<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
- --------------------------------------------------------------------------------
FORM 10-QSB
Quarterly report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
- --------------------------------------------------------------------------------
For Quarter Ended: March 31, 1998
Commission File No. 0-23396
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
(Exact name of small business issuer as specified in its charter)
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
issuer was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of May 20, 1998, there were issued and outstanding 1,385,000 shares of Common
Stock, $.001 par value per share, 960,000 shares of Class A Common stock, $.001
par value per share and 1,090,909 shares of Series A Convertible Participating
Preferred Stock, $.001 par value per share.
Transitional Small Business Disclosure Format
Yes No X
--- ---
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Condensed consolidated financial statements
(unaudited)
Balance sheet as of March 31, 1998 3
Statements of operations for the three and nine months
ended March 31, 1998 and 1997 4
Statements of cash flows for the Nine months
ended March 31, 1998 and 1997 5
Notes to financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION 21
-----------------
SIGNATURES 22
INDEX TO EXHIBITS 23
</TABLE>
2
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)
March 31, 1998
ASSETS
------------
Current Assets
------------
Cash $ 992,000
Inventory (Note 6) 116,000
Prepaid expenses and
other current assets 135,000
------------
Total Current Assets 1,243,000
Property, equipment and leasehold
improvements - net (Note 4) 11,443,000
Security deposits 972,000
Deferred project and leasing
costs (Note 5) 763,000
Deferred financing costs-- net 147,000
Payments to Contractor 400,000
Other assets-- net 30,000
------------
Total Assets $ 14,998,000
============
LIABILITIES
------------
Current Liabilities
------------
Capital Lease Obligations - current portion (Note 7) 901,000
Accounts payable 2,697,000
Accrued expenses and other current liabilities 1,014,000
Due to Contractors 1,100,000
Deferred sponsorship income (Note 10) 8,000
Notes Payable (Note 8) 1,000,000
------------
Total Current Liabilities 6,720,000
Accrued Interest Payable - long term(Note 8) 769,000
Capital Lease Obligations - long term portion
(Notes 7) 1,318,000
Note Payable (Note 8) 3,920,000
Deferred rent payable (Note 9) 1,489,000
------------
Total Liabilities 14,216,000
Commitments and Contingencies (Note 14)
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001 per share 1,000
Common stock, par value $.001 per share 2,000
Class A common stock, par value $.001 per share 1,000
Treasury Stock (601,000)
Additional paid in capital 9,465,000
Accumulated deficit (8,086,000)
------------
Total Stockholders' equity 782,000
------------
Total Liabilities and Stockholders' Equity $ 14,998,000
============
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
March 31, March 31
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
- ---------
Attraction sales $ 1,958,000 $ 1,412,000 $ 7,148,000 $ 4,378,000
Concession sales 191,000 270,000 766,000 917,000
Sponsorship income 60,000 88,000 236,000 261,000
------------ ------------ ------------ ------------
Total Revenues 2,209,000 1,770,000 8,150,000 5,556,000
------------ ------------ ------------ ------------
Operating Expenses:
- -------------------
Cost of merchandise sold 92,000 124,000 383,000 354,000
Selling, general and
administrative 2,193,000 2,846,000 8,339,000 6,308,000
Depreciation and amortization 406,000 381,000 1,310,000 674,000
------------ ------------ ------------ ------------
Total Operating Expenses 2,691,000 3,351,000 10,032,000 7,336,000
------------ ------------ ------------ ------------
(Loss) from operations (482,000) (1,581,000) (1,882,000) (1,780,000)
Net interest (expense) (248,000) (192,000) (674,000) (266,000)
------------ ------------ ------------ ------------
(Loss) before provision for
income taxes (730,000) (1,773,000) (2,556,000) (2,046,000)
Income tax expense (benefit)
(Note 3) 0 (118,000) 0 61,000
Net deferred tax expense (Note 3) 0 1,179,000 0 340,000
------------ ------------ ------------ ------------
Net (loss) $ (730,000) $ (2,834,000) $ (2,556,000) $ (2,447,000)
============ ============ ============ ============
Basic (loss) per share $ (.44) $ (1.68) $ (1.53) $ (1.40)
============ ============ ============ ============
Diluted (loss) per share $ (.44) $ (1.68) $ (1.53) $ (1.40)
============ ============ ============ ============
Basic Weighted average number
of shares (excludes 670,000
escrow shares and 1,090,909
preferred shares) 1,675,000 1,690,000 1,675,000 1,754,000
============ ============ ============ ============
Diluted Weighted average number
of shares (excludes 670,000
escrow shares and 1,090,909
preferred shares) 1,675,000 1,690,000 1,675,000 1,754,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
March 31
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(2,556,000) (2,447,000)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Depreciation and amortization expense 1,310,000 675,000
Deferred income taxes 0 340,000
Issuance Of Warrants 0 331,000
Officer/stockholder advance on bonus granted 0 750,000
Write off of trademark costs 37,000 0
Changes in operating assets and liabilities:
(Increase) decrease in inventory 52,000 (37,000)
(Increase) decrease in prepaid and other assets 112,000 (577,000)
(Decrease) in deferred sponsorship income (67,000) (11,000)
Increase in accounts payable, accrued expenses and deferred rent payable 1,430,000 3,067,000
----------- -----------
Net cash provided by operating activities 318,000 2,091,000
----------- -----------
Cash flows from investing activities:
(Increase) in security deposits (20,000) (539,000)
Acquisition of property, equipment and leasehold improvements (482,000) (5,511,000)
Advances to officer/stockholder 0 (1,370,000)
(Increase)Decrease in certificate of deposit 209,000 (206,000)
Repayments from officer/stockholder 0 341,000
(Increase) in deferred project and leasing costs (141,000) (228,000)
----------- -----------
Net cash (used in) investing activities (434,000) (7,513,000)
----------- -----------
Cash flows from financing activities:
Repayment of notes payable (536,000) (590,000)
Financing costs 25,000 (937,000)
Purchase of treasury stock 0 (601,000)
Issuance of warrants 0 434,000
Proceeds from notes payable 500,000 5,730,000
----------- -----------
Net cash provided by (used in) financing activities (11,000) 4,036,000
----------- -----------
Net (decrease) in cash (127,000) (1,386,000)
Cash at beginning of period 1,119,000 2,198,000
----------- -----------
Cash at end of period $ 992,000 $ 812,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest.................................. $ 211,000 $ 214,000
Taxes..................................... 37,000 26,000
Acquisition of Equipment Under Capital Lease.................................. 20,000 1,418,000
Forgiveness of Debt - Officer/Stockholder 279,000 0
</TABLE>
The accompanying Notes are an integral part of these financial statements
5
<PAGE>
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, 1998 are
not necessarily indicative of the results that may be expected for the full
fiscal year ended June 30, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended June 30, 1997.
2. Earnings Per Share
Basic net (loss)per share for each period is calculated by dividing net
loss available to common stockholders for the period by the weighted average
number of common shares outstanding for each period, excluding shares held in
escrow, and the preferred shares. For the three and nine months ended March 31,
1998 and the three and nine month period ended March 31, 1997, the 1,090,909
shares of Series A Convertible Participating Preferred Stock were not included
in the calculation of the net (loss) per share as such shares were considered to
be anti-dilutive.
3. Income Taxes
The principal components of Deferred Tax Assets, Liabilities, and the
Valuation Allowance are as follows:
<TABLE>
March 31
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Deferred Tax Assets:
Capitalization of start-up costs $ 302,000 $ 479,000
Net operating loss carryforwards 4,099,000 2,056,000
----------- -----------
4,401,000 2,535,000
Valuation allowance (3,782,000) (1,989,000)
----------- -----------
619,000 546,000
Deferred Tax Liabilities:
Depreciation differences 619,000 546,000
----------- -----------
Net Deferred Tax Asset $ 0 $ 0
=========== ===========
</TABLE>
6
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
The Company has provided a valuation allowance of $3,782,000 against
its deferred tax asset due to uncertainty of the Company being able to use this
benefit to offset future taxable income. The Company will periodically evaluate
the likelihood of realizing such asset and will adjust such amount accordingly.
4. Property, equipment and leasehold improvements
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 $ 2,088,000
Simulation equipment 2,601,000
Simulation film 1,069,000
Leasehold improvements 8,608,000
-----------
14,366,000
Less: Accumulated depreciation
and amortization (2,923,000)
-----------
Total $11,443,000
===========
5. Deferred project and leasing costs
The Company has incurred leasing and other costs in connection with the
development of the proposed Australian project. It is expected that additional
costs aggregating approximately $7,000,000 will be required to complete the
Australia project if a definitive lease is successfully negotiated.
"See--Management's Discussion and Analysis of Financial Condition and Results of
Operations." Upon commencement of operations, such costs will be amortized and
depreciated over their estimated useful lives.
6. Inventory
Inventory consists of clothing, souvenirs and food sold at the
Company's existing sites and is valued at the lower of cost (first-in,
first-out) or market.
7. Notes Payable
(A) During November 1996 the Company entered into a loan agreement with
an institutional lender to finance the acquisition of the equipment for its XS
New York site. The Company received approximately $1,024,000 with $495,000 held
by the lender as security. Such security is to be released after 24 months
subject to a satisfactory payment record by the Company. The amount financed
bears interest at 11 1/2% per annum compounded monthly and is to be repaid in 48
monthly installments. The institutional lender obtained a first security
interest in the equipment and up to $750,000 of the loan is personally
guaranteed by the Company's president. In connection with this transaction, the
Company issued five year warrants to purchase 50,000 shares of the Company's
common stock at an exercise price of $6.00 per share.
(B) On December 31, 1996, the Company refinanced its existing equipment
at its New York Skyride location with aggregate proceeds of $1,500,000. The new
note bears interest at 11 1/2% per annum compounded monthly and is to be repaid
in 48 monthly installments secured by a first security interest in all of the
equipment at
7
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
the New York Skyride location. Additionally, up to $250,000 of the loan is
personally guaranteed by the Company's president.
(C) During March 1997, the Company entered into a loan agreement with
an institutional lender to finance the acquisition of additional equipment for
XS New York. Pursuant to this transaction, the Company received $559,000 with an
additional $51,000 held by the lender as security. Such security is to be
released after 24 months subject to a satisfactory payment record by the
Company. The amount financed bears interest at 11 1/2% per annum compounded
monthly and was initially to be repaid in 48 monthly installments. During
November 1997, the term was modified to provide for an accelerated payback over
36 months from the date of issuance. 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.
8. Subordinated Notes Payable
(A) Between December 1996 and March 1997, the Company borrowed in the
aggregate $4,450,000 from certain institutional lenders which loans accrue
interest at an annual rate of 14% and require the payment of both principal and
interest five years from the date of issuance. In connection with the
subordinated debt, lenders received in the aggregate warrants to purchase up to
434,146 shares of Common Stock at an exercise price of $4.25 per share, which
the Company valued at approximately $278,000 using the Black Scholes pricing
model, which amount is amortized over the term of the loans. A purchase price of
$1.00 per warrant was allocated from the subordinated debt proceeds received by
the Company. One of the institutional lenders loaned the Company an additional
$500,000 on June 30, 1997. During December 1997, the Company received a $500,000
loan from a bank bearing interest at a rate of 7.6% per annum that is secured by
a Certificate of Deposit from this same institutional investor.
(B) Future annual principal payments on long-term debt exclusive of
capital lease obligations, as of March 31, 1998 are as follows:
Year Ending June 30
2000 $2,500,000
2001 1,950,000
----------
4,450,000
Less unamortized debt discount (530,000)
----------
$3,920,000
==========
9. 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.
10. 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
8
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
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 1998 and 1997, the
Company recognized as income $60,000 and $88,000, respectively, which represent
monetary fees received from these sponsors and approximately $8,000 and $50,000,
respectively, were deferred during such periods.
11. 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 since March 1996. The Preferred Stock has a
liquidation preference equal to $2.75 per share, or $3,000,000, but does not pay
any dividends unless declared by the Board of Directors. The preferred
stockholder is entitled to an aggregate of up to 24.9% of the outstanding voting
power of the Company, which can increase to 50.1% of the voting power if, in
good faith, in the sole discretion of such preferred stockholder, it becomes
reasonably necessary for the protection of its investment.
12. Recently Issued Accounting Standards
During fiscal year ended June 30, 1997 the Company implemented Statement
of Financial Accounting Standards No. 123, "Account for Stock-Based
Compensation" (SFAS No. 123). The provisions of SFAS No. 123 allow companies to
either expense the estimated fair value of employee stock options or to continue
to follow the intrinsic value method set forth in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") but
disclose the pro forma effects on net loss and net loss per share had the fair
value of the options been expensed. The Company has elected to continue to apply
APB 25 in accounting for its stock option incentive plans. Under FAS 123, the
warrants granted in connection with both the notes payable and subordinated
notes payable require valuation based on fair value. The fair value of the
484,146 warrants granted in connection with the equipment financings was
calculated using the Black-Scholes pricing model, which resulted in an aggregate
valuation of approximately $313,000. The value of these warrants are charged to
interest expense over the terms of the respective notes. During the nine months
ended March 31, 1998, an aggregate of approximately $65,000 was charged to
interest expense as a result of the fair value calculation relating to the
warrants described above.
13. Revenue Sharing Agreements
The Company has been provided with certain equipment for use in its XS
New York facility in exchange for a percentage of the revenues generated
therefrom. During November 1997, a new agreement was entered into with a
specific vendor whereby the Company's revenue-sharing obligation was reduced
from 40% to 14% in exchange for the Company selling the XS trademark and related
intellectual property rights to such vendor. The Company can continue to use the
XS trademark at its Times Square location pursuant to a license agreement
entered into in connection with the sale of the trademark. In addition, the
vendor agreed to waive all amounts due under the prior revenue-sharing agreement
through October 12, 1997 which aggregated approximately $427,000. Such amounts
were offset against selling, general and administrative expenses for the nine
months ended March 31, 1998.
9
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SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
14. Commitments and Contingencies
In late October 1997, the Empire State Building Company (the "ESBCo")
sent notices of default to the Company with respect to the Company's various
leases at the Empire State Building (the "ESB") for failure to pay rent. The
Company believed it had valid claims and offsets against a portion of the rents
claimed by ESBCo. The Company was negotiating such rent dispute in good faith
until December 22, 1997, when the Company was informed by representatives of the
ESBCo that the Company's proposal with respect to certain alleged lease
defaults, was not accepted. The Company believes it has negotiated in good faith
and had no reason to suspect that its previously submitted proposal would not be
acceptable. In light of this negative response from the ESBCo, the Company has
filed a lawsuit against the ESBCo and related parties seeking, among other
things, injunctive relief to prohibit the ESBCo from terminating the Company's
leases at the Empire State Building (the "Leases") and the License Agreement
relating to the New York Skyride (the "License Agreement") and also seeking
damages from the ESBCo. The Company has received a preliminary injunction, among
other things, prohibiting the ESBCo from terminating or canceling the Leases and
the License Agreement and restraining the ESBCo from interfering with the
Company's business or commencing any proceedings with respect to the Leases and
the License Agreement.
15. Subsequent Events
Subsequent to the quarter ended March 31, 1998, the Company and its
subsidiaries entered into a Senior Secured Credit Agreement (the "Credit
Agreement") with the Bank of New York, as Trustee for the Employees Retirement
Plan of Keyspan Energy Corp. ("Keyspan") and Prospect Street NYC Discovery Fund,
L.P. ("Prospect Street", and together with Keyspan, the "Institutional
Investors") relating to the financing of an aggregate of $935,000 ($500,000 from
Keyspan and $435,000 from Prospect Street) (the "Financing"), in exchange for
receipt by the Institutional Investors of senior secured promissory notes (the
"Notes") and the issuance of warrants no later than June 15, 1998 to purchase
shares of Common Stock of the Company (the "Warrants"). The Notes mature on July
15, 1998 (the "Maturity Date"), accrue interest at a per annum rate equal to 14%
and are secured (with certain exceptions) by all the assets of the Company and
its subsidiaries. The Notes and the obligations under the Credit Agreement and
the Warrants, when issued, are also collateralized by a pledge of the stock of
the subsidiaries. In connection with the Credit Agreement, Keyspan also received
the right to appoint two members to the Company's Board of Directors.
In the event the Company receives additional gross proceeds of at least
$3 million in an equity financing (an "Equity Financing") on or prior to the
Maturity Date, each $1.00 of principal amount of the Notes may, at the option of
the holder, convert into $1.25 of the securities issued in such Equity Financing
and the Warrants will be canceled. In the event the entire principal amount of
the Notes (plus all accrued and unpaid interest thereon) is repaid prior to the
Maturity Date, then the Warrants will be exercisable for an aggregate of up to
64% (after issuance) of the fully diluted common stock of the Company on the
date of such issuance at an exercise price of $0.375 per share (in which event
the conversion rate of the Preferred Stock will be readjusted to 4.80 shares of
common stock for each share of Preferred Stock). In the event the entire
pricipal amount of the Notes has not been repaid (plus all accrued and unpaid
interest thereon) or converted (pursuant to the terms of the Notes) on or prior
to the Maturity Date, then the Warrants will be exercisable for an aggregate of
up to approximately 94% (after issuance) of the fully diluted common stock of
the Company on the date of such issuance at an exercise price of $0.375 per
share (in which event the conversion rate of the Preferred Stock will be
readjusted to 6.91 shares of common stock for each share of Preferred Stock).
Upon consummation of an Equity Financing and repayment or conversion of the
entire principal amount of the Notes (plus all accrued and unpaid interest
thereon) before the Maturity Date, the Warrants will be canceled and of no
further force or effect (and the conversion rate of the Preferred Stock would be
readjusted to the conversion rate immediately prior to the issuance of the
Warrants). The Warrants have a cashless exercise procedure. Accordingly, the
exerise of such Warrants by the Institutional Investors will result in a
significant change in the ownership of the Company. The Company approved this
transaction after consideration of its alternatives and current financial
situation. The Company believes that the $935,000 cash infusion will enable it
to resolve its short-term cash
10
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
management problems while attempting to raise necessary additional financing.
The Company is currently exploring ways in which to attempt to consummate an
Equity Financing, including possibly conducting a rights offering. However, no
assurances can be made that the Company will be successful. If the Company is
not successful in such capital raising efforts, the Warrants will be exercisable
for approximately 173 million shares of common stock for an exercise price of
approximately $64.9 million, or, at the option of the holder, pursuant to a
cashless exercise feature, the difference in shares between 173 million shares
and that number of shares having a market value equal to $64.9 million (i.e. at
a market price per share of $.40, an aggregate of 10.8 million shares of common
stock will be issued) resulting in significant dilution to existing
stockholders. However, the value of these Warrants needs to be determined and
may result in a material charge to income in the future. Moreover, if the
Company is unable to raise additional capital in the near term, there will
likely be a material adverse effect on the Company, possibly resulting in
curtailment of certain operations.
The Company is in the process of applying to the Nasdaq Stock Market,
Inc. (the "Nasdaq") to obtain a waiver of the shareholder approval requirement
under Nasdaq rules relating to the possible issuance of 20% or more of the
outstanding common stock of the Company as a result of exercise of the warrants
to be issued in connection with the Financing. In the event such waiver is not
granted by Nasdaq, the Company's securities may be delisted from the Nasdaq
Small Cap Market prior to the date the Company's securities would otherwise be
delisted pursuant to a notice received from Nasdaq as a result of failure to
comply with the Nasdaq maintenance criteria of a minimum bid price of $1.00 for
the Company's common stock. The Company has the right to request a hearing to
demonstrate compliance or the likelihood of compliance based on a viable plan
prior to Nasdaq's determination to delist the Company's securities, which notice
outlining the hearing procedures is expected during the first week of June 1998.
In connection with the Financing, Zalman Silber, President and Chief
Executive Officer, agreed to relinquish all positions in the Company and its
subsidiaries held by him and to deliver to the Company for cancellation all of
his options and warrants in the Company in exchange for the forgiveness of
amounts previously agreed to be refunded by Mr. Silber to the Company in the
amount of $750,000 and payment by the Company to Mr. Silber of $206,250, and to
transfer to Prospect Street all of his 960,000 shares of Class A Common Stock
(670,000 shares of which will likely be forfeited to the Company on June 30,
1998 pursuant to existing escrow arrangements) in consideration for an aggregate
of $100 and the Financing by the Institutional Investors. The Company and Mr.
Silber also exchanged general releases. Mr. Silber has granted an irrevocable
proxy with respect to the vote of such Class A Common Stock to Prospect Street
until the remaining 290,000 shares of Class A Common Stock, which are currently
pledged as collateral in connection with a loan, can be transferred upon release
of such pledge. Mr. Silber has also agreed not to compete with the Company or
its subsidiaries in New York City for a period of ten years.
A portion of the proceeds of the Financing were used to pay certain
undisputed rental amounts owing to the Empire State Building Company ("ESBCo")
pursuant to an order issued by the Supreme Court of the State of New York on
April 3, 1998 requiring the Company to pay $838,000. With respect to the current
legal proceedings, the judge granted the preliminary injunction against the
ESBCo and its affiliates. The issues with respect to disputed rental amounts
(approximately $650,000) will be referred to a referee for final determination
pursuant to a hearing currently scheduled in early June 1998. The Company
intends to proceed with discovery with respect to its other claims for damages
against the ESBCo and others.
11
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
Operational Overview
From its inception until December 22, 1994, the Company's primary
activities consisted of developmental activities, including the preparation of
plans relating to the design of New York Skyride, the Company's first motion
simulator film-based attraction; negotiation of a lease and a license agreement
with the operators of the Empire State Building, the location of New York
Skyride; working with engineers, architects, contractors, designers, and other
parties in connection with the construction of New York Skyride; developing
software and video films in connection with New York Skyride; developing
marketing strategies; initiating marketing and corporate sponsorship activities;
selecting a management team; and obtaining financing.
On December 22, 1994, the Company commenced operations of New York
Skyride and began generating revenue from ticket sales to the attraction and the
sale of merchandise at its souvenir/concession area. New York Skyride was opened
on a preview basis until February 21, 1995, the date of its official Grand
Opening.
During April 1996, the Company signed a 20 year renewable lease (the
"Additional Lease") for an additional 35,000 square feet of space within the
Empire State Building, adjacent to and above the current location of New York
Skyride. The Additional Lease was entered into in conjunction with the
modification of the lease and the license agreement relating to the New York
Skyride facility (the "Modification Agreements"). The Additional Lease and the
Modification Agreements were the direct result of negotiations between the
Company and the Empire State Building Company, the landlord of the Empire State
Building, relating to the opening of a competitive simulator attraction on the
lower level of the ESB. As a result of the Additional Lease and the Modification
Agreements, which requires the ESBCo to increase the level of cooperation with
the Company and improve relations between the ESB staff and the Company's
employees, the Company concluded that the existence of a smaller non-New York
related simulator which would not get the level of preferential treatment as
promised to the Company by the ESBCo, would not have a material impact on the
Company's operations taken as a whole. Additionally, the Company had intended to
utilize the additional space to create a mixed use location-based entertainment
center, which development plans for such additional space were deferred until
such time as the XS New York project was operating profitably and further
assessment was made with respect to the cost and funding of the Woodfield Mall
and Sydney Skyride projects (described below). However, the Company believes
that the ESBCo and the ESB staff have not provided the level of cooperation
promised and that such lack of cooperation, not merely the existence of a
competitor, has impacted the Company's operations. In late October, 1997, the
ESBCo sent notices of default to the Company with respect to the Company's
various leases at the ESB for failure to pay rent. In addition to attempting to
resolve the foregoing issues relating to the circumstances involving the
Modification Agreements, the Company also believes it has valid claims, credits
and offsets against a portion of the rents claimed by the ESBCo. On December 22,
1997, the Company was informed by representatives of the ESBCo that the
Company's proposal with respect to certain alleged lease defaults, was not
accepted. The Company believes it has negotiated in good faith and had no reason
to suspect that its previously submitted proposal would not be acceptable. In
light of this negative response from the ESBCo, which the Company believes is
another example of the ESBCo's pattern of bad faith and lack of cooperation
toward the Company, the Company has filed a lawsuit against the ESBCo and
related parties seeking, among other things, injunctive relief to prohibit the
ESBCo from terminating the Company's leases at the Empire State Building (the
"Leases") and the License Agreement relating to the New York Skyride (the
"License Agreement") and also seeking damages from the ESBCo. The Company has
received injunctive relief, which, among other things, prohibits the ESBCo from
terminating or canceling the Leases and the License Agreement and restraining
the ESBCo from interfering with the Company's business or commencing any
proceedings with respect to the Leases and the License Agreement. The Company
paid approximately $838,000 pursuant to an order from the court relating to
undisputed rental amounts. A
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determination with respect to disputed rental amounts (approximately $650,000)
is expected to be decided by a referee during the month of June 1998. The
Company intends to proceed with discovery in connection with its other claims
for damages. See "Part II - Item 1. Legal Proceedings" below.
Further, as previously disclosed, it is likely, that the Company will be
unable to develop the space within the ESB which is the subject of the
Additional Lease in the near term. The Company is uncertain as to the
disposition of this space as a result of the lawsuit brought by the Company
against the ESBCo described above. Until such disposition, however, the Company
will continue to accrue rent expense with respect to the Additional Lease.
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, 1998 and 1997, New York
Skyride was visited by approximately 118,000 and 125,000 customers,
respectively. For the quarter ended March 31, 1998 the Company's capture rate of
observatory visitorship averaged approximately 19%, up from approximately 18%
for the quarter ended March 31, 1997.
