U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(Amendment No. 1)
(Mark one):
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended December 31, 2001.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NO. 0-24919
MDI ENTERTAINMENT, INC.
(Name of small business issuer in its charter)
DELAWARE 73-1515699
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
MDI ENTERTAINMENT, INC.
201 ANN STREET
HARTFORD, CONNECTICUT 06103
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (860) 527-5359
Securities registered under Section 12(b) of the Exchange Act:
Title of each Class Name of each exchange on which registered
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class)
------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
---- ----
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $14,661,952
Aggregate market value of the voting and non-voting common equity stock
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
a specified date within the past 60 days: $12,999,146 as of March 4, 2002.
Shares of common stock outstanding as of March 6, 2002: 11,751,452
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable
Transitional Small Business Disclosure Format (check one): Yes ; No X
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This Amendment No. 1 to the Annual Report on Form 10-KSB for the year
ended December 31, 2001, as filed on March 19, 2002, amends and restates Items
9, 10, 11 and 12 in their entirety.
1
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
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Our directors and executive officers are as follows:
NAME AGE POSITION
Steven M. Saferin 53 President, Chief Executive Officer and Director
Kenneth M. Przysiecki 57 Sr. Vice President Accounting and Administration,
Secretary and Director
Robert J. Wussler 65 Director
S. David Fineman 56 Director
Todd P. Leavitt 51 Director
William G. Malloy 55 Director
Charles W. Kline 42 Vice President Marketing
Robert R. Kowalczyk 54 Sr. Vice President and General Manager
Donald Walsh 54 Sr. Vice President Sales
Evelyn Yenson 57 Sr. Vice President International Sales and Marketing
Jeffrey A. Schweig 41 Vice President Creative Planning and Development
COMMITTEES
The Board of Directors at their June 8, 2001 annual meeting established
the following committees and appointed members:
Audit Committee: S. David Fineman
Robert J. Wussler
William G. Malloy
Compensation Committee: Steven M. Saferin
Todd P. Leavitt
Executive Committee: Steven M. Saferin
S. David Fineman
Kenneth M. Przysiecki
Financing and Public Filing
Oversight Committee: William Malloy
Robert Wussler
David Fineman
2
BIOGRAPHIES
STEVEN M. SAFERIN
Mr. Saferin has been the President, Chief Executive Officer and a
member of our Board of Directors since August 1997. Since January 1986, Mr.
Saferin has been President and Chief Executive Officer of MDIP, which today is
our wholly-owned subsidiary. In this capacity, Mr. Saferin has been primarily
responsible for product development, marketing and sales. Mr. Saferin conceived
and led MDIP's entry into the lottery industry and has since been the key
employee in revising, refining and creating new products and marketing
initiatives for us to offer to the lottery industry. Prior to founding MDIP, Mr.
Saferin was Director of Program Acquisitions at ESPN from 1982 to 1986. He
supervised a 16 person department in the areas of product acquisition and
scheduling. From 1978 to 1982, Mr. Saferin was active in cable television
franchising as a Vice President with both Viacom Communications and Warner Amex
Cable. In those capacities, he supervised cable television franchising
activities in dozens of major markets. Prior to entering business, Mr. Saferin
was an Attorney-Advisor to the Cable Television Bureau of the Federal
Communications Commission, as well as a member of the law department at Viacom
International, Inc. Mr. Saferin received a B.A. in journalism from American
University and received his J.D. after attending the Georgetown University and
the University of Maryland Schools of Law.
KENNETH M. PRZYSIECKI
Mr. Przysiecki has been our Chief Financial Officer since August 1994.
In August 2001 he was named Senior Vice President of Accounting and
Administration. In addition Mr. Przysiecki has been our corporate Secretary and
a member of our Board of Directors since August 1997. Prior to joining us, Mr.
Przysiecki was involved in several business start-ups that required his
financial planning, negotiating and systems implementation skills. He was a
Senior Manager for Noreika, Rosenfeld and Hupp, a C.P.A. firm, from 1989 to 1992
and was employed as Vice President of Finance for Keeney Manufacturing Company,
a plumbing supply manufacturing company, from 1976 until 1988. He received his
C.P.A. while employed at Arthur Andersen & Co. from 1972 to 1976; and received
his B.S. in Business Administration from American International College.
ROBERT J. WUSSLER
Mr. Wussler has been a member of our Board of Directors since August
1997. Since June 1998, he served as President and Chief Executive Officer of
U.S. Digital Communucations, Inc., a telecommunications company. Mr. Wussler was
formerly the Chairman of the Board of Directors of U.S. Digital Communications,
Inc., serving in that capacity from March 1997 to May of 2000. Mr. Wussler is
currently President and Chief Executive Officer of Ted Turner Pictures. Mr.
