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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-QSB
Quarterly report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For Quarter Ended: September 30, 1997
Commission File No. 0-23396
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
(Exact name of small business issuer as specified in its charter)
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New York 11-3182335
(State of Incorporation) (IRS Employer Identification No.)
350 Fifth Avenue
New York, New York
10118
(Address of principal executive office)
(Zip code)
(212) 564-2224
Issuer's telephone number, including area code
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Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
issuer was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
As of November 10, 1997, there were issued and outstanding 1,385,000
shares of Common Stock, $.001 par value per share, 960,000 shares of Class A
Common Stock, $.001 par value per share, and 1,090,909 shares of Series A
Convertible Participating Preferred Stock, $.001 par value per share.
Transitional Small Business Disclosure Format
Yes ___ No _X_
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX
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<CAPTION>
PAGE NUMBER
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed consolidated financial statements
(unaudited)
Balance sheet as of September 30, 1997 3
Statements of operations for the three months
ended September 30, 1997 and 1996 4
Statements of cash flows for the three months
ended September 30, 1997 and 1996 5
Notes to financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 16
SIGNATURES 17
INDEX TO EXHIBITS 18
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2
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)
September 30, 1997
ASSETS
Current Assets
Cash $ 397,000
Inventory (Note 5) 140,000
Prepaid expenses and
other current assets 409,000
------------
Total Current Assets 946,000
Property, equipment and leasehold
improvements - net (Note 4) 12,216,000
Security deposits (Note 6) 972,000
Deferred project and leasing
costs (Note 4) 1,167,000
Due from officer (Note 11) 279,000
Deferred financing costs -- net 170,000
Payments to Contractor 400,000
Other assets -- net 34,000
------------
Total Assets $ 16,184,000
============
LIABILITIES
Current Liabilities
Capital Lease Obligations - current portion (Note 6) 747,000
Accounts payable 2,042,000
Accrued expenses and other current liabilities 1,391,000
Due to Contractors 1,100,000
Deferred sponsorship income (Note 9) 47,000
Note Payable (Note 7) 500,000
------------
Total Current Liabilities 5,827,000
Capital Lease Obligations - long term portion
(Notes 6 and 7) 1,833,000
Note Payable (Note 7) 3,849,000
Deferred rent payable (Note 8) 1,152,000
------------
Total Liabilities 12,661,000
Commitments and Contingencies (Note 4)
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001 per share 1,000
Common stock, par value $.001 per share 2,000
Class A common stock, par value $.001 per share 1,000
Treasury Stock (601,000)
Additional paid in capital 9,989,000
Accumulated deficit (5,869,000)
------------
Total Stockholders' equity 3,523,000
------------
Total Liabilities and Stockholders' Equity $ 16,184,000
============
The accompanying notes are an integral part of these financial statements.
3
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS ENDED
September 30
--------------------------
1997 1996
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Revenues:
Attraction sales $ 2,722,000 $ 1,574,000
Concession sales 326,000 377,000
Sponsorship income 88,000 86,000
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Total Revenues 3,136,000 2,037,000
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Operating Expenses:
Cost of merchandise sold 125,000 133,000
Selling, general and administrative 2,672,000 1,318,000
Depreciation and amortization 444,000 136,000
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Total Operating Expenses 3,241,000 1,587,000
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Income/(loss) from operations (105,000) 450,000
Net interest (expense) (Notes 6 and 7) (234,000) (2,000)
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Income/(loss) before provision for income taxes (339,000) 448,000
Income tax expense (benefit) (Note 3) 0 144,000
Net deferred tax expense (Note 3) 0 (595,000)
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Net income/(loss) $ (339,000) $ 899,000
=========== ===========
Net income/(loss) per share
of common stock $ (.20) $ .31
=========== ===========
Weighted average number of shares
(excludes 670,000 escrow shares) 1,734,000 2,876,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
September 30
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1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ (339,000) $ 899,000
Adjustments to reconcile net income/(loss)
to net cash provided by operating activities:
Depreciation and amortization expense 444,000 136,000
Deferred income taxes 0 (466,000)
Write off of trademark costs 37,000 0
Changes in operating assets and liabilities:
(Increase) decrease in inventory 28,000 (52,000)
(Increase) in prepaid and other assets (166,000) (339,000)
(Decrease) in deferred sponsorship income (28,000) (26,000)
Increase in accounts payable, accrued expenses and
deferred rent payable 272,000 1,128,000
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Net cash provided by operating activities 248,000 1,280,000
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Cash flows from investing activities:
(Increase) in security deposits (20,000) (54,000)
Acquisition of property, equipment and
leasehold improvements (451,000) (313,000)
Advances to officer/stockholder 0 (454,000)
(Increase)Decrease in certificate of deposit 209,000 (200,000)
Repayments from officer/stockholder 0 341,000
(Increase) in deferred project and leasing costs (545,000) (1,246,000)
----------- -----------
Net cash (used in) investing activities (807,000) (1,926,000)
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Cash flows from financing activities:
Repayment of notes payable (163,000) (59,000)
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Net cash (used in) financing activities (163,000) (59,000)
----------- -----------
Net (decrease) in cash (722,000) (705,000)
Cash at beginning of period 1,119,000 2,198,000
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Cash at end of period $ 397,000 $ 1,493,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest ................................ $ 78,000 $ 21,000
Taxes ................................... $ 12,000 $ 17,000
Acquisition of Equipment Under Capital Lease ............ $ 20,000 0
</TABLE>
5
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-QSB and rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the full
fiscal year ended June 30, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended June 30, 1997.
2. Per Share Data
Net income/(loss) per share for each period is calculated by dividing net
income/(loss) for the period by the weighted average number of common shares
outstanding for each period, excluding shares held in escrow. The weighted
average number of common shares was calculated for the quarter ended September
30, 1996 including the convertible participating preferred stock as common stock
equivalents. For the quarter ended September 30, 1997, the 1,090,909 shares of
Series A Convertible Participating Preferred Stock were not included in the
calculation of the net (loss) per share as such shares were considered to be
anti-dilutive.
3. Income Taxes
The principal components of Deferred Tax Assets, Liabilities, and the
Valuation Allowance are as follows:
September 30
----------------------------
1997 1996
----------- -----------
Deferred Tax Assets:
Capitalization of start-up costs $ 390,000 $ 566,000
Net operating loss carryforwards 3,026,000 599,000
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3,416,000 1,165,000
Valuation allowance (2,797,000) 0
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Deferred Tax Liabilities:
Depreciation differences 619,000 1,165,000
Net Deferred Tax Asset 619,000 359,000
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$ 0 $ 806,000
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6
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
The Company has provided a valuation allowance of $2,797,000 against its
deferred tax asset due to uncertainty of the Company being able to use this
benefit to offset future taxable income. The Company will periodically evaluate
the likelihood of realizing such asset and will adjust such amount accordingly.
4. Property, equipment and leasehold improvements
(A) Property and equipment, including assets under capital leases are
recorded at cost and are depreciated on the straight-line method over the
estimated useful lives of the assets from three to twelve years. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or the estimated useful life of the asset. Property, equipment
and leasehold improvements at cost are summarized as follows:
Equipment and fixtures $ 1,971,000
Simulation equipment 2,736,000
Simulation film 1,069,000
Leasehold improvements 8,580,000
-----------
14,356,000
Less: Accumulated depreciation
and amortization (2,140,000)
-----------
Total $12,216,000
===========
(B) The Company has incurred leasing costs in connection with the
development of its Times Square and Chicago sites. It is expected that
additional costs aggregating approximately $5,500,000 will be required to
complete each of the Chicago and Australia sites. See "--Management's Discussion
and Analysis of Financial Condition and Results of Operations." Upon
commencement of operations, such costs will be amortized and depreciated over
their estimated useful lives.
5. Inventory
Inventory consists of clothing, souvenirs and food sold at the Company's
existing sites and is valued at the lower of cost (first-in, first-out) or
market.
6. Notes Payable
(A) During November 1996 the Company entered into a loan agreement with an
institutional lender to finance the acquisition of the equipment for its XS New
York site. The Company received approximately $1,024,000 with $495,000 held by
the lender as security. Such security is to be released after 24 months subject
to a satisfactory payment record by the Company. The amount financed bears
interest at 11 1/2% per annum compounded monthly and is to be repaid in 48
monthly installments. The institutional lender obtained a first security
interest in the equipment and up to $750,000 of the loan is personally
guaranteed by the Company's president. In connection with this transaction, the
Company issued five year warrants to purchase 50,000 shares of the Company's
common stock at an exercise price of $6.00 per share.
(B) On December 31, 1996, the Company refinanced its existing equipment at
its New York Skyride location with aggregate proceeds of $1,500,000. The new
note bears interest at 11 1/2% per annum compounded monthly and is to be repaid
in 48 monthly installments secured by a first security interest in all of the
equipment at the New York Skyride location. Additionally, up to $250,000 of the
loan is personally guaranteed by the Company's president.
(C) During March 1997, the Company entered into a loan agreement with an
institutional lender to finance the acquisition of additional equipment for XS
New York. Pursuant to this transaction, the Company received $559,000 with
7
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
an additional $51,000 held by the lender as security. Such security is to be
released after 24 months subject to a satisfactory payment record by the
Company. The amount financed bears interest at 11 1/2% per annum compounded
monthly and is to be repaid in 48 monthly installments. The institutional lender
obtained a first security interest in the equipment and up to $ 125,000 of the
loan is personally guaranteed by the Company's president.
7. Subordinated Note Payable
(A) Between December 1996 and March 1997, the Company borrowed in the
aggregate $4,450,000 from certain institutional lenders which loans accrue
interest at an annual rate of 14% and require the payment of both principal and
interest five years from the date of issuance. In connection with the
subordinated debt, lenders received in the aggregate warrants to purchase up to
434,146 shares of Common Stock at an exercise price of $4.25 per share, which
the Company valued at approximately $278,000 using the Black Scholes pricing
model, which amount is amortized over the term of the loans. A purchase price of
$1.00 per warrant was allocated from the subordinated debt proceeds received by
the Company. One of the institutional lenders loaned the Company an additional
$500,000 on June 30, 1997.
(B) Future annual principal payments on long-term debt exclusive of capital
lease obligations, as of September 30, 1997 are as follows:
Year Ending June 30
2000 $2,500,000
2001 1,950,000
----------
4,450,000
Less unamortized debt discount (601,000)
----------
$3,849,000
==========
8. Deferred Rent Payable
The Company for financial accounting purposes spreads scheduled rent
increases and rent holidays over the terms of the respective leases using the
straight - line method.
9. Sponsorship Income
During the fiscal year ended June 30, 1995, the Company entered into two
sponsorship agreements, one with a major international electronics manufacturer,
appointing it the presenting sponsor of its New York facility, and one with a
major soft drink manufacturer. The agreements are for three and five year terms,
respectively, and provide for annual fees, capital improvements and cross
promotions for the Company. During the quarter ended December 31, 1995, the
Company entered into a three year sponsorship agreement with a major distributor
of photographic and magnetic imaging equipment. Sponsorship revenue under these
agreements aggregate approximately $1,300,000 over the respective terms. During
the quarters ended September 1997 and 1996, the Company recognized as income
$88,000 and $86,000, respectively, which represent a portion of the capital
improvements and monetary fees received from these sponsors and approximately
$47,000 and $35,000, respectively, were deferred during such periods.
10. Preferred Stock
On July 7, 1995, the Company consummated a stock purchase agreement with
Prospect Street NYC Discovery
8
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
Fund, L.P. ("Prospect Street"), a small business investment company, pursuant to
which the Company sold 1,090,909 shares of Series A Convertible Participating
Preferred Stock, par value $.001 per share (the "Preferred Stock"), for
$3,000,000. Net proceeds from such investment, aggregated approximately
$2,833,000. The Preferred Stock issued is convertible into common stock of the
Company at any time on a share-for-share basis. Pursuant to the stock purchase
agreement, the Preferred Stock and underlying common stock into which it is
convertible are subject to both demand and piggyback registration rights since
March 1996. The Preferred Stock has a liquidation preference equal to $2.75 per
share, or $3,000,000, but does not pay any dividends unless declared by the
Board of Directors. The preferred stockholder is entitled to an aggregate of up
to 24.9% of the outstanding voting power of the Company, which can increase to
50.1% of the voting power if, in good faith, in the sole discretion of such
preferred stockholder, it becomes reasonably necessary for the protection of its
investment.
