SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------------------
FORM 8-K/A
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: May 13, 1999
------------
MARKETING SERVICES GROUP, INC.
------------------------------
(Exact name of Registrant as specified in charter)
Nevada 0-16730 88-0085608
- -------------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File No.) Identification No.)
incorporation)
333 Seventh Avenue
New York, New York 10001
------------------------
(Address of Principal Executive Offices)
212/594-7688
------------
(Registrant's telephone number, including area code)
<PAGE>
Item 2. Acquisition or Disposition of Assets
- ---------------------------------------------
On May 13, 1999, Marketing Services Group, Inc. ("MSGI") completed an
acquisition agreement with CMGI, Inc. (the "Seller") to acquire all of the
outstanding capital stock (the "Shares") of its wholly-owned subsidiary, CMG
Direct Corporation, including its business unit known as PermissionPlus. In
consideration of the purchase of the Shares and other transactions in the
Agreement, the Seller received the aggregate sum of $14,000,000 in cash subject
to certain purchase price adjustments and an aggregate of 2,321,084 restricted
shares of common stock of MSGI, par value $.01 per share.
CMG Direct provides database services to the direct marketing and internet
industries. PermissionPlus, a Web application, enables companies to automate Web
site customer acquisition and increase customer lifetime value. It combines the
power of market research, database management, e-mail service bureau, campaign
management tool, Web site navigation system and a real-time response tracking
and analysis system into one integrated internet application.
Item 5. Other Events
- ---------------------
In connection with the acquisition, the Company borrowed $10,000,000 from
General Electric Capital Corporation with an interest rate of 12% per annum due
November 17, 1999. In addition, the General Electric Capital Corporation
purchase agreement for redeemable convertible preferred stock was amended and a
new warrant was issued. Pursuant to the new warrant, if the Company completes a
Qualified Secondary Offering, as defined in the agreement, the original warrant
to purchase 200,000 shares of MSGI's common stock at $.01 per share is replaced
with a warrant to purchase 300,000 shares of common stock at one-third of the
price per share of the secondary offering.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
- ---------------------------------------------------------------------------
(a) Financial Statements of Businesses Acquired (included herein):
(i) Independent Auditor's Report, dated July 22, 1999
(ii) Balance Sheets as of July 31, 1998 and April 30, 1999
(iii)Statements of Operations and Stockholders' Deficit for the Year Ended
July 31, 1998 and for the nine months ended April 30, 1999
(iv) Statement of Cash Flows for the Year Ended July 31, 1998 and the nine
months ended April 30, 1999
(v) Notes to Financial Statements
(b) Unaudited Pro Forma Condensed Financial Information (included herein)
(i) Pro Forma Condensed Balance Sheet as of March 31, 1999
(ii) Pro Forma Condensed Statement of Operations for the Year Ended
June 30, 1998
(iii)Pro Forma Condensed Statement of Operations for the Nine Months Ended
March 31, 1999
(iv) Notes to Pro Forma Condensed Combined Financial Statements
(c) Exhibits included herein
10.1 First Amendment to Preferred Stock Purchase Agreement Between General
Electric Capital Corporation and Marketing Services Group, Inc.
10.2 Promissory Note
10.3 Warrant Agreement
(d) Exhibits previously filed May 24, 1999:
20.1 Press Release dated May 14, 1999
Exhibits previously filed March 24, 1999:
2.1 Stock Purchase Agreement among Marketing Services Group, Inc., and
CMGI, Inc.
20.1 Press Release dated March 10, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MARKETING SERVICES GROUP, INC.
Date: July 28, 1999 By: /s/ Cindy H. Hill
------------- -------------------------
Title: Chief Financial Officer
<PAGE>
CMG DIRECT CORPORATION
FINANCIAL STATEMENTS
as of April 30, 1999 and July 31, 1998
and for the nine months ended April 30, 1999
and the year ended July 31, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of CMG Direct Corporation:
In our opinion, the accompanying balance sheets and the related statements of
operations and stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of CMG Direct Corporation as of April
30, 1999 and July 31, 1998, and the results of operations and cash flows for the
nine months ended April 30, 1999 and the year ended July 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
-----------------------------
New York, New York
July 22, 1999
<PAGE>
CMG DIRECT CORPORATION
BALANCE SHEET
as of April 30, 1999 and July 31, 1998
1999 1998
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 1,944 $ 1,964
Accounts receivable, net of allowance for
doubtful accounts of $262,764 and $155,264 2,279,063 2,612,906
Prepaid expenses and other current assets 201,613 121,644
-------------- ---------------
Total current assets 2,482,620 2,736,514
Security deposits 6,433 1,950
Fixed assets, net 441,650 570,484
Organization costs, net 183,196 293,131
Goodwill, net 343,974 380,361
-------------- ---------------
Total assets 3,457,873 3,982,440
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Due to CMGI, Inc. 2,379,902 1,963,690
Accounts payable 702,508 420,001
Accrued list owner royalties 1,203,728 1,285,400
Accrued bonuses 128,729 125,557
Accrued other 614,240 514,398
-------------- ---------------
Total current liabilities 5,029,107 4,309,046
-------------- ---------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par; 5,000,000
authorized; none issued
Common stock, $0.01 par; 15,000,000
authorized; 9,000,000 issued and
outstanding 90,000 90,000
Accumulated deficit (1,661,234) (416,606)
-------------- ---------------
Total liabilities and stockholders'
equity $ 3,457,873 $ 3,982,440
============= ==============
The accompanying notes are an integral part of these financial statements.
