PROSPECTUS
MARKETING SERVICES GROUP, INC
6,148,000 SHARES OF COMMON STOCK
($.01 PAR VALUE)
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All of the common stock offered hereby may be sold from time to time by and
for the account of the selling stockholders named in this prospectus. The
selling stockholders acquired or will acquire the shares upon conversion of
shares of Series E preferred stock issued to the selling stockholders in a
private placement with us and the exercise of warrants.
The methods of sale of the common stock offered hereby are described under
the heading "Plan of Distribution." We will receive none of the proceeds from
such sales. However, we may receive up to $42,017,162 upon the exercise of
warrants. If received, such funds will be used for general corporate purposes,
including working capital requirements. We will pay all expenses, except for the
underwriting and brokerage expenses, fees, discounts and commissions, which will
all be paid by the selling stockholders, incurred in connection with the
offering described in this prospectus.
Our common stock is listed on the Nasdaq National Market System (Symbol:
MSGI). On April 14, 2000, the closing price of the shares was $6.9375 per share.
THE SHARES OF OUR COMMON STOCK OFFERED OR SOLD UNDER THIS PROSPECTUS
INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 2.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS APRIL 14, 2000.
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TABLE OF CONTENTS
THE COMPANY............................................................1
RECENT EVENTS..........................................................1
RISK FACTORS...........................................................2
FORWARD-LOOKING INFORMATION............................................9
USE OF PROCEEDS........................................................9
SELLING STOCKHOLDERS..................................................10
PLAN OF DISTRIBUTION..................................................10
WHERE YOU CAN FIND MORE INFORMATION...................................11
LEGAL MATTERS.........................................................13
EXPERTS...............................................................13
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THE COMPANY
We are a leader in the Internet incubation and integrated marketing
services industries. Our revenues have grown from $16 million in fiscal 1996 to
in excess of $200 million on an annualized basis. GE Capital and CMGi are
significant shareholders of our Company, with ownership interests of 16% and 9%,
respectively.
We have two business divisions, The Internet Group and The Direct Group. MSGi
Direct provides integrated marketing services across all mediums. The Internet
Group's primary focus is WiredEmpire and its Marketing Agent technology,
providing Internet marketing, e-commerce applications, Web development and
hosting, online ad sales and consulting. The Group's strategic objective
continues to focus on acquiring, investing in and incubating Internet companies.
MSGi Direct, which will continue to leverage the synergies across all its
companies in marketing and technology, provides strategic planning, creative,
direct marketing, database marketing and management, telemarketing,
telefundraising, print production, mailing and media planning and buying.
We are a Nevada corporation and maintain our executive offices at 333
Seventh Avenue, New York, New York. Our telephone number is (917) 339-7100.
RECENT EVENTS
In October 1999, we completed an acquisition of approximately 85% of the
outstanding common stock of Cambridge Intelligence Agency, Inc. for $1.6 million
in our common stock and the transfer of certain technology. Cambridge
Intelligence Agency, Inc. is a provider of Web-based e-mail response management
solutions.
In October 1999, we completed a 10% investment in Mazescape.com for
$250,000 in cash. Mazescape.com is a business-to-business web solution provider
in the corporate segment of the Internet recruitment industry.
In December 1999, we completed an approximate 10% investment in Fusion
Networks, Inc. for 1,500,000 shares of our common stock. We also obtained an
option to acquire an additional 9.13%. Fusion Networks, Inc. operates the Latin
American portal www.Latinfusion.com. The web site is an interactive, multimedia,
and entertainment Latin American based portal featuring television, music, and
e-commerce capability.
In February 2000, we completed a private placement of securities with RGC
International Investors, LDC and Marshall Capital Management, Inc., an affiliate
of Credit Suisse First Boston, in which we sold an aggregate of 30,000 shares of
Series E Convertible Preferred Stock, par value $.01, and warrants to acquire
1,471,074 shares of common stock for an aggregate purchase price of $30,000,000.
In March 2000, our majority-owned subsidiary, WiredEmpire, Inc., completed
a private placement of securities in which they sold an aggregate of 3,200,000
shares of Series A Convertible Preferred Stock, par value $.01, for an aggregate
purchase price of $20,000,000.
In March 2000, we completed the acquisition of all of the outstanding
capital stock of Grizzard Advertising, Inc. Grizzard and its wholly owned
subsidiary operate a vertically integrated network of marketing communications
companies. Pursuant to an Agreement and Plan of Merger dated as of July 8, 1999,
we acquired, by merger, all of the capital stock of Grizzard from its current
stockholders for approximately $100 million. The purchase price was paid
$50,000,000 in cash and the remainder in shares of our common stock. We funded
the acquisition in part with a $58,000,000 bank financing.
<PAGE>
RISK FACTORS
WE MAY NOT HAVE OPERATING INCOME OR NET INCOME IN THE FUTURE; WE MAY HAVE
PROBLEMS RAISING MONEY WE NEED IN THE FUTURE. Recently, we have had significant
operating losses. During the years ended June 30, 1997, 1998 and 1999, we had
operating losses of approximately $3.6 million, $580,000 and $7.1 million,
respectively. It is possible that we may never achieve profitability, and even
if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis in the future. For a detailed
account of our historical losses, please see the "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contained in our
Annual Report on Form 10-K for the year ended June 30, 1999 and our Quarterly
Report on Form 10-Q for the quarter ended December 31, 1999.
