Exhibit 99.3
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CONVERTIBLE SUBORDINATED DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY.
$750,000 September 21, 1999
Number: CSD-1
FOR VALUE RECEIVED, the undersigned, MDI ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), promises to pay to the order of SCIENTIFIC GAMES,
INC., a Delaware corporation ("Payee"), at the address set forth pursuant to
Section 11(d) hereof, in lawful money of the United States of America and in
immediately available funds, the principal amount of SEVEN HUNDRED AND FIFTY
THOUSAND DOLLARS ($750,000) on September 21, 2009, and interest semi-annually on
the unpaid principal amount of this Convertible Subordinated Debenture (this
"Debenture") from time to time outstanding, from the date hereof (the "Issue
Date") until maturity, at the rate of 7% per annum (calculated on the basis of a
year of 365 days). In addition, the Payee is entitled to convert up to 100% of
the principal amount of this Debenture, into fully paid and nonassessable shares
of Common Stock, par value $.001 per share, of the Company ("Common Stock"), in
accordance with the terms and conditions hereinafter set forth.
This Debenture is issued by the Company to Payee pursuant to the
Purchase Agreement (as defined below).
In no event shall any interest to be paid hereunder exceed the maximum
rate permitted by law. In any such event, this Debenture shall automatically be
deemed amended to permit interest charges at an amount equal to, but no greater
than, the maximum rate permitted by law.
1. Definitions. For purposes of this Debenture, the following terms
shall have the meanings set forth below:
"Purchase Agreement" means the Convertible Subordinated Debenture
Purchase Agreement, dated as of September 21, 1999, between the Payee and the
Company.
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"Bankruptcy" has the meaning specified in Section 4(a)(iv)
hereof.
"BANKRUPTCY PROCEEDING" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or any other
proceeding under any other bankruptcy or insolvency law of any jurisdiction,
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extensions generally with creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.
"CHANGE OF CONTROL" means, at any time:
(a) any "person" or "group" (each as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) (other than Steve
Saferin and any affiliate of Steve Saferin) that either (A)
becomes the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of voting interests of the
Company (or securities convertible into or exchangeable for such
voting interests) representing 35% or more of the combined voting
power of all voting interests of the Company (on a fully diluted
basis) or (B) otherwise has the ability, directly or indirectly,
to elect a majority of the Board of Directors of the Company;
(b) during any period of up to twenty-four (24) consecutive
months, commencing on or after the date hereof individuals who at
the beginning of such 24-month period were directors of the
Company shall cease for any reason (other than the death or
disability of an officer of the Company that is serving as a
director at such time so long as another officer of the Company
replaces such Person as a director) to constitute a majority of
the Board of Directors of the Company;
(c) any Person or two or more Persons (other than Steve
Saferin) acting in concert shall have acquired by contract or
otherwise, or shall have entered into a contract or arrangement
that, upon consummation thereof, will result in its or their
acquisition of the power to exercise, directly or indirectly, a
controlling influence on the management or policies of the
Company; or
(d) with respect to any pledge or other security agreement
covering all or any portion of the shares of capital stock of the
Company that are owned beneficially and of record by any of the
stockholders of the Company or their nominees, one or more
secured parties or pledgees thereunder shall become the holder of
record of any such shares representing thirty-five percent (35%)
or more of the combined voting power of all voting interests of
the Company (on a fully diluted basis) or shall receive dividends
or other cash or cash equivalent distributions (including,
without limitation, stock repurchases) in respect thereof, or
shall proceed to exercise voting or other consensual rights in
respect thereof (whether by proxy, voting or other similar
arrangement or otherwise), or shall otherwise commence to realize
upon such percentage of such shares.
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(e) Steven Saferin shall (A) cease to be the Chief Executive
Officer of the Company, (B) cease to be a director of the
Company, or (C) cease to hold more than twenty percent (20%) of
the Common Stock of the Company on a fully diluted basis,
exclusive of shares of Common Stock issued or issuable to the
Purchaser.
