UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14 (a) OF THE SECURITIES EXCHANGE
ACT OF 1934 (AMENDMENT NO. )
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[X] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
ADVANTAGE MARKETING SYSTEMS, INC.
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(Name of Registrant as Specified In Its Charter)
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ADVANTAGE MARKETING SYSTEMS, INC.
2601 Northwest Expressway, Suite 1210W
Oklahoma City, Oklahoma 73112-7293
Telephone: (405) 842-0131
NOTICE OF ANNUAL MEETING
TO OUR SHAREHOLDERS:
Our Annual Meeting of Shareholders will be held at the Cox Communications
Center in downtown Oklahoma City, Oklahoma, on July 26, 2003, commencing at
10:30 a.m., Central Daylight-Savings Time, and thereafter as it may be adjourned
from time to time, for the following purposes:
1. To elect two directors to hold office until the 2006 annual meeting of
shareholders and until their successors shall have been duly elected
and qualified;
2. To consider and approve the Advantage Marketing Systems, Inc. 2003
Stock Incentive Plan;
3. To consider and act upon a proposal to ratify the appointment of Grant
Thornton LLP as our independent auditor for 2003; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Holders of record of common stock at the close of business on May 27,
2003, are entitled to notice of and to vote at the meeting or any adjournment
thereof, notwithstanding transfer of any stock on our books after such record
date. The accompanying proxy statement contains information regarding the
matters to be considered at the Annual Meeting. Copies of this notice and the
accompanying proxy statement were first mailed to shareholders on or about June
15, 2003. For reasons set forth in the attached proxy statement, the Board of
Directors recommends a vote "FOR" the matters being voted upon.
YOUR ATTENDANCE OR PROXY IS IMPORTANT TO ASSURE A QUORUM AT THE ANNUAL
MEETING. SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON
ARE REQUESTED TO COMPLETE AND RETURN THE ENCLOSED PROXY, USING THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED FROM WITHIN THE UNITED STATES. ANY
PERSON GIVING A PROXY HAS THE POWER TO REVOKE IT AT ANY TIME PRIOR TO ITS
EXERCISE AND, IF PRESENT AT THE ANNUAL MEETING, MAY WITHDRAW IT AND VOTE IN
PERSON. ATTENDANCE AT THE ANNUAL MEETING IS LIMITED TO SHAREHOLDERS, THEIR
PROXIES AND OUR INVITED GUESTS. ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND
THE ANNUAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS:
Reggie B. Cook, Corporate Secretary
Oklahoma City, Oklahoma
June 15, 2003
PROXY STATEMENT
ADVANTAGE MARKETING SYSTEMS, INC.
2601 NORTHWEST EXPRESSWAY, SUITE 1210W
OKLAHOMA CITY, OKLAHOMA 73112-7293
(405) 842-0131
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 26, 2003
SOLICITATION AND REVOCATION OF PROXIES
We at Advantage Marketing Systems, Inc. are furnishing this proxy statement
in connection with the Annual Meeting of the holders of our common stock to be
held at 10:30 a.m., Central Daylight-Savings Time, on July 26, 2003, at the Cox
Communications Center in downtown Oklahoma City, Oklahoma, and any adjournment
thereof. This proxy statement and the accompanying Notice of Annual Meeting of
Shareholders and Proxy were first mailed on or about June 15, 2003, to our
shareholders of record on May 27, 2003.
If the accompanying proxy is properly executed and returned, the shares of
common stock represented by the proxy will be voted at the Annual Meeting. If
you indicate in your proxy a choice with respect to any matter to be acted upon,
your shares will be voted in accordance with your choice. If no choice is
indicated, your shares will be voted "FOR" the election of the nominees for
director listed below, the approval of the Advantage Marketing Systems, Inc.
2003 Stock Incentive Plan and the ratification of our appointment of Grant
Thornton LLP as our independent auditors for 2003. Our shareholders will also
consider and vote upon such other business as may properly come before the
Annual Meeting or any adjournment thereof. Our Board of Directors knows of no
business that will be presented for consideration at the Annual Meeting, other
than matters described in this proxy statement. You may revoke your proxy by
giving written notice of your revocation to our Secretary at any time before
your proxy is voted, by executing another valid proxy bearing a later date and
delivering the new proxy to our Secretary prior to or at the Annual Meeting, or
by attending the Annual Meeting and voting in person.
Neither the corporate laws of the State of Oklahoma, the state in which we
are currently incorporated, nor our Certificate of Incorporation or Bylaws have
any provisions regarding the treatment of abstentions and broker non-votes. Our
policy is (i) to count abstentions or broker non-votes for purposes of
determining the presence of a quorum at the Annual Meeting, (ii) to treat
abstentions and broker non-votes as votes not cast but to treat them as shares
represented at the Annual Meeting for determining results on actions requiring a
majority vote, and (iii) to consider neither abstentions nor broker non-votes in
determining results of plurality votes.
The expenses of this proxy solicitation, including the cost of preparing
and mailing this proxy statement and accompanying proxy will be borne by us.
Such expenses will also include the charges and expenses of banks, brokerage
firms and other custodians, nominees or fiduciaries for forwarding solicitation
material regarding the Annual Meeting to beneficial owners of our common stock.
Solicitation of proxies may be made by mail, telephone, personal interviews or
by other means by members of our Board of Directors or our employees who will
not be additionally compensated therefore, but who may be reimbursed for their
out-of-pocket expenses in connection therewith.
SHAREHOLDERS ENTITLED TO VOTE
Shareholders entitled to vote at the Annual Meeting are the holders of
record, at the close of business on May 27, 2003, our record date, of the
4,454,314 shares of common stock then outstanding. Each holder of a share of
common stock outstanding on the record date will be entitled to one vote for
each share held on each matter presented at the Annual Meeting. Our officers and
directors own a total of 1,231,157 shares, or 27.6 percent of the issued and
outstanding common stock, and intend to vote all of these shares in favor of the
matters to be voted upon at the Annual Meeting. There is no cumulative voting
with respect to the election of directors. The presence in person or by proxy of
the holders of a majority of the shares of common stock issued and outstanding
at the Annual Meeting will constitute a quorum for the transaction of business.
All matters to be brought before the Annual Meeting will require the affirmative
vote of a majority of the shares of common stock present at the Annual Meeting
in person and by proxy and entitled to vote. Votes will be tabulated by an
inspector of election appointed by our Board of Directors.
THIS PROXY STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF THESE TRANSACTIONS NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
PROPOSAL 1
ELECTION OF DIRECTORS
Our Bylaws provide that our Board of Directors shall consist of not less
than one nor more than fifteen directors, as determined from time to time by
resolution of our Board of Directors. The number of directors is currently fixed
at seven (7) directors. R. Terren Dunlap tendered his resignation as a director
effective May 20, 2002. Mr. Dunlap's resignation was not the result of a
disagreement with us related to our operations, policies or practices. In
October 2002, our Board of Directors approved the appointment of Steven M.
Dickey as Mr. Dunlap's successor. In March 2003, the Board increased the size of
the Board from five (5) to seven (7) directors, and appointed of Steven R. Hague
and our President David J. D'Arcangelo as directors to fill the vacancies
created by the increase in Board members.
In general, the directors are divided into three classes. Class I Directors
hold office for a term expiring at the annual meeting of shareholders to be held
in 2003, Class II Directors hold office for a term expiring at the annual
meeting of shareholders to be held in 2004, and Class III Directors hold office
for a term expiring at the annual meeting of shareholders to be held in 2005.
Each director holds office for the term to which he is elected and until his
successor is duly elected and qualified. Messrs. Dickey and Cook are serving as
Class I Directors under a term expiring in 2003. Messrs. Hail, Buxton and
D'Arcangelo are serving as Class II Directors under a term expiring in 2004 and
Messrs. Stonecipher and Hague are serving as Class III Directors under a term
expiring in 2005. At each of our annual shareholders meetings, the successor to
a director whose term expires at such meeting will be elected to hold office for
a term expiring at the annual shareholders meeting held in the third year
following the year of his election.
Our Board of Directors has nominated Steven M. Dickey and Reggie B. Cook
for re-election as directors for a term ending in 2006 and until their
successors shall have been duly elected and qualified. The persons named as
proxies in the accompanying proxy, who have been designated by our Board of
Directors, intend to vote unless otherwise instructed in the proxy, for the
election of Messrs. Dickey and Cook. Should any nominee named herein become
unable for any reason to stand for election as a director, the persons named in
the proxy will vote for the election of such other person as our Board of
Directors may recommend. We know of no reason why any nominee will be
unavailable or unable to serve.
The affirmative vote of the holders of a majority of our common stock
present, in person or by proxy at the Annual Meeting and entitled to vote, is
required for the election of a director. An abstention from voting and broker
non-votes will be tabulated as a vote withheld on the election, but will be
included in computing the number of shares present for purposes of determining
the presence of a quorum for the Annual Meeting and whether a nominee has
received the vote of a majority of the shares present at the Annual Meeting.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RE-ELECTION OF STEVEN M.
DICKEY AND REGGIE B. COOK TO THE BOARD OF DIRECTORS. PROXIES SOLICITED BY OUR
BOARD OF DIRECTORS WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY
CHOICE.
INFORMATION ABOUT EACH DIRECTOR AND DIRECTOR NOMINEE OF ADVANTAGE MARKETING
SYSTEMS, INC.
NAME AGE POSITION WITH US
---- --- ----------------
John W. Hail(2) 72 Chairman of the Board, Chief Executive Officer and Director
David D'Arcangelo(2) 47 President and Director
Reggie Cook(1)(4) 48 Chief Financial Officer, Secretary, Treasurer and Director
Steven M. Dickey(1)(4) 55 Director
Steven R. Hague(3) 58 Director
M. Thomas Buxton III(2) 53 Director
Harland C. Stonecipher(3) 64 Director
(1) Term as a Director expires in 2003.
(2) Term as a Director expires in 2004.
(3) Term as a Director expires in 2005.
(4) Director Nominee.
John W. Hail is our founder and has served as our Chief Executive
Officer and Chairman of the Board of Directors since our 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. Since 1998, Mr. Hail has served as a Director of
Pre-Paid Legal Services, Inc. In March 1999, Mr. Hail became a director of
DuraSwitch Industries, Inc., a company that develops and distributes electronic
switches.
David J. D'Arcangelo has served as our President since November 2002.
Before joining us, Mr. D'Arcangelo founded Entreport Corporation, a company that
went straight from the business plan, to the startup, to being listed on the
American Stock Exchange. Mr. D'Arcangelo is a nationally-known speaker, speaking
with such recognized speakers as Zig Ziglar, Tommy Hopkins and Barbara Bush. Mr.
D'Arcangelo holds a Bachelor Degree in Economics/Business Administration from
the University of Redlands.