11. Due from Officer
During the quarter ended September 30, 1996, the Company advanced an
aggregate of $524,000 to its President, pursuant to several demand notes at an
annual interest rate of 8%. The Company has received payment of $341,000 against
these advances. In addition, pursuant to his employment contract, the President
earned a bonus of $70,000 for the quarter then ended, which bonus was credited
against amounts due to the Company. During the quarter ended September 30, 1997,
no advances were made to the Company's executive officers. Amounts due from
officer represent primarily certain federal, state and local payroll related
withholding tax obligations due to the Company from its President. Amounts due
accrue interest at 8% annually. Additionally, the Company's President has
agreed, subject to negotiation of definitive documents relating to his
employment, to refund $750,000 of compensation received during the year ended
June 30, 1997. Upon receipt, such amounts will be reflected as additional
contributions to capital.
12. Recently Issued Accounting Standards
During fiscal year ended June 30, 1997 the Company implemented Statement of
Financial Accounting Standards No. 123, "Account for Stock-Based Compensation"
(SFAS No. 123). The provisions of SFAS No. 123 allow companies to either expense
the estimated fair value of employee stock options or to continue to follow the
intrinsic value method set forth in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") but disclose the pro forma
effects on net loss and net loss per share had the fair value of the options
been expensed. The Company has elected to continue to apply APB 25 in accounting
for its stock option incentive plans. Under FAS 123, the warrants granted in
connection with both the notes payable and subordinated notes payable require
valuation based on fair value. The fair value of the 484,146 warrants granted in
connection with the above equipment financings was calculated using the
Black-Scholes pricing model, which resulted in an aggregate valuation of
approximately $313,000. The value of these warrants are charged to interest
expense over the terms of the respective notes. During the quarter ended
September 30, 1997, an aggregate of approximately $22,000 was charged to
interest expense as a result of the fair value calculation relating to the
warrants described above.
13. Revenue Sharing Agreements
The Company has been provided with certain equipment for use in its XS New
York facility in exchange for a percentage of the revenues generated therefrom.
During November 1997, a new agreement was entered into with a specific vendor
whereby the Company's revenue-sharing obligation was reduced from 40% to 14% in
exchange for the Company selling the XS trademark and related intellectual
property rights to such vendor. The Company can continue to use the XS trademark
at its Times Square location pursuant to a license agreement entered into in
connection with the sale of the trademark. In addition, the vendor agreed to
waive all amounts due under the prior revenue-sharing agreement aggregating
approximately $514,000 as of September 30, 1997. Such amounts were offset
against selling, general and
9
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
administrative expenses for the quarter.
10
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operational Overview
From its inception until December 22, 1994, the Company's primary
activities consisted of developmental activities, including the preparation of
plans relating to the design of New York Skyride, the Company's first motion
simulator film-based attraction; negotiation of a lease and a license agreement
with the operators of the Empire State Building, the location of New York
Skyride ; working with engineers, architects, contractors, designers, and other
parties in connection with the construction of New York Skyride; developing
software and video films in connection with New York Skyride; developing
marketing strategies; initiating marketing and corporate sponsorship activities;
selecting a management team; and obtaining financing.
On December 22, 1994 , the Company commenced operations of New York Skyride
and began generating revenue from ticket sales to the attraction and the sale of
merchandise at its souvenir/concession area. New York Skyride was opened on a
preview basis until February 21, 1995, the date of its official Grand Opening.
During April 1996, the Company signed a 20 year renewable lease (the
"Additional Lease") for an additional 35,000 square feet of space within the
Empire State Building, adjacent to and above the current location of New York
Skyride. The Additional Lease was entered into in conjunction with the
modification of the lease and the license agreement relating to the New York
Skyride facility (the "Modification Agreements"). The Additional Lease and the
Modification Agreements were the direct result of negotiations between the
Company and the Empire State Building Company (the "ESBCo"), the landlord of the
Empire State Building (the "ESB"), relating to the opening of a competitive
simulator attraction on the lower level of the ESB. As a result of the
Additional Lease and the Modification Agreements, which requires the ESBCo to
increase the level of cooperation with the Company and improve relations between
the ESB staff and the Company's employees, the Company concluded that the
existence of a smaller non-New York related simulator which would not get the
level of preferential treatment as promised to the Company by the ESBCo, would
not have a material impact on the Company's operations taken as a whole.
Additionally, the Company had intended to utilize the additional space to create
a mixed use location-based entertainment center, which development plans for
such additional space were deferred until such time as the XS New York project
was operating profitably and further assessment was made with respect to the
cost and funding of the Woodfield Mall and Sydney Skyride projects (described
below). However, the Company believes that the ESBCo and the ESB staff have not
provided the level of cooperation promised and that such lack of cooperation,
not merely the existence of a competitor, has impacted the Company's operations.
The Company is engaged in a current dialogue with the ESBCo in order to resolve
all open issues. In late October, 1997, the ESBCo sent notices of default to the
Company with respect to the Company's various leases at the ESB for failure to
pay rent. In addition to attempting to resolve the foregoing issues relating to
the circumstances involving the Modification Agreements, the Company also
believes it has valid claims, credits and offsets against a portion of the rents
claimed by the ESBCo. The Company is in the process of attempting to resolve the
rent and other disputes amicably, and the ESBCo has extended the deadline on its
default notices through November 28, 1997. In the event the Company is unable to
resolve the rent default issues by such date, the Company may be forced to seek
an injunction to prevent the ESBCo from terminating the leases and the license
agreement relating to New York Skyride, which, if terminated, would have a
material adverse effect on the Company. The Company is also considering its
alternatives and possible remedies with respect to the issues surrounding the
Modification Agreements and related matters.
Further, as previously disclosed, it is likely, that the Company will be
unable to develop the additional space within the ESB in the near term, in which
event , the Company will be forced to surrender this space to the ESB, assign or
sublet such space or seek rescission of the Additional Lease. The Company is
currently exploring its options with respect to these alternatives.
11
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On December 27, 1996, the Company commenced operations, through its
wholly-owned subsidiary, Skyline Virtual Reality, Inc., of an interactive
virtual reality entertainment center, XS New York, which is located in the heart
of Times Square in New York City. XS New York features state-of-the-art
entertainment technology, including the latest in virtual reality hardware and
software, simulation technology and interactive participation game experiences.
Additionally, the facility includes a "cybercafe" which offers light food and
refreshments and computer terminals which are linked to the World Wide Web and
the Internet. XS New York was opened on a preview basis until March 20, 1997,
the date of its official Grand Opening. The Company, on November 4, 1997,
renegotiated its revenue-sharing agreement with the primary equipment supplier
of XS New York in consideration of the sale to such supplier of the "XS"
trademarks and related intellectual property rights. Additionally, in connection
with the sale of the trademarks and other intellectual property rights, such
equipment supplier has forgiven all amounts owed to it by the Company in the
aggregate amount of approximately $514,000 as of September 30, 1997. Pursuant to
a license agreement from such supplier, the Company may continue to use the "XS"
trademarks in connection with the Times Square location. See "--Liquidity and
Capital Resources."
Historically, in the New York metropolitan area, the summer months, which
include significant tourist traffic, represents the busiest period of the year.
During each of the quarters ending September 30, 1997 and 1996, New York Skyride
was visited by approximately 191,000 and 240,000 customers, respectively. The
Company believes that such decrease also reflects a decrease in the capture rate
of the traffic to the Observatory of the ESB from 22% to 16%. The Company
further believes that such decrease in the capture rate is attributable, at
least in part, to the lack of cooperation of the ESBCo and the staff of the ESB
as described above.
Promoting New York Skyride and XS New York to tourist boards (such as the
New York Convention and Visitors Bureau), travel agents, managers of group
activities and visitors to New York City represents a primary focus of the
Company's marketing efforts for these attractions. Since tourists and visitors
are a primary target, special volume discounts are offered to groups such as
conventions and trade associations, as well as through travel agent packages.
School groups are also a significant market for New York Skyride and XS New
York, and special programs are being implemented to target these audiences,
especially during the slower tourist periods in the fall and winter months.
Additionally, the marketing efforts have focused significant attention on
promoting New York Skyride and XS New York for birthday parties and special
events.
During September 1996, the Company entered into a 15 year lease for
approximately 21,000 square feet of space in the Woodfield Mall outside of
Chicago, in Schaumberg, Illinois. The Company, through its subsidiary, Skyline
Chicago, Inc., plans to develop a state-of-the-art interactive virtual reality
entertainment center similar to the XS New York project, but under a different
name. The location for this entertainment center will be situated near the
Rainforest Cafe, a successful themed restaurant, and other retail establishments
that attract tourists and regional area residents. The Woodfield Mall, one of
the largest and most heavily visited malls in the United States, boasts annual
attendance of approximately 20 million people. In connection with the execution
of the lease, the Company was required to provide a $200,000 irrevocable letter
of credit as security for the performance of the Company's obligations under the
lease. As a result of construction delays due to the lack of sufficient funding,
the Company will not be able to commence operations on the date required in the
lease. The Company does not believe that the landlord will declare a default
under the lease provided construction is continuing. However, the Company has
temporarily suspended construction while the Company attempts to identify
alternative sources of financing. Additionally, the Company did not make certain
rent payments claimed by the landlord as owed and the landlord is applying the
Company's security deposit against such rents due. The Company is in the process
of negotiating with the landlord with respect to the rent commencement date. The
landlord may only use the security deposit to offset rent, other charges and
damages as a result of the Company's breach. The Company believes this situation
will ultimately be resolved in its favor; however, there can be no assurance
that such resolution will be favorable, in which event, the Company will
continue to be in default under the lease, and, if such lease is terminated,
would have a material adverse effect on the Company. See "--Liquidity and
Capital Resources."
During December 1996, the Company signed a letter of intent to develop a
simulator attraction, similar to New York Skyride, to be located in the
Centrepoint Shopping Center which adjoins the world famous Sydney Tower (the
"Tower") in Sydney, Australia. The Centrepoint Shopping Center is the leading
shopping and tourist attraction in Sydney,
12
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Australia, and will be the merchandising and promotional center for the 2000
Olympics, which will take place in Sydney. The Tower alone attracts
approximately 1,300,000 visitors per year and an additional 20,000,000 people
visit the adjoining shopping center annually. The letter of intent provides for
an eight year renewable lease (currently being negotiated) for approximately
16,500 square feet of space located on the promenade level of the Tower, which
is the entry point to the Tower. The base rent is expected to range from
$225,000 in Year 1 to $600,000 in Year 8. The letter of intent also contemplates
a provision for percentage rent of 6.5% of gross sales in excess of $7,000,000.
The Company has a right of first refusal on certain additional space located
within the shopping center which may be used for development of an "XS-type"
attraction in the future. The Company is still in the process of negotiating for
the sale of a combined ticket to both the Tower and the Company's attraction or
a possible joint venture with the owner of the Tower; however, no assurance can
be given with respect to the successful conclusion of such negotiations or, if
successfully concluded, whether funding will be available to commence
construction or whether such site will operate profitably or provide net income
to the Company.
The Company hopes to finalize lease negotiations and documentation during
the Winter of 1998 and expects to pattern the Tower project after New York
Skyride, but with a uniquely Australian theme. The Company anticipates that it
will open its "Sydney Skyride" during the following Fall in 1998. The previous
sentence is considered a forward-looking statement and is based on estimates by
the Company that include assumptions with respect to availability of funding and
seasonal construction issues, either or both of which may affect the proposed
opening of a particular site. For example, unavailability of adequate funding
will result in delays in commencement or suspension of construction.
Additionally, construction may also be hampered by adverse weather conditions in
the winter months, as well as increases in prices for raw materials and
equipment, strikes, work-stoppages, unanticipated events and regional, national
and international economic trends. Accordingly, there can be no assurances that
the Company will be able to open such facility as anticipated. Additionally,
there can be no assurance that the Company will be able to successfully finalize
lease negotiations with the landlord of the Tower and the Centrepoint Shopping
Center, or, if finalized, that it will be able to arrange for adequate financing
of this project and complete construction of the "Sydney Skyride" by the date
anticipated, if at all.