On December 27, 1996, the Company commenced operations, through its
wholly-owned subsidiary, Skyline Virtual Reality, Inc., of an interactive
virtual reality entertainment center, XS New York, which is located in the heart
of Times Square in New York City. XS New York features state-of-the-art
entertainment technology, including the latest in virtual reality hardware and
software, simulation technology and interactive participation game experiences.
Additionally, the facility includes a "cybercafe" which offers light food and
refreshments and computer terminals which are linked to the World Wide Web and
the Internet. XS New York was opened on a preview basis until March 20, 1997,
the date of its official Grand Opening. The Company, on November 4, 1997,
renegotiated its revenue-sharing agreement with the primary equipment supplier
of XS New York in consideration of the sale to such supplier of the "XS"
trademarks and related intellectual property rights. Additionally, in connection
with the sale of the trademarks and other intellectual property rights, such
equipment supplier has forgiven all amounts owed to it by the Company through
October 12, 1997 (which aggregated approximately $427,000). Pursuant to a
license agreement from such supplier, the Company may continue to use the "XS"
trademarks in connection with the Times Square location. See "--Liquidity and
Capital Resources."
Promoting New York Skyride and XS New York to tourist boards (such as
the New York Convention and Visitors Bureau), travel agents, managers of group
activities and visitors to New York City represents a primary focus of the
Company's marketing efforts for these attractions. Since tourists and visitors
are a primary target, special volume discounts are offered to groups such as
conventions and trade associations, as well as through travel agent packages.
School groups are also a significant market for New York Skyride and XS New
York, and special programs are being implemented to target these audiences,
especially during the slower tourist periods in the fall and winter months.
Additionally, the marketing efforts have focused significant attention on
promoting New York Skyride and XS New York for birthday parties and special
events.
During September 1996, the Company entered into a 15 year lease for
approximately 21,000 square feet of space in the Woodfield Mall outside of
Chicago, in Schaumberg, Illinois. The Company, through its subsidiary, Skyline
Chicago, Inc., had plans to develop a state-of-the-art interactive virtual
reality entertainment center similar to the XS New York project. In connection
with the execution of the lease, the Company was required to provide a $200,000
irrevocable letter of credit as security for the performance of the Company's
obligations under the lease. As a result of construction delays due to the lack
of sufficient funding, the Company did not commence operations on the date
required in the lease. The Company received notice on December 22, 1997 that the
landlord had reentered the premises occupied by the Company as a result of
certain defaults and has declared such lease terminated. The Company is
currently in negotiations with the landlord to arrive at a settlement in
connection with the lease termination. Management believes, based on current
negotiations, that such settlement amount will not have a material impact on the
Company's financial condition or results of operations.
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
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(the "Tower") in Sydney, Australia. The Centrepoint Shopping Center 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 base rent is expected to range from $225,000 in Year 1 to $600,000 in
Year 8. The letter of intent also contemplates a provision for percentage rent
of 6.5% of gross sales in excess of $7,000,000. The Company has a right of first
refusal on certain additional space located within the shopping center which may
be used for development of an "XS-type" attraction in the future. The Company is
still in the process of negotiating for the sale of a combined ticket to both
the Tower and the Company's attraction or a possible joint venture with the
owner of the Tower; however, no assurance can be given with respect to the
successful conclusion of such negotiations or, if successfully concluded,
whether funding will be available to commence construction or whether such site
will operate profitably or provide net income to the Company. The Company has
expended approximately $938,000 in connection with this project. In the event
negotiations are not successfully concluded, the Company would be required to
write-off approximately $700,000 of the amounts expended.
The Company hopes to finalize lease negotiations and documentation
during the Summer of 1998 and expects to pattern the Tower project after New
York Skyride, but with a uniquely Australian theme. If negotiations are
successfully concluded in the Summer of 1998, the Company anticipates that it
will open its "Sydney Skyride" during the Winter of 1999 at an anticipated cost
of approximately $7 million. The previous sentence is considered a
forward-looking statement and is based on estimates by the Company that include
assumptions with respect to availability of funding and seasonal construction
issues, either or both of which may affect the proposed opening of a particular
site. For example, unavailability of adequate funding will result in delays in
commencement or suspension of construction. Additionally, construction may also
be hampered by adverse weather conditions in the winter months, as well as
increases in prices for raw materials and equipment, strikes, work-stoppages,
unanticipated events and regional, national and international economic trends.
Accordingly, there can be no assurances that the Company will be able to open
such facility as anticipated or for the anticipated cost. Additionally, there
can be no assurance that the Company will be able to successfully finalize lease
negotiations with the landlord of the Tower and the Centrepoint Shopping Center,
or, if finalized, that it will be able to arrange for adequate financing of this
project and complete construction of the "Sydney Skyride" by the date
anticipated, if at all.
The Company intends to use the expertise and experience which it gained
from the operation of New York Skyride and XS New York to develop these and
similar attractions at other locations in the United States and abroad. However,
there can be no assurance that the Company will be able to develop any
additional attractions, or if developed, that such attractions will be
successful.
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 attraction to be
located in the Sydney Skyride and expects to employ similar advertising and
promotional programs throughout such local areas and surrounding regions.
Results of Operations
Revenues. Revenues generated during the three and nine months ended
March 31, 1998 aggregated $2,209,000 and $8,150,000, respectively as compared to
$1,770,000 and $5,556,000 respectively for the three and nine months ended March
31, 1997. The increase in revenue for the three and nine months ended March 31,
1998, from the prior year period is primarily due to the commencement of
operations of the Company's XS New York facility, which accounted for total
revenues of $1,026,000 and $3,670,000 during the three and nine months ended
March 31, 1998 as compared to $904,000 and $951,000 for the three and nine
months ended March 31, 1997.
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Management expects to continue to supplement its primary revenue stream
from ticket sales for New York Skyride and game revenue at XS New York by
soliciting corporate sponsorships from a number of key consumer product
companies. During the three and nine month periods ended March 31, 1998 the
Company earned approximately $60,000 and $236,000 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.
Operating Expenses. Operating expenses incurred during the three and
nine months ended March 31, 1998, aggregated $2,691,000 and $10,032,000 compared
to $3,351,000 and $7,336,000 for the three and nine months ended March 31, 1997.
The increase for the nine months ended March 31, 1998 is due in part to an
increase in overhead at the New York Skyride from $4,303,000 for the nine months
ended March 31, 1997, to approximately $4,583,000 for the nine months ended
March 31, 1998. In addition, the increase for the nine months ended March 31,
1998 is due in part to an increase of approximately $299,000 in rent expense at
the New York Skyride relating to the additional space in the Empire State
Building. Also contributing, as a result of full scale operations at XS New
York, the Company had an increase in operating expenses of approximately
$846,000. XS New York was opened on a preview basis until March 20, 1997, the
date of its official grand opening. Accordingly, expenses incurred for the nine
months ended March 31, 1998 are higher than the nine months ended March 31,
1997. These XS New York related expenses include, among other things, payroll
and related expenses of approximately $600,000, and an allocation of corporate
overhead of approximately $350,000 for the nine months ended March 31, 1998.
Additionally, as a result of defaults on the Woodfield Mall lease, the Company
incurred expenses during the nine months ended March 31, 1998 relating to this
facility aggregating approximately $729,000. These costs included rent accrued
during the period as well as the write-off of all assets acquired relating to
the facility. Also, included in operating expenses during the nine months ended
March 31, 1998 is approximately $120,000 relating to the proposed warrant
exchange offer, which was terminated on November 4, 1997.
Net (Loss) and (Loss) Per Share. Basic and diluted net (loss) and (loss)
per share available to common stockholders before deferred taxes were ($730,000)
and ($.44) and ($2,556,000) and ($1.53) for the three and nine months ended
March 31, 1998 as compared to ($1,655,000) and ($.98) and ($2,107,000) and
($1.20) for the three and nine months ended March 31, 1997. The net loss for the
quarter ended March 31, 1998 included a loss of approximately ($393,000) related
to XS New York (see "Operating Expenses" above), a loss of approximately
($316,000) from New York Skyride, and a loss of approximately ($21,000) related
to certain start-up costs in connection with the Company's proposed Australia
site. During the quarter ended March 31, 1997, New York Skyride operations
incurred a loss of approximately ($107,000) with $1,061,000 in deferred tax
expense realized, offset, in part, by start-up costs of approximately $1,052,000
related to XS New York.
As a result of operating loss carryforwards from prior years, the
Company recognized a net deferred tax expense of $1,061,000 or $.63 per share,
during the quarter ended March 31, 1997 which was offset by a provision for
certain state and local income taxes of ($20,000) or ($.01) per share. During
the quarter ended March 31, 1998 there was a provision for certain state and
local taxes on capital aggregating $12,000 with no benefit recognized for net
operating loss carryforwards.
Working Capital. Working capital (deficiency) at March 31, 1998, was
approximately ($5,477,000) compared to a working capital (deficiency) of
approximately ($2,532,000) at March 31, 1997. The increase in working capital
deficiency is primarily the result of the XS New York buildout of approximately
$7,769,000, the operating loss incurred during the past nine month period of
($2,556,000), writeoffs as a result of defaults on the Woodfield Mall lease of
$729,000, deferred project, leasing and financing costs aggregating $941,000
related to the Company's capital investments in XS New York and Sidney Skyride
and costs associated with the Company's stock buy-back program of $601,000.
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Liquidity and Capital Resources
On July 7, 1995, the Company consummated a private placement with
Prospect Street whereby 1,090,909 shares of Preferred Stock were sold for gross
proceeds of $2.75 per share, or $3,000,000. The Preferred Stock is convertible
into Common Stock of the Company at any time on a share-for-share basis. The
holders of the Preferred Stock are entitled to an aggregate of up to 24.9% of
the outstanding voting power of the Company on all matters which come before the
shareholders. Additionally, so long as 272,727 shares of Preferred Stock remain
outstanding, the holders thereof will have the ability to elect a majority of
the Board of Directors and obtain up to 50.1% of the outstanding voting power of
the Company in the event that the holders of the Preferred Stock determine in
good faith, in their sole discretion, that such action is reasonably necessary
for the protection of their investment. The Preferred Stock and underlying
Common Stock into which it is convertible are subject to both demand and
piggyback registration rights. Net proceeds to the Company from such investment
was $2,833,333.
The Company used a portion of the net proceeds of the Preferred Stock
sale to repay certain indebtedness in connection with the New York Skyride
project and used the balance of the proceeds for working capital, which included
expansion of the Company's business through developing attractions at new
locations, including the XS New York project.
As of March 31, 1998, the Company had a working capital (deficiency) of
approximately ($5,477,000) compared to working capital (deficiency) of
($2,532,000) at March 31, 1997 which was due primarily to costs incurred in
connection with the construction and opening of XS New York and losses incurred
from operations. Additionally, as a result of defaults on the Woodfield Mall
lease, the Company incurred expenses during the nine months ended March 31, 1998
relating to this facility aggregating approximately $729,000. These costs
included rent accrued during the period as well as the write-off of all assets
acquired relating to the facility. Also, included in operating expenses during
the nine months ended March 31, 1998 is approximately $120,000 relating to the
proposed warrant exchange offer, which was terminated on November 4, 1997, and
approximately $299,000 in rent expense relating to the additional space in the
Empire State Building which the Company has yet to make a decision as to its
ultimate use, as well as costs associated with the Company's stock buy-back
program of $601,000. Since inception, the Company spent approximately $6,050,000
related to capital expenditures with respect to New York Skyride and
approximately $7,864,000 related to capital expenditures and leasing costs with
respect to the XS New York Times Square project. Additionally, the Company had
expenditures of approximately $362,000 for security deposits and financing costs
associated with the XS New York project.
The Company is currently involved in a dispute with a subcontractor
regarding amounts billed for work allegedly performed in connection with the XS
New York project. The Company believes that it has adequately reserved for such
contingency and does not believe that the resolution of the dispute will have a
material impact on the Company's financial position. Such contingency represents
leasehold improvements which, when amortized over the remaining term of the
Company's lease, will not have a material effect on the Company's results from
operations.
As a result of the Company's development of XS New York, the Company
incurred capital expenditures and leasing costs of approximately $7,864,000
consisting of $890,000 in leasing, design and consulting fees, $5,162,000 in
construction and theming, $253,000 for signage and approximately $1,559,000 for
equipment purchases. In order to complete the construction of XS New York and
provide additional working capital for growth and expansion, the Company raised
additional secured and unsecured debt through its relationships with its
institutional investors and lenders as described below.
The Company entered into a revenue-sharing arrangement with its primary
equipment supplier of the games and attractions at XS New York. Under the prior
arrangement the Company was obligated to pay 40% of revenues from such equipment
to the supplier. The Company did not anticipate that the machines installed by
such supplier would account for such a significant portion of the Company's
revenues from XS New York. The new revenue-sharing arrangement, which was
renegotiated as of November 4, 1997, requires the Company to pay 14% of
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revenues (as defined in the Agreement) to such equipment supplier. In connection
with such revised revenue-sharing agreement and the forgiveness through October
12, 1997 of all amounts owed by the Company to such equipment supplier (which
aggregated approximately $427,000), the Company agreed to sell the "XS"
trademarks and related intellectual property rights to the equipment supplier.
The Company, pursuant to a three-year renewable license agreement, can continue
to use the "XS" trademarks and related concepts at its Times Square location.
The lease for the XS New York location contains a cancellation clause
exercisable at any time in the event the landlord commences construction of an
office building on the site at some future date. Should the landlord exercise
the cancellation clause, the Company would be required to vacate the space
within six months after notice, but would be entitled to reimbursement during
the first five years of the lease of a portion of its out-of-pocket construction
costs, not to exceed $125 per square foot. In the event the lease is canceled,
the Company will incur a charge to earning equal to the unamortized portion of
its investment (other than assets which are sold in the ordinary course) at the
time of such lease cancellation. The Company has become aware of plans by the
landlord to sell the property to a developer. The Company is not certain of the
timing of the sale of such property or whether such developer will construct an
office building on the site. The Company has not received notice of exercise of
the cancellation clause. However, cancellation of the lease will have a material
adverse effect on the Company's operations and financial condition taken as a
whole.
On December 20, 1996, the Company entered into a Senior Credit Agreement
(the "Senior Credit Agreement") with Prospect Street and Bank of New York, as
Trustee for the Employees Retirement Plan of the Brooklyn Union Gas Company
("BUG"), to obtain up to $4,100,000 in senior unsecured subordinated debt which
accrues interest at an annual rate of 14% and requires the payment of both
principal and interest five (5) years from the date of issuance. The Senior
Credit Agreement was subsequently amended to increase the amount of the
subordinated debt to $4,450,000 and to provide for the inclusion of additional
lenders. Of such increased amount $2,500,000 was received by the Company from
BUG and a related pension fund and $1,950,000 was received by the Company from
Prospect Street and its affiliates. In connection with the Senior Credit
Agreement, BUG and its related pension fund received warrants to purchase up to
an aggregate of 243,904 shares of Common Stock and Prospect Street and its
affiliates received warrants to purchase up to an aggregate of 190,242 shares of
Common Stock, each exercisable and expiring at various dates from February 1999
through December 31, 2007 at various exercise prices ranging from $4.25 to $7.91
per share. A purchase price of $1.00 per warrant was allocated from the
subordinated debt proceeds received by the Company. As part of this financing,
on November 6, 1996, Prospect Street provided the Company with a demand loan of
$1,500,000, at an annual interest rate of 14%, which loan was exchanged for a
portion of the subordinated debt under the Senior Credit Agreement. During June
1997, the Company received a $500,000 loan from one of its institutional
investors. During December 1997, the Company received a $500,000 loan from a
bank bearing interest at the rate of 7.6% per annum that is secured by a
Certificate of Deposit from this same institutional investor.
During November 1996, an institutional lender agreed to finance the
acquisition of the equipment for the Company's XS New York site up to an
aggregate of $1,327,000. Pursuant to this transaction, the Company received
approximately $832,000 and an additional $495,000 is being held by the lender as
security. Such security is to be released after 24 months subject to a
satisfactory payment history by the Company. The lender has a first security
interest in all equipment financed and the Company's president has personally
guaranteed up to $750,000 of the loan amount. The amount financed will bear
annual interest at 11 1/2% and is to be repaid in 48 monthly installments. In
connection with this transaction, the Company issued warrants to purchase up to
50,000 shares of the Company's common stock at an exercise price of $6.00 per
share.
During March 1997 the Company signed an agreement to finance the
acquisition of additional equipment for XS New York aggregating approximately
$256,000. The terms of the loan are the same as described in the previous
paragraph except that the security amount withheld by the lender is $51,000 and
the personal guarantee from the Company's president is $125,000. During November
1997, the payment term was modified to provide for an accelerated payback over
36 months from the date of issuance.
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During December 1996, the Company refinanced its existing equipment loan
on the equipment located at its New York Skyride location for aggregate proceeds
of $1,500,000 of which approximately $491,000 was applied to satisfy amounts due
under the original loan. The loan bears annual interest at 11 1/2% and is to be
repaid in 48 monthly installments and is secured by a first lien on all
equipment at New York Skyride. The Company's president has guaranteed up to
$250,000 of this loan.
As a result of construction delays due to the lack of sufficient
funding, the Company was not be able to commence operation of the Woodfield Mall
site on the date required in the lease. The Company received notice on December
22, 1997 that the landlord had re-entered the premises occupied by the Company
as a result of certain defaults and has declared such lease terminated. The
Company is currently in negotiations with the landlord to arrive at a settlement
in connection with the lease termination. Management believes, based on current
negotiations, that such settlement will not have a material impact on the
Company's financial condition or results of operations.
The Company estimates the capital expenditures required to develop the
Sydney Skyride facility will be approximately $7,000,000. The Company expects to
incur losses during the initial years of operation of each new site primarily as
a result of start-up expenses and costs associated with commencement of
operations. The previous sentences are considered forward-looking statements and
are based on estimates by the Company that include the construction of the
facility, equipment hardware and software, and design and theming costs, which
estimates are each subject to, and may be increased by, construction delays,
increased prices for raw materials and equipment, architectural redesigns,
strikes, and work-stoppages, unanticipated events and regional, national and
international economic trends. In order to develop new attractions the Company
will require additional debt or equity financing which the Company is attempting
to secure. However, there can be no assurance that such financing will be
available on terms acceptable to the Company, or at all. Further there can be no
assurance that demands placed on the Company's financial resources by multiple
projects, or any one project in particular, will not affect the Company's
ability to successfully complete or finance one or more of such projects, which
would adversely affect the Company's expansion and growth strategy.
The Company is currently seeking alternative sources of financing to
satisfy its capital requirements for the foreseeable future. On December 10,
1997 the Company signed a non-binding letter of intent with an investment
banking firm with respect to the sale of securities or other financing
transaction on a best efforts basis, which it had hoped would be consummated
during the quarter ended June 30, 1998. However, as a result of the decline in
the Company's stock price and the litigation commenced against the ESBCo and its
affiliates, it does not appear likely that any proposed offering with such
investment banking firm will be consummated in the near term. The Company is
still seeking to raise needed equity capital to assist the Company in satisfying
its financial obligations and to provide capital for expansion. There can be no
assurance, however, that any such financing will be consummated on terms
favorable to the Company or at all.
Subsequent to the quarter ended March 31, 1998, the Company and its
subsidiaries entered into a Senior Secured Credit Agreement (the "Credit
Agreement") with the Bank of New York, as Trustee for the Employees Retirement
Plan of Keyspan Energy Corp. ("Keyspan") and Prospect Street (together with
Keyspan, the "Institutional Investors") relating to the financing of an
aggregate of $935,000 ($500,000 from Keyspan and $435,000 from Prospect Street)
(the "Financing"), in exchange for receipt by the Institutional Investors of
senior secured promissory notes (the "Notes") and the issuance of warrants no
later than June 15, 1998 to purchase shares of Common Stock of the Company (the
"Warrants"). The Notes mature on July 15, 1998 (the "Maturity Date"), accrue
interest at a per annum rate equal to 14% and are secured (with certain
exceptions) by all the assets of the Company and its subsidiaries. The Notes and
the obligations under the Credit Agreement and the Warrants, when issued, are
also collateralized by a pledge of the stock of the subsidiaries. In connection
with the Credit Agreement, Keyspan also received the right to appoint two
members to the Company's Board of Directors.
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In the event the Company receives additional gross proceeds of at least
$3 million in an equity financing (an "Equity Financing") on or prior to the
Maturity Date, each $1.00 of principal amount of the Notes may, at the option of
the holder, convert into $1.25 of the securities issued in such Equity Financing
and the Warrants will be canceled. In the event the entire principal amount of
the Notes (plus all accrued and unpaid interest thereon) is repaid prior to the
Maturity Date, then the Warrants will be exercisable for an aggregate of up to
64% (after issuance) of the fully diluted common stock of the Company on the
date of such issuance at an exercise price of $0.375 per share (in which event
the conversion rate of the Preferred Stock will be readjusted to 4.80 shares of
common stock for each share of Preferred Stock). In the event the entire
pricipal amount of the Notes has not been repaid (plus all accrued and unpaid
interest thereon) or converted (pursuant to the terms of the Notes) on or prior
to the Maturity Date, then the Warrants will be exercisable for an aggregate of
up to approximately 94% (after issuance) of the fully diluted common stock of
the Company on the date of such issuance at an exercise price of $0.375 per
share (in which event the conversion rate of the Preferred Stock will be
readjusted to 6.91 shares of common stock for each share of Preferred Stock).
Upon consummation of an Equity Financing and repayment or conversion of the
entire principal amount of the Notes (plus all accrued and unpaid interest
thereon) before the Maturity Date, the Warrants will be canceled and of no
further force or effect (and the conversion rate of the Preferred Stock would be
readjusted to the conversion rate immediately prior to the issuance of the
Warrants). The Warrants have a cashless exercise procedure. Accordingly, the
exercise of such Warrants by the Institutional Investors will result in a
significant change in the ownership of the Company. The Company approved this
transaction after consideration of its alternatives and current financial
situation. The Company believes that the $935,000 cash infusion will enable it
to resolve its short-term cash management problems while attempting to raise
necessary additional financing. The Company is currently exploring ways in which
to attempt to consummate an Equity Financing, including possibly conducting a
rights offering. However, no assurances can be made that the Company will be
successful. If the Company is not successful in such capital raising efforts,
the Warrants will be exercisable for approximately 173 million shares of common
stock for an exercise price of approximately $64.9 million, or, at the option of
the holder, pursuant to a cashless exercise feature, the difference in shares
between 173 million shares and that number of shares having a market value equal
to $64.9 million (i.e. at a market price per share of $.40, an aggregate of 10.8
million shares of common stock will be issued) resulting in significant dilution
to existing stockholders. However, the value of these Warrants needs to be
determined and may result in a material charge to income in the future. In the
event the Company does not receive adequate financing in the near term, of which
there can be no assurance, the Company will be forced to abandon certain of its
proposed projects, possibly curtail current operations, or be forced to sell
some or a significant portion of its assets in order to satisfy its obligations.
The Company is in the process of applying to the Nasdaq Stock Market,
Inc. (the "Nasdaq") to obtain a waiver of the shareholder approval requirement
under Nasdaq rules relating to the possible issuance of 20% or more of the
outstanding common stock of the Company as a result of exercise of the warrants
to be issued in connection with the Financing. In the event such waiver is not
granted by Nasdaq, the Company's securities may be delisted from the Nasdaq
Small Cap Market prior to the date the Company's securities would otherwise be
delisted pursuant to a notice received from Nasdaq as a result of failure to
comply with the Nasdaq maintenance criteria of a minimum bid price of $1.00 for
the Company's common stock. The Company has the right to request a hearing to
demonstrate compliance or the likelihood of compliance based on a viable plan
prior to Nasdaq's determination to delist the Company's securities, which notice
outlining the hearing procedures is expected during the first week of June 1998.
In connection with the Financing, Zalman Silber, President and Chief
Executive Officer, agreed to relinquish all positions in the Company and its
subsidiaries held by him and to deliver to the Company for cancellation all of
his options and warrants in the Company in exchange for the forgiveness of
amounts previously agreed to be refunded by Mr. Silber to the Company in the
amount of $750,000 and payment by the Company to Mr. Silber of $206,250, and to
transfer to Prospect Street, all of his 960,000 shares of Class A Common Stock
(670,000 shares of which will likely be forfeited to the Company on June 30,
1998 pursuant to existing escrow arrangements) in consideration for an aggregate
of $100 and the Financing by the Institutional Investors. The Company and Mr.
Silber also exchanged general releases. Mr. Silber has granted an irrevocable
proxy with respect to the vote of such Class A Common Stock to Prospect Street
until the remaining 290,000 shares of Class A Common Stock, which are currently
pledged as collateral in connection with a loan, can be transferred upon release
of such pledge. Mr. Silber has also agreed not to compete with the Company or
its subsidiaries in New York City for a period of ten years. Steven Schwartz,
the Company's Chief Financial Officer, will assume a portion of the
responsibilities of the Office of the Chief Executive and has been designated as
Executive Director of Operations and Finance. The Company is in the process of
hiring an Executive Director of Marketing and Business
19
<PAGE>
Development, who will also assume a portion of the responsibilities of the
Office of the Chief Executive. Mr. Silber will retain the title of Chairman of
the Company's Advisory Board.