Reggie B. Cook has served as Vice President and Chief Financial
Officer since November 2000, and as a director since February 2001. From 1994 to
2000, Mr. Cook served as Chief Financial Officer of Sequoiah Fuels Corporation,
a subsidiary of a Fortune 500 energy company that manufactured and
internationally distributed high-grade energy products. He has 18 years of
senior management experience guiding regulated industries that must operate
under intense regulatory scrutiny. Mr. Cook received his B.B.A. in Accounting,
Management and Finance, and his Masters in Business Administration from the
University of Oklahoma.
Steven M. Dickey has served as one of our directors since October
2002. Mr. Dickey has been a practicing attorney in the Oklahoma City area since
1973, and is a principal shareholder in the firm of Dickey and Dickey Attorneys.
Steven R. Hague has served as one of our directors since January 2003.
Mr. Hague has been a partner at One Source Advisors in Oklahoma City since 1999.
One Source Advisors is a management and actuarial consulting firm that provides
services related to product development; merger, acquisition and venture
development; bank insurance development and analysis; operational performance
analysis and financial reporting and forecasting. Previously, Mr. Hague was
Chief Executive Officer of American Southwest Holding Company from 1998 to 1999,
and President and Chief Executive Officer of Bankers Protective Life Insurance
Company from 1993 to 1997. Mr. Hague has been nominated to serve as a director
of Pre-Paid Legal Services, Inc. Mr. Hague holds a Bachelor of Science degree
from West Virginia University.
M. Thomas Buxton III has served as one of our directors since June
2001. Mr. Buxton has practiced as a CPA in the Oklahoma City area and has been a
shareholder in Buxton and Cloud, CPA's since 1982. Mr. Buxton is a serving
lieutenant colonel in the United States Army Reserve.
Harland C. Stonecipher has served as one of our directors 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.
INFORMATION ABOUT EACH EXECUTIVE OFFICER OF ADVANTAGE MARKETING SYSTEMS, INC.
NAME AGE POSITION WITH US
---- --- ----------------
David J. D'Arcangelo........... 47 President
Dennis P. Loney(1).............. 49 Chief Operations Officer
Reggie B. Cook.................. 48 Chief Financial Officer, Secretary and Treasurer
----------
(1) Mr. Loney is the son-in-law of Mr. Hail.
David J. D'Arcangelo is listed above in our directors' information.
Dennis P. Loney is Chief Operations Officer. Mr. Loney has served as in
this capacity since July 1995. Prior to his current position, Mr. Loney served
as the Vice President of Administration of TVC Marketing, Inc. Mr. Loney brings
over 20 years of business and 14 years of network marketing experience.
Reggie B. Cook is listed above in our directors' information.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors, officers, and persons who own more than 10 percent of a
registered class of our equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than 10% shareholders are required to furnish us with
copies of all Section 16(a) forms they file.
Based solely on our review of the copies of the forms we received covering
purchase and sale transactions in our equity securities during 2002, we believe
that each person who, at any time during 2002, was a director, officer or
beneficial owner of more than 10% of our common stock complied with all Section
16(a) filing requirements during 2002, except that Messrs. D'Arcangelo, Dickey
and Hague failed to timely file their Form-3's on either their election as an
officer or their appointment as a director.
BOARD MEETINGS AND COMMITTEES
The Board of Directors has the responsibility for establishing our broad
corporate policies and for our overall performance. However, the Board is not
involved in our day-to-day operations. The Board is kept informed of our
business through discussions with our Chief Executive Officer and other
officers, by reviewing analyses and reports provided to it on a regular basis,
and by participating in Board and Committee meetings.
Meetings. The Board of Directors held eight meetings during 2002. Messrs.
Hail, Cook, Stonecipher and Buxton attended all of the Board meetings. Mr.
Dunlap attended three meetings prior to his resignation from the Board,
effective May 20, 2002. Mr. Dickey attended two meetings subsequent to his
appointment to the Board, effective October 30, 2002. The Board has established
an Audit Committee and a Compensation Committee. In accordance with our By-laws,
the Board of Directors annually elects from its members the members of each
Committee.
Audit Committee. Members: M. Thomas Buxton III, Steven M. Dickey and Steven
R. Hague.
The Audit Committee is composed of non-employee directors, each of which is
independent as defined in Section 121 (A) of the American Stock Exchange listing
standards. The Audit Committee annually considers the qualifications of our
independent auditor and makes recommendations to the Board on the engagement of
the independent auditor. The Audit Committee meets with representatives of the
independent auditor and is available to meet at the request of the independent
auditor. During these meetings, the Audit Committee receives reports regarding
our books of accounts, accounting procedures, financial statements, audit
policies and procedures, internal accounting and financial controls, and other
matters within the scope of the Audit Committee's duties. The Audit Committee
reviews the plans for and results of audits for us and our subsidiaries. The
Audit Committee reviews and approves the independence of the independent
auditor, and considers and authorizes the fees for both audit and nonaudit
services of the independent auditor. See the "Audit Committee Report" included
elsewhere herein.
The Board of Directors has determined that Mr. Buxton is a financial expert
as defined in Item 401(h)(2) of Regulation S-K. An audit committee financial
expert has the following attributes:
o An understanding of generally accepted accounting principles and
financial statements;
o The ability to assess the general application of such principles
in connection with the accounting for estimates, accruals and
reserves;
o Experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of
accounting issues comparable to the breadth and complexity of
accounting issues reasonably expected to be raised by our
financial statements;
o An understanding of internal controls and procedures for
financial reporting; and
o An understanding of audit committee functions.
Mr. Buxton has practiced as a Certified Public Accountant in the State of
Oklahoma since 1982. In addition, he was previously the Chief Financial Officer
for a holding company. As such, Mr. Buxton possesses the attributes necessary to
qualify as an audit committee financial expert.
Mr. Buxton's determination as an audit committee financial expert does not:
o Deem Mr. Buxton an expert for any other purpose;
o Impose on Mr. Buxton any duties, obligations or liability that
are greater than the duties, obligations or liability imposed on
other Audit Committee members; nor
o Affect the duties, obligations or liability of any other member
of the Audit Committee or the Board of Directors.
Mr. Dunlap was a member of the Audit Committee until his resignation from
the Board of Directors, effective May 20, 2002. Mr. Dickey replaced Mr. Dunlap
on the Audit Committee effective October 30, 2002. Mr. Stonecipher was asked to
resign from the Audit Committee in January 2003, due to independence issues, and
Mr. Hague was approved to replace him. During 2002, the Audit Committee met four
times. Mr. Buxton was present at all meetings. Mr. Dunlap attended two meetings
prior to his resignation from the Board, effective May 20, 2002. Mr. Stonecipher
attended two meetings. Mr. Dickey attended one meeting subsequent to his
appointment to the Board, effective October 30, 2002.
Compensation Committee. Members: M. Thomas Buxton III and Steven R. Hague.
The members of the Compensation Committee are independent directors, but
are eligible to participate in any of the plans or programs that the
Compensation Committee administers. The Compensation Committee approves the
standards for setting salary ranges for our executive officers, reviews and
approves the salary budgets for all other of our officers, and specifically
reviews and approves the compensation of our senior executives. The Compensation
Committee reviews action taken by management in accordance with the salary
guidelines for executives and establishes the performance objectives for
variable compensation for executives. The Compensation Committee also
administers our stock option plans and approves stock option grants for our
executive officers. See the "Compensation Committee Report on Executive
Compensation" included elsewhere herein. Mr. Stonecipher was asked to resign
from the Compensation Committee in January 2003, due to independence issues, and
Mr. Hague was approved to replace him. During 2002, the Compensation Committee
met twice and each committee member attended all meetings.
COMPENSATION OF DIRECTORS
Directors who are not our employees receive $500 for each Board meeting
attended. Directors who are also our employees receive no additional
compensation for serving as directors. We reimburse our directors for travel and
out-of-pocket expenses in connection with their attendance at meetings of the
Board of Directors. Our Bylaws provide for mandatory indemnification of
directors and officers to the fullest extent permitted by Oklahoma law.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At December 31, 2002, our Compensation Committee consisted of Messrs.
Buxton and Stonecipher. Mr. Stonecipher was asked to resign from the
Compensation Committee in January 2003, due to independence issues, and Mr.
Hague was approved to replace him. No member of the Compensation Committee was
one of our officers or employees, or an officer or employee of any of our
subsidiaries, during 2002. John W. Hail, our Chairman of the Board and Chief
Executive Officer, serves on the Board of Directors of Pre-Paid Legal Services,
Inc. and Duraswitch Industries, Inc. Harland Stonecipher, the Chairman of the
Board and Chief Executive officer of Pre-Paid Legal Services, Inc., serves on
our Board of Directors. R. Terren Dunlap, former Chairman of the Board of
Duraswitch Industries, Inc. and Chief Executive Officer of Duraswitch from 1997
to January 2002, served on our Board of Directors through May 20, 2002.
PROPOSAL 2
APPROVAL OF 2003 STOCK INCENTIVE PLAN
Our board of directors adopted our 2003 Stock Incentive Plan, or 2003
Plan, as of April 28, 2003, subject to stockholder approval.
PURPOSE AND KEY FEATURES OF THE PLAN
The purpose of our 2003 Plan is to create incentives designed to motivate
participants to significantly contribute to our growth and profitability. The
shares available to be issued under the 2003 Plan will enable us to attract and
retain experienced individuals who, by their positions, abilities and diligence,
are able to make important contributions to our success. Awards will be granted
in such a way as to align the interests of participants with those of the
stockholders.
Key features of the 2003 Plan include:
o A reservation of 2,000,000 shares for issuance under the 2003 plan;
o A prohibition against the repricing of stock options;
o A prohibition against granting options with an exercise price less
than the fair market value of our common stock on the date of grant;
o A maximum of 250,000 shares of the total reserved for issuance under
the 2003 Plan may be granted as restricted stock;
o A maximum ten-year life for any award made under the 2003 Plan;
o Award limits include the following:
o A limitation on the maximum number of shares that may be awarded
in the form of options to an employee in any calendar year to
500,000; and
o A limitation on the maximum number of shares that may be awarded
in the form of restricted stock to an employee in any calendar
year to 100,000; and
o The Compensation Committee (composed entirely of outside directors)
administers the 2003 Plan.
ADMINISTRATION
The 2003 Plan consists of two separate stock plans:
o Non-executive officer plan. This aspect of the 2003 Plan is limited to
participants who are not subject to Section 16 of the Securities
Exchange Act of 1934 because they are not one of our executive
officers. The non-executive officer plan is administered by the
Compensation Committee. However, the Compensation Committee may, to
the extent permitted by law, delegate authority to the regular award
committee to administer the non-executive officer plan. Individuals
appointed by the Compensation Committee will comprise the regular
award committee. Although the regular award committee may be
authorized to administer the non-executive officer plan, it can only
make awards within guidelines set by the Compensation Committee.
o Executive officer plan. This aspect of the 2003 Plan is limited to
participants who are one of our executive officers and who, therefore,
are subject to the reporting requirements of Section 16 of the
Securities Exchange Act of 1934. The executive officer plan is
administered exclusively by the special award committee.
