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As filed with the Securities and Exchange Commission on October 24, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MAXXIS GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Georgia 4813 58-2278241
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
Incorporation or Organization) Classification Code Number)
1901 Montreal Road, Suite 108
Tucker, Georgia 30084
(770) 552-4766
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
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Thomas O. Cordy
Chief Executive Officer and President
Maxxis Group, Inc.
1901 Montreal Road, Suite 108
Tucker, Georgia 30084
(770) 552-4766
(770) 552-8471 (Fax)
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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Copies of all correspondence to:
Glenn W. Sturm, Esq.
James Walker IV, Esq.
Nelson Mullins Riley & Scarborough, L.L.P.
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
(404) 817-6000
(404) 817-6050 (Fax)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.[X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.[ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Securities to be Amount to be Offering Price Aggregate Offering Amount of
Registered Registered Per Share (1) Price(1) Registration Fee
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Class B Common Stock, no par value..... 5,000,000 $0.50 $2,500,000 $757.58
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 24, 1997
PROSPECTUS
5,000,000 SHARES
[MAXXIS LOGO]
CLASS B COMMON STOCK
This Prospectus relates to the offering (the "Offering") of 5,000,000 shares
of Class B Common Stock, no par value per share (the "Class B Common Stock" or
the "Shares"), of MAXXIS GROUP, INC., a Georgia corporation (the "Company"). All
of the Shares offered hereby are being sold by the Company. The Class B Common
Stock entitles holders to one vote per share, whereas the Class A Common Stock,
no par value per share (the "Class A Common Stock"), entitles holders to ten
votes per share. The Class A Common Stock and Class B Common Stock vote as a
single class with respect to substantially all matters submitted to a vote of
the shareholders. Following the Offering, assuming the sale of 5,000,000 Shares
offered hereby, the directors and executive officers and relatives and
affiliates of directors and executive officers of the Company and its
subsidiaries, acting as a group and by reason of their ownership of Class A
Common Stock, will hold approximately 74.9% of the combined voting power (on a
fully diluted basis) of the Company with respect to substantially all matters
submitted to a vote of the shareholders. See "Risk Factors-Concentration of
Ownership; Voting Rights of Class A and Class B Common Stock" and "Description
of Capital Stock."
Prior to this Offering, there has been no public market for the Shares, and
it is currently anticipated that there will be no active trading market for the
Shares. The price of the Shares has been arbitrarily established by the Company
and does not necessarily bear any relationship to the Company's asset value, net
worth or other established criteria of value. See "Risk Factors - Determination
of Offering Price."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED
HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
==========================================================================================================================
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(2) COMPANY(3)
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Per Share.................. $0.50 $ - $0.50
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Total...................... $2,500,000 $ - $2,500,000
==========================================================================================================================
(1) The offering price has been arbitrarily established by the Company. See
"Risk Factors - Determination of Offering Price."
(2) This Offering is expected to be made on behalf of the Company solely by
certain of its directors and executive officers, to whom no commission or
other compensation will be paid on account of such activity, although they
will be reimbursed for reasonable expenses incurred in connection with such
activity. The Company believes such participating officers and directors
shall not be deemed brokers under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), based on reliance on Rule 3a4-1 of the
Exchange Act.
(3) Before deducting estimated expenses of $400,000 related to the Offering.
See "Use of Proceeds."
Sales of the Shares are expected to commence on or about November 30, 1997.
This is a "best efforts" offering by the Company, and it will expire on December
31, 1998, unless terminated earlier or extended by the Company for additional
90-day periods ending no later than December 31, 2000. The Company reserves the
right to terminate the Offering at any time.
PROSPECTIVE PURCHASERS MUST EXECUTE A SUBSCRIPTION AGREEMENT (A
"SUBSCRIPTION AGREEMENT") IN ORDER TO OFFER TO PURCHASE SHARES. ANY SUBSCRIPTION
AGREEMENT MAY BE REJECTED BY THE COMPANY FOR ANY REASON OR NO REASON WHATSOEVER.
ACCEPTANCE OF ANY PARTICULAR SUBSCRIPTION AGREEMENT BY THE COMPANY SHALL IN NO
CASE REQUIRE THE COMPANY TO ACCEPT ANY OTHER SUBSCRIPTION AGREEMENT. PROSPECTIVE
PURCHASERS MUST WARRANT IN THE SUBSCRIPTION AGREEMENT THAT THEY HAVE RECEIVED A
COPY OF THIS PROSPECTUS, AS AMENDED OR SUPPLEMENTED. SEE "THE OFFERING - HOW TO
SUBSCRIBE." UPON ACCEPTANCE OF A SUBSCRIPTION BY THE COMPANY, SUBSCRIPTION
PROCEEDS WILL BE AVAILABLE FOR IMMEDIATE USE BY THE COMPANY. SEE "USE OF
PROCEEDS."
THE Company intends to offer the Shares primarily to individuals who are
regional and executive directors of the Company. The Company has established a
minimum subscription of 200 Shares and maximum subscriptions of 200 Shares and
2,000 Shares, respectively, for each person who qualifies as a regional or
executive director in the Company's marketing system; provided, that the
aggregate number of Shares sold in this Offering shall not exceed 5,000,000.
However, the Company reserves the right to waive these limits or to allocate
additional Shares to regional and executive directors or to sell Shares to other
purchasers, including members of the general public, without notifying any
purchaser or prospective purchaser. See "The Offering."
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The date of this Prospectus is _____, 1997
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ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting
requirements of the Exchange Act. The Company has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (which term
shall include any amendments thereto) on Form S-1 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Shares to be
offered pursuant hereto. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Shares, reference is made to the Registration
Statement, including the exhibits and schedules thereto, copies of which may be
examined without charge at the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549 and the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, 14th Floor, Chicago, Illinois
60661-2511. Copies of such materials may be obtained from the Public Reference
Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at its public reference facilities in New York, New York, and
Chicago, Illinois, at prescribed rates. The Commission maintains a World Wide
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's web site is http:\\www.sec.gov. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
The Company is not a reporting company as defined by the Commission.
The Company intends to furnish holders of the Shares with annual reports
containing financial statements audited by an independent public accounting firm
and quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.
The Company has applied for federal registration for the mark "MAXXIS."
This Prospectus includes product names and other trade names and trademarks of
the Company and of other companies.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including "Risk Factors" and the
consolidated financial statements and related notes thereto, appearing elsewhere
in this Prospectus. Currently, Maxxis Group, Inc. conducts all of its business
and operations through its wholly owned subsidiaries Maxxis 2000, Inc. ("Maxxis
2000") and Maxxis Telecom, Inc. ("Maxxis Telecom"). Unless the context indicates
otherwise, all references to the "Company" or "Maxxis" refer to Maxxis Group,
Inc. and its subsidiaries. The Class A Common Stock and Class B Common Stock are
sometimes collectively referred to herein as the "Common Stock." On October 8,
1997, the Company effected a five for one reverse stock split for all
outstanding shares of Common Stock. All share and per share data have been
adjusted to reflect the five for one reverse stock split.
THE COMPANY
Maxxis markets telecommunications services in the United States through
its multi-level network marketing system of "independent associates," or "IAs."
The Company currently operates through its subsidiaries: Maxxis 2000, which
conducts network marketing operations; and Maxxis Telecom, which provides long
distance services. The Company currently markets both 1-Plus long distance
service and value-added telecommunications services, such as travel cards,
prepaid phone cards, 800 service and international telecommunications service.
The Company was incorporated in January 1997 and began recruiting IAs and
marketing telecommunications services in March 1997. As of June 30, 1997, the
Company had generated aggregate gross revenues of approximately $2,691,000.
The Company initially intends to build a customer base without having
to commit capital or management resources to construct its own
telecommunications network and transmission facilities. In February 1997, Maxxis
Telecom contracted with Colorado River Communications, Corp. ("CRC") to obtain
switching and network services and to allow CRC's telecommunications services to
be sold by the Company's IAs. In the future, the Company may contract with other
providers of long distance services and intends to analyze the feasibility of
developing its own long distance network.
The Company conducts its marketing activities exclusively through its
network of IAs. The Company believes that IAs are generally attracted to the
Company's network marketing system because of the potential for supplemental
income and because the IAs are not required to purchase any inventory, have no
monthly sales quotas or account collection issues, have minimal required
paperwork and have a flexible work schedule. The Company's network marketing
system and the Company's reliance upon IAs are intended to reduce net marketing
costs, subscriber acquisition costs and subscriber attrition. The Company
believes that its network marketing system will build a base of potential
customers for additional services and products. Accordingly, the Company is
currently considering the possibility of marketing a line of nutritional
products.
The Company's goal is to develop a national distribution system through
which large volumes of telecommunications services and other products and
services may be sold. The Company intends to increase its revenues by: (i)
expanding its marketing network; (ii) increasing the number of customers who
purchase products and services offered by the Company; and (iii) providing
additional products and services for sale through its IAs.
The Company intends to achieve its goal by:
- Growing and Developing its Network of IAs by enhancing the
recruiting and training services offered to IAs, continuing to
support the marketing efforts of IAs and introducing new
income opportunities for IAs.
- Maintaining and Expanding the Number of Customers by offering
high quality, competitively-priced products and services
through a highly motivated network of IAs.
- Offering Additional Telecommunications Products by entering
into agreements for the marketing of additional products that
meet the needs of subscribers, which may include, among
others, paging, conference calling, wireless cable, cellular
and local phone service.
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- Improving and Expanding its Product Lines by continuing to
evaluate and offer products that are attractive to its IAs and
customers. In addition to telecommunications products, the
Company is currently considering the possibility of marketing
a line of private-labeled nutritional products which the
Company would distribute through its IAs.
- Obtaining Competitive Prices on products and services through
the purchasing power of the Company's nationwide network.
Currently, the Company has five IA positions in its marketing system:
associate; senior associate; director; regional director; and executive
director. A director increases the size of the director's sales organization by
sponsoring additional persons to become senior associates. These senior
associates, and all senior associates that they, in turn, sponsor, become part
of the sales organization of the director who sponsored them. Senior associates,
through the growth of their sales organizations, may become directors, regional
directors or executive directors and thereby increase the size of the sales
organization of the person who was their original sponsor. The organization that
grows below each director through this process is called a "downline."
All IA commissions are paid directly by the Company and are a specified
percentage or a designated amount of the gross proceeds received by the Company
on the sale of services and products. The Company designates a portion of its
gross commissions as "commission value," or "CV," and allocates the CV among
eligible participants in its marketing system. Currently, 20% of the CV earned
with respect to a long distance subscriber is paid weekly to the IA who
sponsored such subscriber, 75% of the CV is paid monthly to eligible directors
who have the IA who sponsored the subscriber in their downline and the remaining
5% is retained by the Company to be paid out to directors, regional directors
and executive directors in the Company's incentive bonus programs. All
directors, executive directors and regional directors who (i) have an aggregate
of at least 200 active long distance customers personally and in the first seven
levels of their downline as of the last Friday of a quarter, (ii) have sponsored
at least two new senior associates during the quarter and (iii) are certified as
marketing directors ("MDs") are eligible to receive an additional "Leadership
Bonus." The Leadership Bonus is payable quarterly and equals, in the aggregate,
1% of the total sales of Maxxis 2000 during the quarter. The Leadership Bonus is
divided equally among all directors, regional directors and executive directors
who qualify for a Leadership Bonus. In order to encourage the growth of the
Company's marketing system, the Company also pays eligible directors a weekly
bonus amount, which is designated as "bonus value," or "BV," for each sale of
bonus-eligible products. Currently, the Company only designates retail priced
phone cards as bonus-eligible products.
To become an associate, individuals (other than individuals in North
Dakota) must complete an application and purchase a distributor kit for $30. The
Company provides training to all IAs which includes a detailed explanation of
the Company's products, the IA compensation plan and the use of the various
marketing tools available to the IA. MDs provide personal training to IAs. The
Company encourages directors and regional directors to become MDs. To become a
MD, a director or regional director must attend a Company approved training
school. The fee to become a MD is generally $99 (with an annual renewal fee of
$99). MDs are paid a fee by the Company for training IAs.
The Company believes that maintaining sophisticated and reliable
transaction processing systems is essential for multi-level network marketing
companies. Accordingly, the Company invests in maintaining and enhancing its
computer systems. The Company's systems are designed to process detailed and
customized IA commission payments, monitor and analyze financial and operating
trends and track each IA's personal organization.
As of June 30, 1997, the Company employed approximately 25 people, not
including IAs who are classified by the Company as independent contractors. The
Company's employees are not unionized, and the Company believes its relationship
with its employees is good.
The Company's principal executive office is located at 1901 Montreal
Road, Suite 108, Tucker, Georgia 30084, and its telephone number is (770)
552-4766.
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THE OFFERING
Class A Common Stock outstanding.................. 14,300,000 shares
Class B Common Stock outstanding.................. 3,000,000 shares
Class B Common Stock to be
offered hereby.................................. 5,000,000 shares
Common Stock to be Outstanding after
the Offering.................................... 22,300,000 shares
Use of Proceeds................................... Development of additional product lines, development and/or
acquisition of information systems, payment of organizational
and offering expenses and for working capital and general
corporate purposes. See "Use of Proceeds."
Terms of the Offering............................. Prospective purchasers must deliver to the Company a
completed and executed Subscription Agreement, the form of
which is attached hereto as Appendix A. An executed
Subscription Agreement will constitute a prospective
purchaser's offer to purchase shares of Class B Common
Stock as set forth in this Prospectus. Prospective purchasers
submitting completed and executed Subscription Agreements
may not revoke or withdraw such Subscription Agreements
except with the consent of the Company. Upon acceptance
of a subscription by the Company, subscription proceeds will
be available for immediate use by the Company. See "The
Offering - General."
Transfer Restrictions............................. Pursuant to the Subscription Agreement, each purchaser of the
Shares offered hereby agrees not to sell or otherwise transfer
the Shares or any securities issued on account of such Shares
during the Lock-up Period (as defined herein). The
Company may impose transfer restrictions during the Lock-
up Period by giving notice to the holders of record of the
Shares. The certificates evidencing the Shares will bear a
legend referencing these potential restrictions on transfer.
See "Risk Factors - Absence of Trading Market; Transfer
Restrictions" and "The Offering - Transfer Restrictions."
Plan of Distribution.............................. Offers and sales of the Class B Common Stock will be made
on behalf of the Company by certain of its officers and
directors. The officers and directors will receive no
commissions or other remuneration in connection with such
activities, but they will be reimbursed for reasonable
expenses incurred in connection with the Offering. See "The
Offering - Plan of Distribution."
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Voting Rights of Class A Common
and Class B Common Stock........................ On all matters with respect to which the Company's
shareholders have a right to vote, including the election of
directors, each share of Class A Common Stock is entitled to
ten votes, while each share of Class B Common Stock is
entitled to one vote. Except as otherwise required by law or
expressly provided in the Amended and Restated Articles of
Incorporation of the Company, as amended (the "Articles"),
the Class A Common Stock and Class B Common Stock vote
together as a single class with respect to substantially all
matters submitted to a vote of the shareholders. See "Risk
Factors - Concentration of Ownership; Voting Rights of
Class A and Class B Common Stock" and "Description of
Capital Stock."
RISK FACTORS
Prospective purchasers of the Class B Common Stock should carefully
consider the matters set forth herein under "Risk Factors," as well as the other
information set forth in this Prospectus.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The Company was incorporated on January 24, 1997 and began operations
in March 1997. The following summary consolidated financial data for the period
from January 24, 1997 to June 30, 1997 (the "Inception Period") is derived from
the audited consolidated financial statements and other data of the Company. The
consolidated financial statements for the Inception Period were audited by
Arthur Andersen LLP, independent public accountants. The results of operations
for the Inception Period are not necessarily indicative of the results to be
expected for a full fiscal year. The following summary consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and the related notes thereto appearing elsewhere in this Prospectus.
JANUARY 24, 1997
(INCEPTION)
TO JUNE 30, 1997
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STATEMENT OF OPERATIONS DATA:
Revenues:
Communication services.......................................... $ 2,666,000
Subscriber services............................................. 25,000
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Total revenues............................................... 2,691,000
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Cost of Services.................................................. 1,016,000
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Gross margin.................................................... 1,675,000
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Operating Expenses:
Selling and marketing........................................... 1,089,000
General and administrative...................................... 636,000
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Total operating expenses..................................... 1,725,000
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Loss before income tax benefit.................................... (50,000)
Income tax benefit................................................ 0
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Net loss.......................................................... $ (50,000)
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PER SHARE DATA:
Net loss per share................................................ $ (0.003)
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Weighted average number of shares outstanding..................... 17,300,000
AS OF JUNE 30, 1997
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ACTUAL AS ADJUSTED(1)(2)
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BALANCE SHEET DATA:
Working capital............................. $ (13,000) $2,177,000
Property and equipment, net................. 92,000 92,000
Total assets................................ 620,000 2,810,000
Long-term obligations....................... 0 0
Shareholders' equity........................ 317,000 2,507,000
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(1) Adjusted for the sale of 5,000,000 shares of Class B Common Stock of
the Company offered hereby at a public offering price of $0.50 per
share and the application of the estimated net proceeds therefrom.
See "Use of Proceeds."
(2) Adjusted for the receipt of $90,000 in additional stock subscriptions
for the Company's Class B Common Stock subsequent to June 30, 1997.
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RISK FACTORS
Before purchasing any Shares offered by this Prospectus, prospective
purchasers should carefully consider the following factors relating to the
Company and the Offering, together with the other information and financial data
appearing elsewhere in this Prospectus.
NEW ENTERPRISE
The Company currently is in the organizational stage and has a limited
operating history. As a consequence, prospective purchasers of the Shares have
limited information upon which to base an investment decision. The Company's
operations are subject to the risks inherent in the establishment of any new
business. The Company expects that it will incur substantial initial expenses,
and there can be no assurance that the Company will achieve or maintain
profitability. There can be no assurance that the products or services offered
by the Company will receive market acceptance or that the Company's prices and
demand for products and services offered by the Company will be at a level
sufficient to provide profitable operations. The Company has entered into an
agreement with CRC, a provider of switching and network transmission services;
however, there can be no assurance that the Company will be able to maintain
this relationship or enter into new contracts with other providers on terms
acceptable to the Company or at all. See "- Relationship with Carrier,"
"Business - Competition," "- Strategy" and "- Products and Services."
The Company will use the proceeds of the Offering in part to pay
organizational and offering expenses in connection with the start-up of the
Company's business and, in particular, the establishment of the Company's
network marketing system. The Company believes that the proceeds of the
Offering, together with the cash generated through operations, will be
sufficient to enable the Company to pay organizational and offering expenses and
to fund continued operations, including the development of additional product
lines. However, there can be no assurance that the Company will generate
sufficient proceeds from this Offering and its ongoing operations to establish
its network marketing system or to maintain its operations, or that the
Company's business will be successful. See "Use of Proceeds."
DEPENDENCE ON IAS
The Company's success will depend heavily upon its ability to attract,
maintain and motivate a large base of IAs who, in turn, sponsor subscribers,
customers and other IAs. The Company anticipates a significant turnover among
IAs, which the Company believes is typical of businesses involved in direct
selling. The Company requires the sponsoring of new IAs by existing IAs in order
to maintain or increase the overall IA force. Activities of the IAs in obtaining
new subscribers will particularly be influenced by changes in the level of IA
motivation, which in turn can be positively or negatively affected by general
economic conditions, modifications in commission and training fees and in the
Company's marketing plan, the prices and competitive positions of the products
and services offered by the Company and a number of other intangible factors.
The Company's ability to attract IAs could be negatively affected by adverse
publicity relating to the Company or its services or its operations, including
its network marketing system. Administrative or technological problems of the
type that may be encountered by both early stage and mature companies, such as
malfunctions in accounting systems or computer information systems, may lead to
the immediate and dramatic attrition of IAs and subscribers. The Company has
begun establishing its network of IAs. However, there can be no assurance that
the Company will be successful in establishing a viable network of IAs. Because
of the number of factors that affect the Company's ability to attract and retain
IAs, the Company cannot predict when or to what extent increases or decreases in
the level of IA retention or attrition will occur. In addition, the number of
IAs as a percentage of the population could reach levels that become difficult
to exceed due to the finite number of persons inclined to pursue an independent
direct selling business opportunity. There can be no assurance that the number
or productivity of IAs will be sufficient to support the Company's proposed
products and services in the future or to allow the Company to achieve its
objectives.
