<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
(Name of Registrant as Specified in its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-8(i)(1)
(1) Title of each class of securities to which transaction applies:
_________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
_________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
_________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
_________________________________________________________________________
(5) Total fee paid:
_________________________________________________________________________
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
_________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
_________________________________________________________________________
(3) Filing Party:
_________________________________________________________________________
(4) Date Filed:
_________________________________________________________________________
<PAGE>
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
5895 WINDWARD PARKWAY, SUITE 220
ALPHARETTA, GEORGIA 30202-4182
MARCH 27, 1997
Dear Shareholder:
You are cordially invited to the annual meeting of shareholders of Mountasia
Entertainment International, Inc. to be held on April 28, 1997, at 10:00 A.M.,
Central Time, at the Harvey Hotel, Dallas-Fort Worth International Airport,
Dallas, Texas.
This meeting is the first meeting of shareholders following the Company's
recapitalization last year and its subsequent development of a comprehensive
business plan. At the meeting, shareholders will be asked to vote on a number of
matters:
(i) PROPOSAL I: Whether 24.9 million shares of capital stock held by the
Company's largest shareholder (with which the undersigned is affiliated) and
additional nonvoting capital stock issuable to it will have ordinary voting
rights. This shareholder currently is the owner of 81.4% of the equity of
the Company but has full voting rights with respect to only 49.9% of the
Company's capital stock. If such approval is given, the shareholder's total
voting power will equal its total equity ownership, increasing to 81.4%, and
certain standstill restrictions applicable to the shareholder will expire.
If such approval is not given, the Company's largest shareholder's total
equity stake will increase from 81.4% to at least 82.0% through the issuance
to it by the Company of at least 1.6 million additional shares of capital
stock and its purchase price per share for nonvoting capital stock purchased
from the Company will decrease by $0.38 per share;
(ii) PROPOSAL II: The proposed change in the Company's name to "Malibu
Entertainment Worldwide, Inc." in furtherance of the Company's new business
plan.
(iii) PROPOSAL III: The approval of a stock-based compensation plan
designed to provide economic incentives for operating and executive
management (excluding the undersigned and other full-time personnel employed
by affiliates of the Company's largest shareholder).
(iv) PROPOSAL IV: The election of Directors, a majority of whom will be
designated by the Company's largest shareholder if the voting rights
described in Paragraph (i) above are approved.
(v) PROPOSAL V: Ratification of the appointment of Arthur Andersen LLP
as the Company's independent accountants.
All of the foregoing matters are described in more detail in the accompanying
proxy statement, which you are urged to review carefully.
The members of the Company's Board of Directors who are not affiliated with
the Company's largest shareholder or employed by the Company recommend that
shareholders vote for approval of each matter to be considered at the annual
meeting.
Whether or not you plan to attend the annual meeting, please complete, date,
sign and return the enclosed proxy card in the postage-prepaid envelope to
assure that your shares are represented at the meeting. If you attend the
meeting, you may vote your shares in person, whether or not you have previously
submitted a proxy.
Very truly yours,
[LOGO]
Robert A. Whitman,
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
5895 WINDWARD PARKWAY, SUITE 220
ALPHARETTA, GEORGIA 30202
NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
The 1997 annual meeting of shareholders (together with any adjournments or
postponements thereof, the "Annual Meeting") of Mountasia Entertainment
International, Inc. (the "Company") will be held on April 28, 1997, at 10:00
a.m., Central Time, at the Harvey Hotel, Dallas-Fort Worth International
Airport, Dallas, Texas for the purpose of considering and voting upon the
following matters:
I. PROPOSAL I--Approval of Issuance of Common Shares in Lieu of Nonvoting
Shares: The approval of the issuance of Common Shares of the Company in lieu
of and upon conversion of nonvoting stock issued or to be issued by the
Company to the Company's largest shareholder worldwide;
II. PROPOSAL II--Approval of Name Change: The approval of the change in the
Company's name to "Malibu Entertainment Worldwide, Inc.";
III. PROPOSAL III--Approval of Incentive Plan: The approval of the Company's
1997 Long-Term Incentive Plan;
IV. PROPOSAL IV--Election of Directors: The election of Directors to serve terms
expiring at the next annual meeting of shareholders;
V. PROPOSAL V--Ratification of Appointment of Independent Accountants:
Ratification of the appointment of Arthur Andersen LLP as the Company's
independent accountants; and
VI. Other Matters: Such other matters as may be properly brought before the
Annual Meeting.
The close of business on March 25, 1997 is the record date for determining
shareholders entitled to notice of and to vote at the Annual Meeting.
By order of the Board of Directors,
/s/ Robert A. Whitman March 27, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY............................................................................... 1
VOTING AND PROXIES.................................................................... 5
Solicitation of Proxies............................................................. 5
Record Date; Quorum................................................................. 5
Proxies............................................................................. 5
Required Votes...................................................................... 6
SECURITY OWNERSHIP INFORMATION........................................................ 7
Security Ownership of MEI Holdings.................................................. 7
Security Ownership of Board and Management.......................................... 8
PROPOSAL I--APPROVAL OF ISSUANCE OF COMMON SHARES IN LIEU OF NONVOTING SHARES......... 9
Background of the Recapitalization.................................................. 9
The Recapitalization Agreement...................................................... 10
PROPOSAL II--APPROVAL OF NAME CHANGE.................................................. 17
PROPOSAL III--APPROVAL OF INCENTIVE PLAN.............................................. 17
Introduction........................................................................ 17
Terms of the Incentive Plan......................................................... 17
PROPOSAL IV--ELECTION OF DIRECTORS.................................................... 22
Board of Directors.................................................................. 22
Board Committees.................................................................... 23
Director Compensation............................................................... 24
Compensation Committee Insider Participation........................................ 24
PROPOSAL V--RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS.................... 24
COMPENSATION INFORMATION.............................................................. 25
Payments to Affiliates of MEI Holdings.............................................. 25
Compensation Tables................................................................. 25
Fiscal Year 1996 Stock Option Grants................................................ 26
Compensation Committee Report on Executive Compensation............................. 26
Certain Relationships and Related Transactions...................................... 27
COMPARISON OF TOTAL SHAREHOLDER RETURN................................................ 27
SHAREHOLDER PROPOSALS................................................................. 28
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT..................................... 28
CERTAIN FORWARD-LOOKING STATEMENTS.................................................... 28
ADDITIONAL INFORMATION................................................................ 28
ANNEX A--INCENTIVE PLAN............................................................... A-1
</TABLE>
i
<PAGE>
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
5895 WINDWARD PARKWAY, SUITE 220
ALPHARETTA, GEORGIA 30202
PRELIMINARY PROXY STATEMENT
FOR
1997 ANNUAL MEETING OF SHAREHOLDERS
SUMMARY
THE FOLLOWING IS A SUMMARY OF INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT. THE SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROXY STATEMENT. FOR ALL PURPOSES
HEREOF, EXCEPT AS OTHERWISE SPECIFIED HEREIN, (I) INFORMATION RELATING TO THE
NUMBERS OF COMPANY SHARES OUTSTANDING IS AS OF THE MARCH 25, 1997 RECORD DATE
BUT DOES NOT GIVE EFFECT TO THE COMPANY SHARES ISSUABLE TO MEI HOLDINGS, L.P.,
THE COMPANY'S LARGEST SHAREHOLDER ("MEI HOLDINGS"), IF SHAREHOLDERS FAIL TO
APPROVE PROPOSAL I (SUCH SHARES, "VOTING ADJUSTMENT SHARES"), (II) SHARES OF THE
COMPANY'S SERIES F PREFERRED STOCK ("SERIES F SHARES") AND SERIES G PREFERRED
STOCK ("SERIES G SHARES" AND, TOGETHER WITH THE SERIES F SHARES, "SERIES F/G
SHARES"), EACH OF WHICH IS SUBSTANTIALLY IDENTICAL TO TEN SHARES OF THE
COMPANY'S COMMON STOCK ("COMMON SHARES") (EXCEPT AS TO VOTING RIGHTS), ARE
MULTIPLIED BY TEN FOR ALL COMPUTATIONAL PURPOSES HEREIN, (III) COMMON SHARES AND
SERIES F/G SHARES ARE REFERRED TO COLLECTIVELY HEREIN AS "COMPANY SHARES," (IV)
COMMON SHARES THAT ARE SUBJECT TO VOTING RESTRICTIONS ARE REFERRED TO HEREIN AS
"PROPORTIONATELY VOTED COMMON SHARES," (V) COMMON SHARES THAT ARE NOT SUBJECT TO
VOTING RESTRICTIONS ARE REFERRED TO HEREIN AS "VOTING SHARES", AND (VI)
PROPORTIONATELY VOTED COMMON SHARES AND SERIES F/G SHARES ARE REFERRED TO
COLLECTIVELY HEREIN AS "NONVOTING SHARES."
<TABLE>
<S> <C> <C>
DATE, TIME AND PLACE OF THE
ANNUAL MEETING: April 28, 1997, commencing at 10:00 a.m., local time, at the
Harvey Hotel, Dallas-Fort Worth International Airport,
Dallas, Texas.
RECORD DATE: Only shareholders of record as of the close of business on
March 25, 1997 (the "Record Date") are entitled to notice of
and to vote at the Annual Meeting.
MATTERS TO BE CONSIDERED: Five matters (in addition to such other matters, if any, as
may be properly brought before the meeting) are presently
expected to be presented for shareholder action at the Annual
Meeting:
Proposal I: Whether Nonvoting Shares held by MEI Holdings
(19,408,504 of which are Series F/G Shares and
5,495,671 of which are Proportionately Voted
Common Shares) and additional Nonvoting Shares
issuable to MEI Holdings will have ordinary
voting rights;
Proposal II: Approval of the change of the Company's name to
"Malibu Entertainment Worldwide, Inc.";
Proposal Approval of the Company's Long-Term Incentive
III: Plan (the "Incentive Plan");
Proposal IV: Election of Directors to serve terms expiring
at the Company's next annual meeting of
shareholders; and
Proposal V: Ratification of the appointment of Arthur
Andersen LLP as the Company's independent
accountants.
</TABLE>
1
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<TABLE>
<S> <C> <C>
If shareholders approve Proposal I (such approval, "Voting
Right Approval"), MEI Holdings' total voting power will
CONSEQUENCES OF CERTAIN increase from 49.9% to 81.4% and certain standstill
VOTES: restrictions presently applicable to MEI Holdings will
expire, in which event, among other things, a majority of the
members of the Board of Directors of the Company (the
"Board") will be designees of MEI Holdings and MEI Holdings
will have the power to approve, or withhold approval of, any
matter presented to shareholders. If shareholders fail to
approve Proposal I, MEI Holdings' total voting power will
remain at 49.9% and such standstill restrictions will
continue to apply (subject to the limitations thereof), but
MEI Holdings will be entitled to at least 1,591,367
additional Voting Adjustment Shares, resulting in the
increase from 81.4% to 82.0% in MEI Holdings' total equity
stake in the Company (excluding voting power). If Voting
Right Approval is given, MEI Holdings' estimated average
purchase price per share for the Nonvoting Shares it
purchased from the Company will be $2.52, rather than $2.14
if Voting Right Approval is not given.
BOARD RECOMMENDATION: The members of the Board not designated for election thereto
by MEI Holdings or employed by the Company (the
"Nonaffiliated Directors"), each of whom was a member of the
Board prior to MEI Holdings' initial investment in the
Company, recommend that shareholders vote for Proposal I and
each of the other Proposals to be considered at the Annual
Meeting.
OUTSTANDING SHARES: As of the Record Date, the Company had outstanding 28,896,466
Common Shares, 23,401,095 Voting Shares and 24,904,175
Nonvoting Shares (excluding additional Nonvoting Shares
issuable if Proposal I is not approved) for a total of
48,304,970 Company Shares.
CERTAIN BENEFICIAL OWNERS: As of the Record Date, MEI Holdings beneficially owned (prior
to the conversion of any Nonvoting Shares into Common Shares)
14,419,337 Voting Shares, or 49.9% of the then-outstanding
Common Shares, and 39,323,413 Company Shares, or 81.4% of the
then-outstanding Company Shares. As of the Record Date,
Directors and executive officers beneficially owned 1,861,057
Voting Shares, or 6.4% of the then-outstanding Common Shares
and 3.8% of the then-outstanding Company Shares (not
including Company Shares beneficially owned by MEI Holdings
of any of its affiliates).
REQUIRED VOTES: Approval of each Proposal requires the affirmative vote of
the holders of a majority of the Common Shares voted, in
person or by proxy, at the Annual Meeting (a "Plurality
Vote"), except that approval of the change in the Company's
name (Proposal II) requires the affirmative vote of the
holders of a majority of all outstanding Common Shares as of
the Record Date (a "Majority Vote").
In accordance with the agreements entered into between the
VOTING: Company and MEI Holdings at the time of MEI Holdings' initial
investment in the Company in August 1996 (collectively, the
"Recapitalization Agreement") and the rules of the American
Stock Exchange (the "AMEX"), MEI Holdings will abstain from
voting with respect to Proposal I. If Voting Right Approval
is given, MEI Holdings will be entitled to vote, and has
informed the Company that it will vote, in favor of adoption
of Proposals II through V, in which event shareholder
approval of such Proposals will be assured. Regardless of
whether Voting Right Approval is given, MEI Holdings is
entitled to vote, and has informed the Company that it will
vote, its Voting Shares (representing 49.9% of all Common
Shares outstanding on the Record Date) in favor of adoption
of each of Proposals II
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2
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<S> <C> <C>
through V; such vote will be sufficient to assure the
adoption of Proposals II through V assuming, as is expected,
that the Unaffiliated Directors of the Company also vote in
favor thereof. L. Scott Demerau, the Company's founder, and
his spouse have agreed with the Company that they will vote
the 1.7 million Common Shares (representing 5.9% of the
Common Shares outstanding on the Record Date) in favor of
Proposal I.
The Company entered into the Recapitalization Agreement to
obtain the capital resources to fund its then-current
THE RECAPITALIZATION operations and to fund internal and external growth
AGREEMENT: opportunities. Under the Recapitalization Agreement, the
Company received $40.0 million for 11,727,970 Common Shares,
which represented 45.5% of the then-outstanding Common
Shares. Such number of shares was subject to increase, and
has since been increased to 12,112,573 Common Shares,
pursuant to the Recapitalization Agreement. Pursuant to the
Recapitalization Agreement, among other things, the Company
obtained the rights, subject to certain limitations, (i) to
require MEI Holdings to invest in the Company up to an
additional $22.7 million (the "Company Call Option") and (ii)
to require MEI Holdings to invest in the Company up to an
additional $30.0 million to backstop rights offerings that
the Company may undertake in the future (the "Backstop
Right"). The Company exercised the Company Call Option in
December 1996; the entire $22.7 million had been invested by
MEI Holdings pursuant thereto as of the Record Date, as a
result of which MEI Holdings received 9,017,744 Series F
Shares. In addition, MEI Holdings received 47,143 Series F
Shares pursuant to the Post-Closing Adjustment Provisions of
the Recapitalization Agreement and 3,730,583 Series F Shares
under the Warrant. See "Proposal I--The Recapitalization
Agreement."
