EXHIBIT 10.2
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "Agreement") is made and entered
into as of this 19th day of November, 2002, by and among Scientific Games
International, Inc., a Delaware corporation (the "Company") and Steven M.
Saferin, an individual residing in the State of Texas ("Shareholder").
PREAMBLE
WHEREAS, the Company, Blue Suede Acquisition Corp., a Delaware
corporation wholly owned by the Company ("Merger Sub") and MDI Entertainment,
Inc., a Delaware corporation ("MDI"), have entered into that certain Agreement
and Plan of Merger, dated as of November 19, 2002 (the "Merger Agreement"),
pursuant to which Merger Sub will be merged with and into MDI, with MDI being
the surviving corporation of the merger (the "Merger"); and
WHEREAS, Merger Sub is to make a cash tender offer (the "Offer") to
holders of all of the issued and outstanding shares of common stock, par value
$0.001 of MDI (the "Shares"), for $1.60 per share net to the seller (such price,
or any higher price per share as may be paid in the Offer is referred to herein
as the "Offer Price"); and
WHEREAS, Shareholder is the Chief Executive Officer of MDI and owner of
record and beneficially of 3,795,169 Shares representing approximately 35% of
the issued and outstanding capital stock of MDI and is the single largest
stockholder of MDI; and
WHEREAS, Shareholder has entered into that certain Stock Purchase
Agreement (the "Stock Purchase Agreement") dated as of the date hereof between
Shareholder, the Company and Merger Sub, whereby Shareholder has agreed not to
tender his Shares pursuant to the Offer, but rather to sell his Shares to Merger
Sub pursuant to such Stock Purchase Agreement, as provided therein, after
consummation of the Offer, for $1.40 per share or approximately an aggregate
amount of $5,313,236.60 upon closing of such stock purchase; and
WHEREAS, the Company is a wholly owned indirect subsidiary of, and
immediately upon the consummation of the Offer MDI will be at least a majority
owned indirect subsidiary of, Scientific Games Corporation ("SGC"), a publicly
traded Delaware corporation; and
WHEREAS, at the time of this Agreement, one or more members of the SGC
Family of companies conduct business operations with approximately eighty
Government Entities in fifty countries, on six continents; and
WHEREAS, the current members of the SGC Family and MDI seek business
from Governmental Entities engaged in Gaming Operations in every state in the
United States in which Gaming Operations are legally permitted; and
WHEREAS, MDI has offered or sought to offer its products and services
throughout the world; and
WHEREAS, to induce the Company and Merger Sub to enter into the Merger
Agreement, the Stock Purchase Agreement and, to a secondary extent, the
Employment Agreement, Shareholder has agreed to enter into this Agreement,
including the covenants set forth herein simultaneously therewith; and
WHEREAS, this Agreement is to be effective as of the date of
consummation of the Offer contemplated by the Merger Agreement and is to be of
no force and effect if the Merger Agreement is terminated prior to consummation
of the Offer.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. DEFINITIONS.
"Affiliate" means, with respect to any Person, any other
Person which directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or under common control with, such Person.
"Agreement" means this Non-Competition Agreement.
"Company" shall have the meaning set forth in the first
paragraph of this Agreement.
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"Competitive Activity" means any activity in which the
Shareholder directly or indirectly owns, manages, operates, controls, or is
employed by in a sales, executive or managerial capacity (whether as an employee
or independent contractor) or participates in the ownership, management,
operation or control of, any Competitor, provided, however, nothing herein
contained shall restrict the Shareholder from making any investments in not more
than four and nine-tenths percent (4.9%) of the voting securities in any Person
whose stock is listed on a national securities exchange or actively traded in
the over-the-counter market, so long as such investment does not give the
Shareholder the right to control or influence the policy decisions of any such
business or enterprise such that Shareholder is thereby engaged in Competitive
Activity.
"Competitor" means any Person, other than a member of the SGC
Family, that is engaged, directly or indirectly, in Designated Activity.