Except for administration and the category of participants eligible to
receive awards, the terms of the non-executive officer plan and the executive
officer plan are identical.
ELIGIBILITY FOR PARTICIPATION
Our employees, independent contractors and consultants and those of our
subsidiaries and affiliated entities are eligible to participate in the 2003
Plan. Subject to the provisions of the 2003 Plan, the compensation committee has
exclusive power in selecting participants.
TYPES OF AWARDS
The 2003 Plan provides that any or all of the following types of awards may
be granted:
o Nonqualified stock options;
o Stock options intended to qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"); and
o Restricted stock.
Stock Options. The Compensation Committee may grant awards under the 2003
Plan in the form of options to purchase shares of our common stock. The
Compensation Committee will have the authority to determine the terms and
conditions of each option, the number of shares subject to the option, and the
manner and time of the option's exercise. Subject to certain adjustment
provisions, the Compensation Committee cannot grant options and restricted stock
with respect to more than 500,000 shares of common stock to any participant in
any calendar year. As of January 1, 2003, the effective date on which options
were first granted under the 2003 Plan, the market value of the common stock
underlying the options available for issuance under the 2003 Plan was
$2,620,000.
The exercise price of an option may not be less than the fair market value
of the common stock on the date of grant. The fair market value of shares of
common stock subject to options is determined by the closing price as reported
on the American Stock Exchange. As of April 28, 2003, the closing price of our
common stock as reported on the American Stock Exchange was $1.45. A participant
may pay the exercise price of an option in cash, in shares of our common stock
or a combination of both. If the exercise price (including required withholding
taxes) is paid using shares of our common stock, the Compensation Committee will
not allow this act to result in an adverse accounting change to us. At the
present time, the Compensation Committee has determined that a participant using
our common stock to pay the exercise price of options granted under the 2003
Plan must have held those shares for at least six months. The Compensation
Committee may permit a cashless exercise of stock options through a
broker-dealer acting on a participant's behalf if the exercise is made in
accordance with procedures adopted by us that ensure that the arrangement will
neither constitute a personal loan to the participant nor result in the
imposition of variable accounting on us. Unless sooner terminated, the stock
options granted under the 2003 Plan expire ten years form the date of the grant.
Restricted Stock Awards. Shares of restricted stock awarded under the 2003
Plan will be subject to the terms, conditions, restrictions and/or limitations,
if any, that the Compensation Committee deems appropriate, including
restrictions on employment, transferability and continued employment. The
Compensation Committee may also restrict vesting to the attainment of specific
performance targets it establishes. The restricted stock award must vest over a
minimum restriction period of at least one year from the date of grant.
TERMINATION OF EMPLOYMENT
The Compensation Committee will determine the treatment of a participant's
award in the event of death, disability, retirement or termination of employment
for an approved reason. If a participant's employment is terminated for any
other reason, all unvested awards will terminate and the Compensation Committee
will provide in the award agreement the terms of exercise/payment of vested
awards.
AMENDING THE 2003 PLAN
Our Board of Directors may amend the 2003 Plan at any time. The Board of
Directors, however, may not, without shareholder approval:
o Adopt any amendment that would increase the maximum number of shares
that may be issued under the 2003 Plan (except for certain
anti-dilution adjustments described in the "Automatic Adjustment
Features" section of this document);
o Materially modify the 2003 Plan's eligibility requirements; or
o Materially increase the benefits provided to participants under the
2003 Plan.
Amendments to award agreements that would have the effect of repricing
participants' options are prohibited.
CHANGE OF CONTROL EVENT
The Compensation Committee is authorized to provide in the award agreements
for the acceleration of any unvested portion of any outstanding awards under the
2003 Plan upon a change of control event.
AUTOMATIC ADJUSTMENT FEATURES
The 2003 Plan provides for the automatic adjustment of the number and
kind of shares available under it, and the number and kind of shares subject to
outstanding awards in the event the common stock is changed into or exchanged
for a different number or kind of shares of stock or other securities of ours or
another corporation, or if the number of shares of common stock is increased
through a stock dividend. The 2003 Plan also provides that the Compensation
Committee may adjust the number of shares available under the 2003 Plan and the
number of shares subject to any outstanding awards if, in the Compensation
Committee's opinion, any other change in the number or kind of shares of
outstanding common stock equitably requires such an adjustment.
U.S. FEDERAL TAX TREATMENT
Incentive Stock Option Grant/Exercise. A participant who is granted an
incentive stock option does not realize any taxable income at the time of the
grant or at the time of exercise (except for alternative minimum tax).
Similarly, we are not entitled to any deduction at the time of grant or at the
time of exercise. If the participant makes no disposition of the shares acquired
pursuant to an incentive stock option before the later of two years from the
date of grant of such option or one year of the transfer of such shares to the
participant, any gain or loss realized on a subsequent disposition of the shares
will be treated as a long-term capital gain or loss. Under such circumstances,
we will not be entitled to any deduction for U.S. federal income tax purposes.
Non-Qualified Stock Option Grant/Exercise. A participant who is granted a
non-qualified stock option does not have taxable income at the time of grant.
Taxable income occurs at the time of exercise in an amount equal to the
difference between the exercise price of the shares and the market value of the
shares on the date of exercise. We are entitled to a corresponding deduction for
the same amount.
Restricted Stock Award. A participant who has been granted an award in the
form of restricted stock will not realize taxable income at the time of the
grant, and we will not be entitled to a deduction at the time of the grant,
assuming that the restrictions constitute a substantial risk of forfeiture for
U.S. federal income tax purposes. When such restrictions lapse, the participant
will receive taxable income (and have tax basis in the shares) in an amount
equal to the excess of the fair market value of the shares at such time over the
amount, if any, paid for such shares. We will be entitled to a corresponding
deduction. The participant may elect to include the value of his restricted
stock award as income at the time it is granted under Section 83(b) of the Code,
and we will take a corresponding income tax deduction at such time.
PLAN BENEFITS
Effective as of January 1, 2003, our Board of Directors granted options
under our 2003 Plan covering an aggregate of 875,000 shares of our common stock,
subject to stockholder approval of the 2003 Plan at the annual meeting. The
exercise price for the options granted was $1.31 per share, which was the last
reported sale price of our common stock on January 1, 2003. On March 6, 2003,
our Board of Directors granted options under our 2003 Plan covering an aggregate
of 20,000 shares of our common stock, at an exercise price of $1.55 per share,
which was the last reported sale price of our common stock on March 6, 2003. The
following table sets forth grants of options that have been made under our 2003
Plan to the following groups:
o Each of our five most highly compensated executive officers;
o All current executive officers as a group;
o All current directors who are not executive officers as a group;
o Each nominee for election as a director;
o Each associate of any such directors, executive officers or nominees;
o Each other person who received or is to receive 5% of such options;
and
o All employees, including all current officers who are not executive
officers, as a group.
RESTRICTED STOCK
AWARDS
-------------------------
NUMBER OF NUMBER DOLLAR
NAME AND POSITION OPTIONS OF SHARES VALUE
----------------- --------- --------- ------
John W. Hail, Chairman of the Board and
Chief Executive Officer 100,000 -- $ --
David J. D'Arcangelo, President 500,000 -- --
Reggie B. Cook, Vice President and
Chief Financial Officer 100,000 -- --
Dennis P. Loney, Vice President and
Chief Operating Officer 100,000 -- --
All executive officers as a group (5
persons) 825,000 -- --
Steven M. Dickey, Director and nominee
for Director 15,000 -- --
Directors who are not executive
officers (4 persons, including
nominees) 50,000 -- --
Associates of directors, executive
officers or nominees -- -- --
Other persons who received 5% or more
of options granted or restricted
stock awarded -- -- --
Non-executive officer employees, as a
group -- -- --
EQUITY COMPENSATION PLAN INFORMATION
In addition to the options and restricted stock that are issuable under our
2003 Plan, the following table sets forth the number of securities that may be
issued pursuant to existing plans that have either been approved or not approved
by our stockholders.
(a) (b) (c)
Number of securities
Number of securities remaining available for
to be issued upon future issuance under
exercise of Weighted-average equity compensation plans
outstanding options, exercise price of (excluding securities
warrants outstanding options, reflected in
Plan Category and rights warrants and rights column (a))
---------------------------------------- ------------------------- ------------------------- -------------------------
Equity plans approved by
security holders ....................... 1,083,403 $ 2.66 41,597
Equity compensation plans not
approved by security holders ........... 673,250 $ 1.95 --
------------------------- -------------------------
Total .................................. 1,756,653 $ 2.36 41,597
========================= =========================
Prior to approval of our 1995 Stock Option Plan, we issued 673,250
incentive stock options to employees and associates. These options have a term
of 10 years, are exercisable, in whole or in part, at any time prior to the
termination date, and have an exercise price of $1.75 to $2.00 per share. The
options may be assigned or transferred, in whole or in part, so long as such
assignment or transfer is in accordance with and subject to the provisions of
the Securities Act of 1933, as amended, and the rules promulgated thereunder,
and the specific terms of the relevant option agreement.
RECOMMENDATION AND VOTE REQUIRED
Approval of our 2003 Plan will require the affirmative vote of the holders
of outstanding shares of our common stock representing a majority of the total
combined voting power of all outstanding shares of our common stock, present in
person or represented by proxy at the Annual Meeting and entitled to vote.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE APPROVAL OF THE ADVANTAGE MARKETING SYSTEMS, INC. 2003 STOCK INCENTIVE PLAN.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Grant Thornton LLP as our independent
auditors for the year ending December 31, 2003, and has further directed that
management submit the selection of independent auditors for ratification by the
stockholders at our Annual Meeting. Grant Thornton LLP audited our 2002 and 2001
financial statements. Representatives of Grant Thornton LLP are expected to be
present at the Annual Meeting and will have an opportunity to make a statement
if they so desire and will be available to respond to appropriate questions.
As previously reported, on July 10, 2001, upon the recommendation of our
Audit Committee and with the approval of our Board of Directors, we dismissed
our principal accountant, Deloitte & Touche LLP, in order to institute certain
cost saving measures. On the same date, we engage Grant Thornton LLP as our
principal accountant. At no time did any report by Deloitte & Touche LLP on our
financial statements contain an adverse opinion or a disclaimer of opinion; nor
was any such report qualified or modified as to uncertainty, audit scope or
accounting principles. Also, at no time did we have any disagreements with
Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Deloitte & Touche LLP,
would have caused Deloitte & Touche LLP to reference the subject matter of the
disagreement in connection with their report on our financial statements.