The Company is subject to competition in the recruiting of IAs from
other network marketing organizations, including those that market long distance
services, health products, cosmetics and dietary supplements, such as EXCEL
Communications, Inc. ("EXCEL"), American Communications Network ("ACN"), Amway
Corporation ("Amway"), TDG Communications ("TDG"), BeautiControl Cosmetics,
Inc., Herbalife
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International, Inc. and Mary Kay, Inc. EXCEL representatives sell a variety of
long distance telecommunications services, ACN representatives sell long
distance services for LCI International, Inc. ("LCI") and other long-distance
carriers, Amway distributors sell 1-Plus long distance service for MCI
Communications Corporation ("MCI") and TDG sells MCI Paging Services and the MCI
VNet Calling Cards. See "Business - Strategy," "- Marketing" and "- Regulation."
RELATIONSHIP WITH IAS
Because IAs are classified as independent contractors, the Company is
unable to provide them the same level of direction and oversight as Company
employees. While the Company has policies and rules in place governing the
conduct of the IAs and intends to review periodically the sales tactics of the
IAs, it may be difficult to enforce such policies and rules. Violations of these
policies and rules might reflect negatively on the Company and may lead to
complaints to or by various federal and state regulatory authorities. Violation
of the Company's policies and rules could subject the Company and its long
distance provider to complaints regarding the unauthorized switching of
subscribers' long distance carriers (also known in the industry as "slamming").
Such complaints could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business - Relationship with
IAs."
REGULATION OF NETWORK MARKETING; EFFECT OF STATE LAWS
The Company's network marketing system is subject to or affected by
extensive government regulation including, without limitation, federal and state
regulations governing the offer and sale of business franchises, business
opportunities and securities. Various governmental agencies monitor direct
selling activities, and the Company could be required to supply information
regarding its marketing plan to such agencies. Although the Company believes
that its network marketing system is in material compliance with the laws and
regulations relating to direct selling activities, there can be no assurance
that legislation and regulations adopted in particular jurisdictions in the
future will not adversely affect the Company's business, financial condition and
results of operations. The Company also could be found to be in non-compliance
with existing statutes or regulations as a result of, among other things,
misconduct by IAs, who are considered independent contractors over whom the
Company has limited control, the ambiguous nature of certain of the regulations
and the considerable interpretive and enforcement discretion given to
regulators. Any assertion or determination that the Company or the IAs are not
in compliance with existing statutes or regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations. An adverse determination by any one state on any regulatory matter
could influence the decisions of regulatory authorities in other jurisdictions.
The primary goal of the Offering is to increase the motivation of
regional and executive directors by allowing them to purchase an interest in the
Company. Accordingly, because the Company desires the ability to offer its Class
B Common Stock to regional and executive directors in certain states, the
Company will attempt to register or qualify the Offering in such states. Due to
the varying nature of state securities regulations and the considerable
discretion given to state securities regulators, the Company may be unable to
register or qualify the Offering in certain states. The inability of the Company
to offer and sell the Shares to residents of certain states may limit the
ability of the Company to attract IAs in such states, or lead to increased
attrition of IAs in such states, and may have a material adverse effect on the
Company's business, prospects, financial condition and results of operations. An
adverse determination by any one state regulator on a securities regulatory
matter could influence the decisions of state regulatory authorities in other
jurisdictions. See "Business - Marketing" and "- Regulation."
INTENSE COMPETITION
The Company faces competition in the United States for both the
products and services it sells and for the sponsoring and retaining of
independent salespeople. The United States long distance telecommunications
industry is intensely competitive, rapidly evolving and subject to rapid
technological change. In addition, the industry is significantly influenced by
the marketing and pricing practices of the major industry participants. AT&T
Corp. ("AT&T"), MCI, Sprint Corporation ("Sprint") and WorldCom, Inc.
("WorldCom") are the dominant competitors in the domestic long distance
telecommunications industry. All of these companies are
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significantly larger than the Company and have substantially greater resources.
According to a 1995 report by the Federal Communications Commission (the "FCC"),
AT&T, MCI, Sprint and WorldCom accounted for approximately 56%, 17%, 10% and 5%,
respectively, of total domestic long distance revenue for calendar year 1994.
Many of the Company's current and potential competitors have longer operating
histories, greater name recognition, larger customer bases and substantially
greater financial, personnel, marketing, technical and other resources than the
Company. These competitors employ various means to attract new subscribers,
including television and other advertising campaigns, telemarketing programs,
network marketing and cash payments and other incentives. The Company's ability
to compete effectively depends upon, among other factors, its ability to offer
high quality products and services at competitive prices. There can be no
assurance that the Company will be able to compete successfully. See "Business -
Competition."
On February 8, 1996, President Clinton signed into law the
Telecommunications Act of 1996, as amended (the "1996 Telecommunications Act"),
that will allow local exchange carriers ("LECs"), including the Bell Operating
Companies ("BOCs"), to provide long distance telephone service inter-LATA (a
"LATA" is a Local Access and Transport Area), which will likely significantly
increase competition for long distance services. The new legislation also grants
the FCC the authority to deregulate other aspects of the telecommunications
industry. Such increased competition could have a material adverse effect on the
Company's business, financial condition and results of operations.
Telecommunications companies compete for subscribers based on price,
among other things, with major long distance carriers conducting extensive
advertising campaigns to capture market share. There can be no assurance that a
decrease in the rates charged for communications services by the major long
distance carriers or other competitors, whether caused by general competitive
pressures or the entry of the BOCs and other LECs into the long distance market,
would not have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company expects that the telecommunications services markets will
continue to attract new competitors and new technologies, possibly including
alternative technologies that are more sophisticated and cost effective than the
technologies included in the products and services offered by the Company. The
Company does not have the contractual right to prevent subscribers from changing
to a competing service, and the subscribers may terminate their service at will.
The Company also competes for IAs with other direct selling
organizations, some of which have longer operating histories and greater
visibility, name recognition and financial resources. The leading network
marketing companies in the Company's markets are EXCEL, ACN and Amway. The
Company competes for IAs on the basis of the Company's reputation, perceived
opportunity for financial success and quality and range of products offered for
sale. Management envisions the entry of many more direct selling organizations
into the marketplace. There can be no assurance that the Company will be able to
successfully meet the challenges posed by this increased competition. The
Company competes for the time, attention and commitment of its IAs. Given that
the pool of individuals interested in the business opportunities presented by
direct selling is limited in each market, the potential pool of IAs for the
Company's products and services is reduced to the extent other network marketing
companies successfully recruit these individuals. Although management believes
that the Company offers an attractive business opportunity, there can be no
assurance that other network marketing companies will not be able to recruit the
Company's existing IAs or deplete the pool of potential IAs in a given market,
and in such event, the Company's business, financial condition and results of
operations could be materially adversely affected. See "Business - Competition."
RELATIONSHIP WITH CARRIER
The Company does not own a long distance network. As a result, Maxxis
Telecom has entered into an agreement (the "1-Plus Agreement") with CRC to
obtain switching and network services. The Company now depends exclusively on
CRC for the transmission of subscriber phone calls and the activation of prepaid
phone cards. The 1-Plus Agreement, which expires on February 20, 2000, provides
that the Company will have rights to the subscriber base developed under the
agreement only upon achieving certain minimum levels of monthly revenues on
CRC's network. There can be no assurance that the Company will achieve the
minimum level of
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monthly revenues on CRC's network necessary to obtain rights to the subscriber
base. In addition, minimum monthly revenues may be more difficult to maintain if
the Company utilizes additional carriers, and the Company could be subject to
additional minimum commitments including, but not limited to, minimum monthly
revenues or minimum monthly minutes of usage, with such new carriers. The
accurate and prompt billing of the subscribers originated by the IAs is also
dependent upon CRC. The failure of CRC to accurately and promptly bill
subscribers could lead to a loss of subscribers and could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company would be required to use another carrier if the 1-Plus
Agreement is terminated, the usage or number of subscribers originated by the
Company's IAs exceeds the capacity of CRC or CRC fails to provide quality
services. In such event, or in the event the Company otherwise elects to use
other carriers, the cost paid by the Company for such long distance services may
exceed that paid under the 1-Plus Agreement. If the 1-Plus Agreement is
terminated, there can be no assurance that the Company could enter into new
contracts with other providers on terms favorable to the Company or at all, and
the termination of the 1-Plus Agreement or the failure of CRC to provide quality
services, quality customer support or accurate and timely billing could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business - Supplier" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
CONCENTRATION OF OWNERSHIP; VOTING RIGHTS OF CLASS A AND CLASS B COMMON STOCK
Following the Offering, assuming the sale of 5,000,000 Shares offered
hereby, the directors and executive officers and relatives and affiliates of
directors and executive officers of the Company and its subsidiaries will own,
in the aggregate, 11,300,000 shares of Class A Common Stock and 110,000 shares
of Class B Common Stock which collectively represents approximately 51.2% of the
total outstanding shares of Common Stock. The Class A Common Stock and Class B
Common Stock vote as a single class with respect to substantially all matters,
including the election of directors, submitted to a vote of the shareholders,
with each share of Class A Common Stock entitled to ten votes and each share of
Class B Common Stock entitled to one vote. Accordingly, assuming the sale of
5,000,000 Shares offered hereby, the directors and executive officers and
relatives and affiliates of directors and executive officers of the Company and
its subsidiaries, acting as a group, will hold approximately 74.9% of the
combined voting power (on a fully diluted basis) of the Company and will have
the ability to elect all of the directors of the Company and control the
Company's management, operations and affairs for the foreseeable future. See
"Principal Shareholders" and "Description of Capital Stock."
ABILITY TO MANAGE GROWTH
The Company's goal is to develop a nationwide network of IAs and to
offer long distance telecommunications and other products and services
throughout the United States. The Company's strategy of growth and expansion
will place substantial demands upon the Company's current management and other
resources and may require a substantial amount of working capital, as well as
management, operational and other financial resources. The success of the
Company will depend on various factors, including, among others, federal and
state regulation of the telecommunications industry, competition and the
capability and capacity of the Company's long distance carriers. Not all of the
foregoing factors are within the control of the Company. The Company's ability
to manage growth successfully will require the Company to develop strong
operational, management, financial and information systems and controls. No
assurance can be given that the Company will experience growth or that, if it
does, that management will be able to manage growth effectively. In such event,
the Company's business, financial condition and results of operations could be
materially adversely affected. See "Business - Strategy," "- Marketing," "-
Information Systems," "- Supplier," "- Employees" and "Management."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant
extent upon the abilities and efforts of its senior management, particularly
Ivey J. Stokes, its Chairman of the Board, and Thomas O. Cordy, its Chief
Executive Officer and President. The Company does not maintain key man life
insurance on Mr. Stokes, Mr. Cordy or any other person. Many of the Company's
executive officers and other key employees have only
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recently joined the Company. The loss of the services of any of such individuals
could have a material adverse effect on the Company's business, financial
condition and results of operations. The success of the Company will also
depend, in part, upon the Company's ability to find, hire and retain additional
key management personnel. The inability to find, hire and retain such personnel
could have a material adverse effect upon the Company's business, financial
condition and results of operations. See "Management - Executive Officers and
Directors."
SUBSCRIBER ATTRITION
The Company believes that a high level of subscriber attrition is a
characteristic of the domestic residential long distance industry. Attrition is
attributable to a variety of factors, including the termination of subscribers
for non-payment and the initiatives of existing and new competitors as they
engage in, among other things, national advertising campaigns, telemarketing
programs and the issuance of cash or other forms of incentives. Such attrition
could have a material adverse effect upon the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
REGULATION OF LONG DISTANCE TELEPHONE SERVICES
Various regulatory factors may have an impact on the Company's ability
to compete and on its financial performance. CRC is subject to regulation by the
FCC and by various state public service and public utility commissions. Federal
and state regulations and regulatory trends have had, and may have in the
future, both positive and negative effects on the Company and on the
telecommunications service industry as a whole. FCC policy currently requires
interexchange carriers to provide resale of the use of their transmission
facilities. The FCC also requires LECs to provide all interexchange carriers
with equal access to the origination and termination of calls. If either or both
of these requirements were removed, CRC and, therefore, the Company could be
adversely affected. CRC may experience disruptions in service due to factors
outside CRC's and the Company's control, which may cause CRC to lose the ability
to complete its subscribers' long distance calls. The Company believes that CRC
has made all filings with the FCC necessary to allow CRC to provide interstate
and international long distance service. In order to provide intrastate long
distance service, CRC is required to obtain certification to provide
telecommunications services from the public service or public utility
commissions of each state, or to register or be found exempt from registration
by such commissions. While the Company believes that CRC is in compliance with
the applicable state and federal regulations governing telecommunications
service, and the Company believes that it is not required to obtain
certification or to be registered with public utility commissions, there can be
no assurance that the FCC or any state regulatory authority in one or more
states will not raise material issues with regard to CRC's or the Company's
compliance with applicable regulations, or that regulatory activities with
respect to CRC or the Company, will not have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- - Regulation."
In February 1996, the enactment of the 1996 Telecommunications Act
served to increase competition in the long distance and local telecommunications
markets. The 1996 Telecommunications Act opens competition in the local services
market and, at the same time, contains provisions intended to protect consumers
and businesses from unfair competition by incumbent LECs, including the BOCs.
The 1996 Telecommunications Act allows BOCs to provide long distance service
outside of their local service territories but bars them from immediately
offering in-region inter-LATA long distance services until certain conditions
are satisfied. A BOC must apply to the FCC to provide in-region inter-LATA long
distance services and must satisfy a set of pro-competitive criteria intended
to ensure that BOCs open their own local markets to competition before the FCC
will approve such application. The Company is unable to determine how the FCC
will rule on any such application. The new legislation may result in increased
competition to the Company from others, including the BOCs, and increased
transmission costs in the future. See "- Intense Competition." If the federal
and state regulations requiring the LECs to provide equal access for the
origination and termination of calls by long distance subscribers change or if
the regulations governing the fees to be charged for such access services
change, particularly if such regulations are changed to allow variable pricing
of such access fees based upon
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volume, such changes could have a material adverse effect upon the Company's
business, financial condition and results of operations. See "Business -
Competition" and "- Regulation."
OFFERING ADDITIONAL PRODUCTS AND SERVICES
The Company's strategy includes offering additional products and
services in the future, which may include, among others, paging, wireless cable,
conference calling, cellular phone service, local phone service and other
non-communications related consumer products, such as nutritional products.
Entry into new markets entails risks associated with the state of development of
the market, intense competition from companies already operating in those
markets, potential competition from companies that may have greater financial
resources and experience than the Company, increased selling and marketing
expenses and regulatory issues. There can be no assurance that the Company's
additional products or services, if any, will receive market acceptance in a
timely manner, or at all, or that prices and demand in new markets will be at a
level sufficient to provide profitable operations. See "Business - Competition,"
"- Strategy" and "- Products and Services."
POSSIBLE CLAIMS RELATING TO OWNERSHIP OF PROPRIETARY RIGHTS
The Company has applied for a federal registration for the mark
"MAXXIS." In addition, the Company relies upon common law rights to establish
and protect its intellectual property. There can be no assurance that the
Company's measures to protect its intellectual property will prevent or deter
the unauthorized use of the Company's intellectual property. The Company's
inability to protect its intellectual property rights could have a material
adverse effect upon the Company's business, financial condition and results of
operations. From time to time, companies may assert other trademark and service
mark rights relevant to the Company's business, and future products of the
Company may need to be marketed under different names if the mark "MAXXIS" is
being used by other companies. The Company could also incur substantial costs to
defend any legal action taken against the Company. If, in any legal action that
might arise, the Company's asserted trademarks or service marks should be found
to infringe upon other intellectual property rights, the Company could be
enjoined from further infringement and required to pay damages. In the event a
third party were to sustain a valid claim against the Company, and in the event
any required license were not available on commercially reasonable terms, the
Company's business, financial condition and results of operations could be
materially adversely affected. Litigation, which could result in substantial
cost to and diversion of resources of the Company, may also be necessary to
enforce intellectual property rights of the Company or to defend the Company
against claimed infringement of the rights of others. See "Business -
Proprietary Rights."
BROAD DISCRETION IN APPLICATION OF PROCEEDS
The Company intends to use the net proceeds from the Offering for the
development of additional product lines, development and/or acquisition of
information systems, payment of organizational and offering expenses and for
working capital and general corporate purposes. Accordingly, the specific uses
for much of the net proceeds will be at the complete discretion of the Board of
Directors of the Company and may be allocated based upon circumstances arising
from time to time in the future. See "Use of Proceeds."
TRANSACTIONS WITH RELATED PARTIES
The Company has in the past entered into agreements and arrangements
with certain officers, directors and principal shareholders of the Company.
Certain of these transactions may have been made on terms more favorable to
officers, directors and principal shareholders than could have been obtained
from an affiliated third party. The Company intends to adopt a policy requiring
that all material transactions between the Company and its officers, directors
or other affiliates must: (i) be approved by a majority of the disinterested
members of the Board of Directors of the Company; and (ii) be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties.
See "Certain Transactions."
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DETERMINATION OF OFFERING PRICE
The purchase price of the Class B Common Stock was arbitrarily
determined by the Company and does not necessarily bear any relationship to the
Company's asset value, net worth or other established criteria of value. Each
prospective investor should make an independent evaluation of the fairness of
such price. No assurance is or can be given that any of the shares will be able
to be resold for the offering price or for any other amount. See
"Capitalization" and "Dilution."
ABSENCE OF TRADING MARKET; TRANSFER RESTRICTIONS
There is currently no market for the Shares. Although the Company has
filed a Registration Statement with the Commission to register the issuance of
the Shares in the Offering under the Securities Act, it is unlikely that any
trading market will develop for the shares in the future. There are no present
plans for the Shares to be traded on any stock exchange or in the
over-the-counter market. As a result, investors who may need or wish to dispose
of all or part of their Shares may be unable to do so. In addition, sales of
substantial amounts of the Shares after the Offering could adversely affect
prevailing market prices, if any. See "Shares Eligible for Future Sale."
Pursuant to the Subscription Agreement, each purchaser of the Shares
offered hereby agrees not to sell or otherwise transfer the Shares or any
securities issued on account of such Shares during the Lock-up Period (as
defined herein). The Company may impose transfer restrictions during the Lock-up
Period by giving notice to the holders of record of the Shares. A purchaser of
the Shares offered hereby will not be able to transfer such Shares during the
Lock-up Period and may have substantial difficulty transferring such Shares
after the expiration of the Lock-up Period. The certificates evidencing the
Shares will bear a legend referencing these potential restrictions on transfer.
See "The Offering - Transfer Restrictions."
ANTI-TAKEOVER CONSIDERATIONS
The Board of Directors has authority to issue up to 10,000,000 shares
of preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of the preferred stock without further
vote or action by the Company's shareholders. The rights of the holders of Class
B Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any preferred stock that may be issued in the future. While
the Company has no present intention to issue shares of preferred stock, such
issuance could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. See
"Description of Capital Stock - Preferred Stock."
The Company's Amended and Restated Bylaws (the "Bylaws") provide for
the Company's Board of Directors to be divided into three classes, as nearly
equal in size as possible, with staggered three-year terms, and with one class
being elected each year. This classification of the Board of Directors could
make it more difficult for a third party to acquire control of the Company. The
Articles, Bylaws and the Georgia Business Corporation Code, as amended (the
"Georgia Law"), contain certain additional provisions that could have the effect
of making it more difficult for a party to acquire, or of discouraging a party
from attempting to acquire, control of the Company without approval of the
Company's Board of Directors. See "Description of Capital Stock - Certain
Provisions of the Articles, Bylaws and Georgia Law."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of shares of Class B Common Stock following the Offering could
adversely affect the price of the Company's Class B Common Stock. Upon
completion of the Offering, assuming 5,000,000 Shares offered hereby are sold,
the Company will have outstanding 8,000,000 shares of Class B Common Stock. Of
these shares, the 5,000,000 Shares offered hereby will be freely tradeable
without restriction or further registration under the Securities Act, unless
purchased by "affiliates" of the Company, as that term is defined in Rule 144
("Rule 144") under the Securities Act. The remaining 3,000,000 shares of Class B
Common Stock and all shares of Class A Common Stock outstanding upon completion
of the Offering are "restricted securities," as that
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term is defined in Rule 144. All of such restricted shares will be eligible for
sale in the open market under, and subject to the restrictions contained in,
Rule 144.
