SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a party other than the Registrant | |
Check the appropriate box:
|X| Preliminary Proxy Statement
| | Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
| | 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:
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(2) Aggregate number of securities to which transaction applies:
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(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
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(5) Total fee paid:
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| | 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:
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<PAGE>
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
5895 WINDWARD PARKWAY, SUITE 220
ALPHARETTA, GEORGIA 30202-4182
March __, 1997
Dear Shareholder:
You are cordially invited to the annual meeting of shareholders of
Mountasia Entertainment International, Inc. to be held on April 10, 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 at least 81.4%
to 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 International, 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,
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 10, 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;
II. Proposal II -- Approval of Name Change: The approval of the change in the
Company's name to "Malibu Entertainment International, 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 __, 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,
Betty M. Henderson
Secretary
March __, 1997
<PAGE>
TABLE OF CONTENTS
SUMMARY .......................................................... 1
VOTING AND PROXIES ............................................... 5
Solicitation of Proxies ........................................ 5
Record Date; Quorum ............................................ 6
Proxies ........................................................ 6
Required Votes ................................................. 7
SECURITY OWNERSHIP INFORMATION ................................... 8
Security Ownership of MEI Holdings ............................. 8
Security Ownership of Management ............................... 9
PROPOSAL I -- APPROVAL OF ISSUANCE OF COMMON SHARES
IN LIEU OF NONVOTING SHARES ...................... 10
Background of the Recapitalization ............................. 10
The Recapitalization Agreement ................................. 11
PROPOSAL II -- APPROVAL OF NAME CHANGE ........................... 19
PROPOSAL III -- APPROVAL OF INCENTIVE PLAN ....................... 19
Introduction ................................................... 19
Terms of the Incentive Plan .................................... 20
PROPOSAL IV -- ELECTION OF DIRECTORS ............................. 25
Board of Directors ............................................. 25
Board Committees ............................................... 27
Director Compensation .......................................... 27
Compensation Committee Insider Participation
PROPOSAL V -- RATIFICATION OF APPOINTMENT OF
INDEPENDENT ACCOUNTANTS .......................... 27
COMPENSATION INFORMATION ......................................... 28
Payments to Affiliates ......................................... 28
Compensation Tables ............................................ 28
Fiscal Year 1996 Stock Option Grants ........................... 29
Compensation Committee Report on Executive Compensation ........ 30
COMPARISON OF TOTAL SHAREHOLDER RETURN ........................... 31
i
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SHAREHOLDER PROPOSALS ............................................ 31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................... 31
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ................ 31
CERTAIN FORWARD-LOOKING STATEMENTS ............................... 31
ADDITIONAL INFORMATION ........................................... 32
ANNEX A - INCENTIVE PLAN ......................................... A-1
ii
<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 __, 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 Common Shares (except
as to voting rights), are multiplied by ten for all computational purposes
herein (other than as to voting power), (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."
Date, Time and Place of
the Annual Meeting April 10, 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 __, 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
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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 International, Inc.";
Proposal III: Approval of the Company's 1997
Long-Term Incentive 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.
Consequences of
Certain Votes: If shareholders approve Proposal I (such approval,
"Voting Right Approval"), MEI Holdings' total
voting power will increase from 49.9% to 81.4% and
certain standstill 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 its 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
28,896,166 Common Shares, 23,400,795 Voting Shares
and 24,904,175
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Nonvoting Shares (excluding additional Nonvoting
Shares issuable if Proposal I is not approved).
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, Nonaffiliated Directors and executive
officers beneficially owned 1,253,740 Voting
Shares, or 4.3% of the then-outstanding Common
Shares and 2.6% of the then-outstanding Company
Shares.
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").
Voting: In accordance with the agreements entered into
between the 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 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.
The Recapitalization
Agreement: The Company entered into the Recapitalization
Agreement to obtain the capital resources to fund
its then-current operations and to fund internal
and external growth opportunities. Under the
Recapitalization Agreement, the Company received
$40.0 million for 11,727,970 Common Shares, which
represented 45.5% of the
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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; $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."
Series G Shares: In connection with the listing of the Common
Shares on the 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).
