<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 4)(1/)
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
(Name of Issuer)
COMMON STOCK, PAR VALUE $0.001 PER SHARE
(Title of Class of Securities)
83083P100
(CUSIP Number)
IRA WHITE, ESQ. MORGAN, LEWIS & BOCKIUS LLP
101 PARK AVENUE, NEW YORK, NEW YORK 10178
(212) 309-6000
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
DECEMBER 20, 1996
(Date of Event which Requires Filing of this Statement on Schedule 13D)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement o. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement on Schedule 13D, including all exhibits,
should be filed with the Securities and Exchange Commission. See Rule 13d-1(a)
for other parties to whom copies are to be sent.
- ------------------
1/ The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act (however, see the Notes).
<PAGE> 2
SCHEDULE 13D
CUSIP NO. 83083P 100
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
PROSPECT STREET NYC DISCOVERY FUND, L.P.
- ------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- ------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- ------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT [ ]
TO ITEMS 2(d) or (e)
- ------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- ------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 1,237,250 SHARES OF COMMON STOCK (1/)
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 0 SHARES OF COMMON STOCK (1/)(2/)
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 1,237,250 SHARES OF COMMON STOCK (1/)
PERSON WITH
10 SHARED DISPOSITIVE POWER
0 SHARES OF COMMON STOCK (1/)(3/)
- ------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,237,250 SHARES OF COMMON STOCK (1/)(2/)(3/)(4/)
- ------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [X]
- ------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
45.28 (1/)(2/)(3/)(4/)
- ------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- ------------------------------------------------------------------------------
- --------
1/ Does not include any securities of the Issuer owned by Connecticut
Financial Developments, L.P., with which Prospect Street NYC Discovery
Fund, L.P. and Prospect Street Discovery Fund, Inc. may be deemed to be
acting as a group.
2/ Does not include any shares of Common Stock, par value $.001 per share
(the "Common Stock"), or Class A Common, par value $.001 per share (the
"Class A Common"), owned by Zalman Silber, President of the Issuer, with
respect to which shares Prospect Street NYC Discovery Fund, L.P. was
granted a proxy with respect to certain matters and the holder (including
certain successors) is required to vote for certain matters. As reported
to Prospect Street NYC Discovery Fund, L.P. by the Issuer, as of December
20, 1996, there were 960,000 shares of Class A Common owned by Zalman
Silber and Mr. Silber had options or warrants to purchase 1,680,000 shares
of Common Stock.
3/ Does not include any shares of Common Stock or Class A Common owned by
Zalman Silber (including certain successors) which shares Prospect Street
NYC Discovery Fund, L.P. can cause to be sold under certain conditions.
4/ Assumes 1,495,000 shares of Common Stock outstanding, as reported to
Prospect Street NYC Discovery Fund, L.P. by the Issuer on December 20,
1996, that all 1,090,909 shares of Common Stock issuable to Prospect
Street NYC Discovery Fund, L.P. upon conversion of the Series A
Convertible Participating Preferred Stock, par value $.001 per share (the
"Series A Preferred Stock") are outstanding, and that all 146,341 shares
of Common Stock issuable to Prospect Street NYC Discovery Fund, L.P. upon
exercise of the Warrants (as hereinafter defined) issued to it in
connection with the Credit Agreement (as hereinafter defined) are
outstanding.
* SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 3
SCHEDULE 13D
CUSIP NO. 83083P 100
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
PROSPECT STREET DISCOVERY FUND, INC.
- ------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- ------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- ------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or (e) [ ]
- ------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- ------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 1,237,250 SHARES OF COMMON STOCK (1/)
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0 SHARES OF COMMON STOCK (1/)(2/)
EACH
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH 1,090,909 SHARES OF COMMON STOCK (1/)
10 SHARED DISPOSITIVE POWER
0 SHARES OF COMMON STOCK (1/)(3/)
- ------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,237,250 SHARES OF COMMON STOCK (1/)(2/)(3/)(4/)
- ------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [X]
- ------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
45.28 (1/)(2/)(3/)(4/)
- ------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- ------------------------------------------------------------------------------
- ------------------
1/ Does not include any securities of the Issuer owned by Connecticut
Financial Developments, L.P., with which Prospect Street NYC Discovery
Fund, L.P. and Prospect Street Discovery Fund, Inc. may be deemed to be
acting as a group.
2/ Does not include any shares of Common Stock or Class A Common owned by
Zalman Silber, President of the Issuer, with respect to which shares
Prospect Street NYC Discovery Fund, L.P. was granted a proxy with respect
to certain matters and the holder (including certain successors) is
required to vote for certain matters. As reported to Prospect Street NYC
Discovery Fund, L.P. by the Issuer, as of December 20, 1996, there were
960,000 shares of Class A Common owned by Zalman Silber and Mr. Silber had
options or warrants to purchase 1,680,000 shares of Common Stock.
3/ Does not include any shares of Common Stock or Class A Common owned by
Zalman Silber (including certain successors) which shares Prospect Street
NYC Discovery Fund, L.P. can cause to be sold under certain conditions.
4/ Assumes 1,495,000 shares of Common Stock outstanding, as reported to
Prospect Street NYC Discovery Fund, L.P. by the Issuer on December 20,
1996, that all 1,090,909 shares of Common Stock issuable to Prospect
Street NYC Discovery Fund, L.P. upon conversion of the Series A Preferred
Stock are outstanding and that all 146,341 shares of Common Stock issuable
to Prospect Street NYC Discovery Fund, L.P. upon exercise of the Warrants
(as hereinafter defined) issued to it in connection with the Credit
Agreement (as hereinafter defined) are outstanding.
<PAGE> 4
SCHEDULE 13D
CUSIP NO. 83083P 100
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
CONNECTICUT FINANCIAL DEVELOPMENTS, L.P.
- ------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- ------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- ------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or (e) [ ]
- ------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- ------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 47,700 SHARES OF COMMON STOCK (1/)
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 0 SHARES OF COMMON STOCK (1/)
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 47,700 SHARES OF COMMON STOCK (1/)
PERSON WITH
10 SHARED DISPOSITIVE POWER
0 SHARES OF COMMON STOCK (1/)
- ------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
47,700 SHARES OF COMMON STOCK (1/)
- ------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [X]
- ------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
3.19 (1/)(2/)
- ------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- ------------------------------------------------------------------------------
- --------
(1) Does not include any securities of the Issuer owned by Prospect Street NYC
Discovery Fund, L.P., with which Connecticut Financial Developments, L.P.
and Prospect Street Connecticut Capital, Inc. may be deemed to be acting
as a group.
(2) Assumes 1,495,000 shares of Common Stock outstanding, as reported to
Connecticut Financial Developments, L.P. by the Issuer on December 20,
1996.
* SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 5
SCHEDULE 13D
CUSIP NO. 83083P 100
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
PROSPECT STREET CONNECTICUT CAPITAL, INC.
- ------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- ------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- ------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or (e) [ ]
- ------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- ------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 47,700 SHARES OF COMMON STOCK (1/)
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0 SHARES OF COMMON STOCK (1/)
EACH
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH 47,700 SHARES OF COMMON STOCK (1/)
10 SHARED DISPOSITIVE POWER
0 SHARES OF COMMON STOCK (1/)
- ------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
47,700 SHARES OF COMMON STOCK (1/)
- ------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [X]
- ------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
3.19 (1/)(2/)
- ------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- ------------------------------------------------------------------------------
- ------------------
1/ Does not include any securities of the Issuer owned by Prospect Street NYC
Discovery Fund, L.P., with which Prospect Street Connecticut Capital, Inc.
and Connecticut Financial Developments, L.P. may be deemed to be acting as
a group.
2/ Assumes 1,495,000 shares of Common Stock outstanding, as reported to
Connecticut Financial Developments, L.P. by the Issuer on December 20,
1996.
* SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 6
This Amendment No. 4 (the "Fourth Amendment") to the Statement
on Schedule 13D originally filed on July 17, 1995, as amended by Amendment No. 1
thereto filed on November 8, 1996, Amendment No. 2 thereto filed on November 20,
1996 (the "Second Amendment") and Amendment No. 3 thereto filed on December 4,
1996 (the "Third Amendment") (such Statement, as so amended, the "Original
Statement" and the Original Statement together with the Fourth Amendment, the
"Statement") relates to the Common Stock, par value $0.001 per share ("Common
Stock"), of Skyline Multimedia Entertainment, Inc., a New York corporation
("Skyline"), and amends and restates Items 5 and 6 of the Original Statement and
amends Items 3 and 4 of the Original Statement.
Item 3. Source and Amount of Funds or Other Consideration.
Prospect Street NYC Discovery Fund, L.P. (the "Investor")
entered into that certain Senior Credit Agreement dated as of December 20, 1996
(the "Credit Agreement") by and among Skyline and each of its wholly-owned
subsidiaries (together, the "Borrowers"), the Bank of New York, as Trustee for
the Employees Retirement Plan of the Brooklyn Union Gas Company ("Bug") and the
Investor, pursuant to which the Investor exchanged a Demand Promissory Note (the
"Demand Note") issued to it by Skyline on November 6, 1996 in the principal
amount of $1,500,000 for a Senior Promissory Note (the "Senior Note") issued to
it by the Borrowers in the principal amount of $1,500,000 and Warrants issued to
it by Skyline (the "Warrants") to purchase up to 146,341 shares of Common Stock,
subject to antidilution adjustment provisions. The funds used to purchase the
Demand Note were obtained from the working capital of the Investor. In
addition, on November 29, 1996 and December 5, 6 and 19, 1996, CFD purchased an
aggregate of 8,750 shares of Common Stock for a total consideration of
$41,898.84 (including brokerage fees and expenses). The funds used to purchase
such securities were obtained from the working capital of CFD.
Item 4. Purposes of Transactions
The responses to Item 3 of the Statement are incorporated
herein by reference. The Reporting Persons may be deemed to be acting as a group
with respect to securities of Skyline. On December 20, 1996, (the "Closing
Date") Skyline entered into the Credit Agreement with the Investor and Bug,
pursuant to which the Investor exchanged the Demand Note for the Senior Note and
the Warrants described above and Bug made a loan to the Borrowers in the amount
of $1,000,000 in return for a Senior Note in the principal amount of $1,000,000
and Warrants to purchase up to 97,561 shares of Common Stock, subject to
antidilution adjustment provisions.
Pursuant to the Credit Agreement Bug has a commitment to make
an additional loan at the request of the Borrowers of $500,000 during the period
(the "Additional Commitment Period") from the Closing Date until the earlier of
(i) September 20, 1997; (ii) any prepayment of any loan made to the Borrowers
under the Credit Agreement; (iii) a "Change of Control" (as defined in the
Credit Agreement and described below); (iv) certain prohibited mergers, asset
sales and other disposition; and (v) an "Event of Default" (as defined in the
Credit Agreement and described below) or "Potential Event of Default" (as
defined in the Credit Agreement), unless, in the case of clause (v) above,
lenders whose additional commitments to loan represent in excess 50% of all such
additional commitments, elect not to terminate such commitment. Bug's commitment
to loan is subject to customary conditions precedent. In the event that Bug
makes a loan to the Borrowers after the Closing Date, Bug will receive a Senior
Note from the Borrowers in the aggregate principal amount of such loan and a
Warrant from Skyline to purchase one share of Common Stock for each $10.25
loaned. The Investor has no additional commitment to make loans to the
Borrowers. Upon the consent of lenders whose principal amount of and accrued and
unpaid
<PAGE> 7
interest on outstanding loans represent in excess of 50% of all outstanding
loans at such time, a new lender may be made a party to the Credit Agreement
with a commitment to lend up to $1,100,000 during the Additional Commitment
Period. The minimum amount of any loan made by such new lender will be $500,000,
in an integral multiple of $100,000. Such new lender would also receive a Senior
Note from the Borrowers in the aggregate principal amount of each loan made by
it and a Warrant from Skyline to purchase one share of Common Stock for each
$10.25 loaned.
Each of the Senior Notes matures on December 20, 2001 (the
"Maturity Date") and bears interest at a rate of 14% per annum, which interest
accrues and becomes payable on the Maturity Date, and increases to 21% per annum
upon an "Event of Default" (as defined in the Credit Agreement and described
below). In the event the Borrowers prepay a Senior Note or any portion thereof
prior to the Maturity Date, a premium must be paid by the Borrowers with respect
to the principal amount prepaid of 5% during the first year after the Closing
Date, 4% during the second year, 3% during the third year, 2% during the fourth
year and 1% during the fifth year.
The exercise price of each of the Warrants is $4.50 for each
share of Common Stock being purchased. The number of shares of Common Stock
issuable upon exercises of the Warrants, and the exercise price thereof, are
subject to antidilution adjustments. The Warrants are currently exercisable with
respect to 200,000 shares of Common Stock, the Warrants will become exercisable
beginning on December 20, 1997 with respect to 100,000 shares of Common Stock
(assuming issuance of Warrants sufficient to purchase such number of shares) and
any additional Warrants issued will be exercisable beginning on December 20,
1998. The exercise period for all Warrants terminates on December 20, 2006. On
the Closing Date, the Investor received 133,333 currently exercisable Warrants
and 13,008 Warrants exercisable beginning on December 20, 1997. On the Closing
Date, Bug received 66,667 currently exercisable Warrants, and 30,893 Warrants
exercisable beginning on December 20, 1997. Skyline has agreed to seek a listing
on the NASDAQ SmallCap Market of the Common Stock issuable upon conversion of
the maximum number of Warrants issuable under the Credit Agreement.
The Credit Agreement contains, among other things, covenants
and provisions that restrict, among other things, the Borrowers' ability to (i)
incur indebtedness and enter into guarantees; (ii) incur liens; (iii) merge,
consolidate or engage in substantial asset sales or dispositions; (iv) incur
real property lease payments in excess of $250,000 annually; (v) make certain
loans and investments; (vi) engage in sale and leaseback transactions; (vii)
amend corporate documents; (viii) enter into certain restrictive or conflicting
agreements; (ix) use the proceeds of loans made under the Credit Agreement in
violation of the regulations promulgated by the Small Business Administration
under the Small Business Act of 1953, as amended, and the Small Business
Investment Act of 1958, as amended; (x) engage in transactions with affiliates
and (xi) engage in businesses other than those currently conducted.
The Credit Agreement contains customary "Events of Default".
In addition, an "Event of Default" will occur under the Credit Agreement upon a
"Change of Control". A "Change of Control" includes (i) the acquisition by any
person or entity of securities representing 20% or more of the aggregate voting
power (in the absence of contingencies) of Skyline; (ii) Zalman Silber ceasing
to be the President of Skyline; (iii) Mr. Silber ceasing to own 100% of the
Class A Common (except for certain transfers to the Investor or certain
"Permitted Transferees") and (iv) the shares of Class A Common outstanding on
the Closing Date ceasing to be outstanding. An "Event of Default" will also
occur under the
<PAGE> 8
Credit Agreement in the event that an aggregate of 1% or more of the Redeemable
Class A Warrants and Redeemable Class B Warrants (the "Public Warrants") issued
in connection with Skyline's initial public offering in February 1994 are
redeemed by Skyline or fifty percent (50%) or more of the total number of Public
Warrants are exercised by the holders thereof.
Skyline, the Investor and Bug also entered into an Amended and
Restated Registration Rights Agreement (the "Registration Rights Agreement"),
which Registration Rights Agreement provides the Investor and Bug with certain
registration rights, including demand registration rights and piggyback
registration rights as described therein with respect to the Common Stock.
The foregoing summaries of the Credit Agreement, the Senior
Notes, the Warrants and the Registration Rights Agreement are qualified in their
entirety by the complete text of the Exhibits filed with this Fourth Amendment
which are incorporated herein by reference.
Each of the Investor and CFD intends to monitor and review its
investment in Skyline and depending upon prevailing conditions, including,
without limitation, price and availability of shares, future evaluations by them
of the business and prospects of Skyline, subsequent events affecting them or
Skyline, regulatory requirements, other investment opportunities available to
them and general stock market and economic conditions, each of the Investor and
CFD may determine to increase their respective investments or sell all or part
of their respective investment in Skyline, in the open market, in privately
negotiated transactions or otherwise.
Except as described in this Item 4 or Item 5, neither of the
Reporting Persons nor, to the best of their knowledge, any of the persons named
in Schedule A to the Second Amendment, has formulated any plans or proposals
which relate to or would result in: (a) the acquisition by any person of
additional securities of Skyline, or the disposition of securities of Skyline;
(b) an extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving Skyline or any of its subsidiaries; (c) a sale or
transfer of a material amount of assets of the Skyline or any of its
subsidiaries; (d) any change in the present Board of Directors or management of
Skyline, including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the board; (e) any material
change in the present capitalization or dividend policy of Skyline; (f) any
other material change in Skyline's business or corporate structure; (g) changes
in Skyline's charter, by-laws or instruments corresponding thereto or other
actions which may impede the acquisition of control of Skyline by any person;
(h) causing a class of securities of Skyline to be delisted from a national
securities exchange or cease to be authorized to be quoted in an interdealer
quotation system of a registered national securities association; (i) causing a
class of equity securities of Skyline to become eligible for termination of
registration pursuant to Section 12(g)(4) of the Securities Exchange Act of
1934, as amended; or (j) any action similar to those enumerated above.
Item 5. Interest in Securities of the Issuer.
(a) The aggregate number of shares of Common Stock
beneficially owned by the Investor and the General Partner as of December 20,
1996 is 1,237,250 shares (1,090,909 of which shares the Investor has a right to
acquire upon conversion of the Series A Preferred
<PAGE> 9
Stock and 146,341 of which the Investor has a right to acquire upon exercise of
the Warrants held by it), or approximately 45.28 percent of the Common Stock, in
each case, not including the shares of Common Stock or Class A Common, or other
securities owned by Zalman Silber, President of Skyline, with respect to which
shares the Investor was granted a proxy with respect to certain matters and the
holder (including certain successors) is required to vote for certain matters
and not including any securities owned by Connecticut Financial Developments,
L.P., with which the Investor may be deemed to be acting as a group. As reported
to the Reporting Persons by Skyline, as of December 20, 1996, there were 960,000
shares of Class A Common owned by Zalman Silber and Mr. Silber had options or
warrants to purchase 1,680,000 shares of Common Stock. The aggregate number of
shares of Common Stock beneficially owned by CFD and CFDGP as of December 20,
1996 is 47,700 (not including any shares described above in this paragraph), or
approximately 3.19 percent of the Common Stock. As disclosed in Skyline's proxy
statement for its annual meeting of shareholders held on November 26, 1996,
non-employee directors automatically receive stock options to purchase 5,000
shares of Common Stock on their election or reelection to the board of directors
of Skyline. To date, Messrs. Barry and Celmer, each a director of Skyline, were
each granted options to purchase 10,000 shares of Common Stock (which shares are
not included in the beneficial ownership reported by the Investor, the General
Partner, CFD, or CFDGP). The Reporting persons may be deemed to be acting as a
group with respect to securities of skyline.
(b) The responses of the Reporting Persons to Items (7)
through (11) of the portions of pages 2 and 3 hereto which relate to shares of
Common Stock beneficially owned are herein incorporated by reference.
(c) Information concerning the transactions in Common Stock
effected by CFD on November 29, 1996 and December 5, 6 and 19, 1996 is set
forth on Schedule A. Other than as reported in this Statement, none of the
Reporting Persons nor, to the best of their knowledge, any of the persons named
in Schedule A to the Second Amendment has effected a transaction in shares of
Common Stock during the past 60 days.
(d) No person other than the Reporting Persons has the right
to receive or the power to direct the receipt of dividends from, or the proceeds
from the sale of the securities to which this Statement relates.
(e) Not Applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to
the Securities of the Issuer.
Except as set forth in this Statement, to the best knowledge
of the Reporting Persons, no contracts, arrangements, understandings or
relationships (legal or otherwise) exist among the Reporting Persons and the
persons listed on Schedule A to the Second Amendment or between such persons and
any other person with respect to any securities of Skyline, including but not
limited to transfer or voting of any such securities, finder's fees, joint
ventures, loan or option arrangements, puts or calls, guarantees of profits,
divisions of profits or loss, or the giving or withholding of proxies.
<PAGE> 10
SIGNATURE
After reasonable inquiry and to the best of the knowledge and
belief of each of the undersigned, each of the undersigned certifies that the
information set forth in this Fourth Amendment with respect to the undersigned
is true, complete and correct and each of the undersigned agrees that this
Fourth Amendment may be filed jointly.
Dated: December 23, 1996
Prospect Street NYC Discovery Fund, L.P.
By: Prospect Street Discovery Fund, Inc.,
Its General Partner
By: /s/ Ronald D. Celmer
-------------------------------------
Name: Ronald D. Celmer
Title: Vice President
Prospect Street Discovery Fund, Inc.
By: /s/ Ronald D. Celmer
-------------------------------------
Name: Ronald D. Celmer
Title: Vice President
Connecticut Financial Developments, L.P.
By: Prospect Street Connecticut Capital,
Inc.,
Its General Partner
By: /s/ Ronald D. Celmer
-------------------------------------
Name: Ronald D. Celmer
Title: Vice President
Prospect Street Connecticut Capital, Inc.
By: /s/ Ronald D. Celmer
-------------------------------------
Name: Ronald D. Celmer
Title: Vice President
<PAGE> 11
SCHEDULE A
<TABLE>
<CAPTION>
Date of Number of Price per Brokerage Fees
Purchase Shares Share and Expenses Total Cost
- -------- --------- --------- -------------- ----------
<S> <C> <C> <C> <C>
11/29/96 750 4.75 72.45 3,634.95
12/5/96 2,500 4.75 303.03 12,178.03
12/6/96 2,500 4.63 299.65 11,862.15
12/19/96 3,000 4.63 348.71 14,223.71
Totals 8,750 1023.84 41,898.84
</TABLE>
<PAGE> 12
EXHIBIT INDEX
Exhibit A - Stock Purchase Agreement, dated as of June 30, 1995 by
and between Skyline Multimedia Entertainment, Inc. and
Prospect Street NYC Discovery Fund, LP.*
Exhibit B - Stockholders Agreement, dated as of June 30, 1995 by and
between Zalman Silber and Prospect Street NYC Discovery
Fund, L.P.*
Exhibit C - Registration Rights Agreement, dated as of June 30, 1995
by and between Skyline Multimedia Entertainment, Inc. and
Prospect Street NYC Discovery Fund L.P.*
Exhibit D - Certificate of Amendment of the Certificate of
Incorporation of Skyline Multimedia Entertainment, Inc.*
Exhibit E - Guarantee of Zalman Silber, dated as of June 30, 1995.*
Exhibit F - Note Purchase Agreement, dated as of November 6, 1996 by
and between Skyline Multimedia Entertainment, Inc. and
Prospect Street NYC Discovery Fund, L.P.*
Exhibit G - Demand Promissory Note issued by Skyline Multimedia
Entertainment, Inc. to Prospect Street NYC Discovery
Fund, L.P. on November 6, 1996 in the principal amount of
$1,500,000.*
Exhibit H - Letter Agreement, dated as of October 23, 1996 between
Skyline Multimedia Entertainment, Inc, and Prospect
Street NYC Discovery Fund, L.P.*
Exhibit I - Guarantee of Zalman Silber, dated November 6, 1996.*
Exhibit J - Senior Credit Agreement, dated as of December 20, 1996 by
and among Skyline Multimedia Entertainment, Inc., New
York Skyline, Inc., Skyline Virtual Reality, Inc.,
Skyline Chicago, Inc., Skyline Magic, Inc., Skyline Las
Vegas, Inc., Prospect Street NYC Discovery Fund, L.P. and
Bank of New York, as Trustee for the Employees Retirement
Plan of the Brooklyn Union Gas Company.
Exhibit K - Amended and Restated Registration Rights Agreement, dated
as of December 20, 1996 by and among Skyline Multimedia
Entertainment, Inc., Prospect Street NYC Discovery Fund,
L.P. and Bank of New York, as Trustee for the Employees
Retirement Plan of the Brooklyn Union Gas Company.
Exhibit L - Stock Purchase Warrant issued by Skyline Multimedia
Entertainment, Inc. to Prospect Street NYC Discovery
Fund, L.P. on December 20, 1996 to purchase 133,333
shares of Common Stock.
Exhibit M - Stock Purchase Warrant issued by Skyline Multimedia
Entertainment, Inc. to Prospect Street NYC Discovery
Fund, L.P. on December 20, 1996 to purchase 13,008 shares
of Common Stock.
<PAGE> 13
Exhibit N - Stock Purchase Warrant issued by Skyline Multimedia
Entertainment, Inc. to Bank of New York, as Trustee for
the Employees Retirement Plan of the Brooklyn Union Gas
Company on December 20, 1996 to purchase 66,667 shares of
Common Stock.
Exhibit O - Stock Purchase Warrant issued by Skyline Multimedia
Entertainment, Inc. to Bank of New York, as Trustee for
the Employees Retirement Plan of the Brooklyn Union Gas
Company on December 20, 1996 to purchase 30,893 shares of
Common Stock.
Exhibit P - Senior Promissory Note issued by Skyline Multimedia
Entertainment, Inc., New York Skyline, Inc., Skyline
Virtual Reality Inc., Skyline Chicago, Inc., Skyline
Magic, Inc. and Skyline Las Vegas, Inc. to Prospect
Street NYC Discovery Fund, L.P. on December 20, 1996 in
the principal amount of $1,500,000.
Exhibit Q - Senior Promissory Note issued by Skyline Multimedia
Entertainment, Inc., New York Skyline, Inc., Skyline
Virtual Reality Inc., Skyline Chicago, Inc., Skyline
Magic, Inc. and Skyline Las Vegas, Inc. to Bank of New
York, as Trustee for the Employees Retirement Plan of the
Brooklyn Union Gas Company on December 20, 1996 in the
principal amount of $1,000,000.
<PAGE> 1
[Execution Copy]
SENIOR CREDIT AGREEMENT
dated as of December 20, 1996
by and among
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.,
NEW YORK SKYLINE, INC.,
SKYLINE VIRTUAL REALITY, INC.,
SKYLINE CHICAGO, INC.,
SKYLINE MAGIC, INC.,
SKYLINE LAS VEGAS, INC.,
PROSPECT STREET NYC DISCOVERY FUND, L.P.,
and
BANK OF NEW YORK, AS TRUSTEE
FOR THE EMPLOYEES RETIREMENT PLAN
OF THE BROOKLYN UNION GAS COMPANY
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS.........................................................1
1.1 Definitions..................................................1
ARTICLE II
THE CREDITS........................................................12
2.1 Commitments.................................................12
2.2 Loans.......................................................12
2.3 Borrowing Procedure.........................................13
2.4 Issuance of Notes, Evidence of Debt, Repayment of Loans.....13
2.5 Interest on Loans...........................................14
2.6 Default Interest............................................14
2.7 Termination of Commitments..................................14
2.8 Optional Prepayment.........................................14
2.9 Pro Rata Treatment..........................................15
2.10 Sharing of Setoffs..........................................15
2.11 Payments....................................................16
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BORROWERS....................16
3.1 Organization................................................16
3.2 Power and Authority.........................................16
3.3 Capital Stock...............................................17
3.4 Subsidiaries................................................18
3.5 No Conflicts................................................18
3.6 Governmental Approvals and Filings..........................18
3.7 Books and Records...........................................19
3.8 SEC Documents...............................................19
3.9 Absence of Changes..........................................19
3.10 No Undisclosed Liabilities..................................21
3.11 Taxes.......................................................21
3.12 Legal Proceedings...........................................23
3.13 Compliance With Laws and Orders.............................23
3.14 Benefit Plans; ERISA........................................23
3.15 Real Property...............................................24
3.16 Tangible Personal Property..................................24
3.17 Intellectual Property Rights................................25
3.18 Contracts...................................................25
3.19 Licenses....................................................26
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3.20 Insurance...................................................26
3.21 Affiliate Transactions......................................26
3.22 Employees; Labor Relations..................................26
3.23 Environmental Matters.......................................26
3.24 Suppliers...................................................27
3.25 Inventory...................................................28
3.26 Registration Rights.........................................28
3.27 Brokers.....................................................28
3.28 New York City Advanced Technology Company; Small Business
Matters.....................................................28
3.29 Exemption from Registration; Restrictions on Offer and Sale
of Same or Similar Securities...............................28
3.30 No Default..................................................29
3.31 Use of Proceeds; Margin Stock...............................29
3.32 Investment Company Act......................................29
3.33 Public Utility Holding Company Act..........................29
3.34 Financial Condition.........................................29
3.35 Senior Credit Documents.....................................30
3.36 Disclosure..................................................30
ARTICLE IV
CONDITIONS TO INITIAL LOANS........................................30
4.1 Borrowing Certificate. ....................................30
4.2 Representations and Warranties..............................31
4.3 Performance.................................................31
4.4 Secretary's Certificate.....................................31
4.5 Orders and Laws.............................................31
4.6 Regulatory Consents and Approvals...........................31
4.7 Third Party Consents........................................32
4.8 Opinion of Counsel..........................................32
4.9 Good Standing Certificates..................................32
4.10 UCC Filing Searches.........................................32
4.11 Operative Agreements........................................32
4.12 Issuance of Notes...........................................32
4.13 Issuance of Warrants; Listing of Common Stock...............33
4.14 Interest on Demand Note.....................................33
4.15 Certain Expenses............................................33
4.16 Potential Event of Default; Event of Default................33
4.17 Additional Matters..........................................33
ARTICLE V
CONDITIONS TO EACH ADDITIONAL LOAN.................................33
5.1 Borrowing Certificate.......................................34
5.2 Representations and Warranties..............................34
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5.3 Issuance of Notes...........................................34
5.4 Issuance of Warrants; Listing of Common Stock...............34
5.5 Compliance; No Default......................................34
5.6 Effect of Each Additional Borrowing.........................34
5.7 Additional Matters..........................................34
ARTICLE VI
AFFIRMATIVE COVENANTS..............................................35
6.1 Financial Statements and Reports; Inspection................35
6.2 Corporate Existence; Compliance.............................35
6.3 Payment of Liabilities......................................35
6.4 Insurance; Maintenance of Properties........................36
6.5 Notice of Certain Events....................................36
6.6 Economic Impact Information.................................36
6.7 New York City Advanced Technology Company...................36
6.8 Reservation of Shares; Exchange of Securities...............37
6.9 Venture Capital Operating Company Status....................37
6.10 Subsidiaries................................................37
6.11 Further Assurances..........................................37
ARTICLE VII
NEGATIVE COVENANTS.................................................38
7.1 Indebtedness................................................38
7.2 Liens.......................................................38
7.3 Merger, Consolidation, Sale of Assets.......................38
7.4 Lease Obligations...........................................39
7.5 Loans and Investments.......................................39
7.6 Dividends, Etc..............................................39
7.7 Subsidiaries................................................40
7.8 Sale and Leaseback..........................................40
7.9 Charter Documents; Directors................................40
7.10 Certain Limitations.........................................40
7.11 Conflicting Agreements......................................40
7.12 Use of Proceeds.............................................40
7.13 Affiliate Transactions......................................41
7.14 Change in Nature of Business................................41
ARTICLE VIII
EVENTS OF DEFAULT..................................................41
8.1 Failure To Make Payments When Due...........................41
8.2 Default in Other Agreements.................................41
8.3 Breach of Certain Covenants and Agreements..................41
8.4 Breach of Warranty..........................................42
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8.5 Involuntary Bankruptcy; Appointment of Receiver, Etc.........42
8.6 Voluntary Bankruptcy; Appointment of Receiver, Etc...........42
8.7 Judgments and Attachments....................................42
8.8 Other Agreements.............................................43
8.9 Change of Control............................................43
8.10 Public Warrant Redemption or Exercise........................43
ARTICLE IX
MISCELLANEOUS.......................................................43
9.1 Notices......................................................43
9.2 Participations in Loans and Senior Notes.....................45
9.3 New Additional Lender........................................45
9.4 Indemnity....................................................46
9.5 Entire Agreement.............................................46
9.6 Expenses.....................................................47
9.7 Consideration for Warrants...................................47
9.8 Further Assurances; Post-Closing Cooperation.................47
9.9 Amendments and Waivers.......................................47
9.10 Independence of Covenants....................................48
9.11 No Third Party Beneficiary...................................48
9.12 No Assignment; Binding Effect................................48
9.13 Headings.....................................................48
9.14 Invalid Provisions...........................................48
9.15 Governing Law................................................48
9.16 Consent to Jurisdiction and Service of Process...............48
9.17 Waiver of Jury Trial.........................................49
9.18 Counterparts.................................................50
Exhibit A -- Borrowing Certificate
Exhibit B -- Form of Indemnity, Subrogation and Contribution Agreement
Exhibit C -- Amended and Restated Registration Rights Agreement
Exhibit D -- Form of Senior Note
Exhibit E -- Form of Subsidiary Guarantee Agreement
Exhibit F -- Form of Warrant
Exhibit G -- Secretary's Certificate
Exhibit H -- Opinion of Counsel to the Borrowers
ANNEXES
Annex 2.1 -- Commitments
Annex 2.11 -- Offices of Lenders
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SENIOR CREDIT AGREEMENT, dated as of December 20, 1996, by and
among SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a New York corporation (the
"Company"), NEW YORK SKYLINE, INC., a New York corporation ("NYSI"), SKYLINE
VIRTUAL REALITY, INC., a Delaware corporation ("SVRI"), SKYLINE CHICAGO, INC., a
Delaware corporation ("SCI"), SKYLINE MAGIC, INC., a Delaware corporation
("SMI"), SKYLINE LAS VEGAS, INC., a Delaware corporation ("SLVI") (the Company,
NYSI, SVRI, SCI, SMI and SLVI each a "Borrower" and together, the "Borrowers"),
PROSPECT STREET NYC DISCOVERY FUND, L.P., a Delaware limited partnership
("Prospect"), and BANK OF NEW YORK, AS TRUSTEE FOR THE EMPLOYEES RETIREMENT PLAN
OF THE BROOKLYN UNION GAS COMPANY ("Bug").
WHEREAS, capitalized terms not otherwise defined herein have the
meanings set forth in Section 1.1; and
WHEREAS, the Borrowers wish to obtain financing and the Lenders
desire to provide such financing to the Borrowers;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. (a) As used in this Agreement, the following
defined terms shall have the meanings indicated below:
"Actions or Proceedings" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation or audit.