A portion of the proceeds of the Financing were used to pay certain
undisputed rental amounts owing to the Empire State Building Company ("ESBCo")
pursuant to an order issued by the Supreme Court of the State of New York on
April 3, 1998 requiring the Company to pay $838,000. With respect to the current
legal proceedings, the judge granted the preliminary injunction against the
ESBCo and its affiliates. The issues with respect to disputed rental amounts
(approximately $650,000) will be referred to a referee for final determination
pursuant to a hearing currently scheduled in early June 1998. The Company
intends to proceed with discovery with respect to its other claims for damages
against the ESBCo and others.
The Company's independent auditors have included an explanatory
paragraph in the Company's Annual Report on Form 10-KSB for the year ended June
30, 1997 to the effect that certain matters raise substantial doubt about the
Company's ability to continue as a going concern, which is contingent upon,
among other things, the Company's ability to secure financing and attain
profitable operations.
The Company's long term goal is to develop simulator and other
location-based entertainment attractions in other major cities in the United
States and other countries. There are, however, only a limited number of
locations in a small number of cities that are suitable for such attractions,
and there can be no assurance that the Company could obtain a lease at any such
locations or develop a successful attraction at such locations. Also,
development of additional attractions will require the Company to obtain
financing for such ventures, and there can be no assurance that such financing
will be available, or available on terms and conditions that are acceptable to
the Company. Additionally, it is possible that the Company would find it
necessary to have one or more local partners involved in any additional
attractions it might attempt to develop, further limiting the revenues that the
Company could generate from these locations.
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.
Inflation
The Company believes that the impact of inflation on its operations
since its inception has not been material.
Seasonality
The Company's business is seasonal in nature, based in part, on higher
volumes of tourists in the New York City Metropolitan area during the spring and
summer months and during the December holiday season. The Sydney Skyride,
located in the southern hemisphere is expected to be much less seasonal and to
provide 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.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On December 23, 1997 the Company filed an action in the Supreme Court
of the State of New York, County of New York, against Empire State Building
Company, Empire State Building Associates, Helmsley-Spear, Inc. et al., seeking,
among other things, injunctive relief to prohibit the ESBCo from terminating the
Company's Leases and the License Agreement relating to the New York Skyride and
also seeking damages from the ESBCo. The basis for the Company's claims are,
among other things, the lack of cooperation by the ESBCo and its staff in
violation of the Leases and the License Agreement, as well as bad faith, fraud
and self-dealing on the part of the ESBCo and certain members of its management
staff. The Company has received a preliminary injunction, which among other
things, prohibits the ESBCo from terminating or canceling the Leases and the
License Agreement and restrains the ESBCo from interfering with the Company's
business or commencing any proceedings with respect to the Leases and the
License Agreement. A hearing with respect to the temporary restraining order was
held on February 6, 1998. The decision by the Judge was received on April 3,
1998, which ordered the Company to pay $838,000 in undisputed rent, submitted
the determination of disputed rent amounts to a referee pursuant to a hearing
currently scheduled in early June 1998, and granted the Company's motion for a
preliminary injunction. The Company intends to proceed with discovery with
respect to its other claims for damages against the ESBCo and its affiliates.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
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 Current Reports have been filed during the period.
21
<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/ Steven Schwartz
Steven Schwartz
Executive Director of Operations and Finance
(Principal Financial and Accounting Officer)
Dated: May 20, 1998
22
<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)
23
<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)
24
<PAGE>
INDEX TO EXHIBITS (Continued)
Exhibit
Number Description
10.28 Subsidiary Guaranty Agreement dated December 20, 1996, between the
Company and Prospect Street. (11)
10.29 Indemnity, Subrogation and Contribution Agreement dated December 20,
1996, between the Company and Prospect Street. (11)
10.30 Amended and restated Registration Rights Agreement dated December 20,
1996, between the Company, Prospect Street, and Bank of New York as
Trustee for the Employees Retirement Plan of The Brooklyn Union Gas
Company. (11)
10.31 Senior Promissory Note dated December 20, 1996, between the Company and
Prospect Street. (11)
10.32 Senior Promissory Note dated December 20, 1996 between the Company and
Bank of New York as Trustee for the Employees Retirement Plan of The
Brooklyn Union Gas Company. (11)
10.33 Stock Purchase Warrant Agreements dated December 20, 1996, between the
Company, Prospect Street, and Bank of New York as Trustee for the
Employees Retirement Plan of The Brooklyn Union Gas Company. (11)
10.34 Loan and Security Agreement dated December 4, 1996, between the Company
and People's Bank. (11)
10.35 Loan and Security Agreement dated December 4, 1996, between the Company
and the Independent Resources Inc. (11)
10.36 Loan and Security Agreement dated December 4, 1996, between the Company
and the PhoenixCor, Inc. (11)
10.37 Guarantees of Zalman Silber dated December 4, 1996 relating to the Loan
and Security Agreements with People's Bank and PhoenixCor, Inc. (11)
10.38 Senior Promissory Note dated February 18, 1997 between the Company and
Bank of New York, as Trustee for the Employees Retirement Plan of The
Brooklyn Union Gas Company.(12)
10.39 Senior Promissory Note dated March 14, 1997 between the Company and
Prospect Street NYC Co-Investment Fund, L.P.(12)
10.40 Senior Promissory Note dated March 21, 1997 between the Company and
Bank of New York, as Trustee for Brooklyn Union Gas Company
Non-Bargaining Health VEBA.(12)
10.41 Stock Purchase Warrant Agreement dated February 18, 1997 between the
Company and Bank of New York, as Trustee for the Employee Retirement
Plan of The Brooklyn Union Gas Company.(12)
25
<PAGE>
INDEX TO EXHIBITS (Continued)
Exhibit
Number Description
10.42 Stock Purchase Warrant Agreements dated March 14, 1997 between the
Company and Prospect Street NYC Co-Investment Fund, L.P.(12)
10.43 Stock Purchase Warrant Agreement dated March 21, 1997 between the
Company and Bank of New York, as Trustee for Brooklyn Union Gas Company
Non-Bargaining Health VEBA.(12)
10.44 Purchase Agreement, dated as of November 4, 1997, by and among the
Company, Skyline Virtual Reality, Inc. ("SVR") and Namco Cybertainment,
Inc. ("Namco"). (13)
10.45 Trademark License Agreement, dated as of November 4, 1997, between SVR
and Namco. (13)
10.46 Revenue-Sharing Agreement, dated as of November 4, 1997, by and among
the Company, SVR and Namco. (13)
10.47 Employment Agreement dated as of December 1, 1997 between the Company
and Zalman Silber. (14)
10.48 Senior Secured Credit Agreement dated as of May 20, 1998 among the
Company's and its subsidiaries and Prospect Street and Bank of New
York, as Trustee for the Employees Retirement Plan of Keyspan Energy
Corp. ("Keyspan", and together with Prospect Street, the "Institutional
Investors").
10.49 Form of Warrants to Purchase Common Stock to be issued to the
Institutional Investors.
10.50 Senior Secured Demand Promissory Notes issued to the Institutional
Investors.
10.51 Security Agreement among the Company and its subsidiaries and the
Institutional Investors.
10.52 Pledge Agreement among the Company and its subsidiaries and the
Institutional Investors.
10.53 Amended and Restated Separation Agreement and General Release.
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.
26
<PAGE>
INDEX TO EXHIBITS (Continued)
Exhibit
Number Description
(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.
(12) Previously filed as an exhibit to the Company's quarterly report on
Form 10-QSB for the quarter ended March 31, 1997.
(13) Previously filed as an exhibit to the Company's quarterly report on
Form 10-QSB for the quarter ended September 30, 1997 (as filed with the
Commission on November 13, 1997).
(14) Previously filed as an exhibit to the Company's quarterly report on
Form 10-QSB for the quarter ended December 31, 1997.
27
<PAGE>
SENIOR SECURED CREDIT AGREEMENT
dated as of May 20, 1998
by and among
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.,
NEW YORK SKYLINE, INC.,
SKYLINE VIRTUAL REALITY, INC.,
SKYLINE CHICAGO, INC.,
SKYLINE MAGIC, INC.,
SKYLINE LAS VEGAS, INC.,
BANK OF NEW YORK, AS TRUSTEE FOR
THE EMPLOYEES RETIREMENT PLAN OF
KEYSPAN ENERGY CORP.
and
PROSPECT STREET NYC DISCOVERY FUND, L.P.
<PAGE>
SENIOR SECURED CREDIT AGREEMENT, dated as of May 20, 1998
by and among Bank of New York, as Trustee for the Employees Retirement Plan of
Keyspan Energy Corp.("KEP") and Prospect Street NYC Discovery Fund, L.P.
("Prospect Street") (KEP and Prospect Street each a "Lender," and
collectively, the "Lenders"), and Skyline Multimedia Entertainment, Inc., a
New York corporation ("SMEI" or the "Company"), New York Skyline, Inc., a New
York corporation ("NYSI"), Skyline Virtual Reality, Inc., a Delaware
corporation ("SCI"), Skyline Magic, Inc., a Delaware corporation ("SMI"), and
Skyline Las Vegas, Inc., a Delaware corporation ("SLVI") (SMEI, NYSI, SCI, SMI
and SLVI, each a "Borrower" and, jointly and severally, the "Co-Borrowers").
WHEREAS, capitalized terms not otherwise defined herein have
the meanings set forth in Section 1.1; and
WHEREAS, the Co-Borrowers wish to obtain financing and the
Lenders desire to provide such financing to the Co-Borrowers;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. (a) As used in this Agreement, the
following defined terms shall have the meanings indicated below:
"Actions or Proceedings" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation or audit.
"Affiliate" means, as applied to any Person, (a) any other
Person directly or indirectly controlling, controlled by or under common
control with, that Person, (b) any other Person that owns or controls 10% or
more of any class of equity securities (including any equity securities
issuable upon the exercise of any option or convertible security) of that
Person or any of its Affiliates, or (c) any director, partner, officer, agent,
employee or relative of such Person. For the purposes of this definition,
"control" (including with correlative meanings, the terms "controlling",
"controlled by", and "under common control with") as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through
ownership of voting securities or by contract or otherwise.
<PAGE>
"Agreement" means this Senior Secured Credit Agreement, the
Exhibits, Annexes and the certificates or other documents or instruments
delivered in accordance herewith, as the same may be amended from time to time
in accordance with the terms hereof.
"Assets and Properties" of any Person means all assets and
properties of every kind, nature, character and description (whether real,
personal or mixed, whether tangible or intangible, and wherever situated),
including the goodwill related thereto, operated, owned or leased by such
Person, including without limitation cash, cash equivalents, Investment
Assets, accounts and notes receivable, chattel paper, documents, instruments,
general intangibles, real estate, equipment, inventory, goods and Intellectual
Property.
"Associate" means, with respect to any Person, any
corporation or other business organization of which such Person is an officer
or partner or is the beneficial owner, directly or indirectly, of ten percent
(10%) or more of any class of equity securities, any trust or estate in which
such Person has a substantial beneficial interest or as to which such Person
serves as a trustee or in a similar capacity and any relative or spouse of
such Person, or any relative of such spouse, who has the same home as such
Person.
"Borrowing Certificate" means a certificate executed and
delivered by the Co-Borrowers in accordance with the terms of Section 2.2 and
substantially in the form of Exhibit A hereto.
"Business Combination" means with respect to any Person any
(i) merger, consolidation or combination to which such Person is a party, (ii)
any sale, dividend, split or other disposition of any capital stock or other
equity interests of such Person, (iii) any tender offer (including without
limitation a self-tender), exchange offer, recapitalization, liquidation,
dissolution or similar transaction, (iv) any sale, dividend or other
disposition of all or a material portion of the Assets and Properties of such
Person (even if less than all or substantially all) or (v) the entering into
of any agreement or understanding, or the granting of any rights or options,
with respect to any of the foregoing; provided, however, that the issuance of
securities pursuant to Options under the existing stock option plans of a
Borrower shall not be deemed a Business Combination for purposes hereof.
"Business Day" means a day other than Saturday, Sunday or
any day on which banks located in the State of New York are authorized or
obligated to close.
"Business or Condition" means, with respect to any Person,
the business, condition, results of operations, Assets and Properties or
prospects of such Person.
"Capital Lease Obligations " means, as to any Person, any
obligation of such Person which is or should be classified and accounted for
as a capital lease for financial reporting purposes in accordance with GAAP,
and the amount of such obligation shall be the capitalized amount thereof
determined in accordance with GAAP on a consolidated basis.
-2-
<PAGE>
"Change of Control" means the acquisition after the date
hereof of ownership, directly or indirectly, beneficially or of record, by any
Person or group (within the meaning of the Exchange Act), other than the
Lenders or any Affiliate of the Lenders of shares representing more than 50%
of the aggregate ordinary voting power (in the absence of contingencies)
represented by the issued and outstanding capital stock of SMEI.
"Closing" means the making of the Loan hereunder in
accordance with the provisions herein.
"Closing Date" means the date on which the Loan is to be
made in accordance with the provisions herein, which date shall be April 15,
1998.
"Co-Borrowers" has the meaning ascribed to it in the
forepart of this Agreement (and includes, unless the context otherwise
requires, any predecessor of any Borrower).
"Contract" means any agreement, lease, evidence of
Indebtedness, mortgage, indenture, security agreement or other contract
(whether written or oral).
"Equity Financing" means an equity financing pursuant to
which the Company receives gross proceeds of at least three million dollars
($3,000,000), exclusive of conversion of the Notes.
"Event of Default" has the meaning ascribed to it in Article
VII herein.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Final Maturity Date" means the date on which the Lenders
demand repayment of the Notes, which date shall not be prior to July 15, 1998.
"GAAP" means generally accepted accounting principles,
consistently applied.
"Governmental or Regulatory Authority" means any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the United States, any foreign country or any domestic or
foreign state, county, city or other political subdivision, and shall include,
without limitation, any stock exchange, quotation service and the National
Association of Securities Dealers.
"Indebtedness" of any Person means, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or similar instruments,
(iii) all obligations of such Person under conditional sale or other title
retention agreements relating to property acquired by such Person, (iv) all
obligations of such Person in respect of the deferred purchase price of
property or services (excluding accounts payable incurred in the ordinary
course of business), (v) all Indebtedness of others secured by (or for which
the holder of such Indebtedness has an existing right, contingent
-3-
<PAGE>
or otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the Indebtedness secured thereby has been assumed, (vi)
all guarantees by such Person of Indebtedness of others, (vii) all Capital
Lease Obligations of such Person, (viii) all obligations, contingent or
otherwise, of such Person as an account party in respect of letters of credit
and letters of guaranty and (ix) all obligations, contingent or otherwise, of
such Person in respect of bankers' acceptances. The Indebtedness of any Person
shall include the Indebtedness of any other entity (including any partnership
in which such Person is a general partner) to the extent such Person is liable
therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
"Indemnified Liabilities" has the meaning ascribed to it in
Section 8.2.
"Indemnitees" has the meaning ascribed to it in Section 8.2.
"Indemnitor" has the meaning ascribed to it in Section 8.2.
"Indemnity, Subrogation and Contribution Agreement" means
the form of Indemnity, Subrogation and Contribution Agreement attached as
Exhibit B hereto, as such agreement may be amended, modified or restated from
time to time.
"Laws" means all laws, statutes, rules, regulations,
ordinances and other pronouncements having the effect of law of the United
States, any foreign country or any domestic or foreign state, county, city or
other political subdivision or of any Governmental or Regulatory Authority.
"Lenders" has the meaning ascribed to it in the forepart of
this Agreement.
"Liabilities" means all Indebtedness, obligations and other
liabilities of a Person, whether absolute, accrued, contingent (or based upon
a contingency), known or unknown, fixed or otherwise, or whether due or to
become due.
"Licenses" means all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises and similar
consents granted or issued by any Governmental or Regulatory Authority.
"Liens" means any mortgage, pledge, assessment, security
interest, lien, adverse claim, levy, charge or other encumbrance of any kind,
or other Contract granting any of the foregoing.
"Loan" means the loan in the amount set forth on Schedule
2.1 hereto made by the Lenders to the Co-Borrowers in accordance with the
terms herein.
-4-
<PAGE>
"Loan Period" means the period commencing on the Closing
Date and ending on the first date on which the Loan and all other amounts
owing under this Agreement and any Operative Agreement have been indefeasibly
satisfied in full.
"Loss" means any and all damages, fines, fees, penalties,
deficiencies, losses and expenses, including without limitation interest,
reasonable expenses of investigation, court costs, reasonable fees and expense
of attorneys, accountants and other experts or other reasonable expenses of
litigation or other proceedings or of any claim, default or assessment (such
fees and expenses to include without limitation, all fees and expenses,
including without limitation reasonable fees and expenses of attorneys,
incurred in connection with (i) the investigation or defenses of any third
party or other claim with respect to which either of the Lenders may be
indemnified pursuant to Section 8.2 hereof or (ii) asserting or disputing any
rights under this Agreement against any party hereto or otherwise).
"Notes" means the Senior Secured Promissory Notes of the
Co-Borrowers, due on the Final Maturity Date, issued pursuant to Section
2.1(b), in the form attached as Exhibit C hereto.
"Operative Agreements" means the Notes, the Warrants, the
Subsidiary Stock Pledge Agreements, the Subsidiary Guarantee Agreement, the
Indemnity, Subrogation and Contribution Agreement, the Subordination Agreement
and the Security Agreement and any supporting or other agreements required
hereby or thereby to be entered into in connection with the transactions
contemplated by this Agreement.
"Order" means any writ, judgment, decree, injunction or
similar order of any Governmental or Regulatory Authority (in each such case
whether preliminary or final).
"Person" means any natural person, corporation, limited
liability company, general partnership, limited partnership, limited liability
partnership, proprietorship, other business organization, trust, union,
association or Governmental or Regulatory Authority.
"Potential Event of Default" means a condition or event
which, after notice or lapse of time or both, would constitute an Event of
Default if that condition or event were not cured or removed within any
applicable grace or cure period.
"Prospect Street Entities" means Prospect Street NYC
Discovery Fund, L.P., Prospect Street NYC Co-Investment Fund, L.P. and
Connecticut Financial Developments, L.P.
"Responsible Officer" means the Chief Executive Officer or
Chief Financial Officer of a Borrower.
"SBA" means the U.S. Small Business Administration.
"SBA Act" means the Small Business Act of 1953, as amended,
and the Small Business Investment Act of 1958, as amended.
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"SBA Regulations" means the rules and regulations of the SBA
promulgated under the SBA Act (13 CFR 107 et seq; and 13 CFR 121 et seq.,
collectively).
"SEC" means the Securities and Exchange Commission.
"SEC Reports" means those reports filed by the Company with
the SEC pursuant to the Securities Act and the Exchange Act.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
"Security Agreement" means the Security Agreement, dated as
of the Closing Date, by and among the Co-Borrowers and the Lenders,
substantially in the form and to the effect of Exhibit D hereto, as such
agreement may be amended, modified or restated from time to time.
"Subsidiary" means any Person in which the Co-Borrowers,
directly or indirectly through Subsidiaries or otherwise, beneficially owns
more than fifty percent (50%) of either the equity interests or the voting
power of such Person.
"Subsidiary Guarantee Agreement" means the form of
Subsidiary Guarantee Agreement attached as Exhibit E hereto, as such agreement
may be amended, modified or restated from time to time.
"Subsidiary Guarantor" means each Subsidiary that delivers a
Subsidiary Guarantee Agreement as required pursuant to Section 5.7 herein.
"Subsidiary Stock Pledge Agreement" means the Subsidiary
Stock Pledge Agreement dated as of the Closing Date, by and among the
Co-Borrowers and the Lenders, attached as Exhibit F hereto, as such agreement
may be amended, modified or restated from time to time.
"Tax" or "Taxes" means all federal, state, local or foreign
net or gross income, gross receipts, net proceeds, sales, use, ad valorem,
value added, franchise, bank shares, withholding, payroll, employment, excise,
property, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other similar governmental charges,
whether disputed or not, together with any interest, penalties, additions to
tax or additional amounts with respect thereto.
"Transfer Tax" has the meaning set forth in Section 5.4.
"Warrants" or "Warrant Certification" means the form of
Warrant Certificate attached as Exhibit G hereto, as such Certificate may be
amended, modified or restated from time to time.
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(b) Unless the context of this Agreement otherwise requires,
(i) words of any gender include each other gender; (ii) words using the
singular or plural number also include the plural or singular number,
respectively; (iii) the terms "hereof," "herein," "hereby" and derivative or
similar words refer to this entire Agreement; (iv) the terms "Article" or
"Section" refer to the specified Article or Section of this Agreement; and (v)
the phrases "ordinary course of business" and "ordinary course of business
consistent with past practice" refer to the business and practice of the
Co-Borrowers or a Subsidiary. All accounting terms used herein and not
expressly defined herein shall have the meanings given to them under GAAP.
ARTICLE II
THE FINANCING
2.1 Loan; Issuance of the Notes.
(a) Subject to the terms and conditions herein, and relying
upon the representations and warranties of the Co-Borrowers herein set forth,
the Lenders agree to make a Loan to the Co-Borrowers on the Closing Date in an
aggregate principal amount as set forth on Schedule 2.1 hereto. The Lenders
shall make payment of the Loan by wire transfer of funds to such account in
New York City as the Co-Borrowers may designate in the Borrowing Certificate.
Amounts paid or prepaid in respect of the Loan may not be re-borrowed.
(b) Upon the making of the Loan, the Co-Borrowers shall
issue Notes in the aggregate principal amount of the Loan.
2.2 Borrowing Procedure. In order to request the Loan, the
Co-Borrowers shall hand deliver or telecopy to the Lenders a duly completed
Borrowing Certificate on or prior to April 15, 1998. The Borrowing Certificate
shall be irrevocable, shall be signed by or on behalf of each of the
Co-Borrowers by a Responsible Officer, and shall specify the following
information: (i) the date of the Loan (which shall be the Closing Date); (ii)
the amount of the Loan; and (iii) the number and location of the account in
New York City to which funds are to be disbursed.
2.3 Repayment of Loan.
(a) The Co-Borrowers unconditionally promise to pay to the
Lenders the then unpaid principal amount of the Notes issued to the Lenders,
together with all accrued and unpaid interest thereon, on the Final Maturity
Date.
(b) The Lenders shall maintain an account or accounts
evidencing the Indebtedness of the Co-Borrowers to the Lenders resulting from
the Loan, including the amounts of principal and interest payable and paid to
the Lenders from time to time under this Agreement.
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(c) The entries made in the accounts maintained pursuant to
paragraph (b) above shall be prima facie evidence of the existence and amounts
of the obligations therein recorded; provided, however, that the failure of
the Lenders to maintain such accounts or any error therein shall not in any
manner affect the obligations of the Co-Borrowers to repay the Loan in
accordance with its terms.
2.4 Interest on Notes.
(a) The Notes shall bear interest (computed on the basis of
the actual number of days elapsed over a year of 360 days) at a rate per annum
of 14%; provided, however, that, upon an Event of Default under Section 7.1
herein, the rate of interest per annum shall increase to a rate per annum of
21%.
(b) Interest on the Notes shall be payable on the earlier to
occur of the Final Maturity Date and the consummation of an Equity Financing.
2.5 Optional Prepayment.
(a) The Co-Borrowers shall have the right at any time and
from time to time to prepay the Notes, in whole or in part. Written notice of
prepayment under this Section 2.5 shall be given to the Lenders at least five
(5) days but not more than thirty (30) days before the prepayment date set forth
in such notice; provided, however that each partial prepayment shall be in a
principal amount that is an integral multiple of $10,000 and not less than
$100,000.
(b) Each notice of prepayment shall specify the prepayment
date and the principal amount of the Notes (or portion thereof) to be prepaid
and shall be irrevocable and shall commit the Co-Borrowers to prepay the
principal amount of such Note (together with accrued and unpaid interest
thereon) by the amount stated therein on the date stated therein.
2.6 Payments.
(a) The Co-Borrowers shall make each payment (including
principal of and interest on the Notes, and any fees or expenses or other
amounts) hereunder and under any Operative Agreement not later than 2:00 p.m.,
New York City time, on the date when due in immediately available United
States Dollars, without setoff or counterclaim. Each such payment shall be
made to the Lenders by wire transfer of immediately available or next day
funds to such account as the Lenders shall have designated.
(b) Whenever any payment (including principal of and
interest on the Notes, and any fees or expenses or other amounts) hereunder or
under any Operative Agreement shall become due, or otherwise would occur, on a
day that is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of interest or fees or expenses, if applicable.
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2.7 Optional Conversion. In the event that an Equity
Financing has been consummated on or before July 15, 1998, the holders of the
Notes, may, at their option, convert all, but not less than all, of the
principal amount of the Notes such that each $1.00 of principal amount of the
Notes are converted into that number of units of securities offered in the
Equity Financing as are purchaseable thereunder for $1.25. Upon such
conversion, accrued and unpaid interest on the Notes shall be immediately
payable to the Lenders in cash.
2.8 Warrant Certificate. Immediately upon the earlier of (x)
the prepayment of all or any portion of any Note and (y) expiration of the
10 day notice period with respect to notification to the Company's
shareholders that the Company has requested a waiver from the Nasdaq Stock
Market, Inc. of certain corporate governance rules to which the Company is
subject, SMEI will issue to each Lender a Warrant Certificate, the terms of
which shall be substantially the same as those set forth in Exhibit G hereto.