Wussler has held this position since January 2001. He has also been President
and Chief Executive Officer of The Wussler Group, which owns several
telecommunications ventures, since February 1992. From June 1995 to June 1998,
Mr. Wussler served as President and Chief Executive Officer of Affiliate
Enterprises, Inc., a privately held company that acts as the syndication branch
of 51 media companies. Additionally, he was the President and Chief Executive
Officer of Comsat Video, the international satellite telecommunications company
from 1990 to 1993. Mr. Wussler is one of the founders of CNN (Cable News
Network) having founded the network when he was Senior Executive Vice President
with Turner Broadcasting from 1980 to 1990. During his tenure with Turner
Broadcasting, he was also President of the Atlanta Braves professional baseball
team and the Atlanta Hawks professional basketball team. Prior to joining the
Turner organization, Mr. Wussler was President of Columbia Broadcasting System
(CBS) Television, a position he attained from his start in the CBS mailroom. Mr.
Wussler is also an independent business consultant having directed such projects
as the establishment of a French-Kuwaiti television network in 1993 and the
acquisition of MetroMedia Enterprises. He was the founding Chairman of
International TelCell, which later became a part of MetroMedia International
Group in 1993. Mr. Wussler also advised and guided the first African American
professional basketball ownership group in the finance, purchase, management and
resale of the Denver Nuggets franchise of the National Basketball Association.
Mr. Wussler also serves on the Board of Directors of Streammedia Communications,
Inc., Converge Global, Inc., Visual Display and TIS Worldwide.
3
S. DAVID FINEMAN
Mr. Fineman has been a member of our Board of Directors since November
1998. He is the managing attorney and founder of Fineman & Bach, P.C., a
Philadelphia, PA law firm since 1986. Mr. Fineman represents a variety of
clients, including governmental authorities and private clients dealing with the
government. He has an active litigation practice and represents clients
throughout the United States, in both the Federal and State courts, and in
Japan. Mr. Fineman has served as special counsel to the Philadelphia Parking
Authority, the Secretary of Banking of the Commonwealth of Pennsylvania, and the
Insurance Commissioner of the Commonwealth of Pennsylvania. In 1995, he was
nominated by President Clinton and confirmed by the United States Senate to a
nine-year term on the Board of Governors of the United States Postal Service, a
nine member Board which directs and controls the expenditures, reviews practices
and policies, and establishes basic objectives and long-range goals for the
Postal Service. He presently serves as chairman of its compensation committee.
In 1994, Mr. Fineman was appointed to the Industry Policy Advisory Committee, a
CEO-level committee which advises the Secretary of Commerce and the U.S. Trade
Representative on international trade policy issues. Mr. Fineman received a B.A.
from American University and received his J.D., with honors, from George
Washington University Law School.
TODD P. LEAVITT
Mr. Leavitt has been a member of our Board of Directors since November
1998. He founded and has been Managing Director of Tulip Media Ltd. since May
1998. Tulip Media furnishes services in areas of feature film, television and
video production and distribution as well as media consulting services to a
variety of United States and international companies engaged in the
entertainment industry. Prior to establishing Tulip Media, Mr. Leavitt served as
Chairman of the Alliance Television Group, supervising all television production
and distribution activities on behalf of Alliance Communications Corporation,
from 1995 to May 1998. Previously, Mr. Leavitt was Executive Vice President of
NBC Studios, the in-house production arm of the NBC Television Network, from
1990 to 1995. Prior to joining NBC, Mr. Leavitt had been Executive Vice
President of Reeves Entertainment Group. Mr. Leavitt is a Phi Beta Kappa
graduate of Kenyon College, Gambier, Ohio, and received a law degree from the
New York University School of Law.
WILLIAM G. MALLOY
Mr. Malloy has been a member of the Board of Directors since October
1999. Prior to the September 2000 acquisition of Scientific Games Holdings Corp.
("Scientific Games Holdings") by Scientific Games Corporation, formerly known as
Autotote Corp.("Scientific Games"), Mr. Malloy was Chairman of the Board,
President and Chief Executive Officer of Scientific Games Holdings." At the time
of the merger, Scientific Games was a $230 million per year publicly held
company in the international lottery industry. Scientific Games' core strengths
include marketing and the application of advance computer technology to complex
printing processes and customer support systems. Prior to becoming the
Scientific Games' President and Chief Executive officer in December 1990, Mr.
Malloy was the company's Vice President, Treasurer and Chief Financial Officer
from 1988 to 1990. Prior to joining Scientific Games, Mr. Malloy held several
positions from 1975 to 1987 with Bally Manufacturing Corporation, Scientific
Games' former parent company. His career responsibilities have included sales,
finance, planning, operations and information systems. Mr. Malloy has directed
various manufacturing, distribution, financing and service businesses. Industry
groups, with which he has experience include consumer durable goods, vending,
commercial video amusement, printing, regulated gaming and software development.