"Additional Borrowing" means the Loans made by the Lenders to the
Borrowers pursuant to Section 2.1(b).
"Additional Borrowing Date" means each date on which an
Additional Loan is made.
"Additional Lenders" means Bug and any New Additional Lender.
"Additional Loan Commitment" means with respect to each
Additional Lender, the commitment of such Additional Lender to make Additional
Loans hereunder, in an aggregate principal amount at any time outstanding not in
excess of the amount set forth opposite the name
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of such Additional Lender in the column entitled "Additional Loan Commitment" in
the table appearing on Annex 2.1 or, with respect to any New Additional Lender,
as shall be set forth on the signature page hereto.
"Additional Loan Commitment Termination Date" means the earliest
to occur of (i) September 20, 1997; (ii) any prepayment of any Loan; (iii) a
Change of Control; (iv) a breach by any Borrower of any of the provisions
contained in Section 7.3; and (v) any Event of Default or Potential Event of
Default, unless, in the case of this clause (v), the Additional Lenders whose
Additional Commitments represent in excess of fifty percent (50%) of all
Additional Commitments notify the Borrowers in writing that, with respect to any
particular Event of Default or Potential Event of Default, that such Additional
Lenders have elected not to terminate the Additional Loan Commitment.
"Additional Loans" means the loans made by the Additional Lenders
to the Borrowers pursuant to Section 2.1(b).
"Affiliate" means, as applied to any Person, (a) any other Person
directly or indirectly controlling, controlled by or under common control with,
that Person, (b) any other Person that owns or controls (i) 5% or more of any
class of equity securities of that Person or any of its Affiliates or (ii) 5% or
more of any class of equity securities (including any equity securities issuable
upon the exercise of any option or convertible security) of that Person or any
of its Affiliates, or (c) any director, partner, officer, agent, employee or
relative of such Person. For the purposes of this definition, "control"
(including with correlative meanings, the terms "controlling", "controlled by",
and "under common control with") as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through ownership of voting
securities or by contract or otherwise.
"Agreement" means this Senior Subordinated Credit Agreement, the
Exhibits, Annexes and the Disclosure Schedule and the certificates or other
documents or instruments delivered in accordance herewith, as the same may be
amended from time to time in accordance with the terms hereof.
"Assets and Properties" of any Person means all assets and
properties of every kind, nature, character and description (whether real,
personal or mixed, whether tangible or intangible, whether absolute, accrued,
contingent, fixed or otherwise and wherever situated), including the goodwill
related thereto, operated, owned or leased by such Person, including without
limitation cash, cash equivalents, Investment Assets, accounts and notes
receivable, chattel paper, documents, instruments, general intangibles, real
estate, equipment, inventory, goods and Intellectual Property.
"Associate" means, with respect to any Person, any corporation or
other business organization of which such Person is an officer or partner or is
the beneficial owner, directly or
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indirectly, of ten percent (10%) or more of any class of equity securities, any
trust or estate in which such Person has a substantial beneficial interest or as
to which such Person serves as a trustee or in a similar capacity and any
relative or spouse of such Person, or any relative of such spouse, who has the
same home as such Person.
"Benefit Plan" means any Plan established by any Borrower or any
Subsidiary, or any predecessor or Affiliate of any of the foregoing, to which
any Borrower or any Subsidiary contributes or has contributed, or under which
any employee, former employee or director of any Borrower or any Subsidiary or
any beneficiary thereof is covered, is eligible for coverage or has benefit
rights.
"Books and Records" means all files, documents, instruments,
papers, books and records relating to the Business or Condition of any Borrower
or any Subsidiary, including without limitation financial statements, Tax
Returns and related work papers and letters from accountants, budgets, pricing
guidelines, ledgers, journals, deeds, title policies, minute books, stock
certificates and books, stock transfer ledgers, Contracts, Licenses, customer
lists, computer files and programs, retrieval programs, operating data and plans
and environmental studies and plans.
"Borrower" has the meaning ascribed to it in the forepart of this
Agreement.
"Borrowing" means a group of Loans made by the Lenders on a
single date.
"Borrowing Certificate" means a certificate executed and
delivered by the Borrowers in order to request a Borrowing in accordance with
the terms of Section 2.3 and substantially in the form of Exhibit A hereto.
"Bug" has the meaning ascribed to it in the forepart of this
Agreement.
"Business Combination" means with respect to any Person any (i)
merger, consolidation or combination to which such Person is a party, (ii) any
sale, dividend, split or other disposition of any capital stock or other equity
interests of such Person, (iii) any tender offer (including without limitation a
self- tender), exchange offer, recapitalization, liquidation, dissolution or
similar transaction, (iv) any sale, dividend or other disposition of all or a
material portion of the Assets and Properties of such Person (even if less than
all or substantially all) or (v) the entering into of any agreement or
understanding, or the granting of any rights or options, with respect to any of
the foregoing.
"Business Day" means a day other than Saturday, Sunday or any day
on which banks located in the State of New York are authorized or obligated to
close.
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"Business or Condition" means, with respect to any Person, the
business, condition (financial or otherwise), results of operations, Assets and
Properties and prospects of such Person.
"Capital Lease Obligations" means, as to any Person, any
obligation of such Person which is or should be classified and accounted for as
a capital lease for financial reporting purposes in accordance with GAAP, and
the amount of such obligation shall be the capitalized amount thereof determined
in accordance with GAAP on a consolidated basis.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and the rules and
regulations promulgated thereunder.
"Change of Control" means either (i) the acquisition after the
date hereof of ownership, directly or indirectly, beneficially or of record, by
any Person or group (within the meaning of the Exchange Act), other than any
Lender or any Affiliate of any Lender, of shares representing more than 20% of
the aggregate ordinary voting power (in the absence of contingencies)
represented by the issued and outstanding capital stock of the Company; or (ii)
Zalman Silber shall cease to be the President of the Company; or (iii) except
for transfers to (A) Prospect or any of its Affiliates, or (B) any "Permitted
Transferee" of Zalman Silber under the Stockholders Agreement, Zalman Silber
shall cease to own, beneficially and of record, 100% of the Class A Common Stock
or (iv) the shares of Class A Common Stock outstanding on the date hereof shall
cease to be outstanding.
"Class A Common Stock" has the meaning ascribed thereto in
Section 3.3.
"Closing" means the making of the Initial Loans hereunder.
"Closing Date" means the date on which the Initial Loans are
made.
"Code" means the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"Commitment" means, with respect to each Lender, the sum of such
Lenders Initial Loan Commitment and Additional Loan Commitment; provided,
however, that with respect to any New Additional Lender, Commitment shall mean
such Lender's Additional Loan Commitment.
"Common Stock" has the meaning ascribed thereto in Section 3.3.
"Company" has the meaning ascribed to it in the forepart of this
Agreement (and includes, unless the context otherwise requires, any predecessor
of the Company).
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"Contract" means any agreement, lease, evidence of Indebtedness,
mortgage, indenture, security agreement or other contract (whether written or
oral).
"Defined Benefit Plan" means each Plan which is subject to Part 3
of Title I of ERISA, Section 412 of the Code or Title IV of ERISA.
"Demand Note" has the meaning ascribed to it in Section 2.2(b).
"Disclosure Schedule" means the schedules delivered to the
Lenders by the Borrowers herewith and dated as of the date hereof, containing
all lists, descriptions, exceptions and other information and materials as are
required to be included therein by the Borrowers pursuant to this Agreement.
"Environmental Law" means any Law relating to human health, or
protection of the environment or to emissions, discharges, releases or
threatened releases of pollutants, contaminants or Hazardous Materials in the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), or otherwise relating to the
treatment, storage, disposal, transport or handling of any Hazardous Material.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"Event of Default" has the meaning ascribed to it in Article
VIII.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Final Maturity Date" means December 20, 2001.
"GAAP" means generally accepted accounting principles,
consistently applied.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision, and shall include, without limitation, any
stock exchange, quotation service and the National Association of Securities
Dealers.
"Hazardous Material" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation and transformers or other equipment
that contain dielectric fluid containing levels of polychlorinated biphenyls
(PCBs); (B) any chemicals, materials, substances or wastes which are now or
hereafter become defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely hazardous
wastes,"
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"restricted hazardous wastes," "toxic substances," "toxic pollutants" or words
of similar import, under any Environmental Law; and (C) any other chemical,
material, substance or waste, exposure to which is now or hereafter prohibited,
limited or regulated by any Governmental or Regulatory Authority.
"Indebtedness" of any Person means, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (iii) all
obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (iv) all obligations of
such Person in respect of the deferred purchase price of property or services
(excluding accounts payable incurred in the ordinary course of business), (v)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such Person, whether or not the
Indebtedness secured thereby has been assumed, (vi) all guarantees by such
Person of Indebtedness of others, (vii) all Capital Lease Obligations of such
Person, (viii) all obligations, contingent or otherwise, of such Person as an
account party in respect of letters of credit and letters of guaranty and (ix)
all obligations, contingent or otherwise, of such Person in respect of bankers'
acceptances. The Indebtedness of any Person shall include the Indebtedness of
any other entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such
Person's ownership interest in or other relationship with such entity, except to
the extent the terms of such Indebtedness provide that such Person is not liable
therefor.
"Indemnified Liabilities" has the meaning ascribed to it in
Section 9.4.
"Indemnitees" has the meaning ascribed to it in Section 9.4.
"Indemnitor" has the meaning ascribed to it in Section 9.4.
"Indemnity, Subrogation and Contribution Agreement" means the
form of Indemnity, Subrogation and Contribution Agreement attached as Exhibit B
hereto, as such agreement may be amended, modified or restated from time to
time.
"Independent Credit Agreement" means the Loan and Security
Agreement (Equipment) dated as of November 27, 1996 between Independent
Resources, Inc., a New York corporation and the Company, as such agreement may
be amended, modified or restated from time to time.
"Initial Loan Commitment" means, with respect to each Lender, the
commitment of such Lender to make an Initial Loan hereunder, in an aggregate
principal amount as set forth opposite the name of such Lender in the column
entitled "Initial Loan Commitment" in the table appearing on Annex 2.1.
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"Initial Loans" means the loans made by the Lenders to the
Borrowers pursuant to Section 2.1(a).
"Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, service names and service name rights, brand
names, inventions, processes, formulae, copyrights and copyright rights, trade
dress, business and product names, logos, slogans, trade secrets, industrial
models, processes, designs, methodologies, computer programs (including all
source codes) and related documentation, technical information, manufacturing,
engineering and technical drawings, know-how and all pending applications for
and registrations of patents, trademarks, service marks and copyrights.
"Investment Assets" means all debentures, notes and other
evidences of Indebtedness, stocks, securities (including rights to purchase and
securities convertible into or exchangeable for other securities), interests in
joint ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by any Borrower
or any Subsidiary (other than securities issued by any Subsidiary of any
Borrower or any Subsidiary).
"Investment Period" means the period commencing on the Closing
Date and ending on later of (i) the date on which all Loans and all other
amounts owing under this Agreement and any operative Agreement have been
indefeasibly paid in full in cash and the Commitments have been terminated and
(ii) the date on which no Lender holds any Preferred Stock, Warrants, Common
Stock or other debt or equity securities of any Borrower.
"IRS" means the United States Internal Revenue Service.
"Laws" means all laws, statutes, rules, regulations, ordinances
and other pronouncements having the effect of law of the United States, any
foreign country or any domestic or foreign state, county, city or other
political subdivision or of any Governmental or Regulatory Authority.
"Lenders" means each of Prospect, Bug and any Person made a
Lender pursuant to Section 9.2 or any New Additional Lender pursuant to Section
9.3.
"Liabilities" means all Indebtedness, obligations and other
liabilities (or contingencies that have not yet become liabilities) of a Person,
whether absolute, accrued, contingent (or based upon a contingency), known or
unknown, fixed or otherwise, or whether due or to become due.
"Licenses" means all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises and similar
consents granted or issued by any Governmental or Regulatory Authority.
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"Liens" means any mortgage, pledge, assessment, security
interest, lease, lien, adverse claim, levy, charge or other encumbrance of any
kind, or any conditional sale Contract, title retention Contract or other
Contract to give any of the foregoing.
"Loans" means the Initial Loans and the Additional Loans.
"Loan Period" means the period commencing on the Closing Date and
ending on the date on which all Loans and all other amounts owing under this
Agreement and any Operative Agreement have been indefeasibly paid in full in
cash and the Commitments have been terminated.
"Loss" means any and all damages, fines, fees, penalties,
deficiencies, losses and expenses, including without limitation interest,
reasonable expenses of investigation, court costs, reasonable fees and expense
of attorneys, accountants and other experts or other expenses of litigation or
other proceedings or of any claim, default or assessment (such fees and expenses
to include without limitation, all fees and expenses, including without
limitation reasonable fees and expenses of attorneys, incurred in connection
with (i) the investigation or defenses of any third party or other claim with
respect to which any Lender may be indemnified pursuant to Section 10.4 hereof
(ii) asserting or disputing any rights under this Agreement against any party
hereto or otherwise). Also included within the meaning of Loss shall be the
diminution in value of any securities of any Borrower held by any Lender,
including without limitation, the Warrants and Shares of Common Stock issuable
upon exercise thereof.
"Margin Stock" has the meaning assigned to that term in
Regulation U of the Board of Governors of the Federal Reserve System as in
effect from time to time.
"NASDAQ" has the meaning ascribed to it in Section 4.13.
"New Additional Lender" has the meaning ascribed to it in Section
9.3.
"New York City Advanced Technology Company" means any company
which satisfies the following criteria: (i) the chief executive office or other
senior-level managerial office is in New York City and (ii) (A) for a company
with fifty (50) or fewer full-time employees, at least seventy-five percent
(75%) of the company's full-time employees are persons required to pay New York
City income tax (resident or nonresident) or (B) for a company with more than
fifty (50) full-time employees, at least forty (40) of the company's full-time
employees, plus fifty percent (50%) of the company's full-time employees in
excess of fifty (50) employees, are persons required to pay New York City
income-tax (resident or nonresident).
"Note Purchase Agreement" means the Note Purchase Agreement dated
as of November 6, 1996 by and between the Company and Prospect, as such
agreement may be amended, modified or restated from time to time.
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"NYSI" has the meaning ascribed to it in the forepart of this
Agreement (and includes, unless the context otherwise requires, any predecessor
of NYSI).
"Operative Agreements" means the Senior Notes, the Warrants and
the Registration Rights Agreement and any support or other agreements entered
into in connection with the transactions contemplated by this Agreement.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares of
capital stock of such Person or any security of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of such Person or
(ii) receive any benefits or rights similar to any rights enjoyed by or accruing
to the holder of shares of capital stock of such Person, including without
limitation any rights to participate in the equity, income or election of
directors or officers of such Person.
"Order" means any writ, judgment, decree, injunction or similar
order of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Permitted Lien" means (i) any Lien for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien (other than those described in clause (i)) arising in the
ordinary course of business by operation of Law with respect to a Liability that
is not yet due or delinquent, (iii) any minor imperfection of title or similar
Lien which individually or in the aggregate with other such Liens does not
impair the value or marketability of the property subject to such Lien or
interferes with the use of such property in the conduct of the business of any
Borrower or any Subsidiary of any Borrower and which do not secure obligations
for money borrowed and (iv) any Liens securing Indebtedness permitted under
clause (ii) of Section 7.1.
"Person" means any natural person, corporation, general
partnership, limited partnership, proprietorship, other business organization,
trust, union, association or Governmental or Regulatory Authority.
"Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workmen's compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, whether written or oral, including, but not limited to,
any "employee benefit plan" within the meaning of Section 3(3) of ERISA.
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"Potential Event of Default" means a condition or event which,
after notice or lapse of time or both, would constitute an Event of Default if
that condition or event were not cured or removed within any applicable grace or
cure period.
"Preferred Stock" has the meaning ascribed to it in Section 3.3.
"Prospect" has the meaning ascribed to it in the forepart of this
Agreement.
"Public Warrants" means the Company's Redeemable Class A Warrants
and Redeemable Class B Warrants issued in connection with the Company's initial
public offering in February 1994.
"Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement dated as of the Closing Date by and among the
Company and the Lenders, substantially in the form and to the effect of Exhibit
C hereto, as such agreement may be amended, modified or restated from time to
time.
"Regulation G, T. and X" means Regulation G, T. and X of the
Board of Governors of the Federal Reserve System as in effect from time to time.
"Release" has the meaning ascribed to it in Section 3.23(a).
"Required Lenders" means, at any time, Lenders whose principal
amount of and accrued and unpaid interest on outstanding Loans represent in
excess of fifty percent (50%) of all outstanding Loans at such time.
"Responsible Officer" means the Chief Executive Officer and Chief
Financial Officer of a Borrower.
"SBA" means the U.S. Small Business Administration.
"SBA Act" means the Small Business Act of 1953, as amended, and
the Small Business Act of 1958, as amended.
"SBA Regulations" means the rules and regulations of the SBA
promulgated under the SBA Act (13 CFR 107 et seq.; and 13 CFR 121 et seq.
collectively).
"SBIC" means a Small Business Investment Company licensed by the
SBA under Section 301(c) of the Small Business Investment Act of 1958, as
amended.
"SCI" has the meaning ascribed to it in the forepart of this
Agreement (and includes, unless the context otherwise requires, any predecessor
of SCI).
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"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning ascribed to it in Section 3.8.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Senior Note" means one or more of the Senior Notes of the
Borrowers issued pursuant to Section 2.4(a), in the form attached as Exhibit D
hereto.
"SLVI" has the meaning ascribed to it in the forepart of this
Agreement (and includes, unless the context otherwise requires, any predecessor
of SLVI.
"Stock Purchase Agreement" means the Stock Purchase Agreement
dated as of July 7, 1995 by and between the Company and Prospect, as such
agreement may be amended, modified or restated from time to time.
"Stockholders Agreement" means the Stockholders Agreement dated
as of July 7, 1995 among the Company and its Stockholders, as such agreement may
be amended, modified or restated from time to time.
"Subsidiary" means any Person in which any Borrower, directly or
indirectly through Subsidiaries or otherwise, beneficially owns more than fifty
percent (50%) of either the equity interests or the voting power.
"Subsidiary Guarantee Agreement" means the form of Subsidiary
Guarantee Agreement attached as Exhibit E hereto, as such agreement may be
amended, modified or restated from time to time.
"Subsidiary Guarantor" means each Subsidiary that delivers a
Subsidiary Guarantee Agreement as required pursuant to Section 6.10.
"SVRI" has the meaning ascribed to it in the forepart of this
Agreement (and includes, unless the context otherwise requires, any predecessor
of SVRI).
"Tax Losses" has the meaning ascribed to it in Section 3.11(i).
"Tax" or "Taxes" means all federal, state, local or foreign net
or gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
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"Tax Returns" means any returns, reports or statements (including
any information returns) required to be filed for purposes of a particular Tax.
"Transfer Tax" has the meaning set forth in Section 6.3.
"Warrant" means, collectively, one or more warrants issued to the
Lenders in connection with this Agreement, in the form attached as Exhibit F
hereto and any warrants issued in exchange or replacement thereof.
(b) Unless the context of this Agreement otherwise requires, (i)
words of any gender include each other gender; (ii) words using the singular or
plural number also include the plural or singular number, respectively; (iii)
the terms "hereof," "herein," "hereby" and derivative or similar words refer to
this entire Agreement; (iv) the terms "Article" or "Section" refer to the
specified Article or Section of this Agreement; and (v) the phrases "ordinary
course of business" and "ordinary course of business consistent with past
practice" refer to the business and practice of a Borrower or a Subsidiary. All
accounting terms used herein and not expressly defined herein shall have the
meanings given to them under GAAP.
ARTICLE II
THE CREDITS
2.1 Commitments. Subject to the terms and conditions and relying
upon the representations and warranties of the Borrowers herein set forth, (a)
each of Prospect and Bug agrees, severally and not jointly, to make an Initial
Loan to the Borrowers on the Closing Date in an aggregate principal amount not
to exceed its Initial Loan Commitment and (b) each Additional Lender agrees,
severally and not jointly, to make Additional Loans to the Borrowers, at any
time and from time to time on or after the date hereof, and until the Additional
Loan Commitment Termination Date, in an aggregate principal amount not to exceed
such Additional Lender's Additional Loan Commitment. Amounts paid or prepaid in
respect of Loans may not be reborrowed.
2.2 Loans.
(a) Each Loan shall be made as part of a Borrowing consisting of
Loans made by the Lenders ratably (subject to Section 9.3) in accordance with
their respective Initial Loan Commitments or Additional Loan Commitments, as
applicable; provided, however, that the failure of any Lender to make any Loan
shall not in itself relieve any other Lender of its obligation to lend hereunder
(it being understood, however, that no Lender shall be responsible for the
failure of any other Lender to make any Loan required to be made by such other
Lender). The Loans comprising any Borrowing shall be in an aggregate principal
amount that is (i) not
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<PAGE> 18
less than $500,000 and, in each case, in an integral multiple of $100,000 or
(ii) equal to the remaining available balance of the applicable Commitment.
(b) Each Lender (other than Prospect) shall make each Loan to be
made by it hereunder on the proposed date thereof by wire transfer of
immediately available or next day funds to such account in New York City as the
Borrowers may designate in the applicable Borrowing Certificate. The Initial
Loan to be made by Prospect hereunder shall be made by the surrender to the
Company for cancellation of the Demand Promissory Note (the "Demand Note") in
the initial aggregate principal amount of $1,500,000 issued by the Company to
Prospect on November 6, 1996 against payment in full in cash to Prospect of all
accrued and unpaid interest on the Demand Note and the issuance to Prospect of a
Senior Note in the aggregate principal amount of Prospect's Initial Loan
Commitment.
2.3 Borrowing Procedure. In order to request the Initial
Borrowing, the Borrowers shall hand deliver or telecopy to each of Prospect and
Bug a duly completed Borrowing Certificate not later than 11:00 a.m., New York
time, at least one (1) Business Day prior to the Closing Date. In order to
request an Additional Borrowing, the Borrowers shall notify each Additional
Lender by telephone of its intent to request an Additional Borrowing and shall
hand deliver or telecopy to each Additional Lender a duly completed Borrowing
Certificate not later than 11:00 a.m., New York City time, at least seven (7)
Business Days before a proposed Additional Borrowing. Each Borrowing Certificate
shall be irrevocable, shall be signed by or on behalf of the Borrowers by a
Responsible Officer and shall specify the following information: (i) the date of
the requested Borrowing (which shall be a Business Day); (ii) the number and
location of the account in New York City to which funds are to be disbursed;
(iii) the amount of the requested Borrowing; and (iv) the amount of each
Lender's portion of the requested Borrowing.
2.4 Issuance of Notes, Evidence of Debt, Repayment of Loans.
(a) Each Borrower shall execute and deliver to each of Prospect
and Bug on the date of the Initial Loan and to each Additional Lender on the
date of each Additional Loan, a Senior Note dated the date of the Initial Loan
or such Additional Loan, as applicable, in the aggregate principal amount of
such Loan and with other appropriate insertions.
(b) The Borrowers, jointly and severally, unconditionally promise
to pay to each Lender the then unpaid principal amount of each Loan of such
Lender, together with all accrued and unpaid interest thereon, on the Final
Maturity Date.
(c) Each Lender shall maintain an account or accounts evidencing
the Indebtedness of the Borrowers to such Lender resulting from each Loan made
by such Lender from time to time, including the amounts of principal and
interest payable and paid such Lender from time to time under this Agreement.
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<PAGE> 19
(d) The entries made in the accounts maintained pursuant to
paragraph (c) above shall be prima facie evidence of the existence and amounts
of the obligations therein recorded; provided, however, that the failure of any
Lender to maintain such accounts or any error therein shall not in any manner
affect the obligations of any Borrower to repay the Loans in accordance with
their terms.
2.5 Interest on Loans.
(a) Subject to the provisions of Section 2.6, the Loans shall
bear interest (computed on the basis of the actual number of days elapsed over a
year of 360 days) at a rate per annum of 14%.
(b) Interest on each Loan shall be payable on the Final Maturity
Date.
2.6 Default Interest. Upon the occurrence and during the
continuance of an Event of Default, interest will accrue on the unpaid principal
amount of all Loans, all unpaid interest on any Loan and any other amounts
payable hereunder, to the extent permitted by law, at a rate per annum of 21%.
2.7 Termination of Commitments. The Initial Loan Commitments
shall automatically terminate at 5:00 p.m., New York City time, on the Closing
Date. The Additional Loan Commitments shall automatically terminate at 5:00
p.m., New York City time, on the Additional Loan Commitment Termination Date.
2.8 Optional Prepayment.
(a) The Borrowers shall have the right at any time and from time
to time to prepay any Borrowing, in whole or in part, upon at least thirty (30)
days' prior notice to each Lender given by telephone (promptly confirmed by
written or telecopy notice) before 11:00 a.m., New York City time; provided,
however, that each partial prepayment shall be in an amount that is an integral
multiple of $50,000 and not less than $250,000.
(b) Optional prepayments of Loans shall be allocated pro rata
between the then outstanding Loans, and shall be accompanied by the cash payment
of all accrued and unpaid interest on the portion of the principal then being
prepaid plus, if any such prepayment is made prior to December 20, 2001, a
premium equal to the applicable percentage of the principal amount being
prepaid, determined as follows:
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<PAGE> 20
During the 12-Month Period
Beginning December 20 Applicable Percentage
-------------------------- ---------------------
1996 5%
1997 4%
1998 3%
1999 2%
2000 1%
(c) Each notice of prepayment shall specify the prepayment date
and the principal amount of each Borrowing (or portion thereof) to be prepaid,
shall be irrevocable and shall commit the Borrowers to prepay such Borrowing by
the amount stated therein on the date stated therein.
2.9 Pro Rata Treatment.
Each payment or prepayment of principal, interest or premium with
respect to any Loan shall be allocated pro rata among the Lenders in accordance
with their respective applicable outstanding Loans.
2.10 Sharing of Setoffs.
Each Lender agrees that if it shall, through the exercise of a
right of lien, setoff or counterclaim against any Borrower or any Subsidiary
Guarantor, or pursuant to a secured claim under Section 506 of Title 11 of the
United States Code or other security or interest arising from, or in lieu of,
such secured claim, received by such Lender under any applicable bankruptcy,
insolvency or other similar law or otherwise, or by any other means, obtain
payment (voluntary or involuntary) in respect of any Loan or Loans as a result
of which the unpaid principal portion of its Loans shall be proportionately less
than the unpaid principal portion of the Loans of any other Lender, it shall be
deemed simultaneously to have purchased from such other Lender at face value,
and shall promptly pay to such other Lender the purchase price for, a
participation or interest in the Loans as the case may be, of such other Lender,
so that the aggregate unpaid principal amount of the Loans and participations or
interests in Loans held by each Lender shall be in the same proportion to the
aggregate unpaid principal amount of all Loans then outstanding as the principal
amount of its Loans prior to such exercise of lien, setoff or counterclaim or
other event was to the principal amount of all Loans outstanding prior to such
exercise of lien, setoff or counterclaim or other event; provided, however, that
if any such purchase or purchases or adjustments shall be made pursuant to this
Section 2.10 and the payment giving rise thereto shall thereafter be recovered,
such purchase or purchases or adjustments shall be rescinded to the extent of
such recovery and the purchase price or prices or adjustment restored without
interest. Each Borrower and each Subsidiary Guarantor expressly consents to the
foregoing arrangements and agrees that any Lender holding a participation or
interest in a Loan deemed to have been so purchased may exercise any and all
rights of banker's lien, setoff or counterclaim with respect to
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<PAGE> 21
any and all moneys owing by any Borrower to such Lender by reason thereof as
fully as if such Lender had made a Loan directly to such Borrower in the amount
of such participation.
2.11 Payments.
(a) The Borrowers (and, if applicable, any Subsidiary Guarantor)
shall make each payment (including principal of, interest on and prepayment
premium with respect to, any Borrowing, and any fees or expenses or other
amounts) hereunder and under any Operative Agreement not later than 11:00 a.m.,
New York City time, on the date when due in immediately available United States
Dollars, without setoff or counterclaim. Each such payment shall be made to the
Lenders at their respective offices set forth on Annex 2.11 hereto.
(b) Whenever any payment (including principal of, interest on and
premium with respect to, any Loan, and any fees or expenses or other amounts)
hereunder or under any Operative Agreement shall become due, or otherwise would
occur, on a day that is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of interest, prepayment premiums or fees or
expenses, if applicable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BORROWERS
Each Borrower hereby represents and warrants, jointly and
severally, to each Lender as follows:
3.1 Organization. Each Borrower is a corporation duly organized,
validly existing and in good standing under the Laws of the State of its
jurisdiction of organization. Section 3.1 of the Disclosure Schedule lists all
lines of business in which any Borrower is participating or engaged. Each
Borrower is duly qualified, licensed or admitted to do business and is in good
standing in those jurisdictions in which the ownership, use or leasing of its
Assets and Properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary, except where the failure to be
so qualified, licensed or admitted will not have a material adverse effect on
the Business or Condition of such Borrower. Each Borrower has, prior to the
execution of this Agreement, delivered to each Lender true and complete copies
of the certificate of incorporation and by-laws of such Borrower as in effect on
the date hereof.
3.2 Power and Authority. Each Borrower has the full corporate
power and authority to execute and deliver this Agreement and the Operative
Agreements and to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby, including without
limitation to issue and sell (pursuant to this Agreement), on the Closing Date
and on the date of each Additional Borrowing, the Senior Notes and, in the case
of
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<PAGE> 22
the Company, the Warrants and the Common Stock and any other securities issuable
upon exercise of any Warrant. The execution and delivery by each Borrower of
this Agreement and the Operative Agreements to which it is a party, and the
performance by such Borrower of its obligations hereunder and thereunder, have
been duly and validly authorized by all necessary action of the board of
directors of such Borrower, which action of the board of directors is the only
corporate action necessary to authorize the execution, delivery and performance
by such Borrower of this Agreement and the Operative Agreements. This Agreement
has been duly and validly executed and delivered by each Borrower and
constitutes, and upon the execution and delivery by such Borrower of the
Operative Agreements to which it is a party, such Operative Agreements will
constitute, legal, valid and binding obligations of such Borrower enforceable
against such Borrower in accordance with their respective terms.
3.3 Capital Stock. The authorized capital stock of the Company
consists of 19,000,000 shares of Common Stock, par value $.001 per share
("Common Stock"), 1,000,000 shares of Class A Common Stock, par value $.001 per
share ("Class A Common Stock") and 5,000,000 shares of Series A Convertible
Participating Preferred Stock, par value $.001 per share ("Preferred Stock"), of
which 1,495,000 shares, 960,000 shares and 1,090,909 shares, respectively, are
duly authorized, validly issued, outstanding, fully paid and nonassessable, free
and clear of all Liens, and have been issued in compliance with applicable
federal and state securities laws. Section 3.3 of the Disclosure Schedule lists
for each Borrower (other than the Company) the amount of its authorized and
outstanding capital stock, all of which are duly authorized, validly issued,
fully paid and non-assessable, owned, beneficially and of record, by the Company
free and clear of all Liens, and have been issued in compliance with applicable
federal and state securities laws. Except for this Agreement, as disclosed in
Section 3.3 of the Disclosure Schedule and as disclosed in Note I to the audited
financial statements for the Company's fiscal year ended June 30, 1996 included
in the SEC Documents, there are no outstanding Options with respect to any
Borrower. With respect to each Option, Section 3.3 of the Disclosure Schedule or
Note I to the audited financial statements for the Company's fiscal year ended
June 30, 1996 included in the SEC Documents sets forth the number of securities
issuable thereunder and the current exercise price therefor. There are no
preemptive rights or agreements, arrangements or understandings to issue
pre-emptive rights with respect to the issuance or sale of any Borrower's
capital stock. On the Closing Date and on the date of each Additional Borrowing,
the delivery of the Senior Notes and the Warrants to the Lenders, and on each
date of any issuance of Common Stock or other securities issuable upon exercise
of any Warrant, the issuance of such Common Stock or other securities, will
transfer to the Lenders good and valid title to the Senior Notes, the Warrants
and such Common Stock or other securities, free and clear of all Liens. Neither
the execution, delivery or performance by any Borrower of this Agreement nor the
issuance of the Senior Notes, the Warrants, or the Common Stock or other
securities issuable upon exercise of any Warrant will give rise to or result in
(with or without notice, lapse of time, or both) any antidilution adjustment,
acceleration of vesting or other change under or to any Option, except as
disclosed in Section 3.3 of the Disclosure Schedule.
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<PAGE> 23
3.4 Subsidiaries. Except for other Borrowers and except as
disclosed in Section 3.4 of the Disclosure Schedule, no Borrower owns, nor has
any Borrower heretofore owned, directly or indirectly, any equity or similar
interest in, or any interest convertible into or exchangeable for any equity or
similar interest in, any Person.
3.5 No Conflicts. The execution and delivery by the Borrowers of
this Agreement do not, and the execution and delivery by the Borrowers of the
Operative Agreements to which any of them is a party, the performance by the
Borrowers of their respective obligations under this Agreement and such
Operative Agreements and the consummation of the transactions contemplated
hereby and thereby did not, do not and will not:
(a) conflict with or result in a violation or breach of any of
the terms, conditions or provisions of the certificate or articles of
incorporation or by-laws (or other comparable corporate charter documents) of
any Borrower or any Subsidiary;
(b) subject to obtaining the consents, approvals and actions,
making the filings and giving the notices disclosed in Section 3.6 of the
Disclosure Schedule, conflict with or result in a violation or breach of any
term or provision of any Law or Order applicable to any Borrower or any
Subsidiary or any of their respective Assets and Properties;
(c) except as disclosed in Section 3.5 of the Disclosure
Schedule, (i) conflict with or result in a violation or breach of, (ii)
constitute (with or without notice or lapse of time or both) a default under,
(iii) require any Borrower or any Subsidiary to obtain any consent, approval or
action of, make any filing with or give any notice to any Person as a result or
under the terms of, (iv) result in or give to any Person any right of
termination, cancellation, acceleration or modification in or with respect to,
(v) result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments under, any Contract or
License to which any Borrower or any Subsidiary is a party or by which any of
their respective Assets and Properties is bound; or
(d) except as disclosed in Section 3.5 of the Disclosure
Schedule, result in the creation or imposition of any Lien upon any Borrower or
any Subsidiary or any of their respective Assets and Properties.
