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 000 Xxx Xxxxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxxxxxx 00000, 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 &
Xxxxxxxxx, LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, 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:
000 Xxx Xxxxxx Xxxxx 000
Xxxxxxxx, XX 00000
Attention: President
Tel: (000) 000-0000
Fax: (000)000-0000
with a copy to:
Squadron, Ellenoff, Plesent & Xxxxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
(ii) if to the Investor, to its address set forth on the
signature page hereto, with a copy to:
Scientific Games, Inc.
0000 Xxxxxxxxxxx Xxxxx Xxxxxxx
Xxxxxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Xxxxx, Xxxxxxxx & Xxxxxxx, XXX
Xxxxx 0000, Xxxxxxxxx XX
0000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxxxx, Xxxxxxx 00000-0000
Attention: M. Xxxxxxx Xxxxx, 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/ Xxxxxx X. Xxxxxxx
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Name: Xxxxxx X. Xxxxxxx
Title: President
SCIENTIFIC GAMES INC.
By: /s/ Xxxxxxx X. Xxxxxx
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Name: Xxxxxxx X. Xxxxxx
Title: President and CEO
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