FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year
ended January 2, 1998.
- Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the
transition period from _____ to _____.
Commission File Number 0-15782
SHOWBIZ PIZZA TIME, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-0905805
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
4441 West Airport Freeway
P.O. Box 152077
Irving, Texas 75015
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(972) 258-8507
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.10 each
(Title of Class)
Class A Preferred Stock, par value $60.00 each
(Title of Class)
Indicate by check mark whether the registrant (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 (or
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No -
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. -
At March 13, 1998, an aggregate of 18,221,235 shares of the
registrant's Common Stock, par value of $.10 each (being the
registrant's only class of common stock), were outstanding, and
the aggregate market value thereof (based upon the last reported
sale price on March 13, 1998) held by non-affiliates of the
registrant was $ 412,456,474.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement, to be
filed pursuant to Section 14(a) of the Act in connection with the
registrant's 1997 annual meeting of shareholders, have been
incorporated by reference in Part III of this report.
page 1
P A R T I
Item 1. Business
General
ShowBiz Pizza Time, Inc. (the "Company"), was incorporated in the
State of Kansas in 1980 and is engaged in the family
restaurant/entertainment center business. The Company considers
this to be its sole industry segment.
The Company operated, as of March 13, 1998, 252 Chuck E.
Cheese's Pizza ("Chuck E. Cheese's") restaurants. In addition, as
of March 13, 1998, franchisees of the Company operated 61 Chuck E.
Cheese's restaurants.
Chuck E. Cheese's Restaurants
Business Development
Chuck E. Cheese's restaurants offer a variety of pizza, a salad
bar, sandwiches and desserts and feature musical and comic
entertainment by life-size, computer-controlled robotic characters,
family oriented games, rides and arcade-style activities. The
restaurants are intended to appeal to families with children
between the ages of 2 and 12. The Company opened its first
restaurant in March 1980.
The Company and its franchisees operate in a total of 44 states
and the Company has concentrated its ownership and operation of
Chuck E. Cheese's restaurants within a 32-state area. See "Item 2.
Properties."
The following table sets forth certain information with respect
to the Chuck E. Cheese's restaurants owned by the Company (excludes
restaurants managed by the Company for others and franchised
restaurants):
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Average annual revenues
per restaurant (1) $1,437,000 $1,286,000 $1,178,000
Number of restaurants open at end
of period 246 240 222
Percent of total restaurant revenues:
Food and beverage sales 68.2% 70.1% 70.2%
Game sales 28.6% 26.6% 26.6%
Merchandise sales 3.2% 3.3% 3.2%
</TABLE>
- -------
(1) In computing these averages, only restaurants which were open
for a period greater than one year at the beginning of each
respective year were included (225, 213 and 190 restaurants in
1997, 1996 and 1995, respectively). Fiscal year 1997 consisted
of 53 weeks while each of fiscal years 1996 and 1995 consisted
of 52 weeks.
The revenues from Chuck E. Cheese's restaurants are seasonal in
nature. The restaurants tend to generate more revenues during the
first and third fiscal quarters as compared to the second and
fourth fiscal quarters.
Each Chuck E. Cheese's restaurant generally employs a general
manager, one or two managers, an electronic specialist who is
responsible for repair and maintenance of the robotic characters
and games, and 45 to 75 food preparation and service employees,
most of whom work only part-time.
Page 2
To maintain a unique and exciting environment in the restaurants,
the Company believes it is essential to reinvest capital through
the evolution of its games, rides and entertainment packages and
continuing enhancement of the facilities. In 1994, the Company
initiated a "repositioning" program to evolve and expand its
efforts to significantly enhance its Chuck E. Cheese's restaurants.
Between March 1994 and September 1997, all Company operated
restaurants were remodeled under this program. In 1997, the
Company initiated a Phase II upgrade program that generally
includes a new game package, enhanced prize and merchandise
offerings and improved product presentation and service. The
Company completed Phase II upgrades in 107 restaurants in 1997 and
plans to upgrade an additional 100 to 120 restaurants in 1998.
The Company expanded the customer areas of three, seven and seven
existing stores in 1995, 1996 and 1997, respectively. The Company
plans to expand the customer areas of another 12 to 15 restaurants
in 1998. The customer area is typically increased by an average of
1,000 to 4,000 square feet per store.