The Company and all of the holders of the Class A Common Stock have
entered into a shareholders agreement (the "Shareholders' Agreement") whereby
the shareholders agreed to certain restrictions on the transfer or other
disposition of the shares of Class A Common Stock held by each holder. In the
event a shareholder intends to transfer his or her Class A Common Stock to a
non-permitted transferee, the Company and the remaining shareholders have a
right of first refusal to purchase the transferring shareholder's Class A Common
Stock at fair market value. In addition, if the Company terminates a
shareholder's employment or engagement as a sales representative or consultant
for cause (or the employment or engagement of certain persons associated with a
shareholder), the Company shall have the right to repurchase, at fair market
value, an amount of the shareholder's Class A Common Stock which begins at 100%
and declines 20% per year for each completed year of service with the Company.
If either the right of first refusal or the Company's right to purchase is
exercised, either provision could have the effect of further concentrating the
stock ownership and voting power of the Company. See "Description of Capital
Stock - Shareholders' Agreement" and "Shares Eligible for Future Sale."
DILUTION TO NEW INVESTORS
Investors purchasing shares of Class B Common Stock in the Offering
will experience immediate and substantial dilution in net tangible book value.
In addition, the Board of Directors of the Company has the authority to issue up
to 700,000 additional shares of Class A Common Stock and up to 177,000,000
additional shares of Class B Common Stock, and such amounts may be increased and
new securities may be authorized in the future upon the determination of the
Board of Directors with the consent of the shareholders. See "- Concentration of
Ownership; Voting Rights of the Class A and Class B Common Stock" and
"Dilution."
NO MINIMUM OFFERING AMOUNT; IRREVOCABILITY OF SUBSCRIPTIONS; NO ESCROW
There is no minimum number of Shares which must be sold in this
Offering, and there can be no assurance that any or all of the Shares offered
hereby will be sold. Once a Subscription Agreement is received by the Company, a
prospective purchaser may not revoke or withdraw such Subscription Agreement
except with the consent of the Company. In addition, the Company reserves the
right to reject in whole or in part and in its sole discretion any subscription.
In addition, no escrow account has been established, and all subscription funds
will be paid directly to the Company. Upon acceptance of a subscription by the
Company, subscription proceeds will be available for immediate use by the
Company. See "The Offering - No Escrow."
LACK OF DIVIDENDS
The Company does not intend to pay any cash dividends with respect to
its Class B Common Stock in the foreseeable future. See "Dividend Policy."
APPLICATION OF THE PENNY STOCK RULES
The Commission has adopted rules that regulate broker-dealer practices
in connection with transactions in "penny stocks." Penny stocks generally are
equity securities which a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
Stock Market's National Market, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with bid and
offer quotations for the penny stock, the compensation of the broker-dealer and
its salesperson in the transaction and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules require that prior to a transaction in a penny stock not
otherwise exempt from such rules the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
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and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. Thus, even if a market for the Company's Class B Common Stock ever
develops, if the Class B Common Stock becomes subject to the penny stock rules,
shareholders may find it difficult to sell their shares.
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THE OFFERING
GENERAL
The Company intends to offer for sale pursuant to this Prospectus up to
5,000,000 shares of its Class B Common Stock. The Company intends to offer the
Shares primarily to individuals who are regional and executive directors of the
Company. The Company has established a minimum subscription of 200 Shares and
maximum subscriptions of 200 Shares and 2,000 Shares, respectively, for each
person who qualifies as a regional or executive director in the Company's
marketing system; provided, that the aggregate number of Shares sold in this
Offering shall not exceed 5,000,000. However, the Company reserves the right to
waive these limits or to allocate additional Shares to regional and executive
directors or to sell Shares to other purchasers, including members of the
general public, without notifying any purchaser or prospective purchaser.
Subscriptions to purchase Shares may be delivered to the Company until
12:00 p.m., E.S.T., on December 31, 1998, unless all of the Shares are earlier
sold or the Offering is earlier terminated or extended by the Company. The
Company reserves the right to terminate the Offering at any time or to extend
the expiration date for additional 90-day periods not to extend beyond December
31, 2000. The date the Offering terminates is referred to herein as the
"Expiration Date." No notice of an extension of the offering period need be
given prior to any extension, and any such extension will not alter the binding
nature of subscriptions already received by the Company. The Company intends to
provide quarterly communications to all purchasers which will include
information concerning any extensions of the Offering. Extension of the
Expiration Date might cause an increase in the Company's organizational and
pre-opening expenses and in the expenses incurred in connection with this
Offering. The Company may find it necessary to utilize the services of brokers
or dealers in order to effect sales of these securities in certain
jurisdictions. The Company will supplement this Prospectus or, if appropriate,
will file a post-effective amendment to the Registration Statement setting forth
the terms of any agreement with brokers or dealers.
Prospective purchasers must deliver to the Company a completed and
executed Subscription Agreement, the form of which is attached hereto as
Appendix A. An executed Subscription Agreement will constitute a prospective
purchaser's offer to purchase shares of Class B Common Stock as set forth in
this Prospectus. Prospective purchasers must warrant in the Subscription
Agreement that they have received a copy of this Prospectus, as amended or
supplemented. Once a Subscription Agreement is received by the Company, a
prospective purchaser may not revoke or withdraw such Subscription Agreement
except with the consent of the Company. In addition, the Company reserves the
right to reject, in whole or in part and in its sole discretion, any
subscription for any reason or no reason whatsoever. Acceptance of any
particular Subscription Agreement by the Company shall in no case require the
Company to accept any other Subscription Agreement. The Company may, in its sole
discretion, allocate shares among prospective purchasers in the event of an
oversubscription for the Shares. In determining which subscriptions to accept,
in whole or in part, the Company may take into account any factors it considers
relevant, including the order in which subscriptions are received, and a
prospective purchaser's perceived potential to do business with, or to direct
long distance subscribers or IAs to, the Company.
Certificates representing Shares duly subscribed and paid for will be
issued by the Company promptly after the Company accepts a subscription.
NO ESCROW
There is no minimum number of Shares which must be sold in this
Offering, and no escrow account has been established. All subscription funds
will be paid directly to the Company. Upon acceptance of a subscription by the
Company, subscription proceeds will be available for immediate use by the
Company. In the event the Company rejects all, or accepts less than all, of any
subscription, the Company will refund promptly an amount remitted equal to the
purchase price for such Shares multiplied by the number of Shares as to which
the subscription is not accepted. See "Risk Factors - No Minimum Offering
Amount; Irrevocability of Subscriptions; No Escrow."
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TRANSFER RESTRICTIONS
Pursuant to the Subscription Agreement, each purchaser of the Shares
offered hereby: (i) agrees during the Lock-up Period (as defined below) not to
(x) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any of the Shares or any securities issued on account of such Shares
(whether by stock split, stock dividend or otherwise) or (y) enter into any swap
or other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any Shares (regardless of whether
any of the transactions described in clause (x) or (y) is to be settled by the
delivery of Shares, or such other securities, in cash or otherwise); (ii)
authorizes the Company to cause the transfer agent during the Lock-up Period to
decline to transfer any Shares and/or to note stop transfer restrictions on the
transfer books and records of the Company with respect to any Shares; and (iii)
agrees that a legend in substantially the following form will be placed on
certificates representing the Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE (THE "SHARES") ARE
SUBJECT TO CONDITIONS THAT MAY LIMIT THEIR TRANSFERABILITY. SUCH
CONDITIONS ARE SET FORTH IN A SUBSCRIPTION AGREEMENT (THE
"SUBSCRIPTION AGREEMENT") BY AND BETWEEN THE ISSUER AND THE
ORIGINAL HOLDER OF THESE SHARES. ANY TRANSFEREE OF THESE SHARES
TAKES SUCH SHARES SUBJECT TO THE CONDITIONS SET FORTH IN THE
SUBSCRIPTION AGREEMENT.
IN SUMMARY, THESE CONDITIONS PROVIDE THAT THE ISSUER MAY ELECT TO
IMPOSE A PROHIBITION ON THE SALE OR TRANSFER OF THESE SHARES IN
THE EVENT THE ISSUER DETERMINES TO FILE A REGISTRATION STATEMENT
WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION THAT SEEKS TO
REGISTER SECURITIES OF THE ISSUER IN AN INITIAL PUBLIC OFFERING
THAT IS FIRMLY UNDERWRITTEN. SUCH RESTRICTION MAY REMAIN IN
EFFECT FOR A PERIOD ENDING 180 DAYS FOLLOWING THE EFFECTIVENESS
OF SUCH REGISTRATION STATEMENT. THE ISSUER MAY IMPOSE THESE
CONDITIONS BY GIVING WRITTEN NOTICE TO THE HOLDER OF RECORD OF
THESE SHARES. THE FOREGOING SUMMARY IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE SUBSCRIPTION AGREEMENT, A COPY OF WHICH WILL
BE PROVIDED FREE OF CHARGE BY THE ISSUER TO ANY HOLDER,
PROSPECTIVE PURCHASER OR TRANSFEREE OF THESE SHARES UPON THEIR
REQUEST."
The transfer restrictions may be imposed by the Company by giving
notice of the imposition of such restriction (the "Lock-up Notice") to holders
of record of the Shares by first class mail, postage prepaid (or, at the
Company's option, certified mail, return receipt requested), at the address of
the holders of record of the Shares on a date chosen by the Company that is at
least one but no more than fifteen days prior to such mailing. The restrictions
shall be effective upon receipt of such notice, which date of receipt shall be
deemed to be three days following such mailing. Such notice may be given by the
Company such that it is received on any date beginning fifteen days prior to the
filing by the Company of a registration statement with the Commission whereby
the Company first seeks to register its securities for sale to the public in a
firmly underwritten public offering (the "IPO Registration Statement"), and
ending upon the date that the IPO Registration Statement is declared effective
by the Commission (the "Effective Date"). The transfer restrictions shall be
effective on the date of receipt of the Lock-up Notice and shall remain in force
and effect until 180 days following the Effective Date (such period being
referred to as the "Lock-up Period"). The Lock-up Period shall terminate if the
Company files an IPO Registration Statement but such registration statement is
subsequently withdrawn or is not declared effective within 120 days of filing
with the SEC, or if the Company transmits a Lock-up Notice prior to the filing
of an IPO Registration Statement but the IPO Registration Statement is not filed
within 15 days of receipt of such notice; provided, however, that in any such
event the restrictions described herein shall survive and shall be applicable to
each subsequent filing of an IPO Registration Statement by the Company until an
IPO Registration Statement is first declared effective by the SEC. See "Risk
Factors - Absence of Trading Market; Transfer Restrictions."
18
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PLAN OF DISTRIBUTION
Offers and sales of the Class B Common Stock will be made on behalf of
the Company by certain of its officers and directors. The officers and directors
will receive no commissions or other remuneration in connection with such
activities, but they will be reimbursed for reasonable expenses incurred in
connection with the Offering. The Company reserves the right to use brokers or
dealers to effect sales of the Shares in the Offering.
HOW TO SUBSCRIBE
A Subscription Agreement, a form of which is attached hereto as
Appendix A, must be completed, executed and delivered to the Company on or prior
to the Expiration Date. Prospective purchasers should retain a copy of the
completed Subscription Agreement for their records. The subscription price is
due and payable when the Subscription Agreement is delivered. Payment must be
made in United States dollars by cash or by check, bank draft or money order
drawn to the order of Maxxis Group, Inc., in the amount of $0.50 multiplied by
the number of Shares subscribed for.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of 5,000,000 Shares
offered hereby (after deducting estimated offering expenses, all of which are
payable by the Company) are estimated to be approximately $2,100,000 if all the
Shares offered hereby are sold. Of the net proceeds received by the Company, the
Company intends to use: (i) approximately $400,000 for the development of
additional product lines; (ii) approximately $200,000 for the development and/or
acquisition of information systems; and (iii) approximately $1.5 million for
payment of organizational and offering expenses and for working capital and
general corporate purposes. However, the specific uses for the net proceeds will
be at the complete discretion of the Board of Directors of the Company and may
be allocated based upon circumstances arising from time to time in the future.
See "Risk Factors - Broad Discretion in Application of Proceeds." Pending
application of the net proceeds as described above, the Company will invest such
proceeds in short-term, interest-bearing instruments and investment grade
securities.
DIVIDEND POLICY
The Company anticipates that for the foreseeable future its earnings
will be retained for the operation and expansion of its business and that it
will not pay cash dividends. The Company's Board of Directors will determine the
Company's dividend policy in the future based upon, among other things, the
Company's results of operations, financial condition, business opportunities,
capital requirements, contractual restrictions and other factors deemed relevant
at the time.
CAPITALIZATION
The following table sets forth the capitalization of the Company: (i)
as of June 30, 1997; and (ii) as adjusted to give effect to the sale by the
Company of 3,000,000 shares of Class B Common Stock for $0.15 per share in a
private placement commenced by the Company in February 1997 and 5,000,000 shares
of Class B Common Stock being offered hereby at a public offering price of $0.50
per share and the anticipated receipt and application of the estimated net
proceeds therefrom. See "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Certain Transactions."
JUNE 30, 1997
---------------------------
ACTUAL AS ADJUSTED
---------- ------------
Stock subscription deposits..................................................... $ 360,000 $ 0
Class A Common Stock, 15,000,000 shares authorized;
14,300,000 shares issued and outstanding, and
14,300,000 shares issued and outstanding, as adjusted......................... 0 0
Class B Common Stock, 185,000,000 shares authorized;
0 shares issued and outstanding, and 8,000,000
shares issued and outstanding, as adjusted.................................... 0 0
Subscription receivable......................................................... (120,000) (120,000)
Additional paid-in capital...................................................... 127,000 2,677,000
Accumulated deficit............................................................. (50,000) (50,000)
---------- ------------
Total shareholders' equity................................................. $ 317,000 $ 2,507,000
========== ============
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DILUTION
The net tangible book value of the Company as of June 30, 1997, was
$199,000, or $0.01 per share of Common Stock outstanding. Net tangible book
value per share represents the amount of the Company's total assets less total
liabilities, divided by the total number of outstanding shares of Common Stock.
After giving effect to the sale of 5,000,000 Shares offered hereby and the
receipt and application of the estimated proceeds therefrom (at a public
offering price of $0.50 per share and after deducting estimated expenses of the
Offering), the pro forma net tangible book value of the Company at June 30, 1997
would have been $2.4 million, or $0.11 per share of Common Stock. This
represents an immediate increase in the net tangible book value of $0.10 per
share to existing shareholders and an immediate dilution to new investors
purchasing shares of Class B Common Stock in the Offering of $0.39 per share.
The following table illustrates the per share dilution to new investors at June
30, 1997, assuming the Offering was made at that time:
Initial offering price per share of Class B Common Stock ... $0.50
Net tangible book value per share of
Common Stock before the Offering ....................... 0.01
Increase per share attributable to new investors ......... 0.10
----
Pro forma net tangible book value per share of Common
Stock after the Offering ................................. 0.11
-----
Dilution per share to new investors ........................ $0.39
=====
The following table sets forth as of June 30, 1997, after giving effect
to the Offering, the difference between existing shareholders and the new
investors purchasing shares of Class B Common Stock in the Offering with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid therefor and the average price per share paid to the Company
on an as adjusted basis:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ -------- ------------ -------- ----------
Existing shareholders.................. 17,300,000(1) 77.6% $ 576,750(2) 18.7% $ 0.03
New investors.......................... 5,000,000 22.4 2,500,000 81.3 0.50
------------ ----- ------------ -----
Total............................... 22,300,000 100.0% $ 3,076,750 100.0%
============ ===== ============ =====
(1) Adjusted for 600,000 shares of additional stock subscriptions for the
Company's Class B Common Stock received subsequent to June 30, 1997.
(2) Adjusted for the receipt of $90,000 in additional stock subscriptions
for the Company's Class B Common Stock subsequent to June 30, 1997.
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SELECTED CONSOLIDATED FINANCIAL DATA
The Company was incorporated on January 24, 1997 and began operations
in March 1997. The following selected consolidated financial data for the
Inception Period is derived from the audited consolidated financial statements
of the Company. The consolidated financial statements for the Inception Period
were audited by Arthur Andersen LLP, independent public accountants. The results
of operations for the Inception Period are not necessarily indicative of the
results to be expected for a full fiscal year. The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and the related notes thereto appearing elsewhere in this
Prospectus.
JANUARY 24, 1997
(INCEPTION)
TO JUNE 30, 1997
-----------------
STATEMENT OF OPERATIONS DATA:
Revenues:
Communication services............................................................... $ 2,666,000
Subscriber services.................................................................. 25,000
-----------------
Total revenues.................................................................... 2,691,000
-----------------
Cost of Services....................................................................... 1,016,000
-----------------
Gross margin......................................................................... 1,675,000
-----------------
Operating Expenses:
Selling and marketing................................................................ 1,089,000
General and administrative........................................................... 636,000
-----------------
Total operating expenses.......................................................... 1,725,000
-----------------
Loss before income tax benefit......................................................... (50,000)
Income tax benefit..................................................................... 0
-----------------
Net loss............................................................................... $ (50,000)
=================
PER SHARE DATA:
Net loss per share..................................................................... $ (0.003)
=================
Weighted average number of shares outstanding.......................................... 17,300,000
AS OF JUNE 30, 1997
------------------------------
ACTUAL AS ADJUSTED(1)(2)
---------- -----------------
BALANCE SHEET DATA:
Working capital.............................................................. $ (13,000) $2,177,000
Property and equipment, net.................................................. 92,000 92,000
Total assets................................................................. 620,000 2,810,000
Long-term obligations........................................................ 0 0
Shareholders' equity......................................................... 317,000 2,507,000
- ----------------------------
(1) Adjusted for the sale of 5,000,000 shares of Class B Common Stock of the
Company offered hereby at a public offering price of $0.50 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
(2) Adjusted for the receipt of $90,000 in additional stock subscriptions for
the Company's Class B Common Stock subsequent to June 30, 1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the "Selected Consolidated Financial Data" and the consolidated financial
statements and notes thereto included elsewhere in this Prospectus. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, among other things, those discussed in "Risk
Factors."
GENERAL
Maxxis was incorporated on January 24, 1997 and began recruiting IAs
and marketing telecommunications services in March 1997. Currently, the Company
conducts all of its business and operations through its wholly-owned
subsidiaries Maxxis 2000 and Maxxis Telecom.
Maxxis 2000 is a network marketing company that currently markets
1-Plus long distance services, travel cards, prepaid phone cards, 800 service
and international telecommunications services. In the future, the Company
intends to market additional products and is currently considering the
possibility of marketing a line of nutritional products. The Company believes
that its network marketing system allows it to obtain customers for its products
in a cost effective manner and to enhance customer retention because of the
relationships between the Company's IAs and customers. The Company also believes
the telecommunications customer base developed by its IAs will provide a
potential customer base for future products. Maxxis Telecom obtains
telecommunications services through its contract with CRC. Maxxis Telecom also
purchases telecommunications time for its prepaid 5 hour, 1 hour, 30 minute and
10 minute phone cards from CRC.
The Company derives revenues from communication services and subscriber
services. Communication services revenues are primarily comprised of sales of
prepaid phone cards to the Company's IAs. Communication services revenues also
include application fees from IAs and purchases of sales aids by IAs, including
distributor kits which consist of forms, promotional brochures, marketing
materials and presentation materials. Subscriber services revenues are generated
from the Company's agreement with CRC whereby the Company receives a percentage
of the long distance billings received by CRC from the customers originated by
the Company's IAs, net of allowances for bad debts and billing adjustments. The
Company's aggregate revenues from 1-Plus services were $25,000 or only 0.93% of
the Company's total revenues, for the Inception Period. Because of the
administrative procedures that must be complied with in order to establish
1-Plus customers, there is generally a delay of between three to four months
from the time a prospective customer indicates a desire to become a 1-Plus
customer and the time that the Company begins to receive commissions from such
customer's usage. The Company did not commence operations until March 1997, and
accordingly, subscriber services revenues were minimal for the Inception Period.
In the future, the Company believes that commissions generated on the sales of
1-Plus long distance services will constitute a significant percentage of its
subscriber services revenues.