We may require additional capital, especially in light of our continuing
acquisition program. We may, from time to time, seek additional funding through
public or private financing, including debt or equity financing. We cannot
assure you that adequate funding will be available as needed or, if it is
available, that it will be on acceptable terms. If additional financing is
required, the terms of the financing may be adverse to the interests of existing
stockholders, including the possibility of substantially diluting their
ownership position.
OUR HIGH LEVEL OF INDEBTEDNESS AND OTHER MONETARY OBLIGATIONS REQUIRE THAT
A SIGNIFICANT PART OF OUR CASH FLOW BE USED TO PAY INTEREST AND FUND THESE OTHER
OBLIGATIONS. We have a high level of debt. As of March 22, 2000, we and our
subsidiaries owed a combined total of approximately $49,000,000. Under our
existing lines of credit, we can borrow approximately an additional $9,500,000.
At March 22, 2000, we had approximately $19,500,000 of cash and cash equivalents
to help meet our obligations. Our high level of debt and other obligations could
have important negative consequences to us and investors in our securities.
These include:
o We may not be able to satisfy all of our obligations.
o We could have problems obtaining necessary financing in the future for
working capital, capital expenditures, debt service requirements, refinancing
or other purposes.
o We will have to use a significant part of our cash flow to make payments on
our debt, to pay the dividends on preferred stock (if we choose to pay them
in cash), and to satisfy the other obligations set forth above, which may
reduce the capital available for operations and expansion.
o Adverse economic or industry conditions may have more of a negative impact on
us.
We expect to be able to meet all of our obligations with existing cash,
cash generated from our operations, and our current lines of credit. We believe
that funds from these sources will be sufficient to meet our obligations and
operating needs for the next 12 months. However, our business is subject to
factors beyond our control, such as economic conditions and competition. We may
have to refinance all or some of our debt or secure new financing. We can not be
sure that we will be able to obtain such refinancing or new loans on reasonable
terms or at all. We have agreed in our loan agreements to limit the amount of
additional debt we will incur. If we can not meet all of our obligations, the
market value and marketability of our common stock will likely be adversely
affected. In addition, if we become the subject of bankruptcy proceedings, our
creditors and preferred stockholders will be entitled to our assets before any
distributions are made to common stockholders.
OUR FINANCIAL AND OPERATING ACTIVITIES ARE LIMITED BY RESTRICTIONS
CONTAINED IN THE TERMS OF OUR PRIOR FINANCINGS. The terms governing our and our
subsidiaries' indebtedness impose significant operating and financial
restrictions on us. These restrictions may significantly limit or prohibit us
from engaging in certain transactions, including the following:
o incurring additional indebtedness;
o creating liens on our assets;
o paying dividends;
o selling assets;
o engaging in certain mergers or acquisitions; and
o making certain investments.
Our failure to comply with the terms and covenants in our and our
subsidiaries' indebtedness could lead to a default under the terms of those
documents, which would entitle the lenders to accelerate the indebtedness and
declare all amounts owed due and payable. Moreover, the instruments governing
our indebtedness contain cross-default provisions so that a default under any of
our indebtedness will be considered a default under all other indebtedness. If a
cross-default occurs, the maturity of almost all of our indebtedness could be
accelerated and become immediately due and payable. If that happens, we would
not be able to satisfy all of our debt obligations, which would have a
substantial material adverse effect on the value of our common stock and our
ability to continue as a going concern. We cannot assure you that we will be
able to comply with these restrictions in the future or that our compliance
would not cause us to forego opportunities that might otherwise be beneficial to
us.
Further, certain of our subsidiaries are required to comply with specified
financial ratios and tests, including:
o interest expense;
o fixed charges;
o debt service; and
o total debt.
We are currently in compliance with all of these financial covenants and
restrictions. However, events beyond our control, such as economic, financial
and industry conditions, may affect our ability to continue meeting these
financial tests and ratios. The need to comply with these financial covenants
and restrictions could limit our ability to expand our business or prevent us
from borrowing more money when necessary.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OUR FINANCIAL STATEMENTS
REFLECT THE OPERATIONS OF OUR RECENT ACQUISITIONS FROM THEIR RESPECTIVE
ACQUISITION DATES. During the past two and one-half years, we have made many
significant acquisitions of operating divisions. Therefore, our historical
operating results may not be indicative of our future operating results. Our
financial statements are consolidated to reflect the operations of our recent
acquisitions of each of our subsidiaries from the date of acquisition and,
therefore, are not comparable to our historical financial statements, nor do
they give a clear indication of our future performance. Our pro forma financial
statements reflect the operations of our acquisitions for the full period, but,
since the businesses were not operating as a consolidated group, their
performance is no assurance that they will continue to operate with such
results.