The Company opened two new Chuck E. Cheese's restaurants in 1997
and one new restaurant in 1995. The Company anticipates adding
approximately 18 to 22 new restaurants in 1998 through a
combination of new restaurants and the acquisition of existing
restaurants. The Company periodically reevaluates the site
characteristics of its restaurants. In the event certain site
characteristics considered essential for the success of a
restaurant deteriorate, the Company will consider relocating the
restaurant to a more desirable site.
The Company believes its ownership of trademarks to the names and
character likenesses featured in the robotic animation stage show
(and other in-store entertainment) in its restaurants to be an
important competitive advantage.
Restaurant Design and Entertainment
Chuck E. Cheese's restaurants are typically located in shopping
centers or in free-standing buildings near shopping centers and
generally occupy 8,000 to 14,000 square feet in area. Chuck E.
Cheese's restaurants are typically divided into three areas: a
kitchen and related area (cashier and prize area, salad bar,
manager's office, technician's office, restrooms, etc.) occupies
approximately 35% of the space, a dining area occupies
approximately 25% of the space and an playroom area occupies
approximately 40% of the space.
The dining area of each Chuck E. Cheese's restaurant features a
variety of comic and musical entertainment by computer-controlled
robotic characters, together with video monitors and animated
props, located on various stage type settings. The dining area
typically provides table and chair seating for 250 to 375
customers.
Each Chuck E. Cheese's restaurant typically contains a family
oriented playroom area offering approximately 40 coin- and token-operated
attractions, including arcade-style games, kiddie rides,
video games, skill oriented games and other similar entertainment.
Most games dispense tickets that can be redeemed by guests for
prize merchandise such as toys and dolls. Also included in the
playroom area are tubes and tunnels suspended from or reaching to
the ceiling ("SkyTubes") or other free attractions for young
children, with booth and table seating for the entire family. The
playroom area normally occupies approximately 60% of the
restaurant's public area and contributes significantly to its
revenues. A limited number of free tokens are furnished with food
orders. Additional tokens may be purchased. These tokens are used
to play the games in the playroom.
Food and Beverage Products
Each Chuck E. Cheese's restaurant offers varieties of pizza, a
salad bar, sandwiches and desserts. Soft drinks, coffee and tea
are also served, along with beer and wine where permitted by local
laws. The Company believes that the quality of its food compares
favorably with that of its competitors.
The majority of food, beverages and other supplies used in the
Company-operated restaurants is currently distributed under a
system-wide agreement with a major food distributor. The Company
believes that this distribution system creates certain cost and
operational efficiencies for the Company.
Page 3
Marketing
The primary customer base for the Company's restaurants consists
of families having children between 2 and 12 years old. The
Company conducts advertising campaigns targeted at families with
young children that feature the family entertainment experiences
available at Chuck E. Cheese's restaurants and are primarily aimed
at increasing the frequency of customer visits. The primary
advertising medium continues to be television, due to its broad
access to family audiences and its ability to communicate the Chuck
E. Cheese's experience. The television advertising campaigns are
supplemented by promotional offers in newspapers.
Franchising
The Company began franchising its restaurants in October 1981 and
the first franchised restaurant opened in June 1982. At March
13, 1998, 61 Chuck E. Cheese's restaurants were operated by a
total of 39 different franchisees, as compared to 69 of such
restaurants at March 14, 1997. In September 1996, the Company
purchased all of the 19 Chuck E. Cheese's restaurants owned by its
largest franchisee. The Company sold five franchises in 1997.
Opportunities for further international franchise development are
being reviewed by the Company.
The Chuck E. Cheese's standard franchise agreements grant to the
franchisee the right to develop and operate a restaurant and use
the associated trademarks within the standards and guidelines
established by the Company. The franchise agreement presently
offered by the Company has an initial term of 15 years and includes
a 10-year renewal option. The standard agreement provides the
Company with a right of first refusal should a franchisee decide to
sell a restaurant. The earliest expiration dates of outstanding
Chuck E. Cheese's franchises are in 1998.
The franchise agreements governing existing franchised Chuck E.
