STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT is entered into as of the 1st day of
November, 2000, by and between MDI Entertainment, Inc., a Delaware corporation
("MDI"), and eLot, Inc., a Virginia corporation ("eLot").
WHEREAS, on the terms and subject to the conditions set forth in this
Agreement, eLot and MDI desire that eLot issue 1,000,000 shares (the "eLot
Shares") of eLot's Common Stock, par value $.01 per share (the "eLot Common
Stock"), to MDI in exchange for (1) 444 shares (the "MDI Preferred Shares") of
MDI's Series B Preferred Stock (the "MDI Series B Preferred Stock") which shall
have the rights and preferences set forth in the Certificate of Designation of
Rights and Preferences of Series B Preferred Stock attached as Exhibit A hereto
(the "Certificate of Designation") and (2) a Warrant (the "Warrant") to purchase
555,556 shares of MDI's Common Stock, par value $.001 per share (the "MDI Common
Stock"), which shall have the terms and conditions set forth in the Form of
Warrant attached as Exhibit B hereto;
WHEREAS, eLot and MDI desire to enter into a Registration Rights Agreement
with respect to certain shares of MDI Common Stock in the form set forth in
Exhibit C hereto (the "eLot Registration Rights Agreement"); and
WHEREAS, eLot and MDI desire to enter into a Registration Rights Agreement
with respect to certain shares of eLot Common Stock in the form set forth in
Exhibit D hereto (the "MDI Registration Rights Agreement").
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. Filing of Certificate of Designation; Reservation of Shares of
Common Stock.
(a) Immediately prior to the execution and delivery of this Agreement, MDI
filed with the Secretary of State of Delaware the Certificate of Designation
(the Certificate of Incorporation of MDI, as amended by the Certificate of
Designation and in effect on the date hereof, being hereinafter referred to as
its "Certificate of Incorporation").
(b) MDI 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 MDI
Common Stock to satisfy the rights of conversion of the holders of the MDI
Series B Preferred Stock and the exercise rights of the holders of the Warrant.
SECTION 2. Exchange. Subject to the terms and conditions hereof, at the
Closing (as defined below), eLot agrees to issue to MDI the eLot Shares in
exchange for the MDI Preferred Shares and the Warrant, and MDI agrees to issue
to eLot the MDI Preferred Shares and the Warrant in exchange for the eLot
Shares.
SECTION 3. Delivery of the eLot Shares, MDI Preferred Shares, Warrant and
Other Documents. The closing hereunder with respect to the transactions
contemplated hereby (the "Closing") shall take place at the offices of Xxxxxx
Xxxxxx & Xxxxxxx, 00 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, on November 1, 2000
at 10:00 a.m. New York time or at any other mutually agreed time and place (the
"Closing Date"). At the Closing (1) eLot shall deliver to MDI a stock
certificate, registered in the name of MDI, representing the eLot Shares, (2)
MDI shall deliver to eLot a stock certificate, registered in the name of eLot,
representing the MDI Preferred Shares and the Warrant, and (3) each of MDI and
eLot shall execute and deliver the Registration Rights Agreement.
SECTION 4. Representations and Warranties of MDI. MDI hereby represents and
warrants to eLot as follows:
4.1. Organization. MDI 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. MDI is duly qualified as a
foreign corporation and is in good standing in all such other jurisdictions 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 material adverse effect on MDI's business,
operations, financial condition or prospects (an "MDI Material Adverse Effect").