The Tender Offer: In connection with the issuance of the Series G
Shares, MEI 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") at par
plus accrued and unpaid interest for the 9%
Debentures and the 9.1% Debentures (collectively,
the "Purchased Debentures"). 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 converted into Nonvoting
Shares (at a conversion rate of
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$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 eight persons, five of whom have been
designated by MEI Holdings; if Voting Right
Approval is not given, the Board will consist of
five persons, two of whom have been designated by
MEI Holdings. The nominees for election to the
Board also include two Nonaffiliated Directors and
one person who is employed by the Company.
Name Change: The Board has approved, subject to shareholder
approval, the change in the Company's name to
"Malibu Entertainment International, Inc." The
Company's current name is not used to any
meaningful extent in the Company's continuing
operations. The Board believes that the adoption
of a new name will also signify the Company's new
business plan and focus.
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.
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 10, 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 __, 1997.
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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 March __, 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.
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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 Rights of Appraisal
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.
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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.
Title of Number of % of % of
Class Shares(a) Company Shares Voting Power
- -------- --------- -------------- ------------
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%
========== ==== ====
- ----------
(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."
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Security Ownership of 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.
% of
% of Company
Name Shares Owned(a) Voting Power(b) Shares
---- --------------- --------------- ------
Daniel A. Decker+(c) -- -- --
L. Scott Demerau+(d) 1,179,895 4.1% 2.4%
Richard M. FitzPatrick+#(c) -- -- --
James T. Hands +(c) -- -- --
William M. Kearns, Jr.+(e) 25,000 * *
Donald J. McNamara +(c) -- -- --
Bert W. Wasserman+(e) 50,000 * *
Robert A. Whitman+#(c) -- -- --
All Directors and
Executive Officers
as a Group (8 persons)(c) 1,252,585 4.3% 2.6%
- ----------
* Less than one percent
+ 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 shares held of record by Julia E. Demerau, Mr.
Demerau's spouse and a former Director and Executive Officer of the
Company, 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 options to purchase 25,000 Common Shares which were not
exercisable within 60 days of the date of this statement.
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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 one share of a newly designated Series E
Preferred Stock for each share of Common Stock (the "Exchange Offer"). As part
of the Exchange Offer, the Company also sought to obtain required consents to
the amendment of the 9% Debentures and the outstanding 10% Debentures to convert
those debentures into 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 the 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 (less any amount invested under the Purchaser Option)
in the Company, MEI Holdings obtained the right (the "Purchaser Option") to
invest up to an additional $22.7 million (less any amount invested under the
Company Call Option) in the Company, MEI Holdings agreed to provide up to an
additional $30.0 million to backstop future rights offerings and
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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 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% 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 9,017,744 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."
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
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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 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 outstanding 9% Debentures or
9.1% Debentures, regardless of the conversion price, or (iii) upon a deemed
conversion of the 9% Debentures or 9.1% Debentures as of the earlier of the date
of payment or redemption of such 9% Debentures or 9.1% Debentures and August 7,
1997. If any 9% Debentures or 9.1% 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 Common Shares under the Post-Closing Adjustment
Provisions.
The number of Common 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 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 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 any 9% Debentures or
9.1% 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 (which are Voting 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
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entertainment centers worldwide, subject to certain specified exceptions, (ii)
that the Company would be successful in acquiring certain properties used in
significant parks which are currently subject to ground leases which expire in
the near future and acquiring certain facilities for prices not exceeding the
specified purchase prices, (iii) that the Company's actual liability for
litigation, legal compliance, environmental and certain other contingent
liabilities as of the Closing Date did not, in the aggregate, exceed $1.5
million (the "Contingency Hurdle Amount"), (iv) all of the 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) the accuracy of the
Company's representations and warranties in the Investment Agreement. The
Investment Agreement provides that, if any such assumption was, is or becomes
incorrect in a manner adverse to the value of Company, 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 MEI Holdings' 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 $1.0 million, $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 in this transaction was
approximately $152,000 (through a 20% limited partnership interest in the
entity).
