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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
MARKETING SERVICES GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Issuer)
COMMON STOCK, $.01 PAR VALUE 570907105
- --------------------------------------------------------------------------------
(Title of class of securities) (CUSIP number)
NANCY E. BARTON, ESQ., GENERAL ELECTRIC CAPITAL CORPORATION, 260 LONG
RIDGE ROAD, STAMFORD, CONNECTICUT 06927 (203) 357-4000
- --------------------------------------------------------------------------------
(Name, address and telephone number of person authorized to receive notices and
communications)
DECEMBER 24, 1997
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(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
(Continued on following pages)
(Page 1 of 14 Pages)
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NYFS08...:\60\47660\1420\1219\SCHD107M.54C
<PAGE>
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CUSIP No. 570907105 13D Page 2 of 14
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1 NAMES OF REPORTING PERSONS: GENERAL ELECTRIC CAPITAL
CORPORATION
I.R.S. IDENTIFICATION NOS. 13-1500700
OF ABOVE PERSONS:
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [_]
(B) [X]
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3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS: WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [X]
PURSUANT TO ITEM 2(d) OR 2(e):
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6 CITIZENSHIP OR PLACE OF NEW YORK
ORGANIZATION:
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER: 4,415,612 (SEE ITEM 3)
SHARES
--------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER: 0
OWNED BY
--------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER: 4,415,612 (SEE ITEM 3)
REPORTING
--------------------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER: 0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY 4,415,612 (SEE ITEM 3)
REPORTING PERSON:
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [_]
SHARES:
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 24% (SEE
ITEM 3)
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14 TYPE OF REPORTING PERSON: CO
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<PAGE>
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CUSIP No. 570907105 13D Page 3 of 14
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1 NAME OF REPORTING PERSON: GENERAL ELECTRIC CAPITAL SERVICES,
INC.
S.S. OR I.R.S. IDENTIFICATION NO. 06-1109503
OF ABOVE PERSON:
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [_]
(B) [X]
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3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS: NOT APPLICABLE
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [X]
PURSUANT TO ITEM 2(d) OR 2(e):
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF DELAWARE
ORGANIZATION:
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER: DISCLAIMED (SEE 11 BELOW)
SHARES
--------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER: 0
OWNED BY
--------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER: DISCLAIMED (SEE 11 BELOW)
REPORTING
--------------------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER: 0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY BENEFICIAL OWNERSHIP OF ALL
REPORTING PERSON: SHARES DISCLAIMED BY
GENERAL ELECTRIC CAPITAL
SERVICES, INC.
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [_]
SHARES:
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): NOT
APPLICABLE
(SEE 11
ABOVE)
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON: CO
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<PAGE>
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CUSIP No. 570907105 13D Page 4 of 14
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- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON: GENERAL ELECTRIC COMPANY
S.S. OR I.R.S. IDENTIFICATION NO. 14-0689340
OF ABOVE PERSON:
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [_]
(B) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS: NOT APPLICABLE
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [X]
PURSUANT TO ITEM 2(d) OR 2(e):
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF NEW YORK
ORGANIZATION:
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER: DISCLAIMED (SEE 11 BELOW)
SHARES
--------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER: 0
OWNED BY
--------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER: DISCLAIMED (SEE 11 BELOW)
REPORTING
--------------------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER: 0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY BENEFICIAL OWNERSHIP OF ALL
REPORTING PERSON: SHARES DISCLAIMED BY
GENERAL ELECTRIC COMPANY
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [_]
SHARES:
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): NOT
APPLICABLE
(SEE 11
ABOVE)
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14 TYPE OF REPORTING PERSON: CO
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<PAGE>
ITEM 1. SECURITY AND ISSUER.
This statement relates to the Common Stock, par value $.01 per share
("Common Stock"), of Marketing Services Group, Inc., a Nevada corporation (the
"Company"). The principal executive offices of the Company are located at 333
Seventh Avenue, 20th Floor, New York, New York 10001.
ITEM 2. IDENTITY AND BACKGROUND.
This statement is filed by General Electric Capital Corporation, a
New York corporation ("GE Capital"), for and on behalf of itself, General
Electric Capital Services, Inc. ("GECS") and General Electric Company ("GE").
GECS is a wholly-owned subsidiary of GE, and GE Capital is a subsidiary of GECS.
GE Capital, together with its affiliates, operates primarily in the financing
industry and, to a lesser degree, in the life insurance and property/casualty
insurance industries and maintains its principal executive offices at 260 Long
Ridge Road, Stamford, Connecticut 06927.
GECS is a Delaware corporation with its principal executive offices
located at 260 Long Ridge Road, Stamford, Connecticut 06927. GECS is a holding
company which owns all the common stock of GE Capital and other subsidiaries. GE
is a New York corporation with its principal executive offices located at 3135
Easton Turnpike, Fairfield, Connecticut 06431. GE engages in providing a wide
variety of industrial, commercial and consumer products and services.
ITEMS 2(A), (B) AND (C)
For information with respect to the identity and background of each
executive officer and director of GE Capital, GECS and GE see Schedules I, II
and III attached hereto, respectively.
This statement is being filed while GE Capital, GECS and GE are in
the process of verifying information required herein from their respective
executive officers and directors. If GE Capital, GECS or GE obtains information
which would cause a change in the information contained herein, an amendment to
this statement will be filed that will set forth such change in information.
5
<PAGE>
ITEMS 2(D) AND (E)
Except as set forth in Schedule IV hereto, during the last five
years none of GE Capital, GECS, GE, nor, to the best of their knowledge, any of
their directors or executive officers has been (i) convicted of any criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to federal or state securities laws or finding any
violation with respect to such laws.
ITEM 2(F)
To the knowledge of GE Capital, GECS and GE, all of their executive
officers and directors are U.S. citizens, except that (i) Paolo Fresco, Vice
Chairman of the Board and an executive officer of GE and a director of GE
Capital and GECS, is an Italian citizen, (ii) Claudio X. Gonzalez, a director of
GE, is a Mexican citizen, (iii) Kaj Ahlmann, an executive officer and a director
of GECS is a Danish citizen, and (iv) Nigel Andrews, an executive officer of
GECS and GE Capital and a director of GECS and GE Capital, is a UK citizen.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
On December 24, 1997, the Company and GE Capital entered into a
Purchase Agreement (the "Purchase Agreement") providing for the purchase on that
day by GE Capital of (i) 50,000 shares of Series D convertible preferred stock,
par value $.01 per share, of the Company (the "Convertible Preferred Stock"),
and (ii) Warrants (the "Warrants" and, together with the Convertible Preferred
Stock, the "Securities") to purchase up to 10,670,000 shares (subject to (i)
antidilution adjustments, and (ii) reduction or cancellation based on the
Company's meeting certain financial goals set forth in the Warrants or its
engaging in a public offering of the Common Stock, which offering meets certain
criteria) of the Common Stock, all for an aggregate purchase price of
$15,000,000. The Common Stock reported herein as being beneficially owned by GE
Capital is beneficially owned through GE Capital's ownership of the Convertible
Preferred Stock. The Convertible Preferred Stock is convertible into shares of
Common Stock at a conversion rate which currently is equal to 88.31224,
resulting in the beneficial ownership by GE Capital of 4,415,612 shares of
Common Stock. On an as-converted basis, the Convertible Preferred Stock
represents approximately 24% of the issued and outstanding shares of Common
Stock. However, such shares of Convertible Preferred Stock have
6
<PAGE>
not been converted. A copy of the Purchase Agreement is attached hereto as
Exhibit 1. The funds used to purchase the Securities were obtained by GE Capital
from working capital.
ITEM 4. PURPOSE OF TRANSACTION.
GE Capital purchased the Securities from the Company as an
investment and holds them in the ordinary course of business and not with the
purpose or effect of changing the control of the Company.
GE Capital intends to review its investment in the Securities on a
regular basis and as a result thereof may, (i) at any time or from time to time,
convert all or a portion of the Convertible Preferred Stock into shares of
Common Stock, (ii) after such time as any of the Warrants become exercisable,
exercise such Warrants in whole or in part, or (iii) at any time or from time to
time, dispose of all or a portion of the shares of Convertible Preferred Stock
or Warrants (or shares of Common Stock issuable upon conversion or exercise
thereof) owned by it. Any such acquisition or disposition would be made in
compliance with all applicable laws and regulations.
The Certificate of Designation for the Convertible Preferred Stock
(the "Certificate of Designation") provides that, subject to certain rights of
GE Capital described below, so long as at least 20% of the shares of Convertible
Preferred Stock issued pursuant to the Purchase Agreement remain outstanding,
(i) the board of directors of the Company will consist of eight directors, (ii)
the holders of the Convertible Preferred Stock will have the exclusive right,
voting separately as a single class, to elect two directors of the Company (the
"Convertible Preferred Directors"), and (iii) the holders of the Convertible
Preferred Stock will have the right, voting together with the holders of the
Common Stock, to elect six directors of the Company.
In addition to the rights described above, upon the occurrence of an
Event of Default (as defined in the Purchase Agreement), or if the Company fails
to redeem all of the outstanding shares of Convertible Preferred Stock on
December 24, 2003, the holders of shares of Convertible Preferred Stock will
have the exclusive right, voting separately as a single class, to, in each case,
elect one additional director of the Company (each, an "Additional Director"),
and, in each case, one of the directors elected in accordance with clause (iii)
above will resign or be removed without cause.
7
<PAGE>
If any Convertible Preferred Director or Additional Director ceases
to serve as a director of the Company for any reason, the vacancy resulting
thereby may be filled by the remaining director(s) elected by the holders of the
Convertible Preferred Stock or by the holders of the Convertible Preferred
Stock. In addition, a majority of the holders of the Convertible Preferred Stock
may remove either Convertible Preferred Director and any Additional Director
with or without cause, at any time.
On December 24, 1997, GE Capital entered into a Stockholders
Agreement with the Company and certain of its existing stockholders (the
"Stockholders Agreement"). Pursuant to the Stockholders Agreement, GE Capital
has the right to participate in certain sales, transfers or other dispositions
by Existing Stockholders (as defined in the Stockholders Agreement) to third
parties. In addition, GE Capital has a preemptive right to purchase shares of
New Securities (as defined in the Stockholders Agreement) from the Company.
Except as set forth above, neither GE Capital, GECS nor GE has any
plans or proposals which relate to or would result in the types of transactions
set forth in subparagraphs (a) through (j) of Item 4.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) The aggregate number and percentage of Common Stock beneficially
owned by GE Capital are 4,415,612 and approximately 24%, respectively.
Except as disclosed in this Item 5(a) and in Item 3 above, none of
GE Capital, GECS, GE, nor, to the best of their knowledge, any of their
executive officers and directors, beneficially owns any securities of the
Company or presently has a right to acquire any securities of the Company.
(b) GE Capital would have the sole power to vote or direct the
voting of the Common Stock upon conversion of the Convertible Preferred Stock.
Except as described in this Item 5(b) and in Item 3 above, none of
GE Capital, GECS, GE, nor to the best of their knowledge, any of their executive
officers or directors presently has the power to vote or to direct the vote or
to dispose or direct the disposition of any of the securities which they may be
deemed to beneficially own.
8
<PAGE>
(c) Except as set forth above, neither GE Capital, GECS, GE, nor, to
the best of their knowledge, any of their executive officers or directors, has
effected any transaction in any securities of the Company during the past 60
days.
(d) No person except for GE Capital is known to have the right to
receive or the power to direct the receipt of dividends from, or the proceeds
from the sale of, securities covered by this statement.
(e) Not applicable.
Neither the filing of this Schedule 13D nor anything contained
herein is intended as, or should be construed as, an admission that GECS or GE
is the "beneficial owner" of any shares of Common Stock, Convertible Preferred
Stock or Warrants.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR
RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.
Pursuant to the Certificate of Designation, the Convertible
Preferred Stock is convertible into fully paid and nonassessable shares of
Common Stock, (i) at the option of the respective holders thereof, at any time
prior to the close of business on the business day prior to a day on which any
shares of Convertible Preferred Stock are redeemed by the Company and (ii) by
the Company at any time after the Current Market Price (as defined in the
Certificate of Designation) equals or exceeds $8.75 per share (subject to
adjustment) for 20 of 30 business days, and upon the occurrence of a Qualified
Secondary Offering (as defined in the Certificate of Designation). One share of
Convertible Preferred Stock shall be convertible into the number of shares of
Common Stock, subject to adjustment as described in the Certificate of
Designation, equal to 88.31224 shares of Common Stock. In addition, the
Convertible Preferred Stock is redeemable (i) by the Company on December 24,
2003, and (ii) at the option of the respective holders thereof, upon the
occurrence of an Organic Change (as defined in the Certificate of Designation).
Pursuant to the Purchase Agreement, GE Capital purchased 50,000
newly-issued shares of Convertible Preferred Stock, and 10,670,000 (subject to
reduction) Warrants, for an aggregate consideration of $15,000,000. In addition,
GE Capital has agreed that, without the approval of the Company's board of
directors, it will not, at any time, increase its ownership of Common Stock in
excess of 49.99% of the outstanding Common Stock.
9
<PAGE>
On December 24, 1997, GE Capital entered into a Registration Rights
Agreement with the Company ("Registration Rights Agreement"). Pursuant to the
Registration Rights Agreement, GE Capital, or its transferees, may make a
written request of the Company for registration with the Securities and Exchange
Commission, under and in accordance with the provisions of the Securities Act of
1933, as amended, of all or part of their registrable securities, which include
the Common Stock (a "Demand Registration"). The Company shall not be required to
file a registration statement in connection with such Demand Registration on or
prior to the earlier of January 1, 2000 or the consummation of a Secondary
Offering (as defined in the Registration Rights Agreement). GE Capital (or its
transferees given such right by GE Capital) shall be entitled to two (2) Demand
Registrations, as well as an unlimited number of short-form and "piggy back"
registrations.
Pursuant to the Stockholders Agreement, GE Capital has the right to
participate in certain sales, transfers or other dispositions by Existing
Stockholders (as defined in the Stockholders Agreement) to third parties. In
addition, GE Capital has a right of first refusal to purchase shares of New
Securities (as defined in the Stockholders Agreement) from the Company.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Purchase Agreement by and among the Company and GE Capital,
dated as of December 24, 1997.
Exhibit 2 Stockholders Agreement by and among the Company, GE Capital
and certain existing stockholders of the Company, dated as of
December 24, 1997.
Exhibit 3 Registration Rights Agreement by and among the Company and
GE Capital, dated as of December 24, 1997.
Exhibit 4 Form of Certificate of Designation, Preferences and
Relative, Participating, Optional and Other Special Rights of
Preferred Stock and Qualifications, Limitations and
Restrictions Thereof for the Series D Convertible Preferred
Stock.
Exhibit 5 Warrant, dated as of December 24, 1997, to purchase shares
of Common Stock of the Company.
10
<PAGE>
Exhibit 6 Joint Filing Agreement by and among GE, GECS and GE Capital,
dated December 30, 1997.
11
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete and
correct.
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Michael E. Pralle
----------------------------------
Name: Michael E. Pralle
Title: Vice President
Dated: December 30, 1997
12
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete and
correct.
GENERAL ELECTRIC CAPITAL SERVICES, INC.
By: /s/ Michael E. Pralle
-------------------------------------
Name: Michael E. Pralle
Title: Attorney-in-Fact
Dated: December 30, 1997
13
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete and
correct.
GENERAL ELECTRIC COMPANY
By: /s/ Michael E. Pralle
------------------------------
Name: Michael E. Pralle
Title: Attorney-in-fact
Dated: December 30, 1997
14
<PAGE>
SCHEDULE I TO SCHEDULE 13D
--------------------------
Filed by General Electric Capital Corporation
GENERAL ELECTRIC CAPITAL CORPORATION
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
<TABLE>
<CAPTION>
NAME PRESENT PRESENT
- ---- BUSINESS PRINCIPAL
ADDRESS OCCUPATION
------- ----------
Directors
- ---------
<S> <C> <C>
Nigel D.T. Andrews General Electric Capital Executive Vice President,
Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
Nancy E. Barton General Electric Capital Senior Vice President,
Corporation General Counsel and
260 Long Ridge Road Secretary, General Electric
Stamford, CT 06927 Capital Corporation
James R. Bunt General Electric Company Vice President and
3135 Easton Turnpike Comptroller, General
Fairfield, CT 06431 Electric Company
David M. Cote General Electric Appliances President and Chief
Appliance Park Executive Officer, General
Louisville, KY 40225 Electric Appliances
Dennis D. Dammerman General Electric Company Senior Vice President-
3135 Easton Turnpike Finance and Chief Financial
Fairfield, CT 06431 Officer, General Electric
Company
Paolo Fresco General Electric Company Vice Chairman and Executive
3135 Easton Turnpike Officer, General Electric
Fairfield, CT 06431 Company
Benjamin W. Heineman, General Electric Company Senior Vice President,
Jr. 3135 Easton Turnpike General Counsel and
Fairfield, CT 06431 Secretary, General Electric
Company
Jeffrey R. Immelt General Electric Medical President and Chief
Systems Executive Officer, General
3000 N. Grandview Boulevard Electric Medical Systems
Waukesha, WI 53188
W. James McNerney, GE Aircraft Engines President and Chief
Jr. One Neumann Way Executive Officer, GE
Cincinnati, OH 45215-6301 Aircraft Engines
John H. Myers GE Investment Corporation Chairman and President, GE
3003 Summer Street Investment Corporation
Stamford, CT 06904
<PAGE>
NAME PRESENT PRESENT
- ---- BUSINESS PRINCIPAL
ADDRESS OCCUPATION
------- ----------
Directors
- ---------
Robert L. Nardelli General Electric Company President and Chief
One River Road Executive Officer, GE Power
Schenectady, NY 12345 Systems
Denis J. Nayden General Electric Capital President and Chief
Corporation Operating Officer, General
260 Long Ridge Road Electric Capital
Stamford, CT 06927 Corporation
Michael A. Neal General Electric Capital Executive Vice President,
Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
James A. Parke General Electric Capital Senior Vice President,
Corporation Finance, General Electric
260 Long Ridge Road Capital Corporation
Stamford, CT 06927
John M. Samuels General Electric Company Vice President and Senior
3135 Easton Turnpike Counsel, Corporate Taxes,
Fairfield, CT 06431 General Electric Company
Edward D. Stewart General Electric Capital Executive Vice President,
Corporation General Electric Capital
1600 Summer Street Corporation
Stamford, CT 06927
John F. Welch, Jr. General Electric Company Chairman and Chief
3135 Easton Turnpike Executive Officer, General
Fairfield, CT 06431 Electric Company
Gary C. Wendt General Electric Capital Chairman and Chief
Corporation Executive Officer,
260 Long Ridge Road General Electric Capital
Stamford, CT 06927 Corporation
Officers
- --------
Gary C. Wendt General Electric Capital Chairman of the Board and
Corporation Chief Executive Officer
260 Long Ridge Road
Stamford, CT 06927
Denis J. Nayden General Electric Capital President and Chief
Corporation Operating Officer
260 Long Ridge Road
Stamford, CT 06927
Nigel D. T. Andrews General Electric Capital Executive Vice President
Corporation
260 Long Ridge Road
Stamford, CT 06927
<PAGE>
NAME PRESENT PRESENT
- ---- BUSINESS PRINCIPAL
ADDRESS OCCUPATION
------- ----------
Michael A. Neal General Electric Capital Executive Vice President
Corporation
260 Long Ridge Road
Stamford, CT 06927
Edward D. Stewart General Electric Capital Executive Vice President
Corporation
260 Long Ridge Road
Stamford, CT 06927
Nancy E. Barton General Electric Capital Senior Vice President,
Corporation General Counsel and
260 Long Ridge Road Secretary
Stamford, CT 06927
James A. Colica General Electric Capital Senior Vice President,
Corporation Global Risk Management
260 Long Ridge Road
Stamford, CT 06927
Michael D. Fraizer General Electric Capital Senior Vice President,
Corporation Insurance/Investment
6604 West Broad Street Products
Taylor Building
Richmond, VA 23230
Robert L. Lewis General Electric Capital Senior Vice President,
Corporation Structured Finance Group
1600 Summer Street
6th Floor
Stamford, CT 06905
James A. Parke General Electric Capital Senior Vice President,
Corporation Finance
260 Long Ridge Road
Stamford, CT 06927
Todd S. Thomson General Electric Capital Senior Vice President,
Corporation Strategic Planning and
260 Long Ridge Road Business Development
Stamford, CT 06927
Lawrence J. Toole General Electric Capital Senior Vice President,
Corporation Human Resources
260 Long Ridge Road
Stamford, CT 06927
Jeffrey S. Werner General Electric Capital Senior Vice President,
Corporation Corporate Treasury and
201 High Ridge Road Global Funding Operation
Stamford, CT 06927
</TABLE>
<PAGE>
SCHEDULE II TO SCHEDULE 13D
---------------------------
Filed by General Electric Capital Services, Inc.
GENERAL ELECTRIC CAPITAL SERVICES, INC.
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
<TABLE>
<CAPTION>
NAME PRESENT PRESENT
- ---- BUSINESS PRINCIPAL
ADDRESS OCCUPATION
------- ----------
Directors
- ---------
<S> <C> <C>
Kaj Ahlmann Employers Reinsurance Corp. Executive Vice President,
5200 Metcalf General Electric Capital
Overland Park, KS 66201 Services, Inc., President
and Chief Operating
Officer, Employers
Reinsurance Corp.
Nigel D.T. Andrews General Electric Capital Executive Vice President,
Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
James R. Bunt General Electric Company Vice President and
3135 Easton Turnpike Comptroller, General
Fairfield, CT 06431 Electric Company
Dennis D. Dammerman General Electric Company Senior Vice President-
3135 Easton Turnpike Finance, General Electric
Fairfield, CT 06431 Company
Paolo Fresco General Electric Company Vice Chairman and Executive
3135 Easton Turnpike Officer, General Electric
Fairfield, CT 06431 Company
Benjamin W. Heineman, General Electric Company Senior Vice President,
Jr. 3135 Easton Turnpike General Counsel and
Fairfield, CT 06431 Secretary, General Electric
Company
John H. Myers GE Investment Corporation Chairman and President, GE
3003 Summer Street Investment Corporation
Stamford, CT 06904
Robert L. Nardelli General Electric Company President and Chief
One River Road Executive Officer, GE Power
Schenectady, NY 12345 Systems
Denis J. Nayden General Electric Capital President and Chief
Corporation Operating Officer, General
260 Long Ridge Road Electric Capital
Stamford, CT 06927 Corporation
Michael A. Neal General Electric Capital Executive Vice President,
Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
<PAGE>
NAME PRESENT PRESENT
- ---- BUSINESS PRINCIPAL
ADDRESS OCCUPATION
------- ----------
John M. Samuels General Electric Company Vice President and Senior
3135 Easton Turnpike Counsel, Corporate Taxes,
Fairfield, CT 06431 General Electric Company
Edward D. Stewart General Electric Capital Executive Vice President,
Corporation General Electric Capital
260 Long Ridge Road Corporation
Stamford, CT 06927
John F. Welch, Jr. General Electric Company Chairman and Chief
3135 Easton Turnpike Executive Officer, General
Fairfield, CT 06431 Electric Company
Gary C. Wendt General Electric Capital Chairman of the Board,
Services, Inc. President and Chief
260 Long Ridge Road Executive Officer, General
Stamford, CT 06927 Electric Capital Services,
Inc.
Officers
- --------
Gary C. Wendt General Electric Capital Chairman, President and
Services, Inc. Chief Executive Officer,
260 Long Ridge Road General Electric Capital
Stamford, CT 06927 Services, Inc.
Kaj Ahlmann Employers Executive Vice President,
Reinsurance Corp. General Electric Capital
5200 Metcalf Services, Inc., President
Overland Park, KS 66201 and Chief Operating
Officer, Employers
Reinsurance Corp.
Nigel D. T. Andrews General Electric Capital Executive Vice President
Corporation See Schedule I.
260 Long Ridge Road
Stamford, CT 06927
Denis J. Nayden General Electric Capital President and Chief
Corporation Operating Officer
260 Long Ridge Road See Schedule I.
Stamford, CT 06927
Michael A. Neal General Electric Capital Executive Vice President
Corporation See Schedule I.
260 Long Ridge Road
Stamford, CT 06927
Edward D. Stewart General Electric Capital Executive Vice President
Corporation See Schedule I.
260 Long Ridge Road
Stamford, CT 06927
<PAGE>
NAME PRESENT PRESENT
- ---- BUSINESS PRINCIPAL
ADDRESS OCCUPATION
------- ----------
Nancy E. Barton General Electric Capital Senior Vice President,
Corporation General Counsel and
260 Long Ridge Road Secretary
Stamford, CT 06927 See Schedule I.
James A. Parke General Electric Capital Senior Vice President,
Corporation Finance
260 Long Ridge Road See Schedule I.
Stamford, CT 06927
Lawrence J. Toole General Electric Capital Senior Vice President,
Corporation Human Resources
260 Long Ridge Road See Schedule I.
Stamford, CT 06927
Jeffrey S. Werner General Electric Capital Senior Vice President,
Corporation Corporate Treasury and
201 High Ridge Road Global Funding Operation
Stamford, CT 06927 See Schedule I.
</TABLE>
<PAGE>
SCHEDULE III TO SCHEDULE 13D
----------------------------
Filed by General Electric Company
GENERAL ELECTRIC COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
<TABLE>
<CAPTION>
NAME PRESENT PRESENT
- ---- BUSINESS PRINCIPAL
ADDRESS OCCUPATION
------- ----------
Directors
- ---------
<S> <C> <C>
D.W. Calloway Pepsico, Inc. Retired Director and
700 Anderson Hill Road Chairman of the Board,
Purchase, NY 10577 Pepsico, Inc.
J.I. Cash, Jr. Harvard Business School Professor of Business
Baker Library 187 Administration-Graduate
Soldiers Field School of Business
Boston, MA 02163 Administration, Harvard
University
S.S. Cathcart 222 Wisconsin Avenue Director and Retired
Suite 103 Chairman, Illinois
Lake Forest, IL 60045 Tool Works
D.D. Dammerman General Electric Company Senior Vice President-
3135 Easton Turnpike Finance, General Electric
Fairfield, CT 06431 Company
P. Fresco General Electric Company Vice Chairman of the Board
(U.S.A.) and Executive Officer,
3 Shortlands, General Electric Company
Hammersmith
London, W6 SBX,
England
C.X. Gonzalez Kimberly-Clark de Mexico, Chairman of the Board and
S.A. de C.V. Chief Executive Officer,
Jose Luis Lagrange Kimberly-Clark de Mexico,
103, Tercero Piso S.A. de C.V.
