As filed with the Securities and Exchange Commission on November 29, 1996
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
(PURSUANT TO SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
(Name of Subject Company)
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
(Name of Person(s) Filing Statement)
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9% Convertible Debentures Due November 1, 1999
9.1% Convertible Debentures Due January 1, 2002
Common Stock, No Par Value
(Title of Class of Securities)
624 547 105
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(CUSIP Number of Class of Common Stock)
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Betty M. Henderson
Vice President and Secretary
Mountasia Entertainment International, Inc.
5895 Windward Parkway, Suite 220
Alpharetta, Georgia 30202-4182
(770) 442-6640
(Name, Address and Telephone Number of Persons Authorized to Receive Notice
and Communications on Behalf of Person(s) Filing Statement)
Copy to:
Edward J. Hardin, Esq.
Rogers & Hardin
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
(404) 522-4700
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this
"Statement") relates to a tender offer by MEI Holdings, L.P., a Delaware limited
partnership (the "Purchaser"), to purchase (i) any and all of the outstanding
shares of common stock, no par value (the "Shares"), of Mountasia Entertainment
International, Inc., a Georgia corporation (the "Company"), not now beneficially
owned by the Purchaser at $3.50 per Share, net to the seller in cash, (ii) any
and all of the outstanding 9% Subordinated Convertible Debentures Due November
1, 1999 (the "9% Debentures") of the Company at par plus accrued and unpaid
interest to the date of acceptance for payment, net to the seller in cash, and
(iii) all outstanding 9.1% Subordinated Convertible Debentures Due January 1,
2002 (the "9.1% Debentures" and together with the 9% Debentures, collectively,
the "Debentures") of the Company at par plus accrued and unpaid interest to date
of acceptance for payment, net to the seller in cash, on the terms and subject
to the conditions set forth in the Purchaser's Offer To Purchase, dated November
14, 1996 (the "Offer To Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer").
ITEM 1. SECURITY AND SUBJECT COMPANY
(a) The name of the subject company is Mountasia Entertainment
International, Inc., and the address of its principal executive offices is 5895
Windward Parkway, Suite 220, Alpharetta, Georgia 30202.
(b) The classes of the securities to which this Statement relates are the
Shares and the Debentures. The 9% Debentures were issued under an Indenture,
dated as of November 15, 1994, between the Company and Continental Stock
Transfer & Trust Company, as Trustee. The 9% Debentures are unsecured
obligations which are subordinate to all senior indebtedness (as defined in the
9% Indenture) of the Company (estimated at $9.8 million as of September 30,
1996). The 9% Debentures mature on November 1, 1999 and bear interest at a rate
of 9% per annum, payable semiannually on May 1 and November 1 of each year. The
9% Debentures are payable in Shares at the lesser of $4.50 and 95% of the
average of the last reported sales prices for Shares for the three trading days
prior to the Company's receipt of notice of conversion (the "9% Conversion
Price") or, if the Purchaser consents thereto under the Investment Agreement (as
described below), in cash. The Company may redeem the 9% Debentures, on not less
than 30 days prior notice, in whole or in part, at a redemption price of 108%
from November 14, 1996 to November 14, 1997, 105% from November 14, 1997 to
November 14, 1998 and 103% thereafter. The 9% Debentures are convertible, in
whole or in part, into Shares at the option of the holder thereof at any time
after February 1, 1997 (except for the $925,000 aggregate principal amount of
such debentures which are now convertible) at the 9% Conversion Price (subject
to customary antidilution adjustments).
The 9.1% Debentures are unsecured obligations which are subordinate to all
senior indebtedness (as defined in the 9.1% Debentures) of the Company
(estimated at $9.8 million as of September 30, 1996). The 9.1% Debentures mature
on January 1, 2002 and bear interest at a rate of 9.1% per annum, payable
quarterly in arrears on January 8, April 8, July 8 and October 8 of each year.
The 9.1% Debentures are payable in Shares at the lesser of $5.00 per Share and
the average of the last reported sales prices for Shares for the 30 days prior
to the date of conversion (the "9.1% Conversion Price") or, if the Purchaser
consents thereto under the Investment Agreement, in cash. The 9.1% Debentures
are not subject to redemption or prepayment without the consent of the holders
thereof. The 9.1% Notes are convertible, in whole or in part, into Shares at the
option of the holder
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thereof, at any time after April 4, 1997 at the 9.1% Conversion Price (subject
to customary antidilution adjustments).
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to a tender offer by the Purchaser to purchase (i)
the Shares not now beneficially owned by the Purchaser at $3.50 per Share, net
to the seller in cash, (ii) any and all of the outstanding 9% Debentures at par
plus accrued and unpaid interest to the date of acceptance for payment, net to
the seller in cash, and (iii) all outstanding 9.1% Debentures at par plus
accrued and unpaid interest to date of acceptance for payment, net to the seller
in cash, on the terms and subject to the conditions set forth in the Purchaser's
Offer To Purchase and the related Letter of Transmittal all as disclosed on the
Purchaser's Tender Offer Statement on Schedule 14D-1 (the "Purchaser Schedule
14D-1"). The Purchaser Schedule 14D-1 states that the principal executive
offices of the Purchaser are located at 4200 Texas Commerce Tower West, 2200
Ross Avenue, Dallas, Texas 75201.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above.
(b) Reference is hereby made to the information contained under the
captions "Security Ownership of Certain Beneficial Owners and Management" and
"Executive Compensation" in the Company's proxy statement dated April 8, 1996
relating to the Company's Annual Meeting of Shareholders held on May 9, 1996.
The relevant pages of such proxy statement are attached hereto as Exhibit (c)(7)
and are incorporated herein by this reference. The information contained in such
proxy statement is qualified in its entirety by reference to the other
information contained in this Item 3. Except as described herein or incorporated
herein by reference, there are no contracts, agreements, arrangements or
understandings or any actual or potential conflicts of interest between the
Company or the Purchaser or any of its affiliates.
ACTION BY THE COMPANY
On November 5, 1996, at a special meeting of the Company's Board of
Directors (the "Company Board"), the non-interested directors, consisting of
Steven A. Cunningham, Bert W. Wasserman, Ervin E. Lewis, Sr., William M. Kearns,
Jr. and Robert E. Provost, Sr., authorized the Purchaser's proposal with respect
to the Redemption Agreement (described below) and the Offer, but the Company
Board declined to make any recommendation with respect to the Offer until it had
an opportunity to review the Purchaser's Offer to Purchase. In addition, at this
meeting, the Company Board appointed a special committee (the "Special
Committee") consisting of the five (5) non-interested directors, Messrs.
Cunningham, Wasserman, Lewis, Kearns and Provost (the "Independent Directors").
None of the members of the Special Committee is affiliated with the Company or
any of its affiliates, including the Purchaser, other than in his capacity as a
director or shareholder of the Company.
The Company Board authorized and directed the Special Committee to review
the Purchaser's Offer and to make a recommendation to the Company Board as to
how the Company should fulfill its obligations with respect to the tender offer,
including, without limitation, its obligation to prepare
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and file with the Securities and Exchange Commission and mail to its
shareholders a Statement on Schedule 14D-9 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), disclosing the Company's position with
respect to the Offer. In addition, the Special Committee was authorized to take
all actions necessary or appropriate in connection with the obligations of the
Company Board arising out of the tender offer and to retain such legal and
financial advisors as it deems appropriate to assist it in carrying out its
activities.
At the November 5, 1996 meeting, the members of the Company Board also
agreed not to tender any of their Shares pursuant to the Offer. Finally, at this
meeting, the Company was advised that the Offer would be commenced on November
14, 1996 and the Company issued a press release indicating such on November 7,
1996.
ACTUAL OR POTENTIAL CONFLICTS
Interest of Certain Persons in the Offer
Holders of the subject securities should be aware that the Purchaser and
the executive officers and directors of the Company have interests that present
them with actual or potential conflicts in connection with the Offer.
The Purchaser (i) beneficially owns 11,727,970 Shares, or 41.8% of the
total outstanding Shares, (ii) is entitled, upon the occurrence of certain
future events outside the Purchaser's control, to purchase from the Company, or
to receive from the Company without the payment of additional consideration,
additional Shares or other securities (see "The Recapitalization Agreements
- --General;" "-- Warrant;" "-- The Company Call Option and Purchaser Option;" "--
Post-Closing Adjustment Provisions;" "-- Series F Stock;" "-- Series G Stock"),
(iii) has agreed to purchase certain additional securities which would be
convertible into 2,032,565 additional Shares if Shareholder Approval (as defined
below) of such conversion is obtained, and (iv) has certain other rights in
respect of its investments in the Company and the purchase of securities from
the Company. See "Background of the Offer -- The Recapitalization;" "-- The
Redemption Agreement;" "Background of the Offer -- The Recapitalization" and "--
Certain Events Following the Recapitalization" and "The Recapitalization
Agreements." To the Company's knowledge, none of the directors or executive
officers of the Purchaser or its affiliates beneficially owns any Shares except
insofar as any of the foregoing persons may be deemed to own beneficially Shares
owned by the Purchaser or its affiliates. The Company understands that neither
the Purchaser nor any of its affiliates will tender any Shares pursuant to the
Offer. In addition, the Company has been informed that none of the current
members of the Company Board intends to tender any Shares beneficially owned by
such director pursuant to the Offer and that no such person beneficially owns
any Debentures.
