<PAGE>
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: March 31, 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 ___
Common stock $.001 par value--2,345,500 shares outstanding as of May 13,
1997. Additionally, there were 1,090,909 shares of Series A Convertible
Participating Preferred Stock, $.001 par value, outstanding as of May 13, 1997.
Transitional Small Business Disclosure Format
Yes ___ No X
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
Item 1. Condensed consolidated financial statements
(unaudited)
Balance sheet as of March 31, 1997 3
Statements of operations for the three and nine months
ended March 31, 1997 and 1996 4
Statements of cash flows for the nine months
ended March 31, 1997 and 1996 5
Notes to financial statements 6
Item 2 Management Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 15
SIGNATURES 16
INDEX TO EXHIBITS 17
2
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)
March 31, 1997
ASSETS
Current Assets
Cash $ 812,000
Inventory (Note 5) 167,000
Revenues receivable 312,000
Prepaid expenses and
other current assets 293,000
------------
Total Current Assets 1,584,000
Property, equipment and leasehold
improvements - net (Note 4) 11,897,000
Security deposits (Note 6) 911,000
Deferred project and leasing
costs (Note 4) 458,000
Due from officer (Note 11) 279,000
Certificate of deposit 206,000
Deferred financing costs -- net 460,000
Original issue discount costs (Note 7) 434,000
Other assets -- net 137,000
------------
Total Assets $ 16,366,000
============
LIABILITIES
Current Liabilities
Notes payable - current portion (Note 6) 647,000
Accounts payable 2,481,000
Accrued expenses and other current liabilities 457,000
Accrued payroll and payroll taxes 481,000
Deferred sponsorship income (Note 9) 50,000
------------
Total Current Liabilities 4,116,000
Notes payable - long term portion
(Notes 6 and 7) 6,526,000
Deferred rent payable (Note 8) 923,000
------------
Total Liabilities 11,565,000
============
Commitments and Contingencies
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 10,007,000
Accumulated deficit (4,609,000)
------------
Total Stockholders' equity 4,801,000
------------
Total Liabilities and Stockholders' Equity $ 16,366,000
============
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
March 31 March 31
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Attraction sales (Note 13) $ 1,412,000 $ 896,000 $ 4,378,000 $ 3,362,000
Concession sales 270,000 209,000 917,000 766,000
Sponsorship income 88,000 86,000 261,000 239,000
----------- ----------- ----------- -----------
TOTAL REVENUES 1,770,000 1,191,000 5,556,000 4,367,000
----------- ----------- ----------- -----------
Operating Expenses:
Cost of merchandise sold 124,000 69,000 354,000 266,000
Selling, general and administrative 2,846,000 1,044,000 6,308,000 3,192,000
(Note 13)
Depreciation and amortization 381,000 126,000 674,000 369,000
----------- ----------- ----------- -----------
Total Operating Expenses 3,351,000 1,239,000 7,336,000 3,827,000
Income/(loss) from operations (1,581,000) (48,000) (1,780,000) 540,000
Net interest (expense)/income (192,000) 1,000 (266,000) -0-
----------- ----------- ----------- -----------
Income/(loss) before provision
for income taxes (1,773,000) (47,000) (2,046,000) 540,000
Income tax expense (benefit) (118,000) 5,000 61,000 35,000
(Note 3 )
Net deferred tax expense (Note 3) 1,179,000 -0- 340,000 -0-
----------- ----------- ----------- -----------
Net income/(loss) $(2,834,000) $ (52,000) $(2,447,000) $ 505,000
=========== =========== =========== ===========
Net income/(loss) per share
of common stock $ (1.02) $ (.02) $ (.86) $ .18
=========== =========== =========== ===========
Weighted average number of shares
(excludes 670,000 escrow shares) 2,781,000 2,876,000 2,845,000 2,852,000
=========== =========== =========== ===========
</TABLE>
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>
NINE MONTHS ENDED
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $(2,447,000) $ 505,000
Adjustments to reconcile net income/(loss)
to net cash provided by operating activities:
Depreciation and amortization expense 675,000 369,000
Deferred income taxes 340,000 0
Issuance of warrants 331,000 0
Officer/stockholder advance on bonus granted 750,000 0
Changes in operating assets and liabilities:
(Increase) in inventory (37,000) (18,000)
(Increase) in prepaid and other assets (577,000) (156,000)
Increase/(decrease) in deferred sponsorship income (11,000) 39,000
Increase/(decrease) in accounts payable,
accrued expenses and deferred rent payable 3,067,000 (734,000)
----------- -----------
Net cash provided by operating activities 2,091,000 5,000
----------- -----------
Cash flows from investing activities:
(Increase) in security deposits (539,000) (192,000)
Acquisition of property, equipment and
leasehold improvements (5,511,000) (120,000)
Advances to officer/stockholder (1,370,000) 0
(Increase) in certificate of deposit (206,000) 0
Repayments from officer/stockholder 341,000 0
(Increase) in deferred project and leasing costs (228,000) 0
----------- -----------
Net cash (used in) investing activities (7,513,000) (312,000)
----------- -----------
Cash flows from financing activities:
Net proceeds from sale of preferred stock 0 2,833,000
Repayment of notes payable (590,000) (416,000)
Reduction of deferred private placement costs 0 62,000
Financing costs (937,000) 0
Purchase of treasury stock (601,000) 0
Issuance of warrants 434,000 0
Proceeds from notes payable 5,730,000 0
----------- -----------
Net cash provided by financing activities 4,036,000 2,479,000
----------- -----------
Net increase/(decrease) in cash (1,386,000) 2,172,000
Cash at beginning of period 2,198,000 144,000
----------- -----------
Cash at end of period $ 812,000 $ 2,316,000
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during period for:
Interest............... $ 214,000 $ 78,000
Taxes.................. $ 26,000 $ 61,000
Acquisition of Equipment Under Capital Lease....... $ 1,418,000 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 nine months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the full
fiscal year ended June 30, 1997. 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, 1996.
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 including the convertible
participating preferred stock as common stock equivalents.
3. Income Taxes
The principal components of Deferred Tax Assets, Liabilities, and the
Valuation Allowance are as follows:
March 31
--------
1997 1996
---------- ----------
Deferred Tax Assets:
Capitalization of start-up costs 479,000 760,000
Net operating loss carryforwards 2,056,000 490,000
---------- ----------
2,535,000 1,250,000
Valuation allowance (1,989,000) (1,250,000)
---------- ----------
546,000 -0-
Deferred Tax Liabilities:
Depreciation differences 546,000 -0-
---------- ----------
Net Deferred Tax Asset -0- -0-
========== ==========
The Company has provided a reserve of $1,989,000 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.
6
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
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 1,917,000
Simulation equipment 2,626,000
Simulation film 1,059,000
Leasehold improvements 7,663,000
-----------
13,265,000
Less: Accumulated depreciation
and amortization (1,368,000)
-----------
Total 11,897,000
===========
(B) The Company has incurred leasing costs in connection with its XS New
York site and the Company's XS Chicago site. The Company is in the design phase
of XS Chicago and estimates that capital expenditures of approximately
$5,500,000 will be required to complete the project. The Company expects to
commence operations of the XS Chicago site during the Fall/Winter of 1997.
5. Inventory
Inventory consists of clothing, souvenirs and food sold at the Company's
various 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 an additional acquisition of the equipment
for its XS New York site. The Company received approximately $832,000 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, in April 1997 the Company received
$205,000 with 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 amounts financed bear 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
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
7. Subordinated Note Payable
On October 23, 1996, the Company signed a letter of intent with an
institutional investor to provide $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 years from the date of issuance. The amount of
the subordinated debt provided was subsequently increased to $4,450,000. In
connection with the subordinated debt, the lender received warrants to purchase
up to 434,146 shares of common stock at an exercise price of $4.25 per share. A
purchase price of $1.00 per warrant was allocated from the subordinated debt
proceeds received by the Company. On November 6, 1996, the Investor provided the
Company with a "bridge" loan of $1,500,000, at an annual interest rate of 14%
which was subsequently exchanged in December for a portion of the unsecured
subordinated debt. As of March 31, 1997, the Company received the full proceeds
under the agreement.
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 March 31, 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
$50,000 and $81,000, 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 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 beginning nine months from the date of issuance.
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 the sole direction of such preferred stockholder, it
becomes reasonably necessary for the protection of its investment.
8
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
11. Due from Officer
During the nine months ended March 31, 1997, the Company advanced an
aggregate of $1,091,000 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, a bonus to the President declared by the Board of
Directors of approximately $750,000 has been applied against these advances in
partial consideration for which the 10% pre-tax bonus pursuant to his employment
contract was canceled. As a result of this bonus, certain federal, state and
local withholding tax obligations were incurred aggregating $279,000, which
amount was accrued by the Company and was due from such officer as of March 31,
1997.
12. Recently Issued Accounting Standards
The Company has not elected to adopt early, the recently issued accounting
standard for stock based compensation (FAS 123). However, 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 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 March
31, 1997, an aggregate of approximately $4,000 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.
Pursuant to such agreements approximately $198,000 was paid to vendors for the
quarter ended March 31, 1997, which amount is included in revenues and selling,
general and administrative expenses.
9
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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 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 Company had intended
to utilize the additional space to create a mixed use location-based
entertainment center. However, development plans for the additional space have
been deferred until such time as the XS New York project (described below) is
operating profitably and further assessment is made with respect to the cost and
funding of the XS Chicago and Sydney Skyride projects (described below). It is
likely, however, that the Company will be unable to develop the additional space
within the Empire State Building in the near term, in which event, the Company
will be forced to surrender this space to the Empire State Building or assign or
sublet such space. The Company is currently exploring its options with respect
to these alternatives, which in any event, will not have a material impact on
the Company.
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. Accordingly, revenues generated by XS
New York during the quarter are disproportionate to the expenses incurred to
commence operations and the normal overhead expenses attributable to such
operations during the quarter.
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 March 31, 1997 and 1996, New York Skyride was
visited by approximately 125,000 customers. Additionally, the Times Square area,
where XS New York is located, is visited by approximately 20 to 30 million
tourists annually, a large percentage of which visit during the spring and
summer months and during the December holiday season.
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
10
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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 a newly created
subsidiary, Skyline Chicago, Inc., plans to develop a state-of-the-art
interactive virtual reality entertainment center, XS Chicago, similar to the XS
New York project. The XS Chicago location 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. The Company expects to open its
XS Chicago facility during the Fall/Winter of 1997.
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. Centrepoint is the leading shopping and tourist
attraction in Sydney, 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 Company has negotiated for the
sale of a combined ticket to both the Tower and the Company's attraction. The
base rent ranges from $225,000 in Year 1 to $600,000 in Year 8. There is also a
provision for percentage rent of 6.5% of gross sales in excess of $7,000,000.
The Company also 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 hopes to finalize lease documentation by June of 1997 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 Spring 1998. There can be no assurance, however, 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 these projects and complete construction of
the "Sydney Skyride" by the date anticipated, if at all.
The Company, through its subsidiary, Skyline Magic, Inc., entered into a
50/50 joint venture in order to produce and manage a "Broadway-style" show
featuring the talents of Joseph Gabriel, an internationally renowned magician.
The show, "Magic on Broadway", is currently showing at the Lambs Theater in New
York City which was initially expected to run until April 1997. The joint
venture has the option to extend the engagement on a weekly basis and is
currently evaluating the future of the show. According to the terms of the joint
venture, the Company's investment is limited to its initial contribution of
$250,000, which amount has previously been written-off. Additional obligations
that arise will be the responsibility of the joint venture partner.
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 XS Chicago
attraction 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.
11
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Results of Operations
Revenues. Revenues generated during the three and nine months ended March
31, 1997, aggregated $1,770,000 and $5,556,000, respectively, compared to
$1,191,000 and $4,367,000, respectively, for the three and nine months ended
March 31, 1996. The increase in revenue for the three and nine months ended
March 31, 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 $905,000 during the quarter ended March 31, 1997. Additionally, the
Company experienced an increased average ticket price for New York Skyride and
higher attendance for the nine month period ended March 31, 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 and nine month
period ended March 31, 1997 the Company earned approximately $88,000 and
$261,000, 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. Approximately $812,000 of such income
has been received to date, of which $230,000 and $279,000, respectively, was
received during the nine month periods ended March 31, 1997 and 1996.
Additionally, management expects that these sponsorships will generate
additional revenue for the Company in the form of increased ticket sales through
joint marketing and promotional programs.