<PAGE>
CMG DIRECT CORPORATION
STATEMENT OF OPERATIONS and STOCKHOLDERS' DEFICIT
for the nine months ended April 30, 1999 and the year ended July 31, 1998
1999 1998
---- ----
Revenues $ 6,986,023 $ 9,512,764
Costs of sales 4,659,629 6,485,932
--------------- -----------------
Gross profit 2,326,394 3,026,832
--------------- -----------------
Operating expenses:
Research and development 392,787 -
Selling, general and administrative 3,178,235 3,425,116
--------------- -----------------
Total operating expenses 3,571,022 3,425,116
--------------- -----------------
(Loss) from operations (1,244,628) (398,284)
Other income (expense)
- (18,322)
---------------- ------------------
Net loss (1,244,628) (416,606)
================ ==================
Accumulated Deficit - beginning of
period (416,606) -
---------------- -----------------
Accumulated Deficit-end of period (1,661,234) (416,606)
================ =================
The accompanying notes are an integral part of these financial statements.
<PAGE>
CMG DIRECT CORPORATION
STATEMENT OF CASH FLOWS
for the nine months ended April 30, 1999 and the year ended July 31, 1998
1999 1998
---- ----
Cash flows from operating activities:
Net loss $ (1,244,628) $ (416,606)
------------- -------------
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 337,464 484,877
Allowance for doubtful accounts 107,500 18,098
Change in assets and liabilities:
Decrease in accounts receivable 226,343 367,622
(Increase) / Decrease in prepaid expenses (79,969) 2,156
Increase in security deposits (4,483) (1,950)
Increase (Decrease) in Due to CMGI, Inc. 416,213 (951,094)
Increase in accounts payable 282,507 292,212
Decrease in accrued list owner royalties (81,672) (56,138)
Increase in accrued bonuses and other 103,014 435,130
------------- -----------
Net cash provided by operating activities: 62,289 174,307
-------------- -------------
Cash flows from investing activities:
Additions to property, plant and equipment (62,309) (172,343)
-------------- -------------
Net cash used in investing activities: (62,309) (172,343)
-------------- -------------
Net (decrease) increase in cash and cash
equivalents (20) 1,964
Cash and cash equivalents, beginning of period 1,964 -
-------------- -------------
Cash and cash equivalents, end of period $ 1,944 $ 1,964
============== =============
The accompanying notes are an integral part of these financial statements.
<PAGE>
CMG DIRECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Description of Business:
CMG Direct Corporation ("CMGD" or the "Company"), a wholly-owned subsidiary
of CMGI, Inc. ("CMGI"), is primarily engaged in database marketing and
management services, analytical services and providing targeted mailing
lists in both traditional and internet environments.
CMGD, a Subchapter C-Corporation, was incorporated on June 2, 1997 and
began commercial operations on August 1, 1997. Certain assets and
liabilities specifically related to CMGD were contributed by CMGI as of the
date of incorporation.
2. Transaction with CMGI:
CMGD relies on CMGI for certain services, including treasury, cash
management, employee benefits, human resources, taxes, risk management, and
general corporate services. Although certain assets, liabilities and
expenses related to services have been allocated to CMGD, the financial
position, results of operations and cash flows presented in the
accompanying financial statements may not have been the same as those that
would have occurred had CMGD been an independent entity. The following
describes the significant related party transactions:
Allocation of Selling, General and Administrative Expenses
CMGD has been allocated a portion of costs of CMGI's central support
functions. These costs include tax, computer and telecommunication support,
treasury, risk management and human resources. These costs amounted to
$342,111 for the nine months ended April 30, 1999 and $252,061 for the year
ended July 31, 1998 and are included in Selling, General & Administrative
expenses.
Certain costs of CMGI related to computer equipment, software licenses and
maintenance fees, unrelated to the above, were allocated to CMGD and other
wholly-owned subsidiaries of CMGI on a monthly basis. These costs amounted
to $235,802 for the nine months ended April 30, 1999 and $385,919 for the
year ended July 31, 1998 and are included in Cost of Sales.
In cases where costs incurred by CMGI on behalf of CMGD cannot be
specifically identified, the above allocations are based upon a percentage
of the salaries of CMGI personnel serving these functions and allocated
among CMGI's subsidiaries based upon an estimate of the percentage of time
attributed to each of its subsidiaries. Management believes these
allocations to be reasonable.
<PAGE>
CMG DIRECT CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
Cash Management
All liabilities of CMGD are paid through a zero-balance account funded by
CMGI. All accounts receivable collections are made to a CMGD lockbox and
swept into a CMGI account. Off-sets to these transactions were recorded to
the intercompany account.
Health and Welfare Benefits
All employees of CMGD are eligible to receive benefits under various Health
and Welfare and Life Insurance Plans sponsored and self-insured by CMGI.
CMGI allocates costs specifically attributable to employees of CMGD on a
monthly basis. These costs amounted to $250,162 for the nine months ended
April 30, 1999 and $352,350 for the year ended July 31, 1998 and is
allocated between Cost of Sales and Selling, General & Administrative
expenses on the Statement of Operations based on the employees' department.
CMGI Stock Option Plan
Prior to August 1, 1997, certain employees of CMGD were granted
nonqualified options to purchase shares of CMGI stock under the CMGI Stock
Option Plan. In connection with the exercise of these options and
subsequent sale, the employer portion of applicable payroll taxes was made
by CMGD on behalf of CMGI. During the nine months ended April 30, 1999 and
the year ended July 31, 1998, approximately $138,050 and $57,700 related to
these taxes is included in Selling, General & Administrative expenses or
Cost of Sales based on the department of the recipient.
Taxes
CMGD's taxable income, if any, is included in consolidated income tax
returns of CMGI for all jurisdictions. Pursuant to a Stock Purchase
Agreement (the "Agreement") (see Note 7) between CMGI, Inc. and Marketing
Services Group, Inc. ("MSGI") CMGI has agreed to indemnify MSGI for any
income tax liabilities arising prior to May 13, 1999.