In addition, he is a seasoned international businessman and has extensive
experience with various government regulated procurement processes. Mr. Malloy
also serves on the Board of Directors of the Upper Chattahoochee Riverkeeper, an
Atlanta based environmental organization. Mr. Malloy received his Bachelor of
Science degree in Business Administration from Northern Illinois University and
his Master of Science in Management (MBA) from Northwestern University's J. L.
Kellogg Graduate School of Management in Evanston, Illinois.
4
CHARLES W. KLINE
Mr. Kline joined us as Vice President of Marketing in February 1998.
Prior to joining us, Mr. Kline was Executive Director of the Pennsylvania State
Lottery, the nation's sixth largest lottery from 1992 to 1997. As Executive
Director, Mr. Kline oversaw the entire $1.7 billion sales operation. During his
five year tenure, Mr. Kline was credited with not only reversing a 3-year slide
in sales, but also engineering and implementing a program that caused the
lottery to undergo five consecutive years of sales growth. Prior to this post,
Mr. Kline served in a variety of key positions in state government. Mr. Kline
received a B.A. in Public Service and a Masters in Public Administration, both
from the Pennsylvania State University.
ROBERT R. KOWALCZYK
Mr. Kowalczyk joined us as Vice President and General Manager in
November 1997. Prior to joining us, Mr. Kowalczyk was Vice President and
Management Supervisor of Yaffe and Company Advertising of Southfield, Michigan
from 1995 to 1997. At Yaffe, Mr. Kowalczyk supervised the $10 million
advertising and promotions account and aided the product planning for the
Michigan State Lottery. Mr. Kowalczyk also supervised the agency's business
development and research functions, and participated in the account planning and
management for clients including health care, financial services and various
retail chains. Prior to his time in Michigan, Mr. Kowalczyk managed product
planning and marketing, research and the $32 million advertising and promotional
budgets for the Florida Lottery from 1991 to 1995. Under his direction, the
lottery reversed a decline in sales growth in that category. Previous to that,
Mr. Kowalczyk was the Marketing Director for the Ohio Lottery Commission from
1987 to 1991. He successfully expanded the entire lottery market by introducing
instant scratch-off game marketing strategies that have been emulated by
virtually every lottery in the years that followed. During his tenure, Ohio
Lottery sales increased an average of 16% per year, instant ticket sales
increased at 58% per year and profitability increased at the rate of 4% per
year. Mr. Kowalczyk received his Associate Degree from Lorain County Community
College and earned his Executive M.B.A. from the Weatherhead School of
Management, Case Western Reserve University, Cleveland, Ohio.
EVELYN P. YENSON
Ms. Yenson served as Senior Director of Corporate Communications for
Scientific Games International from December 1999 through January 2001. Prior to
that she served as Director of the Washington State Department of Licensing from
January 1997 through December 1999. She served as the Executive Director of the
Washington State Lottery from January 1987 through January 1997, Ms. Yenson also
served one term as President of the North American Association of State and
Provincial Lotteries (NASPL). She was also the first United States' member of
the World Lottery Association Executive Committee. Ms. Yenson was born in South
Africa, graduated with a B.A. from the College of New Rochelle, New York, and
M.A. from the University of Wisconsin and a Certificate from the Harvard
University John F. Kennedy School of Government Program for Senior Executives in
State and local government.
JEFFREY A SCHWEIG
Mr. Schweig was Director of Marketing for the Illinois Lottery From
1992 to 1994 before becoming its Creative Director, a position he occupied from
1994-2002. Before that he was account manager at Lee Hill, Inc., a Chicago-based
agency where he handled such accounts as Kellogg Company and more than 11 of its
cereal brands from 1988 to 1992. He also negotiated promotional tie-ins with
other blue-chip companies and helped forge those contracts. He served as account
executive at Jeffrey Nemetz & Associates of Chicago from 1987-1988, providing
clients with a wide range of advertising, sales promotion and event planning.
From 1985 through 1987 he was employed by Flair Communications Agency of
Chicago, providing similar services for brands such as Amoco Oil Co., M&M/Mars,
Inc., Turtle Wax and Arthur Andersen & Company. Mr. Schweig holds a Master's
Degree in Advertising from the highly acclaimed Medill School of Journalism at
Northwestern University and a Bachelor's degree in psychology from the
University of Michigan.
Two directors come up for reelection at our annual meeting of
stockholders each year and each holds office until his successor is duly elected
and qualified. Officers are elected by the Board of Directors and hold office at
the discretion of the Board of Directors. There are no family relationships
between any of our directors or executive officers.