3.6 Governmental Approvals and Filings. Except as disclosed in
Section 3.6 of the Disclosure Schedule, no consent, approval or action of,
filing with or notice to any Governmental or Regulatory Authority on the part of
any Borrower or any Subsidiary is required in connection with the execution,
delivery and performance of this Agreement or any of the Operative Agreements to
which it is a party or the consummation of the transactions contemplated hereby
or thereby, including, without limitation, for purposes of maintaining the
listing of the Company's securities on the National Association of Securities
Dealers Automated Quotation System.
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<PAGE> 24
3.7 Books and Records. The minute books and other similar records
of each Borrower as made available to each Lender prior to the execution of this
Agreement contain a true and complete record, in all material respects, of all
action taken at all meetings and by all written consents in lieu of meetings of
the stockholders, the boards of directors and committees of the boards of
directors of such Borrower.
3.8 SEC Documents. The Company has made available to each Lender
a true and complete copy of each report, schedule, form, statement and other
document filed by the Company with the SEC (as such documents have since the
time of their filing been amended, the "SEC Documents") which are all the
documents that the Company was required to file with the SEC through the date
hereof. As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act, or the Exchange Act, as
the case may be, and none of the SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
that information contained in any SEC Document has been revised or superseded by
a later-filed SEC Document, none of the SEC Documents currently contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents comply in all
material respects with applicable accounting requirements and with the rules and
regulations of the SEC with respect thereto. Except as set forth in the notes
thereto, all such financial statements were prepared in accordance with GAAP
(except, in the case of the unaudited statements, for the omission of normal
year end adjustments and footnote disclosures) consistently applied throughout
the periods involved, are true and correct in all material respects, and fairly
present the consolidated financial condition, results of operations, changes in
stockholders' equity and cash flow of the Company and its consolidated
Subsidiaries as of the respective dates thereof and for the respective periods
covered thereby. Except for those Subsidiaries listed in Section 3.8 of the
Disclosure Schedule, the financial condition and results of operations of each
Subsidiary are, and for all periods referred to in this Section 3.8 have been,
consolidated with those of the Company.
3.9 Absence of Changes. Since June 30, 1996 there has not been
any material adverse change, or any event or development which, individually or
together with other such events, could reasonably be expected to result in a
material adverse change in the Business or Condition of any Borrower. None of
the other representations or warranties set forth in this Agreement shall be
deemed to limit the foregoing. In addition, without limiting the foregoing,
except as disclosed in Section 3.9 of the Disclosure Schedule or the SEC
Documents, there has not occurred since June 30, 1996:
(i) any declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of the Company or any
Subsidiary of the Company not wholly owned by the Company, or any direct
or indirect redemption,
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purchase or other acquisition by the Company or any Subsidiary of the
Company of any such capital stock of or any Option with respect to the
Company or any Subsidiary of the Company not wholly owned by the
Company;
(ii) any authorization, issuance, sale or other disposition by
any Borrower of any shares of capital stock of or Option with respect to
any Borrower, or any modification or amendment of any right of any
holder of any outstanding shares of capital stock of or Option with
respect to any Borrower;
(iii) other than pursuant to the terms of existing employment
contracts (x) any increase in the salary, wages or other compensation of
any officer, employee or consultant of any Borrower whose annual salary
is, or after giving effect to such change would be, $50,000.00 or more;
(y) any establishment or modification of (A) targets, goals, pools or
similar provisions in respect of any fiscal year under any Benefit Plan,
employment Contract or other employee compensation arrangement or (B)
salary ranges, increase guidelines or similar provisions in respect of
any Benefit Plan, employment Contract or other employee compensation
arrangement; or (z) any adoption, entering into, amendment, modification
or termination (partial or complete) of any Benefit Plan;
(iv) (A) incurrences by any Borrower or any Subsidiary of
Indebtedness in an aggregate principal amount for all Borrowers and
Subsidiaries taken together exceeding $50,000.00 (net of any amounts
discharged during such period), or (B) any voluntary purchase,
cancellation, prepayment or complete or partial discharge in advance of
a scheduled payment date with respect to, or waiver of any right of any
Borrower or any Subsidiary under, any Indebtedness of or owing to any
Borrower or any Subsidiary (in either case other than any Indebtedness
of any Borrower or any Subsidiary owing to any other Borrower or any
other wholly-owned Subsidiary);
(v) any physical damage, destruction or other casualty loss
(whether or not covered by insurance) affecting any of the real or
personal property or equipment of any Borrower or any Subsidiary in an
aggregate amount for all Borrowers and Subsidiaries taken together
exceeding $50,000.00;
(vi) any write-off or write-down of or any determination to write
off or down any of the Assets and Properties of any Borrower or any
Subsidiary in an aggregate amount for all Borrowers and Subsidiaries
taken together exceeding $50,000.00;
(vii) any acquisition of any Assets and Properties of any Person
or disposition of, or incurrence of a Lien (other than a Permitted Lien)
on, any Assets and Properties of any Borrower or any Subsidiary;
(viii) any entering into, amendment, modification, termination
(partial or complete) or granting of a waiver under or giving any
consent with respect to any
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Contract with respect to (A) any Contract which is required (or had it
been in effect on the date hereof would have been required) to be
disclosed in the Disclosure Schedule pursuant to Section 3.18(a) or (B)
any material License held by any Borrower;
(ix) any capital expenditures or commitments for additions to
property, plant or equipment of any Borrower or any Subsidiary
constituting capital assets in an aggregate amount for all Borrowers and
Subsidiaries taken together exceeding $50,000.00;
(x) any commencement or termination by any Borrower or any
Subsidiary of any line of business;
(xi) any transaction by any Borrower or any Subsidiary with any
officer, director, Affiliate or Associate of such Borrower or such
Subsidiary, other than pursuant to any Contract in effect on June 30,
1996 or other than pursuant to any contract of employment;
(xii) any entering into of an agreement to do or engage in any of
the foregoing, including without limitation with respect to any Business
Combination not otherwise restricted by the foregoing paragraphs; or
(xiii) any change in the accounting methods or procedures of any
Borrower or any Subsidiary or any other transaction involving or
development affecting any Borrower or any Subsidiary outside the
ordinary course of business consistent with past practice.
3.10 No Undisclosed Liabilities. Except as reflected or reserved
against in the audited financial statements for the Company's fiscal year ended
June 30, 1996 included in the SEC Documents or in the notes thereto or as
disclosed in Section 3.10 of the Disclosure Schedule, there are no Liabilities
of, relating to or affecting any Borrower or any Subsidiary or any of their
respective Assets and Properties, other than Liabilities incurred in the
ordinary course of business consistent with past practice since June 30, 1996
and other Liabilities which in the aggregate are not material to the Business or
Condition of any Borrower or any Subsidiary and are not for tort or for breach
of contract.
3.11 Taxes. (a) Except as disclosed in Section 3.11 of the
Disclosure Schedule, all Tax Returns required to have been filed by or with
respect to any Borrower or any Subsidiary have been duly filed, and each such
Tax Return correctly and completely reflects, in all material respects, the
income, franchise or other Tax liability and all other information required to
be reported thereon. Except as disclosed in Section 3.11 of the Disclosure
Schedule, all Taxes owed by any Borrower or any Subsidiary have been paid.
(b) Except as disclosed in Section 3.11 of the Disclosure
Schedule, the provisions for Taxes due by each Borrower in the audited financial
statements for the Company's
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fiscal year ended June 30, 1996 included in the SEC Documents are sufficient for
all unpaid Taxes, being current Taxes not yet due and payable, whether or not
disputed, of each Borrower.
(c) Neither any Borrower nor any Subsidiary is a party to any
agreement extending the time within which to file any Tax Return. No claim has
ever been made by a jurisdiction in which any Borrower or any Subsidiary does
not file Tax Returns that it is or may be subject to taxation by that
jurisdiction.
(d) Each Borrower and each Subsidiary has withheld and paid all
material Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor or other
third party.
(e) There is no dispute or claim concerning any Tax liability of
any Borrower or any Subsidiary either (i) claimed or raised by any taxing
authority or (ii) otherwise known to any Borrower or any Subsidiary. Section
3.11 of the Disclosure Schedule indicates those Tax Returns, if any, that have
been audited, and indicates those Returns that currently are the subject of
audit. Each Borrower has delivered to each Lender complete and correct copies of
all federal, state, local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed against or agreed to
by, such Borrower or any of its Subsidiaries since the incorporation of such
Borrower.
(f) Neither any Borrower nor any Subsidiary has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to any Tax assessment or deficiency.
(g) Except as disclosed in Section 3.11 of the Disclosure
Schedule, neither any Borrower nor any Subsidiary has received any written
ruling related to Taxes or entered into any written and legally binding
agreement with a taxing authority relating to Taxes.
(h) Neither any Borrower nor any Subsidiary has liability for
Taxes of any Person other than itself or its Subsidiaries (i) under Section
1.1502-6 of the Treasury regulations (or any similar provision of state, local
or foreign law), (ii) as a transferee or successor, (iii) by Contract or (iv)
otherwise.
(i) Except as disclosed in Section 3.11 of the Disclosure
Schedule, there currently are no limitations on the utilization of the net
operating losses, built-in losses, capital losses, tax credits or other similar
items of any Borrower or any Subsidiary ("Tax Losses") under (i) Section 382 of
the Code, (ii) Section 383 of the Code, (iii) Section 384 of the Code, (iv)
Section 269 of the Code, (v) Section 1.1502-15 and Section 1.1502-15A of the
Treasury regulations or (vi) Section 1.1502-21 and Section 1.1502-21A of the
Treasury regulations, in each case treating any proposed provision as if it were
currently in effect.
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(j) At June 30, 1996, the Company had aggregate Tax Losses for
federal income Tax purposes with expiration dates as disclosed in the SEC
Documents.
3.12 Legal Proceedings. Except as disclosed in Section 3.12 of
the Disclosure Schedule, there are no Actions or Proceedings pending or, to the
knowledge of any Borrower and the Subsidiaries, threatened against, relating to
or affecting any Borrower or any Subsidiary or any of their respective Assets
and Properties which (i) could reasonably be expected to result in the issuance
of an Order restraining, enjoining or otherwise prohibiting or making illegal
the consummation of any of the transactions contemplated by this Agreement or
any of the Operative Agreements or otherwise result in a material diminution of
the benefits contemplated by this Agreement or any of the Operative Agreements
to any Lender, or (ii) if determined adversely to any Borrower or any
Subsidiary, could reasonably be expected to result in (x) any injunction or
other equitable relief against any Borrower or any Subsidiary that would
interfere in any material respect with its business or operations or (y) Losses
by any Borrower or any Subsidiary, individually, or in the aggregate with Losses
in respect of other such Actions or Proceedings, in an amount, for all Borrowers
and Subsidiaries taken together exceeding $50,000.00.
3.13 Compliance With Laws and Orders. Except as disclosed in
Section 3.13 of the Disclosure Schedule, neither any Borrower nor any Subsidiary
is or has at any time since its incorporation been, or has received any notice
that it is or has been, in violation of or in default under, in any material
respect, any Law or Order applicable to such Borrower or such Subsidiary or any
of its Assets and Properties.
3.14 Benefit Plans; ERISA. No Borrower nor any Subsidiary
maintains or contributes to any Defined Benefit Plans. Except as disclosed in
Section 3.14 of the Disclosure Schedule:
(a) each Benefit Plan and the administration thereof complies,
and has at all times complied, in all material respects with the requirements of
all applicable Law, including ERISA and the Code;
(b) no Benefit Plan is intended to qualify under section 401(a)
of the Code;
(c) no Borrower nor any Subsidiary is now, nor has it at any time
been, a member of a controlled group, as defined in Section 412(n)(6)(B) of the
Code, with any other enterprise;
(d) no Borrower nor any Subsidiary presently maintains or
contributes to, nor has it at any time maintained or contributed to, any
single-employer plan (within the meaning of section 3(41) of ERISA) or any
multiemployer plan (within the meaning of section 3(37) of ERISA) subject to
Title IV of ERISA, and no Borrower nor any Subsidiary is aware of any
circumstances pursuant to which any Borrower or any Subsidiary could have
liability to any party under Title IV of ERISA;
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<PAGE> 29
(e) no Borrower nor any Subsidiary has incurred any liability for
any tax imposed under section 4971 through 4980B of the Code or civil liability
under section 502(i) or (l) of ERISA which could have a material adverse effect
on the Business or Condition of such Borrower or such Subsidiary;
(f) no Benefit Plan provides health or death benefit coverage
beyond the termination of an employee's employment, except as required by Part 6
of Subtitle B of Title I of ERISA or section 4980B of the Code;
(g) no suit, actions or other litigation (excluding claims for
benefits incurred in the ordinary course of plan activities) have been brought
against or with respect to any Benefit Plan; and
(h) all contributions to Benefit Plans that were required to be
made under such Benefit Plans have been made, and all benefits accrued under any
unfunded Benefit Plan have been paid, accrued or otherwise adequately reserved
in accordance with GAAP and each Borrower and each Subsidiary has performed all
material obligations required to be performed under all Benefit Plans.
3.15 Real Property. Neither any Borrower nor any Subsidiary owns
any real property. Subject to the terms of the respective leases under which any
Borrower or Subsidiary leases any parcel of real property, each Borrower and
each Subsidiary has a valid and subsisting leasehold estate in and the right to
quiet enjoyment of the real properties leased by it for the full term of the
lease thereof. Each such lease is a legal, valid and binding agreement,
enforceable in accordance with its terms, of a Borrower or a Subsidiary and of
each other Person that is a party thereto, and except as set forth in Section
3.15(c) of the Disclosure Schedule, there is no, and neither any Borrower nor
any Subsidiary has received notice of any, default (or any condition or event
which, after notice or lapse of time or both, would constitute a default)
thereunder. Neither any Borrower nor any Subsidiary owes any brokerage
commissions with respect to any such leased space. Except as disclosed in
Section 3.15 of the Disclosure Schedule, the improvements on the real property
leased by any Borrower or any Subsidiary are in good operating condition and in
a state of good maintenance and repair, ordinary wear and tear excepted, are
adequate and suitable for the purposes for which they are presently being used
and, to the knowledge of the Borrowers and the Subsidiaries, there are no
condemnation or appropriation proceedings pending or threatened against any of
such real property or the improvements thereon.
3.16 Tangible Personal Property. Each Borrower and each
Subsidiary is in possession of and has good and marketable title to, or has
valid leasehold interests in or valid rights under Contract to use, all tangible
personal property used in the conduct of its business, including all tangible
personal property reflected on the audited financial statements for the
Company's fiscal year ended June 30, 1996 included in the SEC Documents or in
the notes thereto and tangible personal property acquired since June 30, 1996
other than property disposed of since such date in the ordinary course of
business consistent with past practice. All such
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tangible personal property is free and clear of all Liens, other than Permitted
Liens and Liens disclosed in Section 3.16 of the Disclosure Schedule, and is
adequate and suitable for the conduct by each Borrower and each Subsidiary of
the business presently conducted by each of them, and is in good working order
and condition, ordinary wear and tear excepted, and its use complies in all
material respects with all applicable Laws.
3.17 Intellectual Property Rights. Except as disclosed in Section
3.17 of the Disclosure Schedule, (i) a Borrower or a Subsidiary, as the case may
be, has the right to use all Intellectual Property used in its business, (ii)
all registrations, on behalf of such Borrower or such Subsidiary with, and
applications to, Governmental or Regulatory Authorities in respect of such
Intellectual Property are valid and in full force and effect and are not subject
to the payment of any Taxes or maintenance fees or the taking of any other
actions by such Borrower or such Subsidiary, as the case may be, to maintain
their validity or effectiveness, (iii) there are no restrictions on the direct
or indirect transfer of any license, or any interest therein, held by such
Borrower or such Subsidiary, as the case may be, in respect of such Intellectual
Property, (iv) the Borrowers have delivered to each Lender documentation with
respect to any invention, process, design, computer program or other know-how or
trade secret included in such Intellectual Property, which documentation is
accurate in all material respects and reasonably sufficient in detail and
content to identify and explain such invention, process, design, computer
program or other know-how or trade secret, (v) the Borrowers and the
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of their trade secrets, (vi) neither any Borrower nor
any Subsidiary is, or has received any notice that it is, in default (or with
the giving of notice or lapse of time or both, would be in default) under any
license to use such Intellectual Property and (vii) neither any Borrower nor any
Subsidiary has any knowledge that such Intellectual Property is being infringed
by any other Person. Neither any Borrower nor any Subsidiary has received notice
that any Borrower or any Subsidiary is infringing any Intellectual Property of
any other Person, no claim is pending or, to the knowledge of the Borrowers and
the Subsidiaries, has been made to such effect and, to the knowledge of the
Borrowers and the Subsidiaries, neither any Borrower nor any Subsidiary is
infringing any Intellectual Property Rights of any other Person.
3.18 Contracts. (a) Each Contract material to the business of any
Borrower is in full force and effect and constitutes a legal, valid and binding
agreement, enforceable in accordance with its terms, of each party thereto; and
except as disclosed in Section 3.18(a) of the Disclosure Schedule neither any
Borrower, any Subsidiary nor, to the knowledge of the Borrowers and the
Subsidiaries, any other party to such Contract is, or has received notice that
it is, in violation or breach of or default under any such Contract (or with
notice or lapse of time or both, would be in violation or breach of or default
under any such Contract).
(b) Except as disclosed in Section 3.18(b) of the Disclosure
Schedule, neither any Borrower nor any Subsidiary is a party to or bound by any
Contract that has been or could reasonably be expected to be, individually or in
the aggregate with any other such Contracts, materially adverse to the Business
or Condition of such Borrower or such Subsidiary.
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3.19 Licenses. Each Borrower and each Subsidiary owns or validly
holds all Licenses that are material to its business or operations, each of
which is valid, binding and in full force and effect. Neither any Borrower nor
any Subsidiary is, or has received any notice that it is, in default (or with
the giving of notice or lapse of time or both, would be in default) under any
such License.
3.20 Insurance. The insurance policies of each Borrower and each
Subsidiary, in light of the respective business, operations and Assets and
Properties of the Borrowers and the Subsidiaries, are in amounts and have
coverages that are reasonable and customary for Persons engaged in such
businesses and operations and having such Assets and Properties. Neither any
Borrower nor any Subsidiary has received notice that any insurer under any
policy referred to in this Section is denying liability with respect to a claim
thereunder or defending under a reservation of rights clause.
3.21 Affiliate Transactions. (a) Except as disclosed in the SEC
Documents or in Section 3.21(a) of the Disclosure Schedule, (i) there are no
Liabilities between any Borrower or any Subsidiary, on the one hand, and any
officer, director, Affiliate or Associate of any Borrower or any Subsidiary or
any Associate of any such officer, director or Affiliate (other than any
Borrower or any Subsidiary), on the other, (ii) no such officer, director,
Affiliate or Associate provides or causes to be provided any assets, services or
facilities to any Borrower or any Subsidiary, (iii) neither any Borrower nor any
Subsidiary provides or causes to be provided any assets, services or facilities
to any such officer, director, Affiliate or Associate and (iv) neither any
Borrower nor any Subsidiary beneficially owns, directly or indirectly, any
Investment Assets of any such officer, director, Affiliate or Associate.
(b) Except as disclosed in Section 3.21(b) of the Disclosure
Schedule, each of the Liabilities and transactions listed in Section 3.21(a) of
the Disclosure Schedule was incurred or engaged in, as the case may be, on an
arm's-length basis on competitive terms.
3.22 Employees; Labor Relations. Except as disclosed in Section
3.22 of the Disclosure Schedule, (i) no employee of any Borrower or any
Subsidiary is presently a member of a collective bargaining unit and, to the
knowledge of the Borrowers and the Subsidiaries, there are no threatened or
contemplated attempts to organize for collective bargaining purposes any of the
employees of any Borrower or any Subsidiary, and (ii) no unfair labor practice
complaint or sex or age discrimination claim has been brought against any
Borrower or any Subsidiary before the National Labor Relations Board or any
other Governmental or Regulatory Authority. There has been no work stoppage,
strike or other concerted action by employees of any Borrower or any Subsidiary.
Each Borrower and each Subsidiary has complied in all material respects with all
applicable Laws relating to the employment of labor, including without
limitation those relating to wages, hours and collective bargaining.
3.23 Environmental Matters. Each Borrower and each Subsidiary has
obtained all Licenses which are required in respect of its business, operations
or Assets and Properties
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under applicable Environmental Laws. Each Borrower and each Subsidiary, and its
operations and properties, is and has been in compliance in all material
respects with the terms and conditions of all such Licenses and with any
applicable Environmental Law. Except as set forth in Section 3.23 of the
Disclosure Schedule (with paragraph references corresponding to those set forth
below):
(a) No Order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending or, to the
knowledge of the Borrowers and the Subsidiaries, threatened by any Governmental
or Regulatory Authority with respect to any alleged failure by any Borrower or
any Subsidiary to have any License under Environmental Laws required in
connection with the conduct of the business or operations of any Borrower or any
Subsidiary or with respect to any treatment, storage, recycling, transportation,
disposal or "release" as defined in 42 U.S.C. Section 9601(22) ("Release"), of
any Hazardous Material, and neither any Borrower nor any Subsidiary is aware of
any facts or circumstances which could reasonably be expected to form the basis
for any such Order, complaint, penalty or investigation.
(b) There is no civil, criminal or administrative judgment,
action, suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter pending or, to their knowledge, threatened
against any Borrower or any Subsidiary pursuant to Environmental Laws which
could reasonably be expected to result in a fine, penalty or other obligation,
cost or expense.
(c) Neither any Borrower, any Subsidiary nor, to the knowledge of
the Borrowers and the Subsidiaries, any prior owner or lessee of any property
now or previously owned or leased by any Borrower or any Subsidiary has handled
any Hazardous Material on any property now or previously owned or leased by any
Borrower or any Subsidiary.
(d) Neither any Borrower nor any Subsidiary has transported or
arranged for the transportation of any Hazardous Material to any location which
is the subject of any Action or Proceeding that could lead to claims against any
Lender, any Borrower or any Subsidiary for clean-up costs, remedial work,
damages to natural resources or personal injury claims, including, but not
limited to, claims under CERCLA.
(e) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of any Borrower or any Subsidiary and,
to the knowledge of the Borrowers and the Subsidiaries, no property now or
previously owned or leased by any Borrower or any Subsidiary is listed or
proposed for listing on the National Priorities List promulgated pursuant to
CERCLA or on any similar state list of sites requiring investigation or
clean-up.
3.24 Suppliers. Section 3.24 of the Disclosure Schedule lists the
ten (10) largest suppliers of the Borrowers and the Subsidiaries, on the basis
of cost of goods or services purchased for the most recent fiscal year. Except
as disclosed in Section 3.24 of the Disclosure Schedule, no such supplier has
ceased or materially reduced its sales or provision of services to
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any Borrower or any Subsidiary since June 30, 1996, or to the knowledge of the
Borrowers and the Subsidiaries, has threatened to cease or materially reduce
such sales or provision of services after the date hereof. Except as disclosed
in Section 3.24 of the Disclosure Schedule, to the knowledge of the Borrowers
and the Subsidiaries, no such supplier is threatened with bankruptcy or
insolvency.
3.25 Inventory. All items included in the inventory of the
Borrowers and the Subsidiaries are the property of the Borrowers and the
Subsidiaries, free and clear of any Lien other than Permitted Liens, have not
been pledged as collateral, are not held by the Borrowers or any Subsidiary on
consignment from others in any material amount and conform in all material
respects to all standards applicable to such inventory or its use or sale
imposed by Governmental or Regulatory Authorities.
3.26 Registration Rights. Except for the Registration Rights
Agreement, no Borrower and no Subsidiary has granted registration rights to any
holder of any of the securities of such Borrower or such Subsidiary.
3.27 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Borrowers directly
with the Lenders without the intervention of any Person on behalf of the
Borrowers in such manner as to give rise to any valid claim by any Person
against any Lender, any Borrower or any Subsidiary for a finder's fee, brokerage
commission or similar payment.
3.28 New York City Advanced Technology Company; Small Business
Matters. Each of the Borrowers as a group is a New York City Advanced Technology
Company. Each Borrower, together with its "affiliates" (as that term is defined
in 13 CFR, Section121.401), is a "Small Business" within the meaning of the SBA
Regulations, including 13 CFR Section121.103. The Standard Industrial
Classification Code of each Borrower is 7999. The information regarding each
Borrower and its affiliates set forth in the SBA Form 480, Form 652 and Section
A of Form 1031 is accurate and complete. Copies of such forms shall have been
completed by the Borrowers and delivered to Prospect at the Closing. No Borrower
nor any Subsidiary presently engages in any activities for which an SBIC is
prohibited from providing funds by SBA Regulations, including 13 CFR
Section107.804 and Section107.901. No Borrower has received any "Financing" (as
defined in the SBA Regulations) from any SBIC, other than Prospect.
3.29 Exemption from Registration; Restrictions on Offer and Sale
of Same or Similar Securities. The offer and sale of the Senior Notes and the
Warrants (and any shares of Common Stock issuable upon exercise of the Warrants)
made pursuant to this Agreement is exempt from the registration requirements of
the Securities Act. No Borrower nor any Person authorized to act on its behalf
has, in connection with the offering of the Senior Notes or Warrants (and any
shares of Common Stock issuable upon exercise of the Warrants), engaged in (A)
any form of general solicitation or general advertising (as those terms are used
within the meaning of Rule 501(c) under the Securities Act, (B) any action
involving a public offering
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within the meaning of section 4(2) of the Securities Act, or (C) any action that
would require the registration under the Securities Act of the offering and sale
of the Senior Notes or Warrants (and any shares of Common Stock issuable upon
exercise of the Warrants) pursuant to this Agreement or that would violate
applicable state securities or "blue sky" laws. No Borrower has made, nor will
it make, directly or indirectly, any offer or sale of Senior Notes or Warrants
(or any shares of Common Stock) or of securities of the same or a similar class
as the Senior Notes or the Warrants (or Common Stock) if as a result the offer
and sale of the Senior Notes or the Warrants (or Common Stock) contemplated
hereby could fail to be entitled to exemption from the registration requirements
of the Securities Act. As used herein, the terms "offer" and "sale" have the
meanings specified in Section 2(3) of the Securities Act.
3.30 No Default. No event has occurred and is continuing which
constitutes a Potential Event of Default or an Event of Default.
3.31 Use of Proceeds; Margin Stock. The proceeds of the Loans
will be used solely for the purposes specified in Section 3.31 of the Disclosure
Schedule. None of such proceeds will be used to, or to reduce or retire any
Indebtedness which was originally incurred to, purchase or carry a Margin Stock,
or for any other purpose which might constitute this transaction a "purpose
credit" within the meaning of Regulations G, T or X. No Borrower has taken or
will take any action which might cause this Agreement or any of the Operative
Agreements to violate Regulations G, T or X, or any other regulations of the
Board of Governors of the Federal Reserve System or to violate Section 8 of the
Exchange Act or any rule or regulation thereunder, in each case as now in effect
or as the same may hereafter be in effect.
3.32 Investment Company Act. No Borrower is an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
3.33 Public Utility Holding Company Act. No Borrower is a
"holding company", or an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
3.34 Financial Condition. No Borrower is entering into the
arrangements contemplated by this Agreement and the other Operative Agreements
with actual intent to hinder, delay or defraud either present or future
creditors. On and as of the Closing Date and on and as of the date of each
Additional Borrowing, after giving effect to all debts incurred or to be created
in connection herewith:
(a) The present fair salable value of the assets of each Borrower
and each Subsidiary (on a going concern basis) will exceed the probable
respective Liabilities of such Borrower and such Subsidiary;
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(b) No Borrower or Subsidiary has incurred, nor does it intend to
or believe that it will incur, Liabilities beyond its ability to pay such
Liabilities as such Liabilities mature (taking into account the timing and
amounts of cash to be received from any source, and of amounts to be payable on
or in respect of Liabilities), and the amount of cash available to such Borrower
or Subsidiary after taking into account all other anticipated uses of funds is
anticipated to be sufficient to pay all such amounts on or in respect of
Liabilities, when such amounts are required to be paid; and
(c) Each Borrower and each Subsidiary will have sufficient
capital with which to conduct its present and proposed business and the
respective property of such Borrower and Subsidiary does not constitute
unreasonably small capital with which to conduct its present or proposed
business.
3.35 Senior Credit Documents. The Borrowers have delivered to the
each Lender true and correct copies of the Senior Credit Documents as in effect
on the date hereof. The representations and warranties of the Borrowers
contained in the Senior Credit Agreement are true and correct in all material
respects. There exists no defaults with respect to the Senior Credit Agreement
nor any basis for the exercise by any party thereto of any rights of
acceleration, cancellation, or recession or any rights of offset.
3.36 Disclosure. To the knowledge of each Borrower and each
Subsidiary, all material facts regarding the Business or Condition of each
Borrower and each Subsidiary have been disclosed to the Lenders in or in
connection with this Agreement. No representation or warranty contained in this
Agreement, and no statement contained in the Disclosure Schedule or in any
certificate, list or other writing furnished to any Lenders pursuant to any
provision of this Agreement (including without limitation the SEC Documents and
the financial statements contained therein), contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements herein or therein, in the light of the circumstances under which they
were made, not misleading.
ARTICLE IV
CONDITIONS TO INITIAL LOANS
The obligations of each Lender to make Initial Loans hereunder
are subject to the fulfillment, at or before the Closing, of each of the
following conditions (all or any of which may be waived in whole or in part by
the Lenders in their sole discretion):
4.1 Borrowing Certificate. Each Lender shall have received a
Borrowing Certificate as required by Section 2.3.
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4.2 Representations and Warranties. Each of the representations
and warranties made by any Borrower in this Agreement (other than those made as
of a specified date earlier than the Closing Date) shall be true and correct in
all material respects (if not qualified by materiality or material adverse
effect) and in all respects (if qualified by materiality or material adverse
effect) on and as of the Closing Date as though such representation or warranty
was made on and as of the Closing Date, and any representation or warranty made
as of a specified date earlier than the Closing Date shall also have been true
and correct in all material respects (if not qualified by materiality or
material adverse effect) and in all respects (if qualified by materiality or
material adverse effect) on and as of such earlier date.
4.3 Performance. Each Borrower shall have performed and complied
with, in all material respects, each agreement, covenant and obligation required
by this Agreement to be so performed or complied with by such Borrower at or
before the Closing.
4.4 Secretary's Certificate. Each Borrower shall have delivered
to each Lender a certificate, dated the Closing Date and executed by the
Secretary or any Assistant Secretary of such Borrower, substantially in the form
and to the effect of Exhibit G hereto.
4.5 Orders and Laws. There shall not be in effect on the Closing
Date any Order or Law restraining, enjoining or otherwise prohibiting or making
illegal the consummation of any of the transactions contemplated by this
Agreement or any of the Operative Agreements or which could reasonably be
expected to otherwise result in a material diminution of the benefits of the
transactions contemplated by this Agreement or any of the Operative Agreements
to any Lender, and there shall not be pending or threatened on the Closing Date
any Action or Proceeding or any other action (i) which could reasonably be
expected to result in the issuance of any such Order or the enactment,
promulgation or deemed applicability to, any Lender, any Borrower, or the
transactions contemplated by this Agreement or any of the Operative Agreements
of any such Law; or (ii) wherein an unfavorable judgment, decree or Order would
prevent the carrying out of this Agreement or any of the transactions or events
contemplated hereby, declare unlawful the transactions or events contemplated by
this Agreement or present a risk of damages to any Lender.
4.6 Regulatory Consents and Approvals. All consents, approvals
and actions of, filings with and notices to any Governmental or Regulatory
Authority necessary to permit any Lender or any Borrower to perform its
obligations under this Agreement and the Operative Agreements and to consummate
the transactions contemplated hereby and thereby (a) shall have been duly
obtained, made or given, (b) shall be in form and substance reasonably
satisfactory to each Lender, (c) shall not impose any limitations or
restrictions on any Lender, (d) shall not be subject to the satisfaction of any
condition that has not been satisfied or waived and (e) shall be in full force
and effect, and all terminations or expirations of waiting periods imposed by
any Governmental or Regulatory Authority necessary for the consummation of the
transactions contemplated by this Agreement and the Operative Agreements shall
have occurred.
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4.7 Third Party Consents. The consents (or in lieu thereof
waivers) disclosed in Section 4.6 of the Disclosure Schedule, and all other
consents (or in lieu thereof waivers) to the performance by any Lender or any
Borrower of its obligations under this Agreement and the Operative Agreements or
to the consummation of the transactions contemplated hereby and thereby as are
required under any Contract to which any Lender or any Borrower is a party or by
which any of their respective Assets and Properties are bound and where the
failure to obtain any such consent (or in lieu thereof waiver) could reasonably
be expected, individually or in the aggregate with other such failures, to
materially adversely affect any Lender or the Business or Condition of any
Borrower or otherwise result in a material diminution of the benefits of the
transactions contemplated by this Agreement and the Operative Agreements to any
Lender, (a) shall have been obtained, (b) shall be in form and substance
reasonably satisfactory to each Lender, (c) shall not be subject to the
satisfaction of any condition that has not been satisfied or waived and (d)
shall be in full force and effect.
4.8 Opinion of Counsel. The Lenders shall have received the
opinion of Rosenman & Colin, counsel to the Borrowers, dated the Closing Date,
substantially in the form of Exhibit H hereto.
4.9 Good Standing Certificates. The Borrowers shall have
delivered to each Lender (a) copies of the certificates or articles of
incorporation (or other comparable corporate charter documents), including all
amendments thereto, of each Borrower certified by the Secretary of State or
other appropriate official of the jurisdiction of incorporation of such
Borrower, (b) certificates from the Secretary of State or other appropriate
official of the respective jurisdictions of incorporation to the effect that
each of the Borrowers is in good standing or subsisting in such jurisdiction,
listing all charter documents of each Borrower on file, and (c) a certificate
from the Secretary of State or other appropriate official in each jurisdiction
in which any Borrower is qualified or admitted to do business to the effect that
such Borrower is duly qualified or admitted and in good standing in such
jurisdiction.
