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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
September 21, 1999
MDI ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-24919 73-1515699
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(State or Other (Commission File (IRS Employer
Jurisdiction of Number) Identification No.)
Incorporation)
201 Ann Street
Hartford, Connecticut 06103
(Address of Principal Executive Offices)
Registrant's Telephone Number, including
area code: (860) 527-5359
(Former Address, if changed since last report)
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Item 5: Other Events
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On September 21, 1999, MDI Entertainment, Inc. (the "Company") entered into
a Strategic Alliance Agreement (the "Agreement") with Scientific Games Inc.
("Scientific Games") effective September 1, 1999, for a two-year term which will
automatically renew for additional one-year terms until such time as either
party serves notice of termination ninety days prior to the expiration date.
Under the terms of the Agreement, Scientific Games will market the Company's
licensed properties to its clients, which include lotteries in more than 54
nations and 28 U.S. states. The Company will pay to Scientific Games a
commission of five, seven-and-a-half or ten percent on each contract, the
percentage being keyed to the dollar amount of sales or licenses contracted for,
and irrespective of whether the Company or Scientific Games procures the sale of
the license. The Company will continue to pay commissions, even after the
termination of the Agreement, on contracts entered into while the Agreement had
been in effect; however, the Company has the right to continue selling to
Scientific Games's clients after the termination of the Agreement and will not
be obligated to pay commissions on such contracts.
To further promote their strategic relationship, on September 21, 1999, the
Company sold a subordinated convertible debenture (the "Debenture") to
Scientific Games for $ 750,000 which bears interest at 7% per annum and is
payable semi-annually, on June 30 and December 31 of each year, until its
maturity on September 21, 2009. The Debenture is convertible at the option of
Scientific Games for $ 2.00 per share, subject to adjustment under certain
circumstances, into an aggregate of 375,000 shares and convertible at the option
of the Company at any time after the earlier of (a) September 21, 2001 or (b)
after the underlying common stock is registered pursuant to the securities Act
of 1933 and the price of the Company's common stock is at least $ 3.00 per
share.
In addition, on September 21, 1999, Steven M. Saferin, President of the
Company, sold to Scientific Games 333,333 shares of his common stock at a price
of $ 1.50 per share.
In connection with the placement, the Company paid Venture Partners
Capital, LLC, a registered broker-dealer a $ 62,000 cash fee and issued a
seven-year warrant to purchase 226,020 shares of common stock at $ 1.25 per
share.
New Board Member Appointed
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The Board of Directors of MDI Entertainment, Inc. has appointed William G.
Malloy, President and Chief Executive Officer of Scientific Games International
to its Board as of October 1, 1999.
The Company believes, as a result of the MDI/Sci-Games Strategic Alliance,
the addition of Mr. Malloy to the Board will be of significant benefit to both
the Company and its customers. Mr. Malloy's biography follows:
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William George Malloy
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William G. Malloy is Chairman of the Board, President and Chief Executive
Officer of Scientific Games Holdings Corp. (NYSE:SG). Scientific Games is a $230
million per year publicly held company in the international lottery industry. It
is a twenty-six year old company with 1200 employees worldwide, and is
considered a world leader in providing a full range of lottery products to more
than 54 nations and 28 U.S. states as well as various commercial businesses
around the globe. The company's core strengths include marketing and the
application of advance computer technology to complex printing processes and
customer support systems.
Mr. Malloy led the management buyout of the company in 1991, its initial
public offering in 1993 and its secondary offering in 1994.
In 1997 Scientific Games was recognized by Forbes as one of the top 200
businesses in the United States. Mr. Malloy expanded Scientific Games' global
business with the acquisitions of Opax (United Kingdom) and Tele Control
(Austria), strengthening the company's presence in the industry and enabling
Scientific Games' re-entry into the on-line gaming business.
Prior to becoming the company's President and Chief Executive officer in
December 1990, Mr. Malloy was the company's Vice President, Treasurer and Chief
Financial Officer from 1988 to 1990.
Prior to joining Scientific Games, Mr. Malloy held several positions from
1975 to 1987 with Bally Manufacturing Corporation, Scientific Games' former
parent company. His various responsibilities included sales, finance, planning,
operations and information systems.
Mr. Malloy has directed various manufacturing, distribution, financing and
service businesses. Industry groups with which he has experience include
consumer durable goods, vending, commercial video amusement, printing, regulated
gaming and software development. In addition, he is a seasoned international
businessman and has extensive experience with various government regulated
procurement processes.
Mr. Malloy also serves on the Board of Directors of the Georgia Chamber of
Commerce, Drugs Don't Work in Georgia and the Upper Chattahoochee Riverkeeper.
Mr. Malloy received his Bachelor of Science degree in Business
Administration from Northern Illinois University and his Master of Science in
Management (MBA) from Northwestern University's J. L. Kellogg Graduate School of
Management in Evanston, Illinois.
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Item 7: Financial Statements, Pro Forma Financial information and Exhibits.
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(c) Exhibits
99.1 Strategic Alliance Agreement, dated September 21,
1999, between MDI Entertainment, Inc. and
Scientific Games Inc.
99.2 Convertible Subordinated Debenture Purchase
Agreement, dated September 21, 1999, between MDI
Entertainment, Inc. and Scientific Games Inc.
99.3 Convertible Subordinated Debenture, dated September
21, 1999, between MDI Entertainment, Inc. and
Scientific Games Inc.
99.4 Purchase Agreement, dated September 21, 1999,
between Steven M. Saferin and Scientific Games Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: October 4, 1999
MDI ENTERTAINMENT, INC.
By: /s/ Steven M. Saferin
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Steven M. Saferin
President and Chief Executive Officer
Exhibit 99.1
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STRATEGIC ALLIANCE AGREEMENT
THIS STRATEGIC ALLIANCE AGREEMENT (this "Agreement") is executed as of the
21st day of September, 1999, by and between MDI ENTERTAINMENT, INC., a Delaware
corporation ("MDI"), and SCIENTIFIC GAMES, INC., a Delaware corporation ("SGI").
W I T N E S S E T H:
WHEREAS, MDI is engaged primarily in the business of securing the rights
to and developing innovative and entertaining games and promotions for use in
conjunction with lottery games (the "MDI Business");
WHEREAS, SGI is engaged primarily in the business of providing a full range
of premium-quality lottery products, integrated systems and support services to
legally licensed lotteries as well as providing promotional games and related
services to companies in the private sector (the "SGI Business");
WHEREAS, to further expand both the MDI Business and the SGI Business, SGI
and MDI desire to form a strategic alliance (the "Alliance"); and
WHEREAS, the Alliance shall provide that SGI will, on the terms and subject
to the conditions hereinafter set forth, market the Products (as defined in
Section 2 herein) to SGI's Customers (as defined in Section 2 herein) in
consideration of the payments to be made by MDI to SGI as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto mutually agree as follows:
1. Recitals. The recitals are hereby incorporated into this Agreement
and made a part hereof.
2. Scope of Duties. MDI desires to utilize, and SGI desires to provide,
SGI's marketing and sales force to market, license and sell MDI's products and
deliverables as described in Exhibit 1 attached hereto and made a part hereof
and as such Exhibit is updated from time to time (the "Products") to SGI's
Customers. SGI shall use commercially reasonable efforts to market and sell the
Products to its customers which consist of the State operated lotteries and
promotional game customers as described in Exhibit 2 attached hereto and made a
part hereof and as such Exhibit is updated from time to time ("SGI's
Customers"). Additionally, SGI shall, to the extent required to perform its
obligations under this Agreement, act as a liaison between MDI and SGI's
Customers.
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3. Term. Subject to the provisions of termination as hereinafter
provided, the term of this Agreement shall commence on September 1, 1999 and
terminate on August 31, 2001; provided, however, that this Agreement shall
automatically be renewed for successive one (1) year terms thereafter, unless
either party gives the other notice to terminate the Agreement at the expiration
of any term, at least ninety (90) days prior to the expiration of said term.
4. Training/Literature. MDI and SGI shall, to the extent required for
each party to successfully perform its obligations hereunder, establish a
training program to familiarize SGI's employees with the Products. Such training
program shall be rendered in Hartford, Connecticut, in the greater Atlanta,
Georgia metropolitan area or at such other location as the parties mutually
agree. MDI shall provide SGI and its employees with sufficient literature and
samples of the Products to enable SGI to faithfully perform its obligations
hereunder.
5. Commissions and Incentive Program.
5.1. Commissions. For the sale or license of Products and their related
intellectual property rights to SGI's Customers during each year of the term of
this Agreement, whether such sale of license is procured by SGI or MDI, SGI
shall be paid a commission according to the following schedules:
a. Merchandise
Gross Revenues Received Commission
from the sale of
Merchandise Products
by MDI in one year
$1 - $10,000,000 5%
$10,000,001 - $20,000,000 7.5%
over $20,000,000 10%
b. License and Royalty Fees - Commission of 10% of gross
revenues received from license and royalty fees
Sales of any of the Products subsequent to the commencement date of this
Agreement to any of SGI's Customers shall be subject to a commission.
Commissions shall be paid following termination or expiration of this Agreement
for any contracts entered into prior to the date of termination or expiration.
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5.2. Payment of Commissions. At such time as SGI reaches agreement for
the sale of a Product, SGI will promptly provide MDI with a term sheet similar
in form to that contained in Exhibit 3 attached hereto and made a part hereof.