A MAJOR STOCKHOLDER COULD ACQUIRE SIGNIFICANT AMOUNTS OF OUR COMMON STOCK
AT BELOW MARKET PRICES. In connection with a financing on December 24, 1997, we
granted G.E. Capital Corporation a warrant to purchase up to 10,670,000 shares
of our common stock at a nominal exercise price if we do not achieve certain
earnings targets. If we file a registration statement with the SEC, or arrange a
private placement, after December 20, 1999 and prior to April 30, 2000 which
permits G.E. Capital to sell at least 1,766,245 shares of our common stock out
of a total of 4,340,622 sharesat a minimum price of $8.75 per share, then the
warrant will be replaced with a new warrant to purchase 300,000 shares of common
stock at an exercise price equal to one-third of the offering price of the
common stock under such registration statement. If we neither meet the earnings
targets nor complete a registered offering or private placement of our common
stock above the target price and date, the shares of common stock you receive
will be substantially diluted and may lose value. The new warrant agreement, the
first amendment, and the second amendment, relating to G.E. Capital's rights are
exhibits to our Current Reports on Form 8-K, as amended, filed on July 29, 1999
and September 9, 1999.
WE NEED TO BE ABLE TO ACQUIRE AND INTEGRATE COMPANIES AND NEW PRODUCT
LINES SUCCESSFULLY TO IMPLEMENT OUR GROWTH STRATEGY. Our growth strategy
includes completing acquisitions that expand and complement our business. If we
are unable to make these acquisitions, we may not be able to meet or exceed our
historical levels of revenue growth and earnings. As a result, our stock price
may be adversely affected.
We may be unable to make acquisitions due to, among other reasons, these
factors:
- the Internet companies we seek to acquire or invest in have excessive
valuation;
- we may not be able to identify suitable companies to buy because many
of the companies in the direct marketing business are relatively small
when compared to us;
- we may not be able to purchase companies at favorable prices, or at
all, due to increased competition for these companies; and,
- we may not be able to raise funds in the future to finance future
acquisitions.
Future acquisitions only will succeed if we can effectively assess
characteristics of potential target companies or product lines, such as:
- financial condition and results of operations;
- attractiveness of products;
- suitability of distribution channels; and
- management ability.
We cannot assure you that we can identify attractive acquisition
candidates or negotiate acceptable acquisition terms, and our failure to do so
may adversely affect our results of operations and our ability to sustain
growth.
Completed acquisitions may give rise to a number of additional
difficulties, including:
- difficulty integrating acquired technologies, operations and personnel
with the existing business;
- diversion of management attention in connection with both negotiating
the acquisitions and integrating the assets;
- strain on managerial and operational resources as management tries to
oversee larger operations;
- potential issuance of securities in connection with the acquisition,
which issuance lessens or dilutes the rights and values of currently
outstanding securities;
- incurrence of additional debt;
- the write-off of in-process research and development of software
acquisition and development costs;
- the amortization of goodwill and other intangible assets;
- loss of key personnel from acquired companies;
- failure of an acquired business to achieve targeted financial results;
and
- unanticipated problems and liabilities of acquired companies.
Our growth has placed significant demands on our administrative,
operational and financial resources. To continue our future growth, we also will
be required to improve our operational and financial systems and obtain
additional management, operational and financial resources. These additional
costs may outweigh the benefits we expect to obtain from internal growth.
We may not be able to successfully address these problems. Our future
operating results will depend to a significant degree on our ability to
successfully manage growth and integrate acquisitions. Furthermore, some of our
investments may be in early-stage companies with limited operating histories and
limited or no revenues. We may not be able to successfully develop these young
companies.
OUR STRATEGY OF SELLING ASSETS OF, OR INVESTMENTS IN, OUR ACQUIRED AND
DEVELOPED COMPANIES PRESENTS CERTAIN RISKS. Our business plan involves investing
in early-stage companies and subsequently selling, in public or private
offerings, all or portions of our interests in these companies. Market and other
conditions largely beyond our control affect:
- our ability to engage in such sales on favorable terms, or at all;
- the timing of such sales; and
- the amount of proceeds from such sales.
If we are unable to sell our interests at favorable prices, our future
operating results and business would be harmed. Fluctuations in the market price
and valuations of the securities we intend to hold in such companies depends on
market and other conditions that are beyond our control, and may result in
fluctuations of the market price of our stock.
THE DIRECT MARKETING SERVICES INDUSTRY AND THE MARKET FOR INTERNET
PRODUCTS AND SERVICES ARE HIGHLY COMPETITIVE. The direct marketing services
industry is highly competitive. The marketing resources of our clients are
divided among many services other than those services in which we compete, such
as television, radio and newspaper advertising. Many of our competitors have
certain competitive advantages over us due to factors including:
- greater financial resources;
- longer operating histories;
- stronger name recognition;
- larger or more advanced technical resources; and
- greater ability to quickly respond to new or emerging technologies.
In addition, we compete with the in-house telemarketing and direct mail
operations of certain of our clients and potential clients.
The market for Internet products and services is already highly
competitive. Exacerbating this situation is the fact that the market for
Internet products and services lacks significant barriers to entry, making it
relatively easy for new businesses to enter this market. Competition in the
market for Internet products and services may intensify in the future. Numerous
well-established companies and smaller entrepreneurial companies are focusing
significant resources on developing and marketing products and services that
will compete with our products and services. In addition, many of our current
and potential competitors have greater financial, technical, operational and
marketing resources than us. We may not be able to compete successfully against
these competitors in selling our goods and services. Competitive pressures also
may force prices for Internet goods and services down, and such price reductions
likely would reduce our revenues.