We did not consult with Grant Thornton LLP during our two most recent
fiscal years and any subsequent interim period prior to engaging Grant Thornton
LLP regarding either (1) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on our financial statements, or (2) any matter that was either
the subject of a disagreement or a reportable event, as those terms are defined
in Item 304(a) of Regulation S-K.
AUDIT FEES
Audit fees billed to us during the last two fiscal years ended December 31,
2002 for audit or review of our annual financial statements and those financial
statements included in our quarterly reports on Forms 10-Q, and services
normally provided in connection with our regulatory filings, totaled $72,850 for
2001 and $54,250 for 2002, of which $9,000 were billed by Deloitte & Touche LLP
and $118,100 were billed by Grant Thornton LLP.
AUDIT-RELATED FEES
Audit-related fees billed to us during the last two fiscal years ended
December 31, 2002 for assurance and related services reasonable related to the
audit or review of our financial statements, but not otherwise disclosed under
the heading "Audit Fees" above, totaled $11,050 for 2001 and $3,250 for 2002, of
which $10,000 were billed by Deloitte & Touche LLP and $4,300 were billed by
Grant Thornton LLP. These fees related to the change of auditors from Deloitte &
Touche LLP to Grant Thornton LLP and the review of internal control
documentation and preparation of management advisory comments.
TAX FEES
Tax fees billed to us during the last two fiscal years ended December 31,
2002 for tax compliance, tax advice or tax planning totaled $0 for 2001 and
$9,990 for 2002, all of which was billed by Grant Thornton LLP.
ALL OTHER FEES
Fees billed to us during the last two fiscal years ended December 31, 2002
for all other non-audit services totaled $37,500 for 2001 and $0 for 2002, all
of which was billed by Deloitte & Touche LLP. These fees related to due
diligence work on the acquisition of LifeScience Technologies in January 2001.
The Audit Committee has determined that the provision of non-audit services by
Deloitte & Touche LLP and Grant Thornton LLP did not impact the independence of
Deloitte & Touche LLP and Grant Thornton LLP.
Pursuant to pre-approval policies and procedures set forth in the existing
Audit Committee Charter, the Audit Committee approved 100% of the audit and
audit-related services in 2001 and 2002. The Audit Committee did not pre-approve
the provision of tax services or all other non-audit services in 2001 and 2002.
The Audit Committee currently approves in advance all audit and non-audit
services to be performed for us by our independent accountants.
Stockholder ratification of the selection of Grant Thornton LLP as our
independent auditors is not required by Grant Thornton, LLP, our Bylaws or
otherwise. However, the Board is submitting the selection of Grant Thorton LLP
to our stockholders for ratification as a matter of corporate practice. If the
stockholders fail to ratify the selection, the Board will reconsider whether or
not to retain that firm. Even if the selection is ratified, the Board in its
discretion may direct the appointment of a different independent accounting firm
at any time during the year if the Board determines that such a change would be
in our best interests and the best interests of our stockholders.
The affirmative vote of the holders of a majority of the total combined
voting power of the shares represented and entitled to vote at the meeting will
be required to ratify the selection of Grant Thornton LLP as our independent
auditors for the fiscal year ending December 31, 2003.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF GRANT
THORNTON LLP AS INDEPENDENT AUDITORS. PROXIES SOLICITED BY OUR BOARD OF
DIRECTORS WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY CHOICE.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
Our Executive Officers. The following Summary Compensation Table sets forth
certain information relating to compensation for services rendered during the
years ended December 31, 2002, 2001 and 2000, paid to or accrued for John W.
Hail, our Chief Executive Officer and each of our executive officers whose 2002
salary and bonus exceed $100,000.
LONG-TERM
COMPENSATION AWARDS
------------------------------
ANNUAL COMPENSATION SECURITIES EXERCISE
------------------------------------------- UNDERLYING OR BASE
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS OTHER OPTIONS PRICE
--------------------------- ---- ---------- ------- ------- ------------ ----------
John W. Hail................................. 2002 $456,041 $ -- $ -- -- $ --
Chief Executive Officer 2001 $315,506 $ -- $ -- 100,000 $ 2.65
2000 $281,640 $ -- $ -- -- $ --
Reggie Cook................................. 2002 $162,028 $ -- $ -- -- $ --
Vice President and Chief Financial 2001 $194,700 $ -- $ -- 50,000 $ 2.65
Officer 2000 $ -- (2) $ -- $ -- -- $ --
Dennis Loney................................ 2002 $166,165 $ -- $ -- -- $ --
Vice President and Chief Operating 2001 $158,700 $ -- $ -- 50,000 $ 2.65
Officer 2000 $ -- (2) $ -- $ -- -- $ --
(1) Dollar value of base salary earned during the year, including the use of
automobiles for Messrs. Hail, Cook, and Loney, the value of which is less
than 10% of each officers' total annual salary, is included in their annual
compensation.
(2) Yearly salary in these years was less than $100,000.
AGGREGATE OPTION GRANTS AND EXERCISES IN 2002 AND YEAR END OPTION VALUES
Stock Options and Option Values. There were no stock options granted to
Messrs. Hail, Cook and Loney during 2002.
Aggregate Stock Option Exercises in 2002 and Year End Option Values. The
following table sets forth information related to the exercise of stock options
during 2002 and the number and value of options held by the named executive
officers at December 31, 2002.
STOCK OPTION EXERCISES AND YEAR END OPTION VALUE TABLE
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AS OF OPTIONS AS OF
SHARES DECEMBER 31, 2002 DECEMBER 31, 2002(1)
ACQUIRED ON VALUE -------------------------------- -----------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- ------------- ------------- ------------- ------------- -------------
John W. Hail(2) ....... -- $ -- 326,944(2) 248,056 $ -- $ --
Chief Executive Officer
Reggie Cook ........... -- $ -- 20,448 55,671 $ -- $ --
Vice President and
Chief Financial Officer
Dennis Loney .......... 2,000 $ 4,060 31,055 56,670 $ -- $ --
Vice President and
Chief Operating Officer
(1) The closing sale price of our common stock as reported on the American
Stock Exchange on December 31, 2002 was $1.31. The per-share value is
calculated based on the applicable closing price per share, minus the
exercise price, multiplied by the number of shares of our common stock
underlying the options.
(2) Includes 225,000 options given by John Hail as a gift to certain members of
his family in 1995.
EMPLOYMENT AGREEMENTS
We have entered into a written employment with our President, David J.
D'Arcangelo. The contract is for an initial one-year term, commencing November
25, 2002, and automatically renewable for two successive one-year terms unless
rejected by either party. The contract calls for a base salary of $180,000 per
year, an annual incentive bonus of up to $200,000, contingent upon meeting
certain performance goals, and non-qualified options to purchase up to 700,000
shares of our common stock at an exercise price of $1.40 per share. A total of
200,000 of Mr. D' Arcangelo's options vested in 2002. The employment agreement
also contains provisions for graduated severance payments of up to 12 months of
base pay, based on length of employment, if we terminate him without cause,
disability payments, and a non-competition agreement preventing Mr. D'Arcangelo
from engaging in a business deemed similar to ours for a period of one year from
the cessation of his employment.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The 2002 Compensation Committee was composed of Messrs. Buxton and
Stonecipher, each of whom was one of our independent directors. The Compensation
Committee designs and administers the compensation programs for our executive
officers and other key employees and makes grants under our stock option plans.
The Compensation Committee, with the aid of internal staff, reviews and
evaluates our compensation programs to determine their effectiveness in
attracting, motivating and retaining highly skilled executive officers.
Compensation Philosophy. Our compensation program for our executive
officers is designed to preserve and enhance stockholder value by heavily
emphasizing performance-based compensation. The program is directed towards
motivating executives to achieve our business objectives, to reward them for
their achievement and to attract and retain executive officers who contribute to
our long-term success. Competition is intense for senior executives within the
network marketing industry, with established companies and start-ups
aggressively recruiting management talent. A key design criterion for our
compensation programs is therefore the retention of senior management and other
key employees.
Compensation Components. Our executive compensation program has three
primary components: base salary, performance bonuses and stock option grants.
Each is discussed below.
Base Salary. The level of base salary paid to our executive officers is
determined on the basis of the importance of the position and on market data. In
2002, we increased the base salaries of all of our named executive officers.
Performance Bonuses. For 2002, we employed a cash incentive compensation
program under which bonus amounts are based on a number of performance factors
that we considered relevant, including the following:
o Overseeing our financial results;
o Building and growing higher margin business;
o Strengthening our organization structure and management team; and
o Controlling non-personnel expenses while growing revenues.
Stock Option Grants. For 2002, we employed a stock option grant program
under which options were granted based on a number of performance factors that
we considered relevant, including the same factors considered for performance
bonuses.
Compensation of the Chief Executive Officer. As described above, we
determine compensation for all executives, including John W. Hail, our Chief
Executive Officer, considering both a pay-for-performance philosophy and market
rates of compensation. Mr. Hail's base salary was $453,051 for fiscal 2002,
which we believe is not inconsistent with the base salaries of chief executive
officers of peer companies.
THE COMPENSATION COMMITTEE
M. Thomas Buxton III
Harland Stonecipher
AUDIT COMMITTEE REPORT
The Audit Committee of the Board is responsible for providing independent,
objective oversight and review of our accounting functions and internal
controls. The Audit Committee is governed by a written Charter adopted and
approved by the Board in June, 2000. A copy of the Audit Committee Charter was
attached to our proxy statement for our 2001 annual meeting.
In fulfilling our duties for the 2002 fiscal year pursuant to our Charter,
the Committee has also done each of the following:
o Reviewed our audited financial statements for 2002 and discussed the
financial statements with our management;
o Discussed with Grant Thornton, LLP the matters required to be
discussed with them by the Auditing Standards Board Statement on
Accounting Standards No. 61 (Codification of Statements on Auditing
Standards, AU 380) as may be modified or supplemented;
o Received written disclosure from Grant Thornton, LLP about any
relationships between them and us which they believe may effect their
independence;
o Received a confirmation letter from Grant Thornton, LLP that they are
independent of us; and
o Discussed Grant Thornton, LLP's independence with them.
Based on the review and discussions above, the Committee recommended to the
Board that the audited financial statements for 2002 be included in our Form
10-K filed with the Securities and Exchange Commission.
All of the members of the Audit Committee in 2002 were independent as
defined in Section 121(A) of the American Stock Exchange Listing Standards.
The Committee has considered the non-audit services rendered by our
principal accountant for the most recent fiscal year and has concluded that the
provisions of such services is compatible with maintaining Grant Thornton, LLP's
independence.