3. Summary of Significant Accounting Policies:
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the
reporting period. The most significant estimates relate to the
collectibility of accounts receivable and certain allocations from CMGI.
Actual results could differ from these estimates.
<PAGE>
Concentration of Credit Risk
The Company's financial instruments that are most exposed to concentration
of credit risk consist primarily of accounts receivable. The Company
performs ongoing evaluations of its customers' financial condition and
generally does not require collateral on accounts receivable. The Company
maintains allowances for credit losses and such losses have been within
management's expectations.
Revenue Recognition
Revenues are recognized as earned as list orders are fulfilled.
Fixed Assets
Fixed assets, comprised of computer equipment, office furniture and
fixtures, office machinery and equipment, and leasehold improvements, are
recorded at cost. Depreciation is provided on the straight-line method over
the estimated useful lives of the respective assets. The Company considers
all assets to have an estimated useful life of five years. Leasehold
improvements are amortized over the shorter of their estimated lives or the
term of the lease. The cost of betterments is capitalized, and repairs and
maintenance are charged to operations in the periods incurred.
Intangible Assets:
The cost of intangible assets acquired, including a proprietary college
database, along with goodwill, is amortized using the straight-line method
over twenty years. Amortization expense for the nine-months ended April 30,
1999 and the year ended July 31, 1998 was $36,387 and $48,516,
respectively. Accumulated amortization as of April 30, 1999 was $549,675.
Organization Costs:
In 1994, certain costs of development of an educational database were
capitalized and are being amortized using the straight-line method over
five years. Amortization expense for the nine-months ended April 30, 1999
and the year ended December 31, 1998 was $109,935 and $146,580,
respectively. Accumulated amortization as of April 30, 1999 was $549,675.
Impairment of Long-Lived Assets:
Long-lived assets and identifiable intangibles are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, a
loss is recognized for the difference between the fair value and carrying
value of the asset.
Research and Development
During the nine-months ended April 30, 1999, CMGD began the development of
a software product to provide customers with certain services on the
Internet. All costs in the software development process which are
classified as research and development are expensed as incurred until
technological feasibility has been established, at which time such costs
are capitalized until the software is generally available in conformance
with SFAS 86 "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed". The establishment of technological
feasibility of the Company's product and the general availability of such
software have substantially coincided. As a result, software development
costs that qualify for capitalization have been insignificant and
therefore, the Company has not capitalized any software development costs.
Employee stock-based compensation:
The accompanying financial position and results of operations for the
Company have been prepared in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25"). Under APB No. 25,
generally, no compensation expense is recognized in the financial
statements in connection with the awarding of stock option grants to
employees provided that, as of the grant date, all terms associated with
the award are fixed and the fair value of the Company's stock, as of the
grant date, is equal to or less than the amount an employee must pay to
acquire the stock as defined.
Disclosures required by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), including
pro forma operating results had the Company prepared its financial
statements in accordance with the fair-value-based method of accounting for
stock-based compensation, have been included in Note 7.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Adoption of SFAS 130 for the nine-months
ended April 30, 1999 did not have an impact on the Company's financial
statements as the Company has no other components of comprehensive income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. SFAS 131 is effective for fiscal years beginning
after December 15, 1997. Adoption of SFAS 131 for the nine-months ended
April 30, 1999 did not have an impact on the Company's financial position,
results of operations or cash flows as the Company operated in a single
segment.
In March 1998, the the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP
98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use. The pronouncement identifies the
characteristics of internal use software and provides guidance on new cost
recognition principles. SOP 98-1 is required to be implemented for years
beginning after December 15, 1998. Management does not believe that
implementation of this pronouncement will have a material impact on the
Company's financial position, results of operations or cash flows.
In April 1998, AcSEC issued SOP 98-5 "Reporting on the Costs of Start-Up
Activities". SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 is
required to be implemented for years beginning after December 15, 1998.
Management believes that the implementation of SOP 98-5 will result in a
one-time charge of approximately $146,500 on the date of adoption which
will be reported as a cumulative effect of a change in accounting
principle.
4. Fixed Assets:
The major classifications of fixed assets as of April 30, 1999 and July 31,
1998 are summarized below:
1999 1998
---- ----
Computer hardware and software $ 2,206,259 $ 2,155,190
Office furniture and fixtures 1,451,235 1,439,995
Leasehold improvements 101,822 101,822
------------ ------------
3,759,316 3,697,007
Less, accumulated depreciation and
amortization (3,317,666) (3,126,523)
------------ ------------
$ 441,650 $ 570,484
============== ============
Depreciation and amortization for the nine months ended April 30, 1999 and
the year ended July 31, 1998 totaled $337,464 and $484,877, respectively.
<PAGE>
5. Commitments and Contingencies:
The Company leases its office space and computer and office equipment under
sub-leasing arrangements with CMGI.
Minimum future rental payments under noncancelable operating leases are as
follows:
May 1 - July 31, 1999 $ 193,532
August 1 - July 31, 2000 362,123
August 1 - July 31, 2001 310,467
August 1 - July 31, 2002 272,971
------------
$ 1,139,093
==============
Rental expense and certain direct operating expenses for the nine months
ended April 30, 1999 and year ended July 31, 1998 was 233,347 and 291,598,
respectively.
