UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to______________
Commission file number 0-16730
MARKETING SERVICES GROUP, INC.
------------------------------
(Name of small business issuer in its charter)
Nevada 88-0085608
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Seventh Avenue, 20th Floor
New York, New York 10001
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (212) 594-7688
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: None
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Common Stock, par value $.01 per share
(Title of class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its fiscal year ended June 30, 1998 are $51,174,063.
As of October 19, 1998, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $29,755,934.
As of October 19, 1998, there were 13,023,005 shares of the Registrant's common
stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
Introduction
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On September 28, 1998, Marketing Services Group, Inc. ("MSGI" or the "Company"),
filed with the Securities and Exchange Commission (the "Commission") its Annual
Report on Form 10-KSB for its fiscal year June 30, 1998 (the "1998 Form
10-KSB"). The information called for by items 9, 10, 11 and 12 of Part III of
Form 10-KSB was not included in the body of the 1998 Form 10KSB as filed, but
was incorporated by reference to the Company's Proxy Statement which was
expected to be filed with the Commission within the 120-day period. Because the
Company is not in fact filing its Proxy Statement with in such 120 day period,
this Form 10-KSB/A amends the 1998 Form 10-KSB by deleting therefrom the caption
and first paragraph and substituting therefore the following replacements for
Items 9, 10, 11 and 12.
Item 9 - Executive Officers and Directors of the
Registrant and Significant Employees
------------------------------------
The Company's executive officers, directors and significant employees and their
positions with MSGI are as follows:
Name Age Position
- -------------------- --- ----------------------------------------------------
J. Jeremy Barbera 42 Chairman of the Board of Directors,
Chief Executive Officer, President and
Chief Operating Officer
Cindy H. Hill 29 Chief Financial Officer
Scott Anderson 41 Vice President, Finance and Treasurer
Alan I. Annex 36 Director and Secretary
James Brown 33 Director
S. James Coppersmith 65 Director
John T. Gerlach 65 Director
Seymour Jones 67 Director
Michael E. Pralle 42 Director
C. Anthony Wainwright 65 Director
Robert M. Budlow 37 Vice President of MSGI and President of Metro Direct
Janet Sautkulis 42 Chief Operating Officer, Metro Direct
Krista Mooradian 32 President, SD&A
Thomas Scheir 45 Chief Operating Officer, SD&A
Stephen M. Reustle 43 President and Chief Executive Office,
Media Marketplace, Inc.
Brian Coughlan 30 President, Pegasus Internet, Inc.
Mr. Barbera has been Chairman, Chief Executive and Operating Officer and
President of the Company since April 1997 and was a Director and Vice President
of the Company from October 1996 to April 1997. He has been Chief Executive
Officer of Metro since its formation in 1987. Mr. Barbera has eighteen years of
experience in data management services, and over twenty years of experience in
the entertainment marketing area.
<PAGE>
Ms. Hill has been Chief Financial Officer of the Company since June 1, 1998, and
was Corporate Controller of the Company from January to May 1998. Prior thereto,
she was a manager in the Business Assurance Division of Coopers & Lybrand, LLP,
where she was employed for the previous six years. Ms. Hill is a Certified
Public Accountant
Mr. Anderson has been Vice President, Finance since June 1, 1998, Treasurer
since May 1997 and was Chief Financial Officer from May 1996 to May 1998,
Controller from May 1995 to May 1996 and a Director of the Company from May 1996
to August 1996. Prior thereto, from December 1994 to April 1995, he was
associated with the accounting firm of Coopers & Lybrand L.L.P. and, from 1998
to 1994, he was manager in the assurance department of an affiliate of the
accounting firm of Deloitte & Touche LLP. Mr. Anderson is a Certified Public
Accountant.
Mr. Annex has been a Director and Secretary of the Company since May 1997. He
has been a partner in the law firm of Camhy Karlinsky & Stein LLP since July
1995, where he practices corporate and securities law. Camhy Karlinsky & Stein
LLP is the Company's legal counsel. From July 1994 to June 1995, Mr. Annex was
Counsel to said firm. Prior thereto he was associated with Proskauer Rose,
LLP. Mr. Annex is also a director of Pacific Coast Apparel, Inc.
Mr. Brown has been a Director of the Company since February 1998. Mr. Brown is
currently Vice President and Industry Leader in GE Capital's Equity Capital
Group, where he is responsible for making strategic private equity investments.
