1,266 -- 8,625
----------- ----------- ----------- -----------
Total expenses ....................... 1,250,745 132,342 4,449 1,387,536
----------- ----------- ----------- -----------
NET INCOME (LOSS) ........................ $ 81,704 $ (10,094) $(4,449) $ 67,161
=========== =========== =========== ===========
Weighted average common shares outstanding 24,588,424 200,000 24,788,424
Net income per common share .............. NIL NIL
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
-32-
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
1. BASIS FOR PRESENTATION
The pro forma balance sheet and statement of income present the pro
forma effects of the acquisition by the Company of the issued and
outstanding capital stock of Miracle Mountain International, Inc., a
Colorado corporation ("MMI"), and MMI became a wholly-owned subsidiary
of the Company (the "MMI Acquisition"), pursuant to a Stock Purchase
Agreement with an effective date of May 31, 1996, (the "Purchase
Agreement"). MMI is a multi-level marketer of various third-party
manufactured nutritional supplement products. Pursuant to the Purchase
Agreement and in connection with the MMI Acquisition, the Company issued
and delivered to the shareholders of MMI 160,000 shares of Common Stock.
In addition, the Company agreed to issue and deliver an additional
40,000 shares of Common Stock to the shareholders of MMI on or before
October 18, 1996, pending determination of certain liabilities.
The accompanying unaudited pro forma statement of income is presented
assuming the MMI Acquisition occurred or was consummated on the first
day of the period presented. The unaudited pro forma consolidated
balance sheet as of March 31, 1996, is presented assuming the MMI
Acquisition occurred or was consummated on such date. The historical
information presented for the Company and MMI as of December 31, 1995,
is derived from the audited financial statements of the Company and MMI
as of such date.
The pro forma financial information presented in the unaudited pro forma
financial statements is not necessarily indicative of the financial
position and results of operations that would have been achieved had the
assets and liabilities been owned by a single corporate entity. The
results of operations presented in the unaudited pro forma statement of
income are not necessarily indicative of the consolidated results of
future operations of the Company following consummation of the MMI
Acquisition.
2. ADJUSTMENTS
The accompanying unaudited pro forma consolidated financial statements
have been adjusted to record and give effect to the following:
(a) Goodwill equal to the excess of the $150,000 purchase price
over the $25,441 fair market value of assets of MMI, net of
liabilities, amortizable over a seven-year period;
(b) Elimination of accounts payable, accrued interest payable and
bank overdrafts of MMI in the aggregate sum of $11,335, which
were not assumed by the Company;
(c) Conversion of $62,174 shareholder note payable to common stock
of MMI prior to consummation of the MMI Acquisition;
(d) Issuance of 200,000 shares of Common Stock of the Company in
exchange for the issued and outstanding capital stock of MMI;
(e) Amortization of goodwill over seven years, $17,794 and $4,449
for the year ended December 31, 1995, and for the three months
ended March 31, 1996, respectively.
3. NET INCOME PER SHARE
Pro forma per share calculations for the Company are based upon the
number of shares of Common Stock to be outstanding after giving effect to the
MMI Acquisition.
-33-
<PAGE>
PUBLIC WARRANT REDEMPTION
Pursuant to this Prospectus, the Company is notifying the holders (the
"Warrant Holders") of the Class A Common Stock Purchase Warrants (the "Class A
Warrants") and the Class B Common Stock Purchase Warrants (the "Class B
Warrants") as of , 1996 (the "Record Date"), of the election of the
Company to redeem (the "Warrant Redemption") the Class A Warrants and Class B
Warrants (collectively the "Public Warrants") for $.0001 per warrant (the
"Redemption Price") at 5:00 p.m., Central Standard Time, on , 1996
(the "Redemption Date"). Each of the Class A Warrants and Class B Warrants is
exercisable for the purchase of one share of Common Stock for $.75 or $1.00,
respectively (the "Warrant Exercise Price"), on or before expiration of the
Redemption Date, without giving effect to the Warrant Modification Offer. See
"Terms of the Warrant Modification Offer." Pursuant to the Warrant Modification
Offer, during the Special Exercise Period, each Public Warrant will be
exercisable to purchase one Unit (consisting of one share of Common Stock and
one 1996-A Warrant) for $.75, on or before the Redemption Date. The Redemption
Date may be extended by the Company to a date that is not more than days
following the original Redemption Date. See "Terms of the Warrant Modification
Offer--Expiration; Extensions; Termination; Amendments."
The Public Warrants may only be exercised by a Warrant Holder in the
event the Registration Statement of which this Prospectus is a part is effective
with the Securities and Exchange Commission and the Units (or Common Stock and
1996-A Warrants comprising the Units) are qualified for sale in the state of
residence of the Warrant Holder. See "Risk Factors--Securities Laws Restrictions
on Exercise of Warrants," "Terms of Warrant Modification Offer--Acceptance of
Public Warrants; Delivery of Units," and "Description of Securities--Public
Warrants." Subject to the foregoing, the Class A Warrants and Class B Warrants
are exercisable at any time by the Warrant Holders prior to the Redemption Date
by delivery of the warrant certificate evidencing the Public Warrant to U.S.
Stock Transfer Corporation (the "Warrant Agent") at 1745 Gardena Avenue,
Glendale, California 91204, with the "Form of Election to Purchase" on the
reverse of the certificate duly completed and signed, accompanied with payment
of the Warrant Price in cash or by certified check or bank draft payable to the
order of the Company. See "Terms of the Warrant Modification Offer--How to
Exercise."
PURPOSES OF THE WARRANT MODIFICATION OFFER
The purposes of the Warrant Modification Offer are to (i) encourage the
exercise of the Public Warrants prior to redemption, (ii) strengthen the
Company's capital structure by increasing stockholders' equity and current
assets, and (iii) provide the Company greater financial flexibility. The net
proceeds of this offering and the Warrant Modification Offer will give the
Company greater financial flexibility in that the Company otherwise would be
required to rely on debt or other sources of capital to expand its sales and
marketing activities. See "Use of Proceeds." It is the Company's belief that the
availability of the 1996-A Warrant and the reduction of the exercise price of
the Class B Warrants to $.75 will induce Class A and B Warrant holders to
exercise their Public Warrants as opposed to receiving $.0001 per Warrant upon
redemption.
Concurrently with this offering and the Warrant Modification Offer, the
Company is distributing the Rights to its shareholders and offering 17,185,524
Units pursuant to the Rights Offering. See "Description of Securities--Common
Stock--Rights Offering." The Company anticipates that the net proceeds to be
received from this offering and the Rights Offering will be $3.5 million.
Following completion of the Warrant Modification Offer and the Rights Offering
and assuming $3.5 million of net proceeds are received by the Company, it is
anticipated that the Company will meet the $4 million total assets and $2
million stockholders' equity requirements for inclusion on the NASDAQ Small Cap
Market System. However, there is no assurance that any of the Public Warrants
will be exercise pursuant to the Warrant Modification Offer or that any of the
Rights will be exercised, or that if exercised, in part, the Company will meet
the minimum required levels of total assets and stockholders' equity for
consideration to be included on the NASDAQ Small Cap Market System, or upon
application the Company's Common Stock will be accepted for inclusion.
-34-
<PAGE>
TERMS OF THE WARRANT MODIFICATION OFFER
General
The Company hereby offers, upon the terms and subject to the conditions
herein set forth, to reduce the Warrant Exercise Price of the Class B Warrants
to $.75 from the current $1.00 exercise price during the period commencing on
the date of this Prospectus until the Redemption Date (5:00 p.m. Central
Standard Time on , 1996 which be extended by the Company to a date that is not
more than days following the original Redemption Date (the "Special Exercise
Period"). In addition, the Company will issue as soon as practicable after
expiration of the Special Exercise Period (the "Expiration Date") one Unit (one
share of Common Stock and one 1996-A Warrant) for each Public Warrant
effectively exercised, and not withdrawn, on or prior to the Redemption Date,
subject to certain conditions as set forth herein. The Company's obligation to
consummate the Warrant Modification Offer is not subject to the exercise of any
minimum number of Public Warrants. All Public Warrants properly tendered for
exercise, and not withdrawn, on or prior to the Expiration Date, will be
accepted by the Company upon the terms and subject to the conditions set forth
herein.
Those Public Warrants not exercised on or prior to the Redemption Date
will be redeemed on the Redemption Date for $.0001 per warrant. No dissenters'
rights of appraisal exist with respect to the Warrant Modification Offer.
Plan of Distribution
The Units are being offered on a best efforts basis by the Company and
its officers and directors, without commissions, selling fees or direct or
indirect remuneration. From the proceeds of the Warrant Modification Offer and
the offering, the Company will pay the costs incurred with respect to the
offering, which are estimated to be $75,000. Offers will be limited to the
holders of the Public Warrants residing in those states in which the Units are
registered or qualified to be offered and sold.
Holders of the Public Warrants will not be required to pay any brokerage
commissions or fees with respect to the exercise of their Public Warrants;
however, the holders of the Public Warrants will be required to pay a $7.50
transfer fee for each certificate evidencing the Common Stock and 1996-A
Warrants issued in connection with the exercise of the Public Warrants. The
Company will pay all charges and expenses of the Warrant Agent. See
"--Acceptance of Public Warrants; Delivery of Units," below.
Expiration; Extensions; Termination; Amendments
The Warrant Modification Offer will expire on the Redemption Date (at
5:00 p.m., Central Standard Time, on , 1996, unless and until the
Company extends the Redemption Date), in which event the Warrant Modification
Offer may be accepted and the Public Warrants exercised, in which event the
Warrant Modification Offer will expire at the latest time and date to which the
Redemption Date is extended. The Special Exercise Period will commence on the
date of this Prospectus and will expire on the Redemption Date. The Company
expressly reserves the right at any time and from time to time, regardless of
whether or not any of the conditions specified in "Conditions of the Warrant
Modification Offer" below have been satisfied, (i) to extend the Redemption
Date, which will also extend the Special Exercise Period during which the
Warrant Modification Offer may be accepted and the Public Warrants may be
exercised by giving oral or written notice to the Warrant Agent and by making a
public announcement of such extension or (ii) to amend the Warrant Modification
Offer in any respect not materially adverse to the Warrant Holders by making
public announcement of such amendment. There can be no assurance that the
Company will exercise its right to extend or amend the Warrant Modification
Offer and there is no limit on the number of times the Company may extend the
Redemption Date.
The Company reserves the right, in its sole discretion, in the event any
of the conditions set forth below under "--Conditions of the Warrant
Modification Offer" are not met or waived by the Company and so long as the
-35-
<PAGE>
Public Warrants have not theretofore been accepted for exercise pursuant to the
Warrant Modification Offer, to delay (except as otherwise required by applicable
law) acceptance for exercise of any Public Warrants exercised pursuant to the
Warrant Modification Offer or to terminate the Warrant Modification Offer and
not accept for exercise any such Public Warrants. Any extension, termination or
amendment of the Warrant Modification Offer will be followed as promptly as
practicable by notification thereof in a manner reasonably calculated to inform
the Warrant Holders of such extension, termination or amendment. Without
limiting the manner in which the Company may choose to make any public
announcement, the Company will not, unless otherwise required by applicable law,
have any obligation to publish, advertise or otherwise communicate any such
public announcement other than by making a release to the Dow Jones News
Service. In the case of an extension of the Redemption Date and the Warrant
Modification Offer, Securities and Exchange Commission regulations require a
public announcement of such extension no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Redemption Date.
In the event the Company decides to waive, modify or amend a material
provision of the Warrant Modification Offer, it may do so at any time or from
time to time, provided that it gives notice thereof in the manner specified
above and extends the Redemption Date and the Warrant Modification Offer to the
extent required by the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). With respect to a change in the Warrant Exercise Price of the
Public Warrants and/or the Units issuable upon exercise of the Public Warrants
before the Expiration Date, Rule 13e-4(f)(1) under the Exchange Act generally
requires that a tender offer remain open for at least 10 business days from the
date that notice of such change is first published or sent or given to the
Warrant Holders. The minimum period during which an offer must remain open
following other material changes in the terms of the offer or information
concerning the offer will depend upon the facts and circumstances, including the
relative materiality of the change in the terms or information. Any amendment to
the Warrant Modification Offer will apply to all Public Warrants tendered for
exercise pursuant thereto, regardless of when or in what order the Public
Warrants are tendered. The term "business day" shall mean a day other than
Saturday, Sunday or a federal holiday and shall consist of the time period from
12:01 a.m. through 12:00 midnight Eastern Time.
Conditions of the Warrant Modification Offer
Notwithstanding any other provisions of the Warrant Modification Offer,
the Company may cancel, modify or terminate the Warrant Modification Offer and
is not required to accept for exercise any Public Warrants exercised pursuant
thereto if, prior to the Redemption Date:
(i) there shall be in effect any injunction prohibiting, restricting or
delaying consummation of the Warrant Modification Offer;
(ii) there shall have occurred any general suspension of trading in, or
limitation of prices for, securities in the over-the-counter markets; or
(iii) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any governmental authority, which would prohibit
or materially restrict or delay consummation of the Warrant Modification Offer.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to such
conditions or may be waived by the Company in whole or in part at any time and
from time to time, in its sole discretion. Each right of the Company in
connection with the foregoing conditions will be deemed an ongoing right that
may be asserted any time and from time to time. The failure by the Company, at
any time, to exercise its rights with respect to any of these conditions will
not be deemed a waiver of any such conditions. Any determination by the Company
concerning applicability of the conditions to the events set forth herein will
be final and binding upon all parties.
-36-
<PAGE>
The Company expressly reserves the right to terminate or amend the
Warrant Modification Offer and not accept for exercise any Public Warrants
pursuant to the Warrant Modification Offer if any of the foregoing conditions
are not satisfied. The Company confirms that its reservation of the right to
delay acceptance of tendered Public Warrants is subject to the provisions of
Rule 13e-4(f)(5) and Rule 14e-1(c) under the Exchange Act, which provide that
the Company shall either deliver the Units or return the tendered Public
Warrants promptly after the termination or withdrawal of the Warrant
Modification Offer.
Impact on Non-Exercising Warrant Holders
Exercise of the Public Warrants prior to the Redemption Date by the
Warrant Holders may have both significant adverse and advantageous consequences
for Warrant Holders. The adverse consequences to the Warrant Holder include (i)
the Public Warrants ceasing to be issued and outstanding, (ii) the Public
Warrants becoming worthless resulting in a loss to the Warrant Holders to the
extent of their investments in the Public Warrants in excess of the $.0001
Redemption Price per Public Warrant, (iii) loss of any potential appreciation in
the Public Warrants as a result of an increase in the trading market value of
the Units purchasable upon exercise of the Public Warrants pursuant to the
Warrant Modification Offer, and (iv) loss of the ability to sell the Public
Warrants as a tradable security. Alternatively, those Warrant Holders that fail
to exercise the Public Warrants will be entitled to receive the $.0001
Redemption Price per Public Warrant. See "Public Warrant Redemption."
The advantageous consequences of exercise of the Public Warrants and
receipt of the Units include (i) acquisition and receipt of equity ownership of
the Company represented by the shares of Common Stock and the 1996-A Warrants
(each of which will entitle the holder to purchase an additional share of Common
Stock at an exercise price of $1.50, subject to adjustment in certain events and
possible redemption by the Company at $.0001) comprising the Units, (ii)
participation in future growth of the Company and any potential market value
appreciation of the Common Stock and, if a market develops, the 1996-A Warrant,
and (iii) receive any investment liquidity that the Common Stock has or may have
in the future as well as any such liquidity the 1996-A Warrant may come to have
in the event a public market develops. Although there may be advantages offered
by exercise of the Public Warrants, the Warrant Holders should also understand
and be aware that (i) exercise of the Public Warrants will constitute an
additional investment requiring payment of the $.75 per Unit Exercise Price of
the Public Warrants in order to receive the Units (and the Common Stock and
1996-A Warrants comprising the Units), (ii) there are various risks associated
with such investment as disclosed in this Prospectus (see "Risk Factors"), (iii)
there is no assurance that a market will develop for the 1996-A Warrants, (iv)
the issuance of Units, Rights Offering Units, Common Stock, and 1996-A Warrants
pursuant to the Warrant Modification Offer and the Rights Offering, and the
exercise of outstanding stock options and other warrants may have an adverse
effect upon the public trading price of the Common Stock, and (v) the Common
Stock and, if a market develops, the 1996-A Warrants are or will be traded in
the over-the-counter market which typically is volitle in nature (see "Risk
Factors--Over-the-Counter Market; Penny Stock Trading Rules" and "Price Range of
Common Stock and Dividends--Penny Stock Trading Rules"). See "Risk Factors" and
"Description of Securities--Common Stock--Rights Offering," "--1996-A Warrants"
and "--Other Options and Warrants."
How to Exercise
The acceptance by a Warrant Holder of the Warrant Modification Offer
pursuant to one of the procedures set forth below will constitute an agreement
between the Warrant Holder and the Company in accordance with the terms and
subject to the conditions set forth herein.
For effective exercise, the "Form of Election To Purchase" on the
reverse side of each Public Warrant certificate must be completed and executed
as indicated thereon, and the Public Warrant must be accompanied by payment of
the aggregate Warrant Exercise Price in cash or certified or official bank check
made payable to Advantage Marketing Systems, Inc., together with any other
required documents. The warrant certificate and payment must be transmitted to
and received by the Warrant Agent at its address set forth on the back cover of
this Prospectus on or before the Redemption Date, if the Public Warrant is being
exercised. However, in lieu of the
-37-
<PAGE>
foregoing, a holder may either (i) tender the Public Warrants to be exercised
pursuant to the procedure for book-entry tender set forth below (and a
confirmation of such book-entry tender must be received by the Warrant Agent on
or before the Redemption Date) or (ii) comply with the guaranteed delivery
procedure set forth below. The beneficial holders of Public Warrants that are
held by or registered in the name of a broker, dealer, commercial bank, trust
company or other nominee or custodian are urged to contact such entity promptly
if they wish to exercise the Public Warrants. The Public Warrants certificates,
together with the cash or certified or official bank check and any other
required documents to be delivered, should be delivered only by hand or by
courier, or transmitted by mail, and only to the Warrant Agent and not to the
Company. The method of delivery of the Public Warrants and all other required
documents to the Warrant Agent is at the election and risk of the Warrant
Holder, but if such delivery is by mail it is suggested that the Warrant Holder
use properly insured, registered mail with return receipt requested, and that
the mailing be made sufficiently in advance of the Redemption Date to permit
delivery to the Warrant Agent prior to the Redemption Date.
Each signature of the Warrant Holders on the "Form of Election to
Purchase" of a Public Warrant certificate must be guaranteed by a member firm of
any registered national securities exchange or of the National Association of
Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States (collectively, "Eligible
Institutions").
In the event the certificates for the Public Warrants are registered in
the name of a person other than the person executing the "Form of Election to
Purchase" of such Public Warrants, or if Public Warrants that are not accepted
for exercise are to be returned to a person other than the registered owner,
then the "Assignment" on the reverse side of the Public Warrant certificates
must be endorsed or accompanied by an appropriate instrument of transfer, signed
exactly as the name of the registered owner appears on the certificates, with
the signatures on the "Assignment" or instruments of transfer guaranteed by an
Eligible Institution.
Book Entry Tender Procedure. Within two business days after
the date hereof, the Warrant Agent will establish accounts with respect
to the Public Warrants at the Depository Trust Company (the "Book-Entry
Transfer Facility") for purposes of the Warrant Modification Offer. Any
financial institution that is a participant in a Book-Entry Transfer
Facility's system may make book-entry delivery of the Public Warrants by
causing the Book-Entry Transfer Facility to transfer the same into the
Warrant Agent's account at such Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedure for such
transfer and to confirm such transfer to the Warrant Agent in writing.
Any tender of Public Warrants to be effected through book-entry delivery
at a Book-Entry Transfer Facility must have either (i) the Public
Warrant executed by the holder of record, together with signature
guarantees, and delivered to a Book-Entry Transfer Facility and the cash
or certified or official bank check, together with all other documents
required, transmitted to and received by the Warrant Agent at its
address set forth on the back cover of this Prospectus on or before the
Redemption Date or (ii) complied with the guaranteed delivery procedure
set forth below. Delivery of documents to a Book-Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedure does not
constitute delivery to the Warrant Agent.
Guaranteed Delivery Procedure. In the event a Warrant Holder
desires to exercise such Public Warrants (pursuant to the Warrant
Modification Offer or otherwise) but is unable either to deliver his
certificates, the cash or certified or official bank check and all other
required documents to the Warrant Agent on or before the Redemption Date
or to comply with the procedure for book-entry tender on a timely basis,
such Public Warrants may nevertheless be tendered for exercise, provided
that all of the following conditions are satisfied:
(i) such tenders are made by or through an Eligible
Institution;
(ii) prior to the Redemption Date, a properly
completed and duly executed Notice of Guaranteed Delivery (by
telegram, telex, facsimile transmission, mail or hand
delivery) setting forth
-38-
<PAGE>
the name and address of the Warrant Holders and the number of
Public Warrants exercised, stating that the exercise is being
made thereby and guaranteeing that within three New York Stock
Exchange trading days after the Redemption Date, the Public
Warrants and the cash or certified or official bank check,
together with all other documents required, will be deposited
by the Eligible Institution with the Warrant Agent; and
(iii) the certificates for all exercised Public
Warrants in proper form for transfer (or a written
confirmation of book-entry transfer into the Warrant Agent's
account at a Book-Entry Transfer Facility as described above)
and the cash or certified or official bank check, together
with all other documents required, are received by the Warrant
Agent within three New York Stock Exchange trading days after
the Expiration Date or the Redemption Date.
The issuance of Units (the Common Stock and the 1996-A Warrants) in
exchange for Public Warrants exercised will be made only after timely receipt by
the Warrant Agent of the certificates for such Public Warrants (or a
confirmation of a book-entry transfer of such Public Warrants into the Warrant
Agent's account at one of the Book-Entry Transfer Facilities as described above)
and the cash or certified or official bank check, together with all other
documents required. If less than the entire number of Public Warrants evidenced
by a submitted certificate are to be exercised, the tendering Warrant Holder
should indicate on the "Form of Election to Purchase," appearing on the reverse
side of the certificate, the number of Public Warrants being tendered for
exercise.
Withdrawal Rights
The Public Warrants tendered pursuant to the Warrant Modification Offer
may be withdrawn, subject to the procedures described below, at any time before
the Redemption Date. After the Redemption Date, such tenders will be
irrevocable, except that they may be withdrawn after , 1996 (i.e., 40
business days from the date of this Prospectus), unless theretofore accepted for
exercise as provided in this Prospectus. In the event the Company (i) extends
the Redemption Date and the Special Exercise Period during which the Warrant
Modification Offer is open, (ii) is delayed in its acceptance of Public Warrants
for exercise or (iii) is unable to accept Public Warrants for exercise pursuant
to the Warrant Modification Offer for any reason, in such event, without
prejudice to the Company's rights under the Warrant Modification Offer, the
Warrant Agent may, on behalf of the Company, retain all Public Warrants
tendered, and such Public Warrants may not be withdrawn except as otherwise
provided herein, subject delivery of the Units or, if the Warrant Modification
Offer is terminated or withdrawn by the Company, return the tendered
certificates of the Public Warrants, the funds received in certified or official
bank check and all other documents tendered in exercise of the Public Warrants
pursuant to Rule 13e-4(f)(5) and Rule 14e-1(c) under the Exchange Act.
To be effective, a written, telegraphic or facsimile transmission of a
notice of withdrawal must (i) be timely received by the Warrant Agent at its
address specified on the back cover page of this Prospectus before the Warrant
Agent receives notice of acceptance by the Company of the Public Warrants, (ii)
specify the name of the person who tendered the Public Warrants, (iii) if the
Public Warrants have been deposited with or otherwise identified to the Warrant
Agent, contain the description of the Public Warrants to be withdrawn and
indicate the certificate numbers shown on the certificates evidencing such
Public Warrants (except in the case of book-entry tenders) and (iv) be executed
by the holder of the Public Warrants in the same manner as the original Public
Warrant or be accompanied by evidence satisfactory to the Company that the
person withdrawing the tender has succeeded to the beneficial ownership of the
Public Warrants. If the Public Warrants have been tendered for exercise pursuant
to the book-entry tender, a notice of withdrawal must specify, in lieu of
certificate numbers, the name and account number at a BookEntry Transfer
Facility to be credited with the withdrawn Public Warrants.
39
<PAGE>
Validity of Exercise or Withdrawal
All questions with respect to the validity, form, eligibility (including
time of receipt) and acceptance for exercise of the Public Warrants or the
withdrawal thereof will be determined by the Company, in its sole discretion,
which determination will be final and binding upon the Warrant Holder and the
Company. The Company reserves the absolute right to reject any and all tenders
or withdrawals of Public Warrants which it determines not to be in proper form,
or the acceptance or exercise of which would, in the opinion of the Company's
counsel, be unlawful. The Company also reserves the absolute right to waive any
defect or irregularity in the exercise or withdrawal of the Public Warrants. The
Company, Warrant Agent, or any other person will not be under any duty to give
notification of any defects or irregularities in exercise or withdrawal, nor
will they incur any liability for failure to give such notification. Exercise of
(or withdrawal of previously exercised) Public Warrants will not be deemed to
have been properly made until any irregularities have been waived by, or cured
to the satisfaction of, the Company. The Company's interpretation of the terms
and conditions of the Warrant Modification Offer will be final and binding upon
the Warrant Holders and the Company.
Acceptance of Public Warrants; Delivery of Units
Public Warrants properly tendered for exercise and not withdrawn will be
accepted for exercise on or promptly after the Redemption Date. The Company will
be deemed to have accepted for exercise properly tendered Public Warrants when,
as and if the Company has given oral or written notice thereof to the Warrant
Agent. All tendering Warrant Holders of Public Warrants will be deemed to have
waived any right to receive notice of the acceptance of their Public Warrants.
Certificates for Common Stock and 1996-A Warrants will be issued as promptly as
practicable after the Public Warrants are accepted for exercise. Any Public
Warrants not exercised before the Redemption Date will be redeemed.
In certain cases, the sale of the Units by the Company upon exercise of
Public Warrants could violate the securities laws of certain states or other
jurisdictions. The Company has undertaken registration or qualification of the
Units (or the Common Stock and 1996-A Warrants comprising the Units) for sale in
California, Colorado, Georgia, Kentucky, Illinois, Louisiana, New Hampshire, New
York, Ohio, Oklahoma, Pennsylvania, Tennessee, Virginia, Texas, Washington and
Wisconsin; however, there is no assurance that such registration will become
effective in such states. In addition, the Company may undertake registration of
the Units (or the Common Stock and 1996-A Warrants comprising the Units) in
additional states as determined in the sole discretion of the Company. Those
Warrant Holders residing in states in which the Units have not been registered
or otherwise qualified for sale in such state, will not be permitted to exercise
their Public Warrants. Prior to tendering of Public Warrants for exercise, the
Warrant Holder should either contact the Company or the Warrant Agent to
determine whether the Units have been registered or qualified in the state of
such Warrant Holder's residence. The Company has used and will continue to use
its best efforts to cause the Registration Statement of which this Prospectus is
a part to be declared effective under the laws of various states as may be
required to cause the sale of Units (or the Common Stock and 1996-A Warrants
comprising the Units) upon exercise of Public Warrants to be lawful. However,
the Company is not required to accept the exercise of the Public Warrants, if,
in the opinion of counsel, the sale of the Units (or the Common Stock and 1996-A
Warrants comprising the Units) upon such exercise would be unlawful. In such
cases, the Public Warrants not accepted for exercise will be subject to
redemption. See "Public Warrant Redemption."
The Warrant Agent will act as agent for the tendering Warrant Holders of
the Public Warrants for the purposes of receiving from the Company the Common
Stock and 1996-A Warrants comprising the Units, and transmitting such securities
to the Warrant Holders. Tendered Public Warrants not accepted for exercise by
the Company will be returned and redeemed on the Redemption Date. See "Public
Warrant Redemption."
In the event the Company (i) extends the Special Exercise Period (by
extension of the Redemption Date) during which the Warrant Modification Offer is
open, (ii) is delayed in its acceptance for exercise, or (iii) is unable to
accept for exercise any Public Warrants for any reason, in such event, without
prejudice to the Company's right
-40-
<PAGE>
hereunder, the Warrant Agent, at the request of the Company, may nevertheless
retain Public Warrants tendered for exercise together with any cash or certified
or official bank check and any other required documents, subject to the
withdrawal rights of the Warrant Holder thereof as set forth herein and
applicable securities laws.
Transfer Taxes and Certificates
Warrant Holders are required to pay all transfer taxes applicable to the
exercise of Public Warrants, if any, and a fee of $7.50 per certificate of
Common Stock and 1996-A Warrant issued by the Company to the holders upon
exercise of the Public Warrants.
Mutilated, Lost, Stolen or Destroyed Certificates
Any holder whose certificates evidencing Public Warrants have been
mutilated, lost, stolen or destroyed should contact the Warrant Agent at its
address or telephone number indicated on the back cover page of this Prospectus
for further instructions.
Expenses
The Company will pay the Warrant Agent reasonable and customary fees for
their services and will reimburse them for their reasonable out-of-pocket
expenses in connection therewith. The Company will also reimburse custodians,
nominees and fiduciaries for reasonable out-of pocket expenses incurred by them
in forwarding copies of this Prospectus and related documents to the beneficial
owners of Public Warrants and in handling or forwarding tenders on behalf of
their customers. The Company will also pay legal, accounting, printing, listing,
filing and other similar fees and expenses in connection with the securities
offered pursuant to this Prospectus.
Prohibition Against Trading by Interested Persons
Pursuant to Section 10b of the Exchange Act and Rule 10b-6 thereunder,
subject to certain exceptions, it is unlawful for the Company, any underwriter
and broker-dealer that participates or agrees to participate in the distribution
of the Units (each referred to as a "Distribution Participant"), and an
"affiliated purchaser" (within the meaning of Rule 10b-6(c)(6) under the
Exchange Act), directly or indirectly, either alone or with one or more other
persons, until completion of the distribution of the Units, or its or his
participation in the distribution of the Units, to (i) bid for or purchase for
any account in which it or he has a beneficial interest in the Units, Common
Stock, the Public Warrants, 1996-A Warrants, Rights, stock options or other
warrants, or any right to purchase any such securities, or (ii) induce any
person to purchase any such security or right. However, the Company and any
other Distribution Participant and affiliated purchaser, if not engaged in for
the purpose of creating actual or apparent active trading in or raising the
price of the Common Stock, Public Warrants, Units, 1996-A Warrants or Rights,
are not prohibited from effecting certain transactions in the Company's
securities, including (i) unsolicited privately negotiated block purchases not
effected through a broker-dealer and (ii) the exercise of any right (options,
warrants, etc.) to acquire the securities directly from the Company.
For purposes of the foregoing, "affiliated purchaser" includes (i) any
person, directly or indirectly, acting in concert with a Distribution
Participant in connection with the acquisition or distribution of the Units,
Common Stock, 1996-A Warrants, or the Public Warrants, stock options, other
warrants or any other right to purchase the Units, Common Stock or 1996-A
Warrants, (ii) an affiliate who, directly or indirectly, controls the purchases
of the Units, Common Stock, and 1996-A Warrants by a Distribution Participant,
whose purchases are controlled by a Distribution Participant, or whose purchases
under common control with those of a Distribution Participant, (iii) an
affiliate that is a broker-dealer, subject to a limited exception, or (iv) an
affiliate (other than a broker-dealer) that regularly purchases securities,
through a broker-dealer or otherwise, for its own account, for the account of
others, or recommends or exercises investment discretion with respect to the
purchase or sale of securities, other than an affiliate that is a separate and
distinct organizational entity from, with no officers (or persons performing
similar functions) or employees (other than clerical, ministerial, or support
personnel) in common with, the Distribution
-41-
<PAGE>
Participant, and the affiliate and the Distribution Participant have separate
employee compensation arrangements and the affiliate's bids for, purchases of,
and inducements to purchase the securities are made in the ordinary course of
its business.
Deliveries and Additional Information
All deliveries, correspondence and questions sent or presented to the
Company or the Warrant Agent relating to the Warrant Modification Offer and
exercise and redemption of the Public Warrants should be directed to the Company
or the Warrant Agent at their respective addresses or telephone numbers set
forth on the back cover of this Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Introduction. The following summary is a general discussion of the
federal income tax consequences to the Warrant Holders and the Company of the
Warrant Modification Offer and exercise of the Public Warrants. The legal
conclusions expressed in the summary are the opinion of Dunn Swan & Cunningham,
A Professional Corporation, tax counsel to the Company ("Counsel"). The summary
is based upon the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations thereunder, rulings and other pronouncements, and reported
decisions as of the date of this Prospectus, all of which are subject to change.
Furthermore, the following discussion is limited to the material federal income
tax aspects of the Warrant Modification Offer to Warrant Holders who hold the
Public Warrants as "capital assets" (generally, property held for investment as
compared to property held for sale to customers as inventory) within the meaning
of Section 1221 of the Code. The summary does not discuss all aspects of federal
income taxation that may be relevant to a Warrant Holder exercising the Public
Warrants in light of such Warrant Holder's personal investment circumstances or
to certain types of person subject to special treatment under the federal income
tax laws (for example, trusts, life insurance companies, tax-exempt
organizations, financial institutions, or S corporations) and does not discuss
any aspects of applicable state, local or foreign tax laws.
Warrant Modification Offer. Counsel has concluded that there exists a
lack of authority addressing the tax consequences of the Warrant Modification
Offer (and amendment of the terms and provisions of Warrant Agreement pursuant
to which the Public Warrants were issued by the Company), and thus Counsel's
opinion is that there exists several reasonable and diverse reporting positions
for federal income tax purposes. Given the unclear state of the law in this
area, and the technical intricacies of the available reporting positions, it is
particularly important that Warrant Holders consult their own tax advisors
regarding the federal income tax consequences to them relating to the Warrant
Modification Offer.
Counsel has concluded that there exists no conclusive authority which
would indicate whether, for federal income tax purposes, the Warrant
Modification Offer is (i) merely the grant of additional rights to the Warrant
Holders which merely modify the securities to be delivered upon exercise of the
Public Warrants and with respect to the Class B Warrants a reduction
modification of the Exercise Price of such Public Warrants, (ii) the grant of
additional separate and independent warrants to the Warrant Holders, (iii) the
exchange of the Public Warrants as constituted prior to the Warrant Modification
Offer for the Public Warrants as modified by the Warrant Modification Offer, or
(iv) with respect to the Class B Warrants and reduction of the Exercise Price, a
dividend distribution to the holders thereof. Because of the lack of authority
addressing the issue, Counsel has concluded that any of such theories could be
applicable to the Warrant Holders.
Grant of Additional Rights. If the Warrant Modification Offer was
determined by the Internal Revenue Service (the "IRS") to be merely the grant of
additional rights to the Warrant Holders (which merely modify the securities to
be delivered upon exercise of the Public Warrants and with respect to the Class
B Warrants a reduction modification of the Exercise Price of the Public
Warrants), the Warrant Holders would not recognize any loss as a result of the
Warrant Modification Offer until expiration of the Redemption Date and then only
if the Public
-42-
<PAGE>
Warrants are not exercised. Pursuant to this theory the Warrant Modification
Offer would be valued as of the date the Company announced the Warrant
Modification Offer and that value would be reported by the Warrant Holders as
ordinary income. The value of the rights represented by the Warrant Modification
Offer would be determined by comparing the trading prices of the Class A
Warrants and the Class B Warrants immediately before and subsequent to the
announcement of the Warrant Modification Offer. If the trading prices of the
Class A Warrants and the Class B Warrants immediately subsequent to announcement
of the Warrant Modification Offer do not increase above the trading prices
immediately before the announcement of the Warrant Modification Offer, the
Warrant Holders will not be required to report any income due to the Warrant
Modification Offer. Alternatively, if the trading prices of the Class A Warrants
and the Class B Warrants immediately subsequent to announcement of the Warrant
Modification Offer increase above the trading prices immediately before the
announcement of the Warrant Modification Offer, the Warrant Holders will be
required to report the amount of the increase as income due to the Warrant
Modification Offer.
Grant of Additional Warrants. In the event the Warrant Modification
Offer is determined by the IRS for income tax purposes to constitute the grant
of additional, separate and independent warrants, each Warrant Holder would be
deemed to hold two warrants, the Public Warrants as constituted prior to the
Warrant Modification Offer (the "Original Warrants") and the Public Warrants as
modified by the Warrant Modification Offer (the "Modified Warrants"), both of
which will be deemed to expire on the Redemption Date. In such case, the
expiration of the Public Warrants (i.e., the Original Warrants and the Modified
Warrants) on the Redemption Date would entitle the Warrant Holder to claim a
loss in an amount equal to the Warrant Holder's tax basis in the Original
Warrants and the Modified Warrants. Such loss would be a capital loss if the
Public Warrants (i.e., Original Warrants and Modified Warrants) were held as a
capital asset, and the capital loss would be treated as a long-term loss if the
Warrant Holder's holding period of the Original Warrants was more than one year,
or short-term loss if the Warrant Holder's holding period of the Public Warrants
(i.e., Original Warrants or Modified Warrants) was one year or less.
Furthermore, pursuant to this theory that the Warrant Modification Offer
constituted the grant of new additional warrants (i.e., Modified Warrants),
there are two possible appropriate dates for measuring the amount of income to
recognized by each Warrant Holder. These dates are the date on which the Warrant
Modification Offer was announced and the date on which the Public Warrants
(i.e., Modified Warrant) are exercised, sold, exchanged or otherwise disposed of
by gift or charitable contribution. In the event the date of announcement of the
Warrant Modification Offer is treated as the correct date for recognizing income
to the Warrant Holders, the amount of the income would be measured by the
difference between the trading prices of the Public Warrants immediately before,
and the Public Warrants (as modified by the Warrant Modification Offer)
immediately after, the date of announcement. In the event the correct date for
measuring the income to the Warrant Holders is deemed to be the date on which
the Public Warrants (i.e., the Original Warrants and Modified Warrants) are
exercised, sold, exchanged or otherwise disposed of by the Warrant Holder, under
this theory such Warrant Holder would recognize income equal to the trading
prices of the Public Warrants at the date the Public Warrants were exercised,
sold, exchanged or otherwise disposed of. Under this theory, no income would be
recognized in the event the Public Warrants are held by the Warrant Holder until
the Redemption Date and are not exercised.
In any case in which income is realized and recognized the income
attributable to the Public Warrants as modified pursuant to the Warrant
Modification Offer would be ordinary income and not capital gain. Any income
recognized by a Warrant Holder would be reflected, as appropriate, in the
Warrant Holder's tax basis in the Public Warrants.
Taxable Exchange. Another theory is that the Warrant Modification Offer
is a material change in the terms of the Public Warrants, resulting in an
exchange of the Public Warrants for new warrants on the date of announcement of
the Warrant Modification Offer. Under this theory, in the event the amount
realized as a result of the transaction (i.e., the trading price of the Public
Warrants as modified pursuant to the Warrant Modification Offer) exceeds the
Warrant Holder's tax basis in the Public Warrant, the Warrant Holder would be
required to recognize taxable gain in the amount of such excess. Such gain would
probably be treated as capital gain, but there
-43-
<PAGE>
is a risk such gain would be treated as ordinary income. If, instead, the fair
market value of the Public Warrant as modified and deemed received in the
exchange is less than the Warrant Holder's tax basis in the Public Warrant (as
constituted prior to modification), the Warrant Holder would probably recognize
a loss, likely characterized as capital in nature, but there is a risk such loss
would be disallowed. If a Warrant Holder recognizes gain (or loss), his or her
tax basis in the Public Warrant would be increased (or reduced) by the amount of
such gain (or loss), and the holding period for the Public Warrant (as modified)
would begin on the day after the Warrant Modification Offer commenced.
Dividend Distribution. Furthermore, another theory is that the reduction
in the Warrant Exercise Price of the Class B Warrants pursuant to the Warrant
Modification Offer constitutes a dividend under Section 305 of the Code, which
would be taxable to each holder of the Class B Warrants in the current year
(whether or not he or she accepts the Warrant Modification Offer by exercising
the Class B Warrant) and which would entitle each such Warrant Holder to a
corresponding increase in the tax basis of the Class B Warrants. Under this
theory, the amount of the dividend would probably be equal to the increase in
the trading price of the Class B Warrants immediately before and immediately
after announcement of the Warrant Modification Offer. The Company does not
intend to report the reduction in the Warrant Exercise Price as a taxable
dividend distribution.
Exercise of Public Warrants. Warrant Holders will not recognize any gain
or loss upon the exercise of their Public Warrants. The adjusted tax basis of
the Unit received on the exercise of a Public Warrant will equal the sum of the
exercising Warrant Holder's tax basis in the Public Warrant exercised and the
Warrant Exercise Price paid. The Warrant Holder's tax basis in the Units
received upon exercise of the Public Warrants must be allocated between the
share of Common Stock and one 1996-A Warrant comprising the Unit in proportion
to their respective fair market values (trading value) at the time of issuance.
The amount allocated to each component of the Unit will constitute the tax basis
of that component. Upon exercise of a 1996-A Warrant, the basis of the 1996-A
Warrant and the amount paid on the exercise thereof will be the tax basis of the
share of Common Stock issued with respect thereto.
Tax Consequence to the Company. No gain or loss will be recognized by
the Company as a result of the Warrant Modification Offer or exercise of the
Public Warrants.
Based upon calculations performed by the Company, Counsel is of the
opinion that the Warrant Modification Offer will not adversely affect the
Company's ability to preserve and utilize its net operation loss carryforwards
for federal income tax purposes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--Income
Taxes."
BUSINESS
General
The Company is a marketer of consumer oriented services and products
which are packaged together in special programs and sold to independent sales
representatives and associates who use the products and services themselves and
also sell them to others. The programs consist of various services which provide
savings on items such as merchandise, groceries and travel, and legal benefits
furnished by certain third party providers as well as nutritional supplements.
These programs represent the Company's one main class of products and services
and account for over 96 percent of its revenues. The Company generates revenue
through the sale of memberships in its consumer benefit services programs and
through the sale of products in its nutritional supplement program. Membership
sales revenues are recognized when the member remits payment for the membership
and the Company provides the services under the program, generally on a monthly
basis. Revenues through the sale of products in its nutritional supplement
program are recognized when the products are paid for and shipped to the
purchaser.
-44-
<PAGE>
The percentage of total revenue contributed from the Company's consumer
benefit services programs was 3.7, 8.2 and 30 percent for the three months ended
March 31, 1996, and the year ended December 31, 1995 and 1994, respectively, and
3.7 and 14.7 percent for the three months ended March 31, 1996 and 1995,
respectively. The percentage of total revenue contributed from the Company's
nutritional supplement program was 94.8, 89.9 and 69.3 for the three months
ended March 31, 1996, and the year ended December 31, 1995 and 1994,
respectively.
Products and Services of the Company
In January 1993, the Company introduced the "Infinity Plan" which is
made up of packages of consumer benefit services provided by third party
providers. In addition, in 1993, the Company began marketing of pre-paid legal
services. The consumer benefit services are provided by third party providers
and consist of (i) discount shopping service which provides access to a wide
range of merchandise at discount through a toll free "800" number, (ii) grocery
coupon service which provides access to money saving coupons on major name brand
products, (iii) discount travel service which provides access to guaranteed
lowest airfares, with five percent cash rebates on air, hotel, cruise and
vacation packages, (iv) pre-paid legal services which include four basic
benefits which provide coverage for a broad range of preventive and litigation
related legal expenses, and/or (v) a variety of other consumer benefits
including savings on prescriptions, eye care, magazines and books. The services
under these consumer benefit programs, except for the pre-paid legal services,
are provided by Consumer Benefit Services, Inc. of Naperville, Illinois. The
pre-paid legal services are provided by Pre-Paid Legal Services, Inc. of Ada
Oklahoma.
Individuals purchase memberships in the Company's Infinity Plan. They
normally pay for their memberships on a monthly basis. Payment of their monthly
membership fee entitles the member to have access to a variety of consumer
benefit services provided by third party providers. The Company pays these third
party providers a fee based upon the number of active memberships that are in
place each month. The Company recognizes the revenues and expenses related to
the Infinity Plan on a monthly basis as the members pay their membership fees to
the Company, and the Company in turn pays a fee to the third-party providers,
thus allowing the members to have access to the consumer benefit services.
In October of 1993, the Company introduced the "NewTrition Plan" which
allows plan members to purchase a variety of dietary and nutritional supplements
designed to assist with healthy diet and weight management programs. Through the
"NewTrition Plan" the Company offers the following products which represent the
majority of the Company's nutritional supplement program sales:
. AM-300 -- A weight management supplement containing a unique blend of
specialized herbs plus the patented ingredient, Chromium Picolinate.
. Shark Cartilage -- A nutritional supplement manufactured from 100% shark
fin cartilage.
. Super Anti-Oxidant -- An exclusive blend of enzyme-active and
phyto-nutrient rich whole food and herbal antioxidant concentrates.
These nutritional supplements are purchased from Advanced Products, Inc. of
Conway, Arkansas, and distributed on an exclusive rights basis with certain
limited exceptions.
The Company and its affiliates have no other relationships with Consumer
Benefit Services, Inc., Advanced Products, Inc., or their affiliates. Pre-Paid
Legal Services, Inc. is a shareholder of the Company, and Harland Stonecipher
the founder and Chief Executive Officer of Pre-Paid Legal Services, Inc. was
elected to the Company's Board of Directors on August 25, 1995.
Other Products and Services. As of the date of this Prospectus the
Company has not determined the other services and products it may desire to
market; however, it is continually searching for new services and products to
-45-
<PAGE>
offer its members. The Company anticipates it will continue to market the
above-mentioned programs in the near term. Also, contracts which the Company may
establish with its suppliers may contain restrictions on the other products and
services the Company may sell.
Marketing
The Company markets its products and services directly to consumers
through independent sales distributors or sales associates in a multi-level
direct selling organization. The Company's multi-level marketing programs
encourages individuals to sell the various consumer products and services
offered under the program and allows individuals to recruit and develop their
own sales organizations. Commissions are paid only on sales of products and
services. Commissions are paid to the sales associate making the sale, and to
other associates who are in the line of associates who directly or indirectly
recruited the selling associate. For the three months ended March 31, 1996, and
the year ended December 31, 1995 and 1994, the Company paid commissions to 955,
1,863 and 1,871 individuals in the aggregate amount of $605,288, $1,823,058 and
$927,422, respectively. Each sales associate is responsible for monitoring the
progress and sales practices of the associates recruited by the sales associate.
The Company provides training materials, organizes area training meetings and
designates personnel specifically trained to answer questions and inquiries from
sales associates.
Multi-level marketing is primarily used for product and services
marketing based on personal sales which encourages individual or group
face-to-face meetings with prospective purchasers of the products and services
of in connection with a program and has the potential of attracting a large
number of sales personnel within a short period of time. The Company's marketing
efforts toward individuals typically target middle income families or
individuals and seek to educate potential members concerning the benefits of
program membership.
Sales associates under the Company's multi-level marketing system are
generally engaged as independent contractors and are provided with training
guides and are given the opportunity to participate in Company training
programs. All advertising, promotional and solicitation materials used by sales
associates must be approved by the Company prior to use. A substantial number of
the Company's sales associates market the Company programs on a part-time basis
only. At March 31, 1996, the Company had 7,844, "active" sales associates
compared to 8,076 and 7,258 "active" sales associates at December 31, 1995 and
March 31, 1995, respectively. A sales associate is considered to be "active" if
he or she has originated at least one new program member or participant and/or
made a NewTrition Plan product purchase within the previous 12 months.
The principal source of the Company's revenues and profits is from the
sale of products to independent sales distributors and the sale of memberships
to participants in its consumer benefit services plan. The Company derives
additional revenues from services provided to its multi-level marketing sales
force, from a one-time membership fee of approximately $139 from each new sales
associate and the sale of marketing supplies and promotional materials to
associates, as well as a monthly $4.00 administrative fee for associates
receiving commissions during a month. The one-time membership fee is intended to
offset the Company's direct costs of the materials contained in the sales kit
provided to the new distributor or associate. The administrative fee is intended
to offset the Company's direct and indirect costs incurred in tracking sales
activity and generating the commission checks for all of the Company's
independent distributors and associates. Amounts collected from distributors and
sales associates through these fees and the sale of marketing supplies and
promotional materials are not intended to generate material profits for the
Company. During the three months ended March 31, 1996, and the years ended
December 31, 1995 and 1994, the Company received one-time distributor and
associate fees totalling $130,240, $261,043 and $222,880, respectively. The
Company did not begin charging a monthly $4.00 administrative fee until the
second quarter of 1995. During the three months ended March 31, 1996 and the
year ended December 31, 1995, the Company received administrative fees totalling
$4,292 and $15,018, respectively.
The marketing plan provides various levels of commissions based on a
sales associate's ability to produce personal sales. In addition, commissions on
the sale by other members of a sales associate's organization may be earned by
the sales associate. Sales are made through direct personal sales presentations
as well as presentations
46
<PAGE>
made to groups in a format known as "opportunity meetings" which are designed to
encourage individuals to subscribe for program membership as well as to become
sales associates. These new sales associates are likewise encouraged to sell the
Company's products and services to new members and are, in turn, encouraged to
become sales associates for the Company, and so on. The effect is to create a
"multi-level" sales organization. The growth of the organization is provided for
by a compensation system which provides for payment of sales commissions not
only on direct sales made by a sales associate but also on sales made by other
sales associates in his or her commission organization. The direct "commission
organization" consists of six levels in depth and unlimited width. Each new
distributor or associate that joins the Company's sales organization is linked
to an existing distributor or associate that sponsored them into the business.
As a result each individual distributor's or associate's personal sales
organization grows based on this sponsorship by people they personally sponsor
and by people that are sponsored by people they personally sponsored and so on.
An individual distributor or associate's "commission organization" consists of
all distributors or associates they have personally sponsored into the business
and everyone that each of those people has sponsored and everyone that each of
these people has sponsored and so on until you reach six distributor or
associates away from the original distributor or associate.
As an additional incentive for top producers, a commission override
program is available for those who meet specified qualifications. This override
program provides for the payment on sales that extend beyond the sixth level of
an individual's "commission organization."
Sales associates are encouraged to assume responsibility for training
and motivation of other sales associates within their organization and to
conduct opportunity meetings as soon as they are trained to do so. The Company
strives to maintain a high level of motivation, morale, enthusiasm and integrity
among the members of its independent sales organization. This is done through a
combination of quality products, sales incentives, personal recognition of
outstanding achievement, and promotional materials. The Company believes that
this form of sales organization is cost efficient since direct sales expenses
are primarily limited to the payment of commissions and thus are only incurred
when a membership is sold. Under the Company's multi-level marketing system the
Company's distributors and associates purchase sales aids and brochures from the
Company and assume the costs of advertising and marketing the Company's products
to retail consumers as well as recruiting new distributors and associates.
The Company's inventories consist of marketing materials and nutrition
products. The Company's marketing materials inventory consists primarily of
sales aids, training, marketing and promotional materials such as product and
marketing brochures, video and audio cassette tapes, training manuals,
distributor applications, order forms and other paper supplies that the Company
sells to its distributors and associates. At December 31, 1994, the Company had
marketing materials and product inventories of $29,215 and $18,656,
respectively. At December 31, 1995, the Company had marketing materials and
product inventories of $46,440 and $52,181, respectively. At March 31, 1996, the
Company had marketing materials and product inventories of $86,268 and $74,304,
respectively.