The Company intends to use the expertise and experience which it gained
from the operation of New York Skyride and XS New York to develop these and
similar attractions at other locations in the United States and abroad. However,
there can be no assurance that the Company will be successful in developing
these attractions at additional locations.
The Company will continue to market and promote its various activities
through traditional print advertising in publications that go to New York City
tourists and others, as well as broaden its advertising and promotional programs
to the general public through local radio and newspaper advertising. The Company
is in the process of developing its marketing plans for its attractions to be
located in the Woodfield Mall and the Sydney Skyride and expects to employ
similar advertising and promotional programs throughout such local areas and
surrounding regions.
Results of Operations
Revenues. Revenues generated during the three months ended September 30,
1997, compared to September 30, 1996 aggregated $3,136,000 and $2,037,000
respectively. The increase in revenue for the three months ended September 30,
1997, from the prior year period is primarily due to the commencement of
operations from the Company's XS New York facility, which accounted for total
revenues of $1,263,000 during the quarter ended September 30, 1997.
Management expects to continue to supplement its primary revenue stream
from ticket sales for New York Skyride by soliciting corporate sponsorships from
a number of key consumer product companies. During the three month periods ended
September 30, 1997 and 1996 the Company earned approximately $88,000 and
$86,000 respectively, in sponsorship income as a result of monthly fees and
capital improvements received from sponsors. Current agreements with the
Company's three sponsors are expected to provide annual sponsorship fees
aggregating approximately $1,300,000 during the five year duration of such
agreements which commenced November 1994.
13
<PAGE>
Operating Expenses. Operating expenses incurred during the three months
ended September 30, 1997, aggregated $3,241,000 compared to $1,587,000 for the
three months ended September 30, 1996. The increase is due primarily to an
increase of overhead as a result of the operations of XS New York.
Net Income and Earnings Per Share. Net income/(loss) and earnings/(loss)
per share before deferred taxes were ($339,000) and ($.20) for the three months
ended September 30, 1997 as compared to $899,000 and $.31 for the three months
ended September 30, 1996. The net loss for the quarter ended September 30, 1997
included a loss of approximately ($352,000) related to XS New York (see
"Operating Expenses" above), offset by income of approximately $129,000 from New
York Skyride, and a loss of approximately ($116,000) related to certain start-up
costs in connection with the Company's Woodfield Mall and proposed Australia
sites. During the quarter ended September 30, 1996, New York Skyride operations
generated income of approximately $92,000 with $595,000 in deferred tax benefit
realized.
As a result of operating loss carryforwards from prior years, the Company
recognized a net deferred tax benefit of $595,000 or $.20 per share, during the
quarter ended September 30, 1996 which was offset by a provision for certain
state and local income taxes of ($144,000) or ($.05) per share. During the
quarter ended September 30, 1997 there was a provision for certain state and
local taxes on capital aggregating $14,000 with no benefit recognized for net
operating loss carryforwards.
Working Capital. Working capital (deficiency) at September 30, 1997, was
approximately ($4,881,000) compared to working capital of approximately $348,000
at September 30, 1996. The reduction in working capital is primarily the result
of the XS New York buildout of approximately $7,832,000, the operating loss
incurred during the past three month period of ($339,000), deferred project
leasing and financing costs aggregating $1,337,000 related to the Company's
capital investments in XS New York and the Woodfield Mall site and costs
associated with the Company's stock buy-back program of $601,000.
Liquidity and Capital Resources
On July 7, 1995, the Company consummated a private placement with Prospect
Street whereby 1,090,909 shares of Preferred Stock were sold for gross proceeds
of $2.75 per share, or $3,000,000. The Preferred Stock is convertible into
Common Stock of the Company at any time on a share-for-share basis. The holders
of the Preferred Stock are entitled to an aggregate of up to 24.9% of the
outstanding voting power of the Company on all matters which come before the
shareholders. Additionally, so long as 272,727 shares of Preferred Stock remain
outstanding, the holders thereof will have the ability to elect a majority of
the Board of Directors and obtain up to 50.1% of the outstanding voting power of
the Company in the event that the holders of the Preferred Stock determine in
good faith, in their sole discretion, that such action is reasonably necessary
for the protection of their investment. The Preferred Stock and underlying
Common Stock into which it is convertible are subject to both demand and
piggyback registration rights. Net proceeds to the Company from such investment
was $2,833,333.
The Company used a portion of the net proceeds of the Preferred Stock sale
to repay certain indebtedness in connection with the New York Skyride project
and used the balance of the proceeds for working capital, which included
expansion of the Company's business through developing attractions at new
locations, including the XS New York project.
As of September 30, 1997, the Company had a working capital deficiency of
approximately ($4,881,000) compared to working capital of $348,000 at September
30, 1996 which was due primarily to costs incurred in connection with the
opening of XS New York and losses incurred from operations. Since inception, the
Company spent approximately $6,050,000 related to capital expenditures with
respect to New York Skyride and approximately $7,927,000 related to capital
expenditures and leasing costs with respect to the XS New York Times Square
project. Additionally, the Company had expenditures of approximately $362,000
for security deposits and financing costs associated with the XS New York
project.
The Company is currently involved in a dispute with a subcontractor
regarding amounts billed for work allegedly performed in connection with the XS
New York project. The Company believes that it has adequately reserved for such
14
<PAGE>
contingency and does not believe that the resolution of the dispute will have a
material impact on the Company's financial position. Such contingency represents
leasehold improvements which, when amortized over the remaining term of the
Company's lease, will not have a material effect on the Company's results from
operations.
As a result of the Company's development of XS New York, the Company
incurred capital expenditures and leasing costs of approximately $7,927,000
consisting of $890,000 in leasing, design and consulting fees, $5,139,000 in
construction and theming, $253,000 for signage and approximately $1,645,000 for
equipment purchases. In order to complete the construction of XS New York and
provide additional working capital for growth and expansion the Company raised
additional secured and unsecured debt through its relationships with its
institutional investors and lenders as described below.
The Company entered into a revenue-sharing arrangement with its primary
equipment supplier of the games and attractions at XS New York. Under the prior
arrangement, which was renegotiated as of November 4, 1997, the Company was
obligated to pay 40% of net profits from such equipment to the supplier. The
Company did not anticipate that the machines installed by such supplier would
account for such a significant portion of the Company's revenues from XS New
York. The new revenue-sharing arrangement requires the Company to pay 14% of
revenues (as defined in the Agreement) to such equipment supplier. In connection
with such revised revenue-sharing agreement and the forgiveness of all amounts
owed by the Company to such equipment supplier in the aggregate amount of
approximately $514,000 as of September 30, 1997, the Company agreed to sell the
"XS" trademarks and related intellectual property rights to the equipment
supplier. The Company, pursuant to a three-year renewable license agreement, can
continue to use the "XS" trademarks and related concepts at its Times Square
location.
On December 20, 1996, the Company entered into a Senior Credit Agreement
(the "Senior Credit Agreement") with Prospect Street and Bank of New York, as
Trustee for the Employees Retirement Plan of the Brooklyn Union Gas Company
("BUG"), to obtain up to $4,100,000 in senior unsecured subordinated debt which
accrues interest at an annual rate of 14% and requires the payment of both
principal and interest five (5) years from the date of issuance. The Senior
Credit Agreement was subsequently amended to increase the amount of the
subordinated debt to $4,450,000 and to provide for the inclusion of additional
lenders. Of such increased amount $2,500,000 was received by the Company from
BUG and a related pension fund and $1,950,000 was received by the Company from
Prospect Street and its affiliates. In connection with the Senior Credit
Agreement, BUG and its related pension fund received warrants to purchase up to
an aggregate of 243,904 shares of Common Stock and Prospect Street and its
affiliates received warrants to purchase up to an aggregate of 190,242 shares of
Common Stock, each exercisable and expiring at various dates from February 1999
through December 31, 2007 at various exercise prices ranging from $4.25 to $7.91
per share. A purchase price of $1.00 per warrant was allocated from the
subordinated debt proceeds received by the Company. As part of this financing,
on November 6, 1996, Prospect Street provided the Company with a demand loan of
$1,500,000, at an annual interest rate of 14%, which loan was exchanged for a
portion of the subordinated debt under the Senior Credit Agreement. On June 30,
1997, the Company received an additional loan in the principal amount of
$500,000 from Prospect Street.
During November 1996, an institutional lender agreed to finance the
acquisition of the equipment for the Company's XS New York site up to an
aggregate of $1,327,000. Pursuant to this transaction, the Company received
approximately $832,000 and an additional $495,000 is being held by the lender as
security. Such security is to be released after 24 months subject to a
satisfactory payment history by the Company. The lender has a first security
interest in all equipment financed and the Company's president has personally
guaranteed up to $750,000 of the loan amount. The amount financed will bear
annual interest at 11 1/2% and is to be repaid in 48 monthly installments. In
connection with this transaction, the Company issued warrants to purchase up to
50,000 shares of the Company's common stock at an exercise price of $6.00 per
share.
During March 1997 the Company signed an agreement to finance the
acquisition of additional equipment for XS New York aggregating approximately
$256,000. The terms of the loan are the same as described in the previous
paragraph except that the security amount withheld by the lender is $51,000 and
the personal guarantee from the Company's president is $125,000.
15
<PAGE>
During December 1996, the Company refinanced its existing equipment loan on
the equipment located at its New York Skyride location for aggregate proceeds of
$1,500,000 of which approximately $491,000 was applied to satisfy amounts due
under the original loan. The loan bears annual interest at 11 1/2% and is to be
repaid in 48 monthly installments and is secured by a first lien on all
equipment at New York Skyride. The Company's president has guaranteed up to
$250,000 of this loan.
As a result of construction delays due to the lack of sufficient funding,
the Company will not be able to commence operation of the Woodfield Mall site on
the date required in the lease. The Company does not believe that the landlord
will declare a default under the lease provided construction is continuing.
However, the Company has temporarily suspended construction while the Company
attempts to identify alternative sources of financing. Additionally, the Company
did not make certain rent payment claimed by the landlord as owed and the
landlord is applying the Company's security deposit against such rents due. The
Company is in the process of negotiating with the landlord with respect to the
rent commencement date. The landlord may only use the security deposit to offset
rent, other charges and damages as a result of the Company's breach. The Company
believes this situation will ultimately be resolved in its favor; however, there
can be no assurance that such resolution will be favorable, in which event the
Company will continue to be in default under the lease, which default may result
in loss of such lease and liability for damages incurred by the landlord, which
events would have a material adverse effect on the Company's operations. The
loss of expected revenues from such site would have an adverse effect on the
Company's business plans and could seriously damage the Company's reputation
making it more difficult to obtain leases at premier locations.
The Company estimates the capital expenditures required to develop each of
the Woodfield Mall and Sydney Skyride facilities to be approximately $5,500,000.
The Company expects to incur losses during the initial years of operation of
each new site primarily as a result of start-up expenses and costs associated
with commencement of operations. The previous sentences are considered
forward-looking statements and are based on estimates by the Company that
include the construction of the facility, equipment hardware and software, and
design and theming costs, which estimates are each subject to, and may be
increased by, construction delays, increased prices for raw materials and
equipment, architectural redesigns, strikes, and work-stoppages, unanticipated
events and regional, national and international economic trends. In order to
develop these attractions the Company will require additional debt or equity
financing which the Company is attempting to secure. However, there can be no
assurance that such financing will be available on terms acceptable to the
Company, or at all. Further there can be no assurance that demands placed on the
Company's financial resources by multiple projects, or any one project in
particular, will not affect the Company's ability to successfully complete or
finance one or more of such projects, which would adversely affect the Company's
expansion and growth strategy.
The Company is currently seeking alternative sources of financing to
satisfy its capital requirements for the foreseeable future. In the event the
Company does not receive adequate financing in the near term, of which there can
be no assurance, the Company will be forced to abandon certain of its proposed
projects, possibly curtail current operations, or be forced to sell some or a
significant portion of its assets in order to satisfy its obligations.
The Company's independent auditors have included an explanatory paragraph
in their report on the Company's financial statements to the effect that certain
matters raise substantial doubt about the Company's ability to continue as a
going concern, which is contingent upon, among other things, the Company's
ability to secure financing and attain profitable operations.