6. CMGD 1997 Equity Incentive Plan
The 1997 Equity Incentive Plan (the "Plan") was created to attract and
retain key employees of the Company and to provide an incentive for them to
achieve long-range performance goals and participate in the long-term
growth of the Company. The Plan provides for the issuance of non-qualified
options to purchase up to 2,000,000 shares of Common Stock. The Plan also
gives the Administering Committee (a committee composed of not less than
three members of CMGD's Board of Directors) the right to grant Stock
Appreciation Rights ("SARs"), in tandem with an option or alone and
unrelated to an option, and shares of restricted stock. Options shall be
exercisable subject to such terms and conditions as the Administering
Committee may specify. Vesting is over a four-year period with 25% vesting
after one year and 1/36th vested for each month thereafter. All options
have been granted to employees and had an exercise price equal to the fair
market value of the shares at the date of the grants, as determined by the
Administering Committee. No SARs or restricted stock have been granted
under the Plan.
<PAGE>
The following represents the activity on the CMGD 1997 Equity Incentive Plan:
Weighted
Average
Options Price Per
Unit
-------------- --------------
Outstanding August 1, 1997 531,000 $ 0.60
Granted 149,000 0.60
Exercised ---
Forfeited (38,000) 0.60
-------------- --------------
Outstanding August 1, 1998 642,000 0.60
Granted 2,800 1.00
Exercised ---
Forfeited (10,900) 0.61
-------------- --------------
Outstanding April 30, 1999 633,900 $ 0.60
============== ==============
The Company accounts for its equity-based compensation in accordance with
Accounting Principles Board Opinion No. 25 and its related Interpretations.
Had the Company's equity-based employee compensation been determined by the
fair-value based method of SFAS 123, "Accounting for Stock-Based
Compensation," the Company's net loss on a pro-forma basis for the nine
months ended April 30, 1999 and the year ended July 31, 1998 would have
been $ 978,139 and $430,002, respectively.
Under the minimum value method, the weighted average fair value of options
issued was approximately $0.05 per option, based on a risk free interest
rate of 5% and an expected life of 7 years.
7. Subsequent Events:
Effective May 13, 1999 and pursuant to a Stock Purchase Agreement (the
"Agreement") between CMGI, Inc. and Marketing Services Group, Inc.
("MSGI"), all of the issued and outstanding capital stock (the "Shares") of
CMG Direct Corporation was acquired by MSGI. In consideration of the
purchase of the Shares and other transactions in the Agreement, MSGI will
pay to the seller $14 million in cash and 2,321,084 shares of $0.01 par
common stock.
In connection with the sale, all nonvested stock options granted under the
CMGD 1997 Equity Incentive Plan were cancelled. All vested options held
immediately prior to the close of the sale were redeemed by CMGI for $2.74
per option less the exercise price.
<PAGE>
MARKETING SERVICES GROUP, INC.,
CMG DIRECT CORPORATION
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed balance sheet as of March 31, 1999 is
presented as if the acquisition of CMG Direct Corporation ("CMGD") had occurred
on March 31, 1999. The unaudited pro forma condensed statement of operations are
presented as if the CMGD acquisition occurred on July 1 of each period
presented. They also include the unaudited historical statement of operations of
Media Marketplace, Inc. and Media Marketplace Media Division, Inc. (collectively
"MMI") for the five months ended November 30, 1997 as well as the unaudited
historical statement of operations of Stevens-Knox and Associates, Inc.,
Stevens-Knox List Brokerage, Inc., and Stevens-Knox International, Inc.
(collectively "SK&A") for the six months ended December 31, 1998. MMI was
acquired by the Company effective December 1, 1997. SK&A was acquired by the
Company effective January 1, 1999. The acquisitions of MMI and SK&A were
accounted for using the purchase method of accounting and, accordingly, the
operating results of MMI and SK&A were included in the consolidated results of
operations of MSGI from the date of acquisition. Pro forma adjustments for each
such pro forma financial statements are described in the accompanying notes.
The unaudited pro forma financial statements should be read in conjunction with
the respective historical consolidated financial statements and related notes of
MSGI which have been previously filed with the Commission and the historical
financial statements and related notes of CMGD included elsewhere in this
Current Report on Form 8-K/A.
The following unaudited pro forma condensed financial information is not
necessarily indicative of the actual results of operations that would have been
reported if the events described above had occurred as of the beginning of the
periods described above, nor does such information purport to indicate the
results of the Company's future operations. In the opinion of management, all
adjustments necessary to present fairly such pro forma financial information
have been made.