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 (which are Voting 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 and Purchaser 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' 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 either 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 case 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 is issuable at a 15%
discount from the price at which it 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
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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 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
shares 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
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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 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 Series G Shares are (i) non-voting, (ii) have a
liquidation preference equal to the amount received by the Company for their
issuance, (iii) have a dividend rate of 7% per annum with unpaid dividends to
accrue but be payable only at such time as dividends are declared and paid on
the Common Shares, and (iv) are not convertible into Common Shares unless and
until Voting Right Approval is given. 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
10.0% Debentures would have been convertible if their conversion price had been
equal to MEI Holdings' Base Price Per Share.
If Voting Right Approval is given, the holders of Series G Shares will have
the right to convert Series G Shares into Common Shares. Regardless of whether
Voting Right Approval has been given,
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holders of Series G Shares will have the right at any time to convert each
Series G Share into Common Shares under any of the same circumstances in which
Series F Shares are so convertible.
Registration Rights Agreement. The Company Shares acquired or to be
acquired by MEI Holdings pursuant to the Recapitalization Agreement (including
the Company Call Option and 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. 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 more than 10% of the 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 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
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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, the Purchaser 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
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
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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).
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
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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 his spouse (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. See "Proposal IV -- Adoption 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 International, Inc." The Company's current name is not
used to any meaningful extent in the Company's continuing operations. The Board
believes that the adoption of a new name will signify the Company's new business
plan and focus. 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 International, 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.
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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 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
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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-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
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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 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.
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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
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)
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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.
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
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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 five, two
designees of MEI Holdings, (Robert A Whitman and Daniel A. Decker), two
Nonaffiliated Directors (William M. Kearns, Jr. and Bert W. Wasserman) and one
employee-Director (L. Scott Demerau). If Proposal I is approved by shareholders,
the number of Directors will be increased to eight, and three additional
designees of MEI Holdings, (Richard M. FitzPatrick, Donald J. McNamara and James
T. Hands) will be added to the Board (the "Additional MEI Designees"). 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.
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.
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.
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 and merchant banking firm. From 1992 to 1994, Mr. Kearns
served as an Advisory Director for Lehman Brothers.
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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. 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. Currently, Mr. Wasserman
serves as a member of the National Advisory Board of Chemical Bank, 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. 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.
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. Mr.
FitzPatrick also is a director of Bristol Hotel Company, a NYSE-listed
owner/operator of hotels.
James T. Hands, 35, 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, 43, 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 Daniel A. Decker,
William M. Kearns, Jr. and Bert W. Wasserman, with Mr. Wasserman presently
serving as Chairman. If Mr. Hands is elected to the Board, he will take Mr.
Decker's place as a member of this Committee.
The Compensation Committee of the Board is comprised of Daniel A. Decker
and William M. Kearns, Jr., with Mr. Decker serving as Chairman.
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The Board does not have a Nominating Committee.
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, are paid
a fee of $_________ per year, payable quarterly. [At the option of the Director,
all or any portion of the annual retainer may be taken in Common Shares, valued
by reference to the average daily closing price for the 20 trading days
immediately preceding the date of payment.]
Compensation Committee Insider Participation
Former Executive Vice President Julia E. Demerau was a member of the
Compensation Committee in fiscal year 1996 until her resignation from the Board.
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. (See "Additional Information.") 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
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opinion, disclaimer of opinion, qualification or modification as to uncertainty,
audit scope or accounting principles.
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
$100,000 during such years (the "Named Executives") Except for Robert A.
Whitman, none of the Named Executives is currently an executive officer of the
Company.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------------
Annual Compensation Awards Payouts
------------------------------------------- ---------- -----------
Restricted All Other
Name and Principal Other Annual Stock Options/SARs LTIP Payout Compensation
Position Year Salary ($) Bonus ($) Compensation ($) Award(s) (#) ($) ($)
- ------------------ ---- ---------- --------- ---------------- -------- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert A. Whitman, 1996 -0- -0- -0- -0- -0- -0- -0-
Chief Executive
Officer
L. Scott Demerau, 1996 $205,909 -0- -0- -0- -0- -0- $109,495(a)
Former President and 1995 198,651 -0- $156,741(b) -0- -0- -0- 200,000(c)
Chief Executive 1994 101,030 -0- 241,390(b) -0- -0- -0- -0-
Officer
Julia E. Demerau, 1996 $147,170 -0- -0- -0- -0- -0- $388,640(d)
Former Exec. Vice 1995 109,530 -0- $156,746(e) -0- -0- -0- 200,000(c)
President 1994 94,242 -0- $241,389(e) -0- -0- -0- -0-
Gregory N. Waters, 1996 $150,000 -0- -0- -0- -0- -0- $200,000(f)
Former Exec. Vice 1995 -0-
President and Chief 1994 -0-
Financial Officer
</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.