WE DO NOT GENERALLY ENTER INTO LONG-TERM CONTRACTS WITH OUR CLIENTS. Our
contracts or other arrangements with our direct marketing clients are generally
entered into on a project-by-project basis. Moreover, if we were to lose a
long-standing client, replacing such client with a comparable client may require
significant lead time. In addition, new client programs often begin with a pilot
project that is smaller in scale, more limited in scope, and has a smaller
marketing budget than projects conducted with long-standing clients. Although we
believe that we have historically achieved satisfactory levels of client
retention, we cannot assure you that we will be able to do so in the future.
WE DEPEND ON OUR KEY PERSONNEL. We are highly dependent upon the continued
services and experience of our senior management team, including J. Jeremy
Barbera, Chairman of the Board and Chief Executive Officer, Mike Dzvonik, Chief
Operating Officer and Rudy Howard, Chief Financial Officer. Our decentralized
management philosophy delegates day-to-day operating decisions to the managers
of each of our divisions. Therefore, we are also highly dependent upon the
effectiveness of a small group of 17 people at the division level. We depend on
the services of Mssrs. Barbera, Dzvonik and Howard and the other members of our
senior management and certain key employees to, among other things:
- successfully integrate the operations of acquired companies;
- continue our acquisition, investment and growth strategies; and
- maintain and develop our client relationships.
The loss of any key person could have a significant bearing upon our
profitability, our ability to consummate future acquisitions, and our ability to
finance, manage, or develop marketing programs. Our operational success is
contingent upon our ability to retain and expand our staff of qualified
personnel on a timely basis. We cannot assure you that adequate replacements can
be found if we were to lose the services of any senior management or key
employees. We are also dependent upon the specialized skills of certain other
personnel and may need to hire additional skilled personnel if we experience
growth in our business. Competition for such personnel is intense and the
inability to attract or maintain qualified employees could materially and
adversely affect our business, financial condition and results of operations.
We maintain key person life insurance for certain members of our senior
management team.
WE MAY EXPERIENCE VARIATIONS FROM QUARTER TO QUARTER IN OPERATING RESULTS
AND NET INCOME WHICH COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK. We
expect to experience significant fluctuations in future quarterly operating
results. Quarterly fluctuations could adversely affect the market price of our
common stock. Many factors, some of which are beyond our control, may cause
future quarterly fluctuations, including:
- the timing of our clients' direct marketing programs and the
commencement of new contracts;
- new customer contracts which may require us to incur costs in periods
prior to recognizing revenue under those contracts;
- the effect of the change of business mix on profit margins;
- the timing of additional selling, general and administrative expenses
to support new business;
- the costs and timing of the completion and integration of
acquisitions, sales of assets and investments;
- the timing of sales of assets;
- the cyclical elements of our clients' industries;
- the demand for our Internet products and services;
- the market acceptance of new products and services;
- specific economic conditions in the Internet and direct marketing
industries; and
- general economic conditions.
The anticipated quarterly fluctuations, along with the emerging nature of
commercial use of the Internet, makes predictions concerning our future revenues
difficult. We believe that period-to-period comparisons of our results of
operations will not necessarily be meaningful and should not be relied upon as
indicative of our future performance for any subsequent fiscal quarter or for a
full fiscal year. It also is possible that in some future quarters our operating
results will be below the expectations of securities analysts and investors. In
such circumstances, the price of our common stock may decline.
OUR MANAGEMENT AND SIGNIFICANT STOCKHOLDERS EXERCISE SUBSTANTIAL CONTROL
OVER OUR BUSINESS. As of March 22, 2000, our directors and executive officers
beneficially owned, in the aggregate, 4,496,078 shares of our common stock,
representing approximately 13.8% of the common stock outstanding. Three
significant stockholders will beneficially own, in the aggregate, 8,161,706
shares, representing approximately 27.3% of the common stock. Accordingly, if
these persons act together, they could exercise considerable influence over
matters requiring approval of our stockholders, including the election of our
board of directors.
THE PRICE OF OUR STOCK HAS BEEN VOLATILE. The market price of our common
stock has been, and is likely to continue to be, volatile, experiencing wide
fluctuations. Such fluctuations may be triggered by:
- differences between our actual or forecasted operating results and the
expectations of securities analysts and investors;
- announcements regarding our products, services or technologies;
- announcements regarding the products, services or technologies of our
competitors;
- developments relating to our patents or proprietary rights;
- specific conditions affecting the Internet industry;
- specific conditions affecting the direct marketing services industry;
- sales of our common stock into the public market;
- general market conditions; and
- other factors.
In recent years the stock market has experienced significant price and
volume fluctuations which have particularly impacted the market prices of equity
securities of many companies providing Internet-related products and services.
Some of these fluctuations appear unrelated or disproportionate to the operating
performance of such companies. Future market movements may adversely affect the
market price of our stock.