Colonia Los Morales
Mexico, D.F. 11510,
Mexico
G.G. Michelson Federated Department Stores Former Member of the Board
151 West 34th Street of Directors, Federated
New York, NY 10001 Department Stores
E.F. Murphy General Electric Company Vice Chairman of the Board
3135 Easton Turnpike and Executive Officer,
Fairfield, CT 06431 General Electric Company
S. Nunn King & Spalding Partner, King & Spalding
191 Peachtree Street, N.E.
Atlanta, GA 30303
<PAGE>
NAME PRESENT PRESENT
- ---- BUSINESS PRINCIPAL
ADDRESS OCCUPATION
------- ----------
J.D. Opie General Electric Company Vice Chairman of the Board
3135 Easton Turnpike and Executive Officer,
Fairfield, CT 06431 General Electric Company
R.S. Penske Penske Corporation Chairman of the Board and
13400 Outer Drive, West President, Penske
Detroit, MI 48239-4001 Corporation
B.S. Prelskel Suite 3125 Former Senior Vice
60 East 42nd Street President, Motion Picture
New York, NY 10165 Association of America
F.H.T. Rhodes Cornell University President Emeritus,
3104 Snee Building Cornell University
Ithaca, NY 14853
A.C. Sigler Champion International Retired Chairman of the
Corporation Board, CEO and former
1 Champion Plaza Director, Champion
Stamford, CT 06921 International Corporation
D.A. Warner III J.P. Morgan & Co., Inc. and Chairman of the Board,
Guaranty Trust Co. President, and Chief
60 Wall Street Executive Officer, J.P.
New York, NY 10260 Morgan & Co. Incorporated
and Morgan Guaranty Trust
Company
J.F. Welch, Jr. General Electric Company Chairman of the Board and
3135 Easton Turnpike Chief Executive Officer,
Fairfield, CT 06431 General Electric Company
Executive Officers
- ------------------
J.F. Welch, Jr. General Electric Company Chairman of the Board and
3135 Easton Turnpike Chief Executive Officer
Fairfield, CT 06431
P. Fresco General Electric Company Vice Chairman of the Board
(U.S.A.) and Executive Officer
3 Shortlands, Hammersmith
London, W6 SBX, England
P.D. Ameen General Electric Company Vice President and
3135 Easton Turnpike Comptroller
Fairfield, CT 06431
J.R. Bunt General Electric Company Vice President and
3135 Easton Turnpike Treasurer
Fairfield, CT 06431
D.L. Calhoun General Electric Company Senior Vice President -
Nela Park GE Lighting
Cleveland, OH 44122
<PAGE>
NAME PRESENT PRESENT
- ---- BUSINESS PRINCIPAL
ADDRESS OCCUPATION
------- ----------
W.J. Conaty General Electric Company Senior Vice President -
3135 Easton Turnpike Human Resources
Fairfield, CT 06431
D.M. Cote General Electric Company Senior Vice President - GE
3135 Easton Turnpike Appliances
Fairfield, CT 06431
D.D. Dammerman General Electric Company Senior Vice President -
3135 Easton Turnpike Finance
Fairfield, CT 06431
L.S. Edelheit General Electric Company Senior Vice President -
P.O. Box 8 Corporate Research and
Schenectady, NY 12301 Development
B.W. Heineman, Jr. General Electric Company Senior Vice President -
3135 Easton Turnpike General Counsel and
Fairfield, CT 06431 Secretary
J.R. Immelt General Electric Company Senior Vice President - GE
P.O. Box 414 Medical Systems
Milwaukee, WI 53201
W.J. Lansing General Electric Company Vice President - Corporate
3135 Easton Turnpike Business Development
Fairfield, CT 06431
W.J. McNerney, Jr. General Electric Company Senior Vice President - GE
1 Neumann Way Aircraft Engines
Cincinnati, OH 05215
E.F. Murphy General Electric Company Vice Chairman of the Board
3135 Easton Turnpike and Executive Officer
Fairfield, CT 06431
R.L. Nardelli General Electric Company Senior Vice President - GE
1 River Road Power Systems
Schenectady, NY 12345
R.W. Nelson General Electric Company Vice President - Corporate
3135 Easton Turnpike Financial Planning and
Fairfield, CT 06431 Analysis
J.D. Opie General Electric Company Vice Chairman of the Board
3135 Easton Turnpike and Executive Officer
Fairfield, CT 06431
G.M. Reiner General Electric Company Senior Vice President -
3135 Easton Turnpike Chief Information
Fairfield, CT 06431 Officer
G.L. Rogers General Electric Company Senior Vice President - GE
1 Plastics Avenue Plastics
Pittsfield, MA 01201
<PAGE>
NAME PRESENT PRESENT
- ---- BUSINESS PRINCIPAL
ADDRESS OCCUPATION
------- ----------
J.W. Rogers General Electric Company Vice President - GE Motors
1635 Broadway
Fort Wayne, IN 46801
L.G. Trotter General Electric Company Vice President - GE
41 Woodward Avenue Electrical Distribution and
Plainville, CT 06062 Control
</TABLE>
<PAGE>
SCHEDULE IV TO SCHEDULE 13D
---------------------------
United States ex rel. Taxpayers Against Fraud and Chester L. Walsh v. General
Electric Company
- -----------------------------------------------------------------------------
1. On November 15, 1990, an action under the federal False Claims
Act 31 U.S.C. Sections 3729-32, was filed under seal against GE in the United
States District Court for the Southern District of Ohio. The qui tam action,
brought by an organization called Taxpayers Against Fraud and an employee of
GE's Aircraft Engines division ("GEAE"), alleged that GEAE, in connection with
its sales of F110 aircraft engines and support equipment to Israel, made false
statements to the Israeli Ministry of Defense ("MoD"), causing MoD to submit
false claims to the United States Department of Defense under the Foreign
Military Sales Program. Senior GE management became aware of possible misconduct
in GEAE's Israeli F110 program in December 1990. Before learning of the sealed
qui tam suit, GE immediately made a voluntary disclosure to the Departments of
Defense and Justice, promised full cooperation and restitution, and began an
internal investigation. In August 1991, the federal court action was unsealed,
and the Department of Justice intervened and took over responsibility for the
case.
On July 22, 1992, after GE had completed its investigation and made
a complete factual disclosure to the U.S. government as part of settlement
discussions, the United States and GE executed a settlement agreement and filed
a stipulation dismissing the civil action. Without admitting or denying the
allegations in the complaint, GE agreed to pay $59.5 million in full settlement
of the civil fraud claims. Also on July 22, 1992, in connection with the same
matter, the United States filed a four count information charging GE with
violations of 18 U.S.C. Section 287 (submitting false claims against the United
States), 18 U.S.C. Section 1957 (engaging in monetary transactions in criminally
derived property), and 15 U.S.C. Sections 78m(b)(2)(A) and 78ff(a) (inaccurate
books and records), and 18 U.S.C. Section 371 (conspiracy to defraud the United
States and to commit offenses against the United States). The same day, GE and
the United States entered a plea agreement in which GE agreed to waive
indictment, plead guilty to the information, and pay a fine of $9.5 million. GE
was that day sentenced by the federal court in accordance with the plea
agreement.
2. Her Majesty's Inspectorate of Pollution v. IGE Medical Systems
Limited (St. Albans Magistrates Court, St. Albans, Hertsfordshire, England, Case
No. 04/00320181).
<PAGE>
EXHIBIT INDEX
Exhibit No.
- -----------
Exhibit 1 Purchase Agreement by and among the Company and GE Capital,
dated as of December 24, 1997.
Exhibit 2 Stockholders Agreement by and among the Company, GE Capital
and certain existing stockholders of the Company, dated as of
December 24, 1997.
Exhibit 3 Registration Rights Agreement by and among the Company and
GE Capital, dated as of December 24, 1997.
Exhibit 4 Form of Certificate of Designation, Preferences and
Relative, Participating, Optional and Other Special Rights of
Preferred Stock and Qualifications, Limitations and
Restrictions Thereof for the Series D Convertible Preferred
Stock.
Exhibit 5 Warrant, dated as of December 24, 1997, to purchase shares
of Common Stock of the Company.
Exhibit 6 Joint Filing Agreement by and among GE, GECS and GE Capital,
dated December 30, 1997.
- --------------------------------------------------------------------------------
PURCHASE AGREEMENT
dated as of December 24, 1997
by and between
MARKETING SERVICES GROUP, INC.
and
GENERAL ELECTRIC CAPITAL CORPORATION
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PURCHASE AGREEMENT
Section Page
I. DEFINITIONS.................................................... 1
II. THE PURCHASE OF CONVERTIBLE PREFERRED STOCK................... 11
2.1. Authorization of Issue............................ 11
2.2. Purchase of Convertible Preferred Stock
and Warrants...................................... 11
2.3. Closing........................................... 12
2.4. Use of Proceeds................................... 12
2.5. Tax Allocation.................................... 12
III. PURCHASER'S REPRESENTATIONS AND COVENANTS.................... 13
3.1. Investment Intention.............................. 13
3.2. Accredited Investor............................... 13
3.3. Corporate Existence............................... 13
3.4. Corporate Power; Authorization;
Enforceable Obligations........................... 13
3.5. Purchaser Covenants............................... 14
IV. COMPANY'S REPRESENTATIONS AND WARRANTIES...................... 14
4.1. Authorized and Outstanding Shares of
Capital Stock..................................... 14
4.2. Authorization and Issuance of Convertible
Preferred Stock................................... 15
4.3. Securities Laws................................... 15
4.4. Corporate Existence; Compliance with Law.......... 16
4.5. Subsidiaries...................................... 16
4.6. Corporate Power; Authorization;
Enforceable Obligations........................... 17
4.7. Financial Statements.............................. 18
4.8. Ownership of Property............................. 18
4.9. Material Contracts; Indebtedness.................. 19
4.10. Environmental Protection.......................... 20
4.11. Labor Matters..................................... 21
4.12. Other Ventures.................................... 22
4.13. Taxes ............................................ 22
4.14. No Litigation..................................... 23
4.15. Brokers........................................... 23
4.16. Employment and Labor Agreements................... 23
4.17. Patents, Trademarks, Copyrights and
Licenses.......................................... 23
4.18. No Material Adverse Effect........................ 24
i
<PAGE>
Section Page
4.19. ERISA ............................................ 24
4.20. SEC Documents..................................... 27
4.21. Ordinary Course of Business....................... 27
4.22. Insurance......................................... 27
4.23. Accounts Receivable............................... 28
4.24. Minute Books...................................... 28
4.25. Year 2000 Systems................................. 28
4.26. Full Disclosure................................... 28
V. COVENANTS...................................................... 28
5.1. Affirmative and Financial Covenants............... 28
(a) Books and Records............................ 29
(b) Financial and Business Information........... 29
(c) Communication with Accountants............... 31
(d) Tax Compliance............................... 31
(e) Insurance.................................... 31
(f) Employee Plans............................... 32
(g) Compliance with Law.......................... 33
(h) Financial Covenants.......................... 33
(i) Maintenance of Existence and Conduct
of Business.................................. 33
(j) Access....................................... 34
(k) Excess Cash.................................. 34
(l) Exchange of Stock Certificates............... 34
(m) Lost, Stolen, Destroyed or Mutilated
Stock Certificates........................... 34
(n) NASDAQ....................................... 35
5.2. Negative Covenants................................ 35
(a) Permitted Acquisitions or
Investments.................................. 35
(b) Sales of Assets; Liquidation................. 35
(c) Agreements................................... 36
(d) Employee Loans............................... 36
(e) Capital Stock................................ 36
(f) Transactions with Affiliates................. 36
(g) Indebtedness................................. 37
(h) Restricted Payments.......................... 37
(i) Mergers and Subsidiaries..................... 37
(j) Management Compensation...................... 37
(k) Amendments to Certificate of
Incorporation and By-Laws.................... 38
(l) Capital Expenditures......................... 38
5.3. Remedies for Breach of Covenants.................. 38
5.4. Certain Tax Matters............................... 38
5.5. Status of Dividends............................... 40
ii
<PAGE>
Section Page
VI. CONDITIONS PRECEDENT........................................ 41
6.1. Conditions Precedent.............................. 41
6.2. Additional Conditions to Closing.................. 42
VII. SECURITIES LAW MATTERS.......................................43
7.1. Legends........................................... 43
VIII. INDEMNIFICATION............................................. 43
IX. EXPENSES.................................................... 44
X. MISCELLANEOUS............................................... 44
10.1. Notices.......................................... 44
10.2. Binding Effect; Benefits......................... 45
10.3. Amendment........................................ 45
10.4. Successors and Assigns; Assignability............ 46
10.5. Remedies......................................... 46
10.6. Section and Other Headings....................... 47
10.7. Severability..................................... 47
10.8. Counterparts..................................... 47
10.9. Publicity........................................ 47
10.10. Governing Law.................................... 47
iii
<PAGE>
Schedules
Schedule 4.1 - Stock and Warrants
Schedule 4.5 - Subsidiaries
Schedule 4.7 - Financial Statements; Other Obligations
Schedule 4.8 - Properties
Schedule 4.9 - Material Contracts and Indebtedness
Schedule 4.10 - Environmental Matters
Schedule 4.12 - Other Ventures
Schedule 4.13 - Taxes
Schedule 4.14 - Litigation
Schedule 4.15 - Brokers
Schedule 4.16 - Employment Contracts
Schedule 4.17 - Patents, Trademarks, Etc.
Schedule 4.18 - Material Adverse Effect
Schedule 4.19 - ERISA
Schedule 4.22 - Insurance
Exhibits
Exhibit A Certificate of Designation - Convertible
Preferred Stock
Exhibit B Registration Rights Agreement
Exhibit C Stockholders Agreement
Exhibit D Form of Warrant
Exhibit E Opinion of Company Counsel
iv
<PAGE>
PURCHASE AGREEMENT
------------------
PURCHASE AGREEMENT, dated as of December 24, 1997, between
Marketing Services Group, Inc., a Nevada corporation having an office at 333
Seventh Avenue, 20th Floor, New York, New York 10001 ("Company"), and General
Electric Capital Corporation, a New York corporation having an office at 260
Long Ridge Road, Stamford, Connecticut 06927 ("GE Capital" or "Purchaser").
W I T N E S S E T H :
-------------------
WHEREAS, Company has agreed to issue and sell to Purchaser,
and Purchaser has agreed to purchase from Company, upon the terms and conditions
hereinafter provided, 50,000 shares of Company's Series D Convertible Preferred
Stock, $0.01 par value per share, the terms, preferences and limitations of
which are set forth in Exhibit A hereto (the "Convertible Preferred Stock"), and
Warrants to purchase up to 10,670,000 shares of Common Stock of Company (the
"Warrants");
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, it is agreed as follows:
I. DEFINITIONS
-----------
"Affiliate" shall mean, with respect to any Person, (i) each
Person that, directly or indirectly, owns or controls, whether beneficially, or
as a trustee, guardian or other fiduciary, 5% or more of the Stock having
ordinary voting power in the election of directors of such Person, (ii) each
Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person, (iii) each of such Person's officers,
directors, joint venturers and partners, (iv) any trust or beneficiary of a
trust of which such Person is the sole trustee or (v) any lineal descendants,
ancestors, spouse or former spouses (as part of a marital dissolution) of such
Person (or any trust for the benefit of such Person). For the purpose of this
definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by
<PAGE>
contract or otherwise. GE Capital and its Affiliates shall
not be deemed Affiliates of Company.
"Balance Sheet" shall have the meaning set forth
in Section 4.7(a) hereof.
"Business Day" shall mean any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Capital Expenditures" shall mean all payments for any fixed
assets or improvements or for replacements, substitutions or additions thereto,
that have a useful life of more than one year and which are required to be
capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any
lease of any property (whether real, personal or mixed) by such Person as lessee
that, in accordance with GAAP, either would be required to be classified and
accounted for as a capital lease on a balance sheet of such Person or otherwise
be disclosed as a capital lease in a note to such balance sheet, other than, in
the case of Company or a Subsidiary of Company, any such lease under which
Company or such Subsidiary is the lessor.
"Capital Lease Obligation" shall mean, with respect to any
Capital Lease, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease or otherwise be disclosed in a note to such balance sheet.
"Cash Equivalents" shall mean (i) marketable direct
obligations issued or unconditionally guaranteed by the United States of America
or any agency thereof maturing within one year from the date of acquisition
thereof; (ii) commercial paper maturing no more than one year from the date of
creation thereof and at the time of their acquisition having the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc.; and (iii) certificates of deposit, maturing not more than one
year from the date of creation thereof, issued by commercial banks incorporated
under the laws of the United States of America, each having combined capital,
surplus and undivided profits of not less than $200,000,000 and having a rating
of "A" or better by a nationally recognized rating agency.
2
<PAGE>
"Certificate of Designation" shall mean the Certificate of
Designation setting forth the rights and preferences of the Convertible
Preferred Stock attached as Exhibit A hereto.
"Charges" shall mean all federal, state, county, city,
municipal, local, foreign or other governmental (including, without limitation,
PBGC) taxes at the time due and payable, levies, assessments, charges, liens,
claims or encumbrances upon or relating to (i) Company's or any of its
Subsidiaries' employees, payroll, income or gross receipts, (ii) Company's or
any of its Subsidiaries' ownership or use of any of its assets, or (iii) any
other aspect of Company's or any of the Subsidiaries' business.
"Closing" shall have the meaning set forth in
Section 2.3 hereof.
"Closing Date" shall have the meaning set forth in
Section 2.3 hereof.
"COBRA" shall have the meaning set forth in
Section 4.19(m) hereof.
"Common Stock" shall mean the common stock, $.01 par value per
share, of Company.
"Company Certificate of Incorporation" shall mean
the Certificate of Incorporation of Company, as amended.
"Compensation" shall mean, with respect to any Person, all
payments and accruals commonly considered to be compensation, including, without
limitation, all wages, salary, deferred payment arrangements, bonus payments and
accruals, profit sharing arrangements, payments in respect of stock option or
phantom stock option or similar arrangements, stock appreciation rights or
similar rights, incentive payments, pension or employment benefit contributions
or similar payments, made to or accrued for the account of such Person or
otherwise for the direct or indirect benefit of such Person.
"Convertible Preferred Stock" shall have the
meaning set forth in the recitals hereto.
"Core Business" shall mean marketing information
services, including but not limited to databases, direct
3
<PAGE>
marketing, telemarketing, internet marketing and primary and
secondary research.
"Default" shall mean any event which, with the passage of time
or notice or both, would, unless cured or waived, become an Event of Default.
"EBITDA" shall mean the consolidated operating income (before
extraordinary items, interest, taxes, depreciation and amortization) of such
Person and its consolidated Subsidiaries determined in accordance with GAAP.
"Environmental Laws" shall mean all federal, state and local
laws, statutes, ordinances and regulations, now or hereafter in effect, and in
each case as amended or supplemented from time to time, and any judicial or
administrative interpretation thereof, including, without limitation, any
applicable judicial or administrative order, consent decree or judgment,
relative to the applicable Real Estate, relating to the regulation and
protection of human health, safety, the environment and natural resources
(including, without limitation, ambient air, surface water, groundwater,
wetlands, land surface or subsurface strata, wildlife, aquatic species and
vegetation). Environmental Laws include but are not limited to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. ss. 9601 et seq.) ("CERCLA"); the Hazardous Material Transportation Act,
as amended (49 U.S.C. ss. 1801 et seq.); the Federal Insecticide, Fungicide, and
Rodenticide Act, as amended (7 U.S.C. ss. 136 et seq.); the Resource
Conservation and Recovery Act, as amended (42 U.S.C. ss. 6901 et seq.) ("RCRA");
the Toxic Substance Control Act, as amended (15 U.S.C. ss. 2601 et seq.); the
Clean Air Act, as amended (42 U.S.C. ss. 740 et seq.); the Federal Water
Pollution Control Act, as amended (33 U.S.C. ss. 1251 et seq.); the Occupational
Safety and Health Act, as amended (29 U.S.C. ss. 651 et seq.) ("OSHA"); and the
Safe Drinking Water Act, as amended (42 U.S.C. ss. 300f et seq.), and any and
all regulations promulgated thereunder, and all analogous state and local
counterparts or equivalents and any transfer of ownership notification or
approval statutes.
"Environmental Liabilities and Costs" shall mean all
liabilities, obligations, responsibilities, remedial actions, losses, damages,
punitive damages, consequential damages, treble damages, costs and expenses
(including, without limitation, all fees, disbursements and expenses of
4
<PAGE>
counsel, experts and consultants and costs of investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any
claim, suit, action or demand by any person or entity, whether based in
contract, tort, implied or express warranty, strict liability, criminal or civil
statute or common law (including, without limitation, any thereof arising under
any Environmental Law, permit, order or agreement with any Governmental
Authority) and which relate to any health or safety condition regulated under
any Environmental Law or in connection with any other environmental matter or
Spill or the presence of a hazardous substance or threatened Spill of any
Hazardous Substance.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974 (or any successor legislation thereto), as amended from time to time and
any regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to Company, any
trade or business (whether or not incorporated) under common control with
Company and which, together with Company, are treated as a single employer
within the meaning of Sections 414(b), (c), (m) or (o) of the IRC, excluding
Purchaser and each other person which would not be an ERISA Affiliate if
Purchaser did not own any issued and outstanding shares of Stock of Company.
"Event of Default" shall mean the occurrence of any breach of
any representation or warranty in any material respect, or of any covenant or
agreement of Company under this Agreement, which in the case of the covenants
set forth in Section 5.1 (other than Sections (f)(iii) and (iv) and (h)) of this
Agreement remain uncured for a period of ten days after receipt by Company of
written notice thereof by the Required Holders.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and all rules and regulations promulgated thereunder.
"Financials" shall mean the financial statements
referred to in Section 4.7(a) hereof.
"Fiscal Year" shall mean the twelve month period ending June
30. Subsequent changes of the fiscal year of Company shall not change the term
"Fiscal Year," unless the Required Holders shall consent in writing to such
changes.
5
<PAGE>
"Fixed Charges" shall mean, with respect to Company for any
period, the aggregate of all consolidated interest expenses paid or accrued,
plus scheduled payments of principal with respect to Indebtedness (other than
Indebtedness permitted pursuant to Section 5.2(g)(iii) hereof and, during the
Fiscal Year ending June 30, 1998, repayments of Indebtedness owed to Stephen
Dunn and to the former shareholders of Metro Services Group, Inc. and other
earnout payments associated with past or future acquisitions), plus scheduled
payments of dividends on and scheduled mandatory redemption payments (which have
not been waived) on Company's outstanding preferred stock other than the
Convertible Preferred Stock, in all cases during such period by Company and its
Subsidiaries.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time, except that for
purposes of the financial covenants contained in Section 5.1(h) hereof, GAAP
shall be as in effect on the date of the most recent Financials and shall be
applied in a manner consistent therewith.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any
obligation of such Person guaranteeing any Indebtedness, lease, dividend, or
other obligation ("primary obligations") of any other Person (the "primary
obligor") in any manner including, without limitation, any obligation or
arrangement of such Person (a) to purchase or repurchase any such primary
obligation, (b) to advance or supply funds (i) for the purchase or payment of
any such primary obligation or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet condition of the primary obligor, (c) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, or (d) to indemnify the owner of such
primary obligation against loss in respect thereof.
"Indebtedness" of any Person shall mean (i) all
indebtedness of such Person for borrowed money or for the
6
<PAGE>
deferred purchase price of property or services (including, without limitation,
reimbursement and all other obligations with respect to surety bonds, letters of
credit and bankers' acceptances, whether or not matured, but not including
obligations to trade creditors incurred in the ordinary course of business),
(ii) all obligations evidenced by notes, bonds, debentures or similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreements with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), (iv) all Capital Lease Obligations, (v) all Guaranteed
Indebtedness, (vi) all Indebtedness referred to in clause (i), (ii), (iii), (iv)
or (v) above secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon or in
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness and (vii) all liabilities under Title IV of ERISA.
"IRC" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto.
"IRS" shall mean the Internal Revenue Service, or
any successor thereto.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest as to assets owned by the relevant Person under the Uniform
Commercial Code or comparable law of any jurisdiction).
"Material Adverse Effect" shall mean a material adverse effect
on the business, assets, operations, prospects or financial or other condition
of Company and its Subsidiaries, taken as a whole.
7
<PAGE>
"Material Contracts" means (i) all of Company's and its
Subsidiaries' contracts, agreements, leases or other instruments to which
Company or any of its Subsidiaries is a party or by which Company, its
Subsidiaries or its properties are bound, which involve payments by or to
Company or its Subsidiaries of more than $100,000 or which extend for a term of
more than a year from the date hereof, (ii) all of Company's and its
Subsidiaries' loan agreements, bank lines of credit agreements, indentures,
mortgages, deeds of trust, pledge and security agreements, factoring agreements,
conditional sales contracts, letters of credit or other debt instruments, (iii)
all material operating or capital leases for equipment to which Company or any
of its Subsidiaries is a party, (iv) all non-competition and similar agreements
to which Company is a party, (v) all contracts for the employment of any officer
or employee, (vi) all consulting agreements, (vii) any guarantees by the Company
or any of its Subsidiaries, (viii) all distributor and sales agency agreements
and (ix) all other material contracts not made in the ordinary course of
business.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA, and to which Company, any of its
Subsidiaries or any ERISA Affiliate is making, is obligated to make, has made or
been obligated to make, contributions on behalf of participants who are or were
employed by any of them.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation or any successor thereto.
"Pension Plan" shall have the meaning set forth in
Section 4.19(a) hereof.
"Permitted Indebtedness" means, with respect to Company, (i)
taxes or assessments or other governmental charges or levies, either not yet due
and payable or to the extent that nonpayment thereof is permitted by the terms
of this Agreement; (ii) obligations under workmen's compensation, unemployment
insurance, social security or public liability laws or similar legislation;
(iii) bids, tenders, contracts (other than contracts for the payment of money)
or leases to which Company or any of its Subsidiaries is a party as lessee made
in the ordinary course of business; (iv) public or statutory obligations of
Company or any of its Subsidiaries; (v) all deferred taxes and (vi) all unfunded
pension fund and other employee benefit plan
8
<PAGE>
obligations and liabilities but only to the extent permitted to remain unfunded
under applicable law.
"Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
"Plan" shall have the meaning set forth in Section
4.19(a) hereof.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement by and between Company and Purchaser, substantially in the form
attached hereto as Exhibit B, as such agreement may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"Required Holders" shall mean Persons who hold at least a
majority of the outstanding Convertible Preferred Stock.
"Restricted Payment" shall mean (i) the declaration of any
dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of Company's Stock
or (ii) any payment on account of the purchase, redemption or other retirement
of Company's Stock or any other payment or distribution made in respect of any
Stock of Company, either directly or indirectly.
"Retiree Welfare Plan" shall refer to any Welfare Plan
providing for continuing coverage or benefits for any participant or any
beneficiary of a participant after such participant's termination of employment,
other than continuation coverage provided pursuant to Section 4980B of the IRC
and at the sole expense of the participant or the beneficiary of the
participant.
"SEC" shall mean the U.S. Securities and Exchange
Commission, or any successor thereto.
9
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as
amended, and all rules and regulations promulgated thereunder.
"Spill" shall have the meaning set forth in
Section 4.10.
"Stock" shall mean all shares, options, warrants, general or
limited partnership interests, limited liability company membership interest,
participations or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including, without limitation, common stock, preferred
stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of
the General Rules and Regulations promulgated by the SEC under the Exchange
Act).