The Company's long term goal is to develop simulator and other
location-based entertainment attractions in other major cities in the United
States and other countries. There are, however, only a limited number of
locations in a small number of cities that are suitable for such attractions,
and there can be no assurance that the Company could obtain a lease at any such
locations or develop a successful attraction at such locations. Also,
development of additional attractions will require the Company to obtain
financing for such ventures, and there can be no assurance that such financing
will be available, or available on terms and conditions that are acceptable to
the Company. Additionally, it is possible that the Company would find it
necessary to have one or more local partners involved in any additional
attractions it might attempt to develop, further limiting the revenues that the
Company could generate from these locations.
16
<PAGE>
The Company continually explores expansion opportunities both in the United
States and abroad. From time to time, the Company may be involved in
negotiations for additional sites or other entertainment-based projects.
However, current negotiations, if any, are too preliminary to warrant additional
disclosure at this time. The Company will keep investors informed as other
prospects mature.
Inflation
The Company believes that the impact of inflation on its operations since
its inception has not been material.
Seasonality
The Company's business is seasonal in nature, based in part, on higher
volumes of tourists in the New York City Metropolitan area during the spring and
summer months and during the December holiday season. Similar seasonal trends
are anticipated for the Woodfield Mall location. The Sydney Skyride, located in
the southern hemisphere is much less seasonal and provides for a relatively
constant flow of traffic with its peak months being November - January, March
and July. The Company will direct a portion of its marketing and promotional
efforts in the New York City Metropolitan area to (i) attracting a larger
percentage of the Observatory traffic at the Empire State Building, thereby
increasing volume to New York Skyride and (ii) attracting visitors to XS New
York, particularly during non-peak seasons. In addition, the Company will employ
similar advertising and promotional programs, during these periods, throughout
the Chicago Metropolitan area and other surrounding regions for its Woodfield
Mall site upon commencement of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
period covered by this report.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index located at the end of this report.
(b) No reports of Form 8-K have been filed during the quarter.
17
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By: /s/ Zalman Silber
---------------------------------------
Zalman Silber
President and Chief Executive Officer
By: /s/ Steven Schwartz
---------------------------------------
Steven Schwartz
Executive Vice President - Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer)
Dated: November 13, 1997
18
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
3.1 Certificate of Incorporation of Registrant. (1)
3.2 By-laws of Registrant. (1)
3.3 Certificate of Amendment of Certificate of Incorporation relating to
the issuance of the Preferred Stock. (2)
4.1 See Exhibits 3.1 and 3.2
10.1 The Company's 1994 Stock Incentive Plan for the Registrant. (as
amended and restated.) (9)
10.2 The Company's Stock Option Plan for Non-Employee Directors. (as
amended and restated.) (9)
10.3 Employment Agreement dated October 1, 1993 between the Registrant and
Zalman Silber. (1)
10.4 Lease Agreement dated February 26, 1993 between the Company and the
Empire State Building Company. (1)
10.5 License Agreement dated February 26, 1993 between the Company and the
Empire State Building Company. (1)
10.6 Purchase Agreement dated February 14, 1994 between the Company and
Interactive Simulations, Inc. (3)
10.7 Film Production Agreement dated April 7, 1994 between the Company and
the Empire Productions, Inc., and Chromavision Corp. (3)
10.8 Lease Agreement dated April 14, 1994 between the Company and the
Empire State Building Company relating to the Company's executive
offices. (3)
10.9 Lease Agreement dated February 8, 1994 between the Company and the
Empire State Building Company relating to additional space. (3)
10.10 Construction contract dated July 5, 1994 between the Company and
Signature Construction Group Inc. (4)
10.11 Loan and security agreement dated November 16, 1994 between the
Company and PhoenixCor, Inc. (5)
10.12 Employment Agreement dated August 13, 1994 between the Company and
Steven Schwartz. (5)
10.13 Sponsorship Agreement dated February 21, 1995 between the Company and
Dentsu USA, Inc. on behalf of JVC Company of America. (6)
19
<PAGE>
INDEX TO EXHIBITS (Continued)
Exhibit
Number Description
10.14 Stock Purchase Agreement, dated as of July 7, 1995, between the
Company and Prospect Street Fund. (2)
10.15 Registration Rights Agreement dated as of July 7, 1995, between the
Company and Prospect Street relating to the Common Stock issuable upon
conversion of the Preferred Stock. (2)
10.16 Guarantee of Zalman Silber, as of July 7, 1995, relating to the
guarantee of the Company's obligations under the Stock Purchase
Agreement. (2)
10.17 Stockholders' Agreement dated as of July 7, 1995, between Zalman
Silber and Prospect Street. (2)
10.18 Amendment to Employment Agreement dated June 29, 1995, between the
Company and Zalman Silber. (7)
10.19 Agreement dated March 16, 1995 by and between Skyline, PhoenixCor,
Inc., and Zalman Silber relating to the release of certain security
deposits, and the Rider dated March 16, 1995 to the Individual
Guaranty of Zalman Silber. (7)
10.20 Lease Agreement dated March 1996 between the Company and the Empire
State Building Company relating to additional space. (8)
10.21 Amendment, dated March 1996, to the Company's original lease and
licensing agreement with the Empire State Building Company. (8)
10.22 Lease Agreement dated March 1996, between the Company and One Times
Square Center Partners, L. P., for space located at 1457-1463
Broadway, New York, NY. (8)
10.23 Lease Agreement dated September 5, 1996, between the Company and
Woodfield Associates, for space located at the Woodfield Mall in
Schaumberg, Illinois. (9)
10.24 Letter of Intent relating to senior unsecured subordinated debt
financing dated October 23, 1996, between the Company and Prospect
Street. (10)
10.25 Note Purchase Agreement dated November 6, 1996, between the Company
and Prospect Street. (10)
10.26 Guarantee of Zalman Silber dated November 6, 1996 relating to the Note
Purchase Agreement. (10)
10.27 Senior Credit Agreement dated December 20, 1996, between the Company
and Prospect Street and Bank of New York as Trustee for the Employees
Retirement Plan of The Brooklyn Union Gas Company. (11)
20
<PAGE>
INDEX TO EXHIBITS (Continued)
Exhibit
Number Description
10.28 Subsidiary Guaranty Agreement dated December 20, 1996, between the
Company and Prospect Street. (11)
10.29 Indemnity, Subrogation and Contribution Agreement dated December 20,
1996, between the Company and Prospect Street. (11)
10.30 Amended and restated Registration Rights Agreement dated December 20,
1996, between the Company, Prospect Street, and Bank of New York as
Trustee for the Employees Retirement Plan of The Brooklyn Union Gas
Company. (11)
10.31 Senior Promissory Note dated December 20, 1996, between the Company
and Prospect Street. (11)
10.32 Senior Promissory Note dated December 20, 1996 between the Company and
Bank of New York as Trustee for the Employees Retirement Plan of The
Brooklyn Union Gas Company. (11)
10.33 Stock Purchase Warrant Agreements dated December 20, 1996, between the
Company, Prospect Street, and Bank of New York as Trustee for the
Employees Retirement Plan of The Brooklyn Union Gas Company. (11)
10.34 Loan and Security Agreement dated December 4, 1996, between the
Company and People's Bank. (11)
10.35 Loan and Security Agreement dated December 4, 1996, between the
Company and the Independent Resources Inc. (11)
10.36 Loan and Security Agreement dated December 4, 1996, between the
Company and the PhoenixCor, Inc. (11)
10.37 Guarantees of Zalman Silber dated December 4, 1996 relating to the
Loan and Security Agreements with People's Bank and PhoenixCor, Inc.
(11)
10.38 Senior Promissory Note dated February 18, 1997 between the Company and
Bank of New York, as Trustee for the Employees Retirement Plan of The
Brooklyn Union Gas Company.(12)
10.39 Senior Promissory Note dated March 14, 1997 between the Company and
Prospect Street NYC Co- Investment Fund, L.P.(12)
10.40 Senior Promissory Note dated March 21, 1997 between the Company and
Bank of New York, as Trustee for Brooklyn Union Gas Company
Non-Bargaining Health VEBA.(12)
10.41 Stock Purchase Warrant Agreement dated February 18, 1997 between the
Company and Bank of New York, as Trustee for the Employee Retirement
Plan of The Brooklyn Union Gas Company.(12)
21
<PAGE>
INDEX TO EXHIBITS (Continued)
Exhibit
Number Description
10.42 Stock Purchase Warrant Agreements dated March 14, 1997 between the
Company and Prospect Street NYC Co-Investment Fund, L.P.(12)
10.43 Stock Purchase Warrant Agreement dated March 21, 1997 between the
Company and Bank of New York, as Trustee for Brooklyn Union Gas
Company Non-Bargaining Health VEBA.(12)
10.44 Purchase Agreement, dated as of November 4, 1997, by and among the
Company, Skyline Virtual Reality, Inc. ("SVR") and Namco
Cybertainment, Inc. ("Namco").
10.45 Trademark License Agreement, dated as of November 4, 1997, between SVR
and Namco.
10.46 Revenue-Sharing Agreement, dated as of November 4, 1997, by and among
the Company, SVR and Namco.
21 Subsidiaries of the Company. (9)
27.1 Financial Data Schedule.
- ----------------------------------------
(1) Previously filed as exhibit to Registration Statement on Form SB-2
(Commission File No. 33-73276) declared effective on February 14, 1994.
(2) Previously filed as an exhibit to the Company's current report on Form 8-K
filed on July 21, 1995.
(3) Previously filed as an exhibit to the Company's annual report on Form
10-KSB for the fiscal year ended June 30, 1994.
(4) Previously filed as an exhibit to the Company's quarterly report on Form
10-QSB for the quarter ended September 30, 1994.
(5) Previously filed as an exhibit to the Company's quarterly report on Form
10-QSB for the quarter ended December 31, 1994.
(6) Previously filed as an exhibit to the Company's quarterly report on Form
10-QSB for the quarter ended March 31, 1995.
(7) Previously filed as an exhibit to the Company's annual report on Form
10-KSB for the fiscal year ended June 30, 1995.
(8) Previously filed as an exhibit to the Company's quarterly report on Form
10-QSB for the quarter ended March 31, 1996.
(9) Previously filed as an exhibit to the Company's annual report on Form
10-KSB for the fiscal year ended June 30, 1996.
22
<PAGE>
INDEX TO EXHIBITS (Continued)
Exhibit
Number Description
(10) Previously filed as an exhibit to the Company's quarterly report on
Form 10-QSB for the quarter ended September 30, 1996.
(11) Previously filed as an exhibit to the Company's quarterly report on
Form 10-QSB for the quarter ended December 31, 1996.
(12) Previously filed as an exhibit to the Company's quarterly report on
Form 10-QSB for the quarter ended March 31, 1997.
23
<PAGE>
PURCHASE AGREEMENT
This Purchase Agreement dated as of the 4th day of November, 1997
(the "Effective Date"), by and among Namco Cybertainment Inc., a Delaware
corporation, having its principal offices at 877 Supreme Drive, Bensenville,
Illinois 60106 (the "Buyer"), Skyline Virtual Reality, Inc., a Delaware
corporation, having its principal offices at 350 Fifth Ave., Suite 612, New
York, NY 10118 ("Virtual Reality") and Skyline Multimedia Entertainment, Inc., a
New York corporation, having its principal offices at 350 Fifth Ave., Suite 612,
New York, NY 10118 ("Skyline Multimedia") ("Virtual Reality" and "Skyline
Multimedia" hereinafter collectively referred to as the "Sellers").
W I T N E S S E T H:
WHEREAS, the Sellers are the owners of the Acquired Assets (defined
below);
WHEREAS, the Sellers wish to sell to the Buyer, and the Buyer wishes to
purchase from the Sellers, the Acquired Assets upon the terms and subject to the
exclusions and conditions set forth in this Agreement; and
WHEREAS, the Buyer wishes to license back to Sellers, and the Sellers
wish to license from the Buyer, the right to use the Intellectual Property
Assets (as defined below) solely for use in connection with the operation of the
Business (as defined below) by the Sellers at the Location (as defined below).
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
Definitions
1.1 Definitions. The following terms shall have the following
meanings for the purposes of this Agreement:
"Acquired Assets" shall have the meaning provided in
Section 2.1.
