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United States
Securities and Exchange Commission
Washington, D.C. 20549
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FORM 8-K
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Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
September 2, 1998 0-23396
- - ------------------------------------------------ ----------------------
Date of Report (Date of earliest event reported) Commission File Number
Skyline Multimedia Entertainment, Inc.
(Exact name of registrant as specified in its charter)
New York 11-3182335
- - ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
350 Fifth Avenue
New York, New York 10118
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(Address of Principal Executive Offices) (Zip Code)
(212) 564-2224
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(Registrant's telephone number, including area code)
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Item 5. Other Events.
On September 2, 1998, Skyline Multimedia Entertainment, Inc. (the
"Company") and its subsidiaries entered into a Debt to Equity Conversion
Agreement (the "Agreement") with its institutional lenders. Pursuant to the
Agreement, the institutional lenders have agreed, subject to certain
conditions, to convert all of their respective indebtedness of the Company
(the "Debt"), approximately $7.235 million principal amount plus approximately
$1.225 million of accrued interest thereon (the "Initial Conversion Value")
into approximately 8,460 shares of Series B Convertible Redeemable Preferred
Stock of the Company (the "Series B Preferred Stock"). The institutional
lenders of the Company have agreed to such conversion in an effort to comply
with certain Nasdaq SmallCap Market ("Nasdaq") net worth criteria to maintain
the listing of the Company's common stock, par value $.001 per share (the
"Common Stock"), on Nasdaq and to make the Company's balance sheet and capital
structure more attractive to potential investors and the financial community.
Provided the Company's listing of its Common Stock on Nasdaq is maintained,
the conversion of the Debt will be subject to the approval of the issuance of
the Series B Preferred Stock by the shareholders of the Company at the next
annual meeting of shareholders or, alternatively, receipt from Nasdaq of a
waiver of such shareholder approval requirement.
The holders of shares of Series B Preferred Stock will be entitled to a
10% cumulative dividend when, as and if declared by the Board. The shares of
Series B Preferred Stock are convertible by the holders thereof into that number
of shares of Common Stock of the Company calculated by dividing $1.30 into the
Initial Conversion Value of the Series B Preferred Stock (i.e., $1,000 per share
or an aggregate of $8.46 million), subject to adjustment, plus any accumulated
dividends. The Series B Preferred Stock is redeemable by the Company, in whole
or in part, at any time upon payment of the Initial Conversion Value per share
(as adjusted from time to time), plus any accumulated dividends. The
institutional lenders also have certain registration rights with respect to the
Common Stock issuable upon conversion of the Series B Preferred Stock.
Additionally, on September 3, 1998, representatives of the Company and
the institutional lenders met with Nasdaq in connection with a hearing to
determine the Company's eligibility to maintain the listing of its Common
Stock on Nasdaq. Nasdaq's hearing panel requested the Company to furnish it
with additional information with respect to the amount of time within which it
will take for the Company to accomplish its proposed plan of compliance. The
Company has submitted such additional information to Nasdaq on September 15,
1998 and is hopeful that a decision will be rendered by the hearing panel by
early October 1998. There can be no assurance that a decision will be rendered
by such time or that such decision will be favorable to the Company. Further,
such decision may be subject to conditions or other restrictions which the
Company may not be able to comply with or which may make it more difficult to
trade in the Company's securities. An unfavorable decision will result in the
immediate delisting of the Company's Common Stock from Nasdaq irrespective of
the Company's ability to appeal such decision. Any such delisting will have an
adverse impact on the liquidity of the Company's securities, which may then
trade on the OTC Bulletin Board or the over-the-counter market, which may make
it more difficult to trade in the Company's securities or liquidate an
investor's holdings. Also, such delisting may make it more difficult for the
Company to raise additional capital.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) not applicable
(b) not applicable
(c) Exhibits
10.56 Debt to Equity Conversion Agreement dated as of September 2,
1998.
10.57 Registration Rights Agreement dated as of September 2, 1998.
10.58 Form of Certificate of Amendment to Certificate of
Incorporation.
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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 hereunto duly authorized.
Date: September 17, 1998 SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By: /s/Steven Schwartz
------------------------
Name: Steven Schwartz
Title: Executive Director of Operations
and Finance and Co-Chief
Executive Officer
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DEBT TO EQUITY CONVERSION AGREEMENT
This Agreement ("Agreement") is made as of this 2nd day of
September, 1998 by and among Skyline Multimedia Entertainment, Inc., a New
York corporation (the "Company"), New York Skyline, Inc., a New York
corporation ("NYSI"), Skyline Virtual Reality, Inc., a Delaware corporation
("SVRI"), Skyline Chicago, Inc., a Delaware corporation ("SCI"), Skyline
Magic, Inc., a Delaware corporation ("SMI"), Skyline Las Vegas, Inc., a
Delaware corporation ("SLVI") (NYSI, SVRI, SCI, SMI and SLVI, each a "Skyline
Subsidiary" and, collectively, the "Skyline Subsidiaries"), Prospect Street
NYC Discovery Fund, L.P. ("Prospect"), The Bank of New York as Trustee for the
Employees Retirement Plan of The Brooklyn Union Gas Company ("BUG"), The Bank
of New York as Trustee for the Employees Retirement Plan of The Brooklyn Union
Gas Company Health VEBA ("VEBA"), The Bank of New York as Trustee for the
Employees Retirement Plan of KeySpan Energy Corporation ("KeySpan"). Prospect,
BUG, VEBA and KeySpan are also hereinafter referred to collectively as the
"Investors" or separately as an "Investor".
Recitals
A. The Investors presently hold $7.235 million principal amount of
debt (the "Debt") of the Company evidenced by certain promissory notes in the
amounts listed in Schedule A attached hereto, plus accrued and unpaid interest
through the date hereof as set forth in Schedule A.
B. The Company's Common Stock, $.001 par value per share ("Common
Stock") is traded publicly on the Nasdaq SmallCap Market ("Nasdaq"). The
Company's net capital is currently below the level required by Nasdaq for
continued listing thereon.
C. The Company desires to convert the Debt into equity of the Company
in order to (i) restore and maintain its net capital in excess of that
required to maintain the Company's listing of its Common Stock on Nasdaq, and
(ii) reduce its debt to equity ratio and make the Company more attractive to
potential investors and strategic partners.
D. Pursuant to a Letter of Intent dated August 18, 1998, the
Investors have agreed to convert the Debt into shares of Series B Redeemable
Convertible Preferred Stock of the Company, $.01 par value per share (the
"Series B Preferred Stock") at a conversion rate and on such terms and
conditions as set forth herein.
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Agreements
THEREFORE, the Company and the Investors hereby agree as
follows:
1. Certain Definitions. (a) As used in this Agreement, the following
defined terms shall have the meanings indicated below:
"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.
"Agreement" means this Debt to Equity Conversion 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.
"Capital Lease Obligation(s)" 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.
"Contract" means any agreement, lease, evidence of
Indebtedness, mortgage, indenture, security agreement or other contract
(whether written or oral).
"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.
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"Indebtedness" of any Person means, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or similar instruments,
(iii) all obligations of such Person under conditional sale or other title
retention agreements relating to property acquired by such Person, (iv) all
obligations of such Person in respect of the deferred purchase price of
property or services (excluding accounts payable incurred in the ordinary
course of business), (v) all Indebtedness of others secured by (or for which
the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the Indebtedness secured thereby has been assumed, (vi)
all guarantees by such Person of Indebtedness of others, (vii) all Capital
Lease Obligations of such Person, (viii) all obligations, contingent or
otherwise, of such Person as an account party in respect of letters of credit
and letters of guaranty and (ix) all obligations, contingent or otherwise, of
such Person in respect of bankers' acceptances. The Indebtedness of any Person
shall include the Indebtedness of any other entity (including any partnership
in which such Person is a general partner) to the extent such Person is liable
therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
"Intellectual Property" shall mean all (a) copyrights,
copyright registrations and applications for copyright registrations, (b)
patents and patent applications, (c) trade names, trademarks and service
marks, logos, trademark and service mark registrations, and applications for
trademark and service mark registrations, (d) inventions, processes,
production methods, proprietary information, know-how and trade secrets, and
(e) licenses or user or other agreements granted to the Company with respect
to any of the foregoing, in each case whether now or hereafter owned or used.