Notwithstanding the foregoing, such Warrant Certificates shall be issued no
later than June 15, 1998.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE CO-BORROWERS
The Co-Borrowers hereby represent and warrant to the Lenders
as follows:
3.1 Organization. Each of the Co-Borrowers is a corporation
duly organized and validly existing under the Laws of its respective state of
incorporation. Each of the Co-Borrowers is duly qualified, licensed or
admitted to do business in those jurisdictions in which the ownership, use or
leasing of its Assets and Properties, or the conduct or nature of its
business, makes such qualification, licensing or admission necessary, except
where the failure to be so qualified, licensed or admitted will not have a
material adverse effect on the Business or Condition of the Co-Borrowers taken
as a whole. Each of the Co-Borrowers has, prior to the execution of this
Agreement, delivered to the Lenders true and complete copies of its
certificate of incorporation and by-laws as in effect on the date hereof.
3.2 Power and Authority. Each of the Co-Borrowers has all
requisite corporate power and authority to execute and deliver this Agreement
and the Operative Agreements and to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby,
including without limitation to issue and sell (pursuant to this Agreement),
the Notes and the Warrants required hereunder to be issued on such date. The
execution and delivery by the Co-Borrowers of this Agreement and the Operative
Agreements to which they are a party, and the performance by the Co-Borrowers
of their obligations hereunder and thereunder, including without limitation
the issuance and sale (pursuant to this Agreement) of the Notes and the
Warrants required hereunder to be issued on such date, have been duly and
validly authorized by all necessary action of the board of directors. This
Agreement has been duly and validly executed and delivered by the Co-Borrowers
and constitutes (and upon the execution and delivery by the Co-Borrowers of
the Operative Agreements to which they are a party, such Operative Agreements
will constitute) legal, valid and binding obligations of the Co-Borrowers
enforceable against the Co-Borrowers in
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accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other laws
affecting creditors' rights generally and as the same may be limited by
general principles of equity.
3.3 Subsidiaries. The Subsidiaries of SMEI are NYSI, SVRI,
SCI, AMI and SLVI. There are no other Subsidiaries of any of the Co-Borrowers.
3.4 No Conflicts. The execution and delivery by the
Co-Borrowers of this Agreement do not, and the execution and delivery by the
Co-Borrowers of the Operative Agreements to which they are a party, the
performance by the Co-Borrowers of their obligations under this Agreement and
such Operative Agreements and the consummation of the transactions
contemplated hereby and thereby did not, do not and could not reasonably be
expected to:
(a) conflict with or result in a violation or breach of any
of the terms, conditions or provisions of the certificate of incorporation or
by-laws of any of the Co-Borrowers;
(b) conflict with or result in a violation or breach of any
term or provision of any Law or Order applicable to any of the Co-Borrowers or
any of their Assets and Properties;
(c) (i) conflict with or result in a violation or breach of,
(ii) constitute (with or without notice or lapse of time or both) a default
under, (iii) require the Co-Borrowers to obtain, from any Person other than
the Lenders, the Prospect Street Entities or any of their respective
affiliates, any consent, approval or action of, make any filing with or give
any notice to any Person as a result or under the terms of, (iv) result in or
give to any Person any right of termination, cancellation, acceleration or
modification in or with respect to, or (v) result in or give to any Person any
additional rights or entitlement to increased, additional, accelerated or
guaranteed payments under, any material Contract or material License to which
the Co-Borrowers are a party or by which any of their Assets and Properties
are bound; or
(d) result in the creation or imposition of any Lien upon
any of the Co-Borrowers or any of their Assets and Properties (other than in
favor of the Lenders).
3.5 Capitalization. The Company's authorized capital stock
consists of: 19,000,000 shares of common stock, $.001 par value per share, of
which 1,385,000 shares are issued and outstanding and 110,000 shares are held
as treasury shares as of the date hereof; 1,000,000 shares of Class A Common
Stock, par value $.001 per share, of which 960,000 shares are issued and
outstanding as of the date hereof; and 5,000,000 shares of preferred stock,
par value $.001 per share, of which 1,090,909 shares have been designated as
Series A Convertible Participating Preferred Stock. Additionally, as of the
date hereof, not including the Warrants, there are outstanding options and
warrants to purchase an aggregate of 6,968,572 shares of Common Stock.
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ARTICLE IV
CONDITIONS TO THE LOAN
The obligation of the Lenders to make the Loan hereunder is
subject to the fulfillment, at or before the Closing, of each of the following
conditions (all or any of which may be waived in whole or in part by any the
Lenders in its sole discretion):
4.1 Borrowing Certificate. The Lenders shall have received a
Borrowing Certificate as required by Section 2.2.
4.2 Representations and Warranties. Each of the
representations and warranties made by the Co-Borrowers in this Agreement
(other than those made as of a specified date earlier than the Closing Date)
shall be true and correct in all material respects (if not qualified by
materiality or material adverse effect) and in all respects (if qualified by
materiality or material adverse effect) on and as of the Closing Date as
though such representation or warranty was made on and as of the Closing Date,
and any representation or warranty made as of a specified date earlier than
the Closing Date shall also have been true and correct in all material
respects (if not qualified by materiality or material adverse effect) and in
all respects (if qualified by materiality or material adverse effect) on and
as of such earlier date.
4.3 Performance. The Co-Borrowers shall have performed and
complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by
the Co-Borrowers at or before the Closing.
4.4 Secretary's Certificate. Each of the Co-Borrowers shall
have delivered to each of the Lenders a certificate, dated the Closing Date
and executed by the Secretary or any Assistant Secretary of the Co-Borrowers,
substantially in the form and to the effect of Exhibit H hereto.
4.5 Orders and Laws. Except as previously disclosed to the
Lenders or contained in the SEC Reports, there shall not be in effect on the
Closing Date any Order or Law restraining, enjoining or otherwise prohibiting
or making illegal the consummation of any of the transactions contemplated by
this Agreement or any of the Operative Agreements, and there shall not be
pending or threatened on the Closing Date any Action or Proceeding or any
other action (i) which could reasonably be expected to result in the issuance
of any such Order or the enactment, promulgation or deemed applicability to,
the Lenders, the Co-Borrowers, or the transactions contemplated by this
Agreement or any of the Operative Agreements of any such Law; or (ii) wherein
an unfavorable judgment, decree or Order would prevent the carrying out of
this Agreement or any of the Operative Agreements or any of the transactions
or events contemplated hereby or thereby, declare unlawful the transactions or
events contemplated by this Agreement or any of the Operative Agreements or
present a reasonable risk of damages to the Lenders.
4.6 Regulatory Consents and Approvals. All consents,
approvals and actions of, filings with and notices to any Governmental or
Regulatory Authority required to be obtained,
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taken or made to permit the Lenders or the Co-Borrowers to perform their
respective obligations under this Agreement and the Operative Agreements and
to consummate the transactions contemplated hereby and thereby, (a) shall have
been duly obtained, made or given, (b) shall be in form and substance
reasonably satisfactory to the Lenders, (c) shall not impose any material
limitations or restrictions on either of the Lenders, (d) shall not be subject
to the satisfaction of any condition that has not been satisfied or waived and
(e) shall be in full force and effect, and all terminations or expirations of
waiting periods imposed by any Governmental or Regulatory Authority necessary
for the consummation of the transactions contemplated by this Agreement and
the Operative Agreements shall have occurred.
4.7 Third Party Consents. All consents (or in lieu thereof
waivers) to the performance by the Lenders or the Co-Borrowers of their
respective obligations under this Agreement and the Operative Agreements or to
the consummation of the transactions contemplated hereby and thereby as are
required under any Contract to which the Lenders or the Co-Borrowers are a
party or by which any of their respective Assets and Properties are bound and
where the failure to obtain any such consent (or in lieu thereof waiver) could
reasonably be expected, individually or in the aggregate with other such
failures, to materially adversely affect the Lenders or the Business or
Condition of the Co-Borrowers, (a) shall have been obtained, (b) shall be in
form and substance reasonably satisfactory to each of the Lenders, (c) shall
not be subject to the satisfaction of any condition that has not been
satisfied or waived and (d) shall be in full force and effect; provided,
however, that any such required consents (or in lieu thereof waivers) from the
Lenders, the Prospect Street Entities or their respective Affiliates under any
Contract or other instrument or agreement shall hereby be deemed obtained.
4.8 Operative Agreements. Each Operative Agreement shall
have been duly executed and delivered by the respective parties thereto other
than the Lenders and shall be in full force and effect.
4.9 Issuance of Notes and Warrants. The Co-Borrowers shall
have issued the Notes as required by Section 2.1 and SMEI shall have issued
the Warrant Certificates as required by Section 2.8.
4.10 Potential Event of Default, Event of Default. No event
shall have occurred and be continuing or would result from the consummation of
the Loan contemplated by the Borrowing Certificate which would constitute a
Potential Event of Default or an Event of Default.
4.11 Additional Matters. All corporate and other proceedings
to be taken on the part of the Co-Borrowers in connection with the
transactions contemplated by this Agreement and the Operative Agreements and
all documents incident thereto shall be reasonably satisfactory in form and
substance to each of the Lenders.
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ARTICLE V
AFFIRMATIVE COVENANTS
The Co-Borrowers covenant and agree with each of the Lenders
that, at all times during the Loan Period or any other times that either
Lender shall hold securities of the Company or any Co-Borrower, the
Co-Borrowers will, and will cause each of their Subsidiaries, if any, to
comply with each of the covenants and agreements contained in this Article V.
5.1 Financial and Business Information.
(a) Quarterly Statements. The Co-Borrowers shall deliver to
each of the Lenders, as soon as practicable, and in any event within 45 days
after the close of each of the first three fiscal quarters of each fiscal year
of the Co-Borrowers, true and complete copies of the consolidated balance
sheets, and the related consolidated statements of income, stockholders'
equity and cash flows of the Co-Borrowers as at the close of such quarter and
covering operations for such quarter, and the portion of the Co-Borrowers'
fiscal year ending on the last day of such quarter, setting forth in each case
in comparative form the figures for the comparable period of the previous
fiscal year, as set forth in Co-Borrowers' public reports under the Exchange
Act as filed with the SEC.
(b) Annual Statements. The Co-Borrowers shall deliver to
each of the Lenders, as soon as practicable after the end of each fiscal year
of the Co-Borrowers, and in any event within 90 days thereafter, true and
complete copies of the consolidated and consolidating balance sheets of the
Co-Borrowers at the end of such year and the consolidated and consolidating
statements of income, stockholders' equity and cash flows of the Co-Borrowers
for such year, setting forth in each case in comparative form the figures for
the previous fiscal year, as set forth in the Co-Borrowers' public reports
under the Exchange Act as filed with the SEC; and these shall be accompanied
by an opinion thereon of a firm of independent certified public accountants of
recognized national standing selected by the Co-Borrowers.
(c) Other Reports. The Co-Borrowers shall deliver to each of
the Lenders, promptly upon their becoming available, one copy of each
financial statement, report, notice or proxy statement sent by the
Co-Borrowers to stockholders generally, of each financial statement, report,
notice or proxy statement sent by the Co-Borrowers or any of their
Subsidiaries to the SEC or any successor agency, if applicable, of each
regular or periodic report and any registration statement, prospectus or
written communication (other than transmittal letters) in respect thereof
filed by the Co-Borrowers or any of their Subsidiaries with, or received by
such Person in connection therewith from, any securities exchange or the SEC
or any successor agency, of any press release issued by the Co-Borrowers or
any of their Subsidiaries, and of any material of any nature whatsoever
prepared by the SEC or any successor agency thereto or any state blue sky or
securities law commission which relates to or affects in any way the
Co-Borrowers or any of their Subsidiaries.
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(d) Requested Information. The Co-Borrowers shall deliver to
each of the Lenders, with reasonable promptness, such other documents,
reports, data and information as from time to time may be reasonably requested
by either of the Lenders.
5.2 SBA Forms; Inspection. Prior to the Closing, the
Co-Borrowers shall deliver to Prospect Street any documentation required
pursuant to the SBA Act or the SBA Regulations, including, but not limited to:
SBA Forms 480, 652 and 1031 and the SBA Certificate dated as of the Closing
Date and executed by the chief executive officer or president of each of the
Co-Borrowers, substantially in the form and to the effect of Exhibit I hereto.
At any time and from time to time, at the request of Prospect Street, such
Co-Borrower shall permit Prospect Street and/or the SBA and/or any Person
designated by Prospect Street to inspect any of the properties, corporate
books and financial records of such Co-Borrower, if any, to discuss their
respective affairs and finances with the officers and employees of such
Co-Borrower and to make extracts from the copies of such books and records,
all at such time as Prospect Street may reasonably request, including, but not
limited to, for purposes of verifying information provided to Prospect Street
and required by the SBA.
5.3 Inspection. The Co-Borrowers shall permit either of the
Lenders and their nominees, assignees, and representatives, in a manner
reasonably calculated not to unduly disrupt or interfere with the conduct of
the Co-Borrowers' business and upon at least three (3) days prior notice, to
visit and inspect any of the Assets and Properties of the Co-Borrowers, to
examine all its books of account, records, reports and other papers not
contractually required of the Co-Borrowers to be confidential or secret, to
make copies and extracts therefrom, and to discuss its affairs, finances and
accounts with its officers, directors, key employees and independent public
accountants or any of them (and by this provision, the Co-Borrowers authorize
said accountants to discuss with the Lenders or their nominees, assignees and
representatives the finances and affairs of the Co-Borrowers), all at such
reasonable times and as often as may be reasonably requested.
5.4 Corporate Existence; Compliance. The Co-Borrowers shall,
and shall cause each Subsidiary to, cause to be done all things necessary to
preserve and keep in full force and effect the corporate existence of the
Co-Borrowers and all necessary approvals and licenses of any Governmental or
Regulatory Authority. The Co-Borrowers shall comply with all Laws applicable
to the Co-Borrowers and comply with all agreements to which the Co-Borrowers
are a party, the violation of which could reasonably be expected to have a
material adverse effect on the Business or Condition of the Co-Borrowers.
5.5 Payment of Liabilities. The Co-Borrowers shall pay,
discharge or otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all Liabilities (including Taxes) of the
Co-Borrowers, except where the amount or validity thereof is currently being
contested in good faith by appropriate proceedings and reserves in conformity
with GAAP with respect thereto have been provided on the books of the
Co-Borrowers. The Co-Borrowers shall also pay any New York State Real Estate
Transfer Tax, New York City Real Property Transfer Tax and New York Stock
Transfer Tax ("Transfer Tax") and any similar Taxes imposed by any other state
(and any penalties or interest relating to such Transfer Taxes), which
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become payable in connection with the transactions contemplated by this
Agreement, any Operative Agreement, and the Notes, and cooperate with the
Lenders in the preparation, execution and filing of any required returns with
respect to any Transfer Tax and in the determination of the portion of the
consideration allocable to real property in New York State or New York City
(or in any other jurisdiction, if applicable).
5.6 Insurance: Maintenance of Properties. The Co-Borrowers
shall keep adequately insured by duly licensed insurers all material Assets
and Properties of the Co-Borrowers and also keep the Co-Borrowers adequately
insured at all times with responsible insurance carriers against liability on
account of damage to persons or property and under all applicable workers'
compensation laws. All such insurance shall be in such amounts and with such
coverage as is consistent with coverage usually carried by corporations of a
similar size engaged in the same or similar business similarly situated and as
is reasonably satisfactory to the Lenders. The Co-Borrowers shall maintain and
preserve, in all material respects, all of the Assets and Properties of the
Co-Borrowers necessary or useful in the proper conduct of their business in
good working order and condition, ordinary wear and tear excepted.
5.7 Notice of Certain Events. The Co-Borrowers shall
promptly notify each of the Lenders in writing (i) of the commencement of any
Action or Proceeding to which the Co-Borrowers or any Subsidiary is a party
where the amount in controversy is in excess of $50,000, singularly or
cumulatively, for all claims arising from a single incident, to which the
Co-Borrowers may be a party and (ii) of any Potential Event of Default or
Event of Default specifying the nature and extent thereof and the action (if
any) which is proposed to be taken with respect thereto.
5.8 Subsidiary Guarantors; Contribution. The Borrower shall
cause each Subsidiary to promptly enter into a Subsidiary Guarantee Agreement
as a Subsidiary Guarantor thereunder and the Security Agreement as a
Subsidiary Grantor thereunder. The Co-Borrowers shall each promptly enter into
an Indemnitee, Subrogation and Contribution Agreement with respect to each
other.
5.9 Further Assurances. The Co-Borrowers shall take such
further actions and otherwise assist and cooperate with each Lender required
to make any filings or obtain any approvals with or from any Governmental or
Regulatory Authority.
5.10 Board Seats. Upon notice to the Company, Keyspan shall
have the right to designate two members to the Company's Board of Directors,
provided, however, that such designees shall be subject to the approval of the
Company, which approval shall not be unreasonably withheld.
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ARTICLE VI
NEGATIVE COVENANTS
Each Co-Borrower covenants and agrees with each Lender that,
at all times during the Loan Period, each Borrower will, and will cause each
of its Subsidiaries to, comply with each of the covenants and agreements
contained in this Article VI.
6.1 Indebtedness. Without consent of the Lenders, no
Borrower shall, nor shall it permit any of its Subsidiaries to, directly or
indirectly create, incur, assume, extend the maturity of, or otherwise become
directly or indirectly liable with respect to, any Indebtedness other than,
without duplication:
(i) Indebtedness under this Agreement;
(ii) Indebtedness constituting Capital Lease Obligations;
and
(iii) as an endorser of negotiable instruments for the
payment of money deposited to such Borrower's or such Subsidiary's bank
account for collection in the ordinary course of business.
6.2 Liens. Without consent of the Lenders, no Borrower
shall, nor shall it permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume, or permit to exist any Lien upon or with respect to any
of its Assets and Properties, whether now owned hereafter acquired or any
income or profits therefrom, or assign or otherwise convey any right to
receive income to secure any Indebtedness, except for Liens securing
Indebtedness of up to an aggregate amount of $250,000 at any time outstanding
for all Borrowers and Subsidiaries taken together.
6.3 Merger, Consolidation, Sale of Assets. Without consent
of the Lenders, no Borrower will, nor will it permit any of its Subsidiaries
to, voluntarily liquidate or dissolve, or consolidate or merge with or into
any other Person, or permit any other Person to consolidate with or merge into
it or participate in a share exchange with or sell, lease, transfer,
contribute or otherwise dispose of any of its Assets and properties to any
other Person (other than sales of inventory and worn out and obsolete assets
in the ordinary course of business as such business is conducted in compliance
with Section 6.14).
6.4 Lease Obligations. No Borrower shall, except for real
property leases requiring annual lease payments not exceeding $250,000 in the
aggregate for all Co-Borrowers, create or suffer to exist or permit any
Subsidiary to create or suffer to exist, any obligations for the payments of
rental for any property under leases or agreements to lease having a term of
one year or more.
6.5 Loans and Investments. Without consent of the Lenders,
no Borrower shall, nor shall it permit any of its Subsidiaries to, hold any
Investment Assets, or make or keep outstanding any advance or loans, except
that the Borrowers may invest in (i) direct obligations
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of, obligations fully guaranteed by, and repurchase agreements fully secured
by, the United States of America or any agency thereof, (ii) certificates of
deposit of any commercial bank which is a member of the Federal Reserve
System, and (iii) money market accounts or other similar low-risk, liquid
investments approved by the board of directors of such Borrower.
6.6 Dividends, Etc. Without consent of the Lenders, no
Borrower shall, nor shall it permit any of its Subsidiaries to, declare or pay
any cash or asset dividend on any of its shares or make any other distribution
or disposition of any Assets and Properties to stockholders in respect of its
shares (or otherwise), or make, or commit to make, any payment on account of
the purchase, redemption or other retirement of any of its shares or warrants
or options therefor.
6.7 Subsidiaries. Without consent of the Lenders, no
Borrower shall, nor shall it permit any of its Subsidiaries to, unless prior
written notice has been given to the Lenders, organize or cause to exist any
Subsidiary.
6.8 Sale and Leaseback. Without consent of the Lenders, no
Borrower shall, nor shall it permit any of its Subsidiaries to, enter into any
arrangement with any Person providing for the leasing by such Borrower or such
Subsidiary of real or personal property which has been or is to be sold by
such Borrower or such Subsidiary to such Person.
6.9 Charter Documents; Directors. Without consent of the
Lenders, no Borrower shall, nor shall it permit any of its Subsidiaries to,
amend the certificate of incorporation or by-laws of such Borrower or such
Subsidiary as in effect on the date hereof (or, in the case of any future
Subsidiary, the date of incorporation of such Subsidiary) or change the size
or composition of such Borrower's or such Subsidiary's board of directors,
except as permitted pursuant to the certificate of incorporation of the
Company.
6.10 Certain Limitations. Other than as permitted pursuant
to this Agreement, without consent of the Lenders, no Borrower shall, nor
shall it permit any of its Subsidiaries to, directly or indirectly, create or
otherwise cause or allow to exist or become effective any consensual
encumbrance or restriction on the ability of any Subsidiary to (i) pay
dividends or make any other distributions on its capital stock or any other
interest participation in, or measured by, its profits owned by, or pay any
Indebtedness owed to, such Borrower or such Subsidiary, (ii) make loans or
advances to such Borrower or such Subsidiary or (iii) transfer any of its
Assets and Properties to such Borrower or such Subsidiary. Without consent of
the Lenders, no Borrower shall, nor shall it permit any of its Subsidiaries
to, enter into any agreement with any Person other than the Lenders pursuant
to this Agreement or any Operative Agreement.
6.11 Conflicting Agreements. Without consent of the Lenders,
no Borrower shall, nor shall it permit any of its Subsidiaries to, enter into
any agreements or arrangements which by their terms or reasonably foreseeable
effect restricts or adversely affects such Borrower's or such Subsidiary's
right and ability to meet its obligations to any Lender hereunder or under any
of the Operative Agreements to which it is a party.
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6.12 Use of Proceeds. Without consent of the Lenders, no
Borrower shall, directly or indirectly, use any of the proceeds received from
the Lenders hereunder to engage in any activities with respect to which an
SBIC is prohibited from providing funds by SBA regulations, including without
limitation 13 CFR ss. 107.720.
6.13 Affiliate Transactions. Without consent of the Lenders,
no Borrower shall, nor shall it permit any of its Subsidiaries to, enter into
any transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate
(other any Lender), unless such transaction is (i) otherwise permitted under
this Agreement, (ii) in the ordinary course of such Borrower's or such
Subsidiary's business and (iii) upon fair and reasonable terms no less
favorable to such Borrower or such Subsidiary than it would obtain in a
comparable arm's length transaction with a Person that is not an Affiliate.
6.14 Change in Nature of Business. Without consent of the
Lenders, no Borrower shall engage, nor shall it permit any of its Subsidiaries
to engage, in any business other than the business currently conducted by such
Borrower or such Subsidiary and activities reasonably related thereto.
ARTICLE VII
EVENTS OF DEFAULT
If any of the following conditions or events ("Events of
Default") shall occur and be continuing:
7.1 Failure To Make Payments When Due. Failure to pay any
installment of principal or interest of the Loan when due, whether at stated
maturity, by acceleration, by notice of prepayment, or otherwise; or
7.2 Default in Other Agreements. Any event or condition
occurs that results in any Indebtedness of the Co-Borrowers in excess of
$50,000 in the aggregate for the Co-Borrowers becoming due prior to its
scheduled maturity or that enables or permits (with or without the giving of
notice, the lapse of time or both) the holder or holders of such Indebtedness
or any trustee or agent on its or their behalf to cause any such Indebtedness
to become due, or to require the prepayment, repurchase, redemption or
defeasance thereof, prior to its scheduled maturity; or
7.3 Breach of Certain Covenants and Agreements. Failure of
the Co-Borrowers to materially perform or comply with (i) any term or
condition contained in Article V (other than Sections 5.5 and 5.7 herein), or
(ii) any other term contained in this Agreement or the Operative Agreements;
and, in the case of clause (ii), and provided that the Co-Borrowers have
complied with Section 5.7, such failure shall not have been remedied or waived
within ten (10) days after receipt of written notice from either of the
Lenders of such default; or
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7.4 Breach of Warranty. Any representation or warranty made
by the Co-Borrowers in this Agreement or any Operative Agreement or in any
written statement or certificate at any time given by the Co-Borrowers
pursuant hereto or thereto or in connection herewith or therewith shall be
false in any material respect (if not qualified by materiality or material
adverse effect) and in any respect (if qualified by materiality or material
adverse effect) on the date as of when made; or
7.5 Involuntary Bankruptcy Appointment of Receiver, Etc. (a)
A court having jurisdiction in the premises shall enter a decree or order for
relief in respect of any Co-Borrower in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, which decree or order is not stayed; or any other similar relief shall
be granted and remain unstayed under any applicable federal or state law; or
(b) an involuntary case is commenced against any Co-Borrower under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in the premises
for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over any Co-Borrower or over
all or a substantial part of any of their respective Assets and Properties,
shall have been entered; or an interim receiver, trustee or other custodian of
any Co-Borrower for all or a substantial part of their respective Assets and
Properties is involuntarily appointed; or a warrant of attachment, execution
or similar process is issued against any substantial part of the Assets and
Properties of any Co-Borrower, and the continuance of any such events in this
clause (b) for sixty (60) days unless dismissed, bonded, stayed, vacated or
discharged; or
7.6 Voluntary Bankruptcy; Appointment of Receiver, Etc. Any
Co-Borrower shall commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or shall consent
to the entry of an order for relief in an involuntary case, or to the
conversion of an involuntary case to a voluntary case, under any such law, or
shall consent to the appointment of or making possession by a receiver,
trustee or other custodian for all or a possession by a receiver, trustee or
other custodian for all or a substantial part of their Assets and Properties;
the making by any Co-Borrower of any assignment for the benefit of creditors;
the admission by any Co-Borrower in writing of their inability to pay its
debts as such debts become due; or the board of directors of any Co-Borrower
(or any committee thereof) adopts any resolution or otherwise authorizes
action to approve any of the foregoing; or
7.7 Judgments and Attachments. Except as previously
disclosed to the Lenders or as set forth on Schedule 7.7 hereto, any money
judgment, writ or warrant of attachment, or similar process involving in any
individual case or in the aggregate at any time an amount in excess of fifty
thousand dollars ($50,000), which is not covered by insurance, for any
Co-Borrower and all Subsidiaries, taken together, shall be entered or filed
against any Co-Borrower or any of their respective Assets and Properties and
shall remain undischarged, unvacated, unbonded or unstayed for a period of
thirty (30) days or in any event later than five (5) days prior to the date of
any proposed sale thereunder; or
7.8 Other Agreements. Any material provision of this
Agreement or any other Operative Agreement shall cease to be a valid and
binding obligation against any Co-Borrower
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except in accordance with its terms and except solely by reason of any act or
omission of either of the Lenders, or any Co-Borrower, shall so state in
writing; or
7.9 Change of Control. A Change of Control shall occur.
THEN, (i) upon the occurrence of any Event of Default
described in the foregoing Sections 7.5 or 7.6, the unpaid principal amount of
and accrued interest on the Loan shall automatically become immediately due
and payable, without presentment, demand, protest or other requirements of any
kind, all of which are hereby expressly waived by the Co-Borrowers, and the
obligations of each of the Lenders hereunder shall thereupon terminate; and
(ii) upon the occurrence of any other Event of Default, either of the Lenders
may, at any time by written notice to the Co-Borrowers, declare the Loan to
be, and the same shall forthwith become, due and payable, together with
accrued interest thereon, and the obligations of each of the Lenders hereunder
shall thereupon terminate.
