-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UVpxyEr2pVIWUyW/S3fbf0oteaSXZzTfGbXcozZqjBDV7a6ajd/pyMVMJqBrSax+ LhuTfAtKvf3IKAxYhlANZQ== 0000950134-98-002752.txt : 19980401 0000950134-98-002752.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950134-98-002752 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MALIBU ENTERTAINMENT WORLDWIDE INC CENTRAL INDEX KEY: 0000912027 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 581949379 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11709 FILM NUMBER: 98581623 BUSINESS ADDRESS: STREET 1: 5895 WINDWARD PKWY STREET 2: STE 220 CITY: ALPHARETTA STATE: GA ZIP: 30202 BUSINESS PHONE: 4044426640 MAIL ADDRESS: STREET 1: 5895 WINDWARD PARKWAY SUITE 220 CITY: ALPHARETTA STATE: GA ZIP: 30202 FORMER COMPANY: FORMER CONFORMED NAME: MOUNTASIA ENTERTAINMENT INTERNATIONAL INC DATE OF NAME CHANGE: 19930914 10-K 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1997 --------------------- MALIBU ENTERTAINMENT WORLDWIDE, INC. (FORMERLY NAMED MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.) 717 NORTH HARWOOD, SUITE 1650 DALLAS, TEXAS 75201 (214) 210-8701 --------------------- 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, 1998, there were 48,376,773 shares of the Company's Common Stock outstanding. The aggregate market value of the 9.1 million shares of Common Stock held by nonaffiliates of the Company was approximately $35.6 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 1998 annual meeting of shareholders, which will be filed prior to April 30, 1998, 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. ================================================================================ 2 PART I ITEMS 1 & 2. BUSINESS AND PROPERTIES BUSINESS Malibu Entertainment Worldwide, Inc. (the "Company") owns and operates multiple-attraction entertainment centers. The Company's original concept was the family entertainment center ("FEC"), which generally included a combination of several entertainment attractions at a single location such as miniature golf courses, go-karts, bumper boats, batting cages, video game rooms, souvenir concession stands and, in some parks, scaled grand prix style racetracks utilizing the Company's proprietary Malibu Grand Prix race cars. As of March 27, 1998, the Company owned, leased or had a majority ownership interest in 29 traditional FECs, one of which was held for sale. In 1997, the Company introduced its new SpeedZone concept. SpeedZones are primarily designed for young adults and feature the Company's Malibu Grand Prix racing attraction, 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 implementation of the SpeedZone concept began in 1997 with the re-development and opening, at the end of June, of the new SpeedZones in Dallas and Los Angeles and a scaled-down version in Atlanta. The new SpeedZones have been endorsed and promoted by six of the top professional race car drivers in the world -- NASCAR drivers Mark Martin and Jeff Burton, CART drivers Al Unser, Jr., Jimmy Vasser and Bryan Herta and a top fuel drag racing winner on the NHRA circuit, Kristen Powell. In addition to arranging such endorsements and promotions, the Company has engaged these race car drivers to advise the company in providing the most realistic and competitive racing experience possible for SpeedZone guests. Revenues for the last six months of 1997 for the three SpeedZone parks were $3.8 million for Dallas, $4.7 million for Los Angeles and $2.3 million for Atlanta, for a total of $10.8 million, as compared to $0.9 million, $1.4 million and $1.0 million, respectively, for a total of $3.3 million, for the same periods in 1996 when these parks operated as FECs, a 227% overall increase in revenues for six months. The initial focus on concept design and development was followed by the implementation of operational service standards designed to assure the highest possible level of guest satisfaction. Since then, the Company has focused on effective group sales programs and other profit improvement programs. The Company's primary focus in 1997 was the re-development and opening of the three new SpeedZones, the repositioning of its base of traditional FECs (which included the sale or closure of 16 FECs), redevelopment of the Company's corporate infrastructure, including the downsizing and relocation of its corporate headquarters to Dallas from Atlanta, and other initiatives designed to improve the Company's results of operations. In 1998, the Company intends to seek to obtain additional sources of debt or equity capital to provide funds to develop additional SpeedZone parks once the concept has been proven and refined and to further improve the results of operations of its SpeedZones and FECs. See "Item 7 -- Management's Discussion and Analysis of Financial Conditions and Results of Operations -- Liquidity and Capital Resources". PROPERTIES As of March 27, 1998, the Company operated 29 FECs located in 10 states. One of the Company's operating FECs was held for sale. Excluding the FEC held for sale, 11 of the Company's remaining FECs were owned, 15 were leased under agreements expiring on various dates from 1998 to 2019 and two were owned by limited partnerships in which the Company had majority ownership interests. Payments under these leases totaled $4.0 million in 1997. The FECs not currently held for sale are located in California (4), Florida (4), Georgia (3), New Jersey (1), Nevada (1), Ohio (3), Oregon (1), South Carolina (1), Colorado (1) and Texas (9), generally in large metropolitan areas and the Partnership FECs are located in California and Texas. The Company is currently operating one FEC which the Company has contracted to sell and has two leased sites and two owned sites that have been closed for disposition. The Company's total reserves for the sale or closure of these parks was $1.1 million as of December 31, 1997. The FECs held for sale or closure 2 3 were carried on the Company's books at $3.0 million as of December 31, 1997. While the Company presently intends to seek to sell or discontinue these assets in an orderly fashion during 1998, there can be no assurance that it will be able to do so. 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 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 1997. 3 4 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:
HIGH LOW ----- ----- 1997 Fourth Quarter.............................................. $4.43 $3.00 Third Quarter............................................... $5.50 $3.75 Second Quarter.............................................. $6.00 $2.50 First Quarter............................................... $3.56 $2.50 1996 Fourth Quarter.............................................. $3.56 $1.94 Third Quarter............................................... $3.06 $2.47 Second Quarter.............................................. $3.63 $2.38 First Quarter............................................... $5.06 $3.25
As of March 25, 1998, there were approximately 188 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. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
THREE YEARS ENDED MONTHS YEARS ENDED --------------------------- ENDED --------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1995(1) 1995 1994 1993 ------------ ------------ ------------ ------------- ------------- ------------- STATEMENT OF OPERATIONS DATA: Operating revenues........... $ 44,607 $ 37,430 $ 6,754 $ 46,207 $28,177 $12,159 Operating expenses(2)........ 95,089 77,239 10,417 47,765 25,293 9,884 Operating income (loss)...... (50,482) (39,809) (3,663) (1,558) 2,884 2,275 Interest expense............. 6,185 6,579 2,754 4,108 1,371 863 Income (loss) before other income (expenses).......... (56,667) (46,388) (6,417) (5,666) 1,513 1,412 Other income (expenses)...... (2,597) 1,648 (680) 1,514 342 -0- Benefit (provision) for income taxes............... -0- (2,184) 2,692 1,310 (705) (536) Net income (loss)............ (59,303) (47,633) (4,494) (3,201) 1,232 875 Basic and diluted income (loss) per share of Common stock...................... $ (1.41) $ (2.91) $ (0.77) $ (0.53) $ 0.20 $ 0.15 Weighted average shares of Common Stock outstanding... 41,960 17,407 8,375 7,720 6,269 3,089
4 5
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1995 1994 1993 ------------ ------------ ------------- ------------- ------------- BALANCE SHEET DATA: Working capital.............. $ (1,824) $ 16,210 $ (8,253) $(1,316) $(2,617) Total assets................. 135,350 122,097 101,139 69,926 24,948 Long-term obligations, excluding current portion.................... 95,733 25,538 15,545 18,285 12,719 Convertible subordinated Debentures................. -0- 16,521 14,150 -0- -0- Total liabilities............ 114,614 57,088 51,702 28,258 19,141 Total shareholders' equity... $ 20,736 $ 64,231 $ 48,059 $31,827 $ 5,808
- --------------- (1) Represents a three-month period as the Company changed its fiscal year end to December 31st of each year. (2) Operating expenses include non-recurring charges including losses on impairment of assets and write downs of investments in affiliates of $20.9 million and $0.6 million, respectively, for the year ended December 31, 1997 and $21.0 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. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Noncomparability Among other transactions and actions, during 1997, the Company opened the three new SpeedZones mid-year, closed four FECs, disposed of 12 FECs, recorded a $20.9 million charge for impairment of assets and a $0.6 million write down of investments in affiliates and a $2.4 million charge for relocation of its corporate headquarters, recorded a charge of $1.9 million for environmental remediation costs and issued 19.4 million shares of Common Stock upon conversion of certain convertible debt securities. Similarly, during 1996, the Company effected a recapitalization (see Note 2 of Notes to Consolidated Financial Statements), recorded a $21.0 million charge for impairment of assets and a $2.6 million write down of investments in affiliates, recorded a charge of $1.1 million for environmental remediation costs, and ceased conducting syndication and development/construction activities as separate businesses. 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 1996, the Company changed its fiscal year end from September 30 to December 31. The Company also acquired the partnership interests that it did not already own in three FECs in August, 1996. 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. Fiscal year ended December 31, 1997 compared to fiscal year ended December 31, 1996. The Company's operations resulted in a net loss of $59.3 million ($1.41 per share) for the year ended December 31, 1997 ("1997") as compared to a net loss of $47.6 million ($2.91 per share) for the year ended December 31, 1996 ("1996"). The net loss for 1997 included $25.8 million ($0.61 per share) of non-recurring charges and expenses, and the net loss for 1996 included $30.3 million ($1.74 per share) of non-recurring charges and expenses, associated with the Recapitalization and the continued implementation and reassessment of the Company's 5 6 business plan due to adjustments in carrying value of assets, increases in environmental reserves and, in 1997, the relocation of the Company's headquarters. Pursuant to the Company's business plan, 12 of the Company's non-strategic FECs were sold during 1997, five FECs are held for sale or closure, the Company is reviewing additional FECs for possible sale or closure, and the Company recorded a charge totaling $20.9 million under Statement of Financial Accounting Standards No. 121 ("SFAS 121") for impairment of assets and adjustments in carrying values. In 1996 the Company recorded a charge totaling $21.0 million under SFAS 121. See "Items 1 and 2 -- Business and Properties" for a discussion of the Company's business plan. In addition to the disposition of nonstrategic FECs and operational improvements, the Company's business plan involves the development and rollout of the Company's new "SpeedZone" concept. While the Company does not presently anticipate additional material nonrecurring charges against its existing asset base in 1998, and is taking steps to improve its results of operations, with the time required to fully develop its SpeedZone concept, the loss of operating revenues during the construction period for parks being reconsidered for redevelopment and other factors, management does not expect that the Company will return to profitability in 1998. Operating Revenues Entertainment revenues (revenues from the operation of FECs) increased by $7.7 million, or 22%, to $43.5 million for 1997 from $35.8 for 1996. The increase in entertainment revenues was due to (i) an increase in entertainment revenue from the FECs which were operated in both years ($2.2 million), (ii) an increase in entertainment revenues from the three FECs which were converted to SpeedZones ($5.9 million), and (iii) three FECs purchased in August 1996 that were only included in five months of 1996 ($2.3 million). These increases were offset by the decrease in revenue ($2.3 million) from the FECs which were sold in May 1997 and FECs closed in 1997 pending final disposition ($0.4 million). Operating Expenses Total 1997 operating expenses were $95.1 million, an increase of $17.9 million, or 23%, over 1996. Entertainment expenses increased by $18.3 million, or 55%, to $51.8 million for 1997 from $33.5 million for 1996. The increase is primarily a result of (i) greater operating costs associated with the increase in operating revenues generated by the new SpeedZone product, (ii) excess operating costs for the SpeedZone parks to provide enhanced customer service in the initial months of operations prior to the implementation of operational efficiencies, (iii) expenses associated with the grand opening of the SpeedZone parks and pre- opening costs such as promotion, advertising, training and non-recurring concept refinement costs, travel and (iv) additional advertising expenses incurred to revitalize customer awareness of all of the Company's FECs, and (v) the three FECs purchased in August 1996. General and administrative expenses decreased by $2.8 million, or 23%, to $9.2 million from $12.1 million for 1996. The decrease is primarily a result of expenses the Company incurred in 1996 relating to recording (i) bad debt reserves and various accruals of $1.6 million and (ii) costs associated with the Company's 1996 recapitalization. Depreciation and amortization expense increased by $3.8 million, or 61%, primarily as a result of the acquisition of the three parks in August 1996 and the depreciation recognized on the newly redeveloped SpeedZones. During each of 1997 and 1996, the Company recognized a loss due to impairment of assets of $20.9 million and $21.0 million, respectively, principally as a result of adjustments in the carrying value of assets resulting from the implementation of its new business plan and the determination that the carrying value of certain of such assets was higher than their undiscounted expected future cash flows. In addition, the Company adjusted the value of investments in its limited partnerships based upon their net realizable values which resulted in a loss on investments in affiliates of $0.6 million in 1997 and $2.6 million in 1996, recorded a charge of $1.1 million for environmental remediation costs in 1996 and an additional environmental charge of $1.9 million in 1997. 6 7 Other (Expense) Income During 1997, the Company began the relocation of its corporate headquarters from Atlanta, Georgia to Dallas, Texas, which was completed March 1, 1998. In connection with this relocation, the Company recognized office closing costs (including $2.2 million in severance costs) of approximately $2.4 million in 1997. 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 ($2.91 per share) for the year ended December 31, 1996 ("1996"), as compared to a net loss of $3.2 million ($0.53 per share) for the year ended September 30, 1995 ("1995"). The net loss for 1996 included $30.3 million ($1.74 per share) of non- recurring charges and expenses associated with the recapitalization and the Company's new business plan. 