Cheese's restaurants currently require each franchisee to pay: (i)
to the Company, in addition to an initial franchise fee of $50,000,
a continuing monthly royalty fee equal to 3.8% of gross sales;
(ii) to the Advertising Fund [an independent fund established and
managed by an association of the Company and its franchisees to pay
costs of system-wide advertising (the "Association")] an amount
equal to 1.4% of gross sales; and (iii) to the Entertainment Fund
(an independent fund established and managed by such Association to
further develop and improve entertainment attractions) an amount
equal to 0.4% of gross sales. In 1998, the Advertising Fund will
increase assessments from 1.4% of gross sales to 2.15% of gross
sales. The Chuck E. Cheese's franchise agreements also require
franchisees to expend at least 2.0% of gross sales for local
advertising. Under the Chuck E. Cheese's franchise agreements, the
Company is required, with respect to Company-operated restaurants,
to spend for local advertising and to contribute to the Advertising
Fund and the Entertainment Fund at the same rates as franchisees.
Competition
The restaurant and entertainment industries are highly
competitive, with a number of major national and regional chains
operating in the restaurant or family entertainment business.
Although other restaurant chains presently utilize the combined
family restaurant / entertainment concept, these competitors
primarily operate on a regional, market-by-market basis.
The Company believes that it will continue to encounter
competition in the future. Major national and regional chains,
some of which may have capital resources as great or greater than
the Company, are competitors of the Company. The Company believes
that the principal competitive factors affecting Chuck E. Cheese's
restaurants are the relative quality of food and service, quality
and variety of offered entertainment, and location and
attractiveness of the restaurants as compared to its competitors in
the restaurant or entertainment industries.
Page 4
Monterey's Tex-Mex Cafe Restaurants
The Company, through its wholly owned subsidiary BHC Acquisition
Corporation ("BAC"), operated 27 Monterey's Tex-Mex Cafe
restaurants which were sold in May 1994.
Trademarks
The Company owns various trademarks, including "Chuck E. Cheese"
and "ShowBiz" that are used in connection with the restaurants and
have been registered with the United States Patent and Trademark
Office. The duration of such trademarks is unlimited, subject to
continued use. The Company believes that it holds the necessary
rights for protection of the marks considered essential to conduct
its present restaurant operations.
Government Regulation
The development and operation of Chuck E. Cheese's restaurants
are subject to various federal, state and local laws and
regulations, including but not limited to those that impose
restrictions, levy a fee or tax, or require a permit or license on
the service of alcoholic beverages and the operation of games and
rides. The Company is subject to the Fair Labor Standards Act, the
Americans With Disabilities Act, and family leave mandates. A
significant portion of the Company's restaurant personnel are paid
at rates related to the minimum wage established by federal and
state law. Increases in such minimum wage result in higher labor
costs to the Company, which may be partially offset by price
increases and operational efficiencies.
Working Capital Practices
The Company attempts to maintain only sufficient inventory of
supplies in the restaurants which it operates to satisfy current
operational needs. The Company's accounts receivable consist
primarily of credit card receivables, franchise royalties,
management fees and advances to managed properties.
Employees
The Company's employment varies seasonally, with the greatest
number being employed during the summer months. On March 13, 1998,
the Company employed approximately 13,600 employees, including
13,400 in the operation of Chuck E. Cheese's restaurants and 200
employed by the Company in the Company's executive offices. None
of the Company's employees is a member of any union or collective
bargaining group. The Company considers its employee relations to
be good.
Page 5
Item 2. Properties
The following table sets forth certain information regarding the
Chuck E. Cheese's restaurants operated by the Company as of March
13, 1998.
Chuck E.
State Cheese's
------ --------
Alabama 5
Arkansas 4
California 48
Colorado 4
Connecticut 5
Delaware 1
Florida 15
Georgia 7
Idaho 1
Illinois 16
Indiana 7
Iowa 4
Kansas 3
Kentucky 1
Louisiana 4
Maryland 10
Massachusetts 10
Michigan 11
Missouri 7
Nevada 1
Nebraska 2
New Hampshire 2
New Jersey 9
New York 5
North Carolina 3
Ohio 12
Oklahoma 3
Pennsylvania 9
South Carolina 3
Tennessee 5
Texas 26
Virginia 6
Wisconsin 3
----
252
====
Of the 252 Chuck E. Cheese's restaurants owned by the Company as
of March 13, 1998, 233 occupy leased premises and 19 occupy owned
premises. The leases of these restaurants will expire at various
times from 1998 to 2009, as described in the table below.
