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):
January 26, 2000
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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This Form 8-K contains forward-looking statements. Such statements involve
various risks that may cause actual results to differ materially from those
expressed in such forward looking statements. These risks and uncertainties
include risks detailed from time to time in MDI Entertainment, Inc.'s filings
with the Securities and Exchange Commission including, but not limited to, those
described in the Registration Statement on Form SB-2, filed September 14, 1999.
Item 5: Other Events
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MERGER
MDI Entertainment, Inc. ("MDI") has entered into an Agreement and Plan
of Merger (the "Merger Agreement") with The Lottery Channel, Inc. ("Lottery")
and MDI Acquisition, Inc., a wholly owned subsidiary of MDI ("Merger Sub"),
dated as of January 26, 2000, pursuant to which, among other things, (a) Lottery
will be merged into Merger Sub, (b) each outstanding share of Lottery common
stock at the effective time of the merger (other than shares held in Lottery's
treasury) will be converted into one share of our common stock and (c) each
option or right to acquire Lottery common stock will become an option or right
to acquire one share of our common stock.
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the
Merger Agreement. A copy of the Merger Agreement is attached as Exhibit 99.1. We
urge you to read the Merger Agreement carefully and in its entirety. All
references to the Merger Agreement are qualified in their entirety by the Merger
Agreement.
Effective Time
The Merger Agreement contemplates the merger of Lottery into Merger Sub,
one of our subsidiaries. After the merger, Merger Sub will survive as one of our
wholly owned subsidiaries. The merger will become effective once we file a
certificate of merger with the Delaware Secretary of State, or at such later
time as specified in such document. This filing will occur as soon as practical
after the closing under the Merger Agreement. Unless the parties agree
otherwise, the closing will occur on the first business days following the
satisfaction or waiver of the conditions to closing set forth in the Merger
Agreement.
Conversion of Lottery Common Stock
Once we complete the merger, the following will occur:
o Each outstanding share of Lottery common stock will be converted
into one share of MDI common stock, with an aggregate of
13,000,000 shares of MDI common stock to be issued to current
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stockholders of Lottery or reserved for issuance to holders of
options or rights of Lottery.
o If there is a change in the number of outstanding shares of MDI
or Lottery common stock prior to the completion of the merger as
a result of stock splits or similar events, the exchange ratio
will be appropriately adjusted.
As of the date of this Form 8-K, the holders of Lottery common stock
would be entitled to receive in the aggregate 5,278,028 shares of MDI common
stock. An additional 7,415,618 shares would be reserved for issuance to holders
of options or rights of Lottery.
Stock Options and Stock Rights
Once we complete the merger, each option or right to purchase shares of
Lottery common stock then outstanding will be converted into an option or right
to acquire shares of MDI common stock. The number of shares of MDI common stock
to be subject to the option or right will be equal to the product of (a) the
number of shares of Lottery common stock subject to the original option or right
and (b) the exchange ratio (currently one-to-one), rounded to the nearest whole
share. The exercise price for each Lottery option or right will remain the same
unless the exchange ratio is changed. All other terms of the original option or
right will continue to apply. As of the date of this Form 8-K, the holders of
options or rights to purchase Lottery common stock would be entitled to receive
in the aggregate options or rights to purchase 7,415,618 shares of MDI common
stock.
Directors and Officers
Upon consummation of the merger, Steven M. Saferin, President, Chief
Executive Officer and a director of MDI, will become Chairman and remain
President of MDI, and Roger W. Ach, II, President, Chief Executive Officer and a
director of Lottery, will become Vice-Chairman and Chief Executive Officer of
MDI.
Upon consummation of the merger, the Board of Directors of MDI will be
expanded to nine members, five of whom will be current MDI directors. The other
four directors will be Roger W. Ach, II and three of his designees.
Covenants
The Merger Agreement contains reciprocal limitations on, among other
things, the ability of Lottery and MDI to take actions outside the ordinary
course of business, to change their respective capital structures and to
entertain alternative proposals.