Operations
The operations of the Company involve processing membership
applications, processing data on new and existing sales associates, computing
commission data, general accounting, and other operations generally related to
the maintenance and operation of a direct sales organization. Due to the
multi-level structure of the Company's sales organization and the complexity of
its sales commission system, it is extremely important for the Company to
promptly and accurately carry out its operations.
The Company's computerized management information system permits
management of accounts, maintenance of members, programs, and order information,
inventory control, processing of credit card orders, and calculation of and
control of sales commissions and assignments thereof, as well as maintenance of
accounting information.
47
<PAGE>
The Company's corporate office in Oklahoma City, Oklahoma, also has
departments which deal directly with sales associates, provide marketing support
and personal assistance, fulfill supply orders and communicate with state
regulatory agencies.
Contractual Arrangements
As of the date of this Prospectus, the consumer benefit services offered
and distributed by the Company are provided by Consumer Benefit Services, Inc.
("CBS") and Pre-Paid Legal Services, Inc. The Company has non-exclusive
contractual arrangements with the providers of the consumer benefit services
offered pursuant to its Infinity Plan. Pursuant to these arrangements the
Company provides information on its active memberships to the providers on a
monthly basis and pays a fee for each active membership. The Company recognizes
these costs on a monthly basis at the same time it recognizes the corresponding
revenue received from its members. The nutritional supplement products sold and
distributed by the Company in conjunction with its "NewTrition Plan" are
provided by Advanced Products, Inc., on an exclusive distribution rights basis,
subject to limited exceptions. The Company does not generally enter into
long-term purchase commitments with respect to the consumer benefit services of
third-party providers or the nutritional supplement products offered and
distributed by the Company; however, the Company customarily enters into
contracts with such third-party providers to establish the terms and conditions
of service and/or product sales made by the Company through its distributors and
program participants.
Although the Company believes it would be able to obtain alternative
sources of services and products, because the Company's services and products
are only available through single source or limited source third-party
providers, any future difficulty in obtaining any of the key services or
products offered and distributed by the Company could have a material adverse
effect on the Company's results of operations. In addition, the unavailability
of or interruptions in access to the services and products provided by
third-party providers involves certain risks, although the Company has not
previously experienced such unavailability or interruptions. In the event any of
the third-party providers, especially the provider of nutritional supplement
products, were to become unable or unwilling to continue to provide the services
or products in required volumes, the Company would be required to identify and
obtain acceptable replacements, which could be lengthy and no assurance can be
given that any additional sources would become available to the Company on a
timely basis. A delay or reduction in availability of the services and/or
products offered and distributed by the Company could materially and adversely
affect the Company's business, operating results and financial condition.
Competition
The marketing industry in which the Company is involved is highly
competitive. Some of the better known companies that have achieved significant
levels of success utilizing a form of multi-level marketing would include Amway
Corporation, Mary Kay Cosmetics, Inc., Shaklee Corporation and The A.L. Williams
Corporation. The Company is aware of several companies utilizing a multi-level
marketing organization to market services similar to that which are offered by
the Company. Many of these companies have substantially greater financial
resources than the Company. The Company competes with numerous businesses that
market products and services similar to those of the Company through direct mail
solicitations, direct sales in the field and sales out of established business
locations.
Not only do the companies in the direct sales segment of the industry
compete with each other as to the different products offered by each company,
these companies also compete very vigorously to recruit new sales persons and to
retain experienced and successful direct sales personnel. Successful direct
sales persons are often attracted to sell new or different products being
distributed by companies whose compensation plans are the most lucrative, and
consequently frequently are willing to leave their existing companies (even if
these companies have a superior product) for the opportunity to earn increased
compensation. Although the Company believes that it has been able to design an
attractive sales organization program, and will be able to recruit and retain
new and existing direct sales personnel to sell the Company's consumer services
and nutritional supplement programs, there is no guarantee that its independent
selling organization will ultimately be successful.
-48-
<PAGE>
Government Regulation
The Company markets and sells its consumer service and nutritional
supplement programs through independent sales distributors in a multi-level
direct selling organization organized by the Company. All multi-level direct
selling organizations are subject to careful scrutiny by various state and
federal governmental regulatory agencies to ensure compliance with various types
of laws, rules and regulations, including but not limited to securities,
franchise investment, business opportunity and criminal laws prohibiting the use
of "pyramid" or "endless chain" types of selling organizations. The design of
the structure and implementation of the various elements of such selling
organizations, primarily relating to compensation payable to independent sales
distributors and the fees and expenses charged to sponsoring and sponsored
participants are very complex, and compliance with all of the applicable laws
may to some degree be uncertain in light of evolving interpretation of existing
laws and the enactment of new laws, rules and regulations pertaining to this
type of product distribution and these types of selling organizations. The
Company has an ongoing compliance program with assistance from counsel
experienced in the laws and regulations pertaining to multi-level sales
organizations. The Company is not aware of any legal actions pending or
threatened by any governmental authority against the Company regarding the
legality of the Company's operations.
The Company currently has independent distributors or associates in 50
states. The Company has reviewed the requirements of various states as well as
sought legal advice regarding the structure and operation of its selling
organization to insure that it complies with all of the applicable laws
pertaining to multi-level sales organizations in those states in which the
Company is engaged in business. On the basis of these efforts and the experience
of its management, the Company believes that it is in compliance with all
applicable requirements. Although the Company believes that the structure and
operation of its selling organization complies with all of the applicable laws
pertaining to multi-level sales organizations in those states in which the
Company is engaged in business, the Company has not obtained any no-action
letters or advance rulings from any federal or state security regulator or other
governmental agency concerning the legality of the Company's operations, nor is
the Company relying on an opinion of counsel to such effect.
In addition, the operations of the Company are also subject to various
federal, state and local requirements which affect businesses generally, such as
taxes, postal regulations, labor laws, and zoning ordinances.
Employees
As of March 31, 1996, the Company had 15 full-time and two part-time
employees, of whom three were executive officers, seven were engaged in
administrative activities, two were engaged in marketing activities, two were
engaged in customer service activities, and one was engaged in shipping
activities. One part-time employee was engaged in shipping and the other was
engaged in marketing activities. None of the Company's employees is represented
by a labor organization. The Company considers its employee relations to be
good.
Properties
The Company maintains its executive office in 6,303 square feet at 2601
Northwest Expressway, Suite 1210W, Oklahoma City, Oklahoma 73112-7293. The
office premises are occupied pursuant to a long-term lease which terminates on
May 31, 1998, and the monthly rental payment is $4,432. The Company considers
such space to be adequate for its current needs. In the event the Company is
required to relocate its office upon termination of the existing lease, the
Company believes other office space is available under favorable leasing terms
in the Oklahoma City area.
Litigation
Other than as set forth hereinbelow, the Company does not have any
pending litigation. The Company is currently under investigation by the Oklahoma
Department of Securities with respect to the AMS Associate Stock
49
<PAGE>
Pool (the "Pool"). As of the date of this Prospectus, the investigation is in
the discovery stage. The Pool, under which the independent distributors of the
Company's marketing programs and products are permitted to participant on a
voluntary basis, was formed in 1990. Participants make contributions to the Pool
and, from such contributions, the administrator of the Pool purchases on a
monthly basis the Company's Common Stock in the open market for the
participants. All purchase transactions are executed and effected through a
market maker in the Company's Common Stock. All records of ownership of the
Common Stock held by the Pool are maintained at the offices of the Company. The
Pool only purchases shares of Common Stock and does not sell shares on behalf of
the participants. In the event a participant desires to sell the Common Stock
held for his benefit by the Pool, certificates representing such shares are
delivered to such participant for the purpose of effecting such sale. Although
its investigation is currently general in nature, the Oklahoma Department of
Securities may take the position that the offer and sale of participation rights
in the Pool violates the registration provisions of the Oklahoma Securities Act.
The Company is currently cooperating and intends to continue such
cooperation with the Oklahoma Department of Securities in its investigation
through the Company's legal counsel. Because, as of the date of this Prospectus,
the investigation is in the discovery stage, legal counsel cannot express an
opinion regarding the ultimate outcome of the investigation.
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information with respect to each
executive officer and director of the Company. Directors are generally elected
at the annual shareholders' meeting and hold office until the annual share
holders' meeting three years after election or until their successors are
elected and qualified. Executive officers are elected by the Board of Directors
and serve at its discretion. The Company's Bylaws authorize the Board of
Directors to be constituted of not less than one and such number as the Board of
Directors may from time to time determine by resolution or election. The Board
currently consists of five members. Directors are elected for three year terms,
with approximately one-third of the Board standing for election each year. The
term of office of one class of directors expires each year in rotation so that
one class is elected at each annual meeting of shareholders for a full
three-year term. The terms of John W. Hail and Roger P. Baresel expire in 1998,
the terms of Curtis H. Wilson, Sr. and R. Terren Dunlap expire in 1997, and the
term of Harland C. Stonecipher expires in 1996. See "--Board of Directors."
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---------------------------------- --- --------------------------------------
<S> <C> <C>
John W. Hail(1)(2)................ 65 Chairman of the Board, Chief Executive
Officer, and Director
Curtis H. Wilson, Sr.(3).......... 69 Vice-Chairman of the Board and
Director
Roger P. Baresel(1)(2)............ 40 President, Chief Financial Officer and
Director
R. Terren Dunlap(3)............... 50 Vice President-International
Development and Director
Harland C. Stonecipher(4)......... 56 Director
</TABLE>
- ------------------------
(1) Member of the Stock Option Committee. See "--Stock Option Plan," below.
(2) Term as a Director expires in 1998.
(3) Term as a Director expires in 1997.
(4) Term as a Director expires in 1996.
-50-
<PAGE>
Messrs. Hail, Wilson and Baresel devote their full-time to business of
the Company. Mr. Dunlap devotes approximately 20 percent of his time to the
business of the Company. Mr. Dunlap devotes the balance of his time to other
business interests that are not believed to constitute a conflict of interest
with his employment by the Company.
The following is a brief description of the business background of the
executive officers and directors of the Company:
John W. Hail is the founder of Advantage Marketing Systems, Inc. and has
served as its Chief Executive Officer and Chairman of the Board of Directors
since its inception in June 1988. During 1987 and through June 1, 1988, Mr. Hail
served as Executive Vice President, Director and Agency Director of Pre-Paid
Legal Services, Inc., a public company engaged in the selling of legal services
contracts, and during this period, Mr. Hail also served as Chairman of the Board
of directors of TVC Marketing, Inc., the exclusive marketing agent of Pre-Paid
Legal Services, Inc.
Curtis H. Wilson, Sr. has served as Vice-Chairman of the Board of
Directors of the Company since June 1988. From January 1984 to June 1988, Mr.
Wilson was Executive Vice President of TVC Marketing, Inc., the exclusive
marketing agent of Pre-Paid Legal Services, Inc. From March 1983 to January
1984, Mr. Wilson was a sales associate of TVC Marketing, Inc. Mr. Wilson retired
in April 1982 after having been employed for 26 years as a salesman, Vice
President and ultimately President of V.J. McGanahan, Inc., a television and
appliance wholesale distributor in Dayton, Ohio.
Roger P. Baresel has served as Vice President, Chief Financial Officer
and a Director since June 1, 1995, and on July 1, 1995, Mr. Baresel became
President. Mr. Baresel is a Certified Public Accountant and holds a Master of
Business Administration. He has maintained an accounting practice since 1985
specializing in providing consulting services to small and growing businesses.
Since 1988, he has provided consulting services on a part-time basis to the
Company. Effective June 1, 1995, Mr. Baresel became a full time employee of the
Company.
R. Terren Dunlap has served as Vice President--International Development
and a Director since June 1, 1995. Mr. Dunlap is the co-founder and a Director
since 1984 and until March 1994 served as Chief Executive Officer and Chairman
of the Board, of Go-Video, Inc., an American Stock Exchange company, and
developer and distributor of consumer electronics products. He is an inventor
and has received several patents for consumer electronics products, including
the Dual Deck VCR, and is a member of the Electronics Industry Association and
the Arizona State University West Advisory Board, and has served on the national
board of the American Electronics Association. Mr. Dunlap holds a Juris
Doctorate from Ohio Northern University and a Bachelor of Science Degree in
Business Administration from Ashland University.
Harland C. Stonecipher has served as a Director since August 25, 1995.
Mr. Stonecipher has been Chairman of the Board and Chief Executive Officer of
Pre-Paid Legal Services, Inc. since its inception in 1972. Pre-Paid Legal
Services, Inc., an American Stock Exchange company, is the first company in the
United States organized solely to design, underwrite and market legal expense
plans.
Compensation of Executive Officers
Executive Officers of the Company. The following table sets forth
certain information relating to compensation paid to or accrued for the Chief
Executive Officer for services rendered during the years ended December 31,
1993, 1994 and 1995.
-51-
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Compensation(4)
----------------
Annual Compensation Award of Options
------------------------------------- ----------------
Name and Principal Position Year Salary(1) Bonus(2) Other(3) Number of Shares
- --------------------------- ---- --------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
John W. Hail(5)..............1995.....$ -- $ -- $ -- 3,000,000
Chief Executive Officer 1994.....$ -- $ -- $ -- --
1993.....$ -- $ -- $ -- --
</TABLE>
- ------------------------
(1) Dollar value of base salary (both cash and non-cash) earned during the
year.
(2) Dollar value of bonus (both cash and non-cash) earned during the year.
(3) The Company furnishes the use of an automobile to Mr. Hail, the value of
which is not greater than $5,000 annually.
(4) No awards of restricted stock or payments under long-term incentive
plans were made by the Company to the Chief Executive Officer during
1993 and 1994.
(5) During the fiscal year ended December 31, 1995, 1994 and 1993, the
Company made loan repayments to Mr. Hail totalling $127,615, $79,138 and
$33,122, respectively.
Mr. Hail has been willing to serve as the Company's Chief Executive
Officer without compensation to protect and enhance the value of his large stock
ownership position, and to increase the likelihood of repayment of the
significant cash advances he has made to the Company, as well as due to his
desire to see the Company he founded become successful.
Aggregate Option Grants and Exercises in 1995 and Year-End Option Values
Stock Options and Option Values. The following table sets forth
information related to options granted to the Chief Executive Officer during
1995.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Rates of Stock
Price Appreciation
Individual Grants for Option Term(1)
---------------------------------------------------------------- -----------------------------
Percent of Total
Number Options Granted Exercise or
of Options to Employees in Base Price
Name Granted 1995 Per Share Expiration Date Five Percent Ten Percent
- ---- ---------- --------------- ----------- ----------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
John W. Hail..... 3,000,000 50.3% $.25 February 23, 2005 $375,000 $1,500,000
</TABLE>
- ------------------------
(1) The potential realizable value portion of the foregoing table
illustrates the value that might be realized upon exercise of the
options immediately prior to the expiration of their term, assuming the
specified compound rates of appreciation of the Common Stock over the
term of the options. These amounts do not take into consideration
provisions restricting transferability and represent certain assumed
rates of appreciation only. Actual gains on stock option exercises are
dependent on the future performance of the Common Stock and overall
stock market conditions. There can be no assurance that the potential
values reflected in this table will be achieved. All amounts have been
rounded to the nearest whole dollar amount.
Aggregate Stock Option Exercise and Year-End and Option Values. The
following table sets forth information related to the number of options
exercised in 1995 and the value realized by the Chief Executive Officer, as well
as, information related to the number and value of options held by the Chief
Executive Officer at the end of 1995. During 1995, there were no options to
purchase Common Stock exercised by the Chief Executive Officer.
-52-
<PAGE>
<TABLE>
<CAPTION>
Number of Unexercised Options Value of Unexercised In-the-Money
as of December 31, 1995 Options as of December 31, 1995(1)
----------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
John W. Hail..... 1,200,000 -- $636,000 $ --
</TABLE>
- ------------------------
(1) The closing highest bid price of the Common Stock as quoted on National
Quotation Bureau, Incorporated on December 29, 1995, the last trading
day of 1995, was $.78. Value is calculated on the basis of the remainder
of $.78 minus the exercise price multiplied by the number of shares of
Common Stock underlying the options.
Board of Directors
Pursuant to the terms of the Company's Bylaws, the directors are divided
into three classes. Class I Directors hold office initially for a term expiring
at the annual meeting of shareholders to be held in 1996, Class II Directors
hold office initially for a term expiring at the annual meeting of shareholders
to be held in 1997, and Class III Directors hold office initially for a term
expiring at the annual meeting of shareholders to be held in 1998. Each director
will hold office for the term to which he is elected and until his successor is
duly elected and qualified. Mr. Stonecipher is serving as a Class I Director
under a term expiring in 1996, Messrs. Wilson and Dunlap are serving as Class II
Directors under terms expiring in 1997, and Messrs. Hail and Baresel are serving
as Class III Directors under terms expiring in 1998. At each annual meeting of
the shareholders of the Company, the successor to a member of the class of
directors whose term expires at such meeting will be elected to hold office for
term expiring at the annual meeting of shareholders held in the third year
following the year of his election.
Compensation of Directors
Directors who are not employees of the Company receive $250 for each
Board meeting attended. Directors who are also employees of the Company receive
no additional compensation for serving as Directors. The Company reimburses its
Directors for travel and out-of-pocket expenses in connection with their
attendance at meetings of the Board of Directors. The Company's Bylaws provide
for mandatory indemnification of directors and officers to the fullest extent
permitted by Oklahoma law.
Stock Option Plan
The Company established the Advantage Marketing Systems, Inc. 1995 Stock
Option Plan (the "Stock Option Plan" or the "Plan") in June 1995. The Plan
provides for the issuance of incentive stock options ("ISO Options") with or
without stock appreciation rights ("SARs") and nonincentive stock options ("NSO
Options") with or without SARs to employees and consultants of the Company,
including employees who also serve as Directors of the Company. The total number
of shares of Common Stock authorized and reserved for issuance under the Plan is
9,000,000. As of the date of this Prospectus, options have not been granted
under the Plan.
The Stock Option Committee, which is currently comprised of Messrs. Hail
and Baresel, administers and interprets the Plan and has authority to grant
options to all eligible employees and determine the types of options, with or
without SARs, granted, the terms, restrictions and conditions of the options at
the time of grant, and whether SARs, if granted, are exercisable at the time of
exercise of the Option to which the SAR is attached.
The option price of the Common Stock is determined by the Stock Option
Committee, provided such price may not be less than 85 percent of the fair
market value of the shares on the date of grant of the option. The fair market
value of a share of the Common Stock is determined by averaging the closing high
bid and low asked quotations for such share on the date of grant of the option
as reported by the National Quotation Bureau, Incorporated or, if not quoted, is
determined by the Stock Option Committee. Upon the exercise of an option, the
option price must be paid in full, in cash or with an SAR. Subject to the Stock
Option Committee's approval, upon exercise of an option with an SAR attached, a
participant may receive cash, shares of Common Stock or a
-53-
<PAGE>
combination of both, in an amount or having a fair market value equal to the
excess of the fair market value, on the date of exercise, of the shares for
which the option and SAR are exercised, over the option exercise price.
Options granted under the Plan may not be exercised until six months
after the date of the grant and rights under an SAR may not be exercised until
six months after the SAR is attached to an option, if not attached at the time
of the grant of the option, except in the event of death or disability of the
participant. ISO Options and any SARs are exercisable only by participants while
actively employed as an employee or a consultant by the Company, except in the
case of death, retirement or disability. Options may be exercised at any time
within three months after the participant's retirement or within one year after
the participant's disability or death, but not beyond the expiration date of the
option. No option may be granted after April 30, 2005. Options are not
transferable except by will or by the laws of descent and distribution.
Officer and Director Liability
As permitted by the provisions of the Oklahoma General Corporation Act,
the Certificate of Incorporation (the "Certificate") eliminates in certain
circumstances the monetary liability of directors of the Company for a breach of
their fiduciary duty as directors. These provisions do not eliminate the
liability of a director for (i) a breach of the director's duty of loyalty to
the Company or its shareholders, (ii) acts or omissions by a director not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) liability arising under Section 1053 of the Oklahoma General
Corporation Act (relating to the declaration of dividends and purchase or
redemption of shares in violation of the Oklahoma General Corporation Act), or
(iv) any transaction from which the director derived an improper personal
benefit. In addition, these provisions do not eliminate liability of a director
for violations of federal securities laws, nor do they limit the rights of the
Company or its shareholders, in appropriate circumstances, to seek equitable
remedies such as injunctive or other forms of non-monetary relief. Such remedies
may not be effective in all cases.
The Certificate of Incorporation and Bylaws of the Company provide that
the Company shall indemnify all directors and officers of the Company to the
full extent permitted by the Oklahoma General Corporation Act. Under such
provisions, any director or officer, who in his capacity as such, is made or
threatened to be made, a party to any suit or proceeding, may be indemnified if
the Board of Directors determines such director or officer acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the Company. The Certificate and Bylaws and the Oklahoma General
Corporation Act further provide that such indemnification is not exclusive of
any other rights to which such individuals may be entitled under the
Certificate, the Bylaws, an agreement, vote of shareholders or disinterested
directors or otherwise. Insofar as indemnification for liabilities arising under
the Act may be permitted to directors and officers of the Company pursuant to
the foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
The Company may enter into indemnity agreements with each of its
directors and executive officers. Under each indemnity agreement, it is
anticipated that the Company will pay on behalf of the indemnitee, and his
executors, administrators and heirs, any amount which he is or becomes legally
obligated to pay because of (i) any claim or claims from time to time threatened
or made against him by any person because of any act or omission or neglect or
breach of duty, including any actual or alleged error or misstatement or
misleading statement, which he commits or suffers while acting in his capacity
as a director and/or officer of the Company or its affiliate or (ii) being a
party, or being threatened to be made a party, to any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was an officer, director,
employee or agent of the Company or its affiliate or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. It is
anticipated that the payments which the Company will be obligated to make
thereunder shall include, inter alia, damages, charges, judgments, fines,
penalties, settlements and cost of investigation and costs of defense of legal,
equitable or
-54-
<PAGE>
criminal actions, claims or proceedings and appeals therefrom, and costs of
attachment, supersedeas, bail, surety or other bonds.
CERTAIN TRANSACTIONS
Set forth below is a description of transactions entered into between
the Company and certain of its officers, directors and shareholders during the
last two years. Certain of these transactions will continue in effect during and
following completion of the Warrant Modification Offer and may result in
conflicts of interest between the Company and such individuals. Although these
persons have fiduciary duties to the Company and its shareholders, there can be
no assurance that conflicts of interest will always be resolved in favor of the
Company.
On November 6, 1990, John W. Hail, Chief Executive Officer and Chairman
of the Board of Directors of the Company, formed the John Hail Agency, Inc.
("JHA"). Mr. Hail is the sole director and shareholder of JHA. Pursuant to an
unwritten agreement, the Company provides office space, utilities and supplies
as well as administrative and managerial services to JHA for a monthly payment
of $1,000 as reimbursement of the Company's costs. In addition, the Company made
advances to JHA of $13,400, $87,684 and $66,026 during the three months ended
March 31, 1996, and the years ended December 31, 1995 and 1994, respectively.
The Company made advances to the JHA with the expectation that they would be
repaid and that the Company would derive additional revenues by providing
administrative and managerial services and renting office space to the JHA. JHA
has made repayments of these advances of $67,401 and $9,069 during the fiscal
years ended December 31, 1995 and 1994, respectively. During the three months
ended March 31, 1996, JHA has not made any repayments. At March 31, 1996, JHA
was indebted to the Company in the amount of $65,363. As a result of JHA's
inability to generate significant levels of sales, the Company does not expect
to derive substantial revenues from its relationship with JHA; however, the
Company does anticipate continuing to receive the monthly reimbursements.
During the five months ended May 31, 1995, and the fiscal year ended
December 31, 1994, Roger P. Baresel provided accounting and consulting services
to the Company and for such services Mr. Baresel was paid $13,500 and $19,500,
respectively. On June 1, 1995, Mr. Baresel ceased providing accounting and
consulting services to the Company and became an executive officer and a
Director of the Company.
Included among the consumer benefits sold by the Company are legal
services provided by Pre-Paid Legal Services, Inc. ("PPL"). Purchasers of these
legal services make payments directly to PPL and PPL in turn pays the Company a
commission on these sales. PPL owns 451,318 shares of the Company's Common Stock
and Harland C. Stonecipher, the founder and Chief Executive Officer of PPL is a
Director of the Company. During the three months ended March 31, 1996, and the
years ended December 31, 1995 and 1994, the Company received commissions from
PPL on these sales totalling $2,559, $16,415 and $71,713, respectively.
The Board of Directors of Company believes that the terms of the
transactions described above were at least as favorable as could be obtained
from unaffiliated third parties. The Company has adopted policies that any loans
to officers, directors and five percent or more shareholders ("affiliates") are
subject to approval by a majority of the disinterested independent directors of
the Company and that further transactions with affiliates will be on terms no
less favorable than could be obtained from unaffiliated parties and approved by
a majority of the disinterested independent directors. As of the date of this
Prospectus, the Board of Directors is comprised of the five members of which one
is an independent director.
-55-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information as to the beneficial
ownership of the Common Stock as of June 24, 1996, and the beneficial ownership
of the Common Stock, as adjusted to give effect to the Warrant Modification
Offer (assuming the exercise of the Public Warrants in full and the issuance of
8,403,752 shares of Common Stock pursuant thereto) and the Rights Offering
(assuming the exercise of the Rights in full and the issuance of 17,185,524
shares of Common Stock pursuant thereto), of (i) each person who is known to the
Company to be the beneficial owner of more than five percent thereof, (ii) each
director and executive officer of the Company, and (iii) all executive officers
and directors as a group, together with their percentage holdings of the
outstanding shares, and, as adjusted, after giving effect to completion of the
Warrant Modification Offer. All persons listed have sole voting and investment
power with respect to their shares unless otherwise indicated, and there are no
family relationships between the executive officers and directors of the
Company. For purposes of the following table, the number of shares and percent
of ownership of outstanding Common Stock that the named person beneficially
owned includes shares of Common Stock that such person has the right to acquire
within 60 days of June 24, 1996, pursuant to exercise of the Public Warrants,
Rights, options and other warrants, as well as any other rights to acquire, and
are deemed to be outstanding, but are not deemed to be outstanding for the
purposes of computing the number of shares beneficially owned and percent of
outstanding Common Stock of any other named person.
<TABLE>
<CAPTION>
Percent of Outstanding Shares
--------------------------------------------------------
After Giving Effect to
-----------------------------------------
Warrant
Modification
Before the Offer(1)
Shares Warrant Warrant and
Name and Address of Beneficially Modification Modification Rights Rights
Beneficial Ownwer Owned Offer Offer(1) Offering(2) Offering(2)
- ------------------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
John W. Hail(3)(4)......................... 3,676,237 20.00% 13.72% 17.30% 13.99%
Bruce Greene(5)............................ 3,778,000 15.01% 11.64% 8.92% 7.72%
Curtis H. Wilson, Sr.(3)(6)................ 2,185,087 11.39% 7.92% 6.52% 5.29%
United Financial Advisory Services(7)...... 2,000,000 10.42% 7.25% 5.50% 4.47%
William A. LaReese(8)...................... 1,730,000 9.45% 6.76% 6.56% 5.45%
Robert and Retha Nance(9).................. 1,588,137 8.96% 6.09% 7.57% 6.10%
Roger P. Baresel(3)(10).................... 1,290,000 7.10% 4.86% 4.53% 3.66%
Harland C. Stonecipher(11)................. 451,318 2.63% 1.76% 2.63% 2.11%
R. Terren Dunlap(3)(12).................... 300,000 1.72% 1.16% .87% .70%
Executive Officers and
Directors as a group
(five persons)(4)(6)(10)(11)(12)(13)...... 7,902,642 36.48% 26.28% 29.15% 23.97%
</TABLE>
- ------------------------
(1) Assumes the exercise of the Public Warrants in full and the issuance
pursuant thereto of 8,403,752 shares of Common Stock comprising part the
Units. See "Warrant Modification Offer."
(2) Assumes the distribution of 17,185,524 Rights to the shareholders of the
Company and the exercise of the Rights in full and issuance pursuant
thereto of 17,185,524 shares of Common Stock comprising in part the
Rights Offering Units pursuant to the Rights Offering. See "Description
of Securities-Common Stock-Rights Offering."
(3) A Director and an executive officer of the Company, with a business
address of 2601 Northwest Expressway, Suite 1210W, Oklahoma City,
Oklahoma 73112.
-56-
<PAGE>
(4) The shares and percentage include (i) 1,200,000 shares of Common Stock
which are subject to currently exercisable stock options granted in 1995
to and held by Mr. Hail and (ii) 2,476,237 shares of Common Stock
(comprising in part the Rights Offering Units) that will be subject to
exercisable Rights to be issued to Mr. Hail. As of the date of this
Prospectus, Mr. Hail has reserved all rights with respect to the Rights
to be distributed pursuant to the Rights Offering and has not committed
to exercise all or any portion of the Rights.
(5) Mr. Greene's business address is 1465 Greenbrier Drive Green Oaks,
Illinois 60048. The shares and percentage include (i) 2,652,000 shares
of Common Stock which are subject to currently exercisable Public
Warrants held by Mr. Greene and (ii) 326,000 shares of Common Stock
(comprising in part the Rights Offering Units) that will be subject to
exercisable of the Rights to be issued to Mr. Greene. As of the date of
this Prospectus, Mr. Greene reserved all rights with respect to the
Public Warrants and the Rights to be distributed pursuant to the Rights
Offering and has not committed to exercise all or any portion of the
Public Warrants or Rights.
(6) The shares and percentage include (i) 2,000,000 shares of Common Stock
which are subject to currently exercisable stock options granted to and
held by Mr. Wilson (1,000,000 of which were granted in 1995), (ii)
44,300 shares of Common Stock held by Ruth Wilson, wife of Mr. Wilson
and with respect to which Mr. Wilson disclaims any beneficial interest
and (iii) 185,087 shares of Common Stock (comprising in part the Rights
Offering Units) that will be subject to exercisable Rights to be issued
to Mr. and Mrs. Wilson. As of the date of this Prospectus, Mr. and Mrs.
Wilson have reserved all rights with respect to the Rights to be
distributed pursuant to the Rights Offering and has not committed to
exercise all or any portion of the Rights.
(7) The business address of United Financial Advisors, Inc. is 1601
Northwest Expressway, Suite 2101, Oklahoma City, Oklahoma 73118. The
shares and percentage include 2,000,000 shares of Common Stock which are
subject to currently exercisable warrants.
(8) Mr. LaReese's business address is 2239 Northwest 30th Street, Oklahoma
City, Oklahoma 73112. The shares and percentage include 1,130,000 shares
of Common Stock that are subject to currently exercisable Public
Warrants.
(9) Mr. and Mrs. Nance are husband and wife and their business address is
Post Office Box 405, Wheatland, Oklahoma 73097. The shares and
percentage include (i) 725 shares owned by Mr. Nance, (ii) 302,000
shares owned by Mrs. Nance, (iii) 750,000 shares owned jointly, (iv)
527,412 and 8,000 shares of Common Stock which are subject to currently
exercisable stock options granted to and held by Mr. and Mrs. Nance,
respectively, and (v) 1,052,725 shares of Common Stock (comprising in
part the Rights Offering Units) that will be subject to exercisable
Rights to be issued to Mr. and Mrs. Nance. As of the date of this
Prospectus, Mr. and Mrs. Nance have reserved all rights with respect to
the Rights to be distributed pursuant to the Rights Offering and has not
committed to the exercise of all or any portion of the Rights.
(10) The shares and percentages include (i) 280,000 shares of Common Stock
which are subject to currently exercisable stock options granted to and
held by Mr. Baresel, of which 100,000, 80,000 and 100,000 options were
granted in 1992, 1994 and 1995, respectively, (ii) 210,000 shares of
Common Stock held by Judith A. Baresel, wife of Mr. Baresel, (iii)
600,000 shares of Common Stock which are subject to currently
exercisable stock options held by Judith A. Baresel, (iv) 100,000 shares
of Common Stock which are subject to currently exercisable stock options
held as the custodian for the benefit of the children of Mr. and Mrs.
Baresel, and with respect to which Mr. Baresel disclaims any beneficial
interest, and (v) 310,000 shares of Common Stock (comprising in part the
Rights Offering Units) that will be subject to exercisable Rights to be
issued to Mr. and Mrs. Baresel. As of the date of this Prospectus, Mr.
and Mrs. Baresel have reserved all rights with respect to the Rights to
be distributed pursuant to the Rights Offering and have not committed to
exercise all or any portion of the Rights.
(11) A Director with a business address of 321 East Main Street, Ada,
Oklahoma 74820. The shares and percentages include (i) 451,318 shares of
Common Stock held by Pre-Paid Legal Services, Inc. of which Mr.
Stonecipher is Chairman of the Board and Chief Executive Officer and is
therefore deemed to beneficially own all shares of Common Stock
beneficially owned by Pre-Paid Legal Services, Inc. and (ii) 451,318
shares of Common Stock (comprising in part the Rights Offering Units)
that will be subject to exercisable Rights to be issued to Pre-Paid
Legal Services, Inc. As of the date of this Prospectus, Pre-Paid Legal
Services, Inc.
-57-
<PAGE>
has reserved all rights with respect to the Rights to be distributed
pursuant to the Rights Offering and has not committed to exercise all or
any portion of the Rights.
(12) The shares and percentages include 300,000 shares of Common Stock which
are subject to a currently exercisable stock options granted in 1995.
(13) The shares and percentage include (i) 4,480,000 shares of Common Stock
which are subject to currently exercisable stock options and (ii)
3,422,642 shares of Common Stock (comprising in part the Rights Offering
Units) that will be subject to exercisable Rights to be received by the
executive officers and directors as a group.
DESCRIPTION OF SECURITIES
Pursuant to its Certificate of Incorporation, the Company is currently
authorized to issue up to 495,000,000 shares of Common Stock, $.0001 par value
("Common Stock"), and 5,000,000 million shares of Preferred Stock, $.0001 par
value ("Preferred Stock"). As of June 24, 1996, the outstanding capital stock of
the Company consisted of 17,185,524 shares of Common Stock. Pursuant to the
Warrant Modification Offer, the Company is offering pursuant to this Prospectus
8,403,752 Units, each consisting of one share of Common Stock and one 1996-A
Warrant. See "Warrant Modification Offer." Concurrently with this offering and
the Warrant Modification Offer, pursuant to the Rights Offering, the Company is
distributing 17,185,524 Rights to its shareholders and is offering pursuant to a
separate prospectus 17,185,524 Rights Offering Units (each consisting of one
share of Common Stock and one 1996-A Warrant) pursuant to exercise of the
Rights. See "--Common Stock--Rights Offering," below. The share of Common Stock
and the 1996-A Warrant comprising each Unit and Rights Offering Unit will be
immediately detachable and separately tradeable upon issuance. After giving
effect to (i) this offering and the Warrant Modification Offer and assuming the
exercise of the Public Warrants in full and the issuance of 8,403,752 Units
(8,403,752 shares of Common Stock and 8,403,752 1996-A Warrants), and (ii) the
issuance of the Rights and assuming the exercise of the Rights in full and the
issuance of 17,185,524 Rights Offering Units (17,185,524 shares of Common Stock
and 17,185,524 1996-A Warrants) pursuant thereto, the issued and outstanding
capital stock of the Company will consist of 42,774,800 shares of Common Stock.
See "Warrant Modification Offer" and "--Common Stock," "--Common Stock--Rights
Offering," and "--1996-A Warrants," below.
The following description of certain matters relating to the capital
stock, Public Warrants and the 1996-A Warrants is a summary and is qualified in
its entirety by the provisions of the Company's Certificate of Incorporation,
Bylaws, the Warrant Agreements between the Company and U.S. Stock Transfer Corp.
(the "Warrant Agent"), as amended, related to the Public Warrants and the 1996-A
Warrants, and the Rights Agreement between the Company and U.S. Stock Transfer
Corp. (the "Subscription Agent"), all of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
Common Stock
Pursuant to its Certificate of Incorporation, the Company is authorized
to issue up to 495,000,000 shares of Common Stock. The holders of outstanding
shares of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of assets
legally available therefor, subject to the payment of preferential dividends
with respect to any Preferred Stock that may be outstanding. In the event of
liquidation, dissolution and winding-up of the Company, the holders of
outstanding Common Stock are entitled to share ratably in all assets available
for distribution to the Common Stock shareholders after payment of all
liabilities of the Company, subject to the prior distribution rights of the
holders of any Preferred Stock that may be outstanding at that time. Holders of
outstanding Common Stock are entitled to one vote per share on matters submitted
to a vote by the Common Stock shareholders of the Company. The Common Stock has
no preemptive rights and no subscription, redemption or conversion privileges.
The Common Stock does not have cumulative voting rights, which means that
holders of a majority of shares voting for the election of directors can elect
all members of the Board of Directors subject to election. In general, a
majority vote of shares represented at a meeting
-58-
<PAGE>
of Common Stock shareholders at which a quorum (a majority of the outstanding
shares of Common Stock) is present is sufficient for all actions that require
the vote or concurrence of shareholders, subject to and possibly in connection
with the voting rights of the holders of any Preferred Stock that from time to
time may be outstanding and entitled to vote with the holders of the Common
Stock. Upon issuance of the Common Stock as a component of the Units pursuant to
the Warrant Modification Offer, all of the outstanding shares of Common Stock
will be fully paid and nonassessable.
Rights Offering. Pursuant to a separate prospectus included within the
Registration Statement of which this Prospectus is a part, the Company will
issue 17,185,524 non-transferrable rights ("Rights") to its shareholders, each
Right exercisable to purchase one unit consisting of one share of Common Stock
and one 1996-A Warrant (the "Rights Offering Units") at $.85 per share (the
"Rights Offering"). The Rights will be issued as a dividend to the holders (the
"Shareholders") on , 1996 (the "Record Date"), on the basis of one
Right per share of Common Stock ("Share") outstanding on the Record Date. The
Rights are exercisable on or before , 1996, subject to extension by
the Company (the "Rights Exercise Date"), for the purchase of one Rights
Offering Unit (consisting of one share of Common Stock and one 1996-A Warrant).
Those Rights not exercised on or before the Rights Exercise Date will expire and
cease to be outstanding.
Public Warrants
As of June 24, 1996, there were 4,196,876 Class A Common Stock Purchase
Warrants (the "Class A Warrants") and 4,206,876 Class B Common Stock Purchase
Warrants (the "Class B Warrants") issued and outstanding. The terms and
conditions of the Class A Warrants and the Class B Warrants (collectively, the
"Public Warrants") are set forth in the Warrant Agreement between the Company
and the Warrant Agent, dated January 26, 1989, as amended providing for
extension of the respective periods during which the Public Warrants may be
exercised. Pursuant to amendment of the Warrant Agreement, the period of
exercise of the Class Warrants and the Class B Warrants was extended to July 26,
1996, and July 26, 1997, respectively. The Public Warrants are evidenced by
warrant certificates in registered form.
Each Public Warrant entitles the holder to purchase one share of Common
Stock. The number and kind of securities or other property for which the Public
Warrants are exercisable are subject to adjustments in certain events, such as
mergers, reorganizations or stock splits, to prevent dilution. Since issuance of
the Public Warrants and without giving effect to the Warrant Modification Offer,
there has not been any events resulting in adjustment in the number and kind of
securities or other property required to be delivered by the Company upon
exercise of the Public Warrants. The Class A Warrants and Class B Warrants are
exercisable on or before July 26, 1996 and 1997, respectively, for the purchase
of one share of Common Stock for $.75 and $1.00 per share (the "Warrant Exercise
Prices"), respectively, before giving effect to the Warrant Modification Offer.
The Company has exercised its right to redeem (the "Warrant Redemption") the
Public Warrants, by notice pursuant to and in accordance with this Prospectus,
at 5:00 p.m., Central Standard Time, on , 1996, subject to extension
by the Company (the "Redemption Date"), for $.0001 per warrant (the "Redemption
Price"). Pursuant to agreement with the Warrant Agent, the Company has
unilaterally reduced the Warrant Exercise Price of the Class B Warrants to $.75
per share for the purchase of a Unit through the Redemption Date. See "Warrant
Modification Offer." Following expiration of the Redemption Date, the
unexercised Public Warrants will expire and cease to be issued and outstanding,
and the registered holders of the unexercised Public Warrants on the Redemption
Date will be entitled to receive the Redemption Price per warrant.
In certain cases, the sale of the Units by the Company upon exercise of
Public Warrants could violate the securities laws of certain states or other
jurisdictions. The Company has used and will continue to use its best efforts to
cause the Registration Statement of which this Prospectus is a part to be
declared effective under the laws of various states as may be required to cause
the sale of securities upon exercise of Public Warrants to be lawful. However,
the Company is not be required to accept the exercise of the Public Warrants,
if, in the opinion of counsel,
-59-
<PAGE>
the sale of securities upon such exercise would be unlawful. In such cases,
the Public Warrants not accepted for exercise will be subject to redemption. See
"Warrant Redemption."
The Public Warrants may be exercised by completing and signing the "Form
of Election to Purchase" on the reverse side of the warrant certificate
evidencing the Public Warrant and mailing or delivering the certificate to the
Warrant Agent in time to reach the Warrant Agent by the Redemption Date,
accompanied by payment in full of the Warrant Exercise Price for the Public
Warrants being exercised in United States funds (in cash or by check or bank
draft payable to the order of the Company). Common Stock certificates and 1996-A
Warrant certificates will be issued, as fully paid and nonassessable, as soon as
practicable after exercise and payment of the Warrant Exercise Price as
described above.
The Company is not required to issue any fractional Units (shares of
Common Stock or 1996-A Warrants) upon the exercise of Public Warrants. The
Company will pay to holders of fractional interests an amount equal to the cash
value of such fractional interests based upon the then-current market price of a
share of Common Stock.
1996-A Warrants
The Board of Directors of the Company has authorized the issuance and
sale of 25,589,276 1996-A Warrants to be issued as components of the Units and
Rights Offering Units (one 1996-A Warrant per Unit and Rights Offering Unit) to
be offered to the Warrant Holders pursuant to the Warrant Modification Offer and
Rights Holders pursuant to the Rights Offering. See "Warrant Modification Offer"
and "--Common Stock--Rights Offering," above. The 1996-A Warrants will be issued
subject to the terms and conditions of the Warrant Agreement between the Company
and the Warrant Agent.
Each 1996-A Warrant entitles the holder to purchase one share of Common
Stock at any time on or before June 30, 1998, for an exercise price of $1.50.
The number and kind of securities or other property for which the 1996-A
Warrants are exercisable are subject to adjustments in certain events, such as
mergers, reorganizations or stock splits, to prevent dilution. At any time, upon
30 days' written notice, the Company may redeem in whole and not in part,
unexercised 1996-A Warrants for $.0001 per warrant, provided the Common Stock
has traded in excess of the Warrant Exercise Price, as adjusted, for five
consecutive trading days. If any 1996-A Warrants called for redemption are not
exercised by such time, such 1996-A Warrants will cease to be exercisable, and
the holders thereof will be entitled only to receive the redemption price. All
1996-A Warrants not exercised or redeemed will expire on June 30, 1998. Holders
of 1996-A Warrants will not, as such, have any of the rights of shareholders of
the Company.
In certain cases, the sale of securities by the Company upon exercise of
1996-A Warrants could violate the securities laws of the United States, certain
states thereof or other jurisdictions. The Company has agreed to use its best
efforts to cause a registration statement with respect to such securities under
the 1933 Act to continue to be effective during the term of the 1996-A Warrants
and to take such other actions under the laws of various states as may be
required to cause the sale of securities upon exercise of 1996-A Warrants to be
lawful. However, the Company will not be required to honor the exercise of
1996-A Warrants if, in the opinion of counsel, the sale of securities upon such
exercise would be unlawful. In certain cases, the Company may, but is not
required to, purchase 1996-A Warrants submitted for exercise for a cash price
equal to the difference between the market price of the securities obtainable
upon such exercise and the exercise price of such 1996-A Warrants.
The 1996-A Warrants may be exercised by filling out and signing the
appropriate form on the reverse side of the warrant certificate and mailing or
delivering the warrant certificate to the Warrant Agent in time to reach the
Warrant Agent by the expiration or any redemption date, accompanied by payment
in full of the exercise price for the 1996-A Warrants being exercised in United
States funds (in cash or by check or bank draft payable to the order of the
Company). Common Stock certificates will be issued as soon as practicable after
exercise and payment of the exercise price as described above.
-60-
<PAGE>
The Company is not required to issue any fractional shares of Common
Stock upon the exercise of 1996-A Warrants or upon the occurrence of adjustments
pursuant to anti-dilution provisions. The Company will pay to holders of
fractional interests an amount equal to the cash value of such fractional
interests based upon the then-current market price of a share of Common Stock.
Preferred Stock
Pursuant to its Certificate of Incorporation, the Company has an
authorized class of Preferred Stock of 5,000,000 shares, $.0001 par value. The
Preferred Stock may be issued from time to time in one or more series, and the
Board of Directors of the Company, without further approval of its shareholders,
is authorized to fix the relative rights, preferences, privileges and
restrictions applicable to each series of Preferred Stock. Management of the
Company believes that having such a class of Preferred Stock provides the
Company with greater flexibility in financing, acquisitions and other corporate
activities. While there are no current plans, commitments or understandings,
written or oral, to issue any additional shares of Preferred Stock, in the event
of any issuance, the holders of Common Stock will not have any preemptive or
similar rights to acquire any of such Preferred Stock.
The Board of Directors has the authority to issue shares of Preferred
Stock and to determine its rights and preferences to eliminate delays associated
with a shareholder vote on specific issuances. The issuance of Preferred Stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could adversely affect the voting power of holders of Common
Stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of the Company.
Other Options and Warrants
As of June 24, 1996, the Company has granted stock options and other
warrants to purchase 12,321,412 shares of Common Stock during various periods,
which expire February 1997 through July 2005, at exercise prices of $.20 to $.81
per share. The average exercise price of the stock options is $.31, and the
exercise prices of the stock options and warrants were equal to the fair market
value of the Common Stock on the date of the grant of each stock option or
warrant. In addition, the Board of Directors is authorized to issue options and
other stock purchase rights pursuant to the Advantage Marketing Systems, Inc.
1995 Stock Option Plan. As of the date of this Prospectus, options under such
Stock Option Plan have not been granted. See "Management-Stock Option Plan."
During 1995, the Company issued options to certain officers and
directors in return for services rendered as a means of retaining their services
to the Company. In lieu of payments of salaries and consulting fees, the Company
has historically used options to attract, retain and compensate its consultants,
officers and directors. The Company also believes that linking the compensation
of its officers and directors to increases in the value of the Common Stock
achieves improved performance.
Anti-Takeover Provisions
The Certificate of Incorporation and Bylaws of the Company and the
Oklahoma General Corporation Act include a number of provisions which may have
the effect of encouraging persons considering unsolicited tender offers or other
unilateral takeover proposals to negotiate with the Board of Directors rather
than pursue non-negotiated takeover attempts. The Company believes that the
benefits of these provisions outweigh the potential disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals might result in an improvement of their terms. The description below
related to provisions of the Certificate of Incorporation and the Bylaws of the
Company is intended as a summary only and is qualified in its entirety by
reference to the Certificate of Incorporation and the Bylaws of the Company,
which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
-61-
<PAGE>
Preferred Stock. The Certificate of Incorporation authorizes the
issuance of the Preferred Stock in classes, and the Board of Directors to set
and determine the voting rights, redemption rights, conversion rights and other
rights relating to such class of Preferred Stock, and to issue such stock in
either private or public transactions. In some circumstances, the Preferred
Stock could be issued and have the effect of preventing a merger, tender offer
or other takeover attempt which the Company's Board of Directors opposes.
Classified Board of Directors. The Bylaws of the Company provide that
the Board of Directors shall be comprised of three classes of directors, each
class constituting approximately one-third of the total number of directors with
each class serving staggered three-year terms. The classification of the
directors make it more difficult for shareholders to change the composition of
the Board of Directors. The Company believes, however, that the longer time
required to elect a majority of a classified board of directors will help ensure
continuity and stability of the Company's management and policies.
The classification provisions may also have the effect of discouraging a
third party from accumulating large blocks of Common Stock or attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its shareholders. Accordingly, shareholders of the Company
could be deprived of certain opportunities to sell their shares of Common Stock
at a higher market price than might otherwise be the case.
Oklahoma Anti-Takeover Statutes. Following completion of this offering
and the Warrant Modification Offer, the Company may become subject to Section
1090.3 and Sections 1145 through 1155 of the Oklahoma General Corporation Act
(the "OGCA").
Subject to certain exceptions, Section 1090.3 of the OGCA prohibits a
publicly-held Oklahoma corporation from engaging in a "business combination"
with an "interested shareholder" for a period of three years after the date of
the transaction in which such person became an interested shareholder, unless
the interested shareholder attained such status with approval of the board of
directors or the business combination is approved in a prescribed manner, or
certain other conditions are satisfied. A "business combination" includes
mergers, asset sales, and other transactions resulting in a financial benefit to
the interested shareholder. Subject to certain exceptions, an "interested
shareholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15 percent or more of the corporation's voting
stock.
In general, Sections 1145 through 1155 of the OGCA provide that shares
("interested shares") of voting stock acquired (within the meaning of a "control
share acquisition") become nonvoting stock for a period of three years following
such control share acquisition, unless a majority of the holders of
non-interested shares approve a resolution reinstating the interested shares
with the same voting rights that such shares had before such interested shares
became control shares. Any person ("acquiring person") who proposes to make a
control share acquisition may, at the person's election, and any acquiring
person who has made a control share acquisition is required to deliver an
acquiring person statement to the corporation disclosing certain prescribed
information regarding the acquisition. The corporation is required to present to
the next annual meeting of the shareholders the reinstatement of voting rights
with respect to the control shares that resulted in the control share
acquisition, unless the acquiring person requests a special meeting of
shareholders for such purpose and undertakes to pay the costs and expenses of
such special meeting. In the event voting rights of control shares acquired in a
control share acquisition are reinstated in full and the acquiring person has
acquired control shares with a majority or more of all voting power, all
shareholders of the corporation have dissenters' rights entitling them to
receive the fair value of their shares which will not be less than the highest
price paid per share by the acquiring person in the control share acquisition.
A "control share acquisition" includes the acquisition by any person
(including persons acting as a group) of ownership of, or the power to direct
the exercise of voting power with respect to, control shares (generally shares
having more than 20 percent of all voting power in the election of directors of
a publicly held corporation), subject to certain exceptions including (i) an
acquisition pursuant to an agreement of merger, consolidation, or share
acquisition to which the corporation is a party and is effected in compliance
with certain Sections of the OGCA, (ii)
-62-
<PAGE>
an acquisition by a person of additional shares within the range of voting power
for which such person has received approval pursuant to a resolution by the
majority of the holders of non-interested shares, (iii) an increase in voting
power resulting from any action taken by the corporation, provided the person
whose voting power is thereby affected is not an affiliate of the corporation,
(iv) an acquisition pursuant to proxy solicitation under and in accordance with
the Securities Exchange Act of 1934, as amended, or the laws of Oklahoma, and
(v) an acquisition from any person whose previous acquisition of shares did not
constitute a control share acquisition, provided the acquisition does not result
in the acquiring person holding voting power within a higher range of voting
power than that of the person from whom the control shares were acquired.