4.2. Capitalization. The entire authorized capital stock of MDI consists
of:
(a) 25,000,000 shares of MDI Common Stock, of which (i) 10,405,872
shares have been duly and validly issued and are outstanding, fully paid
and nonassessable, (ii) 444,444 shares have been reserved for issuance upon
conversion of the MDI Series B Preferred Stock, (iii) 2,293,656 shares have
been reserved for issuance upon exercise of outstanding warrants (including
the Warrant), (iv) 375,000 shares have been reserved for issuance upon
conversion of a convertible subordinated debenture, (v) 674,166 shares have
been reserved for issuance under MDI's option plans, and (vi) no shares are
held as treasury shares;
(b) 5,000,000 shares of Preferred Stock, of which (i) 2,027 shares
were designated Series A Preferred Stock, none of which remain outstanding;
and (ii) 444 shares of Series B Preferred Stock, of which (A) prior to the
Closing, no shares were issued and outstanding and (B) 444 shares will be
held by eLot after the Closing and will, upon issuance in accordance with
this Agreement, have been duly and validly issued and be outstanding, fully
paid and non-assessable.
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4.3. Reporting Company Status. MDI has registered the MDI Common Stock
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the MDI Common Stock is listed and traded on the Nasdaq
SmallCap Market. Except as set forth on Schedule A hereto, MDI 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 MDI
Common Stock for such listing.
4.4. SEC Filings. None of the documents filed by MDI 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 May 31, 2000
(collectively, the "MDI 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. MDI
has timely filed all requisite forms, reports and exhibits thereto with the SEC.
4.5. Financial Statements. MDI has furnished to eLot the audited balance
sheet of MDI as of May 31, 2000 and the related statements of operations,
stockholders' equity and cash flow of MDI, together with related schedules and
notes, if any, for the year ended May 31, 2000, and the unaudited balance sheet
of MDI as of August 31, 2000 (the "MDI Balance Sheet") and the related unaudited
statements of operations, stockholders' equity and cash flow of MDI for the
three months then ended (the "MDI Statement of Operations"). The MDI Balance
Sheet and the MDI Statement of Operations (the "MDI Financial Statements") have
been prepared in accordance with generally accepted accounting principles
consistently applied. The MDI Balance Sheet fairly presents, in all material
respects, the financial position of MDI as of its date, and the MDI Statement of
Operations fairly presents the results of operations of MDI for the period
therein set forth.
4.6. Absence of Liabilities. Except as set forth in the MDI Balance Sheet
or disclosed in the MDI SEC Documents and except for obligations and liabilities
incurred since August 31, 2000 in the ordinary course of business, MDI has no
material obligation or liability (absolute, accrued or contingent) as of the
date hereof.
4.7. Absence of Changes. Except as disclosed in the MDI SEC Documents,
since May 31, 2000 there has not been (a) any material adverse change in the
financial condition, results of operations, assets, liabilities, business or
prospects of MDI, (b) any material asset or property of MDI made subject to a
lien of any kind, (c) any waiver of any valuable right of MDI, or the
cancellation of any material debt or claim held by MDI, (d) any payment of
dividends on, or other distribution with respect to, or any direct or indirect
redemption or acquisition of, any shares of the capital stock of MDI, or any
agreement or commitment therefor, (e) any mortgage, pledge or hypothecation of
any tangible or intangible asset of MDI, except in the ordinary course of
business, (f) any sale or assignment of any tangible asset of MDI having a book
value in excess of $10,000, except in the ordinary course of business, (g) any
loan by MDI to, or any loan to MDI from, any officer, director, employee or
stockholder of MDI, or any agreement or commit-
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ment therefor, (h) any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the assets, property or business
of MDI or (i) any change in the accounting methods or practices followed by MDI.
4.8. Intellectual Property Rights.
(a) MDI has the right to use the Intellectual Property Rights (as
hereinafter defined) necessary or required for the conduct of its business as
presently conducted;
(b) To the best of MDI's knowledge, no product marketed or sold or proposed
to be marketed or sold by MDI violates or will violate any license or infringes
any Intellectual Property Rights of another;
(c) MDI has not received any notice that any of such Intellectual Property
Rights or the operation or proposed operation of MDI's business conflicts or
will conflict with the rights of others, nor is MDI aware of any reasonable
basis to believe that any such violation, infringement or conflict will or may
exist; and
(d) MDI has taken reasonable measures to protect and preserve the security,
confidentiality and value of its Intellectual Property Rights, including its
trade secrets and other confidential information. To the best knowledge of MDI,
all trade secrets and other confidential information of MDI are presently valid
and protectible and are not part of the public domain or knowledge nor, to the
best knowledge of MDI, have they been used, divulged or appropriated for the
benefit of any person other than MDI or otherwise to the detriment of MDI.