4.10 UCC Filing Searches. The Borrowers shall have delivered to
the Lenders the results of Uniform Commercial Code filing searches made with
respect to each Borrower in the jurisdictions in which any Assets and Properties
of any Borrower are located, together with copies of financing statements
disclosed by such searches and such searches shall disclose no Liens on any such
Assets and Properties other than Permitted Liens.
4.11 Operative Agreements. Each Operative Agreement shall have
been duly executed and delivered by the respective parties thereto other than
the Lenders and shall be in full force and effect.
4.12 Issuance of Notes. Each Borrower shall have issued Senior
Notes to each Lender as required by Section 2.4(a).
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4.13 Issuance of Warrants; Listing of Common Stock. The Company
shall have issued Warrants to each Lender to purchase shares of Company Common
Stock at the rate of one (1) share of Company Common Stock for each $10.25 in
aggregate principal amount of Senior Notes issued by the Borrowers to such
Lender hereunder (subject to appropriate adjustment for stock splits, stock
dividends, recapitalizations, reorganizations and similar events). The Company
shall have received approval for the listing of all shares of Common Stock
issuable upon exercise of the maximum number of Warrants issuable hereunder on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ").
4.14 Interest on Demand Note. All accrued and unpaid interest on
the Demand Note shall have been paid in full in cash to Prospect as provided in
Section 2.2(b).
4.15 Certain Expenses. Prospect shall have received from the
Borrowers a nonrefundable $60,000 closing fee. The Lenders shall have received
from the Borrowers payment of all out-of-pocket expenses incurred by any Lender
in connection with this Agreement and the Note Purchase Agreement and the
transactions contemplated hereby and thereby. The Borrowers shall not be
obligated to pay the costs and expenses of Lenders' counsel in connection with
the negotiation, execution and delivery of this Agreement and the Note Purchase
Agreement in excess of $40,000 in the aggregate.
4.16 Potential Event of Default; Event of Default. No event shall
have occurred and be continuing or would result from the consummation of the
Borrowing contemplated by the Borrowing Certificate which would constitute a
Potential Event of Default or an Event of Default.
4.17 Additional Matters. All corporate and other proceedings to
be taken on the part of any Borrower in connection with the transactions
contemplated by this Agreement and the Operative Agreements and all documents
incident thereto shall be reasonably satisfactory in form and substance to each
Lender, and each Lender shall have received copies of all such documents, legal
opinions and other evidences in respect of any aspect or consequence of any
transaction contemplated hereby or thereby as it shall reasonably request.
ARTICLE V
CONDITIONS TO EACH ADDITIONAL LOAN
The obligations of the Additional Lenders to make Additional
Loans hereunder are subject to the fulfillment of each of the following
conditions on each respective Additional Borrowing Date (all or any of which may
be waived in whole or in part by the Additional Lenders in their sole
discretion):
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5.1 Borrowing Certificate. Each Additional Lender shall have
received a Borrowing Certificate as required by Section 2.3.
5.2 Representations and Warranties. Each of the representations
and warranties made by any Borrower in this Agreement (other than those made as
of a specified date earlier than the Additional Borrowing Date) shall be true
and correct in all material respects (if not qualified by materiality or
material adverse effect) and in all respects (if qualified by materiality or
material adverse effect) on and as of the Additional Borrowing Date as though
each representation or warranty was made on and as of such date, and any
representation or warranty made as of a specified date earlier than the
Additional Borrowing Date shall also have been true and correct in all material
respects (if not qualified by materiality or material adverse effect) and in all
respects (if qualified by materiality or material adverse effect) on and as of
such earlier date.
5.3 Issuance of Notes. Each Borrower shall have issued Senior
Notes to each Additional Lender as required by Section 2.4(a).
5.4 Issuance of Warrants; Listing of Common Stock. The Company
shall have issued Warrants to each Additional Lender to purchase shares of
Company Common Stock at the rate of one (1) share of Company Common Stock for
each $10.25 in aggregate principal amount of Senior Notes issued by the
Borrowers to such Additional Lender hereunder (subject to appropriate adjustment
for stock splits, stock dividends, recapitalizations, reorganizations and
similar events). The Common Stock required to be listed pursuant to Section 4.13
shall continue to be listed on the NASDAQ.
5.5 Compliance; No Default. Each Borrower and each Subsidiary
shall be in compliance with all the terms and provisions set forth herein and in
each other Operative Agreements on its part to be observed or performed, and at
the time of and immediately after the Additional Borrowing, no Potential Event
of Default or Event of Default shall have occurred and be continuing.
5.6 Effect of Each Additional Borrowing. Each Additional
Borrowing shall be deemed to constitute a representation and warranty by each
Borrower on the Additional Borrowing Date as to the matters specified in
Sections 5.2 and 5.5.
5.7 Additional Matters. All corporate and other proceedings to be
taken on the part of any Borrower and any Subsidiary in connection with the
transactions contemplated by this Agreement and the Operative Agreements and all
documents incident thereto shall be reasonably satisfactory in form and
substance to each Additional Lender and each Additional Lender shall have
received copies of all such documents, legal opinions and other evidences in
respect of any aspect or consequence of any transactions contemplated hereby or
thereby as it shall reasonably request.
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ARTICLE VI
AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees with each Lender that, with
respect to Sections 6.1 through 6.9 and Section 6.11, at all times during the
Investment Period and, with respect to Section 6.10, at all times during the
Loan Period, each Borrower will, and will cause each of its Subsidiaries to,
comply with each of the covenants and agreements contained in this Article VI.
6.1 Financial Statements and Reports; Inspection. As promptly as
practicable, and in no event later than the presentation of the following
materials to the Company's management or the filing thereof with the SEC, the
Company will deliver to the Purchaser true and complete copies of all reports
filed with the SEC and all such other financial statements, reports and analyses
as may be prepared or received by the Company, any Borrower or any Subsidiary
relating to the business or operations of the Company, any Borrower or any
Subsidiary or as any Lender may otherwise reasonably request. Each Borrower will
furnish Prospect with the following information certified by such Borrower's
chief executive officer, president, treasurer or chief financial officer within
120 days after and as at the close of each fiscal year of such Borrower: (i) a
statement that such Borrower and its "affiliates" (within the meaning ascribed
thereto in 13 CFR Section121.103) is eligible for Financing under the SBIC
Regulations and (ii) a statement verifying the use of the proceeds received
hereunder (including the intended use of any such unused proceeds as of the date
of such certification), until all of the proceeds received hereunder have been
used by the Borrowers. At the request of Prospect, each Borrower will permit
Prospect and/or the SBA and/or any Person designated by Prospect to inspect any
of the properties, corporate books and financial records of any Borrower and its
Subsidiaries, to discuss their respective affairs and finances with the
responsible officers of such Borrower and its Subsidiaries and to make extracts
from the copies of such books and records, all at such time as Prospect may
reasonably request, including, but not limited to, for purpose of verifying
information provided to Prospect and required by the SBA.
6.2 Corporate Existence; Compliance. Each Borrower shall cause to
be done all things necessary to preserve and keep in full force and effect the
corporate existence of such Borrower and each of its Subsidiaries and all
necessary approvals and licenses of any Governmental or Regulatory Authority and
comply with all Laws applicable to such Borrower or any such Subsidiary and
comply with all agreements to which any Borrower or any such Subsidiary is a
party, the violation of which could reasonably be expected to result in a
material adverse change in the Business or Condition of such Borrower or such
Subsidiary.
6.3 Payment of Liabilities. Each Borrower shall, and shall cause
each of its Subsidiaries to, pay, discharge or otherwise satisfy at or before
maturity or before they become delinquent, as the case may be, all Liabilities
(including Taxes) of such Borrower and such Subsidiaries, except where the
amount or validity thereof is currently being contested in good
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faith by appropriate proceedings and reserves in conformity with GAAP with
respect thereto have been provided on the books of such Borrower. The Borrowers
shall also pay any New York State Real Estate Transfer Tax, New York City Real
Property Transfer Tax and New York Stock Transfer Tax ("Transfer Tax") and any
similar Taxes imposed by any other state (and any penalties or interest relating
to such Transfer Taxes), which become payable in connection with the
transactions contemplated by this Agreement, the Note Purchase Agreement, any
Operative Agreement, the Senior Notes, the Demand Notes or the Warrants and
cooperate with the Lenders in the preparation, execution and filing of any
required returns with respect to any Transfer Tax and in the determination of
the portion of the consideration allocable to real property in New York State or
New York City (or in any other jurisdiction, if applicable).
6.4 Insurance; Maintenance of Properties. Each Borrower shall
keep adequately insured by duly licensed insurers all Assets and Properties of
such Borrower and each Subsidiary of such Borrower, and also keep such Borrower
or such Subsidiary, as the case may be, adequately insured at all times with
responsible insurance carriers against liability on account of damage to persons
or property and under all applicable workers' compensation laws. All such
insurance shall be in such amounts and with such coverage as is consistent with
coverage usually carried by corporations of a similar size engaged in the same
or similar business similarly situated and as is reasonably satisfactory to each
Lender. Each Borrower shall maintain and preserve all of the Assets and
Properties of such Borrower and any Subsidiary of such Borrower necessary or
useful in the proper conduct of its business in good working order and
condition, ordinary wear and tear excepted.
6.5 Notice of Certain Events. Each Borrower shall promptly notify
each Lender in writing (i) of the commencement of any Action or Proceeding to
which such Borrower or any Subsidiary of such Borrower is a party where the
amount in controversy is in excess of $100,000, singularly or cumulatively, for
all claims arising from a single incident, to which such Borrower or any such
Subsidiary may be a party and (ii) of any Potential Event of Default or Event of
Default specifying the nature and extent thereof and the action (if any) which
is proposed to be taken with respect thereto.
6.6 Economic Impact Information. Promptly after the end of each
fiscal year (but in any event prior to January 31 of each year), each Borrower
shall deliver to Prospect a written assessment of the economic impact of
Prospect's investment in such Borrower, specifying the full-time equivalent jobs
created or retained in connection with the investment, the impact of such
investment on the businesses of such Borrower and its Subsidiaries in terms of
revenue and profits of such Borrower's and such Subsidiaries' business and on
taxes paid by such Borrower and its Subsidiaries and their respective employees.
6.7 New York City Advanced Technology Company. The Borrower shall
remain qualified as a New York City Advanced Technology Company; provided that a
Borrower shall not be required to comply with this Section 6.7 at any time (i)
after twenty-four (24) months from the date of the Closing if such Borrower
determines in its reasonable judgment that such
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continued compliance would materially adversely affect the Business or Condition
of such Borrower, and has given thirty (30) days prior written notice of such
determination to Prospect, (ii) after any class of securities of such Borrower
have become publicly traded securities, or (iii) that a written request by such
Borrower to Prospect to permit such Borrower to cease to comply with this
section shall have been approved by a majority of the members of Prospect's
Advisory Board.
6.8 Reservation of Shares; Exchange of Securities. The Company
will, for so long as any Lender has any rights to exercise any Warrant, keep
reserved the full number of shares of Common Stock issuable upon exercise of the
Warrants. In the event that Prospect determines, in its sole discretion, that a
Regulatory Problem may otherwise exist, Prospect shall have the right to require
the Company to take all steps as may be necessary to permit, as soon as
practicable, all or part of any voting securities held by Prospect to be
converted into non-voting securities of the Company, which securities, at the
option of Prospect, would be convertible into such voting securities originally
held by Prospect.
6.9 Venture Capital Operating Company Status. Each Lender shall
have the right to consult with and advise the management of each Borrower and to
receive all materials provided to members of the board of directors of each
Borrower so long as may be required to enable each Lender to qualify as a
"venture capital operating company" within the meaning of Section 2510.3-101 of
the plan asset regulations promulgated by the United States Department of Labor
("VCOC"). In addition, in the event that (i) any Lender is not entitled to
designate at least one (1) member for election to the board of directors of each
Borrower, or (ii) the United States Department of Labor through formal or
informal rules, regulations or interpretations provides, or it is otherwise
established through governmental or court action, that such representation does
not constitute the exercise of management rights of the kind necessary to enable
such Investor to continue to qualify as a VCOC, then the Borrowers and such
Lender shall in good faith negotiate provisions to enable such Lender to
exercise the minimum amount of such management rights in order to continue to
qualify as a VCOC.
6.10 Subsidiaries. Each Borrower shall cause each Subsidiary of
such Borrower not a Borrower hereunder, immediately upon becoming a Subsidiary,
to enter into a Subsidiary Guarantee as Guarantor thereunder. Each Borrower
shall, and shall cause each Subsidiary of such Borrower to, enter into an
Indemnity, Subrogation and Contribution Agreement will respect to each
Subsidiary Guarantor.
6.11 Further Assurances. Each Borrower shall, and shall cause
each Subsidiary to, take such further actions and otherwise assist and cooperate
with each Lender required to make any filings or obtain any approvals with or
from any Governmental or Regulatory Authority, including obtaining any approval
as may be necessary in order to effect the exercise of any Warrant.
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ARTICLE VII
NEGATIVE COVENANTS
Each Borrower covenants and agrees with each Lender that, with
respect to Sections 7.14 and 7.15, at all times during the Investment Period
and, with respect to Sections 7.1 through 7.13, at all times during the Loan
Period, each Borrower will, and will cause each of its Subsidiaries to, comply
with each of the covenants and agreements contained in this Article VII.
7.1 Indebtedness. No Borrower shall, nor shall it permit any of
its Subsidiaries to, directly or indirectly create, incur, assume, extend the
maturity of, or otherwise become directly or indirectly liable with respect to,
any Indebtedness other than, without duplication:
(i) Indebtedness under this Agreement;
(ii) Indebtedness under the Independent Credit Agreement
in an aggregate amount not to exceed $4,000,000 at any one time outstanding;
(iii) Indebtedness constituting Capital Lease Obligations;
and
(iv) as an endorser of negotiable instruments for the
payment of money deposited to such Borrower's or such Subsidiary's bank account
for collection in the ordinary course of business.
7.2 Liens. Other than Permitted Liens, no Borrower shall, nor
shall it permit any of its Subsidiaries to, directly or indirectly, create,
incur, assume or permit to exist any Lien upon or with respect to any of its
Assets and Properties, whether now owned hereafter acquired or any income or
profits therefrom, or assign or otherwise convey any right to receive income to
secure any Indebtedness, except for Liens (other than Permitted Liens) securing
Indebtedness of up to an aggregate amount of $250,000 at any time outstanding
for all Borrowers and Subsidiaries taken together.
7.3 Merger, Consolidation, Sale of Assets. No Borrower will, nor
will it permit any of its Subsidiaries to, voluntarily liquidate or dissolve, or
consolidate or merge with or into any other Person, or permit any other Person
to consolidate with or merge with or into it or participate in a share exchange
with or sell, lease, transfer, contribute or otherwise dispose of any of its
Assets and Properties to any other Person (other than sales of inventory and
worn out and obsolete assets in the ordinary course of business as such business
is conducted in compliance with Section 7.14), except that, subject in any event
to compliance with the last paragraph of this Section:
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(a) any Borrower (other than the Company) may consolidate with or
merge into any other Borrower; any Subsidiary Guarantor may consolidate with or
merge into any other wholly-owned Subsidiary Guarantor if a wholly-owned
Subsidiary Guarantor shall be the continuing or surviving corporation; any
Subsidiary Guarantor may consolidate with or merge into any Borrower if such
Borrower shall be the continuing or surviving corporation; and
(b) any Borrower (other than the Company) may sell, lease,
transfer, contribute or otherwise dispose of its Assets and Properties in whole
or in part to any other Borrower; any Subsidiary Guarantor may sell, lease,
transfer, contribute or otherwise dispose of its Assets and Properties in whole
or in part to any other wholly-owned Subsidiary Guarantor or to any Borrower,
and may, following any such disposition in whole, liquidate and dissolve.
No liquidation, dissolution, consolidation, merger, sale, lease,
transfer, contribution or other disposition referred to in clauses (a) and (b)
of this Section 7.3 shall be permitted unless at the time of and immediately
after giving effect to any such transaction no Potential Event of Default or
Event of Default shall have occurred.
7.4 Lease Obligations. No Borrower shall, except for real
property leases requiring annual lease payments not exceeding $250,000 in the
aggregate, create or suffer to exist or permit any Subsidiary to create or
suffer to exist, any obligations for the payment of rental for any property
under leases or agreements to lease having a term of one year or more.
7.5 Loans and Investments. No Borrower shall, nor shall it permit
any of its Subsidiaries to, hold any Investment Assets, or make or keep
outstanding any advance or loans, except that (i) the Borrowers and the
Subsidiaries may invest in (i) direct obligations of, obligations fully
guaranteed by, and repurchase agreements fully secured by, the United States of
America or any agency thereof, (ii) certificates of deposit of any commercial
bank which is a member of the Federal Reserve System, (iii) money market
accounts or other similar low-risk, liquid investments approved by the board of
directors of such Borrower or such Subsidiary, as the case may be, and (iv) any
Borrower and any Subsidiary may make loans or advances to any wholly-owned
Subsidiary of such Borrower or such Subsidiary, provided, that such Subsidiary
is either a Borrower or a Subsidiary Guarantor at the time of such loan.
7.6 Dividends, Etc. Except for the contemplated repurchase by the
Company of up to 300,000 shares of Common Stock pursuant to the plan adopted by
the Company on March 21, 1996, no Borrower shall, nor shall it permit any of its
Subsidiaries to, declare or pay any cash or asset dividend on any of its shares
or make any other distribution or disposition of any Assets and Properties to
stockholders in respect of its shares (or otherwise), or make, or commit to
make, any payment on account of the purchase, redemption or other retirement of
any of its shares or warrants or options therefor, except that any wholly-owned
Subsidiary of any Borrower or any Subsidiary may declare and pay dividends to
such Borrower or such Subsidiary.
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7.7 Subsidiaries. No Borrower shall, nor shall it permit any of
its Subsidiaries to, unless prior written notice has been given to the Required
Lenders, organize or cause to exist any Subsidiary.
7.8 Sale and Leaseback. No Borrower shall, nor shall it permit
any of its Subsidiaries to, enter into any arrangement with any Person providing
for the leasing by such Borrower or such Subsidiary of real or personal property
which has been or is to be sold or transferred by such Borrower or such
Subsidiary to such Person.
7.9 Charter Documents; Directors. No Borrower shall, nor shall it
permit any of its Subsidiaries to, amend the certificate of incorporation or
by-laws of such Borrower or such Subsidiary as in effect on the date hereof (or,
in the case of any future Subsidiary, the date of incorporation of such
Subsidiary) or change the size or composition of such Borrower's or such
Subsidiary's board of directors, except as permitted pursuant to the Stock
Purchase Agreement and the certificate of incorporation of the Company.
7.10 Certain Limitations. No Borrower shall, nor shall it permit
any of its Subsidiaries to, directly or indirectly, create or otherwise cause or
allow to exist or become effective any consensual encumbrance or restriction on
the ability of any Subsidiary to (i) pay dividends or make any other
distributions on its capital stock or any other interest or participation in, or
measured by, its profits owned by, or pay any Indebtedness owed to, such
Borrower or such Subsidiary, (ii) make loans or advances to such Borrower or
such Subsidiary or (iii) transfer any of its Assets and Properties to such
Borrower or such Subsidiary. No Borrower shall, nor shall it permit any of its
Subsidiaries to, enter into any agreement with any Person other than (i) the
Lenders pursuant to this Agreement or any Operative Agreement and (ii) the
Senior Lender pursuant to the Senior Credit Documents, which prohibits or limits
the ability of such Borrower or such Subsidiary to create, incur, assume or
suffer to exist any Lien upon any of the Assets and Properties or revenues of
such Borrower or such Subsidiary, whether now owned or hereafter acquired.
7.11 Conflicting Agreements. No Borrower shall, nor shall it
permit any of its Subsidiaries to, enter into any agreements or arrangements
which by their terms or reasonably foreseeable effect restricts or adversely
affects such Borrower's or such Subsidiary's right and ability to meet its
obligations to any Lender hereunder or under any of the Operative Agreements to
which it is a party.
7.12 Use of Proceeds. No Borrower shall, directly or indirectly,
use any of the proceeds received from the Lenders hereunder to engage in any
activities with respect to which an SBIC is prohibited from providing funds by
SBA Regulations, including without limitation 13 CFR Section 107.720.
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7.13 Affiliate Transactions. Except for loans at market interest
rates made by any Borrower or any Subsidiary to officers and directors of such
Borrower or Subsidiary in an aggregate principal amount not to exceed $250,000
(unless a higher amount is approved in writing by the Required Lenders) for all
Borrowers and Subsidiaries taken together, no Borrower shall, nor shall it
permit any of its Subsidiaries to, enter into any transaction, including,
without limitation, any purchase, sale, lease or exchange of property or the
rendering of any service, with any Affiliate (other than any Lender), unless
such transaction is (i) otherwise permitted under this Agreement, (ii) in the
ordinary course of such Borrower's or such Subsidiary's business and (iii) upon
fair and reasonable terms no less favorable to such Borrower or such Subsidiary
than it would obtain in a comparable arm's length transaction with a Person that
is not an Affiliate.
7.14 Change in Nature of Business. No Borrower shall engage, nor
shall it permit any of its Subsidiaries to engage, in any business other than
the business currently conducted by such Borrower or such Subsidiary and
activities reasonably related thereto.
ARTICLE VIII
EVENTS OF DEFAULT
If any of the following conditions or events ("Events of
Default") shall occur and be continuing:
8.1 Failure To Make Payments When Due. Failure to pay any
installment of principal or interest of any Loan when due, whether at stated
maturity, by acceleration, by notice of prepayment, or otherwise; or
8.2 Default in Other Agreements. Any event or condition occurs
that results in any Indebtedness of any Borrower or any Subsidiary in excess of
$100,000 in the aggregate for all Borrowers and Subsidiaries taken together
becoming due prior to its scheduled maturity or that enables or permits (with or
without the giving of notice, the lapse of time or both) the holder or holders
of such Indebtedness or any trustee or agent on its or their behalf to cause any
such Indebtedness to become due, or to require the prepayment repurchase,
redemption or defeasance thereof, prior to its scheduled maturity; or
8.3 Breach of Certain Covenants and Agreements. Failure of any
Borrower to perform or comply with (i) any term or condition contained in
Section 6.1, Section 6.6 or Article VII, or (ii) any other term contained in
this Agreement or the Operative Agreements and, in the case of clause (ii), such
failure shall not have been remedied or waived within thirty (30) days after
receipt of written notice from the Required Lenders of such default; or
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8.4 Breach of Warranty. Any representation or warranty made (or
deemed made) by any Borrower or any Subsidiary in this Agreement or any
Operative Agreement or in any statement or certificate at any time given by such
Borrower or such Subsidiary pursuant hereto or thereto or in connection herewith
or therewith shall be false in any material respect (if not qualified by
materiality or material adverse effect) and in any respect (if qualified by
materiality or material adverse effect) on the date as of when made; or
8.5 Involuntary Bankruptcy; Appointment of Receiver, Etc. (a) A
court having jurisdiction in the premises shall enter a decree or order for
relief in respect of any Borrower or any of its Subsidiaries in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, which decree or order is not stayed; or any other similar
relief shall be granted and remain unstayed under any applicable federal or
state law; or (b) an involuntary case is commenced against any Borrower or any
of its Subsidiaries under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect; or a decree or order of a court having
jurisdiction in the premises for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar powers over any
Borrower or any of its Subsidiaries or over all or a substantial part of any of
their respective Assets and Properties, shall have been entered; or an interim
receiver, trustee or other custodian of any Borrower or any of its Subsidiaries
for all or a substantial part of their respective Assets and Properties is
involuntarily appointed; or a warrant of attachment, execution or similar
process is issued against any substantial part of the Assets and Properties of
any Borrower or any of its Subsidiaries, and the continuance of any such events
in this clause (b) for sixty (60) days unless dismissed, bonded, stayed, vacated
or discharged; or
8.6 Voluntary Bankruptcy; Appointment of Receiver, Etc. Any
Borrower or any of its Subsidiaries shall have an order for relief entered with
respect to it or commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or shall consent to
the entry of an order for relief in an involuntary case, or to the conversion of
an involuntary case to a voluntary case, under any such law, or shall consent to
the appointment of or making possession by a receiver, trustee or other
custodian for all or a possession by a receiver, trustee or other custodian for
all or a substantial part of its Assets and Properties; the making by any
Borrower or any of its Subsidiaries of any assignment for the benefit of
creditors the admission by any Borrower or any of its Subsidiaries in writing of
its inability to pay its debts as such debts become due; or the board of
directors of any Borrower or any of its Subsidiaries (or any committee thereof)
adopts any resolution or otherwise authorizes action to approve any of the
foregoing; or
8.7 Judgments and Attachments. Any money judgment, writ or
warrant of attachment, or similar process involving in any individual case or in
the aggregate at any time an amount in excess of $100,000 (not covered by
insurance) shall be entered or filed against any Borrower or any of its
Subsidiaries or any of their respective Assets and Properties and shall remain
undischarged, unvacated, unbonded or unstayed for a period of thirty (30) days
or in any event later than five (5) days prior to the date of any proposed sale
thereunder; or
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<PAGE> 48
8.8 Other Agreements. Any material provision of this Agreement or
any other Operative Agreement shall cease to be a valid and binding obligation
against each Borrower and each Subsidiary, as the case may be, except in
accordance with its terms or any Borrower or any Subsidiary, as the case may be,
shall so state in writing;
8.9 Change of Control. A Change of Control shall occur; or
8.10 Public Warrant Redemption or Exercise. (a) An aggregate of
1% or more of the Public Warrants are redeemed by the Company in one or more
transactions; or (b) fifty percent (50%) or more of the total number of Public
Warrants are exercised by the holders thereof in one or more transactions.
THEN, (i) upon the occurrence of any Event of Default described
in the foregoing Section 8.5 or 8.6, the unpaid principal amount of and accrued
interest on each Loan shall automatically become immediately due and payable,
without presentment, demand, protest or other requirements of any kind, all of
which are hereby expressly waived by each Borrower and each Subsidiary, and the
obligations of the Lenders hereunder shall thereupon terminate and (ii) upon the
occurrence of any other Event of Default, the Required Lenders may, by written
notice to the Borrowers, declare the Loans to be, and the same shall forthwith
become, due and payable, as specified below, together with accrued interest
thereon, and if such Event of Default results from a failure to comply with
Section 2.8, together with the prepayment premium applicable thereto, if any,
and the obligations of the Lenders hereunder shall thereupon terminate.
ARTICLE IX
MISCELLANEOUS
9.1 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission or
mailed by prepaid first class certified mail, return receipt requested, or
mailed by overnight courier prepaid, to the parties at the following addresses
or facsimile numbers:
If to Prospect, to:
Prospect Street NYC Discovery Fund, L.P.
250 Park Avenue, 17th Floor
New York, NY 10177
Facsimile No.: (914) 490-1566
Attn: Ronald D. Celmer
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<PAGE> 49
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Facsimile No.: (212) 309-6273
Attn: Ira White, Esq.
If to Bug, to
Bank of New York, as Trustee for the
Employees Retirement Plan of the
Brooklyn Union Gas Company
c/o The Brooklyn Union Gas Company
One Metrotech Center
Brooklyn, NY 11201-3850
Attn: Thomas Riordan
If to the Borrowers, to:
Skyline Multimedia Entertainment, Inc.
Empire State Building
350 Fifth Avenue
Suite 612
New York, NY 10118
Facsimile No.: (212) 564-0652
Attn: Zalman Silber
with a copy to:
Rosenman & Colin
575 Madison Avenue
New York, New York 10022
Fax: 212-940-8776
Attn: Neil S. Belloff, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, (iii) if delivered by
mail in the manner described above to the address as provided in this Section,
be deemed given on the earlier of the third Business Day following mailing or
upon receipt and (iv) if delivered by overnight courier to the address as
provided in this Section, be deemed given
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on the earlier of the first Business Day following the date sent by such
overnight courier or upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice is to be delivered pursuant to this Section). Any party from
time to time may change its address, facsimile number or other information for
the purpose of notices to that party by giving notice specifying such change to
the other party hereto.
9.2 Participations in Loans and Senior Notes.
(a) Each Lender shall have the right at any time, to sell,
assign, transfer or negotiate all or any part of any Loan or Senior Note to one
or more Persons. In the case of any sale, assignment, transfer or negotiation of
all or part of the Loan or Senior Note authorized under this Section 9.2(a), the
assignee, transferee or recipient shall have, to the extent of such sale,
assignment, transfer or negotiation, the same rights, benefits and obligations
as it would if it were a Lender with respect to such Loan or Senior Note,
including, without limitation, the right to approve or disapprove actions which,
in accordance with the terms hereof, require the approval of a Lender.
(b) Each Lender may grant participations in all or any part of
any Loan or Senior Note to one or more Persons.
(c) In connection with any sales, assignments or transfers of any
Loan or Senior Note referred to in Section 9.2(a), the applicable Lender shall
give notice to the Borrowers of such sale, assignment, or transfer and the
identity of the purchasers, assignees and transferees, as the case may be, and
obtain agreements from the purchasers, assignees and transferees, as the case
may be, that all information given to such parties will be held in strict
confidence subject to customary exceptions.
(d) In the event of an assignment by any Lender, or any
subsequent assignment, the term "Lender" herein shall be deemed to refer to each
such Lender.
9.3 New Additional Lender. Upon the consent of the Required
Lenders, one (1) additional Person (the "New Additional Lender") shall be made a
party to this Agreement by executing a counterpart of this Agreement. The New
Additional Lender shall have an Additional Loan Commitment of up to $1,100,000
as shall be set forth on the counterpart of this Agreement executed by such
Additional Lender. In the event that the New Additional Lender is made a party
to this Agreement pursuant to this Section 9.3, Bug shall not, from and after
such time, make any Additional Loan pursuant to any Borrowing Request until such
time as the unused Additional Commitment of such New Additional Lender bears the
same relationship to its Commitment as the unused Additional Commitment of Bug
bears to Bug's Commitment. In the event that the New Additional Lender is made a
party to this Agreement, the terms "Additional Lender" and "Lender" herein shall
be deemed to refer to such New Additional Lender.
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<PAGE> 51
9.4 Indemnity. In addition to the payment of expenses pursuant to
Section 4.15 and Section 9.6, whether or not the transactions contemplated
hereby shall be consummated, each of the Borrowers and each of their respective
Subsidiaries (as "Indemnitor") agrees, jointly and severally, to indemnify each
Lender, each holder of any Loan or, Senior Note and any Warrant and any
stockholder, general partner, limited partner, officer, director, agent and
Affiliate of any such Lender or holder (collectively called the "Indemnitees"),
in respect of, and hold them harmless from and against, any and all Losses
suffered, incurred or sustained by any of them or to which any of them becomes
subject, in any manner arising out of or relating to this Agreement, the
Operative Agreements, the Lenders' agreements to make the Loans or the use or
intended use of the proceeds of any of the Loans hereunder (the "Indemnified
Liabilities"); provided, that the Indemnitor shall not have any obligation to an
Indemnitee hereunder with respect to an Indemnified Liability to the extent that
such Indemnified Liability arises solely from the gross negligence or willful
misconduct of that Indemnitee. Each Indemnitee shall give the Indemnitor prompt
written notice of any claim that might give rise to Indemnified Liabilities
setting forth a description of those elements of such claim of which such
Indemnitee has knowledge; provided, that any failure to give such notice shall
not affect the obligations of the Indemnitor unless (and then solely to the
extent) the ability of the Indemnitor to provide such indemnification is
prejudiced thereby. The Indemnitor shall have the right at any time during which
such claim is pending to select counsel to defend and control the defense
thereof and settle any claims for which it is responsible for indemnification
hereunder (provided that no Indemnitor will settle any such claim without (i)
the appropriate Indemnitee's prior written consent which consent shall not be
unreasonably withheld or (ii) obtaining an unconditional release of the
appropriate Indemnitee from all claims arising out of or in any way relating to
the circumstances involving such claim) so long as in any such event, the
Indemnitor shall have stated in a writing delivered to the Indemnitee that, as
between the Indemnitor and the Indemnitee, the Indemnitor is responsible to the
Indemnitee with respect to such claim to the extent and subject to the
limitations set forth herein; provided, however, that the Indemnitor shall not
be entitled to control the defense of any claim in the event that in the
reasonable opinion of counsel for the Indemnitee there are one or more defenses
available to the Indemnitee which are not available to the Indemnitor; provided,
further, that with respect to any claim as to which the Indemnitee is
controlling the defense, the Indemnitor will not be liable to any Indemnitee for
any settlement of any claim pursuant to this Section 9.4 that is effected
without its prior written consent. To the extent that the undertaking to
indemnify and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any Law or public policy, the Company
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable Law, to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitee for any of them.
9.5 Entire Agreement. This Agreement, the Operative Agreements
and Article VIII of the Note Purchase Agreement supersede all prior discussions
and agreements between the parties with respect to the subject matter hereof and
thereof and contain the sole and entire agreement between the parties hereto
with respect to the subject matter hereof and thereof.
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<PAGE> 52
9.6 Expenses. Whether or not the transactions contemplated hereby
shall be consummated, the Borrowers shall pay all out-of-pocket expenses
incurred by any Lender in connection with this Agreement and the Note Purchase
Agreement and the transactions contemplated hereby and thereby; provided,
however, that the Borrowers shall not be obligated to pay the costs and expenses
of Lenders' counsel in connection with the negotiation, execution and delivery
of this Agreement and the Note Purchase Agreement in excess of $40,000. Except
as otherwise expressly provided in this Agreement (including without limitation
as provided in this Section 9.6 and in Section 4.15), whether or not the
transactions contemplated hereby are consummated, each party will pay its own
costs and expenses.