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 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 newly acquired FECs operated for only 10 1/2 months in 1995. A loss due to impairment of assets of $21.0 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 and recorded a charge for environmental remediation costs of $1.1 million. 7 8 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. 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. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity in 1997 were funds advanced by the Company's largest shareholder ($64.4 million) and third party debt ($25.4 million), and proceeds from the sale of non-strategic assets ($4.5 million). The Company's principal uses of liquidity in 1997 were to finance operations ($19.4 million), SpeedZone redevelopment and land costs ($59.2 million), purchase of property and equipment ($4.0 million) and the repayment of borrowings ($4.5 million). The Company and its largest shareholder have amended the existing $9.5 million and $30.0 million promissory notes (as amended, the "Shareholder Notes") to, among other things, increase the principal amount of the Shareholder Notes to $10.0 million and $65.0 million, respectively, and to provide that the Shareholder Notes are convertible at MEI Holdings' option into subordinated notes that are convertible into Common Stock ("Convertible Notes") which will have terms that an independent investment adviser advises the Company would ensure that the proceeds of a sale at that time of the Convertible Notes would be sufficient to repay the then-outstanding interest and principal on the Shareholder Notes and all third-party costs incurred in connection therewith. The amounts outstanding under the Shareholder Notes as of March 27, 1998, were $8.5 million and $39.8 million, respectively. The Company's largest shareholder is permitted, but is not required, to advance additional funds up to the face amounts under the Shareholder Notes. At December 31, 1997, the Company's total long-term debt was $95.7 million, $1.1 million of which is due during 1998. Required amortization of the Company's long-term debt during the next three years is as follows: 1999: $22.3 million; 2000: $4.0 million; and 2001: $67.5 million. The Company's $20.0 million term and revolving credit loan facility matures in August 2001, with no required principal amortization prior thereto. The Company presently expects that the conversion of certain other FECs to the SpeedZone concept and the development of new SpeedZone parks will require the Company to secure additional capital resources, which could involve the issuance of debt or equity securities, securitization of assets or other capital transactions. The cost of conversion of existing FECs to the SpeedZone concept, or the development of new SpeedZone parks, will be dependent upon various factors, including land acquisition, construction and other costs, but is expected to be substantial ($10-$20 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 assurance 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. In addition, the Company expects to seek to refinance its existing indebtedness, including indebtedness held by its largest shareholder, during 1998. Any refinancing could involve the issuance of additional debt or equity securities, or rights in respect thereof, the terms of which can not be predicted but could involve, among 8 9 other possible transactions, additional asset sales, spin-offs or other transactions. There can be no assurance that such refinancing will be available to the Company or as to the amount and 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 Consolidated Balance Sheet.................................. F-2 Consolidated Statement of Operations........................ F-3 Consolidated Statement of Cash Flows........................ F-4 Consolidated Statement of Changes in Shareholders' Equity... F-5 and F-6 Notes to Consolidated Financial Statements.................. F-7 through F-25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 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 1998 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. 9 10 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 (incorporated by reference to the Company's Current Report on Form 8-K, dated June 19, 1996 (the "1996 8-K")) 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 Company's 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 10-K for the year ended September 30, 1994) and Supplemental Indenture thereto dated August 27, 1996 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (the "1996 10-K")) 4.4 -- Preferred Stock Designations (incorporated by reference to the 1996 10-K) 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 Company's proxy statement on Schedule 14A for the 1997 Annual Meeting of Shareholders) 10.4 -- Promissory Note, dated June 30, 1993, in the principal amount of $6,150,000 in favor of M.B. Seretean (incorporated by reference to the Registration Statement) 10.5 -- Consolidated, Amended and Restated Loan and Security Agreement, dated August 22, 1996, between the Company and Foothill Capital Corporation (incorporated by reference to 1996 10-K) 10.6 -- Amendment No. 4 to the Consolidated, Amended and Restated Loan Security, dated August 22, 1996, between the Company and Foothill Capital Corporation (filed herewith) 10.7 -- 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 11
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.8 -- Warrant, dated August 28, 1996, by the Company (incorporated by reference to MEI Holdings' 13D-1) 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 1996 8-K) 10.11 -- 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) 10.12 -- Second Amended and Restated Promissory Note from the Company to MEI Holdings for $65.0 million, dated as of June 5, 1997 (filed herewith) 10.13 -- Amended and Restated Promissory Note from the Company to MEI Holdings for $10.0 million, dated as of June 5, 1997 (filed herewith) 10.14 -- Loan Agreement, dated as of June 27, 1997, between Malibu Centers, Inc. and Nomura Asset Capital Corporation ("Nomura") (incorporated by reference to the 2nd Q 1997 10-Q) 10.15 -- Promissory Note from Malibu Centers, Inc. to Nomura for $21,390,375 (incorporated by reference to the (incorporated by reference to the 2nd Q 1997 10-Q) 10.16 -- Guaranty, dated June 27, 1997, of MEI Holdings in favor of Nomura (incorporated by reference to the 2nd Q 1997 10-Q) 21 -- Subsidiaries (incorporated by reference to the 1996 10-K) 24 -- Powers of Attorney 27 -- Financial Data Schedule (for SEC purposes only)
(b) Reports on Form 8-K: No Reports on Form 8-K were filed by the Company during the fourth quarter of 1997. 11 12 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. MALIBU ENTERTAINMENT WORLDWIDE, INC. Date: March 27, 1998 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 27, 1998.
SIGNATURE TITLE --------- ----- /s/ ROBERT A. WHITMAN Chief Executive Officer, Chairman of the Board - ----------------------------------------------------- and Director Robert A. Whitman /s/ RICHARD M. FITZPATRICK Chief Financial Officer and Director - ----------------------------------------------------- Richard M. FitzPatrick * Director - ----------------------------------------------------- Daniel A. Decker * Director - ----------------------------------------------------- L. Scott Demerau * Director - ----------------------------------------------------- Julia E. Demerau * Director - ----------------------------------------------------- James T. Hands * Director - ----------------------------------------------------- William M. Kearns, Jr. * Director - ----------------------------------------------------- Steven D. Scheetz * Director - ----------------------------------------------------- Bert W. Wasserman
- --------------- * 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 12 13 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Malibu Entertainment Worldwide, Inc. We have audited the accompanying consolidated balance sheets of MALIBU ENTERTAINMENT WORLDWIDE, INC. (A GEORGIA CORPORATION) AND SUBSIDIARIES as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years ended December 31, 1997 and 1996, the three months ended December 31, 1995, and the year ended September 30, 1995. 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. 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 Malibu Entertainment Worldwide, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years ended December 31, 1997 and 1996, the three months ended December 31, 1995, and the year ended September 30, 1995 in conformity with generally accepted accounting principles. Arthur Andersen LLP Atlanta, Georgia March 31, 1998 F-1 14 MALIBU ENTERTAINMENT WORLDWIDE, INC. CONSOLIDATED BALANCE SHEET ASSETS
DECEMBER 31, DECEMBER 31, 1997 1996 ------------- ------------ Current Cash and cash equivalents................................. $ 5,270,843 $ 2,583,735 Restricted cash........................................... 1,302,724.... 966,075 Accounts receivable, net of allowance for doubtful accounts of $1,525,130 and $1,583,376................... -- 109,537 Stock subscription receivable............................. -- 16,076,260 Inventories............................................... 1,976,524 1,359,331 Current portion of notes receivable....................... 79,927 172,284 Assets held for sale...................................... 3,002,672 6,271,003 Other current assets...................................... 1,019,946 1,261,694 ------------- ------------ Total current assets............................... 12,652,636 28,799,919 ------------- ------------ Property and equipment, less accumulated depreciation....... 116,125,198 85,484,158 ------------- ------------ Other noncurrent Investments in and advances to limited partnerships....... 2,180,410 2,288,129 Notes receivable.......................................... 41,823 272,267 Other assets.............................................. 163,805 190,479 Debt issuance costs, less accumulated amortization........ 3,155,526 2,453,798 Intangible assets, less accumulated amortization.......... 1,029,986 2,608,608 ------------- ------------ Total other noncurrent assets...................... 6,571,550 7,813,281 ------------- ------------ $ 135,350,104 $122,097,358 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of notes payable.......................... $ 1,060,411 $ 1,120,467 Accounts payable.......................................... 5,623,907 2,354,823 Accrued expenses.......................................... 6,719,027 5,864,595 Accrued expenses related to assets held for sale.......... 1,073,714 3,250,000 ------------- ------------ Total current liabilities.......................... 14,477,059 12,589,885 Noncurrent liabilities Line of credit............................................ 7,500,000 7,250,053 Term loan revolver........................................ 10,000,000 12,500,000 Notes payable to shareholder.............................. 48,301,668 -- Notes payable............................................. 28,836,505 5,788,475 Convertible subordinated debentures....................... -- 16,521,422 Accrued interest due to shareholder....................... 1,094,781 -- Other accrued expenses.................................... 4,403,856 2,438,383 ------------- ------------ Total liabilities.................................. 114,613,869 57,088,218 ------------- ------------ Contingent liability for guaranteed stock values.......... -- 777,861 ------------- ------------ Shareholders' equity Preferred stock, 6,000,000 shares authorized with no par value Series F, 2,700,000 authorized; 0 and 808,692 issued and outstanding............................................ -- 22,700,000 Series G, 213,551 authorized; 0 and 213,551 issued and outstanding............................................ -- 4,826,260 Common stock, 100,000,000 shares authorized with no par value; 48,376,776 and 28,472,877 shares issued and outstanding............................................. 141,212,037 97,062,239 Outstanding warrants...................................... 2,085,100 2,440,100 Notes receivable from employees........................... (5,864,523) (5,681,951) Accumulated deficit....................................... (116,696,379) (57,115,369) ------------- ------------ Total shareholders' equity......................... 20,736,235 64,231,279 ------------- ------------ $ 135,350,104 $122,097,358 ============= ============
The accompanying notes are an integral part of these consolidated financial statements. F-2 15 MALIBU ENTERTAINMENT WORLDWIDE, INC. CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE FOR THE YEAR ENDED FOR THE YEAR ENDED MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1997 1996 1995 1995 ------------------ ------------------ ------------- ------------------ OPERATING REVENUES Entertainment revenue............................. $ 43,523,933 $ 35,810,918 $ 6,007,447 $32,185,420 Development and construction revenue from related parties......................................... -- -- 265,695 10,311,271 Syndication revenue............................... -- -- 70,000 1,600,000 Other............................................. 1,083,545 1,619,205 411,236 2,109,995 ------------ ------------ ----------- ----------- Total operating revenues.................. 44,607,478 37,430,123 6,754,378 46,206,686 ------------ ------------ ----------- ----------- OPERATING EXPENSES Entertainment expenses............................ 51,837,953 33,533,903 6,363,800 25,930,779 General and administrative expenses............... 9,248,877 12,063,425 2,395,197 7,207,072 Other expenses.................................... 632,402 712,099 123,988 515,569 Development and construction expense.............. -- -- 241,138 9,246,197 Depreciation and amortization..................... 9,995,090 6,220,848 1,293,142 4,572,211 Provision for loss due to impairment of assets.... 20,869,962 21,038,417 -- -- Provision for environmental costs................. 1,900,000 1,100,000 -- -- Provision for loss on investments in limited partnerships.................................... 604,957 2,570,000 -- -- Realized loss on sale of securities............... -- -- -- 293,430 ------------ ------------ ----------- ----------- Total operating expenses.................. 95,089,241 77,238,692 10,417,265 47,765,258 ------------ ------------ ----------- ----------- Operating loss.................................... (50,481,763) (39,808,569) (3,662,887) (1,558,572) OTHER (EXPENSE) INCOME Interest expense.................................. (6,184,502) (6,578,838) (2,754,290) (4,108,445) Interest income................................... 608,570 308,007 114,285 421,176 Office closing expense............................ (2,410,000) -- -- -- 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............................................. (795,576) 1,128,149 -- 1,093,750 ------------ ------------ ----------- ----------- Loss before benefit (provision) for income taxes and cumulative effect of a change in accounting principle and extraordinary item................ (59,263,271) (44,739,669) (7,097,892) (4,152,091) Benefit (provision) for income taxes.............. -- (2,184,357) 2,692,295 1,310,517 Equity in net (losses) earnings of limited partnerships, net of tax........................ (39,240) (46,287) (88,064) 78,891 ------------ ------------ ----------- ----------- Loss before cumulative effect of a change in accounting principle and extraordinary item..... (59,302,511) (46,970,313) (4,493,661) (2,762,683) Cumulative effect of a change in accounting principle, net of tax........................... -- -- -- (438,068) Extraordinary item................................ -- (662,580) -- -- ------------ ------------ ----------- ----------- Net loss.......................................... $(59,302,511) $(47,632,893) $(4,493,661) $(3,200,751) ============ ============ =========== =========== NET LOSS APPLICABLE TO COMMON STOCK Net loss........................................ $(59,302,511) $(47,632,893) $(4,493,661) $(3,200,751) Less: Preferred stock dividends................. -- (2,969,464) (1,976,238) (866,333) ------------ ------------ ----------- ----------- Net loss applicable to common stock............... $(59,302,511) $(50,602,357) $(6,469,899) $(4,067,084) ============ ============ =========== =========== Basic and diluted loss applicable to common stock before cumulative effect of a change in accounting principle and extraordinary item..... $ (1.41) $ (2.87) $ (0.77) $ (0.47) Basic and diluted loss per share of common stock as a result of cumulative effect of a change in accounting principle............................ -- -- -- (0.06) Basic and diluted effect of extraordinary item.... -- (0.04) -- -- ------------ ------------ ----------- ----------- Basic and diluted loss per share of common stock........................................... $ (1.41) $ (2.91) $ (0.77) $ (0.53) ============ ============ =========== =========== Weighted average number of shares of common stock used in calculating net loss per share.......... 41,959,558 17,406,837 8,374,750 7,719,727 ============ ============ =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-3 16 MALIBU ENTERTAINMENT WORLDWIDE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE FOR THE YEAR ENDED FOR THE YEAR ENDED MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1997 1996 1995 1995 ------------------ ------------------ ------------- ------------------ Operating activities: Net loss......................................... $(59,302,511) $(47,632,893) $(4,493,661) $ (3,200,751) Extraordinary item, net of income taxes.......... 662,580 Adjustments to reconcile net loss to net cash used by operating activities Cumulative effect of a change in accounting principle.................................... 706,562 Provision for discontinued operations.......... Syndication revenue............................ (70,000) (1,050,000) Equity in net (losses) earnings of limited partnerships................................. (39,240) 46,287 88,064 (78,891) Increase in allowance for doubtful accounts.... 244,502 853,039 37,954 793,617 Depreciation and amortization.................. 9,995,090 6,220,848 1,293,142 4,572,211 Interest expense associated with amortization of loan costs................................ 1,337,411 1,399,796 1,791,720 618,477 Deferred income taxes.......................... 2,205,829 (2,186,850) (1,811,494) Realized loss on securities/investments in affiliates................................... 604,957 2,570,000 293,430 Loss (gain) on sales or write-off of property and equipment................................ 845,135 (1,129,652) 146,202 Loss on impairment of assets................... 20,869,962 21,038,417 Amortization of warrants....................... 234,722 102,778 408,333 Gain associated with cancellation of warrants..................................... (422,333) (Gain) loss associated with development and construction division........................ (795,000) 795,000 Issuance of common stock and warrants.......... 60,000 132,964 Changes in assets and liabilities, net of acquisitions Decrease (increase) in accounts receivable..... 109,537 (802,868) 43,475 (504,351) Decrease (increase) in inventory............... (676,873) 306,643 (95,635) (238,979) Decrease (increase) in other assets............ 52,526 264,737 (465,051) (844,606) Decrease in advances to limited partnerships... 425,000 Decrease (increase) in intangible assets....... (113,653) 13,504 (2,174,194) (Decrease) increase in accounts payable........ 3,269,084 925,378 (12,095) (960,460) (Decrease) increase in accrued expenses........ 2,819,905 1,589,153 511,524 (919,179) Decrease in restructuring reserve.............. (571,647) Increase in accrued interest due to shareholder.................................. 1,094,781 (Decrease) increase in deferred revenue........ (1,856,248) (587,892) 2,444,140 ------------ ------------ ----------- ------------ Cash used by operating activities.......... (19,461,034) (14,248,061) (3,114,563) (1,374,933) ------------ ------------ ----------- ------------ Investing activities: Purchases of property and equipment.............. (63,210,827) (14,447,703) (1,226,199) (1,224,137) Proceeds from sales of property and equipment.... 4,491,247 3,431,107 1,600,331 Proceeds from sale of securities available for sale........................................... 2,665,921 Increase in notes receivable..................... (68,750) (435,745) (467,972) Principal payments under notes receivable........ 147,049 459,110 21,437 66,116 Decrease (increase) in restricted certificates of deposit........................................ 1,925,686 (42,221) (1,324,708) Decrease (increase) in restricted cash........... (336,649) 1,150,471 (9,381) (2,107,165) Increase in investments in limited partnerships................................... (574,230) (2,588,786) (216,628) (537,106) Purchases of facilities.......................... (9,427,340) (20,976,284) ------------ ------------ ----------- ------------ Cash used in investing activities.......... (59,552,160) (19,933,200) (1,472,992) (22,305,004) ------------ ------------ ----------- ------------ Financing activities: Proceeds from borrowings......................... 73,657,630 40,699,206 15,760,980 Payments of borrowings........................... (4,502,733) (42,495,703) (1,453,635) (16,560,733) Increase in debt issuance costs.................. (2,317,638) (2,744,033) Decrease (increase) in subscription receivable... 16,076,260 (16,076,260) Increase in interest on notes receivable for employees...................................... (418,076) (113,685) Proceeds from issuance of convertible subordinated debenture......................... 14,150,000 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 Payment of guaranteed stock values............... (777,861) (3,018,451) Stock issuance costs............................. (3,885,578) (54,241) (2,504,664) Payment of dividends on preferred stock.......... (138,455) Purchase and cancellation of common stock........ (17,280) (722,744) (51,257) (5,658,027) ------------ ------------ ----------- ------------ Cash provided by (used in) financing activities............................... 81,700,302 35,215,658 (1,059,133) 29,688,942 ------------ ------------ ----------- ------------ Increase in cash and cash equivalents.............. 2,687,108 1,034,397 (5,646,688) 6,009,005 Cash and cash equivalents, beginning of year....... 2,583,735 1,549,338 7,196,026 1,187,021 ------------ ------------ ----------- ------------ Cash and cash equivalents, end of year............. $ 5,270,843 $ 2,583,735 $ 1,549,338 $ 7,196,026 ============ ============ =========== ============
The accompanying notes are an integral part of these consolidated financial statements. F-4 17 MALIBU ENTERTAINMENT WORLDWIDE, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
PREFERRED STOCK --------------------------------------------------------------------------------- CLASS A CLASS B CLASS C CLASS D CLASS F CLASS G ----------- ----------- ---------- ----------- ------------ ----------- Balance, September 30, 1994.................. $ $ $ $ $ $ Issuance of preferred stock................. 11,500,000 Discount on preferred stock................. (1,725,000) Issuance of common stock.................... Stock issuance costs........................ (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 Net loss.................................... ----------- ----------- ---------- ----------- ------------ ----------- Balance, September 30, 1995.................. 9,778,833 Issuance of preferred stock................. 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 Preferred stock converted................... (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.................................... ----------- ----------- ---------- ----------- ------------ ----------- TOTAL PREFERRED COMMON OUTSTANDING UNEARNED STOCK STOCK WARRANTS COMPENSATION ------------ ----------- ----------- ------------ Balance, September 30, 1994.................. $ $30,398,487 $ 300,000 $ Issuance of preferred stock................. 11,500,000 Discount on preferred stock................. (1,725,000) Issuance of common stock.................... 13,051,923 Stock issuance costs........................ (862,500) (2,547,164) Discount on 10% subordinated debentures..... Purchase and cancellation of stock.......... (5,658,027) Warrants issued in connection with purchase of MGPC................................... 900,000 Warrants issued in connection with financial advisory agreement........................ 333,333 Unearned compensation in connection with the financial advisory agreement.............. (250,000) Warrants issued in connection with the Company's initial public offering......... 650,000 Warrants issued in connection with November 1994 equity offering...................... 100,000 Warrants issued in connection with NEF...... 25,000 Warrants issued in connection with September 1995 equity offering...................... 375,000 Adjustment to common stock as a result of guaranteed stock prices................... 312,956 Change in unrealized loss on securities available for sale, net of tax............ Accretion of preferred stock dividends...... 866,333 Net loss.................................... ------------ ----------- ----------- ---------- Balance, September 30, 1995.................. 9,778,833 35,558,175 2,683,333 (250,000) Issuance of preferred stock................. 500,000 Issuance of common stock.................... 101,364 Stock issuance costs........................ (221,529) Purchase and cancellation of stock.......... (51,257) Warrants issued in connection with financial advisory agreement........................ 350,000 Unearned compensation in connection with financial advisory agreements............. (247,222) Warrants issued............................. 31,600 Adjustment to common stock as a result of guaranteed stock prices................... (585,247) Accretion of preferred stock dividends...... 1,976,238 Preferred stock converted................... (7,034,931) 7,034,931 Subordinated debt converted................. 2,031,892 Transfer of Class A preferred stock to Class B preferred stock......................... Net loss.................................... ------------ ----------- ----------- ---------- NOTES LOSS ON RECEIVABLE SECURITIES FROM AVAILABLE ACCUMULATED EMPLOYEES FOR SALE DEFICIT TOTAL ----------- ----------- ------------- ------------ Balance, September 30, 1994.................. $ $ (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 Stock issuance costs........................ (3,409,664) Discount on 10% subordinated debentures..... 1,275,000 1,275,000 Purchase and cancellation of stock.......... (5,658,027) Warrants issued in connection with purchase of MGPC................................... 900,000 Warrants issued in connection with financial advisory agreement........................ 333,333 Unearned compensation in connection with the financial advisory agreement.............. (250,000) Warrants issued in connection with the Company's initial public offering......... 650,000 Warrants issued in connection with November 1994 equity offering...................... 100,000 Warrants issued in connection with NEF...... 25,000 Warrants issued in connection with September 1995 equity offering...................... 375,000 Adjustment to common stock as a result of guaranteed stock prices................... 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) ----------- ----------- ------------- ------------ Balance, September 30, 1995.................. 288,911 48,059,252 Issuance of preferred stock................. 500,000 Issuance of common stock.................... 101,364 Stock issuance costs........................ (36,617) (258,146) Purchase and cancellation of stock.......... (51,257) Warrants issued in connection with financial advisory agreement........................ 350,000 Unearned compensation in connection with financial advisory agreements............. (247,222) Warrants issued............................. 31,600 Adjustment to common stock as a result of guaranteed stock prices................... (585,247) Accretion of preferred stock dividends...... (1,976,238) -- Preferred stock converted................... -- Subordinated debt converted................. 2,031,892 Transfer of Class A preferred stock to Class B preferred stock......................... -- Net loss.................................... (4,493,661) (4,493,661) ----------- ----------- ------------- ------------
F-5 18 MALIBU ENTERTAINMENT WORLDWIDE, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY -- (CONTINUED)
PREFERRED STOCK --------------------------------------------------------------------------------- CLASS A CLASS B CLASS C CLASS D CLASS F CLASS G ----------- ----------- ---------- ----------- ------------ ----------- Balance, December 31, 1995................... 410,109 4,500,000 500,000 Issuance of preferred stock................. 6,662,000 22,700,000 4,826,260 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 Accretion of preferred stock discount....... Preferred stock converted................... (310,126) (3,502,700) Preferred stock redeemed.................... (1,354,500) (500,000) (4,425,300) Subordinated debt converted................. Preferred stock converted to subordinated debt...................................... (3,160,500) Payment of dividends........................ (138,455) Cancellation of warrants.................... Net loss.................................... ----------- ----------- ---------- ----------- ------------ ----------- Balance, December 31, 1996................... 22,700,000 4,826,260 Issuance of common stock.................... Interest on notes receivable from employees................................. Purchase of stock from employees............ Stock issuance costs........................ Subordinated debt converted................. 15,671,322 Conversion of preferred stock............... (38,371,322) (4,826,260) Termination of warrants..................... Net loss.................................... ----------- ----------- ---------- ----------- ------------ ----------- Balance, December 31, 1997................... $ $ $ $ $ $ =========== =========== ========== =========== ============ =========== TOTAL PREFERRED COMMON OUTSTANDING UNEARNED STOCK STOCK WARRANTS COMPENSATION ------------ ----------- ----------- ------------ Balance, December 31, 1995................... 5,230,340 43,368,529 3,364,933 457,712 Issuance of preferred stock................. 34,188,260 Issuance of common stock.................... 51,087,602 Discount on 9% subordinated debentures...... Interest on notes receivable from employees................................. Stock issuance costs........................ (3,353,921) Purchase and cancellation of stock.......... (722,744) Unearned compensation in connection with the financial advisory agreements............. 234,722 Warrants issued............................. 60,000 Adjustment to common stock as a result of guaranteed stock prices................... (682,201) Accretion and payment of preferred stock dividends................................. 1,509,441 Accretion of preferred stock discount....... Preferred stock converted................... (3,812,826) 3,812,826 Preferred stock redeemed.................... (6,279,800) Subordinated debt converted................. 3,052,348 Preferred stock converted to subordinated debt...................................... (3,160,500) Payment of dividends........................ (138,455) Cancellation of warrants.................... (684,833) 262,500 Net loss.................................... ------------ ----------- ----------- ---------- Balance, December 31, 1996................... 27,526,260 97,062,239 2,440,100 Issuance of common stock.................... 556,000 Interest on notes receivable from employees................................. Purchase of stock from employees............ (808,784) Stock issuance costs........................ Subordinated debt converted................. 15,671,322 850,000 Conversion of preferred stock............... (43,197,582) 43,197,582 Termination of warrants..................... 355,000 (355,000) Net loss.................................... ------------ ----------- ----------- ---------- Balance, December 31, 1997................... $ $141,212,037 $ 2,085,100 $ ============ =========== =========== ========== NOTES LOSS ON RECEIVABLE SECURITIES FROM AVAILABLE ACCUMULATED EMPLOYEES FOR SALE DEFICIT TOTAL ----------- ----------- ------------- ------------ Balance, December 31, 1995................... (6,217,605) 45,438,575 Issuance of preferred stock................. 34,188,260 Issuance of common stock.................... (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........................ (531,657) (3,885,578) Purchase and cancellation of stock.......... (722,744) Unearned compensation in connection with the financial advisory agreements............. 234,722 Warrants issued............................. 60,000 Adjustment to common stock as a result of guaranteed stock prices................... (682,201) Accretion and payment of preferred stock dividends................................. (2,969,464) (1,460,023) Accretion of preferred stock discount....... -- Preferred stock converted................... -- Preferred stock redeemed.................... (6,279,800) Subordinated debt converted................. 3,052,348 Preferred stock converted to subordinated debt...................................... (3,160,500) Payment of dividends........................ (138,455) Cancellation of warrants.................... (422,333) Net loss.................................... (47,632,893) (47,632,893) ----------- ----------- ------------- ------------ Balance, December 31, 1996................... (5,681,951) (57,115,369) 64,231,279 Issuance of common stock.................... (556,000) -- Interest on notes receivable from employees................................. (418,076) (418,076) Purchase of stock from employees............ 791,504 (17,280) Stock issuance costs........................ (278,499) (278,499) Subordinated debt converted................. 16,521,322 Conversion of preferred stock............... -- Termination of warrants..................... -- Net loss.................................... (59,302,511) (59,302,511) ----------- ----------- ------------- ------------ Balance, December 31, 1997................... $(5,864,523) $ $(116,696,339) $ 20,736,235 =========== =========== ============= ============