"Affiliate" shall mean, with respect to any specified Person,
any other Person which, directly or indirectly, owns or controls, is under
common ownership or control with, or is owned or controlled by, such specified
Person. For purposes of this definition "controls", "is controlled by" and
"under common control with" means the possession of the power to direct or cause
the direction of the management and policies of a specified Person through the
ownership of voting securities.
<PAGE>
"Agreement" shall mean this Purchase Agreement, including all
exhibits and schedules hereto, as it may be amended from time to time in
accordance with its terms.
"Bill of Sale" shall mean the bill of sale, of even date
herewith, between the Buyer and the Sellers, the form of which is attached
hereto as Exhibit A.
"Business" shall mean the business of the Sellers conducted at
the Location related to the operation and management of entertainment centers
under the "XS" formula as currently in effect at the Location.
"Buyer" shall have the meaning provided in the preamble to
this Agreement.
"Buyer Releasees" shall have the meaning provided in
Section 9.3.
"Closing" shall have the meaning provided in Section 6.1.
"Confidential Information" shall mean the proprietary and
confidential information of either party, including, without limitation, all
information, know-how, marketing and development plans, techniques and
materials, client names and other information related to clients, price lists,
pricing policies and financial information, and methods of production, vendor
agreements, use, operation and application: (i) which are not generally known
to the public; and (ii) in which such Person has rights.
"Existing Agreement" shall mean the Agreement, dated November
1, 1996, by and between the Buyer and Virtual Reality related to the use of the
Buyer's games and other equipment at the Location.
"Intellectual Property Assets" shall have the meaning provided
in Section 2.1(a).
"License Agreement" shall mean the License Agreement, of even
date herewith, between the Buyer and Virtual Reality, the form of which is
attached hereto as Exhibit B.
"Lien" shall mean any mortgage, lien, charge, restriction,
pledge, security interest, option, lease or sublease, claim, right of any third
party, easement, encroachment or encumbrance.
"Location" shall mean the entertainment center operated by the
Sellers under the "XS" trade name and located at 1457 Broadway, New York, New
York.
"Office Action" shall mean any official action by the United
States Patent and Trademark Office reporting that a particular trademark or
service mark application is not entitled
2
<PAGE>
to federal registration for any reason and advising of the reasons therefor and
of any formal requirements or objections with respect thereto.
"Person" shall mean any individual, corporation,
proprietorship, firm, partnership, limited liability company, limited
partnership, trust, association or other entity.
"Related Agreement" shall mean any contract or agreement
which is or is to be entered into at the Closing or otherwise pursuant to this
Agreement. The Related Agreements executed by a specified Person shall be
referred to as "such Person's Related Agreements," "its Related Agreements" or
another similar expression.
"Restricted Assets" shall have the meaning provided in
Section 5.1.
"Revenue Sharing Agreement" shall mean the Revenue Sharing
Agreement, of even date herewith, between the Buyer and Virtual Reality, the
form of which is attached hereto as Exhibit C.
"Sellers" shall have the meaning provided in the preamble
to this Agreement.
"Seller Releasees" shall have the meaning provided in
Section 10.2.
"Trademarks" shall have the meaning provided in
Section 2.1(b).
"Trademark Assignment" means the trademark assignment, of
even date herewith between the Buyer and Skyline Multimedia, the form of
which is attached hereto as Exhibit D.
ARTICLE II
Sale and Purchase
2.1 Sale and Purchase of Acquired Assets. Subject to the terms
and conditions of this Agreement, at the Closing, the Sellers shall sell,
transfer, assign, convey and deliver to the Buyer, and the Buyer shall purchase,
acquire and take assignment and delivery of all right, title and interest in, to
and under the following assets owned by the Sellers (all of the assets sold,
assigned, transferred and delivered to the Buyer hereunder being referred to
collectively herein as the "Acquired Assets"):
(a) Intellectual Property. All of the following intangible
assets which are owned by Sellers and used solely in connection with the
operation of the Business throughout the world: (a) registered and unregistered
trademarks and service marks (including common law rights) and applications for
trademark and service mark registrations, in each case which are related to the
Business; (b) trade names related to the Business (all assets in subparagraph
(a) and
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(b) which shall include those items identified on Schedule A hereto,
collectively referred to as the "Trademarks"); (c) registered and unregistered
copyrights and applications for copyright registrations related to the Business;
(d) proprietary concept information, including, without limitation, business and
marketing plans, marketing materials (including without limitation, brochures,
folders, special event planning guides and collateral materials) a reproducible
copy of Seller's web page, advertising concepts, designs and slogans, in each
case which are related to the Business, including audio and video and other
production products utilized to create any of the foregoing; and (e) all
enhancements, improvements and derivative works of each of the foregoing, in
each case, which are used in connection with the Business; and
(b) Other Intangibles. Goodwill relating to the
Trademarks.
2.2 Information and Records. Following the Closing, the Sellers shall
also provide to the Buyer during the effectiveness of the License Agreement,
copies of, or access to, all technical information, confidential information,
price lists, marketing information, sales records, customer lists, documents
related to the build-out of the Location, agreements with vendors, suppliers and
manufacturers and any other entities which do business with the Sellers with
respect to the Business, and any other business records of the Sellers that
would be useful to the Buyer in establishing or developing entertainment centers
using the "XS" name and concept, in each case, which are related to, or used by
the Sellers in connection with the Business. Buyer shall use such information
only in connection with the operation or development of "XS" related businesses
by the Buyer.
ARTICLE III
Consideration
3.1 Payment of Purchase Price. At the Closing, in consideration for the
Acquired Assets, the Buyer shall (i) forgive all outstanding indebtedness of
Virtual Reality to it under the Existing Agreement (other than any such
indebtedness that remains due and payable in accordance with the terms of the
Revenue Sharing Agreement) and (ii) execute concurrently herewith the Revenue
Sharing Agreement pursuant to which the revenues allocated between the Buyer and
Virtual Reality with respect to the continued use of the Buyer's equipment at
the Location will be restructured in the manner set forth therein.
ARTICLE IV
License-Back
4.1 License-Back. Concurrently with the execution of this Agreement,
the Buyer shall license-back to the Sellers a limited, non-exclusive,
royalty-free right and license to use the Intellectual Property Assets solely in
connection with the operation by the Sellers of the Business
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at the Location. The rights and obligations of the parties under this license
shall be governed by the terms and conditions of the License Agreement.
ARTICLE V
Right of First Refusal
5.1 No Assignment or Transfer of the Location Except in Compliance with
This Agreement. The Sellers may not sell, assign, or otherwise transfer (each
such action hereinafter referred to as a "transfer") the Business or the lease
for the Location (hereinafter referred to as the "Restricted Assets"), except in
compliance with the provisions of this Article 5, or as otherwise permitted
under the License Agreement or the Revenue Sharing Agreement.
5.2 Rights of the Sellers in connection with Sales of Restricted
Assets. If the Sellers receive a bona fide offer to purchase all or a
substantial portion of the Restricted Assets (which the Sellers desire to
accept), the Sellers shall notify the Buyer of such offer and provide the Buyer
with a copy of such offer and sufficient information to substantiate the
offeror's ability to consummate the transaction. After providing such notice,
the Buyer shall have the right to acquire all or such portion the Restricted
Assets as is the subject of such offer from the Sellers on the same terms and
conditions as are set forth in the offer. If the Buyer desires to exercise the
option set forth in this Section 5.2, the Buyer shall do so by giving notice to
the Sellers of such exercise within twenty-one (21) days of receipt of such
notice. If the Buyer does not exercise the option within such twenty-one (21)
day period, the Sellers shall be entitled to sell all or such portion of the
Restricted Assets as is the subject of such offer to the offeror, but only on
identical terms and conditions as set forth in the offer, within 120 days after
the earlier of (i) the date the Buyer notifies the Sellers of its election not
to exercise its option to acquire such Restricted Assets or (ii) the expiration
of the twenty-one (21) day period specified above in the event the Buyer does
not respond to the offer. If the proposed sale is not consummated within such
120 day period, the Sellers shall not be entitled to consummate such sale
without first complying with the terms of this Article 5. If the Buyer elects to
purchase such Restricted Assets within the applicable period, the closing of
such transaction shall take place not later than sixty (60) days following the
date on which the Sellers notified the Buyer of such offer.
ARTICLE VI
Closing
6.1 The Closing. The transactions contemplated by this Agreement shall
be completed and all deliveries to be made in connection herewith shall be made
at the offices of Mayer, Brown & Platt, 190 South LaSalle Street, Chicago,
Illinois, or at such other location or in such manner as the parties mutually
agree, concurrent with the execution of this Agreement (the "Closing"),
notwithstanding the fact that actual registration and acknowledgment and
acceptance
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by the appropriate governmental agencies of the transfer of the Intellectual
Property Assets may occur at a later date.
6.2 Deliveries of the Sellers at the Closing. At the Closing,
the Sellers will deliver to the Buyer the following:
(a) The Trademark Assignment, duly executed by Skyline
Multimedia;
(b) The License Agreement, duly executed by Virtual Reality;
(c) The Revenue Sharing Agreement, duly executed by Virtual
Reality;
(d) The Bill of Sale, duly executed by the Sellers; and
(e) Possession of the tangible embodiments of the Acquired
Assets.
6.3 Deliveries of the Buyer at the Closing. At Closing, the
Buyer will deliver to the Sellers:
(a) The License Agreement, duly executed by the Buyer;
(b) The Revenue Sharing Agreement, duly executed by
the Buyer; and
(c) Evidence of termination of the Existing Agreement.
6.4 Further Assurances. The Sellers will on and after the Closing
execute and deliver to the Buyer, at the Buyer's expense, any additional
documents or instruments as the Buyer may reasonably request to effectuate the
assignment to the Buyer of the Intellectual Property Assets as contemplated by
this Agreement.
ARTICLE VII
Representations and Warranties of the Sellers
The Sellers represent and warrant to the Buyer, as follows:
7.1 Organization. Virtual Reality and Skyline Multimedia are
corporations, in each case, duly organized, validly existing and in good
standing under the laws of their respective states of incorporation and have all
power and authority to conduct their businesses as the same are currently
conducted.
7.2 Authority. The Sellers have full power and authority to enter into
this Agreement and their Related Agreements and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of this
Agreement and the Related Agreements by the Sellers has been duly and validly
authorized by all necessary corporate actions on the part of the Sellers. This
Agreement and the Related Agreements have been duly executed and delivered by
the Sellers and, assuming due execution and delivery by the Buyer, this
Agreement and the Related Agreements constitute valid and legally binding
obligations of the Sellers enforceable against the Sellers in accordance with
their terms.
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7.3 Consents and Approvals; No Conflicts, etc.
(a) No consent, authorization or approval of, filing or
registration with, or cooperation from, any governmental authority or any other
Person not a party to this Agreement is necessary in connection with the
execution, delivery and performance by the Sellers of this Agreement and their
respective Related Agreements or the consummation of the transactions
contemplated hereby or thereby.
(b) The execution, delivery and performance by the Sellers of
this Agreement and their respective Related Agreements do not and will not
violate any law applicable to the Sellers or any of the Acquired Assets; violate
or conflict with, result in a breach or termination of, constitute a default or
give any third party any additional right (including a termination right) under,
permit cancellation of, result in the creation of any Lien upon any of the
Acquired Assets under, or result in or constitute a circumstance which, with or
without notice or lapse of time or both, would constitute any of the foregoing
under, any contract to which the Sellers are a party or by which the Sellers or
any of their assets or properties are bound; permit the acceleration of the
maturity of any indebtedness of the Sellers or indebtedness secured by any of
their assets or properties; or violate or conflict with any provision of any of
the articles of incorporation, bylaws or similar organizational instruments of
the Sellers.
7.4 Intellectual Property. Schedule A sets forth a true, accurate and
complete list of all of the Trademarks, whether or not regulated, used in the
conduct of the Business, and where there is a registration or application, the
registration number or application number and the jurisdiction thereof. The
Sellers further warrant and represent:
(a) that the Sellers are the exclusive owners of all Acquired
Assets, free and clear of any Liens; that such Acquired Assets will be
transferred to the Buyer on the Closing Date, free and clear of any Liens; as of
Closing the Acquired Assets will not be subject to any license, royalty or other
agreement, except as contemplated hereby; and the Sellers have not granted any
license or agreed to pay or receive any royalty in respect of any Acquired
Assets;
(b) that, to the knowledge Sellers, none of the Trademarks
have been or are the subject of any pending or threatened litigation,
oppositions, cancellation proceedings, or claim of infringement;
(c) that the Sellers have made all necessary filings and
recordings with respect to the Trademarks in the United States Patent and
Trademark Office ("PTO") and except as set forth on Schedule B hereto, there are
no Office Actions pending which could materially adversely affect Sellers' right
to register or use the Trademark; and
(d) that, to the knowledge of the Sellers, the Intellectual
Property Assets do not infringe any third party rights.