From 1994 to 1995, Mr. Brown joined Lehman Brothers in its Corporate Planning
area to restructure the firm. From 1992 to 1994, Mr. Brown was with Bain & Co.
where he consulted with Fortune 500 clients on strategic, operational and
financial issues. Prior thereto, he was an analyst for CBS and AC Nielsen.
Mr. Coppersmith has been a Director of the Company since June 1996.
He was Chairman of the Board of Trustees of Boston's Emerson College from 1994
until his term expired in December 1997. Until his retirement in 1994, Mr.
Coppersmith held various senior executive positions with Metromedia Broadcasting
where he managed its television operations in Los Angeles, New York, and Boston
and served as President and General Manager of Boston's WCVB-TV, an ABC
affiliate owned by The Hearst Corporation. Mr. Coppersmith also serves as a
director for B.J.'s Wholesale Club, Sun America Asset Management Corporation,
Uno Restaurant Corp., Kushner-Locke, Inc., and The Boston Stock Exchange.
Mr. Gerlach has been a Director of the Company since December 1997. He is
presently Director of the graduate business program and an associate professor
of finance at Sacred Heart University in Fairfield, CT. Previously, Mr. Gerlach
was an Associate Director in Bear Stearns' corporate finance department, with
responsibility for mergers and financial restructuring projects; he was
President and Chief Operating Officer of Horn & Hardart, supervising restaurant
and mail order subsidiaries, including Hanover Direct; and he was the Founder
and President of Consumer Growth Capital, a venture capital firm. Mr. Gerlach
also serves as a director for Uno Restaurant Co.; SAFE Inc.; LB USA (subsidiary
of a French company); Akona Corp.; the Board of Regents at St. John's University
in Collegeville, MN; and is a member of an advisory board for the College of
Business & Administration at Drexel University.
Mr. Jones has been a Director of the Company since June 1996. Since September
1995, Mr. Jones has been a professor of accounting at New York University. Prior
thereto, from April 1974 to September 1995, Mr. Jones was a senior partner of
the accounting firm of Coopers & Lybrand, L.L.P. Mr. Jones has over 35 years of
accounting experience and over ten years of experience as an arbitrator and as
an expert witness, particularly in the area of mergers and acquisitions.
Mr. Pralle has been a Director of the Company since May 1998. Mr. Pralle is
currently the President of GE Capital's Equity Capital Group, with
responsibility for making common equity, convertible preferred stock and debt
investments in private and public companies in the US, Europe and Asia. He
joined GE Capital in 1989 and, prior to his current appointment in 1996, was
<PAGE>
most recently President, GE Capital Asia Pacific. Before joining GE Capital, Mr.
Pralle spent six years with management consultants, McKinsey & Co. in their
London and Hong Kong offices.
Mr. Wainwright has been a Director of the Company since August 1996 and was also
a Director of the Company from the acquisition of SD&A until May 1996. Mr.
Wainwright is currently Vice Chairman of the advertising agency McKinney &
Silver and was Chairman and Chief Executive Officer of the advertising firm
Harris Drury Cohen, Inc., from 1995 to 1996. From 1994 to 1995, he served as a
senior executive with Cordient PLC's Compton Partners, a unit of the advertising
firm Saatchi & Saatchi World Advertising, and, from 1989 to 1994, as Chairman
and Chief Executive Officer of Campbell Mithun Esty, a unit of Saatchi & Saatchi
in New York. Mr. Wainwright also serves as a director of Caribiner
International, Gibson Greetings, Inc., Del Webb Corporation and American
Woodmark Corporation.
Mr. Budlow has been Vice President of the Company since October 1996 and
President of Metro since April 1997. Prior thereto, he was Executive Vice
President and Chief Operating Officer of Metro since 1990. He has twelve years
of experience in database management services and subscription, membership and
donor renewal programs.
Ms. Sautkulis serves as Chief Operating Officer of Metro Direct, having
previously served as Executive Vice President. Prior to joining Metro Direct,
she held various positions at Jetson Direct Mail and Belth Associates. Ms.
Sautkulis has more than twenty years experience in database management, list
brokerage and lettershop services specializing in the business-to-business
sector.
Ms. Mooradian has been President of SD&A since 1997. For the past five years,
she has held various positions of increasing responsibility within SD&A.
Mr. Scheir has been Vice President and Chief Operating Officer of SD&A since
September 1996. Prior thereto, from 1990 to September 1996, he was Chief
Financial Officer of SD&A, and from 1983 to 1990, he served as Business Manager
of SD&A.