F-6 19 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES Malibu Entertainment Worldwide, Inc. (the "Company") owns and operates multi-attraction entertainment centers. The Company's original concept was the family entertainment center ("FEC") which generally included a combination of several entertainment attractions at a single location such as miniature golf courses, go-karts, bumper boats, batting cages, video game rooms and souvenir concession stands and, in some parks, scaled grand prix style racetracks utilizing the Company's proprietary Malibu Grand Prix race cars. As of March 27, 1998, the Company owned, leased or had a majority ownership interest in 29 traditional FECs, one of which was held for sale. In 1997, the Company introduced a new concept -- the "SpeedZone" parks -- primarily designed for young adults. SpeedZones feature the Company's Malibu Grand Prix racing attraction, 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 implementation of the SpeedZone concept began in 1997 with the re-development and opening, at the end of June, of the new SpeedZones in Dallas and Los Angeles, and a scaled-down version in Atlanta. At the Company's annual meeting of shareholders on April 28, 1997, the Company's shareholders approved the change in the name of the Company from Mountasia Entertainment International, Inc. to Malibu Entertainment Worldwide, Inc. 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 operated 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. 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). 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. F-7 20 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 are capitalized and amortized over 17 years. 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 PER SHARE OF COMMON STOCK Net loss per share of common stock is computed by dividing net loss applicable to common stock by the weighted average number of shares of common stock outstanding during the year. Potentially issuable shares under stock options which were not included in the loss per share calculations because they were anti-dilutive were approximately 16,000, 5,000, 1,000, and 3,000 shares during the years ended December 31, 1997 and 1996, the three months ended December 31, 1995 and the year ended September 30, 1995, respectively. Any preferred 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. During 1997 the Company adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share, (SFAS 128). The effect of adopting SFAS 128 was not material to the Company. 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. F-8 21 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF In 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. (Notes 9 and 23) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires 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 with the current year 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 automatically upon the occurrence of certain events. In addition, MEI Holdings is entitled to additional Common Stock 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 6,655,623 Common Shares to MEI Holdings for $22.7 million. 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 (subsequently converted into 2,135,513 Common Shares). 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 F-9 22 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 year ended December 31, 1996 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 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. 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. F-10 23 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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).
FOR THE THREE FOR THE YEAR ENDED MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 SEPTEMBER 30, 1995 ------------------ ----------------- ------------------ Operating revenues........................ $ 39,794 $ 7,490 $43,645 ======== ======= ======= Loss before extraordinary item............ $(47,574) $(4,943) $(5,960) ======== ======= ======= Basic and diluted loss per share of common stock................................... $ (2.94) $ (0.83) $ (0.77) ======== ======= =======
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 Fun 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. The Company leased the Willowbrook and Columbus FECs from January 1996 through the purchase date for approximately $576,000 and $310,000, respectively. 6. RELATED PARTY TRANSACTIONS 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 4,477,521 Common Shares. During 1997, the Company entered into two promissory notes with MEI Holdings with terms which management believed to be comparable to terms which would be attainable from third parties (Note 13). The Company paid loan costs of $685,000 to MEI Holdings in connection with one of the promissory notes. Additionally, the Company reimburses MEI Holdings for certain costs incurred by MEI Holdings for the benefit of the Company. The total amount charged to the Company for overhead costs was $636,000 for the year ended December 31, 1997. 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 were 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 F-11 24 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 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 were owned 20% and 50%, respectively, by a relative of the Company's former President and Chief Executive Officer. During the year ended December 31, 1996 the Company terminated the strategic alliance agreements and recognized a loss of approximately $1,006,000. 7. NOTES RECEIVABLE Notes receivable are summarized as follows:
DECEMBER 31, DECEMBER 30, 1997 1996 ------------ ------------ RELATED PARTIES Note receivable from MFG of Greenville, L.P., interest at 6%, unsecured; paid in February 1997..................... $ -- $ 116,600 Note receivable from Mountasia of Colorado Springs, L.P., interest at 10%, due in March 2005, unsecured............ 50,000 50,000 Note receivable from officer, non interest bearing, due on demand, secured by common stock.......................... 61,750 -- OTHER Note receivable from Swingtime, Inc., interest at 9.5%; due in January 2001, secured by real and personal property... 60,000 327,951 Notes receivable from an individual, interest at 12%; due on demand, unsecured..................................... 30,000 30,000 --------- --------- 201,750 524,551 Less: Current portion (before reserve of $30,000 in 1997).................................................... (109,927) (172,284) --------- --------- Long-term portion (before reserve of $50,000 in 1997 and $80,000 in 1996)................................................. 91,823 352,267 Less: Reserve for uncollectible notes receivable........... (80,000) (80,000) --------- --------- $ 11,823 272,267 ========= =========
F-12 25 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future aggregate receipts of notes receivable are due as follows (without giving effect to the reserves reflected above):
YEAR ENDING DECEMBER 31, - ------------ 1998....................................................... $109,927 1999....................................................... 19,981 2000....................................................... 20,053 2001....................................................... 51,789 -------- $201,750 ========
8. PROPERTY AND EQUIPMENT Property and equipment are summarized as follows:
DECEMBER 31, DECEMBER 30, 1997 1996 ------------ ------------ Land................................................... $ 30,272,715 $27,188,146 Racetracks, miniature golf courses and clubhouses...... 73,618,092 52,740,049 Equipment.............................................. 8,669,489 2,226,917 Games.................................................. 9,241,632 8,246,648 Transportation equipment............................... -- 38,171 Construction in progress............................... 3,821,508 3,982,037 ------------ ----------- 125,623,436 94,421,968 Less: Accumulated depreciation......................... (9,497,518) (8,937,810) ------------ ----------- $116,125,918 $85,484,158 ============ ===========
During 1997, the Company capitalized interest of $504,000 related to the construction of the three SpeedZones. 9. ASSETS HELD FOR SALE (SEE ALSO NOTE 23) During 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 business plan, the Company determined that it would initially sell or close 15 parks. The 15 parks to be sold generated operating revenues of $4.5 million and had an operating loss of $517,000 for the year ended December 31, 1996. During 1997, the Company sold 12 of the FECs for a total sales price of $3.8 million. During 1997, the Company closed an additional three FECs. The Company estimated the values of certain FECs using their undiscounted cash flows and recorded a writedown of $13.2 million for the year ended December 31, 1996. The values of FECs to be sold or closed were estimated using their expected sales prices and resulted in a reserve for sale or closure of $3.3 million and a write down of $4.6 million to net realizable value for the year ended December 31, 1996. The Company is currently marketing the FECs to be sold and expects to dispose of these FECs within a year. 10. 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 comple- F-13 26 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) tion 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 (Note 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 required 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 FEC's 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 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 FEC's in which the Company has ownership interests. Management fees for the years ended December 31, 1997 and 1996, the three month period ended December 31, 1995 and the year ended September 30, 1995 were $64,000, $153,000, $74,000, and $347,000, respectively. Prior to 1997, 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 year ended September 30, 1995 was approximately $209,000, $134,000, and $370,000, respectively. During the years ended December 31, 1997 and 1996, the Company adjusted the carrying value of its investments in limited partnerships which resulted in a writedown of its investments by $605,000 and $2,570,000, respectively. 11. INTANGIBLE ASSETS Intangible assets are summarized as follows:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Goodwill................................................... $1,049,910 $2,856,903 Trademarks................................................. 126,381 18,750 ---------- ---------- 1,176,291 2,875,653 Less: Accumulated amortization............................. (146,305) (267,045) ---------- ---------- $1,029,986 $2,608,608 ========== ==========
F-14 27 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During 1997 and 1996, the Company wrote down certain assets in accordance with Statement of Financial Accounting Standards No. 121, including goodwill of $1,593,000 and $8,596,000, respectively (Notes 9 and 23). 12. ACCRUED EXPENSES Accrued expenses consist of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Insurance.................................................. $ 793,712 $ 954,854 Interest................................................... 240,579 404,365 Payroll and related expenses............................... 2,680,123 971,814 Property taxes............................................. -- 149,104 Sales tax.................................................. 529,648 962,626 Environmental.............................................. 998,623 276,067 Accrued rent............................................... 534,685 722,903 Accrued legal.............................................. 129,559 322,510 Income taxes............................................... 102,729 86,888 Other...................................................... 709,369 1,013,464 ---------- ---------- $6,719,027 $5,864,595 ========== ==========
13. NOTES PAYABLE TO SHAREHOLDER During 1997, the Company entered into two promissory notes with MEI Holdings with terms which management believed to be comparable to terms which would be attainable from third parties. The initial amounts of the two promissory notes were $9.5 million and $30.0 million, respectively. As subsequently amended, the first promissory note is for $10.0 million with interest at LIBOR plus 350 basis points and is payable in January 1999 and the second promissory note is for maximum borrowings of up to $65.0 million with interest at 10% and matures in August 2001. MEI Holdings has the option, but is not obligated, to advance amounts in excess of the amounts presently outstanding under the notes. The notes are each convertible at MEI Holdings' option into subordinated notes that are convertible into Common Stock ("Convertible Notes") which will have terms that an independent investment adviser advises the Company would ensure that the proceeds of a sale at that time of the Convertible Notes would be sufficient to repay the then outstanding interest and principal on the $10.0 million and $65.0 million notes and all third-party costs incurred in connection therewith. At December 31, 1997 the outstanding balance under the $10.0 million and the $65.0 million was approximately $8.0 million and $40.3 million, respectively. Accrued interest on the notes totaled approximately $1.094 million as of December 31, 1997. 14. LINE OF CREDIT AND TERM LOAN REVOLVER In 1996 the Company entered into a loan agreement ("Senior Credit Facility"), which was amended during 1997, 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, 1997 the outstanding balance under the term loan and revolver was $10,000,000 and $7,500,000, respectively. F-15 28 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company is required to maintain affirmative covenants regarding among other things, the maintenance of certain financial ratios and net worth. At December 31, 1997 the Company was in compliance with the various covenants. 15. NOTES PAYABLE AND SUBORDINATED DEBENTURES Notes payable are summarized as follows:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Mortgage note bearing interest at LIBOR plus 350 basis points, payable in September 1998, extendable at the Company's option to January 1999; secured by real estate.................................................. $21,390,375 $ -- Mortgage notes bearing interest at prime plus 2.75% to 11.5%, weighted average interest rate of 9% and 10%, respectively, payable in various monthly installments of principal and interest and balloon payments through 2018; secured by land and miniature golf courses.............................. 4,576,836 1,847,844 Notes payable to financial institutions bearing interest at rates ranging from 8% to 10%, weighted average interest rate of 10%, with various maturity dates through 2000; secured by land, miniature golf courses and equipment, intangibles, and the guarantee of certain shareholders............... 1,219,702 2,007,173 Note payable to a former shareholder...................... 2,710,003 3,053,925 ----------- ---------- 29,896,916 6,908,942 Less: Current portion..................................... (1,060,411) (1,120,467) ----------- ---------- $28,836,505 $5,788,475 =========== ==========