"Investment Assets" means all debentures, notes and other
evidences of Indebtedness, stocks, securities (including rights to purchase
and securities convertible into or exchangeable for other securities),
interests in joint ventures, and general and limited partnerships, mortgage
loans and other investment or portfolio assets owned of record or beneficially
by the Company or any Skyline Subsidiary (other than securities issued by any
Subsidiary of the Company or of any Skyline Subsidiary).
"Law(s)" 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.
"License(s)" means all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises and similar
consents granted or issued by any Governmental or Regulatory Authority.
"Lien(s)" 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.
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"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.
"Subsidiary" means any Person in which the Company, 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.
(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.
2. Conversion of Debt. (a) Upon the Effective Date (as defined in subsection
2(b) below), the Debt, plus accrued and unpaid interest thereon through the
date hereof, shall be deemed to automatically convert (the "Series B
Conversion") into such number of shares of Series B Preferred Stock of the
Company equal to one share of Series B Preferred Stock for each One Thousand
($1,000) dollars of principal Debt, plus accrued and unpaid interest thereon.
No fractional shares of Series B Preferred Stock shall be issued and any such
fractional interests shall be paid in cash.
(b) The "Effective Date" shall mean the date upon which the
first of the following events occurs:
(i) At an annual meeting of the shareholders of the
Corporation, the holders of a majority of the
shares of its Common Stock approve of the issuance
of the Series B Preferred Stock; or
(ii) The Nasdaq SmallCap Market, Inc. ("Nasdaq")
grants a waiver to the Corporation (a "Nasdaq
Waiver") which exempts the Corporation from any
Nasdaq requirement that the Corporation obtain
approval of the Series B Conversion from the
holders of a majority of the shares of its Common
Stock, and ten days have passed since notice of
such Nasdaq Waiver was mailed to all the
shareholders of the Corporation.
3. Series B Preferred Stock Received Upon Conversion.
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(a) Upon the Effective Date, the Company shall, or shall cause its
registrar and transfer agent to, issue and deliver to the Investors, in
accordance with Section 2 above, the number of shares of Series B Preferred
Stock set forth opposite each Investor's name on Schedule B hereto.
(b) All shares of Series B Preferred Stock received by the Investors
upon the Series B Conversion shall be "restricted securities" under the
federal securities laws, which may not be resold without registration under
the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to
an exemption from the registration requirements of the Securities Act.
Accordingly, each stock certificate evidencing the shares of Series B
Preferred Stock received by the Investors hereunder will bear the following
legend:
"These securities have not been registered under
the Securities Act of 1933, as amended (the "Act"). These
securities may not be sold or offered for sale unless a
registration statement under the Act is in effect with
respect to such sale or in the opinion of counsel reasonably
satisfactory to the Company, such sale may be made pursuant
to Rule 144, or such sale otherwise is exempt from
registration or such registration otherwise is not
required."
Notwithstanding the foregoing, no such registration statement or opinion of
counsel shall be necessary for transfer by the Investors to an affiliated
company if the transferee agrees in writing to be subject to the terms hereof
to the same extent as if it were the original Investor hereunder.
(c) The terms and conditions of the Series B Preferred Stock shall be
as set forth on the form of Certificate of Designation attached hereto as
Exhibit C (the "Certificate of Designation"). The Certificate of Designation
shall be filed by the Company with the Secretary of State of the State of New
York as soon as practicable following the execution of this Agreement.
(d) Upon conversion of the Series B Preferred Stock to Common Stock
as set forth in the Certificate of Designation, such shares of Common Stock
shall be accompanied by such Registration Rights as are set forth in the
Registration Rights Agreement attached hereto as Exhibit D.
4. Representations and Warranties of the Company and the Skyline Subsidiaries.
As an inducement to the Investors to enter into this Agreement, the Company
and the Skyline Subsidiaries represent and warrant to each of the Investors as
follows:
(a) Subject to the filing and acceptance of the Certificate of
Designation with the Secretary of State, any shares of Series B Preferred
Stock of the Company issued pursuant to this Agreement will be (i) duly and
validly issued, fully paid and non-assessable, (ii) free of any pledges,
liens, security interests, claims or other encumbrances of any kind, and (iii)
issued in compliance with all applicable federal and state securities laws. In
addition, the Company represents that, at the next annual meeting of
shareholders, it will use its best efforts to seek
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shareholder approval of an amendment to its certificate of incorporation to
increase the number of authorized shares of capital stock of the Company to
ensure that a sufficient number of shares of Common Stock into which the
Series B Preferred Stock is convertible is reserved for issuance.
(b) Each of the Company and the Skyline Subsidiaries has all
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby, including without limitation, to issuance by the Company
of the Series B Preferred Stock required to be issued hereunder. The execution
and delivery by each of the Company and the Skyline Subsidiaries of this
Agreement, and the performance by each of the Company and the Skyline
Subsidiaries of their respective obligations hereunder, including without
limitation the issuance by the Company of the Series B Preferred Stock
required to be issued hereunder, 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 each of the Company and the Skyline
Subsidiaries and constitutes legal, valid and binding obligations of each of
the Company and the Skyline Subsidiaries enforceable against each of the
Company and the Skyline Subsidiaries in accordance with its 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).
(c) The execution and delivery by each of the Company and the Skyline
Subsidiaries of this Agreement, the performance by the Company of their
respective obligations under this Agreement and the consummation of the
transactions contemplated hereby do not, and could not reasonably be expected
to:
(i) 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 the Company or the Skyline
Subsidiaries, or any amendments thereto;
(ii) conflict with or result in a violation or breach of any term
or provision of any Law or Order applicable to the Company
or the Skyline Subsidiaries or any of their respective
Assets and Properties;
(iii) conflict with or result in a violation or breach of any
material Contract or material License to which the Company
or the Skyline Subsidiaries are a party or by which any of
their respective Assets and Properties are bound;
(iv) constitute (with or without notice or lapse of time or both)
a default under any material Contract or material License to
which the Company or the Skyline Subsidiaries are a party or
by which any of their respective Assets and Properties are
bound;
(v) require the Company or the Skyline Subsidiaries to obtain,
from any Person other than the Investors, the parties to
this Agreement or any of their respective affiliates, any
consent, approval or action of, make any filing with or give
any
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notice to any Person as a result or under the terms of any
material Contract or material License to which the Company
or the Skyline Subsidiaries are parties or by which any of
their respective Assets and Properties are bound;
(vi) result in or give to any Person any right of termination,
cancellation, acceleration or modification in or with
respect to any material Contract or material License to
which the Company or the Skyline Subsidiaries are a party or
by which any of their respective Assets and Properties are
bound;
(vii) 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 Company or the Skyline Subsidiaries are
parties or by which any of their respective Assets and
Properties are bound; or
(viii) result in the creation or imposition of any Lien upon the
Company or the Skyline Subsidiaries or any of their
respective Assets and Properties (other than in favor of the
Investors).