"Confidential Information" means and includes any information,
data and know-how relating to the business of the customers of any member of the
SGC Family that is disclosed to Shareholder by, or with respect to, such
customers by any of such customers or any member of the SGC Family or which is
known by Shareholder as a result of his relationship with any member of the SGC
Family, and which is, in each case, not generally within the public domain
(whether constituting a trade secret or not), including, without limitation, the
following: financial information; supply and service information; marketing
information; personnel information; customer information; customer product,
game, branding, and pricing strategies; and all other information with respect
to any corporate affairs of such customers that any of the members of the SGC
Family agreed to treat as confidential.
"Designated Activity" means (i) the licensing of intellectual
property, consisting of or substantially similar to the licensing of
entertainment and popular culture brands, goods, images and property (the
"Intellectual Property") for use by such licensee or a Governmental Entity in
Gaming Operations and that are comparable in type (i.e., entertainment and
popular culture brands, goods, images and property) to the Intellectual Property
licensed by the Company or MDI for use in Gaming Operations; (ii) prize
fulfillment for a Governmental Entity in Gaming Operations, including, without
limitation, merchandise and service prize fulfillment, management of the award
of lottery prizes (including second and third chance draws), and coordination of
prize winner travel and accommodations; and (iii) Gaming Operations within the
meaning of clause (i) of the definition thereof.
"Employment Agreement" means that certain employment agreement
between Shareholder and the Company.
"Gaming Operations" means (i) any material business segment of
the lottery industry, including, without limitation, the advertising, sourcing,
production, distribution or sale of lottery tickets, game design, inventory
management and distribution, retailer telemarketing, field services, on-line
lottery or gaming systems and components, lottery ticket accounting and
validation hardware and software, central site computers and communications
hardware, internet gaming, sales and validation systems, support and maintenance
services or any combination thereof, (ii) the advertising, sourcing, production,
distribution, or sale of wagering systems to the pari-mutuel industry as
operated at horse (thoroughbred and harness) race tracks, dog race tracks,
off-track betting establishments, jai alai frontons and casino/sports betting
facilities, (iii) the advertising, sourcing, production, distribution or sale of
hardware, software and support services for sports betting, (iv) simulcasting of
any of the foregoing activities, (v) the advertising, sourcing, production,
distribution, or sales of video lottery terminals, pari-mutuel wagering
terminals and other gaming terminals, including slot machines, (vi) the
advertising, sourcing, production, distribution, or sale of prepaid telephone
cards, (vii) the license of such Intellectual Property for use in the
advertising, production, distribution and sale of any printed products utilizing
manufacturing processes or equipment substantially similar to the processes or
equipment then employed by any member of the SGC Family or otherwise employed in
the lottery and gaming industry, or (viii) for use in connection with the
advertising, sourcing, production, distribution or sale of products and services
for which a useful or necessary component is the utilization of concealed,
encoded or encrypted information or data.
"Governmental Entity" means an administrative agency,
authority, commission, public corporation or other governmental or regulatory
authority or agency of, or established by, any national, state, local or tribal
government (in or outside the United States) which is conducting or is
authorized to conduct Gaming Operations or other gaming or lottery activities,
regardless of whether such entity is deemed to be a governmental,
quasi-governmental or private entity.
"Intellectual Property" has the meaning set forth in the
definition of Designated Activity.
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"Material Contact" means communication between Shareholder and
each customer or potential customer of any member of the SGC Family: (i) with
whom Shareholder deals or has dealt, including, without limitation, those
customers and potential customers to which any member of the SGC Family have
submitted a proposal to provide products or services as to which Shareholder has
or had material involvement, whether in such proposal or in the provision of
such goods and services or both; (ii) whose dealings with any member of the SGC
Family are or were coordinated or supervised by Shareholder; (iii) about whom
Shareholder obtains or has obtained Confidential Information in the ordinary
course of business as a result of Shareholder's association with any member of
the SGC Family; or (iv) who receives or has received products or services
authorized by any member of the SGC Family, the sale or provision of which
results or has resulted in earnings or income being included in any performance
based compensation of Shareholder.
"Merger" has the meaning set forth in the Preamble to this
Agreement.
"Merger Agreement" means that certain Agreement and Plan of
Merger referred to in the Preamble to this Agreement.
"Merger Sub" has the meaning set forth in the first paragraph
of this Agreement.
