================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------------
FORM 10-K
Annual Report Pursuant to Section 13
of the Securities Exchange Act of 1934
for the year ended December 31, 1996
------------------------------------
Mountasia Entertainment International Inc.
5895 Windward Parkway, Suite 220
Alpharetta, Georgia 30202-4128
(770) 442-6640
------------------------------------
Incorporated in Georgia Commission File No. 0-22458 IRS No. 58-1949379
------------------------------------
Securities registered pursuant to Section 12(b) of the Securities Exchange Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
Common Stock, no par value American Stock Exchange
------------------------------------
The Company (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months and (2) has been subject to such filing requirements for the past 90
days. Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
contained in the definitive Proxy Statement incorporated by reference into Part
III of this Report.
At March 25, 1997, there were 28,896,466 shares of the Company's
Common Stock outstanding. The aggregate market value of the 7.1 million shares
of Common Stock held by nonaffiliates of the Company was $20.4 million, based on
the closing sales price of Common Stock as reported by the American Stock
Exchange on that date.
------------------------------------
Document Incorporated by Reference
Portions of the Proxy Statement for the Company's 1997 annual meeting
of shareholders are incorporated by reference into Part III hereof to the extent
stated therein. Except with respect to information specifically incorporated by
reference herein, the Proxy Statement is not deemed to be filed as a part
hereof.
================================================================================
<PAGE>
PART I
Items 1 & 2. Business and Properties
General
Mountasia Entertainment International, Inc. (the "Company") owns and
operates multiple-attraction entertainment centers. The Company's original
concept was the family entertainment center ("FEC"), which generally included
several entertainment attractions at a single location such as miniature golf
courses, go-karts, bumper boats, video and game rooms and souvenir concession
stands. As of March 25, 1997, the Company owned or leased 20 traditional FECs,
11 of which were held for sale or closure as discussed below. With the Company's
acquisition of Malibu Grand Prix Corporation ("Malibu") in 1994, the Company
added a racing component to its FECs. The Company's Malibu Grand Prix FECs
generally feature a combination of scaled grand prix style racetracks utilizing
the Company's proprietary Malibu Grand Prix race cars, miniature golf courses,
video arcades, go-kart tracks, batting cages, bumper boats, trains, carousels
and food service/merchandise facilities. As of March 25, 1997, the Company owned
or leased 23 Malibu Grand Prix FECs, four of which were held for sale or
closure.
New Business Plan
Following an extensive review of the Company's facilities, markets and
prospects, the Company has adopted and continues to refine a new business plan,
the principal components of which are (i) developing a capital structure
designed to allow the Company to achieve its business objectives, (ii)
redefining the Company's business through repositioning, disposing, expanding or
redeveloping its existing FECs, (iii) enhancing profitability through improved
operating and management efficiencies, sales and marketing programs, employee
training and the alignment of the Company's cost structure to a level
appropriate for the business transacted, (iv) growth of the Company's business
through strategic acquisitions and the development of new parks, and (v) the
development of the Company's name recognition and related sponsorship
opportunities. A key aspect of the new plan is the development and roll-out of a
new concept -- the "Malibu SpeedZone" parks -- primarily designed for young
adults. Malibu SpeedZones include the Company's Malibu Grand Prix racing
attraction, two go-kart-type racing attractions and the Company's new
"Top-Eliminator" dragster attraction, together with a restyled clubhouse,
miniature golf course, video game room and meeting and party rooms to complement
the racing attractions. The Company has two Malibu SpeedZone parks currently
under construction at the sites of its former Malibu Grand Prix FECs in Dallas,
Texas and Puente Hills, California, which are targeted to open by the Memorial
Day weekend, is in the process of redeveloping one of its FECs located outside
Atlanta, Georgia to convert it to the Malibu SpeedZone concept and, assuming
that the financing therefor is available to the Company (see "Item 7 --
Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Liquidity and Capital Reserves"), expects to convert a number of
its other FECs to this concept once it has been proven and refined.
1996 Developments
In 1995, the Company defaulted under certain covenants under its 9%
Convertible Subordinated Debentures (the "9% Debentures"). In an effort to cure
those defaults and to raise funds necessary to pay indebtedness created in
connection with the Company's acquisition of 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 Stock
at various prices and at various times commencing in 1995. 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 Stock. In addition, the Company lacked the capital
necessary to invest in its parks, including the FECs acquired in the Malibu
acquisition. As a result of these and other factors, including declines in the
Company's results of operations, the Company's financial position continued to
deteriorate and the market prices for Common Stock began to erode significantly.
Accordingly, beginning in January 1996, the Company's Board of Directors (the
"Board") began considering possible alternatives to recapitalize the Company.
2
<PAGE>
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 two Common Shares (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 its 10% Convertible Subordinated Debentures
(the "10% Debentures") to convert those debentures into Common Stock 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, L.P. ("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 5, 1996,
the Company terminated the Exchange Offer and the Company and MEI Holdings
entered into an Investment Agreement (the "Investment Agreement") and related
documents, including a Warrant and Standstill Agreement (together with the
Investment Agreement, collectively, the "Recapitalization Agreements"). The
transactions provided for in the Recapitalization Agreement (the
"Recapitalization") were completed on August 28, 1996.
The Recapitalization
Pursuant to the Investment Agreement, the Company (i) sold 11,727,970
shares of Common Stock to MEI Holdings (45.45% of the then-outstanding shares of
Common Stock after giving effect to such issuance and prior to the sale of 2.1
million shares of Common Stock to employees) for $40.0 million and (ii) issued
to MEI Holdings a Warrant to acquire additional shares of Common Stock (or
shares of Series F Preferred Stock of the Company ("Series F Shares") which are
each convertible into shares of Common Stock after shareholder approval of the
conversion thereof into Common Stock is obtained ("Voting Right Approval") and
are substantially the equivalent of Common Stock except that they are nonvoting)
automatically upon the occurrence of certain events. In addition, MEI Holdings
is entitled to additional Common Stock (or Series F Shares) under certain
provisions of the Investment Agreement (the "Post-Closing Adjustment
Provisions") if certain events occur prior to December 31, 2000 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 (a) any dilution of its percentage interest in the Company acquired by
MEI Holdings pursuant to its initial $40.0 million investment or otherwise
pursuant to the Recapitalization Agreement that is due to the exercise or
conversion of rights, warrants, options and other securities outstanding on
August 28, 1996 at prices below $3.75 or the conversion or deemed conversion of
any of the Company's convertible debentures outstanding on August 28, 1996 and
(b) the economically dilutive effects of any decrease in the agreed upon value
of the Company at the time of the Recapitalization by reason of adverse
variations from the parties' valuation assumptions related to MEI Holdings'
investment in the Company pursuant to the Investment Agreement. As a part of the
Recapitalization, among other things, (1) the Company obtained the right to
require MEI Holdings to invest up to an additional $22.7 million in the Company
(the "Company Call Option"), (2) MEI Holdings agreed, subject to certain
conditions, to provide up to an additional $30.0 million to backstop certain
future rights offerings, (3) the terms of the 9% Debentures and the 10%
Debentures were amended to require them to be paid by the Company in Common
Stock rather than in cash, and (4) six MEI Holdings designees 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).
Certain Events Following the Recapitalization
In November 1996, MEI Holdings provided the capital required for the
Company to redeem the $4.6 million then-outstanding aggregate principal amount
of the Company's 10% Debentures (plus accrued and unpaid interest thereon) in
order for the Company to comply with certain requirements of the American Stock
Exchange (the "AMEX"). The 10% Debentures would have become convertible into
Common Stock 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 213,551
Series G Preferred Stock of the Company ("Series G Shares") (which shares are
convertible into 2,135,513 shares of Common Stock after Voting Right Approval is
obtained and are substantially similar to Common Stock except that they are
nonvoting) 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.
3
<PAGE>
The Company exercised the Company Call Option in December 1996 and
subsequently issued 901,774 Series F Shares (which are substantially equivalent
to 9,017,740 shares of Common Stock except that they are nonvoting) to MEI
Holdings for $22.7 million. The exact number of shares issuable for such $22.7
million investment is subject to adjustment for certain future events, including
(i) whether Voting Right Approval is given (if Voting Right Approval is not
given, additional Series F Shares will be issued to MEI Holdings so that such
Series F Shares 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, and (iii) whether, and
the price at which, certain convertible securities are converted into Common
Stock. The Company presently estimates that the final number of shares so
issuable in exchange for the $22.7 million investment will be between 9.0
million and 9.7 million Common Stock equivalent shares (or 10.6 million and 11.4
million Common Stock equivalent shares if Voting Right Approval is not
obtained).
On January 14, 1997, MEI Holdings purchased pursuant to tender offers (the
"Tender Offers") (i) 7,802,435 shares of Common Stock 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 Debentures so purchased
were converted at a conversion rate of $3.50 per Common Stock equivalent share
into Series F Shares. The shares of Common Stock acquired by MEI Holdings in the
Tender Offers and upon conversion of such Debentures are subject to certain
voting restrictions.
The conversion of Series F Shares and Series G Shares into Common Stock is
expected to be considered by shareholders at the Company's annual meeting of
shareholders scheduled for April 28, 1997.
Properties
As of March 1, 1997, the Company operated 43 FECs located in 14 states. 15
of the Company's FECs were held for sale or closure. Excluding the FECs held for
sale or closure, 12 of the Company's remaining FECs were owned and 16 were
leased under agreements expiring on various dates from 1998 to 2022. Payments
under these leases totalled $3.0 million in 1996. The 28 FECs not currently held
for sale or closure are located in California (4), Colorado (1), Florida (3),
Georgia (3), Kansas (1), New Jersey (1), Nevada (1), Ohio (3), Oregon (1), South
Carolina (1) and Texas (9), generally in large metropolitan areas. See "-New
Business Plan" above for a discussion of the conversion of certain of the
Company's FECs to the Company's "Malibu SpeedZone" concept.
Nine of the 15 FECs held for sale or closure are leased; the Company's
total reserves for the sale or closure of these parks was $3.3 million as of
December 31, 1996. The 15 FECs held for sale or closure were carried on the
Company's books at $6.3 million in the aggregate as of December 31, 1996. While
the Company presently intends to seek to sell or discontinue these assets in an
orderly fashion and in all events the Company intends to complete the sale or
closure of these parks during 1997, there can be no assurance that it will be
able to do so. The Company is also reviewing eight additional FECs for possible
sale or closure.
The Company also leases other properties incident to its business, none of
which is material.
Certain Forward-Looking Statements
This Report (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 report, 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 or its management with
respect to future events and are subject to certain risks, uncertainties and
assumptions relating to the operations and results of operations of the Company
and the success of the Company's business plan, including as a result of the
availability, terms and cost of capital resources; competitive factors and
pricing pressures; general economic conditions; the failure of market demand for
the types of entertainment opportunities the Company provides or plans to
provide in the future and for family entertainment in general to be commensurate
with management's expectations or past experience; impact of present and future
laws; ongoing need for capital improvements; changes in operating expenses;
adverse changes in governmental rules or policies; changes in
4
<PAGE>
demographics and other factors. Should one or more of these 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.
Item 3. Legal Proceedings
Due to the nature of the attractions at the Company's parks, the Company
has been, and will likely continue to be, subject to a significant number of
personal injury lawsuits, certain of which may involve claims for substantial
damages. The Company also is from time to time a party to other claims and legal
proceedings, and is subject to environmental, zoning and other legal
requirements. As of the date of this Report, the Company does not believe that
any such matter is reasonably likely to have a material adverse effect on the
Company's financial position or results of operations. However, there
necessarily can be no assurance in this regard or that the Company will not be
subject to material claims or legal proceedings or requirements in the future.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the Company's shareholders
during the fourth quarter of 1996.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information Relating to Common Stock
The Company's Common Stock is traded on the AMEX under the symbol "MBE".
The following table indicates for each calendar quarter the high and low
reported closing sale prices for the Company's Common Stock during the prior two
calendar years:
1996 High Low
---------------- ---- ---
Fourth Quarter $ 3.56 $ 1.94
Third Quarter $ 3.06 $ 2.47
Second Quarter $ 3.63 $ 2.38
First Quarter $ 5.06 $ 3.25
1995 High Low
---------------- ---- ---
Fourth Quarter $ 8.50 $ 6.25
Third Quarter $ 9.25 $ 5.88
Second Quarter $ 9.25 $ 7.00
First Quarter $11.00 $ 7.00
As of March 25, 1997, there were approximately 148 holders of record of the
Company's Common Stock.
The Company has not paid dividends on its Common Stock since prior to its
initial public offering and has no intention to begin paying regular dividends
on its Common Stock in the foreseeable future. The payment of dividends is
restricted by credit instruments to which the Company is a party.
5
<PAGE>
Item 6. Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Years Ended
------------ ------------ ---------------------------------------------------------
December 31, December 31, September 30, September 30, September 30, September 30,
1996 1995(1)(2) 1995(2) 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operating Data:
Operating revenues $ 37,430 $ 6,754 $ 46,207 $ 28,177 $ 12,159 $ 7,115
Operating expenses (3) 77,239 10,417 47,765 25,293 9,884 6,066
Operating income (loss) (39,809) (3,663) (1,558) 2,884 2,275 1,049
Interest expense 6,579 2,754 4,108 1,371 863 667
Income (loss) before other income
(expenses) (46,388) (6,417) (5,666) 1,513 1,412 382
Other income (expenses) 1,648 (680) 1,514 342 - 0 - - 0 -
Benefit (provision) for income taxes (2,184) 2,692 1,310 (705) (536) (141)
Net income (loss) (47,633) (4,494) (3,201) 1,232 875 241
Net income (loss) per share of
common stock $ (2.91) $ (0.77) $ (0.53) $ 0.20 $ 0.15 $ (0.03)
Weighted average shares of Common
Stock outstanding 17,407 8,375 7,720 6,269 3,089 2,919
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30, September 30, September 30, September 30,
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 16,210 $ (8,253) $ (1,316) $ (2,617) $ (1,926)
Total assets 122,097 101,139 62,926 24,948 19,180
Long-term obligations, excluding
current portion 25,538 15,545 18,285 12,719 6,670
Convertible subordinated debentures 16,521 14,150 --0-- --0-- --0--
Total liabilities 57,088 51,702 28,258 19,141 9,779
Total shareholders' equity $ 64,231 $ 48,059 $ 31,827 $ 5,808 $ 9,401
</TABLE>
- -----------------
(1) Represents a three-month period as the Company changed its fiscal year end
to December 31st of each year.
(2) Amounts have been restated to give effect to the accounting treatment
announced by the staff of the Securities and Exchange Commission (the
"SEC") at the March 13, 1997 meeting of the Emerging Issues Task Force
relevant to certain of the Company's convertible subordinated debentures
and preferred stock issuances having "beneficial conversion" features. For
the year ended September 30, 1995 and the three months ended December 31,
1995, the restatements resulted in an increase in the Company's net loss of
$0.2 million and $0.9 million, respectively, and an increase in preferred
dividends of $0.8 million and $1.7 million, respectively.
(3) Operating expenses include a loss on impairment of assets and write down on
investments in affiliates of $22.1 million and $2.6 million respectively,
for the year ended December 31, 1996. See "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations" for a
discussion of other non-recurring charges in 1996.
6
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Noncomparability
Among other transactions and actions, during 1996, the Company effected the
Recapitalization, ceased conducting syndication and development/construction
activities as separate businesses, adopted its current business plan, restated
1995 results of operations to give effect to a recent announcement of certain
accounting treatment and recorded a $22.1 million charge for impairment of
assets and a $2.6 million write down of investments in affiliates. In addition,
$3.8 million of the Company's convertible preferred stock and $3.0 million of
the Company's convertible debt was converted into Common Stock during 1996. In
November 1994, the Company acquired 21 FECs in the Malibu acquisition and since
that time has completed other acquisitions of FECs or interests therein. Under
the purchase method of accounting, the assets, liabilities and results of
operations associated with these acquisitions have been included in the
Company's financial condition and results of operations since the respective
dates of acquisition. In 1996, the Company changed its fiscal year end from
September 30 to December 31. In light of the foregoing, the financial condition
and results of operations of the Company discussed herein are generally not
directly comparable period-to-period and are not necessarily indicative of the
Company's future results of operations. The following discussion should be read
in conjunction with the Consolidated Financial Statements and the notes thereto
contained elsewhere in this Report.
The Company's 1995 results of operations described below have been restated
to give effect to the accounting treatment announced by the staff of the SEC at
the March 13, 1997 meeting of the Emerging Issues Task Force relevant to certain
of the Company's convertible subordinated debenture and preferred stock
issuances having "beneficial conversion" features. For the year ended September
30, 1995 and the three months ended December 31, 1995, the restatements
increased the Company's net loss by $0.2 million and $0.9 million, respectively,
and increased preferred dividends by $0.8 million and $1.7 million,
respectively. See Note 1 of Notes to Consolidated Financial Statements.
Calendar Year Ended December 31, 1996 Compared to Fiscal Year Ended
September 30, 1995
The Company's operations resulted in a net loss of $47.6 million, or $2.91
per share, for the year ended December 31, 1996 ("1996"), as compared to a net
loss of $3.2 million, or $0.53 per share, for the year ended September 30, 1995
("1995"). The net loss for 1996 included $30.3 million, or $1.74 per share, of
non-recurring charges and expenses associated with the Recapitalization and the
Company's new business plan.
Pursuant to the Recapitalization and the Company's new business plan, 15 of
the Company's non-strategic FECs were reclassified as held for sale or closure,
the Company is reviewing eight additional FECs for possible sale or closure and
the Company recorded a charge totaling $22.1 million under Statement of
Financial Accounting Standards No. 121 ("SFAS 121") for impairment of assets and
adjustment to carrying values. While the Company presently intends to seek to
sell or discontinue the operation of the 15 FECs held for sale or closure in an
orderly fashion and in all events the Company intends to complete the sale or
closures of the 15 FECs during 1997, there can be no assurance that it will be
able to do so.
See "Items 1 and 2 - Business and Properties - New Business Plan" for a
discussion of the Company's new business plan. In addition to the disposition of
nonstrategic FECs and operational improvements, the Company's business plan
involves the development and roll-out of the Company's new "Malibu SpeedZone"
concept. While the Company does not presently anticipate additional material
nonrecurring charges against its existing asset base in 1997, and is taking
steps to improve its results of operations, with the time required to fully
develop its Malibu SpeedZone concept, the loss of operating revenues during the
construction period for parks being redeveloped and other factors, the Company
does not expect that the Company will return to profitability in 1997.
7
<PAGE>
Operating Revenues
Total operating revenues for 1996 declined by $8.8 million, or 19.0%, to
$37.4 million as compared to $46.2 million for 1995.
Entertainment revenues (or revenues from the operation of FECs) increased
by $3.6 million, or 11.2%, to $35.8 million for 1996 from $32.2 million for
1995. The increase was principally due to (i) the inclusion of 12 months rather
than 10-1/2 months of revenues from 21 FECs acquired from Malibu in November
1994 and (ii) the inclusion of revenues from five FECs acquired by the Company
during 1996 in which the Company previously had a minority interest.
Entertainment revenues for the 18 FECs owned and operated by the Company during
both years decreased by $1.6 million, or 5.1%.
Other operating revenues declined by $.5 million, or 23.8%, primarily due
to the decrease in management fees and rental income previously received in
connection with the five FECs in which the Company had a minority interest.
Development and construction revenue declined by $10.3 million and
syndication revenue declined by $1.6 million as compared to 1995 because the
Company discontinued these business activities in 1996.
Operating Expenses
Total 1996 operating expenses were $77.2 million, an increase of $29.4
million, or 61.5%, over 1995.
Entertainment expenses increased by $7.6 million, or 29.3%, to $33.5
million in 1996, of which $6.3 million was due to the related increases in
entertainment revenues discussed above, with the remaining increase due to
higher maintenance costs resulting from previously deferred maintenance.
General and administrative expenses increased by $4.9 million, or 68.0%, to
$12.1 million for 1996, of which (i) $2.8 million related to consulting and
other costs incurred in the development of the Company's future business plan,
costs associated with the Recapitalization and employee severance arrangements
associated with the restructuring of the Company's administrative organization,
(ii) $0.7 million related to consulting and legal fees incurred in connection
with the Exchange Offer and discontinuance of the development and construction
businesses, and (iii) $1.6 million related to the recording of the bad debt
reserves and various accruals. Development and construction expenses declined by
$9.2 million due to the discontinuation of development and construction
activities for third parties.
Depreciation and amortization expense increased by $1.6 million, or 34.8%,
principally as a result of the FECs acquired during 1996, and the fact that the
Malibu FECs operated for only 10-1/2 months in 1995.
A loss due to impairment of assets of $22.1 million recognized in 1996 is
principally a result of adjustments in the carrying value of assets determined
pursuant to SFAS No. 121. Additionally, the Company adjusted the carrying value
of investments in limited partnerships based upon their net realizable values
which resulted in a loss on investments in affiliates of $2.6 million.
Other (Expense) Income
Interest expense increased by $2.5 million, or 61.0%, principally as a
result of increased outstanding indebtedness during 1996 as compared to 1995,
including convertible debentures issued in connection with the acquisition of
FECs in August 1996. Following the Recapitalization, $27.9 million of
indebtedness was repaid, $4.6 million of convertible debentures were redeemed
and $0.5 million of convertible debentures were converted to Common Stock. These
reductions in indebtedness were partially offset by an increase of $20.0 million
in borrowings under a new credit facility. On January 14, 1997, $15.7 million of
convertible debt of the Company was acquired by MEI Holdings pursuant to the
Tender Offers and converted into Series F Shares. See "Items 1 and 2 - Business
and Properties - Certain Events Following the Recapitalization."
8
<PAGE>
The loss on settlement of strategic alliance agreements of $1.0 million is
the result of the termination of two strategic alliance agreements in which the
Company had previously granted rights to third parties to acquire, construct and
own FECs internationally and domestically. The termination of these alliances
was effected in connection with the Recapitalization. The gain of $0.8 million
associated with the Company's development and construction division is related
to the reversal of an accrual for the costs of the disposal of its development
and construction division. The Company also recognized a gain of $0.4 million in
1996 associated with the cancellation of previously issued warrants.
Three Months Ended December 31, 1995 Compared to Three Months Ended
December 31, 1994
The Company had a net loss of $4.5 million, or $0.77 per share, for the
three months ended December 31, 1995, as compared to a net loss of $1.5 million,
or $0.21 per share, for the three months ended December 31, 1994.
Operating Revenues
Total operating revenues for the three months ended December 31, 1995
increased by $0.4 million, or 6.2%, to $6.8 million as compared to $6.4 million
for the three months ended December 31, 1994. Entertainment revenues increased
by $2.0 million, or 50.0%, to $6.0 million for the three months ended December
31, 1995 as compared to the three months ended December 31, 1994 principally due
to the Malibu FECs operating for a full three months during the 1995 period
rather than one and one-half months of the prior period. Development and
construction revenues, together with syndication revenue, declined by $1.9
million as compared to the three months ended December 31, 1994 due to
management's initial intent to dispose of the Company's development and
construction division.
Operating Expenses
Total operating expenses for the three months ended December 31, 1995 were
$10.4 million, an increase of $3.0 million, or 42.2%, as compared to the three
months ended December 31, 1994. Entertainment expenses increased by $3.0
million, or 46.8%, to $6.4 million for the three months ended December 31, 1994,
which was due to the related increases in entertainment revenues discussed
above.
General and administrative expenses increased by $1.1 million, or 47.6% to
$2.4 million for the three months ended December 31, 1995 due primarily to
severance payments to employees terminated as a result of closing the Malibu
corporate office in Los Angeles, California, the recognition of non-cash warrant
expense ($0.1 million) associated with amortizing the value of warrants issued
in connection with the financial advisory agreements, the recognition of a
non-cash expense related to issuing Common Stock and warrants ($0.1 million),
and legal, accounting and other fees and expenses.
Other (Expense) Income
An estimated loss on disposal of the Company's development and construction
division of $0.8 million was accrued at December 31, 1995 due to management's
initial intent to dispose of the Company's development and construction
division.
Fiscal Year Ended September 30, 1995 Compared to Fiscal Year Ended
September 30, 1994
The Company's operations resulted in a net loss of $3.2 million, or $0.53
per share, for the year ended September 30, 1995 as compared to net income of
$1.2 million, or $0.20 per share, for the year ended September 30, 1994.
9
<PAGE>
Operating Revenues
Total operating revenues increased by $18.0 million, or 64.0%, to $46.2
million for 1995 as compared to $28.2 million for the year ended September 30,
1994 ("1994") as a result of the acquisition of Malibu in November 1994. Other
revenue increased by $1.6 million as a result of an increase in management fees
($0.2 million) from the increased number of FECs managed for third parties,
rental income ($0.2 million) from the lease of a parcel of land to a third party
and revenue recognized on contracts with third parties ($1.0 million). These
increases were partially offset by a $6.3 million decrease in development and
construction revenue from related parties due to the cessation of new
development projects in 1995.
Operating Expenses
Total operating expenses for 1995 were $47.8 million, an increase of $22.5
million, or 88.9%, as compared to 1994. Entertainment expenses increased by
$19.3 million, or 292.4%, to $25.9 million for 1995 due to the acquisition of
the Malibu FECs and six other FECs purchased in fiscal 1994 for which the
Company incurred a full year of expenses. General and administrative expenses
increased by $4.3 million, or 148.0% to $7.2 million for 1995 due to (i)
additional operations overhead to support the Malibu operations (ii) an increase
in the number of personnel employed at the corporate headquarters and the
expenses as a result of the Malibu acquisition and (iii) an increase in legal
expenses.
The decrease in development and construction expense is consistent with the
decrease in the related revenue. Development and construction expense as a
percentage of development and construction revenue from related parties
increased from approximately 84.0% of fiscal 1994 to 90.0% in fiscal 1995. The
increase was due to cost overruns associated with the Company's use of
fixed-price contracts rather than cost-plus contracts.
Depreciation and amortization expense increased by $2.8 million, or 159.0%,
principally as a result of depreciation associated with the Malibu FECs acquired
in November 1994 for which an entire year of depreciation was recognized in
1995.
Other (Expense) Income
Interest expense increased by $2.7 million, or 192.8%, to $4.1 million for
1995 primarily as a result of (i) the indebtedness which the Company incurred in
order to fund the Malibu acquisition and (ii) the weighted average interest rate
increase from approximately 8% in 1994 to 9% in 1995. The increase in other
income of $1.0 million represents a fee, net of the Company's ownership
percentage, which National Entertainment Funding, L.P. ("NEF") paid the Company
in order to terminate NEF's obligation to construct an FEC in Kendall, Florida.
Liquidity and Capital Resources
The Company's principal sources of liquidity in 1996 were the issuance of
Common Stock ($45.5 million) and preferred stock ($34.2 million) and borrowings
under the Company's credit facilities ($40.7 million). The Company's principal
uses of liquidity in 1996 were to finance operations ($14.2 million), purchases
of property and equipment ($14.4 million), acquisitions of facilities ($9.4
million), investments in partnerships ($2.5 million), the repayment of
borrowings ($42.5 million) and the redemption of preferred stock ($7.4 million)
and subordinated debentures ($8.6 million). At December 31, 1996, $16.1 million
of the $22.7 million due from MEI Holdings by virtue of the exercise of the
Company Call Option remained available to the Company; all of this amount was
contributed to the Company during the first quarter of 1997.
At December 31, 1996, the Company's total long-term debt was $43.2 million,
$1.1 million of which was due during 1997, compared to $40.1 million at December
31, 1995, $16.1 million of which was due in 1996. Required amortization of the
Company's long-term debt during the next three years is as follows: 1997: $1.1
million; 1998: $1.0 million; and 1999: $0.8 million. The Company's $20.0 million
term and revolving credit loan facility matures in August 2001, with no required
principal amortization prior thereto. On January 14, 1997, $15.7 million
aggregate principal amount of subordinated convertible debt of the Company
acquired by MEI Holdings in the Tender Offers was converted into Series F
Shares.
10
<PAGE>
The Company believes that, with respect to its current operations, the
Company's cash on hand and funds from operations and the net proceeds of
anticipated asset sales will be sufficient to fund the Company's reasonably
foreseeable working capital and debt service requirements. However, the Company
presently expects that funding for capital expenditures during 1997 for the
Company's existing FECs and the conversion of certain FECs to the Company's
Malibu SpeedZone concept will require the Company to secure additional capital
resources. The cost of conversion of existing FECs to the Malibu SpeedZone
concept, or the development of new Malibu SpeedZone parks, will be dependent
upon various factors, including land acquisition, construction and other costs,
but is expected to be substantial ($5-10 million per facility). The pursuit of
any acquisition opportunities which may become available and the implementation
of the Company's business plan on a more rapid timetable than the Company
presently contemplates also may require the Company to issue additional debt or
equity securities or to consider possible changes in its capitalization or
structure. Accordingly, there can be no assurances that the Company will be able
fully to implement its business plan or to pursue those or other opportunities
that otherwise might be available to the Company or as to the timing or terms
thereof.
Seasonality
The business of the Company is highly seasonal. Approximately 64% of the
Company's revenues are generated during the six-month period of April through
September. As a result, the Company's operating income can be expected to be
substantially lower in the first and last three months of the year than the
second and third quarters. Furthermore, since many of the attractions at the
parks involve outdoor activities, prolonged periods of inclement weather result
in a substantial reduction of revenues during such period.
Inflation
The effects of inflation, as measured by fluctuations in the consumer price
index, have not had a material impact on the Company's revenues or net income in
recent years.
Item 8. Financial Statements and Supplementary Data
The information required by this item is set forth in the Company's
Consolidated Financial Statements and Supplementary Data contained in this
Report and is incorporated herein by reference. Specific financial information
can be found at the pages listed in the following index:
Item Page No.
- ---------------------------------------- --------
Report of Independent Public Accountants F-1
Report of Independent Accountants F-2
Consolidated Balance Sheet F-3
Consolidated Statement of Operations F-4
Consolidated Statement of Change in F-5 and F-6
Shareholders' Equity
Consolidated Statement of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
through
F-33
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Mountasia Entertainment International, Inc.
We have audited the accompanying consolidated balance sheets of MOUNTASIA
ENTERTAINMENT INTERNATIONAL, INC. (a Georgia Corporation) and SUBSIDIARIES as of
September 30, 1995 and December 31, 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year
ended September 30, 1995, the three months ended December 31, 1995, and the year
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The consolidated financial statements
of Mountasia Entertainment International, Inc. and subsidiaries as of September
30, 1994 and for the year then ended were audited by other auditors whose report
dated October 5, 1995 on those statements included an explanatory paragraph that
disclosed the Company was not in compliance with certain financial covenants of
its subordinated debenture agreement issued in November 1994.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mountasia
Entertainment International, Inc. and subsidiaries as of September 30, 1995 and
December 31, 1996, and the results of their operations and their cash flows for
the year ended September 30, 1995, the three months ended December 31, 1995, and
the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
As explained in Note 1 to the consolidated financial statements, the Company has
given retroactive effect to the change in accounting for its convertible
securities having beneficial conversion features.
Arthur Andersen LLP
Atlanta, Georgia
March 24, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Mountasia Entertainment International, Inc.
In our opinion, the consolidated statements of operations, of changes in
shareholders' equity and of cash flows for the year ended September 30, 1994
(appearing on pages F-4 through F-7) present fairly, in all material respects,
the results of operations and cash flows of Mountasia Entertainment
International, Inc. and its subsidiaries for the year ended September 30, 1994,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of Mountasia
Entertainment International, Inc. for any period subsequent to September 30,
1994.