The Purchaser has agreed to vote all Shares acquired pursuant to the Offer
(so long as they are held by the Purchaser or its affiliates and to the extent
that the Shares beneficially owned by the Purchaser and its affiliates exceed
49.9% of all outstanding Shares at the time in question (the "49.9% Level")) in
the same proportion as Shares are voted by other Shareholders unless and until
such time as (i) Shareholders have approved ("Shareholder Approval") the
issuance of Shares to the Purchaser, directly or upon conversion of non-voting
preferred stock of the Company issued pursuant to the Recapitalization
Agreements, in excess of the 49.9% Level (see "-- The Redemption Agreement" and
"The Recapitalization Agreements -- Series F Stock") or (ii) if earlier, the
time at
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which the Standstill Agreement entered into in connection with the
Recapitalization is no longer in effect. See "The Redemption Agreement" and "The
Recapitalization Agreements -- Standstill Agreement."
The Company announced a realignment of its senior management on November 7,
1996. In connection therewith, Robert A. Whitman, the Chairman of the Board of
the Company and Co-Chief Executive Officer of The Hampstead Group, L.L.C., an
affiliate of the Purchaser ("Hampstead"), is currently serving as interim Chief
Executive Officer (without compensation) of the Company until a new Chief
Executive Officer is appointed and Richard M. FitzPatrick, the Chief Financial
Officer of Hampstead, is currently serving as the interim Chief Financial
Officer of the Company.
Redemption Agreement
Under the Recapitalization Agreements, the Purchaser has the right to
acquire any Debentures presented for conversion at the redemption price therefor
and thereafter to convert such Debentures at the conversion prices applicable
thereto. The Company and the Purchaser have entered into a Redemption Agreement
("Redemption Agreement") pursuant to which the Purchaser agreed to fund the
redemption of the Company's 10% Convertible Subordinated Debentures Due January
1, 1998 (the "10% Debentures") in order for the Company to comply with AMEX
requirements. The Purchaser also agreed to commence the Offer and to convert any
Debentures purchased pursuant to the Offer at a conversion rate of $3.50. Unless
and until Shareholder Approval for conversion of Series F Preferred Stock
("Series F Stock") of the Company into Shares has been obtained, Debentures so
purchased will be convertible by the Purchaser into Series F Stock at a
conversion rate of $35.00 per share of Series F Stock (each share of Series F
Stock being substantially the equivalent of ten Shares except that Series F
Stock is nonvoting (see "The Recapitalization Agreements--Series F Stock")).
Accordingly, the Debentures purchased pursuant to the Offer will be converted
into 28.571 shares of Series F Stock for every $1,000 of Debenture principal and
accrued interest purchased in the Offer for a total of 476,306 shares of Series
F Stock if all of the Debentures were so purchased (which total number of shares
of Series F Stock will be convertible into 4,763,064 Shares if such Shareholder
Approval is obtained).
Under the Warrant entered into in connection with Recapitalization, the
conversion of such Debentures will entitle the Purchaser to the issuance of an
additional 23.808 shares of Series F Stock for every $1,000 of Debenture
principal and accrued interest purchased in the Offer for a total of 396,906
shares of Series F Stock if all of the outstanding Debentures were so purchased
(which shares of Series F Stock would be convertible into 3,969,061 Shares if
Shareholder Approval is obtained as described above).
The terms of the Series F Stock make each share of Series F Stock
substantially equivalent to ten Shares (except that the Series F Stock (i) does
not have voting rights other than in certain limited circumstances and (ii) is
convertible in certain circumstances into ten Shares). On any liquidation,
voluntary or otherwise, dissolution or winding up of the Company, the holders of
Series F Stock will receive an amount equal to accrued and unpaid dividends and
distributions thereon to the date of such payment and an aggregate amount per
share equal to ten times the aggregate amount to be distributed per share to
holders of Shares.
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The Redemption Agreement also provides that, in consideration of the
Purchaser's providing the Company the capital to fund the redemption by the
Company of its 10% Debentures, the Company will issue to the Purchaser 203,257
shares of Series G Preferred Stock of the Company ("Series G Stock") which will
be convertible into 2,032,565 Shares if Shareholder Approval therefor is
obtained. The Company anticipates that it is likely that such Shareholder
Approval will be obtained inasmuch as the Purchaser owns outright 11,727,970
Shares, which it intends to vote in favor of such Shareholder Approval, and
other Shareholders have agreed to vote 1,715,812 shares in favor of such
Shareholder Approval. Those Shares, taken together, constitute 47.9% of the
Company's presently outstanding Shares. The consummation of the redemption of
the 10% Debentures by the Company and the issuance of the Series G Stock to
Purchaser is expected to occur prior to the expiration date of the Offer (the
"Expiration Date"). The Purchaser has agreed not to sell the 203,257 shares of
Series G Stock or Shares received upon conversion of such Series G Stock prior
to May 31, 1997 other than in a private transaction exempt from the registration
requirements of the Securities Act of 1933, as amended ("Securities Act").
The Series G Stock will (i) be non-voting, (ii) have a liquidation
preference equal to the amount received by the Company for its issuance, (iii)
have a dividend rate of 7% per annum with unpaid dividends to accrue but be
payable only at such time as dividends are declared and paid on the Company's
Shares, and (iv) not be convertible into Shares unless and until Shareholder
Approval is obtained as described in the immediately preceding paragraph.
Dividends accrued but not declared would be lost upon conversion of the Series G
Stock into Shares. Accordingly, the Purchaser does not presently expect that any
dividends will actually be paid on the Series G Stock. If Purchaser's all-in
effective net price per Share (after giving effect to Purchaser's anti-dilution
protections, including valuation adjustments, for the Shares purchased by
Purchaser in its initial $40 million investment described in "The
Recapitalization Agreements -- Warrant" and "-- Post-Closing Adjustment
Provisions" ("Purchaser's Base Price Per Share")) at the time of the conversion
of the Series G Stock is not determinable or is later determined to be different
than it was at the time of such conversion and, in either case, is higher than
$2.26, then the Purchaser will return to the Company such number of Shares as is
necessary so that the number of Shares into which the Series G Stock is
converted is equal to the number of Shares into which the 10% Debentures would
have been convertible if their conversion price had been equal to the
Purchaser's Base Price Per Share. See "Background of the Offer -- Redemption of
10% Debentures."
If Shareholder Approval therefor is obtained, the holders of Series G Stock
will have the right to convert each share of Series G Stock into ten shares.
Regardless of whether Shareholder Approval has been obtained, holders of Series
F Stock and Series G Stock will have the right at any time to convert each share
of Series F Stock or Series G Stock into ten Shares under any of the following
circumstances: (i) as long as the shares of Series F Stock or Series G Stock to
be converted are beneficially owned by a person, entity or "group" within the
meaning of Section 13(d) of the Exchange (collectively, a "Person"), other than
and which does not include the Purchaser or any "affiliate" (within the meaning
of Rule 12b-12 under the Exchange Act) of the Purchaser (collectively, the
"Purchaser Group"), unless, as of the time of transfer of Series F Stock or
Series G Stock by any member of the Purchaser Group to any Person who or which
is not a member of the Purchaser Group, both (a) the restrictions set forth in
the Standstill Agreement described in "The Recapitalization Agreement --
Standstill Agreement" continue to apply to limit ownership by the Purchaser to
less than a majority of the total voting power (based upon the aggregate number
of votes which may be cast in the election of directors) and (b) such Person,
after giving effect to such transfer, would be the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of a
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majority of the shares of capital stock of the Company entitled to vote
generally in the election of members of the Company Board (any such shareholder,
a "Controlling Shareholder"), (ii) by any member of the Purchaser Group, so long
as after giving effect to such conversion, the Purchaser Group, taken as a whole
would not be a Controlling Shareholder, or (iii) with the approval of a majority
of the members of the Company Board who are not designated for election to the
Company Board by, or employed by any member of the Purchaser Group or employed
by the Company or any subsidiary of the Company.
The Redemption Agreement contains the Purchaser's agreement to vote all
Shares acquired pursuant to the Offer (so long as they are held by the Purchaser
and its affiliates and to the extent that the Shares beneficially owned by the
Purchaser and its affiliates exceed the 49.9% Level) in the same proportion as
Shares are voted by other Shareholders until such time as Shareholder Approval
of the issuance of Shares to the Purchaser, directly or upon conversion of
non-voting preferred stock of the Company issued pursuant to the
Recapitalization Agreements, in excess of the 49.9% Level has been obtained or,
if earlier, the Standstill Agreement is no longer in effect. See "The
Recapitalization Agreements -- Standstill Agreement."
The Redemption Agreement also provides that the Company will pay or
reimburse the Purchaser for all reasonable documented fees, costs and expenses
incurred by the Purchaser in connection with the Offer, which fees, costs and
expenses are currently estimated to be approximately $212,000 and are described
in greater detail in the Purchaser's Offer to Purchase.