"Non-compete Territory" means:
(i) during the Term of this Agreement, any geographical area
in the United States in which any member of the SGC Family has business or
operations which are performed, supervised by or assisted in by the Shareholder,
or in which any member of the SGC Family has customers or has actively sought
prospective customers, in each case, with whom Shareholder has or had Material
Contact while employed by any member of the SGC Family; and
(ii) after the Term of the Agreement and during the remainder
of the Restricted Period, any geographical area in the United States in which
any member of the SGC Family (A) either continues to have business or operations
or previously had business or operations within five (5) years prior to the end
of the Term, which, in each case, were performed, supervised by or assisted in
by Shareholder, or (B) had customers within such five-year period or had
actively sought prospective customers, in each case, with whom Shareholder had
Material Contact within five years prior to the end of the Term.
"Person" means an individual, corporation, partnership,
association, tribe, trust, business trust, limited liability company, joint
venture, joint stock company, pool, syndicate, sole proprietorship,
unincorporated authority, Governmental Entity or other form of entity or group.
"Restricted Period" means the period equal to the Term of this
Agreement plus the period equal to the longer of either (A) one (1) year after
termination of this Agreement for any reason, (other than pursuant to Section
4(c) hereof), or (B) any period after the Term during which Shareholder shall
receive any compensation or other remuneration (including any severance benefits
payments) from any member of the SGC Family.
"SGC" has the meaning set forth in the Preamble to this
Agreement.
"SGC Family" means SGC and its controlled Affiliates,
including the Company and, upon consummation of the Offer, MDI.
"Shareholder" has the meaning set forth in the first paragraph
of this Agreement.
"Stock Purchase Agreement" shall have the meaning set forth in
the Preamble to this Agreement.
SECTION 2. NON-COMPETITION.
(a) Shareholder agrees that he will not engage in any "Competitive
Activity" within the "Non-compete Territory,"
(i) during the Term of this Agreement, and
(ii) after the Term of this Agreement and during the remainder of
the Restricted Period.
(b) Shareholder agrees that, for purposes of this Agreement, any
post-Term payments made to Shareholder by any member of the SGC
Family and whether made under the Employment Agreement or
otherwise shall be as additional consideration for Shareholder's
agreement that the restrictions contained herein shall extend
beyond the Term plus one (1) year after the stated Term of this
Agreement and through the term of such payments.
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(c) For purposes of this Agreement, the determination of whether a
particular geographic area is within the Non-compete Territory or
whether a particular activity is a Competitive Activity shall be
made at the earlier of the time that enforcement of this covenant
is sought, or the date this Agreement terminates, for any reason.
(d) The Company and Shareholder acknowledge and agree, based upon the
current activities of the members of the SGC Family and a good
faith projection of their future activities, that the Non-compete
Territory shall be presumed to be the entire United States;
provided, however, that in the event this presumption is in
conflict at the time of determination with the definition of
Non-compete Territory, then the Non-compete Territory shall
comprise only that portion of the United States, determined on a
state by state basis, as falls within such definition.
SECTION 3. NON-SOLICITATION OF EMPLOYEES.
(a) Shareholder agrees that he will:
(i) during the Term of this Agreement, refrain from recruiting
or hiring, or attempting to recruit or hire, directly or by
assisting others, any other employee who is employed by any
member of the SGC Family;
(ii) after the Term and during the remainder of the Restricted
Period, refrain from recruiting or hiring or attempting to
recruit or hire, directly or by assisting others, any
employee who is employed by a member of the SGC Family, to
become an employee of any other Person whose products or
services are, as of the applicable determination date, the
same as, or substantially comparable in type to, the
products manufactured, licensed or distributed by, or the
services provided by, any member of the SGC Family which, at
the end of the Term were, and which during the remainder of
the Restricted Period continue to be, provided by one or
more members of the SGC Family.
(b) The provisions of Section 3(a) shall not prohibit the proscribed
activities with respect to any employee (A) who resigns
voluntarily (without any solicitation from Shareholder or his
Affiliates, or (B) is terminated by any member of the SGC Family
without "cause,"(for the avoidance of doubt, Shareholder
acknowledges that the hiring of former employees terminated by
any member of the SGC Family for "cause" shall be prohibited by,
and in accordance with the terms of, Section 3(a).