Registration Rights
MDI agrees to file a registration statement, at its expense, covering
the resale of shares of MDI common stock issued in the merger on the earlier of
a date which is (a) six months after the closing of the public offering
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contemplated by the letter of intent referred to in the Merger Agreement, and
(b) if such public offering has not commenced within six months after the
closing or has commenced and terminated, six months after the date of the Merger
Agreement. MDI shall use its best efforts to cause such registration statement
to become effective as soon as practicable. Notwithstanding the foregoing, if
the Board of Directors of MDI in good faith determines that the filing of the
registration statement would materially adversely affect MDI by forcing
premature disclosure of a pending material event or otherwise, MDI may postpone
the filing of such registration statement by up to 90 days.
Conditions Precedent to Closing
MDI, MERGER SUB AND LOTTERY
The obligations of MDI, Merger Sub and Lottery to effect the merger are
subject to the fulfillment of a number of conditions including, among others,
receipt of fairness opinions and, if necessary, stockholder approvals, the
consummation of certain contemplated investments and receipt of third party
consents. Certain of such conditions are outside the control of the parties and
there is no assurance such conditions will be met or waived.
RELATED AGREEMENTS
Stockholders Agreements
All references to the Stockholders Agreements are qualified in their
entirety by the such agreements, which are attached hereto as Exhibits 99.2 and
99.3.
In connection with the Merger Agreement, three stockholders of Lottery
(two of whom are officers and/or directors of Lottery), who together hold
1,468,150 shares of Lottery's common stock and 1,000 shares of Lottery's Series
A preferred stock representing approximately eighty-five percent (85%) of the
voting power of Lottery, entered into a Stockholders Agreement with us and
Merger Sub (the "Lottery Stockholders Agreement"). These stockholders have
agreed, among other things, to vote for the merger and against alternative
proposals and to use their best efforts to cause the consummation of the
transactions contemplated by the Merger Agreement.
In addition, Steven M. Saferin, our principal stockholder (and our
President, Chief Executive Officer and a director) who holds 3,795,169 shares of
our common stock representing approximately thirty-eight percent (38%) of the
voting power of MDI, entered into a Stockholders Agreement with Lottery. Mr.
Saferin, in his capacity as a stockholder, agreed to perform reciprocal
obligations to those under the Lottery Stockholders Agreement.
Letter Agreements
All references to the Letter Agreements are qualified in their entirety
by the such agreements, which are attached hereto as Exhibits 99.4 and 99.5.
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Each of Steven M. Saferin and Roger W. Ach, II entered into a letter
agreement with MDI Mr. Saferin agreed that (i) MDI need not reserve 225,000
shares of MDI common stock underlying options that he currently owns and (ii) he
would not exercise such options unless and until the stockholders of MDI approve
an amendment to the Certificate of Incorporation authorizing additional shares
of MDI common stock. Mr. Ach agreed that (i) MDI need not reserve 2,064,500
shares of MDI common stock underlying options and rights that he will own upon
consummation of the transactions contemplated by the Merger Agreement and (ii)
he would not exercise such options and rights unless and until the stockholders
of MDI approve an amendment to the Certificate of Incorporation authorizing
additional shares of MDI common stock.
ADDITIONAL RISK FACTORS
THE MERGER AGREEMENT MAY NOT BE CONSUMATED
The Merger Agreement may be terminated by us or Lottery under certain
circumstances. See "Merger Agreement--Termination." In addition, certain
conditions must be satisfied prior to effecting the merger, a number of which
are not within our control. See "Merger Agreement-- Conditions." Although the
parties intend to consummate the merger, we cannot assure you that the merger
will be consummated.
THE EXPECTED BENEFITS OF COMBINING MDI AND LOTTERY MAY NOT BE REALIZED
MDI and Lottery entered into the Merger Agreement with the expectation
that the merger will result in benefits to the combined companies.
If we are not able to integrate effectively our technology, operations
and personnel in a timely and efficient manner, then the benefits of the merger
will not be realized and, as a result, our operating results and the market
price of our common stock may be adversely affected. In addition, the attention
and effort devoted to the integration of the two companies will significantly
divert management's attention from other important issues, and could
significantly harm the combined companies' business and operating results.