Future maturities of notes payable are as follows:
YEAR ENDING DECEMBER 31, ------------ 1998.................................................. $ 1,060,411 1999.................................................. 22,276,365 2000.................................................. 3,981,947 2001.................................................. 388,129 2002.................................................. 410,000 Thereafter............................................ 1,780,064 ----------- $29,896,916 ===========
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. At December 31, 1996, there were two issues of Convertible Subordinated Debentures (9% and 9.1% issues) with an aggregate principal balance of $16,521,422. Each of the issues of the debentures was F-16 29 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) convertible into common shares at maximum conversion prices ranging from $3.50-$5.00 per share. Such debentures were converted into common shares during 1997 (See Note 17). 16. INCOME TAXES The benefit (provision) for income taxes is as follows:
FOR THE YEAR ENDED FOR THE THREE FOR THE YEAR --------------------------- MONTHS ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1997 1996 1995 1995 ------------ ------------ ------------- ------------- Federal and state taxes-current..... $ -- $ 11,584 $ (51,667) $ (232,483) Deferred income taxes............... -- (2,195,941) 2,743,962 1,543,000 ----------- ----------- ---------- ---------- Benefit (provision) for income Taxes............................. $ -- $(2,184,357) $2,692,295 $1,310,517 =========== =========== ========== ==========
As of December 31, 1997, the Company has a tax net operating loss carryforward of approximately $86,603,000 for income tax purposes which expires in 2006-2010. 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. Significant components of the Company's deferred income tax liabilities are as follows:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Deferred tax liabilities: Depreciation.......................................... $ 8,113,463 $ 6,395,204 Syndication revenue................................... 1,235,190 1,235,190 Other................................................. 273,319 167,986 ----------- ----------- Gross deferred tax liabilities........................ 9,621,972 7,798,380 Deferred tax assets: Net operating loss carryforward....................... (32,909,278) (16,367,083) Equity in net earnings of limited partnerships........ (738,906) (696,640) Minimum tax credit carryforward....................... (292,060) (292,060) Loss on impairment of assets.......................... (15,721,901) (8,412,598) Other................................................. (2,147,434) (1,494,680) ----------- ----------- Gross deferred tax assets............................. (51,809,579) (27,263,061) ----------- ----------- (42,187,607) (19,464,681) Less: Valuation allowance............................... 42,187,607 19,464,681 ----------- ----------- $ -- $ -- =========== ===========
17. SHAREHOLDERS' EQUITY COMMON STOCK 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 4,477,521 Common Shares. F-17 30 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At the Company's annual meeting in April 1997, the shareholders approved the grant of ordinary voting rights to 24.9 million shares of capital stock. In conjunction with this approval, all of the Series F and G Preferred Stock was converted into Common Shares. 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 their 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 that 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. The Company also converted $850,000 of the 9% Debentures into 212,666 Common Shares during 1997. 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, 1997, 1996 and 1995 and September 30, 1995, the Company purchased and canceled 291,875; 347,102; 10,000; and 58,520 Common Shares. 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 F-18 31 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 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 were convertible into Common Shares after Shareholder approval was given or under certain other circumstances. The terms of the Series F Shares were structured so that Series F Shares were substantially equivalent (except as to voting) to Common Shares. Accordingly, the holders of the Series F Shares were 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 were 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 declared 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 would 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 such holder of Series F Shares would 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 would also be subdivided or combined in the same proportion so that each Series F Share continued to be entitled to ten times the amount of dividends and distributions as each Common Share. During 1997, upon Shareholder approval at the Company's 1997 annual meeting, all such shares were converted into Common Stock. F-19 32 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 were (i) nonvoting, (ii) had a liquidation preference equal to the amount received by the Company for their issuance, (iii) had 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) were not convertible into Common Shares unless and until Shareholder approval was given. Dividends accrued but not declared would be lost upon conversion of the Series G Shares into Common Shares. During 1997, upon Shareholder approval at the Company's 1997 annual meeting, all such shares were converted into Common Stock. 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. During 1997, the Company purchased 291,875 Management Shares and issued 200,000 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. 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 F-20 33 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 years ended December 31, 1997 and 1996, the three month period ended December 31, 1995 and the year ended September 30, 1995. Activity under the Plan is as follows:
NUMBER OF RANGE OF OPTIONS OPTION PRICE --------- -------------- Balance, September 30, 1995............................... 138,800 $7.25 -$12.50 Options issued.......................................... 100,000 $9.00 Options expired or terminated........................... (6,700) $8.00 -------- Balance, December 31, 1995................................ 232,100 Options expired or terminated........................... (206,400) $8.00-$9.00 Balance, December 31, 1996................................ 25,700 Options expired or terminated........................... (4,000) $8.00 -------- Balance, December 31, 1997................................ 21,700 ========
The options expire four to five years from the date of grant. No options have been issued under this plan since 1995. 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. Activity under the Director Plan during the three year period ended December 31, 1997 is as follows:
NUMBER OF RANGE OF OPTIONS OPTION PRICE --------- ------------ Balance, September 30, 1995................................ 173,000 $7.36-$10.87 Options expired or terminated............................ (30,000) $7.76 -------- Balance, December 31, 1995................................. 143,000 Options issued........................................... 25,000 $2.60 -------- Balance, December 31, 1996................................. 168,000 Options issued........................................... 30,000 $2.95-$8.75 Options expired or terminated............................ (125,000) $7.53-$7.76 -------- Balance, December 31, 1997................................. 73,000 ========
In conjunction with the purchase of Malibu Grand Prix Corporation, 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, 1997. 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 significant assumptions used by the Company in this calculation were a risk free interest rate of 6.9%, an expected dividend yield of 0% and expected lives of options of ten years. The effect of implementing this statement F-21 34 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) resulted in an increase in the proforma net loss for the year ended December 31, 1997 of $25,000 or $0.00 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 warrant's value which had previously been expensed. 18. 401(K) PLAN In May 1997, the Company adopted the Malibu Entertainment Worldwide, Inc. 401(k) plan. All full-time employees are eligible to participate in the plan after one full year of service. The Company matches 25% of each dollar contributed to this plan up to 6% of an employee's salary. The Company recognized expense related to the 401(k) plan of $60,000 for the year ended December 31, 1997. 19. 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, - ------------------------------------------------------ 1998................................................ $ 3,890,000 1999................................................ 3,058,000 2000................................................ 2,074,000 2001................................................ 2,362,000 2002................................................ 1,890,000 Thereafter.......................................... 12,910,00 ----------- $ 26,184,00 ===========
Rental expense totaled approximately $3,971,000, $5,202,000, $1,030,000, and $3,449,000 for the years ended December 31, 1997 and 1996, the three month period ended December 31, 1995 and the year ended September 30, 1995, respectively. The Company has entered into sponsorship contracts with six entities that have relationships with NASCAR, CART and NHRA drivers. The contracts expire at various dates through 2001; however, the F-22 35 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company has the right to terminate the agreements under certain conditions. Future annual payments under these contracts are follows:
YEAR ENDING DECEMBER 31, ------------ 1998................................................... $ 422,000 1999................................................... 447,000 2000................................................... 503,000 2001................................................... 578,000 ---------- $1,950,000 ==========
The Company has also entered into a purchase and license agreement with an entity to provide certain race car attractions and the related license rights to that attraction. Future minimum payments under the purchase contract are $8.9 million and $10.8 million for the years ended December 31, 1998 and 1999, 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, 1997, the outstanding balance under the loan was $1.8 million. 20. 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 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. F-23 36 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company paid interest of approximately $5,485,000, $4,936,000, and $2,909,100, for the years ended December 31, 1997 and 1996, and September 30, 1995, respectively, and approximately $949,000 for the three month period ended December 31, 1995. The Company paid income taxes of $158,000, $110,000, and $330,000 for the years ended December 31, 1997 and 1996, and September 30, 1995, respectively, and no income taxes for the three months ended December 31, 1995. During the year ended September 30, 1995 the Company obtained an interest in certain limited partnerships of $1,050,000. 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 through the assumption of debt during the year ended September 30, 1995. 21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly financial information for the periods ended December 31, 1997, 1996, and 1995 are as follows:
YEAR ENDED DECEMBER 31, 1997 ------------------------------------------ FIRST SECOND THIRD FOURTH ------- ------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Operating revenues........................ $ 7,171 $11,375 $ 16,877 $ 9,184 Operating expenses........................ 10,370 16,793 24,103 43,823 Operating loss............................ (3,199) (5,418) (7,226) (34,639) Net loss.................................. (3,933) (5,853) (11,499) (38,018) Loss per common share(A).................. $ (0.14) $ (0.14) $ (0.24) $ (0.78)
YEAR ENDED DECEMBER 31, 1996 -------------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 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)
- --------------- (A) The sum of the quarterly loss per common share does not equal the annual loss per common share due to rounding of weighted average shares. F-24 37 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 22. 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. 23. FOURTH QUARTER CHARGES Under Statement of Financial Accounting Standards No. 121, during the fourth quarters of each of 1997 and 1996, the Company recorded a loss due to impairment of assets of $20.9 million and $21.0 million, respectively, principally as a result of adjustments in the carrying value of assets resulting from the implementation of its new business plan and the determination that the carrying value of such assets was higher than their undiscounted expected future cash flows. Additionally, the Company adjusted the value of its limited partnerships based upon their net realizable values which resulted in a loss on investments in affiliates of $0.6 million and $2.6 million in the respective fourth quarters of 1997 and 1996. During the fourth quarters of 1997 and 1996, the Company recorded charges of $1.9 million and $1.1 million, respectively, for environmental costs based upon analyses completed by the Company's environmental consultants. F-25 38 INDEX TO EXHIBITS
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 (incorporated by reference to the Company's Current Report on Form 8-K, dated June 19, 1996 (the "1996 8-K")) 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 Company's 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 10-K for the year ended September 30, 1994) and Supplemental Indenture thereto dated August 27, 1996 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (the "1996 10-K")) 4.4 -- Preferred Stock Designations (incorporated by reference to the 1996 10-K) 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 Company's proxy statement on Schedule 14A for the 1997 Annual Meeting of Shareholders) 10.4 -- Promissory Note, dated June 30, 1993, in the principal amount of $6,150,000 in favor of M.B. Seretean (incorporated by reference to the Registration Statement) 10.5 -- Consolidated, Amended and Restated Loan and Security Agreement, dated August 22, 1996, between the Company and Foothill Capital Corporation (incorporated by reference to 1996 10-K) 10.6 -- Amendment No. 4 to the Consolidated, Amended and Restated Loan Security, dated August 22, 1996, between the Company and Foothill Capital Corporation (filed herewith) 10.7 -- 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")) 10.8 -- Warrant, dated August 28, 1996, by the Company (incorporated by reference to MEI Holdings' 13D-1) 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 1996 8-K) 10.11 -- 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)
39