Operating Expenses. Operating expenses incurred during the three and nine
months ended March 31, 1997, aggregated $3,351,000 and $7,336,000, respectively,
compared to $1,239,000 and $3,827,000, respectively, for the three and nine
months ended March 31, 1996. The increase is due primarily to an increase of
approximately $400,000 in payroll and related expenses at New York Skyride for
both the three and nine months ended March 31, 1997, as well as certain start-up
expenses of approximately $1,540,000 relating to the opening of XS New York.
These XS New York related expenses include, among other things, payroll and
related expenses of approximately $1,128,000, real estate taxes of approximately
$65,000, consulting and promotional expenses of approximately $145,000, and an
allocation of corporate overhead and administrative expenses of approximately
$202,000. Additionally, the Company expended $250,000 in connection with its
involvement in "Magic on Broadway" during the nine month period ended March 31,
1997. Included in operating expenses for the quarter ended March 31, 1997 are
payments to vendors aggregating $198,000 in connection with revenue sharing
arrangements relating to use of such vendor's equipment at XS New York.
Net Income and Earnings Per Share. Net income/(loss) and earnings/(loss)
per share before deferred taxes were ($1,655,000) and ($.60), and ($2,107,000)
and ($.74), respectively, for the three and nine months ended March 31, 1997 as
compared to ($52,000) and ($.02), and $505,000 and $.18, respectively, for the
three and nine months ended March 31, 1996. The net loss before deferred
taxes of ($1,655,000) for the quarter ended March 31, 1997 included a loss of
approximately $1,052,000 related to certain start-up costs attributable to XS
New York (see "Operating Expenses" above) and a loss of approximately ($107,000)
from New York Skyride. During the quarter ended March 31, 1996, New York Skyride
operations incurred a loss of approximately ($48,000) with no deferred tax
benefit realized.
In addition to the net loss before deferred taxes, the Company incurred
losses and losses per share of ($1,179,000), and ($.42), respectively, and
($340,000) and ($.12), respectively, during the three months and nine months
ended March 31, 1997, as a result of an increase in reserve against the
Company's deferred tax asset for such periods. This resulted from the
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 the reserve will be adjusted accordingly. For the three
and nine months ended March 31, 1996 there was a provision for certain state and
local taxes of $5,000 and $35,000, respectively, with no benefit recognized for
net operating loss carryforwards.
12
<PAGE>
Working Capital. Working capital (deficiency) at March 31, 1997, was
approximately ($2,532,000) compared to working capital of approximately
$1,775,000 at March 31, 1996. The reduction in working capital is primarily the
result of the XS New York buildout of approximately $6,720,000, the operating
loss incurred during the nine month period of $2,107,000 and deferred project
leasing and financing costs aggregating $1,165,000 related to the Company's
capital investments in XS New York and XS Chicago as well as 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 that such action is reasonably necessary for the protection of its
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 a result of the Company's development of XS New York, the Company
incurred capital expenditures of approximately $6,720,000 consisting of $799,000
in design and consulting fees, $4,224,000 in construction and theming, $258,000
for signage, and approximately $1,439,000 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.
On October 23, 1996, the Company signed a letter of intent with Prospect
Street 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 5 years from the date of issuance. The amount of the
subordinated debt was subsequently increased to $4,450,000. In connection with
the subordinated debt agreement, the lender received warrants to purchase up to
434,146 shares of common stock at an exercise price of $4.25 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 bridge loan of $1,500,000, at
an annual interest rate of 14%, which bridge loan was exchanged for a portion of
the subordinated debt described above during December 1996. As of March 31,
1997, the Company received the total proceeds under the agreement.
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.
13
<PAGE>
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.
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.
Pursuant to the Company's stock buy-back program, approximately 110,000
shares were purchased by the Company for an aggregate of approximately $601,000.
Such shares have been placed in treasury.
The Company estimates the capital expenditures required to develop each of
the XS Chicago and Sydney Skyride facilities to be approximately $5,500,000.
These estimates include the construction of the facility, equipment hardware and
software, and design and theming costs. 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, or that there
will not be construction or other delays affecting completion of these projects.
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 planned
growth strategy. In this regard, the Company has deferred development plans for
the additional space at the Empire State Building site until such time as the XS
New York project is operating profitably and further assessments are made with
respect to the source of the funds to finance the XS Chicago and Sydney Skyride
projects. Accordingly, there can be no assurance that the additional space at
the Empire State Building will be successfully developed without a strategic
partner, or at all. The Company is reviewing its options with respect to this
space, including surrendering, subletting or assigning such space, none of which
actions are anticipated to have a material effect on the Company.
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.
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.
14
<PAGE>
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 XS Chicago 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 XS Chicago site
upon commencement of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
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.
15
<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
Principal Financial and Accounting Officer
Dated: May 13, 1997
16
<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)
17
<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)
18
<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.
10.39 Senior Promissory Note dated March 14, 1997 between the Company and
Prospect Street NYC Co-Investment Fund, L.P.
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.
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.
19
<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.
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.
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.
(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.
20
<PAGE>
THE SECURITY REPRESENTED BY THIS NOTE WAS ORIGINALLY ISSUED ON FEBRUARY 18,
1997, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OR UNDER ANY STATE SECURITIES LAWS. THIS SECURITY MAY NOT BE RESOLD OR
TRANSFERRED UNLESS REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS.
THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN THAT CERTAIN
CREDIT AGREEMENT, DATED AS OF DECEMBER 20, 1996, AS AMENDED, MODIFIED OR
RESTATED FROM TIME TO TIME, AMONG THE BORROWERS NAMED THEREIN AND THE LENDERS
NAMED THEREIN.
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT, AND AS REQUIRED BY
TREASURY REGULATION Section 1.1275-3(B)(1), INFORMATION REGARDING THE ISSUE
PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE AND THE YIELD TO
MATURITY MAY BE OBTAINED FROM THE BORROWERS.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
NEW YORK SKYLINE, INC.
SKYLINE VIRTUAL REALITY, INC.
SKYLINE CHICAGO, INC.
SKYLINE MAGIC, INC.
SKYLINE LAS VEGAS, INC.
SENIOR PROMISSORY NOTE
February 18, 1997 $500,000
New York, New York No. 4
FOR VALUE RECEIVED, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a
New York corporation ("SMEI"), NEW YORK SKYLINE, INC., a New York corporation
("NYSI"), SKYLINE VIRTUAL REALITY, INC., a Delaware corporation ("SVRI"),
SKYLINE CHICAGO, INC., a Delaware corporation ("SCI"), SKYLINE MAGIC, INC., a
Delaware corporation ("SMI"), SKYLINE LAS VEGAS, INC., a Delaware corporation
("SLVI") (SMEI, NYSI, SVRI, SCI, SMI and SLVI, each a "Borrower" and, jointly
and severally, the "Borrowers"), each hereby jointly and severally promises to
pay Bank of New York, as Trustee for the Employees Retirement Plan of the
Brooklyn Union Gas Company and its registered assigns (the "Registered Holder")
the unpaid principal amount of each Loan made by the Registered Holder to each
such Borrower (as indicated on the schedule attached hereto) together with
interest and premiums thereon calculated from the date hereof in accordance with
the provisions of this Note.
<PAGE>
This Note was issued pursuant to a Senior Credit Agreement,
dated as of December 20, 1996 (as amended, modified or restated from time to
time, the "Credit Agreement"), among the Borrowers and the Lenders, and this
Note is one of the "Senior Notes" referred to in the Credit Agreement. The
Credit Agreement contains terms governing the rights of the holder of this Note,
and all provisions of the Credit Agreement are hereby incorporated herein in
full by reference. Unless otherwise indicated herein, capitalized terms used in
this Note have the same meanings as set forth in the Credit Agreement.
1. Interest. Interest will accrue on the unpaid principal
amount of this Note from the date hereof at a rate of 14% per annum. Interest
accrued on this Note shall be payable on December 20, 2001 (the "Final Maturity
Date"). Upon the occurrence and during the continuance of an Event of Default,
interest will accrue on the unpaid principal amount of this Note, all unpaid
interest on this Note and all other amounts payable hereunder, to the extent
permitted by applicable law, at 21% per annum.
2. Method of Payment. Each Borrower shall pay principal,
interest and all other amounts payable on this Note with respect to any Loan
made by the Registered Holder to such Borrower in money of the United States
that at the time of payment is legal tender for payment of public and private
debts. Each Borrower shall pay principal and interest on this Note with respect
to any Loan made by the Registered Holder to each Borrower by wire transfer of
immediately available funds. All payments shall be applied first, to all accrued
and unpaid interest hereon, second, to unpaid premiums, if any, and third, to
principal.
3. Prepayment. The Borrowers may, at any time and from time to
time, prepay all or any portion of the principal amount of this Note in cash.
Written notice of prepayment under this Section 3 shall be given at least 30
days but not more than 60 days before the prepayment date set forth in such
notice to the Registered Holder at the address provided in or pursuant to
Section 9. Any such prepayment shall be in an amount of at least $250,000 and in
integrals of $50,000, or such lesser amount as equals the then outstanding
principal amount of this Note being prepaid, and shall be accompanied by the
cash payment of all accrued and unpaid interest on the portion of the principal
then being prepaid plus a premium equal to the applicable percentage of the
principal amount being prepaid, determined as follows:
During the 12-Month Period
Beginning December 20 Applicable Percentage
1996 5%
1997 4%
1998 3%
1999 2%
2000 1%
-2-
<PAGE>
Once due notice of prepayment is given, the principal amount of this Note (or
applicable portion thereof) shall become due and payable on the optional
prepayment date set forth in the written notice to the Registered Holder.
4. Repayment. Each Borrower will repay this Note (with respect
to any Loan made by the Registered Holder to such Borrower) in full, in cash on
the Final Maturity Date at 100% of the outstanding principal amount of this Note
plus accrued but unpaid interest thereon to such date.
5. Events of Default; Remedies. Events of Default and the
consequences of Events of Default are set forth in Article VIII of the Credit
Agreement. All provisions of Article VIII of the Credit Agreement are
specifically hereby incorporated herein in full by this reference.
6. Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of SMEI, without expense to the Registered Holder, for a Note
or Notes, dated as of the date to which interest has been paid on the unpaid
principal amount of the Note or Notes so exchanged, or, if no interest has been
paid thereon, then dated as of the date of the Note or Notes so exchanged, each
in the principal amount $1,000 or any multiple thereof, for the same aggregate
unpaid principal amount as the Note or Notes so surrendered for exchange and
each payable to such Person or Persons, or order, as may be designated by such
Registered Holder; provided, however, that upon any such exchange there shall be
filed with the Borrowers the name and address for all purposes hereof of the
payee of each Note delivered in exchange for this Note and such exchanged Note
shall in all other respects be in the same form and have the same terms as this
Note.
7. Replacement. Upon receipt of evidence reasonable
satisfactory to the Borrowers (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
this Note, and in the case of any such loss, theft or destruction, upon receipt
of indemnity reasonably satisfactory to the Borrowers (provided that if the
Registered Holder is a financial institution or other institutional investor its
own agreement shall be satisfactory) or, in the case of any such mutilation upon
surrender of this Note, the Borrowers shall (at their expense) execute and
deliver in lieu of such Note, a Note of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated Note and dated as of
the date to which interest has been paid on the unpaid principal amount of the
Note so lost, stolen, destroyed or mutilated, or, if no interest has been paid
thereon, then dated as of the date of the Note so lost, stolen, destroyed or
mutilated.
8. Place of Payment. Payments of principal and cash interest
and other amounts payable hereunder are to be delivered at the following
address:
-3-
<PAGE>
Bank of New York, as Trustee for the
Employees Retirement Plan of the
Brooklyn Union Gas Company
c/o The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, NY 11201-3850
or to such other address or to the attention of such other Person as specified
by prior written notice to the Borrowers.
9. Headings; Governing Law. The headings used in this Note
are for convenience of reference only and do not define or limit the provisions
hereof. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR
ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
10. Note Register. Each Borrower shall maintain at its
principal executive offices books for the registration and the registration of
transfer of this Note. Each Borrower may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.