(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.
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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 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. Mr. Demerau entered into a
new employment contract with the Company following his resignation as Chief
Executive Officer in November 1996.
Following the resignations of Mr. Waters and Ms. Demerau and the change in
Mr. 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 on 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
Daniel A. Decker, Chairman
William M. Kearns, Jr.
30
<PAGE>
COMPARISON OF TOTAL SHAREHOLDER RETURN
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
3-Nov-93 Sep94 Sep95 Dec96
======== ===== ===== =====
MOUNTASIA ENTMT INTL INC 100 134 103 42
ENTERTAINMENT-500 100 93 122 123
S&P 500 INDEX 100 102 133 173
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 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 , 1997.
Such proposals should be addressed to the Secretary, Mountasia Entertainment
International, Inc., 5895 Windward Parkway, Suite 220, Alpharetta, Georgia
30202.
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. In August 1996,
at MEI Holdings' request, the Company terminated its contract with ERC and hired
Ms. Demerau directly at a compensation rate of approximately $125,000 per year.
In January through March 1996, the Company advanced $525,000 to Scott
Demerau, and his spouse, Julia 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
Demerau, including severance compensation payable to Julia Demerau.
In August 1996, Scott 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 Demerau resigned as
Executive Vice President and as a Director 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 part-time
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.
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. 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 Fiscal Year 1996.
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,
including as a result of competitive factors and pricing pressures; shifts in
market demand for family entertainment and general economic conditions;
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
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<PAGE>
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 following documents filed with the Commission by the Company (File No.
0-22458-A) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement:
1. The Company's Annual Report on Form 10-K/A for the year ended
September 30, 1995;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1995, March 31, 1996, June 30, 1996 and September 30,
1996 (in January, 1996 the Company announced that it had adopted a
fiscal year of December 31); and
3. The Company's Current Report on Form 8-K, dated November 13, 1996.
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.
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<PAGE>
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 __, 1997.
33
<PAGE>
Annex A
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
EQUITY INCENTIVE PLAN
1. Purpose. The purpose of this Plan is to attract and retain qualified
officers and other key employees of Mountasia Entertainment International, Inc.
(the "Company") and its Subsidiaries and to provide such persons with
appropriate incentives. The Company has adopted the Plan effective as of April
__, 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.
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"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 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.
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"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.
"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
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(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.
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
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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.
(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:
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(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
(iv) No Free-standing Appreciation Right granted under this Plan
may be exercised more than 10 years from the Date of Grant.
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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.
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(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 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.
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(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.
(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
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<PAGE>
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.
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
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<PAGE>
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.
(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.
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P
R
O
X
Y
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. held
of record by the undersigned as of March __, 1997, at the Annual Meeting of
Shareholders of Mountasia Entertainment International, Inc. and at all
adjournments thereof, to be held on March __, 1997 and at any and all
postponements and adjournments thereof. (THIS PROXY REVOKES ALL PRIOR PROXIES
GIVEN 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 NAMED ABOVE ARE AUTHORIZED TO VOTE IN
THEIR DISCRETION ON ANY OTHER MATTERS THAT PROPERLY COME BEFORE THE MEETING.
Dated: _________________________ Signature: __________________________________
Signature if held jointly: _______________________________________________
Name of Corporation or Partnership: ______________________________________
Authorized Officer: ______________________________________________________
Title or authority: ______________________________________________________
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 MOUNTASIA ENTERTAINMENT SHARES IN YOUR NAME
in the example INTERNATIONAL, INC.
FOR AGAINST ABSTAIN
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 [ ] [ ]
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 [ ] [ ] [ ]