Mr. Reustle has been President and Chief Executive Officer of MMI since December
1997, Managing Partner from June 1980 to December 1997 and Vice President of
Finance from 1978 to 1980. Prior thereto, Mr. Reustle was a Certified Public
Accountant at Arthur Andersen LLP, where he was employed from 1976 to 1978.
Mr. Coughlan has been President of Pegasus Internet since June 1998. Having
previously served as Creative Director, he brings over ten years of interactive
design and project management experience to Pegasus.
Compliance with Section 16(A) of the Exchange Act
- -------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, file reports of ownership
on Forms 3, 4 and 5 with the Securities and Exchange Commission (the
"Commission") and the NASDAQ National Market. Officers, directors and greater
than ten percent stockholders are required by the Commission's regulations to
furnish the Company with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has received
and written representations from certain reporting persons that they were not
required to file reports on Form 5 for the fiscal year ended June 30, 1998, the
Company believes that all its officers, directors and greater than ten percent
beneficial owners complied with all filing requirements applicable to them with
<PAGE>
respect to transactions during the fiscal year ended June 30, 1998, except that
Mr. Barbera, Mr. Pralle and Mr. Gerlach each made one late filing due to
administrative timing errors on their part with respect to reporting repayment
of convertible debt to Mr. Barbera and an initial filing upon being appointed to
the Board of Directors for Messrs. Pralle and Gerlach.
Item 10 - Executive Compensation:
- ---------------------------------
The following table provides certain information concerning compensation of the
Company's Chief Executive Officer and any other executive officer of the Company
who received compensation in excess of $100,000 during the fiscal year ended
June 30, 1998:
SUMMARY COMPENSATION TABLE
Fiscal
Year Securities
Ended Annual Annual Underlying
Name and Principal Position June 30, Salary ($) Bonus($) Options/SARs(#)
- --------------------------- ------- ---------- -------- ---------------
J. Jeremy Barbera(1) (2)
Chairman of the Board, 1998 198,077 50,000
CEO, President & COO 1997 120,883 1,000,000
Thomas Scheir(3) 1998 175,000 2,500
Executive VP, SD&A 1997 154,521 60,000 40,000
1996 128,461 60,000 12,500
Krista Mooradian(3) 1998 175,000 29,625
President, SD&A 1997 127,936 25,000 20,000
1996 85,092 29,372 5,375
Robert N. Budlow(4) 1998 144,231
President, Metro Direct 1997 93,750
Janet Sautkulis(4) 1998 144,231
COO, Metro Direct 1997 93,750
Stephen Reustle(5) 1998 145,833
President & CEO, MMI
- ----------
(1) Mr. Barbera was appointed Chairman of the Board, Chief Executive Officer,
President and Chief Operating Officer effective March 31, 1997. Prior
thereto, commencing with the October 1, 1996 acquisition of Metro, he was
Vice President of MSGI and President and CEO of Metro. Pursuant to an
employment agreement dated May 27, 1997, his annual salary increased from
$150,000 to $250,000 through May 31, 1998. As of June 30, 1997, Mr.
Barbera's salary reflects earnings for the nine months from the date of
Metro's acquisition.
(2) During fiscal year end June 30, 1998, Mr. Barbera forgave all interest due
him on a note payable and forgave an increase in his annual salary from May
27, 1997 to December 31, 1997. In consideration for this, the Board of
Directors granted Mr. Barbera options to acquire 50,000 shares of Common
Stock at the then current fair market price.
<PAGE>
(3) During fiscal year end June 30, 1998, Mr. Scheir and Ms. Mooradian forgave
an increase in their salaries from January 1, 1998 to June 30, 1998.
Effective July 1, 1998, their salaries were increased in accordance with
their respective employment agreements.
(4) The annual salaries for Mr. Budlow and Ms. Sautkulis are $125,000 each for
1997. Due to the acquisition of Metro on October 1, 1996, their annual
compensation only reflects nine months of salary. During fiscal year end
June 30, 1998, Mr. Budlow and Ms. Sautkulis forgave an increase in their
salaries from October 1, 1997 to December 31, 1997. As of January 1, 1998,
salaries were increased in accordance with their respective employment
agreements.
(5) The annual salary for Mr. Reustle is $250,000 for 1998. Due to the
acquisition of Media Marketplace, Inc. on December 7, 1997, his annual
compensation only reflects seven months of salary.
