OKLAHOMA CITY--(Business Wire)--AMS Health Sciences, Inc. (OTCBB: AMSI) today announced it has
sought the protection of the U.S. Bankruptcy Court for the Western
District of Oklahoma by filing a Chapter 11 petition for
reorganization due to the verdict and subsequent judgment rendered
against the Company in its November 2007 jury trial relating to the
Company's 2005 acquisition of Heartland Cup, Inc.
In September 2005, AMS Manufacturing, Inc., a wholly-owned
subsidiary of the Company, acquired approximately 83% of the capital
stock of Heartland Cup, Inc., a manufacturer of Styrofoam cups located
in Allen, Oklahoma. The acquisition was effected through the purchase
of such shares from Truett McCarty, Heartland's controlling
stockholder, who received shares of the Company's common stock in
consideration for the stock purchase. Over the following 15 months,
the Company loaned approximately $2,400,000, substantially all of its
cash reserves, to Heartland to support the newly acquired subsidiary's
ongoing manufacturing operations.
On February 6, 2006, the Company and AMS Manufacturing filed a
lawsuit against Mr. McCarty in the District Court of Oklahoma County,
Oklahoma. The AMS entities alleged that Mr. McCarty defrauded them in
the sale of his stock in Heartland by failing to disclose the true
amount of Heartland's accounts payable as well as a long-term
liability of Heartland. In addition, the AMS entities alleged that
this failure was a breach of the stock purchase agreement signed by
Mr. McCarty. Mr. McCarty filed an answer denying the AMS entities'
allegations and alleging that he had been defrauded with regard to the
value of the AMS stock he received in exchange for his interest in
Heartland. Additionally, Mr. McCarty alleged that the AMS entities had
breached the terms of the stock purchase agreement by failing to take
steps to remove Mr. McCarty as guarantor of certain promissory notes,
that the AMS entities had tortiously interfered with a promissory note
between Mr. McCarty and Heartland and that the AMS entities had
tortiously interfered with an employment agreement between Mr. McCarty
and Heartland. Mr. McCarty also sought to reform the stock purchase
agreement in numerous respects, and to pierce the corporate veils of
the Company and AMS Manufacturing in order to hold them liable for any
breach by Heartland of the promissory note and employment agreement
between Heartland and Mr. McCarty.
On November 1, 2007, after the court had dismissed the AMS
entities' fraud claim, the jury returned its verdict, which was later
reduced to a judgment signed by the court and filed on December 17,
2007. The jury denied the AMS entities' breach of contract claim
against Mr. McCarty, found in Mr. McCarty's favor on his claim against
the AMS entities for breach of the stock purchase agreement and found
that Mr. McCarty was entitled to $800,000 against the Company on his
breach of contract claim. In addition, the jury found that Heartland
had breached the employment agreement with Mr. McCarty and found that
Mr. McCarty was entitled to $368. The jury also found that Heartland
breached its promissory note with Mr. McCarty and that Mr. McCarty was
entitled to $185,000. The jury found that the corporate veils of the
Company and its subsidiaries should be pierced. The court allowed the
jury to consider a fraud claim by Mr. McCarty against the AMS
entities, even though the court had previously granted summary
judgment in the AMS entities' favor on Mr. McCarty's fraud claim
against them. The jury found for Mr. McCarty on the fraud claim, but
did not award any additional actual damages for the claim. The jury
returned a verdict in the AMS entities' favor on Mr. McCarty's claim
for tortious interference and to reform the stock purchase agreement
and, as noted above, awarded Mr. McCarty no damages on his claim
against AMS for fraud.
The Company believes that certain legal errors rendered the
verdict and judgment improper. The Company has identified
approximately nineteen (19) substantive points of error that it
believes occurred in the trial and intends to pursue them in an appeal
of the judgment.
Since the Company did not have the cash resources to satisfy the
judgment rendered against it or to post an appellate bond pending the
appeal of the judgment, every effort was made to settle and compromise
Mr. McCarty's claim. Mr. McCarty was repeatedly advised of the
Company's financial condition and that it would not be able to satisfy
and/or respond to any efforts to enforce the judgment. Notwithstanding
these repeated warnings and settlement efforts, Mr. McCarty declined
to withhold or defer his right, in the absence of an appellate bond,
to seek collection of the judgment. As a result, the Company has been
forced to seek the protection of the U.S. Bankruptcy Court by filing a
Chapter 11 petition for reorganization in the U.S. Bankruptcy Court
for the Western District of Oklahoma.
The Company believes this action is in the best interests of the
Company and the direct selling network that markets AMS products.
Without the filing of the Chapter 11 petition, which operates to stay
all proceedings or attempts to enforce existing judgments, Mr. McCarty
could attempt to disrupt the day-to-day operation of AMS by enforcing
his judgment on the Company's assets. The Company's filing for the
protection of the U.S. Bankruptcy Court was supported by the Company's
secured lender, Laurus Captial Management, LLC.
AMS Health Sciences, Inc., sells more than 60 natural nutritional
supplements, weight management products, and natural skincare products
through independent distributors across the U.S. and Canada. More
information about the Company is available at http://www.amsonline.com
Cautionary Notice Regarding Forward-Looking Statements
This press release may include forward-looking statements within
the meaning and subject to the protection of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Such forward-looking statements include, among others, AMS'
belief that its bankruptcy filing will prevent the collection of the
judgment rendered against it pending an appeal of such judgment. Such
forward-looking statements are based on information presently
available to the Company's management and are subject to various risks
and uncertainties, including, without limitation: AMS' ability to
overturn the judgment upon appeal; its ability to restructure itself
on favorable terms, if at all; AMS' ability to identify, pursue and
consummate on favorable terms, if at all, transactions that will
enable the Company to realize the maximum value for its assets; the
costs and delays of bankruptcy proceedings, including, without
limitation, as a result of legal expenses and other professional fees,
creditors' claims, litigation and other challenges that could arise in
connection with the Company's bankruptcy filing; and the costs and the
other risks and factors described in the Company's SEC reports and
filings, including, without limitation, under the captions "Cautionary
Notice Regarding Forward-Looking Statements" and "Risk Factors."
You should not place undue reliance on forward-looking statements,
since the statements speak only as of the date that they are made. The
Company has no obligation and does not undertake to publicly update,
revise or correct any of the forward-looking statements after the date
of this press release, or after the respective dates on which such
statements otherwise are made, whether as a result of new information,
future events or otherwise, except as may be required by law.
AMS Health Sciences, Inc.
Jerry Grizzle, President and CEO, 405-842-0131
Copyright Business Wire 2007