As used herein, the term "Intellectual Property Rights" means all patents,
trademarks, service marks, trade names, copyrights, inventions, trade secrets,
proprietary processes and formulae, applications for patents, trademarks,
service marks and copyrights, and other industrial and intellectual property
rights.
4.9. Proprietary Information of Third Parties. To the best of MDI's
knowledge, no third party has claimed or has reason to claim that any person
employed by or affiliated with MDI has (a) violated or may be violating any of
the terms or conditions of his or her employment, non-competition, nondisclosure
or inventions agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (c) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
MDI which suggests that such a claim might be contemplated. To the best of MDI's
knowledge, no person employed by or affiliated with MDI has employed or proposes
to employ any trade secret or any information or documentation proprietary to
any former employer, and, to the best of MDI's knowledge, no person employed by
or affiliated with MDI has violated any confidential relationship which such
person may have had with any third party, in connection with the development,
manufacture or sale of any product
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or proposed product or the development or sale of any service or proposed
service of MDI, and MDI has no reason to believe there will be any such
employment or violation.
4.10. Litigation. Except as disclosed in the MDI SEC Documents, there is no
action, suit, claim, proceeding or investigation, at law, in equity or
otherwise, by or before any governmental instrumentality or other agency, now
pending or, to MDI's knowledge, threatened against or affecting MDI, nor, to
MDI's knowledge, does there exist any reasonable basis therefor, which in either
case could reasonably be expected to have an MDI Material Adverse Effect.
4.11. No Defaults. Except as disclosed in the MDI SEC Documents and set
forth on Schedule B, MDI is not in violation or breach of, or in default under,
any provision of (a) its Certificate of Incorporation or its By-Laws or any
note, indenture, mortgage, lease, contract, purchase order or other instrument,
document or agreement to which MDI is a party or by which it or any of its
property is bound or affected or (b) any ruling, writ, injunction, order,
judgment or decree of any court, administrative agency or other governmental
body, which breach could reasonably be expected to have an MDI Material Adverse
Effect. To the best knowledge of MDI, there exists no condition, event or act
which, after notice, lapse of time or both, could constitute a violation or
breach of, or a default under, any of the foregoing.
4.12. Authorization of This Agreement, the Registration Rights Agreement
and the Warrant. The execution, delivery and performance by MDI of this
Agreement, the Registration Rights Agreement and the Warrant have been duly
authorized by all requisite corporate action. This Agreement, the Registration
Rights Agreement and the Warrant have been duly executed and delivered on behalf
of MDI and constitute the valid and binding obligations of MDI, enforceable in
accordance with their respective terms. The execution, delivery and performance
of this Agreement, the Registration Rights Agreement and the Warrant, the
issuance, sale and delivery of the MDI Preferred Shares and the Warrant, and the
shares of MDI Common Stock issuable upon conversion of the MDI Series B
Preferred Stock or upon exercise of the Warrant (the "Reserved Shares"), and
compliance with the provisions hereof and thereof by MDI, 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 MDI under, its Certificate of Incorporation or
By-Laws or any note, indenture, mortgage, lease, contract, purchase order or
other instrument, document or agreement to which MDI is a party or by which it
or any of its property is bound or affected.
4.13. Authorization of Shares. The issuance, sale and delivery hereunder by
MDI of the MDI Preferred Shares have been duly authorized by all requisite
corporate action of MDI, and when so issued, sold and delivered, the MDI
Preferred 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 MDI or others.