BACKGROUND OF THE OFFER
The Company's Financial Position Prior to the Recapitalization
In 1995, the Company defaulted under certain covenants under the 9%
Debentures. In an effort to cure those defaults and to raise funds necessary to
pay indebtedness created in connection with the Company's 1994 acquisition of
Malibu Grand Prix Corporation ("Malibu") and to fund its operations, the Company
issued substantial additional convertible debt and convertible preferred stock
in 1995. All such securities were convertible into Shares at various prices and
at various times commencing in 1996. However, the Company did not have the
capital resources from internally generated funds to redeem these securities and
did not have the right to compel the conversion of these securities into Shares.
As a result of these and other factors, including continuing declines in the
Company's results of operations, the Company's financial position continued to
deteriorate and the market prices for Shares began to erode significantly.
Accordingly, beginning in January 1996, the Company Board began considering
possible alternatives to recapitalize the Company.
Among the alternatives considered by the Company Board were the possible
spin-off of the Company's management operations and various types of equity and
debt financings. In March 1996, the Company commenced an exchange offer pursuant
to which the Company offered to exchange one share of a newly issued Series E
Preferred Stock for each Share (the "Exchange Offer"). As part of the Exchange
Offer, the Company also sought to obtain required consents to the amendment of
the 9% Debentures and the outstanding 10% Debentures to convert those debentures
into Shares and permit those debentures to be tendered for Series E Preferred
Stock pursuant to the Exchange Offer.
Prior to the expiration of the Exchange Offer, representatives of the
Purchaser contacted representatives of the Company regarding a possible
investment by the Purchaser in the Company.
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Following extensive negotiations among representatives of the parties, on June
6, 1996, the Company terminated the Exchange Offer and the Company and the
Purchaser entered into an Investment Agreement (the "Investment Agreement") and
related documents, including the Warrant and the Standstill Agreement (together
with the Investment Agreement, collectively, the "Recapitalization Agreements").
The transaction contemplated by the Recapitalization Agreements (the
"Recapitalization") was consummated on August 28, 1996 (the "Closing Date").
The Recapitalization
In connection with the Recapitalization, (i) the Purchaser acquired
11,727,970 Shares for $40.0 million and (ii) the Company arranged a $20.0
million revolving credit facility from an institutional lender (the "Credit
Facility"). In addition, the Company and the Purchaser entered into the Warrant
and the Standstill Agreement (described in "The Recapitalization Agreements
- --Warrant" and "-- Standstill Agreement") and six persons designated by the
Purchaser were elected to the Company Board (which now has 14 members), one of
whom was elected Chairman of the Board, in accordance with the Investment
Agreement. As a part of the Recapitalization, the Company obtained the Company
Call Option pursuant to which the Company has the right to compel the Purchaser
to invest up to an additional $22.7 million (less any amount invested under the
Purchaser Option) in the Company, the Purchaser obtained the Purchaser Option
pursuant to which the Purchaser has the right to invest up to an additional
$22.7 million (less any amount invested under the Company Call Option) in the
Company, the Purchaser agreed to provide up to an additional $30.0 million to
backstop future rights offerings and the terms of the Debentures and the 10%
Debentures were amended to permit them to be payable in Shares rather than in
cash. See "The Recapitalization Agreements."
Certain Events Following the Recapitalization
Redemption of 10% Debentures. As publicly announced by the Company on
November 7, 1996, the Purchaser has provided the capital required for the
Company to redeem the $4.6 million aggregate principal amount of the Company's
10% Debentures (plus accrued and unpaid interest thereon, estimated at $4.8
million). The Company requested this capital from the Purchaser in order for the
Company to comply with the requirements of the American Stock Exchange (the
"AMEX"). Had they not been previously redeemed, the 10% Debentures would have
become convertible into Shares on November 7, 1996 at a conversion price that
would have been $2.25 per share on such date (the "11/7/96 10% Debenture
Conversion Price"), such conversion price being subject to change based on
future market prices had the 10% Debentures not been redeemed. In consideration
of the funding of such capital required for such redemption, the Purchaser has
received 203,257 shares of Series G Stock. If the Purchaser's Base Price Per
Share at the time of the conversion of the Series G Stock into Shares is not
determinable or is later determined to be different than it was at the time of
such conversion and, in either case, is higher than $2.26, or 1(cent) higher
than the 11/7/96 10% Debenture Conversion Price, then the Purchaser will return
to the Company such number of Shares as is necessary so that the number of
Shares into which the Series G Stock is converted is equal to the number of
Shares into which the 10% Debentures would have been convertible if their
conversion price had been equal to the Purchaser's Base Price Per Share. The
Purchaser has agreed not to sell any Series G Stock or Shares so received in the
market before May 31, 1997 other than in a private transaction exempt from the
registration requirements of the Securities Act.
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Assuming (i) the redemption of the 10% Debentures as described above, (ii)
the conversion of all of the $17.1 million aggregate principal amount of the 9%
Debentures and 9.1% Debentures (whether or not sold pursuant to the Offer), and
(iii) the anticipated issuance of approximately 650,000 Shares in settlement of
certain claims by third parties against the Company arising out of events
occurring prior to the Purchaser's investment in the Company (the "Settlement
Shares"), the Company estimates that the total number of outstanding Shares
would increase by 7.7 million shares. Under the Investment Agreement and the
Warrant, the issuance by the Company of 7.7 million Shares in these
circumstances would result in the Company issuing approximately 640,000 Shares
of Series F Stock (which are convertible into 6.4 million Shares upon
Shareholder Approval) to the Purchaser without the payment of additional
consideration so that the Purchaser's initial $40.0 million investment in the
Company pursuant to the Investment Agreement was not diluted. Such additional
shares of Series F Stock would have been so issued to the Purchaser under the
Warrant whether or not provision for the funding by the Purchaser of the
redemption of the 10% Debentures had been made as described above. After these
issuances of Shares and assuming the conversion of all Series F and Series G
Stock into Shares and the conversion of the 9% Debentures and 9.1% Debentures at
a conversion price of $3.50 per share, the Purchaser estimates that the Company
would have outstanding a total of approximately 42 million Shares. However, the
foregoing computation is based upon various estimates and assumptions,
including, in addition to the factors indicated above, that (i) all the 9%
Debentures and 9.1% Debentures are converted and that the conversion price for
the 9% Debentures and 9.1% Debentures is $3.50 per share (rather than a lower
price, which could apply if stock market prices for Common Stock are lower at
the time of actual conversion by holders thereof), (ii) the Purchaser's Base
Price Per Share is at or below $2.26, (iii) the issuance of the 650,000
Settlement Shares as described above, (iv) that Shareholder Approval as
described above is obtained, and (v) there are no post-closing adjustments under
the Post-Closing Adjustment Provisions of the Investment Agreement except for
those required as a result of the issuance of the Settlement Shares.
Accordingly, the actual number of Shares that the Company will have outstanding
in the circumstances described above cannot be determined at this time.
When convertible, each share of Series G Stock is convertible into ten
Shares (subject to customary antidilution protections). The terms of the Series
G Stock were structured so that one share of Series G Stock is substantially
equivalent (except as to voting) to ten Shares. See "Actual or Potential
Conflicts -- The Redemption Agreement."
Certain Management Changes. On November 7, 1996, the Company also announced
certain changes in its senior management, including among others, the election
of Robert A. Whitman, the Chairman of the Board of the Company and Co-Chief
Executive Officer of Hampstead, as interim Chief Executive Officer (without
compensation) of the Company until a new Chief Executive Officer is appointed (a
search therefor being underway) and the election of Richard M. FitzPatrick,
currently Chief Financial Officer of Hampstead, as the interim Chief Financial
Officer of the Company. L. Scott Demerau, the Company's founder, president and
chief executive officer, will become the full-time president of a division of
the Company, the focus of which will be on acquiring existing parks, companies,
sites for new parks and on identifying and pursuing new entertainment concepts
for the Company. Mr. Demerau will remain a member of the Company Board and its
executive committee. Julia Demerau, Executive Vice President of the Company, in
order to devote additional time to family commitments, will transition to
working on a part-time basis and will focus on the Company's efforts to develop
substantial sponsorship relationships. In addition, effective as of November 14,
1996, Gregory N. Waters resigned from the Company Board.
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Development of Business Plan. In a November 7, 1996 announcement, the
Company stated that, since the completion of the Recapitalization, the Company
has been involved in a comprehensive review of its operations. As a result of
this review, the Company has identified a number of opportunities for improving
operational results and achieving internal growth through the redevelopment,
repositioning and expansion of existing parks. The Company intends to begin the
implementation of these actions this Winter and expects these actions to be
completed in phases over the next several years. The Company has also adopted a
strategy of seeking external growth through acquisitions and through the
development of additional parks. In furtherance of the latter objective, over
the past few months the Company purchased the limited partnership interests
which it did not already own in three existing Mountasia parks, began
negotiations for the potential purchase of the interests that the Company does
not presently own in another Mountasia park, reacquired certain domestic and
international development rights which the Company had previously sold, entered
into a contract to purchase a large existing family entertainment center in San
Antonio, Texas and began to pursue other growth opportunities. The Company
believes that its opportunities for external growth are substantial. Because the
Company's cash generated by operations is not sufficient to finance substantial
internal or external growth, the pursuit of the above-described internal and
external initiatives will require that the Company obtain additional capital
resources. Assuming the continued availability of borrowings under the Credit
Facility, and the availability of the Company Option and the Purchaser's
commitment to provide up to $30.0 million to backstop future rights offerings
made to all Shareholders (see "The Recapitalization Agreements -- Company Call
Option and Purchaser Option" and "-- Certain Rights Offerings"), the Company
believes that it will have access to sufficient capital resources to fund its
growth strategy, although the Company expects to consider additional capital
markets and other financing transactions from time to time.