In connection with the listing of the Common Shares on the
SERIES G SHARES: AMEX, the Company committed to the AMEX that it would
exercise its redemption right or take other action so that
the total number of Common Shares issued upon conversion of
the Company's 10% Convertible Subordinated Debentures Due
January 1, 1998 (the "10% Debentures") into Common Shares did
not exceed 20% of the outstanding Common Shares at the time
of the original issuance of the 10% Debentures. MEI Holdings
provided to the Company the $4.8 million of capital required
for such redemption in exchange for the issuance of 2,135,513
Series G Shares at a per share price of $2.26 (which price is
subject to adjustment to equal the adjusted per share price
for the purchase by MEI Holdings of Company Shares pursuant
to the Recapitalization Agreement in August 1996 if such
price is higher than $2.26).
In connection with the issuance of the Series G Shares, MEI
THE TENDER OFFER: Holdings commenced tender offers (collectively, the "Tender
Offer") for any and all outstanding Common Shares it did not
own at $3.50 per share and for any and all of the Company's
9% Subordinated Convertible Debentures Due November 1, 1999
(the "9% Debentures") and all of the Company's 9.1%
Subordinated Convertible Debentures Due January 1, 2002 (the
"9.1% Debentures" and, together with the 9% Debentures, the
"Purchased Debentures") at par plus accrued and unpaid
interest. Pursuant to the Tender Offer, MEI Holdings
purchased 7,802,435 Common Shares, $4,249,000 aggregate
principal amount of 9% Debentures and $11,422,322 aggregate
principal amount of 9.1% Debentures. The Purchased Debentures
have been
</TABLE>
3
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<TABLE>
<S> <C> <C>
converted into Nonvoting Shares (at a conversion rate of
$3.50 per share) and MEI Holdings is required to vote the
Common Shares acquired by it in the Tender Offer (to the
extent that the Common Shares beneficially owned by MEI
Holdings and its affiliates exceed 49.9% of all outstanding
Common Shares at the time in question) in the same proportion
as the Common Shares held by persons other than MEI Holdings
("Non-MEI-Directed Shares") are voted (such restriction, the
"Voting Restrictions"). If Proposal I is approved, the Voting
Restrictions will no longer apply and the Nonvoting Shares
into which the Purchased Debentures were converted will be
converted into Voting Shares.
BOARD OF DIRECTORS: If Voting Right Approval is given, the Board will consist of
nine persons, five of whom have been designated by MEI
Holdings; if Voting Right Approval is not given, the Board
will consist of six persons, two of whom have been designated
by MEI Holdings. The nominees for election to the Board also
include two Nonaffiliated Directors, one person who is
employed by the Company and one person who is consultant to
and former employee of the Company.
NAME CHANGE: The Board has approved, subject to shareholder approval, the
change in the Company's name to "Malibu Entertainment
Worldwide, Inc." The Board believes that the adoption of a
new name will signify and be more consistent with the
Company's new business plan and focus.
</TABLE>
<TABLE>
<S> <C> <C>
INCENTIVE PLAN: The Incentive Plan has been developed by the Company to
provide long-term incentives for Company personnel (excluding
personnel employed by affiliates of MEI Holdings) and is
being submitted to shareholders at the Annual Meeting in
accordance with the rules of the AMEX.
INDEPENDENT ACCOUNTANTS: The Board has appointed Arthur Andersen LLP as the Company's
independent accountants. Shareholders are being asked to
ratify such appointment at the Annual Meeting.
</TABLE>
4
<PAGE>
VOTING AND PROXIES
SOLICITATION OF PROXIES
This Proxy Statement and the accompanying proxy card are being furnished to
the shareholders of the Company in connection with the solicitation by the Board
of proxies for use at the Annual Meeting scheduled to be held on April 28, 1997,
at 10:00 a.m., Central Time, at the Harvey Hotel, Dallas-Fort Worth
International Airport, Dallas, Texas. This Proxy Statement and the accompanying
proxy card are first being mailed to shareholders on or about March 27, 1997.
The cost of solicitation of proxies will be borne by the Company. It is
expected that solicitation of proxies will be primarily by mail. The Company has
also retained MacKenzie Partners, Inc. to solicit proxies in the enclosed form
and will pay such firm a customary fee plus reasonable expenses for so acting
(estimated at $15,000 in the aggregate). In addition, proxies may be solicited
by the Company's Directors, officers and employees (without additional
compensation) by personal interview, by telephone or otherwise, and arrangements
may be made with brokerage firms and other custodians, nominees and fiduciaries
for the forwarding of proxy solicitation material to the beneficial owners of
Common Shares held of record by such persons. The Company may, upon request,
reimburse such brokers, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection therewith.
RECORD DATE; QUORUM
Only shareholders of record at the close of business on the Record Date are
entitled to notice of or to vote at the Annual Meeting. As of the Record Date,
there were 28,896,466 Common Shares outstanding and entitled to vote. Each
Common Share is entitled to one vote upon any proposal submitted for a vote at
the Annual Meeting. The presence, in person or by proxy, of the holders of a
majority of the Common Shares outstanding as of the Record Date is necessary to
constitute a quorum for the conduct of business at the Annual Meeting. MEI
Holdings has informed the Company that it intends to be represented in person or
by proxy at the Annual Meeting, in which event a quorum would be assured. A
complete list of the shareholders entitled to vote will be made available for
inspection by any shareholder of record at the offices of the Company during
ordinary business hours from April 27, 1997 through the time of the Annual
Meeting for any proper corporate purpose.
PROXIES
A proxy may be revoked by filing with the Secretary of the Company prior to
the exercise of the proxy either a written instrument revoking the proxy or an
executed subsequent proxy or by voting in person at the Annual Meeting.
Attendance at the Annual Meeting will not in itself constitute a revocation of a
proxy. Where a shareholder's proxy specifies a choice with respect to a matter,
the shares will be voted accordingly. If no such specification is made, the
shares will be voted for each of Proposals I through V.
Abstentions and broker non-votes will be included in determining the number
of shares present or represented at the Annual Meeting and any adjournment
thereof for purposes of determining whether a quorum exists. Abstentions and
broker non-votes with respect to any matter brought to a vote at the Annual
Meeting or any adjournment thereof will be treated as shares not voted for
purposes of determining whether the requisite vote has been obtained as to
Proposals I, III, IV and V, and therefore will have no effect on the outcome of
the vote on any such matter. Abstentions and broker non-votes will have the same
effect as a vote against Proposal V because Proposal II requires a Majority
Vote.
THE PERSONS NAMED AS PROXIES BY A SHAREHOLDER MAY PROPOSE AND VOTE FOR ONE
OR MORE ADJOURNMENTS OR POSTPONEMENTS OF THE ANNUAL MEETING, INCLUDING
ADJOURNMENTS OR POSTPONEMENTS TO PERMIT FURTHER SOLICITATIONS OF PROXIES IN
FAVOR OF ANY PROPOSAL.
5
<PAGE>
The Company is not aware of any matter to be considered at the Annual
Meeting that is not described herein. If any such matter is properly presented
for such consideration, the proxies will vote any shares represented by a duly
executed proxy in such manner as they see fit in their sole discretion.
The Company is submitting Proposal I for shareholder approval pursuant to
its agreement with MEI Holdings to use its best efforts to obtain Voting Right
Approval. If Proposal I is not approved at the Annual Meeting, the Company has
agreed with MEI Holdings to use its best efforts to obtain Voting Right Approval
at any annual meeting of shareholders held prior to December 31, 1999.
Continental Stock Transfer & Trust Company, the transfer agent and registrar
for the Common Shares, has been appointed by the Board as the inspector of
elections to receive proxies, tabulate the vote and serve at the Annual Meeting.
All votes will be tabulated by the inspector of elections who will separately
tabulate affirmative and negative votes and abstentions.
REQUIRED VOTES
Approval of each Proposal requires a Plurality Vote except that approval of
the change in the Company's name (Proposal II) requires a Majority Vote. In
accordance with the Recapitalization Agreement and the rules of the AMEX, MEI
Holdings will abstain from voting with respect to Proposal I. If Voting Right
Approval is given, MEI Holdings will be entitled to vote, and has informed the
Company that it will vote all of its Voting Shares, in favor of adoption of
Proposals II through V, in which event shareholder approval of such Proposals
will be assured. Regardless of whether Voting Right Approval is given, MEI
Holdings is entitled to vote, and has informed the Company that it will vote,
its Voting Shares (representing 49.9% of all Common Shares outstanding on the
Record Date) in favor of adoption of each Proposals II through V; such vote will
be sufficient to assure the adoption of Proposals II through V assuming, as it
is expected, that the Unaffiliated Directors and executive officers of the
Company also vote in favor thereof.
L. Scott Demerau, the Company's founder, and his spouse beneficially own 1.7
million Common Shares (5.9% of the Common Shares outstanding on the Record
Date). In connection with the Recapitalization, Mr. and Ms. Demerau agreed with
the Company that they will vote the 1.7 million Common Shares beneficially owned
by them in favor of Proposal I.
The shareholders of the Company have no dissenter's or appraisal rights
under Article 13 of the Georgia Business Corporation Code or under the Company's
Articles of Incorporation with regard to items set forth in this Proxy
Statement.
6
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SECURITY OWNERSHIP INFORMATION
SECURITY OWNERSHIP OF MEI HOLDINGS
As of the date of this Proxy Statement, MEI Holdings, the principal offices
of which are located at 4200 Texas Commerce Tower, Dallas, Texas 75201,
beneficially owned the following equity securities of the Company.
<TABLE>
<CAPTION>
NUMBER OF % OF
TITLE OF CLASS SHARES(A) COMPANY SHARES
- ----------------------------- ------------ -----------------
%
OF
VOTING
POWER
--
<S> <C> <C> <C> <C>
Voting Common Shares............................................ 14,419,337(b) 29.9% 49.9%
Proportionately Voted Common Shares............................. 5,495,671 11.4% 0%
Series F Shares................................................. 17,272,991(c) 35.8% 0%
Series G Shares................................................. 2,135,513 4.4% 0%
------------ --- ---
39,323,513 81.4% 49.9%
------------ --- ---
------------ --- ---
</TABLE>
- ------------------------
(a) Excludes Voting Adjustment Shares.
(b) Excludes Common Shares issuable upon conversion of Series F/G Shares if
Voting Right Approval is given; does not include 5,495,671 of the Common
Shares subject to the Voting Restrictions.
(c) If Proposal I is not approved, MEI Holdings is entitled to 1,591,367 Voting
Adjustment Shares.
MEI Holdings may be entitled to the issuance of additional Company Shares
under the Post-Closing Adjustment Provisions and other terms of the
Recapitalization Agreement in amounts yet to be determined. See "Proposal I--The
Recapitalization Agreement."
7
<PAGE>
SECURITY OWNERSHIP OF BOARD AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Shares as of the Record Date by: (i) each director and
executive officer of the Company and (ii) all directors and executive officers
of the Company as a group. No such director or executive officer beneficially
owned any Company Shares pursuant to options or other rights exercisable within
60 days. The ownership information below does not include Company Shares
beneficially owned by MEI Holdings. Unless otherwise set forth below, the
address of each director or executive officer is the principal offices of the
Company located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202.
<TABLE>
<CAPTION>
% OF
% OF COMPANY
NAME SHARES OWNED(A) VOTING POWER(B) SHARES
- -------------------------------------------------------------------- ---------------- ------------------- -------------
<S> <C> <C> <C>
Daniel A. Decker+(c)................................................ -- -- --
L. Scott Demerau**(d)............................................... 1,179,895 4.1% 2.4%
Julia E. Demerau**(e)............................................... 511,162 1.7% 1.1%
Richard M. FitzPatrick**++(c)....................................... -- -- --
James T. Hands+(c).................................................. -- -- --
William M. Kearns, Jr.**(e)(f)...................................... 80,000 * *
Donald J. McNamara+(c).............................................. -- -- --
Bert W. Wasserman**(f).............................................. 90,000 * *
Robert A. Whitman**++(c)............................................ -- -- --
All Directors and Executive Officers as a Group
(9 persons)(c).................................................... 1,861,057 6.4% 3.8%
</TABLE>
- ------------------------
* Less than one percent
** Director of the Company
+ A nominee for Director of the Company
++ Executive Officer of the Company
(a) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all Common
Shares 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.
(b) Excludes Series F/G Shares.
(c) Excludes securities beneficially owned by MEI Holdings. See "--Security
Ownership of MEI Holdings."
(d) Does not include 511,162 Common Shares held of record by Julia E. Demerau,
Mr. Demerau's spouse, of which Mr. Demerau disclaims beneficial ownership.
In February 1997, Mr. and Ms. Demerau borrowed $1.0 million from a financial
institution. The loan is secured by a pledge of all of the 1.7 million
shares owned by Mr. and Ms. Demerau. At the request of the lender, MEI
Holdings has guaranteed such indebtedness.
(e) Does not include 1,179,895 Common Shares held of record by L. Scott Demerau,
Ms. Demerau's spouse, of which Ms. Demerau disclaims beneficial ownership.
(f) Includes options to purchase 15,000 Common Shares which are exercisable
within 60 days of the date of this statement.
8
<PAGE>
PROPOSAL I--APPROVAL OF ISSUANCE OF COMMON SHARES
IN LIEU OF NONVOTING SHARES
BACKGROUND OF THE RECAPITALIZATION
THE COMPANY'S FINANCIAL POSITION PRIOR TO THE RECAPITALIZATION. In 1995, the
Company defaulted under certain covenants under its 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 Common 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 Common Shares.
In addition, the Company lacked available capital to invest in the Company's
properties including the properties acquired in the Malibu acquisition. 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 Common Shares began to erode
significantly. Accordingly, beginning in January 1996, the Board began
considering possible alternatives to recapitalize the Company.
Among the alternatives considered by the 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 two shares of a newly designated Series E
Preferred Stock for each Common 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 10% Debentures to convert those debentures
into Common 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 MEI
Holdings contacted representatives of the Company regarding a possible
investment by MEI Holdings in the Company. Following extensive negotiations
among representatives of the parties, on June 6, 1996, the Company terminated
the Exchange Offer and the Company and MEI Holdings entered into an Investment
Agreement (the "Investment Agreement") and related documents, including a
Warrant and Standstill Agreement. The transactions contemplated by the
Recapitalization Agreement (the "Recapitalization") were consummated on August
28, 1996 (the "Closing Date").
THE RECAPITALIZATION. In connection with the Recapitalization, (i) MEI
Holdings acquired 11,727,970 Common Shares (the "Initial Investment 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 MEI Holdings entered into the Warrant and the Standstill Agreement
and six designees of MEI Holdings were elected to the Board (which then had 14
members), one of whom was elected Chairman of the Board (and subsequently became
Chief Executive Officer). As a part of the Recapitalization, the Company
obtained the Company Call Option to compel MEI Holdings to invest up to an
additional $22.7 million in the Company, MEI Holdings agreed to provide up to an
additional $30.0 million to backstop future rights offerings and the terms of
the 9% Debentures and the 10% Debentures were amended to require them to be paid
by the Company in Common Shares rather than in cash.
CERTAIN EVENTS FOLLOWING THE RECAPITALIZATION. In November 1996, MEI
Holdings provided the capital required for the Company to redeem the $4.6
million then-outstanding aggregate principal amount of the Company's 10%
Debentures (plus accrued and unpaid interest thereon) in order for the Company
to comply with certain AMEX requirements. The 10% Debentures would have become
convertible into Common Shares commencing 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. MEI
Holdings received 2,135,513 Series G Shares for providing the capital to fund
the redemption of the 10%
9
<PAGE>
Debentures. The number of Nonvoting Shares so received is subject to adjustment,
but in no event will any such adjustment result in the number of such Nonvoting
Shares being issued at lower than the 11/7/96 10% Debenture Conversion Price
plus $0.01. MEI Holdings agreed not to sell any Company Shares so received in
the market before May 31, 1997 other than in private transactions exempt from
the registration requirements of the Securities Act of 1933 (the "Securities
Act").