11. Usury Laws. It is the intention of the Borrowers and the
holder(s) of this Note to conform strictly to all applicable usury laws now or
hereafter in force, and any interest payable under this Note shall be subject to
reduction to the amount not in excess of the maximum legal amount allowed under
the applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated by
reason of an election by the holder hereof resulting from an Event of Default,
voluntary prepayment by the Borrowers or otherwise, then earned interest may
never include more than the maximum amount permitted by law, computed from the
date hereof until payment, and any interest in excess of the maximum amount
permitted by law shall be canceled automatically and, if theretofore paid, shall
at the option of the holders hereof either be rebated to the Borrowers or
credited on the principal amount of this Note, or if this Note has been paid,
then the excess shall be rebated to the Borrowers. The aggregate of all interest
(whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the unpaid principal balance of
this Note remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to the Borrowers or
credited on the principal amount of this Note, or if this Note has been repaid,
then such excess shall be rebated to the Borrowers.
-4-
<PAGE>
12. Certain Waivers. Each of the Borrowers hereby waives
diligence, presentment, protest and demand and notice of protest and demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of the Borrowers hereunder.
-5-
<PAGE>
IN WITNESS WHEREOF, each Borrower has executed and delivered
this Note as of the date first above written.
SKYLINE MULTIMEDIA
ENTERTAINMENT, INC.
By:____________________________
Name:
Title:
NEW YORK SKYLINE, INC.
By:____________________________
Name:
Title:
SKYLINE VIRTUAL REALITY, INC.
By:____________________________
Name:
Title:
SKYLINE CHICAGO, INC.
By:____________________________
Name:
Title:
SKYLINE MAGIC, INC.
By:____________________________
Name:
Title:
SKYLINE LAS VEGAS, INC.
By:____________________________
Name:
Title:
<PAGE>
BORROWER PRINCIPAL AMOUNT
Skyline Multimedia Entertainment, Inc.
New York Skyline, Inc.
Skyline Virtual Reality Inc.
Skyline Chicago, Inc.
Skyline Magic, Inc.
Skyline Las Vegas, Inc.
<PAGE>
THE SECURITY REPRESENTED BY THIS NOTE WAS ORIGINALLY ISSUED ON MARCH 14, 1997,
AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
UNDER ANY STATE SECURITIES LAWS. THIS SECURITY MAY NOT BE RESOLD OR TRANSFERRED
UNLESS REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS.
THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN THAT CERTAIN
CREDIT AGREEMENT, DATED AS OF DECEMBER 20, 1996, AS AMENDED, MODIFIED OR
RESTATED FROM TIME TO TIME, AMONG THE BORROWERS NAMED THEREIN AND THE LENDERS
NAMED THEREIN.
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT, AND AS REQUIRED BY
TREASURY REGULATION Section 1.1275-3(B)(1), INFORMATION REGARDING THE ISSUE
PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE AND THE YIELD TO
MATURITY MAY BE OBTAINED FROM THE BORROWERS.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
NEW YORK SKYLINE, INC.
SKYLINE VIRTUAL REALITY, INC.
SKYLINE CHICAGO, INC.
SKYLINE MAGIC, INC.
SKYLINE LAS VEGAS, INC.
SENIOR PROMISSORY NOTE
March 14, 1997 $450,000
New York, New York No. 5
FOR VALUE RECEIVED, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a
New York corporation ("SMEI"), NEW YORK SKYLINE, INC., a New York corporation
("NYSI"), SKYLINE VIRTUAL REALITY, INC., a Delaware corporation ("SVRI"),
SKYLINE CHICAGO, INC., a Delaware corporation ("SCI"), SKYLINE MAGIC, INC., a
Delaware corporation ("SMI"), SKYLINE LAS VEGAS, INC., a Delaware corporation
("SLVI") (SMEI, NYSI, SVRI, SCI, SMI and SLVI, each a "Borrower" and, jointly
and severally, the "Borrowers"), each hereby jointly and severally promises to
pay Prospect Street NYC Co-Investment Fund, L.P., a Delaware limited
partnership, and its registered assigns (the "Registered Holder") the unpaid
principal amount of each Loan made by the Registered Holder to each such
Borrower (as indicated on the schedule attached hereto) together with interest
and premiums thereon calculated from the date hereof in accordance with the
provisions of this Note.
<PAGE>
This Note was issued pursuant to a Senior Credit Agreement,
dated as of December 20, 1996 (as amended, modified or restated from time to
time, the "Credit Agreement"), among the Borrowers and the Lenders, and this
Note is one of the "Senior Notes" referred to in the Credit Agreement. The
Credit Agreement contains terms governing the rights of the holder of this Note,
and all provisions of the Credit Agreement are hereby incorporated herein in
full by reference. Unless otherwise indicated herein, capitalized terms used in
this Note have the same meanings as set forth in the Credit Agreement.
1. Interest. Interest will accrue on the unpaid principal
amount of this Note from the date hereof at a rate of 14% per annum. Interest
accrued on this Note shall be payable on December 20, 2001 (the "Final Maturity
Date"). Upon the occurrence and during the continuance of an Event of Default,
interest will accrue on the unpaid principal amount of this Note, all unpaid
interest on this Note and all other amounts payable hereunder, to the extent
permitted by applicable law, at 21% per annum.
2. Method of Payment. Each Borrower shall pay principal,
interest and all other amounts payable on this Note with respect to any Loan
made by the Registered Holder to such Borrower in money of the United States
that at the time of payment is legal tender for payment of public and private
debts. Each Borrower shall pay principal and interest on this Note with respect
to any Loan made by the Registered Holder to each Borrower by wire transfer of
immediately available funds. All payments shall be applied first, to all accrued
and unpaid interest hereon, second, to unpaid premiums, if any, and third, to
principal.
3. Prepayment. The Borrowers may, at any time and from time to
time, prepay all or any portion of the principal amount of this Note in cash.
Written notice of prepayment under this Section 3 shall be given at least 30
days but not more than 60 days before the prepayment date set forth in such
notice to the Registered Holder at the address provided in or pursuant to
Section 9. Any such prepayment shall be in an amount of at least $250,000 and in
integrals of $50,000, or such lesser amount as equals the then outstanding
principal amount of this Note being prepaid, and shall be accompanied by the
cash payment of all accrued and unpaid interest on the portion of the principal
then being prepaid plus a premium equal to the applicable percentage of the
principal amount being prepaid, determined as follows:
During the 12-Month Period
Beginning December 20 Applicable Percentage
1996 5%
1997 4%
1998 3%
1999 2%
2000 1%
-2-
<PAGE>
Once due notice of prepayment is given, the principal amount of this Note (or
applicable portion thereof) shall become due and payable on the optional
prepayment date set forth in the written notice to the Registered Holder.
4. Repayment. Each Borrower will repay this Note (with respect
to any Loan made by the Registered Holder to such Borrower) in full, in cash on
the Final Maturity Date at 100% of the outstanding principal amount of this Note
plus accrued but unpaid interest thereon to such date.
5. Events of Default; Remedies. Events of Default and the
consequences of Events of Default are set forth in Article VIII of the Credit
Agreement. All provisions of Article VIII of the Credit Agreement are
specifically hereby incorporated herein in full by this reference.
6. Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of SMEI, without expense to the Registered Holder, for a Note
or Notes, dated as of the date to which interest has been paid on the unpaid
principal amount of the Note or Notes so exchanged, or, if no interest has been
paid thereon, then dated as of the date of the Note or Notes so exchanged, each
in the principal amount $1,000 or any multiple thereof, for the same aggregate
unpaid principal amount as the Note or Notes so surrendered for exchange and
each payable to such Person or Persons, or order, as may be designated by such
Registered Holder; provided, however, that upon any such exchange there shall be
filed with the Borrowers the name and address for all purposes hereof of the
payee of each Note delivered in exchange for this Note and such exchanged Note
shall in all other respects be in the same form and have the same terms as this
Note.
7. Replacement. Upon receipt of evidence reasonable
satisfactory to the Borrowers (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
this Note, and in the case of any such loss, theft or destruction, upon receipt
of indemnity reasonably satisfactory to the Borrowers (provided that if the
Registered Holder is a financial institution or other institutional investor its
own agreement shall be satisfactory) or, in the case of any such mutilation upon
surrender of this Note, the Borrowers shall (at their expense) execute and
deliver in lieu of such Note, a Note of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated Note and dated as of
the date to which interest has been paid on the unpaid principal amount of the
Note so lost, stolen, destroyed or mutilated, or, if no interest has been paid
thereon, then dated as of the date of the Note so lost, stolen, destroyed or
mutilated.
8. Place of Payment. Payments of principal and cash interest
and other amounts payable hereunder are to be delivered at the following
address:
-3-
<PAGE>
Prospect Street NYC Co-Investment Fund, L.P.
250 Park Avenue, 17th Floor
New York, New York 10177
or to such other address or to the attention of such other Person as specified
by prior written notice to the Borrowers.
9. Headings; Governing Law. The headings used in this Note
are for convenience of reference only and do not define or limit the provisions
hereof. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR
ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
10. Note Register. Each Borrower shall maintain at its
principal executive offices books for the registration and the registration of
transfer of this Note. Each Borrower may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.
11. Usury Laws. It is the intention of the Borrowers and the
holder(s) of this Note to conform strictly to all applicable usury laws now or
hereafter in force, and any interest payable under this Note shall be subject to
reduction to the amount not in excess of the maximum legal amount allowed under
the applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated by
reason of an election by the holder hereof resulting from an Event of Default,
voluntary prepayment by the Borrowers or otherwise, then earned interest may
never include more than the maximum amount permitted by law, computed from the
date hereof until payment, and any interest in excess of the maximum amount
permitted by law shall be canceled automatically and, if theretofore paid, shall
at the option of the holders hereof either be rebated to the Borrowers or
credited on the principal amount of this Note, or if this Note has been paid,
then the excess shall be rebated to the Borrowers. The aggregate of all interest
(whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the unpaid principal balance of
this Note remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to the Borrowers or
credited on the principal amount of this Note, or if this Note has been repaid,
then such excess shall be rebated to the Borrowers.
12. Certain Waivers. Each of the Borrowers hereby waives
diligence, presentment, protest and demand and notice of protest and demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from
-4-
<PAGE>
time to time and that the holder hereof may accept security for this Note or
release security for this Note, all without in any way affecting the liability
of the Borrowers hereunder.
-5-
<PAGE>
IN WITNESS WHEREOF, each Borrower has executed and delivered
this Note as of the date first above written.
SKYLINE MULTIMEDIA
ENTERTAINMENT, INC.
By:____________________________
Name:
Title:
NEW YORK SKYLINE, INC.
By:____________________________
Name:
Title:
SKYLINE VIRTUAL REALITY, INC.
By:____________________________
Name:
Title:
SKYLINE CHICAGO, INC.
By:____________________________
Name:
Title:
SKYLINE MAGIC, INC.
By:____________________________
Name:
Title:
SKYLINE LAS VEGAS, INC.
By:____________________________
Name:
Title:
<PAGE>
BORROWER PRINCIPAL AMOUNT
Skyline Multimedia Entertainment, Inc.
New York Skyline, Inc.
Skyline Virtual Reality Inc.
Skyline Chicago, Inc.
Skyline Magic, Inc.
Skyline Las Vegas, Inc.
<PAGE>
THE SECURITY REPRESENTED BY THIS NOTE WAS ORIGINALLY ISSUED ON MARCH 21,
1997, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR UNDER ANY STATE SECURITIES LAWS. THIS SECURITY MAY NOT BE
RESOLD OR TRANSFERRED UNLESS REGISTERED OR EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ALL APPLICABLE STATE
SECURITIES LAWS.
THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN THAT CERTAIN
CREDIT AGREEMENT, DATED AS OF DECEMBER 20, 1996, AS AMENDED, MODIFIED OR
RESTATED FROM TIME TO TIME, AMONG THE BORROWERS NAMED THEREIN AND THE
LENDERS NAMED THEREIN.
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT, AND AS REQUIRED BY
TREASURY REGULATION 1.1275-3(B)(1), INFORMATION REGARDING THE ISSUE PRICE,
THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE AND THE YIELD TO
MATURITY MAY BE OBTAINED FROM THE BORROWERS.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
NEW YORK SKYLINE, INC.
SKYLINE VIRTUAL REALITY, INC.
SKYLINE CHICAGO, INC.
SKYLINE MAGIC, INC.
SKYLINE LAS VEGAS, INC.