5
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires our directors and executive officers, and persons who
beneficially own more than ten percent of a registered class of our equity
securities, to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of common stock
and our other equity securities. Officers, directors, and persons who
beneficially own more than ten percent of a registered class of our equity
securities are required by the regulations of the SEC to furnish us with copies
of all Section 16(a) forms they file. To our knowledge, based solely on our
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the year ended
December 31, 2001, all Section 16(a) filing requirements applicable to our
officers, directors, and greater than ten percent beneficial owners were
complied with, except that Donald Walsh filed an initial report of ownership
late, Steven Saferin., S. David Fineman, William Malloy, Todd Leavitt, Kenneth
Przysiecki, Donald Walsh, Evelyn Yenson, Charles Kline and Robert Kowalczyk each
filed one report covering one transaction late and Robert Wussler filed four
reports late.
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation
for services in all capacities for the year ended December 31, 2001 paid to
Steven M. Saferin, President and Chief Executive Officer and a director, Kenneth
M. Przysiecki, Sr. Vice President of Accounting and Administration, Secretary
and a director, Robert R. Kowalczyk, Vice President and General Manager and
Charles W. Kline, Vice President of Sales and Marketing, (the "Named Executive
Officers"). No other executive officer received annualized compensation
exceeding $100,000 during the year ended December 31, 2001.
6
SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL FISCAL LONG-TERM COMPENSATION
POSITION YEAR(1) ANNUAL COMPENSATION AWARDS
SALARY BONUS OTHER ANNUAL RESTRICTED SECURITIES LONG-TERM ALL OTHER
COMPENSATION STOCK UNDERLYING INCENTIVE COMPENSATION
(2) AND (3) AWARD(S) OPTIONS/ PLAN (4)
SARS PAYOUTS
Steven Saferin, 2001(5) $373,515 $50,000 - - - - $5,250
President/CEO and 2000(5) $339,025 - - - - - $5,000
Director 1999(5) $300,000 - ($154,885)(6) - - - $5,029
1998(5) $300,000 - $114,885 - - - $3,654
Kenneth M. 2001 $151,200 $1,000 $33,689 - 6,700 - $4,536
Przysiecki, Sr. VP 2000 $144,583 $1,000 $22,986 - - - $4,338
Acc'tng & Admin; 1999 $136,000 $4,000 $29,084 - - - $4,080
Officer, Secretary 1998 $102,000 $2,500 $37,106 $3,030
and Director
Robert R. Kowalczyk, 2001 $127,524 $21,000 - - 10,763 - $3,826
Vice President and 2000 $115,833 $7,000 - - 12,300 - $3,475
General Manager 1999 $104,000 $2,300 - - - - $3,120
1998 $ 69,238 - - - - - $1,200
Charles W. Kline, 2001 $119,952 $21,000 - - - - $3,599
Vice President of 2000 $114,000 $28,776 - - - - $3,420
Sales and Marketing 1999 $108,000 $2,000 - - - - $540
1998 $ 29,077 - - - - - -
(1) Fiscal year refers to the year ending May 31, 1998, 1999, December
31, 2000 or 2001 as the case may be, except as indicated below.
(2) Represents revenue-based commissions accrued pursuant to employment
agreements. As of December 31, 2001, $6,356 of accrued commissions was
owed to Mr. Przysiecki. Mr. Saferin waived commissions owed to him
under his employment agreement for the fiscal year ended December 31,
2001.
(3) Excludes prerequisites and other personal benefits, securities and
properties otherwise categorized as salary or bonuses which, in the
aggregate, did not exceed the lesser of either $50,000 or 10% of the
total annual salary reported for such person.
(4) Represents amounts contributed pursuant to our 401(k) Savings Plan.
(5) Excludes amounts paid to Mr. Saferin's mother and the company owned
by his spouse. Such amounts equaled $122,833 for the year ended
December 31, 2001 and aggregated $110,000 in each of fiscal years ended
December 31, 2000, and May 31, 1999 and 1998.
(6) Such amount reflects waived commissions previously owed to Mr. Saferin.
7
OPTION GRANTS IN FISCAL 2001
The following table sets forth information regarding stock options
granted to the Named Executive Officers during the fiscal year ended December
31, 2001. Options were granted pursuant to MDI Entertainment, Inc.'s 1998 Stock
Option and Award Plan.
Individual Grants Potential Realizable
.............................................................................................Value at Assumed
Annual Rates of
% of Total Stock
Number of Options Price Appreciation
Securities Granted to Exercise For Option Term
Underlying Employees Price Expiration 5% 10%
Name Options Granted In Fiscal Year ($/Share) Date ($) ($)
......................................................................................................................