The Company exercised the Company Call Option in December 1996 and
subsequently issued 9,017,740 Series F Shares for MEI Holdings $22.7 million
investment thereunder. The Series F Shares so issued will be convertible into
Common Shares if Proposal I is approved by shareholders. The exact number of
Company Shares issuable for such $22.7 million investment depends on future
events, including (i) whether shareholders approve Proposal I (if Voting Right
Approval is not given, the Company Shares so issuable to MEI Holdings will be
effectively issued at a 15% discount), (ii) the extent to which MEI Holdings is
entitled to additional shares under the Post-Closing Adjustment Provisions of
the Recapitalization Agreement (see "--The Recapitalization Agreement--
Post-Closing Adjustment Provisions"), and (iii) whether, and the prices at which
certain outstanding securities are converted into Common Shares (see "--The
Recapitalization Agreement--The Warrant"). The Company presently estimates that
the final number of Company Shares so issuable will be between 9.0 million and
9.7 million shares (or $2.34 to $2.52 per share), or 10.6 million and 11.4
million shares if Voting Right Approval is not obtained (or $1.99 to $2.14 per
share).
On January 14, 1997, MEI Holdings purchased pursuant to the Tender Offer (i)
7,802,435 Common Shares at $3.50 per share, (ii) $4,249,000 aggregate principal
amount of 9% Debentures at par plus accrued and unpaid interest, and (iii)
$11,422,322 aggregate principal amount of 9.1% Debentures at par plus accrued
and unpaid interest. The Purchased Debentures were converted at a conversion
rate of $3.50 per share into 4,477,521 Series F Shares. The Common Shares
acquired by MEI Holdings in the Tender Offer and upon conversion of the
Purchased Debentures are subject to the Voting Restrictions. See "--The
Recapitalization Agreement--Standstill Agreement; Representation on the Board."
THE RECAPITALIZATION AGREEMENT
GENERAL. Pursuant to the Investment Agreement, among other things, (i) MEI
Holdings initially invested $40.0 million in the Company and (ii) the Company
(a) sold to MEI Holdings the Initial Investment Shares (11,727,970 Common
Shares, or 45.45% of the then-outstanding Common Shares after giving effect to
such issuance and prior to the sale of 2.1 million Common Shares to employees),
and (b) issued to MEI Holdings a Warrant to acquire additional Common Shares or
Nonvoting Shares automatically upon the occurrence of certain events. In
addition, MEI Holdings is entitled to Company Shares under certain provisions of
the Investment Agreement (the "Post-Closing Adjustment Provisions") if certain
events occur which vary adversely from the parties' assumptions relating
thereto. The purpose of the Warrant and the Post-Closing Adjustment Provisions
is to protect MEI Holdings against (i) any dilution of its percentage interest
in the Company acquired by MEI Holdings pursuant to its initial $40.0 million
investment, the Company Call Option and the Backstop Right or otherwise pursuant
to the Recapitalization Agreement that is due to the exercise or conversion of
warrants, options and other securities outstanding on August 28, 1996
("Convertible Securities") at prices below $3.75 or the conversion or deemed
conversion of any of the 9% Debentures, the 9.1% Debentures or the 10%
Debentures outstanding on August 28, 1996 (collectively, the "Debentures") and
(ii) the economically dilutive effects of any decrease in the value of the
Company at the time of the Recapitalization by reason of adverse variations from
the parties' valuation assumptions relating to MEI Holdings' investment in the
Company pursuant to the Investment Agreement.
THE WARRANT. The Warrant provides for the issuance of additional Company
Shares to MEI Holdings without payment by MEI Holdings of additional
consideration if the Company issues Common Shares (i) under Convertible
Securities at prices below $3.75 per share (which price is subject to adjustment
as described below), (ii) upon conversion of any of the Debentures, regardless
of the conversion price, or
10
<PAGE>
(iii) upon a deemed conversion of any of the Debentures as of the earlier of the
date of payment or redemption of such Debentures and August 7, 1997. If any
Debentures have been deemed to have been so converted and remain outstanding on
August 7, 1998, then MEI Holdings will have the right to receive additional
Company Shares under the Post-Closing Adjustment Provisions.
The number of Company Shares to be issued to MEI Holdings upon the
conversion of a Convertible Security is equal to the number of Common Shares
received by the holder of the Convertible Security as a result of such
conversion less the number of Common Shares which would have been received by
the holder of the Convertible Security as a result of such conversion had the
person converted the Convertible Security at $3.75 (subject to adjustment as
described below) (the "Trigger Price"), multiplied by the sum of (i) the number
of Common Shares then acquired by MEI Holdings pursuant to the Recapitalization
Agreement and (ii) the number of Series F Shares then acquired by MEI Holdings
in lieu of any Common Shares issuable under the Recapitalization Agreement
(collectively, the "Holder Shares"), divided by the sum of (a) the total number
of Common Shares issued and outstanding on the date of such conversion and (b)
the total number of Series F Shares issued and outstanding on such date (such
Common Shares and Series F Shares, collectively, the "Outstanding Shares"). The
number of Common Shares issued to MEI Holdings in connection with the conversion
or deemed conversion of any Debentures will be equal to the total number of
Common 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. Accordingly, the
conversion of the 9% Debentures and 9.1% Debentures purchased by MEI Holdings
pursuant to the Tender Offer and the conversion of 9% Debentures not purchased
in the Tender Offer by the holders thereof entitled MEI Holdings to the issuance
of an additional 3,730,583 Series F Shares and 233,449 Common Shares.
POST-CLOSING ADJUSTMENT PROVISIONS. In connection with the Recapitalization
Agreement, the parties agreed to certain assumptions as to various matters in
valuing the equity of the Company as of June 5, 1996 at $88.0 million (including
the $40.0 million initially invested by MEI Holdings). These assumptions
included (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 were then subject to ground leases which would 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) that all of the Debentures would
be converted into Common 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) that the Company's
representations and warranties in the Investment Agreement are accurate. The
Investment Agreement provides that, if any such assumption was, is or becomes
incorrect in a manner adverse to the value of Company, MEI Holdings is entitled
under the Post-Closing Adjustment Provisions to the issuance of additional
Common Shares in recognition of the adverse impact on the mutually assumed
equity value.
Consistent with the parties' investment assumptions discussed above and in
order to ensure that the Company would have unrestricted rights to develop its
family entertainment centers ("FEC's"), MEI Holdings required the Company to
reacquire at cost plus a time-value-of-money factor certain development rights
which it previously sold to other entities to raise capital. Accordingly, in
August 1996, the Company reacquired from entities in which Judy Demerau, the
mother of L. Scott Demerau, a Director of the Company, has equity interests
certain domestic development rights for $2.1 million (the Company had sold the
development rights to such entity for $2.0 million in June 1995) and purchased
land for development of an FEC for $800,000 (which was approximately the
seller's cost basis in such land). Judy Demerau's interest in such transactions
was approximately $1.25 million (which amount was equal to her
11
<PAGE>
total capital contribution to the entity), $250,000 of which was used to pay a
promissory note given by Ms. Demerau as a down payment on the purchase of the
land in March 1996. In addition, in August 1996, the Company reacquired the
international development rights it had previously sold to another entity in
which Ms. Demerau had an interest and settled certain claims of the entity
against the Company relating thereto for $762,000. Ms. Demerau's interest
through a 20% limited partnership interest in the entity in this transaction was
approximately $152,000 (which amount represented a partial return of her
investment in the limited partnership).
MEI Holdings has informed the Company that it currently estimates that the
amount of the Company's contingent liabilities as of the Closing Date exceeded
the Contingency Hurdle Amount by at least $600,000. As a result, MEI Holdings
believes it became entitled to 151,155 Common Shares and 47,143 Series F 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 Nonaffiliated Directors.
COMPANY CALL OPTION. The Investment Agreement provided for the Company Call
Option pursuant to which, for a period of three years from the Closing Date, the
Company had the right to compel MEI Holdings to invest up to an additional $22.7
million to purchase Common Shares at a purchase price of $3.41 per share
(subject to adjustment). The $3.41 per share initial exercise price under the
Company Call Option is subject to adjustment so that it is equal to MEI
Holdings' all-in effective net price per Common Share (after giving effect to
MEI Holdings' antidilution protections, including valuation adjustments) for the
Common Shares purchased by MEI Holdings in its initial $40.0 million investment
("MEI Holdings Base Price Per Share") but will in no event exceed $3.41 per
share. In the event that Voting Right Approval is not obtained, the shares
issuable upon exercise of the Company Call Option are Series F Shares. The
Company has exercised its right to require MEI Holdings to invest $22.7 million
pursuant to the Company Call Option. The Company has issued 9.0 million Series F
Shares under the Company Call Option, however, the purchase price per share
thereunder is subject to adjustment in which event MEI Holdings would be
entitled to additional shares. The Company estimates that the final number of
Company Shares issuable under the Company Call Option will be between 9.0
million and 9.7 million Company Shares (or $2.34 to $2.52 per share), or 10.6
million and 11.4 million Company Shares if Voting Right Approval is not given
(or $1.99 to $2.14 per share).
The Recapitalization Agreement provides that the Series F Shares issuable
upon the Company's exercise of the Company Call Option are issuable at a 15%
discount from the price at which they would otherwise be issued except that MEI
Holdings is required to return the Series F Shares attributable to such discount
if and when Voting Right Approval is obtained (provided Voting Right Approval is
obtained by June 27, 1997). As of the Record Date, the Company had not issued
the additional Series F Shares attributable to such discount, therefore, if
Voting Right Approval is not obtained, the Company will be required to issue an
additional approximately 1.6 million Series F Shares. In addition, unless and
until Voting Right Approval has been obtained, if the Company is required to
issue shares under the Post-Closing Adjustment Provisions or the Warrant and the
issuance of Common Shares would result in MEI Holdings owning a majority of the
Common Shares, the shares of capital stock of the Company issued under the
Warrant or the Post-Closing Adjustment Provisions will be Series F Shares and
will be issued at a 15% discount.
SERIES F SHARES. Series F Shares are convertible into Common Shares after
Voting Right Approval is given or under certain other circumstances. The terms
of the Series F Shares were structured so that Series F Shares are substantially
equivalent (except as to voting) to Common Shares. Accordingly, the holders of
the Series F Shares will be entitled when, as and if declared by the Board, to
dividends or other distributions payable or distributable on the date on which
dividends or other distributions are so payable or distributable on or in
respect of Common Shares, in an amount per Series F Share equal to the aggregate
per share amount of all cash dividends and the aggregate per share amount
(payable in kind) of
12
<PAGE>
all non-cash dividends or other distributions, declared on the Common Shares. If
the Company declares any dividend or other distribution on Common Shares payable
in Common Shares or any other capital stock of the Company having the right to
vote in the election of directors on a regular basis ("Other Voting Shares"),
then in each such case where Common Shares would have been payable, each holder
of Series F Shares will be entitled to receive a number of additional Series F
Shares equal to the number of Common Shares such holder would have received if
all of such holder's Series F Shares had been converted into Common Shares as
described below, and in each such case where shares of Other Voting Shares would
have been payable, each holder of Series F Shares will be entitled to receive
such number of shares of any series or class of Company capital stock as
provides such holder all of the relative rights, preferences and powers, except
voting rights, that the holder would have received as a holder of Common Shares
if all of such holder's Series F Shares had been converted into Common Shares in
accordance with the procedures described below. Subject to the prior and
superior rights of the holders of any shares of any senior preferred stock, if
the Company subdivides the outstanding Common Shares into a greater number of
shares or combines the outstanding Common Shares into a reduced number of
shares, then in each case the outstanding Series F Shares will also be
subdivided or combined in the same proportion so that each Series F Share
continues to be entitled to ten times the amount of dividends and distributions
as each Common Share.
Except as set forth in the terms of the Series F Shares or otherwise
provided by law, holders of Series F Shares have no voting rights and their
consent will not be required for taking any corporate action.
On any liquidation, voluntary or otherwise, dissolution or winding up of the
Company, the holders of Series F Shares 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 the aggregate amount to be distributed
per share to holders of Common Shares. If the Company enters into any
recapitalization, consolidation, merger, combination or other transaction in
which Common Shares are exchanged for or changed into other shares or
securities, cash and/or any other property, then in any such case Series F
Shares will at the same time be similarly exchanged or changed into an amount
per share equal to the aggregate amount of shares, securities, cash and/or any
other property payable (payable in kind) into which or for which each Common
Share is changed or exchanged.
If the Company offers for subscription PRO RATA to the holders of its Common
Shares any additional shares of stock of any class or any other right, then in
each such case, the Company will give to the holders of Series F Shares the same
notice and same opportunity to participate in such subscription offering, as if
the Series F Shares had theretofore been converted into Common Shares. If the
offer involves any right to acquire Common Shares or any Other Voting Shares,
and the Series F Shares are not then convertible into Common Shares as described
below, then if the offer involves Common Shares, the Company will give the
holders of Series F Shares the right to acquire a Series F Share for each Common
Share such holder would otherwise have had the right to acquire at a price per
share which would have applied to the Common Shares reduced by 15% and, if the
offer involves Other Voting Shares, the Company will give the holders of Series
F Shares the right to acquire such number of shares of any series or class of
the Company Shares at such price and on such other terms as will provide such
holder all of the relative rights, preferences and powers, except for voting
rights, that the holder would have received if all of such holder's Series F
Shares had been converted into Common Shares as described below.
The holders of Series F Shares have the right to convert each Series F Share
into Common Shares at any time after the Voting Right Approval is given.
Regardless of whether Voting Right Approval is given, holders of Series F Shares
will have the right at any time to convert each Series F Share into a Common
Share under any of the following circumstances: (i) as long as the Series F
Shares to be converted are beneficially owned by a person, entity or "group"
within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (collectively, a "Person"), other than and which
does not include MEI Holdings or any "affiliate" (within the meaning of Rule
12b-2 under the Exchange Act) of MEI Holdings (collectively, the "MEI Holdings
Group") unless as of the time of transfer of
13
<PAGE>
Series F Shares by any member of the MEI Holdings Group to any Person who or
which is not a member of the MEI Holdings Group, both (a) the restrictions set
forth in the Standstill Agreement continue to apply to limit ownership by MEI
Holdings 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 majority of the
shares of capital shares of the Company entitled to vote generally in the
election of members of the Board (any such shareholder, a "Controlling
Shareholder"); (ii) by any member of the MEI Holdings Group, so long as after
giving effect to such conversion, the MEI Holdings Group, taken as a whole would
not be a Controlling Shareholder; or (iii) with the approval of a majority of
the Unaffiliated Directors.
Series F Shares rank junior to all senior preferred shares which may be
issued from time to time as to the payment of dividends or other distributions
or upon liquidation, dissolution or winding-up unless the terms of any such
series provide otherwise.
SERIES G SHARES. The terms of the Series G Shares are the same as the terms
of the Series F Shares except that Series G Shares (i)have a liquidation
preference equal to the amount received by the Company for their issuance, and
(ii)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 Common
Shares. Dividends accrued but not declared will be lost upon conversion of the
Series G Shares into Common Shares. The Company does not presently expect that
any dividends will actually be paid on the Series G Shares. If MEI Holdings'
Base Price Per Share at the time of the conversion of the Series G 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, then MEI Holdings
will return to the Company such number of Common Shares as is necessary so that
the number of Common Shares into which the Series G Shares are converted is
equal to the number of Common Shares into which the 10% Debentures would have
been convertible if their conversion price had been equal to MEI Holdings' Base
Price Per Share.