SENIOR PROMISSORY NOTE
March 21, 1997 $500,000
New York, New York No. 6
FOR VALUE RECEIVED, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a
New York corporation ("SMEI"), NEW YORK SKYLINE, INC., a New York corporation
("NYSI"), SKYLINE VIRTUAL REALITY, INC., a Delaware corporation ("SVRI"),
SKYLINE CHICAGO, INC., a Delaware corporation ("SCI"), SKYLINE MAGIC, INC., a
Delaware corporation ("SMI"), SKYLINE LAS VEGAS, INC., a Delaware corporation
("SLVI") (SMEI, NYSI, SVRI, SCI, SMI and SLVI, each a "Borrower" and, jointly
and severally, the "Borrowers"), each hereby jointly and severally promises to
pay Bank of New York, as Trustee for Brooklyn Union Gas Company Non-Bargaining
Health VEBA, and its registered assigns (the "Registered Holder") the unpaid
principal amount of each Loan made by the Registered Holder to each such
Borrower (as indicated on the schedule attached hereto) together with interest
and premiums thereon calculated from the date hereof in accordance with the
provisions of this Note.
<PAGE>
This Note was issued pursuant to a Senior Credit Agreement,
dated as of December 20, 1996 (as amended, modified or restated from time to
time, the "Credit Agreement"), among the Borrowers and the Lenders, and this
Note is one of the "Senior Notes" referred to in the Credit Agreement. The
Credit Agreement contains terms governing the rights of the holder of this Note,
and all provisions of the Credit Agreement are hereby incorporated herein in
full by reference. Unless otherwise indicated herein, capitalized terms used in
this Note have the same meanings as set forth in the Credit Agreement.
1. Interest. Interest will accrue on the unpaid principal
amount of this Note from the date hereof at a rate of 14% per annum. Interest
accrued on this Note shall be payable on December 20, 2001 (the "Final Maturity
Date"). Upon the occurrence and during the continuance of an Event of Default,
interest will accrue on the unpaid principal amount of this Note, all unpaid
interest on this Note and all other amounts payable hereunder, to the extent
permitted by applicable law, at 21% per annum.
2. Method of Payment. Each Borrower shall pay principal,
interest and all other amounts payable on this Note with respect to any Loan
made by the Registered Holder to such Borrower in money of the United States
that at the time of payment is legal tender for payment of public and private
debts. Each Borrower shall pay principal and interest on this Note with respect
to any Loan made by the Registered Holder to each Borrower by wire transfer of
immediately available funds. All payments shall be applied first, to all
accrued and unpaid interest hereon, second, to unpaid premiums, if any, and
third, to principal.
3. Prepayment. The Borrowers may, at any time and from time
to time, prepay all or any portion of the principal amount of this Note in
cash. Written notice of prepayment under this Section 3 shall be given at
least 30 days but not more than 60 days before the prepayment date set forth in
such notice to the Registered Holder at the address provided in or pursuant to
Section 9. Any such prepayment shall be in an amount of at least $250,000 and
in integrals of $50,000, or such lesser amount as equals the then outstanding
principal amount of this Note being prepaid, and shall be accompanied by the
cash payment of all accrued and unpaid interest on the portion of the principal
then being prepaid plus a premium equal to the applicable percentage of the
principal amount being prepaid, determined as follows:
During the 12-Month Period
Beginning December 20 Applicable Percentage
1996 5%
1997 4%
1998 3%
1999 2%
2000 1%
-2-
<PAGE>
Once due notice of prepayment is given, the principal amount of this Note (or
applicable portion thereof) shall become due and payable on the optional
prepayment date set forth in the written notice to the Registered Holder.
4. Repayment. Each Borrower will repay this Note (with
respect to any Loan made by the Registered Holder to such Borrower) in full, in
cash on the Final Maturity Date at 100% of the outstanding principal amount of
this Note plus accrued but unpaid interest thereon to such date.
5. Events of Default; Remedies. Events of Default and the
consequences of Events of Default are set forth in Article VIII of the Credit
Agreement. All provisions of Article VIII of the Credit Agreement are
specifically hereby incorporated herein in full by this reference.
6. Note Exchangeable for Different Denominations. This Note
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of SMEI, without expense to the Registered Holder, for a Note
or Notes, dated as of the date to which interest has been paid on the unpaid
principal amount of the Note or Notes so exchanged, or, if no interest has been
paid thereon, then dated as of the date of the Note or Notes so exchanged, each
in the principal amount $1,000 or any multiple thereof, for the same aggregate
unpaid principal amount as the Note or Notes so surrendered for exchange and
each payable to such Person or Persons, or order, as may be designated by such
Registered Holder; provided, however, that upon any such exchange there shall be
filed with the Borrowers the name and address for all purposes hereof of the
payee of each Note delivered in exchange for this Note and such exchanged Note
shall in all other respects be in the same form and have the same terms as this
Note.
7. Replacement. Upon receipt of evidence reasonable
satisfactory to the Borrowers (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
this Note, and in the case of any such loss, theft or destruction, upon receipt
of indemnity reasonably satisfactory to the Borrowers (provided that if the
Registered Holder is a financial institution or other institutional investor its
own agreement shall be satisfactory) or, in the case of any such mutilation upon
surrender of this Note, the Borrowers shall (at their expense) execute and
deliver in lieu of such Note, a Note of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated Note and dated as of
the date to which interest has been paid on the unpaid principal amount of the
Note so lost, stolen, destroyed or mutilated, or, if no interest has been paid
thereon, then dated as of the date of the Note so lost, stolen, destroyed or
mutilated.
8. Place of Payment. Payments of principal and cash interest
and other amounts payable hereunder are to be delivered at the following
address:
-3-
<PAGE>
Bank of New York, as Trustee for Brooklyn Union
Gas Company Non-Bargaining Health VEBA
c/o The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, NY 11201-3850
or to such other address or to the attention of such other Person as specified
by prior written notice to the Borrowers.
9. Headings; Governing Law. The headings used in this Note
are for convenience of reference only and do not define or limit the provisions
hereof. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR
ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
10. Note Register. Each Borrower shall maintain at its
principal executive offices books for the registration and the registration of
transfer of this Note. Each Borrower may deem and treat the Registered Holder
as the absolute owner hereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.
11. Usury Laws. It is the intention of the Borrowers and the
holder(s) of this Note to conform strictly to all applicable usury laws now or
hereafter in force, and any interest payable under this Note shall be subject to
reduction to the amount not in excess of the maximum legal amount allowed under
the applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated by
reason of an election by the holder hereof resulting from an Event of Default,
voluntary prepayment by the Borrowers or otherwise, then earned interest may
never include more than the maximum amount permitted by law, computed from the
date hereof until payment, and any interest in excess of the maximum amount
permitted by law shall be canceled automatically and, if theretofore paid, shall
at the option of the holders hereof either be rebated to the Borrowers or
credited on the principal amount of this Note, or if this Note has been paid,
then the excess shall be rebated to the Borrowers. The aggregate of all
interest (whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the unpaid principal balance of
this Note remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to the Borrowers or
credited on the principal amount of this Note, or if this Note has been repaid,
then such excess shall be rebated to the Borrowers.
-4-
<PAGE>
12. Certain Waivers. Each of the Borrowers hereby waives
diligence, presentment, protest and demand and notice of protest and demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of the Borrowers hereunder.
-5-
<PAGE>
IN WITNESS WHEREOF, each Borrower has executed and delivered
this Note as of the date first above written.
SKYLINE MULTIMEDIA
ENTERTAINMENT, INC.
By:____________________________
Name:
Title:
NEW YORK SKYLINE, INC.
By:____________________________
Name:
Title:
SKYLINE VIRTUAL REALITY, INC.
By:____________________________
Name:
Title:
SKYLINE CHICAGO, INC.
By:____________________________
Name:
Title:
SKYLINE MAGIC, INC.
By:____________________________
Name:
Title:
SKYLINE LAS VEGAS, INC.
By:____________________________
Name:
Title:
<PAGE>
BORROWER PRINCIPAL AMOUNT
Skyline Multimedia Entertainment, Inc.
New York Skyline, Inc.
Skyline Virtual Reality Inc.
Skyline Chicago, Inc.
Skyline Magic, Inc.
Skyline Las Vegas, Inc.
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS, AND MAY
BE OFFERED AND SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
STOCK PURCHASE WARRANT
Date of Issuance: February 18, 1997 Certificate No. 6
For value received, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), hereby grants to Bank of New York, as Trustee for
the Employees Retirement Plan of the Brooklyn Union Gas Company or its
registered assigns (the "Registered Holder"), the right to purchase from the
Company 48,780 shares of Warrant Shares at a price per share of $4.25 (as
adjusted from time to time, the "Exercise Price"). This Warrant is one of
several warrants (collectively, the "Warrants") issued pursuant to the Senior
Credit Agreement dated as of December 20, 1996, by and among the Company, the
other Borrowers named therein and the Lenders named therein (as such agreement
may be amended, modified or restated from time to time, the "Credit Agreement").
The Exercise Price and number of Warrant Shares (and the amount and kind of
other securities) for which this Warrant is exercisable shall be subject to
adjustment as provided herein. Certain capitalized terms used herein are defined
in Section 5 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this Warrant
may be exercised, in whole or in part, at any time and from time to time after
the Date of Issuance to and including 5:00 p.m., New York time, on December 20,
2006 or, if such day is not a business day, on the next preceding business day
(the "Exercise Period"); provided, however, that if the Company shall not have
given the Registered Holder written notice of the expiration of the Exercise
Period at least 60 days but not more than 90 days prior to the expiration of the
Exercise Period, the Exercise Period shall be extended until the 60th day
following the receipt by the Registered Holder of such a notice.
1
<PAGE>
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when
all of the following items have been delivered to the Company (the "Exercise
Time"):
(a) a completed Exercise Agreement, as described in
Section 1C below, executed by the Person exercising all or part of the
purchase rights represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the Registered Holder, an
Assignment or Assignments in the form set forth in Exhibit II hereto
evidencing the assignment of this Warrant to the Purchaser; and
(d) either (i) a check payable to the Company in an
amount equal to the Exercise Price multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (ii) the surrender to the Company of debt or equity securities
of the Company or any of its direct or indirect subsidiaries having a
value equal to the Aggregate Exercise Price of the Warrant Shares being
purchased upon such exercise (which value in the case of debt
securities or any preferred stock shall be deemed to equal the
aggregate outstanding principal amount or liquidation value thereof
plus all accrued and unpaid interest thereon or accrued or declared and
unpaid dividends thereon and in the case of shares of Common Stock
shall be the Fair Market Value thereof), or (iii) the delivery of a
notice to the Company that the Purchaser is exercising the Warrant (or
portion thereof) by authorizing the Company to reduce the number of
Warrant Shares subject to such exercise of the Warrant or portion
thereof by the number of shares having an aggregate Fair Market Value
determined as of the date immediately prior to the date of the Exercise
Time equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
days after the date of the Exercise Time together with any cash payable in lieu
of a fraction of a share pursuant to Section 14 hereof. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
(iii) The Warrant Shares issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
Registered Holder of such Warrant Shares at the Exercise Time.
2
<PAGE>
(iv) The issuance of certificates for Warrant Shares upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid.
(v) The Company shall not close its books against the transfer
of this Warrant or of any Warrant Shares issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Warrant Shares
acquirable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect. In the event that the Company fails to comply
with its obligations set forth in the foregoing sentence, in addition to all
other rights which the Registered Holder or Purchaser may have at law or in
equity, the Purchaser may (but shall not be obligated to) purchase Warrant
Shares hereunder at par value, and the Company shall be obligated to reimburse
the Purchaser for the aggregate amount of consideration paid in connection with
such exercise in excess of the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or Purchaser in connection with any
governmental filings or approvals required to be obtained or made by any of them
prior to or in connection with any exercise of this Warrant (including, without
limitation, making any filings or obtaining any approvals required to be made or
obtained by the Company).
(vii) Notwithstanding any other provision hereof, if an
exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and keep
available out of its authorized but unissued Warrant Shares solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any
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applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock or other securities
constituting Warrant Shares may be listed (except for official notice of
issuance which shall be immediately delivered by the Company upon each such
issuance). The Company will cause the Warrant Shares, immediately upon such
exercise, to be listed on any domestic securities exchange upon which shares of
Common Stock or other securities constituting Warrant Shares are listed at the
time of such exercise.