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.12 -- Second Amended and Restated Promissory Note from the Company to MEI Holdings for $65.0 million, dated as of June 5, 1997 (filed herewith) 10.13 -- Amended and Restated Promissory Note from the Company to MEI Holdings for $10.0 million, dated as of June 5, 1997 (filed herewith) 10.14 -- Loan Agreement, dated as of June 27, 1997, between Malibu Centers, Inc. and Nomura Asset Capital Corporation ("Nomura") (incorporated by reference to the 2nd Q 1997 10-Q) 10.15 -- Promissory Note from Malibu Centers, Inc. to Nomura for $21,390,375 (incorporated by reference to the (incorporated by reference to the 2nd Q 1997 10-Q) 10.16 -- Guaranty, dated June 27, 1997, of MEI Holdings in favor of Nomura (incorporated by reference to the 2nd Q 1997 10-Q) 21 -- Subsidiaries (incorporated by reference to the 1996 10-K) 24 -- Powers of Attorney 27 -- Financial Data Schedule (for SEC purposes only)
EX-10.6 2 AMENDMENT NO. 4 RESTATED LOAN / SECURITY AGREEMENT 1 EXHIBIT 10.6 AMENDMENT NUMBER FOUR TO CONSOLIDATED, AMENDED, AND RESTATED LOAN AND SECURITY AGREEMENT THIS AMENDMENT NUMBER FOUR TO CONSOLIDATED, AMENDED, AND RESTATED LOAN AND SECURITY AGREEMENT (THIS "AMENDMENT"), is entered into as of March 31, 1998, 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, MALIBU ENTERTAINMENT WORLDWIDE, INC., a Georgia corporation ("MEWI"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MOUNTASIA MANAGEMENT COMPANY, a Georgia corporation ("MMC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MOUNTASIA PARTNERS I, INC., a Georgia corporation ("MPI"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MALIBU GRAND PRIX CORPORATION, a Delaware corporation ("MGPC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MIAMI CASTLE MGPC, INC., a Florida corporation ("Miami"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, TEMPE MGPC, INC., an Arizona corporation ("Tempe"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, TUCSON MGPC, INC., an Arizona corporation ("Tucson"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, FRESNO MGPC, INC., a California corporation ("Fresno"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, NORTH HOLLYWOOD CASTLE MGPC, INC., a California corporation ("NHC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, PUENTE HILLS MGPC, INC., a California corporation ("PH"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, PUENTE HILLS SHOWBOAT MGPC, INC., a California corporation ("PHS"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, REDONDO BEACH CASTLE MGPC, INC., a California corporation ("RBC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, REDWOOD CITY CASTLE MGPC, INC., a California corporation ("RCC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, REDWOOD CITY MGPC, INC., a California corporation ("RC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, SAN DIEGO MGPC, INC., a California corporation ("San Diego"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, DENVER MGPC, INC., a Colorado corporation ("Denver"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, ORLANDO CASTLE MGPC, INC., a Florida corporation ("OC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, ORLANDO MGPC, INC., a Florida corporation ("Orlando"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, TAMPA CASTLE MGPC, INC., a Florida corporation ("TC"), with its chief executive office located at 717 North Hardwood, -1- 2 Dallas, Texas 75201, TAMPA MGPC, INC., a Florida corporation ("Tampa"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, LENEXA MGPC, INC., a Kansas corporation ("Lenexa"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MT. LAUREL MGPC, INC., a New Jersey corporation ("Mt.Laurel"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, COLUMBUS MGPC, INC., an Ohio corporation ("Columbus"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, CINCINNATI MGPC, INC., an Ohio corporation ("Cincinnati"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, PORTLAND MGPC, INC., an Oregon corporation ("Portland"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, AUSTIN MGPC, INC., a Texas corporation ("Austin"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, DALLAS CASTLE MGPC, INC., a Texas corporation ("DC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, DALLAS MGPC, INC., a Texas corporation ("Dallas"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, HOUSTON CASTLE MGPC, INC., a Texas corporation ("HC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, HOUSTON II MGPC, INC., a Texas corporation ("Houston"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, SAN ANTONIO CASTLE MGPC, INC., a Texas corporation ("SAC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, SAN ANTONIO MGPC, INC., a Texas corporation ("San Antonio"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MOUNTASIA DEVELOPMENT COMPANY, a Georgia corporation ("MDC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MALIBU GRAND PRIX DESIGN & MANUFACTURING, INC., a California corporation ("MGPDMI"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MALIBU GRAND PRIX FINANCIAL SERVICES, INC., a California corporation ("MGPFSI"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, OFF TRACK MANAGEMENT, INC., a California corporation ("Off Track"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MGP SPECIAL, INC., a California corporation ("Special"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, AMUSEMENT MANAGEMENT FLORIDA, INC., a Florida corporation ("Amusement"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MALIBU GRAND PRIX CONSULTING, INC., a California corporation ("Consulting"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MOUNTASIA - MEI INTERNATIONAL, INC., a Georgia corporation ("MMEII"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MOUNTASIA - MEI LIMITED COMPANY, INC., a California corporation ("MMEILC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MOUNTASIA - MEI CALIFORNIA, INC., a California corporation ("MCNC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MOUNTASIA - MEI CALIFORNIA LIMITED -2- 3 PARTNERSHIP, a California limited partnership ("MMEICLP"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, MOUNTASIA - MEI MANUFACTURING COMPANY, INC., a Georgia corporation ("MMEIMCI"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, AMUSEMENT CO., INC., a Delaware corporation ("ACI"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, AMUSEMENT CO. PARTNERS, INC., a Delaware corporation ("ACPI"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201, and MOUNTASIA FAMILY ENTERTAINMENT CENTERS, INC., a Texas corporation ("MFEC"), with its chief executive office located at 717 North Hardwood, Dallas, Texas 75201. WHEREAS Foothill and Borrower are parties to the Consolidated, Amended, and Restated Loan and Security Agreement, entered into as of August 22, 1996, (as amended to date, the "Loan Agreement"); WHEREAS Borrower has requested Foothill to amend the Loan Agreement and the other Loan Documents to (i) reflect the relocation of the chief executive office of Borrower and each of its Subsidiaries to 717 North Hardwood, Dallas, Texas 75201, and (ii) to revise the financial covenants with respect to minimum Debt Service Ratio and the minimum Interest Coverage Ratio; WHEREAS Borrower has requested Foothill consent to (i) increase the maximum aggregate principal amount of Permitted MEIH Subordinated Debt from $30,000,000 to $65,000,000, (ii) to increase the interest rate on Permitted MEIH Subordinated Debt to 10%, (iii) to increase in the maximum amount of MEIH Current Advances from $9,500,000 to $10,000,000, and (iv) to increase the interest rate and extend the maturity of MEIH Current Advances Payments to correspond to the Borrower's credit facility with Nomura Asset Capital Corporation; WHEREAS Foothill has agreed to consent to the forgoing and to amend the Loan Agreement and the other Loan Documents in accordance with the terms hereof upon Borrower's payment of an Amendment Fee of $5,000 and subject to the other terms and conditions hereof; NOW, THEREFORE, in consideration of the mutual promises contained herein, Foothill and Borrower hereby agree as follows: All capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Loan Agreement. -3- 4 1. Amendments to the Loan Agreement. a. Each of the references in the initial paragraph of the Loan Agreement and in any other section thereof to "5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202" hereby are deleted in their entirety and replaced with "717 North Hardwood, Dallas, Texas 75201." b. Section 1.1 of the Loan Agreement hereby is amended by deleting each of the following definitions in their entirety and substituting the following in lieu thereof: "Amended and Restated Subordinated Promissory Note means that certain Second Amended and Restated Subordinated Promissory Note dated as of March 27, 1998 issued by MEWI in favor of MEIH, subject to the terms and conditions of the Amended and Restated Subordination Agreement, in the form attached hereto as Amended and Restated Annex A". "Current MEIH Advances means advances (other than Permitted MEIH Subordinated Debt) made by MEIH to MEWI and made on or prior to the Fourth Amendment Closing Date, but not to exceed $10,000,000 in aggregate principal amount (and accrued interest thereon at a rate per annum not to exceed LIBOR plus 3.50% (or, following the occurrence of an event of default, 5.0%)), and evidenced by the Amended and Restated MEIH Current Advances Promissory Note". "Fourth Amendment means that certain Amendment Number Four to Consolidated, Amended, and Restated Loan and Security Agreement, dated as of March 31, 1998, between Foothill and Borrower". "Fourth Amendment Closing Date" means March 31, 1998". "Permitted MEIH Current Advances Payments means, so long as no Event of Default has occurred and is continuing, one or more payments to MEIH, in an amount not to exceed $10,000,000 in aggregate principal amount (and accrued interest thereon at a rate per annum not to exceed LIBOR plus 3.50% (or, following the occurrence of an event of default, 5.0%)), made in connection with the repayment or the prepayment of Current MEIH Advances extended to Borrower by MEIH; provided that, in no event, shall such payment be made with Net Cash Proceeds to the extent constituting a Required Amount". "Permitted MEIH Subordinated Debt means any Indebtedness constituting a "Subordinated Obligation" under and as defined in the Amended and Restated Subordination Agreement among MEWI, MEIH, and Foothill in an aggregate principal amount of up to $65,000,000 and evidenced by the Amended and Restated Subordinated Promissory Note". -4- 5 c. Section 1.1 of the Loan Agreement hereby is amended by adding the following definition in alphabetical order: "Amended and Restated MEIH Current Advances Promissory Note means that certain Amended and Restated Promissory Note dated as of March 27, 1998 issued by MEIW in favor of MEIH, in the form attached hereto as Annex B". d. Clause (a) of Section 7.19 of the Loan Agreement hereby is amended and restated in its entirety as follows: "(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 ====================================================== 12/31/97 (4.0) : 1.0 ------------------------------------------------------
e. Clause (d) of Section 7.19 of the Loan Agreement hereby is amended and restated in its entirety as follows: "(b) 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:
------------------------------------------------------ Period Ending Minimum Ratio ====================================================== 12/31/97 (5.0) : 1.0 ------------------------------------------------------
f. The notice address for MEWI contained in Section 12 of the Loan Agreement hereby is amended and restated in its entirety as follows: "IF TO BORROWER: C/O MALIBU ENTERTAINMENT WORLDWIDE, INC. 717 North Hardwood Dallas, Texas 75201 Attn: Mr. Richard M. FitzPatrick Title: Vice President Fax No. 214.210.8752" -5- 6 g. Annex A of the Loan Agreement is hereby amended, restated, and replaced in its entirety by the Amended and Restated Annex A attached hereto. h. Annex B is hereby added in its entirety to the Loan Agreement in the form of Annex B attached hereto. i. Each of the references contained in any other Loan Document to "5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30202" hereby is deleted in its entirety and deemed to be replaced with "717 North Hardwood, Dallas, Texas 75201." j. Each of the references contained in any other Loan Document to the facsimile telephone number of "770.442.6644" hereby is deleted in its entirety and deemed to be replaced with "214.210.8752". 2. Conditions Precedent to the Effectiveness of this Amendment. The effectiveness of this Amendment is subject to the fulfillment, to the satisfaction of Foothill and its counsel, of each of the following conditions: a. Foothill shall have received a certificate of the Secretary of Borrower attesting to the resolutions of Borrower's Board of Directors authorizing the execution, delivery, and performance of the Loan Agreement as amended by this Amendment and authorizing the specific officers of Borrower to execute same; b. The representations and warranties in this Amendment, the Agreement as amended by this Amendment, and the other Loan Documents shall be true and correct in all respects on and as of the date hereof, as though made on such date (except to the extent that such representations and warranties relate solely to an earlier date); c. After giving effect hereto, no Event of Default or event which with the giving of notice or passage of time would constitute an Event of Default shall have occurred and be continuing on the date hereof, nor shall result from the consummation of the transactions contemplated herein; d. No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein shall have been issued and remain in force by any governmental authority against Borrower, Foothill, or any of their Affiliates; e. No material adverse change shall have occurred in the financial condition of Borrower or in the value of the Collateral that has not been disclosed to Foothill; -6- 7 f. Foothill shall have received this duly executed Amendment, which shall be in full force and effect; g. Foothill shall have received the form of the Second Amended and Restated Subordinated Promissory Note, in form and substance satisfactory to Foothill and its counsel; h. Foothill shall have received the form of the Amended and Restated MEIH Current Advances Promissory Note, in form and substance satisfactory to Foothill and its counsel; i. Foothill shall have received the Fourth Amendment Fee of $5,000; and j. All other documents and legal matters in connection with the transactions contemplated by this Amendment shall have been delivered or executed or recorded and shall be in form and substance satisfactory to Foothill and its counsel. 3. Permitted MEIH Subordinated Debt. Foothill hereby (i) consents to the incurrence by MEWI of up to $65,000,000 in aggregate principal amount of Indebtedness to MEIH on the terms set forth on the Amended and Restated Subordinated Promissory Note, and (ii) agrees that such Indebtedness shall constitute permitted "Future Subordinated Indebtedness" approved by Foothill in accordance with the Loan Agreement. 4. Permitted Current MEIH Advances. Foothill hereby (i) consents to the incurrence by MEWI of up to $10,000,000 in aggregate principal amount of Indebtedness to MEIH on the terms set forth on the Amended and Restated Current MEIH Advances Promissory Note, and (ii) agrees that such Indebtedness shall constitute permitted "Current MEIH Advances" approved by Foothill in accordance with the Loan Agreement. 5. Waiver. Foothill hereby waives any Default or Event of Default existing prior to the effectiveness of this Amendment and arising in respect of any provisions of the Loan Agreement or the other Loan Documents amended by, or as a result of the incurrence of any Indebtedness consented to under, this Amendment. 