FUTURE SALES OF OUR SHARES COULD ADVERSELY AFFECT ITS STOCK PRICE. As of
March 22, 2000, there were 29,854,081 shares of our common stock outstanding. An
additional 1,290,000 shares are currently issuable upon the conversion of 30,000
shares of Series E preferred Stock and approximately 4,380,000 shares are
issuable upon the exercise of currently exercisable warrants and options. If all
these shares were issued, we would have approximately 34,234,081 shares of our
common stock outstanding. In addition, approximately 1,813,000 shares of our
common stock are issuable upon the exercise of outstanding options that are not
currently exercisable. In addition, we have the authority to issue up to
approximately 1,537,000 shares of our common stock under our stock option plans.
Of the common stock outstanding prior to the filing of this registration
statement, approximately 19.9 million shares are freely tradable without
restriction under the Securities Act or are eligible for sale in the public
market without regard to the availability of current public information, volume
limitations, manner of sale restrictions, or notice requirement under Rule
144(k), and does not include any shares held by or purchased from persons deemed
to be our "affiliates" which are subject to certain resale limitations pursuant
to Rule 144 under the Securities Act. As of the date of this registration
statement/prospectus, the remaining shares of common stock outstanding are
eligible for sale pursuant to rule 144 under the Securities Act.
Sales of our common stock could adversely affect the market price of our
common stock and could impair our future ability to raise capital through the
sale of equity securities or make acquisitions for stock.
WE DO NOT INTEND TO PAY DIVIDENDS. We do not intend to pay any cash
dividends on our common stock for the foreseeable future. Our existing credit
arrangement prohibits the payment of cash dividends. In addition, we cannot
assure you that our operations will generate sufficient revenues to enable us to
declare or pay dividends. We have not paid cash dividends on any of our capital
stock in at least the last six years. It is anticipated that future earnings, if
any, will be used to finance our future growth.
OUR ABILITY TO ISSUE "BLANK CHECK" PREFERRED STOCK AND CERTAIN OTHER
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION COULD PREVENT OR DELAY TAKEOVERS.
Our restated certificate of incorporation authorizes the issuance of "blank
check" preferred stock (that is, preferred stock which our board of directors
can create and issue without prior stockholder approval) with rights senior to
those of our common stock. Furthermore, we have a staggered board of directors.
These provisions, together with certain provisions of Nevada law limiting the
voting rights of an acquiror of a controlling interest in a Nevada corporation
(such as ourselves), as well as restrictions on certain business combinations
(including certain mergers and exchanges), could delay or impede a merger,
tender offer or other transaction resulting in a change in control, even if such
a transaction would have significant benefits to our stockholders. As a result,
these provisions could limit the price that certain investors might be willing
to pay in the future for shares of our common stock.
OUR FUTURE SUCCESS IN THE INTERNET BUSINESS DEPENDS ON HOW OUR INTERNET
STRATEGY EVOLVES AND THE FUTURE OF THE INTERNET. Our future success in the
Internet business depends on our successful implementation of our acquisition
strategy and upon the continuation of current trends in the Internet industry.
These factors include:
- an ability to develop and maintain brand name awareness;
- he continued increasing trend of Internet use;
- our ability to form relationships with third parties who provide
Internet services upon which we are dependent;
- the continued viability of the Internet's infrastructure;
- our ability to adapt to the evolving Internet technology and consumer
demands; and
- our ability to identify and acquire interests in Internet companies at
reasonable valuations.
THE OPERATING PERFORMANCE OF OUR SYSTEMS AND SERVERS IS CRITICAL TO OUR
BUSINESS AND REPUTATION. Any system failure, including network, software or
hardware failure, that causes an interruption or a decrease in the
responsiveness of our services could result in reduced user traffic and
therefore, reduced revenues. Our systems are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure, computer
viruses, electronic break-ins, earthquakes or similar events. Our insurance
policies have low coverage limits and may not adequately compensate us for
losses that may occur due to interruptions in our service.
Our users and customers depend on Internet service providers, online
service providers and other Web site operators for access to our products and
services. Each of these providers has experienced significant outages in the
past, and could experience outages, delays and other difficulties in the future
due to system failures unrelated to our systems.
We maintain extensive computer processing equipment and telemarketing
equipment at our facilities throughout the United States, and such equipment
represents a majority of our data services capability. Although back-up client
files and databases are maintained off-site, and we maintain business
interruption insurance and have not had a major failure of our equipment, the
risk of such failure does exist and, if our back-up systems and databases prove
inadequate, such failure could have a material adverse effect on our business.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS. Our success
depends in part on our intellectual property rights and our ability to protect
such rights under applicable patent, trademark, copyright and trade secret laws.
We seek to protect the intellectual property rights underlying our products and
services by filing applications and registrations, as appropriate, and through
our agreements with our employees, suppliers, customers and partners. However,
the measures we have adopted to protect our intellectual property rights may not
prevent infringement or misappropriation of our technology or trade secrets. A
further risk is introduced by the fact that many legal standards relating to the
validity, enforceability and scope of protection of certain proprietary rights
in the context of the Internet industry currently are not resolved.