(ix) If the Warrant Shares issuable by reason of exercise of
this Warrant are convertible into or exchangeable for any other stock or
securities of the Company, the Company shall, at the Purchaser's option and upon
surrender of this Warrant by such Purchaser as provided above together with any
notice, statement or payment required to effect such conversion or exchange of
Warrant Shares, deliver to such Purchaser (or as otherwise specified by such
Purchaser) a certificate or certificates representing the stock or securities
into which the Warrant Shares issuable by reason of such conversion are
convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares. In order
to prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of Warrant Shares obtainable upon exercise of this Warrant shall
be subject to adjustment from time to time, as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever, on or after the date hereof, the Company issues
or sells, or in accordance with Section 2B is deemed to have issued or sold,
other than pursuant to a Permitted Issuance, as described in Section 2C, any
shares of Common Stock for a consideration per share less than the Fair Market
Value per share of the Common Stock determined as of the date of such issuance
or sale, then immediately upon such issuance or sale the Exercise Price shall be
reduced to equal the amount determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a fraction, the numerator
of which will be the sum of (1) the number of shares of Common Stock Deemed
Outstanding immediately prior to such issuance or sale multiplied by the Fair
Market Value per share of the Common Stock determined as of the date of such
issuance or sale, plus (2) the consideration, if any, received by the Company
upon such issuance or sale, and the denominator of which will be the product
derived by multiplying such
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Fair Market Value per share of the Common Stock by the number of shares of
Common Stock Deemed Outstanding immediately after such issuance or sale. Upon
each such adjustment of the Exercise Price hereunder, the number of Warrant
Shares acquirable upon exercise of this Warrant shall be adjusted to equal the
number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Section 2, the calculation of the number of shares of Common
Stock Deemed Outstanding shall exclude the shares of Common Stock issued upon
exercise of this Warrant.
2B. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 2A, the following shall be
applicable:
(i) Issuance of Rights or Options. If the Company in any
manner grants any rights or options (other than pursuant to a Permitted
Issuance) to subscribe for or to purchase Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (including without
limitation convertible common stock) (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities") and the price per share for which Common Stock
is issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities is less than the Fair Market Value per share of the
Common Stock in effect immediately prior to the time of the granting or sale of
such Options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of this paragraph, the "price
per share for which Common Stock is issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities" is determined by
dividing (A) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus in the case of such Options which are exercisable for
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon exercise of such Options
or upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options. No further adjustment of the Exercise Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities (other than pursuant to a
Permitted Issuance) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the
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Fair Market Value per share of the Common Stock in effect immediately prior to
the issuance or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of this paragraph, the "price per share for which Common
Stock is issuable upon such conversion or exchange" is determined by dividing
(A) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Exercise Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Exercise Price have been or are to be made pursuant to other provisions of this
Section 2B, no further adjustment of the Exercise Price shall be made by reason
of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If either the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock shall change at any time, the Exercise Price in
effect at the time of such change shall be adjusted to the Exercise Price which
would have been in effect at such time had such options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold and the number of Warrant Shares shall be
correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, in either case without the
exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Company shall be the market price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with
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any merger or other business combination in which the Company is the surviving
entity, the amount of consideration therefor shall be deemed to be the fair
value of such portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
marketable securities shall be determined jointly by the Company and the
Required Holders. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an appraiser
jointly selected by the Company and the Required Holders, whose determination
shall be final and binding on the Company and all Registered Holders of
Warrants. The fees and expenses of such appraiser shall be paid by the Company.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Option shall be deemed to
have been issued for no consideration
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any direct or indirect subsidiary of the Company
and the disposition of any shares so owned or held shall be considered an issue
or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
2C. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon exercise of this Warrant shall be proportionately increased. If the Company
at any time combines (by reverse stock split or otherwise) the Common Stock into
a smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be proportionately
decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange
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for Common Stock is referred to herein as an "Organic Change". Prior to the
consummation of any Organic Change, the Company shall make appropriate provision
(in form and substance satisfactory to the Required Holders) to ensure that each
Registered Holder of Warrants shall thereafter have the right to acquire and
receive upon exercise thereof, in lieu of or addition to (as the case may be)
the Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder's Warrants, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for the
number of Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder's Warrants had such Organic Change not taken
place. In any such case, the Company shall make appropriate provision (in form
and substance satisfactory to the Required Holders) with respect to such
Registered Holder's rights and interests to insure that the provisions hereof
(including, without limitation, Sections 2, 3 and 4) shall thereafter be
applicable to the Warrants (including, without limitation, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
such Organic Change). The Company shall not effect any such Organic Change
unless, prior to the consummation thereof, the successor entity (if other than
the Company) resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument (in form
and substance satisfactory to the Required Holders) the obligation to deliver to
each Registered Holder of Warrants such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Registered Holder may be
entitled to acquire upon exercise of Warrants.
2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features but excluding any
Permitted Issuance), then the Company's Board of Directors shall make an
appropriate adjustment in the Exercise Price and the number of Warrant Shares
obtainable upon exercise of this Warrant so as to protect the rights of the
Registered Holder of this Warrant; provided that no such adjustment shall
increase the Exercise Price or decrease the number of Warrant Shares issuable
upon exercise hereof other than as a readjustment in a manner consistent with
that contemplated by Section 2(B)(iv).
2F. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
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(ii) The Company shall give written notice to the Registered
Holder at least 30 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock, or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
SECTION 3. Certain Rights of Registered Holders Regarding Dividends. If
the Company pays a dividend or distribution upon the Common Stock, other than
dividends or distributions described in Section 2C, then the Company shall pay
to the Registered Holder of this Warrant, at the time of payment thereof, such
dividend or distribution which would have been paid to such Registered Holder
had this Warrant been fully exercised immediately prior to the date on which a
record is taken for such dividend or distribution or, if no record is taken, the
date as of which the record holders of Common Stock entitled to said dividends
or distributions are to be determined.
SECTION 4. Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock or any other shares of capital stock of the Company (the "Purchase
Rights") , then the Registered Holder shall be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such Registered Holder would have acquired if such Registered Holder had held
the maximum number of Warrant Shares acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
SECTION 5. Definitions. The following terms have the meanings set
forth below:
"Change of Control" has the meaning ascribed thereto in clause (i) of
the definition thereof in the Credit Agreement.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Company, any securities into which such Common Stock shall have been changed
or any securities resulting from any reclassification or recapitalization of
such Common Stock, and all other securities of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution or winding
up, either to all or to a share of the balance of payments upon such
dissolution, liquidation or winding up.
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"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of all classes of the Company's common stock actually outstanding at
such time, plus the number of shares of the Company's common stock deemed to be
outstanding pursuant to Section 2B(i) or 2B(ii) hereof.
"Date of Issuance" means the date the Company initially issues this
Warrant regardless of the number of times new certificates representing the
unexpired and unexercised rights formerly represented by this Warrant shall be
issued.
"Fair Market Value" means (i) the average of the closing sales prices
of the Common Stock on all domestic securities exchanges on which the Common
Stock is listed, or (ii) if there have been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day or, (iii) if on any day the Common Stock is not
so listed, the sales price for the Common Stock as of 4:00 P.M., New York time,
as reported on the Nasdaq Stock Market or, (iv) if the Common Stock is not
reported on the Nasdaq Stock Market, the average of the representative bid and
asked quotations for the Common Stock as of 4:00 P.M., New York time, as
reported on the Nasdaq interdealer quotation system, or any similar successor
organization, in each such case averaged over a period of 21 trading days
consisting of the day as of which "Fair Market Value" is being determined and
the immediately prior 20 trading days prior to such day during which the Common
Stock was traded; provided, however, that with respect to the exercise procedure
described in Section 1B(i)(d)(iii), in the event that a Change of Control has
occurred or there has been a public announcement concerning a possible Change of
Control or other event which would result in a Change of Control, in each case,
during the period in which "Fair Market Value" is being measured as provided
herein, such prices shall be averaged over a period of 21 trading days
consisting of the day before the earlier of the occurrence or announcement (if
different) of any such event and the immediately prior 20 trading days prior to
such day during which the Common Stock has traded. Notwithstanding the
foregoing, if at any time of determination either (x) the Common Stock is not
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, and either listed on a national securities exchange or authorized for
quotation in the Nasdaq system, or (y) less than 25% of the outstanding Common
Stock is held by the public free of transfer restrictions under the Securities
Act of 1933, as amended, then Fair Market Value shall mean the price that would
be paid per share for the entire common equity interest in the Company in an
orderly sale transaction between a willing buyer and a willing seller, using
valuation techniques then prevailing in the securities industry and assuming
full disclosure of all relevant information and a reasonable period of time for
effectuating such sale, without discount for lack of liquidity, or minority
position. Fair Market Value shall be determined jointly by the Company's Board
of Directors in its good faith judgment and the Required Holders; provided that,
if such parties are unable to so agree within 15 days, such value shall be
determined by an independent investment banking or appraisal firm mutually
acceptable to the Company and the Required Holders, which firm shall submit to
the Company and the Warrant holders a written report setting forth such
determination.
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The fees and expenses of such firm will be borne by the Company, and the
determination of such firm will be final and binding upon all parties.
"Permitted Issuance" means any issuance by the Company of shares of
Common Stock (a) upon exercise of the Warrants or pursuant to the exercise or
conversion of any Options or Convertible Securities issued prior to the date
hereof in accordance with the terms thereof as in existence on the date of
execution of the Credit Agreement; (b) in connection with any dividend or
distribution to the holders of the Common Stock not prohibited by any provision
of the Credit Agreement; or (c) without duplication of any Options referenced in
clause (a) above, of up to 3,000,000 shares (subject to appropriate adjustment
for stock splits, reverse stock splits, stock dividends, recapitalizations,
reorganizations and similar events recapitalizations and similar events) of
Common Stock or rights or options to purchase any such shares issued to
employees, directors, or consultants of the Company or any direct or indirect
subsidiary or pursuant to one or more stock bonus or similar plans adopted by
the Board of Directors of the Company.
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, limited liability company, limited
liability partnership, other business organization, trust, union, association or
governmental or regulatory authority.
"Required Holders" means the holders representing a majority of the
Warrants Shares issuable upon exercise of the Warrants.
"Warrant Shares" means shares of the Company's Common Stock; provided,
that if the securities issuable upon exercise of the Warrants are issued by an
entity other than the Company or there is a change in the class of securities so
issuable, then the term "Warrant Shares" shall mean shares of the security
issuable upon exercise of the Warrants if such security is issuable in shares,
or shall mean the equivalent units in which such security is issuable if such
security is not issuable in shares.
SECTION 6. No Voting Rights; Limitations of Liability. This Warrant
shall not entitle the Registered Holder hereof to any voting rights or other
rights as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of the Registered Holder shall
give rise to any liability of such Registered Holder for the Exercise Price of
Warrant Shares acquirable by exercise hereof or as a stockholder of the Company.
SECTION 7. Warrant Transferable. Subject to the transfer conditions
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder
(subject to the provisions of paragraph 1B(iv) hereof), upon surrender of this
Warrant with a properly executed Assignment (in the form of Exhibit II hereto)
at the principal office of the Company.
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SECTION 8. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. All Warrants representing portions of the
rights hereunder are referred to herein as the "Warrants."
SECTION 9. Exchange. In the event that it becomes unlawful or, in the
reasonable judgment of any Registered Holder of this Warrant, unduly burdensome
by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting such Registered Holder, or any material change
(including a reduction in the number of shares of Common Stock outstanding) in
the capital structure of the Company, to hold any or all of the Warrants or
Warrant Shares, the Registered Holder of this Warrant shall have the right to
require the Company to use its best efforts to permit all or part of such
Registered Holder's Warrants or Warrant Shares to be exchanged for nonvoting
stock or similar interests that convey equivalent economic benefits to such
Warrants or Warrant Shares and include equivalent anti-dilution protection. To
the extent that the Company may lawfully do so after the exercise of its best
efforts, any such exchange shall occur as soon as practicable but in any event
within 60 days after written notice by the Registered Holder of this Warrant to
the Company (or such earlier date if required to comply with applicable law).
SECTION 10. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the Registered Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 11. Notices. Except as otherwise expressly provided herein, all
notices and deliveries referred to in this Warrant shall be in writing, shall be
delivered personally, sent by registered or certified mail, return receipt
requested and postage prepaid or sent via nationally recognized overnight
courier or via facsimile, and shall be deemed to have been given when so
delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices and (ii) to a Registered Holder,
at such Registered Holder's address as it appears in the records of the Company
(unless otherwise indicated by any such Registered Holder).
SECTION 12. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants may be amended and the Company may take
any action herein
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prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the prior written consent of the Required
Holders.
SECTION 13. Warrant Register. The Company shall maintain at its
principal executive offices books for the registration and the registration of
transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.
SECTION 14. Fractions of Shares. The Company may, but shall not be
required to, issue a fraction of a Warrant Share upon the exercise of this
Warrant in whole or in part. As to any fraction of a share which the Company
elects not to issue, the Company shall make a cash payment in respect of such
fraction in an amount equal to the same fraction of the Fair Market Value of a
Warrant Share on the date of such exercise.