STOCK OPTION GRANTS
The table below provides information relating to stock options granted to the
Named Executive Officers during the fiscal year ended June 30, 1998.
OPTIONS GRANTED IN THE LAST FISCAL YEAR
Individual Grant
----------------
Number of % of Total Exercise
Securities Options/SARs or Base
Underlying Granted to Price
Options/SARs Employees in ($ per Expiration
Name Granted (#) Fiscal Year(4) share(5)) Date
- ---- ----------- -------------- --------- ----
J. Jeremy Barbera... 50,000 3.8% 4.6875 11/04
Thomas Scheir....... 2,500 .02% 4.1875 12/04
Krista Mooradian.... 29,625(1) 2.3% 4.1875 12/04
Robert Budlow....... 55,000(2) 4.2% 4.1875 12/04
Janet Sautkulis..... 55,000(3) 4.2% 4.1875 12/04
- ----------
(1) Ms. Mooradian's options are exercisable as follows: 10,000 options are
available for exercise immediately, 10,000 options become available in
August 1998, with the remaining 9,625 options exercisable in August 1999.
(2) Mr. Budlow's options are exercisable as follows: 25,000 options are
available for exercise immediately, 15,000 options become available in
October 1998, with the remaining 15,000 options exercisable in October 1999.
(3)Ms. Sautkulis' options are exercisable as follows: 25,000 options are
available for exercise immediately, 15,000 options become available in
October 1998, with the remaining 15,000 options exercisable in October 1999.
(4)During the fiscal year ended June 30, 1998, all employees and all
non-employee Directors of the Company received stock options for a total of
1,302,100 shares of Common Stock.
<PAGE>
(5)Exercise price is the closing price of the Common Stock as reported on The
Nasdaq SmallCap Market on the date of the grant, unless otherwise
identified.
AGGREGATE OPTIONS EXERCISED IN THE LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
The following table sets forth information regarding the number and value of
securities underlying unexercised stock options held by the Named Executive
Officers as of June 30, 1998.
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs In-the-Money Options/ SARs
at Fiscal Year End (#) at Fiscal Year End ($) (1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
J. Jeremy Barbera.. 716,667/333,333 278,001/139,000
Thomas Scheir...... 55,000/0 50,495/0
Krista Mooradian... 35,375/19,625 23,989/0
Robert Budlow...... 25,000/30,000 0/0
Janet Sautkulis.... 25,000/30,000 0/0
- ----------
(1) Fair market value of $3.438 per share at June 30, 1998 was used to
determine the value of in-the-money options.
COMPENSATION OF DIRECTORS
Commencing July 1, 1998, Directors who are not employees of the Company will
receive an annual retainer fee of $10,000, $1,000 for each Board Meeting
attended, $500 for each standing committee meeting attended and $500 for each
standing committee meeting for the Chairman of such Committee. Such Directors
will also be reimbursed for their reasonable expenses for attending board and
committee meetings, and will receive an annual grant of options to acquire
10,000 shares of common stock for each fiscal year of service, at an exercise
price equal to the fair market value on the date of grant. Any Director who is
also an employee of the Company is not entitled to any compensation or
reimbursement of expenses for serving as a Director of the Company or a member
of any committee thereof. Mr. Annex has indicated that since his firm acts as
counsel to the Company he would waive the described cash retainer.
Pursuant to a resolution of the Board of Directors on May 27, 1997, non-employee
members of the Board agreed to serve without cash compensation for fiscal 1998.
It was agreed that each outside director be compensated with options to purchase
100,000 shares of common stock of the Company at an exercise price of $2.625 per
share, with 50% immediately exerciseable, 25% exercisable on May 27, 1998 and
25% exercisable on May 27, 1999.
Messrs. Annex, Coppersmith, Jones and Wainwright each received options to
purchase 100,000 shares of Common Stock. Mr. Gerlach received options to
purchase 50,000 shares of Common Stock at an exercise price of $4.50 per share
with 1/3 immediately exercisable and 1/3 exercisable in December 1998 and 1/3
exercisable in December 1999 upon his appointment to the Board of Directors.
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
The Company has entered into employment agreements with each of its named
executives.