AUDIT COMMITTEE:
M. Thomas Buxton, III
Steven M. Dickey
Harland C. Stonecipher
STOCK PERFORMANCE
The following performance graph compares our cumulative total stockholder
return on our common stock against the cumulative total return of the AMEX
Composite Index and the Morgan Stanley Consumer Index (CMR) compiled by
Prudential Securities Group, Inc. for the period from December 31, 1997 through
December 31, 2002. The performance graph assumes that the value of the
investment in our stock and each index was $100 on December 31, 1997 and that
any dividends were reinvested. We have never paid dividends on our common stock.
(PERFORMANCE CHART)
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG ADVANTAGE MARKETING SYSTEMS, INC.
AMEX COMPOSITE INDEX AND MORGAN STANLEY CONSUMER INDEX
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- -------- --------
Advantage Marketing
Systems, Inc................... 100.00 75.00 202.28 86.17 92.49 137.46
Morgan Stanley
Consumer Index................. 100.00 122.78 130.02 146.07 131.89 111.97
AMEX Composite Index 100.00 101.74 131.43 137.03 132.33 131.43
The industry index chosen is the Morgan Stanley Consumer Index. This index
is an equal dollar weighted index designed to measure the performance of
consumer-oriented, stable growth industries through price changes in 30
component stocks representing 20 industries. Major industries include beverages,
food, pharmaceuticals, tobacco and personal products. To ensure that each
component stock continues to represent approximately equal weight in the index,
adjustments are made annually, based on closing prices on the third Friday in
December.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
GENERAL
The following table presents certain information as to the beneficial
ownership of our common stock as of May 27, 2003, of:
o Each person who is known to us to be the beneficial owner of more than
5% of our common stock;
o Each of our directors, nominees for directors and executive officers;
o Our executive officers and directors as a group; and
o Their percentage holdings of our outstanding shares of common stock.
For purposes of the following table, the number of shares and percent of
ownership of our outstanding common stock that the named person beneficially
owned on May 27, 2003, includes shares of our common stock that such person has
the right to acquire within 60 days of May 27, 2003, upon exercise of options
and warrants. However, such shares are not included for the purposes of
computing the number of shares beneficially owned and percent of our outstanding
common stock of any other named person.
COMMON STOCK
-----------------------------
SHARES PERCENT OF
BENEFICIALLY SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OUTSTANDING
-------------------------------------------------- ------------- -------------
John W. Hail(1)(2) ............................... 741,807 16.7%
Harland C. Stonecipher(3) ........................ 180,768 4.1%
Steven M. Dickey(1) .............................. -- --
M. Thomas Buxton III(1) .......................... -- --
Steven R. Hague(1) ............................... -- --
Reggie B. Cook(1)(4) ............................. 42,180 0.9%
Dennis P. Loney(1)(5) ............................ 62,986 1.4%
David J. D'Arcangelo(1)(6) ....................... 200,000 4.5%
Executive Officers and Directors as a group
(eight persons) ................................ 1,237,552 27.8%
----------
(1) A director or an executive officer 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:
o 395,556 shares of our common stock that are subject to currently
exercisable stock options, 100 shares of our common stock subject to
currently exercisable 1997-A warrants and 2,100 shares of our common
stock that are subject to currently exercisable redeemable common
stock purchase warrants held by Mr. Hail; and
o 29,663 shares of our common stock and 1,000 shares of our common stock
that are subject to currently exercisable redeemable common stock
purchase warrants owned by corporations controlled by Mr. Hail.
(3) Mr. Stonecipher is a director 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 180,768 shares of our
outstanding common stock held by Pre-Paid Legal Services, Inc., which may
be deemed to be beneficially owned by Mr. Stonecipher.
(4) The number of shares and each percentage presented includes 30,448 shares
of our common stock that are subject to currently exercisable stock
options.
(5) The number of shares and each percentage presented includes 43,055 shares
of our common stock that are subject to currently exercisable stock options
held by Mr. Loney.
(6) The number of shares and each percentage presented represent shares of our
common stock that are subject to currently exercisable stock options.
CERTAIN TRANSACTIONS
Set forth below is a description of transactions entered into between
us and certain of our officers, directors and shareholders during the last
fiscal year. Certain of these transactions may result in conflicts of interest
between us and such individuals. Although these persons have fiduciary duties to
us and our shareholders, there can be no assurance that conflicts of interest
will always be resolved in our favor or in the favor of our shareholders.
During 2002, we received approximately $7,069 from Pre-Paid Legal
Services, Inc., a shareholder, for commissions on sales of memberships for the
services provided by Pre-Paid Legal. As of July 1, 2000, we began offering our
employees access to the services provided by Pre-Paid Legal through an employee
benefit option. We pay half the cost for each employee electing to participate
in the plan. During 2002, we paid $6,934 to Pre-Paid Legal for these services.
Our Chairman of the Board and Chief Executive Officer, John W. Hail, is a
director of Pre-Paid Legal, and the Chairman of the Board and Chief Executive
Officer of Pre-Paid Legal, Harland Stonecipher, is our director.
During the first quarter of 1998, we agreed to loan John W. Hail, the
Chief Executive Officer and a major shareholder, up to $250,000. Subsequently,
we agreed to loan up to an additional $75,000. In 2000, an additional $200,000
was approved. On January 1, 2001 the outstanding balance on all the notes were
combined into one note payable in monthly installments. Our board of directors
unanimously approved the loans and extension. These loans are collateralized by
stock and property, and bear interest at 8% per annum. As of December 31, 2002,
the balance due on these loans plus interest was $63,561.
During 2002, we paid Mr. Loney and his wife sales bonuses of $30,887.
These bonuses were based upon purchases by them and their downline associates in
accordance with our network marketing program applicable to all independent
associates in effect at the time of the sales. Mr. Loney's wife is the daughter
of John W. Hail.
On December 17, 1996, we adopted policies that loans and other
transactions with officers, directors and 5% or more shareholders 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.
OTHER BUSINESS TO BE BROUGHT BEFORE THE MEETING
Our Board of Directors knows of no business that will be presented for
action at the Annual Meeting other than that described in the Notice of Annual
Meeting of Shareholders and this Proxy Statement. However, if any other matters
should properly come before the Annual Meeting, it is the intention of the
persons named in the accompanying Proxy to vote such Proxies as they deem
advisable in accordance with their best judgment.
SHAREHOLDERS PROPOSALS FOR 2004 ANNUAL MEETING
Under the existing rules of the Securities and Exchange Commission, any of
our shareholders may present proposals on any matter that is a proper subject
for consideration by our shareholders at the 2004 annual shareholders meeting.
We currently anticipate that our 2004 annual shareholders meeting will be held
on or before July 31, 2004. In order to be included in the proxy statement (or
disclosure statement in the event proxies are not solicited by our Board of
Directors) for the 2004 annual shareholders meeting, any shareholder proposal
must be received by January 30, 2004. It is suggested that a shareholder
desiring to submit a proposal do so by sending the proposal certified mail,
return receipt requested, addressed to us at Advantage Marketing Systems, Inc.,
2601 Northwest Expressway, Suite 1210W, Oklahoma City, Oklahoma 73112-7293.
Attention: Corporate Secretary. Detailed information for submitting proposals
will be provided upon written request, addressed to the Corporate Secretary.
In addition, pursuant to Rule 14a-4 under the Securities Exchange Act of
1934, as amended, a shareholder must give notice to us prior to March 15, 2004
of any proposal that such stockholder intends to raise at the 2004 Annual
Meeting. If we receive notice of such proposal on or after March 15, 2004, under
Rule 14a-4, the persons named in the proxy solicited by our Board of Directors
for the 2004 Annual Meeting may exercise discretionary voting with respect to
such proposal.
Your cooperation in giving this matter your immediate attention and in
returning your Proxy promptly will be appreciated.
BY ORDER OF THE BOARD OF DIRECTORS
Reggie B. Cook
Corporate Secretary
June 15, 2003
A COPY OF OUR ANNUAL REPORT, WHICH INCLUDES PORTIONS OF OUR FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2002, IS ENCLOSED HEREWITH, AND OUR ANNUAL
REPORT ON FORM 10-K, EXCLUDING CERTAIN OF THE EXHIBITS, MAY BE OBTAINED WITHOUT
CHARGE BY WRITING ADVANTAGE MARKETING SYSTEMS, INC., 2601 NORTHWEST EXPRESSWAY,
SUITE 1210W, OKLAHOMA CITY, OKLAHOMA 73112-7293, ATTENTION: CORPORATE SECRETARY.
APPENDIX A
--------------------------------------------------------------------------------
ADVANTAGE MARKETING SYSTEMS, INC.
2003 STOCK INCENTIVE PLAN
Article I PURPOSE ................................................................................................1
Section 1.1 Purpose......................................................................................1
Section 1.2 Establishment................................................................................1
Section 1.3 Shares Subject to the Plan...................................................................1
Section 1.4 Shareholder Approval.........................................................................1
Article II DEFINITIONS............................................................................................1
Article III ADMINISTRATION........................................................................................3
Section 3.1 Administration of the Plan; the Committee....................................................3
Section 3.2 Committee to Make Rules and Interpret Plan...................................................4
Article IV GRANT OF AWARDS........................................................................................4
Article V STOCK OPTIONS...........................................................................................4
Section 5.1 Grant of Options.............................................................................4
Section 5.2 Conditions of Options........................................................................5
Section 5.3 Options Not Qualifying as Incentive Stock Options............................................6
Section 5.4 Transferability..............................................................................6
Article VI restricted stock awards................................................................................7
Section 6.1 Grant of Restricted Stock Awards.............................................................7
Section 6.2 Conditions of Restricted Stock Awards........................................................7
Article VII STOCK ADJUSTMENTS.....................................................................................8
Article VIII GENERAL..............................................................................................8
Section 8.1 Amendment or Termination of Plan.............................................................8
Section 8.2 Amendments to Awards.........................................................................9
Section 8.3 Acceleration of Awards on Death, Disability or Other Special Circumstances...................9
Section 8.4 Change of Control............................................................................9
Section 8.5 Withholding Taxes............................................................................9
Section 8.6 Regulatory Approval and Listings.............................................................9
Section 8.7 Right to Continued Employment...............................................................10
Section 8.8 Reliance on Reports.........................................................................10
Section 8.9 Construction................................................................................10
Section 8.10 Governing Law...............................................................................10
Article IX ACCELERATION OF OPTIONS UPON CORPORATE EVENT..........................................................10
ADVANTAGE MARKETING SYSTEMS, INC.
2003 STOCK INCENTIVE PLAN
ARTICLE I
PURPOSE
SECTION 1.1 Purpose. This 2003 Stock Incentive Plan is established by
Advantage Marketing Systems, Inc. (the "Company") to create incentives which are
designed to motivate Employees and Consultants to put forth maximum effort
toward the success and growth of the Company and to enable the Company to
attract and retain experienced individuals who by their position, ability and
diligence are able to make important contributions to the Company's success.
