<PAGE>
As filed with the Securities and Exchange Commission on March 11, 1998
Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
------------------------
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 (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
2601 NORTHWEST EXPRESSWAY, SUITE 1210W JOHN W. HAIL, CHIEF EXECUTIVE OFFICER
OKLAHOMA CITY, OKLAHOMA 73112-7293 ADVANTAGE MARKETING SYSTEMS, INC.
(405) 842-0131 2601 NORTHWEST EXPRESSWAY, SUITE 1210W
OKLAHOMA CITY, OKLAHOMA 73112-7293
(Address and telephone number, (405) 842-0131
including area code, of registrant's (Name, address and telephone number,
principal executive offices) of agent for service)
------------------------
Copies To:
MICHAEL E. DUNN, ESQ.
DUNN SWAN & CUNNINGHAM
2800 OKLAHOMA TOWER
210 PARK AVENUE
OKLAHOMA CITY, OKLAHOMA 73102-5604
TELEPHONE: (405) 235-8318
FACSIMILE: (405) 235-9605
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE(1)
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Stock Purchase Plan Participation Interests....... 5,000,000 $1.00 $5,000,000 $1,475
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Total............................................. $5,000,000 $1,475
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</TABLE>
(1) The offering price is based a minimum of $1.00 increment contributions to
the Advantage Marketing Systems, Inc. 1998 Distributor Stock Purchase Plan.
------------------------
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.
<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.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 11, 1998 PROSPECTUS
ADVANTAGE MARKETING SYSTEMS, INC.
5,000,000 PARTICIPATION INTERESTS
ADVANTAGE MARKETING SYSTEMS, INC. 1998
DISTRIBUTOR STOCK PURCHASE PLAN
Advantage Marketing Systems, Inc. (the "Company") hereby offers
5,000,000 interests ("Participation Interests") in the Advantage Marketing
Systems, Inc. Distributor Stock Purchase Plan (the "Plan") to the
distributors of the Company's products and services ("Eligible Persons"). An
Eligible Person electing to participate in the Plan (a "Participant") will be
entitled through purchase of the Participation Interests to purchase in the
open market through the Plan shares of Common Stock, $.0001 par value per
share (the "Common Stock"), previously issued by the Company. The
Participation Interests are non-transferrable; therefore, a market for the
Participation Interests will not develop. The proceeds from sale of the
Participation Interests will become the Participants' contributions to the
Plan which will be used to purchase the Common Stock. Other than an annual
service fee of $5.00 per Participant and a transaction fee of $1.25 per
month, the Company will not receive any proceeds from the purchase of the
Common Stock by the Plan. See "Description of Plan." The offering price of
each Participation Interest is $1.00, and each Eligible Person is required
initially to purchase a minimum of twenty-five Participation Interests upon
electing to participate in the Plan.
The Common Stock is quoted on the Nasdaq SmallCap Market under the
symbol "AMSO" and is listed on the Boston Stock Exchange and traded under the
symbol "AMM." On March 6, 1998, the closing sale price of the Common Stock on
the Nasdaq SmallCap Market was $2.81. The public offering price of the
Participation Interests has been determined by the Company. See "Plan of
Distribution."
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS," BEGINNING AT PAGE 9.
------------------------
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.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
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Per Participation Interest............................ $1.00 $-- $1.00
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Total................................................. $5,000,000 $-- $5,000,000
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</TABLE>
(1) Before deducting offering expenses payable by the Company estimated
to be $90,000. The Proceeds to Company will be contributed to the
Plan for the account of the Participants to be used to pay the
Company certain fees and for the purchase of Common Stock in the
open market. See "Use of Proceeds."
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements under the captions "Prospectus Summary," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this Prospectus
constitute "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking
terminology such as "anticipates," "believes," "expects," "may," "will," or
"should" or other variations thereon, or by discussions of strategies that
involve risks and uncertainties. The actual results of the Company or
industry results may be materially different from any future results
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include general economic and
business conditions; the ability of the Company to implement its business and
acquisition strategies; changes in the network marketing industry and changes
in consumer preferences; competition; availability of key personnel;
increasing operating costs; unsuccessful advertising and promotional efforts;
changes in brand awareness; acceptance of new product offerings; and changes
in, or the failure to comply with, government regulations (especially food
and drug laws and regulations); the ability of the Company to obtain
financing for future acquisitions; and other factors. See "Risk Factors."
Chambre-Registered Trademark-, Spark of Life-Registered
Trademark-, Young at Heart-Registered Trademark-, Co-Clenz-Registered
Trademark-, Stay 'N Shape-Registered Trademark- and Sine-eze-Registered
Trademark- are registered trademarks of the Company, and Choc-Quilizer-TM- is
a trademark of Tinos, L.L.C.
-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. EFFECTIVE DECEMBER 11, 1995, ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY PACIFIC COAST INTERNATIONAL, INC.), A DELAWARE CORPORATION AND THE
FORMER PARENT OF THE COMPANY, MERGED WITH THE COMPANY. THE COMPANY, AN
OKLAHOMA CORPORATION WHICH SUBSEQUENTLY CHANGED ITS NAME FROM "AMS, INC." TO
"ADVANTAGE MARKETING SYSTEMS, INC.," WAS THE SURVIVING CORPORATION. THE
COMPANY EXPANDED ITS NETWORK MARKETING ORGANIZATION WITH THE ACQUISITION OF
MIRACLE MOUNTAIN INTERNATIONAL, INC. ON MAY 31, 1996 (THE "MMI ACQUISITION"),
CHAMBRE INTERNATIONAL, INC. ON JANUARY 31, 1997 (THE "CII ACQUISITION"), AND
THE ACQUISITION OF THE ASSETS OF STAY 'N SHAPE INTERNATIONAL, INC., SOLUTION
PRODUCTS INTERNATIONAL, INC., NATION OF WINNERS, INC., AND NOW INTERNATIONAL,
INC. ON APRIL 16, 1997 (THE "SNSI ASSET PURCHASE"). SEE "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--GENERAL." UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE
COMPANY INCLUDE ITS FORMER PARENT, ADVANTAGE MARKETING SYSTEMS, INC. AND ITS
CURRENT SUBSIDIARIES. FURTHERMORE, EXCEPT AS OTHERWISE INDICATED, THE
INFORMATION CONTAINED IN THIS PROSPECTUS REFLECTS A ONE-FOR-EIGHT REVERSE
SPLIT OF THE COMPANY'S ISSUED AND OUTSTANDING COMMON STOCK ON OCTOBER 29,
1996, AND ASSUMES THAT (i) THE OUTSTANDING STOCK OPTIONS AND WARRANTS OF THE
COMPANY EXERCISABLE FOR THE PURCHASE OF COMMON STOCK ARE NOT EXERCISED AND
(ii) NO ADDITIONAL SHARES OF COMMON STOCK WILL BE ISSUED IN CONNECTION WITH
THE SNSI ASSET PURCHASE.
THE COMPANY
Advantage Marketing Systems, Inc. (the "Company") markets weight
management, dietary supplement and personal care products through a network
marketing organization in which independent distributors purchase products
for resale to retail customers as well as for their own personal use. The
number of the Company's active distributors has increased from approximately
8,100 at December 31, 1995, and 10,600 at December 31, 1996 to approximately
20,600 at September 30, 1997. An "active" distributor is one who purchased
$50 or more of the Company's products within the preceding 12 months.
The distributors in the Company's network actively recruit interested
people to become new distributors to market the Company's products. New
distributors are placed beneath the recruiting distributor in the "network"
and are referred to by the Company as being in that distributor's "downline"
organization. The Company's marketing plan is designed to provide incentives
for distributors to build, maintain and motivate an organization of recruited
distributors in their downline organization to maximize their earning
potential. Distributors earn bonuses on product purchases generated by the
distributors in their downline organization. Distributors also generate
income by purchasing the Company's products at wholesale prices and reselling
them at retail prices. See "Business--Network Marketing."
The Company's growth strategy is to expand its product offerings and its
network of independent distributors to increase sales. The Company believes
that the introduction of new products addresses the demand of its customers,
creates enthusiasm among distributors, serves as a promotional tool in
selling other products, and attracts new distributors. Since 1995, the
Company has added nine new weight management and dietary supplement products
to its product line, and, through the CII Acquisition, the Company added 68
personal care and six dietary supplement products. See "Risk
Factors--Dependance on AM-300." Through the SNSI Asset Purchase which was
consummated on April 16, 1997, the Company added 38 weight management and
dietary supplement products and one personal care product to its product
line. In connection with the MMI Acquisition, the CII Acquisition and the
SNSI Asset Purchase, the Company also acquired 1,690, 2,100 and 3,000
additional distributors, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--General" and
"Business--Growth Strategy."
As of the date of this Prospectus, the Company's product line consists
primarily of (i) seven weight management products, (ii) 32 dietary supplement
products and (iii) 66 personal care products consisting primarily of cosmetic
and skin care products. See "Business--Products." The Company's products are
manufactured pursuant to its own formulations by various manufacturers and
are sold to the Company's independent distributors located in
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<PAGE>
all 50 states and the District of Columbia. The Company also sells its
personal care products to distributors in Greece who do not use the Company's
network marketing system. See "Business--Products."
The Company markets products that it believes will fulfill the needs of
its distributors and their customers, and assist its distributors in building
their own distributor organization. The Company offers individuals the
opportunity to start a home-based business without the significant start-up
costs and other difficulties usually associated with new business ventures.
The Company provides new product development, marketing tools, support
services, product warehousing, distribution and essential record-keeping
functions for its distributors. The Company also provides other support
programs to its distributors, including regular teleconferences, regional
seminars, and product and sales training.
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. The Company's site on the World Wide Web on the
Internet is located at http:www.amsonline.com.
THE OFFERING
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Securities Offered................ 5,000,000 Participation Interests. See "Description of the Plan."
Common Stock outstanding.......... 4,249,383 shares as of the date of this Prospectus, assuming no
exercise of the Company's 1,495,000 Redeemable Common Stock
Purchase Warrants, 130,000 warrants (each exercisable for the
purchase of one share of Common Stock and one Redeemable
Common Stock Purchase Warrant which is also exercisable for the
purchase of one share of Common Stock) sold to certain
underwriters of the Company's recent stock offerings (the
"Underwriters' Warrants"), 337,211 outstanding 1997-A Warrants,
1,439,583 outstanding stock options and other warrants (see
"Description of Securities--Redeemable Common Stock Purchase
Warrants," "--1997-A Warrants" and "--Other Options and
Warrants"), and does not include 1,125,000 shares of Common
Stock reserved for issuance pursuant to the Advantage Marketing
Systems, Inc. 1995 Stock Option Plan (the "Stock Option Plan")
under which options granted for the purchase of 173,850 shares are
outstanding (see "Management--Stock Option Plan"), and
additional shares of Common Stock that may be issued in
connection with the SNSI Asset Purchase (see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General--SNSI Asset Purchase"). As of the date of
this Prospectus, the aggregate number of shares of Common Stock
that may be issued upon exercise of outstanding stock options and
warrants is 3,705,644. See "Risk Factors--Outstanding Stock
Options and Warrants."
Estimated net proceeds............ $5,000,000 assuming sale of the Participation Interests in full.
Estimated offering expenses of $90,000 will be paid by the
Company and will not reduce the Participants' contributions to the
Plan. However, the Company will receive from the estimated net
proceeds annual service fees of $5.00 per Participant (the "Annual
Service Fees") and monthly transaction fees of $1.25 per
Participant (the "Transaction Fees") from which the Company may
recoup the estimated offering expenses at least in part. See "Use of
Proceeds" and "Description of Plan."
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<PAGE>
Use of proceeds..................... The proceeds received by the Company from this offering will be
contributed to the Plan for the accounts of the Participants to be
used to pay the Company the Annual Service Fees and Transaction
Fees of $5.00 and $1.25 per Participant, respectively, and for the
purchase of the Company's issued and outstanding Common Stock
in the open market. The Annual Service Fees and monthly
Transaction Fees to be received by the Company will be used to
reimburse the Company for the offering expenses of this offering
and cost of administering the Plan. See "Use of Proceeds."
Nasdaq SmallCap symbol.............. Common Stock................................................... AMSO
Boston Exchange symbol.............. Common Stock................................................... AMM
</TABLE>
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<PAGE>
SUMMARY FINANCIAL AND OPERATING INFORMATION
The following table sets forth summary historical financial and
operating information of the Company for the fiscal years ended December 31,
1995 and 1996, and the nine months ended September 30, 1996 and 1997. 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, 1995 and 1996 is derived
from the audited consolidated financial statements of the Company appearing
elsewhere in this Prospectus. The financial and operating information for the
nine months ended September 30, 1996 and 1997, is derived from the unaudited
consolidated financial statements of the Company appearing elsewhere in this
Prospectus which, in the opinion of management, include all adjustments
(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 consolidated 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 data for any
particular period are not necessarily indicative of the results of operations
for any future period.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- --------------------------------
1995 1996 1996 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................................. $4,492,668 $6,129,916 $4,439,042 $ 7,635,321
Gross profit.......................................... 1,341,927 1,598,338 1,435,400 2,162,502
Income from operations................................ 247,171 302,258 287,506 204,747
Income before income taxes............................ 249,708 325,544 287,654 213,860
Tax benefit (expense)................................. -- 499,613 443,149 (81,377)
Net income............................................ $ 249,708 $ 825,157 $ 730,803 $ 132,483
Weighted average common
shares outstanding(1).............................. 2,662,681 3,770,874 3,176,000 3,457,135
Net income per common share........................... $ 0.09 $ 0.29 $ 0.23 $ 0.04
OPERATING DATA:
Number of active distributors......................... 8,100 10,600 8,800 20,600
Sales per active distributor(2)....................... $46 $48 $59 $48
Total number of products offered(3)................... 16 28 24 105
CASH FLOW DATA:
Net cash provided (used) by operating activities..... $ 360,845 $426,421 $310,375 $ (217,277)
Net cash provided (used) by investing activities..... (70,388) (136,937) (137,594) (1,553,469)
Net cash provided (used) by financing activities..... (178,370) (232,002) (166,903) 1,958,229
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
---------------------------- ---------------------------------
1995 1996 ACTUAL AS ADJUSTED(1)(4)
---------- ----------- ----------- -----------------
BALANCE SHEET DATA:
Current assets........................................ $283,341 $ 655,243 $1,614,251 $ 6,944,251
Working capital (deficiency).......................... (170,734) 16,353 528,392 5,858,392
Total assets.......................................... 532,996 1,790,341 5,308,080 10,638,080
Short-term debt....................................... 111,048 76,204 133,598 133,598
Long-term debt........................................ 104,149 230,022 329,819 329,819
Stockholders' equity (deficiency)..................... (25,228) 921,429 3,892,402 9,222,402
</TABLE>
- ---------------------
(1) Without giving effect to and assuming no exercise of the 1,495,000
outstanding Redeemable Common Stock Purchase Warrants, 130,000
Underwriters' Warrants, the 337,211 outstanding 1997-A Warrants,
1,439,583 outstanding stock options and other warrants (see
"Description of Securities--Redeemable Common Stock Purchase
Warrants," "--1997-A Warrants" and "--Other Options and Warrants"),
and does not include 1,125,000 shares of Common Stock reserved for
issuance under the Stock Option Plan
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<PAGE>
under which options granted for the purchase of 173,850 shares are
outstanding (see "Management--Stock Option Plan"), and additional
shares of Common Stock that may be issued in connection with the
SNSI Asset Purchase (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General--SNSI Asset
Purchase").
(2) Monthly sales per active distributor for the period presented is
computed using a simple average.
(3) Exclusive of variations in product size, colors or similar
variations of the Company's basic product line.
(4) Adjusted to reflect the sale on November 12, 1997, of 1,495,000 units,
each consisting of one share of Common Stock and one Redeemable Common
Stock Purchase Warrant (the "Units"), and the receipt by the Company of net
proceeds of $6,050,000. Accumulated offering costs of approximately
$720,000 were charged against the proceeds of the offering.
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<PAGE>
SELECTED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Set forth below is selected unaudited pro forma consolidated
information of the Company, assuming that the SNSI Asset Purchase occurred 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 the combined
financial statements of Stay 'N Shape International, Inc., Now International,
Inc., Solution Products, Inc. and Nation of Winners, Inc., and the unaudited pro
forma consolidated information of the Company, all presented elsewhere in this
Prospectus. The unaudited pro forma consolidated information is presented for
illustrative purposes only and is not necessarily indicative of the results of
operations that would have been achieved if the SNSI Asset Purchase had been
consummated in accordance with the assumptions set forth in the notes to the
unaudited pro forma consolidated statements of operations of the Company, nor is
it necessarily indicative of future operating results. See the Unaudited Pro
Forma Consolidated Financial Statements of Advantage Marketing Systems, Inc.
(formerly AMS, Inc.) appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
-----------------------------------
FOR THE FOR THE NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997(2)
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STATEMENTS OF OPERATIONS DATA:
Net sales..................................... $8,506,938 $8,218,782
Gross profit.................................. 2,477,549 2,432,714
Net Income.................................... 711,006 137,858
Weighted average common shares
outstanding(1).............................. 3,896,874 5,053,883
Net income per common share................... $ 0.25 $ 0.03
</TABLE>
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(1) Without giving effect to and assuming no exercise of the 1,495,000
outstanding Redeemable Common Stock Purchase Warrants, 130,000
Underwriters' Warrants, the 337,211 outstanding 1997-A Warrants,
1,439,583 outstanding stock options and other warrants (see
"Description of Securities--Redeemable Common Stock Purchase
Warrants," "--1997-A Warrants" and "--Other Options and Warrants"),
and does not include 1,125,000 shares of Common Stock reserved for
issuance under the Stock Option Plan of which options granted for
the purchase of 173,850 shares are outstanding (see "Management--
Stock Option Plan"), and additional shares of Common Stock that may
be issued in connection with the SNSI Asset Purchase
(see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--General--SNSI Asset Purchase").
(2) Adjusted to reflect the sale on November 12, 1997, of 1,495,000
Units and the receipt by the Company of net proceeds of $6,050,000.
Accumulated offering costs of approximately $720,000 were charged
against the proceeds of the offering.
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<PAGE>
RISK FACTORS
PURCHASE OF PARTICIPATION INTERESTS OFFERED HEREBY AND PURCHASE OF
THE COMMON STOCK THROUGH PARTICIPATION IN THE PLAN INVOLVES A HIGH DEGREE OF
RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED WHEN EVALUATING THE PURCHASE OF THE
PARTICIPATION INTERESTS OFFERED HEREBY AND INVESTMENT IN THE COMMON STOCK
THROUGH THE PLAN.
RISKS RELATED TO THE COMPANY
DEPENDENCE ON DISTRIBUTORS. The Company's success and growth depend
upon its ability to attract, retain and motivate its network of independent
distributors who market the Company's products. Distributors are independent
contractors who purchase products directly from the Company for resale and their
own use. Distributors typically offer and sell the Company's products on a
part-time basis and may engage in other business activities, including the sale
of products offered by competitors of the Company. Typically, the Company has
non-exclusive arrangements with its distributors which may be canceled at will
and contain no minimum purchase requirements on the part of each distributor.
While the Company encourages distributors to focus on the purchase and sale of
the Company's products, distributors may give higher priority to other products,
reducing their efforts devoted to marketing the Company's products. Furthermore,
the Company's ability to attract and retain distributors could be negatively
affected by adverse publicity relating to the Company, its products or its
operations. In addition, as a result of the Company's network marketing system,
the distributor downline organizations headed by a relatively small number of
key distributors are responsible for a significant percentage of total sales.
The loss of a significant number of distributors, including any key
distributors, for any reason, could adversely affect the Company's sales and
operating results, and could impair the Company's ability to attract new
distributors. There can be no assurance that the Company's network marketing
program will continue to be successful or that the Company will be able to
retain or expand its current network of independent distributors. See
"Business--Network Marketing."
GOVERNMENT REGULATION. The Company and its operations are subject
to and affected by laws, regulations, administrative determinations, court
decisions and similar constraints at the federal, state and local levels and
the laws and regulations of foreign countries in which the Company's products
are or may be sold. See "Business--Regulation."
PRODUCTS. The formulation, manufacturing, packaging, labeling,
advertising, distribution and sale of the Company's products are subject to
regulation by a number of governmental agencies, the most active of which is the
Food and Drug Administration (the "FDA"), which regulates the Company's products
under the Federal Food, Drug, and Cosmetic Act (the "FDCA") and regulations
promulgated thereunder. The Company's products are also subject to regulation by
the Federal Trade Commission (the "FTC"), the Consumer Product Safety Commission
(the "CPSC"), the United States Department of Agriculture (the "USDA"), and the
Environmental Protection Agency (the "EPA"). The FDCA has been amended several
times with respect to dietary supplements, most recently by the Nutrition
Labeling and Education Act of 1990 (the "NLEA") and the Dietary Supplement
Health and Education Act of 1994 (the "DSHEA"). The Company's products are
generally classified and regulated as dietary supplements under the FDCA, as
amended, and therefore are not subject to pre-market approval by the FDA.
However, these products are subject to extensive labeling regulation by the FDA
and can be removed from the market if shown to be unsafe. Moreover, if the FDA
determines, on the basis of labeling or advertising claims by the Company, that
the "intended use" of any of the Company's products is for the diagnosis, cure,
mitigation, treatment or prevention of disease, the FDA can regulate those
products as drugs and require pre-market clearance for safety and effectiveness.
In addition, if the FDA determines that claims have been made regarding the
effect of dietary supplements on the "structure or function" of the body, such
claims could result in the regulation of such products as drugs.
On June 4, 1997, the FDA proposed a regulation which will, if
adopted in its proposed form, significantly limit the ability of the Company
to sell dietary supplements that contain ephedra, or ephedrine, a chemical
constituent of ephedra, including the Company's AM-300 product, which for the
nine months ended September 30, 1997, represented 28.9 percent of the
Company's net sales. Ephedrine products have been the subject of adverse
publicity in the United States and other countries relating to alleged
harmful effects, including the deaths of several individuals. On April 10,
1996, the FDA issued a statement warning consumers not to purchase or ingest
dietary supplements containing natural sources of ephedrine which are claimed
to produce certain effects (none of which are
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<PAGE>
claimed for the Company's product). As of the date of this Prospectus, it is
not possible to predict whether the FDA will make any material changes to the
proposed regulations prior to adoption. Many states have also recently become
active in the regulation of dietary supplement products and may require the
Company to modify the labeling or formulation of certain products sold in
those states, and several states either regulate or are considering
regulating ephedrine-containing products as controlled substances or are
prohibiting the sale of such products by persons other than licensed
pharmacists. Consequently, there is a risk that the Company's AM-300 product,
which contains an ephedra herb concentrate containing naturally occurring
ephedrine, may become subject to further federal, state, local or foreign
laws or regulations. These laws or regulations could require the Company to
(i) withdraw or reformulate its AM-300 product with reduced ephedrine levels
or with a substitute for ephedra or ephedrine, (ii) relabel its product with
different warnings or revised directions for use, or (iii) not make certain
statements, possibly including weight loss claims, with respect to any
product containing ephedra or ephedrine. While the Company believes that its
AM-300 product could be reformulated and relabeled, there can be no assurance
in that regard or that reformulation and relabeling would not have an adverse
effect on sales of such product or related products within the Company's
product line even though such products do not contain ephedra or ephedrine.
See "--Dependence on AM-300" and "Business--Regulation--Products."
PRODUCT CLAIMS AND ADVERTISING. The FTC and certain states regulate
advertising, product claims, and other consumer matters, including advertising
of the Company's products. In the past several years the FTC has instituted
enforcement actions against several dietary supplement companies for false and
misleading advertising of certain products. In addition, the FTC has increased
its scrutiny of the use of testimonials, such as those utilized by the Company.
There can be no assurance that the FTC will not question the Company's past or
future advertising or other operations. Moreover, there can be no assurance that
a state will not interpret product claims presumptively valid under federal law
as illegal under that state's regulations. Furthermore, the Company's
distributors and their customers may file actions on their own behalf, as a
class or otherwise, and may file complaints with the FTC or state or local
consumer affairs offices. These agencies may take action on their own initiative
or on a referral from distributors, consumers or others, including actions
resulting in entries of consent decrees and the refund of amounts paid by the
complaining distributor or consumer, refunds to an entire class of distributors
or customers, or other damages, as well as changes in the Company's method of
doing business. A complaint because of a practice of one distributor, whether or
not that practice was authorized by the Company, could result in an order
affecting some or all distributors in a particular state, and an order in one
state could influence courts or government agencies in other states. Proceedings
resulting from these complaints may result in significant defense costs,
settlement payments or judgments and could have a material adverse effect on the
Company. See "Business--Regulation--Product Claims and Advertising."
NETWORK MARKETING SYSTEM. The Company's network marketing system is
subject to a number of federal and state laws and regulations administered by
the FTC and various state agencies, including without limitation securities,
franchise investment, business opportunity and criminal laws prohibiting the use
of "pyramid" or "endless chain" types of selling organizations. These
regulations are generally directed at ensuring that product sales are ultimately
made to consumers (as opposed to other distributors) and that advancement within
the network marketing system is based on sales of the Company's products, rather
than investment in the Company or other non-retail sales related criteria. The
compensation structure of a network marketing organization is very complex, and
compliance with all of the applicable regulations and laws is uncertain in light
of evolving interpretations of existing laws and regulations as well as the
enactment of new laws and regulations pertaining in general to network marketing
organizations and product distribution.
The Company has not obtained any no-action letters or advance
rulings from any federal or state securities regulator or other governmental
agency concerning the legality of the Company's operations, and the Company
is not relying on an opinion of counsel to such effect. The Company
accordingly is subject to the risk that its network marketing system could be
found to be in noncompliance with applicable laws and regulations, which
could have a material adverse effect on the Company. See "Business--Network
Marketing." Such a decision could require the Company to modify its network
marketing system, result in negative publicity, or have a negative effect on
distributor morale and loyalty. In addition, the Company's network marketing
system will be subject to regulations in foreign markets administered by
foreign agencies should the Company expand its network marketing organization
into such markets.
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CIVIL LITIGATION BY DISTRIBUTORS. The Company is subject to the
risk of challenges to the legality of its network marketing organization by
the Company's distributors, both individually and as a class, based on claims
that the Company's network marketing program is operated as an illegal
"pyramid scheme" in violation of federal securities laws, state unfair
practice and fraud laws and the Racketeer Influenced and Corrupt
Organizations Act. Generally, an illegal pyramid scheme is a marketing scheme
that promotes "inventory loading" (I.E., distributors' purchases of large
quantities of non-returnable inventory to obtain the full amount of
compensation available under the network marketing program) and does not
encourage retail sales of the products and services to ultimate consumers. In
the event of challenges to the legality of its network marketing organization
by the Company's distributors, there is no assurance that the Company would
be able to demonstrate that its network marketing policies were enforced and
that the network marketing program and distributors' compensation thereunder
serve as safeguards to deter inventory loading and encourage retail sales to
the ultimate consumers. Proceedings resulting from these claims could result
in significant defense costs, settlement payments or judgments, and could
have a material adverse effect on the Company. A competitor of the Company,
Nutrition for Life International, Inc. ("NFLI"), a multi-level seller of
personal care and nutritional supplements, recently announced that it had
settled class action litigation brought by distributors alleging fraud in
connection with the operation of a pyramid scheme. NFLI agreed to pay in
excess of $3 million to settle claims brought on behalf of its distributors
and certain purchasers of its stock.
The Company believes that its marketing program is significantly
different from the program allegedly promoted by NFLI and that the Company's
marketing program is not in violation of anti-pyramid laws or regulations.
However, there can be no assurance that claims similar to the claims brought
against NFLI and other multi-level marketing organizations will not be made
against the Company, or that the Company would prevail in the event any such
claims were made. Furthermore, even if the Company were successful in
defending against any such claims, the costs of conducting such a defense,
both in dollars spent and in management time, could be material and adversely
affect the Company's operating results and financial condition. In addition,
the negative publicity of such a suit could adversely affect the Company's
sales and ability to attract and retain distributors. See
"Business--Regulation--Network Marketing System."
DEPENDENCE ON AM-300. A significant portion of the Company's net
sales has been, and is expected to continue to be, dependent upon the
Company's AM-300 product, which contains an ephedra herb concentrate
containing naturally occurring ephedrine. The Company's net sales of AM-300
represented approximately 28.9 percent, 39.1 percent, and 31.5 percent of net
sales for the nine months ended September 30, 1997 and for fiscal years 1996
and 1995, respectively. In the event the recently proposed FDA regulation
related to products containing ephedra and ephedrine is adopted as proposed,
or such products become subject to further federal, state or local laws and
regulations, the Company could be required to (i) withdraw or reformulate its
AM-300 product, (ii) relabel such product, or (iii) not make certain
statements, possibly including weight management claims, with respect to such
product. Any such event could have a material adverse effect upon sales,
results of operations and the financial condition of the Company. See
"--Government Regulation--Products," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations" and
"Business--Products" and "--Regulation--Products."
COMPETITION. The Company is subject to significant competition in
recruiting distributors from other network marketing organizations, including
those that market weight management, dietary supplement and personal care
products, as well as other types of products. Most of the Company's
competitors are substantially larger, offer a greater variety of products and
have considerably greater financial resources than the Company. The Company's
ability to remain competitive depends, in significant part, on the Company's
success in recruiting and retaining distributors through an attractive bonus
plan and other incentives. There can be no assurance that the Company's
programs for recruitment and retention of distributors will be successful.
In addition, the business of distributing and marketing weight
management, dietary supplements, and personal care products is highly
competitive. This market segment includes numerous manufacturers, other
network marketing companies, catalog companies, distributors, marketers,
retailers and physicians that actively compete for the business of consumers.
The Company competes with other providers of such products, especially retail
outlets, based upon convenience of purchase, price and immediate availability
of the purchased product. For the most part, the Company's competitors
offering comparable products are substantially larger and have available
considerably
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greater financial resources than the Company. The market is highly sensitive
to the introduction of new products or weight management plans (including
various prescription drugs) that may rapidly capture a significant share of
the market. As a result, the Company's ability to remain competitive depends
in part upon the successful introduction of new products at competitive
prices. See "Business--Competition."
PRODUCT INTRODUCTION, OBSOLESCENCE AND MARKETING. The
introduction by the Company or its competitors of new weight management,
nutritional supplement and personal care products offering increased
functionality or enhanced results may render existing products obsolete and
unmarketable. Therefore, the Company's ability to successfully introduce new
products into the market on a timely basis and achieve acceptable levels of
sales has and will continue to 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 offered by the Company are important factors
in attracting and maintaining the Company's network of independent
distributors, which consequently affects demand for the Company's products.
Although the Company seeks to introduce additional products each year, the
success of new products is subject to a number of conditions, including
customer acceptance. There can be no assurance that the Company's efforts to
develop innovative new products will be successful, that customers will
accept new products or that the Company will obtain required regulatory
approvals of such new products. In addition, no assurance can be given that
new products currently experiencing strong popularity and rapid growth will
maintain their sales over time. In the event the Company is unable to
successfully increase the product mix and maintain competitive product
replacements or enhancements in a timely manner in response to the
introduction of new products, competitive or otherwise, the Company's sales
and earnings will be materially and adversely affected. See
"Business--Products" and "--Network Marketing."
PRODUCT LIABILITY; LACK OF INSURANCE COVERAGE. The Company, like
other marketers of products that are intended to be ingested, faces an
inherent risk of exposure to product liability claims in the event that the
use of its products results in injury. The Company generally does not obtain
contractual indemnification from parties manufacturing its products. However,
the Company has agreed to indemnify Tinos, L.L.C., the licensor of
Choc-Quilizer, against any product liability claims arising from the
Choc-Quilizer product marketed by the Company, and the Company has agreed to
indemnify Chemins against claims arising from products manufactured by
Chemins and marketed by the Company. The Company also does not maintain any
product liability insurance coverage. Therefore, product liability claims
against the Company could result in material losses to the Company. See
"Business--Products--Product Procurement and Distribution."
DEPENDENCE ON KEY PERSONNEL. The Company's growth and future
success depends in part on the continued availability of certain key
management personnel, including John W. Hail, founder, Chief Executive
Officer and Chairman of the Board of the Company, and Roger P. Baresel,
President, Chief Financial Officer and a director of the Company. The Company
does not maintain life insurance covering the executive officers of the
Company. The Company's continued growth and profitability also depends in
part on its ability to attract and retain other management personnel.
Although historically the Company has not had any difficulty in attracting
and retaining management personnel, there can be no assurance that it will
continue to be able to do so in the future. See "Business--Network Marketing"
and "Management--Directors and Executive Officers."
MANAGEMENT OF GROWTH. The Company has experienced substantial
growth in sales, operations, personnel and the number of distributors, which
has challenged and will continue to challenge the Company's management and
operating resources. Continued growth will require the Company to increase
its sales and marketing, support, and administrative personnel, to increase
distributor training and support capabilities and to expand information
management systems. There can be no assurance that the Company will be able
to attract and retain the necessary personnel to accomplish its growth
strategies or that it will not experience constraints that will adversely
affect its ability to satisfactorily support its distributors. If the
Company's management were to be unable to manage growth effectively, the
Company's sales and earnings could be materially adversely affected. See
"Business--Growth Strategy."
DEPENDENCE ON THIRD-PARTY MANUFACTURERS. Substantially all of the
products offered and distributed by the Company are manufactured by
third-party manufacturers pursuant to product formulations developed for the
Company. The Company does not have any written contracts with any of its
suppliers or manufacturers or commitments from any of its suppliers or
manufacturers to continue to sell products to the Company. A substantial
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portion of the products purchased by the Company have been supplied by
Chemins Company, Inc. ("Chemins") and Nittany Pharmaceutical Laboratories
("Nittany"), which are privately held corporations with no affiliation with
the Company. The Company believes that its relationships with Chemins and
Nittany are satisfactory; however, there can be no assurance that Chemins and
Nittany will continue to be reliable suppliers to the Company. The Company
does not have long-term supply agreements with Chemins, Nittany or any other
vendor; however, the Company customarily enters into contracts with such
third-party manufacturers to establish the terms and conditions of product
purchases. Accordingly, there is a risk that any of the Company's suppliers
or manufacturers could discontinue selling their products to the Company for
any reason. In the event any of the third-party manufacturers were to become
unable or unwilling to continue to provide the products in required volumes,
the Company would be required to identify and obtain acceptable replacement
manufacturing sources, and no assurance can be given that any alternative
manufacturing sources would become available to the Company on a timely
basis. See "Business--Products--Product Procurement and Distribution."
EFFECT OF UNFAVORABLE PUBLICITY. The Company believes the weight
management and dietary supplement products market is affected by national media
attention regarding the consumption of such products. There can be no assurance
that future scientific research or publicity will not be unfavorable to the
weight management and dietary supplement markets or any particular product, or
be inconsistent with earlier favorable research or publicity. Future reports of
research that are perceived as less favorable or that question earlier research
could have a material adverse effect on the operations of the Company. Because
of the Company's dependence upon consumer perceptions, adverse publicity
associated with illness or other adverse effects resulting from the consumption
of the Company's products, or any similar products distributed by other
companies, could have a material adverse effect on the Company. Such adverse
publicity could arise even if the adverse effects associated with such products
result from failure to consume such products as directed. In addition, the
Company may not be able to counter the effects of negative publicity concerning
the efficacy of its products.
ABSENCE OF CLINICAL STUDIES. Although many of the ingredients in the
Company's products are vitamins, minerals, herbs and other substances for which
there is a long history of human consumption, some of the Company's products
contain ingredients, such as chromium picolinate, shark cartilage,
proanthocyanidins, citrin and colloidal minerals, as to which there is little
history of human consumption. Accordingly, no assurance can be given that the
Company's products, even when used as directed, will have the effects intended.
Although the Company takes steps to ensure that the formulation and production
of its products are safe when consumed as directed, generally the Company has
not sponsored clinical studies on the long-term effect of human consumption. See
"--Effect of Unfavorable Publicity," and "--Product Liability, and
"Business--Regulation--Products."
NON-SPECIFIC ACQUISITION STRATEGY. The Company's business plan
includes expansion and diversification of the Company's network marketing
organization and products through the acquisition of companies engaged in
network marketing. In addition to financial demands, the Company's acquisitions
may have adverse consequences, including the diversion of management's attention
to the assimilation of the acquired companies or assets; adverse effects on the
Company's results of operations, such as the amortization of acquired intangible
assets; and the possibility that the acquired company or assets will not
contribute to the Company's business, cash flows and profitability as expected.
See "Business--Growth Strategy."
RISKS OF THE OFFERING
DOLLAR COST AVERAGING. Through regularly contributing to the Plan
by purchase of the Participation Interests, even in small increments, a
Participant may benefit from dollar cost averaging, to some extent minimizing
the adverse effects of volatile changes in the price of the Company's Common
Stock. As a fixed amount of money is regularly invested over a long period of
time, purchases are made at varying prices as the market price for the Common
Stock fluctuates. Over time, if a uniform number of shares of stock were
purchased each period, the average cost paid per share will usually be less
during lengthy periods of market price appreciation, while, alternatively,
during lengthy periods of market price depreciation, the average cost paid
per share will be usually higher. There can be no assurance that the average
cost paid per share of Common Stock acquired by a Participant through the
Plan will be less than the market price of the Common Stock at any particular
time or that a Participant's investment in the Common Stock through
participation in the Plan will in whole or in part not be lost due to a
number of factors including declining market price of the Common Stock and
general market conditions.
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<PAGE>
Accordingly, there is no assurance that a Participant's investment in the
Common Stock through the Plan will result in any profit or that a loss will
not occur.
STOCK PRICE, SALES AND EARNINGS VOLATILITY. The Participation
Interests are nontransferable and accordingly a market will not develop for
the Participation Interests. However, the Common Stock to be purchased by the
Plan on behalf of purchasers of the Participation Interests is currently
included on the Nasdaq SmallCap Market and listed on the Boston Stock
Exchange. Historically the market for the Common Stock has been limited and
subject to low trading volume. There can be no assurance that an active
trading market will be maintained for the Common Stock at all times. See
"Price Range of Common Stock and Dividends." The Company's sales and earnings
and, consequently, the market price of the Common Stock may be subject to
significant potential volatility based upon, among other things, the adverse
effect of non-compliance with applicable governmental regulations; the
negative effect of changes in or interpretations of regulations that may
limit or restrict the sale of certain of the Company's products; the
operation of its network marketing organization; the expansion of its
operations into new markets; the recruitment and retention of distributors;
the inability of the Company to introduce new products or the introduction of
new products by the Company's competitors; general conditions in the weight
management, dietary supplement, and personal care products industries; and
consumer perceptions of the Company's products and operations. In particular,
because the Company's products are ingested by consumers or applied to their
bodies, the Company is highly dependent upon consumers' perception of the
safety and quality of the products marketed by the Company. As a result,
substantial negative publicity concerning one or more of the Company's
products, especially the weight management and dietary supplement products,
could adversely affect the Company's sales and earnings as well as the market
price of the Common Stock.
Moreover, the stock market has from time to time experienced
extreme price and volume fluctuations which have particularly affected the
market prices for emerging growth companies and which often have been
unrelated to the operating performance of such companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. Volatility in the market price of a company's securities sometimes
results in the filing of class action lawsuits seeking compensation for
alleged securities law violations. There can be no assurance that such
litigation will not occur in the future against the Company. Such litigation
could result in substantial costs and a diversion of management's attention
and resources, which could have a material adverse effect on the Company's
business and results of operations. Any adverse determination in such
litigation also could subject the Company to significant liabilities.
ACCUMULATED DEFICIT. At September 30, 1997, the Company had an
accumulated deficit of $927,682 representing accumulated losses from
operations prior to 1994. See "Selected Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." There is no assurance that future operating results will
eliminate such deficit or that additional losses from operations will not be
sustained by the Company, resulting in further increase of such accumulated
deficit.
DELISTING OF COMMON STOCK; PENNY STOCK TRADING RULES. The Common
Stock is included on the Nasdaq SmallCap Market and is listed on the Boston
Stock Exchange. The continued inclusion and listing of the Common Stock on
the Nasdaq SmallCap Market and the Boston Stock Exchange is subject to
certain conditions, generally including the Common Stock having a certain
minimum sale price per share, the Company having certain minimum levels of
assets, stockholders' equity, number of shareholders, and number of
outstanding publicly held shares of Common Stock. In the event such minimum
requirements for inclusion and listing are not met, the Common Stock will be
delisted and will no longer be included on the Nasdaq SmallCap Market or the
Boston Stock Exchange. In such event, the Common Stock would then be traded
in the over-the-counter market and may become subject to the "penny stock"
trading rules. See "Price Range of Common Stock and Dividend Policy--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 bid and asked
quotations of securities traded in the over-the-counter market may not be
reliable.
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PENNY STOCK TRADING RULES. In the event the Common Stock is
delisted and no longer included on the Nasdaq SmallCap Market or on the
Boston Stock Exchange, the Common Stock may become 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 common stock and other equity securities, 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. 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. In the event the Common Stock becomes
subject to the penny stock trading rules, such rules may materially limit or
restrict the ability of a holder to resell such equity securities, and the
liquidity typically associated with other publicly traded equity securities
may not exist. See "Price Range of Common Stock and Dividend Policy--Penny
Stock Trading Rules."
POTENTIAL LIABILITY ARISING FROM POSSIBLE RESCISSION RIGHTS OF
CERTAIN SHAREHOLDERS. In 1990, the Company established the AMS Distributor
Stock Pool (the "Pool") under which the Company's independent distributors
were permitted to participate on a voluntary basis and make contributions to
the Pool and, from such contributions, the administrator of the Pool
purchased on a monthly basis the Company's Common Stock in the
over-the-counter market. All purchase transactions were executed and effected
through a registered broker-dealer. In September 1995, the Oklahoma
Department of Securities initiated an investigation of the Company and the
activities of the Pool. During October 1997, the Company ceased accepting
additional contributions to the Pool and effecting purchase transactions in
Common Stock. As of September 30, 1997, the Pool held 218,233 shares of
Common Stock. On November 4, 1997, without admitting or denying violations of
the Oklahoma Securities Act, the Company and certain of its officers and
directors entered into an agreement with the Administrator of the Oklahoma
Department of Securities in settlement of the investigation without any
action being taken against the Company and its officers and directors. See
"Business--Litigation."