PRICE WATERHOUSE LLP
Atlanta, Georgia
October 5, 1995
F-2
<PAGE>
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, September 30,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 2,583,735 $ 7,196,026
Restricted cash 966,075 2,107,165
Restricted certificates of deposit 3,127,208
Accounts receivable, net of allowance for doubtful
accounts of $1,583,376 and $793,617 109,537 161,137
Stock subscription receivable 16,076,260
Inventories 1,359,331 1,855,545
Current portion of notes receivable 172,284 393,069
Assets held for sale 6,271,003
Other current assets 1,261,694 1,111,060
------------ ------------
Total current assets 28,799,919 15,951,210
------------ ------------
Property and equipment, less accumulated depreciation 85,484,158 70,884,585
------------ ------------
Other noncurrent
Investments in and advances to limited partnerships 2,288,129 5,129,758
Notes receivable 272,267 1,062,387
Other assets 190,479 630,431
Debt issuance costs, less accumulated amortization
of $499,310 and $585,938 2,453,798 2,981,606
Intangible assets, less accumulated amortization 2,608,608 4,498,776
------------ ------------
Total other noncurrent assets 7,813,281 14,302,958
------------ ------------
$122,097,358 $101,138,753
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit $ $ 2,994,000
Term loan revolver 1,500,000
Current portion of notes payable 1,120,467 5,912,788
Convertible subordinated debenture 5,650,000
Current portion of liability for guaranteed stock values 1,151,238
Accounts payable 2,354,823 1,239,903
Accrued expenses 5,777,707 5,746,412
Accrued expenses related to assets held for sale 3,250,000
Income taxes payable 86,888 9,888
------------ ------------
Total current liabilities 12,589,885 24,204,229
Line of credit 7,250,053
Term loan revolver 12,500,000 8,491,017
Notes payable 5,788,475 7,054,050
Convertible subordinated debentures 16,521,422 8,500,000
Other accrued expenses 2,438,383 460,418
Deferred revenue 2,444,140
Deferred income taxes 548,021
------------ ------------
Total liabilities 57,088,218 51,701,875
------------ ------------
Contingent liability for guaranteed stock values 777,861 1,377,626
------------ ------------
Shareholders' equity
Preferred stock, 6,000,000 shares authorized with no par value Series A,
2,000 authorized; 0, and1,150 issued
and outstanding 9,778,833
Series F, 2,700,000 authorized; 808,692 and 0 issued
and outstanding 22,700,000
Series G, 213,551authorized; 213,551 and 0 issued
and outstanding 4,826,260
Common stock, 100,000,000 shares authorized with no par
value; 28,472,877 and 7,850,868 shares
issued and outstanding 97,062,239 35,558,175
Outstanding warrants 2,440,100 2,683,333
Unearned compensation (250,000)
Notes receivable from employees (5,681,951)
Accumulated (deficit) earnings (57,115,369) 288,911
------------ ------------
Total shareholders' equity 64,231,279 48,059,252
------------ ------------
$122,097,358 $101,138,753
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the three
For the year ended months ended For the years ended
December 31, December 31, September 30,
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues
Entertainment revenue $ 35,810,918 $ 6,007,447 $ 32,185,420 $ 9,520,830
Development and construction revenue from related parties 265,695 10,311,271 16,621,629
Syndication revenue 70,000 1,600,000 1,541,312
Other 1,619,205 411,236 2,109,995 493,334
------------ ------------ ------------ ------------
Total operating revenues 37,430,123 6,754,378 46,206,686 28,177,105
------------ ------------ ------------ ------------
Operating expenses
Entertainment expenses 33,533,903 6,363,800 25,930,779 6,601,201
General and administrative expenses 12,063,425 2,395,197 7,207,072 2,906,386
Other expenses 712,099 123,988 515,569
Development and construction expense 241,138 9,246,197 14,023,515
Depreciation and amortization 6,220,848 1,293,142 4,572,211 1,762,022
Provision for loss due to impairment of assets 22,138,417
Provision for loss on investments in limited partnerships 2,570,000
Realized loss on sale of securities 293,430
------------ ------------ ------------ ------------
Total operating expenses 77,238,692 10,417,265 47,765,258 25,293,124
------------ ------------ ------------ ------------
Operating (loss) income (39,808,569) (3,662,887) (1,558,572) 2,883,981
------------ ------------ ------------ ------------
Other (expense) income
Interest expense, including interest to related
parties of $0, $0, $26,886, and $46,476 (6,578,838) (2,754,290) (4,108,445) (1,370,960)
Interest income 308,007 114,285 421,176 342,225
Loss on settlement of strategic alliance agreements (1,005,751)
Gain (loss) associated with development and construction division 795,000 (795,000)
Gain associated with cancellation of warrants 422,333
Other 1,128,149 1,093,750
------------ ------------ ------------ ------------
(Loss) income before benefit (provision) for income taxes and
cumulative effect of a change in accounting principle
and extraordinary item (44,739,669) (7,097,892) (4,152,091) 1,855,246
Benefit (provision) for income taxes (2,184,357) 2,692,295 1,310,517 (704,993)
Equity in net earnings of limited partnerships, net of tax (46,287) (88,064) 78,891 81,826
------------ ------------ ------------ ------------
(Loss) income before cumulative effect of a change in
accounting principle and extraordinary item (46,970,313) (4,493,661) (2,762,683) 1,232,079
Cumulative effect of a change in accounting principle,
net of tax (438,068)
Extraordinary item (662,580)
------------ ------------ ------------ ------------
Net (loss) income $(47,632,893) $ (4,493,661) $ (3,200,751) $ 1,232,079
============ ============ ============ ============
Net (loss) income applicable to common stock
Net (loss) income $(47,632,893) $ (4,493,661) $ (3,200,751) $ 1,232,079
Less: Preferred stock dividends (2,969,464) (1,976,238) (866,333)
------------ ------------ ------------ ------------
Net (loss) income applicable to common stock $(50,602,357) $ (6,469,899) $ (4,067,084) $ 1,232,079
============ ============ ============ ============
Net (loss) income applicable to common stock before
cumulative effect of a change in accounting principle
and extraordinary item $ (2.87) $ (0.77) $ (0.47) $ 0.20
Loss per share of common stock as a result of cumulative
effect of a change in accounting principle (0.06)
Extraordinary item (0.04)
------------ ------------ ------------ ------------
Net (loss) income per share of common stock $ (2.91) $ (0.77) $ (0.53) $ 0.20
============ ============ ============ ============
Pro forma information
Net (loss) income applicable to common stock per above $(50,602,357) $ (6,469,899) $ (4,067,084) $ 1,232,079
Adjustment for effect of a change in accounting principle
that is applied retroactively, net of tax (191,153)
Net (loss) income applicable to common stock
------------ ------------ ------------ ------------
on a pro forma basis $(50,602,357) $ (6,469,899) $ (4,067,084) $ 1,040,926
============ ============ ============ ============
Pro forma per share information
Net (loss) income per common share as reported above $ (2.91) $ (0.77) $ (0.53) $ 0.20
Adjustment for effect of a change in accounting
principle that is applied retroactively (0.03)
------------ ------------ ------------ ------------
Net (loss) income per common share on a
pro forma basis $ (2.91) $ (0.77) $ (0.53) $ 0.17
============ ============ ============ ============
Weighted average number of shares of
common stock and common stock equivalents
used in calculating net (loss) income per share 17,406,837 8,374,750 7,719,727 6,268,751
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Preferred Stock Total
------------------------------------------------------------------------ Preferred
Class A Class B Class C Class D Class F Class G Stock
----------- ----------- ----------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1993 $ $ $ $ $ $ $
Issuance of common stock in connection
with initial public offering
Stock issuance costs
Issuance of common stock for
investment in limited partnerships
Issuance of common stock to purchase
East Cobb FunCenter
Issuance of common stock to purchase
Greenville FunCenter
Issuance of common stock to purchase
Kingwood FunCenter
Issuance of common stock to purchase
Malibu facilities
Warrants issued in connection with the
formation of NEF
Adjustment to common stock as a result of
guaranteed stock prices
Unrealized loss on investment in
securities, net of tax
Net income
----------- ----------- ----------- ----------- --------- --------- ----------
Balance, September 30, 1994
Issuance of preferred stock 11,500,000 11,500,000
Discount on preferred stock (1,725,000) (1,725,000)
Issuance of common stock
Stock issuance costs (862,500) (862,500)
Discount on 10% subordinated debentures
Purchase and cancellation of stock
Warrants issued in connection
with purchase of MGPC
Warrants issued in connection with
financial advisory agreement
Unearned compensation in connection
with the financial advisory agreement
Warrants issued in connection with the
Company's initial public offering
Warrants issued in connection with
November 1994 equity offering
Warrants issued in connection
with NEF
Warrants issued in connection
with September 1995 equity offering
Adjustment to common stock as a result of
guaranteed stock prices
Change in unrealized loss on securities
available for sale, net of tax
Accretion of preferred stock dividends 866,333 866,333
Net loss
----------- ----------- ----------- ----------- --------- --------- ----------
<CAPTION>
Notes Loss on
Receivable Securities Retained
Common Outstanding Unearned From Available Earnings
Stock Warrants Compensation Employees for Sale (Deficit) Total
----------- ---------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1993 $ 5,683,831 $ $ $ $ 123,916 $ 5,807,747
Issuance of common stock in connection
with initial public offering 24,800,000 24,800,000
Stock issuance costs (3,942,729) (3,942,729)
Issuance of common stock for
investment in limited partnerships 516,768 516,768
Issuance of common stock to purchase
East Cobb FunCenter 558,463 558,463
Issuance of common stock to purchase
Greenville FunCenter 388,930 388,930
Issuance of common stock to purchase
Kingwood FunCenter 780,500 780,500
Issuance of common stock to purchase
Malibu facilities 1,582,031 1,582,031
Warrants issued in connection with the
formation of NEF 300,000 300,000
Adjustment to common stock as a result
of guaranteed stock prices 30,693 30,693
Unrealized loss on investment in
securities, net of tax (227,714) (227,714)
Net income 1,232,079 1,232,079
----------- ---------- ----------- ----------- -------- ----------- -----------
Balance, September 30, 1994 30,398,487 300,000 (227,714) 1,355,995 31,826,768
Issuance of preferred stock 11,500,000
Discount on preferred stock 1,725,000 -
Issuance of common stock 13,051,923 13,051,923
Stock issuance costs (2,547,164) (3,409,664)
Discount on 10% subordinated debentures 1,275,000 1,275,000
Purchase and cancellation of stock (5,658,027) (5,658,027)
Warrants issued in connection -
with purchase of MGPC 900,000 900,000
Warrants issued in connection with -
financial advisory agreement 333,333 333,333
Unearned compensation in connection -
with the financial advisory agreement (250,000) (250,000)
Warrants issued in connection with the -
Company's initial public offering 650,000 650,000
Warrants issued in connection with -
November 1994 equity offering 100,000 100,000
Warrants issued in connection -
with NEF 25,000 25,000
Warrants issued in connection -
with September 1995 equity offering 375,000 375,000
Adjustment to common stock as a result of -
guaranteed stock prices 312,956 312,956
Change in unrealized loss on securities -
available for sale, net of tax 227,714 227,714
Accretion of preferred stock dividends (866,333) -
Net loss (3,200,751) (3,200,751)
----------- ---------- ----------- ----------- -------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Preferred Stock Total
------------------------------------------------------------------------ Preferred
Class A Class B Class C Class D Class F Class G Stock
----------- ----------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995 9,778,833 9,778,833
Issuance of preferred stock 500,000 500,000
Issuance of common stock
Stock issuance costs
Purchase and cancellation of stock
Warrants issued in connection with
financial advisory agreement
Unearned compensation in connection
with financial advisory agreements
Warrants issued
Adjustment to common stock as a result
of guaranteed stock prices
Accretion of preferred stock dividends 1,976,238 1,976,238
Preferred stock converted (7,034,931) (7,034,931)
Subordinated debt converted
Transfer of Class A preferred stock
to Class B preferred stock (4,300,000) 4,300,000
Net loss
----------- ----------- ----------- ----------- --------- --------- -----------
Balance, December 31, 1995 420,140 4,300,000 500,000 5,220,140
Issuance of preferred stock 6,662,000 22,700,000 4,826,260 34,188,260
Issuance of common stock
Discount on 9% subordinated debentures
Interest on notes receivable from employees
Stock issuance costs
Purchase and cancellation of stock
Unearned compensation in connection
with the financial advisory agreements
Warrants issued
Adjustment to common stock as a result
of guaranteed stock prices
Accretion and payment of preferred
stock dividends 28,441 215,000 1,266,000 1,509,441
Accretion of preferred stock discount
Preferred stock converted (310,126) (3,502,700) (3,812,826)
Preferred stock redeemed (1,354,500) (500,000) (4,425,300) (6,279,800)
Subordinated debt converted
Preferred stock converted to
subordinated debt (3,160,500) (3,160,500)
Payment of dividends (138,455) (138,455)
Cancellation of warrants
Net loss
----------- ----------- ----------- ----------- --------- --------- -----------
Balance, December 31, 1996 $ $ $ $ $22,700,000 $4,826,260 $27,526,260
=========== =========== =========== =========== ========= ========= ===========
<CAPTION>
Notes Loss on
Receivable Securities Retained
Common Outstanding Unearned From Available Earnings
Stock Warrants Compensation Employees for Sale (Deficit) Total
---------- ---------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995 35,558,175 2,683,333 (250,000) 288,911 48,059,252
Issuance of preferred stock 500,000
Issuance of common stock 101,364 101,364
Stock issuance costs (221,529) (36,617) (258,146)
Purchase and cancellation of stock (51,257) (51,257)
Warrants issued in connection with -
financial advisory agreement 350,000 350,000
Unearned compensation in connection -
with financial advisory agreements (247,222) (247,222)
Warrants issued 31,600 31,600
Adjustment to common stock as a result -
of guaranteed stock prices (585,247) (585,247)
Accretion of preferred stock dividends (1,976,238) -
Preferred stock converted 7,034,931 -
Subordinated debt converted 2,031,892 2,031,892
Transfer of Class A preferred stock
to Class B preferred stock -
Net loss (4,493,661) (4,493,661)
---------- ---------- ----------- ----------- -------- ----------- -----------
Balance, December 31, 1995 43,868,329 3,064,933 (497,222) (6,217,605) 45,438,575
Issuance of preferred stock 34,188,260
Issuance of common stock 51,087,602 (5,568,266) 45,519,336
Discount on 9% subordinated debentures 236,250 236,250
Interest on notes receivable from employees (113,685) (113,685)
Stock issuance costs (3,353,921) (531,657) (3,885,578)
Purchase and cancellation of stock (722,744) (722,744)
Unearned compensation in connection -
with the financial advisory agreements 234,722 234,722
Warrants issued 60,000 60,000
Adjustment to common stock as a result -
of guaranteed stock prices (682,201) (682,201)
Accretion and payment of preferred stock
dividends (2,969,464) (1,460,023)
Accretion of preferred stock discount -
Preferred stock converted 3,812,826 -
Preferred stock redeemed (6,279,800)
Subordinated debt converted 3,052,348 3,052,348
Preferred stock converted to -
subordinated debt (3,160,500)
Payment of dividends (138,455)
Cancellation of warrants (684,833) 262,500 (422,333)
Net loss (47,632,893) (47,632,893)
---------- ---------- ----------- ----------- -------- ----------- -----------
Balance, December 31, 1996 $97,062,239 $2,440,100 $ $(5,681,951) $ $(57,115,369) $64,231,279
========== ========== =========== =========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the three
For the year ended months ended For the years ended
December 31, December 31, September 30,
1996 1995 1995 1994
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Operating activities:
Net (loss) income (47,632,893) $(4,493,661) $(3,200,751) $1,232,079
Extraordinary item 662,580
Adjustments to reconcile net (loss) income to
net cash provided (used) by operating activities
Cumulative effect of a change in accounting principle 706,562
(Gain) loss associated with development and
construction division (795,000) 795,000
Syndication revenue (70,000) (1,050,000) (1,541,312)
Equity in net losses (earnings) of limited partnerships 46,287 88,064 (78,891) (81,826)
Increase in allowance for doubtful accounts 853,039 37,954 793,617
Depreciation and amortization 6,220,848 1,293,142 4,572,211 1,762,022
Amortization of loan costs 1,399,796 1,791,720 618,477 76,028
Deferred income taxes 2,205,829 (2,186,850) (1,811,494) 353,300
Realized loss on securities 293,430
Provision for loss on investments in affiliates 2,570,000
Loss (gain) on sales or write-off of property and equipment (1,129,652) 146,202 49,317
Provision for loss on impairment of assets 22,138,417
Amortization of warrants 234,722 102,778 408,333
Gain associated with cancellation of warrants (422,333)
Issuance of common stock and warrants in settlement of litigation 60,000 132,964
Changes in assets and liabilities, net of acquisitions
Decrease (increase) in accounts receivable (802,868) 43,475 (504,351)
Decrease (increase) in inventory 306,643 (95,635) (238,979)
Decrease (increase) in other assets 264,737 (465,051) (844,606) (298,660)
Decrease (increase) in advances to limited partnerships 425,000 (425,700)
Decrease (increase) in intangible assets 13,504 (2,174,194) (757,458)
(Decrease) increase in accounts payable 925,378 (12,095) (960,460) 330,349
(Decrease) increase in accrued expenses 412,153 511,524 (674,067) 371,718
(Decrease) increase in income taxes payable 77,000 (245,112) 161,700
( Decrease) increase in deferred revenue (1,856,248) (587,892) 2,444,140
------------- ------------- ------------ -----------
Cash provided (used) by operating activities (14,248,061) (3,114,563) (1,374,933) 1,231,557
------------- ------------- ------------ -----------
Investing activities:
Purchases of property and equipment (14,447,703) (1,226,199) (1,224,137) (2,438,437)
Proceeds from sales of property and equipment 3,431,107 1,600,331 236,870
Proceeds from sale of securities available for sale 2,665,921
Increase in notes receivable (435,745) (467,972) (1,003,600)
Principal payments under notes receivable 459,110 21,437 66,116
Decrease (increase) in restricted certificates of deposit 1,925,686 (42,221) (1,324,708) (1,587,500)
Decrease (increase) in restricted cash 1,150,471 (9,381) (2,107,165)
Increase in investments in limited partnerships (2,588,786) (216,628) (537,106) (1,827,637)
Increase in investment in MGPC (3,221,693)
Increase in securities available for sale (2,959,351)
Purchases of facilities (9,427,340) (20,976,284) 10,420,899)
------------- ------------- ------------ -----------
Cash used in investing activities (19,933,200) (1,472,992) (22,305,004) 23,222,247)
------------- ------------- ------------ -----------
Financing activities:
Proceeds from borrowings 40,699,206 15,760,980 14,852,749
Payments of borrowings (42,495,703) (1,453,635) (16,560,733) 11,749,912)
Increase in debt issuance costs (2,744,033)
Increase in stock subscription receivable (16,076,260)
Increase in interest on notes receivable from employees (113,685)
Proceeds from issuance of convertible
subordinated debenture 14,150,000
Payments on obligation under capital lease (2,245,419)
Issuance of preferred stock 34,188,260 500,000 11,500,000
Redemption of preferred stock (7,398,690)
Redemption of subordinated debentures (8,597,545)
Issuance of common stock 45,519,336 13,001,386 24,800,000
Payment of guaranteed stock values (3,018,451)
Stock issuance costs (3,885,578) (54,241) (2,504,664) (3,254,808)
Payment of dividends on preferred stock (138,455)
Purchase and cancellation of common stock (722,744) (51,257) (5,658,027)
------------- ------------- ------------ -----------
Cash provided (used) by financing activities 35,215,658 (1,059,133) 29,688,942 22,402,610
------------- ------------- ------------ -----------
Increase (decrease) in cash and cash equivalents 1,034,397 (5,646,688) 6,009,005 411,920
Cash and cash equivalents, beginning of year 1,549,338 7,196,026 1,187,021 775,101
------------- ------------- ------------ -----------
Cash and cash equivalents, end of year $ 2,583,735 $ 1,549,338 $ 7,196,026 $1,187,021
============= ============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Mountasia Entertainment International, Inc. (the "Company") owns and operates
multi-attraction entertainment centers. The Company's original concept was the
family entertainment center ("FEC") which generally included several
entertainment attractions at a single location such as miniature golf courses,
go-karts, bumper boats, video and gamerooms and souvenir concession stands. With
the Company's acquisition of Malibu Grand Prix Corporation ("Malibu") in 1994,
the Company added a racing component to its FECs. The Company's Malibu Grand
Prix FECs generally feature a combination of scaled grand prix style racetracks
utilizing the Company's proprietary Malibu Grand Prix race cars, miniature golf
courses, video arcades, go-kart tracks, batting cages, bumper boats and food
service/merchandise facilities.
Change in year end
On January 19, 1996 the Board of Directors approved a change in the Company's
fiscal year end from September 30th to December 31st.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
Revenues
Entertainment revenue represents revenue from FECs owned by the Company and is
recognized when earned.
Prior to 1996, the Company developed and constructed FECs for limited
partnerships. Development and construction revenue from related parties
represents the revenue recognized for the preparation of detail design and
construction drawings and the construction of facilities for limited
partnerships in which the Company owns an interest. Revenue under these
construction agreements, exclusive of the percentage interest owned by the
Company, was recognized using the percentage-of-completion method measured by
the percentage of direct costs incurred to date to estimated total direct costs
for the contract. Contract costs include all direct material and labor costs and
indirect costs related to contract performance. Separate contracts to construct
FECs and subsequently manage the FEC were negotiated simultaneously at rates
believed by the Company to be comparable to those which would have been charged
by third parties.
In prior years, the Company assisted third parties in raising funds to
capitalize limited partnerships which constructed and owned FECs and the Company
received a limited partnership interest as compensation for syndication
activities performed. The Company recognized syndication revenue upon completion
of construction of the FEC (Note 4).
In certain circumstances the Company had entered into agreements with limited
partnerships or other entities (the "Entities") to assist in the syndication
process and to construct and develop FECs in which the Entities may have a right
("put") to require the Company to purchase the FEC. The existence of a put
F-8
<PAGE>
may expose the Company to future obligations and, therefore, the syndication
revenue, was deferred until the put expired or was terminated and there were no
future obligations on behalf of the Company.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investment securities purchased with an initial maturity of three months
or less to be cash equivalents.
Restricted cash
Restricted cash is restricted in accordance with various agreements with
insurance carriers.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the lesser of the estimated useful lives of the
assets or the term of the lease. Depreciable lives range from two to thirty-nine
years and lease terms range from one to twenty-five years. Depreciation is
computed using the straight-line method for financial reporting and an
accelerated method for income tax purposes.
Debt issuance costs
Costs associated with the issuance of debt are capitalized and amortized using
the straight line method which approximates the effective interest method over
the term of the related debt.
Intangible assets
Goodwill, which represents the excess of purchase price over the fair value of
assets acquired in connection with the acquisitions of various entities, is
being amortized over 30 years. Trademarks and organizational costs are
capitalized and amortized over 10 and 5 years, respectively.
Investments in and advances to limited partnerships
Investments in limited partnerships are accounted for under the equity method.
Under the equity method, the Company adjusts the carrying amount of its
investments for its share of the earnings or losses of the limited partnership
and reports the earnings or losses in income. Distributions from a limited
partnership reduce the carrying amount of the investment.
Environmental reserve
The Company has adopted a policy of providing a reserve for estimated costs of
site remediation of its underground storage tanks on a tank by tank basis as
soon as a potential liability is reasonably estimable. The Company's reserve is
periodically evaluated and adjusted as necessary based on the latest available
information.
Net (loss) income per share of common stock
Net (loss) income per share of common stock is computed by dividing net (loss)
income applicable to common stock by the weighted average number of shares of
common stock and common stock equivalents outstanding during the year. In loss
periods, common stock equivalents are not included in the weighted average
number of shares of common stock outstanding because they are anti-dilutive. Any
preferred
F-9
<PAGE>
dividends paid or accrued during the year are reflected as an increase in net
loss prior to the calculation of net loss per share of common stock.
Restatement
The financial position and results of operations presented in the financial
statements and footnotes for the year ended September 30, 1995, the three months
ended December 31, 1995, and the unaudited quarters ended March 31, 1996, June
30, 1996, and September 30, 1996 have been restated to give effect to the
accounting treatment announced by the staff of the Securities and Exchange
Commission ("SEC") at the March 13, 1997 meeting of the Emerging Issues Task
Force relevant to certain of the Company's convertible subordinated debenture
and preferred stock issuances having "beneficial conversion" features. Such
issuances included conversion features which permitted the holders to convert
their holdings to common shares at the lesser of a stated fixed price or a fixed
discount off of the market price of the common shares when converted.
Under this accounting treatment, the value of the fixed discount (5% or 15% of
the respective issuance's face value for each of the Company's issuances) has
been reflected in the restated financial statements as additional interest
expense in the case of subordinated convertible debentures and as additional
preferred dividends in the case of preferred stock issuances and such fixed
discount has been accreted through the first possible conversion date of the
respective issuance. Additionally, the accretion of the discount between face
value and the net proceeds to the Company for issuances of these securities
which has been recognized by the Company through the contractual maturity date
in the case of the debentures and the expected maturity date in the case of the
preferred stock has been adjusted to reflect all such accretion through the
first possible conversion date of the respective issuance. The restatement also
gives effect to the recognition in the calculation of loss per share of
additional preferred dividends during the second and third quarters of 1996 on
the Company's Series D Preferred Stock representing accretion of the issuance
discount which had not been previously recognized in the calculation of loss per
share. None of these restatements had any effect on cash flows of the Company.
The effect of the restatement is summarized below:
<TABLE>
<CAPTION>
Previously Effect of
Reported Above Restated
----------------- ----------------- ----------------
<S> <C> <C> <C>
Year ended September 30, 1995
Net loss $ (2,995,894) $ (204,857) $ (3,200,751)
- ---------------------------------------------------- ================= ================= ================
Net loss applicable to Common Shareholders $ (3,071,510) $ (995,574) $ (4,067,084)
================= ================= ================
Loss per Common Share $ (0.40) $ (0.13) $ (0.53)
================= ================= ================
Total shareholders' equity $ 46,989,109 $ 1,070,143 $ 48,059,252
================= ================= ================
Three months ended December 31, 1995
- ----------------------------------------------------
Net loss $ (3,568,018) $ (925,643) $ (4,493,661)
================= ================= ================
Net loss applicable to Common Shareholders $ (3,798,019) $ (2,671,880) $ (6,469,899)
================= ================= ================
Loss per Common Share $ (0.40) $ (0.37) $ (0.77)
================= ================= ================
Total shareholders' equity $ 45,294,075 $ 144,500 $ 45,438,575
================= ================= ================
Three months ended March 31, 1996
Net loss $ (2,175,683) $ 55,874 $ (2,119,809)
- ---------------------------------------------------- ================= ================= ================
Net loss applicable to Common Shareholders $ (2,342,555) $ (180,072) $ (2,522,627)
================= ================= ================
Loss per Common Share $ (0.21) $ (0.02) $ (0.23)
================= ================= ================
Total shareholders' equity $ 49,395,299 $ 200,374 $ 49,595,673
================= ================= ================
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
Previously Effect of
Reported Above Restated
----------------- ----------------- ----------------
<S> <C> <C> <C>
Three months ended June 30,1996
- ----------------------------------------------------
Net loss $ (3,993,639) $ 49,219 $ (3,944,420)
================= ================= ================
Net loss applicable to Common Shareholders $ (4,206,447) $ (1,557,400) $ (5,763,847)
================= ================= ================
Loss per Common Share $ (0.34) $ (0.12) $ (0.46)
================= ================= ================
Total shareholders' equity $ 47,741,164 $ 249,593 $ 47,990,757
================= ================= ================
Three months ended September 30, 1996
- ----------------------------------------------------
Net loss $ (1,986,780) $ 65,552 $ (1,921,228)
================= ================= ================
Net loss applicable to Common Shareholders $ (1,986,780) $ (681,667) $ (2,668,447)
================= ================= ================
Loss per Common Share $ (0.10) $ (0.05) $ (0.15)
================= ================= ================
Total shareholders' equity $ 74,853,450 $ 551,395 $ 75,404,845
================= ================= ================
</TABLE>
Fair Value of Financial Instruments
The Company estimates that the fair value of its financial instruments,
primarily its debt instruments and notes receivable, approximates the
instruments' carrying amounts based on the respective instruments' terms and
maturities.
Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be
Disposed of
During January 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121. The effect of adopting this new
accounting pronouncement in January 1996 was determined not to be material to
the Company's financial position or results of operations (see Note 21).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles required management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could vary from these estimates.
Reclassification
Certain prior year amounts have been reclassified to conform to the 1996
presentation.
2. RECAPITALIZATION
On June 5, 1996, the Company and MEI Holdings, L.P. ("MEI Holdings") entered
into an Investment Agreement (the "Investment Agreement") and related documents,
including a Warrant and the Standstill Agreement (together with the Investment
Agreement, collectively, the "Recapitalization Agreements"). The transactions
provided for in the Recapitalization Agreement (the "Recapitalization") were
completed on August 28, 1996.
Pursuant to the Recapitalization Agreement, the Company (i) sold 11,727,970
shares of Common Stock to MEI Holdings (45.45% of the then-outstanding shares of
Common Stock after giving effect to such issuance and prior to the sale of 2.1
million shares of Common Stock to employees) and (ii) issued to MEI Holdings a
Warrant to acquire additional shares of Common Stock (or nonvoting Series F
Preferred Stock
F-11
<PAGE>
("Series F Shares")) automatically upon the occurrence of certain events. In
addition, MEI Holdings is entitled to additional Common Stock (or Series F
Shares) under certain post-closing adjustment provisions of the Investment
Agreement if certain events occur which vary adversely from the parties'
valuation assumptions related to MEI Holdings' investment in the Company
pursuant to the Investment Agreement.
As a part of the Recapitalization, among other things, (i) the Company obtained
the right to require MEI Holdings to invest up to an additional $22.7 million in
the Company (the "Company Call Option") and (ii) MEI Holdings agreed, subject to
certain conditions, to provide up to an additional $30.0 million to backstop
certain future rights offerings. The Company exercised the Company Call Option
in December 1996 and subsequently issued 901,774 Series F Shares to MEI Holdings
for $22.7 million ($6.7 million of which had been received by the Company as of
December 31, 1996, with the remainder of the $22.7 million invested during the
first quarter of 1997). The exact number of shares issuable for such $22.7
million investment is subject to adjustment for certain future events.
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 in exchange for which MEI Holdings received 213,551 shares of Series
G Preferred Stock ("Series G Shares"). The number of Series G Shares so received
is subject to adjustment, but in no event will any such adjustment result in the
number of such Series G Shares being issued at lower than $2.26 (the price at
which the 10% Debentures would have been convertible plus $0.01).
Each Series F Share and each Series G Share is convertible into ten shares of
Common Stock upon shareholder approval of the conversion thereof and in certain
other limited circumstances. Such conversion of Series F Shares and Series G
Shares is expected to be considered by shareholders at the Company's annual
meeting of shareholders scheduled for April 28, 1997.
3. EXTRAORDINARY ITEM
In September 1995, the Company issued $8,500,000 principal amount of 10%
Debentures. During 1996 the 10% Debentures were amended and certain terms
modified. In connection with amending certain terms, the Company redeemed 30% of
the outstanding balance of its 10% Debentures and its Series B Preferred Stock
and the Company exchanged the remaining 70% outstanding balance under the Series
B Preferred Stock and its 10% Debentures into newly structured 10% Convertible
Subordinated Debentures (the "New 10% Debentures"). The redemption of the 10%
Debentures, along with the issuance of the New 10% Debentures, resulted in the
Company recognizing a loss on the extinguishment of debt of approximately
$663,000 for the redemption premium of 20%, along with the write off of
unamortized debt issue costs.
4. CHANGE IN ACCOUNTING PRINCIPLE
Prior to 1996, the Company assisted third parties in raising funds to capitalize
limited partnerships which construct and own FECs, and the Company received a
limited partnership interest as compensation for syndication activities
performed. Prior to October 1, 1994, the Company recognized syndication revenue
when minimum cash or other equity was raised as specified in the respective
partnership offering circulars and after completion of activities associated
with determining the feasibility of a particular entertainment center site,
preparing preliminary site designs, and assisting the local general partner in
meetings with potential investors. The Company retained significant involvement
in limited partnerships that it syndicated for a period of time while it
performed the functions of a developer. Its exposure to future costs in that
capacity were estimated to be nominal for those syndications that closed prior
to October 1, 1994. However, FECs became increasingly more complex as a wider
variety of attractions were included in their design. As a result, the Company's
continued involvement during the pre-opening period was determined
F-12
<PAGE>
to be greater. Accordingly, the Company believed it was preferable to defer
recognition of its syndication fees until completion of the construction of the
FEC, rather than recognizing such fees when the syndication had been capitalized
through non-refundable equity investments and adopted this change for its fiscal
year beginning October 1, 1994.
If this change had been adopted for the year ended September 30, 1994,
shareholders' equity would have been reduced by $438,068. If the new method of
accounting for syndication fees had been followed during the year ended
September 30, 1994 net income would have been reduced by $191,153 or $0.03 per
share.
5. ACQUISITIONS
National Entertainment Funding L.P.
On April 3, 1996, the Company entered into Purchase and Sales Agreements with
the general and limited partners of National Entertainment Funding L.P. ("NEF")
to acquire their partnership interests in NEF which owned three FECs in McAllen,
Texas; Henderson, Nevada; and Miami, Florida.
The total consideration paid was as follows:
Cash $ 600,000
Issuance of 9.1% subordinated debentures 11,422,422
Assumption of long term debt 4,427,000
Net liabilities assumed 2,272,000
============
$ 18,721,422
============
The acquisition was accounted for under the purchase method of accounting and
accordingly, the Company allocated its total purchase price to the assets
acquired based upon their estimated fair values.
The financial data below combines the Company's Consolidated Statements of
Operations with the financial statements of NEF as if such acquisition had
occurred at the beginning of each period presented (unaudited, in thousands,
except per share amounts).
<TABLE>
<CAPTION>
For the year
For the three ended
For the year ended months ended September 30,
December 31, 1996 December 31, 1995 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Operating revenues $ 39,794 $ 7,490 $ 43,645
==================== ==================== ====================
Income before extraordinary item $ (47,574) $ (4,943) $ (5,960)
==================== ==================== ====================
Net loss per share of common stock $ (2.94) $ (0.83) $ (0.77)
==================== ==================== ====================
</TABLE>
In January 1996, the Company entered into an Asset Purchase Agreement, which was
completed in November 1996, to acquire the remaining partnership interests which
the Company did not own in Mountasia of Willowbrook, L.P. ("Willowbrook").
Additionally, in November 1996, the Company entered into an Asset Purchase
Agreement with Mountasia Family Funn Centers of Columbus, L.P. ("Columbus") to
acquire the remaining partnership interests which the Company did not own. The
purchase price for Willowbrook and Columbus was comprised of cash of $5,738,000
and $3,099,000, respectively, and assumption of net liabilities of $73,000 and
$538,000, respectively.
F-13
<PAGE>
The Company leased the Willowbrook and Columbus FECs from January 1996 through
the purchase date for approximately $576,000 and $310,000, respectively.
Pre 1996 Acquisitions
Malibu Grand Prix Corporation
In November 1994, the Company consummated a Stock Purchase Agreement (the "Stock
Purchase Agreement") with MGP Holdings, Inc. to purchase 100% of the issued and
outstanding stock of Malibu Grand Prix Corporation (the "Malibu Acquisition")
including all of the issued and outstanding stock of its subsidiaries. As a
result of the Malibu Acquisition, the Company acquired the following: (i)
ownership of Malibu's 21 Grand Prix Centers located in California, Texas,
Florida, Arizona, Oregon, Kansas, Colorado and New Jersey; (ii) all rights of
Malibu as a licenser or joint venturer of amusement center facilities in Japan,
Taiwan, Canada and Portugal, and all other countries, except for certain rights
relating to Mexico; (iii) the Malibu production facility, and (iv) all
tradenames, trademarks, service marks, copyrights and licenses, including names
or the marks "Malibu Grand Prix", "Virage", "Grand-Virage", Mini-Virage" and
"Malibu Sprint Car".
The total cost of the Malibu Acquisition was
Cash $ 22,218,000
Liabilities assumed 6,715,500
Value of options 900,000
Deferred tax liability 921,600
Acquisition costs 1,980,000
===============
$ 32,735,100
===============
Additionally, the Company has granted MGP Holdings, Inc., an option to acquire
at any time for a period of five years from November 15, 1994, 200,000 Common
Shares at $12.00 per share. The value of the options included in the purchase
price was determined using an independent third party appraisal.
From December 1993 through September 1994, the Company purchased six FECs from
various entities. The consideration paid was comprised of cash, Common Stock
with a guaranteed value ranging from $16.00 per share to $23.50 per share, and
assumption of certain liabilities.
All of the pre 1996 acquisitions discussed above have been accounted for by the
purchase method of accounting. Accordingly, the purchase prices were allocated
to the assets acquired and liabilities assumed based on their estimated fair
value at the dates of acquisition. All of the acquisitions have been recorded
using the guaranteed future value of the common stock. The fair market value of
the assets utilized in the allocation of the purchase prices has been determined
by appraisals from independent third parties and amounts derived from historical
data. The results of operations from each of the acquired FECs have been
included in the Consolidated Statement of Operations, commencing upon the
respective dates of the acquisitions.
F-14
<PAGE>
6. RELATED PARTY TRANSACTIONS
In January 1996, the Company entered into employment agreements with L. Scott
Demerau and Julia E. Demerau, its then largest shareholders, in which Scott and
Julia Demerau received 350,000 and 150,000 stock options, respectively. In
connection with the Recapitalization, the Company purchased the stock options
for $100,000 and $50,000, respectively.
During 1994, two limited partnerships which are shareholders of the Company and
a then principal shareholder and director of the Company formed Brass Ring II,
L.L.C. ("Brass Ring II"), a Georgia limited liability company. Brass Ring II
purchased 2.8% of the limited partnership interests in the Mountasia FunCenter
developed in Santa Clarita, California, 18.5% of the limited partnership
interests in the Mountasia FunCenter in Columbus, Ohio, 5.8% of the limited
partnership interests in the Mountasia FunCenter in Willowbrook, Texas and 4.5%
of the limited partnership interests in the Mountasia FunCenter in North
Richland Hills, Texas. Additionally, in 1994, Brass Ring II entered into a
limited partnership agreement with the Company for the construction of
enhancements to the infrastructure of the Willowbrook FEC in order to construct
additional amenities (i.e., Virage(R) track or skating rink) adjacent to the
Mountasia FunCenter in Willowbrook, Texas in which the Company received a 17.5%
ownership interest. In fiscal 1994, the Company recognized $192,500 of
syndication revenue and $134,078 of construction and development revenue.
In October 1995, the Company purchased Brass Ring II's rights arising out of the
enhancements to the infrastructure for $1,090,000 in anticipation of the
purchase of the Willowbrook FEC (Note 5). During 1996, the Company purchased the
assets of Brass Ring II for a total purchase price of $2,109,375. The purchase
price consisted of cash of $1.5 million and 325,000 Common Shares valued at
$609,375.
In 1995, the Company entered into two strategic alliance agreements with
related parties. Under the strategic alliance agreements the Company granted
rights to third parties to build, own and construct FECs domestically and
internationally. The entities which entered into the international and domestic
agreements was owned 20% and 50%, respectively, by a relative of the Company's
former President and Chief Executive Officer. In return for granting these
rights the Company received cash of $2,500,000 which was recorded as deferred
revenue at September 30, 1995. In addition to deferring the revenue, the Company
also deferred related costs of approximately $644,000. During the year ended
December 31, 1996 the Company terminated the strategic alliance agreements and
recognized a loss of approximately $1,006,000.
The Company leases a FunCenter in Montgomery, Alabama from an affiliated limited
partnership. The lease provides for monthly payments of $1,250 and 5% of net
revenues to be paid over the lease term of ten years. Total rental expense paid
to the affiliated partnership during the year ended December 31, 1996, the three
months ended December 31, 1995 and the years ended September 30, 1995 and 1994
was approximately $26,000, $4,600, $27,000 and $35,100, respectively.
Under the terms of the Montgomery, Alabama lease agreement, the limited
partnership may require the Company to purchase the facility for a number of
shares of the Company's common stock as provided below:
Number
of shares
---------
April 1995 through September 1997 36,575
October 1997 through March 2000 43,890
April 2000 through October 2002 51,205
F-15
<PAGE>
7. NOTES RECEIVABLE
Notes receivable are summarized as follows:
December 31, September 30,
1996 1995
----------- -----------
Related Parties
Note receivable from MFG of Greenville,
L.P., interest at 6%, unsecured; paid in
February 1997 $ 116,600 $ 116,600
Note receivable from Mountasia of Colorado
Springs, L.P., interest at 10%, due in
March 2005, unsecured 50,000 50,000
Notes receivable from NEF, included in NEF
purchase price -- 903,856
Other
Note receivable from Swingtime, Inc., interest
at 9.5%; due in May 1998, secured by real
and personal property 327,951 355,000
Notes receivable from an individual, interest
at 12%; due on demand, unsecured 30,000 30,000
----------- -----------
524,551 1,455,456
Less: Current portion (172,284) (393,069)
----------- -----------
352,267 1,062,387
Less: Reserve for uncollectible notes
receivable (80,000) --
----------- -----------
$ 272,267 $ 1,062,387
=========== ===========
Future aggregate receipts of notes receivable are due as follows:
Year ending
December 31,
1997 $ 172,284
1998 302,267
1999 -
2000 -
2001 50,000
---------
$ 524,551
=========
F-16
<PAGE>
8. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
December 31, September 30,
1996 1995
------------ ------------
Land $ 27,188,146 $ 22,327,216
Miniature golf courses and clubhouses 52,740,049 48,870,704
Equipment 2,226,917 1,556,999
Games 8,246,648 5,829,674
Transportation equipment 38,171 38,171
Construction in progress 3,982,037 59,644
------------ ------------
94,421,968 78,682,408
Less: Accumulated depreciation (8,937,810) (7,797,823)
------------ ------------
$ 85,484,158 $ 70,884,585
============ ============
See footnote 21 where certain fourth quarter charges are discussed.
9. INVESTMENTS IN AND TRANSACTIONS WITH LIMITED PARTNERSHIPS
Prior to 1996, when the Company assisted third parties in raising funds to
capitalize limited partnerships which constructed and owned FECs, the Company
received a limited partnership interest as compensation for syndication
activities performed. Effective October 1, 1994, syndication revenue is
recognized upon completion of construction of the FEC. Prior to October 1, 1994,
syndication revenue was recognized when minimum cash and other equity was raised
and certain services were performed by the Company for the limited partnership
which would run and construct the FEC. Separate contracts to construct and
design the entertainment center and subsequently manage the facility under the
Company name were usually negotiated simultaneously at rates deemed by the
Company to be comparable to those which would be charged by third parties (Notes
1 and 4).
During fiscal year 1994, the Company assisted with the raising of capital for
the NEF partnership and received fees of $550,000 for performing certain
syndication activities. The recognition of those syndication fees was deferred,
along with the related syndication costs of approximately $386,000, since the
NEF general partners held a put. The terms of the NEF Partnership Agreement
require a unanimous vote of the general partners in order to exercise the put.
In April 1995, two of NEF's three general partners entered into an agreement
with each other and the Company in which they irrevocably agreed not to exercise
or seek enforcement of the put. Therefore, as the Company did not have any
future obligations or risk related to NEF, the related net syndication fee of
$164,000 was recognized during fiscal 1995.
Under the terms of the Formation Agreement with NEF, the Company was to build
and operate FECs in various locations, including Kendall, Florida, a suburb of
Miami. The Formation Agreement provided NEF with the right to purchase any
Company facility located within a specified radius of a proposed facility. In
connection with the Malibu Acquisition, the Company acquired a facility within
the specified radius of NEF's proposed facility in Kendall, Florida (the "Miami
Facility"). In December 1994, NEF exercised its right under the agreement to
purchase the Miami facility. NEF purchased the improvements, but not the land,
at the Miami Facility for its net book value, and fair value of $1,250,000. In
connection with the Company's agreement to cancel NEF's obligation to fund the
construction of a FEC in Kendall, Florida, the Company and NEF executed an
agreement providing for a fee of $1,250,000 which was recognized as income for
the year ended September
F-17
<PAGE>
30, 1995, net of the Company's ownership percentage. In August 1996 the Company
purchased the general and limited partnership interests in NEF (Note 5).
The Company charges fees for the management and operation of certain FECs in
which the Company has ownership interests. Management fees for the year ended
December 31, 1996, the three month period ended December 31, 1995 and the years
ended September 30, 1995 and 1994 were $153,000, $74,000, $347,000, and $90,000,
respectively.
The Company has entered into game revenue sharing agreements with limited
partnerships in which the Company purchases games for the limited partnerships'
use and receives 40-50% of total game revenue. Total game sharing revenue
recognized for the year ended December 31, 1996, the three month period ended
December 31, 1995 and the years ended September 30, 1995 and 1994 was
approximately $209,000, $134,000, $370,000 and $31,500, respectively.
During the year ended December 31, 1996, the Company adjusted the carrying value
of its investments in limited partnerships which resulted in a writedown of its
investments by $2,570,000.
10. INTANGIBLE ASSETS
Intangible assets are summarized as follows:
December 31, September 30,
1996 1995
----------- -----------
Goodwill $ 2,856,903 $ 4,432,952
Trademark, organizational costs and other
predevelopment costs 18,750 527,795
----------- -----------
2,875,653 4,960,747
Less: Accumulated amortization (267,045) (461,971)
----------- -----------
$ 2,608,608 $ 4,498,776
=========== ===========
During 1996, the Company wrote down certain assets in accordance with Statement
of Financial Accounting Standards No. 121, including goodwill of $8,596,000
(Note 21).
F-18
<PAGE>
11. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31, September 30,
1996 1995
---------- ----------
Insurance $ 954,854 $ 937,259
Interest 404,365 619,162
Payroll and related expenses 971,814 483,834
Property taxes 149,104 928,315
Sales tax 962,626 447,697
Environmental 276,067 279,568
Deferred revenue -- 328,010
Accrued rent 722,903 715,261
Accrued legal 322,510 300,000
Other 1,013,464 707,306
---------- ----------
$5,777,707 $5,746,412
========== ==========
12. LINE OF CREDIT AND TERM LOAN REVOLVER
In 1996 the Company entered into a loan agreement ("Senior Credit Facility")
with a leading U.S. based financial institution to provide $20 million in senior
secured credit facilities. The Senior Credit Facility is comprised of a $12.5
million senior secured term loan and a $7.5 million senior secured revolving
credit facility. Each credit facility matures in August 2001 with no interim
principal amortization. The credit facilities are secured by substantially all
of the Company's assets and bear interest at a floating reference rate plus
1.5%. At December 31, 1996 the outstanding balance under the term loan and
revolver was $12,500,000 and $7,250,053, respectively.
The Company is required to maintain affirmative covenants regarding among other
things, the maintenance of certain financial ratios and net worth. At December
31, 1996 the Company was in compliance with the various covenants or had
obtained waivers of noncompliance.
F-19
<PAGE>
13. NOTES PAYABLE
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1995
------------ ------------
<S> <C> <C>
Mortgage notes bearing interest at prime plus 2.75%
to 11.5%, weighted average interest rate of 11%
and 12%, respectively, payable in various
monthly installments of principal and interest
and balloon payments through 2016; secured by
land and miniature golf courses $ 1,847,844 $ 1,999,530
Notes payable to financial institutions bearing
interest at rates ranging from 8% to 10%,
weighted average interest rate of 10% and 9%,
respectively, with various maturity dates
through 2000; secured by land, miniature golf
courses and equipment, intangibles, and the
guarantee of certain shareholders 2,007,173 2,981,160
Note payable to a former shareholder 3,053,925 3,474,537
Notes payable to partnership in connection with the
purchase of the Houston FEC, paid in 1996 1,891,611
Note payable to individual issued in connection
with the Spartanburg FEC, paid in 1996 2,620,000
------------ ------------
6,908,942 12,966,838
Less: Current portion (1,120,467) (5,912,788)
------------ ------------
$ 5,788,475 $ 7,054,050
============ ============
</TABLE>
F-20
<PAGE>
Future maturities of notes payable are as follows:
Year ending
December 31,
------------
1997 $1,120,467
1998 986,115
1999 827,672
2000 478,834
2001 408,589
Thereafter 3,087,265
==========
$6,908,942
==========
The note payable to a former shareholder represents a note which bears interest
at 8% per annum. Under the terms of the note agreement, the Company is required
to remit all excess cash flow of certain FECs to the note holder and has
guaranteed a minimum principal and interest payment of $500,000 annually, less
any capital improvements made to these FECs. Under the terms of the note
agreement, principal will be reduced by 15% of capital improvements to the
facilities. Under the terms of the note agreement, certain shareholders must own
an aggregate of 750,000 Common Shares. In the event that such persons fail to
continue to own 750,000 Common Shares, the former shareholder may accelerate
payment of the note to a five-year term.