Year of Number of Range of Renewal
Expiration Restaurants Options (Years)
---------- ----------- --------------
1998 27 None to 10
1999 17 None to 15
2000 22 None to 15
2001 37 None to 15
2002 and thereafter 130 None to 15
page 6
The leases of Chuck E. Cheese's restaurants contain terms which
vary from lease to lease, although a typical lease provides for a
primary term of 10 years, with two additional five-year options to
renew, and provides for annual minimum rent payments of
approximately $6.00 to $25.00 per square foot, subject to periodic
adjustment. The restaurant leases require the Company to pay the
cost of repairs, insurance and real estate taxes and, in many
instances, provide for additional rent equal to the amount by which
a percentage (typically 6%) of gross revenues exceeds the minimum
rent.
Item 3. Legal Proceedings.
From time to time the Company is involved in litigation, most of
which is incidental to its business. In the Company's opinion, no
litigation in which the Company currently is a party is likely to
have a material adverse effect on the Company's results of
operations, financial condition or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during
the fourth quarter of 1997.
Page 7
P A R T I I
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
As of March 13, 1998, there were an aggregate of 18,221,235
shares of the Company's Common Stock outstanding and approximately
2,967 stockholders of record.
The Company's Common Stock is listed on the National Market
System of the National Association of Securities Dealers Automated
Quotation ("NASDAQ") system under the symbol "SHBZ". The following
table sets forth the highest and lowest prices per share of the
Common Stock during each quarterly period within the two most
recent years, as reported on the National Market System of NASDAQ:
<TABLE>
High Low
---- ----
<S> <C> <C>
1997
- 1st quarter $ 25 $ 16 1/2
- 2nd quarter 27 3/8 17 1/4
- 3rd quarter 26 3/4 20 1/2
- 4th quarter 24 15/16 17 3/8
1996
- 1st quarter $ 12 13/16 $ 8
- 2nd quarter 17 5/8 12 1/2
- 3rd quarter 19 1/4 12
- 4th quarter 20 14
</TABLE>
The Company may not pay any dividends to holders of its Common
Stock (except in shares of Common Stock) unless an amount equal to
all dividends then accrued on its Class A Preferred Stock par value
$60.00 per share ("the Preferred Stock") has been paid or set aside
to be paid. A dividend to holders of record of Preferred Stock as
of January 2, 1998 in the amount of $1.20 per share will be paid on
April 5, 1998.
The Company has not paid any cash dividends on its Common Stock
and has no present intention of paying cash dividends thereon in
the future. The Company plans to retain any earnings to finance
anticipated capital expenditures and reduce its long-term debt.
Future dividend policy with respect to the Common Stock will be
determined by the Board of Directors of the Company, taking into
consideration factors such as future earnings, capital
requirements, potential loan agreement restrictions and the
financial condition of the Company.
Page 8
Item 6. Selected Financial Data.
<TABLE>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
(Thousands, except per
share and store data)
Operating results (1):
Revenues . . . . . . . . . . $350,267 $293,990 $263,783 $268,515 272,344
Costs and expenses . . . . . 307,558 271,769 263,408 265,402 254,097
-------- -------- ------- -------- -------
Income before income taxes . . 42,709 22,221 375 3,113 18,247
Income taxes:
Current expense. . . . . . . 3,417 2,855 701 869 1,751
Deferred expense (benefit) . 13,795 6,145 (389) 1,568 4,605
------ ------ ----- ------ -----
17,212 9,000 312 2,437 6,356
------ ------ ----- ------ -----
Net income . . . . . . . . . $ 25,497 $ 13,221 $ 63 $ 676 $ 11,891
======= ======= ===== ====== =======
Per Share (2):
Basic:
Net income (loss) . . . . . $ 1.37 $ .71 $(.02) $ .02 $ .60
Weighted average shares
outstanding . . . . . . . 18,402 18,206 18,098 18,115 19,225
Diluted:
Net income (loss) . . . . $ 1.34 $ .70 $ (.02) $ .02 $ .57
Weighted average shares
outstanding . . . . . . 18,817 18,477 18,098 18,191 20,196
Cash flow data:
Cash provided by
operations . . . . . . $69,478 $48,362 $27,810 $ 30,819 $ 44,905
Cash used in investing
activities. . . . . . (43,805) (51,868) (30,548) (22,576) (45,909)
Cash provided by (used in)
financing activities . (21,800) 1,319 5,946 (10,373) 2,053
Balance sheet data:
Total assets. . . . . . $226,368 $216,580 $199,010 $188,308 $193,649
Long-term obligations
(including current
portion and redeemable
preferred stock) . . . . 30,713 39,571 39,244 33,223 29,816
Shareholders' equity. . . .155,938 141,476 126,487 125,515 136,647
Number of restaurants at year end:
Chuck E. Cheese's:
Company operated. . . . . 249 244 226 226 215
Franchise . . . . . . . . 63 70 93 106 110
---- ---- ---- ---- ----
312 314 319 332 325
Monterey's Tex-Mex Cafe's . . . 27
---- ---- ---- ---- ----
312 314 319 332 352
==== ==== ==== ==== ====
</TABLE>
- ----------------------
(1) Fiscal year 1997 was 53 weeks in length while all other fiscal
years presented were 52 weeks in length.
