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 Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, 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.
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 commitment 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 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.
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.
(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 convertiblesubordinated 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
(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 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 governmental 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.
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.
(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.
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.
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 (a) all of
the representations and warranties of eLot herein had been true and correct when
made or (b) 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 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 MDI, to:
201 Ann Street
Suite 210
Hartford, CT 06103
Attention: President
Telephone: (860) 527-5359
Telecopy: (860) 527-5920
with a copy to:
Mintz Levin Cohn Ferris Glovsky and Popeo, P.C.
666 Third Avenue
New York, NY 10017
Attention: Kenneth R. Koch, Esq.
Telephone: (212) 935-3000
Telecopy: (212) 983-3115
(ii) if to eLot:
eLot, Inc.
301 Merritt Corporate Park
Norwalk, CT 06851
Attention: Barbara Anderson, Esq.
Telephone: (203) 840-8630
Telecopy: (203) 840-8639
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Attention: Richard E. Farley, Esq.
Telephone: (212) 701-3000
Telecopy: (212) 269-5420
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.
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]
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first above written.
MDI ENTERTAINMENT, INC.
By: /s/ Steven M. Saferin
Name: Steven M. Saferin
Title: President & Chief Executive Officer
ELOT, INC.
By: /s/ Robert Daum
Name: Robert Daum
Title: Executive Vice President