14. SUBORDINATED DEBENTURES
At December 31, 1996 there are two issues of Convertible Subordinated Debentures
("Converts") outstanding with an aggregate principal balance of $16,521,422.
Each of the Converts is convertible at market prices determined with reference
to the date of notice of conversion and subject to maximum conversion prices
ranging from $3.50 to $5.00 per share. The terms of the Converts are summarized
below.
9% and 9.1% Convertible Subordinated Debentures
In November 1994, in connection with the Malibu Acquisition, the Company issued
$5,650,000 9% Debentures in connection with a Regulation S filing. In August
1996, the 9% Debenture holders waived certain past defaults of financial
covenants with respect to its 9% Debentures. Additionally, the Company amended
certain terms such that the 9% Debentures are convertible into Common Shares
after February 1, 1997 at the lesser of (i) $4.50 per share or (ii) 95% of the
average closing bid price for the Common Stock as determined under the terms of
the debentures except for $925,000 aggregate principal amount which are
convertible at the last reported sales price for Common Shares for the three
trading days prior to the Company's receipt of notice of conversion. The 9%
Debenture holders are able to convert 25% of the principal balance currently and
can convert the remaining 75% after February 1, 1997, with a mandatory
conversion on August 1, 1997. Subsequent to year end, $4,249,000 aggregate
principal amount of the 9% Debentures were purchased by MEI Holdings in
connection with a tender offer.
In connection with the purchase of NEF, the Company issued $11,422,422 of 9.1%
Debentures. The 9.1% Debentures were convertible into common stock after April
4, 1997 at a conversion price equal to the lower of (i) the market price, as
defined, and (ii) $5.00. Subsequent to year end $11,422,322 principal amount of
the 9.1% Debentures were purchased by MEI Holdings in connection with a tender
offer.
F-21
<PAGE>
In February 1997, the 9% and 9.1% Debentures purchased in the tender offer were
presented to the Company for conversion into 447,752 Series F Shares (Note 22).
Other
In fiscal year 1995, the Company issued $750,000 of 6% convertible subordinated
debentures which were converted into 122,859 Common Shares in September 1995 at
an average conversion price of $6.10.
15. INCOME TAXES
The Company's benefit (provision) for income taxes is as follows:
<TABLE>
<CAPTION>
For the year For the three For the years ended
ended months ended -------------------------------
December 31, December 31, September 30, September 30,
1996 1995 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Federal and state taxes-current $ 11,584 $ (51,667) $ (232,483) $ (351,693)
Deferred income taxes (2,195,941) 2,743,962 1,543,000 (353,300)
----------- ----------- ----------- -----------
Benefit (provision) for income
taxes $(2,184,357) $ 2,692,295 $ 1,310,517 $ (704,993)
=========== =========== =========== ===========
</TABLE>
Deferred income taxes related to equity in net earnings of limited partnerships
is $-0-, $31,000 $29,980 and $50,152 for the year ended December 31, 1996, the
three months ended December 31, 1995 and the years ended September 30, 1995 and
1994, respectively.
As of December 31, 1996, the Company has a tax net operating loss carryforward
of approximately $43,071,000 for income tax purposes which expires in 2006-2010.
The net operating loss primarily is a result of the use of an accelerated method
of depreciation related to fixed assets, the fourth quarter charges detailed in
footnote 21 and other losses from operations during 1996. If there is a
significant change in ownership, there are certain limitations that could be
imposed by the Internal Revenue Code regarding the amount of carryforwards that
may be utilized each year. The Company also has available alternative minimum
tax credit carryforwards of approximately $292,000, which may be used to offset
future regular income tax.
F-22
<PAGE>
Significant components of the Company's deferred income tax liabilities are as
follows:
December 31, September 30,
1996 1995
------------ -----------
Deferred tax liabilities:
Depreciation $ 6,395,204 $ 2,338,586
Syndication revenue 1,235,190 1,235,190
Other 167,986 516,766
------------ -----------
Gross deferred tax liabilities 7,798,380 4,090,542
Deferred tax assets:
Net operating loss carryforward (16,367,083) (1,242,268)
Strategic alliance fees -- (760,000)
Equity in net earnings of limited partnerships (696,640) (880,733)
Minimum tax credit carryforward (292,060) (293,716)
Loss on impairment of assets (8,412,598) --
Other (1,494,680) (365,804)
------------ -----------
Gross deferred tax assets (27,263,061) (3,542,521)
-----------
-----------
(19,464,681) 548,021
Less: Valuation adjustment (footnote 21) 19,464,681 --
============ ===========
$ -0- $ 548,021
============ ===========
16. SHAREHOLDERS' EQUITY
Common Stock
In August 1996, the Company was recapitalized by MEI Holdings in which MEI
Holdings exchanged $40.0 million for 11,727,970 Common Shares (Note 2).
In prior years the Company entered into purchase transactions for FECs in which
the Company issued common stock as partial consideration and guaranteed to the
respective seller(s) that the aggregate market value of the common stock would
have a certain value, as defined, on specified future dates. During 1996 the
Company settled two stock guarantees by purchasing the originally issued 131,237
shares at the aggregate guaranteed purchase price of $3,018,451. At December
31,1996, the Company had one remaining stock price guarantee which was settled
in February 1997.
During the periods ended December 31, 1996 and 1995, the Company converted
$3,042,894 and $1,981,666 of the 10% Debentures into 991,286 and 496,842 Common
Shares, respectively. Additionally, during the periods ended December 31, 1996
and 1995, the Company converted $3,497,126 and $7,034,931, including accrued
dividends, of Series A Preferred Stock and Series D Preferred Stock into
1,424,939 and 1,723,893 Common Shares, respectively.
During the periods ended December 31, 1996 and 1995 and September 30, 1995, the
Company purchased and canceled 347,102; 10,000; and 58,520 shares of outstanding
common stock. During fiscal 1995, the Company accepted and canceled 83,275
Common Shares from two principal shareholders as satisfaction of an outstanding
note receivable of $594,582. The total price per share of common stock was
calculated as 90% of the average closing market price, as defined.
F-23
<PAGE>
During fiscal 1995, the Company increased the purchase price of the East Cobb
FunCenter acquired in December 1993 by issuing 6,521 Common Shares at $7.75 per
share with an aggregate fair market value of $50,538.
Preferred Stock
The Company's Articles of Incorporation, as amended, authorized the issuance of
up to 6,000,000 shares of preferred stock, no par value with such designations,
rights and preferences as may be determined by the Board of Directors.
Series A Preferred Stock
In September 1995, two thousand (2,000) of the 6,000,000 authorized shares of
Preferred Stock were designated Series A Non-Voting Preferred Stock ("Series A
Preferred Stock") of which the Company issued 1,150 shares for cash proceeds of
$10,637,500. At December 31, 1996 and 1995 the holders of the Series A Preferred
Stock converted $310,126 and $7,034,931, including accrued dividends, into
93,572 and 1,723,893 Common Shares, respectively. In connection with the
issuance of the Preferred Stock, the Company issued warrants to the underwriter
to purchase 111,034 Common Shares at $8.70 per share as compensation for
investment services. The warrants expire in September 2000. The warrants were
valued at $215,000 using an independent third party appraisal and were accounted
for as a stock issuance cost.
In December 1995 the Company entered into an agreement with certain of the
holders of $4,300,000 aggregate principal amount of the Series A Preferred Stock
in which the holders agreed to extend the conversion date in return for a
reduction of the fixed conversion price to $5.125. In connection with the above
change in the conversion price, the Series A Preferred Stock was converted into
Series B Preferred Stock.
Series B Preferred Stock
In December 1995, the Company's Board of Directors designated 2,000 shares of
Preferred Stock as convertible, non-voting Series B Preferred Stock (the "Series
B Preferred Stock"). As discussed above, the Series B Preferred Stock was issued
in exchange for the holder's Series A Preferred Stock. There were no conversions
of Series B Preferred Stock into common stock. However, in July 1996 the Company
redeemed 30% of the outstanding balance and exchanged the remaining 70% of the
outstanding balance into a New 10% Debenture (Note 3).
Series C Preferred Stock
In December 1995 the Company's Board of Directors designated 1000 shares of
Preferred Stock as Series C Nonvoting Convertible Preferred Stock (the "Series C
Preferred Stock"). The Company issued 500 shares of Series C Preferred Stock for
$500,000. In 1996, the Company redeemed the 500 shares for the face value plus a
13% preferred dividend.
Series D Preferred Stock
During 1996 the Company's Board of Directors designated 20,000 shares of the
Company's Preferred Stock as Series D Preferred Stock (the "Series D Preferred
Stock"). During 1996 the Company issued 8,027 of Series D Preferred Stock with a
face value of $7,928,000 for $6,662,000. The Series D Preferred Stock was
convertible into the number of Common Shares equal to the Series D Original
Issue Price, divided by the lesser of (i) $6.00 or (ii) the average closing bid
price, as defined, for the five trading days immediately preceding the date the
Series D Preferred Stock is converted (the "Series D Conversion
F-24
<PAGE>
Price"). The holders of the Series D Preferred Stock received dividends of 4%.
During 1996 $4,023,500 of the Series D Preferred Stock was redeemed and
$3,187,000 was converted into 1,331,367 Common Shares.
Series F Preferred Stock
During 1996, the Company's Board of Directors designated 2,700,000 shares of the
Company's Preferred Stock as Series F Preferred Stock. Series F Shares are
convertible into Common Shares after Shareholder 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, 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. 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.
Series G Preferred Stock
During 1996, the Company's Board of Directors designated 213,551 shares of the
Company's Preferred Stock as Series G Preferred Stock. The Series G Shares are
(i) nonvoting, (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 Shareholder Approval is given. Dividends accrued
but not declared will be lost upon conversion of the Series G Shares into Common
Shares.
If Shareholder Approval is given, the holders of Series G Shares will have the
right to convert Series G Shares into Common Shares. Regardless of whether
Shareholder Approval has been given holders of Series G Shares will have the
right at any time to convert each Series G Share into Common Shares.
F-25
<PAGE>
Management Incentive Plan
In September 1996 the Company sold 2,093,333 shares (the "Management Shares") of
Common Stock at a per share price equal to $2.6625 per share, for an aggregate
note receivable of $5,568,266, which price was the average of the closing prices
of the common stock for the 10 trading days immediately preceding the sale to
the participants in the Incentive Plan. Those persons eligible to participate in
the Incentive Plan are key employees designated by the Compensation Committee of
the Board of Directors. In order to participate in the Incentive Plan the
participants surrendered all options to acquire Common Shares.
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 stock is 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 7.0%
per annum and escalating to 8.5% annum secured by the Common Shares acquired
thereby. If a participant's employment with the Company is terminated within
five years of the acquisition of such shares, or if the participant otherwise
defaults on the loan, then the entire balance due under such participant's
financing becomes due and payable.
To secure payment of the loan, each participant entered into a pledge agreement
with the Company pursuant to which all of the Management Shares acquired by the
participants have been pledged to the Company. The Management Shares will be
released from pledge upon payment in full of the entire amount due under the
loan.
F-26
<PAGE>
Common Stock Options
On September 3, 1993, the Company adopted the Mountasia 1993 Incentive Stock
Option Plan (the Plan). The Plan was amended during fiscal 1995 and provides for
the issuance of options covering up to 1,250,000 Common Shares (subject to
appropriate adjustments in the event of stock splits, stock dividends and
similar dilutive events). Options may be granted under the Plan to employees,
officers or directors of, and consultants and advisors to the Company. All
options are issued at fair market value at the date of grant; thus no
compensation expense has been recorded during the year ended December 31, 1996,
the three month period ended December 31, 1995 and the years ended September 30,
1995 and 1994. Activity under the Plan during the three year period ended
December 31, 1996 is as follows:
Number o Range of
Options Option Price
---------- --------------
Balance, September 30, 1994 121,100 $8.00
Options issued 32,400 $7.25 - $12.50
Options expired or terminated (14,700) $8.00
---------
Balance, September 30, 1995 138,800
Options issued 100,000 $9.00
Options expired or terminated (6,700) $8.00
---------
Balance, December 31, 1995 232,100
Options issued --
Options expired or terminated (206,400) $8.00-$9.00
---------
Balance, December 31, 1996 25,700
=========
The options expire five to ten years from the date of grant.
In September 1993, the Company adopted the 1993 Nonemployee Director Stock
Option Plan (the Director Plan), which was amended during the year ended
September 30, 1995, and reserved 250,000 Common Shares for issuance thereunder.
The Director Plan provides for the grant of nonqualified stock options to
purchase Common Shares to directors who are not employees of the Company. All
options are issued at fair market value at the date of grant and vest
immediately. Additionally, each Nonemployee Director who was serving on January
31, 1995 was granted an option to purchase 25,000 Common Shares, which vest, if
and only if, the fair market value of a share on January 31, 1996 exceeds 200%
of the fair market value of a share on January 15, 1995 or in the event that
this does not occur, if the fair market value of a share on January 31, 1997
exceeds 300% of the fair market value of a share on January 15, 1995. The
options expire 10 years from the date of grant. However, subsequent to January
31, 1997 the options to purchase the 25,000 Common Shares expired.
F-27
<PAGE>
Activity under the Director Plan during the three year period ended December 31,
1996 is as follows:
Number of Range of
Options Option Price
-------------- ----------------
Balance, September 30, 1994 3,000 $7.36-$10.87
Options issued 170,000 $7.53 - $7.76
-------------
Balance, September 30, 1995 173,000
Options issued -
Options expired or terminated (30,000) $7.76
-------------
Balance, December 31, 1995 143,000
Options issued 25,000 $2.60
Options expired or terminated -
-------------
Balance, December 31, 1996 168,000
=============
In conjunction with the purchase of Malibu Grand Prix Corporation (Note 5), the
Company granted MGP Holdings, Inc., or its nominee, an option to acquire, for a
period of five years from November 15, 1994, 200,000 Common Shares at $12.00 per
share. No options have been exercised at December 31, 1996.
The Company adopted Statement of Financial Accounting Standards No. 123 during
1996. The Company has chosen the method of adoption whereby the previous method
of accounting (Accounting Principles Board Opinion No. 25) is followed for
financial statement purposes and the proforma effect of valuing options at fair
value is presented in the footnotes to the financial statements. The effect of
implementing this statement was not material to the results of operations or
loss per share.
Warrants
In connection with the issuance of the 10% Debentures in September 1995, the
Company issued warrants to purchase 82,069 and 111,034 Common Shares at $8.70
per share to the underwriter as compensation for investment services. The
warrants expire in September 2000. In connection with the amendments to the 10%
Debentures and the Preferred A Stock the Company reduced the exercise price on
79,607 of the warrants to $5.125.
In calendar year 1995, the Company entered into two financial advisory
agreements with investment firms for a specific period of time. As consideration
for their retention, the Company issued to the investment firms warrants to
purchase Common Stock. The warrants were valued and expensed over the terms of
the financial advisory agreements. During 1996 the Company terminated the
financial advisory agreements and the investment firms returned the warrants.
The Company recognized a gain of approximately $422,000 related to the warrants
value which had previously been expensed.
During fiscal 1995, the underwriter received an additional 50,000 warrants in
connection with the issuance of common stock and subordinated debentures under a
Regulation S filing. The warrants allow the underwriter to purchase 50,000
Common Shares at $9.25 per share and expire in November 1998.
F-28
<PAGE>
17. COMMITMENTS AND CONTINGENCIES
The Company leases its office and operating facilities and certain equipment
under operating leases. Additionally, the Company has various operating leases
which require the payment of a percentage of gross revenues to the lessor. The
following schedule summarizes the future minimum lease payments required,
excluding percentage rents, under noncancelable operating leases:
Year ending
December 31,
------------
1997 $ 3,737,100
1998 3,468,000
1999 2,608,800
2000 1,459,800
2001 1,766,800
Thereafter 7,505,200
==========
$ 20,545,700
==========
Rental expense totaled approximately $5,202,000, $1,030,000, $3,449,000, and
$267,500 for the year ended December 31, 1996, the three month period ended
December 31, 1995 and the years ended September 30, 1995 and 1994, respectively.
The Company is a guarantor on an outstanding loan for a limited partnership. In
the event the limited partnership defaults under the debt, the Company is
required to purchase the loan from the bank. At December 31, 1996, the
outstanding balance under the loan $1,883,000.
18. SUPPLEMENTAL CASH FLOW INFORMATION
The Company purchased all of the assets and assumed certain liabilities of NEF,
Willowbrook, and Columbus FECs in 1996. Additionally, the Company purchased the
partnership interests in NEF that it did not already own. In 1995, the Company
purchased the stock of Malibu. In conjunction with the acquisitions, liabilities
were assumed as follows:
1996 1995
Acquisitions Acquisitions
------------ ------------
Fair value of assets acquired $ 22,273,500 $ 32,735,100
Excess of purchase price over fair
value of assets acquired 7,246,000 --
Cash (9,437,000) (24,198,000)
Assumption of long term debt (4,427,000) --
Issuance of 9.1% Subordinated Debentures (11,422,422) --
Basis carryover (1,326,500) --
Value of Options -- (900,000)
Deferred tax liabilities -- (921,000)
------------ ------------
Liabilities assumed $ 2,906,578 $ 6,716,100
============ ============
During fiscal year 1994, the Company assisted with the raising of capital for
NEF and received fees totaling $550,000 for performing certain syndication
activities. The Company deferred the recognition of these syndication fees,
along with the related syndication costs of approximately $386,000. The Company
recognized the net syndication income of approximately $164,000 during fiscal
1995. In connection with the formation of NEF, the Company issued to certain
affiliates of NEF's general partners warrants (having a value of $300,000) to
purchase 122,500 Common Shares in return for the affiliates providing certain
F-29
<PAGE>
financial consulting services to the Company. The Company recognized the warrant
expense in fiscal 1995.
During fiscal 1995, the Company issued 29,630 Common Shares with an aggregate
value of $266,670 as a commission related to an equity offering. The issuance of
the Common Shares was recorded as stock issuance costs. Additionally, during
fiscal 1995 the Company issued warrants with an appraised value of $220,000 and
$905,000 which were classified as debt issuance costs and stock issuance costs,
respectively.
The Company paid interest of approximately $4,936,000, $2,909,100, and
$1,361,700, for the years ended December 31, 1996, September 30, 1995, and 1994,
respectively, and approximately $949,000 for the three month period ended
December 31, 1995. The Company paid income taxes of $110,000, $330,000 and
$179,000 for the years ended December 31, 1996, September 30, 1995 and 1994,
respectively, and no income taxes for the three months ended December 31, 1995.
During the years ended September 30, 1995, and 1994 the Company obtained an
interest in certain limited partnerships of $1,050,000 and $1,541,312,
respectively. The Company obtained an interest of $70,000 in certain limited
partnerships for the three month period ended December 31, 1995. Acquisition of
these interests was for services rendered by the Company and did not impact cash
flow.
The Company acquired games costing approximately $2,264,689 and $654,950 through
the assumption of debt during the years ended September 30, 1995 and 1994,
respectively.
F-30
<PAGE>
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the periods ended December 31, 1996,
December 31, 1995 and September 30, 1995 are as follows:
Year ended December 31, 1996
---------------------------------------------
(In thousands, except per share data)
First Second Third Fourth
----- ------ ----- ------
Operating revenues $ 6,997 $ 11,157 $ 12,400 $ 6,876
Operating expenses (10,355) (16,683) (13,687) (36,513)
Operating loss (3,358) (5,526) (1,287) 29,637)
Net loss (2,120) (3,944) (1,921) (39,648)
Loss per common share (A) $ (0.23) $ (0.46) $ (0.15) $ (1.41)
Three months ended December 31, 1995
---------------------------------------------
(In thousands, except per share data)
Operating revenues $ 6,754
Operating expenses (10,417)
Operating loss (3,663)
Net loss (4,494)
Loss per common share $ (0.77)
<TABLE>
<CAPTION>
Year ended September 30, 1995
----------------------------------------------
(In thousands, except per share data)
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Operating revenues $ 6,380 $ 7,862 $ 16,907 $ 15,057
Operating expenses (7,325) (9,960) (14,630) (16,138)
Operating income (loss) (945) (2,097) 2,277 (1,081)
Net income (loss) (1,496)(B) (858) 816 (1,663)
Earnings (loss) per common share (A) $ (0.21) $ (0.11) $ 0.07 $ (0.31)
</TABLE>
A) The sum of the quarterly earnings (loss) per common share do not equal the
annual earnings per common share due to rounding of weighted average shares
and because common stock equivalents are not included in the weighted
average number of Common Shares outstanding in loss periods.
B) Includes an expense of approximately $438,000 relating to the cumulative
effect of a change in accounting principle.
C) See footnote 1, "Restatement," where the restatement of certain quarterly
information is noted to give effect to the accounting treatment announced
by the staff of the Securities and Exchange Commission at the March 13,
1997 meeting of the Emerging Issues Task Force for the Company's
convertible subordinated debenture and preferred stock issuances.
Additionally, see footnote 21 for fourth quarter charges.
F-31
<PAGE>
20. LITIGATION
Due to the nature of the attractions at the Company's parks, the Company has
been, and will likely continue to be, subject to a significant number of
personal injury lawsuits, certain of which may involve claims for substantial
damages. The Company also is, from time to time, a party to other claims and
legal proceedings, and is subject to environmental, zoning and other legal
requirements. As of the date of this Report, the Company does not believe that
any such matter is reasonably likely to have a material adverse effect on the
Company's financial position or results of operations. However, there
necessarily can be no assurance in this regard or that the Company will not be
subject to material claims or legal proceedings or requirements in the future.
21. FOURTH QUARTER CHARGES
During the fourth quarter of 1996, the Company adopted a comprehensive business
plan designed to reposition the Company through investment in its best
performing parks, including additions of new attractions, upgrading FECs,
selling or closing FECs that are not believed to be strategic and the pursuit of
internal and external growth opportunities. In implementing this new business
plan, the Company has determined that it will sell or close 15 parks and
potentially sell an additional 8 parks. The 15 parks to be sold generated
operating revenues of $4.5 million and had an operating loss of $517,000. The 8
parks being evaluated generated operating revenues of $4.3 million and had an
operating loss of $888,000 during the year ended December 31, 1996.
The Company has estimated the values of certain FECs using their undiscounted
cash flows and has recorded a fourth quarter writedown of $10.3 million and
reserved an additional $1.1 million for environmental costs. The values of FECs
to be sold or closed have been estimated using their expected sales prices and
has resulted in a fourth quarter reserve for sale or closure of $3.3 million and
a write down of $4.6 million to net realizable value. The Company is currently
marketing the FECs to be sold and expects to dispose of these FECs within a
year. The Company had previously recorded writedowns on parks of $2.9 million
during the second quarter of 1996. Additionally, during the fourth quarter, the
Company recorded a writedown of $2.6 million on three of the Company's limited
partnership investments.
As a result of the uncertainty regarding the operating results to be achieved
upon the execution of the new business plan, the Company has provided a
valuation allowance against its net deferred tax asset balance. The fourth
quarter tax provision to record this allowance was $6.0 million.
22. SUBSEQUENT EVENT
On January 17, 1997, MEI Holdings closed on a 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% Debentures and 9.1% Debentures at par plus accrued and
unpaid interest for the purchased debentures. Pursuant to the tender offer, MEI
Holdings acquired 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 $3.50 per share).
F-32
<PAGE>
Following is a condensed consolidated proforma balance sheet which shows the
effect of the conversion of the subordinated debentures to Common Stock as if it
occurred on December 31, 1996.
(Unaudited)
Assets
Current assets $28,799,919
Property and equipment 85,484,158
Other non-current assets 7,813,281
--------------
Total assets $122,097,358
==============
Liabilities and Shareholders' Equity
Total current liabilities $12,589,885
Long term liabilities 28,827,011
--------------
$41,416,896
Contingent liability for guaranteed stock values 777,861
Total shareholders' equity 79,902,601
==============
Total liabilities and shareholders' equity $122,097,358
==============
If all of the Company's Series F Shares and Series G Shares outstanding as of
March 24, 1997 were to be converted into Common Stock, the Company would have
48,304,970 shares of Common Stock outstanding. In addition, under the
Recapitalization agreement MEI Holdings is entitled to the issuance of
additional shares of Common Stock (or Series F Shares in certain circumstances),
without the payment of additional consideration, upon the occurrence of certain
future events that shareholder approval of the conversion of Series F shares and
Series G Shares into Common Stock is not obtained (Note 2).
F-33
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is set forth under the caption
"Election of Directors" in the Company's Proxy Statement for the 1997 Annual
Meeting of Shareholders (the "Proxy Statement") and is incorporated herein by
reference.
Item 11. Executive Compensation
The information required by this Item is set forth under the caption
"Executive Compensation" in the Proxy Statement and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is set forth under the caption
"Security Ownership Information" in the Proxy Statement and is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is set forth under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements: The list of financial statements required by this
item is set forth in "Item 8 -- Financial Statements and Supplementary
Data" and is incorporated herein by reference.
2. Financial Statement Schedules: All financial statement schedules are
omitted as they are either not applicable or the required information is
included in the consolidated financial statements or the notes thereto.
3. Exhibits: The following exhibits are filed herewith:
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation of the Company (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended September 30, 1993 (the "1993 10-K"))
3.2 Amended and Restated Bylaws of the Company
4.1 Specimen of Common Stock Certificate (incorporated by
reference to the 1993 10-K)
4.2 Form of Warrant (incorporated by reference to the 1993 10-K)
4.3 Indenture, dated as of November 15, 1994, between the
Company and Continental Stock Transfer and Trust Company, as
Trustee (incorporated by reference to the Company's Annual
Report on Form
12
<PAGE>
10-K for the year ended September 30, 1994 and Supplemental
Indenture thereto dated August 27, 1996
4.4 Preferred Stock Designations
10.1 1993 Incentive Stock Option Plan (incorporated by reference
to the Company's Registration Statement on Form SB-2 filed
on November 3, 1993 (File No. 33-68454-A) (the "Registration
Statement"))
10.2 1993 Company Nonemployee Director Stock Option Plan with
accompanying forms of Stock Option (incorporated by
reference to the Registration Statement)
10.3 Equity Incentive Plan (incorporated by reference to Annex A
of the Proxy Statement)
10.4 Promissory Note, dated June 30, 1993, in the principal
amount of $6,150,000 (incorporated by reference to the
Registration Statement)
10.5 Loan and Security Agreement, dated August 22, 1996, between
the Company and Foothill Capital Corporation
10.6 Investment Agreement, dated as of June 5, 1996, as amended,
between MEI Holdings and the Company (incorporated by
reference to MEI Holdings' Amendment No. 3 to Schedule 13D-1
filed September 25, 1996 ("MEI Holdings' 13D-1"))
10.7 Warrant, dated August 28, 1996, by the Company (incorporated
by reference to MEI Holdings' 13D-1)
10.8 Standstill Agreement, dated August 28, 1996, between the
Company and MEI Holdings (incorporated by reference to MEI
Holdings' Schedule 13D-1)
13
<PAGE>
10.9 Registration Rights Agreement, dated August 28, 1996,
between the Company and MEI Holdings (incorporated by
reference to MEI Holdings' Schedule 13D-1)
10.10 Agreements, dated August 28, 1996, between the Company and
L. Scott Demerau and the Company and Julia E. Demerau
(incorporated by reference to the Company's
Current Report on Form 8-K, dated June 19, 1996)
10.11 Voting Agreements, dated July 23, 1996, between the Company
and MEI Holdings
10.12 Redemption Agreement, dated November 14, 1996, between the
Company and MEI Holdings (incorporated by reference to MEI
Holdings' Schedule 14D-1, dated November 14, 1996)
21 Subsidiaries
24 Powers of Attorney
27 Financial Data Schedule (for SEC purposes only)
(b) Reports on Form 8-K: The Company did not file any Reports on Form 8-K
during the fourth quarter of 1996.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
1934, the Company has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
Date: March 26, 1997 By: /s/ Richard M. FitzPatrick
------------------------------------------
Richard M. FitzPatrick, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities indicated on March 26, 1997.
Signature Title
- --------- -----
/s/ Robert A. Whitman
- --------------------------------
Robert A. Whitman Chief Executive Officer, Chairman of
the Board and Director
/s/ Richard M. FitzPatrick
- --------------------------------
Richard M. FitzPatrick Chief Financial Officer and Director
/s/ Ann Travis
- --------------------------------
Ann Travis Vice President, Finance
*
- --------------------------------
L. Scott Demerau Director
*
- --------------------------------
Julia Demerau Director
*
- --------------------------------
William M. Kearns, Jr. Director
*
- --------------------------------
Bert W. Wasserman Director
* The undersigned, by signing his name hereto, does sign and execute
this Report pursuant to the powers of attorney executed by the
above-named officers and directors and filed herewith:
By: /s/ Richard M. FitzPatrick
------------------------------
Attorney-in-Fact
15
AMENDED AND RESTATED
BY-LAWS
OF
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
ARTICLE I
OFFICES
1.1 Registered Office and Agent. The registered office of the Corporation
shall be in the State of Georgia and the Corporation shall at all times maintain
a registered agent at the address of the registered office.
1.2 Other Offices. The Corporation may also have offices at such other
places both within and without the State of Georgia as the Board of Directors
may from time to time determine and the business of the Corporation may require
or make desirable.
ARTICLE II
SHAREHOLDERS MEETINGS
2.1 Annual Meetings. A meeting of the shareholders of the Corporation shall
be held annually. The annual meeting of the shareholders of the Corporation
shall be held at the principal office of the Corporation or at such other place
in the United States as may be determined by the Board of Directors, on such
date following the close of the fiscal year as shall be determined by the Board
of Directors, for the purpose of electing Directors and transacting such other
business as may properly be brought before the meeting.
2.2 Special Meetings. Special meetings of the shareholders shall be held at
the principal office of the Corporation or at such other place in the United
States as may be designated in the notice of said meetings, upon call of the
chairman of the Board of Directors or the president and shall be called by the
president or the secretary when so directed by the Board of Directors or at the
request in writing of shareholders owning at least 25% of the issued and
outstanding
<PAGE>
capital stock of the Corporation entitled to vote thereat. Any such request
shall state the purposes for which the meeting is to be called.
2.3 Notice of Meetings. Written notice of every meeting of shareholders,
stating the place, date and hour of the meeting, shall be given personally or by
mail to each shareholder of record entitled to vote at such meeting not less
than 10 nor more than 60 days before the date of the meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States Mail
with first class postage thereon prepaid addressed to the shareholder at his
address as it appears on the Corporation's record of stockholders. Attendance of
a shareholder at a meeting of shareholders, in person or by proxy, shall
constitute a waiver of notice of such meeting and of all objections to the place
or time of meeting, or the manner in which it has been called or convened,
except when a shareholder attends a meeting solely for the purpose of stating,
at the beginning of the meeting, any such objection to the transaction of any
business. Notice need not be given to any shareholder who signs a waiver of
notice, in person or by proxy, either before or after the meeting.
2.4 Quorum. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at all meetings of the
shareholders except as otherwise provided by statute, by the articles of
incorporation, or by these by-laws. If a quorum is not present or represented at
any meeting of the shareholders, a majority of the shareholders entitled to vote
thereat, present. in person or represented by proxy, may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any
2
<PAGE>
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each shareholder of record entitled
to vote at the meeting.
2.5 Voting. When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of law or of the articles of
incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of the question. Each
shareholder shall at every meeting of the shareholders be entitled to one vote
in person or by proxy for each share of the capital stock having voting power
registered in his name on the books of the Corporation, but no proxy shall be
voted or acted upon after 11 months from its date, unless otherwise provided in
the proxy.
2.6 Consent of Shareholders. Any action required or permitted to be taken at
any meeting of the shareholders may be taken without a meeting (including
without limitation any action permitted by Section 3.8 hereof) if all of the
shareholders entitled to vote at a meeting those shares having sufficient voting
power to cast not less than the minimum number (or numbers, in the case voting
by classes) of votes that would be necessary to authorize or take such action
consent thereto in writing, setting forth the action so taken.
2.7 List of Shareholders. The Corporation shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving their names and addresses and
the number, class and series, if any, of the shares held by
3
<PAGE>
each. The officer who has charge of the stock transfer books of the Corporation
shall prepare and make, before every meeting of shareholders or any adjournment
thereof, a complete list of the shareholders entitled to vote at the meeting or
any adjournment thereof, arranged in alphabetical order, with the address of and
the number and class and series, if any, of shares held by each. The list shall
be produced and kept open at the time. and place of the meeting and shall be
subject to inspection by any shareholder during the whole time of the meeting
for the purposes thereof. The said list may be the Corporation's regular record
of shareholders if it is arranged in alphabetical order or contains an
alphabetical index.
2.8 Shareholder Notice Procedures. Only persons who are nominated by, or at
the direction of, the Board of Directors, or by a shareholder who has given
timely written notice containing information as specified by the Board of
Directors to the Secretary of the Corporation prior to the meeting at which
Directors are to be elected, will be eligible for election as Directors of the
Corporation. At annual meetings only such business may be conducted as has been
brought before the meeting by, or at the direction of, the Chairman of the Board
of Directors or by a shareholder who has given timely written notice to the
Secretary of the Corporation of such shareholder's intention to bring such
business before such meeting. For notice of shareholder nominations or business
to be conducted at an annual meeting to be timely, such notice must be received
by the Corporation not less than one hundred twenty (120) days prior to the
first anniversary of the previous year's annual meeting.
2.9 Limitations on Right of Inspection. The right of inspection enumerated
in subsection (c) of Section 14-2-1602 of the Georgia Business Corporation Code,
or any successor provision, may be exercised by a shareholder owning in excess
of two percent (2%) of the issued and
4
<PAGE>
outstanding shares of the Corporation if such shareholder otherwise meets the
requirements of subsection (d) of such section. With respect to a shareholder
owning two percent (2%) or less of the issued and outstanding shares of the
Corporation, the right of inspection granted by such subsection shall be denied
by the Corporation to any shareholder unwilling to agree in writing to abstain
(i) from purchasing or selling any shares of the Corporation;
(ii) from soliciting any proxies over shares of the Corporation, or
seeking to persuade any person to grant or withhold a proxy or vote
with respect to any shares of the Corporation; and
(iii) from sharing with any third person any undisclosed information
concerning the Corporation disclosed in such inspection or otherwise
learned by such shareholder exercising such inspection right,
for so long as any information disclosed in such inspection is material and
remains undisclosed by the Corporation, and in any event, for one year from the
date of the exercise of such inspection right. The agreements required by this
Section 2.9 shall be required of the inspecting shareholder and all agents and
attorneys for such shareholder.
ARTICLE III
DIRECTORS
3.1 Powers. Except as otherwise provided by any legal agreement among
shareholders, the property, affairs, and business of the Corporation shall be
managed and directed by its Board of Directors, which may exercise all powers of
the Corporation and do all lawful acts and things which are not by law, by any
legal agreement among shareholders, by the articles of
5
<PAGE>
incorporation, or by these by-laws directed or required to be exercised or done
by the shareholders.
3.2 Number, Election, and Term. The Board of Directors shall fix by
resolution the precise number of members of the Board of Directors. The
Directors shall be elected by plurality vote at the annual meeting of
shareholders, except as hereinafter provided, and each Director elected shall
hold office until his successor is elected and qualified or until his earlier
resignation, removal from office, or death. Directors shall be natural persons
who have attained the age of 18 years, but need not be residents of the State of
Georgia or shareholders of the Corporation.
3.3 Vacancies. Vacancies, including vacancies resulting from any increase in
the number of Directors, but not including vacancies resulting from removal from
office by the shareholders, may be filled by a majority of the Directors then in
office, though less than a quorum, or by a sole remaining Director, and a
Director so chosen shall hold office until the next annual election and until
his successor is duly elected and qualified unless sooner displaced. If there
are no Directors in office, then vacancies shall be filled through election by
the shareholders.
3.4 Meetings and Notice. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Georgia. Regular meetings of the Board of Directors may be held without notice
at such time and place as shall from time to time be determined by resolution of
the board. Special meetings of the board may be called by the chairman of the
board or president or by any two Directors on one day's oral, telegraphic, or
written notice duly given or served on each Director personally or by facsimile
transmission, or four days' notice deposited, first class postage prepaid, in
the United States mail. Such notice
6
<PAGE>
shall state a reasonable time, date, and place of meeting, but the purpose need
not be stated therein. Notice need not be given to any Director who signs a
waiver of notice either before or after the meeting. Attendance of a Director at
a meeting shall constitute a waiver of notice of such meeting and waiver of all
objection to the place and time of the meeting, or the manner in which it has
been called or convened, except when the Director states, at the beginning of
the meeting, any such objection or objections to the transaction of business.
3.5 Quorum. At all meetings of the board a majority of Directors shall
constitute a quorum for the transaction of business, and the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the board, except as may be otherwise specifically provided by law, by
the articles of incorporation, or by these by-laws. If a quorum shall not be
present at any meeting of the board, the Directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
3.6 Consent of Directors. Unless otherwise restricted by the articles of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, setting forth the action so taken, and the writing
or writings are filed with the minutes of the proceedings of the board or
committee. Such consent shall have the same force and effect as a unanimous vote
of the board.
3.7 Committees. The Board of Directors may by resolution passed by a
majority of the whole board, designate from among its members one or more
committees, each committee to consist of three Directors. The Board of Directors
may designate one or more other directors
7
<PAGE>
to act as alternate directors on any such committee and, in the absence of the
director as to whom such other director is designated as an alternate, such
alternate directors (in the order designated by the Board of Directors) may vote
and otherwise act as if such alternate directors were members of the committee
designated as such by the Board of Directors. Any such committee, to the extent
provided in the resolution, shall have and may exercise all of the authority of
the Board of Directors in the management of the business and affairs of the
Corporation, except that it shall have no authority with respect to (1) amending
the articles of incorporation or these by-laws; (2) adopting a plan of merger or
consolidation; (3) the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Corporation; and (4) a
voluntary dissolution of the Corporation or a revocation thereof. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the Board of Directors. A majority of each
committee may determine its action and may fix the time and places of its
meetings, unless otherwise provided by the Board of Directors; provided,
however, that any committee which has the power to exercise any authority of the
Board of Directors may determine its action only with the approval of each
member of the committee (or such person's designated alternate). Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when required.
3.8 Removal of Directors. At any shareholders meeting with respect to which
notice of such purpose has been given, any Director may be removed from office,
with or without cause, by the vote of shareholders representing a majority of
the issued and outstanding capital stock entitled to vote for the election of
Directors, and his successor may be elected at the same or
8
<PAGE>
any subsequent meeting of shareholders; provided that to the extent any vacancy
created by such removal is not filled by such an election within 60 days after
such removal, the remaining Directors shall, by majority vote, fill any such
vacancy, and provided further that any action which shareholders are permitted
by this Section to take at a meeting may also be taken by written consent in
accordance with Section 2.6 above.
3.9 Compensation of Directors. Directors shall be entitled to such
reasonable compensation for their services as Directors or members of any
committee of the board as shall be fixed from time to time by resolution adopted
by the board, and shall also be entitled to reimbursement for any reasonable
expenses incurred in attending any meeting of the board or any such committee.
ARTICLE IV
OFFICERS
4.1 Number. The officers of the Corporation shall be chosen by the Board of
Directors and shall be a president, a secretary, and a treasurer. The Board of
Directors may choose one or more vice presidents, assistant secretaries and
assistant treasurers. Any number of offices may be held by the same person. The
Board of Directors may appoint such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
board.