9.7 Consideration for Warrants. The Lenders and the Borrowers
acknowledge and agree that, for all purposes (including tax and accounting), the
fair market value of the Warrants to be issued hereunder is $.50 for each
Warrant Share (as defined in the Warrants) issuable thereunder (subject to
adjustment for stock splits, stock dividends, recapitalization, reorganizations
and similar events which occur on or after the Closing Date). Each Lender and
each Borrower shall file their respective Tax Returns in a manner which is
consistent with such valuation and shall not take any contrary position with any
taxing authority.
9.8 Further Assurances; Post-Closing Cooperation. At any time or
from time to time after the Closing, each Borrower shall, and shall cause each
of its Subsidiaries to, execute and deliver to any Lender such other documents
and instruments, provide such materials and information and take such other
actions as such Lender may reasonably request more effectively to vest title to
the Senior Notes and the Warrants in such Lender and otherwise to cause such
Borrower or such Subsidiaries to fulfill their respective obligations under this
Agreement and the Operative Agreements to which it is a party.
9.9 Amendments and Waivers. No amendment, modification,
termination or waiver of any provision of this Agreement or of any Senior Note,
or consent to any departure by any Borrower therefrom, shall in any event be
effective without the written concurrence of the Required Lenders and each
Borrower and an opinion of counsel of the Borrowers to the effect that such
amendment, modification, termination, or waiver does not violate the Senior
Credit Agreement; provided, that no amendment, modification, waiver or consent
shall, unless in writing and signed by each Lender, do any of the following: (a)
reduce the principal of, or interest on any Loan or any fees, premiums or other
amounts payable hereunder; (b) postpone any date fixed for any payment of
principal of, or premium or interest on, any Loan or any fees or other amounts
payable hereunder; or (c) amend this Section 9.8; provided, further, however,
that no Lender shall be subject to any additional or increased obligations
without the written consent of such Lender. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand on any Borrower in any case shall entitle
such Borrower or any other Borrower to any further notice or demand in similar
or other circumstances. Any amendment, modification, termination, waiver or
consent effected in accordance with this Section 9.8 shall be binding upon each
holder of any Loan and any Senior Note at the time outstanding and each future
holder of any Loan and any Senior Note.
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<PAGE> 53
9.10 Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitation of, another covenant shall
not avoid the occurrence of an Event of Default or Potential Event of Default if
such action is taken or condition exists.
9.11 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights, and this Agreement does not
confer any such rights, upon any other Person other than any Person entitled to
indemnity under Section 9.4.
9.12 No Assignment; Binding Effect. Neither this Agreement nor
any right, interest or obligation hereunder may be assigned by any Borrower
without the prior written consent of each Lender and any attempt to do so will
be void, except for assignments and transfers by operation of Law. Subject to
the preceding sentence, this Agreement is binding upon, inures to the benefit of
and is enforceable by the parties hereto and their respective successors and
assigns.
9.13 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
9.14 Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future Law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (d) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
9.15 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER
OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
9.16 Consent to Jurisdiction and Service of Process. ALL JUDICIAL
PROCEEDINGS BROUGHT AGAINST ANY BORROWER WITH RESPECT TO THIS AGREEMENT, ANY
OPERATIVE AGREEMENT, ANY LOAN, ANY SENIOR NOTE OR
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<PAGE> 54
ANY WARRANT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT EACH BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS AGREEMENT, ANY LOAN, ANY SENIOR NOTE AND ANY
WARRANT. EACH BORROWER DESIGNATES AND APPOINTS THE CORPORATION TRUST COMPANY AND
SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY ANY OF THEM IRREVOCABLY
AGREEING IN WRITING TO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF, SERVICE OF
ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY EACH OF THEM TO BE EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO
EACH BORROWER AT ITS ADDRESS PROVIDED IN SECTION 9.1, EXCEPT THAT UNLESS
OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT
AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY ANY
BORROWER REFUSES TO ACCEPT SERVICE, SUCH BORROWER HEREBY AGREES THAT SERVICE
UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT
THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT OF ANY LENDER TO BRING PROCEEDINGS AGAINST ANY BORROWER IN THE COURTS
OF ANY OTHER JURISDICTION.
9.17 Waiver of Jury Trial. EACH BORROWER HEREBY WAIVES, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT
WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, ANY
OPERATIVE AGREEMENT, ANY LOAN, ANY SENIOR NOTE OR ANY WARRANT OR THE VALIDITY,
PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF; AND EACH BORROWER
HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO INTERPOSE
ANY SET-OFF OR COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY SUCH
LITIGATION, IRRESPECTIVE OF THE NATURE OF SUCH SET-OFF, COUNTERCLAIM OR
CROSS-CLAIM EXCEPT TO THE EXTENT THAT THE FAILURE SO TO ASSERT ANY SUCH SET-OFF,
COUNTERCLAIM OR CROSS-CLAIM WOULD PERMANENTLY PRECLUDE THE PROSECUTION OF OR
RECOVERY UPON SAME. NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE
CONTRARY, NO CLAIM MAY BE MADE BY ANY BORROWER AGAINST ANY LENDER FOR ANY LOST
PROFITS OR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY
BREACH OR WRONGFUL CONDUCT (OTHER THAN WILLFUL MISCONDUCT CONSTITUTING ACTUAL
FRAUD) IN CONNECTION WITH, ARISING OUT OF OR IN ANY WAY RELATED TO
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<PAGE> 55
THE TRANSACTIONS CONTEMPLATED HEREUNDER OR UNDER ANY OPERATIVE AGREEMENT, OR ANY
ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH; EACH BORROWER HEREBY
WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH DAMAGES.
EACH BORROWER AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS
AGREEMENT AND ACKNOWLEDGES THAT THE LENDERS WOULD NOT EXTEND TO ANY BORROWER ANY
LOAN HEREUNDER IF THIS SECTION WERE NOT PART OF THIS AGREEMENT.
9.18 Counterparts. This Agreement may be executed in any number
of counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
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<PAGE> 56
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer of each party hereto as of the date
first above written.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By:_________________________________________
Name:
Title:
NEW YORK SKYLINE, INC.
By:_________________________________________
Name:
Title:
SKYLINE VIRTUAL REALITY, INC.
By:_________________________________________
Name:
Title:
SKYLINE CHICAGO, INC.
By:_________________________________________
Name:
Title:
SKYLINE MAGIC, INC.
By:_________________________________________
Name:
Title:
<PAGE> 57
SKYLINE LAS VEGAS, INC.
By:_________________________________________
Name:
Title:
PROSPECT STREET NYC DISCOVERY FUND, L.P.
By: Prospect Street Discovery Fund, Inc., its
General Partner
By:_________________________________
Name: Ronald D. Celmer
Title: Vice President
BANK OF NEW YORK, as Trustee for the
Employees Retirement Plan of the Brooklyn
Union Gas Company
By:__________________________________
Name:
Title:
<PAGE> 58
ANNEX 2.1
<TABLE>
<CAPTION>
Lender Initial Loan Commitment Additional Loan Commitment
- ------ ----------------------- --------------------------
<S> <C> <C>
Prospect Street NYC (1)$1,500,000
Discovery Fund, L.P. None
Bank of New York, as Trustee
for the Employees Retirement
Plan of the Brooklyn Union
Gas Company $1,000,000 $500,000
</TABLE>
- ------------
(1) Loan to be made by surrender of $1,500,000 Demand Promissory Note as
provided in Section 2.2(b).
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<PAGE> 59
ANNEX 2.12
Lenders' Offices
Prospect Street NYC Discovery Fund, L.P.
250 Park Avenue, 17th Floor
New York, NY 10177
Bank of New York, as Trustee for the
Employees Retirement Plan of the
Brooklyn Union Gas Company
c/o The Brooklyn Union Gas Company
One Metrotech Center
Brooklyn, NY 11201-3850
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<PAGE> 1
[Execution Copy]
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.,
PROSPECT STREET NYC DISCOVERY FUND, L.P.,
AND
BANK OF NEW YORK, AS TRUSTEE
FOR THE EMPLOYEES RETIREMENT PLAN
OF THE BROOKLYN UNION GAS COMPANY
<PAGE> 2
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of
December 20, 1996, by and among SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a New
York corporation (the "Company"), PROSPECT STREET NYC DISCOVERY FUND, L.P., a
Delaware limited partnership ("NYCDF") and BANK OF NEW YORK, AS TRUSTEE FOR THE
EMPLOYEES RETIREMENT PLAN OF THE BROOKLYN UNION GAS COMPANY ("Bug").
RECITALS
WHEREAS, in order to induce NYCDF to enter into that certain Stock
Purchase Agreement between NYCDF and the Company dated June 30, 1995, the
Company agreed to provide NYCDF with the registration rights set forth in the
Registration Rights Agreement dated as of June 30, 1995 (the "Existing
Registration Rights Agreement");
WHEREAS, in order to induce NYCDF and Bug to enter into that certain
Senior Credit Agreement by and among the parties hereto, dated as of the date
hereof (the "Credit Agreement"), the Company has agreed to amend and restate the
Existing Registration Rights Agreement in order to provide NYCDF and Bug with
the registration rights set forth in this Agreement; and
WHEREAS, capitalized terms used and not otherwise defined herein
have the respective meanings ascribed thereto in Article X;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEMAND REGISTRATIONS
1.1 REQUESTS FOR REGISTRATION. At any time and from time to time each of the
Required NYCDF Investors and the Required Bug Investors, acting alone or
jointly, may request in writing registration under the Securities Act of all or
part of their Registrable Securities (i) on Form S-1 or any similar long-form
Registration Statement ("Long-Form Registrations"), or (ii) on Form S-2 or S-3
or any similar short-form Registration Statement ("Short-Form Registrations") if
the Company qualifies to use such short form. All registrations requested
pursuant to this Section 1.1 are referred to herein as "Demand Registrations."
Demand Registrations will be Short-Form Registrations whenever the Company is
qualified to use any applicable short form. The Company will use its best
efforts to make Short-Form Registrations available for the sale of Registrable
Securities. Within ten days after receipt of any such request, the Company will
give written notice of such request to all other holders of Registrable
Securities. Thereafter, the Company will use its best efforts to effect the
registration under the
2
<PAGE> 3
Securities Act on the form requested by the Required NYCDF Investors or the
Required Bug Investors, as the case may be, and will include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 30 days after the receipt
of the Company's notice, subject to the provisions of Section 1.4. The Required
NYCDF Investors or the Required Bug Investors, as the case may be, after
requesting a Demand Registration under this Article I may, at any time prior to
the effective date of the Registration Statement relating to such registration,
revoke such request by providing written notice to the Company.
1.2 NUMBER OF DEMAND REGISTRATIONS; EXPENSES. Subject to Section
1.3, the Company shall have no obligation to effect more than four Demand
Registration Statements at the request of the Required NYCDF Investors, nor more
than one Demand Registration Statement at the request of the Required Bug
Investors . The Company will pay all Registration Expenses in connection with
any Demand Registration, including any Demand Registration Statement that is not
deemed to be effected pursuant to the provisions of Section 1.3 hereof.
1.3 EFFECTED REGISTRATION STATEMENT. A registration demanded
pursuant to Section 1.1 of this Agreement shall not be deemed to have been
effected (i) unless a Registration Statement with respect thereto has been
declared effective by the Commission and the Company has complied in all
material respects with its obligations under this Agreement with respect
thereto, (ii) if after it has become effective, such registration is interfered
with by any stop order, injunction or other order or requirement of the
Commission or other governmental agency or court for any reason, and, as a
result thereof, the Registrable Securities covered thereby have not been sold,
(iii) if the conditions to closing specified in the purchase agreement or
underwriting agreement entered into in connection with such registration are not
satisfied by reason of a failure by or inability of the Company to satisfy any
thereof, or the occurrence of an event outside the control of the holders of
Registrable Securities, (iv) if holders of Registrable Securities are not able
to register and sell at least 90% of the amount of Registrable Securities
requested to be included in such registration, or (v) the Registration Statement
does not remain effective for a period of at least 180 days beyond the effective
date thereof or, with respect to an underwritten offering of Registrable
Securities, until 45 days after the commencement of the distribution by the
holders of the Registrable Securities included in such Registration Statement.
If a registration requested pursuant to this Article I is deemed not to have
been effected as provided in this Section 1.3, then the Company shall continue
to be obligated to effect the number of Demand Registrations set forth in
Section 1.2 without giving effect to such requested registration.
1.4 PRIORITY ON DEMAND REGISTRATIONS. The Company will not include
in any Demand Registration any securities which are not Registrable Securities
without the written consent of the holders of a majority (by number of shares)
of Registrable Securities on a Diluted Basis requested to be included in such
Demand Registration. If other securities are permitted to be included in a
Demand Registration which is an underwritten offering and the managing
underwriters advise the Company in writing that in their opinion the number of
Registrable
3
<PAGE> 4
Securities and other securities requested to be included exceeds the number of
Registrable Securities and other securities which can be sold in such offering
within a price range acceptable to the holders of a majority (by a number of
shares) of Registrable Securities on a Diluted Basis requested to be included in
such Demand Registration, the Company will include in such registration, to the
exclusion of any securities which are not Registrable Securities, the number of
Registrable Securities requested to be included which in the opinion of such
underwriters can be sold, pro rata among the holders of Registrable Securities
on the basis of the amount of Registrable Securities on a Diluted Basis
requested to be offered thereby.
1.5 FORM OF OFFERING; SELECTION OF UNDERWRITERS. If the holders of a
majority (by number of shares) of Registrable Securities requested to be
included in such Demand Registration so elect, the offering of such Registrable
Securities pursuant to such Demand Registration shall be (x) underwritten and/or
(y) in the form of a "shelf" registration. The holders of a majority (by number
of shares) of Registrable Securities requested to be included in such Demand
Registration will have the right to select the underwriters and the managing
underwriter to administer any underwritten Demand Registration.
1.6 OTHER REGISTRATION RIGHTS. Except as provided in this Agreement,
without the written consent of the Required Holders, the Company will not grant
to any Person the right to request the Company to register any equity securities
of the Company, or any securities convertible, exchangeable or exercisable for
or into such securities, other than piggyback registration rights entitling the
holder thereof to participate in Company-initiated registrations, subject to the
prior rights of holders of Registrable Securities.
ARTICLE II
PIGGY-BACK REGISTRATIONS
2.1 RIGHT TO PIGGY-BACK. Whenever the Company proposes to register
any of its securities under the Securities Act (other than pursuant to a Demand
Registration), and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggy-back Registration"), the
Company will give prompt written notice (in any event within three Business Days
after its receipt of notice of any exercise of other demand registration rights)
to all holders of Registrable Securities of its intention to effect such a
registration and will include in such registration all Registrable Securities
with respect to which the Company has received written requests for inclusion
therein within 30 days after the receipt of the Company's notice. Such requests
for inclusion shall specify the number of Registrable Securities intended to be
disposed of and the intended method of distribution thereof.
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2.2 PIGGY-BACK EXPENSES. The Registration Expenses of the holders of
Registrable Securities will be paid by the Company in all Piggy-back
Registrations.
2.3 PRIORITY ON COMPANY REGISTRATIONS. If a Piggy-back Registration
is an underwritten registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their good faith opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities requested to be included in such
registration, provided, that if the managing underwriters in good faith
determine that a lower number of Registrable Securities should be included, then
the Company shall be required to include in the underwriting only that lower
number of Registrable Securities, and the holders of Registrable Securities who
have requested registration shall participate in the underwriting pro rata based
upon their total ownership of Registrable Securities on a Diluted Basis, and
(iii) third, if all Registrable Securities requested to be included in such
registration are included in the registration, other securities requested to be
included in such registration.
2.4 PRIORITY ON STOCKHOLDER REGISTRATIONS. If a Piggy-back
Registration is not a Demand Registration pursuant to Article I but is an
underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their good faith opinion the number of securities requested to be included in
such registration exceeds the number which can be sold in such offering, the
Company will include in such registration (i) first, the securities requested to
be included therein by the holders requesting such registration, (ii) second,
the Registrable Securities requested to be included in such registration,
provided, that if the managing underwriters in good faith determine that a lower
number of Registrable Securities should be included, then the Company shall be
required to include in the underwriting only that lower number of Registrable
Securities, and the holders of Registrable Securities who have requested
registration shall participate in the underwriting pro rata based upon their
total ownership of Registrable Securities on a Diluted Basis, and (iii) if all
Registrable Securities requested to be included in such registration are
included in the registration, third, other securities requested to be included
in such registration. Notwithstanding the foregoing, if Zalman Silber is among
the holders requesting registration, his securities shall be included for the
priority purposes of this Section 2.4 as covered by the reference to "other
securities" in clause (iii) of the preceding sentence.
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ARTICLE III
OTHER REGISTRATIONS
3.1 OTHER REGISTRATIONS. If the Company has previously filed a
Registration Statement with respect to Registrable Securities pursuant to
Article I or II of this Agreement, and if such previous registration has not
been withdrawn or abandoned, the Company will not file or cause to be effected
any other registration of any of its equity securities or securities
convertible, exchangeable or exercisable for or into its equity securities under
the Securities Act (except on Form S-4 or Form S-8 or any successor form),
whether on its own behalf or at the request of any holder or holders of such
securities, until the earlier of (i) the date on which the Registrable
Securities included therein have been sold, or (ii) 6 months from such effective
date.
ARTICLE IV
REGISTRATION PROCEDURES
Whenever the holders of Registrable Securities have requested that
any Registrable Securities be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof as quickly as practicable, and pursuant thereto the Company will as
expeditiously as possible (or, in the case of clause (q) below, will not):
(a) promptly prepare and file with the Commission a Registration
Statement with respect to such Registrable Securities (such Registration
Statement to include all information which the holders of the Registrable
Securities to be registered thereby shall reasonably request) and use its best
efforts to cause such Registration Statement to become and remain effective
until the completion of the distribution contemplated thereby; provided that at
least ten days before filing a Registration Statement or Prospectus or any
amendments or supplements thereto, the Company will (i) furnish to counsel
selected by the Required Holders or if no holders of Registrable Securities are
participating in such registration, holders of a majority (by number of shares)
of the securities covered by such Registration Statement, copies of all such
documents proposed to be filed, and the Company shall not file any thereof to
which such counsel shall have reasonably objected on the grounds that such
document does not comply in all material respects with the requirements of the
Securities Act or of the rules or regulations thereunder, and (ii) notify each
holder of Registrable Securities covered by such Registration Statement of (x)
any request by the Commission to amend such Registration Statement or amend or
supplement any Prospectus, or (y) any stop order issued or threatened by the
Commission, and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered;
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(b) (i) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
a period of not less than 180 days (except that such 180 day period shall be
extended (x) by the length of any period that a stop order or similar proceeding
is in effect which prohibits the distribution of the Registrable Securities, and
(y) by the number of days during the period from and including the date on which
each seller of Registrable Securities shall have received a notice delivered
pursuant to clause (f) below until the date when such seller shall have received
a copy of the supplemented or amended Prospectus contemplated by clause (f)
below), and (ii) comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such Registration Statement
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement;
(c) furnish to each seller of Registrable Securities, without
charge, such number of conformed copies of such Registration Statement, each
amendment and supplement thereto, the Prospectus included in such Registration
Statement (including each preliminary Prospectus and, in each case including all
exhibits) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or "blue sky" laws of such jurisdictions
as any seller thereof shall reasonably request, to keep such registration or
qualification in effect for so long as such Registration Statement remains in
effect and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such seller, provided,
however, that the Company will not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this clause (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
(e) furnish to each seller of Registrable Securities a signed copy,
addressed to such seller (and the underwriters, if any), of an opinion of
counsel for the Company dated the effective date of such Registration Statement
(and, if such Registration Statement includes an underwritten public offering,
dated the date of the closing under the underwriting agreement), reasonably
satisfactory in form and substance to such seller, covering substantially the
same matters with respect to such Registration Statement (and the Prospectus
included therein) as are customarily covered in opinions of issuer's counsel
delivered to the underwriters in underwritten public offerings, and such other
legal matters as the seller (or the underwriters, if any) may reasonably
request;
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(f) notify each seller of Registrable Securities, at a time when a
Prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event known to the Company as a result of which the
Prospectus included in such Registration Statement, as then in effect, contains
an untrue statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and, at the request of
any such seller, the Company will prepare and furnish such seller a reasonable
number of copies of a supplement to or an amendment of such Prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities, such Prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
under which they were made;
(g) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and on any Securities Exchange or National Automated Quotation System
requested by the holders of a majority (by number of shares) of such Registrable
Securities on a Diluted Basis, provided that the Company then meets or is
reasonably capable of meeting the eligibility requirements for such exchange or
system and such exchange or system is reasonably satisfactory to the managing
underwriters, and to enter into such customary agreements as may be required in
furtherance thereof, including, without limitation, listing applications and
indemnification agreements in customary form;
(h) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such Registration Statement;
(i) enter into such customary arrangements and agreements and take
all such other actions as the holders of a majority (by number of shares) on a
Diluted Basis of the Registrable Securities being sold or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities.
(j) in connection with an underwritten offering, participate, to the
extent reasonably requested by the managing underwriters for the offering or the
holders of the Registrable Securities being sold, in customary efforts to sell
the securities in the offering, including, without limitation, participating in
"road shows";
(k) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
Registration Statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection
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with such Registration Statement to enable them to conduct a reasonable
investigation within the meaning of the Securities Act;
(l) subject to other provisions hereof, use its best efforts to
cause such Registrable Securities covered by such Registration Statement to be
registered with or approved by such other governmental agencies or authorities
or self-regulatory organizations as may be necessary to enable the sellers
thereof to consummate the disposition of such Registrable Securities;
(m) use its best efforts to obtain a "comfort" letter, dated the
effective date of such Registration Statement (and, if such registration
includes an underwritten offering, dated the date of the closing under the
underwriting agreement), signed by the independent public accountants who have
certified the Company's financial statements, addressed to each seller, and to
the underwriters, if any, covering substantially the same matters with respect
to such Registration Statement (and the Prospectus included therein) and with
respect to events subsequent to the date of such financial statements, as are
customarily covered in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and such other financial matters as
such seller (or the underwriters, if any) may reasonably request;
(n) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make available to its
securityholders, in each case as soon as practicable, an earnings statement
covering a period of at least twelve months, beginning with the first month
after the effective date of the Registration Statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act;
(o) permit any holder of Registrable Securities, which holder, in
the sole judgment, exercised in good faith, of such holder might be deemed to be
a controlling person of the Company (within the meaning of the Securities Act or
the Exchange Act) to participate in the preparation of any Registration
Statement covering such holder's Registrable Securities and to include therein
material, furnished to the Company in writing, which in the reasonable judgment
of such holder should be included and which is reasonably acceptable to the
Company;
(p) promptly notify the holders of the Registrable Securities of the
issuance of any stop order by the Commission or the issuance by any state
securities commission or other regulatory authority of any order suspending the
qualification or exemption from qualification of any of the Registrable
Securities under state securities or "blue sky" laws, and use every reasonable
effort to obtain the lifting at the earliest possible time of any stop order
suspending the effectiveness of any Registration Statement or of any such other
order;
(q) at any time file or make any amendment to a Registration
Statement, or any amendment of or supplement to a Prospectus (including
amendments of the documents incorporated by reference into the Prospectus), of
which each seller of Registrable Securities or the managing underwriters shall
not have previously been advised and furnished a copy or to
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which the sellers of Registrable Securities, the managing underwriters, or
counsel for such sellers or for the underwriters shall reasonably object;
(r) make such representations and warranties (subject to appropriate
disclosure schedule exceptions) to sellers of Registrable Securities and the
underwriters, if any, in form, substance and scope as are customarily made by
issuers to underwriters and selling holders, as the case may be, in underwritten
public offerings of substantially the same type;
(s) during the period when the Prospectus is required to be
delivered under the Securities Act, promptly file all documents required to be
filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act;
(t) if any proposed registration statement refers to any seller by
name or otherwise as the holder of any securities of the Company then (whether
or not, in the sole judgment, exercised in good faith, of such seller, such
seller is or might be deemed to be a controlling person of the Company), (i) the
Company shall be required at the request of such seller to insert therein
language, in form and substance reasonably satisfactory to such seller, the
Company and the managing underwriters, to the effect that the holding by such
seller of such securities is not to be construed as a recommendation by such
seller of the investment quality of the Company's securities covered thereby and
that such holding does not imply that such seller will assist in meeting any
future financial requirements of the Company, or (ii) in the event that such
reference to such seller by name or otherwise is not required by the Securities
Act, any similar Federal or state statute, or any rule or regulation of any
other regulatory body having jurisdiction over the offering, then in force, the
Company shall be required at the request of such seller to delete the reference
to such seller.
ARTICLE V
REGISTRATION EXPENSES
5.1 REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation,
all registration and filing fees; fees and expenses of compliance with
securities or blue sky laws (including the fees and expenses of counsel in
connection with blue sky qualifications of the Registrable Securities); printing
expenses; messenger and delivery expenses; fees and disbursements of counsel for
the Company, one firm of counsel for the selling holders, and all independent
public accountants, underwriters (excluding discounts and commissions) and other
Persons retained by the Company; the Company's internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties); the expense of any annual audit or
quarterly review; the expense of any liability insurance; and the expenses and
fees for listing the securities to be registered on each securities exchange or
national market
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system on which similar securities issued by the Company are then listed (all of
such expenses being herein called the "Registration Expenses") will be paid for
by the Company.
5.2 SELLERS' EXPENSES. The Company shall have no obligation to pay
any underwriting discounts or commissions attributable to the sale of Registered
Securities, which expenses will be borne by all sellers of securities included
in such registration in proportion to the aggregate selling price of the
securities to be so registered by each seller.
ARTICLE VI
UNDERWRITTEN OFFERINGS
6.1 DEMAND UNDERWRITTEN OFFERINGS. If requested by the underwriters
for any underwritten offerings of Registrable Securities pursuant to a Demand
Registration, the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to be satisfactory in substance
and form to a majority (by number of shares) of holders of Registrable
Securities on a Diluted Basis being offered and the underwriters, and to contain
such representations and warranties by the Company and such other terms as are
generally included in agreements of this type, including, without limitation,
indemnities customarily included in such agreements. The holders of the
Registrable Securities will cooperate with the Company in the negotiation of the
underwriting agreement. The holders of Registrable Securities to be distributed
by such underwriters may be parties to such underwriting agreement and such
holders may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such holders of Registrable Securities and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement be conditions precedent to the obligations of such holders of
Registrable Securities. The Company shall cooperate with any such holder of
Registrable Securities in order to limit any representations or warranties to,
or agreements with, the Company or the underwriters to be made by such holder
only to those representations, warranties or agreements regarding such holder,
such holder's Registrable Securities and such holder's intended method of
distribution and any other representation required by law.
6.2 INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Article II of this Agreement and such securities are to be
distributed by or through one or more underwriters, the Company will, if
requested by any holder of Registrable Securities as provided in Article II of
this Agreement, arrange for such underwriters to include all the Registrable
Securities to be offered and sold by such holder, subject to the limitations set
forth in Article II hereof, among the securities to be distributed by such
underwriters. The holders of Registrable Securities to be distributed by such
underwriters shall be parties to the underwriting agreement between the Company
and such underwriters, and may, at their option, require that any or all of the
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representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. The Company shall cooperate with any such
holder of Registrable Securities in order to limit any representations or
warranties to, or agreements with, the Company or the underwriters to be made by
such holder only to those representations, warranties or agreements regarding
such holder, such holder's Registrable Securities and such holder's intended
method of distribution and any other representation required by law.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless, to the fullest extent permitted by law, each holder of any
Registrable Securities covered by any Registration Statement referred to herein,
its general partners, limited partners, officers, directors, employees and
agents, and each Person, if any, who controls such holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, together
with the general partners, limited partners, officers, directors, employees and
agents of such controlling Person (collectively, the "Controlling Person"), from
and against any loss, claim, damage, liability, reasonable attorneys' fees, cost
or expense and reasonable costs and expenses of investigating and defending any
such claim and any action in respect thereof (collectively, the "Damages") to
which such holder, its general partners, limited partners, officers, directors,
employees and agents, and any such Controlling Person may become subject under
the Securities Act or otherwise, insofar as such Damages (or proceedings in
respect thereof) arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus or any preliminary Prospectus, or arises out of, or are
based upon, any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made, except insofar
as the same are based upon information furnished in writing to the Company by a
holder expressly for use therein, and shall reimburse each holder, its general
partners, limited partners, officers, directors, employees and agents, and each
such Controlling Person for any legal and other expenses reasonably incurred by
that holder, its general partners, limited partners, officers, directors,
employees and agents, or any such Controlling Person in investigating or
defending or preparing to defend against any such Damages or proceedings;
provided, however, that the Company shall not be liable to any holder or other
indemnitee to the extent that any such Damages arise out of or are based upon an
untrue statement or omission made in any preliminary Prospectus if (i) such
holder or other indemnitee failed to send or deliver a copy of the final
Prospectus with or prior to the delivery of written confirmation of the sale by
such holder to the Person asserting the claim from which such Damages arise, and
(ii) the final Prospectus would have corrected such untrue
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statement or such omission. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such holder or any such
general partners, limited partners, officers, directors, agents, or any
Controlling Person and shall survive the transfer of such securities by such
holder.
7.2 INDEMNIFICATION BY HOLDERS. In connection with any Registration
Statement in which a holder of Registrable Securities is participating, each
such selling holder agrees, as to itself, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 7.1), to the extent
permitted by law, the Company, its officers, directors, employees and agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, together with the
general partners, limited partners, officers, directors, employees and agents of
such controlling Person, with respect to any statement or alleged statement in
or omission or alleged omission from such Registration Statement or Prospectus,
or any amendment or supplement thereto, or any preliminary Prospectus, if such
statement or alleged statement or omission or alleged omission was made about
such holder in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such holder, specifically stating
that it is for use in the preparation of such Registration Statement or
Prospectus. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Company or any of its directors,
officers or controlling Persons and shall survive the transfer of such
securities by such holder. With respect to each claim pursuant to this Section
7.2, each such holder's maximum liability under this Section shall be limited to
an amount equal to the net proceeds actually received by such holder (after
deducting any underwriting discount and expenses) from the sale of Registrable
Securities being sold pursuant to such Registration Statement or Prospectus by
such holder.
7.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt
by an indemnified party hereunder of written notice of the commencement of any
action or proceeding involving a claim referred to in Section 7.1 or Section 7.2
of this Agreement, such indemnified party will, if a claim in respect thereof is
to be made against an indemnifying party, give written notice to the latter of
the commencement of such action; provided, that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying party
of its obligations under Section 7.1 or Section 7.2 of this Agreement except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
the indemnifying party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
in respect of such claim, in which case the indemnifying party shall not be
liable for the fees and expenses of (i) more than one counsel for
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all holders of Registrable Securities, selected by the Required Holders, or (ii)
more than one counsel for the Company, in each case in connection with any one
action or separate but similar or related actions. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of such additional counsel or counsels.
Notwithstanding anything to the contrary set forth herein, and without limiting
any of the rights set forth above, in any event any party shall have the right
to retain, at its own expense, counsel with respect to the defense of a claim.
The indemnifying party will not, without the prior written consent of each
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not such indemnified
party or any Person who controls such indemnified party is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of such indemnified party from all
liability arising out of such claim, action, suit or proceeding and such
settlement, compromise or consent involves only the payment of money and such
money is actually paid by the indemnifying party. Whether or not the defense of
any claim or action is assumed by the indemnifying party, such indemnifying
party will not be subject to any liability for any settlement made without its
consent, which consent will not be unreasonably withheld.
7.4 INDEMNITY IN UNDERWRITING AGREEMENT. The Company and each holder
of Registrable Securities requesting registration shall provide for the
foregoing indemnity (with appropriate modifications) in any underwriting
agreement with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority other than the Securities Act.
7.5 CONTRIBUTION. If the indemnification provided for in Sections
7.1 and 7.2 of this Agreement are unavailable or insufficient to hold harmless
an indemnified party under such Sections , then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of the losses, claims, damages or liabilities referred to in Section 7.1 or
Section 7.2 of this Agreement in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on the one hand, and the
indemnified party on the other, in connection with statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations, including, without limitation, the
relative benefits received by each party from the offering of the securities
covered by such Registration Statement, the parties' relative knowledge and
access to information concerning the matter with respect to which the claim was
asserted and the opportunity to correct and prevent any statement or omission.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party and the parties'
relative intent, knowledge, access to
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information and opportunity to correct or prevent such untrue statements or
omission. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 7.5 were to be determined by pro rata or
per capita allocation (even if the underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the first sentence of this
Section 7.5. The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this Section
7.5 shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
action or claim (which shall be limited as provided in Section 7.3 of this
Agreement if the indemnifying party has assumed the defense of any such action
in accordance with the provisions thereof) which is the subject of this Section
7.5. Promptly after receipt by an indemnified party under this Section 7.5 of
notice of the commencement of any action against such party in respect of which
a claim for contribution may be made against an indemnifying party under this
Section 7.5, such indemnified party shall notify the indemnifying party in
writing of the commencement thereof if the notice specified in Section 7.3 of
this Agreement has not been given with respect to such action; provided, that
the omission to so notify the indemnifying party shall not relieve the
indemnifying party from any liability which it may otherwise have to any
indemnified party under this Section 7.5, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. The
Company and each holder of Registrable Securities agrees with each other and the
underwriters of the Registrable Securities, if requested by such underwriters,
that (i) the underwriters' portion of such contribution shall not exceed the
underwriting discount and (ii) that the amount of such contribution shall not
exceed an amount equal to the net proceeds actually received by such
indemnifying party from the sale of Registrable Securities in the offering to
which the losses, liabilities, claims, damages or expenses of the indemnified
parties relate. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
7.6 PAYMENT. The indemnification required by this Article VII shall
be made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
ARTICLE VIII
RULE 144
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any holder of
Registrable Securities, make publicly available other information), and it will
take such further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holder to
sell shares of Registrable
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Securities without registration under the Securities Act within the limitation
of the exemption provided by (i) Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
ARTICLE IX
PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Person may participate in any underwritten registration hereunder
unless such Person (i) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Person or Persons
entitled hereunder to approve such arrangements and (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements and
consistent with the provisions of this Agreement.