(c) Shareholder agrees that during the Restricted Period he will
refrain from approaching any such Person for the prohibited
purposes set forth in Section 3(a) or authorizing or knowingly
approving the taking of any actions prohibited by Section 3(a) by
any other Person, or assisting any such Person in taking such
action.
SECTION 4. NON-SOLICITATION OF CUSTOMERS
(a) Shareholder agrees that he will:
(i) during the Term of this Agreement, refrain from, soliciting,
enticing or inducing any Person that is, or was, a customer
or potential customer of any member of the SGC Family with
whom Shareholder had Material Contact, to become a customer
of any other Person for products or services the same as, or
comparable in type to, those products and services which are
or were provided by any member of the SGC Family;
(ii) after the Term and during the remainder of the Restricted
Period, refrain from soliciting, enticing or inducing any
Person that was a customer as of the end of the Term or as
of any date during the Term and, in either case, with whom
Shareholder had Material Contact, to become a customer of
any other Person whose products or services are, as of the
applicable determination date, the same as, or comparable in
type to, the products manufactured, licensed or distributed
by, or the services provided by, any member of the SGC
Family which, at the end of the Term were, and which during
the remainder of the Restricted Period continue to be,
provided by one or more members of the SGC Family.
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(b) Shareholder agrees that during the Restricted Period he will
refrain from approaching any such Person for the prohibited
purposes set forth in Section 4(a) or authorizing or knowingly
approving the taking of any actions prohibited by Section 4(a)
any other Person, or assisting any such Person in taking such
action.
SECTION 5. TERM; SURVIVAL; TOLLING OF PERIOD OF RESTRAINT.
(a) This Agreement shall commence and be effective as of the date of
consummation of the Offer and shall have a term through December
31, 2005 (the "Term") unless earlier terminated pursuant to
Section 5(c).
(b) Notwithstanding any termination of this Agreement, Shareholder
hereby expressly agrees that (i) the provisions contained in
Section 2, Section 3 and Section 4 of this Agreement, including
the applicable definitions contained in Section 1 hereof, shall
survive for the periods necessary to give effect to the
provisions thereof, and (ii) any purported violation of the
restraints set forth in this Agreement shall automatically toll
and suspend the period of the restraint and extend the term of
this Agreement for the amount of time that the violation
continues; but only during the pendency of any litigation,
mediation, or arbitration involving a good faith claim by a
member of the SGC Family that Shareholder has breached one or
more of the covenants set forth in this Agreement, and only if a
member of the SGC Family has instituted such litigation or other
dispute resolution procedure no later than one (1) year from the
earlier of (1) the date any member of the SGC Family has actual
knowledge of such breach, or (2) the expiration of the Restricted
Period, and further provided that, in each case, the applicable
period of restraint shall not be extended unless there shall have
been a violation of the restraints set forth in the applicable
section at issue during such period of time and then only with
respect to the applicable restraints.
(c) Notwithstanding anything to the contrary contained in this
Agreement (including Section 2, Section 3 and Section 4), this
Agreement shall terminate and become null and void in the event
the Merger Agreement terminates for any reason prior to the
consummation of the Offer contemplated thereby.
SECTION 6. REMEDIES FOR BREACH OF CERTAIN COVENANTS.
Shareholder agrees that payment of monetary damages will not
adequately compensate the non-breaching party for the damage it will suffer in
the event of a breach of one or more of such covenants and both parties agree
that, even with payment of such monetary damages, any one or more members of the
SGC Family may seek injunctive relief against further or ongoing violations of
any of the provisions of Section 2, Section 3 or Section 4 of this Agreement
during the time periods provided for under such covenants and Section 5 of this
Agreement.
SECTION 7. ACKNOWLEDGMENTS; INTENDED THIRD PARTY BENEFICIARIES.