MDI will be responsible for providing the necessary contract for the sale of the
Product, and SGI and MDI will mutually determine whether the contracting party
shall be MDI or SGI. The contracting party will receive the gross revenues from
all such contracts. If the contracting party is MDI, it shall pay SGI its pro
rata commission from the revenues. If the contracting party is SGI (whether
under a new or existing contract), it shall retain its pro rata commission from
the revenues and remit the balance to MDI. MDI shall maintain books and records
for the foregoing receivables and payables, and MDI shall notify SGI on a
monthly basis of the account balances for each customer. This information shall
be proved to SGI by the fifth working day of each month or as otherwise agreed
by both parties.
5.3. SGI's Incentive Program. SGI agrees to establish an incentive
program which, among other things, provides for SGI's sales employees to receive
an incentive bonus for each sale of the Products. Such incentive program shall
serve to motivate SGI's sales force to market, sell and promote the Products.
6. Customer Contacts/Pricing.
6.1. Customer Contacts. Within thirty (30) days of the commencement date
of this Agreement, MDI shall provide SGI with a report on the status of its
contacts with SGI's Customers for the sale of Products. SGI shall use
commercially reasonable efforts to keep MDI informed of its contacts with SGI's
Customers regarding the Products and invite MDI to participate in meetings and
presentations when the Products are discussed.
6.2. Product Pricing. SGI and MDI hereby agree to adhere to the pricing
schedule set forth on Exhibit 4 attached hereto and made a part hereof, as such
schedule is updated from time to time by MDI, when either submitting proposals
or providing quotes to existing or prospective customers.
6.3. Reports/Updates. MDI shall provide SGI with monthly updates setting
forth any changes to the Products offered by MDI. SGI shall provide MDI with
monthly reports setting forth the marketing activities of SGI's employees, the
Products sold by SGI and the terms of such sales.
7. Customers/Confidential of Information.
7.1. Customers. Upon termination or expiration of this Agreement, MDI
may continue to sell the Products to SGI's Customers without having to pay any
commission to SGI for Customer contracts entered into from and after the date of
termination or expiration. All customer contracts entered into prior to the date
of termination or expiration shall be subject to payment of commissions.
7.2. Confidential Information. All confidential or proprietary pricing
and customer information provided by either party to the other shall remain
strictly confidential. Neither party shall sell, rent, transmit or otherwise
give access to such information to any third person, except with the other
party's written consent. The provisions of this paragraph shall not apply to
information of either party which is (a) in the public domain; (b) already known
to the party to whom it is disclosed at the time of such disclosure as
documented by records in its possession prior to such disclosure; (c)
subsequently received by the party in good faith from a third party having prior
right to make such subsequent disclosure; (d) independently developed by the
party without use of the information disclosed pursuant to this Agreement; (e)
approved in writing for unrestricted release or unrestricted disclosure by the
party owning or disclosing the information; or (i) produced or disclosed
pursuant to applicable laws, regulations or court order.
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8. Termination. This Agreement shall terminate immediately upon the
occurrence of any of the following events:
(1) The breach by either party of any material term of this
Agreement, and the breaching party has failed to cure such breach
following thirty (30) days written notice thereof from the non-breaching
party;
(2) The appointment of a receiver or trustee to manage the assets
of either party;
(3) The assignment for the benefit of creditors of the assets of
either party; or
(4) The occurrence of any act of bankruptcy by either party.
9. General.
9.1. Force Majeure. Neither party shall be considered in default of this
Agreement if the fulfillment of all or part of its obligations are delayed or
prevented due to "force majeure". "Force majeure" is an external unforeseeable
and irresistible event, making it absolutely impossible to fulfill an
obligation.
9.2. Severability. If any section, paragraph, or provision (in all or in
part) in this Agreement is held invalid or unenforceable, it shall not, in any
way, have any effect on any other section, paragraph or provision in this
Agreement, nor on the remaining section, paragraph, or provision unless
otherwise clearly provided for under this Agreement.
9.3. Notices. Any notice intended for either party is deemed to be
validly given if it is done in writing and sent certified mail, return receipt
requested, or by courier service to such party's address as stated in this
Agreement, or to any other address that the concerned party may have notified in
writing to the other party in accordance with the provision hereof.
If to SGI: Scientific Games, Inc.
1500 Bluegrass Lakes Parkway
Alpharetta, Georgia 30004
Telecopy Number: (770) 343-8798
Attention: Mr. Howard Roath
With a copy to: Scientific Games, Inc.
1500 Bluegrass Lakes Parkway
Alpharetta, Georgia 30004
Telecopy Number: (770) 343-8798
Attention: C. Gray Bethea Jr., Esq.
General Counsel
If to MDI: MDI Entertainment, Inc.
201 Ann Street
Hartford, Connecticut 06103
Telecopy Number: (860) 527-5920
Attention: Mr. Steven M. Saferin
President and CEO
With a copy to: Rosenberg Proutt Funk & Greenberg, LLP
25 South Charles Street
Suite 115
Baltimore, Maryland 21201
Telecopy Number: (410) 727-1115
Attention: Stanley S. Fine, Esquire
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<PAGE>
9.4. Headings. The headings in this Agreement are used only for
reference and convenience purposes; they do not modify in any manner the
significance or the object of the provisions they designate.
9.5. Schedules. Whenever the Exhibits, including updates, of this
Agreement are duly initialed by both MDI and SGI, such exhibits shall be
considered as an integral part of this Agreement.
9.6. Entire Agreement. This Agreement constitutes the entire agreement
entered into between the parties concerning the subject matter hereof.
Declarations, representations, promises or conditions other than those stated in
this Agreement shall not be construed in any way as to contradict, modify or
affect the provisions of this Agreement.
9.7. Amendment. This Agreement cannot be amended or modified except by
another written document duly signed by both parties hereto.
9.8. Non-Transfer. Neither of the parties shall assign, transfer nor
convey, in any way, its rights in this Agreement to any third party without
first obtaining the written consent of the other.
9.9. Jurisdiction. This Agreement shall be construed in accordance with
the laws of the State of New York, and any action brought in regard to this
contract or matters arising as a result of this contract are exclusively within
the jurisdiction of the State of New York. MDI and SGI each represents to the
other that it is qualified to do business in the State of New York and is
amenable to service of process in the State of New York.
9.10. Waiver. The failure of any party at any time to require
performance of any provision of this Agreement shall in no manner affect the
right of that party at a later time to enforce that or any other provision. No
waiver by any party of any condition or of any breach of any term, covenant,
representation, or warranty contained in this Agreement, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of that or any other condition or breach.
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9.11. Counterparts. This Agreement may be executed in counterparts, each
of which when so executed shall be deemed to be an original and all of which
shall together constitute one document.
IN WITNESS WHEREOF, the parties hereunder have duly caused this Agreement
to be executed as of the day and year first above written.
MDI ENTERTAINMENT, INC. SCIENTIFIC GAMES, INC.
By:/s/ Steven M. Saferin By:/s/ William G. Malloy
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Steven M. Saferin William G. Malloy
President and CEO President and CEO
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Exhibit 99.2
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CONVERTIBLE SUBORDINATED DEBENTURE
PURCHASE AGREEMENT
THIS CONVERTIBLE SUBORDINATED DEBENTURE PURCHASE AGREEMENT is entered into
as of the 21st day of September, 1999, by and between MDI Entertainment, Inc., a
Delaware corporation (the "Corporation"), with its principal place of business
located at 201 Ann Street, Suite 210, Hartford, Connecticut 06103, and
Scientific Games, Inc. (the "Investor").
WHEREAS, the Investor wishes to purchase from the Corporation, and the
Corporation wishes to sell to the Investor, a convertible subordinated
debenture;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
SECTION 1. Reservation of Shares of Common Stock. The Corporation has
authorized and reserved and covenants to continue to reserve, free and clear of
preemptive and other preferential rights, a sufficient number of its previously
authorized but unreserved shares of Common Stock, par value $.001 per share (the
"Common Stock"), to satisfy the rights of conversion of the holder of a $750,000
principal amount of convertible subordinated debenture due 2009 (the
"Convertible Debenture"), the form of which is attached hereto as Exhibit 1.
SECTION 2. Purchase and Sale of the Convertible Debenture. The Corporation
agrees to sell to the Investor, and the Investor agrees to purchase from the
Corporation, at the Closing (as hereinafter defined) and upon the terms and
conditions hereinafter set forth, the Convertible Debenture. The purchase price
for the Convertible Debenture to be sold pursuant to this Agreement shall be
$750,000.
SECTION 3. Delivery of the Convertible Debenture. The closing hereunder
with respect to the transactions with the Investor contemplated hereby (the
"Closing") shall take place at the offices of Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, 551 Fifth Avenue, New York, New York 10176, on September 1, 1999
at 10:00 a.m. New York time or at such other mutually agreed to time and place.
At the Closing, the Corporation shall deliver to the Investor the Convertible
Debenture, registered in the name of the Investor. Delivery to the Investor
shall be made against receipt by the Corporation of the full amount of the
purchase price for the Convertible Debenture being purchased by the Investor
hereunder by check payable to the order of the Corporation or by wire transfer
of immediately available funds to an account specified in writing by the
Corporation.
SECTION 4. Use of Proceeds. The Corporation shall use the proceeds from
the sale of the Convertible Debenture to fund the Corporation's general working
capital needs.
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SECTION 5. Representations and Warranties of the Corporation. The
Corporation hereby represents and warrants to the Investor as follows:
5.1 Organization. The Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own and lease
its properties, to carry on its business as presently conducted and as proposed
to be conducted and to carry out the transactions contemplated hereby. The
Corporation is duly qualified as a foreign corporation and is in good standing
in all such other jurisdictions (which jurisdictions are listed in Exhibit 5.1)
in which the conduct of its business or its ownership or leasing of property
requires such qualification and in which the failure so to qualify or so to be
in good standing would have a materially adverse effect on the Corporation's
operations or financial condition.