The anti-takeover provisions of the OGCA may have the effect of
discouraging a third party from acquiring large blocks of Common Stock within a
short period or attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and its shareholders. Accordingly,
shareholders of the Company could be deprived of certain opportunities to sell
their shares of Common Stock at a higher market price than might otherwise be
the case.
Shareholder Action
Pursuant to the Oklahoma General Corporation Act, with respect to any
act or action required of or by the shareholders of the Company, the affirmative
vote of the holders of a majority of the issued and outstanding shares of Common
Stock entitled to vote thereon is sufficient to authorize, affirm, ratify or
consent to such act or actions, except as otherwise provided by law or in the
Company's Certificate of Incorporation.
Pursuant to Oklahoma law, shareholders of a corporation with less than
1,000 shareholders may take actions without the holding of a meeting by written
consent or consents signed by the holders of a sufficient number of shares to
approve the transaction had all of the outstanding shares of the capital stock
of the Company entitled to vote thereon been present at a meeting. Upon issuance
of the Units pursuant to the Warrant Modification Offer, the Company may have
1,000 or more shareholders, in which event any action taken pursuant to written
consent of shareholders will require unanimous consent of the shareholders. The
executive officers and directors of the Company currently hold of record
approximately 36.48 percent of the outstanding Common Stock. After giving effect
to and assuming (i) exercise of the Public Warrants in full pursuant to the
Warrant Modification Offer and the issuance of 8,403,752 shares of Common Stock
pursuant thereto and (ii) the exercise of the Rights in full and the issuance of
17,185,524 shares of Common Stock pursuant to the Rights Offering, the executive
officers and directors of the Company will beneficially own approximately 23.97
percent of the outstanding Common Stock (18.03 percent in the event the
executive officers do not exercise any portion of the 3,422,642 Rights to be
received by them). See "Security Ownership of Certain Beneficial Owners and
Management." Pursuant to the rules and regulations of the Securities and
Exchange Commission, if shareholder action is taken by written consent which
does not require unanimous shareholder consent, the Company will be required to
send each shareholder entitled to vote on the matter acted on, but whose consent
was not solicited, an information statement containing information substantially
similar to that which would have been contained in a proxy statement.
Transfer Agent and Warrant Agent
U.S. Stock Transfer Corp. is the registrar and transfer agent for the
Common Stock and the Warrant Agent for the Public Warrants and the 1996-A
Warrants, whose address is 1745 Gardena Avenue, Suite 200, Glendale, California
91204-2991.
SHARES ELIGIBLE FOR FUTURE SALE
Upon issuance of the Units pursuant to the Warrant Modification Offer
(and assuming and giving effect to the exercise of the Public Warrants in full
and issuance of 8,403,752 shares of Common Stock as components of
-63-
<PAGE>
the Units pursuant thereto) and upon issuance of the Rights (and assuming and
giving effect to the exercise of the Rights in full and the issuance of
17,185,524 Rights Offering Units, and shares of Common Stock underlying such
units, pursuant thereto), the Company will have outstanding 42,774,800 shares of
Common Stock. The Company has reserved 25,589,276 shares of Common Stock for
issuance upon exercise of the 1996-A Warrants, 12,321,412 shares of Common Stock
for exercise of outstanding stock options and certain other warrants, and
9,000,000 shares of Common Stock for issuance under the Stock Option Plan. See
"Security Ownership of Certain Beneficial Owners and Management" "Description of
Securities-1996-A Warrants," and "Management-Stock Option Plan." Additionally,
the Company will have 360,914,512 shares of Common Stock available for issuance
at such times and upon such terms as may be approved by the Company's Board of
Directors. No prediction can be made as to the effect, if any, that future sales
or the availability of shares for sale will have on the market price of the
Common Stock prevailing from time to time. Also see "Risk Factors--Absence of
Prior Public Market for Units and 1996-A Warrants; Possible Volatility of Stock
Price." Nevertheless, sales of substantial amounts of Common Stock in the public
market could adversely affect the prevailing market price of the Common Stock
and could impair the Company's ability to raise capital through sales of its
equity securities.
The Units (and the component one share of Common Stock and one 1996-A
Warrant) issued pursuant to the Warrant Modification Offer and Rights Offering
Units (and the component one share of Common Stock and one 1996-A Warrant)
issued pursuant to exercise of the Rights pursuant to the Rights Offering, will
be immediately eligible for resale in the public market without restriction or
further registration under the 1933 Act, except for Units, Common Stock, and
1996-A Warrants purchased by an "affiliate" (as that term is defined under the
1933 Act) of the Company, which will be subject to the resale limitations of
Rule 144 promulgated under the 1933 Act. In addition, as of June 24, 1996, there
were 5,022,667 shares of Common Stock (the "Restricted Shares") outstanding
which have not been registered under the 1933 Act (of which 3,422,642 were held
by the executive officers, directors and affiliates of the Company), but may be
sold without registration pursuant to Rule 144 promulgated under the 1933 Act,
subject to the limitations thereunder described below.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
Restricted Shares for at least two years is entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i)
one percent of the then outstanding shares of Common Stock or (ii) an amount
equal to the average weekly reported volume of trading in such shares during the
four calendar weeks preceding the date on which notice of such sale is filed
with the Commission. Sales under Rule 144 are also subject to certain manner of
sale limitations, notice requirements and the availability of current public
information about the Company. Restricted Shares properly sold in reliance on
Rule 144 are thereafter freely tradable without restrictions or registration
under the 1933 Act, unless thereafter held by an affiliate of the Company. In
addition, affiliates of the Company must comply with the restrictions and
requirements of Rule 144, other than the two-year holding period requirement, in
order to sell shares of Common Stock which are not Restricted Shares (such as
shares of Common Stock acquired by affiliates of the Company pursuant to
exercise of the Public Warrants). As defined in Rule 144, an "affiliate" of an
issuer is a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
such issuer.
Furthermore, if three years have elapsed since the later of the date of
any acquisition of Restricted Shares from the Company or from any affiliate of
the Company, and the acquiror or subsequent holder thereof is deemed not to have
been an affiliate of the Company at any time during the 90 days preceding a
sale, such person would be entitled to sell such shares in the public market
pursuant to Rule 144(k) without regard to volume limitations, manner of sale
restrictions, or public information or notice requirements. The Securities and
Exchange Commission has recently proposed an amendment to Rule 144 which would
reduce the three-year holding period to two years. The Commission is currently
awaiting comments on proposed amendment. It is anticipated that the proposed
amendment will be adopted, although there can be no assurance that the proposed
amendment will be adopted as proposed or that additional conditions may not be
imposed to permit the sale by non-affiliates after such two year holding period
pursuant to Rule 144.
-64-
<PAGE>
Pursuant to Rule 144A promulgated under the 1933 Act, under certain
circumstances qualified institutional buyers, as defined in the rule, are
permitted to more easily acquire and sell "restricted securities." The Company
is unable to predict the effect that Rule 144A has or will have on the
prevailing market price of the Common Stock.
LEGAL MATTERS
Certain legal matters in connection with the Units offered hereby are be
passed upon for the Company by its counsel, Dunn Swan & Cunningham, A
Professional Corporation.
EXPERTS
The financial statements of Advantage Marketing Systems, Inc. (formerly
AMS, Inc.) as of December 31, 1995 and 1994, and for each of the two years in
the period ended December 31, 1995, and for Miracle Mountain International, Inc.
as of December 31, 1995, and the year then ended included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 (No.
33-80629) (herein, together with all amendments thereto, the "Registration
Statement"), of which this Prospectus constitutes a part, under the Securities
Act of 1933, as amended (the "1933 Act"), with the Securities and Exchange
Commission (the "Commission"), Washington, D.C., with respect to the securities
offered by this Prospectus. As permitted by the rules and regulations of the
Commission, this Prospectus, filed as part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
in the exhibits thereto. The statements contained in this Prospectus as to the
contents of any contract or other document referenced herein are not necessarily
complete, and in each instance, if the contract or document was filed as an
exhibit, reference is hereby made to the copy of the contract or other document
filed as an exhibit to the Registration Statement and each such statement is
qualified in all respects by such reference. The Registration Statement
(including the exhibits thereto) may be inspected without charge at the office
of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549-1004 and at the regional offices of the Commission at 7 World Trade
Center, 13th Floor, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of the Registration Statement and
the exhibits and schedules thereto may be obtained from the Commission at such
offices, upon payment of prescribed rates. The Company will provide without
charge to each person who receives this Prospectus, upon written or oral
request, a copy of any information incorporated by reference in this Prospectus
(excluding exhibits to information incorporated by reference unless such
exhibits are themselves specifically incorporated by reference). Such requests
should be directed to Advantage Marketing Systems, Inc. at 2601 Northwest
Expressway, Suite 1210W, Oklahoma City, Oklahoma 73112-7293, telephone: (405)
842-0131.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") as a "small
business issuer" as defined under Regulation S-B promulgated under the 1933 Act.
In accordance with the 1934 Act, the Company files reports and other information
with the Commission (File No. 33-25701), and such reports and other information
can be inspected and copied at, and copies of such materials can be obtained at
prescribed rates from, the Public Reference Section of the Commission in
Washington, D.C.
The Company distributes to its shareholders annual reports containing
financial statements audited by its independent public accountants and, upon
request, quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information. Such requests should be
directed to Advantage Marketing Systems, Inc. at 2601 Northwest Expressway,
Suite 1210W, Oklahoma City, Oklahoma 73112-7293, telephone: (405) 842-0131.
-65-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ADVANTAGE MARKETING SYSTEMS, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
ADVANTAGE MARKETING SYSTEMS, INC. UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS:
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1996...........................30
Unaudited Pro Forma Consolidated Statement of Operations for the Year
Ended December 31, 1995.....................................................................31
Unaudited Pro Forma Consolidated Statement of Operations
for the Three Months Ended March 31, 1996...................................................32
Notes to Unaudited Pro Forma Consolidated Financial Statements................................33
ADVANTAGE MARKETING SYSTEMS, INC. (FORMERLY AMS, INC.)
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report.................................................................F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994.................................F-3
Consolidated Statements of Operations for Years Ended December 31, 1995 and 1994.............F-4
Consolidated Statements of Stockholders' Deficiency for Years Ended
December 31, 1995 and 1994.................................................................F-5
Consolidated Statements of Cash Flows for Years Ended December 31, 1995 and 1994.............F-6
Notes to Consolidated Financial Statements for Years Ended December 31, 1995 and 1994........F-7
ADVANTAGE MARKETING SYSTEMS, INC. (FORMERLY AMS, INC.) UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 (Unaudited)..........F-14
Consolidated Statements of Operations for the Three Months Ended
March 31, 1996 and 1995 (Unaudited).......................................................F-15
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1996 and 1995 (Unaudited).......................................................F-16
Notes to Consolidated Financial Statements for the Three Months Ended
March 31, 1996 and 1995 (Unaudited).......................................................F-17
MIRACLE MOUNTAIN INTERNATIONAL, INC. AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report................................................................F-18
Balance Sheet as of December 31, 1995.......................................................F-19
Statement of Operations for the Year Ended December 31, 1995................................F-20
Statement of Stockholders' Deficiency for the Year Ended December 31, 1995..................F-21
Statement of Cash Flows for the Year Ended December 31, 1995................................F-22
Notes to Financial Statements for the Year Ended December 31, 1995..........................F-23
MIRACLE MOUNTAIN INTERNATIONAL, INC. UNAUDITED FINANCIAL STATEMENTS:
Balance Sheets as of March 31, 1996 and December 31, 1995 (Unaudited).......................F-25
Statements of Operations for the Three Months Ended March 31, 1996 and 1995 (Unaudited).....F-26
Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995 (Unaudite.......F-27
Notes to Financial Statements for the Year Ended December 31, 1995 (Unaudited)..............F-28
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Advantage Marketing Systems, Inc.
(formerly AMS, Inc.)
Oklahoma City, Oklahoma
We have audited the accompanying consolidated balance sheets of Advantage
Marketing Systems, Inc. (formerly AMS, Inc.) (the "Company") as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' deficiency, and cash flows for the years then. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Advantage Marketing Systems, Inc.
(formerly AMS, Inc.) at December 31, 1995 and 1994 and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
March 29, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
ADVANTAGE MARKETING SYSTEMS, INC. (formerly AMS, Inc.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- -----------------------------------------------------------------------------------------------------------------
ASSETS 1995 1994
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................................. $ 112,087 $ -
Receivables - net of allowances of $21,485 and $19,485, respectively............. 18,299 33,887
Receivable from affiliate........................................................ 51,963 31,680
Inventory........................................................................ 98,621 47,871
Prepaid commissions.............................................................. 2,371 4,358
--------- ----------
Total current assets................................................... 283,341 117,796
COMMISSION ADVANCES TO RELATED PARTIES - NONCURRENT................................ 65 14,390
RECEIVABLES - NONCURRENT........................................................... 22,620 -
PROPERTY AND EQUIPMENT, Net........................................................ 159,797 44,783
OTHER ASSETS....................................................................... 67,173 -
--------- -----------
TOTAL.............................................................................. $ 532,996 $ 176,969
========= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 91,949 $ 79,415
Accrued expenses................................................................. 151,654 92,067
Accrued promotion expense........................................................ 99,424 7,000
Interest payable................................................................. - 51,806
Bank overdraft................................................................... - 46,663
Deferred revenue................................................................. - 40,852
Notes payable:
Stockholders................................................................... 81,929 132,828
Other.......................................................................... 8,440 5,827
Capital lease obligation......................................................... 20,679 -
---------- ----------
Total current liabilities.............................................. 454,075 456,458
LONG-TERM LIABILITIES:
Notes payable:
Stockholder.................................................................... - 7,947
Other.......................................................................... 28,500 -
Capital lease obligation......................................................... 75,649 -
---------- ----------
Total liabilities...................................................... 558,224 464,405
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Preferred stock - $.0001 par value; authorized 5,000,000 shares; none issued..... - -
Common stock - $.0001 par value; authorized 495,000,000 shares;
issued and outstanding 16,985,524 and 16,965,524 shares, respectively.......... 1,698 1,696
Paid-in capital.................................................................. ,858,396 1,845,898
Accumulated deficit.............................................................. (1,885,322) (2,135,030)
----------- -----------
Total stockholders' deficiency......................................... (25,228) (287,436)
----------- -----------
TOTAL.............................................................................. $ 532,996 $ 176,969
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC. (formerly AMS, Inc.)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- ----------------------------------------------------------------------------------------------------------------
1995 1994
---------- ----------
<S> <C> <C>
REVENUES:
Programs............................................................ $4,382,935 $2,564,542
Promotional material................................................ 109,733 82,780
Other............................................................... 25,535 30,625
---------- ----------
Total revenues............................................ 4,518,203 2,677,947
---------- ----------
COSTS AND EXPENSES:
Programs............................................................ 1,094,157 684,128
Promotional material................................................ 92,087 83,964
Selling............................................................. 2,201,510 1,289,616
General and administration.......................................... 857,743 515,158
Interest expense.................................................... 22,998 25,075
---------- ----------
Total expenses............................................ 4,268,495 2,597,941
---------- ----------
NET INCOME............................................................ $ 249,708 $ 80,006
========== ==========
Weighted average common shares outstanding............................ 21,301,441 16,954,848
Net income per common share........................................... $ 0.01 NIL
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC. (formerly AMS, Inc.)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------------------------------------------
Total
Common Paid-in Accumulated Stockholders'
Shares Stock Capital Deficit Deficiency
-------- --------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 31, 1994.................. 16,844,787 $1,684 $1,821,763 $(2,215,036) $(391,589)
Conversion of payables
into stock........................ 10,737 1 2,146 -- 2,147
Issuance of capital stock
for services received............. 110,000 11 21,989 -- 22,000
Net income for the year ended
December 31, 1994................. -- -- -- 80,006 80,006
------------ ------- ------------ ------------- -----------
BALANCE,
DECEMBER 31, 1994................. 16,965,524 1,696 1,845,898 (2,135,030) (287,436)
Warrants exercised.................. 10,000 1 7,499 -- 7,500
Issuance of capital stock for cash.. 10,000 1 4,999 -- 5,000
Net income for the year ended
December 31, 1995................. -- -- -- 249,708 249,708
------------ ------- ------------ ------------ -----------
BALANCE,
DECEMBER 31, 1995................. 16,985,524 $1,698 $1,858,396 $(1,885,322) $ (25,228)
============ ======= ============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC. (formerly AMS, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 249,708 $ 80,006
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization............................................... 43,310 33,403
Provision for bad debts..................................................... -- 884
Stock issued for services................................................... -- 22,000
Stock issued for refunds.................................................... -- 2,147
Changes in assets and liabilities which provided (used) cash:
Receivables and advances.................................................. (12,990) (49,412)
Inventory................................................................. (50,750) (28,854)
Prepaid expenses.......................................................... 1,859 --
Prepaid commissions....................................................... 128 24,274
Accounts payable and accrued expenses.................................... 126,545 20,871
Notes payable to associates............................................... -- (10,728)
Interest payable.......................................................... -- 20,860
Deferred revenue.......................................................... (40,852) (63,156)
--------- --------
Net cash provided by operating activities............................. 316,958 52,295
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................. (50,105) (6,689)
Purchase of other assets........................................................ (29,173) --
--------- --------
Net cash used for investing activities................................ (79,278) (6,689)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.......................................... 12,500 --
Loans from stockholders......................................................... 31,963 61,374
Other loans..................................................................... 39,098 3,685
Bank overdraft.................................................................. (46,663) 13,074
Payment on notes payable -- stockholders........................................ (142,615) (79,138)
Payment on notes payable -- other............................................... (7,985) (4,666)
Principal payment on capital leases............................................. (11,891) (39,935)
--------- --------
Net cash used in by financing activities.............................. (125,593) (45,606)
--------- --------
NET INCREASE IN CASH.............................................................. 112,087 --
BEGINNING CASH BALANCE............................................................ -- --
--------- --------
ENDING CASH BALANCE............................................................... $112,087 $ ----
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest.......................................... $ 27,335 $ 4,215
Noncash financing and investing activities:
Purchase of property and equipment by entering into capital leases............ 108,219 --
Reclassify interest payable to notes payable -- stockholders.................. 51,806 --
Issuance of common stock for notes and accounts payable....................... -- 89,892
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC. (formerly AMS, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - The Company is engaged in marketing consumer products
and services. The Company has negotiated marketing agreements with various
providers to market nutritional supplements and service contracts through
a multi-level sales organization of independent sales associates developed
by the Company. The Company also sells supplies and materials to its sales
associates.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Revenue Recognition - Program revenue is recognized when products are
shipped or services are rendered. Sales of training and promotional
material to the sales force are recorded as revenue when the goods are
shipped.
Inventory - Inventory consists of consumer product inventory, and training
and promotional material such as video tapes, cassette tapes and paper
supplies held for sale to customers and independent sales associates.
Inventory is stated at the lower of cost or market. Cost is determined on
a first-in, first-out method.
Property and Equipment - Property and equipment are recorded at cost or,
in the case of leased assets under capital leases, at the fair value of
the property and equipment. Property and equipment are depreciated using
the straight-line method over the estimated useful lives of the assets of
three to five years. Leased assets under capital leases and leasehold
improvements are amortized over the term of the lease.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. Effective for fiscal years beginning after December 31, 1995, SFAS 121
establishes accounting standards for impairment of long-lived assets,
certain identifiable intangibles and goodwill related to such assets. The
Company will adopt SFAS 121 in 1996. Management has not evaluated the
effect of this pronouncement on the Company's consolidated financial
statement.
Earnings per Share - Earnings per common share were computed by dividing
net income by the weighted average number of shares outstanding.
Outstanding stock options have been included in primary earnings per
share, as the criteria for classification as a common stock equivalent has
been met in 1995. The effect of these common stock equivalents on the
weighted average number of shares outstanding was an approximate increase
in shares of 4,300,000. Warrants have not been considered as their effect
is antidilutive. No difference exists between primary and fully dilutive
earnings per share.
Income Taxes - The Company recognizes an asset and liability approach for
accounting for income taxes. Deferred income taxes are recognized for the
tax consequences of temporary differences and carryforwards by applying
enacted tax rates applicable to future years to differences between the
financial statement amounts and the tax bases of existing assets and
liabilities. A valuation allowance is to be established if, in
management's opinion, it is more likely than not that some portion of the
deferred tax asset will not be realized.
F-7
<PAGE>
2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consists of the following at December 31:
1995 1994
---------- -----------
<S> <C> <C>
Office furniture, fixtures, and equipment..................... $ 378,287 $ 265,504
Automobile.................................................... 54,056 9,184
Leasehold improvements........................................ 22,220 21,552
--------- ---------
454,563 296,240
Accumulated depreciation and amortization..................... (294,766) (251,457)
--------- ---------
Total property, net........................................... $ 159,797 $ 44,783
========= =========
</TABLE>
3. NOTES PAYABLE TO STOCKHOLDERS
The Company has a note payable to its major stockholder and chief
executive officer in the amount of $81,929 and $125,775 as of December 31,
1995 and 1994, respectively. This note is due on demand and bears interest
at 12%. During 1995, the Company combined interest payable on the note of
approximately $52,000 with the principal and began making weekly payments
of principal and interest. Also during 1995, the Company received advances
of $31,963 and made payments of $127,615 on this payable.
During 1994, the Company had a note payable to a stockholder in the amount
of $15,000, bearing interest at 12%. Terms of the note required eight
quarterly payments of principal and interest beginning in the first
quarter of 1995. In 1995 the note was paid in full.
4. LEASE AGREEMENTS
During 1995, the Company entered into various capital leases for office
related equipment. The lease terms range from 36 to 60 months.
Additionally, annual lease rental payments for each lease range from
$1,300 to $14,000 per year. The schedule of minimum lease payments below
reflects all payments under the leases. The property and equipment
accounts include $96,328 for leases that have been capitalized at December
31, 1995. Related accumulated depreciation amounted to $9,941 at December
31, 1995.
The Company leases office space and transportation equipment under a
noncancelable operating lease. Rental commitments are listed below.
F-8
<PAGE>
Future minimum lease payments under capital leases and noncancelable
operating leases with initial or remaining terms of one year or more at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year ending: Leases Leases Total
--------- ---------- ----------
<S> <C> <C> <C>
1996................................................. $ 35,151 $ 52,990 $ 88,141
1997................................................. 35,760 54,523 90,283
1998................................................. 35,760 22,984 58,744
1999................................................. 20,014 ---- 20,014
2000................................................. 2,682 ---- 2,682
--------- ---------- ----------
Total minimum lease payments......................... 129,367 $ 130,497 $ 259,864
======== ========
Less amount representing interest.................... (33,039)
-------
Present value of net minimum lease payments.......... 96,328
Less current portion................................. (20,679)
-------
Long-term capital lease obligations.................. $ 75,649
=======
</TABLE>
Rental expense under operating leases for the years ended December 31,
1995 and 1994 was $55,476 and, $57,458, respectively.
5. STOCKHOLDERS' EQUITY
Common Stock - During 1994, $2,147 of accounts payable were settled by the
Company through the issuance of 10,737 shares of its common stock with an
estimated fair value as of the date of settlement which equaled the
liability. No gain or loss was recorded as a result of this transaction.
During 1994, the Company issued 60,000 shares of its common stock to a
consultant for services rendered and 50,000 shares of stock for services
performed by individuals primarily involved in marketing the Company's
programs. A charge of $22,000, the estimated fair value of the shares at
the date of issuance, was recorded as selling expense.
The Company plans to effect a public offering of common stock in 1996. See
discussion of this offering at Proposed Redemption and Offerings below.
Common Stock Options - The Company has issued options in 1995 and 1994
primarily for services rendered. The exercise price of these options was
equal to or in excess of the fair market value of the common stock at the
date of grant.
During 1995, the Company issued various options at exercise prices ranging
from $0.25 per share to $0.81 per share. Options were granted primarily
for services rendered and to ensure the future availability of those
services to the Company. Various options are subject to certain
requirements including vesting limits, employment requirements, and future
events. The majority of options granted to officers of the Company contain
no conditional terms other than the period of exercise.
During 1994, the Company issued options on 230,000 shares of the Company's
common stock at an exercise price of $0.27 per share. These options are
exercisable at any time through December 31, 1999 so long as the
individual is continuing to provide services to the Company at the date of
exercise. The options vest at 20% per year. The vested options are not
subject to a continuing employment requirement.
F-9
<PAGE>
The following table summarizes the Company's stock option activity for the
years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Exercise Exercise
1995 Price 1994 Price
----------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Options outstanding
at beginning of year.................... 2,760,000 $.20 - .27 2,530,000 $.20
Options granted
during the year: 5,653,000 .25 ---- ----
398,412 .27 ---- ----
2,420,000 .45 230,000 .27
1,000,000 .62 ---- ----
90,000 .81 ---- ----
---------- ---------
9,561,412 230,000
---------- ---------
Options outstanding
at end of year.......................... 12,321,412 $.20 - .81 2,760,000 $.20 - .27
========== =========
</TABLE>
The Company has filed a registration statement with the Securities and
Exchange Commission to register common stock to be issued in association
with a planned redemption of outstanding warrants, distribution of common
stock rights. See discussion at Proposed Redemption and Offerings below.
Common Stock Warrants - The following table summarizes the Company's
common stock warrants activity for the years ended December 31, 1995 and
1994. The Company plans to redeem all Class A and Class B Warrants in
1996. See discussion of the planned redemption at Proposed Redemption and
Offerings below.
<TABLE>
<CAPTION>
Warrants
Issued/ Exercise
December 31, 1995: Outstanding Price Exercise Period
----------- ---------- -------------------
<S> <C> <C> <C>
Class A Warrants at beginning of year................... 4,206,876 $ .75 4/26/89 - 7/26/96
Class A Warrants exercised during the year.............. (10,000) $ .75
---------
Class A Warrants at end of year......................... 4,196,876
=========
Class B Warrants........................................ 4,206,876 $1.00 4/26/89 - 7/26/97
=========
</TABLE>
During 1995, Class A and B warrants exercise periods were extended
by one year to 1996 and 1997, respectively, by Board of Director
approval.
<TABLE>
<CAPTION>
December 31, 1994:
<S> <C> <C> <C>
Class A Warrants........................................ 4,206,876 $ .75 4/26/89 - 7/26/95
=========
Class B Warrants........................................ 4,206,876 $1.00 4/26/89 - 7/26/96
=========
</TABLE>
During 1994, Class A and B warrants exercise periods were extended
by one year to 1995 and 1996, respectively, by Board of Director
approval.
Each warrant entitles the holder to purchase one share of common stock.
The Company may redeem the warrants at any time at a price of $.0001 per
warrant.
Proposed Redemption and Offerings - The Company has filed a registration
statement with the Securities and Exchange Commission to redeem the
outstanding Class A and Class B Warrants at the redemption price noted
above. In connection with the redemption, the Company will offer to
temporarily reduce the exercise
F-10
<PAGE>
price of Class B Warrants and will offer upon exercise of each Class A and
Class B Warrant one share of common stock plus one new 1996-A Warrant.
Each 1996-A Warrant will be exercisable at any time on or before June 30,
1998 to purchase one share of common stock at $1.50 per share. The
proposed redemption is subject to the approval of the related registration
statement by the Securities and Exchange Commission and will be limited to
a specific time period.
In addition, the registration statement includes the Company's intention
to distribute nontransferable rights to purchase a unit consisting of one
share of common stock and one new 1996-A Warrant to existing shareholders
of record. The rights will be offered at no cost and will allow
shareholders of record to purchase one unit for every previous common
share held. The rights exercise period will be limited. This proposed
distribution is subject to the approval of the related registration
statement by the Securities and Exchange Commission.
Also, the Company has signed a letter of intent with an underwriter to
effect a public offering of additional common stock in 1996. The Company
plans to coordinate the offering with the notification to redeem
outstanding warrants and distribute rights mentioned above. The agreement
between the Company and the underwriter includes a provision requiring the
Company to grant various options and sell various warrants to the
underwriters.
6. STOCK OPTION PLAN
During 1995, the Company approved the 1995 Stock Option Plan (the "Plan").
Under this Plan, options available for granting consist of (i)
nonqualified stock options, (ii) nonqualified stock options with stock
appreciation rights attached, (iii) incentive stock options, and (iv)
incentive stock options with stock appreciation rights attached. Shares of
stock covered by this Plan shall consist of 9,000,000 shares of the common
stock, $.0001 par value, of the Company. The Plan limits participation to
employees, independent contractors, and consultants. Nonemployee directors
are excluded from Plan participation. The option price for shares of stock
subject to this Plan are set by the Stock Option Committee of the Board of
Directors at a price not less than 85% of the market value of the stock on
the date of grant. No stock options shall be exercisable within six months
from the date of grant, unless under a Plan exception, nor more than ten
years after the date of grant. The Plan provides for the grant of stock
appreciation rights, which allow the holder to receive in cash, stock or
combination thereof, the difference between the exercise price and the
fair market value of the stock at date of exercise. The value of stock
appreciation rights is charged to compensation expense. The stock
appreciation right is not separable from the underlying stock option or
incentive stock options originally granted. Options can only be exercised
in tandem, and can only be exercised when a positive spread exists between
the fair market value and exercise price. No options under this Plan have
been granted or exercised as of December 31, 1995.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for
Stock-Based Compensation, effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages, but
does not require, compensation costs to be measured based on the fair
value of the equity instrument awarded. Companies are permitted, however,
to continue to apply APB Opinion No. 25, which recognizes compensation
cost based on the intrinsic value of the equity instrument awarded. The
Company will continue to apply APB Opinion No. 25 to its stock-based
compensation awards to employees and will disclose the required proforma
effect on net income and earnings per share.
7. DEFERRED REVENUE
During 1994, the Company received advance annual payments for certain
program memberships. Receipts representing payment for future months'
programs services are deferred and recognized over the twelve month
F-11
<PAGE>
period covered by the membership. Prepaid commissions represent
commissions paid on these memberships and are amortized over the
twelve-month period covered by the memberships. There were no deferred
revenues received or recorded during 1995.
8. RELATED PARTIES
During 1995 and 1994, the Company received approximately $16,415 and
$71,713 from Pre-Paid Legal Services, Inc., a stockholder, for commissions
on sales of memberships for the services provided by Pre-Paid Legal
Services, Inc. At December 31, 1995 and 1994, $-0- and $5,603,
respectively, has been recorded as deferred revenue in the accompanying
balance sheet.
The Company makes advances to an affiliate, the John Hail Insurance
Agency, which is owned by the chief executive officer and major
stockholder of the Company. These advances have no specific repayment
terms. Total advances to the affiliate were $87,684 and $66,026 in 1995
and 1994 and repayments received were $67,401 and $9,069 in 1995 and 1994,
respectively. The amount receivable from the affiliate at December 31,
1995 and 1994 was $51,963 and $31,680, respectively. Revenue from the
affiliate in 1995 and 1994 included $12,000 earned for providing
administrative services for each of the two years.
Certain stockholders receive commissions on revenue of the Company. Such
commissions are recognized as compensation to the stockholders and are
included in selling expense.
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes
primarily for depreciation and prepaid commissions, and (b) operating loss
and tax credit carryforwards.
A reconciliation of the statutory Federal income tax rate to the effective
income tax rate for the years ended December 31, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Statutory Federal income tax rate......................... 34.0% 34.0%
Benefit of graduated tax rates............................ (2.2) (15.3)
Benefit of operating loss carryforwards................... (31.8) (18.7)
---- ----
Effective income tax rate................................. 0.0% 0.0%
===== =====
Deferred tax liabilities and assets at December 31, 1995 and 1994 are comprised of the following:
December 31,
----------------------------
1995 1994
--------- ---------
Deferred tax liabilities:
Commissions advanced.................................... $ --- $ (4,500)
--------- ---------
Total deferred tax liabilities................ --- (4,500)
--------- ---------
Deferred tax assets:
Depreciation and amortization........................... 3,900 1,000
Net operating loss carryforward......................... 566,400 690,000
--------- ---------
Total deferred tax assets..................... 570,300 691,000
Valuation allowance for deferred tax assets............. (570,300) (686,500)
--------- ---------
Total net deferred tax assets................. --- 4,500
--------- ---------
Net deferred taxes........................................ $ --- $ ---
========= =========
</TABLE>
F-12
<PAGE>
The Company has net operating loss carryforwards for income tax purposes
at December 31, 1995 totaling approximately $1,780,000 which will begin to
expire in 2003. Management has determined that it is not more likely than
not that the Company will be able to realize the tax benefits from the net
operating loss carryforwards.
10. COMMISSION ADVANCES TO RELATED PARTIES - NONCURRENT
Noncurrent commission advances represent advances to certain individuals
and are repayable from future commissions earned by the individuals. These
advances do not bear interest and are not expected to be repaid in 1995.
In 1994, the amounts advanced include approximately $9,600 and $4,700
advanced to a director and an officer, respectively.
* * * * * *
F-13
<PAGE>
<TABLE>
<CAPTION>
ADVANTAGE MARKETING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS, MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1996 1995
---------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................................ $ 223,775 $ 112,087
Receivables - net of allowance of $27,434................................... 22,365 18,299
Receivable from affiliate................................................... 59,757 51,963
Inventory................................................................... 160,572 98,621
Prepaid expenses............................................................ 4,810 2,371
---------- ----------
Total current assets.................................................... 471,279 283,341
---------- ----------
COMMISSION ADVANCES TO RELATED
PARTIES - NONCURRENT........................................................ 1,790 65
RECEIVABLES - NONCURRENT........................................................ 20,972 22,620
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $300,045 and $280,606....................................... 159,136 159,797
OTHER ASSETS.................................................................... 84,148 67,173
---------- ----------
TOTAL ASSETS.................................................................... $ 737,325 $ 532,996
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable............................................................ $ 145,187 $ 91,949
Accrued expenses............................................................ 225,318 151,654
Accrued promotion expense................................................... 108,990 99,424
Notes payable:
Stockholder............................................................. 64,648 81,929
Other................................................................... 12,370 8,440
Current obligations under capital lease..................................... 23,839 20,679
---------- ----------
Total current liabilities........................................... 580,352 454,075
LONG-TERM LIABILITIES:
Notes payable - other....................................................... 26,232 28,500
Capital lease............................................................... 74,265 75,649
---------- ----------
Total long-term liabilities......................................... 100,497 104,149
----------
TOTAL LIABILITIES............................................................... 680,849 558,224
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock - $.0001 par value; authorized 5,000,000 shares;
none issued............................................................. ---- ----
Common stock - $.0001 par value; authorized 495,000,000 shares;
16,985,524 shares issued and outstanding................................ 1,698 1,698
Paid-in capital............................................................. 1,858,396 1,858,396
Accumulated deficit......................................................... (1,803,618) (1,885,322)
---------- ----------
Total stockholders' equity (deficiency)................................. 56,476 (25,228)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................................... $ 737,325 $ 532,996
========== ==========
</TABLE>
See notes to financial statements.
F-14
<PAGE>
<TABLE>
<CAPTION>
ADVANTAGE MARKETING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
For the Three Months Ended
March 31,
---------------------------
1996 1995
---------- ---------
<S> <C> <C>
REVENUE:
Sale of programs............................................................ $1,255,889 $804,637
Sale of promotional material................................................ 62,684 20,126
Other....................................................................... 13,876 6,007
---------- --------
Total................................................................... 1,332,449 830,770
---------- --------
EXPENSES:
Cost of programs............................................................ 302,879 210,285
Cost of promotional material................................................ 35,745 17,217
Selling..................................................................... 683,164 396,579
Interest expense............................................................ 7,359 4,145
General and administrative.................................................. 221,598 166,923
---------- --------
Total................................................................... 1,250,745 795,149
---------- --------
NET INCOME...................................................................... $ 81,704 $ 35,621
========== ========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES (thousands).................................................... 24,588 16,965
NET PROFIT PER COMMON SHARE..................................................... NIL NIL
</TABLE>
See notes to financial statements.
F-15
<PAGE>
<TABLE>
<CAPTION>
ADVANTAGE MARKETING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
March 31, March 31,
1996 1995
----------- ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 81,704 $ 35,621
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization............................................... 19,439 7,537
Changes in assets and liabilities
which provided (used) cash:
Inventory.............................. (61,951) (11,000)
Receivables, advances and prepaids...................................... (14,376) (9,409)
Interest payable........................................................ ---- 2,963
Checks outstanding...................................................... ---- (31,097)
Deferred revenue........................................................ ---- (20,213)
Accounts payable and accrued expenses................................... 136,468 60,717
-------- --------
Net cash provided (used) by operating activities............................ 161,284 35,119
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.............................................. (7,101) (2,697)
Purchase of other assets........................................................ (21,776) ----
-------- --------
Net cash provided (used) by investing activities............................ (28,877) (2,697)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from stockholder.......................................................... ---- 38,000
Payment on note payable......................................................... (1,662) (1,216)
Payment on capital leases....................................................... (1,776) ----
Payment on notes payable - stockholder.......................................... (17,281) (69,206)
-------- --------
Net cash provided (used) by financing activities............................ (20,719) (32,422)
-------- --------
NET INCREASE (DECREASE) IN CASH................................................. 111,688 ----
BEGINNING CASH BALANCE.......................................................... 112,087 ----
-------- --------
ENDING CASH BALANCE............................................................. $ 223,775 $ ----
========= ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Property and equipment acquired by capital lease................................ $ 6,700 $ 42,815
======== ========
</TABLE>
See notes to financial statements.
F-16
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited financial statements and related notes have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
such rules and regulations. The accompanying financial statements and
related notes should be read in conjunction with the audited financial
statements of the Company, and notes thereto, for the fiscal year ended
December 31, 1995.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a
fair presentation of the results of the interim periods presented.
Operating results of the interim period are not necessarily indicative
of the amounts that will be reported for the fiscal year ended December
31, 1996.
2. ACCOUNTING POLICIES ADOPTED
The Company has adopted Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for
Stock-Based Compensation. SFAS 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages,
but does not require, compensation costs to be measured based on the
fair value of the equity instrument awarded. Companies are permitted,
however, to continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company will continue to apply APB Opinion No. 25 to its
stock-based compensation awards to employees and will disclose the
required proforma effect on net income and earnings per share. No
options or warrants were issued during the first quarter of 1996.
The Company has adopted Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. SFAS 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and
goodwill related to such assets. Management does not believe this
pronouncement will have a material effect on the Company's financial
statements.
3. SUBSEQUENT EVENTS
On May 24, 1996, the Company signed a letter of intent with an
underwriter to effect a public offering of additional common stock in
1996. A formal Underwriting Agreement is planned to be executed
subsequent to the Company's Rights Offering and Warrant Redemption on
Form SB-2 being declared effective by the Securities and Exchange
Commission.
Pursuant to a Stock Purchase Agreement having an effective date of May
31, 1996 (the "Purchase Agreement"), the Company acquired all of the
issued and outstanding capital stock of Miracle Mountain International,
Inc., a Colorado corporation ("MMI"), and MMI became a wholly-owned
subsidiary of the Company (the "MMI Acquisition"). MMI is a multi-level
marketer of various third-party manufactured nutritional supplement
products. Pursuant to the Purchase Agreement and in connection with the
MMI Acquisition, the Company issued and delivered to the shareholders
of MMI 160,000 shares of Common Stock. In addition, the Company agreed
to issue and deliver an additional 40,000 shares to the shareholders of
MMI on or before October 18, 1996, pending determination of certain
liabilities.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Miracle Mountain International, Inc.
Colorado Springs, Colorado
We have audited the accompanying balance sheet of Miracle Mountain
International, Inc. (the "Company") as of December 31, 1995 and the related
statements of operations, stockholders' deficiency and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Miracle Mountain International, Inc. at
December 31, 1995 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
June 21, 1996
F-18
<PAGE>
MIRACLE MOUNTAIN INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEET
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash.......................................................................... $ 3,334
Inventory..................................................................... 2,186
---------
Total current assets.................................................. 5,520
PROPERTY AND EQUIPMENT, net..................................................... 39,898
OTHER ASSETS.................................................................... 725
---------
TOTAL........................................................................... $ 46,143
==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable.............................................................. 1,558
Accrued commissions........................................................... 16,477
Accrued payroll taxes......................................................... 2,346
Interest payable.............................................................. 1,318
Notes payable to related parties.............................................. 62,418
---------
Total current liabilities............................................. 84,117
STOCKHOLDERS' DEFICIENCY:
Common stock - no par value; authorized 1,000,000 shares;
issued and outstanding 200,000 shares....................................... 92,655
Accumulated deficit........................................................... (130,629)
---------
Total stockholders' deficiency........................................ (37,974)
---------
TOTAL........................................................................... $ 46,143
=========
</TABLE>
See notes to financial statements.
F-19
<PAGE>
MIRACLE MOUNTAIN INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
TOTAL REVENUE................................................................... $ 277,366
---------
COSTS AND EXPENSES:
Programs...................................................................... 103,217
Selling....................................................................... 145,650
General and administrative.................................................... 157,725
Interest expense.............................................................. 1,403
---------
Total expenses........................................................ 407,995
---------
NET LOSS........................................................................ $(130,629)
=========
</TABLE>
See notes to financial statements.
F-20
<PAGE>
MIRACLE MOUNTAIN INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENT OF STOCKHOLDERS' DEFICIENCY
YEAR ENDED DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Total
Common Accumulated Stockholders'
Shares Stock Deficit Deficiency
-------- --------- ------------- ------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995................... ---- $ ---- $ ---- $ ----
Capital contributions...................... 200,000 92,655 ---- 92,655
Net loss for the year ended
December 31, 1995........................ ---- ---- (130,629) (130,629)
------- --------- --------- ---------
BALANCE, DECEMBER 31, 1995................. 200,000 $ 92,655 $(130,629) $ (37,974)
======= ======== ========= =========
</TABLE>
See notes to financial statements.
F-21
<PAGE>
MIRACLE MOUNTAIN INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss........................................................................................ $(130,629)
Adjustments to reconcile net loss to net........................................................
cash used by operating activities:
Depreciation and amortization............................................................... 1,926
Changes in assets and liabilities which provided (used) cash:
Inventory................................................................................. (2,186)
Other assets.............................................................................. (725)
Accounts payable.......................................................................... 1,558
Accrued expenses.......................................................................... 18,823
Interest payable.......................................................................... 1,318
--------
Net cash used in operating activities................................................... (109,915)
--------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment............................................................. (41,824)
--------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from capital contributions............................................................. 92,655
Proceeds from notes payable..................................................................... 65,253
Payment on notes payable........................................................................ (2,835)
--------
Net cash provided by financing activities............................................... 155,073
--------
NET INCREASE IN CASH.............................................................................. 3,334
BEGINNING CASH BALANCE............................................................................ ----
--------
ENDING CASH BALANCE............................................................................... $ 3,334
========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest.......................................................... $ 85
=========
</TABLE>
See notes to financial statements.
F-22
<PAGE>
MIRACLE MOUNTAIN INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business -- The Company is engaged in marketing nutritional
supplements through a multi-level sales organization of independent sales
associates developed by the Company. During the first three months of
operations, the Company primarily paid start-up expenses relating to
organization and recruitment of sales associates. The Company did not have
significant sales until April of 1995.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Revenue Recognition -- Revenue is recognized when goods are shipped.
Inventory -- Inventory consists of consumer product inventory. Inventory
is stated at the lower of cost or market. Cost is determined on a first-
in, first-out method.
Property and Equipment -- Property and equipment are recorded at cost.
Property and equipment are depreciated over five years using a
straight-line basis.
Income Taxes -- The Company recognizes an asset and liability approach for
accounting for income taxes. Deferred income taxes are recognized for the
tax consequences of temporary differences and carryforwards by applying
enacted tax rates applicable to future years to differences between the
financial statement amounts and the tax bases of existing assets and
liabilities. A valuation allowance is to be established if it is more
likely than not that some portion of the deferred tax asset will not be
realized.
2. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consists of the following at December 31, 1995:
<S> <C>
Office furniture, fixtures, and equipment............................$ 41,824
Accumulated depreciation and amortization............................ (1,926)
Total property, net..................................................$ 39,898
=========
</TABLE>
3. NOTES PAYABLE TO STOCKHOLDERS
The Company has a note payable to a stockholder and director in the amount
of $56,253 as of December 31, 1995. This note is due on demand and bears
interest at 9.0%. No principal or interest payments were made on the note
during the year ended December 31, 1995.
The Company is also making note payments to a bank on behalf of a
stockholder and director in exchange for an advance of $9,000. The
principal balance of the note at December 31, 1995 is $6,165. Payments of
principal and interest totaling $2,835 and $85, respectively, were made
during the year. No written agreement exists between the parties.
F-23
<PAGE>
4. LEASE AGREEMENTS
The Company leases office space under a cancelable operating lease. The
Company can cancel the lease with 30 days written notice. The lease terms
provide for monthly payments of $825.
Additionally, the Company leases office equipment under separate operating
leases. The leases are cancelable at any time by the Company. The lease
terms provide for combined monthly payments of $441.
Rental expense under operating leases for the year ended December 31, 1995
was $16,535.
5. RELATED PARTIES
Certain stockholders and directors receive commissions on revenue of the
Company. Such commissions are recognized as compensation to the
stockholders and directors and are included in selling expense. Total
commissions paid to stockholders and directors during 1995 totaled
approximately $27,000.
6. INCOME TAXES
The Company experienced a net loss for the year ended December 31, 1995
and consequently paid no income tax.
The Company has a net operating loss carryforward at December 31, 1995
totaling approximately $130,000 which is available to reduce Federal
income tax in future periods and will expire in 2010. Management has
determined that it is not more likely than not that the Company will be
able to realize the tax benefits from the net operating loss carryforward
and has, therefore, provided a valuation allowance of approximately
$44,000 to fully reserve the net deferred tax asset.
7. SUBSEQUENT EVENTS
On June 20, 1996, the Company's stockholders exchanged 100% of their
outstanding stock in the Company for a total of 200,000 shares of common
stock of Advantage Marketing Systems, Inc. ("AMS"). As part of the
agreement, AMS withheld 40,000 shares which will be delivered 120 days
after closing, provided that liabilities of the Company, which will be
assumed by AMS, do not exceed $19,000. Upon delivery, the shares withheld
will be reduced by one share for every $.88 of liabilities in excess of
$19,000. Also, the agreement provides that certain officers, directors and
stockholders will not compete with AMS for a limited time.
* * * * * *
F-24
<PAGE>
MIRACLE MOUNTAIN INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS, MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1996 1995
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................................ $ ---- $ 3,334
Inventory................................................................... 3,193 2,186
--------- ----------
Total current assets.................................................... 3,193 5,520
--------- ----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $4,017 in 1996 and 1,926 in 1995............................ 37,807 39,898
OTHER ASSETS.................................................................... 725 725
--------- -----------
TOTAL ASSETS.................................................................... $ 41,725 $ 46,143
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Bank overdrafts............................................................. $ 513 $ ----
Accounts payable............................................................ 8,238 1,558
Accrued expenses............................................................ 16,284 ----
Accrued commissions......................................................... ---- 16,477
Accrued payroll taxes....................................................... ---- 2.346
Interest payable............................................................ 2,584 1,318
Notes payable to related parties............................................ 62,174 62,418
--------- -----------
Total current liabilities........................................... 89,793 84,117
STOCKHOLDERS' DEFICIENCY:
Common stock - no par value; authorized 1,000,000 shares;
issued and outstanding 200,000 shares................................... 92,655 92,655
Accumulated deficit......................................................... (140,723) (130,629)
--------- -----------
Total stockholders' deficiency.......................................... (48,068) (37,974)
--------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................................... $ 41,725 $ 46,143
========= ===========
</TABLE>
See notes to financial statements.
F-25
<PAGE>
MIRACLE MOUNTAIN INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
For the Three Months Ended
March 31,
----------------------------
1996 1995
------------ ----------
<S> <C> <C>
REVENUE......................................................................... $122,248 $ 18,446
EXPENSES:
Products.................................................................... 39,602 8,016
Selling..................................................................... 67,343 18,120
General and administrative.................................................. 24,131 24,852
Interest expense............................................................ 1,266 118
-------- --------
Total................................................................... 132,342 51,106
-------- --------
NET LOSS........................................................................ $(10,094) $(32,660)
======== ========
</TABLE>
See notes to financial statements.
F-26
<PAGE>
MIRACLE MOUNTAIN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
March 31, March 31,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss........................................................................ $(10,094) $(32,660)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization............................................... 2,091 151
Changes in assets and liabilities which provided (used) cash:
Inventory............................................................... (1,007) (4,435)
Other assets............................................................ -- (725)
Interest payable........................................................ 1,266 113
Accounts payable and accrued expenses................................... 4,654 3,955
-------- --------
Net cash used by operating activities....................................... (3,090) (33,601)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.............................................. -- (3,022)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable..................................................... -- 5,000
Payment on note payable......................................................... (244) --
Proceeds from capital contributions............................................. -- 32,655
-------- --------
Net cash provided (used) by financing activities............................ (244) 37,655
-------- --------
NET INCREASE (DECREASE) IN CASH................................................. (3,334) 1,032
BEGINNING CASH BALANCE.......................................................... 3,334 --
-------- --------
ENDING CASH BALANCE............................................................. $ -- $ 1,032
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Property and equipment acquired by capital lease................................ $ 6,700 $ 42,815
======== ========
</TABLE>
See notes to financial statements.
F-27
<PAGE>
MIRACLE MOUNTAIN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited financial statements and related notes have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
such rules and regulations. The accompanying financial statements and
related notes should be read in conjunction with the audited financial
statements of the Company, and notes thereto, for the fiscal year ended
December 31, 1995.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of the interim periods presented. Operating
results of the interim period are not necessarily indicative of the
amounts that will be reported for the fiscal year ended December 31, 1996.
2. ACCOUNTING POLICIES ADOPTED
The Company has adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for
Stock-Based Compensation. SFAS 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages, but
does not require, compensation costs to be measured based on the fair
value of the equity instrument awarded. Companies are permitted, however,
to continue to apply APB Opinion No. 25, which recognizes compensation
cost based on the intrinsic value of the equity instrument awarded. The
Company will continue to apply APB Opinion No. 25 to its stock-based
compensation awards to employees and will disclose the required proforma
effect on net income and earnings per share. No options or warrants were
issued during the first quarter of 1996.
The Company has adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. SFAS 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related
to such assets. Management does not believe this pronouncement will have a
material effect on the Company's financial statements.
3. SUBSEQUENT EVENTS
Pursuant to a Stock Purchase Agreement having an effective date of May 31,
1996 (the "Purchase Agreement"), the Company was acquired by Advantage
Marketing Systems, Inc., an Oklahoma corporation ("AMS") and became a
wholly-owned subsidiary of AMS. All liabilities of the Company, other than
commissions payable to associates, were assumed by certain of the
Company's former shareholders, and certain officers, directors and
stockholders were required to sign agreements not to compete with AMS.
F-28
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus, and,
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or by any of the Underwriters. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, by any person in any jurisdiction in which such offer or solicitation is
not authorized, or in which the person making such offer of solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such an
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstance, create any implication that there has
been no change in the affairs of the Company since the date hereof.