REGISTRATION RIGHTS AGREEMENT. The Company Shares acquired or to be
acquired by MEI Holdings pursuant to the Recapitalization Agreement (including
the Company Call Option, the Post-Closing Adjustments and the Warrant) are
"restricted securities" as that term is defined in Rule 144 of the Securities
Act. Consequently, resales of such securities by MEI Holdings which are not
registered under the Securities Act are subject to the timing, volume and other
limitations of Rule 144. Pursuant to the Investment Agreement, MEI Holdings 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 Company Shares, including any Common Shares or Debentures (or
capital stock into which the Debentures are convertible) acquired by MEI
Holdings pursuant to the Tender Offer or otherwise. MEI Holdings 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 MEI
Holdings in connection with any Demand or Piggyback Registration.
STANDSTILL AGREEMENT; REPRESENTATION ON THE BOARD. MEI Holdings has the
right to designate representatives to the Board, including the right to
designate the Chairman of the Board. The number of MEI Holdings' designees is to
be proportional to MEI Holdings' beneficial ownership of the outstanding
securities entitled to vote in the election of Directors of the Company ("Voting
Securities") in relation to the total outstanding Voting Securities, except (i)
that for so long as MEI Holdings owns more than 10% of the outstanding Voting
Securities of the Company, MEI Holdings 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 MEI Holdings' designees exceeding more than one less than a
majority of the Board, and (iii) so long as the number of Directors is between
seven and 14, the number of MEI Holdings' designees are not to exceed 40% of the
total number of Directors. The foregoing restrictions will, however, terminate
if Voting Right Approval is given. In addition, the Standstill Agreement
provides that, for so long as MEI Holdings holds
14
<PAGE>
more than 10% of the Company's total outstanding voting securities, the Board
will ensure that at least one Director designated by MEI Holdings is a member of
each committee of the Board and such Director may designate an alternate
Director to act in his or her stead.
Pursuant to the Standstill Agreement, MEI Holdings agreed not to acquire
beneficial ownership of any Voting Securities, except as contemplated by the
Recapitalization Agreement, if after such acquisition MEI Holdings would
beneficially own Voting Securities having the right to 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
Nonaffiliated Directors. In connection with MEI Holdings' agreement to fund the
redemption of the 10% Debentures and the Tender Offer, the Company and MEI
Holdings amended the Standstill Agreement to permit MEI Holdings to purchase
Common Shares and Purchased Debentures pursuant to the Tender Offer. As so
amended, Common Shares purchased in the Tender Offer or upon conversion of the
Purchased Debentures are subject to the Voting Restrictions.
The restrictions on MEI Holdings under the Standstill Agreement do not
restrict sales of Company Shares by MEI Holdings and terminate after ten years
or, if earlier, upon the occurrence of certain events, including (i) if any
Person (other than MEI Holdings 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) MEI Holdings' acquisition, pursuant to the Investment Agreement, the
Warrant, the Company Call Option or the conversion of Series F Shares or Series
G Shares into Common Shares, of Common Shares or such other Voting Securities
representing a majority of the total voting power of the Company. Accordingly,
the Standstill Agreement will terminate if shareholders approve Proposal I.
Subject to certain limitations, the Voting Restrictions and other limitations on
Nonvoting Shares do not apply to any assignee of MEI Holdings.
SHAREHOLDER AGREEMENTS. In connection with the Recapitalization, each of L.
Scott Demerau and Julia E. Demerau agreed with the Company that they will not
sell the Common Shares beneficially owned by them prior to June 30, 1998, except
following the disposition by MEI Holdings of at least 25% of the Common Shares
beneficially owned by it at the time of its initial investment in the Company as
to a like percentage of their holdings of Common Shares and except in certain
other limited circumstances.
L. Scott Demerau, the Company's founder, and his spouse beneficially own 1.7
million Common Shares (5.9% of the Common Shares outstanding on the Record
Date). In connection with the Recapitalization, Mr. and Ms. Demerau agreed with
the Company that they will vote the 1.7 million Common Shares beneficially owned
by them in favor of Proposal I.
BACKSTOP RIGHT. MEI Holdings has agreed to exercise all rights to purchase
Common Shares issued to it in connection with rights offerings to all
shareholders meeting certain conditions and, if the rights offered by the
Company are non-assignable, MEI Holdings has agreed to acquire any and all
Common Shares not purchased by distributees of such unexercised rights. MEI
Holdings 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 to indemnify and hold harmless MEI
Holdings and each of its affiliates and associates (each as defined in 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 Tender Offer or any other agreement prepared and
delivered in connection with the transactions contemplated thereby or any
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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. MEI Holdings has indemnified the Company's Indemnified Parties on
terms similar to the Company's indemnification of MEI Holdings' Indemnified
Parties for breaches of MEI Holdings' representations, warranties and covenants
contained in the Investment Agreement and such indemnification is subject to the
Threshold and the Cap.
MANAGEMENT SHARES. Pursuant to the Recapitalization Agreement, the Company
sold 2.1 million Common Shares to key management personnel selected by the
Compensation Committee of the Board (the "Management Shares") at $2.6625 per
share, which price was the average of the closing prices of the Common Shares
for the 10 trading days immediately preceding the sale date. Each such purchaser
was required to surrender all options to acquire Common Shares held by him or
her. The initial participants surrendered options to acquire an aggregate of
791,680 Common Shares at a weighted average exercise price of $3.93 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 Common 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).
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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 Common 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.
A total of 2.1 million Management Shares were sold to 19 key employees, four
of whom were at the time executive officers of the Company (but are no longer
serving as such) for $5,573,499, including L. Scott Demerau (750,000 shares for
$1,996,875) and Julia E. Demerau (108,333 shares for $288,437). Mr. Demerau is
the founder of the Company and was its Chairman and Chief Executive Officer
until November 1996; he is presently a Director of the Company and is
responsible for oversight of the Company's acquisition and development
functions. Ms. Demerau was an Executive Vice President of the Company until
November 1996; she is presently a Director and consultant to the Company. See
"Proposal III--Approval of Incentive Plan" for a discussion of the Incentive
Plan proposed for management personnel.
PROPOSAL II--APPROVAL OF NAME CHANGE
The Board has approved, subject to shareholder approval, an amendment to the
Company's Articles of Incorporation to change the name of the Company to "Malibu
Entertainment Worldwide, Inc." The Board believes that the adoption of a new
name will signify and be more consistent with the Company's new business plan
and focus. The change in the Company's name is not expected to change the
Company's AMEX trading symbol ("MBE"). The Board may determine to withdraw
Proposal II from consideration at the Annual Meeting, or if approved by
shareholders, may determine not to proceed with the name change, if further
investigation reveals that the name "Malibu Entertainment Worldwide, Inc." may
not be reasonably available for use by the Company.
PROPOSAL III--APPROVAL OF INCENTIVE PLAN
INTRODUCTION
The Board has approved the Incentive Plan, subject to shareholder approval.
The Incentive Plan is designed to attract and retain qualified officers and
other key employees of the Company. The Incentive Plan authorizes the grant of
options to purchase Common Shares ("Option Rights"), stock appreciation rights
("Appreciation Rights"), restricted shares ("Restricted Shares"), deferred
shares ("Deferred Shares"), performance shares ("Performance Shares") and
performance units ("Performance Units"). The Compensation Committee of the Board
or a subcommittee thereof comprised of disinterested directors (within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (the "Committee") will administer the Incentive Plan and
determine to whom Option Rights, Appreciation Rights, Restricted Shares,
Deferred Shares, Performance Shares and Performance Units are to be granted and
the terms and conditions, including the number of shares and the period of
exercisability, thereof. The following summary of the Incentive Plan is
qualified in its entirety by reference to the Incentive Plan, attached hereto as
Annex A.
TERMS OF THE INCENTIVE PLAN
SHARES AND PERFORMANCE UNITS AVAILABLE UNDER THE INCENTIVE PLAN. Subject to
adjustment as provided in the Incentive Plan, the number of Common Shares that
may be issued or transferred and covered by outstanding awards granted under the
Incentive Plan will not exceed 4.0 million, which may be shares of
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original issuance or treasury shares or a combination thereof. Officers,
including officers who are members of the Board, and other key employees of and
consultants to the Company and its subsidiaries ("Participants") may be selected
by the Committee to receive benefits under the Incentive Plan. Persons employed
on a full-time basis by MEI Holdings or any affiliate thereof (other than the
Company and its affiliates) are not eligible for grants under the Incentive
Plan.
OPTION RIGHTS. The Committee may authorize the grant of Option Rights that
entitle the optionee to purchase Common Shares at a price equal to or greater or
less than market value on the date of grant, and the Option Rights may be
conditioned on the achievement of specified performance objectives ("Management
Objectives"). Subject to adjustment as provided in the Incentive Plan, no
participant will be granted Option Rights and Appreciation Rights, in the
aggregate, for more than 500,000 shares during any calendar year. The Committee
may provide that the option price is payable at the time of exercise (i) in
cash, (ii) by the transfer to the Company of nonforfeitable, unrestricted Common
Shares, (iii) with any other legal consideration the Committee may deem
appropriate, or (iv) by any combination of the foregoing methods of payment. A
grant may provide for deferred payment of the option price from the proceeds of
sale through a broker on the date of exercise of some or all of the Common
Shares to which the exercise relates if there is then a public market for the
Common Shares. A grant may provide for automatic grant of reload option rights
upon the exercise of Option Rights, including reload option rights, for Common
Shares or any other noncash consideration authorized under the Incentive Plan,
except that the term of any reload option right may not extend beyond the term
of the Option Right originally exercised. The Committee has the authority to
specify at the time Option Rights are granted that Common Shares will not be
accepted in payment of the option price until they have been owned by the
optionee for a specified period; however, the Incentive Plan does not require
any such holding period and would permit immediate sequential exchanges of
Common Shares at the time of exercise of Option Rights.
Option Rights granted under the Incentive Plan may be Option Rights that are
intended to qualify as "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or Option
Rights that are not intended to so qualify. Any grant may provide for the
payment of dividend equivalents to the optionee) on a current, deferred or
contingent basis or may provide that dividend equivalents be credited against
the option price.
No Option Right may be exercised more than ten years from the date of grant.
Each grant must specify the period of continuous employment with, or continuous
engagement of consulting services by, the Company or any subsidiary that is
necessary before the Option Rights will become exercisable and may provide for
the earlier exercise of the Option Rights in the event of a change of control of
the Company or other similar transaction or event. Successive grants may be made
to the same optionee regardless of whether Option Rights previously granted to
him or her remain unexercised.
APPRECIATION RIGHTS. Appreciation Rights granted under the Incentive Plan
may be either free-standing Appreciation Rights or Appreciation Rights that are
granted in tandem with Option Rights or any similar rights granted under any
other plan of the Company. An Appreciation Right represents the right to receive
from the Company the difference (the "Spread"), or a percentage thereof not in
excess of 100%, between the base price per Common Share in the case of a
free-standing Appreciation Right, or the option price of the related Option
Right or similar right in the case of a tandem Appreciation Right, and the
market value of the Common Shares on the date of exercise of the Appreciation
Right. Tandem Appreciation Rights may only be exercised at a time when the
related Option Right or similar right is exercisable and the Spread is positive,
and the exercise of a tandem Appreciation Right requires the surrender of the
related Option Right for cancellation. A free-standing Appreciation Right must
specify a base price, which may be equal to or greater or less than the fair
market value of a Common Share on the date of grant, must specify the period of
continuous employment, or continuous engagement of consulting services, that is
necessary before the Appreciation Right becomes exercisable (except that it may
provide for its earlier exercise in the event of a change in control of the
Company or other similar transaction or event) and may not be exercised more
than ten years from the date of grant. Successive grants of free-
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standing Appreciation Rights may be made to the same participant regardless of
whether any free-standing Appreciation Rights previously granted to the
participant remain unexercised. Any grant of Appreciation Rights may specify
that the amount payable by the Company upon exercise may be paid in cash, Common
Shares or a combination thereof and may (i) either grant to the recipient or
retain in the Committee the right to elect among those alternatives or (ii)
preclude the right of the participant to receive, and the Company to issue,
Common Shares or other equity securities in lieu of cash. In addition, any grant
may specify that the Appreciation Right may be exercised only, or accelerated,
in the event of a change in control of the Company. Subject to adjustment as
provided in the Incentive Plan, no participant shall be granted Option Rights
and Appreciation Rights, in the aggregate, for more than 500,000 shares during
any calendar year. The Committee may condition the award of Appreciation Rights
on the achievement of one or more Management Objectives and may provide with
respect to any grant of Appreciation Rights for the payment of dividend
equivalents thereon in cash or Common Shares on a current, deferred or
contingent basis.
RESTRICTED SHARES. An award of Restricted Shares involves the immediate
transfer by the Company to a participant of ownership of a specific number of
Common Shares in consideration of the performance of services. The participant
is entitled immediately to voting, dividend and other ownership rights in the
shares. The transfer may be made without additional consideration or for
consideration in an amount that is less than the market value of the shares on
the date of grant, as the Committee may determine. The Committee may condition
the award on the achievement of specified Management Objectives.
Restricted Shares must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined by
the Committee. An example would be a provision that the Restricted Shares would
be forfeited if the participant ceased to serve the Company as an officer or
other salaried employee during a specified period of years. In order to enforce
these forfeiture provisions, the transferability of Restricted Shares will be
prohibited or restricted in a manner and to the extent prescribed by the
Committee on the date of grant. The Committee may provide for a shorter period
during which the forfeiture provisions are to apply in the event of a change in
control of the Company or other similar transaction or event. Subject to
adjustment as provided in the Incentive Plan, no participant will be granted
Restricted Shares and Deferred Shares, in the aggregate, for more than 500,000
shares during any calendar year.
DEFERRED SHARES. An award of Deferred Shares constitutes an agreement by
the Company to deliver Common Shares to the participant in the future in
consideration of the performance of services, subject to the fulfillment of such
conditions during the Deferral Period (as defined in the Incentive Plan) as the
Committee may specify. During the Deferral Period, the participant has no right
to transfer any rights covered by the award and no right to vote the shares
covered by the award. On or after the date of any grant of Deferred Shares, the
Committee may authorize the payment of dividend equivalents thereon on a
current, deferred or contingent basis in either cash or additional Common
Shares. Grants of Deferred Shares may be made without additional consideration
or for consideration in an amount that is less than the market value of the
shares on the date of grant.
Deferred Shares must be subject to a Deferral Period, as determined by the
Committee on the date of grant, except that the Committee may provide for a
shorter Deferral Period in the event of a change in control of the Company or
other similar transaction or event. The Committee may condition the award of
Deferred Shares on the achievement of one or more Management Objectives. Subject
to adjustment as provided in the Incentive Plan, no participant shall be granted
Restricted Shares and Deferred Shares, in the aggregate, for more than 500,000
shares during any calendar year.
PERFORMANCE SHARES AND PERFORMANCE UNITS. A Performance Share is the
equivalent of one Common Share, and a Performance Unit is the equivalent of
$10.00. A participant may be granted any number of Performance Shares or
Performance Units, which shall be specified in any such grant. The participant
will be given one or more Management Objectives to meet within a specified
period (the "Performance Period"). The specified Performance Period may be
subject to earlier termination in the event of a change
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in control of the Company or other similar transaction or event. A minimum level
of acceptable achievement will also be established by the Committee. If the
participant has not achieved the Management Objectives but has attained or
exceeded the predetermined minimum level of acceptable achievement, the
participant will be deemed to have partly earned the Performance Shares or
Performance Units which shall be specified in any such grant. To the extent
earned, the Performance Shares or Performance Units will be paid to the
participant at the time and in the manner determined by the Committee in cash,
Common Shares or any combination thereof and may either grant to the Participant
or reserve to the Committee the right to elect among those alternatives.