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7.5 No Other Agreement. Neither the Sellers nor any of their
Affiliates have any contract or arrangement with respect to the sale or other
disposition of the Acquired Assets, except as set forth in this Agreement.
7.6 Accuracy of Statements. Neither this Agreement nor any schedule,
exhibit, statement, list, document, certificate or other information furnished
or to be furnished (as contemplated under this Agreement) by or on behalf of the
Sellers to the Buyer or any representative or Affiliate of the Buyer in
connection with this Agreement or any of the transactions contemplated hereby
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they are made, not
misleading.
ARTICLE VIII
Representations and Warranties of the Buyer
The Buyer represents and warrants to the Sellers, as follows:
8.1 Organization. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority to conduct its business as the same is
currently conducted.
8.2 Authority. The Buyer has full power and authority to enter into
this Agreement and its Related Agreements and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of this
Agreement and the Related Agreements by the Buyer has been duly and validly
authorized by all necessary corporate actions on the part of the Buyer. The
Buyer has all requisite corporate power to execute, deliver and perform its
obligations under this Agreement and the Related Agreements. This Agreement and
the Related Agreements have been duly executed and delivered by the Buyer and,
assuming due execution and delivery by the Sellers, this Agreement and the
Related Agreements constitute valid and legally binding obligations of the
Buyer, enforceable against the Buyer in accordance with their terms.
8.3 Consents and Approvals; No Conflicts, etc.
(a) No consent, authorization or approval of, filing or
registration with, or cooperation from, any governmental authority or any other
Person not a party to this Agreement is necessary in connection with the
execution, delivery and performance by the Buyer of this Agreement and its
Related Agreements or the consummation of the transactions contemplated hereby
or thereby.
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(b) The execution, delivery and performance by the Buyer of
this Agreement and its Related Agreements do not and will not violate any law
applicable to the Buyer or any of its properties or assets; violate or conflict
with, result in a breach or termination of, constitute a default or give any
third party any additional right (including a termination right) under, permit
cancellation of, result in the creation of any Lien upon any of the assets or
properties of the Buyer under, or result in or constitute a circumstance which,
with or without notice or lapse of time or both, would constitute any of the
foregoing under, any contract to which the Buyer is a party or by which the
Buyer or any of its assets or properties are bound; permit the acceleration of
the maturity of any indebtedness of the Buyer or indebtedness secured by any of
its assets or properties; or violate or conflict with any provision of any of
the articles of incorporation, bylaws or similar organizational instruments of
the Buyer.
ARTICLE IX
Covenants of the Sellers
9.1 Implementing Agreement. Subject to the terms and conditions hereof,
the Sellers shall take all commercially reasonable action required of them to
fulfil their obligations under the terms of this Agreement and shall otherwise
use their commercially reasonable efforts to facilitate the consummation of the
transactions contemplated hereby.
9.2 Confidentiality. From and after the Closing Date, except as
required by law or any governmental authority, the Sellers shall maintain all
Confidential Information of the Buyer, including any Confidential Information
included in the Acquired Assets, in strict confidence in accordance with the
procedures it uses to protect its own information of a similar nature.
9.3 Release by the Sellers. The Sellers hereby fully and forever
expressly release and discharge the Buyer and its respective principals,
representatives, shareholders, successors, assigns, directors and officers
(collectively, the "Buyer Releasees"), from any and all manner of action or
actions, cause of action (whether at law or in equity), suits, controversies,
claims, damages, demands or losses, whether known or unknown, which the Sellers
now have or may hereinafter have in the future against the Buyer Releasees by
reason of any breach of or failure by any Buyer Releasees to comply with or
otherwise perform any obligation under the Existing Agreement.
ARTICLE X
Covenants of the Buyer
10.1 Implementing Agreement. Subject to the terms and conditions
hereof, the Buyer shall take all commercially reasonable action required of it
to fulfil its obligations under the terms of this Agreement and shall otherwise
use its commercially reasonable efforts to facilitate the consummation of the
transactions contemplated hereby.
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10.2 Confidentiality. From and after the Closing, except as required by
law or any governmental authority, the Buyer shall maintain all Confidential
Information that relates to the Business or to the Sellers, including any such
Confidential Information included in the Acquired Assets, in strict confidence
in accordance with the procedures it uses to protect its own information of a
similar nature.
10.3 Release by the Buyer. The Buyer fully and forever expressly
releases and discharges the Sellers and their respective principals,
representatives, shareholders, successors, assigns, directors and officers
(collectively, the "Seller Releasees"), from any and all manner of action or
actions, cause of action (whether in law or in equity), suits, controversies,
claims, damages, demands or losses, whether known or unknown, which the Buyer
now has or may hereinafter have in the future against the Seller Releasees by
reason of any breach of or failure by any Seller Releasee to comply with or
otherwise perform any obligation under the Existing Agreement.
ARTICLE XI
Indemnification
11.1 Indemnification by the Sellers. The Sellers agree to indemnify and
hold the Buyer harmless against any and all liabilities, losses, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees)
incurred or suffered by the Buyer arising out of or relating to (i) the material
breach of or material inaccuracy in any representation or warranty made by the
Sellers pursuant to this Agreement or (ii) the failure by the Sellers to comply
with any material covenant set forth in this Agreement. The obligations under
this Section 11.1 shall survive the Closing for a period of twelve months.
11.2 Indemnification by the Buyer. The Buyer agrees to indemnify and
hold the Sellers harmless against any and all liabilities, losses, costs,
damages and expenses incurred or suffered by the Sellers arising out of or
relating to (i) the material breach of or material inaccuracy in any
representation or warranty made by the Buyer pursuant to this Agreement or (ii)
the failure by the Buyer to comply with any material covenant set forth in this
Agreement. The obligations under this Section 11.2 shall survive the Closing for
a period of twelve months.
ARTICLE XII
General
12.1 Expenses. Except as otherwise provided by this Agreement, each
party shall bear and pay its own expenses incurred in connection with the
transactions referred to in this Agreement.
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12.2 Notices. Any notices required or permitted to be sent to a party
hereunder shall be delivered personally or mailed, certified mail, return
receipt requested, delivered by overnight courier service, or by telecopy to the
following addresses, or such other address as such party hereto designates by
written notice given to the other party, and shall be deemed to have been
delivered five business days after mailing, if mailed, or four business days
after delivery to the courier, if delivered by overnight courier services or if
by telecopy, on the date set forth on the confirmation:
If to the Sellers to: c/o Skyline Virtual Reality, Inc.
350 Fifth Avenue
Suite 612
New York, New York 10118
Attention: Zalman Silber
Facsimile No.: (212) 564-0652
copy to: Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attention: Neil S. Belloff
Facsimile No.: (212) 969-2900
If to the Buyer to: Namco Cybertainment, Inc.
877 Supreme Drive
Bensenville, Illinois 60106
Attention: William T. Pelafas
Facsimile No.: (630) 238-0560
copy to: Mayer, Brown & Platt
190 South LaSalle
Chicago, Illinois 60603
Attention: David A. Carpenter
Facsimile No.: (312) 701-7711
12.3 Entire Agreement; Headings; Counterparts. This Agreement
constitutes the entire understanding and agreement between the parties with
respect to the transactions contemplated herein, and supersedes any and all
prior or contemporaneous, oral or written, communications with respect to the
subject matter hereof, all of which are merged herein. The section headings
contained herein shall in no way limit, extend, or interpret the scope or
language of this Agreement or of any particular section and are intended only
for convenience of reference. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, without necessity of
production of the others. Such counterparts may be delivered to the other
parties hereto by facsimile and such delivery shall be deemed a delivery of an
executed original.
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12.4 Amendment; Waiver. This Agreement cannot be modified,
amended or in any way altered except by written document executed by each of
the parties hereto. No waiver of any provision of this Agreement, or of any
rights or obligations of any party hereunder, shall be effective unless in
writing and executed by the party waiving compliance, and such waiver shall be
effective only in the specific instance, and for the specific purpose, stated in
such writing. No waiver of any breach of, or default under, any provision of
this Agreement shall be deemed a waiver of any other provision, or of any
subsequent breach or default of the same provision, of this Agreement.
12.5 Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, that provision shall be deemed stricken and the
remainder of the Agreement shall continue in full force and effect, insofar as
it remains a workable instrument to accomplish the intent and purposes of the
parties. The parties further agree to replace the severed provision with the
provision that will come closest to reflecting the intention of the parties
underlying the severed provision but that will be valid, legal and enforceable.
12.6 Parties in Interest; Assignment. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and assigns; provided, however, that neither party may assign by
operation of law or otherwise to any third party, any right or obligation set
forth in this Agreement without the prior written consent of the other party.
Nothing in this Agreement, express or implied, is intended to confer upon any
person other than the parties hereto any rights or remedies under or by reason
of this Agreement.
12.7 Applicable Law. This Agreement and the performance of the parties
hereunder shall be governed and construed in accordance with the substantive
laws of the State of New York without giving effect to the principles of
conflicts of law thereof.
12.8 Publicity. The financial and business terms of this Agreement
or the Related Agreements shall not be disclosed to any third party or the
public without the prior written consent of the other party; provided, however,
that either party may disclose such information as required by law (including
applicable securities laws), the rules of any applicable stock exchange, or
court order or as necessary to enforce the terms of this Agreement. The
foregoing shall not prohibit either party from disclosing this Agreement or its
contents to its attorneys, accountants or other advisors or to its employees.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
NAMCO CYBERTAINMENT, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
SKYLINE VIRTUAL REALITY, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
SKYLINE MULTIMEDIA
ENTERTAINMENT, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
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SCHEDULE A
Intellectual Property Assets
<TABLE>
<CAPTION>
Trademark Registration Renewal
Trademark Country No. No. Date
--------- ------- --- --- ----
<S> <C> <C> <C> <C> <C>
1. XS Too Much U.S.A. Serial No. 75-193,933 Pending Not Applicable
is Not Enough
2. XS U.S.A. Serial No. 75-193,932 Pending Not Applicable
3. XS Too Much U.S.A. Serial No. 75-193,931 Pending Not Applicable
is Not Enough
(and design)
</TABLE>
<PAGE>
SCHEDULE B
PENDING OFFICE ACTIONS
<TABLE>
<CAPTION>
Service Mark Serial No. Date Issued Issues Presented Response Due
- ------------------ ---------- ----------- ---------------- ------------
<S> <C> <C> <C> <C>
XS 75/193932 06/12/97 Identification indefinite 12/12/97
XS TOO MUCH
IS NOT ENOUGH 75/193931 06/12/97 Identification indefinite 12/12/97
XS TOO MUCH IS
NOT ENOUGH (AND
DESIGN) 75/193933 06/12/97 Identification Indefinite
Drawing unacceptable 12/12/97
</TABLE>
<PAGE>
Trademark License Agreement
This Trademark License Agreement ("License Agreement") is
entered into this 4th day of November, 1997, by and between Namco Cybertainment,
Inc., a Delaware corporation, having its principal place of business at 877
Supreme Drive, Bensenville, Illinois (Licensor") and Skyline Virtual Reality,
Inc., having its principal place of business at 350 Fifth Avenue, New York, New
York, a Delaware corporation ("Licensee").
WHEREAS, Licensor is the owner of all right, title and
interest in and to U.S. federal trademarks listed on Schedule A, attached (the
"Marks");
WHEREAS, Licensee desires a license to utilize the Marks in
connection with the operation of an arcade business ("the Licensed Business")
located at 1457 Broadway, New York, NY (the "Location"); and
WHEREAS, Licensor, pursuant to the Purchase Agreement, dated
as of the date hereof, between Licensor, Licensee and Skyline Multimedia
Entertainment, Inc. (the "Purchase Agreement"), desires to permit Licensee to
use the Marks in connection with the Licensed Business;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and for other good and valuable consideration, receipt of which
is hereby mutually acknowledged, the parties hereto mutually agree as follows:
1. GRANT.
(a) On and subject to the terms and conditions of this Agreement,
Licensor hereby grants Licensee (and its Affiliates, such term being used herein
as defined in the Purchase Agreement) and Licensee hereby accepts, a
royalty-free, non-exclusive, non-transferable
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(except as provided herein), license to use the Marks solely and only upon and
in connection with the operation of the Licensed Business at the Location.