-----------------------------------
The Warrant Agent for the Warrant Modification Offer or the Warrant
Redemption is:
U.S. STOCK TRANSFER CORP.
1745 GARDENA AVENUE, SUITE 200
GLENDALE, CALIFORNIA 91204-2991
TELEPHONE: (818) 502-1404
-----------------------------------
Until , 1996, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to
8,403,752 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF
COMMON STOCK AND
ONE 1996--A WARRANT
ISSUABLE UPON EXERCISE OF
CLASS A AND CLASS B COMMON
STOCK PURCHASE WARRANTS
ADVANTAGE MARKETING
SYSTEMS, INC.
-----------------------------------
PROSPECTUS
-----------------------------------
Holders of Class A Common Stock Purchase Warrants and/or Class B Common
Stock Purchase Warrants who require information about procedures for exercise
should contact the Warrant Agent.
Requests for general information or additional copies of this Prospectus
should be directed to the Company by calling or by writing the Company at:
ADVANTAGE MARKETING SYSTEMS, INC.
2601 NORTHWEST EXPRESSWAY, SUITE 1210W
OKLAHOMA CITY, OKLAHOMA 73112-7293
ATTENTION: CORPORATE SECRETARY
TELEPHONE: (405) 842-0131
-----------------------------------
, 1996
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or amendment. A +
+ registration statement relating to these securities has been filed with the +
+ Securities and Exchange Commission. These securities may not be sold nor +
+ may offers to buy be accepted prior to the time the registration statement +
+ becomes effective. This prospectus shall not constitute an offer to sell or +
+ the solicitation of any offer to buy nor shall there be any sales of these +
+ securities in any State in which such offer, solicitation or sale would be +
+ unlawful prior to registration or qualification under the securities laws +
+ of any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 27, 1996
PROSPECTUS
17,185,524 Units
(Each consisting of one share of Common Stock and one 1996--A Warrant)
Issuable upon exercise of Rights
ADVANTAGE MARKETING SYSTEMS, INC.
Advantage Marketing Systems, Inc., an Oklahoma corporation (the
"Company"), is distributing at no cost non-transferable rights (the "Rights") to
holders of record at 5:00 p.m., Central Standard Time, on , 1996 (the "Record
Date") of shares of its common stock, par value $.0001 per share (the "Common
Stock"). The Rights entitle the holders (the "Rights Holders") to subscribe for
and purchase in the aggregate up to 17,185,524 Units (each consisting of one
share of Common Stock and one 1996-A Warrant) (the "Units") for the price of
$.85 per Unit (the "Subscription Price"). The Record Date holders of Common
Stock (the "Record Date Holders") will receive one Right for each share of
Common Stock held by them as of the Record Date. Pursuant to the Rights, Rights
Holders may purchase one Unit for each Right held (the "Subscription
Privilege"). The election of a Rights Holder to exercise Rights is irrevocable
upon receipt of a valid subscription by the independent subscription agent (the
"Subscription Agent").
The Rights will expire at 5:00 p.m., Central Standard Time, on
, 1996, unless extended by the Company to a time and date not later
than , 1996 (the "Expiration Date"). The election of a Rights Holder to
exercise Rights is irrevocable. Any Rights not exercised prior to the Expiration
Date will expire and be worthless in the hands of such non-exercising Rights
holders. Shareholders of the Company who do not exercise all of their Rights may
own a reduced equity ownership interest, and a correspondingly smaller
percentage voting interest, in the Company after completion of this offering.
There is no minimum number of Units required to be sold as a condition of this
offering. See "Rights Offering." (Continued on inside cover)
------------------
See "Risk Factors," beginning at page 11, for a discussion of certain material
factors that should be considered in connection with an investment in the Units
offered hereby.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===================================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public (1) Commissions Company (1)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Per Unit.................................................... $.85 --- $.85
- -------------------------------------------------------------------------------------------------------------------
Total....................................................... $14,607,695 --- $14,607,695
===================================================================================================================
</TABLE>
(1) Before deducting offering expenses payable by the Company estimated to
be $75,000. See "Use of Proceeds."
It is expected that delivery of the certificates representing the
Common Stock and the 1996-A Warrants will be made immediately following
exercise of the Rights and payment of the Subscription Price.
, 1996
<PAGE>
(Continued from front cover)
The Share of Common Stock and 1996-A Warrant comprising each Unit will
be separately transferable immediately after the sale of the Units to the Rights
Holders. Each 1996-A Warrant is exercisable at any time on or before June 30,
1998, to purchase one share of Common Stock for $1.50, subject to adjustment in
certain events, and may be redeemed by the Company at any time upon 30 days'
notice, at a price of $.0001 per 1996-A Warrant. This offering is part of a plan
of financing pursuant to which the Company intends to raise additional capital
through the issuance of the Units. Concurrently with this offering, the Company
is offering to the holders of its Class A Common Stock Purchase Warrants (the
"Class A Warrants") and Class B Common Stock Purchase Warrants (the "Class B
Warrants") the right to purchase 8,403,752 Units (the "Warrant Modification
Units") pursuant to modification of the terms of the Class A Warrants and Class
B Warrants (the "Warrant Modification Offering"). See "Use of Proceeds" and
"Description of Securities--Public Warrants--Warrant Modification Offer."
The Common Stock is quoted by the National Daily Quotation Bureau,
Incorporated under the symbols "AMSO." On June 24, 1996, the closing high bid
price of the Common Stock was $.88. Prior to the Rights Offering, there has been
no public market for the 1996-A Warrants, and none may develop. The Company has
applied for quotation of the Units and 1996-A Warrants by the National Quotation
Bureau, Incorporated to be quoted under the proposed symbol " " and " ." See
"Description of Securities."
The Common Stock, Units, and 1996-A Warrants are or will be subject to
the "penny stock" trading rules which impose additional duties and
responsibilities upon broker-dealers and salespersons effecting purchase and
sale transactions in such equity securities of the Company, including
determination of the purchaser's investment suitability, delivery of certain
information and disclosures to the purchaser, and receipt of a specific purchase
agreement from the purchaser prior to effecting the purchase transaction, all of
which affect or will affect the ability to resell the Common Stock, Units and
1996-A Warrants. See "Risk Factors--Over-the-Counter Market; Penny Stock Trading
Rules," and "Price Range of Common Stock--Penny Stock Trading Rules."
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C>
Prospectus Summary................................. 3 Certain Federal Income Tax Consequences................38
Risk Factors.......................................11 Business...............................................39
The Company........................................16 Management.............................................45
Use of Proceeds....................................17 Certain Transactions...................................49
Price Range of Common Stock and Dividends..........18 Security Ownership of Certain Beneficial
Capitalization.....................................19 Owners and Management.................................50
Selected Financial Information.....................20 Description of Securities..............................52
Management's Discussion and Analysis of Shares Eligible for Future Sale........................57
Financial Condition and Results of Operations.....21 Legal Matters..........................................59
Unaudited Pro Forma Consolidated Financial Experts................................................59
Information of the Company........................26 Additional Information.................................59
Rights Offering....................................31 Index to Financial Statements.........................F-1
</TABLE>
-2-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Prospective investors should carefully consider the
information set forth in "Risk Factors." All references in this Prospectus to
fiscal years are to the Company's fiscal year ended December 31 of each year.
Unless otherwise indicated, all information in this Prospectus gives effect to
the issuance of 200,000 shares of Common Stock in connection with the
acquisition by the Company of Miracle Mountain International, Inc. on June 20,
1996.
The Company
The Company is a marketer of consumer oriented services and products
which are packaged together in special programs and sold to independent sales
associates who use the products and services themselves and also sell them to
others. The programs consist of various services which provide consumer savings
on items such as merchandise, groceries and travel, and legal benefits furnished
by certain third-party providers, and nutritional supplements. These programs
represent the Company's one main class of products and services and account for
more than 96 percent of revenues. See "Business."
On the effective date of May 31, 1996, the Company acquired the issued
and outstanding capital stock of Miracle Mountain International, Inc., a
Colorado corporation ("MMI") (the "MMI Acquisition"). In connection with the MMI
Acquisition, the Company exchanged 160,000 shares of Common Stock and agreed to
issued an additional 40,000 shares on or before October 18, 1996, for the issued
and outstanding capital stock of MMI, and MMI became a wholly-owned subsidiary
of the Company. See "The Company--Recent Event--MMI Acquisition."
The Company's principal executive offices are located at 2601 Northwest
Expressway, Suite 1210W, Oklahoma City, Oklahoma 73112-7293 and its telephone
number is (405) 842-0131.
See "Risk Factors" for a discussion of certain factors to be considered
in evaluating the Company and its business.
Dividend Distribution of Subscription Rights to Shareholders and Rights Offering
The Company is distributing at no cost non-transferable rights (the
"Rights") to the holders of record at 5:00 p.m., Central Standard Time, on
, 1996 (the "Record Date"), of shares of its Common Stock, par value
$.0001 per share (the "Common Stock"). The Rights entitle the holders (the
"Rights Holders") to subscribe for and purchase in the aggregate up to
17,185,524 units (the "Units"), each consisting of one share of Common Stock and
one 1996-A Warrant, for the price of $.85 per Unit (the "Subscription Price").
The Rights will expire at 5:00 p.m., Central Standard Time, on , 1996,
unless extended by the Company to a time and date not later than , 1996
(the "Expiration Date"). The Record Date holders of Common Stock will receive
one Right for each share of Common Stock held by them as of the Record Date.
The Units are being offered on a best efforts basis by the Company and
its officers and directors, without commissions, selling fees or direct or
indirect remuneration. Holders of the Public Warrants will not be required to
pay any brokerage commissions or fees with respect to the exercise of their
Public Warrants; however, the holders of the Public Warrants will be required to
pay a $7.50 transfer fee for each certificate of Common Stock and 1996-A Warrant
issued in connection with the exercise of the Public Warrants. The Company will
pay all charges and expenses of the Warrant Agent. See "Rights Offering--Plan of
Distribution" and " --Acceptance of Rights; Delivery of Units."
-3-
<PAGE>
The Rights may only be exercised by a Rights Holder in the event the
Registration Statement of which this Prospectus is a part is effective with the
Securities and Exchange Commission and the Units (or Common Stock and 1996-A
Warrants) are qualified for sale in the state of residence of the Rights Holder.
See "Risk Factors--Securities Laws Restrictions on Exercise of Rights," and
"Rights Offering--Acceptance of Rights; Delivery of Units." Subject to the
foregoing, the Rights are exercisable at any time by the Rights Holders, prior
to the Expiration Date, by delivery of the rights certificate evidencing the
Rights to U.S. Stock Transfer Corporation (the "Subscription Agent") at 1745
Gardena Avenue, Glendale, California 91204, with the "Form of Election to
Purchase" on the reverse of the certificate duly completed and signed,
accompanied with payment of the Exercise Price in cash or by certified check or
bank draft payable to the order of the Company.
Warrant Modification Offering
Pursuant to a separate prospectus included within the Registration
Statement of which this Prospectus is a part and concurrently with this
offering, the Company has elected to redeem its outstanding 4,196,876 Class A
Common Stock Warrants and 4,206,876 Class B Common Stock Purchase Warrants for
$.0001 per warrant (the "Warrant Redemption") at 5:00 p.m., Central Standard
Time, on , 1996 (the "Redemption Date"). However, in connection with
the Warrant Redemption, during the period ending on the Redemption Date, the
Company, pursuant to modification of the terms of the Class A Common Stock
Purchase Warrants and the Class B Common Stock Purchase Warrants ("Public
Warrants"), the Company is offering to the Public Warrant holders (the "Warrant
Holders") the right to exercise the Public Warrants to purchase units (the
"Warrant Offering Units"), each comprised of one share of Common Stock and one
1996-A Warrant, at an exercise price of $.75 per Warrant Offering Unit (the
"Warrant Modification Offering"). The Redemption Date may be extended such
number of times as determined in the sole discretion of the Company to a date
that is not later than , 1996.
This Offering
Securities Offered... 17,185,524 Rights to be issued to the holders of Common
Stock of the Company at 5:00 p.m., Central Standard
Time, on , 1996 (the "Record Date"), each exercisable
for the purchase of one unit consisting of one share of
Common Stock and one 1996-A Warrant of the Company
(the "Units"). Each 1996-A Warrant is exercisable at any
time on or before June 30, 1998, to purchase one share of
Common Stock for $1.50, subject to adjustment in certain
events, and may be redeemed by the Company at any time
upon 30 days' notice, at a price of $.0001 per 1996-A
Warrant. See "Description of Securities--Common
Stock" and "--1996-A Warrants."
Each share of Common Stock and 1996-A Warrant comprising
a Unit will be immediately transferrable after issuance
and delivery of the Unit.
Subscription Right... One Right per outstanding share of Common Stock issued
as a dividend to each holder of Common Stock on the
Record Date. The Rights entitle the holders of the Rights
(the "Rights Holders") to purchase one Unit per Right for
$.85 (the "Subscription Price"). See "Rights Offering."
-4-
<PAGE>
Rights Expiration
Date................. , 1996, at 5:00 p.m., Central Standard Time,
or such later date as the Company may determine in its
sole discretion but beyond , 1996. After
such time, the Rights will become void and have no value.
The period of exercise of the Rights will effectively be
extended if and when the Expiration Date is extended by
the Company. See "Rights Offering--Expiration Date;
Extensions; Termination; Amendments."
Subscription Price... $.85 per Unit.
Quoted Closing
High Bid of Common
Stock................ $.69 on December 20, 1995, (the day prior to
announcement of the Rights Offering).
$.88 on June 24, 1996.
Securities outstanding:
Common Stock
Outstanding........ 17,185,524 shares at June 24, 1996, after giving effect to
the issuance of 200,000 shares in connection with the MMI
Acquisition; 34,371,048 shares assuming exercise of the
Rights in full; however, there is no assurance that any of
the Rights will be exercised. Assuming and giving effect
to the exercise of the Public Warrants in full pursuant to
the Warrant Modification Offering, the number of issued
and outstanding shares of Common Stock and 1996-A Warrants
will be 34,371,048 and 17,185,524, respectively, which
does not include (i) 12,321,412 shares reserved for
issuance to holders of stock options and other warrants,
(ii) 17,185,524 shares of Common Stock reserved for
issuance to the holders of the 1996-A Warrants, and (iii)
9,000,000 shares reserved for issuance pursuant to the
Advantage Marketing Systems, Inc. 1995 Stock Option Plan
(the "Stock Option Plan"). See "Description of
Securities--Public Warrants--Warrant Modification
Offering," and "Management--Stock Option Plan."
1996-A Warrants.... 17,185,524 assuming exercise of the Rights in full;
however, there is no assurance that any of the Rights will
be exercised. Assuming and giving effect to the exercise
of the Public Warrants in full pursuant to the Warrant
Modification Offering, the number of issued and
outstanding 1996-A Warrants will be 25,589,276. See
"Description of Securities--Public Warrants--Warrant
Modification Offering," and "Management--Stock Option
Plan."
Estimated net
Proceeds........... $1,000,000, after deduction of the Company's offering
expenses estimated at $75,000.
-5-
<PAGE>
Use of Proceeds...... The net proceeds to be received by the Company from the
sale of the Units pursuant to exercise of the Rights are
estimated to be approximately $1,000,000, assuming
exercise of approximately 1,214,120 Rights. See "Rights
Offering." Concurrently with this offering , the Company
is offering 8,403,752 Warrant Modification Units pursuant
to the Warrant Modification Offering. See "Rights
Offering" and "Description of Securities--Common Stock--
Public Warrants-Warrant Modification Offering." The
Company estimates that the net proceeds to be received
from the Warrant Modification Offering will be
approximately $2.5 million. However, there is no assurance
that there will be any net proceeds from the Warrant
Modification Offering or this offering.
The net proceeds will be used for general corporate
purposes, including working capital and to fund the
Company's efforts to expand sales and marketing
activities. The Company estimates that it will use
approximately (i) $1.5 million for expansion of its U.S.
distributor network and enhancement of its marketing
materials, (ii) $.5 million to develop new products and
enhance the packaging of its existing products, and (iii)
$1.0 million for the expansion into and development of
international markets. In the event the Company raises
less than $3.5 million, the net proceeds will be devoted
to each of these areas in the order in which presented.
The Company does not intend to use any of the proceeds to
discharge existing debt. Pending use of the net proceeds,
they will be invested by the Company in investment grade,
short-term, interest-bearing securities. See "Use of
Proceeds."
Consequences to
Non-Exercising
Rights Holders..... Shareholders of the Company who do not exercise their
Rights in full or that are unable to exercise the Rights
because of securities laws restrictions or limitations
(see "--Acceptance of Rights," below, and "Risk
Factors--Securities Laws Restrictions on Exercise of
Rights" and "Rights Offering--Acceptance of Rights;
Delivery of Units") may own a reduced equity ownership
interest and have a correspondingly smaller percentage
voting interest in the Company after completion of this
offering. See "Rights Offering--Impact on Non-Exercising
Rights Holders."
-6-
<PAGE>
Method of Exercise
of Rights.......... Any Rights Holder electing to exercise Rights should
either (i) complete and duly execute the Rights
Certificate accompanying this Prospectus and forward it
along with cash or a certified or official bank check in
the amount of the Subscription Price for each Unit
subscribed for pursuant to exercise of the Right to the
Subscription Agent, or (ii) request a broker or bank to
effect the transaction. Holders of Rights registered in
the name of a broker, dealer, bank, trust company or
nominee should instruct such institutions to exercise the
Rights. See "Rights Offering--Method of Exercising
Rights."
Acceptance of
Exercise........... The Company will accept any and all Rights exercised on or
prior to the Expiration Date, subject to certain
conditions. In certain cases, the issuance of the Units or
the sale of Units (and the shares of Common Stock and
1996-A Warrants comprising the Units) pursuant to exercise
of the Rights could violate the securities laws of certain
states or other jurisdictions. The Company has undertaken
registration or qualification of the Units for sale in
California, Colorado, Georgia, Kentucky, Illinois,
Louisiana, New Hampshire, New York, Ohio, Oklahoma,
Pennsylvania, Virginia, Tennessee, Texas, Washington, and
Wisconsin; however, there is no assurance that such
registration or qualification will become effective in any
such states. In addition, the Company may undertake
registration of the Units in additional states as
determined in the sole discretion of the Company. Those
Rights Holders residing in states in which the Units have
not been registered or otherwise qualified for sale in
such state, will not be permitted to exercise their
Rights. Prior to tendering of Rights for exercise, the
Rights Holder should either contact the Company or the
Warrant Agent to determine whether the Units have been
registered or qualified in the state of such Rights
Holder's residence. The Company has used and will continue
to use its best efforts to cause the issuance of the
Rights and the sale of the Underling Shares to be lawful.
The Company is not required to accept the exercise of the
Rights, if, in the opinion of counsel, the sale of the
Units upon such exercise would be unlawful. In such cases,
the exercise of the Rights will not be accepted for
exercise, and the Rights Holders will be required to hold
the Rights until the Expiration Date without the ability
to exercise or transfer. See "Risk Factors--Securities
Laws Restrictions on Exercise of Rights," "Rights
Offering--Conditions of the Rights Offering" and
"--Acceptance of Rights; Delivery of Units."
-7-
<PAGE>
Conditions of
the Rights
Offered............ The Company has reserved certain rights and imposed
certain conditions with respect to this offering and the
Rights and the Company's obligations associated therewith,
including any prohibitive injunction, suspension of
trading of the Common Stock and enactment or adoption of
any statute or regulation prohibiting, materially
restricting or delaying consummation of this offering. See
"Rights Offering--Conditions of the Rights Offering."
Delivery of
Securities......... The Company will deliver the certificates for the shares
of Common Stock and 1996-A Warrants comprising the Units
upon exercise of the Rights as promptly as practicable
after the Expiration Date and acceptance of their exercise
by the Company. See "Rights Offering--Acceptance of
Rights; Delivery of Securities."
Withdrawal Rights.. Proper exercise of Rights by a Rights Holder will be
irrevocable. The Company may withdraw and terminate the
Rights and this offering at any time prior to the
Expiration Date for any reason. See "Rights Offering--
Withdrawal Rights."
Subscription Agent. U.S. Stock Transfer Corporation (the "Subscription
Agent"). The Subscription Agent may be contacted at the
address and telephone number set forth on the back cover
of this Prospectus.
National Daily
Quotation Bureau
symbols:........... Common Stock..................... AMSO
1996-A Warrant................... (proposed)
Summary Historical Financial and Operating Information of the Company
The following table sets forth summary historical financial and
operating information of the Company for the fiscal years ended December 31,
1994 and 1995, and the three months ended March 31, 1995 and 1996. See "Selected
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The financial and operating information
for the fiscal years ended December 31, 1994 and 1995, is derived from the
audited financial statements of the Company appearing elsewhere in this
Prospectus. The financial and operating information for the three months ended
March 31, 1995 and 1996, are derived from the unaudited financial statements of
the Company appearing elsewhere in this Prospectus which, in the opinion of
management, include all adjustment (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations of the Company for the unaudited interim periods. The
following information should be read in conjunction with the financial
statements and the related notes thereto of the Company, and other information
relating to the Company presented elsewhere in this Prospectus. The statements
of operations information for any particular period is not necessarily
indicative of the results of operation for any future period.
-8-
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended For the Three Months
December 31, Ended March 31,
------------------------- -------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Programs............................................... $ 2,564,542 $ 4,382,935 $ 804,637 $ 1,255,889
Promotional material................................... 82,780 109,733 20,126 62,684
Other.................................................. 30,625 25,535 6,007 13,876
------------ ----------- ---------- -----------
Total revenues..................................... 2,677,947 4,518,203 830,770 1,332,449
------------ ----------- ---------- -----------
Cost and expenses:
Programs............................................... 684,128 1,094,157 210,285 302,879
Promotional material................................... 83,964 92,087 17,217 35,745
Selling................................................ 1,289,616 2,201,510 396,579 683,164
General and administrative............................. 515,158 857,743 166,923 221,598
Interest expense....................................... 25,075 22,998 4,145 7,359
------------ ------------ ----------- ------------
Total expenses..................................... 2,597,941 4,268,495 795,149 1,250,745
----------- ----------- ---------- -----------
Net income................................................. $ 80,006 $ 249,708 $ 35,621 $ 81,704
============ =========== ========== ===========
Weighted average common shares outstanding(1).............. 16,954,848 21,301,441 16,965,524 24,588,424
Net income per common share................................ NIL $ .01 NIL NIL
Cash Flow Data:
Net cash provided by operating activities.................. $ 52,295 $ 316,958 $35,119 $ 161,284
Net cash used in investing activities...................... (6,689) (79,278) (2,697) (28,877)
Net cash used in financing activities...................... (45,606) (125,593) (32,422) (20,719)
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
-------------------- ----------
1994 1995 1996
------ ------ ----------
<S> <C> <C> <C>
Balance Sheet Data:
Current assets............................................. $117,796 $283,341 $471,279
Working capital deficiency................................. (338,662) (170,734) (109,073)
Total assets............................................... 176,969 532,996 737,325
Short-term debt............................................ 138,655 111,048 100,857
Long-term debt............................................. 7,947 104,149 100,497
Stockholders' equity (deficiency).......................... (287,436) (25,228) 56,476
- --------------------------------
</TABLE>
(1) Without giving effect to exercise of the Rights and exercise of the
Public Warrants pursuant to the Warrant Modification Offering, and the
issuance of 200,000 shares in connection with the MMI Acquisition, and
does not include 9,000,000 shares reserved for issuance pursuant to the
Stock Option Plan. See "Description of Securities--Public
Warrants--Warrant Modification Offering," and "--Other Options and
Warrants," and "Management--Stock Option Plan."
Selected Pro Forma Financial Information (Unaudited)
The following table presents selected pro forma information for the
Company on the assumption that the MMI Acquisition occurred on the date of the
balance sheet and at the beginning of each period for which results of
operations are presented. The information presented below is derived from and
should be read in conjunction with, the consolidated financial statements of the
Company and MMI, the unaudited pro forma consolidated financial statements and
other information related to the Company and MMI, all presented elsewhere in
this Prospectus. The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the results of operations or
financial position that would have been achieved if the MMI Acquisition had been
consummated in accordance with the assumptions set forth in the notes to the
unaudited pro forma consolidated financial statements
-9-
<PAGE>
of the Company, nor is it necessarily indicative of future operating results or
financial position. See "Unaudited Pro Forma Consolidated Financial Information
of the Company."
<TABLE>
<CAPTION>
Pro Forma Combined
------------------------------------
Statements of Operations Data: December 31, 1995 March 31, 1996
----------------- --------------
<S> <C> <C>
Revenues................................................................... $ 4,795,569 $ 1,454,697
Costs and expenses......................................................... 4,694,284 1,387,536
Net Income................................................................. 101,285 67,161
Weighted average common shares outstanding(1).............................. 21,501,441 24,788,424
Net income per common share................................................ NIL NIL
</TABLE>
<TABLE>
<CAPTION>
March 31,
---------------
1996
---------------
<S> <C>
Balance Sheet Data:
Current assets..................................................................................... $ 474,472
Working capital deficiency......................................................................... (122,164)
Total assets....................................................................................... 903,609
Short-term debt.................................................................................... 100,857
Long-term debt..................................................................................... 100,497
Stockholders' equity (deficiency).................................................................. 206,476
</TABLE>
- --------------------------------
(1) Without giving effect to exercise of the Public Warrants pursuant to
the Warrant Modification Offering and exercise of the Rights pursuant
to the Rights Offering and does not include 9,000,000 shares reserved
for issuance pursuant to the Stock Option Plan. See "Description of
Securities--Common Stock--Rights Offering," and "--Other Options and
Warrants" and "Management--Stock Option Plan."
-10-
<PAGE>
RISK FACTORS
Purchase of Units pursuant to exercise of the Rights offered hereby
involves a high degree of risk. In addition to the other information set forth
elsewhere in this Prospectus, the following factors relating to the Company and
this offering should be considered when evaluating exercise of the Rights and
investment in the Units offered hereby.
Deficit Working Capital. At March 31, 1996, the Company had a deficit
working capital of $109,073. Management believes that the deficit working
capital will be reduced by revenues from operating activities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources and Liquidity." There is no assurance that
revenues from operations will be sufficient to cover the deficit working
capital, in which case a portion of the net proceeds of this offering and the
Warrant Modification Offering will reduce and possibly eliminate the deficit
working capital.
Management Discretion over Application of Proceeds. The Company will
allocate the net proceeds of exercise of the Rights to general corporate
purposes and working capital. See "Use of Proceeds." The application of such
proceeds will be at the sole discretion of management of the Company. Individual
shareholders will have no control over decisions regarding the application or
use of the net proceeds obtained pursuant to exercise of the Rights.
Securities Laws Restrictions on Exercise of Rights. In certain cases,
the sale of the Units and the Common Stock and 1996-A Warrants comprising the
Units by the Company upon exercise of Rights could violate the securities laws
of certain states or other jurisdictions. The Company has used and will continue
to use its best efforts to cause the Registration Statement of which this
Prospectus is a part to be declared effective under the laws of various states
as may be required to cause the sale of securities upon exercise of the Rights
and the 1996-A Warrants to be lawful. However, the Company is not required to
accept the exercise of the Rights or the 1996-A Warrants, if, in the opinion of
counsel, the sale of the Units and the Common Stock and 1996-A comprising the
Units upon such exercise would be unlawful. In such cases, the Rights will not
be accepted for exercise, and the Rights Holders will be required to hold the
Rights until expiration and will not be permitted to transfer the Rights. See
"Rights Offering--Conditions of the Rights Offering," and "--Acceptance of
Rights; Delivery of Units."
Consequences to Non-Exercising Rights Holders. Rights Holders that do
not exercise the Rights (or that are not exercisable because of securities laws
restrictions or limitations) will be required to hold the Rights and will not be
permitted to transfer the Rights. Unexercised or unexercisable Rights will
expire on the Expiration Date and on such date will become null and void. Such
Rights Holders may own a reduced equity ownership interest, and a
correspondingly smaller percentage voting interest, in the Company after
completion of this offering. See "Rights Offering--Impact on Non-Exercising
Rights Holders."
Absence of Prior Public Market for Units and 1996-A Warrants; Possible
Volatility of Stock Price. Although the Common Stock is currently traded in the
over-the-counter market, there currently is no public market for the Units or
the 1996-A Warrants offered pursuant to this offering, and there is no assurance
that a market will develop or be sustained. See "Price Range of Common Stock and
Public Warrants and Dividends." The market price of the Common Stock (as well as
the Units and 1996-A Warrants, if a market develops) may be significantly
affected by factors such as announcements of new products, product lines or
marketing strategies offered by the Company or its competitors, increase or
decrease in membership and sales associates of the network purchasing programs
offered by the Company, quarter-to-quarter variations in the Company's
anticipated or actual results of operations and conditions in the marketing of
products and product lines.
Over-the-Counter Market; Penny Stock Trading Rules. The Common Stock is
and it is anticipated, although there is no assurance a market will develop,
that the Units and 1996-A Warrants will also be traded in the over-the-counter
market and will be subject to the "penny stock" trading rules. See "Price Range
of Common stock
-11-
<PAGE>
and Public Warrants and Dividends--Penny Stock Trading Rules." The
over-the-counter market is characterized as volatile in that securities traded
in such market are subject to substantial and sudden price increases and
decreases and at times price (bid and asked) information for such securities may
not be available. In addition, when there are only one or two market makers (a
dealer holding itself out as ready to buy and sell the securities on a regular
basis), there is a risk that the dealer or group of dealers may control the
market in the security and set prices that are not based on competitive forces
and the available offered price may be substantially below the quoted bid price.
There is no assurance that immediately following exercise of a Right, the Rights
Holder will be able to resell the Common Stock and/or 1996-A Warrant or if sold
whether a profit will be realized (i.e., sale of the Common Stock or 1996-A
Warrant at a price, after dealer compensation or markdown, in excess of the
exercise price of the Public Warrant allocable to the Common Stock or the 1996-A
Warrant).
The Common Stock, Units, and 1996-A Warrants are or will be subject to
the "penny stock" trading rules. The penny stock trading rules impose additional
duties and responsibilities upon broker-dealers and salespersons effecting
purchase and sale transactions in such equity securities of the Company,
including determination of the purchaser's investment suitability, delivery of
certain information and disclosures to the purchaser, and receipt of a specific
purchase agreement from the purchaser prior to effecting the purchase
transaction. Compliance with the penny stock trading rules affect or will affect
the ability to resell the Units, Common Stock, or 1996-A Warrants by a holder
principally because of the additional duties and responsibilities imposed upon
the broker-dealers and salespersons recommending and effecting sale and purchase
transactions in such securities. In addition, many broker-dealers will not
effect transactions in penny stocks, except on an unsolicited basis, in order to
avoid compliance with the penny stock trading rules. The penny stock trading
rules consequently may materially limit or restrict the ability of a holder to
resell the Company's equity securities, and the liquidity typically associated
with other publicly traded equity securities may not exist. Therefore, a Rights
Holder electing to exercise a Right may be required to hold the Unit, Common
Stock and/or 1996-A Warrant for an indefinite time and even then may realize a
loss, which loss could be substantial. See "Price Range of Common Stock and
Dividends--Penny Stock Trading Rules."
1996-A Warrant Exercise and Redemption Provisions. Each 1996-A Warrant
entitles the holder to purchase one share of Common Stock, subject to certain
anti-dilution adjustments, at a price of $1.50 per share, on or before June 30,
1998. See "Description of Securities--1996-A Warrants." Holders of 1996-A
Warrants may exercise such warrants only in the event a current prospectus
relating to the Common Stock underlying the 1996-A Warrants is then in effect
and only with respect to such shares that are qualified for sale under the state
securities laws of the states in which the holders of the 1996-A Warrants
reside. There can be no assurance that the Company will have a current
prospectus covering the shares underlying the 1996-A Warrants at all times that
the 1996-A Warrants are outstanding. However, the Company will make a good faith
effort to maintain an effective registration statement and current prospectus at
such time, if ever, that the price of the Common Stock exceeds the 1996-A
Warrant exercise price. The 1996-A Warrants may be deprived of any value in the
event this Prospectus or another prospectus covering the shares issuable upon
exercise of the 1996-A Warrants is not kept effective or if such shares are not
registered in the states in which the holders of the 1996-A Warrants reside. The
1996-A Warrants will initially be sold and issued only in those jurisdictions
that 1996-A Warrants are registered or otherwise qualified in connection with
this offering, which may not include a jurisdiction in which the holder of a
1996-A Warrant currently resides and in which the Units (and the share of Common
Stock and 1996-A Warrant comprising each Unit) offered pursuant to this
Prospectus are registered or qualified. If the Company is unable or chooses not
to register or qualify or maintain the registration or qualification of the
Units (and the shares of Common Stock and 1996-A Warrant comprising each Unit)
offered pursuant to this Prospectus for sale in a state in which holders of a
1996-A Warrant resides, the Company will not permit such 1996-A Warrants to be
exercised, and such holders may have no choice but to either sell their Warrants
in the open market or let them expire. A holder of 1996-A Warrants and other
interested persons who wish to know whether the Common Stock underlying such
warrants may be issued to the holder, upon the exercise, in a particular state,
should consult with the securities department of the particular state or send a
written inquiry to the Company. Additionally, the 1996-A Warrants may be
redeemed by the Company, in whole but not in part, upon not less than 30 days'
prior written notice at a price of $.0001 per 1996-A Warrant
-12-
<PAGE>
at such time as the Common Stock trades in excess of the 1996-A Warrant exercise
price for five consecutive trading days. See "Description of Securities--1996-A
Warrants."
Common Stock Eligible for Future Sale. Sales of substantial amounts of
the Common Stock in the public market following completion of the Warrant
Modification Offering and the Rights Offering could adversely affect the market
price of the Common Stock. See "Shares Eligible for Future Sale." At March 31,
1996, 5,022,667 shares of the Company's outstanding Common Stock were
"restricted securities" which may in the future be sold in compliance with Rule
144 as promulgated by the Commission pursuant to the 1933 Act. Rule 144
generally provides that beneficial owners of shares who have held such shares
for two years may sell within a three-month period a number of shares not
exceeding one percent of the total outstanding shares or the average trading
volume of the shares during the four calendar weeks preceding such sale. See
"Shares Eligible for Future Sale."
The executive officers and directors of the Company, who in the
aggregate hold of record 3,422,642 shares of Common Stock as of June 24, 1996
(see "Security Ownership of Certain Beneficial Owners and Management"), are
eligible for sale in the open market pursuant to an effective registration
statement under the 1933 Act or upon satisfaction of the applicable holding
period and other requirements of Rule 144. Subject to the Rule 144 sale
limitations, 5,022,667 outstanding shares of Common Stock were eligible for sale
under Rule 144. Future sales of substantial amounts of Common Stock in the
public market following completion of this offering and the Warrant Modification
Offering could adversely affect the market price of the Common Stock. See
"Shares Eligible for Future Sale."
Warrant Modification Offering. Concurrently with this offering,
pursuant to a separate prospectus included within the Registration Statement of
which this Prospectus is a part, the Company is offering to the holders of its
Class A Common Stock Purchase Warrants (the "Class A Warrants") and Class B
Common Stock Purchase Warrants (the "Class B Warrants") the right to purchase
8,403,752 units, each consisting of one share of Common Stock and one 1996-A
Warrant, (the "Warrant Modification Units") for $.75 each pursuant to
modification of the terms of the Class A Warrants and Class B Warrants (the
"Warrant Modification Offering"). See "Description of Securities--Public
Warrants--Warrant Modification Offering." Although there is no assurance that
any of the Public Warrants will be exercised, in the event of exercise all or
any portion of the Class A Warrants and Class B Warrants (the "Public
Warrants"), additional shares of Common Stock and the 1996-A Warrants will be
issued and outstanding, which may be diluting on an earnings per share basis and
in such case may adversely affect the public market trading price of the Common
Stock. See "Description of Securities--Public Warrants--Warrant Modification
Offer."
Outstanding Stock Options and Warrants. Furthermore, as of June 24,
1996, there were 12,321,412 outstanding stock options and other warrants (of
which 4,480,000 are held by current management of the Company) exercisable to
purchase Common Stock at an exercise price of from $.20 to $.81 per share during
periods that expire in February 1997 through July 2005. See "Description of
Securities--Other Stock Options and Warrants." During the term of the
outstanding stock options and other warrants, the holders are given the
opportunity to profit from a rise in the market price of the Common Stock.
Exercise of such stock options and warrants may dilute the net book value per
share of outstanding Common Stock at the time of exercise and will be diluting
on an earnings per share basis, which may adversely affect the public market
trading price of the Common Stock. The existence of these stock options and
warrants may adversely affect the terms on which the Company may obtain
additional equity financing. Furthermore, the holders are likely to exercise
their stock options or warrants at a time when the Company would otherwise be
able to obtain capital on terms more favorable than could be obtained through
the exercise of such stock options and warrants. See "Description of
Securities--Other Stock Options and Warrants."
Future Operating Results. The Company attained profitability in 1994,
and as of March 31, 1996, the Company had an accumulated deficit stockholders'
equity of $1,803,618. See "Selected Financial Information." There can be no
assurance that such profitability will be sustained. The Company's expense
levels are based, in part, on its expectations as to future revenue levels,
which can be difficult to predict due in part to the Company's strategy
-13-
<PAGE>
of developing product marketing programs and the success of such programs, which
is also dependent upon the market demand developed for such products through the
marketing programs. If revenue levels are below expectations, operating results
will be adversely affected. In addition, the Company's operating results may
fluctuate as a result of many factors, including price reductions, delays in the
introduction of new products, delays in purchase decisions due to new product
announcements by the Company or its competitors, increased competition by
providers of marketing programs, failure to reduce product costs or maintain
production quality, cancellations or delays of orders, interruptions or delays
in supply of key components, changes in customer base or product mix and
seasonal patterns of customer spending. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Fluctuations in Operating Results. Demand for the products offered
through the Company's network purchasing programs is dependent on general
economic conditions. Recessionary periods generally result in fewer members
participating in the purchasing programs, and, therefore, may lead to a
reduction in membership in the respective network purchasing programs and the
membership fee revenues as well as less product purchasing which affect revenues
as well as the ability of the Company to introduce new products into the market
place through the purchasing programs. Because expenses associated with
maintaining the Company's administrative staff are relatively fixed over the
short term, the Company's revenues tend to increase in periods of membership and
product sales volume and decrease in periods of lower membership and product
sales volume. These effects are not always readily predictable and most are not
within the control of the Company. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Results of Operations."
Dependence on Key Personnel. The Company's future success depends on
the continued availability of certain key management personnel, including John
W. Hail, founder, chief executive officer and director of the Company, and Roger
P. Baresel, president, chief financial officer and director of the Company. The
Company does not maintain any life insurance covering the executive officers of
the Company. The Company's continued growth and profitability also depends on
its ability to attract and retain other management personnel and sales
associates. The Company has not had any difficulty to date in attracting and
retaining management personnel and sales associates, although there can be no
assurance it will continue to be successful in this regard in the future. See
"Business--Marketing" and "Management--Directors and Executive Officers."
Product Introduction, Obsolescence and Marketing. The marketing for
products with respect to which the Company develops marketing programs is in
most cases characterized by introduction of competing products. Product
introductions are generally characterized by increased functionality or enhanced
results achieved by use of the product compared to existing competitive
products. The introduction of products embodying increased functionality or
enhanced results from product use may render existing products obsolete and
unmarketable. The Company's ability to successfully develop a marketing
introduction into the market place of new products on a timely basis and achieve
levels of market demand will be a significant factor in the Company's ability to
grow and remain competitive and profitable. In addition, the nature and mix of
the products comprising the available products within the Company's various
product purchasing and distribution programs is a most important factor. The
nature, assortment and mix of products available for purchase through the
Company's marketing program networks affects membership maintenance and
development within the various marketing programs of the Company, which
consequently affects demand for the products offered within each such program.
In the event the Company is unable to successfully increase the product
assortment and mix and maintain competitive product replacement of the products
in a timely manner in response to changes in and introduction of new products,
competitive or otherwise, offered to members of a marketing program the
Company's business and operating results will be materially and adversely
affected. See "Business--Products and Services of the Company" and
"--Marketing."
Network Purchasing Programs; Loss of Sales Associates. The Company
relies on the members of its network purchasing programs and member sales
associates for the distribution and sale of the products offered pursuant to
such programs. A reduction in the membership of the network purchasing programs
and loss of member sales associates could have a material adverse effect on the
Company's business and operating results. Certain of
-14-
<PAGE>
the sales associates also represent or may in the future represent other lines
of products which are complementary to or competitive with those offered through
the Company's network purchasing programs. While the Company attempts to
encourage sales associates to focus on selling the products through the
Company's network purchasing programs, there is a risk that these sales
associates may give higher priority to other products, reducing their efforts
devoted to selling the products offered through the Company's network purchasing
programs. Typically, the Company has non-exclusive arrangements with its sales
associates which may be cancelled by either party at will and contain no minimum
purchase requirements on the part of the sales associates. There can be no
assurance that the Company's network purchasing programs will continue to be
successful or that the Company will be able to retain or increase its current
network purchasing membership or retain its sales associates, or retain or
increase the various product lines offered to the members of the purchasing
programs. See "Business--Products and Services of the Company" and
"--Marketing."
Dependency on Third-Party Providers; Availability of Product Sources.
Substantially all of the services and products offered and distributed by the
Company are provided by unrelated third-party providers over whom the Company
does not have control. In turn, such unrelated third-party providers may be
dependent upon other unrelated manufacturers or vendors to provide components
for manufacture or services. The Company does not generally enter into long-term
purchase commitments with respect to the consumer services of third-party
providers or the nutritional supplement products offered and distributed by the
Company; however, the Company customarily enters into contracts with such
third-party providers to establish the terms and conditions of service and/or
product sales made by the Company through its distributors and program
participants. See "Business--Products and Services of the Company" and
"--Contractual Arrangements."
Although the Company believes it would be able to obtain alternative
sources of its services and products, because the Company's services and
products are only available through single source or limited source third-party
providers, any future difficulty in obtaining any of the key services or
products offered and distributed by the Company could have a material adverse
effect on the Company's results of operations. In addition, the unavailability
of or interruptions in access to the services and products provided by
third-party providers involves certain risks, although the Company has not
previously experienced such unavailability or interruptions. In the event any of
the third-party providers, especially the provider of nutritional supplement
products, were to become unable or unwilling to continue to provide the services
or products in required volumes, the Company would be required to identify and
obtain acceptable replacements, which could be lengthy and no assurance can be
given that any additional sources would become available to the Company on a
timely basis. A delay or reduction in availability of the services and/or
products offered and distributed by the Company could materially and adversely
affect the Company's business, operating results and financial condition. See
"Business--Contractual Arrangements."
Multi-Level Marketing Regulation. The Company is required to comply
with state and federal laws governing the Company's multi-level marketing
activities. See " Business--Government Regulation." These laws generally relate
to unfair or deceptive trade practices, lotteries, business opportunities and
securities. The Company has not experienced any material problems with marketing
compliance. However, multi-level marketing regulation at the state and federal
level is subject to change through enactment of additional legislation and
adoption of regulations which may adversely affect the marketing activities of
the Company. The Company cannot predict with any accuracy if such legislation or
regulation will be enacted or adopted or the ultimate effect thereof on Company
operations, but expects to continue to fully comply with the legal requirements
of multi-level marketing to minimize any undesirable impact on the Company and
its operations.
Competition. Providers of product marketing services compete primarily
on the basis of marketing strategies, product advertising and packaging
development and cost of services. The Company believes it competes favorably in
each of these categories. The Company competes with a variety and number of
companies offering marketing programs and purchasing networks including discount
catalog companies, direct product purchasing, and retail discount stores, many
of which have greater financial resources than the Company. In addition, in some
cases
-15-
<PAGE>
the products offered through the Company's network purchasing programs are not
exclusively offered through such programs. See "Business--Competition."
Lack of Dividends. The Company does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The Company intends to
retain profits, if any, to fund growth and expansion in the future.
See "Price Range of Common Stock and Dividends."
Anti-Takeover Provisions. The Company's Certificate of Incorporation
and Bylaws and the provisions of the Oklahoma General Corporation Act may make
it difficult to effect a change in control of the Company and replace incumbent
management. See "Description of Securities--Anti-Takeover Provisions." The
Certificate of Incorporation authorizes the issuance of Preferred Stock in
classes or series, and the Board of Directors to set and determine voting,
redemption and conversion rights and other rights related to such class or
series of Preferred Stock, which in some circumstances, the Preferred Stock
could be issued and have the effect of preventing a merger, tender offer or
other takeover attempt which the Company's Board of Directors opposes. See
"Description of Securities--Anti-Takeover Provisions--Preferred Stock" and
"Description of Securities--Preferred Stock." The Company's directors are
elected for three-year terms, with approximately one-third of the Board standing
for election each year, which may make it difficult to effect a change of
incumbent management and control. See "Description of Securities--Anti-Takeover
Provisions--Classified Board." Following the Warrant Modification Offering or at
some time in the future, the Company may become subject to the anti-takeover
provisions of the Oklahoma General Corporation Act, which in such case and in
some circumstances may discourage a person from making a control share
acquisition (generally an acquisition of voting stock having more than
20 percent of all voting power in the election of directors) without shareholder
approval. See "Description of Securities--Anti-Takeover Provisions--Oklahoma
Anti-Takeover Statutes."
THE COMPANY
Advantage Marketing Systems, Inc., an Oklahoma corporation (the
"Company"), was organized in 1988 under the name AMS, Inc. and since that time
has been a marketer of consumer oriented services and products which are
packaged together in special programs and sold to independent sales associates
who use the products and services themselves and also sell them to others. The
programs consist of various services which provide savings on items such as
merchandise, groceries and travel, and legal benefits furnished by certain third
party providers as well as nutritional supplements. These programs represent the
Company's one main class of products and services and account for over
96 percent of its revenues. See "Business."
The Company's executive offices are located at 2601 Northwest
Expressway, Suite 1210W, Oklahoma City, Oklahoma 73112-7293 with a telephone
number of (405) 842-0131.
Background
Exchange. Pursuant to an Agreement and Plan of Reorganization, dated
May 1, 1989, the shareholders of the Company exchanged their common stock for
6,406,450 shares of the common stock of Pacific Coast International, Inc., a
Delaware corporation (the "Exchange"). Prior to the Exchange, the trade or
business activities of Pacific Coast International, Inc. had been limited to
those activities associated with a public offering of its securities and
investigation of corporate acquisition alternatives as a "blank check" company.
Upon consummation of the Exchange, (i) the officers and directors of the Company
assumed management of Pacific Coast International, Inc., (ii) the Company became
a wholly owned subsidiary of the Pacific Coast International, Inc., (iii) the
Company changed its name to Advantage Marketing Systems, Inc., and (iv) Pacific
Coast International, Inc. changed its name to Advantage Marketing Systems, Inc.
The Exchange was accounted for as a reverse acquisition of the Company.
-16-
<PAGE>
Initial Issuance of Public Warrants. Prior to the Exchange, Advantage
Marketing Systems, Inc. (formerly Pacific Coast International, Inc. and parent
of the Company) sold, in a public offering, 1,806,876 shares of Common Stock,
Class A Warrants and Class B Warrant in units, each unit consisting of one share
of Common Stock, one Class A Warrant and one Class B Warrant. See "Description
of Securities." The net proceeds from this offering were approximately $838,290.
Furthermore, in conjunction with such offering, the holders of 2,400,000 Class A
Warrants and Class B Warrants sold such Public Warrants.
Merger Reincorporation. Effective December 11, 1995, Advantage
Marketing Systems, Inc., the former parent of the Company (formerly Pacific
Coast International, Inc.) ("AMS Delaware), merged with the Company pursuant to
an Agreement and Plan of Merger (the "Merger"), and the Company was the
surviving corporation. As a result of the Merger, AMS Delaware ceased to exist
as a Delaware corporation, and the Company succeeded to all rights, privileges,
powers, franchises, obligations, assets and properties of AMS Delaware. The
Merger was accounted for as a reorganization of entities under common control
and was recorded at historical cost. All references to the Company include its
former parent, AMS Delaware, unless otherwise indicated.
MMI Acquisition. Pursuant to a Stock Purchase Agreement having an
effective date of May 31, 1996 (the "Purchase Agreement"), the Company acquired
all of the issued and outstanding capital stock of Miracle Mountain
International, Inc., a Colorado corporation ("MMI"), and MMI became a
wholly-owned subsidiary of the Company (the "MMI Acquisition"). MMI is a
multi-level marketer of various third-party manufactured nutritional supplement
products. Pursuant to the Purchase Agreement and in connection with the MMI
Acquisition, the Company issued and delivered to the shareholders of MMI 160,000
shares of Common Stock. In addition, the Company agreed to issue and deliver an
additional 40,000 shares to the shareholders of MMI on or before October 18,
1996, pending determination of certain liabilities.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Units pursuant to exercise of the Rights are estimated to be approximately $1
million, assuming exercise of approximately 1,264,700 of the Rights in full;
however, there is no assurance that all or any portion of the Rights will be
exercised. See "Rights Offering." Concurrently with this offering, pursuant to a
separate prospectus which is a part of the Registration Statement of which this
Prospectus is a part, the Company is making the Warrant Modification Offering.
See "Description of Securities--Public Warrants--Warrant Modification Offering."
There is no assurance that all or any portion of the Public Warrants pursuant to
the Warrant Modification Offering will be exercised.
The Company is attempting to raise funds through the simultaneous sale
of Units pursuant to the exercise of the Rights and Public Warrants. The Company
estimates that the net proceeds to be received from this offering and the
Warrant Modification Offering will be $3.5 million, consisting of $1 million and
$2.5 million from the sale of Units and the Warrant Modification Units pursuant
to exercise of the Rights and Public Warrants, respectively. However, there is
no assurance that there will be any net proceeds from these offerings.
The net proceeds will be used for general corporate purposes, including
working capital and to fund the Company's efforts to expand sales and marketing
activities. The Company estimates that it will use approximately $1.5 million
for expansion of its U.S. distributor network and enhancement of its marketing
materials. The Company intends to use approximately $.5 million to develop new
products and enhance the packaging of its existing products. The Company will
devote approximately $1.0 million for the expansion into and development of
international markets. In the event the Company raises less than $3.5 million
the funds will be devoted to each of these areas in the order in which they have
been presented. The Company does not intend to use any of the proceeds to
discharge existing debt. Pending use of the net proceeds, they will be invested
by the Company in investment grade, short-term, interest-bearing securities.
-17-
<PAGE>
In the event that the Company does not obtain any net proceeds from
these offerings, it anticipates that it will be able to continue to operate on
internally generated cash. During the three months ended March 31, 1996, the
Company had an average monthly positive cash flows from operating activities of
approximately $53,700, and an average monthly net positive cash flow of
approximately $37,000, after investing and financing activities. See "Business."
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is traded in the over-the-counter market and is quoted
by the National Bureau Quotation, Incorporated under the symbols "AMSO." The
following table sets forth, for the periods presented, the high and low closing
bid quotations in the over-the-counter market as quoted by the National
Quotation Bureau, Incorporated. The bid quotations reflect inter-dealer prices
without adjustment for retail markups, markdowns or commissions and may not
reflect actual transactions.