5. Restrictive Covenants. As a further inducement to the Investors to enter
into this Agreement, each of the Company and the Skyline Subsidiaries
covenants with each of the Investors that, without the prior written consent
of the holders of a majority in interest of the Series B Preferred Stock, the
Company and the Skyline Subsidiaries shall not, directly or indirectly:
(a) 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 which is or should be classified
and accounted for as a capital lease for financial reporting purposes in
accordance with GAAP; and (ii) as an endorser of negotiable instruments for
the payment of money deposited to the Company's or its Subsidiaries' bank
account for collection in the ordinary course of business;
(b) 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 the Company and the Skyline Subsidiaries taken together;
(c) 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);
(d) 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
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a term of one year or more, except for real property leases requiring annual
lease payments not exceeding $250,000 in the aggregate;
(e) hold any Investment Assets, or make or keep outstanding any
advance or loans, except that the Company may invest in (i) direct obligations
of, obligations fully guaranteed by, and repurchase agreements fully secured
by, the United States of America or any agency thereof, (ii) certificates of
deposit of any commercial bank which is a member of the Federal Reserve
System, and (iii) money market accounts or other similar low-risk, liquid
investments approved by the board of directors of the Company;
(f) 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
shareholders 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;
(g) organize or cause to exist any Subsidiary;
(h) enter into any arrangement with any Person providing for the
leasing by the Company or any of its Subsidiaries of real or personal property
which has been or is to be sold by the Company to such Person;
(i) amend the certificate of incorporation or by-laws of the Company
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 the Company's or such Subsidiary's board of directors,
except as permitted pursuant to the certificate of incorporation of the
Company;
(j) 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, the Company or such Subsidiary, (ii) make loans or
advances to the Company or such Subsidiary or (iii) transfer any of its Assets
and Properties to the Company or such Subsidiary;
(k) enter into any agreement with any Person other than the holders
Series B Preferred Stock, other than agreements made in the ordinary course of
business;
(l) enter into any agreements or arrangements which, by their terms
or reasonably foreseeable effect, restricts or adversely affects the Company's
or such Subsidiary's right and ability to meet its obligations to the holders
of Series B Preferred Stock;
(m) enter into any transaction (including, without limitation, any
purchase, sale, lease or exchange of property or the rendering of any service)
with any Affiliate, unless such transaction is (i) otherwise permitted under
this Agreement, (ii) in the ordinary course of the Company's or such
Subsidiary's business and (iii) upon fair and reasonable terms no less
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favorable to the Company or such Subsidiary than it would obtain in a
comparable arm's length transaction with a Person that is not an Affiliate;
and
(n) engage in any business other than the business currently
conducted by the Company or such Subsidiary and activities reasonably related
thereto;
provided, however, that no such consent shall be required at such time as the
outstanding shares of Series B Preferred Stock represent less than 25% of the
shares of Series B Preferred Stock initially issued hereunder.
6. Affirmative Covenants. Each of the Company and the Skyline Subsidiaries
covenants with each of the Investors that:
(a) This Agreement and all obligations of each of the Company and the
Skyline Subsidiaries hereunder shall be binding on and enforceable against any
and all Subsidiaries of each of the Company and the Skyline Subsidiaries which
are formed subsequent to the date hereof;
(b) KeySpan, acting as a separate class, shall be entitled to elect
or designate two (2) directors of the Company; provided, however, that such
right to elect or designate such directors shall terminate in the event that
at any time KeySpan shall hold less than 10% of the outstanding Series B
Preferred Stock of the Company.
7. Effect of this Agreement. As of the date hereof, each of the following
shall be deemed canceled, and of no further force and effect:
(a) the Senior Credit Agreement dated as of December 20, 1996, as
amended, by and among the Company, the Skyline Subsidiaries and the Investors,
along with all schedules, exhibits and ancillary documents related thereto,
except any warrants of the Company delivered in connection therewith; and
(b) the Senior Secured Credit Agreement dated as of May 20, 1998, as
amended, by and among the Company, the Skyline Subsidiaries and the Investors,
along with all schedules, exhibits and ancillary documents related thereto,
except any warrants of the Company delivered in connection therewith.
8. Delivery of Notes. Immediately following the execution and delivery of this
Agreement, each Investor shall deliver to the Company for cancellation all
promissory notes (the "Notes") evidencing the Debt being converted hereunder;
provided, however, that (i) the failure to deliver any such Note to the
Company for cancellation shall not be deemed a condition to conversion of the
Debt hereunder and (ii) each such Note shall be deemed canceled as of the date
hereof, whether or not such Note is delivered.
9. Termination of Financing Statements. (a) Immediately following the
execution and delivery of this Agreement, each Investor shall deliver to the
Company executed copies of such
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Uniform Commercial Code termination statements on form UCC-3 as required for
cancellation of all Uniform Commercial Code financing statements on form
UCC-1, and any amendments thereto or continuations thereof, filed in
connection with the agreements set forth in Sections 7(a) and (b) above and
naming the Company and/or the Skyline Subsidiaries as debtor and such Investor
as the secured party (the "UCC Termination Statements").
(b) Investors hereby authorize the Company, without notice or the
signature of any Investor, to file any UCC Termination Statements. At the
Company's request, each Investor will join with the Company in executing any
such UCC Termination Statements. In order to terminate such security interests
of the Investors, the Company may deliver a copy of this Agreement to any
Person.
10. Other Documents, Etc. The parties shall execute and deliver all documents
contemplated by this Agreement and shall cooperate with each other in carrying
out its terms and conditions in accordance with the intentions of the parties
expressed herein.
11. Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered, mailed first-class postage prepaid or delivered by facsimile
transmission,
(a) if to Investors, at:
Prospect Street NYC Discovery Fund, LP
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.
with a copy to:
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The Bank of New York, as Trustee for the Employees Retirement Plans of
Brooklyn Union Gas Company and KeySpan Energy Corporation
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 and Dykman
177 Montague Street
Brooklyn, NY 11201
Facsimile No.: (718) 935-1304
Attn: Lance D. Myers, Esq.
or at such other address or fax number as may have been furnished to the
Company in writing by the Investors.
(b) if to the Company, at:
Skyline Multimedia Entertainment, Inc.
350 Fifth Avenue, Suite 612
New York, N.Y. 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.
or at such other address or fax number as may have been furnished to Investors
in writing by the Company.
12. Entire Agreement. This Agreement embodies the entire agreement and
understanding between Investors and the Company relating to the subject matter
hereof and supersedes all prior agreements and understandings relating to the
subject matter hereof.
11
<PAGE>
13. Successors and Assigns. All covenants and agreements in this Agreement
contained by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto.
14. Headings. The headings of the articles and sections of this Agreement have
been inserted for convenience of reference only and shall in no way restrict
or otherwise modify any of the terms or provisions hereof.
15. Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the law of the State of New York without giving
effect to the conflict of laws.
16. Facsimile Documents. Facsimile documents that are transmitted by
telecommunications and reproduced by electronic means, with electronically
reproduced signatures, shall be legally effective and binding until such time
as replaced by documents containing the original signatures, which shall be
provided within a reasonable time.
17. Counterparts. This Agreement may be signed in any number of counterparts
with the same effect as if the signatures thereto and hereto were upon the
same instrument.
[Remainder of Page Intentionally Blank]
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By: /s/ Steven Schwartz
-----------------------------------------------
Name: Steven Schwartz
Title: Executive Director of Operations and
Finance and Co-Chief Executive Officer
NEW YORK SKYLINE, INC.
By: /s/ Steven Schwartz
--------------------------------------
Name: Steven Schwartz
Title: Secretary
SKYLINE VIRTUAL REALITY, INC.
By: /s/ Steven Schwartz
--------------------------------------
Name: Steven Schwartz
Title: Secretary
SKYLINE CHICAGO, INC.
By: /s/ Steven Schwartz
--------------------------------------
Name: Steven Schwartz
Title: Secretary
SKYLINE MAGIC, INC.
By: /s/ Steven Schwartz
--------------------------------------
Name: Steven Schwartz
Title: Secretary
SKYLINE LAS VEGAS, INC.
By: /s/ Steven Schwartz
--------------------------------------
Name: Steven Schwartz
Title: Secretary
13
<PAGE>
THE BANK OF NEW YORK, AS
TRUSTEE FOR THE EMPLOYEES
RETIREMENT PLAN OF KEYSPAN
ENERGY CORPORATION
By: /s/Stephen P. Weis
--------------------------------------
Name: Stephen P. Weis
Title: Vice President
THE BANK OF NEW YORK, AS
TRUSTEE FOR THE EMPLOYEES
RETIREMENT PLAN OF THE
BROOKLYN UNION GAS COMPANY
By: /s/Stephen P. Weis
--------------------------------------
Name: Stephen P. Weis
Title: Vice President
THE BANK OF NEW YORK, AS
TRUSTEE FOR THE EMPLOYEES
RETIREMENT PLAN OF THE
BROOKLYN UNION GAS COMPANY
NON-BARGAINING HEALTH VEBA
By: /s/Stephen P. Weis
--------------------------------------
Name: Stephen P. Weis
Title: Vice President
PROSPECT STREET NYC DISCOVERY
FUND, L.P.
By: Prospect Street Discovery Fund, Inc.,
its General Partner
By: /s/John Barry
-----------------------------
Name: John Barry
Title: Partner
14
<PAGE>
SCHEDULE A
Debt of Skyline Multimedia Entertainment, Inc.