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET
AS OF MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Historical
---------------------------
Marketing Pro forma
Services CMG Diret -------------------------
Group, Inc. Corporation Adjustments Total
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 1,233,037 $ 1,944 1,789,739 (A) $ 3,024,720
Accounts receivable, net 23,825,077 2,279,063 26,104,140
Note receivable 500,000 - 500,000
Other current assets 898,049 201,613 463,354 (B) 1,563,016
------- ------- ---------
Total current assets 26,456,163 2,482,620 31,191,876
Property and equipment at cost, net 1,108,412 441,650 1,550,062
Intangible assets at cost, net 30,609,233 527,170 31,648,562 (C) 62,784,965
Note receivable 760,000 - 760,000
Other assets 1,453,496 6,433 (1,000,000)(D) 459,929
--------- ------- ----------
Total assets $ 60,387,304 $ 3,457,873 $ 96,746,832
========== ========= ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 4,548,553 $ - 10,000,000 (E) 14,548,553
Trade accounts payable 22,610,350 702,508 23,312,858
Accrued expenses and other
current liabilities 2,773,474 1,946,697 (216,264)(F) 4,503,907
Due to CMGI, Inc - 2,379,902 (2,379,902)(F) -
Current portion of
long-term obligations 477,017 - 477,017
------- --------- ---------
Total current liabilities 30,409,394 5,029,107 42,842,335
Long-term obligations 1,519,464 - 1,519,464
Other liabilities 587,099 - 587,099
--------- --------- ----------
Total liabilities 32,515,957 5,029,107 44,948,898
---------- --------- ----------
Redeemable convertible preferred stock,
$.01 par value; 150,000 shares
authorized; 50,000 shares of
Series D convertible preferred
stock issued and outstanding 15,987,198 - 15,987,198
---------- -------- -----------
Stockholders' equity:
Common Stock 135,912 90,000 (50,570)(G) 175,342
Additional paid-in capital 29,204,340 - 23,887,157 (G) 53,091,497
Accumulated deficit (16,062,393) (1,661,234) 1,661,234 (H) (16,062,393)
Less: common stock in treasury,
at cost (1,393,710) - (1,393,710)
---------- ---------- ----------
Total stockholders' equity 11,884,149 (1,571,234) 35,810,736
---------- ----------- ----------
Total liabilities and
stockholders' equity $ 60,387,304 $ 3,457,873 $ 96,746,832
============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Historical
------------------------------------------------------
Stevens-Knox &
Associates, Stevens-
Marketing Knox List Brokerage, Pro Forma
Services and Stevens-Knox CMG Direct -----------------------
Group, Inc. International Corporation * Adjustments Total
----------- ------------- ------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Revenues $ 56,356,724 $ 18,411,571 $ 8,263,504 $83,031,799
---------- ---------- --------- -----------
Salaries and benefits 18,359,995 1,958,964 3,776,141 120,950 (I) 24,216,050
Non cash compensation - - - 683,760 (J) 683,760
Direct costs 35,815,236 15,402,731 3,386,602 (202,441)(K) 54,402,128
Selling, general and
administrative 4,485,344 812,089 1,801,949 (391,647)(L) 6,617,735
Research and development - - 205,976 205,976
Depreciation and amortization 1,405,062 35,264 337,464 914,775 (M) 2,692,565
--------- --------- --------- ----------
Total operating costs
and expenses 60,065,637 18,209,048 9,508,132 88,818,214
---------- ---------- --------- ----------
Income (loss) from operations (3,708,913) 202,523 (1,244,628) (5,786,415)
Other income (expense) (128,880) (66,282) - (984,950)(N) (1,180,112)
---------- ---------- --------- ----------
Income (loss) before income taxes (3,837,793) 132,241 (1,244,628) (6,966,527)
Income tax (provision) benefit 58,473 (13,994) - 44,479
------ ---------- ---------- ------
Net income (loss) $ (3,779,320) $ 122,247 $ (1,244,628) $ (6,922,048)
========== ======= =========== ==========
Net income (loss) attributabl
to common stockholders $ (5,399,217) $ (8,541,945)
========== ===========
Net loss per common share -
basic and diluted $ (0.42) $ (0.51)
===== ======
Weighted average common shares
outstanding 12,914,756 3,942,966 (P) 16,857,722
========== ==========
</TABLE>
* Certain balances have been reclassified to conform with MSGI presentation.
See accompanying notes to unaudited pro forma financial statements.
<PAGE>
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
Historical
-----------------------------------------------------------------------
Stevens-Knox and
Associates, Stevens-
Marketing Media-Market Knox List Brokerage, Pro Forma
Services Place, Inc. and and Stevens-Knox CMG Direct --------------------------
Group, Inc. Media Division International Corporation* Adjustments Total
----------- -------------- ------------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues $51,174,063 $13,782,459 $33,585,281 $11,501,126 $110,042,929
----------- ----------- ----------- ----------- ------------
Salaries and benefits 19,255,348 818,063 3,537,607 4,398,759 88,488 (I) 28,098,265
Non cash compensation 786,555 (J) 786,555
Direct costs 26,771,611 12,148,472 27,968,561 5,058,782 (341,436)(K) 71,605,990
Selling, general and
administrative 4,240,805 735,620 1,866,629 1,956,992 (198,943)(L) 8,601,103
Depreciation and
amortization 1,486,106 42,664 54,704 484,877 1,354,017 (M) 3,422,368
--------- ------ ------ ------- -----------
Total operating costs
and expenses 51,753,870 13,744,819 33,427,501 11,899,410 112,514,281
---------- ---------- ---------- ---------- -----------
Income (loss) from
operations (579,807) 37,640 157,780 (398,284) (2,471,352)
Other income (expense) (185,967) 43,382 (33,511) (18,322) (1,435,250)(N) (1,629,668)
-------- ------ ------- -------- -----------
Income (loss) before
income taxes (765,774) 81,022 124,269 (416,606) (4,101,020)
Income tax provision (14,704) - (37,095) - (51,799)
-------- ------- ------- -------- ----------
Net income (loss) $ (780,478) $ 81,022 $ 87,174 $ (416,606) $ (4,152,819)
=========== ========== ========== ============ =============
Net loss attributable to
common stockholders $(4,724,480) (3,432,252)(O) $(4,664,569)
=========== ===========
Basic and diluted loss
per share $ (0.37) $ (0.28)
====== ======
Weighted average common
shares outstanding 12,892,323 4,054,077(P) 16,946,400
========== ==========
</TABLE>
* Certain balances have been reclassified to conform with MSGI presentation.
See accompanying notes to unaudited pro forma financial statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(A) Represents cash paid for the acquisition offset by proceeds received from
the April exercises of stock options and warrants. $3,000,000 of the
proceeds of the stock option exercises were used to fund a portion of the
CMG Direct acquisition. Excess cash was used to fund working capital for
the months subsequent to the balance sheet date.
(B) Reflects amount owed by CMGI, Inc. for the final working capital
adjustment.
(C) The cost of the acquisition was estimated to be allocated to the assets
acquired and liabilities assumed, based on their estimated fair value, as
follows:
Working Capital $ 583,282
Property and Equipment 441,650
Intangible Assets 31,648,562
------------
$ 32,673,494
============
The Company is in the process of further determining the allocation of the
purchase price.
(D) Reflects deposit made by the Company prior to March 31, 1999 to purchase
CMG Direct.