<TABLE>
<CAPTION>
Common Stock
-------------------
Closing Bid
-------------------
High Low
------ ------
<S> <C> <C>
1996:
First Quarter Ended March 31................................................ $ .81 $ .63
1995:
First Quarter Ended March 31................................................ $ .25 $ .22
Second Quarter Ended June 30............................................... $ .47 $ .25
Third Quarter Ended September 30............................................ $ 1.25 $ .45
Fourth Quarter Ended December 31, 1995...................................... $ .94 $ .56
1994:
First Quarter Ended March 31................................................ $ .19 $ .13
Second Quarter Ended June 30................................................ $ .25 $ .19
Third Quarter Ended September 30............................................ $ .25 $ .19
Fourth Quarter Ended December 31............................................ $ .31 $ .19
</TABLE>
On June 24, 1996, the closing bid and asked prices, as quoted by the
National Quotation Bureau, Incorporated, of the Common Stock were $.88 and
$1.00, respectively. On June 24, 1996, there were approximately 692 holders of
the Common Stock.
Penny Stock Trading Rules
The Common Stock, Units and 1996-A Warrants are or will be classified
as "penny stocks" and are or will be subject to the "penny stock" trading rules.
The penny stock trading rules impose additional duties and responsibilities upon
broker-dealers recommending the purchase of a penny stock (by a purchaser that
is not an accredited investor as defined by Rule 501(a) promulgated by the
Commission under the 1933 Act) or the sale of a penny stock. Among such duties
and responsibilities, with respect to a purchaser who has not previously had an
established account with the broker-dealer, the broker-dealer is required to (i)
obtain information concerning the purchaser's financial situation, investment
experience, and investment objectives, (ii) make a reasonable determination that
transactions in the penny stock are suitable for the purchaser and the purchaser
(or his independent adviser in such transactions) has sufficient knowledge and
experience in financial matters and may be reasonably capable of evaluating the
risks of such transactions, followed by receipt of a manually signed written
statement which sets forth the basis for such determination and which informs
the purchaser that it is unlawful to effectuate a transaction in the penny stock
without first obtaining a written agreement to the transaction. Furthermore,
until the purchaser becomes an established customer (i.e., have had an account
with the dealer for at least one year or, the dealer had
-18-
<PAGE>
effected three sales of penny stocks on three different days involving three
different issuers), the broker-dealer must obtain from the purchaser a written
agreement to purchase the penny stock which sets forth the identity and number
of shares or units of the security to be purchased prior to confirmation of the
purchase. A dealer is obligated to provide certain information disclosures to
the purchaser of a penny stock, including (i) a generic risk discloser document
which is required to be delivered to the purchaser before the initial
transaction in a penny stock, (ii) a transaction-related disclosure prior to
effecting a transaction in the penny stock (i.e., confirmation of the
transaction) containing bid and asked information related to the penny stock and
the dealer's and salesperson's compensation (i.e., commissions, commission
equivalents, markups and markdowns) in connection with the transaction, and
(iii) the purchaser-customer must be furnished account statements, generally on
a monthly basis, which include prescribed information relating to market and
price information concerning the penny stocks held in his account. The penny
stock trading rules do not apply to those transactions in which a broker-dealer
or salesperson does not make any purchase or sale recommendation to the
purchaser or seller of the penny stock.
Compliance with the penny stock trading rules affect or will affect the
ability to resell the Common Stock, Units, or 1996-A Warrants by a holder
principally because of the additional duties and responsibilities imposed upon
the broker-dealers and salespersons recommending and effecting sale and purchase
transactions in such securities. In addition, many broker-dealers will not
effect transactions in penny stocks, except on an unsolicited basis, in order to
avoid compliance with the penny stock trading rules. The penny stock trading
rules consequently may materially limit or restrict the liquidity typically
associated with other publicly traded equity securities. In this connection, the
holder of Common Stock, Units, or 1996-A Warrants may be unable to obtain on
resale the quoted bid price because a dealer or group of dealers may control the
market in such securities and may set prices that are not based on competitive
forces. Furthermore, at times there may be a lack of bid quotes which may mean
that the market among dealers is not active, in which case a holder of Common
Stock, Units, or 1996-A Warrants may be unable to sell such securities. Because
market quotations in the over-the-counter market are often subject to
negotiation among dealers and often differ from the price at which transactions
in securities are effected, the bid and asked quotations of the may not Common
Stock, Units, or 1996-A Warrants may not be reliable. See "Risk
Factors--Over-the-Counter Market; Penny Stock Trading Rules."
Dividend Policy
The Company's dividend policy is to retain its earnings to support the
expansion of its operations. The Board of Directors of the Company does not
intend to pay cash dividends on the Common Stock in the foreseeable future. Any
future cash dividends will depend on future earnings, capital requirements, the
Company's financial condition and other factors deemed relevant by the Board of
Directors. See "Risk Factors--Future Operating Results," and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
CAPITALIZATION
The following table sets forth the pro forma capitalization of the
Company as of March 31, 1996, giving effect to the MMI Acquisition (see "The
Company--Recent Events--MMI Acquisition"), however, without giving effect to or
assuming exercise of the Public Warrants pursuant to the Warrant Modification
Offering and the Rights pursuant to the Rights Offering. This table should be
read in conjunction with the unaudited pro forma consolidated financial
statements and notes thereto of the Company appearing elsewhere in this
Prospectus. See "Unaudited Pro Forma Consolidated Financial Information of the
Company."
-19-
<PAGE>
<TABLE>
<CAPTION>
As of
March 31,
1996
-------------
Pro Forma
Combined
-------------
<S> <C>
Current portion of long-term debt................................................................. 100,857
----------
Long-term debt, net of current portion............................................................ 100,497
----------
Stockholders' equity:
Preferred Stock, $.0001 par value, 5,000,000
authorized; none outstanding................................................................ ---
Common Stock, $.0001 par value, 495,000,000
shares authorized; 17,185,524 shares issued
and outstanding at March 31, 1996........................................................... 1,718
Paid-in capital in excess of par, common stock.................................................. 2,008,376
Retained earnings (deficit)..................................................................... (1,803,618)
----------
Total stockholders' equity.................................................................... 206,476
----------
Total capitalization.............................................................................. $ 407,830
==========
</TABLE>
SELECTED FINANCIAL INFORMATION
The following selected financial information is qualified by reference
to, and should be read in conjunction with, the financial statements and related
notes of Advantage Marketing Systems, Inc. (formerly AMS, Inc.) and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere herein. The selected financial information
presented below is not necessarily indicative of the future results of
operations or financial performance of the Company. See "Risk Factors--Future
Operating Results." The selected financial information as of and for the years
ended December 31, 1994 and 1995, is derived from the audited financial
statements of Advantage Marketing Systems, Inc. (formerly AMS, Inc.) contained
elsewhere in this Prospectus. The selected financial information presented as of
and for the periods ended March 31, 1995 and 1996, is derived from the unaudited
financial statements of the Company, which financial statements are contained
elsewhere in this Prospectus. In the opinion of management of the Company, the
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of such
information.
<TABLE>
<CAPTION>
For the Year Ended For the Three Months
December 31, Ended March 31,
-------------------------- ------------------------
1994 1995 1995 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Programs............................................... $ 2,564,542 $ 4,382,935 $ 804,637 $ 1,255,889
Promotional material................................... 82,780 109,733 20,126 62,684
Other.................................................. 30,625 25,535 6,007 13,876
----------- ----------- ---------- -----------
Total revenues..................................... 2,677,947 4,518,203 830,770 1,332,449
----------- ----------- ---------- -----------
Cost and expenses:
Programs............................................... 684,128 1,094,157 210,285 302,879
Promotional material................................... 83,964 92,087 17,217 35,745
Selling................................................ 1,289,616 2,201,510 396,579 683,164
General and administrative............................. 515,158 857,743 166,923 221,598
Interest expense....................................... 25,075 22,998 4,145 7,359
----------- ----------- ---------- -----------
Total expenses..................................... 2,597,941 4,268,495 795,149 1,250,745
----------- ----------- ---------- -----------
Net income................................................. $ 80,006 $ 249,708 $ 35,621 $ 81,704
=========== =========== ========== ===========
Weighted average common shares outstanding(1).............. 16,954,848 21,301,441 16,965,524 24,588,424
Net income per common share................................ NIL $ .01 NIL NIL
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended For the Three Months
December 31, Ended March 31,
----------------------- ---------------------
1994 1995 1995 1996
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Cash Flow Data:
Net cash provided by operating activities.................. $ 52,295 $ 316,958 $ 35,199 $ 161,284
Net cash used in investing activities...................... (6,689) (79,278) (2,697) (28,877)
Net cash used in financing activities...................... (45,606) (125,593) (32,422) (20,719)
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------- ----------
1994 1995 1996
------------ ----------- ----------
<S> <C> <C> <C>
Balance Sheet Data:
Current assets......................................................... $ 117,796 283,341 $ 471,279
Working capital deficiency............................................. (338,662) (170,734) (109,073)
Total assets........................................................... 176,969 532,996 737,325
Short-term debt........................................................ 138,655 111,048 100,857
Long-term debt......................................................... 7,947 104,149 100,497
Stockholders' equity (deficiency)...................................... (287,436) (25,228) 56,476
</TABLE>
- --------------------------------
(1) Without giving effect to exercise of the Rights and exercise of the
Public Warrants pursuant to the Warrant Modification Offering and the
issuance of 200,000 shares in connection with the MMI Acquisition, and
does not include 9,000,000 shares reserved for issuance pursuant to the
Stock Option Plan. See "Description of Securities--Common Stock--Rights
Offering," and "--Other Options and Warrants" and "Management--Stock
Option Plan."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Effective December 11, 1995, Advantage Marketing Systems, Inc., a
Delaware corporation ("AMS Delaware") and the former parent of the Company,
merged with and into the Company, with the Company being the surviving
corporation (the "Merger Reincorporation"). Prior to the Merger Reincorporation,
all operations of AMS (Delaware) were conducted solely as a holding company of
the Company as its wholly-owned subsidiary, and AMS (Delaware) did not have any
other operating activities. Following the Merger Reincorporation, all operating
activities of AMS Delaware and the Company as its wholly-owned subsidiary, were
continued by the Company. The following discussion and analysis of results of
operations of the Company are the consolidated results of operations of AMS
Delaware and the Company prior to the Merger Reincorporation, the predecessor of
the Company. See "The Company--Background--Merger Reincorporation."
Results of Operations
The following table sets forth selected results of operations for (i)
the fiscal years ended December 31, 1994 and 1995, which are derived from the
audited consolidated financial statements of the Company, and (ii) for the three
months ended March 31, 1995 and 1996, which are derived from the unaudited
consolidated financial statements of the Company, which include, in the opinion
of management of the Company, all normal recurring adjustments considered
necessary for a fair statement of results for such periods. The results of
operations for the periods presented are not necessarily indicative of the
Company's future operations.
-21-
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, For the Three Months Ended March 31,
-------------------------------------------- ------------------------------------------
1994 1995 1995 1996
-------------------- ---------------------- ------------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent
----------- ------- ----------- ------- --------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Programs......................... $2,564,542 95.8% $4,382,935 97.0% $804,637 96.9% $1,255,889 94.3%
Promotional material............. 82,780 3.1 109,733 2.4 20,126 2.4 62,684 4.7
Other............................ 30,625 1.1 25,535 .6 6,007 .7 13,876 1.0
---------- ------ ---------- ------- -------- ------- ---------- -------
Total revenues................. 2,677,947 100.0 4,518,203 100.0 830,770 100.0 1,332,449 100.0
---------- ------ ---------- ------- -------- ------- ---------- -------
Costs and Expenses
Programs......................... 684,128 25.6 1,094,157 24.2 210,285 25.3 302,879 22.7
Promotional material............. 83,964 3.1 92,087 2.1 17,217 2.1 35,745 2.7
Selling.......................... 1,289,616 48.2 2,201,510 48.7 396,579 47.7 683,164 51.3
General and administrative....... 515,158 19.2 857,743 19.0 166,923 20.1 221,598 16.6
Interest Expense................. 25,075 .9 22,998 .5 4,145 .5 7,359 .6
----------- ------ ----------- ------- --------- ------- ---------- -------
Total expenses................. 2,597,941 97.0 4,268,495 94.5 795,149 95.7 1,250,745 93.9
----------- ------ ----------- ------- --------- ------- ---------- -------
Net income......................... $ 80,006 3.0% $ 249,708 5.5% $ 35,621 4.3% $ 81,704 6.1%
=========== ====== =========== ======= ========= ======= ========== =======
</TABLE>
During 1994 and 1995, the Company experienced increases in revenues
from programs and net income compared to the preceding year. The increases were
principally the result of introduction of the Company's NewTrition Plan in
October 1993 and expansion of the Company's network of its independent sales
representatives and associates, which resulted in achieving substantial
increased sales volume of the NewTrition Plan. The Company expects to continue
to expand its network of independent sales representatives and associates, which
is in part dependent upon the market demand for the consumer products and
services offered by the Company through its various purchasing programs, and it
is anticipated that such expansion will result in increased sales volume.
However, there is no assurance that increased sales volume will be achieved
through expansion of the selling network of the Company's programs, or that, if
sales volume increases, the Company will realize increased profitability due to
the costs and expenses associated with increased sales and the general and
administrative expenses.
Comparison of Three Month Period Ended March 31, 1995 and 1996
During the three months ended March 31, 1996 (the "1996 Interim
Period"), total revenues increased $501,679 (a 60.4 percent increase) as
compared to the same period in 1995 (the "1995 Interim Period"). The increase
was principally attributable to the increased sales volume of the Company's
NewTrition Plan, which was introduced in October 1993, and expansion of the
Company's network of its independent sales representatives and associates.
During the 1996 Interim Period, the Company made aggregate sales under its
NewTrition Plan of $1,200,450 to 8,269 distributors, compared to aggregate sales
in the 1995 Interim Period of $641,196 to 3,845 distributors. Promotional
material revenue increased $42,558 (a 211.5 percent increase) to $62,684 in 1996
Interim Period from $20,126 in the 1995 Interim Period. In addition, other
revenue increased by $7,869 (a 131.0 percent increase) from $6,007 in the 1995
Interim Period to $13,876 in 1996 Interim Period as a result of a special
promotion during 1996.
Total costs and expenses of programs, promotional material and selling
during the 1996 Interim Period increased by $397,707 (a 63.7 percent increase)
to $1,021,788 from $624,081 during the 1995 Interim Period. This increase was
attributable to an increase of (i) $92,594 (a 44.0 percent increase) in costs of
programs and (ii) $286,585 (a 72.3 percent increase) in selling expenses, while
promotional material expenses increased $18,528 (a 107.6 percent increase). The
costs and expenses of programs, promotional materials and selling, as a
percentage of program sales revenue, increased from 77.6 percent during the 1995
Interim Period to 81.4 percent during the 1996 Interim Period which resulted
from a decrease in the costs of programs as a percentage of program sale revenue
from 26.1 percent to 24.1 percent due to price reductions obtained from vendors
on the program costs associated with the Company's NewTrition Plan, offset by an
increase in selling costs as a percentage of program sale revenue from 49.3
percent to 54.3 percent. The Company achieved a net profit on sales of
promotional materials of $26,939 during
-22-
<PAGE>
the 1996 Interim Period compared to a net profit of $2,909 during the 1995
Interim Period as a result of the Company's curtailed practice of providing
promotional materials at reduced cost during special promotions.
The Company's gross profit on program and promotional material revenues
(program and promotional material revenue less program costs, promotional
material costs and selling expenses) increased $96,103 (a 47.9 percent increase)
to $296,785 in the 1996 Interim Period from $200,682 in the 1995 Interim Period.
The gross profit on program and promotional material revenues decreased as a
percentage of total revenue from 24.2 percent in the 1995 Interim Period to 22.3
percent in the 1996 Interim Period. The decrease in the Company's gross profit
margin on program and promotional material revenues resulted from the
combination of a decrease in program and promotional materials costs as a
percentage of programs and promotional material revenues, offset by an decrease
in selling costs and expenses as a percentage of programs and promotional
material revenues.
General and administrative expenses increased $54,675 (a 32.8 percent
increase) to $221,598 during the 1996 Interim Period from $166,923 during the
1995 Interim Period. This increase was attributable to the Company's
administrative infra-structure necessary to support increased levels of sales.
The Company expanded its administrative infra-structure by hiring six additional
employees. Consequently, payroll and employee costs increased by $52,738 during
the 1996 Interim Period as the Company increased its number of employees from 10
to 16. Interest expense during the 1996 Interim Period increased $3,214 (a 77.6
percent increase) to $7,359 from $4,145 during the 1995 Interim Period.
Net income increased $46,083 (a 129.4 percent increase) to $81,704
during the 1996 Interim Period from $35,621 during the 1995 Interim Period. Net
income as a percentage of total revenue increased from 4.3 percent during the
1995 Interim Period to 6.1 percent during the 1996 Interim Period.
Comparison of Fiscal 1994 and 1995
During 1995, total revenues increased $1,840,256 (a 68.7 percent
increase) as compared to 1994. The increase was principally attributable to the
increased sales volume of the Company's NewTrition Plan, which was introduced in
October 1993, and expansion of the Company's network of its independent sales
representatives and associates. During 1995 the Company made aggregate sales
under its NewTrition Plan of $4,064,216 to 5,783 distributors, compared to
aggregate sales in 1994 of $1,817,947 to 2,650 distributors. Promotional
material revenue increased $26,953 (a 32.6 percent increase) to $109,733 in 1995
from $82,780 in 1994. In addition, other revenue decreased by $5,090 (a 16.6
percent decrease) from $30,625 in 1994 to $25,535 in 1995, as a result of a
special promotion during 1994 that was not repeated in 1995.
Total costs and expenses of programs, promotional material and selling
during 1995 increased by $1,330,046 (a 64.6 percent increase) to $3,387,754 from
$2,057,708 during 1994. This increase was attributable to an increase of (i)
$410,029 (a 59.9 percent increase) in costs of programs and (ii) $911,894 (a
70.7 percent increase) in selling expenses, while promotional material expenses
increased $8,123 (a 9.7 percent increase). The costs and expenses of programs,
promotional materials and selling, as a percentage of program sales revenue,
decreased from 80.2 percent during 1994 to 77.3 percent during 1995 which
resulted from a decrease in the costs of programs as a percentage of program
sale revenue from 26.7 percent to 25 percent due to increased program costs
associated with the Company's NewTrition Plan, offset by a decline in selling
costs as a percentage of program sale revenue from 50.3 percent to 50.2 percent.
The Company achieved a net profit on sales of promotional materials of $17,646
during 1995 compared to a net loss of $1,184 during 1994 as a result of the
Company's curtailed practice of providing promotional materials at reduced cost
during special promotions periods.
The Company's gross profit on program and promotional material revenues
(program and promotional material revenue less program costs, promotional
material costs and selling expenses) increased $515,308 (an 87.4 percent
increase) to $1,104,914 in 1995 from $589,614 in 1994. The gross profit on
program and promotional material revenues increased as a percentage of total
revenue from 22 percent in 1994 to 24.5 percent in 1995. The increase in the
Company's gross profit margin on program and promotional material revenues
resulted from the
-23-
<PAGE>
combination of an increase in program and promotional materials costs as a
percentage of programs and promotional material revenues, offset by an increase
in selling costs and expenses as a percentage of programs and promotional
material revenues.
General and administrative expenses increased $342,585 (a 66.5 percent
increase) to $857,743 during 1995 from $515,158 during 1994. This increase was
attributable to the Company's administrative infra-structure necessary to
support increased levels of sales. The Company expanded its administrative
infra-structure by hiring eight additional employees. Consequently, payroll and
employee costs increased by $208,169 during 1995 as the Company increased its
number of employees from six to 14. The balance of the increase resulted from
increases in supplies, postage and other operating expenses associated with the
increased sales levels. Interest expense during 1995 decreased $2,077 (an 8.3
percent decrease) to $22,998 from $25,075 during 1994.
Net income increased $169,702 (a 212.1 percent increase) to $249,708
during 1995 from $80,006 during 1994. Net income as a percentage of total
revenue increased from three percent during 1994 to 5.5 percent during 1995.
Quarterly Results of Operations
The Company's operations appear not to be significantly affected by
seasonal trends. No pattern of seasonal fluctuations exists due to the growth
patterns that the Company is currently experiencing. However, there can be no
assurance that once the Company's current growth patterns peak that the company
will not be subject to seasonal fluctuations in operations.
Income Taxes
The Company has net operating loss carryforwards at March 31, 1996, of
approximately $1,698,000 which are available to reduce federal income tax in
future periods and which will expire commencing in 2003. During 1995, the
Company's deferred tax assets and valuation allowance were decreased by
approximately $120,700 and $116,200, respectively. Management has determined
that it is not more likely than not that the Company will be able to realize the
tax benefits form the net operating loss carryforwards and has therefore,
provided a valuation allowance of approximately $570,000 to reduce the net
deferred tax asset to zero.
Liquidity and Capital Resources
Historically, the Company has relied on short-term loans from its
shareholders, exercise of stock options, and the sales of Common Stock, to meet
its cash operating needs. As a result of improvement in the Company's cash
flows, since April 1994, the Company has generally been able to meet its cash
operating needs with cash flows from operations. At March 31, 1996, and December
31, 1995, the balance due on a short-term loan from the Company's Chief
Executive Officer and major shareholder was $64,648 and $81,929, respectively.
During 1995, the Company combined interest payable of approximately $52,000 with
the principal due under the loan and began making weekly interest and principal
payments of $1,500. See "Certain Transactions." During the three months ended
March 31, 1996, the Company did not receive any advances under the loan, while
during 1995, the Company received aggregate advances of $31,963 under the loan.
During the three months ended March 31, 1996 and the year ended December 31,
1995, the Company made principal payments of $17,281 and $127,615, respectively,
thereon to the Company's Chief Executive Officer and major shareholder. The
outstanding balance of loan bears interest at 12 percent per annum and is due on
demand.
At March 31, 1996, the Company had a deficit working capital of
approximately $109,100, compared to a deficit of approximately $170,700 at
December 31, 1995, which included the $64,600 outstanding balance on the
short-term loan from the Company's Chief Executive Officer and major
stockholder. Management believes that cash flows from operations will be
sufficient to fund its working capital needs over the next 12 months. During the
three
-24-
<PAGE>
months ended March 31, 1996 and the year ended December 31, 1995, net cash
provided by operating activities was $161,284 and $316,958, respectively, of
which $28,877 and $79,278, respectively, were used for the purchase of property
and equipment and $20,719 and $125,593, respectively, were used in financing
activities (consisting primarily of repayments of the note of the Company's
Chief Executive Officer and major shareholder). The Company had a net increase
in cash during the three months ended March 31, 1996, and the year ended
December 31, 1995, of $111,688 and $112,087, respectively. See "Selected
Financial Information." The Company's working capital needs over the next 12
months consist primarily of administrative and operating overhead. For the three
months ended March 31, 1996, the Company's administrative and operating overhead
averaged approximately $76,000 per month. The Company anticipates that this
level of administrative and operating overhead will continue over the next 12
months.
During 1994, the Company received advance annual payment for certain
program memberships. Receipts representing payment for future months programs
services were deferred and recognized over the 12 month period covered by the
membership. The Company recorded a liability representing the deferred revenue
associated with annual prepayments of $40,852 at December 31, 1994. At December
31, 1995, the Company did not have any deferred revenues requiring recording of
a liability for deferred revenues associated with annual prepayments.
The Company has outstanding 4,196,876 Class A Warrants and 4,206,876
Class B Warrants which entitle the holder thereof to purchase one share of the
Company's Common Stock. The Class A Warrant is exercisable at $.75 per share and
the Class B Warrant is exercisable at $1.00 per share. The exercise of the
Public Warrants, without giving effect to the Warrant Modification Offering,
would result in gross proceeds of $7,354,533 to the Company. However, this is a
hypothetical calculation because at the present time the exercise price exceeds
the current market value of the underlying stock. There can be no assurance that
any Public Warrants will be exercised. The Class A Warrants and Class B Warrants
are exercisable on or before July, 1996 and 1997, respectively, without giving
effect to the Warrant Redemption. See "Price Range of Common Stock and Public
Warrants and Dividends" and "Description of Securities--Public Warrants."
At March 31, 1996, the Company had 12,321,412 stock options and certain
warrants outstanding at an average exercise price of $.31 per share of Common
Stock. These stock options and warrants will expire in February 1997 through
July 2005. See "Description of Securities--Other Options and Warrants."
The Company's primary source of liquidity is net cash provided by
operating activities. During the three months ended March 31, 1996, and the year
ended December 31, 1995, the Company had net cash provided by operating
activities of $161,284 and $354,958, respectively. Other than loans made
available to the Company by its Chief Executive Officer and major shareholder,
the Company does not have any outside liquidity sources. As of March 31, 1996,
the Company did not have any material commitments for capital expenditures.
The Company is attempting to raise funds through the concurrent sale of
Units and Rights Offering Units pursuant to the Warrant Modification Offering
and the Rights Offering. The Company estimates that the net proceeds to be
received from these offerings will be $3.5 million consisting of $2.5 million
and $1.0 million from the sale of Units and Rights Offering Units pursuant to
exercise of the Public Warrants and Rights, respectively. However, there is no
assurance that the Company will receive any net proceeds from these offerings.
See "Use of Proceeds."
In the event that the Company does not obtain any net proceeds from
these offerings it anticipates that the Company will be able to continue to its
operations on internally generated cash flows. During the three months ended
March 31, 1996, and the 12 months ended December 31, 1995, the Company had
average monthly positive cash flows from operating activities of approximately
$53,700 and $26,400, respectively, and average monthly net positive cash flows
of approximately $37,200 and $9,300, respectively, after investing and financing
activities.
Furthermore, the Company signed a letter of intent on May 24, 1996,
with an underwriter which sets forth in principle the terms and conditions
pursuant to which investment banking services are to be provided and, subject
-25-
<PAGE>
to a number of conditions, Common Stock is to be purchased from the Company and
sold to the public by the underwriter during 1996. Until a definitive
underwriting agreement is executed with the underwriter, which generally will be
following the declaration of effectiveness of the registration statement filed
by the Company with the Securities and Exchange Commission covering the Common
Stock, the underwriter will have no obligation to purchase the Common Stock.
Therefore, there is no assurance that this offering will be completed.
Effect of Inflation
As the costs of products and services and other expenses of the Company
have increased, the Company has been generally able to increase the selling
prices of the products and services marketed by the Company; therefore, in the
view of management, inflation has not had a significant effect on gross margins.
In periods of high inflation, the costs and expenses of the products and
services marketed by the Company could adversely affect the Company's
profitability.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
Set forth below are certain unaudited pro forma consolidated financial
statements of the Company, presenting the pro forma effects of the MMI
Acquisition, assuming the MMI Acquisition occurred on the date of the balance
sheet and at the beginning of each period for which results of operations are
presented. The MMI Acquisition was accounted for using the purchase method of
accounting. The information presented below is derived from, and should be read
in conjunction with, the financial statements of the Company and MMI presented
elsewhere in this Prospectus. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the results of
operations or financial position that would have been achieved if the
transactions included in the pro forma adjustments had been consummated in
accordance with the assumptions set forth below, nor is it necessarily
indicative of future operating results or financial position.
-26-
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
Historical
--------------------------------
Advantage
Marketing Miracle Mountain
Systems, Inc. International,Inc.
March 31, March 31, Pro Forma Pro Forma
1996 1996 Adjustments Combined
------------ ------------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................. $ 223,775 $ --- $ --- $ 223,775
Receivables - net of allowance of $27,434......... 22,365 --- --- 22,365
Receivable from affiliate......................... 59,757 --- --- 59,757
Inventory......................................... 160,572 3,193 --- 163,765
Prepaid expenses.................................. 4,810 --- --- 4,810
------------ ----------- ---------- ------------
Total current assets.......................... 471,279 3,193 --- 474,472
------------ ----------- ---------- ------------
COMMISSION ADVANCES TO RELATED
PARTIES - NONCURRENT.............................. 1,790 --- --- 1,790
RECEIVABLES - NONCURRENT.............................. 20,972 --- --- 20,972
PROPERTY AND EQUIPMENT, net........................... 159,136 37,807 --- 196,943
OTHER ASSETS.......................................... 84,148 725 --- 84,873
GOODWILL.............................................. --- --- 124,559 (a) 124,559
------------ ----------- ---------- ------------
TOTAL ASSETS.......................................... $ 737,325 $ 41,725 $ 124,559 $ 903,609
============ =========== ========== ============
LIABILITIES & STOCKHOLDERS'
EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Bank overdrafts................................... $ --- $ 513 $ (513)(b) $ ---
Accounts payable.................................. 145,187 8,238 (8,238)(b) 145,187
Accrued expenses.................................. 225,318 16,284 --- 241,602
Accrued interest expense.......................... --- 2,584 (2,584)(b) ---
Accrued promotion expense......................... 108,990 --- --- 108,990
Notes payable:
Stockholder................................... 64,648 62,174 (62,174)(c) 64,648
Other......................................... 12,370 --- --- 12,370
Current obligations under capital lease........... 23,839 --- --- 23,839
------------ ----------- ---------- ------------
Total current liabilities................. 580,352 89,793 (73,509) 596,636
LONG-TERM LIABILITIES:
Notes payable - other............................. 26,232 --- --- 26,232
Capital lease..................................... 74,265 --- --- 74,265
------------ ----------- ---------- ------------
Total long-term liabilities............... 100,497 --- --- 100,497
------------ ----------- ---------- ------------
TOTAL LIABILITIES..................................... 680,849 89,793 (73,509) 697,133
------------ ----------- ---------- ------------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock - $.0001 par value; authorized
5,000,000 shares; none issued................. --- --- --- ---
Common stock - $.0001 par value; authorized
495,000,000 shares; 16,985,524 shares
issued and outstanding........................ 1,698 92,655 62,174 (c) 64,648
(154,829)(a)
20 (d) 1,718
Paid-in capital................................... 1,858,396 --- 149,980 (d) 2,008,376
Accumulated deficit............................... (1,803,618) (140,723) 140,723 (a) (1,803,618)
------------ ----------- ---------- ------------
Total stockholders' equity (deficiency)....... 56,476 (48,068) 198,068 206,476
------------ ----------- ---------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.............................. $ 737,325 $ 41,725 $ 124,559 $ 903,609
============ =========== ========== ============
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
-27-
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Historical
-------------------------------------
Advantage Miracle
Marketing Mountain
Systems, Inc. International, Inc. Pro Forma
----------------- ------------------ Adjustments Pro Forma
December 31, 1995 December 31, 1995 Note2 Combined
----------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Programs..................................... $ 4,382,935 $ 277,366 $ --- $ 4,660,301
Promotional material......................... 109,733 --- --- 109,733
Other........................................ 25,535 --- --- 25,535
------------ ----------- ---------- ----------
Total revenues..................... 4,518,203 277,366 --- 4,795,569
------------ ----------- ---------- ----------
COSTS AND EXPENSES:
Programs..................................... 1,094,157 103,217 --- 1,197,374
Promotional material......................... 92,087 --- --- 92,087
Selling...................................... 2,201,510 145,650 --- 2,347,160
General and administration................... 857,743 157,725 17,794(e) 1,033,262
Interest expense............................. 22,998 1,403 --- 24,401
------------ ----------- --------- ---------
Total expenses..................... 4,268,495 407,995 17,794 4,694,284
------------ ----------- --------- ---------
NET INCOME (LOSS).............................. $ 249,708 $ (130,629) $ (17,794) $ 101,285
============ =========== =========== ===========
Weighted average common shares outstanding..... 21,301,441 200,000 21,501,441
Net income per common share.................... $ 0.01 NIL
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
-28-
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1996
<TABLE>
<CAPTION>
Historical
-------------------------------------
Advantage Miracle
Marketing Mountain
Systems, Inc. International, Inc. Pro Forma
----------------- ------------------ Adjustments Pro Forma
March 31, 1996 March 31, 1996 Note2 Combined
----------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Programs..................................... $ 1,255,889 $ 122,248 $ --- $ 1,378,137
Promotional material......................... 62,684 --- --- 62,684
Other........................................ 13,876 --- --- 13,876
------------ ------------ ----------- ----------
Total revenues..................... 1,332,449 122,248 --- 1,454,697
------------ ------------ ------------ ----------
COSTS AND EXPENSES:
Programs..................................... 302,879 39,602 --- 342,481
Promotional material......................... 35,745 --- --- 35,745
Selling...................................... 683,164 67,343 --- 750,507
General and administration................... 221,598 24,131 4,449(e) 250,178
Interest expense............................. 7,359 1,266 --- 8,625
------------ ------------ ----------- ----------
Total expenses..................... 1,250,745 132,342 4,449 1,387,536
------------ ------------ ----------- ----------
NET INCOME (LOSS).............................. $ 81,704 $ (10,094) $ (4,449) $ 67,161
============ ============ =========== ===========
Weighted average common shares outstanding..... 24,588,424 200,000 24,788,424
Net income per common share.................... NIL NIL
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
-29-
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS FOR PRESENTATION
The pro forma balance sheet and statement of income present the pro
forma effects of the acquisition by the Company of the issued and
outstanding capital stock of Miracle Mountain International, Inc., a
Colorado corporation ("MMI"), and MMI became a wholly-owned subsidiary
of the Company (the "MMI Acquisition"), pursuant to a Stock Purchase
Agreement with an effective date of May 31, 1996, (the "Purchase
Agreement"). MMI is a multi-level marketer of various third-party
manufactured nutritional supplement products. Pursuant to the Purchase
Agreement and in connection with the MMI Acquisition, the Company issued
and delivered to the shareholders of MMI 160,000 shares of Common Stock.
In addition, the Company agreed to issue and deliver an additional
40,000 shares of Common Stock to the shareholders of MMI on or before
October 18, 1996, pending determination of certain liabilities.
The accompanying unaudited pro forma statement of income is presented
assuming the MMI Acquisition occurred or was consummated on the first
day of the period presented. The unaudited pro forma consolidated
balance sheet as of March 31, 1996, is presented assuming the MMI
Acquisition occurred or was consummated on such date. The historical
information presented for the Company and MMI as of December 31, 1995,
is derived from the audited financial statements of the Company and MMI
as of such date.
The pro forma financial information presented in the unaudited pro forma
financial statements is not necessarily indicative of the financial
position and results of operations that would have been achieved had the
assets and liabilities been owned by a single corporate entity. The
results of operations presented in the unaudited pro forma statement of
income are not necessarily indicative of the consolidate results of
future operations of the Company following consummation of the MMI
Acquisition.
2. ADJUSTMENTS
The accompanying unaudited pro forma consolidated financial statements
have been adjusted to record and give effect to the following:
(a) Goodwill equal to the excess of the $150,000 purchase price
over the $25,441 fair market value of assets of MMI, net of
liabilities, amortizable over a seven-year period;
(b) Elimination of accounts payable, accrued interest payable and
bank overdrafts of MMI in the aggregate sum of $11,335, which
were not assumed by the Company;
(c) Conversion of $62,174 shareholder note payable to common stock
of MMI prior to consummation of the MMI Acquisition;
(d) Issuance of 200,000 shares of Common Stock of the Company in
exchange for the issued and outstanding capital stock of MMI;
(e) Amortization of goodwill over seven years, $17,794 and $4,449
for the year ended December 31, 1995, and for the three months
ended March 31, 1996, respectively.
3. NET INCOME PER SHARE
Pro forma per share calculations for the Company are based upon the
number of shares of Common Stock to be outstanding after giving effect to the
MMI Acquisition.
-30-
<PAGE>
RIGHTS OFFERING
General
The Company is issuing as a dividend, at no cost, to each holder of
Common Stock of record as of the 5:00 p.m., Central Standard Time, on , 1996
(the "Record Date"), one Right per share of Common Stock held on the Record
Date. Each of the Rights entitles the holders of the Rights (the "Rights
Holders") to purchase one Unit (comprised of one share of Common Stock and one
1996-A Warrant) at $.85 per Unit (the "Exercise Price"). The Rights are
evidenced by non-transferable certificates (the "Rights Certificates"), which
the shareholders will receive with delivery of this Prospectus. The Rights may
only be exercised by a Rights Holder in the event the Registration Statement of
which this Prospectus is a part is effective with the Securities and Exchange
Commission and the Units (or Common Stock and 1996-A Warrant comprising the
Units) are qualified for sale in the state of residence of the Warrant Holder.
See "Risk Factors--Securities Laws Restrictions on Exercise of Rights,"
"--Acceptance of Rights; Delivery of Units," below. Subject to foregoing, a
shareholder may (i) purchase Units through exercise of all of such shareholder's
Rights, thereby preserving approximately the same relative equity ownership
interest in the Company (except as may be adjusted to give effect to the
exercise of the Public Warrants pursuant to the Warrant Modification Offering,
outstanding options and other warrants, or otherwise ), or (ii) purchase Units
through the exercise of a portion of the shareholder's Rights and allow part or
all of the shareholder's Rights to expire unexercised. In the latter case, the
shareholder's relative equity ownership interest in the Company would be less
than if the Rights Holder exercised the Rights in full (except as may be
adjusted to give effect to the exercise of the Public Warrants pursuant to the
Warrant Modification Offering, the exercise of outstanding stock options and
other warrants, or otherwise). See "Description of Securities--Public
Warrants--Warrant Modification Offering."
Plan of Distribution
The Units are being offered on a best efforts basis by the Company and
its officers and directors, without commissions, selling fees or direct or
indirect remuneration. From the proceeds of this offering, the Company will pay
the costs incurred with respect to the offering, which are estimated to be
$75,000. Offers will be limited to the holders of the Rights residing in those
states in which the Units are registered or qualified to be offered and sold.
Holders of the Rights will not be required to pay any brokerage
commissions or fees with respect to the exercise of their Rights; however, the
holders of the Rights will be required to pay a $7.50 transfer fee for each
certificate evidencing the Common Stock and 1996-A Warrants issued in connection
with the exercise of the Rights. The Company will pay all charges and expenses
of the Subscription Agent. See "--Acceptance of Rights; Delivery of Units,"
below.
Expiration Date; Extensions; Termination; Amendment
The Rights will expire at 5:00 p.m., Central Standard Time, on
, 1996 (the "Expiration Date"). The Expiration Date may be
extended by the Company in its sole and absolute discretion, but not beyond
, 1996. After the Expiration Date, the Rights will have no value.
The Company expressly reserves the right at any time and from time to time to
extend the Expiration Date during which the Rights may be exercised and accepted
by giving oral or written notice to the Subscription Agent and by making a
public announcement of such extension no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
There can be no assurance that the Company will exercise its right to extend the
Expiration Date, and there is no limit on the number of times the Company may
extend the Expiration Date.
The Company reserves the right, in its sole discretion, in the event
any of the conditions set forth below under "--Conditions of the Rights
Offering" are not met or waived by the Company and so long as the Rights have
not theretofore been accepted for exercise, to delay (except as otherwise
required by applicable law) acceptance for exercise of any Rights, or to
terminate the Rights Offering and not accept for exercise any Rights. Any
extension, termination or amendment of the Rights Offering will be followed as
promptly as practicable by notification thereof
-31-
<PAGE>
in a manner reasonably calculated to inform the Rights Holders of such
extension, termination or amendment. Without limiting the manner in which the
Company may choose to make any public announcement, the Company will not, unless
otherwise required by applicable law, have any obligation to publish, advertise
or otherwise communicate any such public announcement other than by making a
release to the Dow Jones News Service. Any amendment to the Rights Offering will
apply to all Rights tendered for exercise pursuant thereto, regardless of when
or in what order the Rights are tendered.
Conditions of the Rights Offering
Notwithstanding any other provisions of the Rights Offering, the Company
may cancel, modify or terminate the Rights Offering and is not required to
accept for exercise any Rights if, prior to the Expiration Date:
(i) there shall be in effect any injunction prohibiting, restricting or
delaying consummation of the Rights Offering;
(ii) there shall have occurred any general suspension of trading in, or
limitation of prices for, securities in the over-the-counter markets; or
(iii) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any governmental authority, which would prohibit
or materially restrict or delay consummation of the Rights Offering.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to such
conditions or may be waived by the Company in whole or in part at any time and
from time to time, in its sole discretion. Each right of the Company in
connection with the foregoing conditions will be deemed an ongoing right that
may be asserted any time and from time to time. The failure by the Company, at
any time, to exercise its rights with respect to any of these conditions will
not be deemed a waiver of any such conditions. Any determination by the Company
concerning applicability of the conditions to the events set forth herein will
be final and binding upon all parties. The Company expressly reserves the right
to terminate or amend the Rights Offering and not accept for exercise any Rights
if any of the foregoing conditions are not satisfied.
Impact on Non-Exercising Rights Holders
The failure of Rights Holders to exercise the Rights before the
Expiration Date or that are unable to exercise the Rights because of securities
laws restrictions or limitations (see "--Acceptance of the Rights; Delivery of
Units," below) may own a reduced equity ownership interest and have a
correspondingly smaller percentage voting interest in the Company after
completion of this offering. Those Rights that are not exercised by the Rights
Holders will become worthless after the Expiration Date and all rights to
purchase the Units pursuant to the Rights and this offering will terminate.
The advantageous consequences of exercise of the Rights and receipt of
the Units include (i) the acquisition and receipt of additional equity ownership
of the Company represented by the shares of Common Stock and the 1996-A Warrants
(each of which will entitle the holder to purchase an additional share of Common
Stock at an exercise price of $1.50, subject to adjustment in certain events and
possible redemption by the Company at $.0001) comprising the Units, (ii)
participation in future growth of the Company and any potential market value
appreciation of the Common Stock and 1996-A Warrants, (iii) receive any
investment liquidity that the Common Stock has or may have in the future, as
well as any such liquidity the 1996-A Warrants may come to have in the event a
public market develops for the 1996-A Warrants, and (iv) maintenance and
possible increase of the Rights Holders' equity ownership interest and
percentage of voting interest in the Company. Although there may be advantages
offered by exercise of the Rights, the Rights Holders should also understand and
be aware that (i) exercise of the Rights will constitute an additional
investment requiring payment of the $.85 per Unit Exercise Price of the Rights
in order to receive the shares of Common Stock and 1996-A Warrants comprising
the Units, (ii) there are various risks
-32-
<PAGE>
associated with such investment as disclosed in this Prospectus (see "Risk
Factors"), (iii) there is no assurance that a market will develop for the 1996-A
Warrants, (iv) the issuance of Common Stock and 1996-A Warrants pursuant to this
offering, the Warrant Modification Offering and in connection with the exercise
of outstanding options and warrants may have an adverse effect upon the public
trading price of the Common Stock, and (v) the Common Stock and, if a market
develops, the 1996-A Warrants are or will be traded in the over-the-counter
market which typically is volatile in nature (see "Risk Factors--
Over-the-Counter Market; Penny Stock Trading Rules" and "Price Range of Common
Stock and Dividends--Penny Stock Trading Rules"). See "Risk Factors" and
"Description of Securities--1996-A Warrants--Warrant Modification Offering" and
"--Other Options and Warrants."
Method of Exercising Rights
The exercise of the Rights by a Rights Holder pursuant to one of the
procedures set forth below will constitute an agreement between the Rights
Holder and the Company in accordance with the terms and subject to the
conditions set forth herein.
For effective exercise, the Rights Certificate accompanying this
Prospectus must be completed and executed as indicated thereon, and the Rights
Certificate must be accompanied by payment of the aggregate Exercise Price for
each Unit subscribed for pursuant to exercise of the Rights in cash or certified
or official bank check made payable to the order of "Advantage Marketing
Systems, Inc.", together with any other required documents. The Rights
Certificate and payment must be transmitted to and received by the Subscription
Agent at its address set forth on the back cover of this Prospectus on or before
the Expiration Date. However, in lieu of the foregoing, a holder may either (i)
tender the Rights Certificate to be exercised pursuant to the procedure for
book-entry tender set forth below (and a confirmation of such book-entry tender
must be received by the Subscription Agent on or before the Expiration Date) or
(ii) comply with the guaranteed delivery procedure set forth below. The
beneficial holders of Rights that are held by or registered in the name of a
broker, dealer, commercial bank, trust company or other nominee or custodian are
urged to contact such entity promptly if they wish to exercise the Rights. The
Rights Certificates, together with the cash or certified or official bank check
and any other required documents to be delivered, should be delivered only by
hand or by courier, or transmitted by mail, and only to the Subscription Agent
and not to the Company. The method of delivery of the Rights Certificates and
all other required documents to the Subscription Agent is at the election and
risk of the Rights Holder, but if such delivery is by mail it is suggested that
the Rights Holder use properly insured, registered mail with return receipt
requested, and that the mailing be made sufficiently in advance of the
Expiration Date to permit delivery to the Subscription Agent prior to the
Expiration Date.
Each signature of the Rights Holders on the Rights Certificate must be
guaranteed by a member firm of any registered national securities exchange or of
the National Association of Securities Dealers, Inc., or by a commercial bank or
trust company having an office or correspondent in the United States
(collectively, "Eligible Institutions").
In the event the Rights Certificates are registered in the name of a
person other than the person executing the Rights Certificate, or if the Rights
Certificates that are not accepted for exercise are to be returned to a person
other than the registered owner, then the "Assignment" on the reverse side of
the Rights Certificates must be endorsed or accompanied by an appropriate
instrument of transfer, signed exactly as the name of the registered owner
appears on the certificates, with the signatures on the "Assignment" or
instruments of transfer guaranteed by an Eligible Institution.
Book-Entry Tender Procedure. Within two business days after
the date of this Prospectus, the Subscription Agent will establish
accounts with respect to the Rights at the Depository Trust Company (the
"Book-Entry Transfer Facility") for purposes of the Rights Offering. Any
financial institution that is a participant in a Book-Entry Transfer
Facility's system may make book-entry delivery of the Rights by causing
the Book-Entry Transfer Facility to transfer the same into the
Subscription Agent's account at such Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedure for such
-33-
<PAGE>
transfer and to confirm such transfer to the Subscription Agent in
writing. Any tender of Rights to be effected through book-entry delivery
at a Book-Entry Transfer Facility must have either (i) the Rights
Certificate executed by the holder of record, together with signature
guarantees, and delivered to a BookEntry Transfer Facility and the cash
or certified or official bank check, together with all other documents
required, transmitted to and received by the Subscription Agent at its
address set forth on the back cover of this Prospectus on or before the
Expiration Date or (ii) complied with the guaranteed delivery procedure
set forth below. Delivery of documents to a Book-Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedure does not
constitute delivery to the Subscription Agent.
Guaranteed Delivery Procedure. In the event a Rights Holder
desires to exercise the Rights, but is unable either to deliver his
certificates, the cash or certified or official bank check and all other
required documents to the Subscription Agent on or before the Expiration
Date or to comply with the procedure for book-entry tender on a timely
basis, such Rights may nevertheless be tendered for exercise, provided
that all of the following conditions are satisfied:
(i) such tenders are made by or through an Eligible
Institution;
(ii) prior to the Expiration Date, a properly
completed and duly executed Notice of Guaranteed Delivery (by
telegram, telex, facsimile transmission, mail or hand
delivery) setting forth the name and address of the Rights
Holder and the number of Units being purchased pursuant to
exercise of the Rights, stating that the exercise is being
made thereby and guaranteeing that within three New York Stock
Exchange trading days after the Expiration Date, the Rights
Certificate and the cash or certified or official bank check,
together with all other documents required, will be deposited
by the Eligible Institution with the Subscription Agent; and
(iii) the certificates for all exercised Rights in
proper form for transfer (or a written confirmation of
book-entry transfer into the Subscription Agent's account at a
Book-Entry Transfer Facility as described above) and the cash
or certified or official bank check, together with all other
documents required, are received by the Subscription Agent
within three New York Stock Exchange trading days after the
Expiration Date.
The issuance of Units pursuant to exercise of the Rights will be made
only after timely receipt by the Subscription Agent of the Rights Certificates
(or a confirmation of a book-entry transfer of such Rights into the Subscription
Agent's account at one of the Book-Entry Transfer Facilities as described above)
and the cash or certified or official bank check, together with all other
documents required. If less than the entire number of Rights evidenced by a
submitted Rights Certificate are to be exercised, the tendering Rights Holder
should indicate on the Rights Certificate, the number of Rights being tendered
for exercise.
Withdrawal Rights
The Company reserves the right to withdraw the Rights Offering at any
time prior to or on the Expiration Date and for any reason (including, without
limitation, the market price of the Common Stock), in which event all funds
received from subscribing Rights Holders will be refunded by the Subscription
Agent immediately without interest. Except as described below, Rights Holders
exercising the Rights and subscribing to Units will have no rights to revoke
their subscriptions after delivery to the Subscription Agent of a completed
Subscription Form and any other required documents.
In the event the Company (i) extends the Expiration Date for exercise of
the Rights or otherwise modifies the Rights, (ii) is delayed in its acceptance
of Rights for exercise on or after the Expiration Date (without extension) or
(iii) is unable to accept the Rights for exercise for any reason on the
Expiration Date, in such event, without prejudice to the Company's rights, the
Subscription Agent may, on behalf of the Company, retain all Rights tendered
-34-
<PAGE>
for exercise, and such Public Warrants may not be withdrawn, subject delivery of
the Units to the Rights Holders or, if the Rights and this offering are
terminated or withdrawn by the Company, return the tendered certificates of the
Rights, the funds received in certified or official bank check and all other
documents tendered in exercise of the Rights. In the event of (i), (ii) or (iii)
above, the Rights tendered for exercise may be withdrawn at any time before the
extended Expiration Date. After the extended Expiration Date, such tenders are
irrevocable, except that they may be withdrawn after , 1996 (40
business days from the date of this Prospectus if not yet accepted for payment),
unless theretofore accepted for exercise as provided in this Prospectus.
To be effective, a written, telegraphic or facsimile transmission of a
notice of withdrawal must (i) be timely received by the Subscription Agent at
its address specified on the back cover page of this Prospectus before the
Subscription Agent receives notice of acceptance by the Company of the Rights,
(ii) specify the name of the person who tendered the Rights, (iii) if the Rights
have been deposited with or otherwise identified to the Subscription Agent,
contain the description of the Rights to be withdrawn and indicate the
certificate numbers shown on the Rights Certificates evidencing such Rights
(except in the case of book-entry tenders) and (iv) be executed by the holder of
the Rights in the same manner as the original Rights Certificate or be
accompanied by evidence satisfactory to the Company that the person withdrawing
the tender has succeeded to the beneficial ownership of the Rights. If the
Rights have been tendered for exercise pursuant to the book-entry tender, a
notice of withdrawal must specify, in lieu of certificate numbers, the name and
account number at a Book-Entry Transfer Facility to be credited with the
withdrawn Rights.
Validity of Exercise or Withdrawal
All questions with respect to the validity, form, eligibility (including
time of receipt) and acceptance for exercise (or, if applicable, withdrawal of
the exercise) of the Rights will be determined by the Company, in its sole
discretion, which determination will be final and binding upon the Rights
Holder, the Subscription Agent and the Company. The Company reserves the
absolute right to reject any and all tenders of Rights (and, if applicable, the
withdrawal thereof) which it determines not to be in proper form, or the
acceptance or exercise of which would, in the opinion of the Company's counsel,
be unlawful. The Company also reserves the absolute right to waive any defect or
irregularity in the exercise of the Rights (or, if applicable, any withdrawal
thereof). The Company, Subscription Agent or any other person will not be under
any duty to give notification of any defects or irregularities in exercise (or,
if applicable, withdrawal), nor will they incur any liability for failure to
give such notification. Exercise of the Rights (or, if applicable withdrawal
thereof) will not be deemed to have been properly made until any irregularities
have been waived by, or cured to the satisfaction of, the Company. The Company's
interpretation of the terms and conditions of the this offering will be final
and binding upon the Rights Holders and the Company.