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4.14. Authorization of Reserved Shares. The issuance, sale and delivery by
MDI of the Reserved Shares have been duly authorized by all requisite corporate
action of MDI, and the Reserved Shares have been duly reserved for issuance upon
conversion of all or any of the shares of MDI Series B Preferred Stock or upon
exercise of the Warrant, and when so issued and delivered upon conversion of any
of the MDI Series B Preferred Stock or upon exercise of the Warrant, 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 MDI or others.
4.15. 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 MDI of this
Agreement, the Registration Rights Agreement or the Warrant, for or in
connection with the valid and lawful authorization, issuance, sale and delivery
of the MDI Preferred Shares or the Warrant or for or in connection with the
valid and lawful authorization, reservation, issuance, sale and delivery of the
Reserved Shares, except for SEC approvals and "blue sky" approvals and filings
contemplated by the Registration Rights Agreement.
4.16. Exemptions from Securities Laws. Subject to the accuracy of the
representations and warranties of eLot set forth in Section 5.18 hereof, the
provisions of Section 5 of the Securities Act are inapplicable to the offering,
issuance, sale and delivery of the MDI Preferred Shares, the Warrant and the
Reserved Shares by virtue of the exemption afforded by Section 4(2) of the
Securities Act, and no consent, approval, qualification or registration or
filing under any state securities or blue sky laws is required in connection
therewith.
4.17. Compliance. MDI has (a) complied in all material respects with all
Federal, state, local or foreign laws, statutes, ordinances, rules, regulations
and orders applicable to its business and (b) all Federal, state, local and
foreign governmental licenses, registrations and permits material to or
necessary for the conduct of its business, and such licenses, registrations and
permits are in full force and effect, except for those as to which failure to
comply would not have an MDI Material Adverse Effect.
4.18. Taxes. MDI has filed all Federal, state, local and foreign tax
returns which are required to be filed by it and all such returns are true and
correct in all material respects. MDI has paid all taxes pursuant to such
returns or pursuant to any assessments received by it or which it is obligated
to withhold from amounts owing to any employee, creditor or third party, except,
in each case, for those which are not yet due and payable pursuant to such
returns.
4.19. Securities Laws.
(a) MDI is acquiring the eLot 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) MDI understands that the eLot Shares have not 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 eLot 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 certificates for the eLot
Shares shall bear a legend to such effect, and appropriate stock transfer
instructions shall be issued.
(c) MDI understands that the exemption from registration afforded by Rule
144 promulgated by the SEC 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) MDI (i) has sufficient knowledge and experience in business and
financial matters and with respect to investment in securities of companies
comparable to eLot 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.
(e) MDI and its advisors, if any, have been furnished with all materials
relating to the business, finances and operations of eLot and materials relating
to the offer and sale of the eLot Shares which have been requested by MDI. MDI
and its advisors, if any, have been afforded the opportunity to ask questions of
eLot and have received complete and satisfactory answers to any such inquiries.
SECTION 5. Representations and Warranties of eLot. eLot represents and
warrants to MDI that:
5.1. Organization. eLot is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Virginia 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. eLot is duly qualified as a
foreign corporation and is in good standing in all such other jurisdictions 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 material adverse effect on eLot's business,
operations, financial condition or prospects (an "eLot Material Adverse
Effect").
5.2. Capitalization. The entire authorized capital stock of eLot consists
of:
(a) 130,000,000 shares of eLot Common Stock, of which (i)
65,696,043 shares have been duly and validly issued and are
outstanding, fully paid and nonassessable, (ii) 1,537,882 shares have
been reserved for issuance upon conversion of convertible subordinated
debentures, (iii) 1,325,000 shares have been reserved for issuance
upon exercise of outstanding warrants, (iv) 7,550, 461 shares have
been reserved for issuance pursuant to eLot's option plans and (v) no
shares are held as Treasury Shares; and
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(b) 1,000,000 shares of preferred stock, par value $.01 per
share, of which no shares are issued and outstanding.