The Company's Reasons for the Recapitalization
The Company entered into the Recapitalization Agreements in order to
refinance existing indebtedness and to obtain the capital necessary to cure
defaults under then-outstanding indebtedness, to obtain funds to satisfy other
existing obligations and to fund its existing operations and pursue possible
growth opportunities. In connection with its consideration of the
Recapitalization, the Company Board determined that it would be extremely
difficult, if not impossible, for the Company to raise equity capital in the
public markets for these purposes.
THE RECAPITALIZATION AGREEMENTS
General
Pursuant to the Investment Agreement, among other things, (i) the Purchaser
initially invested $40.0 million in the Company and (ii) the Company (a) sold to
the Purchaser 11,727,970 Shares, or 45.45% of the then-outstanding Shares after
giving effect to such issuance (and prior to the sale of Shares to employees),
and (b) issued to the Purchaser a Warrant (the "Warrant" and, together with the
Investment Agreement and the other agreements entered into in connection
therewith, the "Recapitalization Agreement") to acquire additional Shares or
shares of Series F Stock automatically upon the happening of certain events.
(See "-- Series F Stock" for a description of the terms of the Series F Stock.)
In addition, the Purchaser is entitled to additional Shares (or Series F Stock)
under certain provisions of the Investment Agreement (the "Post-Closing
Adjustment Provisions") if certain events occur which vary adversely from the
Purchaser's assumptions relating thereto. See "-- Post-Closing Adjustment
Provisions" for a description of these provisions. The purpose of the Warrant
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and the Post-Closing Adjustment Provisions is to protect the Purchaser against
(i) any dilution of its percentage interest in the Company acquired by Purchaser
pursuant to its initial $40.0 million investment, the Company Call Option and
the Purchaser Option (each as defined below) that is due to the exercise or
conversion of outstanding warrants, options and other securities at prices below
$3.75 or the conversion or deemed conversion of the Debentures or the 10%
Debentures and (ii) the economically dilutive effects of any decrease in the
value of the Company assumed by the Purchaser at the time of the
Recapitalization by reason of adverse variations from certain assumptions made
by the Purchaser in its valuation and pricing of its investment in the Company.
In addition, as part of the Recapitalization, the parties agreed to the other
matters described in this section of this Statement.
Warrant
The Warrant provides for the issuance of additional Shares (or Series F
Stock) to the Purchaser without payment by the Purchaser of additional
consideration if the Company issues Shares (i) under options, warrants or
convertible securities outstanding on August 28, 1996 ("Subject Securities") at
prices below $3.75 per Share (subject to adjustment as described below) and (ii)
upon conversion of the Debentures or the 10% Debentures regardless of the
conversion price. Any Debentures or 10% Debenture that have not previously
converted into Shares, will be deemed for purposes of the Warrant to have been
converted into Shares on the earlier of (i) the date of payment or redemption
thereof and (ii) August 7, 1997. If any Debentures or 10% Debentures have been
deemed converted and remain outstanding on August 7, 1998, then the Purchaser
will have the right to receive additional Shares under the Post-Closing
Adjustment Provisions.
The number of Shares issued to Purchaser upon the conversion of a Subject
Security is equal to the number of Shares received by the holder of the Subject
Security as a result of such conversion less the number of Shares which would
have been received by the holder of the Subject Security as a result of such
conversion had the person converted the Subject Security at $3.75 (subject to
adjustment as described below) (the "Trigger Price"), multiplied by the sum of
(i) the number of Purchaser Shares then acquired by Purchaser pursuant to the
Recapitalization Agreement and (ii) ten multiplied by the number of shares of
Series F Stock acquired by Purchaser in lieu of any Shares issuable under the
Recapitalization Agreement (collectively, the "Holder Shares"), divided by the
sum of (a) the total number of Shares issued and outstanding on the date of such
conversion and (b) ten multiplied by the total number of shares of Series F
Stock outstanding on such date (collectively, the "Outstanding Shares"). The
number of Shares issued to Purchaser in connection with the conversion of
Debentures or 10% Debentures will be equal to the total number of Shares issued
in connection with such conversion multiplied by a fraction, the numerator of
which is the number of Holder Shares divided by the number of Outstanding Shares
(with the quotient being the "Ratio") and the denominator of which is one minus
the Ratio. The Trigger Price, the number of Holder Shares and the number and
class of shares to be issued pursuant to the Warrant are subject to customary
antidilution protections.
The Company's issuance pursuant to the Redemption Agreement of 203,257
shares of Series G Stock to the Purchaser in connection with the redemption of
the 10% Debentures entitled the Purchaser to the issuance of 169,374 shares of
Series F Stock under the Warrant (which Series F Stock will be convertible into
1,693,740 Shares if Shareholder Approval therefor is obtained). See "-- Series F
Stock" and "Actual or Potential Conflicts -- The Redemption Agreement." The
conversion of the Debentures purchased by the Purchaser pursuant to the Offer
will entitle the Purchaser (assuming all of the outstanding Debentures were
purchased), under the Warrant, to the
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issuance of an additional 396,909 shares of Series F Stock (which Series F Stock
will be convertible into 3,969,061 Shares if Shareholder Approval therefor is
obtained). See "The Redemption Agreement."
Post-Closing Adjustment Provisions
In connection with the Recapitalization Agreements, the Purchaser made
certain assumptions as to various matters in valuing the equity of the Company
at $88 million (including the $40.0 million initially invested by the
Purchaser), including (i) that the Company had rights to develop Malibu and
Mountasia family entertainment centers worldwide, subject to certain specified
exceptions, (ii) that the Company would be successful in acquiring certain
properties used in significant parks which are currently subject to ground
leases which expire in the near future and acquiring certain facilities for
prices not exceeding the specified purchase prices, (iii) that the Company's
actual liability for litigation, legal compliance, environmental and certain
other contingent liabilities as of the Closing Date did not, in the aggregate,
exceed $1.5 million (the "Contingency Hurdle Amount"), (iv) all of the Company's
convertible debt would be converted into Shares on or before August 7, 1997 and
will no longer be outstanding on August 7, 1998, (v) that the Company would
obtain consents and waivers of certain third party registration rights, and (vi)
the accuracy of the Company's representations and warranties in the Investment
Agreement. The Investment Agreement provides that, if any such assumption was,
is or becomes incorrect in a manner adverse to the value of Company, the
Purchaser is entitled under the Post-Closing Adjustment Provisions to the
issuance of additional Shares in recognition of the adverse impact on the
assumed equity value.
The Purchaser currently estimates that the amount of the Company's
contingent liabilities as of the Closing Date exceeded the Contingency Hurdle
Amount by at least the value of the Settlement Shares. Such excess could be
substantially higher. However, the ultimate amount of any adjustment thereunder
cannot presently be ascertained. All determinations on the part of the Company
with respect to the Post-Closing Adjustment Provisions are required to be made
by the Independent Directors.
Company Call Option and Purchaser Option
The Investment Agreement provides that, for a period of three years from
the Closing Date, the Company has the right to compel the Purchaser to invest up
to an additional $22.7 million (less any amount invested upon exercise of the
Purchaser Option described below) to purchase Shares at a purchase price of
$3.41 per share, subject to adjustment as described below (the "Company Call
Option"), and that, for a period of five years from the Closing Date, the
Purchaser has the right to require the Company to sell to it additional Shares
at $3.41 per share, subject to adjustment as described below for an aggregate of
not more than $22.7 million (less any amount invested upon exercise of the
Company Call Option) (the "Purchaser Option"). The $3.41 per Share initial
exercise price under the Company Call Option and the Purchaser Option is subject
to adjustment so that is it equal to the Purchaser's net effective price per
Share on its original $40.0 million investment after taking into account any
Shares or Series F Stock issued to the Purchaser without additional
consideration pursuant to the Warrant and the Post-Closing Adjustment Provisions
described above. In the event that Shareholder Approval has not been obtained,
the shares issuable upon exercise of either the Company Call Option or the
Purchaser Option will be shares of Series F Stock. The proceeds from the
exercise of either such options may only be used to fund equity required for new
investments approved by the Company Board.