ARTICLE VIII
MISCELLANEOUS
8.1 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only
if delivered personally against written receipt or by facsimile transmission
or mailed by prepaid first class certified mail, return receipt requested, or
mailed by overnight courier prepaid, to the parties at the following addresses
or facsimile numbers:
If to the Co-Borrowers, to:
Skyline Multimedia Entertainment, Inc.
350 Fifth Ave., Suite 612
New York, NY 10118
Facsimile No.: (212) 564-0652
Attn: President
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Facsimile No.: (212) 969-2900
Attn: Neil S. Belloff, Esq.
If to Prospect Street, to:
Prospect Street NYC Discovery Fund, LP
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250 Park Avenue, 17th Floor
New York, NY 10177
Facsimile No.: (212) 490-1566
Attn: John F. Barry, III
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Facsimile No.: (212) 309-6273
Attn: Ira White, Esq.
If to KEP, to:
Bank of New York, as Trustee of the Employees Retirement Plan
of Keyspan Energy Corp.
c/o The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, NY 11201-3850
Facsimile No. (718) 643-1341
Attn: Thomas Riordan
with a copy to:
Cullen & Dykeman
177 Montague Street
Brooklyn, NY 11201
Facsimile No.: (718) 935-1304
Attn: Lance D. Myers, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number
as provided in this Section, be deemed given upon receipt, (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given on the earlier of the third Business Day following
mailing or upon receipt and (iv) if delivered by overnight courier to the
address as provided in this Section, be deemed given on the earlier of the
first Business Day following the date sent by such overnight courier or upon
receipt (in each case regardless of whether such notice, request or other
communication is received by any other Person to whom a copy of such notice is
to be delivered pursuant to this Section). Any party from time to time may
change its address, facsimile number or other information for the purpose of
notices to that party by giving notice specifying such change to the other
party hereto at least ten (10) days prior to the effective date of such
notice.
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8.2 Indemnity.
(a) Agreement to Indemnify. The Co-Borrowers (as
"Indemnitors") agrees to indemnify each of the Lenders, each holder of any
Loan, Notes or Warrants, and any stockholder, member, general partner, limited
partner, officer, director, manager, agent and Affiliate of either of the
Lenders or holder (collectively called the "Indemnitees"), in respect of, and
hold them harmless from and against, any and all Losses suffered, incurred or
sustained by any of them or to which any of them becomes subject, in any
manner arising out of or relating to any breach of any representation or
warranty of the Co-Borrowers contained in this Agreement or any Operative
Agreement (the "Indemnified Liabilities").
(b) Notice of Claim. Each Indemnitee shall give the
Indemnitors prompt written notice of any claim that might give rise to
Indemnified Liabilities setting forth a description of those elements of such
claim of which such Indemnitee has knowledge; provided, however, that any
failure to give such notice shall not affect the obligations of the
Indemnitors unless (and then solely to the extent) the ability of the
Indemnitors to provide such indemnification is prejudiced thereby.
(c) Control of Defense. The Indemnitors shall have the right
at any time during which such claim is pending to select counsel to defend and
control the defense thereof and settle any claims for which they are
responsible for indemnification hereunder (provided that no Indemnitor will
settle any such claim without (i) the appropriate Indemnitee's prior written
consent which consent shall not be unreasonably withheld or (ii) obtaining an
unconditional release of the appropriate Indemnitee from all claims arising
out of or in any way relating to the circumstances involving such claim) so
long as in any such event, the Indemnitors shall have stated in a writing
delivered to the Indemnitee that, as between the Indemnitors and the
Indemnitee, the Indemnitors are responsible to the Indemnitee with respect to
such claim to the extent and subject to the limitations set forth herein;
provided, however, that the Indemnitors shall not be entitled to control the
defense of any claim in the event that in the reasonable opinion of counsel
for the Indemnitee there are one or more defenses available to the Indemnitee
which are not available to the Indemnitors; provided, further, that with
respect to any claim as to which the Indemnitee is controlling the defense,
the Indemnitors will not be liable to any Indemnitee for any settlement of any
claim pursuant to this Section 8.2 that is effected without its prior written
consent. To the extent that the undertaking to indemnify and hold harmless set
forth in the preceding sentence may be unenforceable because it is violative
of any Law or public policy, each Indemnitor shall contribute the maximum
portion which it is permitted to pay and satisfy under applicable Law, to the
payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitee for any Indemnitor.
8.3 Entire Agreement. This Agreement and the Operative
Agreements super sede all prior discussions and agreements between the parties
with respect to the subject matter hereof and thereof and contain the sole and
entire agreement between the parties hereto with respect to the subject matter
hereof and thereof.
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8.4 Purchase for Investment.
(a) The Lenders hereby represent and warrant to the
Co-Borrowers that:
(i) the Notes will be acquired by the Lenders for their own
account for the purpose of investment and not with a view to
the resale or distribution of all or any part of the Notes
in violation of the Securities Act, it being understood that
the right to dispose of the Notes shall be entirely within
the discretion of each of the Lenders, subject to
contractual commitments of the Lenders to the Co-Borrowers;
(ii) each is an "accredited investor" as such term is
defined in Rule 501 of Regulation D of the Securities Act;
(iii) they has been given access to all information they
deemed reasonably necessary to evaluate their investment in
the Co-Borrowers; and
(iv) they have such experience and knowledge in financial
and business matters to be capable of evaluating the merits
and risks of their investment in the Co-Borrowers and have
reviewed the merits of such investment with tax and legal
counsel and other advisors to the extent they deemed
advisable.
(b) The Lenders covenant that they will not sell or
otherwise transfer the Notes except pursuant to an effective registration
statement under the Securities Act and in compliance with state securities
laws, or in a transaction which, in the opinion of counsel reasonably
satisfactory to the Co-Borrowers, is exempt from registration under the
Securities Act and under applicable state securities laws.
(c) The Lenders understand that the Notes have not been
registered under the Securities Act in reliance on an exception therefrom
under Section 4(2) of the Securities Act, and that such securities shall bear
the following legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS
AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED EXCEPT (I)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND IN COMPLIANCE WITH
STATE SECURITIES LAWS OR (II) IN A TRANSACTION WHICH, IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE SKYLINE
MULTIMEDIA ENTERTAINMENT, INC., IS EXEMPT FROM REGISTRATION
THEREUNDER AND UNDER APPLICABLE STATE SECURITIES LAWS."
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The Co-Borrowers shall remove such legend upon receipt of an
opinion from counsel to the Lenders, reasonably satisfactory in form and
substance to counsel to the Co-Borrowers, that the requirements for such
legend have terminated.
8.5 Confidentiality.
(a) As to so much of the information and other material
furnished under or in connection with this Agreement (whether furnished
before, on or after the date hereof, including without limitation information
furnished pursuant to Sections 5.1 and 5.2 hereof) as constitutes or contains
confidential business, financial or other information of the Co-Borrowers, the
Lenders covenant that:
(i) the Lenders shall not, provided that the Co-Borrowers
have given written notice to the Lenders of the confidential
nature of such information, disclose such information to
Persons other than their respective employees, counsel,
accountants, shareholders, members, partners, limited
partners, officers, directors and agents (which Persons
shall be advised of the confidential nature of such
information);
(ii) the Lenders shall not use such information other than
in connection with evaluating or monitoring the Lenders'
investment in the Co-Borrowers; and
(iii) the Lenders shall not use such information in a manner
known by the Lenders to be adverse to the Co-Borrowers, or
its business or assets;
provided, however, that the foregoing obligation shall not apply if:
(A) the Lenders are advised by their respective legal
counsel that such disclosure or delivery may be required by
law, regulation or judicial or administrative order;
(B) such information is otherwise in the public domain at
the time of disclosure, or becomes publicly known, in each
case, through no breach of this Agreement or any other
obligation by the Lenders;
(C) such information becomes known to the Lenders through
disclosure by sources other than the Co-Borrowers having the
right to disclose such confidential information without any
restriction thereon;
(D) such information is generally disclosed to third parties
by the Co-Borrowers without similar restriction on such
third parties;
(E) such information is approved for release by written
authorization of the Co-Borrowers;
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(F) such information is independently developed by such
Lender;
(G) such Lender uses such information in connection with any
litigation or arbitration for the purpose of enforcing its
rights against the Co-Borrowers under this Agreement or any
Operative Agreement; or
(H) such information is disclosed in connection with a
transfer or proposed transfer of securities of the
Co-Borrowers and the transferee or proposed transferee
agrees prior to such disclosure to be bound by this Section
8.5.
8.6 Further Assurances, Post-Closing Cooperation. At any
time or from time to time after each Closing, the Co-Borrowers shall execute
and deliver to each of the Lenders such other documents and instruments,
provide such materials and information and take such other actions as either
of the Lenders may reasonably request more effectively to vest title to a Note
in such Lender and otherwise to cause the Co-Borrowers to fulfill their
respective obligations under this Agreement and the Operative Agreements to
which they are a party.
8.7 Amendments and Waivers. No amendment, modification,
termination or waiver of any provision of this Agreement or of the Notes, or
consent to any departure by the Co-Borrowers therefrom, shall in any event be
effective unless in writing and signed by both the Lenders and the
Co-Borrowers. Any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given. No notice to or
demand on the Co-Borrowers in any case shall entitle the Co-Borrowers to any
further notice or demand in similar or other circumstances, unless otherwise
specifically required herein. Any amendment, modification, termination, waiver
or consent effected in accordance with this Section 8.7 shall be binding upon
the holder of the Notes and each future holder of the Notes.
8.8 Independence of Covenants. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitation of, another covenant shall
not avoid the occurrence of an Event of Default or Potential Event of Default
if such action is taken or condition exists.
8.9 No Third Party Beneficiary. The terms and provisions of
this Agreement are intended solely for the benefit of each party hereto and
their respective successors or permitted assigns, and it is not the intention
of the parties to confer third-party beneficiary rights, and this Agreement
does not confer any such rights, upon any other Person other than any Person
entitled to indemnity under Section 8.2.
8.10 Assignment; Binding Effect. Neither this Agreement nor
any right, interest or obligation hereunder may be assigned by the
Co-Borrowers without the prior written consent of both of the Lenders and any
attempt to do so will be void. Subject to the foregoing sentence, this
Agreement is binding upon, inures to the benefit of and is enforceable by the
parties hereto and their respective successors and assigns.
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8.11 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
8.12 Invalid Provisions. If any provision of this Agreement
is held to be illegal, invalid or unenforceable under any present or future
Law, and if the rights or obligations of any party hereto under this Agreement
will not be materially and adversely affected thereby, (a) such provision will
be fully severable, (b) this Agreement will be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part
hereof, (c) the remaining provisions of this Agreement will remain in full
force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom and (d) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as
similar in terms to such illegal, invalid or unenforceable provision as may be
possible.
8.13 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR
RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD
CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF
NEW YORK.
8.14 Consent to Jurisdiction and Service of Process. ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST THE CO-BORROWERS WITH RESPECT TO THIS
AGREEMENT, ANY OPERATIVE AGREEMENT, ANY LOAN, ANY NOTE OR ANY COMMON STOCK MAY
BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT THE
CO-BORROWERS ACCEPT FOR THEMSELVES AND IN CONNECTION WITH THEIR PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT, ANY OPERATIVE AGREEMENT, ANY LOAN AND ANY
NOTE. THE CO-BORROWERS DESIGNATE AND APPOINT CSC NETWORKS/PRENTICE HALL LEGAL
AND FINANCIAL SERVICES AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY
THEM IRREVOCABLY AGREEING IN WRITING TO SERVE, AS THEIR AGENT TO RECEIVE ON
THEIR BEHALF, SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH
COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THEM TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE
MAILED BY REGISTERED MAIL TO THE CO-BORROWERS AT THEIR ADDRESS PROVIDED IN
SECTION 8.1, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY
FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS.
IF ANY AGENT APPOINTED BY THE CO-BORROWERS REFUSES TO ACCEPT SERVICE, THE
CO-BORROWERS HEREBY AGREE THAT SERVICE UPON THEM BY MAIL SHALL CONSTITUTE
SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT
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TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT
OF THE LENDERS TO BRING PROCEEDINGS AGAINST THE CO-BORROWERS IN THE COURTS OF
ANY OTHER JURISDICTION.
8.15 Waiver of Jury Trial. THE CO-BORROWERS HEREBY WAIVE, TO
THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY
COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT,
ANY OPERATIVE AGREEMENT, ANY LOAN OR ANY NOTE OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF. NOTWITHSTANDING ANYTHING
CONTAINED IN THIS AGREEMENT TO THE CONTRARY, NO CLAIM MAY BE MADE BY THE
CO-BORROWERS AGAINST THE LENDERS FOR ANY LOST PROFITS OR ANY SPECIAL, INDIRECT
OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL CONDUCT (OTHER
THAN WILLFUL MISCONDUCT CONSTITUTING ACTUAL FRAUD) IN CONNECTION WITH, ARISING
OUT OF OR IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED HEREUNDER OR
UNDER ANY OPERATIVE AGREEMENT, ANY LOAN, AND ANY NOTE, OR ANY ACT, OMISSION OR
EVENT OCCURRING IN CONNECTION THEREWITH; THE CO-BORROWERS HEREBY WAIVE,
RELEASE AND AGREE NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH DAMAGES. THE
CO-BORROWERS AGREE THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS
AGREEMENT AND ACKNOWLEDGE THAT THE LENDERS WOULD NOT EXTEND TO THE
CO-BORROWERS ANY LOAN HEREUNDER IF THIS SECTION WERE NOT PART OF THIS
AGREEMENT.
8.16 Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
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IN WITNESS WHEREOF, this Agreement has been duly executed
and delivered by the duly authorized officer of each party hereto as of the
date first above written.
SKYLINE MULTIMEDIA
ENTERTAINMENT, INC.
By:
-----------------------
Name:
Title:
NEW YORK SKYLINE, INC.
By:
-----------------------
Name:
Title:
SKYLINE VIRTUAL REALITY, INC.
By:
-----------------------
Name:
Title:
SKYLINE CHICAGO, INC.
By:
-----------------------
Name:
Title:
SKYLINE MAGIC, INC.
By:
-----------------------
Name:
Title:
SKYLINE LAS VEGAS, INC.
By:
-----------------------
Name:
Title:
<PAGE>
BANK OF NEW YORK, AS TRUSTEE
FOR THE EMPLOYEES RETIREMENT PLAN
OF KEYSPAN ENERGY CORP.
By:
-----------------------
Name:
Title:
PROSPECT STREET NYC DISCOVERY
FUND, L.P.
By: Prospect Street Discovery Fund,
Inc., its General Partner
By:
-----------------------
Name:
Title:
<PAGE>
Schedule 2.1
Lender Loan Amount
------ -----------
1. Keyspan $500,000
2. Prospect Street $435,000
<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.
COMMON STOCK PURCHASE WARRANT
Date of Issuance: _______ ___, 1998 Certificate No. 1
For value received, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a New
York corporation (the "Company"), hereby grants to Bank of New York as Trustee
for the Employees Retirement Plan of Keyspan Energy Corp. and or its
registered assigns (the "Registered Holder"), the right to purchase from the
Company, subject to the terms and conditions herein contained that number of
shares of common stock par value $.001 of the Company (the "Warrant Shares")
as set forth in Section 1A hereof, at a price per share of $.375 (the
"Exercise Price"). This Warrant is issued pursuant to the Senior Secured
Credit Agreement dated as of May 20, 1998, 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"). Certain capitalized terms used herein are defined in Section 2
hereof. All other capitalized terms used and not defined herein shall have the
meaning ascribed to such terms in the Credit Agreement.
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 only upon the happening of the following events and for the
amount of shares stated:
(i) In the event the entire principal amount of the
Notes (plus all accrued and unpaid interest
thereon) is repaid prior to July 15, 1998, then
this Warrant shall be exerciseable into such number
of shares of Common Stock that equals 32% of such
Common Stock on a Fully Diluted Basis on the date
of such issuance; or
(ii) In the event the entire principal amount of the
Notes has not been repaid (plus all accrued and
unpaid interest thereon) or converted (pursuant to
the
<PAGE>
terms of the Notes) prior to July 15, 1998,
then this Warrant shall be exercisable into such
number of shares of Common Stock that equal 47.167%
of the Common Stock on a Fully Diluted Basis at the
time of issuance. Upon consummation of an Equity
Financing and repayment or conversion of the entire
principal amount of the Notes (plus all accrued and
unpaid interest thereon) before July 15, 1998, this
Warrant shall be cancelled and of no further force
and effect.
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.
(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
2
<PAGE>
deemed for all purposes to have become the Registered Holder of such Warrant
Shares at the Exercise Time.
(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.
(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) 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, or, if such
unissued Warrant Shares are insufficient to comply with such reserve
requirement, the Company shall use its best efforts to increase the authorized
capital stock of the Company in an amount sufficient to comply herewith and
submit such proposal for approval by the Company's shareholders at the next
annual meeting of shareholders of the Company. 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 applicable law of 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.
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
3
<PAGE>
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. Definitions. The following terms have the meanings
set forth below:
"Common Stock" means the common stock, par value $.001 per share and
the Class A common stock, par value $.001 per share (the "Class A Common
Stock"), 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 Class A 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.
"Equity Financing " has the meaning ascribed thereto in the Credit
Agreement.
"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. 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 then 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
4
<PAGE>
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.
"Fully Diluted Basis" means, with respect to the calculation of the
number of shares of Common Stock, all shares of Common Stock outstanding at
the time of determination and all shares issuable upon the exercise of options
or convertible or exchangeable securities or warrants (giving effect to the
Warrant Shares issuable hereunder).
"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 issued
under this Warrant; 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 3. 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 Register 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 4. 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 5. 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."
5
<PAGE>
SECTION 6. 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. 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 7. 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 8. 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 9. 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 10. 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.
6
<PAGE>
SECTION 11. 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 12. 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. 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.
* * * * *
7
<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:
8
<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
------------------------
9
<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
---------------------------------
10
<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.
COMMON STOCK PURCHASE WARRANT
Date of Issuance: ______ ___, 1998 Certificate No. 2
For value received, SKYLINE MULTIMEDIA ENTERTAINMENT, INC., a New
York corporation (the "Company"), hereby grants to Prospect Street NYC
Discovery Fund, L.P. and or its registered assigns (the "Registered Holder"),
the right to purchase from the Company, subject to the terms and conditions
herein contained that number of shares of common stock par value $.001 of the
Company (the "Warrant Shares") as set forth in Section 1A hereof, at a price
per share of $.375 (the "Exercise Price"). This Warrant is issued pursuant to
the Senior Secured Credit Agreement dated as of May 20, 1998, 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"). Certain capitalized terms used herein are defined in
Section 2 hereof. All other capitalized terms used and not defined herein
shall have the meaning ascribed to such terms in the Credit Agreement.
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 only upon the happening of the following events and for the
amount of shares stated:
(i) In the event the entire principal amount of the
Notes (plus all accrued and unpaid interest
thereon) is repaid prior to July 15, 1998, then
this Warrant shall be exerciseable into such number
of shares of Common Stock that equals 32% of such
Common Stock on a Fully Diluted Basis on the date
of such issuance; or
(ii) In the event the entire principal amount of the
Notes has not been repaid (plus all accrued and
unpaid interest thereon) or converted (pursuant to
the terms of the Notes) prior to July 15, 1998,
<PAGE>
then this Warrant shall be exercisable into
such number of shares of Common Stock that equal
47.167% of the Common Stock on a Fully Diluted Basis
at the time of issuance. Upon consummation of an
Equity Financing and the repayment or conversion of
the entire principal amount of the Notes (plus
accrued and unpaid interest thereon) before July
15, 1998, this Warrant shall be cancelled and of no
further force and effect.
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.
(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
2
<PAGE>
deemed for all purposes to have become the Registered Holder of such Warrant
Shares at the Exercise Time.
(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.
(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) 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, or, if such
unissued Warrant Shares are insufficient to comply with such reserve
requirement, the Company shall use its best efforts to increase the authorized
capital stock of the Company in an amount sufficient to comply herewith and
submit such proposal for approval by the Company's shareholders at the next
annual meeting of shareholders of the Company. 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 applicable law of 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.
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
3
<PAGE>
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. Definitions. The following terms have the meanings set
forth below:
"Common Stock" means the common stock, par value $.001 per share and
the Class A common stock, par value $.001 per share (the "Class A Common
Stock"), 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 Class A 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.
"Equity Financing " has the meaning ascribed thereto in the Credit
Agreement.
"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. 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 then 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
4
<PAGE>
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.
"Fully Diluted Basis" means, with respect to the calculation of the
number of shares of Common Stock, all shares of Common Stock outstanding at
the time of determination and all shares issuable upon the exercise of options
or convertible or exchangeable securities or warrants (giving effect to the
Warrant Shares issuable hereunder).
"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 issued
under this Warrant; 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 3. 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 Register 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 4. 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 5. 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."
5
<PAGE>
SECTION 6. 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. 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 7. 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 8. 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 9. 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 10. 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.
6
<PAGE>
SECTION 11. 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 12. 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. 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.
* * * * *
7
<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:
8
<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
------------------------
9
<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
---------------------------------
10
EXHIBIT 10.50
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THIS
SECURITY MAY NOT BE OFFERED, SOLD OR TRANSFERRED EXCEPT (I)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR (II) IN A TRANSACTION WHICH,
IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO SKYLINE
MULTIMEDIA ENTERTAINMENT, INC., IS EXEMPT FROM REGISTRATION
THEREUNDER AND UNDER APPLICABLE STATE SECURITIES LAWS.
THIS SECURITY IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT
CERTAIN SENIOR SECURED CREDIT AGREEMENT, DATED AS OF MAY 20,
1998, BY AND AMONG SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND
THE CO-BORROWERS AND LENDERS NAMED THEREIN, AS SUCH AGREEMENT
MAY BE AMENDED, MODIFIED OR RESTATED FROM TIME TO TIME AND THAT
CERTAIN SECURITY AGREEMENT, DATED AS OF MAY 20, 1998, BY AND
AMONG SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND THE
CO-BORROWERS AND LENDERS NAMED THEREIN, AS SUCH AGREEMENT MAY BE
AMENDED, MODIFIED OR RESTATED FROM TIME TO TIME.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
Senior Secured Demand Note
May 20, 1998 $500,000
New York, New York No. 1
FOR VALUE RECEIVED, Skyline Multimedia Entertainment, Inc., a
New York corporation (the "Company"), New York Skyline, Inc., a New York
corporation ("NYSI"), Skyline Virtual Reality, Inc., a Delaware corporation
("SVR"), Skyline Chicago, Inc., a Delaware corporation ("SCI"), Skyline Magic,
Inc., a Delaware corporation ("SMI") and Skyline Las Vegas, Inc., a Delaware
corporation ("SLVI"), hereby promise to pay to Bank of New York, as Trustee for
the Employees Retirement Plan of Keyspan Energy Corp., or its registered
successors or assigns (the "Registered Holder"), Five Hundred Thousand U.S.
<PAGE>
Dollars ($500,000.00) on demand given on or after July 15, 1998 (the date of
such demand referred to herein as the "Maturity Date") in accordance with the
provisions of this Note. This Note is issued by the Company pursuant to the
Senior Secured Credit Agreement, dated as of April 15, 1998 (as such agreement
may be amended, modified or restated from time to time, the "Credit Agreement"),
by and among the Company, the Company's subsidiaries, the Registered Holder and
Prospect Street NYC Discovery Fund, L.P. This Note is secured by the collateral
pledged to the Registered Holder pursuant to the Collateral Documents (as
defined herein). All capitalized terms used and not defined herein shall have
the meaning ascribed to such terms in the Credit Agreement.