SECTION 15. Descriptive Headings; Governing Law. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. THE CORPORATION
LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE
RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
* * * * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated as of the date hereof.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By:_________________________________________
Name:
Title:
Attest:
- ------------------------------
Name:
Title:
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
Dated:
To:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. ____), hereby agrees to subscribe for the
purchase of Warrant Shares covered by such Warrant and makes payment herewith in
full therefor at the price per share provided by such Warrant.
Signature______________________________
Address________________________________
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED,________________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. ___) with respect to the number of the Warrant
Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature ________________________________
________________________________
Witness ________________________________
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS, AND MAY
BE OFFERED AND SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
STOCK PURCHASE WARRANT
Date of Issuance: March 14, 1997 Certificate No. 7
For value received, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), hereby grants to Prospect Street NYC Co-Investment
Fund, L.P., a Delaware limited partnership, or its registered assigns (the
"Registered Holder"), the right to purchase from the Company 43,902 shares of
Warrant Shares at a price per share of $4.25 (as adjusted from time to time, the
"Exercise Price"). This Warrant is one of several warrants (collectively, the
"Warrants") issued pursuant to the Senior Credit Agreement dated as of December
20, 1996, as amended, by and among the Company, the other Borrowers named
therein and the Lenders named therein (as such agreement may be amended,
modified or restated from time to time, the "Credit Agreement"). The Exercise
Price and number of Warrant Shares (and the amount and kind of other securities)
for which this Warrant is exercisable shall be subject to adjustment as provided
herein. Certain capitalized terms used herein are defined in Section 5 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this Warrant
may be exercised, in whole or in part, at any time and from time to time after
December 20, 1997 to and including 5:00 p.m., New York time, on December 20,
2006 or, if such day is not a business day, on the next preceding business day
(the "Exercise Period"); provided, however, that if the Company shall not have
given the Registered Holder written notice of the expiration of the Exercise
Period at least 60 days but not more than 90 days prior to the expiration of the
Exercise Period, the Exercise Period shall be extended until the 60th day
following the receipt by the Registered Holder of such a notice.
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1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when
all of the following items have been delivered to the Company (the "Exercise
Time"):
(a) a completed Exercise Agreement, as described in
Section 1C below, executed by the Person exercising all or part of the
purchase rights represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the Registered Holder, an
Assignment or Assignments in the form set forth in Exhibit II hereto
evidencing the assignment of this Warrant to the Purchaser; and
(d) either (i) a check payable to the Company in an
amount equal to the Exercise Price multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (ii) the surrender to the Company of debt or equity securities
of the Company or any of its direct or indirect subsidiaries having a
value equal to the Aggregate Exercise Price of the Warrant Shares being
purchased upon such exercise (which value in the case of debt
securities or any preferred stock shall be deemed to equal the
aggregate outstanding principal amount or liquidation value thereof
plus all accrued and unpaid interest thereon or accrued or declared and
unpaid dividends thereon and in the case of shares of Common Stock
shall be the Fair Market Value thereof), or (iii) the delivery of a
notice to the Company that the Purchaser is exercising the Warrant (or
portion thereof) by authorizing the Company to reduce the number of
Warrant Shares subject to such exercise of the Warrant or portion
thereof by the number of shares having an aggregate Fair Market Value
determined as of the date immediately prior to the date of the Exercise
Time equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
days after the date of the Exercise Time together with any cash payable in lieu
of a fraction of a share pursuant to Section 14 hereof. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
(iii) The Warrant Shares issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
Registered Holder of such Warrant Shares at the Exercise Time.
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(iv) The issuance of certificates for Warrant Shares upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid.
(v) The Company shall not close its books against the transfer
of this Warrant or of any Warrant Shares issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Warrant Shares
acquirable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect. In the event that the Company fails to comply
with its obligations set forth in the foregoing sentence, in addition to all
other rights which the Registered Holder or Purchaser may have at law or in
equity, the Purchaser may (but shall not be obligated to) purchase Warrant
Shares hereunder at par value, and the Company shall be obligated to reimburse
the Purchaser for the aggregate amount of consideration paid in connection with
such exercise in excess of the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or Purchaser in connection with any
governmental filings or approvals required to be obtained or made by any of them
prior to or in connection with any exercise of this Warrant (including, without
limitation, making any filings or obtaining any approvals required to be made or
obtained by the Company).
(vii) Notwithstanding any other provision hereof, if an
exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and keep
available out of its authorized but unissued Warrant Shares solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any
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applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock or other securities
constituting Warrant Shares may be listed (except for official notice of
issuance which shall be immediately delivered by the Company upon each such
issuance). The Company will cause the Warrant Shares, immediately upon such
exercise, to be listed on any domestic securities exchange upon which shares of
Common Stock or other securities constituting Warrant Shares are listed at the
time of such exercise.
(ix) If the Warrant Shares issuable by reason of exercise of
this Warrant are convertible into or exchangeable for any other stock or
securities of the Company, the Company shall, at the Purchaser's option and upon
surrender of this Warrant by such Purchaser as provided above together with any
notice, statement or payment required to effect such conversion or exchange of
Warrant Shares, deliver to such Purchaser (or as otherwise specified by such
Purchaser) a certificate or certificates representing the stock or securities
into which the Warrant Shares issuable by reason of such conversion are
convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares. In order
to prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of Warrant Shares obtainable upon exercise of this Warrant shall
be subject to adjustment from time to time, as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever, on or after the date hereof, the Company issues
or sells, or in accordance with Section 2B is deemed to have issued or sold,
other than pursuant to a Permitted Issuance, as described in Section 2C, any
shares of Common Stock for a consideration per share less than the Fair Market
Value per share of the Common Stock determined as of the date of such issuance
or sale, then immediately upon such issuance or sale the Exercise Price shall be
reduced to equal the amount determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a fraction, the numerator
of which will be the sum of (1) the number of shares of Common Stock Deemed
Outstanding immediately prior to such issuance or sale multiplied by the Fair
Market Value per share of the Common Stock determined as of the date of such
issuance or sale, plus (2) the consideration, if any, received by the Company
upon such issuance or sale, and the denominator of which will be the product
derived by multiplying such
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Fair Market Value per share of the Common Stock by the number of shares of
Common Stock Deemed Outstanding immediately after such issuance or sale. Upon
each such adjustment of the Exercise Price hereunder, the number of Warrant
Shares acquirable upon exercise of this Warrant shall be adjusted to equal the
number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Section 2, the calculation of the number of shares of Common
Stock Deemed Outstanding shall exclude the shares of Common Stock issued upon
exercise of this Warrant.
2B. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 2A, the following shall be
applicable:
(i) Issuance of Rights or Options. If the Company in any
manner grants any rights or options (other than pursuant to a Permitted
Issuance) to subscribe for or to purchase Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (including without
limitation convertible common stock) (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities") and the price per share for which Common Stock
is issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities is less than the Fair Market Value per share of the
Common Stock in effect immediately prior to the time of the granting or sale of
such Options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of this paragraph, the "price
per share for which Common Stock is issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities" is determined by
dividing (A) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus in the case of such Options which are exercisable for
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon exercise of such Options
or upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options. No further adjustment of the Exercise Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities (other than pursuant to a
Permitted Issuance) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the
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Fair Market Value per share of the Common Stock in effect immediately prior to
the issuance or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of this paragraph, the "price per share for which Common
Stock is issuable upon such conversion or exchange" is determined by dividing
(A) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Exercise Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Exercise Price have been or are to be made pursuant to other provisions of this
Section 2B, no further adjustment of the Exercise Price shall be made by reason
of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If either the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock shall change at any time, the Exercise Price in
effect at the time of such change shall be adjusted to the Exercise Price which
would have been in effect at such time had such options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold and the number of Warrant Shares shall be
correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, in either case without the
exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Company shall be the market price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with
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any merger or other business combination in which the Company is the surviving
entity, the amount of consideration therefor shall be deemed to be the fair
value of such portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
marketable securities shall be determined jointly by the Company and the
Required Holders. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an appraiser
jointly selected by the Company and the Required Holders, whose determination
shall be final and binding on the Company and all Registered Holders of
Warrants. The fees and expenses of such appraiser shall be paid by the Company.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Option shall be deemed to
have been issued for no consideration
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any direct or indirect subsidiary of the Company
and the disposition of any shares so owned or held shall be considered an issue
or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
2C. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon exercise of this Warrant shall be proportionately increased. If the Company
at any time combines (by reverse stock split or otherwise) the Common Stock into
a smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be proportionately
decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange
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for Common Stock is referred to herein as an "Organic Change". Prior to the
consummation of any Organic Change, the Company shall make appropriate provision
(in form and substance satisfactory to the Required Holders) to ensure that each
Registered Holder of Warrants shall thereafter have the right to acquire and
receive upon exercise thereof, in lieu of or addition to (as the case may be)
the Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder's Warrants, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for the
number of Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder's Warrants had such Organic Change not taken
place. In any such case, the Company shall make appropriate provision (in form
and substance satisfactory to the Required Holders) with respect to such
Registered Holder's rights and interests to insure that the provisions hereof
(including, without limitation, Sections 2, 3 and 4) shall thereafter be
applicable to the Warrants (including, without limitation, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
such Organic Change). The Company shall not effect any such Organic Change
unless, prior to the consummation thereof, the successor entity (if other than
the Company) resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument (in form
and substance satisfactory to the Required Holders) the obligation to deliver to
each Registered Holder of Warrants such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Registered Holder may be
entitled to acquire upon exercise of Warrants.
2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features but excluding any
Permitted Issuance), then the Company's Board of Directors shall make an
appropriate adjustment in the Exercise Price and the number of Warrant Shares
obtainable upon exercise of this Warrant so as to protect the rights of the
Registered Holder of this Warrant; provided that no such adjustment shall
increase the Exercise Price or decrease the number of Warrant Shares issuable
upon exercise hereof other than as a readjustment in a manner consistent with
that contemplated by Section 2(B)(iv).
2F. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
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(ii) The Company shall give written notice to the Registered
Holder at least 30 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock, or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
SECTION 3. Certain Rights of Registered Holders Regarding Dividends. If
the Company pays a dividend or distribution upon the Common Stock, other than
dividends or distributions described in Section 2C, then the Company shall pay
to the Registered Holder of this Warrant, at the time of payment thereof, such
dividend or distribution which would have been paid to such Registered Holder
had this Warrant been fully exercised immediately prior to the date on which a
record is taken for such dividend or distribution or, if no record is taken, the
date as of which the record holders of Common Stock entitled to said dividends
or distributions are to be determined.
SECTION 4. Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock or any other shares of capital stock of the Company (the "Purchase
Rights") , then the Registered Holder shall be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such Registered Holder would have acquired if such Registered Holder had held
the maximum number of Warrant Shares acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
SECTION 5. Definitions. The following terms have the meanings set
forth below:
"Change of Control" has the meaning ascribed thereto in clause (i) of
the definition thereof in the Credit Agreement.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Company, any securities into which such Common Stock shall have been changed
or any securities resulting from any reclassification or recapitalization of
such Common Stock, and all other securities of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution or winding
up, either to all or to a share of the balance of payments upon such
dissolution, liquidation or winding up.
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"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of all classes of the Company's common stock actually outstanding at
such time, plus the number of shares of the Company's common stock deemed to be
outstanding pursuant to Section 2B(i) or 2B(ii) hereof.