Cost of services includes the costs of purchasing prepaid phone cards
and IA distributor kits. Operating expenses consist of selling and marketing
expenses, which include commissions paid to IAs based on usage of long distance
services by subscribers and the sponsoring of new IAs and customers, and general
and administrative expenses, which include costs for IA support services,
information systems services and administrative personnel to support the
Company's operations and growth.
The Company has a limited operating history, and its operations are
subject to the risks inherent in the establishment of any new business. The
Company expects that it will incur substantial initial expenses, and there can
be no assurance that the Company will achieve or maintain profitability. If the
Company continues to grow rapidly, the Company will be required to continually
expand and modify its operational and financial systems, recruit additional IAs
and customers, and train and manage both current and new employees and IAs. Such
rapid growth would place a significant strain on the Company's operational
resources and systems, and the failure to effectively manage this projected
growth could have a material adverse effect on the Company's
23
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business, financial condition and results of operations. See "Risk Factors - New
Enterprise" and "- Ability to Manage Growth."
RESULT OF OPERATIONS
The following table sets forth historical revenues and cost of revenues
by category and the percentage of total revenues attributable to each category.
JANUARY 24, 1997
(INCEPTION)
TO JUNE 30, 1997
----------------
Revenues:
Communication services........................................................ 99.07%
Subscriber services........................................................... 0.93
------
Total revenues............................................................. 100.00%
======
Cost of Services................................................................ 37.76%
------
Operating Expenses:
Selling and marketing......................................................... 40.47
General and administrative.................................................... 23.63
------
Total operating expenses................................................... 64.10%
======
The Company was incorporated in January 1997 and commenced operations
in March 1997. Because the Company was in the organizational stage during the
quarterly period ended March 31, 1997, no quarterly comparisons are presented
because management does not believe they would be meaningful. In addition, the
results of operations for the Inception Period are not necessarily indicative of
the results to be expected for a full fiscal year.
Revenues
Total revenues consist of communication services and subscriber
services revenues. For the Inception Period, communication services revenues
were $2,666,000, or 99.07% of total revenues, and subscriber services revenues
were $25,000, or 0.93% of total revenues. Communication services revenues
primarily consist of sales of prepaid phone cards to the Company's IAs and also
include application fees from IAs and purchases of sales aids by IAs. Subscriber
services revenues principally consist of commissions generated from long
distance usage of customers generated by the Company's IAs. This amount was
minimal for the Inception Period because no customers were utilizing long
distance services until May 1997. In the future, the Company believes that
commissions generated on sales of 1-Plus long distance services will constitute
a more significant percentage of subscriber services revenues.
Cost of Services
Cost of services was $1,016,000, or 37.76% of total revenues, for the
Inception Period. Cost of services principally consists of the costs of
purchasing prepaid phone cards and long distance services for these cards. The
Company purchases non-activated phone cards from a third party and purchases
telecommunications time for such phone cards from CRC. The Company then sells
the activated phone cards to its IAs. Cost of services also includes the cost of
the IA distributor kits.
Operating Expenses
Selling and marketing expenses principally consist of commissions paid
to IAs based on usage of long distance services, sales of IA distributor kits
and the recruitment of additional IAs and customers. Selling and marketing
expenses were $1,089,000, or 40.47% of total revenues, for the Inception Period.
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General and administrative expenses were $636,000, or 23.63% of total
revenues, for the Inception Period. General and administrative expenses consist
primarily of salary expense for the Company's customer service personnel, office
staff and executive personnel. Such expenses also include costs for IA support
services and informational systems services.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has primarily financed all of its
operations through the sale of its securities in private placements. During the
Inception Period, cash flows from financing activities totaled approximately
$367,000 related to the sales of equity securities. To date, the Company has not
established lines of credit or other credit facilities as management has not
considered them to be necessary to the Company's operations. However, management
may consider it necessary or appropriate to incur debt in the future to finance
the Company's operations.
As of June 30, 1997, the Company had cash and cash equivalents of
$35,000 and working capital of $(13,000). Cash provided by operating activities
through June 30, 1997 was $18,000.
The Company's investing activities principally consisted of the
purchase of equipment for $99,000 and software development and organizational
costs of $241,000 from inception through June 30, 1997.
The Company believes that the current operations as well as the
proceeds to be received from the sale of Class B Common Stock offered hereby
will be sufficient to fund the Company's anticipated operations through the next
12 months. The Company's cash and financing needs for 1998 and beyond will be
dependent on the Company's level of IA and customer growth and the related
capital expenditures, advertising costs and working capital needs necessary to
support such growth. The Company believes that major capital expenditures may be
necessary over the next few years to develop additional product lines to sell
through its IAs and to develop and/or acquire information systems to monitor and
analyze the Company's growing network marketing system. The Company has not
identified financing sources to fund such cash needs in 1998 and beyond. In
addition, any increases in the Company's growth rate, shortfalls in anticipated
revenues, increases in expenses or significant acquisition opportunities could
have a material adverse effect on the Company's liquidity and capital resources
and could require the Company to raise additional capital from public or private
equity or debt sources in order to finance its anticipated growth and
contemplated capital expenditures. In addition, the Company may need to raise
additional funds in order to take advantage of unanticipated opportunities, such
as acquisitions of complementary businesses or the development of new products,
or otherwise respond to unanticipated competitive pressures. There can be no
assurance that the Company will be able to raise any such capital on terms
acceptable to the Company or at all. See "Risk Factors - New Enterprise" and "-
Ability to Manage Growth."
25
27
BUSINESS
Maxxis markets telecommunications services in the United States through
its multi-level network marketing system of "independent associates," or "IAs."
The Company operates through its subsidiaries: Maxxis 2000, which conducts
network marketing operations; and Maxxis Telecom, which provides long distance
services. The Company currently markets both 1-Plus long distance service and
value-added telecommunications services, such as travel cards, prepaid phone
cards, 800 service and international telecommunications service. The Company was
incorporated in January 1997 and began recruiting IAs and marketing
telecommunications services in March 1997. As of June 30, 1997, the Company had
generated aggregate gross revenues of approximately $2,691,000.
The Company initially intends to build a customer base without having
to commit capital or management resources to construct its own
telecommunications network and transmission facilities. In February 1997, Maxxis
Telecom contracted with CRC to obtain switching and network services and to
allow CRC's telecommunications services to be sold by the Company's IAs. In the
future, the Company may contract with other providers of long distance services
and intends to analyze the feasibility of developing its own long distance
network (including the acquisition or leasing of its own telecommunications call
switching equipment and dedicated transmission lines) in order to: (i) reduce
its dependence upon providers of telecommunications services; (ii) provide
additional services to its subscribers; and (iii) reduce expenses associated
with the transmission of long distance calls.
The Company conducts its marketing activities exclusively through its
network of IAs. The Company believes that IAs are generally attracted to the
Company's network marketing system because of the potential for supplemental
income and because the IAs are not required to purchase any inventory, have no
monthly sales quotas or account collection issues, have minimal required
paperwork and have a flexible work schedule. The Company encourages IAs to
enroll subscribers with whom the IAs have an ongoing relationship, such as
family members, friends, business associates and neighbors. The Company's
network marketing system and the Company's reliance upon IAs are intended to
reduce net marketing costs, subscriber acquisition costs and subscriber
attrition. The Company believes that its network marketing system will continue
to build a base of potential customers for additional services and products.
Accordingly, the Company is currently considering the possibility of marketing a
line of nutritional products.
The Company offers its IAs a number of support services. The Company
currently provides to each IA without charge one printed report describing such
IA's organization and provides additional reports for a fee. In addition, the
Company offers training, information and motivational support to the IA network
through: (i) its training organization; (ii) monthly newsletters; and (iii)
regional rallies.
STRATEGY
The Company's goal is to develop a national distribution system through
which large volumes of telecommunications services and other products and
services may be sold. The Company intends to increase its revenues by: (i)
expanding its marketing network; (ii) increasing the number of customers who
purchase products and services offered by the Company; and (iii) providing
additional products and services for sale through its IAs. The Company intends
to achieve its goal by:
- Growing and Developing its Network of IAs by enhancing the
recruiting and training services offered to IAs, continuing to
support the marketing efforts of IAs and introducing new
income opportunities for IAs.
- Maintaining and Expanding the Number of Customers by offering
high quality, competitively-priced products and services
through a highly motivated network of IAs.
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- Offering Additional Telecommunications Products by entering
into agreements for the marketing of additional products that
meet the needs of subscribers, which may include, among
others, paging, conference calling, wireless cable, cellular
and local phone service.
- Improving and Expanding its Product Lines by continuing to
evaluate and offer products that are attractive to its IAs and
customers. In addition to telecommunications products, the
Company is currently considering the possibility of marketing
a line of private-labeled nutritional products which the
Company would distribute through its IAs.
- Obtaining Competitive Prices on products and services through
the purchasing power of the Company's nationwide network.
MARKETING
The Company markets products and services exclusively through its
network of IAs. Currently, the Company has five IA positions in its marketing
system: associate; senior associate; director; regional director; and executive
director. All IA commissions are paid directly by the Company and are a
specified percentage or a designated amount of the gross proceeds received by
the Company on the sale of services and products. The Company designates a
portion of its gross commissions as "commission value," or "CV," and allocates
the CV among eligible participants in its marketing system. Currently, 20% of
the CV earned with respect to a long distance subscriber is paid weekly to the
IA who sponsored such subscriber, 75% of the CV is paid monthly to eligible
directors who have the IA who sponsored the subscriber in their downline and the
remaining 5% is retained by the Company to be paid out to directors, regional
directors and executive directors in the Company's incentive bonus programs. All
directors, executive directors and regional directors who (i) have an aggregate
of at least 200 active long distance customers personally and in the first seven
levels of their downline as of the last Friday of a quarter, (ii) have sponsored
at least two new senior associates during the quarter and (iii) are certified as
MDs are eligible to receive an additional Leadership Bonus. The Leadership Bonus
is payable quarterly and equals, in the aggregate, 1% of the total sales of
Maxxis 2000 during the quarter. The Leadership Bonus is divided equally among
all directors, regional directors and executive directors who qualify for a
Leadership Bonus.
To become an associate, individuals (other than individuals in North
Dakota) must complete an application and purchase a distributor kit for $30. The
distributor kit is a package of basic materials which assists an associate in
beginning his or her business. Associates may gather long distance customers and
receive 20% of the CV generated by such customers. Associates are also entitled
to purchase products from the Company at discounted prices for retail sales. An
associate becomes a senior associate when the associate sells $100 of
bonus-eligible products. Senior associates continue to receive a percentage of
CV with regard to all subscribers personally gathered by them and are also
entitled to purchase products from the Company at discounted prices for retail
sales.
To become a director, a senior associate must sponsor two additional
senior associate positions. A director increases the size of the director's
sales organization by sponsoring additional persons to become senior associates.
These senior associates, and all senior associates that they, in turn, sponsor,
become part of the sales organization of the director who sponsored them. Senior
associates, through the growth of their sales organizations, may become
directors, regional directors or executive directors and thereby increase the
size of the sales organization of the person who was their original sponsor. The
organization that grows below each director through this process is called a
"downline." Directors are eligible to receive the same commissions as senior
associates and, if they directly gather and maintain a minimum of four active
1-Plus long distance customers, are eligible to receive a percentage of the CV
produced by each IA that is within 15 levels below them in their downline. In
order to encourage the growth of the Company's marketing system, the Company
also pays eligible directors a bonus amount, which is designated as "bonus
value," or "BV," for each sale of bonus-eligible products. Currently, the
Company only designates retail priced phone cards as bonus-eligible products.
Directors become regional directors and executive directors upon the achievement
of certain IA sales goals. Regional directors and executive directors are
eligible to receive the same commissions as directors and,
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if they qualify, share in the CV Bonus Pool. Regional directors and executive
directors are eligible to serve on the Maxxis 2000 Advisory Board, which advises
management on issues regarding field leadership.
The maximum aggregate long distance usage commissions the Company may
be required to pay with respect to a single subscriber's long distance usage are
approximately 40% of the gross commissions payable to the Company with respect
to such usage, but the Company anticipates that the actual amounts paid will be
less than 40% as the usage increases. The difference between actual commission
payments and the maximum payment is expected to occur because certain IAs fail
to maintain active status necessary to receive commissions from sales made by
persons in their downline.
RELATIONSHIP WITH IAS
The Company seeks to contractually limit the statements that IAs make
about the Company's business. Each IA also must agree to policies and procedures
to be followed in order to maintain the IA's status in the organization. IAs are
expressly forbidden from making any representation as to the possible earnings
of any IA from the Company. IAs are also prohibited from creating any marketing
literature that has not been pre-approved by the Company. While the Company has
these policies and procedures in place governing the conduct of the IAs, it is
difficult to enforce such policies and procedures. Because the IAs are
classified as independent contractors, the Company is unable to provide them the
same level of direction and oversight as Company employees. Violations of the
Company's policies and procedures may reflect negatively on the Company and
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors - Dependence on IAs" and
"- Relationship with IAs."
TRAINING AND MARKETING SUPPORT
The Company provides all IAs with the opportunity to receive training
through the Company's training program. The training is conducted by the
Company's MDs and includes a detailed explanation of the Company's products, the
IA compensation plan and the use of the various marketing tools available to the
IA. The Company intends to publish a newsletter for the IAs containing
informative and motivational articles and recognizing IA achievements. The
Company's first annual convention was held in August 1997, and the Company
intends to continue to hold annual conventions for IAs. This event provides
recognition to the top performers, direct access to senior management and a
chance for IAs to share experiences and develop support systems. The Company
intends to organize additional conventions throughout the country that current
IAs and potential new IAs can attend to learn more about the Company.
The Company encourages directors and regional directors to become
certified as MDs. A person must attend a Company approved training school in
order to be certified as a MD. The fee to become a MD is generally $99 (with an
annual renewal fee of $99). MDs are paid a fee by the Company for training IAs.
The Company operates a call center to answer IA questions and provide
IA support. This system includes a current database of all IAs, their personal
organizations and their subscribers. In addition, the Company has licensed a
commission processing software system to process the high volume of data
necessary to calculate commissions. This system prepares weekly commission
payments.
PRODUCTS AND SERVICES
The Company markets a variety of long distance and value-added
telecommunications services and products to customers in equal access areas,
which currently include 1-Plus long distance service, travel cards and prepaid
phone cards, 800 service and international telecommunications service.
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Following is a summary of the various long distance and value-added
services and products the Company currently provides to subscribers.
1-Plus Long Distance. The Company's 1-Plus long distance service serves
as a replacement for a customer's former long distance service (such as the long
distance services provided by AT&T, MCI and Sprint). The 1-Plus services
marketed by the Company are billed on a flat rate basis, where the cost of a
call does not vary depending upon the distance of a call or the time of day or
day of week when the call is originated or terminated. Residential 1-Plus
services marketed by the Company are billed based on one minute increments, and
business 1-Plus service is billed based on 6-second increments with a 30-second
minimum.
Travel Cards. The Company offers a calling card to 1-Plus subscribers.
The calling card offers subscribers no first minute surcharge, conference
calling, fax storage and LEC billing. There is no monthly fee for calling cards.
Prepaid Phone Cards. The Company offers prepaid phone cards in domestic
time increments of 5 hours, 1 hour, 30 minutes and 10 minutes. These cards may
be used for domestic and international calls. If used for international calls, a
greater number of minutes will be deducted from the call in proportion to the
differential between the domestic and applicable international rate.
800 Service. The Company markets toll-free inbound service. The service
is billed based on a flat rate regardless of the time the call is originated or
terminated or (within the continental United States) the distance of the call.
Small business and residential customers are charged a $1.00 per month service
fee, and their calls are billed in 1-minute increments. Large businesses are
billed a $5.00 per month service fee, and their calls are billed in 6-second
increments with a 30-second minimum.
International Telecommunications Service. The Company offers two
international calling programs for both residential and business customers. The
standard residential program, which is available to all residential customers
without the payment of an additional fee, provides customers with international
telecommunications services that are billed based on a flat rate to each country
in 1-minute increments. The standard business program, which is available to
business customers without the payment of an additional fee, provides customers
with international telecommunications services that are billed in 6-second
increments with a 30-second minimum. Business and residential customers may join
the "V.I.P." international calling program upon the payment of a $5.00 or $3.00
monthly fee, respectively, and receive a 20% discount off of the international
rates charged to persons who are not members of the "V.I.P." program plus an
additional 5% discount for any particular designated country.
INFORMATION SYSTEMS
The Company believes that maintaining sophisticated and reliable
transaction processing systems is essential for multi-level network marketing
companies. Accordingly, the Company invests in maintaining and enhancing its
computer systems. The Company's systems are designed to process detailed and
customized IA commission payments, monitor and analyze financial and operating
trends and track each IA's personal organization.
IA SUPPORT
The Company operates a call center where advisors answer IA questions
and provide information to IAs. This system includes a current database of all
IAs, their personal organizations and their subscribers. The Company has
licensed a commission processing software system that incorporates the
provisions of the Company's marketing program for purposes of calculating
commissions. The Company also maintains transaction processing systems that
facilitate the shipment of IA training and marketing materials. In addition, the
Company's order processing system tracks the receiving, storage, shipment and
purchasing of sales aid products.
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SUPPLIER
The Company does not own a long distance network. As a result, Maxxis
Telecom has contracted with CRC to obtain switching and network services. The
Company now depends exclusively on CRC for the transmission of subscriber phone
calls and the activation of prepaid phone cards. The Company's 1-Plus Agreement
with CRC, which expires on February 20, 2000, provides that the Company will
have rights to the subscriber base developed under the agreement upon achieving
certain minimum levels of monthly revenues on CRC's network. There can be no
assurance that the Company will achieve the minimum level of monthly revenues on
CRC's network necessary to have rights to the subscriber base. In addition,
minimum monthly revenues may be more difficult to maintain if the Company
utilizes additional carriers, and the Company could be subject to additional
minimum commitments including, but not limited to, minimum monthly revenues or
minimum monthly minutes of usage, with such new carriers. The accurate and
prompt billing of subscribers originated by the IAs is also dependent upon CRC.
The failure of CRC to accurately and promptly bill subscribers could lead to a
loss of subscribers and could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company would be
required to use another carrier if the 1-Plus Agreement is terminated, the usage
or number of subscribers originated by the Company's IAs exceeds the capacity of
CRC or CRC fails to provide quality services. In such event, or in the event the
Company otherwise elects to use other carriers, the cost paid by the Company for
such long distance services may exceed that paid under the 1-Plus Agreement. If
the 1-Plus Agreement is terminated, there can be no assurance that the Company
could enter into new contracts with other providers on terms favorable to the
Company or at all. The termination of the 1-Plus Agreement could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors - Relationship with Carrier."
SUBSCRIBER SUPPORT
CRC's is responsible for the billing of long distance customers and for
providing customer service. Services are provided under CRC's state, national
and international tariffs. The Company has been informed that CRC possesses all
tariffs necessary to offer such services.
COMPETITION
The Company faces competition in the United States for both the
products and services it sells and for the sponsoring and retaining of
independent salespeople. The United States long distance telecommunications
industry is intensely competitive, rapidly evolving and subject to rapid
technological change. In addition, the industry is significantly influenced by
the marketing and pricing practices of the major industry participants. AT&T,
MCI, Sprint and WorldCom are the dominant competitors in the domestic long
distance telecommunications industry. All of these companies are significantly
larger than the Company and have substantially greater resources. According to a
1995 FCC report, AT&T, MCI, Sprint and WorldCom accounted for approximately 56%,
17%, 10% and 5%, respectively, of total domestic long distance revenue for
calendar year 1994. Many of the Company's current and potential competitors have
longer operating histories, greater name recognition, larger customer bases and
substantially greater financial, personnel, marketing, technical and other
resources than the Company. These competitors employ various means to attract
new subscribers, including television and other advertising campaigns,
telemarketing programs, network marketing and cash payments and other incentives
to new subscribers. The Company's ability to compete effectively depends upon,
among other factors, its ability to offer high quality products and services at
competitive prices. There can be no assurance that the Company will be able to
compete successfully. See "Risk Factors - Intense Competition."
The evolving regulatory environment of the United States
telecommunications industry significantly influences the Company's ability to
compete. On February 8, 1996, President Clinton signed into law the 1996
Telecommunications Act that will allow LECs, including the BOCs, to provide long
distance telephone service inter-LATA, which will likely significantly increase
competition for long distance services. The new legislation also grants the FCC
the authority to deregulate other aspects of the telecommunications industry.