4.2 Compensation. The salaries of all officers of the Corporation shall be
fixed by the Board of Directors or a committee or officer appointed by the
board. Salary payments may be made at such intervals as may be determined by the
Board of Directors or such officer or committee. In addition to salaries, the
Board of Directors may pay bonuses to officers and other
9
<PAGE>
employees, the persons who may receive such bonuses and the amount and time of
payment being within the discretion of the Board of Directors.
4.3 Term of Office. Unless otherwise provided by resolution of the Board of
Directors, the principal officers shall be chosen annually by the board at the
first meeting of the board following the annual meeting of shareholders of the
Corporation, or as soon thereafter as is conveniently possible. Subordinate
officers may be elected from time to time. Each officer shall serve until his
successor shall have been chosen and qualified, or until his death, resignation,
or removal.
4.4 Removal. Any officer may be removed from office at any time, with or
without cause, by the Board of Directors whenever in its judgment the best
interest of the Corporation will be served thereby.
4.5 Vacancies. Any vacancy in an office resulting from any cause may be
filled by the Board of Directors.
4.6 Powers and Duties. Except as hereinafter provided, the officers of the
Corporation shall each have such powers and duties as generally pertain to their
respective offices, as well as such powers and duties as from time to time may
be conferred by the Board of Directors.
(a) President. The president shall be the chief executive officer of the
Corporation, shall preside at all meetings of the shareholders and (unless the
board shall have created an office of chairman of the board) the Board of
Directors, shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation, except where
required or permitted
10
<PAGE>
by law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation.
(b) Secretary. The secretary shall attend all meetings of the Board of
Directors and all meetings of the shareholders and record all the proceedings of
the meeting of the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the shareholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the Corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature.
(c) Treasurer. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the president and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as treasurer
and of the financial condition of the Corporation. If
11
<PAGE>
required by the Board of Directors, he shall give the corporation a bond (which
shall be renewed every six years) in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration to the Corporation, in case
of his death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession.
or under his control belonging to the Corporation.
(d) Assistant Officers. Vice presidents and Assistants to the secretary
and treasurer, if any, shall perform such duties and have such powers as the
Board of Directors may from time to time prescribe.
4.7 Voting Securities of Corporation. Unless otherwise ordered by the Board
of Directors, the president shall have full power and authority on behalf of the
Corporation to attend and to act and vote at any meetings of security holders of
Corporations in which the Corporation may hold securities, and at such meetings
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities which the Corporation might have possessed and
exercised if it had been present. The Board of Directors by resolution from time
to time may confer like powers upon any other person or persons.
ARTICLE V
CERTIFICATES OF STOCK
5.1 Form of Certificate. Every holder of fully-paid stock in the Corporation
shall be entitled to have a certificate in such form as the Board of Directors
may from time to time prescribe.
12
<PAGE>
5.2 Lost Certificates. The Board of Directors may direct that a new
certificate be issued in place of any certificate theretofore issued by the
Corporation and alleged to have been lost, stolen, or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to advertise the same in such manner
as it shall require and to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen, or destroyed.
5.3 Transfers.
(a) Transfers of shares of the capital stock of the Corporation shall be
made only on the books of the Corporation by the registered holder thereof, or
by his duly authorized attorney, or with a transfer clerk or transfer agent
appointed as in Section 5 of this Article provided, and on surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon.
(b) The Corporation shall be entitled to recognize the exclusive right
of a person registered on its books as the owner of shares to receive dividends,
and to vote as such owner, and for all other purposes, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
13
<PAGE>
(c) Shares of capital stock may be transferred by delivery of the
certificates therefor, accompanied either by an assignment in writing on the
back of the certificates or by separate written power of attorney to sell,
assign, and transfer the same, signed by the record holder thereof, or by his
duly authorized attorney in fact, but no transfer shall affect the right of the
Corporation to pay any dividend upon the stock to the holder of record as the
holder in fact thereof for all purposes, and no transfer shall be valid, except
between the parties thereto, until such transfer shall have been made upon the
books of the Corporation as herein provided.
(d) The board may from time to time make such additional rules as it may
deem expedient and not inconsistent with these by-laws or the certificate of
incorporation, concerning the issue, transfer, and registration of certificates
for shares of the capital stock of the Corporation.
5.4 Record Date. In order that the Corporation may determine the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than 50 days and, in case of a meeting of
shareholders, not less than 10 days prior to the date on which the particular
action requiring such determination of stockholders is to be taken. If no record
date is fixed for the determination of shareholders, the record date shall be at
the close of business on the day next preceding the day on which the notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
14
<PAGE>
If no record date is fixed for other purposes, the record date shall be at the
close of business on the day next preceding the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting unless the Board of
Directors shall fix a new record date for the adjourned meeting.
5.5 Transfer Agent and Registrar. The Board of Directors may appoint one or
more transfer agents or one or more transfer clerks and one or more registrars,
and may require all certificates of stock to bear the signature or signatures of
any of them.
5.6 Fair Price Requirements. In accordance with Official Code of Ga. Ann.
ss. 14-2-1113, this Corporation has elected that all of the requirements of Part
2 of Article 11 of the Georgia
Business Corporation Code shall be applicable to this Corporation.
ARTICLE VI
GENERAL PROVISIONS
6.1 Dividends. Dividends upon the capital stock of the Corporation, subject
to the provisions of the articles of incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the Corporation's
capital stock, subject to the provisions of the articles of incorporation.
Before payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Directors from time
to time,, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for
15
<PAGE>
such other purpose as the Directors shall think conducive to the interest of the
Corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
6.2 Fiscal Year. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
6.3 Seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization, and the words "Corporate Seal" and
"Georgia". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. In the event it is inconvenient
to use such a seal at any time, the signature of the Corporation followed by the
word "Seal" enclosed in parentheses shall be deemed the seal of the Corporation.
6.4 Annual Reports. The Corporation shall furnish the shareholders with
annual reports on the financial condition of the Corporation within ninety (90)
days after the end of each fiscal year.
ARTICLE VII
INDEMNIFICATION
7.1. Indemnification. The Company shall indemnify any individual who was,
is, or is threatened to be made a named defendant or respondent to a threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal because he is or
was a director, officer, employee or agent of the Company or an individual who,
while a director, officer, employee or agent of the Company, is or was serving
at the Company's request as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise against liability incurred in
the proceeding if he acted in a manner he believed
16
<PAGE>
in good faith to be in or not opposed to the best interests of the Company and,
in the case of any criminal proceeding, he had no reasonable cause to believe
his conduct was unlawful. The termination of a proceeding by judgment, order,
settlement, conviction, or a plea of nolo contendere or its equivalent, is not,
of itself, determinative that the director, officer, employee or agent of the
Company did not meet the standard of conduct set forth in the immediately
preceding sentence. No indemnification, however, shall be made in favor of any
director in connection with a proceeding by or in the right of the Company in
which the director was adjudged liable to the Company or in connection with any
other proceeding in which he was adjudged liable on the basis that personal
benefit was improperly received by him. Indemnification in connection with a
proceeding by or in the right of the Company shall be limited to reasonable
expenses (including attorneys' fees) incurred in connection with the proceeding.
7.2. Determination of Indemnification. Unless ordered by a court, the
Company shall not indemnify a director, officer, employee or agent under Section
7.1 unless authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is permissible in
the circumstances because he has met the applicable standard of conduct set
forth in Section 7.1. The determination shall be made:
(i) by the Board of Directors by a majority vote of a quorum consisting
of directors not at the time parties to the proceeding; or
(ii) if such a quorum is not obtainable, by majority vote of a committee
duly designated by the Board of Directors (in which designation directors
who are parties may
17
<PAGE>
participate), consisting solely of two or more directors not at the time
parties to the proceedings;
(iii) by special legal counsel:
(A) selected by the Board of Directors or its committee in the manner
described in paragraph (i) or (ii) of this section 7.2; or
(B) if a quorum of the Board of Directors cannot be obtained under
paragraph (i) of this Section 7.2 and a committee cannot be designated
under paragraph (ii) of this Section 7.2, then selected by majority vote
of the full Board of Directors (in which selection directors who are
parties may participate); or (iv) by the shareholders, but shares owned
by or voted under the control of directors
who are at the time parties to the proceeding may not be voted on the
determination. Authorization of indemnification or an obligation to
indemnify and an evaluation as to reasonableness of expenses shall be made
in the same manner as the determination that indemnification is permissible,
except that if the determination is made by special legal counsel,
authorization of indemnification and evaluation as to reasonableness of
expenses shall be made by those entitled under paragraph (iii) of this
Section 7.2 to select counsel.
7.3 Successful Defense. To the extent that a director, officer, employee, or
agent of the Company has been successful, on the merits or otherwise, in defense
of any action, suit or proceeding referred to in Section 7.1 or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
18
<PAGE>
7.4 Advance Payment. The Company shall pay for or reimburse the reasonable
expenses incurred by a director, officer, employee or agent who is an individual
who was, is, or is threatened to be made a named defendant or respondent to a
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative and whether formal or informal in
advance of the final disposition of the proceeding if such person furnishes the
Company both a written affirmation of his good-faith belief that he has met the
standard of conduct set forth in Section 7.1 and a written undertaking, executed
personally or on his behalf, to repay any advances if it is ultimately
determined that he is not entitled to indemnification by the Company as
authorized in this Article.
7.5 Survival of Indemnification Following Death or Termination. The right to
indemnification and advancement of expenses provided by or granted pursuant to
this Article VII shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such person.
7.6 Non-Exclusivity. The indemnification and advancement of expenses
provided by this Article VII shall not be deemed exclusive of any other rights
to which a person seeking indemnification may be entitled under any article of
incorporation, by-law, agreement, note of shareholders or directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
ARTICLE VIII
AMENDMENTS
The Board of Directors shall have power to alter, amend, or repeal these
by-laws or adopt new by-laws by majority vote of all of the Directors, but any
by-laws adopted by the Board of
19
<PAGE>
Directors may be altered, amended, or repealed and new by-laws adopted, by the
shareholders by majority vote of all of the shares having voting power.
Notwithstanding the foregoing, any alteration, amendment or repeal of any
provision of Article II, III or VII of these By-laws, and the adoption of any
by-law inconsistent with any provision of said Articles II, III or VII may be
approved only by the affirmative vote of at least two thirds of all members of
the Board of Directors or of the holders of shares having at least two-thirds of
the voting power with respect
20
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
AS TRUSTEE
---------------------------
Supplemental Indenture
Dated as of August 27, 1996
---------------------------
9% Subordinated Convertible Debentures due November 1, 1999
<PAGE>
SUPPLEMENTAL INDENTURE FOR
9% SUBORDINATED CONVERTIBLE DEBENTURES DUE NOVEMBER 1, 1999
OF MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
SUPPLEMENTAL INDENTURE, dated as of the 27th day of August, 1996, between
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC., a corporation duly organized and
existing under the laws of the State of Georgia (the "Company") and Continental
Stock Transfer & Trust Company, a limited purpose trust company duly organized
and existing under the laws of the State of New York, as trustee (the
"Trustee").
WHEREAS, the Company and the Trustee are parties to that certain
Indenture, dated as of November 15, 1994, (the "Indenture") providing for an
issue of debentures designated 9% Subordinated Convertible Debentures Due
November 1, 1999 (the "Debentures"); and
WHEREAS, the Company now wishes to provide for the waiver of certain
defaults and to modify the Indenture, with the consent of Holders of 66-2/3% in
aggregate principal amount of the Debentures, as permitted under Sections 7.6
and 11.2 of the Indenture and the Trustee, having been requested by the Company
to join in the execution of this Supplemental Indenture, is willing to do so;
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises and the mutual covenants and
agreements herein made and other good and valuable consideration, the receipt
and sufficiency of which is hereby expressly acknowledged, the Company and the
Trustee hereby agree as follows:
1. All capitalized terms not otherwise defined herein have the meanings
set forth in the Indenture.
2. The terms of the Indenture and the Debentures are hereby amended to
provide that (a) all amounts to or for the benefit of any Debentureholder
payable under the Indenture and the Debentures, other than interest, will be
made only in shares of the Company's common stock ("Conversion Shares") at the
Amended Conversion Price, as defined herein; (b) any Debentureholder may convert
up to 25% of the principal amount of the Debentures held by such Debentureholder
as of the date hereof into the Conversion Shares commencing on September 3, 1996
at the Amended Conversion Price as defined herein; (c) such Debentureholder may
convert the remaining 75% of the principal amount of the Debentures into
Conversion Shares after February 1, 1997 at the Amended Conversion Price, as
defined herein; (d) any Debentureholder may convert the total principal amount
of the Debentures into Conversion Shares upon an Event of Default by the Company
under the Indenture and the Debentures, as amended hereby, not cured within the
time period permitted under the Debentures or the Indenture, as amended hereby;
and (e) upon August 1, 1997 or, if on such date, (x) the average of the reported
closing bid prices for a share of the Company's Common Stock (unless such stock
is traded on a registered national securities exchange, in which case, the
average of the last reported sale prices on the principal exchange on which such
securities are traded) for the thirty (30) days immediately preceding such date
does not equal or exceed $2.00 per share and (y) the average of the reported
daily trading volume does not equal or exceed 50,000 shares (unless the
principal market for such common stock is such an exchange, in which case,
25,000 shares) then on the first day following August 1, 1997 on which the
conditions described in subclauses (x) and
1
<PAGE>
(y) are both met, (the "Mandatory Conversion Date"), all outstanding Debentures
that have not theretofore been converted into the Conversion Shares shall
automatically convert into Conversion Shares at the Amended Conversion Price, as
defined herein. The Conversion Price of the Debentures (as defined therein)
shall be the lesser of (i) $4.50 per share or (ii) ninety-five percent (95%) of
the average of the reported closing bid prices for a share of the Company's
Common Stock (unless such stock is traded on a registered national securities
exchange, in which case, the average of the last reported sale prices on the
principal exchange on which the Conversion Shares may be traded), for the three
(3) trading days prior to the date of written notification of conversion (the
"Optional Conversion Date") by such Debentureholder or the Mandatory Conversion
Date, (the "Amended Conversion Price"). Upon receipt by the Company of notice
and conversion pursuant to Article IV of the Indenture, the Company shall
compute the Amended Conversion Price and notify the Trustee in writing thereof.
The Trustee may conclusively rely upon the Company's computation of the Amended
Conversion Price and shall have no duty to verify such computation.
3. If the Company desires to issue Senior Indebtedness, and the providers
of the Senior Indebtedness require amendments to certain existing subordination
provisions in the Indenture and the Debentures, each Debentureholder will either
(a) grant approval to amendments to the Indenture and the Debentures which are
required to facilitate the new Senior Indebtedness, or (b) allow the Company to
convert the Debentureholder's remaining Debentures at the Amended Conversion
Price. Under the provisions set forth in this Section 2(b), upon receipt of
written notice from the Company of its intent to convert the remaining
Debentures, ("Demand Conversion Notice"), a Debentureholder may determine the
Optional Conversion Date by submitting written notification of conversion to the
Company no later than ninety (90) days after receipt of the Demand Conversion
Notice. If after ninety (90) days from the receipt of Demand Conversion Notice,
a Debentureholder has not elected an Optional Conversion Date within the
respective ninety (90) day period by submitting written notice to the Company,
such Debentureholder's remaining Debentures will be automatically converted into
the Conversion Shares at the Amended Conversion Price without any action by or
for the Trustee or the Company's transfer agent for its Common Stock (the
"Transfer Agent").
4. No conversion of the Debentures into Conversion Shares will be
considered a prepayment as provided for in the Indenture or Debenture. The
Company agrees to instruct the Transfer Agent to prepare and deliver to any
Debentureholder, upon receipt of such Debentureholder's request for conversion
pursuant to the terms hereof, certificates representing the Conversion Shares
without a restrictive legend (assuming Regulation S of the Securities and
Exchange Commission under the Securities Act of 1933, as amended, has not been
rescinded or modified in such a manner as to preclude the issuance of unlegended
Conversion Shares). Subject to the Transfer Agent's customary requirements when
it is instructed to issue unlegended stock certificates, such certificates will
be delivered to such Debentureholder within three (3) business days after
receipt of notification of conversion by the Company. If such certificates are
not received within five (5) business days after receipt of notification of
conversion, the Company shall pay such Debentureholder, in liquidated damages,
$500 per day for each day after said five (5) business day period until delivery
of the certificates. In no event will the Trustee or the Transfer Agent be
liable for such damages. If notice of default is given to the Company and such
default is not cured within the time periods permitted under the Indenture and
the Debentures, as amended hereby, and if the Company fails to deliver
Conversion Shares to the Debentureholders within five (5) business days
thereafter, all default remedies provided in the Indenture and the Debentures
shall be available to the Debentureholders. All registration rights under the
terms of the Indenture and the Debentures are hereby waived except that such
rights shall be reinstated if, but only if, the Debentureholder is unable to
rely upon such
2
<PAGE>
Regulation S to resell Conversion Shares. All other provisions of the Indenture
and Debentures not amended hereby shall remain in full force and effect.
5. In accordance with Section 7.6 of the Indenture, (i) the Company's past
defaults of the covenants contained in Sections 5.3, 5.9, 5.10, 5.11, 5.12,
5.13, 5.15, 5.16, 5.17, 5.19 and 5.20 of the Indenture and (ii) the requirement
of the Company to comply with the covenants contained in Sections 5.9(a)(i),
5.9(a)(ii), and 5.9(d) of the Indenture through August 1, 1997, are hereby
waived.
6. Section 5.13 of the Indenture is hereby amended in its entirety to read
as follows:
"Section 5.13 Merger of Sale of Assets. The Company will not, and
will not permit any Subsidiary to, merge, consolidate or exchange
shares with any other corporation, or sell, lease or transfer or
otherwise dispose of any of its assets to any Person, other than
sales, leases, transfers or other dispositions of inventory in the
ordinary course of business or particular items of obsolete or
unnecessary equipment in the ordinary course of business, except
(i) any Subsidiary may merge or consolidate with the Company
(provided that Company shall be the surviving corporation in any
such transaction) or with any one or more other Subsidiaries;
(ii) the Company and any Subsidiary may sell, lease, transfer or
otherwise dispose of up to a total of $10,000,000 in book value of
assets (determined net of accumulated depreciation) as shown on the
Company's most recent audited balance sheet after the date of this
Indenture;
(iii) any Subsidiary may sell, lease, transfer or otherwise dispose
of all or any substantial part of its assets to the Company or
another Subsidiary; and
(iv) as otherwise expressly permitted by this Indenture.
7. Section 5.19 of the Indenture is hereby amended in its entirety to read
as follows:
"Section 5.19 Dividends, Etc. The Company shall not declare or pay
any dividend on its capital stock (other than stock dividends) or
make any payment to purchase, redeem, retire or acquire any of its
capital stock."
8. All other provisions of the Indenture and the Debentures are and shall
remain in full force and effect.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Supplemental Indenture to
be signed in its corporate name and acknowledged by its Chairman of the board,
Chief Executive Officer and President and its corporate seal to be affixed
hereunto, duly attested by its Secretary or an Assistant Secretary; and the
Trustee has caused this Supplemental Indenture to be signed and acknowledged by
its President and its corporate seal to be affixed hereunto, duly attested by
its Secretary, all as of the day and year first above written.this Agreement on
the date first above written.
MOUNTASIA ENTERTAINMENT
INTERNATIONAL, INC.
By: __________________________________
Name: L. Scott Demerau
Title: President
Attest:
Secretary
(Seal)
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By: __________________________________
Name: Michael Nelson
Title: President
Attest:
Secretary
(Seal)
4
<PAGE>
STATE OF_________________
COUNTY OF________________
On this ____ day of ____________________, 1996, before me personally
appeared __________________________, who, being by me duly sworn, did say that
he is the President of Mountasia Entertainment International, Inc., one of the
corporations described in and which executed the foregoing instrument; that he
knows the corporate seal of the said corporation and that the seal affixed to
said instrument is the corporate seal of said corporation; and that said
instrument was signed and sealed in behalf of said corporation by authority of
its Board of Directors and that he subscribed his name thereto by like
authority.
Notary Public
(Seal)
<PAGE>
STATE OF_________________
COUNTY OF________________
On this ____ day of ____________________, 1996, before me personally
appeared __________________________, who, being by me duly sworn, did say that
he is the __________________ of Continental Stock Transfer & Trust Company, a
limited purpose trust company described in and which executed the foregoing
instrument; that he knows the corporate seal of the said corporation and that
the seal affixed to said instrument is the corporate seal of said corporation;
and that said instrument was signed and sealed in behalf of said corporation by
authority of its Board of Directors and that he subscribed his name thereto by
like authority.
Notary Public
(Seal)
PREFERENCES AND RIGHTS OF SERIES F PREFERRED STOCK
of
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
2.6 Class F Preferred Stock. The voting powers, preferences and relative,
participating, optional and other special rights of the shares of Series F
Preferred Stock, and the qualifications, limitations or restrictions thereof,
are as follows:
2.6.1 Designation and Amount. The shares of such series shall be
designated as "Series F Preferred Stock" and the number of shares constituting
such series shall be 2,700,000.
2.6.2 Dividends and Distributions. (a) Except as set forth in the next
succeeding sentence, subject to the prior and superior rights of the holders of
any shares of any other series or class of Preferred Stock issued from time to
time the express terms of which make the shares of such other Preferred Stock
prior and superior to the shares of Series F Preferred Stock with respect to
dividends or other distributions or upon liquidation, dissolution or winding-up
("Senior Preferred Stock"), the holders of shares of Series F Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of Directors
of the Corporation (the "Board") out of funds legally available for the purpose,
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 Stock (each such date being referred to herein as a "Dividend
Payment Date"), in an amount per share (rounded to the nearest cent) of Series F
Preferred Stock equal to ten times the aggregate per share amount of all cash
dividends, and ten times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions), declared on the Common Stock since
the immediately preceding Dividend Payment Date, or, with respect to the first
Dividend Payment Date, since the first issuance of any shares of Series F
Preferred Stock. Notwithstanding the preceding sentence, subject to the prior
and superior rights of the holders of Senior Preferred Stock, in the event the
Corporation shall declare any dividend or other distribution on shares of Common
Stock payable in shares of Common Stock or any other stock of the Corporation
having the right to vote in the election of directors on a regular basis ("Other
Voting Stock"), then (i) in each such case where shares of Common Stock would
have been payable, each holder of shares of Series F Preferred Stock shall be
entitled to receive a number of additional shares of Series F Preferred Stock
equal to one-tenth the number of shares of Common Stock such holder would have
received if all of such holder's shares of Series F Preferred Stock had been
converted into Common Stock in accordance with
<PAGE>
Section 2.6.8 below, as of the record date specified in Section 2.6.2(d) below,
and (ii) in each such case where shares of Other Voting Stock would have been
payable, each holder of shares of Series F Preferred Stock shall be entitled to
receive such number of shares of any series or class of the Corporation's stock
as shall provide such holder all the relative rights, preferences and powers,
except voting rights, that the holder would have received as a holder of Common
Stock if all of such holder's shares of Series F Preferred Stock had been
converted into Common Stock in accordance with Section 2.6.8 below (assuming for
this purpose that the conditions thereto had been satisfied), as of the record
date specified in Section 2.6.2(d) below.
(b) Subject to the prior and superior rights of the holders of any
shares of Senior Preferred Stock, if the Corporation subdivides the outstanding
shares of Common Stock into a greater number of shares or combines the
outstanding shares of Common Stock into a greater number of shares, then in each
case the outstanding shares of Series F Preferred Stock shall also be subdivided
or combined in the same proportion, so that each share of Series F Preferred
Stock continues to be entitled to ten times the amount of dividends and
distributions as each share of Common Stock.
(c) The Corporation shall declare a dividend or distribution on or
in respect of, or a subdivision or combination of, the Series F Preferred Stock
as provided in Section 2.6.2(a) or (b) above simultaneously with its declaration
of any dividend or distribution on or in respect of, or a subdivision or
combination of, the Common Stock.
(d) The Board may fix a record date for the determination of holders
of shares of Series F Preferred Stock entitled to receive payment of a dividend
or distribution declared thereon, which record date shall be the same as the
record date for dividends or distributions on or in respect of Common Stock.
2.6.3 Voting Rights. Except as set forth herein or otherwise provided by
law, holders of Series F Preferred Stock shall have no voting rights and their
consent shall not be required for taking any corporate action.
2.6.4 Reacquired Shares. Any shares of Series F Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board, subject to the conditions and
restrictions on issuance set forth herein.
2
<PAGE>
2.6.5 Liquidation, Dissolution or Winding Up. Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, the
holders of shares of Series F Preferred Stock shall receive an amount equal to
accrued and unpaid dividends and distributions thereon to the date of such
payment and an aggregate amount per share, equal to ten times the aggregate
amount to be distributed per share to holders of shares of Common Stock.
2.6.6 Recapitalization, Consolidation, Merger, etc. In case the
Corporation shall enter into any recapitalization, consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of Series F Preferred Stock shall at
the same time be similarly exchanged or changed in an amount per share (subject
to the provision for adjustment hereinafter set forth) equal to ten times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common Stock
is changed or exchanged.
2.6.7 Rights Offerings. If the Corporation shall offer for subscription
prorata to the holders of its Common Stock any additional shares of stock of any
class or any other right, then, in each such case, the Corporation shall give to
the holders of shares of Series F Preferred Stock the same notice and same
opportunity to participate in said subscription offering, as if the shares of
Series F Preferred Stock had theretofore been converted into Common Stock,
provided, however, that if (a) the offer involves any right to acquire shares of
Common Stock or any Other Voting Stock and (b) the shares of Series F Preferred
Stock are not then convertible into Common Stock in accordance with Section
2.6.8 below, then (x) if the offer involves Common Stock the Corporation shall
give the holders of the shares of Series F Preferred Stock the right to acquire
one tenth of a share of Series F Preferred Stock for each share of Common Stock
such holder would otherwise have had the right to acquire at a price per share
which would have applied to the Common Stock (a) multiplied by ten and (b)
reduced by 15%; and (y) if the offer involves Other Voting Stock, the
Corporation shall give the holders of the shares of Series F Preferred Stock the
right to acquire such number of shares of any series or class of the
Corporation's stock at such price and on such other terms as shall provide such
holder all the relative rights, preferences and powers, except voting rights,
that the holder would have received if all of such holder's shares of Series F
Preferred Stock had been converted into Common Stock in accordance with Section
2.6.8 below (assuming for this purpose that the conditions thereto had been
satisfied).
2.6.8 Conversion. (a) The holders of Series F Preferred Stock shall have
the right to convert all or a portion of their shares of Series F Preferred
Stock into ten shares of Common
3
<PAGE>
Stock at any time after the Corporation's shareholders entitled to vote thereon
have approved the issuance of shares of Common Stock pursuant to Section 4.16 of
the Amended and Restated Investment Agreement, dated June 5, 1996, as amended,
by and between the Corporation and MEI Holdings, Inc. ("MEIH").
(b) Regardless of whether the shareholder approval referred to in
Section 2.6.8(a) above has been obtained, the holders of shares of Series F
Preferred Stock will have the right at any time to convert all or a portion of
such shares of Series F Preferred Stock into ten shares of Common Stock under
any of the following circumstances: (i) so long as the shares of Series F
Preferred Stock to be so converted are beneficially owned by a person, entity or
"group" within the meaning of Section 13(d) of the Securities Exchange Act of
1934 (the "Exchange Act"), as amended (collectively, a "Person"), other than,
and which (if a "group") does not include, MEIH or any "affiliate" (within the
meaning of Rule 12b-2 under the Exchange Act) of MEIH (collectively, the "MEIH
Group"), unless, as of the time of transfer of the shares of Series F Preferred
Stock by any member of the MEIH Group to any Person who or which is not a member
of the MEIH Group, both (A) the restrictions set forth in Section 2.1 of the
Standstill Agreement dated August 23, 1996 between the Company and MEI continue
to apply to limit ownership by MEI to less than a majority of the Total Voting
Power (as that term is defined in the Standstill Agreement) 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, as in effect on the Issuance Date)
of a majority of the shares of capital stock of the Corporation entitled to vote
generally in the election of members of the Board (any such shareholder, a
"Controlling Shareholder"), (ii) by any member of the MEIH Group, so long as
after giving effect to such conversion, the MEIH Group, taken as a whole, would
not be a Controlling Shareholder, or (iii) with the approval of a majority of
the members of the Board who are not designated for election to the Board by, or
employed by any member of the MEIH Group or employed by the Corporation or any
subsidiary of the Corporation.
(c) The Corporation shall at all times reserve and keep available,
free from liens, charges and security interest and not subject to any preemptive
rights, for issuance upon conversion of the shares of Series F Preferred Stock,
such number of its authorized but unissued shares of Common Stock as will from
time to time be sufficient to permit the conversion of all outstanding shares of
Series F Common Stock, and shall take all action required to increase the
authorized number of shares of Common Stock if necessary to permit the
conversion of all outstanding shares of Series F Preferred Stock.
2.6.9 No Redemption. The shares of Series F Preferred Stock shall not be
redeemable.
4
<PAGE>
2.6.10 Ranking. The Series F Preferred Stock shall rank junior to all
Senior Preferred 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 shall provide otherwise.
2.6.11 Amendment. The Articles of Incorporation of the Corporation may not
be further amended in any manner, nor may the Corporation take any other action,
which would alter or change the powers, preferences or special rights of the
Series F Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of a majority of the outstanding shares of Series F
Preferred Stock, voting separately as a class.
2.6.12 Fractional Shares. Series F Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to receive dividends, participate in distributions
and to have the benefit of all other rights of holders of Series F Preferred
Stock.
5
================================================================================
CONSOLIDATED, AMENDED, AND RESTATED
LOAN AND SECURITY AGREEMENT
by and between
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.,
FORTY-FIVE OF ITS DIRECT AND INDIRECT
SUBSIDIARIES IDENTIFIED HEREIN,
and
FOOTHILL CAPITAL CORPORATION
Dated as of August 22, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS AND CONSTRUCTION........................................... 5
1.1 Definitions...................................................... 5
1.2 Accounting Terms................................................. 34
1.3 Code............................................................. 34
1.4 Construction..................................................... 34
1.5 Schedules and Exhibits........................................... 34
1.6 Restatement...................................................... 34
2. LOAN AND TERMS OF PAYMENT.............................................. 34
2.1 Revolving Advances............................................... 34
2.2 Term Loan A...................................................... 35
2.3 Term Loan B...................................................... 35
2.4 Overadvances..................................................... 36
2.5 Interest: Rates, Payments, and Calculations..................... 36
2.6 Collection of Accounts........................................... 37
2.7 Crediting Payments; Application of Collections................... 38
2.8 Borrower's Designated Account.................................... 38
2.9 Maintenance of Loan Account; Statements of Obligations........... 39
2.10 Fees............................................................. 40
2.11 Purchase of Loans of Existing Lender Not Deemed Repayment;
Assumption of Such Purchased Loans by Each Debtor; Allocation of
Obligations on Closing Date...................................... 40
2.12 Mandatory Prepayments............................................ 41
3. CONDITIONS; TERM OF AGREEMENT.......................................... 42
3.1 Conditions Precedent to the Initial Advance and Term Loan A...... 42
3.2 Conditions Precedent to Term Loan B.............................. 46
3.3 Conditions Precedent to all Advances and the Term Loans.......... 47
3.4 Conditions Subsequent............................................ 47
3.5 Term............................................................. 49
3.6 Effect of Termination............................................ 49
3.7 Early Termination by Borrower.................................... 49
3.8 Termination Upon Event of Default................................ 49
3.9 Conditions Precedent to Re-Advancing Term Loan A or any Portion
Thereof.......................................................... 49
-ii-
<PAGE>
4. CREATION OF SECURITY INTEREST.......................................... 50
4.1 Grant of Security Interest....................................... 50
4.2 Negotiable Collateral............................................ 51
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral....................................................... 51
4.4 Delivery of Additional Documentation Required.................... 51
4.5 Power of Attorney................................................ 52
4.6 Right to Inspect................................................. 52
4.7 Quitclaim........................................................ 53
5. REPRESENTATIONS AND WARRANTIES......................................... 53
5.1 No Encumbrances.................................................. 53
5.2 Equipment........................................................ 53
5.3 Location of Inventory and Equipment.............................. 53
5.4 Inventory Records................................................ 53
5.5 Location of Chief Executive Office; FEIN......................... 53
5.6 Due Organization and Qualification; Subsidiaries................. 53
5.7 Due Authorization; No Conflict................................... 54
5.8 Litigation....................................................... 55
5.9 No Material Adverse Change. ..................................... 55
5.10 Solvency......................................................... 56
5.11 Employee Benefits................................................ 56
5.12 Environmental Condition.......................................... 56
6. AFFIRMATIVE COVENANTS.................................................. 56
6.1 Accounting System................................................ 57
6.2 Collateral Reporting............................................. 57
6.3 Financial Statements, Reports, Certificates...................... 57
6.4 Tax Returns...................................................... 58
6.5 Intentionally Omitted............................................ 58
6.6 Intentionally Omitted............................................ 58
6.7 Title to Equipment............................................... 59
6.8 Maintenance of Equipment......................................... 59
6.9 Taxes............................................................ 59
6.10 Insurance........................................................ 59
6.11 No Setoffs or Counterclaims...................................... 61
6.12 Location of Inventory and Equipment.............................. 61
6.13 Compliance with Laws............................................. 61
6.14 Employee Benefits................................................ 62
-iii-
<PAGE>
6.15 Leases........................................................... 62
7. NEGATIVE COVENANTS..................................................... 63
7.1 Indebtedness..................................................... 63
7.2 Liens............................................................ 64
7.3 Restrictions on Fundamental Changes.............................. 64
7.4 Disposal of Assets and Related Matters........................... 64
7.5 Change Name...................................................... 65
7.6 Guarantee........................................................ 65
7.7 Nature of Business............................................... 65
7.8 Prepayments and Amendments....................................... 65
7.9 Change of Control................................................ 65
7.10 Consignments..................................................... 65
7.11 Distributions.................................................... 65
7.12 Accounting Methods............................................... 66
7.13 Investments...................................................... 66
7.14 Transactions with Affiliates..................................... 66
7.15 Suspension....................................................... 66
7.16 Use of Proceeds.................................................. 66
7.17 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees........................................... 67
7.18 No Prohibited Transactions Under ERISA........................... 67
7.19 Financial Covenants.............................................. 68
8. EVENTS OF DEFAULT...................................................... 69
9. FOOTHILL'S RIGHTS AND REMEDIES......................................... 72
9.1 Rights and Remedies.............................................. 72
9.2 Remedies Cumulative.............................................. 74
10. TAXES AND EXPENSES..................................................... 74
11. WAIVERS; INDEMNIFICATION............................................... 75
11.1 Demand; Protest; etc............................................. 75
11.2 Foothill's Liability for Collateral.............................. 75
11.3 Indemnification.................................................. 75
11.4 Suretyship Waivers and Consents.................................. 76
-iv-
<PAGE>
12. NOTICES................................................................ 79
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER............................. 80
14. DESTRUCTION OF BORROWER'S DOCUMENTS.................................... 81
15. GENERAL PROVISIONS..................................................... 81
15.1 Effectiveness.................................................... 81
15.2 Successors and Assigns........................................... 82
15.3 Section Headings................................................. 82
15.4 Interpretation................................................... 82
15.5 Severability of Provisions....................................... 82
15.6 Amendments in Writing............................................ 82
15.7 Counterparts; Telefacsimile Execution............................ 82
15.8 Revival and Reinstatement of Obligations......................... 83
15.9 Integration...................................................... 83
15.10 Covenant by Foothill Regarding Section 3.2(c).................... 83
SCHEDULES AND EXHIBITS
Schedule P-1 Permitted Liens
Schedule R-1 Real Property Collateral
Schedule 5.5 Debtor FEINs
Schedule 5.6 Subsidiaries
Schedule 5.8 Litigation
Schedule 5.12 Environmental Reports
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Scheduled Indebtedness
Exhibit I Location of FunCenters
Exhibit C-1 Form of Compliance Certificate
-v-
<PAGE>
Exhibit I
Mountasia Entertainment International, Inc.