"Fair Market Value" means (i) the average of the closing sales prices
of the Common Stock on all domestic securities exchanges on which the Common
Stock is listed, or (ii) if there have been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day or, (iii) if on any day the Common Stock is not
so listed, the sales price for the Common Stock as of 4:00 P.M., New York time,
as reported on the Nasdaq Stock Market or, (iv) if the Common Stock is not
reported on the Nasdaq Stock Market, the average of the representative bid and
asked quotations for the Common Stock as of 4:00 P.M., New York time, as
reported on the Nasdaq interdealer quotation system, or any similar successor
organization, in each such case averaged over a period of 21 trading days
consisting of the day as of which "Fair Market Value" is being determined and
the immediately prior 20 trading days prior to such day during which the Common
Stock was traded; provided, however, that with respect to the exercise procedure
described in Section 1B(i)(d)(iii), in the event that a Change of Control has
occurred or there has been a public announcement concerning a possible Change of
Control or other event which would result in a Change of Control, in each case,
during the period in which "Fair Market Value" is being measured as provided
herein, such prices shall be averaged over a period of 21 trading days
consisting of the day before the earlier of the occurrence or announcement (if
different) of any such event and the immediately prior 20 trading days prior to
such day during which the Common Stock has traded. Notwithstanding the
foregoing, if at any time of determination either (x) the Common Stock is not
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, and either listed on a national securities exchange or authorized for
quotation in the Nasdaq system, or (y) less than 25% of the outstanding Common
Stock is held by the public free of transfer restrictions under the Securities
Act of 1933, as amended, then Fair Market Value shall mean the price that would
be paid per share for the entire common equity interest in the Company in an
orderly sale transaction between a willing buyer and a willing seller, using
valuation techniques then prevailing in the securities industry and assuming
full disclosure of all relevant information and a reasonable period of time for
effectuating such sale, without discount for lack of liquidity, or minority
position. Fair Market Value shall be determined jointly by the Company's Board
of Directors in its good faith judgment and the Required Holders; provided that,
if such parties are unable to so agree within 15 days, such value shall be
determined by an independent investment banking or appraisal firm mutually
acceptable to the Company and the Required Holders, which firm shall submit to
the Company and the Warrant holders a written report setting forth such
determination. The fees and expenses of such firm will be borne by the Company,
and the determination of such firm will be final and binding upon all parties.
"Permitted Issuance" means any issuance by the Company of shares of
Common Stock (a) upon exercise of the Warrants or pursuant to the exercise or
conversion of any Options or
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Convertible Securities issued prior to the date hereof in accordance with the
terms thereof as in existence on the date of execution of the Credit Agreement;
(b) in connection with any dividend or distribution to the holders of the Common
Stock not prohibited by any provision of the Credit Agreement; or (c) without
duplication of any Options referenced in clause (a) above, of up to 3,000,000
shares (subject to appropriate adjustment for stock splits, reverse stock
splits, stock dividends, recapitalizations, reorganizations and similar events
recapitalizations and similar events) of Common Stock or rights or options to
purchase any such shares issued to employees, directors, or consultants of the
Company or any direct or indirect subsidiary or pursuant to one or more stock
bonus or similar plans adopted by the Board of Directors of the Company.
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, limited liability company, limited
liability partnership, other business organization, trust, union, association or
governmental or regulatory authority.
"Required Holders" means the holders representing a majority of the
Warrants Shares issuable upon exercise of the Warrants.
"Warrant Shares" means shares of the Company's Common Stock; provided,
that if the securities issuable upon exercise of the Warrants are issued by an
entity other than the Company or there is a change in the class of securities so
issuable, then the term "Warrant Shares" shall mean shares of the security
issuable upon exercise of the Warrants if such security is issuable in shares,
or shall mean the equivalent units in which such security is issuable if such
security is not issuable in shares.
SECTION 6. No Voting Rights; Limitations of Liability. This Warrant
shall not entitle the Registered Holder hereof to any voting rights or other
rights as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of the Registered Holder shall
give rise to any liability of such Registered Holder for the Exercise Price of
Warrant Shares acquirable by exercise hereof or as a stockholder of the Company.
SECTION 7. Warrant Transferable. Subject to the transfer conditions
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder
(subject to the provisions of paragraph 1B(iv) hereof), upon surrender of this
Warrant with a properly executed Assignment (in the form of Exhibit II hereto)
at the principal office of the Company.
SECTION 8. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. All Warrants representing portions of the
rights hereunder are referred to herein as the "Warrants."
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SECTION 9. Exchange. In the event that it becomes unlawful or, in the
reasonable judgment of any Registered Holder of this Warrant, unduly burdensome
by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting such Registered Holder, or any material change
(including a reduction in the number of shares of Common Stock outstanding) in
the capital structure of the Company, to hold any or all of the Warrants or
Warrant Shares, the Registered Holder of this Warrant shall have the right to
require the Company to use its best efforts to permit all or part of such
Registered Holder's Warrants or Warrant Shares to be exchanged for nonvoting
stock or similar interests that convey equivalent economic benefits to such
Warrants or Warrant Shares and include equivalent anti-dilution protection. To
the extent that the Company may lawfully do so after the exercise of its best
efforts, any such exchange shall occur as soon as practicable but in any event
within 60 days after written notice by the Registered Holder of this Warrant to
the Company (or such earlier date if required to comply with applicable law).
SECTION 10. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the Registered Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 11. Notices. Except as otherwise expressly provided herein, all
notices and deliveries referred to in this Warrant shall be in writing, shall be
delivered personally, sent by registered or certified mail, return receipt
requested and postage prepaid or sent via nationally recognized overnight
courier or via facsimile, and shall be deemed to have been given when so
delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices and (ii) to a Registered Holder,
at such Registered Holder's address as it appears in the records of the Company
(unless otherwise indicated by any such Registered Holder).
SECTION 12. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the prior written consent of
the Required Holders.
SECTION 13. Warrant Register. The Company shall maintain at its
principal executive offices books for the registration and the registration of
transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation
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of ownership or other writing thereon made by anyone) for all purposes and shall
not be affected by any notice to the contrary.
SECTION 14. Fractions of Shares. The Company may, but shall not be
required to, issue a fraction of a Warrant Share upon the exercise of this
Warrant in whole or in part. As to any fraction of a share which the Company
elects not to issue, the Company shall make a cash payment in respect of such
fraction in an amount equal to the same fraction of the Fair Market Value of a
Warrant Share on the date of such exercise.
SECTION 15. Descriptive Headings; Governing Law. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. THE CORPORATION
LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE
RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
* * * * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated as of the date hereof.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By:_________________________________________
Name:
Title:
Attest:
- ------------------------------
Name:
Title:
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
Dated:
To:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. ____), hereby agrees to subscribe for the
purchase of Warrant Shares covered by such Warrant and makes payment herewith in
full therefor at the price per share provided by such Warrant.
Signature______________________________
Address________________________________
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED,________________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. ___) with respect to the number of the Warrant
Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature ________________________________
________________________________
Witness ________________________________
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS, AND MAY
BE OFFERED AND SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
STOCK PURCHASE WARRANT
Date of Issuance: March 21, 1997 Certificate No. 8
For value received, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), hereby grants to Bank of New York, as Trustee for
Brooklyn Union Gas Company Non-Bargaining Health VEBA or its registered assigns
(the "Registered Holder"), the right to purchase from the Company 48,780 shares
of Warrant Shares at a price per share of $4.25 (as adjusted from time to time,
the "Exercise Price"). This Warrant is one of several warrants (collectively,
the "Warrants") issued pursuant to the Senior Credit Agreement dated as of
December 20, 1996, as amended, by and among the Company, the other Borrowers
named therein and the Lenders named therein (as such agreement may be amended,
modified or restated from time to time, the "Credit Agreement"). The Exercise
Price and number of Warrant Shares (and the amount and kind of other securities)
for which this Warrant is exercisable shall be subject to adjustment as provided
herein. Certain capitalized terms used herein are defined in Section 5 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this Warrant
may be exercised, in whole or in part, at any time and from time to time after
the Date of Issuance to and including 5:00 p.m., New York time, on December 20,
2006 or, if such day is not a business day, on the next preceding business day
(the "Exercise Period"); provided, however, that if the Company shall not have
given the Registered Holder written notice of the expiration of the Exercise
Period at least 60 days but not more than 90 days prior to the expiration of the
Exercise Period, the Exercise Period shall be extended until the 60th day
following the receipt by the Registered Holder of such a notice.
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1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when
all of the following items have been delivered to the Company (the "Exercise
Time"):
(a) a completed Exercise Agreement, as described in
Section 1C below, executed by the Person exercising all or part of the
purchase rights represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the Registered Holder, an
Assignment or Assignments in the form set forth in Exhibit II hereto
evidencing the assignment of this Warrant to the Purchaser; and
(d) either (i) a check payable to the Company in an
amount equal to the Exercise Price multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (ii) the surrender to the Company of debt or equity securities
of the Company or any of its direct or indirect subsidiaries having a
value equal to the Aggregate Exercise Price of the Warrant Shares being
purchased upon such exercise (which value in the case of debt
securities or any preferred stock shall be deemed to equal the
aggregate outstanding principal amount or liquidation value thereof
plus all accrued and unpaid interest thereon or accrued or declared and
unpaid dividends thereon and in the case of shares of Common Stock
shall be the Fair Market Value thereof), or (iii) the delivery of a
notice to the Company that the Purchaser is exercising the Warrant (or
portion thereof) by authorizing the Company to reduce the number of
Warrant Shares subject to such exercise of the Warrant or portion
thereof by the number of shares having an aggregate Fair Market Value
determined as of the date immediately prior to the date of the Exercise
Time equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
days after the date of the Exercise Time together with any cash payable in lieu
of a fraction of a share pursuant to Section 14 hereof. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
(iii) The Warrant Shares issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
Registered Holder of such Warrant Shares at the Exercise Time.
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(iv) The issuance of certificates for Warrant Shares upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid.
(v) The Company shall not close its books against the transfer
of this Warrant or of any Warrant Shares issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Warrant Shares
acquirable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect. In the event that the Company fails to comply
with its obligations set forth in the foregoing sentence, in addition to all
other rights which the Registered Holder or Purchaser may have at law or in
equity, the Purchaser may (but shall not be obligated to) purchase Warrant
Shares hereunder at par value, and the Company shall be obligated to reimburse
the Purchaser for the aggregate amount of consideration paid in connection with
such exercise in excess of the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or Purchaser in connection with any
governmental filings or approvals required to be obtained or made by any of them
prior to or in connection with any exercise of this Warrant (including, without
limitation, making any filings or obtaining any approvals required to be made or
obtained by the Company).
(vii) Notwithstanding any other provision hereof, if an
exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and keep
available out of its authorized but unissued Warrant Shares solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any
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applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock or other securities
constituting Warrant Shares may be listed (except for official notice of
issuance which shall be immediately delivered by the Company upon each such
issuance). The Company will cause the Warrant Shares, immediately upon such
exercise, to be listed on any domestic securities exchange upon which shares of
Common Stock or other securities constituting Warrant Shares are listed at the
time of such exercise.
(ix) If the Warrant Shares issuable by reason of exercise of
this Warrant are convertible into or exchangeable for any other stock or
securities of the Company, the Company shall, at the Purchaser's option and upon
surrender of this Warrant by such Purchaser as provided above together with any
notice, statement or payment required to effect such conversion or exchange of
Warrant Shares, deliver to such Purchaser (or as otherwise specified by such
Purchaser) a certificate or certificates representing the stock or securities
into which the Warrant Shares issuable by reason of such conversion are
convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares. In order
to prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of Warrant Shares obtainable upon exercise of this Warrant shall
be subject to adjustment from time to time, as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever, on or after the date hereof, the Company issues
or sells, or in accordance with Section 2B is deemed to have issued or sold,
other than pursuant to a Permitted Issuance, as described in Section 2C, any
shares of Common Stock for a consideration per share less than the Fair Market
Value per share of the Common Stock determined as of the date of such issuance
or sale, then immediately upon such issuance or sale the Exercise Price shall be
reduced to equal the amount determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a fraction, the numerator
of which will be the sum of (1) the number of shares of Common Stock Deemed
Outstanding immediately prior to such issuance or sale multiplied by the Fair
Market Value per share of the Common Stock determined as of the date of such
issuance or sale, plus (2) the consideration, if any, received by the Company
upon such issuance or sale, and the denominator of which will be the product
derived by multiplying such
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<PAGE>
Fair Market Value per share of the Common Stock by the number of shares of
Common Stock Deemed Outstanding immediately after such issuance or sale. Upon
each such adjustment of the Exercise Price hereunder, the number of Warrant
Shares acquirable upon exercise of this Warrant shall be adjusted to equal the
number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Section 2, the calculation of the number of shares of Common
Stock Deemed Outstanding shall exclude the shares of Common Stock issued upon
exercise of this Warrant.