2. TERM AND TERMINATION.
(a) Term. The term of the license hereby granted shall be effective on
the 4th day of November, 1997 and shall continue until the 31st day of January,
2007, (or, if Licensee elects to extend the lease for the Location for one or
both of the two five year option periods specified therein, until the expiration
of such option period) unless sooner terminated in accordance with the
provisions hereof.
(b) Termination. If the Licensee, or a permitted transferee of the
Licensee, shall cease to operate the Licensed Business for a consecutive thirty
(30) day period during the Term (other than as necessary to effect major capital
improvements at the Location, in which case, Licensee shall be entitled to cease
to operate the Licensed Business for a period of 90 days), this license shall
immediately terminate; provided, however, that if the capital improvements or
reparations resulting from a force majeure event or imposed by the landlord is
financed by (i) the landlord of the Location, then the Licensee shall be
entitled to cease to operate the Licensed Business during the period in which
such capital improvements or reparations are effected, without regard to the
time periods specified above or (ii) the proceeds of insurance policies carried
by Skyline, the Licensee shall be entitled to cease to operate the Licensed
Business for a period of ninety (90) days from receipt of such proceeds, in each
such case, without termination of the license granted hereby.
(c) If the Licensee violates any of its material obligations or
breaches any of the material terms of the license, Licensor shall have the right
to terminate the license upon thirty
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(30) days written notice, and such notice of termination shall become effective
unless Licensee shall within that thirty (30) day period remedy its violation or
breach.
(d) Termination of the license under the provisions of this section
shall be without prejudice to any rights which Licensor may otherwise have
against Licensee.
3. RESERVATION AND OWNERSHIP OF RIGHTS.
(a) All rights not specifically granted to Licensee hereunder are
expressly reserved by Licensor. Licensee neither has nor under any circumstances
shall gain any ownership interest in the Marks in connection with the Licensed
Business. Nothing herein shall be construed to prevent Licensor from granting
any other licenses for the use of the Marks, nor from utilizing the Marks
themselves. Notwithstanding the foregoing, Licensor agrees not to operate a
business using the Marks which is competitive with the Business, or to license
any third party to operate such a business between 34th Street and 59th Street,
inclusive, in the Borrough of Manhattan for a period expiring on the earlier to
occur of (i) three (3) years from the date of this Agreement, (ii) the date of
termination of this Agreement, (iii) the date on which the Business is sold or
transferred to a party that is not an Affiliate of Licensee or there is a change
in control in the beneficial Ownership of 50% or more of the voting securities
of Licensee.
(b) Licensee recognizes the value of the goodwill associated with the
Marks and acknowledges that the Marks and all rights therein and goodwill
pertaining thereto belong exclusively to Licensor. Licensee agrees, during the
Term of this Agreement or thereafter, not to attack or assist another in
attacking the ownership rights of Licensor in the Marks or the validity of the
license being granted herein.
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(c) Licensee agrees that its use of the Marks in connection with the
Licensed Business and all associated goodwill generated thereby, inures to the
sole benefit of Licensor in accordance with their rights in the Marks, and that
Licensee shall not at any time acquire any rights in the Mark for the Licensed
Business by virtue of any use it may make thereof.
4. QUALITY OF BUSINESS OPERATION AND APPEARANCE.
(a) Licensee agrees: (i) that the services offered pursuant to the
Licensed Business, including the physical facility, methods of operation, number
and quality of personnel of the Licensed Business, shall be of a standard and of
a style, appearance and quality at least equal to or better than that currently
in effect as determined by the Licensor in the exercise of its reasonable
discretion; (ii) that the services provided pursuant to the Licensed Business
will be provided in accordance with all applicable Federal, State and local laws
and regulations; (iii) that Licensee shall maintain all permits required by any
governmental authority with respect to the Licensed Business; and (iv) that the
Licensee shall not knowingly or recklessly take or neglect to take any actions
which will result in the Licensed Business reflecting adversely upon the good
name of Licensor or the Marks.
(b) Licensee agrees to permit reasonable inspection of Licensee's
operation for purposes of determining compliance with this Section 4, and to
supply Licensor with specimens of Licensee's use of the Marks upon reasonable
advance written request.
(c) Licensee agrees to use the Marks in connection with the Licensed
Business only in the form and manner and with appropriate legends as may be
deemed necessary by Licensor to preserve and protect its rights in the Marks.
Uses of the Marks by the Licensee which differ from those uses in effect with
respect to the Licensed Business as of the date hereof shall
4
<PAGE>
require the prior written approval of the Licensor, which approval shall be
deemed granted if Licensor fails to respond to a request by Licensee with
fifteen (15) days of receipt thereof by Licensor delivered in accordance with
this Agreement.
5. TRADEMARK PROTECTION AND INFRINGEMENT.
(a) Licensee agrees to assist Licensor in the protection of Licensor's
rights to the Marks in connection with the Licensed Business, and Licensor, if
it so desires, may commence or prosecute at Licensor's expense any claims or
suits in its own name and may if necessary join Licensee as a nominal party
plaintiff thereto, provided that Licensee's costs and expenses with respect
thereto shall be borne by Licensor. Licensee shall endeavor to notify Licensor
in writing of any infringements or imitations by others of the Marks which may
come to Licensee's attention as it relates to the Licensed Business, and
Licensor shall have the primary right in those instances, to determine whether
or not any action shall be taken on account of any such infringements or
imitations.
(b) In the event the use of the Marks referred to in this Agreement is
asserted by a third party to be an infringement upon rights of that third party
(and Licensor elects not to defend such claim of infringement), then, upon
written notice from Licensor, Licensee shall either (i) cease all further use of
the Marks in connection with the Licensed Business within thirty (30) days
without recourse against Licensor with respect thereto or (ii) without prejudice
to Licensor's ownership of the Marks, commence or defend an action with respect
to such alleged infringement (and Licensor shall cooperate with Licensee in the
defense or prosecution of such claim provided its reasonable costs and expenses
shall be reimbursed by Licensee) and
5
<PAGE>
in the event Licensee is successful in such claim, it shall be entitled to
retain any and all damages recovered thereunder.
6. INDEMNIFICATION.
Licensee shall defend, indemnify and hold Licensor and its
subsidiaries, affiliates, officers, directors, shareholders, agents, employees
and representatives harmless against any claims, demands, causes of action,
loss, damage and judgments (collectively, "Losses") arising out of Licensee's
operation of the Licensed Business, except for Losses resulting from Licensor's
negligence or wilful misconduct.
7. EFFECT OF TERMINATION.
Upon any termination or expiration of this Agreement, Licensee shall
immediately cease all use of the Marks in connection with the Licensed Business
and shall immediately remove the Marks from the premises and all materials used
in the operation of the Licensed Business, including but not limited to, all
literature, signage or advertising materials relating to the Licensed Business.
All such materials existing at the time of termination or expiration of this
Agreement shall be destroyed by Licensee, with written confirmation of such
destruction being provided to Licensor within 60 days from the termination or
expiration of this Agreement.
8. NOTICES
All notices and statements to be given shall be given or made at the
respective addresses of the parties as follows, unless notification of a change
of address is given in writing, and the date of mailing shall be deemed the date
the notice or statement is given:
6
<PAGE>
Licensor: Namco Cybertainment, Inc.
877 Supreme Drive
Bensenville, Illinois 60106
Licensee: Skyline Virtual Reality, Inc.
350 Fifth Avenue, Suite 612
New York, New York 10118
9. NO JOINT VENTURE
Nothing herein contained shall be construed to place the parties in the
relationship of partners or joint venturers, and Licensee shall have no power to
obligate or bind Licensor in any manner whatsoever.
10. NO ASSIGNMENT OR SUBLEASE BY LICENSEE
(a) This Agreement and the rights and obligations of Licensee hereunder
may be assigned by Licensee to any Affiliate of Licensee and, with the prior
written consent of Licensor, which consent may be withheld by Licensor in its
sole and absolute discretion, to a transferee of the Licensed Business. Prior to
the effectiveness of any proposed assignment, the transferee must execute an
instrument in which such transferee agrees to comply with and be bound by the
terms and conditions of this Agreement as if such transferee were an original
signatory hereof. A transfer of beneficial ownership of 50% or more of the
voting securities of Licensee shall be deemed an assignment, which unless such
transfer is to an Affiliate, shall require the consent of Licensor.
(b) Licensor may assign this license, along with the Marks, in which
event Licensor or its assignee shall furnish written notice of the assignment to
Licensee.
7
<PAGE>
11. NO WAIVER
None of the terms of this Agreement can be waived or modified except by
an express agreement in writing signed by both parties. There are no
representations, promises, warranties, covenants or undertakings other than
those contained in this Agreement, which represents the entire understanding of
the parties. The failure of either party hereto to enforce, or the delay by
either party in enforcing, any of its rights under this Agreement shall not be
deemed a continuing waiver or a modification thereof and either party may,
within the time provided by applicable law, commence appropriate legal
proceeding to enforce any or all of such rights. No person, firm, group or
corporation other than Licensee and Licensor shall be deemed to have acquired
any rights by reason of anything contained in this Agreement.
12. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to the conflict of laws
principles of that State.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
Licensor: NAMCO CYBERTAINMENT, INC.
By: _________________________
Title:
Licensee: SKYLINE VIRTUAL REALITY, INC.
By: _________________________
Title:
9
<PAGE>
SCHEDULE A
XS TOO MUCH IS NOT ENOUGH
SERIAL NO.: 75-193,933
XS
SERIAL NO.: 75-193,932
XS TOO MUCH IS NOT ENOUGH and Design
SERIAL NO.: 75-193,931
10
<PAGE>
<PAGE>
REVENUE SHARING AGREEMENT
Revenue Sharing Agreement (Agreement) made this 4th day of November , 1997, by
and between NAMCO CYBERTAINMENT, INC., 877 Supreme Drive, Bensenville, IL 60106,
a Delaware corporation ("Namco"), and, SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
and its wholly owned subsidiary, SKYLINE VIRTUAL REALITY, INC, d/b/a XS NEW
YORK, 350 Fifth Ave., New York, NY 10118 a Delaware corporation ("Skyline") FEIN
# 11-3182335 .
In consideration of the mutual covenants and conditions contained herein and
other valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. LICENSE. Skyline does hereby grant to Namco the full and exclusive right to
operate traditionally coin operated Video, Pinball, Prize-Dispensing and
Merchandise Games as defined by and operated by Namco in its company-owned
locations (the Equipment) at the site located at Between 41st & 42nd Sts. and
Broadway & 7th Ave., New York, New York (the "Premises" or "Location") according
to the provisions specifically described in this Agreement.
2. TERM. This Agreement shall commence on November 4th, 1997 and remain in force
and effect for a term of three years, terminating on November 4th, 2000 .
Notwithstanding the foregoing, this agreement shall terminate concurrently with
the surrender of the Location by Skyline if the Landlord of the Location elects
to terminate the lease for the Location, other than as a result of a default
thereunder by Skyline. This Agreement shall automatically renew itself for a
period of one year and shall continue to do so thereafter upon the same terms
and conditions unless either party delivers written notice to the other party by
registered mail, return receipt requested, at least 30 days prior to the
expiration of the initial or subsequent terms.
3. FEES. For and in consideration of the use of the Equipment, Skyline shall
pay to Namco the following fees: (Which fees shall be paid retroactively
from October 12, 1997.)
Video, Pinball, or other Amusement-Only Games - 14 (fourteen) percent of net
revenues derived from the Equipment, with net revenues defined as gross sales
less sales taxes.
Prize-Dispensing or "Merchandising" Games - 14 (fourteen) percent of net
revenues, with net revenues defined as gross sales less sales taxes. To the
extent Skyline requests Prize-Dispensing or Merchandise Games, redemption
merchandise will be purchased and supplied at Skyline's sole cost and expense.