We license certain components of our products and services from third
parties. Our failure to maintain such licenses, or to find replacement products
or services in a timely and cost effective manner, may damage our business and
results of operations. Although we believe our products and information systems
do not infringe upon the proprietary rights of others, there can be no assurance
that third parties will not assert infringement claims against us. From time to
time we have been, and we expect to continue to be, subject to claims in the
ordinary course of our business, including claims of our alleged infringement of
the intellectual property rights of third parties. Any such claims could damage
our business and results of operations by:
- subjecting us to significant liability for damages;
- resulting in invalidation of our proprietary rights;
- being time-consuming and expensive to defend even if such claims are not
meritorious; and
- resulting in the diversion of management time and attention.
Even if we prevail with respect to the claims, litigation could be
time-consuming and expensive to defend, and could result in the diversion of our
time and attention. Any claims from third parties also may result in limitations
on our ability to use the intellectual property subject to these claims unless
we are able to enter into agreements with the third parties making such claims.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS. The
telemarketing industry has become subject to an increasing amount of federal and
state regulation. Violation of these rules may result in injunctive relief,
monetary penalties or disgorgement of profits, as well as private actions for
damages. While the FTC's new rules have not caused us to alter our operating
procedures, additional federal or state consumer-oriented legislation could
limit our telemarketing activities and those of our clients or significantly
increase our costs of regulatory compliance. Several of the industries which we
intend to serve, including the financial services and healthcare industries,
also are subject to varying degrees of government regulation. Although
compliance with these regulations is generally the responsibility of our
clients, we could be subject to a variety of enforcement or private actions for
our failure or the failure of our clients to comply with such regulations.
In addition, the growth of information and communications technology has
produced a proliferation of information of various types and has raised many new
issues concerning the privacy of such information. Congress and various state
legislatures have considered legislation which would restrict our access to, and
use of, credit and other personal information for direct marketing purposes. The
direct marketing services industry, of which we are a part, could be negatively
impacted in the event any of these or similar types of legislation are enacted.
With the exception of regulations applicable to businesses generally, with
respect to our Internet products and services, we are not currently subject to
direct regulation by any government agency. Due to increasing popularity and use
of the Internet, however, it is possible that a number of laws may be adopted
with respect to the Internet in the future, covering issues such as:
- user privacy;
- pricing of goods and services offered; and
- types of products and services offered.
If the government adopts any additional laws or regulations covering use
of the Internet, such actions could decrease the growth of the Internet. Any
such reduction in the growth of the Internet may reduce demand for our goods and
services and raise our cost of producing our goods and services. Finally, our
sales of goods and services may be reduced and our costs to produce these goods
and services may be increased if existing U.S. state and federal laws and
foreign laws governing issues such as commerce, taxation, property ownership,
defamation and personal privacy are increasingly applied to the Internet.
WE FACE SECURITY RISKS CONCERNING THE TRANSMISSION OF CONFIDENTIAL
INFORMATION. The secure transmission of confidential information over public
telecommunications facilities is a significant barrier to e-commerce and
communications on the Internet. Many factors may cause compromises or breaches
of the security systems used by us or other Internet sites to protect
proprietary information, including:
- advances in computer and software functionality; or
- new discoveries in the field of cryptography.
A compromise of security on the Internet would have a negative effect on
the se of the Internet for e-commerce and communications. This in turn would
have a negative effect on our business. A party that is able to circumvent our
security measures could misappropriate our proprietary information or cause
interruptions our operations. Protecting against the threat of such security
breaches or alleviating problems caused by such breaches may require us to
expend significant capital and other resources. When our activities and the
activities of our customers and sponsors involve the storage and transmission of
proprietary information, such as credit card numbers, security breaches may
expose us to a risk of loss or litigation and possible liability. There is no
guarantee that our security measures will prevent security breaches.
FORWARD-LOOKING INFORMATION
Some of the statements contained in or incorporated by reference in this
prospectus discuss our plans and strategies for our respective businesses or
state other forward-looking statements, as this term is defined in the Private
Securities Litigation Reform Act of 1995. The words "anticipate," "believe,"
"estimate," "expect," "plan," "intend," "should," "seek," "will," and similar
expressions are intended to identify these forward-looking statements, but are
not the exclusive means of identifying them. Since we are incorporating by
reference pro forma financial statements consolidating our financial statements
with the companies we have acquired or will acquire, as if we acquired such
companies at an earlier date, the financial data we present are based on
estimates and do not necessarily reflect the results that would have been
achieved at that time had we actually acquired those companies at such earlier
date, and, for that reason, may not accurately reflect future results. These
forward-looking statements reflect the current views of our management. However,
various risks, uncertainties and contingencies could cause our actual results,
performance or achievements to differ materially from those expressed in, or
implied by, these statements, including the following:
- our success or failure to implement our business strategies; and
- other factors discussed under the heading "Risk Factors" and elsewhere
in this prospectus.
We assume no obligation to update any forward-looking statements contained
in this prospectus, whether as a result of new information, future events or
otherwise. For a discussion of important risks of an investment in our
securities, including factors that could cause actual results to differ
materially from results referred to in the forward-looking statements, see "Risk
Factors." You should carefully consider the information set forth under the
caption "Risk Factors." In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in or incorporated by reference in this
prospectus might not occur.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares
offered by the selling stockholders. However, we may receive $42,017,162 upon
exercise of warrants, the underlying shares of which are included hereunder. If
received, such funds will be used for general corporate purposes, including
working capital requirements.