5.2 Capitalization. The entire authorized capital stock of the
Corporation and the rights to acquire capital stock of the Corporation consists
of:
(a) 25,000,000 shares of Common Stock of which 7,776,500 shares
have been duly and validly issued and are outstanding, fully paid and
nonassessable, (ii) 375,000 shares have been reserved for issuance
upon conversion of the Convertible Debenture, and (iii) no shares are
held as treasury shares;
(b) 5,000,000 shares of preferred stock of which 2,027 shares of
Series A Preferred Stock, par value $.001 per share, have been
authorized and which have been duly and validly issued and are
outstanding, fully paid and nonassessable; and
(c) Exhibit 5.2(c)
5.3 Reporting Company Status. The Corporation has registered its
Common Stock pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Common Stock is listed and traded on the
NASDAQ/OTC Bulletin Board. The Corporation has timely filed all material
required to be filed pursuant to all reporting obligations under either Section
13(a) or 15(d) of the Exchange Act, and has received no notice, either oral or
written, with respect to the continued eligibility of the Common Stock for such
listing.
5.4 SEC Filings. None of the documents filed by the Corporation
with the Securities and Exchange Commission (the "SEC") pursuant to the
Securities Act of 1933, as amended (the "Securities Act") and the Exchange Act
since September 28, 1998 (collectively, the "SEC Documents") at the time they
were filed, contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
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5.5 Authorization of this Agreement and the Convertible
Debenture. The execution, delivery and performance by the Corporation of this
Agreement and the Convertible Debenture have been duly authorized by all
requisite corporate action. This Agreement and the Convertible Debenture have
been duly executed and delivered on behalf of the Corporation and constitute the
valid and binding obligations of the Corporation, enforceable in accordance with
their respective terms. The execution, delivery and performance of this
Agreement and the Convertible Debenture, the issuance, sale and delivery of the
shares of Common Stock issuable upon conversion of the Convertible Debenture
(the "Reserved Shares"), and compliance with the provisions hereof and thereof
by the Corporation, do not and will not, with or without the passage of time or
the giving of notice or both, (a) violate any provision of law, statute,
ordinance, rule or regulation or any ruling, writ, injunction, order, judgment
or decree of any court, administrative agency or other governmental body or (b)
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in the creation of
any lien, security interest, charge or encumbrance upon any of the properties or
assets of the Corporation under, the Certificate of Incorporation or By-Laws or
any note, indenture, mortgage, lease, license agreement, contract, purchase
order or other instrument, document or agreement to which the Corporation is a
party or by which it or any of its property is bound or affected.
5.6 Authorization of Reserved Shares. The issuance, sale and
delivery by the Corporation of the Reserved Shares have been duly authorized by
all requisite corporate action of the Corporation, and the Reserved Shares have
been duly reserved for issuance upon conversion of all or any of the Convertible
Debenture, and when so issued and delivered upon conversion of the Convertible
Debenture, the Reserved Shares will be validly issued and outstanding, fully
paid and nonassessable, and not subject to preemptive or any other similar
rights of the stockholders of the Corporation or others.
5.7 No Governmental Consent or Approval Required. No
authorization, consent, approval or other order of, declaration to, or filing
with, any governmental agency or body is required for or in connection with the
valid and lawful authorization, execution, delivery and performance by the
Corporation of this Agreement or the Convertible Debenture, or for or in
connection with the valid and lawful authorization, reservation, issuance, sale
and delivery of the Reserved Shares.
5.8 No Material Adverse Change. Since the information reflected
in the Corporation's Annual Report on Form 10-KSB for the fiscal year ended May
31, 1999, there has been no material adverse change in the Corporation's
financial position, earnings, business operations or properties.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor
represents and warrants to the Corporation that:
(a) The Investor is acquiring the Convertible Debenture, and, in
the event an Investor should acquire Reserved Shares upon conversion of the
Convertible Debenture, such Investor will be acquiring the Reserved Shares, for
its own account, for investment and not for, with a view to or in connection
with the distribution thereof.
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(b) The Investor understands that neither the Convertible
Debenture nor the Reserved Shares have been registered under the Securities Act
or any state securities law, by reason of their issuance in a transaction exempt
from the registration requirements of the Securities Act and such laws, and that
the Convertible Debenture and the Reserved Shares must be held indefinitely
unless they are subsequently registered under the Securities Act and such laws
or a subsequent disposition thereof is exempt from registration. The Convertible
Debenture and any Reserved Shares issued upon conversion shall bear a legend to
such effect.
(c) The Investor understands that the exemption from registration
afforded by Rule 144 promulgated by the Securities and Exchange Commission (the
"Commission") under the Securities Act depends upon the satisfaction of various
conditions and that, if applicable, Rule 144 affords the basis for sales only in
limited amounts.
(d) The Investor (i) has sufficient knowledge and experience in
business and financial matters and with respect to investment in securities of
companies comparable to the Corporation so as to enable it to analyze and
evaluate the merits and risks of the investment contemplated hereby and (ii) is
able to bear the economic risk of such investment. The Investor is an
"accredited investor" with the meaning of Regulation D under the Securities Act.
(e) The Investor and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Corporation and materials relating to the offer and sale of the Convertible
Debenture which have been requested by the Investor. The Investor and its
advisors, if any, have been afforded the opportunity to ask questions of the
Corporation and have received complete and satisfactory answers to any such
inquiries. Without limiting the generality of the foregoing, the Investor has
also had the opportunity to obtain and to review the Corporation's (1)
Registration Statement on Form 10-SB filed on September 28, 1998 as amended; (2)
Quarterly Reports on Form 10-QSB for the fiscal quarters ended August 31, 1998,
November 30, 1998 and February 28, 1999; (3) Form 8-K filed August 12, 1999;
Annual Report on Form 10-KSB for the fiscal year ended May 31, 1999; (4) the
Corporation's Proxy Statement for its Annual Meeting of Stockholders held
February 9, 1999 and (5) Form 10-KSB for the fiscal year ended May 31, 1999.
(f) This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Investor and is a valid and binding agreement of
the Investor enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
SECTION 7. Conditions Precedent to Closing by the Investor. The obligation
of the Investor to purchase and pay for the Convertible Debenture being
purchased by the Investor is subject to satisfaction of the following conditions
precedent at or before the Closing:
7.1 Corporate Proceedings. All corporate and other proceedings to
be taken and all waivers and consents to be obtained in connection with the
transactions contemplated by this Agreement shall have been taken or obtained
and all documents incident to such transactions shall be satisfactory in form
and substance to the Investor and its counsel, who shall have received all such
originals or certified or other copies of such documents as it may reasonably
request.
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7.2 Representations and Warranties Correct. The representations
and warranties made by the Corporation in Section 5 hereof shall be true and
correct when made, and shall be true and correct at the time of the Closing,
with the same force and effect as if they had been made at and as of the time of
the Closing.
7.3 Compliance with Covenants. The Corporation shall have duly
complied with and performed all covenants and agreements of the Corporation
herein which are required to be complied with and performed at or before the
Closing.
7.4 Certificate of President. The Corporation shall have provided
to the Investor a certificate, signed by its President and dated the date of the
Closing, in form and substance reasonably satisfactory to the Investor and its
counsel, confirming compliance with the conditions set forth in Sections 7.1
through 7.3.
7.5 Convertible Debenture and Documents. At or before the
Closing, the Corporation and the Investor shall have executed and delivered the
Convertible Debenture and the Corporation shall have delivered to the Investor
such other documents as any of them shall reasonably request.
SECTION 8. Covenants. The Investor agrees to negotiated in good faith with
any senior lender to the Corporation which requests changes to the Subordination
language in the Convertible Debenture and to agree to such modifications in such
provisions as are reasonable and customary.
SECTION 9. Successors and Assigns. This Agreement shall not be assignable
by either party without the prior written consent of the other party.
SECTION 10. Entire Agreement; Effect on Prior Documents. This Agreement and
the other documents referred to herein or delivered pursuant hereto contain the
entire agreement among the parties with respect to the financing transactions
contemplated hereby and supersede all prior negotiations, commitments,
agreements and understandings among them with respect thereto.
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SECTION 11. Notices. Any notice or communication given pursuant to this
Agreement by any party to any other party shall be in writing and shall be
sufficiently given if personally delivered, sent by facsimile or other means of
electronic transmission or sent by mail, postage prepaid to the parties at the
following addresses or to such other address as either party may hereafter
designate to the others by like notice:
(i) if to the Corporation, to:
201 Ann Street Suite 210
Hartford, CT 06103
Attention: President
Tel: (860) 527-5359
Fax: (860)527-5920
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, NY 10176
Attention: Kenneth R. Koch, Esq.
Tel: (212) 661-6500
Fax: (212) 697-6686
(ii) if to the Investor, to its address set forth on the
signature page hereto, with a copy to:
Scientific Games, Inc.
1500 Bluegrasses Lakes Parkway
Alpharetta, GA 30004
Tel: (770) 664-3700
Fax: (770) 772-7620
with a copy to:
Smith, Gambrell & Russell, LLP
Suite 3100, Promenade II
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592
Attention: M. Timothy Elder, Esq.
SECTION 12. Amendments; Waivers. Except as otherwise provided herein,
this Agreement may be amended, and compliance with any provision of this
Agreement may be omitted or waived, only by the written agreement of the
Corporation and the Investor.