ARTICLE X
DEFINITIONS
10.1 As used in this Agreement, the following defined terms shall have the
meanings set forth below:
"BUG INVESTORS" means Bug, and each of its direct and indirect
transferees, so long as such Person shall be a holder of Registrable Securities.
"BUSINESS DAY" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.
"COMMISSION" means the U.S. Securities and Exchange Commission.
"COMMON STOCK" means the Common Stock, par value $.001 per share of
the Company, any securities into which such Common Stock shall have been changed
or any securities resulting from any reclassification or recapitalization of
such Common Stock, and all other securities of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution, liquidation
or winding up, either to all or to a share of the balance of payments upon such
dissolution, liquidation or winding up.
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"DILUTED BASIS" means with respect to the calculation of the number
of shares of Common Stock (i) all shares of Common Stock outstanding at the time
of determination, (ii) all shares of Common Stock issuable upon conversion of
the Preferred Stock, (iii) all shares of Common Stock issuable upon conversion
of the Warrants and (iv) any securities issued or issuable with respect to the
Common Stock referred to in clause (i), (ii) or (iii) in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute then in effect, and any reference to a
particular section thereof shall include a reference to the equivalent section,
if any, of any such similar Federal statute, and the rules and regulations
thereunder.
"GOVERNMENTAL OR REGULATORY AUTHORITY" has the meaning ascribed to
it in the Credit Agreement.
"NYCDF INVESTORS" means NYCDF, and each of its direct and indirect
transferees, so long as such Person shall be a holder of Registrable Securities.
"PERMITTED TRANSFEREES" shall have the meaning specified in the
Stockholders Agreement.
"PERSON" means any natural person, corporation, general partnership,
limited partnership, limited liability company, limited liability partnership,
proprietorship, other business organization, trust, union, association or
Governmental or Regulatory Authority.
"PREFERRED STOCK" means the Series A Convertible Participating
Preferred Stock, par value $.001 per share, of the Company.
"PROSPECTUS" means the prospectus included in any Registration
Statement (including without limitation, a prospectus that disclosed information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the securities covered by such Registration
Statement, and all other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such prospectus.
"REGISTRABLE SECURITIES" means (i) any Common Stock issued or
issuable upon conversion of the Preferred Stock, (ii) any Common Stock issued or
issuable upon exercise of any Warrant, and (iii) any securities issued or
issuable with respect to the Common Stock referred to in clause (i) or clause
(ii) above in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities unless such
securities are held at
17
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such time by a holder of Registrable Securities when they have (x) been
effectively registered under the Securities Act and disposed of in accordance
with the Registration Statement covering them, (y) been transferred pursuant to
Rule 144 (or any similar rule then in force) under the Securities Act or (z)
been otherwise transferred and new certificates for them not bearing a
restrictive Securities Act legend have been delivered by the Company and can be
sold without complying with the registration requirements of the Securities Act.
"REGISTRATION STATEMENT" means any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
"REQUIRED BUG INVESTORS" means, as of the date of any determination
thereof, (i) Bug, so long as it holds any Registrable Securities representing at
such time at least twenty percent (20%) (by number of shares) of the Registrable
Securities held by all CFD Investors on a Diluted Basis or (ii) Bug Investors
which hold Registrable Securities representing at such time at least a majority
(by number of shares) of the Registrable Securities held by all Bug Investors on
a Diluted Basis.
"REQUIRED HOLDERS" means, as of the date of any determination
thereof, holders of Registrable Securities representing at such time at least a
majority (by number of shares) of all Registrable Securities on a Diluted Basis.
"REQUIRED NYCDF INVESTORS" means, as of the date of any
determination thereof, (i) CFD, so long as it holds any Registrable Securities
representing at such time at least twenty percent (20%) (by number of shares) of
the Registrable Securities held by all NYCDF Investors on a Diluted Basis or
(ii) NYCDF Investors which hold Registrable Securities representing at such time
at least a majority (by number of shares) of the Registrable Securities held by
all NYCDF Investors on a Diluted Basis.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar Federal statute then in effect, and any reference to a particular
section thereof shall include a reference to a comparable section, if any, of
any such similar Federal statute, and the rules and regulations thereunder.
"WARRANT" means any Stock Purchase Warrant issued by the Company
pursuant to the Credit Agreement.
10.2 Unless otherwise stated, other defined terms used in this
Agreement shall have the meanings set forth in the Stockholders Agreement.
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10.3 The following defined terms, when used in this Agreement, shall
have the meaning ascribed to them in the corresponding Sections of this
Agreement listed below:
"Agreement" -- Preamble
"Bug" -- Preamble
"Company" -- Preamble
"Controlling Persons" -- Section 7.1
"Credit Agreement" -- Preamble
"Damages" -- Section 7.1
"Demand Registrations" -- Section 1.1
"Existing Registration Rights Agreement" -- Preamble
"Long-Form Registrations" -- Section 1.1
"NYCDF" -- Preamble
"Piggy-back Registration" -- Section 2.1
"Registration Expenses" -- Section 5.1
"Short-Form Registrations" -- Section 1.1
ARTICLE XI
MISCELLANEOUS
11.1 NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement.
11.2 CERTAIN ACTIONS AFFECTING REGISTRABLE SECURITIES. The Company
will not take any action, or fail to take any action which it may properly take,
with respect to its securities which would adversely affect the ability of the
holders of Registrable Securities to include Registrable Securities in a
registration undertaken pursuant to this Agreement or which, to the extent
within its control, would adversely affect the marketability of such Registrable
Securities in any such registration (including, without limitation, effecting a
stock split or a combination of shares).
11.3 DEFERRAL. Notwithstanding the provisions of Articles I and II,
the Company's obligations to file a Registration Statement, or cause such
Registration Statement to become and remain effective, shall be suspended for a
period not to exceed 90 consecutive days if there exists at the time material
non-public information relating to the Company that, in the reasonable opinion
of the Company's counsel, should not be disclosed.
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11.4 REMEDIES. In the event of a breach by any party to this
Agreement of its obligations under this Agreement, any party injured by such
breach, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The parties agree that the provisions of this
Agreement shall be specifically enforceable, it being agreed by the parties that
the remedy at law, including monetary damages, for breach of any such provision
will be inadequate compensation for any loss and that any defense in any action
for specific performance that a remedy at law would be adequate is waived.
11.5 AMENDMENTS AND WAIVERS. Except as otherwise provided herein, no
modification amendment or waiver of any provision of this Agreement will be
effective against the Company or any holder of Registrable Securities, unless
such modification, amendment or waiver is approved in writing by the Company and
the Required holders. The failure of any party to enforce any of the provisions
of this Agreement will in no way be construed as a waiver of such provisions and
will not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
11.6 SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
holders of Registrable Securities are also for the benefit of, and enforceable
by, any subsequent holder of Registrable Securities, except to the extent
reserved to or by the transferor in connection with any such transfer.
11.7 NOTICES. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission or
mailed by pre-paid first class mail, return receipt requested or mailed by
overnight courier to the parties at the following addresses or facsimile
numbers:
(i) If to NYCDF:
Prospect Street NYC Discovery Fund, L.P.
250 Park Avenue, 17th Floor
New York, NY 10177
Facsimile No.: (212) 490-1566
Attn: Ronald D. Celmer
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<PAGE> 21
with a copy to:
Morgan, Lewis & Bockius
101 Park Avenue
New York, NY 10178
Facsimile No.: (212) 309-6273
Attn: Ira White, Esq.
(ii) If to Bug, Inc.
Bank of New York, as Trustee for the
Employees Retirement Plan of the
Brooklyn Union Gas Company
c/o The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, NY 11201-3850
Attn: Thomas Riordan
(ii) If to the Company, to:
Skyline Multimedia Entertainment, Inc.
Empire State Building
350 Fifth Avenue
Suite 612
New York, NY 10118
Facsimile No.: (212)
Attn: Zalman D. Silber
with a copy to:
Rosenman & Colin
575 Madison Avenue
New York, New York 10022
Facsimile No.: (212) 940-8776
Attn: Neil Belloff, Esq.
(ii) If to a holder of Registrable Securities, to the last
address for such Person set forth in the records of the
Company.
All such notices, requests and other communications will (w) if delivered
personally to the address as provided in this Section , be deemed given upon
delivery, (x) if delivered by facsimile transmission to the facsimile number as
provided in this Section , be deemed given upon receipt, (y) if delivered by
mail in the manner described above to the address as provided in this Section ,
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<PAGE> 22
upon the earlier of the third Business Day following mailing or upon receipt and
(z) if delivered by overnight courier to the address as provided in this
Section , be deemed given on the earlier of the first Business Day following the
date sent by such overnight courier or upon receipt (in each case regardless of
whether such notice, request or other communication is received by any other
Person to whom a copy of such notice is to be delivered pursuant to this
Section ). Any party from time to time may change its address, facsimile number
or other information for the purpose of notices to that party by giving notice
specifying such change to the other parties hereto.
11.8 HEADINGS. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
11.9 GENDER. Whenever the pronouns "he" or "his" are used herein
they shall also be deemed to mean "she" or "hers" or "it" or "its" whenever
applicable. Words in the singular shall be read and construed as though in the
plural and words in the plural shall be construed as though in the singular in
all cases where they would so apply.
11.10 INVALID PROVISIONS. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future Law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (iv) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
11.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER
OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
11.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereby have executed this Agreement
as of the date first written above.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By: __________________________
Name:
Title:
PROSPECT STREET NYC DISCOVERY FUND, L.P.
By: Prospect Street Discovery Fund, Inc.,
General Partner
By: __________________________
Name:
Title:
Bank of New York, as Trustee for the Employees
Retirement Plan of the Brooklyn Union Gas Company
By: __________________________
Name:
Title:
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<PAGE> 24
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience only.
TABLE OF CONTENTS
Page
RECITALS.....................................................................2
ARTICLE I
DEMAND REGISTRATIONS...................................................2
1.1 Requests for Registration.......................................2
1.2 Number of Demand Registrations; Expenses........................3
1.3 Effected Registration Statement.................................3
1.4 Priority on Demand Registrations................................3
1.5 Form of Offering; Selection of Underwriters.....................4
1.6 Other Registration Rights.......................................4
ARTICLE II
PIGGY-BACK REGISTRATIONS...............................................4
2.1 Right to Piggy-back.............................................4
2.2 Piggy-back Expenses.............................................5
2.3 Priority on Company Registrations...............................5
2.4 Priority on Stockholder Registrations...........................5
ARTICLE III
OTHER REGISTRATIONS....................................................6
3.1 Other Registrations.............................................6
ARTICLE IV
REGISTRATION PROCEDURES................................................6
ARTICLE V
REGISTRATION EXPENSES.................................................10
5.1 Registration Expenses..........................................10
5.2 Sellers' Expenses..............................................11
ARTICLE VI
UNDERWRITTEN OFFERINGS................................................11
6.1 Demand Underwritten Offerings..................................11
6.2 Incidental Underwritten Offerings..............................11
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ARTICLE VII
INDEMNIFICATION.......................................................12
7.1 Indemnification by the Company.................................12
7.2 Indemnification by Holders.....................................13
7.3 Conduct of Indemnification Proceedings.........................13
7.4 Indemnity in Underwriting Agreement............................14
7.5 Contribution...................................................14
7.6 Payment........................................................15
ARTICLE VIII
RULE 144..............................................................15
ARTICLE IX
PARTICIPATION IN UNDERWRITTEN REGISTRATIONS...........................16
ARTICLE X
DEFINITIONS...........................................................16
ARTICLE XI
MISCELLANEOUS.........................................................19
11.1 No Inconsistent Agreements.....................................19
11.2 Certain Actions Affecting Registrable Securities...............19
11.3 Deferral.......................................................19
11.4 Remedies.......................................................20
11.5 Amendments and Waivers.........................................20
11.6 Successors and Assigns.........................................20
11.7 Notices........................................................20
11.8 Headings.......................................................22
11.9 Gender.........................................................22
11.10 Invalid Provisions.............................................22
11.11 Governing Law..................................................22
11.12 Counterparts...................................................22
ii
<PAGE> 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
STOCK PURCHASE WARRANT
Date of Issuance: December 20, 1996 Certificate No. 1
For value received, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), hereby grants to Prospect Street NYC Discovery
Fund, L.P., a Delaware limited partnership, or its registered assigns (the
"Registered Holder"), the right to purchase from the Company 133,333 shares of
Warrant Shares at a price per share of $4.25 (as adjusted from time to time, the
"Exercise Price"). This Warrant is one of several warrants (collectively, the
"Warrants") issued pursuant to the Senior Subordinated Credit Agreement dated as
of December 20, 1996, by and among the Company, the other Borrowers named
therein and the Lenders named therein (as such agreement may be amended,
modified or restated from time to time, the "Credit Agreement"). The Exercise
Price and number of Warrant Shares (and the amount and kind of other securities)
for which this Warrant is exercisable shall be subject to adjustment as provided
herein. Certain capitalized terms used herein are defined in Section 5 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this Warrant
may be exercised, in whole or in part, at any time and from time to time after
the Date of Issuance to and including 5:00 p.m., New York time, on December 20,
2006 or, if such day is not a business day, on the next preceding business day
(the "Exercise Period"); provided, however, that if the Company shall not have
given the Registered Holder written notice of the expiration of the Exercise
Period at least 60 days but not more than 90 days prior to the expiration of the
Exercise Period, the Exercise Period shall be extended until the 60th day
following the receipt by the Registered Holder of such a notice.
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1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when
all of the following items have been delivered to the Company (the "Exercise
Time"):
(a) a completed Exercise Agreement, as described in
Section 1C below, executed by the Person exercising all or part of the
purchase rights represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the Registered Holder, an
Assignment or Assignments in the form set forth in Exhibit II hereto
evidencing the assignment of this Warrant to the Purchaser; and
(d) either (i) a check payable to the Company in an
amount equal to the Exercise Price multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (ii) the surrender to the Company of debt or equity securities
of the Company or any of its direct or indirect subsidiaries having a
value equal to the Aggregate Exercise Price of the Warrant Shares being
purchased upon such exercise (which value in the case of debt
securities or any preferred stock shall be deemed to equal the
aggregate outstanding principal amount or liquidation value thereof
plus all accrued and unpaid interest thereon or accrued or declared and
unpaid dividends thereon and in the case of shares of Common Stock
shall be the Fair Market Value thereof), or (iii) the delivery of a
notice to the Company that the Purchaser is exercising the Warrant (or
portion thereof) by authorizing the Company to reduce the number of
Warrant Shares subject to such exercise of the Warrant or portion
thereof by the number of shares having an aggregate Fair Market Value
determined as of the date immediately prior to the date of the Exercise
Time equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
days after the date of the Exercise Time together with any cash payable in lieu
of a fraction of a share pursuant to Section 14 hereof. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
(iii) The Warrant Shares issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
Registered Holder of such Warrant Shares at the Exercise Time.
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<PAGE> 3
(iv) The issuance of certificates for Warrant Shares upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid.
(v) The Company shall not close its books against the transfer
of this Warrant or of any Warrant Shares issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Warrant Shares
acquirable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect. In the event that the Company fails to comply
with its obligations set forth in the foregoing sentence, in addition to all
other rights which the Registered Holder or Purchaser may have at law or in
equity, the Purchaser may (but shall not be obligated to) purchase Warrant
Shares hereunder at par value, and the Company shall be obligated to reimburse
the Purchaser for the aggregate amount of consideration paid in connection with
such exercise in excess of the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or Purchaser in connection with any
governmental filings or approvals required to be obtained or made by any of them
prior to or in connection with any exercise of this Warrant (including, without
limitation, making any filings or obtaining any approvals required to be made or
obtained by the Company).
(vii) Notwithstanding any other provision hereof, if an
exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and keep
available out of its authorized but unissued Warrant Shares solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any
3
<PAGE> 4
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock or other securities
constituting Warrant Shares may be listed (except for official notice of
issuance which shall be immediately delivered by the Company upon each such
issuance). The Company will cause the Warrant Shares, immediately upon such
exercise, to be listed on any domestic securities exchange upon which shares of
Common Stock or other securities constituting Warrant Shares are listed at the
time of such exercise.
(ix) If the Warrant Shares issuable by reason of exercise of
this Warrant are convertible into or exchangeable for any other stock or
securities of the Company, the Company shall, at the Purchaser's option and upon
surrender of this Warrant by such Purchaser as provided above together with any
notice, statement or payment required to effect such conversion or exchange of
Warrant Shares, deliver to such Purchaser (or as otherwise specified by such
Purchaser) a certificate or certificates representing the stock or securities
into which the Warrant Shares issuable by reason of such conversion are
convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares. In order
to prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of Warrant Shares obtainable upon exercise of this Warrant shall
be subject to adjustment from time to time, as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever, on or after the date hereof, the Company issues
or sells, or in accordance with Section 2B is deemed to have issued or sold,
other than pursuant to a Permitted Issuance, as described in Section 2C, any
shares of Common Stock for a consideration per share less than the Fair Market
Value per share of the Common Stock determined as of the date of such issuance
or sale, then immediately upon such issuance or sale the Exercise Price shall be
reduced to equal the amount determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a fraction, the numerator
of which will be the sum of (1) the number of shares of Common Stock Deemed
Outstanding immediately prior to such issuance or sale multiplied by the Fair
Market Value per share of the Common Stock determined as of the date of such
issuance or sale, plus (2) the consideration, if any, received by the Company
upon such issuance or sale, and the denominator of which will be the product
derived by multiplying such
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Fair Market Value per share of the Common Stock by the number of shares of
Common Stock Deemed Outstanding immediately after such issuance or sale. Upon
each such adjustment of the Exercise Price hereunder, the number of Warrant
Shares acquirable upon exercise of this Warrant shall be adjusted to equal the
number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Section 2, the calculation of the number of shares of Common
Stock Deemed Outstanding shall exclude the shares of Common Stock issued upon
exercise of this Warrant.
2B. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 2A, the following shall be
applicable:
(i) Issuance of Rights or Options. If the Company in any
manner grants any rights or options (other than pursuant to a Permitted
Issuance) to subscribe for or to purchase Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (including without
limitation convertible common stock) (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities") and the price per share for which Common Stock
is issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities is less than the Fair Market Value per share of the
Common Stock in effect immediately prior to the time of the granting or sale of
such Options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of this paragraph, the "price
per share for which Common Stock is issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities" is determined by
dividing (A) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus in the case of such Options which are exercisable for
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon exercise of such Options
or upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options. No further adjustment of the Exercise Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities (other than pursuant to a
Permitted Issuance) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the
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<PAGE> 6
Fair Market Value per share of the Common Stock in effect immediately prior to
the issuance or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of this paragraph, the "price per share for which Common
Stock is issuable upon such conversion or exchange" is determined by dividing
(A) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Exercise Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Exercise Price have been or are to be made pursuant to other provisions of this
Section 2B, no further adjustment of the Exercise Price shall be made by reason
of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If either the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock shall change at any time, the Exercise Price in
effect at the time of such change shall be adjusted to the Exercise Price which
would have been in effect at such time had such options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold and the number of Warrant Shares shall be
correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, in either case without the
exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Company shall be the market price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with
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<PAGE> 7
any merger or other business combination in which the Company is the surviving
entity, the amount of consideration therefor shall be deemed to be the fair
value of such portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
marketable securities shall be determined jointly by the Company and the
Required Holders. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an appraiser
jointly selected by the Company and the Required Holders, whose determination
shall be final and binding on the Company and all Registered Holders of
Warrants. The fees and expenses of such appraiser shall be paid by the Company.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Option shall be deemed to
have been issued for no consideration.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any direct or indirect subsidiary of the Company
and the disposition of any shares so owned or held shall be considered an issue
or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
2C. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon exercise of this Warrant shall be proportionately increased. If the Company
at any time combines (by reverse stock split or otherwise) the Common Stock into
a smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be proportionately
decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either
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directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock is referred to herein as an "Organic
Change". Prior to the consummation of any Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the Required
Holders) to ensure that each Registered Holder of Warrants shall thereafter have
the right to acquire and receive upon exercise thereof, in lieu of or addition
to (as the case may be) the Warrant Shares immediately theretofore acquirable
and receivable upon exercise of such Registered Holder's Warrants, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for the number of Warrant Shares immediately theretofore acquirable and
receivable upon exercise of such Registered Holder's Warrants had such Organic
Change not taken place. In any such case, the Company shall make appropriate
provision (in form and substance satisfactory to the Required Holders) with
respect to such Registered Holder's rights and interests to insure that the
provisions hereof (including, without limitation, Sections 2, 3 and 4) shall
thereafter be applicable to the Warrants (including, without limitation, in the
case of any such Organic Change in which the successor entity or purchasing
entity is other than the Company, an immediate adjustment of the Exercise Price
to the value for the Common Stock reflected by the terms of such Organic Change
and a corresponding immediate adjustment in the number of Warrant Shares
acquirable and receivable upon exercise of the Warrants, if the value so
reflected is less than the Fair Market Value of the Common Stock in effect
immediately prior to such Organic Change). The Company shall not effect any such
Organic Change unless, prior to the consummation thereof, the successor entity
(if other than the Company) resulting from such Organic Change (including a
purchaser of all or substantially all the Company's assets) assumes by written
instrument (in form and substance satisfactory to the Required Holders) the
obligation to deliver to each Registered Holder of Warrants such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Registered Holder may be entitled to acquire upon exercise of Warrants.
2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features but excluding any
Permitted Issuance), then the Company's Board of Directors shall make an
appropriate adjustment in the Exercise Price and the number of Warrant Shares
obtainable upon exercise of this Warrant so as to protect the rights of the
Registered Holder of this Warrant; provided that no such adjustment shall
increase the Exercise Price or decrease the number of Warrant Shares issuable
upon exercise hereof other than as a readjustment in a manner consistent with
that contemplated by Section 2(B)(iv).
2F. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
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(ii) The Company shall give written notice to the Registered
Holder at least 30 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock, or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
SECTION 3. Certain Rights of Registered Holders Regarding Dividends. If
the Company pays a dividend or distribution upon the Common Stock, other than
dividends or distributions described in Section 2C, then the Company shall pay
to the Registered Holder of this Warrant, at the time of payment thereof, such
dividend or distribution which would have been paid to such Registered Holder
had this Warrant been fully exercised immediately prior to the date on which a
record is taken for such dividend or distribution or, if no record is taken, the
date as of which the record holders of Common Stock entitled to said dividends
or distributions are to be determined.
SECTION 4. Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock or any other shares of capital stock of the Company (the "Purchase
Rights") , then the Registered Holder shall be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such Registered Holder would have acquired if such Registered Holder had held
the maximum number of Warrant Shares acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
SECTION 5. Definitions. The following terms have the meanings set forth
below:
"Change of Control" has the meaning ascribed thereto in clause (i) of
the definition thereof in the Credit Agreement.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Company, any securities into which such Common Stock shall have been changed
or any securities resulting from any reclassification or recapitalization of
such Common Stock, and all other securities of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution or winding
up, either to all or to a share of the balance of payments upon such
dissolution, liquidation or winding up.
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"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of all classes of the Company's common stock actually outstanding at
such time, plus the number of shares of the Company's common stock deemed to be
outstanding pursuant to Section 2B(i) or 2B(ii) hereof.
"Date of Issuance" means the date the Company initially issues this
Warrant regardless of the number of times new certificates representing the
unexpired and unexercised rights formerly represented by this Warrant shall be
issued.
"Fair Market Value" means (i) the average of the closing sales prices
of the Common Stock on all domestic securities exchanges on which the Common
Stock is listed, or (ii) if there have been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day or, (iii) if on any day the Common Stock is not
so listed, the sales price for the Common Stock as of 4:00 P.M., New York time,
as reported on the Nasdaq Stock Market or, (iv) if the Common Stock is not
reported on the Nasdaq Stock Market, the average of the representative bid and
asked quotations for the Common Stock as of 4:00 P.M., New York time, as
reported on the Nasdaq interdealer quotation system, or any similar successor
organization, in each such case averaged over a period of 21 trading days
consisting of the day as of which "Fair Market Value" is being determined and
the immediately prior 20 trading days prior to such day during which the Common
Stock was traded; provided, however, that with respect to the exercise procedure
described in Section 1B(i)(d)(iii), in the event that a Change of Control has
occurred or there has been a public announcement concerning a possible Change of
Control or other event which would result in a Change of Control, in each case,
during the period in which "Fair Market Value" is being measured as provided
herein, such prices shall be averaged over a period of 21 trading days
consisting of the day before the earlier of the occurrence or announcement (if
different) of any such event and the immediately prior 20 trading days prior to
such day during which the Common Stock has traded. Notwithstanding the
foregoing, if at any time of determination either (x) the Common Stock is not
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, and either listed on a national securities exchange or authorized for
quotation in the Nasdaq system, or (y) less than 25% of the outstanding Common
Stock is held by the public free of transfer restrictions under the Securities
Act of 1933, as amended, then Fair Market Value shall mean the price that would
be paid per share for the entire common equity interest in the Company in an
orderly sale transaction between a willing buyer and a willing seller, using
valuation techniques then prevailing in the securities industry and assuming
full disclosure of all relevant information and a reasonable period of time for
effectuating such sale, without discount for lack of liquidity, or minority
position. Fair Market Value shall be determined jointly by the Company's Board
of Directors in its good faith judgment and the Required Holders; provided that,
if such parties are unable to so agree within 15 days, such value shall be
determined by an independent investment banking or appraisal firm mutually
acceptable to the Company and the Required Holders, which firm shall submit to
the Company and the Warrant holders a written report setting forth such
determination.
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The fees and expenses of such firm will be borne by the Company, and the
determination of such firm will be final and binding upon all parties.
"Permitted Issuance" means any issuance by the Company of shares of
Common Stock (a) upon exercise of the Warrants or pursuant to the exercise or
conversion of any Options or Convertible Securities issued prior to the date
hereof in accordance with the terms thereof as in existence on the date of
execution of the Credit Agreement; (b) in connection with any dividend or
distribution to the holders of the Common Stock not prohibited by any provision
of the Credit Agreement; or (c) without duplication of any Options referenced in
clause (a) above, of up to 3,000,000 shares (subject to appropriate adjustment
for stock splits, reverse stock splits, stock dividends, recapitalizations,
reorganizations and similar events recapitalizations and similar events) of
Common Stock or rights or options to purchase any such shares issued to
employees, directors, or consultants of the Company or any direct or indirect
subsidiary or pursuant to one or more stock bonus or similar plans adopted by
the Board of Directors of the Company.
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, limited liability company, limited
liability partnership, other business organization, trust, union, association or
governmental or regulatory authority.
"Required Holders" means the holders representing a majority of the
Warrants Shares issuable upon exercise of the Warrants.
"Warrant Shares" means shares of the Company's Common Stock; provided,
that if the securities issuable upon exercise of the Warrants are issued by an
entity other than the Company or there is a change in the class of securities so
issuable, then the term "Warrant Shares" shall mean shares of the security
issuable upon exercise of the Warrants if such security is issuable in shares,
or shall mean the equivalent units in which such security is issuable if such
security is not issuable in shares.
SECTION 6. No Voting Rights; Limitations of Liability. This Warrant
shall not entitle the Registered Holder hereof to any voting rights or other
rights as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of the Registered Holder shall
give rise to any liability of such Registered Holder for the Exercise Price of
Warrant Shares acquirable by exercise hereof or as a stockholder of the Company.
SECTION 7. Warrant Transferable. Subject to the transfer conditions
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder
(subject to the provisions of paragraph 1B(iv) hereof), upon surrender of this
Warrant with a properly executed Assignment (in the form of Exhibit II hereto)
at the principal office of the Company.
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SECTION 8. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. All Warrants representing portions of the
rights hereunder are referred to herein as the "Warrants."
SECTION 9. Exchange. In the event that it becomes unlawful or, in the
reasonable judgment of any Registered Holder of this Warrant, unduly burdensome
by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting such Registered Holder, or any material change
(including a reduction in the number of shares of Common Stock outstanding) in
the capital structure of the Company, to hold any or all of the Warrants or
Warrant Shares, the Registered Holder of this Warrant shall have the right to
require the Company to use its best efforts to permit all or part of such
Registered Holder's Warrants or Warrant Shares to be exchanged for nonvoting
stock or similar interests that convey equivalent economic benefits to such
Warrants or Warrant Shares and include equivalent anti-dilution protection. To
the extent that the Company may lawfully do so after the exercise of its best
efforts, any such exchange shall occur as soon as practicable but in any event
within 60 days after written notice by the Registered Holder of this Warrant to
the Company (or such earlier date if required to comply with applicable law).
SECTION 10. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the Registered Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 11. Notices. Except as otherwise expressly provided herein, all
notices and deliveries referred to in this Warrant shall be in writing, shall be
delivered personally, sent by registered or certified mail, return receipt
requested and postage prepaid or sent via nationally recognized overnight
courier or via facsimile, and shall be deemed to have been given when so
delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices and (ii) to a Registered Holder,
at such Registered Holder's address as it appears in the records of the Company
(unless otherwise indicated by any such Registered Holder).
SECTION 12. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Warrants may be amended and the Company may take any
action herein
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prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the prior written consent of the Required
Holders.
SECTION 13. Warrant Register. The Company shall maintain at its
principal executive offices books for the registration and the registration of
transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.
SECTION 14. Fractions of Shares. The Company may, but shall not be
required to, issue a fraction of a Warrant Share upon the exercise of this
Warrant in whole or in part. As to any fraction of a share which the Company
elects not to issue, the Company shall make a cash payment in respect of such
fraction in an amount equal to the same fraction of the Fair Market Value of a
Warrant Share on the date of such exercise.
SECTION 15. Descriptive Headings; Governing Law. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. THE CORPORATION
LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE
RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
* * * * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated as of the date hereof.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By:_________________________________________
Name:
Title:
Attest:
______________________________
Name:
Title:
<PAGE> 15
EXHIBIT I
EXERCISE AGREEMENT
Dated:
To:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. ____), hereby agrees to subscribe for the
purchase of Warrant Shares covered by such Warrant and makes payment herewith in
full therefor at the price per share provided by such Warrant.
Signature______________________________
Address________________________________
<PAGE> 16
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED,________________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. ___) with respect to the number of the Warrant
Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Dated: Signature ________________________________
________________________________
Witness ________________________________
<PAGE> 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
STOCK PURCHASE WARRANT
Date of Issuance: December 20, 1996 Certificate No. 2
For value received, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), hereby grants to Prospect Street NYC Discovery
Fund, L.P., a Delaware limited partnership, or its registered assigns (the
"Registered Holder"), the right to purchase from the Company 13,008 shares of
Warrant Shares at a price per share of $4.25 (as adjusted from time to time, the
"Exercise Price"). This Warrant is one of several warrants (collectively, the
"Warrants") issued pursuant to the Senior Subordinated Credit Agreement dated as
of December 20, 1996, by and among the Company, the other Borrowers named
therein and the Lenders named therein (as such agreement may be amended,
modified or restated from time to time, the "Credit Agreement"). The Exercise
Price and number of Warrant Shares (and the amount and kind of other securities)
for which this Warrant is exercisable shall be subject to adjustment as provided
herein. Certain capitalized terms used herein are defined in Section 5 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this Warrant
may be exercised, in whole or in part, at any time and from time to time after
December 20, 1997 to and including 5:00 p.m., New York time, on December 20,
2006 or, if such day is not a business day, on the next preceding business day
(the "Exercise Period"); provided, however, that if the Company shall not have
given the Registered Holder written notice of the expiration of the Exercise
Period at least 60 days but not more than 90 days prior to the expiration of the
Exercise Period, the Exercise Period shall be extended until the 60th day
following the receipt by the Registered Holder of such a notice.
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1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when
all of the following items have been delivered to the Company (the "Exercise
Time"):
(a) a completed Exercise Agreement, as described in
Section 1C below, executed by the Person exercising all or part of the
purchase rights represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the Registered Holder, an
Assignment or Assignments in the form set forth in Exhibit II hereto
evidencing the assignment of this Warrant to the Purchaser; and
(d) either (i) a check payable to the Company in an
amount equal to the Exercise Price multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (ii) the surrender to the Company of debt or equity securities
of the Company or any of its direct or indirect subsidiaries having a
value equal to the Aggregate Exercise Price of the Warrant Shares being
purchased upon such exercise (which value in the case of debt
securities or any preferred stock shall be deemed to equal the
aggregate outstanding principal amount or liquidation value thereof
plus all accrued and unpaid interest thereon or accrued or declared and
unpaid dividends thereon and in the case of shares of Common Stock
shall be the Fair Market Value thereof), or (iii) the delivery of a
notice to the Company that the Purchaser is exercising the Warrant (or
portion thereof) by authorizing the Company to reduce the number of
Warrant Shares subject to such exercise of the Warrant or portion
thereof by the number of shares having an aggregate Fair Market Value
determined as of the date immediately prior to the date of the Exercise
Time equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
days after the date of the Exercise Time together with any cash payable in lieu
of a fraction of a share pursuant to Section 14 hereof. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
(iii) The Warrant Shares issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
Registered Holder of such Warrant Shares at the Exercise Time.
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(iv) The issuance of certificates for Warrant Shares upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid.
(v) The Company shall not close its books against the transfer
of this Warrant or of any Warrant Shares issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Warrant Shares
acquirable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect. In the event that the Company fails to comply
with its obligations set forth in the foregoing sentence, in addition to all
other rights which the Registered Holder or Purchaser may have at law or in
equity, the Purchaser may (but shall not be obligated to) purchase Warrant
Shares hereunder at par value, and the Company shall be obligated to reimburse
the Purchaser for the aggregate amount of consideration paid in connection with
such exercise in excess of the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or Purchaser in connection with any
governmental filings or approvals required to be obtained or made by any of them
prior to or in connection with any exercise of this Warrant (including, without
limitation, making any filings or obtaining any approvals required to be made or
obtained by the Company).
(vii) Notwithstanding any other provision hereof, if an
exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and keep
available out of its authorized but unissued Warrant Shares solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any
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applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock or other securities
constituting Warrant Shares may be listed (except for official notice of
issuance which shall be immediately delivered by the Company upon each such
issuance). The Company will cause the Warrant Shares, immediately upon such
exercise, to be listed on any domestic securities exchange upon which shares of
Common Stock or other securities constituting Warrant Shares are listed at the
time of such exercise.
