-----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, B1+UF7Pgw8USiX4oeqTU2wKXC5xUmxnm84cG3UrX6up3Y24ELHsrZMS+9ApEKtSj 4yNlD4dy61P+Szeu9ZHuiw== 0000909518-98-000005.txt : 19980106 0000909518-98-000005.hdr.sgml : 19980106 ACCESSION NUMBER: 0000909518-98-000005 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19980105 SROS: NASD GROUP MEMBERS: GENERAL ELECTRIC CAPITAL CORP GROUP MEMBERS: GENERAL ELECTRIC CAPITAL SERVICES, INC. GROUP MEMBERS: GENERAL ELECTRIC COMPANY SUBJECT COMPANY: 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: SC 13D SEC ACT: SEC FILE NUMBER: 005-05829 FILM NUMBER: 98500884 BUSINESS ADDRESS: STREET 1: 400 CORPORATE POINTE STREET 2: STE 780 CITY: CULVER CITY STATE: CA ZIP: 90230 BUSINESS PHONE: 3103422800 MAIL ADDRESS: STREET 1: 400 CORPORATE POINTE SUITE 780 CITY: CULVER CITY STATE: CA ZIP: 90280 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL ELECTRIC CAPITAL CORP CENTRAL INDEX KEY: 0000040554 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 131500700 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 260 LONG RIDGE RD CITY: STAMFORD STATE: CT ZIP: 06927 BUSINESS PHONE: 2033574000 MAIL ADDRESS: STREET 1: 260 LONG RIDGE ROAD CITY: STAMFORD STATE: CT ZIP: 06927 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL ELECTRIC CREDIT CORP DATE OF NAME CHANGE: 19871216 SC 13D 1 SCHEDULE 13D ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 MARKETING SERVICES GROUP, INC. - -------------------------------------------------------------------------------- (Name of Issuer) COMMON STOCK, $.01 PAR VALUE 570907105 - -------------------------------------------------------------------------------- (Title of class of securities) (CUSIP number) NANCY E. BARTON, ESQ., GENERAL ELECTRIC CAPITAL CORPORATION, 260 LONG RIDGE ROAD, STAMFORD, CONNECTICUT 06927 (203) 357-4000 - -------------------------------------------------------------------------------- (Name, address and telephone number of person authorized to receive notices and communications) DECEMBER 24, 1997 - -------------------------------------------------------------------------------- (Date of event which requires filing of this statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [_]. Note: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. (Continued on following pages) (Page 1 of 14 Pages) ================================================================================ NYFS08...:\60\47660\1420\1219\SCHD107M.54C - ------------------------------ --------------------------------------- CUSIP No. 570907105 13D Page 2 of 14 - ------------------------------ --------------------------------------- - -------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS: GENERAL ELECTRIC CAPITAL CORPORATION I.R.S. IDENTIFICATION NOS. 13-1500700 OF ABOVE PERSONS: - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [_] (B) [X] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [X] PURSUANT TO ITEM 2(d) OR 2(e): - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF NEW YORK ORGANIZATION: - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER: 4,415,612 (SEE ITEM 3) SHARES -------------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER: 0 OWNED BY -------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER: 4,415,612 (SEE ITEM 3) REPORTING -------------------------------------------------------------- PERSON WITH 10 SHARED DISPOSITIVE POWER: 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY 4,415,612 (SEE ITEM 3) REPORTING PERSON: - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [_] SHARES: - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 24% (SEE ITEM 3) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: CO - -------------------------------------------------------------------------------- - ------------------------------ --------------------------------------- CUSIP No. 570907105 13D Page 3 of 14 - ------------------------------ --------------------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON: GENERAL ELECTRIC CAPITAL SERVICES, INC. S.S. OR I.R.S. IDENTIFICATION NO. 06-1109503 OF ABOVE PERSON: - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [_] (B) [X] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: NOT APPLICABLE - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [X] PURSUANT TO ITEM 2(d) OR 2(e): - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF DELAWARE ORGANIZATION: - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER: DISCLAIMED (SEE 11 BELOW) SHARES -------------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER: 0 OWNED BY -------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER: DISCLAIMED (SEE 11 BELOW) REPORTING -------------------------------------------------------------- PERSON WITH 10 SHARED DISPOSITIVE POWER: 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY BENEFICIAL OWNERSHIP OF ALL REPORTING PERSON: SHARES DISCLAIMED BY GENERAL ELECTRIC CAPITAL SERVICES, INC. - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [_] SHARES: - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): NOT APPLICABLE (SEE 11 ABOVE) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: CO - -------------------------------------------------------------------------------- - ------------------------------ --------------------------------------- CUSIP No. 570907105 13D Page 4 of 14 - ------------------------------ --------------------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON: GENERAL ELECTRIC COMPANY S.S. OR I.R.S. IDENTIFICATION NO. 14-0689340 OF ABOVE PERSON: - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [_] (B) [X] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: NOT APPLICABLE - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [X] PURSUANT TO ITEM 2(d) OR 2(e): - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF NEW YORK ORGANIZATION: - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER: DISCLAIMED (SEE 11 BELOW) SHARES -------------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER: 0 OWNED BY -------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER: DISCLAIMED (SEE 11 BELOW) REPORTING -------------------------------------------------------------- PERSON WITH 10 SHARED DISPOSITIVE POWER: 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY BENEFICIAL OWNERSHIP OF ALL REPORTING PERSON: SHARES DISCLAIMED BY GENERAL ELECTRIC COMPANY - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [_] SHARES: - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): NOT APPLICABLE (SEE 11 ABOVE) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: CO - -------------------------------------------------------------------------------- ITEM 1. SECURITY AND ISSUER. This statement relates to the Common Stock, par value $.01 per share ("Common Stock"), of Marketing Services Group, Inc., a Nevada corporation (the "Company"). The principal executive offices of the Company are located at 333 Seventh Avenue, 20th Floor, New York, New York 10001. ITEM 2. IDENTITY AND BACKGROUND. This statement is filed by General Electric Capital Corporation, a New York corporation ("GE Capital"), for and on behalf of itself, General Electric Capital Services, Inc. ("GECS") and General Electric Company ("GE"). GECS is a wholly-owned subsidiary of GE, and GE Capital is a subsidiary of GECS. GE Capital, together with its affiliates, operates primarily in the financing industry and, to a lesser degree, in the life insurance and property/casualty insurance industries and maintains its principal executive offices at 260 Long Ridge Road, Stamford, Connecticut 06927. GECS is a Delaware corporation with its principal executive offices located at 260 Long Ridge Road, Stamford, Connecticut 06927. GECS is a holding company which owns all the common stock of GE Capital and other subsidiaries. GE is a New York corporation with its principal executive offices located at 3135 Easton Turnpike, Fairfield, Connecticut 06431. GE engages in providing a wide variety of industrial, commercial and consumer products and services. ITEMS 2(A), (B) AND (C) For information with respect to the identity and background of each executive officer and director of GE Capital, GECS and GE see Schedules I, II and III attached hereto, respectively. This statement is being filed while GE Capital, GECS and GE are in the process of verifying information required herein from their respective executive officers and directors. If GE Capital, GECS or GE obtains information which would cause a change in the information contained herein, an amendment to this statement will be filed that will set forth such change in information. 5 ITEMS 2(D) AND (E) Except as set forth in Schedule IV hereto, during the last five years none of GE Capital, GECS, GE, nor, to the best of their knowledge, any of their directors or executive officers has been (i) convicted of any criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to federal or state securities laws or finding any violation with respect to such laws. ITEM 2(F) To the knowledge of GE Capital, GECS and GE, all of their executive officers and directors are U.S. citizens, except that (i) Paolo Fresco, Vice Chairman of the Board and an executive officer of GE and a director of GE Capital and GECS, is an Italian citizen, (ii) Claudio X. Gonzalez, a director of GE, is a Mexican citizen, (iii) Kaj Ahlmann, an executive officer and a director of GECS is a Danish citizen, and (iv) Nigel Andrews, an executive officer of GECS and GE Capital and a director of GECS and GE Capital, is a UK citizen. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. On December 24, 1997, the Company and GE Capital entered into a Purchase Agreement (the "Purchase Agreement") providing for the purchase on that day by GE Capital of (i) 50,000 shares of Series D convertible preferred stock, par value $.01 per share, of the Company (the "Convertible Preferred Stock"), and (ii) Warrants (the "Warrants" and, together with the Convertible Preferred Stock, the "Securities") to purchase up to 10,670,000 shares (subject to (i) antidilution adjustments, and (ii) reduction or cancellation based on the Company's meeting certain financial goals set forth in the Warrants or its engaging in a public offering of the Common Stock, which offering meets certain criteria) of the Common Stock, all for an aggregate purchase price of $15,000,000. The Common Stock reported herein as being beneficially owned by GE Capital is beneficially owned through GE Capital's ownership of the Convertible Preferred Stock. The Convertible Preferred Stock is convertible into shares of Common Stock at a conversion rate which currently is equal to 88.31224, resulting in the beneficial ownership by GE Capital of 4,415,612 shares of Common Stock. On an as-converted basis, the Convertible Preferred Stock represents approximately 24% of the issued and outstanding shares of Common Stock. However, such shares of Convertible Preferred Stock have 6 not been converted. A copy of the Purchase Agreement is attached hereto as Exhibit 1. The funds used to purchase the Securities were obtained by GE Capital from working capital. ITEM 4. PURPOSE OF TRANSACTION. GE Capital purchased the Securities from the Company as an investment and holds them in the ordinary course of business and not with the purpose or effect of changing the control of the Company. GE Capital intends to review its investment in the Securities on a regular basis and as a result thereof may, (i) at any time or from time to time, convert all or a portion of the Convertible Preferred Stock into shares of Common Stock, (ii) after such time as any of the Warrants become exercisable, exercise such Warrants in whole or in part, or (iii) at any time or from time to time, dispose of all or a portion of the shares of Convertible Preferred Stock or Warrants (or shares of Common Stock issuable upon conversion or exercise thereof) owned by it. Any such acquisition or disposition would be made in compliance with all applicable laws and regulations. The Certificate of Designation for the Convertible Preferred Stock (the "Certificate of Designation") provides that, subject to certain rights of GE Capital described below, so long as at least 20% of the shares of Convertible Preferred Stock issued pursuant to the Purchase Agreement remain outstanding, (i) the board of directors of the Company will consist of eight directors, (ii) the holders of the Convertible Preferred Stock will have the exclusive right, voting separately as a single class, to elect two directors of the Company (the "Convertible Preferred Directors"), and (iii) the holders of the Convertible Preferred Stock will have the right, voting together with the holders of the Common Stock, to elect six directors of the Company. In addition to the rights described above, upon the occurrence of an Event of Default (as defined in the Purchase Agreement), or if the Company fails to redeem all of the outstanding shares of Convertible Preferred Stock on December 24, 2003, the holders of shares of Convertible Preferred Stock will have the exclusive right, voting separately as a single class, to, in each case, elect one additional director of the Company (each, an "Additional Director"), and, in each case, one of the directors elected in accordance with clause (iii) above will resign or be removed without cause. 7 If any Convertible Preferred Director or Additional Director ceases to serve as a director of the Company for any reason, the vacancy resulting thereby may be filled by the remaining director(s) elected by the holders of the Convertible Preferred Stock or by the holders of the Convertible Preferred Stock. In addition, a majority of the holders of the Convertible Preferred Stock may remove either Convertible Preferred Director and any Additional Director with or without cause, at any time. On December 24, 1997, GE Capital entered into a Stockholders Agreement with the Company and certain of its existing stockholders (the "Stockholders Agreement"). Pursuant to the Stockholders Agreement, GE Capital has the right to participate in certain sales, transfers or other dispositions by Existing Stockholders (as defined in the Stockholders Agreement) to third parties. In addition, GE Capital has a preemptive right to purchase shares of New Securities (as defined in the Stockholders Agreement) from the Company. Except as set forth above, neither GE Capital, GECS nor GE has any plans or proposals which relate to or would result in the types of transactions set forth in subparagraphs (a) through (j) of Item 4. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) The aggregate number and percentage of Common Stock beneficially owned by GE Capital are 4,415,612 and approximately 24%, respectively. Except as disclosed in this Item 5(a) and in Item 3 above, none of GE Capital, GECS, GE, nor, to the best of their knowledge, any of their executive officers and directors, beneficially owns any securities of the Company or presently has a right to acquire any securities of the Company. (b) GE Capital would have the sole power to vote or direct the voting of the Common Stock upon conversion of the Convertible Preferred Stock. Except as described in this Item 5(b) and in Item 3 above, none of GE Capital, GECS, GE, nor to the best of their knowledge, any of their executive officers or directors presently has the power to vote or to direct the vote or to dispose or direct the disposition of any of the securities which they may be deemed to beneficially own. 8 (c) Except as set forth above, neither GE Capital, GECS, GE, nor, to the best of their knowledge, any of their executive officers or directors, has effected any transaction in any securities of the Company during the past 60 days. (d) No person except for GE Capital is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, securities covered by this statement. (e) Not applicable. Neither the filing of this Schedule 13D nor anything contained herein is intended as, or should be construed as, an admission that GECS or GE is the "beneficial owner" of any shares of Common Stock, Convertible Preferred Stock or Warrants. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. Pursuant to the Certificate of Designation, the Convertible Preferred Stock is convertible into fully paid and nonassessable shares of Common Stock, (i) at the option of the respective holders thereof, at any time prior to the close of business on the business day prior to a day on which any shares of Convertible Preferred Stock are redeemed by the Company and (ii) by the Company at any time after the Current Market Price (as defined in the Certificate of Designation) equals or exceeds $8.75 per share (subject to adjustment) for 20 of 30 business days, and upon the occurrence of a Qualified Secondary Offering (as defined in the Certificate of Designation). One share of Convertible Preferred Stock shall be convertible into the number of shares of Common Stock, subject to adjustment as described in the Certificate of Designation, equal to 88.31224 shares of Common Stock. In addition, the Convertible Preferred Stock is redeemable (i) by the Company on December 24, 2003, and (ii) at the option of the respective holders thereof, upon the occurrence of an Organic Change (as defined in the Certificate of Designation). Pursuant to the Purchase Agreement, GE Capital purchased 50,000 newly-issued shares of Convertible Preferred Stock, and 10,670,000 (subject to reduction) Warrants, for an aggregate consideration of $15,000,000. In addition, GE Capital has agreed that, without the approval of the Company's board of directors, it will not, at any time, increase its ownership of Common Stock in excess of 49.99% of the outstanding Common Stock. 9 On December 24, 1997, GE Capital entered into a Registration Rights Agreement with the Company ("Registration Rights Agreement"). Pursuant to the Registration Rights Agreement, GE Capital, or its transferees, may make a written request of the Company for registration with the Securities and Exchange Commission, under and in accordance with the provisions of the Securities Act of 1933, as amended, of all or part of their registrable securities, which include the Common Stock (a "Demand Registration"). The Company shall not be required to file a registration statement in connection with such Demand Registration on or prior to the earlier of January 1, 2000 or the consummation of a Secondary Offering (as defined in the Registration Rights Agreement). GE Capital (or its transferees given such right by GE Capital) shall be entitled to two (2) Demand Registrations, as well as an unlimited number of short-form and "piggy back" registrations. Pursuant to the Stockholders Agreement, GE Capital has the right to participate in certain sales, transfers or other dispositions by Existing Stockholders (as defined in the Stockholders Agreement) to third parties. In addition, GE Capital has a right of first refusal to purchase shares of New Securities (as defined in the Stockholders Agreement) from the Company. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 1 Purchase Agreement by and among the Company and GE Capital, dated as of December 24, 1997. Exhibit 2 Stockholders Agreement by and among the Company, GE Capital and certain existing stockholders of the Company, dated as of December 24, 1997. Exhibit 3 Registration Rights Agreement by and among the Company and GE Capital, dated as of December 24, 1997. Exhibit 4 Form of Certificate of Designation, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof for the Series D Convertible Preferred Stock. Exhibit 5 Warrant, dated as of December 24, 1997, to purchase shares of Common Stock of the Company. 10 Exhibit 6 Joint Filing Agreement by and among GE, GECS and GE Capital, dated December 30, 1997. 11 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Michael E. Pralle ---------------------------------- Name: Michael E. Pralle Title: Vice President Dated: December 30, 1997 12 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. GENERAL ELECTRIC CAPITAL SERVICES, INC. By: /s/ Michael E. Pralle ------------------------------------- Name: Michael E. Pralle Title: Attorney-in-Fact Dated: December 30, 1997 13 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. GENERAL ELECTRIC COMPANY By: /s/ Michael E. Pralle ------------------------------ Name: Michael E. Pralle Title: Attorney-in-fact Dated: December 30, 1997 14 SCHEDULE I TO SCHEDULE 13D -------------------------- Filed by General Electric Capital Corporation GENERAL ELECTRIC CAPITAL CORPORATION DIRECTORS AND EXECUTIVE OFFICERS --------------------------------
NAME PRESENT PRESENT - ---- BUSINESS PRINCIPAL ADDRESS OCCUPATION ------- ---------- Directors - --------- Nigel D.T. Andrews General Electric Capital Executive Vice President, Corporation General Electric Capital 260 Long Ridge Road Corporation Stamford, CT 06927 Nancy E. Barton General Electric Capital Senior Vice President, Corporation General Counsel and 260 Long Ridge Road Secretary, General Electric Stamford, CT 06927 Capital Corporation James R. Bunt General Electric Company Vice President and 3135 Easton Turnpike Comptroller, General Fairfield, CT 06431 Electric Company David M. Cote General Electric Appliances President and Chief Appliance Park Executive Officer, General Louisville, KY 40225 Electric Appliances Dennis D. Dammerman General Electric Company Senior Vice President- 3135 Easton Turnpike Finance and Chief Financial Fairfield, CT 06431 Officer, General Electric Company Paolo Fresco General Electric Company Vice Chairman and Executive 3135 Easton Turnpike Officer, General Electric Fairfield, CT 06431 Company Benjamin W. Heineman, General Electric Company Senior Vice President, Jr. 3135 Easton Turnpike General Counsel and Fairfield, CT 06431 Secretary, General Electric Company Jeffrey R. Immelt General Electric Medical President and Chief Systems Executive Officer, General 3000 N. Grandview Boulevard Electric Medical Systems Waukesha, WI 53188 W. James McNerney, GE Aircraft Engines President and Chief Jr. One Neumann Way Executive Officer, GE Cincinnati, OH 45215-6301 Aircraft Engines John H. Myers GE Investment Corporation Chairman and President, GE 3003 Summer Street Investment Corporation Stamford, CT 06904 NAME PRESENT PRESENT - ---- BUSINESS PRINCIPAL ADDRESS OCCUPATION ------- ---------- Directors - --------- Robert L. Nardelli General Electric Company President and Chief One River Road Executive Officer, GE Power Schenectady, NY 12345 Systems Denis J. Nayden General Electric Capital President and Chief Corporation Operating Officer, General 260 Long Ridge Road Electric Capital Stamford, CT 06927 Corporation Michael A. Neal General Electric Capital Executive Vice President, Corporation General Electric Capital 260 Long Ridge Road Corporation Stamford, CT 06927 James A. Parke General Electric Capital Senior Vice President, Corporation Finance, General Electric 260 Long Ridge Road Capital Corporation Stamford, CT 06927 John M. Samuels General Electric Company Vice President and Senior 3135 Easton Turnpike Counsel, Corporate Taxes, Fairfield, CT 06431 General Electric Company Edward D. Stewart General Electric Capital Executive Vice President, Corporation General Electric Capital 1600 Summer Street Corporation Stamford, CT 06927 John F. Welch, Jr. General Electric Company Chairman and Chief 3135 Easton Turnpike Executive Officer, General Fairfield, CT 06431 Electric Company Gary C. Wendt General Electric Capital Chairman and Chief Corporation Executive Officer, 260 Long Ridge Road General Electric Capital Stamford, CT 06927 Corporation Officers - -------- Gary C. Wendt General Electric Capital Chairman of the Board and Corporation Chief Executive Officer 260 Long Ridge Road Stamford, CT 06927 Denis J. Nayden General Electric Capital President and Chief Corporation Operating Officer 260 Long Ridge Road Stamford, CT 06927 Nigel D. T. Andrews General Electric Capital Executive Vice President Corporation 260 Long Ridge Road Stamford, CT 06927 NAME PRESENT PRESENT - ---- BUSINESS PRINCIPAL ADDRESS OCCUPATION ------- ---------- Michael A. Neal General Electric Capital Executive Vice President Corporation 260 Long Ridge Road Stamford, CT 06927 Edward D. Stewart General Electric Capital Executive Vice President Corporation 260 Long Ridge Road Stamford, CT 06927 Nancy E. Barton General Electric Capital Senior Vice President, Corporation General Counsel and 260 Long Ridge Road Secretary Stamford, CT 06927 James A. Colica General Electric Capital Senior Vice President, Corporation Global Risk Management 260 Long Ridge Road Stamford, CT 06927 Michael D. Fraizer General Electric Capital Senior Vice President, Corporation Insurance/Investment 6604 West Broad Street Products Taylor Building Richmond, VA 23230 Robert L. Lewis General Electric Capital Senior Vice President, Corporation Structured Finance Group 1600 Summer Street 6th Floor Stamford, CT 06905 James A. Parke General Electric Capital Senior Vice President, Corporation Finance 260 Long Ridge Road Stamford, CT 06927 Todd S. Thomson General Electric Capital Senior Vice President, Corporation Strategic Planning and 260 Long Ridge Road Business Development Stamford, CT 06927 Lawrence J. Toole General Electric Capital Senior Vice President, Corporation Human Resources 260 Long Ridge Road Stamford, CT 06927 Jeffrey S. Werner General Electric Capital Senior Vice President, Corporation Corporate Treasury and 201 High Ridge Road Global Funding Operation Stamford, CT 06927
SCHEDULE II TO SCHEDULE 13D --------------------------- Filed by General Electric Capital Services, Inc. GENERAL ELECTRIC CAPITAL SERVICES, INC. DIRECTORS AND EXECUTIVE OFFICERS --------------------------------
NAME PRESENT PRESENT - ---- BUSINESS PRINCIPAL ADDRESS OCCUPATION ------- ---------- Directors - --------- Kaj Ahlmann Employers Reinsurance Corp. Executive Vice President, 5200 Metcalf General Electric Capital Overland Park, KS 66201 Services, Inc., President and Chief Operating Officer, Employers Reinsurance Corp. Nigel D.T. Andrews General Electric Capital Executive Vice President, Corporation General Electric Capital 260 Long Ridge Road Corporation Stamford, CT 06927 James R. Bunt General Electric Company Vice President and 3135 Easton Turnpike Comptroller, General Fairfield, CT 06431 Electric Company Dennis D. Dammerman General Electric Company Senior Vice President- 3135 Easton Turnpike Finance, General Electric Fairfield, CT 06431 Company Paolo Fresco General Electric Company Vice Chairman and Executive 3135 Easton Turnpike Officer, General Electric Fairfield, CT 06431 Company Benjamin W. Heineman, General Electric Company Senior Vice President, Jr. 3135 Easton Turnpike General Counsel and Fairfield, CT 06431 Secretary, General Electric Company John H. Myers GE Investment Corporation Chairman and President, GE 3003 Summer Street Investment Corporation Stamford, CT 06904 Robert L. Nardelli General Electric Company President and Chief One River Road Executive Officer, GE Power Schenectady, NY 12345 Systems Denis J. Nayden General Electric Capital President and Chief Corporation Operating Officer, General 260 Long Ridge Road Electric Capital Stamford, CT 06927 Corporation Michael A. Neal General Electric Capital Executive Vice President, Corporation General Electric Capital 260 Long Ridge Road Corporation Stamford, CT 06927 NAME PRESENT PRESENT - ---- BUSINESS PRINCIPAL ADDRESS OCCUPATION ------- ---------- John M. Samuels General Electric Company Vice President and Senior 3135 Easton Turnpike Counsel, Corporate Taxes, Fairfield, CT 06431 General Electric Company Edward D. Stewart General Electric Capital Executive Vice President, Corporation General Electric Capital 260 Long Ridge Road Corporation Stamford, CT 06927 John F. Welch, Jr. General Electric Company Chairman and Chief 3135 Easton Turnpike Executive Officer, General Fairfield, CT 06431 Electric Company Gary C. Wendt General Electric Capital Chairman of the Board, Services, Inc. President and Chief 260 Long Ridge Road Executive Officer, General Stamford, CT 06927 Electric Capital Services, Inc. Officers - -------- Gary C. Wendt General Electric Capital Chairman, President and Services, Inc. Chief Executive Officer, 260 Long Ridge Road General Electric Capital Stamford, CT 06927 Services, Inc. Kaj Ahlmann Employers Executive Vice President, Reinsurance Corp. General Electric Capital 5200 Metcalf Services, Inc., President Overland Park, KS 66201 and Chief Operating Officer, Employers Reinsurance Corp. Nigel D. T. Andrews General Electric Capital Executive Vice President Corporation See Schedule I. 260 Long Ridge Road Stamford, CT 06927 Denis J. Nayden General Electric Capital President and Chief Corporation Operating Officer 260 Long Ridge Road See Schedule I. Stamford, CT 06927 Michael A. Neal General Electric Capital Executive Vice President Corporation See Schedule I. 260 Long Ridge Road Stamford, CT 06927 Edward D. Stewart General Electric Capital Executive Vice President Corporation See Schedule I. 260 Long Ridge Road Stamford, CT 06927 NAME PRESENT PRESENT - ---- BUSINESS PRINCIPAL ADDRESS OCCUPATION ------- ---------- Nancy E. Barton General Electric Capital Senior Vice President, Corporation General Counsel and 260 Long Ridge Road Secretary Stamford, CT 06927 See Schedule I. James A. Parke General Electric Capital Senior Vice President, Corporation Finance 260 Long Ridge Road See Schedule I. Stamford, CT 06927 Lawrence J. Toole General Electric Capital Senior Vice President, Corporation Human Resources 260 Long Ridge Road See Schedule I. Stamford, CT 06927 Jeffrey S. Werner General Electric Capital Senior Vice President, Corporation Corporate Treasury and 201 High Ridge Road Global Funding Operation Stamford, CT 06927 See Schedule I.
SCHEDULE III TO SCHEDULE 13D ---------------------------- Filed by General Electric Company GENERAL ELECTRIC COMPANY DIRECTORS AND EXECUTIVE OFFICERS --------------------------------