"Business Day" means any day other than Saturday, Sunday or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"DESIGNATED SENIOR INDEBTEDNESS" means Senior Indebtedness, the
aggregate principal amount of which is outstanding or that is committed and
available to be drawn on is $100,000 or more.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
2. Prepayment. The Company may prepay the principal amount, in whole
or in part, along with interest accrued thereon, at any time, provided that this
Debenture shall not be prepayable without at least 30 days prior written notice
to the Payee. In addition, upon:
(a) a Change in Control; or
(b) a sale of substantially all of the Company's assets,
determined on a consolidated basis; the Payee will have the right
to require the Company to prepay the then outstanding principal
amount of this Debenture, plus accrued but unpaid interest to the
date of prepayment. The Payee of this Debenture will give the
Company notice of any such required prepayment within ninety (90)
days after the occurrence of an event described in (a) or (b)
above. In the event the Payee requires such prepayment be made
such prepayment shall be payable no later than fifteen (15)
Business Days after the date the prepayment notice is given. The
prepayment will be paid by check or (at the option of the Payee)
by wire transfer in same day funds subject to the provisions of
Section 8 hereof.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any,
and interest on (a) indebtedness of the Company for money borrowed from or owing
to any bank, trust company, insurance company, institutional lender or other
entity in the business (whether in whole or in part) of lending money or
extending credit or their assignees, whether outstanding on the date of this
Debenture or thereafter created or incurred; including, without limitation,
money borrowed under revolving credit loans, term loans, receivables financing
(including the sale of receivables to such lenders or to special purpose
facilities formed to borrow from such lenders against such receivables) or
letters of credit, (b) evidenced by bonds, notes, debentures or similar
instruments sold by the Company or letters of credit (or reimbursement
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agreements in respect thereof), in each case for money borrowed (other than this
Debenture), and (c) any and all deferrals, renewals, extensions, refinancings
and refundings (whether direct or indirect) of, or amendments, modifications,
restatements or supplements to, any liability of the kind described in the
preceding clauses whether or not between the same parties and whether or not in
whole or in part, from time to time, unless it is provided in the instrument
creating or evidencing any of the above, or pursuant to which any of the above
is outstanding, that such indebtedness or such renewal, extension, refinancing
or refunding thereof is not superior in right of payment to the Debenture.
3. Payment.
(a) This Debenture shall bear interest at 7% per annum from the
Issue Date until maturity, payable semi-annually on June 30 and December 31 of
each year hereafter, commencing December 31, 1999.
(b) Payment of any unpaid principal amount of this Debenture
shall be due on September 21, 2009.
(c) Payment of principal and interest on this Debenture shall be
made by wire transfer or by check sent to the Payee's address set forth pursuant
to Section 11(d) hereof, in lawful money of the United States of America.
(d) If any payment date falls on a date which is not a Business
Day such payment shall not be due until the next succeeding Business Day.
4. Events of Default
(a) Each of the following shall constitute an "Event of Default"
hereunder:
(i) the Company shall fail to pay when due any payment or
prepayment of principal required under this Debenture, whether at stated
maturity, by mandatory prepayment, by acceleration or otherwise;
(ii) the Company shall fail to pay, for fifteen (15) days after
the same shall become due and payable, any interest on this Debenture or
any other amount payable under this Debenture; or
(iii) any representation, warranty or statement made by the
Company (or any of its officers) under the Purchase Agreement shall
prove to have been untrue or inaccurate in any material respect on the
date as of which made or deemed made and such default shall not have
been remedied or waived by Payee within forty-five (45) days after
receipt of notice of such default from Payee; or
(iv) the Company shall default in any material respect in the
performance of or compliance with any term, covenant or agreement
contained in the Note Purchase Agreement or this Debenture (except as
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otherwise provided in this section) and such default shall not have been
remedied or waived by Payee within thirty (30) days after receipt of
notice of such default from Payee; or
(v) the Company or any of its Subsidiaries shall fail to pay with
respect to one or more issues of indebtedness, one or more principal
payments of U.S.$750,000 in the aggregate, and such failure shall
continue after the applicable grace period, if any, specified in such
agreement or instrument relating to such Indebtedness; or
(vi) any event shall occur or condition shall exist under any
agreement or instrument relating to any indebtedness of the Company or
any of its subsidiaries, as the case may be (other than indebtedness
referred to in (v) above that is outstanding in a principal or notional
amount of U.S.$750,000 in the aggregate, and such event or condition
shall continue after the applicable grace period, if any, specified in
such agreement or instrument, if the effect of such event or condition
is to accelerate the maturity of such indebtedness or the holder or
holders thereof have caused such indebtedness to mature or be required
to be prepaid in full, provided that a waiver by the requisite holders
of such indebtedness required to waive the consequences of such event or
condition shall constitute a waiver hereunder for the same period and
further provided that if such acceleration, or prepayment rights are
waived or rescinded or if the default is cured, then no default shall
exist hereunder; or
(vii) the Company shall (a) make an assignment for the benefit of
creditors, (b) petition or apply for the appointment of a liquidator,
receiver or the like, (c) commence, acquiesce in or consent to any
proceeding relating to it under any bankruptcy, insolvency or similar
law, or (d) admit in writing its inability to pay its debts as they
mature; or
(viii) the voluntary filing by the Company of, or consent by, the
Company to any petition in bankruptcy or any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief with respect to the Company, or the admission in writing
by the Company of its inability to pay its debts as they become due.