The agreement with the Administrator of the Oklahoma Department
of Securities does not preclude the rights of Pool participants from
asserting claims seeking and possibly obtaining recovery of their
contributions to the Pool, plus statutory interest; however, such claims are
subject to applicable state and federal statutes of limitation which may
effectively eliminate a portion of such claims. It is the position of the
Company that its administration of the Pool did not constitute the offer and
sale of a security under federal and state securities law; however, there can
be no assurance that a court would find that the Company's administration of
the Pool did not constitute the offer and sale of a security under either or
both federal and state securities laws. Even if the Company were successful
in defending any securities law claims, the assertion of such claims against
the Company could result in costly litigation and diversion of effort by the
Company's management. In addition, the Securities and Exchange Commission and
state securities regulators pursue enforcement action against the Company and
its officers and directors with respect to any violations of the federal
securities laws that may have occurred. There can be no assurance that claims
asserting violations of federal and state securities laws will not be
asserted by any of the participants in the Pool or that such participants
will not prevail against the Company in the assertion of such claims,
compelling the Company to repurchase from such participants their shares of
Common Stock and pay statutory interest, which could have a material adverse
effect on the Company's business, financial condition and results of
operations.
OUTSTANDING STOCK OPTIONS AND WARRANTS. As of the date of this
Prospectus, there are (i) 1,495,000 outstanding Redeemable Common Stock
Purchase Warrants, each exercisable to purchase one share of Common Stock at
an exercise price of $3.40 on or before November 6, 2002, (ii) 337,211
outstanding 1997-A Warrants, each exercisable to purchase one share of Common
Stock at an exercise price of $3.40 on or before November 6, 2002, (iii)
130,000 outstanding Underwriters' Warrants, each exercisable to purchase one
share of Common Stock and one Redeemable Common Stock Purchase Warrant (which
is also exercisable for the purchase of one share of Common Stock) at an
aggregate exercise price of $5.40 after November 6, 1998, and on or before
November 6, 2002, (iv) 173,850 outstanding stock options granted under the
Advantage Marketing Systems, Inc. 1995 Stock Option Plan, each exercisable to
purchase one share of Common Stock at an exercise price of $2.70 to $6.00 per
share, and (v) 1,439,583 outstanding stock options and other warrants, each
exercisable to purchase one share of Common Stock at an exercise price of
$1.60 to $6.00 per share during periods that expire in December 1998 through
May 2007. Assuming and giving effect to the exercise of the outstanding
1,439,583 stock options and warrants (other than the Redeemable Common Stock
Purchase Warrants, the 1997-A Warrants and Underwriters' Warrants) as of
September
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30, 1997, the current shareholders would experience immediate dilution, on a
net tangible book value basis, of $0.05 per share of Common Stock. During the
term of the outstanding warrants and stock options, the holders are given the
opportunity to profit from a rise in the market price of the Common Stock.
Exercise of such warrants and stock options may dilute the net book value per
share of outstanding Common Stock at the time of exercise and may be dilutive
on an earnings per share basis, which may adversely affect the trading price
of the Common Stock. The existence of the warrants and stock options may
adversely affect the terms on which the Company may obtain additional equity
financing. Furthermore, the holders are likely to exercise the warrants and
stock options 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--
Redeemable Common Stock Purchase Warrants," "--1997-A Warrants" and "--Other
Stock Options and Warrants," "Management--Stock Option Plan" and "Shares
Eligible for Future Sale--Lock-Up Agreements" and "--State Imposed Escrow and
Lock-In Arrangements."
COMMON STOCK ELIGIBLE FOR FUTURE SALE. Sales or availability for
sale of substantial amounts of shares of the Company's Common Stock in the
public market at any time could adversely affect the market price of the
Common Stock and, consequently, the Company's ability to raise additional
capital. As of the date of this Prospectus, the Company has 4,249,383 shares
of Common Stock outstanding, of which 3,505,536 shares are eligible for sale
without regard to volume or other limitations pursuant to Rule 144 ("Rule
144") promulgated by the Commission under the 1933 Act, except to the extent
held by an "affiliate" of the Company as that term is defined under Rule 144.
Furthermore, there are 242,695 shares of the Company's outstanding Common
Stock which are "restricted securities" that may in the future be sold in
compliance with Rule 144 and that are not subject to the lock-up, escrow and
lock-in agreements discussed below.
The Company's executive officers and directors, pursuant to
certain agreements covering in the aggregate 463,044 shares of Common Stock
and options and warrants for the purchase of 675,000 shares of Common Stock,
have agreed not to sell or otherwise dispose of such shares for a period
ending November 6, 1998, or such options, warrants or shares of Common Stock
and all other securities issuable upon exercise of such options or warrants
for a period ending November 6, 1999. In addition 382,544 of such shares of
Common Stock and 662,000 of such options and warrants, as well as those held
by certain shareholders of the Company, are subject to certain escrow and
lock-in arrangements required by the Oklahoma Department of Securities for a
period ending November 6, 2000. Under such arrangements, the executive
officers, directors and such shareholders are not permitted to sell or
otherwise dispose of such shares of Common Stock, stock options, warrants and
all other securities issuable upon exercise of such option or warrants during
such period. See "Security Ownership of Certain Beneficial Owners and
Management" and "Shares Eligible for Future Sale--Lock-Up Agreements" and
"--State Imposed Escrow and Lock-In Arrangements."
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. The Certificate of Incorporation
authorizes the issuance of Preferred Stock in classes or series having
voting, redemption and conversion rights and other rights as determined by
the Board of Directors. The issuance of such Preferred Stock may have the
effect of preventing a merger, tender offer or other takeover attempt that
the Company's Board of Directors opposes. The Company's directors are elected
for staggered 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. The Company is subject to the
anti-takeover provisions of the Oklahoma General Corporation Act, which 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."
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USE OF PROCEEDS
All proceeds of sale of the Participation Interests pursuant to
this offering received by the Company will be contributed to the Plan from
which the Annual Service Fees and monthly Transaction Fees of $5.00 and $1.25
per Participant, respectively, will be paid to the Company and the remaining
proceeds will be utilized for the purchase of the Common Stock in the open
market. In the event the Participation Interests are sold in full, the
proceeds will be $5,000,000. All offering expenses of this offering, which
are estimated to be $90,000, will be paid by the Company without entitlement
to reimbursement from the Plan or the Participants, other than through the
Participants' payments of the Annual Service Fees and Transaction Fees. The
Annual Service Fees and Transaction Fees in excess of the offering expenses
of this offering will be utilized by the Company for payment of the
administrative costs of the Plan.
-17-
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock was traded only in the over-the-counter market
and was quoted by the National Quotation Bureau, Incorporated under the
symbol "AMSO." until September 10, 1997, when the Common Stock became listed
on the Boston Stock Exchange under the symbol "AMG," which was subsequently
changed to "AMM." On November 6, 1997, the Common Stock was first included on
the Nasdaq SmallCap Market under the symbol "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, adjusted to give effect to the one-for-eight reverse split of
the outstanding Common Stock on October 29, 1996. 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 PRICES
--------------------
HIGH LOW
------- -----
<S> <C> <C>
1997:
First Quarter Ended March 31............ $ 6.25 $5.50
Second Quarter Ended June 30............ 8.38 5.69
Third Quarter Ended September 30........ 9.00 5.00
Fourth Quarter Ended December 31........ 6.88 2.56
1996:
First Quarter Ended March 31............ $ 6.48 $5.04
Second Quarter Ended June 30............ 8.00 5.04
Third Quarter Ended September 30........ 7.84 5.52
Fourth Quarter Ended December 31........ 6.50 5.00
1995:
First Quarter Ended March 31............ $ 2.00 $1.76
Second Quarter Ended June 30............ 3.76 2.00
Third Quarter Ended September 30........ 10.00 3.60
Fourth Quarter Ended December 31........ 7.52 4.48
</TABLE>
On March 6, 1998, the closing sale price on the Nasdaq SmallCap
Market of the Common Stock was $2.81. As of the date of this Prospectus,
there were approximately 1,874 holders of the Common Stock.
DIVIDEND POLICY
The Company's policy is to retain 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--Stock Price, Sales and
Earnings Volatility," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Liquidity and Capital Resources."
PENNY STOCK TRADING RULES
The Common Stock is included on the Nasdaq SmallCap Market, and
is listed on the Boston Stock Exchange. The continued inclusion or listing of
the Common Stock on the Nasdaq SmallCap Market and the Boston Stock Exchange
is subject to certain conditions, generally including the Common Stock having
a certain minimum sale price per share, the Company having certain minimum
levels of assets, stockholders' equity, number of shareholders, and number of
outstanding publicly held shares of Common Stock. In the event requirements
for continued inclusion or listing are not met, the Common Stock will be
delisted and no longer included on the Nasdaq SmallCap Market and the Boston
Stock Exchange, would then be traded in the over-the-counter market and may
become 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
-18-
<PAGE>
501(a) promulgated under the Securities Act of 1933, as amended) 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.,
having had an account with the dealer for at least one year or the dealer
having effected for the purchaser 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 disclosure 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 the 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 may affect the
ability to resell the Common Stock 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. Therefore, the
holder of penny stocks 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 totally 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
penny stocks may be unable to sell such securities. In addition, 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
securities traded in the over-the-counter market may not be reliable.
-19-
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1997, the actual
capitalization of the Company without giving effect to the agreement of the
Company to issue any additional shares of Common Stock or to make additional
payments in connection with the SNSI Asset Purchase (see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General--SNSI Asset Purchase"), and as adjusted to reflect the sale
on November 12, 1997, of 1,495,000 Units and the receipt by the Company of net
proceeds of $6,050,000 (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- General--Units Offering"). This table
should be read in conjunction with the unaudited consolidated financial
statements and notes thereto of the Company appearing elsewhere in this
Prospectus. See Unaudited Consolidated Financial Statements of Advantage
Marketing Systems, Inc. (formerly AMS, Inc.).
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
---------------------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
<S> <C> <C>
Current portion of long-term debt................................. $ 133,598 $ 133,598
Long-term debt, net of current portion............................ 329,819 329,819
Stockholders' equity:
Common Stock, $.0001 par value, 495,000,000 shares
authorized; 2,680,081 shares issued and outstanding,
4,175,081 shares issued and outstanding, as adjusted........ 268 418
Paid-in capital in excess of par, common stock(2).............. 4,819,816 10,149,666
Retained earnings (deficit).................................... (927,682) (927,682)
------------ ------------
Total stockholders' equity................................... 3,892,402 9,222,402
------------ ------------
Total capitalization..................................... $4,355,819 $9,685,819
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) Adjusted to reflect the sale on November 12, 1997, of 1,495,000
Units and the receipt by the Company of net proceeds of $6,050,000.
Accumulated offering costs of approximately $720,000 were charged
against the proceeds of the offering.
(2) Without giving effect to and assuming no exercise of the
1,495,000 outstanding Redeemable Common Stock Purchase Warrants,
the 130,000 Underwriters' Warrants, the 337,211 outstanding
1997-A Warrants, 1,439,583 outstanding stock options and other
warrants (see "Description of Securities--Redeemable Common Stock
Purchase Warrants," "--1997-A Warrants" and "--Other Options and
Warrants"), and does not include 1,125,000 shares of Common Stock
reserved for issuance under the Stock Option Plan under which
options granted for the purchase of 173,850 shares are
outstanding (see "Management--Stock Option Plan"), and additional
shares of Common Stock that may be issued in connection with the
SNSI Asset Purchase (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General--SNSI
Asset Purchase").
-20-
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial information is qualified by reference to,
and should be read in conjunction with, the consolidated 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 in this Prospectus. 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--Stock
Price, Sales and Earnings Volatility." The selected financial information as of
and for the years ended December 31, 1995 and 1996 is derived from the audited
consolidated 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 nine months ended September 30, 1996 and
1997, is derived from the unaudited consolidated financial statements of the
Company, which financial statements are contained elsewhere in this Prospectus.
In the opinion of management of the Company, the unaudited consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such information.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------- ----------------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales........................................... $4,492,668 $6,129,916 $4,439,042 $7,635,321
Cost of sales....................................... 3,150,741 4,531,578 3,003,642 5,472,819
---------- ---------- ---------- ----------
Gross profit................................. 1,341,927 1,598,338 1,435,400 2,162,502
Marketing, distribution and
administrative expenses.......................... 1,094,756 1,296,080 1,147,894 1,957,755
---------- ---------- ---------- ----------
Income from operations....................... 247,171 302,258 287,506 204,747
Other income (expense):
Interest, net....................................... (22,998) (10,538) (9,359) 1,810
Other income........................................ 25,535 33,824 9,507 7,303
---------- ---------- ---------- ----------
Total other income (expense).................. 2,537 23,286 148 9,113
---------- ---------- ---------- ----------
Income before taxes................................. 249,708 325,544 287,654 213,860
Tax benefit (expense)............................... -- 499,613 443,149 (81,377)
---------- ---------- ---------- ----------
Net income.......................................... $ 249,708 $ 825,157 $ 730,803 $ 132,483
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares
outstanding(1)..................................... 2,662,681 3,770,874 3,176,000 3,457,135
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common share......................... $ 0.09 $ 0.29 $ 0.23 $ 0.04
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
OPERATING DATA:
Number of active distributors....................... 8,100 10,600 8,800 20,600
Sales per active distributor(2)..................... $ 46 $ 48 $ 59 $ 48
Total number of products offered(3)................. 16 28 24 105
CASH FLOW DATA:
Net cash provided (used) by operating activities.... $ 360,845 $ 426,421 $ 310,375 $ (217,277)
Net cash provided (used) in investing activities... (70,388) (136,937) (137,594) (1,553,469)
Net cash provided (used) in financing activities.... (178,370) (232,002) (166,903) 1,958,229
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
--------------------------- -------------------------------------
1995 1996 ACTUAL AS ADJUSTED(1)(4)
---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets....................... $ 283,341 $ 655,243 $1,614,251 $ 6,944,251
Working capital (deficiency)......... (170,734) 16,353 528,392 5,858,392
Total assets......................... 532,996 1,790,341 5,308,080 10,638,080
Short-term debt...................... 111,048 76,204 133,598 133,598
Long-term debt....................... 104,149 230,022 329,819 329,819
Stockholders' equity (deficiency).... (25,228) 921,429 3,892,402 9,222,402
</TABLE>
- ------------------------
(1) Without giving effect to and assuming no exercise of the 1,495,000
outstanding Redeemable Common Stock Purchase Warrants, 130,000
Underwriters' Warrants, the 337,211 outstanding 1997-A Warrants,
1,439,583 outstanding stock options and other warrants (see
"Description of Securities--Redeemable Common Stock Purchase
Warrants," "--1997-A Warrants" and "--Other Options and
Warrants"), and does not include 1,125,000 shares of Common Stock
reserved for issuance under the Stock Option Plan under which
options granted for the purchase of 173,850 are outstanding (see
"Management--Stock Option Plan"), and additional shares of Common
Stock that may be issued in connection with the SNSI Asset
Purchase (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General--SNSI Asset
Purchase").
(2) Monthly sales per active distributor for the period presented is
computed using a simple average.
(3) Exclusive of variations in product size, colors or similar
variations of the Company's basic product line.
(4) Adjusted to reflect the sale on November 12, 1997, of 1,495,000
Units and the receipt by the Company of net proceeds of $6,050,000.
Accumulated offering costs of approximately $720,000 were charged
against the proceeds of the offering. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--
General--Units Offering."
-22-
<PAGE>
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."
GENERAL
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 "Reincorporation Merger"). Prior to the Reincorporation Merger,
all operations of AMS (Delaware) were conducted solely by the Company. See
"Business--Company History."
The Company's business has been significantly affected by the
recently completed MMI Acquisition, the CII Acquisition and the SNSI Asset
Purchase. As a result of these acquisitions, the Company acquired 6,790
distributors and added 114 products to its product line.
MMI ACQUISITION. Effective May 31, 1996, the Company acquired all of
the outstanding capital stock of MMI, and MMI became a wholly-owned subsidiary
of the Company. MMI was a network marketer of various third-party manufactured
nutritional supplement products. In connection with the MMI Acquisition, the
Company issued to the shareholders of MMI 20,000 shares of Common Stock. The
Company acquired one product and 1,690 additional distributors as a result of
the MMI Acquisition.
CII ACQUISITION. Effective January 31, 1997, the Company acquired
all of the issued and outstanding capital stock of CII, and CII became a
wholly-owned subsidiary of the Company. CII was a network marketer of various
third-party manufactured cosmetics, skin care and hair care products. In
connection with the CII Acquisition, the Company issued 6,482 shares of Common
Stock to the shareholders of CII at closing and issued an additional 7,518
shares of Common Stock to the shareholders of CII on March 31, 1997, after
determination of certain liabilities. The Company acquired 68 personal care and
six dietary supplement products and 2,100 additional distributors as a result of
the CII Acquisition.
SNSI ASSET PURCHASE. The Company purchased all of the assets,
including the network marketing organizations, of Stay 'N Shape International,
Inc., Solution Products International, Inc., Nation of Winners, Inc., and Now
International, Inc. pursuant to an Asset Purchase Agreement dated April 16,
1997. In connection with the SNSI Asset Purchase, the Company paid cash of
$1,174,441 and issued 125,984 shares of Common Stock at closing and agreed to
either issue additional shares of the Company's Common Stock having an aggregate
market value equal to, or make a cash payment of, or combination thereof,
$750,000 and $1,050,000 on or before June 29, 1998, and May 30, 1999,
respectively, subject to reduction for variance from specified sales targets. As
a result of the SNSI Asset Purchase, the Company acquired 38 weight management
and dietary supplement products and one personal care product, and 3,000
additional distributors.
The following discussion and analysis of financial condition and
results of operations of the Company are the consolidated results of operations
of AMS Delaware, the predecessor of the Company, and the Company prior to and
following the Reincorporation Merger. In addition, the following discussion and
analysis presents the consolidated results of operations of the Company and MMI
since completion of the MMI Acquisition on May 31, 1996, and of the Company and
CII since completion of the CII Acquisition on January 31, 1997, and gives
effect to the SNSI Asset Purchase, since its consummation on April 16, 1997.
UNITS OFFERING. On November 12, 1997, the Company completed the
offering of 1,495,000 units, each consisting of one share of Common Stock and
one Redeemable Common Stock Purchase Warrant (the "Units"), and the Company
received net proceeds of $6,050,000 (the "Units Offering"). Accumulated offering
costs of approximately $720,000 were charged against the proceeds of the Units
Offering. In connection with the Units Offering, the Company sold to Paulson
Investment Company, Inc. and Joseph Charles & Assoc., Inc., the representatives
of underwriters of the Units Offering, warrants exercisable for the purchase of
130,000 Units for $5.40 per Unit (the "Underwriters' Warrants") after November
6, 1998, and on or before November 6, 2002. See "Description of
Securities--Other Options and Warrants."
-23-
<PAGE>
REPURCHASE OF COMMON STOCK BY THE COMPANY. On March 4, 1998, the
Company announced that it intends to repurchase up to $1 million of the Common
Stock in the open market for cash. In connection with such repurchase, the
Company filed with the Securities and Exchange Commission pursuant to Section
13(e)(1) of the Securities Exchange Act of 1934, as amended, an Issuer Tender
Offer Statement on March 4, 1998. As of the date of this Prospectus, the Company
has not yet repurchased any shares of the Common Stock. The additional number of
shares of the Common Stock that may be purchased by the Company is indefinite as
of the date of this Prospectus and will depend upon a number of factors,
including the market price of the Common Stock and the amount of funds utilized
for repurchase on each date of repurchase.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales,
selected results of operations for (i) the fiscal years ended December 31, 1995
and 1996, which are derived from the audited consolidated financial statements
of the Company, and (ii) for the nine months ended September 30, 1996 and 1997,
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 YEARS ENDED DECEMBER 31, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------- ----------------------------------------------------
1995 1996 1996 1997
------------------- --------------------- ------------------------ ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $4,492,668 100.0% $6,129,916 100.0% $4,439,042 100.0% $7,635,321 100.0%
Cost of sales.................. 3,150,741 70.1 4,531,578 73.9 3,003,642 67.7 5,472,819 71.7
---------- ----- ---------- ------ ---------- ----- ---------- -----
Gross profit............... 1,341,927 29.9 1,598,338 26.1 1,435,400 32.3 2,162,502 28.3
Marketing, distribution and
administrative expenses..... 1,094,756 24.4 1,296,080 21.2 1,147,894 25.9 1,957,755 25.6
---------- ----- ---------- ------ ---------- ----- ---------- -----
Income from operations...... 247,171 5.5 302,258 4.9 287,506 6.4 204,747 2.7
Other income (expense):
Interest, net.................. (22,998) (.6) (10,538) (.2) (9,359) (.2) 1,810 --
Other income................... 25,535 .7 33,824 .6 9,507 .2 7,303 .1
---------- ----- ---------- ------ ---------- ----- ---------- -----
Total other income (expense)... 2,537 .1 23,286 .4 148 -- 9,113 .1
---------- ----- ---------- ------ ---------- ----- ---------- -----
Income before income taxes..... 249,708 5.6 325,544 5.3 287,654 6.4 213,860 2.8
Tax benefit (expense).......... -- -- 499,613 8.2 443,149 10.0 (81,377) (1.1)
---------- ----- ---------- ------ ---------- ----- ---------- -----
Net income..................... $ 249,708 5.6% $ 825,157 13.5% $ 730,803 16.5% $ 132,483 1.7%
---------- ----- ---------- ------ ---------- ----- ---------- -----
---------- ----- ---------- ------ ---------- ----- ---------- -----
</TABLE>
During 1995, 1996 and the nine months ended September 30, 1997, the
Company experienced increases in net sales and income before income taxes
compared to the preceding year or period. The increases were principally the
result of expansion of the Company's network of independent distributors and
additions to the Company's product line of weight management, dietary supplement
and personal care products. The Company expects to continue to expand its
network of independent distributors, which may result in increased sales volume.
However, there is no assurance that increased sales volume will be achieved
through expansion of the Company's network of independent distributors, or that,
if sales volume increases, the Company will realize increased profitability.
COMPARISON OF NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
Net sales during the nine months ended September 30, 1997,
increased by $3,196,000, or 72.0 percent, to $7,635,000 from $4,439,000
during the nine months ended September 30, 1996. The increase was principally
attributable to expansion of the Company's network of independent
distributors and increased sales of the Company's weight management, dietary
supplement and personal care products. Through the MMI Acquisition (which was
consummated on May 31,1996), CII Acquisition (which was consummated on
January 31, 1997) and the SNSI Asset Purchase (which was consummated on April
16, 1997), the Company added 74 products to its product line and acquired
6,790 distributors. The distributors acquired in connection with the MMI
Acquisition, the CII Acquisition and the SNSI Asset Purchase contributed
$140,000, $390,000 and $755,000, respectively, to the increase in net sales
between the two periods. During the nine months ended September 30, 1997, the
Company made aggregate net sales of $7,530,000 to 17,300 distributors,
compared to aggregate net sales during the same
-24-
<PAGE>
period in 1996 of $4,317,000 to 8,100 distributors. At September 30, 1997,
the Company had approximately 20,600 "active" distributors compared to
approximately 8,800 at September 30, 1996. A distributor is considered to be
"active" if he or she has made a product purchase of $50 or more from the
Company within the previous 12 months. Sales per distributor decreased from
$59 to $48 for the nine months ended September 30, 1997, compared to the same
period in 1996. This decrease was due to the increase in the number of active
distributors as a result of the CII Acquisition and SNSI Asset Purchase
(which were consummated on January 31, 1997 and April 16, 1997,
respectively), which new distributors did not contribute sales during the
full nine months ended September 30, 1997.
Cost of sales during the nine months ended September 30, 1997,
increased by $2,469,200, or 82.2 percent, to $5,472,800 from $3,003,600 during
the same period in 1996, reflecting the increase in sales. The increase was
attributable to an increase of (i) $1,505,600 in distributor bonuses due in part
to special promotions designed to expand the Company's distributor network, (ii)
$750,900 in the cost of products sold due in part to an improvement in the
quality of products, and (iii) $212,700 in shipping costs due in part to an
increase shipment costs charged by the shipping companies. Total cost of sales,
as a percentage of net sales, increased to 71.7 percent during the nine months
ended September 30, 1997, from 67.7 percent during the same period in 1996 due
to an increase in distributor bonuses as a percentage of net sales to 45.3
percent from 43.9 percent, an increase in cost of products sold to 22.0 percent
of net sales from 20.9 percent, and an increase in cost of shipping to 4.4
percent of net sales from 2.8 percent. During periods of growth, it is
anticipated that the Company will from time-to-time offer promotions to
distributors to increase sales and their income, which if successful will result
in increases in distributor bonuses and temporary increases in cost of sales.
The Company's gross profit increased $727,000, or 50.7 percent, to
$2,162,000 for the nine months ended September 30, 1997 from $1,435,000 for the
same period in 1996. The gross profit decreased as a percentage of net sales to
28.3 percent of net sales from 32.3 percent. The decrease in the Company's gross
profit margin resulted from the increase in cost of sales as a percent of net
sales.
Marketing, distribution and administrative expenses increased
$810,000, or 70.6 percent, to $1,958,000 during the nine months ended September
30, 1997, from $1,148,000 during the same period in 1996. This increase was
attributable to expansion of the Company's administrative infra-structure
necessary to support increased levels of sales and distributors. Payroll and
employee costs increased by $503,000 during the nine months ended September 30,
1997, as compared to the same period in 1996, due to the increase in full-time
employees to 30 during the first quarter of 1997, 38 during the second quarter
of 1997 and 47 during the third quarter of 1997, as compared to 16, 17 and 17,
respectively, during the same periods of 1996. The balance of the increase in
marketing, distribution and administrative expenses resulted from the higher
level of activity and corresponding increases in variable costs, such as
postage, telephone and supplies.
Income before taxes decreased $73,800, or 25.7 percent, to $213,900
during the nine months ended September 30, 1997, from $287,700 during the same
period in 1996. Income before taxes as a percentage of net sales decreased to
2.8 percent during the nine months ended September 30, 1997, from 6.5 percent
during the same period in 1996, primarily as a result of the decline in the
Company's gross profit margin. Income taxes were $81,377 during the nine months
ended September 30, 1997, while during the same period of 1996 an income tax
benefit of $443,149 was recognized. The Company recognized a one-time tax
benefit of approximately $500,000 in 1996 primarily related to the reversal of a
deferred tax valuation allowance related to the expected future tax benefits to
be realized from operating loss carryforwards. As a result, during 1997 the
Company begun reporting income tax expense for financial reporting purposes.
Net income decreased $598,300, or 81.9 percent, to $132,500
during the nine months ended September 30, 1997, from $730,800 during the
same period in 1996. This decrease in net income was primarily the result of
the decrease in the Company's gross profit margin combined with the recording
of income tax expense for financial reporting purposes during the nine months
ended September 30, 1997. Net income as a percentage of net sales decreased
to 1.7 percent during the nine months ended September 30, 1997, from 16.5
percent during the same period in 1996.
-25-
<PAGE>
COMPARISON OF 1995 AND 1996
During the year ended December 31, 1996, net sales increased
$1,637,000, or 36.4 percent, to $6,130,000 from $4,493,000 during the year ended
December 31, 1995. The increase was principally attributable to expansion of the
Company's network of independent distributors and increased sales of the
Company's weight management, dietary supplement and personal care products.
Additional net sales by the acquired MMI distributors of $296,000 also
contributed to the increase. During 1996, the Company made aggregate sales of
$5,785,000 to 9,000 active distributors, compared to aggregate sales in 1995 of
$4,064,000 to 5,800 active distributors. Sales per distributor increased from
$46 for 1995 to $48 for 1996.
During 1996, cost of sales increased $1,381,000, or 43.8 percent, to
$4,532,000 in 1996 from $3,151,000 during 1995. This increase was attributable
to an increase of (i) $866,000 in distributor bonuses due to special promotions
designed to expand the Company's distributor network, (ii) $436,000 in cost of
products sold, and (iii) $79,000 in shipping costs. Cost of sales, as a
percentage of net sales, increased to 73.9 percent during 1996 from 70.1 percent
during 1995 due to an increase in distributor bonuses as a percentage of net
sales to 44.5 percent from 41.4 percent as a result of various promotions, and
an increase in cost of products sold to 26.5 percent of net sales from 26.4
percent.
The Company's gross profit increased $256,000 or 19.1 percent to
$1,598,000 in 1996 from $1,342,000 in 1995 as a result of the increased sales.
Gross profit decreased as a percentage of net sales to 26.1 percent in 1996 from
29.9 percent in 1995. The decrease in the Company's gross profit margin resulted
from the increase in distributor bonuses during the more recent period which
increased at a faster rate than net sales.
Marketing, distribution and administrative expenses increased
$201,000, or 18.4 percent, to $1,296,000 during 1996 from $1,095,000 during
1995. This increase was attributable to expansion of the Company's
administrative infrastructure necessary to support increased levels of sales.
Payroll and employee costs increased by $254,000 during 1996 due to the increase
in full-time employees from 16 in the first quarter to 24 in the last quarter of
1996. The balance of the increase in marketing, distribution and administrative
expenses resulted from the higher level of activity and corresponding increases
in variable costs such as postage, telephone and supplies.
Income before taxes increased $76,000, or 30.4 percent, to $326,000
during 1996 from $250,000 during 1995. Income before taxes as a percentage of
net sales decreased to 5.3 percent during 1996 from 5.6 percent during 1995,
primarily as a result of the decline in the Company's gross profit margin due to
special promotions. The Company recognized a one time tax benefit of
approximately $500,000 in 1996 primarily related to the reversal of a deferred
tax valuation allowance related to the expected future tax benefits to be
realized from operating loss carryforwards. Total net income increased $575,000,
or 230 percent, to $825,000 in 1996 from $250,000 in 1995.
PRO FORMA EFFECT OF STOCK-BASED COMPENSATION
As a portion of and in lieu of payments of salaries and consulting
fees, the Company has historically used options to attract, retain and
compensate its officers, directors, other employees and consultants. 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. During
the twelve months ended December 31, 1995, the Company granted 1,189,819 stock
options (as restated for the one-for-eight reverse split of the Company's Common
Stock in October 1996) to certain officers, directors, other employees and
consultants of the Company as a portion of the compensation for their services
to the Company. No options were granted during 1996. In accordance with
Accounting Principles Board Opinion No. 25 of the American Institute of
Certified Public Accountants, the compensation cost of such stock options was
not recognized in the consolidated financial statements of the Company. The
weighted average exercise price and calculated fair value at the date of grant
of the options granted in 1995 were $2.77 and $1.75, respectively, or $3,296,000
and $2,080,000 in the aggregate, respectively, utilizing the methodology
prescribed under SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. After
giving effect to the weighted average fair value of such options, the Company
would have had a pro forma loss of $1,830,000 ($.69 per common share) for the
year ended December 31, 1995. The Company did not grant any such options during
1996 and there would have been no pro forma effect on 1996 earnings from options
granted in 1995 since all grants vested in 1995.
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ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128-Earnings Per
Share, which is effective for the Company's year ending December 31, 1997. The
statement establishes standards for computing and presenting earnings per share.
Adoption of SFAS No. 128 is not expected to have a material effect on the
Company's consolidated financial position or results of operations, but will
result in changes to the calculation of earnings per share.
Also in February 1997, the FASB issued SFAS No. 129-Disclosure of
Information about Capital Structure, which is effective for the Company's year
ending December 31, 1997. The statement establishes standards for disclosing
information about a reporting company's capital structure. Adoption of SFAS No.
129 relates to disclosure within the financial statements and will not have a
material effect on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 130-Reporting Comprehensive
Income which is effective for the Company's year ending December 31, 1998. The
statement addresses the reporting and displaying of comprehensive income and its
components. Earnings per share will only be reported for net income and not for
comprehensive income. The Company has not had adequate time to determine the
differences between comprehensive income and net income.
Also in June 1997, the FASB issued SFAS No. 131-Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 modifies current
segment reporting requirements and establishes, for public companies, criteria
for reporting disclosures about a company's products and services, geographic
areas and major customers in annual and interim financial statements. The
Company will adopt SFAS No. 131 for the year ending December 31, 1998.
QUARTERLY RESULTS OF OPERATIONS
No pattern of seasonal fluctuations exists due to the growth
patterns that the Company is currently experiencing. However, there can be no
assurance that the Company will not become subject to seasonal fluctuations in
operations.
INCOME TAXES
The provision for accrued income taxes on pretax income for the nine
months ended September 30, 1997 was based on the effective combined federal and
state graduated corporate income tax rates of approximately 38 percent. Income
tax expense for the nine months ended September 30, 1997 was $81,377. The
Company's deferred tax assets at December 31, 1996, relate primarily to net
operating loss carryforwards for income tax purposes totaling $1,347,000, which
will begin to expire in 2003.
On a regular basis, management evaluates all available evidence,
both positive and negative, regarding the ultimate realization of the tax
benefits of its deferred tax assets. Based upon the historical trend of
increasing earnings, management concluded that it is more likely than not that a
tax benefit will be realized from its deferred tax assets and therefore
eliminated the previously recorded valuation allowance for its deferred tax
assets. Elimination of the valuation allowance resulted in a deferred tax asset
at December 31, 1996 of $449,600 and a corresponding tax benefit for the year
ended December 31, 1996. As a result, the Company has begun reporting income tax
expense for financial reporting purposes during 1997. The Company will not have
a corresponding cash outflow for income tax expense until its net operating loss
carryforwards have been used up by taxable income.
YEAR 2000 COMPUTER SYSTEM COMPLIANCE
The Company has numerous computer systems which were developed
employing six digit data structures. Where date logic requires the year 2000
or beyond, such data structures may produce inaccurate results. Management
has implemented a program to comply with year 2000 requirements on a
system-by-system basis. The program includes extensive systems testing and is
expected to be completed by June 1998, at which time the Company's computer
systems will be year 2000 compliant. Each of the systems has a solution that
is potentially unique and often dependent on third-party software and
developers. A failure of the Company to ensure that its computer systems are
year 2000 compliant could have a material adverse effect on the Company's
operations.
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LIQUIDITY AND CAPITAL RESOURCES
Prior to completion of the offerings described below, the Company's
primary source of liquidity was net cash provided by operating activities and
shareholder loans. The Company does not have any outside debt-based liquidity
sources.
On January 31, 1997, the Company distributed, at no cost, 2,148,191
non-transferable rights ("Rights") to its shareholders of record on such date.
Each of the Rights entitled the holder to purchase one unit (consisting of one
share of Common Stock and one 1997-A Warrant) on or before March 17, 1997 for
$6.80 per unit (the "Rights Offering"). Concurrently with the Rights Offering,
the Company redeemed its outstanding Class A and Class B Common Stock Purchase
Warrants (the "Public Warrants") for $.0008 per warrant (the "Warrant
Redemption") effective on March 17, 1997. In connection with the Warrant
Redemption, the Company modified the terms of the Public Warrants and offered to
holders of the Public Warrants (the "Warrant Holders") the right to exercise
each of the Public Warrants for the purchase of one unit (consisting of one
share of Common Stock and one 1997-A Warrant), at an exercise price of $6.00 per
unit (the "Warrant Modification Offering"). See "Description of
Securities--1997-A Warrants." Proceeds to the Company from the Warrant
Modification Offering and the Rights Offering (the "Offerings") were $2,154,357.
Accumulated offering costs of $323,076 were charged against the proceeds of the
Offerings. Pursuant to the Offerings, the Company issued in units 337,211 shares
of Common Stock and 337,211 1997-A Warrants.
On November 12, 1997, the Company sold 1,495,000 shares of Common
Stock and 1,495,000 Redeemable Common Stock Purchase Warrant in units consisting
of one share of Common Stock and one Redeemable Common Stock Purchase Warrant
from which the Company received net proceeds of $6,050,000. Accumulated offering
costs of approximately $720,000 were charged against the proceeds of the
offering. See "--General--Units Offering" and "Description of Securities--Common
Stock" and "--Redeemable Common Stock Purchase Warrants."
At September 30, 1997, the Company had working capital of $528,000,
compared to $16,000 at December 31, 1996. The increase was primarily related to
the net proceeds from the Warrant Modification Offering and the Rights Offering.
Management believes that its cash and cash equivalents and cash flows from
operations will be sufficient to fund its working capital needs over the next 12
months. See "Business--Growth Strategy." During the nine months ended September
30, 1997, net cash used by operating activities was $217,200, net cash used by
investing activities was $1,553,500 (consisting primarily of the SNSI Asset
Purchase), and net cash provided by financing activities was $1,958,200
(consisting primarily of proceeds from the Warrant Modification Offering and the
Rights Offering less payment of deferred offering costs). This represented an
average monthly negative cash flows from operating activities of $24,100. The
Company had a net increase in cash during this period of $187,500. The Company's
working capital needs over the next 12 months consist primarily of marketing,
distribution and administrative expenses.
The Company made non-interest bearing advances to the John Hail
Agency, Inc. ("JHA"), a company controlled by John W. Hail, the Chief Executive
Officer and a major shareholder of the Company, of $22,000 during the year ended
December 31, 1996. During the nine months ended September 30, 1997 and the year
ended December 31, 1996, JHA made repayments to the Company of $9,683 and
$6,141, respectively. Effective June 30, 1996, the Company adopted a policy to
not make any further advances to JHA, and JHA executed a promissory note payable
to the Company in the principal amount of $73,964, bearing interest at eight
percent per annum and payable in 60 installments of $1,499 per month, including
interest. See "Certain Transactions."
In connection with the SNSI Asset Purchase, the Company agreed to
make installment purchase price payments of $750,000 and $1,050,000 by June
29, 1998 and May 30, 1999, respectively, either by deliveries of additional
shares of the Company's Common Stock or by cash payments or any combination
thereof. The $750,000 installment payment will be reduced by the aggregate
amount that gross revenues, net of returns and allowances, during the
12-month period ended April 30, 1998, from (i) sales (other than sales of
Choc-Quilizer) of the purchased network marketing organization, sales to
Market America, Inc. (an unrelated network marketing company) and sales to
retail outlet stores, are less than $2,500,000 and (ii) the Company's sales
of Choc-Quilizer are less than $4,000,000 during such 12-month period.
Furthermore, the $1,050,000 installment payment shall also be reduced by the
aggregate amount that gross revenues, net of returns and allowances, during
the 12-month period ended March 31, 1999, from such sales are less than
$5,000,000 and less than $8,000,000, respectively, during such 12-month
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period. The value of the Common Stock to be issued and delivered, if any,
will be based upon the average of the closing prices of the Common Stock on
the last three trading days of the month preceding the month in which the
applicable 12-month period ends.
DESCRIPTION OF THE PLAN
On February 27, 1998, the Company adopted the Advantage Marketing
Systems, Inc. 1998 Distributor Stock Purchase Plan (the "Plan") to provide the
distributors of the products and services offered by the Company ("Eligible
Persons") a simple and convenient method of purchasing shares of the Company's
Common Stock with minimum brokerage commissions or service charges. The
following description of certain matters relating to the Plan is a summary and
is qualified in its entirety by the provisions of the Plan as of the date of
this Prospectus which is filed as an exhibit to the Registration Statement of
which this Prospectus is a part. See "Additional Information."
PLAN ADMINISTRATION
The Plan will be administered by the Board of Directors of the
Company or any committee appointed by the Board of Directors to administer
the Plan (the "Plan Administrator"). As of the date of this Prospectus, the
Plan is administered by a committee comprised of John W. Hail, Curtis H.
Wilson and Roger P. Baresel, each of whom is a Director of the Company. The
Board of Directors will appoint a trust company or a banking institution to
serve as the Custodian of the Plan. The Custodian's duties include (i)
establishment of the banking account of the Plan for deposit of Participants'
contributions to the Plan, (ii) directing the designated broker-dealer to
make purchases of Common Stock on behalf of the Participants, (iii)
establishing with the Plan Administrator and the broker-dealer the procedures
for withdrawal of Common Stock and, if applicable, other Company securities
from the Plan by Participants, and (iv) holding of the shares of Common Stock
in its name or its nominee as so directed by the Plan Administrator. The
Board of Directors will appoint a member firm of the National Association of
Securities Dealers, Inc. to serve as the broker-dealer of the Plan (the
"Broker-Dealer"). The duties of the Broker-Dealer include (i) establishing
and maintaining an account for the Plan, (ii) purchasing Common Stock on
behalf of the Participants pursuant to directions of the Custodian, (iii)
furnishing to the Plan Administrator (A) confirmations of each Common Stock
purchase transaction by the Pool and (B) monthly or quarterly account
statements, (iv) holding of the shares of Common Stock in its name or its
nominee as so directed by the Plan Administrator, (v) establishing with the
Plan Administrator and the Custodian the procedures for withdrawal of Common
Stock and other Company securities from the Plan by Participants. The Plan
Administrator will direct the Custodian and Broker-Dealer with regard to
their respective duties under the Plan by means of a written agreement or
directions.
PURPOSE AND ADVANTAGES OF THE PLAN
The Plan provides Eligible Persons electing to participate in the
Plan ("Participants") an opportunity and convenient method to acquire a
proprietary interest in the Company through the purchase of Common Stock
utilizing monthly contributions to the Plan. The purpose of the Plan is to
provide an additional incentive to Participants by enabling them to acquire
stock ownership in the Company, to attract and retain persons of ability as
independent distributors of the Company, and to entice such persons to exert
their best efforts on behalf of the Company. The Plan offers Participants an
affordable way to invest, through regularly contributing small amounts into the
Plan through purchase of the Participation Interests and saving on commissions
and fees that would otherwise be associated with purchase of Common Stock in the
open market. Eligible Persons may become a Participant by completion and
delivery of a Stock Purchase Agreement to the Company containing authorization
for drafting of the monthly minimum cash investments of $25 to purchase Common
Stock through the Plan and which may be accompanied by an initial cash
investment in excess of $25.