NAME PRESENT PRESENT - ---- BUSINESS PRINCIPAL ADDRESS OCCUPATION ------- ---------- Directors - --------- D.W. Calloway Pepsico, Inc. Retired Director and 700 Anderson Hill Road Chairman of the Board, Purchase, NY 10577 Pepsico, Inc. J.I. Cash, Jr. Harvard Business School Professor of Business Baker Library 187 Administration-Graduate Soldiers Field School of Business Boston, MA 02163 Administration, Harvard University S.S. Cathcart 222 Wisconsin Avenue Director and Retired Suite 103 Chairman, Illinois Lake Forest, IL 60045 Tool Works D.D. Dammerman General Electric Company Senior Vice President- 3135 Easton Turnpike Finance, General Electric Fairfield, CT 06431 Company P. Fresco General Electric Company Vice Chairman of the Board (U.S.A.) and Executive Officer, 3 Shortlands, General Electric Company Hammersmith London, W6 SBX, England C.X. Gonzalez Kimberly-Clark de Mexico, Chairman of the Board and S.A. de C.V. Chief Executive Officer, Jose Luis Lagrange Kimberly-Clark de Mexico, 103, Tercero Piso S.A. de C.V. Colonia Los Morales Mexico, D.F. 11510, Mexico G.G. Michelson Federated Department Stores Former Member of the Board 151 West 34th Street of Directors, Federated New York, NY 10001 Department Stores E.F. Murphy General Electric Company Vice Chairman of the Board 3135 Easton Turnpike and Executive Officer, Fairfield, CT 06431 General Electric Company S. Nunn King & Spalding Partner, King & Spalding 191 Peachtree Street, N.E. Atlanta, GA 30303 NAME PRESENT PRESENT - ---- BUSINESS PRINCIPAL ADDRESS OCCUPATION ------- ---------- J.D. Opie General Electric Company Vice Chairman of the Board 3135 Easton Turnpike and Executive Officer, Fairfield, CT 06431 General Electric Company R.S. Penske Penske Corporation Chairman of the Board and 13400 Outer Drive, West President, Penske Detroit, MI 48239-4001 Corporation B.S. Prelskel Suite 3125 Former Senior Vice 60 East 42nd Street President, Motion Picture New York, NY 10165 Association of America F.H.T. Rhodes Cornell University President Emeritus, 3104 Snee Building Cornell University Ithaca, NY 14853 A.C. Sigler Champion International Retired Chairman of the Corporation Board, CEO and former 1 Champion Plaza Director, Champion Stamford, CT 06921 International Corporation D.A. Warner III J.P. Morgan & Co., Inc. and Chairman of the Board, Guaranty Trust Co. President, and Chief 60 Wall Street Executive Officer, J.P. New York, NY 10260 Morgan & Co. Incorporated and Morgan Guaranty Trust Company J.F. Welch, Jr. General Electric Company Chairman of the Board and 3135 Easton Turnpike Chief Executive Officer, Fairfield, CT 06431 General Electric Company Executive Officers - ------------------ J.F. Welch, Jr. General Electric Company Chairman of the Board and 3135 Easton Turnpike Chief Executive Officer Fairfield, CT 06431 P. Fresco General Electric Company Vice Chairman of the Board (U.S.A.) and Executive Officer 3 Shortlands, Hammersmith London, W6 SBX, England P.D. Ameen General Electric Company Vice President and 3135 Easton Turnpike Comptroller Fairfield, CT 06431 J.R. Bunt General Electric Company Vice President and 3135 Easton Turnpike Treasurer Fairfield, CT 06431 D.L. Calhoun General Electric Company Senior Vice President - Nela Park GE Lighting Cleveland, OH 44122 NAME PRESENT PRESENT - ---- BUSINESS PRINCIPAL ADDRESS OCCUPATION ------- ---------- W.J. Conaty General Electric Company Senior Vice President - 3135 Easton Turnpike Human Resources Fairfield, CT 06431 D.M. Cote General Electric Company Senior Vice President - GE 3135 Easton Turnpike Appliances Fairfield, CT 06431 D.D. Dammerman General Electric Company Senior Vice President - 3135 Easton Turnpike Finance Fairfield, CT 06431 L.S. Edelheit General Electric Company Senior Vice President - P.O. Box 8 Corporate Research and Schenectady, NY 12301 Development B.W. Heineman, Jr. General Electric Company Senior Vice President - 3135 Easton Turnpike General Counsel and Fairfield, CT 06431 Secretary J.R. Immelt General Electric Company Senior Vice President - GE P.O. Box 414 Medical Systems Milwaukee, WI 53201 W.J. Lansing General Electric Company Vice President - Corporate 3135 Easton Turnpike Business Development Fairfield, CT 06431 W.J. McNerney, Jr. General Electric Company Senior Vice President - GE 1 Neumann Way Aircraft Engines Cincinnati, OH 05215 E.F. Murphy General Electric Company Vice Chairman of the Board 3135 Easton Turnpike and Executive Officer Fairfield, CT 06431 R.L. Nardelli General Electric Company Senior Vice President - GE 1 River Road Power Systems Schenectady, NY 12345 R.W. Nelson General Electric Company Vice President - Corporate 3135 Easton Turnpike Financial Planning and Fairfield, CT 06431 Analysis J.D. Opie General Electric Company Vice Chairman of the Board 3135 Easton Turnpike and Executive Officer Fairfield, CT 06431 G.M. Reiner General Electric Company Senior Vice President - 3135 Easton Turnpike Chief Information Fairfield, CT 06431 Officer G.L. Rogers General Electric Company Senior Vice President - GE 1 Plastics Avenue Plastics Pittsfield, MA 01201 NAME PRESENT PRESENT - ---- BUSINESS PRINCIPAL ADDRESS OCCUPATION ------- ---------- J.W. Rogers General Electric Company Vice President - GE Motors 1635 Broadway Fort Wayne, IN 46801 L.G. Trotter General Electric Company Vice President - GE 41 Woodward Avenue Electrical Distribution and Plainville, CT 06062 Control
SCHEDULE IV TO SCHEDULE 13D --------------------------- United States ex rel. Taxpayers Against Fraud and Chester L. Walsh v. General Electric Company - ----------------------------------------------------------------------------- 1. On November 15, 1990, an action under the federal False Claims Act 31 U.S.C. Sections 3729-32, was filed under seal against GE in the United States District Court for the Southern District of Ohio. The qui tam action, brought by an organization called Taxpayers Against Fraud and an employee of GE's Aircraft Engines division ("GEAE"), alleged that GEAE, in connection with its sales of F110 aircraft engines and support equipment to Israel, made false statements to the Israeli Ministry of Defense ("MoD"), causing MoD to submit false claims to the United States Department of Defense under the Foreign Military Sales Program. Senior GE management became aware of possible misconduct in GEAE's Israeli F110 program in December 1990. Before learning of the sealed qui tam suit, GE immediately made a voluntary disclosure to the Departments of Defense and Justice, promised full cooperation and restitution, and began an internal investigation. In August 1991, the federal court action was unsealed, and the Department of Justice intervened and took over responsibility for the case. On July 22, 1992, after GE had completed its investigation and made a complete factual disclosure to the U.S. government as part of settlement discussions, the United States and GE executed a settlement agreement and filed a stipulation dismissing the civil action. Without admitting or denying the allegations in the complaint, GE agreed to pay $59.5 million in full settlement of the civil fraud claims. Also on July 22, 1992, in connection with the same matter, the United States filed a four count information charging GE with violations of 18 U.S.C. Section 287 (submitting false claims against the United States), 18 U.S.C. Section 1957 (engaging in monetary transactions in criminally derived property), and 15 U.S.C. Sections 78m(b)(2)(A) and 78ff(a) (inaccurate books and records), and 18 U.S.C. Section 371 (conspiracy to defraud the United States and to commit offenses against the United States). The same day, GE and the United States entered a plea agreement in which GE agreed to waive indictment, plead guilty to the information, and pay a fine of $9.5 million. GE was that day sentenced by the federal court in accordance with the plea agreement. 2. Her Majesty's Inspectorate of Pollution v. IGE Medical Systems Limited (St. Albans Magistrates Court, St. Albans, Hertsfordshire, England, Case No. 04/00320181). EXHIBIT INDEX Exhibit No. - ----------- Exhibit 1 Purchase Agreement by and among the Company and GE Capital, dated as of December 24, 1997. Exhibit 2 Stockholders Agreement by and among the Company, GE Capital and certain existing stockholders of the Company, dated as of December 24, 1997. Exhibit 3 Registration Rights Agreement by and among the Company and GE Capital, dated as of December 24, 1997. Exhibit 4 Form of Certificate of Designation, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof for the Series D Convertible Preferred Stock. Exhibit 5 Warrant, dated as of December 24, 1997, to purchase shares of Common Stock of the Company. Exhibit 6 Joint Filing Agreement by and among GE, GECS and GE Capital, dated December 30, 1997. EX-1 2 PURCHASE AGREEMENT - -------------------------------------------------------------------------------- PURCHASE AGREEMENT dated as of December 24, 1997 by and between MARKETING SERVICES GROUP, INC. and GENERAL ELECTRIC CAPITAL CORPORATION - -------------------------------------------------------------------------------- TABLE OF CONTENTS PURCHASE AGREEMENT Section Page I. DEFINITIONS.................................................... 1 II. THE PURCHASE OF CONVERTIBLE PREFERRED STOCK................... 11 2.1. Authorization of Issue............................ 11 2.2. Purchase of Convertible Preferred Stock and Warrants...................................... 11 2.3. Closing........................................... 12 2.4. Use of Proceeds................................... 12 2.5. Tax Allocation.................................... 12 III. PURCHASER'S REPRESENTATIONS AND COVENANTS.................... 13 3.1. Investment Intention.............................. 13 3.2. Accredited Investor............................... 13 3.3. Corporate Existence............................... 13 3.4. Corporate Power; Authorization; Enforceable Obligations........................... 13 3.5. Purchaser Covenants............................... 14 IV. COMPANY'S REPRESENTATIONS AND WARRANTIES...................... 14 4.1. Authorized and Outstanding Shares of Capital Stock..................................... 14 4.2. Authorization and Issuance of Convertible Preferred Stock................................... 15 4.3. Securities Laws................................... 15 4.4. Corporate Existence; Compliance with Law.......... 16 4.5. Subsidiaries...................................... 16 4.6. Corporate Power; Authorization; Enforceable Obligations........................... 17 4.7. Financial Statements.............................. 18 4.8. Ownership of Property............................. 18 4.9. Material Contracts; Indebtedness.................. 19 4.10. Environmental Protection.......................... 20 4.11. Labor Matters..................................... 21 4.12. Other Ventures.................................... 22 4.13. Taxes ............................................ 22 4.14. No Litigation..................................... 23 4.15. Brokers........................................... 23 4.16. Employment and Labor Agreements................... 23 4.17. Patents, Trademarks, Copyrights and Licenses.......................................... 23 4.18. No Material Adverse Effect........................ 24 i Section Page 4.19. ERISA ............................................ 24 4.20. SEC Documents..................................... 27 4.21. Ordinary Course of Business....................... 27 4.22. Insurance......................................... 27 4.23. Accounts Receivable............................... 28 4.24. Minute Books...................................... 28 4.25. Year 2000 Systems................................. 28 4.26. Full Disclosure................................... 28 V. COVENANTS...................................................... 28 5.1. Affirmative and Financial Covenants............... 28 (a) Books and Records............................ 29 (b) Financial and Business Information........... 29 (c) Communication with Accountants............... 31 (d) Tax Compliance............................... 31 (e) Insurance.................................... 31 (f) Employee Plans............................... 32 (g) Compliance with Law.......................... 33 (h) Financial Covenants.......................... 33 (i) Maintenance of Existence and Conduct of Business.................................. 33 (j) Access....................................... 34 (k) Excess Cash.................................. 34 (l) Exchange of Stock Certificates............... 34 (m) Lost, Stolen, Destroyed or Mutilated Stock Certificates........................... 34 (n) NASDAQ....................................... 35 5.2. Negative Covenants................................ 35 (a) Permitted Acquisitions or Investments.................................. 35 (b) Sales of Assets; Liquidation................. 35 (c) Agreements................................... 36 (d) Employee Loans............................... 36 (e) Capital Stock................................ 36 (f) Transactions with Affiliates................. 36 (g) Indebtedness................................. 37 (h) Restricted Payments.......................... 37 (i) Mergers and Subsidiaries..................... 37 (j) Management Compensation...................... 37 (k) Amendments to Certificate of Incorporation and By-Laws.................... 38 (l) Capital Expenditures......................... 38 5.3. Remedies for Breach of Covenants.................. 38 5.4. Certain Tax Matters............................... 38 5.5. Status of Dividends............................... 40 ii Section Page VI. CONDITIONS PRECEDENT........................................ 41 6.1. Conditions Precedent.............................. 41 6.2. Additional Conditions to Closing.................. 42 VII. SECURITIES LAW MATTERS.......................................43 7.1. Legends........................................... 43 VIII. INDEMNIFICATION............................................. 43 IX. EXPENSES.................................................... 44 X. MISCELLANEOUS............................................... 44 10.1. Notices.......................................... 44 10.2. Binding Effect; Benefits......................... 45 10.3. Amendment........................................ 45 10.4. Successors and Assigns; Assignability............ 46 10.5. Remedies......................................... 46 10.6. Section and Other Headings....................... 47 10.7. Severability..................................... 47 10.8. Counterparts..................................... 47 10.9. Publicity........................................ 47 10.10. Governing Law.................................... 47 iii Schedules Schedule 4.1 - Stock and Warrants Schedule 4.5 - Subsidiaries Schedule 4.7 - Financial Statements; Other Obligations Schedule 4.8 - Properties Schedule 4.9 - Material Contracts and Indebtedness Schedule 4.10 - Environmental Matters Schedule 4.12 - Other Ventures Schedule 4.13 - Taxes Schedule 4.14 - Litigation Schedule 4.15 - Brokers Schedule 4.16 - Employment Contracts Schedule 4.17 - Patents, Trademarks, Etc. Schedule 4.18 - Material Adverse Effect Schedule 4.19 - ERISA Schedule 4.22 - Insurance Exhibits Exhibit A Certificate of Designation - Convertible Preferred Stock Exhibit B Registration Rights Agreement Exhibit C Stockholders Agreement Exhibit D Form of Warrant Exhibit E Opinion of Company Counsel iv PURCHASE AGREEMENT ------------------ PURCHASE AGREEMENT, dated as of December 24, 1997, between Marketing Services Group, Inc., a Nevada corporation having an office at 333 Seventh Avenue, 20th Floor, New York, New York 10001 ("Company"), and General Electric Capital Corporation, a New York corporation having an office at 260 Long Ridge Road, Stamford, Connecticut 06927 ("GE Capital" or "Purchaser"). W I T N E S S E T H : ------------------- WHEREAS, Company has agreed to issue and sell to Purchaser, and Purchaser has agreed to purchase from Company, upon the terms and conditions hereinafter provided, 50,000 shares of Company's Series D Convertible Preferred Stock, $0.01 par value per share, the terms, preferences and limitations of which are set forth in Exhibit A hereto (the "Convertible Preferred Stock"), and Warrants to purchase up to 10,670,000 shares of Common Stock of Company (the "Warrants"); NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, it is agreed as follows: I. DEFINITIONS ----------- "Affiliate" shall mean, with respect to any Person, (i) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, 5% or more of the Stock having ordinary voting power in the election of directors of such Person, (ii) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person, (iii) each of such Person's officers, directors, joint venturers and partners, (iv) any trust or beneficiary of a trust of which such Person is the sole trustee or (v) any lineal descendants, ancestors, spouse or former spouses (as part of a marital dissolution) of such Person (or any trust for the benefit of such Person). For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. GE Capital and its Affiliates shall not be deemed Affiliates of Company. "Balance Sheet" shall have the meaning set forth in Section 4.7(a) hereof. "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Capital Expenditures" shall mean all payments for any fixed assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of more than one year and which are required to be capitalized under GAAP. "Capital Lease" shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on a balance sheet of such Person or otherwise be disclosed as a capital lease in a note to such balance sheet, other than, in the case of Company or a Subsidiary of Company, any such lease under which Company or such Subsidiary is the lessor. "Capital Lease Obligation" shall mean, with respect to any Capital Lease, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed in a note to such balance sheet. "Cash Equivalents" shall mean (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof maturing within one year from the date of acquisition thereof; (ii) commercial paper maturing no more than one year from the date of creation thereof and at the time of their acquisition having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; and (iii) certificates of deposit, maturing not more than one year from the date of creation thereof, issued by commercial banks incorporated under the laws of the United States of America, each having combined capital, surplus and undivided profits of not less than $200,000,000 and having a rating of "A" or better by a nationally recognized rating agency. 2 "Certificate of Designation" shall mean the Certificate of Designation setting forth the rights and preferences of the Convertible Preferred Stock attached as Exhibit A hereto. "Charges" shall mean all federal, state, county, city, municipal, local, foreign or other governmental (including, without limitation, PBGC) taxes at the time due and payable, levies, assessments, charges, liens, claims or encumbrances upon or relating to (i) Company's or any of its Subsidiaries' employees, payroll, income or gross receipts, (ii) Company's or any of its Subsidiaries' ownership or use of any of its assets, or (iii) any other aspect of Company's or any of the Subsidiaries' business. "Closing" shall have the meaning set forth in Section 2.3 hereof. "Closing Date" shall have the meaning set forth in Section 2.3 hereof. "COBRA" shall have the meaning set forth in Section 4.19(m) hereof. "Common Stock" shall mean the common stock, $.01 par value per share, of Company. "Company Certificate of Incorporation" shall mean the Certificate of Incorporation of Company, as amended. "Compensation" shall mean, with respect to any Person, all payments and accruals commonly considered to be compensation, including, without limitation, all wages, salary, deferred payment arrangements, bonus payments and accruals, profit sharing arrangements, payments in respect of stock option or phantom stock option or similar arrangements, stock appreciation rights or similar rights, incentive payments, pension or employment benefit contributions or similar payments, made to or accrued for the account of such Person or otherwise for the direct or indirect benefit of such Person. "Convertible Preferred Stock" shall have the meaning set forth in the recitals hereto. "Core Business" shall mean marketing information services, including but not limited to databases, direct 3 marketing, telemarketing, internet marketing and primary and secondary research. "Default" shall mean any event which, with the passage of time or notice or both, would, unless cured or waived, become an Event of Default. "EBITDA" shall mean the consolidated operating income (before extraordinary items, interest, taxes, depreciation and amortization) of such Person and its consolidated Subsidiaries determined in accordance with GAAP. "Environmental Laws" shall mean all federal, state and local laws, statutes, ordinances and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any judicial or administrative interpretation thereof, including, without limitation, any applicable judicial or administrative order, consent decree or judgment, relative to the applicable Real Estate, relating to the regulation and protection of human health, safety, the environment and natural resources (including, without limitation, ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include but are not limited to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss. 9601 et seq.) ("CERCLA"); the Hazardous Material Transportation Act, as amended (49 U.S.C. ss. 1801 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. ss. 136 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. ss. 6901 et seq.) ("RCRA"); the Toxic Substance Control Act, as amended (15 U.S.C. ss. 2601 et seq.); the Clean Air Act, as amended (42 U.S.C. ss. 740 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. ss. 1251 et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. ss. 651 et seq.) ("OSHA"); and the Safe Drinking Water Act, as amended (42 U.S.C. ss. 300f et seq.), and any and all regulations promulgated thereunder, and all analogous state and local counterparts or equivalents and any transfer of ownership notification or approval statutes. "Environmental Liabilities and Costs" shall mean all liabilities, obligations, responsibilities, remedial actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including, without limitation, all fees, disbursements and expenses of 4 counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim, suit, action or demand by any person or entity, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law (including, without limitation, any thereof arising under any Environmental Law, permit, order or agreement with any Governmental Authority) and which relate to any health or safety condition regulated under any Environmental Law or in connection with any other environmental matter or Spill or the presence of a hazardous substance or threatened Spill of any Hazardous Substance. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time and any regulations promulgated thereunder. "ERISA Affiliate" shall mean, with respect to Company, any trade or business (whether or not incorporated) under common control with Company and which, together with Company, are treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the IRC, excluding Purchaser and each other person which would not be an ERISA Affiliate if Purchaser did not own any issued and outstanding shares of Stock of Company. "Event of Default" shall mean the occurrence of any breach of any representation or warranty in any material respect, or of any covenant or agreement of Company under this Agreement, which in the case of the covenants set forth in Section 5.1 (other than Sections (f)(iii) and (iv) and (h)) of this Agreement remain uncured for a period of ten days after receipt by Company of written notice thereof by the Required Holders. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and all rules and regulations promulgated thereunder. "Financials" shall mean the financial statements referred to in Section 4.7(a) hereof. "Fiscal Year" shall mean the twelve month period ending June 30. Subsequent changes of the fiscal year of Company shall not change the term "Fiscal Year," unless the Required Holders shall consent in writing to such changes. 5 "Fixed Charges" shall mean, with respect to Company for any period, the aggregate of all consolidated interest expenses paid or accrued, plus scheduled payments of principal with respect to Indebtedness (other than Indebtedness permitted pursuant to Section 5.2(g)(iii) hereof and, during the Fiscal Year ending June 30, 1998, repayments of Indebtedness owed to Stephen Dunn and to the former shareholders of Metro Services Group, Inc. and other earnout payments associated with past or future acquisitions), plus scheduled payments of dividends on and scheduled mandatory redemption payments (which have not been waived) on Company's outstanding preferred stock other than the Convertible Preferred Stock, in all cases during such period by Company and its Subsidiaries. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time, except that for purposes of the financial covenants contained in Section 5.1(h) hereof, GAAP shall be as in effect on the date of the most recent Financials and shall be applied in a manner consistent therewith. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such Person guaranteeing any Indebtedness, lease, dividend, or other obligation ("primary obligations") of any other Person (the "primary obligor") in any manner including, without limitation, any obligation or arrangement of such Person (a) to purchase or repurchase any such primary obligation, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) to indemnify the owner of such primary obligation against loss in respect thereof. "Indebtedness" of any Person shall mean (i) all indebtedness of such Person for borrowed money or for the 6 deferred purchase price of property or services (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured, but not including obligations to trade creditors incurred in the ordinary course of business), (ii) all obligations evidenced by notes, bonds, debentures or similar instruments, (iii) all indebtedness created or arising under any conditional sale or other title retention agreements with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iv) all Capital Lease Obligations, (v) all Guaranteed Indebtedness, (vi) all Indebtedness referred to in clause (i), (ii), (iii), (iv) or (v) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness and (vii) all liabilities under Title IV of ERISA. "IRC" shall mean the Internal Revenue Code of 1986, as amended, and any successor thereto. "IRS" shall mean the Internal Revenue Service, or any successor thereto. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest as to assets owned by the relevant Person under the Uniform Commercial Code or comparable law of any jurisdiction). "Material Adverse Effect" shall mean a material adverse effect on the business, assets, operations, prospects or financial or other condition of Company and its Subsidiaries, taken as a whole. 7 "Material Contracts" means (i) all of Company's and its Subsidiaries' contracts, agreements, leases or other instruments to which Company or any of its Subsidiaries is a party or by which Company, its Subsidiaries or its properties are bound, which involve payments by or to Company or its Subsidiaries of more than $100,000 or which extend for a term of more than a year from the date hereof, (ii) all of Company's and its Subsidiaries' loan agreements, bank lines of credit agreements, indentures, mortgages, deeds of trust, pledge and security agreements, factoring agreements, conditional sales contracts, letters of credit or other debt instruments, (iii) all material operating or capital leases for equipment to which Company or any of its Subsidiaries is a party, (iv) all non-competition and similar agreements to which Company is a party, (v) all contracts for the employment of any officer or employee, (vi) all consulting agreements, (vii) any guarantees by the Company or any of its Subsidiaries, (viii) all distributor and sales agency agreements and (ix) all other material contracts not made in the ordinary course of business. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, and to which Company, any of its Subsidiaries or any ERISA Affiliate is making, is obligated to make, has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" shall have the meaning set forth in Section 4.19(a) hereof. "Permitted Indebtedness" means, with respect to Company, (i) taxes or assessments or other governmental charges or levies, either not yet due and payable or to the extent that nonpayment thereof is permitted by the terms of this Agreement; (ii) obligations under workmen's compensation, unemployment insurance, social security or public liability laws or similar legislation; (iii) bids, tenders, contracts (other than contracts for the payment of money) or leases to which Company or any of its Subsidiaries is a party as lessee made in the ordinary course of business; (iv) public or statutory obligations of Company or any of its Subsidiaries; (v) all deferred taxes and (vi) all unfunded pension fund and other employee benefit plan 8 obligations and liabilities but only to the extent permitted to remain unfunded under applicable law. "Person" shall mean any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Plan" shall have the meaning set forth in Section 4.19(a) hereof. "Registration Rights Agreement" shall mean the Registration Rights Agreement by and between Company and Purchaser, substantially in the form attached hereto as Exhibit B, as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "Required Holders" shall mean Persons who hold at least a majority of the outstanding Convertible Preferred Stock. "Restricted Payment" shall mean (i) the declaration of any dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of Company's Stock or (ii) any payment on account of the purchase, redemption or other retirement of Company's Stock or any other payment or distribution made in respect of any Stock of Company, either directly or indirectly. "Retiree Welfare Plan" shall refer to any Welfare Plan providing for continuing coverage or benefits for any participant or any beneficiary of a participant after such participant's termination of employment, other than continuation coverage provided pursuant to Section 4980B of the IRC and at the sole expense of the participant or the beneficiary of the participant. "SEC" shall mean the U.S. Securities and Exchange Commission, or any successor thereto. 9 "Securities Act" shall mean the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder. "Spill" shall have the meaning set forth in Section 4.10. "Stock" shall mean all shares, options, warrants, general or limited partnership interests, limited liability company membership interest, participations or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including, without limitation, common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act). "Stockholders Agreement" shall mean the Stockholders Agreement by and among Company, Purchaser and each of the other stockholders party thereto, substantially in the form attached hereto as Exhibit C, as such agreement may be amended, supplemented or otherwise modified from time to time. "Subsidiary" shall mean, with respect to any Person, (a) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, and (b) any partnership or other entity in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than 50%. "Tangible Net Worth" shall mean, with respect to any Person, at any date, the excess of total assets of such Person at such date over the total liabilities of such Person at such date, each determined on a consolidated basis in accordance with GAAP but excluding from total assets all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses and similar intangible items). 10 "Transaction Documents" shall mean this Agreement, the Certificate of Designation, the Stockholders Agreement, the Registration Rights Agreement and the Warrants. "Warrants" shall have the meaning set forth in the recitals hereto. "Welfare Plan" shall mean any welfare plan, as defined in Section 3(1) of ERISA, which is maintained or contributed to by Company, any of its Subsidiaries or any ERISA Affiliate. References to this "Agreement" shall mean this Purchase Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative. Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP consistently applied. That certain terms or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules hereto, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. II. THE PURCHASE OF CONVERTIBLE PREFERRED STOCK ------------------------------------------- 2.1. Authorization of Issue. Prior to the Closing, Company ---------------------- shall have duly authorized the issuance and sale to Purchaser of the number of shares of Convertible Preferred Stock set forth in Section 2.2 below and the Warrants. 2.2. Purchase of Convertible Preferred Stock and Warrants. ---------------------------------------------------- Subject to the terms and conditions set forth in 11 this Agreement, on the Closing Date, GE Capital agrees to subscribe for and purchase from Company, and Company agrees to issue and sell to GE Capital, (i) an aggregate of 50,000 shares of Convertible Preferred Stock containing the terms, preferences and limitations set forth in Exhibit A to this Agreement, and (ii) an aggregate of 10,670,000 Warrants containing the terms set forth herein and in Exhibit D to this Agreement. The aggregate purchase price for the shares of Convertible Preferred Stock and Warrants purchased on the Closing Date shall be $15,000,000, payable in full on the Closing Date. 2.3. Closing. The closing of the purchase and sale of the ------- Convertible Preferred Stock and the Warrants (the "Closing") shall take place within five Business Days after the satisfaction or waiver of the conditions set forth in Article VI hereof or such date and time as shall be mutually agreed to by the parties hereto (the "Closing Date") at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York, or such other place as shall be mutually agreed to by the parties hereto. On the Closing Date, Company will deliver to Purchaser certificates representing the Convertible Preferred Stock and Warrants purchased on such date registered in such names and in such denominations as Purchaser requests against delivery by Purchaser of the purchase price therefor by wire transfer of funds to the account of Company. 