Such increased
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competition could have a material adverse effect on the Company's business,
financial condition and results of operations.
Telecommunications companies compete for subscribers based on price,
among other things, with major long distance carriers conducting extensive
advertising campaigns to capture market share. There can be no assurance that a
decrease in the rates charged for communications services by the major long
distance carriers or other competitors, whether caused by general competitive
pressures or the entry of the BOCs and other LECs into the long distance market,
would not have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company expects that the telecommunications services markets will
continue to attract new competitors and new technologies, possibly including
alternative technologies that are more sophisticated and cost effective than the
technologies included in the products and services offered by the Company. The
Company does not have the contractual right to prevent subscribers from changing
to a competing service, and the subscribers may terminate their service at will.
The Company also competes for IAs with other direct selling
organizations, some of which have longer operating histories and greater
visibility, name recognition and financial resources. The leading network
marketing companies in the Company's markets are EXCEL, ACN and Amway. The
Company competes for new IAs on the basis of the Company's reputation, perceived
opportunity for financial success and quality and range of products offered for
sale. Management envisions the entry of many more direct selling organizations
into the marketplace. There can be no assurance that the Company will be able to
successfully meet the challenges posed by this increased competition. The
Company competes for the time, attention and commitment of its IAs. Given that
the pool of individuals interested in the business opportunities presented by
direct selling is limited in each market, the potential pool of IAs for the
Company's products and services is reduced to the extent other network marketing
companies successfully recruit these individuals. Although management believes
that the Company offers an attractive business opportunity, there can be no
assurance that other network marketing companies will not be able to recruit the
Company's existing IAs or deplete the pool of potential IAs in a given market
and, in such event, the Company's business, financial condition and results of
operations could be materially adversely affected. See "Risk Factors - Intense
Competition."
PROPRIETARY RIGHTS
The Company has applied for a federal registration for the mark
"MAXXIS." In addition, the Company relies upon common law rights to establish
and protect its intellectual property. There can be no assurance that the
Company's measures to protect its intellectual property will prevent or deter
the unauthorized use of the Company's intellectual property. The Company's
inability to protect its intellectual property rights could have a material
adverse effect upon the Company's business, financial condition and results of
operations. From time to time, companies may assert other trademark and service
mark rights relevant to the Company's business, and future products of the
Company may need to be marketed under different names if the mark "MAXXIS" is
being used by other companies. The Company could also incur substantial costs to
defend any legal action taken against the Company. If, in any legal action that
might arise, the Company's asserted trademarks or service marks should be found
to infringe upon other intellectual property rights, the Company could be
enjoined from further infringement and required to pay damages. In the event a
third party were to sustain a valid claim against the Company, and in the event
any required license were not available on commercially reasonable terms, the
Company's business, financial condition and results of operations could be
materially adversely affected. Litigation, which could result in substantial
cost to and diversion of resources of the Company, may also be necessary to
enforce intellectual property rights of the Company or to defend the Company
against claimed infringement of the rights of others. See "Risk Factors -
Possible Claims Relating to Ownership of Proprietary Rights."
REGULATION
Various regulatory factors may have an impact on the Company's ability
to compete and on its financial performance. The Company's carrier, CRC, is
subject to regulation by the FCC and by various state public
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service and public utility commissions. Federal and state regulations and
regulatory trends have had, and may have in the future, both positive and
negative effects on the Company and on the telecommunications service industry
as a whole. FCC policy currently requires interexchange carriers to provide
resale of the use of their transmission facilities. The FCC also requires LECs
to provide all interexchange carriers with equal access to the origination and
termination of calls. If either or both of these requirements were removed, CRC
and, therefore, the Company could be adversely affected. CRC may experience
disruptions in service due to factors outside CRC's and the Company's control,
which may cause CRC to lose the ability to complete its subscribers' long
distance calls. The Company believes that CRC has made all filings with the FCC
necessary to allow CRC to provide interstate and international long distance
service. In order to provide intrastate long distance service, CRC is required
to obtain certification to provide telecommunications services from the public
service or public utility commissions of each state, or to register or be found
exempt from registration by such commissions. While the Company believes that
CRC is in compliance with the applicable state and federal regulations governing
telecommunications service, there can be no assurance that the FCC or any state
regulatory authority in one or more states will not raise material issues with
regard to CRC's compliance with applicable regulations, or that regulatory
activities with respect to CRC will not have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors - Regulation of Long Distance Telephone Services."
In February 1996, the enactment of the 1996 Telecommunications Act
served to increase competition in the long distance and local telecommunications
markets. The 1996 Telecommunications Act opens competition in the local services
market and, at the same time, contains provisions intended to protect consumers
and businesses from unfair competition by incumbent LECs, including the BOCs.
The 1996 Telecommunications Act allows BOCs to provide long distance service
outside of their local service territories but bars them from immediately
offering in-region inter-LATA long distance services until certain conditions
are satisfied. A BOC must apply to the FCC to provide in-region inter-LATA long
distance services and must satisfy a set of pro-competitive criteria intended to
ensure that BOCs open their own local markets to competition before the FCC will
approve such application. The Company is unable to determine how the FCC will
rule on any such application. The new legislation may result in increased
competition to the Company from others, including the BOCs, and increased
transmission costs in the future. See "Risk Factors - Intense Competition." If
the federal and state regulations requiring the LECs to provide equal access for
the origination and termination of calls by long distance subscribers change or
if the regulations governing the fees to be charged for such access services
change, particularly if such regulations are changed to allow variable pricing
of such access fees based upon volume, such changes could have a material
adverse effect upon the Company's business, financial condition and results of
operations. See "- Competition" and "Risk Factors - Regulation of Long Distance
Telephone Services."
The Company's network marketing system is subject to or affected by
extensive government regulation including, without limitation, federal and state
regulations governing the offer and sale of business franchises, business
opportunities and securities. Various governmental agencies monitor direct
selling activities, and the Company could be required to supply information
regarding its marketing plan to such agencies. Although the Company believes
that its network marketing system is in material compliance with the laws and
regulations relating to direct selling activities, there can be no assurance
that legislation and regulations adopted in particular jurisdictions in the
future will not adversely affect the Company's business, financial condition and
results of operations. The Company also could be found to be in non-compliance
with existing statutes or regulations as a result of, among other things,
misconduct by IAs, who are considered independent contractors over whom the
Company has limited control, the ambiguous nature of certain of the regulations
and the considerable interpretive and enforcement discretion given to
regulators. Any assertion or determination that the Company or the IAs are not
in compliance with existing statutes or regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations. An adverse determination by any one state on any regulatory matter
could influence the decisions of regulatory authorities in other jurisdictions.
See "Risk Factors - Regulation of Network Marketing; Effect of State Laws."
Furthermore, the primary goal of the Offering is to increase the
motivation of regional directors by allowing them to purchase an interest in the
Company. Accordingly, because the Company desires the ability to offer its Class
B Common Stock to regional directors in certain states, the Company will attempt
to register
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or qualify the Offering in such states. Due to the varying nature of state
securities regulations and the considerable discretion given to state securities
regulators, the Company may be unable to register or qualify the Offering in
certain states. The inability of the Company to offer the Shares to residents of
certain states may limit the ability of the Company to attract IAs in such
states, or lead to increased attrition of IAs in such states, and may have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. An adverse determination by any one state
regulator on a securities regulatory matter could influence the decisions of
securities regulatory authorities in other jurisdictions. See "Risk Factors
Regulation of Network Marketing; Effect of State Laws."
FACILITIES
The Company operates out of offices in Atlanta, Georgia consisting of
approximately 7,200 square feet of general and administrative office space and
approximately 5,500 square feet of training space. The Company believes that it
will be required to lease or build additional facilities, including at least one
additional call center and new corporate headquarters, in order to meet
adequately its needs in the future. The Company believes that suitable
additional or alternative space will be available in the future on commercially
reasonable terms as needed.
EMPLOYEES
As of June 30, 1997, the Company employed approximately 25 people. The
Company's IAs are classified by the Company as independent contractors; however,
two of the Company's employees are also IAs. The Company's employees are not
unionized, and the Company believes its relationship with its employees is good.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company are set forth
below. The Company's Board of Directors consists of nine directors divided into
three classes of directors, serving staggered three-year terms. Directors and
executive officers of the Company are elected to serve until they resign or are
removed, or are otherwise disqualified to serve, or until their successors are
elected and qualified. Directors of the Company are elected at the annual
meeting of shareholders. Officers of the Company are appointed at the Board's
first meeting after each annual meeting of shareholders. The ages of the persons
set forth below are as of October 1, 1997.
TERM AS
DIRECTOR
NAME AGE POSITIONS WITH THE COMPANY EXPIRES
- ---- --- -------------------------- -------
Ivey J. Stokes............... 38 Chairman of the Board of Directors 1998
Thomas O. Cordy.............. 56 Chief Executive Officer, President and
Director 1998
Shawn J. Dinwiddie........... 31 Chief Financial Officer, Vice President of
Operations and Treasurer -
James W. Brown............... 62 Executive Vice President, Secretary and
Director 1999
Larry W. Gates, II........... 34 Vice President - Human Resources and
Director 1999
Charles P. Bernstein......... 47 Director 2000
Alvin Curry.................. 40 Director 1998
Robert J. Glover, Jr......... 36 Director 1999
Terry Harris................. 43 Director 2000
Philip E. Lundquist.......... 61 Director 2000
The Company intends to adopt a policy requiring that any material
transactions between the Company and persons or entities affiliated with
officers, directors or principal shareholders of the Company be on terms no less
favorable to the Company than reasonably could have been obtained in arm's
length transactions with independent third parties. Any other matters involving
potential conflicts of interests are to be resolved on a case-by-case basis. See
"Certain Transactions."
IVEY J. STOKES has served as Chairman of the Board of Directors of the
Company since its inception. From 1986 to 1997, Mr. Stokes owned and operated an
independent marketing group as a sole proprietorship.
THOMAS O. CORDY has served as Chief Executive Officer, President and a
Director of the Company since May 1997. Prior to that time, he served as
President and Chief Executive Officer of CI Cascade Corp. Mr. Cordy currently
serves as Vice Chairman of the Board of Trustees for Clark Atlanta University,
Chairman of the Board of Renaissance Capital Corporation and a Director of Cox
Enterprises.
SHAWN J. DINWIDDIE has served as Chief Financial Officer, Vice
President of Operations and Treasurer of the Company since its inception. Since
1993, Mr. Dinwiddie was employed as a Budget Analyst with Atlantic Steel, Inc.
From 1987 to 1993, Mr. Dinwiddie was an officer in the United States Army in the
area of logistics management.
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JAMES W. BROWN currently serves as Executive Vice President and
Secretary of the Company and has been a Director of the Company since May 1997.
He served as President and Chief Executive Officer of the Company from inception
to April 1997. He has also served as Chief Executive Officer, President and a
Director of Maxxis 2000 since its inception. From 1995 to 1997, Mr. Brown has
served as a manager of NetWorld Communications, L.L.C. Since 1979, Mr. Brown has
also served as President and Chief Executive Officer of Marketing Ideas, Ltd.
LARRY W. GATES, II has served as Vice President of Human Resources
since the Company's inception and a Director of the Company since May 1997.
Since 1993, Mr. Gates has owned and operated an independent marketing group as a
sole proprietorship.
CHARLES P. BERNSTEIN has served as a Director of the Company since May
1997. Since 1992, Mr. Bernstein has also served as President of Harvest Mortgage
Co.
ALVIN CURRY has served as a Director of the Company since its
inception. He also serves as Executive Vice President and Chief Operating
Officer of Maxxis 2000. Since 1987, Mr. Curry has owned and operated an
independent marketing group as a sole proprietorship.
ROBERT JAMES GLOVER, JR. has served as a Director of the Company since
its inception. Since 1987, Mr. Glover has owned and operated an independent
marketing group as a sole proprietorship.
TERRY HARRIS has served as a Director of the Company since May 1997.
Since 1982, Mr. Harris has served as Pastor and President of Tacoma Christian
Center Inc.
PHILIP E. LUNDQUIST has served as a Director of the Company since May
1997. He also serves as Chairman of Christopher Partners Inc. Since 1988, Mr.
Lundquist has owned and operated an investment banking consulting company as a
sole proprietorship.
COMMITTEES OF THE BOARD
Subsequent to the Offering, the Board of Directors will establish an
audit committee (the "Audit Committee"). The Audit Committee will be comprised
solely of independent directors and will be charged with reviewing the Company's
annual audit and meeting with the Company's independent accountants to review
the Company's internal controls and financial management practices.
Also, subsequent to the Offering, the Board of Directors will establish
a compensation committee (the "Compensation Committee"). The Compensation
Committee will be comprised solely of "disinterested persons" within the meaning
of Rule 16b-3(c)(2)(i) promulgated under the Exchange Act and "outside
directors" as contemplated by Section 162(m)(4)(C)(i) of the Internal Revenue
Code of 1986, as amended. The Compensation Committee will be responsible for
establishing salaries, bonuses and other compensation for the Company's
executive officers.
DIRECTOR COMPENSATION
Members of the Board of Directors are reimbursed for their
out-of-pocket expenses for each meeting attended, but otherwise serve without
compensation.
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EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation
earned by the Company's current Chief Executive Officer and its former chief
executive officer for the Inception Period. No executive officers of the Company
received a combined salary and bonus in excess of $100,000 during the Inception
Period.
SUMMARY COMPENSATION TABLE
INCEPTION PERIOD
COMPENSATION
----------------
SALARY BONUS
NAME AND PRINCIPAL POSITION ($) ($)
- --------------------------- ------ -----
Thomas O. Cordy(1) .................... $5,250 $ --
Chief Executive Officer and President
James W. Brown(1) ..................... 7,950 --
Executive Vice President
- --------------
(1) Mr. Brown served as the Chief Executive Officer and President of the
Company from inception to April 30, 1997, and Mr. Cordy has served as
Chief Executive Officer of the Company since May 1, 1997.
OPTION GRANTS DURING 1997
As of June 30, 1997, no options had been granted to the Chief Executive
Officer of the Company, and no executive officer of the company received a
combined salary and bonus in excess of $100,000 during the Inception Period.
EMPLOYMENT AGREEMENTS
In May 1997, the Company entered into an employment agreement with Mr.
Cordy, and in September 1997, the Company entered into employment agreements
with each of Messrs. Brown, Curry and Dinwiddie (collectively, the "Employment
Agreements"). Generally, the Employment Agreements provide for a minimum weekly
salary. In addition, the employee may participate in a bonus program and shall
be eligible to receive quarterly or annual payments of a performance bonus based
upon the achievement of targeted levels of performance and such other criteria
as the Board of Directors shall establish from time to time. Mr. Cordy's
employment agreement provides for an additional bonus payment on July 1, 1998
and the purchase of Class A Common Stock. Each employee may participate in
insurance and other benefit plans of similarly situated employees, including any
stock option plans of the Company.
Each of the Employment Agreements has a term of one year, and the term
renews daily until either party fixes the remaining term at one year by giving
written notice. The Company can terminate each employee upon death or disability
(as defined in the Employment Agreements) or with or without cause upon delivery
to the employee of a notice of termination. If the employee is terminated
because of death, disability or cause, the employee will receive any accrued
compensation through the termination date and any accrued performance bonus,
unless the employee is terminated for cause. If the employee is terminated
without cause, the Company shall pay the employee severance payments equal to
his minimum base salary for each week during the six-month period following the
termination date. If the employee is a director or officer of the Company or any
of its affiliates, the employee shall tender his resignation to such positions
effective as of the termination date.
Under the Employment Agreements, each employee agrees to maintain the
confidentiality of the Company's trade secrets and confidential business
information. The employee also agrees for a period of one year following the
termination date, if he is terminated or resigns for any reason, not to compete
with or solicit
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employees or customers of the Company or any of its affiliates within a 30-mile
radius of the Company's corporate offices; provided, that if the employee is
terminated without cause, the non-compete period shall be six months.
SALES REPRESENTATIVE AGREEMENTS
In September 1997, the Company entered into independent sales
representative agreements (collectively, the "Sales Representative Agreements")
with ten independent sales representatives, including Messrs. Stokes, Gates and
Glover. The Sales Representative Agreements provide for a minimum weekly salary,
and each sales representative shall be eligible to receive quarterly payments of
a performance bonus based upon the achievement of targeted levels of
performance. Each sales representative is an independent contractor, and the
Company does not exercise control over the activities of the sales
representatives other than as set forth in the Sales Representative Agreements.
Each of the Sales Representative Agreements has a term of one year, and
the term renews daily until either party fixes the remaining term at one year by
giving written notice. The Company can terminate each sales representative upon
death or disability (as defined in the Sales Representative Agreements) or with
or without cause upon delivery to the sales representative of a notice of
termination. If a sales representative is terminated, the sales representative
will receive any accrued fees through the termination date and any accrued
performance bonus, unless the sales representative is terminated for cause. If
the sales representative is a director or officer of the Company or any of its
affiliates, the sales representative shall tender his resignation to such
positions effective as of the termination date. Under the Sales Representative
Agreements, each sales representative agrees to maintain the confidentiality of
the Company's trade secrets and confidential business information.
CONSULTING AGREEMENT
In September 1997, the Company entered into a consulting agreement with
Mr. Robert P. Kelly. The consulting agreement provides for a minimum weekly
salary, and the consultant may participate in a bonus program and shall be
eligible to receive quarterly or annual payments of a performance bonus based
upon the achievement of targeted levels of performance and such other criteria
as the Board of Directors shall establish from time to time. The consultant is
an independent contractor, and the Company does not exercise control over the
activities of the consultant other than as set forth in the consulting
agreement.
The consulting agreement has a term of one year, and the term renews
daily until either party fixes the remaining term at one year by giving written
notice. The Company can terminate the consultant upon death or disability (as
defined in the consulting agreement) or with or without cause upon delivery to
the consultant of a notice of termination. If the consultant is terminated
because of death, disability or cause, the consultant will receive any accrued
fees through the termination date and any accrued performance bonus, unless the
consultant is terminated for cause. If the consultant is terminated without
cause, the Company shall pay the consultant severance payments equal to his
minimum base salary for each week during the six-month period following the
termination date.
Under the consulting agreement, the consultant agrees to maintain the
confidentiality of the Company's trade secrets and confidential business
information. The consultant also agrees for a period of one year following the
termination date, if he is terminated or resigns for any reason, not to compete
with or solicit employees or customers of the Company or any of its affiliates
within a 30-mile radius of the Company's corporate offices; provided, that if
the consultant is terminated without cause, the non-compete period shall be six
months.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the Articles, the Company is obligated to indemnify each of
its directors and officers to the fullest extent permitted by Georgia Law with
respect to all liability and loss suffered and reasonable expenses incurred by
such person in any action, suit or proceeding in which such person was or is
made or threatened
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to be made a party or is otherwise involved by reason of the fact that such
person is or was a director or officer of the Company. The Company is obligated
to pay the reasonable expenses of the directors or officers incurred in
defending such proceedings if the indemnified party agrees to repay all amounts
advanced by the Company if it is ultimately determined that such indemnified
party is not entitled to indemnification. See "Description of Capital Stock -
Limitations on Liability of Officers and Directors."
CERTAIN TRANSACTIONS
On February 16, 1997, Glover Enterprises, Inc., an affiliate of Robert
J. Glover, a director of the Company, loaned the Company $50,000 to fund initial
start-up costs of the Company. The Company has repaid this loan.
During the Inception Period, the Company paid a fee of $184,000 to IS
14, Inc. ("IS 14"), a former Delaware corporation which was controlled by
certain of the directors and officers of the Company. The IS 14 fee was
comprised of compensation to certain of the Company's officers and sales
representatives prior to the establishment of the Company's payroll. IS 14 has
been dissolved, and the Company will not make any additional payments to IS 14.
Pursuant to Mr. Cordy's employment agreement, The Anchora Company, an
affiliate of Mr. Cordy, purchased 800,000 shares of Class A Common Stock, at a
price of $0.15 per share. In exchange, The Anchora Company gave the Company a
$120,000 full recourse promissory note which bears interest at annual rate of
8.75%. Mr. Cordy guaranteed the promissory note. The principal and interest on
the promissory note are due and payable on the earlier of May 1, 2002 or the
closing of an underwritten public offering where the Company receives aggregate
net proceeds of at least $5,000,000.