(ix) a decree, judgment, or order by a court of competent
jurisdiction shall have been entered adjudging the Company, or ordering
relief against the Company in response to the commencement of any
involuntary bankruptcy case, or approving as properly filed a petition
seeking reorganization or liquidation of the Company under any
bankruptcy or similar law, and such decree or order shall have continued
undischarged and unstayed for a period of sixty (60) days; or a decree
or order of a court of competent jurisdiction over the appointment of a
receiver, liquidator, trustee, or assignee in bankruptcy or insolvency
of the Company, or of the property of the Company, or for the winding up
or liquidation of the affairs of the Company, shall have been entered,
and such decree, judgement, or order shall have remained in force
undischarged and unstayed for a period of sixty (60) days;
(x) the Company shall take any corporate action to authorize any
of the actions set forth above in (vii) through (ix) above; or
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(xi) one or more judgments or orders for the payment of money
involving in the aggregate at any time an amount in excess of
U.S.$750,000 (which amount shall not be fully covered by a solvent and
reputable insurance company that has acknowledged in writing liability
therefor) shall be entered or filed against the Company or any of its
Subsidiaries or any of their respective assets by a court of competent
jurisdiction and either (a) enforcement proceedings shall have been
commenced by any creditor upon any such judgment or order and shall
remain unstayed, unbonded or undischarged or (b) there shall be any
period of sixty (60) consecutive days during which a stay of enforcement
of any such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect.
Upon the occurrence of any of the foregoing Events of Default, the
entire unpaid balance hereof, together with unpaid interest thereon, shall at
the option of Payee, and upon written notice from Payee (except with respect to
defaults under clauses (vii) through (ix) as to which the Event of Default shall
be automatic and no notice shall be required), become immediately due and
payable, and Payee may, subject to the provisions of Section 8, forthwith
exercise the remedies available to Payee at law and in equity as well as those
remedies set forth in this Debenture, and one or more executions may forthwith
issue on any judgment or judgments obtained by virtue thereof; and no failure on
the part of Payee to exercise any of Payee's rights hereunder shall be deemed a
waiver of any such rights or of any default.
Such acceleration of the maturity of amounts due under this Debenture
shall not affect, and shall be cumulative of, any other rights and remedies
which the Payee may have at law, in equity or otherwise. All rights and remedies
hereunder shall be cumulative and in addition to those provided by law, and may
be exercised separately, concurrently or successively. Notwithstanding the fact
that a failure by the Company to pay any payment of principal or interest on its
stated due date under this Debenture may occur by reason of the subordination
provisions under Section 8 of this Debenture, such failure to pay shall
nevertheless for all purposes under this Debenture constitute an Event of
Default entitling Payee to accelerate the maturity of this Debenture and/or to
pursue all of Payee's other rights and remedies under this Debenture and other
rights and remedies Payee may have at law with respect to such Event of Default,
subject to the limitations and other provisions of Section 8 of this Debenture.
5. Conversion Rights.
(a) Payee's Right to Convert. The Payee, subject to the terms and
provisions of this Section 5, may elect to convert up to 100% of the principal
amount of the Debenture into the Company's Common Stock at a conversion price of
$2.00 per share (as adjusted pursuant to Section 6, the "Conversion Price") The
number of shares of Common Stock into which the Converting Amount (as defined
below) shall convert shall be determined by dividing the Converting Amount by
the Conversion Price.
The conversion rights of the Payee may be exercised by the Payee
partially or in full, in its sole discretion, from the Issue Date. The exercise
of such rights on any one or more occasions shall not in any way impair or limit
the rights and remedies available to the Payee to take any and all actions
available to it under the Debenture to collect any amounts due to the Payee
under the Debenture which have not been converted to Common Stock.
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(b) Method of Conversion. The Payee shall exercise its rights to
convert, as described herein, by the delivery to the Company at its address set
forth in Section 11(d) hereof (with a copy delivered to Squadron, Ellenoff,
Plesent & Sheinfeld at its address set forth in Section 11(d)), of an
irrevocable written notice (a "Conversion Notice") stating (i) a date on which
conversion is sought to be made (the "Conversion Date"), which must be on a
Business Day, (ii) the principal amount of the Debenture which the Company
intends to convert (the "Converting Amount"), (iii) the name and denominations
in which the certificate or certificates for the shares of the Common Stock are
to be issued, and (iv) any reasonable instruction for delivery thereof. Promptly
(and in any event within five Business Days after the Conversion Date) after
such surrender and the receipt of such written notice, together with the
certificate or certificates representing the Converting Amount, the Company
shall issue and deliver to the Payee, the certificate or certificates (which
shall contain any appropriate or necessary legends) evidencing the shares of
Common Stock issuable upon such conversion. The Company will also issue to the
Payee a new Debenture in the principal amount remaining after such conversion,
dated the date hereof, and otherwise upon all of the terms and conditions and in
the form hereof.