Management Objectives may be described in terms of either Company-wide
objectives or objectives that are related to the performance of the division,
subsidiary, department or function within the Company or a subsidiary in which
the participant is employed or with respect to which the participant provides
consulting services. The Committee may adjust any Management Objectives and the
related minimum level of acceptable achievement if, in its judgment,
transactions or events have occurred after the date of grant that are unrelated
to the participant's performance and result in distortion of the Management
Objectives or the related minimum level of acceptable achievement. During any
calendar year, no participant may be granted Performance Shares and Performance
Units having an aggregate value as of their respective dates of grant in excess
of the value of 50,000 Common Shares (subject to adjustment as provided in the
Incentive Plan).
TRANSFERABILITY. No Option Right, Appreciation Right or other "derivative
security" within the meaning of Rule 16b-3 under the Exchange Act ("Rule 16b-3")
is transferable by a participant except by will or the laws of descent and
distribution. Option Rights and Appreciation Rights may not be exercised during
a participant's lifetime except by the participant or, in the event of the
participant's incapacity, by the participant's guardian or legal representative
acting in a fiduciary capacity on behalf of the participant under state law and
court supervision. Notwithstanding the foregoing, the Committee, in its sole
discretion, may provide for the transferability of particular awards under the
Incentive Plan so long as such provisions will not disqualify the exemption for
other awards under Rule l6b-3, if such rule is then applicable to awards under
the plan.
The Committee may specify at the date of grant that all or any part of
Common Shares that are to be issued or transferred by the Company upon the
exercise of Option Rights or Appreciation Rights, upon the termination of the
Deferral Period applicable to Deferred Shares or upon payment under any grant of
Performance Shares or Performance Units, or are to be no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in the
Incentive Plan with respect to Restricted Shares, shall be subject to further
restrictions on transfer.
ADJUSTMENTS. The maximum number of shares that may be issued or transferred
under the Incentive Plan, the number of shares covered by outstanding Option
Rights or Appreciation Rights and the option prices or base prices per share
applicable thereto and the number of shares covered by outstanding grants of
Deferred Shares and Performance Shares are subject to adjustment in the event of
stock dividends, stock splits, combinations of shares, recapitalizations,
mergers, consolidations, spinoffs, reorganizations, liquidations, issuances of
rights or warrants and similar transactions or events. In the event of any such
transaction or event, the Committee may in its discretion provide in
substitution for any or all outstanding awards under the Incentive Plan such
alternative consideration as it may in good faith determine to be equitable in
the circumstances and may require the surrender of all awards so replaced. The
Committee may also, as it determines to be appropriate in order to reflect any
such transaction or event, make or provide for such adjustments in the number of
shares that may be issued or transferred and covered by outstanding awards
granted under the Incentive Plan and the number of shares permitted to be
covered by awards granted under the plan to any one participant during any
calendar year.
ADMINISTRATION AND AMENDMENTS. The Committee must consist of not less than
two members who are "non-employee directors" within the meaning of Rule 16b-3
and "outside directors" within the meaning of Section 162(m) of the Code. In
connection with its administration of the Incentive Plan, the Committee is
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authorized to interpret the Incentive Plan and related agreements and other
documents. The Committee may make grants to participants under any or a
combination of all of the various categories of awards that are authorized under
the Incentive Plan and may condition the grant of awards on the surrender or
deferral by the participant of the participant's right to receive a cash bonus
or other compensation otherwise payable by the Company or a subsidiary to the
participant.
The Incentive Plan may be amended from time to time by the Committee, but
without further approval by the shareholders of the Company no such amendment
may (i) increase the aggregate number of Common Shares that may be issued or
transferred and covered by outstanding awards or increase the number of shares
which may be granted to any participant in any calendar year or (ii) otherwise
cause Rule l6b-3 to cease to be applicable to the Incentive Plan or otherwise
cause any award under the Incentive Plan to cease to qualify for the performance
based exception to Section 162(m) of the Code.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief summary of
certain of the federal income tax consequences of certain transactions under the
Incentive Plan based on federal income tax laws in effect on the date of this
Proxy Statement. This summary is not intended to be exhaustive and does not
describe state or local tax consequences.
In general, (i) no income will be recognized by an optionee at the time a
nonqualified Option Right is granted, (ii) at the time of exercise of a
nonqualified Option Right, ordinary income will be recognized by the optionee in
an amount equal to the difference between the option price paid for the shares
and the fair market value of the shares if they are nonrestricted on the date of
exercise, and (iii) at the time of sale of shares acquired pursuant to the
exercise of a nonqualified Option Right, any appreciation (or depreciation) in
the value of the shares after the date of exercise will be treated as either
short-term or long-term capital gain (or loss) depending on how long the shares
have been held.
No income generally will be recognized by an optionee upon the grant or
exercise of an incentive stock option. If Common Shares are issued to an
optionee pursuant to the exercise of an incentive stock option and no
disqualifying disposition of the shares is made by the optionee within two years
after the date of grant or within one year after the transfer of the shares to
the optionee, then upon the sale of the shares any amount realized in excess of
the option price will be taxed to the optionee as long-term capital gain and any
loss sustained will be a long-term capital loss. If Common Shares acquired upon
the exercise of an incentive stock option are disposed of prior to the
expiration of either holding period described above, the optionee generally will
recognize ordinary income in the year of disposition in an amount equal to any
excess of the fair market value of the shares at the time of exercise (or, if
less, the amount realized on the disposition of the shares in a sale or
exchange) over the option price paid for the shares. Any further gain (or loss)
realized by the optionee generally will be taxed as short-term or long-term gain
(or loss) depending on the holding period.
No income will be recognized by a participant in connection with the grant
of an Appreciation Right. When the Appreciation Right is exercised, the
participant normally will be required to include as taxable ordinary income in
the year of exercise an amount equal to the amount of any cash, and the fair
market value of any nonrestricted Common Shares, received pursuant to the
exercise.
A recipient of Restricted Shares generally will be subject to tax at
ordinary income rates on the fair market value of the Restricted Shares reduced
by any amount paid by the recipient at such time as the shares are no longer
subject to a substantial risk of forfeiture or restrictions on transfer for
purposes of Section 83 of the Code. However, a recipient who so elects under
Section 83(b) of the Code within 30 days of the date of transfer of the shares
will have taxable ordinary income on the date of transfer of the shares equal to
the excess of the fair market value of the shares (determined without regard to
the risk of forfeiture or restrictions on transfer) over any purchase price paid
for the shares. If a Section 83(b) election has not been made, any dividends
received with respect to Restricted Shares that are subject at that time to a
substantial risk of forfeiture and restrictions on transfer generally will be
treated as compensation that is taxable as ordinary income to the recipient.
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No income generally will be recognized upon the grant of Deferred Shares.
The recipient of a grant of Deferred Shares generally will be subject to tax at
ordinary income rates on the fair market value of nonrestricted Common Shares on
the date that the Deferred Shares are transferred to him or her, reduced by any
amount paid by him or her, and the capital gains or loss holding period for the
Deferred Shares will also commence on that date.
No income generally will be recognized upon the grant of Performance Shares
or Performance Units. Upon payment in respect of the earn out of Performance
Shares or Performance Units, the recipient generally will be required to include
as taxable ordinary income in the year of receipt an amount equal to the amount
of cash received and the fair market value of any nonrestricted Common Shares
received.
In limited circumstances where the sale of stock that is received as the
result of a grant of an award could subject an officer or director to suit under
Section 16(b) of the Exchange Act, the tax consequences to the officer or
director may differ from the tax consequences described above. In these
circumstances, unless a special election has been made, the principal difference
usually will be to postpone valuation and taxation of the stock received so long
as the sale of the stock received could subject the officer or director to suit
under Section 16(b) of the Exchange Act, but not longer than six months.
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company or subsidiary for which the
participant performs services will be entitled to a corresponding deduction
provided that, among other things, (i) the income meets the test of
reasonableness, is an ordinary and necessary business expense and is not an
"excess parachute payment" within the meaning of Section 280G of the Code and is
not disallowed by the $1.0 million limitation on certain executive compensation
and (ii) any applicable reporting obligations are satisfied.
PROPOSAL IV--ELECTION OF DIRECTORS
BOARD OF DIRECTORS
The management of the Company is under the direction of the Board. The Board
held 20 meetings during 1996. Each Director attended at least 75% of the
meetings of the Board held while he or she was a director, and each Director
appointed to serve on one or more committees of the Board attended at least 75%
of the meetings of such committee or committees held while he or she was a
member thereof.
In February 1997, the number of Directors was reduced to six, two designees
of MEI Holdings, (Robert A Whitman and Richard M. FitzPatrick), two
Nonaffiliated Directors (William M. Kearns, Jr. and Bert W. Wasserman) and one
employee-Director (L. Scott Demerau), and one consultant to and former employer
of the Company (Julia E. Demerau). If Proposal I is approved by shareholders,
the number of Directors will be increased to nine, and three additional
designees of MEI Holdings, (Daniel A. Decker, Donald J. McNamara and James T.
Hands) will be added to the Board. If the nominees become unavailable for any
reason or should a vacancy occur before the election, the Board may substitute
another person as a nominee, subject to the terms of the Recapitalization
Agreement.
The following is certain information regarding the five current members of
the Board.
L. Scott Demerau, 35, was a founder of the Company and was the Chief
Executive Officer and President of the Company from its inception in 1991 until
November 1996 and served as the Chairman of the Board from 1991 to August 1996.
He served in similar capacities with the Company's predecessors since 1986. Mr.
Demerau is presently responsible for oversight of the Company's development and
acquisitions activities.
Julia E. Demerau, 38, was a founder of the Company and has been a member of
the Board since 1991. She served as an Executive Vice President from the
Company's inception in 1991 until November 1996, and served in similar
capacities with the Company's predecessors since 1986. She is currently a
consultant to the Company.
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Richard M. FitzPatrick, 43, has been a member of the Board since August 1996
and has been the Chief Financial Officer of Hampstead since 1989. He is
presently serving as interim Chief Financial Officer of the Company.
William M. Kearns, Jr., 61, has been a member of the Board since January
1995. Since 1994, Mr. Kearns has served as President of W.M. Kearns & Co., Inc.,
a private investment company. From 1992 to 1994, Mr. Kearns served as an
Advisory Director for Lehman Brothers. From 1984 to 1992, Mr. Kearns served as
Managing Director, Corporate Finance for Lehman Brothers. Mr. Kearns serves on
the Board of Directors of The Kuhlman Corporation, Selective Insurance Group,
Inc., Consolidated Delivery & Logistics, Inc. and various privately held
companies. Mr. Kearns also serves as a Senior Consultant to Furman Selz Inc., is
a trustee of EQ Advisors Trust (Equitable Life Assurance Society of the U.S.)
and is a member of the Executive Advisory Board of the William E. Simon School
of Business of the University of Rochester.
Bert W. Wasserman, 64, has been a member of the Board since January 1995.
Mr. Wasserman served as the Executive Vice President and Chief Financial Officer
from 1990 to 1994 and as a director from 1990 to 1993 of Time Warner Inc. From
1981 to 1991, Mr. Wasserman served as a member of the Office of the President
and Board of Directors of Warner Communications, Inc. Mr. Wasserman served as a
member of the National Advisory Board of Chemical Bank until March 1996. He
currently serves as a member of the Board of Trustees of the Baruch School of
the College of the City of New York, a director of various registered investment
companies for which The Dreyfus Corporation acts as investment advisor, and a
director of The New Germany Fund, Winstar Communications, Inc., IDT Corporation
and Lillian Vernon Corporation.
Robert A. Whitman, 43, has been the Chairman of the Board of the Company
since August 1996, Chief Executive Officer of the Company since November 1996,
and President and Co-Chief Executive Officer of Hampstead since 1991. Mr.
Whitman also is a director of Wyndham and served as Chairman of the Board of
Forum Group, Inc., a NASDAQ-traded operator of retirement communities, from 1993
until the sale of that company to Marriott International, Inc. in 1996.
The following is certain information regarding the Additional MEI Designees.
Daniel A. Decker, 43, has been a member of the Board since August 1996 and
has been an Executive Vice President of The Hampstead Group, L.L.C.
("Hampstead") since 1990. Hampstead is an investment firm which formed MEI
Holdings. Mr. Decker also is a director of Wyndham Hotel Corporation
("Wyndham"), a New York Stock Exchange ("NYSE") listed owner/operator of hotels.
James T. Hands, 36, has been a member of the Board since August 1996 and has
been a Vice President of Hampstead since 1993. Prior thereto, Mr. Hands was a
consultant employed by Kenneth Leventhal & Co.
Donald J. McNamara, 44, has been a member of the Board since August 1996 and
has been the Chairman and Chief Executive Officer (or Co-Chief Executive
Officer) of Hampstead since the founding of the firm in 1988. Mr. McNamara also
is the Chairman of the Board and a director of Bristol and a director of FelCor
Suite Hotels, Inc., and served as Chairman of the Board of the general partner
of Forum Retirement Communities, L.P., an AMEX-listed owner of retirement
communities, from 1993 to 1996.
BOARD COMMITTEES
The Audit Review Committee of the Board is comprised of Richard M.
FitzPatrick, William M. Kearns, Jr. and Bert W. Wasserman, with Mr. Wasserman
presently serving as Chairman.
The Compensation Committee of the Board is comprised of Richard M.
FitzPatrick, William M. Kearns, Jr. and Bert W. Wasserman, with Mr. FitzPatrick
serving as Chairman. If Daniel A. Decker is elected to the Board, he will take
Mr. FitzPatrick's place as a member and Chairman of this Committee.
The Board does not have a Nominating Committee.
23
<PAGE>
The Compensation Committee held one meeting in 1996. The Audit Review
Committee held two meetings in 1996.
DIRECTOR COMPENSATION
For their service as such, the Directors, other than Mr. Demerau and Ms.
Demerau, are paid a fee of $30,000 per year, payable quarterly, plus fees of
$1,000 for each special meeting attended in person and $750 for each telephonic
special meeting attended and an annual fee of $5,000 for serving on Board
committees, plus fees of $750 for each special committee meeting attended in
person and $500 for each telephonic special committee meeting attended. Each of
the MEI-designated Directors has waived his rights to such fees for 1996 and
1997 and does not presently expect to accept such fees thereafter (although they
would qualify therefor). For service as a consultant, Ms. Demerau is entitled to
$30,000 per year.
COMPENSATION COMMITTEE INSIDER PARTICIPATION
Former Executive Vice President Julia E. Demerau was a member of the
Compensation Committee until November 1996. Chief Financial Officer Richard M.
FitzPatrick is currently a member of the Compensation Committee.
PROPOSAL V--RATIFICATION OF APPOINTMENT OF
INDEPENDENT ACCOUNTANTS
The Board has appointed Arthur Andersen LLP as independent accountants to
examine the consolidated financial statements of the Company for the fiscal year
ending December 31, 1997. Shareholders are being asked to ratify this
appointment at the Annual Meeting. Arthur Andersen LLP has served the Company in
this capacity since 1995. The Company has been informed that neither Arthur
Andersen LLP nor any of its partners has any direct financial interest or any
material indirect financial interest in the Company or has had any connection
during the past three years with the Company in the capacity or promoter,
underwriter, voting trustee, director, officer or employee.