Toward these objectives, the Plan provides for the granting of Options and
Restricted Stock Awards to Employees and Consultants on the terms and subject to
the conditions set forth in the Plan. The Plan is designed to align the
interests of participants with those of shareholders through the use of
stock-based incentives while minimizing dilution to shareholders.
SECTION 1.2 Establishment. The Plan is effective as of January 1, 2003
and for a period of 10 years from such date. The Plan will terminate on January
1, 2013; however, it will continue in effect until all matters relating to the
exercise of Options, distribution of Awards and administration of the Plan have
been settled.
SECTION 1.3 Shares Subject to the Plan. Subject to the limitations and
adjustments set forth in this Plan, Awards may be made under this Plan for a
total of 2,000,000 shares of Common Stock.
SECTION 1.4 Shareholder Approval. The Plan shall be subject to the
approval by the holders of a majority of the outstanding shares of Common Stock,
present, or represented, and entitled to vote at a meeting called for such
purpose, which must occur within the period ending twelve months after the date
the Plan is adopted by the Board. Pending such approval by the Company's
shareholders, Awards under the Plan may be granted, but no such Awards may be
exercised prior to receipt of such shareholder approval. In the event such
shareholder approval is not obtained within such twelve-month period, all such
Awards shall be void.
ARTICLE II
DEFINITIONS
SECTION 2.1 "Affiliated Entity" means any partnership or limited
liability company in which a majority of interest thereof is owned or
controlled, directly or indirectly, by the Company or one or more of its
Subsidiaries or Affiliated Entities or a combination thereof. For purposes
hereof, the Company, a Subsidiary or an Affiliated Entity shall be deemed to
have a majority ownership interest in a partnership or limited liability company
if the Company, such Subsidiary or Affiliated Entity shall be allocated a
majority of partnership or limited liability company gains or losses or shall be
or control a managing director or a general partner of such partnership or
limited liability company.
SECTION 2.2 "Award" means, individually or collectively, any Option or
Restricted Stock Award granted under the Plan to an Eligible Person by the
Committee pursuant to such terms, conditions, restrictions, and/or limitations,
if any, as the Committee may establish by the Award Agreement or otherwise.
SECTION 2.3 "Award Agreement" means any written instrument that
establishes the terms, conditions, restrictions, and/or limitations applicable
to an Award in addition to those established by this Plan and by the Committee's
exercise of its administrative powers.
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SECTION 2.4 "Board" means the Board of Directors of the Company.
SECTION 2.5 "Change of Control" means "Code" means the Internal
Revenue Code of 1986, as amended. Reference in the Plan to any Section of the
Code shall be deemed to include any amendments or successor provisions to such
Section and any regulations under such Section.
SECTION 2.6 "Committee" has the meaning set forth in Section 3.1.
SECTION 2.7 "Common Stock" means the common stock, par value $.0001
per share, of the Company and, after substitution, such other stock as shall be
substituted therefor as provided in Article VII or Article IX of the Plan.
SECTION 2.8 "Consultant" means any person who is engaged by the
Company, a Subsidiary or an Affiliated Entity to render consulting or advisory
services.
SECTION 2.9 "Date of Grant" means the date on which the grant of an
Award is authorized by the Committee or such later date as may be specified by
the Committee in such authorization.
SECTION 2.10 "Disability" has the meaning set forth in Section
22(e)(3) of the Code.
SECTION 2.11 "Eligible Person" means any Employee or Consultant.
SECTION 2.12 "Employee" means any employee of the Company, a
Subsidiary or an Affiliated Entity.
SECTION 2.13 "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
SECTION 2.14 "Executive Officer Participants" means Participants who
are subject to the provisions of Section 16 of the Exchange Act with respect to
the Common Stock.
SECTION 2.15 "Fair Market Value" means, as of any date, (i) if the
principal market for the Common Stock is a national securities exchange or the
Nasdaq stock market, the closing price of the Common Stock on that date on the
principal exchange on which the Common Stock is then listed or admitted to
trading; or (ii) if sale prices are not available or if the principal market for
the Common Stock is not a national securities exchange and the Common Stock is
not quoted on the Nasdaq stock market, the average of the highest bid and lowest
asked prices for the Common Stock on such day as reported on the Nasdaq OTC
Bulletin Board Service or by the National Quotation Bureau, Incorporated or a
comparable service. If the day is not a business day, and as a result, clauses
(i) and (ii) are inapplicable, the Fair Market Value of the Common Stock shall
be determined as of the last preceding business day. If clauses (i) and (ii) are
otherwise inapplicable, the Fair Market Value of the Common Stock shall be
determined in good faith by the Committee.
SECTION 2.16 "Incentive Stock Option" means an Option within the
meaning of Section 422 of the Code.
SECTION 2.17 "Non-Executive Officer Participants" means Participants
who are not subject to the provisions of Section 16 of the Exchange Act.
SECTION 2.18 "Nonqualified Stock Option" means an Option to purchase
shares of Common Stock which is not an Incentive Stock Option within the meaning
of Section 422(b) of the Code.
SECTION 2.19 "Option" means an Incentive Stock Option or Nonqualified
Stock Option granted under Article V of the Plan.
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SECTION 2.20 "Participant" means an Eligible Person to whom an Award
has been granted by the Committee under the Plan.
SECTION 2.21 "Plan"" means the Advantage Marketing Systems, Inc. 2003
Stock Incentive Plan.
SECTION 2.22 "Regular Award Committee" means a committee designated by
the Board which shall consist of not less than two members of the Board.
SECTION 2.23 "Restricted Stock Award" means an Award granted to an
Eligible Person under Article VI of the Plan.
SECTION 2.24 "Shareholder Approval" means approval by the holders of a
majority of the outstanding shares of Common Stock, present or represented and
entitled to vote at a meeting called for such purposes.
SECTION 2.25 "Special Award Committee" means a committee designated by
the Board which shall consist of not less than two members of the Board who meet
the definition of "non-employee directors" pursuant to Rule 16b-3, or any
successor rule, promulgated under Section 16 of the Exchange Act.
SECTION 2.26 "Subsidiary" shall have the same meaning set forth in
Section 424(f) of the Code.
ARTICLE III
ADMINISTRATION
SECTION 3.1 Administration of the Plan; the Committee. The Regular
Award Committee shall administer the Plan with respect to Non-Executive Officer
Participants, including the grant of Awards, and the Special Award Committee
shall administer the Plan with respect to Executive Officer Participants,
including the grant of Awards. Accordingly, as used in the Plan, the term
"Committee" shall mean the Regular Award Committee if it refers to Plan
administration affecting Non-Executive Officer Participants or the Special Award
Committee if it refers to Plan administration affecting Executive Officer
Participants. If in either case the Committee does not exist, or for any other
reason determined by the Board, the Board may take any action under the Plan
that would otherwise be the responsibility of the Committee.
Unless otherwise provided in the bylaws of the Company or resolutions
adopted from time to time by the Board establishing the Committee, the Board may
from time to time remove members from, or add members to, the Committee.
Vacancies on the Committee, however caused, shall be filled by the Board. The
Committee shall hold meetings at such times and places as it may determine. A
majority of the Committee shall constitute a quorum, and the acts of a majority
of the members present at any meeting at which a quorum is present shall be the
valid acts of the Committee. Any action which may be taken at a meeting of the
Committee may be taken without a meeting if all the members of the Committee
consent to the action in writing.
Subject to the provisions of the Plan, the Committee shall have
exclusive power to:
(a) Select the Eligible Persons to participate in the Plan.
(b) Determine the time or times when Awards will be granted.
(c) Determine the form of Award, whether an Incentive Stock
Option, a Nonqualified Stock Option or a Restricted Stock Award, the
number of shares of Common Stock subject to any Award, all the terms,
conditions (including performance
3
requirements), restrictions and/or limitations, if any, of an Award,
including the time and conditions of exercise or vesting, and the
terms of any Award Agreement, which may include the waiver or
amendment of prior terms and conditions or acceleration of the vesting
or exercise of an Award under certain circumstances determined by the
Committee.
(d) Determine whether Awards will be granted singly or in
combination.
(e) Take any and all other action it deems necessary or advisable
for the proper operation or administration of the Plan.
SECTION 3.2 Committee to Make Rules and Interpret Plan. The Committee
in its sole discretion shall have the authority, subject to the provisions of
the Plan, to establish, adopt, or revise such rules and regulations and to make
all such determinations relating to the Plan as it may deem necessary or
advisable for the administration of the Plan. The Committee's interpretation of
the Plan or any Awards granted pursuant hereto and all decisions and
determinations by the Committee with respect to the Plan shall be final,
binding, and conclusive on all parties.
ARTICLE IV
GRANT OF AWARDS
The Committee may, from time to time, grant Awards to one or more
Participants, provided, however, that:
(a) Any shares of Common Stock related to Awards which terminate
by expiration, forfeiture, cancellation or otherwise without the
issuance of shares of Common Stock shall be available again for grant
under the Plan.
(b) Common Stock delivered by the Company upon exercise of an
Option or upon payment of an Award under the Plan may be authorized
and unissued Common Stock or Common Stock held in the treasury of the
Company.
(c) The Committee shall, in its sole discretion, determine the
manner in which fractional shares arising under this Plan shall be
treated.
(d) Subject to Article VII, the aggregate number of shares of
Common Stock made subject to Options granted to any Employee in any
calendar year may not exceed 500,000 shares.
(e) Subject to Article VII, the aggregate number of shares of
Common Stock made subject to a Restricted Stock Award granted to any
Employee in any calendar year may not exceed 100,000 shares.
ARTICLE V
STOCK OPTIONS
SECTION 5.1 Grant of Options. The Committee may, from time to time,
subject to the provisions of the Plan and such other terms and conditions as it
may determine, grant Nonqualified Stock Options to any Eligible Persons and
Incentive Stock Options to Employees. Subject to the limitations of Section
5.2(e), these Options may be Incentive Stock Options or Nonqualified Stock
Options, or a combination of both. Each grant of an Option shall be evidenced by
an Award Agreement executed by the Company and the Participant, and shall
contain such terms and conditions and be in such form as the Committee may from
time to time approve, subject to the requirements of Section 5.2.
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SECTION 5.2 Conditions of Options. Each Option so granted shall be
subject to the following conditions:
(a) Exercise Price. As limited by Section 5.2(e) below, the Award
Agreement for each Option shall state the exercise price set by the
Committee on the Date of Grant. No Option shall be granted at an
exercise price which is less than the Fair Market Value of the Common
Stock on the Date of Grant.