In addition to the savings on commissions, regularly contributing to
the Plan, even in small increments, permits a Participant to benefit from dollar
cost averaging, possibly minimizing the adverse effects of volatile changes in
the price of the Company's Common Stock. As a fixed amount of money is regularly
invested over a long period of time, purchases are made at varying prices as the
market price for the Common Stock fluctuates. Over time, if a uniform number of
shares of stock were purchased each period, the average cost paid per share will
usually be less during lengthy periods of market price appreciation, while,
alternatively, during lengthy periods of market price depreciation, the average
cost paid per share will be usually higher. There can be no assurance that the
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average cost paid per share of Common Stock acquired by a Participant through
the Plan will be less than the market price of the Common Stock at any
particular time or that a Participant's investment in the Common Stock will
in whole or in part not be lost due to a number of factors including
declining market price of the Common Stock and general market conditions.
Accordingly, there is no assurance that a Participant's investment in the
Common Stock through the Plan will result in any profit.
PARTICIPATION
Participation in the Plan is entirely voluntary. The Company does
not make any recommendation concerning participation in the Plan.
Participation is not required as a requisite for becoming or continuing as a
distributor of the Company's products and services. Any Eligible Person in
good standing may participate in the Plan, provided the Eligible Person
completes and submits the Stock Purchase Agreement and satisfies any other
additional conditions that may be established by the Company following the
date of this Prospectus and as provided in the Stock Purchase Agreement then
in use by the Company.
PARTICIPATION IN THE PLAN
An Eligible Person may become a Participant in the Plan by
completing and delivering a Stock Purchase Agreement to the Company. Stock
Purchase Agreements may be obtained at any time upon written request of the
Company. Participation in the Plan by an eligible distributor will be
effective upon the Company's receipt and acceptance of such Eligible Person's
properly completed and executed Stock Purchase Agreement and shall continue
until terminated in accordance with the provisions of the Plan.
CONTRIBUTIONS TO THE PLAN; ACCOUNTS
Contributions to the Plan will be voluntary and may only be made
by Participants through the purchase of the Participation Interests. For
purposes of this offering, each Contribution to the Plan will constitute the
purchase by the contributing Participant of the number of Participation
Interests equal to the amount of such Contribution. The Company will not
contribute to the Plan. An account ("Participant Account") will be
established and maintained by the Plan Administrator for each Participant in
which such Participant's contributions through purchase of the Participation
Interests and from which purchases of Common Stock by the Plan on behalf of
such Participant will be made and recorded and payment of the Annual Service
Fees and Transaction Fees will be paid to the Company. All contributions to
the Plan will be subject to the following:
(i) Each Participant is required to make minimum monthly
contributions to the Plan of $25.00 by drafting the checking, savings or
other form of account maintained by such Participant at a financial
institution pursuant to the Stock Purchase Agreement or such other
appropriate form or authorization as may be required by the Company or the
financial institution until such time that the Company receives written
notification from such Participant of the revocation or amendment of the
Stock Purchase Agreement or such other form of authorization. Any such
revocation or amendment will be effective as of the first day of the month
following the month in which the Company receives such written notification.
(ii) Each Participant may also elect to make additional
contributions to the Plan through purchase of Participation Interests by
having the Company withhold all or any portion of the such Participant's
regular gross commissions in lieu of otherwise receiving such amount of
commissions. Such election may be made by written notification of the Company
indicating the amount of such contribution. The notification will be
effective with respect to the payment of such commission check or checks only
if received by the Company not less than five days prior to payment of such
commissions. However, the commissions payable to such Participant that may be
contributed to the Plan will first be reduced by any offsets and other
reductions, including without limitation payment of outstanding and unpaid
product purchases and expenses. No Contribution to this Plan payable from a
Participant's commission will be made on behalf of a Participant during any
period that offsets and other reductions exceed the commission payable to
such Participant. All Contributions to the Plan payable for a Participant's
commissions shall be only in $1.00 increments. The election by a Participant
to make contributions to the Plan payable from such Participant's commissions
and the termination of such election must be made in writing and received by
the Company, in accordance with the rules and procedures as shall be
established, including any amendment thereof, by the Company or the Plan
Administrator from time to time.
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(iii) A Participant may also make direct contributions to the
Plan in increments of $1.00 through purchase of Participation Interests for
the purchase of Common Stock, subject to the terms and conditions of the
Stock Purchase Agreement and the Plan.
PURCHASES OF COMMON STOCK
All purchases of Common Stock shall be subject to the following
terms as well as the terms and conditions of the Plan, the agreement with the
Broker-Dealer effecting purchases of the Common Stock and the policies and
procedures that may be adopted and established by the Plan Administrator.
Purchases of Common Stock, utilizing the Participant's contributions to the
Plan, after payment or provision for payment of the Annual Service Fees and
Transaction Fees ("Net Contributions"), received by the Plan during each
month, will be made by the Plan on behalf of Participants during the last
five Trading Days (as defined below) of such month. "Trading Days" means
those days on which securities are traded on the New York Stock Exchange.
Common Stock purchased during a month will be allocated to the each
Participant Account based on the average price paid for all shares of Common
Stock purchased during the month and the Participants' Net Contributions to
the Plan during such month.
The Custodian and Broker-Dealer shall have full discretion as to
all matters relating to purchases of Common Stock, including without
limitation, determining the number of shares of Common Stock, if any, to be
purchased on any day or at any time of that day, the prices paid for such
Common Stock, the markets on which such purchases are made, and the persons
(including other brokers and dealers) from or through whom such purchases are
made. The Custodian and Broker-Dealer shall apply each Participant's Net
Contribution during each month, together with all other Net Contributions of
other Participants, to the purchase on behalf of each Participant the maximum
number of shares of Common Stock that can be purchased with the accumulated
Net Contributions. Common Stock purchased pursuant to the Plan will only be
purchased on the open market. Although not anticipated, any Net Contribution
remaining in the Participant Account of a Participant after the purchase of
such maximum number of shares of Common Stock at the end of each month will
be retained in the Participant Account and treated as a part of the
accumulation of Net Contributions for the following month.
The timing of all purchases and the price to be paid for shares
of Common Stock purchased pursuant to the Plan will be determined solely by
the Custodian and the Broker-Dealer. The Company, the Plan Administrator and
the Participants will not have any control or influence on such purchases.
CERTAIN PROHIBITED ACTIVITIES
Each executive officer, director and "Affiliated Person" (as
defined below) of the Company is prohibited from bidding for, purchasing,
attempting to bid for or purchase, or offering or selling any shares of
Common Stock during the five Trading Days immediately preceding and
immediately following the date on which the Plan purchases any shares of
Common Stock, unless the offer or sale of Common Stock is made pursuant to a
registration statement effective under the Securities Act of 1933, as
amended, and pursuant to registration or exemption from registration under
any applicable state securities laws in which the executive officer, director
and/or Affiliated Person of the Company is named as a selling shareholder.
"Affiliated Person" includes any person that exercises any direct or indirect
influence on, or control over (i) the amounts of Common Stock to be purchased
by the Plan, (ii) the timing of or the manner in which the Common Stock is to
be purchased by the Plan, and (iii) the selection of the Custodian or the
Broker-Dealer through which such purchases are or may be made by the Plan
VOTING OF SHARES; DIVIDENDS
The Company, the Plan Administrator, Custodian or Broker-Dealer
will transmit to each Participant all proxy statements, annual reports,
meeting notices and other shareholder communications with respect to the
Common Stock acquired pursuant to and held under the Plan for and on behalf
of the Participants. Proxies will be voted with respect to full shares of
Common Stock held on behalf of a Participant as reflected in the Participant
Account of such Participant in accordance with each Participant's
instructions duly delivered to and received by the Company or the proxy. If a
Participant does not direct the exercise of such voting rights with respect
to any particular occasion for the exercise thereof, such voting rights will
not be exercised with respect to such occasion.
All cash dividends paid on the Common Stock received in Plan's
account with the Custodian or the Broker- Dealer or its nominee will be
reinvested in additional shares of Common Stock to the extent possible. All
cash
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dividends as well as all dividends or other distributions on Common Stock,
including other securities of the Company, shall be allocated among and
credited to the Participants based upon the number of shares of Common Stock
held for their benefit under the Plan on the record date of the of the
dividend or other distribution declaration.
BENEFICIARY DESIGNATION
Each individual Participant may designate his or her Beneficiary
on a beneficiary designation form provided by the Plan Administrator and such
designation may include primary and contingent beneficiaries. The designation
may be changed by a Participant at any time by completing and delivering a
new beneficiary designation form to the Plan Administrator, which shall only
be effective upon receipt by the Plan Administrator of such form. In the
absence of such written designation, the surviving spouse of the Participant
shall be deemed to be the designated beneficiary, if any, and otherwise the
estate of such Participant. In all events, the date of determination of a
Participant's beneficiary shall be the date of death of a Participant.
PARTICIPANT REPORTS
The Company or Plan Administrator, as the case may be, shall
provide each Participant semi-annual reports on or about January 30 and July
30 of each year of the number of shares of Common Stock acquired and held for
the Participant under the Plan.
WITHDRAWAL OF COMMON STOCK AND OTHER SECURITIES
Participants may withdraw, for resale or otherwise, at any time
all or any portion of the whole shares of Common Stock and, if applicable,
other securities of the Company held by the Plan for their benefit by
providing written notification to the Company at its offices in Oklahoma
City, Oklahoma. Such notification shall specify the number of whole shares of
Common Stock and, if applicable, other Company securities to be withdrawn
from the Plan and shall be accompanied by payment of the cost of issuance by
the Company's transfer agent of the certificate or certificates evidencing
the shares of Common Stock and other Company securities. Immediately
following receipt of such notification, the Company or Plan Administrator
shall notify the Custodian or Broker-Dealer or its nominee of the
Participant's election to withdraw the shares of Common Stock and, if
applicable, other Company Securities set forth in the notice, and immediately
as soon as practicable following receipt of such notification, the Custodian
or Broker-Dealer or its nominee shall take appropriate action to cause
issuance and delivery of the certificate or certificates evidencing such
shares of Common Stock or other securities.
The procedures for withdrawal of Common Stock and, if applicable,
other Company securities from the Plan shall be established by the Plan
Administrator, the Broker-Dealer and the Custodian setting forth the
additional procedures to be followed by Participants electing to withdraw the
Common Stock and, if applicable, other Company securities held by the Plan
for their benefit. The Plan will not sell or otherwise dispose of the Common
Stock and other Company securities held for the benefit of the Participants.
Any Participant desiring to sell shares of Common Stock or other Company
securities held for the benefit of such Participant must comply with the
withdrawal procedures prior to such sale. Each Participant shall be solely
responsible for the costs and expenses, including without limitation any
commissions, administrative fees, taxes or other costs incurred or payable in
connection with the transfer, sale or other disposition of the shares of
Common Stock and other Company securities held for the benefit of such
Participant.
COSTS AND EXPENSES
Each Participant will be obligated to pay (i) an Annual Service
Fee of $5.00 initially upon electing to participate in the Plan and
thereafter annually on January 31 of each year during which such Participant
continues to participate in the Plan and (ii) a monthly Transaction Fee of
$1.25 initially during each month that a Participant makes a contribution to
the Plan. The Annual Service Fees and Transaction Fees will be paid to the
Company from each Participant's contributions to the Plan. In addition, any
brokerage commissions or service charges with respect to the purchase of
Common Stock under the Plan will be allocated to the Participants for which
Common Stock was purchased during the applicable month based upon the number
of shares and fractional shares purchased on behalf of each Participant
during such month. All brokerage commissions or service charges will be paid
from the Participants' contributions to the Plan. The Company will pay all
other expenses and costs of administering the Plan. Participants will be
solely responsible for payment of any commissions, fees, administrative
costs, taxes or
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other expenses with respect to the sale, transfer or other disposition of
shares of Common Stock and, if applicable, other securities of the Company
following their withdrawal by Participants from the Plan.
NON-TRANSFERABILITY OF PARTICIPATION INTERESTS
No rights of a Participant under this Plan, including without
limitation the rights in and to the Participation Interests and the
Participant Account of such Participant, are assignable by the Participant
other than by will or operation of law. Any attempt by a Participant or other
person to assign, alienate, or create a security interest in or otherwise
encumber, any of the Participant's interest under this Plan, or to subject
the same to attachment, execution, garnishment or other legal or equitable
process will be void.
TERMINATION OF PARTICIPATION UNDER THE PLAN.
A Participant's participation in this Plan shall immediately
terminate if and when (i) the Participant voluntarily elects to cancel its
participation in this Plan (such cancellation to be effective as of the date
of receipt by the Company of a properly executed termination form evidencing
such termination); or (ii) the Participant ceases to be eligible to
participate in the Plan by reason of the termination of the Participant as an
Eligible Person, the Participant's death (if an individual), dissolution or
liquidation, or otherwise.
Upon any termination of participation (other than by reason of a
Participant's death), any funds contributed by the Participant that remain in
the Participant Account of such Participant will be paid to the Participant,
without payment of interest thereon, and any whole shares of Common Stock
and, if applicable, other securities of the Company held by the Plan for the
benefit of the Participant shall be delivered to the Participant as a
withdrawal of such Common Stock and other securities from the Plan. Upon
termination of participation by reason of a Participant's death, any funds
contributed by the Participant that remain in the Participant Account of such
Participant shall be paid, without payment of interest thereon, and any
shares of Common Stock and, if applicable, other securities of the Company
held by the Plan for the benefit of the Participant will be disbursed and
distributed to the designated beneficiary or beneficiaries of the Participant
or the estate of the Participant. See "--Beneficiary Designation." Any
fractional shares of Common Stock and, if applicable, other securities of the
Company to be delivered to a Participant upon termination of participation
shall be rounded to the next whole share if such fraction is greater than .5
or, if .5 or less, shall be retained by the Plan.
A Participant whose participation in the Plan is terminated may,
after a period of one month from the date participation is terminated, elect
to again participate in this Plan so long as the Participant continues to be
an Eligible Person and completes and delivers to the Company a written
request to resume participation in the Plan.
TERM, MODIFICATION AND TERMINATION OF PLAN
The Plan became effective on February 27, 1998, and will continue
in effect until February 27, 2008, unless earlier terminated by the Company.
The Board of Directors of the Company may at any time and from time to time
amend, extend, modify, suspend or terminate the Plan. No shares of Common
Stock may be purchased pursuant to the Plan subsequent to its termination.
INDEMNIFICATION; LIABILITY LIMITATION
The Company has agreed to indemnify the Plan Administrator and
each member of any committee serving as Plan Administrator and the Custodian
against certain liabilities and expenses by reason of the fact that any one
of them served as Plan Administrator or member of any committee serving as
Plan Administrator or Custodian of the Plan. Each of the Company, the Plan
Administrator and each member serving or having served on a committee acting
as Plan Administrator, the Broker-Dealer and Custodian will not be
responsible or liable for any act done in good faith or for any good faith
act or omission to act, including, without limitation, the failure to
terminate a Participant's participation in the Plan upon such Participant's
death prior to receipt of notice in writing of such death, or any act or
omission to act with respect to the prices at which the Common Stock was
purchased or the times at which such purchases were made.
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BUSINESS
The Company markets weight management, dietary supplement and
personal care products through a network marketing organization in which
independent distributors purchase products for resale to retail customers as
well as for their own personal use. The number of the Company's active
distributors has increased from approximately 8,100 at December 31, 1995, and
10,600 at December 31, 1996 to approximately 20,600 at September 30, 1997. An
"active" distributor is one who purchased $50 or more of the Company's
products within the preceding 12 months.
The distributors in the Company's network are encouraged to
recruit interested people to become new distributors of the Company's
products. New distributors are placed beneath the recruiting distributor in
the "network" and are referred to by the Company as being in that
distributor's "downline" organization. The Company's marketing plan is
designed to provide incentives for distributors to build, maintain and
motivate an organization of recruited distributors in their downline
organization to maximize their earning potential. Distributors generate
income by purchasing the Company's products at wholesale prices and reselling
them at retail prices. Distributors also earn bonuses on product purchases
generated by the distributors in their downline organization. See "--Network
Marketing."
The Company's growth strategy is to expand its product offerings
and its network of independent distributors to increase sales. The Company
believes that the introduction of new products addresses the demand of its
customers, creates enthusiasm among distributors, serves as a promotional
tool in selling other products and attracts new distributors. Since 1995, the
Company has introduced nine new weight management and dietary supplement
products to its product line. In 1997, the Company added 68 personal care and
six additional dietary supplement products to its product line through the
CII Acquisition, and through the SNSI Asset Purchase, the Company added an
additional 38 weight management and dietary supplement products and one
personal care product. See "Risk Factors--Dependance on AM-300." In
connection with the MMI Acquisition, the CII Acquisition and the SNSI Asset
Purchase, the Company also acquired 1,690, 2,100 and 3,000 additional
distributors, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General" and "--Growth
Strategy."
As of the date of this Prospectus, the Company's product line
consists of (i) nine weight management products, (ii) 53 dietary supplement
products and (iii) 69 personal care products consisting primarily of cosmetic
and skin care products. See "--Products." The Company's products are
manufactured by various manufacturers pursuant to formulations developed for
the Company and are sold to the Company's independent distributors located in
all 50 states and the District of Columbia. The Company also sells its
personal care products to distributors in Greece who do not use the Company's
network marketing system. See "--Products."
The Company believes that its network marketing system is ideally
suited to marketing weight management, dietary supplement and personal care
products because sales of such products are strengthened by ongoing personal
contact between distributors and their customers. The Company's network
marketing system appeals to a broad cross-section of people, particularly
those looking to supplement family income or who are seeking part-time work.
Distributors are given the opportunity through Company-sponsored events and
training sessions to network with other distributors, develop selling skills
and establish personal goals. The Company supplements monetary incentives
with other forms of recognition in order to motivate distributors further and
to foster an atmosphere of excitement throughout its distributor network.
KEY OPERATING STRENGTHS
The Company believes the source of its success is its support of
and compensation program for its distributors. The Company provides its
distributors with high-quality products and a highly attractive bonus program
along with extensive Company-sponsored training and motivational events and
services. The Company believes that it has established a strong operating
platform to support distributors and facilitate future growth. The key
components of this platform include the following:
- quality products, many of which emphasize herbs and
other natural ingredients to appeal to consumer demand
for products that contribute to a healthy lifestyle;
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- a compensation program that permits distributors to earn
income from profits on the resale of products and
residual income from reorder bonuses on product
purchases within a distributor's downline organization,
as well as to participate in various non-cash awards,
such as vacations offered through promotional programs;
- a superior communications program that seeks to
effectively and efficiently communicate with
distributors by utilizing new technologies and marketing
techniques, as well as motivational events and training
seminars;
- a continual expansion and improvement of the Company's
product line and marketing plan; and
- employment of computer technology to provide timely and
accurate product order processing, weekly bonus payment
processing, detailed distributor earnings statements and
inventory management.
GROWTH STRATEGY
The Company's growth strategy is to expand its product offerings
and network of independent distributors to increase sales. An increase in the
number of distributors generally results in increased sales volume, and new
products create enthusiasm among distributors, serve as a promotional tool in
selling other products, and attract new distributors. Since 1995, the Company
has introduced nine new weight management and dietary supplement products to
its product line. Through the CII Acquisition, the Company added 68 personal
care and six dietary supplement products to its product line. Through the
SNSI Asset Purchase which was consummated on April 16, 1997, the Company
added 38 weight management and dietary supplement products and one personal
care product to its product line. During 1997, the Company introduced
Choc-Quilizer, and plans to introduce several additional products. In
connection with the MMI Acquisition, the CII Acquisition and the SNSI Asset
Purchase, the Company acquired approximately 1,690, 2,100 and 3,000
additional distributors, respectively. See "--Products," "Risk
Factors--Dependence on AM-300," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General."
The Company will also seek to increase sales through initiatives
designed to enhance sales in its existing markets. Such initiatives will
include increasing the number of Company-sponsored training and motivational
events and teleconferences, hiring additional distributor support personnel
and establishing more convenient Regional Success Centers in targeted
geographic markets.
In addition, the Company will seek to grow through acquisition.
The network marketing industry, which has relatively low barriers to entry,
is fragmented and includes a number of small marketing companies, many of
which are being acquired by larger companies. The Company's strategy is to
capitalize on these market characteristics to achieve additional growth, both
in terms of distributors and product diversification, through the acquisition
of additional network marketing companies or the assets of such companies.
The principal objective of the Company's acquisition strategy is
to acquire other network marketing organizations that can be combined with
the Company's network marketing organization, resulting in increased sales
volume with minimal additional administrative cost. The Company will not
consummate an acquisition unless, at the time, it is anticipated that such
acquisition will contribute to profitability and provide positive cash flows
from operations. There can be no assurance, however, that the Company will in
the future be able to acquire other network marketing organizations, or that
such acquisitions will result in increased profitability and cash flows.
The Company's growth strategy will require expanded distributor
services and support, increased personnel, expanded operational and financial
systems and implementation of additional control procedures. There can be no
assurance that the Company will be able to manage expanded operations
effectively. Furthermore, failure to implement financial, information
management, and other systems and to add control procedures could have a
material adverse effect on the Company's results of operations and financial
condition. The Company's acquisitions could involve a number of risks
including the diversion of management's attention to the assimilation of the
acquired companies or assets, adverse short-term effects on the Company's
results of operations, the amortization of acquired intangible assets, and
the possibility that the acquired network marketing organization will not
contribute to the Company's sales, profitability and cash flows, either in
the near or long term, as anticipated.
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Although the Company's business plan includes expansion and
diversification of the Company's network marketing organization and products
through the acquisition of businesses engaged in network marketing, there are
currently no specific plans, negotiations, agreements or understandings with
respect to any material acquisition.
Although the Company intends to focus principally on the
expansion of sales within the United States, the Company also intends to
expand its sales activities in Greece. In addition, the Company is
considering expansion into markets in other countries, although the Company
has not formalized any such planned expansion as of the date of this
Prospectus. The Company believes there are numerous additional international
markets in which its network marketing organization and products could prove
successful.
INDUSTRY OVERVIEW
NETWORK MARKETING. The Company believes that network marketing is
one of the fastest growing channels of distribution for certain types of
goods and services. There are over 300 companies worldwide that utilize
network marketing techniques. Industry sources report that in 1995 about 7.2
million individuals in the United States were involved in direct selling (of
which network marketing is a major segment) and that total direct sales were
approximately $18 billion.
WEIGHT MANAGEMENT AND DIETARY SUPPLEMENT PRODUCTS. The weight
management and dietary supplement market is expanding because of heightened
public awareness of reports about the positive effects of weight management
and dietary supplements on health. Many individuals also use dietary
supplements as a means of preventive health care. The Company believes
several factors account for the steady growth of the dietary supplement
market, including increased public awareness of the reported health benefits
of dietary supplements and favorable demographic trends toward older
Americans who are more likely to consume dietary supplements.
Over the past several years, widely publicized reports and
medical research findings have suggested a correlation between the
consumption of dietary supplements and the reduced incidence of certain
diseases. The United States government and universities generally have
increased sponsorship of research relating to dietary supplements. In
addition, Congress has established the Office of Alternative Medicine within
the National Institutes of Health to foster research into alternative medical
treatments, which may include natural remedies. Congress also recently
established the Office of Dietary Supplements in the National Institutes of
Health to conduct and coordinate research into the role of dietary
supplements in maintaining health and preventing disease.
In addition, the Company believes that the aging of the United
States population, together with a corresponding increased focus on
preventative health care measures, will continue to result in increased
demand for dietary supplement products. According to Congressional findings
that accompanied the DSHEA, national surveys show that almost 43 percent of
Americans regularly consume vitamins, minerals and herbal supplements and 80
percent consume these products at some time during their lives. The
35-and-older age group of consumers represents 78 percent of the regular
users of vitamin and mineral supplements. Based on data provided by the
United States Bureau of the Census, from 1990 to 2010, the 35-and-older age
group of the United States population is projected to increase by 32 percent,
a significantly greater increase than the 20 percent projected increase for
the United States population in general.
The Company believes these trends have helped fuel the growth of
the dietary supplement market. To meet the increased demand for dietary
supplements, a number of successful dietary supplement products have been
introduced over the past several years by the Company and others, including
function specific products for weight loss, sports nutrition, menopause,
energy and mental alertness. In addition, the use of a number of ingredients,
such as chromium picolinate, shark cartilage, proanthocyanidins, citrin and
colloidal minerals, have created opportunities for the Company and others to
offer new products.
PERSONAL CARE PRODUCTS. The personal care products market is a
mature market that has been historically immune to swings in the economy.
According to the Direct Selling Association, the worldwide retail market for
personal care and wellness products exceeded $8.6 billion in 1995.
Manufacturers and distributors of personal care products must continually
improve existing products, introduce new products and communicate product
advantages to consumers. With the aging population, there appears to be a
growing demand for a wide spectrum of new products in the area of skin care.
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PRODUCTS
The Company's products include weight management products,
dietary supplements and personal care products. The Company currently markets
131 products, exclusive of variations in product size, colors or similar
variations of the Company's basic product line.
WEIGHT MANAGEMENT PRODUCTS. In 1996 and the nine months ended
September 30, 1997, 41.7 and 35.8 percent, respectively, of the Company's net
sales were derived from the seven weight management products that the Company
markets under its Advantage Marketing Systems label. The following products
represent the majority of the Company's weight management product sales:
- AM-300--A specialized blend of herbs, including an
ephedra concentrate and chromium picolinate.
- AS-200--A specialized blend of herbs and nutrients in
addition to citrin and chromium picolinate.
As a result of the SNSI Asset Purchase, the Company added several
additional weight management products to its product line that are marketed
under its Advantage Marketing Systems or Stay 'N Shape labels, including
Choc-Quilizer. Choc-Quilizer is an appetite suppression product made from a
compound which occurs naturally in chocolate. It was originally developed by
Dr. George Kargas to control chocolate cravings, and is believed by Dr.
Kargas to decrease the appetite for other foods as well.
DIETARY SUPPLEMENT PRODUCTS. In 1996 and the nine months ended
September 30, 1997, 18.9 and 36.0 percent, respectively, of the Company's net
sales were derived from 32 dietary supplement products containing herbs,
vitamins, minerals and other natural ingredients. They are sold under the
Advantage Marketing Systems, Stay 'N Shape and Chambre labels. The following
products represent the majority of the Company's dietary supplement product
sales:
- Shark Cartilage Complex--Manufactured from shark fin
cartilage and a blend of curcumin, boswellin and
vanadium.
- Super Anti-Oxidant--A blend of enzyme-active and
phyto-nutrient rich whole food and herbal antioxidant
concentrates including proanthocyanidins.
- Colloidal Plus--A natural assortment of 77 plant-derived
colloidal minerals in a time release capsule.
- Chlorella--Fresh water green algae containing amino
acids of protein, nucleic acids, fibers, vitamins and
minerals.
As a result of the SNSI Asset Purchase, the Company has recently
added several additional dietary supplement products that are being marketed
under its Advantage Marketing Systems or Stay 'N Shape labels, including
Formula of Life Colloidal Minerals, Stress-Eze and Spark of Life.
PERSONAL CARE PRODUCTS. In January 1997, the Company acquired CII
and its line of skin care, hair care, family care and cosmetic products,
which dramatically expanded and improved the Company's product line. CII had
been marketing its products for over 24 years. During the nine months ended
September 30, 1997, 8.1 percent of the Company's sales were derived from 66
personal care products marketed primarily under the Chambre label. The
following products represent the majority of the Company's personal care
product sales:
- NH2 Lift System--A three-part skin-care system combining
enzymatic exfoliation and isometric action to firm the
skin, build muscle tone and lift the face.
- Skin Care Collections--Include cleansing lotion, skin
freshener, oatmeal scrub, night treatment, moisturizer
and protein or moisture masque.
- Hair Care Systems--Include keratin shampoo, conditioning
rinse, reconstructor, hair hold, and style and set.
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- Chambre Cosmetics--Include foundations, mascara,
lipliners, eyeliners, powder and cream blushes, lip
colors and eyeshadows.
PROMOTIONAL MATERIALS. The Company also derives revenues from the
sale of various educational and promotional materials designed to aid its
distributors in maintaining and building their businesses. Such materials
include various sales aids, informational videotapes and cassette recordings,
and product and marketing brochures.
OTHER PRODUCTS AND SERVICES. Prior to focusing on weight
management and dietary supplement products in October 1993, the Company
marketed various packages of consumer benefit services provided by
third-party providers. The consumer benefit services consist of a discount
shopping service, a grocery coupon service, a discount travel service,
pre-paid legal services, and a variety of other consumer benefits. The
services under these consumer benefit programs, except for the pre-paid legal
services, are provided by Consumer Benefit Services, Inc. The pre-paid legal
services are provided by Pre-Paid Legal Services, Inc. The Company no longer
actively markets these programs, although it continues to maintain the
existing memberships. These program membership sales represented less than
one percent of the Company's net sales for the nine months ended September
30, 1997.
NEW PRODUCT IDENTIFICATION. The Company expands its product line
through the development and acquisition of new products. New product ideas
are derived from a number of sources, including trade publications,
scientific and health journals, the Company's management, consultants,
distributors and other outside parties. Potential product acquisitions are
identified in a similar manner. Prior to introducing new products, the
Company investigates product formulation as it relates to regulatory
compliance and other issues. See "--Regulation."
The Company does not maintain its own product development staff,
but relies upon Chemins, Nittany and other manufacturers, independent
researchers, vendor research departments, and others for such services. When
a new product concept is identified or when an existing product must be
reformulated, the new product concept or reformulation project is generally
submitted to Chemins or Nittany for technical development and implementation.
The Company is continually reviewing its existing products for potential
enhancements to improve their effectiveness and marketability. While the
Company considers its product formulations to be proprietary trade secrets,
such formulations are not patented and there can be no assurance that another
company will not replicate one or more of the Company's products.
RECENT REGULATORY DEVELOPMENTS. A significant portion of the
Company' net sales has been, and is expected to continue to be, dependent
upon the Company's AM-300 product. The Company's net sales of AM-300
represented 28.9 percent, 39.1 percent, and 31.5 percent of net sales for the
nine months ended September 30, 1997 and for the fiscal years 1996 and 1995,
respectively. One of the herbal ingredients in AM-300 is ephedra concentrate,
which contains naturally occurring ephedrine. Ephedrine products have been
the subject of adverse publicity in the United States and other countries
relating to alleged harmful effects, including the deaths of several
individuals. Currently, the Company offers AM-300 only in the United States
(except in certain states in which regulations may prohibit or restrict the
sale of such product). On April 10, 1996, the Food and Drug Administration
("FDA") issued a statement warning consumers not to purchase or ingest
natural sources of ephedrine within dietary supplements claiming to produce
certain effects (none of which are claimed for the Company's product). On
June 4, 1997, the FDA proposed a regulation which will, if it becomes
effective as proposed, significantly limit the ability of the Company to sell
AM-300 and any other weight management products which contain ephedra or
ephedrine. See "Risk Factors--Regulation" and "--Regulation."
PRODUCT PROCUREMENT AND DISTRIBUTION; INSURANCE. The Company's
weight management and dietary supplement products are manufactured by Chemins
and Nittany utilizing the Company's product formulations. The Company's
personal care products are manufactured by GDMI, Inc., Custom Cosmetics, Inc.
and Columbia Cosmetics, Inc.
In connection with the SNSI Asset Purchase, the Company succeeded
to the rights and obligations of Nation of Winners International, Inc. under
the Marketing and Distribution Agreement with Tinos, L.L.C. (the "Marketing
Agreement"), pursuant to which the Company acquired the exclusive worldwide
right to market Choc-Quilizer for the purpose of appetite suppression and
weight control through December 6, 2006. The Marketing Agreement is subject
to termination by Tinos, L.L.C. upon 60 days' written notice in the event the
Company does not obtain a sales volume of 300,000 units of 90 count capsules
or caplets of Choc-Quilizer during
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the period from the date of the license through December 5, 1998, or
reasonable sales volumes during each 12-month period thereafter.
The Company has not generally entered into long-term supply
agreements with the manufacturers of its products or the third-party
providers of its consumer benefit services. However, the Company customarily
enters into contracts with its manufacturers and suppliers to establish the
terms and conditions of purchases. The Company's arrangements with Chemins or
Nittany may be terminated by either party upon the completion of any
outstanding purchase orders. Therefore, there can be no assurance that
Chemins or Nittany will continue to manufacture products for the Company or
provide research, development and formulation services. In the event the
Company's relationship with any of its manufacturers becomes impaired, the
Company would be required to obtain alternative sources for its products. In
such event, there can be no assurance that the manufacturing processes of the
Company's current manufacturers could be replicated by another manufacturer.
Although the Company has not previously experienced product unavailability or
supply interruptions, the Company believes that it would be able to obtain
alternative sources of its weight management, dietary supplement and personal
care products. A significant delay or reduction in availability of products,
however, could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company, like other marketers of products that are intended
to be ingested, faces an inherent risk of exposure to product liability
claims in the event that the use of its products results in injury. The
Company generally does not obtain contractual indemnification from parties
manufacturing its products. However, the Company has agreed to indemnify
Tinos, L.L.C., the licensor of Choc-Quilizer, against any product liability
claims arising from the Choc-Quilizer product marketed by the Company, and
the Company has agreed to indemnify Chemins against claims arising from
products manufactured by Chemins and marketed by the Company. The Company
does not maintain any product liability insurance coverage. Therefore,
product liability claims against the Company could result in material losses
to the Company.
All of the Company's products include a customer satisfaction
guarantee. Within 30 days of purchase, any retail customer or distributor who
is not satisfied with a Company product for any reason may return it or any
unused portion to the distributor from whom it was purchased or to the
Company for a full refund or credit toward the purchase of another Company
product. Distributors may obtain replacements from the Company for products
returned to them by retail customers if they return such products to the
Company on a timely basis. Furthermore, in most jurisdictions, the Company
maintains a buy-back program pursuant to which it will repurchase products
sold to a distributor (subject to a 10 percent restocking charge), provided
that the distributor resigns from the Company and returns the product in
marketable condition within 12 months of original purchase, or longer where
required by applicable state law or regulations. The Company believes this
buy-back policy addresses a number of the regulatory compliance issues
pertaining to network marketing systems. See "--Regulation--Network Marketing
System." For the year ended December 31, 1996, and the nine months ended
September 30, 1997, the cost of products returned to the Company was four
percent and three percent of gross sales, respectively.
The Company's weight management, dietary supplement and personal
care products are distributed principally from the Company's facilities in
Oklahoma City or from its Regional Success Centers. Products are warehoused
in Oklahoma City and at selected Regional Success Centers.
NETWORK MARKETING
The Company markets its products through independent distributors
in a network marketing organization, which consists of more than 23,300
"active" distributors as of the date of this Prospectus. At December 31, 1996
and September 30, 1997, the Company had 10,600 and 20,600 "active"
distributors compared to 8,100 and 8,800 "active" distributors at December
31, 1995 and September 30, 1996, respectively. A distributor is considered
"active" if the distributor purchased $50 or more of the Company's products
within the preceding 12 months. Distributors are independent contractors who
purchase products directly from the Company for resale to retail consumers.
Distributors may elect to work on a full-time or part-time basis. The Company
believes that its network marketing system appeals to a broad cross-section
of people, particularly those seeking to supplement family income, start a
home business or pursue employment opportunities other than conventional,
full-time employment, and that a majority of its distributors therefore work
on a part-time basis.
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Management believes that its network marketing system is ideally
suited to marketing its products because sales of such products are
strengthened by ongoing personal contact between retail consumers and
distributors, many of whom use the Company's products themselves. 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 purchase the Company's products by informing
potential customers and distributors of the Company's products and results of
personal use, and the potential financial benefits of becoming a distributor.
The objective of the marketing program is to develop a broad based network
marketing organization of distributors within a relatively short period. The
Company's marketing efforts are typically focused on middle-income families
and individuals.
The Company's network marketing program encourages individuals to
develop their own downline network marketing organizations. Each new
distributor is linked to an existing distributor that personally enrolled the
new distributor into the Company's network marketing organization or is
linked to an existing distributor in the enrolling distributor's downline as
specified by the enrolling distributor at the time of enrollment. Growth of a
distributor's downline organization is dependent on the recruiting and
enrollment of additional distributors by the distributor or the distributors
within such distributor's downline organization.
Distributors are encouraged to assume responsibility for training
and motivation of other distributors within their downline organization and
to conduct opportunity meetings as soon as they are appropriately trained.
The Company strives to maintain a high level of motivation, morale,
enthusiasm and integrity among the members of its network marketing
organization. The Company believes this result is achieved through a
combination of products, sales incentives, personal recognition of
outstanding achievement, and quality promotional materials. Under the
Company's network marketing program, distributors purchase sales aids and
brochures from the Company and assume the costs of advertising and marketing
the Company's products to their customers as well as the direct cost of
recruiting new distributors. The Company believes that this form of sales
organization is cost efficient for the Company because direct sales expenses
are primarily limited to the payment of bonuses, which are only incurred when
products are sold.
The Company continually strives to improve its marketing
strategies, including the compensation structure within its network marketing
organization and the variety and mix of products offered by the Company, to
attract and motivate distributors. These efforts are designed to increase
distributors' monthly product sales and the recruiting of new distributors.
To aid distributors in easily meeting the monthly personal
product purchase requirement to qualify for bonuses, the Company developed
the "Q-Club." Under the Q-Club purchasing arrangement, distributors establish
a standing product order for an amount in excess of $50 which is
automatically charged to their credit cards or deducted from their bank
accounts each month prior to shipment of the ordered products. At December
31, 1995 and 1996, and at September 30, 1997, the Company had 2,300, 3,800
and 6,914 distributors participating in the Q-Club, respectively.
Growth of the network marketing organization is in part
attributable to the Company's bonus structure which provides for payment of
bonuses on product purchases made by other distributors in a distributor's
downline organization. Distributors derive income from several sources.
First, distributors earn profits by purchasing the Company's products at
wholesale prices (which are discounted up to 40 percent from suggested retail
prices) and selling the Company's products to customers at retail. Second,
distributors who establish their own downline distributor organizations may
earn bonuses of up to 15 percent on product purchases by distributors within
the first four levels of their downline organization. Third, distributors,
who have personally enrolled three active distributors and have (i) $300 per
month of Q-Club product purchases by personally enrolled distributors on
their first level and (ii) $300 per month of Q-Club product purchases on
their second level, become Directors and have the opportunity to build an
additional Director downline organization and receive additional bonuses of
four percent on product purchases by such downline organization. Fourth,
distributors, who have personally enrolled six active distributors and have
(i) $600 per month of Q-Club product purchases by personally enrolled
distributors on their first level and (ii) $600 per month of Q-Club product
purchases on their second level, become Silver Directors and have the
opportunity to build an additional Silver Director downline organization and
receive additional bonuses of five percent on product purchases by such
downline organization. Fifth, Silver Directors who have personally enrolled
twelve active distributors and have (i) $1,200 per month of Q-Club product
purchases by personally enrolled
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distributors on their first level and (ii) $1,200 per month of Q-Club product
purchases on their second level, become Gold Directors and have the
opportunity to receive an additional bonus of three percent on product
purchases by their Silver Director downline organization. In addition, Gold
Directors have the opportunity to receive generation bonuses of up to three
percent on the product purchases by distributors of Silver Director downline
organizations that originate from their Silver Director downline organization
through four generations. Sixth, Gold Directors who maintain the Gold
Director requirements and develop four Gold Directors, each one from a
separate leg of their downline organization, become Platinum Directors and
have the opportunity to build an additional Platinum Director downline
organization and receive additional bonuses of five percent on product
purchases by such downline organization. Combining these levels of bonuses,
the Company's total "pay-out" on products subject to bonuses is approximately
67 percent of the bonus value of product sales. However, in the case of a
distributor who is not qualified to receive bonuses (I.E., a distributor who
has not purchased $50 or more of the Company's products during the preceding
month), the bonuses otherwise payable on the first two levels of those
distributors' downline organizations are retained by the Company. Each
distributor in the Company's network marketing organization has a Director, a
Silver Director, a Gold Director and a Platinum Director, and each Director
has a Silver Director, a Gold Director and a Platinum Director, and each
Silver Director has a Gold Director and a Platinum Director, and each Gold
Director has a Platinum Director. As of the date of this Prospectus, the
Company has 87 Silver Directors and 34 Gold Directors and six Platinum
Directors.
Under the Company's Regional Success Center Program, the Company,
in its sole discretion, designates distributors to serve as Regional Success
Center Directors, and provides them special training and support. Each
Regional Success Center Director functions as a product distribution center
for the Company. As of the date of this Prospectus, the Company has 42
Regional Success Center Directors.
The Company maintains a computerized system for processing
distributor orders and calculating bonus payments which enables it to remit
such payments promptly to distributors. The Company believes that prompt and
accurate remittance of bonuses is vital to recruiting and maintaining
distributors, as well as increasing their motivation and loyalty to the
Company. The Company makes bonus payments to its distributors weekly, based
upon the previous week's product purchases, compared to most network
marketing companies that only make monthly bonus payments. During the nine
months ended September 30, 1997, and the year ended December 31, 1996 and
1995, the Company paid bonuses to 4,000, 3,300 and 1,900 distributors,
respectively, in the aggregate amount of $3,456,360, $2,727,330 and
$1,823,058, respectively.