5.3. Reporting Company Status. eLot has registered its Common Stock
pursuant to Section 12 of the Exchange Act, and the Common Stock is listed and
traded on the NASDAQ National Market System. eLot 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 eLot Common Stock for
such listing.
5.4. SEC Filings. None of the documents filed by eLot with the SEC pursuant
to the Securities Act and the Exchange Act since January 1, 1999 (collectively,
the "eLot 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. eLot has timely
filed all requisite forms, reports and exhibits thereto with the SEC.
5.5. Financial Statements. eLot has furnished to MDI the audited balance
sheet of eLot as of December 31, 1999 and the related statements of operations,
stockholders' equity and cash flow of eLot, together with related schedules and
notes, if any, for the year ended December 31, 1999, and the unaudited balance
sheet of eLot as of June 30, 2000 (the "eLot Balance Sheet") and the related
unaudited statements of operations, stockholders' equity and cash flow of eLot
for the six months then ended (the "eLot Statement of Operations"). The eLot
Balance Sheet and the eLot Statement of Operations (the "eLot Financial
Statements") have been prepared in accordance with generally accepted accounting
principles consistently applied. The eLot Balance Sheet fairly presents, in all
material respects, the financial position of eLot as of its date, and the eLot
Statement of Operations fairly presents the results of operations of eLot for
the period therein set forth.
5.6. Absence of Liabilities. Except as set forth in the eLot Balance Sheet
or disclosed in the eLot SEC Documents and except for obligations and
liabilities incurred since June 30, 2000 in the ordinary course of business,
eLot has no material obligation or liability (absolute, accrued or contingent)
as of the date hereof.
5.7. Absence of Changes. Except as disclosed in the eLot SEC Documents,
since June 30, 2000 there has not been (a) any material adverse change in the
financial condition, results of operations, assets, liabilities, business or
prospects of eLot, (b) any material asset or property of eLot made subject to a
lien of any kind, (c) any waiver of any valuable right of eLot, or the
cancellation of any material debt or claim held by eLot, (d) any payment of
dividends on, or other distribution with respect to, or any direct or indirect
redemption or acquisition of, any shares of the capital stock of eLot, or any
agreement or commitment therefor, (e) any mortgage, pledge or hypothecation of
any tangible or intangible asset of eLot, except in the ordinary course of
business, (f) any sale or assignment of any tangible asset of eLot having a book
value in excess of $10,000, except in the ordinary course of business, (g) any
loan by eLot to, or any loan to eLot
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from, any officer, director, employee or stockholder of eLot, or any agreement
or commitment therefor, (h) any damage, destruction or loss (whether or not
covered by insurance) materially and adversely affecting the assets, property or
business of eLot or (i) any change in the accounting methods or practices
followed by eLot.
5.8. Intellectual Property Rights.
(a) eLot has the right to use the Intellectual Property Rights necessary or
required for the conduct of its business as presently conducted or as proposed
to be conducted;
(b) To the best of eLot's knowledge, no product marketed or sold or
proposed to be marketed or sold by eLot violates or will violate any license or
infringes any Intellectual Property Rights of another;
(c) eLot has not received any notice that any of such Intellectual Property
Rights or the operation or proposed operation of eLot's business conflicts or
will conflict with the rights of others, nor is eLot aware of any reasonable
basis to believe that any such violation, infringement or conflict will or may
exist; and
(d) eLot has taken reasonable measures to protect and preserve the
security, confidentiality and value of its Intellectual Property Rights,
including its trade secrets and other confidential information. To the best
knowledge of eLot, all trade secrets and other confidential information of eLot
are presently valid and protectible and are not part of the public domain or
knowledge nor, to the best knowledge of eLot, have they been used, divulged or
appropriated for the benefit of any person other than eLot or otherwise to the
detriment of eLot.