To the extent surrendered to the Company for conversion, this
Debenture shall be canceled by the Company. The Debenture shall be deemed to
have been converted as of the close of business on the Conversion Date, and at
such time the rights of the Payee, as holder thereof, shall cease to the extent
of the portion of the Debenture converted, and upon receipt of the shares of
Common Stock issuable upon conversion, shall be treated for all purposes as the
record holder thereof at such time.
(c) Notwithstanding the foregoing, in the event the Payee fails
to deliver the Debenture on the Conversion Date, the principal amount of such
Debenture shall be deemed to have been reduced by the Converting Amount.
(d) The Company shall at all time reserve and keep available out
of its authorized but unissued shares, or its treasury shares, of the Common
Stock, solely for the purpose of issue or delivery upon conversion of this
Debenture as herein provided, such number of shares of Common Stock as shall
then be issuable or deliverable upon the conversion of this Debenture. The
Company covenants that all shares of Common Stock which shall be so issuable or
deliverable shall, when issued or delivered, be duly and validly issued and
fully paid and non-assessable.
(e) The certificate for shares of Common Stock issued upon
conversion shall, if appropriate, bear a legend stating as follows:
The shares evidenced by this certificate have not been registered
under the Securities Act of 1933 as amended (the "Act") or any
state securities laws and may not be sold or transferred except
in transactions exempt from registration under the Act or any
applicable state securities laws or pursuant to an effective
Registration Statement under the Act.
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5.A. Forced Conversion by the Company. If, at any time after the
earlier of (a) two years from the date hereof or (b) the date that the sale of
the shares of Common Stock underlying this Debenture is covered by an effective
registration statement under the Act the Current Market Price (as defined in
Section 6) of the Common Stock exceeds $3.00, the Company may, at its option, at
any time thereafter, require the Payee to convert this Debenture into Common
Stock by giving Payee at least 10 days prior written notice of its election to
exercise its rights under this Section 5.A. Such notice shall specify the date
for such conversion and the Converting Amount and thereafter, this Debenture
shall be deemed to have been converted as of the close of business on the
Conversion Date.
6. Antidilution.
(a) In case the Company shall merge with or consolidate into
another corporation or shall sell, transfer or otherwise dispose of all or
substantially all of its property, assets or business (in either one transaction
or a series of transactions) and, pursuant to the terms of such merger,
consolidation or disposition of assets, cash or shares of stock or other
securities, property or assets of the Company, or a successor or transferee or
affiliate thereof, are to be received by or distributed to the holders of Common
Stock, the Payee shall be given a written notice from the Company informing the
Payee of the terms of such merger, consolidation or disposition of assets and of
the record date thereof for any distribution pursuant thereto, at least 10 days
in advance of such recorded date, and the Payee shall have the right thereafter
to receive upon conversion of this Debenture, as permitted herein, the number of
shares of stock or other securities property or assets of the Company, or a
successor or transferee or affiliate thereof, or cash, receivable upon or as a
result of such merger, consolidation or disposition of assets by a holder of the
number of shares of the Common Stock equal to the number of shares of the Common
Stock into which the Debenture was convertible as of the date of such
transaction.
(b) If the Company shall (i) pay a dividend or make a
distribution on the outstanding Common Stock or (ii) subdivide the outstanding
Common Stock, the Conversion Price shall be adjusted proportionately such that
the holder of the Debenture surrendered for conversion after the record date for
such dividend or distribution (which for this purpose shall be the close of
business on the date fixed by the Board as the record date), or after the close
of business on the effective date of such subdivision shall have the right
thereafter to receive upon conversion of the Debenture the aggregate number and
kind of shares of capital stock of the Company, cash or other assets which such
holder would have been entitled to receive if the Debenture had been converted
immediately prior to such record date.
(c) Below Market Issuances. If the Company (i) issues to an
Affiliate (a Person controlling, controlled by or under common control with the
Company, provided further that a Person who owns 10% or more of the Company
shall be deemed an Affiliate) any options, warrants or other rights entitling
the holder thereof to subscribe for or purchase shares of Common Stock or other
securities of the Company convertible or exchangeable for Common Stock at a
price per share which, when added to the amount of consideration received or
receivable by the Company for such options, warrants or rights, is less than the
then Current Market Price (as hereinafter defined) per share of such Common
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Stock as of the date of issuance, (ii) issues or sells to an Affiliate
securities of the Corporation convertible into or exchangeable for Common Stock
at a price per share which, when added to the amount of consideration received
or receivable from the Corporation for such exchangeable or convertible
securities, is less than the then Current Market Price of a share of such Common
Stock on the date of such issuance, or (iii) issues or sells to an Affiliate
additional shares of its Common Stock for consideration representing less than
the then Current Market Price of a share of such Common Stock at the date of
such issuance, then the Conversion Price shall be adjusted by multiplying the
Conversion Price immediately before such issuance or sale by a fraction, the
numerator of which shall be (A) number of shares of Common Stock outstanding
immediately prior to such issuance (the "Old Outstanding") plus (B) the number
of shares of Common Stock (on an as converted or exercised basis) which would
have been issued to the Affiliate in the transaction giving rise to the
adjustment if such Common Stock had been issued or sold (including consideration
received for a Common Stock equivalent) at the Current Market Price and the
denominator of which shall be (A) the Old Outstanding plus (B) the number of
shares of Common Stock issued or sold to such Affiliate (on such as converted or
exercised basis).