The Company is committed to providing the best possible support
to its distributors. Distributors in the Company's network marketing
organization are provided training guides and are given the opportunity to
participate in Company training programs. The Company sponsors regularly
scheduled conference calls for its distributors which include testimonials
from successful distributors and satisfied customers as well as current
product and promotional information. The Company produces a monthly
newsletter which provides information on the Company, its products and
network marketing system. The newsletter is designed to help recruit new
distributors by answering commonly asked questions and includes product
information and business building information. The newsletter also provides a
forum for the Company to give additional recognition to its distributors for
outstanding performance. In addition, the Company regularly sponsors training
sessions for its distributors across the United States, at which distributors
are provided the opportunity to learn more about the Company's products and
selling techniques so that they can more rapidly build their businesses. The
Company produces comprehensive and attractive four color catalogues and
brochures that display and describe the Company's products.
Furthermore, in order to facilitate its continued growth and
support distributor activities, the Company continually upgrades its
management information and telecommunications systems. These systems are
designed to provide, among other things, financial and operating data for
management, timely and accurate product ordering, bonus payment processing,
inventory management and detailed distributor records. Since 1994, the
Company has invested more than $500,000 to enhance its computer and
telecommunications systems.
REGULATION
In the United States as well as in any foreign markets in which
the Company may sell its products, the Company will be subject to laws,
regulations, administrative determinations, court decisions and similar
constraints (as applicable, at the federal, state and local levels)
(hereinafter "regulations") including, among others, regulations
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pertaining to (i) the formulation, manufacture, packaging, labeling,
distribution, importation, sale and storage of the Company's products, (ii)
product claims and advertising (including direct claims and advertising by
the Company as well as claims and advertising by distributors, for which the
Company may be held responsible), and (iii) the Company's network marketing
organization.
PRODUCTS. The formulation, manufacture, packaging, storing,
labeling, advertising, distribution and sale of the Company's products are
subject to regulation by federal agencies, including the Food and Drug
Administration (the "FDA"), the Federal Trade Commission (the "FTC"), the
Consumer Product Safety Commission (the "CPSC"), the United States Department
of Agriculture (the "USDA"), the Environmental Protection Agency (the "EPA")
and the United States Postal Service. The Company's activities are also
regulated by various agencies of the states, localities and foreign countries
in which the Company's products are or may be manufactured, distributed and
sold. The FDA, in particular, regulates the formulation, manufacture and
labeling of weight management products, dietary supplements, and cosmetics
and skin care products, such as those distributed by the Company. FDA
regulations require the Company and its suppliers to meet relevant regulatory
good manufacturing practices for the preparation, packaging and storage of
these products. Good manufacturing practices for dietary supplements have yet
to be promulgated but are expected to be proposed. The Dietary Supplement
Health and Education Act of 1994 (the "DSHEA") revised the provisions of the
Federal Food, Drug and Cosmetic Act ( the "FDCA") concerning the composition
and labeling of dietary supplements and, the Company believes, is generally
favorable to the dietary supplement industry. The DSHEA created a new
statutory class of "dietary supplements." This new class includes vitamins,
minerals, herbs, amino acids and other dietary substances for human use to
supplement the diet, and DSHEA grandfathered, with certain limitations,
dietary ingredients that were on the market before October 15, 1994. A
dietary supplement which contains a new dietary ingredient (I.E., one not on
the market before October 15, 1994) will require evidence of a history of use
or other evidence of safety establishing that it is reasonably expected to be
safe. Manufacturers of dietary supplements which make a "statement of
nutritional support" must have substantiation that the statement is truthful
and not misleading.
The majority of the Company's sales come from products that are
classified as dietary supplements under the FDCA. The labeling requirements
for dietary supplements have not been clearly established. In December 1995,
the FDA issued proposed regulations which govern the labeling of dietary
supplements, including how to declare nutritional information, how to make
permissible "statements of nutritional support" and when additional, defined
terminology may be used on dietary supplements. The period for comments on
the proposed regulations expired on December 2, 1997; however, final
regulations have been issued. The proposed regulations, if adopted as
proposed, would require the Company to revise a substantial number of its
labels at an undetermined, but likely immaterial, expense to the Company. The
FDA has not announced an exact date that the final regulations will become
effective. However, the FDA has stated that the proposed regulations will not
become effective until 180 days following their publication in the Federal
Register. Many states have also recently become active in the regulation of
dietary supplement products and may require the Company to modify the
labeling or formulation of certain products sold in those states.
As a marketer of products that are ingested by consumers, the
Company is subject to the risk that one or more of the ingredients in its
products may become the subject of adverse regulatory action. For example,
one of the ingredients in AM-300 is ephedra herb concentrate, which contains
naturally-occurring ephedrine. Ephedrine products have been the subject of
adverse publicity in the United States and other countries relating to
alleged harmful effects, including the deaths of several individuals.
Many companies manufacture products containing various amounts of
ephedra or ephedrine, and the FDA has on record approximately 900 reports of
adverse reactions to these products. On April 10, 1996, the FDA issued a
statement warning consumers not to purchase or ingest dietary supplements
containing ephedrine that are claimed to produce such effects as euphoria,
heightened awareness, increased sexual sensations or increased energy,
because these products pose significant adverse health risks, including
dizziness, headache, gastrointestinal distress, irregular heartbeat, heart
palpitations, heart attack, strokes, seizures, psychosis and death. The
Company markets AM-300 principally as an aid in weight management.
On June 4, 1997, the FDA proposed a regulation that will, if it
becomes effective as proposed, significantly limit the ability of the Company
to sell dietary supplements that contain ephedra or ephedrine, including the
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Company's AM-300 product, which for the nine months ended September 30, 1997,
represented 28.9 percent of the Company's net sales. Currently, the Company
offers AM-300 only where permitted in the United States. The proposed
regulation was subject to comment during the period ended August 18, 1997,
which period was extended until December 2, 1997. The FDA has indicated that
the proposed regulations will become effective 180 days following issuance of
the final regulation. The Company has been informed that several trade
organizations in the dietary supplement industry intend to comment on the
proposed regulation, requesting substantial modifications. As of the date of
this Prospectus, it is not possible to predict whether the FDA will make any
material changes to the proposed regulation based upon comments.
The Company is a member of a non-profit corporation, The Ephedra
Research Foundation (the "Foundation"), which has contracted with Science,
Toxicology Technology Consultants, Inc., a consulting firm, to conduct a
clinical study concerning the safety of ephedrine when ingested in
combination with caffeine as a dietary supplement. This study is being
carried out by researchers at two nationally recognized hospitals associated
with two major universities. The results of the study are expected by April
30, 1998. The Company anticipates that the Foundation will request an
extension of the FDA comment period until the Foundation receives a report on
one or both phases of the study.
There can be no assurance that the FDA will not impose additional
regulations, including regulations prohibiting, limiting potencies or placing
other restrictions on the sale of products containing ephedra or ephedrine.
In addition, several states either regulate or are considering regulating
ephedrine-containing products as controlled substances or are prohibiting the
sale of such products by persons other than licensed pharmacists. There is a
risk that the Company's AM-300 product, which contains ephedra concentrate,
may become subject to further federal, state, local or foreign laws or
regulations. These regulations could require the Company to (i) withdraw or
reformulate its AM-300 product with reduced ephedrine levels or with a
substitute for ephedra or ephedrine, (ii) relabel its product with different
warnings or revised directions for use, or (iii) not make certain statements,
possibly including weight loss claims, with respect to any product containing
ephedra or ephedrine. Even in the absence of further laws or regulation, the
Company may elect to reformulate or relabel its AM-300 product containing
ephedra or ephedrine. While the Company believes that its AM-300 product
could be reformulated and relabeled, there can be no assurance that
reformulation and relabeling would not have an adverse effect on sales of
such product or related products even though such products do not contain
ephedra or ephedrine. See "--Products--Recent Regulatory Developments."
In foreign markets, prior to commencing operations and prior to
making or permitting sales of its products, the Company may be required to
obtain an approval, license or certification from the country's ministry of
health or comparable agency. Prior to entering a new market in which a formal
approval, license or certificate is required, the Company will be required to
work extensively with local authorities to obtain the requisite approvals.
The approval process generally requires the Company to present each product
and product ingredient to appropriate regulators and, in some instances,
arrange for testing of products by local technicians for ingredient analysis.
Such approvals may be conditioned on reformulation of the Company's products
or may be unavailable with respect to certain products or ingredients.
PRODUCT CLAIMS AND ADVERTISING. The FTC and certain states
regulate advertising, product claims, and other consumer matters, including
advertising of the Company's products. All advertising, promotional and
solicitation materials used by distributors must be approved by the Company
prior to use. The FTC has in the past several years instituted enforcement
actions against several dietary supplement companies for false and misleading
advertising of certain products. In addition, the FTC has increased its
scrutiny of the use of testimonials, such as those utilized by the Company.
While the Company has not been the target of FTC enforcement action, there
can be no assurance that the FTC will not question the Company's advertising
or other operations in the future. In addition, there can be no assurance
that a state will not interpret product claims presumptively valid under
federal law as illegal under that state's regulations, or that future FTC
regulations or decisions will not restrict the permissible scope of such
claims. The Company also is subject to the risk of claims by distributors and
customers who may file actions on their own behalf, as a class or otherwise,
and may file complaints with the FTC or state or local consumer affairs
offices. These agencies may take action on their own initiative against the
Company for alleged advertising or product claim violations or on a referral
from distributors, consumers or others. Remedies sought in such actions may
include consent decrees and the refund of amounts paid by the complaining
distributor or consumer, refunds to an entire
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class of distributors or customers, or other damages, as well as changes in
the Company's method of doing business. A complaint based on a practice of
one distributor, whether or not that practice was authorized by the Company,
could result in an order affecting some or all distributors in the particular
state, and an order in one state could influence courts or government
agencies in other states considering similar matters. Proceedings resulting
from these complaints may result in significant defense costs, settlement
payments or judgements and could have a material adverse effect on the
Company.
NETWORK MARKETING SYSTEM. The Company's network marketing system
is subject to a number of federal and state regulations administered by the
FTC and various state agencies. Regulations applicable to network marketing
organizations are generally directed at ensuring that product sales are
ultimately made to consumers (as opposed to other distributors) and that
advancement within such organization be based on sales of the organizations'
products, rather than investment in the organization or other non-retail
sales related criteria. For instance, in certain markets there are limits on
the extent to which distributors may earn royalties on sales generated by
distributors that were not directly sponsored by the distributor.
The Company's network marketing organization and activities are
subject to scrutiny by various state and federal governmental regulatory
agencies to ensure compliance with various types of laws 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 compensation structure of such
selling organizations is very complex, and compliance with all of the
applicable laws is uncertain in light of evolving interpretation of existing
laws and the enactment of new laws and regulations pertaining to this type of
product distribution. The Company has an ongoing compliance program with
assistance from counsel experienced in the laws and regulations pertaining to
network 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 network marketing operations.
The Company currently has independent distributors in all 50
states and the District of Columbia. The Company reviews the requirements of
various states as well as seeks legal advice regarding the structure and
operation of its selling organization to insure that it complies with all of
the applicable laws pertaining to network sales organizations. On the basis
of these efforts and the experience of its management, the Company believes
that it is in compliance with all applicable federal and state regulatory
requirements. Although the Company believes that the structure and operation
of its network marketing organization complies with all of the applicable
laws pertaining to network sales organizations, 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. The Company accordingly remains subject to the risk that, in one
or more of its markets, its marketing system could be found to not be in
compliance with applicable regulations. Failure by the Company to comply with
these regulations could have a material adverse effect on the Company in a
particular market or in general.
The Company is subject to the risk of challenges to the legality
of its network marketing organization, including claims by the Company's
distributors, both individually and as a class, that the Company's network
marketing program is operated as an illegal "pyramid scheme" in violation of
federal securities laws, state unfair practice and fraud laws and the
Racketeer Influenced and Corrupt Organizations Act ("RICO"). Two important
FTC cases have established legal precedent for determining whether a network
marketing program constitutes an illegal pyramid scheme. The first, IN RE
KOSCOT INTERPLANETARY, INC., 86 F.T.C. 1106 (1975), set forth a standard for
determining whether a marketing system constituted a pyramid scheme. Under
the KOSCOT standard, a pyramid scheme is characterized by the participants'
payment of money to a company in return for (i) the right to sell a product
and (ii) the right to receive, in return for recruiting other participants
into the program, rewards that are unrelated to sales of the product to
ultimate users. Applying the KOSCOT standard in IN RE AMWAY CORP., 93 F.T.C.
618 (1979), the FTC determined that a company will not be classified as
operating a pyramid scheme if the company adopts and enforces policies that
in fact encourage retail sales to consumers and prevent "inventory loading"
(I.E., distributors' purchases of large quantities of non-returnable
inventory to obtain the full amount of compensation available under the
system). In AMWAY, the FTC found that the marketing system of Amway
Corporation ("Amway") did not constitute a pyramid scheme, noting the
following Amway policies: (i) participants were required to buy back, from
any person they recruited, any saleable, unsold inventory upon the recruit's
leaving
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Amway; (ii) every participant was required to sell at wholesale or retail at
least 70 percent of the products bought in a given month in order to receive
a bonus for that month; and (iii) in order to receive a bonus in a month,
each participant was required to submit proof of retail sales made to 10
different consumers.
The Company believes that its network marketing system would not
be classified as a pyramid scheme under the standards set forth in KOSCOT,
AMWAY, and other applicable law. In particular, in most jurisdictions, the
Company makes available an inventory buy-back program to address the problem
of "inventory loading." Pursuant to this program, the Company will repurchase
products sold to a distributor (subject to a 10 percent restocking charge)
provided that the distributor resigns from the Company and returns the
product in marketable condition within 12 months of original purchase, or
longer where required by applicable state law or regulations. The Company's
literature provided to distributors describes the Company's buy-back program.
In addition, pursuant to the Company's agreements with its distributors, each
distributor represents that at least 70 percent of the products he or she
buys will be sold to non-distributors. However, as is the case with other
network marketing companies, the bonuses paid by the Company to its
distributors are based on product purchases including purchases of products
that are personally consumed by the downline distributors and such products
may be considered an inventory loading purchase. Furthermore, distributors'
bonuses are based on the wholesale prices received by the Company on product
purchases or, in some cases based upon the particular product purchased, on
prices less than the wholesale prices. In the event of challenges to the
legality of its network marketing organization by distributors, the Company
would be required to demonstrate that the Company's network marketing
policies are enforced, and that the network marketing program and
distributors' compensation thereunder serve as safeguards to deter inventory
loading and encourage retail sales to the ultimate consumers.
In a recent case, WEBSTER V. OMNITRITION INTERNATIONAL, INC., 79
F.3d 776 (9th Cir. 1996), the United States Court of Appeals held that a
class action brought against Omnitrition International, Inc. ("Omnitrition"),
a multilevel marketing seller of nutritional supplements and skin care
products, should be allowed to proceed to trial. The plaintiffs, former
distributors of Omnitrition's products, alleged that Omnitrition's selling
program was an illegal pyramid scheme and claimed violations of RICO and
several federal and state fraud and securities laws. Despite evidence that
Omnitrition complied with the AMWAY standards, the court ruled that a jury
would have to decide whether Omnitrition's policies, many of which apparently
were similar to compliance policies adopted by the Company, were adequate to
ensure that Omnitrition's marketing efforts resulted in a legitimate product
marketing and distribution structure and not an illegal pyramid scheme. The
Company believes that its marketing and sales programs differ in significant
respects from those of Omnitrition, and that the Company's marketing program
complies with applicable law. In view of the holding of the court of appeals
in the OMNITRITION case, however, there can be no assurance that, if
challenged, the Company would prevail against private plaintiffs alleging
violations of anti-pyramid and securities laws. A final ruling against the
Company in such a suit could result in the imposition of material liability
against the Company. Moreover, even if the Company were successful in
defending against such suit, the costs of such defense, both in dollars spent
and in management time, could be material and adversely affect the Company's
operating results. In addition, the negative publicity of such a suit could
adversely affect the Company's sales and ability to attract and retain
distributors.
Nutrition for Life International, Inc. ("NFLI"), a competitor of
the Company and a multi-level seller of personal care and nutritional
supplements, recently announced that it had settled class action litigation
brought by distributors alleging fraud in connection with the operation of a
pyramid scheme. NFLI agreed to pay in excess of $3 million to settle claims
brought on behalf of its distributors, and related securities fraud claims
brought on behalf of certain purchasers of its stock. The Company believes
that its marketing program is significantly different from the program
allegedly promoted by NFLI and that the Company's marketing program is not in
violation of anti-pyramid laws or regulations. However, there can be no
assurance that claims similar to the claims brought against NFLI and other
multi-level marketing organizations will not be made against the Company, or
that the Company would prevail in the event any such claims were made.
Furthermore, even if the Company were successful in defending against any
such claims, the costs of conducting such a defense, both in dollars spent
and in management time, could be material and adversely affect the Company's
operating results and financial condition. In addition, the negative
publicity of such a suit could adversely affect the Company's sales and
ability to attract and retain distributors.
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INTELLECTUAL PROPERTY
The Company uses several trademarks and tradenames in connection
with its products and operations. As of the date of this Prospectus, the
Company had six federal trademark registrations with the United States Patent
and Trademark Office. The Company relies on common law trademark rights to
protect its unregistered trademarks. Common law trademark rights do not
provide the Company with the same level of protection as afforded by a United
States federal registration of a trademark. Moreover, common law trademark
rights are limited to the geographic area in which the trademark is actually
used. In addition, the Company's product formulations are not protected by
patents and are not patentable. Therefore, there can be no assurance that
another company will not replicate one or more of the Company's products.
COMPETITION
The Company is subject to significant competition in recruiting
distributors from other network marketing organizations, including those that
market weight management, dietary supplement and personal care products, as
well as other types of products. There are over 300 companies worldwide that
utilize network marketing techniques, many of which are substantially larger,
offer a greater variety of products, and have available considerably greater
financial resources than the Company. The Company's ability to remain
competitive depends, in significant part, on the Company's success in
recruiting and retaining distributors through an attractive bonus plan and
other incentives. The Company believes that its bonus plan and incentive
programs provide its distributors with significant income potential. However,
there can be no assurance that the Company's programs for recruitment and
retention of distributors will continue to be successful.
In addition, the business of marketing weight management, dietary
supplement and personal care products is highly competitive. This market
segment includes numerous manufacturers, other network marketing companies,
catalog companies, distributors, marketers, retailers and physicians that
actively compete in the sale of such products. The Company also competes with
other providers of such products, especially retail outlets, based upon
convenience of purchase and immediate availability of the purchased product.
The market is highly sensitive to the introduction of new products or weight
management plans (including various prescription drugs) that may rapidly
capture a significant share of the market. As a result, the Company's ability
to remain competitive depends in part upon the successful introduction of new
products.
The Company's network marketing competitors that market weight
management, dietary supplement and personal care products include small,
privately held companies, as well as larger, publicly held companies with
greater financial resources and greater product and market diversification
and distribution. The Company's competitors include Shakelee Corporation, The
A.L. Williams Corporation, Mary Kay Cosmetics, Inc., Amway Corporation,
Nutrition for Life International, Inc., and Herbalife International, Inc. See
"Risk Factors--Competition."
EMPLOYEES
As of September 30, 1997, the Company had 47 full-time employees,
of whom three were executive officers or directors, 19 were in administrative
activities, six were in marketing activities, six were in customer service
activities, and thirteen were in shipping activities. The Company's employees
are not represented by a labor organization. The Company considers its
employee relations to be good. See "Risk Factors--Dependence on Key
Personnel."
PROPERTIES
The Company maintains its executive office in 7,667 square feet
at 2601 Northwest Expressway, Suite 1210W, Oklahoma City, Oklahoma 73112-7293
and its warehouse and distribution center in 10,340 square feet at 4000 North
Lindsay, Oklahoma City, Oklahoma. The premises are occupied pursuant to
long-term leases which expire on May 31, 2003, and which require monthly
rental payments of $5,814 and $5,170, respectively. The Company believes that
the present space will be adequate for the next twelve months.
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LITIGATION
The Company is not a party to any pending litigation. In
September 1995, the Oklahoma Department of Securities commenced an
investigation of the Company with respect to a number of issues, the most
prominent of which relates to the AMS Distributor Stock Pool (the "Pool").
The Pool, under which the Company's independent distributors were permitted
to participant on a voluntary basis, was formed in 1990. Participants made
contributions to the Pool and, from such contributions, the administrator of
the Pool purchased on a monthly basis the Company's Common Stock in the
over-the-counter market for the participants. All purchase transactions were
executed and effected through a registered broker-dealer. All records of
ownership of the Common Stock held by the Pool were maintained at the offices
of the Company. The Pool only purchased shares of Common Stock and did not
sell shares on behalf of the participants. As of December 31, 1997, the Pool
held approximately 215,114 shares of Common Stock for and on behalf of the
participants. Each Participant has sole voting rights with respect to those
shares of Common Stock held for such participant's benefit. 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. The Oklahoma Department of Securities
took the position that the offer and sale of participation rights in the Pool
violated the registration provisions of the Oklahoma Securities Act. During
October 1997, the Company ceased accepting additional contributions to the
Pool and effecting purchase transactions in the Common Stock. On November 4,
1997, the Company, John W. Hail, Curtis H. Wilson, Sr. and Roger P. Baresel,
directors and executive officers of the Company, entered into an agreement
with the Administrator of the Oklahoma Department of Securities in settlement
of the investigation without any action having been taken against the Company
and its officers and directors. Pursuant to such agreement, John W. Hail
reimbursed the Department its costs of the investigation without entitlement
to reimbursement by the Company or any of its other officers and directors.
Under the terms of such agreement, the Company and Messrs. Hail, Wilson and
Baresel agreed to notify the Department of any proposed offer or sale of
additional securities by the Company or each of Messrs. Hail, Wilson and
Baresel pursuant to any registration exemption under the Oklahoma Securities
Act, for a period of three years ending on November 6, 2000.
COMPANY HISTORY
EXCHANGE. Pursuant to an Agreement and Plan of Reorganization,
dated May 1, 1989, the shareholders of the Company exchanged their common
stock for 800,807 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
Pacific Coast International, Inc., (iii) the Company changed its name from
AMS, Inc. to Advantage Marketing Systems, Inc., (an Oklahoma Corporation) and
(iv) Pacific Coast International, Inc. changed its name to Advantage
Marketing Systems, Inc. ("AMS Delaware"). Prior to the Exchange, Pacific
Coast International, Inc. and certain individuals sold, in a public offering,
225,860 shares of Common Stock and 525,860 Class A Common Stock Purchase
Warrants ("Class A Warrants") and Class B Common Stock Purchase Warrants
("Class B Warrants"). The Class A Warrants and Class B Warrants were redeemed
on March 17, 1997.
REINCORPORATION MERGER. Effective December 11, 1995, AMS
Delaware, the former parent of the Company (formerly Pacific Coast
International, Inc.), merged with the Company pursuant to an Agreement and
Plan of Merger (the "Merger"), with the Company as the surviving corporation.
As a result of the Merger, AMS Delaware ceased to exist, and the Company
succeeded to all of its assets and liabilities. Prior to the Merger, AMS
Delaware did not conduct any business, and all operations were conducted by
the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect
to each executive officer and director of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
John W. Hail(1)(2) 66 Chairman of the Board, Chief Executive Officer and Director
Curtis H. Wilson, Sr.(3) 71 Vice-Chairman of the Board and Director
Roger P. Baresel(1)(2) 41 President, Chief Financial Officer, Secretary and Director
R. Terren Dunlap(3)(5) 52 Director
Harland C. Stonecipher(4)(5) 58 Director
</TABLE>
- ------------------------
(1) Member of the Stock Option Committee. See "--Stock Option Plan."
(2) Term as a Director expires in 1998.
(3) Term as a Director expires in 2000.
(4) Term as a Director expires in 1999.
(5) Member of Audit Committee.
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 1999, Class
II Directors hold office initially for a term expiring at the annual meeting
of shareholders to be held in 2000, 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. 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 a term expiring at the annual meeting of shareholders held in the
third year following the year of his election. Executive officers are elected
by the Board of Directors and serve at its discretion.
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 of the Company since its inception in June 1988. During 1987 and
through May 1988, Mr. Hail served as Executive Vice President, Director and
Agency Director of Pre-Paid Legal Services, Inc., a public company engaged in
the sale of legal services contracts, and also served as Chairman of the
Board of Directors of TVC Marketing, Inc., the exclusive marketing agent of
Pre-Paid Legal Services, Inc. See "Business--Litigation."
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. See
"Business--Litigation."
ROGER P. BARESEL has served as Vice President, Chief Financial
Officer, Secretary and a Director of the Company since June 1995, and in July
1995, he became President. Mr. Baresel is a Certified Public Accountant and
holds a Master of Business Administration degree. From 1988 until joining the
Company full-time in 1995, he maintained an accounting practice, specializing
in providing consulting services to small and growing businesses and provided
consulting services to the Company. See "Business--Litigation."
R. TERREN DUNLAP has served as a Director of the Company since
June 1995. He is Chief Executive Officer of Total Switch, Inc., a company
formed in 1997 that developed and distributes electronic switches. He served
as Vice President-International Development of the Company from June 1995
through March 1996. Mr. Dunlap is a Director and the co-founder, and from
1984 and until March 1994 served as Chief Executive Officer and Chairman of
the Board, of Go-Video, Inc., a developer and distributor of consumer
electronics products.
HARLAND C. STONECIPHER has served as a Director of the Company
since August 1995. Mr. Stonecipher has been Chairman of the Board and Chief
Executive Officer of Pre-Paid Legal Services, Inc. since its inception in
1972.
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<PAGE>
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 named
executive for services rendered during the years ended December 31, 1997,
1996 and 1995.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS OTHER(2) NUMBER OF SHARES
- --------------------------- ------ --------- ----------- -------- ----------------
<S> <C> <C> <C> <C> <C>
John W. Hail................... 1997 $ -- $ -- $56,539 100,000(3)
Chief Executive Officer 1996 -- -- 22,000 --
1995 -- -- 87,684 375,000(4)
</TABLE>
- ------------------------
(1) Dollar value of base salary earned during the year.
(2) The Company furnishes the use of an automobile to Mr. Hail, the
value of which is not greater than $5,000 annually. During 1996 and
1995, the Company made non-interest bearing advances to the John
Hail Agency, Inc., an affiliate of Mr. Hail, of $22,000 and $87,684,
respectively. See "Certain Transactions."
(3) During 1997 the Company granted 100,000 stock options to Mr. Hail
pursuant to the Company's Stock Option Plan, each exercisable for
the purchase of one share of Common Stock at an exercise price of
$6.00 per share. These options were surrendered by Mr. Hail during
1997 in exchange therefor 100,000 stock options having the same
terms other than an exercise price of $2.70 per share of Common
Stock.
(4) Adjusted to give effect to the one-for-eight reverse stock split on
October 29, 1996. Of the 375,000 stock options received, Mr. Hail
transferred by gift 225,000 stock options during 1995.
AGGREGATE OPTION GRANTS AND EXERCISES IN 1997 AND YEAR-END OPTION VALUES
STOCK OPTIONS AND OPTION VALUES. During 1997 the Company granted
100,000 stock options to Mr. Hail pursuant to the Company's Stock Option
Plan, each exercisable for the purchase of one share of Common Stock at an
exercise price of $6.00 per share. These options were surrendered by Mr. Hail
in exchange therefor 100,000 stock options having the same terms other than
an exercise price of $2.70 per share of Common Stock. The following table
sets forth information related to options granted to the named executive
officer during 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
PERCENT OF
TOTAL OPTIONS EXERCISE
NUMBER GRANTED TO OR BASE
OF OPTIONS EMPLOYEES PRICE PER
GRANTED IN 1995 SHARE
---------- ------------- ---------
<S> <C> <C> <C>
John W. Hail, Chief Executive Officer.............. 100,000(1) 57.5% $2.70
</TABLE>
- ------------------------
(1) Only includes those stock options that were granted and not surrendered
during 1997.
AGGREGATE STOCK OPTION EXERCISE AND YEAR-END AND OPTION VALUES.
The following table sets forth information related to the number and value of
options held by the named executive officer at December 31, 1997. During
1997, no options to purchase Common Stock were exercised by the named
executive officer.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AS OF OPTIONS AS OF
DECEMBER 31, DECEMBER 31, 1997(1)
----------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John W. Hail, Chief Executive Officer...... 250,000 -- $117,500 $ --
</TABLE>
- ------------------------
(1) The closing sale price of the Common Stock as reported on the Nasdaq
SmallCap Market on December 31, 1997 was $2.75. The per-share value is
calculated based on the applicable closing highest bid price per share,
minus the exercise price, multiplied by the number of shares of Common
Stock underlying the options.
-49-
<PAGE>
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 for issuance under the
Plan is 1,125,000. As of the date of this Prospectus, options to purchase a
total of 315,600 shares of Common Stock have been granted under the Plan at
exercise prices of $2.70 to $6.00 per share and expiring March 2002 through
May 2007, of which 141,750 options were surrendered and canceled during 1997.
As of the date of this Prospectus, there are outstanding stock options
granted under the Plan exercisable for the purchase of 173,850 shares of
Common Stock.
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
granted and the terms, restrictions and conditions of the options at the time
of grant. During the one-year period ending November 6, 1998, the Company has
undertaken not to grant (i) any additional options or warrants other than
pursuant to the Plan, (ii) stock options under the Plan to any officer,
director or employee of the Company and its subsidiaries that have an
aggregate exercise price in excess of the annual salary during the year of
such grant of such officer, director or employee and (iii) John W. Hail,
Curtis H. Wilson, Sr. and Roger P. Baresel any stock options under the Plan
without the unanimous approval of the independent directors of the Company
which at all such times shall not be less than two independent directors.
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 either (i)
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 (ii) if not quoted by the National Quotation Bureau,
Incorporated 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, 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
-50-
<PAGE>
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 fullest 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 interests 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 maintains insurance to protect its directors and
officers against liability asserted against them in their official
capacities. Such insurance protection covers claims and any related defense
costs of up to $3 million based on alleged or actual securities law
violations, other than intentional dishonest or fraudulent acts or omissions,
or any willful violation of any statute, rule or law, or claims arising out
of any improper profit, remuneration or advantage derived by an insured
director or officer.
-51-
<PAGE>
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 this 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.
John W. Hail, Chief Executive Officer and Chairman of the Board of
Directors of the Company, is the sole director and shareholder of the John
Hail Agency, Inc. ("JHA"). Pursuant to an unwritten agreement, the Company
provided office space, utilities and supplies, as well as an occasional
part-time administrative staff person, through June 30, 1996, to JHA for a
monthly payment of $1,000 as reimbursement of the Company's costs. In
addition, the Company made non-interest bearing advances to JHA of $22,000
and $87,684 during the years ended December 31, 1996 and 1995, respectively.
JHA has made repayments of these advances of $6,141 and $67,401 during the
fiscal years ended December 31, 1996 and 1995, respectively. During the nine
months ended September 30, 1997, JHA made repayments of $9,683. At September
30, 1997, JHA was indebted to the Company in the amount of $58,139. Effective
June 30, 1996, the Company adopted a policy to not make any further advances
to JHA, and JHA executed a promissory note payable to the Company in the
principal amount of $73,964 bearing interest at eight percent per annum and
payable in 60 installments of $1,499 per month.
At December 31, 1995, the balance due on a short-term loan to the
Company from Mr. Hail was $81,929. 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. The loan was
unsecured, due on demand and bore interest at 12 percent per annum. As of
December 31, 1996, the loan had been paid in full.
During 1995, John W. Hail individually entered into lease agreements
covering telephone equipment and related software and requiring monthly
rental payments. Such equipment and software are utilized exclusively by the
Company. During the nine months ended September 30, 1997 and the fiscal years
1996 and 1995, the Company made aggregate monthly payments pursuant to such
lease agreements of $14,570, $19,427 and $14,314, respectively.
During the nine months ended September 30, 1997, and the years ended
December 31, 1996 and 1995, the Company paid Curtis H. Wilson, Sr., a
Director of the Company, sales commissions of $24,383, $38,337 and $51,669,
respectively.
During 1997, pursuant to the Company's Stock Option Plan, the
Company granted Mr. Hail 10-year nontransferable stock options exercisable
for the purchase of 100,000 shares of Common Stock for $6.00 per share. All
of the stock options were granted at the fair value of the Common Stock on
the date of grant and are currently exercisable.
During 1995, the Company granted United Financial Advisors, Inc.
("UFAI") five-year warrants exercisable for the purchase of 125,000 shares of
Common Stock for $3.60 per share and 125,000 shares of Common Stock for $4.96
per share. All of the warrants were granted at or above the fair market vale
of the Common Stock on the date of grant. As a result of the grant of these
warrants, UFAI became a greater than five percent beneficial owner of the
Common Stock of the Company. These warrants were not granted pursuant to the
Company's Stock Option Plan. Effective May 30, 1997, pursuant to written
agreement between UFAI and the Company, the warrants exercisable for the
purchase of 125,000 shares of Common Stock for $4.96 were released without
exercise and canceled by the Company, at which time UFAI ceased to be a
greater than five percent beneficial owner of the Common Stock. The remaining
warrants held by UFAI are currently exercisable. In addition, UFAI received
cash compensation of $10,000 and $20,000 from the Company during 1995 and
1997, respectively, for consulting and financial advisory.
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 not less than two of the disinterested independent
directors of the Company and that such loans and other transactions with
affiliates will be on terms no less favorable than could be obtained from
unaffiliated parties and approved by a majority of not less than two of the
disinterested independent directors. As of the date of this Prospectus, the
Board of Directors is comprised of five members, of which R. Terren Dunlap
and Harland C. Stonecipher are the only independent directors.
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<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 March 1, 1998, 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. For purposes of the following table, the
number of shares and percent of ownership of outstanding Common Stock that the
named person beneficially owns includes shares of Common Stock that such person
has the right to acquire within 60 days of March 1, 1998, upon exercise of
options and warrants, but such shares are not included for the purposes of
computing the number of shares beneficially owned and percent of outstanding
Common Stock of any other named person.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
SHARES PERCENT OF
BENEFICIALLY SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OUTSTANDING
- ------------------------------------ ------------ -----------
<S> <C> <C>
John W. Hail(1)(2)....................... 520,141 11.55%
Curtis H. Wilson(1)(3)................... 280,945 6.24%
Roger P. Baresel(1)(4)................... 178,690 4.08%
Harland C. Stonecipher(5)................ 120,768 2.84%
R. Terren Dunlap(1)(6)................... 37,500 .87%
Executive Officers and Directors as a
group (five persons)(7)............... 1,138,044 23.11%
</TABLE>
- ------------------------
(1) A Director or an executive officer of the Company, with a business
address of 2601 Northwest Expressway, Suite 1210W, Oklahoma City,
Oklahoma 73112-7293.
(2) The number of shares and each percentage presented includes (i)
250,000 shares of Common Stock that are subject to currently exercisable
stock options and 1,000 shares of Common Stock that are subject to
currently exercisable Redeemable Common Stock Purchase Warrants held by
Mr. Hail, (ii) 16,500 shares of Common Stock and 1,000 shares of Common
Stock that are subject to currently exercisable Redeemable Common Stock
Purchase Warrants owned by corporations controlled by Mr. Hail, (iii)
1,000 shares of Common Stock and 1,000 shares of Common Stock that are
subject to currently exercisable Redeemable Common Stock Purchase
Warrants held by Helen Hail, wife of Mr. Hail, with respect to which Mr.
Hail disclaims any beneficial interest.
(3) The number of shares and each percentage presented includes 250,000
shares of Common Stock that are subject to currently exercisable stock
options held by Mr. Wilson and 12,338 shares of outstanding Common Stock
and 3,000 shares of Common Stock that are subject to currently
exercisable Redeemable Common Stock Purchase Warrants held by Ruth
Wilson, wife of Mr. Wilson, with respect to which Mr. Wilson disclaims
any beneficial interest.
(4) The number of shares consist of and each percentage presented
includes (i) 7,500 shares of outstanding Common Stock jointly held by
Mr. Baresel and his wife, Judith A. Baresel, (ii) 2,000 shares of
Common Stock subject to currently exercisable 1997-A Warrants and
1,000 shares of Common Stock that are subject to currently exercisable
Redeemable Common Stock Purchase Warrants held by Mr. Baresel, (iii)
22,500 shares of Common Stock that are subject to currently
exercisable stock options held by Mr. Baresel, (iv) 26,828 shares of
outstanding Common Stock held by Mrs. Baresel, (v) 87,500 shares of
Common Stock that are subject to currently exercisable stock options
and 6,000 shares of Common Stock that are subject to currently
exercisable Redeemable Common Stock Purchase Warrants held by Mrs.
Baresel, and (vii) 12,500 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,
with respect to which Mr. Baresel disclaims any beneficial interest.
(5) Mr. Stonecipher is a Director of the Company with a business
address of 321 East Main Street, Ada, Oklahoma 74820, and Chairman of
the Board and Chief Executive Officer of Pre-Paid Legal Services, Inc.
The number of shares consist of and each percentage presented is based
upon 120,768 shares of outstanding Common Stock held by Pre-Paid Legal
Services, Inc., which may be deemed to be beneficially owned by Mr.
Stonecipher.
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<PAGE>
(6) The number of shares consist of and each percentage presented is
based upon 37,500 shares of Common Stock that are issuable upon
exercise of stock options.
(7) The number of shares and each percentage presented includes 2,000
shares of Common Stock subject to currently exercisable 1997-A
Warrants, 13,000 shares of Common Stock that are subject to currently
exercisable Redeemable Common Stock Purchase Warrants and 660,000
shares of Common Stock that are issuable upon exercise of other
currently exercisable stock options held by the executive officers and
directors as a group.
DESCRIPTION OF SECURITIES
AUTHORIZED AND OUTSTANDING CAPITAL
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"). As of the date of this Prospectus, the
outstanding capital stock of the Company consisted of 4,249,383 shares of
Common Stock, assuming the no exercise of the Company's outstanding
Redeemable Common Stock Purchase Warrants, 1997-A Warrants, the Underwriters'
Warrants, stock options and other warrants. See "--Common Stock,"
"--Redeemable Common Stock Purchase Warrants," "--1997-A Warrants," and
"--Other Options and Warrants."
The following description of certain matters relating to the capital
stock and the warrants is a summary of, and is qualified in its entirety by,
the provisions of the Company's Certificate of Incorporation, Bylaws, and the
agreements between the Company and U.S. Stock Transfer Corp. (the "Warrant
Agent"), as amended, related to the outstanding Redeemable Common Stock
Purchase Warrants and the 1997-A Warrants, all of which are filed as exhibits
to or are incorporated by reference in the Registration Statement of which
this Prospectus is a part. See "Additional Information."
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 outstanding
Preferred Stock. 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. 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 outstanding Preferred
Stock entitled to vote with the holders of the Common Stock.
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
As of the date of this Prospectus, there are 1,495,000 Redeemable
Common Stock Purchase Warrants outstanding, each of which was issued with one
share of Common Stock as a unit in connection with the Unit Offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General--Units Offering." The terms and conditions of the
Redeemable Common Stock Purchase Warrants are set forth in the Unit and
Warrant Agreement between the Company and U.S. Stock Transfer Corp. dated
November 6, 1997 (the "Redeemable Warrant Agreement"). The following
description of the Redeemable Common Stock Purchase Warrants is not complete
and is qualified in all respects by the Redeemable Warrant Agreement which is
incorporated by reference as an exhibit to the Registration Statement of
which this Prospectus is a part. See "Additional Information."
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<PAGE>
The holder of each Redeemable Common Stock Purchase Warrant is
entitled, upon payment of the exercise price, to purchase one share of Common
Stock. The initial exercise price of the Redeemable Common Stock Purchase
Warrants was adjusted on the January 6, 1997, from $5.40 to $3.40. The number
and kind of securities or other property for which the Redeemable Common
Stock Purchase Warrants are exercisable are subject to adjustment in certain
events, such as mergers, reorganizations or stock splits, to prevent
dilution. Unless previously redeemed, the Redeemable Common Stock Purchase
Warrants are exercisable on or before November 6, 2002. A holder will only be
able to exercise the Redeemable Common Stock Purchase Warrants held in the
event (i) a current prospectus under the 1933 Act relating to the shares of
Common Stock issuable upon exercise of the Redeemable Common Stock Purchase
Warrants is then in effect and (ii) such Common Stock is qualified for sale
or exemption from qualification under the applicable securities laws of the
states in which the holder resides.
The Redeemable Common Stock Purchase Warrants are subject to
redemption at any time by the Company, on not less than 30 days' written
notice, at a price of $0.25 per warrant only after the closing sale price per
share of the Common Stock as reported on the Nasdaq SmallCap Market, for a
period of 20 consecutive trading days, has been at or above 200 percent of
the exercise price, as adjusted, of the Redeemable Common Stock Purchase
Warrants. All of the outstanding Redeemable Common Stock Purchase Warrants
must be redeemed if any are redeemed.
The Redeemable Common Stock Purchase Warrants may only be redeemable
if, on the date the Redeemable Common Stock Purchase Warrants are called for
redemption, there is an effective registration statement and current
prospectus covering the shares of Common Stock issuable upon exercise of the
Redeemable Common Stock Purchase Warrants. In certain cases, the sale of
securities by the Company upon exercise of the Redeemable Common Stock
Purchase Warrants could violate the securities laws of the United States,
certain states or other jurisdictions. The Company has agreed to maintain an
effective registration under the 1933 Act at its expense with respect to the
securities underlying the Redeemable Common Stock Purchase Warrants (and, if
necessary, to allow their public resale without restriction) at all times
during the period in which the Redeemable Common Stock Purchase Warrants are
exercisable. The Company has agreed to use its best efforts, and to take such
actions under the laws of various states, as may be required to cause the
sale of the securities underlying the Redeemable Common Stock Purchase
Warrants upon their exercise to be lawful. However, the Company will not be
required to honor the exercise of the Redeemable Common Stock Purchase
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 the Redeemable Common Stock Purchase 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 Redeemable Common Stock Purchase Warrants.