Certain of the transactions described above may be on terms more
favorable to officers, directors and principal shareholders than they could
obtain in a transaction with an unaffiliated third party. The Company intends to
adopt a policy requiring that all material transactions between the Company and
its officers, directors or other affiliates must: (i) be approved by a majority
of the disinterested members of the Board of Directors of the Company; and (ii)
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties. See "Risk Factors - Transactions with Related
Parties."
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock, as of October 10, 1997, and as
adjusted to reflect the sale of 5,000,000 Shares of Class B Common Stock offered
hereby, by: (i) each person known by the Company beneficially to own more than
5% of the outstanding shares of the Common Stock; (ii) each director of the
Company; and (iii) all directors and executive officers of the Company as a
group. Shares of both Class A Common Stock and Class B Common Stock are
currently outstanding. The Shares to be issued in the Offering are Class B
Common Stock. See "Description of Capital Stock." Except as otherwise indicated,
all persons listed have sole voting and investment power with respect to their
shares.
CLASS A CLASS B
COMMON STOCK COMMON STOCK TOTAL AFTER THE OFFERING
---------------------- -------------------- ------------------------
PERCENT OF PERCENT OF
PERCENT OF PERCENT OF VOTING SHARES
NAME AND ADDRESS(a) OF BENEFICIAL OWNER SHARES CLASS(b) SHARES CLASS(b) POWER OUTSTANDING
- --------------------------------------- ---------- ---------- ------- ---------- ---------- -----------
Alvin Curry(c) ................................ 7,000,000 49.0% -- --% 46.4% 31.4%
King David Trust(d) ........................... 5,000,000 35.0 -- -- 33.1 22.4
Cynthia Glover, trustee(e) .................... 2,000,000 14.0 -- -- 13.2 9.0
The Anchora Company(f) ........................ 800,000 5.6 -- -- 5.3 3.6
Charles P. Bernstein .......................... -- -- -- -- -- --
James W. Brown ................................ 500,000 3.5 20,000 * 3.3 2.3
Thomas O. Cordy(g) ............................ -- -- -- -- -- --
Larry W. Gates, II ............................ 500,000 3.5 -- -- 3.3 2.2
Robert J. Glover(h) ........................... -- -- -- -- -- --
Terry Harris .................................. -- -- 40,000 1.3 * *
Philip E. Lundquist ........................... -- -- -- -- -- --
Ivey J. Stokes(i) ............................. -- -- -- -- -- --
All directors and executive officers as a group
(10 persons) (c) - (i) ...................... 11,300,000 79.0 110,000 3.7 74.9 51.2
- -------------------
* Less than one percent
(a) The address of the King David Trust and Alvin Curry is c/o Maxxis
Group, Inc., 1901 Montreal Drive, Suite 108, Tucker, Georgia 30084. The
address of Cynthia Glover, trustee, U/A Louise Glover dated January 10,
1997 is 7839 Taylor Cir., Riverdale, Georgia 30274. The address of
the Anchora Company is c/o Salem Management Company, Ltd., Design
House, Leeward Highway, P.O. Box 150, Providenciales Turks & Caicos
Island, B.W.I.
(b) In accordance with Rule 13d-3 under the Exchange Act, a person is
deemed to be the beneficial owner, for purposes of this table, of any
shares of Common Stock if such person has or shares voting power or
investment power with respect to such security, or has the right to
acquire beneficial ownership at any time within 60 days from October
10, 1997. As used herein, "voting power" is the power to vote or direct
the voting of shares and "investment power" is the power to dispose or
direct the disposition of shares.
(c) Includes 5,000,000 shares owned by the King David Trust of which Mr.
Curry, a director of the Company, is the trustee. Mr. Curry disclaims
beneficial ownership of such shares.
(d) All such shares are owned by the King David Trust of which Mr. Curry, a
director of the Company, is the trustee and Mr. Stokes' minor children
are the beneficiaries. Mr. Stokes, the Chairman of the Board, and Mr.
Curry disclaim beneficial ownership of such shares.
(e) All such shares are owned by Cynthia Glover, trustee, U/A Louise Glover
dated January 10, 1997. Ms. Glover is the wife of Robert J. Glover, a
director of the Company. Mr. Glover is the sole beneficiary and
disclaims beneficial ownership of such shares. In addition, Ms. Glover
disclaims beneficial ownership of such shares.
(f) All such shares are owned by The Anchora Company of which Mr. Cordy the
Chief Executive Officer and President of the Company is the protector.
Mr. Cordy disclaims beneficial ownership of such shares.
(g) Excludes 800,000 shares owned by The Anchora Company, of which Mr.
Cordy is the protector. Mr. Cordy disclaims beneficial ownership of
such shares.
(h) Excludes 2,000,000 shares owned by Cynthia Glover, trustee, U/A Louise
Glover dated January 10, 1997 of which Mr. Glover is the sole
beneficiary. Mr. Glover disclaims beneficial ownership of such shares.
(i) Excludes 5,000,000 shares owned by the King David Trust of which Mr.
Stokes' minor children are the beneficiaries. Mr. Stokes disclaims
beneficial ownership of such shares.
39
41
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock is only a summary and is
subject to the provisions of the Articles and Bylaws, which are included as
exhibits to the Registration Statement of which this Prospectus forms a part,
and the applicable provisions of Georgia Law.
GENERAL
The Articles authorize the Company to issue up to 15,000,000 shares of
Class A Common Stock and 185,000,000 shares of Class B Common Stock. As of the
date hereof, 14,300,000 shares of Class A Common Stock are issued and
outstanding and are held of record by 15 shareholders, and 3,000,000 shares of
Class B Common Stock are issued and outstanding and are held of record by 42
shareholders. In addition, the Articles authorize the Company to issue up to
10,000,000 shares of preferred stock, no par value per share, with such rights
and preferences as the Board of Directors shall determine; however, no preferred
stock has been issued.
COMMON STOCK
The rights of the holders of the Class A Common Stock and the Class B
Common Stock are identical in all respects except for voting rights and
conversion rights.
Voting Rights. Except as otherwise provided by Georgia Law or the
Articles, holders of Class A Common Stock and Class B Common Stock vote as a
single class on all matters submitted to a vote of the shareholders, with each
share of Class A Common Stock entitled to ten votes and each share of Class B
Common Stock entitled to one vote. See "Risk Factors - Concentration of
Ownership; Voting Rights of Class A and Class B Common Stock." Under Georgia
Law, the affirmative vote of the holders of a majority of the outstanding shares
of any class of stock, voting as a single class, is required to approve, among
other things, a change in the designations, rights, preferences or limitations
of all or part of the shares of such class of stock.
Conversion Rights. Upon the closing of an Initial Public Offering, each
share of Class A Common Stock then outstanding shall automatically be converted
into one fully paid and nonassessable share of Class B Common Stock. An "Initial
Public Offering" means a public offering of the Company's capital stock for cash
which is offered and sold in a transaction that is registered under the
Securities Act through one or more underwriters, pursuant to an underwriting
agreement between the Company and such underwriters, resulting in aggregate net
proceeds of $5,000,000 to the Company.
Other Provisions. Subject to the rights of the holders of any class of
preferred stock, holders of record of shares of Common Stock on the record date
fixed by the Board of Directors are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available for such
purpose. No dividends may be declared or paid in cash or property on any share
of any class of Common Stock unless simultaneously the same dividend is declared
or paid on each share of the other class of Common Stock. In the case of any
stock dividend, holders of Class A Common Stock are entitled to receive the same
percentage dividend (payable in shares of Class A Common Stock) as the holders
of Class B Common Stock receive (payable in shares of Class B Common Stock).
Upon liquidation, dissolution or winding-up of the Company, the holders of the
Common Stock are entitled to share ratably in all assets available for
distribution after payment in full of creditors and payment in full to any
holders of preferred stock then outstanding on any amount required to be paid
under the terms of such preferred stock.
PREFERRED STOCK
The Articles provide that the Board of Directors shall be authorized,
without further action by the holders of the Common Stock, to provide for the
issuance of shares of the preferred stock in one or more classes or series and
to fix the designations, powers, preferences and relative, participating,
optional and other rights, qualifications, limitations and restrictions thereof,
including the dividend rate, conversion rights, voting rights, redemption price
and liquidation preference; and to fix the number of shares to be included in
any such classes
40
42
or series. Any preferred stock so issued may rank senior to the Common Stock
with respect to the payment of dividends or amounts upon liquidation,
dissolution or winding-up, or both. In addition, any such shares of preferred
stock may have class or series voting rights. Upon completion of the Offering,
the Company will not have any shares of preferred stock outstanding. Issuances
of preferred stock, while providing the Company with flexibility in connection
with general corporate purposes, may, among other things, have an adverse effect
on the rights of holders of Common Stock and, in certain circumstances, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company or the effect of
decreasing the market price of the Common Stock. The Company has no present plan
to issue any shares of preferred stock.
CERTAIN PROVISIONS OF THE ARTICLES, BYLAWS AND GEORGIA LAW
Certain provisions of the Articles and Bylaws and the Georgia Law,
summarized in the following paragraphs, may be considered to have antitakeover
effects and may hinder, delay, deter or prevent a tender offer, proxy contest or
other attempted takeover that a shareholder may deem to be in such shareholder's
best interest, including such an attempted transaction as might result in
payment of a premium over the market price for shares held by such shareholder.
Classified Board of Directors. The Articles of Incorporation divide the
Board of Directors into three classes of directors serving staggered three-year
terms. As a result, approximately one-third of the Board of Directors are
elected at each annual meeting of shareholders. The classification of directors,
together with other provisions in the Articles of Incorporation and Bylaws that
limit the ability of shareholders to remove directors and that permit the
remaining directors to fill any vacancies on the Board of Directors, have the
effect of making it more difficult for shareholders to change the composition of
the Board of Directors. As a result, at least two annual meetings of
shareholders may be required for the shareholders to change a majority of the
directors, whether or not such a change in the Board of Directors would be
beneficial to the Company and its shareholders and whether or not a majority of
the Company's shareholders believes that such a change would be desirable.
Currently, the terms of Class I directors expire in 1998, the terms of Class II
directors expire in 1999 and the terms of Class III directors expire in 2000.
Advance Notice Provisions for Shareholder Nominations and Shareholder
Proposals; Actions by Written Consent of Shareholders. The Bylaws establish an
advance notice procedure for shareholders to make nominations of candidates for
election as directors or to bring other business before any meeting of
shareholders of the Company. Any shareholder nomination or proposal for action
at an upcoming shareholder meeting must be delivered to the Company no later
than the deadline for submitting shareholder proposals pursuant to Rule 14a-8
under the Exchange Act. The presiding officer at any shareholder meeting is not
required to recognize any proposal or nomination which did not comply with such
deadline.
The purpose of requiring shareholders to give the Company advance
notice of nominations and other business is to afford the Board of Directors a
meaningful opportunity to consider the qualifications of the proposed nominees
or the advisability of the other proposed business and, to the extent deemed
necessary or desirable by the Board of Directors, to inform shareholders and
make recommendations about such qualifications or business, as well as to
provide a more orderly procedure for conducting meetings of shareholders.
Although the Bylaws do not give the Board of Directors any power to disapprove
timely shareholder nominations for the election of directors or proposals for
action, they may have the effect of precluding a contest for the election of
directors or the consideration of shareholder proposals if the proper procedures
are not followed and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal.
Actions required to be taken at a shareholder meeting may be taken
without a meeting only if the unanimous written consent of the shareholders
entitled to vote at such meeting is obtained and delivered to the Company for
inclusion in its minute book or other corporate records.
Georgia Business Combination Statute. Pursuant to its Bylaws, the
Company is subject to the provisions of the Georgia Law, including provisions
prohibiting various "business combinations" involving "interested shareholders"
for a period of five years after the shareholder becomes an interested
shareholder of the Company.
41
43
Such provisions prohibit any business combination with an interested shareholder
unless either (i) prior to such time, the Board of Directors approves either the
business combination or the transaction by which such shareholder became an
interested shareholder; (ii) in the transaction that resulted in the shareholder
becoming an interested shareholder, the interested shareholder became the
beneficial owner of at least 90% of the outstanding voting stock of the Company
which was not held by directors, officers, affiliates thereof, subsidiaries or
certain employee option plans of the Company, or (iii) subsequent to becoming an
interested shareholder, such shareholder acquired additional shares resulting in
such shareholder owning at least 90% of the outstanding voting stock of the
Company and the business combination is approved by a majority of the
disinterested shareholders' shares not held by directors, officers, affiliates
thereof, subsidiaries or certain employee stock option plans of the Company.
Under the relevant provisions of the Georgia Law, a "business combination" is
defined to include, among other things, (i) any merger, consolidation, share
exchange or any sale, transfer or other disposition (or series of related sales
or transfers) of assets of the Company having an aggregate book value of 10% or
more of the Company's net assets (measured as of the end of the most recent
fiscal quarter), with an interested shareholder of the Company or any other
corporation which is or, after giving effect to such business combination,
becomes an affiliate of any such interested shareholder, (ii) the liquidation or
dissolution of the Company, (iii) the receipt by an interested shareholder of
any benefit from any loan, advance, guarantee, pledge, tax credit or other
financial benefit from the Company, other than in the ordinary course of
business and (iv) certain other transactions involving the issuance or
reclassification of securities of the Company which produce the result that 5%
or more of the total equity shares of the Company, or of any class or series
thereof, is owned by an interested shareholder. An "interested shareholder" is
defined by the Georgia Law to include any person or entity that, together with
affiliates, beneficially owns or has the right to own 10% or more of the
outstanding voting shares of the Company, or any person that is an affiliate of
the Company and has, at any time within the preceding two-year period, been the
beneficial owner of 10% or more of the outstanding voting shares of the Company.
The restrictions on business combinations shall not apply to any person who was
an interested shareholder before the adoption of the Bylaws which made the
provisions applicable to the Company nor to any persons who subsequently become
interested shareholders inadvertently, subsequently divest sufficient shares so
that the shareholder ceases to be an interested shareholder and would not, at
any time within the five-year period immediately before a business combination
involving the shareholder have been an interested shareholder but for the
inadvertent acquisition.
Constituency Provisions. In addition to considering the effects of any
action on the Company and its shareholders, the Articles permit the Board of
Directors and the committees and individual members thereof to consider the
interests of various constituencies, including employees, customers, suppliers,
and creditors of the Company, communities in which the Company maintains offices
or operations, and other factors which such directors deem pertinent, in
carrying out and discharging the duties and responsibilities of such positions
and in determining what is believed to be in the best interests of the Company.
LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
The Articles provide that no director shall be personally liable to the
Company or any of its shareholders for any breach of the duties of such
position, except that such elimination of liability does not apply to: (i)
appropriations of business opportunities from the Company in violation of such
director's duties; (ii) knowing or intentional misconduct or violation of law;
(iii) liability for assent to distributions which are illegal or improper under
the Georgia Law or the Articles; and (iv) liability for any transaction in which
an improper personal benefit is derived. In addition, the Articles state that if
the Georgia Law is ever amended to allow for greater exculpation of directors
than presently permitted, the directors shall be relieved from liabilities to
the fullest extent provided by the Georgia Law, as so amended, without further
action by the Board or the shareholders of the Company, unless the Georgia Law
provides otherwise. No modification or repeal of this provision will adversely
affect the elimination or reduction in liability provided thereby with respect
to any alleged act occurring before the effective date of such modification or
repeal.
The Company intends to enter into agreements with each of its current
directors and executive officers pursuant to which it is obligated to indemnify
those persons to the fullest extent authorized by law and to advance payments to
cover defense costs against an unsecured obligation to repay such advances if it
is ultimately determined that the recipient of the advance is not entitled to
indemnification. The indemnification agreements
42
44
will provide that no indemnification or advancement of expenses shall be made
(a) if a final adjudication establishes that his actions or omissions to act
were material to the cause of action so adjudicated and constitute: (i) a
violation of criminal law (unless the indemnitee had reasonable cause to believe
that his actions were lawful); (ii) a transaction from which the indemnitee
derived an improper personal benefit; (iii) an unlawful distribution or dividend
under the Georgia Law; or (iv) willful misconduct or a conscious disregard for
the just interests of the Company in a derivative or shareholder action; (b) for
liability under Section 16(b) of the Exchange Act, or (c) if a final decision by
a court having jurisdiction in the matter determines that indemnification is not
lawful.
At present, the Company is not aware of any pending or threatened
litigation or proceeding involving a director, officer, employee or agent of the
Company in which indemnification would be required or permitted under the Bylaws
or the Georgia Law.
SHAREHOLDERS' AGREEMENT
The Company and all of the holders of the Class A Common Stock have
entered into a Shareholders' Agreement whereby the shareholders agreed to
certain restrictions on the transfer or other disposition of the shares of
Class A Common Stock held by each holder. In the event a shareholder intends to
transfer his or her Class A Common Stock to a non-permitted transferee, the
Company and the remaining shareholders have a right of first refusal to
purchase the transferring shareholder's Class A Common Stock at fair market
value. In addition, if the Company terminates a shareholder's employment or
engagement as a sales representative or consultant for cause(or the employment
or engagement of certain persons associated with a shareholder), the Company
shall have the right to repurchase, at fair market value, an amount of the
shareholder's Class A Common Stock which begins at 100% and declines 20% per
year for each completed year of service with the Company. If either the right
of first refusal or the Company's right to purchase is exercised, either
provision could have the effect of further concentrating the stock ownership
and voting power of the Company. See "Risk Factors - Shares Eligible for Future
Sale."
43
45
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, assuming the sale of 5,000,000 Shares
offered hereby, the Company will have outstanding 8,000,000 shares of Class B
Common Stock. Of these shares, the 5,000,000 shares offered hereby will be
freely tradeable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act described below, but will be
subject to certain possible restrictions pursuant to the Subscription Agreement.
See "The Offering - Transfer Restrictions." The remaining 3,000,000 shares of
Class B Common Stock outstanding upon completion of the Offering are "Restricted
Securities" under Rule 144 of the Securities Act in that they were originally
issued and sold by the Company in private transactions in reliance upon
exemptions from the registration provisions of the Securities Act. In addition,
the Company will have outstanding 14,300,000 shares of Class A Common Stock, and
all such shares are Restricted Securities.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be affiliates, whose
Restricted Securities have been fully paid for and held for at least two years
from the date of issuance by the Company may sell such securities in brokers'
transactions or directly to market makers, provided the number of shares sold in
any three-month period does not exceed the greater of 1% of the then outstanding
shares of the Common Stock (223,000 shares based on the number of shares to be
outstanding after this Offering) or the average weekly trading volume in the
public market during the four calendar weeks preceding the filing of the
Seller's Form 144. Sales under Rule 144 are also subject to certain notice
requirements and the availability of current public information concerning the
Company. After three years have elapsed from the issuance of Restricted
Securities by the Company, such shares generally may be sold without limitation
by persons who have not been affiliates of the Company for at least three
months. Rule 144 also provides that affiliates who are selling shares which are
not Restricted Securities must nonetheless comply with the same restrictions
applicable to Restricted Securities with the exception of the holding period
requirements.
Prior to the Offering, there has been no public market for the Common
Stock of the Company, and any sale of substantial amounts of Common Stock in the
open market may adversely affect the market price of the Class B Common Stock
offered hereby. See "Risk Factors - Shares Eligible for Future Sale."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Nelson Mullins Riley & Scarborough, L.L.P., Atlanta, Georgia.
EXPERTS
The audited consolidated financial statements of the Company in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of such firm as experts in giving said reports.
44
46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Maxxis Group, Inc.:
We have audited the accompanying consolidated balance sheet of MAXXIS GROUP,
INC. (a Georgia corporation) AND SUBSIDIARIES as of June 30, 1997 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the period from January 24, 1997 (inception) to June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Maxxis Group, Inc. and
subsidiaries as of June 30, 1997 and the results of their operations and their
cash flows for the period from January 24, 1997 (inception) to June 30, 1997 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
- -----------------------------------
Atlanta, Georgia
September 22, 1997
(except with respect to that matter
discussed in the second paragraph
to Note 8, as to which the date is
October 8, 1997)
F-1
47
MAXXIS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
ASSETS
===============================================================================
CURRENT ASSETS:
Cash and cash equivalents $ 35,000
Short-term investments 10,000
Subscriber receivables 25,000
Inventories 185,000
Prepaid expenses 12,000
Other current assets 23,000
---------
290,000
PROPERTY AND EQUIPMENT, NET 92,000
ORGANIZATIONAL COSTS, NET 100,000
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET 118,000
OTHER ASSETS 20,000
---------
$ 620,000
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
===============================================================================
CURRENT LIABILITIES:
Accounts payable $ 158,000
Commissions payable 42,000
Accrued liabilities 103,000
---------
303,000
---------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' EQUITY:
Stock subscription deposits 360,000
Class A common stock, no par value; 15,000,000
shares authorized, 14,300,000 shares issued
and outstanding 0
Class B common stock, no par value; 185,000,000 shares
authorized, shares issued and outstanding 0
Subscription receivable (120,000)
Additional paid-in capital 127,000
Accumulated deficit (50,000)
---------
Total shareholders' equity 317,000
---------
$620,000
=========
The accompanying notes are an integral part of this consolidated balance sheet.