<TABLE>
<CAPTION>
Accrued
Date Principal Interest Interest as of
Payee Incurred Debt Type Amount Rate Sept. 30, 1998
- - ------ --------- ----------- --------- -------- --------------
<S> <C> <C> <C> <C> <C>
BUG 12/20/96 Subordinated Debt $1,000,000 14% $238,959
BUG 12/31/96 Subordinated Debt 500,000 14% 117,370
BUG 2/18/97 Subordinated Debt 500,000 14% 107,973
VEBA 3/21/97 Subordinated Debt 500,000 14% 102,027
KeySpan 4/15/98 Subordinated Debt 500,000 14% 27,233
KeySpan 5/29/98 Subordinated Debt 1,350,000 14% 50,745
Prospect 11/6/96 Subordinated Debt 1,500,000 14% 383,753
Prospect 3/14/97 Subordinated Debt 450,000 14% 93,033
Prospect 6/30/97 Note Payable 500,000 14% 82,658
Prospect 4/4/15/98 Subordinated Debt $435,000 14% $23,693
---------- ----------
$7,235,000 $1,227,444
========== ==========
</TABLE>
15
<PAGE>
SCHEDULE B
Shares of Series B Preferred Stock
To be Issued Upon Conversion
<TABLE>
<CAPTION>
Total Total Accrued Total Amount of No. of
Principal Interest as of Principal plus Preferred Cash Payment for
Investor Amount Sept. 4, 1998 Accrued Interest Shares* Fractional Amount
- - -------- ----------- ------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
BUG $2,000,000 $464,302 $2,464,302 2,464 302
VEBA 500,000 102,027 602,027 602 27
KeySpan 1,850,000 77,978 1,927,978 1,927 978
Prospect 2,885,000 583,137 3,468,137 3,468 137
</TABLE>
*Calculated at a conversion rate of one (1) share of Series B Preferred Stock
per $1,000 of "Total Amount of Principal plus Accrued Interest."
16
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of September 2, 1998, by
and between Skyline Multimedia Entertainment, Inc., a New York corporation
(the "Company"), and the person whose name appears on the signature page
attached hereto (individually a "Holder" and collectively, with the holders of
other shares of Series B Redeemable Convertible Preferred Stock the
"Holders").
WHEREAS, the Conversion Agreement dated September 2, 1998, between
the Company and the Holders (the "Conversion Agreement") provides for, upon
the Effective Date (as defined therein), the conversion (the "Conversion") of
$7.235 million principal amount of debt of the Company plus such accrued and
unpaid interest as set forth in the Conversion Agreement (the "Debt") into
shares of Series B Redeemable Convertible Preferred Stock of the Corporation,
$.01 par value per share (the "Series B Preferred Stock") at a conversion rate
and on such terms and conditions as set forth in the Conversion Agreement;
WHEREAS, said shares of Series B Preferred Stock are convertible into
shares of the Company's common stock, $.001 par value per share, as set forth
in the Company's Certificate of Designation of Series B Preferred Stock (such
converted shares of common stock are hereinafter collectively referred to as
the "Registrable Securities");
WHEREAS, pursuant to the terms of and in order to induce the Holders
to enter into the Conversion Agreement, the Company and the Holders have
agreed to enter into this Agreement; and
WHEREAS, it is intended by the Company and the Holders that this
Agreement shall become effective immediately upon the acquisition by the
Holders of the Preferred Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and in the Conversion Agreement, the Company and
the Holders hereby agree as follows:
1. Registration Rights.
(a) Demand Registration. After receipt of a written request (a "Registration
Request") from Holders collectively holding at least 25% of the total
number of Registrable Securities requesting that the Company effect the
registration of Registrable Securities under the Securities Act of 1933
(the "1933 Act") and specifying the intended method or methods of
disposition thereof, if any, the Company shall promptly notify all
Holders in writing of the receipt of such request and each such Holder
may elect (by written notice sent to the Company) within ten days from
the date of such Holder's receipt of the aforementioned Company's notice
to have all or any part of its Registrable Securities included in such
regis tration thereof pursuant to this Section 1(a); provided, however,
that, in the case of an
<PAGE>
underwritten offering, the Company shall have the right to approve of the
underwriters selected by such Holders, such approval not to be
unreasonably withheld. Thereupon the Company shall, as expeditiously as
is possible, use commercially reasonable efforts to effect the
registration under the 1933 Act of all shares of Registrable Securities
which the Company has been so requested to register by such Holders for
sale, all to the extent required to permit the disposition (in
accordance with the intended method or methods thereof, as aforesaid) of
the Registrable Securities so registered; provided, however, that,
subject to the provisions of the immediately following sentence, the
Company shall not be required to effect more than one registration of
Registrable Securities pursuant to this Section 1(a). The Company shall
have the right to defer the filing of any registration statement
requested pursuant to this Section 1(a) for a period not to exceed
ninety (90) days if in the good faith determination of the Board of
Directors of the Company the filing of such registration statement would
be materially adverse to the Company.
(b) Piggyback Registration. If the Company at any time proposes to register
any of its securities under the 1933 Act (other than in connection with
a merger or pursuant to Form S-8 or other comparable form) the Company
shall request that the managing underwriter (if any) of such
underwritten offering include the Registrable Securities in such
registration. If such managing underwriter agrees to include any of the
Registrable Securities in the underwritten offering, the Company shall
at such time give prompt written notice to all Holders of its intention
to effect such registration and of such Holders' rights under such
proposed registration, and upon the request of any Holder delivered to
the Company within twenty (20) days after giving of such notice (which
request shall specify the Registrable Securities intended to be disposed
of by such Holder and the intended method of disposition thereof), the
Company shall include such Registrable Securities held by each such
Holder requested to be included in such registration.
(c) Cooperation with Company. Holders will cooperate with the Company in all
respects in connection with this Agreement, including, timely supplying
all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the
registration and sale of the Registrable Securities.
2. Registration Procedures. If and whenever the Company is required by any of
the provisions of this Agreement to use its commercially reasonable efforts to
effect the registration of any of the Registerable Securities under the 1933
Act, the Company shall (except as otherwise provided in this Agreement), as
expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement and shall use commercially
reasonable efforts to cause such registration statement to become
effective until the earlier of 270 days from the effective date of such
registration statement or such securities become capable of being
publicly sold without registration under the 1933 Act pursuant to Rule
144 or otherwise;
2
<PAGE>
(b) subject to Section 2(a) above, prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of
the 1933 Act with respect to the sale or other disposition of the
securities covered by such registration statement whenever the Holder or
Holders of such securities shall desire to sell or otherwise dispose of
the same;
(c) furnish to each Holder such numbers of copies of a summary prospectus or
other prospectus, including a preliminary prospectus or any amendment or
supplement to any prospectus, in conformity with the requirements of the
1933 Act, and such other documents, as such Holder may reasonably
request in order to facilitate the public sale or other disposition of
the securities owned by such Holder;
(d) use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each Holder shall
reasonably request, and do any and all other acts and things which may
be necessary or advisable to enable such Holder to consummate the public
sale or other disposition in such jurisdictions of the securities owned
by such Holder, except that the Company shall not for any such purpose
be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any
general consent to service of process;
(e) use commercially reasonable efforts to list such securities on any
securities exchange on which any securities of the Company is then
listed, if the listing of such securities is then permitted under the
rules of such exchange;
(f) enter into and perform its obligations under an underwriting agreement,
if the offering is an underwritten offering, in usual and customary
form, with the managing underwriter or underwriters of such underwritten
offering;
(g) notify each Holder of Registerable Securities covered by such
registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under
the 1933 Act, of the happening of any event of which it has knowledge as
a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing; and
(h) take such other actions as shall be reasonably requested by any Holder
to facilitate the registration and sale of the Registerable Securities;
provided, however, that the Company shall not be obligated to take any
actions not specifically required elsewhere herein which in the
aggregate would cost in excess of $5,000.
3
<PAGE>
3. Expenses. All expenses incurred in any registration of the Holders'
Registrable Securities under this Agreement shall be paid by the Company,
including, without limitation, printing expenses, fees and disbursements of
counsel for the Company, expenses of any audits to which the Company shall
agree or which shall be necessary to comply with governmental requirements in
connection with any such registration, all registration and filing fees for
the Holders' Registrable Securities under federal and state securities laws,
expenses of complying with the securities or blue sky laws of any
jurisdictions pursuant to Section 2(d), and up to $5,000 of professional fees
and expenses of all Holders in the aggregate per registration; provided,
however, the Company shall not be liable for (a) any discounts or commissions
to any underwriter; (b) any stock transfer taxes incurred with respect to
Registerable Securities sold in the offering or (c) the fees and expenses of
counsel or other advisors for any Holder, or the Holders in the aggregate, in
excess of $5,000.