5.9. Proprietary Information of Third Parties. To the best of eLot's
knowledge, no third party has claimed or has reason to claim that any person
employed by or affiliated with eLot has (a) violated or may be violating any of
the terms or conditions of his or her employment, non-competition, nondisclosure
or inventions agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (c) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
eLot which suggests that such a claim might be contemplated. To the best of
eLot's knowledge, no person employed by or affiliated with eLot has employed or
proposes to employ any trade secret or any information or documentation
proprietary to any former employer, and, to the best of eLot's knowledge, no
person employed by or affiliated with eLot has violated any confidential
relationship which such person may have had with any third party, in connection
with the development, manufacture or sale of any product or proposed product or
the development or sale of any service or proposed service of eLot, and eLot has
no reason to believe there will be any such employment or violation.
5.10. Litigation. Except as disclosed in the eLot SEC Documents, there is
no action, suit, claim, proceeding or investigation, at law, in equity or
otherwise, by or before any gov-
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ernmental instrumentality or other agency, now pending or, to eLot's knowledge,
threatened against or affecting eLot, nor, to eLot's knowledge, does there exist
any reasonable basis therefor, which in either case could reasonably be expected
to have an eLot Material Adverse Effect.
5.11. No Defaults. eLot is not in violation or breach of, or in default
under, any provision of (a) its Certificate of Incorporation or its By-Laws or
any note, indenture, mortgage, lease, contract, purchase order or other
instrument, document or agreement to which eLot is a party or by which it or any
of its property is bound or affected or (b) any ruling, writ, injunction, order,
judgment or decree of any court, administrative agency or other governmental
body, which breach could reasonably be expected to have an eLot Material Adverse
Effect. To the best knowledge of eLot, there exists no condition, event or act
which, after notice, lapse of time or both, could constitute a violation or
breach of, or a default under, any of the foregoing.
5.12. Authorization of This Agreement and the Registration Rights
Agreement. The execution, delivery and performance by eLot of this Agreement and
the Registration Rights Agreement have been duly authorized by all requisite
corporate action. This Agreement and the Registration Rights Agreement have been
duty executed and delivered on behalf of eLot and constitute the valid and
binding obligations of eLot, enforceable in accordance with their respective
terms. The execution, delivery and performance of this Agreement and the
Registration Rights Agreement, the issuance, sale and delivery of the eLot
Shares, and compliance with the provisions hereof and thereof by eLot, 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 eLot under, its Certificate
of Incorporation or By-Laws or any note, indenture, mortgage, lease, contract,
purchase order or other instrument, document or agreement to which eLot is a
party or by which it or any of its property is bound or affected.
5.13. Authorization of Shares. The issuance, sale and delivery hereunder by
eLot of the eLot Shares have been duly authorized by all requisite corporate
action of eLot, and when so issued, sold and delivered, the eLot 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 eLot or others.
5.14. 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 eLot of this
Agreement or the Registration Rights Agreement or the valid and lawful
authorization, issuance, sale and delivery of the eLot Shares.
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5.15. Exemptions from Securities Laws. Subject to the accuracy of the
representations and warranties of MDI set forth in Section 4.19 hereof, the
provisions of Section 5 of the Securities Act are inapplicable to the offering,
issuance, sale and delivery of the eLot Shares by virtue of the exemption
afforded by Section 4(2) of the Securities Act, and no consent, approval,
qualification or registration or filing under any state securities or blue sky
laws is required in connection therewith.
5.16. Compliance. eLot has (a) complied in all material respects with all
Federal, state, local or foreign laws, statutes, ordinances, rules, regulations
and orders applicable to its business and (b) all Federal, state, local and
foreign governmental licenses, registrations and permits material to or
necessary for the conduct of its business, and such licenses, registrations and
permits are in full force and effect, except for those as to which failure to
comply would not have an eLot Material Adverse Effect.
5.17. Taxes. eLot has filed all Federal, state, local and foreign tax
returns which are required to be filed by it and all such returns are true and
correct in all material respects. eLot has paid all taxes pursuant to such
returns or pursuant to any assessments received by it or which it is obligated
to withhold from amounts owing to any employee, creditor or third party, except,
in each case, for those which are not yet due and payable pursuant to such
returns.