F-2
48
MAXXIS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 24, 1997 (INCEPTION)
TO JUNE 30, 1997
REVENUES:
Communication services $2,666,000
Subscriber services 25,000
----------
Total revenues 2,691,000
COST OF SERVICES 1,016,000
----------
Gross margin 1,675,000
----------
OPERATING EXPENSES:
Selling and marketing 1,089,000
General and administrative 636,000
----------
Total operating expenses 1,725,000
LOSS BEFORE INCOME TAX BENEFIT (50,000)
INCOME TAX BENEFIT 0
----------
NET LOSS $ (50,000)
----------
NET LOSS PER SHARE $ (.003)
----------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 17,300,000
==========
The accompanying notes are an integral part of this consolidated statement.
F-3
49
MAXXIS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 24, 1997 (INCEPTION)
TO JUNE 30, 1997
CLASS A
COMMON STOCK STOCK ADDITIONAL
---------------------- SUBSCRIPTION SUBSCRIPTION PAID-IN ACCUMULATED
SHARES AMOUNT DEPOSITS RECEIVABLE CAPITAL DEFICIT TOTAL
---------- --------- ------------ ------------ ----------- ----------- ----------
BALANCE, JANUARY 24, 1997 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock 14,300,000 0 0 (120,000) 127,000 0 7,000
Stock subscription deposits 0 0 360,000 0 0 0 360,000
Net loss 0 0 0 0 0 (50,000) (50,000)
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1997 14,300,000 $ 0 $ 360,000 $ (120,000) $ 127,000 $ (50,000) $ 317,000
========== ========== ========== ========== =========== ========== ==========
The accompanying notes are an integral part of this consolidated statement.
F-4
50
MAXXIS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 24, 1997 (INCEPTION)
TO JUNE 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (50,000)
Adjustments to reconcile net loss to net cash provided by operating activities: ---------
Depreciation and amortization 30,000
Changes in assets and liabilities:
Subscriber receivables (25,000)
Inventories (185,000)
Prepaid expenses (12,000)
Deposits and other (43,000)
Commissions payable 42,000
Accounts payable 158,000
Accrued liabilities 103,000
---------
Total adjustments 68,000
---------
Net cash provided by operating activities 18,000
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (99,000)
Purchase of short-term investment (10,000)
Software development and organizational costs (241,000)
---------
Net cash used by investing activities (350,000)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock subscriptions 360,000
Proceeds from issuance of common stock 7,000
---------
Net cash provided by financing activities 367,000
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 35,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 0
---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 35,000
=========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest $ 0
=========
Cash paid for income taxes $ 0
=========
Stock issued for note receivable $ 120,000
=========
The accompanying notes are an integral part of this consolidated statement.
F-5
51
MAXXIS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION AND PRESENTATION
DESCRIPTION OF BUSINESS AND OPERATIONS
Maxxis Group, Inc., a Georgia corporation, was incorporated on January 24,
1997 ("inception") and is headquartered in Tucker, Georgia. The Company's
principal business operations are carried out through its wholly owned
subsidiaries, Maxxis 2000, Inc. and Maxxis Telecom, Inc., which began
operations in March 1997. Maxxis Group, Inc., together with its wholly
owned subsidiaries (collectively referred to as the "Company"), was
founded for the purpose of providing long-distance services and other
consumable products through a multilevel marketing system of independent
associates ("Associates") to subscribers throughout the United States. The
Company currently markets both long-distance service and value-added
telecommunications services, such as travel cards, prepaid phone cards,
800 service, and international telecommunications service.
The Company has a limited operating history, and its operations are
subject to the risks inherent in the establishment of any new business.
Since the Company has only recently made the transition to an operating
company, the Company's ability to manage its growth and expansion will
require it to implement and continually expand its operational and
financial systems, recruit additional employees, and train and manage both
current and new employees. Growth may place a significant strain on the
Company's operational resources and systems, and failure to effectively
manage this projected growth would have a material adverse effect on the
Company's business.
COMMUNICATION SERVICES
Communication services revenues are primarily comprised of prepaid phone
card sales to Associates. Communication services also consist of receipts
from Associates for application fees and purchases of sales aids, which
include starter kits of forms, promotional brochures, marketing materials,
and presentation materials.
Costs of services include the costs of purchasing prepaid phone cards and
start-up packages.
SUBSCRIBER SERVICES
Subscriber services revenues are generated from the Company's agreement
with a tariffed long-distance reseller that provides for the Company to
receive a percentage of the gross long-distance billings generated by the
Company's subscribers, net of allowances for bad debts and billing
adjustments.
Commissions paid to Associates based on long-distance subscribers usage
and the cost of recruiting new associates are included in selling and
marketing operating expenses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
All significant intercompany balances and transactions have been
eliminated in consolidation.
F-6
52
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenues when services are provided. For prepaid
phone cards, the Company recognizes revenue, net of estimated refunds, and
the related costs when the cards are sold to Associates.
CONCENTRATIONS OF CREDIT RISK
The Company's subscribers are primarily residential subscribers and are
not concentrated in any specific geographic region of the United States.
The Company purchases its prepaid phone card services from a long-distance
reseller. Failure of this reseller to provide quality services and
customer support could have a material adverse effect on the Company's
results of operations. The Company has an additional agreement with the
long-distance reseller to provide subscriber services, which if terminated
or canceled may significantly impact results of operations of the Company.
While the Company believes it could contract with another long-distance
reseller, the potential disruption of services may have a material effect
on the Company's results of operations.
The Company's success will depend heavily upon its ability to attract,
maintain, and motivate a large base of Associates who, in turn, sponsor
subscribers, customers, and other Associates. The Company anticipates a
significant turnover among Associates, which the Company believes is
typical of direct selling. The Company has begun establishing its network
of Associates; however, there can be no assurance that the Company will be
successful in establishing a viable network of Associates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INVENTORIES
Inventories consist of the following:
Prepaid phone cards $ 25,000
Sales aids 160,000
---------
$ 185,000
=========
Inventories are valued at the lower of cost (determined on a first-in,
first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of five years.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," which requires that deferred income tax expenses be provided based
on estimated future tax effects of differences between the carrying
amounts of assets and
F-7
53
liabilities for financial reporting purposes and the amounts used for
income tax purposes calculated based on provisions of enacted tax laws
(Note 4).
ORGANIZATIONAL COSTS
The Company has capitalized certain organizational costs related to
start-up activities and the legal formation of the Company. These costs
are amortized over five years, and amortization expense was $2,000 for the
period from inception to June 30, 1997.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The development costs pertaining to a software application which is used
internally for processing applications and customer service have been
capitalized and are amortized over the estimated useful life of three
years. Amortization expense was $21,000 for the period from inception to
June 30, 1997.
OTHER ASSETS
Other assets include security deposits for lease obligations totaling
$20,000.
SHORT-TERM INVESTMENTS
Included in short-term investments is a certificate of deposit recorded at
cost, which approximates estimated fair value, that matures in May 1998.
This investment has been pledged as collateral for one of the Company's
cash accounts.
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of shares of
common stock outstanding under the requirements of Staff Accounting
Bulletin 83. As a result, all shares issued prior to the issuance in
connection with the Registration Statement have been included as
outstanding since inception.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable, and accounts payable. The carrying amounts of cash, accounts
receivable, and accounts payable approximate their fair values because of
the short-term maturity of such instruments.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share," which specifies the computation,
presentation, and disclosure requirements for earnings per share. The
Company will be required to adopt this new standard in the quarter ending
December 31, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company will be required to adopt the new
standard in 1998, and all prior period information will be restated.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." This statement
requires companies to determine segments based on how management makes
decisions about allocating resources to segments and measuring their
performance. Disclosures for each segment are similar to those required
under current standards, with the addition of certain quarterly disclosure
requirements. SFAS No. 131 also requires entitywide disclosure about the
products and services an entity provides, the countries in which it holds
material assets and reports material revenues, and its
F-8
54
significant customers. The Company will be required to adopt the new
standard in 1998, and all prior period information presented will be
restated.
The effect of adopting the above statements is not expected to be material
to the consolidated financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 1997:
Furniture and fixtures $99,000
Less accumulated depreciation (7,000)
-------
Property and equipment, net $92,000
=======
4. INCOME TAXES
Significant components of the Company's deferred tax assets and
liabilities are as follows at June 30, 1997:
Net operating losses $ 18,000
Valuation allowance (18,000)
Net deferred tax assets --------
$ 0
========
Based on uncertainties associated with the future realization of deferred
tax assets, the Company established a valuation allowance of $18,000 at
June 30, 1997. At June 30, 1997, the Company had net operating loss
carryforwards of approximately $50,000, which will expire in the year 2012
unless previously utilized.
The benefit for income taxes at June 30, 1997 was different than the
amount computed using the statutory income tax rate as follows:
Tax computed at statutory rate $(17,000)
State income taxes, net of federal benefit (2,000)
Nondeductible expenses 1,000
Change in valuation allowance 18,000
--------
$ 0
========
5. TRANSACTIONS WITH AFFILIATES
The Company has significant transactions with IS 14, Inc. ("IS 14"), which
is affiliated through common ownership. IS 14 has provided funding for
certain expenses incurred by the Company, and all amounts have been repaid
as of June 30, 1997. The Company paid to IS 14 in consideration for
marketing support a fee equivalent to a percentage of revenues totaling
$184,000 from inception to June 30, 1997, which is included in selling and
marketing operating expense in the accompanying consolidated statement of
operations. Amounts due to IS 14 related to this fee and included in
commissions payable in the accompanying consolidated balance sheet totaled
$9,000 at June 30, 1997.
6. SHAREHOLDERS' EQUITY
The articles of incorporation (the "Articles") authorize the Company to
issue up to 15,000,000 shares of Class A common stock and 185,000,000
shares of Class B common stock. As of June 30, 1997, 14,300,000 shares of
Class A common stock are issued and outstanding and are held of record by
15
F-9
55
shareholders and the Company had received paid subscriptions for 2,400,000
shares of Class B common stock. In addition, the Articles authorize the
Company to issue up to 10,000,000 shares of preferred stock, no par value
per share, with such rights and preferences as the board of directors
shall determine; however, no preferred stock has been issued as of June
30, 1997.
In February 1997, the Company sold 13,500,000 shares of the Company's
Class A common stock to the founders of the Company at $.0005 per share.
In May 1997, the Company sold 800,000 shares of Class A common stock to an
executive officer for $0.15 per share in exchange for a $120,000 note
receivable to an affiliate of that individual due on the earlier of (i)
May 1, 2002 or (ii) the closing of an underwritten initial public offering
with aggregate net proceeds of at least $5 million. The note is guaranteed
by the executive officer, bears interest at 8.75% per year, compounded
annually, and is classified as a subscription receivable in the balance
sheet. Each holder of the Class A common stock is entitled to ten votes
per share with respect to each company matter voted on.
The Company and all of the holders of Class A common stock have entered
into a shareholders' agreement whereby the shareholders agreed to certain
restrictions on the transfer or other disposition of the shares of Class A
common stock held by each holder. In the event a shareholder intends to
transfer his or her Class A common stock to a non-permitted transferee,
the Company and the remaining shareholders have a right of first refusal
to purchase the transferring shareholder's Class A common stock at fair
market value. In addition, if the Company terminates a shareholder's
employment or engagement as a sales representative or consultant for
cause, the Company shall have the right to repurchase, at fair market
value, an amount of the shareholder's Class A common stock which starts at
100% and declines 20% per year for each completed year of service with the
Company. If the right of first refusal or the Company's right to purchase
is exercised, these provisions could have the effect of further
concentrating the stock ownership and voting power of the Company.
Additionally, in February 1997, the Company completed a private placement
offering for 3,000,000 shares of Class B common stock at a price of $.15
per share. The Class B common stock entitles each holder to one vote per
share with respect to each company matter voted on. Potential investors
were required to complete subscription agreements for the Class B common
stock and submit cash at the date of subscription. The Company reserved
the right to reject a subscription and refund funds to a Class B
subscriber at any time prior to the acceptance of the subscription. At
June 30, 1997, the Company had received paid subscriptions for 2,400,000
shares of Class B common stock. However, since these subscriptions had not
yet been accepted by the Company and no shares had been issued as of June
30, 1997, amounts received from subscribers are included in stock
subscription deposits in the accompanying balance sheet. Subsequent to
June 30, 1997, the Company has accepted these subscriptions and additional
subscriptions for 600,000 shares of the Class B common stock.
Upon the closing of an initial public offering, each share of Class A
common stock then outstanding shall automatically be converted into one
fully paid and nonassessable share of Class B common stock. An "initial
public offering" means a public offering of the Company's capital stock
for cash which is offered and sold in a transaction that is registered
under the Securities Act through one or more underwriters, pursuant to an
underwriting agreement between the Company and such underwriters,
resulting in aggregate net proceeds of $5 million to the Company.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain office equipment and office space under
operating leases. Total rental expense for the period ended June 30, 1997
was approximately $45,000.
F-10
56
Minimum lease payments under noncancelable leases for the years subsequent
to June 30, 1997 are as follows:
1998 $124,000
1999 72,000
2000 39,000
2001 34,000
2002 and thereafter 0
--------
$269,000
========
LITIGATION
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. In the opinion of management, the
ultimate resolution of such matters will be adequately covered by
insurance or will not have a material adverse effect on the Company's
financial position, liquidity, or results of operations.
EMPLOYMENT AGREEMENTS
In May 1997, the Company entered into an employment agreement with the
chief executive officer, and in September 1997, the Company entered into
employment agreements with the executive vice president, the chief
financial officer and a director (collectively, the "Employment
Agreements"). Generally the Employment Agreements provide for a minimum
weekly salary. In addition, the employee may participate in a bonus
program and shall be eligible to receive quarterly or annual payments of a
performance bonus based upon the achievement of targeted levels of
performance and such other criteria as the board of directors shall
establish from time to time. The chief executive officer's Employment
Agreement provides for an additional bonus payment on July 1, 1998. Each
employee may participate in insurance and other benefit plans of similarly
situated employees, including any stock option plans of the Company.
Each of the Employment Agreements has a term of one year, and the term
renews daily until either party fixes the remaining term at one year by
giving written notice. The Company can terminate each employee upon death
or disability (as defined in the Employee Agreements) or with or without
cause upon delivery of a notice of termination. If the employee is
terminated because of death, disability, or cause, the employee will
receive any accrued compensation through the termination date and any
accrued performance bonus, unless the employee is terminated for cause. If
the employee is terminated without cause, the Company shall pay the
employee severance payments equal to his minimum base salary for each week
during the six-month period following the termination date. If the
employee is a director or officer of the Company or any of its affiliates,
the employee shall tender his resignation to such positions effective as
of the termination date.
Under the Employment Agreements, each employee agrees to maintain the
confidentiality of the Company's trade secrets and confidential business
information. The employee also agrees for a period of one year following
the termination date if he is terminated or resigns for any reason not to
compete with or solicit employees or customers of the Company or any of
its affiliates within a 30-mile radius of the Company's corporate offices,
provided, that if the employee is terminated without cause, the
non-compete period shall be six months.
RELATIONSHIP WITH ASSOCIATES
Because Associates are classified as independent contractors and not as
employees of the Company, the Company is unable to provide them with the
same level of direction and oversight as company employees. While the
Company has policies and rules in place governing the conduct of the
Associates and intends to review periodically the sales tactics of the
Associates, it may be difficult to enforce such policies and rules.
Violation of these policies and rules might reflect negatively on the
Company and may lead to complaints to
F-11
57
or by various federal and state regulatory authorities. Violation of the
Company's policies and rules could subject the Company and its
long-distance provider to complaints regarding the unauthorized switching
of subscribers' long-distance carriers (also known in the industry as
"slamming"). Such complaints could have a material adverse effect on the
Company's business, financial condition, and results of operations.
REGULATION OF NETWORK MARKETING; EFFECT OF STATE LAWS
The Company's network marketing system is subject to or affected by
extensive government regulation, including, without limitation, federal
and state regulations governing the offer and sale of business franchises,
business opportunities, and securities. Various governmental agencies
monitor direct selling activities, and the Company could be required to
supply information regarding its marketing plan to such agencies. Although
the Company believes that its network marketing system is in material
compliance with the laws and regulations relating to direct selling
activities, there can be no assurance that legislation and regulations
adopted in particular jurisdictions in the future will not adversely
affect the Company's business, financial condition, and results of
operations. The Company could also be found to be in non-compliance with
existing statutes or regulations as a result of, among other things,
misconduct by Associates, who are considered independent contractors over
whom the Company has limited control, the ambiguous nature of certain of
the regulations, and the considerable interpretive and enforcement
discretion given to regulators. Any assertion or determination that the
Company or the Associates are not in compliance with existing statutes or
regulations could have a material adverse effect on the Company's
business, financial condition, and results of operations. An adverse
determination by any one state on any regulatory matter could influence
the decisions of regulatory authorities in other jurisdictions.
8. SUBSEQUENT EVENTS
In October 1997, the Company filed a registration statement on Form S-1
for the sale of 5,000,000 shares of Class B common stock primarily to
individuals who are regional and executive directors of the Company.
Effective October 8, 1997, the Company declared a five-for-one reverse
stock split for all classes of common stock. All share, per share, and
weighted average share information in the financial statements and notes
thereto has been restated for this stock split.
In September 1997, the Company entered into independent sales
representative agreements (collectively the "Sales Representative
Agreements") with ten independent sales representatives. The Sales
Representative Agreements provide for a minimum weekly salary, and each
sales representative shall be eligible to receive quarterly payments of a
performance bonus based upon the achievement of targeted levels of
performance. Each sales representative is an independent contractor, and
the Company does not exercise control over the activities of the sales
representatives other than as set forth in the Sales Representative
Agreements.
Each of the Sales Representative Agreements has a term of one year, and
the term renews daily until either party fixes the remaining term at one
year by giving written notice. The Company can terminate each sales
representative upon death or disability (as defined in the Sales
Representative Agreements) or with or without cause upon delivery to the
sales representative of a notice of termination. If a sales representative
is terminated, the sales representative will receive any accrued fees
through the termination date and any accrued performance bonus, unless the
sales representative is terminated for cause. If the sales representative
is a director or officer of the Company or any of its affiliates, the
sales representative shall tender his resignation to such positions
effective as of the termination date. Under the Sales Representative
Agreements, each sales representative agrees to maintain the
confidentiality of the Company's trade secrets and confidential business
information.
F-12
58
APPENDIX A
MAXXIS GROUP, INC. SUBSCRIPTION AGREEMENT
MAXXIS GROUP, INC.
1901 Montreal Road, Suite 108
Tucker, Georgia 30084
Ladies and Gentlemen:
You have informed me that Maxxis Group, Inc., a Georgia corporation
(the "Company"), is offering up to 5,000,000 shares of its Class B Common Stock,
no par value per share (the "Class B Common Stock"), at a price of $0.50 per
share payable as provided herein and as described in the Prospectus furnished
with this Subscription Agreement to the undersigned (the "Prospectus").
1. SUBSCRIPTION. Subject to the terms and conditions hereof, the
undersigned subscriber hereby tenders this subscription, together with payment
in United States currency by check, bank draft or money order payable to "Maxxis
Group, Inc." in the amount indicted below (the "Funds"), representing the
payment of $0.50 per share for the number of shares of Class B Common Stock
indicated below. The total subscription price must be paid at the time the
Subscription Agreement is executed. Tender of this Subscription Agreement by the
undersigned subscriber constitutes the undersigned subscriber's offer to
purchase the number of shares of Class B Common Stock indicated below.