"Stockholders Agreement" shall mean the Stockholders Agreement
by and among Company, Purchaser and each of the other stockholders party
thereto, substantially in the form attached hereto as Exhibit C, as such
agreement may be amended, supplemented or otherwise modified from time to time.
"Subsidiary" shall mean, with respect to any Person, (a) any
corporation of which an aggregate of more than 50% of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly,
owned legally or beneficially by such Person and/or one or more Subsidiaries of
such Person, and (b) any partnership or other entity in which such Person and/or
one or more Subsidiaries of such Person shall have an interest (whether in the
form of voting or participation in profits or capital contribution) of more than
50%.
"Tangible Net Worth" shall mean, with respect to any Person,
at any date, the excess of total assets of such Person at such date over the
total liabilities of such Person at such date, each determined on a consolidated
basis in accordance with GAAP but excluding from total assets all intangible
assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses
and similar intangible items).
10
<PAGE>
"Transaction Documents" shall mean this Agreement,
the Certificate of Designation, the Stockholders Agreement, the Registration
Rights Agreement and the Warrants.
"Warrants" shall have the meaning set forth in the
recitals hereto.
"Welfare Plan" shall mean any welfare plan, as defined in
Section 3(1) of ERISA, which is maintained or contributed to by Company, any of
its Subsidiaries or any ERISA Affiliate.
References to this "Agreement" shall mean this Purchase
Agreement, including all amendments, modifications and supplements and any
exhibits or schedules to any of the foregoing, and shall refer to the Agreement
as the same may be in effect at the time such reference becomes operative.
Any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given such term
in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain terms or computations are explicitly modified
by the phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing. The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole, including the Exhibits and
Schedules hereto, as the same may from time to time be amended, modified or
supplemented, and not to any particular section, subsection or clause contained
in this Agreement. Wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter.
II. THE PURCHASE OF CONVERTIBLE PREFERRED STOCK
-------------------------------------------
2.1. Authorization of Issue. Prior to the Closing, Company
----------------------
shall have duly authorized the issuance and sale to Purchaser of the number of
shares of Convertible Preferred Stock set forth in Section 2.2 below and the
Warrants.
2.2. Purchase of Convertible Preferred Stock and Warrants.
----------------------------------------------------
Subject to the terms and conditions set forth in
11
<PAGE>
this Agreement, on the Closing Date, GE Capital agrees to subscribe for and
purchase from Company, and Company agrees to issue and sell to GE Capital, (i)
an aggregate of 50,000 shares of Convertible Preferred Stock containing the
terms, preferences and limitations set forth in Exhibit A to this Agreement, and
(ii) an aggregate of 10,670,000 Warrants containing the terms set forth herein
and in Exhibit D to this Agreement.
The aggregate purchase price for the shares of Convertible
Preferred Stock and Warrants purchased on the Closing Date shall be $15,000,000,
payable in full on the Closing Date.
2.3. Closing. The closing of the purchase and sale of the
-------
Convertible Preferred Stock and the Warrants (the "Closing") shall take place
within five Business Days after the satisfaction or waiver of the conditions set
forth in Article VI hereof or such date and time as shall be mutually agreed to
by the parties hereto (the "Closing Date") at the offices of Weil, Gotshal &
Manges LLP, 767 Fifth Avenue, New York, New York, or such other place as shall
be mutually agreed to by the parties hereto.
On the Closing Date, Company will deliver to Purchaser
certificates representing the Convertible Preferred Stock and Warrants purchased
on such date registered in such names and in such denominations as Purchaser
requests against delivery by Purchaser of the purchase price therefor by wire
transfer of funds to the account of Company.
2.4. Use of Proceeds. Company shall use the net proceeds of
---------------
the sale of the Convertible Preferred Stock and the Warrants to finance
acquisitions approved by Purchaser, up to $1,000,000 for computer systems
upgrades and up to $2,000,000 for earnout payments or repayment of existing
Indebtedness to Senior Management employees.
2.5. Tax Allocation. Company and Purchaser hereby acknowledge
--------------
and agree that the Warrants are part of an investment unit, which includes the
Convertible Preferred Stock. Notwithstanding anything to the contrary contained
herein, Company and Purchaser hereby further acknowledge and agree that for
United States federal, state and local income tax purposes the aggregate
purchase price shall be allocated among the Warrants and the Convertible
Preferred Stock as follows: $4,200,000 and $10,800,000, respectively. Company
12
<PAGE>
and Purchaser agree to use the foregoing allocation for all income tax purposes
with respect to this transaction.
III. PURCHASER'S REPRESENTATIONS AND COVENANTS
-----------------------------------------
Purchaser makes the following representations and warranties
to Company, each and all of which shall survive the execution and delivery of
this Agreement and the Closing hereunder:
3.1. Investment Intention. Purchaser is purchasing the
--------------------
Convertible Preferred Stock and Warrants for its own account, for investment
purposes and not with a view to the distribution thereof. Purchaser will not,
directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or
otherwise dispose of any of the Convertible Preferred Stock or Warrants (or the
Common Stock issuable on conversion or exercise thereof) (or solicit any offers
to buy, purchase, or otherwise acquire any of the Convertible Preferred Stock or
Warrants or such Common Stock), except in compliance with the Securities Act.
3.2. Accredited Investor. Purchaser is an "accredited
-------------------
investor" (as that term is defined in Rule 501 of Regulation D under the
Securities Act) and by reason of its business and financial experience, it has
such knowledge, sophistication and experience in business and financial matters
as to be capable of evaluating the merits and risks of the prospective
investment, is able to bear the economic risk of such investment and is able to
afford a complete loss of such investment.
3.3. Corporate Existence. Purchaser is a corporation duly
-------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation.
3.4. Corporate Power; Authorization; Enforceable Obligations.
-------------------------------------------------------
The execution, delivery and performance by Purchaser of this Agreement and the
other Transaction Documents to be executed by it: (i) are within Purchaser's
corporate power; (ii) have been duly authorized by all necessary corporate
action; (iii) are not in contravention of any provision of Purchaser's
certificate of incorporation or by-laws; and (iv) will not violate any law or
regulation, or any order or decree of any court or governmental instrumentality
binding on Purchaser. This Agreement and the other Transaction Documents to
which Purchaser is a
13
<PAGE>
party have each been duly executed and delivered by Purchaser and constitute the
legal, valid and binding obligations of Purchaser, enforceable against it in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
3.5. Purchaser Covenants. GE Capital shall not purchase or
-------------------
otherwise acquire, unless approved by the affirmative vote of a majority of the
Board of Directors, additional equity securities of Company (other than pursuant
to conversion or exercise of the Convertible Preferred Stock or Warrants, or
pursuant to this Agreement) to the extent that, upon consummation of such
purchase or acquisition, GE Capital would own in excess of 49.99% of the
outstanding Common Stock on a fully diluted basis. For purposes of the
immediately preceding sentence, the term "fully diluted" shall mean with
reference to Common Stock, at any date as of which the number of shares thereof
is to be determined, all shares of Common Stock outstanding at such date and all
shares of Common Stock issuable upon the conversion of the Convertible Preferred
Stock outstanding on such date, and other options or warrants to purchase, or
securities convertible into, shares of Common Stock outstanding on such date
which would be deemed outstanding in accordance with GAAP for purposes of
determining book value or net income per share.
IV. COMPANY'S REPRESENTATIONS AND WARRANTIES
----------------------------------------
Company makes the following representations and warranties to
Purchaser, each and all of which shall survive the execution and delivery of
this Agreement and the Closing hereunder:
4.1. Authorized and Outstanding Shares of Capital Stock. After
--------------------------------------------------
giving effect to the Closing, the authorized capital stock of Company consists
of 36,250,000 shares of Common Stock, $.01 par value per share, of which
12,722,871 shares are issued and outstanding, and 50,000 shares of Convertible
Preferred Stock, $.01 par value per share, of which 50,000 shares will be issued
and outstanding. All of such issued and outstanding shares, including, without
14
<PAGE>
limitation, the Convertible Preferred Stock, are validly issued, fully paid and
non-assessable. Except as set forth on Schedule 4.1(a), (i) there is no existing
option, warrant, call, commitment or other agreement to which Company is a party
requiring, and there are no convertible securities of Company outstanding which
upon conversion would require, the issuance of any additional shares of Stock of
Company or other securities convertible into shares of equity securities of
Company, other than the Convertible Preferred Stock and the Warrants, and (ii)
there are no agreements to which Company is a party or, to the knowledge of
Company, to which any stockholder or warrant holder of Company is a party, with
respect to the voting or transfer of the Stock of Company or with respect to any
other aspect of Company's affairs, other than the Stockholders Agreement. Except
as set forth on Schedule 4.1(a), there are no stockholders' preemptive rights or
rights of first refusal or other similar rights with respect to the issuance of
Stock by Company, other than pursuant to the Transaction Documents. True and
correct copies of the certificate of incorporation and by-laws of Company have
been delivered to Purchaser.
4.2. Authorization and Issuance of Convertible Preferred Stock
---------------------------------------------------------
and Warrants. The issuance of the Convertible Preferred Stock and Warrants have
- ------------
been duly authorized by all necessary corporate action on the part of Company
and, upon delivery to Purchaser of certificates therefor against payment in
accordance with the terms hereof, the Convertible Preferred Stock will have been
validly issued and fully paid and non-assessable, free and clear of all pledges,
liens, encumbrances and preemptive rights, except as provided in the
Stockholders Agreement. The issuance of shares of Common Stock upon conversion
of the Convertible Preferred Stock and upon exercise of the Warrants has been
duly authorized by all necessary corporate action on the part of Company and,
when issued upon conversion of the Convertible Preferred Stock, or upon exercise
of the Warrants, such Common Stock will have been validly issued and fully paid
and non-assessable. Company has duly reserved 15,085,612 shares of Common Stock
for issuance pursuant to the terms of the Convertible Preferred Stock and the
Warrants.
4.3. Securities Laws. In reliance on the investment
---------------
representations contained in Section 3.1, the offer, issuance, sale and delivery
of the Convertible Preferred Stock and the Warrants, as provided in this
15
<PAGE>
Agreement, are exempt from the registration requirements of the Securities Act
and all applicable state securities laws, and are otherwise in compliance with
such laws. Neither Company nor any Person acting on its behalf has taken or will
take any action (including, without limitation, any offering of any securities
of Company under circumstances which would require the integration of such
offering with the offering of the Convertible Preferred Stock and the Warrants
under the Securities Act and the rules and regulations of the SEC thereunder)
which might subject the offering, issuance or sale of the Convertible Preferred
Stock and the Warrants to the registration requirements of Section 5 of the
Securities Act.
4.4. Corporate Existence; Compliance with Law. Company and
----------------------------------------
each of its Subsidiaries, (i) is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada in the case of
Company and as set forth on Schedule 4.5 in the case of its Subsidiaries; (ii)
is duly qualified as a foreign corporation and in good standing under the laws
of each jurisdiction where its ownership or lease of property or the conduct of
its business requires such qualification (except for jurisdictions in which such
failure to so qualify or to be in good standing would not have a Material
Adverse Effect); (iii) has the requisite corporate power and authority and the
legal right to own, pledge, mortgage or otherwise encumber and operate its
properties, to lease the property it operates under lease, and to conduct its
business as now being conducted; (iv) has, or has applied for, all material
licenses, permits, consents or approvals from or by, and has made all material
filings with, and has given all material notices to, all Governmental
Authorities having jurisdiction, to the extent required for such ownership,
operation and conduct; (v) is in compliance with its certificate or articles of
incorporation and by-laws; and (vi) is in compliance with all applicable
provisions of law, including, without limitation, the Telephone Consumer
Protection Act of 1991 and the Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994 and the regulations of the Federal Trade Commission
issued thereunder, except for such non-compliance which would not have a
Material Adverse Effect.
4.5. Subsidiaries. There currently exist no Subsidiaries of
------------
Company other than as set forth on Schedule 4.5 hereto, which sets forth such
Subsidiaries, together with their respective jurisdictions of organization, and
the
16
<PAGE>
authorized and outstanding capital Stock of each such Subsidiary, by class and
number and percentage of each class owned by Company or a Subsidiary of Company
or any other Person. There are no options, warrants, rights to purchase or
similar rights covering capital Stock for any such Subsidiary.
4.6. Corporate Power; Authorization; Enforceable Obligations.
-------------------------------------------------------
The execution, delivery and performance by Company of this Agreement, the other
Transaction Documents to which it is a party and all instruments and documents
to be delivered by Company, the issuance and sale of the Convertible Preferred
Stock and the Warrants and the consummation of the other transactions
contemplated by any of the foregoing: (i) are within Company's corporate power
and authority; (ii) have been duly authorized by all necessary or proper
corporate action; (iii) are not in contravention of any provision of Company's
certificate of incorporation or by-laws; (iv) will not violate any law or
regulation, or any order or decree of any court or governmental instrumentality;
(v) will not conflict with or result in the breach or termination of, constitute
a default under or accelerate any performance required by, any indenture,
mortgage, deed of trust, lease, agreement or other instrument to which Company
or any of its Subsidiaries is a party or by which Company, any of its
Subsidiaries or any of their property is bound; (vi) will not result in the
creation or imposition of any Lien upon any of the property of Company or any of
its Subsidiaries; and (vii) do not require the consent or approval of, or any
filing with, any Governmental Authority or any other Person (except for (A) the
filing of an amendment to Company's certificate of incorporation to authorize
the Convertible Preferred Stock, substantially in the form of the Certificate of
Designation, (B) those filings required by the Registration Rights Agreement,
(C) to the extent previously obtained or made) and (D) filing of a listing
application with NASDAQ. At or prior to the Closing Date, each of this Agreement
and the other Transaction Documents shall have been duly executed and delivered
by Company and each shall then constitute a legal, valid and binding obligation
of Company, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a
17
<PAGE>
proceeding at law or in equity), and the Certificate of Designation shall have
been duly filed with the Secretary of State of the State of Nevada.
4.7. Financial Statements. (a) The audited consolidated
--------------------
balance sheet of Company as at June 30, 1997, and the related consolidated
statements of income, retained earnings and cash flows for the year then ended,
with the opinion thereon of Coopers & Lybrand L.L.P. and the unaudited balance
sheet of Company as at September 30, 1997 (the "Balance Sheet") and the related
unaudited statements of income, retained earnings and cash flows for the three
months then ended, copies of which have previously been delivered to Purchaser,
have been, except as noted therein, prepared in conformity with GAAP
consistently applied throughout the periods involved and present fairly in all
material respects the consolidated financial position of Company as at the dates
thereof, and the consolidated results of its operations and cash flows for the
periods then ended, subject in the case of the interim statements to normal year
end audit adjustments.
(b) Except as set forth on Schedule 4.7, neither Company nor
any of its Subsidiaries has any material obligations, contingent or otherwise,
including, without limitation, liabilities for Charges, long-term leases or
unusual forward or long-term commitments which are not reflected in the Balance
Sheet, other than those incurred since September 30, 1997, in the ordinary
course of business.
(c) Except as set forth on Schedule 4.7, no dividends or other
distributions have been declared, paid or made upon any shares of capital Stock
of Company, nor have any shares of capital Stock of Company been redeemed,
retired, purchased or otherwise acquired for value by Company since September
30, 1997.
4.8. Ownership of Property. (a) Neither Company nor any of its
---------------------
Subsidiaries owns any real estate. Each of Company and its Subsidiaries has
valid and marketable leasehold interests in the leases described in Schedule 4.8
hereto, and, except as set forth on Schedule 4.8, good and marketable title to,
or valid leasehold interests in, all of its other properties and assets free and
clear of all Liens.
(b) All real property leased by Company and its
Subsidiaries is set forth on Schedule 4.8. Each of such
18
<PAGE>
leases is valid and enforceable in accordance with its terms (subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity)) and is in
full force and effect. Company has delivered to Purchaser true and complete
copies of each of such leases set forth on Schedule 4.8 and all documents
affecting the rights or obligations of Company or any of its Subsidiaries,
including, without limitation, any non-disturbance and recognition agreements,
subordination agreements, attornment agreements and agreements regarding the
term or rental of any of the leases. Except as set forth on Schedule 4.8, none
of Company, any of its Subsidiaries nor, to its knowledge, any other party to
any such lease is in default of its obligations thereunder or has delivered or
received any notice of default under any such lease, nor has any event occurred
which, with the giving of notice, the passage of time or both, would constitute
a default under any such lease.
(c) Except as disclosed on Schedule 4.8, neither Company nor
any of its Subsidiaries is obligated under or a party to, any option, right of
first refusal or any other contractual right to purchase, acquire, sell, assign
or dispose of any real property owned or leased by Company or such Subsidiary.
4.9. Material Contracts; Indebtedness. Schedule 4.9 contains a
--------------------------------
true, correct and complete list and description of all Material Contracts. Each
Material Contract is a valid and binding agreement of Company or its
Subsidiaries (as the case may be) enforceable against Company or such Subsidiary
in accordance with its terms (subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity)), and neither Company nor any of its
Subsidiaries has any knowledge that any Material Contract is not a valid and
binding agreement against the other parties thereto. Company and each of its
Subsidiaries has fulfilled all
19
<PAGE>
obligations required pursuant to the Material Contracts to have been performed
by Company or such Subsidiary on its part. Except as set forth in Schedule 4.9,
neither Company nor any of its Subsidiaries is in default or breach, nor to
Company's or such Subsidiary's knowledge is any third party in default or
breach, under or with respect to any Material Contract. Except as set forth on
Schedule 4.9, neither Company nor any of its Subsidiaries has any Indebtedness
except Permitted Indebtedness.
4.10. Environmental Protection. (a) Except as set forth on
------------------------
Schedule 4.10, to Company's and its Subsidiaries' knowledge, all real property
owned, leased or otherwise operated by Company and its Subsidiaries (each, a
"Facility") is free of contamination from any substance, waste or material (i)
currently identified to be toxic or hazardous pursuant to, or which may result
in liability under, any Environmental Law or (ii) within the definition of a
substance which is toxic or hazardous under any Environmental Law, including,
without limitation, any asbestos, pcb, radioactive substance, methane, volatile
hydrocarbons, industrial solvents, oil or petroleum or chemical liquids or
solids, liquid or gaseous products, or any other material or substance which has
in the past or could at any time in the future cause or constitute a health,
safety, or environmental hazard to any Person or property or result in any
Environmental Liabilities and Costs ("Hazardous Substance") of more than
$100,000 or which, in either case, could have a Material Adverse Effect. Except
as set forth on Schedule 4.10, neither Company nor any of its Subsidiaries has
caused or suffered to occur any release, spill, migration, leakage, discharge,
spillage, uncontrolled loss, seepage, or filtration of Hazard Substances at or
from the Facility (a "Spill") which could result in Environmental Liabilities
and Costs in excess of $100,000.
(b) Company and each Subsidiary has generated, treated, stored
and disposed of any Hazardous Substances in full compliance with applicable
Environmental Laws, except for such non-compliances which would not have a
Material Adverse Effect.
(c) Company and each Subsidiary has obtained, or has applied
for, and is in full compliance with and in good standing under all permits
required under Environmental Laws (except for such failures which would not have
a Material Adverse Effect) and neither Company nor any of its
20
<PAGE>
Subsidiaries has any knowledge of any proceedings to substantially modify or to
revoke any such permit.
(d) Except as set forth on Schedule 4.10, there are no
investigations, proceedings or litigation pending or, to Company's or its
Subsidiaries' knowledge, threatened affecting or against Company, any of its
Subsidiaries or the Facilities relating to Environmental Laws or Hazardous
Substances.
(e) Since January 1, 1997, except for communications in
connection with the matters listed on Schedule 4.10, neither Company nor any of
its Subsidiaries has received any communication or notice (including, without
limitation, requests for information) indicating the potential of Environmental
Liabilities and Costs against Company or its Subsidiaries.
4.11. Labor Matters. (a) There are no strikes or other labor
-------------
disputes against Company or any of its Subsidiaries pending or, to Company's or
its Subsidiaries' knowledge, threatened. Hours worked by and payment made to
employees of Company and its Subsidiaries have not been in violation of the Fair
Labor Standards Act or any other applicable law dealing with such matters. All
payments due from Company and each of its Subsidiaries on account of employee
health and welfare insurance have been paid or accrued as a liability on the
books of Company or such Subsidiary. There is no organizing activity involving
Company or any of its Subsidiaries pending or, to Company's or its Subsidiaries'
knowledge, threatened by any labor union or group of employees. There are no
representation proceedings pending or, to Company's or its Subsidiaries'
knowledge, threatened with the National Labor Relations Board, and no labor
organization or group of employees of Company or its Subsidiaries has made a
pending demand for recognition. There are no complaints or charges against
Company or any of its Subsidiaries pending or, to Company's or its Subsidiaries'
knowledge, threatened to be filed with any federal, state, local or foreign
court, governmental agency or arbitrator based on, arising out of, in connection
with, or otherwise relating to the employment or termination of employment by
Company or any of its Subsidiaries of any individual.
(b) Neither Company nor any of its Subsidiaries is, or during
the five years preceding the date hereof was, a party to any labor or collective
bargaining agreement and
21
<PAGE>
there are no labor or collective bargaining agreements which pertain to
employees of Company or its Subsidiaries.
4.12. Other Ventures. Except as set forth on Schedule 4.12,
--------------
neither Company nor any of its Subsidiaries is engaged in any joint venture or
partnership with any other Person.
4.13. Taxes. Except as set forth on Schedule 4.13, all
-----
federal, state, local and foreign tax returns, reports and statements required
to be filed by Company and its Subsidiaries have been timely filed with the
appropriate Governmental Authority and all such returns, reports and statements
are true, correct and complete in all material respects. All Charges and other
impositions due and payable for the periods covered by such returns, reports and
statements have been paid prior to the date on which any fine, penalty, interest
or late charge may be added thereto for nonpayment thereof, or any such fine,
penalty, interest, late charge or loss has been paid. Proper and accurate
amounts have been withheld by Company and its Subsidiaries from its employees
for all periods in full and complete compliance with the tax, social security
and unemployment withholding provisions of applicable federal, state, local and
foreign law and such withholdings have been timely paid to the respective
governmental agencies. Neither Company nor any of its Subsidiaries has executed
or filed with the IRS or any other Governmental Authority any agreement or other
document extending, or having the effect of extending, the period for assessment
or collection of any Charges. No tax audits or other administrative or judicial
proceedings are pending or threatened with regard to any Charges for which
Company or any Subsidiary may be liable and no assessment of Charges is proposed
against the Company or any Subsidiary. Neither Company nor any of its
Subsidiaries has filed a consent pursuant to IRC Section 341(f) or agreed to
have IRC Section 341(f)(2) apply to any dispositions of subsection (f) assets
(as such term is defined in IRC Section 341(f)(4)). None of the property owned
by Company or any of its Subsidiaries is property which such company is required
to treat as being owned by any other Person pursuant to the provisions of
Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, and in
effect immediately prior to the enactment of the Tax Reform Act of 1986 or is
"tax-exempt use property" within the meaning of IRC Section 168(h). Neither
Company nor any of its Subsidiaries has agreed or has been requested to make any
adjustment under IRC Section 481(a) by reason of a change in
22
<PAGE>
accounting method or otherwise. Neither Company nor any of its Subsidiaries has
any obligation under any written tax sharing agreement.
4.14. No Litigation. Except as disclosed on Schedule 4.14, no
-------------
action, claim or proceeding is now pending or, to the knowledge of Company or
its Subsidiaries, threatened against Company or any of its Subsidiaries, at law,
in equity or otherwise, before any court, board, commission, agency or
instrumentality of any federal, state, or local government or of any agency or
subdivision thereof, or before any arbitrator or panel of arbitrators.
4.15. Brokers. Except as set forth on Schedule 4.15, no broker
-------
or finder acting on behalf of Company or any of its Subsidiaries brought about
the consummation of the transactions contemplated pursuant to this Agreement and
neither Company nor any of its Subsidiaries has any obligation to any Person in
respect of any finder's or brokerage fees (or any similar obligation) in
connection with the transactions contemplated by this Agreement. Company is
solely responsible for the payment of all such finder's or brokerage fees.
4.16. Employment and Labor Agreements. Except as set forth on
-------------------------------
Schedule 4.16, there are no employment, consulting or management agreements
covering management of Company or any of its Subsidiaries.
4.17. Patents, Trademarks, Copyrights and Licenses. Company
--------------------------------------------
and each of its Subsidiaries owns all licenses, patents, patent applications,
copyrights, service marks, trademarks and registrations and applications for
registration thereof, and trade names necessary to continue to conduct its
business as heretofore conducted by it and now being conducted by it, each of
which is listed, together with Patent and Trademark Office or Copyright Office
application or registration numbers, where applicable, on Schedule 4.17 hereto.
To Company's knowledge, Company and each of its Subsidiaries conducts its
businesses without infringement or claim of infringement of any license, patent,
copyright, service mark, trademark, trade name, trade secret or other
intellectual property right of others, except as set forth on Schedule 4.17
hereto. To Company's knowledge, there is no infringement by others of any
license, patent, copyright, service mark, trademark, trade name, trade secret or
other intellectual
23
<PAGE>
property right of Company or any of its Subsidiaries, except as set forth on
Schedule 4.17 hereto.
4.18. No Material Adverse Effect. Except as set forth on
--------------------------
Schedule 4.18, no event has occurred since June 30, 1997 which has had or could
be reasonably expected to have a Material Adverse Effect.
4.19. ERISA. (a) Schedule 4.19 sets forth: (i) all "employee
-----
benefit plans", as defined in Section 3(3) of ERISA, and any other employee
benefit arrangements or payroll practices, including, without limitation,
severance pay, sick leave, vacation pay, salary continuation for disability,
consulting or other compensation agreements, retirement, deferred compensation,
bonus, stock purchase, hospitalization, medical insurance, life insurance and
scholarship programs (the "Plans") maintained by Company and any of its
Subsidiaries or to which Company or and of its Subsidiaries contributed or is
obligated to contribute thereunder, and (ii) all "employee pension plans", as
defined in Section 3(2) of ERISA (the "Pension Plans"), maintained by Company,
any of its Subsidiaries or any of its ERISA Affiliates to which Company, any of
its Subsidiaries or any of its ERISA Affiliates contributed or is obligated to
contribute thereunder.
(b) Purchaser will not have (i) any obligation to make any
contribution to any Multiemployer Plan or (ii) any withdrawal liability from any
such Multiemployer Plan under Section 4201 of ERISA which it would not have had
if it had not purchased the Convertible Preferred Stock and Warrants from
Company at the Closing in accordance with the terms of this Agreement.
(c) The Pension Plans intended to be qualified under Section
401 of the IRC are so qualified and the trusts maintained pursuant thereto are
exempt from federal income taxation under Section 501 of the IRC, and nothing
has occurred with respect to the operation of the Pension Plans which could
cause the loss of such qualification or exemption or the imposition of any
liability, penalty, or tax under ERISA or the IRC.