Steven M. Saferin 25,000 6.33% $1.32 11/18/11 $15,722 $39,844
Kenneth M. Przysiecki 50,000 12.66% 1.32 11/18/11 31,445 79,687
Robert R. Kowalczyk 30,000 7.59% 1.32 11/18/11 18,867 47,812
Charles W. Kline 30,000 7.59% 1.32 11/18/11 18,867 47,812
AGGREGATED OPTION EXERCISES IN FISCAL 2001 AND FISCAL
YEAR-END OPTION VALUES
The following table sets forth information for the Named Executive
Officers with respect to the exercise of stock options during the fiscal year
ended December 31, 2001 and the year- end value of unexercised options.
Number of Shares
Underlying Unexercised
Shares Options at December 31, 2001
Acquired
On Value
Name Exercise(#) Realized Exercisable Uexercisable
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Steven M. Saferin 0 $ 0 225,000 25,000
Kenneth M. Przysiecki 10,000 6,700 10,000 50,000
Robert R. Kowalczyk 10,000 10,763 10,000 30,000
Charles W. Kline 0 0 13,333 30,000
8
Value of Unexercised
In-The-Money Options at
December 31, 2001
Dollars (1)
Name Exercisable Unexercisable
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Steven M. Saferin $229,500 $25,500
Kenneth M. Przysiecki 10,200 51,000
Robert R. Kowalczyk 10,200 30,600
Charles W. Kline 13,600 30,600
(1) Based on the average of the bid and asked price of the Common Stock on the
Over-the-Counter market on December 31, 2001 of $1.35 per share.
DIRECTOR COMPENSATION
Upon election or appointment to the Board of Directors, non-employee
directors are granted non-qualified options to purchase 150,000 shares of common
stock at the fair market value of the common stock on the date of grant. In
September 1998, Mr. Wussler received stock options outside of the Plan (defined
below) for 300,000 shares of common stock at an exercise price of $0.37 per
share as compensation for his services as one of our outside directors. Messrs.
Leavitt and Fineman each received stock options pursuant to the Plan for 150,000
shares of common stock at an exercise price of $0.33 per share as compensation
for their services as outside directors. Mr. Malloy received options to purchase
132,500 shares of common stock at $1.38 per share pursuant to the Plan and
options to purchase an additional 17,500 shares of common stock at $1.38 per
share outside of the Plan as compensation for his services as an outside
director. In October, 2001, Mssrs. Wussler, Fineman, Leavitt and Malloy were
granted 100,000 additional options at $1.32 per share. On the same date, Mssrs.
Prsysiecki and Saferin were granted 50,000 and 25,000 options, respectively. As
of December 31, 2001, each director has been granted the maximum number of
shares allowable under the Plan. Beginning with the quarter ended December 31,
2001, each outside independent director receives additional compensation of
$4,000 each quarter.
OPTION AND AWARD PLAN
On September 22, 1998, our Board of Directors adopted our 1998 Stock
Option and Award Plan (the "Plan"). The stockholders approved the Plan on
February 9, 1999. The Plan provides for the grant of stock awards and options
for up to 1,600,000 shares of common stock to those employees, officers,
directors, consultants or other individuals or entities eligible under the Plan
to receive stock awards or options (each, a "Plan Participant"). Options may be
either "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified
options. Incentive stock options may be granted only to our employees, while
non-qualified options may be issued to non-employee directors, consultants and
others, as well as to our employees. Stock awards consist of the sale or
transfer by us to a Plan Participant of one or more shares of common stock
which, unless otherwise determined by the Board of Directors or committee
administering the Plan, are subject to transfer restrictions and our right to
repurchase if certain conditions specified in the award are not satisfied prior
to the end of a restriction period. The Plan provides for automatic grants of
non-qualified stock options to purchase 150,000 shares of common stock to each
non-employee director upon his election or appointment to the Board of Directors
at the fair market value of the common stock on the date of the grant. Such
options vest in equal installments over three years. No Plan Participant may
receive more than an aggregate of 250,000 shares of common stock by grant of
options and/or stock awards during the term of the Plan.
The Plan is administered by the Board of Directors or a committee
thereof (the "Plan Administrator"), which determines, among other things, those
individuals who receive options or awards, the time period during which the
options may be partially or fully exercised, the terms of the restrictions, if
any, on awards, the number of shares of common stock issued as an award or
issuable upon the exercise of each option and the option exercise price and the
award and repurchase prices.
9
The exercise price per share of common stock subject to an incentive
option may not be less than the fair market value per share of common stock on
the date the option is granted. The per share exercise price of the common stock
subject to a non-qualified option may be established by the Plan Administrator.
The aggregate fair market value (determined as of the date the option is
granted) of common stock for which any person may be granted incentive stock
options which first become exercisable in any calendar year may not exceed
$100,000. No person who owns, directly or indirectly, at the time of the
granting of an incentive stock option to such person, 10% or more of the total
combined voting power of all our classes of stock (a "10% Stockholder") shall be
eligible to receive any incentive stock options under the Plan, unless the
exercise price is at least 110% of the fair market value of the shares of common
stock subject to the option, determined on the date of grant. Non-qualified
options are not subject to such limitation.