4. Indemnification. In the event any Registerable Securities are included in
a registration statement pursuant to this Agreement:
(a) Company Indemnity. Without limitation of any other indemnity provided to
any Holder, either in connection with the Offering or otherwise, to the
extent permitted by law, the Company shall indemnify and hold harmless
each Holder, the affiliates, officers, directors and partners of each
Holder, any underwriter (as defined in the 1933 Act) for such Holder,
and each person, if any, who controls such Holder or underwriter (within
the meaning of the 1933 Act or the Securities Exchange Act of 1934 (the
"Exchange Act")), against any losses, claims, damages or liabilities
(joint or several) to which they may become subject under the 1933 Act,
the Exchange Act or other federal or state securities law, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in
such registration statement including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, (iii) any violation or alleged violation by the
Company of the 1933 Act or the Exchange Act, or (iv) any state
securities law or any rule or regulation promulgated under the 1933 Act,
the Exchange Act or any state securities law, and the Company shall
reimburse each such Holder, affiliate, officer or director or partner,
underwriter or controlling person for reasonable legal or other expenses
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability, action or expense; provided, however,
that the Company shall not be liable to any Holder in any such case for
any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon
and in conformity with information furnished for use in connection with
such registration by any such Holder or any other officer, director,
partner, affiliate, underwriter or controlling person of any of the
foregoing.
(b) Holder Indemnity. Each Holder shall indemnify and hold harmless the
Company, its affiliates, its counsel, officers, directors, stockholders
and representatives, any underwriter
4
<PAGE>
(as defined in the 1933 Act) and each person, if any, who controls
the Company or the underwriter (within the meaning of the 1933 Act or
the Exchange Act), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under
the 1933 Act, the Exchange Act or any state securities law, and the
Holder shall reimburse the Company and each such affiliate, counsel,
officer, director, stockholder, representative, underwriter or
controlling person of any of the foregoing for reasonable legal or
other expenses incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; insofar
as such losses, claims, damages or liabilities (or actions with
respect thereof) arise out of or are based upon any statements or
information provided by such Holder to the Company in connection with
the registration, offer or sale of Registerable Securities.
(c) Notice; Right to Defend. Promptly after receipt by an indemnified party
under this Section 4 of notice of the commencement of any action
(including any governmental action), such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party
under this Section 4, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the
right to participate in and if the indemnifying party agrees in writing
that it will be responsible for any costs, expenses, judgments, damages
and losses incurred by the indemnified party with respect to such claim,
jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall relieve such indemnifying party of
any liability to the indemnified party under this Agreement only if and
to the extent that such failure is prejudicial to its ability to defend
such action, and the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have
to any indemnified party otherwise than under this Agreement.
(d) Contribution. If the indemnification provided for in this Agreement is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such
loss, liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on
the one hand and of the indemnified party on the other hand in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant
equitable considerations. The relevant fault of the indemnifying party
and the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a
5
<PAGE>
material fact relates to information supplied by the indemnifying party or
by the indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission.
(e) Survival of Indemnity. The indemnification provided by this Agreement
shall be a continuing right to indemnification and shall survive the
registration and sale of any Registerable Securities by any person
entitled to indemnification hereunder and the expiration or termination
of this Agreement.
5. Assignment of Registration Rights. The rights of the Holders under this
Agreement, including the rights to cause the Company to register Registerable
Securities may not be assigned without the written prior consent of the
Company; provided, however, that this Agreement may be assigned or transferred
to any affiliate of the Holder in connection with the permitted transfer of
Series B Preferred Stock to such affiliate.
6. Remedies.
(a) Time is of Essence. The Company agrees that time is of the essence of
each of the covenants contained herein and that, in the event of a
dispute hereunder, this Agreement is to be interpreted and construed in
a manner that will enable the Holders to sell their Registerable
Securities as quickly as possible after such Holders have indicated to
the Company that they desire their Registerable Securities to be
registered. Any delay on the part of the Company not expressly permitted
under this Agreement, whether material or not, shall be deemed a
material breach of this Agreement.
(b) Remedies Upon Default or Delay. The Company acknowledges the breach of
any part of this Agreement may cause irreparable harm to a Holder and
that monetary damages alone may be inadequate. The Company therefore
agrees that the Holder shall be entitled to injunctive relief or such
other applicable remedy as a court of competent jurisdiction may
provide. Nothing contained herein will be construed to limit a Holder's
right to any remedies at law, including recovery of damages for breach
of any part of this Agreement.
7. Notices.
(a) All communications under this Agreement shall be in writing and shall be
mailed by first class mail, postage prepaid, or telegraphed or telexed
with confirmation of receipt or delivered by hand or by overnight
delivery service,
6
<PAGE>
(i) If to the Company, at:
Skyline Multimedia Entertainment, Inc.
350 Fifth Avenue, Suite 612
New York, N.Y. 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.
or at such other address or fax number as may have been
furnished to the Holders in writing by the Company.
(ii) If to any Holder of any Registerable Securities, to the
address of such Holder as it appears in the stock ledger of
the Company.
(b) Any notice so addressed, when mailed by registered or certified mail
shall be deemed to be given three days after so mailed, when telegraphed
or telexed shall be deemed to be given when transmitted, or when
delivered by hand or overnight shall be deemed to be given when
delivered.
8. Successors and Assigns. Except as otherwise expressly provided herein,
this Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of the Company and each of the Holders.
9. Amendment and Waiver. This Agreement may be amended, and the observance of
any term of this Agreement may be waived, but only with the written consent of
the Company and the Holders of securities representing a majority of the
Registerable Securities; provided, however, that no such amendment or waiver
shall take away any registration right of any Holder of Registerable
Securities or reduce the amount of reimbursable costs to any Holder of
Registerable Securities in connection with any registration hereunder without
the consent of such Holder; further provided, however, that without the
consent of any other Holder of Registerable Securities, any Holder may from
time to time enter into one or more agreements amending, modifying or waiving
the provisions of this Agreement if such action does not adversely affect the
rights or interest of any other Holder of Registerable Securities. No delay on
the part of any party in the exercise of any right, power or remedy shall
operate as a waiver thereof, nor shall any single or partial exercise by any
party of any right, power or remedy preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy.
7
<PAGE>
10. Counterparts. One or more counterparts of this Agreement may be signed by
the parties, each of which shall be an original but all of which together
shall constitute one and the same instrument.
11. Governing Law. This Agreement shall be construed in accordance with and
governed by the internal laws of the State of New York, without giving effect
to conflicts of law principles.
12. Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not be affected thereby.
13. Headings. The headings in this Agreement are for convenience of reference
only and shall not be deemed to alter or affect the meaning or interpretation
of any provisions hereof.
[Remainder Intentionally Left Blank]
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the 2nd day of September, 1998.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By: /s/ Steven Schwartz
------------------------------------------
Name: Steven Schwartz
Title: Executive Director of Operations
and Finance and
Co-Chief Executive Officer
-------------------------------------
Signature of Holder
-------------------------------------
Print Name of Holder
-------------------------------------
Print Address of Holder
9
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION OF
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
---------------------------------------------------------------
(Under Section 805 of the Business Corporation Law)
----------------------------------------------------------------
The undersigned, being the President and Secretary of
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. (the "Corporation"), do hereby certify
and set forth:
FIRST: The name of the corporation is SKYLINE MULTIMEDIA
ENTERTAINMENT, INC., which is the name under which the Corporation was formed.
SECOND: The date the Certificate of Incorporation was filed
by the Department of State is November 2, 1993.
THIRD: I. The Certificate of Incorporation is hereby amended
by the addition of the following provision stating the number, designation,
relative rights, preferences and limitations of shares of Series B Redeemable
Convertible Preferred Stock, as fixed by the Board of Directors pursuant to
authority vested in it by the certificate of incorporation and as permitted by
Section 502 of the Business Corporation Law.