(d) All contributions required by law or pursuant to the terms
of the Plans (without regard to any waivers granted under Section 412 of the
IRC) to any funds or trusts established thereunder or in connection therewith
have been made by the due date thereof (including any valid extension)
24
<PAGE>
and no accumulated funding deficiencies exist in any of the Pension Plans.
(e) There is no "amount of unfunded benefit liabilities" as
defined in Section 4001(a)(18) of ERISA in any of the respective Pension Plans,
which are subject to Title IV of ERISA. Each of the respective Pension Plans are
fully funded in accordance with the actuarial assumptions used by the PBGC to
determine the level of funding required in the event of the termination of the
Pension Plan and all benefit liabilities do not exceed the assets of such
Pension Plans.
(f) There has been no "reportable event" as that term is
defined in Section 4043 of ERISA and the regulations thereunder with respect to
the Pension Plans which would require the giving of notice, or any event
requiring disclosure under Section 4041(c)(3)(C), 4063(a) or 4068(f) of ERISA.
(g) There is no material violation of ERISA with respect to
the filing of applicable reports, documents, and notices regarding the Plans
with the Secretary of Labor and the Secretary of the Treasury or the furnishing
of such documents to the participants or beneficiaries of the Plans.
(h) True, correct and complete copies of the following
documents, with respect to each of the Plans, have been made available or
delivered to Purchaser by Company: (A) any plans and related trust documents,
and amendments thereto, (B) the most recent Forms 5500 (including any schedules
thereto) and the most recent actuarial valuation report, if any, (C) the last
IRS determination letter, (D) summary plan descriptions, (E) written
communications to employees relating to the Plans and (F) written descriptions
of all non-written agreements relating to the Plans.
(i) There are no pending actions, claims or lawsuits which
have been asserted or instituted against the Plans, the assets of any of the
trusts under such Plans or the Plan sponsor or the Plan administrator, or
against any fiduciary of the Plans with respect to the operation of such Plans
(other than routine benefit claims), nor does Company or any of its Subsidiaries
have knowledge of facts which could form the basis for any such claim or
lawsuit.
(j) All amendments and actions required to bring the Plans
into conformity in all material respects with all
25
<PAGE>
of the applicable provisions of ERISA and other applicable laws have been made
or taken except to the extent that such amendments or actions are not required
by law to be made or taken until a date after the Closing Date.
(k) The Plans have been maintained, in all material respects,
in accordance with their terms and with all provisions of ERISA (including rules
and regulations thereunder) and other applicable Federal and state law, and
neither Company nor any of its Subsidiaries or "party in interest" or
"disqualified person" with respect to the Plans has engaged in a "prohibited
transaction" within the meaning of Section 4975 of the IRC or Section 406 of
ERISA.
(l) None of Company, any of its Subsidiaries or any ERISA
Affiliate has terminated any Pension Plan, or incurred any outstanding liability
under Section 4062 of ERISA to the PBGC, or to a trustee appointed under Section
4042 of ERISA.
(m) None of Company, any of its Subsidiaries or any ERISA
Affiliate maintains retired life and retired health insurance plans which are
Welfare Plans and which provide for continuing benefits or coverage for any
participant or any beneficiary of a participant except as may be required under
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA")
and at the expense of the participant or the participant's beneficiary. Company,
all of its Subsidiaries and all ERISA Affiliates which maintains a Welfare Plan
has complied with the notice and continuation requirements of COBRA and the
regulations thereunder.
(n) None of Company, any of its Subsidiaries or any ERISA
Affiliate has contributed or been obligated to contribute to a Multiemployer
Plan as of either Closing.
(o) None of Company, any of its Subsidiaries or any ERISA
Affiliate has withdrawn in a complete or partial withdrawal from any
Multiemployer Plan prior to either Closing Date, nor has any of them incurred
any liability due to the termination or reorganization of a Multiemployer Plan.
(p) None of Company, any of its Subsidiaries, any ERISA
Affiliate or any organization to which Company is a successor or parent
corporation, within the meaning of
26
<PAGE>
Section 4069(b) of ERISA, has engaged in any transaction, within the meaning of
Section 4069 of ERISA.
4.20. SEC Documents. Company has made available to Purchaser a
-------------
true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Company with the SEC since January 1, 1997
and prior to the date of this Agreement (the "Company SEC Documents"), which are
all the documents (other than preliminary material) that Company was required to
file with the SEC since such date. As of their respective dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Company SEC Documents, and
none of the Company SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of Company
(including, in each case, the notes thereto) included in the Company SEC
Documents complied as to form in all material respects with the published rules
and regulations of the SEC with respect thereto, were prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Rule 10-01 of Regulation S-X of the SEC) and present
fairly in all material respects and in accordance with applicable requirements
of GAAP (subject, in the case of the unaudited statements, to normal, recurring
adjustments, none of which were or are expected, individually or in the
aggregate, to be material in amount) the consolidated financial position of
Company and its consolidated Subsidiaries as of their respective dates and the
consolidated results of operations and the consolidated cash flows of Company
and its consolidated Subsidiaries for the periods presented therein.
4.21. Ordinary Course of Business. Except as set forth on
---------------------------
Schedule 4.7 or in response to the events described therein, since June 30,
1997, Company and each of its Subsidiaries has conducted its operations only in
the ordinary course of business consistent with past practice.
4.22. Insurance. Schedule 4.22 hereto contains a
---------
complete and correct list of all policies of insurance of any kind or nature
covering Company and its Subsidiaries,
27
<PAGE>
including, without limitation, policies of life, fire, theft, officer and
director coverage, employee fidelity and other casualty and liability insurance,
indicating the type of coverage, name of insured, the insurer, the premium, the
expiration date of each policy and the amount of coverage, and such policies are
in full force and effect. Complete and correct copies of each such policy have
been furnished or made available to Purchaser. Such policies are in amounts
customary for the industry in which Company or such Subsidiary operates.
4.23. Accounts Receivable. All accounts receivable of Company
-------------------
and its Subsidiaries as shown on the Balance Sheet are collectible in the
ordinary course of business by Company or such Subsidiary, net of the reserves
for bad debts shown on the Balance Sheet.
4.24. Minute Books. The minute books of Company, as previously
------------
made available to Purchaser accurately reflect all formal corporate action of
the stockholders and Board of Directors of Company.
4.25. Year 2000 Systems. Company has made and will continue to
-----------------
make reasonable efforts to enable Company's computer systems and software to
accurately process date data, including but not limited to, calculating,
comparing and sequencing from, into and between the twentieth century (through
year 1999), the year 2000 and the twenty-first century, including leap year
calculations.
4.26. Full Disclosure. No information contained in this
---------------
Agreement, any other Transaction Document, the Financial Statements or any
written statement furnished by or on behalf of Company pursuant to the terms of
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading in light of the circumstances under which made.
V. COVENANTS
---------
5.1. Affirmative and Financial Covenants. Company covenants
-----------------------------------
and agrees that from and after the date hereof (except as otherwise provided
herein, or unless the Required Holders have given their prior written consent)
so long as at least 20% of the shares of Convertible Preferred Stock issued on
the Closing Date are outstanding:
28
<PAGE>
(a) Books and Records. Company shall, and shall cause its
-----------------
Subsidiaries to, keep adequate records and books of account with respect to
their business activities, in which proper entries, reflecting all of their
financial transactions, are made in accordance with GAAP.
(b) Financial and Business Information.
----------------------------------
(i) Monthly Information. Commencing with
-------------------
the month ending December 31, 1997, Company will deliver to Purchaser
as soon as practicable after the end of each month, but in any event
within 30 days thereafter: (A) monthly sales reports by client; (B)
monthly accounts receivable reports; and (C) monthly accounts payable
reports.
(ii) Quarterly Information. Company will
---------------------
deliver to Purchaser as soon as practicable after the end of each of
the first three quarterly fiscal periods in each fiscal year of
Company, but in any event within 45 days thereafter, (A) an unaudited
consolidated balance sheet of Company and its Subsidiaries, as at the
end of such quarter, and (B) unaudited consolidated statements of
income, retained earnings and cash flows of Company and its
Subsidiaries, for such quarter and (in the case of the second and third
quarters) for the portion of the fiscal year ending with such quarter,
setting forth in comparative form in each case the projected
consolidated figures for such period and the actual consolidated
figures for the comparable period of the prior fiscal year. Such
statements shall be (1) prepared in accordance with GAAP consistently
applied, (2) in reasonable detail and (3) certified by the principal
financial or accounting officer of Company.
(iii) Annual Information. Company will
------------------
deliver to Purchaser as soon as practicable after the end of each
fiscal year of Company, but in any event within 90 days thereafter, (A)
an audited consolidated balance sheet of Company and its Subsidiaries,
as at the end of such year, and (B) audited consolidated statements of
income, retained earnings and cash flows of Company and its
Subsidiaries, for such year; setting forth in each case in comparative
form the figures for the previous year. Such statements shall be (1)
prepared in accordance with GAAP consistently applied, (2) in
reasonable detail and (3) certified by
29
<PAGE>
Coopers & Lybrand L.L.P. or such other firm of independent certified
public accountants of recognized national standing selected by Company
and reasonably acceptable to the Required Holders.
(iv) Filings. Company will deliver to
-------
Purchaser, promptly upon their becoming available, one copy of each
report, notice or proxy statement sent by Company to its stockholders
generally, and of each regular or periodic report (pursuant to the
Exchange Act) and any registration statement, prospectus or other
writing (other than transmittal letters) (including, without
limitation, by electronic means) pursuant to the Securities Act filed
by Company with (i) the SEC or (ii) any securities exchange or NASDAQ
on which shares of Common Stock of Company are listed.
(v) Projections. Company will deliver to
-----------
Purchaser within 15 days prior to the beginning of each Fiscal Year:
(A) projected consolidated balance
sheets of Company and its
Subsidiaries, for such Fiscal
Year, on a monthly basis;
(B) projected consolidated cash flow
statements of Company and its
Subsidiaries, including summary
details of cash disbursements
(including for Capital
Expenditures), for such Fiscal
Year, on a monthly basis; and
(C) projected consolidated income
statements of Company and its
Subsidiaries, for such Fiscal
Year, on a monthly basis;
in each case, approved by the Board of Directors of Company,
together with appropriate supporting details.
(vi) Customer Complaints; Other Information. Company
--------------------------------------
will promptly notify Purchaser of any material customer complaints
concerning Company's products and services. If requested by Purchaser,
Company will deliver to Purchaser such other information respecting
Company's or any of its Subsidiaries' business,
30
<PAGE>
financial condition or prospects as Purchaser may, from time to time,
reasonably request.
(c) Communication with Accountants. Company authorizes
------------------------------
Purchaser to communicate directly with its independent certified public
accountants and tax advisors and authorizes those accountants to disclose to
Purchaser any and all financial statements and other supporting financial
documents and schedules including copies of any management letter with respect
to the business, financial condition and other affairs of Company and any of its
Subsidiaries. At or before the Closing Date, Company shall deliver a letter
addressed to such accountants and tax advisors instructing them to comply with
the provisions of this Section 5.1(c).
(d) Tax Compliance. Company shall pay all transfer, excise or
--------------
similar taxes (not including income or franchise taxes) in connection with the
issuance, sale, delivery or transfer by Company to Purchaser of the Convertible
Preferred Stock and Warrants and the Common Stock issuable upon conversion or
exercise thereof, and shall indemnify and save Purchaser harmless without
limitation as to time against any and all liabilities with respect to such
taxes. Company shall not be responsible for any taxes in connection with the
transfer of the Convertible Preferred Stock, Warrants or such Common Stock by
the holder thereof. The obligations of Company under this Section 5.1(d) shall
survive the payment, prepayment or redemption of the Convertible Preferred Stock
and Warrants and the termination of this Agreement.
(e) Insurance. (i) Company shall and shall cause each
---------
Subsidiary of Company to maintain insurance covering, without limitation, fire,
theft, burglary, public liability, property damage, product liability, workers'
compensation, directors' and officers' insurance and insurance on all property
and assets material to the operation of the business, all in amounts customary
for the industry. Company shall, and shall cause each of its Subsidiaries to,
pay all insurance premiums payable by them.
(ii) Company shall purchase, by March 24,
1998, and shall thereafter maintain, a term life insurance policy, owned by
Company, on the life of Jeremy Barbera (so long as he remains an employee of
Company) in the amount of $1,000,000, the beneficiary of which shall be Company.
31
<PAGE>
(f) Employee Plans. (i) With respect to other than a
--------------
Multiemployer Plan, for each Plan and Pension Plan intended to be qualified
under Section 401(a) of the IRC hereafter adopted or maintained by Company, any
of its Subsidiaries or any ERISA Affiliate, Company shall (A) seek, or cause its
Subsidiaries or ERISA Affiliates to seek, and receive determination letters from
the IRS to the effect that such Plan or Pension Plan is qualified within the
meaning of Section 401(a) of the IRC; and (B) from and after the adoption of any
such Plan or Pension Plan, cause such plan to be qualified within the meaning of
Section 401(a) of the IRC and to be administered in all material respects in
accordance with the requirements of ERISA and Section 401(a) of the IRC.
(ii) With respect to each Welfare Plan
hereafter adopted or maintained by Company, any of its Subsidiaries or any ERISA
Affiliate, Company shall comply, or cause its Subsidiaries or ERISA Affiliates
to comply, with the notice and continuation coverage requirements of Section
4980B of the IRC and the regulations thereunder.
(iii) Company shall not, directly or
indirectly, and shall not permit its Subsidiaries or any ERISA Affiliate to
directly or indirectly by reason of an amendment or amendments to, or the
adoption of, one or more Pension Plans, permit the present value of all benefit
liabilities, as defined in Title IV of ERISA, (using the actuarial assumptions
utilized by the PBGC upon termination of a plan) to exceed the fair market value
of assets allocable to such benefits by more than $50,000, or to increase to the
extent security must be provided to any Pension Plan, under Section 401(a)(29)
of the IRC. Neither Company nor any of its Subsidiaries shall establish or
become obligated to any new Retiree Welfare Plan, which would result in the
present value of future liabilities under any such plans to exceed $50,000.
Neither Company nor any of its Subsidiaries or ERISA Affiliates shall establish
or become obligated to any new unfunded Pension Plan, which would result in the
present value of future liabilities under any such plans to exceed $50,000.
Company shall not directly or indirectly, and shall not permit its Subsidiaries
or any ERISA Affiliate to (a) satisfy any liability under any Pension Plan by
purchasing annuities from an insurance company or (b) invest the assets of any
Pension Plan with an insurance company, unless, in each case, such insurance
company is rated AA by Standard & Poor's Corporation and the equivalent by each
other
32
<PAGE>
nationally recognized rating agency at the time of the investment.
(iv) Company, any of its Subsidiaries and any
ERISA Affiliate shall not contribute or become obligated to contribute to any
Multiemployer Plan.
(g) Compliance with Law. Company shall, and shall cause each
-------------------
of its Subsidiaries to, comply with all laws, including Environmental Laws, the
Telephone Consumer Protection Act of 1991 and the Telemarketing and Consumer
Fraud and Abuse Prevention Act of 1994 and the regulations of the Federal Trade
Commission issued thereunder, in each case, applicable to it, except where the
failure to comply would not be reasonably likely to result in a Material Adverse
Effect.
(h) Financial Covenants. Company and its Subsidiaries shall,
-------------------
on a consolidated basis:
(i) maintain, at all times, a Tangible Net Worth of Company
of at least the amount set forth for each Fiscal Year below:
Fiscal Year Ending June 30 Tangible Net Worth
-------------------------- ------------------
1998 $1,500,000
1999 $2,000,000
2000 $3,000,000
2001, and each Fiscal Year thereafter $4,000,000
(ii) maintain, at the end of each fiscal
quarter ending during each Fiscal Year set forth below, a ratio of EBITDA to
Fixed Charges for the latest four quarters of not less than the amounts set
forth below:
Fiscal Year Ending June 30 Minimum Ratio
-------------------------- -------------
1998 1.8 to 1.0
1999 2.0 to 1.0
2000 2.2 to 1.0
2001, and each Fiscal Year thereafter 2.4 to 1.0
(i) Maintenance of Existence and Conduct of Business. Company
------------------------------------------------
shall, and shall cause each of its Subsidiaries to: (i) do or cause to be done
all things necessary to preserve and keep in full force and effect its
33
<PAGE>
corporate existence, and its rights and franchises; (ii) at all times maintain,
preserve and protect all of its patents, trademarks and trade names, and
preserve all the remainder of its material assets, in use or useful in the
conduct of its business and keep the same in good repair, working order and
condition (taking into consideration ordinary wear and tear) and from time to
time make, or cause to be made, all needful and proper repairs, renewals and
replacements, betterments and improvements thereto consistent with industry
practices and (iii) continue to conduct a database management and other direct
marketing business and businesses related to the business that Company is
engaged in on the date hereof.
(j) Access. Company shall permit representatives of Purchaser
------
to visit and inspect any of the properties of Company and its Subsidiaries, to
examine the corporate books and make copies or extracts therefrom and to discuss
the affairs, finances and accounts of Company and its Subsidiaries with the
principal officers of Company and its Subsidiaries, all at such reasonable
times, upon reasonable notice and as often as Purchaser may reasonably request.
(k) Excess Cash. Company shall invest all excess cash in cash
-----------
and Cash Equivalents.
(l) Exchange of Stock Certificates. Company will, at its
------------------------------
expense, promptly upon surrender of any certificates representing shares of
Convertible Preferred Stock at the office of Company referred to in, or
designated pursuant to, Section 10.1 hereof, execute and deliver to Purchaser so
surrendering such certificates a new certificate or certificates in
denominations specified by Purchaser for an aggregate number of shares of
Convertible Preferred Stock equal to the number of shares of such stock
represented by the certificates surrendered.
(m) Lost, Stolen, Destroyed or Mutilated Stock Certificates.
-------------------------------------------------------
Upon receipt of evidence reasonably satisfactory to Company of the loss, theft,
destruction or mutilation of any certificate for shares of Convertible Preferred
Stock and, in the case of loss, theft or destruction, upon delivery of an
indemnity reasonably satisfactory to Company (which may be an undertaking by a
Purchaser to so indemnify Company), or, in the case of mutilation, upon
surrender and cancellation thereof, Company will issue a new certificate of like
tenor for a number of shares of Convertible Preferred Stock equal to the number
of
34
<PAGE>
shares of such stock represented by the certificate lost, stolen, destroyed or
mutilated.
(n) NASDAQ. Company shall take all steps necessary to cause
------
the shares of Common Stock issuable upon conversion of the Convertible Preferred
Stock and upon exercise of the Warrants to be listed on the Nasdaq SmallCap
Market as soon as reasonably practicable.
5.2. Negative Covenants. Company covenants and agrees that
------------------
from and after the date hereof (except as otherwise provided herein, or unless
the Required Holders have given their prior written consent) so long as at least
20% of the shares of Convertible Preferred stock issued on the Closing Date are
outstanding:
(a) Permitted Acquisitions or Investments. Company shall not,
-------------------------------------
and shall not permit any of its Subsidiaries to, directly or indirectly in any
transaction or related series of transactions, acquire or invest in, whether for
cash, debt, Stock, or other property or assets or by guaranty of any obligation,
any assets or business of any Person other than (i) acquisitions of assets in
the ordinary course of business of Company, (ii) acquisitions by Company or
wholly-owned Subsidiaries of Company from Company or any such wholly-owned
Subsidiary or investments therein or (iii) acquisitions involving aggregate
purchase price of not more than $1,000,000, but not to exceed $5,000,000 per
Fiscal Year. Company shall not, and shall not permit any of its Subsidiaries to
invest in any Person if, after giving effect thereto, such Person would be an
Affiliate of Company, other than investments in existing wholly-owned
Subsidiaries of Company.
(b) Sales of Assets; Liquidation. Company shall not, and shall
----------------------------
not permit any Subsidiary of Company to, (i) sell, transfer, convey or otherwise
dispose of any assets or properties or (ii) liquidate, dissolve or wind up
Company or any of its Subsidiaries, except for transfers to Company, whether
voluntary or involuntary; provided, however, that the foregoing shall not
prohibit (i) the sale of assets or property in the ordinary course of business,
(ii) the sale of surplus or obsolete equipment and fixtures, (iii) transfers
resulting from any casualty or condemnation of assets or properties, or (iv)
assets or properties constituting businesses that are not a Core Business.
35
<PAGE>
(c) Agreements. Company shall not and shall not permit any
----------
Subsidiary of Company to take or omit to take any action, which act or omission
would constitute a default or an event of default under any agreement, document
or instrument to which it is a party (a "Cross Default"), (A) involving the
failure to make any payment (whether of principal, interest or otherwise) due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) in respect of any Indebtedness of the type described in clauses (i),
(ii) or (iii) of the definition of "Indebtedness" of Company, which Indebtedness
is in an aggregate amount exceeding $100,000, or (B) causing (or permitting any
holder of such Indebtedness or a trustee to cause) such Indebtedness or a
portion thereof in an aggregate amount exceeding $100,000, to become due prior
to its stated maturity or prior to its regularly scheduled dates of payment.
(d) Employee Loans. Company shall not and shall not permit any
--------------
Subsidiary of Company to make or accrue any loans or other advances of money to
any employee of Company or such Subsidiary, other than in the ordinary course of
business in an aggregate amount outstanding not to exceed $100,000 at any one
time.
(e) Capital Stock. Company shall not issue or agree to issue
-------------
any of its authorized but not outstanding shares of Stock (including treasury
shares), except the issuance of Common Stock upon conversion of Convertible
Preferred Stock, or upon exercise of the Warrants, or the issuance of Common
Stock upon exercise of options and warrants outstanding on the Closing Date or
upon issuance of Common Stock pursuant to an existing incentive stock option
plan of Company as presently in effect, or upon issuance of Common Stock
pursuant to an acquisition of another corporation by Company by merger, purchase
of all or substantially all of the assets, or other reorganization which is
permitted hereunder. Company shall not issue any additional shares of
Convertible Preferred Stock. Company's authorized capital Stock shall not
include any Stock senior to or pari passu with the Convertible Preferred Stock.
(f) Transactions with Affiliates. Company shall not and shall
----------------------------
not permit any Subsidiary of Company to enter into or be a party to any
transaction with any Affiliate of Company or such Subsidiary, except (i)
transactions expressly permitted hereby, (ii) ordinary course transactions
between Company and its wholly-owned
36
<PAGE>
Subsidiaries or between such Subsidiaries and (iii) payment of compensation to
employees and directors' fees.
(g) Indebtedness. Company shall not and shall not permit any
------------
Subsidiary of Company to incur or suffer to exist any Indebtedness except: (i)
Indebtedness existing on the date hereof and listed on Schedule 4.9; (ii)
Permitted Indebtedness; (iii) other Indebtedness pursuant to a working capital
line of credit in an aggregate amount not to exceed $3,500,000 for the Fiscal
Year ending June 30, 1998, and, for each Fiscal Year thereafter, the greater of
$3,500,000 and an amount not to exceed 5% of Company's gross revenues for the
prior Fiscal Year, provided that no event shall have occurred and be continuing,
or would result from the incurrence of such Indebtedness, which constitutes or
would constitute a Default or an Event of Default; or (iv) Indebtedness owing by
Company to any of its wholly-owned Subsidiaries or by any of Company's
wholly-owned Subsidiaries to any other wholly-owned Subsidiaries or Company.
(h) Restricted Payments. Company shall not and shall not
-------------------
permit any Subsidiary of Company to make any Restricted Payments nor shall
Company permit any Subsidiary to make such payments with respect to Company's
Stock; provided, however, that Company may redeem (i) the Convertible Preferred
Stock in accordance with its terms and (ii) outstanding options or warrants, up
to an aggregate of $2,000,000 in any Fiscal Year.
(i) Mergers and Subsidiaries. Neither Company nor any
------------------------
Subsidiary of Company shall directly or indirectly, by operation of law or
otherwise, merge with, consolidate with, or otherwise combine with any Person,
nor shall Company create any Subsidiary, other than (i) the creation of
wholly-owned Subsidiaries or (ii) mergers of wholly-owned Subsidiaries of
Company into Company or any other of its wholly-owned Subsidiaries.
(j) Management Compensation. Company shall not and shall not
-----------------------
permit any Subsidiary of Company to increase the salary and bonus in any year of
the officers of Company and its Subsidiaries, if as a result of such increase,
any such officer's total Compensation would increase by more than 10% of his or
her total Compensation for the prior year, provided that any mandatory increase
in Compensation paid in accordance with the terms of existing employment
37
<PAGE>
agreements, copies of which have been furnished to Purchaser, is permitted
hereunder.
(k) Amendments to Certificate of Incorporation and By-Laws.
------------------------------------------------------
Company shall not authorize, adopt or approve an amendment to the Certificate of
Incorporation of Company or the By-Laws of Company, except to increase the
number of authorized shares of common stock.
(l) Capital Expenditures. Company shall not permit any Capital
--------------------
Expenditures to be made in excess of $2,500,000 for the Fiscal Year ending June
30, 1998, and, for each Fiscal Year thereafter, an amount not to exceed 5% of
Company's gross revenues for the prior Fiscal Year.
5.3. Remedies for Breach of Covenants. Upon the occurrence and
--------------------------------
during the continuance of a breach by Company of any of the covenants contained
in this Article V (subject to notice and opportunity to cure as set forth in the
definition of Event of Default), in addition to any other remedies available at
law or in equity, the holders of the Convertible Preferred Stock shall be
entitled to an increase in the dividend rate on the Convertible Preferred Stock
and an additional director in accordance with the provisions of the Certificate
of Designation.
5.4. Certain Tax Matters. (a) In the event (i) of a Final
-------------------
Determination (as defined below) that, due to any reason (including by reason of
any of the terms of Convertible Preferred Stock) other than an act or failure to
act of Purchaser (including by reason of the application of IRC Section 246(c)
or IRC Section 246A) or Purchaser being other than a corporation, dividends paid
or accrued on the Convertible Preferred Stock pursuant to Sections 3, 4, 6 or
7(a) of the Certificate of Designation ("Stated Dividends") are not eligible for
the dividends received deduction provided under the Dividends Deduction Laws (as
defined in Section 5.5 below) (the "Dividends-Received Deduction"), (ii) any
Dividends Deduction Law or any similar or corresponding state or local law is
amended to reduce or eliminate or otherwise limit the Dividends-Received
Deduction available to Purchaser with respect to Stated Dividends or any other
dividend paid or accrued or deemed paid or accrued on the Convertible Preferred
Stock or (iii) any Stated Dividend with respect to the Convertible Preferred
Stock does not constitute, in whole or in part, a dividend for federal income
tax purposes or such dividend is subject to Section 1059 of the IRC (in either
case, an
38
<PAGE>
"Excess Distribution"), Company shall pay to Purchaser with respect to each such
dividend payment, no later than the Payment Date (as defined below), an
additional payment (the "Gross-Up Payment") such that the net amount of such
Gross- Up Payment received and retained by Purchaser after payment by Purchaser
of any federal, state and local income tax payable with respect to such Gross-Up
Payment shall equal, in the case of (i) or (ii) above, the difference between
(x) the federal, state and local income tax payable by Purchaser with respect to
such dividend in its taxable year in which the dividend was paid or deemed paid
and (y) the federal, state and local income tax which would have been payable by
Purchaser in its taxable year in which the dividend was paid or deemed paid if
the events described in (i) or (ii) had not occurred and in the case of (iii)
above, an amount which, when taken together with the aggregate distributions
(whether treated as dividends or Excess Distributions for federal income tax
purposes) paid or deemed paid to Purchaser during any taxable year, would cause
Purchaser's net yield in dollars (after taking into effect the federal income
tax consequences of treating the Excess Distributions received by Purchaser as
capital gain received upon the taxable sale or exchange of Convertible Preferred
Stock) to be equal to the net yield in dollars which would have been received by
Purchaser had none of the distributions paid or deemed paid to Purchaser during
such taxable year constituted Excess Distributions, in all cases together with
any interest or penalties actually payable by Purchaser to the IRS or any other
applicable taxing authority by reason of such events.