Mr. Barbera was appointed to the position of Chief Executive Officer of MSGI by
the Board, effective March 31, 1997. He had previously served as President and
CEO of Metro under an employment contract dated October 1, 1996. Under the
contract, Mr. Barbera's base salary was $150,000 for the first year of
employment. On May 27, 1997, the Company amended and restated Mr. Barbera's
employment contract, based on the additional responsibilities he assumed on
March 31, 1997. Under the terms of the amended contract, Mr. Barbera's
employment term is for three years beginning May 27, 1997, and is automatically
renewable for an additional three year period, unless the Company or Mr. Barbera
gives written notice; his amended annual base salary for the first year of the
amended employment term is $250,000, with $300,000 for the second year and
$350,000 for the third year. Mr. Barbera is also eligible to receive raises and
bonuses in each year of the employment contract, at the determination of the
Compensation Committee of the Board of Directors of the Company, based on
earnings and other targeted criteria. On May 27, 1997, Mr. Barbera was granted
options to acquire 1,000,000 shares of Common Stock of the Company; 333,334
exercisable at $2.625 per share, 333,333 exercisable at $3.00 per share and
333,333 exercisable at $3.50 per share. One third of the options in each tranche
vest immediately and one third of each tranche will become available on each of
the next two anniversary dates. In a separate agreement, Mr. Barbera forgave the
increase in his annual salary from May 27, 1997 to December 31, 1997.
Mr. Barbera has agreed in his employment agreement (i) not to compete with MSGI
or its subsidiaries, or to be associated with any other similar business during
the employment term, except that he may own up to 5% of the outstanding Common
Stock of certain corporations, as described more fully in the employment
agreement, and (ii) upon termination of employment with MSGI and its
subsidiaries, not to solicit or encourage certain clients of MSGI or its
subsidiaries, to cease doing business with MSGI and its subsidiaries and not to
do business with any other similar business for a period of three years from the
date of such termination.
Mr. Budlow and Ms. Sautkulis entered into separate employment agreements
effective October 1, 1996, providing for employment as Executive Vice President
& Chief Operating Officer of Metro and as Executive Vice President & General
Manager of Metro, respectively. Each agreement provides for an initial term
expiring on September 30, 1999 (the "Employment Term") and is renewable for an
additional three-year term unless Metro or the employee gives written notice.
The base salary for each of Mr. Budlow and Ms. Sautkulis during the Employment
Term is $125,000 for the first year, $165,000 for the second year and $200,000
for the third year. Mr. Budlow and Ms. Sautkulis are each eligible to receive
raises and bonuses based upon the achievement of earnings and other targeted
criteria if and as determined by the Compensation Committee of the Board of
Directors. The agreements also provide for the granting to Mr. Budlow and Ms.
Sautkulis of options to acquire Common Stock if and as determined by the Option
Plan Committee. Each has agreed in his or her respective employment agreement
(i) not to compete with Metro or to be associated with any other similar
business during the Employment Term, except that may each own up to 5% of the
outstanding Common Stock of certain corporations, as described more fully in the
relevant employment agreement, and (ii) upon termination of employment with
Metro, not to solicit or encourage certain clients of Metro (as more fully
described in the relevant employment agreement), to cease doing business with
Metro, and not to do business with any other similar business, for a period of
three years from the date of such termination.
<PAGE>
Mr. Scheir entered into an employment agreement effective as of April 25, 1995,
providing for his employment as the Chief Financial Officer of SD&A. The
agreement provides for an initial term expiring on April 25, 1997, and is
renewable for an additional one-year term at the discretion of the employee
covered thereby, subject to termination as provided therein. Mr. Scheir's base
salary during his employment term is $125,000 for the first year, $150,000 for
the second year and $175,000 for the third year. At the end of each year, in the
sole discretion of the board of directors of SD&A and Mr. Scheir may be paid a
cash bonus. The agreement also provides for other fringe benefits as may be
approved by the board of directors of SD&A. Mr. Scheir has agreed in his
employment agreement not to (i) own, become employed by, or become a partner of
any similar business during the term of his employment agreement, except that
each may own 1% or less of any similar business or (ii) compete with SD&A for a
period of three years after the termination of his employment.
Mr. Scheir entered into an agreement in the subsequent period to be employed as
SD&A's Chief Operating Officer through December 31, 1999, with an annual base
salary of $175,000 through December 31, 1997, $200,000 in calendar 1998 and
$250,000 in calendar 1999.
Effective July 1, 1997, Ms. Mooradian entered into an employment agreement to
serve as President of SD&A until December 31, 1999, with an annual base salary
of $175,000 through December 31, 1997, $200,000 in calendar 1998 and $250,000 in
calendar 1999.