II. To effect the foregoing, the Certificate of
Incorporation is amended by adding the following provisions as Article Fourth,
Section e:
"e. A series of Preferred Stock is hereby created with the
designation, powers, preferences and rights set forth below (capitalized terms
used in this Article Fourth, Section e are defined in Section (10) hereof):
<PAGE>
"(A) Designation and Amount. The shares of such series shall be
designated as "Series B Redeemable Convertible Preferred Stock," par
value $0.01 per share (the "Series B Preferred Stock"), and the number
of shares constituting such series shall be 10,000.
(B) Rights, Preferences, Privileges and Restrictions of Series B
Preferred Stock. The rights, preferences, privileges and restrictions
granted to and imposed on the Series B Preferred Stock are as
follows:
(1) Dividend Provisions.
(a) The holders of shares of Series B Preferred Stock shall
be entitled to receive, out of any funds legally available
therefor, prior and in preference to the declaration or
payment of any dividend or distribution to the holders of
common stock, par value $.001 per share, of the Corporation
("Common Stock"), Series A Convertible Preferred Stock or
any other shares or securities of the Corporation ranking
junior to the Series B Preferred Stock with respect to the
payment of dividends or the distribution of assets on
liquidation ("Junior Securities"), dividends which shall
accrue cumulatively on each share of Series B Preferred
Stock at the rate and in the manner prescribed in this
subsection 1(a) from and including the date of issuance of
such shares of Series B Preferred Stock, but excluding the
date on which any conversion or redemption of such shares of
Series B Preferred Stock shall have been effected, and
payable when, as and if declared by the Board of Directors.
The date on which the Corporation initially issues a share
of Series B Preferred Stock will be deemed to be its "date
of issuance" regardless of the number of times transfer of
such shares of Series B Preferred Stock is made, or of the
number of certificates which may be issued to evidence a
share of Series B Preferred Stock.
(b) Dividends shall accrue on each share of Series B
Preferred Stock (and on any accrued and unpaid dividends
thereon) at a rate per annum compounded quarterly, of 10% of
the Original Preferred Stock Issue Price (as defined in
subsection 2(a) below) (as adjusted for stock splits, stock
dividends, combinations, recapitalizations and similar
events). Such dividends shall be cumulative and shall be
payable when, as and if declared by the Board of Directors.
In the event of any liquidation, dissolution or winding up
of the Corporation or the redemption of a share of Series B
Preferred Stock or the bankruptcy of the Corporation, all
accrued and unpaid dividends on a share of Series B
Preferred Stock shall be added to the liquidation preference
of such share on the payment date under subsection 2(a)
below, or on the date of redemption of such share or upon
the bankruptcy of the Corporation, as the case may be,
accrued cumulatively to but excluding such payment date or
redemption date or bankruptcy on a daily basis. If there
shall be any accrued but unpaid dividends immediately prior
to, and in the event of, a conversion of shares of Series B
Preferred Stock into shares of Common Stock, all such
accrued and unpaid
2
<PAGE>
dividends shall, at the Corporation's option, be converted
into one share of Series B Preferred Stock for each One
Thousand ($1,000) dollars of such dividends.
(c) No dividend or other distribution (other than a dividend
or distribution payable solely in Common Stock) shall be
paid on or set apart for payment on the Common Stock, Series
A Convertible Preferred Stock or other Junior Securities nor
shall any payment be made on account of the purchase,
redemption or retirement of any Common Stock, Series A
Convertible Preferred Stock or other Junior Securities,
unless all accrued and unpaid dividends on the Series B
Preferred Stock have been or contemporaneously are paid or
set apart for payment in accordance herewith; provided,
however, that the Corporation may repurchase Common Stock
owned by terminated employees of, or consultants to, the
Corporation or its subsidiaries. A conversion of a
convertible security which by its terms is convertible into
Common Stock by the holder thereof shall not be deemed a
purchase, redemption or retirement of the security so
converted for purposes of this subsection 1(c). No dividend
shall be declared on any series of preferred stock ranking
as to dividends on a parity with any other series of
preferred stock unless there shall have been declared on all
shares then outstanding of such series of preferred stock
like proportionate dividends ratably in proportion to the
respective dividends payable in respect of each such series
of preferred stock. In the event that the Corporation fails
to pay the full dividends accrued on all outstanding shares
of preferred stock, any partial amounts which are paid as
dividends by the Corporation with respect to the preferred
stock shall be paid to the holders of such shares of
preferred stock in proportion (as nearly as practicable) to
the amount such holders would be entitled to receive if they
were to be paid the full accrued and unpaid dividends on the
preferred stock.
(d) Any cash dividend which has been declared and is
otherwise due and payable shall be paid in cash.
(2) Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding
up of the Corporation, either voluntary or involuntary, the
holders of the Series B Preferred Stock shall be entitled to
receive, in cash, prior and in preference to any
distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock, the Series A
Convertible Preferred Stock or any other Junior Securities
by reason of their ownership thereof, the amount of $1,000
per share (the "Original Preferred Stock Issue Price") for
each share of Series B Preferred Stock then held by them,
and, in addition, an amount equal to all accrued but unpaid
dividends on such shares of Series B Preferred Stock. If,
upon occurrence of such event the assets and funds thus
distributed ratably among the holders of the Series B
Preferred Stock shall be insufficient to permit the payment
to such holders of the full preferential amount, then the
entire assets and funds of
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the Corporation legally available for distribution shall be
distributed among the holders of the Series B Preferred
Stock in proportion to the number of shares of Series B
Preferred Stock held by each such holder. After payment has
been made to the holders of the Series B Preferred Stock of
the full amounts to which they shall be entitled as
aforesaid, all remaining assets of the Corporation shall be
distributed among all holders of Series B Preferred Stock
and all holders of Common Stock in proportion to the number
of shares of Common Stock which would be held by each such
holder if all shares of Series B Preferred Stock were
converted into Common Stock at the then effective Conversion
Price (as defined in subsection 3(a) below).
(b) For purposes of this Section 2, a liquidation,
dissolution or winding up of the Corporation shall be deemed
to be occasioned by, and to include, the Corporation's sale
of all or substantially all of its assets or the acquisition
of this Corporation by another entity by means of merger or
consolidation resulting in the exchange of the outstanding
shares of this Corporation for securities or consideration
issued, or caused to be issued, by the acquiring corporation
or its subsidiary.
(3) Conversion. The holders of the Series B Preferred Stock and the
Corporation shall each have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series B Preferred Stock
shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by
dividing $1,000 (the "Original Preferred Stock Issue Price")
by the Conversion Price, determined as hereinafter provided,
in effect at the time of conversion. Each share of Series B
Preferred Stock shall be convertible at the option of the
holder thereof at any time prior to the tenth anniversary of
the effective date of this certificate of designation. The
price at which shares of Common Stock shall be deliverable
upon conversion (the "Conversion Price") shall initially be
$1.30 per share of Common Stock. Such initial Conversion
Price shall be subject to adjustment as hereinafter
provided. The number of shares of Common Stock deliverable
upon conversion of a share of Series B Preferred Stock,
adjusted as hereinafter provided, is referred to herein as
the "Series B Conversion Ratio."
(b) No Fractional Shares. No fractional shares shall be
issued upon conversion of the Series B Preferred Stock. If
more than one share of the Series B Preferred Stock is to be
converted at one time by the same stockholder, the number of
full shares issuable upon such conversion shall be computed
on the basis of the aggregate amount of the shares to be
converted. Instead of any fractional shares of Common Stock
which would otherwise be issuable upon conversion of any
shares of Series B Preferred Stock, the Corporation will pay
a
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cash adjustment in respect of such fractional interest in an
amount equal to the same fraction of the Market Price (as
defined in Section (10) below) per share of Common Stock at
the close of business on the day of conversion which such
fractional share of Series B Preferred Stock would be
convertible into on such date.
(c) Mechanics of Conversion. Before any holder of Series B
Preferred Stock shall be entitled to convert the same into
full shares of Common Stock, he shall surrender the
certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the
Series B Preferred Stock, as designated by the Corporation,
and shall give written notice to the Corporation at such
office that he elects to convert the same. The Corporation
shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series B Preferred Stock, a
certificate or certificates for the number of shares of
Common Stock to which he shall be entitled as aforesaid and
a check payable to the holder in the amount of any cash
amounts payable as the result of a conversion into a
fractional share of Common Stock. Such conversion shall be
deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of
Series B Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of
Common Stock on such date.