(E) Represents amount borrowed for acquisition payments.
(F) Represents the elimination of intercompany accounts with CMGI not purchased
in the acquisition.
(G) Represents issuance of stock in connection with the CMG Direct acquisition
as well as stock issued for the exercise of stock options and warrants off
set by elimination of CMG Direct equity in consolidation.
(H) Reflects elimination of CMG Direct's accumulated deficit incurred prior to
the acquisition
(I) Reflects an increase in CMG Direct's officer's salary offset by a reduction
in SK&A officers' salaries to consider post acquisition contractual amounts
payable.
(J) Reflects charge due to stock options granted in connection with an
executive employment agreement.
(K) Represents intercompany allocations for expenses which would not have been
incurred by CMGD on a stand alone basis.
(L) Reflects intercompany allocations for expenses which would not have been
incurred by CMG Direct on a stand alone basis as well as legal costs
incurred associated with the buyback of SK&A common stock.
(M) Amortization of goodwill acquired in the acquisitions of CMG Direct and
SK&A over the estimated useful life of 25 and 30 years, respectively.
(N) Reflects interest expense on the amounts borrowed for the CMG Direct and
SK&A acquisitions.
(O) Net loss attributable to common stockholders has been adjusted to reflect
recurring preferred dividends which are being incurred on MSGI's
$15,000,000 financing transaction with General Electric Capital Corporation
as described more fully in the Company's Report on Form 10-KSB for the
fiscal year ended June 30, 1998. The preferred dividends are cumulative and
accrue at the rate of 6% per annum. Preferred dividends are also being
recognized for periodic accretions of a discount to reflect an allocation
of $1,362,000 of the proceeds to the estimated value of potentially
issuable warrants. A preferred dividend of $3,214,400 to reflect a non-cash
beneficial conversion feature in the financing transaction was included in
the historical MSGI financial statements for the fiscal year ended June 30,
1997. It has been excluded in the accompanying pro forma condensed
statements of operations as it is non-recurring.
(P) Reflects additional shares issued for the acquisition of CMG Direct as well
as shares issued for the exercise of stock options and warrants.
Exhibit 10.1
FIRST AMENDMENT
First Amendment (this "Amendment"), dated May 17, 1999, between
Marketing Services Group, Inc., a Nevada corporation ("Company"), and General
Electric Capital Corporation ("GE Capital"), a New York corporation.
W I T N E S S E T H:
WHEREAS, Company issued a warrant, dated December 24, 1997, to
purchase shares of common stock, par value $.01 per share, of Company (the
"Common Stock") to GE Capital (the "Original Warrant"); and
WHEREAS, Company and GE Capital entered into a Registration Rights
Agreement, dated as of December 24, 1997 (the "Registration Rights Agreement");
and
WHEREAS, Company is issuing a warrant, dated the date hereof, to
purchase shares of Common Stock to GE Capital (the "New Warrant"); and
WHEREAS, Company and GE Capital desire to amend the terms of each of
the Original Warrant and the Registration Rights Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises hereinafter
contained, it is agreed as follows:
1. Amendment of Original Warrant. The Original Warrant is hereby amended as
follows:
(a) Section 4.1(b) of the Original Warrant is hereby deleted in its entirety and
replaced with the following:
"(b) Notwithstanding the foregoing, if Company consummates a
Qualified Secondary Offering pursuant to which GE Capital has the
ability to sell at least 1,766,245 shares of Common Stock on or before
December 31, 1999, this Warrant shall be cancelled upon such
consummation."
2. Amendment of Registration Rights Agreement. The Registration Rights Agreement
is hereby amended so that the term "Warrant", as used therein, is deemed to
refer to the Original Warrant, as amended hereby, and the New Warrant,
collectively.
3. Full Force and Effect. Except as specifically amended hereby, all of the
terms and provisions of each of the Original Warrant and the Registration Rights
Agreement shall remain in full force and effect.
4. Counterparts. This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original and all of which together shall be
deemed to be one and the same instrument.
IN WITNESS WHEREOF, Company and GE Capital have executed this
Amendment as of the day and year first above written.
MARKETING SERVICES GROUP, INC.
By: /s/ Jeremy Barbera
------------------
Name: Jeremy Barbera
Title: Chairman and Chief Executive Officer
GENERAL ELECTRIC CAPITAL CORPORATION
By:
Name:
Title:
Exhibit 10.2
NOTE
$10,000,000.00 New York, New York
May 17, 1999
FOR VALUE RECEIVED, the undersigned, MARKETING SERVICES GROUP, INC.,
a Nevada corporation ("Company"), hereby PROMISES TO PAY to the order of GENERAL
ELECTRIC CAPITAL CORPORATION, a New York corporation ("GE Capital"), at 120 Long
Ridge Road, Stamford, Connecticut 06927, or at such other place as the holder
(GE Capital and any other holders being hereinafter referred to collectively as
"Holder") of this Note (the "Note") may designate from time to time in writing,
in lawful money of the United States of America and in immediately available
funds, the principal amount of TEN MILLION DOLLARS ($10,000,000) on November 17,
1999 (the "Maturity Date"), together with interest on the unpaid principal
amount of this Note outstanding from time to time from the date hereof, at the
rate provided for herein.
1. Interest.
(a) Company shall pay interest to Holder in arrears on August 17, 1999 and on
the Maturity Date (each, an "Interest Payment Date"), at a rate equal to twelve
percent (12%) per annum, based on a year of 360 days for the actual number of
days elapsed, and based on the amounts outstanding from time to time under this
Note. Interest on any overdue principal and (to the extent permitted by law) any
overdue interest shall be paid from the due date thereof (whether by
acceleration or otherwise) at a rate of fourteen percent (14%) per annum.