The Redeemable Common Stock Purchase Warrants contain provisions
that protect the holder thereof against dilution by adjustment of the number
of shares of Common Stock or other securities of the Company purchasable upon
exercise of the Redeemable Common Stock Purchase Warrants in certain events,
such as stock dividends, stock splits, mergers, sale of substantially all of
the Company's assets, and for other extraordinary events.
The holders of the Warrants do not possess any rights as
shareholders of the Company unless and until the holders exercise the
Redeemable Common Stock Purchase Warrants and then only as a holder of the
Common Stock.
1997-A WARRANTS
As of the date of this Prospectus, there are 337,211 1997-A Warrants
outstanding, all of which were issued in connection with the Warrant
Modification Offering and the Rights Offering. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." The terms and conditions of the 1997-A Warrants are set
forth in the Warrant Agreement between the Company and U.S. Stock Transfer
Corp. dated January 26, 1997, as amended and restated on January 8, 1998 (the
"1997-A Warrant Agreement"). The following description of the 1997-A Warrants
is not complete and is qualified in all respects by the Warrant Agreement
which is incorporated by reference as an exhibit to the Registration
Statement of which this Prospectus is a part. See "Additional Information."
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<PAGE>
Each 1997-A Warrant initially entitled the holder to purchase one
share of Common Stock. Pursuant to its rights under the 1997-A Warrant
Agreement, as of January 8, 1998, the Company amended and restated the 1997-A
Warrant Agreement, which (i) extended the exercise period of the 1997-A
Warrants to permit their exercise on or before November 6, 2002 and (ii)
reduced the exercise price of the 1997-A Warrants from $12.00 to $3.40 (the
same exercise price and expiration date of the Redeemable Common Stock
Purchase Warrants). See "--Redeemable Common Stock Purchase Warrants." The
number and kind of securities or other property for which the 1997-A Warrants
are exercisable are subject to adjustment 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 1997-A Warrants for $.0001 per warrant. The 1997-A Warrants not
exercised or redeemed will expire on November 6, 2002. Holders of 1997-A
Warrants do not, as such, have any of the rights of shareholders of the
Company unless and until the holders exercise the 1997-A Warrants and then
only as a holder of the Common Stock.
In certain cases, the sale of securities by the Company upon
exercise of 1997-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 1997-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 1997-A Warrants to be lawful. However, the Company will not be
required to honor the exercise of 1997-A Warrants if, in the opinion of
counsel, the sale of securities upon such exercise would be unlawful. The
Company may, but is not required to, purchase 1997-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
1997-A Warrants.
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.
There are no shares of Preferred Stock outstanding as of the date of this
Prospectus. 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
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 shares of Preferred Stock. Issuance of Preferred Stock 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 or preventing a change in control of the
Company.
OPTIONS AND OTHER WARRANTS
As of the date of this Prospectus, the Company has outstanding stock
options and other warrants to purchase 1,439,583 shares of Common Stock
during various periods, which expire December 1998 through May 2007, at
exercise prices of $1.60 to $6.00 per share (with a weighted average exercise
price of $2.28). The exercise prices of the stock options and warrants were
equal to or greater than the fair market value of the Common Stock on the
date of the grant of each stock option or warrant. Furthermore, in connection
with the Units Offering, the Company sold to Paulson Investment Company, Inc.
and Joseph Charles & Assoc., Inc., the representatives of underwriters of the
Units Offering, warrants exercisable after November 6, 1998, and on or before
November 6, 2002, for the purchase of 130,000 Units for $5.40 per Unit (the
"Underwriters' Warrants"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General--Units Offering" and
"--Results of Operations--Pro Forma Effect of Stock-Based Compensation" and
"Management--Stock Option Plan."
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
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<PAGE>
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.
STAGGERED 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 makes 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. The Company is 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 did own, within three years of the
proposed combination, 15 percent or more of the corporation's voting stock.
In general, Sections 1145 through 1155 of the OGCA provide that
issued and outstanding 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
issued and outstanding 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,
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<PAGE>
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 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 voting rights provisions of
the Sections 1145 through 1155 of the OGCA were declared unconstitutional and
unenforceable in 1987. In 1991, Sections 1145 through 1155 of the OGCA were
amended; however, the constitutionality and enforceability of the voting
rights provisions of such Sections of the OGCA, as amended, have not been
determined as of the date of this Prospectus.
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.
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 1997-A Warrants and the
Redeemable Common Stock Purchase Warrants, whose address is 1745 Gardena
Avenue, Suite 200, Glendale, California 91204-2991.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, the Company has 4,249,383 shares
of Common Stock issued and outstanding (assuming no exercise of the
outstanding Redeemable Common Stock Purchase Warrants, 1997-A Warrants, stock
options and other warrants). The Company has reserved 3,357,944 shares of
Common Stock for issuance upon exercise of the Redeemable Common Stock
Purchase Warrants, 1997-A Warrants, the Underwriters' Warrants, stock options
and other warrants, and 1,125,000 shares of Common Stock for issuance under
the Stock Option Plan. See "Security Ownership of Certain Beneficial Owners
and Management," "Description of Securities--Redeemable Common Stock Purchase
Warrants," "--1997-A Warrants," and "--Other Stock Options and Warrants," and
"Management--Stock Option Plan." Additionally, the Company will have
486,267,673 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. See "Risk Factors--Stock Price, Sales and
Earnings Volatility." 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 Company has undertaken not to
issue any options or other securities convertible into Common Stock, other
than options granted under the Company's Stock Option Plan, for a period of
one year ending November 6, 1998.
As of the date of this Prospectus, there are 242,695 shares of
Common Stock (the "Restricted Shares") outstanding which have not been
registered under the 1933 Act (of which 29,715 are held by the executive
officers, directors and affiliates of the Company), but may be sold without
registration pursuant to Rule 144 promulgated under the Securities Act of
1933, as amended (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 a Company affiliate, who has
beneficially owned Restricted Shares for at least one year 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
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<PAGE>
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 one-year holding period requirement, in order to sell shares of Common
Stock which are not Restricted Shares. As defined in Rule 144, an "affiliate"
(as that term is defined under the 1933 Act) 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 two 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.
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.
OPTIONS
As of the date of this Prospectus, options to purchase a total of
315,600 shares of Common Stock have been granted under the Stock Option Plan
of which 141,750 were voluntarily surrendered and canceled by the Company and
173,850 are still outstanding, and an additional 951,150 shares of Common
Stock are available for further grants under the Stock Option Plan. See
"Management--Stock Option Plan." There are options and warrants for the
purchase of 1,439,583 shares of Common Stock outstanding that were granted
outside the Stock Option Plan.
LOCK-UP AGREEMENTS
The Company's executive officers, directors, who hold in the
aggregate 463,044 shares of Common Stock and stock options and warrants
exercisable for the purchase of 675,000 shares of Common Stock, have agreed
with Paulson Investment Company, Inc. and Joseph Charles & Assoc., Inc. not
to sell, transfer, or otherwise dispose of any shares of Common Stock,
options, warrants or shares of Common Stock and all other securities issuable
upon exercise of such options or warrants for a period of two years ending on
November 6, 1999.
STATE IMPOSED ESCROW ARRANGEMENT
In connection with the registration of the Units Offering, the
executive officers and directors of the Company and Robert and Retha Nance
(formerly greater than five percent shareholders of the Company) deposited
466,790 shares of Common Stock and stock options exercisable for the purchase
of 726,983 shares of Common Stock in escrow with Liberty Bank and Trust
Company of Oklahoma City, N.A., pursuant to Promotional Shares Escrow
Agreements (the "Escrow Agreements"). Furthermore, the Company, Roger P.
Baresel and Judith A. Baresel entered into a Promotional Shares Lock-In
Agreement (the "Lock-In Agreement") covering 4,000 shares of Common Stock and
2,000 1997-A Warrants held by Mr. and Mrs. Baresel. The Administrator of the
Oklahoma Department of Securities determined the terms and conditions of the
Escrow Agreements and the Lock-In Agreement that were required as a condition
of the registration of the Units Offering in Oklahoma for the protection and
benefit of the initial purchasers of the Units sold pursuant to that
offering. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--General--Units Offering." The shares of Common
Stock, stock options and 1997-A Warrants, as well as any shares of Common
Stock received upon exercise of the stock options and warrants will remain
subject to the Escrow Agreements and Lock-In Agreement for a period of three
years following November 6, 1997; however, the 93,108 shares of Common Stock
deposited in escrow by Robert and Retha Nance may be released from escrow
upon the sale of such shares, such sales being limited during any three-month
period to one-half of one percent of the outstanding number of shares of
Common Stock on the date of such sale. Other than as mentioned, the shares of
Common Stock and stock options subject to the Escrow Agreements and the
Lock-In Agreement may not be sold, transferred, pledged, assigned,
hypothecated or otherwise disposed of, except under limited circumstances.
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<PAGE>
PLAN OF DISTRIBUTION
The Participation Interests being offered hereby are offered by the
officers and directors of the Company pursuant to the Plan, the terms of
which provide for the purchase of shares of Common Stock only in the open
market. The Company will pay all administrative costs and expenses associated
with the Plan. Any brokerage commissions and related service charges incurred
in connection with purchases of shares of Common Stock will be paid by the
Plan from the Participants' contributions to the Plan.
LEGAL MATTERS
Certain legal matters related to this offering will be passed upon
for the Company by its counsel, Dunn Swan & Cunningham, A Professional
Corporation, Oklahoma City, Oklahoma.
EXPERTS
The consolidated financial statements of Advantage Marketing
Systems, Inc. (formerly AMS, Inc.) as of December 31, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996, and the
combined financial statements of Stay 'N Shape International, Inc., Now
International, Inc., Solution Products, Inc. and Nation of Winners, Inc. as
of December 31, 1996 and for the years ended December 31, 1996 and 1995,
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.
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<PAGE>
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 (No. 333- )
(herein, together with all amendments thereto, the "Registration Statement"),
of which this Prospectus constitutes a part, under 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 or incorporated by reference
as an exhibit, reference is hereby made to the copy of the contract or other
document filed or incorporated by reference 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. In addition, registration statements and certain other
filings made with the Commission through its Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system are publicly available through the
Commission's site on the World Wide Web on the Internet, located at
http://www.sec.gov. The Registration Statement, including all exhibits
thereto and amendments thereof, has been filed with the Commission through
EDGAR. 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. 001-13343), 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
consolidated 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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADVANTAGE MARKETING SYSTEMS, INC. (FORMERLY AMS, INC.) AND
SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS:
Unaudited Pro Forma Consolidated Statement of Operations for the Year
Ended December 31, 1996................................................................................ F-2
Unaudited Pro Forma Consolidated Statement of Operations
for the Nine Months Ended September 30, 1997........................................................... F-3
Notes to Unaudited Pro Forma Consolidated Financial Statements............................................ F-4
ADVANTAGE MARKETING SYSTEMS, INC. (FORMERLY AMS, INC.) AND
SUBSIDIARIES UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 (Unaudited).................... F-6
Consolidated Statements of Operations for the Nine Months Ended
September 30, 1997 and 1996 (Unaudited)................................................................ F-7
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 (Unaudited)................................................................ F-8
Notes to Consolidated Financial Statements for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited).......................................................... F-9
ADVANTAGE MARKETING SYSTEMS, INC. (FORMERLY AMS, INC.) AND
SUBSIDIARY AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report ............................................................................. F-14
Consolidated Balance Sheets as of December 31, 1996 and 1995.............................................. F-15
Consolidated Statements of Operations for Years Ended December 31, 1996, 1995 and 1994.................... F-16
Consolidated Statements of Stockholders' Equity (Deficiency) for Years Ended
December 31, 1996, 1995 and 1994....................................................................... F-17
Consolidated Statements of Cash Flows for Years Ended December 31, 1996, 1995 and 1994.................... F-18
Notes to Consolidated Financial Statements for Years Ended December 31, 1996, 1995 and 1994............... F-20
STAY 'N SHAPE INTERNATIONAL, INC., NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND NATION OF WINNERS, INC.
UNAUDITED COMBINED FINANCIAL STATEMENTS:
Combined Balance Sheets as of March 31, 1997 and December 31, 1996 (Unaudited)............................ F-30
Combined Statements of Operations for the Three Months Ended
March 31, 1997 and 1996 (Unaudited).................................................................... F-31
Combined Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996 (Unaudited).................................................................... F-32
Notes to Combined Financial Statements for the Three Months
Ended March 31, 1997 and 1996 (Unaudited).............................................................. F-33
STAY 'N SHAPE INTERNATIONAL, INC., NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND NATION OF WINNERS, INC. AUDITED
COMBINED FINANCIAL STATEMENTS:
Independent Auditors' Report ............................................................................. F-34
Combined Balance Sheet as of December 31, 1996............................................................ F-35
Combined Statements of Operations for Years Ended December 31,
1996 and 1995........................................................................................... F-36
Combined Statements of Stockholders' Equity for Years Ended
December 31, 1996 and 1995.............................................................................. F-37
Combined Statements of Cash Flows for Years Ended December 31,
1996 and 1995........................................................................................... F-38
Notes to Combined Financial Statements for Years Ended
December 31, 1996 and 1995.............................................................................. F-39
</TABLE>
F-1
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
STAY 'N SHAPE
INT. INC., NOW
INT. INC., SOLUTION
ADVANTAGE PRODUCTS, INC.,
MARKETING NATION OF PRO FORMA PRO FORMA
SYSTEMS, INC. WINNERS, INC. ADJUSTMENTS COMBINED
---------- ------------ ----------- ---------
NOTE 2
<S> <C> <C> <C> <C>
Net sales........................................... $6,129,916 $2,377,022 $ -- $8,506,938
Cost of sales....................................... 4,531,578 1,497,811 -- 6,029,389
---------- ---------- ---------- ----------
Gross profit...................................... 1,598,338 879,211 -- 2,477,549
Marketing, distribution & administrative expenses... 1,296,080 937,470 124,519 (a) 2,358,069
---------- ---------- ---------- ----------
Income from operations............................ 302,258 (58,259) (124,519) 119,480
Other income (expense):
Interest, net....................................... (10,538) -- -- (10,538)
Other income........................................ 33,824 -- -- 33,824
---------- ---------- ---------- ----------
Total other income (expense)...................... 23,286 -- -- 23,286
---------- ---------- ---------- ----------
Income (loss) before taxes.......................... 325,544 (58,259) (124,519) 142,766
Tax benefit......................................... 499,613 -- 68,627 (b) 568,240
---------- ---------- ---------- ----------
Net income (loss)................................... $ 825,157 $ (58,259) $ (55,892) $ 711,006
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common
Shares outstanding............................... 3,770,874 126,000 3,896,874
---------- ---------- ----------
---------- ---------- ----------
Net income per common share........................ $ .29 $ .25
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
STAY 'N SHAPE
INT. INC., NOW
INT. INC., SOLUTION
ADVANTAGE PRODUCTS, INC.,
MARKETING NATION OF PRO FORMA PRO FORMA
SYSTEMS, INC. WINNERS, INC. ADJUSTMENTS COMBINED
---------- ------------ ----------- ---------
NOTE 2
<S> <C> <C> <C> <C>
Net sales........................................... $7,635,321 $583,461 $ -- $8,218,782
Cost of sales....................................... 5,472,819 313,249 -- 5,786,068
---------- -------- ---------- ----------
Gross profit................................ 2,162,502 270,212 -- 2,432,714
Marketing, distribution & administrative expenses... 1,957,755 230,413 31,130 (a) 2,219,298
---------- -------- ---------- ---------
Income from operations...................... 204,747 39,799 (31,130) 213,416
Other income (expense):
Interest, net....................................... 1,810 -- -- 1,810
Other income........................................ 7,303 -- -- 7,303
---------- -------- ---------- ---------
Total other income (expense)................ 9,113 -- -- 9,113
---------- -------- ---------- ---------
Net income before taxes............................. 213,860 39,799 (31,130) 222,529
Tax expense......................................... (81,377) -- (3,294)(b) (84,671)
---------- -------- ---------- ---------
Net income (loss)................................... $ 132,483 $ 39,799 $(34,424) $ 137,858
---------- -------- ---------- ---------
---------- -------- ---------- ---------
Weighted average common shares
outstanding..................................... 3,457,135 31,496 3,488,635
---------- ---------- ---------
---------- ---------- ---------
Net income per common share......................... $ .04 $ .04
---------- ---------
---------- ---------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS FOR PRESENTATION
The pro forma balance sheet and statements of operations present the pro
forma effects of the acquisition by the Company of all the assets of
Stay 'N Shape International, Inc., a Georgia corporation ("SNSI"), Solution
Products, Inc., a Georgia corporation ("SPI"), Nation of Winners, Inc., a
Georgia corporation ("NWI"), Now International, Inc., a Georgia
corporation ("NII"), (collectively SNSI, SPI, NWI and NII are referred to
as the "Selling Group"), free and clear of any lien, charge, claim,
pledge, security interest or other encumbrance of any type or kind
whatsoever, known or unknown (the "SNSI Asset Purchase"). The SNSI Asset
Purchase was closed on April 16, 1997. The SNSI Asset Purchase will be
accounted for under the purchase method of accounting. Each company in
the Selling Group is a network marketer of various third-party
manufactured nutritional supplements.
Pursuant to the Asset Purchase Agreement and in connection with the SNSI
Asset Purchase, the Company paid cash of $1,174,441 and issued 125,984
shares of the Company's common stock at closing and agreed to either
issue additional shares of the Company's common stock having an aggregate
fair value equal to, or make cash payments of, or at the Company's sole
option any combination thereof, $750,000 and $1,050,000 on or before June
29, 1998, and May 30, 1999, respectively. The $750,000 aggregate fair
value of the additional shares of the Company's common stock or cash
payment shall be reduced by the aggregate amount that gross revenues, net
of returns and allowances, during the 12-month period ended April 30,
1998, from (i) sales (other than Choc-Quilizer-TM-) of the purchased
network marketing organization, sales to Market America, Inc. (an
unrelated network marketing company) and sales to retail outlet stores,
are less than $2,500,000 and (ii) the Company's sales of
Choc-Quilizer-TM- are less than $4,000,000 during such 12- month period.
Furthermore, the $1,050,000 aggregate fair value of the additional shares
of the Company's common stock or cash payment shall be reduced by the
aggregate amount that gross revenues, net of returns and allowances,
during the 12-month period ended March 31, 1999, from (i) sales (other
than Choc- Quilizer-TM-) of the purchased network marketing organization,
sales to Market America, Inc. and sales to retail outlet stores, are less
than $5,000,000 and (ii) the Company's sales of Choc-Quilizer-TM- are
less than $8,000,000 during such 12-month period. The value of the
Company's common stock to be issued will be based upon the average of the
closing prices of the Company's common stock on the last three trading
days of the month preceding the month in which the applicable 12-month
period ends.
The accompanying unaudited pro forma statements of operations are
presented assuming the SNSI Asset Purchase occurred or was consummated on
the first day of each period presented. The historical information
presented for the Company and the Selling Group as of and for the year
ended December 31, 1996, is derived from the audited financial statements
of the Company and the Selling Group as of such date or for such year.
The historical information presented for the Company and the Selling
Group as of and for the periods ended September 30, 1997 and
pre-acquisition period ending March 31, 1997, is derived from the
unaudited financial statements of the Company and the Selling Group as of
such date or for such period.
The pro forma financial information presented in the unaudited pro forma
financial statements is not necessarily indicative of the results of
operations that would have been achieved had the operations been those of
a single corporate entity. The results of operations presented in the
unaudited pro forma statements of operations are not necessarily
indicative of the consolidated results of future operations of the
Company following consummation of the SNSI Asset Purchase.
F-4
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
2. PRO FORMA ADJUSTMENTS
The accompanying unaudited pro forma consolidated financial
statements have been adjusted to record and give effect to the
following:
(a) Amortization of goodwill over 20 years, $74,519 and
$18,630 for the year ended December 31, 1996, and for
the three months ended March 31, 1997 (the
"Pre-Acquisition Period"), respectively. Amortization of
the covenants not to compete over 10 years, $50,000 and
$12,500 for the year ended December 31, 1996, and for
the three months ended March 31, 1997, respectively.
(b) Income taxes are adjusted to reflect the above-mentioned
adjustments for amortization and for the effects of
removing the "S Corporation" election made by the
shareholders of the Selling Group.
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 SNSI Asset Purchase.
F-5
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------------- -------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................................. $ 357,052 $ 169,569
Receivables - net of allowance of $25,804 at each period end..................... 89,199 52,013
Receivable from affiliate........................................................ 13,846 13,042
Commission advances.............................................................. 100,541 44,821
Inventory........................................................................ 907,567 217,945
Deferred income taxes............................................................ 146,046 157,853
----------- ----------
Total current assets......................................................... 1,614,251 655,243
COMMISSION ADVANCES.............................................................. -- 4,341
RECEIVABLES...................................................................... 18,194 18,000
RECEIVABLE FROM AFFILIATE........................................................ 44,293 54,780
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $395,869 and $327,344, respectively.......................... 629,704 377,190
GOODWILL, Net.................................................................... 1,728,073 109,232
COVENANTS NOT TO COMPETE, Net.................................................... 535,901 52,222
DEFERRED INCOME TAXES............................................................ 274,385 341,760
DEFERRED OFFERING COSTS.......................................................... 281,995 175,848
OTHER ASSETS..................................................................... 181,284 1,725
---------- ----------
TOTAL ASSETS..................................................................... $5,308,080 $1,790,341
---------- ----------
---------- ----------
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
Accounts payable................................................................. $ 352,049 $ 268,433
Accrued commissions and bonuses.................................................. 357,097 178,597
Accrued other expenses........................................................... 243,115 69,286
Accrued promotion expense........................................................ -- 46,370
Notes payable.................................................................... 24,152 9,446
Capital lease obligations........................................................ 109,446 66,758
----------- -----------
Total current liabilities.................................................... 1,085,859 638,890
LONG-TERM LIABILITIES:
Notes payable.................................................................... 87,876 19,049
Capital lease obligations........................................................ 241,943 210,973
----------- -----------
TOTAL LIABILITIES................................................................ 1,415,678 868,912
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
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 2,680,081 and 2,143,441, respectively................... 268 214
Paid-in capital.................................................................. 4,819,816 1,981,380
Accumulated deficit.............................................................. (927,682) (1,060,165)
----------- ----------
Total stockholders' equity....................................................... 3,892,402 921,429
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................... $5,308,080 $1,790,341
----------- ----------
----------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales............................................................................. $ 7,635,321 $4,439,042
Cost of sales......................................................................... 5,472,819 3,003,642
----------- ----------
Gross profit...................................................................... 2,162,502 1,435,400
Marketing, distribution and administrative expenses................................... 1,957,755 1,147,894
----------- ----------
Income from operations............................................................ 204,747 287,506
Other income (expense):
Interest, net......................................................................... 1,810 (9,359)
Other income 7,303 9,507
----------- ----------
Total other income (expense)...................................................... 9,113 148
----------- ----------
INCOME BEFORE TAXES................................................................... 213,860 287,654
INCOME TAX (EXPENSE) BENEFIT.......................................................... (81,377) 443,149
----------- ----------
NET INCOME............................................................................ $ 132,483 $ 730,803
----------- ----------
----------- ----------
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON EQUIVALENT SHARES............................................ 3,457,135 3,176,000*
----------- ----------
----------- ----------
NET INCOME PER COMMON SHARE........................................................... $ 0.04 $ 0.23*
----------- ----------
----------- ----------
</TABLE>
* Restated for one-for-eight reverse stock split effective October 29, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
F-7
<PAGE>
(FORMERLY AMS, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1997 1996
----------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................................... $ 132,483 $ 730,803
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation and amortization............................................................ 170,078 53,955
Deferred income tax...................................................................... 79,182 (443,149)
Write off deferred offering costs........................................................ -- 15,000
Changes in assets and liabilities which provided (used) cash:
Inventory................................................................................ (560,996) (207,183)
Receivables, advances and prepaids....................................................... (58,489) (35,899)
Accounts payable and accrued commissions, bonuses and expenses........................... 20,465 196,848
----------- ---------
Net cash provided (used) by operating activities...................................... (217,277) 310,375
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................................................... (130,568) (62,531)
Purchase of Miracle Mountain International, Inc.................................................. -- (56,103)
Purchase of Chambre International, Inc........................................................... (51,340) --
Purchase of assets pursuant to SNSI Asset Purchase............................................... (1,274,441) --
Purchase of other assets......................................................................... (106,803) --
Advances to affiliate............................................................................ -- (22,000)
Repayment of advances to affiliate............................................................... 9,683 3,040
----------- ---------
Net cash (used) by investing activities............................................... (1,553,469) (137,594)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock........................................................... 2,234,357 --
Proceeds from notes payable...................................................................... 40,980 --
Payment of deferred offering costs............................................................... (240,703) (89,489)
Payment on notes payable......................................................................... (9,194) (3,659)
Principal payment on capital leases.............................................................. (67,211) (9,484)
Payment on notes payable - stockholder........................................................... -- (64,271)
----------- ---------
Net cash provided (used) by financing activities......................................... 1,958,229 (166,903)
----------- ---------
NET INCREASE IN CASH.............................................................................. 187,483 5,878
BEGINNING CASH BALANCE............................................................................ 169,569 112,087
----------- ---------
ENDING CASH BALANCE............................................................................... $ 357,052 $ 117,965
----------- ---------
----------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest............................................................ $ 21,104 $ 18,414
Cash paid during the year for income taxes........................................................ 2,195 --
Noncash financing and investing activities:
Property and equipment acquired by capital lease.............................................. 140,869 --
Fair value of capital stock issued to purchase Miracle Mountain International, Inc............ -- 120,000
SNSI Asset Purchase:
Fair value of assets acquired.......................................................... (84,063) --
Fair value of covenant not to compete.................................................. (500,000) --
Purchase price in excess of tangible assets acquired and covenant not to compete....... (1,490,378) --
Fair value of common stock issued...................................................... 800,000 --
----------- ---------
Cash paid to purchase SNSI assets...................................................... (1,274,441) --
----------- ---------
----------- ---------
Acquisition of Chambre International, Inc.:
Fair value of assets acquired.......................................................... (84,802) --
Fair value of covenant not to compete.................................................. (20,000) --
Purchase price in excess of tangible assets acquired and covenant not to compete....... (179,325) --
Fair value of common stock issued...................................................... 84,000 --
Liabilities assumed.................................................................... 148,787 --
----------- ---------
Cash paid to purchase Chambre International, Inc....................................... $ (51,340) $ --
----------- ---------
----------- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-8
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(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 consolidated
financial statements of the Company, and notes thereto, for the
year ended December 31, 1996.
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 year ending December 31, 1997. Certain reclassifications
have been made to prior period balances to conform with the
presentation for the current period.
2. ACQUISITIONS
Pursuant to a Stock Purchase Agreement having an effective date
of January 31, 1997 (the "Purchase Agreement"), the Company
acquired all of the issued and outstanding capital stock of
Chambre International, Inc., a Texas corporation ("CII"), and CII
became a wholly-owned subsidiary of the Company (the "CII
Acquisition"). The CII Acquisition was closed on January 31,
1997, and was accounted for under the purchase method of
accounting. CII is a network marketer of various third-party
manufactured cosmetics, skin care and hair care products. In
connection with the CII Acquisition, the Company issued 6,482
shares of its common stock to the shareholders of CII at closing
and issued an additional 7,518 shares of its common stock to the
shareholders of CII on March 31, 1997, after determination of
certain liabilities.
In connection with the CII Acquisition, the excess of the
purchase price of $135,340, which includes $3,549 of transaction
costs, over the negative $63,985 fair market value of assets of
CII acquired, net of liabilities assumed, has been allocated
$179,325 to goodwill and $20,000 to a covenant not to compete.
Goodwill and the covenant not to compete will be amortized over
20 year and 47 month periods, respectively.
Pursuant to an Asset Purchase Agreement having an effective date
of April 16, 1997 (the "Purchase Agreement"), the Company
acquired all of the assets of Stay 'N Shape International, Inc.
("SNSI"), Solution Products International, Inc. ("SPII"), Nation
of Winners, Inc. ("NWI"), Now International, Inc. ("NII"), all
Georgia corporations, (collectively SNSI, SPII, NWI and NII are
referred to as the "Selling Group"), free and clear of any lien,
charge, claim, pledge, security interest or other encumbrance of
any type or kind whatsoever, known or unknown (the "SNSI Asset
Purchase"). The SNSI Asset Purchase was closed on April 16, 1997,
and was accounted for under the purchase method of accounting.
Each company in the Selling Group is a network marketer of
various third-party manufactured nutritional supplements and was
under common ownership.
In connection with the SNSI Asset Purchase, the Company paid cash
of $1,174,441 and issued 125,984 shares of the Company's common
stock at closing and agreed to either issue additional shares of
the Company's common stock having an aggregate fair value equal
to, or make cash payments of, or at the
F-9
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
Company's sole option any combination thereof, $750,000 and
$1,050,000 on or before June 29, 1998, and May 30, 1999,
respectively. The $750,000 aggregate fair value of the additional
shares of the Company's common stock or cash payment shall be
reduced by the aggregate amount that gross revenues, net of returns
and allowances, during the 12-month period ended April 30, 1998,
from (i) sales (other than Choc- Quilizer-TM-) of the purchased
network marketing organization, sales to Market America, Inc. (an
unrelated network marketing company) and sales to retail outlet
stores, are less than $2,500,000 and (ii) the Company's sales of
Choc-Quilizer-TM- are less than $4,000,000 during such 12-month
period. Furthermore, the $1,050,000 aggregate fair value of the
additional shares of the Company's common stock or cash payment
shall be reduced by the aggregate amount that gross revenues, net of
returns and allowances, during the 12-month period ended March 31,
1999, from (i) sales (other than Choc-Quilizer-TM-) of the purchased
network marketing organization, sales to Market America, Inc. and
sales to retail outlet stores, are less than $5,000,000 and (ii) the
Company's sales of Choc-Quilizer-TM- are less than $8,000,000 during
such 12-month period. The fair value of the Company's common stock
to be issued will be based upon the average of the closing prices of
the Company's common stock on the last three trading days of the
month preceding the month in which the applicable 12-month period
ends.
In connection with the SNSI Asset Purchase, the excess of the
purchase price of $2,074,441, which includes $100,000 of transaction
costs, over the $84,063 fair value of the assets acquired, has been
allocated $1,490,378 to goodwill and $500,000 to two covenants not
to compete. Goodwill and the covenants not to compete will be
amortized over 20 and 10 year periods, respectively.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the company and the Selling
Group as if the acquisition had occurred at the beginning of 1996
and 1997, with pro forma adjustments to give effect to amortization
of goodwill together with the related income tax effect.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- -------------------
<S> <C> <C>
Net sales.................... $8,506,938 $8,218,782
Net earnings................. 711,006 144,446
Net earnings per share....... 0.25 0.04
</TABLE>
3. STOCK OPTIONS
The Company established the Advantage Marketing Systems, Inc. 1995
Stock Option Plan (the "Plan") in June 1995. The Plan provides for
the issuance of incentive and nonincentive stock options with or
without stock appreciation rights to employees and consultants of
the Company, including employees who also serve as directors of the
Company. The total number of shares of the Company's common stock
authorized and reserved for issuance under the Plan is 1,125,000.
During the nine months ended September 30, 1997, the Company issued
146,750 options under the Plan. As of September 30, 1997, 146,750
options had been granted under the Plan.
The following table summarizes the Company's stock option activity
for the nine months ended September 30, 1997 (as restated for the
one-for-eight reverse split in October 1996):
<TABLE>
<CAPTION>
1997 EXERCISE PRICE
--------- --------------
<S> <C> <C>
Options outstanding beginning of the year.................. 1,528,927 $1.60 - 6.48
</TABLE>
F-10
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Options granted during the year............... 146,750 6.00
Options exercised during the year............. 37,500 1.60
2,500 2.00
6,945 2.16
---------
46,945
Options canceled during year............... 125,000 4.96
---------
Options outstanding end of year............ 1,503,732 $1.60 - 6.48
---------
</TABLE>
4. ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
128-Earnings Per Share, which is effective for the Company's year
ending December 31, 1997. The statement establishes standards for
computing and presenting earnings per share. Adoption of SFAS No.
128 will result in changes to the calculation of earnings per share.
Also in February 1997, the FASB issued SFAS No. 129-Disclosure of
Information about Capital Structure, which is effective for the
Company's year ending December 31, 1997. The statement establishes
standards for disclosing information about a reporting company's
capital structure. Adoption of SFAS No. 129 relates to disclosure
within the financial statements and will not have a material effect
on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 130-Reporting Comprehensive
Income which is effective for the Company's year ending December 31,
1998. The statement addresses the reporting and displaying of
comprehensive income and its components. Earnings per share will
only be reported for net income and not for comprehensive income.
The Company has not had adequate time to determine the differences
between comprehensive income and net income.
Also in June 1997, the FASB issued SFAS No. 131-Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131
modifies current segment reporting requirements and establishes, for
public companies, criteria for reporting disclosures about a
company's products and services, geographic areas and major
customers in annual and interim financial statements. The Company
will adopt SFAS No. 131 for the year ending December 31, 1998.
5. WARRANT MODIFICATION OFFERING AND RIGHTS OFFERING
On January 31, 1997, the Company distributed, at no cost,
non-transferable rights ("Rights") to the holders of record of
shares of its common stock, par value $.0001 per share. The Rights
entitled the holders (the "Rights Holders") to subscribe for and
purchase up to 2,148,191 units (each unit consisting of one share of
common stock and one 1997-A warrant) for the price of $6.80 per unit
(the "Rights Offering"). The record date holders of the Company's
common stock received one Right for each share of common stock held
by them as of the record date. The Rights expired on March 17, 1997.
Pursuant to the Rights, Rights Holders could purchase one unit for
each Right held.
Concurrent with the Rights Offering, the Company elected to redeem
all of its outstanding Class A and Class B common stock purchase
warrants (the "Public Warrants") for $.0008 per warrant (the
"Warrant Redemption") on March 17, 1997. However, in connection with
the Warrant Redemption, the Company, pursuant to modification of the
terms of the Public Warrants, offered to the Public Warrant holders
(the "Warrant Holders") the right to exercise the Public Warrants to
purchase units, each comprised of one share
F-11
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
of common stock and one 1997-A warrant, at an exercise price of
$6.00 per unit (the "Warrant Modification Offering").
The share of common stock and 1997-A warrant comprising each unit
were separately transferable immediately after the sale of the units
to the Rights Holders and Warrant Holders. As of January 8, 1998,
the Company reduced the exercise price from $12.00 to $3.40 and
extended the exercise period from January 31, 1999 to November 6,
2002, of the outstanding 337,211 1997-A warrants, each exercisable
for the purchase of one share of common stock. Each 1997-A warrant
may be redeemed by the Company at any time upon 30 days' notice, at
a price of $.0001 per 1997-A warrant.
The units in the offerings described above were offered on a best
efforts basis by the Company and its officers and directors, without
commissions, selling fees or direct or indirect remuneration. The
Rights Holders and Warrant Holders were not required to pay any
brokerage commissions or fees with respect to the exercise of their
Rights or Public Warrants. The Company paid all charges and expenses
of the subscription and warrant agents.
Proceeds to the Company from the Warrant Modification Offering and
the Rights Offering (the "Offerings") were $2,154,357. Accumulated
offering costs of $323,076 were charged against the net proceeds
from these offerings. Pursuant to the Offerings the Company issued
337,211 shares of common stock and a corresponding number of 1997-A
warrants.
6. SUBSEQUENT EVENTS
In September 1995, the Oklahoma Department of Securities commenced
an investigation of the Company with respect to a number of issues,
the most prominent of which relates to the AMS Distributor Stock
Pool (the "Pool"). The Pool, under which the Company's independent
distributors were permitted to participate on a voluntary basis, was
formed in 1990. Participants made contributions to the Pool and,
from such contributions, the administrator of the Pool purchased on
a monthly basis the Company's common stock in the over-the-counter
market for the participants. All purchase transactions were executed
and effected through a registered broker-dealer. All records of
ownership of the Common Stock held by the Pool were maintained at
the offices of the Company. The Pool only purchased shares of common
stock and did not sell shares on behalf of the participants. As of
October 31, 1997, the Pool held approximately 224,082 shares of
common stock for and on behalf of the participants. Each Participant
has sole voting rights with respect to those shares of common stock
held for such participant's benefit. 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. The Oklahoma
Department of Securities took the position that the offer and sale
of participation rights in the Pool violated the registration
provisions of the Oklahoma Securities Act. During October 1997, the
Company ceased accepting additional contributions to the Pool and
effecting purchase transactions in the common stock. On November 4,
1997, the Company, John W. Hail, Curtis H. Wilson, Sr. and Roger P.
Baresel, directors and executive officers of the Company, entered
into an agreement with the Administrator of the Oklahoma Department
of Securities in settlement of the investigation without any action
having been taken against the Company and its officers and
directors. Pursuant to such agreement, John W. Hail reimbursed the
Department its costs of the investigation without entitlement to
reimbursement by the Company or any of its other officers and
directors. Under the terms of such agreement, the Company and
Messrs. Hail, Wilson and Baresel agreed to notify the Department
of any proposed offer or sale of additional securities by the
Company or each of Messrs. Hail, Wilson and Baresel pursuant to
any registration exemption under the Oklahoma Securities Act, for a
period of three years from November 6, 1997.
F-12
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
On November 6, 1997, pursuant to a firm underwriting, the Company
sold 1,495,000 units each consisting of one share of common stock
and one redeemable common stock purchase warrant (the "Units") at a
public offering price of $4.50 each (the "Units Offering"). Pursuant
to the Units Offering, the Company received net proceeds of
approximately $6,050,000. Accumulated offering costs of
approximately $720,000 were charged against the proceeds of the
Units Offering. On December 8, 1997, the common stock and redeemable
common stock purchase warrants comprising the Units separated and
began trading only as separate securities. Each redeemable common
stock purchase warrant is exercisable for the purchase of one share
of common stock for $3.40 on or before November 6, 2002, unless
earlier redeemed. Each redeemable common stock purchase warrant may
be redeemed by the Company for $0.25, on not less than 30 days'
written notice, at any time that the closing sale price per share of
common stock closes at or above $6.80.
In connection with the Units Offering, the Company sold and issued
warrants to the representatives of the underwriters (the
"Representatives' Warrants"). The Representatives' Warrants are
exercisable for the purchase of up to 130,000 Units at an exercise
price of $5.40 per Unit for a four-year period beginning November 6,
1998.
* * * * * *
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Advantage Marketing Systems, Inc.