No stock option may be transferred by a Plan Participant other than by
will or the laws of descent and distribution, and, during the lifetime of a Plan
Participant, the option will be exercisable only by the Plan Participant. In the
event of termination of employment other than by death or disability, the Plan
Participant will have no more than three months after such termination during
which the Plan Participant shall be entitled to exercise the option, unless
otherwise determined by the Plan Administrator. Upon termination of employment
of a Plan Participant by reason of death or permanent disability, such Plan
Participant's options remain exercisable for one year thereafter to the extent
such options were exercisable on the date of such termination.
Options under the Plan must be issued within 10 years from the Plan's
effective date which is September 22, 1998. Incentive stock options granted
under the Plan, cannot be exercised more than 10 years from the date of grant.
Incentive stock options issued to a 10% Stockholder are limited to five-year
terms. All options granted under the Plan provide for the payment of the
exercise price in cash or by delivery to us of shares of common stock having a
fair market value equal to the exercise price of the options being exercised, or
by a combination of such methods. Therefore, a Plan Participant may be able to
tender shares of common stock to purchase additional shares of common stock and
may theoretically exercise all of such Plan Participant's stock options with no
investment.
As of March 4, 2002 we have issued options to purchase 1,595,000 shares
of common stock under the Plan, which includes grants to (1) the Chief Executive
Officer and President for options to purchase 250,000 shares of common stock,
(2) other executive officers for options to purchase 215,000 shares of common
stock, (3) employees for options to purchase 297,500 shares of common stock, and
(4) four outside directors for options to purchase a total of 832,500 shares of
common stock. As of such date, options to purchase 317,500 shares of common
stock have been issued to two directors outside of the Plan. As of March 4, 2002
options to purchase 300,000 shares were exercised pursuant to the Plan and
292,097 shares of common stock were issued to the participants as a result of
exercising their options. The difference between the number of shares issued and
the number of options exercised was attributable to the "cashless" exercise of
options by participants.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by us become available again for issuance
under the Plan. As of March 4, 2002 there are 14,200 such shares available.
401(K) SAVINGS PLAN
In fiscal 1996, we adopted a 401(k) savings plan whereby participants
can elect to defer up to a specified maximum of their compensation and we will
match their contribution up to 3% of the employee's base salary. For the year
ended December 31, 2001 we contributed $29,500 to the plan and for the year
ended December 31, 2000 we contributed $21,800 to the plan.
10
EMPLOYMENT AGREEMENTS
STEVEN M. SAFERIN
Our subsidiary, MDIP, has entered into an employment agreement with Mr.
Saferin, guaranteed by us, which expires on the later of August 8, 2002 or three
years from the date we first file a registration statement with the SEC
registering all of the shares of common or preferred stock owned by Mr. Saferin,
and our shares are being traded on the New York Stock Exchange, the American
Stock Exchange or the NASDAQ Stock Market. See "Description of Business-Risk
Factors-Dependence on Key Executive." Pursuant to his employment agreement, Mr.
Saferin receives an annual base salary of $300,000, which may be increased each
year in an amount between 5% and 10% of the salary of the immediately preceding
year. In addition, Mr. Saferin is entitled to a bonus equal to 2% of the gross
revenues, up to a maximum amount of $335,000 over the term of the agreement. Mr.
Saferin has waived his bonus under this agreement for the years ended December
31, 2000 and December 31, 1999. The employment agreement is terminable by MDIP
for "good cause" and by Mr. Saferin for "good reason" upon the occurrence of
certain events. In the event that MDIP terminates Mr. Saferin's employment
without "good cause" or Mr. Saferin resigns for "good reason," MDIP shall pay an
amount equal to the present value sum of the salary fixed at the salary rate on
the date of termination or resignation which Mr. Saferin would have received
through August 7, 2002 had his employment not been terminated. The agreement
does not contain any terms regarding non-competition after the termination of
Mr. Saferin's employment.
KENNETH M. PRZYSIECKI
MDIP, Mr. Saferin and we have entered into an employment agreement with
Mr. Przysiecki, as amended, renewable yearly on October 1 of each year. Pursuant
to his employment agreement, Mr. Przysiecki receives an annual base salary of
$157,200. Mr. Przysiecki is entitled to a bonus equal to 0.25% of all trade
revenue. Mr. Przysiecki's employment may be terminated by him or MDIP at any
time upon sixty days' prior written notice. However, if employment is terminated
by MDIP upon notice, merger, or because of Mr. Przysiecki's death or disability,
Mr. Przysiecki is entitled to severance pay equal to one year of his current
base salary. The employment agreement provides that Mr. Przysiecki will not
compete with MDIP in North America for eighteen months after the termination of
his employment. A state court, however, may determine not to enforce such
non-compete clause as against public policy.