SECTION 13. Counterparts. This Agreement may be executed in any number
of counterparts, each such counterpart shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
SECTION 14. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
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SECTION 15. Nouns and Pronouns. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
SECTION 16. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the substantive laws of the State of
New York without regard to its principles of conflicts of laws.
SECTION 17. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 18. Brokerage Fee. The Corporation and the Investor each
represent that other than Venture Partners Capital, LLC and its affiliates (the
"Broker"), no broker has been involved in this transaction and each party agrees
to indemnify and hold the others harmless from payment of any brokerage fee,
finder's fee, or commission claimed by any party who claims to have been
involved because of association with such party; provided that the Corporation
shall (pursuant to an agreement between the Corporation and Broker) pay all fees
owed to the Broker in connection with the transaction.
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IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the day and year first above written.
MDI ENTERTAINMENT, INC.
By: /s/ Steven M. Saferin
-------------------------
Name: Steven M. Saferin
Title: President
SCIENTIFIC GAMES INC.
By: /s/ William G. Malloy
-------------------------
Name: William G. Malloy
Title: President and CEO
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Exhibit 99.3
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CONVERTIBLE SUBORDINATED DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY.
$750,000 September 21, 1999
Number: CSD-1
FOR VALUE RECEIVED, the undersigned, MDI ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), promises to pay to the order of SCIENTIFIC GAMES,
INC., a Delaware corporation ("Payee"), at the address set forth pursuant to
Section 11(d) hereof, in lawful money of the United States of America and in
immediately available funds, the principal amount of SEVEN HUNDRED AND FIFTY
THOUSAND DOLLARS ($750,000) on September 21, 2009, and interest semi-annually on
the unpaid principal amount of this Convertible Subordinated Debenture (this
"Debenture") from time to time outstanding, from the date hereof (the "Issue
Date") until maturity, at the rate of 7% per annum (calculated on the basis of a
year of 365 days). In addition, the Payee is entitled to convert up to 100% of
the principal amount of this Debenture, into fully paid and nonassessable shares
of Common Stock, par value $.001 per share, of the Company ("Common Stock"), in
accordance with the terms and conditions hereinafter set forth.
This Debenture is issued by the Company to Payee pursuant to the
Purchase Agreement (as defined below).
In no event shall any interest to be paid hereunder exceed the maximum
rate permitted by law. In any such event, this Debenture shall automatically be
deemed amended to permit interest charges at an amount equal to, but no greater
than, the maximum rate permitted by law.
1. Definitions. For purposes of this Debenture, the following terms
shall have the meanings set forth below:
"Purchase Agreement" means the Convertible Subordinated Debenture
Purchase Agreement, dated as of September 21, 1999, between the Payee and the
Company.
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"Bankruptcy" has the meaning specified in Section 4(a)(iv)
hereof.
"BANKRUPTCY PROCEEDING" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or any other
proceeding under any other bankruptcy or insolvency law of any jurisdiction,
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extensions generally with creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.
"CHANGE OF CONTROL" means, at any time:
(a) any "person" or "group" (each as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) (other than Steve
Saferin and any affiliate of Steve Saferin) that either (A)
becomes the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of voting interests of the
Company (or securities convertible into or exchangeable for such
voting interests) representing 35% or more of the combined voting
power of all voting interests of the Company (on a fully diluted
basis) or (B) otherwise has the ability, directly or indirectly,
to elect a majority of the Board of Directors of the Company;
(b) during any period of up to twenty-four (24) consecutive
months, commencing on or after the date hereof individuals who at
the beginning of such 24-month period were directors of the
Company shall cease for any reason (other than the death or
disability of an officer of the Company that is serving as a
director at such time so long as another officer of the Company
replaces such Person as a director) to constitute a majority of
the Board of Directors of the Company;
(c) any Person or two or more Persons (other than Steve
Saferin) acting in concert shall have acquired by contract or
otherwise, or shall have entered into a contract or arrangement
that, upon consummation thereof, will result in its or their
acquisition of the power to exercise, directly or indirectly, a
controlling influence on the management or policies of the
Company; or
(d) with respect to any pledge or other security agreement
covering all or any portion of the shares of capital stock of the
Company that are owned beneficially and of record by any of the
stockholders of the Company or their nominees, one or more
secured parties or pledgees thereunder shall become the holder of
record of any such shares representing thirty-five percent (35%)
or more of the combined voting power of all voting interests of
the Company (on a fully diluted basis) or shall receive dividends
or other cash or cash equivalent distributions (including,
without limitation, stock repurchases) in respect thereof, or
shall proceed to exercise voting or other consensual rights in
respect thereof (whether by proxy, voting or other similar
arrangement or otherwise), or shall otherwise commence to realize
upon such percentage of such shares.
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(e) Steven Saferin shall (A) cease to be the Chief Executive
Officer of the Company, (B) cease to be a director of the
Company, or (C) cease to hold more than twenty percent (20%) of
the Common Stock of the Company on a fully diluted basis,
exclusive of shares of Common Stock issued or issuable to the
Purchaser.
"Business Day" means any day other than 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.
"DESIGNATED SENIOR INDEBTEDNESS" means Senior Indebtedness, the
aggregate principal amount of which is outstanding or that is committed and
available to be drawn on is $100,000 or more.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
2. Prepayment. The Company may prepay the principal amount, in whole
or in part, along with interest accrued thereon, at any time, provided that this
Debenture shall not be prepayable without at least 30 days prior written notice
to the Payee. In addition, upon:
(a) a Change in Control; or
(b) a sale of substantially all of the Company's assets,
determined on a consolidated basis; the Payee will have the right
to require the Company to prepay the then outstanding principal
amount of this Debenture, plus accrued but unpaid interest to the
date of prepayment. The Payee of this Debenture will give the
Company notice of any such required prepayment within ninety (90)
days after the occurrence of an event described in (a) or (b)
above. In the event the Payee requires such prepayment be made
such prepayment shall be payable no later than fifteen (15)
Business Days after the date the prepayment notice is given. The
prepayment will be paid by check or (at the option of the Payee)
by wire transfer in same day funds subject to the provisions of
Section 8 hereof.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any,
and interest on (a) indebtedness of the Company for money borrowed from or owing
to any bank, trust company, insurance company, institutional lender or other
entity in the business (whether in whole or in part) of lending money or
extending credit or their assignees, whether outstanding on the date of this
Debenture or thereafter created or incurred; including, without limitation,
money borrowed under revolving credit loans, term loans, receivables financing
(including the sale of receivables to such lenders or to special purpose
facilities formed to borrow from such lenders against such receivables) or
letters of credit, (b) evidenced by bonds, notes, debentures or similar
instruments sold by the Company or letters of credit (or reimbursement
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agreements in respect thereof), in each case for money borrowed (other than this
Debenture), and (c) any and all deferrals, renewals, extensions, refinancings
and refundings (whether direct or indirect) of, or amendments, modifications,
restatements or supplements to, any liability of the kind described in the
preceding clauses whether or not between the same parties and whether or not in
whole or in part, from time to time, unless it is provided in the instrument
creating or evidencing any of the above, or pursuant to which any of the above
is outstanding, that such indebtedness or such renewal, extension, refinancing
or refunding thereof is not superior in right of payment to the Debenture.
3. Payment.
(a) This Debenture shall bear interest at 7% per annum from the
Issue Date until maturity, payable semi-annually on June 30 and December 31 of
each year hereafter, commencing December 31, 1999.
(b) Payment of any unpaid principal amount of this Debenture
shall be due on September 21, 2009.
(c) Payment of principal and interest on this Debenture shall be
made by wire transfer or by check sent to the Payee's address set forth pursuant
to Section 11(d) hereof, in lawful money of the United States of America.
(d) If any payment date falls on a date which is not a Business
Day such payment shall not be due until the next succeeding Business Day.
4. Events of Default
(a) Each of the following shall constitute an "Event of Default"
hereunder:
(i) the Company shall fail to pay when due any payment or
prepayment of principal required under this Debenture, whether at stated
maturity, by mandatory prepayment, by acceleration or otherwise;
(ii) the Company shall fail to pay, for fifteen (15) days after
the same shall become due and payable, any interest on this Debenture or
any other amount payable under this Debenture; or
(iii) any representation, warranty or statement made by the
Company (or any of its officers) under the Purchase Agreement shall
prove to have been untrue or inaccurate in any material respect on the
date as of which made or deemed made and such default shall not have
been remedied or waived by Payee within forty-five (45) days after
receipt of notice of such default from Payee; or
(iv) the Company shall default in any material respect in the
performance of or compliance with any term, covenant or agreement
contained in the Note Purchase Agreement or this Debenture (except as
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otherwise provided in this section) and such default shall not have been
remedied or waived by Payee within thirty (30) days after receipt of
notice of such default from Payee; or
(v) the Company or any of its Subsidiaries shall fail to pay with
respect to one or more issues of indebtedness, one or more principal
payments of U.S.$750,000 in the aggregate, and such failure shall
continue after the applicable grace period, if any, specified in such
agreement or instrument relating to such Indebtedness; or
(vi) any event shall occur or condition shall exist under any
agreement or instrument relating to any indebtedness of the Company or
any of its subsidiaries, as the case may be (other than indebtedness
referred to in (v) above that is outstanding in a principal or notional
amount of U.S.$750,000 in the aggregate, and such event or condition
shall continue after the applicable grace period, if any, specified in
such agreement or instrument, if the effect of such event or condition
is to accelerate the maturity of such indebtedness or the holder or
holders thereof have caused such indebtedness to mature or be required
to be prepaid in full, provided that a waiver by the requisite holders
of such indebtedness required to waive the consequences of such event or
condition shall constitute a waiver hereunder for the same period and
further provided that if such acceleration, or prepayment rights are
waived or rescinded or if the default is cured, then no default shall
exist hereunder; or
(vii) the Company shall (a) make an assignment for the benefit of
creditors, (b) petition or apply for the appointment of a liquidator,
receiver or the like, (c) commence, acquiesce in or consent to any
proceeding relating to it under any bankruptcy, insolvency or similar
law, or (d) admit in writing its inability to pay its debts as they
mature; or
(viii) the voluntary filing by the Company of, or consent by, the
Company to any petition in bankruptcy or any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief with respect to the Company, or the admission in writing
by the Company of its inability to pay its debts as they become due.