(b) A "Final Determination" shall mean (i) a decision,
judgment, decree or other order by any court of competent jurisdiction, which
decision, judgment, decree or other order has become final or (ii) a closing
agreement entered into under Section 7121 (or any successor to such Section) of
the IRC or any corresponding provision of state or local law, or any other
settlement agreement entered into in connection with an administrative or
judicial proceeding and consented to by a Purchaser or any member of its
consolidated group. The "Payment Date" shall mean the date that is 90 days after
the end of the relevant taxable year.
(c) If Purchaser is notified formally or informally of any
audit, examination or proceeding by the IRS or any other taxing authority with
respect to the availability of the Dividends-Received Deduction, Purchaser
39
<PAGE>
shall promptly notify Company of such audit, examination or proceeding;
provided, however, that Purchaser's failure to give such notice or to keep
Company fully informed concerning a Contest (as defined below) shall not affect
Company's obligation to make Gross-Up Payments in accordance with this Section.
Purchaser shall have exclusive control and responsibility to conduct any audit,
examination, proceeding or litigation (a "Contest") with respect to such issue.
(d) All subsequent holders of the Convertible Preferred Stock
shall be entitled to all of the benefits of this Section; provided that any such
subsequent holder qualifies for the Dividends-Received Deduction under the then
current Dividend Deductions Laws at the time of its acquisition of the
Convertible Preferred Stock.
5.5. Status of Dividends. Company will not (i) in any income
-------------------
tax return or claim for refund of income tax or other submission to the IRS or
other taxing authority claim a deduction in respect of amounts paid or payable
under the Convertible Preferred Stock, whether as interest or pursuant to any
other statutory provisions or regulation now in effect or hereafter enacted or
adopted, except to the extent that any such deduction shall not, in the opinion
of counsel satisfactory to the Required Holders, operate to jeopardize the
availability to Purchaser of the dividends received deduction provided by
Section 243(a)(1) of the IRC, or any successor provision or any similar or
corresponding provision under state or local law (collectively, the "Dividends
Deduction Laws"), (ii) in any report to stockholders, or to any governmental
body having jurisdiction over Company or otherwise treat the Convertible
Preferred Stock other than as equity capital or the dividends paid thereon other
than as dividends paid on equity capital unless required to do so by a
governmental body having jurisdiction over the accounts of Company or by a
change in GAAP required as a result of action by an authoritative accounting
standards-setting body, and (iii) except to the extent permitted in clause (i)
above and other than as expressly permitted by this Agreement or Company's
Certificate of Incorporation take any action which would result in the dividends
paid by Company on the Convertible Preferred Stock out of Company's current or
accumulated earnings and profits being ineligible for the dividends received
deduction provided by any Dividends Deduction Laws.
40
<PAGE>
VI. CONDITIONS PRECEDENT
--------------------
6.1. Conditions Precedent. The obligation of Purchaser to
--------------------
purchase the Convertible Preferred Stock and Warrants pursuant to Section 2.2
hereof, is subject to the condition that Purchaser shall have received, on the
Closing Date, the following, each dated the Closing Date unless otherwise
indicated, in form and substance satisfactory to the Required Holders:
(a) Favorable opinions of Camhy Karlinsky & Stein, LLP,
counsel to Company and Lionel Sawyer & Collins, Nevada counsel to Company,
substantially in the form attached hereto as Exhibit E, it being understood that
to the extent that such opinion of counsel to Company shall rely upon any other
opinion of counsel, each such other opinion shall be in form and substance
reasonably satisfactory to Purchaser and shall provide that Purchaser may rely
thereon.
(b) Resolutions of the board of directors of Company,
certified by the Secretary or Assistant Secretary of Company, as of the Closing
Date, to be duly adopted and in full force and effect on such date, authorizing
(i) the consummation of each of the transactions contemplated by this Agreement
and (ii) specific officers to execute and deliver this Agreement and each other
Transaction Document to which it is a party.
(c) Governmental certificates, dated the most recent
practicable date prior to the Closing Date, with telegram updates where
available, showing that Company is organized and in good standing in the
jurisdiction of its organization and is qualified as a foreign corporation and
in good standing in all other jurisdictions in which it is qualified to transact
business.
(d) True and correct copies, certified by the Secretary or
Assistant Secretary of Company, of the document evidencing the terms of the
Convertible Preferred Stock, which shall contain the terms set forth in Exhibit
A attached hereto and evidence of the filing of the Certificate of Designation
with the Secretary of State of the State of Nevada, it being understood that as
soon as practicable after the Closing Date, Company shall file an amendment to
the previously filed Certificate of Designation so as to conform it to the terms
set forth in Exhibit A hereto.
41
<PAGE>
(e) A copy of the organizational charter and all amendments
thereto of Company, certified as of a recent date by the Secretary of State of
the State of Nevada, and copies of Company's by-laws, certified by the Secretary
or Assistant Secretary of Company as true and correct as of the Closing Date.
(f) The letter from Company to its accountants referred to in
Section 5.1(c).
(g) The Registration Rights Agreement and the Stockholders
Agreement duly executed by the parties thereto.
(h) Certificates of the Secretary or an Assistant Secretary of
Company, dated the Closing Date, as to the incumbency and signatures of the
officers of Company executing this Agreement, the Convertible Preferred Stock,
the Warrants, each other Transaction Document to which it is a party and any
other certificate or other document to be delivered pursuant hereto or thereto,
together with evidence of the incumbency of such Secretary or Assistant
Secretary.
(i) Certificate of the President of Company, dated the Closing
Date, stating that all of the representations and warranties of Company
contained herein or in the other Transaction Documents are true and correct on
and as of the Closing Date as if made on such date and that no breach of any
covenant contained in Article V has occurred or would result from the Closing
hereunder.
6.2. Additional Conditions to Closing. The obligation of
--------------------------------
Purchaser to purchase the Convertible Preferred Stock and the Warrants to be
purchased on the Closing Date pursuant to Section 2.2 is subject to the
additional conditions precedent that:
(a) Purchaser shall have received evidence that the insurance
policies provided for in Section 4.24 are in full force and effect, certified by
the insurer thereof.
(b) Except as disclosed pursuant to Article IV, there shall
not have occurred any event or condition since June 30, 1997 which could have a
Material Adverse Effect.
(c) All of the representations and warranties of Company
contained herein or in the other Transaction Documents shall be true and correct
in all material respects on and as of the Closing Date as if made on such date
and no
42
<PAGE>
breach of any covenant contained in Article V shall have occurred or would
result from the Closing hereunder.
(d) The Closing shall have occurred no later than December 31,
1997.
(e) Purchaser shall have completed its business, financial and
legal due diligence investigation and review of Company with results
satisfactory to it in its sole discretion.
VII. SECURITIES LAW MATTERS
----------------------
7.1. Legends. Each certificate representing the
-------
Convertible Preferred Stock shall bear a legend
substantially in the following form:
"THE SERIES D CONVERTIBLE PREFERRED STOCK REPRESENTED BY THIS
CERTIFICATE HAS BEEN ACQUIRED BY THE HOLDER FOR ITS OWN
ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE
DISTRIBUTION OF SUCH CONVERTIBLE PREFERRED STOCK. THE SHARES
OF SERIES D CONVERTIBLE PREFERRED STOCK HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 ("THE ACT") AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION
THEREFROM."
VIII. INDEMNIFICATION
---------------
Company agrees to indemnify and hold harmless Purchaser and
its Affiliates and their respective officers, directors and employees from and
against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of
any kind ("Losses") which may be imposed upon, incurred by or asserted against
Purchaser or such other indemnified Persons in any manner relating to or arising
out of any untrue representation, breach of warranty or failure to perform any
covenants or agreement by Company contained herein or in any certificate or
document delivered pursuant hereto or arising out of any Environmental Law
applicable to Company or its Subsidiaries or otherwise relating to or arising
out of the transactions contemplated hereby, other than those Losses that arise
as a result of
43
<PAGE>
Purchaser's or such other indemnified Persons' gross negligence or willful
misconduct.
IX. EXPENSES
--------
Company shall pay all reasonable out-of-pocket expenses of
Purchaser in connection with the preparation of the Transaction Documents and
the transactions contemplated thereby including all legal expenses. In addition,
Company shall pay all reasonable out-of-pocket expenses of Purchaser in
connection with (A) any amendment, modification or waiver, or consent with
respect to, any of the Transaction Documents, and (B) any attempt to enforce any
rights of Purchaser against Company, any Subsidiary of Company or any other
Person, that may be obligated to Purchaser by virtue of any of the Transaction
Documents (including the reasonable fees and expenses of all of its counsel and
consultants retained in connection with the Transaction Documents and the
transactions contemplated thereby).
X. MISCELLANEOUS
-------------
10.1. Notices. Whenever it is provided herein that any notice,
demand, request, consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by another, or whenever any of
the parties desires to give or serve upon another any such communication with
respect to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged or by registered or certified
mail, return receipt requested, postage prepaid, or by telecopy and confirmed by
telecopy answerback addressed as follows:
If to Company:
Marketing Services Group, Inc.
333 Seventh Avenue, 20th Floor
New York, New York 10001
Attn: Jeremy Barbera
Telecopy Number: (212) 465-8877
44
<PAGE>
with a copy (which shall not constitute notice)
to:
Camhy Karlinsky & Stein LLP
1740 Broadway
New York, New York 10019
Attn: Alan I. Annex, Esq.
Telecopy Number: (212) 977-8389
If to Purchaser:
General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
Attn: Equity Capital Group-Consumer Products
Telecopy Number: (203) 961-2088
with copies to:
General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
Attention: Equity Capital Group Legal Counsel
Telecopy Number: (203) 357-3047
and
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Ted S. Waksman, Esq.
Telecopy Number: (212) 310-8007
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback, or
three (3) Business Days after the same shall have been deposited with the United
States mail.
10.2. Binding Effect; Benefits. Except as otherwise provided
------------------------
herein, this Agreement shall be binding upon and inure to the benefit of the
parties to this Agreement and their respective successors and permitted
45
<PAGE>
assigns. Nothing in this Agreement, express or implied, is intended or shall be
construed to give any person other than the parties to this Agreement or their
respective successors or assigns any legal or equitable right, remedy or claim
under or in respect of any agreement or any provision contained herein.
10.3. Amendment. No amendment or waiver of any provision of
---------
this Agreement or any other Transaction Document nor consent to any departure by
Company therefrom, shall in any event be effective unless the same shall be in
writing and signed by Company and the Required Holders, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action, of compliance
with any representations, warranties, covenants or agreements contained herein.
The waiver by any party hereto of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any preceding or succeeding
breach and no failure by either party to exercise any right or privilege
hereunder shall be deemed a waiver of such party's rights or privileges
hereunder or shall be deemed a waiver of such party's rights to exercise the
same at any subsequent time or times hereunder.
10.4. Successors and Assigns; Assignability. Neither this
-------------------------------------
Agreement nor any right, remedy, obligation or liability arising hereunder or by
reason hereof shall be assignable by Company without the prior written consent
of the Required Holders. Any right, remedy, obligation or liability arising
hereunder or by reason hereof shall be assignable by Purchaser without the prior
written consent of Company, except the obligation of Purchaser to purchase the
Convertible Preferred Stock and Warrants at the Closing. All covenants contained
herein shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
10.5. Remedies. Purchaser, in addition to being entitled to
--------
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to
46
<PAGE>
waive the defense in any action for specific performance that a remedy at law
would be adequate. In any action or proceeding brought to enforce any provision
of this Agreement or where any provision hereof is validly asserted as a
defense, the successful party shall be entitled to recover reasonable attorneys'
fees in addition to any other available remedy.
10.6. Section and Other Headings. The section and other
--------------------------
headings contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
10.7. Severability. In the event that any one or more of the
------------
provisions contained in this Agreement shall be determined to be invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision or provisions in every other respect
and the remaining provisions of this Agreement shall not be in any way impaired.
10.8. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be one and the same instrument.
10.9. Publicity. Neither Purchaser nor Company shall issue any
---------
press release or make any public disclosure regarding the transactions
contemplated hereby unless such press release or public disclosure is approved
by the other party in advance. Notwithstanding the foregoing, each of the
parties hereto may, in documents required to be filed by it with the SEC or
other regulatory bodies, make such statements with respect to the transactions
contemplated hereby as each may be advised by counsel is legally necessary or
advisable, and may make such disclosure as it is advised by its counsel is
required by law.
10.10. Governing Law. This Agreement shall be governed by,
-------------
construed and enforced in accordance with, the laws of the State of New York
without regard to the principles thereof relating to conflict of laws. Each of
the parties hereby submits to personal jurisdiction and waives any objection as
to venue in the County of New York, State of New York. Service of process on the
parties in any action arising out of or relating to this Agreement shall be
effective if mailed to the parties in accordance with Section 10.1 hereof. The
parties hereto waive all right to
47
<PAGE>
trial by jury in any action or proceeding to enforce or defend any rights under
this Agreement.
48
<PAGE>
IN WITNESS WHEREOF, Company and Purchaser has executed this
Agreement as of the day and year first above written.
MARKETING SERVICES GROUP, INC.
By: __________________________________
Name: Jeremy Barbera
Title: Chief Executive Officer
GENERAL ELECTRIC CAPITAL CORPORATION
By: ________________________________
Name:
Title:
49
NYFS10...:\60\47660\1420\1219\AGRN247R.09E
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of December 24, 1997 (this
"Agreement"), by and among Marketing Services Group, Inc., a Nevada corporation
having an office at 333 Seventh Avenue, 20th Floor, New York, New York 10001
("Company"), and those stockholders of Company set forth on Annex I hereto
(individually, a "Stockholder" and collectively, the "Stockholders").
W I T N E S S E T H :
-------------------
WHEREAS, Company and General Electric Capital Corporation ("GE
Capital" or "Purchaser") have entered into that certain Purchase Agreement,
dated as of December 24, 1997 (the "Purchase Agreement"), pursuant to which
Company has agreed to sell, and Purchaser has agreed to purchase, on the terms
and subject to the conditions set forth therein, 50,000 shares of Series D
Convertible Preferred Stock, $0.01 par value per share ("Convertible Preferred
Stock"), of Company convertible into shares of common stock of Company, $.01 par
value per share ("Common Stock"), and 10,670,000 Warrants to purchase shares of
Common Stock;
WHEREAS, each of the parties hereto (other than Company) are
on the date hereof holders of the number of shares of Convertible Preferred
Stock or Common Stock (all shares of Convertible Preferred Stock and Common
Stock being referred to herein collectively as "Stock") as is set forth on Annex
I hereto (such Stockholders, other than Purchaser and its successors and
assigns, the "Existing Stockholders"); and
WHEREAS, certain terms used in this Agreement are
defined in the Purchase Agreement;
NOW, THEREFORE, in consideration of the agreements, premises
and mutual covenants contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Tag-Along Right.
---------------
(a) No Existing Stockholder shall directly or indirectly sell,
transfer or otherwise dispose of Stock, which after giving effect to all prior
sales, transfers or
<PAGE>
other dispositions from and after the date hereof by the Existing Stockholder
constitutes more than twenty percent (20%) of the Common Stock owned by all
Existing Stockholders on the date hereof, in a single transaction or related
series of transactions, to any third party unless the terms and conditions of
such sale, transfer or other disposition (the "Third Party Disposition") to such
third party shall contain an offer to Purchaser, to include in such Third Party
Disposition such number of shares of Common Stock or Convertible Preferred Stock
as is determined in accordance with Section 1(b) below. At least 45 days prior
to effecting any Third Party Disposition, such selling Existing Stockholder (the
"Selling Existing Stockholder") shall promptly cause the terms and conditions of
the Third Party Disposition to be reduced to a reasonably detailed writing
(which writing shall identify the third party purchaser and shall include the
offer to Purchaser to purchase or otherwise acquire its Common Stock or
Convertible Preferred Stock, as the case may be, according to the terms and
subject to the conditions of this Section 1), and shall deliver, or cause the
third party to deliver, written notice (the "Notice") of the terms of such Third
Party Disposition to Purchaser. The Notice shall be accompanied by a true and
correct copy of the agreement, if any, embodying the terms and conditions of the
proposed Third Party Disposition or such written summary thereof if there is no
agreement. At any time after receipt of the Notice (but in no event later than
10 Business Days after receipt), Purchaser may accept the offer included in the
Notice for up to such number of its shares of Common Stock or Convertible
Preferred Stock, as the case may be, as determined in accordance with the
provisions of Section 1(b) below, by furnishing irrevocable written notice of
such acceptance to the Selling Existing Stockholder and to the third party.
(b) In the event that Purchaser elects to accept the offer
included in the Notice described in Section 1(a) above, Purchaser (the "Included
Stockholder") shall have the right to sell, transfer or otherwise dispose of
such number of its shares of Common Stock (including Convertible Preferred
Stock) pursuant to, and upon consummation of, the Third Party Disposition which
is equal to the product of (X) the total number of shares of Common Stock owned
by the Included Stockholder (assuming for the purpose of this calculation, the
conversion of all shares of Convertible Preferred Stock and exercise of all then
exercisable Warrants) and (Y) a fraction, the numerator of which shall equal the
total number of shares of Common Stock to be sold
2
<PAGE>
to the third party, and the denominator of which shall equal the total number of
shares of Common Stock owned by all Stockholders (assuming for the purposes of
this calculation, the conversion of all shares of Convertible Preferred Stock
and the exercise of all then exercisable Warrants). If the third party purchaser
is not willing to purchase such additional shares, the number of shares to be
sold by the Selling Existing Stockholder and the Included Stockholder shall be
proportionately reduced.
(c) The purchase of Stock pursuant to this Section 1 shall be
made on the same terms (including, without limitation, the per share
consideration and method of payment, and the date of sale, transfer or other
disposition), and subject to the same conditions, if any, as are provided to the
Selling Existing Stockholder and stated in the Notice.
(d) Upon the consummation of the disposition of Stock to the
third party pursuant to the Third Party Disposition, the Selling Existing
Stockholder shall (i) cause the third party to remit directly to the Included
Stockholder the sales price of its Stock disposed of pursuant thereto, and (ii)
furnish such other evidence of the completion and time of completion of such
disposition and the terms thereof as may reasonably be requested by such
Included Stockholder.
(e) If Purchaser has not delivered to the Selling Existing
Stockholder and to the third party written notice of its acceptance of the offer
contained in the Notice within 10 Business Days after the receipt of such
Notice, it shall be deemed to have waived any and all rights pursuant to this
Section 1 with respect to the disposition of its Stock described in the Notice,
and the Selling Existing Stockholder shall have 45 days (calculated from the
first day next succeeding the expiration of the 45 day acceptance period
described above), in which to dispose of the aggregate amount of Stock described
in the Notice to the third party identified in the Notice, on terms not more
favorable to the Selling Existing Stockholder than those which were set forth in
the Notice. If Purchaser has delivered irrevocable written notice of acceptance
as described in the preceding sentence and, if after 30 days following receipt
of the Notice, the Selling Existing Stockholder and the third party shall not
have completed the disposition of Stock to be sold in connection therewith in
accordance with the terms of the Third Party Disposition,
3
<PAGE>
all the restrictions on the disposition of Stock contained in this Section 1
shall again be in force and effect.
2. Right of First Refusal for New Securities.
-----------------------------------------
(a) Company hereby grants to Purchaser a right of first
refusal to purchase shares of any New Securities (as defined below) which
Company may, from time to time, propose to sell and issue. Such right of first
refusal shall allow Purchaser to purchase a pro rata portion of the New
Securities proposed to be issued, determined with reference to the aggregate
number of outstanding shares of Common Stock and/or Convertible Preferred Stock
(determined on an as converted basis) and/or Warrants (assuming the exercise of
the then exercisable Warrants) held by Purchaser or its permitted transferees
before the proposed issuance of New Securities. The right of first refusal
granted hereunder shall terminate if unexercised within 10 Business Days after
receipt of the notice described in Section 2(c) hereof.
(b) "New Securities" shall mean any authorized but unissued
shares, and any treasury shares, of capital stock of Company and all rights,
options or warrants to purchase capital stock, and securities of any type
whatsoever that are, or may become, convertible into capital stock; provided,
however, that the term "New Securities" does not include (i) securities issued
pursuant to the acquisition of another corporation by Company by merger,
purchase of all or substantially all of the assets or other reorganization
whereby Company shall become the owner of more than 50% of the voting power of
such corporation; (ii) shares of Common Stock issued in connection with any
stock split or stock dividend of Company; (iii) shares of Common Stock issued
pursuant to any public offering and sale of equity securities of Company
pursuant to an effective registration statement under the Securities Act; (iv)
shares of Common Stock issued pursuant to the conversion of Convertible
Preferred Stock; (v) shares of Common Stock issued upon exercise of the
Warrants; or (vi) shares of Common Stock issued pursuant to the exercise of
options granted to employees, directors or consultants under Company's existing
stock options, existing now or created in the future (to the extent permitted
under the Purchase Agreement) or stock option plans or pursuant to the exercise
of presently outstanding Warrants.
(c) If Company proposes to issue New Securities, it shall give
Purchaser written notice thereof, describing
4
<PAGE>
the New Securities, the number thereof to be issued, the purchase price therefor
(which shall be payable solely in cash) and the terms upon which Company
proposes to issue the same. Purchaser shall have 10 Business Days from the date
such notice is given to determine whether to purchase all or any portion of its
pro rata share of such New Securities for the purchase price and upon the terms
specified in the notice by giving written notice to Company and stating therein
the number of New Securities to be purchased.
(d) If Purchaser has not elected to purchase all of the New
Securities proposed to be issued (within the time period for notifying Company
set forth above), then Company shall have 60 calendar days in which to complete
the proposed issuance of the portion of the New Securities not purchased by
Purchaser at a price not less than that contained in the notice previously given
to Purchaser and on terms and conditions not more favorable to the third party
than those contained in such notice. If, at the end of such 60-calendar day
period, Company has not completed such issuance of New Securities, Company shall
no longer be permitted to issue such New Securities pursuant to this Section 2
without again fully complying with all of the provisions of this Section 2.
3. Board Observer.
--------------
At any time that GE Capital shall be entitled to designate two
or more members of the Board of Directors and designates fewer than such number,
GE Capital may designate one individual (the "Observer") to attend all meetings
of the Board of Directors (and any committees thereof) in a non-voting observer
capacity. The Observer shall be entitled to receive all reports, presentations
and materials as if the Observer were a member of the Board. Company shall
reimburse each director designated by GE Capital for any reasonable expenses
incurred in connection with meetings of the Board of Directors and committees
thereof, and shall similarly reimburse the Observer.
4. Stockholders' Representations and Warranties. Each
--------------------------------------------
Stockholder represents and warrants to each of the other Stockholders that there
are no agreements to which such Stockholder is a party with respect to the
voting or transfer of the capital stock of Company or with respect to any other
aspect of Company's affairs, other than this Agreement.
5
<PAGE>
5. Legend. The Existing Stockholders agree that each
------
certificate representing the Stock now or hereafter held by a Stockholder shall
be endorsed with a legend in substantially the following form:
"The shares represented by this certificate are subject to a
certain Stockholders Agreement, dated as of December 24, 1997, which
provides, among other things, for certain restrictions on the transfer
of such shares. A copy of such Agreement is on file at the principal
offices of Marketing Services Group, Inc. and will be furnished upon
request to any holder of the shares represented by this certificate."
6. Equitable Relief. It is hereby acknowledged that
----------------
irreparable harm would occur in the event that any of the provisions of this
Agreement were not performed fully by the parties hereto in accordance with the
terms specified herein, and that monetary damages are an inadequate remedy for
breach of this Agreement because of the difficulty of ascertaining and
quantifying the amount of damage that will be suffered by the parties relying
hereon in the event that the undertakings and provisions contained in this
Agreement were breached or violated. Accordingly, each party hereto hereby
agrees that each other party hereto shall be entitled to an injunction or
injunctions to restrain, enjoin and prevent breaches of the undertakings and
provisions hereof and to enforce specifically the undertakings and provisions
hereof in any court of the United States or any state having jurisdiction over
the matter; it being understood that such remedies shall be in addition to, and
not in lieu of, any other rights and remedies available at law or in equity.
7. Miscellaneous.
-------------
(a) Notices. Any and all notices, designations, consents,
offers, acceptances, or any other communication provided for herein shall be
made in writing by personal- delivery, first-class mail (registered or
certified, with return receipt requested), telecopier (with "answer back"
confirmation), or overnight air courier guaranteeing next day delivery in the
case of Company, at its address set forth at the beginning of this Agreement
(Attn: Jeremy Barbera telecopy No.: (212) 465-8877, and in the case of any
Stockholder, to the address of such party appearing under its or his name on
Annex I hereto (or to such other address as may be designated in writing by any
such party in
6
<PAGE>
accordance with this Section 7(a)). Such notices or communications shall be
effective and deemed given upon delivery to said address.
(b) Complete Agreement; Amendment. This Agreement constitutes
the complete understanding of the parties with respect to its subject matter and
supersedes any other agreement or understanding relating thereto. No amendment,
change or modification of this Agreement shall be valid, binding or enforceable,
unless the same shall be in writing and signed by GE Capital and the Company and
the Existing Shareholders to the extent their rights and obligations under this
Agreement would be affected thereby.
(c) Termination. This Agreement may be terminated at any time
by an instrument in writing signed by GE Capital.
(d) Waiver. No failure or delay on the part of the
Stockholders or Company or any of them in exercising any right, power or
privilege hereunder, and no course of dealing between the Stockholders or
Company, shall operate as a waiver thereof nor shall any single or partial
exercise of any right, power or privilege hereunder preclude the simultaneous or
later exercise of any other right, power or privilege. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights and
remedies which the Stockholders or Company would otherwise have.
(e) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
(f) Governing Law; Waivers. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the State of New York
without giving effect to the conflict of laws provisions thereof. Each of the
parties hereby submits to personal jurisdiction and waives any objection as to
venue in the County of New York, State of New York. Service of process on the
parties in any action arising out of or relating to this Agreement shall be
effective if mailed to the parties in accordance with Section 7(a) hereof. The
parties hereto waive all right to trial by jury in any action or proceeding to
enforce or defend any rights hereunder.