(b) If any payment on this Note becomes due and payable on a day other than a
business day, the maturity thereof shall be extended to the next succeeding
business day and, with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension. All references in
this Note to "business day" shall mean any day other than a Saturday, Sunday or
any day on which banking institutions in New York City are required or
authorized by law or by local proclamation to close.
2. Events of Default. The occurrence of any one or more of the following events
(regardless of the reason therefor) shall constitute an "Event of Default"
hereunder:
(a) Company shall fail to make any payment of principal of, interest on or any
other amount owing in respect of, this Note when the same becomes due and
payable or declared due and payable.
(b) Any indebtedness for borrowed money (including, without limitation, any
indebtedness to Milberg Factors, Inc.) or the deferred purchase price of
property or services (other than trade payables arising in the ordinary course
of business) of Company or any of its subsidiaries in an aggregate principal
amount of at least $1,000,000 shall not be paid when due or any default shall
occur pursuant to any of the agreements, documents, or instruments evidencing
such indebtedness which causes (or permits any holder thereof to cause) such
indebtedness to become due prior to its stated maturity or prior to its
regularly scheduled dates of payment.
(c) Any representation or warranty contained in this Note shall be untrue or
incorrect in any material respect, as of the date when made.
(d) Company shall be liquidated or dissolved.
(e) A case or proceeding shall have been commenced against Company or any of its
significant subsidiaries (as defined in Regulation S-X of the Securities
Exchange Act of 1934, as amended) in a court having competent jurisdiction
seeking a decree or order in respect of Company or any of its significant
subsidiaries (i) under title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal, state or foreign bankruptcy
or other similar law, (ii) appointing a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of Company or any of its
significant subsidiaries or of any substantial part of its or their properties,
or (iii) ordering the winding-up or liquidation of the affairs of Company or any
of its significant subsidiaries and such case or proceeding shall remain
undismissed or unstayed for sixty (60) consecutive days or such court shall
enter a decree or order granting the relief sought in such case or proceeding.
(f) Company or any of its significant subsidiaries shall (i) file a petition
seeking relief under title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal, state or foreign bankruptcy
or other similar law, (ii) consent to the institution of proceedings thereunder
or to the filing of any such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of Company or any of its significant
subsidiaries or of any substantial part of its or their properties, (iii) fail
generally to pay its debts as such debts become due, or admit in writing its
inability to pay its debts or make a general assignment for the benefit of
creditors, or (iv) take any corporate action in furtherance of any such action.
If any Event of Default specified in this Section 2 shall have
occurred and be continuing, Holder may declare this Note and all accrued and
unpaid interest hereon to be forthwith due and payable, by giving written notice
thereof to Company whereupon all principal under this Note and all such interest
shall become and be due and payable, without presentment, demand, protest or
further notice of any kind, all of which are expressly waived by Company.
3. Optional Prepayment. Company shall have the right at any time or from time to
time and without premium or penalty, to voluntarily prepay all or any portion of
this Note. Each prepayment shall be accompanied by the payment of accrued and
unpaid interest on the amount being prepaid, through the date of prepayment.
4. Representations and Warranties. Company represents and warrants on the date
hereof as follows:
(a) Company and each of its significant subsidiaries (i) is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation; (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, except for such non-compliance which would not
have a material adverse effect. For purposes of this Note, "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.
(b) The execution, delivery and performance by Company of each of this Note and
the Warrant: (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 or entity. For purposes of this Note, the term "Warrant" shall
mean the Warrant issued by Company, dated the date hereof, evidencing GE
Capital's right to purchase 300,000 shares of common stock, $0.01 par value, of
Company.
(c) Each of this Note and the Warrant is the legal, valid and binding obligation
of Company and is enforceable against Company 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).
(d) Company has made available to GE Capital a true and complete copy of each
report, schedule, registration statement and definitive proxy statement filed by
Company with the Securities and Exchange Commission (the "SEC") since January 1,
1998 and prior to the date of this Note (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 of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, 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.
5. Successors and Assigns. (a) This Note shall inure to the benefit of GE
Capital, any other Holder and their respective successors and assigns. GE
Capital and any other Holder may assign to any party all or any part of, or any
interest (undivided or divided) in, its rights and benefits herein, and to the
extent of that assignment such assignee shall have the same rights and benefits
against Company as it would have had if such assignee were GE Capital. This Note
and the provisions hereof are binding upon successors of Company.
(b) Neither this Note nor any obligation hereunder shall be assigned by Company
to any party.
6. Fees and Expenses. Company agrees to reimburse GE Capital for all reasonable
out-of-pocket fees, costs and expenses, including, without limitation, the
reasonable fees, costs and expenses of legal counsel, incurred in connection
with the preparation, execution and delivery of this Note, the Warrant and any
other documents related hereto on thereto, and related to the enforcement of
this Note.
7. Presentment and Demand. Demand, presentment, protest and notice of nonpayment
and protest are hereby waived by Company.
8. Amendment and Non-Waiver. (a) This Note may not be amended except by an
agreement in writing signed by Company and the Holder hereof.
(b) To the extent permitted by law, no failure to exercise and no delay on the
part of Holder in exercising any power or right in connection with this Note or
available at law or in equity, shall operate as a waiver thereof, and no single
or partial exercise of any such rights or power, or any abandonment or
discontinuance of steps to enforce such a right or power, shall preclude any
other or further exercise thereof or the exercise of any other right or power.