(d) Current Market Price. For the purposes of this Debenture the
"CURRENT MARKET PRICE" per share of Common Stock shall be the average of the
closing price (or if not available, the mean of the closing bid and asked
prices) for the five (5) consecutive Business Days before the date of
determination as quoted on the principal securities exchange or interdealer
quotation system on which the Common Stock is then traded or if not then so
traded, as determined in good faith by the Company's Board of Directors.
Notwithstanding anything to the contrary contained herein, no adjustment shall
be made under this Section in respect of an issuance or sale under an employee
compensation plan approved by the Company's stockholders.
(e) Rights Distribution. Subject to the last sentence of this
Subsection, in case the Company shall pay or make a dividend or other
distribution on its Common Stock consisting exclusively of, or shall otherwise
issue to all holders of its Common Stock, rights or warrants entitling the
holders thereof to subscribe for or purchase shares of Common Stock at a price
per share less than the Current Market Price per share of the Common Stock on
the date fixed for the determination of stockholders entitled to receive such
rights or warrants, the Conversion Price in effect at the opening of business on
the day following the date fixed for such determination shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding at the close of business on the
date fixed for such determination plus the number of shares of Common Stock
which the aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at such
Current Market Price and the denominator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this Subsection, the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. Rights or
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warrants issued by the Company to all holders of its Common Stock entitling the
holders thereof to subscribe for or purchase shares of Common Stock, which
rights or warrants (A) are deemed to be transferred with such shares of Common
Stock, (B) are not exercisable, and (C) are also issued in respect of future
issuances of Common Stock, in each case in clauses (A) through (C) until the
occurrence of a specified event or events ("TRIGGER EVENT"), shall for purposes
of this Section not be deemed issued until the occurrence of the earliest
Trigger Event.
7. No Transfers. The Payee shall not sell or transfer all or any
part of this Debenture.
8. SUBORDINATION.
8.1 Agreement to Subordinate. The Company, for itself, its successors
and assigns, covenants and agrees and Payee by its acceptance hereof likewise
covenants and agrees that (a) the payment of the principal of and interest on
this Debenture, and (b) any payment on account of the prepayment, acquisition or
redemption of this Debenture is hereby expressly subordinated, to the extent and
in the manner hereinafter set forth, in right of payment to the prior payment in
full of all Senior Indebtedness and that these provisions are for the benefit of
the holders of Senior Indebtedness.
8.2 No Demand for Payment; Limitations on Payments in the Event of
Payment Defaults. Unless the authorized agent with authority to act for Payees
of Designated Senior Indebtedness or requisite holders of Designated Senior
Indebtedness shall have given prior written consent otherwise, the Payee will
not ask, demand, sue for, take or receive from any Person or party, whether a
direct or indirect obligor on this Debenture, by set-off or any manner, the
whole or any part of the principal of and/or the interest on this Debenture, or
any payment or distribution of any kind (whether in cash, property or
securities), including any payment that may be payable by reason of any other
indebtedness of the Company being subordinated to payment of this Debenture,
unless and until all of the Designated Senior Indebtedness shall have been
irrevocably paid in full, and the Company's obligations under any applicable
agreement with respect to Designated Senior Indebtedness (including, without
limitation, any applicable loan agreement or purchase agreement), shall have
terminated; provided, however, that:
(a) the Company may make regularly scheduled (unaccelerated)
interest payments on this Debenture; in accordance with the terms hereof
as in effect on the date hereof, so long as no Default or Event of
Default (in each case, as defined in any loan, purchase or other
agreement with respect Designated to Senior Indebtedness) is in
existence at the time of such payment or would result from the making of
such payment,
(b) may make payments of principal and interest, including
payments due under Section 2, following the expiration of a payment
blockage period, but only as provided in Section 8.3 of this Agreement;
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(c) this Debenture may be converted to Common Stock or any other
equity security of the Company as provided in this Debenture; and
(d) the Company may, make such other payments as may be permitted
(i) by the terms of its Senior Indebtedness, or (ii) pursuant to
consents from the necessary holders of Senior Indebtedness or a
combination thereof.