(ix) a decree, judgment, or order by a court of competent
jurisdiction shall have been entered adjudging the Company, or ordering
relief against the Company in response to the commencement of any
involuntary bankruptcy case, or approving as properly filed a petition
seeking reorganization or liquidation of the Company under any
bankruptcy or similar law, and such decree or order shall have continued
undischarged and unstayed for a period of sixty (60) days; or a decree
or order of a court of competent jurisdiction over the appointment of a
receiver, liquidator, trustee, or assignee in bankruptcy or insolvency
of the Company, or of the property of the Company, or for the winding up
or liquidation of the affairs of the Company, shall have been entered,
and such decree, judgement, or order shall have remained in force
undischarged and unstayed for a period of sixty (60) days;
(x) the Company shall take any corporate action to authorize any
of the actions set forth above in (vii) through (ix) above; or
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(xi) one or more judgments or orders for the payment of money
involving in the aggregate at any time an amount in excess of
U.S.$750,000 (which amount shall not be fully covered by a solvent and
reputable insurance company that has acknowledged in writing liability
therefor) shall be entered or filed against the Company or any of its
Subsidiaries or any of their respective assets by a court of competent
jurisdiction and either (a) enforcement proceedings shall have been
commenced by any creditor upon any such judgment or order and shall
remain unstayed, unbonded or undischarged or (b) there shall be any
period of sixty (60) consecutive days during which a stay of enforcement
of any such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect.
Upon the occurrence of any of the foregoing Events of Default, the
entire unpaid balance hereof, together with unpaid interest thereon, shall at
the option of Payee, and upon written notice from Payee (except with respect to
defaults under clauses (vii) through (ix) as to which the Event of Default shall
be automatic and no notice shall be required), become immediately due and
payable, and Payee may, subject to the provisions of Section 8, forthwith
exercise the remedies available to Payee at law and in equity as well as those
remedies set forth in this Debenture, and one or more executions may forthwith
issue on any judgment or judgments obtained by virtue thereof; and no failure on
the part of Payee to exercise any of Payee's rights hereunder shall be deemed a
waiver of any such rights or of any default.
Such acceleration of the maturity of amounts due under this Debenture
shall not affect, and shall be cumulative of, any other rights and remedies
which the Payee may have at law, in equity or otherwise. All rights and remedies
hereunder shall be cumulative and in addition to those provided by law, and may
be exercised separately, concurrently or successively. Notwithstanding the fact
that a failure by the Company to pay any payment of principal or interest on its
stated due date under this Debenture may occur by reason of the subordination
provisions under Section 8 of this Debenture, such failure to pay shall
nevertheless for all purposes under this Debenture constitute an Event of
Default entitling Payee to accelerate the maturity of this Debenture and/or to
pursue all of Payee's other rights and remedies under this Debenture and other
rights and remedies Payee may have at law with respect to such Event of Default,
subject to the limitations and other provisions of Section 8 of this Debenture.
5. Conversion Rights.
(a) Payee's Right to Convert. The Payee, subject to the terms and
provisions of this Section 5, may elect to convert up to 100% of the principal
amount of the Debenture into the Company's Common Stock at a conversion price of
$2.00 per share (as adjusted pursuant to Section 6, the "Conversion Price") The
number of shares of Common Stock into which the Converting Amount (as defined
below) shall convert shall be determined by dividing the Converting Amount by
the Conversion Price.
The conversion rights of the Payee may be exercised by the Payee
partially or in full, in its sole discretion, from the Issue Date. The exercise
of such rights on any one or more occasions shall not in any way impair or limit
the rights and remedies available to the Payee to take any and all actions
available to it under the Debenture to collect any amounts due to the Payee
under the Debenture which have not been converted to Common Stock.
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<PAGE>
(b) Method of Conversion. The Payee shall exercise its rights to
convert, as described herein, by the delivery to the Company at its address set
forth in Section 11(d) hereof (with a copy delivered to Squadron, Ellenoff,
Plesent & Sheinfeld at its address set forth in Section 11(d)), of an
irrevocable written notice (a "Conversion Notice") stating (i) a date on which
conversion is sought to be made (the "Conversion Date"), which must be on a
Business Day, (ii) the principal amount of the Debenture which the Company
intends to convert (the "Converting Amount"), (iii) the name and denominations
in which the certificate or certificates for the shares of the Common Stock are
to be issued, and (iv) any reasonable instruction for delivery thereof. Promptly
(and in any event within five Business Days after the Conversion Date) after
such surrender and the receipt of such written notice, together with the
certificate or certificates representing the Converting Amount, the Company
shall issue and deliver to the Payee, the certificate or certificates (which
shall contain any appropriate or necessary legends) evidencing the shares of
Common Stock issuable upon such conversion. The Company will also issue to the
Payee a new Debenture in the principal amount remaining after such conversion,
dated the date hereof, and otherwise upon all of the terms and conditions and in
the form hereof.
To the extent surrendered to the Company for conversion, this
Debenture shall be canceled by the Company. The Debenture shall be deemed to
have been converted as of the close of business on the Conversion Date, and at
such time the rights of the Payee, as holder thereof, shall cease to the extent
of the portion of the Debenture converted, and upon receipt of the shares of
Common Stock issuable upon conversion, shall be treated for all purposes as the
record holder thereof at such time.
(c) Notwithstanding the foregoing, in the event the Payee fails
to deliver the Debenture on the Conversion Date, the principal amount of such
Debenture shall be deemed to have been reduced by the Converting Amount.
(d) The Company shall at all time reserve and keep available out
of its authorized but unissued shares, or its treasury shares, of the Common
Stock, solely for the purpose of issue or delivery upon conversion of this
Debenture as herein provided, such number of shares of Common Stock as shall
then be issuable or deliverable upon the conversion of this Debenture. The
Company covenants that all shares of Common Stock which shall be so issuable or
deliverable shall, when issued or delivered, be duly and validly issued and
fully paid and non-assessable.
(e) The certificate for shares of Common Stock issued upon
conversion shall, if appropriate, bear a legend stating as follows:
The shares evidenced by this certificate have not been registered
under the Securities Act of 1933 as amended (the "Act") or any
state securities laws and may not be sold or transferred except
in transactions exempt from registration under the Act or any
applicable state securities laws or pursuant to an effective
Registration Statement under the Act.
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5.A. Forced Conversion by the Company. If, at any time after the
earlier of (a) two years from the date hereof or (b) the date that the sale of
the shares of Common Stock underlying this Debenture is covered by an effective
registration statement under the Act the Current Market Price (as defined in
Section 6) of the Common Stock exceeds $3.00, the Company may, at its option, at
any time thereafter, require the Payee to convert this Debenture into Common
Stock by giving Payee at least 10 days prior written notice of its election to
exercise its rights under this Section 5.A. Such notice shall specify the date
for such conversion and the Converting Amount and thereafter, this Debenture
shall be deemed to have been converted as of the close of business on the
Conversion Date.
6. Antidilution.
(a) In case the Company shall merge with or consolidate into
another corporation or shall sell, transfer or otherwise dispose of all or
substantially all of its property, assets or business (in either one transaction
or a series of transactions) and, pursuant to the terms of such merger,
consolidation or disposition of assets, cash or shares of stock or other
securities, property or assets of the Company, or a successor or transferee or
affiliate thereof, are to be received by or distributed to the holders of Common
Stock, the Payee shall be given a written notice from the Company informing the
Payee of the terms of such merger, consolidation or disposition of assets and of
the record date thereof for any distribution pursuant thereto, at least 10 days
in advance of such recorded date, and the Payee shall have the right thereafter
to receive upon conversion of this Debenture, as permitted herein, the number of
shares of stock or other securities property or assets of the Company, or a
successor or transferee or affiliate thereof, or cash, receivable upon or as a
result of such merger, consolidation or disposition of assets by a holder of the
number of shares of the Common Stock equal to the number of shares of the Common
Stock into which the Debenture was convertible as of the date of such
transaction.
(b) If the Company shall (i) pay a dividend or make a
distribution on the outstanding Common Stock or (ii) subdivide the outstanding
Common Stock, the Conversion Price shall be adjusted proportionately such that
the holder of the Debenture surrendered for conversion after the record date for
such dividend or distribution (which for this purpose shall be the close of
business on the date fixed by the Board as the record date), or after the close
of business on the effective date of such subdivision shall have the right
thereafter to receive upon conversion of the Debenture the aggregate number and
kind of shares of capital stock of the Company, cash or other assets which such
holder would have been entitled to receive if the Debenture had been converted
immediately prior to such record date.