(formerly AMS, Inc.) and Subsidiary
Oklahoma City, Oklahoma
We have audited the accompanying consolidated balance sheets of Advantage
Marketing Systems, Inc. (formerly AMS, Inc.) and subsidiary (the "Company") as
of December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity (deficiency), and cash flows for each of the
three years in the period ended December 31, 1996. These consolidated 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.) and subsidiary at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
April 4, 1997
F-14
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash..................................................................... $ 169,569 $ 112,087
Receivables - net of allowances of $25,804 and $21,485, respectively..... 52,013 18,299
Receivable from affiliatE................................................ 13,042 51,963
Commission advances...................................................... 44,821 2,371
Inventory................................................................ 217,945 98,621
Deferred income taxes.................................................... 157,853 --
----------- ------------
Total current assets......................................... 655,243 283,341
COMMISSION ADVANCES........................................................ 4,341 65
RECEIVABLES................................................................ 18,000 22,620
RECEIVABLE FROM AFFILIATE ................................................. 54,780 --
PROPERTY AND EQUIPMENT, NET................................................ 377,190 159,797
GOODWILL, NET.............................................................. 109,232 --
COVENANT NOT TO COMPETE, Net............................................... 52,222 --
DEFERRED INCOME TAXES...................................................... 341,760 --
OTHER ASSETS............................................................... 177,573 67,173
----------- ------------
TOTAL...................................................................... $ 1,790,341 $ 532,996
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable....................................................... $ 268,433 $ 91,949
Accrued expenses....................................................... 247,883 151,654
Accrued promotion expense.............................................. 46,370 99,424
Notes payable:
Stockholders........................................................ -- 81,929
Other............................................................... 9,446 8,440
Capital lease obligations............................................... 66,758 20,679
----------- ------------
Total current liabilities.................................... 638,890 454,075
LONG-TERM LIABILITIES:
Notes payable - other................................................... 19,049 28,500
Capital lease obligations............................................... 210,973 75,649
----------- ------------
Total liabilities........................................ 868,912 558,224
----------- ------------
COMMITMENTS AND CONTINGENCIES (Note 12)
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;
issued and outstanding 2,143,441 and 2,123,191 shares,
respectively (See Note 6)............................................ 214 212
Paid-in capital......................................................... 1,981,380 1,859,882
Accumulated deficit..................................................... (1,060,165) (1,885,322)
----------- ------------
Total stockholders' equity (deficiency).................. 921,429 (25,228)
----------- ------------
TOTAL...................................................................... $ 1,790,341 $ 532,996
----------- ------------
----------- ------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-15
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net sales......................................................... $6,129,916 $4,492,668 $2,647,322
Cost of sales..................................................... 4,531,578 3,150,741 1,930,973
---------- ---------- ----------
Gross profit.................................................. 1,598,338 1,341,927 716,349
Marketing, distribution and administrative expenses............... 1,296,080 1,094,756 641,893
---------- ---------- ----------
Income from operations........................................ 302,258 247,171 74,456
Other income (expense):
Interest, net..................................................... (10,538) (22,998) (25,075)
Other income...................................................... 33,824 25,535 30,625
---------- ---------- ----------
Total other income (expense).................................. 23,286 2,537 5,550
---------- ---------- ----------
INCOME BEFORE TAXES............................................... 325,544 249,708 80,006
TAX BENEFIT....................................................... 499,613 -- --
---------- ---------- ----------
NET INCOME........................................................ $ 825,157 $ 249,708 $ 80,006
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding........................ 3,770,874 2,662,681 2,119,356
---------- ---------- ----------
---------- ---------- ----------
Net income per common share....................................... $ .29 $ .09 $ .04
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-16
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS
SHARES COMMON PAID-IN ACCUMULATED EQUITY
(SEE NOTE 6) STOCK CAPITAL DEFICIT (DEFICIENCY)
------------ ----------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1994....................... 2,105,599 $211 $1,823,236 $(2,215,036) $(391,589)
Conversion of payables
into stock............................ 1,342 -- 2,147 -- 2,147
Issuance of stock for
services received..................... 13,750 1 21,999 -- 22,000
Net income................................ -- -- -- 80,006 80,006
---------- ------ ---------- ----------- ---------
BALANCE,
DECEMBER 31, 1994..................... 2,120,691 212 1,847,382 (2,135,030) (287,436)
Warrants exercised........................ 1,250 -- 7,500 -- 7,500
Issuance of stock for cash................ 1,250 -- 5,000 -- 5,000
Net income................................ -- -- -- 249,708 249,708
---------- ------ ---------- ----------- ---------
BALANCE,
DECEMBER 31, 1995..................... 2,123,191 212 1,859,882 (1,885,322) (25,228)
Issuance of stock for Miracle
Mountain International, Inc.
acquisition............................ 20,000 2 119,998 -- 120,000
Warrants exercised........................ 250 -- 1,500 -- 1,500
Net income................................ -- -- -- 825,157 825,157
---------- ------ ---------- ----------- ---------
BALANCE,
DECEMBER 31, 1996..................... 2,143,441 $214 $1,981,380 $(1,060,165) $921,429
---------- ------ ---------- ----------- ---------
---------- ------ ---------- ----------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-17
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................................... $825,157 $249,708 $ 80,006
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................................................. 65,993 43,310 33,403
Deferred taxes................................................................ (499,613) -- --
Provision for bad debts....................................................... 4,319 2,000 884
Write-off of deferred offering costs.......................................... 15,000 -- --
Gain on sale of property and equipment........................................ (1,572) -- --
Stock issued for services..................................................... -- -- 22,000
Stock issued for refunds...................................................... -- -- 2,147
Changes in assets and liabilities which provided (used) cash:
Receivables and advances................................................... (80,139) 7,280 31,819
Inventory.................................................................. (119,324) (50,750) (28,854)
Accounts payable and accrued expenses...................................... 216,600 150,149 20,871
Notes payable to associates................................................ -- -- (10,728)
Interest payable........................................................... -- -- 20,860
Deferred revenue........................................................... -- (40,852) (63,156)
---------- ---------- ----------
Net cash provided by operating activities............................. 426,421 360,845 109,252
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................................ (66,675) (50,105) (6,689)
Advances to affiliate.............................................................. (22,000) (87,684) (66,026)
Proceeds from sale of property and equipment....................................... 1,700 -- --
Repayment of advances to affiliate................................................. 6,141 67,401 9,069
Purchase of Miracle Mountain International, Inc.................................... (56,103) -- --
---------- ---------- ----------
Net cash used for investing activities .............................. (136,937) (70,388) (63,646)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............................................. 1,500 12,500 --
Loans from stockholders............................................................ -- 31,963 61,374
Other loans........................................................................ -- 39,098 3,685
Bank overdraft..................................................................... -- (46,663) 13,074
Payment of deferred offering costs................................................. (125,400) (52,777) --
Payment on notes payable - stockholders............................................ (81,929) (142,615) (79,138)
Payment on notes payable - other................................................... (8,445) (7,985) (4,666)
Principal payment on capital leases................................................ (17,728) (11,891) (39,935)
---------- ---------- ----------
Net cash used in financing activities................................ (232,002) (178,370) (45,606)
---------- ---------- ----------
NET INCREASE IN CASH.................................................................. 57,482 112,087 --
BEGINNING CASH BALANCE................................................................ 112,087 -- --
---------- ---------- ----------
ENDING CASH BALANCE................................................................... $169,569 $112,087 $ --
---------- ---------- ----------
---------- ---------- ----------
(CONTINUED)
</TABLE>
F-18
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest........................................................ $ 23,021 $ 27,335 $ 4,215
Noncash financing and investing activities:
Additions to property and equipment
through capital leases.............................................. 199,131 108,219 --
Reclassify interest payable to
notes payable - stockholders........................................ -- 51,806 --
Fair value of capital stock issued to purchase
Miracle Mountain International, Inc................................. 120,000 -- --
Issuance of common stock in satisfaction of
notes and accounts payable.......................................... -- -- 89,892
(CONCLUDED)
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-19
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Advantage Marketing Systems, Inc. (formerly
AMS, Inc.), and its wholly owned subsidiary, Miracle Mountain
International, Inc. (the "Company"). All significant intercompany
accounts have been eliminated.
NATURE OF BUSINESS - The Company markets nutritional supplements and
weight management products that are manufactured by various
manufacturers. The Company sells its products and programs through a
network of full and part-time independent distributors 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.
INTANGIBLES - Intangible assets consist of goodwill and a covenant
not to compete. Goodwill represents the excess of cost over the fair
value of the net assets of acquired subsidiaries. The Company
amortizes goodwill over seven years. The covenant not to compete is
being amortized over the life of the contract. The goodwill
amortization for the year ended December 31, 1996, was $9,930.
Covenant amortization for the year ended December 31, 1996 was
$7,778.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost
or, in the case of leased assets under capital leases, at the fair
value of the leased property and equipment, less accumulated
depreciation and amortization. Property and equipment are
depreciated using the straight-line method over the estimated useful
lives of the assets of three to five years. Assets under capital
leases and leasehold improvements are amortized over the lesser of
the term of the lease or the life of the asset.
LONG-LIVED ASSETS - In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS"), No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
Effective for fiscal years beginning after December 15, 1995, SFAS
121 establishes accounting standards for identifying and calculating
the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to such assets. The Company adopted
SFAS 121 in 1996 which did not have a material effect on the
Company's consolidated financial statements. Management of the
Company assesses recoverability of its long-lived assets based on
undiscounted cash flows.
F-20
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
EARNINGS PER SHARE - Earnings per common share are computed by
dividing net income by the weighted average number of shares
outstanding during the period after giving effect to the reverse
stock split discussed in Note 6. Outstanding stock options and
warrants are included in the calculation of primary earnings per
share when they meet the criteria for common stock equivalents and
their effect is dilutive. The Company determined 1996 earnings per
share using the modified treasury stock method which assumes changes
to interest income and expense as part of the calculation. The
effects of common stock equivalents on the weighted average number
of shares outstanding was an increase of 1,636,000 shares and of
assumed interest changes was an increase in net income of
approximately $254,000. The effect of common stock equivalents on
the weighted average number of shares outstanding at December 31,
1995 and 1994 was an increase in shares of 538,000 and -0-,
respectively. Warrants have not been included in the earnings per
share calculation at December 31, 1995 and 1994 as they do not meet
the criteria for common stock equivalents. No difference exists
between primary and fully diluted earnings per share. In February
1997, the FASB issued SFAS No. 128, EARNINGS PER SHARE. The Company
believes that adopting SFAS No. 128 will not have a material effect
on the Company's consolidated financial position or results of
operations, but will result in changes in the calculation of
earnings per share.
INCOME TAXES - The Company uses an asset and liability approach to
account 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
established if, in management's opinion, it is more likely than not
that some portion of the deferred tax asset will not be realized.
FAIR VALUE DISCLOSURES - The Company's financial instruments consist
of accounts receivable, accounts payable, advances due from an
affiliate and current and long-term notes payable. Amounts recorded
for accounts receivable, accounts payable and current notes payable
approximate fair value due to the short duration of such amounts.
The interest rates on advances due from the affiliate and on notes
payable reflect current market rates. Consequently, the carrying
value of these instruments approximate fair value.
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED - In February 1997,
the FASB issued SFAS No. 129, DISCLOSURE OF INFORMATION ABOUT
CAPITAL STRUCTURE. The Company will adopt SFAS No. 129 when
required. Management believes that adoption of this standard will
not have a material impact on the Company's consolidated financial
position or results of operations.
STOCK OPTION PLAN - The Company adopted SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION on January 1, 1996, as required. The
Company has elected to continue applying Accounting Principles Board
Opinion No. 25 in accounting for its stock-based compensation awards
as permitted under SFAS No. 123 and to disclose the proforma effects
of applying SFAS 123 in the footnotes. Accordingly, no compensation
cost relating to the stock option plan has been recognized in the
accompanying consolidated financial statements.
RECLASSIFICATIONS - Certain reclassifications have been made to
prior year balances to conform with the presentation for the current
period.
2. OTHER ASSETS
Other assets consist primarily of the direct costs, mainly legal,
accounting and filing fees, associated with a registration statement
filed by the Company with the Securities and Exchange Commission.
The registration statement was declared effective January 16, 1997.
See discussion of this registration statement at Note 12.
F-21
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Office furniture, fixtures and equipment.................... $633,086 $378,287
Automobiles................................................. 44,872 54,056
Leasehold improvements...................................... 26,576 22,220
-------- --------
704,534 454,563
Accumulated depreciation and amortization................... (327,344) (294,766)
-------- --------
Total property and equipment, net........................... $377,190 $159,797
-------- --------
-------- --------
</TABLE>
4. NOTES PAYABLE TO STOCKHOLDERS
The Company had a note payable to its major stockholder and chief
executive officer in the amount of $81,929 at December 31, 1995.
During 1995, the Company combined interest payable on the note of
approximately $52,000 with the outstanding principal balance. The
principal was due on demand and bore interest at 12%. During 1996,
1995 and 1994, the Company received advances of $-0-, $31,963 and
$61,374, respectively, and made payments of $81,929, $127,615 and
$79,138, respectively, on this payable. As of December 31, 1996,
the note payable had been paid in full.
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.
5. LEASE AGREEMENTS
During 1995 and 1996, 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 $40,000 per year. The schedule of future
minimum lease payments below reflects all payments under the leases.
The property and equipment accounts include $306,595 and $106,269
for leases that have been capitalized at December 31, 1996 and 1995,
respectively. Related accumulated amortization amounted to $28,864
and $9,941 at December 31, 1996 and 1995, respectively.
The Company leases office space and certain equipment under
noncancellable operating leases.
F-22
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Future minimum lease payments under capital leases and noncancelable
operating leases with initial or remaining terms of one year or more
at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
---------- ---------- ---------
Year Ending:
<S> <C> <C> <C>
1997................................ $ 87,804 $69,535 $157,339
1998................................ 87,804 24,235 112,039
1999................................ 67,451 -- 67,451
2000................................ 42,954 -- 42,954
2001................................ 40,272 -- 40,272
---------- ---------- ---------
Total minimum lease payments 326,285 $93,770 $420,055
---------- ---------
---------- ---------
Less amount representing interest 48,554
----------
Present value of net minimum lease
payments 277,731
Less current portion 66,758
----------
Long-term capital lease obligations $210,973
----------
----------
</TABLE>
Rental expense under operating leases for the years ended December
31, 1996, 1995 and 1994 was $63,425, $55,476 and $57,458,
respectively.
6. STOCKHOLDERS' EQUITY
COMMON STOCK - On October 29, 1996, the Board of Directors of the
Company effected a one-for-eight reverse split of the Company's
outstanding common stock, options and warrants. In addition, the
number of the Company's outstanding options and warrants have been
reduced by a factor of eight and their exercise price has been
increased by a factor of eight pursuant to this action.
This one-for-eight reverse split is reflected in the accompanying
consolidated financial statements and footnotes on a retroactive
basis. The Company's previously reported number of shares of common
stock issued and outstanding at December 31, 1995 and 1994 of
16,985,524 and 16,965,524, has been adjusted to 2,123,191 and
2,120,691, respectively. Previously reported weighted average number
of outstanding shares of common stock for the years ended December
31, 1995 and 1994, of 21,301,441 and 16,954,848, has been adjusted
to 2,662,681 and 2,119,356, respectively. Previously reported
earnings per share for the years ended December 31, 1995 and 1994,
of $.01 and NIL has been adjusted to $.09 and $.04, respectively.
The Company has filed a registration statement with the Securities
and Exchange Commission to register common stock to be issued in
association with the redemption of outstanding warrants and
distribution of common stock rights. This registration statement was
declared effective on January 16, 1997. See Note 12.
During 1996, the Company issued 20,000 shares of common stock in
exchange for all of the issued and outstanding capital stock of a
similar multi-level marketing company. See discussion of this
acquisition at Note 11.
During 1994, $2,147 of accounts payable were settled by the Company
through the issuance of 1,342 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 7,500 shares of its common stock to
a consultant for services rendered and 6,250 shares of stock for
services performed by individuals primarily involved in marketing
the
F-23
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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.
COMMON STOCK OPTIONS - The Company 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 Company's
common stock at the date these options were issued. See Note 7 for
the pro forma effects of SFAS 123.
During 1995, the Company issued various options at exercise prices
ranging from $2.00 per share to $6.48 per share. Options were
granted primarily for services rendered and to ensure the future
availability of those services to the Company. All of the issued and
outstanding options are currently exercisable.
During 1994, the Company issued options on 34,108 shares of the
Company's common stock at exercise prices of $2.16 and $2.80 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 and vest at 20% per
year.
The following table summarizes the Company's stock option activity
for the years ended December 31, 1996, 1995 and 1994 (as restated
for the one-for-eight reverse split in October 1996):
<TABLE>
<CAPTION>
EXERCISE EXERCISE EXERCISE
1996 PRICE 1995 PRICE 1994 PRICE
----------- ------------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year..... 1,540,177 $1.60 - 6.48 350,358 $1.60 - 2.80 316,250 $1.60
Options granted
during the year: -- -- 706,624 2.00 -- --
-- -- 44,445 2.16 28,750 2.16
-- -- -- -- 5,358 2.80
-- -- 302,500 3.60 -- --
-- -- 125,000 4.96 -- --
-- -- 11,250 6.48 -- --
----------- ---------- ----------
-- 1,189,819 34,108
----------- ---------- ----------
Options expired
during the year........ 11,250 6.48 -- -- --
----------- ---------- ----------
Options outstanding,
end of year............ 1,528,927 $1.60 - 4.96 1,540,177 $1.60 - 6.48 350,358 $1.60 - 2.80
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
COMMON STOCK WARRANTS - The following table summarizes the Company's
common stock warrants and their activity for the years ended
December 31, 1996, 1995 and 1994 (as restated for the one-for-eight
reverse split in October 1996):
<TABLE>
<CAPTION>
WARRANTS
ISSUED AND EXERCISE
OUTSTANDING PRICE EXERCISE PERIOD
----------- -------- -------------------
<S> <C> <C> <C>
DECEMBER 31, 1996:
Class A Warrants, beginning of year................................ 524,610 $6.00 4/26/89 - 7/26/97
Class A Warrants exercised during the year......................... (250) $6.00
-------
Class A Warrants, end of year...................................... 524,360
-------
-------
Class B Warrants................................................... 525,860 $8.00 4/26/89 - 7/26/97
-------
-------
DECEMBER 31, 1995:
Class A Warrants, beginning of year................................ 525,860 $6.00 4/26/89 - 7/26/97
Class A Warrants exercised during the year......................... (1,250) $6.00
-------
Class A Warrants, end of year...................................... 524,610
-------
-------
</TABLE>
F-24
4<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<S> <C> <C> <C>
Class A Warrants, end of year............................ 524,610
-------
-------
Class B Warrants ........................................ 525,860 $8.00 4/26/89 - 7/26/97
-------
-------
DECEMBER 31, 1994:
Class A Warrants......................................... 525,860 $6.00 4/26/89 - 7/26/97
-------
Class B Warrants......................................... 525,860 $8.00 4/26/89 - 7/26/97
-------
</TABLE>
Each warrant entitles the holder to purchase one share of common
stock. The Company redeemed all Class A and Class B Warrants in
January 1997. See discussion of the redemption at Note 12.
OFFERING - The Company has signed a letter of intent with an
underwriter to make a firmly underwritten public offering in 1997 of
units consisting of one share of common stock of the Company and a
warrant to purchase one additional such share. The agreement between
the Company and the underwriter includes a provision requiring the
Company to grant a warrant to the underwriter.
7. STOCK OPTION PLAN
During 1995, the Company approved the 1995 Stock Option Plan (the
"Plan"). Under this Plan, options available for grant can 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. The Company has reserved 1,125,000 shares of the Company's
common stock $.0001 par value, for the Plan. 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 is 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 value of the stock at date
of exercise. The fair 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 and can only be exercised in tandem with
the stock option. No options under this Plan have been granted or
exercised as of December 31, 1996.
The Company applies Accounting Principles Board Opinion No. 25 in
accounting for its stock-based compensation awards. Accordingly,
no compensation cost has been recognized in the accompanying
consolidated financial statements. The following proforma data is
calculated as if compensation cost for the Company's stock-based
compensation awards (see also Note 6) was determined based upon the
fair value at the grant date consistent with the methodology
prescribed under SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995
-------------- ---------------
<S> <C> <C>
Net income as reported.................................... $825,157 $ 249,708
Proforma net income (loss)................................ $825,157 $(1,830,000)
Net income per common share as reported................... $ 0.29 $ 0.09
Proforma net income (loss) per common share............... $ 0.29 $ (0.69)
</TABLE>
The weighted average exercise price and fair value at the date of
grant for options granted in fiscal year 1995 was $2.77 and $1.75,
respectively. This fair value is estimated using the Black-Scholes
option pricing model with the following assumptions: no dividend
yield; volatility of 59%; a weighted average risk-free
F-25
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
interest rate of 6.8%; no assumed forfeitures; and a weighted
average expected life of 7.3 years. The proforma amounts above
are not likely to be representative of future years because
options vest over several years and additional awards are generally
made each year.
8. RELATED PARTIES
During 1996, 1995 and 1994, the Company received approximately
$9,116, $16,415 and $71,713, respectively, from Pre-Paid Legal
Services, Inc., a stockholder, for commissions on sales of
memberships for the services provided by Pre-Paid Legal Services,
Inc.
The Company made non-interest bearing cash advances to the John Hail
Agency, Inc., ("JHA"), a company of which the Company's Chief
Executive Officer and major shareholder is the sole director and
shareholder, of $22,000, $87,684 and $66,026 during the years ended
December 31, 1996, 1995 and 1994, respectively. JHA made repayments
of these advances of $6,141, $67,401 and $9,069 during the years
ended December 31, 1996, 1995, 1994, respectively. The Company also
provided administrative services for JHA and recognized revenue from
JHA of $6,000, $12,000 and $12,000 for the years ended December 31,
1996, 1995, and 1994, respectively, and are included in the
advances. The Company ceased providing administrative services for
JHA during 1996 and adopted a policy to not make any further
advances to JHA. JHA has executed a promissory note payable to the
Company with a principal balance of $67,822 at December 31, 1996,
bearing interest at 8.00% per annum and payable in installments of
$1,499 per month.
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
On a regular basis, management evaluates all available evidence,
both positive and negative, regarding the ultimate realization of
the tax benefits of its deferred tax assets. Based upon the
historical trend of increasing earnings, management has concluded
that it is more likely than not that a tax benefit will be realized
from its deferred tax assets and has therefore eliminated the
previously recorded valuation allowance.
The Company's deferred tax assets relate primarily to net operating
loss carryforwards for income tax purposes at December 31, 1996,
totaling approximately $1,346,951, which will begin to expire in
2003. Reduction of the valuation allowance resulted in a deferred
tax asset at December 31, 1996, of $499,613 and a corresponding tax
benefit for the year ended December 31, 1996.
A reconciliation of the statutory Federal income tax rate to the
effective income tax rate for the years ended December 31, 1996,
1995, and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate..................... 34.0 % 34.0 % 34.0 %
State tax effective rate.............................. 2.6 3.7 4.8
Benefit of graduated tax rates........................ (0.5) (2.2) (13.5)
Benefit of operating loss carryforwards............... (36.1) (35.5) (25.3)
Reduction in valuation allowance...................... (153.5) 0.0 0.0
------ ------ ------
Effective income tax rate............................. (153.5)% 0.0 % 0.0 %
------ ------ ------
------ ------ ------
</TABLE>
Deferred tax liabilities and assets at December 31, 1996 and 1995
are comprised of the following:
F-26
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
----------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization........................ $ (850) $ --
-------- ---------
Total deferred tax liabilities............ (850) --
-------- ---------
Deferred tax assets:
Depreciation and amortization........................ -- 3,900
Net operating loss carryforwards..................... 500,463 566,400
-------- ---------
Total deferred tax assets................ 500,463 570,300
Valuation allowance for deferred tax assets.......... -- (570,300)
-------- ---------
Total net deferred tax assets............ 500,463 --
-------- ---------
Net deferred taxes..................................... 499,613 --
Less current portion of net deferred tax assets........ 157,853 --
-------- ---------
Noncurrent portion.................................... $341,760 $ --
-------- ---------
-------- ---------
</TABLE>
10. COMMISSION ADVANCES
Commission advances represent advances to certain associates and are
repayable from future commissions earned by the associates. These
advances do not bear interest and are classified in the accompanying
consolidated balance sheets according to the expected timing of
commissions to be earned by the associates.
11. MIRACLE MOUNTAIN INTERNATIONAL, INC.
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").
The MMI Acquisition was accounted for under the purchase method of
accounting. MMI is a network 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 20,000
shares of the Company's common stock.
In connection with the MMI Acquisition, the excess of the purchase
price of $176,103, which includes $56,103 of transaction costs, over
the negative $3,059 fair value of the assets of MMI acquired, net of
liabilities assumed, has been allocated $119,162 to goodwill and
$60,000 to the covenant not to compete. Goodwill and the covenant
not to compete will be amortized over seven and four and one-half
year periods, respectively.
The following unaudited pro forma results of operations for the
years ended December 31, 1996 and 1995 are presented as if the MMI
Acquisition had been made at the beginning of each period presented.
The unaudited pro forma information is not necessarily indicative of
either the results of operations that would have occurred had the
purchase been made during the periods presented or the future
results of the combined operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995
-------------- ------------
<S> <C> <C>
Net revenues................................. $6,369,000 $4,796,000
Net income................................... $ 794,000 $ 89,000
</TABLE>
F-27
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<S> <C> <C>
Net income per common share.................. $ 0.28 $ 0.03
</TABLE>
12. SUBSEQUENT EVENTS
On January 31, 1997, pursuant to a Stock Purchase Agreement (the
"Purchase Agreement"), the Company acquired all of the issued and
outstanding capital stock of Chambre International, Inc., a Texas
corporation ("CII"), and CII became a wholly owned subsidiary of
the Company (the "CII Acquisition"). The CII Acquisition will be
accounted for under the purchase method of accounting. CII is a
network marketer of various third-party manufactured cosmetics,
skin care and hair care products. Pursuant to the Purchase
Agreement and in connection with the CII Acquisition, the Company
issued and delivered to the shareholders of CII 6,482 shares of
common stock at closing. In addition, the Company issued and
delivered an additional 7,518 shares of common stock to the
shareholders of CII on March 31, 1997, after determination of
certain liabilities.
In April 1997, the Company acquired all of the assets of Stay 'N
Shape International, Inc., Solution Products International, Inc.,
Nation of Winners, Inc., and Now International, Inc. (the
"Group"). The Company purchased all of the assets of the Group,
free and clear of all liens and encumbrances, for a combination of
$1,174,441 cash and shares of the Company's restricted
(unregistered) common stock (the "Purchase Price") with an
estimated fair value of up to $2,600,000, dependent upon meeting
certain future sales targets. The cash portion of the Purchase
Price was paid at closing. The stock portion of the Purchase Price
will be issued and delivered over a 25-month period with stock
valued at $800,000 delivered at closing, $750,000 due within 14
months of closing, and $1,050,000 due within 25 months from
closing. The Company has the option of substituting cash for any
portion of the remaining purchase price. The number of shares of
common stock to be issued and delivered, if any, is subject to the
market value of the Company's common stock prior to the date of
issuance and delivery as set forth in the purchase agreement. The
Purchase Price is subject to reduction based on sales performance
over a two-year period. The Group acquisition will be accounted
for under the purchase method of accounting. Each company in the
Group is a network marketer of various third-party manufactured
nutritional supplements.
On January 31, 1997, at 5:00 p.m. Central Standard Time, the
Company distributed, at no cost, non-transferable rights
("Rights") to the holders of record of shares of its common stock,
par value $.0001 per share. The Rights entitled the holders (the
"Rights Holders") to subscribe for and purchase up to 2,148,191
units (each unit consisting of one share of common stock and one
1997-A warrant) for the price of $6.80 per unit (the "Rights
Offering"). The record date holders of common stock received one
Right for each share of common stock held by them as of the record
date. The Rights expired at 5:00 p.m. Central Standard Time, on
March 17, 1997. Pursuant to the Rights, Rights Holders could
purchase one unit for each Right held.
The share of common stock and 1997-A warrant comprising each unit
were separately transferable immediately after the sale of the
units to the Rights Holders. Each 1997-A warrant is exercisable at
any time 90 days after January 16, 1997, and on or before January
31, 1999, to purchase one share of common stock for $12.00,
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 1997-A warrant.
Concurrent with this Rights Offering, the Company elected to
redeem all of its outstanding Class A and Class B Common Stock
Purchase Warrants (the "Public Warrants") for $.0008 per warrant
(the "Warrant Redemption") at 5:00 p.m. Central Standard Time, on
March 17, 1997. However, in connection with the Warrant
Redemption, the Company, pursuant to modification of the terms of
the Public Warrants, offered to the Public Warrant holders (the
"Warrant Holders") the right to exercise the Public Warrants to
purchase
F-28
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
units, each comprised of one share of common stock and one 1997-A
warrant, at an exercise price of $6.00 per unit (the "Warrant
Modification Offering").
The units in the offerings described above were offered on a best
efforts basis by the Company and its officers and directors,
without commissions, selling fees or direct or indirect
remuneration. The Rights and Warrant Holders were not required to
pay any brokerage commissions or fees with respect to the exercise
of their Rights or Public Warrants. The Company paid all charges
and expenses of the subscription and warrant agents.
The Company received proceeds of approximately $2,150,000 from the
Warrant Modification Offering and the Rights Offering and paid
costs incurred with respect to the offerings of approximately
$325,000. Deferred offering costs of $175,848 at December 31,
1996, were charged against the net proceeds from these offerings.
* * * * * *
F-29
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.
NOW INTERNATIONAL, INC.
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
COMBINED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................. $ 92,608 $ 48,041
Inventory............................................ 132,416 145,150
Prepayments.......................................... 6,258 9,508
-------- ----------
Total current assets............................ 231,282 202,699
PROPERTY AND EQUIPMENT, Net............................ 3,761 4,337
-------- ----------
TOTAL ASSETS........................................... $235,043 $207,036
-------- ----------
-------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued liabilities............. $ 55,400 $ 51,090
Due to stockholders.................................. -- 16,102
--------- ----------
Total liabilities.......................... 55,400 67,192
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock......................................... 325,000 325,000
Accumulated deficit.................................. (145,357) (185,156)
--------- ---------
Total stockholders' equity................. 179,643 139,844
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $235,043 $207,036
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
F-30
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net sales...................................... $583,461 $604,419
Cost of sales.................................. 313,249 409,821
-------- ---------
Gross profit................................ 270,212 194,598
Marketing, distribution and administrative
expenses..................................... 230,413 195,507
-------- ---------
NET INCOME (LOSS).............................. $ 39,799 $ (909)
-------- ---------
-------- ---------
</TABLE>
SEE NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS.
F-31
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
NATION OF WINNERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1996
----------- -------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) .................................................... $39,799 $ (909)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization..................................... 576 1,317
Changes in assets and liabilities which provided cash:
Inventory....................................................... 12,734 15,251
Other assets.................................................... 3,250 --
Accounts payable and accrued expenses........................... 4,310 13,709
------- --------
Net cash provided by operating activities..................... 60,669 29,368
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from stockholders................................................. -- 7,000
Payment on notes payable - stockholders................................. (16,102) --
------- --------
Net cash provided (used) by financing activities.............. (16,102) 7,000
------- --------
NET INCREASE IN CASH...................................................... 44,567 36,368
BEGINNING CASH BALANCE.................................................... 48,041 56,002
------- --------
ENDING CASH BALANCE....................................................... $92,608 $ 92,370
------- --------
------- --------
</TABLE>
SEE NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS.
F-32
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
1. UNAUDITED COMBINED FINANCIAL STATEMENTS
The unaudited combined financial statements and related notes of Stay 'N
Shape International, Inc. ("SSII"), NOW International, Inc.("NII"),
Solution Products, Inc. ("SPI") and Nation of Winners, Inc.("NWI"),
(collectively SSII, NII, SPI and NWI are referred to as the "SSII Group"),
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 members of the SSII Group have
common owners. All balances with affiliates have been eliminated in
combination.
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, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS -- Each member of the SSII Group is engaged in the
marketing of consumer products through a network sales organization of
independent sales associates developed by the SSII Group. The SSII Group
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 -- Revenue is recognized when products 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 and
depreciated using the straight-line method over the estimated useful lives
of the assets.
INCOME TAXES -- The members of the SSII Group have elected to be treated as
"S Corporations" as permitted by the Internal Revenue Code. Tax
liabilities, if any, are therefore the direct obligations of the members'
stockholders.
3. SUBSEQUENT EVENTS
Pursuant to an Asset Purchase Agreement having an effective date of April
16, 1997 (the "Purchase Agreement"), Advantage Marketing Systems, Inc.
("AMS") acquired all of the assets of the SSII Group, free and clear of any
lien, charge, claim, pledge, security interest or other encumbrance of any
type or kind whatsoever, known or unknown (the "SSII Asset Purchase"). The
SSII Asset Purchase was closed on April 16, 1997. The SSII Asset Purchase
will be accounted for by AMS under the purchase method of accounting.
F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Stay 'N Shape International, Inc.,
Now International, Inc., Solution Products, Inc.
and Nation of Winners, Inc.
Atlanta, Georgia
We have audited the accompanying combined balance sheet of Stay 'N Shape
International, Inc., Now International, Inc., Solution Products, Inc. and Nation
of Winners, Inc. (collectively the "Companies") as of December 31, 1996, and the
related combined statements of operations, stockholder's equity, and cash flows
for the years ended December 31, 1996 and 1995. These financial statements are
the responsibility of the Companies' management. Our responsibility is to
express an opinion on these combined 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 combined 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 combined financial statements present fairly, in all
material respects, the combined financial position of the Companies at December
31, 1996, and the results of their combined operations and their combined cash
flows for the years ended December 31, 1996 and 1995, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
April 11, 1997
F-34
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
COMBINED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash.............................................. $ 48,041
Inventory......................................... 145,150
Prepayments....................................... 9,508
---------
Total current assets.................... 202,699
PROPERTY AND EQUIPMENT, Net.......................... 4,337
---------
TOTAL................................................ $ 207,036
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses............. $ 51,090
Due to stockholders............................... 16,102
---------
Total liabilities....................... 67,192
---------
STOCKHOLDERS' EQUITY:
Common stock....................................... 325,000
Accumulated deficit................................ (185,156)
---------
Total stockholders' equity................ 139,844
---------
TOTAL.................................................. $ 207,036
---------
---------
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-35
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net sales.................................................. $2,377,022 $2,486,565
Cost of sales.............................................. 1,497,811 1,316,350
---------- ----------
Gross profit........................................... 879,211 1,170,215
Marketing, distribution and administrative expenses........ 937,470 1,063,911
---------- ----------
NET INCOME (LOSS).......................................... $ (58,259) $ 106,304
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-36
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON TOTAL
STOCK ACCUMULATED STOCKHOLDERS'
(NOTE 3) DEFICIT EQUITY
---------- ----------- -------------
<S> <C> <C> <C>
BALANCE,
JANUARY 1, 1995............................ $325,000 $(233,201) $ 91,799
Net income.................................... -- 106,304 106,304
-------- --------- ---------
BALANCE,
DECEMBER 31, 1995 ......................... 325,000 (126,897) 198,103
Net loss...................................... -- (58,259) (58,259)
-------- --------- ---------
BALANCE,
DECEMBER 31, 1996.......................... $325,000 $(185,156) $ 139,844
-------- --------- ---------
-------- --------- ---------
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-37
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ (58,259) $106,304
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation........................................................ 5,268 4,927
Changes in assets and liabilities which provided (used) cash:
Due to/from stockholders......................................... 34,000 (17,898)
Inventory........................................................ 28,182 (64,350)
Prepayments...................................................... (6,236) (3,272)
Accounts payable and accrued expenses............................ (10,916) 33,018
--------- ----------
Net cash provided by (used in) operating activities...... (7,961) 58,729
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment....................................... -- (2,727)
---------- ----------
NET INCREASE (DECREASE) IN CASH............................................. (7,961) 56,002
BEGINNING CASH BALANCE...................................................... 56,002 --
---------- ----------
ENDING CASH BALANCE......................................................... $ 48,041 $ 56,002
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-38
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMBINATION - The financial statements include the combined accounts
of Stay 'N International, Inc., Now International, Inc., Solution Products,
Inc. and Nation of Winners, Inc. (collectively, the "Companies").
The Companies have common owners. All balances with affiliates have been
eliminated in combination.
NATURE OF BUSINESS - The Companies are engaged in marketing consumer
products through a network sales organization of independent sales
associates. The Companies also sell supplies and materials to their
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.
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
(first-in, first-out) or market. The Company purchased approximately
47% and 55% of its merchandise inventory from one vendor for the
years ended December 31, 1996 and 1995, respectively.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost
and are depreciated using the straight-line method over the
estimated useful lives of the assets.
INCOME TAXES - The Companies have elected to be treated as "S
Corporations" as permitted by the Internal Revenue Code. Tax
liabilities, if any, are therefore the direct obligations of the
Companies' stockholders.
REVENUE RECOGNITION - Revenue is recognized when products are
shipped.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of office furniture, fixtures, and
equipment of $21,410 less accumulated depreciation of $17,073 at
December 31, 1996.
3. STOCKHOLDERS' EQUITY
Details of the Companies' common stock at December 31, 1996 and 1995
are:
<TABLE>
<CAPTION>
SHARES ISSUED AND DOLLAR VALUE
AUTHORIZED OUTSTANDING PAR VALUE COMMON STOCK
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Stay 'N Shape International, Inc............................... 100,000 None Issued $1.25 $ --
Now International, Inc......................................... 100,000 100,000 1.00 100,000
Solution Products, Inc......................................... 100,000 100,000 1.25 125,000
Nation of Winners, Inc......................................... 100,000 100,000 1.00 100,000
---------
$325,000
---------
---------
</TABLE>
F-39
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONCLUDED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
4. SIMPLIFIED EMPLOYEE BENEFIT PLANS
The Companies maintain two simplified employee benefit plans
("SEP's") for their executives. Contribution amounts are determined
annually based on performance of the Companies. Contribution expense
related to these plans aggregated $60,000 and $45,000 for the years
ended December 31, 1996 and 1995, respectively.
5. SUBSEQUENT EVENTS
In April 1997, Advantage Marketing Systems, Inc. ("AMS") acquired
all of the assets of the Companies. AMS is a network marketer of
various third party manufactured nutritional supplements. AMS
purchased all of the assets of the Companies, free and clear of all
liens and encumbrances, for a combination of $1,174,441 cash and
shares of AMS' restricted (unregistered) common stock (the "Purchase
Price") with an estimated fair value of up to $2,600,000, dependent
upon meeting certain future sales targets. The cash portion of the
Purchase Price was paid at closing. The stock portion of the
Purchase Price will be issued and delivered over a 25-month period
with stock valued at $800,000 delivered at closing, $750,000 due
within 14 months of closing, and $1,050,000 due within 25 months
from closing. AMS has the option of substituting cash for any
portion of the remaining purchase price. The number of shares of
common stock to be issued and delivered, if any, is subject to the
market value of the AMS' common stock prior to the date of issuance
and delivery as set forth in the purchase agreement. The Purchase
Price is subject to reduction based on sales performance over a
two-year period.
* * * * * *
F-40
<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.
---------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.............................................. 3
Risk Factors.................................................... 9
Use of Proceeds.................................................. 17
Price Range of Common Stock and Dividend Policy.................. 18
Capitalization................................................... 20
Selected Financial Information................................... 21
Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 23
Description of Plan............................................. 29
Business......................................................... 34
Management....................................................... 48
Certain Transactions............................................. 52
Security Ownership of Certain Beneficial
Owners and Management........................................... 53
Description of Securities........................................ 54
Shares Eligible for Future Sale.................................. 58
Plan of Distribution............................................. 60
Legal Matters.................................................... 60
Experts.......................................................... 60
Additional Information........................................... 61
Index to Financial Statements...................................... F-1
------------
ADVANTAGE MARKETING
SYSTEMS, INC.
5,000,000
PARTICIPATION INTERESTS
IN THE ADVANTAGE
MARKETING SYSTEMS, INC.
1998 DISTRIBUTOR STOCK
PURCHASE PLAN
------------
PROSPECTUS
------------
Requests for general information or additional copies of this Prospectus
should be directed to the Company 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
------------
, 1998
==========================================================================
<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>
<CAPTION>
<S> <C>
S.E.C. Registration Fees $ .00
N.A.S.D. Filing Fees .00
*State Securities Laws (Blue Sky) Legal Fees 20,000.00
*State Securities Laws Filing Fees 20,000.00
*Printing and Engraving 15,000.00
*Legal Fees 20,000.00
*Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . 14,000.00
*Transfer and Warrant Agent's Fees and Costs of Certificates. . . 1,000.00
*Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . .00
----------
$90,000.00
----------
----------
</TABLE>
------------------------
*Estimated
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
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
R. & R. Nance . . . . . 2-28-97 2.16 6,945 15,001 Cash
D. Melakayil. . . . . . 3-18-97 2.00 1,250 2,500 Cash
T. Melakayil. . . . . . 3-18-97 2.00 1,250 2,500 Cash
M. Walke. . . . . . . . 5-29-97 1.60 6,250 10,000 Cash
W. Hargrove . . . . . . 5-29-97 1.60 25,000 40,000 Cash
M. Steers . . . . . . . 5-29-97 1.60 6,250 10,000 Cash
R. Baresel. . . . . . . 12-28-97 1.60 7,862 12,579 Stock
J. Duncan . . . . . . . 12-28-97 1.60 15,000 24,000 Cash
L. Hooter . . . . . . . 12-28-97 1.60 11,007 17,611 Stock
D. Huff . . . . . . . . 12-28-97 1.60 7,862 12,579 Stock
D. Loney. . . . . . . . 12-28-97 1.60 6,250 10,000 Cash
D. Morgan . . . . . . . 12-28-97 1.60 25,000 40,000 Cash
</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, Registrant acquired the issued and outstanding capital stock of Miracle
Mountain International, Inc., a Colorado corporation. On June 20, 1996,
Registrant issued 160,000 shares of its Common Stock to the shareholders of
Miracle Mountain International, Inc. pursuant to Rule 506 of Regulation D.
Pursuant to a Stock Purchase Agreement having an effective date of January
31, 1997, (the "CII Purchase Agreement"), Registrant acquired the issued and
outstanding capital stock of Chambre, International, Inc., a Texas corporation.
Registrant issued and delivered 6,842 shares of Common Stock on January 31,
1997, and issued and delivered an additional 7,518 shares of Common Stock to the
shareholders of Chambre, International, Inc. on March 31, 1997, pending
determination of certain liabilities. The shares of Common Stock were issued
pursuant to Rule 506 of Regulation D.
Pursuant to an Asset Purchase Agreement dated April 16, 1997, Registrant
issued and delivered 125,984 shares of Common Stock to Solution Products
International, Inc. for its own account and as agent for and on behalf of Stay
'N Shape International, Inc., Nation of Winners, Inc., and Now International,
Inc. The shares of Common Stock were issued 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 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.
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NO.
-----------
2.1 Agreement and Plan of Merger between Registrant and AMS, Inc.(1)
2.2 Certificate of Merger of Advantage Marketing Systems, Inc. (A
Delaware Corporation) with and into Advantage Marketing Systems,
Inc. (An Oklahoma Corporation).(1)
3.1 The Registrant's Certificate of Incorporation.
3.2 The Registrant's Bylaws.
4.1 The Advantage Marketing Systems, Inc. 1998 Distributor Stock
Purchase Plan.
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 Legal Services Agreement between Registrant and Pre-Paid Legal
Services, dated September 1, 1988.(2)
10.2 Lease Agreement between Registrant and International Business
Machines Corporation, dated May 22, 1989.(2)
10.3 Group Contract between Registrant and Consumer Benefit Services,
Inc., dated April 2, 1989.(2)
10.4 Distribution Agreement between Registrant and Topped, Inc., dated
June 1, 1989.(2)
10.5 Lease Agreement between Registrant and Kaiser Francis Oil
Company, dated June 1, 1993.(3)
10.6 Advantage Marketing Systems, Inc. 1995 Stock Option Plan.(4)
10.7 Agreement between Registrant and Consumer Benefit Services, Inc.,
dated October 20, 1995.(4)
10.8 Agreement between Registrant and Advanced Products, Inc., dated
November 28, 1994.(4)
10.9 Agreement between Registrant and J&K Pharmaceutical Laboratories,
dated April 22, 1996.(5)
10.10 Stock Purchase Agreement having an effective date of May 31,
1996, between Registrant, Miracle Mountain International, Inc.,
Richard Seaton, Gene Burson, Kaye Jennings, Daryl Burson, James
Rogers.(6)
10.11 Stock Purchase Agreement having an effective date of January 31,
1997, among Registrant, Chambre, International, Inc., Janet
Britt, Jerry Hampton, Teresa Hampton, James Baria, Florence
Baria, Rose Cashin, Pat Eason, Joseph Williams, Livia Williams,
Don Black, Nadine Black, Lynda Brown, Gary Galindo, Harold
Griffin, Linda Griffin, Iren Van Vlaenderen, Dean Van Vlaenderen,
Rose Hilgedick, Julie Connary, and Royce Britt.(5)
10.12 Asset Purchase Agreement among Registrant, Stay 'N Shape
International, Inc., Solution Products International, Inc.,
Nation of Winners, Inc., Now International, Inc., Carl S. Rainey
and Danny Gibson, dated April 16, 1997.(8)
10.13 Warrant Agreement between Registrant and U.S. Stock Transfer
Inc., dated as of January 20, 1997, as amended and restated
January 8, 1998.(9)
10.14 Unit and Warrant Agreement between Registrant and U.S. Stock
Transfer Inc., dated as of November 6, 1997, as amended and
restated January 8, 1998.(10)
23.1 Independent Auditors' Consent.
23.2 Consent of Counsel.
II-3
<PAGE>
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.