2B. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 2A, the following shall be
applicable:
(i) Issuance of Rights or Options. If the Company in any
manner grants any rights or options (other than pursuant to a Permitted
Issuance) to subscribe for or to purchase Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (including without
limitation convertible common stock) (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities") and the price per share for which Common Stock
is issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities is less than the Fair Market Value per share of the
Common Stock in effect immediately prior to the time of the granting or sale of
such Options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of this paragraph, the "price
per share for which Common Stock is issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities" is determined by
dividing (A) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus in the case of such Options which are exercisable for
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon exercise of such Options
or upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options. No further adjustment of the Exercise Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities (other than pursuant to a
Permitted Issuance) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the
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Fair Market Value per share of the Common Stock in effect immediately prior to
the issuance or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of this paragraph, the "price per share for which Common
Stock is issuable upon such conversion or exchange" is determined by dividing
(A) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Exercise Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Exercise Price have been or are to be made pursuant to other provisions of this
Section 2B, no further adjustment of the Exercise Price shall be made by reason
of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If either the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock shall change at any time, the Exercise Price in
effect at the time of such change shall be adjusted to the Exercise Price which
would have been in effect at such time had such options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold and the number of Warrant Shares shall be
correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, in either case without the
exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Company shall be the market price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with
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any merger or other business combination in which the Company is the surviving
entity, the amount of consideration therefor shall be deemed to be the fair
value of such portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
marketable securities shall be determined jointly by the Company and the
Required Holders. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an appraiser
jointly selected by the Company and the Required Holders, whose determination
shall be final and binding on the Company and all Registered Holders of
Warrants. The fees and expenses of such appraiser shall be paid by the Company.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Option shall be deemed to
have been issued for no consideration
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any direct or indirect subsidiary of the Company
and the disposition of any shares so owned or held shall be considered an issue
or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
2C. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon exercise of this Warrant shall be proportionately increased. If the Company
at any time combines (by reverse stock split or otherwise) the Common Stock into
a smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be proportionately
decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange
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for Common Stock is referred to herein as an "Organic Change". Prior to the
consummation of any Organic Change, the Company shall make appropriate provision
(in form and substance satisfactory to the Required Holders) to ensure that each
Registered Holder of Warrants shall thereafter have the right to acquire and
receive upon exercise thereof, in lieu of or addition to (as the case may be)
the Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder's Warrants, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for the
number of Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder's Warrants had such Organic Change not taken
place. In any such case, the Company shall make appropriate provision (in form
and substance satisfactory to the Required Holders) with respect to such
Registered Holder's rights and interests to insure that the provisions hereof
(including, without limitation, Sections 2, 3 and 4) shall thereafter be
applicable to the Warrants (including, without limitation, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
such Organic Change). The Company shall not effect any such Organic Change
unless, prior to the consummation thereof, the successor entity (if other than
the Company) resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument (in form
and substance satisfactory to the Required Holders) the obligation to deliver to
each Registered Holder of Warrants such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Registered Holder may be
entitled to acquire upon exercise of Warrants.
2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features but excluding any
Permitted Issuance), then the Company's Board of Directors shall make an
appropriate adjustment in the Exercise Price and the number of Warrant Shares
obtainable upon exercise of this Warrant so as to protect the rights of the
Registered Holder of this Warrant; provided that no such adjustment shall
increase the Exercise Price or decrease the number of Warrant Shares issuable
upon exercise hereof other than as a readjustment in a manner consistent with
that contemplated by Section 2(B)(iv).
2F. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
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(ii) The Company shall give written notice to the Registered
Holder at least 30 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock, or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
SECTION 3. Certain Rights of Registered Holders Regarding Dividends. If
the Company pays a dividend or distribution upon the Common Stock, other than
dividends or distributions described in Section 2C, then the Company shall pay
to the Registered Holder of this Warrant, at the time of payment thereof, such
dividend or distribution which would have been paid to such Registered Holder
had this Warrant been fully exercised immediately prior to the date on which a
record is taken for such dividend or distribution or, if no record is taken, the
date as of which the record holders of Common Stock entitled to said dividends
or distributions are to be determined.
SECTION 4. Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock or any other shares of capital stock of the Company (the "Purchase
Rights") , then the Registered Holder shall be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such Registered Holder would have acquired if such Registered Holder had held
the maximum number of Warrant Shares acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
SECTION 5. Definitions. The following terms have the meanings set
forth below:
"Change of Control" has the meaning ascribed thereto in clause (i) of
the definition thereof in the Credit Agreement.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Company, any securities into which such Common Stock shall have been changed
or any securities resulting from any reclassification or recapitalization of
such Common Stock, and all other securities of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution or winding
up, either to all or to a share of the balance of payments upon such
dissolution, liquidation or winding up.
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"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of all classes of the Company's common stock actually outstanding at
such time, plus the number of shares of the Company's common stock deemed to be
outstanding pursuant to Section 2B(i) or 2B(ii) hereof.
"Date of Issuance" means the date the Company initially issues this
Warrant regardless of the number of times new certificates representing the
unexpired and unexercised rights formerly represented by this Warrant shall be
issued.
"Fair Market Value" means (i) the average of the closing sales prices
of the Common Stock on all domestic securities exchanges on which the Common
Stock is listed, or (ii) if there have been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day or, (iii) if on any day the Common Stock is not
so listed, the sales price for the Common Stock as of 4:00 P.M., New York time,
as reported on the Nasdaq Stock Market or, (iv) if the Common Stock is not
reported on the Nasdaq Stock Market, the average of the representative bid and
asked quotations for the Common Stock as of 4:00 P.M., New York time, as
reported on the Nasdaq interdealer quotation system, or any similar successor
organization, in each such case averaged over a period of 21 trading days
consisting of the day as of which "Fair Market Value" is being determined and
the immediately prior 20 trading days prior to such day during which the Common
Stock was traded; provided, however, that with respect to the exercise procedure
described in Section 1B(i)(d)(iii), in the event that a Change of Control has
occurred or there has been a public announcement concerning a possible Change of
Control or other event which would result in a Change of Control, in each case,
during the period in which "Fair Market Value" is being measured as provided
herein, such prices shall be averaged over a period of 21 trading days
consisting of the day before the earlier of the occurrence or announcement (if
different) of any such event and the immediately prior 20 trading days prior to
such day during which the Common Stock has traded. Notwithstanding the
foregoing, if at any time of determination either (x) the Common Stock is not
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, and either listed on a national securities exchange or authorized for
quotation in the Nasdaq system, or (y) less than 25% of the outstanding Common
Stock is held by the public free of transfer restrictions under the Securities
Act of 1933, as amended, then Fair Market Value shall mean the price that would
be paid per share for the entire common equity interest in the Company in an
orderly sale transaction between a willing buyer and a willing seller, using
valuation techniques then prevailing in the securities industry and assuming
full disclosure of all relevant information and a reasonable period of time for
effectuating such sale, without discount for lack of liquidity, or minority
position. Fair Market Value shall be determined jointly by the Company's Board
of Directors in its good faith judgment and the Required Holders; provided that,
if such parties are unable to so agree within 15 days, such value shall be
determined by an independent investment banking or appraisal firm mutually
acceptable to the Company and the Required Holders, which firm shall submit to
the Company and the Warrant holders a written report setting forth such
determination.
10
<PAGE>
The fees and expenses of such firm will be borne by the Company, and the
determination of such firm will be final and binding upon all parties.
"Permitted Issuance" means any issuance by the Company of shares of
Common Stock (a) upon exercise of the Warrants or pursuant to the exercise or
conversion of any Options or Convertible Securities issued prior to the date
hereof in accordance with the terms thereof as in existence on the date of
execution of the Credit Agreement; (b) in connection with any dividend or
distribution to the holders of the Common Stock not prohibited by any provision
of the Credit Agreement; or (c) without duplication of any Options referenced in
clause (a) above, of up to 3,000,000 shares (subject to appropriate adjustment
for stock splits, reverse stock splits, stock dividends, recapitalizations,
reorganizations and similar events recapitalizations and similar events) of
Common Stock or rights or options to purchase any such shares issued to
employees, directors, or consultants of the Company or any direct or indirect
subsidiary or pursuant to one or more stock bonus or similar plans adopted by
the Board of Directors of the Company.
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, limited liability company, limited
liability partnership, other business organization, trust, union, association or
governmental or regulatory authority.
"Required Holders" means the holders representing a majority of the
Warrants Shares issuable upon exercise of the Warrants.
"Warrant Shares" means shares of the Company's Common Stock; provided,
that if the securities issuable upon exercise of the Warrants are issued by an
entity other than the Company or there is a change in the class of securities so
issuable, then the term "Warrant Shares" shall mean shares of the security
issuable upon exercise of the Warrants if such security is issuable in shares,
or shall mean the equivalent units in which such security is issuable if such
security is not issuable in shares.
SECTION 6. No Voting Rights; Limitations of Liability. This Warrant
shall not entitle the Registered Holder hereof to any voting rights or other
rights as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of the Registered Holder shall
give rise to any liability of such Registered Holder for the Exercise Price of
Warrant Shares acquirable by exercise hereof or as a stockholder of the Company.
SECTION 7. Warrant Transferable. Subject to the transfer conditions
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder
(subject to the provisions of paragraph 1B(iv) hereof), upon surrender of this
Warrant with a properly executed Assignment (in the form of Exhibit II hereto)
at the principal office of the Company.
11
<PAGE>
SECTION 8. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. All Warrants representing portions of the
rights hereunder are referred to herein as the "Warrants."
SECTION 9. Exchange. In the event that it becomes unlawful or, in the
reasonable judgment of any Registered Holder of this Warrant, unduly burdensome
by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting such Registered Holder, or any material change
(including a reduction in the number of shares of Common Stock outstanding) in
the capital structure of the Company, to hold any or all of the Warrants or
Warrant Shares, the Registered Holder of this Warrant shall have the right to
require the Company to use its best efforts to permit all or part of such
Registered Holder's Warrants or Warrant Shares to be exchanged for nonvoting
stock or similar interests that convey equivalent economic benefits to such
Warrants or Warrant Shares and include equivalent anti-dilution protection. To
the extent that the Company may lawfully do so after the exercise of its best
efforts, any such exchange shall occur as soon as practicable but in any event
within 60 days after written notice by the Registered Holder of this Warrant to
the Company (or such earlier date if required to comply with applicable law).
SECTION 10. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the Registered Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 11. Notices. Except as otherwise expressly provided herein, all
notices and deliveries referred to in this Warrant shall be in writing, shall be
delivered personally, sent by registered or certified mail, return receipt
requested and postage prepaid or sent via nationally recognized overnight
courier or via facsimile, and shall be deemed to have been given when so
delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices and (ii) to a Registered Holder,
at such Registered Holder's address as it appears in the records of the Company
(unless otherwise indicated by any such Registered Holder).
SECTION 12. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants may be amended and the Company may take
any action herein
12
<PAGE>
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the prior written consent of the Required
Holders.
SECTION 13. Warrant Register. The Company shall maintain at its
principal executive offices books for the registration and the registration of
transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.
SECTION 14. Fractions of Shares. The Company may, but shall not be
required to, issue a fraction of a Warrant Share upon the exercise of this
Warrant in whole or in part. As to any fraction of a share which the Company
elects not to issue, the Company shall make a cash payment in respect of such
fraction in an amount equal to the same fraction of the Fair Market Value of a
Warrant Share on the date of such exercise.
SECTION 15. Descriptive Headings; Governing Law. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted
for convenience only and do not constitute a part of this Warrant. THE
CORPORATION LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING
THE RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER QUESTIONS
CONCERNING THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE
OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK
OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
* * * * *
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated as of the date hereof.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By:______________________________________
Name:
Title:
Attest:
- ------------------------------
Name:
Title:
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
Dated:
To:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. ____), hereby agrees to subscribe for the
purchase of Warrant Shares covered by such Warrant and makes payment herewith in
full therefor at the price per share provided by such Warrant.
Signature______________________________
Address________________________________
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED,________________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. ___) with respect to the number of the Warrant
Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature ________________________________
________________________________
Witness ________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 812,000
<SECURITIES> 0
<RECEIVABLES> 312,000
<ALLOWANCES> 0
<INVENTORY> 167,000
<CURRENT-ASSETS> 1,584,000
<PP&E> 13,265,000
<DEPRECIATION> 1,368,000
<TOTAL-ASSETS> 16,366,000
<CURRENT-LIABILITIES> 4,116,000
<BONDS> 0
0
1,000
<COMMON> 3,000
<OTHER-SE> 4,797,000
<TOTAL-LIABILITY-AND-EQUITY> 16,366,000
<SALES> 1,412,000
<TOTAL-REVENUES> 1,770,000
<CGS> 124,000
<TOTAL-COSTS> 3,351,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 192,000
<INCOME-PRETAX> (1,773,000)
<INCOME-TAX> 1,061,000
<INCOME-CONTINUING> (2,834,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,834,000)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> 0.000
</TABLE>