(c) Below Market Issuances. If the Company (i) issues to an
Affiliate (a Person controlling, controlled by or under common control with the
Company, provided further that a Person who owns 10% or more of the Company
shall be deemed an Affiliate) any options, warrants or other rights entitling
the holder thereof to subscribe for or purchase shares of Common Stock or other
securities of the Company convertible or exchangeable for Common Stock at a
price per share which, when added to the amount of consideration received or
receivable by the Company for such options, warrants or rights, is less than the
then Current Market Price (as hereinafter defined) per share of such Common
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Stock as of the date of issuance, (ii) issues or sells to an Affiliate
securities of the Corporation convertible into or exchangeable for Common Stock
at a price per share which, when added to the amount of consideration received
or receivable from the Corporation for such exchangeable or convertible
securities, is less than the then Current Market Price of a share of such Common
Stock on the date of such issuance, or (iii) issues or sells to an Affiliate
additional shares of its Common Stock for consideration representing less than
the then Current Market Price of a share of such Common Stock at the date of
such issuance, then the Conversion Price shall be adjusted by multiplying the
Conversion Price immediately before such issuance or sale by a fraction, the
numerator of which shall be (A) number of shares of Common Stock outstanding
immediately prior to such issuance (the "Old Outstanding") plus (B) the number
of shares of Common Stock (on an as converted or exercised basis) which would
have been issued to the Affiliate in the transaction giving rise to the
adjustment if such Common Stock had been issued or sold (including consideration
received for a Common Stock equivalent) at the Current Market Price and the
denominator of which shall be (A) the Old Outstanding plus (B) the number of
shares of Common Stock issued or sold to such Affiliate (on such as converted or
exercised basis).
(d) Current Market Price. For the purposes of this Debenture the
"CURRENT MARKET PRICE" per share of Common Stock shall be the average of the
closing price (or if not available, the mean of the closing bid and asked
prices) for the five (5) consecutive Business Days before the date of
determination as quoted on the principal securities exchange or interdealer
quotation system on which the Common Stock is then traded or if not then so
traded, as determined in good faith by the Company's Board of Directors.
Notwithstanding anything to the contrary contained herein, no adjustment shall
be made under this Section in respect of an issuance or sale under an employee
compensation plan approved by the Company's stockholders.
(e) Rights Distribution. Subject to the last sentence of this
Subsection, in case the Company shall pay or make a dividend or other
distribution on its Common Stock consisting exclusively of, or shall otherwise
issue to all holders of its Common Stock, rights or warrants entitling the
holders thereof to subscribe for or purchase shares of Common Stock at a price
per share less than the Current Market Price per share of the Common Stock on
the date fixed for the determination of stockholders entitled to receive such
rights or warrants, the Conversion Price in effect at the opening of business on
the day following the date fixed for such determination shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding at the close of business on the
date fixed for such determination plus the number of shares of Common Stock
which the aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at such
Current Market Price and the denominator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this Subsection, the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. Rights or
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<PAGE>
warrants issued by the Company to all holders of its Common Stock entitling the
holders thereof to subscribe for or purchase shares of Common Stock, which
rights or warrants (A) are deemed to be transferred with such shares of Common
Stock, (B) are not exercisable, and (C) are also issued in respect of future
issuances of Common Stock, in each case in clauses (A) through (C) until the
occurrence of a specified event or events ("TRIGGER EVENT"), shall for purposes
of this Section not be deemed issued until the occurrence of the earliest
Trigger Event.
7. No Transfers. The Payee shall not sell or transfer all or any
part of this Debenture.
8. SUBORDINATION.
8.1 Agreement to Subordinate. The Company, for itself, its successors
and assigns, covenants and agrees and Payee by its acceptance hereof likewise
covenants and agrees that (a) the payment of the principal of and interest on
this Debenture, and (b) any payment on account of the prepayment, acquisition or
redemption of this Debenture is hereby expressly subordinated, to the extent and
in the manner hereinafter set forth, in right of payment to the prior payment in
full of all Senior Indebtedness and that these provisions are for the benefit of
the holders of Senior Indebtedness.
8.2 No Demand for Payment; Limitations on Payments in the Event of
Payment Defaults. Unless the authorized agent with authority to act for Payees
of Designated Senior Indebtedness or requisite holders of Designated Senior
Indebtedness shall have given prior written consent otherwise, the Payee will
not ask, demand, sue for, take or receive from any Person or party, whether a
direct or indirect obligor on this Debenture, by set-off or any manner, the
whole or any part of the principal of and/or the interest on this Debenture, or
any payment or distribution of any kind (whether in cash, property or
securities), including any payment that may be payable by reason of any other
indebtedness of the Company being subordinated to payment of this Debenture,
unless and until all of the Designated Senior Indebtedness shall have been
irrevocably paid in full, and the Company's obligations under any applicable
agreement with respect to Designated Senior Indebtedness (including, without
limitation, any applicable loan agreement or purchase agreement), shall have
terminated; provided, however, that:
(a) the Company may make regularly scheduled (unaccelerated)
interest payments on this Debenture; in accordance with the terms hereof
as in effect on the date hereof, so long as no Default or Event of
Default (in each case, as defined in any loan, purchase or other
agreement with respect Designated to Senior Indebtedness) is in
existence at the time of such payment or would result from the making of
such payment,
(b) may make payments of principal and interest, including
payments due under Section 2, following the expiration of a payment
blockage period, but only as provided in Section 8.3 of this Agreement;
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(c) this Debenture may be converted to Common Stock or any other
equity security of the Company as provided in this Debenture; and
(d) the Company may, make such other payments as may be permitted
(i) by the terms of its Senior Indebtedness, or (ii) pursuant to
consents from the necessary holders of Senior Indebtedness or a
combination thereof.
8.3 Limitations on Payments in the Event of Payment Defaults. In the
event that any default or event of default (as defined in any loan agreement,
purchase agreement or any other agreement with respect to any Designated Senior
Indebtedness) in the observance of any term of any Designated Senior
Indebtedness shall occur and be continuing, then:
(a) if such default is OTHER THAN a payment default or a default
which results in the acceleration of the maturity date of such
Designated Senior Indebtedness, no payment (including any payment that
may be payable by reason of any other indebtedness of the Company being
subordinated to payment of this Debenture) shall be made by or on behalf
of the Company for or on account of this Debenture, and the Payee shall
not, except as otherwise permitted by Section 8.2 (b), (c) and (d), take
or receive from the Company, directly or indirectly, in cash or other
property or by set-off or in any other manner, including, without
limitation, from or by way of collateral, payment of all or any of this
Debenture during any payment blockage period that may be provided for in
any Designated Senior Indebtedness with respect to this Debenture;
provided, however, that no such payment blockage period as to such
default shall exist more than once in any 365 consecutive day period,
nor shall any such payment blockage period exceed 179 consecutive days
in any 365 consecutive day period and, upon the maturity of any
Designated Senior Indebtedness then due by lapse of time, acceleration,
default by the Company or otherwise, then all such matured Designated
Senior Indebtedness then due shall first be paid in full before any
additional payment on account of principal or interest is made on this
Debenture, and
(b) if such default is a payment default or a default which
results in the acceleration of the maturity date of such Designated
Senior Indebtedness, no payment (including any payment that may be
payable by reason of any other indebtedness of the Company being
subordinated to payment of this Debenture) shall be made by or on behalf
of the Company for or on account of this Debenture, and the Payee shall
not take, except as otherwise permitted by Section 8.2 (b) and (c), or
receive from the Company, directly or indirectly, in cash or other
property or by set-off or in any other manner, including, without
limitation, from or by way of collateral, payment of all or any of this
Debenture and, upon the maturity of any Designated Senior Indebtedness
then due by lapse of time, acceleration, default by the Company or
otherwise, then all such matured Senior Indebtedness then due shall
first be paid in full before any additional payment on account of
principal or interest is made on this Debenture.
8.4 Rights Upon Distribution of Assets. Upon any distribution of
assets of the Company upon any dissolution, winding-up, liquidation,
arrangement, reorganization, protect, relief or composition of the Company or
its debts (whether voluntary or involuntary in bankruptcy, insolvency or
receivership or other similar case or proceeding, under any Federal or State
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<PAGE>
bankruptcy or similar law or upon an assignment for the benefit of creditors or
any other dissolution, winding-up, liquidation or reorganization of the Company
or any other marshalling of the assets and liabilities of the Company),
(a) The holders of all Senior Indebtedness shall first be
entitled to receive payment in full before the Payee of this Debenture
is entitled to receive any additional payment on account of the
principal of, or interest on this Debenture (other than payment in
shares of stock of the Company as reorganized or readjusted, or
securities of the Company or any other corporation provided for by a
plan of reorganization or readjustment, the payment of which is
subordinated to the payment of all Senior Indebtedness which may at the
time be outstanding);
(b) Any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities (other than
shares of stock of the Company as reorganized or readjusted, or
securities of the Company or any other corporation provided for by a
plan of reorganization or readjustment, the payment of which is
subordinated to the payment of all Senior Indebtedness which may at the
time be outstanding), to which the Payee of this Debenture would be
entitled, except for the provisions of this Section 8, shall be paid by
the liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or other trustee or agent, directly to the holders of Senior
Indebtedness, to their representative or representatives, or to the
trustee or trustees under any indenture under which any instruments
evidencing any such Senior Indebtedness may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of the
principal of the Senior Indebtedness held or represented by each for
application in the case of cash or as collateral (in the case of non
cash assets) for the payment or prepayment of Senior Indebtedness, in
each case, to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution or provision therefor to the holders of such
Senior Indebtedness; and
8.5 Payments Received in Trust. In the event that, notwithstanding
the foregoing, any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (except as otherwise
permitted by Section 8.2 (b), (c) or (d), other than shares of stock of the
Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated to the payment of all Senior Indebtedness which
may at the time be outstanding), shall be received by the Payee on account of
interest or principal on this Debenture not due or payable prior to the
happening of any of the events described in Section 8.3 or Section 8.4 before
all Senior Indebtedness is paid in full, such payment or distribution shall be
received in trust for the benefit of the holders of Senior Indebtedness and
shall be paid over to the holders of Senior Indebtedness remaining unpaid or to
their representative or representatives, or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Indebtedness
may have been issued, ratably as aforesaid, in the same form as received (with
any necessary endorsement) for application in the case of cash or as collateral
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<PAGE>
(in the case of non cash assets) for the payment or prepayment of Senior
Indebtedness, as the case may be, to the payment of such Senior Indebtedness
until all such Senior Indebtedness shall have been paid in full, after giving
effect to any concurrent payment or distribution or provision therefor to the
holders of such Senior Indebtedness.