7
<PAGE>
(g) Benefit and Binding Effect. All of the terms and
provisions of this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns, including any
permitted transferee of their Stock (other than as part of a registered offering
under the Securities Act). References herein to Purchaser shall include
Purchaser and any of its successors and assigns.
(h) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(i) After-Acquired Shares. All of the provisions of this
Agreement shall apply to all of the shares of capital stock of Company now owned
or which may be issued to or acquired by a Stockholder in consequence of any
additional issuance (including, without limitation, by exercise of an option or
any warrant), purchase, exchange, conversion or reclassification of stock,
corporate reorganization, or any other form of recapitalization, consolidation,
merger, stock split or stock dividend, or which are acquired by a Stockholder in
any other manner.
(j) Approvals and Consents. The Stockholders hereby agree, for
themselves, their successors, heirs and legal representatives, to vote at
stockholders' and directors' meetings of Company, to prepare, execute and
deliver or cause to be prepared, executed and delivered such further instruments
and documents, to take such other actions and to adopt such by-laws and
provisions of the certificate of incorporation as may be reasonably required to
more effectively carry out the intent and purposes of this Agreement and the
transactions contemplated hereby. They further agree to cause Company to do the
same.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MARKETING SERVICES GROUP, INC.
By: ________________________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By: _______________________________________
Name:
Title:
EXISTING STOCKHOLDERS:
---------------------
Jeremy Barbera
____________________________________
9
<PAGE>
ANNEX I
-------
Number
Stockholders/Purchaser Class of Securities of Shares
- ---------------------- ------------------- ---------
General Electric Convertible Preferred Stock 50,000
Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
Attn: Equity Capital Group-
Consumer Products
Telecopy No. (203) 961-2088
with copies to:
General Electric
Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
Attn: Equity Capital Group
Legal Counsel
Telecopy No. (203) 357-3047
and
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Ted S. Waksman, Esq.
Telecopy No. (212) 310-8007
<PAGE>
Number
Stockholders/Existing Stockholders Class of Securities of Shares
- ---------------------------------- ------------------- ---------
Jeremy Barbera Common Stock _________
NYFS10...:\60\47660\1420\1219\AGRN257X.08D
REGISTRATION RIGHTS AGREEMENT
-----------------------------
Registration Rights Agreement, dated as of December 24, 1997,
by and among Marketing Services Group, Inc., a Nevada corporation ("Company")
and General Electric Capital Corporation ("GE Capital" or "Purchaser").
W I T N E S S E T H :
-------------------
WHEREAS, Company and Purchaser have entered into that certain
Purchase Agreement, dated as of December 24, 1997 (the "Purchase Agreement"),
pursuant to which Company has agreed to issue and sell to Purchaser, and
Purchaser has agreed to purchase from Company, an aggregate of 50,000 shares of
Series D Convertible Preferred Stock, $0.01 par value per share ("Convertible
Preferred Stock"), and 10,670,000 Warrants to purchase shares of Common Stock
("Warrants"); and
WHEREAS, in order to induce Purchaser to enter into the
Purchase Agreement and to purchase such shares of Convertible Preferred Stock
and such Warrants, Company has agreed to provide registration rights with
respect thereto;
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, it is agreed as follows:
1. Definitions. Unless otherwise defined herein, terms defined
-----------
in the Purchase Agreement are used herein as therein defined, and the following
shall have (unless otherwise provided elsewhere in this Registration Rights
Agreement) the following respective meanings (such meanings being equally
applicable to both the singular and plural form of the terms defined):
"Agreement" shall mean this Registration Rights Agreement,
including all amendments, modifications and supplements and any exhibits or
schedules to any of the foregoing, and shall refer to the Agreement as the same
may be in effect at the time such reference becomes operative.
"Business Day" shall mean any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then
<PAGE>
administering the Securities Act and other federal securities laws.
"Conversion Shares" shall mean shares of Common Stock issued
upon conversion of shares of Convertible Preferred Stock or upon exercise of the
Warrants.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Holder" shall mean the holder of Conversion Shares, shares of
Convertible Preferred Stock or Warrants.
"Majority Holders" shall mean Holders holding at the time,
shares of Convertible Preferred Stock, Warrants or Conversion Shares
representing more than 50% of the sum of (x) all then outstanding Conversion
Shares and (y) all shares of Common Stock issuable to the holders of
then-outstanding Convertible Preferred Stock or Warrants upon the conversion or
exercise thereof.
"NASD" shall mean the National Association of Securities
Dealers, Inc., or any successor corporation thereto.
"Registrable Securities" shall mean the shares of Common Stock
from time to time issued or issuable to the holders of the Convertible Preferred
Stock or Warrants upon the conversion or exercise thereof or hereafter acquired
by Purchaser or which Purchaser hereafter obtains the right to acquire pursuant
to the terms of the Stockholders Agreement or otherwise.
"Secondary Offering" shall have the meaning set forth in
Section 3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
2. Required Registration. After receipt of a written request
---------------------
from the holders of Registrable Securities requesting that Company effect a
registration under the Securities Act covering either at least 20% of the
Registrable Securities initially outstanding, and specifying
2
<PAGE>
the intended method or methods of disposition thereof, Company shall promptly
notify all Holders in writing of the receipt of such request and each such
Holder may elect (by written notice sent to Company within 10 Business Days from
the date of such Holder's receipt of the aforementioned Company's notice) to
have Registrable Securities included in such registration thereof pursuant to
this Section 2. Thereupon Company shall, as expeditiously as is possible, use
its best efforts to effect the registration under the Securities Act of all
shares of Registrable Securities which Company has been so requested to register
by such Holders for sale, all to the extent required to permit the disposition
(in accordance with the intended method or methods thereof, as aforesaid) of the
Registrable Securities so registered; provided, however, that Company shall not
be required to effect more than two (2) registrations of any Registrable
Securities pursuant to this Section 2 unless Company shall be eligible at any
time to file a registration statement on Form S-3 (or other comparable short
form) under the Securities Act, in which event there shall be no limit on the
number of such registrations pursuant to this Section 2. The rights of the
Holders under this Section 2 shall not become effective until the earlier of
January 1, 2000 or ninety (90) days following the consummation of a Secondary
Offering (as hereinafter defined).
3. Incidental Registration. If Company at any time proposes to
-----------------------
file on its behalf and/or on behalf of any of its security holders (the
"demanding security holders") a Registration Statement under the Securities Act
on any form (other than a Registration Statement on Form S-4 or S-8 or any
successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act or to employees of Company
pursuant to any employee benefit plan, respectively) for the general
registration of securities (a "Secondary Offering"), it will give written notice
to all Holders at least 30 days before the initial filing with the Commission of
such Registration Statement, which notice shall set forth the intended method of
disposition of the securities proposed to be registered by Company. The notice
shall offer to include in such filing the aggregate number of shares of
Registrable Securities as such Holders may request.
Each Holder desiring to have Registrable Securities registered
under this Section 3 shall advise Company in writing within 10 Business Days
after the date of receipt of such offer from Company, setting forth the amount
3
<PAGE>
of such Registrable Securities for which registration is requested. Company
shall thereupon include in such filing the number of shares of Registrable
Securities for which registration is so requested, subject to the next sentence,
and shall use its best efforts to effect registration under the Securities Act
of such shares. If the managing underwriter of a proposed public offering shall
advise Company in writing that, in its opinion, the distribution of the
Registrable Securities requested to be included in the registration concurrently
with the securities being registered by Company or such demanding security
holder would materially and adversely affect the distribution of such securities
by Company or such demanding security holder, then all selling security holders
(including the demanding security holder) shall reduce the amount of securities
each intended to distribute through such offering on a pro rata basis. Except as
otherwise provided in Section 5, all expenses of such registration shall be
borne by Company.
4. Registration Procedures. If Company is required by the
-----------------------
provisions of Section 2 or 3 to use its best efforts to effect the registration
of any of its securities under the Securities Act, Company will, as
expeditiously as possible:
(a) prepare and file with the Commission a
Registration Statement with respect to such securities and use its best efforts
to cause such Registration Statement to become and remain effective for a period
of time required for the disposition of such securities by the holders thereof,
but not to exceed 180 days;
(b) prepare and file with the Commission
such amendments and supplements to such Registration Statement and the
prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all securities
covered by such Registration Statement until the earlier of such time as all of
such securities have been disposed of in a public offering or the expiration of
180 days;
(c) furnish to such selling security holders
such number of copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and
4
<PAGE>
such other documents, as such selling security holders may reasonably request;
(d) use its best efforts to register or
qualify the securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions within the United States and
Puerto Rico as each holder of such securities shall request (provided, however,
that Company shall not be obligated to qualify as a foreign corporation to do
business under the laws of any jurisdiction in which it is not then qualified or
to file any general consent to service or process), and do such other reasonable
acts and things as may be required of it to enable such holder to consummate the
disposition in such jurisdiction of the securities covered by such Registration
Statement;
(e) furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to Section 2, on the
date that such shares of Registrable Securities are delivered to the
underwriters for sale pursuant to such registration or, if such Registrable
Securities are not being sold through underwriters, on the date that the
Registration Statement with respect to such shares of Registrable Securities
becomes effective, (1) an opinion, dated such date, of the independent counsel
representing Company for the purposes of such registration, addressed to the
underwriters, if any, and if such Registrable Securities are not being sold
through underwriters, then to the Holders making such request, in customary form
and covering matters of the type customarily covered in such legal opinions; and
(2) a comfort letter dated such date, from the independent certified public
accountants of Company, addressed to the underwriters, if any, and if such
Registrable Securities are not being sold through underwriters, then to the
Holder making such request and, if such accountants refuse to deliver such
letter to such Holder, then to Company, in a customary form and covering matters
of the type customarily covered by such comfort letters and as the underwriters
or such Holder shall reasonably request. Such opinion of counsel shall
additionally cover such other legal matters with respect to the registration in
respect of which such opinion is being given as such Holders may reasonably
request. Such letter from the independent certified public accountants shall
additionally cover such other financial matters (including information as to the
period ending not more than five Business Days prior to the date of such letter)
with respect
5
<PAGE>
to the registration in respect of which such letter is being given as the
Holders of a majority of the Registrable Securities being so registered may
reasonably request;
(f) enter into customary agreements
(including an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities; and
(g) otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, but not later than
18 months after the effective date of the Registration Statement, an earnings
statement covering the period of at least 12 months beginning with the first
full month after the effective date of such Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
It shall be a condition precedent to the obligation of Company
to take any action pursuant to this Agreement in respect of the securities which
are to be registered at the request of any Holder that such Holder shall furnish
to Company such information regarding the securities held by such Holder and the
intended method of disposition thereof as Company shall reasonably request and
as shall be required in connection with the action taken by Company.
5. Expenses. All expenses incurred in complying with this
--------
Agreement, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), printing expenses,
fees and disbursements of counsel for Company, the reasonable fees and expenses
of counsel for the selling security holders (selected by those holding a
majority of the shares being registered), expenses of any special audits
incident to or required by any such registration and expenses of complying with
the securities or blue sky laws of any jurisdiction pursuant to Section 4(d),
shall be paid by Company, except that:
(a) all such expenses in connection with any
amendment or supplement to the Registration Statement or prospectus filed more
than 180 days after the effective date of such Registration Statement because
any Holder has not
6
<PAGE>
effected the disposition of the securities requested to be registered shall be
paid by such Holder; and
(b) Company shall not be liable for any
fees, discounts or commissions to any underwriter or any fees or disbursements
of counsel for any underwriter in respect of the securities sold by such Holder.
6. Indemnification and Contribution.
--------------------------------
(a) In the event of any registration of any
Registrable Securities under the Securities Act pursuant to this Agreement,
Company shall indemnify and hold harmless the holder of such Registrable
Securities, such holder's directors and officers, and each other person
(including each underwriter) who participated in the offering of such
Registrable Securities and each other person, if any, who controls such holder
or such participating person within the meaning of the Securities Act, against
any losses, claims, damages or liabilities, joint or several, to which such
holder or any such director or officer or participating person or controlling
person may become subject under the Securities Act or any other statute or at
common law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any alleged untrue
statement of any material fact contained, on the effective date thereof, in any
Registration Statement under which such securities were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or (ii) any alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and shall reimburse such holder or such
director, officer or participating person or controlling person for any legal or
any other expenses reasonably incurred by such holder or such director, officer
or participating person or controlling person in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that Company shall not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon any
actual or alleged untrue statement or actual or alleged omission made in such
Registration Statement, preliminary prospectus, prospectus or amendment or
supplement in reliance upon and in conformity with written information furnished
to Company by such holder specifically for use therein or (in the case of any
registration pursuant
7
<PAGE>
to Section 2) so furnished for such purposes by any underwriter. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such holder or such director, officer or participating person or
controlling person, and shall survive the transfer of such securities by such
holder.
(b) Each Holder, by acceptance hereof,
agrees to indemnify and hold harmless Company, its directors and officers and
each other person, if any, who controls Company within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which Company or any such director or officer or any such person may
become subject under the Securities Act or any other statute or at common law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon information in writing provided to
Company by such Holder specifically for use in the following documents and
contained, on the effective date thereof, in any Registration Statement under
which securities were registered under the Securities Act at the request of such
holder, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto. Notwithstanding the provisions of this
paragraph (b) or paragraph (c) below, no Holder shall be required to indemnify
any person pursuant to this Section 6 or to contribute pursuant to paragraph (c)
below in an amount in excess of the amount of the aggregate net proceeds
received by such Holder in connection with any such registration under the
Securities Act.
(c) If the indemnification provided for in
this Section 6 from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified parties in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission
8
<PAGE>
to state a material fact, has been made by, or relates to information supplied
by, such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 6(c) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
7. Certain Limitations on Registration Rights. Notwithstanding
------------------------------------------
the other provisions of this Agreement:
(a) Company shall not be obligated to register the
Registrable Securities of any Holder if, in the opinion of counsel to Company
reasonably satisfactory to the Holder and its counsel (or, if the Holder has
engaged an investment banking firm, to such investment banking firm and its
counsel), the sale or other disposition of such Holder's Registrable Securities,
in the manner proposed by such Holder (or by such investment banking firm), may
be effected without registering such Registrable Securities under the Securities
Act; and
(b) Company shall not be obligated to register the
Registrable Securities of any Holder pursuant to Section 2 if Company has had a
registration statement, under which such Holder had a right to have its
Registrable Securities included pursuant to Section 2 or 3, declared effective
within one year prior to the date of the request pursuant to Section 2;
provided, however, that if any Holder elected to have shares of its Registrable
Securities included under such registration statement but some or all of such
shares were excluded pursuant to the penultimate sentence of Section 3, then
such one-year period shall be reduced to six months.
9
<PAGE>
(c) Company shall have the right to delay
the filing or effectiveness of a registration statement required pursuant to
Section 2 hereof during one or more periods aggregating not more than 60 days in
any twelve-month period in the event that (i) Company would, in accordance with
the advice of its counsel, be required to disclose in the prospectus information
not otherwise then required by law to be publicly disclosed and (ii) in the
judgment of Company's Board of Directors, there is a reasonable likelihood that
such disclosure, or any other action to be taken in connection with the
prospectus, would materially and adversely affect any existing or prospective
material business situation, transaction or negotiation or otherwise materially
and adversely affect Company.
8. Selection of Managing Underwriters. The managing
----------------------------------
underwriter or underwriters for any offering of Registrable Securities to be
registered pursuant to Section 2 shall be selected by the holders of a majority
of the shares being so registered and shall be reasonably acceptable to Company.
9. Restrictions on Sale After Public Offering. Except for
------------------------------------------
transfers made in transactions exempt from the registration requirements under
the Securities Act (other than Rule 144 thereunder), Company and each Holder
hereby agree not to offer, sell, contract to sell or otherwise dispose of any of
their Registrable Securities within 180 days after the date of any final
prospectus relating to a public offering of Common Stock, if underwritten,
whether by Company or by any Holders, except pursuant to such prospectus or with
the written consent of the managing underwriter or underwriters for such
offering.
10. Miscellaneous.
-------------
(a) No Inconsistent Agreements. Company will not
--------------------------
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Holders in this Agreement. Except as
described in Schedule 10(a), Company has not previously entered into any
agreement with respect to any of its securities granting any registration rights
to any person.
(b) Remedies. Each Holder, in addition to being
--------
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
Company
10
<PAGE>
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate. In any action or proceeding brought to enforce
any provision of this Agreement or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
(c) Amendments and Waivers. Except as otherwise
----------------------
provided herein, the provisions of this Agreement may not be amended, modified
or supplemented, and waivers or consents to departure from the provisions hereof
may not be given unless Company has obtained the written consent of the Majority
Holders.
(d) Notice Generally. Any notice, demand, request,
----------------
consent, approval, declaration, delivery or other communication hereunder to be
made pursuant to the provisions of this Agreement shall be sufficiently given or
made if in writing and either delivered in person with receipt acknowledged or
sent by registered or certified mail, return receipt requested, postage prepaid,
or by telecopy and confirmed by telecopy answerback, addressed as follows:
(i) If to any Holder, at its last known address
appearing on the books of Company maintained for such purpose.
(ii) If to Company, at
Marketing Services Group, Inc.
333 Seventh Avenue, 20th Floor
New York, New York 10001
Attention: Jeremy Barbera
Telecopy Number: (212) 465-8877
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by
11
<PAGE>
telecopy answerback or three Business Days after the same shall have been
deposited in the United States mail.
(e) Successors and Assigns. This Agreement shall
----------------------
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto including any person to whom Registrable Securities are
transferred.
(f) Headings. The headings in this Agreement are
--------
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law; Jurisdiction. This Agreement
---------------------------
shall be governed by, construed and enforced in accordance with the laws of the
State of New York without giving effect to the conflict of laws provisions
thereof. Each of the parties hereby submits to personal jurisdiction and waives
any objection as to venue in the County of New York, State of New York. Service
of process on the parties in any action arising out of or relating to this
Agreement shall be effective if mailed to the parties in accordance with Section
10(d) hereof. The parties hereto waive all right to trial by jury in any action
or proceeding to enforce or defend any rights hereunder.
(h) Severability. Wherever possible, each
------------
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
(i) Entire Agreement. This Agreement,
----------------
together with the Purchase Agreement, represents the complete agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the subject matter hereof.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MARKETING SERVICES GROUP, INC.
By: _______________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By: _______________________________
Name:
Title:
13
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MARKETING SERVICES GROUP, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED STOCK
AND QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS THEREOF
---------------------
Pursuant to Section _____ of the
General Corporation Law of
Nevada
---------------------
MARKETING SERVICES GROUP, INC. (the "Company"), a corporation
organized and existing under the laws of the State of Nevada, hereby certifies
that pursuant to the provisions of Section _____ of the General Corporation Law
of Nevada, its Board of Directors, by unanimous written consent, dated December
_____, 1997, adopted the following resolution, which resolution remains in full
force and effect as of the date hereof:
WHEREAS, the Board of Directors of the Company is authorized,
within the limitations and restrictions stated in the Certificate of
Incorporation, to fix by resolution or resolutions the designation of preferred
stock and the powers, preferences and relative participating, optional or other
special rights and qualifications, limitations or restrictions thereof,
including, without limiting the generality of the foregoing, such provisions as
may be desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution or resolutions of the Board of Directors
under the General Corporation Law of Nevada; and
WHEREAS, it is the desire of the Board of Directors of the
Company, pursuant to its authority as aforesaid, to authorize and fix the terms
of the preferred stock to be designated the Series D Convertible Preferred Stock
of the Company and the number of shares constituting such preferred stock;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby
authorized the Series D Convertible Preferred Stock on the terms and with the
provisions herein set forth:
<PAGE>
TERMS, PREFERENCES, RIGHTS AND LIMITATIONS
of
SERIES D CONVERTIBLE PREFERRED STOCK
of
MARKETING SERVICES GROUP, INC.
The relative rights, preferences, powers, qualifications,
limitations and restrictions granted to or imposed upon the Series D Convertible
Preferred Stock or the holders thereof are as follows:
1. Definitions. For purposes of this Designation, the
-----------
following definitions shall apply:
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
"Aggregate Exercised Amount" shall mean, as of the date of a
conversion pursuant to Section 7, an amount equal to the sum of all Exercised
Amounts based on all exercises of Scheduled Options and Scheduled Warrants
occurring from the date hereof through and including such date.
"Board" shall mean the Board of Directors of the Company.
"Business Day" shall mean any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
"Common Stock" shall mean the Common Stock, $.01 par value per
share, of the Company.
"Company" shall mean Marketing Services Group,
Inc., a Nevada corporation.
"Conversion Price" shall mean the amount computed by dividing
the Liquidation Preference by the number of shares of Common Stock into which
one share of Convertible Preferred Stock is convertible at the Conversion Ratio.
2
<PAGE>
"Conversion Ratio" shall mean the amount computed by dividing
the Liquidation Preference by $3.397.
"Convertible Preferred Stock" shall refer to shares of Series
D Convertible Preferred Stock, $0.01 par value per share, of the Company.
"Current Market Price," when used with reference to shares of
Common Stock or other securities on any date, shall mean the average of the
daily market prices for 30 consecutive Business Days commencing 45 days before
such date. The daily market price for each such Business Day shall be (i) the
last sale price on such day on the principal stock exchange or the Nasdaq
National Market or Small Cap Market on which such Common Stock is then listed or
admitted to trading, (ii) if no sale takes place on such day on any such
exchange or market, the average of the last reported closing bid and asked
prices on such day as officially quoted on any such exchange or market, (iii) if
the Common Stock is not then listed or admitted to trading on any stock exchange
or such market, the average of the last reported closing bid and asked prices on
such day in the over-the-counter market, as furnished by Nasdaq or the National
Quotation Bureau, Inc., (iv) if neither such corporation at the time is engaged
in the business of reporting such prices, as furnished by any similar firm then
engaged in such business, or (v) if there is no such firm, as furnished by any
member of the National Association of Securities Dealers ("NASD") selected
mutually by the Required Holders and the Company or, if they cannot agree upon
such selection, as selected by two such members of the NASD, one of which shall
be selected by the Required Holders and one of which shall be selected by the
Company.
"Dividend Rate" shall mean 6% per annum; provided, however,
(i) upon the occurrence and during the continuance of an Event of Default the
Dividend Rate shall be 8% per annum, and (ii) if the Company fails to make the
redemption required by Section 6(a)(ii) hereof, the Dividend Rate shall be 15%
per annum, calculated on a 360 day per year basis, based on the actual number of
days elapsed.
"Event of Default" shall have the meaning assigned
to it in the Purchase Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar Federal statute, and the rules and regulations of the
Securities and Exchange
3
<PAGE>
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Securities Exchange Act of 1934, as amended,
shall include reference to the comparable section, if any, of any such similar
Federal statute.
"Exercised Amount" shall mean, with respect to each exercise
of Scheduled Options or Scheduled Warrants, an amount equal to 0.24 multiplied
by (X - y/z),where X = the number of shares of Common Stock purchased upon such
exercise, Y = the aggregate exercise price payable upon such exercise, and Z =
the Current Market Price on the date of such exercise.
"Fair Market Value" shall mean the amount which a willing
buyer would pay a willing seller in an arm's-length transaction, with neither
being under any compulsion to buy or sell.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time.
"Liquidation Preference" shall mean $300 per share.
"Organic Change" shall mean (A) any sale, lease, exchange or
other transfer of all or substantially all of the property and assets of the
Company, (B) any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, (C) any merger or consolidation to which the Company
is a party or (D) any Person or group of Persons (as such term is used in
Section 13(d) of the Exchange Act), other than General Electric Capital
Corporation and its Affiliates, shall beneficially own (as defined in Rule 13d-3
under the Exchange Act) securities of the Company representing 50% or more of
the voting securities of the Company then outstanding. For purposes of the
preceding sentence, "voting securities" shall mean securities, the holders of
which are ordinarily, in the absence of contingencies, entitled to elect the
corporate directors (or Persons performing similar functions).
"Original Issue Date" shall mean the date of the original
issuance of 50,000 shares of Convertible Preferred Stock.
4
<PAGE>
"Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
"Purchase Agreement" shall mean the Purchase Agreement, dated
as of December __, 1997, by and between the Company and the purchasers named
therein, as it may be amended from time to time, a copy of which is on file at
the principal office of the Company.
"Qualified Secondary Offering" means a sale of the Company's
Common Stock pursuant to a public offering of the Company's Common Stock on Form
S-1 (or any other appropriate general or short registration form) under the
Securities Act of 1933, as amended, pursuant to which the Common Stock is
offered (whether or not for the Company's account) for at least $8.75 per share,
subject to appropriate adjustment if any of the events set forth in Section
7(f)(i) shall occur.
"Redemption Date" shall mean the date on which any shares of
Convertible Preferred Stock are redeemed by the Company.
"Redemption Price" has the meaning set forth in
Section 6(a)(i) of this Certificate of Designation.
"Required Holders" shall mean the holders of at least of a
majority of the outstanding shares of Convertible Preferred Stock.
"Scheduled Options" shall mean the options to purchase shares
of Common Stock set forth on Schedule 4.1(b) to the Purchase Agreement.
"Scheduled Warrants" shall mean the warrants to purchase
shares of Common Stock set forth on Schedule 4.1(b) to the Purchase Agreement.
"Subsidiary" of any Person means any corporation or other
entity of which a majority of the voting power or the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
"Trading Day" shall mean a Business Day or, if the Common
Stock is listed or admitted to trading on any national securities exchange, a
day on which such exchange is open for the transaction of business.
5
<PAGE>
2. Designation: Number of Shares. The designation of the
-----------------------------
preferred stock authorized by this resolution shall be "Series D Convertible
Preferred Stock" and the number of shares of Convertible Preferred Stock
authorized hereby shall be 50,000 shares.
3. Dividends.
---------
(a) So long as any shares of Convertible Preferred Stock shall
be outstanding, dividends shall accrue thereon, whether or not declared by the
Board of Directors of the Company, at the Dividend Rate on the Liquidation
Preference hereunder, compounded quarterly on the first Business Day of each
calendar quarter, and payable quarterly on the first Business Day of each
calendar quarter. Such dividends shall be cumulative and begin to accrue from
the Original Issue Date, whether or not declared and whether or not there shall
be net profits or net assets of the Company legally available for the payment of
those dividends.
(b) So long as any shares of Convertible Preferred Stock shall
be outstanding, (i) no dividend whatsoever shall be paid or declared, and no
distribution shall be made, on account of any Common Stock or on account of any
class or series of the Company's preferred or other capital stock ranking junior
to or pari passu with the Convertible Preferred Stock, and (ii) no shares of
Common Stock or of any class or series of the Company's preferred or other
capital stock ranking junior to or pari passu with the Convertible Preferred
Stock shall be purchased, redeemed or acquired by the Company and no funds shall
be paid into or set aside or made available for a sinking fund for the purchase,
redemption or acquisition thereof, other than any non-vested shares purchased
from employees of the Company pursuant to a stock option plan approved by the
Board of Directors of the Company.