"Collateral Documents" means the Security Agreement, the
Subordination Agreement, the Subsidiary Stock Pledge Agreement, the Subsidiary
Guarantee, and the Indemnity, Subrogation and Contribution Agreement (in each
case, as the same may be amended, modified or restated from time to time), and
all certificates, schedules, exhibits and other documents required to be
delivered in connection with such agreements.
1. Interest. Interest will accrue on the unpaid principal amount
of this Note from the date hereof at a rate of 14% per annum; provided, however,
that, upon an Event of Default under Section 7.1 of the Credit Agreement, the
rate of interest shall increase to a rate per annum of 21%. Interest accrued on
this Note shall be payable on the earlier of (a) the Maturity Date, and (b) the
date of consummation of an Equity Financing. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. The Company shall pay principal
and interest on this Note by wire transfer of immediately available funds to the
account specified by the Registered Holder in a written notice to the Company
delivered at least three Business Days prior to such payment date. If a payment
date is other than a Business Day, payment shall be made on the next succeeding
Business Day. All payments shall be applied first, to all accrued and unpaid
interest hereon, and second, to principal.
3. Prepayment. At its option, the Company may, 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 to the
Registered Holder at least 5 days but not more than 30 days before the
prepayment date set forth in such notice at the address provided in or pursuant
to Section 9 herein. Any such prepayment shall be in an amount of at least
$100,000 and in integrals of $10,000, 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. Once due notice of prepayment is
given, a portion of the principal amount of this Note (in such amount as the
notice states shall be prepaid) shall become due and payable on the optional
prepayment date.
-2-
<PAGE>
4. Repayment. The Company will repay this Note in full, in cash
on the Maturity Date at 100% of the then outstanding principal amount of this
Note plus accrued but unpaid interest thereon to such date.
5. Optional Conversion. In the event that an Equity Financing
has been consummated no later than July 15, 1998, the holders of this Note may,
at their option, convert all, but not less than all, of the principal amount of
this Note such that each $1.00 of principal amount of this Note shall convert
into that number of units of securities offered in such Equity Financing as are
purchaseable for $1.25. Upon such conversion, accrued and unpaid interest hereon
shall be immediately payable to the Registered Holder in cash.
6. Events of Default; Remedies. Events of Default and the
consequences of Events of Default are set forth in Article VII of the Credit
Agreement. All provisions of Article VII of the Credit Agreement are
specifically hereby incorporated herein in full by this reference.
7. Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, 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 of $250,000, or any multiple thereof (or
in any such lesser amount as shall equal the then unpaid principal amount of the
Note or Notes so exchanged), 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 (subject to
Section 15 herein); provided, however, that upon any such exchange there shall
be filed with the Company the name and address for all purposes hereof of the
payee of each Note delivered in the 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.
8. 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 this Note, 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 sworn or
notarized agreement shall be satisfactory) or, in the case of any such
mutilation upon surrender of this Note, the Company shall (at its 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.
9. Securities Act. This Note has not been registered under the
Securities Act of 1933 and applicable state securities laws. Therefore, the
Company may require, as a
-3-
<PAGE>
condition of allowing the transfer or exchange of this Note, that the Registered
Holder furnish to the Company an opinion of counsel reasonably acceptable to the
Company to the effect that such transaction is allowable under the Securities
Act of 1933 and applicable state securities laws.
10. Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission or
mailed by prepaid first class certified mail, return receipt requested, or
mailed by overnight courier prepaid, to the parties at the following addresses
or facsimile numbers:
If to the Registered Holder, to:
Bank of New York, as Trustee for the Employees Retirement Plan
of Keyspan Energy Corp.
c/o The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, NY 11201-3850
Facsimile No.: (718) 643-1341
Attn: Thomas Riordan
with a copy to:
Cullen & Dykman
177 Montague Street
Brooklyn, New York 11201
Facsimile No.: (718) 935-1304
Attn: Lance D. Myers, Esq.
If to the Company, to:
Skyline Multimedia Entertainment, Inc.
350 Fifth Ave., Suite 612
New York, NY 10118
Facsimile No.: (212) 564-0652
Attn: President
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Facsimile No.: (212) 969-2900
Attn: Neil S. Belloff, Esq.
-4-
<PAGE>
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 10, be deemed given upon receipt, (iii) if delivered by
mail in the manner described above to the address as provided in this Section,
be deemed given upon the earlier of the third Business Day following mailing or
upon receipt and (iv) if delivered by overnight courier to the address as
provided in this Section, be deemed given on the earlier of the first Business
Day following the date sent by such overnight courier or upon receipt (in each
case regardless of whether such notice, request other communication is received
by any other Person to whom a copy of such notice is to be delivered pursuant to
this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other party hereto at least ten days prior
to the effective date of such change.
11. 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.
12. Note Register. The Company shall maintain at its principal
executive offices books for the registration and the registration of transfer of
this Note. 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.
13. Waiver. Subject to the provisions of the Credit Agreement,
any term or condition of this Note may be waived at any time by the party that
is entitled to the benefit thereof, but no such waiver shall be effective unless
set forth in a written instrument duly executed by or on behalf of the party
waiving such term or condition. No waiver by any party of any term or condition
of this Note, in any one or more instances, shall be deemed to be or construed
as a waiver of the same or any other term or condition of this Note on any
future occasion. All remedies, either under this Note or by law or otherwise
afforded, will be cumulative and not alternative.
14. Amendment. This Note may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf the
Registered Holder and the Company and otherwise in accordance with the
provisions of the Credit Agreement.
15. Binding Effect. No obligation of the Company hereunder may
be assigned (by operation of law or otherwise) by the Company or assumed by
another Person
-5-
<PAGE>
without the prior written consent of the Registered Holder and otherwise in
accordance with the provisions of the Credit Agreement and any attempt to do so
will be void. This Note or any portion hereof may be assigned by the Registered
Holder to any Person; provided, however, that the aggregate principal amount so
assigned shall be at least $250,000 (or any such lesser amount as shall equal
the then unpaid principal amount of this Note). Subject to the foregoing, this
Note is binding upon, inures to the benefit of and is enforceable by the parties
hereto and their respective successors and assigns. Prior to the assignment of
this Note or any portion hereof by the Registered Holder to any other Person,
such Person shall be required to make representations and warranties to the
Company substantially similar to those contained in Section 8.4 of the Credit
Agreement and agree to be bound by the terms of the Credit Agreement applicable
to the Lender.
[Remainder Intentionally Blank]
-6-
<PAGE>
IN WITNESS WHEREOF, the Company 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:
-7-
<PAGE>
SKYLINE LAS VEGAS, INC.
By:
----------------------------------
Name:
Title:
-8-
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THIS
SECURITY MAY NOT BE OFFERED, SOLD OR TRANSFERRED EXCEPT (I)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR (II) IN A TRANSACTION WHICH,
IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO SKYLINE
MULTIMEDIA ENTERTAINMENT, INC., IS EXEMPT FROM REGISTRATION
THEREUNDER AND UNDER APPLICABLE STATE SECURITIES LAWS.
THIS SECURITY IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT
CERTAIN SENIOR SECURED CREDIT AGREEMENT, DATED AS OF MAY 20,
1998, BY AND AMONG SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND
THE CO-BORROWERS AND LENDERS NAMED THEREIN, AS SUCH AGREEMENT
MAY BE AMENDED, MODIFIED OR RESTATED FROM TIME TO TIME AND THAT
CERTAIN SECURITY AGREEMENT, DATED AS OF MAY 20, 1998, BY AND
AMONG SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND THE
CO-BORROWERS AND LENDERS NAMED THEREIN, AS SUCH AGREEMENT MAY BE
AMENDED, MODIFIED OR RESTATED FROM TIME TO TIME.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
Senior Secured Demand Note
May 20, 1998 $435,000
New York, New York No.2
FOR VALUE RECEIVED, Skyline Multimedia Entertainment, Inc., a
New York corporation (the "Company"), New York Skyline, Inc., a New York
corporation ("NYSI"), Skyline Virtual Reality, Inc., a Delaware corporation
("SVR"), Skyline Chicago, Inc., a Delaware corporation ("SCI"), Skyline Magic,
Inc., a Delaware corporation ("SMI") and Skyline Las Vegas, Inc., a Delaware
corporation ("SLVI"), hereby promise to pay to Prospect Street NYC Discovery
Fund, L.P., or its registered successors or assigns (the "Registered Holder"),
Four Hundred Thirty Five Thousand U.S. Dollars ($435,000.00) on demand given on
<PAGE>
or after July 15, 1998 (the date of such demand referred to herein as the
"Maturity Date") in accordance with the provisions of this Note. This Note is
issued by the Company pursuant to the Senior Secured Credit Agreement, dated as
of May 20, 1998 (as such agreement may be amended, modified or restated from
time to time, the "Credit Agreement"), by and among the Company, the Company's
subsidiaries, the Registered Holder and The Bank of New York, as trustee for the
Employees Retirement Plan of Keyspan Energy Corp. This Note is secured by the
collateral pledged to the Registered Holder pursuant to the Collateral Documents
(as defined herein). All capitalized terms used and not defined herein shall
have the meaning ascribed to such terms in the Credit Agreement.
"Collateral Documents" means the Security Agreement, the
Subordination Agreement, the Subsidiary Stock Pledge Agreement, the Subsidiary
Guarantee, and the Indemnity, Subrogation and Contribution Agreement (in each
case, as the same may be amended, modified or restated from time to time), and
all certificates, schedules, exhibits and other documents required to be
delivered in connection with such agreements.
1. Interest. Interest will accrue on the unpaid principal amount
of this Note from the date hereof at a rate of 14% per annum; provided, however,
that, upon an Event of Default under Section 7.1 of the Credit Agreement, the
rate of interest shall increase to a rate per annum of 21%. Interest accrued on
this Note shall be payable on the earlier of (a) the Maturity Date, and (b) the
date of consummation of an Equity Financing. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. The Company shall pay principal
and interest on this Note by wire transfer of immediately available funds to the
account specified by the Registered Holder in a written notice to the Company
delivered at least three Business Days prior to such payment date. If a payment
date is other than a Business Day, payment shall be made on the next succeeding
Business Day. All payments shall be applied first, to all accrued and unpaid
interest hereon, and second, to principal.
3. Prepayment. At its option, the Company may, 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 to the
Registered Holder at least 5 days but not more than 30 days before the
prepayment date set forth in such notice at the address provided in or pursuant
to Section 9 herein. Any such prepayment shall be in an amount of at least
$100,000 and in integrals of $10,000, 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. Once due notice of prepayment is
given, a portion of the principal amount of this Note (in such amount as the
notice states shall be prepaid) shall become due and payable on the optional
prepayment date.
-2-
<PAGE>
4. Repayment. The Company will repay this Note in full, in cash
on the Maturity Date at 100% of the then outstanding principal amount of this
Note plus accrued but unpaid interest thereon to such date.
5. Optional Conversion. In the event that an Equity Financing
has been consummated no later than July 15, 1998, the holders of this Note may,
at their option, convert all, but not less than all, of the principal amount of
this Note such that each $1.00 of principal amount of this Note shall convert
into that number of units of securities offered in such Equity Financing as are
purchaseable for $1.25. Upon such conversion, accrued and unpaid interest hereon
shall be immediately payable to the Registered Holder in cash.
6. Events of Default; Remedies. Events of Default and the
consequences of Events of Default are set forth in Article VII of the Credit
Agreement. All provisions of Article VII of the Credit Agreement are
specifically hereby incorporated herein in full by this reference.
7. Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, 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 of $250,000, or any multiple thereof (or
in any such lesser amount as shall equal the then unpaid principal amount of the
Note or Notes so exchanged), 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 (subject to
Section 15 herein); provided, however, that upon any such exchange there shall
be filed with the Company the name and address for all purposes hereof of the
payee of each Note delivered in the 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.
8. 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 this Note, 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 sworn or
notarized agreement shall be satisfactory) or, in the case of any such
mutilation upon surrender of this Note, the Company shall (at its 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.
9. Securities Act. This Note has not been registered under the
Securities Act of 1933 and applicable state securities laws. Therefore, the
Company may require, as a
-3-
<PAGE>
condition of allowing the transfer or exchange of this Note, that the Registered
Holder furnish to the Company an opinion of counsel reasonably acceptable to the
Company to the effect that such transaction is allowable under the Securities
Act of 1933 and applicable state securities laws.
10. Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission or
mailed by prepaid first class certified mail, return receipt requested, or
mailed by overnight courier prepaid, to the parties at the following addresses
or facsimile numbers:
If to the Registered Holder, to:
Prospect Street NYC Discovery Fund, L.P.
250 Park Avenue, 17th Floor
New York, N.Y. 10177
Facsimile No.: (212) 490-1566
Attn: John F. Barry, III
with a copy to:
Morgan, Lewis & Bockius, LLP
101 Park Avenue
New York, N.Y. 10178
Facsimile No.: (212) 309-6273
Attn: Ira White, Esq.
If to the Company, to:
Skyline Multimedia Entertainment, Inc.
350 Fifth Ave., Suite 612
New York, NY 10118
Facsimile No.: (212) 564-0652
Attn: President
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Facsimile No.: (212) 969-2900
Attn: Neil S. Belloff, Esq.
-4-
<PAGE>
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 10, be deemed given upon receipt, (iii) if delivered by
mail in the manner described above to the address as provided in this Section,
be deemed given upon the earlier of the third Business Day following mailing or
upon receipt and (iv) if delivered by overnight courier to the address as
provided in this Section, be deemed given on the earlier of the first Business
Day following the date sent by such overnight courier or upon receipt (in each
case regardless of whether such notice, request other communication is received
by any other Person to whom a copy of such notice is to be delivered pursuant to
this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other party hereto at least ten days prior
to the effective date of such change.
11. 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.
12. Note Register. The Company shall maintain at its principal
executive offices books for the registration and the registration of transfer of
this Note. 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.
13. Waiver. Subject to the provisions of the Credit Agreement,
any term or condition of this Note may be waived at any time by the party that
is entitled to the benefit thereof, but no such waiver shall be effective unless
set forth in a written instrument duly executed by or on behalf of the party
waiving such term or condition. No waiver by any party of any term or condition
of this Note, in any one or more instances, shall be deemed to be or construed
as a waiver of the same or any other term or condition of this Note on any
future occasion. All remedies, either under this Note or by law or otherwise
afforded, will be cumulative and not alternative.
14. Amendment. This Note may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf the
Registered Holder and the Company and otherwise in accordance with the
provisions of the Credit Agreement.
15. Binding Effect. No obligation of the Company hereunder may
be assigned (by operation of law or otherwise) by the Company or assumed by
another Person
-5-
<PAGE>
without the prior written consent of the Registered Holder and otherwise in
accordance with the provisions of the Credit Agreement and any attempt to do so
will be void. This Note or any portion hereof may be assigned by the Registered
Holder to any Person; provided, however, that the aggregate principal amount so
assigned shall be at least $250,000 (or any such lesser amount as shall equal
the then unpaid principal amount of this Note). Subject to the foregoing, this
Note is binding upon, inures to the benefit of and is enforceable by the parties
hereto and their respective successors and assigns. Prior to the assignment of
this Note or any portion hereof by the Registered Holder to any other Person,
such Person shall be required to make representations and warranties to the
Company substantially similar to those contained in Section 8.4 of the Credit
Agreement and agree to be bound by the terms of the Credit Agreement applicable
to the Lender.
[Remainder Intentionally Blank]
-6-
<PAGE>
IN WITNESS WHEREOF, the Company 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:
-7-
<PAGE>
SKYLINE LAS VEGAS, INC.
By:
-----------------------------------
Name:
Title:
-8-
<PAGE>
EXHIBIT 10.51
SECURITY AGREEMENT
Dated as of May 20, 1998
WHEREAS, pursuant to the terms of a Senior Secured Credit
Agreement dated as of May 20, 1998 (as the same may be amended, modified or
restated from time to time, the "Credit Agreement") by and among Bank of New
York, as Trustee for the Employees Retirement Plan of Keyspan Energy Corp.
("KEP") and Prospect Street NYC Discovery Fund, L.P. ("Prospect Street") (KEP
and Prospect Street each a "Lender," and collectively, the "Lenders"), and
Skyline Multimedia Entertainment, Inc., a New York corporation ("SMEI" or the
"Company"), New York Skyline, Inc., a New York corporation ("NYSI"), Skyline
Virtual Reality, Inc., a Delaware corporation ("SVR"), Skyline Chicago, Inc., a
Delaware corporation ("SCI") Skyline Magic, Inc., a Delaware corporation
("SMI"), and Skyline Las Vegas, Inc., a Delaware corporation ("SLVI") (SMEI,
NYSI, SVR, SCI, SMI and SLVI, each a "Co-Borrower" and "Grantor" and
collectively referred to herein as the "Grantors"), the Lenders have agreed to
make Loans to the Co-Borrowers in the amounts set forth in the Credit Agreement.
Unless otherwise defined herein or on Schedule A hereto, capitalized terms used
herein shall have the meanings ascribed to them in the Credit Agreement.
WHEREAS, Grantors, as an inducement to the Lenders to make the
Loans, have agreed to grant to the Lenders a security interest in the Collateral
(as defined below).
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Security Interest. As security for the payment when
and as due of all Obligations, Grantors grant to the Lenders a security interest
in all of the following types of its property in which they have a right or
interest now existing or hereafter acquired or arising, wherever such property
is located or situated, including all parts, accessions, substitutions,
replacements, proceeds (including all cash received in respect of any
Collateral) and products thereof, thereto and therefor, except such property
which, as of the date hereof, is subject to an existing security interest
(provided, however, that upon release of any such existing security interest,
such property shall be deemed Collateral hereunder) other than the security
interests held by the Prospect Street Entities (which security interest shall be
subordinated to the security interest granted to the Lenders hereunder) or
cannot by the terms of its governing instrument be pledged as Collateral
hereunder without resulting in a default, breach, violation or acceleration
under such governing instrument:
(a) all inventory and other goods which, in connection with
its business are held or being processed for sale or lease or to be furnished
under contracts of service, or have been so furnished, including raw materials,
work in progress, finished goods, and materials and supplies used or consumed in
its business ("Inventory");
<PAGE>
(b) all accounts, accounts receivable, receivables, contracts,
contract rights and leases, and all other rights to payment, whether or not
evidenced by an instrument or chattel paper and whether or not payment has been
earned by performance (collectively, "Accounts");
(c) all instruments, negotiable instruments, and all other
writings which evidence a right to the payment of money which is in the ordinary
course of business transferred by delivery with any necessary endorsement or
assignment ("Instruments");
(d) all (i) copyrights, copyright registrations and
applications for copyright registration, including, without limitation, all
renewals and extensions thereof, the right to recover for all past, present and
future infringements thereof, and all other rights of any kind whatsoever
accruing thereunder or pertaining thereto (collectively, "Copyrights"), (ii)
patents and patent applications, including, without limitation, the inventions
and improvements described and claimed therein together with all reissues,
divisions, continuations, renewals, extensions and continuations-in-part
thereof, all income, royalties, damages and payments now or hereafter due and/or
payable under and with respect thereto, including, without limitation, damages
and payments for past or future infringements thereof, the right to sue for
past, present and future infringements thereof, and all rights corresponding
thereto throughout the world ("Patents"), and (iii) trademarks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, service marks, logos, prints and labels on which said trademarks,
corporate names, company names, business names, fictitious business names, trade
names, trade styles and service marks have appeared or appear, designs and
general intangibles of like nature, and the goodwill associated therewith, now
existing or hereafter adopted or acquired, all right, title and interest therein
and thereto, and all registrations and recordings thereof, including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof, or any other country or any political subdivision
thereof, all whether now owned or hereafter acquired (collectively,
"Trademarks") together with (A) all inventions, processes, production methods,
proprietary information, know-how and trade secrets used or useful in its
business; (B) all licenses or user or other agreements granted to it with
respect to any of the foregoing, in each case whether now or hereafter owned or
used; (C) all information, customer lists, identification of suppliers, data,
plans, blueprints, specifications, designs, drawings, recorded knowledge,
surveys, engineering reports, test reports, manuals, materials standards,
processing standards, performance standards, catalogs, computer and automatic
machinery software and programs, and the like; (D) all field repair data, sales
data and other information relating to sales or service of products now or
hereafter manufactured; (E) all accounting information and all media in which or
on which any of the information or knowledge or data or records may be recorded
or stored and all computer programs used for the compilation or printout of such
information, knowledge, records or data; (F) all licenses, consents, permits,
variances, certifications and approvals of governmental agencies now or
hereafter held; and (G) all causes of action, claims and warranties now or
hereafter owned or acquired in respect of any of the items listed above;
2
<PAGE>
(e) all documents, documents of title, bills of lading, dock
warrants, dock receipts, warehouse receipts and orders for the delivery of
goods, and all other documents which in the regular course of business or
financing are treated as adequately evidencing that a Person in possession is
entitled to receive, hold and dispose of the document and the goods it covers
("Documents");
(f) all "equipment", as such term is defined in the Uniform
Commercial Code as in effect from time to time in the State of New York (the
"Uniform Commercial Code"), now owned or hereafter acquired wherever located
and, in any event, including all machinery and equipment, including processing
equipment, conveyors, machine tools, data processing and computer equipment with
software and peripheral equipment (other than software constituting part of the
Accounts), and all engineering, processing and manufacturing equipment office
machinery, furniture, material handling equipment, tools, attachments,
accessories, automotive equipment, trailers, trucks, forklifts, molds, dies,
stamps, motor vehicles, rolling stock and other equipment of every kind and
nature, trade fixtures and fixtures not forming a part of real property, all
whether now owned or hereafter acquired, and wherever situated, together with
all additions and accessions thereto, replacements therefor, all parts therefor,
all substitutes for any of the foregoing, fuel therefor, and all manuals,
drawings, instructions, warranties and rights with respect thereto, and all
products and proceeds thereof and condemnations awards and insurance proceeds
with respect thereto ("Equipment");
(g) all "contracts", as such term is defined in the Uniform
Commercial Code, now owned or hereafter acquired or entered into by it and, in
any event, including all contracts, undertakings, or agreements (other than
rights evidenced by Chattel Paper (as defined below), Documents or Instruments)
in or under which it may now or hereinafter have any right, title or interest,
including any agreement relating to the terms of payment or the terms of
performance of any Account ("Contracts");
(h) all chattel paper, including any writing or writings which
evidence both a monetary obligation and a security interest in or a lease of
specific goods, and, when a transaction is evidenced both by a security
agreement or a lease and by an instrument or a series of instruments, the group
of writings taken together ("Chattel Paper");
(i) all books and records (including computer databases and
software for accessing it) related to any of the foregoing;
(j) all securities, including but not limited to stocks
(whether Common or Preferred shares), bonds, options, warrants, mutual funds and
other instruments commonly referred to as securities ("Securities"); and
(k) all other tangible or intangible property, including,
without limitation, all proceeds, products and accessions of and to any of the
property described in clauses (a) through (j) above in this Section 1
(including, without limitation, any proceeds of insurance thereon), and, to the
extent related to any property described in said clauses or such proceeds,
products and
3
<PAGE>
accessions, all books, correspondence, credit files, records, invoices and other
papers, including without limitation all tapes, cards, computer runs and other
papers and documents in the possession or under its control or any computer
bureau or service company from time to time acting for it.
All of the foregoing property described in this Section 1 and any part thereof
as to each Grantor or collectively, the Grantors, as the case may be, is
hereinafter called "Collateral". The security interest granted hereby shall be
continuing and shall secure all present and future Obligations whether or not at
some prior point in time all Obligations then outstanding shall have been
satisfied.
Section 2. Representations and Warranties. (a) The chief
executive office of each of the Grantors is as set forth on Schedule B. Except
for the Lenders' security interest hereunder, Liens not involving amounts in
excess of $10,000 and as otherwise described on Schedule C hereto, each Grantor
hereby warrants and represents that it is the sole owner of the Collateral
attributable to it, free from any Lien, claim, set-off, defense or counterclaim;
that all items of Collateral are in all respects what they purport to be; that
there is no financing statement now on file in any public office covering any
Collateral; and there is no fact that would impair its title to the Collateral,
the Collateral's validity or enforceability, each Grantor's ability to perform
its obligations hereunder, the Lenders' rights hereunder, or the validity or
first priority of the security interest and lien upon the Collateral created by
this Agreement.
(b) As of the date hereof, none of the Grantors owns or uses
any Copyrights, Patents or Trademarks or any Copyrights, Patents or Trademarks
registered in, or the subject of pending applications in, the United States
Copyright Office or United States Patent and Trademark Office or any similar
office or agency or any other country or any political subdivision thereof,
other than those described in Schedule D, Schedule E, and Schedule F hereto,
respectively.
(c) Grantors further warrant that they are aware of no
significant third party claim that any aspect of any Grantors' present or
contemplated business operations infringes or will infringe any Trademarks.
Grantors represent and warrant that all United States Trademark registrations
and applications listed in Schedule F are valid, subsisting and have not been
canceled and that except as listed in Schedule F, Grantors are not aware of any
third-party claim that any of said registrations is invalid or unenforceable. To
the best knowledge of Grantors, Grantors have used or intend to use the
Trademarks to identify themselves, as the case may be, and the goods and
services covered by the Trademarks and all registrations thereof are subsisting
and in full force and effect.
