-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UGLnGuHGmHKEz36/sRO6bIDyRh3vb3YwoVE1gQFPp+2AGYEPXsw9uPeawV3KLLuU duzf4bm+9jDC6M6XaI9K1A== 0000014280-99-000048.txt : 19990730 0000014280-99-000048.hdr.sgml : 19990730 ACCESSION NUMBER: 0000014280-99-000048 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990513 ITEM INFORMATION: FILED AS OF DATE: 19990729 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARKETING SERVICES GROUP INC CENTRAL INDEX KEY: 0000014280 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 880085608 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-01768 FILM NUMBER: 99672316 BUSINESS ADDRESS: STREET 1: 333 SEVENTH AVENUE STREET 2: 20TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10001 BUSINESS PHONE: 2125947688 MAIL ADDRESS: STREET 1: 333 SEVENTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10001 FORMER COMPANY: FORMER CONFORMED NAME: ALL-COMM MEDIA CORP DATE OF NAME CHANGE: 19950823 FORMER COMPANY: FORMER CONFORMED NAME: SPORTS TECH INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BRISTOL HOLDINGS INC DATE OF NAME CHANGE: 19920518 8-K/A 1 FORM 8-K/A 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) 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 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 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 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 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. 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. 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. 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. 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. 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. 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. 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. 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. PRO FORMA CONDENSED BALANCE SHEET AS OF MARCH 31, 1999 (Unaudited)
Historical --------------------------- Marketing Pro forma Services CMG Diret ------------------------- Group, Inc. Corporation Adjustments Total ----------- ----------- ----------- -------- 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 ============ ============ ============
See accompanying notes to unaudited pro forma financial statements. PRO FORMA CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1999 (Unaudited)
Historical ------------------------------------------------------ Stevens-Knox & Associates, Stevens- Marketing Knox List Brokerage, Pro Forma Services and Stevens-Knox CMG Direct ----------------------- Group, Inc. International Corporation * Adjustments Total ----------- ------------- ------------- ----------- ----- 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 ========== ==========
* Certain balances have been reclassified to conform with MSGI presentation. See accompanying notes to unaudited pro forma financial statements. PRO FORMA CONDENSED STATEMENTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 1998 (Unaudited) 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 ----------- -------------- ------------- ------------ ----------- ----- 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 ========== ==========
* Certain balances have been reclassified to conform with MSGI presentation. See accompanying notes to unaudited pro forma financial statements. 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. EX-10 2 EXHIBIT 10.1 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: EX-10 3 EXHIBIT 10.2 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 EX-10 4 EXHIBIT 10.3 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 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. 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: 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. 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. 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 -----END PRIVACY-ENHANCED MESSAGE-----