FunCenters
Location Fee Simple Lease
- -------- ---------- -----
Mountasia FunCenters:
Mobile, AL X
Huntsville, AL X
Montgomery, AL X
Roswell, GA X
East Cobb, GA X
Orange Park, FL X
Jacksonville, FL X
Pensacola, FL X
North Cobb, GA X
Cocoa Beach, FL X
Henderson, NV (NEF Acquisition) X
Houston, TX X
Arlington, TX X
Plano, TX X
Kingwood, TX X
McAllen, TX (NEF Acquisition) X
Greenville, SC X
Spartanburg, SC X
----------- ------------ --------
Total Mountasia FunCenter 12 + 6 = 18
----------- ------------ --------
Malibu Grand Prix FunCenters:
Tempe, AZ
Tucson, AZ X
Fresno, CA X
N. Hollywood, CA X
Puente Hills, CA X
Redondo Beach, CA X
Redwood City, CA X
San Diego, CA X
Denver, CO X
Miami, FL (NEF Acquisition) X X
Orlando, FL X
Tampa, FL X X
Kennesaw, GA X
-vi-
<PAGE>
Norcross, GA X
Lenexa, KS
Mount Laurel, NJ X
Cincinnati, OH X
Columbus, OH X
Portland, OR X
Austin, TX X
Dallas, TX X
Houston, TX X
San Antonio, TX X
----------- ------------ --------
Total Malibu Grand Prix 4 + 19 = 23
FunCenters
----------- ------------ --------
Total Combined Facilities 16 + 25 = 41
=========== ============ ========
-vii-
<PAGE>
CONSOLIDATED, AMENDED, AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS CONSOLIDATED, AMENDED, AND RESTATED LOAN AND SECURITY AGREEMENT (this
"Agreement"), is entered into as of August 22, 1996, between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with a place of business
located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California
90025-3333, MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC., a Georgia corporation
("Mountasia"), with its chief executive office located at 5895 Windward Parkway,
Suite 220, Alpharetta, Georgia 30202, MOUNTASIA MANAGEMENT COMPANY, a Georgia
corporation ("MMC"), with its chief executive office located at 5895 Windward
Parkway, Suite 220, Alpharetta, Georgia 30202, MOUNTASIA PARTNERS I, INC., a
Georgia corporation ("MPI"), with its chief executive office located at 5895
Windward Parkway, Suite 220, Alpharetta, Georgia 30202, MALIBU GRAND PRIX
CORPORATION, a Delaware corporation ("MGPC"), with its chief executive office
located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, MIAMI
CASTLE MGPC, INC., a Florida corporation ("Miami"), with its chief executive
office located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202,
TEMPE MGPC, INC., an Arizona corporation ("Tempe"), with its chief executive
office located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202,
TUCSON MGPC, INC., an Arizona corporation ("Tucson"), with its chief executive
office located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202,
FRESNO MGPC, INC., a California corporation ("Fresno"), with its chief executive
office located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202,
NORTH HOLLYWOOD CASTLE MGPC, INC., a California corporation ("NHC"), with its
chief executive office located at 5895 Windward Parkway, Suite 220, Alpharetta,
Georgia 30202, PUENTE HILLS MGPC, INC., a California corporation ("PH"), with
its chief executive office located at 5895 Windward Parkway, Suite 220,
Alpharetta, Georgia 30202, PUENTE HILLS SHOWBOAT MGPC, INC., a California
corporation ("PHS"), with its chief executive office located at 5895 Windward
Parkway, Suite 220, Alpharetta, Georgia 30202, REDONDO BEACH CASTLE MGPC, INC.,
a California corporation ("RBC"), with its chief executive office located at
5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, REDWOOD CITY CASTLE
MGPC, INC., a California corporation ("RCC"), with its chief executive office
located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, REDWOOD
CITY MGPC, INC., a California corporation ("RC"), with its chief executive
office located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202,
SAN DIEGO MGPC, INC., a California corporation ("San Diego"), with its chief
executive office located at 5895 Windward Parkway, Suite 220, Alpharetta,
Georgia 30202, DENVER MGPC, INC., a Colorado corporation ("Denver"), with its
chief executive office located at 5895 Windward Parkway, Suite 220, Alpharetta,
Georgia 30202, ORLANDO CASTLE MGPC, INC., a Florida corporation ("OC"), with
-1-
<PAGE>
its chief executive office located at 5895 Windward Parkway, Suite 220,
Alpharetta, Georgia 30202, ORLANDO MGPC, INC., a Florida corporation
("Orlando"), with its chief executive office located at 5895 Windward Parkway,
Suite 220, Alpharetta, Georgia 30202, TAMPA CASTLE MGPC, INC., a Florida
corporation ("TC"), with its chief executive office located at 5895 Windward
Parkway, Suite 220, Alpharetta, Georgia 30202, TAMPA MGPC, INC., a Florida
corporation ("Tampa"), with its chief executive office located at 5895 Windward
Parkway, Suite 220, Alpharetta, Georgia 30202, LENEXA MGPC, INC., a Kansas
corporation ("Lenexa"), with its chief executive office located at 5895 Windward
Parkway, Suite 220, Alpharetta, Georgia 30202, MT. LAUREL MGPC, INC., a New
Jersey corporation ("Mt.Laurel"), with its chief executive office located at
5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, COLUMBUS MGPC,
INC., an Ohio corporation ("Columbus"), with its chief executive office located
at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, CINCINNATI MGPC,
INC., an Ohio corporation ("Cincinnati"), with its chief executive office
located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, PORTLAND
MGPC, INC., an Oregon corporation ("Portland"), with its chief executive office
located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, AUSTIN
MGPC, INC., a Texas corporation ("Austin"), with its chief executive office
located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, DALLAS
CASTLE MGPC, INC., a Texas corporation ("DC"), with its chief executive office
located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, DALLAS
MGPC, INC., a Texas corporation ("Dallas"), with its chief executive office
located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, HOUSTON
CASTLE MGPC, INC., a Texas corporation ("HC"), with its chief executive office
located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, HOUSTON
II MGPC, INC., a Texas corporation ("Houston"), with its chief executive office
located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, SAN
ANTONIO CASTLE MGPC, INC., a Texas corporation ("SAC"), with its chief executive
office located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202,
SAN ANTONIO MGPC, INC., a Texas corporation ("San Antonio"), with its chief
executive office located at 5895 Windward Parkway, Suite 220, Alpharetta,
Georgia 30202, MOUNTASIA DEVELOPMENT COMPANY, a Georgia corporation ("MDC"),
with its chief executive office located at 5895 Windward Parkway, Suite 220,
Alpharetta, Georgia 30202, MALIBU GRAND PRIX DESIGN & MANUFACTURING, INC., a
California corporation ("MGPDMI"), with its chief executive office located at
5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, MALIBU GRAND PRIX
FINANCIAL SERVICES, INC., a California corporation ("MGPFSI"), with its chief
executive office located at 5895 Windward Parkway, Suite 220, Alpharetta,
Georgia 30202, OFF TRACK MANAGEMENT, INC., a California corporation ("Off
Track"), with its chief executive office located at 5895 Windward Parkway, Suite
220, Alpharetta, Georgia 30202, MGP SPECIAL, INC., a California corporation
("Special"), with its chief executive office located at 5895 Windward Parkway,
-2-
<PAGE>
Suite 220, Alpharetta, Georgia 30202, AMUSEMENT MANAGEMENT FLORIDA, INC., a
Florida corporation ("Amusement"), with its chief executive office located at
5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, MALIBU GRAND PRIX
CONSULTING, INC., a California corporation ("Consulting"), with its chief
executive office located at 5895 Windward Parkway, Suite 220, Alpharetta,
Georgia 30202, MOUNTASIA - MEI INTERNATIONAL, INC., a Georgia corporation
("MMEII"), with its chief executive office located at 5895 Windward Parkway,
Suite 220, Alpharetta, Georgia 30202, MOUNTASIA - MEI LIMITED COMPANY, INC., a
California corporation ("MMEILC"), with its chief executive office located at
5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, MOUNTASIA - MEI
CALIFORNIA, INC., a California corporation ("MCNC"), with its chief executive
office located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202,
MOUNTASIA - MEI CALIFORNIA LIMITED PARTNERSHIP, a California limited partnership
("MMEICLP"), with its chief executive office located at 5895 Windward Parkway,
Suite 220, Alpharetta, Georgia 30202, MOUNTASIA - MEI MANUFACTURING COMPANY,
INC., a Georgia corporation ("MMEIMCI"), with its chief executive office located
at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, AMUSEMENT CO.,
INC., a Delaware corporation ("ACI"), with its chief executive office located at
5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202, and AMUSEMENT CO.
PARTNERS, INC., a Delaware corporation ("ACPI"), with its chief executive office
located at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202.
WHEREAS, Borrower develops, owns, and operates family-oriented
entertainment centers commonly called Mountasia Family FunCenters and Malibu
Grand Prix Centers (individually a "FunCenter" and collectively the
"FunCenters") either for its own account or on behalf of third parties,
including limited partnerships in which Borrower may be a partner;
WHEREAS, Borrower, on the Closing Date after giving effect to the
consummation of the NEF Acquisition, owns 41 FunCenters, including the 18
Mountasia FunCenters and 23 Malibu Grand Prix FunCenters identified on Exhibit I
of which 16 are located on land owned by Borrower, and of which 25 are located
on land leased by Borrower from a lessor that is other than a Debtor, and in
addition, Borrower operates the 4 FunCenters identified on page 18 of the Most
Recent 10-K as Santa Clarita, Columbus, North Richland Hills, and Willowbrook,
on behalf of limited partnerships that own the same.
WHEREAS, Borrower has certain term and revolving line of credit loans
outstanding ("Existing Loans") that are owed to MEI Financings, L.P., a Delaware
limited partnership ("MEIF"), that were acquired, in part, by assignment from
NationsBank, National Association (South), as successor to NationsBank of
Georgia, N.A. and as
-3-
<PAGE>
successor by merger to Bank South, and that, in addition, include loans and
advances made by MEIF after receiving such assignment (MEIF, both in such
capacity as an assignee, and as a lender subsequent to such assignment, the
"Existing Lender") which are governed by and subject to certain loan agreements,
guaranties, and real and personal property collateral security documents more
particularly described in Schedule I of that certain Purchase and Sale
Agreement, of even date herewith, ("Loan Purchase Agreement") by and between
Existing Lender, as seller, and Foothill, as purchaser;
WHEREAS, one of the Existing Loans (the "NEF Loan") was an obligation of
NEF owed to Existing Lender which Mountasia agreed to purchase from Existing
Lender, and which NEF Loan has become a direct obligation of Mountasia by virtue
of Mountasia's assumption of such Existing Loan in connection with the NEF
Acquisition;
WHEREAS, upon the assumption of the NEF Loan by Mountasia, the conditional
obligations of Mountasia to Existing Lender with respect to the purchase of the
NEF Loan (as set forth in the "Note Purchase Agreement" referred to below in
these recitals) have become merged into the obligations of Mountasia with
respect to the NEF Loan as assumed by Mountasia and restated hereby, with the
collateral securing such conditional purchase obligation becoming collateral for
the assumed obligations of Mountasia with respect to the NEF Loan and for other
Obligations of Mountasia under the Loan Documents;
WHEREAS, the Loan Purchase Agreement provides that, among other things,
Foothill will acquire from Existing Lender the Existing Loans, and all
documents, agreements and instruments evidencing and securing the same,
including all collateral, security, interests and rights of Existing Lender
thereunder, and including all guaranties thereof by any Debtor, without any
offset, counterclaim, or defense of Borrower thereunder, and, immediately upon
the closing thereof, the Existing Loans will be consolidated into and restated
as the Term Loans and the right to receive Advances up to the Maximum Revolving
Amount in accordance with and subject to this Agreement and the other Loan
Documents referenced herein, with the Debtors other than Mountasia agreeing that
their obligations as guarantors of the Existing Loans shall be transformed into
primary obligations as co-borrowers hereunder, but preserving the continuity and
outstanding nature of such obligations, it being understood that no repayment of
the Existing Loans is being effected hereby, but merely an amendment and
restatement in accordance with the terms hereof;
WHEREAS, by executing and delivering this Agreement, the Debtors and each
of them hereby consent to the purchase by Foothill from Existing Lender of the
Existing Loans in accordance with the terms and provisions of the Purchase and
Sale Agreement and their amendment and restatement as herein provided; and
-4-
<PAGE>
WHEREAS, in furtherance of the same and the intent of the Loan Purchase
Agreement, Borrower and Foothill desire to and do hereby amend, replace, and
restate in their entirety (a) that certain loan agreement and promissory note
dated as of March 25, 1994, between Mountasia and Existing Lender, as heretofore
amended, and as assigned to Foothill by Existing Lender, (b) that certain Credit
Agreement, dated as of November 14, 1994, between Mountasia and Existing Lender,
as heretofore amended, and as assigned to Foothill by Existing Lender, (c) that
certain Loan Agreement, dated as of August 1, 1994, between Mountasia and
Existing Lender, as heretofore amended, and as assigned to Foothill by Existing
Lender, (d) that certain Construction and Working Capital Loan Agreement dated
as of May 9, 1995, between Existing Lender and NEF, as assumed by Mountasia, as
heretofore amended, and as assigned to Foothill by Existing Lender, (e) that
certain Note Purchase Agreement dated as of May 9, 1995, between Existing Lender
and Mountasia (pertaining to the loan referenced in clause (d) above of this
paragraph), as heretofore amended, if at all, and as assigned to Foothill by
Existing Lender, and (f) all promissory notes, guaranties, or personal property
security agreements at any time heretofore executed and delivered by any Debtor
to Existing Lender with respect to any of the foregoing (but not including any
Real Property security documents, which are separately being assigned or amended
and which are not restated hereby), with the terms and provisions of this
Agreement (such amended and restated agreements, collectively, the "Existing
Loan Agreements").
NOW, the parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Account Debtor" means any Person who is or who may become obligated
under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods or the rendition of services by
Borrower, irrespective of whether earned by performance, and any and all credit
insurance, guaranties, or security therefor.
"ACI" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"ACPI" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
-5-
<PAGE>
"Acquired Indebtedness" means Indebtedness of a Person existing at
the time such Person becomes an Unrestricted Subsidiary or is assumed in
connection with the acquisition of assets or properties from such Person, and
not incurred by such Person in connection with, or in anticipation of, such
Person becoming an Unrestricted Subsidiary or such acquisition.
"Acquisition" means any purchase or other acquisition by Mountasia
or one of its Subsidiaries of the Securities of a third Person or all or
substantially all of the assets or properties of a third Person, without regard
to how such purchase or other acquisition may be accomplished.
"Adjusted Net Worth" means, as of any date of determination, the sum
of (a) the difference of (i) Borrower's total stockholder's equity, minus (ii)
the sum of (w) all Intangible Assets of Borrower, (x) all of Borrower's prepaid
expenses, (y) all amounts due to Borrower from non-Borrower Affiliates,
calculated on a consolidated basis, and (z) all investments in partnerships or
joint ventures; provided that Adjusted Net Worth shall not be diminished or
reduced by reason of any non-cash investment asset writedowns by Borrower that
occur after June 30, 1996, plus (without duplication of any amount included in
clause (a)), (b) the aggregate issue price of outstanding preferred Securities
and the aggregate principal amount of Existing Subordinated Debt of Mountasia.
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person who
directly or indirectly controls, is controlled by, is under common control with
or is a director or officer of such Person. For purposes of this definition,
"control" means the possession, directly or indirectly, of the power to vote 5%
or more of the securities having ordinary voting power for the election of
directors or the direct or indirect power to direct the management and policies
of a Person.
"Agreement" has the meaning set forth in the preamble hereto.
"Amusement" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Amusement Lease Termination" means the termination, upon
consummation of the NEF Acquisition, of the lease affecting the Real Property on
which the Miami, Florida FunCenter is located.
"Austin" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
-6-
<PAGE>
"Authorized Officer" means those officers or employees of Borrower
identified from time to time by the chief executive officer or chief financial
officer of Mountasia in a writing delivered to Foothill.
"Availability" means the amount of money that Borrower is entitled
to borrow as Advances under Section 2.1, such amount being the difference
derived when (a) the sum of the principal amount of Advances then outstanding
(including any amounts that Foothill may have paid for the account of Borrower
pursuant to any of the Loan Documents and that have not been reimbursed by
Borrower) is subtracted from (b) the Maximum Revolving Amount.
"Average Unused Portion of the Maximum Revolving Amount" means, as
of any date of determination, (a) the Maximum Revolving Amount, less (b) the
average Daily Balance of Advances that were outstanding during the immediately
preceding month.
"Average Unused Portion of the Term Loan A Commitment" means, as of
any date of determination, (a) the Term Loan A Commitment, less (b) the average
Daily Balance of Term Loan A during the immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
ss. 101 et seq.), as amended, and any successor statute.
"Benefit Plan" means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA
Affiliate has been an "employer" (as defined in Section 3(5) of ERISA) within
the past six years.
"Blocked Account" shall mean a depositary account established
pursuant to a Blocked Account Agreement.
"Blocked Account Agreement" means any Blocked Account Agreement, in
form and substance satisfactory to Foothill, among Borrower, Foothill, and a
Blocked Account Bank.
"Blocked Account Bank" means such bank identified by Borrower in
writing to, and approved by, Foothill.
"Borrower" means Mountasia, MMC, MPI, MGPC, Miami, Tempe, Tucson,
Fresno, NHC, PH, PHS, RBC, RCC, RC, San Diego, Denver, OC, Orlando, TC, Tampa,
Lenexa, Mt.Laurel, Columbus, Cincinnati, Portland, Austin, DC, Dallas, HC,
Houston, SAC, San Antonio, MDC, MGPDMI, MGPFSI, Off Track, Special, Amusement,
Consulting, MMEII, MMEILC, MCNC, MMEICLP, MMEIMCI, ACI, and ACPI, and
-7-
<PAGE>
each of them, and any one or more of them, individually and collectively, and
jointly and severally.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral) or liabilities; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other computer
prepared information.
"Borrower's Designated Account" means account number 2320839090 of
Mountasia maintained with Borrower's Designated Account Bank, or such other
deposit account (located within the United States) of Borrower designated, in
writing and from time to time, by Mountasia to Foothill prior to the date of the
establishment of such other deposit account.
"Borrower's Designated Account Bank" means NationsBank, National
Association (South), whose office is located at 600 Peachtree Street, N.E.,
Atlanta, Georgia 30308, and whose ABA number is 061-000-052.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which national banks are authorized or required to close.
"Capital Expenditures" means expenditures made or liabilities
incurred by Borrower for the acquisition of any fixed assets or improvements,
replacements, substitutions, or additions thereto that have a useful life of
more than one year, including the total principal portion of Capitalized Lease
Obligations, determined on a consolidated basis and in accordance with GAAP.
"Capitalized Lease Obligation" means any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
"Change of Control" shall be deemed to have occurred at such time as
(a) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934), other than Hampstead and other than
holders of the NEF Debentures (in connection with an exchange of such
debentures, up to, but not in excess of, 30% of the total voting power of all
classes of stock of Mountasia), becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
of more than 20% of the total voting power of all classes of stock then
outstanding of Mountasia entitled to vote in the election of directors, (b)
Mountasia shall fail to own and control, directly or indirectly, 100% of the
outstanding voting stock
-8-
<PAGE>
(or other voting interests having ordinary voting power) of each of its
Restricted Subsidiaries, or (c) Mountasia shall fail to own and control,
directly or indirectly, at least 50.1% of the outstanding voting stock (or other
voting interests having ordinary voting power) of any of the Unrestricted
Subsidiaries.
"Cincinnati" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Closing Date" means the date of the first to occur of the making of
the initial Advance or the funding of either of the Term Loans, including by
means of the closing under the Loan Purchase Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) the Real Property Collateral,
(h) any money, or other assets of Borrower that now or hereafter
come into the possession, custody, or control of Foothill, and
(i) the proceeds and products, whether tangible or intangible, of
any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts,
Borrower's Books, Equipment, General Intangibles, Inventory,
Negotiable Collateral, Real Property, money, deposit accounts,
or other tangible or intangible property resulting from the
sale, exchange, collection, or other disposition of any of the
foregoing, or any portion thereof or interest therein, and the
proceeds thereof;
provided that, to the extent that Borrower acquires or develops new
FunCenter-related assets in compliance with the provisions of this
Agreement utilizing secured Purchase Money Indebtedness permitted by
the provisions of this Agreement, the Collateral shall not include
such acquired or developed assets to the extent that the inclusion
of such assets would breach any requirement that the prior consent
be obtained of such secured third party purchase money financier, so
long as Borrower uses its reasonable best
-9-
<PAGE>
efforts to obtain such consent as soon as practicable, and provided
that such assets immediately and automatically shall be included in
the Collateral if and when Borrower obtains such consent or if such
consent is no longer necessary, but Foothill's security interest in
such assets shall be junior in priority to the security interest of
such secured third party purchase money financier to the extent that
such secured purchase money financing was obtained in compliance
with the provisions of this Agreement and as provided in any
subordination agreement between Foothill and such financier.
"Collateral Access Agreement" means a landlord waiver, mortgagee
waiver, bailee letter, or acknowledgement agreement of any warehouseman,
processor, lessor, or other Person in possession of, having a Lien upon, or
having rights or interests in the Real Property Collateral, Equipment or
Inventory, in each case, in form and substance satisfactory to Foothill.
"Collections" means all cash, checks, notes, instruments, and other
items of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
"Columbus" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Compliance Certificate" means a certificate substantially in the
form attached hereto as Exhibit C-1 and delivered by the chief accounting
officer of Borrower to Foothill.
"consolidated" means the consolidation, in accordance with GAAP, of
the accounts or other items as to which such term applies; provided, however,
that, for purposes of this Agreement, including the financial covenants, (but
excluding provisions related to financial statements of Borrower, which
statements shall include Santa Clarita and shall not include the Unrestricted
Subsidiaries), such term shall not result in or give effect to the consolidation
with any other Person of the respective assets, liabilities income or losses of
Santa Clarita or the Unrestricted Subsidiaries.
"Consulting" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Daily Balance" means the amount of an Obligation owed at the end of
a given day.
-10-
<PAGE>
"Dallas" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"DC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Debt Service" means, with respect to any fiscal period of a Person,
on a consolidated basis, (a) scheduled principal payments or the equivalent
coming due during such period with respect to Indebtedness of such Person owed
to (i) Foothill, or (ii) financiers of games, vehicles, equipment, fixtures,
buildings, improvements, or Real Property (not including, however, any unsecured
trade payables that were incurred in the ordinary course of Borrower's
business), which Indebtedness would be shown as a liability on a consolidated
balance sheet of such Person prepared in accordance with GAAP, plus (b) Interest
Expense of such Person during such period.
"Debt Service Ratio" means, with respect to any Person for any
Relevant Measuring Period, the ratio of (a) Operating Cash Flow, to (b) Debt
Service for such period, all as determined on a consolidated basis in accordance
with GAAP.
"Debtor" means each and any of the entities that Borrower comprises.
"deems itself insecure" means that the Person deems itself insecure
in accordance with the provisions of Section 1208 of the Code.
"Default" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
"Denver" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Designated Claims" means any claims of any nature of Borrower, for
itself or on behalf of its present or former shareholders, against
professionals, based on transactions, events, or occurrences that transpired
before the Closing Date in relation to the provision of professional services,
without regard to whether such claims are disputed or unliquidated as of the
Closing Date.
"Designated Event of Default" means any Event of Default (a) arising
under Section 8.1 hereof, or (b) based on the breach of any provision of Article
7.
-11-
<PAGE>
"Designated Obligor" means a Person obligated with respect to a
Designated Claim, without regard to whether liability is disputed or
unliquidated, and without regard to whether a Suit has been commenced to enforce
or collect the Designated Claim.
"Disbursement Letter" means an instructional letter executed and
delivered by Borrower to Foothill regarding the extensions of credit to be made
on the Closing Date, the form and substance of which shall be satisfactory to
Foothill.
"Dollars or $" means United States dollars.
"Durham" means Durham Capital Corporation, a Delaware corporation.
"Early Termination Premium" has the meaning set forth in Section
3.7.
"EBITDA" means, with respect to any fiscal period of a Person, on a
consolidated basis, such Person's earnings, excluding extraordinary items
(determined in accordance with GAAP), plus (except to the extent attributable to
extraordinary items (determined in accordance with GAAP)) the amount of any
interest, taxes, depreciation, and amortization deducted in arriving at such
earnings.
"Eligible Transferee" means (a) a commercial bank organized under
the laws of the United States, or any state thereof, and having total assets in
excess of $50,000,000; (b) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic Cooperation and
Development or a political subdivision of any such country, and having total
assets in excess of $50,000,000; provided that such bank is acting through a
branch or agency located in the United States; (c) a finance company, insurance
company, or other financial institution or fund that is engaged in making,
purchasing, or investing in commercial loans in the ordinary course of its
business and having total available assets in excess of $50,000,000; (d) any
Affiliate (other than individuals) of Foothill; and (e) any other Person
approved by Foothill and Borrower, with such approval not to be unreasonably
withheld, conditioned, or delayed.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, games, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including go-karts, racing cars, motor vehicles, and
trailers), tools, parts, and goods (other than farm products or Inventory),
wherever located, including, (a) any interest of Borrower in any of the
foregoing, and (b) all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing.
-12-
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974,
29 U.S.C. ss.ss. 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any
Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of its
Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which
it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c)
the providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Existing Lender" has the meaning set forth in the recitals to this
Agreement.
"Existing Loan Agreements" has the meaning set forth in the recitals
to this Agreement.
"Existing Loans" has the meaning set forth in the recitals to this
Agreement.
"Existing Subordinated Debt" means (a) the Ten Percent Debentures,
(b) the Nine Percent Debentures, and (c) the NEF Debentures.
-13-
<PAGE>
"Exit Fee" has the meaning ascribed to such term in Section 2.10(a).
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the preamble to this
Agreement.
"Foothill Account" has the meaning set forth in Section 2.6.
"Foothill Expenses" means all: costs or expenses (including taxes,
and insurance premiums) required to be paid by Borrower under any of the Loan
Documents that are paid or incurred by Foothill; fees or charges paid or
incurred by Foothill in connection with Foothill's transactions with Borrower,
including, fees or charges for photocopying, notarization, couriers and
messengers,telecommunication, public record searches (including tax lien,
litigation, and ucc searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic Personal Property
Collateral or Real Property Collateral appraisals), real estate surveys, real
estate title policies and endorsements, and environmental audits; costs and
expenses incurred by Foothill in the disbursement of funds to Borrower (by wire
transfer or otherwise); charges paid or incurred by Foothill resulting from the
dishonor of checks; costs and expenses paid or incurred by Foothill to correct
any default or enforce any provision of the Loan Documents, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Personal Property Collateral or
the Real Property Collateral, or any portion thereof, irrespective of whether a
sale is consummated; costs and expenses paid or incurred by Foothill in
examining Borrower's Books; costs and expenses of third party claims or any
other suit paid or incurred by Foothill in enforcing or defending the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents or Foothill's relationship with Borrower; and Foothill's reasonable
attorneys fees and expenses incurred in advising, structuring, drafting,
reviewing, administering, amending, terminating, enforcing (including attorneys
fees and expenses incurred in connection with a "workout," a "restructuring," or
an Insolvency Proceeding concerning Borrower or any guarantor of the
Obligations), defending, or concerning the Loan Documents, irrespective of
whether suit is brought.
"Fresno" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"FunCenter" shall have the meaning ascribed to such term in the
recitals to this Agreement.
-14-
<PAGE>
"Fundamental Change Transaction" shall have the meaning ascribed to
such term in Section 7.3.
"Future Subordinated Debt" means Indebtedness of Mountasia other
than the Existing Subordinated Debt (which such Indebtedness shall not be
co-made, endorsed, guarantied by, or otherwise be recourse to, any of
Mountasia's Subsidiaries) that is on terms and conditions, including repayment
terms and subordination provisions, acceptable to Foothill in its sole
discretion.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action (including any claim in tort or contract against third Persons and any
settlement, judgment award, or proceeds thereof or therefrom), goodwill,
patents, trade names, trademarks, servicemarks, copyrights, blueprints,
drawings, purchase orders, customer lists, monies due or recoverable from
pension funds, route lists, rights to payment and other rights under any royalty
or licensing agreements, infringement claims, computer programs, information
contained on computer disks or tapes, literature, reports, catalogs, deposit
accounts, insurance premium rebates, tax refunds, and tax refund claims), other
than goods, Accounts, and Negotiable Collateral.
"Governing Documents" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"Hampstead" means The Hampstead Group, L.L.C., a Delaware limited
liability company, MEI Holdings, L.P., a Delaware limited partnership, or MEI
Financings, L.P., a Delaware limited partnership.
"Hazardous Materials" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
-15-
<PAGE>
"HC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Houston" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Houston Note" means that certain senior secured seller carryback
promissory note with an outstanding balance of approximately $1,909,000 as of
the Closing Date, made by Mountasia in connection with Mountasia's acquisition
of the Houston, Texas FunCenter, in the form heretofore provided by Mountasia to
Foothill and certified to Foothill by an Authorized Officer of Mountasia as
being accurate and complete.
"Inactive Subsidiary" means any one or more of MGPFSI, Special,
Amusement, Consulting, MMEII, MMEILC, MCNC, MCIMCI, ACI, or ACPI.
"Indebtedness" means: (a) all obligations of Borrower for borrowed
money, (b) all obligations of Borrower evidenced by bonds, debentures, notes, or
other similar instruments and all reimbursement or other obligations of Borrower
in respect of letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations of Borrower under capital leases,
(d) all obligations or liabilities of others secured by a Lien on any property
or asset of Borrower, irrespective of whether such obligation or liability is
assumed, (e) any obligation of Borrower guaranteeing or intended to guarantee
(whether guaranteed, endorsed, co-made, discounted, or sold with recourse to
Borrower) any indebtedness, lease, dividend, letter of credit, or other
obligation of any other Person, and (f) all accounts payable of Borrower with
respect to trade debt.
"Insolvency Proceeding" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that portion
of the book value of all of such Person's assets that would be treated as
intangibles under GAAP.
"Interest Coverage Ratio" means, with respect to any Person for any
Relevant Measuring Period, the ratio of (a) Operating Cash Flow, to (b) Interest
Expense for such period, all as determined on a consolidated basis in accordance
with GAAP.
-16-
<PAGE>
"Interest Expense" means, with respect to any fiscal period, the
cash interest expense incurred by a Person for such period as determined on a
consolidated basis in accordance with GAAP.
"Inventory" means all present and future inventory in which Borrower
has any interest, including goods held for sale or lease or to be furnished
under a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, and packing and shipping materials,
wherever located.
"Investment Agreement" means the Investment Agreement between
Hampstead and Mountasia, as heretofore amended, in the form heretofore provided
by Mountasia to Foothill and certified to Foothill by an Authorized Officer of
Mountasia as being accurate and complete.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lenexa" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Lien" means any interest in property securing an obligation owed
to, or a claim by, any Person other than the owner of the property, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases (by third Persons), and other title exceptions and
encumbrances affecting Real Property.
"Loan Account" has the meaning set forth in Section 2.9.
"Loan Documents" means this Agreement, the Loan Purchase Agreement,
the Stock Pledge Agreements, the Disbursement Letter, the Mutual General
Release, the Blocked Account Agreement, the Mortgages, any note or notes
executed by Borrower and payable to Foothill, and any other agreement entered
into, now or in the future, in connection with this Agreement.
-17-
<PAGE>
"Loan Purchase Agreement" has the meaning set forth in the recitals
to this Agreement.
"Material Adverse Change" means (a) a material and adverse change in
the business, assets, liabilities, or financial condition of Borrower (taken as
a whole), (b) the material impairment of Borrower's (taken as whole) ability to
perform its obligations under the Loan Documents to which it is a party or of
Foothill to enforce the Obligations or realize upon the Collateral, (c) a
material and adverse decline in the value of the Collateral or the amount that
Foothill would be likely to receive (after giving consideration to delays in
payment and costs of enforcement) in the liquidation of such Collateral, or (d)
a material impairment of the priority of Foothill's Liens with respect to the
Collateral. In each instance, any determination required to be made of
materiality, adversity, or impairment shall be an objective (and not a
subjective) determination. As used herein, an "objective determination" is the
determination that most likely would be made by an intelligent, reasonable, and
neutral third party apprised of all relevant facts and circumstances (other than
facts and circumstances that are not publicly disclosed and that have not been
disclosed by Borrower to Foothill). As used herein, "material," "adverse," and
"impairment" have the meanings commonly ascribed to such terms in ordinary
usage.
"Maturity Date" means August 21, 2001.
"Maximum Revolving Amount" means $7,500,000.
"MCNC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"MDC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"MEIF" shall have the meaning ascribed to such term in the recitals
to this Agreement.
"MGPC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"MGPDMI" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"MGPFSI" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
-18-
<PAGE>
"Miami" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"MMC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"MMEICLP" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"MMEII" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"MMEILC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"MMEIMCI" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Mortgages" means one or more mortgages, deeds of trust, or deeds to
secure debt, and amendments thereto, executed by Borrower in favor of Foothill
or the Existing Lender (including its predecessor in interest) and thereafter
assigned to Foothill, and amendments thereto, the form and substance of which
shall be satisfactory to Foothill, that encumber the Real Property Collateral
and the related improvements thereto.
"Most Recent 10-K" means the Securities and Exchange Commission Form
10-K/A of Mountasia for its fiscal year ended September 30, 1995.
"Mt.Laurel" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Mountasia" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"MPI" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Multiemployer Plan" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any
ERISA Affiliate has contributed, or was obligated to contribute, within the past
six years.
-19-
<PAGE>
"NEF" means National Entertainment Funding, L.P., a Delaware limited
partnership.
"NEF Acquisition" means (a) the acquisition by Mountasia of all
remaining limited and general partnership interests in NEF not previously owned
by it, in accordance with the terms and provisions of the NEF Acquisition
Documents, (b) the assumption by Mountasia of certain of the liabilities of NEF,
including the express assumption by Mountasia for the benefit of Foothill of the
NEF Loan, (c) the dissolution of NEF, (d) the transfer of all of NEF's former
assets to Mountasia, and (e) the Amusement Lease Termination; provided that each
transaction or transfer referred to in clauses (b) through (e) of this
definition shall be effected by written documentation in form and substance
reasonably satisfactory to Foothill, true and complete copies of which shall be
provided to Foothill on or before the Closing Date.
"NEF Acquisition Documents" means the two purchase and sale
agreements and related exhibits, schedules, and attachments, dated as of April
3, 1996, among Mountasia and various of the partners of NEF, as any thereof may
have been modified or amended in the form heretofore provided by Mountasia to
Foothill and certified to Foothill by an Authorized Officer of Mountasia as
being accurate and complete.
"NEF Debentures" means the approximately $11,500,000 of subordinated
9.1% debentures to be issued by Mountasia pursuant to the NEF Acquisition in
accordance with the terms and provisions of the NEF Acquisition Documents.
"NEF Debenture Conversion" means the conversion of all or part of
the NEF Debentures to common stock of Mountasia in accordance with the
conversion provisions of the NEF Debentures.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit, notes, drafts, instruments, certificated securities
(including the shares of stock (or other interests) of Subsidiaries of
Borrower), documents, personal property leases (wherein Borrower is the lessor),
chattel paper, and Borrower's Books relating to any of the foregoing.
"Net Cash Proceeds" means, with respect to a Permitted Disposition,
(a) the gross cash payments received (including any cash payments received by
way of deferred payment of principal pursuant to, or in liquidation of, any note
or installment receivable or otherwise, but only as and when received, except
that, with respect to any cash equivalents received, Borrower shall be deemed to
have received on the date of receipt thereof a cash payment equal to the fair
value of such cash equivalents on such date) by Borrower from such Permitted
Disposition, in each case, minus (b) the sum of all legal,
-20-
<PAGE>
tax, and other reasonable fees (including investment banking and brokerage fees
and commissions) and expenses incurred by Borrower in connection with such
Permitted Disposition.
"Net Recoveries" means, as of any date of determination, aggregate
cash recoveries by Borrower on account of Designated Claims, net of any costs
payable in connection with obtaining such recoveries.
"NHC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Nine Percent Debenture Amendments" means the amendments to be
effected with respect to the Nine Percent Debentures pursuant to documents, or
term sheets with respect thereto, in the form heretofore provided by Mountasia
to Foothill and certified to Foothill by an Authorized Officer of Mountasia as
being accurate and complete.
"Nine Percent Debenture Conversion" means the conversion of all or
part of the Nine Percent Debentures to common stock of Mountasia in accordance
with the conversion provisions of the Nine Percent Debentures.
"Nine Percent Debentures" means the approximately $5,650,000
outstanding 9% Subordinated Convertible Debentures of Mountasia, as amended by
the Nine Percent Debenture Amendments.
"Obligations" means all loans, Advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), premiums (including Early Termination Premiums),
liabilities (including all amounts charged to Borrower's Loan Account pursuant
hereto), obligations, fees, charges, costs, or Foothill Expenses (including any
fees or expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by Borrower to
Foothill of any kind and description (whether pursuant to or evidenced by the
Loan Documents or pursuant to any other agreement between Foothill and Borrower,
and irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from
Borrower to others that Foothill may have obtained by assignment (including
pursuant to the Loan Purchase Agreement) or otherwise, and further including all
interest not paid when due and all Foothill Expenses that Borrower is required
to pay or reimburse by the Loan Documents, by law, or otherwise.
-21-
<PAGE>
"OC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Off Track" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Operating Cash Flow" means, with respect to any Person for any
applicable fiscal period, (a) EBITDA, minus (b) Unfinanced Capital Expenditures,
in each case determined on a consolidated basis in accordance with GAAP.
"Operating Subsidiary" means any Subsidiary of Mountasia other than
MGPC, any Inactive Subsidiary, and any Unrestricted Subsidiary.
"Ordinary Course Dispositions" means (a) the sale of Inventory in
the ordinary course of Borrower's business, and (b) the sale, exchange, or other
disposition of Equipment that is substantially worn, damaged, or obsolete and
that is replaced with Equipment of like value.
"Orlando" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Overadvance" has the meaning set forth in Section 2.4.
"Participant" means any Person to which Foothill has sold a
participation interest in its rights under the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
"Permitted Acquisition" means a Permitted Mountasia Acquisition or a
Permitted Unrestricted Subsidiary Acquisition, as the context may require.
"Permitted Disposition" means, subject to the prior or concurrent
satisfaction of the applicable Release Condition therefor, (a) Ordinary Course
Dispositions, and (b) the sale, exchange, or other disposition, free and clear
of Foothill's Lien or security interest (other than its Lien or security
interest in the proceeds of such sale, exchange, or other disposition), of
Equipment or Real Property (expressly excluding Accounts, General Intangibles,
Inventory, and Negotiable Collateral), so long as (i) at least 80% of the
consideration received in connection with such sale, exchange, or other
disposition is in the form of cash or cash equivalents, (ii) Borrower is
receiving fair value for the Equipment or Real Property that is the subject of
such sale, exchange, or other disposition, and (iii)
-22-
<PAGE>
the Net Cash Proceeds to be received by Borrower at the time of the consummation
of such sale, exchange, or other disposition is at least equal to the greater of
(y) an amount equal to 125% of the net book value (as of the most recently
completed fiscal quarter) of the Equipment or Real Property that is the subject
of such Permitted Disposition, and (z) if the Equipment or Real Property that is
the subject of the Permitted Disposition is a FunCenter or other operating unit
of Borrower, an amount equal to 3 times the Operating Cash Flow (prior to any
overhead allocation and for the 12 months ended as of Borrower's most recently
completed fiscal quarter) of such FunCenter or other operating unit.
"Permitted Hampstead Transactions" means the consummation of the
transactions contemplated by (a) the Investment Agreement, (b) the warrant for
shares of common stock issued pursuant to the terms of the Investment Agreement,
(c) the registration rights agreement entered into pursuant to the terms of the
Investment Agreement, and (d) the standstill agreement entered into pursuant to
the terms of the Investment Agreement.
"Permitted Investments" means (a) loans or advances to employees
made by Mountasia in the ordinary course of business in an aggregate principal
amount outstanding at any one time not to exceed $500,000, and (b) loans to
employees made by Mountasia in accordance with the terms and provisions of
Schedule 5.2(l) to the Investment Agreement.
"Permitted Liens" means (a) Liens held by Foothill, (b) Liens for
unpaid taxes that are not yet due and payable or that are being contested as
provided in Section 6.9, (c) Liens set forth on Schedule P-1 attached hereto,
(d) the interests of lessors arising after the Closing Date under operating
leases, (e) Liens securing Permitted Purchase Money Indebtedness so long as the
Lien only attaches to the asset or property developed, purchased, or acquired,
(f) Liens arising by operation of law in favor of warehouseman, landlords,
carriers, mechanics, materialmen, laborers, or suppliers, incurred in the
ordinary course of business of Borrower and not in connection with the borrowing
of money, for sums not yet delinquent or that are being contested in good faith
and by proper proceedings diligently pursued, provided that a reserve or other
appropriate provision, if any, required by GAAP shall have been made therefor on
the applicable financial statements of Borrower, (g) Liens arising from deposits
made in connection with obtaining worker's compensation or other unemployment
insurance, (h) Liens or deposits to secure performance of bids, tenders, or
leases (to the extent permitted under this Agreement), incurred in the ordinary
course of business of Borrower and not in connection with the borrowing of
money, (i) Liens arising by reason of security for surety or appeal bonds in the
ordinary course of business of Borrower, (j) Liens of or resulting from any
judgment or award that do not give rise to an Event of Default under Section
8.9, (k) Liens with respect to the Real Property Collateral that are exceptions
to the commitments for title
-23-
<PAGE>
insurance issued in connection with the Mortgages, as accepted by Foothill, (l)
with respect to any Real Property that is not part of the Real Property
Collateral, easements, rights of way, zoning and similar covenants and
restrictions, and similar encumbrances that customarily exist on properties of
Persons engaged in similar activities and similarly situated and that in any
event do not materially interfere with or impair the use or operation of the
Collateral by Borrower or the value of Foothill's Lien thereon or therein, or
materially interfere with the ordinary conduct of the business of Borrower, and
(m) Liens securing Permitted Unrestricted Subsidiary Indebtedness so long as the
Lien only attaches to the assets and properties of such Unrestricted Subsidiary.