5.18. Securities Laws.
(a) eLot is acquiring the MDI Preferred Shares and Warrant, and, in the
event eLot should acquire Reserved Shares upon conversion of the MDI Preferred
Shares or Warrant, eLot 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.
(b) eLot understands that the MDI Preferred Shares and Warrant have not
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 MDI Preferred Shares and Warrant
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 certificates for the MDI Preferred Shares and Warrant shall
bear a legend to such effect, and appropriate stock transfer instructions shall
be issued.
(c) eLot understands that the exemption from registration afforded by Rule
144 promulgated by the SEC 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) eLot (i) has sufficient knowledge and experience in business and
financial matters and with respect to investment in securities of companies
comparable to MDI 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. eLot is an "accredited investor" within the
meaning of Regulation D under the Securities Act.
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(e) eLot and its advisors, if any, have been furnished with all materials
relating to the business, finances and operations of MDI and materials relating
to the offer and sale of the MDI Preferred Shares and Warrant which have been
requested by eLot. eLot and its advisors, if any, have been afforded the
opportunity to ask questions of MDI and have received complete and satisfactory
answers to any such inquiries.
SECTION 6. Conditions Precedent to Closing by eLot. The obligation of eLot
to purchase and pay for the MDI Preferred Shares and Warrant being purchased by
eLot is subject to satisfaction of the following conditions precedent at or
before the Closing:
6.1. 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 eLot and its counsel, who shall have received all such originals or
certified or other copies of such documents as they may reasonably request.
6.2. Representations and Warranties Correct. The representations and
warranties made by MDI in Section 4 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.
6.3. Compliance with Covenants. MDI shall have duly complied with and
performed all covenants and agreements of MDI herein which are required to be
complied with and performed at or before the Closing.
6.4. Certificate. MDI shall have provided to eLot a certificate, signed by
an executive officer of MDI and dated the date of the Closing, in form and
substance reasonably satisfactory to eLot and its counsel, confirming compliance
with the conditions set forth in Sections 6.1 through 6.3.
6.5. Registration Rights Agreements. At or before the Closing, MDI and eLot
shall have executed and delivered the eLot Registration Rights Agreement and the
MDI Registration Rights Agreement.
SECTION 7. Conditions Precedent to Closing by eLot. The obligation of MDI
to purchase and pay for the eLot Shares being purchased by MDI 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 MDI and its counsel, who shall have received all such originals or
certified or other copies of such documents as they may reasonably request.
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7.2. Representations and Warranties Correct. The representations and
warranties made by eLot 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. eLot shall have duly complied with and
performed all covenants and agreements of eLot herein which are required to be
complied with and performed at or before the Closing.
7.4. Certificate. eLot shall have provided to MDI a certificate, signed by
an executive officer of eLot and dated the date of the Closing, in form and
substance reasonably satisfactory to MDI and its counsel, confirming compliance
with the conditions set forth in Sections 7.1 through 7.3.
7.5. Registration Rights Agreements. At or before the Closing, eLot and MDI
shall have executed and delivered the eLot Registration Rights Agreement and the
MDI Registration Rights Agreement.
SECTION 8. Additional Agreements of MDI.
8.1. Indemnification. The Certificate of Incorporation or By-Laws of MDI
shall at all times provide for the indemnification of the members of the Board
of Directors of MDI to the full extent provided by the law of the jurisdiction
in which MDI is organized and MDI shall maintain, with a financially sound and
responsible insurer, insurance coverage in an amount not less than $1 million
for indemnification of the members of the Board of Directors.