Subscription Proceeds
All proceeds received by the Subscription Agent with respect to the
exercise of Rights will be held by the Subscription Agent. Tendered Rights not
accepted for exercise by the Company, together with any cash or certified or
official bank check and any other required documents, will be returned
immediately after the Expiration Date.
If the Company (i) extends the Expiration Date or otherwise modifies the
Rights, (ii) is delayed in its acceptance for exercise of the Rights after the
extended Expiration Date, or (iii) is unable to accept for exercise any Rights
for any reason, in such event, without prejudice to the Company's right
hereunder, the Subscription Agent, at the request of the Company, may
nevertheless retain Rights tendered for exercise together with any cash or
certified or official bank check and any other required documents, subject to
the withdrawal rights of the Rights Holder thereof as set forth herein and
applicable securities laws.
-35-
<PAGE>
Acceptance of Rights; Delivery of Units
Rights properly tendered for exercise (and not withdrawn pursuant to the
limited withdrawal rights described under "--Withdrawal Rights," above) will be
accepted for exercise on or promptly after the Expiration Date. The Company will
be deemed to have accepted for exercise properly tendered Rights when, as and if
the Company has given oral or written notice thereof to the Subscription Agent.
All tendering Rights Holders will be deemed to have waived any right to receive
notice of the acceptance of their Rights. Certificates for Common Stock and
1996-A Warrants comprising the Units will be issued as promptly as practicable
after the Rights are accepted for exercise. Any Rights not exercised before the
Expiration Date (including any extension thereof) will become worthless.
In certain cases, the sale of the Units by the Company upon exercise of
Rights could violate the securities laws of certain states or other
jurisdictions. The Company has undertaken registration or qualification of the
Units (or the Common Stock and 1996-A Warrants comprising the Units) for sale in
California, Colorado, Georgia, Kentucky, Illinois, Louisiana, New Hampshire, New
York, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Virginia, Washington and
Wisconsin; however, there is no assurance that such registration will become
effective in such states. In addition, the Company may undertake registration of
the Units (or the Common Stock and 1996-A Warrants comprising the Units) in
additional states as determined in the sole discretion of the Company. Those
Rights Holders residing in states in which the Units have not been registered or
otherwise qualified for sale in such state, will not be permitted to exercise
their Rights. Prior to tendering of Rights for exercise, the Rights Holder
should either contact the Company or the Subscription Agent to determine whether
the Units have been registered or qualified in the state of such Rights Holder's
residence. The Company has used and will continue to use its best efforts to
cause the Registration Statement of which this Prospectus is a part to be
declared effective under the laws of various states as may be required to cause
the sale of Units (or the Common Stock and 1996-A Warrants comprising the Units)
upon exercise of Rights to be lawful. However, the Company is not be required to
accept the exercise of the Rights, if, in the opinion of counsel, the sale of
the Units (or the Common Stock and 1996-A Warrants comprising the Units) upon
such exercise would be unlawful. In such cases, the Rights not accepted for
exercise will become worthless after the Expiration Date.
In the event the Company (i) extends the Expiration Date, (ii) is
delayed in its acceptance for exercise, or (iii) is unable to accept for
exercise any Rights for any reason, in such event, without prejudice to the
Company's right hereunder, the Subscription Agent, at the request of the
Company, may nevertheless retain Rights tendered for exercise together with any
cash or certified or official bank check and any other required documents,
subject to the withdrawal rights of the Rights Holder thereof as set forth
herein.
Transfer Taxes and Certificates
Holders of Rights will be required to pay all transfer taxes, if any,
applicable to the exercise of Rights and a fee of $7.50 per certificate of
Common Stock and 1996-A Warrants issued by the Company to the holders upon
exercise of the Rights.
Mutilated, Lost, Stolen or Destroyed Rights Certificates
Any holder whose certificates evidencing Rights have been mutilated,
lost, stolen or destroyed should contact the Subscription Agent at its address
or telephone number indicated on the back cover page of this Prospectus for
further instructions.
Expenses
The Company will pay the Subscription Agent reasonable and customary
fees for its services and will reimburse the Subscription Agent for its
reasonable out-of-pocket expenses in connection therewith. The Company will also
reimburse custodians, nominees and fiduciaries for reasonable out-of pocket
expenses incurred by them in forwarding copies of this Prospectus, the Rights
Certificates and related documents to the beneficial owners of
-36-
<PAGE>
the Common Stock of the Company and in handling or forwarding tenders on behalf
of their customers. The Company will also pay legal, accounting, printing,
listing, filing and other similar fees and expenses in connection with the
securities offered pursuant to this Prospectus.
Exercise by Management
The executive officers and directors of the Company hold 3,422,642
shares of Common Stock as of June 24, 1996, and as of the date of this
Prospectus, they have reserved all rights with respect to exercise of the Rights
to be distributed to them pursuant to this offering and have not committed to
exercise all or any portion of the Rights. See "Security Ownership of Certain
Beneficial Owners and Management."
Prohibition Against Trading by Interested Persons
Pursuant to Section 10b of the Exchange Act and Rule 10b-6 thereunder,
subject to certain exceptions, it is unlawful for the Company, any underwriter
and broker-dealer that participates or agrees to participate in the distribution
of the Units (each referred to as a "Distribution Participant"), and an
"affiliated purchaser" (within the meaning of Rule 10b-6(c)(6) under the
Exchange Act), directly or indirectly, either alone or with one or more other
persons, until completion of the distribution of the Units, or its or his
participation in the distribution of the Units, to (i) bid for or purchase for
any account in which it or he has a beneficial interest in the Units, Common
Stock, the Public Warrants, 1996-A Warrants, Rights, stock options or other
warrants, or any right to purchase any such securities, or (ii) induce any
person to purchase any such security or right. However, the Company and any
other Distribution Participant and affiliated purchaser, if not engaged in for
the purpose of creating actual or apparent active trading in or raising the
price of the Common Stock, Units, 1996-A Warrants or Rights, are not prohibited
from effecting certain transactions in the Company's securities, including (i)
unsolicited privately negotiated block purchases not effected through a
broker-dealer and (ii) the exercise of any rights (Public Warrants, options,
warrants, etc.) to acquire the securities directly from the Company.
For purposes of the foregoing, "affiliated purchaser" includes (i) any
person, directly or indirectly, acting in concert with a Distribution
Participant in connection with the acquisition or distribution of the Units,
Common Stock, 1996-A Warrants, or the Public Warrants, stock options, other
warrants or any other right to purchase the Units, Common Stock or 1996-A
Warrants, (ii) an affiliate who, directly or indirectly, controls the purchases
of the Units, Common Stock, and 1996-A Warrants by a Distribution Participant,
whose purchases are controlled by a Distribution Participant, or whose purchases
under common control with those of a Distribution Participant, (iii) an
affiliate that is a broker-dealer, subject to a limited exception, or (iv) an
affiliate (other than a broker-dealer) that regularly purchases securities,
through a broker-dealer or otherwise, for its own account, for the account of
others, or recommends or exercises investment discretion with respect to the
purchase or sale of securities, other than an affiliate that is a separate and
distinct organizational entity from, with no officers (or persons performing
similar functions) or employees (other than clerical, ministerial, or support
personnel) in common with, the Distribution Participant, and the affiliate and
the Distribution Participant have separate employee compensation arrangements
and the affiliate's bids for, purchases of, and inducements to purchase the
securities are made in the ordinary course of its business.
Subscription Agent
The Company has retained U.S. Stock Transfer Corp. (the "Subscription
Agent") to act as Subscription Agent in connection with the Rights Offering. The
Subscription Agent will act as agent for the tendering Rights Holders of the
Rights for the purposes of receiving from the Company the Common Stock and
1996-A Warrants comprising the Units, and transmitting such securities to the
Rights Holders. All deliveries sent or presented to the Subscription Agent
relating to the Rights Offering and exercise of the Rights should be directed to
its address or telephone number set forth on the back cover of this Prospectus.
-37-
<PAGE>
Information Requests
All questions and requests for assistance concerning the method of
exercising the Rights and subscribing for Units or for additional copies of this
Prospectus should be directed to the Company at address or telephone number set
forth on the back cover of this Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Introduction. The following summary is a general discussion of the
federal income tax consequences to the Rights Holders and the Company of the
issuance and distribution of the Rights to the shareholders of the Company and
exercise of the Rights. The legal conclusions expressed in the summary are the
opinion of Dunn Swan & Cunningham, A Professional Corporation, tax counsel to
the Company ("Counsel"). The summary is based upon the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations thereunder, rulings and
other pronouncements, and reported decisions as of the date of this Prospectus,
all of which are subject to change. Furthermore, the following discussion is
limited to the material federal income tax aspects of the issuance and
distribution of the Rights to the shareholders and the exercise thereof by the
Rights Holders who hold the Rights as "capital assets" (generally, property held
for investment as compared to property held for sale to customers as inventory)
within the meaning of Section 1221 of the Code. The summary does not discuss all
aspects of federal income taxation that may be relevant to a Rights Holder
exercising the Rights in light of such Rights Holder's personal investment
circumstances or to certain types of person subject to special treatment under
the federal income tax laws (for example, trusts, life insurance companies,
tax-exempt organizations, financial institutions, or S corporations) and does
not discuss any aspects of applicable state, local or foreign tax laws.
Issuance of the Rights to Shareholders. The issuance and distribution of
the Rights as a dividend to the shareholders will not result in any gain or loss
to the shareholders.
Tax Basis of Right. A shareholder will not recognize any gain or loss
upon the exercise of a Right. The adjusted tax basis of such Right in the hands
of the shareholder will be determined by allocating the shareholder's tax basis
of his share of Common Stock with respect to which the Right was distributed
(the "Share") between the Share and the Right, in proportion to their relative
fair market values on the date of distribution. If, however, the fair market
value of the Right distributed to the shareholder on the date of distribution is
less than 15 percent of the fair market value of the Share, the tax basis of the
Right will be deemed to be zero unless the shareholder affirmatively elects, by
attaching an election statement to his federal income tax return for the year in
which he receives the Right, to compute the tax basis of the Right in accordance
with the method described above. Once made, such an election is irrevocable. A
Right will not be treated as having any tax basis if it expires without exercise
and, therefore, the shareholder will not recognize a loss upon expiration of the
Right.
Exercise of Right and Sale of Units. No gain or loss will be recognized
by a shareholder upon purchase of an Unit pursuant to exercise of a Right. The
tax basis of a Unit purchased pursuant to exercise of a Right will be equal to
the sum of (i) the tax basis of the Right exercised and (ii) the Exercise Price
paid for the Unit. The Rights Holder's tax basis in the Unit must be further
allocated between the shares of Common and the 1996-A Warrant comprising the
Unit in proportion to their respective fair market values (trading values) at
the time of issuance. The amount allocated to each component of the Unit will
constitute the tax basis of that component. The holding period of the a Unit and
the component shares of Common Stock and 1996-A Warrant will commence on the
date of exercise. Upon the subsequent sale of the share of Common Stock or
1996-A Warrant (other than pursuant to redemption by the Company), the
shareholder will generally recognize capital gain or loss in an amount equal to
the difference between the proceeds of the sale and the shareholder's tax basis
of such share or 1996-A Warrant. Such gain or loss will be long-term capital
gain or loss if the shareholder's holding period for such share or 1996-A
Warrant is more than one year on the date of sale. If such share of Common Stock
or 1996-A Warrant is redeemed by the Company, the shareholder will recognize
capital gain or loss (determined as described above)
-38-
<PAGE>
if, for federal income tax purposes, the redemption (i) results in a "complete
termination" of the shareholder's Common Stock ownership in the Company, (ii) is
"substantially disproportionate" with respect to the shareholder, or (iii) is
"not essentially equivalent to a dividend." If none of these tests is satisfied,
the redemption proceeds could be taxed to the shareholder as an ordinary income
cash dividend, in whole or in part, depending on the extent of the Company's
current and accumulated earnings and profits.
Tax Consequence to the Company. No gain or loss will be recognized by
the Company upon issuance of the Rights, the receipt of cash for Units pursuant
to exercise of the Rights, or the expiration of the Rights without exercise.
Based upon calculations performed by the Company, Counsel is of the
opinion that the exercise of the Rights will not adversely affect the Company's
ability to preserve and utilize its net operation loss carryforwards for federal
income tax purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--Income Taxes."
BUSINESS
General
The Company is a marketer of consumer oriented services and products
which are packaged together in special programs and sold to independent sales
representatives and associates who use the products and services themselves and
also sell them to others. The programs consist of various services which provide
savings on items such as merchandise, groceries and travel, and legal benefits
furnished by certain third party providers as well as nutritional supplements.
These programs represent the Company's one main class of products and services
and account for over 96 percent of its revenues. The Company generates revenue
through the sale of memberships in its consumer benefit services programs and
through the sale of products in its nutritional supplement program. Membership
sales revenues are recognized when the member remits payment for the membership
and the Company provides the services under the program, generally on a monthly
basis. Revenues through the sale of products in its nutritional supplement
program are recognized when the products are paid for and shipped to the
purchaser.
The percentage of total revenue contributed from the Company's consumer
benefit services programs was 3.7, 8.2 and 30 percent for the three months ended
March 31, 1996, and the year ended December 31, 1995 and 1994, respectively, and
3.7 and 14.7 percent for the three months ended March 31, 1996 and 1995,
respectively. The percentage of total revenue contributed from the Company's
nutritional supplement program was 94.8, 89.9 and 69.3 for the three months
ended March 31, 1996, and the year ended December 31, 1995 and 1994,
respectively.
Products and Services of the Company
In January 1993, the Company introduced the "Infinity Plan" which is
made up of packages of consumer benefit services provided by third party
providers. In addition, in 1993, the Company began marketing of pre-paid legal
services. The consumer benefit services are provided by third party providers
and consist of (i) discount shopping service which provides access to a wide
range of merchandise at discount through a toll free "800" number, (ii) grocery
coupon service which provides access to money saving coupons on major name brand
products, (iii) discount travel service which provides access to guaranteed
lowest airfares, with five percent cash rebates on air, hotel, cruise and
vacation packages, (iv) pre-paid legal services which include four basic
benefits which provide coverage for a broad range of preventive and litigation
related legal expenses, and/or (v) a variety of other consumer benefits
including savings on prescriptions, eye care, magazines and books. The services
under these consumer benefit programs, except for the pre-paid legal services,
are provided by Consumer Benefit Services, Inc. of Naperville, Illinois. The
pre-paid legal services are provided by Pre-Paid Legal Services, Inc. of Ada
Oklahoma.
-39-
<PAGE>
Individuals purchase memberships in the Company's Infinity Plan. They
normally pay for their memberships on a monthly basis. Payment of their monthly
membership fee entitles the member to have access to a variety of consumer
benefit services provided by third party providers. The Company pays these third
party providers a fee based upon the number of active memberships that are in
place each month. The Company recognizes the revenues and expenses related to
the Infinity Plan on a monthly basis as the members pay their membership fees to
the Company, and the Company in turn pays a fee to the third-party providers,
thus allowing the members to have access to the consumer benefit services.
In October of 1993, the Company introduced the "NewTrition Plan" which
allows plan members to purchase a variety of dietary and nutritional supplements
designed to assist with healthy diet and weight management programs. Through the
"NewTrition Plan" the Company offers the following products which represent the
majority of the Company's nutritional supplement program sales:
. AM-300 -- A weight management supplement containing a unique blend of
specialized herbs plus the patented ingredient, Chromium Picolinate.
. Shark Cartilage -- A nutritional supplement manufactured from 100% shark
fin cartilage.
. Super Anti-Oxidant -- An exclusive blend of enzyme-active and
phyto-nutrient rich whole food and herbal antioxidant concentrates.
These nutritional supplements are purchased from Advanced Products, Inc. of
Conway, Arkansas, and distributed on an exclusive rights basis with certain
limited exceptions.
The Company and its affiliates have no other relationships with Consumer
Benefit Services, Inc., Advanced Products, Inc., or their affiliates. Pre-Paid
Legal Services, Inc. is a shareholder of the Company, and Harland Stonecipher
the founder and Chief Executive Officer of Pre-Paid Legal Services, Inc. was
elected to the Company's Board of Directors on August 25, 1995.
Other Products and Services. As of the date of this Prospectus the
Company has not determined the other services and products it may desire to
market; however, it is continually searching for new services and products to
offer its members. The Company anticipates it will continue to market the
above-mentioned programs in the near term. Also, contracts which the Company may
establish with its suppliers may contain restrictions on the other products and
services the Company may sell.
Marketing
The Company markets its products and services directly to consumers
through independent sales distributors or sales associates in a multi-level
direct selling organization. The Company's multi-level marketing programs
encourages individuals to sell the various consumer products and services
offered under the program and allows individuals to recruit and develop their
own sales organizations. Commissions are paid only on sales of products and
services. Commissions are paid to the sales associate making the sale, and to
other associates who are in the line of associates who directly or indirectly
recruited the selling associate. For the three months ended March 31, 1996, and
the year ended December 31, 1995 and 1994, the Company paid commissions to 955,
1,863 and 1,871 individuals in the aggregate amount of $605,288, $1,823,058 and
$927,422, respectively. Each sales associate is responsible for monitoring the
progress and sales practices of the associates recruited by the sales associate.
The Company provides training materials, organizes area training meetings and
designates personnel specifically trained to answer questions and inquiries from
sales associates.
Multi-level marketing is primarily used for product and services
marketing based on personal sales which encourages individual or group
face-to-face meetings with prospective purchasers of the products and services
of in
-40-
<PAGE>
connection with a program and has the potential of attracting a large number of
sales personnel within a short period of time. The Company's marketing efforts
toward individuals typically target middle income families or individuals and
seek to educate potential members concerning the benefits of program membership.
Sales associates under the Company's multi-level marketing system are
generally engaged as independent contractors and are provided with training
guides and are given the opportunity to participate in Company training
programs. All advertising, promotional and solicitation materials used by sales
associates must be approved by the Company prior to use. A substantial number of
the Company's sales associates market the Company programs on a part-time basis
only. At March 31, 1996, the Company had 7,844, "active" sales associates
compared to 8,076 and 7,258 "active" sales associates at December 31, 1995 and
March 31, 1995, respectively. A sales associate is considered to be "active" if
he or she has originated at least one new program member or participant and/or
made a NewTrition Plan product purchase within the previous 12 months.
The principal source of the Company's revenues and profits is from the
sale of products to independent sales distributors and the sale of memberships
to participants in its consumer benefit services plan. The Company derives
additional revenues from services provided to its multi-level marketing sales
force, from a one-time membership fee of approximately $139 from each new sales
associate and the sale of marketing supplies and promotional materials to
associates, as well as a monthly $4.00 administrative fee for associates
receiving commissions during a month. The one-time membership fee is intended to
offset the Company's direct costs of the materials contained in the sales kit
provided to the new distributor or associate. The administrative fee is intended
to offset the Company's direct and indirect costs incurred in tracking sales
activity and generating the commission checks for all of the Company's
independent distributors and associates. Amounts collected from distributors and
sales associates through these fees and the sale of marketing supplies and
promotional materials are not intended to generate material profits for the
Company. During the three months ended March 31, 1996, and the years ended
December 31, 1995 and 1994, the Company received one-time distributor and
associate fees totalling $130,240, $261,043 and $222,880, respectively. The
Company did not begin charging a monthly $4.00 administrative fee until the
second quarter of 1995. During the three months ended March 31, 1996, and the
year ended December 31, 1995, the Company received administrative fees totalling
$4,292 and $15,018, respectively.
The marketing plan provides various levels of commissions based on a
sales associate's ability to produce personal sales. In addition, commissions on
the sale by other members of a sales associate's organization may be earned by
the sales associate. Sales are made through direct personal sales presentations
as well as presentations made to groups in a format known as "opportunity
meetings" which are designed to encourage individuals to subscribe for program
membership as well as to become sales associates. These new sales associates are
likewise encouraged to sell the Company's products and services to new members
and are, in turn, encouraged to become sales associates for the Company, and so
on. The effect is to create a "multi-level" sales organization. The growth of
the organization is provided for by a compensation system which provides for
payment of sales commissions not only on direct sales made by a sales associate
but also on sales made by other sales associates in his or her commission
organization. The direct "commission organization" consists of six levels in
depth and unlimited width. Each new distributor or associate that joins the
Company's sales organization is linked to an existing distributor or associate
that sponsored them into the business. As a result each individual distributor's
or associate's personal sales organization grows based on this sponsorship by
people they personally sponsor and by people that are sponsored by people they
personally sponsored and so on. An individual distributor or associate's
"commission organization" consists of all distributors or associates they have
personally sponsored into the business and everyone that each of those people
has sponsored and everyone that each of these people has sponsored and so on
until you reach six distributor or associates away from the original distributor
or associate.
As an additional incentive for top producers, a commission override
program is available for those who meet specified qualifications. This override
program provides for the payment on sales that extend beyond the sixth level of
an individual's "commission organization."
-41-
<PAGE>
Sales associates are encouraged to assume responsibility for training
and motivation of other sales associates within their organization and to
conduct opportunity meetings as soon as they are trained to do so. The Company
strives to maintain a high level of motivation, morale, enthusiasm and integrity
among the members of its independent sales organization. This is done through a
combination of quality products, sales incentives, personal recognition of
outstanding achievement, and promotional materials. The Company believes that
this form of sales organization is cost efficient since direct sales expenses
are primarily limited to the payment of commissions and thus are only incurred
when a membership is sold. Under the Company's multi-level marketing system the
Company's distributors and associates purchase sales aids and brochures from the
Company and assume the costs of advertising and marketing the Company's products
to retail consumers as well as recruiting new distributors and associates.
The Company's inventories consist of marketing materials and nutrition
products. The Company's marketing materials inventory consists primarily of
sales aids, training, marketing and promotional materials such as product and
marketing brochures, video and audio cassette tapes, training manuals,
distributor applications, order forms and other paper supplies that the Company
sells to its distributors and associates. At December 31, 1994, the Company had
marketing materials and product inventories of $29,215 and $18,656,
respectively. At December 31, 1995, the Company had marketing materials and
product inventories of $46,440 and $52,181, respectively. At March 31, 1996, the
Company had marketing materials and product inventories of $86,268 and $74,304,
respectively.
Operations
The operations of the Company involve processing membership
applications, processing data on new and existing sales associates, computing
commission data, general accounting, and other operations generally related to
the maintenance and operation of a direct sales organization. Due to the
multi-level structure of the Company's sales organization and the complexity of
its sales commission system, it is extremely important for the Company to
promptly and accurately carry out its operations.
The Company's computerized management information system permits
management of accounts, maintenance of members, programs, and order information,
inventory control, processing of credit card orders, and calculation of and
control of sales commissions and assignments thereof, as well as maintenance of
accounting information.
The Company's corporate office in Oklahoma City, Oklahoma, also has
departments which deal directly with sales associates, provide marketing support
and personal assistance, fulfill supply orders and communicate with state
regulatory agencies.
Contractual Arrangements
As of the date of this Prospectus, the consumer benefit services offered
and distributed by the Company are provided by Consumer Benefit Services, Inc.
("CBS") and Pre-Paid Legal Services, Inc. The Company has non-exclusive
contractual arrangements with the providers of the consumer benefit services
offered pursuant to its Infinity Plan. Pursuant to these arrangements the
Company provides information on its active memberships to the providers on a
monthly basis and pays a fee for each active membership. The Company recognizes
theses costs on a monthly basis at the same time it recognizes the corresponding
revenue received from its members. The nutritional supplement products sold and
distributed by the Company in conjunction with its "NewTrition Plan" are
provided by Advanced Products, Inc., on an exclusive distribution rights basis,
subject to limited exceptions. The Company does not generally enter into
long-term purchase commitments with respect to the consumer benefit services of
third-party providers or the nutritional supplement products offered and
distributed by the Company; however, the Company customarily enters into
contracts with such third-party providers to establish the terms and conditions
of service and/or product sales made by the Company through its distributors and
program participants.
Although the Company believes it would be able to obtain alternative
sources of services and products, because the Company's services and products
are only available through single source or limited source third-party
-42-
<PAGE>
providers, any future difficulty in obtaining any of the key services or
products offered and distributed by the Company could have a material adverse
effect on the Company's results of operations. In addition, the unavailability
of or interruptions in access to the services and products provided by
third-party providers involves certain risks, although the Company has not
previously experienced such unavailability or interruptions. In the event any of
the third-party providers, especially the provider of nutritional supplement
products, were to become unable or unwilling to continue to provide the services
or products in required volumes, the Company would be required to identify and
obtain acceptable replacements, which could be lengthy and no assurance can be
given that any additional sources would become available to the Company on a
timely basis. A delay or reduction in availability of the services and/or
products offered and distributed by the Company could materially and adversely
affect the Company's business, operating results and financial condition.
Competition
The marketing industry in which the Company is involved is highly
competitive. Some of the better known companies that have achieved significant
levels of success utilizing a form of multi-level marketing would include Amway
Corporation, Mary Kay Cosmetics, Inc., Shaklee Corporation and The A.L. Williams
Corporation. The Company is aware of several companies utilizing a multi-level
marketing organization to market services similar to that which are offered by
the Company. Many of these companies have substantially greater financial
resources than the Company. The Company competes with numerous businesses that
market products and services similar to those of the Company through direct mail
solicitations, direct sales in the field and sales out of established business
locations.
Not only do the companies in the direct sales segment of the industry
compete with each other as to the different products offered by each company,
these companies also compete very vigorously to recruit new sales persons and to
retain experienced and successful direct sales personnel. Successful direct
sales persons are often attracted to sell new or different products being
distributed by companies whose compensation plans are the most lucrative, and
consequently frequently are willing to leave their existing companies (even if
these companies have a superior product) for the opportunity to earn increased
compensation. Although the Company believes that it has been able to design an
attractive sales organization program, and will be able to recruit and retain
new and existing direct sales personnel to sell the Company's consumer services
and nutritional supplement programs, there is no guarantee that its independent
selling organization will ultimately be successful.
Government Regulation
The Company markets and sells its consumer service and nutritional
supplement programs through independent sales distributors in a multi-level
direct selling organization organized by the Company. All multi-level direct
selling organizations are subject to careful scrutiny by various state and
federal governmental regulatory agencies to ensure compliance with various types
of laws, rules and regulations, including but not limited to securities,
franchise investment, business opportunity and criminal laws prohibiting the use
of "pyramid" or "endless chain" types of selling organizations. The design of
the structure and implementation of the various elements of such selling
organizations, primarily relating to compensation payable to independent sales
distributors and the fees and expenses charged to sponsoring and sponsored
participants are very complex, and compliance with all of the applicable laws
may to some degree be uncertain in light of evolving interpretation of existing
laws and the enactment of new laws, rules and regulations pertaining to this
type of product distribution and these types of selling organizations. The
Company has an ongoing compliance program with assistance from counsel
experienced in the laws and regulations pertaining to multi-level sales
organizations. The Company is not aware of any legal actions pending or
threatened by any governmental authority against the Company regarding the
legality of the Company's operations.
The Company currently has independent distributors or associates in 50
states. The Company has reviewed the requirements of various states as well as
sought legal advice regarding the structure and operation of its selling
organization to insure that it complies with all of the applicable laws
pertaining to multi-level sales organizations
-43-
<PAGE>
in those states in which the Company is engaged in business. On the basis of
these efforts and the experience of its management, the Company believes that it
is in compliance with all applicable requirements. Although the Company believes
that the structure and operation of its selling organization complies with all
of the applicable laws pertaining to multi-level sales organizations in those
states in which the Company is engaged in business, the Company has not obtained
any no-action letters or advance rulings from any federal or state security
regulator or other governmental agency concerning the legality of the Company's
operations, nor is the Company relying on an opinion of counsel to such effect.
In addition, the operations of the Company are also subject to various
federal, state and local requirements which affect businesses generally, such as
taxes, postal regulations, labor laws, and zoning ordinances.
Employees
As of March 31, 1996, the Company had 15 full-time and two part-time
employees, of whom three were executive officers, seven were engaged in
administrative activities, two were engaged in marketing activities, two were
engaged in customer service activities, and one was engaged in shipping
activities. One part-time employee was engaged in shipping and the other was
engaged in marketing activities. None of the Company's employees is represented
by a labor organization. The Company considers its employee relations to be
good.
Properties
The Company maintains its executive office in 6,303 square feet at 2601
Northwest Expressway, Suite 1210W, Oklahoma City, Oklahoma 73112-7293. The
office premises are occupied pursuant to a long-term lease which terminates on
May 31, 1998, and the monthly rental payment is $4,432. The Company considers
such space to be adequate for its current needs. In the event the Company is
required to relocate its office upon termination of the existing lease, the
Company believes other office space is available under favorable leasing terms
in the Oklahoma City area.
Litigation
Other than as set forth hereinbelow, the Company does not have any
pending litigation. The Company is currently under investigation by the Oklahoma
Department of Securities with respect to the AMS Associate Stock Pool (the
"Pool"). As of the date of this Prospectus, the investigation is in the
discovery stage. The Pool, under which the independent distributors of the
Company's marketing programs and products are permitted to participant on a
voluntary basis, was formed in 1990. Participants make contributions to the Pool
and, from such contributions, the administrator of the Pool purchases on a
monthly basis the Company's Common Stock in the open market for the
participants. All purchase transactions are executed and effected through a
market maker in the Company's Common Stock. All records of ownership of the
Common Stock held by the Pool are maintained at the offices of the Company. The
Pool only purchases shares of Common Stock and does not sell shares on behalf of
the participants. In the event a participant desires to sell the Common Stock
held for his benefit by the Pool, certificates representing such shares are
delivered to such participant for the purpose of effecting such sale. Although
its investigation is currently general in nature, the Oklahoma Department of
Securities may take the position that the offer and sale of participation rights
in the Pool violates the registration provisions of the Oklahoma Securities Act.
The Company is currently cooperating and intends to continue such
cooperation with the Oklahoma Department of Securities in its investigation
through the Company's legal counsel. Because, as of the date of this Prospectus,
the investigation is in the discovery stage, legal counsel cannot express an
opinion regarding the ultimate outcome of the investigation.
-44-
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information with respect to each
executive officer and director of the Company. Directors are generally elected
at the annual shareholders' meeting and hold office until the annual share
holders' meeting three years after election or until their successors are
elected and qualified. Executive officers are elected by the Board of Directors
and serve at its discretion. The Company's Bylaws authorize the Board of
Directors to be constituted of not less than one and such number as the Board of
Directors may from time to time determine by resolution or election. The Board
currently consists of five members. Directors are elected for three year terms,
with approximately one-third of the Board standing for election each year. The
term of office of one class of directors expires each year in rotation so that
one class is elected at each annual meeting of shareholders for a full
three-year term. The terms of John W. Hail and Roger P. Baresel expire in 1998,
the terms of Curtis H. Wilson, Sr. and R. Terren Dunlap expire in 1997, and the
term of Harland C. Stonecipher expires in 1996. See "--Board of Directors."
<TABLE>
<CAPTION>
Name Age Position with the Company
- ------------------------ ----- --------------------------------------
<S> <C> <C>
John W. Hail(1)(2)............... 65 Chairman of the Board, Chief Executive
Officer, and Director
Curtis H. Wilson, Sr.(3)......... 69 Vice-Chairman of the Board and
Director
Roger P. Baresel(1)(2)........... 40 President, Chief Financial Officer and
Director
R. Terren Dunlap(3).............. 50 Vice President--International
Development and Director
Harland C. Stonecipher(4)........ 56 Director
</TABLE>
- ---------------------------------
(1) Member of the Stock Option Committee. See "--Stock Option Plan," below.
(2) Term as a Director expires in 1998.
(3) Term as a Director expires in 1997.
(4) Term as a Director expires in 1996.
Messrs. Hail, Wilson and Baresel devote their full-time to business of
the Company. Mr. Dunlap devotes approximately 20 percent of his time to the
business of the Company. Mr. Dunlap devotes the balance of his time to other
business interests that are not believed to constitute a conflict of interest
with his employment by the Company.
The following is a brief description of the business background of the
executive officers and directors of the Company:
John W. Hail is the founder of Advantage Marketing Systems, Inc. and has
served as its Chief Executive Officer and Chairman of the Board of Directors
since its inception in June 1988. During 1987 and through June 1, 1988, Mr. Hail
served as Executive Vice President, Director and Agency Director of Pre-Paid
Legal Services, Inc., a public company engaged in the selling of legal services
contracts, and during this period, Mr. Hail also served as Chairman of the Board
of directors of TVC Marketing, Inc., the exclusive marketing agent of Pre-Paid
Legal Services, Inc.
Curtis H. Wilson, Sr. has served as Vice-Chairman of the Board of
Directors of the Company since June 1988. From January 1984 to June 1988, Mr.
Wilson was Executive Vice President of TVC Marketing, Inc., the
-45-
<PAGE>
exclusive marketing agent of Pre-Paid Legal Services, Inc. From March 1983 to
January 1984, Mr. Wilson was a sales associate of TVC Marketing, Inc. Mr. Wilson
retired in April 1982 after having been employed for 26 years as a salesman,
Vice President and ultimately President of V.J. McGanahan, Inc., a television
and appliance wholesale distributor in Dayton, Ohio.
Roger P. Baresel has served as Vice President, Chief Financial Officer
and a Director since June 1, 1995, and on July 1, 1995, Mr. Baresel became
President. Mr. Baresel is a Certified Public Accountant and holds a Master of
Business Administration. He has maintained an accounting practice since 1985
specializing in providing consulting services to small and growing businesses.
Since 1988, he has provided consulting services on a part-time basis to the
Company. Effective June 1, 1995, Mr. Baresel became a full time employee of the
Company.
R. Terren Dunlap has served as Vice President-International Development
and a Director since June 1, 1995. Mr. Dunlap is the co-founder and a Director
since 1984 and until March 1994 served as Chief Executive Officer and Chairman
of the Board, of Go-Video, Inc., an American Stock Exchange company, and
developer and distributor of consumer electronics products. He is an inventor
and has received several patents for consumer electronics products, including
the Dual Deck VCR, and is a member of the Electronics Industry Association and
the Arizona State University West Advisory Board, and has served on the national
board of the American Electronics Association. Mr. Dunlap holds a Juris
Doctorate from Ohio Northern University and a Bachelor of Science Degree in
Business Administration from Ashland University.
Harland C. Stonecipher has served as a Director since August 25, 1995.
Mr. Stonecipher has been Chairman of the Board and Chief Executive Officer of
Pre-Paid Legal Services, Inc. since its inception in 1972. Pre-Paid Legal
Services, Inc., an American Stock Exchange company, is the first company in the
United States organized solely to design, underwrite and market legal expense
plans.
Compensation of Executive Officers
Executive Officers of the Company. The following table sets forth
certain information relating to compensation paid to or accrued for the Chief
Executive Officer for services rendered during the years ended December 31,
1993, 1994 and 1995.
<TABLE>
<CAPTION>
Long-Term
Compensation(4)
----------------
Annual Compensation Award of Options
------------------------------------------ ----------------
Name and Principal Position Year Salary(1) Bonus(2) Other(3) Number of Shares
- --------------------------- ---- --------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
John W. Hail(5)................... 1995......... $ --- $ --- $ --- 3,000,000
Chief Executive Officer 1994......... $ --- $ --- $ --- ---
1993......... $ --- $ --- $ --- ---
</TABLE>
- ------------------------
(1) Dollar value of base salary (both cash and non-cash) earned during the
year.
(2) Dollar value of bonus (both cash and non-cash) earned during the year.
(3) The Company furnishes the use of an automobile to Mr. Hail, the value of
which is not greater than $5,000 annually.
(4) No awards of restricted stock or payments under long-term incentive
plans were made by the Company to the Chief Executive Officer during
1993 and 1994.
(5) During the fiscal year ended December 31, 1995, 1994 and 1993, the
Company made loan repayments to Mr. Hail totalling $127,615, $79,138 and
$33,122, respectively.
Mr. Hail has been willing to serve as the Company's Chief Executive
Officer without compensation to protect and enhance the value of his large stock
ownership position, and to increase the likelihood of repayment of the
-46-
<PAGE>
significant cash advances he has made to the Company, as well as due to his
desire to see the Company he founded become successful.
Aggregate Option Grants and Exercises in 1995 and Year-End Option Values
Stock Options and Option Values. The following table sets forth
information related to options granted to the Chief Executive Officer during
1995.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Rates of Stock
Price Appreciation
Individual Grants for Option Term(1)
------------------------------------------- -----------------------------
Percent of Total
Number Options Granted Exercise or
of Options to Employees in Base Price
Name Granted 1995 Per Share Expiration Date Five Percent Ten Percent
- ---- ---------- ---------------- ----------- ----------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
John W. Hail.............. 3,000,000 50.3% $.25 February 23, 2005 $375,000 $1,500,000
- --------------------------
</TABLE>
(1) The potential realizable value portion of the foregoing table
illustrates the value that might be realized upon exercise of the
options immediately prior to the expiration of their term, assuming the
specified compound rates of appreciation of the Common Stock over the
term of the options. These amounts do not take into consideration
provisions restricting transferability and represent certain assumed
rates of appreciation only. Actual gains on stock option exercises are
dependent on the future performance of the Common Stock and overall
stock market conditions. There can be no assurance that the potential
values reflected in this table will be achieved. All amounts have been
rounded to the nearest whole dollar amount.
Aggregate Stock Option Exercise and Year-End and Option Values. The
following table sets forth information related to the number of options
exercised in 1995 and the value realized by the Chief Executive Officer, as well
as, information related to the number and value of options held by the Chief
Executive Officer at the end of 1995. During 1995, there were no options to
purchase Common Stock exercised by the Chief Executive Officer.
<TABLE>
<CAPTION>
Number of Unexercised Options Value of Unexercised In-the-Money
as of December 31, 1995 Options as of December 31, 1995(1)
----------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John W. Hail.............. 1,200,000 --- $636,000 $ ---
</TABLE>
- --------------------------
(1) The closing highest bid price of the Common Stock as quoted on National
Quotation Bureau, Incorporated on December 29, 1995, the last trading
day of 1995, was $.78. Value is calculated on the basis of the remainder
of $.78 minus the exercise price multiplied by the number of shares of
Common Stock underlying the options.
Board of Directors
Pursuant to the terms of the Company's Bylaws, the directors are divided
into three classes. Class I Directors hold office initially for a term expiring
at the annual meeting of shareholders to be held in 1996, Class II Directors
hold office initially for a term expiring at the annual meeting of shareholders
to be held in 1997, and Class III Directors hold office initially for a term
expiring at the annual meeting of shareholders to be held in 1998. Each director
will hold office for the term to which he is elected and until his successor is
duly elected and qualified. Mr. Stonecipher is serving as a Class I Director
under a term expiring in 1996, Messrs. Wilson and Dunlap are serving as Class II
Directors under terms expiring in 1997, and Messrs. Hail and Baresel are serving
as Class III Directors under terms expiring in 1998. At each annual meeting of
the shareholders of the Company, the successor to a
-47-
<PAGE>
member of the class of directors whose term expires at such meeting will be
elected to hold office for term expiring at the annual meeting of shareholders
held in the third year following the year of his election.
Compensation of Directors
Directors who are not employees of the Company receive $250 for each
Board meeting attended. Directors who are also employees of the Company receive
no additional compensation for serving as Directors. The Company reimburses its
Directors for travel and out-of-pocket expenses in connection with their
attendance at meetings of the Board of Directors. The Company's Bylaws provide
for mandatory indemnification of directors and officers to the fullest extent
permitted by Oklahoma law.
Stock Option Plan
The Company established the Advantage Marketing Systems, Inc. 1995 Stock
Option Plan (the "Stock Option Plan" or the "Plan") in June 1995. The Plan
provides for the issuance of incentive stock options ("ISO Options") with or
without stock appreciation rights ("SARs") and nonincentive stock options ("NSO
Options") with or without SARs to employees and consultants of the Company,
including employees who also serve as Directors of the Company. The total number
of shares of Common Stock authorized and reserved for issuance under the Plan is
9,000,000. As of the date of this Prospectus, options have not been granted
under the Plan.
The Stock Option Committee, which is currently comprised of Messrs. Hail
and Baresel, administers and interprets the Plan and has authority to grant
options to all eligible employees and determine the types of options, with or
without SARs, granted, the terms, restrictions and conditions of the options at
the time of grant, and whether SARs, if granted, are exercisable at the time of
exercise of the Option to which the SAR is attached.
The option price of the Common Stock is determined by the Stock Option
Committee, provided such price may not be less than 85 percent of the fair
market value of the shares on the date of grant of the option. The fair market
value of a share of the Common Stock is determined by averaging the closing high
bid and low asked quotations for such share on the date of grant of the option
as reported by the National Quotation Bureau, Incorporated or, if not quoted, is
determined by the Stock Option Committee. Upon the exercise of an option, the
option price must be paid in full, in cash or with an SAR. Subject to the Stock
Option Committee's approval, upon exercise of an option with an SAR attached, a
participant may receive cash, shares of Common Stock or a combination of both,
in an amount or having a fair market value equal to the excess of the fair
market value, on the date of exercise, of the shares for which the option and
SAR are exercised, over the option exercise price.
Options granted under the Plan may not be exercised until six months
after the date of the grant and rights under an SAR may not be exercised until
six months after the SAR is attached to an option, if not attached at the time
of the grant of the option, except in the event of death or disability of the
participant. ISO Options and any SARs are exercisable only by participants while
actively employed as an employee or a consultant by the Company, except in the
case of death, retirement or disability. Options may be exercised at any time
within three months after the participant's retirement or within one year after
the participant's disability or death, but not beyond the expiration date of the
option. No option may be granted after April 30, 2005. Options are not
transferable except by will or by the laws of descent and distribution.
Officer and Director Liability
As permitted by the provisions of the Oklahoma General Corporation Act,
the Certificate of Incorporation (the "Certificate") eliminates in certain
circumstances the monetary liability of directors of the Company for a breach of
their fiduciary duty as directors. These provisions do not eliminate the
liability of a director for (i) a breach of the director's duty of loyalty to
the Company or its shareholders, (ii) acts or omissions by a director not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) liability arising under Section 1053 of the Oklahoma General
Corporation Act (relating to the declaration of dividends and purchase or
redemption of shares
-48-
<PAGE>
in violation of the Oklahoma General Corporation Act), or (iv) any transaction
from which the director derived an improper personal benefit. In addition, these
provisions do not eliminate liability of a director for violations of federal
securities laws, nor do they limit the rights of the Company or its
shareholders, in appropriate circumstances, to seek equitable remedies such as
injunctive or other forms of non-monetary relief. Such remedies may not be
effective in all cases.
The Certificate of Incorporation and Bylaws of the Company provide that
the Company shall indemnify all directors and officers of the Company to the
full extent permitted by the Oklahoma General Corporation Act. Under such
provisions, any director or officer, who in his capacity as such, is made or
threatened to be made, a party to any suit or proceeding, may be indemnified if
the Board of Directors determines such director or officer acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the Company. The Certificate and Bylaws and the Oklahoma General
Corporation Act further provide that such indemnification is not exclusive of
any other rights to which such individuals may be entitled under the
Certificate, the Bylaws, an agreement, vote of shareholders or disinterested
directors or otherwise. Insofar as indemnification for liabilities arising under
the Act may be permitted to directors and officers of the Company pursuant to
the foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
The Company may enter into indemnity agreements with each of its
directors and executive officers. Under each indemnity agreement, it is
anticipated that the Company will pay on behalf of the indemnitee, and his
executors, administrators and heirs, any amount which he is or becomes legally
obligated to pay because of (i) any claim or claims from time to time threatened
or made against him by any person because of any act or omission or neglect or
breach of duty, including any actual or alleged error or misstatement or
misleading statement, which he commits or suffers while acting in his capacity
as a director and/or officer of the Company or its affiliate or (ii) being a
party, or being threatened to be made a party, to any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was an officer, director,
employee or agent of the Company or its affiliate or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. It is
anticipated that the payments which the Company will be obligated to make
thereunder shall include, inter alia, damages, charges, judgments, fines,
penalties, settlements and cost of investigation and costs of defense of legal,
equitable or criminal actions, claims or proceedings and appeals therefrom, and
costs of attachment, supersedeas, bail, surety or other bonds.
CERTAIN TRANSACTIONS
Set forth below is a description of transactions entered into between
the Company and certain of its officers, directors and shareholders during the
last two years. Certain of these transactions will continue in effect during and
following completion of the Warrant Modification Offering and may result in
conflicts of interest between the Company and such individuals. Although these
persons have fiduciary duties to the Company and its shareholders, there can be
no assurance that conflicts of interest will always be resolved in favor of the
Company.
On November 6, 1990, John W. Hail, Chief Executive Officer and Chairman
of the Board of Directors of the Company, formed the John Hail Agency, Inc.
("JHA"). Mr. Hail is the sole director and shareholder of JHA. Pursuant to an
unwritten agreement, the Company provides office space, utilities and supplies
as well as administrative and managerial services to JHA for a monthly payment
of $1,000 as reimbursement of the Company's costs. In addition, the Company made
advances to JHA of $13,400, $87,684 and $66,026 during the three months ended
March 31, 1996, and the years ended December 31, 1995 and 1994, respectively.
The Company made advances to the JHA with the expectation that they would be
repaid and that the Company would derive additional revenues by providing
administrative and managerial services and renting office space to the JHA. JHA
has made repayments of these advances of $67,401 and $9,069 during the fiscal
years ended December 31, 1995 and 1994,
-49-
<PAGE>
respectively. During the three months ended March 31, 1996, JHA has not made any
repayments. At March 31, 1996, JHA was indebted to the Company in the amount of
$65,363. As a result of JHA's inability to generate significant levels of sales,
the Company does not expect to derive substantial revenues from its relationship
with JHA; however, the Company does anticipate continuing to receive the monthly
reimbursements.
During the five months ended May 31, 1995, and the fiscal year ended
December 31, 1994, Roger P. Baresel provided accounting and consulting services
to the Company and for such services Mr. Baresel was paid $13,500 and $19,500,
respectively. On June 1, 1995, Mr. Baresel ceased providing accounting and
consulting services to the Company and became an executive officer and a
Director of the Company.
Included among the consumer benefits sold by the Company are legal
services provided by Pre-Paid Legal Services, Inc. ("PPL"). Purchasers of these
legal services make payments directly to PPL and PPL in turn pays the Company a
commission on these sales. PPL owns 451,318 shares of the Company's Common Stock
and Harland C. Stonecipher, the founder and Chief Executive Officer of PPL is a
Director of the Company. During the three months ended March 31, 1996, and the
years ended December 31, 1995 and 1994, the Company received commissions from
PPL on these sales totalling $2,559, $16,415 and $71,713, respectively.
The Board of Directors of Company believes that the terms of the
transactions described above were at least as favorable as could be obtained
from unaffiliated third parties. The Company has adopted policies that any loans
to officers, directors and five percent or more shareholders ("affiliates") are
subject to approval by a majority of the disinterested independent directors of
the Company and that further transactions with affiliates will be on terms no
less favorable than could be obtained from unaffiliated parties and approved by
a majority of the disinterested independent directors. As of the date of this
Prospectus, the Board of Directors is comprised of the five members of which one
is an independent director.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information as to the beneficial
ownership of the Common Stock as of June 24, 1996, and the beneficial ownership
of the Common Stock, as adjusted to give effect to the Rights Offering (assuming
exercise of the Rights in full and the issuance of 17,185,524 shares of Common
Stock) and the Warrant Modification Offering (assuming exercise of the Public
Warrants in full and the issuance of 8,403,752 shares of Common Stock), of (i)
each person who is known to the Company to be the beneficial owner of more than
five percent thereof, (ii) each director and executive officer of the Company,
and (iii) all executive officers and directors as a group, together with their
percentage holdings of the outstanding shares, and, as adjusted, after giving
effect to completion of the Rights Offering and the Warrant Modification
Offering. All persons listed have sole voting and investment power with respect
to their shares unless otherwise indicated, and there are no family
relationships between the executive officers and directors of the Company. For
purposes of the following table, the number of shares and percent of ownership
of outstanding Common Stock that the named person beneficially owned includes
shares of Common Stock that such person has the right to acquire within 60 days
of June 24, 1996, pursuant to exercise of the Public Warrants, Rights, options
and other warrants, as well as any other rights to acquire, and are deemed to be
outstanding, but are not deemed to be outstanding for the purposes of computing
the number of shares beneficially owned and percent of outstanding Common Stock
of any other named person.
-50-
<PAGE>
<TABLE>
<CAPTION>
Percent of Outstanding Shares
------------------------------------------------------
After Giving Effect to
------------------------------------------
Distribution
and Exercise
Distribution of Rights (1)
Shares Before and Warrant Warrant
Name and Address of Beneficially this Exercise of Modification Modification
Beneficial Owner Owned offering Rights(1) Offering(2) Offering(2)
- ------------------- ------------ -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
John W. Hail(3)(4)................................. 3,676,237 20.00% 17.30% 13.72% 13.99%
Bruce Greene(5).................................... 3,778,000 15.01% 8.92% 11.64% 7.72%
Curtis H. Wilson, Sr.(3)(6)........................ 2,185,087 11.39% 6.52% 7.92% 5.29%
United Financial Advisory Services(7).............. 2,000,000 10.42% 5.50% 7.25% 4.47%
William A. LaReese(8).............................. 1,730,000 9.45% 6.56% 6.76% 5.45%
Robert and Retha Nance(9).......................... 1,588,137 8.96% 7.57% 6.09% 6.10%
Roger P. Baresel(3)(10)............................ 1,290,000 7.10% 4.53% 4.86% 3.66%
Harland C. Stonecipher(11)........................ 451,318 2.63% 2.63% 1.76% 2.11%
R. Terren Dunlap(3)(12)............................ 300,000 1.72% .87% 1.16% .70%
Executive Officers and
Directors as a group
(five persons)(4)(6)(10)(11)(12)(13)............ 7,902,642 36.48% 29.15% 26.28% 23.97%
</TABLE>
- -----------------------------------
(1) Assumes the exercise of the Rights in full and the issuance of
17,185,524 Units (and 17,185,524 shares of Common Stock underlying such
Units) pursuant thereto. See "Rights Offering."
(2) Assumes the exercise of the Public Warrants in full and issuance of
8,403,752 Warrant Modification Units (8,403,752 shares of Common Stock)
pursuant to the Warrant Modification Offering. See "Description of
Securities--Public Warrants--Warrant Modification Offering."
(3) A Director and an executive officer of the Company, with a business
address of 2601 Northwest Expressway, Suite 1210W, Oklahoma City,
Oklahoma 73112.
(4) The shares and percentage include (i) 1,200,000 shares of Common Stock
that are subject to currently exercisable stock options granted in 1995
to and held by Mr. Hail and (ii) 2,476,237 shares of Common Stock
(comprise in part the Units) that will be subject to exercisable Rights
to be distributed to Mr. Hail. As of the date of this Prospectus, Mr.
Hail has reserved all exercise rights with respect to the Rights and has
not committed to exercise all or any portion of the Rights.