(ix) If the Warrant Shares issuable by reason of exercise of
this Warrant are convertible into or exchangeable for any other stock or
securities of the Company, the Company shall, at the Purchaser's option and upon
surrender of this Warrant by such Purchaser as provided above together with any
notice, statement or payment required to effect such conversion or exchange of
Warrant Shares, deliver to such Purchaser (or as otherwise specified by such
Purchaser) a certificate or certificates representing the stock or securities
into which the Warrant Shares issuable by reason of such conversion are
convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares. In order
to prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of Warrant Shares obtainable upon exercise of this Warrant shall
be subject to adjustment from time to time, as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever, on or after the date hereof, the Company issues
or sells, or in accordance with Section 2B is deemed to have issued or sold,
other than pursuant to a Permitted Issuance, as described in Section 2C, any
shares of Common Stock for a consideration per share less than the Fair Market
Value per share of the Common Stock determined as of the date of such issuance
or sale, then immediately upon such issuance or sale the Exercise Price shall be
reduced to equal the amount determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a fraction, the numerator
of which will be the sum of (1) the number of shares of Common Stock Deemed
Outstanding immediately prior to such issuance or sale multiplied by the Fair
Market Value per share of the Common Stock determined as of the date of such
issuance or sale, plus (2) the consideration, if any, received by the Company
upon such issuance or sale, and the denominator of which will be the product
derived by multiplying such
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Fair Market Value per share of the Common Stock by the number of shares of
Common Stock Deemed Outstanding immediately after such issuance or sale. Upon
each such adjustment of the Exercise Price hereunder, the number of Warrant
Shares acquirable upon exercise of this Warrant shall be adjusted to equal the
number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Section 2, the calculation of the number of shares of Common
Stock Deemed Outstanding shall exclude the shares of Common Stock issued upon
exercise of this Warrant.
2B. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 2A, the following shall be
applicable:
(i) Issuance of Rights or Options. If the Company in any
manner grants any rights or options (other than pursuant to a Permitted
Issuance) to subscribe for or to purchase Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (including without
limitation convertible common stock) (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities") and the price per share for which Common Stock
is issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities is less than the Fair Market Value per share of the
Common Stock in effect immediately prior to the time of the granting or sale of
such Options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of this paragraph, the "price
per share for which Common Stock is issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities" is determined by
dividing (A) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus in the case of such Options which are exercisable for
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon exercise of such Options
or upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options. No further adjustment of the Exercise Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities (other than pursuant to a
Permitted Issuance) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the
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Fair Market Value per share of the Common Stock in effect immediately prior to
the issuance or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of this paragraph, the "price per share for which Common
Stock is issuable upon such conversion or exchange" is determined by dividing
(A) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Exercise Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Exercise Price have been or are to be made pursuant to other provisions of this
Section 2B, no further adjustment of the Exercise Price shall be made by reason
of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If either the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock shall change at any time, the Exercise Price in
effect at the time of such change shall be adjusted to the Exercise Price which
would have been in effect at such time had such options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold and the number of Warrant Shares shall be
correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, in either case without the
exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Company shall be the market price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with
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any merger or other business combination in which the Company is the surviving
entity, the amount of consideration therefor shall be deemed to be the fair
value of such portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
marketable securities shall be determined jointly by the Company and the
Required Holders. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an appraiser
jointly selected by the Company and the Required Holders, whose determination
shall be final and binding on the Company and all Registered Holders of
Warrants. The fees and expenses of such appraiser shall be paid by the Company.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Option shall be deemed to
have been issued for no consideration.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any direct or indirect subsidiary of the Company
and the disposition of any shares so owned or held shall be considered an issue
or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
2C. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon exercise of this Warrant shall be proportionately increased. If the Company
at any time combines (by reverse stock split or otherwise) the Common Stock into
a smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be proportionately
decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange
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for Common Stock is referred to herein as an "Organic Change". Prior to the
consummation of any Organic Change, the Company shall make appropriate provision
(in form and substance satisfactory to the Required Holders) to ensure that each
Registered Holder of Warrants shall thereafter have the right to acquire and
receive upon exercise thereof, in lieu of or addition to (as the case may be)
the Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder's Warrants, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for the
number of Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder's Warrants had such Organic Change not taken
place. In any such case, the Company shall make appropriate provision (in form
and substance satisfactory to the Required Holders) with respect to such
Registered Holder's rights and interests to insure that the provisions hereof
(including, without limitation, Sections 2, 3 and 4) shall thereafter be
applicable to the Warrants (including, without limitation, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
such Organic Change). The Company shall not effect any such Organic Change
unless, prior to the consummation thereof, the successor entity (if other than
the Company) resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument (in form
and substance satisfactory to the Required Holders) the obligation to deliver to
each Registered Holder of Warrants such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Registered Holder may be
entitled to acquire upon exercise of Warrants.
2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features but excluding any
Permitted Issuance), then the Company's Board of Directors shall make an
appropriate adjustment in the Exercise Price and the number of Warrant Shares
obtainable upon exercise of this Warrant so as to protect the rights of the
Registered Holder of this Warrant; provided that no such adjustment shall
increase the Exercise Price or decrease the number of Warrant Shares issuable
upon exercise hereof other than as a readjustment in a manner consistent with
that contemplated by Section 2(B)(iv).
2F. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
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(ii) The Company shall give written notice to the Registered
Holder at least 30 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock, or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
SECTION 3. Certain Rights of Registered Holders Regarding Dividends. If
the Company pays a dividend or distribution upon the Common Stock, other than
dividends or distributions described in Section 2C, then the Company shall pay
to the Registered Holder of this Warrant, at the time of payment thereof, such
dividend or distribution which would have been paid to such Registered Holder
had this Warrant been fully exercised immediately prior to the date on which a
record is taken for such dividend or distribution or, if no record is taken, the
date as of which the record holders of Common Stock entitled to said dividends
or distributions are to be determined.
SECTION 4. Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock or any other shares of capital stock of the Company (the "Purchase
Rights") , then the Registered Holder shall be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such Registered Holder would have acquired if such Registered Holder had held
the maximum number of Warrant Shares acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
SECTION 5. Definitions. The following terms have the meanings set forth
below:
"Change of Control" has the meaning ascribed thereto in clause (i) of
the definition thereof in the Credit Agreement.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Company, any securities into which such Common Stock shall have been changed
or any securities resulting from any reclassification or recapitalization of
such Common Stock, and all other securities of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution or winding
up, either to all or to a share of the balance of payments upon such
dissolution, liquidation or winding up.
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"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of all classes of the Company's common stock actually outstanding at
such time, plus the number of shares of the Company's common stock deemed to be
outstanding pursuant to Section 2B(i) or 2B(ii) hereof.
"Fair Market Value" means (i) the average of the closing sales prices
of the Common Stock on all domestic securities exchanges on which the Common
Stock is listed, or (ii) if there have been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day or, (iii) if on any day the Common Stock is not
so listed, the sales price for the Common Stock as of 4:00 P.M., New York time,
as reported on the Nasdaq Stock Market or, (iv) if the Common Stock is not
reported on the Nasdaq Stock Market, the average of the representative bid and
asked quotations for the Common Stock as of 4:00 P.M., New York time, as
reported on the Nasdaq interdealer quotation system, or any similar successor
organization, in each such case averaged over a period of 21 trading days
consisting of the day as of which "Fair Market Value" is being determined and
the immediately prior 20 trading days prior to such day during which the Common
Stock was traded; provided, however, that with respect to the exercise procedure
described in Section 1B(i)(d)(iii), in the event that a Change of Control has
occurred or there has been a public announcement concerning a possible Change of
Control or other event which would result in a Change of Control, in each case,
during the period in which "Fair Market Value" is being measured as provided
herein, such prices shall be averaged over a period of 21 trading days
consisting of the day before the earlier of the occurrence or announcement (if
different) of any such event and the immediately prior 20 trading days prior to
such day during which the Common Stock has traded. Notwithstanding the
foregoing, if at any time of determination either (x) the Common Stock is not
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, and either listed on a national securities exchange or authorized for
quotation in the Nasdaq system, or (y) less than 25% of the outstanding Common
Stock is held by the public free of transfer restrictions under the Securities
Act of 1933, as amended, then Fair Market Value shall mean the price that would
be paid per share for the entire common equity interest in the Company in an
orderly sale transaction between a willing buyer and a willing seller, using
valuation techniques then prevailing in the securities industry and assuming
full disclosure of all relevant information and a reasonable period of time for
effectuating such sale, without discount for lack of liquidity, or minority
position. Fair Market Value shall be determined jointly by the Company's Board
of Directors in its good faith judgment and the Required Holders; provided that,
if such parties are unable to so agree within 15 days, such value shall be
determined by an independent investment banking or appraisal firm mutually
acceptable to the Company and the Required Holders, which firm shall submit to
the Company and the Warrant holders a written report setting forth such
determination. The fees and expenses of such firm will be borne by the Company,
and the determination of such firm will be final and binding upon all parties.
"Permitted Issuance" means any issuance by the Company of shares of
Common Stock (a) upon exercise of the Warrants or pursuant to the exercise or
conversion of any Options or
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Convertible Securities issued prior to the date hereof in accordance with the
terms thereof as in existence on the date of execution of the Credit Agreement;
(b) in connection with any dividend or distribution to the holders of the Common
Stock not prohibited by any provision of the Credit Agreement; or (c) without
duplication of any Options referenced in clause (a) above, of up to 3,000,000
shares (subject to appropriate adjustment for stock splits, reverse stock
splits, stock dividends, recapitalizations, reorganizations and similar events
recapitalizations and similar events) of Common Stock or rights or options to
purchase any such shares issued to employees, directors, or consultants of the
Company or any direct or indirect subsidiary or pursuant to one or more stock
bonus or similar plans adopted by the Board of Directors of the Company.
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, limited liability company, limited
liability partnership, other business organization, trust, union, association or
governmental or regulatory authority.
"Required Holders" means the holders representing a majority of the
Warrants Shares issuable upon exercise of the Warrants.
"Warrant Shares" means shares of the Company's Common Stock; provided,
that if the securities issuable upon exercise of the Warrants are issued by an
entity other than the Company or there is a change in the class of securities so
issuable, then the term "Warrant Shares" shall mean shares of the security
issuable upon exercise of the Warrants if such security is issuable in shares,
or shall mean the equivalent units in which such security is issuable if such
security is not issuable in shares.
SECTION 6. No Voting Rights; Limitations of Liability. This Warrant
shall not entitle the Registered Holder hereof to any voting rights or other
rights as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of the Registered Holder shall
give rise to any liability of such Registered Holder for the Exercise Price of
Warrant Shares acquirable by exercise hereof or as a stockholder of the Company.
SECTION 7. Warrant Transferable. Subject to the transfer conditions
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder
(subject to the provisions of paragraph 1B(iv) hereof), upon surrender of this
Warrant with a properly executed Assignment (in the form of Exhibit II hereto)
at the principal office of the Company.
SECTION 8. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. All Warrants representing portions of the
rights hereunder are referred to herein as the "Warrants."
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SECTION 9. Exchange. In the event that it becomes unlawful or, in the
reasonable judgment of any Registered Holder of this Warrant, unduly burdensome
by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting such Registered Holder, or any material change
(including a reduction in the number of shares of Common Stock outstanding) in
the capital structure of the Company, to hold any or all of the Warrants or
Warrant Shares, the Registered Holder of this Warrant shall have the right to
require the Company to use its best efforts to permit all or part of such
Registered Holder's Warrants or Warrant Shares to be exchanged for nonvoting
stock or similar interests that convey equivalent economic benefits to such
Warrants or Warrant Shares and include equivalent anti-dilution protection. To
the extent that the Company may lawfully do so after the exercise of its best
efforts, any such exchange shall occur as soon as practicable but in any event
within 60 days after written notice by the Registered Holder of this Warrant to
the Company (or such earlier date if required to comply with applicable law).
SECTION 10. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the Registered Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 11. Notices. Except as otherwise expressly provided herein, all
notices and deliveries referred to in this Warrant shall be in writing, shall be
delivered personally, sent by registered or certified mail, return receipt
requested and postage prepaid or sent via nationally recognized overnight
courier or via facsimile, and shall be deemed to have been given when so
delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices and (ii) to a Registered Holder,
at such Registered Holder's address as it appears in the records of the Company
(unless otherwise indicated by any such Registered Holder).
SECTION 12. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the prior written consent of
the Required Holders.
SECTION 13. Warrant Register. The Company shall maintain at its
principal executive offices books for the registration and the registration of
transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation
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of ownership or other writing thereon made by anyone) for all purposes and shall
not be affected by any notice to the contrary.
SECTION 14. Fractions of Shares. The Company may, but shall not be
required to, issue a fraction of a Warrant Share upon the exercise of this
Warrant in whole or in part. As to any fraction of a share which the Company
elects not to issue, the Company shall make a cash payment in respect of such
fraction in an amount equal to the same fraction of the Fair Market Value of a
Warrant Share on the date of such exercise.
SECTION 15. Descriptive Headings; Governing Law. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. THE CORPORATION
LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE
RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
* * * * *
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<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated as of the date hereof.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By:_________________________________________
Name:
Title:
Attest:
______________________________
Name:
Title:
<PAGE> 15
EXHIBIT I
EXERCISE AGREEMENT
Dated:
To:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. ____), hereby agrees to subscribe for the
purchase of Warrant Shares covered by such Warrant and makes payment herewith in
full therefor at the price per share provided by such Warrant.
Signature______________________________
Address________________________________
<PAGE> 16
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED,________________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. ___) with respect to the number of the Warrant
Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Dated: Signature ________________________________
________________________________
Witness ________________________________
<PAGE> 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
STOCK PURCHASE WARRANT
Date of Issuance: December 20, 1996 Certificate No. 3
For value received, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), hereby grants to Bank of New York, as Trustee for
the Employees Retirement Plan of the Brooklyn Union Gas Company or its
registered assigns (the "Registered Holder"), the right to purchase from the
Company 66,667 shares of Warrant Shares at a price per share of $4.25 (as
adjusted from time to time, the "Exercise Price"). This Warrant is one of
several warrants (collectively, the "Warrants") issued pursuant to the Senior
Subordinated Credit Agreement dated as of December 20, 1996, by and among the
Company, the other Borrowers named therein and the Lenders named therein (as
such agreement may be amended, modified or restated from time to time, the
"Credit Agreement"). The Exercise Price and number of Warrant Shares (and the
amount and kind of other securities) for which this Warrant is exercisable shall
be subject to adjustment as provided herein. Certain capitalized terms used
herein are defined in Section 5 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this Warrant
may be exercised, in whole or in part, at any time and from time to time after
the Date of Issuance to and including 5:00 p.m., New York time, on December 20,
2006 or, if such day is not a business day, on the next preceding business day
(the "Exercise Period"); provided, however, that if the Company shall not have
given the Registered Holder written notice of the expiration of the Exercise
Period at least 60 days but not more than 90 days prior to the expiration of the
Exercise Period, the Exercise Period shall be extended until the 60th day
following the receipt by the Registered Holder of such a notice.
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<PAGE> 2
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when
all of the following items have been delivered to the Company (the "Exercise
Time"):
(a) a completed Exercise Agreement, as described in
Section 1C below, executed by the Person exercising all or part of the
purchase rights represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the Registered Holder, an
Assignment or Assignments in the form set forth in Exhibit II hereto
evidencing the assignment of this Warrant to the Purchaser; and
(d) either (i) a check payable to the Company in an
amount equal to the Exercise Price multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (ii) the surrender to the Company of debt or equity securities
of the Company or any of its direct or indirect subsidiaries having a
value equal to the Aggregate Exercise Price of the Warrant Shares being
purchased upon such exercise (which value in the case of debt
securities or any preferred stock shall be deemed to equal the
aggregate outstanding principal amount or liquidation value thereof
plus all accrued and unpaid interest thereon or accrued or declared and
unpaid dividends thereon and in the case of shares of Common Stock
shall be the Fair Market Value thereof), or (iii) the delivery of a
notice to the Company that the Purchaser is exercising the Warrant (or
portion thereof) by authorizing the Company to reduce the number of
Warrant Shares subject to such exercise of the Warrant or portion
thereof by the number of shares having an aggregate Fair Market Value
determined as of the date immediately prior to the date of the Exercise
Time equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
days after the date of the Exercise Time together with any cash payable in lieu
of a fraction of a share pursuant to Section 14 hereof. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
(iii) The Warrant Shares issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
Registered Holder of such Warrant Shares at the Exercise Time.
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<PAGE> 3
(iv) The issuance of certificates for Warrant Shares upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid.
(v) The Company shall not close its books against the transfer
of this Warrant or of any Warrant Shares issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Warrant Shares
acquirable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect. In the event that the Company fails to comply
with its obligations set forth in the foregoing sentence, in addition to all
other rights which the Registered Holder or Purchaser may have at law or in
equity, the Purchaser may (but shall not be obligated to) purchase Warrant
Shares hereunder at par value, and the Company shall be obligated to reimburse
the Purchaser for the aggregate amount of consideration paid in connection with
such exercise in excess of the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or Purchaser in connection with any
governmental filings or approvals required to be obtained or made by any of them
prior to or in connection with any exercise of this Warrant (including, without
limitation, making any filings or obtaining any approvals required to be made or
obtained by the Company).
(vii) Notwithstanding any other provision hereof, if an
exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and keep
available out of its authorized but unissued Warrant Shares solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any
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<PAGE> 4
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock or other securities
constituting Warrant Shares may be listed (except for official notice of
issuance which shall be immediately delivered by the Company upon each such
issuance). The Company will cause the Warrant Shares, immediately upon such
exercise, to be listed on any domestic securities exchange upon which shares of
Common Stock or other securities constituting Warrant Shares are listed at the
time of such exercise.
(ix) If the Warrant Shares issuable by reason of exercise of
this Warrant are convertible into or exchangeable for any other stock or
securities of the Company, the Company shall, at the Purchaser's option and upon
surrender of this Warrant by such Purchaser as provided above together with any
notice, statement or payment required to effect such conversion or exchange of
Warrant Shares, deliver to such Purchaser (or as otherwise specified by such
Purchaser) a certificate or certificates representing the stock or securities
into which the Warrant Shares issuable by reason of such conversion are
convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares. In order
to prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of Warrant Shares obtainable upon exercise of this Warrant shall
be subject to adjustment from time to time, as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever, on or after the date hereof, the Company issues
or sells, or in accordance with Section 2B is deemed to have issued or sold,
other than pursuant to a Permitted Issuance, as described in Section 2C, any
shares of Common Stock for a consideration per share less than the Fair Market
Value per share of the Common Stock determined as of the date of such issuance
or sale, then immediately upon such issuance or sale the Exercise Price shall be
reduced to equal the amount determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a fraction, the numerator
of which will be the sum of (1) the number of shares of Common Stock Deemed
Outstanding immediately prior to such issuance or sale multiplied by the Fair
Market Value per share of the Common Stock determined as of the date of such
issuance or sale, plus (2) the consideration, if any, received by the Company
upon such issuance or sale, and the denominator of which will be the product
derived by multiplying such
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<PAGE> 5
Fair Market Value per share of the Common Stock by the number of shares of
Common Stock Deemed Outstanding immediately after such issuance or sale. Upon
each such adjustment of the Exercise Price hereunder, the number of Warrant
Shares acquirable upon exercise of this Warrant shall be adjusted to equal the
number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Section 2, the calculation of the number of shares of Common
Stock Deemed Outstanding shall exclude the shares of Common Stock issued upon
exercise of this Warrant.
2B. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 2A, the following shall be
applicable:
(i) Issuance of Rights or Options. If the Company in any
manner grants any rights or options (other than pursuant to a Permitted
Issuance) to subscribe for or to purchase Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (including without
limitation convertible common stock) (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities") and the price per share for which Common Stock
is issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities is less than the Fair Market Value per share of the
Common Stock in effect immediately prior to the time of the granting or sale of
such Options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of this paragraph, the "price
per share for which Common Stock is issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities" is determined by
dividing (A) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus in the case of such Options which are exercisable for
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon exercise of such Options
or upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options. No further adjustment of the Exercise Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities (other than pursuant to a
Permitted Issuance) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the
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<PAGE> 6
Fair Market Value per share of the Common Stock in effect immediately prior to
the issuance or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of this paragraph, the "price per share for which Common
Stock is issuable upon such conversion or exchange" is determined by dividing
(A) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Exercise Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Exercise Price have been or are to be made pursuant to other provisions of this
Section 2B, no further adjustment of the Exercise Price shall be made by reason
of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If either the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock shall change at any time, the Exercise Price in
effect at the time of such change shall be adjusted to the Exercise Price which
would have been in effect at such time had such options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold and the number of Warrant Shares shall be
correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, in either case without the
exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Company shall be the market price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with
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<PAGE> 7
any merger or other business combination in which the Company is the surviving
entity, the amount of consideration therefor shall be deemed to be the fair
value of such portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
marketable securities shall be determined jointly by the Company and the
Required Holders. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an appraiser
jointly selected by the Company and the Required Holders, whose determination
shall be final and binding on the Company and all Registered Holders of
Warrants. The fees and expenses of such appraiser shall be paid by the Company.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Option shall be deemed to
have been issued for no consideration
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any direct or indirect subsidiary of the Company
and the disposition of any shares so owned or held shall be considered an issue
or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
2C. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon exercise of this Warrant shall be proportionately increased. If the Company
at any time combines (by reverse stock split or otherwise) the Common Stock into
a smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be proportionately
decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange
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<PAGE> 8
for Common Stock is referred to herein as an "Organic Change". Prior to the
consummation of any Organic Change, the Company shall make appropriate provision
(in form and substance satisfactory to the Required Holders) to ensure that each
Registered Holder of Warrants shall thereafter have the right to acquire and
receive upon exercise thereof, in lieu of or addition to (as the case may be)
the Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder's Warrants, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for the
number of Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder's Warrants had such Organic Change not taken
place. In any such case, the Company shall make appropriate provision (in form
and substance satisfactory to the Required Holders) with respect to such
Registered Holder's rights and interests to insure that the provisions hereof
(including, without limitation, Sections 2, 3 and 4) shall thereafter be
applicable to the Warrants (including, without limitation, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
such Organic Change). The Company shall not effect any such Organic Change
unless, prior to the consummation thereof, the successor entity (if other than
the Company) resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument (in form
and substance satisfactory to the Required Holders) the obligation to deliver to
each Registered Holder of Warrants such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Registered Holder may be
entitled to acquire upon exercise of Warrants.
2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features but excluding any
Permitted Issuance), then the Company's Board of Directors shall make an
appropriate adjustment in the Exercise Price and the number of Warrant Shares
obtainable upon exercise of this Warrant so as to protect the rights of the
Registered Holder of this Warrant; provided that no such adjustment shall
increase the Exercise Price or decrease the number of Warrant Shares issuable
upon exercise hereof other than as a readjustment in a manner consistent with
that contemplated by Section 2(B)(iv).
2F. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
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(ii) The Company shall give written notice to the Registered
Holder at least 30 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock, or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
SECTION 3. Certain Rights of Registered Holders Regarding Dividends. If
the Company pays a dividend or distribution upon the Common Stock, other than
dividends or distributions described in Section 2C, then the Company shall pay
to the Registered Holder of this Warrant, at the time of payment thereof, such
dividend or distribution which would have been paid to such Registered Holder
had this Warrant been fully exercised immediately prior to the date on which a
record is taken for such dividend or distribution or, if no record is taken, the
date as of which the record holders of Common Stock entitled to said dividends
or distributions are to be determined.
SECTION 4. Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock or any other shares of capital stock of the Company (the "Purchase
Rights") , then the Registered Holder shall be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such Registered Holder would have acquired if such Registered Holder had held
the maximum number of Warrant Shares acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
SECTION 5. Definitions. The following terms have the meanings set forth
below:
"Change of Control" has the meaning ascribed thereto in clause (i) of
the definition thereof in the Credit Agreement.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Company, any securities into which such Common Stock shall have been changed
or any securities resulting from any reclassification or recapitalization of
such Common Stock, and all other securities of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution or winding
up, either to all or to a share of the balance of payments upon such
dissolution, liquidation or winding up.
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"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of all classes of the Company's common stock actually outstanding at
such time, plus the number of shares of the Company's common stock deemed to be
outstanding pursuant to Section 2B(i) or 2B(ii) hereof.
"Date of Issuance" means the date the Company initially issues this
Warrant regardless of the number of times new certificates representing the
unexpired and unexercised rights formerly represented by this Warrant shall be
issued.
"Fair Market Value" means (i) the average of the closing sales prices
of the Common Stock on all domestic securities exchanges on which the Common
Stock is listed, or (ii) if there have been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day or, (iii) if on any day the Common Stock is not
so listed, the sales price for the Common Stock as of 4:00 P.M., New York time,
as reported on the Nasdaq Stock Market or, (iv) if the Common Stock is not
reported on the Nasdaq Stock Market, the average of the representative bid and
asked quotations for the Common Stock as of 4:00 P.M., New York time, as
reported on the Nasdaq interdealer quotation system, or any similar successor
organization, in each such case averaged over a period of 21 trading days
consisting of the day as of which "Fair Market Value" is being determined and
the immediately prior 20 trading days prior to such day during which the Common
Stock was traded; provided, however, that with respect to the exercise procedure
described in Section 1B(i)(d)(iii), in the event that a Change of Control has
occurred or there has been a public announcement concerning a possible Change of
Control or other event which would result in a Change of Control, in each case,
during the period in which "Fair Market Value" is being measured as provided
herein, such prices shall be averaged over a period of 21 trading days
consisting of the day before the earlier of the occurrence or announcement (if
different) of any such event and the immediately prior 20 trading days prior to
such day during which the Common Stock has traded. Notwithstanding the
foregoing, if at any time of determination either (x) the Common Stock is not
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, and either listed on a national securities exchange or authorized for
quotation in the Nasdaq system, or (y) less than 25% of the outstanding Common
Stock is held by the public free of transfer restrictions under the Securities
Act of 1933, as amended, then Fair Market Value shall mean the price that would
be paid per share for the entire common equity interest in the Company in an
orderly sale transaction between a willing buyer and a willing seller, using
valuation techniques then prevailing in the securities industry and assuming
full disclosure of all relevant information and a reasonable period of time for
effectuating such sale, without discount for lack of liquidity, or minority
position. Fair Market Value shall be determined jointly by the Company's Board
of Directors in its good faith judgment and the Required Holders; provided that,
if such parties are unable to so agree within 15 days, such value shall be
determined by an independent investment banking or appraisal firm mutually
acceptable to the Company and the Required Holders, which firm shall submit to
the Company and the Warrant holders a written report setting forth such
determination.
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The fees and expenses of such firm will be borne by the Company, and the
determination of such firm will be final and binding upon all parties.
"Permitted Issuance" means any issuance by the Company of shares of
Common Stock (a) upon exercise of the Warrants or pursuant to the exercise or
conversion of any Options or Convertible Securities issued prior to the date
hereof in accordance with the terms thereof as in existence on the date of
execution of the Credit Agreement; (b) in connection with any dividend or
distribution to the holders of the Common Stock not prohibited by any provision
of the Credit Agreement; or (c) without duplication of any Options referenced in
clause (a) above, of up to 3,000,000 shares (subject to appropriate adjustment
for stock splits, reverse stock splits, stock dividends, recapitalizations,
reorganizations and similar events recapitalizations and similar events) of
Common Stock or rights or options to purchase any such shares issued to
employees, directors, or consultants of the Company or any direct or indirect
subsidiary or pursuant to one or more stock bonus or similar plans adopted by
the Board of Directors of the Company.
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, limited liability company, limited
liability partnership, other business organization, trust, union, association or
governmental or regulatory authority.
"Required Holders" means the holders representing a majority of the
Warrants Shares issuable upon exercise of the Warrants.
"Warrant Shares" means shares of the Company's Common Stock; provided,
that if the securities issuable upon exercise of the Warrants are issued by an
entity other than the Company or there is a change in the class of securities so
issuable, then the term "Warrant Shares" shall mean shares of the security
issuable upon exercise of the Warrants if such security is issuable in shares,
or shall mean the equivalent units in which such security is issuable if such
security is not issuable in shares.
SECTION 6. No Voting Rights; Limitations of Liability. This Warrant
shall not entitle the Registered Holder hereof to any voting rights or other
rights as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of the Registered Holder shall
give rise to any liability of such Registered Holder for the Exercise Price of
Warrant Shares acquirable by exercise hereof or as a stockholder of the Company.
SECTION 7. Warrant Transferable. Subject to the transfer conditions
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder
(subject to the provisions of paragraph 1B(iv) hereof), upon surrender of this
Warrant with a properly executed Assignment (in the form of Exhibit II hereto)
at the principal office of the Company.
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SECTION 8. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. All Warrants representing portions of the
rights hereunder are referred to herein as the "Warrants."
SECTION 9. Exchange. In the event that it becomes unlawful or, in the
reasonable judgment of any Registered Holder of this Warrant, unduly burdensome
by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting such Registered Holder, or any material change
(including a reduction in the number of shares of Common Stock outstanding) in
the capital structure of the Company, to hold any or all of the Warrants or
Warrant Shares, the Registered Holder of this Warrant shall have the right to
require the Company to use its best efforts to permit all or part of such
Registered Holder's Warrants or Warrant Shares to be exchanged for nonvoting
stock or similar interests that convey equivalent economic benefits to such
Warrants or Warrant Shares and include equivalent anti-dilution protection. To
the extent that the Company may lawfully do so after the exercise of its best
efforts, any such exchange shall occur as soon as practicable but in any event
within 60 days after written notice by the Registered Holder of this Warrant to
the Company (or such earlier date if required to comply with applicable law).
SECTION 10. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the Registered Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 11. Notices. Except as otherwise expressly provided herein, all
notices and deliveries referred to in this Warrant shall be in writing, shall be
delivered personally, sent by registered or certified mail, return receipt
requested and postage prepaid or sent via nationally recognized overnight
courier or via facsimile, and shall be deemed to have been given when so
delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices and (ii) to a Registered Holder,
at such Registered Holder's address as it appears in the records of the Company
(unless otherwise indicated by any such Registered Holder).
SECTION 12. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Warrants may be amended and the Company may take any
action herein
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prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the prior written consent of the Required
Holders.
SECTION 13. Warrant Register. The Company shall maintain at its
principal executive offices books for the registration and the registration of
transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.
SECTION 14. Fractions of Shares. The Company may, but shall not be
required to, issue a fraction of a Warrant Share upon the exercise of this
Warrant in whole or in part. As to any fraction of a share which the Company
elects not to issue, the Company shall make a cash payment in respect of such
fraction in an amount equal to the same fraction of the Fair Market Value of a
Warrant Share on the date of such exercise.
SECTION 15. Descriptive Headings; Governing Law. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. THE CORPORATION
LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE
RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
* * * * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated as of the date hereof.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By:_________________________________________
Name:
Title:
Attest:
______________________________
Name:
Title:
<PAGE> 15
EXHIBIT I
EXERCISE AGREEMENT
Dated:
To:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. ____), hereby agrees to subscribe for the
purchase of Warrant Shares covered by such Warrant and makes payment herewith in
full therefor at the price per share provided by such Warrant.
Signature______________________________
Address________________________________
<PAGE> 16
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED,________________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. ___) with respect to the number of the Warrant
Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Dated: Signature ________________________________
________________________________
Witness ________________________________
<PAGE> 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
STOCK PURCHASE WARRANT
Date of Issuance: December 20, 1996 Certificate No. 4
For value received, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), hereby grants to Bank of New York, as Trustee for
the Employees Retirement Plan of the Brooklyn Union Gas Company or its
registered assigns (the "Registered Holder"), the right to purchase from the
Company 30,893 shares of Warrant Shares at a price per share of $4.25 (as
adjusted from time to time, the "Exercise Price"). This Warrant is one of
several warrants (collectively, the "Warrants") issued pursuant to the Senior
Subordinated Credit Agreement dated as of December 20, 1996, by and among the
Company, the other Borrowers named therein and the Lenders named therein (as
such agreement may be amended, modified or restated from time to time, the
"Credit Agreement"). The Exercise Price and number of Warrant Shares (and the
amount and kind of other securities) for which this Warrant is exercisable shall
be subject to adjustment as provided herein. Certain capitalized terms used
herein are defined in Section 5 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this Warrant
may be exercised, in whole or in part, at any time and from time to time after
December 20, 1997 to and including 5:00 p.m., New York time, on December 20,
2006 or, if such day is not a business day, on the next preceding business day
(the "Exercise Period"); provided, however, that if the Company shall not have
given the Registered Holder written notice of the expiration of the Exercise
Period at least 60 days but not more than 90 days prior to the expiration of the
Exercise Period, the Exercise Period shall be extended until the 60th day
following the receipt by the Registered Holder of such a notice.
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1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when
all of the following items have been delivered to the Company (the "Exercise
Time"):
(a) a completed Exercise Agreement, as described in
Section 1C below, executed by the Person exercising all or part of the
purchase rights represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the Registered Holder, an
Assignment or Assignments in the form set forth in Exhibit II hereto
evidencing the assignment of this Warrant to the Purchaser; and
(d) either (i) a check payable to the Company in an
amount equal to the Exercise Price multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (ii) the surrender to the Company of debt or equity securities
of the Company or any of its direct or indirect subsidiaries having a
value equal to the Aggregate Exercise Price of the Warrant Shares being
purchased upon such exercise (which value in the case of debt
securities or any preferred stock shall be deemed to equal the
aggregate outstanding principal amount or liquidation value thereof
plus all accrued and unpaid interest thereon or accrued or declared and
unpaid dividends thereon and in the case of shares of Common Stock
shall be the Fair Market Value thereof), or (iii) the delivery of a
notice to the Company that the Purchaser is exercising the Warrant (or
portion thereof) by authorizing the Company to reduce the number of
Warrant Shares subject to such exercise of the Warrant or portion
thereof by the number of shares having an aggregate Fair Market Value
determined as of the date immediately prior to the date of the Exercise
Time equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
days after the date of the Exercise Time together with any cash payable in lieu
of a fraction of a share pursuant to Section 14 hereof. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
(iii) The Warrant Shares issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
Registered Holder of such Warrant Shares at the Exercise Time.