8.6 Execution of Intercreditor Agreements. The Payee agrees by
accepting this Debenture that if the Company creates, incurs, or refinances any
Senior Indebtedness, Payee, upon request, will execute an intercreditor
agreement with regard to the subordination of this Debenture to such Senior
Indebtedness in such form as may be reasonably requested by any holder of such
Senior Indebtedness (after taking into account whether such Senior Indebtedness
is Designated Senior Indebtedness) who is authorized to act on behalf of all of
the holders of the particular Senior Indebtedness at issue.
8.7 Subrogation. Subject to the payment in full of all Senior
Indebtedness, the Payee of this Debenture shall be subrogated to the rights of
the holders of Senior Indebtedness to receive payments or distributions of
assets of the Company applicable to the Senior Indebtedness on this Debenture
once the Senior Indebtedness shall be paid in full, and no such payments or
distributions applicable to the Senior Indebtedness shall, as between the
Company, its creditors other than the holders of Senior Indebtedness and the
Payee of this Debenture be deemed to be a payment by the Company to or on
account of this Debenture, it being understood that the provisions of Section 8
of this Debenture are and are intended solely for the purpose of defining the
relative rights of the Payee of this Debenture, on the one hand, and the holders
of the Senior Indebtedness, on the other hand. Nothing contained in Section 4 of
this Debenture or elsewhere in this Debenture is intended to or shall impair, as
between the Company, its creditors other than the holders of Senior
Indebtedness, and the Payee of this Debenture, the obligation of the Company,
which is absolute and unconditional, to pay to the Payee of this Debenture the
principal of and interest on this Debenture as and when the same shall become
due and payable in accordance with its terms, or is intended to or shall affect
the relative rights of the Payee of this Debenture and creditors of the Company
other than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Payee of this Debenture from exercising all remedies
otherwise permitted by applicable law upon an Event of Default under this
Debenture, subject to the rights, if any, under this Section 8 of the holders of
Senior Indebtedness in respect to cash, property or securities of the Company
received upon the exercise of any such remedy.
8.8 Reliance Upon Judicial Proceeding. Upon any distribution of
assets of the Company referred to in Section 8 of this Debenture, the Payee
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding-up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other person making any distribution to the Payee of this
Debenture, for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of the Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to Section 8 of this Debenture.
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<PAGE>
8.9 Right to Payments. Except as provided in Section 8.3 with respect
to certain payment blockage periods, nothing else contained in Section 8 of this
Debenture or elsewhere in this Debenture shall affect the obligation of the
Company to make, or prevent the Company from making at any time, except during
the pendency of any such dissolution, winding-up, liquidation or reorganization
proceedings or upon the maturity of the Senior Indebtedness, payments of
principal of or interest on this Debenture and nothing herein shall prevent the
Company from making any payments to the Payee of this Debenture upon
subordination with respect to the Payee's right to accelerate any or all of the
principal amount of this Debenture pursuant to Section 4 hereof.
8.10 Enforcement of Subordination. The Payee of this Debenture, by
acceptance hereof, (a) agrees that any rights against such Payee which any
holder of Senior Indebtedness may have, directly or through the Company by
virtue of the provisions of Section 8 of this Debenture, may be enforced by such
holder of Senior Indebtedness directly against the Payee of this Debenture
without the necessity of joining the Company as a party, and (b) every holder of
Senior Indebtedness and every person hereafter making any advance constituting
Senior Indebtedness shall be entitled to rely upon the provisions of Section 8
of this Debenture, and (c) agrees that it will join in executing such
assignments, agreements and other instruments as may be requested by any holder
of Senior Indebtedness to carry out the intent and purpose of this
subordination.
8.11 No Impairment by Failure to Act. No right of any present or
future holder of any Senior Indebtedness of the Company to enforce subordination
as herein provided shall at any time or in any way be prejudiced or impaired by
any failure to act on the part of the Company, or by any non-compliance by the
Company with the terms, provisions and covenants of this Debenture, regardless
of any knowledge thereof that any such holder of Senior Indebtedness may have or
be otherwise charged with.
8.12 Delivery of Documentation to Payees of Senior Indebtedness. The
Payee, by acceptance hereof, authorizes and directs that a copy hereof be
delivered by the Company to each authorized representative or agent for any
holder of Senior Indebtedness, or if there is no such currently authorized
representative or agent then to at least one holder of Senior Indebtedness as
representative of itself and all other such holders of the Senior Indebtedness,
and to any other holder of Senior Indebtedness requesting the same. Payee of
this Debenture, by acceptance hereof, expressly waives reliance by any present
or future holder of Senior Indebtedness upon the subordination provisions
contained herein.
8.13 No Limitation of Bankruptcy Proceedings. The Payee agrees that,
so long as payments or distributions for or on account of this Debenture are not
permitted pursuant to Section 8; the Payee will not take any action to, or
commence, or join with any other creditor in commencing any Bankruptcy
Proceeding with respect to the Company, or, directly or indirectly, cause the
Company to commence, or assist the Company in commencing any Bankruptcy
Proceeding.
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<PAGE>
9. Representations and Warranties. The Company hereby represents and
warrants to the Payee as follows:
(a) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware and has full
power and authority to own its property, carry on its business as now being
conducted and enter into and perform its obligations hereunder.
(b) This Debenture has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting the rights of creditors generally
and to general principles of equity.
(c) The delivery by the Company of this Debenture, and the
incurrence by the Company of indebtedness hereunder and the performance by the
Company of its obligations hereunder, do not constitute a violation of or
default under or conflict with the Company's certificate of incorporation or
By-laws or any agreement, contract or instrument to which the Company is a party
or is bound or any court or administrative order, or any law, rule or
regulation, to which it is subject or by which it is bound.
10. Investment Representations.
(a) The Payee, by acquiring this Debenture, acknowledges that
neither this Debenture nor the shares of Common Stock into which it may be
converted are being registered under the Securities Act of 1933 (the "Act") on
the ground that the issuance of the Debenture and the shares of Common Stock
into which the Debenture may be converted is exempt from registration under
Section 4(2) of the Act as not involving any public offering and that the
Company's reliance on such exemption is predicated in part on the
representations hereby made to the Company by the Payee that it is acquiring the
Debenture and the shares of Common Stock into which the Debenture may be
converted for investment for its own account, with no present intention of
dividing its participation with others or reselling or otherwise distributing
the same, subject, nevertheless, to any requirement of law that the disposition
of the Payee's property shall at all times be within its control.
(b) The Payee, by acquiring this Debenture, agrees that it will
not sell or transfer all or any part of this Debenture and should the Payee
attempt to transfer this Debenture, the Company may refuse to register such
transfer on its books.
11. Miscellaneous.
(a) Upon receipt of evidence reasonable satisfactory to the
Company of the loss, theft, destruction or mutilation of this Debenture and of a
letter of indemnity satisfactory to the Company from the Payee, and upon
reimbursement to the Company of all reasonable expenses incident thereto, and
upon surrender or cancellation of this Debenture, if mutilated, the Company will
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make and deliver a new Debenture of like tenor in lieu of such lost, stolen,
destroyed or mutilated Debenture.
(b) This Debenture may be amended, modified, superseded,
canceled, renewed or extended and the terms and conditions hereof may be waived,
only by written instrument signed by the Company and the Payee or, in the case
of a waiver, by the party waiving compliance.
(c) This Debenture shall be governed by, and constituted and
enforced in accordance with the laws of the State of New York as in effect from
time to time, without giving effect to any choice of laws or conflict of laws
principles thereof. Any legal action, suit or proceeding arising out of or
relating to this Debenture or the transactions contemplated hereby may be
instituted in any state or federal court in New York or Georgia, and each party
waives any objection which such party may now or hereafter have to the laying of
the venue of any such action, suit or proceeding, and irrevocably submits to the
jurisdiction of any such court in any such action, suit or proceeding. In case
of any legal action, suit or proceeding arising out of or relating to this
Debenture, the prevailing party shall be reimbursed by the non-prevailing party
such amounts as shall be sufficient to cover the costs and expenses of the
prevailing party, including, without limitation, costs of collection and
reasonable fees and disbursements of counsel.