(5) Mr. Greene's business address is 1465 Greenbrier Drive Green Oaks,
Illinois 60048. The shares and percentage include (i) 2,652,000 shares
of Common Stock that are subject to currently exercisable Public
Warrants held by Mr. Greene and (ii) 326,000 shares of Common Stock
(comprising in part the Units) that will be subject to exercisable
Rights to be distributed to Mr. Greene. As of the date of this
Prospectus, Mr. Greene has reserved all exercise rights with respect to
the Public Warrants and the Rights and has not committed to exercise all
or any portion of the Public Warrants or Rights.
(6) The shares and percentage include (i) 2,000,000 shares of Common Stock
that are subject to currently exercisable stock options granted to and
held by Mr. Wilson (1,000,000 of which were granted in 1995), (ii)
44,300 shares of Common Stock held by Ruth Wilson, wife of Mr. Wilson,
and with respect to which Mr. Wilson disclaims any beneficial interest,
and (iii) 185,087 shares of Common Stock (comprising in part the Units)
that will be subject to exercisable Rights to be distributed to Mr. and
Mrs. Wilson. As of the date of this Prospectus, Mr. and Mrs. Wilson have
reserved all exercise rights with respect to the Rights and have not
committed to exercise all or any portion of the Rights.
-51-
<PAGE>
(7) The business address of United Financial Advisors, Inc. is 1601
Northwest Expressway, Suite 2101, Oklahoma City, Oklahoma 73118. The
shares and percentage include 2,000,000 shares of Common Stock
that are subject to currently exercisable warrants.
(8) Mr. LaReese's business address is 2239 Northwest 30th Street, Oklahoma
City, Oklahoma 73112. The shares and percentage include (i) 1,130,000
shares of Common Stock that are subject to currently exercisable Public
Warrants and (ii) 600,000 shares of Common Stock (comprising in part the
Units) that will be subject to exercisable Rights to be distributed to
Mr. LaReese. As of the date of this Prospectus, Mr. LaReese has reserved
all exercise rights with respect to the Pubic Warrants and Rights and
has not committed to exercise all or any portion of the Public Warrants
or the Rights.
(9) Mr. and Mrs. Nance are husband and wife and their business address is
Post Office Box 405, Wheatland, Oklahoma 73097. The shares and
percentage include (i) 725 shares owned by Mr. Nance, (ii) 302,000
shares owned by Mrs. Nance, (iii) 750,000 shares owned jointly, (iv)
527,412 and 8,000 shares of Common Stock that are subject to currently
exercisable stock options granted to and held by Mr. and Mrs. Nance,
respectively, and (v) 1,052,725 shares of Common Stock (comprising in
part the Units) that will be subject to exercisable Rights to be
distributed to Mr. and Mrs. Nance. As of the date of this Prospectus,
Mr. and Mrs. Nance have reserved all exercise rights with respect to the
Rights and have not committed to the exercise of all or any portion of
the Rights.
(10) The shares and percentages include (i) 280,000 shares of Common Stock
that are subject to currently exercisable stock options granted to and
held by Mr. Baresel, of which 100,000, 80,000 and 100,000 options were
granted in 1992, 1994 and 1995, respectively, (ii) 210,000 shares of
Common Stock held by Judith A. Baresel, wife of Mr. Baresel, (iii)
600,000 shares of Common Stock that are subject to currently exercisable
stock options held by Judith A. Baresel, (iv) 100,000 shares of Common
Stock that are subject to currently exercisable stock options held by
Mrs. Baresel as the custodian for the benefit of the children of Mr. and
Mrs. Baresel, and with respect to which Mr. Baresel disclaims any
beneficial interest, and (v) 310,000 shares of Common Stock (comprising
in part the Units) that will be subject to exercisable Rights to be
distributed to Mr. and Mrs. Baresel. As of the date of this Prospectus,
Mr. and Mrs. Baresel have reserved all exercise rights with respect to
the Rights and have not committed to exercise all or any portion of the
Rights.
(11) A Director with a business address of 321 East Main Street, Ada,
Oklahoma 74820. The shares and percentages include (i) 451,318 shares of
Common Stock held by Pre-Paid Legal Services, Inc. of which Mr.
Stonecipher is Chairman of the Board and Chief Executive Officer and is
therefore deemed to beneficially own all shares of Common Stock
beneficially owned by Pre-Paid Legal Services, Inc. and (ii) 451,318
shares of Common Stock (comprising in part the Units) that are subject
to exercisable Rights to be distributed to Pre-Paid Legal Services, Inc.
As of the date of this Prospectus, Pre-Paid Legal Services, Inc. has
reserved all exercise rights with respect to the Rights and has not
committed to exercise all or any portion of the Rights.
(12) The shares and percentages include 300,000 shares of Common Stock which
are subject to a currently exercisable stock options granted in 1995 to
and held by Mr. Dunlap.
(13) The shares and percentage include (i) 4,480,000 shares of Common Stock
that are subject to currently exercisable stock options and (ii)
3,422,642 shares of Common Stock that will be subject to exercise of the
Rights by the executive officers and directors as a group.
DESCRIPTION OF SECURITIES
Pursuant to its Certificate of Incorporation, the Company is currently
authorized to issue up to 495,000,000 shares of Common Stock, $.0001 par value
("Common Stock"), and 5,000,000 shares of Preferred Stock, $.0001 par value
("Preferred Stock"). Pursuant to the Rights Offering, the Company will issue
17,185,524 Rights for the purchase of 17,185,524 shares of Common Stock and
1996-A Warrants comprising the Units. Concurrently with this offering, pursuant
to the Warrant Modification Offering, the Company is offering pursuant to a
separate prospectus 8,403,752 Warrant Modification Units, each consisting of one
share of Common Stock and one 1996-A Warrant. See "--Public Warrants--Warrant
Modification Offering," below. The share of Common Stock and the 1996-A Warrant
comprising each Unit and each Warrant Modification Unit will be immediately
detachable and
-52-
<PAGE>
separately tradeable upon issuance. After giving effect to (i) the issuance of
the Rights and assuming the exercise of the Rights in full and the issuance of
17,185,524 Units (17,185,524 shares of Common Stock and 17,185,524 1996-A
Warrants) pursuant thereto and (ii) the offering pursuant to the Warrant
Modification Offering and assuming the exercise of the Public Warrants in full
and the issuance of 8,403,752 Warrant Modification Units (8,403,752 shares of
Common Stock and 8,403,752 1996-A Warrants) pursuant thereto, the issued and
outstanding capital stock of the Company will consist of 42,774,800 shares of
Common Stock. See "Rights Offering" and "--Public Warrants--Warrant Modification
Offer" and "--Common Stock," "--1996-A Warrants," below.
The following description of certain matters relating to the capital
stock, the Public Warrants and the 1996-A Warrants is a summary and is qualified
in its entirety by the provisions of the Company's Certificate of Incorporation,
Bylaws, the Warrant Agreements between the Company and U.S. Stock Transfer Corp.
(the "Warrant Agent"), as amended, related to the Public Warrants and the 1996-A
Warrants, and the Rights Agreement between the Company and U.S. Stock Transfer
Corp. (the "Subscription Agent"), all of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
Common Stock
Pursuant to its Certificate of Incorporation, the Company is authorized
to issue up to 495,000,000 shares of Common Stock. The holders of outstanding
shares of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of assets
legally available therefor, subject to the payment of preferential dividends
with respect to any Preferred Stock that may be outstanding. In the event of
liquidation, dissolution and winding-up of the Company, the holders of
outstanding Common Stock are entitled to share ratably in all assets available
for distribution to the Common Stock shareholders after payment of all
liabilities of the Company, subject to the prior distribution rights of the
holders of any Preferred Stock that may be outstanding at that time. Holders of
outstanding Common Stock are entitled to one vote per share on matters submitted
to a vote by the Common Stock shareholders of the Company. The Common Stock has
no preemptive rights and no subscription, redemption or conversion privileges.
The Common Stock does not have cumulative voting rights, which means that
holders of a majority of shares voting for the election of directors can elect
all members of the Board of Directors subject to election. In general, a
majority vote of shares represented at a meeting of Common Stock shareholders at
which a quorum (a majority of the outstanding shares of Common Stock) is present
is sufficient for all actions that require the vote or concurrence of
shareholders, subject to and possibly in connection with the voting rights of
the holders of any Preferred Stock that from time to time may be outstanding and
entitled to vote with the holders of the Common Stock. Upon issuance of the
Common Stock as a component of the Units pursuant to the Warrant Modification
Offering, all of the outstanding shares of Common Stock will be fully paid and
nonassessable.
Public Warrants
As of June 24, 1996, there were 4,196,876 Class A Common Stock Purchase
Warrants (the "Class A Warrants) and 4,206,876 Class B Common Stock Purchase
Warrants (the "Class B Warrants") issued and outstanding. The terms and
conditions of the Class A Warrants and the Class B Warrants (collectively, the
"Public Warrants") are set forth in the Warrant Agreement between the Company
and the Warrant Agent, dated January 26, 1989, as amended providing for
extension of the respective periods during which the Public Warrants may be
exercised. Pursuant to amendment of the Warrant Agreement, the period of
exercise of the Class Warrants and the Class B Warrants was extended to July 26,
1996, and July 26, 1997, respectively. The Public Warrants are evidenced by
warrant certificates in registered form.
Each Public Warrant entitles the holder to purchase one share of Common
Stock. The number and kind of securities or other property for which the Public
Warrants are exercisable are subject to adjustments in certain events, such as
mergers, reorganizations or stock splits, to prevent dilution. Since issuance of
the Public Warrants and without giving effect to the Warrant Modification
Offering, there has not been any events resulting in adjustment
-53-
<PAGE>
in the number and kind of securities or other property required to be delivered
by the Company upon exercise of the Public Warrants. The Class A Warrants and
Class B Warrants are exercisable on or before July 26, 1996 and 1997,
respectively, for the purchase of one share of Common Stock for $.75 and $1.00
per share (the "Warrant Exercise Prices"), before giving effect to the Warrant
Modification Offering. The Company has exercised its right to redeem (the
"Warrant Redemption") the Public Warrants, by notice at 5:00 p.m., Central
Standard Time, on , 1996, subject to extension by the Company (the
"Redemption Date"), for $.0001 per warrant (the "Redemption Price").
Warrant Modification Offering. Pursuant to agreement with the Warrant
Agent, the Company has unilaterally offered to the holders of the Public
Warrants to modify the terms of the Public Warrants until their redemption by
the Company (the "Warrant Modification Offering"). Pursuant to the Warrant
Modification Offering, the Company has reduced the Warrant Exercise Price of the
Class B Warrants to $.75 from the $1.00 exercise price during the period
commencing on the date of this Prospectus until the Redemption Date (the
"Special Exercise Period"). In addition, the Company will issue as soon as
practicable after expiration of the Redemption Date, one Warrant Modification
Unit (one share of Common Stock and one 1996-A Warrant) for each Class A Warrant
and Class B Warrant effectively exercised, and not withdrawn, on or prior to the
Redemption Date, subject to certain conditions as set forth herein. The
Company's obligation to consummate the Warrant Modification Offering is not
subject to the exercise of any minimum number of Public Warrants. Following
expiration of the Redemption Date, the unexercised Public Warrants will expire
and cease to be issued and outstanding, and the registered holders of the
unexercised Public Warrants on the Redemption Date will be entitled to receive
the $.0001 Redemption Price per Public Warrant.
1996-A Warrants
The Board of Directors of the Company has authorized the issuance and
sale of 25,589,276 1996-A Warrants to be issued as components of the Units and
Warrant Modification Units (one 1996-A Warrant per Unit and Warrant Modification
Unit) to be offered to the Rights Holders pursuant to the Rights Offering and
Warrant Holders pursuant to the Warrant Modification Offering. See "Rights
Offering" and "--Public Warrants--Warrant Modification Offer," above. The 1996-A
Warrants will be issued subject to the terms and conditions of the Warrant
Agreement between the Company and the Warrant Agent.
Each 1996-A Warrant entitles the holder to purchase one share of Common
Stock on or before March 31, 1998 for an exercise price of $1.50. The number and
kind of securities or other property for which the 1995-A Warrants are
exercisable are subject to adjustments in certain events, such as mergers,
reorganizations or stock splits, to prevent dilution. At any time, upon 30 days'
written notice, the Company may redeem in whole and not in part, unexercised
1996-A Warrants for $.0001 per Warrant, provided the Common Stock has traded in
excess of the Warrant Exercise Price, as adjusted, for five consecutive trading
days. If any 1996-A Warrants called for redemption are not exercised by such
time, the 1996-A Warrants will cease to be exercisable and the holders thereof
will be entitled only to receive the redemption price. All 1996-A Warrants not
exercised or redeemed will expire on March 31, 1998. Holders of 1996-A Warrants
will not, as such, have any of the rights of shareholders of the Company.
In certain cases, the sale of securities by the Company upon exercise of
1996-A Warrants could violate the securities laws of the United States, certain
states thereof or other jurisdictions. The Company has agreed to use its best
efforts to cause a registration statement with respect to such securities under
the 1933 Act to continue to be effective during the term of the 1996-A Warrants
and to take such other actions under the laws of various states as may be
required to cause the sale of securities upon exercise of 1996-A Warrants to be
lawful. However, the Company will not be required to honor the exercise of
1996-A Warrants if, in the opinion of counsel, the sale of securities upon such
exercise would be unlawful. In certain cases, the Company may, but is not
required to, purchase 1996-A Warrants submitted for exercise for a cash price
equal to the difference between the market price of the securities obtainable
upon such exercise and the exercise price of such 1996-A Warrants.
-54-
<PAGE>
Preferred Stock
Pursuant to its Certificate of Incorporation, the Company has an
authorized class of Preferred Stock of 5,000,000 million shares, $.0001 par
value. The Preferred Stock may be issued from time to time in one or more
series, and the Board of Directors of the Company, without further approval of
its shareholders, is authorized to fix the relative rights, preferences,
privileges and restrictions applicable to each series of Preferred Stock.
Management of the Company believes that having such a class of Preferred Stock
provides the Company with greater flexibility in financing, acquisitions and
other corporate activities. While there are no current plans, commitments or
understandings, written or oral, to issue any additional shares of Preferred
Stock, in the event of any issuance, the holders of Common Stock will not have
any preemptive or similar rights to acquire any of such Preferred Stock.
The Board of Directors has the authority to issue shares of Preferred
Stock and to determine its rights and preferences to eliminate delays associated
with a shareholder vote on specific issuances. The issuance of Preferred Stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could adversely affect the voting power of holders of Common
Stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of the Company.
Other Options and Warrants
As of June 24, 1996, the Company has granted stock options and issued
warrants to purchase 12,321,412 shares of Common Stock during various periods,
which expire February 1997 through July 2005, at exercise prices of $.20 to $.81
per share. The average exercise price of the stock options is $.31, and the
exercise prices of the stock options and warrants were equal to the fair market
value of the Common Stock on the date of the grant of each stock option and
warrant. In addition, the Board of Directors is authorized to issue options and
other stock purchase rights pursuant to the Advantage Marketing Systems, Inc.
1995 Stock Option Plan. As of the date of this Prospectus, options under such
Stock Option Plan have not been granted. See "Management--Stock Option Plan."
During 1995, the Company issued options to certain officers and
directors in return for services rendered as a means of retaining their services
to the Company. In lieu of payments of salaries and consulting fees, the Company
has historically used options to attract, retain and compensate consultants,
officers and directors. The Company also believes that linking the compensation
of its officers and directors to increases in the value of its Common Stock
achieves improved performance.
Anti-Takeover Provisions
The Certificate of Incorporation and Bylaws of the Company and the
Oklahoma General Corporation Act include a number of provisions which may have
the effect of encouraging persons considering unsolicited tender offers or other
unilateral takeover proposals to negotiate with the Board of Directors rather
than pursue non-negotiated takeover attempts. The Company believes that the
benefits of these provisions outweigh the potential disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals might result in an improvement of their terms. The description below
related to provisions of the Certificate of Incorporation and the Bylaws of the
Company is intended as a summary only and is qualified in its entirety by
reference to the Certificate of Incorporation and the Bylaws of the Company,
which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
Preferred Stock. The Certificate of Incorporation authorizes the
issuance of the Preferred Stock in classes, and the Board of Directors to set
and determine the voting rights, redemption rights, conversion rights and other
rights relating to such class of Preferred Stock, and to issue such stock in
either private or public transactions. In some circumstances, the Preferred
Stock could be issued and have the effect of preventing a merger, tender offer
or other takeover attempt which the Company's Board of Directors opposes.
-55-
<PAGE>
Classified Board of Directors. The Bylaws of the Company provide that
the Board of Directors shall be comprised of three classes of directors, each
class constituting approximately one-third of the total number of directors with
each class serving staggered three-year terms. The classification of the
directors make it more difficult for shareholders to change the composition of
the Board of Directors. The Company believes, however, that the longer time
required to elect a majority of a classified board of directors will help ensure
continuity and stability of the Company's management and policies.
The classification provisions may also have the effect of discouraging a
third party from accumulating large blocks of Common Stock or attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its shareholders. Accordingly, shareholders of the Company
could be deprived of certain opportunities to sell their shares of Common Stock
at a higher market price than might otherwise be the case.
Oklahoma Anti-Takeover Statutes. Following completion of this offering
and the Warrant Modification Offering, the Company may become subject to Section
1090.3 and Sections 1145 through 1155 of the Oklahoma General Corporation Act
(the "OGCA").
Subject to certain exceptions, Section 1090.3 of the OGCA prohibits a
publicly-held Oklahoma corporation from engaging in a "business combination"
with an "interested shareholder" for a period of three years after the date of
the transaction in which such person became an interested shareholder, unless
the interested shareholder attained such status with approval of the board of
directors or the business combination is approved in a prescribed manner, or
certain other conditions are satisfied. A "business combination" includes
mergers, asset sales, and other transactions resulting in a financial benefit to
the interested shareholder. Subject to certain exceptions, an "interested
shareholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15 percent or more of the corporation's voting
stock.
In general, Sections 1145 through 1155 of the OGCA provide that shares
("interested shares") of voting stock acquired (within the meaning of a "control
share acquisition") become nonvoting stock for a period of three years following
such control share acquisition, unless a majority of the holders of
non-interested shares approve a resolution reinstating the interested shares
with the same voting rights that such shares had before such interested shares
became control shares. Any person ("acquiring person") who proposes to make a
control share acquisition may, at the person's election, and any acquiring
person who has made a control share acquisition is required to deliver an
acquiring person statement to the corporation disclosing certain prescribed
information regarding the acquisition. The corporation is required to present to
the next annual meeting of the shareholders the reinstatement of voting rights
with respect to the control shares that resulted in the control share
acquisition, unless the acquiring person requests a special meeting of
shareholders for such purpose and undertakes to pay the costs and expenses of
such special meeting. In the event voting rights of control shares acquired in a
control share acquisition are reinstated in full and the acquiring person has
acquired control shares with a majority or more of all voting power, all
shareholders of the corporation have dissenters' rights entitling them to
receive the fair value of their shares which will not be less than the highest
price paid per share by the acquiring person in the control share acquisition.
A "control share acquisition" includes the acquisition by any person
(including persons acting as a group) of ownership of, or the power to direct
the exercise of voting power with respect to, control shares (generally shares
having more than 20 percent of all voting power in the election of directors of
a publicly held corporation), subject to certain exceptions including (i) an
acquisition pursuant to an agreement of merger, consolidation, or share
acquisition to which the corporation is a party and is effected in compliance
with certain Sections of the OGCA, (ii) an acquisition by a person of additional
shares within the range of voting power for which such person has received
approval pursuant to a resolution by the majority of the holders of
non-interested shares, (iii) an increase in voting power resulting from any
action taken by the corporation, provided the person whose voting power is
thereby affected is not an affiliate of the corporation, (iv) an acquisition
pursuant to proxy solicitation under and in accordance with the Securities
Exchange Act of 1934, as amended, or the laws of Oklahoma, and (v) an
acquisition from any person whose previous acquisition of shares did not
constitute a control share acquisition, provided the
-56-
<PAGE>
acquisition does not result in the acquiring person holding voting power within
a higher range of voting power than that of the person from whom the control
shares were acquired.
The anti-takeover provisions of the OGCA may have the effect of
discouraging a third party from acquiring large blocks of Common Stock within a
short period or attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and its shareholders. Accordingly,
shareholders of the Company could be deprived of certain opportunities to sell
their shares of Common Stock at a higher market price than might otherwise be
the case.
Shareholder Action
Pursuant to the Oklahoma General Corporation Act, with respect to any
act or action required of or by the shareholders of the Company, the affirmative
vote of the holders of a majority of the issued and outstanding shares of Common
Stock entitled to vote thereon is sufficient to authorize, affirm, ratify or
consent to such act or actions, except as otherwise provided by law or in the
Company's Certificate of Incorporation.
Pursuant to Oklahoma law, shareholders of a corporation with less than
1,000 shareholders may take actions without the holding of a meeting by written
consent or consents signed by the holders of a sufficient number of shares to
approve the transaction had all of the outstanding shares of the capital stock
of the Company entitled to vote thereon been present at a meeting. Upon issuance
of the Units pursuant to the Warrant Modification Offering, the Company may have
1,000 or more shareholders, in which event any action taken pursuant to written
consent of shareholders will require unanimous consent of the shareholders. The
executive officers and directors of the Company currently hold of record
approximately 36.48 percent of the outstanding Common Stock. After giving effect
to and assuming (i) exercise of the Public Warrants in full pursuant to the
Warrant Modification Offering and the issuance of 8,403,752 shares of Common
Stock pursuant thereto and (ii) exercise of the Rights in full and the issuance
of 17,185,524 shares of Common Stock pursuant thereto, the executive officers
and directors will beneficially own approximately 23.97 percent of the
outstanding Common Stock (18.03 percent in the event the executive officers and
directors do not exercise any portion of the 3,422,642 Rights to be received by
them). Pursuant to the rules and regulations of the Securities and Exchange
Commission, if shareholder action is taken by written consent which does not
require unanimous shareholder consent, the Company will be required to send each
shareholder entitled to vote on the matter acted on, but whose consent was not
solicited, an information statement containing information substantially similar
to that which would have been contained in a proxy statement.
Transfer Agent and Warrant Agent
U.S. Stock Transfer Corp. is the registrar and transfer agent for the
Common Stock and the Warrant Agent for the Public Warrants and the 1996-A
Warrants, whose address is 1745 Gardena Avenue, Suite 200, Glendale, California
91204-2991. In addition, U.S. Stock Transfer Corp. is serving as Subscription
Agent with respect to the exercise of the Rights and the purchase of Units
pursuant to this offering.
SHARES ELIGIBLE FOR FUTURE SALE
Upon issuance and distribution of the Rights and assuming and giving
effect to (i) exercise of the Rights in full and upon issuance of 17,185,524
Units pursuant thereto and (ii) exercise of the Public Warrants in full pursuant
to the Warrant Modification Offering and the issuance of 8,403,752 Warrant
Modification Units pursuant thereto, the Company will have outstanding
42,774,800 shares of Common Stock. The Company has reserved 25,589,276 shares of
Common Stock for issuance upon exercise of the 1996-A Warrants and exercise of
12,321,412 shares of Common Stock for exercise of outstanding stock options and
certain other warrants, and 9,000,000 shares of Common Stock have been reserved
for issuance under the Stock Option Plan. Additionally, the Company will have
360,914,512 shares of Common Stock available for issuance at such times and upon
such terms
-57-
<PAGE>
as may be approved by the Company's Board of Directors. No prediction can be
made as to the effect, if any, that future sales or the availability of shares
for sale will have on the market price of the Common Stock prevailing from time
to time. Also see "Risk Factors--Absence of Prior Public Market for Units and
1996-A Warrants; Possible Volatility of Stock Price." Nevertheless, sales of
substantial amounts of Common Stock in the public market could adversely affect
the prevailing market price of the Common Stock and could impair the Company's
ability to raise capital through sales of its equity securities.
The Units sold pursuant to the Rights Offering and the Units (and the
component one share of Common Stock and one 1996-A Warrant of the Units) sold in
pursuant to the Warrant Modification Offering, will be immediately eligible for
resale in the public market without restriction or further registration under
the 1933 Act, except for Units, Common Stock, and 1996-A Warrants purchased by
an "affiliate" (as that term is defined under the 1933 Act) of the Company,
which will be subject to the resale limitations of Rule 144 promulgated under
the 1933 Act. In addition, as of June 24, 1996, there were 5,022,667 shares of
Common Stock (the "Restricted Shares") outstanding which have not been
registered under the 1933 Act (of which 3,422,642 were held by the executive
officers, directors and affiliates of the Company), but may be sold without
registration pursuant to Rule 144 promulgated under the 1933 Act, subject to the
limitations thereunder described below.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
Restricted Shares for at least two years is entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i)
one percent of the then outstanding shares of Common Stock or (ii) an amount
equal to the average weekly reported volume of trading in such shares during the
four calendar weeks preceding the date on which notice of such sale is filed
with the Commission. Sales under Rule 144 are also subject to certain manner of
sale limitations, notice requirements and the availability of current public
information about the Company. Restricted Shares properly sold in reliance on
Rule 144 are thereafter freely tradable without restrictions or registration
under the 1933 Act, unless thereafter held by an affiliate of the Company. In
addition, affiliates of the Company must comply with the restrictions and
requirements of Rule 144, other than the two-year holding period requirement, in
order to sell shares of Common Stock which are not Restricted Shares (such as
shares of Common Stock acquired by affiliates of the Company pursuant to
exercise of the Public Warrants). As defined in Rule 144, an "affiliate" of an
issuer is a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
such issuer.
Furthermore, if three years have elapsed since the later of the date of
any acquisition of Restricted Shares from the Company or from any affiliate of
the Company, and the acquiror or subsequent holder thereof is deemed not to have
been an affiliate of the Company at any time during the 90 days preceding a
sale, such person would be entitled to sell such shares in the public market
pursuant to Rule 144(k) without regard to volume limitations, manner of sale
restrictions, or public information or notice requirements. The Securities and
Exchange Commission has recently proposed an amendment to Rule 144 which would
reduce the three-year holding period to two years. The Commission is currently
awaiting comments on proposed amendment. It is anticipated that the proposed
amendment will be adopted, although there can be no assurance that the proposed
amendment will be adopted as proposed or that additional conditions may not be
imposed to permit the sale by non-affiliates after such two year holding period
pursuant to Rule 144.
Pursuant to Rule 144A promulgated under the 1933 Act, under certain
circumstances qualified institutional buyers, as defined in the rule, are
permitted to more easily acquire and sell "restricted securities." The Company
is unable to predict the effect that Rule 144A has or will have on the
prevailing market price of the Common Stock.
-58-
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Units offered hereby are be
passed upon for the Company by its counsel, Dunn Swan & Cunningham, A
Professional Corporation.
EXPERTS
The financial statements of Advantage Marketing Systems, Inc. (formerly
AMS, Inc.) as of December 31, 1995 and 1994, and for each of the two years in
the period ended December 31, 1995, and for Miracle Mountain International, Inc.
as of December 31, 1995, and the year then ended included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 (No.
33-80629) (herein, together with all amendments thereto, the "Registration
Statement"), of which this Prospectus constitutes a part, under the Securities
Act of 1933, as amended (the "1933 Act"), with the Securities and Exchange
Commission (the "Commission"), Washington, D.C., with respect to the securities
offered by this Prospectus. As permitted by the rules and regulations of the
Commission, this Prospectus, filed as part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
in the exhibits thereto. The statements contained in this Prospectus as to the
contents of any contract or other document referenced herein are not necessarily
complete, and in each instance, if the contract or document was filed as an
exhibit, reference is hereby made to the copy of the contract or other document
filed as an exhibit to the Registration Statement and each such statement is
qualified in all respects by such reference. The Registration Statement
(including the exhibits thereto) may be inspected without charge at the office
of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549-1004, and at the regional offices of the Commission at 7 World Trade
Center, 13th Floor, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of the Registration Statement and
the exhibits and schedules thereto may be obtained from the Commission at such
offices, upon payment of prescribed rates. The Company will provide without
charge to each person who receives this Prospectus, upon written or oral
request, a copy of any information incorporated by reference in this Prospectus
(excluding exhibits to information incorporated by reference unless such
exhibits are themselves specifically incorporated by reference). Such requests
should be directed to Advantage Marketing Systems, Inc. at 2601 Northwest
Expressway, Suite 1210W, Oklahoma City, Oklahoma 73112-7293, telephone: (405)
842-0131.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") as a "small
business issuer" as defined under Regulation S-B promulgated under the 1933 Act.
In accordance with the 1934 Act, the Company files reports and other information
with the Commission (File No. 33-25701), and such reports and other information
can be inspected and copied at, and copies of such materials can be obtained at
prescribed rates from, the Public Reference Section of the Commission in
Washington, D.C.
The Company distributes to its shareholders annual reports containing
financial statements audited by its independent public accountants and, upon
request, quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information. Such requests should be
directed to Advantage Marketing Systems, Inc. at 2601 Northwest Expressway,
Suite 1210W, Oklahoma City, Oklahoma 73112-7293, telephone: (405) 842-0131.
-59-
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus, and,
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or by any of the Underwriters. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, by any person in any jurisdiction in which such offer or solicitation is
not authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such an
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstance, create any implication that there has
been no change in the affairs of the Company since the date hereof.
------------
The Subscription Agent for the Rights Offering is:
U.S. STOCK TRANSFER CORP.
1745 GARDENA AVENUE, SUITE 200
GLENDALE, CALIFORNIA 91204-2991
TELEPHONE: (818) 502-1404
------------
Until , 1996, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
================================================================================
17,185,524 UNITS
(EACH CONSISTING OF ONE
SHARE OF COMMON STOCK AND
ONE 1996--A WARRANT)
ISSUABLE UPON EXERCISE
OF RIGHTS
ADVANTAGE MARKETING
SYSTEMS, INC.
------------
PROSPECTUS
------------
Holders of Rights who require information about procedures for exercise of the
Rights should contact the Subscription Agent.
Any requests for information in general or with respect to this offering or
additional copies of this Prospectus may be made by calling or writing
the Company at:
ADVANTAGE MARKETING SYSTEMS, INC.
2601 NORTHWEST EXPRESSWAY, SUITE 1210W
OKLAHOMA CITY, OKLAHOMA 73112-7293
ATTENTION: CORPORATE SECRETARY
TELEPHONE: (405) 842-0131
------------
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 1031 of the Oklahoma General Corporation Act permits (and the
Registrant's Certificate of Incorporation and Bylaws, which are incorporated by
reference herein, authorize) indemnification of directors and officers of the
Registrant and officers and directors of another corporation, partnership, joint
venture, trust or other enterprise who serve at the request of the Registrant,
against expenses, including attorneys fees, judgments, fines and amount paid in
settlement actually and reasonably incurred by such person in connection with
any action, suit or proceeding in which such person is a party by reason of such
person being or having been a director or officer of the Registrant or at the
request of the Registrant, if he conducted himself in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Registrant may not
indemnify an officer or a director with respect to any claim, issue or matter as
to which such officer or director shall have been adjudged to be liable to the
Registrant, unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper. To the extent that an officer or director is successful on
the merits or otherwise in defense on the merits or otherwise in defense of any
action, suit or proceeding with respect to which such person is entitled to
indemnification, or in defense of any claim, issue or matter therein, such
person is entitled to be indemnified against expenses, including attorney's
fees, actually and reasonably incurred by him in connection therewith.
The circumstances under which indemnification is granted with an action
brought on behalf of the Registrant are generally the same as those set forth
above; however, expenses incurred by an officer or a director in defending a
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of final disposition upon receipt of an undertaking by or on behalf of
such officer or director to repay such amount if it is ultimately determined
that such officer or director is not entitled to indemnification by the
Registrant.
These provisions may be sufficiently broad to indemnify such persons
for liabilities arising under the Securities Act of 1933, as amended (the
"Act").
Item 25. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
S.E.C. Registration Fees.................................. $ 20,150.04
N.A.S.D. Filing Fees...................................... --
*State Securities Laws (Blue Sky) Legal Fees............... 10,000.00
*State Securities Laws Filing Fees......................... 20,000.00
*Printing and Engraving.................................... 12,000.00
*Legal Fees................................................ 40,000.00
*Accounting Fees and Expenses.............................. 10,000.00
*Transfer and Warrant Agent's Fees and Costs of Certificates 8,000.00
*Miscellaneous............................................. 5,000.00
-----------
Total................................................... $125,150.04
===========
</TABLE>
- ----------------------------------------
*Estimated
II-I
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
The Registrant has sold and issued the securities described below
within the past three years which were not registered under the Act.
<TABLE>
<CAPTION>
Date of Purchase Number
Purchase or Price per of Shares
Name Issuance Share Purchased Net Proceeds Consideration
- ------------------- ----------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
R. Baresel ........ 12-29-94 .20 60,000 $ 12,000 Services
C. Blackwood ...... 12-30-94 .20 25,000 5,000 Services
P. Pierro ......... 12-30-94 .20 25,000 5,000 Services
A/P Conversion..... 12-30-94 .20 10,737 2,147
M. Cooper ......... 12-31-93 .10 100,000 10,000 Services
C. Wilson ......... 12-31-93 .10 120,000 12,000 Services
F. Morgan ......... 12-31-93 .10 120,000 12,000 Services
J. Baresel ........ 12-31-93 .10 100,000 10,000 Services
M. Strauss ........ 12-21-93 .25 8,000 2,000
R. Nance .......... 12-13-93 .10 300,000 30,000 Cash
Refunds ........... 11-15-93 .10 373,919 37,392
J. Baresel ........ 10-04-93 .10 50,000 5,000 Services
S. Moser .......... 10-04-93 .10 20,000 2,000 Services
R. Boyd ........... 07-28-93 .25 120,000 30,000 Cash
B. Wineinger ...... 07-16-93 .20 50,000 10,000 Cash
G. Landon ......... 06-04-93 .25 120,000 30,000 Cash
G. Landon ......... 05-07-93 .25 80,000 20,000 Cash
D. Thorley ........ 05-07-93 .25 40,000 10,000 Cash
M. Kendall ........ 04-01-93 .25 80,000 20,000 Cash
E. Baldwin ........ 04-01-93 .25 40,000 10,000 Cash
R. Tepoel ......... 03-02-93 .20 12,500 2,500 Cash
R. Nelson ......... 01-19-93 .20 50,000 10,000 Cash
D. Huff ........... 09-30-92 .10 25,000 2,500 Services
R/P Conversion .... 09-30-92 .10 1,295,130 129,513
N/P Conversion .... 09-30-92 .10 451,912 45,192
R. Nance .......... 09-30-92 .10 750,000 75,000 Cash
C. Wilson ......... 07-01-92 .10 120,000 10,000 Services
</TABLE>
- ----------------------------------------
(1) No underwriting discounts or commissions were paid with respect to such
sales.
Pursuant to a Stock Purchase Agreement having an effective date of May
31, 1996, the Company acquired all of the issued and outstanding capital stock
of Miracle Mountain International, Inc., a Colorado corporation. On June 20,
1996, the Company issued 160,000 shares of its Common Stock and agreed to issue
an additional 40,000 shares of its Common Stock on or before October 18, 1996,
to the shareholders of Miracle Mountain International, Inc. pursuant to Rule 506
of Regulation D.
The Company relied on Rule 147 and Sections 3 and 4(2) of the
Securities Act of 1933 for exemption from the registration requirements of such
Act. Each investor was furnished with information concerning the formation and
operations of the Registrant, and each had the opportunity to verify the
information supplied. Additionally, Registrant obtained a signed representation
from each of the foregoing persons in connection with the purchase of the Common
Stock of his or her intent to acquire such Common Stock for the purpose of
investment only, and not with a view toward the subsequent distribution thereof;
each of the certificates representing the Common Stock of the Registrant has
been stamped with a legend restricting transfer of the securities represented
thereby, and the
II-II
<PAGE>
Registrant has issued stop transfer instructions to U.S. Stock Transfer Inc.,
the Transfer Agent for the Common Stock of the Company, concerning all
certificates representing the Common Stock issued in the above-described
transactions.
Item 27. Exhibits and Financial Statement Schedules
Exhibit No.
-----------
2.1 Agreement and Plan of Merger between Registrant and AMS, Inc.**
2.2 Certificate of Merger of Advantage Marketing Systems, Inc. (A
Delaware Corporation) with and into Advantage Marketing Systems,
Inc. (An Oklahoma Corporation).**
3.1 The Registrant's Certificate of Incorporation.**
3.2 The Registrant's Bylaws.**
4.1 Certificate of Common Stock of the Registrant.**
4.2 Class A Common Stock Purchase Warrant Certificate.**
4.3 Class B Common Stock Purchase Warrant Certificate.**
4.4 Warrant Agreement between Registrant and U.S. Stock Transfer
Inc.**
4.5 1996-A Warrant Certificate.*
4.6 Warrant Agreement between Registrant and U.S. Stock Transfer
Inc.*
4.7 Letter dated June 8, 1990, addressed to U.S. Stock Transfer,
Inc. extending the expiration dates of Registrant's Class A
Common Stock Purchase Warrants and Class B Common Stock Purchase
Warrants.
4.8 Letter dated October 22, 1990, addressed to U.S. Stock Transfer,
Inc. extending the expiration dates of Registrant's Class A
Common Stock Purchase Warrants and Class B Common Stock Purchase
Warrants.
4.9 Letter dated July 15, 1991, addressed to U.S. Stock Transfer,
Inc. extending the expiration dates of Registrant's Class A
Common Stock Purchase Warrants and Class B Common Stock Purchase
Warrants.
4.10 Letter dated July 10, 1993, addressed to U.S. Stock Transfer,
Inc. extending the expiration dates of Registrant's Class A
Common Stock Purchase Warrants and Class B Common Stock Purchase
Warrants.
4.11 Letter dated June 14, 1994, addressed to U.S. Stock Transfer,
Inc. extending the expiration dates of Registrant's Class A
Common Stock Purchase Warrants and Class B Common Stock Purchase
Warrants.
4.12 Letter dated June 14, 1995, addressed to U.S. Stock Transfer,
Inc. extending the expiration dates of Registrant's Class A
Common Stock Purchase Warrants and Class B Common Stock Purchase
Warrants.
II-III
<PAGE>
4.13 Stock Purchase Agreement having an effective date of May 31,
1996, between the Registrant, Miracle Mountain International,
Inc., Richard Seaton, Gene Burson, Kaye Jennings, Daryl Burson,
James Rogers.
5.1 Opinion of Dunn Swan & Cunningham, A Professional Corporation,
counsel to Registrant, regarding legality of the securities
covered by this Registration Statement.**
10.1 Advantage Marketing Systems, Inc. 1995 Stock Option Plan.**
10.2 Agreement between Registrant and Consumer Benefit Services,
Inc.**
10.3 Agreement between Registrant and Advanced Products, Inc.**
23.1 Independent Auditors' Consent.
23.2 Consent of Counsel.**
24.1 Power of Attorney of John Hail.**
24.2 Power of Attorney of Curtis H. Wilson, Sr.**
24.3 Power of Attorney of Roger P. Baresel.**
24.4 Power of Attorney of R. Terren Dunlap.**
24.5 Power of Attorney of Harland C. Stonecipher.**
- ------------------------------------------------------
* To be furnished by amendment.
** Previously furnished.
Item 28. Undertakings
(a) Rule 415 Offering.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) To include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act,
treat each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that
II-IV
<PAGE>
remain unsold at the end of the offering.
(4) Will supplement the prospectus, after the end of the
subscription period, to include the results of the subscription offer,
the transactions by underwriters during the subscription period, the
amount of unsubscribed securities that the underwriters will purchase
and the terms of any later reoffering.
(5) If the underwriters make any public offering of the
securities on terms different from those on the cover page of the
prospectus, file a post-effective amendment to state the terms of such
offering.
(e) Request for Acceleration of Effective Date.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(f) Rule 430A.
The Registrant hereby undertakes that it will (i) for determining any
liability under the Securities Act, treat the information omitted from
the form of prospectus filed as a part of this Registration Statement
in reliance upon Rule 430A and contained in a form of prospectus filed
by the Registrant under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as a part of this Registration Statement as of the time
the Commission declared it effective, and (ii) for determining any
liability under the Securities Act, treat each post-effective amendment
that contains a form of prospectus as a new registration statement for
the securities offered in the registration statement, and that offering
of the securities at that time as the initial bona fide offering of
those securities.
II-V
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant hereby certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned in the City of Oklahoma City, State of Oklahoma, on the 27th day of
June, 1996.
ADVANTAGE MARKETING SYSTEMS, INC.
(Registrant)
By: /s/JOHN W. HAIL
-------------------------------------
John W. Hail, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/JOHN W. HAIL Chairman of the Board, Chief June 27, 1996
- ----------------------------------
John W. Hail Executive Officer and Director
CURTIS H. WILSON, SR.* Vice-Chairman of the Board June 27, 1996
- ----------------------------------
Curtis H. Wilson, Sr. and Director
/s/ROGER P. BARESEL President, Chief Financial June 27, 1996
- ----------------------------------
Roger P. Baresel Officer and Director
R. TERREN DUNLAP* Vice President-International June 27, 1996
- ----------------------------------
R. Terren Dunlap Division and Director
HARLAND C. STONECIPHER* Director June 27, 1996
- ----------------------------------
Harland C. Stonecipher
By:/s/JOHN W. HAIL
------------------------------
John W. Hail, Attorney-in-Fact
</TABLE>
II-VI
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- ------------
<S> <C> <C>
2.1 Agreement and Plan of Merger between Registrant and AMS, Inc.**
2.2 Certificate of Merger of Advantage Marketing Systems, Inc. (A Delaware
Corporation) with and into Advantage Marketing Systems, Inc. (An
Oklahoma Corporation)**
3.1 The Registrant's Certificate of Incorporation**
3.2 The Registrant's Bylaws**
4.1 Certificate of Common Stock of the Registrant**
4.2 Class A Common Stock Purchase Warrant Certificate**
4.3 Class B Common Stock Purchase Warrant Certificate**
4.4 Warrant Agreement between Registrant and U.S. Stock Transfer Inc.**
4.5 1995-A Warrant Certificate*
4.6 Warrant Agreement between Registrant and U.S. Stock Transfer Inc.*
4.7 Letter dated June 8, 1990, addressed to U.S. Stock Transfer, Inc.
extending the expiration dates of Registrant's Class A Common Stock
Purchase Warrants and Class B Common Stock Purchase Warrants....................
4.8 Letter dated October 22, 1990, addressed to U.S. Stock Transfer, Inc.
extending the expiration dates of Registrant's Class A Common Stock
Purchase Warrants and Class B Common Stock Purchase Warrants....................
4.9 Letter dated July 15, 1991, addressed to U.S. Stock Transfer, Inc.
extending the expiration dates of Registrant's Class A Common Stock
Purchase Warrants and Class B Common Stock Purchase Warrants....................
4.10 Letter dated July 10, 1993, addressed to U.S. Stock Transfer, Inc.
extending the expiration dates of Registrant's Class A Common Stock
Purchase Warrants and Class B Common Stock Purchase Warrants....................
4.11 Letter dated June 14, 1994, addressed to U.S. Stock Transfer, Inc.
extending the expiration dates of Registrant's Class A Common Stock
Purchase Warrants and Class B Common Stock Purchase Warrants....................
4.12 Letter dated June 14, 1995, addressed to U.S. Stock Transfer, Inc.
extending the expiration dates of Registrant's Class A Common Stock
Purchase Warrants and Class B Common Stock Purchase Warrants....................
4.13 Stock Purchase Agreement having an effective date of May 31, 1996,
between the Registrant, Miracle Mountain International, Inc., Richard
Seaton, Gene Burson, Kaye Jennings, Daryl Burson, James Rogers..................
5.1 Opinion of Dunn Swan & Cunningham, A Professional Corporation, counsel
to Registrant, regarding legality of the securities covered by this
Registration Statement**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.1 Advantage Marketing Systems, Inc. 1995 Stock Option Plan**
10.2 Agreement between Registrant and Consumer Benefit Services, Inc.**
10.3 Agreement between Registrant and Advanced Products, Inc.**
23.1 Independent Auditors' Consent......................................................
23.2 Consent of Counsel**
24.1 Power of Attorney of John Hail**
24.2 Power of Attorney of Curtis H. Wilson, Sr.**
24.3 Power of Attorney of Roger P. Baresel**
24.4 Power of Attorney of R. Terren Dunlap**
24.5 Power of Attorney of Harland C. Stonecipher**
</TABLE>
- ------------------------------------------------------
* To be furnished by amendment.
** Previously furnished.
<PAGE>
EXHIBIT 4.7
June 8, 1990
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, CA 91204
To: U.S. Stock Transfer Corporation
You are hearby notified that, pursuant to the actions of a special meeting of
the Board of Directors held April 25, 1990, the exercise period of AMS, Inc.,
Class A Warrants have been extended until October 26, 1990.
This action is pursuant to section 18 (Extension) of the Warrant Agreement
(dated 1989) between AMS, Inc. (formerly Pacific Coast International, Inc.) and
U.S. Stock Transfer Corporation (the Warrant Agent) in conjunction with the
Registration Statement (1989 -No. 33-25701) effective January 26, 1989.
John W. Hail
Chairman and Chief Executive Officer
AMS, Inc.
<PAGE>
EXHIBIT 4.8
October 22, 1990
Ms. Chris Guererro
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, CA 91204-2991
Re: Extension of AMS, Inc. Warrants
Dear Ms. Guererro:
The purpose of this letter is to notify U.S. Stock Transfer Corporation of the
extension of the exercise periods on the AMS, Inc. Class A and Class B Warrants.
Pursuant to action of AMS's Board of Directors the exercise period of the Class
A Warrants has been extended until July 26, 1991, and the exercise period of the
Class B Warrants has been extended until July 26, 1992.
This action was taken pursuant to Section 18 (Extension) of the Warrant
Agreement between AMS, Inc. (formerly Pacific Coast International, Inc.) and
U.S. Stock Transfer Corporation (the Warrant Agent) in conjunction with the
Registration Statement (File No. 033-25701) effective January 26, 1989.
If you have any questions, please don't hesitate to contact me.
Sincerely,
John W. Hail
Chairman and CEO
JWH:rb
<PAGE>
EXHIBIT 4.9
July 15, 1991
Mr. Richard Brown
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, CA 91204-2991
Re: Extension of AMS, Inc. Warrants
Dear Mr. Brown:
The purpose of this letter is to notify U.S. Stock Transfer Corporation of the
extension of the exercise periods on the AMS, Inc. Class A and Class B Warrants.
Pursuant to action of AMS's Board of Directors the exercise period of the Class
A Warrants has been extended until July 26, 1993, and the exercise period of the
Class B Warrants has been extended until July 26, 1994.
This action was taken pursuant to Section 18 (Extension) of the Warrant
Agreement between AMS, Inc. (formerly Pacific Coast International, Inc.) and
U.S. Stock Transfer Corporation (the Warrant Agent) in conjunction with the
Registration Statement (File No. 033-25701) effective January 26, 1989.
If you have any questions, please don't hesitate to contact me.
Sincerely,
John W. Hail
Chairman and CEO
JWH:rb
<PAGE>
EXHIBIT 4.10
June 10, 1993
Mr. Richard Brown
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, CA 91204-2991
Re: Extension of AMS, Inc. Warrants
Dear Mr. Brown:
The purpose of this letter is to notify U.S. Stock Transfer Corporation of the
extension of the exercise periods on the AMS, Inc. Class A and Class B Warrants.
Pursuant to action of AMS's Board of Directors the exercise period of the Class
A Warrants has been extended until July 26, 1994, and the exercise period of the
Class B Warrants has been extended until July 26, 1995.
This action was taken pursuant to Section 18 (Extension) of the Warrant
Agreement between AMS, Inc. (formerly Pacific Coast International, Inc.) and
U.S. Stock Transfer Corporation (the Warrant Agent) in conjunction with the
Registration Statement (File No. 033-25701) effective January 26, 1989.
If you have any questions, please don't hesitate to contact me.
Sincerely,
John W. Hail
Chairman and CEO
JWH:rb
<PAGE>
EXHIBIT 4.11
June 14, 1994
Mr. William Garza
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, CA 91204-2991
Re: Extension of AMS, Inc. Warrants
Dear Mr. Garza:
The purpose of this letter is to notify U.S. Stock Transfer Corporation of the
extension of the exercise periods on the AMS, Inc. Class A and Class B Warrants.
Pursuant to action of AMS's Board of Directors the exercise period of the Class
A Warrants has been extended until July 26, 1995, and the exercise period of the
Class B Warrants has been extended until July 26, 1996.
This action was taken pursuant to Section 18 (Extension) of the Warrant
Agreement between AMS, Inc. (formerly Pacific Coast International, Inc.) and
U.S. Stock Transfer Corporation (the Warrant Agent) in conjunction with the
Registration Statement (File No. 033-25701) effective January 26, 1989.
If you have any questions, please don't hesitate to contact me.
Sincerely,
John W. Hail
Chairman and CEO
JWH:rw
<PAGE>
EXHIBIT 4.12
July 14, 1995
Mr. William Garza
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, CA 91204-2991
Re: Extension of AMS, Inc. Warrants
Dear Mr. Garza:
The purpose of this letter is to notify U.S. Stock Transfer Corp. of the
extension of the exercise periods on the AMS, Inc. Class A and Class B Warrants.
Pursuant to action of AMS's Board of Directors the exercise period of the Class
A Warrants has been extended until July 26, 1996, and the exercise period of the
Class B Warrants has been extended until July 26, 1997.
This action was taken pursuant to Section 18 (Extension) of the Warrant
Agreement between AMS, Inc. (formerly Pacific Coast International, Inc.) and
U.S. Stock Transfer Corporation (the Warrant Agent) in conjunction with the
Registration Statement (File No. 033-25701) effective January 26, 1989.
If you have any questions, please don't hesitate to contact me.
Sincerely,
Curtis H. Wilson, Sr.
Vice Chairman
AMS
CHW:js
<PAGE>
EXHIBIT 4.13
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated as of and having
an effective date of May 31, 1996, between Advantage Marketing Systems, Inc., an
Oklahoma corporation ("AMS"), Miracle Mountain International, Inc., a Colorado
corporation ("MMI"), Richard Seaton, an individual ("Seaton"), Gene Burson, an
individual ("Gene Burson"), Kaye Jennings, an individual (Jennings"), Daryl
Burson, an individual ("Daryl Burson") and James Rogers, an individual
("Rogers"). Such individuals are the owners of all of the issued and outstanding
capital stock of MMI and are collectively referred to as the "MMI Shareholders".
RECITALS
1. The MMI Shareholders desire to sell and AMS desires to purchase, all
of the issued and outstanding capital stock of MMI (the "MMI Stock").
2. The Board of Directors of AMS has approved and adopted, and through
its duly authorized officers, AMS has executed, this Agreement, and MMI
Shareholders have approved and executed this Agreement, pursuant to which AMS is
to purchase all of the issued and outstanding capital stock of MMI, ("MMI
Stock").
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement AMS, MMI, and the MMI Shareholders hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF STOCK
1.1 Sale and Purchase of Stock. Subject to the terms and conditions of
---------------------------
this Agreement and in reliance upon the representations, warranties, covenants
and agreements contained in this Agreement, MMI Shareholders hereby agrees to
sell and AMS hereby agrees to purchase, the MMI Stock, on the Closing Date (as
defined in Section 1.4 hereof).