8.3 Limitations on Payments in the Event of Payment Defaults. In the
event that any default or event of default (as defined in any loan agreement,
purchase agreement or any other agreement with respect to any Designated Senior
Indebtedness) in the observance of any term of any Designated Senior
Indebtedness shall occur and be continuing, then:
(a) if such default is OTHER THAN a payment default or a default
which results in the acceleration of the maturity date of such
Designated Senior Indebtedness, no payment (including any payment that
may be payable by reason of any other indebtedness of the Company being
subordinated to payment of this Debenture) shall be made by or on behalf
of the Company for or on account of this Debenture, and the Payee shall
not, except as otherwise permitted by Section 8.2 (b), (c) and (d), take
or receive from the Company, directly or indirectly, in cash or other
property or by set-off or in any other manner, including, without
limitation, from or by way of collateral, payment of all or any of this
Debenture during any payment blockage period that may be provided for in
any Designated Senior Indebtedness with respect to this Debenture;
provided, however, that no such payment blockage period as to such
default shall exist more than once in any 365 consecutive day period,
nor shall any such payment blockage period exceed 179 consecutive days
in any 365 consecutive day period and, upon the maturity of any
Designated Senior Indebtedness then due by lapse of time, acceleration,
default by the Company or otherwise, then all such matured Designated
Senior Indebtedness then due shall first be paid in full before any
additional payment on account of principal or interest is made on this
Debenture, and
(b) if such default is a payment default or a default which
results in the acceleration of the maturity date of such Designated
Senior Indebtedness, no payment (including any payment that may be
payable by reason of any other indebtedness of the Company being
subordinated to payment of this Debenture) shall be made by or on behalf
of the Company for or on account of this Debenture, and the Payee shall
not take, except as otherwise permitted by Section 8.2 (b) and (c), or
receive from the Company, directly or indirectly, in cash or other
property or by set-off or in any other manner, including, without
limitation, from or by way of collateral, payment of all or any of this
Debenture and, upon the maturity of any Designated Senior Indebtedness
then due by lapse of time, acceleration, default by the Company or
otherwise, then all such matured Senior Indebtedness then due shall
first be paid in full before any additional payment on account of
principal or interest is made on this Debenture.
8.4 Rights Upon Distribution of Assets. Upon any distribution of
assets of the Company upon any dissolution, winding-up, liquidation,
arrangement, reorganization, protect, relief or composition of the Company or
its debts (whether voluntary or involuntary in bankruptcy, insolvency or
receivership or other similar case or proceeding, under any Federal or State
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bankruptcy or similar law or upon an assignment for the benefit of creditors or
any other dissolution, winding-up, liquidation or reorganization of the Company
or any other marshalling of the assets and liabilities of the Company),
(a) The holders of all Senior Indebtedness shall first be
entitled to receive payment in full before the Payee of this Debenture
is entitled to receive any additional payment on account of the
principal of, or interest on this Debenture (other than payment in
shares of stock of the Company as reorganized or readjusted, or
securities of the Company or any other corporation provided for by a
plan of reorganization or readjustment, the payment of which is
subordinated to the payment of all Senior Indebtedness which may at the
time be outstanding);
(b) Any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities (other than
shares of stock of the Company as reorganized or readjusted, or
securities of the Company or any other corporation provided for by a
plan of reorganization or readjustment, the payment of which is
subordinated to the payment of all Senior Indebtedness which may at the
time be outstanding), to which the Payee of this Debenture would be
entitled, except for the provisions of this Section 8, shall be paid by
the liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or other trustee or agent, directly to the holders of Senior
Indebtedness, to their representative or representatives, or to the
trustee or trustees under any indenture under which any instruments
evidencing any such Senior Indebtedness may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of the
principal of the Senior Indebtedness held or represented by each for
application in the case of cash or as collateral (in the case of non
cash assets) for the payment or prepayment of Senior Indebtedness, in
each case, to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution or provision therefor to the holders of such
Senior Indebtedness; and
8.5 Payments Received in Trust. In the event that, notwithstanding
the foregoing, any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (except as otherwise
permitted by Section 8.2 (b), (c) or (d), other than shares of stock of the
Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated to the payment of all Senior Indebtedness which
may at the time be outstanding), shall be received by the Payee on account of
interest or principal on this Debenture not due or payable prior to the
happening of any of the events described in Section 8.3 or Section 8.4 before
all Senior Indebtedness is paid in full, such payment or distribution shall be
received in trust for the benefit of the holders of Senior Indebtedness and
shall be paid over to the holders of Senior Indebtedness remaining unpaid or to
their representative or representatives, or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Indebtedness
may have been issued, ratably as aforesaid, in the same form as received (with
any necessary endorsement) for application in the case of cash or as collateral
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(in the case of non cash assets) for the payment or prepayment of Senior
Indebtedness, as the case may be, to the payment of such Senior Indebtedness
until all such Senior Indebtedness shall have been paid in full, after giving
effect to any concurrent payment or distribution or provision therefor to the
holders of such Senior Indebtedness.