(d) Adjustments to Conversion Price for Diluting Issues.
(i) Stock Dividends. At any time after the
effectiveness of these resolutions, if the number
of shares of Common Stock outstanding is increased
by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up of shares of
Common Stock, then immediately effective at the
close of business upon the record date fixed for
the determination of holders of Common Stock
entitled to receive such stock dividend,
subdivision or split-up, the Conversion Price shall
be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of
each share of Series B Preferred Stock shall be
increased in proportion to such increase of
outstanding shares of Common Stock.
(ii) Adjustments for Subdivisions,
Combinations, or Consolidations of Common Stock. At
any time after the effectiveness of these
resolutions, in the event the outstanding shares of
Common Stock shall be subdivided or combined, by
reclassification or otherwise, into a greater or
lesser number of shares of Common Stock, the
Conversion Price in effect immediately prior to
such subdivision or combination shall,
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concurrently with the effectiveness of such
subdivision, combination or consolidation, be
proportionately adjusted.
(iii) Adjustments for Other Distributions.
At any time after the effectiveness of these
resolutions, in the event the Corporation at any
time or from time to time makes, or fixes a record
date for the determination of holders of Common
Stock entitled to receive, any distribution payable
in securities of the Corporation other than shares
of Common Stock, then and in each such event
provision shall be made so that the holders of the
Series B Preferred Stock shall receive upon
conversion thereof, in addition to the number of
shares of Common Stock receivable thereupon, the
amount of securities of the Corporation which they
would have received had their Series B Preferred
Stock been converted into Common Stock on the date
of such event to and including the date of
conversion, and retained such securities receivable
by them as aforesaid during such period, subject to
all other adjustments called for during such period
under these resolutions with respect to the rights
of the holders of the Series B Preferred Stock.
(iv) Adjustments for Reorganizations,
Reclassifications, etc. At any time after the
effectiveness of these resolutions, if the Common
Stock issuable upon conversion of the Series B
Preferred Stock shall be changed into the same or a
different number of shares of any other class or
classes of stock or other securities or property,
whether by reclassification, a merger or
consolidation of this Corporation with or into any
other corporation or corporations in which the
holders of the capital stock of this Corporation
then hold 50% or more of the voting securities of
the surviving corporation (other than pursuant to a
subdivision, combination, stock dividend, or other
distribution provided for in 3(d)(i), (ii) or (iii)
above), the Conversion Price then in effect shall,
concurrently with the effectiveness of such
reorganization or reclassification, be
proportionately adjusted such that the Series B
Preferred Stock shall be convertible into, in lieu
of the number of shares of Common Stock which the
holders would otherwise have been entitled to
receive, a number of shares of such other class or
classes of stock or securities or other property
equivalent to the number of shares of Common Stock
that would have been subject to receipt by the
holders upon conversion of the Series B Preferred
Stock immediately before such event; and, in any
such case, appropriate adjustment shall be made in
the application of the provisions herein set forth
with respect to the rights and interest thereafter
of the holders of the Series B Preferred Stock, to
the end that the provisions set forth herein
(including provisions with respect to changes in
and other adjustments of the Conversion Price)
shall thereafter be applicable, as nearly as may be
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reasonable, in relation to any shares of stock or
other property thereafter deliverable upon the
conversion of the Series B Preferred Stock.
(e) No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any
reorganization, transfer of assets, merger, dissolution,
issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in
the carrying out of all the provisions of this Section 3 and
in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the
holders of the Series B Preferred Stock against impairment.
(f) Certain Events. If, at any time or from time to time
after the date of effectiveness of these resolutions, any
event occurs of the type contemplated by the provisions of
subsection 3(d) but not expressly provided for by such
provisions (including, without limitation, the granting of
stock appreciation rights, phantom stock rights, or other
rights having equity or similar features), then the
Corporation's Board of Directors shall make an appropriate
adjustment in the Series B Conversion Ratio so as to protect
the rights of the holders of Series B Preferred Stock;
provided, however, that no such adjustment shall decrease
the Series B Preferred Conversion Ratio obtainable as
otherwise determined pursuant to subsection 3(d).
(g) Record Date. If the Corporation takes a record of the
holders of Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in
Common Stock, Options or securities convertible into or
exchangeable for Common Stock ("Convertible Securities") or
(ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(h) Shares to be Reserved. The Corporation shall at all
times reserve and keep available, out of its authorized and
unissued stock, solely for the purpose of effecting the
conversion of the Series B Preferred Stock, such number of
shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all of the Series B
Preferred Stock from time to time outstanding. The
Corporation shall from time to time, in accordance with the
laws of the State of New York, increase the authorized
number of shares of Common Stock if at any time the number
of shares of Common Stock not then outstanding shall be
insufficient to permit the conversion in full of the Series
B Preferred Stock.
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(i) Taxes and Charges. The Corporation will pay any and all
issue or other Taxes (as defined in Section (10) below) that
may be payable in respect of any issuance or delivery of
shares of Common Stock on conversion of the Series B
Preferred Stock. The Corporation shall not, however, be
required to pay any Tax which may be payable in respect of
any transfer involved in the issuance or delivery of Common
Stock in a name other than that of the holder of the Series
B Preferred Stock, and no such issuance or delivery shall be
made unless and until the Person requesting such issuance
has paid to the Corporation the amount of such Tax or has
established, to the satisfaction of the Corporation, that
such Tax has been paid.
(j) Actions to Maintain Conversion Price Above Par Price.
Before taking any action which would cause an adjustment in
the Series B Conversion Ratio such that, upon conversion of
the Series B Preferred Stock, shares of Common Stock would
be deemed to be issued below the then par value of the
Common Stock, the Corporation will take any corporate action
which may, in the opinion of its counsel, be reasonably
necessary in order that the Corporation may validly and
legally issue fully paid and non-assessable shares of Common
Stock at the Series B Conversion Ratio as so adjusted.
(k) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price
pursuant to this Section 3, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder
of Series B Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of
any holder of Series B Preferred Stock, furnish or cause to
be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Conversion
Price at the time in effect, and (iii) the number of shares
of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of
Series B Preferred Stock.
(l) Notices of Record Date. In the event that this
Corporation shall propose at any time:
(i) to declare any dividend or
distribution upon its Common Stock, whether in
cash, property, stock or other securities, whether
or not a regular cash dividend and whether or not
out of earnings or earned surplus;
(ii) to effect any reclassification or
recapitalization of its Common Stock outstanding
involving a change in the Common Stock; or
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(iii) to merge with or into any other
corporation, or sell, lease or convey all or
substantially all its property or business, or to
liquidate, dissolve or wind up;
then, in connection with each such event, this Corporation
shall send to the holders of the Series B Preferred Stock
shares:
(A) at least 20 days' prior written notice
of the date on which a record shall be taken for
such dividend, distribution or subscription rights
(and specifying the date on which the holders of
Common Stock shall be entitled thereto) or for
determining rights to vote in respect of the
matters referred to in (iii) above; and
(B) in the case of the matters referred to
in (d) above, at least 20 days' prior written
notice of the date when the same shall take place
(and specifying the date on which the holders of
Common Stock shall be entitled to exchange their
Common Stock for securities or other property
deliverable upon the occurrence of such event).
Each such written notice shall be given by first class mail,
postage prepaid, addressed to the holders of Series B
Preferred Stock at the address for each such holder as shown
on the books of this Corporation.
(m) Notices. Any notice required by the provisions of this
Section 3 shall be in writing and shall be deemed given upon
delivery, if delivered personally against written receipt,
or by a recognized commercial courier with receipt
acknowledged, or upon the expiration of 72 hours after the
same has been deposited in the United States mail, by
certified or registered mail, return receipt requested,
postage prepaid, and addressed to each holder of record at
its address appearing on the books of the Corporation.
(o) Accrued Dividends. Upon conversion of any shares of
Series B Preferred Stock, the holder thereof shall be
entitled to receive any declared, accrued and unpaid
dividends in respect of the shares of Series B Preferred
Stock so converted to the date of such conversion.
(p) Closing of Books. The Corporation will at no time close
its transfer books against the transfer of any shares of
Series B Preferred Stock or of any shares of Common Stock
issued or issuable upon the conversion of any shares of
Series B Preferred Stock in any manner which interferes with
the timely conversion of such shares of Series B Preferred
Stock.