"Permitted Mountasia Acquisition" means an Acquisition made by
Mountasia so long as (a) no Default or Event of Default shall have occurred and
be continuing or would result from the consummation of the proposed Acquisition,
(b) at least 10 days prior to the consummation of any proposed Permitted
Mountasia Acquisition, Mountasia shall have provided Foothill with a written
description, in reasonable detail, of the proposed Permitted Mountasia
Acquisition, (c) after giving effect to the proposed Acquisition, Borrower would
have Availability of not less than $4,000,000, (d) the assets or properties
being acquired, or the Person whose Securities are being acquired, are useful in
or engaged in, as applicable, the operation of one or more FunCenters, (e)
Mountasia has provided Foothill with confirmation, supported by detailed
calculations and approved in writing by Foothill (which approval shall not be
unreasonably withheld) that on a pro forma basis (adjusted to eliminate expense
items that would not have been incurred and include income items that would have
been recognized, in each case, if the combination had been accomplished at the
beginning of the period; such eliminations and inclusions to be mutually agreed
upon by Mountasia and Foothill) combining the historical consolidated financial
statements of Mountasia and its Subsidiaries with the historical consolidated
financial statements of the Person to be acquired (or the historical financial
statements related to the assets and properties to be acquired) pursuant to the
proposed Acquisition, Borrower would have been in compliance with the financial
covenants set forth in Section 7.19 hereof for the 12 months ending as of the
fiscal quarter ended immediately prior to the proposed date of consummation of
such proposed Acquisition (or, with respect to any proposed Acquisition to be
consummated prior to June 30, 1997, for the period from July 1, 1996 through the
date of the fiscal quarter ended immediately prior to the proposed date of
consummation of such proposed Acquisition), (f) in the case of the acquisition
of Securities of a Person, at or prior to the consummation of such Acquisition,
such Person is merged with and into Mountasia, with Mountasia being the
surviving entity in such merger; provided, however, that if Borrower can
demonstrate to Foothill that there are bona fide economic advantages to doing
so, such acquired Person may be merged with and into a Restricted Subsidiary,
with such Restricted Subsidiary being the surviving entity in such merger; (g)
in the case of the acquisition of assets or properties of a Person, at or prior
to the consummation of such Acquisition, Mountasia has provided Foothill with
UCC-
-24-
<PAGE>
1 financing statements, fixture filings, and Mortgages with respect to the
assets or properties being acquired in such Acquisition; provided, however, that
if Borrower can demonstrate to Foothill that there are bona fide economic
advantages to doing so, such acquired assets or properties may be acquired by a
Restricted Subsidiary, so long as such Restricted Subsidiary provides Foothill
with UCC-1 financing statements, fixture filings, and Mortgages with respect to
the assets or properties being acquired in such Acquisition; provided, however,
that if Mountasia (or the Restricted Subsidiary, as applicable) is incurring
Permitted Purchase Money Indebtedness in connection with the consummation of
such Acquisition and if Mountasia (or the Restricted Subsidiary, as applicable)
is unable, after using its reasonable best efforts, to obtain any necessary
consent from the holder of such Permitted Purchase Money Indebtedness to a
second priority security interest in favor of Foothill with respect to the
subject assets and properties, the requirement therefor shall be suspended
until, if ever, such consent is obtained or the related Permitted Purchase Money
Indebtedness is repaid, and (h) in connection with such proposed Acquisition,
Mountasia shall not use the proceeds of Advances or Term Loans (including
proceeds of Advances or Term Loans that are used, in one or a series of related
transactions) to consummate the proposed Acquisition unless, after giving effect
thereto, Borrower has Availability of $4,000,000, or more. For purposes of this
definition, "pro forma EBITDA" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to any other Permitted Mountasia
Acquisition (including, without limitation, the EBITDA of the Person or assets
or property so acquired in such other Permitted Mountasia Acquisition and any
Permitted Purchase Money Indebtedness acquired or incurred in connection with
such other Permitted Mountasia Acquisition) occurring during the 12 month period
as if such other Permitted Mountasia Acquisition occurred on the first day of
the 12 month period.
"Permitted Protest" means the right of Borrower to protest any Lien,
tax, or rental payment, other than any such Lien that secures the Obligations,
provided that (a) a reserve with respect to such obligation is established on
the books of Borrower in an amount that is reasonably satisfactory to Foothill,
(b) any such protest is instituted and diligently prosecuted by Borrower in good
faith, and (c) Foothill is satisfied that, while any such protest is pending,
there will be no impairment of the enforceability, validity, or priority of any
of the Liens of Foothill in and to the Collateral.
"Permitted Purchase Money Indebtedness" means Purchase Money
Indebtedness of Borrower that was incurred after the Closing Date so long as (a)
no Default or Event of Default exists at the time of the incurrence thereof, or
would exist after giving effect thereto, and (b) the principal amount of all
such Purchase Money Indebtedness of Borrower outstanding at any one time, that
was incurred after the Closing Date, does not exceed $60,000,000.
-25-
<PAGE>
"Permitted Special Distribution" means any dividend or distribution
by Mountasia to some or all of its present or former shareholders that (a) is
not declared or paid at any time when an Event of Default has occurred and is
continuing, and (b) when aggregated with all other Permitted Special
Distributions declared and paid to present or former shareholders of Mountasia,
does not exceed in the aggregate the Special Distribution Limit.
"Permitted Subordinated Debt Payments" means regularly scheduled
payments of interest in cash or common stock of Mountasia (in each case, taking
full advantage of any ability of Mountasia to make such payment in common stock)
and regularly scheduled payments of principal (in each case, however, only to
the extent that such payments are made in common stock of Mountasia), but not
prepayments, with respect to Subordinated Debt, but excluding any payments that
are due following the occurrence and during the continuance of any Event of
Default, or the making of which would conflict with the subordination provisions
of the Subordinated Debt; provided that nothing herein prevents the Nine Percent
Debenture Conversion, the Ten Percent Debenture Conversion, or the NEF Debenture
Conversion.
"Permitted Transactions" means (a) the NEF Acquisition, (b) the
Willowbrook Acquisition, (c) the Nine Percent Debenture Amendments, (d) the Nine
Percent Debenture Conversion, (e) the NEF Debenture Conversion, (f) the Ten
Percent Debenture Conversion, (g) Permitted Subordinated Debt Payments, (h)
Permitted Special Distributions, (i) Permitted Unrestricted Subsidiary
Investments, (j) Permitted Unrestricted Subsidiary Transactions, and (k)
Permitted Hampstead Transactions.
"Permitted Unrestricted Subsidiary Acquisition" means an Acquisition
made by one of the Unrestricted Subsidiaries so long as (a) no Default or Event
of Default shall have occurred and be continuing or would result from the
consummation of the proposed Acquisition, (b) at least 10 days prior to the
consummation of any proposed Permitted Unrestricted Subsidiary Acquisition,
Mountasia shall have provided Foothill with a written description, in reasonable
detail, of the proposed Permitted Unrestricted Subsidiary Acquisition, (c) the
assets or properties being acquired, or the Person whose Securities are being
acquired, are useful in or engaged in, as applicable, the operation of one or
more FunCenters, (d) in the case of the acquisition of Securities of a Person,
at or prior to the consummation of such Acquisition, either (i) such Person is
merged with and into an existing Unrestricted Subsidiary, with such Unrestricted
Subsidiary being the surviving entity in such merger, or (ii) such Person is
designated as a Unrestricted Subsidiary in a writing sent to Foothill by
Mountasia and Mountasia executes and delivers an appropriate amendment to the
Stock Pledge Agreement in order to add the Securities of such newly acquired
Unrestricted Subsidiary to the collateral pledged thereunder, and, in either
such case, at or prior to the consummation of such Acquisition, the applicable
Unrestricted
-26-
<PAGE>
Subsidiary has executed and delivered a joinder to this Agreement and the other
Loan Documents and has provided Foothill with UCC-1 financing statements,
fixture filings, and Mortgages with respect to the assets or properties being
acquired in such Acquisition; provided, however, that if such Unrestricted
Subsidiary is incurring Permitted Purchase Money Indebtedness in connection with
the consummation of such Acquisition and if such Unrestricted Subsidiary is
unable, after using its reasonable best efforts, to obtain any necessary consent
from the holder of such Permitted Purchase Money Indebtedness to a second
priority security interest in favor of Foothill with respect to the subject
assets and properties, the requirement therefor shall be suspended until, if
ever, such consent is obtained or the related Permitted Purchase Money
Indebtedness is repaid, (e) in the case of the acquisition of assets or
properties of a Person, (i) such assets or properties are acquired by an
existing Unrestricted Subsidiary, or (ii) such assets or properties are acquired
by a newly formed Unrestricted Subsidiary identified in a writing sent to
Foothill by Mountasia and Mountasia executes and delivers an appropriate
amendment to the Stock Pledge Agreement in order to add the Securities of such
newly formed Unrestricted Subsidiary to collateral pledged thereunder, and, in
either such case, at or prior to the consummation of such Acquisition, the
applicable Unrestricted Subsidiary has executed and delivered a joinder to this
Agreement and the other Loan Documents and has provided Foothill with UCC-1
financing statements, fixture filings, and Mortgages with respect to the assets
or properties being acquired in such Acquisition; provided, however, that if
such Unrestricted Subsidiary is incurring Permitted Purchase Money Indebtedness
in connection with the consummation of such Acquisition and if such Unrestricted
Subsidiary is unable, after using its reasonable best efforts, to obtain any
necessary consent from the holder of such Permitted Purchase Money Indebtedness
to a second priority security interest in favor of Foothill with respect to the
subject assets and properties, the requirement therefor shall be suspended
until, if ever, such consent is obtained or the related Permitted Purchase Money
Indebtedness is repaid.
"Permitted Unrestricted Subsidiary Indebtedness" means Indebtedness
incurred by an Unrestricted Subsidiary (including in respect of any line of
credit or other "program" financing and including Acquired Indebtedness) to
Persons other than a Debtor in connection with the consummation of a Permitted
Unrestricted Subsidiary Acquisition, so long as (a) no Default or Event of
Default exists at the time of the incurrence thereof, or would exist after
giving effect thereto, (b) such Indebtedness to be on terms and conditions
satisfactory to Foothill, in its reasonable discretion, and (c) such
Indebtedness is in an amount, with respect to each Permitted Unrestricted
Subsidiary Acquisition, not to exceed at any time 70% of the sum of (i) the
purchase price paid in connection with such Permitted Unrestricted Subsidiary
Acquisition, and (ii) the aggregate costs of any renovations made with respect
to the assets or properties acquired in such Permitted Unrestricted Subsidiary
Acquisition, provided, however, that (y) such Indebtedness shall be non-recourse
to any Debtor (other than for any customary carve-outs for environmental
-27-
<PAGE>
and "bad deed" indemnities), but may be recourse to the applicable Unrestricted
Subsidiary (which Unrestricted Subsidiary shall have no material Indebtedness,
assets, or properties, other than those acquired in connection with Permitted
Unrestricted Subsidiary Acquisitions), and (z) if required by the provider of
such Indebtedness, such Indebtedness may be secured by a first priority Lien
upon all material assets of such Unrestricted Subsidiary.
"Permitted Unrestricted Subsidiary Investments" means, so long as no
Default or Event of Default has occurred and is continuing, loans or capital
contributions by Mountasia in or to any of the Unrestricted Subsidiaries in an
amount not to exceed, in the aggregate, an amount equal to (a) the amount of
equity contributed, in cash (or by conversion of Indebtedness in accordance with
Section 3.1(x)), by Hampstead to Mountasia, minus (b) $40,000,000.
"Permitted Unrestricted Subsidiary Transactions " means any
Fundamental Change Transaction involving solely Unrestricted Subsidiaries.
"Permitted Uses" means the use of proceeds of Advances and the Term
Loans to (a) fund the acquisition of additional FunCenters so long as after
giving effect thereto Borrower has Availability of $4,000,000, or more, or (b)
other than as may be restricted by clause (a), fund Borrower's general corporate
purposes (including Capital Expenditures), consistent with the terms and
conditions hereof.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than the
Real Property Collateral.
"PH" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"PHS" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Plan" means any employee benefit plan, program, or arrangement
maintained or contributed to by Borrower or with respect to which it may incur
liability.
-28-
<PAGE>
"Portland" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Purchase Money Indebtedness" means any Indebtedness (other than the
Obligations) incurred at the time of or within 30 days prior to or after the
purchase or acquisition of any Equipment or Real Property solely for the purpose
of financing all or any part of the purchase price thereof and paying the
related acquisition or development costs, provided, however, that such
Indebtedness shall not exceed the fair market value of such fixed assets at the
time of their acquisition, plus sales and excise taxes, installation and
delivery charges, and other related expenses paid by or charged to Mountasia or
its Subsidiaries in connection with such acquisition, plus the costs and
expenses of development thereof.
"RBC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"RC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"RCC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Real Property" means any estates or interests in real property now
owned or hereafter acquired by any Debtor (including leasehold estates).
"Real Property Collateral" means the Real Property, including the
parcel or parcels of real property and the related improvements thereto
identified on Schedule R-1, and any Real Property hereafter acquired by
Borrower, including the Real Property proposed to be acquired by Borrower that
is located in Puente Hills, California.
"Reference Rate" means the variable rate of interest, per annum,
most recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate," irrespective of whether such announced
rate is the best rate available from such financial institution.
"Release Condition" means with respect to any Permitted Disposition
(other than an Ordinary Course Disposition) that (a) no Default or Event of
Default has occurred and is continuing or would result therefrom, (b) Borrower
is receiving at least fair value for the subject Equipment or Real Property, (c)
Borrower is selling, exchanging, or disposing of the subject Equipment or Real
Property and, following such sale, exchange, or other disposition, the subject
Equipment or Real Property is not to be the subject of a
-29-
<PAGE>
lease by Mountasia or any of its Subsidiaries and (d) the subject Equipment or
Real Property is not being sold to, exchanged with, or disposed of to, any
Affiliate of Mountasia or Hampstead.
"Relevant Measuring Period" means, with respect to September 30,
1996, the three months then ended, with respect to December 31, 1996, the six
months then ended, with respect to March 31, 1997, the nine months then ended,
and, with respect to any date thereafter, the twelve months then ended.
"Reportable Event" means any of the events described in Section
4043(c) of ERISA or the regulations thereunder other than a Reportable Event as
to which the provision of 30 days notice to the PBGC is waived under applicable
regulations.
"Required Amount" means, in connection with a Permitted Disposition,
the greater of (a) an amount equal to 75% of the Net Cash Proceeds received by
Borrower in connection with such Permitted Disposition, (b) an amount equal to
125% of the net book value (as of the most recently completed fiscal quarter) of
the Equipment or Real Property that is the subject of such Permitted
Disposition, or (c) if the Equipment or Real Property that is the subject of the
Permitted Disposition is a FunCenter or other operating unit of Borrower, an
amount equal to 3 times the Operating Cash Flow (prior to any overhead
allocation and for the 12 months ended as of Borrower's most recently completed
fiscal quarter) of such FunCenter or other operating unit.
"Restricted Subsidiary" shall mean any Subsidiary of Mountasia that
is not an Unrestricted Subsidiary.
"Retiree Health Plan" means an "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"SAC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"San Antonio" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"San Diego" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Santa Clarita" means Mountasia of Santa Clarita, L.P., a California
limited partnership.
-30-
<PAGE>
"Security" shall have the meaning set forth in Section 2(1) of the
Securities Act of 1933, as amended.
"Solvent" means, with respect to any Person on a particular date,
that on such date (a) at fair valuations, all of the properties and assets of
such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"Special" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Special Distribution Limit" means as of any date of determination
(a) if, as of such date, Net Recoveries are not more than $10,000,000, an amount
equal to 50% of Net Recoveries; and (b) if, as of such date, Net Recoveries are
more than $10,000,000, an amount equal to the sum of $5,000,000 plus 75% of such
excess.
"Stock Pledge Agreements" means the stock pledge agreements executed
and delivered by Mountasia and MGPC to Foothill with respect to the pledge of
the stock of their respective first-tier Subsidiaries, as required by Section
3.1.
"Subordinated Debt" means (a) the Existing Subordinated Debt, and
(b) the Future Subordinated Debt.
"Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors or appoint
other managers of such corporation, partnership, limited liability company, or
other entity.
-31-
<PAGE>
"Suit" means a lawsuit pending in a court, a formal arbitration
proceeding pending before an arbitrator, or any other comparable formal
adversary proceeding, but does not include mediation or settlement discussions
not involving such a formal proceeding.
"Tampa" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"TC" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Tempe" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Temporary Account" means account number 2320839090 of Mountasia
maintained with NationsBank, National Association (South), whose office is
located at 600 Peachtree Street, N.E., Atlanta, Georgia 30308.
"Ten Percent Debenture Conversion" means the conversion of all or
part of the Ten Percent Debentures to common stock of Borrower in accordance
with the conversion rights of the Ten Percent Debentures.
"Ten Percent Debentures" means the approximately $6,961,882
outstanding 10% Convertible Subordinated Debentures due January 31, 1998 in the
form heretofore provided by Mountasia to Foothill and certified to Foothill by
an Authorized Officer of Mountasia as being accurate and complete.
"Term Loans" means, collectively, Term Loan A and Term Loan B.
"Term Loan A" has the meaning set forth in Section 2.2.
"Term Loan A Commitment" means $12,500,000, as such amount may be
adjusted from time to time in accordance with the provisions of Section 2.2(b).
"Term Loan A Repayment Date" means the first date, if any, on which
Borrower prepays the principal balance of Term Loan A to zero so long as such
date occurs within 34 days of the Closing Date.
"Term Loan B" has the meaning set forth in Section 2.3.
-32-
<PAGE>
"Term Loan B Commitment" means, from and after the satisfaction of
the conditions precedent contained in Sections 3.2 and 3.3 and prior to the
making of Term Loan B, $5,000,000. Prior to the satisfaction of such conditions
precedent, and after the making of Term Loan B, the Term Loan B Commitment shall
equal zero.
"Trademark Security Agreements" means Trademark Security Agreements
executed and delivered by Mountasia and MGPC to Foothill, in form and substance
satisfactory to Foothill.
"Tucson" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Unfinanced Capital Expenditures" means Capital Expenditures of
Borrower other than those made directly (a) with the proceeds of Permitted
Purchase Money Indebtedness, (b) with the proceeds of insurance respecting
casualty losses to the extent applied to the repair or replacement of the
property affected by such casualty loss, (c) as part of a concurrent sale and
purchase of capital assets up to the amount of the net proceeds received from
the sale of the subject capital assets, (d) with proceeds of equity investments
made by Hampstead to the equity of Mountasia (which amounts are not used,
directly or indirectly, to make a Permitted Unrestricted Subsidiary Investments)
after the Closing Date, or (e) up to $30,000,000 in the aggregate.
"Unrestricted Subsidiary" means any Subsidiary of Mountasia that is
formed or acquired after the Closing Date in connection with the consummation of
a Permitted Acquisition and that (a) is designated as being an "Unrestricted
Subsidiary" in a writing delivered by Mountasia to Foothill at the time of such
formation or acquisition, (b) except as otherwise provided in the definition of
"Permitted Unrestricted Subsidiary Indebtedness," all of such Subsidiary's
liabilities are non-recourse to Mountasia or any Restricted Subsidiary, and (c)
no Affiliate of Mountasia (other than Hampstead) owns any capital stock (or
other interests) of such Subsidiary.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Willowbrook" means the FunCenter referred to as such on page 18 of
the Most Recent 10-K.
"Willowbrook Acquisition" means the proposed acquisition by
Mountasia of Willowbrook pursuant to the Willowbrook Acquisition Documents.
"Willowbrook Acquisition Documents" means (a) the Purchase and Sale
Agreement, between M.F.G. of Willowbrook, L.P., a Texas limited partnership
-33-
<PAGE>
("Willowbrook Partnership"), and Mountasia, dated as of January 1, 1996, and (b)
the Lease Agreement, between Willowbrook Partnership and Mountasia, dated as of
January 1, 1996, in the form heretofore provided by Mountasia to Foothill and
certified to Foothill by an appropriate officer of Mountasia as being accurate
and complete.
"Young World of Spartanburg Note" means that certain subordinated
promissory note with an outstanding balance of approximately $2,000,000 as of
the Closing Date, made by Mountasia in connection with Mountasia's acquisition
of the Spartanburg, South Carolina FunCenter, in the form heretofore provided by
Mountasia to Foothill and certified to Foothill by an appropriate officer of
Mountasia as being accurate and complete.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial statement, financial
covenant, or a related definition, it shall be understood to mean Borrower on a
consolidated basis unless the context clearly requires otherwise;
1.3 Code. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 Construction. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in writing by Foothill. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
1.5 Schedules and Exhibits. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
1.6 Restatement. This Agreement restates and replaces in its
entirety the Existing Loan Agreements; in the event of any conflict or
inconsistency between this Agreement and the Existing Loan Agreements, this
Agreement shall control in any and all events.
-34-
<PAGE>
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Advances") to Borrower in an amount at any
one time outstanding not to exceed the Maximum Revolving Amount. On the Closing
Date, a portion of the Existing Loans up to the Maximum Revolving Amount shall
be converted into Advances.
(b) Amounts borrowed pursuant to this Section 2.1 may be
repaid and, subject to the terms and conditions of this Agreement, reborrowed at
any time during the term of this Agreement.
(c) To the extent that any provision of the Loan Documents
expressly so provides, Foothill may from time to time create reasonable reserves
against Availability. Without limiting the generality of the foregoing, should
Borrower at any time be 30 days or more delinquent in the payment of Real
Property taxes or payroll taxes, Foothill may create and maintain reserves in
the estimated amounts of such delinquencies; provided, however, that Foothill
agrees to provide Borrower with 5 days prior notice before the imposition of any
such reserve and, during such 5 day period, Borrower shall not be able to
request Advances under Section 2.1 that would cause the amount of the
Availability less the proposed reserve to be less than $1.00.
2.2 Term Loan A. (a) On the Closing Date, a portion of the Existing
Loans shall be converted into a term loan (the "Term Loan A") in the original
principal amount of $12,500,000. The outstanding principal balance and all
accrued and unpaid interest under Term Loan A shall be due and payable upon the
earlier of (i) the Maturity Date, or (ii) the date of termination of this
Agreement, whether by its terms, by prepayment, by acceleration, or otherwise.
The unpaid principal balance of Term Loan A may be prepaid in whole or in part
without penalty or premium (except to the extent, if any, that the Exit Fee or
Early Termination Premium may be applicable) at any time during the term of this
Agreement upon 15 days (3 days in the case of the first such prepayment so long
as it occurs within 34 days of the Closing Date) prior written notice by
Borrower to Foothill; provided, however, that, subsequent to the Term Loan A
Repayment Date, any voluntary prepayment of Term Loan A shall be deemed to
constitute and shall result in a permanent termination of the remaining Term
Loan A Commitment. All amounts outstanding under Term Loan A shall constitute
Obligations. Any amount repaid with respect to Term Loan A may be reborrowed, in
one or more drawings, subject to the prior satisfaction of the conditions
contained in Sections 3.3 and 3.9.
-35-
<PAGE>
(b) Anything to the contrary in this Section 2.2 notwithstanding,
Borrower shall have the right, from time to time, but not more than 5 times
during the term of this Agreement, to reduce permanently the Term Loan A
Commitment. Borrower shall give Foothill not less than 15 days prior written
notice designating the date (which shall be a Business Day) of such reduction
and each such reduction shall be in an amount of not less than $50,000. Each
such reduction automatically shall be effective on the date specified in
Borrower's notice given in compliance hereunder.
2.3 Term Loan B. Subject to the prior satisfaction of the conditions
contained in Sections 3.2 and 3.3, Foothill has agreed to make a term loan (the
"Term Loan B") to Borrower in an original principal amount up to $5,000,000 on
or prior to December 31, 1996 (but not after) subject to the terms and
conditions set forth herein. The outstanding principal balance and all accrued
and unpaid interest under Term Loan B shall be due and payable upon the earlier
of (i) the Maturity Date, or (ii) the date of termination of this Agreement,
whether by its terms, by prepayment, by acceleration, or otherwise. The unpaid
principal balance of Term Loan B may be prepaid in whole or in part without
penalty or premium (except to the extent, if any, that the Exit Fee or Early
Termination Premium may be applicable) at any time during the term of this
Agreement upon 15 days prior written notice by Borrower to Foothill. All amounts
outstanding under Term Loan B shall constitute Obligations. Any amount repaid
with respect to Term Loan B may not be reborrowed.
2.4 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to Section 2.1 is greater than
the Dollar limitations set forth in Section 2.1 (an "Overadvance"), Borrower
immediately shall pay to Foothill, in cash, the amount of such excess to be used
by Foothill to repay Advances outstanding under Section 2.1.
2.5 Interest: Rates, Payments, and Calculations.
(a) Interest Rate. Except as provided in clause (b) below, (i)
all Obligations shall bear interest at a per annum rate of 1.5 percentage points
above the Reference Rate.
(b) Default Rate. From and after and during the continuation
of an Event of Default, all Obligations shall bear interest at a per annum rate
equal to 4.5 percentage points above the Reference Rate.
(c) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than 7% per annum. To the extent that
interest accrued hereunder at the rate set forth herein would be less than the
foregoing minimum
-36-
<PAGE>
daily rate, the interest rate chargeable hereunder for such day automatically
shall be deemed increased to the minimum rate.
(d) Payments. Interest hereunder shall be due and payable, in
arrears, on the first day of each month during the term hereof. Borrower hereby
authorizes Foothill, at its option, without prior notice to Borrower, to charge
such interest, all Foothill Expenses (as and when incurred), the fees and
charges provided for in Section 2.10 (as and when accrued or incurred), and all
installments or other payments due under the Term Loans, or any Loan Document to
Borrower's Loan Account, which amounts thereafter shall accrue interest at the
rate then applicable to Advances hereunder. Any interest not paid when due shall
be compounded and shall thereafter accrue interest at the rate then applicable
to Advances hereunder.
(e) Computation. The Reference Rate as of the date of this
Agreement is 8.25% per annum. In the event the Reference Rate is changed from
time to time hereafter, the applicable rate of interest hereunder automatically
and immediately shall be increased or decreased by an amount equal to such
change in the Reference Rate. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrower and Foothill, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; provided, however, that,
anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, ipso facto as of the date of this Agreement, Borrower is and shall be
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received, shall
be applied to reduce the principal balance of the Obligations to the extent of
such excess.
2.6 Collection of Accounts. Borrower shall, at all times after the
Closing Date, instruct all managers and other responsible personnel operating
each FunCenter to deposit all Collections in respect thereof at the close of
each day of business into deposit accounts maintained with depositary
institutions that have been notified of Foothill's security interest in such
deposit accounts. Borrower agrees that all Collections and other amounts
received by any Debtor from any source other than such Collections in respect of
the operation of FunCenters as soon as practicable upon receipt shall be
remitted (a) during the period from the Closing Date up to the date of the
satisfaction of the condition
-37-
<PAGE>
subsequent set forth in Section 3.4(g), to the Temporary Account, and (b) from
and after the date of the satisfaction of the condition subsequent set forth in
Section 3.4(g), to the Blocked Account. No Blocked Account Agreement or
arrangement contemplated thereby shall be modified by Borrower without the prior
written consent of Foothill. In accordance with Borrower's ordinary and
customary mode of business and prudent cash management practices, all
Collections deposited in any deposit account of any Debtor (other than the
Blocked Account) shall be transferred no less often than weekly into the
Temporary Account, or the Blocked Account, as applicable. Prior to the
occurrence of a Designated Event of Default, Borrower shall have unrestricted
access to the funds in such Temporary Account or Blocked Account, as applicable.
From and after the occurrence of a Designated Event of Default, all amounts
received in the Temporary Account or Blocked Account, as applicable,
automatically shall be wire transferred each Business Day into an account (the
"Foothill Account") maintained by Foothill at a depositary selected by Foothill.
2.7 Crediting Payments; Application of Collections. The receipt of
any Collections by Foothill immediately shall be applied provisionally to reduce
the Obligations outstanding under Section 2.1, but shall not be considered a
payment on account unless such Collection item is a wire transfer of immediately
available federal funds and is made to the Foothill Account or unless and until
such Collection item is honored when presented for payment. If, after applying
Collections to Obligations then due, a credit remains, and if no Event of
Default has occurred and is continuing, Foothill shall transfer such credit to
Borrower's Designated Account. From and after the Closing Date, Foothill shall
be entitled to charge Borrower for 3 Business Days of `clearance' or `float' at
the rate set forth in Section 2.5(a) or Section 2.5(b), as applicable, on all
Collections that are received by Foothill, or, without duplication, all
Collections that are deposited in any Blocked Account, or, without duplication,
all Collections that are deposited in the Temporary Account. This
across-the-board 3 Business Day clearance or float charge on all Collections is
acknowledged by the parties to constitute an integral aspect of the pricing of
Foothill's financing of Borrower, and shall apply irrespective of the
characterization of whether receipts are owned by Borrower or Foothill, whether
they are remitted to the Foothill Account, and whether or not there are any
outstanding Advances, the effect of such clearance or float charge being the
equivalent of charging 3 Business Days of interest on such Collections. Should
any Collection item not be honored when presented for payment, then Borrower
shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any Collection item shall be deemed received by Foothill only
if it is received into the Foothill Account on a Business Day on or before 11:00
a.m. Los Angeles time. If any Collection item is received into the Foothill
Account on a non-Business Day or after 11:00 a.m. Los Angeles time on a Business
Day, it shall be deemed to have been received by Foothill as of the opening of
business on the immediately following Business Day.
-38-
<PAGE>
2.8 Borrower's Designated Account. Foothill is authorized to make
the Advances and the Term Loans under this Agreement based upon written
instructions sent in accordance with Section 12 from anyone purporting to be an
Authorized Officer of Borrower, or without instructions if pursuant to Section
2.5(d). Foothill shall incur no liability to Borrower in acting upon any such
written instructions that Foothill believes in good faith to have been given by
an Authorized Officer and in making any Advance or other loan in accordance with
this Agreement pursuant to any such written notice. Any such written
instructions shall be irrevocable and Borrower shall be bound to make a
borrowing in accordance therewith. Borrower agrees to establish and maintain
Borrower's Designated Account with Borrower's Designated Account Bank for the
purpose of receiving the proceeds of the Advances requested by Borrower and made
by Foothill hereunder. Unless otherwise agreed by Foothill and Borrower, any
Advance requested by Borrower and made by Foothill hereunder shall be made to
Borrower's Designated Account. Even though Borrower's Designated Account is in
the name of Mountasia and is managed by Mountasia, any Advances and Term Loans
shall be for the benefit and for the account of each and every Debtor, as
co-obligors, and each Debtor hereby appoints Mountasia as its agent, and
Mountasia hereby agrees to act as such, for purposes of dealing with the
proceeds of any Term Loans or Advances. Foothill shall have no responsibility
with respect to the allocation of the proceeds of either of the Term Loans or
Advances as among Debtors, and each Debtor acknowledges that it is obligated
with respect to all the Obligations without regard to which Debtor actually
receives or uses the proceeds of either of the Term Loans or Advances. The
Debtors are an integrated operation and each Debtor acknowledges that it will
receive direct and indirect benefits from the co-borrowing arrangement provided
for herein, which is being provided by Foothill at the request of each Debtor
and as an accommodation to all of the Debtors.
2.9 Maintenance of Loan Account; Statements of Obligations. Foothill
shall maintain an account on its books in the name of Borrower (the "Loan
Account") on which Borrower will be charged with all Advances and the Term Loans
made by Foothill to Borrower or for Borrower's account, including, accrued
interest, Foothill Expenses, and any other payment Obligations of Borrower. In
accordance with Section 2.7, the Loan Account will be credited with all payments
received by Foothill from Borrower or for Borrower's account, including all
amounts received in the Foothill Account from any Blocked Account Bank. Foothill
shall render statements regarding the Loan Account to Borrower, including
principal, interest, fees, and including an itemization of all charges and
expenses constituting Foothill Expenses owing, and such statements, absent
manifest error, shall be conclusively presumed to be correct and accurate and
constitute an account stated between Borrower and Foothill unless, within 60
days after receipt thereof by Borrower, Borrower shall deliver to Foothill by
registered or certified mail at its address specified in Section 12, written
objection thereto describing the error or errors contained in any such
statements.
-39-
<PAGE>
2.10 Fees. Borrower shall pay to Foothill the following fees:
(a) Exit Fee. On the earlier of the Maturity Date or the
effective date of termination of this Agreement under Section 3.7 or 3.8, an
exit fee of $475,000 ("Exit Fee"), which is fully earned and non-refundable from
and after the Closing Date, but shall not commence to bear interest until the
date that it first becomes payable.
(b) Term Loan B Fee. On the date, if such date occurs, that
Borrower receives written notice from Lender that the condition set forth in
Section 3.2(c) has been satisfied, or waived by Foothill in its sole discretion,
a fully earned and non-refundable fee of $50,000;
(c) Unused Commitment Fee. (i) On the first day of each month
during the term of this Agreement, an unused commitment fee in an amount equal
to 0.5% per annum times the Average Unused Portion of the Maximum Revolving
Amount, plus (ii) on the first day of each month during the term of this
Agreement occurring on and after the Term Loan A Repayment Date, an unused
commitment fee in an amount equal to 0.5% per annum times the Average Unused
Portion of the Term Loan A Commitment;
(d) Financial Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of $650 per day per examiner, plus out-of-pocket
expenses for each financial analysis and examination (i.e., audits) of Borrower
performed by personnel employed by Foothill; Foothill's customary appraisal fee
of $1,500 per day per appraiser, plus out-of-pocket expenses for each appraisal
of the Collateral performed by personnel employed by Foothill; and, the actual
charges paid or incurred by Foothill if it elects to employ the services of one
or more third Persons to perform such financial analyses and examinations (i.e.,
audits) of Borrower or to appraise the Collateral; and, on each anniversary of
the Closing Date, a fee of $5,000 per year for legal loan documentation review;
and
(e) Servicing Fee. On the first day of each month during the
term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to $5,000.
2.11 Purchase of Loans of Existing Lender Not Deemed Repayment;
Assumption of Such Purchased Loans by Each Debtor; Allocation of Obligations on
Closing Date. To the extent that Foothill advances funds on the Closing Date to
the Existing Lender pursuant to the Loan Purchase Agreement in an amount equal
to the Assigned Amount (as defined in the Loan Purchase Agreement), such
advances shall constitute a purchase of the existing claims of the Existing
Lender by Foothill, as thereafter
-40-
<PAGE>
restated hereby, and shall not constitute a repayment of such claims. Upon being
purchased by Foothill from the Existing Lender on the Closing Date, such claims
in an amount equal to the Assigned Amount shall become an Obligation of the
Borrower hereunder, and each Debtor hereby expressly assumes and agrees to be
bound by such Obligations as a co-obligor (even if such Debtor previously was
liable as a guarantor or in some other capacity, or even not at all), such that
the liability of Borrower shall be as if Foothill made a loan to Borrower in the
Assigned Amount on the Closing Date. The intention of the parties is to preserve
the continuity of the original loans made by the Existing Lender, as acquired by
Foothill and restated hereby, and not to effect a repayment thereof. The parties
acknowledge that, on the Closing Date, in addition to acquiring claims in an
amount equal to the Assigned Amount, Foothill may make additional loans or
advances. The sum total of Obligations to Foothill incurred on the Closing Date
(whether with respect to purchased claims, or with respect to supplemental loans
or advances made by Foothill) shall be allocated, first, to Term Loan A until it
is fully disbursed and, thereafter, to Advances under Section 2.1.
2.12 Mandatory Prepayments. Immediately upon receipt by Borrower of
Net Cash Proceeds of any Permitted Disposition (other than an Ordinary Course
Disposition), Borrower shall (a) prepay Term Loan A in an amount equal to the
Required Amount applicable to such Permitted Disposition and the amount so
prepaid automatically shall reduce the Term Loan A Commitment, on a
dollar-for-dollar basis, (b) if Term Loan A has been repaid or prepaid in full,
prepay Term Loan B in an amount equal to the Required Amount applicable to such
Permitted Disposition (or the balance remaining after the prepayment of Term
Loan A pursuant to clause (a) above, as applicable), and the amount so prepaid
automatically shall reduce the Term Loan A Commitment, if any, on a
dollar-for-dollar basis and, thereafter, the Term Loan B Commitment, if any, on
a dollar-for-dollar basis, and (c) if Term Loan A and Term Loan B have been
repaid or prepaid in full, prepay the Advances made by Foothill to Borrower
under Section 2.1 in an amount equal to the Required Amount applicable to such
Permitted Disposition (or the balance remaining after the prepayment of Term
Loan A pursuant to clause (a) above or the prepayment of Term Loan B pursuant to
clause (b) above, as applicable), and the amount so prepaid automatically shall
reduce the Term Loan A Commitment, if any, on a dollar-for-dollar basis and,
thereafter, the Term Loan B Commitment, if any, on a dollar-for-dollar basis
and, thereafter the Maximum Revolving Amount, on a dollar-for-dollar basis.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Initial Advance and Term Loan A. The
obligation of Foothill to make the initial Advance and to make Term Loan A is
subject to the fulfillment, to the satisfaction of Foothill and its counsel, of
each of the following conditions on or before the Closing Date:
-41-
<PAGE>
(a) the Closing Date shall occur on or before August 23, 1996;
(b) Foothill shall have received searches reflecting the
filing of its financing statements and fixture filings;
(c) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
i) the Disbursement Letter;
ii) the Loan Purchase Agreement, together with UCC
assignments, Real Property Collateral assignments and
other documentation evidencing, among other things, the
assignment to Foothill by Existing Lender of the
Existing Loans and all of its Liens in and to the
properties and assets of Borrower, and together with the
originals of all of the loan documents being assigned
thereby;
iii) the Mortgages; and
iv) the Trademark Security Agreements;
(d) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution, delivery, and performance of this Agreement
and the other Loan Documents to which Borrower is a party and authorizing
specific officers of Borrower to execute the same;
(e) Foothill shall have received copies of Borrower's
Governing Documents, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower;
(f) Foothill shall have received a certificate of status with
respect to Borrower, dated within 10 days of the Closing Date, by the
appropriate officer of the jurisdiction of organization of Borrower, which
certificate shall indicate that Borrower is in good standing in such
jurisdiction;
(g) Foothill shall have received certificates of status with
respect to Borrower, each dated within 15 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions in
which its failure to be duly qualified or
-42-
<PAGE>
licensed would have a Material Adverse Change, which certificates shall indicate
that Borrower is in good standing in such jurisdictions;
(h) Foothill shall have received a certificate of insurance,
together with the endorsements thereto, as are required by Section 6.10, the
form and substance of which shall be satisfactory to Foothill and its counsel;
(i) [Intentionally omitted];
(j) The terms and conditions of the Nine Percent Debentures,
the Ten Percent Debentures, and the NEF Debentures, in each case as in effect on
the Closing Date and giving effect to any prior or concurrent amendments thereof
or exchanges thereof, shall be satisfactory to Foothill, and any and all
defaults under the Nine Percent Debentures shall have been cured or waived;
(k) Foothill shall have received opinions of Borrower's
counsel in form and substance satisfactory to Foothill in its sole discretion;
(l) Foothill shall have received (i) appraisals of the Real
Property Collateral and appraisals of the Equipment, in each case satisfactory
to Foothill, and (ii) mortgagee title insurance policies or assignments of the
insured's interest therein (or marked commitments to issue the same) for the
Real Property Collateral issued by a title insurance company satisfactory to
Foothill (each a "Mortgage Policy" and, collectively, the "Mortgage Policies")
in amounts satisfactory to Foothill assuring Foothill that the Mortgages on such
Mortgaged Properties are valid and enforceable first priority mortgage Liens on
such Mortgaged Properties free and clear of all defects and encumbrances except
Permitted Liens, and the Mortgage Policies shall otherwise be in form and
substance reasonably satisfactory to Foothill;
(m) Foothill shall have received a phase-I environmental
report (and tank testing report) and a real estate survey shall have been
completed with respect to the Real Property Collateral and copies thereof
delivered to Foothill; the environmental consultants and surveyors retained for
such reports or surveys, the scope of the reports or surveys, and the results
thereof shall be acceptable to Foothill in its sole discretion;
(n) Foothill shall have received satisfactory evidence that
all returns required to be filed by Borrower have been timely filed and all
taxes upon Borrower or its properties, assets, income, and franchises (including
Real Property taxes and payroll taxes) have been paid prior to delinquency,
except such taxes that are the subject of a Permitted Protest;
-43-
<PAGE>
(o) Foothill shall have received, reviewed and approved
financial projections for the Borrower for the calendar years of 1996 including
the detail relating to the projected performance of individual FunCenter
operations and budgeted performance of FunCenters open less than 12 months;
(p) Foothill shall have received satisfactory evidence that
Borrower has addressed all outstanding property tax defaults and issues,
together with the ability to report monthly the currency of the Real Property
and all employee payroll taxes, each to the reasonable satisfaction of Foothill;
(q) [Intentionally omitted];
(r) [Intentionally omitted];
(s) Foothill shall be satisfied that the NEF Acquisition shall
have been consummated prior to or upon the Closing Date, and shall have received
certified true and complete copies of all documents executed and delivered in
connection therewith;
(t) to the extent that any defined term herein requires that
Foothill have received copies of documents certified as being true and correct
prior to the Closing Date, Foothill shall have received such copies so certified
sufficiently in advance of the Closing Date as to have had a reasonable
opportunity to review same;
(u) Mountasia shall have pledged to Foothill, to secure its
Obligations, 100% of the issued and outstanding capital stock (or other
interests) of each of its first-tier Subsidiaries, pursuant to a pledge
agreement satisfactory to Foothill, and shall have delivered to Foothill the
original stock certificates evidencing same together with duly executed stock
powers with respect thereto in form satisfactory to Foothill;
(v) MGPC shall have pledged to Foothill, to secure its
Obligations, 100% of the issued and outstanding capital stock (or other
interests) of each of its first-tier Subsidiaries, pursuant to a pledge
agreement satisfactory to Foothill, and shall have delivered to Foothill the
original stock certificates evidencing same together with duly executed stock
powers with respect thereto in form satisfactory to Foothill;
(w) Hampstead, prior to the consummation of the purchase by
Foothill from Hampstead of Hampstead's claims against Borrower, shall have
converted all indebtedness owed to Hampstead by Borrower in excess of
$20,000,000 to common equity of Mountasia, and Foothill shall have received
satisfactory written evidence of such conversion;
-44-
<PAGE>
(x) Hampstead shall have contributed to the common equity of
Mountasia an amount, in cash, of not less than $40,000,000 less the amount of
Indebtedness converted to common equity as described in the immediately
preceding paragraph, and Foothill shall have received satisfactory written
evidence of such conversion;
(y) each of the Houston Note and the Young World of
Spartanburg Note shall have been fully repaid and discharged, any Liens securing
either of same shall have been released (or the holders thereof shall have
contractually obligated themselves to release such Liens), and Foothill shall
have received satisfactory written evidence of the foregoing;
(z) [Intentionally omitted];
(aa) Foothill shall have received a copy of the executed
letter of intent relative to Borrower's proposed purchase of the Real Property
on which Borrower operates its FunCenter located in Puente Hills, California,
such agreement to be certified by an appropriate officer of Borrower as being
true and complete;
(ab) Foothill shall have received a copy of the executed
Service Agreement between Hampstead and Mountasia, such agreement to be in form
and substance satisfactory to Foothill and to be certified by an appropriate
officer of Borrower as being true and complete;
(ac) on the Closing Date, Foothill shall have received from
Borrower a pro forma consolidated opening balance sheet of Mountasia, giving
effect to all of the transactions enumerated in this Agreement that are to be
completed on or before the Closing Date and the making of the initial Advance
and Term Loan A, the form and substance of which shall be satisfactory to
Foothill; and
(ad) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to Foothill
and its counsel.