2.4. Use of Proceeds. Company shall use the net proceeds of --------------- the sale of the Convertible Preferred Stock and the Warrants to finance acquisitions approved by Purchaser, up to $1,000,000 for computer systems upgrades and up to $2,000,000 for earnout payments or repayment of existing Indebtedness to Senior Management employees. 2.5. Tax Allocation. Company and Purchaser hereby acknowledge -------------- and agree that the Warrants are part of an investment unit, which includes the Convertible Preferred Stock. Notwithstanding anything to the contrary contained herein, Company and Purchaser hereby further acknowledge and agree that for United States federal, state and local income tax purposes the aggregate purchase price shall be allocated among the Warrants and the Convertible Preferred Stock as follows: $4,200,000 and $10,800,000, respectively. Company 12 and Purchaser agree to use the foregoing allocation for all income tax purposes with respect to this transaction. III. PURCHASER'S REPRESENTATIONS AND COVENANTS ----------------------------------------- Purchaser makes the following representations and warranties to Company, each and all of which shall survive the execution and delivery of this Agreement and the Closing hereunder: 3.1. Investment Intention. Purchaser is purchasing the -------------------- Convertible Preferred Stock and Warrants for its own account, for investment purposes and not with a view to the distribution thereof. Purchaser will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of any of the Convertible Preferred Stock or Warrants (or the Common Stock issuable on conversion or exercise thereof) (or solicit any offers to buy, purchase, or otherwise acquire any of the Convertible Preferred Stock or Warrants or such Common Stock), except in compliance with the Securities Act. 3.2. Accredited Investor. Purchaser is an "accredited ------------------- investor" (as that term is defined in Rule 501 of Regulation D under the Securities Act) and by reason of its business and financial experience, it has such knowledge, sophistication and experience in business and financial matters as to be capable of evaluating the merits and risks of the prospective investment, is able to bear the economic risk of such investment and is able to afford a complete loss of such investment. 3.3. Corporate Existence. Purchaser is a corporation duly ------------------- organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. 3.4. Corporate Power; Authorization; Enforceable Obligations. ------------------------------------------------------- The execution, delivery and performance by Purchaser of this Agreement and the other Transaction Documents to be executed by it: (i) are within Purchaser's corporate power; (ii) have been duly authorized by all necessary corporate action; (iii) are not in contravention of any provision of Purchaser's certificate of incorporation or by-laws; and (iv) will not violate any law or regulation, or any order or decree of any court or governmental instrumentality binding on Purchaser. This Agreement and the other Transaction Documents to which Purchaser is a 13 party have each been duly executed and delivered by Purchaser and constitute the legal, valid and binding obligations of Purchaser, enforceable against it in accordance with their respective terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). 3.5. Purchaser Covenants. GE Capital shall not purchase or ------------------- otherwise acquire, unless approved by the affirmative vote of a majority of the Board of Directors, additional equity securities of Company (other than pursuant to conversion or exercise of the Convertible Preferred Stock or Warrants, or pursuant to this Agreement) to the extent that, upon consummation of such purchase or acquisition, GE Capital would own in excess of 49.99% of the outstanding Common Stock on a fully diluted basis. For purposes of the immediately preceding sentence, the term "fully diluted" shall mean with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock outstanding at such date and all shares of Common Stock issuable upon the conversion of the Convertible Preferred Stock outstanding on such date, and other options or warrants to purchase, or securities convertible into, shares of Common Stock outstanding on such date which would be deemed outstanding in accordance with GAAP for purposes of determining book value or net income per share. IV. COMPANY'S REPRESENTATIONS AND WARRANTIES ---------------------------------------- Company makes the following representations and warranties to Purchaser, each and all of which shall survive the execution and delivery of this Agreement and the Closing hereunder: 4.1. Authorized and Outstanding Shares of Capital Stock. After -------------------------------------------------- giving effect to the Closing, the authorized capital stock of Company consists of 36,250,000 shares of Common Stock, $.01 par value per share, of which 12,722,871 shares are issued and outstanding, and 50,000 shares of Convertible Preferred Stock, $.01 par value per share, of which 50,000 shares will be issued and outstanding. All of such issued and outstanding shares, including, without 14 limitation, the Convertible Preferred Stock, are validly issued, fully paid and non-assessable. Except as set forth on Schedule 4.1(a), (i) there is no existing option, warrant, call, commitment or other agreement to which Company is a party requiring, and there are no convertible securities of Company outstanding which upon conversion would require, the issuance of any additional shares of Stock of Company or other securities convertible into shares of equity securities of Company, other than the Convertible Preferred Stock and the Warrants, and (ii) there are no agreements to which Company is a party or, to the knowledge of Company, to which any stockholder or warrant holder of Company is a party, with respect to the voting or transfer of the Stock of Company or with respect to any other aspect of Company's affairs, other than the Stockholders Agreement. Except as set forth on Schedule 4.1(a), there are no stockholders' preemptive rights or rights of first refusal or other similar rights with respect to the issuance of Stock by Company, other than pursuant to the Transaction Documents. True and correct copies of the certificate of incorporation and by-laws of Company have been delivered to Purchaser. 4.2. Authorization and Issuance of Convertible Preferred Stock --------------------------------------------------------- and Warrants. The issuance of the Convertible Preferred Stock and Warrants have - ------------ been duly authorized by all necessary corporate action on the part of Company and, upon delivery to Purchaser of certificates therefor against payment in accordance with the terms hereof, the Convertible Preferred Stock will have been validly issued and fully paid and non-assessable, free and clear of all pledges, liens, encumbrances and preemptive rights, except as provided in the Stockholders Agreement. The issuance of shares of Common Stock upon conversion of the Convertible Preferred Stock and upon exercise of the Warrants has been duly authorized by all necessary corporate action on the part of Company and, when issued upon conversion of the Convertible Preferred Stock, or upon exercise of the Warrants, such Common Stock will have been validly issued and fully paid and non-assessable. Company has duly reserved 15,085,612 shares of Common Stock for issuance pursuant to the terms of the Convertible Preferred Stock and the Warrants. 4.3. Securities Laws. In reliance on the investment --------------- representations contained in Section 3.1, the offer, issuance, sale and delivery of the Convertible Preferred Stock and the Warrants, as provided in this 15 Agreement, are exempt from the registration requirements of the Securities Act and all applicable state securities laws, and are otherwise in compliance with such laws. Neither Company nor any Person acting on its behalf has taken or will take any action (including, without limitation, any offering of any securities of Company under circumstances which would require the integration of such offering with the offering of the Convertible Preferred Stock and the Warrants under the Securities Act and the rules and regulations of the SEC thereunder) which might subject the offering, issuance or sale of the Convertible Preferred Stock and the Warrants to the registration requirements of Section 5 of the Securities Act. 4.4. Corporate Existence; Compliance with Law. Company and ---------------------------------------- each of its Subsidiaries, (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada in the case of Company and as set forth on Schedule 4.5 in the case of its Subsidiaries; (ii) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification (except for jurisdictions in which such failure to so qualify or to be in good standing would not have a Material Adverse Effect); (iii) has the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now being conducted; (iv) has, or has applied for, all material licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all material notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (v) is in compliance with its certificate or articles of incorporation and by-laws; and (vi) is in compliance with all applicable provisions of law, including, without limitation, the Telephone Consumer Protection Act of 1991 and the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 and the regulations of the Federal Trade Commission issued thereunder, except for such non-compliance which would not have a Material Adverse Effect. 4.5. Subsidiaries. There currently exist no Subsidiaries of ------------ Company other than as set forth on Schedule 4.5 hereto, which sets forth such Subsidiaries, together with their respective jurisdictions of organization, and the 16 authorized and outstanding capital Stock of each such Subsidiary, by class and number and percentage of each class owned by Company or a Subsidiary of Company or any other Person. There are no options, warrants, rights to purchase or similar rights covering capital Stock for any such Subsidiary. 4.6. Corporate Power; Authorization; Enforceable Obligations. ------------------------------------------------------- The execution, delivery and performance by Company of this Agreement, the other Transaction Documents to which it is a party and all instruments and documents to be delivered by Company, the issuance and sale of the Convertible Preferred Stock and the Warrants and the consummation of the other transactions contemplated by any of the foregoing: (i) are within Company's corporate power and authority; (ii) have been duly authorized by all necessary or proper corporate action; (iii) are not in contravention of any provision of Company's certificate of incorporation or by-laws; (iv) will not violate any law or regulation, or any order or decree of any court or governmental instrumentality; (v) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Company or any of its Subsidiaries is a party or by which Company, any of its Subsidiaries or any of their property is bound; (vi) will not result in the creation or imposition of any Lien upon any of the property of Company or any of its Subsidiaries; and (vii) do not require the consent or approval of, or any filing with, any Governmental Authority or any other Person (except for (A) the filing of an amendment to Company's certificate of incorporation to authorize the Convertible Preferred Stock, substantially in the form of the Certificate of Designation, (B) those filings required by the Registration Rights Agreement, (C) to the extent previously obtained or made) and (D) filing of a listing application with NASDAQ. At or prior to the Closing Date, each of this Agreement and the other Transaction Documents shall have been duly executed and delivered by Company and each shall then constitute a legal, valid and binding obligation of Company, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a 17 proceeding at law or in equity), and the Certificate of Designation shall have been duly filed with the Secretary of State of the State of Nevada. 4.7. Financial Statements. (a) The audited consolidated -------------------- balance sheet of Company as at June 30, 1997, and the related consolidated statements of income, retained earnings and cash flows for the year then ended, with the opinion thereon of Coopers & Lybrand L.L.P. and the unaudited balance sheet of Company as at September 30, 1997 (the "Balance Sheet") and the related unaudited statements of income, retained earnings and cash flows for the three months then ended, copies of which have previously been delivered to Purchaser, have been, except as noted therein, prepared in conformity with GAAP consistently applied throughout the periods involved and present fairly in all material respects the consolidated financial position of Company as at the dates thereof, and the consolidated results of its operations and cash flows for the periods then ended, subject in the case of the interim statements to normal year end audit adjustments. (b) Except as set forth on Schedule 4.7, neither Company nor any of its Subsidiaries has any material obligations, contingent or otherwise, including, without limitation, liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the Balance Sheet, other than those incurred since September 30, 1997, in the ordinary course of business. (c) Except as set forth on Schedule 4.7, no dividends or other distributions have been declared, paid or made upon any shares of capital Stock of Company, nor have any shares of capital Stock of Company been redeemed, retired, purchased or otherwise acquired for value by Company since September 30, 1997. 4.8. Ownership of Property. (a) Neither Company nor any of its --------------------- Subsidiaries owns any real estate. Each of Company and its Subsidiaries has valid and marketable leasehold interests in the leases described in Schedule 4.8 hereto, and, except as set forth on Schedule 4.8, good and marketable title to, or valid leasehold interests in, all of its other properties and assets free and clear of all Liens. (b) All real property leased by Company and its Subsidiaries is set forth on Schedule 4.8. Each of such 18 leases is valid and enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity)) and is in full force and effect. Company has delivered to Purchaser true and complete copies of each of such leases set forth on Schedule 4.8 and all documents affecting the rights or obligations of Company or any of its Subsidiaries, including, without limitation, any non-disturbance and recognition agreements, subordination agreements, attornment agreements and agreements regarding the term or rental of any of the leases. Except as set forth on Schedule 4.8, none of Company, any of its Subsidiaries nor, to its knowledge, any other party to any such lease is in default of its obligations thereunder or has delivered or received any notice of default under any such lease, nor has any event occurred which, with the giving of notice, the passage of time or both, would constitute a default under any such lease. (c) Except as disclosed on Schedule 4.8, neither Company nor any of its Subsidiaries is obligated under or a party to, any option, right of first refusal or any other contractual right to purchase, acquire, sell, assign or dispose of any real property owned or leased by Company or such Subsidiary. 4.9. Material Contracts; Indebtedness. Schedule 4.9 contains a -------------------------------- true, correct and complete list and description of all Material Contracts. Each Material Contract is a valid and binding agreement of Company or its Subsidiaries (as the case may be) enforceable against Company or such Subsidiary in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity)), and neither Company nor any of its Subsidiaries has any knowledge that any Material Contract is not a valid and binding agreement against the other parties thereto. Company and each of its Subsidiaries has fulfilled all 19 obligations required pursuant to the Material Contracts to have been performed by Company or such Subsidiary on its part. Except as set forth in Schedule 4.9, neither Company nor any of its Subsidiaries is in default or breach, nor to Company's or such Subsidiary's knowledge is any third party in default or breach, under or with respect to any Material Contract. Except as set forth on Schedule 4.9, neither Company nor any of its Subsidiaries has any Indebtedness except Permitted Indebtedness. 4.10. Environmental Protection. (a) Except as set forth on ------------------------ Schedule 4.10, to Company's and its Subsidiaries' knowledge, all real property owned, leased or otherwise operated by Company and its Subsidiaries (each, a "Facility") is free of contamination from any substance, waste or material (i) currently identified to be toxic or hazardous pursuant to, or which may result in liability under, any Environmental Law or (ii) within the definition of a substance which is toxic or hazardous under any Environmental Law, including, without limitation, any asbestos, pcb, radioactive substance, methane, volatile hydrocarbons, industrial solvents, oil or petroleum or chemical liquids or solids, liquid or gaseous products, or any other material or substance which has in the past or could at any time in the future cause or constitute a health, safety, or environmental hazard to any Person or property or result in any Environmental Liabilities and Costs ("Hazardous Substance") of more than $100,000 or which, in either case, could have a Material Adverse Effect. Except as set forth on Schedule 4.10, neither Company nor any of its Subsidiaries has caused or suffered to occur any release, spill, migration, leakage, discharge, spillage, uncontrolled loss, seepage, or filtration of Hazard Substances at or from the Facility (a "Spill") which could result in Environmental Liabilities and Costs in excess of $100,000. (b) Company and each Subsidiary has generated, treated, stored and disposed of any Hazardous Substances in full compliance with applicable Environmental Laws, except for such non-compliances which would not have a Material Adverse Effect. (c) Company and each Subsidiary has obtained, or has applied for, and is in full compliance with and in good standing under all permits required under Environmental Laws (except for such failures which would not have a Material Adverse Effect) and neither Company nor any of its 20 Subsidiaries has any knowledge of any proceedings to substantially modify or to revoke any such permit. (d) Except as set forth on Schedule 4.10, there are no investigations, proceedings or litigation pending or, to Company's or its Subsidiaries' knowledge, threatened affecting or against Company, any of its Subsidiaries or the Facilities relating to Environmental Laws or Hazardous Substances. (e) Since January 1, 1997, except for communications in connection with the matters listed on Schedule 4.10, neither Company nor any of its Subsidiaries has received any communication or notice (including, without limitation, requests for information) indicating the potential of Environmental Liabilities and Costs against Company or its Subsidiaries. 4.11. Labor Matters. (a) There are no strikes or other labor ------------- disputes against Company or any of its Subsidiaries pending or, to Company's or its Subsidiaries' knowledge, threatened. Hours worked by and payment made to employees of Company and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters. All payments due from Company and each of its Subsidiaries on account of employee health and welfare insurance have been paid or accrued as a liability on the books of Company or such Subsidiary. There is no organizing activity involving Company or any of its Subsidiaries pending or, to Company's or its Subsidiaries' knowledge, threatened by any labor union or group of employees. There are no representation proceedings pending or, to Company's or its Subsidiaries' knowledge, threatened with the National Labor Relations Board, and no labor organization or group of employees of Company or its Subsidiaries has made a pending demand for recognition. There are no complaints or charges against Company or any of its Subsidiaries pending or, to Company's or its Subsidiaries' knowledge, threatened to be filed with any federal, state, local or foreign court, governmental agency or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by Company or any of its Subsidiaries of any individual. (b) Neither Company nor any of its Subsidiaries is, or during the five years preceding the date hereof was, a party to any labor or collective bargaining agreement and 21 there are no labor or collective bargaining agreements which pertain to employees of Company or its Subsidiaries. 4.12. Other Ventures. Except as set forth on Schedule 4.12, -------------- neither Company nor any of its Subsidiaries is engaged in any joint venture or partnership with any other Person. 4.13. Taxes. Except as set forth on Schedule 4.13, all ----- federal, state, local and foreign tax returns, reports and statements required to be filed by Company and its Subsidiaries have been timely filed with the appropriate Governmental Authority and all such returns, reports and statements are true, correct and complete in all material respects. All Charges and other impositions due and payable for the periods covered by such returns, reports and statements have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest, late charge or loss has been paid. Proper and accurate amounts have been withheld by Company and its Subsidiaries from its employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective governmental agencies. Neither Company nor any of its Subsidiaries has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. No tax audits or other administrative or judicial proceedings are pending or threatened with regard to any Charges for which Company or any Subsidiary may be liable and no assessment of Charges is proposed against the Company or any Subsidiary. Neither Company nor any of its Subsidiaries has filed a consent pursuant to IRC Section 341(f) or agreed to have IRC Section 341(f)(2) apply to any dispositions of subsection (f) assets (as such term is defined in IRC Section 341(f)(4)). None of the property owned by Company or any of its Subsidiaries is property which such company is required to treat as being owned by any other Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, and in effect immediately prior to the enactment of the Tax Reform Act of 1986 or is "tax-exempt use property" within the meaning of IRC Section 168(h). Neither Company nor any of its Subsidiaries has agreed or has been requested to make any adjustment under IRC Section 481(a) by reason of a change in 22 accounting method or otherwise. Neither Company nor any of its Subsidiaries has any obligation under any written tax sharing agreement. 4.14. No Litigation. Except as disclosed on Schedule 4.14, no ------------- action, claim or proceeding is now pending or, to the knowledge of Company or its Subsidiaries, threatened against Company or any of its Subsidiaries, at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of any federal, state, or local government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators. 4.15. Brokers. Except as set forth on Schedule 4.15, no broker ------- or finder acting on behalf of Company or any of its Subsidiaries brought about the consummation of the transactions contemplated pursuant to this Agreement and neither Company nor any of its Subsidiaries has any obligation to any Person in respect of any finder's or brokerage fees (or any similar obligation) in connection with the transactions contemplated by this Agreement. Company is solely responsible for the payment of all such finder's or brokerage fees. 4.16. Employment and Labor Agreements. Except as set forth on ------------------------------- Schedule 4.16, there are no employment, consulting or management agreements covering management of Company or any of its Subsidiaries. 4.17. Patents, Trademarks, Copyrights and Licenses. Company -------------------------------------------- and each of its Subsidiaries owns all licenses, patents, patent applications, copyrights, service marks, trademarks and registrations and applications for registration thereof, and trade names necessary to continue to conduct its business as heretofore conducted by it and now being conducted by it, each of which is listed, together with Patent and Trademark Office or Copyright Office application or registration numbers, where applicable, on Schedule 4.17 hereto. To Company's knowledge, Company and each of its Subsidiaries conducts its businesses without infringement or claim of infringement of any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of others, except as set forth on Schedule 4.17 hereto. To Company's knowledge, there is no infringement by others of any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual 23 property right of Company or any of its Subsidiaries, except as set forth on Schedule 4.17 hereto. 4.18. No Material Adverse Effect. Except as set forth on -------------------------- Schedule 4.18, no event has occurred since June 30, 1997 which has had or could be reasonably expected to have a Material Adverse Effect. 4.19. ERISA. (a) Schedule 4.19 sets forth: (i) all "employee ----- benefit plans", as defined in Section 3(3) of ERISA, and any other employee benefit arrangements or payroll practices, including, without limitation, severance pay, sick leave, vacation pay, salary continuation for disability, consulting or other compensation agreements, retirement, deferred compensation, bonus, stock purchase, hospitalization, medical insurance, life insurance and scholarship programs (the "Plans") maintained by Company and any of its Subsidiaries or to which Company or and of its Subsidiaries contributed or is obligated to contribute thereunder, and (ii) all "employee pension plans", as defined in Section 3(2) of ERISA (the "Pension Plans"), maintained by Company, any of its Subsidiaries or any of its ERISA Affiliates to which Company, any of its Subsidiaries or any of its ERISA Affiliates contributed or is obligated to contribute thereunder. (b) Purchaser will not have (i) any obligation to make any contribution to any Multiemployer Plan or (ii) any withdrawal liability from any such Multiemployer Plan under Section 4201 of ERISA which it would not have had if it had not purchased the Convertible Preferred Stock and Warrants from Company at the Closing in accordance with the terms of this Agreement. (c) The Pension Plans intended to be qualified under Section 401 of the IRC are so qualified and the trusts maintained pursuant thereto are exempt from federal income taxation under Section 501 of the IRC, and nothing has occurred with respect to the operation of the Pension Plans which could cause the loss of such qualification or exemption or the imposition of any liability, penalty, or tax under ERISA or the IRC. (d) All contributions required by law or pursuant to the terms of the Plans (without regard to any waivers granted under Section 412 of the IRC) to any funds or trusts established thereunder or in connection therewith have been made by the due date thereof (including any valid extension) 24 and no accumulated funding deficiencies exist in any of the Pension Plans. (e) There is no "amount of unfunded benefit liabilities" as defined in Section 4001(a)(18) of ERISA in any of the respective Pension Plans, which are subject to Title IV of ERISA. Each of the respective Pension Plans are fully funded in accordance with the actuarial assumptions used by the PBGC to determine the level of funding required in the event of the termination of the Pension Plan and all benefit liabilities do not exceed the assets of such Pension Plans. (f) There has been no "reportable event" as that term is defined in Section 4043 of ERISA and the regulations thereunder with respect to the Pension Plans which would require the giving of notice, or any event requiring disclosure under Section 4041(c)(3)(C), 4063(a) or 4068(f) of ERISA. (g) There is no material violation of ERISA with respect to the filing of applicable reports, documents, and notices regarding the Plans with the Secretary of Labor and the Secretary of the Treasury or the furnishing of such documents to the participants or beneficiaries of the Plans. (h) True, correct and complete copies of the following documents, with respect to each of the Plans, have been made available or delivered to Purchaser by Company: (A) any plans and related trust documents, and amendments thereto, (B) the most recent Forms 5500 (including any schedules thereto) and the most recent actuarial valuation report, if any, (C) the last IRS determination letter, (D) summary plan descriptions, (E) written communications to employees relating to the Plans and (F) written descriptions of all non-written agreements relating to the Plans. (i) There are no pending actions, claims or lawsuits which have been asserted or instituted against the Plans, the assets of any of the trusts under such Plans or the Plan sponsor or the Plan administrator, or against any fiduciary of the Plans with respect to the operation of such Plans (other than routine benefit claims), nor does Company or any of its Subsidiaries have knowledge of facts which could form the basis for any such claim or lawsuit. (j) All amendments and actions required to bring the Plans into conformity in all material respects with all 25 of the applicable provisions of ERISA and other applicable laws have been made or taken except to the extent that such amendments or actions are not required by law to be made or taken until a date after the Closing Date. (k) The Plans have been maintained, in all material respects, in accordance with their terms and with all provisions of ERISA (including rules and regulations thereunder) and other applicable Federal and state law, and neither Company nor any of its Subsidiaries or "party in interest" or "disqualified person" with respect to the Plans has engaged in a "prohibited transaction" within the meaning of Section 4975 of the IRC or Section 406 of ERISA. (l) None of Company, any of its Subsidiaries or any ERISA Affiliate has terminated any Pension Plan, or incurred any outstanding liability under Section 4062 of ERISA to the PBGC, or to a trustee appointed under Section 4042 of ERISA. (m) None of Company, any of its Subsidiaries or any ERISA Affiliate maintains retired life and retired health insurance plans which are Welfare Plans and which provide for continuing benefits or coverage for any participant or any beneficiary of a participant except as may be required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and at the expense of the participant or the participant's beneficiary. Company, all of its Subsidiaries and all ERISA Affiliates which maintains a Welfare Plan has complied with the notice and continuation requirements of COBRA and the regulations thereunder. (n) None of Company, any of its Subsidiaries or any ERISA Affiliate has contributed or been obligated to contribute to a Multiemployer Plan as of either Closing. (o) None of Company, any of its Subsidiaries or any ERISA Affiliate has withdrawn in a complete or partial withdrawal from any Multiemployer Plan prior to either Closing Date, nor has any of them incurred any liability due to the termination or reorganization of a Multiemployer Plan. (p) None of Company, any of its Subsidiaries, any ERISA Affiliate or any organization to which Company is a successor or parent corporation, within the meaning of 26 Section 4069(b) of ERISA, has engaged in any transaction, within the meaning of Section 4069 of ERISA. 