(2) No cash dividends on common stock were paid in any of the
years presented.
(3) During 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" and restated the
earnings per share data of prior years.
Page 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results Of Operations.
Results of Operations
1997 Compared to 1996
- ---------------------
Revenues increased 19.1% to $350.3 million in 1997 from $294.0
million in 1996 primarily due to an increase of 10.7% in sales of
the Company's Chuck E. Cheese's restaurants which were open during
all of 1997 and 1996 ("comparable store sales"). In addition, the
Company purchased 19 restaurants from its largest franchisee in
September 1996. Fiscal years 1997 and 1996 consisted of 53 and 52
weeks, respectively.
Income before income taxes increased to $42.7 million in 1997
from $22.2 million in 1996. A material portion of operating costs
are fixed resulting in an improvement of operating margins at
higher sales levels. Net income increased to $25.5 million in 1997
from $13.2 million in 1996. The Company's diluted earnings per
share increased to $1.34 per share in 1997 compared to $.70 per
share in 1996.
A summary of the results of operations of the Company as a
percentage of revenues for the last three fiscal years is shown
below.
<TABLE>
1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Cost of sales . . . . . . . . . . . 46.8% 48.7% 51.8%
Selling, general and administrative . 15.1% 14.8% 17.0%
Depreciation and amortization . . . . 7.3% 8.5% 8.8%
Interest expense. . . . . . . . . . . .8% 1.2% 1.2%
(Gain) loss on property transactions. . .1% .1%
Other operating expenses. . . . . . . . 17.8% 19.1% 21.0%
----- ----- -----
87.8% 92.4% 99.9%
----- ----- -----
Income before income taxes . . . . . . 12.2% 7.6% .1%
===== ===== =====
</TABLE>
Revenues
--------
Revenues increased to $350.3 million in 1997 from $294.0 million
in 1996. Comparable store sales of Chuck E. Cheese's restaurants
increased by 10.7% in 1997. In addition, the Company purchased 19
restaurants from its largest franchisee in September 1996. Average
annual sales per restaurant increased to approximately $1,437,000
in 1997 from approximately $1,286,000 in 1996. Fiscal years 1997
and 1996 consisted of 53 and 52 weeks, respectively. Management
believes that several factors contributed to the comparable store
sales increase with the primary factor being sales increases at
repositioned restaurants. Menu prices increased 2.4% between the
two years.
Revenues from franchise fees and royalties were $3.2 million in
1997, a decrease of 12.2% from 1996, primarily due to the Company's
purchase of 19 franchise restaurants in September 1996. Comparable
franchise store sales increased 9.1% in 1997. During 1997, one
new franchise restaurant opened, six franchise restaurants closed
and two franchise restaurants were purchased by the Company.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to 87.8%
in 1997 from 92.4% in 1996.
Cost of sales as a percentage of revenues decreased to 46.8% in
1997 from 48.7% in 1996. Cost of food, beverage, prize and
merchandise items as a percentage of restaurant sales decreased to
16.5% in 1997 from 17.4% in 1996 primarily due to a 2.4% increase
in menu prices and lower cheese costs in 1997. Restaurant labor
expenses as a percentage of restaurant sales declined to 27.5% in
1997 from 28.7% in 1996 primarily due to labor efficiencies
achieved at higher sales volumes.