4. Liquidation Rights of Convertible Preferred Stock.
-------------------------------------------------
(a) In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, the holders of Convertible
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Company available for distribution to its stockholders, whether such
assets are capital, surplus or earnings, before any payment or declaration and
setting apart for payment of any amount shall be made in respect of
6
<PAGE>
any shares of Common Stock or any share of any other class or series of the
Company's preferred stock ranking junior to the Convertible Preferred Stock with
respect to the payment of dividends or distribution of assets on liquidation,
dissolution or winding up of the Company, an amount equal to the Liquidation
Preference plus all accrued and unpaid dividends in respect of any liquidation,
dissolution or winding up consummated.
(b) If upon any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the assets to be distributed among
the holders of Convertible Preferred Stock shall be insufficient to permit the
payment to such stockholders of the full preferential amounts aforesaid, then
the entire assets of the Company to be distributed shall be distributed ratably
among the holders of Convertible Preferred Stock, based on the full preferential
amounts for the number of shares of Convertible Preferred Stock held by each
holder.
(c) After payment to the holders of Convertible Preferred
Stock of the amounts set forth in Section 4(a) hereof, the entire remaining
assets and funds of the Company legally available for distribution, if any,
shall be distributed first among the holders of securities senior to the Common
Stock, pro rata based on the number of shares of such securities held by them
and second among the holders of Common Stock pro rata based on the number of
shares of Common Stock then held by each.
5. Voting Rights. In addition to any voting rights provided by
-------------
law, the holders of shares of Convertible Preferred Stock shall have the
following voting rights:
(a) So long as any of the Convertible Preferred Stock is
outstanding, each share of Convertible Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by the holders of Common Stock, voting
together as a single class with other shares entitled to vote at all meetings of
the stockholders of the Company. With respect to any such vote, each share of
Convertible Preferred Stock shall entitle the holder thereof to cast the number
of votes equal to the number of votes which could be cast in such vote by a
holder of the number of shares of Common Stock of the Company into which such
share of Convertible Preferred Stock is convertible on the record date for such
vote.
7
<PAGE>
(b) The affirmative vote of the Required Holders, voting
together as a class, in person or by proxy, at a special or annual meeting of
stockholders called for the purpose, or pursuant to a written consent of
stockholders shall be necessary to
(i) authorize, adopt or approve an amendment to the
Certificate of Incorporation of the Company which would alter or change
in any manner the terms, powers, preferences or special rights of the
shares of Convertible Preferred Stock;
(ii) issue any shares of the capital stock of the Company
ranking senior to, or pari passu with (either as to dividends or upon
voluntary or involuntary liquidation, dissolution or winding up) the
Convertible Preferred Stock;
(iii) take any action which is in violation of Article V of
the Purchase Agreement; or
(iv) effect an Organic Change.
(c) So long as there are at least 20% of the shares of
Convertible Preferred Stock issued pursuant to the Purchase Agreement
outstanding, (i) the Board of Directors of the Company shall consist of eight
directors, (ii) the holders of shares of Convertible Preferred Stock shall have,
in addition to the other voting rights set forth herein, the exclusive right,
voting separately as a single class, to elect two directors of the Company and
(iii) the holders of shares of Common Stock and Convertible Preferred Stock
shall have, in addition to the other rights set forth herein, the right, voting
together as a single class, to elect six directors of the Company; provided,
however, so long as the holders of shares of Convertible Preferred Stock have
the right to elect one or two additional directors pursuant to Sections 5(d) or
6(d)(i) hereof, respectively, the number in clause (ii) shall be increased by
one, or two, as the case may be, and the number in clause (iii) shall be
decreased by one, or two, as the case may be. At least one member of any
Committee of the Board of Directors (including any Executive Committee, Audit
Committee or Compensation Committee) shall be the director elected solely by the
holders of the Convertible Preferred Stock, if any of such committees are
established by the Board of Directors of the Company, unless such right is
waived in writing by the Required Holders.
8
<PAGE>
(d) If, on any date, an Event of Default shall have occurred
and be continuing, then the holders of shares of Convertible Preferred Stock
shall have, in addition to their other voting rights set forth herein, the
exclusive right, voting separately as a single class, to elect an additional
director of the Company in accordance with this Section 5 and one of the
directors elected pursuant to clause (iii) of Section 5(c) shall resign or be
removed without cause.
(e) (i) The foregoing rights of holders of shares of
Convertible Preferred Stock to take any actions as provided in this Section 5
may be exercised at any annual meeting of stockholders or at a special meeting
of stockholders held for such purpose as hereinafter provided or at any
adjournment thereof or pursuant to any written consent of stockholders.
(ii) If (A) the annual meeting of stockholders of the Company
is not, for any reason, held within the time fixed in the by-laws of the
Company, or (B) vacancies shall exist in the offices of directors elected by the
holders of Convertible Preferred Stock, or (C) the holders of the Convertible
Preferred Stock have the right to elect three additional directors pursuant to
Section 6(d)(i), a proper officer of the Company, upon the written request of
the holders of record of at least twenty five percent (25%) of the shares of
Convertible Preferred Stock then outstanding, addressed to the Secretary of the
Company, shall call a special meeting in lieu of the annual meeting of
stockholders or a special meeting of the holders of Convertible Preferred Stock,
for the purpose of electing or, if necessary, removing directors. Any such
meeting shall be held at the earliest practicable date at the place for the
holding of the annual meetings of stockholders. If such meeting shall not be
called by the proper officer of the Company within ninety (90) days after
personal service of said written request upon the Secretary of the Company, or
within ninety (90) days after mailing the same within the United States by
certified mail, addressed to the Secretary of the Company at its principal
executive offices, then the holders of record of at least twenty five percent
(25%) of the outstanding shares of Convertible Preferred Stock may designate in
writing one of their number to call such meeting at the expense of the Company,
and such meeting may be called by the person so designated upon the notice
required for the annual meetings of stockholders of the Company and shall be
held at the place for holding the
9
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<PAGE>
annual meetings of stockholders. Any holder of Convertible Preferred Stock so
designated shall have access to the lists of stockholders to be called pursuant
to the provisions hereof.
(f) Any vacancy occurring in the office of director elected by
the holders of Convertible Preferred Stock or any additional director to be
elected pursuant to Section 6(d)(i) may be filled by the remaining director(s)
elected by the holders of Convertible Preferred Stock unless and until such
vacancy shall be filled by the holders of Convertible Preferred Stock. The term
of office of the directors elected by the holders of Convertible Preferred Stock
shall terminate upon the election of their successors at any meeting of
stockholders held for the purpose of electing directors.
(g) The directors elected by the holders of shares of
Convertible Preferred Stock voting separately as a single class may be removed
from office with or without cause by the vote of the holders of at least a
majority of the outstanding shares of Convertible Preferred Stock. A special
meeting of the holders of shares of Convertible Preferred Stock may be called in
accordance with the procedures set forth in subparagraph (e) of this Section 5.
6. Redemption of Convertible Preferred Stock.
-----------------------------------------
(a)(i) Optional Redemption. (A) If any Organic Change occurs,
at the option of any holder of outstanding Convertible Preferred Stock (as
exercised pursuant to subparagraph (B) below), the Company shall redeem, at the
redemption price equal to the sum of the Liquidation Preference per share plus
an amount equal to all accrued and unpaid dividends per share (the "Redemption
Price"), those outstanding shares of Convertible Preferred Stock which the
holders of such Convertible Preferred Stock have elected to redeem, such
redemption to occur immediately prior to or simultaneously with the consummation
of such Organic Change. If the Required Holders so elect in connection with such
Organic Change by written notice to the Company within the Notice Period
referred to below, the Company shall redeem all of the outstanding shares of
Convertible Preferred Stock.
(B) The Company will give written notice of any Organic
Change, stating the substance and intended date of consummation thereof, not
more than sixty (60) Business Days
10
<PAGE>
nor less than twenty (20) Business Days prior to the date of consummation
thereof, to each holder of Convertible Preferred Stock. The holders of the
Convertible Preferred Stock shall have fifteen (15) Business Days (the "Notice
Period") from the date of the receipt of such notice to demand (by written
notice mailed to the Company) redemption of all or any portion of the shares of
Convertible Preferred Stock held by such holder. If, by the expiration of the
Notice Period, the Required Holders have so elected to demand redemption of all
of the outstanding shares of Convertible Preferred Stock as provided in
paragraph (A) above, the Company shall give prompt written notice of such
election to each other holder of Convertible Preferred Stock within five (5)
Business Days after the expiration of the Notice Period.
(ii) Mandatory Redemption. (A) The Company shall redeem, and
the holders of the outstanding Convertible Preferred Stock shall sell to the
Company, at the Redemption Price, all of the outstanding Convertible Preferred
Stock on the sixth anniversary of the Original Issue Date.
(B) At least twenty (20) Business Days and not more than sixty
(60) Business Days prior to the date fixed for the mandatory redemption of the
Convertible Preferred Stock, written notice (the "Redemption Notice") shall be
mailed, postage prepaid, to each holder of record of the Convertible Preferred
Stock at its post office address last shown on the records of the Company. The
Redemption Notice shall state:
(1) the number of shares of Convertible
Preferred Stock held by the holder that the Company intends to redeem;
(2) the date fixed for redemption and the
Redemption Price; and
(3) that the holder is to surrender to the
Company, in the manner and at the place designated, its certificate or
certificates representing the shares of Convertible Preferred Stock to be
redeemed.
(iii) On or before the Redemption Date, each holder of
Convertible Preferred Stock shall surrender the certificate or certificates
representing such shares of Convertible Preferred Stock to the Company, in the
manner and at the place designated in the Redemption Notice, and
11
<PAGE>
thereupon the Redemption Price for such shares shall be payable in cash on the
Redemption Date to the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
cancelled and retired. In the event that less than all of the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(b) Unless the Company defaults in the payment in full of the
Redemption Price, dividends on the Convertible Preferred Stock called for
redemption shall cease to accumulate on the Redemption Date, and the holders of
such shares redeemed shall cease to have any further rights with respect thereto
on the Redemption Date, other than to receive the Redemption Price without
interest.
(c) If, at the time of any redemption pursuant to this Section
6, the funds of the Company legally available for redemption of Convertible
Preferred Stock are insufficient to redeem the number of shares required to be
redeemed, those funds which are legally available shall be used to redeem the
maximum possible number of such shares, pro rata based upon the number of shares
to be redeemed. At any time thereafter when additional funds of the Company
become legally available for the redemption of Convertible Preferred Stock, such
funds shall immediately be used to redeem the balance of the shares of
Convertible Preferred Stock which the Company has become obligated to redeem
pursuant to this subparagraph, but which it has not redeemed; or, in the case of
a redemption pursuant to Section 6(a)(i) if a person other than the Company is
the surviving or resulting corporation in any Organic Change, such person shall,
at the consummation of such Organic Change, redeem such balance of the shares of
Convertible Preferred Stock (and the Company shall so provide in its agreements
with such person relating to such Organic Change).
(d) If the Company fails to make the redemption required by
paragraph 6(a)(ii) above, whether or not by reason of the absence of legally
available funds therefor, then (i) the holders of shares of Convertible
Preferred Stock shall have, in addition to their other voting rights set forth
herein, the exclusive right, voting separately as a single class, to elect two
additional directors of the Company in accordance with Section 5 and two of the
directors elected pursuant to clause (iii) of Section 5(c)
12
<PAGE>
shall resign or be removed without cause, and (ii) the Dividend Rate shall be
15% per annum.
(e) The Company may not otherwise redeem or repurchase the
Convertible Preferred Stock.
7. Conversion. (a) Subject to the provisions for adjustment
----------
hereinafter set forth, (i) each share of Convertible Preferred Stock shall be
convertible at any time and from time to time, at the option of the holder
thereof (such conversion, a "Optional Conversion") and (ii) all shares of
Convertible Preferred Stock shall be convertible at the option of the Company
(x) at any time after the Current Market Price of the Common Stock equals or
exceeds $8.75 per share (subject to appropriate adjustment, if any of the events
set forth in Section 7(f)(i) shall occur) for at least 20 days during a period
of 30 consecutive Business Days, or (y) upon the occurrence of a Qualified
Secondary Offering (such conversion, a "Company Conversion"), in each case into
fully paid and nonassessable shares of Common Stock. The number of shares of
Common Stock deliverable upon conversion of a share of Convertible Preferred
Stock, adjusted as hereinafter provided, shall be one multiplied by the
Conversion Ratio plus that number of shares equal to the accrued dividend in
respect of such shares of Convertible Preferred Stock divided by the Current
Market Price on the date of such conversion. The Conversion Ratio shall
initially be 88.31224, subject to adjustment from time to time pursuant to
paragraph (f) of this Section 7 and for adjustments for increases in the accrued
and unpaid dividends. No fractional shares shall be issued upon the conversion
of any shares of Convertible Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Convertible Preferred Stock by a holder thereof shall be aggregated for purposes
of determining whether conversion would result in the issuance of any fractional
share. If, after the aforementioned aggregation, the conversion would result in
the issuance of a fraction of a share of Common Stock, the Company shall, in
lieu of issuing any fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the Current Market Price of such fraction on the
date of conversion.
(b) (i) An Optional Conversion of the Convertible Preferred
Stock may be effected by any such holder upon the surrender to the Company at
the principal office of the Company of the certificate for such
13
<PAGE>
Convertible Preferred Stock to be converted accompanied by a written notice
stating that such holder elects to convert all or a specified number of such
shares (which may be fractional shares) in accordance with the provisions of
this Section 7 and specifying the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. A Company
Conversion of the Convertible Preferred Stock may be effected by the Company
sending notice to the holders, specifying the event that gave rise to the
Company's right to exercise a Company Conversion and the number of shares to be
converted, which shall be applied on a pro-rata basis for all holders. A Company
Conversion shall be deemed to have been made at the close of business on the
date of giving the written notice referred to in the immediately preceding
sentence. Each holder shall surrender to the Company the certificate for such
Convertible Preferred Stock converted pursuant to a Company Conversion
accompanied by a written notice specifying the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. Until such time as the holder surrenders its certificate pursuant to a
Company Conversion, the certificates representing the Convertible Preferred
Stock to be so converted shall represent the number of shares of Common Stock
issuable upon conversion of such certificate. Upon any conversion of any shares
of Convertible Preferred Stock, all accrued and unpaid dividends shall be
similarly converted.
(ii) In case the written notice specifying the name or names
in which such holder wishes the certificate or certificates for shares of Common
Stock to be issued shall specify a name or names other than that of such holder,
such notice shall be accompanied by payment of all transfer taxes payable upon
the issuance of shares of Common Stock in such name or names. Other than such
taxes, the Company will pay any and all issue and other taxes (other than taxes
based on income) that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Convertible Preferred Stock pursuant
hereto. As promptly as practicable, and in any event within five Business Days
after the surrender of such certificate or certificates and the receipt of such
notice relating thereto and, if applicable, payment of all transfer taxes (or
the demonstration to the satisfaction of the Company that such taxes have been
paid), the Company shall deliver or cause to be delivered (i) certificates
representing the number of validly issued, fully paid and nonassessable full
shares of
14
<PAGE>
Common Stock to which the holder of shares of Convertible Preferred Stock being
converted shall be entitled and (ii) if less than the full number of shares of
Convertible Preferred Stock evidenced by the surrendered certificate or
certificates is being converted, a new certificate or certificates, of like
tenor, for the number of shares evidenced by such surrendered certificate or
certificates less the number of shares being converted.
(iii) In the case of an Optional Conversion, such conversion
shall be deemed to have been made at the close of business on the date of giving
the written notice referred to in the first sentence of (b)(i) above and of such
surrender of the certificate or certificates representing the shares of
Convertible Preferred Stock to be converted so that the rights of the holder
thereof as to the shares being converted shall cease except for the right to
receive shares of Common Stock in accordance herewith, and the person entitled
to receive the shares of Common Stock shall be treated for all purposes as
having become the record holder of such shares of Common Stock at such time.
(c) In case any shares of Convertible Preferred Stock are to
be redeemed pursuant to Section 6, all rights of conversion shall cease and
terminate as to the shares of Convertible Preferred Stock to be redeemed at the
close of business on the Business Day next preceding the date fixed for
redemption unless the Company shall default in the payment of the Redemption
Price.
(d) The Conversion Ratio shall be subject to adjustment from
time to time in certain instances as hereinafter provided.
(e) The Company shall at all times reserve, and keep available
for issuance upon the conversion of the Convertible Preferred Stock, such number
of its authorized but unissued shares of Common Stock as will from time to time
be sufficient to permit the conversion of all outstanding shares of Convertible
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if necessary to permit the conversion of all
outstanding shares of Convertible Preferred Stock.
(f) The Conversion Ratio will be subject to adjustment from
time to time as follows:
15
<PAGE>
(i) In case the Company shall at any
time or from time to time after the Original Issue Date (A)
pay a dividend, or make a distribution, on the outstanding
shares of Common Stock in shares of Common Stock, (B)
subdivide the outstanding shares of Common Stock, (C) combine
the outstanding shares of Common Stock into a smaller number
of shares or (D) issue by reclassification of the shares of
Common Stock any shares of capital stock of the Company, then,
and in each such case, the Conversion Ratio in effect
immediately prior to such event or the record date therefor,
whichever is earlier, shall be adjusted so that the holder of
any shares of Convertible Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the
number of shares of Common Stock or other securities of the
Company which such holder would have owned or have been
entitled to receive after the happening of any of the events
described above, had such shares of Convertible Preferred
Stock been surrendered for conversion immediately prior to the
happening of such event or the record date therefor, whichever
is earlier. An adjustment made pursuant to this clause (i)
shall become effective (x) in the case of any such dividend or
distribution, immediately after the close of business on the
record date for the determination of holders of shares of
Common Stock entitled to receive such dividend or
distribution, or (y) in the case of such subdivision,
reclassification or combination, at the close of business on
the day upon which such corporate action becomes effective. No
adjustment shall be made pursuant to this clause (i) in
connection with any transaction to which paragraph (g)
applies.
(ii) In case the Company shall issue
shares of Common Stock (or rights, warrants or other
securities convertible into or exchangeable for shares of
Common Stock) after the Original Issue Date, other than
issuances covered by clause (i) above, at a price per share
(or having an exercise, conversion or exchange price per
share) less than the Conversion Price as of the date of
issuance of such shares or of such rights, warrants or other
convertible or exchangeable securities, then, and in each such
case, the
16
<PAGE>
Conversion Price shall be reduced (but not increased) to a
price determined by dividing (A) an amount equal to the sum of
(x) the number of shares of Common Stock outstanding
immediately prior to such issue multiplied by the then
existing Conversion Price, plus (y) the consideration, if any,
received by Company upon such issue, by (B) the total number
of shares of Common Stock outstanding immediately after such
issue or sale. The Conversion Ratio shall be adjusted to equal
the Liquidation Preference divided by the Conversion Price.
For the purpose of determining the consideration received by
the Company upon any such issue pursuant to clause (y) above,
if the consideration received by the Company is other than
cash, its value will be deemed its Fair Market Value, as
determined in good faith by the Board of Directors of the
Company.
(iii) An adjustment made pursuant to
clause (ii) above shall be made on the next Business Day
following the date on which any such issuance is made and
shall be effective retroactively immediately after the close
of business on such date. For purposes of clause (ii), the
aggregate consideration received by the Company in connection
with the issuance of shares of Common Stock or of rights,
warrants or other securities exchangeable or convertible into
shares of Common Stock shall be deemed to be equal to the sum
of the aggregate offering price of all such Common Stock and
such rights, warrants, or other exchangeable or convertible
securities plus the minimum aggregate amount, if any,
receivable upon exchange or conversion of any such
exchangeable or convertible securities into shares of Common
Stock.
(iv) In case the Company shall at any
time or from time to time after the Original Issue Date
declare, order, pay or make a dividend or other distribution
(including, without limitation, any distribution of stock or
other securities or property or rights or warrants to
subscribe for securities of the Company or any of its
Subsidiaries by way of dividend or spinoff), on its Common
Stock, other than dividends or
17
<PAGE>
distributions of shares of Common Stock which are referred to
in clause (i) of this paragraph (f) or made in compliance with
Section 3(b) hereof, then, and in each such case, the
Conversion Ratio shall be adjusted so that the holder of each
share of Convertible Preferred Stock shall be entitled to
receive, upon the conversion thereof, the number of shares of
Common Stock determined by multiplying (1) the applicable
Conversion Ratio on the day immediately prior to the record
date fixed for the determination of stockholders entitled to
receive such dividend or distribution by (2) a fraction, the
numerator of which shall be the Current Market Price per share
of Common Stock at such record date, and the denominator of
which shall be such Current Market Price per share of Common
Stock less the Fair Market Value of such dividend or
distribution per share of Common Stock. No adjustment shall be
made pursuant to this clause (iv) in connection with any
transaction to which paragraph (g) applies.
(v For purposes of this paragraph (f),
the number of shares of Common Stock at any time outstanding
shall not include any shares of Common Stock then owned or
held by or for the account of the Company or any of its
subsidiaries.
(vi) In lieu of any other adjustment
resulting from the exercise of Scheduled Options or Scheduled
Warrants pursuant to this paragraph (f), whenever shares of
Convertible Preferred Stock are converted in accordance with
this Section 7, the number of shares of Common Stock to be
received upon such conversion shall be adjusted upwards by the
Aggregate Exercised Amount multiplied by a fraction, the
numerator of which shall equal the number of shares of
Convertible Preferred Stock being converted on such date, and
the denominator of which shall equal 50,000.
(vii) If the Company shall take a record
of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or other distribution,
and shall thereafter and before the distribution to
stockholders thereof legally abandon its plan to pay or
deliver such dividend or distribution, then thereafter no
adjustment in
18
<PAGE>
the number of shares of Common Stock issuable upon exercise of
the right of conversion granted by this paragraph (f) or in
the Conversion Ratio then in effect shall be required by
reason of the taking of such record.
(viii) Anything in this paragraph (f) to
the contrary notwithstanding, the Company shall not be
required to give effect to any adjustment in the Conversion
Ratio unless and until the net effect of one or more
adjustments (each of which shall be carried forward),
determined as above provided, shall have resulted in a change
of the Conversion Ratio by at least one-tenth of one share of
Common Stock, and when the cumulative net effect of more than
one adjustment so determined shall be to change the Conversion
Ratio by at least one-tenth of one share of Common Stock, such
change in Conversion Ratio shall thereupon be given effect.
(ix) If any option or warrant expires or
is cancelled without having been exercised, then, for the
purposes of the adjustments set forth above, such option or
warrant shall have been deemed not to have been issued and the
Conversion Ratio shall be adjusted accordingly. No holder of
Common Stock which was previously issued upon conversion of
Convertible Preferred Stock shall have any obligation to
redeem or cancel any such shares of Common Stock as a result
of the operation of this paragraph (ix).
(g) In case of any Organic Change, each share of Convertible
Preferred Stock then outstanding, other than those shares to be redeemed
pursuant to Section 6 hereof, shall thereafter be convertible into, in lieu of
the Common Stock issuable upon such conversion prior to consummation of such
Organic Change, the kind and amount of shares of stock and other securities and
property receivable (including cash) upon the consummation of such Organic
Change by a holder of that number of shares of Common Stock into which one share
of Convertible Preferred Stock was convertible immediately prior to such Organic
Change (including, on a pro rata basis, the cash, securities or property
received by holders of Common Stock in any tender or exchange offer that is a
step in such Organic Change). In case securities or property other than Common
Stock shall be issuable or
19
<PAGE>
deliverable upon conversion as aforesaid, then all references in this Section 7
shall be deemed to apply, so far as appropriate and nearly as may be, to such
other securities or property.
(h) In case at any time or from time to time the Company shall
pay any stock dividend or make any other non-cash distribution to the holders of
its Common Stock, or shall offer for subscription pro rata to the holders of its
Common Stock any additional shares of stock of any class or any other right, or
there shall be any capital reorganization or reclassification of the Common
Stock of the Company or consolidation or merger of the Company with or into
another corporation, or any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or there
shall be a voluntary or involuntary dissolution, liquidation or winding up of
the Company, then, in any one or more of said cases, the Company shall give at
least 20 days' prior written notice to the registered holders of the Convertible
Preferred Stock at the addresses of each as shown on the books of the Company as
of the date on which (i) the books of the Company shall close or a record shall
be taken for such stock dividend, distribution or subscription rights or (ii)
such reorganization, reclassification, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding up shall take place, as the case
may be, provided that in the case of any Organic Change to which paragraph (g)
applies the Company shall give at least 30 days' prior written notice as
aforesaid. Such notice shall also specify the date as of which the holders of
the Common Stock of record shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale or conveyance or participate in
such dissolution, liquidation or winding up, as the case may be. Failure to give
such notice shall not invalidate any action so taken.
8. Reports as to Adjustments. Upon any adjustment of the
-------------------------
Conversion Ratio then in effect and any increase or decrease in the number of
shares of Common Stock issuable upon the operation of the conversion set forth
in Section 7, then, and in each such case, the Company shall promptly deliver to
each holder of the Convertible Preferred Stock, a certificate signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
20
<PAGE>
the Secretary or an Assistant Secretary of the Company setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the Conversion Ratio then in
effect following such adjustment and the increased or decreased number of shares
issuable upon the conversion granted by Section 7, and shall set forth in
reasonable detail the method of calculation of each and a brief statement of the
facts requiring such adjustment. Where appropriate, such notice to holders of
the Convertible Preferred Stock may be given in advance and included as part of
the notice required under the provisions of Section 11.
9. Certain Covenants. Any registered holder of Convertible
-----------------
Preferred Stock may proceed to protect and enforce its rights and the rights of
such holders by any available remedy by proceeding at law or in equity to
protect and enforce any such rights, whether for the specific enforcement of any
provision in this Certificate of Designation or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
10. No Reissuance of Preferred Stock. No Convertible Preferred
--------------------------------
Stock acquired by the Company by reason of redemption, purchase, or otherwise
shall be reissued, and all such shares shall be cancelled, retired and
eliminated from the shares which the Company shall be authorized to issue.
11. Notices. All notices to the Company permitted hereunder
-------
shall be personally delivered or sent by first class mail, postage prepaid,
addressed to its principal office located at 333 Seventh Avenue, 20th Floor, New
York, New York 10001, or to such other address at which its principal office is
located and as to which notice thereof is similarly given to the holders of the
Convertible Preferred Stock at their addresses appearing on the books of the
Company.
21
<PAGE>
IN WITNESS WHEREOF, Marketing Services Group, Inc.
has caused this Certificate to be signed by its President
and Secretary, respectively, on this ____ day of December,
1997.
-------------------------
President
-------------------------
Secretary
22
NYFS10...:\60\47660\1420\1219\CRTN257P.27E
WARRANT
TO PURCHASE COMMON STOCK OF
MARKETING SERVICES GROUP, INC.