One or more representatives of Arthur Andersen LLP are expected to be
available at the Annual Meeting with the opportunity to make a statement if they
desire to do so and to respond to appropriate questions.
On September 11, 1995, Price Waterhouse LLP resigned as the Company's
independent accountants. Such resignation was approved by the Board. Subsequent
to its resignation, Price Waterhouse LLP informed the Company that the failure
to resolve three issues relating to the Company's 1995 interim consolidated
financial statements could constitute "disagreements" required to be reported
under Item 304 of Regulation S-K of the Exchange Act. The Company considered the
position of Price Waterhouse LLP on the three issues and revised its interim
reports consistent with such position. A letter from Price Waterhouse LLP
confirming resolution of the issues was filed as an exhibit to the Company's
report on Form 8-K/A filed with the Securities and Exchange Commission on
September 29, 1995. The Board and the Audit Review Committee did not discuss
such issues with Price Waterhouse LLP. The Company has authorized Price
Waterhouse LLP to respond fully to the inquiries of Arthur Andersen LLP, the
Company's successor accountants. A fourth issue identified by Price Waterhouse
LLP related to the accounting treatment of two strategic alliance agreements was
not resolved with Price Waterhouse LLP due to the resignation of Price
Waterhouse LLP. The Company subsequently engaged Arthur Andersen LLP as its
independent accountants to replace Price Waterhouse LLP, and Arthur Andersen
LLP's report on the financial statements for the fiscal year ended September 30,
1995 did not contain an adverse opinion, disclaimer of opinion, qualification or
modification as to uncertainty, audit scope or accounting principles.
24
<PAGE>
COMPENSATION INFORMATION
PAYMENTS TO AFFILIATES OF MEI HOLDINGS
Robert A. Whitman, currently the Chairman and Chief Executive Officer of the
Company, did not receive any compensation for service in those capacities during
1996 and has agreed not to accept any compensation for such service through June
30, 1997. Thereafter, if applicable, the matter may be revisited but as of the
date of this Proxy Statement there is no agreement or understanding with respect
thereto. Richard M. FitzPatrick and James T. Hands, both of whom are employees
of Hampstead, have worked substantially on a full-time basis on Company business
since mid-1996. The Company paid $179,070 to Hampstead to reimburse it for
salary and other costs of Messrs. FitzPatrick and Hands for such service during
1996, and pursuant to the Recapitalization Agreement reimbursed Hampstead for
approximately $2.4 million of out-of-pocket costs incurred in its investments
under the Recapitalization Agreement and in respect of the Tender Offer. Such
payments were approved by the Nonaffiliated Directors.
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 December 31,
1996 and September 30, 1995 and 1994 to its Chief Executive Officer and the
three executive officers of the Company who received compensation in excess of
$100,000 during such years (the "Named Executives"). Except for Robert A.
Whitman, none of the Named Executives is currently an executive officer of the
Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------------- ------------- PAYOUTS
OTHER ANNUAL RESTRICTED ---------------
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS/SARS LTIP PAYOUT
POSITION YEAR ($) ($) ($) AWARD(S) (#) ($)
- ------------------------------ --------- ---------- ----------- ------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert A. Whitman,............ 1996 -0- -0- -0- -0- -0- -0-
Chief Executive Officer
L. Scott Demerau,............. 1996 $ 205,909 -0- -0- -0- -0- -0-
Former President and Chief 1995 198,651 -0- $ 156,741(b) -0- -0- -0-
Executive Officer 1994 101,030 -0- 241,390(b) -0- -0- -0-
Julia E. Demerau,............. 1996 $ 147,170 -0- -0- -0- -0- -0-
Former Exec. Vice President 1995 109,530 -0- $ 156,746(e) -0- -0- -0-
1994 94,242 -0- $ 241,389(e) -0- -0- -0-
Gregory N. Waters,............ 1996 $ 150,000 -0- -0- -0- -0- -0-
Former Exec. Vice President 1995 -0- -0- -0- -0- -0- -0-
and Chief Financial Officer 1994 -0- -0- -0- -0- -0- -0-
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION ($)
- ------------------------------ -------------
<S> <C>
Robert A. Whitman,............ -0-
Chief Executive Officer
L. Scott Demerau,............. $ 109,495(a)
Former President and Chief 200,000(c)
Executive Officer -0-
Julia E. Demerau,............. $ 388,640(d)
Former Exec. Vice President 200,000(c)
-0-
Gregory N. Waters,............ $ 200,000(f)
Former Exec. Vice President -0-
and Chief Financial Officer -0-
</TABLE>
- ------------------------
(a) Represents the payment of $100,000 for the surrender of options to purchase
379,260 Common Shares having an exercise price of and $9,495 for a car
allowance.
(b) Includes repayment of a portion of the promissory note to Mr. Demerau issued
in connection with the initial formation of the Company in 1991. It does not
include payments during these periods in repayment of the promissory notes
to Julia E. Demerau, Mr. Demerau's wife.
(c) Represents a fee paid in consideration for entering into a lock-up agreement
in connection with an equity offering in November 1994.
(d) Represents the payment of $50,000 for the return of option to purchase
279,260 Common Shares, $325,000 for termination of an employment contract
and $13,690 for a car allowance.
25
<PAGE>
(e) Includes payment of a portion of the promissory note to Ms. Demerau issued
in connection with the initial formation of the Company in 1991. It does not
include payments during the periods in repayment of these promissory notes
to L. Scott Demerau.
(f) Represents a severance payment of $200,000. An additional severance payment
of $100,000 will be paid to Mr. Waters in 1997.
FISCAL YEAR 1996 STOCK OPTION GRANTS
During 1996, stock options for 350,000, 250,000 and 100,000 were granted to
L. Scott Demerau, Julia E. Demerau and Gregory N. Waters, respectively, pursuant
to the Company's existing incentive plan, but Mr. and Ms. Demerau surrendered
all of their stock options pursuant to the Recapitalization Agreement and Mr.
Waters surrendered all options held by him in connection with the termination of
his employment. As a result thereof, as of the end of the fiscal year 1996 no
options granted to Named Executives were outstanding. No grants of Stock
Appreciation Rights were made during 1996 to any of the Named Executives.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board oversees three elements of executive
compensation: base pay or salary, annual performance bonus and long-term
compensation, which consists of the Company's existing incentive plan and the
Incentive Plan, subject to shareholder approval. 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 officers 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 the Company's current executive compensation is generally
comparable to comparable companies.
The salary paid to the Company's executives (other than Messrs. Whitman and
FitzPatrick) 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 the Company's goals.
Each of former Chief Executive Officer L. Scott Demerau, former Executive
Vice President Julia E. Demerau and former Executive Vice President and Chief
Financial Officer Gregory N. Waters had an employment contract with the Company
that provided for an annual base salary of $200,000, $150,000 and $150,000,
respectively. In November 1996, the employment contract of each of Ms. Demerau
and Mr. Waters was terminated, and severance payments of $325,000 and $300,000,
respectively, were, or will be, paid by the Company.
Following his resignation as Chief Executive Officer in November 1996, Mr.
Demerau's employment contract was amended to reflect such resignation and his
new position as president of a division of the Company that will focus on the
new acquisitions and development of new concepts for the Company. Mr. Demerau's
annual base salary under the amended employment contract is $200,000.
Following the resignation of Mr. Waters and the change in Mr. Demerau's and
Ms. Demerau's responsibilities, the Company did not have any executive officers
whose annual rate of compensation exceeded $100,000. The Company is engaged in a
search for permanent executive officers to replace such persons and expects to
enter into such compensation agreements as the Committee determines to be
appropriate in connection with hiring them.
In order to aid in assuring the alignment of the interests of management
with shareholder interests, the Recapitalization Agreement provided for the
purchase of 2.1 million Management Shares by a total of 19 employees. See
"Proposal I--The Recapitalization Agreement--Management Shares." Assuming the
approval of the Incentive Plan, the Committee expects to commence the grant of
options or other rights thereunder to existing employees and new hires. However,
the Committee had made no determinations with respect thereto as of the date of
this Proxy Statement.
COMPENSATION COMMITTEE
RICHARD M. FITZPATRICK, CHAIRMAN
WILLIAM M. KEARNS, JR.
BERT W. WASSERMAN
26
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1996, Judy Demerau, the mother of L. Scott Demerau (the founder of the
Company and presently a Director and officer of the Company) received
compensation totaling $81,730 in 1996 that was attributable to payments by the
Company to her employer, Entertainment Realty Corp. ("ERC"). The payments to ERC
by the Company were for services rendered by Judy Demerau and other employees of
ERC in connection with locating sites for potential development by the Company.
In August 1996, at MEI Holdings' request, the Company terminated its contract
with ERC and hired Ms. Demerau directly at an annual compensation rate of
approximately $125,000.
In January through March 1996, the Company advanced $525,000 to L. Scott
Demerau, and his spouse, Julia E. Demerau, in connection with the Company's
proposed purchase of Mr. and Ms. Demerau's equity interests in two FEC's in
Mallorca, Spain. The advance was refunded in April 1996 with interest at a rate
of 10% after the Company determined not to proceed with such purchase.
See "Proposal I--The Recapitalization Agreements" for a discussion of
certain other relationships and related transactions and "--Compensation Tables"
for a discussion of compensation received by Scott Demerau and Julia E. Demerau,
including severance compensation payable to Julia E. Demerau.
In August 1996, Mr. Demerau resigned as Chairman of the Board and in
November 1996 Mr. Demerau resigned as President and Chief Executive Officer of
the Company in order to devote his efforts exclusively to the Company's
acquisition and development efforts. In November 1996, Julia E. Demerau resigned
as Executive Vice President of the Company in order to devote more time to
family commitments. Ms. Demerau was paid $325,000 in settlement of her
then-existing employment contract and presently serves as a consultant to the
Company at an annual rate estimated at $30,000.
Each of the payments discussed in this section were approved by members of
the Board who were not employees of the Company and had no interest therein.
COMPARISON OF TOTAL SHAREHOLDER RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MOUNTASIA ENTMT INTL INC ENTERTAINMENT-500 S&P 500 INDEX
<S> <C> <C> <C>
3-Nov-93 $100 $100 $100
Sep94 134 93 102
Sep95 103 122 133
Dec96 42 123 173
</TABLE>
27
<PAGE>
SHAREHOLDER PROPOSALS
Shareholders may submit proposals on matters appropriate for shareholder
action at the Company's annual meetings, subject to regulations adopted by the
Securities and Exchange Commission (the "SEC"). The Company presently intends to
call the next annual meeting during April 1998. For such proposals to be
considered for inclusion in the Proxy Statement and form of proxy relating to
such annual meeting, they must be received by the Company not later than
December 23, 1997. Such proposals should be addressed to the Secretary,
Mountasia Entertainment International, Inc., 5895 Windward Parkway, Suite 220,
Alpharetta, Georgia 30202.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires directors and executive officers
of the Company, and persons who own more than 10% of the issued and outstanding
Common Shares, to file reports of ownership and changes in ownership with the
SEC. Directors, executive officers and greater than 10% shareholders are
required by SEC regulation to furnish the Company copies of all Section 16(a)
forms they file. Except as set forth below, to the Company's knowledge, based
solely on review of those copies and written representations that no reports
were required, the Company's directors, executive officers and greater than 10%
shareholders complied with all applicable Section 16(a) filing requirements
during 1996.
Each Director of the Company during 1996, other than the Directors
designated by MEI Holdings, failed to file on a timely basis required forms
under Section 16(a) relating to option awards and/or the surrender of previously
granted options relating thereto. The required filings have since been made. In
addition, Gregory Waters, a Director and executive officer of the Company during
a portion of 1996 who has since resigned all positions with the Company, failed
to file required reports relating to the purchase of Common Shares in March
1996; such filing has since been made.
CERTAIN FORWARD-LOOKING STATEMENTS
This Proxy Statement (including the documents incorporated by reference
herein) contains certain forward-looking statements (as such term is defined in
the Private Securities Litigation Reform Act of 1995) and information relating
to the Company that are based on the beliefs of the management of the Company,
as well as assumptions made by and information currently available to the
management of the Company. When used in this Proxy Statement, the words
"anticipate," "believe," "estimate," "expect," "intend" and similar expressions,
as they relate to the Company or its management, identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions relating to the operations and results of operations of the Company
and the success of the Company's business plan, including as a result of
competitive factors and pricing pressures; general economic conditions; the
failure of market demand for the types of entertainment opportunities the
Company plans to provide in the future and for family entertainment in general
to be commensurate with management's expectations or past experience
availability, cost and terms of financing; impact of present and future laws;
ongoing need for capital improvements; changes in operating expenses; adverse
changes in governmental rules and policies; changes in demographics and other
factors. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results or outcomes may
vary materially from those described herein as anticipated, believed, estimated,
expected or intended. Accordingly, shareholders are cautioned not to place undue
reliance on such forward-looking statements.
ADDITIONAL INFORMATION
The Company's Annual Report on Form 10-K for the year ended December 31,
1996 as filed with the Commission (File No. 0-22458) pursuant to the Exchange
Act is incorporated by reference in this Proxy Statement.
28
<PAGE>
All documents and reports filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement
and prior to the date of the Annual Meeting will be deemed to be incorporated by
reference in this Proxy Statement and to be a part hereof from the dates of
filing of such documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein will be deemed to
be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded will not
be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement.
The Company is subject to the informational filing requirements of the
Exchange Act and, in accordance therewith, is required to file with the
Commission periodic reports and other information relating to its business,
financial condition and other matters. The Company is required to disclose in
such reports certain information, as of particular dates, concerning the
Company's operating results and financial condition, its officers and directors,
the principal holders of the Company's securities, any material interests of
such persons in transactions with the Company and other matters. These reports
and other informational filings required by the Exchange Act should be available
for inspection at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and also should be available for inspection and copying at the regional offices
of the Commission located at Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60611 and 7 World Trade Center, 13th Floor, New York, New York 10048.
The Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Such reports, proxy and information statements and other
information may be found on the Commission's Web site address,
http://www.sec.gov. Copies of such material may be obtained by mail, upon
payment of the Commission's customary fees, from the Commission's principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Information regarding the Company may also be obtained at the offices of the
AMEX, 86 Trinity Place, New York, New York 10006.
A copy of the Company's 1996 Form 10-K Annual Report is being distributed to
the shareholders together with this Proxy Statement.
Copies of the documents by reference in this Proxy Statement which are not
presented herein or delivered herewith (other than exhibits to such documents,
unless such exhibits are specifically incorporated by reference into the
information incorporated herein) are available, without charge, to any person,
including any beneficial owner of capital stock of the Company, to whom this
Proxy Statement is delivered upon written or oral request to Mountasia
Entertainment International, Inc., 5895 Windward Parkway, Suite 220, Alpharetta,
Georgia 30202-4128, Attention: Secretary (telephone number (770) 442-6640). In
order to ensure delivery of the documents prior to the Annual Meeting, requests
should be received by March 31, 1997.
29
<PAGE>
ANNEX A
MALIBU ENTERTAINMENT WORLDWIDE, INC.
LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of this Plan is to attract and retain qualified
officers and other key employees of Malibu Entertainment Worldwide, Inc. (the
"Company") and its Subsidiaries and to provide such persons with appropriate
incentives. The Company has adopted the Plan effective as of April 28, 1997, and
unless extended by amendment in accordance with the terms of the Plan, no Option
Rights, Appreciation Rights, Restricted Shares, Deferred Shares, Performance
Shares or Performance Units will be granted hereunder after the tenth
anniversary thereof.