8.6 Execution of Intercreditor Agreements. The Payee agrees by
accepting this Debenture that if the Company creates, incurs, or refinances any
Senior Indebtedness, Payee, upon request, will execute an intercreditor
agreement with regard to the subordination of this Debenture to such Senior
Indebtedness in such form as may be reasonably requested by any holder of such
Senior Indebtedness (after taking into account whether such Senior Indebtedness
is Designated Senior Indebtedness) who is authorized to act on behalf of all of
the holders of the particular Senior Indebtedness at issue.
8.7 Subrogation. Subject to the payment in full of all Senior
Indebtedness, the Payee of this Debenture shall be subrogated to the rights of
the holders of Senior Indebtedness to receive payments or distributions of
assets of the Company applicable to the Senior Indebtedness on this Debenture
once the Senior Indebtedness shall be paid in full, and no such payments or
distributions applicable to the Senior Indebtedness shall, as between the
Company, its creditors other than the holders of Senior Indebtedness and the
Payee of this Debenture be deemed to be a payment by the Company to or on
account of this Debenture, it being understood that the provisions of Section 8
of this Debenture are and are intended solely for the purpose of defining the
relative rights of the Payee of this Debenture, on the one hand, and the holders
of the Senior Indebtedness, on the other hand. Nothing contained in Section 4 of
this Debenture or elsewhere in this Debenture is intended to or shall impair, as
between the Company, its creditors other than the holders of Senior
Indebtedness, and the Payee of this Debenture, the obligation of the Company,
which is absolute and unconditional, to pay to the Payee of this Debenture the
principal of and interest on this Debenture as and when the same shall become
due and payable in accordance with its terms, or is intended to or shall affect
the relative rights of the Payee of this Debenture and creditors of the Company
other than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Payee of this Debenture from exercising all remedies
otherwise permitted by applicable law upon an Event of Default under this
Debenture, subject to the rights, if any, under this Section 8 of the holders of
Senior Indebtedness in respect to cash, property or securities of the Company
received upon the exercise of any such remedy.
8.8 Reliance Upon Judicial Proceeding. Upon any distribution of
assets of the Company referred to in Section 8 of this Debenture, the Payee
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding-up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other person making any distribution to the Payee of this
Debenture, for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of the Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to Section 8 of this Debenture.
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8.9 Right to Payments. Except as provided in Section 8.3 with respect
to certain payment blockage periods, nothing else contained in Section 8 of this
Debenture or elsewhere in this Debenture shall affect the obligation of the
Company to make, or prevent the Company from making at any time, except during
the pendency of any such dissolution, winding-up, liquidation or reorganization
proceedings or upon the maturity of the Senior Indebtedness, payments of
principal of or interest on this Debenture and nothing herein shall prevent the
Company from making any payments to the Payee of this Debenture upon
subordination with respect to the Payee's right to accelerate any or all of the
principal amount of this Debenture pursuant to Section 4 hereof.
8.10 Enforcement of Subordination. The Payee of this Debenture, by
acceptance hereof, (a) agrees that any rights against such Payee which any
holder of Senior Indebtedness may have, directly or through the Company by
virtue of the provisions of Section 8 of this Debenture, may be enforced by such
holder of Senior Indebtedness directly against the Payee of this Debenture
without the necessity of joining the Company as a party, and (b) every holder of
Senior Indebtedness and every person hereafter making any advance constituting
Senior Indebtedness shall be entitled to rely upon the provisions of Section 8
of this Debenture, and (c) agrees that it will join in executing such
assignments, agreements and other instruments as may be requested by any holder
of Senior Indebtedness to carry out the intent and purpose of this
subordination.
8.11 No Impairment by Failure to Act. No right of any present or
future holder of any Senior Indebtedness of the Company to enforce subordination
as herein provided shall at any time or in any way be prejudiced or impaired by
any failure to act on the part of the Company, or by any non-compliance by the
Company with the terms, provisions and covenants of this Debenture, regardless
of any knowledge thereof that any such holder of Senior Indebtedness may have or
be otherwise charged with.
8.12 Delivery of Documentation to Payees of Senior Indebtedness. The
Payee, by acceptance hereof, authorizes and directs that a copy hereof be
delivered by the Company to each authorized representative or agent for any
holder of Senior Indebtedness, or if there is no such currently authorized
representative or agent then to at least one holder of Senior Indebtedness as
representative of itself and all other such holders of the Senior Indebtedness,
and to any other holder of Senior Indebtedness requesting the same. Payee of
this Debenture, by acceptance hereof, expressly waives reliance by any present
or future holder of Senior Indebtedness upon the subordination provisions
contained herein.