2. ACCEPTANCE OF SUBSCRIPTION. It is understood and agreed that the
Company shall have the right to accept or reject this subscription in whole or
in part, for any reason whatsoever. The Company may reduce the number of shares
for which the undersigned subscriber has subscribed for any reason whatsoever,
by indicating acceptance of less than all of the shares subscribed on its
written form of acceptance. This Subscription Agreement shall not be deemed
accepted by the Company until it is countersigned by a duly authorized officer
of the Company. Acceptance of the Funds by the Company shall not constitute
acceptance of this Subscription Agreement. However, if the Company determines
not to accept this Subscription Agreement, it shall return any Funds received to
the undersigned subscriber promptly following such determination.
3. LIMITATION ON DISPOSITIONS.
(a) To induce the Company to sell shares of Class B Common Stock to
the undersigned subscriber, the undersigned subscriber:
(i) agrees during the Lock-up Period (as defined in Section 3(c)
below) not to (x) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Class B Common Stock purchased pursuant
to this Subscription Agreement or any securities issued on account of such
Class B Common Stock (whether by stock split, stock dividend or otherwise)
(collectively, the "Shares") or (y) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with
the ownership of any Shares (regardless of whether any of the transactions
described in clause (x) or (y) is to be settled by the delivery of Shares, or
such other securities, in cash or otherwise);
(ii) authorizes the Company to cause the transfer agent during the
Lock-up Period (as defined in Section 3(c) below) to decline to transfer any
Shares and/or to note stop transfer restrictions on the transfer books and
records of the Company with respect to any Shares; and
(iii) agrees that a legend in substantially the following form will be
placed on certificates representing the Shares:
A-1
59
THE SHARES REPRESENTED BY THIS CERTIFICATE (THE "SHARES") ARE
SUBJECT TO CONDITIONS THAT MAY LIMIT THEIR TRANSFERABILITY.
SUCH CONDITIONS ARE SET FORTH IN A SUBSCRIPTION AGREEMENT
(THE "SUBSCRIPTION AGREEMENT") BY AND BETWEEN THE ISSUER AND
THE ORIGINAL HOLDER OF THESE SHARES. ANY TRANSFEREE OF THESE
SHARES TAKES SUCH SHARES SUBJECT TO THE CONDITIONS SET FORTH
IN THE SUBSCRIPTION AGREEMENT.
IN SUMMARY, THESE CONDITIONS PROVIDE THAT THE ISSUER MAY
ELECT TO IMPOSE A PROHIBITION ON THE SALE OR TRANSFER OF
THESE SHARES IN THE EVENT THE ISSUER DETERMINES TO FILE A
REGISTRATION STATEMENT WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION THAT SEEKS TO REGISTER SECURITIES OF THE ISSUER IN
AN INITIAL PUBLIC OFFERING THAT IS FIRMLY UNDERWRITTEN. SUCH
RESTRICTION MAY REMAIN IN EFFECT FOR A PERIOD ENDING 180 DAYS
FOLLOWING THE EFFECTIVENESS OF SUCH REGISTRATION STATEMENT.
THE ISSUER MAY IMPOSE THESE CONDITIONS BY GIVING WRITTEN
NOTICE TO THE HOLDER OF RECORD OF THESE SHARES. THE FOREGOING
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
SUBSCRIPTION AGREEMENT, A COPY OF WHICH WILL BE PROVIDED FREE
OF CHARGE BY THE ISSUER TO ANY HOLDER, PROSPECTIVE PURCHASER
OR TRANSFEREE OF THESE SHARES UPON THEIR REQUEST.
(b) The restriction set forth in Section 3(a) may be imposed by the
Company by giving notice of the imposition of such restriction (the "Lock-up
Notice") to holders of record of the Shares by first class mail, postage prepaid
(or, at the Company's option, certified mail, return receipt requested), at the
address of the holders of record of the Shares on a date chosen by the Company
that is at least one but no more than fifteen days prior to such mailing. The
restrictions set forth herein shall be effective upon receipt of such notice,
which date of receipt shall be deemed to be three days following such mailing.
Such notice may be given by the Company such that it is received on any date
beginning fifteen days prior to the filing by the Company of a registration
statement with the U.S. Securities and Exchange Commission (the "SEC") whereby
the Company first seeks to register its securities for sale to the public in a
firmly underwritten public offering (the "IPO Registration Statement"), and
ending upon the date that the IPO Registration Statement is declared effective
by the SEC (the "Effective Date").
(c) The restrictions set forth in Section 3(a) hereof shall be
effective on the date of receipt of the Lock-up Notice and shall remain in force
and effect until 180 days following the Effective Date (such period being
referred to as the "Lock-up Period"). The Lock-up Period shall terminate if the
Company files an IPO Registration Statement but such registration statement is
subsequently withdrawn or is not declared effective within 120 days of filing
with the SEC, or if the Company transmits a Lock-up Notice prior to the filing
of an IPO Registration Statement but the IPO Registration Statement is not filed
within 15 days of receipt of such notice; provided, however, that in any such
event the restrictions set forth in Section 3(a) shall survive and shall be
applicable to each subsequent filing of an IPO Registration Statement by the
Company until an IPO Registration Statement is first declared effective by the
SEC.
(d) All obligations of the undersigned subscriber set forth herein
shall be binding upon such subscriber's heirs, personal representatives,
successors, transferees and assigns.
4. ACKNOWLEDGMENTS. The undersigned subscriber hereby acknowledges that
he or she has received and reviewed a copy of the Prospectus and all amendments
thereto. This Subscription Agreement creates a legally binding obligation, and
the undersigned subscriber agrees to be bound by the terms of this Agreement.
5. REVOCATION. The undersigned subscriber agrees that once this
Subscription Agreement is tendered to the Company, it may not be withdrawn and
that this Agreement shall survive the death or disability of the undersigned
subscriber.
BY EXECUTING THIS AGREEMENT, THE UNDERSIGNED SUBSCRIBER IS NOT WAIVING
ANY RIGHTS HE OR SHE MAY HAVE UNDER FEDERAL SECURITIES LAWS, INCLUDING THE
SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934.
A-2
60
Please indicate in the space provided below the exact name or names and
addresses in which the stock certificate representing shares subscribed for
hereunder should be registered.
- -------------------------------- --------------------------------------------
Number of Shares Subscribed Name or Names of Subscribers (please print)
for (minimum 200 shares)
$ ------------------------------ --------------------------------------------
Total Subscription Price at Please indicate form of ownership desired
$0.50 per share (individual, joint tenants with right of
(funds must be enclosed) survivorship, tenants in common, trust,
corporation, partnership, custodian, etc.)
Date: (L.S.)
--------------------------- ---------------------------------------
Signature of Subscriber(s)*
(L.S.)
- -------------------------------- ---------------------------------------
Social Security Number or Federal Signature of Subscriber(s)*
Taxpayer Identification Number
STREET (RESIDENCE) ADDRESS:
---------------------------------------
---------------------------------------
---------------------------------------
City, State and Zip Code
* When signed as attorney, trustee, administrator or guardian, please
give your full title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. In the case of
joint tenants or tenants in common, each owner must sign.
FEDERAL INCOME TAX BACKUP WITHHOLDING
In order to prevent the application of federal income tax backup
withholding, each subscriber must provide the Escrow Agent with a correct
Taxpayer Identification Number ("TIN"). An individual's social security number
is his or her TIN. The TIN should be provided in the space provided in the
Substitute Form W-9, which is set forth below.
Under federal income tax law, any person who is required to furnish his
or her correct TIN to another person, and who fails to comply with such
requirements, may be subject to a $50 penalty imposed by the IRS.
Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If backup withholding results in an overpayment of taxes, a refund may
be obtained from the IRS. Certain taxpayers, including all corporations, are not
subject to these backup withholding and reporting requirements.
If the shareholder has not been issued a TIN and has applied for a TIN
or intends to apply for a TIN in thee near future, "Applied For" should be
written in the space provided for the TIN on the Substitute Form W-9.
A-3
61
SUBSTITUTE FORM W-9
Under penalties of perjury, I certify that: (i) the number shown on
this form is my correct Taxpayer Identification Number (or I am waiting for a
Taxpayer Identification Number to be issued to me), and (ii) I am not subject to
backup withholding because: (a) I am exempt from backup withholding; or (b) I
have not been notified by the Internal Revenue Service ("IRS") that I am subject
to backup withholding as a result of a failure to report all interest or
dividends; or (c) the IRS has notified me that I am no longer subject to backup
withholding.
You must cross out item (ii) above if you have been notified by the IRS
that you are subject to backup withholding because of underreporting interest or
dividends on your tax return. However, if after being notified by the IRS that
you were subject to backup withholding you received another notification from
the IRS that you are no longer subject to backup withholding, do not cross out
item (ii).
Each subscriber should complete this section.
- ----------------------------------------------- ----------------------------------------------
Signature of Subscriber Signature of Subscriber
- ----------------------------------------------- ----------------------------------------------
Printed Name Printed Name
- ----------------------------------------------- ----------------------------------------------
Social Security or Employer Identification No. Social Security or Employer Identification No.
TO BE COMPLETED BY THE COMPANY:
Accepted as of ____________________, 199___, as to ______________ shares.
MAXXIS GROUP, INC.
By:
----------------------------------------------
Name:
Title:
A-4
62
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
UNTIL_______, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-------------
TABLE OF CONTENTS
PAGE
----
Additional Information................................................. 2
Prospectus Summary..................................................... 3
Risk Factors........................................................... 8
The Offering........................................................... 17
Use of Proceeds........................................................ 20
Dividend Policy........................................................ 20
Capitalization......................................................... 20
Dilution............................................................... 21
Selected Consolidated Financial Data................................... 22
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............................................ 23
Business............................................................... 26
Management............................................................. 34
Certain Transactions................................................... 38
Principal Shareholders................................................. 39
Description of Capital Stock........................................... 40
Shares Eligible for Future Sale........................................ 44
Legal Matters.......................................................... 44
Experts................................................................ 44
Index to Consolidated Financial Statements............................. F-1
Subscription Agreement................................................. A-1
================================================================================
================================================================================
5,000,000 SHARES
[LOGO]
MAXXIS GROUP, INC.
CLASS B
COMMON STOCK
-------------------------
P R O S P E C T U S
-------------------------
, 1997
================================================================================
63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered hereby:
Registration Fee ...................................... $ 758
Blue Sky Fees and Expenses ............................ 50,000*
Printing and Engraving ................................ 100,000*
Legal Fees and Expenses ............................... 100,000*
Accounting Fees and Expenses .......................... 100,000*
Miscellaneous ......................................... 49,242*
--------
Total ............................................. $400,000*
========
- ------------------------
* Estimated for filing purposes.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Georgia Business Corporation Code (the "Georgia Law") permits a
corporation to eliminate or limit the personal liability of a director to the
corporation or its shareholders for monetary damages for a breach of duty,
provided that no provision shall eliminate or limit the liability of a director
for: an appropriation of any business opportunity of the corporation; any act or
omission which involves an intentional misconduct or a knowing violation of law;
any transaction from which the director derives an improper personal benefit; or
any distribution that is illegal under Section 14-2-832 of the Georgia Law. The
Company's Articles contain a provision which limits the liability of a director
to the Company or its shareholders for any breach of duty as a director except
for a breach of duty for which the Georgia Law prohibits such limitation of
liability. This provision does not limit the right of the Company or its
shareholders to seek injunctive or other equitable relief not involving monetary
damages.
The Company's Articles and Bylaws contain certain provisions which
provide indemnification to directors of the Company that is broader than the
protection expressly mandated in Sections 14-2-852 and 14-2-857 of the Georgia
Law. If a director or officer of the Company has been wholly successful, on the
merits or otherwise, in the defense of any action or proceeding brought by
reason of the fact that such person was a director or officer of the Company,
Sections 14-2-852 and 14-2-857 of the Georgia Law would require the Company to
indemnify such person against expenses (including attorneys' fees) actually and
reasonably incurred in connection therewith. The Georgia Law expressly allows
the Company to provide for greater indemnification rights to its officers and
directors, subject to shareholder approval.
The indemnification provisions in the Company's Articles and Bylaws
require the Company to indemnify and hold harmless each of its directors,
officers, employees and agents to the extent that he or she is or was a party,
or is threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that such person is or was a director,
officer, employee or agent of the Company, against expenses (including, but not
limited to, attorneys' fees and disbursements, court costs and expert witness
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with the action, suit or proceeding.
Indemnification would be disallowed under any circumstances where
indemnification may not be authorized by
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64
action of the board of directors, the shareholders or otherwise, including any
liability of a director for: (i) any appropriation, in violation of his duties,
of any business opportunity of the Company; (ii) any acts or omissions involving
intentional misconduct or a knowing violation of the law; (iii) any unlawful
distribution as set forth in Section 14-2-832 of the Georgia Law; or (iv) any
transaction from which the director received an improper personal benefit.
Indemnified persons would also be entitled to have the Company advance expenses
prior to the final disposition of the proceeding. If it is ultimately determined
that they are not entitled to indemnification, however, such amounts must be
repaid.
The Company has the power, under its Bylaws, to obtain insurance on
behalf of any director, officer, employee or agent of the Company against any
liability asserted against or incurred by such person in any such capacity,
whether or not the Company has the power to indemnify such person against such
liability at that time under the Articles, Bylaws or the Georgia Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to securities of the Company issued
or sold since the inception of the Company which were not registered under the
Securities Act:
(i) in February 1997, the Company sold 13,500,000 shares of Class A
Common Stock to the founders of the Company for $0.0005 per
share;
(ii) in May 1997, in connection with Mr. Thomas O. Cordy's employment
as President and Chief Executive Officer of the Company, the
Company sold 800,000 shares of Class A Common Stock to The
Anchora Company, an entity of which Mr. Cordy serves as
protector, for $0.15 per share; and
(iii) in August 1997, the Company sold 3,000,000 shares of Class B
Common Stock in a private placement for $0.15 per share.
Each of these transactions was completed without registration of the
respective securities under the Securities Act in reliance upon the exemptions
provided by Section 4(2) of the Securities Act and the rules and regulations
promulgated thereunder on the basis that such transactions did not involve a
public offering. All share data has been adjusted to reflect a 5 for 1 reverse
stock split effective October 8, 1997.
ITEM 16. EXHIBITS
The exhibits filed as part of this Registration Statement are as
follows:
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
3.1 Amended and Restated Articles of Incorporation of the Company,
as amended to date.
3.2 Amended and Restated Bylaws of the Company, as amended to date.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Articles of Incorporation and Amended and Restated
Bylaws defining the rights of holders of Common Stock of the
Company.
4.2 Specimen Class B Common Stock certificate.
4.3 Shareholders Agreement, dated as of September 1, 1997 among the
Company and the holders of Class A Common Stock.
5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P., counsel
to the Company, as to the legality of the shares being
registered.*
10.1 Form of Employment Agreement by and between the Company and
certain of its officers.
II-2
65
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
10.2 Employment Agreement by and between the Company and Thomas O.
Cordy dated May 1, 1997.
10.3 Promissory Note by The Anchora Company in favor of the Company
dated as of May 1, 1997 in the original principal amount of
$120,000.
10.4 Guarantee by Thomas O. Cordy in favor of the Company dated May
1, 1997.
10.5 Form of Independent Sales Representative Agreement by and
between the Company and certain of its sales representatives.
10.6 Consulting Agreement by and between the Company and Robert P.
Kelly dated as of September 1, 1997.
10.7 Software License Agreement between Summit V. Inc., a subsidiary
of Jenkon International, Inc. and the Company dated February 2,
1997.
10.8 Software Service Agreement between Summit V. Inc., a subsidiary
of Jenkon International, Inc. and the Company dated February 2,
1997.
10.9 Equipment Purchase Agreement between Summit V. Inc., a
subsidiary of Jenkon International, Inc. and the Company dated
February 2, 1997.
10.10 Agreement for 1-Plus Services between Colorado River
Communications Corporation and the Company dated February 20,
1997.+
10.11 Sublease Agreement between DowElanco and the Company dated
February 14, 1997.*
10.12 Warehouse lease between Malon D. Mimms and the Company dated
March 17, 1997.
10.13 Warehouse lease between Malon D. Mimms and the Company dated
June 23, 1997.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (included
in Exhibit 5.1).*
24.1 Power of Attorney (contained on the signature page hereto).
27.1 Financial Data Schedule.
- -------------------
* To be filed by Amendment.
+ Confidential Treatment requested.
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes as follows:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high and of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration
Statement; and
II-3
66
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-4
67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on the 23rd day of October, 1997.
MAXXIS GROUP, INC.
By: /s/ Thomas O. Cordy
--------------------------------------
Thomas O. Cordy
Chief Executive Officer and President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ivey J. Stokes and Thomas O. Cordy, and
each of them, as his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any related Registration
Statement pursuant to Rule 462 under the Securities Act of 1933, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully and
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all which said attorney-in-fact and agent or his substitute or
substitutes may lawfully do, or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Ivey J. Stokes Chairman of the Board October 23, 1997
- ---------------------------------------------
Ivey J. Stokes
/s/ Thomas O. Cordy Chief Executive Officer, President October 23, 1997
- --------------------------------------------- and Director (Principal executive
Thomas O. Cordy officer)
/s/ Shawn J. Dinwiddie Chief Financial Officer and October 23, 1997
- --------------------------------------------- Treasurer (Principal financial
Shawn J. Dinwiddie and accounting officer)
/s/ James W. Brown Director and Secretary October 23, 1997
- ---------------------------------------------
James W. Brown
/s/ Charles P. Bernstein Director October 23, 1997
- ---------------------------------------------
Charles P. Bernstein
/s/ Alvin Curry Director October 23, 1997
- ---------------------------------------------
Alvin Curry
/s/ Larry W. Gates, II Director October 23, 1997
- ---------------------------------------------
Larry W. Gates, II
II-5
68
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Robert J. Glover, Jr. Director October 23, 1997
- ---------------------------------------------
Robert J. Glover, Jr.
/s/ Terry Harris Director October 23, 1997
- ---------------------------------------------
Terry Harris
/s/ Phil Lundquist Director October 23, 1997
- ---------------------------------------------
Phil Lundquist
II-6
69
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
3.1 Amended and Restated Articles of Incorporation of the
Company, as amended to date.
3.2 Amended and Restated Bylaws of the Company, as amended to
date.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Articles of
Incorporation and Amended and Restated Bylaws defining the
rights of holders of Common Stock of the Company.
4.2 Specimen Class B Common Stock certificate.
4.3 Shareholders Agreement, dated as of September 1, 1997
among the Company and the holders of Class A Common Stock.
5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P.,
counsel to the Company, as to the legality of the shares
being registered.*
10.1 Form of Employment Agreement by and between the Company
and certain of its officers.
10.2 Employment Agreement by and between the Company and Thomas
O. Cordy dated as of May 1, 1997.
10.3 Promissory Note by The Anchora Company in favor of the
Company dated as of May 1, 1997 in the original principal
amount of $120,000.
10.4 Guarantee by Thomas O. Cordy in favor of the Company dated
May 1, 1997.
10.5 Form of Independent Sales Representative Agreement by and
between the Company and certain of its sales
representatives.
10.6 Consulting Agreement by and between the Company and Robert
P. Kelly dated as of September 1, 1997.
10.7 Software License Agreement between Summit V. Inc., a
subsidiary of Jenkon International, Inc. and the Company
dated February 2, 1997.
10.8 Software Service Agreement between Summit V. Inc., a
subsidiary of Jenkon International, Inc. and the Company
dated February 2, 1997.
10.9 Equipment Purchase Agreement between Summit V. Inc., a
subsidiary of Jenkon International, Inc. and the Company
dated February 2, 1997.
10.10 Agreement for 1-Plus Services between Colorado River
Communications Corporation and the Company dated February
20, 1997.+
10.11 Sublease Agreement between DowElanco and the Company dated
February 14, 1997.*
10.12 Warehouse lease between Malon D. Mimms and the Company
dated March 17, 1997.
10.13 Warehouse lease between Malon D. Mimms and the Company
dated June 23, 1997.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Nelson Mullins Riley & Scarborough, L.L.P.
(included in Exhibit 5.1).*
24.1 Power of Attorney (contained on the signature page
hereto).
27.1 Financial Data Schedule.
* To be filed by Amendment.
+ Confidential Treatment requested.