4.20. SEC Documents. Company has made available to Purchaser a ------------- true and complete copy of each report, schedule, registration statement and definitive proxy statement filed by Company with the SEC since January 1, 1997 and prior to the date of this Agreement (the "Company SEC Documents"), which are all the documents (other than preliminary material) that Company was required to file with the SEC since such date. As of their respective dates, the Company SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Company SEC Documents, and none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of Company (including, in each case, the notes thereto) included in the Company SEC Documents complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Rule 10-01 of Regulation S-X of the SEC) and present fairly in all material respects and in accordance with applicable requirements of GAAP (subject, in the case of the unaudited statements, to normal, recurring adjustments, none of which were or are expected, individually or in the aggregate, to be material in amount) the consolidated financial position of Company and its consolidated Subsidiaries as of their respective dates and the consolidated results of operations and the consolidated cash flows of Company and its consolidated Subsidiaries for the periods presented therein. 4.21. Ordinary Course of Business. Except as set forth on --------------------------- Schedule 4.7 or in response to the events described therein, since June 30, 1997, Company and each of its Subsidiaries has conducted its operations only in the ordinary course of business consistent with past practice. 4.22. Insurance. Schedule 4.22 hereto contains a --------- complete and correct list of all policies of insurance of any kind or nature covering Company and its Subsidiaries, 27 including, without limitation, policies of life, fire, theft, officer and director coverage, employee fidelity and other casualty and liability insurance, indicating the type of coverage, name of insured, the insurer, the premium, the expiration date of each policy and the amount of coverage, and such policies are in full force and effect. Complete and correct copies of each such policy have been furnished or made available to Purchaser. Such policies are in amounts customary for the industry in which Company or such Subsidiary operates. 4.23. Accounts Receivable. All accounts receivable of Company ------------------- and its Subsidiaries as shown on the Balance Sheet are collectible in the ordinary course of business by Company or such Subsidiary, net of the reserves for bad debts shown on the Balance Sheet. 4.24. Minute Books. The minute books of Company, as previously ------------ made available to Purchaser accurately reflect all formal corporate action of the stockholders and Board of Directors of Company. 4.25. Year 2000 Systems. Company has made and will continue to ----------------- make reasonable efforts to enable Company's computer systems and software to accurately process date data, including but not limited to, calculating, comparing and sequencing from, into and between the twentieth century (through year 1999), the year 2000 and the twenty-first century, including leap year calculations. 4.26. Full Disclosure. No information contained in this --------------- Agreement, any other Transaction Document, the Financial Statements or any written statement furnished by or on behalf of Company pursuant to the terms of this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which made. V. COVENANTS --------- 5.1. Affirmative and Financial Covenants. Company covenants ----------------------------------- and agrees that from and after the date hereof (except as otherwise provided herein, or unless the Required Holders have given their prior written consent) so long as at least 20% of the shares of Convertible Preferred Stock issued on the Closing Date are outstanding: 28 (a) Books and Records. Company shall, and shall cause its ----------------- Subsidiaries to, keep adequate records and books of account with respect to their business activities, in which proper entries, reflecting all of their financial transactions, are made in accordance with GAAP. (b) Financial and Business Information. ---------------------------------- (i) Monthly Information. Commencing with ------------------- the month ending December 31, 1997, Company will deliver to Purchaser as soon as practicable after the end of each month, but in any event within 30 days thereafter: (A) monthly sales reports by client; (B) monthly accounts receivable reports; and (C) monthly accounts payable reports. (ii) Quarterly Information. Company will --------------------- deliver to Purchaser as soon as practicable after the end of each of the first three quarterly fiscal periods in each fiscal year of Company, but in any event within 45 days thereafter, (A) an unaudited consolidated balance sheet of Company and its Subsidiaries, as at the end of such quarter, and (B) unaudited consolidated statements of income, retained earnings and cash flows of Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in comparative form in each case the projected consolidated figures for such period and the actual consolidated figures for the comparable period of the prior fiscal year. Such statements shall be (1) prepared in accordance with GAAP consistently applied, (2) in reasonable detail and (3) certified by the principal financial or accounting officer of Company. (iii) Annual Information. Company will ------------------ deliver to Purchaser as soon as practicable after the end of each fiscal year of Company, but in any event within 90 days thereafter, (A) an audited consolidated balance sheet of Company and its Subsidiaries, as at the end of such year, and (B) audited consolidated statements of income, retained earnings and cash flows of Company and its Subsidiaries, for such year; setting forth in each case in comparative form the figures for the previous year. Such statements shall be (1) prepared in accordance with GAAP consistently applied, (2) in reasonable detail and (3) certified by 29 Coopers & Lybrand L.L.P. or such other firm of independent certified public accountants of recognized national standing selected by Company and reasonably acceptable to the Required Holders. (iv) Filings. Company will deliver to ------- Purchaser, promptly upon their becoming available, one copy of each report, notice or proxy statement sent by Company to its stockholders generally, and of each regular or periodic report (pursuant to the Exchange Act) and any registration statement, prospectus or other writing (other than transmittal letters) (including, without limitation, by electronic means) pursuant to the Securities Act filed by Company with (i) the SEC or (ii) any securities exchange or NASDAQ on which shares of Common Stock of Company are listed. (v) Projections. Company will deliver to ----------- Purchaser within 15 days prior to the beginning of each Fiscal Year: (A) projected consolidated balance sheets of Company and its Subsidiaries, for such Fiscal Year, on a monthly basis; (B) projected consolidated cash flow statements of Company and its Subsidiaries, including summary details of cash disbursements (including for Capital Expenditures), for such Fiscal Year, on a monthly basis; and (C) projected consolidated income statements of Company and its Subsidiaries, for such Fiscal Year, on a monthly basis; in each case, approved by the Board of Directors of Company, together with appropriate supporting details. (vi) Customer Complaints; Other Information. Company -------------------------------------- will promptly notify Purchaser of any material customer complaints concerning Company's products and services. If requested by Purchaser, Company will deliver to Purchaser such other information respecting Company's or any of its Subsidiaries' business, 30 financial condition or prospects as Purchaser may, from time to time, reasonably request. (c) Communication with Accountants. Company authorizes ------------------------------ Purchaser to communicate directly with its independent certified public accountants and tax advisors and authorizes those accountants to disclose to Purchaser any and all financial statements and other supporting financial documents and schedules including copies of any management letter with respect to the business, financial condition and other affairs of Company and any of its Subsidiaries. At or before the Closing Date, Company shall deliver a letter addressed to such accountants and tax advisors instructing them to comply with the provisions of this Section 5.1(c). (d) Tax Compliance. Company shall pay all transfer, excise or -------------- similar taxes (not including income or franchise taxes) in connection with the issuance, sale, delivery or transfer by Company to Purchaser of the Convertible Preferred Stock and Warrants and the Common Stock issuable upon conversion or exercise thereof, and shall indemnify and save Purchaser harmless without limitation as to time against any and all liabilities with respect to such taxes. Company shall not be responsible for any taxes in connection with the transfer of the Convertible Preferred Stock, Warrants or such Common Stock by the holder thereof. The obligations of Company under this Section 5.1(d) shall survive the payment, prepayment or redemption of the Convertible Preferred Stock and Warrants and the termination of this Agreement. (e) Insurance. (i) Company shall and shall cause each --------- Subsidiary of Company to maintain insurance covering, without limitation, fire, theft, burglary, public liability, property damage, product liability, workers' compensation, directors' and officers' insurance and insurance on all property and assets material to the operation of the business, all in amounts customary for the industry. Company shall, and shall cause each of its Subsidiaries to, pay all insurance premiums payable by them. (ii) Company shall purchase, by March 24, 1998, and shall thereafter maintain, a term life insurance policy, owned by Company, on the life of Jeremy Barbera (so long as he remains an employee of Company) in the amount of $1,000,000, the beneficiary of which shall be Company. 31 (f) Employee Plans. (i) With respect to other than a -------------- Multiemployer Plan, for each Plan and Pension Plan intended to be qualified under Section 401(a) of the IRC hereafter adopted or maintained by Company, any of its Subsidiaries or any ERISA Affiliate, Company shall (A) seek, or cause its Subsidiaries or ERISA Affiliates to seek, and receive determination letters from the IRS to the effect that such Plan or Pension Plan is qualified within the meaning of Section 401(a) of the IRC; and (B) from and after the adoption of any such Plan or Pension Plan, cause such plan to be qualified within the meaning of Section 401(a) of the IRC and to be administered in all material respects in accordance with the requirements of ERISA and Section 401(a) of the IRC. (ii) With respect to each Welfare Plan hereafter adopted or maintained by Company, any of its Subsidiaries or any ERISA Affiliate, Company shall comply, or cause its Subsidiaries or ERISA Affiliates to comply, with the notice and continuation coverage requirements of Section 4980B of the IRC and the regulations thereunder. (iii) Company shall not, directly or indirectly, and shall not permit its Subsidiaries or any ERISA Affiliate to directly or indirectly by reason of an amendment or amendments to, or the adoption of, one or more Pension Plans, permit the present value of all benefit liabilities, as defined in Title IV of ERISA, (using the actuarial assumptions utilized by the PBGC upon termination of a plan) to exceed the fair market value of assets allocable to such benefits by more than $50,000, or to increase to the extent security must be provided to any Pension Plan, under Section 401(a)(29) of the IRC. Neither Company nor any of its Subsidiaries shall establish or become obligated to any new Retiree Welfare Plan, which would result in the present value of future liabilities under any such plans to exceed $50,000. Neither Company nor any of its Subsidiaries or ERISA Affiliates shall establish or become obligated to any new unfunded Pension Plan, which would result in the present value of future liabilities under any such plans to exceed $50,000. Company shall not directly or indirectly, and shall not permit its Subsidiaries or any ERISA Affiliate to (a) satisfy any liability under any Pension Plan by purchasing annuities from an insurance company or (b) invest the assets of any Pension Plan with an insurance company, unless, in each case, such insurance company is rated AA by Standard & Poor's Corporation and the equivalent by each other 32 nationally recognized rating agency at the time of the investment. (iv) Company, any of its Subsidiaries and any ERISA Affiliate shall not contribute or become obligated to contribute to any Multiemployer Plan. (g) Compliance with Law. Company shall, and shall cause each ------------------- of its Subsidiaries to, comply with all laws, including Environmental Laws, the Telephone Consumer Protection Act of 1991 and the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 and the regulations of the Federal Trade Commission issued thereunder, in each case, applicable to it, except where the failure to comply would not be reasonably likely to result in a Material Adverse Effect. (h) Financial Covenants. Company and its Subsidiaries shall, ------------------- on a consolidated basis: (i) maintain, at all times, a Tangible Net Worth of Company of at least the amount set forth for each Fiscal Year below: Fiscal Year Ending June 30 Tangible Net Worth -------------------------- ------------------ 1998 $1,500,000 1999 $2,000,000 2000 $3,000,000 2001, and each Fiscal Year thereafter $4,000,000 (ii) maintain, at the end of each fiscal quarter ending during each Fiscal Year set forth below, a ratio of EBITDA to Fixed Charges for the latest four quarters of not less than the amounts set forth below: Fiscal Year Ending June 30 Minimum Ratio -------------------------- ------------- 1998 1.8 to 1.0 1999 2.0 to 1.0 2000 2.2 to 1.0 2001, and each Fiscal Year thereafter 2.4 to 1.0 (i) Maintenance of Existence and Conduct of Business. Company ------------------------------------------------ shall, and shall cause each of its Subsidiaries to: (i) do or cause to be done all things necessary to preserve and keep in full force and effect its 33 corporate existence, and its rights and franchises; (ii) at all times maintain, preserve and protect all of its patents, trademarks and trade names, and preserve all the remainder of its material assets, in use or useful in the conduct of its business and keep the same in good repair, working order and condition (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all needful and proper repairs, renewals and replacements, betterments and improvements thereto consistent with industry practices and (iii) continue to conduct a database management and other direct marketing business and businesses related to the business that Company is engaged in on the date hereof. (j) Access. Company shall permit representatives of Purchaser ------ to visit and inspect any of the properties of Company and its Subsidiaries, to examine the corporate books and make copies or extracts therefrom and to discuss the affairs, finances and accounts of Company and its Subsidiaries with the principal officers of Company and its Subsidiaries, all at such reasonable times, upon reasonable notice and as often as Purchaser may reasonably request. (k) Excess Cash. Company shall invest all excess cash in cash ----------- and Cash Equivalents. (l) Exchange of Stock Certificates. Company will, at its ------------------------------ expense, promptly upon surrender of any certificates representing shares of Convertible Preferred Stock at the office of Company referred to in, or designated pursuant to, Section 10.1 hereof, execute and deliver to Purchaser so surrendering such certificates a new certificate or certificates in denominations specified by Purchaser for an aggregate number of shares of Convertible Preferred Stock equal to the number of shares of such stock represented by the certificates surrendered. (m) Lost, Stolen, Destroyed or Mutilated Stock Certificates. ------------------------------------------------------- Upon receipt of evidence reasonably satisfactory to Company of the loss, theft, destruction or mutilation of any certificate for shares of Convertible Preferred Stock and, in the case of loss, theft or destruction, upon delivery of an indemnity reasonably satisfactory to Company (which may be an undertaking by a Purchaser to so indemnify Company), or, in the case of mutilation, upon surrender and cancellation thereof, Company will issue a new certificate of like tenor for a number of shares of Convertible Preferred Stock equal to the number of 34 shares of such stock represented by the certificate lost, stolen, destroyed or mutilated. (n) NASDAQ. Company shall take all steps necessary to cause ------ the shares of Common Stock issuable upon conversion of the Convertible Preferred Stock and upon exercise of the Warrants to be listed on the Nasdaq SmallCap Market as soon as reasonably practicable. 5.2. Negative Covenants. Company covenants and agrees that ------------------ from and after the date hereof (except as otherwise provided herein, or unless the Required Holders have given their prior written consent) so long as at least 20% of the shares of Convertible Preferred stock issued on the Closing Date are outstanding: (a) Permitted Acquisitions or Investments. Company shall not, ------------------------------------- and shall not permit any of its Subsidiaries to, directly or indirectly in any transaction or related series of transactions, acquire or invest in, whether for cash, debt, Stock, or other property or assets or by guaranty of any obligation, any assets or business of any Person other than (i) acquisitions of assets in the ordinary course of business of Company, (ii) acquisitions by Company or wholly-owned Subsidiaries of Company from Company or any such wholly-owned Subsidiary or investments therein or (iii) acquisitions involving aggregate purchase price of not more than $1,000,000, but not to exceed $5,000,000 per Fiscal Year. Company shall not, and shall not permit any of its Subsidiaries to invest in any Person if, after giving effect thereto, such Person would be an Affiliate of Company, other than investments in existing wholly-owned Subsidiaries of Company. (b) Sales of Assets; Liquidation. Company shall not, and shall ---------------------------- not permit any Subsidiary of Company to, (i) sell, transfer, convey or otherwise dispose of any assets or properties or (ii) liquidate, dissolve or wind up Company or any of its Subsidiaries, except for transfers to Company, whether voluntary or involuntary; provided, however, that the foregoing shall not prohibit (i) the sale of assets or property in the ordinary course of business, (ii) the sale of surplus or obsolete equipment and fixtures, (iii) transfers resulting from any casualty or condemnation of assets or properties, or (iv) assets or properties constituting businesses that are not a Core Business. 35 (c) Agreements. Company shall not and shall not permit any ---------- Subsidiary of Company to take or omit to take any action, which act or omission would constitute a default or an event of default under any agreement, document or instrument to which it is a party (a "Cross Default"), (A) involving the failure to make any payment (whether of principal, interest or otherwise) due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) in respect of any Indebtedness of the type described in clauses (i), (ii) or (iii) of the definition of "Indebtedness" of Company, which Indebtedness is in an aggregate amount exceeding $100,000, or (B) causing (or permitting any holder of such Indebtedness or a trustee to cause) such Indebtedness or a portion thereof in an aggregate amount exceeding $100,000, to become due prior to its stated maturity or prior to its regularly scheduled dates of payment. (d) Employee Loans. Company shall not and shall not permit any -------------- Subsidiary of Company to make or accrue any loans or other advances of money to any employee of Company or such Subsidiary, other than in the ordinary course of business in an aggregate amount outstanding not to exceed $100,000 at any one time. (e) Capital Stock. Company shall not issue or agree to issue ------------- any of its authorized but not outstanding shares of Stock (including treasury shares), except the issuance of Common Stock upon conversion of Convertible Preferred Stock, or upon exercise of the Warrants, or the issuance of Common Stock upon exercise of options and warrants outstanding on the Closing Date or upon issuance of Common Stock pursuant to an existing incentive stock option plan of Company as presently in effect, or upon issuance of Common Stock pursuant to an acquisition of another corporation by Company by merger, purchase of all or substantially all of the assets, or other reorganization which is permitted hereunder. Company shall not issue any additional shares of Convertible Preferred Stock. Company's authorized capital Stock shall not include any Stock senior to or pari passu with the Convertible Preferred Stock. (f) Transactions with Affiliates. Company shall not and shall ---------------------------- not permit any Subsidiary of Company to enter into or be a party to any transaction with any Affiliate of Company or such Subsidiary, except (i) transactions expressly permitted hereby, (ii) ordinary course transactions between Company and its wholly-owned 36 Subsidiaries or between such Subsidiaries and (iii) payment of compensation to employees and directors' fees. (g) Indebtedness. Company shall not and shall not permit any ------------ Subsidiary of Company to incur or suffer to exist any Indebtedness except: (i) Indebtedness existing on the date hereof and listed on Schedule 4.9; (ii) Permitted Indebtedness; (iii) other Indebtedness pursuant to a working capital line of credit in an aggregate amount not to exceed $3,500,000 for the Fiscal Year ending June 30, 1998, and, for each Fiscal Year thereafter, the greater of $3,500,000 and an amount not to exceed 5% of Company's gross revenues for the prior Fiscal Year, provided that no event shall have occurred and be continuing, or would result from the incurrence of such Indebtedness, which constitutes or would constitute a Default or an Event of Default; or (iv) Indebtedness owing by Company to any of its wholly-owned Subsidiaries or by any of Company's wholly-owned Subsidiaries to any other wholly-owned Subsidiaries or Company. (h) Restricted Payments. Company shall not and shall not ------------------- permit any Subsidiary of Company to make any Restricted Payments nor shall Company permit any Subsidiary to make such payments with respect to Company's Stock; provided, however, that Company may redeem (i) the Convertible Preferred Stock in accordance with its terms and (ii) outstanding options or warrants, up to an aggregate of $2,000,000 in any Fiscal Year. (i) Mergers and Subsidiaries. Neither Company nor any ------------------------ Subsidiary of Company shall directly or indirectly, by operation of law or otherwise, merge with, consolidate with, or otherwise combine with any Person, nor shall Company create any Subsidiary, other than (i) the creation of wholly-owned Subsidiaries or (ii) mergers of wholly-owned Subsidiaries of Company into Company or any other of its wholly-owned Subsidiaries. (j) Management Compensation. Company shall not and shall not ----------------------- permit any Subsidiary of Company to increase the salary and bonus in any year of the officers of Company and its Subsidiaries, if as a result of such increase, any such officer's total Compensation would increase by more than 10% of his or her total Compensation for the prior year, provided that any mandatory increase in Compensation paid in accordance with the terms of existing employment 37 agreements, copies of which have been furnished to Purchaser, is permitted hereunder. (k) Amendments to Certificate of Incorporation and By-Laws. ------------------------------------------------------ Company shall not authorize, adopt or approve an amendment to the Certificate of Incorporation of Company or the By-Laws of Company, except to increase the number of authorized shares of common stock. (l) Capital Expenditures. Company shall not permit any Capital -------------------- Expenditures to be made in excess of $2,500,000 for the Fiscal Year ending June 30, 1998, and, for each Fiscal Year thereafter, an amount not to exceed 5% of Company's gross revenues for the prior Fiscal Year. 5.3. Remedies for Breach of Covenants. Upon the occurrence and -------------------------------- during the continuance of a breach by Company of any of the covenants contained in this Article V (subject to notice and opportunity to cure as set forth in the definition of Event of Default), in addition to any other remedies available at law or in equity, the holders of the Convertible Preferred Stock shall be entitled to an increase in the dividend rate on the Convertible Preferred Stock and an additional director in accordance with the provisions of the Certificate of Designation. 5.4. Certain Tax Matters. (a) In the event (i) of a Final ------------------- Determination (as defined below) that, due to any reason (including by reason of any of the terms of Convertible Preferred Stock) other than an act or failure to act of Purchaser (including by reason of the application of IRC Section 246(c) or IRC Section 246A) or Purchaser being other than a corporation, dividends paid or accrued on the Convertible Preferred Stock pursuant to Sections 3, 4, 6 or 7(a) of the Certificate of Designation ("Stated Dividends") are not eligible for the dividends received deduction provided under the Dividends Deduction Laws (as defined in Section 5.5 below) (the "Dividends-Received Deduction"), (ii) any Dividends Deduction Law or any similar or corresponding state or local law is amended to reduce or eliminate or otherwise limit the Dividends-Received Deduction available to Purchaser with respect to Stated Dividends or any other dividend paid or accrued or deemed paid or accrued on the Convertible Preferred Stock or (iii) any Stated Dividend with respect to the Convertible Preferred Stock does not constitute, in whole or in part, a dividend for federal income tax purposes or such dividend is subject to Section 1059 of the IRC (in either case, an 38 "Excess Distribution"), Company shall pay to Purchaser with respect to each such dividend payment, no later than the Payment Date (as defined below), an additional payment (the "Gross-Up Payment") such that the net amount of such Gross- Up Payment received and retained by Purchaser after payment by Purchaser of any federal, state and local income tax payable with respect to such Gross-Up Payment shall equal, in the case of (i) or (ii) above, the difference between (x) the federal, state and local income tax payable by Purchaser with respect to such dividend in its taxable year in which the dividend was paid or deemed paid and (y) the federal, state and local income tax which would have been payable by Purchaser in its taxable year in which the dividend was paid or deemed paid if the events described in (i) or (ii) had not occurred and in the case of (iii) above, an amount which, when taken together with the aggregate distributions (whether treated as dividends or Excess Distributions for federal income tax purposes) paid or deemed paid to Purchaser during any taxable year, would cause Purchaser's net yield in dollars (after taking into effect the federal income tax consequences of treating the Excess Distributions received by Purchaser as capital gain received upon the taxable sale or exchange of Convertible Preferred Stock) to be equal to the net yield in dollars which would have been received by Purchaser had none of the distributions paid or deemed paid to Purchaser during such taxable year constituted Excess Distributions, in all cases together with any interest or penalties actually payable by Purchaser to the IRS or any other applicable taxing authority by reason of such events. (b) A "Final Determination" shall mean (i) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final or (ii) a closing agreement entered into under Section 7121 (or any successor to such Section) of the IRC or any corresponding provision of state or local law, or any other settlement agreement entered into in connection with an administrative or judicial proceeding and consented to by a Purchaser or any member of its consolidated group. The "Payment Date" shall mean the date that is 90 days after the end of the relevant taxable year. (c) If Purchaser is notified formally or informally of any audit, examination or proceeding by the IRS or any other taxing authority with respect to the availability of the Dividends-Received Deduction, Purchaser 39 shall promptly notify Company of such audit, examination or proceeding; provided, however, that Purchaser's failure to give such notice or to keep Company fully informed concerning a Contest (as defined below) shall not affect Company's obligation to make Gross-Up Payments in accordance with this Section. Purchaser shall have exclusive control and responsibility to conduct any audit, examination, proceeding or litigation (a "Contest") with respect to such issue. (d) All subsequent holders of the Convertible Preferred Stock shall be entitled to all of the benefits of this Section; provided that any such subsequent holder qualifies for the Dividends-Received Deduction under the then current Dividend Deductions Laws at the time of its acquisition of the Convertible Preferred Stock. 5.5. Status of Dividends. Company will not (i) in any income ------------------- tax return or claim for refund of income tax or other submission to the IRS or other taxing authority claim a deduction in respect of amounts paid or payable under the Convertible Preferred Stock, whether as interest or pursuant to any other statutory provisions or regulation now in effect or hereafter enacted or adopted, except to the extent that any such deduction shall not, in the opinion of counsel satisfactory to the Required Holders, operate to jeopardize the availability to Purchaser of the dividends received deduction provided by Section 243(a)(1) of the IRC, or any successor provision or any similar or corresponding provision under state or local law (collectively, the "Dividends Deduction Laws"), (ii) in any report to stockholders, or to any governmental body having jurisdiction over Company or otherwise treat the Convertible Preferred Stock other than as equity capital or the dividends paid thereon other than as dividends paid on equity capital unless required to do so by a governmental body having jurisdiction over the accounts of Company or by a change in GAAP required as a result of action by an authoritative accounting standards-setting body, and (iii) except to the extent permitted in clause (i) above and other than as expressly permitted by this Agreement or Company's Certificate of Incorporation take any action which would result in the dividends paid by Company on the Convertible Preferred Stock out of Company's current or accumulated earnings and profits being ineligible for the dividends received deduction provided by any Dividends Deduction Laws. 40 VI. CONDITIONS PRECEDENT -------------------- 6.1. Conditions Precedent. The obligation of Purchaser to -------------------- purchase the Convertible Preferred Stock and Warrants pursuant to Section 2.2 hereof, is subject to the condition that Purchaser shall have received, on the Closing Date, the following, each dated the Closing Date unless otherwise indicated, in form and substance satisfactory to the Required Holders: (a) Favorable opinions of Camhy Karlinsky & Stein, LLP, counsel to Company and Lionel Sawyer & Collins, Nevada counsel to Company, substantially in the form attached hereto as Exhibit E, it being understood that to the extent that such opinion of counsel to Company shall rely upon any other opinion of counsel, each such other opinion shall be in form and substance reasonably satisfactory to Purchaser and shall provide that Purchaser may rely thereon. (b) Resolutions of the board of directors of Company, certified by the Secretary or Assistant Secretary of Company, as of the Closing Date, to be duly adopted and in full force and effect on such date, authorizing (i) the consummation of each of the transactions contemplated by this Agreement and (ii) specific officers to execute and deliver this Agreement and each other Transaction Document to which it is a party. (c) Governmental certificates, dated the most recent practicable date prior to the Closing Date, with telegram updates where available, showing that Company is organized and in good standing in the jurisdiction of its organization and is qualified as a foreign corporation and in good standing in all other jurisdictions in which it is qualified to transact business. (d) True and correct copies, certified by the Secretary or Assistant Secretary of Company, of the document evidencing the terms of the Convertible Preferred Stock, which shall contain the terms set forth in Exhibit A attached hereto and evidence of the filing of the Certificate of Designation with the Secretary of State of the State of Nevada, it being understood that as soon as practicable after the Closing Date, Company shall file an amendment to the previously filed Certificate of Designation so as to conform it to the terms set forth in Exhibit A hereto. 