(d) Grantors represent and warrant that they own or are
licensed to practice under all Patents and Copyrights that they now own or
practice under. Grantors further warrant that they are aware of no significant
third party claim that any aspect of Grantors' present or contemplated business
operations infringes or will infringe any Patent or any Copyright of any third
party. The Copyrights shown on Schedule D hereto, unless otherwise stated
therein, are duly
4
<PAGE>
recorded or filed for recording in the United States Copyright Office. The
Patent registrations shown on Schedule E hereto, unless otherwise stated
therein, are valid and subsisting and in full force and effect. None of the
Patents has been abandoned or dedicated, and, except to the extent that the
Lenders, upon prior written notice by Grantors, shall consent, and Grantors will
not do any act, or omit to do any act, whereby the Patents may become abandoned
or dedicated and shall notify the Lenders immediately if it knows of any reason
or has reason to know that any application or registration may become abandoned
or dedicated.
(e) In no event shall any Grantor, either itself or through
any agent, employee, licensee or designee, (i) file an application for the
registration of any Copyright, Patent or Trademark with the United States
Copyright Office or United States Patent and Trademark Office or any similar
office or agency of any other country or any political subdivision thereof or
(ii) file any assignment of or grant of security interest in any Copyright,
Patent or Trademark that any Grantor may acquire from a third party, with the
United States Copyright Office or United States Patent and Trademark Office or
any similar office or agency of any other country or any political subdivision
thereof, unless such Grantor shall, on or prior to the date of such filing,
notify the Lenders thereof, and upon request of the Lenders, execute and deliver
any and all assignments, agreements, instruments, documents and papers as the
Lenders may request to evidence the Lenders' interest in such Copyright, Patent
or Trademark and the goodwill and general intangibles of such Grantor relating
thereto or represented thereby, and such Grantor hereby constitutes each Lender
its attorney-in-fact to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed; such
power being coupled with an interest is irrevocable until the Obligations are
paid in full.
(f) Grantors will perform all acts and execute all documents,
including, without limitation, grants of security interest in form suitable for
filing with the United States Copyright Office and United States Patent and
Trademark Office, substantially in the forms of Exhibit 1, Exhibit 2 and Exhibit
3 hereto, respectively, reasonably requested by the Lenders at any time to
evidence, perfect, maintain, record and enforce the Lenders' interest in the
Collateral or otherwise in furtherance of the provisions of this Agreement.
(g) Grantors will take all steps reasonably necessary in any
proceeding before the United States Copyright Office or United States Patent and
Trademark Office or any similar office or agency of any other country or any
political subdivision thereof, to maintain each application and registration of
the Copyrights, Trademarks and Patents.
(h) Grantors assume all responsibility and liability arising
from the use of the Copyrights, Patents and Trademarks, and each Grantor hereby
indemnifies and holds each Lender harmless from and against any claim, suit,
loss, damage or expense (including reasonable attorneys' fees) arising out of
any alleged defect in any product manufactured, promoted or sold by any Grantor
in connection with any Copyright, Patent or Trademark or out of the manufacture,
promotion, labeling, sale or advertisement of any such product by such Grantor.
Each Grantor agrees that the Lenders do not assume, and shall have no
responsibility for, the payment of any sums due or to become due under any
agreement or contract included in the Collateral or the
5
<PAGE>
performance of any obligations to be performed under or with respect to any such
agreement or contract by such Grantor, and each Grantor hereby indemnifies and
holds each Lender harmless with respect to any and all claims by any person
relating thereto.
(i) All licenses with respect to Patents, Trademarks or
Copyrights, or any other license or sublicense, to which any Grantor is a party
are set forth on Schedule G hereto.
Section 3. Location and Use of Collateral. Grantors shall:
(i) keep all Inventory and all records pertaining to
Collateral, at or affixed to the location of its chief executive office set
forth on Schedule B or such other place or places as it may designate in a
writing delivered to the Lenders thirty (30) days before moving such Collateral
or records to another place, and may use such Collateral only for purposes for
which it is commonly employed in Grantors' type of business;
(ii) as soon as practicable after the date hereof, but in any
event within sixty (60) days after such an item of property becomes Collateral,
deliver to the Lenders all Instruments, Documents and Chattel Paper that are
Collateral, with all endorsements or assignments necessary, or in the Lenders'
judgment reasonably appropriate, for each item of such Collateral to be
transferable; and
(iii) keep the proceeds of all Collateral segregated from
property that is not Collateral or proceeds thereof so that it may readily be
identified as proceeds of Collateral.
Section 4. Financing Statements and Notice. Grantors hereby
authorize the Lenders, without notice or the signature of any Grantor, to file
any financing statements and any amendments thereto or continuations thereof,
naming each Grantor as debtor and the Lenders as secured parties. At the
Lenders' request, each Grantor will join with the Lenders in executing any such
financing statements, amendments or continuations. In order to perfect, maintain
or protect its security interest, the Lenders may give notice of its security
interest in Collateral and may deliver a copy of this Agreement to any Person.
Section 5. Preservation of Collateral and Security Interest.
(a) Each Grantor shall maintain tangible Collateral in at least as good
condition as it is on the date hereof or when acquired by such Grantor, ordinary
wear and tear excepted, and not permit anything to be done that will materially
impair the value of any Collateral. Each Grantor shall at all times keep
accurate and complete records with respect to Collateral and shall furnish to
the Lenders upon request copies of its records relating to Collateral and all
additional information reasonably requested by the Lenders. The respective
representatives of the Lenders shall, during reasonable business hours and upon
notice given two Business Days in advance, have the right to enter upon any
Grantor's premises, inspect Collateral, and examine and make copies of such
Grantor's records relating to Collateral at such Grantor's expense.
6
<PAGE>
(b) No Grantor shall make an assignment, pledge, mortgage, or
other transfer of Collateral or any interest in it other than in the ordinary
course of its business, and shall keep all Collateral free from all Liens;
provided, however, that the foregoing limitations shall not apply to (i)
purchase money security interests or capital lease transactions in connection
with the purchase or lease of Equipment to be used by such Grantor in the
ordinary course of its business or (ii) such other dispositions of Collateral as
the Lenders may approve in writing in advance. Within ten (10) days of its
occurrence, Grantors shall give written notice to the Lenders of any material
loss of, or material damage to, Collateral; Grantors shall give immediate
written notice to the Lenders of any Lien, against or upon Collateral having
such value which shall not be discharged, released or satisfied within ten (10)
days. The Lenders, at their option, may pay or cause the discharge of taxes,
Liens at any time levied or placed on Collateral, take any action to maintain
and preserve Collateral and remedy any breach of any Grantor hereunder. Each
Grantor shall do, execute and deliver all additional acts, deeds, and
instruments as the Lender may require, to more completely vest in and assure to
the Lenders their rights hereunder.
Section 6. Limitation on Modifications of Accounts. No Grantor
will, without the prior written consent of the Lenders, grant any extension for
the time of payment of any of the Accounts, compromise, compound or settle the
same for less than the full amount thereof, release, wholly, or partly, any
Person liable for the payment thereof, or allow any credit or discount
whatsoever thereon other than extensions, credits, discounts, compromises or
settlements granted or made in the ordinary course of business; provided,
however, that so long as no Event of Default (as defined in Section 8) has
occurred or is continuing, any Grantor may, without the prior written consent of
the Lender, allow in the ordinary course of business as adjustments to amounts
owing under its Accounts (i) an extension or renewal of the time or times of
payment, or the settlement for less than the total unpaid balance, which such
Grantor finds appropriate in accordance with sound business judgment and (ii) a
refund or credit due as a result of returned, damaged or non-conforming
merchandise.
Section 7. Insurance. Each Grantor will maintain insurance on
its respective portion of the Collateral in such amounts and with such coverage
as is reasonably satisfactory to the Lenders and as is consistent with coverage
usually carried by corporations of a similar size engaged in the same or similar
business similarly situated. Any proceeds received by any Grantor in payment for
loss of or damage to Collateral under such insurance shall be held in trust by
such Grantor and be Collateral hereunder; it shall be applied by such Grantor to
repair or replace the Collateral in respect of which it was received, and if not
so applied, to payment of Obligations. Each Grantor will give the Lenders
immediate written notice of the receipt by such Grantor and amount of any such
insurance proceeds and prior written notice of the manner in which such proceeds
shall be applied. Upon the Lenders' request, such Grantor shall deliver
certificates of such insurance to the Lender.
Section 8. Events of Default. (a) "Events of Default" shall
exist hereunder if:
(i) Any Grantor shall fail to perform any Obligation, or to
pay any sum to the Lenders, when and as due, whether by acceleration or
otherwise;
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<PAGE>
(ii) any representation or warranty of any Grantor set forth
herein shall prove to have been false or misleading in any material respect (if
not qualified by materiality) and in any respect (if qualified by materiality)
when made or deemed to have been made and, if such breach of representation or
warranty is capable of being cured within such time, such breach shall have
continued for ten (10) Business Days (A) after notice of such breach if such
Grantor has complied with Section 8(b) hereof or (B) after the date of such
breach if such Grantor has not complied with Section 8(b) hereof;
(iii) any obligation of any Grantor under this Agreement shall
not be complied with and, if such noncompliance is capable of being cured within
such time, such noncompliance shall have continued for ten (10) Business Days
(A) after notice of such noncompliance if such Grantor has complied with Section
8(b) hereof or (B) after the date of such noncompliance if such Grantor has not
complied with Section 8(b) hereof; or
(iv) an Event of Default as defined in the Credit Agreement
shall occur and be continuing.
(b) Each Grantor shall, promptly upon becoming aware thereof,
notify the Lenders in writing of any Event of Default and any condition or event
which, after notice or lapse of time or both, would constitute an Event of
Default if that condition or event were not cured or removed within any
applicable grace or cure period.
Section 9. Rights Following an Event of Default. Following and
during the continuance of an Event of Default, each of the following provisions
shall apply:
(a) the Lenders shall have all rights and remedies afforded by
the Uniform Commercial Code, to a secured creditor having a security interest in
property to which Article 9 thereof applies.
(b) Each Grantor will, upon receipt of any proceeds, dividend,
stock certificate or other sums arising from the sale or other disposition of
Collateral or any instrument evidencing an obligation to pay such sums, hold
same in trust for the Lenders in the form received, and will forthwith, without
notice or demand, endorse, transfer and deliver same to the Lenders, and, should
such Grantor obtain possession of goods, the sale or lease of which gave rise to
an Account, such Grantor shall hold same in trust for the Lenders subject to the
security interest hereunder.
(c) Each Grantor hereby irrevocably appoints each of the
Lenders its true and lawful agent to act in such Grantor's name or in such
Lender's name as fully and completely as though such Lender was the absolute
owners of Collateral for all purposes. Any Lender may exercise all of such
Grantor's rights of collection, enforcement, conversion or exchange and all
other similar rights, privileges and options pertaining to Collateral, all of
such Grantor's rights to commence, prosecute or settle any legal actions, give
releases, or settle or compromise any rights, with respect to Collateral, and
generally all of such Grantor's rights to sell, assign, transfer,
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<PAGE>
pledge, convey, make any agreement with respect to, or otherwise deal with,
Collateral. The Lender may execute and deliver any and all documents and take
any and all actions on behalf of such Grantor in order to carry out the
provisions of this Agreement.
Nothing herein shall be construed as requiring the Lenders to
make any demand or inquiry as to the nature or sufficiency of any payment, or to
take any action with respect to Collateral or moneys, proceeds or income due, or
to become due thereunder, and no such action taken or omitted to be taken, or
delay, by the Lender, shall give rise to any defense, counterclaim or set-off in
favor of any Grantor or to any claim or action against the Lenders. The Lenders
shall have the right, upon consultation with such Grantor, to communicate with
any account debtor of such Grantor in order to verify Account balances from time
to time, provided that such verification right shall be exercised in a
commercially reasonable manner and pursuant to documentation and procedures
acceptable to such Grantor. The Lenders shall have the right, without prior
notice to any Grantor, to notify or to require such Grantor to notify the
parties obligated on any Collateral to make payment thereon directly to the
Lenders. Each such Grantor shall give such notice itself if requested to do so
by the Lenders.
(d) No Grantor shall make any further use of the Copyrights,
Patents or Trademarks for any purpose without the consent of the Lenders and
shall, upon the request of the Lenders, use its best efforts to obtain all
requisite consents or approvals by the licensor of each license to which such
Grantor is a party, including but not limited to those set forth on Schedule G
hereto, to effect the assignment of all of Grantor's right, title and interest
thereunder to the Lenders or its designees.
(e) The Lenders may, at any time and from time to time, upon
fifteen (15) days' prior notice to the appropriate Grantor, license (whether
general, special or otherwise, and whether on an exclusive or nonexclusive
basis) any of the Copyrights, Patents or Trademarks, throughout the world for
such term or terms, on such conditions, and in such manner, as the Lenders shall
in its sole discretion determine.
(f) The Lenders may (without assuming any obligations or
liability thereunder) enforce, and shall have the exclusive right to enforce,
against any licensee or sublicensee all rights and remedies of each Grantor in,
to and under any one or more license agreements with respect to the Collateral,
and take or refrain from taking any action under any thereof, and each such
Grantor hereby releases the Lenders from, and agrees to hold the Lenders free
and harmless from and against any claims arising out of, any action taken or
omitted to be taken with respect to any such license agreement.
(g) The Lenders may apply the proceeds actually received from
any such license, assignment, sale or other disposition to the reasonable costs
and expenses thereof (including, without limitation, reasonable attorneys' fees
and all legal and other expenses which may be incurred by the Lenders), and then
to the Obligations, in such order as is set forth in this Agreement; and each
Grantor shall remain liable and will pay the Lenders on demand any deficiency
remaining, together with interest thereon at a rate equal to the highest rate
then payable
9
<PAGE>
on the Obligations and the balance of any expenses unpaid. Nothing herein
contained shall be construed as requiring the Lenders to take any such action at
any time.
In the event of any such license, assignment, sale or other
disposition of all or any part of the Collateral, after the occurrence or
continuation as hereinabove provided of an Event of Default, each Grantor shall
supply its know-how and expertise relating to the manufacture and sale of the
products bearing or in connection with the Copyrights, Trademarks or Patents,
and its customer lists and other records relating to the Copyrights, Trademarks
or Patents and to the distribution of said products, to the Lenders or their
designees.
(h) Concurrently with the execution and delivery hereof, each
Grantor is executing and delivering to the Lenders, in the form of Exhibit 4
hereto, originals of a Power of Attorney for the implementation of the
assignment, sale or other disposal of the Copyrights, Trademarks and Patents
pursuant hereto, and each Grantor hereby releases the Lenders from any claims,
causes of action and demands at any time arising out of or with respect to any
actions taken or omitted to be taken by the Lenders under the power of attorney
granted herein, other than actions taken or omitted to be taken through the
gross negligence or willful misconduct of the Lenders.
Section 10. Possession of Collateral. After and during the
continuance of an Event of Default, the Lenders shall be entitled, without
notice to any Grantor, to appointment of a receiver to take possession of
Collateral, and may require each Grantor to assemble Collateral and make the
same available to the Lenders at a place to be designated by the Lender
reasonably convenient to both parties. The Lenders' duty of care with respect to
Collateral shall be limited to the exercise of reasonable care. The Lenders
shall be deemed to have exercised reasonable care if Collateral is accorded
treatment requested by such Grantor in writing or substantially the same as that
the Lenders accord their own property. The Lenders shall not be deemed to have
failed to exercise reasonable care solely because it may have failed to accord
Collateral treatment requested by such Grantor or to take steps to preserve
rights against prior parties or property.
Section 11. Application of Proceeds. The proceeds of any
collection or sale of Collateral, as well as any Collateral consisting of cash,
shall be applied by the Lenders as follows:
FIRST, to the payment of all reasonable costs and expenses
incurred by the Lenders in connection with this Agreement or any of the
Obligations, including, but not limited to, all court costs and the reasonable
fees and expenses of the agents and legal counsel of the Lenders, the repayment
of all advances made by the Lenders hereunder on behalf of any Grantor and any
other reasonable costs or expenses incurred in connection with the exercise of
any right or remedy hereunder;
SECOND, to the payment in full of the principal and interest
of the Notes outstanding;
10
<PAGE>
THIRD, to the payment in full of all Obligations (other than
those referred to above) owed to the Lenders; and
FOURTH, to each Grantor, its successors and assigns, or as a
court of competent jurisdiction may otherwise direct.
Section 12. Remedies Cumulative and not Waivable. The rights
and remedies of the Lenders herein expressly specified are cumulative and not
exclusive of other contractual, common law or statutory rights and remedies that
the Lenders may have, including without limitation, the right of set-off and all
rights and remedies of a secured creditor under Article 9 of the Uniform
Commercial Code as adopted in New York. The Lenders shall be under no duty to
exercise or withhold the exercise of any of its rights and remedies provided
hereunder or otherwise. No omission or delay by the Lenders in exercising any
such right or remedy shall operate as a waiver or partial waiver of any such
right or remedy; nor shall any single or partial exercise of any such right or
remedy preclude further exercise of such right or remedy, or exercise of any
other right or remedy.
Section 13. Remedies Fully Exercisable. All rights and
remedies that the Lenders may have available to it under arrangements to secure
or support the Obligations (including but not limited to any right of setoff,
guaranty, bond, letter of credit, insurance, security agreement, pledge,
mortgage or deed of trust) may be exercised from time to time, in part or in
whole, and in any order by the Lenders without marshaling any Grantor's assets,
and without regard to the effect of exercise of one right or remedy upon another
right or remedy, the existence of other Liens upon any of such Grantor's assets,
or the relative degree or amount of equity that such Grantor shall have in one
asset as against another.
Section 14. Notices, Waiver of Presentment, Etc. All notices,
requests and other communications hereunder must be in writing and will be
deemed to have been duly given only if delivered personally against written
receipt or by facsimile transmission or mailed by prepaid first class certified
mail, return receipt requested, or mailed by overnight courier prepaid, to the
parties at the following addresses or facsimile numbers:
11
<PAGE>
. If to Grantors, to:
c/o Skyline Multimedia Entertainment, Inc.
350 Fifth Ave., Suite 612
New York, NY 10118
Facsimile No.: (212) 564-0652
Attn: President
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Facsimile No.: (212) 969-2900
Attn: Neil S. Belloff, Esq.
If to the Lenders, to:
Bank of New York, as Trustee for the Employees Retirement Plan
of Keyspan Energy Corp.
c/o The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, NY 11201-3850
Facsimile No.: (718) 643-1341
Attn: Thomas Riordan
with a copy to
Cullen & Dykman
177 Montague Street
Brooklyn, NY 11201
Facsimile No.: (718) 935-1304
Attn: Lance D. Myers, Esq.
and
Prospect Street NYC Discovery Fund, L.P.
250 Park Avenue, 17th Floor
New York, NY 10177
Facsimile No.: (212) 490-1566
Attn: John F. Barry, III
12
<PAGE>
with a copy to:
Morgan Lewis & Bockius
101 Park Avenue
New York, NY 10178
Facsimile No.: (212) 309-6002
Attn: Ira White, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, (iii) if delivered by
mail in the manner described above to the address as provided in this Section,
be deemed given on the earlier of the third Business Day following mailing or
upon receipt and (iv) if delivered by overnight courier to the address as
provided in this Section, be deemed given on the earlier of the first Business
Day following the date sent by such overnight courier or upon receipt (in each
case regardless of whether such notice, request or other communication is
received by any other Person to whom a copy of such notice is to be delivered
pursuant to this Section). Any party from time to time may change its address,
facsimile number or other information for the purpose of notices to that party
by giving notice specifying such change to the other party hereto at least ten
(10) days prior to the effective date of such notice.
Each Grantor hereby waives presentment, notice of dishonor and
protest of any instruments included in or evidencing Obligations and all other
notices and demands not expressly required by this Agreement.
Section 15. New York Law; Resolution of Disputes. 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. Except as may be otherwise provided herein or
as the context may require, all terms used herein shall have the meaning
ascribed to them by the Uniform Commercial Code as adopted in New York. In
connection with any dispute which may arise under this Agreement, each Grantor,
for itself and in respect of its property, hereby irrevocably submits to,
consents to, and waives any objection to, the jurisdiction of the courts of the
State of New York located in the Borough of Manhattan in the City of New York or
of the United States District Court for the Southern District of New York, or,
at the option of the Lender, to the courts of any jurisdiction in which such
Grantor or any Collateral may be located, and waives any objection to the laying
of venue in such a court. Each Grantor admits that any such dispute may be
resolved at least as conveniently in such a court as in any other court and,
will not seek dismissal or a change of venue on the ground that resolution of
such a dispute in any such court is not convenient or in the interests of
justice. No Grantor shall seek a jury trial in any action based upon or arising
out of this Agreement or any related document or agreement. No Grantor will seek
to consolidate any such action with any other action in which trial by jury has
not been waived.
Section 16. Waiver; Amendment. None of the terms and
conditions of this Agreement may be changed, waived, modified or varied in any
manner whatsoever without the written approval of each party hereto.
13
<PAGE>
Section 17. Termination, Release of Collateral. After the
Termination Date (as defined below) this Agreement shall terminate and the
Lenders, at the request and expense of Grantors, will execute and deliver to
Grantors a proper instrument or instruments (including Uniform Commercial Code
termination statements on form UCC-3) acknowledging the satisfaction and
termination of this Agreement as to Grantors, and will duly assign, transfer and
deliver to Grantor (without recourse and without any representation or warranty)
such of the Collateral as may be in the possession of the Lenders and as has not
theretofore been sold or otherwise applied or released pursuant to this
Agreement. As used in this Agreement, "Termination Date" shall mean the date
upon which all payment Obligations have been irrevocably satisfied in full.
Section 18. Counterparts. This Agreement may be executed in
any number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A
complete set of counterparts executed by all the parties hereto shall be lodged
with each Grantor and each Lender.
Section 19. Other Provisions. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof. It
sets forth all representations relied upon by Grantors in connection with it.
The Lenders, and their respective directors, officers, limited partners, general
partners, attorneys, agents and employees, shall not be liable to Grantors for
any loss or damage caused by any act or omission on the part of any of them
unless such loss or damage shall have been caused by the gross negligence or
wilful misconduct of such Person. This Agreement shall be binding upon the
successors and assigns of Grantors and shall inure to the benefit of the
successors of the Lenders. In the event any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained shall not be affected or impaired in any way. Section headings used
herein are for convenience only and shall not affect the construction of this
Agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Security Agreement to be executed and delivered by their respective
representatives thereunto duly authorized 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:
[Signature Page to Security Agreement]
<PAGE>
SKYLINE MAGIC, INC.
By:
-----------------------------------
Name:
Title:
SKYLINE LAS VEGAS, INC.
By:
-----------------------------------
Name:
Title:
BANK OF NEW YORK, AS TRUSTEE FOR THE
EMPLOYEES RETIREMENT PLAN OF KEYSPAN ENERGY
CORP.
By:
-----------------------------------
Name:
Title:
PROSPECT STREET NYC DISCOVERY FUND, L.P.
By: Prospect Street Discovery Fund, Inc.
its General Partner
By:
-----------------------------------
Name:
Title:
[Signature Page to Security Agreement]
<PAGE>
Schedule A to Security Agreement
Definitions
As used herein the following terms have the following respective meanings:
Obligations shall mean:
i. (x) the principal of and accrued interest on the
Loans and the Notes and (y) all other obligations and indebtedness (including
without limitation indemnities, fees, expenses and interest on any such
obligations and indebtedness) of Grantors to the Lenders now existing or
hereafter incurred under, arising out of, or in connection with, the Loans, the
Notes, the Credit Agreement, the Warrants or any of the Security Documents;
ii. any and all sums advanced by the Lenders in
accordance with the terms of the Security Documents in order to preserve the
Collateral or preserve its security interest in the Collateral; and
iii. in the event of any proceeding for the
collection or enforcement of any indebtedness, obligations or liabilities of
Grantors, on and after an Event of Default shall have occurred and be
continuing, the expenses of re-taking, holding, preparing for sale or lease,
selling or otherwise disposing or realizing on the Collateral, or of any
exercise by the Lenders of its rights under the Loans, the Notes, the Credit
Agreement, the Warrants or any of the Security Documents, together with
attorneys' fees and expenses and court costs and all other amounts paid by the
Lenders under the Loans, the Notes, the Credit Agreement, the Warrants or any of
the Security Documents.
Security Agreement: shall mean this Agreement, as the same may be
amended, modified or restated from time to time in accordance with the terms
hereof.
Security Documents: shall mean the Security Agreement, the Subsidiary
Guarantee Agreement, the Subsidiary Stock Pledge Agreement and any other
instrument or agreement which purports to grant to the Lenders a security
interest in or a Lien on property to secure any Obligations, or which is stated
therein to be a Security Document. All references to any Security Document shall
mean such Security Document, as the same may be amended, modified or restated
from time to time in accordance with the terms thereof.
<PAGE>
Schedule B to Security Agreement
Grantors' Chief Executive Office
c/o Skyline Multimedia Entertainment, Inc.
350 Fifth Ave., Suite 612
New York, NY 10118
<PAGE>
Schedule D to Security Agreement
List of Copyrights, Copyright Registrations and
Applications for Copyright Registrations
None.
<PAGE>
Schedule E to Security Agreement
List of Patents and Patent Applications
None.
<PAGE>
Schedule F to Security Agreement
List of Trade Names, Trademarks, Service Marks
Trademark and Service Mark Registrations And
Applications for Trademark and Service Mark Registrations
Application (A)
Registration (R)
Mark or Series No. (S) Registration or Filing Date
- ---- ----------------- ---------------------------
Skyline has a registered trademark in "Skyride" and its Logo.
<PAGE>
Schedule G to Security Agreement
Licenses
License in the trademark "XS: Too Much is Not Enough" from NAMCO.