Shareholder hereby acknowledges and agrees that the
provisions, restrictions and remedies contained in this Agreement are fair and
reasonable and necessary for the protection of the legitimate business interests
of the members of the SGC Family arising out of the acquisition of MDI pursuant
to the Merger Agreement and by virtue of the factual recitals set forth in the
Preamble to this Agreement, which recitals constitute an integral part of this
Agreement. Shareholder acknowledges that Shareholder will be able to earn a
livelihood without violating the restrictions contained in this Agreement.
Shareholder acknowledges that such restrictions are a material condition and
inducement to the agreement of the Company and Merger Sub to enter into each of
the Merger Agreement, the Stock Purchase Agreement and, to a secondary extent,
the Employment Agreement to which they are a party.
Shareholder agrees that the members of the SGC Family who are not
parties to this Agreement are intended third party beneficiaries of this
Agreement and may enforce all rights granted them under this Agreement, either
in their own name, in the name of the Company.
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SECTION 8. NOTICES.
Any notices, affidavits or other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given only if and when (i) delivered by messenger and receipted for, or (ii)
when delivered and receipted for by an overnight mail service, or (iii) when
delivered and receipted for by U.S. certified mail, or (iv) by facsimile,
followed by written confirmation, addressed in each case as follows:
If to the Company, to: Scientific Games International, Inc.
1500 Bluegrass Lakes Parkway
Alpharetta, Georgia 30004
Attn: C. Gray Bethea, Jr., Esq.
General Counsel
Telephone: (770) 664-3719
Fax: (678) 297-5118
with a copy to:
Smith, Gambrell & Russell, LLP
1230 Peachtree Street, N.E.
Suite 3100, Promenade II
Atlanta, Georgia 30309-3592
Attn: M. Timothy Elder, Esq.
Direct Telephone: (404) 815-3532
Direct Fax: (404) 685-6832
If to Shareholder, to: Mr. Steven M. Saferin
4041 Shadow Drive
Fort Worth, Texas 76116
with a copy to:
Peter M. Ziemba, Esq.
Graubard Miller
600 Third Avenue
New York, NY 10016
Telephone: (212) 818-8667
Fax: (646) 227-5400
Any address set forth above may be changed by notice given pursuant to this
Section 8.
Section 9. Amendments, etc.
This Agreement may be amended or modified, and any of the
terms hereof may be waived, only by a written instrument duly executed by or on
behalf of the Company and Shareholder. No delay or omission by any party in
exercising any right with respect hereto shall operate as a waiver. No waiver by
any party of any term or condition contained of this Agreement, in any one or
more instances, shall be deemed to be or construed as a waiver of the same or
any other term or condition of this Agreement or any right or remedy on any
future occasion.
Section 10. Severability.
The parties hereto recognize that the laws and public policies
of the various states of the United States and other jurisdictions may differ as
to the validity and enforceability of covenants similar to those set forth in
this Agreement. It is the intention of the parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the laws and
policies of each jurisdiction in which enforcement may be sought, and that the
unenforceability (or the modification to conform to such laws or policies) of
any provisions of this Agreement shall not render unenforceable, or impair, the
remainder of the provisions of this Section. Accordingly, if any provision of
this Agreement shall be determined to be invalid or unenforceable under
applicable law (i) such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement, and (ii) such invalidity or
unenforceability shall be deemed to apply only with respect to the operation of
such provision in the particular jurisdiction in which such determination is
made and not with respect to any other provision or jurisdiction.
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Section 11. Successors and Assigns; Headings.
This Agreement is binding upon and will inure to the benefit
of the parties hereto and their respective successors and permitted assigns. The
headings used in this Agreement have been inserted for convenience of reference
only and do not define or limit the provisions hereof.
Section 12. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to a contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
Section 13. Execution in Counterparts.
This Agreement may be executed in two or more counterparts,
which when so executed shall constitute one and the same agreement. This
Agreement may be executed by facsimile signatures which shall constitute
original counterparts.
Section 14. Entire Agreement.
This Agreement constitutes the entire agreement between the
parties relating to the matters set forth herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first above written.
SCIENTIFIC GAMES INTERNATIONAL, INC.
By: /s/ Martin E. Schloss
----------------------
Name: Martin E. Schloss
Title: Vice President and General Counsel
"SHAREHOLDER"
By: /s/ Steven M. Saferin
---------------------
Name: Steven M. Saferin
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