3.2 Conditions Precedent to Term Loan B. The obligation of Foothill
to make Term Loan B is subject to the fulfillment, to the satisfaction of
Foothill and its counsel, of each of the following conditions on or before
December 31, 1996:
(a) Borrower shall have provided Foothill with a written
request to fund Term Loan B;
-45-
<PAGE>
(b) [Intentionally omitted];
(c) Foothill shall have received either (i) the required
approval of Norwest Corporation to fund Term Loan B (it being understood by
Borrower that Foothill has not approached Norwest Corporation for such approval
and that there can be no assurance that Norwest Corporation will grant such
approval, although Foothill acknowledges its obligation to request such approval
in accordance with the provisions of Section 15.10 hereof), or (ii) binding
commitments in an aggregate amount of $5,000,000, or greater, from Participants,
each on terms and conditions acceptable to Foothill;
(d) Borrower previously or contemporaneously shall have
completed the Willowbrook Acquisition in accordance with the terms and
conditions of the Willowbrook Acquisition Documents;
(e) Foothill shall receive (i) subject to receiving, if
required, the consent of the existing secured lender respecting Willowbrook
(which consent Borrower shall use its reasonable best efforts to obtain), a
perfected second priority Lien on all assets associated with Willowbrook, real
and personal, pursuant to security documents satisfactory to Foothill, junior
only to a prior Lien in favor of the existing secured lender of approximately
$1,500,000 of aggregate principal amount, and (ii) mortgagee title insurance
policy (or a marked commitment to issue the same) for the Real Property
Collateral associated with Willowbrook issued by a title insurance company
satisfactory to Foothill in an amount satisfactory to Foothill assuring Foothill
that the Mortgage on such property creates a valid and enforceable first
priority mortgage Lien on such property free and clear of all defects and
encumbrances except Permitted Liens, and such mortgage policy or commitment
shall otherwise be in form and substance reasonably satisfactory to Foothill;
and
(f) any conditions subsequent provided for in Section 3.4 that
are due to have been satisfied shall have been satisfied as Foothill may
determine in its sole discretion.
3.3 Conditions Precedent to all Advances and the Term Loans. The
following shall be conditions precedent to all Advances and the making of each
of the Term Loans hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all respects
on and as of the date of such extension of credit, as though made on and as of
such date (except to the extent that such representations and warranties relate
solely to an earlier date);
-46-
<PAGE>
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof; and
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any governmental authority against
Borrower, Foothill, or any of their Affiliates.
3.4 Conditions Subsequent. As conditions subsequent to initial
closing hereunder, Borrower shall perform or cause to be performed the following
(the failure by Borrower to so perform or cause to be performed constituting an
Event of Default hereunder):
(a) within 30 days following the Closing Date, deliver to Foothill
the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by Section 6.10, the form and substance of
which shall be satisfactory to Foothill and its counsel;
(b) to the extent that Foothill closes without satisfaction on or
before the Closing Date of any condition precedent pertaining to Real Property
(including assignments of leasehold estates), such condition precedent shall not
be waived and automatically shall become a condition subsequent that Borrower
shall use its reasonable best efforts to complete as soon as practicable
following the Closing Date;
(c) within 60 days following the Closing Date, deliver to Foothill
Collateral Access Agreements from the lessors with respect to Borrower's
headquarters location in Alpharetta, Georgia, and its Warner Center location in
Woodland Hills, California;
(d) within 60 days following the Closing Date, deliver to Foothill
evidence that Borrower has obtained business interruption insurance, the terms
and conditions of the insurance policy regarding such insurance to be
satisfactory to Foothill;
(e) within 60 days following the Closing Date, deliver to Foothill
evidence that Borrower has increased the amount of its combined single limit
bodily injury and property damage insurance to $20,000,000, the terms and
conditions of the insurance policy regarding such insurance to be satisfactory
to Foothill;
(f) within 60 days following the Closing Date, either (i) the
approximately $1,500,000 Indebtedness of Santa Clarita to Mountasia shall have
been restructured on
-47-
<PAGE>
terms and conditions satisfactory to Foothill, such restructured Indebtedness
shall have been evidenced by a negotiable promissory note made by Santa Clarita
to the order of Mountasia, and such promissory note shall have been endorsed and
negotiated by Mountasia to Foothill, as a holder in due course, in order to
secure the Obligations, (ii) the approximately $1,500,000 Indebtedness of Santa
Clarita to Mountasia shall have been exchanged by Mountasia for additional
partnership interests in Santa Clarita, which such additional partnership
interests shall have been hypothecated by Mountasia in favor of Foothill in
order to secure the Obligations, or (iii) Mountasia shall institute and
diligently prosecute proceedings designed to effect the collection of the
approximately $1,500,000 of Indebtedness of Santa Clarita to Mountasia; and
(g) within 45 days following the Closing Date, (i) enter into a
Blocked Account Agreement with a Blocked Account Bank, (ii) irrevocably instruct
the bank at which the Temporary Account is maintained to remit all Collections
received in such account directly to the Blocked Account, and (iii) irrevocably
instruct any depositary institution with which any deposit account of any Debtor
(other than the Blocked Account) is maintained to remit all Collections received
in such accounts to the Blocked Account. During the period from and after the
Closing Date up to the date on which the foregoing conditions are satisfied,
Borrower shall telecopy to Foothill an account activity statement with respect
to all Collections received in the Temporary Account as often as Collections are
received in the Temporary Account, but in any event no less frequently than once
per week.
3.5 Term. This Agreement shall become effective upon the execution
and delivery hereof by Borrower and Foothill, without regard to whether Borrower
has satisfied or thereafter satisfies the conditions precedent to Foothill's
obligation to lend, and without regard to whether, when, or if the Closing Date
occurs, and shall continue in full force and effect for a term ending on the
Maturity Date. The foregoing notwithstanding, Foothill shall have the right to
terminate its obligations under this Agreement immediately and without notice
upon the occurrence and during the continuation of an Event of Default.
3.6 Effect of Termination. On the date of termination of this
Agreement, all Obligations immediately shall become due and payable without
notice or demand. No termination of this Agreement, however, shall relieve or
discharge Borrower of Borrower's duties, Obligations, or covenants hereunder,
and Foothill's continuing security interests in the Collateral shall remain in
effect until all Obligations have been fully and finally discharged and
Foothill's obligation to provide additional credit hereunder is terminated.
3.7 Early Termination by Borrower. Borrower has the option, at any
time upon 45 days prior written notice to Foothill, to terminate this Agreement
by paying
-48-
<PAGE>
to Foothill, in cash, the Obligations, in full, together with a premium (the
"Early Termination Premium") equal to $50,000 (which amount shall be in addition
to the Exit Fee that is then due and payable).
3.8 Termination Upon Event of Default. If Foothill terminates this
Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the early termination
and Borrower agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.8 shall
be deemed included in the Obligations.
3.9 Conditions Precedent to Re-Advancing Term Loan A or any Portion
Thereof. The obligation of Foothill to readvance any portion of Term Loan A
shall be subject to the fulfillment, to the satisfaction of Foothill and its
counsel, of each of the following conditions:
(a) the aggregate amount of re-advances under Term Loan A
shall not exceed $12,500,000 (i.e., Term Loan A may only be re-borrowed once in
the aggregate), and the aggregate outstanding principal balance of Term Loan A
shall not at any time exceed the Term Loan A Commitment;
(b) each drawing with respect to re-advances under Term Loan A
shall be in a minimum amount of $50,000;
(c) Foothill shall have received from Borrower not less than 3
Business Days prior written notice of Borrower's request for such re-advance,
specifying the requested amount and date of such re-advance;
(d) Borrower shall have executed and delivered to Foothill any
Mortgage amendments deemed necessary by Foothill to clarify that each such
re-advance is secured by the Mortgages and to permit the obtaining of
appropriate title insurance endorsements;
(e) Foothill shall have obtained, at the expense of Borrower,
endorsements to its policies of title insurance with respect to the Mortgages
and the Real Property Collateral, "down-dating" such policies, and insuring the
continuing priority of
-49-
<PAGE>
Foothill's Lien under the Mortgages, as amended, to secure the Obligations
secured thereby including such re-advances, the form of such endorsements to be
acceptable to Foothill;
(f) any and all mortgage recording taxes, documentary stamp
taxes, intangibles taxes, and other tax obligations arising as a result of the
making of such re-advances, or the execution, delivery, or recordation of any
Mortgage amendments in connection therewith, shall have been paid by Borrower;
(g) the Term Loan A Prepayment Date shall have occurred;
(h) [Intentionally omitted]; and
(i) any conditions subsequent provided for in Section 3.4 that
are due to have been satisfied shall have been satisfied or waived by Foothill
in its sole discretion.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants to Foothill a
continuing security interest in all currently existing and hereafter acquired or
arising Personal Property Collateral in order to secure prompt repayment of any
and all Obligations and in order to secure prompt performance by Borrower of
each of its covenants and duties under the Loan Documents. Foothill's security
interests in the Personal Property Collateral shall attach to all Personal
Property Collateral without further act on the part of Foothill or Borrower.
Anything contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for Permitted Dispositions, Borrower has no authority,
express or implied, to dispose of any item or portion of the Personal Property
Collateral or the Real Property Collateral.
4.2 Negotiable Collateral. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately upon the request of Foothill, shall endorse and deliver
physical possession of such Negotiable Collateral to Foothill.
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral. Except as otherwise set forth below, at any time, Foothill or
Foothill's designee may (a) notify customers or Account Debtors of Borrower that
the Accounts, General Intangibles, or Negotiable Collateral have been assigned
to Foothill or that Foothill has a security interest therein, and (b) collect
the Accounts, General Intangibles, and Negotiable Collateral directly and charge
the collection costs and expenses to the Loan Account. Borrower agrees that it
will hold in trust for Foothill, as Foothill's trustee, any
-50-
<PAGE>
Collections that it receives and immediately will deliver said Collections to
Foothill in their original form as received by Borrower. The foregoing
notwithstanding, unless an Event of Default has occurred and is continuing or
Suit has been commenced and is continuing with respect thereto, Foothill shall
not notify any Designated Obligor that any Designated Claim has been assigned to
Foothill, and, unless an Event of Default has occurred and is continuing,
Foothill shall not directly collect any Designated Claim from a Designated
Obligor.
4.4 Delivery of Additional Documentation Required. At any time upon
the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
Foothill reasonably may request, in form satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the Collateral, and in
order to fully consummate all of the transactions contemplated hereby and under
the other the Loan Documents. In addition, and without limiting the generality
of the foregoing, (a) Borrower acknowledges and agrees that, subject to the
provisos in the definitions of "Collateral," "Permitted Mountasia Acquisition,"
and "Permitted Unrestricted Subsidiary Acquisition," Foothill shall be entitled,
at Foothill's sole option, to have a Lien on all present or future, now owned or
hereafter acquired, Real Property of Borrower (including FunCenters acquired or
developed after the Closing Date), or any part thereof, even though Foothill may
not have obtained a Lien on some of the Real Property as of the Closing Date for
various reasons (including practical considerations), and Foothill's failure to
have obtained a Lien on any Real Property on the Closing Date shall not
constitute a waiver of its right to request and obtain such a Lien thereafter
(provided that such decision shall be at the sole option of Foothill), and, (b)
if at any time Foothill asks any Debtor to transfer any Real Property to any
other Debtor of which such transferor Debtor is a Subsidiary, such transferor
Debtor will do so if it may lawfully do so, will execute and deliver any
documents of transfer reasonably requested by Foothill, and will use its best
efforts to obtain any consents of third parties (such as lessors) that may be
necessary or advisable in connection therewith.
4.5 Power of Attorney. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to (a) at any time that an Event of Default has occurred and is
continuing, if Borrower refuses to, or fails timely to execute and deliver any
of the documents described in Section 4.4, sign the name of Borrower on any of
the documents described in Section 4.4, (b) at any time that an Event of Default
has occurred and is continuing, sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against Account Debtors, schedules and
assignments
-51-
<PAGE>
of Accounts, verifications of Accounts, and notices to Account Debtors, (c) at
any time than an Event of Default has occurred and is continuing or Foothill
deems itself insecure, send requests for verification of Accounts, (d) endorse
Borrower's name on any Collection item that may come into Foothill's possession,
(e) at any time that an Event of Default has occurred and is continuing, notify
the post office authorities to change the address for delivery of Borrower's
mail to an address designated by Foothill, to receive and open all mail
addressed to Borrower, and to retain all mail relating to the Collateral and
forward all other mail to Borrower, (f) at any time that an Event of Default has
occurred and is continuing, make, settle, and adjust all claims under Borrower's
policies of insurance and make all determinations and decisions with respect to
such policies of insurance, and (g) at any time that an Event of Default has
occurred and is continuing, settle and adjust disputes and claims respecting the
Accounts directly with Account Debtors, for amounts and upon terms that Foothill
determines to be reasonable, and Foothill may cause to be executed and delivered
any documents and releases that Foothill determines to be necessary. The
appointment of Foothill as Borrower's attorney, and each and every one of
Foothill's rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully and finally repaid and performed
and Foothill's obligation to extend credit hereunder is terminated.
4.6 Right to Inspect. Prior to the time that an Event of Default has
occurred and is continuing or Foothill deems itself insecure (in accordance with
Section 1208 of the Code), Foothill (through any of its officers, employees, or
agents) shall have the right, from time to time hereafter upon prior
notification to Borrower and during normal business hours, to inspect Borrower's
Books and to check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral. After the time that an Event of
Default has occurred and is continuing or Foothill deems itself insecure (in
accordance with Section 1208 of the Code), Foothill (through any of its
officers, employees, or agents) shall have the right, from time to time
hereafter during reasonable business hours, to inspect Borrower's Books and to
check, test, and appraise the Collateral in order to verify Borrower's financial
condition or the amount, quality, value, condition of, or any other matter
relating to, the Collateral.
4.7 Quitclaim. Each Inactive Subsidiary hereby transfers, assigns,
and quitclaims to Mountasia all of its right, title, and interest in and to any
personal property of any type or nature whatsoever, including all Personal
Property Collateral. This Section 4.7 is not applicable with respect to any Real
Property.
-52-
<PAGE>
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, Borrower
makes the following representations and warranties which shall be true, correct,
and complete in all respects as of the date hereof, and shall be true, correct,
and complete in all respects as of the Closing Date, and at and as of the date
of the making of each Advance and Term Loans made thereafter, as though made on
and as of the date of such Advance or Term Loans (except to the extent that such
representations and warranties relate solely to an earlier date) and such
representations and warranties shall survive the execution and delivery of this
Agreement:
5.1 No Encumbrances. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens except for Permitted Liens.
5.2 Equipment. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
5.3 Location of Inventory and Equipment. The Inventory and Equipment
are not stored with a bailee, warehouseman, or similar party (without Foothill's
prior written consent) and are located only at the locations identified (on a
Debtor-by-Debtor basis) on Schedule 6.12 or otherwise permitted by Section 6.12.
5.4 Inventory Records. Borrower keeps correct and accurate records
with respect to its Inventory, to the extent that it has any Inventory.
5.5 Location of Chief Executive Office; FEIN. The chief executive
office of Borrower is located at the address indicated in the preamble to this
Agreement and each Debtor's FEIN is as indicated on Schedule 5.5.
5.6 Due Organization and Qualification; Subsidiaries.
(a) Each Debtor is duly incorporated and existing and in good
standing under the laws of the jurisdiction of its incorporation (or, in the
case of the one Subsidiary that is a limited partnership, formation and
organization) and qualified and licensed to do business in, and in good standing
in, any state where the failure to be so licensed or qualified reasonably could
be expected to have a Material Adverse Change.
(b) Set forth on Schedule 5.6 attached hereto is a complete
and accurate list of Mountasia's direct and indirect Subsidiaries, showing: (i)
the jurisdiction of their incorporation (or, in the case of the one Subsidiary
that is a limited partnership, formation and organization); (ii) the number of
shares of each class of common and
-53-
<PAGE>
preferred stock authorized for each of such Subsidiaries (or, in the case of the
one Subsidiary that is a limited partnership, the authorized partnership
interests that exist); and (iii) the number and the percentage of the
outstanding shares of each such class owned directly or indirectly by any Debtor
(specifying which Debtor or Debtors own same) (or, in the case of the one
Subsidiary that is a limited partnership, corresponding information as to which
Debtor or Debtors own which partnership interests therein). All of the
outstanding capital stock or partnership interests of each such Subsidiary have
been validly issued and are fully paid and non-assessable. Mountasia, directly
or indirectly, owns not less than 23.2% of the partnership interests in Santa
Clarita.
(c) Except as set forth on Schedule 5.6 attached hereto, no
capital stock or partnership interests (or any securities, instruments,
warrants, options, purchase rights, conversion or exchange rights, calls,
commitments or claims of any character convertible into or exercisable for
capital stock or partnership interests) of any Debtor is subject to the issuance
of any security, instrument, warrant, option, purchase right, conversion or
exchange right, call, commitment or claim of any right, title, or interest
therein or thereto.
(d) As to each Inactive Subsidiary: It does not own any
property or assets of any consequential value (after giving effect to any
transfers being made by it on the Closing Date), does not currently engage in
any business, and does not intend in the future to engage in any business.
5.7 Due Authorization; No Conflict.
(a) The execution, delivery, and performance by Borrower of
this Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by Borrower of
this Agreement and the Loan Documents to which it is a party do not and will not
(i) violate any provision of federal, state, or local law or regulation
(including Regulations G, T, U, and X of the Federal Reserve Board) applicable
to Borrower, the Governing Documents of Borrower, or any order, judgment, or
decree of any court or other Governmental Authority binding on Borrower, (ii)
conflict with, result in a breach of, or constitute (with due notice or lapse of
time or both) a default under any material contractual obligation or material
lease of Borrower, (ii) result in or require the creation or imposition of any
Lien of any nature whatsoever upon any properties or assets of Borrower, other
than Permitted Liens, or (iv) require any approval of stockholders or any
approval or consent of any Person under any material contractual obligation of
Borrower.
-54-
<PAGE>
(c) Other than the filing of appropriate financing statements
(and assignments thereof), fixture filings (and assignments thereof), and
Mortgages (and assignments thereof), the execution, delivery, and performance by
Borrower of this Agreement and the Loan Documents to which Borrower is a party
do not and will not require any registration with, consent, or approval of, or
notice to, or other action with or by, any federal, state, foreign, or other
Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to which Borrower is
a party, and all other documents contemplated hereby and thereby, when executed
and delivered by Borrower will be the legally valid and binding obligations of
such Debtor, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors' rights generally.
(e) The Liens granted by Borrower to Foothill in and to its
properties and assets pursuant to this Agreement and the other Loan Documents
are validly created, perfected, and first priority Liens, subject only to
Permitted Liens.
5.8 Litigation. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and Borrower does not
have knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower or any guarantor of the Obligations, except for: (a) ongoing
collection matters in which Borrower is the plaintiff; (b) matters disclosed on
Schedule 5.8; and (c) matters arising after the date hereof that, if decided
adversely to Borrower, would not have a Material Adverse Change.
5.9 No Material Adverse Change. All financial statements relating to
Borrower or any guarantor of the Obligations that have been delivered by
Borrower to Foothill have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit adjustments) and, except for potential restatements
relating to Columbus or Willowbrook not affecting Borrower's cash flow, and
except for any non-cash investment asset writedowns by Borrower that occur after
June 30, 1996 as a result of compliance with Financial Accounting Standard No.
121, fairly present Borrower's (or such guarantor's, as applicable) financial
condition as of the date thereof and Borrower's results of operations for the
period then ended. There has not been a Material Adverse Change with respect to
Borrower (or such guarantor, as applicable) since the date of the latest
financial statements submitted to Foothill on or before the Closing Date.
-55-
<PAGE>
5.10 Solvency. Borrower is Solvent. No transfer of property is being
made by Borrower and no obligation is being incurred by Borrower in connection
with the transactions contemplated by this Agreement or the other Loan Documents
with the intent to hinder, delay, or defraud either present or future creditors
of Borrower.
5.11 Employee Benefits. None of Borrower, any of its Subsidiaries,
or any of their ERISA Affiliates maintains or contributes to any Benefit Plan.
Borrower, each of its Subsidiaries and each ERISA Affiliate have satisfied the
minimum funding standards of ERISA and the IRC with respect to each Benefit Plan
to which it is obligated to contribute. No ERISA Event has occurred nor has any
other event occurred that may result in an ERISA Event that reasonably could be
expected to result in a Material Adverse Change. None of Borrower or its
Subsidiaries, any ERISA Affiliate, or any fiduciary of any Plan is subject to
any direct or indirect liability with respect to any Plan under any applicable
law, treaty, rule, regulation, or agreement. None of Borrower or its
Subsidiaries or any ERISA Affiliate is required to provide security to any Plan
under Section 401(a)(29) of the IRC.
5.12 Environmental Condition. Except as specifically disclosed on
Schedule 5.12, and other than in accordance with applicable laws or regulations,
none of Borrower's properties or assets has ever been used by Borrower or, to
the best of Borrower's knowledge, by previous owners or operators in the
disposal of, or to produce, store, handle, treat, release, or transport, any
Hazardous Materials that has had or reasonably could be expected to result in a
Material Adverse Change or a material impairment of the value of any item of
Real Property Collateral. Except as specifically disclosed on Schedule 5.12, and
other than in accordance with applicable laws or regulations, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No Lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned or
operated by Borrower. Except as specifically disclosed on Schedule 5.12,
Borrower has not received a summons, citation, notice, or directive from, or
provided notification to, the Environmental Protection Agency or any other
federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing or disposing of Hazardous Materials into the
environment.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Foothill shall otherwise consent in writing, Borrower shall do all of the
following:
-56-
<PAGE>
6.1 Accounting System. Maintain a standard and modern system of
accounting that enables Borrower to produce financial statements in accordance
with GAAP and also maintains records pertaining to the Collateral that contain
information as from time to time may be requested by Foothill.
6.2 Collateral Reporting. Provide Foothill with the following
documents at the following times in form satisfactory to Foothill: (a) on a
monthly basis and, in any event, by no later than the last day of each month
during the term of this Agreement, a summary aging, by vendor, of Borrower's
accounts payable and any book overdraft, current within a week of the date of
delivery, (b) on a monthly basis and, in any event, by no later than the last
day of each month during the term of this Agreement, a report detailing any
delinquent Real Property or payroll taxes owed by any Debtor, specifying with
reasonable particularity and amounts details thereof, (c) on an annual basis,
tank test reports with respect to any underground storage tanks located on any
Real Property, and (d) such other reports as to the Collateral or the financial
condition of Borrower as Foothill may request from time to time.
6.3 Financial Statements, Reports, Certificates. Deliver to
Foothill: (a) as soon as available, but in any event within 30 days after the
end of each month during each of Borrower's fiscal years, Borrower-prepared
unaudited and unconsolidated balance sheets for Mountasia and MGPC,
FunCenter-by-FunCenter income statements and operating reports for each
FunCenter, and a consolidated income statement and operating report for all
FunCenters taken as a whole; and (b) as soon as available, but in any event
within 90 days after the end of each of Borrower's fiscal years, consolidated
financial statements of Borrower for each such fiscal year, audited by
independent certified public accountants reasonably acceptable to Foothill and
certified, without any qualifications, by such accountants to have been prepared
in accordance with GAAP, together with a certificate of such accountants
addressed to Foothill stating that, in the course of their engagement, such
accountants did not acquire actual knowledge of the existence of any Event of
Default. Such audited financial statements shall include a balance sheet, profit
and loss statement, and statement of cash flow and, if prepared, such
accountants' letter to management.
Together with the above, Borrower also shall deliver to Foothill
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Borrower to its shareholders, and any other
report reasonably requested by Foothill relating to the financial condition of
Borrower.
-57-
<PAGE>
Each month, together with the financial statements provided pursuant
to Section 6.3(a), Borrower shall deliver to Foothill a certificate signed by
its chief financial officer to the effect that: (i) all financial statements
delivered or caused to be delivered to Foothill hereunder have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit adjustments) and
fairly present the financial condition of Borrower, (ii) the representations and
warranties of Borrower contained in this Agreement and the other Loan Documents
are true and correct in all material respects on and as of the date of such
certificate, as though made on and as of such date (except to the extent that
such representations and warranties relate solely to an earlier date), (iii) for
each month that also is the date on which a financial covenant in Section 7.19
is to be tested, a Compliance Certificate demonstrating in reasonable detail
compliance at the end of such period with the applicable financial covenants
contained in Section 7.19, and (iv) on the date of delivery of such certificate
to Foothill there does not exist any condition or event that constitutes a
Default or Event of Default (or, in the case of clauses (i), (ii), or (iii), to
the extent of any non-compliance, describing such non-compliance as to which he
or she may have knowledge and what action Borrower has taken, is taking, or
proposes to take with respect thereto).
Borrower shall have issued written instructions to its independent
certified public accountants authorizing them to communicate with Foothill and
to release to Foothill whatever financial information concerning Borrower that
Foothill reasonably may request. Borrower hereby irrevocably authorizes and
directs all auditors, accountants, or other third parties (other than lawyers)
to deliver to Foothill, at Borrower's expense, copies of Borrower's financial
statements, papers related thereto, and other accounting records of any nature
in their possession, and to disclose to Foothill any information they may have
regarding Borrower's business affairs and financial conditions. The foregoing
notwithstanding, Foothill shall not actually independently communicate with
Borrower's auditors, accountants, or other third parties for the foregoing
purposes without the consent of Borrower unless (a) Foothill first shall have
made a reasonable attempt to obtain the requested information through Borrower
and not have obtained a reasonably acceptable response from Borrower within
fifteen days of Foothill's request, and (b) 1 Business Day prior, Foothill shall
have notified Borrower that it intends to communicate directly with Borrower's
independent public accountants.
6.4 Tax Returns. Deliver to Foothill copies of each of Borrower's
future federal income tax returns, and any amendments thereto, within 30 days of
the filing thereof with the Internal Revenue Service.
6.5 Intentionally Omitted.
6.6 Intentionally Omitted.
-58-
<PAGE>
6.7 Title to Equipment. Upon Foothill's request, Borrower
immediately shall deliver to Foothill, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for title to any items
of Equipment.
6.8 Maintenance of Equipment. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures on the Closing Date, Borrower shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and such Equipment shall at all times remain personal
property.
6.9 Taxes. All assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its property shall be paid in full, before delinquency or before the
expiration of any extension period, except to the extent that the validity of
such assessment or tax (other than payroll taxes or taxes that are the subject
of a United States federal tax lien) shall be the subject of a Permitted
Protest. Borrower shall make due and timely payment or deposit of all such
federal, state, and local taxes, assessments, or contributions required of it by
law, and will execute and deliver to Foothill, on demand, appropriate
certificates attesting to the payment thereof or deposit with respect thereto.
Borrower will make timely payment or deposit of all tax payments and withholding
taxes required of it by applicable laws, including those laws concerning
F.I.C.A., F.U.T.A., state disability, and local, state, and federal income
taxes, and will, upon request, furnish Foothill with proof satisfactory to
Foothill indicating that Borrower has made such payments or deposits.
6.10 Insurance.
(a) At its expense, keep the Personal Property Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as are ordinarily insured against
by other owners in similar businesses. Borrower also shall maintain business
interruption (commencing no later than 60 days from the Closing Date), public
liability, product liability, and property damage insurance relating to
Borrower's ownership and use of the Personal Property Collateral, as well as
insurance against larceny, embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the
type necessary to insure the Improvements and Chattels (as such terms are
defined in the Mortgages), for the full replacement cost thereof, against any
loss by fire, lightning, windstorm, hail, explosion, aircraft, smoke damage,
vehicle damage, earthquakes, elevator collision, and other risks from time to
time included under "extended coverage" policies,
-59-
<PAGE>
in such amounts as Foothill may require, but in any event in amounts sufficient
to prevent Borrower from becoming a co-insurer under such policies, (ii)
combined single limit bodily injury and property damages insurance against any
loss, liability, or damages on, about, or relating to each parcel of Real
Property Collateral, in an amount of not less than $20,000,000 ($10,000,000
being acceptable prior to the date that is 60 days after the Closing Date); and
(iii) insurance for such other risks as Foothill reasonably may require.
Replacement costs, at Foothill's option, may be redetermined by an insurance
appraiser, satisfactory to Foothill, not more frequently than once every 12
months at Borrower's cost.
(c) All such policies of insurance shall be in such form, with
such companies, and in such amounts as may be reasonably satisfactory to
Foothill. As of the Closing Date, except as identified by Foothill or its
counsel to Mountasia, Borrower shall be deemed in compliance with subsections
(a) and (b) of this section and with the immediately preceding sentence of this
subsection (c), provided that this sentence shall not excuse Borrower from
complying with this section after the Closing Date with respect to events that
occur after the Closing Date that constitute changes in circumstances from those
that existed on the Closing Date and that are relevant to this section (such as,
without limitation, acquisition or development of additional FunCenters
requiring insurance coverage, the necessity of paying premiums to maintain
coverage, or changes with respect to the issuers of policies of insurance). All
insurance required herein shall be written by companies which are authorized to
do insurance business in the State of California. All such insurance shall, with
respect to hazard insurance and such other insurance as Foothill shall specify,
contain a California Form 438BFU (NS) mortgagee endorsement, or an equivalent
endorsement satisfactory to Foothill, showing Foothill as sole loss payee
thereof (as its interests may appear), and shall contain a waiver of warranties.
Every policy of insurance referred to in this Section 6.10 shall contain an
agreement by the insurer that it will not cancel such policy except after 30
days prior written notice to Foothill and that any loss payable thereunder shall
be payable notwithstanding any act or negligence of Borrower or Foothill which
might, absent such agreement, result in a forfeiture of all or a part of such
insurance payment and notwithstanding (i) occupancy or use of the Real Property
Collateral for purposes more hazardous than permitted by the terms of such
policy, (ii) any foreclosure or other action or proceeding taken by Foothill
pursuant to the Mortgages upon the happening of an Event of Default, or (iii)
any change in title or ownership of the Real Property Collateral. Borrower shall
deliver to Foothill certified copies of such policies of insurance and evidence
of the payment of all premiums therefor.
(d) Original policies or certificates thereof satisfactory to
Foothill evidencing such insurance shall be delivered to Foothill at least 30
days prior to the expiration of the existing or preceding policies. Borrower
shall give Foothill prompt notice of any loss covered by such insurance and
Foothill shall have the right to adjust any loss. Foothill shall have the
exclusive right to adjust all losses payable under any such insurance
-60-
<PAGE>
policies without any liability to Borrower whatsoever in respect of such
adjustments. Any monies received as payment for any loss under any insurance
policy including the insurance policies mentioned above, shall be paid over to
Foothill to be applied at the option of Foothill either to the prepayment of the
Obligations without premium, in such order or manner as Foothill may elect, or
shall be disbursed to Borrower under staged payment terms satisfactory to
Foothill for application to the cost of repairs, replacements, or restorations.
All repairs, replacements, or restorations shall be effected with reasonable
promptness and shall be of a value at least equal to the value of the items or
property destroyed prior to such damage or destruction. Upon the occurrence of
an Event of Default, Foothill shall have the right to apply all prepaid premiums
to the payment of the Obligations in such order or form as Foothill shall
determine.
(f) Borrower shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
under this Section 6.10, unless Foothill is included thereon as named insured
with the loss payable to Foothill under a standard California 438BFU (NS)
Mortgagee endorsement, or its local equivalent. Borrower immediately shall
notify Foothill whenever such separate insurance is taken out, specifying the
insurer thereunder and full particulars as to the policies evidencing the same,
and originals of such policies immediately shall be provided to Foothill.
6.11 No Setoffs or Counterclaims. All payments hereunder and under
the other Loan Documents made by or on behalf of Borrower shall be made without
setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state, or local taxes.
6.12 Location of Inventory and Equipment. Keep the Inventory and
Equipment only at the locations identified on Schedule 6.12 (which schedule
shall identify permitted locations on a Debtor-by-Debtor basis); provided,
however, that Borrower may amend Schedule 6.12 so long as such amendment occurs
by written notice to Foothill not less than 30 days prior to the date on which
the Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United States, and so long as, at the time of
such written notification, Borrower provides any financing statements or fixture
filings necessary to perfect and continue perfected Foothill's security
interests in such assets and also provides to Foothill a Collateral Access
Agreement.
6.13 Compliance with Laws. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not have and could not reasonably be
expected to result in a Material Adverse Change.
-61-
<PAGE>
6.14 Employee Benefits.
(a) Promptly, and in any event within 10 Business Days after
Borrower or any of its Subsidiaries knows or has reason to know that an ERISA
Event has occurred that reasonably could be expected to result in a Material
Adverse Change, a written statement of the chief financial officer of Borrower
describing such ERISA Event and any action that is being taking with respect
thereto by Borrower, any such Subsidiary or ERISA Affiliate, and any action
taken or threatened by the IRS, Department of Labor, or PBGC. Borrower or such
Subsidiary, as applicable, shall be deemed to know all facts known by the
administrator of any Benefit Plan of which it is the plan sponsor, (ii)
promptly, and in any event within 3 Business Days after the filing thereof with
the IRS, a copy of each funding waiver request filed with respect to any Benefit
Plan and all communications received by Borrower, any of its Subsidiaries or, to
the knowledge of Borrower, any ERISA Affiliate with respect to such request, and
(iii) promptly, and in any event within 3 Business Days after receipt by
Borrower, any of its Subsidiaries or, to the knowledge of Borrower, any ERISA
Affiliate, of the PBGC's intention to terminate a Benefit Plan or to have a
trustee appointed to administer a Benefit Plan, copies of each such notice.
(b) Borrower will cause to be delivered to Foothill, upon Foothill's
request, each of the following: (i) a copy of each Plan (or, where any such plan
is not in writing, complete description thereof) (and if applicable, related
trust agreements or other funding instruments) and all amendments thereto, all
written interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of Borrower or its Subsidiaries;
(ii) the most recent determination letter issued by the IRS with respect to each
Benefit Plan; (iii) for the three most recent plan years, annual reports on Form
5500 Series required to be filed with any governmental agency for each Benefit
Plan; (iv) all actuarial reports prepared for the last three plan years for each
Benefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate
amount of the most recent annual contributions required to be made by Borrower
or any ERISA Affiliate to each such plan and copies of the collective bargaining
agreements requiring such contributions; (vi) any information that has been
provided to Borrower or any ERISA Affiliate regarding withdrawal liability under
any Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
6.15 Leases. Pay when due all rents and other amounts payable under
any leases to which Borrower is a party or by which Borrower's properties and
assets are bound, unless such payments are the subject of a Permitted Protest.
To the extent that Borrower fails timely to make payment of such rents and other
amounts payable when due under its leases, Foothill shall be entitled, in its
discretion, to reserve an amount equal to such unpaid amounts against
Availability.
-62-
<PAGE>
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, Borrower
will not do any of the following, and will not suffer or permit any of its
Subsidiaries to do any of the following, without Foothill's prior written
consent:
7.1 Indebtedness. Except with respect to any Permitted Transaction,
create, incur, assume, permit, guarantee, or otherwise become or remain,
directly or indirectly, liable with respect to any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness specifically set forth in Schedule 7.1;
(c) Permitted Purchase Money Indebtedness;
(d) Subordinated Debt;
(e) Permitted Unrestricted Subsidiary Indebtedness;
(f) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c), (d), and (e) of this Section 7.1 (and
continuance or renewal of any Permitted Liens associated therewith) so long as:
(i) the terms and conditions of such refinancings, renewals, or extensions do
not materially impair the prospects of repayment of the Obligations by Borrower,
(ii) the net cash proceeds of such refinancings, renewals, or extensions do not
result in an increase in the aggregate principal amount of the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings, renewals, refundings,
or extensions do not result in a shortening of the average weighted maturity of
the Indebtedness so refinanced, renewed, or extended, and (iv) to the extent
that Indebtedness that is refinanced was Subordinated Debt, then the terms and
conditions of the refinancing Indebtedness (including payment terms and
subordination provisions) must be at least as favorable to Foothill as those
applicable to the refinanced Indebtedness; and
(g) accounts payable to trade creditors, in each case incurred
and repaid in the ordinary course of business, unless the same are being
actively contested in good faith and by appropriate and lawful proceedings and
Borrower shall have set aside such reserves, if any, with respect thereto as are
required by GAAP and deemed adequate by Borrower and its independent
accountants; provided that in each instance such accounts payable shall be
incurred and repaid by Mountasia or MGPC, and not by any other Debtor,
-63-
<PAGE>
except only to the extent that both (i) such account payable is for an
immaterial amount, and (ii) it was not practicable to incur same in the name of
Mountasia or MGPC.
Anything contained in this Section 7.1 to the contrary notwithstanding, in no
event shall Mountasia or any of the Restricted Subsidiaries co-make, endorse,
guaranty, or otherwise become liable or have any recourse with respect to any
Indebtedness or other liabilities (including Permitted Unrestricted Subsidiary
Indebtedness) of any of the Unrestricted Subsidiaries.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(f) and so long as the replacement Liens only encumber those assets
or property that secured the original Indebtedness).
7.3 Restrictions on Fundamental Changes. Except for any Permitted
Transaction, or Permitted Acquisition, or except as expressly permitted by
Section 7.4, enter into any acquisition (excluding Capital Expenditures that do
not constitute Acquisitions), merger, consolidation, reorganization, or
recapitalization, or reclassify its capital stock, or liquidate, wind up, or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
assign, lease, transfer, or otherwise dispose of, in one transaction or a series
of transactions, all or any substantial part of its property or assets
(collectively, a "Fundamental Change Transaction"). Without limiting the
generality of the foregoing (a) no Operating Subsidiary shall engage in any
Fundamental Change Transaction with any other Debtor without the prior written
consent of Foothill, (b) no Inactive Subsidiary shall acquire any property or
asset or engage in business, and (c) no Unrestricted Subsidiary shall engage in
any Fundamental Change Transaction with any Restricted Subsidiary or MGPC or
Special.