SELLING STOCKHOLDERS
The following table sets forth the names of the selling stockholders and
the number of shares being registered for sale as of the date of the prospectus
and sets forth the number of shares of common stock known by us to be
beneficially owned by each of the selling stockholders as of March 22, 2000.
None of the selling stockholders has had a material relationship with the
Company within the past three years other than as a result of the ownership of
the shares or other securities of the Company. The shares offered by this
prospectus may be offered from time to time by the selling stockholders. The
percent of beneficial ownership for each stockholder is based on 29,854,081
shares of common stock outstanding as of March 22, 2000.
Beneficial
Ownership
After Offering
-------------------
Number of
Shares of Number of
Common Stock Shares Number
Selling Stockholder Beneficially of Common Stock of Shares Percent
Owned (1) to be Sold
- --------------------------------------------------------------------------------
Marshall Capital 3,065,000 (2) 3,065,000 (2) -0- -0-
Management, Inc...........
- --------------------------------------------------------------------------------
RGC International 3,065,000 (2) 3,065,000 (2) -0- -0-
Investors, LDC............
- --------------------------------------------------------------------------------
Jason Lyons............... 12,000 (3) 12,000 (3) -0- -0-
- --------------------------------------------------------------------------------
Kenneth A. Zitter......... 6,000 (3) 6,000 (3) -0- -0-
- --------------------------------------------------------------------------------
Total Common Stock..... 6,148,000 6,148,000 -0- -0-
- --------------------------------------------------------------------------------
(1) The figures for the number of shares and the percentage of shares
beneficially owned by the selling stockholders after the offering are based
on the assumption that all of the selling stockholders will sell all of the
shares registered for sale hereby. Because the selling stockholders may
offer all, some or none of the shares pursuant to this prospectus, and
because there are currently no agreements, arrangements or understandings
with respect to the sale of any of the shares, no estimate can be given as
to the number of shares that will be held by the selling stockholders after
completion of the sale of shares hereunder. See "Plan of Distribution."
(2) The number of shares set forth in the table for each of the selling
stockholders represents an estimate of the number of shares of common stock
to be offered by the selling stockholders. The actual number of shares of
common stock issuable upon conversion of the Series E Preferred Stock and
exercise of the warrants is indeterminate, is subject to adjustment and
could be materially less or more than such estimated number depending on
factors which cannot be predicted by us at this time, including, among
other factors, the future market price of the common stock. The actual
number of shares of common stock offered in this prospectus, and included
in the registration statement of which this prospectus is a part, includes
such additional number of shares of common stock as may be issued or
issuable upon conversion of the Series E Preferred Stock and exercise of
the warrants by reason of any stock split, stock dividend or similar
transaction involving the common stock, in accordance with Rule 416 under
the Securities Act. Under the terms of the Series E Preferred Stock, if the
Series E Preferred Stock had been actually converted on March 22, 2000, the
conversion price would have been $24.47, at which price the Series E
Preferred Stock would have been converted into approximately 1,225,991
shares of common stock. The warrants issued in connection with the Series E
Preferred Stock are exercisable into an aggregate of 1,471,075 shares of
common stock at an exercise price of $28.55. Under the terms of the Series
E Preferred Stock and the warrants, the shares of Series E Preferred Stock
are convertible and the warrants are exercisable by any holder only to the
extent that the number of shares of common stock issuable pursuant to such
securities, together with the number of shares of common stock owned by
such holder and its affiliates (but not including shares of common stock
underlying unconverted shares of Series E Preferred Stock or unexercised
portions of the warrants) would not exceed 4.9% of the then outstanding
common stock as determined in accordance with Section 13(d) of the Exchange
Act. Accordingly, the number of shares of common stock set forth in the
table for the selling stockholders exceeds the number of shares of common
stock that the selling stockholders could own beneficially at any given
time through their ownership of the Series E Preferred Stock and the
warrants. In that regard, the beneficial ownership of the common stock by
the selling stockholders set forth in the table is not determined in
accordance with Rule 13d-3 under the Exchange Act.
(3) Represents shares issuable upon exercise of currently exercisable warrants.
PLAN OF DISTRIBUTION
The shares being offered by the selling stockholders or their respective
pledgees, donees, transferees or other successors in interest, will be sold from
time to time in one or more transactions, which may involve block transactions:
o on the Nasdaq National Market or on such other market on which the
common stock may from time to time be trading:
o in privately-negotiated transactions;
o through the writing of options or other derivatives on the shares
and the delivery of shares pursuant to such options or derivatives;
o through short sales and the delivery of shares to close out any
resulting short positions or in settlement of securities loans; or
o any combination thereof.
The sale price to the public may be:
o the market price prevailing at the time of sale;
o a price related to such prevailing market price;
o at negotiated prices; or
o such other price as the selling stockholders determine from time to
time.
The shares may also be sold pursuant to Rule 144. The selling stockholders shall
have the sole and absolute discretion not to accept any purchase offer or make
any sale of shares if they deem the purchase price to be unsatisfactory at any
particular time.