The Location will award redemption merchandise to consumers as the result of
their skillful and successful play of the games. The prizes and merchandise from
these merchandising games shall be awarded solely on skill, with no element of
chance involved.
All revenues and fees due shall be paid by Skyline to Namco as provided in
Paragraph 7 below. Fees due to Namco shall be addressed: Attention: Thomas
Savvides at Namco Cybertainment, Inc., 877 Supreme Drive, Bensenville, IL
60106.
4. PRICING. Namco shall have final approval, which shall not be unreasonably
withheld, of the pricing structure for game play on all equipment including
discounts, promotional programs, special or corporate events or any other
specials that impact the equipment and revenues derived from the Equipment.
Namco and Skyline agree to establish a discounted price per play for special
events. In absence of Namco's approval to participate in any such promotions or
events, the fee due Namco for events wherein XS New York is not 100% open to the
public, shall be the higher of the following: (a) 14% of the revenues received
on the Equipment during those hours; or (b) an amount equal to 14% of the
average hourly revenues earned by the Equipment for hours opened 100% to the
public during the preceding seven (7) days times the number of hours XS New York
is not open 100% to the public.
<PAGE>
5. OWNERSHIP. Skyline acknowledges that all of the Equipment is and shall always
remain the sole and separate property of Namco. Skyline shall in no way pledge
the Equipment or any part thereof or in any manner interfere with Namco's
ownership of the Equipment. Namco will request the location to sign and file a
UCC form or related form to further attest to Namco's ownership of the Equipment
and Skyline shall comply. As for the Debit Card Equipment purchased by Namco,
Skyline may purchase same at market value when this Agreement expires or is
terminated.
6. EXCLUSIVE USE. Namco shall have the full and exclusive right to operate at
the Premises traditionally coin operated Video, Pinball, Prize-Dispensing and
Merchandise Games as defined by and operated by Namco in its company-owned
locations. Skyline covenants, warrants, and agrees that during the term of this
Agreement it will not operate or cause to be operated at the Premises any
equipment other than Equipment installed and maintained by Namco, provided that
Namco is able to provide such other equipment. Skyline certifies that it has no
other contractual agreement with any person or entity regarding Equipment at the
Premises and hereby agrees to indemnify and hold harmless Namco if Namco should
be called upon to defend in a civil action with respect to such a pre-existing
contractual relationship.
Namco has informed Skyline that two (2) games currently at the Premises violate
Namco's exclusive use clause, specifically Home Run Derby/Pitcher's Duel and The
Shocker. Namco offers to purchase these games at cost less depreciation from
Skyline and operate them as part of the Equipment in the Premises. If this is
not acceptable, then Namco demands they be removed from the Premises to cure
Skyline's default of this provision.
7. COLLECTION. For purposes of this Agreement "operating week" shall mean seven
(7) days beginning on Monday and ending on Sunday and "collection date" shall
mean the close of business each Sunday. Skyline shall deposit revenues derived
from Equipment for each operating week and provide Namco with a weekly
collection report within one (1) day of the collection date as provided in this
paragraph below. The amount due shall be paid to and received by Namco within
ten (10) days of each collection date. If payments are not received by Namco
within ten (10) days of the collection date, on three (3) or more occasions in
any consecutive twelve (12) month period, notice of which shall be given to
Skyline in writing, or if Skyline fails to make any such payment within ten (10)
days of receiving a written notice of payment default, Namco at its election, in
addition to any other rights and remedies under Skyline's default of this
Agreement, may disable the Equipment and cease operations until all amounts due
have been collected.
Skyline shall use a debit card system for the operation of the Equipment instead
of the traditional coin or token operated "cash boxes". At the end of each
operating week, Skyline shall provide Namco with game data, specifically game
revenues and number of games played on each piece of equipment, via hard copy.
Namco will be provided with unencumbered access, both directly and via modem, to
the network and game management computer system, during normal business hours
for informational purposes only. Such policies are designed to ensure that Namco
has complete access to accurate game revenues and number of games being played
on the Equipment.
8. PHYSICAL ACCESS. Namco shall be entitled to make regular, unscheduled
physical checks of the Equipment to reconcile actual games play versus that
which was reported in the computer system.
9. ACCESS AND OPERATION. Namco shall install the Equipment on the Premises and
shall thereafter have full right during Skyline's regular business hours to
service and maintain the Equipment in addition to the physical and remote
computer access described above. Namco shall replace and exchange the Equipment
only during non-business hours of the Premises. Skyline shall at all times
during its regular business hours keep the Equipment accessible and ready for
customer use in an area mutually agreed upon by both parties. Skyline shall
furnish at its sole expense all electric current for the Equipment's operation.
Skyline shall also provide 150-200 square feet for storage and office space.
Skyline shall operate the Equipment and supply necessary operating personnel.
Namco shall assist Skyline in training such personnel in the proper operation of
the Equipment.
<PAGE>
Namco warrants and agrees to provide Skyline with a sufficient quantity of
Equipment to operate a first-class, high revenue Location comparable with other
Namco locations. Namco shall share with Skyline the selection of the Equipment
with respect to the model, make, type or quality of the Equipment and agrees to
maintain throughout the term of the Agreement, Equipment necessary to operate a
first-class, high revenue Location. In making its selection of Equipment, both
parties shall use, but not be limited to, information from the industry
periodicals; i.e. Replay Magazine and Play Meter Magazine, as well as Namco's
own professional experience and information.
Namco, shall periodically (1) purchase new Equipment for the Location; (2)
rotate Equipment; and (3) replace unproductive Equipment, so to maintain a high
quality standard of Equipment. Skyline may specify new or replacement Equipment
that it believes will benefit the Premises, and Namco will consider such
Equipment.
Skyline at any time may reasonably request Namco to remove and replace any game
or piece of Equipment and Namco shall comply to said request.
10. MAINTENANCE AND SUPPLY. Skyline, assisted by Namco shall service and
maintain all of the Equipment installed on the Premises at no cost to Skyline
for parts unless necessitated by vandalism or theft; in which event the Skyline
shall be solely responsible for the cost of repair and/or replacement of the
Equipment. Namco shall supply at its own expense one full time employee to
assist in maintaining Namco's Equipment.
11. DEFAULT. Except for nonpayment of amounts due Namco by Skyline (remedies
elaborated below), either party may terminate this Agreement in the event of any
breach by the other party of any material term, covenant, or condition, to be
performed by it hereto, if such default shall continue for a thirty (30) day
period after giving written notice by certified mail of the event of default
with the provision hereof, except that in the event of any breach of the
Insurance requirements in Paragraph 16, the Agreement may be terminated ten (10)
days after notice.
In the event of a default by Skyline for nonpayment of amounts due to Namco, in
addition to the provisions in Paragraph 7 above, and/or a breach of the
Insurance requirements in Paragraph 16, Namco, after giving ten (10) days
written notice, shall be entitled to (a) terminate this Agreement, (b) remove
the Equipment from the Premises, and (c) receive immediate payment from Skyline
upon demand of the greater of a termination fee of $250,000 or damages for the
early termination of the Agreement. For purposes of this Agreement, damages
shall be the amount due Namco per week for the remaining term of the Agreement
using the average weekly revenue for the preceding six (6) months as the basis.
In addition, damages shall include Namco's court costs and reasonable attorney's
fee incurred with the termination of this Agreement.
12. TERMINATION. It is further understood that Namco shall have the option of
terminating this Agreement at anytime after the first anniversary of this
Agreement should the trailing gross sales for any consecutive 12 month period be
less than $3,500,000 (Three Million Five Hundred Thousand Dollars). Notice of
such termination shall be written and delivered by certified or registered mail,
return receipt requested, no less than sixty (60) days prior to any proposed
termination date.
This Agreement may also be terminated by either party if any of the following
events occur:
x Location moves to other Premises.
x Location terminates or closes its business.
13. NOTICES. All notices required to be given hereunder by either of the
parties to the other shall be in writing and shall be sent by certified or
registered mail, return receipt requested, addressed to the address set forth
above.
<PAGE>
14. GOVERNING LAW. This Agreement shall be construed and enforced in accordance
with the law of the State of New York. If any portion of this Agreement is
found to be in violation of any law that portion shall be considered severed
from the Agreement and it shall not affect the remainder of this Agreement.
15. AMENDMENTS. This writing constitutes the entire agreement between the
parties and merges all prior agreements, understanding and discussions herein.
This Agreement may not be changed or modified except by written order of Namco
and written acceptance by Skyline and vice versa. Unless so specified in writing
by Namco or Skyline, no representation, promise or warranty made by any person
either before or after the signing hereof shall be binding.
16. INSURANCE. Namco, at Namco's own cost and expense, shall obtain and
maintain, in full force and effect during the term of this Agreement Workers
Compensation Insurance in the statutory amount and Comprehensive General Public
Liability Insurance with minimum limits in an amount not less than $2,000,000
for personal and bodily injury per occurrence.
Skyline, at Skyline's own cost and expense, shall obtain and maintain in full
force and effect during the term of this Agreement, All-risk Casualty Insurance,
Workers Compensation Insurance in the statutory required amount, and
Comprehensive General Public Liability Insurance with minimum limits in an
amount not less than $2,000,000 for personal and bodily injury per occurrence.
Either party may demand and shall receive a certificate of insurance issued by
the insuring carrier or carriers as evidence of insurance coverage at any time.
17. INDEMNITY. Namco shall indemnify and hold harmless Skyline, and its
officers, directors, agents and employees, against any claim, suit, action,
legal proceeding or demand, including interest, costs, expenses, reasonable
attorney's fees and any damage or injury sustained by Skyline, its officers,
directors, employees, representatives and affiliates, based upon a trademark,
copyright, or patent infringement arising out of the use of the Equipment at
Premises. Namco shall, if Namco so desires, undertake and conduct the defense of
any such claim, suit, action, legal proceeding or demand, at Namco's sole
expense and Skyline agrees to cooperate and provide all information and
assistance reasonably necessary to such defense.
Skyline shall indemnify and hold harmless Namco, its officers, directors,
employees, representatives and affiliates against any and all liability, loss,
claim, demands, damages or expenses including legal expenses due to the
development and the operation of the business at the Premises or arising out of
injury to any person (including injury resulting in death) as a result of the
use of the Equipment or any part thereof, except as may arise from the actual
negligence of Namco or defect in the Equipment.
<PAGE>
18. BINDING EFFECT. This Agreement shall be binding upon the parties hereto, and
their permitted successors and assigns. Neither party may assign, sell, transfer
or otherwise dispose of this Agreement without the express written consent of
the other, except that either party shall be entitled to transfer their rights
and obligations under this Agreement to an affiliate provided that such transfer
shall not relieve the transferring party from its obligations hereunder and
provided further that Skyline shall be entitled to transfer this Agreement to an
entity which acquires all or substantially all of its assets. Namco shall have
the right to change the revenue share percentage from fourteen percent (14%) to
twenty four percent (24%) in this Agreement at any time after any sale,
assignment or transfer of this Agreement except to an affiliate. A change in
beneficial ownership of 50% or more of Skyline, shall be deemed to be an
assignment under this paragraph 18.
In witness whereof, the parties hereto have caused their duly authorized
officers to execute and deliver the Agreement under seals of the date and year
first written above.
Namco: Skyline:
NAMCO CYBERTAINMENT INC. SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
Signature: Signature:
---------------------- -------------------------
Title: Title:
-------------------------- ------------------------------
Dated: Dated:
------------------------- ------------------------------
SKYLINE VIRTUAL REALITY, INC.
Signature:
--------------------------
Title:
------------------------------
Dated:
------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 397,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 140,000
<CURRENT-ASSETS> 946,000
<PP&E> 14,356,000
<DEPRECIATION> 2,140,000
<TOTAL-ASSETS> 16,184,000
<CURRENT-LIABILITIES> 5,827,000
<BONDS> 0
0
1,000
<COMMON> 3,000
<OTHER-SE> 3,519,000
<TOTAL-LIABILITY-AND-EQUITY> 16,184,000
<SALES> 2,722,000
<TOTAL-REVENUES> 3,136,000
<CGS> 125,000
<TOTAL-COSTS> 3,241,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234,000
<INCOME-PRETAX> (339,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (339,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (339,000)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> 0.00
</TABLE>