2. DEFINITIONS. As used in this Plan,
"Appreciation Right" means a right granted pursuant to Section 5 of this
Plan, including a Free-standing Appreciation Right and a Tandem Appreciation
Right.
"Base Price" means the price to be used as the basis for determining the
Spread upon the exercise of a Free-standing Appreciation Right.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Compensation Committee of the Board, as described in
Section 14(a) of this Plan or a subcommittee thereof or, in the absence of a
Compensation Committee or subcommittee, the full Board.
"Common Shares" means (i) shares of the Common Stock, no par value per
share, of the Company and (ii) any security into which Common Shares may be
converted by reason of any transaction or event of the type referred to in
Section 10 of this Plan.
"Date of Grant" means the date specified by the Committee on which a grant
of Option Rights, Appreciation Rights or Performance Shares or Performance Units
or a grant or sale of Restricted Shares or Deferred Shares becomes effective,
which will not be earlier than the date on which the Committee takes action with
respect thereto.
"Deferral Period" means the period of time during which Deferred Shares are
subject to deferral limitations under Section 7 of this Plan.
"Deferred Shares" means an award pursuant to Section 7 of this Plan of the
right to receive Common Shares at the end of a specified Deferral Period.
"Free-standing Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is not granted in tandem with an Option
Right or similar right.
"Incentive Stock Option" means an Option Right that is intended to qualify
as an "incentive stock option" under Section 422 of the Code or any successor
provision thereto.
"Management Objectives" means the achievement of a performance objective or
objectives established pursuant to this Plan for Participants who have received
grants of Performance Shares or Performance Units or, when so determined by the
Committee, Restricted Shares, Deferred Shares, Option Rights or Appreciation
Rights. Management Objectives may be described in terms of Company-wide
objectives or objectives that are related to the performance of the individual
Participant or the Subsidiary, division, department or function within the
Company or Subsidiary in which the Participant is employed. The Management
Objectives applicable to any award to a Participant who is, or is determined by
the Committee to be likely to become, a "covered employee" within the meaning of
Section 162(m) of the
A-1
<PAGE>
Code (or any successor provision) will be limited to specified levels of or
growth in: (i) return on invested capital; (ii) return on equity; (iii) return
on assets; (iv) earnings per share; and/or (v) market value per share.
Except in the case of such a covered employee, if the Company determines
that a change in the business, operations, corporate structure or capital
structure of the Company, or the manner in which it conducts its business, or
other events or circumstances render the Management Objectives unsuitable, the
Committee may modify such Management Objectives or the related minimum
acceptable level of achievement, in whole or in part, as the Committee deems
appropriate and equitable.
"Market Value per Share" means the fair market value of the Common Shares as
determined by the Committee from time to time.
"Nonqualified Option" means an Option Right that is not intended to qualify
as a Tax- qualified Option.
"Optionee" means the person so designated in an agreement evidencing an
outstanding Option Right.
"Option Price" means the purchase price payable upon the exercise of an
Option Right.
"Option Right" means the right to purchase Common Shares from the Company
upon the exercise of a Nonqualified Option or a Tax-qualified Option granted
pursuant to Section 4 of this Plan.
"Participant" means a person who is selected by the Committee to receive
benefits under this Plan and (i) is at that time an officer, including without
limitation an officer who may also be a member of the Board, or other key
employee of or a consultant to the Company or any Subsidiary or (ii) has agreed
to commence serving in any such capacity. Notwithstanding the foregoing, persons
who are employed on a full-time basis by any affiliate (other than the Company
and its affiliates) of MEI Holdings, L.P. will not be participants hereunder;
and
"Performance Period" means, in respect of a Performance Share or Performance
Unit, a period of time established pursuant to Section 8 of this Plan within
which the Management Objectives relating thereto are to be achieved.
"Performance Share" means a bookkeeping entry that records the equivalent of
one Common Share awarded pursuant to Section 8 of this Plan.
"Performance Unit" means a bookkeeping entry that records a unit equivalent
of $10.00 awarded pursuant to Section 8 of this Plan.
"Reload Option Rights" means additional Option Rights automatically granted
to an Optionee upon the exercise of Option Rights pursuant to Section 4(f) of
this Plan.
"Restricted Shares" means Common Shares granted or sold pursuant to Section
6 of this Plan as to which neither the substantial risk of forfeiture nor the
restrictions on transfer referred to in Section 6 hereof has expired.
"Rule 16b-3" means Rule 16b-3, as promulgated and amended from time to time
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, or any successor rule to the same effect.
"Spread" means, in the case of a Free-standing Appreciation Right, the
amount by which the Market Value per Share on the date when the Appreciation
Right is exercised exceeds the Base Price specified therein or, in the case of a
Tandem Appreciation Right, the amount by which the Market Value per Share on the
date when the Appreciation Right is exercised exceeds the Option Price specified
in the related Option Right.
A-2
<PAGE>
"Subsidiary" means a corporation, partnership, joint venture, unincorporated
association or other entity in which the Company has a direct or indirect
ownership or other equity interest; provided, however, for purposes of
determining whether any person may be a Participant for purposes of any grant of
Incentive Stock Options, "Subsidiary" means any corporation in which the Company
owns or controls directly or indirectly more than 50% of the total combined
voting power represented by all classes of stock issued by such corporation at
the time of the grant.
"Tandem Appreciation Right" means an Appreciation Right granted pursuant to
Section 5 of this Plan that is granted in tandem with an Option Right or any
similar right granted under any other plan of the Company.
"Tax-qualified Option" means an Option Right that is intended to qualify
under particular provisions of the Code, including without limitation an
Incentive Stock Option.
3. SHARES AND PERFORMANCE UNITS AVAILABLE UNDER THE PLAN. (a) Subject to
adjustment as provided in Section 10 of this Plan, the number of Common Shares
which may be (i) issued or transferred upon the exercise of Option Rights or
Appreciation Rights, (ii) awarded as Restricted Shares and released from
substantial risk of forfeiture thereof or Deferred Shares, or (iii) issued or
transferred in payment of Performance Shares or Performance Units that have been
earned, shall not in the aggregate exceed 4,000,000 Common Shares, which may be
Common Shares of original issuance or Common Shares held in treasury or a
combination thereof. For the purposes of this Section 3(a):
(i) Upon payment in cash of the benefit provided by any award granted
under this Plan, any Common Shares that were covered by that award will
again be available for issuance or transfer hereunder; and
(ii) Upon the full or partial payment of any Option Price by the
transfer to the Company of Common Shares or upon satisfaction of tax
withholding obligations in connection with any such exercise or any other
payment made or benefit realized under this Plan by the transfer or
relinquishment of Common Shares, there will be deemed to have been issued
or transferred under this Plan only the net number of Common Shares
actually issued or transferred by the Company less the number of Common
Shares so transferred or relinquished.
(b) Notwithstanding anything in Section 3(a) hereof, or elsewhere in
this Plan, to the contrary, the aggregate number of Common Shares actually
issued or transferred by the Company upon the exercise of the Incentive
Stock Options will not exceed the total number of Common Shares first
specified in Section 3(a) hereof.
(c) The number of Performance Units that may be granted under this Plan
will not in the aggregate exceed 4,000,000. Performance Units that are
granted under this Plan and are paid in Common Shares or are not earned by
the Participant at the end of the Performance Period will be available for
future grants of Performance Units hereunder.
(d) Notwithstanding any other provision of this Plan to the contrary, in
no event will any Participant in any calendar year receive awards of
Performance Shares and Performance Units having an aggregate value as of
their respective Dates of Grant in excess of $500,000.
(e) Notwithstanding any other provision of this Plan to the contrary, no
Participant may be granted Option Rights and Appreciation Rights, in the
aggregate, for more than 500,000 Common Shares during any calendar year,
subject to adjustment as provided in Section 10 of this Plan.
(f) Notwithstanding any other provision of this Plan to the contrary, no
Participant may be granted Restricted Shares and Deferred Shares, in the
aggregate, for more than 500,000 Common Shares during any calendar year,
subject to adjustment as provided in Section 10 of this Plan.
A-3
<PAGE>
4. OPTION RIGHTS. The Committee may from time to time authorize grants to
Participants of options to purchase Common Shares upon such terms and conditions
as the Committee may determine in accordance with the following provisions:
(a) Each grant will specify the number of Common Shares to which it
pertains.
(b) Each grant will specify an Option Price per Common Share, which may
be equal to or greater or less than the Market Value per Share on the Date
of Grant.
(c) Each grant will specify the form of consideration to be paid in
satisfaction of the Option Price and the manner of payment of such
consideration, which may include (i) cash in the form of currency or check
or other cash equivalent acceptable to the Company, (ii) nonforfeitable,
unrestricted Common Shares, which are already owned by the Optionee, (iii)
any other legal consideration that the Committee may deem appropriate,
including without limitation any form of consideration authorized under
Section 4(d) below, on such basis as the Committee may determine in
accordance with this Plan, and (iv) any combination of the foregoing.
(d) Any grant of a Nonqualified Option may provide that payment of the
Option Price may also be made in whole or in part in the form of Restricted
Shares or other Common Shares that are subject to risk of forfeiture or
restrictions on transfer. Unless otherwise determined by the Committee on or
after the Date of Grant, whenever any Option Price is paid in whole or in
part by means of any of the forms of consideration specified in this Section
4(d), the Common Shares received by the Optionee upon the exercise of the
Nonqualified Option shall be subject to the same risks of forfeiture or
restrictions on transfer as those that applied to the consideration
surrendered by the Optionee; provided, however, that such risks of
forfeiture and restrictions on transfer will apply only to the same number
of Common Shares received by the Optionee as applied to the forfeitable or
restricted Common Shares surrendered by the Optionee.
(e) Any grant may, if there is then a public market for the Common
Shares, provide for deferred payment of the Option Price from the proceeds
of sale through a broker of some or all of the Common Shares to which the
exercise relates.
(f) Any grant may provide for the automatic grant to the Optionee of
Reload Option Rights upon the exercise of Option Rights, including Reload
Option Rights, for Common Shares or any other noncash consideration
authorized under Sections 4(c) and (d) above; provided, however, that the
term of any Reload Option Right shall not extend beyond the term of the
Option Right originally exercised.
(g) Successive grants may be made to the same Optionee regardless of
whether any Option Rights previously granted to the Optionee remain
unexercised.
(h) Each grant will specify the period or periods of continuous
employment, or continuous engagement of the consulting services, of the
Optionee by the Company or any Subsidiary that are necessary before the
Option Rights or installments thereof will become exercisable, and any grant
may provide for the earlier exercise of the Option Rights in the event of a
change in control of the Company or other similar transaction or event.
(i) Option Rights granted pursuant to this Section 4 may be Nonqualified
Options or Tax-qualified Options or combinations thereof.
(j) Any grant of an Option Right may provide for the payment to the
Optionee of dividend equivalents thereon in cash or Common Shares on a
current, deferred or contingent basis, or the Committee may provide that any
dividend equivalents shall be credited against the Option Price.
(k) No Option Right granted pursuant to this Section 4 may be exercised
more than 10 years from the Date of Grant.
A-4
<PAGE>
(l) Each grant shall be evidenced by an agreement, which will be
executed on behalf of the Company by any officer thereof or any member of
the Committee and delivered to and accepted by the Optionee and shall
contain such terms and provisions as the Committee may determine consistent
with this Plan.
5. APPRECIATION RIGHTS. The Committee may also authorize grants to
Participants of Appreciation Rights. An Appreciation Right will be a right of
the Participant to receive from the Company an amount, which will be determined
by the Committee and will be expressed as a percentage (not exceeding 100%) of
the Spread at the time of the exercise of an Appreciation Right. Any grant of
Appreciation Rights under this Plan will be upon such terms and conditions as
the Committee may determine in accordance with the following provisions:
(a) Any grant may specify that the amount payable upon the exercise of
an Appreciation Right may be paid by the Company in cash, Common Shares or
any combination thereof and may (i) either grant to the Participant or
reserve to the Committee the right to elect among those alternatives or (ii)
preclude the right of the Participant to receive and the Company to issue
Common Shares or other equity securities in lieu of cash.
(b) Any grant may specify that the amount payable upon the exercise of
an Appreciation Right shall not exceed a maximum specified by the Committee
on the Date of Grant.
(c) Any grant may specify (i) a waiting period or periods before
Appreciation Rights shall become exercisable and (ii) permissible dates or
periods on or during which Appreciation Rights shall be exercisable.
(d) Any grant may specify that an Appreciation Right may be exercised
only in the event of a change in control of the Company or other similar
transaction or event.
(e) Any grant may provide for the payment to the Participant of dividend
equivalents thereon in cash or Common Shares on a current, deferred or
contingent basis.
(f) Each grant will be evidenced by an agreement, which will be executed
on behalf of the Company by any officer thereof and delivered to and
accepted by the Optionee and will describe the subject Appreciation Rights,
identify any related Option Rights, state that the Appreciation Rights are
subject to all of the terms and conditions of this Plan and contain such
other terms and provisions as the Committee may determine consistent with
this Plan.
(g) Regarding Tandem Appreciation Rights only: Each grant will provide
that a Tandem Appreciation Right may be exercised only (i) at a time when
the related Option Right (or any similar right granted under any other plan
of the Company) is also exercisable and the Spread is positive and (ii) by
surrender of the related Option Right (or such other right) for
cancellation.
(h) Regarding Free-standing Appreciation Rights only:
(i) Each will specify in respect of each Free-standing Appreciation
Right a Base Price per Common Share, which will be equal to or greater
than the Market Value per Share on the Date of Grant;
(ii) Successive grants may be made to the same Participant regardless
of whether any Free-standing Appreciation Rights previously granted to
the Participant remain unexercised;
(iii) Each will specify the period or periods of continuous
employment, or continuous engagement of the consulting services, of the
Participant by the Company or any Subsidiary that are necessary before
the Free-standing Appreciation Rights or installments thereof becomes
exercisable; and any grant may provide for the earlier exercise of the
Free-standing Appreciation Rights in the event of a change in control of
the Company or other similar transaction or event; and
A-5
<PAGE>
(iv) No Free-standing Appreciation Right granted under this Plan may
be exercised more than 10 years from the Date of Grant.
6. RESTRICTED SHARES. The Committee may also authorize grants or sales to
Participants of Restricted Shares upon such terms and conditions as the
Committee may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute an immediate transfer of the
ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to dividend, voting and
other ownership rights, subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.
(b) Each grant or sale may be made without additional consideration from
the Participant or in consideration of a payment by the Participant that is
less than the Market Value per Share on the Date of Grant.
(c) Each grant or sale will provide that the Restricted Shares covered
thereby shall be subject to a "substantial risk of forfeiture" within the
meaning of Section 83 of the Code for a period to be determined by the
Committee on the Date of Grant, and any grant or sale may provide for the
earlier termination of such period in the event of a change in control of
the Company or other similar transaction or event.
(d) Each grant or sale will provide that, during the period for which
such substantial risk of forfeiture is to continue, the transferability of
the Restricted Shares will be prohibited or restricted in the manner and to
the extent prescribed by the Committee on the Date of Grant. Such
restrictions may include without limitation rights of repurchase or first
refusal in the Company or provisions subjecting the Restricted Shares to a
continuing substantial risk of forfeiture in the hands of any transferee.