8.2. Board Observer. So long as the sum of (i) the aggregate number of
shares of Common Stock issuable upon conversion of MDI Series B Preferred Stock
and (ii) MDI Common Stock owned by eLot and its subsidiaries is equal to or
greater than 444,444, eLot shall have the right to designate from time to time
one person as a "Board Observer." MDI will (i) deliver to the Board Observer
notice of all meetings of the MDI Board of Directors and committees thereof in
the same manner as delivered to MDI directors, (ii) deliver to the Board
Observer any materials delivered to MDI directors in the same manner that such
materials are delivered to MDI directors, (iii) permit the Board Observer to
attend all meetings of the MDI Board of Directors and committees thereof and
(iv) will grant the Board Observer reasonable access to MDI's offices and
records during normal business hours. MDI may require the Board Observer to sign
a confidentiality agreement and acknowledge that the Board Observer may, from
time to time, possess material non-public information.
SECTION 9. Fees and Expenses. Each of eLot and MDI shall pay all its own
respective costs and other expenses incurred in connection with its performance
of and compliance with all agreements and conditions contained herein on its
part to be performed or complied with.
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SECTION 10. Survival of Representations, Warranties and Agreements. The
covenants, representations and warranties of eLot and MDI contained herein shall
survive the Closing. eLot and MDI may rely on such covenants, representations
and warranties, irrespective of any investigation made, or notice or knowledge
held, by them or any other person. All statements contained in any certificate
or other instrument delivered by MDI or eLot, pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement shall constitute
representations and warranties by MDI or eLot, as the case may be, under this
Agreement.
SECTION 11. Indemnification.
(a) MDI shall indemnify, defend and hold harmless eLot from and against all
liabilities, losses and damages, together with all reasonable costs and expenses
related thereto (including, without limitation, legal and accounting fees and
expenses), which would not have been incurred if (i) all of the representations
and warranties of MDI herein had been true and correct when made or (ii) all of
the covenants and agreements of MDI herein had been duly and timely complied
with and performed.
(b) eLot shall indemnify, defend and hold harmless MDI from and against all
liabilities, losses and damages, together with all reasonable costs and expenses
related thereto (including, without limitation, legal and accounting fees and
expenses), which would not have been incurred if (i) all of the representations
and warranties of eLot herein had been true and correct when made or (ii) all of
the covenants and agreements of eLot herein had been duly and timely complied
with and performed.
SECTION 12. Remedies. The parties agree and acknowledge that money damages
are not an adequate remedy for any breach of the provisions of this Agreement
and that, in addition to any other remedy a party may have for a breach of this
Agreement, that party shall be entitled to an injunction restraining any such
breach or threatened breach, or a decree of specific performance, without
posting any bond or security. The remedy in this Section 12 is in addition to,
and not in lieu of, any other rights or remedies a party may have.
SECTION 13. Successors and Assigns. This Agreement shall be binding upon,
and inure to the benefit of, each of the parties hereto, their respective
successors and assigns; provided that neither party may assign any of its rights
or obligations hereunder without the prior written consent of the other party.
SECTION 14. 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 transactions contemplated
hereby and supersede all prior negotiations, commitments, agreements and
understandings among them with respect thereto.
SECTION 15. 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
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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:
(a) if to MDI, to:
000 Xxx Xxxxxx
Xxxxx 000
Xxxxxxxx, XX 00000
Attention: President
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
with a copy to:
Mintz Xxxxx Xxxx Xxxxxx Xxxxxxx and Xxxxx, P.C.
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxx, Esq.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
(b) if to eLot:
eLot, Inc.
000 Xxxxxxx Xxxxxxxxx Xxxx
Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxx & Xxxxxxx
00 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
SECTION 16. 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 MDI and eLot.
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SECTION 17. 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 18. 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.
SECTION 19. 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 20. 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 21. 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 22. Brokerage Fee. MDI and eLot each represent that, except for
Venture Partners Capital, LLC (whose fees, commissions and expenses shall be
paid solely by MDI), 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.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties have executed this Agreement 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 & Chief Executive Officer
ELOT, INC.
By: /s/ Xxxxxx Xxxx
--------------------------------------------------
Name: Xxxxxx Xxxx
Title: Executive Vice President