6. Condition Subsequent. As a condition subsequent to the effectiveness of this Fourth Amendment, Borrower shall perform or cause to be performed the following (the failure by Borrower to so perform or cause to be performed on the expiry of the applicable period provided therefor constituting an Event of Default, but the failure to perform during the period prior to the expiration of the applicable period provided therefor shall not constitute a Default): -7- 8 a. Within 30 days of the Fourth Amendment Closing Date, Foothill and Borrower shall have submitted a revised business plan to Foothill, in form and substance satisfactory to Foothill; b. Within 60 days of the Fourth Amendment Closing Date, Foothill and Borrower shall have amended the Loan Agreement to reflect modifications to Section 7.19 of the Loan Agreement to reflect the revised business plan, such modifications to be in form and substance satisfactory to Foothill in its reasonable discretion. Anything in this section to the contrary notwithstanding, the failure of Borrower to enter into the amendment described herein prior to the expiration of the applicable period provided herein shall not constitute a Default or an Event of Default; and c. Within 90 days of the Fourth Amendment Closing Date, Foothill and Borrower shall have entered into such mortgages and deeds of trust in respect of Borrower's leasehold estates in respect of which a leasehold mortgage may be granted, as Foothill shall reasonably request, in form and substance satisfactory to Foothill in its reasonable discretion, and the Borrower hereby agrees to make reasonable, good faith, efforts to obtain the consent of the lessor to the granting of such leasehold mortgages. 7. Representations and Warranties. Borrower hereby represents and warrants to Foothill that (a) the execution, delivery, and performance of this Amendment, are within its corporate powers, have been duly authorized by all necessary corporate action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or governmental authority, or of the terms of its charter or bylaws, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected, and (b) the Loan Agreement, as amended by this Amendment, constitute Borrower's legal, valid, and binding obligation, enforceable against Borrower in accordance with its terms. 8. Further Assurances. Borrower shall execute and deliver all financing statements, agreements, documents, and instruments, in form and substance satisfactory to Foothill, and take all actions as Foothill may reasonably request from time to time, to perfect and maintain the perfection and priority of Foothill's security interests in the Collateral, and to fully consummate the transactions contemplated under the Loan Agreement and this Amendment. 9. Effect on Loan Documents. The Loan Agreement and the other Loan Documents, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and each hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of or as an amendment of any right, power, or remedy of Lender under the Loan Agreement, as in effect prior to the date hereof. -8- 9 10. Miscellaneous. a. Upon the effectiveness of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like import referring to the Agreement shall mean and refer to the Loan Agreement as amended by the First Amendment, the Second Amendment, the Third Amendment, and this Amendment. b. Upon the effectiveness of this Amendment, each reference in the Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof" or words of like import referring to the Agreement shall mean and refer to the Loan Agreement as amended by the First Amendment, the Second Amendment, the Third Amendment, and this Amendment. c. This Amendment shall be governed by and construed in accordance with the laws of the State of California. d. This Amendment 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 Amendment. Delivery of an executed counterpart of this Amendment by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile also shall deliver an original executed counterpart of this Amendment but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment. [Remainder of page intentionally left blank.] -9- 10 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed in on the date first written above. MALIBU ENTERTAINMENT WORLDWIDE, INC., a Georgia corporation MOUNTASIA FAMILY ENTERTAINMENT CENTERS, INC., a Texas corporation By: /s/ RICHARD M. FITZPATRICK ---------------------------------------- Name: Richard M. FitzPatrick ----------------------------- Title: Vice President ---------------------------- 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 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 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 -10- 11 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., 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 INTERNATIONAL, INC., a Georgia corporation, in its capacity as general partner of MOUNTASIA - MEI CALIFORNIA LIMITED PARTNERSHIP, a California limited partnership MOUNTASIA - MEI MANUFACTURING COMPANY, INC., a Georgia corporation AMUSEMENT CO., INC., a Delaware corporation AMUSEMENT CO. PARTNERS, INC., a Delaware corporation By: /s/ RICHARD M. FITZPATRICK ------------------------------------ Name: Richard M. FitzPatrick ----------------------------- Title: Vice President ---------------------------- FOOTHILL CAPITAL CORPORATION, a California corporation By: ------------------------- Name: ----------------------- Title: ---------------------- -11- EX-10.12 3 2ND AMENDED/RESTATED SURBORDINATED PROMISSORY NOTE 1 Exhibit 10.12 ALL INDEBTEDNESS EVIDENCED BY THIS AMENDED AND RESTATED SUBORDINATED PROMISSORY NOTE IS SUBORDINATED TO OTHER INDEBTEDNESS PURSUANT TO, AND TO THE EXTENT PROVIDED IN, AND IS OTHERWISE SUBJECT TO THE TERMS OF, THE AMENDED AND RESTATED SUBORDINATION AGREEMENT, DATED AS OF JUNE 27, 1997, AS THE SAME MAY BE AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, BY AND AMONG MALIBU ENTERTAINMENT WORLDWIDE, INC., AS BORROWER, MEI HOLDINGS, L.P., AS SUBORDINATED LENDER, AND FOOTHILL CAPITAL CORPORATION, AS SENIOR LENDER. SECOND AMENDED AND RESTATED SUBORDINATED PROMISSORY NOTE $65,000,000 New York, N.Y. March 27, 1998 FOR VALUE RECEIVED, the undersigned, Malibu Entertainment Worldwide, Inc., a Georgia corporation ("Maker"), promises to pay to the order of MEI Holdings, L.P., a Delaware limited partnership (together with any subsequent holder of this Note, "Holder"), at its offices located at c/o The Hampstead Group, 2200 Ross Avenue., Suite 4200 West, Dallas, Texas 75201, or at such other address or to such account as Holder may from time to time designate in writing, the unpaid principal sum of all advances made by Holder to Maker from time to time in an aggregate principal amount of up to Sixty Five Million United States Dollars ($65,000,000), together with interest thereon from the date hereof on the unpaid principal balance at the rate and otherwise as herein provided. Unless otherwise specified by Holder in writing, all payments on this Note shall be made in lawful money of the United States of America and in immediately available funds. Interest shall accrue on the unpaid principal balance of this Note at the rate of ten percent (10%) per annum. Accrued but unpaid interest shall be compounded annually. Interest on the unpaid principal balance of this Note shall be computed on the actual number of days elapsed, and a year of 360 days. The unpaid principal amount of this Note and all accrued and unpaid interest thereon shall become due and be paid on August 31, 2001 (the "Maturity Date"). Maker may, at its option and upon three (3) Business Days' prior written notice from Maker to Holder, prepay in whole or in part the outstanding principal balance of this Note without payment of any premium or penalty. Holder shall maintain an account or accounts evidencing the indebtedness of Maker to Holder resulting from each advance made by Holder, including the amount of 2 principal and interest payable and paid to Holder from time to time hereunder. The entries made in such account or accounts shall be prima facie evidence of the existence and the amounts of the obligations recorded therein, provided that any failure of Holder to maintain such account or accounts or any error therein shall not in any manner affect the obligation of Maker to repay the advances made by Holder to Maker in accordance with the terms of this Note. Maker agrees and acknowledges that Holder has no commitment of any kind to advance funds to Maker and that all advances previously made by Holder to Maker and all advances, if any, that may be made by Holder to Maker in the future have been made and will be made at the sole and absolute discretion of Holder. Maker shall use the proceeds of the loan evidenced by this Note solely to fund its working capital requirements and to repay indebtedness of the Maker the proceeds of which were used by Maker solely to fund its working capital requirements. If Maker fails to make any payment of principal, accrued and unpaid interest or any other amount due hereunder on any due date therefor, whether at stated maturity or otherwise, the unpaid amount (including, to the extent enforceable at law, any unpaid amount of interest) shall bear interest until paid at a rate per annum equal to the lesser of eighteen percent (18%) per annum and the maximum rate of interest permitted by applicable law (the "Maximum Amount"). Maker shall also pay to Holder, in addition to the amount due, all reasonable costs and expenses incurred by Holder in collecting or enforcing, or attempting to collect or enforce this Note, including without limitation court costs and reasonable attorneys' fees and expenses (including reasonable attorneys' fees and expenses on any appeal by either Maker or Holder and in any bankruptcy proceeding). With respect to the amounts due pursuant to this Note, Maker waives demand, presentment, protest, notice of dishonor, notice of nonpayment, suit against any party, diligence in collection of this Note, and all other requirements necessary to enforce this Note. In no event shall any amount deemed to constitute interest due or payable hereunder (including interest calculated at the Default Rate) exceed the Maximum Amount, and in the event such payment is inadvertently paid by Maker or inadvertently received by Holder, then such sum shall be credited as a payment of principal or other amounts (other than interest) outstanding hereunder, and, if in excess of the outstanding amount of principal or other amounts outstanding hereunder, shall be immediately returned to Maker upon such determination. It is the express intent hereof that Maker not pay and Holder not receive, directly or indirectly, interest in excess of the Maximum Amount. Holder may, at any time during the term of this Note (including any extensions of the term hereof), by written notice to Maker, convert this Note into one or more subordinated convertible notes (the "Convertible SubNotes") having terms that the Investment Banker (as defined below) advises Maker and Holder (which advice will be in the form of a written term sheet but need not be given in the form of a formal opinion) would be required to ensure that the 3 proceeds to Holder of an immediate sale of the Convertible SubNote would be sufficient to repay the sum of (i) the then-outstanding principal and interest on this Note and (ii) all third party costs incurred by the Maker and the Holder in an assumed secondary public offering by Holder of the Convertible SubNote, including without limitation any SEC or other filing fees, printing expenses, underwriting discounts and fees and other fees and expenses (including attorneys' and accountants' fees and expenses). Within 20 calendar days of Maker's receipt of the foregoing notice, Merrill Lynch, Pierce Fenner & Smith Incorporated ("ML") or, if such firm is unwilling or unable to serve, another nationally recognized investment banking firm will be selected by Holder and the members of the Board of Directors of Maker not affiliated with Holder or employed by Maker (ML or such other firm, the "Investment Banker"). In its engagement of the Investment Banker, Maker will obtain the Investment Banker's agreement to render such advice as promptly as is practicable. If Holder is advised by legal counsel that shareholder approval of the issuance of the Convertible SubNote or the issuance of Common Stock upon conversion of the Convertible SubNote is required by law or stock exchange rule, Maker will seek shareholder approval of the issuance of the Convertible SubNotes at the earlier of the next annual or special meeting of shareholders after the date hereof. The Convertible SubNote and any Shares issued to the holder thereof upon conversion of the Convertible SubNote will be "Registrable Securities" under the Registration Rights Agreement, dated as of August 28, 1996, by and between Maker and Holder. Maker will be responsible for all of its and Holder's fees and expenses (including the Investment Bankers' and any attorneys' fees and expenses) in connection the execution and delivery of the amendment and restatement of this Note and any other matters contemplated by this Note. Holder shall not by any act, delay, omission, or otherwise be deemed to have modified, amended, waived, extended, discharged, or terminated any of its rights or remedies, and no modification, amendment, waiver, extension, discharge, or termination of any kind shall be valid unless in writing and signed by Holder. All rights and remedies of Holder under the terms of this Note and applicable statutes or rules of law shall be cumulative, and may be exercised successively or concurrently. Maker agrees that there are no defenses, equities, or setoffs with respect to the obligations set forth herein, and to the extent any such defenses, equities, or setoffs may exist, the same are hereby expressly released, forgiven, waived, and forever discharged. The obligations of Maker hereunder shall be binding upon and enforceable against Maker and its successors and assigns and shall inure to the benefit of Holder and its successors and assigns. Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note is prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note. This Note was negotiated in New York, and made by Holder and accepted by Maker in the State of New York, which State the parties agree has a substantial relationship to the parties and to the underlying transaction embodied hereby, and in all respects, including without limitation matters of construction, validity, and performance, this Note and the 4 obligations arising hereunder shall be governed by, and construed in accordance with, the internal laws of the State of New York and any applicable law of the United States of America. To the fullest extent permitted by law, Maker hereby unconditionally and irrevocably waives any claim to assert that the laws of any other jurisdiction governs this Note, and this Note shall be governed by and construed in accordance with the laws of the State of New York pursuant to ss. 5-1401 of the New York General Obligations Law. MAKER, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING WITHOUT LIMITATION ANY TORT ACTION, BROUGHT WITH RESPECT TO THIS NOTE. HOLDER MAY FILE A COPY OF THIS WAIVER WITH ANY COURT AS WRITTEN EVIDENCE OF MAKER'S KNOWING, VOLUNTARY, AND BARGAINED-FOR AGREEMENT IRREVOCABLY TO WAIVE ITS RIGHTS TO TRIAL BY JURY, AND THAT, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN MAKER AND HOLDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. Maker may not assign or delegate this Note or any of its rights or obligations hereunder without the prior consent of Holder (which consent may be given or withheld in the sole discretion of Holder). Holder may assign or delegate this Note or any of its rights or obligations hereunder without prior consent of or notice to Maker. This Note amends and restates the $30,000,000 Amended and Restated Subordinated Promissory Note, dated June 5, 1997, from Maker payable to the order of Holder and is being issued in replacement of and in substitution for such promissory note. IN WITNESS WHEREOF, Maker has caused this Note to be duly executed on its behalf as of the day and year first above written. MALIBU ENTERTAINMENT WORLDWIDE, INC. By: ------------------------------------- Name: Richard M. FitzPatrick Title: Vice President EX-10.13 4 AMENDED/RESTATED PROMISSORY NOTE 1 EXHIBIT 10.13 AMENDED AND RESTATED PROMISSORY NOTE $10,000,000 Dallas, Texas March 27, 1998 FOR VALUE RECEIVED, the undersigned, MALIBU ENTERTAINMENT WORLDWIDE, INC., a Georgia corporation ("Maker"), promises to pay to the order of MEI Holdings, L.P., a Delaware limited partnership (together with any subsequent holder of this Note, "Holder"), at its offices located at c/o The Hampstead Group, 2200 Ross Avenue., Suite 4200 West, Dallas, Texas 