11
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us, as of March 6,
2002, regarding the beneficial ownership of our voting securities by (i) each
person who is known by us to own of record or beneficially more than 5% of our
common stock, (ii) each of our directors and the Named Executive Officers, as
defined in Item 6, and (iii) all directors and executive officers of as a group.
Unless otherwise indicated, each of the stockholders listed in the table below
has sole voting and dispositive power with respect to shares beneficially owned
by such stockholder.
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED PERCENT OF CLASS (2)
------------------------ ------------------ ----------------
Steven M. Saferin 4,020,169(3) 33.57%
Kenneth M. Przysiecki 240,600 2.05%
Charles Kline 21,725(4) .18%
Robert R. Kowalczyk 30,000 .26%
Robert J Wussler 307,650 2.62%
Todd P. Leavitt 147,767(5) 1.25%
S. David Fineman 160,200(6) 1.36%
William G. Malloy 118,584(7) 1.00%
International Capital Partners, LLC 1,159,174 9.86%
Scientific Games, Corp. 708,333 6.03%
eLot, Inc. 1,000,000(8) 8.13%
Venture Partners Capital, LLC 1,253,448(9) 9.64%
Evelyn P. Yensen 10,000 .09%
All directors and executive officers 5,056,695 41.43%
as a group (9 persons)
(1) The address for Messrs. Saferin, Przysiecki, Kline, Kowalczyk,
Leavitt, Fineman, Malloy, and Ms. Yensen is c/o MDI Entertainment,
Inc., 201 Ann Street, Hartford, Connecticut 06103. The address for
International Capital Partners, LLC is c/o Foley, Hoag & Eliot, LLP,
One Post Office Square, Boston, MA 02109. The address for Scientific
Games, Corp. is 1500 Bluegrass Lakes Parkway, Alpharetta, GA 30004. The
address for eLot, Inc. is 301 Merritt Corporate Park, Norwalk, CT
06851. The address for Venture Partners Capital LLC is Mill Crossing,
P.O. Drawer 9, Kensington, CT 06037.
(2) Shares of common stock are deemed outstanding for purposes of computing
the percentage of beneficial ownership if such shares of common stock
are exercisable or convertible within 60 days of the date of this
Amendment No 1 to the Form 10-KSB.
12
(3) Includes 225,000 shares of common stock, which are subject to
currently exercisable options.
(4) Includes 13,333 shares of common stock which are subject to
currently exercisable options and 1,725 shares of common stock held
jointly with his spouse.
(5) Includes 42,667 shares of common stock beneficially owned directly
by the Leavitt Family Trust and 50,000 shares of common stock, which
are subject to currently exercisable options.
(6) Includes 50,000 shares of common stock that are subject to
currently exercisable options.
(7) Includes 105,834 shares of common stock, which are subject to
currently exercisable options. Mr. Malloy, who was President and Chief
Executive Officer of Scientific Games Holdings Corp. until its
acquisition by Autotote Corporation on September 7, 2000, is currently
a consultant to Autotote Corporation. Scientific Games beneficially
owns 708,333 shares of Common stock.
(8) Includes 555,556 shares of common stock issuable upon the exercise
of warrants.
(9) Represents 1,203,448 shares of common stock issuable upon the
exercise of warrants and 50,000 shares of common stock held by Venture
Partners, LTD, an affiliate of Venture Partners Capital, LLC.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Many of the following transactions occurred before, or as a result of,
the reverse mergers of MDIP and MDIM with and into us in August 1997.
Since August 1994, our subsidiary, MDIP, has retained 1010 Productions,
Inc. ("1010") to consult in the areas of trade show activities, software
development, systems design, purchasing and product fulfillment. The president
and sole shareholder of 1010 is Linda Kesterson Saferin, spouse of Steven M.
Saferin, and former employee, officer and director of MDIP. 1010 is currently
paid $10,000 per month plus expenses and has been retained until December 31,
2003 pursuant to its current consulting agreement with us.
A family member of our President and Chief Executive Officer was paid a
total of $43,308 and $27,965 for the years ended December 31, 2001 and 2000,
respectively for consulting services rendered to us on a "per hour" basis.
In September 2001, we began leasing a house owned by our President and
Chief Executive Officer. The facility is used by our sales and marketing
personnel when attending meetings at our headquarters in Hartford. The
month-to-month lease provides for a monthly rental of $2,500. Total rent paid
under this agreement for 2001 amounted to $10,000.
As a result of the reverse mergers of MDIP and MDIM with and into us in
August 1997, we executed a promissory note to Agostino T. Galluzzo in the
principal amount of $27,000. The note has an annual interest rate of 10% (which
started on December 7, 1997) and will be paid in thirty-six equal monthly
installments (beginning September 1998). The final payment on this note was in
late 2001. Mr. Galluzzo was a minority stockholder of MDIP and MDIM. In
addition, Mr. Galluzzo received 433,876 shares of our common stock in such
mergers.