Warrant No. 1
No. of Shares of Common Stock: 10,670,000
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. DEFINITIONS............................................................. 1
2. EXERCISE OF WARRANT..................................................... 5
2.1. Manner of Exercise........................................... 5
2.2. Payment of Taxes............................................. 7
2.3. Fractional Shares............................................ 7
2.4. Continued Validity........................................... 7
3. TRANSFER, DIVISION AND COMBINATION...................................... 8
3.1. Transfer..................................................... 8
3.2. Division and Combination..................................... 8
3.3. Expenses..................................................... 8
3.4. Maintenance of Books......................................... 8
4. ADJUSTMENTS............................................................. 8
4.1. Reduction or Cancellation of Shares Subject
to Warrant................................................... 9
4.2. Stock Dividends, Subdivisions and
Combinations................................................. 9
4.3. Certain Other Distributions and Adjustments.................. 10
4.4. Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets....................... 11
4.5. Other Action Affecting Common Stock.......................... 12
5. NOTICES TO WARRANT HOLDERS.............................................. 12
5.1. Notice of Adjustments........................................ 12
5.2. Notice of Corporate Action................................... 13
6. NO IMPAIRMENT........................................................... 14
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY.......................................................... 15
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS...................... 15
9. RESTRICTIONS ON TRANSFERABILITY......................................... 15
9.1. Restrictive Legend........................................... 16
9.2. Termination of Restrictions.................................. 16
9.3. Listing on Securities Exchange............................... 17
10. SUPPLYING INFORMATION.................................................. 17
i
<PAGE>
Section Page
11. LOSS OR MUTILATION..................................................... 17
12. OFFICE OF COMPANY...................................................... 18
13. FINANCIAL AND BUSINESS INFORMATION..................................... 18
13.1. Quarterly Information....................................... 18
13.2. Annual Information.......................................... 18
13.3. Filings..................................................... 19
14. LIMITATION OF LIABILITY................................................ 19
15. MISCELLANEOUS.......................................................... 19
15.1. Nonwaiver and Expenses...................................... 19
15.2. Notice Generally............................................ 19
15.3. Remedies.................................................... 20
15.4. Successors and Assigns...................................... 21
15.5. Amendment................................................... 21
15.6. Severability................................................ 21
15.7. Headings.................................................... 21
15.8. Governing Law............................................... 21
ii
<PAGE>
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF
THIS WARRANT.
No. of Shares of Common Stock: 10,670,000 Warrant No. 1
WARRANT
To Purchase Common Stock of
MARKETING SERVICES GROUP, INC.
THIS IS TO CERTIFY THAT GENERAL ELECTRIC CAPITAL CORPORATION,
or registered assigns, is entitled, at any time during the Exercise Period (as
hereinafter defined), to purchase from MARKETING SERVICES GROUP, INC., a Nevada
corporation ("Company"), 10,670,000 shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein), in whole or in part,
including fractional parts, at a purchase price of $.01 per share (subject to
adjustment as provided herein) all on the terms and conditions and pursuant to
the provisions hereinafter set forth.
1. DEFINITIONS
-----------
Terms used in this Warrant which are defined in the Purchase
Agreement (as defined below) are used herein as defined therein unless otherwise
provided, and the following terms have the respective meanings set forth below:
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Closing Date" shall have the meaning set forth in
the Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and other
federal securities laws.
<PAGE>
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, $0.01 par value, of Company as constituted on the
Closing Date, and any capital stock into which such Common Stock may thereafter
be changed, and shall also include (i) capital stock of Company of any other
class (regardless of how denominated) issued to the holders of shares of Common
Stock upon any reclassification thereof which is also not preferred as to
dividends or assets over any other class of stock of Company and which is not
subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 4.4) received by or distributed to
the holders of Common Stock of Company in the circumstances contemplated by
Section 4.4.
"Current Market Price" shall mean, in respect of any share of
Common Stock on any date herein specified, the average of the daily market
prices for 20 consecutive Business Days commencing 30 days before such date. The
daily market price for each such Business Day shall be (i) the last sale price
on such day on the principal stock exchange or NASDAQ National Market System or
NASDAQ Small Cap Market ("NASDAQ") on which such Common Stock is then listed or
admitted to trading, (ii) if no sale takes place on such day on any such
exchange or NASDAQ, the average of the last reported closing bid and asked
prices on such day as officially quoted on any such exchange or NASDAQ, (iii) if
the Common Stock is not then listed or admitted to trading on any stock exchange
or NASDAQ, the average of the last reported closing bid and asked prices on such
day in the over-the-counter market, as furnished by the National Association of
Securities Dealers Automatic Quotation System or the National Quotation Bureau,
Inc., (iv) if neither such corporation at the time is engaged in the business of
reporting such prices, as furnished by any similar firm then engaged in such
business, or (v) if there is no such firm, as furnished by any member of the
NASD selected mutually by the Majority Holders and Company or, if they cannot
agree upon such selection, as selected by two such members of the NASD, one of
which shall be selected by the Majority Holders and one of which shall be
selected by Company.
"Current Warrant Price" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which a share of Common
Stock may be purchased pursuant to this Warrant on such date.
2
<PAGE>
"Earnings Per Share" shall mean, with respect to Company for
the year ended June 30, 2001, the net income per share of Common Stock
determined in accordance with GAAP, but before deducting any dividends accrued
on the Convertible Preferred Stock (as defined in the Purchase Agreement) and
determined without regard to any shares issued upon exercise of the Warrants as
set forth in its audited consolidated statement of income for such year.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this
Warrant is exercisable pursuant to Section 2.1.
"Expiration Date" shall mean December 31, 2007.
"Fully Diluted Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares thereof
is to be determined, all shares of Common Stock Outstanding at such date and all
shares of Common Stock issuable in respect of this Warrant outstanding on such
date, and other options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date which would be deemed
outstanding in accordance with GAAP for purposes of determining book value or
net income per share on a fully diluted basis.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
"GE Capital" shall mean General Electric Capital
Corporation, a New York corporation.
"Holder" shall mean the Person in whose name the Warrant set
forth herein is registered on the books of Company maintained for such purpose.
"Majority Holders" shall mean the holders of Warrants
exercisable for in excess of 50% of the aggregate number of shares of Common
Stock then purchasable upon exercise of all Warrants, whether or not then
exercisable.
3
<PAGE>
"NASD" shall mean the National Association of Securities
Dealers, Inc., or any successor corporation thereto.
"Other Property" shall have the meaning set forth
in Section 4.4.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, incorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
"Purchase Agreement" shall mean the Purchase Agreement dated
as of December 24, 1997 by and between Company and GE Capital, or any successor
agreement between such parties.
"Qualified Secondary Offering" means a sale of Company's
Common Stock pursuant to a public offering of Company's Common Stock on Form S-1
(or any other appropriate general or short registration form) under the
Securities Act of 1933, as amended, pursuant to which the Common Stock is
offered (whether or not for Company's account) for at least $8.75 per share,
subject to appropriate adjustment if any of the events set forth in Section 4.2
shall occur.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).
"Securities Act" shall mean the Securities Act of
1933, as amended, or any similar federal statute, and the
4
<PAGE>
rules and regulations of the Commission thereunder, all as
the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Warrants" shall mean this Warrant, any other Warrants issued
pursuant to the Purchase Agreement and all warrants issued upon transfer,
division or combination of, or in substitution for, any thereof. All Warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of shares of Common Stock for which they may be exercised.
"Warrant Price" shall mean an amount equal to (i) the number
of shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of
such exercise.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
-------------------
2.1. Manner of Exercise. From and after the earlier of
------------------
November 1, 2001 and the delivery to Holders of Company's audited consolidated
statement of income for the year ended June 30, 2001 and until 5:00 P.M., New
York time, on the Expiration Date (the "Exercise Period"), Holder may exercise
this Warrant, on any Business Day, for all or any part of the number of shares
of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to Company at its principal office at 333 Seventh Avenue, 20th
Floor, New York, New York 10001 or at the office or agency designated by Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased, (ii) payment of the Warrant Price and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription form appearing at
the end of this Warrant as Exhibit A, duly executed by Holder or its agent or
5
<PAGE>
attorney. Upon receipt thereof, Company shall, as promptly as practicable, and
in any event within ten (10) Business Days thereafter, execute or cause to be
executed and deliver or cause to be delivered to Holder a certificate or
certificates representing the aggregate number of full shares of Common Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share, as hereinafter provided. The stock certificate or certificates so
delivered shall be, to the extent possible, in such denomination or
denominations as such Holder shall request in the notice and shall be registered
in the name of Holder or, subject to Section 9, such other name as shall be
designated in the notice. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have been issued, and
Holder or any other Person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the notice, together with the cash or check or other payment as provided below
and this Warrant, is received by Company as described above and all taxes
required to be paid by Holder, if any, pursuant to Section 2.2 prior to the
issuance of such shares have been paid. If this Warrant shall have been
exercised in part, Company shall, at the time of delivery of the certificate or
certificates representing Warrant Stock, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant, or, at the request of Holder, appropriate
notation may be made on this Warrant and the same returned to Holder.
Notwithstanding any provision herein to the contrary, Company shall not be
required to register shares in the name of any Person who acquired this Warrant
(or part hereof) or any Warrant Stock otherwise than in accordance with this
Warrant.
Payment of the Warrant Price shall be made at the option of
the Holder by (i) certified or official bank check, and/or (ii) the Holder's
surrender to Company of that number of shares of Warrant Stock (or the right to
receive such number of shares) or shares of Common Stock having an aggregate
Current Market Price equal to or greater than the Current Warrant Price for all
shares then being purchased (including those being surrendered), or (iii) any
combination thereof, duly endorsed by or accompanied by appropriate instruments
of transfer duly executed by Holder or by Holder's attorney duly authorized in
writing.
6
<PAGE>
2.2. Payment of Taxes. All shares of Common Stock issuable
----------------
upon the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable and without any preemptive rights. Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issue or delivery thereof,
unless such tax or charge is imposed by law upon Holder, in which case such
taxes or charges shall be paid by Holder. Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of Holder, and in such
case Company shall not be required to issue or deliver any stock certificate
until such tax or other charge has been paid or it has been established to the
satisfaction of Company that no such tax or other charge is due.
2.3. Fractional Shares. Company shall not be required to issue
-----------------
a fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants, the rights under
which are exercised in the same transaction, would otherwise be entitled to
purchase upon such exercise, except as otherwise provided in Section 2.1,
Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Market Price per share of
Common Stock on the date of exercise.
2.4. Continued Validity. A holder of shares of Common Stock
------------------
issued upon the exercise of this Warrant, in whole or in part (other than a
holder who acquires such shares after the same have been publicly sold pursuant
to a Registration Statement under the Securities Act or sold pursuant to Rule
144 thereunder), shall continue to be entitled with respect to such shares to
all rights to which it would have been entitled as Holder under Sections 9, 10
and 15 of this Warrant. Company will, at the time of each exercise of this
Warrant, in whole or in part, upon the request of the holder of the shares of
Common Stock issued upon such exercise hereof, acknowledge in writing, in form
reasonably satisfactory to such holder, its continuing obligation to afford to
such holder all such rights; provided, however, that if such holder shall fail
to make any such request, such failure shall not affect the continuing
obligation of Company to afford to such holder all such rights.
7
<PAGE>
3. TRANSFER, DIVISION AND COMBINATION
----------------------------------
3.1. Transfer. Subject to compliance with Section 9 hereof,
--------
transfer of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of Company referred to in
Section 2.1 or the office or agency designated by Company pursuant to Section
12, together with a written assignment of this Warrant substantially in the form
of Exhibit B hereto duly executed by Holder or its agent or attorney, and funds
sufficient to pay any transfer taxes payable upon the making of such transfer.
Upon such surrender and, if required, such payment, Company shall, subject to
Section 9, execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the portion
of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A
Warrant, if properly assigned in compliance with Section 9, may be exercised by
a new Holder for the purchase of shares of Common Stock without having a new
Warrant issued.
3.2. Division and Combination. Subject to Section 9, this
------------------------
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office or agency of Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. Expenses. Company shall prepare, issue and deliver at its
--------
own expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4. Maintenance of Books. Company agrees to maintain, at its
--------------------
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
8
<PAGE>
4. ADJUSTMENTS
-----------
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. Company shall give each Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1. Reduction or Cancellation of Shares Subject to Warrant.
------------------------------------------------------
(a) If Company delivers to Holder its audited consolidated statement of income
for the year ended June 30, 2001 on or before October 31, 2001, the number of
shares of Common Stock for which this Warrant is exercisable shall be reduced to
the number of shares set forth below to the extent Company's Earnings Per Share
equals or exceeds the amounts set forth below opposite each such adjusted
number:
Earnings Per Share Adjusted Number
------------------ ---------------
$0.13 or below 10,670,000
$0.14-0.18 7,584,300
$0.19-0.23 5,714,300
$0.24-0.28 3,214,300
$0.29-0.33 1,714,300
$0.34-0.38 714,300
$0.39 or above 0
The foregoing earnings per share amounts shall be adjusted to account for the
occurrence of any of the events set forth in Section 4.2.
(b) Notwithstanding the foregoing, if Company consummates a
Qualified Secondary Offering on or before December 31, 1999 pursuant to which GE
Capital has the ability to sell at least 1,766,245 shares of Common Stock, this
Warrant shall become immediately exercisable to purchase 200,000 shares of
Common Stock, and upon such exercise this Warrant shall expire.
4.2. Stock Dividends, Subdivisions and Combinations. If at
----------------------------------------------
any time Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
9
<PAGE>
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.3. Certain Other Distributions and Adjustments. (a) If at
-------------------------------------------
any time Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any dividend or other distribution of:
(i) cash,
(ii) any evidences of its indebtedness, any shares of its
stock or any other securities or property of any nature whatsoever
(other than cash, Convertible Securities or Additional Shares of Common
Stock), or
(iii) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of its stock or
any other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock),
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised this Warrant.
If pursuant to Section 4.1 above (i) the number of shares of
Common Stock for which this Warrant is exercisable shall be reduced, or (ii)
this Warrant shall be cancelled, any dividend or distribution made with respect
to any such
10
<PAGE>
reduced or cancelled Warrants shall be promptly returned to
Company by Holder.
(b) A reclassification of the Common Stock (other than a
change in par value, or from par value to no par value or from no par value to
par value) into shares of Common Stock and shares of any other class of stock
shall be deemed a distribution by Company to the holders of its Common Stock of
such shares of such other class of stock within the meaning of paragraph (a)
above and, if the outstanding shares of Common Stock shall be changed into a
larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.2.
4.4. Reorganization, Reclassification, Merger, Consolidation
-------------------------------------------------------
or Disposition of Assets. In case Company shall reorganize its capital,
- ------------------------
reclassify its capital stock, consolidate or merge with or into another
corporation (where Company is not the surviving corporation or where there is a
change in or distribution with respect to the Common Stock of Company), or sell,
transfer or otherwise dispose of all or substantially all its property, assets
or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of Company, then each Holder shall have the right thereafter to receive, upon
exercise of such Warrant, the number of shares of common stock of the successor
or acquiring corporation or of Company, if it is the surviving corporation, and
Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than Company) shall expressly assume the due
and punctual observance and performance of each and every covenant and
11
<PAGE>
condition of this Warrant to be performed and observed by Company and all the
obligations and liabilities hereunder, subject to such modifications as may be
deemed appropriate (as determined by resolution of the Board of Directors of
Company) in order to provide for adjustments of shares of Common Stock for which
this Warrant is exercisable which shall be as nearly equivalent as practicable
to the adjustments provided for in this Section 4. For purposes of this Section
4.4, "common stock of the successor or acquiring corporation" shall include
stock of such corporation of any class which is not preferred as to dividends or
assets over any other class of stock of such corporation and which is not
subject to redemption and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions of this
Section 4.4 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
4.5. Other Action Affecting Common Stock. In
-----------------------------------
case at any time or from time to time Company shall take any action in respect
of its Common Stock, other than any action described in this Section 4, then,
unless such action will not have a materially adverse effect upon the rights of
the Holders, the number of shares of Common Stock or other stock for which this
Warrant is exercisable and/or the purchase price thereof shall be adjusted in
such manner as may be equitable in the circumstances.
5. NOTICES TO WARRANT HOLDERS
--------------------------
5.1. Notice of Adjustments. Whenever the number of shares of
Common Stock for which this Warrant is exercisable, or whenever the price at
which a share of such Common Stock may be purchased upon exercise of the
Warrants, shall be adjusted pursuant to Section 4, Company shall forthwith
prepare a certificate to be executed by the chief financial officer of Company
setting forth, in reasonable detail, the event requiring the adjustment and the
method by which such adjustment was calculated, specifying the number of shares
of Common Stock for which this Warrant is exercisable and (if such adjustment
was made pursuant to Section 4.4 or 4.5) describing the number and kind of any
other shares of stock or Other Property for which this
12
<PAGE>
Warrant is exercisable, and any change in the purchase price or prices thereof,
after giving effect to such adjustment or change. Company shall promptly cause a
signed copy of such certificate to be delivered to each Holder in accordance
with Section 15.2. Company shall keep at its office or agency designated
pursuant to Section 12 copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by any
Holder or any prospective purchaser of a Warrant designated by a Holder thereof.
5.2. Notice of Corporate Action. If at any time
--------------------------
(a) Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences
of its indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of Company, any
reclassification or recapitalization of the capital stock of Company or
any consolidation or merger of Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of Company;
then, in any one or more of such cases, Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 30 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such
13
<PAGE>
dividend, distribution or right, and the amount and character thereof, and (ii)
the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of Company and delivered in accordance with Section 15.2.
6. NO IMPAIRMENT
-------------
Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, Company will take all such action as may be necessary or appropriate
in order that Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, including taking such
action as is necessary for the Current Warrant Price to be not less than the par
value of the shares of Common Stock issuable upon exercise of this Warrant, and
(b) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable Company to perform its obligations under this Warrant.
Upon the request of Holder, Company will at any times during
the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of Company hereunder.
14
<PAGE>
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY
--------------------------------------------------
From and after the Closing Date, Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant and
payment therefor in accordance with the terms of such Warrant, shall be duly and
validly issued and fully paid and nonassessable, and not subject to preemptive
rights.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Current Warrant Price, Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for
issuance upon exercise of Warrants require registration or qualification with
any governmental authority or other governmental approval or filing under any
federal or state law (otherwise than as provided in Section 9) before such
shares may be so issued, Company will in good faith and as expeditiously as
possible and at its expense endeavor to cause such shares to be duly registered
or such approval to be obtained or filing made.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
--------------------------------------------------
In the case of all dividends or other distributions by Company
to the holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, Company will in each
such case take such a record and will take such record as of the close of
business on a Business Day. Company will not at any time, except upon
dissolution, liquidation or winding up of Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
15
<PAGE>
9. RESTRICTIONS ON TRANSFERABILITY
-------------------------------
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1. Restrictive Legend. (a) Except as otherwise provided in
------------------
this Section 9, each certificate for Warrant Stock initially issued upon the
exercise of this Warrant, and each certificate for Warrant Stock issued to any
subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended,
and may not be transferred in violation of such Act or the
rules and regulations thereunder."
(b) Except as otherwise provided in this Section 9, each
Warrant shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and the securities represented hereby
have not been registered under the Securities Act of 1933, as
amended, and may not be transferred in violation of such Act,
the rules and regulations thereunder or the provisions of this
Warrant."
9.2. Termination of Restrictions. Notwithstanding the
---------------------------
foregoing provisions of Section 9, the restrictions imposed by this Section upon
the transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Warrants) (i) when and so long as such security shall
have been effectively
16
<PAGE>
registered under the Securities Act and disposed of pursuant thereto or (ii)
when Company shall have received an opinion of counsel reasonably satisfactory
to it that such shares may be transferred without registration thereof under the
Securities Act. Whenever the restrictions imposed by Section 9 shall terminate
as to this Warrant, as hereinabove provided, the Holder hereof shall be entitled
to receive from Company, at the expense of Company, a new Warrant without the
restrictive legend set forth in Section 9.1(b). Whenever the restrictions
imposed by this Section shall terminate as to any share of Restricted Common
Stock, as hereinabove provided, the holder thereof shall be entitled to receive
from Company, at Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(a).
9.3. Listing on Securities Exchange. If Company shall list any
------------------------------
shares of Common Stock on any securities exchange or NASDAQ, it will, at its
expense, list thereon, maintain and, when necessary, increase such listing of,
all shares of Common Stock issued or, to the extent permissible under the
applicable securities exchange or NASDAQ rules, issuable upon the exercise of
this Warrant so long as any shares of Common Stock shall be so listed during the
Exercise Period.
10. SUPPLYING INFORMATION
---------------------
Company shall cooperate with each Holder of a Warrant and each
holder of Restricted Common Stock in supplying such information as may be
reasonably necessary for such holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
------------------
Upon receipt by Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of GE Capital shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
Company will execute and deliver in lieu hereof a new Warrant of like tenor to
such Holder; provided, in the case of mutilation, no
17
<PAGE>
indemnity shall be required if this Warrant in identifiable form is surrendered
to Company for cancellation.
12. OFFICE OF COMPANY
-----------------
As long as any of the Warrants remain outstanding, Company
shall maintain an office or agency (which may be the principal executive offices
of Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. FINANCIAL AND BUSINESS INFORMATION
----------------------------------
13.1. Quarterly Information. Company will deliver to each
---------------------
Holder, as soon as practicable after the end of each of the first three quarters
of Company, and in any event within 45 days thereafter, one copy of an unaudited
consolidated balance sheet of Company and its subsidiaries as at the close of
such quarter, and the related unaudited consolidated statements of income and
cash flows of Company for such quarter and, in the case of the second and third
quarters, for the portion of the fiscal year ending with such quarter, setting
forth in each case in comparative form the figures for the corresponding periods
in the previous fiscal year. Such financial statements shall be prepared by
Company in accordance with GAAP and accompanied by the certification of
Company's chief executive officer or chief financial officer that such financial
statements present fairly in all material respects the consolidated financial
position, results of operations and cash flows of Company and its subsidiaries
as at the end of such quarter and for such year-to-date period, as the case may
be.
13.2. Annual Information. Company will deliver to each Holder
------------------
as soon as practicable after the end of each fiscal year of Company, and in any
event within 90 days thereafter, one copy of:
(i) an audited consolidated balance sheet of
Company and its subsidiaries as at the end of such
year, and
(ii) audited consolidated statements of income and
cash flows of Company and its subsidiaries for such year;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year,
18
<PAGE>
all prepared in accordance with GAAP, and which audited financial statements
shall be accompanied by (i) an opinion thereon of the independent certified
public accountants regularly retained by Company, or any other firm of
independent certified public accountants of recognized national standing
selected by Company and (ii) a report of such independent certified public
accountants confirming any adjustment made pursuant to Section 4 during such
year.
13.3. Filings. Company will file on or before the required
-------
date all regular or periodic reports (pursuant to the Exchange Act) with the
Commission and will deliver to Holder promptly upon their becoming available one
copy of each report, notice or proxy statement sent by Company to its
stockholders generally, and of each regular or periodic report (pursuant to the
Exchange Act) and any Registration Statement, prospectus or written
communication (other than transmittal letters) (pursuant to the Securities Act),
filed by Company with (i) the Commission or (ii) any securities exchange or
NASDAQ on which shares of Common Stock are listed.
14. LIMITATION OF LIABILITY
-----------------------
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of such
Holder for the purchase price of any Common Stock or as a stockholder of
Company, whether such liability is asserted by Company or by creditors of
Company.
15. MISCELLANEOUS
-------------
15.1. Nonwaiver and Expenses. No course of dealing or any
delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's rights, powers
or remedies. If Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, Company
shall pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys' fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
19
<PAGE>
15.2. Notice Generally. Any notice, demand, request, consent,
----------------
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid, or
by telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last
known address appearing on the books of Company maintained for such
purpose.
(b) If to Company at
Marketing Services Group, Inc.
333 Seventh Avenue, 20th Floor
New York, New York 10001
Attention: Chief Financial Officer
Telecopy Number: (212) 465-8877
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback, or three (3) Business Days after the same shall have been deposited
in the United States mail. Failure or delay in delivering copies of any notice,
demand, request, approval, declaration, delivery or other communication to the
person designated above to receive a copy shall in no way adversely affect the
effectiveness of such notice, demand, request, approval, declaration, delivery
or other communication.
15.3. Remedies. Each holder of Warrant and Warrant Stock, in
--------
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under Section 9 of this Warrant. Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of Section 9 of this Warrant and hereby agrees to waive the
20
<PAGE>
defense in any action for specific performance that a remedy
at law would be adequate.
15.4. Successors and Assigns. Subject to the provisions of
----------------------
Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to
the benefit of and be binding upon the successors of Company and the successors
and assigns of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and, with respect to
Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such
Holder or holder of Warrant Stock. Notwithstanding the foregoing, the rights
provided by Section 9.3 hereof may only be transferred along with the transfer
of at least 50% of the Warrants and/or Warrant Stock, taken as a whole.
15.5. Amendment. This Warrant and all other Warrants may be
---------
modified or amended or the provisions hereof waived with the written consent of
Company and the Majority Holders, provided that no such Warrant may be modified
or amended to reduce the number of shares of Common Stock for which such Warrant
is exercisable or to increase the price at which such shares may be purchased
upon exercise of such Warrant (before giving effect to any adjustment as
provided therein) without the prior written consent of the Holder thereof.
15.6. Severability. Wherever possible, each provision of this
------------
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
15.7. Headings. The headings used in this Warrant are for the
--------
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
15.8. Governing Law. This Warrant shall be governed by the
-------------
laws of the State of New York, without regard to the provisions thereof relating
to conflict of laws.
21
<PAGE>
IN WITNESS WHEREOF, Company has caused this Warrant to be duly
executed and attested by its Secretary or an Assistant Secretary.
Dated: ________________
MARKETING SERVICES GROUP, INC.
By: ______________________________________
Name:
Title:
Attest:
By: __________________________________
Name:
Title:
22
NYFS10...:\60\47660\1420\1219\WRNN257V.25E
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ______ Shares of Common Stock of
MARKETING SERVICES GROUP, INC. and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to _____________ whose address is _________________ and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
- ---------------------------- Common Stock
-----------------
and does hereby irrevocably constitute and appoint _______ ________________
attorney-in-fact to register such transfer on the books of MARKETING SERVICES
GROUP, INC. maintained for the purpose, with full power of substitution in the
premises.
Dated:__________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
Exhibit 6
JOINT FILING AGREEMENT
This will confirm the agreement by and among all the undersigned that the
Schedule 13D filed on or about this date and any amendments thereto with respect
to beneficial ownership by the undersigned of shares of the Common Stock, par
value $0.01 per share, of Marketing Services Group, Inc. is being filed on
behalf of each of the undersigned in accordance with Rule 13d-1(f)(1) under the
Securities Exchange Act of 1934. This agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Dated: December 30, 1997
GENERAL ELECTRIC CAPITAL CORPORATION
/s/ Michael E. Pralle
---------------------------------------
(Signature)
Michael E. Pralle/Vice President
---------------------------------------
(Name/Title)
GENERAL ELECTRIC CAPITAL SERVICES, INC.
By: /s/ Michael E. Pralle
---------------------------------------
(Signature)
Michael E. Pralle/Attorney-in-Fact
---------------------------------------
(Name/Title)
GENERAL ELECTRIC COMPANY
By: /s/ Michael E. Pralle
---------------------------------------
(Signature)
Michael E. Pralle/Attorney-in-Fact
---------------------------------------
(Name/Title)