1.2 Consideration for Purchase of MMI Stock. The consideration to be
----------------------------------------
paid for the purchase of the MMI Stock shall be 200,000 shares of AMS Voting
Common Stock ("AMS Stock"), which shall be delivered as follows:
1.2.1 Delivery of AMS Shares. At Closing (as defined in
-----------------------
Section 1.4), AMS shall deliver to the MMI Shareholders a total of
160,000 shares of AMS Stock issued in such number of stock certificates
and in such denominations as the MMI Shareholders shall designate in
writing not less than 48 hours prior to the Closing.
1.2.2 Adjustment for Liabilities. 40,000 shares of AMS Stock
---------------------------
shall be delivered to the MMI Shareholders 120 day after Closing;
provided, however, in the event it is determined that the total
liabilities of MMI accrued or accruable in accordance with Generally
Accepted Accounting Principles at the date of Closing shall exceed a
sum equal to $19,000.00, then the number of AMS Shares to be delivered
to the MMI Shareholders at the end of the 120 day period
1
<PAGE>
shall be decreased by one share for every $ .88 in liability in excess
of $19,000.00.
1.3 Deliveries of MMI Stock. At the Closing the MMI Shareholders shall,
------------------------
deliver to AMS all of the outstanding shares of the capital stock of MMI (free
and clear of any lien, charge, claim, pledge, security interest or other
encumbrance of any type or kind whatsoever). The transfer of the shares of MMI
Stock shall be effected by the delivery to AMS of certificates representing the
transferred shares endorsed in blank or accompanied by stock powers executed in
blank and with all necessary transfer tax and other revenue stamps, acquired at
the expense of MMI Shareholders, affixed.
1.4 The Closing and Closing Date. Subject to the terms and conditions
-----------------------------
of this Agreement, the transactions contemplated under this Agreement shall be
closed (the "Closing") at the offices of Dunn, Swan & Cunningham, Oklahoma City,
Oklahoma, on the Closing Date, or at such other place and time as the parties
hereto shall agree. The date on which the transactions contemplated in this
Agreement shall be closed (the "Closing Date") shall occur on June 15, 1996, to
be Effective as of May 31, 1996, or such other date as mutually agreed by AMS
and the MMI Shareholders.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MMI SHAREHOLDERS
MMI and MMI Shareholders represent and warrant unto AMS as follows:
2.1 Organization, Good Standing, Power, Etc. MMI is a corporation duly
---------------------------------------
organized, validly existing and in good standing under the laws of the State of
Colorado and has the corporate power and is entitled to own or lease its
properties and to carry on its business as, and in the places where, such
properties are now owned or leased and such business is now conducted. MMI is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the ownership, operation or leasing of its
properties or assets or the nature of its business requires such qualification
as a foreign corporation or the failure to qualify to do business and obtain
good standing as a foreign corporation in any other state would have any adverse
material effect upon MMI.
2.2 Delivery of Corporate Charter and Bylaws. MMI Shareholders have
----------------------------------------
delivered to AMS complete and correct copies of the Charter of MMI and the
Bylaws of MMI as in effect on the date hereof.
2.3 Capitalization. The authorized capital stock of MMI consists of
--------------
1,000,000 shares of common stock, no par value, of which 200,000 shares are
issued and outstanding, fully paid and non-assessable. The MMI Shareholders
represents that they own all of the issued and outstanding shares of the MMI
Stock and that there are no outstanding subscriptions, options, warrants or
other agreements or commitments obligating MMI Shareholders to transfer,
deliver, assign, pledge, encumber or reissued the MMI Stock to any person, or
any option, right or interest, beneficial or otherwise, in the MMI Stock. As of
the date of this Agreement and immediately prior to the Closing, there are no
and will not be any (i) other authorized or outstanding equity securities of MMI
of any class, kind or character and (ii) outstanding subscriptions, options,
warrants or other agreements or commitments obligating MMI to issue any
additional shares of its capital stock of any class, or any option or right with
respect thereto, or any securities convertible into shares of stock of any class
of MMI. All shares of MMI Stock that are outstanding at the date of this
Agreement, and will be outstanding at the time of Closing, are or will be duly
and validly authorized and
2
<PAGE>
issued, fully paid and non-assessable, and are not or will not be subject to or
issued in violation of any preemptive right of any shareholder.
2.4 Equity Interest. MMI does not own any stock or other equity or
---------------
ownership interest (controlling or otherwise) in any corporation, association,
partnership, tax partnership, joint venture or other entity.
2.5 Ownership of MMI Stock. MMI Shareholders represent that they are,
----------------------
and on the date of this Agreement and at Closing will be, the lawful owners of
all of the issued and outstanding shares of the MMI Stock, and such shares are
and will be at the time of Closing, free and clear of all liens, claims,
encumbrances and restrictions of every kind, and MMI Shareholders have full
legal right, power and authority to sell, assign and transfer the MMI Stock; and
the delivery of such shares pursuant to the provisions of this Agreement will
transfer valid title thereto, free and clear of all liens, encumbrances, claims,
and restrictions of every kind. From the date of this Agreement through the
Closing, (i) MMI Shareholders shall not transfer, assign, encumber, pledge, or
grant any person an interest in each outstanding share of the MMI Stock, (ii)
each outstanding share of the capital stock of MMI shall remain unchanged and
shall be an outstanding, fully paid and non-assessable share at the Closing, and
(iii) the certificate or certificates evidencing ownership of the MMI Stock
(representing all of the outstanding capital stock of MMI) by MMI Shareholders
shall continue to evidence ownership of all of the issued and outstanding
capital stock of MMI.
2.6 Authorization of Agreement. MMI has all requisite corporate power
--------------------------
and authority to enter into and perform all of its obligations under this
Agreement. The execution and delivery of this Agreement by MMI and consummation
by MMI of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of MMI. This Agreement has been duly
executed and delivered by MMI and constitutes the legal, valid and binding
obligation of MMI, enforceable against MMI in accordance with its terms, except
as enforceability may be limited by (a) any applicable bankruptcy, insolvency,
reorganization or other law relating to or affecting creditors' rights
generally, and (b) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). MMI
Shareholders represent that they have approved this Agreement and the
transactions contemplated hereby as evidenced by their execution of this
Agreement. MMI Shareholders represent that they have full power, authority and
legal right to enter into this Agreement and to consummate the transactions
contemplated hereby.
2.7 No Conflicting Agreements. Neither the execution nor the delivery
-------------------------
of this Agreement, nor the consummation of the transactions as contemplated in
this Agreement in accordance with the terms of this Agreement, will conflict
with, or result in a breach of, any term of, or constitute a default under, (i)
the Charter or Bylaws of MMI, or (ii) to the actual knowledge of the MMI
Shareholders, any material agreement or instrument to which MMI is a party, or
(iii) to the actual acknowledge of the MMI Shareholders, any material judgment,
decree, order, statute, rule or regulation to which MMI is subject. Each of the
MMI Shareholders represents that, to the actual acknowledge of the MMI
Shareholders, neither the execution nor the delivery of this Agreement, nor the
consummation of the transactions as contemplated in this Agreement in accordance
with the terms of this Agreement, will conflict with, or result in a breach of,
any term of, or constitute a default under (i) any material agreement or
instrument to which any of the MMI Shareholders is a party, (ii) any material
judgment, decree, order, statute, rule or regulation to which any of the MMI
Shareholders are subject, or (iii) result in the creation of a material lien,
charge or encumbrance on the shares of the MMI Stock held by any of the MMI
Shareholders. To the actual acknowledge of the MMI Shareholders, MMI is not and
MMI Shareholders are not in default or would be in default with lapse of time or
notice or both, in respect to any such term.
3
<PAGE>
2.8 Financial Statements and Customer List. MMI and the MMI
--------------------------------------
Shareholders have furnished to AMS the following financial statements
(hereinafter collectively called the "MMI Financial Statements") and the MMI
Customer List.: (i) the unaudited Balance Sheet of MMI as of December 31, 1995,
together with an Operating Statement for the 12 month period ended December 31,
1995, thereof and (ii) the unaudited Balance Sheet of MMI as of March 31, 1996,
together with an Operating Statement for the three month period ending March 31,
1996. MMI and the MMI Shareholders have also provided to AMS a Schedule setting
forth the names and addressed of all of the MMI customers, a copy of which is
attached hereto as Schedule 2.8.
2.9 Absence of Undisclosed Liabilities. To the actual knowledge of the
----------------------------------
MMI Shareholders, all obligations and liabilities, contingent or otherwise, of
MMI whether or not required to be reserved or accrued on the Balance Sheet of
MMI for March 31, 1996, under the method of accounting used by MMI or in
accordance with Generally Accepted Accounting Methods have been disclosed to AMS
and shall have been paid in full by MMI prior to the Closing with the exception
of the $19,000.00 liability for commissions.
2.10 Title to Properties; Absence of Liens and Encumbrances. To the
------------------------------------------------------
actual knowledge of the MMI Shareholders, MMI has good and marketable title to
the properties and assets reflected on the MMI March 31, 1996, Balance Sheet as
being owned by MMI, and all properties and assets thereafter acquired by it,
except to the extent such properties and assets are or were thereafter disposed
of for fair value in the ordinary course of business; all such properties and
assets are free and clear of all liens, charges and encumbrances. To the actual
knowledge of the MMI Shareholders, the operation of the properties and business
of MMI in the manner in which they are now operated do not violate any zoning
ordinances or municipal regulations in such a way as could, if such ordinances
or regulations were enforced, result in any material impairment of the uses of
the respective properties for the purposes for which they are now operated.
Attached hereto as Schedule 2.10 is a Schedule of all real and personal property
leased by MMI.
2.11 Tax Matters. MMI has timely filed all federal, state, local and
-----------
foreign tax returns required to be filed by it, all taxes, assessments, fees,
and other governmental charges levied or assessed against the property or the
business of MMI have been paid in full, other than taxes or charges, the payment
of which is not yet due.
2.12 Compliance with Laws. To the actual knowledge of the MMI
--------------------
Shareholders, MMI has complied with all laws, regulations, licensing
requirements and orders applicable to its business the breach or violation of
which could have a material adverse effect on said business and has filed with
the proper authorities, all statements and reports required by the laws,
regulations, licensing requirements and orders to which it or any of its
employees (because of such employee's activities on behalf of MMI) is subject,
and, to the actual knowledge of the MMI Shareholders, MMI possesses all
necessary licenses, franchises and permits to conduct its business in the manner
in which and in the jurisdictions and places where such businesses are now
conducted.
2.13 Litigation. To the actual knowledge of the MMI Shareholders (i)
----------
there are no actions, suits, proceedings or investigations pending or,
threatened, against or affecting MMI or any property or rights of MMI at law or
in equity or before or by any federal, state, municipal, or other governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign, (ii) there are no actions or proceedings at law or in equity pending,
threatened against or affecting MMI before or by any federal, state, municipal,
or other governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, (iii) there is no action, suit or
proceeding that will result in any material adverse change in the business,
operations, properties or assets, or in the condition, financial or otherwise,
of MMI, and (iv) MMI is not in default with respect to any order, writ,
injunction, judgment
4
<PAGE>
or decree of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign or of any arbitrator.
2.14 Contracts. To the actual knowledge of the MMI Shareholders, MMI is
---------
not a party to or is its property bound or affected by or receives benefits
under any written or oral, express or implied, (i) contract for the employment
of any officer or employee which is not terminable on 30 days (or less) notice
without payment of any amount on account of such termination, (ii) bonus,
deferred compensation, savings, stock option, retirement, pension,
profit-sharing or severance pay agreement, plan or arrangement, (iii) agreement,
contract or indenture relating to the borrowing of money by MMI, (iv) guaranty
of any obligation for the borrowing of money or otherwise, excluding
endorsements made for collection and guaranties made in the ordinary course of
business, (v) management, consulting or other similar contract or arrangement,
(vi) collective bargaining agreement, (vii) agreement with any current or former
officer, director or shareholder of MMI, (viii) material licenses, whether as
licensor or licensee, (ix) material contract or commitment for the purchase of
materials or supplies or for the performance of services over a period of over
60 days, (x) contract, agreement or other commitment not made in the ordinary
course of business, (xi) contingent liabilities, including letter of credit of
all types, (xii) contract to purchase or sell securities of all types, (xiii)
contract or commitment for capital expenditures in excess of $1,000, (xiv)
contract or option to purchase or sell any real property or any material
personal property, other than in the ordinary course of business, (xv) other
contract, agreement or commitment which is material to the business, operations,
properties or assets or to the condition, financial or otherwise, of MMI, or
(xvi) contract or other arrangement which is not in the ordinary course of
business consistent with the past practice of MMI, or in which a material
interest is held by any person or entity which is an Affiliate of MMI which is
not substantially on the same terms (including without limitation, in the case
of lending transactions, interest rates and collateral) as those prevailing at
the time of comparable transactions with unrelated parties or which involves
more than the normal risk of collectibility or which involves more than the
normal risk of collectibility or which involves other unfavorable features. For
purposes of this Agreement, "Affiliate" when used with respect to MMI and the
MMI Shareholders shall refer to and mean any "affiliate" within the meaning of
Rule 145 of the Securities and Exchange Commission (the "Commission") under the
Securities Act, any officer or director of MMI or of any "affiliate" of MMI or
any "associate" of any such officer or director as that term is defined in Rule
14a-1 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
Between the date hereof and the Closing, MMI, without the prior written
consent of AMS, shall not allow or permit to enter into, amend, extend or renew
any agreement, contract or plan specified above in this Section 2.14.
2.15 Defaults. To the actual knowledge of the MMI Shareholders, MMI is
--------
not in default in any material respect under any of the contracts, leases, or
other instruments, to which MMI is a party or by which MMI or its property may
be bound or affected or under which MMI or its property receives benefits, and
with respect to such contracts, lease or other instruments, (i) there has not
occurred any event which with the lapse of time or giving of notice or both
would constitute such default to MMI, (ii) such contracts, leases or other
instruments are binding obligations of the respective parties thereto in
accordance with their terms, (iii) there are no defenses, offsets or
counterclaims thereto which may be made by any party thereto other than MMI, and
(iv) MMI has not waived any substantial rights thereunder.
2.16 Employee Matters. (a) Employee Welfare Benefit Plans. To the
---------------- ------------------------------
actual knowledge of the MMI Shareholders (i) MMI is not, and has not ever been,
a party to or subject to any "employee welfare benefit plan" (as defined in
Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) to which MMI contributes, is required to contribute or has
contributed, (ii) MMI is not and has never been a party to or subject to any
"employee pension benefit plan" (as defined in Section
5
<PAGE>
3(2) of ERISA) to which MMI contributes, is required to contribute or has
contributed. To the actual knowledge of the MMI Shareholders, all employee
welfare benefit plans and employee pension benefit plans of MMI ("MMI Employee
Welfare Benefit Plans") and any related trust agreements and any other documents
relating to the funding of MMI Employee Welfare Benefit Plans (i) in all
material respects comply and have complied in the past, with the provisions of
ERISA, the Code, and any predecessor to the Code and any other applicable laws,
rules and regulations, (ii) have been administered consistent with and in
compliance in all material respect with applicable requirements of the Code,
ERISA and any other applicable law, including without limitation compliance on a
timely basis with all requirements for reporting and disclosure concerning each
of the MMI Employee Welfare Benefit Plans. To the actual knowledge of the MMI
Shareholders, neither MMI nor any plan fiduciary of any MMI Employee Welfare
Benefit Plan has (i) engaged in any transaction or acted or failed to act in a
manner which violates Section 404 or 406 of ERISA for which there exits neither
a statutory nor regulatory exemption and which results in material liability, or
(ii) has acted or failed to act in any manner which violates Section 404 of
ERISA and results in material liability.
(b) Other Employee Benefit Arrangements. To the actual knowledge of
-----------------------------------
the MMI Shareholders, MMI has delivered to AMS true and correct copies of each
MMI Employee Welfare Benefit Plan and each and every other personnel policy,
stock option plan, employment, bonus, incentive award, vacation pay, severance
pay, consulting and employment agreement and any other employee or fringe
benefit plan, agreement, arrangement, practice or understanding, whether formal
or informal, which MMI maintains or to or under which MMI contributes or is
required to contribute.
(c) Claims and Litigation. To the actual knowledge of the MMI
---------------------
Shareholders, (i) there are no threatened or pending claims, suits or other
proceedings by any of MMI's employees, former employees, plan participants,
beneficiaries or spouses of any of the above involving any employee benefit plan
or arrangement described in this Section 2.16 or any rights or benefits under
any such employee benefit plan or arrangement other than ordinary and usual
claims for benefits by participants or beneficiaries; (ii) neither MMI nor any
of its directors, officers, employees or any other "fiduciary" (as such term is
defined in Section 3(21) of ERISA) has any liability for an act or for a failure
to act in connection with either administration or investment of assets of such
plans or the transactions contemplated by this Agreement; and (iii) there is no
pending or threatened legal action or proceeding or investigation against or
involving any employee benefit plan or arrangement described in this Section
2.16 and there is no basis for any such legal action, proceeding or
investigation.
(d) Union Contracts. MMI is not or has never been a party to or
---------------
subject to any agreement with any union or collective bargaining unit. To the
actual knowledge of the MMI Shareholders, there is no pending union activity
involving MMI employees.
2.17 Contractual Commitments. Schedule 2.17 contains a list of all
-----------------------
written agreements, contracts, guarantees, and commitments to which MMI is a
party. And, to the actual knowledge of the MMI Shareholders, true and correct
copies of all written agreements, contracts, guarantees and commitments to which
MMI is a party have been provided to AMS. To the actual knowledge of the MMI
Shareholders, MMI and the other parties to such agreements, contracts,
guarantees and commitments have performed all obligations required to be
performed by them to the date of this Agreement and are not in default
thereunder in any material respect.
2.18 Insurance. Schedule 2.18 contains a list of all insurance coverage
---------
carried by MMI. True and correct copies of all policies relating to insurance
carried by MMI have been delivered to AMS. To the actual knowledge of the MMI
Shareholders, all such insurance policies are in full force and effect, all
premiums due thereon have been paid, and no notice of cancellation or
termination has been received with
6
<PAGE>
respect to any such policy. To the actual knowledge of the MMI Shareholders, MMI
has complied with the provisions of all such policies.
2.19 Finder's Fees. No director, officer or employee of MMI has
-------------
incurred or will incur any brokerage, finder's or similar fee in connection with
the transactions contemplated by this Agreement.
2.20 Ordinary Course of Business. The term "ordinary course of
---------------------------
business," as used in this Agreement shall be construed to mean the conduct of
business consistent with good corporate practices and policies.
2.21 Patents, Trademarks, Formulations, Etc. MMI owns or holds licenses
--------------------------------------
under such patents, trademarks, trade names, product formulations and copyrights
as it deems necessary for the conduct of its business as being conducted on the
date of this Agreement as set forth on Schedule 2.21, and, to the actual
knowledge of the MMI Shareholders, the MMI Shareholders and MMI are not, as of
the date of this Agreement, in receipt of any notice of infringement or notice
of conflict with the asserted rights of others in such patents, trademarks,
trade names and copyrights and are not otherwise aware of such infringement or
conflict, or of any infringement by, or conflict on the part of, others of MMI's
patents, trademarks, trade names or copyrights. MMI also owns the rights to all
of the formulations used in its products.
2.22 Full Disclosure. To the actual knowledge of the MMI Shareholders,
---------------
(i) all written information regarding MMI previously delivered to AMS, including
all financial information and statements provided to AMS, is true and correct,
(ii) all additional information regarding MMI delivered to AMS pursuant to this
Agreement is or will be true and correct, and (iii) other than the properties
shown on the MMI March 31, 1996, Balance Sheet, and previously disclosed to AMS
pursuant to this Agreement, there are no properties, tangible or intangible,
which are used in and material to the normal day-to-day operations of MMI as
conducted by MMI prior to the date of this Agreement.
2.23 Investment Intent. MMI Shareholders represents to AMS and its
-----------------
officers and directors that the AMS Common Stock to be issued to MMI
Shareholders pursuant to this Agreement, will be acquired by each of the MMI
Shareholders for investment purposes only without the intent to resell such
stock and will not be transferred except pursuant to registration under the
Securities Act and the applicable state securities acts unless pursuant to
exemption from registration under such acts. The MMI Shareholders hereby
acknowledges that the AMS Common Stock that may be issued to MMI Shareholders
pursuant to this Agreement, will be issued pursuant to exception from
registration under the Securities Act and the applicable state securities acts
and the certificates evidencing the AMS Common Stock will bear appropriate
restrictive transfer legends as required pursuant to the Securities Act and the
applicable state securities acts.
2.24 Accuracy of Representations, Covenants and Warranties. No
-----------------------------------------------------
representation, covenant or warranty by the MMI Shareholders in this Agreement
and, to the actual acknowledge of the MMI Shareholders, no written information,
agreements or documents furnished to AMS by the MMI Shareholders in connection
with the transactions contemplated in this Agreement, contain or will contain
any untrue statement of a material fact or omits or will omit to contain a
material fact necessary in order to make the statements or information contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AMS
7
<PAGE>
AMS hereby represents and warrants to the MMI Shareholders as follows:
3.1 Organization, Good Standing, Power, Etc. AMS is a corporation duly
---------------------------------------
organized, validly existing and in good standing under the laws of the State of
Oklahoma and has the corporate power and is entitled to own or lease its
properties and to carry on its business as, and in the places where, such
properties are now owned or leased and such business is now conducted.
3.2 Delivery of Certificate of Incorporation and Bylaws. AMS has
---------------------------------------------------
delivered to the MMI Shareholders complete and correct copies of Certificate of
Incorporation and Bylaws of AMS.
3.3 Capitalization. Pursuant to its Certificate of Incorporation, AMS
--------------
is currently authorized to issue up to 495,000,000 shares of Common Stock,
$.0001 par value ("Common Stock"), and 5,000,000 shares of Preferred Stock,
$.0001 par value ("Preferred Stock"). The outstanding capital stock of AMS
currently consists of 16,985,524 shares of Common Stock. In addition, there are
currently issued and outstanding 4,196,876 Class A Common Stock Purchase
Warrants and 4,206,876 Class B Common Stock Purchase Warrants. Each of the
outstanding Warrants entitles its holder to the right to purchase one share of
AMS Common Stock. AMS has also granted stock options and other warrants to
purchase 12,321,412 shares of Common Stock during various periods, which expire
February 1997 through July 2005, at exercise prices of $.20 to $.81.
3.4 Authorization of Agreement. The Board of Directors of AMS has duly
--------------------------
approved this Agreement and the transactions contemplated hereby, and has
authorized the execution and delivery of this Agreement by AMS. AMS has full
power, authority and legal right to enter into this Agreement and to consummate
the transactions contemplated hereunder.
3.5 No Conflicting Agreements. Neither the execution nor the delivery
-------------------------
of this Agreement, nor the consummation of the transactions contemplated hereby
in accordance with the terms of this Agreement, will conflict with, or result in
a breach of, any term of, or constitute a default under, (i) the Certificate of
Incorporation or Bylaws of AMS or (ii) to the actual knowledge of AMS, any
material agreement or instrument to which AMS is a party, or (iii) to the actual
knowledge of AMS, any material judgment, decree, order, statute, rule or
regulation to which AMS is subject, or result in the creation of material lien,
charge or encumbrance on any of the properties of AMS. AMS, to its actual
knowledge, is not in default or would be in default with lapse of time or notice
or both, in respect to any such term.
3.6 Financial Statements. AMS has furnished to the MMI Shareholders
--------------------
the following financial statements (hereinafter collectively called the "AMS
Financial Statements"): (i) the balance sheet as of December 31, 1995, and the
related statements of stockholders' equity, income, and cash flows for the
fiscal year ended December 31, 1995, and (ii) the unaudited balance sheet of AMS
as of March 31, 1996 (the "AMS Balance Sheet"), and related statements of income
and cash flows for the three months ended March 31, 1996.
3.7 Securities and Exchange Commission Reports. AMS has filed in a
------------------------------------------
timely manner any and all reports required to be filed pursuant to Sections 13,
14 and 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). At the respective times of filing thereof, none of such reports contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstance under which they were made, not misleading. Each audited and
unaudited financial statement (and the notes relating thereto) contained in such
reports was prepared in accordance with generally accepted accounting principles
consistently applied (except as otherwise indicated therein) and fairly presents
the financial condition of AMS as of the date thereof and the related results of
operations, stockholders' equity, and cash flows and changes in financial
8
<PAGE>
position, as applicable, of AMS for and during the period covered thereby. Each
unaudited financial statement (and the notes relating thereto) contained in such
reports was prepared on the same basis as the audited financial statements and
included all necessary adjustments, consisting only of normal recurring
accruals, and fairly presents the financial condition of AMS as of the date
thereof and the related results of operations, stockholders' equity, and cash
flows or changes in financial position, as applicable, of AMS for and during the
period covered thereby. AMS has delivered to each of the MMI Shareholders true
and correct copies of AMS's annual report on Form 10-KSB for the fiscal year
ended December 31, 1995, and AMS's quarterly report on Form 10-QSB for the three
months ended March 31, 1996.
3.8 Absence of Undisclosed Liabilities. To the actual knowledge of
----------------------------------
AMS, all obligations and liabilities, contingent or otherwise, of AMS arising
from events that occurred on or before the date of the AMS Balance Sheet,
whether or not required to be accrued or reserved, have been fully accrued or
reserved in the AMS Balance Sheet in accordance with and to the extent required
by generally accepted accounting principles. AMS has not incurred any such
obligation or liability, contingent or otherwise, subsequent to the date of the
AMS Balance Sheet, except for obligations and liabilities incurred in the
ordinary course of business. The reserves reflected in the AMS Balance Sheet are
adequate, appropriate and reasonable.
3.9 Compliance with Laws. To the actual knowledge of AMS, AMS has
--------------------
complied with all laws, regulations, licensing requirements and orders
applicable to its business the breach or violation of which could have a
material adverse effect on said business and has filed with the proper
authorities, all statements and reports required by the laws, regulations,
licensing requirements and orders to which it or any of its employees (because
of such employee's activities on behalf of AMS) is subject, and, to the actual
acknowledge of AMS, AMS possesses all necessary licenses, franchises and permits
to conduct its business in the manner in which and in the jurisdictions and
places where such business is conducted.
3.10 Accuracy of Representations, Covenants and Warranties. No
---------------------------
representation, covenant or warranty by AMS in this Agreement and, to the actual
knowledge of AMS, no written information, agreements or documents furnished to
the MMI Shareholders by AMS in connection with the transactions contemplated in
this Agreement, contain or will contain any untrue statement of a material fact
or omits or will omit to contain a material fact necessary in order to make the
statements or information contained herein or therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE IV
COVENANTS OF THE MMI SHAREHOLDERS
The MMI Shareholders covenant and agree with AMS that, at all times
between the date hereof and the Closing, the MMI Shareholders will cause MMI to
comply with all covenants and provisions of this Article IV, except to the
extent AMS may otherwise consent in writing or to the extent otherwise expressly
required or permitted by this Agreement.
4.1 Due Diligence Investigation by AMS. MMI and the MMI Shareholders
----------------------------------
shall cause MMI to afford to the officers and authorized representatives of AMS
reasonable access to the offices, properties, books and records of MMI and will
furnish AMS with such additional financial and operating data and other
information as to the business and properties of MMI as may be reasonable
necessary for AMS thoroughly to evaluate, prior to the Closing, the business
assets, operations and financial condition of
9
<PAGE>
MMI, including, without limitation, tax returns filed and those in preparation
of MMI. If, for any reason, the transactions contemplated by this Agreement are
not consummated, AMS will cause all confidential information obtained by it from
the MMI Shareholders related to MMI to be treated as such and will not use such
information in a manner detrimental to MMI and the MMI Shareholders. The MMI
Shareholders shall cause MMI to provide to AMS timely notice of and access to
minutes of all meetings (and all actions by written consent in lieu thereof) of
the Board of Directors and shareholders of MMI.
4.2 Conduct of Business. The MMI Shareholders shall cause MMI to
-------------------
conduct its business only in the ordinary course and consistent with past
practice and shall use its commercially reasonable efforts to preserve intact
the present business organization, keep available the services of its present
officers and employees, maintain its properties and business and to preserve the
goodwill of employees, customers and others having business dealings with MMI.
Without the prior written consent of AMS, the MMI Shareholders shall cause MMI
to not engage in any activity or enter into any transaction that would cause any
of the representations or warranties set forth in this Agreement to be
inaccurate if made as of a date subsequent to such activity or transaction.
4.3 No Dividends or Distributions. The MMI Shareholders shall not
-----------------------------
permit or cause MMI to (i) make any distributions of property or assets,
including cash or cash equivalents, to its shareholders, other than as
contemplated in this Agreement or (ii) declare, set aside or pay any dividend or
other distribution in respect of MMI's capital stock or other equity securities,
or redeem, purchase or otherwise acquire any shares of MMI's capital stock or
other equity securities, or any interest in or right to acquire any such shares
or other equity securities.
4.4 No Disposal of Property. Except as contemplated in this Agreement,
-----------------------
the MMI Shareholders shall not permit or cause MMI to (i) dispose of or assign
any of its assets or properties or permit any of MMI's assets or properties to
be subjected to any liens, except to the extent any such disposition or lien is
made or incurred in the ordinary course of business consistent with past
practice, or (ii) sell any part of its operations or business to any third
party.
4.5 No Acquisitions. Except as contemplated in this Agreement, the MMI
---------------
Shareholders shall not permit or cause MMI to (i) merge, consolidate or
otherwise combine or agree to merge, consolidate or otherwise combine with any
other person, (ii) acquire all or substantially all or a material portion of the
assets, capital stock or other equity securities of any other person, or any
business division of any other person, or (iii) otherwise acquire control or
ownership of any other person.
4.6 Contracts. The MMI Shareholders shall not permit or cause MMI to
---------
enter into any contract involving consideration in excess of $1,000,
individually, or $2,000, in the aggregate, except contracts entered into in the
ordinary course of business consistent with past practice.
4.7 Notice and Cure. The MMI Shareholders will notify AMS promptly in
---------------
writing of, and contemporaneously will provide AMS true, complete and correct
copies of, any and all information or documents relating to, and will use all
reasonable efforts to cure prior to the Closing, any event, transaction or
circumstance occurring after the date of this Agreement that results in or will
result in any covenant or agreement of the MMI Shareholders being breached under
this Agreement, or that renders or will render untrue any representation or
warranty of the MMI Shareholders contained in this Agreement as if the same were
made on or as of the date of such event, transaction or circumstance. The MMI
Shareholders also will use all commercially reasonable efforts to cure, at the
earliest practicable date and before the Closing, any violation or breach of any
representation, warranty, covenant or agreement made by the MMI Shareholders in
this Agreement.
10
<PAGE>
4.8 Agreements and Covenants. MMI will not make any commitment, either
------------------------
in writing or orally, which would violate any of the provisions set forth in
this Article IV.
4.9 Finder's Fees. The MMI Shareholders shall be responsible for
-------------
payment of any and all claims or demands for any commission, fee or other
compensation by any broker, finder, agent or similar intermediary claiming to
have been employed by or on behalf of MMI and/or the MMI Shareholders with
respect to the transactions contemplated in this Agreement, or any other
possible transaction involving the sale, transfer, assignment, conveyance or
other disposition of the capital stock and/or assets of MMI, or any merger,
consolidation or any other acquisition transaction.
4.10 No Amendments. The MMI Shareholders shall not permit or cause MMI
-------------
to amend or propose to amend MMI's Charter or Bylaws or take any action with
respect to any such amendment.
4.11 No Issuance or Disposition of Securities. Without the express
----------------------------------------
written consent of AMS the MMI Shareholders shall not permit or cause MMI to (i)
authorize or issue any shares of its capital stock or other equity securities or
enter into any contract granting any option, warrant or right calling for the
authorization or issuance of any such shares or other equity securities, (ii)
create or issue any securities directly or indirectly convertible into or
exchangeable for any such shares or other equity securities, or (iii) create or
issue any options, warrants or rights to purchase any such convertible
securities. The MMI Shareholders will not pledge, assign, transfer or otherwise
dispose of or encumber any shares of or any options, warrants or rights to
purchase the MMI Stock. The MMI Shareholders shall not permit or cause MMI to
split, combine, or reclassify any capital stock or other equity securities of
MMI. The MMI Shareholders shall not permit or cause MMI to (i) authorize or
issue any equity securities or enter into any contract granting any option,
warrant or right calling for the authorization or issuance of any such equity
securities, (ii) create or issue any securities directly or indirectly
convertible into or exchangeable for any such equity securities, or (iii) create
or issue any options, warrants or rights to purchase any such convertible
securities.
4.12 Securities and Exchange Commission Matters. The MMI Shareholders
------------------------------------------
will furnish AMS as soon as practicable all information (that is readily
available to MMI as of the date of this Agreement and that may become available
to MMI without additional cost and expense in excess, in the aggregate, of $500)
concerning MMI as may be required for inclusion in any report required to be
prepared and filed by AMS with the U.S. Securities and Exchange Commission under
and pursuant to the Exchange Act or the Securities Act, or otherwise, or any
other governmental or regulatory body in connection with the transactions
contemplated by this Agreement. The MMI Shareholders represent and warrant that
all information so furnished for such reports and filings shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.13 Public Announcements. Without prior consultation with AMS, the MMI
--------------------
Shareholders shall not, and the MMI Shareholders shall not permit MMI to, make
any announcement to the public or any statement to its employees generally
concerning the transactions contemplated in this Agreement.
4.14 Shareholders Approval. Each of the MMI Shareholders hereby
---------------------
specifically covenants and agrees that he has read and has been fully advised by
legal counsel as to the meaning and effect of this Agreement and the
transactions to be effected by this Agreement, and that he or she hereby
approves this Agreement and the transactions contemplated in this Agreement. By
execution of this Agreement, (i) the MMI Shareholders hereby votes all of the
issued and outstanding shares of the MMI Common Stock in favor of approval of
this Agreement and the transactions contemplated in this Agreement and (ii) each
of the MMI Shareholders hereby consents to all corporate action required to
consummate the transactions
11
<PAGE>
contemplated in this Agreement without the necessity for a meeting of the
shareholders of MMI, to the extent and in the event shareholder approval shall
be required for approval of this Agreement and the transactions contemplated in
and to be effect by this Agreement.
4.15 Resignation of Officers and Directors. The execution of this
-------------------------------------
Agreement shall constitute the resignation of all of the MMI Shareholders who
currently serve as executive officers and directors of MMI, such resignations to
be effective immediately following the Closing. Each such resignation shall
constitute a voluntary termination of any employment agreement that any such
executive officer or director may have with MMI, and all such MMI Shareholders
hereby waive and release MMI of any and all obligations that MMI may have under
such employment agreement. Further, the execution of this Agreement shall
constitute the release of all liabilities of whatever nature of MMI to any of
the Shareholders, including but not limited to the note payable to directors
appearing on the Balance Sheet for MMI.
ARTICLE V
CONTINUING OBLIGATIONS OF THE MMI
SHAREHOLDERS AND AMS AFTER CLOSING
Following Closing and consummation of the transactions contemplated in
this Agreement, the MMI Shareholders covenant and agree (except to the extent
AMS may otherwise consent in writing or to the extent otherwise expressly
required or permitted by this Agreement), and AMS covenants and agrees (except
to the extent the MMI Shareholders otherwise consent in writing or to the extent
otherwise expressly required or permitted by this Agreement), as follows:
5.1 Indemnifications by MMI Shareholders. Subject to the provisions of
------------------------------------
this Article V, each of the MMI Shareholders agree severally (and not jointly)
to indemnify fully in respect of, hold harmless and defend AMS, its Affiliates
and its officers, directors and employees against any and all damages,
liabilities, costs, claims, proceedings, investigations, penalties, judgments,
deficiencies, losses, including taxes, expenses (including interest, penalties,
and fees and disbursements of attorneys, accountants and experts) ("Loss" or
"Losses") incurred or suffered by any of them arising out of or relating to (i)
any misrepresentation or breach of warranty on the part of the MMI Shareholders
under this Agreement and (ii) any nonfulfillment or failure to perform any
covenant or agreement on the part of any of the MMI Shareholders under this
Agreement.
5.2 Indemnifications by AMS. Subject to the provisions of this Article
-----------------------
V, AMS agrees to indemnify fully in respect of, hold harmless and defend the MMI
Shareholders against, any and all Losses arising out of or relating to (i) any
misrepresentation, or breach of warranty on the part of AMS under this
Agreement, (ii) nonfulfillment or failure to perform any covenant or agreement
on the part of AMS under this Agreement, or (iii) related and attributable to,
or asserted against, MMI with respect to any event or condition occurring or
arising after the Closing Date upon which the Losses are based.
5.6 Survival of Representations and Warranties. Each representation,
------------------------------------------
warranty, or covenant given or made by AMS under Articles II, III, and IV this
Agreement shall survive the date of Closing; provided, however, that the rights
of the parties hereto to initiate any action for breach of any such
representation, warranty, or covenant shall survive only until the close of
business on April 15, 1998.
5.7 Non-Competition. (a) In order to induce AMS to enter into this
---------------
Agreement, each of the MMI
12
<PAGE>
Shareholders covenants and agrees that from the Closing until January 1, 2001,
he shall not, and shall not permit any of his Affiliates, (i) to engage in any
business similar to, or in any way competitive with, that carried on by MMI as
constituted on the date of this Agreement within any county in any state in
which MMI is engaged in any such similar or competitive business ("Competitive
Business") (except pursuant to agreements with AMS or its Affiliates), (ii) to
acquire any legal or beneficial interest in, or otherwise participate in the
ownership of any person, firm, corporation, partnership or other entity or
association which is or becomes engaged in a Competitive Business, except
ownership of less than one percent of a publicly traded company shall be
permissible, (iii) directly or indirectly solicit, canvass or otherwise contact
or accept any business or transaction from any present or former customers or
distributors of MMI, or take any action which shall cause the termination or
curtailment of the business relationship between MMI (and/or its successor or
successors) and any of its present or former customers or distributors relating
to a Competitive Business, (iv) directly or indirectly, without the prior
written consent of AMS, solicit, entice, raid, persuade or induce any individual
who as of the date of this Agreement is, or at any time during such period shall
be, an employee or independent contractor of AMS or MMI or other their
Affiliates, or any of their respective successors, to terminate or refrain from
renewing or extending his or her employment or independent contractor status
with AMS, MMI or their Affiliates, or any of their respective successors. This
covenant and agreement is included herein in order to protect the value of the
business of MMI being acquired by AMS pursuant to this Agreement and to assure
that AMS and MMI shall have the full benefit of the value thereof.
(b) If any part of the restrictions set forth in (a) should, for any
reason whatsoever, be declared invalid by a court of competent jurisdiction, the
validity or enforceability of the remainder of such restrictions shall not
thereby be adversely affected and shall be enforced to the fullest extent
permitted by law. If any of such restrictions are deemed to be unreasonable by a
court of competent jurisdiction, then the MMI Shareholders shall submit to the
reduction or modification thereof as said court deems reasonable.
(c) If the MMI Shareholders shall be in violation of the aforementioned
restrictive covenant in this Section 5.7, then in addition to AMS's other
remedies, the time limitation thereof shall be extended for a period of time
equal to the period of time during which such violation occurred.
(d) The MMI Shareholders and AMS agree that no portion of the Stock
Purchase Price and Goodwill Purchase Price shall be allocable to the restrictive
covenant and agreement as set forth in this Section 5.7.
(e) The terms and provisions of this Section 5.7 are for the benefit of
AMS and may be waived in whole or in part by AMS.
5.8 Injunctive Relief. Each of the MMI Shareholders acknowledge that
-----------------
AMS, MMI and its Affiliates would be irreparable damaged and that money damages
and any other remedy available at law would be inadequate to redress or remedy
any loss in the event that the provisions of Section 5.7 were not fully
performed in accordance with their specific terms or are otherwise breached, and
each of the MMI Shareholders, therefore, agrees that AMS and its assigns, in
addition to recovering any claim for damages or obtaining any other remedy
available at law, also may enforce the terms of Section 5.7 by injunction or
specific performance and may obtain any other appropriate remedy available in
equity, and that each of the MMI Shareholders hereby waives his right to assert
and will not assert in defense against such equitable claims that an adequate
legal remedy is available.
5.9 Additional Post-Closing Performances of the MMI Shareholders.
------------------------------------------------------------
After Closing, if not paid at Closing, the MMI Shareholders shall pay (i) any
and all commissions, fees and other compensation
13
<PAGE>
payable to any broker, finder, agent or similar intermediary claiming to have
been employed by or on behalf of MMI and/or the MMI Shareholders with respect to
the transactions contemplated in this Agreement, or any other possible
transaction involving the sale, transfer, assignment, conveyance or other
disposition of the capital stock and/or assets of MMI, or any merger,
consolidation, or any other acquisition transactions, and (ii) any and all of
their costs and expenses incurred in connection with this Agreement and the
transactions contemplated in this Agreement, including without limitation fees
and expenses of counsel, irrespective of when incurred.
ARTICLE VI
TERMINATION AND AMENDMENT
6.1 Termination. This Agreement may be terminated and the transactions
-----------
contemplated in this Agreement abandoned at any time prior to the Closing (i) by
mutual agreement of the MMI Shareholders and AMS, (ii) at the option of the MMI
Shareholders in the event the Closing shall not have been completed on or before
June 15, 1996, (iii) by AMS in the event there shall have been entered or
rendered against the MMI Shareholders or MMI, AMS, or any of their respective
directors or officers in any action or proceeding referred to in Section 2.13
hereof an injunction or a final judgment having the effect of limiting the
ability of AMS to effectively exercise full rights of ownership of the business,
assets, or shares of MMI. In the event of termination by AMS or the MMI
Shareholders, as provided in this Section, written notice shall forthwith be
given to the other parties.
6.2 Effective of Termination. In the event of termination by AMS or
------------------------
the MMI Shareholders, as provided in Section 6.1 above, (i) this Agreement shall
forthwith become wholly void and of no effect, and there shall be no obligation
or liability on the part of the MMI Shareholders and MMI, AMS, or their
respective officers, directors or shareholders, except as provided in Section
7.7; provided, however, that such limitation shall not apply in the event of a
willful breach by the MMI Shareholders or AMS of any of their respective
material covenants contained herein in which case the non-breaching party shall
be entitled to recover form the breaching party all out-of-pocket costs
(including without limitation reasonable attorney fees and expenses) which the
non-breaching party has incurred in connection with this Agreement.
6.3 Amendment. This Agreement may be amended by the parties thereto,
---------
at any time prior to the Closing. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
ARTICLE VII
MISCELLANEOUS
7.1 Expenses. Except as otherwise provided herein, AMS hereby
--------
covenants and agrees to pay its own costs and expenses, and the MMI Shareholders
hereby covenants and agrees to pay their costs and expenses and the costs and
expenses, incurred in connection with this Agreement and the transactions
contemplated in this Agreement, including without limitation fees and expenses
of counsel, irrespective of when incurred and regardless of whether this
transaction is consummated.
7.2 Notices. All notices and other communications required or
-------
permitted hereunder shall be in writing and shall be deemed to have been given
when delivered personally, or on the next day after being sent by facsimile
transmission or a nationally recognized overnight delivery service, or on the
third (3rd) day after being sent by registered or certified mail (return receipt
requested), postage prepaid to the parties to this Agreement at the following
addresses or at such other address for a party as shall be specified by
14
<PAGE>
like notice:
<TABLE>
<S> <C>
If to Seaton Richard Seaton
9570 Heritage Park Trail
Peyton, Colorado 80831-8031
If to Gene Burson Gene Burson
c/o Action Auto
3301 East Main
Farmington, New Mexico 87401
If to Jennings Kaye Jennings
c/o Action Auto
3301 East Main
Farmington, New Mexico 87401
If to Daryl Burson Daryl Burson
P.O. Box 1052
Farmington, New Mexico 87499
If to Rogers James Rogers
A-1 Diesel
215 Santa Fe Drive
Pueblo, Colorado 81006
If to AMS: Advantage Marketing Systems, Inc.
Suite 1210 West
2601 N. W. Expressway
Oklahoma City, Oklahoma 73112
Attention: Roger P. Baresel
Facsimile: (405) 843-4935
With copies to: Michael E. Dunn, Esq.
Dunn Swan & Cunningham
2800 Oklahoma Tower
210 Park Avenue
Oklahoma City, Oklahoma 73102-5604
Facsimile: (405) 235-9605
</TABLE>
7.3 Entire Agreement. This Agreement (including the Exhibits and
----------------
Schedules hereto and the documents and instruments referred to herein)
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements and undertakings, written and
oral.
7.4 Binding Effect; Benefits. This Agreement shall be binding upon and
------------------------
inure to the benefit of the parties to this Agreement and their respective
successors and permitted assigns. Prior to Closing, neither this Agreement nor
any right, remedy, obligation or liability hereunder or by reason hereof shall
be assignable by any of the parties to this Agreement without the prior written
consent of the others. Nothing expressed or implied in this Agreement is
intended to or shall be construed to give any person other than the parties to
this Agreement or their respective successors or permitted assigns any legal or
equitable right, remedy or claim under or in respect of this Agreement, it being
the intention of the parties to this Agreement that this Agreement shall be for
the sole and exclusive benefit of the parties hereto or
15
<PAGE>
such successors or assigns and for the benefit of no other person.
7.5 Waiver. Any term or provision of this Agreement may be waived in
------
writing at any time by the MMI Shareholders, if they are entitled to the
benefits thereof, or by AMS, if it is entitled to the benefits thereof. No such
waiver shall, unless explicitly stated, be a continuing waiver. No failure to
exercise or delay in exercising any right hereunder shall constitute a waiver
thereof.
7.6 Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of Oklahoma applicable to contracts
made and to be performed within that State.
7.7 Confidentiality. Prior to consummation of the transactions
---------------
contemplated in this Agreement, AMS and its representatives and the MMI
Shareholders and their representatives will each keep confidential, and not
disclose to any third party, information and data obtained as a result of such
access; provided, however, that this restriction shall not apply to information
and data which (i) are now in or may hereafter enter the public domain without
breach of this covenant, (ii) were already in the possession of AMS, and/or the
MMI Shareholder, as the case may be, prior to receipt from the other, (iii) are
lawfully received by AMS and/or the MMI Shareholders, as the case may be, from
an unrelated third party after receipt of the same from the other, (iv) AMS
and/or the MMI Shareholders or MMI, as the case may be, is required by law to
disclose, or (v) AMS and/or the MMI Shareholders, as the case may be, discloses
to joint venture partners, independent consultants, financial institutions,
investment bankers or broker-dealers, provided there are restrictions
prohibiting further dissemination of such information by any such joint venture
partners, consultant, financial institution investment bankers or
broker-dealers. If the transactions contemplated in this Agreement are not
consummated, each of the MMI Shareholders and AMS shall return to the other all
information and data obtained pursuant to this Agreement.
If AMS or any of its officers, directors, employees, agents or
representatives is required to disclose any information supplied to AMS by the
MMI Shareholders pursuant to this Agreement, or if either of the MMI
Shareholders or any of his agents or representatives is required to disclose any
information supplied to the MMI Shareholders by AMS pursuant to this Agreement,
the parties hereto agree that AMS will provide the MMI Shareholders with prompt
notice, or the MMI Shareholders will provide AMS prompt notice, of such
request(s) so that AMS or the MMI Shareholders, as the case may be, may seek an
appropriate protective order and/or waive compliance with the provisions of this
Section 7.7. It is further agreed that, if in the absence of a protective order
or the receipt of a waiver hereunder, AMS or either of the MMI Shareholders, as
the case may be, is nonetheless, in the opinion of its or his legal counsel,
compelled to disclose information and data concerning AMS or the MMI
Shareholders or MMI to any tribunal or else stand liable for contempt or suffer
other censure or penalty, AMS or either of the MMI Shareholders, as the case may
be, may disclose such information to such tribunal without liability hereunder.
7.8 Publicity. All press releases and other publicity concerning the
---------
transactions contemplated in this Agreement shall be jointly planned and
coordinated by and between AMS and the MMI Shareholders.
7.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be a single agreement.
7.10 Headings and Captions. The headings contained in this Agreement
---------------------
are for convenience of reference only, are not to be considered a part hereof
and shall not limit or otherwise affect in any way the meaning or interpretation
of this Agreement.
16
<PAGE>
7.11 Effect of Invalid Provisions. In the event any provision of this
----------------------------
Agreement or any other agreement entered into pursuant hereto is contrary to,
prohibited by or deemed invalid under applicable law or regulation, such
provision shall be inapplicable and deemed omitted to the extend so contrary,
prohibited or invalid, but the remainder thereof shall not be invalidated
thereby and shall be given full force and effect so far as possible. In the
event any provision of this Agreement may be construed in two or more ways, one
of which would render the provision invalid or otherwise voidable or
unenforceable and another of which would render the provision valid and
enforceable, such provision shall have the meaning which renders it valid and
enforceable.
7.12 Waiver of Performance. The failure or delay of any party at any
---------------------
time to require performance by another party of any provision of this Agreement,
even if known, shall not affect the right of such party to require performance
of that provision or to exercise any right, power or remedy hereunder. Any
waiver by any party of any breach of any provision of this Agreement shall not
be construed as a waiver of any continuing or succeeding breach of such
provision, a waiver of any continuing or succeeding breach of such right, power
or remedy under this Agreement. No notice to or demand on any party in any case
shall, of itself, entitle such party to any other or further notice or demand in
similar or other circumstances.
17
<PAGE>
IN WITNESS WHEREOF, the Board of Directors of AMS has duly authorized
and caused this Agreement to be signed by the respective officers of AMS, and
the MMI Shareholders have executed this Agreement in his individual capacity, as
of the date first above written.
"MMI Shareholders"
<TABLE>
<S> <C>
"Seaton" /s/RICHARD SEATON
-----------------------------------------
Richard Seaton
"Gene Burson" /s/GENE BURSON
-----------------------------------------
Gene Burson
"Jennings" /s/KAYE JENNINGS
-----------------------------------------
Kaye Jennings
"Daryl Burson" /s/DARYL BURSON
-----------------------------------------
Daryl Burson
"Rogers" /s/JAMES ROGERS
-----------------------------------------
James Rogers
"MMI" MIRACLE MOUNTAIN INTERNATIONAL, INC.
By: /s/RICHARD SEATON
-------------------------------------
Richard Seaton, President
"AMS" ADVANTAGE MARKETING SYSTEMS, INC.
By: /s/ROGER P. BARESEL
-------------------------------------
Roger P. Baresel, President
</TABLE>
LIST OF SCHEDULES
Schedule 2.8 MMI Customer List.
Schedule 2.10 Schedule of Leases. NONE
Schedule 2.17 Schedule of Contracts. NONE
Schedule 2.18 List of MMI insurance policies in force.
Schedule 2.21 Schedule of Patents, Trademarks, Formulations, Etc.
18
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Advantage Marketing
Systems, Inc. on Form SB-2 of our reports on the financial statements of
Advantage Marketing Systems, Inc. and Miracle Mountain International, Inc. dated
March 29, 1996 and June 31, 1996, respectively, appearing in this Prospectus,
which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
June 27,1996