Fineman & Bach, P.C., a Philadelphia, PA law firm that S. David
Fineman, one of our directors, is associated with, from time to time does legal
work for us. Fineman & Bach was paid $90,200 and $15,000 for the years ended
December 31, 2001 and 2000, respectively.
Tulip Media Ltd., a Los Angeles, CA entertainment company that Todd
Leavitt, one of our directors, is associated with, from time to time does work
in the entertainment field for us. Tulip Media was paid $8,400 and $ 0 for the
years ended December 31, 2001 and 2000, respectively.
13
In October 1999, William G. Malloy was invited to join our Board of
Directors. Mr. Malloy was President and Chief Executive Officer of Scientific
Games Corporation which executed a strategic alliance with us. In connection
with such alliance, Scientific Games purchased a $750,000 convertible
subordinated debenture from us. In addition, Steven M. Saferin sold 333,333
shares of common stock held by him to Scientific Games, Inc. Scientific Games is
in the process of acquiring us. Scientific Games, Inc. was acquired by Autotote
Corporation on September 7, 2000. Mr. Malloy is currently a consultant to
Scientific Games, Inc. On February 25, 2002, we signed a non-binding letter of
intent to merge with Scientific Games Corporation. Negotiations are ongoing
regarding a possible transaction. Mr. Malloy has recused himself from that
portion of Board activities related to the negotiations with Scientific Games.
On January 19, 2000, Steven Saferin exchanged a portion of his stock
for a note held by a third party and made by us with a remaining principal of
$316,038. The note bears interest at 8% per annum and is payable in monthly
installments of $14,300. There was a remaining balance of $14,199 owed as of
December 31, 2001.
On May 31, 2000, Steven Saferin loaned the President and Chief
Executive Officer of The Lottery Channel, Inc. $108,000 personally for the
operational needs of The Lottery Channel and to facilitate the then proposed
merger. Mr. Saferin received a promissory note bearing interest of 11% per
annum. This note was forgiven as part of the settlement with The Lottery Channel
in which The Lottery Channel and MDI dismissed their claims against each other.
Mr. Saferin and Mr. Ach dismissed their claims against one another also. Mr.
Saferin has not been reimbursed for the $108,000.
On September 1, 2000, Steven Saferin loaned us $260,000 and received a
note payable on demand, bearing interest at a rate of 10% per annum. On
September 8, 2000, as part of a loan transaction, the note was replaced with a
note secured by substantially all of our assets, payable on January 31, 2001,
which bears interest at a rate of 10% per annum. The terms of this note have
been extended into 2002.
From October 14, 2000 to August 6, 2001, Jonathan D. Betts served as
the Company's Executive Vice President of Finance. Mr. Betts is a principal of
Venture Partners, Ltd., a firm that has provided financial consulting to the
Company. During 2001 we paid Venture Partners $149,700 in consulting fees.
During the same period in 2000 Venture Partners, Ltd. was paid $210,000 and
received warrants to purchase 807,000 shares of our common stock at exercise
price of $.88 per share.
Steven M. Saferin is entitled to a commission equal to 2% of our gross
revenue, pursuant to his employment agreement. Mr. Saferin waived the right to
approximately $293,200 and $99,500 of commissions for the years ended December
31 2001 and 2000, respectively.
On June 1, 1998, Steven M. Saferin guaranteed our $500,000 performance
bond provided to the Wisconsin lottery. This bond was reduced to $400,000 in
late 2001.
On March 20, 2001 Steven M. Saferin guaranteed our $742,800 performance
bond provided to the California lottery.
14
SIGNATURE PAGE
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MDI ENTERTAINMENT, INC.
SIGNATURE TITLE DATE
/s/STEVEN M. SAFERIN President, Chief Executive Officer and April 30, 2002
--------------------- Director
Steven M. Saferin
In accordance with the Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/STEVEN M. SAFERIN President, Chief Executive Officer and April 30, 2002
-------------------- Director (Principal Executive Officer)
Steven M. Saferin
/s/KENNETH M. PRZYSIECKI Sr. Vice President Accounting and April 30, 2002
------------------------ Administration, Secretary and Director
Kenneth M. Przysiecki (Principal Financial Officer)
/s/ROBERT J. WUSSLER Director April 30, 2002
----------------------
Robert J. Wussler
/s/TODD P. LEAVITT Director April 30, 2002
-----------------------
Todd P. Leavitt
/s/S. DAVID FINEMAN Director April 30, 2002
-----------------------
David Fineman
/s/ WILLIAM G. MALLOY Director April 30, 2002
----------------------
Willaim G. Malloy
15