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Series F Stock
If the Company has not obtained Shareholder Approval for conversion of
Series F Stock into Shares, the shares of capital stock of the Company issued as
a result of the exercise of the Company Call Option and the Purchaser Option
will be Series F Stock. If such Shareholder Approval has not been obtained and
the issuance of Shares would result in the Purchaser owning a majority of the
Shares, the shares of capital stock of the Company issued under the Warrant or
the Post-Closing Adjustment Provisions will be Series F Stock. Any Series F
Stock issued upon exercise of the Company Call Option or the Purchaser Option
will be issued at a 15% discount from the price at which it would otherwise be
issued or, if issued without consideration, 15% more shares of Series F Stock
will be so issued than would otherwise be issuable and such Series F Stock will
be convertible into Shares after Shareholder Approval of the issuance of Shares
pursuant to the Recapitalization Agreement is obtained or under certain other
circumstances. See "Actual or Potential Conflicts -- Redemption Agreement" for a
description of the terms of the Series F Stock.
Representation on the Company Board
Pursuant to the Investment Agreement, the Purchaser has the right to
designate up to six of the 14 members of the Company Board, including the
Chairman of the Board. In addition, the Standstill Agreement entered into by the
Purchaser with the Company as part of the Recapitalization Agreement provides
that at each meeting of the Shareholders of the Company persons designated by
the Purchaser and the Company will vote all management proxies (other than those
that specifically indicate to the contrary) in favor of such nominees. The
number of persons designated by the Purchaser to serve on the Company Board must
at all times be sufficient so that the number of Purchaser designees relative to
the whole Company Board is proportional to the Purchaser's beneficial ownership
of the outstanding voting securities in relation to the total outstanding voting
securities, except (i) that for so long as the Purchaser owns more than 10% of
the outstanding voting securities of the Company, the Purchaser is entitled to
designate two directors, (ii) in no event is the Company required to take any
action that would result in the number of the Purchaser's designees exceeding
more than one less than a majority of the Company Board, and (iii) so long as
the number of directors comprising the Company Board is between seven and 14,
the number of Purchaser designees will not exceed 40% of the total number of
directors. In addition, the Standstill Agreement provides that, for so long as
the Purchaser holds more than 10% of the total outstanding voting securities,
the Company Board will ensure that at least one director designated by the
Purchaser is a member of each committee of the Company Board and such director
may designate an alternate director to act in his stead.
In accordance with the foregoing, the Company increased the size of the
Company Board to 14 members and elected Daniel A. Decker, Richard M.
FitzPatrick, James T. Hands, Donald J. McNamara, Kurt C. Read and Robert A.
Whitman to fill the vacancies created thereby, with Mr. Whitman assuming the
position of Chairman of the Board. The terms of office of each of these
individuals expire at the next annual meeting of shareholders of the Company.
Certain Rights Offerings
The Recapitalization Agreement provides that, if the Company determines to
seek additional equity capital during the 18-month period following the Closing
Date, then the Company will use its best efforts to raise such capital through
the exercise of the Company Call Option or through one
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<PAGE>
or more rights offerings to the holders of Shares. The Purchaser agreed to
exercise all rights to purchase Shares issued to it in connection with any such
rights offerings and if the rights offered by the Company are non-assignable,
the Purchaser has agreed to acquire any and all Shares not purchased by
distributees of such unexercised rights; provided, however, that the Purchaser
will not be obligated to pay more than $30.0 million for the exercise of all
such rights and such purchases.
Indemnification
The Company has agreed in the Recapitalization Agreement and the Redemption
Agreement to indemnify and hold harmless the Purchaser and each of its
affiliates and associates (each as defined under Rule 405 of the Securities Act)
and their respective partners, officers, directors, employees, attorneys,
advisors and agents and any person controlling, controlled by or in common
control with any of the foregoing ("Indemnified Parties"), from and against all
losses, claims, liabilities, damages, costs (including without limitation
attorneys' fees and expenses) and expenses or actions in respect thereof or
arising out of any actual or threatened claim against such Indemnified Party by
a person or entity related to or arising out of or in connection with the
Investment Agreement, the Warrant, the Standstill Agreement, the Redemption
Agreement, the Offer or any other agreement prepared and delivered in connection
with the transactions contemplated hereby or thereby or any actions taken by any
Indemnified Party in connection with the transactions contemplated thereby
(collectively, "Transactional Losses"), except that the Company will not be
liable to any Indemnified Party for any Transactional Losses to the extent such
Transactional Losses resulted primarily from such Indemnified Parties' material
breach of the Investment Agreement or the Redemption Agreement or a misstatement
or omission contained in a report filed by such Indemnified Party pursuant to
the Exchange Act unless such misstatement or omission relates to information
furnished or confirmed by or on behalf of the Company. The Company has also
agreed to indemnify and hold harmless each Indemnified Party from and against
any loss, damage or expense (including without limitation reasonable attorneys'
and accountants' fees and charges) suffered, directly or indirectly, as a result
of any inaccuracy in or breach of any of the representations, warranties,
covenants or agreements of the Company in the Investment Agreement, the
Redemption Agreement or any other document contemplated by the Investment
Agreement, or any inaccuracy or misrepresentation by the Company or any
subsidiary of the Company in any document, certificate or affidavit delivered by
the Company at the closing under the Investment Agreement. Notwithstanding the
foregoing, no Indemnified Party is entitled to indemnification with respect to
any claims for breaches of representations and warranties until the aggregate
amount of all such losses, damages or expenses (other than Transactional Losses)
suffered by the Indemnified Parties in the aggregate exceeds $100,000
("Threshold"), whereupon the Indemnified Parties will be entitled to
indemnification from the Company for the full amount of all such losses (other
than Transaction Losses) up to an aggregate total amount of $40.0 million
("Cap"). The Threshold and the Cap do not apply with respect to any loss
relating directly or indirectly to claims of any nature relating to claims (i)
relating to, resulting from or arising out of any breach of any covenant or
agreement under the Investment Agreement or the Redemption Agreement or in any
other document contemplated thereby or (ii) against any Indemnified Party made
by or on behalf of any director or officer for the Company or any of its
subsidiaries. The Purchaser has indemnified the Company's Indemnified Parties on
terms similar to the Company's indemnification of the Purchaser's Indemnified
Parties for breaches of the Purchaser's representations, warranties and
covenants contained in the Investment Agreement and such indemnification is
subject to the Threshold and the Cap.
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<PAGE>
Registration Rights Agreement
Pursuant to the Investment Agreement, the Purchaser has the right to
require the Company to register for sale to the public under the Securities Act
(each a "Demand Registration") all or a portion (but not less than 5%) of the
Shares acquired by the Purchaser pursuant to the Investment Agreement or
otherwise and any other shares of capital stock of the Company or securities
that are exercisable to purchase, convertible into, or exchangeable for shares
of capital stock of the Company owned by the Purchaser of any affiliate of the
Purchaser, including any Shares or Debentures (or capital stock into which the
Debentures are convertible) acquired by Purchaser pursuant to the Offer. The
Purchaser is entitled to five Demand Registrations and has the right to
participate in other registrations by the Company of its equity securities (a
"Piggyback Registration"). The Company has agreed to pay the registration
expenses of the Purchaser in connection with any Demand or Piggyback
Registration.
Standstill Agreement
Pursuant to the Standstill Agreement, the Purchaser agreed not to acquire
beneficial ownership of any Company securities entitled to vote in the election
of directors of the Company ("Voting Securities"), except as contemplated by the
Recapitalization Agreement, if after such acquisition the Purchaser would
beneficially own 50% or more of the aggregate number of votes which may be cast
by the holders of the Voting Securities unless such acquisition received the
prior approval of the Independent Directors.
In connection with the Purchaser's agreement to fund the redemption of the
10% Debentures and the Company's announcement of the Purchaser's intention to
make the Offer, the Company and the Purchaser amended the Standstill Agreement
to permit the Purchaser to purchase Shares and Debentures pursuant to the Offer.
As amended, Shares may be purchased pursuant to the Offer, but all such Shares,
so long as they are held by the Purchaser Group and to the extent they exceed
49.9% of all outstanding Shares at the time in question, must be voted in the
same proportion as Shares voted by Shareholders other than the Purchaser unless
or until Shareholder Approval for the conversion of Series F stock into Shares
is obtained or the Standstill Agreement is no longer in effect.
The restrictions on the Purchaser under the Standstill Agreement terminate
after ten years or, if earlier, upon the occurrence of certain events, including
(i) if any Person (other than the Purchaser or its Affiliates) announces an
intention to commence a tender offer for more than 10% of the Voting Securities
or the Company enters into an agreement (including an agreement in principle)
providing for a merger or other business combination transaction involving the
Company and (ii) the Purchaser's acquisition, pursuant to the Investment
Agreement, the Warrant, the Company Call Option, the Purchaser Option or the
conversion of Series F Stock or Series G Stock into Shares, of Shares or such
other Voting Securities representing a majority of the total voting power of the
Company.
Management Equity Incentive Program.
Pursuant to the Recapitalization Agreement, the Company established the
1996 Management Equity Incentive Program (the "Incentive Plan") and reserved
approximately 2.25 million Shares for sale thereunder. At the closing, the
Company offered to sell 2.25 million shares (the "Management
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Shares") at a per share price equal to $2.6625 per share, which price was the
average of the closing prices of the Shares for the 10 trading days immediately
preceding the sale to the participants in the Incentive Plan. Those persons
eligible to participate in the Incentive Plan are key employees designated by
the Compensation Committee of the Company Board (after consultation with the
Purchaser). All of the shares issuable under the Incentive Plan have been listed
for trading on AMEX.