41 (e) A copy of the organizational charter and all amendments thereto of Company, certified as of a recent date by the Secretary of State of the State of Nevada, and copies of Company's by-laws, certified by the Secretary or Assistant Secretary of Company as true and correct as of the Closing Date. (f) The letter from Company to its accountants referred to in Section 5.1(c). (g) The Registration Rights Agreement and the Stockholders Agreement duly executed by the parties thereto. (h) Certificates of the Secretary or an Assistant Secretary of Company, dated the Closing Date, as to the incumbency and signatures of the officers of Company executing this Agreement, the Convertible Preferred Stock, the Warrants, each other Transaction Document to which it is a party and any other certificate or other document to be delivered pursuant hereto or thereto, together with evidence of the incumbency of such Secretary or Assistant Secretary. (i) Certificate of the President of Company, dated the Closing Date, stating that all of the representations and warranties of Company contained herein or in the other Transaction Documents are true and correct on and as of the Closing Date as if made on such date and that no breach of any covenant contained in Article V has occurred or would result from the Closing hereunder. 6.2. Additional Conditions to Closing. The obligation of -------------------------------- Purchaser to purchase the Convertible Preferred Stock and the Warrants to be purchased on the Closing Date pursuant to Section 2.2 is subject to the additional conditions precedent that: (a) Purchaser shall have received evidence that the insurance policies provided for in Section 4.24 are in full force and effect, certified by the insurer thereof. (b) Except as disclosed pursuant to Article IV, there shall not have occurred any event or condition since June 30, 1997 which could have a Material Adverse Effect. (c) All of the representations and warranties of Company contained herein or in the other Transaction Documents shall be true and correct in all material respects on and as of the Closing Date as if made on such date and no 42 breach of any covenant contained in Article V shall have occurred or would result from the Closing hereunder. (d) The Closing shall have occurred no later than December 31, 1997. (e) Purchaser shall have completed its business, financial and legal due diligence investigation and review of Company with results satisfactory to it in its sole discretion. VII. SECURITIES LAW MATTERS ---------------------- 7.1. Legends. Each certificate representing the ------- Convertible Preferred Stock shall bear a legend substantially in the following form: "THE SERIES D CONVERTIBLE PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED BY THE HOLDER FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION OF SUCH CONVERTIBLE PREFERRED STOCK. THE SHARES OF SERIES D CONVERTIBLE PREFERRED STOCK HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("THE ACT") AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION THEREFROM." VIII. INDEMNIFICATION --------------- Company agrees to indemnify and hold harmless Purchaser and its Affiliates and their respective officers, directors and employees from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind ("Losses") which may be imposed upon, incurred by or asserted against Purchaser or such other indemnified Persons in any manner relating to or arising out of any untrue representation, breach of warranty or failure to perform any covenants or agreement by Company contained herein or in any certificate or document delivered pursuant hereto or arising out of any Environmental Law applicable to Company or its Subsidiaries or otherwise relating to or arising out of the transactions contemplated hereby, other than those Losses that arise as a result of 43 Purchaser's or such other indemnified Persons' gross negligence or willful misconduct. IX. EXPENSES -------- Company shall pay all reasonable out-of-pocket expenses of Purchaser in connection with the preparation of the Transaction Documents and the transactions contemplated thereby including all legal expenses. In addition, Company shall pay all reasonable out-of-pocket expenses of Purchaser in connection with (A) any amendment, modification or waiver, or consent with respect to, any of the Transaction Documents, and (B) any attempt to enforce any rights of Purchaser against Company, any Subsidiary of Company or any other Person, that may be obligated to Purchaser by virtue of any of the Transaction Documents (including the reasonable fees and expenses of all of its counsel and consultants retained in connection with the Transaction Documents and the transactions contemplated thereby). X. MISCELLANEOUS ------------- 10.1. Notices. Whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by another, or whenever any of the parties desires to give or serve upon another any such communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and either shall be delivered in person with receipt acknowledged or by registered or certified mail, return receipt requested, postage prepaid, or by telecopy and confirmed by telecopy answerback addressed as follows: If to Company: Marketing Services Group, Inc. 333 Seventh Avenue, 20th Floor New York, New York 10001 Attn: Jeremy Barbera Telecopy Number: (212) 465-8877 44 with a copy (which shall not constitute notice) to: Camhy Karlinsky & Stein LLP 1740 Broadway New York, New York 10019 Attn: Alan I. Annex, Esq. Telecopy Number: (212) 977-8389 If to Purchaser: General Electric Capital Corporation 260 Long Ridge Road Stamford, Connecticut 06927 Attn: Equity Capital Group-Consumer Products Telecopy Number: (203) 961-2088 with copies to: General Electric Capital Corporation 260 Long Ridge Road Stamford, Connecticut 06927 Attention: Equity Capital Group Legal Counsel Telecopy Number: (203) 357-3047 and Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attn: Ted S. Waksman, Esq. Telecopy Number: (212) 310-8007 or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, telecopied and confirmed by telecopy answerback, or three (3) Business Days after the same shall have been deposited with the United States mail. 10.2. Binding Effect; Benefits. Except as otherwise provided ------------------------ herein, this Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and permitted 45 assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein. 10.3. Amendment. No amendment or waiver of any provision of --------- this Agreement or any other Transaction Document nor consent to any departure by Company therefrom, shall in any event be effective unless the same shall be in writing and signed by Company and the Required Holders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action, of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same at any subsequent time or times hereunder. 10.4. Successors and Assigns; Assignability. Neither this ------------------------------------- Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by Company without the prior written consent of the Required Holders. Any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by Purchaser without the prior written consent of Company, except the obligation of Purchaser to purchase the Convertible Preferred Stock and Warrants at the Closing. All covenants contained herein shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. 10.5. Remedies. Purchaser, in addition to being entitled to -------- exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to 46 waive the defense in any action for specific performance that a remedy at law would be adequate. In any action or proceeding brought to enforce any provision of this Agreement or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. 10.6. Section and Other Headings. The section and other -------------------------- headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 10.7. Severability. In the event that any one or more of the ------------ provisions contained in this Agreement shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision or provisions in every other respect and the remaining provisions of this Agreement shall not be in any way impaired. 10.8. Counterparts. This Agreement may be executed in any ------------ number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 10.9. Publicity. Neither Purchaser nor Company shall issue any --------- press release or make any public disclosure regarding the transactions contemplated hereby unless such press release or public disclosure is approved by the other party in advance. Notwithstanding the foregoing, each of the parties hereto may, in documents required to be filed by it with the SEC or other regulatory bodies, make such statements with respect to the transactions contemplated hereby as each may be advised by counsel is legally necessary or advisable, and may make such disclosure as it is advised by its counsel is required by law. 10.10. Governing Law. This Agreement shall be governed by, ------------- construed and enforced in accordance with, the laws of the State of New York without regard to the principles thereof relating to conflict of laws. Each of the parties hereby submits to personal jurisdiction and waives any objection as to venue in the County of New York, State of New York. Service of process on the parties in any action arising out of or relating to this Agreement shall be effective if mailed to the parties in accordance with Section 10.1 hereof. The parties hereto waive all right to 47 trial by jury in any action or proceeding to enforce or defend any rights under this Agreement. 48 IN WITNESS WHEREOF, Company and Purchaser has executed this Agreement as of the day and year first above written. MARKETING SERVICES GROUP, INC. By: __________________________________ Name: Jeremy Barbera Title: Chief Executive Officer GENERAL ELECTRIC CAPITAL CORPORATION By: ________________________________ Name: Title: 49 NYFS10...:\60\47660\1420\1219\AGRN247R.09E EX-2 3 STOCKHOLDERS AGREEMENT STOCKHOLDERS AGREEMENT STOCKHOLDERS AGREEMENT, dated as of December 24, 1997 (this "Agreement"), by and among Marketing Services Group, Inc., a Nevada corporation having an office at 333 Seventh Avenue, 20th Floor, New York, New York 10001 ("Company"), and those stockholders of Company set forth on Annex I hereto (individually, a "Stockholder" and collectively, the "Stockholders"). W I T N E S S E T H : ------------------- WHEREAS, Company and General Electric Capital Corporation ("GE Capital" or "Purchaser") have entered into that certain Purchase Agreement, dated as of December 24, 1997 (the "Purchase Agreement"), pursuant to which Company has agreed to sell, and Purchaser has agreed to purchase, on the terms and subject to the conditions set forth therein, 50,000 shares of Series D Convertible Preferred Stock, $0.01 par value per share ("Convertible Preferred Stock"), of Company convertible into shares of common stock of Company, $.01 par value per share ("Common Stock"), and 10,670,000 Warrants to purchase shares of Common Stock; WHEREAS, each of the parties hereto (other than Company) are on the date hereof holders of the number of shares of Convertible Preferred Stock or Common Stock (all shares of Convertible Preferred Stock and Common Stock being referred to herein collectively as "Stock") as is set forth on Annex I hereto (such Stockholders, other than Purchaser and its successors and assigns, the "Existing Stockholders"); and WHEREAS, certain terms used in this Agreement are defined in the Purchase Agreement; NOW, THEREFORE, in consideration of the agreements, premises and mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Tag-Along Right. --------------- (a) No Existing Stockholder shall directly or indirectly sell, transfer or otherwise dispose of Stock, which after giving effect to all prior sales, transfers or other dispositions from and after the date hereof by the Existing Stockholder constitutes more than twenty percent (20%) of the Common Stock owned by all Existing Stockholders on the date hereof, in a single transaction or related series of transactions, to any third party unless the terms and conditions of such sale, transfer or other disposition (the "Third Party Disposition") to such third party shall contain an offer to Purchaser, to include in such Third Party Disposition such number of shares of Common Stock or Convertible Preferred Stock as is determined in accordance with Section 1(b) below. At least 45 days prior to effecting any Third Party Disposition, such selling Existing Stockholder (the "Selling Existing Stockholder") shall promptly cause the terms and conditions of the Third Party Disposition to be reduced to a reasonably detailed writing (which writing shall identify the third party purchaser and shall include the offer to Purchaser to purchase or otherwise acquire its Common Stock or Convertible Preferred Stock, as the case may be, according to the terms and subject to the conditions of this Section 1), and shall deliver, or cause the third party to deliver, written notice (the "Notice") of the terms of such Third Party Disposition to Purchaser. The Notice shall be accompanied by a true and correct copy of the agreement, if any, embodying the terms and conditions of the proposed Third Party Disposition or such written summary thereof if there is no agreement. At any time after receipt of the Notice (but in no event later than 10 Business Days after receipt), Purchaser may accept the offer included in the Notice for up to such number of its shares of Common Stock or Convertible Preferred Stock, as the case may be, as determined in accordance with the provisions of Section 1(b) below, by furnishing irrevocable written notice of such acceptance to the Selling Existing Stockholder and to the third party. (b) In the event that Purchaser elects to accept the offer included in the Notice described in Section 1(a) above, Purchaser (the "Included Stockholder") shall have the right to sell, transfer or otherwise dispose of such number of its shares of Common Stock (including Convertible Preferred Stock) pursuant to, and upon consummation of, the Third Party Disposition which is equal to the product of (X) the total number of shares of Common Stock owned by the Included Stockholder (assuming for the purpose of this calculation, the conversion of all shares of Convertible Preferred Stock and exercise of all then exercisable Warrants) and (Y) a fraction, the numerator of which shall equal the total number of shares of Common Stock to be sold 2 to the third party, and the denominator of which shall equal the total number of shares of Common Stock owned by all Stockholders (assuming for the purposes of this calculation, the conversion of all shares of Convertible Preferred Stock and the exercise of all then exercisable Warrants). If the third party purchaser is not willing to purchase such additional shares, the number of shares to be sold by the Selling Existing Stockholder and the Included Stockholder shall be proportionately reduced. (c) The purchase of Stock pursuant to this Section 1 shall be made on the same terms (including, without limitation, the per share consideration and method of payment, and the date of sale, transfer or other disposition), and subject to the same conditions, if any, as are provided to the Selling Existing Stockholder and stated in the Notice. (d) Upon the consummation of the disposition of Stock to the third party pursuant to the Third Party Disposition, the Selling Existing Stockholder shall (i) cause the third party to remit directly to the Included Stockholder the sales price of its Stock disposed of pursuant thereto, and (ii) furnish such other evidence of the completion and time of completion of such disposition and the terms thereof as may reasonably be requested by such Included Stockholder. (e) If Purchaser has not delivered to the Selling Existing Stockholder and to the third party written notice of its acceptance of the offer contained in the Notice within 10 Business Days after the receipt of such Notice, it shall be deemed to have waived any and all rights pursuant to this Section 1 with respect to the disposition of its Stock described in the Notice, and the Selling Existing Stockholder shall have 45 days (calculated from the first day next succeeding the expiration of the 45 day acceptance period described above), in which to dispose of the aggregate amount of Stock described in the Notice to the third party identified in the Notice, on terms not more favorable to the Selling Existing Stockholder than those which were set forth in the Notice. If Purchaser has delivered irrevocable written notice of acceptance as described in the preceding sentence and, if after 30 days following receipt of the Notice, the Selling Existing Stockholder and the third party shall not have completed the disposition of Stock to be sold in connection therewith in accordance with the terms of the Third Party Disposition, 3 all the restrictions on the disposition of Stock contained in this Section 1 shall again be in force and effect. 2. Right of First Refusal for New Securities. ----------------------------------------- (a) Company hereby grants to Purchaser a right of first refusal to purchase shares of any New Securities (as defined below) which Company may, from time to time, propose to sell and issue. Such right of first refusal shall allow Purchaser to purchase a pro rata portion of the New Securities proposed to be issued, determined with reference to the aggregate number of outstanding shares of Common Stock and/or Convertible Preferred Stock (determined on an as converted basis) and/or Warrants (assuming the exercise of the then exercisable Warrants) held by Purchaser or its permitted transferees before the proposed issuance of New Securities. The right of first refusal granted hereunder shall terminate if unexercised within 10 Business Days after receipt of the notice described in Section 2(c) hereof. (b) "New Securities" shall mean any authorized but unissued shares, and any treasury shares, of capital stock of Company and all rights, options or warrants to purchase capital stock, and securities of any type whatsoever that are, or may become, convertible into capital stock; provided, however, that the term "New Securities" does not include (i) securities issued pursuant to the acquisition of another corporation by Company by merger, purchase of all or substantially all of the assets or other reorganization whereby Company shall become the owner of more than 50% of the voting power of such corporation; (ii) shares of Common Stock issued in connection with any stock split or stock dividend of Company; (iii) shares of Common Stock issued pursuant to any public offering and sale of equity securities of Company pursuant to an effective registration statement under the Securities Act; (iv) shares of Common Stock issued pursuant to the conversion of Convertible Preferred Stock; (v) shares of Common Stock issued upon exercise of the Warrants; or (vi) shares of Common Stock issued pursuant to the exercise of options granted to employees, directors or consultants under Company's existing stock options, existing now or created in the future (to the extent permitted under the Purchase Agreement) or stock option plans or pursuant to the exercise of presently outstanding Warrants. (c) If Company proposes to issue New Securities, it shall give Purchaser written notice thereof, describing 4 the New Securities, the number thereof to be issued, the purchase price therefor (which shall be payable solely in cash) and the terms upon which Company proposes to issue the same. Purchaser shall have 10 Business Days from the date such notice is given to determine whether to purchase all or any portion of its pro rata share of such New Securities for the purchase price and upon the terms specified in the notice by giving written notice to Company and stating therein the number of New Securities to be purchased. (d) If Purchaser has not elected to purchase all of the New Securities proposed to be issued (within the time period for notifying Company set forth above), then Company shall have 60 calendar days in which to complete the proposed issuance of the portion of the New Securities not purchased by Purchaser at a price not less than that contained in the notice previously given to Purchaser and on terms and conditions not more favorable to the third party than those contained in such notice. If, at the end of such 60-calendar day period, Company has not completed such issuance of New Securities, Company shall no longer be permitted to issue such New Securities pursuant to this Section 2 without again fully complying with all of the provisions of this Section 2. 3. Board Observer. -------------- At any time that GE Capital shall be entitled to designate two or more members of the Board of Directors and designates fewer than such number, GE Capital may designate one individual (the "Observer") to attend all meetings of the Board of Directors (and any committees thereof) in a non-voting observer capacity. The Observer shall be entitled to receive all reports, presentations and materials as if the Observer were a member of the Board. Company shall reimburse each director designated by GE Capital for any reasonable expenses incurred in connection with meetings of the Board of Directors and committees thereof, and shall similarly reimburse the Observer. 4. Stockholders' Representations and Warranties. Each -------------------------------------------- Stockholder represents and warrants to each of the other Stockholders that there are no agreements to which such Stockholder is a party with respect to the voting or transfer of the capital stock of Company or with respect to any other aspect of Company's affairs, other than this Agreement. 5 5. Legend. The Existing Stockholders agree that each ------ certificate representing the Stock now or hereafter held by a Stockholder shall be endorsed with a legend in substantially the following form: "The shares represented by this certificate are subject to a certain Stockholders Agreement, dated as of December 24, 1997, which provides, among other things, for certain restrictions on the transfer of such shares. A copy of such Agreement is on file at the principal offices of Marketing Services Group, Inc. and will be furnished upon request to any holder of the shares represented by this certificate." 6. Equitable Relief. It is hereby acknowledged that ---------------- irreparable harm would occur in the event that any of the provisions of this Agreement were not performed fully by the parties hereto in accordance with the terms specified herein, and that monetary damages are an inadequate remedy for breach of this Agreement because of the difficulty of ascertaining and quantifying the amount of damage that will be suffered by the parties relying hereon in the event that the undertakings and provisions contained in this Agreement were breached or violated. Accordingly, each party hereto hereby agrees that each other party hereto shall be entitled to an injunction or injunctions to restrain, enjoin and prevent breaches of the undertakings and provisions hereof and to enforce specifically the undertakings and provisions hereof in any court of the United States or any state having jurisdiction over the matter; it being understood that such remedies shall be in addition to, and not in lieu of, any other rights and remedies available at law or in equity. 7. Miscellaneous. ------------- (a) Notices. Any and all notices, designations, consents, offers, acceptances, or any other communication provided for herein shall be made in writing by personal- delivery, first-class mail (registered or certified, with return receipt requested), telecopier (with "answer back" confirmation), or overnight air courier guaranteeing next day delivery in the case of Company, at its address set forth at the beginning of this Agreement (Attn: Jeremy Barbera telecopy No.: (212) 465-8877, and in the case of any Stockholder, to the address of such party appearing under its or his name on Annex I hereto (or to such other address as may be designated in writing by any such party in 6 accordance with this Section 7(a)). Such notices or communications shall be effective and deemed given upon delivery to said address. (b) Complete Agreement; Amendment. This Agreement constitutes the complete understanding of the parties with respect to its subject matter and supersedes any other agreement or understanding relating thereto. No amendment, change or modification of this Agreement shall be valid, binding or enforceable, unless the same shall be in writing and signed by GE Capital and the Company and the Existing Shareholders to the extent their rights and obligations under this Agreement would be affected thereby. (c) Termination. This Agreement may be terminated at any time by an instrument in writing signed by GE Capital. (d) Waiver. No failure or delay on the part of the Stockholders or Company or any of them in exercising any right, power or privilege hereunder, and no course of dealing between the Stockholders or Company, shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege hereunder preclude the simultaneous or later exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights and remedies which the Stockholders or Company would otherwise have. (e) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same instrument. (f) Governing Law; Waivers. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict of laws provisions thereof. Each of the parties hereby submits to personal jurisdiction and waives any objection as to venue in the County of New York, State of New York. Service of process on the parties in any action arising out of or relating to this Agreement shall be effective if mailed to the parties in accordance with Section 7(a) hereof. The parties hereto waive all right to trial by jury in any action or proceeding to enforce or defend any rights hereunder. 7 (g) Benefit and Binding Effect. All of the terms and provisions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, including any permitted transferee of their Stock (other than as part of a registered offering under the Securities Act). References herein to Purchaser shall include Purchaser and any of its successors and assigns. (h) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. (i) After-Acquired Shares. All of the provisions of this Agreement shall apply to all of the shares of capital stock of Company now owned or which may be issued to or acquired by a Stockholder in consequence of any additional issuance (including, without limitation, by exercise of an option or any warrant), purchase, exchange, conversion or reclassification of stock, corporate reorganization, or any other form of recapitalization, consolidation, merger, stock split or stock dividend, or which are acquired by a Stockholder in any other manner. (j) Approvals and Consents. The Stockholders hereby agree, for themselves, their successors, heirs and legal representatives, to vote at stockholders' and directors' meetings of Company, to prepare, execute and deliver or cause to be prepared, executed and delivered such further instruments and documents, to take such other actions and to adopt such by-laws and provisions of the certificate of incorporation as may be reasonably required to more effectively carry out the intent and purposes of this Agreement and the transactions contemplated hereby. They further agree to cause Company to do the same. 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. MARKETING SERVICES GROUP, INC. By: ________________________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By: _______________________________________ Name: Title: EXISTING STOCKHOLDERS: --------------------- Jeremy Barbera ____________________________________ 9 ANNEX I ------- Number Stockholders/Purchaser Class of Securities of Shares - ---------------------- ------------------- --------- General Electric Convertible Preferred Stock 50,000 Capital Corporation 260 Long Ridge Road Stamford, Connecticut 06927 Attn: Equity Capital Group- Consumer Products Telecopy No. (203) 961-2088 with copies to: General Electric Capital Corporation 260 Long Ridge Road Stamford, Connecticut 06927 Attn: Equity Capital Group Legal Counsel Telecopy No. (203) 357-3047 and Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attn: Ted S. Waksman, Esq. Telecopy No. (212) 310-8007 Number Stockholders/Existing Stockholders Class of Securities of Shares - ---------------------------------- ------------------- --------- Jeremy Barbera Common Stock _________ NYFS10...:\60\47660\1420\1219\AGRN257X.08D EX-3 4 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT ----------------------------- Registration Rights Agreement, dated as of December 24, 1997, by and among Marketing Services Group, Inc., a Nevada corporation ("Company") and General Electric Capital Corporation ("GE Capital" or "Purchaser"). W I T N E S S E T H : ------------------- WHEREAS, Company and Purchaser have entered into that certain Purchase Agreement, dated as of December 24, 1997 (the "Purchase Agreement"), pursuant to which Company has agreed to issue and sell to Purchaser, and Purchaser has agreed to purchase from Company, an aggregate of 50,000 shares of Series D Convertible Preferred Stock, $0.01 par value per share ("Convertible Preferred Stock"), and 10,670,000 Warrants to purchase shares of Common Stock ("Warrants"); and WHEREAS, in order to induce Purchaser to enter into the Purchase Agreement and to purchase such shares of Convertible Preferred Stock and such Warrants, Company has agreed to provide registration rights with respect thereto; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, it is agreed as follows: 1. Definitions. Unless otherwise defined herein, terms defined ----------- in the Purchase Agreement are used herein as therein defined, and the following shall have (unless otherwise provided elsewhere in this Registration Rights Agreement) the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined): "Agreement" shall mean this Registration Rights Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative. "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "Conversion Shares" shall mean shares of Common Stock issued upon conversion of shares of Convertible Preferred Stock or upon exercise of the Warrants. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Holder" shall mean the holder of Conversion Shares, shares of Convertible Preferred Stock or Warrants. "Majority Holders" shall mean Holders holding at the time, shares of Convertible Preferred Stock, Warrants or Conversion Shares representing more than 50% of the sum of (x) all then outstanding Conversion Shares and (y) all shares of Common Stock issuable to the holders of then-outstanding Convertible Preferred Stock or Warrants upon the conversion or exercise thereof. "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "Registrable Securities" shall mean the shares of Common Stock from time to time issued or issuable to the holders of the Convertible Preferred Stock or Warrants upon the conversion or exercise thereof or hereafter acquired by Purchaser or which Purchaser hereafter obtains the right to acquire pursuant to the terms of the Stockholders Agreement or otherwise. "Secondary Offering" shall have the meaning set forth in Section 3 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. 2. Required Registration. After receipt of a written request --------------------- from the holders of Registrable Securities requesting that Company effect a registration under the Securities Act covering either at least 20% of the Registrable Securities initially outstanding, and specifying 2 the intended method or methods of disposition thereof, Company shall promptly notify all Holders in writing of the receipt of such request and each such Holder may elect (by written notice sent to Company within 10 Business Days from the date of such Holder's receipt of the aforementioned Company's notice) to have Registrable Securities included in such registration thereof pursuant to this Section 2. Thereupon Company shall, as expeditiously as is possible, use its best efforts to effect the registration under the Securities Act of all shares of Registrable Securities which Company has been so requested to register by such Holders for sale, all to the extent required to permit the disposition (in accordance with the intended method or methods thereof, as aforesaid) of the Registrable Securities so registered; provided, however, that Company shall not be required to effect more than two (2) registrations of any Registrable Securities pursuant to this Section 2 unless Company shall be eligible at any time to file a registration statement on Form S-3 (or other comparable short form) under the Securities Act, in which event there shall be no limit on the number of such registrations pursuant to this Section 2. The rights of the Holders under this Section 2 shall not become effective until the earlier of January 1, 2000 or ninety (90) days following the consummation of a Secondary Offering (as hereinafter defined). 3. Incidental Registration. If Company at any time proposes to ----------------------- file on its behalf and/or on behalf of any of its security holders (the "demanding security holders") a Registration Statement under the Securities Act on any form (other than a Registration Statement on Form S-4 or S-8 or any successor form for securities to be offered in a transaction of the type referred to in Rule 145 under the Securities Act or to employees of Company pursuant to any employee benefit plan, respectively) for the general registration of securities (a "Secondary Offering"), it will give written notice to all Holders at least 30 days before the initial filing with the Commission of such Registration Statement, which notice shall set forth the intended method of disposition of the securities proposed to be registered by Company. The notice shall offer to include in such filing the aggregate number of shares of Registrable Securities as such Holders may request. Each Holder desiring to have Registrable Securities registered under this Section 3 shall advise Company in writing within 10 Business Days after the date of receipt of such offer from Company, setting forth the amount 3 of such Registrable Securities for which registration is requested. Company shall thereupon include in such filing the number of shares of Registrable Securities for which registration is so requested, subject to the next sentence, and shall use its best efforts to effect registration under the Securities Act of such shares. If the managing underwriter of a proposed public offering shall advise Company in writing that, in its opinion, the distribution of the Registrable Securities requested to be included in the registration concurrently with the securities being registered by Company or such demanding security holder would materially and adversely affect the distribution of such securities by Company or such demanding security holder, then all selling security holders (including the demanding security holder) shall reduce the amount of securities each intended to distribute through such offering on a pro rata basis. Except as otherwise provided in Section 5, all expenses of such registration shall be borne by Company. 4. Registration Procedures. If Company is required by the ----------------------- provisions of Section 2 or 3 to use its best efforts to effect the registration of any of its securities under the Securities Act, Company will, as expeditiously as possible: (a) prepare and file with the Commission a Registration Statement with respect to such securities and use its best efforts to cause such Registration Statement to become and remain effective for a period of time required for the disposition of such securities by the holders thereof, but not to exceed 180 days; (b) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such Registration Statement until the earlier of such time as all of such securities have been disposed of in a public offering or the expiration of 180 days; (c) furnish to such selling security holders such number of copies of a summary prospectus or other prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and 4 such other documents, as such selling security holders may reasonably request; (d) use its best efforts to register or qualify the securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions within the United States and Puerto Rico as each holder of such securities shall request (provided, however, that Company shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified or to file any general consent to service or process), and do such other reasonable acts and things as may be required of it to enable such holder to consummate the disposition in such jurisdiction of the securities covered by such Registration Statement; (e) furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to Section 2, on the date that such shares of Registrable Securities are delivered to the underwriters for sale pursuant to such registration or, if such Registrable Securities are not being sold through underwriters, on the date that the Registration Statement with respect to such shares of Registrable Securities becomes effective, (1) an opinion, dated such date, of the independent counsel representing Company for the purposes of such registration, addressed to the underwriters, if any, and if such Registrable Securities are not being sold through underwriters, then to the Holders making such request, in customary form and covering matters of the type customarily covered in such legal opinions; and (2) a comfort letter dated such date, from the independent certified public accountants of Company, addressed to the underwriters, if any, and if such Registrable Securities are not being sold through underwriters, then to the Holder making such request and, if such accountants refuse to deliver such letter to such Holder, then to Company, in a customary form and covering matters of the type customarily covered by such comfort letters and as the underwriters or such Holder shall reasonably request. Such opinion of counsel shall additionally cover such other legal matters with respect to the registration in respect of which such opinion is being given as such Holders may reasonably request. Such letter from the independent certified public accountants shall additionally cover such other financial matters (including information as to the period ending not more than five Business Days prior to the date of such letter) with respect 5 to the registration in respect of which such letter is being given as the Holders of a majority of the Registrable Securities being so registered may reasonably request; (f) enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities; and (g) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, but not later than 18 months after the effective date of the Registration Statement, an earnings statement covering the period of at least 12 months beginning with the first full month after the effective date of such Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. It shall be a condition precedent to the obligation of Company to take any action pursuant to this Agreement in respect of the securities which are to be registered at the request of any Holder that such Holder shall furnish to Company such information regarding the securities held by such Holder and the intended method of disposition thereof as Company shall reasonably request and as shall be required in connection with the action taken by Company. 5. Expenses. All expenses incurred in complying with this -------- Agreement, including, without limitation, all registration and filing fees (including all expenses incident to filing with the NASD), printing expenses, fees and disbursements of counsel for Company, the reasonable fees and expenses of counsel for the selling security holders (selected by those holding a majority of the shares being registered), expenses of any special audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdiction pursuant to Section 4(d), shall be paid by Company, except that: (a) all such expenses in connection with any amendment or supplement to the Registration Statement or prospectus filed more than 180 days after the effective date of such Registration Statement because any Holder has not 6 effected the disposition of the securities requested to be registered shall be paid by such Holder; and (b) Company shall not be liable for any fees, discounts or commissions to any underwriter or any fees or disbursements of counsel for any underwriter in respect of the securities sold by such Holder. 6. Indemnification and Contribution. -------------------------------- (a) In the event of any registration of any Registrable Securities under the Securities Act pursuant to this Agreement, Company shall indemnify and hold harmless the holder of such Registrable Securities, such holder's directors and officers, and each other person (including each underwriter) who participated in the offering of such Registrable Securities and each other person, if any, who controls such holder or such participating person within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such holder or any such director or officer or participating person or controlling person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any alleged untrue statement of any material fact contained, on the effective date thereof, in any Registration Statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse such holder or such director, officer or participating person or controlling person for any legal or any other expenses reasonably incurred by such holder or such director, officer or participating person or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any actual or alleged untrue statement or actual or alleged omission made in such Registration Statement, preliminary prospectus, prospectus or amendment or supplement in reliance upon and in conformity with written information furnished to Company by such holder specifically for use therein or (in the case of any registration pursuant 7 to Section 2) so furnished for such purposes by any underwriter. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such holder or such director, officer or participating person or controlling person, and shall survive the transfer of such securities by such holder. (b) Each Holder, by acceptance hereof, agrees to indemnify and hold harmless Company, its directors and officers and each other person, if any, who controls Company within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which Company or any such director or officer or any such person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon information in writing provided to Company by such Holder specifically for use in the following documents and contained, on the effective date thereof, in any Registration Statement under which securities were registered under the Securities Act at the request of such holder, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto. Notwithstanding the provisions of this paragraph (b) or paragraph (c) below, no Holder shall be required to indemnify any person pursuant to this Section 6 or to contribute pursuant to paragraph (c) below in an amount in excess of the amount of the aggregate net proceeds received by such Holder in connection with any such registration under the Securities Act. (c) If the indemnification provided for in this Section 6 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission 8 to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(c) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 7. Certain Limitations on Registration Rights. Notwithstanding ------------------------------------------ the other provisions of this Agreement: (a) Company shall not be obligated to register the Registrable Securities of any Holder if, in the opinion of counsel to Company reasonably satisfactory to the Holder and its counsel (or, if the Holder has engaged an investment banking firm, to such investment banking firm and its counsel), the sale or other disposition of such Holder's Registrable Securities, in the manner proposed by such Holder (or by such investment banking firm), may be effected without registering such Registrable Securities under the Securities Act; and (b) Company shall not be obligated to register the Registrable Securities of any Holder pursuant to Section 2 if Company has had a registration statement, under which such Holder had a right to have its Registrable Securities included pursuant to Section 2 or 3, declared effective within one year prior to the date of the request pursuant to Section 2; provided, however, that if any Holder elected to have shares of its Registrable Securities included under such registration statement but some or all of such shares were excluded pursuant to the penultimate sentence of Section 3, then such one-year period shall be reduced to six months. 9 (c) Company shall have the right to delay the filing or effectiveness of a registration statement required pursuant to Section 2 hereof during one or more periods aggregating not more than 60 days in any twelve-month period in the event that (i) Company would, in accordance with the advice of its counsel, be required to disclose in the prospectus information not otherwise then required by law to be publicly disclosed and (ii) in the judgment of Company's Board of Directors, there is a reasonable likelihood that such disclosure, or any other action to be taken in connection with the prospectus, would materially and adversely affect any existing or prospective material business situation, transaction or negotiation or otherwise materially and adversely affect Company. 8. Selection of Managing Underwriters. The managing ---------------------------------- underwriter or underwriters for any offering of Registrable Securities to be registered pursuant to Section 2 shall be selected by the holders of a majority of the shares being so registered and shall be reasonably acceptable to Company. 9. Restrictions on Sale After Public Offering. Except for ------------------------------------------ transfers made in transactions exempt from the registration requirements under the Securities Act (other than Rule 144 thereunder), Company and each Holder hereby agree not to offer, sell, contract to sell or otherwise dispose of any of their Registrable Securities within 180 days after the date of any final prospectus relating to a public offering of Common Stock, if underwritten, whether by Company or by any Holders, except pursuant to such prospectus or with the written consent of the managing underwriter or underwriters for such offering. 10. Miscellaneous. ------------- (a) No Inconsistent Agreements. Company will not -------------------------- hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in this Agreement. Except as described in Schedule 10(a), Company has not previously entered into any agreement with respect to any of its securities granting any registration rights to any person. (b) Remedies. Each Holder, in addition to being -------- entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. Company 10 agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. In any action or proceeding brought to enforce any provision of this Agreement or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. (c) Amendments and Waivers. Except as otherwise ---------------------- provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departure from the provisions hereof may not be given unless Company has obtained the written consent of the Majority Holders. (d) Notice Generally. Any notice, demand, request, ---------------- consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Agreement shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, or by telecopy and confirmed by telecopy answerback, addressed as follows: (i) If to any Holder, at its last known address appearing on the books of Company maintained for such purpose. (ii) If to Company, at Marketing Services Group, Inc. 333 Seventh Avenue, 20th Floor New York, New York 10001 Attention: Jeremy Barbera Telecopy Number: (212) 465-8877 or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, telecopied and confirmed by 11 telecopy answerback or three Business Days after the same shall have been deposited in the United States mail. (e) Successors and Assigns. This Agreement shall ---------------------- inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto including any person to whom Registrable Securities are transferred. (f) Headings. The headings in this Agreement are -------- for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law; Jurisdiction. This Agreement --------------------------- shall be governed by, construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict of laws provisions thereof. Each of the parties hereby submits to personal jurisdiction and waives any objection as to venue in the County of New York, State of New York. Service of process on the parties in any action arising out of or relating to this Agreement shall be effective if mailed to the parties in accordance with Section 10(d) hereof. The parties hereto waive all right to trial by jury in any action or proceeding to enforce or defend any rights hereunder. (h) Severability. Wherever possible, each ------------ provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. (i) Entire Agreement. This Agreement, ---------------- together with the Purchase Agreement, represents the complete agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof. 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MARKETING SERVICES GROUP, INC. By: _______________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By: _______________________________ Name: Title: 13 NYFS10...:\60\47660\1420\1219\AGRN257P.10D EX-4 5 FORM OF CERTIFICATE OF DESIGNATION MARKETING SERVICES GROUP, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF --------------------- Pursuant to Section _____ of the General Corporation Law of Nevada --------------------- MARKETING SERVICES GROUP, INC. (the "Company"), a corporation organized and existing under the laws of the State of Nevada, hereby certifies that pursuant to the provisions of Section _____ of the General Corporation Law of Nevada, its Board of Directors, by unanimous written consent, dated December _____, 1997, adopted the following resolution, which resolution remains in full force and effect as of the date hereof: WHEREAS, the Board of Directors of the Company is authorized, within the limitations and restrictions stated in the Certificate of Incorporation, to fix by resolution or resolutions the designation of preferred stock and the powers, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions thereof, including, without limiting the generality of the foregoing, such provisions as may be desired concerning voting, redemption, dividends, dissolution or the distribution of assets, conversion or exchange, and such other subjects or matters as may be fixed by resolution or resolutions of the Board of Directors under the General Corporation Law of Nevada; and WHEREAS, it is the desire of the Board of Directors of the Company, pursuant to its authority as aforesaid, to authorize and fix the terms of the preferred stock to be designated the Series D Convertible Preferred Stock of the Company and the number of shares constituting such preferred stock; NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized the Series D Convertible Preferred Stock on the terms and with the provisions herein set forth: TERMS, PREFERENCES, RIGHTS AND LIMITATIONS of SERIES D CONVERTIBLE PREFERRED STOCK of MARKETING SERVICES GROUP, INC. The relative rights, preferences, powers, qualifications, limitations and restrictions granted to or imposed upon the Series D Convertible Preferred Stock or the holders thereof are as follows: 1. Definitions. For purposes of this Designation, the ----------- following definitions shall apply: "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Aggregate Exercised Amount" shall mean, as of the date of a conversion pursuant to Section 7, an amount equal to the sum of all Exercised Amounts based on all exercises of Scheduled Options and Scheduled Warrants occurring from the date hereof through and including such date. "Board" shall mean the Board of Directors of the Company. "Business Day" shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "Common Stock" shall mean the Common Stock, $.01 par value per share, of the Company. "Company" shall mean Marketing Services Group, Inc., a Nevada corporation. "Conversion Price" shall mean the amount computed by dividing the Liquidation Preference by the number of shares of Common Stock into which one share of Convertible Preferred Stock is convertible at the Conversion Ratio. 2 "Conversion Ratio" shall mean the amount computed by dividing the Liquidation Preference by $3.397. "Convertible Preferred Stock" shall refer to shares of Series D Convertible Preferred Stock, $0.01 par value per share, of the Company. "Current Market Price," when used with reference to shares of Common Stock or other securities on any date, shall mean the average of the daily market prices for 30 consecutive Business Days commencing 45 days before such date. The daily market price for each such Business Day shall be (i) the last sale price on such day on the principal stock exchange or the Nasdaq National Market or Small Cap Market on which such Common Stock is then listed or admitted to trading, (ii) if no sale takes place on such day on any such exchange or market, the average of the last reported closing bid and asked prices on such day as officially quoted on any such exchange or market, (iii) if the Common Stock is not then listed or admitted to trading on any stock exchange or such market, the average of the last reported closing bid and asked prices on such day in the over-the-counter market, as furnished by Nasdaq or the National Quotation Bureau, Inc., (iv) if neither such corporation at the time is engaged in the business of reporting such prices, as furnished by any similar firm then engaged in such business, or (v) if there is no such firm, as furnished by any member of the National Association of Securities Dealers ("NASD") selected mutually by the Required Holders and the Company or, if they cannot agree upon such selection, as selected by two such members of the NASD, one of which shall be selected by the Required Holders and one of which shall be selected by the Company. "Dividend Rate" shall mean 6% per annum; provided, however, (i) upon the occurrence and during the continuance of an Event of Default the Dividend Rate shall be 8% per annum, and (ii) if the Company fails to make the redemption required by Section 6(a)(ii) hereof, the Dividend Rate shall be 15% per annum, calculated on a 360 day per year basis, based on the actual number of days elapsed. "Event of Default" shall have the meaning assigned to it in the Purchase Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Securities and Exchange 3 Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934, as amended, shall include reference to the comparable section, if any, of any such similar Federal statute. "Exercised Amount" shall mean, with respect to each exercise of Scheduled Options or Scheduled Warrants, an amount equal to 0.24 multiplied by (X - y/z),where X = the number of shares of Common Stock purchased upon such exercise, Y = the aggregate exercise price payable upon such exercise, and Z = the Current Market Price on the date of such exercise. "Fair Market Value" shall mean the amount which a willing buyer would pay a willing seller in an arm's-length transaction, with neither being under any compulsion to buy or sell. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time. "Liquidation Preference" shall mean $300 per share. "Organic Change" shall mean (A) any sale, lease, exchange or other transfer of all or substantially all of the property and assets of the Company, (B) any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, (C) any merger or consolidation to which the Company is a party or (D) any Person or group of Persons (as such term is used in Section 13(d) of the Exchange Act), other than General Electric Capital Corporation and its Affiliates, shall beneficially own (as defined in Rule 13d-3 under the Exchange Act) securities of the Company representing 50% or more of the voting securities of the Company then outstanding. For purposes of the preceding sentence, "voting securities" shall mean securities, the holders of which are ordinarily, in the absence of contingencies, entitled to elect the corporate directors (or Persons performing similar functions). "Original Issue Date" shall mean the date of the original issuance of 50,000 shares of Convertible Preferred Stock. 4 "Person" shall mean any individual, firm, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. "Purchase Agreement" shall mean the Purchase Agreement, dated as of December __, 1997, by and between the Company and the purchasers named therein, as it may be amended from time to time, a copy of which is on file at the principal office of the Company. "Qualified Secondary Offering" means a sale of the Company's Common Stock pursuant to a public offering of the Company's Common Stock on Form S-1 (or any other appropriate general or short registration form) under the Securities Act of 1933, as amended, pursuant to which the Common Stock is offered (whether or not for the Company's account) for at least $8.75 per share, subject to appropriate adjustment if any of the events set forth in Section 7(f)(i) shall occur. "Redemption Date" shall mean the date on which any shares of Convertible Preferred Stock are redeemed by the Company. "Redemption Price" has the meaning set forth in Section 6(a)(i) of this Certificate of Designation. "Required Holders" shall mean the holders of at least of a majority of the outstanding shares of Convertible Preferred Stock. "Scheduled Options" shall mean the options to purchase shares of Common Stock set forth on Schedule 4.1(b) to the Purchase Agreement. "Scheduled Warrants" shall mean the warrants to purchase shares of Common Stock set forth on Schedule 4.1(b) to the Purchase Agreement. "Subsidiary" of any Person means any corporation or other entity of which a majority of the voting power or the voting equity securities or equity interest is owned, directly or indirectly, by such Person. "Trading Day" shall mean a Business Day or, if the Common Stock is listed or admitted to trading on any national securities exchange, a day on which such exchange is open for the transaction of business. 5 2. Designation: Number of Shares. The designation of the ----------------------------- preferred stock authorized by this resolution shall be "Series D Convertible Preferred Stock" and the number of shares of Convertible Preferred Stock authorized hereby shall be 50,000 shares. 3. Dividends. --------- (a) So long as any shares of Convertible Preferred Stock shall be outstanding, dividends shall accrue thereon, whether or not declared by the Board of Directors of the Company, at the Dividend Rate on the Liquidation Preference hereunder, compounded quarterly on the first Business Day of each calendar quarter, and payable quarterly on the first Business Day of each calendar quarter. Such dividends shall be cumulative and begin to accrue from the Original Issue Date, whether or not declared and whether or not there shall be net profits or net assets of the Company legally available for the payment of those dividends. (b) So long as any shares of Convertible Preferred Stock shall be outstanding, (i) no dividend whatsoever shall be paid or declared, and no distribution shall be made, on account of any Common Stock or on account of any class or series of the Company's preferred or other capital stock ranking junior to or pari passu with the Convertible Preferred Stock, and (ii) no shares of Common Stock or of any class or series of the Company's preferred or other capital stock ranking junior to or pari passu with the Convertible Preferred Stock shall be purchased, redeemed or acquired by the Company and no funds shall be paid into or set aside or made available for a sinking fund for the purchase, redemption or acquisition thereof, other than any non-vested shares purchased from employees of the Company pursuant to a stock option plan approved by the Board of Directors of the Company. 