7.4 Disposal of Assets and Related Matters. Except for Permitted
Dispositions, sell, lease, assign, transfer, or otherwise dispose of any of any
Debtor's properties or assets; provided, however, that any Operating Subsidiary
may transfer Personal Property Collateral to any Debtor of which it is a
Subsidiary (but not to any other Debtor). Without limiting the generality of the
foregoing, (a) no Operating Subsidiary shall engage in any transaction
restricted by this Section with any other Debtor without the prior written
consent of Foothill, (b) no Operating Subsidiary shall transfer any Real
Property to any Person (including any other Debtor) without the prior written
consent of Foothill, (c) no Operating Subsidiary shall agree to any restriction
that would limit its right to transfer Personal Property Collateral to, or make
dividends or distributions to, any Debtor of which it is a Subsidiary, and (d)
no Operating Subsidiary shall acquire any property or
-64-
<PAGE>
asset after the Closing Date in its own name if it is practicable instead for
Mountasia or MGPC to acquire such asset.
7.5 Change Name. Change any Debtor's name, FEIN, corporate structure
(within the meaning of Section 9402(7) of the Code), or identity, or add any new
fictitious name.
7.6 Guarantee. Except for guarantees existing on the Closing Date
and described on Schedule 7.1, guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill.
7.7 Nature of Business. Make any change in the principal nature of
Borrower's business.
7.8 Prepayments and Amendments. Except for the Permitted
Transactions, and except in connection with a refinancing permitted by Section
7.1(f), prepay, redeem, retire, defease, purchase, or otherwise acquire any
Indebtedness owing to any third Person, other than the Obligations in accordance
with this Agreement, and (b) directly or indirectly, amend, modify, alter,
increase, or change any of the terms or conditions of any agreement, instrument,
document, indenture, or other writing evidencing or concerning Indebtedness
permitted under Sections 7.1(b), (c), (d), or (e). Without limiting the
generality of the foregoing, at no time shall Borrower make any (y) payment with
respect to any Subordinated Debt if the making of same would conflict with the
subordination provisions thereof, or (z) cash payment of principal with respect
to the NEF Debentures.
7.9 Change of Control. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 Consignments. Consign any Inventory or sell any Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms of
sale.
7.11 Distributions. Except for Permitted Special Distributions, in
each case occurring at a time when no Event of Default has occurred and is
continuing, make any distribution or declare or pay any dividends (in cash or
other property, other than capital stock) on, or purchase, acquire, redeem, or
retire any of Borrower's capital stock, of any class, whether now or hereafter
outstanding (including any payment to a present or former shareholder with
respect to or in settlement of any claim or alleged claim arising out of or
relating to such shareholder's ownership of capital stock of Borrower, or
Borrower's duties or actions with respect thereto, or any asserted right of
rescission);
-65-
<PAGE>
provided that a Operating Subsidiary may make cash distributions, or
distributions of Personal Property Collateral, to a Debtor of which it is a
Subsidiary, and shall not agree to any restriction on its ability to make same.
7.12 Accounting Methods. Modify or change its method of accounting
or enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's accounting records without
said accounting firm or service bureau agreeing to provide Foothill information
regarding the Collateral or Borrower's financial condition. Borrower waives the
right to assert a confidential relationship, if any, it may have with any
accounting firm or service bureau in connection with any information requested
by Foothill pursuant to or in accordance with this Agreement, and agrees that,
in accordance with Section 6.3, Foothill may contact directly any such
accounting firm or service bureau in order to obtain such information.
7.13 Investments. Except for any Permitted Transactions, Permitted
Unrestricted Subsidiary Investments, Permitted Investments, and Permitted
Acquisitions, directly or indirectly make, acquire, or incur any liabilities
(including contingent obligations) for or in connection with (a) the acquisition
of the securities (whether debt or equity) of, or other interests in, a Person,
(b) loans, advances, capital contributions, or transfers of property to a
Person, or (c) the acquisition of all or substantially all of the properties or
assets of a Person. Nothing herein shall preclude Mountasia or MGPC from
incurring or paying in the ordinary course of business trade payables on account
of or relating to the operation of their Subsidiaries, provided that no Debtor
shall make contributions of cash or assets to the capital of other Debtors
(other than contributions by a Debtor to another Debtor of which it is a
Subsidiary) without the prior written consent of Foothill.
7.14 Transactions with Affiliates. Except for any Permitted
Transactions or Permitted Uses, directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower except for
transactions that are in the ordinary course of Borrower's business, upon fair
and reasonable terms, that are fully disclosed to Foothill, and that are no less
favorable to Borrower than would be obtained in an arm's length transaction with
a non-Affiliate.
7.15 Suspension. Suspend or go out of a substantial portion of its
business.
7.16 Use of Proceeds. Use the proceeds of the Advances and the Term
Loans made hereunder for any purpose other than (i) on the Closing Date, (y) to
fund the purchase by Foothill of the Existing Loans pursuant to the Loan
Purchase Agreement, including the outstanding principal, accrued interest, and
accrued fees and expenses owing to Existing
-66-
<PAGE>
Lender, and (z) to pay transactional costs and expenses incurred in connection
with this Agreement, and (ii) thereafter, solely for the Permitted Uses;
provided,
(a) In no event may any Advance or proceeds of either of the
Term Loans be used for a Permitted Transaction unless immediately thereafter
there exists not less than $3,000,000 of Availability; and
(b) In no event may any Advance or the proceeds of either of
the Term Loans be used to acquire any FunCenter unless immediately thereafter
there exists not less than $4,000,000 of Availability.
7.17 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees. Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to Foothill and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests and also provides to Foothill a
Collateral Access Agreement with respect to such new location. The Inventory and
Equipment shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without Foothill's prior written consent.
7.18 No Prohibited Transactions Under ERISA. Directly or indirectly:
(a) Engage, or permit any Subsidiary of Borrower to engage, in any
prohibited transaction which is reasonably likely to result in a civil penalty
or excise tax described in Sections 406 of ERISA or 4975 of the IRC for which a
statutory or class exemption is not available or a private exemption has not
been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC),
whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to pay
timely required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to terminate,
any Benefit Plan where such event would result in any liability of Borrower, any
of its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to make any
required contribution or payment to any Multiemployer Plan;
-67-
<PAGE>
(f) fail, or permit any Subsidiary of Borrower to fail, to pay any
required installment or any other payment required under Section 412 of the IRC
on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a Plan
resulting in an increase in current liability for the plan year such that either
of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is required to
provide security to such Plan under Section 401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to withdraw, from
any Multiemployer Plan where such withdrawal is reasonably likely to result in
any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of one dollar ($1).
7.19 Financial Covenants. Fail to maintain:
(a) Debt Service Ratio. A Debt Service Ratio for the Relevant
Measuring Period of not less than the relevant amount set forth in the following
table, measured on a fiscal quarter-end basis:
================================================================================
Period Ending Minimum Ratio
- --------------------------------------------------------------------------------
9/30/96 0.5 : 1.0
- --------------------------------------------------------------------------------
12/31/96 0.5 : 1.0
- --------------------------------------------------------------------------------
3/31/97 0.5 : 1.0
- --------------------------------------------------------------------------------
6/30/97 1.0 : 1.0
- --------------------------------------------------------------------------------
9/30/97 1.25 : 1.0
- --------------------------------------------------------------------------------
12/31/97 1.5 : 1.0
- --------------------------------------------------------------------------------
3/31/98 and thereafter 1.5 : 1.0
================================================================================
(b) Total Liabilities to Adjusted Net Worth Ratio. A ratio of
Borrower's total liabilities (exclusive of Existing Subordinated Debt) divided
by Adjusted Net Worth of 1.0:1.0, or less, measured on a fiscal quarter-end
basis;
-68-
<PAGE>
(c) Adjusted Net Worth. Adjusted Net Worth of at least
$75,000,000, measured on a fiscal quarter-end basis; and
(d) Interest Coverage Ratio. An Interest Coverage Ratio for
the Relevant Measuring Period most recently ended of not less than the relevant
amount set forth in the following table, measured on a fiscal quarter-end basis
commencing September 30, 1996:
================================================================================
Period Ending Minimum Ratio
- --------------------------------------------------------------------------------
9/30/96 0.75 : 1.00
- --------------------------------------------------------------------------------
12/31/96 0.75 : 1.00
- --------------------------------------------------------------------------------
3/31/97 0.75 : 1.00
- --------------------------------------------------------------------------------
6/30/97 1.5 : 1.00
- --------------------------------------------------------------------------------
9/30/97 2.25 : 1.00
- --------------------------------------------------------------------------------
12/31/97 3.0 : 1.00
- --------------------------------------------------------------------------------
3/31/98 and thereafter 3.0 : 1.00
================================================================================
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared
due and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
provided, however, that in the case of Overadvances that are caused by the
charging of interest, fees, or Foothill Expenses to Borrower's Loan Account
hereunder, such event shall not constitute an Event of Default if, within 3 days
of the creation of any such Overadvance, Borrower eliminates such Overadvance;
8.2 (a) If any Debtor fails to perform, keep, or observe, in any
material respect, any term, provision, condition, covenant, or agreement
contained in Sections 6.2 (Collateral Reporting) of this Agreement and such
failure continues for a period of 5 days from
-69-
<PAGE>
the date of such failure, (b) If any Debtor fails to perform, keep, or observe,
in any material respect, any term, provision, condition, covenant, or agreement
contained in Sections 6.3 (Financial Statements), 6.4 (Tax Returns), 6.7 (Title
to Equipment), 6.12 (Location of Inventory and Equipment), 6.13 (Compliance with
Laws), or 6.15 (Leases) of this Agreement and such failure continues for a
period of 10 days from the date of such failure, (c) If any Debtor fails to
perform, keep, or observe, in any material respect, any term, provision,
condition, covenant, or agreement contained in Section 6.8 (Maintenance of
Equipment) of this Agreement and such failure continues for a period of 15 days
from the date Foothill sends such Debtor written notice of such failure, (d) If
any Debtor fails to perform, keep, or observe, in any material respect, any
other term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between any Debtor and Foothill (other than any such term, provision,
condition, covenant, or agreement that is the subject of another provision of
this Section 8);
8.3 If there is a Material Adverse Change;
8.4 If any material portion of Borrower's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person and the same is not discharged or
bonded against within 30 days of the date of the attachment of such Lien;
provided, however, that during such period, upon 3 days prior written notice to
Borrower, Foothill shall have the right to create a reserve against Availability
in an amount sufficient to discharge such writ, warrant, or other process, and
any interest and penalties payable in connection therewith;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and
any of the following events occur: (a) Borrower consents to the institution of
the Insolvency Proceeding against it; (b) the petition commencing the Insolvency
Proceeding is not timely controverted; (c) the petition commencing the
Insolvency Proceeding is not dismissed within 45 calendar days of the date of
the filing thereof; provided, however, that, during the pendency of such period,
Foothill shall be relieved of its obligation to extend credit hereunder; (d) an
interim trustee is appointed to take possession of all or a substantial portion
of the properties or assets of, or to operate all or any substantial portion of
the business of, Borrower; or (e) an order for relief shall have been issued or
entered therein;
8.7 If Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs and the injunction, restraining order, or other order is not dissolved
or otherwise dismissed within 3 days of the date on which it first arises;
-70-
<PAGE>
8.8 (a) If a notice of Lien, levy, or assessment is filed of record
with respect to any of Borrower's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or if any
taxes or debts owing at any time hereafter thereto becomes a Lien, whether
choate or otherwise, upon any of Borrower's properties or assets and the same is
not paid on the payment date thereof, or (b) if a notice of Lien, levy, or
assessment is filed of record with respect to any of Borrower's properties or
assets by any state, county, municipal, or local governmental entity, or any
department, agency, or instrumentality thereof, or if any taxes or debts owing
at any time hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any of Borrower's properties or assets and the
same is not paid on the payment date thereof, unless the aggregate amount of
such taxes is less than $100,000 and, if and to the extent such tax liens would
have priority over the security interest of Foothill, Foothill has been
instructed within 5 days of the filing or attachment of same to reserve the
amount thereof entitled to such priority (together with interest and penalties
projected to be incurred with respect thereto) from Availability;
8.9 If a judgment or other claim (other than a claim covered by
Section 8.8) becomes a Lien upon any material portion of Borrower's properties
or assets and the same is not discharged or bonded against within 30 days of the
date of the attachment of such Lien; provided, however, that during such period,
upon 3 days prior written notice to Borrower, Foothill shall have the right to
create a reserve against Availability in an amount sufficient to discharge such
Lien and any interest and penalties payable in connection therewith;
8.10 If there is a default in any agreement to which Borrower is a
party with one or more third Persons, which such agreement involves an
obligation of Borrower of $100,000, or more, and such default (a) occurs at the
final maturity of the obligations thereunder, or (b) results in a right by such
third Person(s), irrespective of whether exercised, to accelerate the maturity
of Borrower's obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness that
has been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness; or
8.12 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to Foothill
by Borrower or any officer, employee, agent, or director of Borrower, or if any
such warranty or representation is withdrawn.
-71-
<PAGE>
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Personal Property
Collateral or the Real Property Collateral and without affecting the
Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill considers advisable, and in
such cases, Foothill will credit Borrower's Loan Account with only the net
amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith.
Foothill agrees promptly to notify Borrower of its exercise of its rights under
this clause and to report to Borrower the results of any such adjustments;
provided, however, that Foothill shall incur no liability whatsoever for any
good faith failure to so notify or report to Borrower;
(e) Cause Borrower to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other property of Borrower
or in Borrower's possession and conspicuously label said returned Inventory as
the property of Foothill;
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Foothill considers necessary
or reasonable to protect its security interests in the Collateral. Borrower
agrees to assemble the Personal Property Collateral if Foothill so requires, and
to make the Personal Property Collateral available to Foothill as Foothill may
designate. Borrower authorizes Foothill to enter the premises where the Personal
Property Collateral is located, to take and maintain possession of the Personal
Property Collateral, or any part of it, and to pay, purchase, contest, or
compromise any encumbrance, charge, or Lien that in Foothill's determination
appears to conflict with its security interests and to pay all expenses incurred
in connection therewith. With respect to any of Borrower's owned or leased
premises, Borrower hereby grants Foothill a license to enter
-72-
<PAGE>
into possession of such premises and to occupy the same, without charge, for up
to 120 days in order to exercise any of Foothill's rights or remedies provided
herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Obligations in any order elected by Foothill any and all (i)
balances and deposits of Borrower held by Foothill (including any amounts
received in any Blocked Account), or (ii) indebtedness at any time owing to or
for the credit or the account of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in any Blocked
Account, to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Personal Property Collateral. Foothill is hereby granted a license
or other right to use, without charge, Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Personal Property Collateral, in completing production of,
advertising for sale, and selling any Personal Property Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
Foothill's benefit for such purposes;
(j) Sell the Personal Property Collateral at either a public
or private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrower's
premises) as Foothill determines is commercially reasonable. It is not necessary
that the Personal Property Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the
Personal Property Collateral as follows:
(1) Foothill shall give Borrower and each holder of a
security interest in the Personal Property Collateral who has filed with
Foothill a written request for notice, a notice in writing of the time and place
of public sale, or, if the sale is a private sale or some other disposition
other than a public sale is to be made of the Personal Property Collateral, then
the time on or after which the private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at least 5 days before
the date fixed for the
-73-
<PAGE>
sale, or at least 5 days before the date on or after which the private sale or
other disposition is to be made; no notice needs to be given prior to the
disposition of any portion of the Personal Property Collateral that is
perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons other than Borrower
claiming an interest in the Personal Property Collateral shall be sent to such
addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also
shall give notice of the time and place by publishing a notice one time at least
5 days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public sale;
and
(m) Any deficiency that exists after disposition of the
Personal Property Collateral as provided above will be paid immediately by
Borrower. Any excess will be returned, without interest and subject to the
rights of third Persons, by Foothill to Borrower.
9.2 Remedies Cumulative. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill shall
constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments, insurance
premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third Persons, or fails to make any deposits
or furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, to the extent that Foothill determines that such
failure by Borrower could result in a Material Adverse Change, in its discretion
and without prior notice to Borrower, Foothill may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves in Borrower's Loan Account as Foothill deems necessary to protect
Foothill from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type described in Section 6.10, and take any action
with respect to such policies as Foothill deems prudent. Any such amounts paid
by Foothill shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make similar payments
in the future or a waiver by Foothill of any Event of Default under this
Agreement. Foothill need not inquire as to, or contest the validity of, any such
expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
-74-
<PAGE>
owing. Foothill agrees promptly to notify Borrower of its exercise of its rights
under this Section 10 and to report to Borrower the amount so paid or reserved;
provided, however, that Foothill shall incur no liability whatsoever for any
good faith failure to so notify or report to Borrower;
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Foothill on which Borrower may in any way be
liable.
11.2 Foothill's Liability for Collateral. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person. All risk of loss, damage, or destruction of the Collateral
shall be borne by Borrower.
11.3 Indemnification. Borrower shall pay, indemnify, defend, and
hold Foothill, each Participant, and each of their respective officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them in connection with or
as a result of or related to the execution, delivery, enforcement, performance,
and administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
-75-
<PAGE>
11.4 Suretyship Waivers and Consents. Each Debtor acknowledges that
the obligations of such Debtor undertaken herein might be construed to consist,
at least in part, of the guaranty of obligations of Persons or entities other
than such Debtor (including the other Debtors party hereto) and, in full
recognition of that fact, each Debtor consents and agrees that Foothill may (if
it has so agreed with another Debtor), at any time and from time to time,
without notice or demand, whether before or after any actual or purported
termination, repudiation or revocation of this Agreement by any one or more
Debtors, and without affecting the enforceability or continuing effectiveness
hereof as to each Debtor: (a) supplement, restate, modify, amend, increase,
decrease, extend, renew, accelerate or otherwise change the time for payment or
the terms of the Obligations or any part thereof, including any increase or
decrease of the rate(s) of interest thereon; (b) supplement, restate, modify,
amend, increase, decrease or waive, or enter into or give any agreement,
approval or consent with respect to, the Obligations or any part thereof, or any
of the Loan Documents or any additional security or guarantees, or any
condition, covenant, default, remedy, right, representation or term thereof or
thereunder; (c) accept new or additional instruments, documents or agreements in
exchange for or relative to any of the Loan Documents or the Obligations or any
part thereof; (d) accept partial payments on the Obligations; (e) receive and
hold additional security or guarantees for the Obligations or any part thereof;
(f) release, reconvey, terminate, waive, abandon, fail to perfect, subordinate,
exchange, substitute, transfer or enforce any security or guarantees, and apply
any security and direct the order or manner of sale thereof as Foothill in its
sole and absolute discretion may determine; (g) release any Person from any
personal liability with respect to the Obligations or any part thereof; (h)
settle, release on terms satisfactory to Foothill or by operation of applicable
laws or otherwise liquidate or enforce any Obligations and any security therefor
or guaranty thereof in any manner, consent to the transfer of any security and
bid and purchase at any sale; or (i) consent to the merger, change or any other
restructuring or termination of the corporate or partnership existence of any
Debtor or any other Person, and correspondingly restructure the Obligations, and
any such merger, change, restructuring or termination shall not affect the
liability of any Debtor or the continuing effectiveness hereof, or the
enforceability hereof with respect to all or any part of the Obligations.
Upon the occurrence and during the continuance of any Event of
Default, Foothill may enforce this Agreement independently as to each Debtor and
independently of any other remedy or security Foothill at any time may have or
hold in connection with the Obligations, and it shall not be necessary for
Foothill to marshal assets in favor of any Debtor or any other Person or to
proceed upon or against or exhaust any security or remedy before proceeding to
enforce this Agreement. Each Debtor expressly waives any right to require
Foothill to marshal assets in favor of any Debtor or any other Person or to
proceed against any other Debtor or any collateral provided by any Person, and
agrees that Foothill may proceed against Debtors or any collateral in such order
as it shall determine in its sole and absolute discretion.
-76-
<PAGE>
Foothill may file a separate action or actions against any Debtor,
whether action is brought or prosecuted with respect to any security or against
any other Person, or whether any other Person is joined in any such action or
actions. Each Debtor agrees that Foothill and any Debtor and any Affiliate of
any Debtor may deal with each other in connection with the Obligations or
otherwise, or alter any contracts or agreements now or hereafter existing
between any of them, in any manner whatsoever, all without in any way altering
or affecting the continuing efficacy of this Agreement.
Foothill's rights hereunder shall be reinstated and revived, and the
enforceability of this Agreement shall continue, with respect to any amount at
any time paid on account of the Obligations which thereafter shall be required
to be restored or returned by Foothill, all as though such amount had not been
paid. The rights of Foothill created or granted herein and the enforceability of
this Agreement at all times shall remain effective to cover the full amount of
all the Obligations even though the Obligations, including any part thereof or
any other security or guaranty therefor, may be or hereafter may become invalid
or otherwise unenforceable as against any Debtor and whether or not any other
Debtor shall have any personal liability with respect thereto.
To the maximum extent permitted by applicable law, each Debtor
expressly waives any and all defenses now or hereafter arising or asserted by
reason of (a) any disability or other defense of any other Debtor with respect
to the Obligations, (b) the unenforceability or invalidity of any security or
guaranty for the Obligations or the lack of perfection or continuing perfection
or failure of priority of any security for the Obligations, (c) the cessation
for any cause whatsoever of the liability of any other Debtor (other than by
reason of the full payment and performance of all Obligations), (d) any failure
of Foothill to marshal assets in favor of any Debtor or any other Person, (e)
any failure of Foothill to give notice of sale or other disposition of
collateral to any Debtor or any other Person or any defect in any notice that
may be given in connection with any sale or disposition of collateral; provided,
however, that the foregoing shall not be deemed to include a waiver by the
Debtor that owns the subject collateral of notice of sale or other disposition
thereof, (f) any failure of Foothill to comply with applicable law in connection
with the sale or other disposition of any collateral or other security for any
Obligation, including any failure of Foothill to conduct a commercially
reasonable sale or other disposition of any collateral or other security for any
Obligation; provided, however, that the foregoing shall not be deemed to include
a waiver, by the Debtor that owns the subject collateral, of the requirement of
commercial reasonableness in connection with any such sale or other disposition,
(g) any act or omission of Foothill or others that directly or indirectly
results in or aids the discharge or release of any of any Debtor or the
Obligations or any security or guaranty therefor by operation of law or
otherwise, (h) any law which provides that the obligation of a surety or
guarantor must neither be larger in amount nor in other respects more burdensome
than that of the principal or which reduces a surety's or guarantor's obligation
in proportion to the principal obligation, (i) any failure of Foothill
-77-
<PAGE>
to file or enforce a claim in any bankruptcy or other proceeding with respect to
any Person, (j) the election by Foothill of the application or non-application
of Section 1111(b)(2) of the Bankruptcy Code, (k) any extension of credit or the
grant of any lien under Section 364 of the Bankruptcy Code, (l) any use of cash
collateral under Section 363 of the Bankruptcy Code, (m) any agreement or
stipulation with respect to the provision of adequate protection in any
bankruptcy proceeding of any Person, (n) the avoidance of any lien in favor of
Foothill for any reason, or (o) any action taken by Foothill that is authorized
by this section or any other provision of any Loan Document. Until such time as
all of the Obligations have been fully, finally, and indefeasibly paid in full
in cash: (i) each Debtor hereby waives and postpones any right of subrogation it
has or may have as against any other Debtor with respect to the Obligations; and
(ii) in addition, each Debtor also hereby waives and postpones any right to
proceed or to seek recourse against or with respect to any property or asset of
any other Debtor. Each Debtor expressly waives all setoffs and counterclaims and
all presentments, demands for payment or performance, notices of nonpayment or
nonperformance, protests, notices of protest, notices of dishonor, and all
notices of acceptance of this Agreement or of the existence, creation or
incurring of new or additional Obligations.
In the event that all or any part of the Obligations at any time are
secured by any one or more deeds of trust or mortgages or other instruments
creating or granting liens on any interests in real property, each Debtor
authorizes Foothill (or the Collateral Agent (or its agents) on Foothill's
behalf), upon the occurrence of and during the continuance of any Event of
Default, at its sole option, without notice or demand and without affecting the
obligations of any Debtor, the enforceability of this Agreement, or the validity
or enforceability of any liens of, or for the benefit of, Foothill on any
collateral, to foreclose any or all of such deeds of trust or mortgages or other
instruments by judicial or nonjudicial sale.
To the fullest extent permitted by applicable law, each Debtor
expressly waives any defenses to the enforcement of this Agreement or any rights
of Foothill created or granted hereby or to the recovery by Foothill against any
Debtor or any other Person liable therefor of any deficiency after a judicial or
nonjudicial foreclosure or sale, even though such a foreclosure or sale may
impair the subrogation rights of Debtors and may preclude Debtors from obtaining
reimbursement or contribution from other Debtors. Each Debtor expressly waives
any defenses or benefits that may be derived from California Code of Civil
Procedure ss.ss. 580a, 580b, 580d or 726, or comparable provisions of the laws
of any other jurisdiction, and all other suretyship defenses it otherwise might
or would have under California law or other applicable law. Each Debtor
expressly waives any right to receive notice of any judicial or nonjudicial
foreclosure or sale of any real property or interest therein of another Debtor
that is subject to any such deeds of trust or mortgages or other instruments and
any Debtor's failure to receive any such notice shall not impair or affect such
Debtor's obligations or the enforceability of this Agreement or any rights of
Foothill created or granted hereby; provided, however, that the foregoing shall
not be deemed to include a waiver, by the Debtor that owns
-78-
<PAGE>
the subject collateral, of any right to notice. WITHOUT LIMITING THE GENERALITY
OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS SECTION, EACH DEBTOR
WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY
FOOTHILL, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL
FORECLOSURE WITH RESPECT TO SECURITY FOR THE OBLIGATIONS, HAS DESTROYED SUCH
DEBTOR'S RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST THE PRINCIPAL DEBTOR BY
THE OPERATION OF SECTION 580d OF THE CODE OF CIVIL PROCEDURE OR OTHERWISE.
Debtors and each of them warrant and agree that each of the waivers
and consents set forth herein are made after consultation with legal counsel and
with full knowledge of their significance and consequences, with the
understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which Debtors otherwise
may have against other Debtors, Foothill or others, or against Collateral. If
any of the waivers or consents herein are determined to be contrary to any
applicable law or public policy, such waivers and consents shall be effective to
the maximum extent permitted by law.
12. NOTICES.
Unless otherwise provided in this Agreement (including, Section
2.9), all notices or demands by any party relating to this Agreement or any
other Loan Document shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified mail
(postage prepaid, return receipt requested), overnight courier, or telefacsimile
to Borrower or to Foothill, as the case may be, at its address set forth below:
If to Borrower: c/o MOUNTASIA ENTERTAINMENT
INTERNATIONAL, INC.
5895 Windward Parkway, Suite 220
Alpharetta, Georgia 30202
Attn: Mr. Gregory Waters
Chief Financial Officer
Fax No. 770.442.6644
with copies to: ROGERS & HARDIN
2700 Cain Tower
229 Peachtree Street
Atlanta, GA 30303
Attn: Edward J. Hardin, Esq.
-79-
<PAGE>
Fax No. 404.525.2224
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
with copies to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax No. 213.745.3345
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Borrower acknowledges and agrees that
notices sent by Foothill in connection with Sections 9504 or 9505 of the Code
shall be deemed sent when deposited in the mail or transmitted by telefacsimile
or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT), THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR
THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH
FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER
-80-
<PAGE>
AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT
EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO
VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH OF BORROWER AND FOOTHILL REPRESENTS THAT IT HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill 4
months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 Effectiveness. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder to any Eligible Transferee and no consent or
approval by Borrower is required in connection with any such assignment.
Foothill reserves the right to sell, assign, transfer, negotiate, or grant
participations in all or any part of, or any interest in Foothill's rights and
benefits hereunder, provided that, except in connection with a bulk sale of a
portfolio of loans, Foothill will not sell or assign more than 50% of its total
commitments hereunder without the prior consent of Borrower, which Borrower
shall not unreasonably withhold, condition, or delay. In connection with any
such assignment or participation, Foothill may disclose all documents and
information which Foothill now or
-81-
<PAGE>
hereafter may have relating to Borrower or Borrower's business. To the extent
that Foothill assigns its rights and obligations hereunder to a third Person
that is an Eligible Transferee, Foothill thereafter shall be released from such
assigned obligations to Borrower and such assignment shall effect a novation
between Borrower and such third Person.
15.3 Section Headings. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
15.6 Amendments in Writing. This Agreement can only be amended by a
writing signed by both Foothill and Borrower.
15.7 Counterparts; Telefacsimile Execution. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that
-82-
<PAGE>
Foothill is required or elects to repay or restore, and as to all reasonable
costs, expenses, and attorneys fees of Foothill related thereto, the liability
of Borrower or such guarantor automatically shall be revived, reinstated, and
restored and shall exist as though such Voidable Transfer had never been made.
15.9 Integration. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
15.10 Covenant by Foothill Regarding Section 3.2(c). From and after
the effective date of this Agreement, if Section 3.2(c) shall not as of such
date already have been satisfied, Foothill shall, continuously from and after
such date and until the earlier of December 31, 1996, and the date, if any, that
Norwest Corporation provides to Foothill the required approval referred to in
Section 3.2(c), use its reasonable best efforts to obtain, from Participants,
binding commitments that would satisfy Section 3.2(c). If Foothill has not
obtained such binding commitments by September 30, 1996, Foothill formally shall
request from Norwest Corporation the required approval referred to in Section
3.2(c), and, no later than October 7, 1996, Foothill shall inform Borrower of
the approval or non-approval by Norwest Corporation of such request.
-83-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in Los Angeles, California.
M O U N T A S I A
ENTERTAINMENT
INTERNATIONAL, INC.,
a Georgia corporation
MOUNTASIA MANAGEMENT COMPANY,
a Georgia corporation
MOUNTASIA PARTNERS I, INC.,
a Georgia corporation
MALIBU GRAND PRIX CORPORATION,
a Delaware corporation
MIAMI CASTLE MGPC, INC.,
a Florida corporation
TEMPE MGPC, INC.,
an Arizona corporation
TUCSON MGPC, INC.,
an Arizona corporation
FRESNO MGPC, INC.,
a California corporation
NORTH HOLLYWOOD CASTLE MGPC, INC.,
a California corporation
PUENTE HILLS MGPC, INC.,
a California corporation
PUENTE HILLS SHOWBOAT MGPC, INC.,
a California corporation
-84-
<PAGE>
REDONDO BEACH CASTLE MGPC, INC.,
a California corporation
REDWOOD CITY CASTLE MGPC, INC.,
a California corporation
REDWOOD CITY MGPC, INC.,
a California corporation
SAN DIEGO MGPC, INC.,
a California corporation
DENVER MGPC, INC.,
a Colorado corporation
ORLANDO CASTLE MGPC, INC.,
a Florida corporation
ORLANDO MGPC, INC.,
a Florida corporation
TAMPA CASTLE MGPC, INC.,
a Florida corporation
TAMPA MGPC, INC.,
a Florida corporation
LENEXA MGPC, INC.,
a Kansas corporation
MT. LAUREL MGPC, INC.,
a New Jersey corporation
COLUMBUS MGPC, INC.,
an Ohio corporation
CINCINNATI MGPC, INC.,
an Ohio corporation
-85-
<PAGE>
PORTLAND MGPC, INC.,
an Oregon corporation
AUSTIN MGPC, INC.,
a Texas corporation
DALLAS CASTLE MGPC, INC.,
a Texas corporation
DALLAS MGPC, INC.,
a Texas corporation
HOUSTON CASTLE MGPC, INC.,
a Texas corporation
HOUSTON II MGPC, INC.,
a Texas corporation
SAN ANTONIO CASTLE MGPC, INC.,
a Texas corporation
SAN ANTONIO MGPC, INC.,
a Texas corporation
MOUNTASIA DEVELOPMENT COMPANY,
a Georgia corporation
MALIBU GRAND PRIX DESIGN &
MANUFACTURING, INC.,
a California corporation
MALIBU GRAND PRIX FINANCIAL
SERVICES, INC.,
a California corporation
OFF TRACK MANAGEMENT, INC.,
a California corporation
MGP SPECIAL, INC.,
-86-
<PAGE>
a California corporation
AMUSEMENT MANAGEMENT FLORIDA,
INC.,
a Florida corporation
MALIBU GRAND PRIX CONSULTING, INC.,
a California corporation
MOUNTASIA - MEI INTERNATIONAL, INC.,
a Georgia corporation
MOUNTASIA - MEI LIMITED COMPANY,
INC.,
a California corporation
MOUNTASIA - MEI CALIFORNIA, INC.,
a California corporation
MOUNTASIA - MEI CALIFORNIA LIMITED
PARTNERSHIP,
a California limited partnership
By Mountasia - MEI International, Inc., its
general partner
MOUNTASIA - MEI MANUFACTURING
COMPANY, INC.,
a Georgia corporation
AMUSEMENT CO., INC.,
a Delaware corporation
AMUSEMENT CO. PARTNERS, INC.,
a Delaware corporation
-87-
<PAGE>
By_________________________
Name: Gregory N. Waters
Title: Executive Vice President
FOOTHILL CAPITAL CORPORATION,
a California corporation
By_________________________
Name: Patricia McLoughlin
Title: Senior Vice President
-88-
[Company Letterhead]
July 23, 1996
MEI Holdings, LP
4200 Texas Commerce Tower
Dallas, Texas 75201
RE: Investment Agreement dated as of July 5, 1996/As Amended
Ladies and Gentlemen:
Reference is made to that certain Investment Agreement between Mountasia
Entertainment International, Inc. (the "Company") and you ("Purchaser") dated as
of June 5, 1996 as amended to and through the date hereof.
In connection with the substantial investment proposed to be made by you
in the Company as set forth in the Investment Agreement, as amended, the
undersigned hereby agrees as follows:
(i) that, notwithstanding anything to the contrary in any employment
agreement or stock option agreement between the Company and the
undersigned, any investments or transactions by you or any affiliate or
associate of you in the Company or in the securities of the Company shall
not, alone or with other investments or transactions, constitute a change
of control or other trigger any rights or payments to the undersigned
under any such agreements; and
(ii) irrevocably to vote or caused to be voted all shares of common stock
beneficially owned by the undersigned in favor of shareholder approval of
the matter referred to in Paragraph 2 of that Letter of Amendment dated
July 24, 1996 amended the Investment Agreement to provide for the Company
Call Option and the Purchaser Option.
Sincerely,
/s/ L. Scott Demerau
L. Scott Demerau
President and Chief Executive Officer
<PAGE>
[Company Letterhead]
July 23, 1996
MEI Holdings, LP
4200 Texas Commerce Tower
Dallas, Texas 75201
RE: Investment Agreement dated as of July 5, 1996/As Amended
Ladies and Gentlemen:
Reference is made to that certain Investment Agreement between Mountasia
Entertainment International, Inc. (the "Company") and you ("Purchaser") dated as
of June 5, 1996 as amended to and through the date hereof.
In connection with the substantial investment proposed to be made by you
in the Company as set forth in the Investment Agreement, as amended, the
undersigned hereby agrees as follows:
(i) that, notwithstanding anything to the contrary in any employment
agreement or stock option agreement between the Company and the
undersigned, any investments or transactions by you or any affiliate or
associate of you in the Company or in the securities of the Company shall
not, alone or with other investments or transactions, constitute a change
of control or other trigger any rights or payments to the undersigned
under any such agreements; and
(ii) irrevocably to vote or caused to be voted all shares of common stock
beneficially owned by the undersigned in favor of shareholder approval of
the matter referred to in Paragraph 2 of that Letter of Amendment dated
July 24, 1996 amended the Investment Agreement to provide for the Company
Call Option and the Purchaser Option.
Sincerely,
/s/ Julia E. Demerau
Julia E. Demerau
Executive Vice President
Mountasia Management Company
Mountasia Development Co.
Mountasia Partners I, Inc.
Mountasia Properties, Inc.
Mountasia Family Entertainment Centers, Inc.
Amusement Co. Inc.
Amusement Co. Partners, Inc.
Malibu Grand Prix Corporation
Miami Castle MGPC, Inc.
Tempe MGPC, Inc.
Tucson MGPC, Inc.
Fresno MGPC, Inc.
North Hollywood Castle MGPC, Inc.
Puente Hills MGPC, Inc.
Puente Hills Showboat MGPC, Inc.
Redondo Beach Castle MGPC, Inc.
Redwood City Castle MGPC, Inc.
Redwood City MGPC, Inc.
San Diego MGPC, Inc.
Denver MGPC, Inc.
Orlando Castle MGPC, Inc.
Orlando MGPC, Inc.
Tampa Castle MGPC, Inc.
Tampa MGPC, Inc.
Lenexa MGPC, Inc.
Mount Laurel MGPC, Inc.
Columbus MGPC, Inc.
Cincinnati MGPC, Inc.
Portland MGPC, Inc.
Austin MGPC, Inc.
Dallas Castle MGPC, Inc.
Dallas MGPC, Inc.
Houston Castle MGPC, Inc.
Houston II MGPC, Inc.
San Antonio Castle MGPC, Inc.
San Antonio MGPC, Inc.
MGP Financial Services, Inc.
Off Track Management, Inc.
MGP Special, Inc.
Amusement Management Florida., Inc.
MGP Consulting, Inc.
MGP Design & Manufacturing Inc.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Richard M. FitzPatrick the true and lawful
attorney-in-fact and agent, acting individually or otherwise, with full power of
substitution and resubstitution, for him and in his name, place and stead, to
sign on his behalf, as a director of Mountasia Entertainment International,
Inc., a Georgia corporation (the "Company"), an Annual Report on Form 10-K for
the Company's fiscal year ended December 31, 1996, and file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, and grants unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Bert W. Wasserman
--------------------------
Bert W. Wasserman
Director
Dated: March 24, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Richard M. FitzPatrick the true and lawful
attorney-in-fact and agent, acting individually or otherwise, with full power of
substitution and resubstitution, for him and in his name, place and stead, to
sign on his behalf, as a director of Mountasia Entertainment International,
Inc., a Georgia corporation (the "Company"), an Annual Report on Form 10-K for
the Company's fiscal year ended December 31, 1996, and file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, and grants unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ William M. Kearns, Jr.
--------------------------
William M. Kearns, Jr.
Director
Dated: March 24, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Richard M. FitzPatrick the true and lawful
attorney-in-fact and agent, acting individually or otherwise, with full power of
substitution and resubstitution, for him and in his name, place and stead, to
sign on his behalf, as a director of Mountasia Entertainment International,
Inc., a Georgia corporation (the "Company"), an Annual Report on Form 10-K for
the Company's fiscal year ended December 31, 1996, and file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, and grants unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ L. Scott Demerau
--------------------------
L. Scott Demerau
Director
Dated: March 24, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Richard M. FitzPatrick the true and lawful
attorney-in-fact and agent, acting individually or otherwise, with full power of
substitution and resubstitution, for him and in his name, place and stead, to
sign on his behalf, as a director of Mountasia Entertainment International,
Inc., a Georgia corporation (the "Company"), an Annual Report on Form 10-K for
the Company's fiscal year ended December 31, 1996, and file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, and grants unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Julia E. Demerau
--------------------------
Julia E. Demerau
Director
Dated: March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,549,810
<SECURITIES> 0
<RECEIVABLES> 554,088 <F1>
<ALLOWANCES> 0
<INVENTORY> 1,359,331
<CURRENT-ASSETS> 28,799,919
<PP&E> 85,484,158 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 122,097,358
<CURRENT-LIABILITIES> 12,589,885
<BONDS> 43,180,417
0
27,526,260
<COMMON> 97,062,239
<OTHER-SE> (60,357,220)
<TOTAL-LIABILITY-AND-EQUITY> 64,231,279
<SALES> 35,810,918
<TOTAL-REVENUES> 37,430,123
<CGS> 0
<TOTAL-COSTS> 77,238,692
<OTHER-EXPENSES> (1,647,738)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,578,838
<INCOME-PRETAX> (44,739,669)
<INCOME-TAX> 2,184,357
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (662,580)
<CHANGES> 0
<NET-INCOME> (47,632,893)
<EPS-PRIMARY> (2.91)
<EPS-DILUTED> (2.91)
<FN>
<F1> Accounts receivable and property and equipment represent net numbers.
</FN>
</TABLE>