<PAGE>
Schedule H to Security Agreement
Location of Collateral
c/o Skyline Multimedia Entertainment, Inc.
350 Fifth Ave.
New York, NY 10118
c/o XS, New York
1457-1463 Broadway
New York, NY 10036
<PAGE>
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of May 20, 1998 among Skyline
Multimedia Entertainment, Inc., a New York corporation ("Pledgor"), and Bank
of New York, as Trustee for the Employees Retirement Plan of Keyspan Energy
Corp. ("KEP") and Prospect Street NYC Discovery Fund, L.P. ("Prospect Street")
(KEP and Prospect Street collectively, the "Pledgees").
WHEREAS, Pledgor is the holder of all the issued and
outstanding capital stock (the "Stock") of New York Skyline, Inc., a New York
corporation ("NYSI"), Skyline Virtual Reality, Inc., a Delaware corporation
("SVR"), Skyline Chicago, Inc., a Delaware corporation ("SCI"), Skyline Magic,
Inc., a Delaware corporation ("SMI"), and Skyline Las Vegas, Inc., a Delaware
corporation ("SLVI") (SMEI, NYSI, SVR, SCI, SMI and SLVI, each a "Subsidiary,"
and collectively the "Subsidiaries").
WHEREAS, Pledgor and the Subsidiaries have entered into a
Senior Secured Credit Agreement with the Pledgees, dated as of May 20, 1998
(the "Credit Agreement"); and
WHEREAS, in order to induce the Pledgees to enter into the
Credit Agreement, Pledgor has agreed to pledge and grant a security interest
in the Stock of each of the Subsidiaries to the Pledgees to secure the prompt
and complete payment when due and performance by Pledgor of its obligations
under the Credit Agreement;
NOW, THEREFORE, in consideration of the premises herein and
for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Pledgor hereby agrees with Pledgees as follows:
1. Pledge. Pledgor hereby pledges, assigns, hypothecates,
transfers and delivers to the Pledgees, and grants to the Pledgees a first
lien on and first priority security interest in the Stock of each of the
Subsidiaries and any and all proceeds thereof (together with any securities
and other property referred to in Section 4 hereof, the "Pledged Shares"), as
collateral security for (i) the prompt and complete payment when due (whether
at the stated maturity, by acceleration or otherwise) and performance of its
obligations and liabilities under, arising out of or in connection with the
Credit Agreement and (ii) the due and punctual payment and performance by
Pledgor of its obligations and liabilities under, arising out of or in
connection with this Agreement (collectively, the "Liabilities").
The obligations hereunder shall not be affected, impaired or
discharged, in whole or in part, by virtue of the illegality, invalidity or
unenforceability of any aspect of the Credit Agreement, or by any modification
of the terms of the Credit Agreement (including without limitation payment
amounts and terms). Pledgor is herewith
<PAGE>
delivering to the Pledgees the certificates representing the Pledged Shares
registered in the name of Pledgor, together with undated stock powers executed
in blank. Such certificates represent all the shares of each Subsidiary issued
and outstanding as of the date hereof. There are no warrants, options or other
rights to acquire shares of the capital stock of any Subsidiary, and no
agreements by any Subsidiaries to issue additional shares of its capital
stock.
2. Inducing Representations of Pledgor. The Pledgor
acknowledges and agrees that the representations and warranties made by
Pledgor in the Credit Agreement constitute an inducement for the Pledgees to
enter into the Credit Agreement and this Agreement.
3. Covenants. Pledgor covenants and agrees as follows:
(a) Pledgor covenants and agrees that it will defend
the Pledgees' right, title and security interest in and to the Pledged Shares
and the proceeds thereof against the claims and demands of all persons
whomsoever.
(b) Pledgor shall not make or permit any changes to
the certificate of incorporation or by-laws of any Subsidiary and shall enter
into no agreements affecting or relating to the Pledged Shares.
(c) Pledgor shall not permit any Subsidiary to issue
or agree to issue any additional shares of its capital stock, or grant any
options, warrants or other rights to acquire shares of its capital stock.
4. Dividends, Distributions, etc. If, while this Agreement
is in effect, Pledgor shall become entitled to receive or shall receive any
rights or securities, whether as an addition to, in substitution for, or in
exchange for the Pledged Shares, or otherwise, Pledgor agrees to accept the
same as agent for the Pledgees and to hold the same in trust for the Pledgees
and to deliver the same forthwith to the Pledgees in the exact form received,
with the endorsement of Pledgor when necessary and appropriate and undated
stock powers duly executed in blank, to be held by the Pledgees, subject to
the terms hereof, as additional security for the Liabilities, and the
securities represented by such certificates shall become part of the "Pledged
Shares" for all purposes of this Agreement. In case any dividends are paid in
respect of the Pledged Shares or any property shall be distributed upon or
with respect to the Pledged Shares for any reason whatsoever, the property so
distributed shall be delivered to the Pledgees, to be held by the Pledgees as
collateral security for the Liabilities. All sums of money and property so
paid or distributed in respect of the Pledged Shares which are received by
Pledgor shall, until paid or delivered to the Pledgees, be held by Pledgor in
trust as security for the Liabilities.
2
<PAGE>
5. Administration of Security. The following provisions
shall govern the administration of the Pledged Shares:
(a) Pledgor may not take any action with respect to
the Pledged Shares without the prior written consent of the Pledgees.
(b) Irrevocable Proxy. Pledgor hereby grants to
Pledgees an irrevocable proxy to file proofs of claim and vote or consent in
connection with the Pledged Shares (and is herewith executing and delivering
to Pledgor an Irrevocable Proxy to such effect) upon the occurrence of an
Event of Default under the Credit Agreement. Upon the request of the Pledgees,
Pledgor agrees to deliver to the Pledgees such further evidence of such
irrevocable proxy or such further irrevocable proxies with respect to the
foregoing as the Pledgees may request.
(c) Subject to any sale by the Pledgees or other
disposition by the Pledgees of the Pledged Shares or other property pursuant
to this Agreement, the Pledged Shares and any other property then held as part
of the Pledged Shares in accordance with the provisions of this Agreement
shall be delivered to Pledgor, upon full payment, satisfaction and termination
of all of the Liabilities and the termination pursuant to Section 16 hereof of
the lien and security interest hereby granted.
6. Certain Rights of the Pledgees. (a) The Pledgees shall
not be liable for failure to collect or realize upon the Liabilities, or any
part thereof, or for any delay in so doing, nor shall the Pledgees be under
any obligation to take any action whatsoever with regard thereto.
(b) The Pledged Shares held by the Pledgees
hereunder may, if an Event of Default has occurred and is continuing, without
notice, be registered in the name of the Pledgees or its nominee, which may
thereafter without notice exercise all rights, privileges or options
pertaining to the Pledged Shares as if it were the absolute owner thereof,
including without limitation, the right to exchange at its discretion the
Pledged Shares, or any portion thereof, upon the exercise by the Pledgees of
any right, privilege or option pertaining to the Pledged Shares, and in
connection therewith, to deposit and deliver the Pledged Shares with any
committee, depositary, transfer agent, registrar or other designated agency
upon such terms and conditions as the Pledgees may determine, all without
liability except to account for property actually received by the Pledgees but
the Pledgees shall have no duty to exercise any of the aforesaid rights,
privileges or options and shall not be responsible for any failure to do so or
delay in so doing.
7. Remedies. (a) Upon the occurrence of an Event of Default
under the Credit Agreement, the Pledgees without demand of performance or
other demand, advertisement or notice of any kind (except the notice specified
below of the time and
3
<PAGE>
place of public or private sale) to or upon Pledgor or any other person (all
and each of which demands, advertisements and/or notices are hereby expressly
waived), may forthwith collect, receive, appropriate and realize upon the
Pledged Shares or any portion thereof, and/or may forthwith sell, assign, give
option or options to purchase, contract to sell or otherwise dispose of and
deliver said Pledged Shares, or any portion thereof, in one or more portions
at public or private sale or sales, at any exchange, broker's board or at any
of the Pledgees' offices or elsewhere upon such terms and conditions as the
Pledgees may deem advisable and at such prices as the Pledgees may deem best,
for cash or on credit or for future delivery without assumption of any credit
or risk, with the right to the Pledgees upon any such sale or sales, public or
private, to purchase the whole or any portion of said Pledged Shares so sold,
free of any right or equity of redemption in Pledgor, which right or equity is
hereby expressly waived or released.
(b) The Pledgees shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the safekeeping or otherwise of the Pledged Shares or any
portion thereof, in any way relating to the rights of the Pledgees hereunder,
including reasonable attorneys' fees and legal expenses, to the payment, in
whole or in part, of the Liabilities in such order as the Pledgees may elect,
and only after so paying over such net proceeds and after the payment by the
Pledgees of any amount required by any provision of law, including, without
limitation, the Uniform Commercial Code of the State of New York (the "UCC"),
need the Pledgees' accounts for the surplus, if any, to Pledgor.
(c) Pledgor agrees that the Pledgees shall not be
obligated to give more than thirty (30) days' notice of the time and place of
any public sale or of the time after which a private sale or other intended
disposition is to take place and that such notice shall be reasonable
notification of such matters. No notification need be given to Pledgor if it
has signed after default a statement renouncing or modifying any right to
notification of sale or other intended disposition.
(d) In addition to the rights and remedies granted
to the Pledgees in this Agreement and in any other instrument or agreement
securing, evidencing or relating to any of the Liabilities, the Pledgees shall
have all the rights and remedies of a secured party under the UCC. Pledgor
further agrees to waive and agrees not to assert any rights or privileges
which it may acquire under the UCC, and Pledgor shall be liable for any
deficiency if the proceeds of any sale or other disposition of the Pledged
Shares are insufficient to pay all amounts to which the Pledgees are entitled,
and the reasonable fees and expenses of any attorneys retained by the Pledgees
to collect such deficiency.
8. No Disposition, etc. Without the prior written consent of
the Pledgees, Pledgor agrees that it will not sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to, the
Pledged Shares, or any portion thereof,
4
<PAGE>
nor will it create, incur or permit to exist any pledge, lien, mortgage,
hypothecation, security interest, charge, option or any other encumbrance with
respect to the Pledged Shares, or portion thereof, interest therein, or any
proceeds thereof.
9. Sale of Pledged Shares. (a) Pledgor recognizes that the
Pledgees may be unable to effect a public sale of the Pledged Shares by reason
of certain prohibitions contained in the Securities Act of 1933, as amended
(the "Act"), and applicable state securities laws, but may be compelled to
resort to one or more private sales of portions of the Pledged Shares to a
restricted group of purchasers who will be obliged to agree, among other
things, to acquire such securities for their own account for investment and
not with a view to the distribution or resale thereof.
(b) Pledgor further agrees to do or cause to be done
all such other acts and things as may be necessary to make such sale or sales
of the Pledged Shares or any portion thereof valid and binding and in
compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at Pledgor's expense, provided that Pledgor shall
be under no obligation to take any action to enable the Pledged Shares or any
portion thereof to be registered under the provisions of the Act.
Pledgor further agrees that a breach of any of the covenants
contained in this Section 9 will cause irreparable injury to the Pledgees,
that the Pledgees have no adequate remedy at law in respect of such breach
and, as a consequence, agrees that each and every covenant contained in this
Section 9 shall be specifically enforceable against Pledgor, and Pledgor
hereby waives and agrees not to assert any defenses to an action for specific
performance of such covenants except for a defense that no Event of Default
has occurred and is continuing under the Credit Agreement.
10. Indemnification and Reimbursement. (a) Pledgor agrees to
indemnify the Pledgees and their respective partners, stockholders, directors,
officers, employees, agents and affiliates (jointly and severally, the
"Indemnitees") against, hold them harmless of and from, and to the extent paid
by any Indemnitees reimburse them for, any and all loss, liability, cost,
damage and expense, including, without limitation, reasonable attorneys' fees
and expenses, which the Indemnitees may suffer or incur by reason of any
action, claim or proceeding brought by or against any Indemnitee or in which
any Indemnitee may become involved (as a plaintiff, defendant, nonparty or in
any other capacity, including without limitation in any action brought in
interpleader or against Pledgor) or in connection with any investigation,
whether conducted by an Indemnitee or another, arising out of or relating
directly or indirectly in any way to the Pledged Shares, this Agreement or any
transaction to which the Pledged Shares or this Agreement directly or
indirectly relates.
5
<PAGE>
(b) If the indemnification provided for in paragraph
(a) of this Section 10 is for any reason held to be unavailable, Pledgor shall
contribute such amounts as are just and equitable to pay the Indemnitees or to
reimburse them for the aggregate of any and all losses, liabilities, costs,
damages and expenses, including, without limitation, reasonable attorneys'
fees and expenses, incurred by the Indemnitees as a result of or in connection
with, any amount paid in settlement of any action, claim or proceeding arising
out of or relating directly or indirectly in any way to the Pledged Shares or
this Agreement or any transaction to which the Pledged Shares or this
Agreement directly or indirectly relates. The provisions of this Section 10
shall survive any termination of this Agreement.
11. Further Assurances; Expenses. (a) Pledgor agrees that at
any time and from time to time upon the written request of the Pledgees,
Pledgor will execute and deliver such further documents and do such further
acts and things as the Pledgees may reasonably request consistent with the
provisions hereof in order to effect the intent and purposes of this
Agreement.
(b) Pledgor shall promptly pay on demand all
expenses, including reasonable attorneys' fees and disbursements, of the
Pledgees in connection with the administration or enforcement of this
Agreement or any other matter arising out of this Agreement.
12. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
13. No Waiver; Cumulative Remedies. The Pledgees shall not
by any act, delay, omission or otherwise be deemed to have waived any of its
remedies hereunder, and no waiver by the Pledgees shall be valid unless in
writing and signed by the Pledgees and then only to the extent therein set
forth. A waiver by the Pledgees of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Pledgees would otherwise have on any further occasion. No failure to exercise,
nor any delay in exercising on the part of the Pledgees, any right, power or
privilege hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
right, power or privilege. The rights and remedies herein provided are
cumulative and may be exercised singly or concurrently, and are not exclusive
of any rights or remedies provided by law.
14. Successors. This Agreement and all obligations of
Pledgor hereunder shall be binding on and enforceable against the permitted
successors and
6
<PAGE>
assigns of Pledgor, including, without limitation, any trustee in bankruptcy
or any other successor by operation of law, and shall, together with the
rights and remedies of the Pledgees hereunder, inure to the benefit of the
Pledgees. Without limiting the generality of the foregoing sentence, all
rights and powers granted hereby to the Pledgees, or any agent or
representative of the Pledgees, may be exercised by any successor or assignee
or any agent or representative of such successor or assignee.
15. Applicable Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws of the State of
New York without regard to its conflicts of law rules.
16. Termination. This Agreement and the lien and security
interest granted hereunder shall not terminate until the full and complete
performance and satisfaction of all the Liabilities.
17. Amendment. This Agreement may not be modified or amended
except in a writing signed by Pledgor and the Pledgees.
[Remainder is Intentionally Blank]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered on the date first above written.
Pledgor:
SKYLINE MULTIMEDIA
ENTERTAINMENT, INC.
By:
----------------------------
Name:
Title:
Pledgees:
BANK OF NEW YORK, AS TRUSTEE
FOR THE EMPLOYEES RETIREMENT
PLAN OF KEYSPAN ENERGY CORP.
By:
----------------------------
Name:
Title:
PROSPECT STREET NYC DISCOVERY
FUND, L.P.
By: Prospect Street Discovery Fund, Inc., its
general partner
By:
----------------------------
Name:
Title:
8
<PAGE>
EXHIBIT 10.53
AMENDED AND RESTATED
SEPARATION AGREEMENT
AND
GENERAL RELEASE
This Amended and Restated Separation Agreement and General Release is made
this 15th day of May, 1998 by and among Zalman Silber ("Silber"), Skyline
Multimedia Entertainment, Inc. (the "Company"), Prospect Street NYC Discovery
Fund, L.P. ("Prospect Street") and the Employees Retirement Plan of the Brooklyn
Union Gas Company ("BUG").
WHEREAS, the parties hereto desire to amend the Separation Agreement and
General Release dated April 15, 1998 among the parties hereto, as amended by
Amendment No. 1 dated May 7, 1998 (the "Separation Agreement") and restate such
Separation Agreement in its entirety.
NOW THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the Separation Agreement is hereby
amended and restated in its entirety to read as follows:
A. As consideration for entering into this Agreement and the terms and
conditions set forth herein, I have been offered:
(i) as payment in connection with the purchase by the Company of the
securities referenced in Section B(iii) hereof, $206,250 payable as
follows: (1) $154,687.50 upon execution of this Agreement, and (2)
$51,562.50, of which amount I acknowledge receipt of $21,654, and the
balance of which is to be paid bi-weekly at the rate of $3,750
commencing on the date hereof until fully paid. Additionally, the
Company agrees to forgive amounts previously agreed to be refunded by me
to the Company in the amount of $750,000;
(ii) as payment in connection with the purchase by Prospect Street of
the securities referenced in Section B(V) hereof, the aggregate amount
of $100, which amount represents fair value for such securities in light
of the pledge related thereto, and in consideration of Prospect Street
and BUG providing certain financing for the Company; and
(iii) the opportunity to continue to receive the Company-subsidized
health benefits I was receiving on the last active day of my employment
through the period ending on January 15, 1999 or, at the Company's
option, to receive the economic equivalent thereof.
<PAGE>
After consultation with my own counsel, I understand that these payments
and benefits exceed any payment, benefit, or other thing of value that I
might otherwise be entitled to under any Company policy, plan or
procedure.
B. In consideration of the compensation and benefits to be received by me
pursuant to paragraph A hereof, I hereby:
(i) resign from all positions and capacities held with the Company and
its subsidiaries, including, but not limited to, as an officer,
director and employee of the Company and its subsidiaries effective
as of April 15, 1998;
(ii) agree that during the ten year period ending on April 15, 2008 (the
"Non-Compete Period"), I will not, directly or indirectly, without
the consent of the Board of Directors of the Company: own, manage,
operate, join, control, or participate in or be connected with, as an
officer, employee, partner, stockholder, director, adviser,
consultant, agent or otherwise (whether paid or unpaid), any
business, which directly or indirectly competes with the currently
existing or contemplated businesses of the Company or its
subsidiaries at locations within New York City, including, but not
limited to (a) engaging in the food or souvenir concession business
at the same locations or at locations in close proximity to where the
Company currently conducts business, or (b) leasing space or entering
into licensing arrangements to provide simulated rides, virtual
reality arcade games or theater-based attractions;
(iii) agree that all options and warrants previously issued to me by the
Company are deemed canceled as of April 15, 1998 and to submit to the
Company all such options and warrants in my possession;
(iv) grant to Prospect Street an irrevocable proxy coupled with interest
to vote all of the shares of capital stock of the Company held by me,
the form of which is attached hereto as Exhibit A and to renew,
reexecute or reaffirm such irrevocable proxy as may from time to time
be required until the shares which are the subject of such
irrevocable proxy can be transferred as contemplated in subparagraph
(v) below and agree to vote all shares of capital stock of the
Company or execute consents with respect thereto as shall be
instructed by Prospect Street;
(v) agree to transfer to Prospect Street all shares of Class A common
stock of the Company held by me simultaneously with the release of
such shares from current escrow arrangements or pledge agreements and
to promptly instruct any escrow agent to transfer such shares upon
release; and
(vi) agree to use reasonable efforts to cause all shares of Class A common
stock currently held in escrow in connection with the escrow
arrangements or pledge agreements referred to in paragraph B(v) above
to be substituted with an equal number of shares of common stock of
the Company, which shares of common
2
<PAGE>
stock the Company hereby agrees to issue in exchange for such Class A
common stock.
C. The Company has advised me of, and I acknowledge that I do not have to
sign this Separation Agreement and General Release.
D. By signing this Separation Agreement and General Release, and in
consideration for the payments and benefits described in paragraph A hereof, I,
for myself and my heirs, executors, administrators, trustees, legal
representatives and assigns (collectively referred to as the "Releasors") hereby
forever release and discharge the Company, and any and all of its parent
corporations, shareholders, creditors subsidiaries, divisions, and each of their
affiliated or related entities, officers, directors, employees, agents,
representatives, successors and assigns, and any and all of its or their past,
present or future officers, directors, agents, stockholders, trustees,
fiduciaries, administrators, employees or assigns (whether acting as agents for
the Company or in their individual capacities) (collectively referred to as
"Releasees"), from any and all claims, demands, causes of action, and
liabilities of any kind whatsoever (based upon any legal or equitable theory,
whether contractual, common-law, statutory, federal, state, local or otherwise),
whether known or unknown, by reason of any act, omission, transaction, conduct
or occurrence up to and including the date of execution of this Agreement, which
the Releasors ever had, now have or hereafter can, shall or may have against the
Releasees for, upon or by reason of any act, omission, transaction or occurrence
up to and including the effective date of this Agreement.
E. The Company, and any and all of its parent corporations, shareholders,
subsidiaries, divisions, and each of their affiliated or related entities,
officers, directors, employees, agents, representatives, successors and assigns,
and any and all of its or their past, present or future officers, directors,
agents, stockholders, trustees, fiduciaries, administrators, employees or
assigns (whether acting as agents for the Company or in their individual
capacities) (collectively referred to as "Releasors") hereby forever release and
discharge Zalman Silber, his heirs, executors, administrators, trustees, legal
representatives, advisors, family members and assigns (collectively referred to
as "Releasees") from any and all claims, demands, causes of action, and
liabilities of any kind whatsoever (based upon any legal or equitable theory,
whether contractual, common-law, statutory, federal, state, local or otherwise),
whether known or unknown, by reason of any act, omission, transaction, conduct
or occurrence up to and including the date of execution of this Agreement, which
the Releasors ever had, now have or hereafter can, shall or may have against the
Releasees for, upon or by reason of any act, omission, transaction or occurrence
up to and including the effective date of this Agreement.
F. The parties hereto agree that from the date of this Agreement and
continuing indefinitely thereafter, none of the parties hereto shall say or do
anything which could disparage, undermine or be reasonably interpreted to
denigrate the capabilities, performance, integrity or reputation of any other
party or any of such other party's directors, officers, stockholders, agents,
employees, consultants, representatives or affiliates.
G. This Agreement constitutes the complete understanding between the
parties and supersedes all prior agreements with respect to the subject matter
hereof. No other promises or agreements shall be binding unless in writing and
signed by the parties.
H. This Agreement shall be governed by the laws of the State of New York.
3
<PAGE>
I. This Agreement may be executed in any number of counterparts, each of
which will be deemed an original, but all of which together will constitute one
and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
each of the parties hereto as of the date first written above.
ZALMAN SILBER
SIGNATURE: ___________________________
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By: __________________________________
Name: Steven Schwartz
Title: Executive Director of
Operations and Finance
PROSPECT STREET NYC DISCOVERY FUND, L.P.
By: Prospect Street Discovery Fund, Inc., General Partner
By: ______________________________
Name: John F. Barry, III
Title:
EMPLOYEES RETIREMENT PLAN OF
THE BROOKLYN UNION GAS COMPANY
By: __________________________________
Name: Thomas Riordan
Title:
5
<PAGE>
IRREVOCABLE PROXY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned (the "Grantor"), a shareholder of Skyline Multimedia
Entertainment, Inc., a New York corporation (the "Company"), does hereby
irrevocably constitute and appoint Prospect Street NYC Discovery Fund, L.P.
("Prospect Street"), with full powers of delegation and substitution, as
attorney and agent for the Grantor and in its name, place and stead with respect
to any and all shares of capital stock of the Company of whatever class or
series from time to time held by the Grantor to vote as the Grantor's proxy or
proxies at any meeting of the shareholders of the Company (and any adjournment
thereof) or to take any consensual or other action permitted to be taken by the
Grantor as a shareholder of the Company, in each case with respect to such
matters, including without limitation, the election of directors, as may be
voted on, consented to or taken by, and according to the number of votes that
would be entitled to be cast by, the Grantor. This Proxy and all authority
conferred hereunder is irrevocable and coupled with an interest, and shall not
be terminated or terminable by any act of the Grantor or by operation of law,
including, without limitation, the death, dissolution, liquidation or cessation
of existence of the Grantor, or by the occurrence of any other event or events.
This Proxy is granted in consideration of the agreement by Prospect Street to
provide financing for the Company.
THIS PROXY SHALL REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE
AGAINST ANY DONEE, ASSIGNEE OR OTHER TRANSFEREE OF THE CAPITAL STOCK
WHICH IS THE SUBJECT HEREOF.
IN WITNESS WHEREOF, the Grantor has duly executed this Proxy as of the 15th
day of April, 1998.
_____________________
Zalman Silber
6
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On April 15, 1998, Zalman Silber appeared before me and acknowledged to me
that he executed the foregoing instrument.
_____________________
Notary Public
7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 992,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 116,000
<CURRENT-ASSETS> 1,243,000
<PP&E> 14,366,000
<DEPRECIATION> 2,923,000
<TOTAL-ASSETS> 14,998,000
<CURRENT-LIABILITIES> 6,720,000
<BONDS> 0
0
1,000
<COMMON> 3,000
<OTHER-SE> 778,000
<TOTAL-LIABILITY-AND-EQUITY> 14,998,000
<SALES> 7,914,000
<TOTAL-REVENUES> 8,150,000
<CGS> 383,000
<TOTAL-COSTS> 9,649,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 674,000
<INCOME-PRETAX> (2,556,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,556,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,556,000)
<EPS-PRIMARY> (1.53)
<EPS-DILUTED> (1.53)
</TABLE>