LOTTERY STOCKHOLDERS WILL RECEIVE ONE SHARE OF MDI COMMON STOCK AND/OR
OPTIONS AND RIGHTS TO ACQUIRE ONE SHARE OF MDI COMMON STOCK DESPITE CHANGES IN
THE MARKET VALUE OF LOTTERY COMMON STOCK OR MDI COMMON STOCK
Each outstanding share of Lottery common stock will be exchanged for one
share of our common stock and each option or right to acquire Lottery common
stock will become an option or right to acquire one share of our common stock
upon completion of the merger (with an aggregate of 13,000,000 shares of our
common stock being issued to stockholders of Lottery or reserved for issuance to
the holders of Lottery options and rights). This exchange ratio is a fixed
number and will not be adjusted for changes in the market price of either
Lottery common stock or our common stock. Neither party is permitted to
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terminate the merger agreement solely because of changes in the market price of
the other's common stock. Consequently, the specific dollar value of our common
stock to be received by Lottery shareholders will depend on our market value at
the time of completion of the merger. We cannot predict or give any assurances
as to the market price of Lottery before the merger or of our common stock at
any time before or after the merger. The prices of our common stock and
Lottery's common stock may vary because of factors such as:
o changes in the business, operating results or prospects of us or
Lottery;
o market assessments of the likelihood that the merger will be
completed;
o the timing of the completion of the merger;
o the prospects of post-merger operations;
o regulatory considerations; and
o general market and economic conditions.
THE LOTTERY CHANNEL, INC.
Lottery was incorporated in Delaware in 1996 as an entertainment company
providing cable television programming focusing on state-sponsored lotteries. It
has been operating from production studios at Century III at Universal Studios
in Orlando, Florida since April 1997. Headquartered in Cincinnati, Ohio, Lottery
operates two websites, www.lottery.com and www.gameland.com, headquartered in
Cincinnati, Ohio and Richmond, Virginia, respectively.
Lottery provides a communications package for the government-sponsored
lottery industry. The mission of Lottery is to serve as a visual communications
link among states offering lotteries to customers and their on-line retailer.
Lottery's goal is to make lottery games more fun so that they can compete with
other forms of gaming and entertainment for the consumer's discretionary dollar.
As a major function of this communications package, Lottery has
developed and continues to develop games suitable for play by state sponsored
lotteries whereby, upon approval by the appropriate lottery jurisdiction,
viewers can participate from their own home. Currently, no U.S. lottery
jurisdictions have approved an on-line lottery over the Internet. As a
complement to this new game development, Lottery has developed a web site
www.lottery.com which offers up-to-date lottery information, lottery-related
games and is designed to offer the opportunity for fulfillment of lottery
purchases requested by individual state lotteries. For the week ending January
15, 2000, third-party Internet auditor PC Data rated Lottery.com as the number
one "lottery" site and 808th overall site on the Internet. The recent
acquisition of www.gameland.com, a popular games for entertainment web site,
will allow Lottery to more rapidly expand its game offerings.
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In 1998, NBC purchased a significant minority interest in Lottery and
established a strategic alliance with Lottery providing Lottery with valuable
branding opportunities. Links now exist from the web sites of NBC affiliate
stations to Lottery's www.lottery.com web site.
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Item 7:Financial Statements, Pro Forma Financial information and Exhibits.
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(c) Exhibits
99.1 Agreement and Plan of Merger, dated as of January 26, 2000,
between MDI Entertainment, Inc., MDI Acquisition, Inc. and
The Lottery Channel, Inc.
99.2. Stockholders Agreement, dated as of January 26, 2000,
between MDI Entertainment, Inc., MDI Acquisition, Inc. and
certain parties listed therein.
99.3. Stockholders Agreement, dated as of January 26, 2000,
between The Lottery Channel, Inc. and certain parties
listed therein.
99.4 Letter Agreement, dated as of January 26, 2000, between
Steven M. Saferin and MDI Entertainment, Inc.
99.5 Letter Agreement, dated as of January 26, 2000,
between Roger W. Ach, II and MDI Entertainment, Inc.
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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: February 4, 2000
MDI ENTERTAINMENT, INC.
By: /s/ Steven M. Saferin
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Steven M. Saferin
President and Chief Executive Officer
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