- --------------------------------------------
(1) Incorporated by reference to Form 8-K, filed with the Commission on
December 11, 1995.
(2) Incorporated by reference to Form 10-K Annual Report for the year ended
December 31, 1989, filed with the Commission on September 18, 1990.
(3) Incorporated by reference to Form 10-K Annual Report for the year ended
December 31, 1993, filed with the Commission on April 14, 1994.
(4) Incorporated by reference to Form SB-2 Registration Statement
(No. 33-80629), filed with the Commission on November 20, 1996.
(5) Incorporated by reference to Amendment No. 3 to Form SB-2 Registration
Statement (No. 33-80629), filed with the Commission on January 14, 1997.
(6) Incorporated by reference to Form 8-K, filed with the Commission on July
12, 1996.
(7) Incorporated by reference to Form 8-K, filed with the Commission on
February 18, 1997.
(8) Incorporated by reference to Form 8-K, filed with the Commission on May
1, 1997.
(9) Incorporated by reference to Amendment No. 2 to Form 8-A Registration
Statement, filed with the Commission on January 13, 1998.
(10) Incorporated by reference to Amendment No. 1 to Form 8-A Registration
Statement, filed with the Commission on January 14, 1998.
(11) To be furnished by amendment.
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 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.
II-4
<PAGE>
(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-5
<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 Registration
Statement to be signed on its behalf by the undersigned in the City of Oklahoma
City, State of Oklahoma, on the 9th day of March, 1998.
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 Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/S/JOHN W. HAIL Chairman of the Board, Chief March 9, 1998
- -------------------------- Executive Officer and Director
John W. Hail
/S/CURTIS H. WILSION, SR. Vice-Chairman of the Board March 9, 1998
- -------------------------- and Director
Curtis H. Wilson, Sr.
/S/ROGER P. BARESEL President, Chief Financial March 9, 1998
- -------------------------- Officer and Director
Roger P. Baresel
/S/R. TERREN DUNLAP Director March 9, 1998
- --------------------------
R. Terren Dunlap
/S/HARLAND C. STONECIPHER Director March 9, 1998
- --------------------------
Harland C. Stonecipher
II-6
<PAGE>
Index to Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement and Plan of Merger between Registrant and AMS, Inc.(1)
2.2 Certificate of Merger of Advantage Marketing Systems, Inc. (A
Delaware Corporation) with and into Advantage Marketing Systems,
Inc. (An Oklahoma Corporation).(1)
3.1 The Registrant's Certificate of Incorporation.
3.2 The Registrant's Bylaws.
4.1 The Advantage Marketing Systems, Inc. 1998 Distributor Stock
Purchase Plan.
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 Legal Services Agreement between Registrant and Pre-Paid Legal
Services, dated September 1, 1988.(2)
10.2 Lease Agreement between Registrant and International Business
Machines Corporation, dated May 22, 1989.(2)
10.3 Group Contract between Registrant and Consumer Benefit Services,
Inc., dated April 2, 1989.(2)
10.4 Distribution Agreement between Registrant and Topped, Inc., dated
June 1, 1989.(2)
10.5 Lease Agreement between Registrant and Kaiser Francis Oil
Company, dated June 1, 1993.(3)
10.6 Advantage Marketing Systems, Inc. 1995 Stock Option Plan.(4)
10.7 Agreement between Registrant and Consumer Benefit Services, Inc.,
dated October 20, 1995.(4)
10.8 Agreement between Registrant and Advanced Products, Inc., dated
November 28, 1994.(4)
10.9 Agreement between Registrant and J&K Pharmaceutical Laboratories,
dated April 22, 1996.(5)
10.10 Stock Purchase Agreement having an effective date of May 31,
1996, between Registrant, Miracle Mountain International, Inc.,
Richard Seaton, Gene Burson, Kaye Jennings, Daryl Burson, James
Rogers.(6)
10.11 Stock Purchase Agreement having an effective date of January 31,
1997, among Registrant, Chambre, International, Inc., Janet
Britt, Jerry Hampton, Teresa Hampton, James Baria, Florence
Baria, Rose Cashin, Pat Eason, Joseph Williams, Livia Williams,
Don Black, Nadine Black, Lynda Brown, Gary Galindo, Harold
Griffin, Linda Griffin, Iren Van Vlaenderen, Dean Van Vlaenderen,
Rose Hilgedick, Julie Connary, and Royce Britt.(5)
10.12 Asset Purchase Agreement among Registrant, Stay 'N Shape
International, Inc., Solution Products International, Inc.,
Nation of Winners, Inc., Now International, Inc., Carl S. Rainey
and Danny Gibson, dated April 16, 1997.(8)
10.13 Warrant Agreement between Registrant and U.S. Stock Transfer
Inc., dated as of January 20, 1997, as amended and restated
January 8, 1998.(9)
10.14 Unit and Warrant Agreement between Registrant and U.S. Stock
Transfer Inc., dated as of November 6, 1997, as amended and
restated January 8, 1998.(10)
23.1 Independent Auditors' Consent.
23.2 Consent of Counsel.
<PAGE>
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.
- --------------------------------------------
(1) Incorporated by reference to Form 8-K, filed with the Commission on
December 11, 1995.
(2) Incorporated by reference to Form 10-K Annual Report for the year ended
December 31, 1989, filed with the Commission on September 18, 1990.
(3) Incorporated by reference to Form 10-K Annual Report for the year ended
December 31, 1993, filed with the Commission on April 14, 1994.
(4) Incorporated by reference to Form SB-2 Registration Statement
(No. 33-80629), filed with the Commission on November 20, 1996.
(5) Incorporated by reference to Amendment No. 3 to Form SB-2 Registration
Statement (No. 33-80629), filed with the Commission on January 14, 1997.
(6) Incorporated by reference to Form 8-K, filed with the Commission on July
12, 1996.
(7) Incorporated by reference to Form 8-K, filed with the Commission on
February 18, 1997.
(8) Incorporated by reference to Form 8-K, filed with the Commission on May
1, 1997.
(9) Incorporated by reference to Amendment No. 2 to Form 8-A Registration
Statement, filed with the Commission on January 13, 1998.
(10) Incorporated by reference to Amendment No. 1 to Form 8-A Registration
Statement, filed with the Commission on January 14, 1998.
(11) To be furnished by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ADVANTAGE MARKETING SYSTEMS, INC.
Advantage Marketing Systems, Inc. (formerly AMS, Inc.), an Oklahoma
corporation (the "Corporation"), for the purpose of amending its Certificate of
Incorporation, as originally filed on May 22, 1987, as provided by Sections 1077
and 1080 of the Oklahoma General Corporation Act, hereby certifies that this
Amended and Restated Certificate of Incorporation was duly adopted which amends
and restates in entirety the Certificate of Incorporation of the Corporation as
follows:
------------------------
FIRST: The name of the Corporation is: Advantage Marketing Systems, Inc.
SECOND: The address of its registered office in the State of Oklahoma is
2800 Oklahoma Tower, 210 Park Avenue, Oklahoma City, Oklahoma. The name of its
registered agent at such address is Michael E. Dunn.
THIRD: The nature of the business or purposes to be conducted or promoted
are:
To conduct any lawful business, to exercise any lawful purpose and
power, and to engage in any lawful act or activity for which corporations
may be organized under the Act, and in general, to possess and exercise all
the powers and privileges granted by the Act or by any other law of
Oklahoma or by this Certificate of Incorporation together with any powers
incidental thereto, so far as such powers and privileges are necessary or
convenient to the conduct, promotion or attainment of the businesses or
purposes of the Corporation.
FOURTH: The total number of shares of Common Stock which this Corporation
shall have authority to issue is Four Hundred Ninety-Five Million (495,000,000)
shares. The par value of each such share of Common Stock shall be One-Hundredth
of One Cent ($0.0001), amounting in the aggregate to Forty-Nine Thousand Five
Hundred Dollars ($49,500.00). The shares of Common Stock shall have no
preemptive or preferential rights of subscription concerning further issuance or
authorization of the Corporation's shares of Common Stock. Each share of Common
Stock shall entitle the holder thereof to one vote, in person or by proxy, on
any matter upon which holders of Common Stock are entitled to vote.
The total number of shares of Preferred Stock which this Corporation shall
have authority to issue is Five Million (5,000,000) shares. The par value of
each such share of Preferred Stock shall be One-Hundredth of One Cent ($0.0001),
amounting in the aggregate to Five Hundred Dollars ($500.00). The Preferred
Stock may be issued from time to time in one or more series and (a) may have
such voting powers, full or limited, or may be without voting powers; (b) may be
subject to redemption at such time or times and at such prices; (c) may be
entitled to receive dividends (which may be cumulative or noncumulative) at such
rate or rates, on such conditions, and at such times, and payable in preference
to, or in such relation to, the dividends payable on any other class or classes
or series of stock; (d) may have such rights upon the dissolution of, or upon
any distribution of the assets of, the Corporation; (e) may be made convertible
into, or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the corporation, at
such price or prices or at such rates of exchange, and with such adjustments;
and (f) shall have such other relative, participating, optional or special
rights, qualifications, limitations or restrictions thereof as shall hereafter
be stated and expressed in the resolution or resolutions providing for the issue
of such Preferred Stock from time to time adopted by the Board of Directors
pursuant to authority so to do which is hereby vested in the Board of Directors.
At any time and from time to time when authorized by resolution of the
Board of Directors and without any action by its shareholders, the Corporation
may issue or sell any shares of its stock of any class or series, whether out of
the unissued shares thereof authorized by the Certificate of Incorporation as
originally filed, or by an amendment thereof, and whether or not the shares
thereof so issued or sold shall confer upon the holders thereof the right to
exchange or convert such shares for or into other shares of stock of the
Corporation of any class or classes or any series thereof. When similarly
authorized, but without any action by its shareholders, the Corporation may
issue or grant rights,
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warrants or options, in bearer or registered or such other form as the Board
of Directors may determine, for the purchase of shares of the stock of any
class or series of the Corporation within such period of time, or without
limit as to time, to such aggregate number of shares, and at such price per
share, as the Board of Directors may determine. Such rights, warrants or
options may be issued or granted separately or in connection with the issue
of any bonds, debentures, notes, obligations or other evidences of
indebtedness or shares of the stock of any class or series of the Corporation
and for such consideration and on such terms and conditions as the Board of
Directors, in its sole discretion, may determine. In each case, the
consideration to be received by the Corporation for any such shares so issued
or sold shall be such as shall be fixed from time to time by the Board of
Directors.
FIFTH: The name and mailing address of the incorporator is Scott C.
Sublett, 1012 Northwest Grand Boulevard, Suite A, Oklahoma City, Oklahoma
73118.
SIXTH: Except as may otherwise be provided in this Certificate or in the
Bylaws of the Corporation, as the same may be amended from time to time, the
Board of Directors shall have all powers and authority which may be granted to a
board of directors of a corporation under the Act, including but not limited to
the following:
(a) To adopt, amend or repeal the Bylaws of the Corporation.
(b) To authorize and cause to be executed mortgages and liens upon
the real and personal property of the Corporation.
(c) To set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to abolish
any such reserve in the manner in which it was created.
(d) To designate one or more committees.
(e) To sell, lease or exchange all or substantially all of the
property and assets of the Corporation, including its good will and its
corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of money or property
including shares of stock in, and/or other securities of, any other
corporation or corporations, as the Board of Directors shall deem expedient
and for the best interest of the Corporation, when and as authorized by the
shareholders entitled to vote thereon.
(f) To provide indemnification for directors, officers, employees,
and/or agents of the Corporation to the fullest extent permitted by law,
subject however, to the rules against limitation on liability of directors
as set forth in Section 1006 of the Act, as amended from time to time.
(g) To determine from time to time whether and to what extent, and at
what times and places and under what conditions and regulations, the
accounts and books of the Corporation or any of them, shall be opened to
the inspection of the shareholders, and no shareholder shall have any right
to inspect any account or book or document of the Corporation, except as
conferred by the Act or authorized by the Board of Directors, or by a
resolution of the shareholders.
SEVENTH: The Board of Directors of the Corporation shall consist of one or
more members. The number of directors shall be fixed by, or in the manner
provided in the Bylaws. The names and mailing addresses of the persons who are
to serve as directors until the first annual meeting of shareholders or until
their successors are elected and qualified are as follows:
Name Address
John W. Hail P.O. Box 12500
Oklahoma City, Oklahoma 73157
Virgil Coffee P.O. Box 12500
Oklahoma City, Oklahoma 73157
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its shareholders or any class of them, any court of equitable
jurisdiction within the State of Oklahoma, on the application in a summary way
of this Corporation or of any creditor or shareholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 1106 of Title 18 of the Oklahoma Statutes or on the
application of trustees in dissolution or of any
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receiver or receivers appointed for this Corporation under the provisions of
Section 1100 of Title 18 of the Oklahoma Statutes order a meeting of the
creditors or class or creditors, and/or of the shareholders or class of
shareholders of this Corporation, as the case may be, to be summoned in such
manner as the court directs. If a majority in number representing
three-fourths (3/4) in value of the creditors or class of creditors, and/or
of the shareholders or class of shareholders of this Corporation, as the case
may be, agree to any compromise or arrangement and the reorganization shall,
if sanctioned by the court to which the application has been made, be binding
on all the creditors or class of creditors and/or on all the shareholders or
class of shareholders of this Corporation, as the case may be, and also on
this Corporation.
NINTH: To the extent permitted by law, no contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have, a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the board or committee thereof which authorizes
the contract or transaction, or solely because his or their votes are counted
for such purposes, if:
(a) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee authorizes the contract
or transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(b) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the shareholders entitled
to vote thereon, and the contract or transaction is specifically approved by
vote of the shareholders; or
(c) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof, or the shareholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
TENTH: The Corporation reserves the right to amend or repeal any provision
contained herein, add any additional provisions hereto, increase or decrease the
number of authorized shares of stock, or restate this Certificate of
Incorporation in its entirety in the manner now or hereafter prescribed by the
Act.
ELEVENTH: Except as otherwise required by law or as otherwise provided in
this Certificate of Incorporation or in the Bylaws of the Corporation, any
matter properly submitted to a vote of the shareholders at a meeting of
shareholders duly convened at which there is a quorum present shall be deemed
approved upon an affirmative vote of a majority of the outstanding shares of
Common Stock present at the meeting, in person or by proxy. No holders of any
class of stock other than Common Stock shall be entitled to vote upon any
matter, except as may be required by law, this Certificate of Incorporation, or
the Bylaws of the Corporation. Written ballots shall not be required for the
election of directors.
TWELFTH: In addition to any other indemnification granted to directors of
the Corporation contained in this Certificate of Incorporation, the Bylaws of
the Corporation, or adopted by resolution of the shareholders or directors of
the Corporation, no director of the Corporation shall be personally liable to
the Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, provided, however, that this indemnification shall not
eliminate or limit the liability of a director for any breach of the director's
duty of loyalty to the Corporation or its shareholders, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, or payment of any unlawful dividend or for any unlawful stock purchase
or redemption, or for any transaction from which the director derived an
improper personal benefit.
------------------------
Advantage Marketing Systems, Inc. and each of the undersigned hereby
further certify that the Board of Directors and the Shareholders of such
corporation, pursuant to a certain Record and Memorandum of Action, dated June
30, 1995, duly adopted resolutions setting forth the foregoing Amended and
Restated Certificate of Incorporation of such
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corporation, declaring said amendment and restatement to be advisable, and
all of the issued and outstanding capital stock of such corporation was voted
in favor of said amendment and restatement, and such Amended and Restated
Certificate of Incorporation was duly adopted in accordance with Section 1077
of the Oklahoma General Corporation Act.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its president and attested by its
secretary this 30th day of June, 1995.
ADVANTAGE MARKETING SYSTEMS, INC.
By: /S/JOHN W. HAIL
-------------------------------------
John W. Hail, Chief Executive Officer
ATTEST:
/S/JAMES R. DUNCAN
- ----------------------------
James R. Duncan, Secretary
[SEAL]
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EXHIBIT 3.2
BYLAWS
OF
ADVANTAGE MARKETING SYSTEMS, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation
shall be located within or without the state of
incorporation and as may be determined by the Board of
Directors.
Section 2. REGISTERED OFFICE. The registered office of the Corporation
required by law to be maintained in the state of
incorporation may be, but need not be, identical with the
principal office of the Corporation. The address of the
registered office may be changed from time to time by the
Board of Directors.
Section 3. OTHER OFFICES. The Corporation may have offices at such
other places, either within or without the state of
incorporation as the Board of Directors may designate or as
the business of the Corporation may require from time to
time.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the shareholders
shall be held on a date designated by the Board of
Directors, which shall be within nine (9) months next
following the end of the fiscal year of the Corporation, for
the purpose of electing directors and for the transaction of
such other business as may come before the meeting. If the
day fixed for the annual meeting shall be a legal holiday,
such meeting shall be held on the next succeeding business
day.
Section 2. SUBSTITUTE ANNUAL MEETING. If the annual meeting shall not
be held on the day designated for the annual meeting of
shareholders, or at any adjournment thereof, the directors
shall cause the meeting to be held as soon thereafter as
convenient. If there be a failure to hold the annual
meeting of shareholders for a period of thirty (30) days
after the date designated therefor, or if no date has been
designated for a period of thirteen (13) months after the
organization of the Corporation or after its last annual
meeting, the district court may summarily order a meeting to
be held upon the application of any shareholder or director.
The shares of stock represented at such meeting either by
person or by proxy, and entitled to vote thereat, shall
constitute a quorum for the purpose of such meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders may
be called by the President, and shall be called by the
President or Secretary at the request in writing of a
majority of the Board of Directors or, at the written
request of the holders owning of record ten percent (10%) or
more of all shares entitled to vote at the meeting. Such
request shall state the purpose or purposes of the proposed
meeting.
Section 4. PLACE OF MEETINGS. The Board of Directors may designate any
place, either within or without the state of incorporation,
as the place of meeting for any annual meeting or for any
special meeting called by the Board of Directors. A waiver
of notice signed by all shareholders entitled to vote at a
meeting may designate any place, either within or without
the state of incorporation as the place for the holding of
such meeting. If no designation is made or if a special
meeting be otherwise called, the place of meeting shall be
the principal office of the Corporation.
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Section 5. NOTICE OF MEETINGS. Written or printed notice stating the
time and place of the meeting and, in case of a special
meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the
President, the Secretary, or the officer or persons calling
the meeting, to each shareholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail
addressed to the shareholder of the Corporation at the
shareholder's address as it appears on the records of the
Corporation, with postage thereon prepaid. In addition to
the foregoing, notice of a substitute annual meeting shall
state that the annual meeting was not held on the day
designated by these Bylaws and that such substitute annual
meeting is being held in lieu of and is designated as such
annual meeting.
When a meeting is adjourned for thirty (30) days or more,
notice of the adjourned meeting shall be given as in the
case of an original meeting. When a meeting is adjourned
for less than thirty (30) days in any one adjournment,
no notice need be given of the time and place of the
adjourned meeting or of the business to be transacted
thereat other than by announcement at the meeting at
which the adjournment is taken.
Section 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment
thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of
Directors may provide that the stock transfer books shall be
closed for a stated period but not to exceed, in any case,
sixty (60) days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled
to notice of or to vote at a meeting of shareholders, such
books shall be closed at least ten (10) days immediately
preceding such meeting.
In lieu of closing the stock transfer books, the Board of
Directors may fix a date as the record date for any such
determination of shareholders, such date in any case to
be not more than sixty (60) days prior to the date on
which the particular action requiring such determination
of shareholders is to be taken.
If the stock transfer books are not closed and no record
date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of
shareholders, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board
of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such
determination of shareholders.
When a determination of shareholders entitled to vote at
any meeting of shareholders has been made as provided in
this section, such determination shall apply to any
adjournment thereof except where the determination has
been made through the closing of the stock transfer books
and the stated period of closing has expired.
Section 7. VOTING LISTS. The Secretary shall make, at least ten (10)
days prior to the convening of any shareholders' meeting, a
list of all persons entitled to represent shares at such
meeting, arranging the names alphabetically, with the number
of shares entitled to be voted by each set opposite their
respective names. Such list shall be open to the
examination of any shareholder during ordinary business
hours for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice
of the meeting, or if not so specified, at the place where
the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any shareholder
who is present.
Section 8. QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of
shareholders.
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The shareholders at a meeting at which a quorum is
present may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
In the absence of a quorum at the opening of any meeting
of shareholders, such meeting may be adjourned from time
to time by a vote of the majority of the shares voting on
the motion to adjourn; and, at any adjourned meeting at
which a quorum is present, any business may be transacted
which might have been transacted at the original meeting.
Section 9. PROXIES. Shares may be voted either in person or by one or
more agents authorized by a written proxy executed by the
shareholder or by his duly authorized attorney-in-fact. The
appointment of a proxy shall be filed in writing with the
Secretary at, or before, the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the
writing or transmission created pursuant to this Section may
be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original
writing or transmission could be used, provided that such
copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original
writing or transmission.
A proxy is not valid after the expiration of five years
from the date of its execution, unless the person
executing it specifies thereon the length of time for
which it is to continue in force, or limits its use to a
particular meeting. The termination of a proxy's
authority by act of the shareholder shall, subject to the
time limitation set forth herein, be ineffective until
written notice of the termination has been given to the
Secretary. A proxy's authority shall not be revoked by
the death or incapacity of the maker unless, before the
vote is cast or the authority is exercised, written
notice of such death or incapacity is given to the
Corporation.
Section 10. VOTING OF SHARES. Each outstanding share of capital stock
entitled to vote shall be entitled to one vote on each
matter submitted to a vote at a meeting of shareholders,
subject to the voting rights and privileges, lack thereof,
or limitations thereon, of the class or series of capital
stock.
At each election for directors, every shareholder
entitled to vote at such election shall have the right to
vote, in person or by proxy, the number of shares
standing of record in his name for each person nominated
as a director to be elected and for whose election he has
a right to vote.
Treasury shares, or other shares not at the time
outstanding, shall not, directly or indirectly, be voted
at any shareholders' meeting or counted in calculating
the actual voting power of shareholders at any given
time, but shares of Corporation stock held by the
Corporation in a fiduciary capacity may be voted and
shall be counted in determining the total number of
outstanding shares and the actual voting power of the
shareholders at any given time.
Every stock vote at a meeting of shareholders shall be
taken by written ballots, each of which shall state the
name of the shareholder or proxy voting and such other
information as may be required under the procedure
established for the meeting. The Corporation may, and to
the extent permitted by law, shall, in advance of any
meeting of shareholders, appoint one or more inspectors
to act at the meeting and make a written report thereof.
The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a
meeting of shareholders, the person presiding at the
meeting may, and to the extent required by law, shall,
appoint one or more inspectors to act at the meeting.
Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and
according to the best of his ability. Every vote taken
by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
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Section 11. VOTES REQUIRED. The vote of a majority of the shares voted
at a meeting of shareholders, duly held at which a quorum is
present, shall be sufficient to take or authorize action
upon any matter which may properly come before the meeting
except as otherwise provided by law or by these Bylaws.
Section 12. INFORMAL ACTION BY SHAREHOLDERS. Except as otherwise
provided by law, any action which may be taken at a meeting
of the shareholders may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall
be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and
voted and shall be delivered to the Corporation by delivery
to its registered office in Oklahoma, it principal place of
business, or an officer or agent of the Corporation having
custody of the books in which proceedings of meetings of
shareholders are recorded. Delivery made to the
Corporation's registered office shall be made by hand or by
certified or registered mail, return receipt requested.
Each written consent shall bear the date of signature of
each shareholder who signs the consent and no written
consent shall be effective to take the corporate action
referred to therein unless, within sixty (60) days of the
date of the earliest dated consent delivered to the
Corporation, a written consent or consents signed by a
sufficient number of holder to take action are delivered
to the Corporation in the manner prescribed in the first
paragraph of this Section.
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors
constituting the Board of Directors shall consist of not
less than one nor more than fifteen (15), the number of
directors shall be determined by resolution of the Board of
Directors.
The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class
shall consist, as nearly as possible, of one-third of the
total number of directors constituting the entire Board
of Directors. The term of the initial Class I directors
shall terminate on the date of the 1996 annual meeting of
shareholders; the term of the initial Class II directors
shall terminate on the date of the 1997 annual meeting of
shareholders; and the term of the initial Class III
directors shall terminate on the date of the 1998 annual
meeting of shareholders. At each annual meeting of
shareholders beginning in 1996, successors to the class
of directors whose term expires at that annual meeting
shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as
possible.
Notwithstanding the foregoing, whenever the holders of
any one or more classes or series of preferred stock
issued by the Corporation shall have the right, voting
separately by class or series, to elect directors at an
annual or special meeting of shareholders, the election,
term of office, filling of vacancies and other features
of such directorships shall be governed by the terms of
the certificate of designation establishing such
preferred stock, and such directors so elected shall not
be divided into classes pursuant to this Section unless
expressly provided by such terms.
The directors shall be elected at the annual or adjourned
annual meeting of the shareholders (except as herein
otherwise provided for the filling of vacancies) and each
director shall hold
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office until his death, resignation, retirement, removal,
disqualification, or his successor shall have been
elected and qualified.
Directors need not be residents of the state of
incorporation nor shareholders of the Corporation.
Section 3. VACANCIES. Any vacancy occurring in the Board of Directors
including any vacancy created by an increase in the
authorized number of directors elected by all of the
shareholders having the right to vote as a single class may
be filled by the affirmative vote of a majority of the
remaining directors even though less than a quorum or by the
sole remaining director.
Any director elected to fill a vacancy shall be elected
for the unexpired term of his predecessor in office. At
a special meeting of shareholders, the shareholders may
elect a director to fill any vacancy not filled by the
directors.
Section 4. REMOVAL. The entire Board of Directors, or any individual
director, may be removed at any time, with or without cause,
by a vote of the shareholders holding a majority of the
outstanding shares entitled to vote at an annual or special
meeting of shareholders. However, unless the entire Board
is removed, an individual director shall not be removed when
the number of shares voting against the proposal for removal
would be sufficient to elect a director.
Section 5. CHAIRMAN OF BOARD. There may be a Chairman of the Board of
Directors elected by the directors from their number at the
annual meeting of the Board of Directors. The Chairman
shall preside at all meetings of the Board of Directors and
perform such other duties as may be directed by the Board.
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw
immediately after, and at the same place, as the annual
meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place, either within or
without the state of incorporation, for the holding of
additional regular meetings without other notice than such
resolution.
Section 2. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President or by a majority of
the directors. The person or persons authorized to call
special meetings of the Board of Directors may fix any
place, either within or without the state of incorporation,
as the place for holding any special meeting of the Board of
Directors called by them.
Section 3. NOTICE. Notice of special meetings of the Board of
Directors shall be given to each director not less than
three (3) days before the date of the meeting by any usual
means of communication. All business to be transacted at,
and all purposes of, any regular or special meeting of the
Board of Directors must be specified in the notice or waiver
of notice of such meeting.
Section 4. WAIVER BY ATTENDANCE. Attendance of a director at a meeting
of the Board of Directors shall constitute a waiver of
notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the
transaction of any business because the meeting is not
lawfully called or convened.
Section 5. QUORUM. A majority of the number of directors fixed by or
in accordance with these Bylaws, excluding any vacancies,
shall constitute a quorum for the transaction of business.
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Section 6. MANNER OF ACTING. Except as otherwise provided in these
Bylaws, the act of the majority of the directors present at
a meeting at which a quorum is present shall be the act of
the Board of Directors. The Chairman of the Board of
Directors, if one has been elected, shall preside at all
meetings of the Board and committees of which he is a
member. The chairman shall have such powers and perform
such duties as may be authorized by the Board of Directors.
Section 7. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his contrary vote
or abstention is recorded or his dissent is otherwise
entered in the minutes of the meeting or unless he shall
file his written dissent of such action with the person
acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by
registered mail to the Secretary promptly after the
adjournment of the meeting. An abstention shall be deemed a
negative vote. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 8. INFORMAL ACTION BY DIRECTORS. Any action which might be
taken at a meeting of the Board of Directors may be taken
without a meeting if a record or memorandum thereof be made
in writing and signed by all of the members of the Board.
Such writing or memorandum shall be filed with the Secretary
as part of the corporate records.
Section 9. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members
of the Board of Directors, or any committee thereof, may
participate in a meeting of such Board or committee by means
of conference telephone or similar communications equipment
by means of which persons participating in the meeting can
hear each other and such participation shall constitute
presence in person at such meeting.
Section 10. COMPENSATION OF DIRECTORS. Directors, a such, may receive,
pursuant to resolution of the Board of Directors, fixed fees
and other compensation for services as directors, including,
without limitation, their services as members of committees
of committees of the Board of Directors.
ARTICLE V
COMMITTEES
Section 1. CREATION. The Board of Directors, by resolution adopted by
a majority of directors, may designate one or more
committees, each committee to consist of one or more of the
directors of the Corporation. The Board may designate one
or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present
at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified
member. Any such committee shall have and may exercise all
the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed
to all papers which may require it; but no such committee
shall have the power or authority in reference to amending
the Certificate of Incorporation (except that a committee,
to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the
Board of Directors may fix the designations and any of the
preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any
other series of the same or any other class or classes of
stock of the Corporation or fix the number of shares of any
series of stock or authorize the increase or decrease of the
shares
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of any series), adopting an agreement of merger or
consolidation, recommending to the shareholders the sale,
lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the
shareholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the
Corporation; and, unless by resolution of the Board of
Directors, no such committee shall have the power or
authority to declare a dividend, authorize the issuance of
stock, or to adopt a certificate of ownership and merger.
Section 2. REMOVAL. Any member of a committee may be removed at any
time with or without cause by a majority of the number of
directors fixed by these Bylaws.
Section 3. MINUTES. Each committee shall keep regular minutes of its
proceedings and report the same to the Board when required.
Section 4. RESPONSIBILITY OF DIRECTORS. The designation of a committee
and the delegation thereto of authority shall not operate to
relieve the Board of Directors, or any member thereof, of
any responsibility or liability imposed upon it or him by
law.
ARTICLE VI
OFFICERS
Section 1. OFFICERS OF THE CORPORATION. The officers of the
Corporation shall consist of a Chief Executive Officer,
President, a Secretary, a Treasurer and such Vice
Presidents, Assistant Secretaries, Assistant Treasurer, and
other officers as the Board of Directors may from time to
time elect. The same person may at the same time hold any
of the above named offices.
Section 2. ELECTION AND TERM. The officers of the Corporation shall be
elected by the Board of Directors and each officer shall
hold office until his death, resignation, retirement,
removal, disqualification or his successor shall have been
elected and qualified.
Section 3. COMPENSATION OF OFFICERS. The compensation of all officers
of the Corporation shall be fixed by the Board of Directors
and no officer shall serve the Corporation in any other
capacity and receive compensation therefor unless such
additional compensation be authorized by the Board of
Directors.
Section 4. REMOVAL OF OFFICERS AND AGENTS. Any officer or agent
elected or appointed by the Board of Directors may be
removed by the Board of Directors whenever, in its judgment,
the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
Section 5. BONDS. The Board of Directors may, by resolution, require
any officer, agent, or employee of the Corporation to give
bond to the Corporation, with sufficient sureties,
conditioned on the faithful performance of the duties of his
respective office or position, and to comply with such other
conditions as may from time to time be required by the Board
of Directors.
Section 6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
be the principal executive officer of the Corporation and,
subject to the control of the Board of Directors, shall, in
general, supervise and control all of the business and
affairs of the Corporation. He shall, when present, preside
at all meetings of the shareholders. He shall sign, with
the Secretary, an Assistant Secretary, or any other proper
officer of the Corporation thereunto authorized by the Board
of Directors, certificates for shares of the Corporation,
any deeds, mortgages, bonds, contracts, or other instruments
which the Board of Directors has authorized to be executed,
except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise
signed or executed; and, in general,
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shall perform all duties incident to the office of Chief
Executive Officer and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 7. PRESIDENT. The President shall be the chief operating
officer of the Corporation and, subject to the control of
the Board of Directors and supervision of the Chief
Executive Officer, shall, in general, supervise and control
all of the business and affairs of the Corporation. He
shall in the absence of the Chief Executive Officer, when
present, preside at all meetings of the shareholders. The
President shall sign, with the Secretary, an Assistant
Secretary, or any other proper officer of the Corporation
thereunto authorized by the Board of Directors, certificates
for shares of the Corporation, any deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors
has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated
by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation, or shall be required by
law to be otherwise signed or executed; and, in general,
shall perform all duties incident to the office of chief
operating officer and such other duties as may be prescribed
by the Board of Directors from time to time.
Section 8. VICE PRESIDENTS. In the absence of the Chief Executive
Officer and the President or in the event of their deaths,
inabilities or refusals to act, the Vice Presidents in the
order of their length of service as Vice Presidents, unless
otherwise determined by the Board of Directors, shall
perform the duties of the Chief Executive Officer and the
President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the Chief
Executive Officer and President. A Vice President may sign
certificates for shares of the Corporation. Vice Presidents
shall perform such other duties as from time to time may be
assigned to them by the Chief Executive Officer, President,
or Board of Directors.
Section 9. SECRETARY. The Secretary shall: (a) keep the minutes of the
meetings of shareholders, of the Board of Directors and of
all executive committees in one or more books provided for
that purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as
required by law; (c) be custodian of the corporate records
and of the seal of the Corporation and see that the seal of
the Corporation is affixed to all documents the execution of
which on behalf of the Corporation under its seal is duly
authorized; (d) keep a register of the post office address
of each shareholder which shall be furnished to the
Secretary by such shareholder; (e) sign with the Chief
Executive Officer and/or President, certificates for shares
of the Corporation, the issuance of which shall have been
authorized by resolution of the Board of Directors; (f) have
general charge of the stock transfer books of the
Corporation; and (g) in general, perform all duties as from
time to time may be assigned to him by the Chief Executive
Officer, President or by the Board of Directors.
The Secretary shall keep, or cause to be kept in the
state of incorporation at the Corporation's registered
office and principal place of business, a record of the
Corporation's shareholders, giving the names and
addresses of all shareholders and the number and class of
the shares held by each.
Section 10. ASSISTANT SECRETARIES. In the absence of the Secretary or
in the event of the Secretary's death, inability or refusal
to act, the Assistant Secretaries in the order of their
length of service as Assistant Secretary, unless otherwise
determined by the Board of Directors, shall perform the
duties of the Secretary, and when so acting shall have all
the powers of and be subject to all the restrictions upon
the Secretary. They shall perform such other duties as may
be assigned to them by the Secretary, by the Chief Executive
Officer, President, or the Board of Directors.
Any Assistant Secretary may sign, with the Chief Executive
Officer or President, certificates for shares of the
Corporation.
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Section 11. TREASURER. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the
Corporation; receive and give receipts for moneys due and
payable to the Corporation from any source whatsoever, and
deposit all such moneys in the name of the Corporation in
such depositories as shall be selected in accordance with
the provisions of Article VII, Section 4 of these Bylaws;
and (b) in general, perform all of the duties as from time
to time may be assigned to him by the Chief Executive
Officer, President or the Board of Directors.
The Treasurer shall prepare, or cause to be prepared, a
true statement of the Corporation's assets and
liabilities as of the close of each fiscal year, all in
reasonable detail, which statement shall be made and
filed at the Corporation's registered office or principal
place of business in the state of incorporation within
four months after the end of such fiscal year and thereat
kept available for a period of at least ten years. Such
statement shall include, when applicable, a statement of
the then current conversion rate of any outstanding
securities and a statement of the number of shares
covered by any outstanding options and the price at which
the options are exercisable.
Section 12. ASSISTANT TREASURER. In the absence of the Treasurer or in
the event of the Treasurer's death, inability or refusal to
act, the Assistant Treasurer, unless otherwise determined by
the Board of Directors, shall perform the duties of the
Treasurer and when so acting shall have all the powers of
and be subject to all the restrictions upon the Treasurer.
He shall perform such other duties as may be assigned to him
by the Treasurer, the Chief Executive Officer, President, or
by the Board of Directors.
Section 13. DIVISIONAL OFFICERS. The Board of Directors may from time
to time appoint officers of various divisions of the
Corporation. Divisional officers shall not by virtue of
such appointment become officers of the Corporation.
Subject to the direction of the Chief Executive Officer or
President of the Corporation, the president of a division
shall have general charge, control and supervision of all
the business operations of such division, and the other
divisional officers shall have such duties and authority as
may be prescribed by the president of such division.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or
execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general
or confined to specific instances.
Section 2. LOANS. No loan shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued
in its name unless authorized by a resolution of the Board
of Directors. Such authority may be general or confined to
specific instances.
Section 3. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, issued in the name of the Corporation,
shall be signed by such officer or officers, agent or agents
of the Corporation and in such manner as shall from time to
time be determined.
Section 4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit
of the Corporation in such depositories as the Board of
Directors may select.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
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Section 1. CERTIFICATES FOR SHARES. Certificates representing shares
of the Corporation shall be in such form as shall be
determined by the Board of Directors. The Corporation shall
issue and deliver to each shareholder certificates
representing all fully paid shares owned by him.
Certificates shall be signed by the Chairman or Vice
Chairman of the Board of Directors, the Chief Executive
Officer, the President or Vice President and by the
Secretary or an Assistant Secretary. All certificates for
shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the
shares represented thereby are issued, with the number and
class of shares and the date of issue, shall be entered on
the stock transfer books of the Corporation.
Section 2. TRANSFER OF SHARES. Subject to the transfer restrictions
permitted by Section 1055 of the Oklahoma General Business
Corporation Act and to stop transfer orders directed in good
faith by the Corporation to any transfer agent to prevent
possible violations of federal or state securities laws,
rules or regulations, transfer of shares of the Corporation
shall be made on the stock transfer books of the Corporation
only if: (a) the share certificate is endorsed by the
appropriate person or persons; (b) reasonable assurance is
given that those endorsements are genuine and effective; (c)
the Corporation has no duty to inquire into adverse claims
in connection with the shares or has discharged any such
duty; (d) any applicable law relating to the collection of
taxes has been complied with; and (e) the transfer is in
fact rightful or to a bona fide purchaser.
Section 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the
Corporation alleged to have been lost or stolen or
destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost,
stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in
its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or such owner's legal
representative, to advertise the same in such manner as the
Corporation shall require and/or to give the Corporation a
bond in such sum as the Corporation may direct as indemnity
against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost,
stolen or destroyed.
Section 4. HOLDER OF RECORD. Prior to due presentment for transfer of
the shares, the Corporation may treat the registered owner
as the person exclusively entitled to vote, to receive
notifications and otherwise to exercise all the rights and
powers of an owner.
Section 5. TREASURY SHARES. Treasury shares of the Corporation shall
consist of such shares as have been issued and thereafter
acquired but not canceled by the Corporation. Treasury
shares shall not carry voting or dividend rights.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Section 1. RIGHT TO INDEMNIFICATION.
(a) To the fullest extent and in the manner
permitted by the laws of the State of Oklahoma, the
Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any
threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of
the Corporation) by reason of the fact that he is or was
a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys'
fees), judgments, fines, excise taxes and amounts paid in
settlement actually and reasonably incurred by him in
connection with such
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action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful
("Indemnitee"). The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or
upon a plea of NOLO CONTENDERE or its equivalent shall
not, of itself, create a presumption that the Indemnitee
did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonably cause to
believe that his conduct was unlawful.
(b) The Corporation shall indemnify any Indemnitee
who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by
or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of
the Corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to
which such Indemnitee shall have been adjudged to be
liable to the Corporation 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 Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which
the court shall deem proper.
(c) To the extent that an Indemnitee has been
successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsection (a)
or (b) of this section, or in defense of any claim, issue
or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under the provisions of
subsection (a) or (b) of this section (unless ordered by
a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that
indemnification of the Indemnitee is proper in the
circumstances because he has met the applicable standard
of conduct set forth in subsection (a) or (b) of this
section. Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such
action, suit or proceedings, (ii) if such a quorum is not
obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the
shareholders.
(e) For purposes of this Article, references to
"the corporation" shall include, in addition to the
resulting corporation, any constituent corporation,
including any constituent of a constituent, absorbed in a
consolidation or merger which, if its separate existence
had continued, would have had power and authority to
indemnify its directors, officers, and employees or
agents, so that any person who is or was a director,
officer, employee or agent of such constituent
corporation, or is or was serving at the request of such
constituent corporation, as a director, officer, employee
or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the
same position under the provisions of this Article with
respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation
of its separate existence had continued.
(f) For purposes of this Article, references to (i)
"other enterprises" shall include, without limitation, an
"employee benefit plan" within the meaning of the
Employee Retirement Income Security Act of 1974 ("ERISA")
or otherwise, (ii) "fines" shall include
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any excise taxes or penalties assessed on a person with
respect to an employee benefit plan under ERISA or
otherwise, and (iii) "serving at the request of the
corporation" shall include any service as a director,
officer, employee or agent of the corporation which
imposes duties on, or involves services, by such
director, officer, employee, or agent with respect to an
employee benefit plan, its participants, or
beneficiaries. Furthermore, for purposes of this
Article, a person who acted in good faith and in a manner
he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not
opposed to the best interest of the corporation" as
referred to in this Article.
(g) The indemnification and advancement of expenses
provided by or granted pursuant to this Article, unless
otherwise provided when authorized or ratified, shall
continue as to an Indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of
such Indemnitee.