No course of dealing among any Holder, Company or any other person shall operate
as a waiver of any right of any Holder. No modification or waiver of any
provision of this Note and no consent to any departure therefrom shall in any
event be effective unless in writing and signed by the party against whom
enforcement thereof is to be sought, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
9. Notices. Except as otherwise provided herein, any notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder to be
made pursuant to the provisions of this Note 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 GE Capital:
General Electric Capital Corporation
120 Long Ridge Road
Stamford, Connecticut 06927
Attn: GE Equity Group - Marketing Services
Telecopy No: (203) 961-2088
with copies to:
General Electric Capital Corporation
120 Long Ridge Road
Stamford, Connecticut 06927
Attn: GE Equity 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
(b) If to Company:
Marketing Services Group, Inc.
333 Seventh Avenue, 20th Floor
New York, New York 10001
Attn: Jeremy Barbera
Telecopy No.: (212) 629-6040
with copies to:
Camhy Karlinsky & Stein LLP
1740 Broadway
New York, New York 10019
Attn: Alan I. Annex, Esq.
Telecopy No.: (212) 977-8389
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, consent, 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, consent, approval,
declaration, delivery or other communication.
10. Submission to Jurisdiction; Jury Waiver. (a) Company, GE Capital and any
other Holder hereby irrevocably submit to the jurisdiction of any New York State
or Federal court sitting in New York City, and they hereby irrevocably agree
that any action may be heard and determined in such New York State court or in
such Federal court. Company, GE Capital and any other Holder hereby irrevocably
waive, to the fullest extent they may effectively do so, the defense of an
inconvenient forum to the maintenance of any action in any jurisdiction.
Company, GE Capital and any other Holder hereby irrevocably agree that the
summons and complaint or any other process in any action in any jurisdiction may
be served by mailing in accordance with the provision set forth in Section 9.
Company, GE Capital and any other Holder may also be served in any other manner
permitted by law, in which event their time to respond shall be the time
provided by law.
(b) EACH OF COMPANY, GE CAPITAL AND ANY OTHER HOLDER HEREBY IRREVOCABLY WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO ANY OBLIGATIONS UNDER THIS NOTE.
11. Governing Law. This Note shall be governed by and construed and enforced in
accordance with the laws of the State of New York applicable to agreements made
and to be wholly performed in such State and without giving effect to the
conflict of laws principles thereof.
MARKETING SERVICES GROUP, INC.
By: /s/ Jeremy Barbera
------------------
Name: Jeremy Barbera
Title: Chairman and Chief Executive Officer
Exhibit 10.3
WARRANT
To Purchase Common Stock of
MARKETING SERVICES GROUP, INC.
Warrant No. A-1
No. of Shares of Common Stock: 300,000
<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: 300,000 Warrant No. A-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"), 300,000 shares of Common Stock (as hereinafter defined
and subject to adjustment as provided herein), in whole or in part, including
fractional parts, at a per share purchase price equal to the Adjusted Offering
Price (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:
"Adjusted Offering Price" shall be an amount equal to the product of (x)
1/3, and (y) the price per share at which the Common Stock is offered to the
public in a Qualified Secondary Offering.
"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 mean the date set forth on the signature page hereof.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"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.
"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.
"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, which is consummated on or before December 31, 1999,
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 and pursuant to which GE
Capital has the ability to sell at least 1,766,245 shares of Common Stock.
"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 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 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 consummation of a Qualified
Secondary Offering 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
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.
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.
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.
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. Cancellation of Shares Subject to Warrant. If Company does not consummate a
Qualified Secondary Offering, this Warrant shall be cancelled effective January
1, 2000.
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,
(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 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 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 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 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.
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.
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) 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
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 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, 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.
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 Warrants 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 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.
<PAGE>
IN WITNESS WHEREOF, Company has caused this Warrant to be duly
executed and attested by its Secretary or an Assistant Secretary.
Dated: May 17, 1999
MARKETING SERVICES GROUP, INC.
By:/s/ Jeremy Barbera
------------------
Name: Jeremy Barbera
Title: Chairman and Chief Executive Officer
Attest:
By:
Name:
Title:
<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.
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1. DEFINITIONS......................................................1
2. EXERCISE OF WARRANT..............................................4
2.1. Manner of Exercise.........................................4
2.2. Payment of Taxes...........................................5
2.3. Fractional Shares..........................................5
2.4. Continued Validity.........................................5
3. TRANSFER, DIVISION AND COMBINATION...............................6
3.1. Transfer...................................................6
3.2. Division and Combination...................................6
3.3. Expenses...................................................6
3.4. Maintenance of Books.......................................6
4. ADJUSTMENTS......................................................6
4.1. Cancellation of Shares Subject to Warrant..................7
4.2. Stock Dividends, Subdivisions and Combinations.............7
4.3. Certain Other Distributions and Adjustments................7
4.4. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets......................................8
4.5. Other Action Affecting Common Stock........................9
5. NOTICES TO WARRANT HOLDERS.......................................9
5.1. Notice of Adjustments......................................9
5.2. Notice of Corporate Action.................................9
6. NO IMPAIRMENT...................................................10
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH
OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY.......................11
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS..............11
9. RESTRICTIONS ON TRANSFERABILITY.................................11
9.1. Restrictive Legend........................................11
9.2. Termination of Restrictions...............................12
9.3. Listing on Securities Exchange............................12
10. SUPPLYING INFORMATION...........................................12
11. LOSS OR MUTILATION..............................................13
12. OFFICE OF COMPANY...............................................13
13. FINANCIAL AND BUSINESS INFORMATION..............................13
13.1. Quarterly Information.....................................13
13.2. Annual Information........................................13
13.3. Filings...................................................14
14. LIMITATION OF LIABILITY.........................................14
15. MISCELLANEOUS...................................................14
15.1. Nonwaiver and Expenses....................................14
15.2. Notice Generally..........................................14
15.3. Remedies..................................................15
15.4. Successors and Assigns....................................15
15.5. Amendment.................................................15
15.6. Severability..............................................16
15.7. Headings..................................................16
15.8. Governing Law.............................................16