Page 10
Selling, general and administrative expenses as a percentage of
revenues increased to 15.1% in 1997 from 14.8% in 1996 primarily
due to start-up costs related to the outsourcing and evaluation of
a toll-free birthday reservation system, management development
expenses and stock offering costs incurred in 1997 for a secondary
offering by the Company's largest shareholder.
Depreciation and amortization expense as a percentage of revenues
decreased to 7.3% in 1997 from 8.5% in 1996 primarily due to the
increase in comparable store sales, a change effected in the first
quarter of 1997 in the estimated useful lives of certain fixed
assets and the acquisition of restaurants in 1996 with lower
depreciation expense than existing restaurants. Depreciation
expense was reduced approximately $2.2 million in 1997 due to the
change in the estimated useful lives of certain fixed assets based
on a review of historical asset utilization.
Interest expense decreased to $2.9 million in 1997 from $3.5
million in 1996 primarily due to a decrease in the Company's
outstanding debt between the two periods.
Other operating expenses decreased as a percentage of revenues
to 17.8% in 1997 from 19.1% in 1996 primarily due to the increase
in comparable store sales and the fact that a significant portion
of operating costs such as rent, property taxes and insurance are
fixed.
Net Income
----------
The Company had net income of $25.5 million in 1997 compared to
$13.2 million in 1996 due to the changes in revenues and expenses
discussed above. The Company's diluted earnings per share
increased to $1.34 per share in 1997 compared $.70 per share in
1996.
1996 Compared to 1995
- ---------------------
Revenues increased 11.5% to $294.0 million in 1996 from $263.8
million in 1995 primarily due to an increase of 9.8% in comparable
stores sales. In addition, the Company purchased 19 restaurants
from its largest franchisee in September 1996.
Income before income taxes increased to $22.2 million in 1996
from $375,000 in 1995. A material portion of operating costs are
fixed resulting in an improvement of operating margins at higher
sales levels. Net income increased to $13.2 million in 1996 from
$63,000 in 1995. The Company's diluted earnings per share
increased to $.70 per share in 1996 compared to a loss of $.02 per
share in 1995.
Revenues
--------
Revenues increased to $294.0 million in 1996 from $263.8 million
in 1995. Comparable store sales increased by 9.8% in 1996. In
addition, the Company purchased 19 restaurants from its largest
franchisee in September 1996. Average annual sales per restaurant
increased to approximately $1,286,000 in 1996 from approximately
$1,178,000 in 1995. Management believes that several factors
contributed to the comparable store sales increase with the primary
factor being sales increases at repositioned restaurants. Menu
prices increased 3.2% between the two years.
Revenues from franchise fees and royalties were $3.7 million in
1996, an increase of 6.1% from 1995, primarily due to an increase
in franchise fee income in 1996 and an increase of 3.6% in
comparable franchise store sales for 1996. The increase in
comparable franchise store sales was partially offset by a decline
in the number of franchise restaurants operated each year. During
1996, four new franchise restaurants opened, eight franchise
restaurants closed and 19 franchise restaurants were purchased by
the Company.
Page 11
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to 92.4%
in 1996 from 99.9% in 1995.
Cost of sales as a percentage of revenues decreased to 48.7% in
1996 from 51.8% in 1995. Cost of food, beverage, prize and
merchandise items as a percentage of restaurant sales decreased to
17.4% in 1996 from 17.9% in 1995 primarily due to a 3.2% increase
in menu prices. Restaurant labor expenses as a percentage of
restaurant sales declined to 28.7% in 1996 from 30.9% in 1995
primarily due to an increase in comparable store sales and more
effective utilization of hourly employees.
Selling, general and administrative expenses as a percentage of
revenues decreased to 14.8% in 1996 from 17.0% in 1995 primarily
due to comparable store sales increases and a reduction of
advertising costs between the two periods.
Depreciation and amortization expense as a percentage of revenues
decreased to 8.5% in 1996 from 8.8% in 1995 primarily due to the
full amortization of certain deferred charges.