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(q) Status of Converted Stock. In the event any shares of
Series B Preferred Stock shall be converted pursuant to
Section 3 hereof, the shares so converted shall be canceled
and shall not be issuable by the Corporation, and the
Certificate of Incorporation of the Corporation shall then
be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
(4) Redemption. Each share of Series B Preferred Stock shall be
redeemable at the option of the Corporation at any time upon
payment of liquidation preference and accrued but unpaid
dividends (the "Redemption Price").
(a) Notice of redemption shall be given by first class mail,
postage prepaid, mailed not less than thirty (30) nor more
than sixty (60) days prior to the date fixed for redemption
(the "Redemption Date"), to each holder of Series B
Preferred Stock. All notices of redemption shall state: (i)
the Redemption Date; (ii) that on the Redemption Date the
Redemption Price will become due and payable upon each share
of Series B Preferred Stock; (iii) the place where such
shares of Series B Preferred Stock are to be surrendered for
redemption and payment of the Redemption Price; (iv) the
Redemption Price; (v) the place or places where such shares
of Series B Preferred Stock may be surrendered for
conversion to Common Stock; and (vi) the time at which the
right to convert the shares of Series B Preferred Stock to
Common Stock will terminate.
(b) Notice of redemption of shares of Series B Preferred
Stock at the election of the Corporation shall be given by
the Corporation or, at the Corporation's request, by the
Corporation's transfer agent (the "Transfer Agent") in the
name and at the expense of the Corporation.
(c) Prior to any Redemption Date, the Corporation shall
deposit with the Transfer Agent an amount of money
sufficient to pay the Redemption Price of all the shares of
Series B Preferred Stock which are to be redeemed on that
date. Prior to the Redemption Date, any shares of Series B
Preferred Stock may be converted to Common Stock pursuant to
Section 3 herein. Any money deposited with the Transfer
Agent for the redemption of shares of Series B Preferred
Stock which are converted to Common Stock prior to the
Redemption Date shall be paid to the Corporation.
(d) Notice of redemption having been given as aforesaid, the
shares of Series B Preferred Stock to be redeemed shall, on
the Redemption Date, become redeemable at the Redemption
Price therein specified, and on such date (unless the
Corporation shall default in the payment of the Redemption
Price) such shares of Series B Preferred Stock (and any
accompanying conversion rights) shall terminate, and
thereafter represent only the right to receive the
Redemption Price. Upon surrender of such shares of Series B
Preferred Stock for redemption in
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accordance with said notice, such shares of Series B
Preferred Stock shall be redeemed by the Corporation for the
Redemption Price.
(5) Voting.
(a) General. The holders of Series B Preferred Stock shall
be entitled to vote, on an as-converted basis, voting
together with the holders of Common Stock as a single class,
upon any matter submitted to the stockholders for a vote.
(b) Election of Directors. KeySpan Energy Corporation
("KeySpan"), acting as a separate class, shall be entitled
to elect or designate two (2) directors of the Corporation;
provided, however, that such right to elect or designate
such directors shall terminate in the event that at any time
KeySpan shall hold less than 10% of the outstanding Series B
Preferred Stock of the Corporation.
(6) Protective Provisions. In addition to any other rights
provided by law, so long as any Series B Preferred Stock shall be
outstanding, this Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of more than 50
percent of such outstanding shares of Series B Preferred Stock:
(a) amend or repeal any provision of, or add any provision
to, this Corporation's Certificate of Incorporation or
Bylaws if such action would alter or change the preferences,
rights, privileges or powers of, or the restrictions
provided for the benefit of, the Series B Preferred Stock;
(b) authorize or issue shares of any class of stock having
any preference or priority as to dividends or assets
superior to or on a parity with any such preference or
priority of the Series B Preferred Stock, or authorize or
issue shares of stock of any class or any bonds, debentures,
notes or other obligations convertible into or exchangeable
for, or having option rights to purchase, any shares of
stock of this Corporation having any preference or priority
as to dividends or assets superior to or on a parity with
any such preference or priority of the Series B Preferred
Stock; or
(c) reclassify any Common Stock into shares having any
preference or priority as to dividends or assets superior to
or on a parity with any such preference or priority of the
Series B Preferred Stock.
(7) Status of Converted Stock. In the event any shares of Series B
Preferred Stock shall be converted pursuant to Section 3 hereof, the
shares so converted shall be canceled and shall not be issuable by
the Corporation.
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(8) Residual Rights. All rights accruing to the outstanding shares of
this Corporation not expressly provided for to the contrary herein
shall be vested in the Common Stock.
(9) Consent for Certain Repurchases of Common Stock Deemed to be
Distributions. Each holder of Series B Preferred Stock shall be
deemed to have consented to distributions made by the Corporation in
connection with the repurchase of shares of Common Stock issued to or
held by employees or consultants upon termination of their employment
or services pursuant to agreements providing for such right of
repurchase between the Corporation and such persons.
(10) Definitions. For purposes of this Section f of Article Fourth,
the following terms shall have the respective meanings set forth
below:
"Affiliate" means, with respect to any Person, any
other Person directly or indirectly controlling (including,
but not limited to, all directors and officers of such
Person), controlled by, or under direct or indirect common
control with such Person. For purposes of this definition,
"controlling" (including with its correlative meanings, the
terms "controlled by" and "under common control with") as
used with respect to any Person shall mean the possession,
directly or indirectly, of the power (i) to vote or direct
the vote of 10% or more of the securities having ordinary
voting power for the election of directors of such
corporation or (ii) to direct or cause the direction of the
management and policies of such corporation, whether through
the ownership of securities, by contract or otherwise.
"Independent Investment Bank" means any investment
bank or valuation firm chosen by the Corporation and
consented to by the holders of a majority of shares of
Series B Preferred Stock then outstanding, which consent
shall not be unreasonably withheld, in each case, the costs
and fees of which shall be borne by the Corporation and
opinion of which shall be addressed to the holders of the
Series B Preferred Stock.
"Market Price" means, as to any security, the
average of the closing prices of such security's sales on
all domestic securities exchanges on which such security may
at the time be listed, or, 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, if on any day such security is not so listed,
the average of the representative bid and asked prices
quoted on the Nasdaq National Market as of 4:00 P.M., New
York time, on such day, or, if on any day such security is
not quoted on the Nasdaq National Market, the average of the
highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor
organization, in each such case averaged over a period of 21
days
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consisting of the day as of which "Market Price" is being
determined and the 20 consecutive Business Days prior to
such day; provided, however, that if such security is listed
on any domestic securities exchange, the term "Business
Days" as used in this sentence means business days on which
such exchange is open for trading. If at any time such
security is not listed on any domestic securities exchange
or quoted on the Nasdaq National Market or the domestic
over-the-counter market, the "Market Price" shall be the
fair value thereof as determined in good faith by the Board
of Directors of the Corporation (determined without giving
effect to any discount for minority interest, any
restrictions on transferability or any lack of liquidity of
the Common Stock or to the fact that the Corporation has no
class of equity registered under the Securities Exchange Act
of 1934), such fair value to be determined by reference to
the cash price that would be paid between a fully informed
buyer and seller under no compulsion to buy or sell;
provided, further, that (i) in the event that holders of
Series B Preferred Stock representing a majority of the
Series B Preferred Stock then outstanding disagree with the
Board of Directors' determination of the fair value or (ii)
if such fair value is being determined in connection with an
issuance of securities solely to one or more Affiliates of
the Corporation, then in each such case if so required by
such holders of Series B Preferred Stock, such fair value
shall be determined by an Independent Investment Bank and
the determination of such Independent Investment Bank shall
be final and binding on the Corporation and the holders of
the Series A Preferred Stock.
"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, sales, use,
property, alternative or add-on minimum, environmental or
other taxes, assessments, duties, fees, levies or other
governmental charges of any nature whatever, whether
disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect
thereto."
FOURTH: The amendment to the certificate of incorporation set
forth in Article THIRD of this Certificate of Amendment was authorized by the
Board of Directors by unanimous written consent dated September 2, 1998.
[Remainder of Page Intentionally Blank]
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IN WITNESS WHEREOF, the undersigned do hereby execute this
Certificate of Amendment and do hereby affirm the truth of the statements
contained herein under penalties of perjury this 2nd day of September, 1998.
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