8.13 No Limitation of Bankruptcy Proceedings. The Payee agrees that,
so long as payments or distributions for or on account of this Debenture are not
permitted pursuant to Section 8; the Payee will not take any action to, or
commence, or join with any other creditor in commencing any Bankruptcy
Proceeding with respect to the Company, or, directly or indirectly, cause the
Company to commence, or assist the Company in commencing any Bankruptcy
Proceeding.
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9. Representations and Warranties. The Company hereby represents and
warrants to the Payee as follows:
(a) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware and has full
power and authority to own its property, carry on its business as now being
conducted and enter into and perform its obligations hereunder.
(b) This Debenture has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting the rights of creditors generally
and to general principles of equity.
(c) The delivery by the Company of this Debenture, and the
incurrence by the Company of indebtedness hereunder and the performance by the
Company of its obligations hereunder, do not constitute a violation of or
default under or conflict with the Company's certificate of incorporation or
By-laws or any agreement, contract or instrument to which the Company is a party
or is bound or any court or administrative order, or any law, rule or
regulation, to which it is subject or by which it is bound.
10. Investment Representations.
(a) The Payee, by acquiring this Debenture, acknowledges that
neither this Debenture nor the shares of Common Stock into which it may be
converted are being registered under the Securities Act of 1933 (the "Act") on
the ground that the issuance of the Debenture and the shares of Common Stock
into which the Debenture may be converted is exempt from registration under
Section 4(2) of the Act as not involving any public offering and that the
Company's reliance on such exemption is predicated in part on the
representations hereby made to the Company by the Payee that it is acquiring the
Debenture and the shares of Common Stock into which the Debenture may be
converted for investment for its own account, with no present intention of
dividing its participation with others or reselling or otherwise distributing
the same, subject, nevertheless, to any requirement of law that the disposition
of the Payee's property shall at all times be within its control.
(b) The Payee, by acquiring this Debenture, agrees that it will
not sell or transfer all or any part of this Debenture and should the Payee
attempt to transfer this Debenture, the Company may refuse to register such
transfer on its books.
11. Miscellaneous.
(a) Upon receipt of evidence reasonable satisfactory to the
Company of the loss, theft, destruction or mutilation of this Debenture and of a
letter of indemnity satisfactory to the Company from the Payee, and upon
reimbursement to the Company of all reasonable expenses incident thereto, and
upon surrender or cancellation of this Debenture, if mutilated, the Company will
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make and deliver a new Debenture of like tenor in lieu of such lost, stolen,
destroyed or mutilated Debenture.
(b) This Debenture may be amended, modified, superseded,
canceled, renewed or extended and the terms and conditions hereof may be waived,
only by written instrument signed by the Company and the Payee or, in the case
of a waiver, by the party waiving compliance.
(c) This Debenture shall be governed by, and constituted and
enforced in accordance with the laws of the State of New York as in effect from
time to time, without giving effect to any choice of laws or conflict of laws
principles thereof. Any legal action, suit or proceeding arising out of or
relating to this Debenture or the transactions contemplated hereby may be
instituted in any state or federal court in New York or Georgia, and each party
waives any objection which such party may now or hereafter have to the laying of
the venue of any such action, suit or proceeding, and irrevocably submits to the
jurisdiction of any such court in any such action, suit or proceeding. In case
of any legal action, suit or proceeding arising out of or relating to this
Debenture, the prevailing party shall be reimbursed by the non-prevailing party
such amounts as shall be sufficient to cover the costs and expenses of the
prevailing party, including, without limitation, costs of collection and
reasonable fees and disbursements of counsel.
(d) All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered personally,
mailed by registered mail, return receipt requested, sent by recognized
overnight delivery service or, to the extent receipt is confirmed, by telecopy,
telefax, or other electronic transmission service (i) if to the Company, to 201
Ann Street, Hartford, CT 06103, Attention: President (or to such other address
as the Company may have specified by notice given to the Payee pursuant to this
provision), with a copy to Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551
Fifth Avenue, New York, NY 10176, Attention: Kenneth Koch, Esq., and (ii) if to
the Payee, to 1500 Bluegrasses Lakes Parkway, Alpharetta, GA 30004 or the
address that such Payee may designate from time to time in writing to the
Company pursuant to this provision with a copy to:
Smith, Gambrell & Russell, LLP
Suite 3100, Promenade II
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592
Attention: M. Timothy Elder, Esq.
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IN WITNESS WHEREOF, the Company has caused this Debenture to be executed
by its duly authorized officer as of the day and the year first written above.
MDI ENTERTAINMENT, INC.
By: /s/ Steven M. Saferin
-------------------------
Name: Steven M. Saferin
Title: President
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