(d) All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered personally,
mailed by registered mail, return receipt requested, sent by recognized
overnight delivery service or, to the extent receipt is confirmed, by telecopy,
telefax, or other electronic transmission service (i) if to the Company, to 201
Ann Street, Hartford, CT 06103, Attention: President (or to such other address
as the Company may have specified by notice given to the Payee pursuant to this
provision), with a copy to Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551
Fifth Avenue, New York, NY 10176, Attention: Kenneth Koch, Esq., and (ii) if to
the Payee, to 1500 Bluegrasses Lakes Parkway, Alpharetta, GA 30004 or the
address that such Payee may designate from time to time in writing to the
Company pursuant to this provision with a copy to:
Smith, Gambrell & Russell, LLP
Suite 3100, Promenade II
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592
Attention: M. Timothy Elder, Esq.
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IN WITNESS WHEREOF, the Company has caused this Debenture to be executed
by its duly authorized officer as of the day and the year first written above.
MDI ENTERTAINMENT, INC.
By: /s/ Steven M. Saferin
-------------------------
Name: Steven M. Saferin
Title: President
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Exhibit 99.4
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PURCHASE AGREEMENT
AGREEMENT effective as of September 21, 1999 between Steven M. Saferin,
with an address at c/o MDI Entertainment, Inc., 201 Ann Street, Hartford,
Connecticut 06103 (the "Stockholder"), and Scientific Games, Inc., a Delaware
corporation, with an address at 1500 Bluegrasses Lakes Parkway, Alpharetta,
Georgia 30004 (the "Purchaser").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock. On the terms and conditions of this
Agreement, the Purchaser hereby irrevocably agrees to purchase from the
Stockholder three hundred thirty three thousand (333,333) shares of
Common Stock, par value $.001 per share("Common Stock"), of MDI
Entertainment, Inc., a Delaware corporation (the "Company"), for a
purchase price equal to $1.50 per share (an aggregate of $500,000). The
Purchaser herewith delivers to the Stockholder $500,000 as consideration
for the shares being acquired hereby (the "Shares").
2. Stockholder Representations. The Stockholder hereby represents and
warrants to the Purchaser that the Stockholder is the record and
beneficial owner and holder of the Shares, free and clear of any charge,
claim, community property interest, condition, equitable interest, lien,
option, pledge, security interest, right of first refusal, or
restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of
ownership. In addition, Stockholder hereby represents and warrants that
the execution, delivery and performance of this Agreement does not and
will not violate any law applicable to Stockholder or any agreement to
which Stockholder is a party, makes the same representations and
warranties to the Purchaser as are included in Sections 5.2, 5.3, 5.4
and 5.8 of the Convertible Subordinated Debenture Purchase Agreement
(the "Agreement"), dated as of even, date herewith, between the Company
and the Purchaser.
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3. Purchaser Representations. The Purchaser hereby represents and warrants
to the Stockholder that:
(a) the Purchaser is acquiring the Shares for its own account
(and not for the account of others), for investment and not with a view to the
distribution or resale thereof;
(b) The Purchaser understands that an investment in the Shares
involves substantial risks, including the potential loss of the entire value of
such investment;
(c) The Purchaser has access to publicly-available information
including, without limitation, the Company's filings with the Securities and
Exchange Commission, regarding the Company and such other information as may be
legally disclosed regarding the Company as the Purchaser may have requested;
(d) The Purchaser is a sophisticated investor and has such
knowledge and experience in financial, tax and business matters so as to enable
the Purchaser to utilize the information made available to the Purchaser in
connection with the investment in the Shares to evaluate the merits and risks of
an investment in the Shares, and to make an informed investment decision with
respect thereto;
(e) the Purchaser understands that it may not sell or otherwise
dispose of the Shares in the absence of either a registration statement under
the Securities Act of 1933 or an exemption form the registration provisions of
the Securities Act of 1933;
(f) the certificates representing the Shares may contain a legend
to the effect of (e) above;
(g) The Purchaser has full legal power and authority to execute
and deliver this Agreement and if the Purchaser is a corporation, partnership,
limited liability company or other entity the person executing and delivering
this Agreement on behalf of the Purchaser has the power to legally bind the
Purchaser, and such execution and delivery has been duly authorized by all
necessary action on behalf of such entity.
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<PAGE>
(h) the Purchaser acknowledges that the Company, its counsel,
Squadron, Ellenoff, Plesent & Sheinfeld, LLP ("SEPS"), and its transfer agent,
Olde Monmouth Stock Transfer Co. ("Old Monmouth"), will rely on the completeness
and accuracy of the statements of the Purchaser contained herein. The Purchaser
will promptly notify such persons if it finds that any of such information
contained in this Agreement is no longer accurate or complete. The Purchaser
agrees to indemnify and hold harmless the Company, SEPS and Old Monmouth from
and against all losses, costs, liabilities and expenses that may arise out of
its purchase of the Shares in violation of the Act or any state securities laws
as a result of such information.
4. Co-Sale Right. Early Term Reg. St.
(a) For purposes of this Section 4, unless the context indicates
otherwise "Co-Sales Securities" shall mean (i) as to Purchaser, the Shares and
any other shares of Common Stock acquired by the Purchaser, and (ii) as to the
Stockholder, all Common Stock of the Company held by the Purchaser immediately
after the Closing of the sale of the Shares and any other shares of Common Stock
of the Company acquired by the Stockholder.
(b) Should Stockholder receive a bona fide offer from any person,
individual or entity ("Person") to purchase any of the Stockholder's Co-Sale
Securities, or should the Stockholder make such an offer to any Person to sell
any of the Stockholder's Co-Sale Securities (other than amounts permitted by
Rule 144(e) under the Act) then the Stockholder shall send to Purchaser written
notice thereof (the "Co-Sale Notice") setting forth the number of Stockholder's
Co-sale Securities to be sold, the purchase price (or the cash equivalent
thereof as determined in the good faith by the Stockholder), the proposed
closing date and any other material terms. Within fifteen (15) days after
delivery of the Co-Sale Notice, Purchaser may elect to sell up to its pro rata
share of the total number of securities to be purchased by the transferee
described in the Co-Sale Notice by giving written notice thereof to the
Stockholder and tendering to the Secretary of the Company a certificate
representing the Co-Sale Securities to be sold, properly endorsed for transfer,
with written instructions to transfer the Co-Sale Securities to the transferee
described in the Co-Sale notice upon receipt of payment for such Co-Sale
Securities at the price or prices set forth in the Co-Sale Notice from such
transferee for the benefit of Purchaser. The Stockholder shall thereupon notify
the transferee of the co-sale arrangements hereunder, and instruct the
transferee to deliver payment for the shares to be purchased from the Purchaser
to the Secretary of the Company, who shall transmit such payment to the
Purchaser. For the purpose of the co-sale right set forth in this Section 4, the
pro-rata share of the Purchaser shall be the ratio that (i) the number of shares
of Co-Sale Securities then held by the Purchaser bears to (ii) the sum of the
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total number of shares of Co-Sale Securities held by the Stockholder (in the
case of both (i) and (ii) assuming conversion of all outstanding convertible
securities and exercise of outstanding options and warrants held by such Persons
(and, in the case of the Purchaser, its affiliates) and the redemption or
exchange of all securities which are redeemable or exchangeable for Common Stock
of the Company). Purchaser shall not be required to give, in order to effect a
sale pursuant to this Section 4, any representations or warranties other than
those pertaining to authority to sell its Co-Sales Securities to be sold and
title to those Co-Sale Securities.
(c) In the event that the Purchaser elects not to sell or fails
to sell to the proposed transferee the full number of Co-Sale Securities subject
to the Co-Sale Notice, the Stockholder may, within ninety (90) days after the
expiration of the fifteen (15) day notice period provided for in Section 4 (b),
transfer such securities of the Stockholder which otherwise could not have been
so transferred, at a price and on terms no more favorable to the Stockholder
than specified in the Co-Sale Notice. After the expiration of such ninety (90)
day period, the Stockholder shall not thereafter transfer any of the
Stockholder's Co-Sale Securities without first complying with the provisions of
Section 4).
(d) No transfer in violation of Section 4 shall be valid, and the
Company shall refuse to recognize any such attempted transfer.
(e) The provisions of Section 4 shall not apply to (i) any sale
or transfer to immediate family members or trusts for the benefit of the
Stockholder or his immediate family members, or (ii) any sale or transfer by
Stockholder to Purchaser or to any affiliate of Purchaser, or (iii) any purchase
of the securities of the Company by the Company tendered by Stockholder to the
Company in payment of the exercise price of stock options granted to Stockholder
by the Board of Directors of the Company or any committee thereof, provided
that, in the case of Co-Sale Securities transferred pursuant to clause (i), all
such transferees shall agree in writing to be subject to this Section 4, with
respect to the Co-Sale Securities so transferred to them in reliance on this
Section 4 as fully as if such transferee was Stockholder.
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(f) If Stockholder shall transfer Co-Sale Securities in
accordance with the provisions of this Section 4 (other than clause (i) of
Section 4(e)), such Co-Sale Securities shall no longer be subject to the
restrictions set forth in this Section 4, and the provisions of this Section 4
shall survive the consummation of the purchase and sale of the Shares.
(g) This Section 4 shall terminate on the earlier of two years
after the date hereof or the date on which the sale of Shares has been
registered pursuant to an effective registration statement under the Securities
Act of 1933.
5. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and each party may become a party
hereto by executing a counterpart hereof. This Agreement and any
counterpart so executed shall be deemed to be one and the same
instrument. It shall not be necessary in making proof of this Agreement
or any counterpart hereof to produce or account for any of the other
counterparts.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
By:/s/ Steven M. Saferin
---------------------
Steven M. Saferin
SCIENTIFIC GAMES INC.
By: /s/ William G. Malloy
-------------------------
Name: William G. Malloy
Title:President and CEO
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