A condition to participating in the Incentive Plan is that the participant
surrender all options to acquire Shares held by him or her. The initial
participants surrendered options to acquire an aggregate of 791,680 Shares at a
weighted average exercise price of $.96 per share.
Initially, all Management Shares are restricted such that they are not
subject to alienation or transfer by the participant and are subject to the
Company's repurchase option as set forth below. The Management Shares "vest",
thereby becoming unrestricted shares, at a rate of 1/48th per month, provided
the participant remains in the continuous full-time employment of the Company.
If a participant's employment with the Company is terminated within five years
of the acquisition of such shares, the Company has the right to repurchase from
the participant, and the participant has the right to sell to the Company, all
of the participant's Management Shares which have not vested. If the participant
is terminated without cause, the per share purchase price to be paid by the
Company upon such repurchase will be equal to the initial per share purchase
price of such shares (plus accrued interest). If the participant is terminated
with cause or voluntarily terminates his or her own employment, the per share
purchase price to be paid by the Company upon such repurchase will be equal to
the lesser of (i) the average of the closing price on the principal securities
market on which the Shares are then included for each of the 15 trading days
immediately preceding the date on which the participant's employment is
terminated and (ii) the initial purchase price for such shares (plus accrued
interest).
To finance the purchase of the Management Shares, the Company made
available to each participant a five-year recourse loan bearing interest
initially at 7.5% per annum and escalating to 8.5% per annum secured by the
Shares acquired thereby. If a participant's employment with the Company is
terminated within five years of the acquisition of such shares, or if the
participant otherwise defaults on the loan, then the entire balance due under
such participant's financing becomes due and payable.
To secure payment of the loan, each participant entered into a pledge
agreement with the Company pursuant to which all of the Management Shares
acquired by the participants have been pledged to the Company. The Management
Shares will be released from pledge upon payment in full of the entire amount
due under the loan. If a participant's employment with the Company is
terminated, as set forth above, any repurchase by the Company of Management
Shares will result in a reduction in the amount owing by such participant under
the loan by the applicable amount.
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The following table sets forth certain information with respect to Shares
purchased pursuant to the Incentive Plan:
Management Equity Incentive Program
- --------------------------------------------------------------------------------
Name and Position Dollar Value($) Number of Shares
- --------------------------------------------------------------------------------
L. Scott Demerau, Director and President $ 1,996,875 750,000 shares
- --------------------------------------------------------------------------------
Julia E. Demerau, Director
and Executive Vice President $ 599,063 225,000 shares
- --------------------------------------------------------------------------------
Executive Group $ 3,186,000 1,200,000 shares
- --------------------------------------------------------------------------------
Non-Executive Officer Employee Group $ 2,689,125 1,010,000 shares
- --------------------------------------------------------------------------------
The Executive Group consists of four executive officers of the Company,
including L. Scott Demerau and Julia E. Demerau. There are 15 members of the
Non-Executive Officer Employee Group.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) On November 5, 1996, the Company Board agreed to amend the Standstill
Agreement to permit the Purchaser to make the Offer because it believed that the
availability of a non-coercive liquidity option to the Company's security
holders was beneficial. However, the Company Board authorized the Special
Committee to review the Offer and to make a recommendation as how the Company
should fulfill its obligations with respect to the tender offer, including,
without limitation, its obligation to prepare and file with the Securities and
Exchange Commission and mail to its shareholders a Statement on Schedule 14D-9
under the Exchange Act, disclosing the Company's position with respect to the
Offer. Accordingly, on November 27, 1996, the Special Committee met by telephone
and discussed the Offer and evaluated a number of factors in the course of its
review of the Offer and of the Company, including, but not limited to, an
analysis of certain publicly available financial statements and other
information of the Company; a review of the Company's 1996 operating plan;
discussions of the past and current operations and financial condition and the
prospects of the Company with senior executives of the Company; a review of the
historical and recent reported prices and trading activity for the Shares; and a
comparison of the financial performance of the Company and the prices and
trading activity of the Shares with that of certain other comparable
publicly-traded companies and their securities. The Special Committee has
indicated to the Company Board that it has concerns relating to the potential
impact on the value and liquidity of the remaining Shares in the event of a
tender offer for less than all of the Shares subject to the Offer, but that the
availability of a liquidity option to the Company's shareholders at a price
representing a substantial premium over the trading price for the Shares
immediately before the announcement of the Offer, helped to lessen those
concerns. Nonetheless, the Special Committee concluded that it would neither
recommend nor oppose the Offer and, therefore, the Special Committee advised the
Company Board that it chose not to take a position with respect to the Offer.
Therefore, the Company Board was not asked to make, and has not made, any
determination with respect to the Offer. A letter to shareholders communicating
the Special Committee's current position with respect to the Offer is filed
herewith as Exhibit (a)(2), and is incorporated by reference herein.
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(b) In reaching its determination to not take a position with respect to
the Offer at this time, the Special Committee considered a number of factors,
all of which were disclosed to the Company Board and are described above.
In view of the wide variety of factors considered in connection with its
review of the Offer, the Special Committee found it impractical to, and
therefore did not, quantify or otherwise assign relative weights to the specific
factors it considered in reaching its conclusion that it could not take a
position with respect to the Offer.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any other person to make solicitations or
recommendations to security holders on its behalf concerning the Offer. Under
the Redemption Agreement, however, the Company has agreed to pay or reimburse
the Purchaser for all reasonable documented fees, costs and expenses incurred by
the Purchaser in connection with the Offer, which fees, costs and expenses are
currently estimated to be approximately $212,000 and are described in greater
detail in the Purchaser's Offer to Purchase.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Except to the extent described in Item 3(b) above, no transactions in
the securities subject to the Offer have been effected during the past 60 days
by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, neither the Company's directors
nor its executive officers intend to tender any of their Shares pursuant to the
Offer and no such persons hold any Debentures.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Other than as set forth or referenced in Items 3(b), no negotiation is
being undertaken or is underway by the Company in response to the Offer which
relates to or would result in:
(1) an extraordinary transaction such as a merger or reorganization,
involving the Company or any subsidiary of the Company;
(2) a purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary of the Company;
(3) a tender offer for or other acquisition of securities by or of the
Company; or
(4) any material change in the present capitalization or dividend
policy of the Company.
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(b) Except as described above, in Item 3(b), there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate or would result in one or more of the matters referred to
in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
(a)(1) Text of Press Release issued by the Company on November 7, 1996
(incorporated by reference to Exhibit (a)(7) to the Schedule 14D-1 dated
November 14, 1996 filed by the Purchaser on November 15, 1996)
(a)(2) Text of Letter to Security Holders regarding the Offer Dated November
29, 1996
(c)(1) Amended and Restated Investment Agreement, dated June 5, 1996, as
amended, between the Purchaser and the Company (incorporated by
reference to Exhibit 1 to Amendment No. 3, dated September 26, 1996, to
Schedule 13D filed by the Purchaser and certain of its affiliates on
June 17, 1996)
(c)(2) Warrant, dated August 28, 1996, by the Company (incorporated by
reference to Exhibit 2 to Amendment No. 3, dated September 26, 1996, to
Schedule 13D filed by the Purchaser and certain of its affiliates on
June 17, 1996)
(c)(3) Letters from L. Scott and Julia Demerau regarding resale of Shares,
dated August 28, 1996 (incorporated by reference to Exhibit 3 to
Amendment No. 3, dated September 26, 1996, to Schedule 13D filed by the
Purchaser and certain of its affiliates on June 17, 1996)
(c)(4) Standstill Agreement, dated August 28, 1996, between the Purchaser and
the Company (incorporated by reference to Exhibit 4 to Amendment No. 3,
dated September 26, 1996, to Schedule 13D filed by the Purchaser and
certain of its affiliates on June 17, 1996)
(c)(5) Registration Rights Agreement, dated August 28, 1996 (incorporated by
reference to Exhibit 6 to Amendment No. 3, dated September 26, 1996, to
Schedule 13D filed by the Purchaser and certain of its affiliates on
June 17, 1996)
(c)(6) Redemption Agreement, dated November 14, 1995, between the Company and
the Purchaser (incorporated by reference to Exhibit (c)(6) to the
Schedule 14D-1 dated November 14, 1996 filed by the Purchaser on
November 15, 1996)
(c)(7) Pages 6-11 of the Company's Proxy Statement dated April 8, 1996
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
Dated: November 29, 1996 MOUNTASIA ENTERTAINMENT
INTERNATIONAL, INC.