4. Liquidation Rights of Convertible Preferred Stock. ------------------------------------------------- (a) In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Convertible Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, whether such assets are capital, surplus or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of 6 any shares of Common Stock or any share of any other class or series of the Company's preferred stock ranking junior to the Convertible Preferred Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Company, an amount equal to the Liquidation Preference plus all accrued and unpaid dividends in respect of any liquidation, dissolution or winding up consummated. (b) If upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the assets to be distributed among the holders of Convertible Preferred Stock shall be insufficient to permit the payment to such stockholders of the full preferential amounts aforesaid, then the entire assets of the Company to be distributed shall be distributed ratably among the holders of Convertible Preferred Stock, based on the full preferential amounts for the number of shares of Convertible Preferred Stock held by each holder. (c) After payment to the holders of Convertible Preferred Stock of the amounts set forth in Section 4(a) hereof, the entire remaining assets and funds of the Company legally available for distribution, if any, shall be distributed first among the holders of securities senior to the Common Stock, pro rata based on the number of shares of such securities held by them and second among the holders of Common Stock pro rata based on the number of shares of Common Stock then held by each. 5. Voting Rights. In addition to any voting rights provided by ------------- law, the holders of shares of Convertible Preferred Stock shall have the following voting rights: (a) So long as any of the Convertible Preferred Stock is outstanding, each share of Convertible Preferred Stock shall entitle the holder thereof to vote on all matters voted on by the holders of Common Stock, voting together as a single class with other shares entitled to vote at all meetings of the stockholders of the Company. With respect to any such vote, each share of Convertible Preferred Stock shall entitle the holder thereof to cast the number of votes equal to the number of votes which could be cast in such vote by a holder of the number of shares of Common Stock of the Company into which such share of Convertible Preferred Stock is convertible on the record date for such vote. 7 (b) The affirmative vote of the Required Holders, voting together as a class, in person or by proxy, at a special or annual meeting of stockholders called for the purpose, or pursuant to a written consent of stockholders shall be necessary to (i) authorize, adopt or approve an amendment to the Certificate of Incorporation of the Company which would alter or change in any manner the terms, powers, preferences or special rights of the shares of Convertible Preferred Stock; (ii) issue any shares of the capital stock of the Company ranking senior to, or pari passu with (either as to dividends or upon voluntary or involuntary liquidation, dissolution or winding up) the Convertible Preferred Stock; (iii) take any action which is in violation of Article V of the Purchase Agreement; or (iv) effect an Organic Change. (c) So long as there are at least 20% of the shares of Convertible Preferred Stock issued pursuant to the Purchase Agreement outstanding, (i) the Board of Directors of the Company shall consist of eight directors, (ii) the holders of shares of Convertible Preferred Stock shall have, in addition to the other voting rights set forth herein, the exclusive right, voting separately as a single class, to elect two directors of the Company and (iii) the holders of shares of Common Stock and Convertible Preferred Stock shall have, in addition to the other rights set forth herein, the right, voting together as a single class, to elect six directors of the Company; provided, however, so long as the holders of shares of Convertible Preferred Stock have the right to elect one or two additional directors pursuant to Sections 5(d) or 6(d)(i) hereof, respectively, the number in clause (ii) shall be increased by one, or two, as the case may be, and the number in clause (iii) shall be decreased by one, or two, as the case may be. At least one member of any Committee of the Board of Directors (including any Executive Committee, Audit Committee or Compensation Committee) shall be the director elected solely by the holders of the Convertible Preferred Stock, if any of such committees are established by the Board of Directors of the Company, unless such right is waived in writing by the Required Holders. 8 (d) If, on any date, an Event of Default shall have occurred and be continuing, then the holders of shares of Convertible Preferred Stock shall have, in addition to their other voting rights set forth herein, the exclusive right, voting separately as a single class, to elect an additional director of the Company in accordance with this Section 5 and one of the directors elected pursuant to clause (iii) of Section 5(c) shall resign or be removed without cause. (e) (i) The foregoing rights of holders of shares of Convertible Preferred Stock to take any actions as provided in this Section 5 may be exercised at any annual meeting of stockholders or at a special meeting of stockholders held for such purpose as hereinafter provided or at any adjournment thereof or pursuant to any written consent of stockholders. (ii) If (A) the annual meeting of stockholders of the Company is not, for any reason, held within the time fixed in the by-laws of the Company, or (B) vacancies shall exist in the offices of directors elected by the holders of Convertible Preferred Stock, or (C) the holders of the Convertible Preferred Stock have the right to elect three additional directors pursuant to Section 6(d)(i), a proper officer of the Company, upon the written request of the holders of record of at least twenty five percent (25%) of the shares of Convertible Preferred Stock then outstanding, addressed to the Secretary of the Company, shall call a special meeting in lieu of the annual meeting of stockholders or a special meeting of the holders of Convertible Preferred Stock, for the purpose of electing or, if necessary, removing directors. Any such meeting shall be held at the earliest practicable date at the place for the holding of the annual meetings of stockholders. If such meeting shall not be called by the proper officer of the Company within ninety (90) days after personal service of said written request upon the Secretary of the Company, or within ninety (90) days after mailing the same within the United States by certified mail, addressed to the Secretary of the Company at its principal executive offices, then the holders of record of at least twenty five percent (25%) of the outstanding shares of Convertible Preferred Stock may designate in writing one of their number to call such meeting at the expense of the Company, and such meeting may be called by the person so designated upon the notice required for the annual meetings of stockholders of the Company and shall be held at the place for holding the 9 NYFS10...:\60\47660\1420\1219\CRTN257P.27E annual meetings of stockholders. Any holder of Convertible Preferred Stock so designated shall have access to the lists of stockholders to be called pursuant to the provisions hereof. (f) Any vacancy occurring in the office of director elected by the holders of Convertible Preferred Stock or any additional director to be elected pursuant to Section 6(d)(i) may be filled by the remaining director(s) elected by the holders of Convertible Preferred Stock unless and until such vacancy shall be filled by the holders of Convertible Preferred Stock. The term of office of the directors elected by the holders of Convertible Preferred Stock shall terminate upon the election of their successors at any meeting of stockholders held for the purpose of electing directors. (g) The directors elected by the holders of shares of Convertible Preferred Stock voting separately as a single class may be removed from office with or without cause by the vote of the holders of at least a majority of the outstanding shares of Convertible Preferred Stock. A special meeting of the holders of shares of Convertible Preferred Stock may be called in accordance with the procedures set forth in subparagraph (e) of this Section 5. 6. Redemption of Convertible Preferred Stock. ----------------------------------------- (a)(i) Optional Redemption. (A) If any Organic Change occurs, at the option of any holder of outstanding Convertible Preferred Stock (as exercised pursuant to subparagraph (B) below), the Company shall redeem, at the redemption price equal to the sum of the Liquidation Preference per share plus an amount equal to all accrued and unpaid dividends per share (the "Redemption Price"), those outstanding shares of Convertible Preferred Stock which the holders of such Convertible Preferred Stock have elected to redeem, such redemption to occur immediately prior to or simultaneously with the consummation of such Organic Change. If the Required Holders so elect in connection with such Organic Change by written notice to the Company within the Notice Period referred to below, the Company shall redeem all of the outstanding shares of Convertible Preferred Stock. (B) The Company will give written notice of any Organic Change, stating the substance and intended date of consummation thereof, not more than sixty (60) Business Days 10 nor less than twenty (20) Business Days prior to the date of consummation thereof, to each holder of Convertible Preferred Stock. The holders of the Convertible Preferred Stock shall have fifteen (15) Business Days (the "Notice Period") from the date of the receipt of such notice to demand (by written notice mailed to the Company) redemption of all or any portion of the shares of Convertible Preferred Stock held by such holder. If, by the expiration of the Notice Period, the Required Holders have so elected to demand redemption of all of the outstanding shares of Convertible Preferred Stock as provided in paragraph (A) above, the Company shall give prompt written notice of such election to each other holder of Convertible Preferred Stock within five (5) Business Days after the expiration of the Notice Period. (ii) Mandatory Redemption. (A) The Company shall redeem, and the holders of the outstanding Convertible Preferred Stock shall sell to the Company, at the Redemption Price, all of the outstanding Convertible Preferred Stock on the sixth anniversary of the Original Issue Date. (B) At least twenty (20) Business Days and not more than sixty (60) Business Days prior to the date fixed for the mandatory redemption of the Convertible Preferred Stock, written notice (the "Redemption Notice") shall be mailed, postage prepaid, to each holder of record of the Convertible Preferred Stock at its post office address last shown on the records of the Company. The Redemption Notice shall state: (1) the number of shares of Convertible Preferred Stock held by the holder that the Company intends to redeem; (2) the date fixed for redemption and the Redemption Price; and (3) that the holder is to surrender to the Company, in the manner and at the place designated, its certificate or certificates representing the shares of Convertible Preferred Stock to be redeemed. (iii) On or before the Redemption Date, each holder of Convertible Preferred Stock shall surrender the certificate or certificates representing such shares of Convertible Preferred Stock to the Company, in the manner and at the place designated in the Redemption Notice, and 11 thereupon the Redemption Price for such shares shall be payable in cash on the Redemption Date to the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (b) Unless the Company defaults in the payment in full of the Redemption Price, dividends on the Convertible Preferred Stock called for redemption shall cease to accumulate on the Redemption Date, and the holders of such shares redeemed shall cease to have any further rights with respect thereto on the Redemption Date, other than to receive the Redemption Price without interest. (c) If, at the time of any redemption pursuant to this Section 6, the funds of the Company legally available for redemption of Convertible Preferred Stock are insufficient to redeem the number of shares required to be redeemed, those funds which are legally available shall be used to redeem the maximum possible number of such shares, pro rata based upon the number of shares to be redeemed. At any time thereafter when additional funds of the Company become legally available for the redemption of Convertible Preferred Stock, such funds shall immediately be used to redeem the balance of the shares of Convertible Preferred Stock which the Company has become obligated to redeem pursuant to this subparagraph, but which it has not redeemed; or, in the case of a redemption pursuant to Section 6(a)(i) if a person other than the Company is the surviving or resulting corporation in any Organic Change, such person shall, at the consummation of such Organic Change, redeem such balance of the shares of Convertible Preferred Stock (and the Company shall so provide in its agreements with such person relating to such Organic Change). (d) If the Company fails to make the redemption required by paragraph 6(a)(ii) above, whether or not by reason of the absence of legally available funds therefor, then (i) the holders of shares of Convertible Preferred Stock shall have, in addition to their other voting rights set forth herein, the exclusive right, voting separately as a single class, to elect two additional directors of the Company in accordance with Section 5 and two of the directors elected pursuant to clause (iii) of Section 5(c) 12 shall resign or be removed without cause, and (ii) the Dividend Rate shall be 15% per annum. (e) The Company may not otherwise redeem or repurchase the Convertible Preferred Stock. 7. Conversion. (a) Subject to the provisions for adjustment ---------- hereinafter set forth, (i) each share of Convertible Preferred Stock shall be convertible at any time and from time to time, at the option of the holder thereof (such conversion, a "Optional Conversion") and (ii) all shares of Convertible Preferred Stock shall be convertible at the option of the Company (x) at any time after the Current Market Price of the Common Stock equals or exceeds $8.75 per share (subject to appropriate adjustment, if any of the events set forth in Section 7(f)(i) shall occur) for at least 20 days during a period of 30 consecutive Business Days, or (y) upon the occurrence of a Qualified Secondary Offering (such conversion, a "Company Conversion"), in each case into fully paid and nonassessable shares of Common Stock. The number of shares of Common Stock deliverable upon conversion of a share of Convertible Preferred Stock, adjusted as hereinafter provided, shall be one multiplied by the Conversion Ratio plus that number of shares equal to the accrued dividend in respect of such shares of Convertible Preferred Stock divided by the Current Market Price on the date of such conversion. The Conversion Ratio shall initially be 88.31224, subject to adjustment from time to time pursuant to paragraph (f) of this Section 7 and for adjustments for increases in the accrued and unpaid dividends. No fractional shares shall be issued upon the conversion of any shares of Convertible Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Convertible Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Company shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the Current Market Price of such fraction on the date of conversion. (b) (i) An Optional Conversion of the Convertible Preferred Stock may be effected by any such holder upon the surrender to the Company at the principal office of the Company of the certificate for such 13 Convertible Preferred Stock to be converted accompanied by a written notice stating that such holder elects to convert all or a specified number of such shares (which may be fractional shares) in accordance with the provisions of this Section 7 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. A Company Conversion of the Convertible Preferred Stock may be effected by the Company sending notice to the holders, specifying the event that gave rise to the Company's right to exercise a Company Conversion and the number of shares to be converted, which shall be applied on a pro-rata basis for all holders. A Company Conversion shall be deemed to have been made at the close of business on the date of giving the written notice referred to in the immediately preceding sentence. Each holder shall surrender to the Company the certificate for such Convertible Preferred Stock converted pursuant to a Company Conversion accompanied by a written notice specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. Until such time as the holder surrenders its certificate pursuant to a Company Conversion, the certificates representing the Convertible Preferred Stock to be so converted shall represent the number of shares of Common Stock issuable upon conversion of such certificate. Upon any conversion of any shares of Convertible Preferred Stock, all accrued and unpaid dividends shall be similarly converted. (ii) In case the written notice specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. Other than such taxes, the Company will pay any and all issue and other taxes (other than taxes based on income) that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Convertible Preferred Stock pursuant hereto. As promptly as practicable, and in any event within five Business Days after the surrender of such certificate or certificates and the receipt of such notice relating thereto and, if applicable, payment of all transfer taxes (or the demonstration to the satisfaction of the Company that such taxes have been paid), the Company shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable full shares of 14 Common Stock to which the holder of shares of Convertible Preferred Stock being converted shall be entitled and (ii) if less than the full number of shares of Convertible Preferred Stock evidenced by the surrendered certificate or certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares being converted. (iii) In the case of an Optional Conversion, such conversion shall be deemed to have been made at the close of business on the date of giving the written notice referred to in the first sentence of (b)(i) above and of such surrender of the certificate or certificates representing the shares of Convertible Preferred Stock to be converted so that the rights of the holder thereof as to the shares being converted shall cease except for the right to receive shares of Common Stock in accordance herewith, and the person entitled to receive the shares of Common Stock shall be treated for all purposes as having become the record holder of such shares of Common Stock at such time. (c) In case any shares of Convertible Preferred Stock are to be redeemed pursuant to Section 6, all rights of conversion shall cease and terminate as to the shares of Convertible Preferred Stock to be redeemed at the close of business on the Business Day next preceding the date fixed for redemption unless the Company shall default in the payment of the Redemption Price. (d) The Conversion Ratio shall be subject to adjustment from time to time in certain instances as hereinafter provided. (e) The Company shall at all times reserve, and keep available for issuance upon the conversion of the Convertible Preferred Stock, such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all outstanding shares of Convertible Preferred Stock, and shall take all action required to increase the authorized number of shares of Common Stock if necessary to permit the conversion of all outstanding shares of Convertible Preferred Stock. (f) The Conversion Ratio will be subject to adjustment from time to time as follows: 15 (i) In case the Company shall at any time or from time to time after the Original Issue Date (A) pay a dividend, or make a distribution, on the outstanding shares of Common Stock in shares of Common Stock, (B) subdivide the outstanding shares of Common Stock, (C) combine the outstanding shares of Common Stock into a smaller number of shares or (D) issue by reclassification of the shares of Common Stock any shares of capital stock of the Company, then, and in each such case, the Conversion Ratio in effect immediately prior to such event or the record date therefor, whichever is earlier, shall be adjusted so that the holder of any shares of Convertible Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock or other securities of the Company which such holder would have owned or have been entitled to receive after the happening of any of the events described above, had such shares of Convertible Preferred Stock been surrendered for conversion immediately prior to the happening of such event or the record date therefor, whichever is earlier. An adjustment made pursuant to this clause (i) shall become effective (x) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of shares of Common Stock entitled to receive such dividend or distribution, or (y) in the case of such subdivision, reclassification or combination, at the close of business on the day upon which such corporate action becomes effective. No adjustment shall be made pursuant to this clause (i) in connection with any transaction to which paragraph (g) applies. (ii) In case the Company shall issue shares of Common Stock (or rights, warrants or other securities convertible into or exchangeable for shares of Common Stock) after the Original Issue Date, other than issuances covered by clause (i) above, at a price per share (or having an exercise, conversion or exchange price per share) less than the Conversion Price as of the date of issuance of such shares or of such rights, warrants or other convertible or exchangeable securities, then, and in each such case, the 16 Conversion Price shall be reduced (but not increased) to a price determined by dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue multiplied by the then existing Conversion Price, plus (y) the consideration, if any, received by Company upon such issue, by (B) the total number of shares of Common Stock outstanding immediately after such issue or sale. The Conversion Ratio shall be adjusted to equal the Liquidation Preference divided by the Conversion Price. For the purpose of determining the consideration received by the Company upon any such issue pursuant to clause (y) above, if the consideration received by the Company is other than cash, its value will be deemed its Fair Market Value, as determined in good faith by the Board of Directors of the Company. (iii) An adjustment made pursuant to clause (ii) above shall be made on the next Business Day following the date on which any such issuance is made and shall be effective retroactively immediately after the close of business on such date. For purposes of clause (ii), the aggregate consideration received by the Company in connection with the issuance of shares of Common Stock or of rights, warrants or other securities exchangeable or convertible into shares of Common Stock shall be deemed to be equal to the sum of the aggregate offering price of all such Common Stock and such rights, warrants, or other exchangeable or convertible securities plus the minimum aggregate amount, if any, receivable upon exchange or conversion of any such exchangeable or convertible securities into shares of Common Stock. (iv) In case the Company shall at any time or from time to time after the Original Issue Date declare, order, pay or make a dividend or other distribution (including, without limitation, any distribution of stock or other securities or property or rights or warrants to subscribe for securities of the Company or any of its Subsidiaries by way of dividend or spinoff), on its Common Stock, other than dividends or 17 distributions of shares of Common Stock which are referred to in clause (i) of this paragraph (f) or made in compliance with Section 3(b) hereof, then, and in each such case, the Conversion Ratio shall be adjusted so that the holder of each share of Convertible Preferred Stock shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (1) the applicable Conversion Ratio on the day immediately prior to the record date fixed for the determination of stockholders entitled to receive such dividend or distribution by (2) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock at such record date, and the denominator of which shall be such Current Market Price per share of Common Stock less the Fair Market Value of such dividend or distribution per share of Common Stock. No adjustment shall be made pursuant to this clause (iv) in connection with any transaction to which paragraph (g) applies. (v For purposes of this paragraph (f), the number of shares of Common Stock at any time outstanding shall not include any shares of Common Stock then owned or held by or for the account of the Company or any of its subsidiaries. (vi) In lieu of any other adjustment resulting from the exercise of Scheduled Options or Scheduled Warrants pursuant to this paragraph (f), whenever shares of Convertible Preferred Stock are converted in accordance with this Section 7, the number of shares of Common Stock to be received upon such conversion shall be adjusted upwards by the Aggregate Exercised Amount multiplied by a fraction, the numerator of which shall equal the number of shares of Convertible Preferred Stock being converted on such date, and the denominator of which shall equal 50,000. (vii) If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, and shall thereafter and before the distribution to stockholders thereof legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment in 18 the number of shares of Common Stock issuable upon exercise of the right of conversion granted by this paragraph (f) or in the Conversion Ratio then in effect shall be required by reason of the taking of such record. (viii) Anything in this paragraph (f) to the contrary notwithstanding, the Company shall not be required to give effect to any adjustment in the Conversion Ratio unless and until the net effect of one or more adjustments (each of which shall be carried forward), determined as above provided, shall have resulted in a change of the Conversion Ratio by at least one-tenth of one share of Common Stock, and when the cumulative net effect of more than one adjustment so determined shall be to change the Conversion Ratio by at least one-tenth of one share of Common Stock, such change in Conversion Ratio shall thereupon be given effect. (ix) If any option or warrant expires or is cancelled without having been exercised, then, for the purposes of the adjustments set forth above, such option or warrant shall have been deemed not to have been issued and the Conversion Ratio shall be adjusted accordingly. No holder of Common Stock which was previously issued upon conversion of Convertible Preferred Stock shall have any obligation to redeem or cancel any such shares of Common Stock as a result of the operation of this paragraph (ix). (g) In case of any Organic Change, each share of Convertible Preferred Stock then outstanding, other than those shares to be redeemed pursuant to Section 6 hereof, shall thereafter be convertible into, in lieu of the Common Stock issuable upon such conversion prior to consummation of such Organic Change, the kind and amount of shares of stock and other securities and property receivable (including cash) upon the consummation of such Organic Change by a holder of that number of shares of Common Stock into which one share of Convertible Preferred Stock was convertible immediately prior to such Organic Change (including, on a pro rata basis, the cash, securities or property received by holders of Common Stock in any tender or exchange offer that is a step in such Organic Change). In case securities or property other than Common Stock shall be issuable or 19 deliverable upon conversion as aforesaid, then all references in this Section 7 shall be deemed to apply, so far as appropriate and nearly as may be, to such other securities or property. (h) In case at any time or from time to time the Company shall pay any stock dividend or make any other non-cash distribution to the holders of its Common Stock, or shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or any other right, or there shall be any capital reorganization or reclassification of the Common Stock of the Company or consolidation or merger of the Company with or into another corporation, or any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, or there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company, then, in any one or more of said cases, the Company shall give at least 20 days' prior written notice to the registered holders of the Convertible Preferred Stock at the addresses of each as shown on the books of the Company as of the date on which (i) the books of the Company shall close or a record shall be taken for such stock dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, sale or conveyance, dissolution, liquidation or winding up shall take place, as the case may be, provided that in the case of any Organic Change to which paragraph (g) applies the Company shall give at least 30 days' prior written notice as aforesaid. Such notice shall also specify the date as of which the holders of the Common Stock of record shall participate in said dividend, distribution or subscription rights or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or conveyance or participate in such dissolution, liquidation or winding up, as the case may be. Failure to give such notice shall not invalidate any action so taken. 8. Reports as to Adjustments. Upon any adjustment of the ------------------------- Conversion Ratio then in effect and any increase or decrease in the number of shares of Common Stock issuable upon the operation of the conversion set forth in Section 7, then, and in each such case, the Company shall promptly deliver to each holder of the Convertible Preferred Stock, a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or 20 the Secretary or an Assistant Secretary of the Company setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the Conversion Ratio then in effect following such adjustment and the increased or decreased number of shares issuable upon the conversion granted by Section 7, and shall set forth in reasonable detail the method of calculation of each and a brief statement of the facts requiring such adjustment. Where appropriate, such notice to holders of the Convertible Preferred Stock may be given in advance and included as part of the notice required under the provisions of Section 11. 9. Certain Covenants. Any registered holder of Convertible ----------------- Preferred Stock may proceed to protect and enforce its rights and the rights of such holders by any available remedy by proceeding at law or in equity to protect and enforce any such rights, whether for the specific enforcement of any provision in this Certificate of Designation or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. 10. No Reissuance of Preferred Stock. No Convertible Preferred -------------------------------- Stock acquired by the Company by reason of redemption, purchase, or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Company shall be authorized to issue. 11. Notices. All notices to the Company permitted hereunder ------- shall be personally delivered or sent by first class mail, postage prepaid, addressed to its principal office located at 333 Seventh Avenue, 20th Floor, New York, New York 10001, or to such other address at which its principal office is located and as to which notice thereof is similarly given to the holders of the Convertible Preferred Stock at their addresses appearing on the books of the Company. 21 IN WITNESS WHEREOF, Marketing Services Group, Inc. has caused this Certificate to be signed by its President and Secretary, respectively, on this ____ day of December, 1997. ------------------------- President ------------------------- Secretary 22 NYFS10...:\60\47660\1420\1219\CRTN257P.27E EX-5 6 WARRANT WARRANT TO PURCHASE COMMON STOCK OF MARKETING SERVICES GROUP, INC. Warrant No. 1 No. of Shares of Common Stock: 10,670,000 TABLE OF CONTENTS SECTION PAGE 1. DEFINITIONS............................................................. 1 2. EXERCISE OF WARRANT..................................................... 5 2.1. Manner of Exercise........................................... 5 2.2. Payment of Taxes............................................. 7 2.3. Fractional Shares............................................ 7 2.4. Continued Validity........................................... 7 3. TRANSFER, DIVISION AND COMBINATION...................................... 8 3.1. Transfer..................................................... 8 3.2. Division and Combination..................................... 8 3.3. Expenses..................................................... 8 3.4. Maintenance of Books......................................... 8 4. ADJUSTMENTS............................................................. 8 4.1. Reduction or Cancellation of Shares Subject to Warrant................................................... 9 4.2. Stock Dividends, Subdivisions and Combinations................................................. 9 4.3. Certain Other Distributions and Adjustments.................. 10 4.4. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets....................... 11 4.5. Other Action Affecting Common Stock.......................... 12 5. NOTICES TO WARRANT HOLDERS.............................................. 12 5.1. Notice of Adjustments........................................ 12 5.2. Notice of Corporate Action................................... 13 6. NO IMPAIRMENT........................................................... 14 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY.......................................................... 15 8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS...................... 15 9. RESTRICTIONS ON TRANSFERABILITY......................................... 15 9.1. Restrictive Legend........................................... 16 9.2. Termination of Restrictions.................................. 