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<PAGE> 3
(iv) The issuance of certificates for Warrant Shares upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid.
(v) The Company shall not close its books against the transfer
of this Warrant or of any Warrant Shares issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Warrant Shares
acquirable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect. In the event that the Company fails to comply
with its obligations set forth in the foregoing sentence, in addition to all
other rights which the Registered Holder or Purchaser may have at law or in
equity, the Purchaser may (but shall not be obligated to) purchase Warrant
Shares hereunder at par value, and the Company shall be obligated to reimburse
the Purchaser for the aggregate amount of consideration paid in connection with
such exercise in excess of the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or Purchaser in connection with any
governmental filings or approvals required to be obtained or made by any of them
prior to or in connection with any exercise of this Warrant (including, without
limitation, making any filings or obtaining any approvals required to be made or
obtained by the Company).
(vii) Notwithstanding any other provision hereof, if an
exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and keep
available out of its authorized but unissued Warrant Shares solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any
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<PAGE> 4
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock or other securities
constituting Warrant Shares may be listed (except for official notice of
issuance which shall be immediately delivered by the Company upon each such
issuance). The Company will cause the Warrant Shares, immediately upon such
exercise, to be listed on any domestic securities exchange upon which shares of
Common Stock or other securities constituting Warrant Shares are listed at the
time of such exercise.
(ix) If the Warrant Shares issuable by reason of exercise of
this Warrant are convertible into or exchangeable for any other stock or
securities of the Company, the Company shall, at the Purchaser's option and upon
surrender of this Warrant by such Purchaser as provided above together with any
notice, statement or payment required to effect such conversion or exchange of
Warrant Shares, deliver to such Purchaser (or as otherwise specified by such
Purchaser) a certificate or certificates representing the stock or securities
into which the Warrant Shares issuable by reason of such conversion are
convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares. In order
to prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of Warrant Shares obtainable upon exercise of this Warrant shall
be subject to adjustment from time to time, as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever, on or after the date hereof, the Company issues
or sells, or in accordance with Section 2B is deemed to have issued or sold,
other than pursuant to a Permitted Issuance, as described in Section 2C, any
shares of Common Stock for a consideration per share less than the Fair Market
Value per share of the Common Stock determined as of the date of such issuance
or sale, then immediately upon such issuance or sale the Exercise Price shall be
reduced to equal the amount determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a fraction, the numerator
of which will be the sum of (1) the number of shares of Common Stock Deemed
Outstanding immediately prior to such issuance or sale multiplied by the Fair
Market Value per share of the Common Stock determined as of the date of such
issuance or sale, plus (2) the consideration, if any, received by the Company
upon such issuance or sale, and the denominator of which will be the product
derived by multiplying such
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<PAGE> 5
Fair Market Value per share of the Common Stock by the number of shares of
Common Stock Deemed Outstanding immediately after such issuance or sale. Upon
each such adjustment of the Exercise Price hereunder, the number of Warrant
Shares acquirable upon exercise of this Warrant shall be adjusted to equal the
number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Section 2, the calculation of the number of shares of Common
Stock Deemed Outstanding shall exclude the shares of Common Stock issued upon
exercise of this Warrant.
2B. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 2A, the following shall be
applicable:
(i) Issuance of Rights or Options. If the Company in any
manner grants any rights or options (other than pursuant to a Permitted
Issuance) to subscribe for or to purchase Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (including without
limitation convertible common stock) (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities") and the price per share for which Common Stock
is issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities is less than the Fair Market Value per share of the
Common Stock in effect immediately prior to the time of the granting or sale of
such Options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of this paragraph, the "price
per share for which Common Stock is issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities" is determined by
dividing (A) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus in the case of such Options which are exercisable for
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon exercise of such Options
or upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options. No further adjustment of the Exercise Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities (other than pursuant to a
Permitted Issuance) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the
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<PAGE> 6
Fair Market Value per share of the Common Stock in effect immediately prior to
the issuance or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of this paragraph, the "price per share for which Common
Stock is issuable upon such conversion or exchange" is determined by dividing
(A) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Exercise Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Exercise Price have been or are to be made pursuant to other provisions of this
Section 2B, no further adjustment of the Exercise Price shall be made by reason
of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If either the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock shall change at any time, the Exercise Price in
effect at the time of such change shall be adjusted to the Exercise Price which
would have been in effect at such time had such options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold and the number of Warrant Shares shall be
correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, in either case without the
exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Company shall be the market price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with
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<PAGE> 7
any merger or other business combination in which the Company is the surviving
entity, the amount of consideration therefor shall be deemed to be the fair
value of such portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
marketable securities shall be determined jointly by the Company and the
Required Holders. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an appraiser
jointly selected by the Company and the Required Holders, whose determination
shall be final and binding on the Company and all Registered Holders of
Warrants. The fees and expenses of such appraiser shall be paid by the Company.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Option shall be deemed to
have been issued for no consideration.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any direct or indirect subsidiary of the Company
and the disposition of any shares so owned or held shall be considered an issue
or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
2C. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon exercise of this Warrant shall be proportionately increased. If the Company
at any time combines (by reverse stock split or otherwise) the Common Stock into
a smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be proportionately
decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange
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for Common Stock is referred to herein as an "Organic Change". Prior to the
consummation of any Organic Change, the Company shall make appropriate provision
(in form and substance satisfactory to the Required Holders) to ensure that each
Registered Holder of Warrants shall thereafter have the right to acquire and
receive upon exercise thereof, in lieu of or addition to (as the case may be)
the Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder's Warrants, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for the
number of Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder's Warrants had such Organic Change not taken
place. In any such case, the Company shall make appropriate provision (in form
and substance satisfactory to the Required Holders) with respect to such
Registered Holder's rights and interests to insure that the provisions hereof
(including, without limitation, Sections 2, 3 and 4) shall thereafter be
applicable to the Warrants (including, without limitation, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
such Organic Change). The Company shall not effect any such Organic Change
unless, prior to the consummation thereof, the successor entity (if other than
the Company) resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument (in form
and substance satisfactory to the Required Holders) the obligation to deliver to
each Registered Holder of Warrants such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Registered Holder may be
entitled to acquire upon exercise of Warrants.
2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features but excluding any
Permitted Issuance), then the Company's Board of Directors shall make an
appropriate adjustment in the Exercise Price and the number of Warrant Shares
obtainable upon exercise of this Warrant so as to protect the rights of the
Registered Holder of this Warrant; provided that no such adjustment shall
increase the Exercise Price or decrease the number of Warrant Shares issuable
upon exercise hereof other than as a readjustment in a manner consistent with
that contemplated by Section 2(B)(iv).
2F. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
8
<PAGE> 9
(ii) The Company shall give written notice to the Registered
Holder at least 30 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock, or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
SECTION 3. Certain Rights of Registered Holders Regarding Dividends. If
the Company pays a dividend or distribution upon the Common Stock, other than
dividends or distributions described in Section 2C, then the Company shall pay
to the Registered Holder of this Warrant, at the time of payment thereof, such
dividend or distribution which would have been paid to such Registered Holder
had this Warrant been fully exercised immediately prior to the date on which a
record is taken for such dividend or distribution or, if no record is taken, the
date as of which the record holders of Common Stock entitled to said dividends
or distributions are to be determined.
SECTION 4. Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock or any other shares of capital stock of the Company (the "Purchase
Rights") , then the Registered Holder shall be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such Registered Holder would have acquired if such Registered Holder had held
the maximum number of Warrant Shares acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
SECTION 5. Definitions. The following terms have the meanings set forth
below:
"Change of Control" has the meaning ascribed thereto in clause (i) of
the definition thereof in the Credit Agreement.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Company, any securities into which such Common Stock shall have been changed
or any securities resulting from any reclassification or recapitalization of
such Common Stock, and all other securities of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution or winding
up, either to all or to a share of the balance of payments upon such
dissolution, liquidation or winding up.
9
<PAGE> 10
"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of all classes of the Company's common stock actually outstanding at
such time, plus the number of shares of the Company's common stock deemed to be
outstanding pursuant to Section 2B(i) or 2B(ii) hereof.
"Fair Market Value" means (i) the average of the closing sales prices
of the Common Stock on all domestic securities exchanges on which the Common
Stock is listed, or (ii) if there have been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day or, (iii) if on any day the Common Stock is not
so listed, the sales price for the Common Stock as of 4:00 P.M., New York time,
as reported on the Nasdaq Stock Market or, (iv) if the Common Stock is not
reported on the Nasdaq Stock Market, the average of the representative bid and
asked quotations for the Common Stock as of 4:00 P.M., New York time, as
reported on the Nasdaq interdealer quotation system, or any similar successor
organization, in each such case averaged over a period of 21 trading days
consisting of the day as of which "Fair Market Value" is being determined and
the immediately prior 20 trading days prior to such day during which the Common
Stock was traded; provided, however, that with respect to the exercise procedure
described in Section 1B(i)(d)(iii), in the event that a Change of Control has
occurred or there has been a public announcement concerning a possible Change of
Control or other event which would result in a Change of Control, in each case,
during the period in which "Fair Market Value" is being measured as provided
herein, such prices shall be averaged over a period of 21 trading days
consisting of the day before the earlier of the occurrence or announcement (if
different) of any such event and the immediately prior 20 trading days prior to
such day during which the Common Stock has traded. Notwithstanding the
foregoing, if at any time of determination either (x) the Common Stock is not
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, and either listed on a national securities exchange or authorized for
quotation in the Nasdaq system, or (y) less than 25% of the outstanding Common
Stock is held by the public free of transfer restrictions under the Securities
Act of 1933, as amended, then Fair Market Value shall mean the price that would
be paid per share for the entire common equity interest in the Company in an
orderly sale transaction between a willing buyer and a willing seller, using
valuation techniques then prevailing in the securities industry and assuming
full disclosure of all relevant information and a reasonable period of time for
effectuating such sale, without discount for lack of liquidity, or minority
position. Fair Market Value shall be determined jointly by the Company's Board
of Directors in its good faith judgment and the Required Holders; provided that,
if such parties are unable to so agree within 15 days, such value shall be
determined by an independent investment banking or appraisal firm mutually
acceptable to the Company and the Required Holders, which firm shall submit to
the Company and the Warrant holders a written report setting forth such
determination. The fees and expenses of such firm will be borne by the Company,
and the determination of such firm will be final and binding upon all parties.
"Permitted Issuance" means any issuance by the Company of shares of
Common Stock (a) upon exercise of the Warrants or pursuant to the exercise or
conversion of any Options or
10
<PAGE> 11
Convertible Securities issued prior to the date hereof in accordance with the
terms thereof as in existence on the date of execution of the Credit Agreement;
(b) in connection with any dividend or distribution to the holders of the Common
Stock not prohibited by any provision of the Credit Agreement; or (c) without
duplication of any Options referenced in clause (a) above, of up to 3,000,000
shares (subject to appropriate adjustment for stock splits, reverse stock
splits, stock dividends, recapitalizations, reorganizations and similar events
recapitalizations and similar events) of Common Stock or rights or options to
purchase any such shares issued to employees, directors, or consultants of the
Company or any direct or indirect subsidiary or pursuant to one or more stock
bonus or similar plans adopted by the Board of Directors of the Company.
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, limited liability company, limited
liability partnership, other business organization, trust, union, association or
governmental or regulatory authority.
"Required Holders" means the holders representing a majority of the
Warrants Shares issuable upon exercise of the Warrants.
"Warrant Shares" means shares of the Company's Common Stock; provided,
that if the securities issuable upon exercise of the Warrants are issued by an
entity other than the Company or there is a change in the class of securities so
issuable, then the term "Warrant Shares" shall mean shares of the security
issuable upon exercise of the Warrants if such security is issuable in shares,
or shall mean the equivalent units in which such security is issuable if such
security is not issuable in shares.
SECTION 6. No Voting Rights; Limitations of Liability. This Warrant
shall not entitle the Registered Holder hereof to any voting rights or other
rights as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of the Registered Holder shall
give rise to any liability of such Registered Holder for the Exercise Price of
Warrant Shares acquirable by exercise hereof or as a stockholder of the Company.
SECTION 7. Warrant Transferable. Subject to the transfer conditions
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder
(subject to the provisions of paragraph 1B(iv) hereof), upon surrender of this
Warrant with a properly executed Assignment (in the form of Exhibit II hereto)
at the principal office of the Company.
SECTION 8. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. All Warrants representing portions of the
rights hereunder are referred to herein as the "Warrants."
11
<PAGE> 12
SECTION 9. Exchange. In the event that it becomes unlawful or, in the
reasonable judgment of any Registered Holder of this Warrant, unduly burdensome
by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting such Registered Holder, or any material change
(including a reduction in the number of shares of Common Stock outstanding) in
the capital structure of the Company, to hold any or all of the Warrants or
Warrant Shares, the Registered Holder of this Warrant shall have the right to
require the Company to use its best efforts to permit all or part of such
Registered Holder's Warrants or Warrant Shares to be exchanged for nonvoting
stock or similar interests that convey equivalent economic benefits to such
Warrants or Warrant Shares and include equivalent anti-dilution protection. To
the extent that the Company may lawfully do so after the exercise of its best
efforts, any such exchange shall occur as soon as practicable but in any event
within 60 days after written notice by the Registered Holder of this Warrant to
the Company (or such earlier date if required to comply with applicable law).
SECTION 10. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the Registered Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 11. Notices. Except as otherwise expressly provided herein, all
notices and deliveries referred to in this Warrant shall be in writing, shall be
delivered personally, sent by registered or certified mail, return receipt
requested and postage prepaid or sent via nationally recognized overnight
courier or via facsimile, and shall be deemed to have been given when so
delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices and (ii) to a Registered Holder,
at such Registered Holder's address as it appears in the records of the Company
(unless otherwise indicated by any such Registered Holder).
SECTION 12. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the prior written consent of
the Required Holders.
SECTION 13. Warrant Register. The Company shall maintain at its
principal executive offices books for the registration and the registration of
transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation
12
<PAGE> 13
of ownership or other writing thereon made by anyone) for all purposes and shall
not be affected by any notice to the contrary.
SECTION 14. Fractions of Shares. The Company may, but shall not be
required to, issue a fraction of a Warrant Share upon the exercise of this
Warrant in whole or in part. As to any fraction of a share which the Company
elects not to issue, the Company shall make a cash payment in respect of such
fraction in an amount equal to the same fraction of the Fair Market Value of a
Warrant Share on the date of such exercise.
SECTION 15. Descriptive Headings; Governing Law. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. THE CORPORATION
LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE
RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
* * * * *
13
<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated as of the date hereof.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By:_________________________________________
Name:
Title:
Attest:
______________________________
Name:
Title:
<PAGE> 15
EXHIBIT I
EXERCISE AGREEMENT
Dated:
To:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. ____), hereby agrees to subscribe for the
purchase of Warrant Shares covered by such Warrant and makes payment herewith in
full therefor at the price per share provided by such Warrant.
Signature______________________________
Address________________________________
<PAGE> 16
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED,________________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. ___) with respect to the number of the Warrant
Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Dated: Signature ________________________________
________________________________
Witness ________________________________
<PAGE> 1
THE SECURITY REPRESENTED BY THIS NOTE WAS ORIGINALLY ISSUED ON DECEMBER 20,
1996, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OR UNDER ANY STATE SECURITIES LAWS. THIS SECURITY MAY NOT BE RESOLD OR
TRANSFERRED UNLESS REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS.
THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN THAT CERTAIN
CREDIT AGREEMENT, DATED AS OF DECEMBER 20, 1996, AS AMENDED, MODIFIED OR
RESTATED FROM TIME TO TIME, AMONG THE BORROWERS NAMED THEREIN AND THE LENDERS
NAMED THEREIN.
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT, AND AS REQUIRED BY
TREASURY REGULATION Section 1.1275-3(B)(1), INFORMATION REGARDING THE ISSUE
PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE AND THE YIELD TO
MATURITY MAY BE OBTAINED FROM THE BORROWERS.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
NEW YORK SKYLINE, INC.
SKYLINE VIRTUAL REALITY, INC.
SKYLINE CHICAGO, INC.
SKYLINE MAGIC, INC.
SKYLINE LAS VEGAS, INC.
SENIOR PROMISSORY NOTE
December 20, 1996 $1,500,000
New York, New York No. 1
FOR VALUE RECEIVED, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a
New York corporation ("SMEI"), NEW YORK SKYLINE, INC., a New York corporation
("NYSI"), SKYLINE VIRTUAL REALITY, INC., a Delaware corporation ("SVRI"),
SKYLINE CHICAGO, INC., a Delaware corporation ("SCI"), SKYLINE MAGIC, INC., a
Delaware corporation ("SMI"), SKYLINE LAS VEGAS, INC., a Delaware corporation
("SLVI") (SMEI, NYSI, SVRI, SCI, SMI and SLVI, each a "Borrower" and, jointly
and severally, the "Borrowers"), each hereby jointly and severally promises to
pay Prospect Street NYC Discovery Fund, L.P., a Delaware limited partnership,
and its registered assigns (the "Registered Holder") the unpaid principal amount
of each Loan made by the Registered Holder to each such Borrower (as indicated
on the schedule attached hereto) together with interest and premiums thereon
calculated from the date hereof in accordance with the provisions of this Note.
<PAGE> 2
This Note was issued pursuant to a Senior Credit Agreement,
dated as of December 20, 1996 (as amended, modified or restated from time to
time, the "Credit Agreement"), among the Borrowers and the Lenders, and this
Note is one of the "Senior Notes" referred to in the Credit Agreement. The
Credit Agreement contains terms governing the rights of the holder of this Note,
and all provisions of the Credit Agreement are hereby incorporated herein in
full by reference. Unless otherwise indicated herein, capitalized terms used in
this Note have the same meanings as set forth in the Credit Agreement.
1. Interest. Interest will accrue on the unpaid principal
amount of this Note from the date hereof at a rate of 14% per annum. Interest
accrued on this Note shall be payable on December 20, 2001 (the "Final Maturity
Date"). Upon the occurrence and during the continuance of an Event of Default,
interest will accrue on the unpaid principal amount of this Note, all unpaid
interest on this Note and all other amounts payable hereunder, to the extent
permitted by applicable law, at 21% per annum.
2. Method of Payment. Each Borrower shall pay principal,
interest and all other amounts payable on this Note with respect to any Loan
made by the Registered Holder to such Borrower in money of the United States
that at the time of payment is legal tender for payment of public and private
debts. Each Borrower shall pay principal and interest on this Note with respect
to any Loan made by the Registered Holder to each Borrower by wire transfer of
immediately available funds. All payments shall be applied first, to all accrued
and unpaid interest hereon, second, to unpaid premiums, if any, and third, to
principal.
3. Prepayment. The Borrowers may, at any time and from time to
time, prepay all or any portion of the principal amount of this Note in cash.
Written notice of prepayment under this Section 3 shall be given at least 30
days but not more than 60 days before the prepayment date set forth in such
notice to the Registered Holder at the address provided in or pursuant to
Section 9. Any such prepayment shall be in an amount of at least $250,000 and in
integrals of $50,000, or such lesser amount as equals the then outstanding
principal amount of this Note being prepaid, and shall be accompanied by the
cash payment of all accrued and unpaid interest on the portion of the principal
then being prepaid plus a premium equal to the applicable percentage of the
principal amount being prepaid, determined as follows:
<TABLE>
<CAPTION>
During the 12-Month Period
Beginning December 20 Applicable Percentage
- -------------------------- ---------------------
<S> <C>
1996 5%
1997 4%
1998 3%
1999 2%
2000 1%
</TABLE>
-2-
<PAGE> 3
Once due notice of prepayment is given, the principal amount of this Note (or
applicable portion thereof) shall become due and payable on the optional
prepayment date set forth in the written notice to the Registered Holder.
4. Repayment. Each Borrower will repay this Note (with respect
to any Loan made by the Registered Holder to such Borrower) in full, in cash on
the Final Maturity Date at 100% of the outstanding principal amount of this Note
plus accrued but unpaid interest thereon to such date.
5. Events of Default; Remedies. Events of Default and the
consequences of Events of Default are set forth in Article VIII of the Credit
Agreement. All provisions of Article VIII of the Credit Agreement are
specifically hereby incorporated herein in full by this reference.
6. Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of SMEI, without expense to the Registered Holder, for a Note
or Notes, dated as of the date to which interest has been paid on the unpaid
principal amount of the Note or Notes so exchanged, or, if no interest has been
paid thereon, then dated as of the date of the Note or Notes so exchanged, each
in the principal amount $1,000 or any multiple thereof, for the same aggregate
unpaid principal amount as the Note or Notes so surrendered for exchange and
each payable to such Person or Persons, or order, as may be designated by such
Registered Holder; provided, however, that upon any such exchange there shall be
filed with the Borrowers the name and address for all purposes hereof of the
payee of each Note delivered in exchange for this Note and such exchanged Note
shall in all other respects be in the same form and have the same terms as this
Note.
7. Replacement. Upon receipt of evidence reasonable
satisfactory to the Borrowers (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
this Note, and in the case of any such loss, theft or destruction, upon receipt
of indemnity reasonably satisfactory to the Borrowers (provided that if the
Registered Holder is a financial institution or other institutional investor its
own agreement shall be satisfactory) or, in the case of any such mutilation upon
surrender of this Note, the Borrowers shall (at their expense) execute and
deliver in lieu of such Note, a Note of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated Note and dated as of
the date to which interest has been paid on the unpaid principal amount of the
Note so lost, stolen, destroyed or mutilated, or, if no interest has been paid
thereon, then dated as of the date of the Note so lost, stolen, destroyed or
mutilated.
8. Place of Payment. Payments of principal and cash interest
and other amounts payable hereunder are to be delivered at the following
address:
-3-
<PAGE> 4
Prospect Street NYC Discovery Fund, L.P.
250 Park Avenue, 17th Floor
New York, NY 10177
or to such other address or to the attention of such other Person as specified
by prior written notice to the Borrowers.
9. Headings; Governing Law. The headings used in this Note are
for convenience of reference only and do not define or limit the provisions
hereof. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR
ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
10. Note Register. Each Borrower shall maintain at its
principal executive offices books for the registration and the registration of
transfer of this Note. Each Borrower may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.
11. Usury Laws. It is the intention of the Borrowers and the
holder(s) of this Note to conform strictly to all applicable usury laws now or
hereafter in force, and any interest payable under this Note shall be subject to
reduction to the amount not in excess of the maximum legal amount allowed under
the applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated by
reason of an election by the holder hereof resulting from an Event of Default,
voluntary prepayment by the Borrowers or otherwise, then earned interest may
never include more than the maximum amount permitted by law, computed from the
date hereof until payment, and any interest in excess of the maximum amount
permitted by law shall be canceled automatically and, if theretofore paid, shall
at the option of the holders hereof either be rebated to the Borrowers or
credited on the principal amount of this Note, or if this Note has been paid,
then the excess shall be rebated to the Borrowers. The aggregate of all interest
(whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the unpaid principal balance of
this Note remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to the Borrowers or
credited on the principal amount of this Note, or if this Note has been repaid,
then such excess shall be rebated to the Borrowers.
12. Certain Waivers. Each of the Borrowers hereby waives
diligence, presentment, protest and demand and notice of protest and demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of the Borrowers hereunder.
-4-
<PAGE> 5
IN WITNESS WHEREOF, each Borrower has executed and delivered
this Note as of the date first above written.
SKYLINE MULTIMEDIA
ENTERTAINMENT, INC.
By:____________________________
Name:
Title:
NEW YORK SKYLINE, INC.
By:____________________________
Name:
Title:
SKYLINE VIRTUAL REALITY, INC.
By:____________________________
Name:
Title:
SKYLINE CHICAGO, INC.
By:____________________________
Name:
Title:
SKYLINE MAGIC, INC.
By:____________________________
Name:
Title:
SKYLINE LAS VEGAS, INC.
By:____________________________
Name:
Title:
<PAGE> 6
- --------------------------------------------------------------------------------
BORROWER PRINCIPAL AMOUNT
- --------------------------------------------------------------------------------
Skyline Multimedia Entertainment, Inc.
- --------------------------------------------------------------------------------
New York Skyline, Inc.
- --------------------------------------------------------------------------------
Skyline Virtual Reality Inc.
- --------------------------------------------------------------------------------
Skyline Chicago, Inc.
- --------------------------------------------------------------------------------
Skyline Magic, Inc.
- --------------------------------------------------------------------------------
Skyline Las Vegas, Inc.
- --------------------------------------------------------------------------------
<PAGE> 1
THE SECURITY REPRESENTED BY THIS NOTE WAS ORIGINALLY ISSUED ON DECEMBER 20,
1996, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OR UNDER ANY STATE SECURITIES LAWS. THIS SECURITY MAY NOT BE RESOLD OR
TRANSFERRED UNLESS REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS.
THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN THAT CERTAIN
CREDIT AGREEMENT, DATED AS OF DECEMBER 20, 1996, AS AMENDED, MODIFIED OR
RESTATED FROM TIME TO TIME, AMONG THE BORROWERS NAMED THEREIN AND THE LENDERS
NAMED THEREIN.
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT, AND AS REQUIRED BY
TREASURY REGULATION Section 1.1275-3(B)(1), INFORMATION REGARDING THE ISSUE
PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE AND THE YIELD TO
MATURITY MAY BE OBTAINED FROM THE BORROWERS.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
NEW YORK SKYLINE, INC.
SKYLINE VIRTUAL REALITY, INC.
SKYLINE CHICAGO, INC.
SKYLINE MAGIC, INC.
SKYLINE LAS VEGAS, INC.
SENIOR PROMISSORY NOTE
December 20, 1996 $1,000,000
New York, New York No. 2
FOR VALUE RECEIVED, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a
New York corporation ("SMEI"), NEW YORK SKYLINE, INC., a New York corporation
("NYSI"), SKYLINE VIRTUAL REALITY, INC., a Delaware corporation ("SVRI"),
SKYLINE CHICAGO, INC., a Delaware corporation ("SCI"), SKYLINE MAGIC, INC., a
Delaware corporation ("SMI"), SKYLINE LAS VEGAS, INC., a Delaware corporation
("SLVI") (SMEI, NYSI, SVRI, SCI, SMI and SLVI, each a "Borrower" and, jointly
and severally, the "Borrowers"), each hereby jointly and severally promises to
pay Bank of New York, as Trustee for the Employees Retirement Plan of the
Brooklyn Union Gas Company and its registered assigns (the "Registered Holder")
the unpaid principal amount of each Loan made by the Registered Holder to each
such Borrower (as indicated on the schedule attached hereto) together with
interest and premiums thereon calculated from the date hereof in accordance with
the provisions of this Note.
<PAGE> 2
This Note was issued pursuant to a Senior Credit Agreement,
dated as of December 20, 1996 (as amended, modified or restated from time to
time, the "Credit Agreement"), among the Borrowers and the Lenders, and this
Note is one of the "Senior Notes" referred to in the Credit Agreement. The
Credit Agreement contains terms governing the rights of the holder of this Note,
and all provisions of the Credit Agreement are hereby incorporated herein in
full by reference. Unless otherwise indicated herein, capitalized terms used in
this Note have the same meanings as set forth in the Credit Agreement.
1. Interest. Interest will accrue on the unpaid principal
amount of this Note from the date hereof at a rate of 14% per annum. Interest
accrued on this Note shall be payable on December 20, 2001 (the "Final Maturity
Date"). Upon the occurrence and during the continuance of an Event of Default,
interest will accrue on the unpaid principal amount of this Note, all unpaid
interest on this Note and all other amounts payable hereunder, to the extent
permitted by applicable law, at 21% per annum.
2. Method of Payment. Each Borrower shall pay principal,
interest and all other amounts payable on this Note with respect to any Loan
made by the Registered Holder to such Borrower in money of the United States
that at the time of payment is legal tender for payment of public and private
debts. Each Borrower shall pay principal and interest on this Note with respect
to any Loan made by the Registered Holder to each Borrower by wire transfer of
immediately available funds. All payments shall be applied first, to all accrued
and unpaid interest hereon, second, to unpaid premiums, if any, and third, to
principal.
3. Prepayment. The Borrowers may, at any time and from time to
time, prepay all or any portion of the principal amount of this Note in cash.
Written notice of prepayment under this Section 3 shall be given at least 30
days but not more than 60 days before the prepayment date set forth in such
notice to the Registered Holder at the address provided in or pursuant to
Section 9. Any such prepayment shall be in an amount of at least $250,000 and in
integrals of $50,000, or such lesser amount as equals the then outstanding
principal amount of this Note being prepaid, and shall be accompanied by the
cash payment of all accrued and unpaid interest on the portion of the principal
then being prepaid plus a premium equal to the applicable percentage of the
principal amount being prepaid, determined as follows:
<TABLE>
<CAPTION>
During the 12-Month Period
Beginning December 20 Applicable Percentage
- --------------------- ---------------------
<S> <C>
1996 5%
1997 4%
1998 3%
1999 2%
2000 1%
</TABLE>
-2-
<PAGE> 3
Once due notice of prepayment is given, the principal amount of this Note (or
applicable portion thereof) shall become due and payable on the optional
prepayment date set forth in the written notice to the Registered Holder.
4. Repayment. Each Borrower will repay this Note (with respect
to any Loan made by the Registered Holder to such Borrower) in full, in cash on
the Final Maturity Date at 100% of the outstanding principal amount of this Note
plus accrued but unpaid interest thereon to such date.
5. Events of Default; Remedies. Events of Default and the
consequences of Events of Default are set forth in Article VIII of the Credit
Agreement. All provisions of Article VIII of the Credit Agreement are
specifically hereby incorporated herein in full by this reference.
6. Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of SMEI, without expense to the Registered Holder, for a Note
or Notes, dated as of the date to which interest has been paid on the unpaid
principal amount of the Note or Notes so exchanged, or, if no interest has been
paid thereon, then dated as of the date of the Note or Notes so exchanged, each
in the principal amount $1,000 or any multiple thereof, for the same aggregate
unpaid principal amount as the Note or Notes so surrendered for exchange and
each payable to such Person or Persons, or order, as may be designated by such
Registered Holder; provided, however, that upon any such exchange there shall be
filed with the Borrowers the name and address for all purposes hereof of the
payee of each Note delivered in exchange for this Note and such exchanged Note
shall in all other respects be in the same form and have the same terms as this
Note.
7. Replacement. Upon receipt of evidence reasonable
satisfactory to the Borrowers (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
this Note, and in the case of any such loss, theft or destruction, upon receipt
of indemnity reasonably satisfactory to the Borrowers (provided that if the
Registered Holder is a financial institution or other institutional investor its
own agreement shall be satisfactory) or, in the case of any such mutilation upon
surrender of this Note, the Borrowers shall (at their expense) execute and
deliver in lieu of such Note, a Note of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated Note and dated as of
the date to which interest has been paid on the unpaid principal amount of the
Note so lost, stolen, destroyed or mutilated, or, if no interest has been paid
thereon, then dated as of the date of the Note so lost, stolen, destroyed or
mutilated.
8. Place of Payment. Payments of principal and cash interest
and other amounts payable hereunder are to be delivered at the following
address:
-3-
<PAGE> 4
Bank of New York, as Trustee for the
Employees Retirement Plan of the
Brooklyn Union Gas Company
c/o The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, NY 11201-3850
or to such other address or to the attention of such other Person as specified
by prior written notice to the Borrowers.
9. Headings; Governing Law. The headings used in this Note are
for convenience of reference only and do not define or limit the provisions
hereof. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR
ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
10. Note Register. Each Borrower shall maintain at its
principal executive offices books for the registration and the registration of
transfer of this Note. Each Borrower may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.
11. Usury Laws. It is the intention of the Borrowers and the
holder(s) of this Note to conform strictly to all applicable usury laws now or
hereafter in force, and any interest payable under this Note shall be subject to
reduction to the amount not in excess of the maximum legal amount allowed under
the applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated by
reason of an election by the holder hereof resulting from an Event of Default,
voluntary prepayment by the Borrowers or otherwise, then earned interest may
never include more than the maximum amount permitted by law, computed from the
date hereof until payment, and any interest in excess of the maximum amount
permitted by law shall be canceled automatically and, if theretofore paid, shall
at the option of the holders hereof either be rebated to the Borrowers or
credited on the principal amount of this Note, or if this Note has been paid,
then the excess shall be rebated to the Borrowers. The aggregate of all interest
(whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the unpaid principal balance of
this Note remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to the Borrowers or
credited on the principal amount of this Note, or if this Note has been repaid,
then such excess shall be rebated to the Borrowers.
-4-
<PAGE> 5
12. Certain Waivers. Each of the Borrowers hereby waives
diligence, presentment, protest and demand and notice of protest and demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of the Borrowers hereunder.
-5-
<PAGE> 6
IN WITNESS WHEREOF, each Borrower has executed and delivered
this Note as of the date first above written.
SKYLINE MULTIMEDIA
ENTERTAINMENT, INC.
By:____________________________
Name:
Title:
NEW YORK SKYLINE, INC.
By:____________________________
Name:
Title:
SKYLINE VIRTUAL REALITY, INC.
By:____________________________
Name:
Title:
SKYLINE CHICAGO, INC.
By:____________________________
Name:
Title:
SKYLINE MAGIC, INC.
By:____________________________
Name:
Title:
SKYLINE LAS VEGAS, INC.
By:____________________________
Name:
Title:
<PAGE> 7
- --------------------------------------------------------------------------------
BORROWER PRINCIPAL AMOUNT
- --------------------------------------------------------------------------------
Skyline Multimedia Entertainment, Inc.
- --------------------------------------------------------------------------------
New York Skyline, Inc.
- --------------------------------------------------------------------------------
Skyline Virtual Reality Inc.
- --------------------------------------------------------------------------------
Skyline Chicago, Inc.
- --------------------------------------------------------------------------------
Skyline Magic, Inc.
- --------------------------------------------------------------------------------
Skyline Las Vegas, Inc.
- --------------------------------------------------------------------------------