Effective December 29, 1997, Mr. Reustle entered into an employment agreement to
serve as President and Chief Executive Officer of Media Marketplace, Inc. until
December 31, 2000, with an annual base salary of $250,000 for each year of the
employment term.
Item 11 - Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of September 30, 1998 by: (i) each Director and
each of the Named Executive Officers; (ii) all executive officers and Directors
of the Company as a group; and (iii) each person known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock.
Amount and Nature of Common
Stock Beneficially Owned
Name and Address of Beneficial Holder(1) Number Percent
- ---------------------------------------- ------ -------
Directors and Named Executive Officers:
J. Jeremy Barbera(2)............................ 4,283,266 26.7%
Robert M. Budlow(3)............................. 569,200 4.3%
Janet Sautkulis(3).............................. 206,400 1.6%
Thomas Scheir(4)................................ 63,375 *
Krista Mooradian(5)............................. 35,375 *
Alan I. Annex(6)................................ 82,850 *
S. James Coppersmith(7)......................... 125,000 *
Seymour Jones(8)................................ 100,000 *
C. Anthony Wainwright(9)........................ 143,408 1.1%
John Gerlach(10)................................ 20,667 *
All Directors and Named Executive Officers
as a group (16 persons)(11)................ 6,480,783 38.5%
<PAGE>
5% Stockholders:
Naomi Bodner(12)................................ 1,266,599 9.7%
Laura Huberfeld(12)............................. 1,539,599 11.8%
Morgan Grenfell Asset Management Limited(13).... 709,300 5.4%
General Electric Capital Corporation(14)........ 4,451,458 34.0%
- ----------
* Less than 1%
(1) Unless otherwise indicated in these footnotes, each stockholder has sole
voting and investment power with respect to the shares beneficially owned.
All share amounts reflect beneficial ownership determined pursuant to Rule
13d-3 under the Exchange Act. All information with respect to beneficial
ownership has been furnished by the respective Director, executive officer
or stockholder, as the case may be. Except as otherwise noted, each person
has an address in care of the Company.
(2) Includes 716,667 beneficially owned shares of Common Stock issuable upon
the exercise of options which are currently exercisable or are exercisable
within 60 days of September 30, 1998. Includes 2,266,599 beneficially owned
shares through Ms. Huberfeld, Ms. Bodnor and the Huberfeld/Bodnor
Partnership who have appointed Mr. Barbera a their proxy until December 17,
1998.
(3) Includes 25,000 beneficially owned shares of Common Stock issuable upon the
exercise of options which are currently exercisable or are exercisable
within 60 days of September 30, 1998.
(4) Includes 55,000 beneficially owned shares of Common Stock issuable upon the
exercise of options which are currently exercisable or are exercisable
within 60 days of September 30, 1998.
(5) Includes 35,375 beneficially owned shares of Common Stock issuable upon the
exercise of options which are currently exercisable or are exercisable
within 60 days of September 30, 1998.
(6) Includes 75,000 beneficially owned shares of Common Stock issuable upon the
exercise of options which are currently exercisable or are exercisable
within 60 days of September 30, 1998, and 6,250 beneficially owned shares
issuable upon the exercise of currently exercisable warrants owned by Camhy
Karlinsky & Stein, LLP. Mr. Annex is one of thirteen partners in such firm.
(7) Includes 75,000 beneficially owned shares of Common Stock issuable upon the
exercise of options which are currently exercisable or are exercisable
within 60 days of September 30, 1998 and 50,000 beneficially owned shares
of Common Stock issuable upon the exercise of currently exercisable
warrants.
(8) Includes 75,000 beneficially owned shares of Common Stock issuable upon the
exercise of options which are currently exercisable or are exercisable
within 60 days of September 30, 1998 and 25,000 beneficially owned shares
of Common Stock issuable upon the exercise of currently exercisable
warrants.
(9) Includes 90,000 beneficially owned shares of Common Stock issuable upon the
exercise of options which are currently exercisable or are exercisable
within 60 days of September 30, 1998 and 50,000 beneficially owned shares
of Common Stock issuable upon the exercise of currently exercisable
warrants.
(10) Includes 16,667 beneficially owned shares of Common Stock issuable upon the
exercise of options which are currently exercisable or are exercisable
within 60 days of September 30, 1998.