By:/s/ BETTY M. HENDERSON
---------------------------------
Betty M. Henderson
Vice President and Secretary
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page Number
(a)(1) Text of Press Release issued by the Company on November 7,
1996 (incorporated by reference to Exhibit (a)(7) to the
Schedule 14D-1 dated November 14, 1996 filed by the Purchaser
on November 15, 1996)
(a)(2) Text of Letter to Security Holders regarding the Offer Dated
November 29, 1996
(c)(1) Amended and Restated Investment Agreement, dated June 5, 1996,
as amended, between the Purchaser and the Company
(incorporated by reference to Exhibit 1 to Amendment No. 3,
dated September 26, 1996, to Schedule 13D filed by the
Purchaser and certain of its affiliates on June 17, 1996)
(c)(2) Warrant, dated August 28, 1996, by the Company (incorporated
by reference to Exhibit 2 to Amendment No. 3, dated September
26, 1996, to Schedule 13D filed by the Purchaser and certain
of its affiliates on June 17, 1996)
(c)(3) Letters from L. Scott and Julia Demerau regarding resale of
Shares, dated August 28, 1996 (incorporated by reference to
Exhibit 3 to Amendment No. 3, dated September 26, 1996, to
Schedule 13D filed by the Purchaser and certain of its
affiliates on June 17, 1996)
(c)(4) Standstill Agreement, dated August 28, 1996, between the
Purchaser and the Company (incorporated by reference to
Exhibit 4 to Amendment No. 3, dated September 26, 1996, to
Schedule 13D filed by the Purchaser and certain of its
affiliates on June 17, 1996)
(c)(5) Registration Rights Agreement, dated August 28, 1996
(incorporated by reference to Exhibit 6 to Amendment No. 3,
dated September 26, 1996, to Schedule 13D filed by the
Purchaser and certain of its affiliates on June 17, 1996)
(c)(6) Redemption Agreement, dated November 14, 1995, between the
Company and the Purchaser (incorporated by reference to
Exhibit (c)(6) to the Schedule 14D-1 dated November 14, 1996
filed by the Purchaser on November 15, 1996)
(c)(7) Pages 6-11 of the Company's Proxy Statement dated April 8,
1996
Exhibit (a)(2)
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
5895 Windward Parkway
Suite 220
Alpharetta, Georgia 30202-4182
November 29, 1996
Dear Security Holder:
On November 14, 1996, MEI Holdings, L.P. commenced a cash tender offer (the
"Offer") to purchase all of the outstanding shares of common stock, no par value
(the "Common Stock"), of Mountasia Entertainment International, Inc. (the
"Company") not already owned by it at a price of $3.50 per share, any and all
of the Company's 9% Subordinated Convertible Debentures Due November 1, 1999 and
all of the Company's 9.1% Subordinated Convertible Debentures Due January 1,
2002.
MEI Holdings currently owns approximately 41.8% of the Company's
outstanding Common Stock. If the Offer is consummated, MEI Holdings is likely to
hold in excess of a majority of the outstanding Common Stock. MEI Holdings
has agreed to certain voting restrictions with respect to the shares of Common
Stock that it acquires pursuant to the Offer until shareholder approval therefor
is obtained.
The Special Committee of the outside directors of the Company appointed in
connection with the Offer has unanimously determined that it would neither
recommend nor oppose the Offer and, therefore, it advised the Company's Board of
Directors that it chose not to take a position or make a recommendation at this
time with respect to the Offer. In reaching its determination, the Special
Committee considered a number of factors which are discussed in the enclosed
Schedule 14D-9, which was filed by the Company today with the Securities and
Exchange Commission.
At MEI Holdings' request, we have included a copy of the MEI Holdings'
Offer to Purchase dated November 14 1996, which has been revised to correct
certain immaterial typographical errors in the version originally mailed to you.
You are urged to consider the enclosed materials in determining whether to
tender some or all the Company's securities subject to the Offer.
Sincerely,
THE SPECIAL COMMITTEE OF THE
BOARD OF DIRECTORS OF THE COMPANY
Exhibit (c)(7)
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of the date of this Proxy Statement,
certain information regarding the beneficial ownership of Common Stock by (i)
each person known by the Company to be beneficial owner of more than five
percent of the outstanding shares of Common Stock, (ii) each director and Named
Executive Officer, (iii) each director nominee who is currently not serving on
the Board of Directors and (iv) all directors and officers as a group:
Percentage of
Common
Shares Beneficially Stock Beneficially
Name of Beneficial Owner (1) Owned Owned
L. Scott Demerau...................... 499,895(2)(3) 4.4 %
Julia E. Demerau...................... 432,829(4)(5) 3.8 %
Ervin E. Lewis, Sr. (6)............... 421,858 3.7 %
Steven A. Cunningham (7).............. 500 *
Bert W. Wasserman (7)................. 50,000 *
William M. Kearns, Jr.(7) ............ 25,000 *
Robert E. Provost, Sr. ............... 15,000 *
Gregory N. Waters(8).................. 43,000 *
All directors and officers
as a group (9 persons).............. 1,526,173 13.3 %
- ----------
* less than 1%
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. Under the rules of the Commission,
a person is deemed to be a "beneficial" owner of securities if he or she has
or shares the power to vote or direct the voting of such securities or the
power to dispose or direct the disposition of such securities. A person is
also deemed to be a beneficial owner of any securities of which that person
has the right to acquire beneficial ownership within 60 days. More than one
person may be deemed to be a beneficial owner of the same securities.
(2) Does not include options to purchase 280,000 shares of the Company's Common
Stock which are not exercisable within 60 days of the date of this
statement.
(3) Does not include 402,829 shares held of record by Julia E. Demerau, Mr.
Demerau's spouse, of which Mr. Demerau disclaims beneficial ownership.
(4) Does not include 429,895 shares held of record by Scott Demerau, Ms.
Demerau's spouse, of which Ms. Demerau disclaims beneficial ownership.
(5) Does not include options to purchase 120,000 share of the Company's Common
Stock which are not exercisable within 60 days this statement.
(6) Ervin E. Lewis, Sr., a member of the Board of Directors of the Company, is
an officer, director and shareholder of Mountasia, Inc., the general partner
of Mountasia Fantasy Golf of Huntsville, Ltd., a shareholder owning 135,193
shares of the Company's Common Stock and Mountasia-Roswell, Inc., the
general partner of Mountasia Fantasy Golf of Roswell, L.P., a shareholder
owning 286,665 shares of the Company's Common Stock. By virtue of his
relationship with these limited partnerships, Mr. Lewis is deemed to own
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beneficially such securities and to share voting and investment power with
respect to such securities. Does not include options to purchase 25,000
shares of the Company's Common Stock which are not exercisable within 60
days of the date of this statement.
(7) Does not include options to purchase 25,000 shares of the Company's Common
Stock which are not exercisable within 60 days of the date of this
statement.
(8) Includes options to purchase 40,000 shares of the Company's Common Stock
which are currently exercisable and does not include options to purchase
60,000 shares of the Company's Common Stock which are not exercisable within
60 days of the date of this statement.
EXECUTIVE COMPENSATION
Compensation Tables
The following table sets forth the cash and non-cash compensation paid by
the Company for services rendered during the fiscal years ended September 30,
1995, 1994, and 1993 to its Chief Executive Officer and each executive officer
of the Company who received compensation in excess of $100,000 during the years
ended September 30, 1995, 1994 and 1993 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------- --------------------------------------
Awards Payouts
------------------------ -----------
Restricted All Other
Name and Principal Other Annual Stock Options/SARs LTIP Payout Compensation
Position Year Salary ($) Bonus ($) Compensation ($) Award(s) (#) ($) ($)
- -------------------- ---- ---------- --------- ---------------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
L. Scott Demerau, 1995 $198,651 -0- $356,741(1) -0- -0- -0- -0-
President 1994 101,030 -0- 241,390(1) -0- -0- -0- -0-
1993 -0- -0- 170,826(1) -0- 29,260 -0- -0-
Julia E. Demerau, 1995 $109,530 -0- $356,746(2) -0- -0- -0- -0-
Exec. Vice President 1994 94,242 -0- 241,389(2) -0- -0- -0- -0-
1993 -0- -0- 154,665(2) -0- 29,260 -0- -0-
</TABLE>
- -----------------------------
(1) Includes repayment of a portion of the promissory notes to Mr. Demerau
issued in connection with the consolidation (the "Consolidation") of certain
Mountasia facilities in 1991 under which the Company was formed. Does not
include payments during these periods in payment of the promissory notes to
Julia E. Demerau, Mr. Demerau's spouse, also issued in connection with the
Consolidation. The 1995 amount includes $200,000 paid as consideration for
entering into a lock-up agreement in connection with an equity offering
conducted in November 1994.
(2) Includes payment of a portion of the promissory notes to Ms. Demerau issued
in connection with the Consolidation. Does not include payments during the
periods in repayment of these promissory notes to L. Scott Demerau, Ms.
Demerau's spouse, also issued in connection with the Consolidation. The 1995
amount includes $200,000 paid as consideration for entering into a lock-up
agreement in connection with an equity offering conducted in November 1994.
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The following sets forth the value of unexercised options held by the Named
Executives on September 30, 1995:
AGGREGATED OPTIONS/SAR EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs
FY-End (#) At FY-End ($)
-------------------- --------------------
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized ($) Unexercisable Unexercisable
------ ------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
L. Scott Demerau...... -0- -0- 21,945 / 7,315 $76,149 / $25,383
Julia E. Demerau...... -0- -0- 21,945 / 7,315 $76,149 / $25,383
</TABLE>
(1) The indicated value is based on an exercise price of $4.78 per share and
value per share of $8.25 at September 30, 1995.