(b) Form of Payment. The payment of the exercise price of an
Option shall be subject to the following:
(i) The full exercise price for shares of Common Stock
purchased upon the exercise of any Option shall be
paid at the time of such exercise.
(ii) The exercise price shall be payable in cash
(including a check acceptable to the Committee, bank
draft or money order) or by tendering, by either
actual delivery of shares or by attestation, shares
of Common Stock held by the Participant for at least
six months that are acceptable to the Committee and
valued at Fair Market Value as of the day of
exercise, or any combination thereof, as determined
by the Committee.
(iii) The Committee may permit an Option granted under the
Plan to be exercised by a broker-dealer acting on
behalf of a Participant through procedures approved
by the Committee.
(c) Exercise of Options. Options granted under the Plan shall be
exercisable, in whole or in such installments and at such times, and
shall expire at such time, as shall be provided by the Committee in
the Award Agreement. Exercise of an Option shall be by written notice
stating the election to exercise in the form and manner determined by
the Committee. Every share of Common Stock acquired through the
exercise of an Option shall be deemed to be fully paid at the time of
exercise and payment of the exercise price. Upon the exercise of any
Option, the Company shall issue and deliver to the Participant who
exercised the Option a certificate representing the number of shares
of Common Stock purchased thereby.
(d) Other Terms and Conditions. Among other conditions that may
be imposed by the Committee, if deemed appropriate, are those relating
to (i) the period or periods and the conditions of exercisability of
any Option; (ii) the minimum periods during which Participants must be
employed by the Company, a Subsidiary or Affiliated Entity, or must
hold Options before they may be exercised; (iii) the minimum periods
during which shares acquired upon exercise must be held before sale or
transfer shall be permitted; (iv) the maximum period that Participants
will be allowed to be inactively employed or on a leave of absence
before their vesting is suspended until they return to active
employment; (v) conditions under which such Options or shares may be
subject to forfeiture; (vi) the frequency of exercise or the minimum
or maximum number of shares that may be acquired at any one time;
(vii) the achievement by the Company of specified performance
criteria; and (viii) protection of business matters.
(e) Special Restrictions Relating to Incentive Stock Options.
Options issued in the form of Incentive Stock Options shall only be
granted to Employees of the Company or a Subsidiary and not to
Employees of an Affiliated Entity unless such entity is classified as
a "disregarded entity" of the Company or the applicable Subsidiary
under the Code. In addition to being subject to all applicable terms,
conditions, restrictions and/or limitations established by the
Committee, Options issued in the form of Incentive Stock Options shall
comply with the requirements of Section 422 of the Code (or any
successor Section thereto), including, without limitation, the
requirement that the exercise price of an Incentive
5
Stock Option not be less than 100% of the Fair Market Value of the
Common Stock on the Date of Grant, the requirement that each Incentive
Stock Option, unless sooner exercised, terminated or canceled, expire
no later than 10 years from its Date of Grant, the requirement that
Incentive Stock Options be granted only to Employees, and the
requirement that the aggregate Fair Market Value (determined on the
Date of Grant) of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by a Participant
during any calendar year (under this Plan or any other plan of the
Company or any Subsidiary) not exceed $100,000. Incentive Stock
Options which are in excess of the applicable $100,000 limitation will
be automatically recharacterized as Nonqualified Stock Options as
provided under Section 5.3 of this Plan. No Incentive Stock Options
shall be granted to any Employee if, immediately before the grant of
an Incentive Stock Option, such Employee owns more than 10% of the
total combined voting power of all classes of stock of the Company or
its Subsidiaries (as determined in accordance with the stock
attribution rules contained in Sections 422 and 424(d) of the Code).
Provided, the preceding sentence shall not apply if, at the time the
Incentive Stock Option is granted, the exercise price is at least 110%
of the Fair Market Value of the Common Stock subject to the Incentive
Stock Option, and such Incentive Stock Option by its terms is
exercisable no more than five years from the date such Incentive Stock
Option is granted.
(f) Application of Funds. The proceeds received by the Company
from the sale of Common Stock issued upon the exercise of Options will
be used for general corporate purposes.
(g) Shareholder Rights. No Participant shall have any rights as a
shareholder with respect to any share of Common Stock subject to an
Option prior to the purchase of such share of Common Stock by exercise
of the Option.
SECTION 5.3 Options Not Qualifying as Incentive Stock Options. With
respect to all or any portion of any Option granted under this Plan not
qualifying as an "incentive stock option" under Section 422 of the Code, such
Option shall be considered a Nonqualified Stock Option granted under this Plan
for all purposes. Further, this Plan and any Incentive Stock Options granted
hereunder shall be deemed to have incorporated by reference all the provisions
and requirements of Section 422 of the Code (and the Treasury Regulations issued
thereunder) necessary to ensure that all Incentive Stock Options granted
hereunder shall be "incentive stock options" described in Section 422 of the
Code. Further, in the event that the $100,000 limitation contained in Section
5.2(e) herein is exceeded in any Incentive Stock Option granted under this Plan,
the portion of the Incentive Stock Option in excess of such limitation shall be
treated as a Nonqualified Stock Option under this Plan subject to the terms and
provisions of the applicable Award Agreement, except to the extent modified to
reflect recharacterization of the Incentive Stock Option as a Nonqualified Stock
Option.
SECTION 5.4 Transferability.
(a) General. Except as provided in paragraph (b), Options are not
transferable otherwise than by will or the laws of descent and
distribution. Any attempted transfer, assignment, pledge,
hypothecation or other disposition of, or the levy of execution,
attachment or similar process upon, any Option contrary to the
provisions hereof shall be void and ineffective, shall give no right
to any purported transferee.
(b) Limited Transferability of Nonqualified Stock Options. The
Committee may, in its discretion, authorize all or a portion of the
Nonqualified Stock Options granted under this Plan to be on terms
which permit transfer by the Participant to (i) the ex-spouse of the
Participant pursuant to the terms of a domestic relations order, (ii)
the spouse, children or grandchildren of the Participant ("Immediate
Family Members"), (iii) a trust or trusts for the exclusive benefit of
such Immediate Family Members, or (iv) a partnership or limited
liability company in which such Immediate Family Members are the only
6
partners or members. In addition there may be no consideration for any
such transfer, the Award Agreement pursuant to which such Nonqualified
Stock Options are granted must be approved by the Committee, and must
expressly provide for transferability in a manner consistent with this
paragraph. Subsequent transfers of transferred Nonqualified Stock
Options shall be prohibited except as set forth below in this Section
5.4. Following transfer, any such Nonqualified Stock Options shall
continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that for purposes
of Section 8.2 hereof the term "Participant" shall be deemed to refer
to the transferee. The events of termination of employment of Section
8.2 hereof shall continue to be applied with respect to the original
Participant, following which the Nonqualified Stock Options shall be
exercisable by the transferee only to the extent, and for the periods
specified in Section 8.2 hereof. No transfer pursuant to this Section
5.4 shall be effective to bind the Company unless the Company shall
have been furnished with written notice of such transfer together with
such other documents regarding the transfer as the Committee shall
request.
ARTIVLE VI
RESTRICTED STOCK AWARDS
SECTION 6.1 Grant of Restricted Stock Awards. The Committee may, from
time to time, subject to the provisions of the Plan and such other terms and
conditions as it may determine, grant a Restricted Stock Award to any Eligible
Person. Restricted Stock Awards shall be awarded in such number and at such
times during the term of the Plan as the Committee shall determine. Each
Restricted Stock Award may be evidenced in such manner as the Committee deems
appropriate, including, without limitation, a book-entry registration or
issuance of a stock certificate or certificates, and by an Award Agreement
setting forth the terms of such Restricted Stock Award.
SECTION 6.2 Conditions of Restricted Stock Awards. The grant of a
Restricted Stock Award shall be subject to the following:
(a) Restriction Period. Each Restricted Stock Award shall require
the holder to remain in the employment of the Company, a Subsidiary,
or an Affiliated Entity for a prescribed period (a "Restriction
Period"). The Committee shall determine the Restriction Period or
Periods that shall apply to the shares of Common Stock covered by each
Restricted Stock Award or portion thereof. However, each Restricted
Stock Award shall have a minimum Restriction Period of at least one
year from the Date of Grant. In addition to any time vesting
conditions determined by the Committee, Restricted Stock Awards may be
subject to the achievement by the Company of specified performance
criteria as established by the Committee. At the end of the
Restriction Period, assuming the fulfillment of any other specified
vesting conditions, the restrictions imposed by the Committee shall
lapse with respect to the shares of Common Stock covered by the
Restricted Stock Award or portion thereof.
(b) Restrictions. The holder of a Restricted Stock Award may not
sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of
the shares of Common Stock represented by the Restricted Stock Award
during the applicable Restriction Period. The Committee shall impose
such other restrictions and conditions on any shares of Common Stock
covered by a Restricted Stock Award as it may deem advisable
including, without limitation, restrictions under applicable Federal
or state securities laws, and may legend the certificates representing
the shares of Common Stock subject to the Restricted Stock Award to
give appropriate notice of such restrictions.
(c) Shareholder Rights. During any Restriction Period, the
Committee may, in its discretion, grant to the holder of a Restricted
Stock Award all or any of the rights of a
7
shareholder with respect to the shares, including, but not by way of
limitation, the right to vote such shares and to receive dividends. If
any dividends or other distributions are paid in shares of Common
Stock, all such shares shall be subject to the same restrictions on
transferability as the shares of Common Stock subject to the
Restricted Stock Award with respect to which they were paid.
ARTICLE VII
STOCK ADJUSTMENTS
Subject to the provisions of Article IX of this Plan, in the event
that the shares of Common Stock, as presently constituted, shall be changed into
or exchanged for a different number or kind or shares of stock or other
securities of the Company or of another corporation (whether by reason of
merger, consolidation, recapitalization, reclassification, stock split,
combination of shares or otherwise), or if the number of such shares of Common
Stock shall be increased through the payment of a stock dividend, or a dividend
on the shares of Common Stock or rights or warrants to purchase securities of
the Company shall be made, then there shall be substituted for or added to each
share available under and subject to the Plan as provided in Section 1.3 hereof,
and each share then subject or thereafter subject or which may become subject to
Awards under the Plan, the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock shall be so changed
or for which each such share shall be exchanged or to which each such share
shall be entitled, as the case may be, on a fair and equivalent basis in
accordance with the applicable provisions of Section 424 of the Code; provided,
however, in no such event will such adjustment result in a modification of any
Award as defined in Section 424(h) of the Code. In the event there shall be any
other change in the number or kind of the outstanding shares of Common Stock, or
any stock or other securities into which the Common Stock shall have been
changed or for which it shall have been exchanged, then if the Committee shall,
in its sole discretion, determine that such change equitably requires an
adjustment in the shares available under and subject to the Plan, or in any
Award theretofore granted or which may be granted under the Plan, such
adjustments shall be made in accordance with such determination, except that no
adjustment of the number of shares of Common Stock available under the Plan or
to which any Award relates that would otherwise be required shall be made unless
and until such adjustment either by itself or with other adjustments not
previously made would require an increase or decrease of at least 1% of the
number of shares of Common Stock available under the Plan or to which any Award
relates immediately prior to the making of such adjustment (the "Minimum
Adjustment"). Any adjustment representing a change of less than such minimum
amount shall be carried forward and made as soon as such adjustment together
with other adjustments required by this Article VII and not previously made
would result in a Minimum Adjustment. Notwithstanding the foregoing, any
adjustment required by this Article VII which otherwise would not result in a
Minimum Adjustment shall be made with respect to shares of Common Stock relating
to any Award immediately prior to exercise or settlement of such Award.