(11) Of the total shares of Common Stock, convertible debt, stock options and
warrants beneficially held by the Company's directors and named executive
officers, 115,000 shares of Common Stock are owned by family members.
(12) The address for each of the 5% Stockholders is as follows: c/o Broad
Capital Associates, Inc., 152 West 57th Street, New York, New York 10019.
Beneficially owned shares of Common Stock held in partnerships and joint
tenancy include 539,599 shares.
(13) The address for the 5% Stockholder is as follows: 10 Finsbury Circus,
London, EC2M, England.
<PAGE>
(14) Includes 4,451,458 beneficially owned shares of Common Stock issuable upon
the conversion of 50,000 shares of redeemable convertible Preferred Stock.
The address for the 5% Stockholder is as follows: 260 Long Ridge Road,
Stamford, Connecticut 06927.
Item 12 - Certain Relationships and Related Transactions
- --------------------------------------------------------
Transactions with Mr. Dunn: In connection with the acquisition of SD&A on April
25, 1995, Alliance issued promissory notes in an aggregate principal amount of
$4.5 million to Mr. Dunn. Interest on such notes was payable monthly at a rate
equal to the prime rate of Bank of America, NT&SA, as in effect from time to
time, subject to a maximum of 10% and a minimum of 8%. Principal payments were
due quarterly, and originally $1.5 million was due in quarterly installments
during fiscal 1996. All of the outstanding common shares of SD&A were initially
pledged to collateralize such notes but were released in June 1996. In
connection with such notes, an operating covenants agreement between the Company
and Mr. Dunn included, among other things, provisions requiring that SD&A have a
minimum level of working capital and cash levels, subject to periodic increases
based on sales, before dividend payments could be made to the parent company. In
June 1996, the operating covenants agreement was terminated.
Prior to October 1995, the Company made all principal payments when due. Each of
the principal payments due October 1, 1995, January 1, 1996 and April 1, 1996
were deferred as they became due and thereafter from time to time. In June 1996,
principal payments of approximately $2.0 million were made and the remaining
obligations were restructured such that the remaining $2.1 million is now
payable in installments of $58,333 per month, plus interest at 8%, starting
September 19, 1996. As of June, 1997, due to a pending change in financing
relationships, the May and June, 1997 payments had not been made. These payments
were paid in full in August, 1997.
SD&A leases its corporate business premises from Mr. Dunn. The lease requires
monthly rental payments of $11,805 through January 1, 1999, with an option to
renew. SD&A incurs all costs of insurance, maintenance and utilities. Total rent
paid by SD&A to Mr. Dunn during 1998 and 1997 was approximately $142,000 and
$138,000, respectively.
Bank Credit Line: Mr. Dunn was a guarantor of SD&A's credit line until December
1996.
Transactions with Mr. Barbera: In October 1996, the Company consummated its
acquisition of Metro. In February 1996, Mr. Barbera, then a shareholder of
Metro, borrowed $50,000 from Metro. Interest on such indebtedness accrues at a
rate of 6% per annum. The principal of such indebtedness, together with accrued
interest thereon, was repayable in four equal quarterly installment starting
March 31, 1998. In December 1997, Mr. Barbera repaid the entire outstanding
balance plus interest thereon. With the October 1, 1996 acquisition of Metro,
Mr. Barbera received a 6% promissory note for $600,000, due and payable,
together with interest, on June 30, 1998. In April 1997, the Company repaid
$100,000 of the promissory note. In January 1998, the remaining $500,000 of
principal was repaid.
In November 1997, Mr. Barbera forgave all interest due him on notes payable from
July 1, 1997, through December 31, 1997, and forgave an increase in his annual
salary from May 27, 1997 to December 31, 1997. In consideration for this, the
Board of Directors granted Mr. Barbera options to acquire 50,000 shares of
Common Stock at the then current fair market price.
<PAGE>
Transactions with Mr. Budlow and Ms. Sautkulis: With the October 1, 1996
acquisition of Metro, Mr. Budlow and Ms. Sautkulis, former shareholders of
Metro, received 6% promissory notes totaling $300,000 and $100,000,
respectively. Such notes were originally due and payable, together with
interest, on June 30, 1998. In July 1997, the Company prepaid the full principal
amounts due to Mr. Budlow and Ms. Sautkulis.
Mr. Budlow and Ms. Sautkulis forgave an increase in their respective salaries
from October 1, 1997 to December 31, 1997.