Section 2. RIGHT TO ADVANCEMENT OF EXPENSES. Expenses incurred by an
officer or director in defending a civil or criminal action,
suit or proceeding may be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding
upon receipt of an undertaking (hereinafter an
"undertaking") by or on behalf of such director or officer
to repay such amount if it shall ultimately be determined by
final judicial decision from which there is not further
right of appeal (hereinafter a "final adjudication") that he
is not entitled to be indemnified by the Corporation as
authorized by the provisions of this Article. Such expenses
incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the Board of Directors
deems appropriate.
Section 3. NON-EXCLUSIVITY OF RIGHTS. The indemnification and
advancement of expenses provided by or granted pursuant to
this Article shall not be deemed exclusive of any other
rights to which an Indemnitee seeking indemnification or
advancement of expenses may be entitled under any Bylaw,
agreement, vote of shareholders or disinterested directors
or otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office
or serving as a director.
Section 4. INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of who is or was a director,
officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as
such, whither or not the Corporation would have the power to
indemnify him against such liability under the provisions of
this Article.
Section 5. RIGHT OF INDEMNITEE TO BRING SUIT. In the event a claim
under this Article is not paid in full by the Corporation
within sixty (60) days after a written claim has been
received by the Corporation, the Indemnitee may at any time
thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in
part in any such suit, the Indemnitee, in addition to
indemnification pursuant to this the other provisions of
this Article, shall be entitled to be paid the expenses of
prosecuting such suit against the Corporation, including
reasonable attorneys' fees and costs. The Corporation shall
be entitled to assert as a defense that the Indemnitee has
not met any applicable standard for indemnification set
forth in the Oklahoma General Corporation Act and the
Corporation shall be entitled to recover any advancement of
expenses upon a final adjudication in (i) any suit brought
by the Indemnitee to enforce a right to indemnification
under the Article (but not in a suit brought by the
Indemnitee to enforce a right to an advancement of
expenses), and (ii) in any suit brought by the Corporation
to recover an advancement of expenses pursuant to the terms
of an undertaking by the Indemnitee. Neither the failure of
the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have
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made a determination prior to the commencement of such
suit that indemnification of the Indemnitee is proper in
the circumstance because the Indemnitee has met the
applicable standard of conduct set forth in the Oklahoma
General Corporation Act, nor an actual determination by
the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the
Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee
has not met the applicable standard of conduct or, in the
case of such a suit brought by the Indemnitee, be a
defense to such suit. In any suit brought by the
Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking by the
Indemnitee, the burden of proving that the indemnitee is
not entitled to be indemnified, or to such advancement of
expenses, under this Article or otherwise shall be on the
Corporation.
ARTICLE X
GENERAL PROVISIONS
Section 1. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its
outstanding shares in cash, property, or its own shares
pursuant to law and subject to the provisions of its
charter. Provided, however, and notwithstanding anything
contained herein to the contrary, the Board of Directors
shall, on an annually accrued basis, declare and pay, to the
Shareholders of this Corporation of record at the close of
business on December 31 of each year (the "Record Date"), a
cash dividend equal to fifty percent (50%) of the Net Profit
of this Corporation, and the payment date of such cash
dividend shall be on or before the 15th day of February
following the Record Date. Net Profit shall mean, with
respect to each fiscal year of this Corporation, the gross
revenues of this Corporation, less the cost of goods sold
and less the overhead and expenses of this Corporation but
before and without provision for payment of income taxes.
Any other cash dividends which may be declared and paid by
this Corporation in excess of the minimum annual dividend
set forth herein, shall be at the sole discretion of the
Board of Directors of this Corporation. [Amended June 16,
1993.]
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be
given to any shareholder or director by law, by the charter
or by these Bylaws, a waiver thereof in writing signed by
the person or persons entitled to such notice, whether
before or after the time stated therein, shall be equivalent
to the giving of such notice.
Section 3. FISCAL YEAR. Unless otherwise fixed by the Board of
Directors, the fiscal year of the Corporation shall be the
fiscal year beginning on the first day of January of each
year and ending on the following thirty-first day of
December.
Section 4. AMENDMENTS. These Bylaws may be altered, amended or
repealed or new bylaws may be adopted at any regular or
special meeting of the shareholders or of the Board of
Directors in accordance with the Corporation's Certificate
of Incorporation and the Oklahoma General Corporation Act.
Section 5. CHARTER PROVISIONS. In case of conflict between a provision
in these Bylaws and a provision in the Certificate of
Incorporation of the Corporation, the charter provision
shall govern.
Signed this 16th day of July, 1997.
/S/ROGER P. BARESEL
-----------------------------------------
Roger P. Baresel, Secretary
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EXHIBIT 4.1
ADVANTAGE MARKETING SYSTEMS, INC.
1998 DISTRIBUTOR STOCK PURCHASE PLAN
Advantage Marketing Systems, Inc., an Oklahoma corporation ("AMS" or the
"Company") hereby establishes the Advantage Marketing Systems, Inc. 1998
Distributor Stock Purchase Plan (this "Plan") based upon the terms and
conditions set forth herein.
1. NATURE AND PURPOSE OF THIS PLAN. The purpose of this Plan is to
provide an additional incentive to participating Eligible Persons (as
hereinafter defined) by enabling them to acquire a stock ownership interest
in the Company, to assist the Company in attracting and retaining persons of
ability and commitment as independent distributors of the products and
services offered by the Company, and to entice and encourage such persons to
further employ their best efforts in the marketing and distribution of the
Company's offered products and services.
2. DEFINITIONS. Where the following capitalized terms appear in
this Plan, such terms shall have the respective meanings set forth below,
unless their context clearly indicates to the contrary:
(A) "Affiliated Person" shall mean any person that exercises any direct
or indirect influence on, or control over (i) the amounts of Common Stock to
be purchased by this Plan, (ii) the timing of or the manner in which the
Common Stock is to be purchased by this Plan, and (iii) the selection of the
Custodian or the Broker-Dealer through which such purchases are or may be
made by this Plan.
(B) "Annual Service Fee" shall mean an administrative service fee of
$5.00 payable to the Company upon acceptance by the Company of a
Participant's Stock Purchase Agreement and thereafter annually on the 31st
day of January of each year from the Participant Contribution Account of each
Participant
(C) "Beneficiary" shall mean any person or entity designated or deemed
designated by a Participant as provided in Section 4.5.1
(D) "Board" shall mean the Board of Directors of the Company.
(E) "Broker-Dealer" shall mean a member firm of the National Association
of Securities Dealers, Inc. that effects purchases of Common Stock on behalf
of the Plan.
(F) "Common Stock" shall mean the Company's Common Stock, $.0001 par
value per share, acquired by the Plan in a transaction not directly or
indirectly for the benefit of the Company.
(G) "Contributions" shall mean the amounts contributed to this Plan by
the Participants pursuant to the provisions of this Plan.
(H) "Custodian" shall mean a Broker-Dealer, national or state banking
association or trust company and any successor thereof appointed by the Board
to make purchases of Common Stock for and on behalf of the Participants and,
if authorized and directed by the Board, to hold the Common Stock purchased
for and on behalf of the Participants in accordance with the Plan.
(I) "Distributor Application" shall mean the official, approved AMS
Distributor Application form in effect and use by the Company from time to
time in the jurisdiction in which an Eligible Person resides.
(J) "Eligible Persons" shall mean those persons, including individuals
(including without limitation employees of the Company and any of its
subsidiaries), partnerships, corporations or other legal entities, that have
completed Distributor Applications which have been received and accepted by
the Company and which continues in full force and effect.
(K) "Executive Officer" shall mean the Company's chief executive
officer, president, any vice president of the Company in charge of a
principal business unit, division or function (such as sales, administration,
or finance), and any other officer who performs a policy making function or
any other person who performs similar policy making functions for the
Company.
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(L) "Net Contributions" shall mean the Contributions to this Plan by
the Participants, less the Annual Service Fees and the Transaction Fees.
(M) "Participant" shall mean each Eligible Person that has completed a
Stock Purchase Agreement which has been received and accepted by the Company
and who is participating in the Plan.
(N) "Participant Account" shall mean the account maintained for a
Participant in which such Participant's Contributions and stock purchases are
recorded.
(O) "Plan" shall mean the Advantage Marketing Systems, Inc. 1997 Stock
Purchase Plan, as the same may from time to time be amended.
(P) "Plan Administrator" shall mean either the Board or any committee
appointed by the Board to administer the Plan and comprised of two or more
members of the Board.
(Q) "Stock Purchase Agreement" shall mean the Advantage Marketing
Systems, Inc. Stock Purchase Agreement pursuant to which an Eligible Person
elects to participate in the Plan.
(R) "Trading Days" shall mean those days on which securities are traded
on the New York Stock Exchange.
(S) "Transaction Fee" shall mean the fee of $1.25 payable monthly by a
Participant to the Company from such Participant's Contribution to the Plan
during the applicable month.
(T) "Transfer Agent" shall mean the Company's transfer agent and
registrar of the Common Stock and, if applicable, the Company's other
securities.
3. ELIGIBILITY AND PARTICIPATION. Participation in the Plan will be
subject to the following conditions:
3.1 ELIGIBILITY. Each Eligible Person may participate in the
Plan; provided, however, that Contributions to the Plan may only be made
by a Participant if the terms and conditions of the Plan and the Stock
Purchase Agreement are complied with as provided below.
3.2 ELECTION TO PARTICIPATE. Participation in the Plan is
entirely voluntary. Each Eligible Person electing to participate in the
Plan must evidence that election (and any changes thereof, including
without limitation any election to cancel participation in the Plan as
provided in Section 6, below) by completion and execution of a Stock
Purchase Agreement in such form as shall be provided by the Company and
in accordance with such administrative rules and procedures as may be
established by the Plan Administrator.
3.3 EFFECTIVE DATE OF PARTICIPATION. Participation in the Plan by
an Eligible Person shall be effective upon receipt and approval by the
Company of the Eligible Person's completed and executed Stock Purchase
Agreement.
3.4 NOTIFICATION OF PARTICIPATION RIGHT. The Company shall notify
the Eligible Persons of the establishment of this Plan, the salient
provisions hereof, and the eligibility of the Eligible Persons to
participate in this Plan.
4. CONTRIBUTIONS TO PLAN; ACCOUNTS. Contributions to the Plan will be
made solely by the Participants. The Company does not have obligation and will
not make any contributions to this Plan. All Contributions will be subject to
the following:
4.1 MINIMUM MANDATORY CONTRIBUTIONS. Each Participant shall be
required to make a minimum monthly Contribution to this Plan of US$25 by
drafting the checking, savings or other form of account maintained by
the participant at a financial institution pursuant to the Stock
Purchase Agreement or such other appropriate form or authorization as
may be required by the Company and/or the financial institution until
such time that the Company receives written notification from the
Participant of the revocation or amendment of the Stock Purchase
Agreement or such other form of authorization. Any such revocation or
amendment shall be effective as of the first day of the month following
the month in which the Company receives such written notification.
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4.2 CONTRIBUTIONS PAYABLE FROM PARTICIPANTS' COMMISSIONS. A
Participant, at the sole election of the Participant and provided the
Participant is otherwise entitled to participate in the Plan in all
other respects under this Plan, may also elect to have an amount
withheld from one or more of such Participant's regular gross Commission
Amount (as defined below) in lieu of otherwise receiving such amount of
commission compensation. Such election shall be made by written
notification of the Company indicating the amount of such Contribution.
The notification shall be effective with respect to the payment of such
commission check or checks only if received by the Company not less than
five days prior to payment of such commissions. The "Commission Amount"
shall mean the gross amount, before deduction of the Contribution to
this Plan pursuant to this Section 4.2, and may, as provided in the
Distributor Application and in the Company's Policies and Procedures,
be subject to offsets and further reductions, including without limitation
outstanding and unpaid product purchases and expenses. No Contribution to
this Plan payable from a Participant's commission pursuant to this
Section 4.2 shall be made during any period that the offsets and other
reductions exceed the commission amount payable to the Participant.
All Contributions to this Plan pursuant to this Section 4.2 shall be only
in US$1.00 increments. The election by a Participant to make Contributions
to this Plan pursuant to this Section 4.2 and the termination of such
election must be made in writing and received by the Company, in accordance
with the rules and procedures as shall be established, including any
amendment thereof, by the Company from time to time.
4.3 OTHER ADDITIONAL CONTRIBUTIONS. A Participant, at the sole
election of the Participant and provided the Participant is otherwise
entitled to participate in the Plan in all other respects under this
Plan, may also make direct Contributions to this Plan for the purchase
of Common Stock, subject to the terms and conditions of the Stock
Purchase Agreement and this Plan. All Contributions to this Plan
pursuant to this Section 4.3 shall be only in US$1.00 increments.
4.4 MAINTENANCE OF PARTICIPANT ACCOUNTS; COMMON STOCK OWNERSHIP AND
PURCHASES.
4.4.1 MAINTENANCE OF PARTICIPANT ACCOUNTS. Upon acceptance
and approval by the Company, the Company shall establish and
maintain a separate Participant Account for each Participant. Each
Participant Account shall be credited or debited as herein
provided. All Contributions by Participants shall not be
commingled with funds of the Company and shall be deposited in a
single bank account established at the direction of the Custodian
in the name of this Plan; however, the Company may commingle such
Contributions with the Contributions of all other Participants
eligible to participate to purchase Common Stock as provided
herein. Each Participant's Contribution to the Plan shall be
credited to the Participant Account of such Participant and shall
be debited with all amounts utilized for (i) the purchase of Common
Stock by the Plan on behalf of such Participant, (ii) payment of
the Annual Service Fee and the costs of issuance of stock
certificates upon withdrawal of Common Stock by such Participant
held for the benefit of such Participant, and (iii) payment of the
Transaction Fee.
4.4.2 NOTIFICATION OF AND PURCHASES BY CUSTODIAN.
Periodically during each month but not less often than on or before
the last Trading Day of each month, the Plan Administrator shall
notify the Custodian of the amount of Participant's Contributions
available for purchase of Common Stock. The Custodian shall make
all purchases of Common Stock on behalf of the Participants through
the Broker-Dealer. The Broker-Dealer shall provide to the Custodian
and the Company duplicate (i) confirmations of each Common Stock
purchase transaction by this Plan and (ii) monthly or quarterly
statements.
4.4.3 LIMITATION ON USE OF CONTRIBUTIONS. Participant's
Contributions to this Plan (other than for payment of the Annual
Service Fee, the Transaction Fee, and cost of issuance of
certificates of Common Stock to the respective Participants) may
only be used for purchases of the Common Stock as provided by this
Plan. Other than the securities of the Company, no securities may
be held or acquired by this Plan and then only for and on behalf
the Participants. The relationship between the Broker-Dealer and
this Plan with respect to the account and any successor account or
program and transactions therein will be governed by a separate
written agreement of terms and conditions between the Broker-Dealer
and this Plan (an "Account Agreement"). The Account Agreement will
be subject
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to amendment and modification in accordance with its
terms without notice to or consent from the Company, the Plan
Administrator or Participants.
4.4.4 HOLDING OF COMMON STOCK AND OTHER COMPANY SECURITIES.
All Common Stock and, applicable, other securities of the Company
held by the Broker-Dealer shall be in the name of the Broker-Dealer
or its nominee, unless otherwise directed by the Plan
Administrator, in which case, however, the Participants may be
subject to a fee payable to the Broker-Dealer or the Transfer Agent
for any change in the registration of the Common Stock or such
other securities in the name other than the Broker-Dealer or its
nominee.
4.4.5 DIVIDENDS AND OTHER COMPANY DISTRIBUTIONS. All cash
dividends paid on Common Stock received in this Plan's account with
the Broker-Dealer will be reinvested by the Broker-Dealer in
additional shares of Common Stock to the extent possible. All cash
dividends as well as all dividends and distributions on Common
Stock, including other securities of the Company, shall be
allocated among and credited to the Participants based upon the
number of shares of Common Stock held for their benefit under the
Plan on the record date of the of the dividend declaration.
4.4.6 PROXIES, COMPANY REPORTS AND SHAREHOLDER NOTICES. The
Company or the Plan Administrator shall transmit to each
Participant all proxy statements, annual reports, meeting notices
and other shareholder communications received with respect to
Common Stock acquired pursuant to and held under this Plan for and
on behalf of the Participants. Proxies will be voted with respect
to full shares of Common Stock held on behalf of a Participant as
reflected in the Participant Account in accordance with each
Participant's instructions duly delivered to and received by the
Company. If a Participant does not direct the exercise of such
voting rights with respect to any particular occasion for the
exercise thereof, such voting rights will not be exercised with
respect to such occasion.
4.5 BENEFICIARY DESIGNATION. Each individual Participant shall
designate his or her Beneficiary on a beneficiary designation form
provided by the Plan Administrator and such designation may include
primary and contingent Beneficiaries. The designation may be changed by
a Participant at any time by completing and delivering a new beneficiary
designation form to the Plan Administrator, which shall only be
effective upon receipt by the Plan Administrator of such form. In the
absence of such written designation, the surviving spouse of the
Participant shall be deemed to be the designated Beneficiary, if any,
and otherwise the estate of such Participant. In all events, the date
of determination of a Participant's Beneficiary shall be the date of
death of a Participant.
5. PURCHASES OF COMMON STOCK. All purchases of Common Stock shall
be subject to the following terms as well as the terms and conditions of this
Plan, the agreement with the Broker-Dealer and policies and procedures that
may be adopted and established by the Plan Administrator.
5.1 PERIODIC PURCHASES. Purchases of Common Stock, utilizing Net
Contributions received by this Plan during each month, will be made by
this Plan on behalf of Participants during the last five Trading Days of
such month. The Custodian and Broker-Dealer shall have full discretion
as to all matters relating to purchases of Common Stock, including
without limitation, determining the number of shares of Common Stock, if
any, to be purchased on any day or at any time of that day, the prices
paid for such Common Stock, the markets on which such purchases are
made, and the persons (including other brokers and dealers) from or
through whom such purchases are made.
5.2 FEES, COMMISSIONS, ETC. No fees, commissions or other charges
in connection with the purchase of Common Stock under the Plan will be
paid by or otherwise charged to Participants, other than the Annual
Service Fees, the Transaction Fees and those fees and commissions or
other charges paid to the Broker-Dealer respecting each purchase of
Common Stock, all of which shall be paid from Participants'
Contributions.
5.3 ALLOCATION OF PURCHASES. Common Stock purchased during a month
will be allocated to the each Participant Accounts based on the average
price paid for all shares of Common Stock purchased during the month and
the Participants' Net Contributions to this Plan during such month.
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5.4 LIMITATIONS OF PURCHASES. All purchases of Common Stock under
this Plan will be limited to open market purchases. The Company shall
not issue any Common Stock in connection with the purchases of Common
Stock by this Plan. Purchases of Common Stock made on behalf of
Participants who are not residents of the United States will be made
only in compliance with such federal, state or provincial or other
governmental rule or regulation applicable to such purchases.
5.5 TRADING MARKETS AND BROKER. Subject to the foregoing, Common
Stock purchased by the Broker-Dealer on the open market may be made on
any stock exchange in the United States where the Common Stock is
traded, in the over-the-counter market, or by negotiated transactions on
such terms as the Broker-Dealer may reasonably determine at the time of
purchase. Any Common Stock purchased by the Broker-Dealer from an
affiliate of the Company, if permitted hereunder, will be made in
accordance with applicable requirements. Participants will not have any
authority or power to direct the time or the price at which Common Stock
will be purchased, or the selection of the Broker-Dealer or the broker
or dealer from whom purchases are made.
5.6 CERTAIN PROHIBITED ACTIVITIES. Each Executive Officer,
director and Affiliated Person of the Company shall not bid for,
purchase, attempt to bid for or purchase, or offer or sell any shares of
Common Stock during the five Trading Days immediately preceding and
immediately following the date on which this Plan purchases any shares
of Common Stock, unless the offer or sale of Common Stock is made
pursuant to a registration statement effective under the Securities Act
of 1933, as amended, and pursuant to registration or exemption from
registration under any applicable state securities laws in which the
Executive Officer, director and/or Affiliated Person of the Company is
named as a selling shareholder.
6. WITHDRAWAL OF COMMON STOCK AND OTHER SECURITIES. Participants may
withdraw, for resale or otherwise, at any time all or any portion of the
whole shares of Common Stock and, if applicable, other securities of the
Company held by this Plan for their benefit by providing written notification
to the Company at its offices in Oklahoma City, Oklahoma. Such notification
shall specify the number of whole shares of Common Stock and other Company
securities to be withdrawn from this Plan and shall be accompanied by payment
of the cost of issuance by the Transfer Agent of the certificate or
certificates evidencing the shares of Common Stock and other Company
securities. Immediately following receipt of such notification, the Company
or Plan Administrator shall notify the Broker-Dealer of the Participant's
election to withdraw the shares of Common Stock and, if applicable, other
Company securities set forth in the notice, and immediately as soon as
practicable following the Broker-Dealer receiving such notification, the
Broker-Dealer shall take appropriate action to cause issuance and delivery of
the certificate or certificates evidencing such shares of Common Stock or
other securities. The procedures for withdrawal of Common Stock and other
Company securities from this Plan shall be established by the Plan
Administrator, the Broker-Dealer and the Custodian setting forth the
additional procedures to be followed by Participants electing to withdraw the
Common Stock and, if applicable, other Company securities held by this Pool
for their benefit. This Plan will not sell or otherwise dispose of the
Common Stock and other Company securities held for the benefit of the
Participants. Any Participant desiring to sell shares of Common Stock or
other Company securities held for the benefit of such Participant must comply
with the withdrawal procedures prior to such sale. Each Participant shall be
solely responsible for the costs and expenses, including without limitation
any commissions, administrative fees, taxes or other costs incurred or
payable in connection with the transfer, sale or other disposition of the
shares of Common Stock and other Company securities formerly held for the
benefit of such Participant.
7. TERMINATION OF PARTICIPATION UNDER THE PLAN.
7.1 VOLUNTARY CANCELLATION; OTHER TERMINATION. A Participant's
participation in this Plan shall immediately terminate if and when:
(i) the Participant voluntarily elects to cancel its
participation in this Plan (such cancellation to be effective
as of the date of receipt by the Company of a properly
executed Termination Form evidencing such termination); or
(ii) the Participant ceases to be eligible to participate in
the Plan by reason of the termination of the Participant as a
Distributor, the Participant's death (if an individual),
dissolution or liquidation, or otherwise.
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Upon any termination of participation under this subsection (other
than by reason of a Participant's death), any funds contributed by the
Participant that remain in the Participant Account of such Participant
shall be paid to the Participant, without payment of interest thereon,
and any whole shares of Common Stock and, if applicable, other
securities of the Company held by this Plan for the benefit of the
Participant shall be delivered to the Participant as a withdrawal
pursuant to Section 6 hereof. Upon termination of participation by
reason of a Participant's death, any funds contributed by the
Participant that remain in the Participant Account of such Participant
shall be paid, without payment of interest thereon, and any shares of
Common Stock and, if applicable, other securities of the Company held by
this Plan for the benefit of the Participant shall be disbursed and
distributed in accordance with the terms and conditions of this Plan.
Any fractional shares of Common Stock and, if applicable, other
securities of the Company to be delivered to a Participant upon
termination of participation shall be rounded to the next whole share if
such fraction is greater than .5 or, if less .5 or less, shall be
retained by this Plan.
7.2 PARTICIPATION FOLLOWING TERMINATION. A Participant whose
participation in this Plan is terminated may, after a period of one (1)
month from the date participation is terminated, elect to again
participate in this Plan so long as the Participant continues to be an
Eligible Person and is otherwise eligible to do so, and completes and
delivers to the Company a new Stock Purchase Agreement.
8. NO ASSIGNMENT OF PLAN INTERESTS. No rights of a Participant under
this Plan, including without limitation the rights in and to the Participant
Account of such Participant, are assignable by the Participant other than by
will or operation of law. Any attempt by a Participant or other person to
assign, alienate, or create a security interest in or otherwise encumber, any
of the Participant's interest under this Plan, or to subject the same to
attachment, execution, garnishment or other legal or equitable process shall
be void.
9. RESPONSIBILITY OF THE COMPANY, PLAN ADMINISTRATOR, BROKER-DEALER AND
CUSTODIAN. Each of the Company, the Plan Administrator, member serving or
having served on a committee serving as Plan Administrator, the Broker-Dealer
and Custodian will not be responsible or liable for any act done in good
faith or for any good faith act or omission to act, including, without
limitation, the failure to terminate a Participant's participation in this
Plan upon such Participant's death prior to receipt of notice in writing of
such death, or any act or omission to act with respect to the prices at which
the Common Stock was purchased or the times at which such purchases were made.
10. EXPENSES; REPORTS.
10.1 COSTS AND EXPENSES. Except as otherwise provided herein, all
costs and expenses of administering the Plan, including the maintenance
of Participant Accounts, shall be paid or otherwise borne by the
Company. The Company's incurrence and payment of such costs and
expenses shall not be deemed to be a contribution by the Company to any
Participant or to any Participant Account.
10.2 PARTICIPANT REPORTS. The Company or Plan Administrator, as
the case may be, shall provide each Participant semi-annual reports on
or about January 30 and July 30 of each year of number of shares of
Common Stock acquired and held for the Participant under this Plan.
10.3 PARTICIPANT EXPENSES FOLLOWING WITHDRAWAL. Each Participant
shall be solely responsible for the payment of any and all costs and
expenses, including without limitation any commissions or taxes, payable
in connection with the withdrawal of any shares of Common Stock or, if
applicable, other securities of the Company formerly held for the
benefit of such Participant.
11. ADMINISTRATION. This Plan will be administered by the Plan
Administrator, which shall have all of the powers of the Board with respect
to this Plan. Any member of the committee appointed by the Board to serve as
Plan Administrator may be removed at any time, with or without cause, by
resolution of the Board and any vacancy occurring on such committee at any
time or from time to time may be filled by appointment by the Board. Any and
all decisions or determinations of such committee shall be made either (i)
by a majority vote of the members of such committee at a meeting or (ii)
without a meeting by the unanimous written approval of the members of such
committee. The Plan Administrator may, from time to time, adopt rules and
regulations for carrying out the purposes of this Plan. The determinations
and interpretation and construction of any provision of the Plan by the Plan
Administrator shall be final and conclusive. Notwithstanding the foregoing,
the Board may (i) appoint a bank, trust company, registered broker-dealer or
other appropriate entity to serve as Custodian, Broker-Dealer or agent for
the Plan Administrator and
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(ii) remove the Custodian, Broker-Dealer or agent for the Plan Administrator
at any time. The Custodian's duties shall include (i) establishment of the
banking account of this Plan for deposit of Contributions, (ii) directing the
Broker-Dealer to make purchases of Common Stock on behalf of the
Participants, and (iii) establishing with the Plan Administrator and the
Broker-Dealer the procedures for withdrawal of Common Stock and other Company
securities from this Pool by Participants. The Broker-Dealer's duties shall
include (i) establishing and maintaining an account for this Plan, (ii)
purchasing Common Stock on behalf of the Participants pursuant to directions
of the Custodian, (iii) furnishing to the Plan Administrator (A)
confirmations of each Common Stock purchase transaction by this Plan and (B)
monthly or quarterly account statements, (iv) holding of the shares of Common
Stock in its name or its nominee, (v) establishing with the Plan
Administrator and the Custodian the procedures for withdrawal of Common Stock
and other Company securities from this Pool by Participants.
The Plan Administrator shall (i) maintain records of this Plan including
the Participant Accounts, (ii) furnish to Participants the reports required
by this Plan, (iii) direct the Custodian and/or Broker-Dealer with regard to
its duties under this Plan, but shall do so through a written agreement, (iv)
employ accountants, legal counsel and other agents to assist in the
performance of its duties under this Plan. All reasonable expenses of the
Plan Administrator in connection with its administration of the Plan shall be
borne by the Company unless otherwise provided in this Plan; provided,
however, the Company shall be entitled to receive the Annual Service Fees and
the Transaction Fees payable from Contributions.
12. TRANSFER OF SHARES TO PARTICIPANTS. As a condition to the
purchase of any Common Stock for the benefit of, or the transfer of any
shares of Common Stock to a Participant pursuant to this Plan, the Plan
Administrator may require such agreements or undertakings, if any, as the
Plan Administrator may deem necessary or advisable to assure compliance with
any law or regulation, including, but not limited to a representation,
warranty and/or agreement to be bound by any legends that are, in the opinion
of the Plan Administrator, necessary or appropriate to comply with the
provisions of any securities law deemed by the Plan Administrator to be
applicable to the Participants' acquisition of such Common Stock or other
securities of the Company and are endorsed upon the certificates therefore.
13. INDEMNIFICATION.
13.1 GENERAL INDEMNIFICATION. The Company shall indemnify and
hold harmless any person serving or that served as Plan Administrator
(or member of any committee serving as Plan Administrator) or Custodian
(the "Indemnified Party") to the maximum extent possible under the laws
of the State of Oklahoma, the common law or otherwise, against any and
all liabilities, claims, judgment, fines and amounts paid in settlement
and expenses (including attorneys fees) actually and reasonably incurred
by the Indemnified Party in connection with any claim or any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including any action by or in
the right of this Plan) to which the Indemnified Party is, was or at any
time becomes a party, or is threatened to be made a party, by reason of
the fact that the Indemnified Party is, was or at any time served as
Plan Administrator (or member of any committee serving as Plan
Administrator) or Custodian of this Plan.
13.2 INDEMNIFICATION LIMITATION. No indemnity pursuant to this
Section 13 shall be paid to the Indemnified Party (i) on account of the
Indemnified Party's conduct which is finally adjudged to have been
knowingly fraudulent, deliberately dishonest or willful misconduct, (ii)
if a final decision by a court having jurisdiction in the matter shall
have determined that such indemnification is not lawful, or (iii) on
account of any knowing and willful breach of the Indemnified Party's
fiduciary duty to the Participants resulting in financial injury to the
Participants.
13.3 EFFECTIVE PERIOD. The provisions of this Section 13 shall
continue during the period the Indemnified party serves as Plan
Administrator (or member of any committee serving as Plan Administrator)
or Custodian and thereafter so long as the Indemnified Party shall be
subject to any possible claim or threatened, pending or completed
action, suit, or proceeding, whether civil, criminal or investigative,
by reason of the fact that the Indemnified Party served as Plan
Administrator (or member of any committee serving as Plan Administrator)
or Custodian.
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13.4 NOTIFICATION. Within 30 days after receipt by the
Indemnified Party of notice of the commencement of any action, suit or
proceeding in which the Indemnified Party has a right to indemnification
pursuant to this Section 13, the Indemnified Party shall notify the
Company of the commencement thereof; but the omission to notify by the
Indemnified Party shall not relieve the Company from any liability which
the Company may have to the Indemnified Party otherwise than under this
Section 13 or otherwise. With respect to any such action, suit or
proceeding as to which the Indemnified Party notifies the Company of the
commencement thereof:
(i) the Company shall be entitled to participate therein at its
own expense; and
(ii) Except as otherwise provided below, to the extent that it
may wish, the Company shall be entitled to assume defense thereof,
with counsel satisfactory to the Indemnified Party. After notice
from the Company of its election to assume the defense thereof, the
Company will not be liable to the Indemnified Party under this
Section 13 for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof other
than costs of investigation or as otherwise provided below. The
Indemnified Party shall have the right to employ his own counsel in
such action, suit or proceeding; provided, however, that the fees
and expenses of such counsel incurred after notice from the Company
of the assumption of the defense thereof shall be at the expense of
the Indemnified Party, unless (a) the employment of counsel by the
Indemnified Party has been authorized by the Company or the
Indemnified Party shall have reasonably concluded that there may be
a conflict of interest between the Company and the Indemnified
Party in the conduct of the defense of such action, or (b) the
Company shall not have employed counsel to assume the defense of
such action, in each of which cases the fees and expense of counsel
shall be at the expense of the Company. The Company shall not be
entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Company or as to which the
Indemnified Party shall have made the conclusion provided for in
(a) above.
(iii) The Company shall not be liable to indemnify the
Indemnified Party under this Section 13 for any amount paid in
settlement of any action or claim effected without the Company's
consent. The Company shall not settle any action or claim in any
manner which would impose any obligation, penalty or limitation on
the Indemnified Party without the Indemnified Party's written
consent. Neither the Company nor the Indemnified Party shall
unreasonably withhold its consent to any proposed settlement.
13.5 OBLIGATION OF INDEMNIFICATION REIMBURSEMENT. The Indemnified
Party shall reimburse the Company for all reasonable expenses paid by
the Company in defending any civil or criminal action, suit or
proceeding against the Indemnified Party in the event and only to the
extent that it shall be ultimately determined that the Indemnified Party
is not entitled to be indemnified by the Company for such expenses under
this Section 13 or under applicable law.
13.6 RELIANCE UPON INDEMNIFICATION PROVISIONS. It is hereby
acknowledged that the provisions of this Section 13 are contained in
this Plan to induce the Indemnified Party to act and serve as Plan
Administrator (or member of any committee serving as Plan Administrator)
or Custodian and that the Indemnified Party's agreement to serve as Plan
Administrator (or member of any committee serving as Plan Administrator)
or Custodian of this Plan is, in part, in reliance upon the provisions
of this Section 13. In the event the Indemnified Party is required to
bring any action to enforce the Indemnified Party's right to collect
moneys due under this Section 13 and is successful in such action, the
Company shall reimburse the Indemnified Party for all of the Indemnified
Party's attorneys fees and expenses in bringing and pursuing such action.
14. EFFECTIVE DATE; TERMINATION; MODIFICATION.
14.1 EFFECTIVE DATE AND TERM OF PLAN. The effective date of this
Plan is February 27, 1998. The Plan will terminate on February 27,
2008, the tenth (10th) anniversary of the effective date thereof, unless
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earlier terminated in accordance with the following paragraph. No
shares of Common Stock may be purchased pursuant to this Plan subsequent
to its termination.
14.2 AMENDMENT. The Board may at any time and from time to time
amend, modify, extend, suspend or terminate this Plan at its sole and
exclusive discretion. Notice of any amendment, modification, extension,
suspension, or termination of this Plan will be sent to all Participants.
14.3 TERMINATION. Promptly after any termination of this Plan,
each Participant will receive any funds contributed by such Participant
that remain in this Plan, and the shares of Common Stock and, if
applicable, other securities of the Company credited to and held for the
benefit of such Participant as of the date of termination without
interest thereon and subject to the additional terms and conditions of
this Plan. Any fractional shares of Common Stock and, if applicable,
other securities of the Company to be delivered to a Participant upon
termination of this Plan, shall be rounded to the next whole share if
such fraction is greater than .5 or, if .5 or less shall be retained by
this Plan.
15. INTERPRETATION. If any provision of this Plan should be held
invalid or illegal for any reason, such determination shall not affect
the remaining provisions hereof, but instead the provisions of this
Plan shall be construed and enforced as if such provision had never been
included in this Plan. This Plan shall be governed by the laws of the
State of Oklahoma, United States of America. Headings contained in this
Plan are for convenience only and shall in no manner be construed as
part of the Plan. Any reference to the singular or plural number, or to
the masculine, feminine or neuter gender, shall be a reference to such
other number or gender, as the case may be, as is appropriate.
ADOPTED BY RESOLUTION OF THE BOARD OF DIRECTORS, EFFECTIVE THE 27TH DAY OF
FEBRUARY 1998.
/S/ ROGER P. BARESEL
-------------------------------------------
Roger P. Baresel, Secretary
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EXHIBIT 5.1
[LETTERHEAD]
March 9, 1998
Board of Directors
Advantage Marketing Systems, Inc.
2601 Northwest Expressway, Suite 1210W
Oklahoma City, Oklahoma 73112
Gentlemen:
We have acted as counsel to Advantage Marketing Systems, Inc., an Oklahoma
corporation (the "Company"), in conjunction with the offering of an aggregate of
5,000,000 participation interests (the "Participation Interests").
The offering of the Participation Interests is more fully described in that
certain Registration Statement on Form SB-2 (No. 333- ), filed by the
Company with the United States Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the "Act"),
and all amendments thereto the Registration Statement as filed with the such
Initial Registration Statement was amended by Amendment No. 1 as filed with the
Commission on August 26, 1996 ("Amendment No. 1"), Amendment No. 2 as filed with
the Commission on September 18, 1996 ("Amendment No. 2"), Amendment No. 3 as
filed with the Commission on November 1, 1996 ("Amendment No. 3"), and
Amendment No. 4 as filed with the Commission on November 13, 1996 ("Amendment
No. 4") (the "Registration Statement"), and the Prospectus in the form as to be
filed with the Commission pursuant to Rule 424(b)(1) of the rules and
regulations of the Commission under the Act (the "Prospectus").
For purposes of this opinion, we have made such investigations as we deem
necessary or appropriate and have reviewed and considered, among other
certificates, documents and materials, the following:
(a) The Certificate of Transcript issued by the Secretary of State of the
State of Oklahoma certifying that the copy of Certificate of
Incorporation of the Company attached thereto is a full, true and
correct copy;
(b) The Certificate of Good Standing issued by the Secretary of State of
the State of Oklahoma certifying that the Company is duly organized
and existing under and by virtue of the Law of the State of Oklahoma
and is in good standing according to the records of its office;
(c) A copy of the Bylaws, as amended and restated, of the Company as
certified by the Secretary of the Company;
(d) A copy of the resolutions adopted by the Board of Directors of the
Company on February 27, 1998, certified by the Secretary of the
Company;
(e) The manually signed Registration Statement and all amendments thereto
and the Prospectus;
(f) The letter, addressed to the Company from the Commission, confirming
that the Registration Statement became effective;
(g) A copy of the Advantage Marketing Systems, Inc. 1998 Distributor Stock
Purchase Plan (the "Plan");
(h) The Certificate of Officers and Directors of the Company dated as of
the date of the closing of the offering, delivered to this firm;
(i) The Officer's Certificate of the Company dated as of the date of the
closing of the offering, delivered to this firm; and
(j) The Secretary's Certificate of the Company dated as of the date of
closing of the offering.
1
<PAGE>
In conducting our examination we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals
and the conformity with the originals of all documents submitted to us as
certified copies. Based upon our examination and consideration of the foregoing
and upon our examination and consideration of such other documents,
certificates, records, matters and things as we have deemed necessary for the
purposes hereof, we are of the opinion as of the date hereof that:
1. The Company will be duly organized and existing under the laws of the
State of Oklahoma;
2. All of the issued and outstanding shares of the Common Stock of the
Company will have been legally issued, will be fully paid and will not
be liable to further call or assessment;
3. The 5,000,000 Participation Interests to be sold by the Company to the
participants in the Plan against payment therefore in accordance with
the Plan, will be legally issued, fully paid and will not be liable
for further call or assessment;
In arriving at the foregoing opinion, we have relied, among other things,
upon the examination of the corporate records of the Company and certificates of
officers and directors of the Company and of public officials. We hereby
consent to the use of this opinion in the Registration Statement and all
amendments thereto, and to the reference to our firm name under the caption
"Legal Matters" of the Prospectus which is included as a part of the
Registration Statement.
Very truly yours,
DUNN SWAN & CUNNINGHAM
<PAGE>
EXHIBIT 23.1
INDEPENDENT ACCOUNTANTS' CONSENT
We consent to the use in this Registration Statement of Advantage Marketing
Systems, Inc. on Form SB-2 of our reports dated April 4, 1997 on the
consolidated financial statements of Advantage Marketing Systems, Inc. and
dated April 11, 1997 on the combined financial statements of Stay 'N Shape
International, Inc., Now International, Inc., Solution Products, Inc. and
Nation of Winners, Inc., appearing in the Prospectus, which is a part of this
Registration Statement.
We also consent to the references to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma,
March 11, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF COUNSEL
Dunn Swan & Cunningham, A Professional Corporation, hereby consents to the
use of its name under the heading "Legal Matters" in the Prospectuses
constituting part of this Registration Statement.
DUNN SWAN & CUNNINGHAM
A Professional Corporation
Oklahoma City, Oklahoma
March 10, 1998
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John W. Hail constitutes and
appoints Roger P. Baresel his true and lawful attorney-in-fact and agent, with
all power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign this Registration Statement and any or
all amendments to thereto, including post-effective amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith with the Securities and Exchange Commission, granting unto same
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated March 6, 1998 /S/ JOHN W. HAIL
-------------------------------------
John W. Hail
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Curtis H. Wilson, Sr. constitutes
and appoints John W. Hail and Roger P. Baresel, and each of them, his true and
lawful attorney-in-fact and agent, with all power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement and any or all amendments to
thereto, including post-effective amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto same attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Dated March 6, 1998 /S/ CURTIS H. WILSON, SR.
-------------------------------------
Curtis H. Wilson, Sr.
<PAGE>
EXHIBIT 24.3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Roger P. Baresel constitutes and
appoints John W. Hail his true and lawful attorney-in-fact and agent, with all
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign this Registration Statement and any or
all amendments to thereto, including post-effective amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith with the Securities and Exchange Commission, granting unto same
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated March 6, 1998 /S/ ROGER P. BARESEL
-------------------------------------
Roger P. Baresel
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that R. Terren Dunlap constitutes and
appoints John W. Hail and Roger P. Baresel, and each of them, his true and
lawful attorney-in-fact and agent, with all power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement and any or all amendments to
thereto, including post-effective amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto same attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Dated March 6, 1998 /S/ R. TERREN DUNLAP
-------------------------------------
R. Terren Dunlap
<PAGE>
EXHIBIT 24.5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Harland C. Stonecipher
constitutes and appoints John W. Hail and Roger P. Baresel, and each of them,
his true and lawful attorney-in-fact and agent, with all power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement and any or all amendments to
thereto, including post-effective amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto same attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Dated March 6, 1998 /S/ HARLAND C. STONECIPHER
-------------------------------------
Harland C. Stonecipher