The selling stockholders or their respective pledgees, donees, transferees
or other successors in interest, may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed "underwriters" as that
term is defined under the Securities Act or the Exchange Act, or the rules and
regulations under such acts.
The selling stockholders, alternatively, may sell all or any part of the
shares offered in this prospectus through an underwriter. No selling stockholder
has entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into. If a selling stockholder
enters into such an agreement or agreements, the relevant details will be set
forth in a supplement or revisions to this prospectus.
The selling stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations under such act, including, without
limitation, Regulation M. These provisions may restrict certain activities of,
and limit the timing of purchases and sales of any of the shares by, the selling
stockholders or any other such person. Furthermore, under Regulation M, persons
engaged in a distribution of securities are prohibited form simultaneously
engaging in market making and certain other activities with respect to such
securities for a specified period of time prior to the commencement of such
distributions, subject to specified exceptions or exemptions. All of these
limitations may affect the marketability of the shares.
We have agreed to indemnify the selling stockholders, or their transferees
or assignees, against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the selling stockholders or their
respective pledgees, donees, transferees or other successors in interest, may be
required to make in respect of such liabilities.
We will pay all expenses associated with filing and maintaining the
effectiveness of this registration statement. Other expenses incident to the
offering and sale of our common stock by the selling stockholders, including
brokerage and underwriting commissions, will be paid by the selling
stockholders.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement under the Securities
Act with respect to the shares of common stock offered hereby on Form S-3. This
prospectus is a part of that registration statement. The rules and regulations
of the SEC allow us to omit some information included in the registration
statement from this document.
In addition, we file reports, proxy statements and other information with
the SEC under the Securities Exchange Act of 1934, as amended. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. You
may read and copy this information at the following locations of the SEC:
Public Reference Section Northeast Regional Office Midwest Regional Office
Room 1024 7 World Trade Center 500 West Madison Street
450 Fifth Street, N.W. Suite 1300 Suite 1400
Judiciary Plaza New York, NY 10048 Chicago, Illinois
Washington D.C. 20549 60661-2511
The SEC maintains an Internet World Wide Web site (http://www.sec.gov)
that contains our reports, proxy statements and other information about us and
other companies who file electronically with the SEC.
Our common stock is traded on the Nasdaq National Market System.
The SEC allows us to "incorporate by reference" information into this
document. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this document, except
for any information that is superseded by information that is included directly
in this document.
This document incorporates by reference the documents listed below that we
have previously filed with the SEC. They contain important information about us
and our financial condition. Some of these filing have been amended by later
filings, which are also listed.
SEC Filings Date Description or Period/As of
- --------------------------------------------------------------------------------
Annual Report on Form 10-K........... Year ended June 30, 1999
Quarterly Report on Form 10-Q........ Quarter ended September 30, 1999;
Quarter ended December 31, 1999
Current Reports on Form 8-K, as amended
dated March 23, 2000 February 24, 2000;
July 8, 1999, as amended; May 24, 1999;
March 24, 1999, as amended; February 1,
1999; and September 28, 1998
We incorporate by reference additional documents that we may file with the
SEC after the date of this document. These documents include periodic reports,
including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as well as proxy statements.
You can obtain any of the documents incorporated by reference into this
document from us, or from the SEC through the SEC's web site at the address
provided above. Documents incorporated by reference are available from the
companies without charge, excluding any exhibits to those documents unless the
exhibit is specifically incorporated by reference as an exhibit in this
document.
You can obtain documents incorporated by reference in this document by
requesting them in writing or by telephone from us at the following addresses:
Marketing Services Group, Inc.
333 Seventh Avenue
New York, New York 10001
Attn: Investor Relations
(917) 339-7100
If you request any incorporated documents from us, we will mail them to
you by first class mail, or another equally prompt means, within one business
day after we receive your request.
We have not authorized anyone to give any information or make any
representation about us that differs from, or adds to, the information in this
document or in our documents that are publicly filed with the SEC. Therefore, if
anyone does give you different or additional information, you should not rely on
it.
If you are in a jurisdiction where it is unlawful to offer to exchange or
sell, or to ask for offers to exchange or buy, the securities offered by this
document or to ask for proxies, or if you are a person to whom it is unlawful to
direct these activities, then the offer presented by this document does not
extend to you.
The information contained in this document speaks only as of its date
unless the information specifically indicates that another date applies.
LEGAL MATTERS
Certain legal matters with respect to the validity of our common stock
will be passed upon for us by McDonald Carano Wilson McCune Bergin Frankovich &
Hicks LLP, Reno, Nevada.
EXPERTS
The financial statements and financial statement schedule included in the
1999 Annual Report on Form 10-K of MSGI for the year ended June 30, 1999 and the
financial statements of Stevens-Knox & Associates, Inc. and Affiliates and CMG
Direct Corporation, included in MSGI's Current Reports on Form 8-K/A filed on
April 6, 1999 and July 29, 1999, respectively, incorporated by reference in this
prospectus, have been so incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
<PAGE>
================================================================================
6,148,000 SHARES
MARKETING SERVICES GROUP, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
PROSPECTUS
------------------------
APRIL 14, 2000
================================================================================