Transactions with Mr. Annex: Mr. Annex, Secretary and a Director of the Company,
is a partner in the law firm of Camhy Karlinsky & Stein LLP, which provides
legal services to the Company. The Company incurred expenses aggregating
approximately $176,000 and $110,000 during fiscal 1998 and 1997, respectively.
Mr. Annex has informed the Company that such fees did not represent more than 5%
of such firms revenues for its fiscal years ending during such periods. The
Company believes that the fees for services provided by the law firm were at
least as favorable to the Company as the fees for such services from
unaffiliated third parties.
Transactions with the Company's Outside Board of Directors: In May 1997, the
Company's outside directors each received options for 100,000 common shares
(400,000 in the aggregate), exercisable at $2.625 per share, of which one half
vested immediately and one fourth vest in each of May 1998 and May 1999.
In August 1996, Mr. Jones purchased from the Company, for $2,500 in the
aggregate, warrants exercisable for 50,000 shares of Common Stock at an exercise
price of $2.50 per share for the first 25,000 shares, $3.00 per share for the
next 15,000 shares and $3.50 per share for the remaining 10,000 shares. The
warrants are currently exercisable and expire on April 15, 2000. Subsequently,
Mr. Jones gifted warrants for 25,000 shares to an unaffiliated third party.
In September 1996, Mr. Coppersmith purchased from the Company, for $2,500 in the
aggregate, warrants exercisable for 50,000 shares of Common Stock at an exercise
price of $2.50 per share for the first 25,000 shares, $3.00 per share for the
next 15,000 shares and $3.50 per share for the remaining 10,000 shares. The
warrants are currently exercisable and expire on May 15, 2000.
On June 3, 1996, the Company entered into an agreement with Mr. C. Anthony
Wainwright to retain his services as a financial consultant and advisor to the
Company on a non-exclusive basis for a period of two years. As compensation for
such services, Mr. Wainwright is entitled to receive the sum of $1,000 per month
for the term of the agreement plus all out-of-pocket expenses incurred by Mr.
Wainwright in the performance of such services, provided that prior
authorization from the Company shall have been received with respect to any such
expense. In addition, pursuant to the terms of such agreement, Mr. Wainwright
has the right, which right, as of the date hereof, has not been exercised, to
purchase from the Company, for $2,500 in the aggregate warrants exercisable for
50,000 shares of Common Stock at an exercise price of $4.00 per share for the
first 25,000 shares, $4.50 per share for the next 15,000 shares and $5.00 per
share for the remaining 10,000 shares. The warrants may be exercised over a
four-year period commencing June 3, 1996. The agreement is only assignable
without the prior written consent of the other party in the event of a sale of
all or substantially all of the business of the party desiring to assign the
agreement. The agreement also provides for indemnification of Mr. Wainwright and
his affiliates (and their respective directors, officers, stockholders, general
and limited partners, employees, agents and controlling persons and the
successors and assigns of all of the foregoing) by the Company for any losses or
claims arising out of the rendering of the services called for in the agreement,
other than for negligence or willful misconduct.
<PAGE>
Transactions with 5% Stockholders. Each of 2,000 shares of redeemable
convertible preferred stock held by Naomi Bodner and Laura Huberfeld plus
accumulated accrued dividends thereon and the 235 shares held by their
partnership plus accrued dividends were converted into 826,302, 826,302 and
97,091 shares of Common Stock, respectively, in a December 23, 1996
recapitalization.
In March 1997, the Company accepted offers from certain warrant-holders to
exercise their warrants for 3,152,500 shares of Common Stock at discounted
exercise prices. In this transaction, Ms. Bodner, Ms. Huberfeld and their
partnership exercised warrants for 1,000,000, 1,000,000 and 117,500 shares of
Common Stock respectively.
Ms. Huberfeld, Ms. Bodner and the Huberfeld/Bodner partnership have appointed
Jeremy Barbera as their proxy to vote 1,000,000, 727,000 and 539,599 shares of
Common Stock, respectively, for a period until December 17, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-KSB/A to be signed on its
behalf by the undersigned hereunto duly authorized.
MARKETING SERVICES GROUP, INC.
By: /s/ J. Jeremy Barbera
---------------------------------------------
Name : J. Jeremy Barbera
Title : Chief Executive Officer
By: /s/ Cindy H. Hill
---------------------------------------------
Name : Cindy H. Hill
Title : Chief Financial Officer
Date: October 27, 1998