Compensation of Directors
General. The Company pays its outside directors a fee of $5,000 per year,
with two directors, Bert W. Wasserman and William M. Kearns, Jr., being paid an
annual fee of $50,000. In addition, the Company reimburses directors for
out-of-pocket expenses of attending meetings.
1993 Nonemployee Director Stock Option Plan. The Company adopted the 1993
Nonemployee Director Stock Option Plan (the "Director Plan") which was amended
in fiscal 1995 and reserved 250,000 shares of Common Stock for issuance
thereunder. The Director Plan provides for the grant of nonqualified stock
options to purchase shares of Common Stock ("Director Option") to directors of
the Company who are not employees of the Company. These options are granted at
fair market value and generally vest at the time of grant. Options for an
aggregate of 170,000 shares of Common Stock were granted under the Director Plan
during fiscal 1995, at an exercise price ranging from $7.53 to $7.76. As of the
date of this Proxy Statement, options for an aggregate of 173,000 shares of
Common Stock are outstanding under the Director Plan.
Grants of Director Options are automatic. Nonemployee Directors of the
Company will be granted an option to purchase 5,000 shares of Common Stock on
the date that such person is first elected or appointed a director. Further,
each Nonemployee Director will be granted a Director Option to purchase 5,000
shares of Common Stock on the day immediately following the date of each annual
meeting of shareholders, so long as such director is a member of the Board of
Directors. The exercise price for each share subject to a Director Option shall
be equal to the fair market value of the Common Stock on the date of the grant.
These options vest on the date of grant.
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Report of the Compensation Committee
This report by the Compensation Committee is required by rules of the
Securities and Exchange Commission. It is not to be deemed incorporated by
reference by any general statement which incorporates by reference this Proxy
Statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, and it is not to be otherwise deemed filed under either
such Act.
The Compensation Committee of the Board of Directors is comprised of four
outside directors. None of these individuals serves on the board of another
committee member's company or organization and none of the executive officers of
Mountasia serves on the board of any committee member's organization. The
Committee has access to outside consultants and counsel.
The Committee oversees three elements of executive compensation: base pay
or salary, annual performance bonus, and long-term compensation, which consists
of a stock option plan approved by shareholders. The Committee seeks to provide
a competitive compensation package that enables the Company to attract and
retain key executives, to integrate pay programs with the business objectives of
the Company, to reward executive efforts for the achievement of short-term
operating goals and for the enhancement of the long-term shareholder value of
the Company, and to link individual executive compensation with the Company's
overall performance. The Committee surveys other comparable companies and
believes that Mountasia's current executive compensation generally is somewhat
lower than comparable companies. The Compensation Committee's responsibilities
include: (i) participating in the determination of goals for the Company's
executive officers; (ii) participating in the selection and design of
compensation packages and programs relating to such goals; (iii) monitoring the
effectiveness of the compensation packages and programs; and (iv) monitoring
compensation-related developments generally and considering their application to
the Company's executive officers.
Base Pay. The salary paid to the Company's executives is targeted to be
competitive with related industry companies of similar size, taking into account
the experience of individual officers. In general, the Committee attempts to fix
base salaries at lower levels to emphasize result-oriented factors reflected in
a bonus potential and the value of stock options. The Committee reviews salaries
and pay ranges for its executives, and salaries may be increased based on the
Committee's assessment of an individual's performance and contributions to
Mountasia's goals. The Company entered into five-year employment agreements with
L. Scott Demerau and Julia E. Demerau, commencing January 1, 1996, pursuant to
which the Company agreed to pay such individuals a base salary of $200,000 and
$150,000, respectively, increasing by $10,000 each year after 1996. The
Committee has agreed to honor the request of L. Scott Demerau and Julia E.
Demerau to maintain their base salary for 1996, and not to accept the
contractual increases unless the Committee determines the performance of the
Company
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warrants. The base salaries for Mr. and Ms. Demerau for 1996 were not increased
from fiscal 1995. The Company entered into a three-year employment agreement
with Gregory N. Waters, Executive Vice President and Chief Financial Officer,
commencing October 16, 1995, pursuant to which the Company agreed to pay him a
base salary of $150,000, and a one-time $50,000 payment to partially compensate
him for benefits forfeited by him as a result of his resignation from employment
with his previous employer. The base salary may be increased in the discretion
of the Committee.
Bonus. The Company did not pay any of its executive officers a bonus for
the fiscal year ended September 30, 1995. The Board is considering the adoption
of an annual incentive bonus plan to be administered by the Compensation
Committee by which the Company's senior executives may earn cash bonus awards
based on the financial performance of the Company. It is anticipated that such
plan would set certain targets relating to earnings per share and market
capitalization of the Company. The plan would be designed to motivate the
performance of the Company's executive officers by providing identifiable
targets and cash bonuses relating to the attainment of such targets.
Long-Term Incentive. The Company's only method of awarding long-term
compensation is its stock option plan, which was approved by the Company's
shareholders. All officers are eligible to receive grants under the stock option
plan. Grants under the plan normally extend for 10 years, are priced at fair
market value on the date of grant, and are intended generally to provide
incentive for future performance rather than reward past performance. Together
with base pay and bonuses, the Committee reviews material for comparable
companies in determining grants to be made to its executive officers. As part of
L. Scott Demerau's employment agreement, Mr. Demerau was granted an option to
purchase 350,000 shares of Common Stock, 70,000 shares of which vested on
January 1, 1996, and 70,000 shares of which will vest (assuming Mr. Demerau is
an employee of the Company at the time) on each of January 1 of 1997, 1998, 1999
and 2000. As part of Julia E. Demerau's employment agreement, Ms. Demerau was
granted an option to purchase 150,000 shares of Common Stock, 30,000 of which
vested on January 1, 1996 and 30,000 shares of which will vest (assuming Ms.
Demerau is an employee of the Company at the time) on each of January 1, 1997,
1998, 1999 and 2000. The exercise price is $7.00 per share, subject to
adjustment under certain circumstances. These grants were in part designed to
make up for the Demeraus having been issued no options during the Company's 1994
fiscal year and only 29,260 options during the Company's 1993 fiscal year. As
part of Gregory N. Waters' employment agreement, Mr. Waters was granted an
option to purchase 100,000 shares of Common Stock, 40,000 shares to vest on the
first anniversary of the employment agreement (October 16, 1996) and 2,500
shares per month to vest on the last day of each month thereafter. The exercise
price is $9.00 per share, subject to adjustment under certain conditions.
1995 Compensation for the Chief Executive Officer. L. Scott Demerau is
eligible to participate in the same executive compensation plans as the other
executives. The Committee's approach to setting Mr. Demerau's target annual
compensation is to set a compensation level commensurate with his
responsibilities and the objectives of his position that will be competitive
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with other family entertainment companies of comparable size. In setting Mr.
Demerau's base salary, the Committee compared his salary to the salaries of
other chief executive officers in the Company's peer group, and decided to
maintain his annual salary for 1996 at $200,000, the same as fiscal 1995. Mr.
Demerau did not receive a bonus in fiscal 1995 and did not receive any options
during such year.
One of the factors in the Compensation Committee's consideration of
compensation matters is the anticipated tax treatment to the Company and to its
executive officers of various components of compensation. However, amendments to
and interpretations of the tax laws and other factors beyond the control of the
Compensation Committee affect the tax treatment of compensation. For these
reasons, the Compensation Committee will not necessarily and in all
circumstances limit executive compensation to that deductible under Section
162(m) of the Internal Revenue Code. The Compensation Committee believes, based
on advice from the Company's tax advisers, that the Company's stock option plan
currently qualifies as a "performance-based" plan and that executive
compensation pursuant to the stock option plan would be deductible under Section
162(m). The Compensation Committee will consider various alternatives to
preserving the deductibility of other components of compensation to the extent
reasonably practicable and to the extent consistent with other compensation
objectives of the Company.
The Compensation Committee intends to periodically evaluate the Company's
compensation policies and procedures with respect to executive officers.
Although the Compensation Committee believes that current compensation policies
align the financial interests of executive officers with those of the Company's
shareholders and with Company performance, it will examine such modifications,
if any, as it deems should be implemented to further link executive compensation
with both individual and Company performance.
COMPENSATION COMMITTEE
Steven A. Cunningham, Chairman
William M. Kearns, Jr.
Ervin E. Lewis, Sr.
Bert W. Wasserman
Stock Price Performance Graph
The graph below compares cumulative total return on investment (based on
change in quarter-end stock prices) of a $100 investment in the Common Stock of
Mountasia, the S&P 500 Index and the S&P Entertainment/Leisure Composite Index,
for the period commencing November 3, 1993 (the date the Common Stock began
trading on the Nasdaq National Market System) and ending September 30, 1995. The
Company did not pay any dividends during the period covered by the performance
graph, therefore, no reinvestment of dividends is assumed.
[Performance graph appears on next page]
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