(e) Any grant or sale may require that any or all dividends or other
distributions paid on the Restricted Shares during the period of such
restrictions be automatically sequestered and reinvested on an immediate or
deferred basis in additional Common Shares, which may be subject to the same
restrictions as the underlying award or such other restrictions as the
Committee may determine.
(f) Each grant or sale will be evidenced by an agreement, which will be
executed on behalf of the Company by an officer thereof or a member of the
Committee and delivered to and accepted by the Participant and will contain
such terms and provisions as the Committee may determine consistent with
this Plan. Unless otherwise directed by the Committee, all certificates
representing Restricted Shares, together with a stock power endorsed in
blank by the Participant with respect to the Restricted Shares, will be held
in custody by the Company until all restrictions thereon lapse.
7. DEFERRED SHARES. The Committee may also authorize grants or sales of
Deferred Shares to Participants upon such terms and conditions as the Committee
may determine in accordance with the following provisions:
(a) Each grant or sale will constitute the agreement by the Company to
issue or transfer Common Shares to the Participant in the future in
consideration of the performance of services, subject to the fulfillment
during the Deferral Period of such conditions as the Committee may specify.
(b) Each grant or sale may be made without additional consideration from
the Participant or in consideration of a payment by the Participant that is
less than the Market Value per Share on the Date of Grant.
(c) Each grant or sale will provide that the Deferred Shares covered
thereby will be subject to a Deferral Period, which will be fixed by the
Committee on the Date of Grant, and any grant or sale
A-6
<PAGE>
may provide for the earlier termination of the Deferral Period in the event
of a change in control of the Company or other similar transaction or event.
(d) During the Deferral Period, the Participant will not have any right
to transfer any rights under the subject award, will not have any rights of
ownership in the Deferred Shares and shall not have any right to vote the
Deferred Shares, but the Committee may on or after the Date of Grant
authorize the payment of dividend equivalents on the Deferred Shares in cash
or additional Common Shares on a current, deferred or contingent basis.
(e) Each grant or sale will be evidenced by an agreement, which shall be
executed on behalf of the Company by any officer thereof or member of the
Committee and delivered to and accepted by the Participant and will contain
such terms and provisions as the Committee may determine consistent with
this Plan.
8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee may also
authorize grants of Performance Shares and Performance Units, which will become
payable to the Participant upon the achievement of specified Management
Objectives, upon such terms and conditions as the Committee may determine in
accordance with the following provisions:
(a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, which may be subject to adjustment
to reflect changes in compensation or other factors.
(b) The Performance Period with respect to each Performance Share or
Performance Unit will be determined by the Committee on the Date of Grant
and may be subject to earlier termination in the event of a change in
control of the Company or other similar transaction or event.
(c) Each grant will specify the Management Objectives that are to be
achieved by the Participant, which may be described in terms of Company-wide
objectives or objectives that are related to the performance of the
individual Participant or the Subsidiary, division, department or function
within the Company or Subsidiary in which the Participant is employed or
with respect to which the Participant provides consulting services.
(d) Each grant will specify in respect of the specified Management
Objectives a minimum acceptable level of achievement below which no payment
will be made and shall set forth a formula for determining the amount of any
payment to be made if performance is at or above the minimum acceptable
level but falls short of full achievement of the specified Management
Objectives.
(e) Each grant will specify the time and manner of payment of
Performance Shares or Performance Units that will have been earned, and any
grant may specify that any such amount may be paid by the Company in cash,
Common Shares or any combination thereof and may either grant to the
Participant or reserve to the Committee the right to elect among those
alternatives.
(f) Any grant of Performance Shares may specify that the amount payable
with respect thereto may not exceed a maximum specified by the Committee on
the Date of Grant. Any grant of Performance Units may specify that the
amount payable, or the number of Common Shares issued, with respect thereto
may not exceed maximums specified by the Committee on the Date of Grant.
(g) On or after the Date of Grant of Performance Shares, the Committee
may provide for the payment to the Participant of dividend equivalents
thereon in cash or additional Common Shares on a current, deferred or
contingent basis.
(h) The Committee may adjust Management Objectives and the related
minimum acceptable level of achievement if, in the sole judgment of the
Committee, events or transactions have occurred after the Date of Grant that
are unrelated to the performance of the Participant and result in distortion
of the Management Objectives or the related minimum acceptable level of
achievement.
A-7
<PAGE>
(i) Each grant shall be evidence by an agreement, which shall be
executed on behalf of the Company by any officer thereof or member of the
Committee and delivered to and accepted by the Participant and will contain
such terms and provisions as the Committee may determine consistent with
this Plan.
9. TRANSFERABILITY. (a) No Option Right, Appreciation Right or other
derivative security (as that term is used in Rule 16b-3) granted under this Plan
may be transferred by a Participant except by will or the laws of descent and
distribution. Option Rights and Appreciation Rights granted under this Plan may
not be exercised during a Participant's lifetime except by the Participant or,
in the event of the Participant's legal incapacity, by his guardian or legal
representative acting in a fiduciary capacity on behalf of the Participant under
state law and court supervision. Notwithstanding the foregoing, the Committee
may provide for the transferability of particular awards under this Plan so long
as such provisions will not disqualify the exemption for other awards under Rule
16b-3, if such Rule is then applicable to awards under the Plan.
(b) Any grant made under this Plan may provide that all or any part of
the Common Shares that are to be issued or transferred by the Company upon
the exercise of Option Rights or Appreciation Rights or upon the termination
of the Deferral Period applicable to Deferred Shares or in payment of
Performance Shares or Performance Units, or are no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in
Section 6 of this Plan, will be subject to further restrictions upon
transfer.
10. ADJUSTMENTS. (a) The Committee may make or provide for such
adjustments in the number of Common Shares covered by outstanding Option Rights,
Appreciation Rights, Deferred Shares and Performance Shares granted hereunder,
the Option Prices per Common Share or Base Prices per Common Share applicable to
any such Option Rights and Appreciation Rights, and the kind of shares
(including shares of another issuer) covered thereby, as the Committee may
determine to be equitably required in order to prevent dilution or expansion of
the rights of Participants that otherwise would result from (i) any stock
dividend, stock split, combination of shares, recapitalization or similar change
in the capital structure of the Company or (ii) any merger, consolidation,
spin-off, spin-out, split-off, split-up, reorganization, partial or complete
liquidation or other distribution of assets, issuance of warrants or other
rights to purchase securities or any other corporate transaction. In the event
of any such transaction or event, the Committee may provide in substitution for
any or all outstanding awards under this Plan such alternative consideration as
it may determine to be equitable under the circumstances and may require in
connection therewith the surrender of all awards so replaced. Moreover, the
Committee may on or after the Date of Grant provide in the agreement evidencing
any award under this Plan that the holder of the award may elect to receive an
equivalent award in respect of securities of the surviving entity of any merger,
consolidation or other transaction or event having a similar effect, or the
Committee may provide that the holder will automatically be entitled to receive
such an equivalent award. The Committee may also make or provide for such
adjustments in the maximum numbers of Common Shares specified in Section 3 of
this Plan as the Committee may determine to be appropriate in order to reflect
any transaction or event described in this Section 10.
(b) If another corporation is merged into the Company or the Company
otherwise acquires another corporation, the Committee may authorize the
Company to assume under this Plan any or all outstanding stock options or
other awards granted by such corporation under any stock option or other
plan adopted by it prior to such acquisition. Such assumptions shall be on
such terms and conditions as the Committee may determine; provided, however,
that the awards as so assumed do not contain any terms, conditions or rights
that are inconsistent with the terms of this Plan. Unless otherwise
determined by the Committee, such awards will not be taken into account for
purposes of the limitations contained in Section 3 of this Plan.
A-8
<PAGE>
11. FRACTIONAL SHARES. The Company will not be required to issue any
fractional Common Shares pursuant to this Plan. The Committee may provide for
the elimination of fractions or for the settlement thereof in cash.
12. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for the withholding are insufficient, it
will be a condition to the receipt of any such payment or the realization of any
such benefit that the Participant or such other person make arrangements
satisfactory to the Company for payment of the balance of any taxes required to
be withheld. At the discretion of the Committee, any such arrangements may
without limitation include voluntary or mandatory relinquishment of a portion of
any such payment or benefit or the surrender of outstanding Common Shares. The
Company and any Participant or such other person may also make similar
arrangements with respect to the payment of any taxes with respect to which
withholding is not required.
13. CERTAIN TERMINATIONS OF EMPLOYMENT OR CONSULTING SERVICES, HARDSHIP AND
APPROVED LEAVES OF ABSENCE. Notwithstanding any other provision of this Plan to
the contrary, in the event of termination of employment or consulting services
by reason of death, disability, normal retirement, early retirement with the
consent of the Company, termination of employment or consulting services to
enter public or military service with the consent of the Company or leave of
absence approved by the Company, or in the event of hardship or other special
circumstances, of a Participant who holds an Option Right or Appreciation Right
that is not immediately and fully exercisable, any Restricted Shares as to which
the substantial risk of forfeiture or the prohibition or restriction on transfer
has not lapsed, any Deferred Shares as to which the Deferral Period is not
complete, any Performance Shares or Performance Units that have not been fully
earned, or any Common Shares that are subject to any transfer restriction
pursuant to Section 9(b) of this Plan, the Committee may take any action that it
deems to be equitable under the circumstances or in the best interests of the
Company, including without limitation waiving or modifying any limitation or
requirement with respect to any award under this Plan.
14. ADMINISTRATION OF THE PLAN. (a) This Plan will be administered by the
Compensation Committee, which will be composed of not less than two members of
the Board, or, in the absence of a Compensation Committee, by the full Board,
each of whom shall be a "disinterested director" within the meaning of Rule
16b-3 and an "outside director" within the meaning of Section 162(m) of the
Code. A majority of the Committee will constitute a quorum, and the acts of the
members of the Committee who are present at any meeting thereof at which a
quorum is present, or acts unanimously approved by the members of the Committee
in writing, will be the acts of the Committee.
(b) The interpretation and construction by the Committee of any
provision of this Plan or any agreement, notification or document evidencing
the grant of Option Rights, Appreciation Rights, Restricted Shares, Deferred
Shares, Performance Shares or Performance Units, and any determination by
the Committee pursuant to any provision of this Plan or any such agreement,
notification or document, will be final and conclusive. No member of the
Committee will be liable for any such action taken or determination.
15. AMENDMENTS AND OTHER MATTERS. (a) This Plan may be amended from time
to time by the Committee; provided, however, except as expressly authorized by
this Plan, no such amendment will increase the maximum number of Common Shares
or Restricted Shares specified in Section 3(a) hereof, increase the maximum
number of Performance Units specified in Section 3(c) hereof, increase the
numbers of Common Shares specified in Sections 3(d) and 3(e) hereof, or
otherwise cause this Plan to cease to satisfy any applicable condition of Rule
16b-3 or otherwise cause any award under the Plan to cease to qualify for the
performance-based exception to Section 162(m) of the Code, without the further
approval of the shareholders of the Company.
A-9
<PAGE>
(b) As provided in the applicable agreement or with the concurrence of
the affected Participant, the Committee may cancel any agreement evidencing
Option Rights or any other award granted under this Plan. In the event of
any such cancellation, the Committee may authorize the granting of new
Option Rights or other awards hereunder, which may or may not cover the same
number of Common Shares as had been covered by the cancelled Option Rights
or other award, at such Option Price, in such manner and subject to such
other terms, conditions and discretion as would have been permitted under
this Plan had the cancelled Option Rights or other award not been granted.
(c) The Committee may condition the grant of any award or combination of
awards authorized under this Plan on the surrender or deferral by the
Participant of his or her right to receive a cash bonus or other
compensation otherwise payable by the Company or a Subsidiary to the
Participant.
(d) This Plan will not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or
any Subsidiary and will not interfere in any way with any right that the
Company or any Subsidiary would otherwise have to terminate any
Participant's employment or other service at any time.
(e) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify as a Tax-qualified Option from so
qualifying, any such provision will be null and void with respect to any
such Option Right; provided, however, that any such provision will remain in
effect with respect to other Option Rights, and there will be no further
effect on any provision of this Plan.
(f) Any award that may be made pursuant to an amendment to this Plan
that shall have been adopted without the approval of the shareholders of the
Company will be null and void if it is subsequently determined that such
approval was required in order for this Plan to satisfy the applicable
conditions of Rule 16b-3.
A-10
<PAGE>
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert A. Whitman, Daniel A.
Decker and William M. Kearns, Jr., and each of them, jointly and
severally and with full power of substitution and resubstitution,
as proxies of the undersigned, to represent and to vote as designated below and
in accordance with their judgment all shares of Common Stock of
Mountasia Entertainment International, Inc. (the "Company") held of
record by the undersigned as of March 25, 1997 at the Company's
annual meeting of shareholders and at all adjournments thereof, to be held
on April 28, 1997 and at any and all postponements and adjournments
thereof. (THIS PROXY REVOKES ALL PRIOR PROXIES GIVEN
P
BY THE UNDERSIGNED.)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED HEREIN. WHERE NO DIRECTION IS
INDICATED, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL. THE INDIVIDUALS
R
NAMED ABOVE ARE AUTHORIZED TO VOTE IN THEIR DISCRETION ON ANY OTHER
MATTERS THAT PROPERLY COME BEFORE THE MEETING.
Dated: ___________________________ Signature: __________________________
O
Signature if held
jointly: ________________________________
Name of Corporation or
Partnership: ____________________________
X
Authorized Officer: ________
Title or authority: ________
Y
NOTE: PLEASE DATE THE PROXY AND SIGN EXACTLY AS YOUR NAME(S)
APPEAR(S) HEREON. WHEN SIGNING AS ATTORNEY, EXECUTOR, TRUSTEE,
GUARDIAN OR OTHER REPRESENTATIVE, GIVE YOUR FULL TITLE AS SUCH. IF A
CORPORATION, SIGN THE FULL CORPORATE NAME BY AN AUTHORIZED OFFICER,
STATING HIS/HER TITLE. IF A PARTNERSHIP, SIGN IN PARTNERSHIP NAME
BY AN AUTHORIZED PERSON.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY
AS PROMPTLY AS POSSIBLE IN THE POSTPAID ENVELOPE PROVIDED.
SEE REVERSE SIDE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS.
<PAGE>
X Please mark your votes as in the example
SHARES IN YOUR NAME
<TABLE>
<CAPTION>
FOR AGAINST
<S> <C> <C> <C>
1. Approval of Issuance of Common Shares in Lieu [ ] [ ]
of Nonvoting Shares.............................................................................
2. Approval of Name Change......................................................................... [ ] [ ]
3. Approval of Incentive Plan...................................................................... [ ] [ ]
4. Election of Directors...........................................................................
Daniel A. Decker................................................................................ [ ] [ ]
L. Scott Demerau................................................................................ [ ] [ ]
Julia E. Demerau................................................................................ [ ] [ ]
William M. Kearns, Jr........................................................................... [ ] [ ]
Bert W. Wasserman............................................................................... [ ] [ ]
Robert A. Whitman............................................................................... [ ] [ ]
Richard M. FitzPatrick.......................................................................... [ ] [ ]
James T. Hands.................................................................................. [ ] [ ]
Donald J. McNamara.............................................................................. [ ] [ ]
To withhold authority to vote for any nominee write that
nominee(s) name in the space provided below:
5. Ratification of Appointment of Independent Accountants [ ] [ ]
6. In their discretion upon such other matters as may properly come before the meeting [ ] [ ]
<CAPTION>
ABSTAIN
<S> <C>
1. [ ]
2. [ ]
3. [ ]
4.
5. [ ]
6. [ ]
</TABLE>