16 9.3. Listing on Securities Exchange............................... 17 10. SUPPLYING INFORMATION.................................................. 17 i Section Page 11. LOSS OR MUTILATION..................................................... 17 12. OFFICE OF COMPANY...................................................... 18 13. FINANCIAL AND BUSINESS INFORMATION..................................... 18 13.1. Quarterly Information....................................... 18 13.2. Annual Information.......................................... 18 13.3. Filings..................................................... 19 14. LIMITATION OF LIABILITY................................................ 19 15. MISCELLANEOUS.......................................................... 19 15.1. Nonwaiver and Expenses...................................... 19 15.2. Notice Generally............................................ 19 15.3. Remedies.................................................... 20 15.4. Successors and Assigns...................................... 21 15.5. Amendment................................................... 21 15.6. Severability................................................ 21 15.7. Headings.................................................... 21 15.8. Governing Law............................................... 21 ii THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS WARRANT. No. of Shares of Common Stock: 10,670,000 Warrant No. 1 WARRANT To Purchase Common Stock of MARKETING SERVICES GROUP, INC. THIS IS TO CERTIFY THAT GENERAL ELECTRIC CAPITAL CORPORATION, or registered assigns, is entitled, at any time during the Exercise Period (as hereinafter defined), to purchase from MARKETING SERVICES GROUP, INC., a Nevada corporation ("Company"), 10,670,000 shares of Common Stock (as hereinafter defined and subject to adjustment as provided herein), in whole or in part, including fractional parts, at a purchase price of $.01 per share (subject to adjustment as provided herein) all on the terms and conditions and pursuant to the provisions hereinafter set forth. 1. DEFINITIONS ----------- Terms used in this Warrant which are defined in the Purchase Agreement (as defined below) are used herein as defined therein unless otherwise provided, and the following terms have the respective meanings set forth below: "Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Closing Date" shall have the meaning set forth in the Purchase Agreement. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "Common Stock" shall mean (except where the context otherwise indicates) the Common Stock, $0.01 par value, of Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation (as defined in Section 4.4) received by or distributed to the holders of Common Stock of Company in the circumstances contemplated by Section 4.4. "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the average of the daily market prices for 20 consecutive Business Days commencing 30 days before such date. The daily market price for each such Business Day shall be (i) the last sale price on such day on the principal stock exchange or NASDAQ National Market System or NASDAQ Small Cap Market ("NASDAQ") on which such Common Stock is then listed or admitted to trading, (ii) if no sale takes place on such day on any such exchange or NASDAQ, the average of the last reported closing bid and asked prices on such day as officially quoted on any such exchange or NASDAQ, (iii) if the Common Stock is not then listed or admitted to trading on any stock exchange or NASDAQ, the average of the last reported closing bid and asked prices on such day in the over-the-counter market, as furnished by the National Association of Securities Dealers Automatic Quotation System or the National Quotation Bureau, Inc., (iv) if neither such corporation at the time is engaged in the business of reporting such prices, as furnished by any similar firm then engaged in such business, or (v) if there is no such firm, as furnished by any member of the NASD selected mutually by the Majority Holders and Company or, if they cannot agree upon such selection, as selected by two such members of the NASD, one of which shall be selected by the Majority Holders and one of which shall be selected by Company. "Current Warrant Price" shall mean, in respect of a share of Common Stock at any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. 2 "Earnings Per Share" shall mean, with respect to Company for the year ended June 30, 2001, the net income per share of Common Stock determined in accordance with GAAP, but before deducting any dividends accrued on the Convertible Preferred Stock (as defined in the Purchase Agreement) and determined without regard to any shares issued upon exercise of the Warrants as set forth in its audited consolidated statement of income for such year. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Exercise Period" shall mean the period during which this Warrant is exercisable pursuant to Section 2.1. "Expiration Date" shall mean December 31, 2007. "Fully Diluted Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock Outstanding at such date and all shares of Common Stock issuable in respect of this Warrant outstanding on such date, and other options or warrants to purchase, or securities convertible into, shares of Common Stock outstanding on such date which would be deemed outstanding in accordance with GAAP for purposes of determining book value or net income per share on a fully diluted basis. "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. "GE Capital" shall mean General Electric Capital Corporation, a New York corporation. "Holder" shall mean the Person in whose name the Warrant set forth herein is registered on the books of Company maintained for such purpose. "Majority Holders" shall mean the holders of Warrants exercisable for in excess of 50% of the aggregate number of shares of Common Stock then purchasable upon exercise of all Warrants, whether or not then exercisable. 3 "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "Other Property" shall have the meaning set forth in Section 4.4. "Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of Company or any subsidiary thereof, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock. "Person" shall mean any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Purchase Agreement" shall mean the Purchase Agreement dated as of December 24, 1997 by and between Company and GE Capital, or any successor agreement between such parties. "Qualified Secondary Offering" means a sale of Company's Common Stock pursuant to a public offering of Company's Common Stock on Form S-1 (or any other appropriate general or short registration form) under the Securities Act of 1933, as amended, pursuant to which the Common Stock is offered (whether or not for Company's account) for at least $8.75 per share, subject to appropriate adjustment if any of the events set forth in Section 4.2 shall occur. "Restricted Common Stock" shall mean shares of Common Stock which are, or which upon their issuance on the exercise of this Warrant would be, evidenced by a certificate bearing the restrictive legend set forth in Section 9.1(a). "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the 4 rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof, which would constitute a sale thereof within the meaning of the Securities Act. "Warrants" shall mean this Warrant, any other Warrants issued pursuant to the Purchase Agreement and all warrants issued upon transfer, division or combination of, or in substitution for, any thereof. All Warrants shall at all times be identical as to terms and conditions and date, except as to the number of shares of Common Stock for which they may be exercised. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock purchased by the holders of the Warrants upon the exercise thereof. 2. EXERCISE OF WARRANT ------------------- 2.1. Manner of Exercise. From and after the earlier of ------------------ November 1, 2001 and the delivery to Holders of Company's audited consolidated statement of income for the year ended June 30, 2001 and until 5:00 P.M., New York time, on the Expiration Date (the "Exercise Period"), Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder. In order to exercise this Warrant, in whole or in part, Holder shall deliver to Company at its principal office at 333 Seventh Avenue, 20th Floor, New York, New York 10001 or at the office or agency designated by Company pursuant to Section 12, (i) a written notice of Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) payment of the Warrant Price and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by Holder or its agent or 5 attorney. Upon receipt thereof, Company shall, as promptly as practicable, and in any event within ten (10) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as such Holder shall request in the notice and shall be registered in the name of Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, together with the cash or check or other payment as provided below and this Warrant, is received by Company as described above and all taxes required to be paid by Holder, if any, pursuant to Section 2.2 prior to the issuance of such shares have been paid. If this Warrant shall have been exercised in part, Company shall, at the time of delivery of the certificate or certificates representing Warrant Stock, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of Holder, appropriate notation may be made on this Warrant and the same returned to Holder. Notwithstanding any provision herein to the contrary, Company shall not be required to register shares in the name of any Person who acquired this Warrant (or part hereof) or any Warrant Stock otherwise than in accordance with this Warrant. Payment of the Warrant Price shall be made at the option of the Holder by (i) certified or official bank check, and/or (ii) the Holder's surrender to Company of that number of shares of Warrant Stock (or the right to receive such number of shares) or shares of Common Stock having an aggregate Current Market Price equal to or greater than the Current Warrant Price for all shares then being purchased (including those being surrendered), or (iii) any combination thereof, duly endorsed by or accompanied by appropriate instruments of transfer duly executed by Holder or by Holder's attorney duly authorized in writing. 6 2.2. Payment of Taxes. All shares of Common Stock issuable ---------------- upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable and without any preemptive rights. Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issue or delivery thereof, unless such tax or charge is imposed by law upon Holder, in which case such taxes or charges shall be paid by Holder. Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for shares of Common Stock issuable upon exercise of this Warrant in any name other than that of Holder, and in such case Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the satisfaction of Company that no such tax or other charge is due. 2.3. Fractional Shares. Company shall not be required to issue ----------------- a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, except as otherwise provided in Section 2.1, Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.4. Continued Validity. A holder of shares of Common Stock ------------------ issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 9, 10 and 15 of this Warrant. Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of Company to afford to such holder all such rights. 7 3. TRANSFER, DIVISION AND COMBINATION ---------------------------------- 3.1. Transfer. Subject to compliance with Section 9 hereof, -------- transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of Company referred to in Section 2.1 or the office or agency designated by Company pursuant to Section 12, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by Holder or its agent or attorney, and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2. Division and Combination. Subject to Section 9, this ------------------------ Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office or agency of Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by Holder or its agent or attorney. Subject to compliance with Section 3.1 and with Section 9, as to any transfer which may be involved in such division or combination, Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3. Expenses. Company shall prepare, issue and deliver at its -------- own expense (other than transfer taxes) the new Warrant or Warrants under this Section 3. 3.4. Maintenance of Books. Company agrees to maintain, at its -------------------- aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 8 4. ADJUSTMENTS ----------- The number of shares of Common Stock for which this Warrant is exercisable, or the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. Company shall give each Holder notice of any event described below which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. Reduction or Cancellation of Shares Subject to Warrant. ------------------------------------------------------ (a) If Company delivers to Holder its audited consolidated statement of income for the year ended June 30, 2001 on or before October 31, 2001, the number of shares of Common Stock for which this Warrant is exercisable shall be reduced to the number of shares set forth below to the extent Company's Earnings Per Share equals or exceeds the amounts set forth below opposite each such adjusted number: Earnings Per Share Adjusted Number ------------------ --------------- $0.13 or below 10,670,000 $0.14-0.18 7,584,300 $0.19-0.23 5,714,300 $0.24-0.28 3,214,300 $0.29-0.33 1,714,300 $0.34-0.38 714,300 $0.39 or above 0 The foregoing earnings per share amounts shall be adjusted to account for the occurrence of any of the events set forth in Section 4.2. (b) Notwithstanding the foregoing, if Company consummates a Qualified Secondary Offering on or before December 31, 1999 pursuant to which GE Capital has the ability to sell at least 1,766,245 shares of Common Stock, this Warrant shall become immediately exercisable to purchase 200,000 shares of Common Stock, and upon such exercise this Warrant shall expire. 4.2. Stock Dividends, Subdivisions and Combinations. If at ---------------------------------------------- any time Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Additional Shares of Common Stock, 9 (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.3. Certain Other Distributions and Adjustments. (a) If at ------------------------------------------- any time Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (i) cash, (ii) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than cash, Convertible Securities or Additional Shares of Common Stock), or (iii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than cash, Convertible Securities or Additional Shares of Common Stock), then Holder shall be entitled to receive such dividend or distribution as if Holder had exercised this Warrant. If pursuant to Section 4.1 above (i) the number of shares of Common Stock for which this Warrant is exercisable shall be reduced, or (ii) this Warrant shall be cancelled, any dividend or distribution made with respect to any such 10 reduced or cancelled Warrants shall be promptly returned to Company by Holder. (b) A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of paragraph (a) above and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.2. 4.4. Reorganization, Reclassification, Merger, Consolidation ------------------------------------------------------- or Disposition of Assets. In case Company shall reorganize its capital, - ------------------------ reclassify its capital stock, consolidate or merge with or into another corporation (where Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of Company, then each Holder shall have the right thereafter to receive, upon exercise of such Warrant, the number of shares of common stock of the successor or acquiring corporation or of Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than Company) shall expressly assume the due and punctual observance and performance of each and every covenant and 11 condition of this Warrant to be performed and observed by Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined by resolution of the Board of Directors of Company) in order to provide for adjustments of shares of Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.4, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.4 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 4.5. Other Action Affecting Common Stock. In ----------------------------------- case at any time or from time to time Company shall take any action in respect of its Common Stock, other than any action described in this Section 4, then, unless such action will not have a materially adverse effect upon the rights of the Holders, the number of shares of Common Stock or other stock for which this Warrant is exercisable and/or the purchase price thereof shall be adjusted in such manner as may be equitable in the circumstances. 5. NOTICES TO WARRANT HOLDERS -------------------------- 5.1. Notice of Adjustments. Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of the Warrants, shall be adjusted pursuant to Section 4, Company shall forthwith prepare a certificate to be executed by the chief financial officer of Company setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated, specifying the number of shares of Common Stock for which this Warrant is exercisable and (if such adjustment was made pursuant to Section 4.4 or 4.5) describing the number and kind of any other shares of stock or Other Property for which this 12 Warrant is exercisable, and any change in the purchase price or prices thereof, after giving effect to such adjustment or change. Company shall promptly cause a signed copy of such certificate to be delivered to each Holder in accordance with Section 15.2. Company shall keep at its office or agency designated pursuant to Section 12 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by any Holder or any prospective purchaser of a Warrant designated by a Holder thereof. 5.2. Notice of Corporate Action. If at any time -------------------------- (a) Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of Company, any reclassification or recapitalization of the capital stock of Company or any consolidation or merger of Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of Company to, another corporation, or (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of Company; then, in any one or more of such cases, Company shall give to Holder (i) at least 30 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 30 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such 13 dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of Company and delivered in accordance with Section 15.2. 6. NO IMPAIRMENT ------------- Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, Company will take all such action as may be necessary or appropriate in order that Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, including taking such action as is necessary for the Current Warrant Price to be not less than the par value of the shares of Common Stock issuable upon exercise of this Warrant, and (b) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable Company to perform its obligations under this Warrant. Upon the request of Holder, Company will at any times during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to Holder, the continuing validity of this Warrant and the obligations of Company hereunder. 14 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY -------------------------------------------------- From and after the Closing Date, Company shall at all times reserve and keep available for issue upon the exercise of Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. All shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable, and not subject to preemptive rights. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority or other governmental approval or filing under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered or such approval to be obtained or filing made. 8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS -------------------------------------------------- In the case of all dividends or other distributions by Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, Company will in each such case take such a record and will take such record as of the close of business on a Business Day. Company will not at any time, except upon dissolution, liquidation or winding up of Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 15 9. RESTRICTIONS ON TRANSFERABILITY ------------------------------- The Warrants and the Warrant Stock shall not be transferred, hypothecated or assigned before satisfaction of the conditions specified in this Section 9, which conditions are intended to ensure compliance with the provisions of the Securities Act with respect to the Transfer of any Warrant or any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. Restrictive Legend. (a) Except as otherwise provided in ------------------ this Section 9, each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred in violation of such Act or the rules and regulations thereunder." (b) Except as otherwise provided in this Section 9, each Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form: "This Warrant and the securities represented hereby have not been registered under the Securities Act of 1933, as amended, and may not be transferred in violation of such Act, the rules and regulations thereunder or the provisions of this Warrant." 9.2. Termination of Restrictions. Notwithstanding the --------------------------- foregoing provisions of Section 9, the restrictions imposed by this Section upon the transferability of the Warrants, the Warrant Stock and the Restricted Common Stock (or Common Stock issuable upon the exercise of the Warrants) and the legend requirements of Section 9.1 shall terminate as to any particular Warrant or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable upon the exercise of the Warrants) (i) when and so long as such security shall have been effectively 16 registered under the Securities Act and disposed of pursuant thereto or (ii) when Company shall have received an opinion of counsel reasonably satisfactory to it that such shares may be transferred without registration thereof under the Securities Act. Whenever the restrictions imposed by Section 9 shall terminate as to this Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive from Company, at the expense of Company, a new Warrant without the restrictive legend set forth in Section 9.1(b). Whenever the restrictions imposed by this Section shall terminate as to any share of Restricted Common Stock, as hereinabove provided, the holder thereof shall be entitled to receive from Company, at Company's expense, a new certificate representing such Common Stock not bearing the restrictive legend set forth in Section 9.1(a). 9.3. Listing on Securities Exchange. If Company shall list any ------------------------------ shares of Common Stock on any securities exchange or NASDAQ, it will, at its expense, list thereon, maintain and, when necessary, increase such listing of, all shares of Common Stock issued or, to the extent permissible under the applicable securities exchange or NASDAQ rules, issuable upon the exercise of this Warrant so long as any shares of Common Stock shall be so listed during the Exercise Period. 10. SUPPLYING INFORMATION --------------------- Company shall cooperate with each Holder of a Warrant and each holder of Restricted Common Stock in supplying such information as may be reasonably necessary for such holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Warrant or Restricted Common Stock. 11. LOSS OR MUTILATION ------------------ Upon receipt by Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and indemnity reasonably satisfactory to it (it being understood that the written agreement of GE Capital shall be sufficient indemnity), and in case of mutilation upon surrender and cancellation hereof, Company will execute and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided, in the case of mutilation, no 17 indemnity shall be required if this Warrant in identifiable form is surrendered to Company for cancellation. 12. OFFICE OF COMPANY ----------------- As long as any of the Warrants remain outstanding, Company shall maintain an office or agency (which may be the principal executive offices of Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 13. FINANCIAL AND BUSINESS INFORMATION ---------------------------------- 13.1. Quarterly Information. Company will deliver to each --------------------- Holder, as soon as practicable after the end of each of the first three quarters of Company, and in any event within 45 days thereafter, one copy of an unaudited consolidated balance sheet of Company and its subsidiaries as at the close of such quarter, and the related unaudited consolidated statements of income and cash flows of Company for such quarter and, in the case of the second and third quarters, for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year. Such financial statements shall be prepared by Company in accordance with GAAP and accompanied by the certification of Company's chief executive officer or chief financial officer that such financial statements present fairly in all material respects the consolidated financial position, results of operations and cash flows of Company and its subsidiaries as at the end of such quarter and for such year-to-date period, as the case may be. 13.2. Annual Information. Company will deliver to each Holder ------------------ as soon as practicable after the end of each fiscal year of Company, and in any event within 90 days thereafter, one copy of: (i) an audited consolidated balance sheet of Company and its subsidiaries as at the end of such year, and (ii) audited consolidated statements of income and cash flows of Company and its subsidiaries for such year; setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, 18 all prepared in accordance with GAAP, and which audited financial statements shall be accompanied by (i) an opinion thereon of the independent certified public accountants regularly retained by Company, or any other firm of independent certified public accountants of recognized national standing selected by Company and (ii) a report of such independent certified public accountants confirming any adjustment made pursuant to Section 4 during such year. 13.3. Filings. Company will file on or before the required ------- date all regular or periodic reports (pursuant to the Exchange Act) with the Commission and will deliver to Holder promptly upon their becoming available one copy of each report, notice or proxy statement sent by Company to its stockholders generally, and of each regular or periodic report (pursuant to the Exchange Act) and any Registration Statement, prospectus or written communication (other than transmittal letters) (pursuant to the Securities Act), filed by Company with (i) the Commission or (ii) any securities exchange or NASDAQ on which shares of Common Stock are listed. 14. LIMITATION OF LIABILITY ----------------------- No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of Company, whether such liability is asserted by Company or by creditors of Company. 15. MISCELLANEOUS ------------- 15.1. Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies. If Company fails to make, when due, any payments provided for hereunder, or fails to comply with any other provision of this Warrant, Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 19 15.2. Notice Generally. Any notice, demand, request, consent, ---------------- approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, or by telecopy and confirmed by telecopy answerback, addressed as follows: (a) If to any Holder or holder of Warrant Stock, at its last known address appearing on the books of Company maintained for such purpose. (b) If to Company at Marketing Services Group, Inc. 333 Seventh Avenue, 20th Floor New York, New York 10001 Attention: Chief Financial Officer Telecopy Number: (212) 465-8877 or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, telecopied and confirmed by telecopy answerback, or three (3) Business Days after the same shall have been deposited in the United States mail. Failure or delay in delivering copies of any notice, demand, request, approval, declaration, delivery or other communication to the person designated above to receive a copy shall in no way adversely affect the effectiveness of such notice, demand, request, approval, declaration, delivery or other communication. 15.3. Remedies. Each holder of Warrant and Warrant Stock, in -------- addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under Section 9 of this Warrant. Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of Section 9 of this Warrant and hereby agrees to waive the 20 defense in any action for specific performance that a remedy at law would be adequate. 15.4. Successors and Assigns. Subject to the provisions of ---------------------- Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of Company and the successors and assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and, with respect to Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such Holder or holder of Warrant Stock. Notwithstanding the foregoing, the rights provided by Section 9.3 hereof may only be transferred along with the transfer of at least 50% of the Warrants and/or Warrant Stock, taken as a whole. 15.5. Amendment. This Warrant and all other Warrants may be --------- modified or amended or the provisions hereof waived with the written consent of Company and the Majority Holders, provided that no such Warrant may be modified or amended to reduce the number of shares of Common Stock for which such Warrant is exercisable or to increase the price at which such shares may be purchased upon exercise of such Warrant (before giving effect to any adjustment as provided therein) without the prior written consent of the Holder thereof. 15.6. Severability. Wherever possible, each provision of this ------------ Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 15.7. Headings. The headings used in this Warrant are for the -------- convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 15.8. Governing Law. This Warrant shall be governed by the ------------- laws of the State of New York, without regard to the provisions thereof relating to conflict of laws. 21 IN WITNESS WHEREOF, Company has caused this Warrant to be duly executed and attested by its Secretary or an Assistant Secretary. Dated: ________________ MARKETING SERVICES GROUP, INC. By: ______________________________________ Name: Title: Attest: By: __________________________________ Name: Title: 22 NYFS10...:\60\47660\1420\1219\WRNN257V.25E 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. EX-6 7 JOINT FILING AGREEMENT Exhibit 6 JOINT FILING AGREEMENT This will confirm the agreement by and among all the undersigned that the Schedule 13D filed on or about this date and any amendments thereto with respect to beneficial ownership by the undersigned of shares of the Common Stock, par value $0.01 per share, of Marketing Services Group, Inc. is being filed on behalf of each of the undersigned in accordance with Rule 13d-1(f)(1) under the Securities Exchange Act of 1934. This agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Dated: December 30, 1997 GENERAL ELECTRIC CAPITAL CORPORATION /s/ Michael E. Pralle --------------------------------------- (Signature) Michael E. Pralle/Vice President --------------------------------------- (Name/Title) GENERAL ELECTRIC CAPITAL SERVICES, INC. By: /s/ Michael E. Pralle --------------------------------------- (Signature) Michael E. Pralle/Attorney-in-Fact --------------------------------------- (Name/Title) GENERAL ELECTRIC COMPANY By: /s/ Michael E. Pralle --------------------------------------- (Signature) Michael E. Pralle/Attorney-in-Fact --------------------------------------- (Name/Title) -----END PRIVACY-ENHANCED MESSAGE-----