75201, or at such other address or to such account as Holder may from time to time designate in writing, the unpaid principal sum of all advances made by Holder to Maker from time to time in an aggregate principal amount of up to Ten Million United States Dollars ($10,000,000), together with interest thereon from the date hereof on the unpaid principal balance at the rate and otherwise as herein provided. Unless otherwise specified by Holder in writing, all payments on this Note shall be made in lawful money of the United States of America and in immediately available funds. The unpaid principal amount of this Note and all accrued and unpaid interest thereon shall become due and be paid on January 20, 1999 (the "Maturity Date"). Maker may, at its option and upon three (3) Business Days' prior written notice from Maker to Holder, prepay in whole or in part the outstanding principal balance of this Note without payment of any premium or penalty; provided, however, that in the event that Maker makes any prepayment of such principal balance on a day other than the last day of an interest period, Maker shall reimburse Holder for any costs, fees or expenses incurred by Holder in connection with such prepayment including, without limitation, costs, fees and expenses associated with the unwinding of any LIBOR contract. For purposes of this Note: (i) "Applicable Interest Rate" shall mean a rate per annum equal to LIBOR plus 350 basis points, which Applicable Interest Rate for each one-month interest period shall be determined monthly on the Determination Date immediately preceding such interest period; (ii) "Business Day" shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business; (iii) "Default Rate" shall mean a rate per annum (adjusted monthly on each Determination Date) equal to the Applicable Interest Rate plus 500 basis points; provided, however, in no event shall such rate exceed the maximum rate permitted by applicable law; (iv) "Determination Date" shall mean the date which is two Eurodollar Business Days prior to the first day of a calendar month; (v) "Eurodollar Business Day" shall mean a Business Day on which banks in the City of London, England, are open for interbank or foreign exchange transactions; and (vi) "LIBOR" shall mean the rate (expressed as a percentage per annum) for deposits in U.S. dollars, for a one-month period, that appears on Telerate Page 3750 (or the successor thereto) as of 11:00 a.m., London, England time, on the related Determination Date. If such rate does not appear on Telerate Page 2 3750 as of 11:00 a.m., London, England time, on the related Determination Date, LIBOR shall be the arithmetic mean of the offered rates (expressed as a percentage per annum) for deposits in U.S. dollars for a one-month period that appear on the Reuters Screen LIBOR Page as of 11:00 a.m., London, England time, on such Determination Date, if at least two such offered rates so appear. If fewer than two such offered rates appear on the Reuters Screen LIBOR Page as of 11:00 a.m., London, England time, on such Determination Date, Holder shall request the principal London, England office of any four major reference banks in the London interbank market selected by Holder to provide such bank's offered quotation (expressed as a percentage per annum) to prime banks in the London interbank market for deposits in U.S. dollars for a one-month period as of 11:00 a.m., London, England time, on such Determination Date for amounts of not less than U.S. $1,000,000. If at least two such offered quotations are so provided, LIBOR shall be the arithmetic mean of such quotations. If fewer than two such offered quotations are so provided, Holder shall request any three major banks in New York City selected by Holder to provide such bank's rate (expressed as a percentage per annum) for loans in U.S. dollars to leading European banks for a one-month period as of approximately 11:00 a.m., New York City time, on the applicable Determination Date for amounts of not less than U.S. $1,000,000. If at least two such rates are so provided, LIBOR shall be the arithmetic mean of such rates. If fewer than two such rates are so provided, then LIBOR shall be LIBOR as in effect on the Eurodollar Business Day immediately preceding the applicable Determination Date. LIBOR shall be determined in accordance with this paragraph by Holder or its agent. Maker shall pay interest, in arrears for each one-month LIBOR interest period (or portion thereof) from and including the first Business Day of each calendar month (or from the date hereof in the case of the initial interest period) to but excluding the first Business Day of the immediately succeeding calendar month, on the unpaid principal balance of this Note from time to time outstanding at the Applicable Interest Rate determined for each such one-month interest period on the immediately preceding Determination Date, on the first Business Day of each calendar month during the term of this Note. The balance of the unpaid principal of this Note together with all accrued and unpaid interest thereon shall be paid on the Maturity Date, all in accordance with the terms and provisions set forth herein. Interest on the unpaid principal balance of this Note shall be computed on the actual number of days elapsed, and a year of 360 days. Holder shall maintain an account or accounts evidencing the indebtedness of Maker to Holder resulting from each advance made by Holder, including the amount of principal and interest payable and paid to Holder from time to time hereunder. The entries made in such account or accounts shall be prima facie evidence of the existence and the amounts of the obligations recorded therein, provided that any failure of Holder to maintain such account or accounts or any error therein shall not in any manner affect the obligation of Maker to repay the advances made by Holder to Maker in accordance with the terms of this Note. Maker agrees and acknowledges that Holder has no commitment of any kind to advance funds to Maker and that all advances previously made by Holder to Maker and all advances, if any, that may be made by Holder to Maker in the future have been made and will be made at the sole and absolute discretion of Holder. 2 3 If Maker fails to make any payment of principal, accrued and unpaid interest or any other amount due hereunder on any due date therefor, whether at stated maturity or otherwise, the unpaid amount (including, to the extent enforceable at law, any unpaid amount of interest) shall bear interest at the Default Rate until paid. Maker shall also pay to Holder, in addition to the amount due, all reasonable costs and expenses incurred by Holder in collecting or enforcing, or attempting to collect or enforce this Note, including without limitation court costs and reasonable attorneys' fees and expenses (including reasonable attorneys' fees and expenses on any appeal by either Maker or Holder and in any bankruptcy proceeding). With respect to the amounts due pursuant to this Note, Maker waives demand, presentment, protest, notice of dishonor, notice of nonpayment, suit against any party, diligence in collection of this Note, and all other requirements necessary to enforce this Note. In no event shall any amount deemed to constitute interest due or payable hereunder (including interest calculated at the Default Rate) exceed the maximum rate of interest permitted by applicable law (the "Maximum Amount"), and in the event such payment is inadvertently paid by Maker or inadvertently received by Holder, then such sum shall be credited as a payment of principal or other amounts (other than interest) outstanding hereunder, and, if in excess of the outstanding amount of principal or other amounts outstanding hereunder, shall be immediately returned to Maker upon such determination. It is the express intent hereof that Maker not pay and Holder not receive, directly or indirectly, interest in excess of the Maximum Amount. Holder may, at any time during the term of this Note (including any extensions of the term hereof), by written notice to Maker, convert this Note into one or more subordinated convertible notes (the "Convertible SubNotes") having terms that the Investment Banker (as defined below) advises Maker and Holder (which advice will be in the form of a written term sheet but need not be given in the form of a formal opinion) would be required to ensure that the proceeds to Holder of an immediate sale of the Convertible SubNote would be sufficient to repay the sum of (i) the then-outstanding principal and interest on this Note and (ii) all third party costs incurred by the Maker and the Holder in an assumed secondary public offering by Holder of the Convertible SubNote, including without limitation any SEC or other filing fees, printing expenses, underwriting discounts and fees and other fees and expenses (including attorneys' and accountants' fees and expenses). Within 20 calendar days of Maker's receipt of the foregoing notice, Merrill Lynch, Pierce Fenner & Smith Incorporated ("ML") or, if such firm is unwilling or unable to serve, another nationally recognized investment banking firm will be selected by Holder and the members of the Board of Directors of Maker not affiliated with Holder or employed by Maker (ML or such other firm, the "Investment Banker"). In its engagement of the Investment Banker, Maker will obtain the Investment Banker's agreement to render such advice as promptly as is practicable. If Holder is advised by legal counsel that shareholder approval of the issuance of the Convertible SubNote or the issuance of Common Stock upon conversion of the Convertible SubNote is required by law or stock exchange rule, Maker will seek shareholder approval of the issuance of the Convertible SubNotes at the earlier of the next annual or special meeting of shareholders after the date hereof. The Convertible SubNote and any Shares issued to the holder thereof upon conversion of the Convertible SubNote will be "Registrable Securities" under the Registration Rights Agreement, dated as of August 28, 1996, by and between Maker 3 4 and Holder. Maker will be responsible for all of its and Holder's fees and expenses (including the Investment Bankers' and any attorneys' fees and expenses) in connection the execution and delivery of the amendment and restatement of this Note and any other matters contemplated by this Note. Holder shall not by any act, delay, omission, or otherwise be deemed to have modified, amended, waived, extended, discharged, or terminated any of its rights or remedies, and no modification, amendment, waiver, extension, discharge, or termination of any kind shall be valid unless in writing and signed by Holder. All rights and remedies of Holder under the terms of this Note and applicable statutes or rules of law shall be cumulative, and may be exercised successively or concurrently. Maker agrees that there are no defenses, equities, or setoffs with respect to the obligations set forth herein, and to the extent any such defenses, equities, or setoffs may exist, the same are hereby expressly released, forgiven, waived, and forever discharged. The obligations of Maker hereunder shall be binding upon and enforceable against Maker and its successors and assigns and shall inure to the benefit of Holder and its successors and assigns. Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note is prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the Note. This Note was negotiated in Texas, and made by Holder and accepted by Maker in the State of Texas, which State the parties agree has a substantial relationship to the parties and to the underlying transaction embodied hereby, and in all respects, including without limitation matters of construction, validity, and performance, this Note and the obligations arising hereunder shall be governed by, and construed in accordance with, the internal laws of the State of Texas and any applicable law of the United States of America. To the fullest extent permitted by law, Maker hereby unconditionally and irrevocably waives any claim to assert that the laws of any other jurisdiction governs this Note. MAKER, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING WITHOUT LIMITATION ANY TORT ACTION, BROUGHT WITH RESPECT TO THIS NOTE. HOLDER MAY FILE A COPY OF THIS WAIVER WITH ANY COURT AS WRITTEN EVIDENCE OF MAKER'S KNOWING, VOLUNTARY, AND BARGAINED FOR AGREEMENT IRREVOCABLY TO WAIVE ITS RIGHTS TO TRIAL BY JURY, AND THAT, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN MAKER AND HOLDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. Maker may not assign or delegate this Note or any of its rights or obligations hereunder without the prior consent of Holder (which consent may be given or withheld in the sole discretion of Holder). Holder may assign or delegate this Note or any of its rights or obligations hereunder without prior consent of or notice to Maker. 4 5 This indebtedness evidenced by this Note constitutes "Current MEIH Advances" under that certain Consolidated, Amended, and Restated Loan and Security Agreement, dated as of August 22, 1996 and as amended, supplemented and otherwise modified from time to time, by and among Foothill Capital Corporation, Maker and various subsidiaries of Maker. This Note amends and restates the $9,500,000 Promissory Note, dated as of June 5, 1997, from Maker payable to the order of Holder and is being issued in replacement of and in substitution for such promissory note. IN WITNESS WHEREOF, Maker has caused this Note to be duly executed on its behalf as of the day and year first above written. MALIBU ENTERTAINMENT WORLDWIDE, INC. By: ---------------------------------------- Richard M. FitzPatrick Vice President 5 EX-24 5 POWER OF ATTORNEY 1 EXHIBIT 24 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 Malibu Entertainment Worldwide, Inc., a Georgia corporation (the "Company"), an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1997, 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 26, 1997 2 EXHIBIT 24 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 Malibu Entertainment Worldwide, Inc., a Georgia corporation (the "Company"), an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1997, 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 26, 1997 3 EXHIBIT 24 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 Malibu Entertainment Worldwide, Inc., a Georgia corporation (the "Company"), an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1997, 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 26, 1997 4 EXHIBIT 24 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 Malibu Entertainment Worldwide, Inc., a Georgia corporation (the "Company"), an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1997, 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 26, 1997 5 EXHIBIT 24 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 Malibu Entertainment Worldwide, Inc., a Georgia corporation (the "Company"), an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1997, 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/ STEVEN D. SCHEETZ ---------------------------- Steven D. Scheetz Director Dated: March 26, 1997 6 EXHIBIT 24 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 Malibu Entertainment Worldwide, Inc., a Georgia corporation (the "Company"), an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1997, 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/ DANIEL A. DECKER ---------------------------- Daniel A. Decker Director Dated: March 26, 1997 7 EXHIBIT 24 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 Malibu Entertainment Worldwide, Inc., a Georgia corporation (the "Company"), an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1997, 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/ JAMES T. HANDS ---------------------------- James T. Hands Director Dated: March 26, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1997 DEC-31-1997 6,573,567 0 121,750 0 1,976,524 12,652,636 116,854,765 0 135,350,104 14,477,059 95,698,584 0 0 141,212,037 (120,475,802) 135,350,104 43,523,933 44,607,478 0 95,089,478 2,597,006 0 6,184,502 (59,302,511) 0 (59,302,511) 0 0 0 (59,302,511) (1.41) (1.41) Accounts receivable and PP&E are shown as net amounts.
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