No fractional shares of Common Stock or units of other securities
shall be issued pursuant to any such adjustment, and any fractions resulting
from any such adjustment shall be eliminated in each case by rounding downward
to the nearest whole share.
ARTICLE VIII
GENERAL
SECTION 8.1 Amendment or Termination of Plan. The Board may alter,
suspend or terminate the Plan at any time. In addition, the Board may, from time
to time, amend the Plan in any manner, but may not without stockholder approval
adopt any amendment which would (i) increase the aggregate number of shares of
Common Stock available under the Plan (except by operation of Article VII), (ii)
materially modify the requirements as to eligibility for participation in the
Plan, or (iii) materially increase the benefits to Participants provided by the
Plan.
8
SECTION 8.2 Amendments to Awards. The Committee may not cancel,
reissue or modify an Award if such action would have the effect of repricing the
Participant's Award. The Committee may otherwise unilaterally amend the terms of
an Award Agreement whether or not presently exercisable or vested to the extent
it deems appropriate unless such amendment is adverse to a Participant's vested
interest in an Award. Amendments which are adverse to a Participant's vested
interest in an Award requires the Participant's consent.
SECTION 8.3 Acceleration of Awards on Death, Disability or Other
Special Circumstances. With respect to (i) a Participant who terminates
employment due to a Disability, (ii) the personal representative of a deceased
Participant, or (iii) any other Participant who terminates employment upon the
occurrence of special circumstances (as determined by the Committee), the
Committee, in its sole discretion, may permit the purchase of all or any part of
the shares subject to any unvested Option or waive the vesting requirements of a
Restricted Stock Award on the date of the Participant's termination of
employment due to a Disability, death or special circumstances, or as the
Committee otherwise so determines. With respect to Options which have already
vested at the date of such termination or the vesting of which is accelerated by
the Committee in accordance with the foregoing provision, the Participant or the
personal representative of a deceased Participant shall have the right to
exercise such vested Options within such period(s) as the Committee shall
determine.
SECTION 8.4 Change of Control. The Committee, in its sole discretion
may provide in a Participant's Award Agreement that such Award shall be
immediately vested, fully earned and exercisable upon the occurrence of a Change
of Control.
SECTION 8.5 Withholding Taxes. Unless otherwise paid by the
Participant, the Company shall be entitled to deduct from any payment under the
Plan, regardless of the form of such payment, the amount of all applicable
income and employment taxes required by law to be withheld with respect to such
payment or may require the Participant to pay to it such tax prior to and as a
condition of the making of such payment. In accordance with any applicable
administrative guidelines it establishes, the Committee may allow a Participant
to pay the amount of taxes required by law to be withheld from an Award by (i)
directing the Company to withhold from any payment of the Award a number of
shares of Common Stock having a Fair Market Value on the date of payment equal
to the amount of the required withholding taxes or (ii) delivering to the
Company previously owned shares of Common Stock having a Fair Market Value on
the date of payment equal to the amount of the required withholding taxes.
However, any payment made by the Participant pursuant to either of the foregoing
clauses (i) or (ii) shall not be permitted if it would result in an accounting
charge with respect to such shares used to pay such taxes unless otherwise
approved by the Committee.
SECTION 8.6 Regulatory Approval and Listings. The Company shall use its
best efforts to file with the Securities and Exchange Commission as soon as
practicable following the date this Plan is effective, and keep continuously
effective and usable, a Registration Statement on Form S-8 with respect to
shares of Common Stock subject to Awards hereunder. Notwithstanding anything
contained in this Plan to the contrary, the Company shall have no obligation to
issue or deliver certificates representing shares of Common Stock evidencing
Awards prior to:
(a) the obtaining of any approval from, or satisfaction of any
waiting period or other condition imposed by, any governmental agency
which the Committee shall, in its sole discretion, determine to be
necessary or advisable;
(b) the listing of such shares on any exchange on which the
Common Stock may be listed; and
(c) the completion of any registration or other qualification of
such shares under any state or federal law or regulation of any
governmental body which the Committee shall, in its sole discretion,
determine to be necessary or advisable.
9
SECTION 8.7 Right to Continued Employment. Participation in the Plan
shall not give any Participant any right to remain in the employ of the Company
or any Subsidiary or any partnership or limited liability company controlled by
the Company. Further, the adoption of this Plan shall not be deemed to give any
Employee or Consultant or any other individual any right to be selected as a
Participant or to be granted an Award.
SECTION 8.8 Reliance on Reports. Each member of the Committee and each
member of the Board shall be fully justified in relying or acting in good faith
upon any report made by the independent public accountants of the Company and
its Subsidiaries and upon any other information furnished in connection with the
Plan by any person or persons other than the Committee or Board member. In no
event shall any person who is or shall have been a member of the Committee or
the Board be liable for any determination made or other action taken or any
omission to act in reliance upon any such report or information or for any
action taken, including the furnishing of information, or failure to act, if in
good faith.
SECTION 8.9 Construction. The titles and headings of the sections in
the Plan are for the convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
SECTION 8.10 Governing Law. The Plan shall be governed by and
construed in accordance with the laws of the State of Oklahoma except as
superseded by applicable federal law.
ARTICLE IX
ACCELERATION OF OPTIONS UPON CORPORATE EVENT
If the Company shall, pursuant to action by the Board, at any time
propose to dissolve or liquidate or merge into, consolidate with, or sell or
otherwise transfer all or substantially all of its assets to another corporation
and provision is not made pursuant to the terms of such transaction for the
assumption by the surviving, resulting or acquiring corporation of outstanding
Options under the Plan, or for the substitution of new awards therefor, the
Committee shall cause written notice of the proposed transaction to be given to
each Participant no less than forty days prior to the anticipated effective date
of the proposed transaction, and the Participant's Option shall become 100%
vested. Prior to a date specified in such notice, which shall be not more than
10 days prior to the anticipated effective date of the proposed transaction,
each Participant shall have the right to exercise his or her Option to purchase
any or all of the Common Stock then subject to such Option. Each Participant, by
so notifying the Company in writing, may, in exercising his or her Option,
condition such exercise upon, and provide that such exercise shall become
effective immediately prior to the consummation of the transaction, in which
event such Participant need not make payment for the Common Stock to be
purchased upon exercise of such Option until five days after receipt of written
notice by the Company to such Participant that the transaction has been
consummated. If the transaction is consummated, each Option, to the extent not
previously exercised prior to the date specified in the foregoing notice, shall
terminate on the effective date such transaction is consummated. If the
transaction is abandoned, (i) any Common Stock not purchased upon exercise of
such Option shall continue to be available for purchase in accordance with the
other provisions of the Plan and (ii) to the extent that any Option not
exercised prior to such abandonment shall have vested solely by operation of
this Article IX, such vesting shall be deemed voided as of the time such
acceleration otherwise occurred pursuant to Article IX, and the vesting schedule
set forth in the Participant's Award Agreement shall be reinstituted as of the
date of such abandonment.
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10
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PROXY PROXY
ADVANTAGE MARKETING SYSTEMS, INC.
2601 NORTHWEST EXPRESSWAY, SUITE 1210W
OKLAHOMA CITY, OKLAHOMA 73112-7293
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF ADVANTAGE MARKETING SYSTEMS, INC.
THE UNDERSIGNED HEREBY APPOINT JOHN W. HAIL AND ROBIN L. JACOB AS PROXIES, EACH
WITH THE POWER TO APPOINT HIS SUBSTITUTE, AND HEREBY APPOINTS AND AUTHORIZES
EACH OF THEM TO REPRESENT AND VOTE AS DESIGNATED BELOW, ALL THE SHARES OF COMMON
STOCK, $0.0001 PAR VALUE, OF ADVANTAGE MARKETING SYSTEMS, INC. (THE "COMPANY")
HELD OF RECORD BY THE UNDERSIGNED ON MAY 27, 2003, AT THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON SATURDAY JULY 26, 2003, OR ANY ADJOURNMENT THEREOF.
1. To consider and act upon the re-election of Reggie B. Cook, as a director
for a term ending in 2006, and until his successor shall have been duly
elected and qualified. A vote "For" will represent a vote for the nominee
director.
[ ] FOR [ ] WITHHOLD AUTHORITY
2. To consider and act upon the election of Steven M. Dickey, as a director
for a term ending in 2006, and until his successor shall have been duly
elected and qualified. A vote "For" will represent a vote for the nominee
director.
[ ] FOR [ ] WITHHOLD AUTHORITY
3. To approve the Advantage Marketing Systems, Inc. 2003 Stock Incentive Plan.
A vote "For" will represent a vote for such approval.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To consider and act upon the ratification and the appointment of Grant
Thornton LLP as the Company's independent auditor for the fiscal year
ending December 31, 2003. A vote "For" will represent a vote for such
ratification and appointment.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
To transact such other business as may properly
come before the meeting or any adjournment thereof
ADVANTAGE MARKETING SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
YOU CAN VOTE IN ONE OF TWO WAYS
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VOTE BY INTERNET
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Its fast, convenient, and your vote is immediately confirmed and posted.
1. Read the accompanying Proxy Statement.
2. Go to the website http://www.eproxyvote.com/amm and follow the
instructions on the screen.
Please note that all votes cast by Internet must be made prior to 5:00 p.m. CDT,
July 23, 2003.
IF YOU VOTE BY INTERNET, PLEASE DO NOT RETURN YOUR PROXY CARD BY MAIL
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VOTE BY MAIL
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To vote by mail, read the accompanying Proxy Statement then complete, sign and
date the proxy card below. Detach the card and return it in the envelope
provided herein.
IF YOU ARE NOT VOTING BY INTERNET, DETACH PROXY CARD AND RETURN.
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THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL PROPOSALS.
PLEASE SIGN EXACTLY AS THE NAME APPEARS TO LEFT. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, AS EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
DATE: _________________, 2003
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Signature
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Signature if held jointly
PLEASE MARK, SIGN, DATE AND
RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.