Interest expense increased to $3.5 million in 1996 from $3.1
million in 1995 primarily due to an increase in the Company's
average outstanding debt between the two periods. Debt increased
as a result of capital expenditures in connection with the
repositioning of 126 and 87 restaurants in 1996 and 1995,
respectively.
The Company had a net loss on property transactions of $263,000
in 1996 and $136,000 in 1995 due to the replacement of assets
arising from the enhancement of facilities and entertainment
packages of restaurants. The loss in 1995 was net of a gain of
$100,000 from the sale of certain assets which had been held for
resale.
Other operating expenses decreased as a percentage of revenues
to 19.1% in 1996 from 21.0% in 1995 primarily due to a decrease in
insurance costs, the increase in comparable store sales and the
fact that a significant portion of operating costs are fixed.
Net Income
----------
The Company had net income of $13.2 million in 1996 compared to
$63,000 in 1995 due to the changes in revenues and expenses
discussed above. The Company's diluted earnings per share
increased to $.70 per share in 1996 compared to a loss of $.02 per
share in 1995.
Inflation
The Company's costs of operations, including but not limited to,
labor, supplies, utilities, financing and rental costs, are
significantly affected by inflationary factors. The Company pays
most of its part-time employees rates that are related to federal
and state mandated minimum wage requirements. Management
anticipates that recent increases in federally mandated minimum
wage will result in increased labor costs for the Company. Any
other increases in such costs would result in higher costs to the
Company, which the Company expects would be partially offset by
menu price increases and increased efficiencies in operations.
Page 12
Financial Condition, Liquidity and Capital Resources
Cash provided by operations increased to $69.5 million in 1997
from $48.4 million in 1996. Cash outflow from investing activities
for 1997 was $43.8 million. Cash outflow from financing activities
in 1997 was $21.8 million. The Company's primary requirements for
cash relate to planned capital expenditures and debt service. The
Company expects that it will satisfy such requirements from cash
provided by operations and, if necessary, funds available under its
line of credit.
In 1997, the Company announced that it plans to purchase shares
of the Company's common stock at an aggregate purchase price of up
to $20 million. As of March 13, 1998, the Company has purchased
718,500 shares of its common stock in the open market for an
aggregate purchase price of approximately $15.2 million. The funds
required for the stock purchase plan are provided primarily from
the Company's current cash balances and operating cash flow.
The Company completed its repositioning program by remodeling
22 restaurants in 1997. In 1996, 1995 and 1994, 126, 87 and 10
restaurants were remodeled, respectively.
In 1997, the Company opened two new stores, acquired three stores
from franchisees and acquired one store previously managed by the
Company. During 1998, the Company plans to add an additional 18 to
22 stores including new stores and acquisitions of existing stores
from franchisees or joint venture partners. The Company currently
anticipates its cost of opening new stores to average approximately
$1.5 million per store which will vary depending upon many factors
including the size of the store and whether the store is an in-line
or free-standing building. In 1997, the Company expanded seven
existing stores and plans to expand an additional 12 to 15 stores
by the end of 1998. These expansions typically increase the
customer area by an average of 1,000 to 4,000 square feet per
store. The Company completed 107 Phase II upgrades in 1997 and
plans to upgrade an additional 100 to 120 stores in 1998 at an
average cost of $150,000 to $160,000 per store. A Phase II upgrade
generally includes a new game package, enhanced prize and
merchandise offerings and improved product presentation and
service. The Company currently estimates that capital expenditures
in 1998, including expenditures for remodeling existing stores, new
store openings, existing store expansions and equipment
investments, will be approximately $55 million. The Company plans
to finance these expenditures through cash flow from operations
and, if necessary, borrowings under the Company's line of credit.
The Company's total credit facility of $41.3 million at January
2, 1998 consists of $26.3 million in term notes and a $15 million
line of credit which expires in June 1998. Term notes totaling
$18 million with annual interest of 10.02% mature in 2001. Term
notes totaling $8.3 million with quarterly principal payments of
$833,000 and annual interest equal to LIBOR plus 3.5% mature in
2000. Interest under the $15 million line of credit is dependent on
earnings and debt levels of the Company and ranges from prime plus
0% to .5% or, at the Company's option, LIBOR plus 2% to 3%.
Currently, any borrowings under this line of credit would be at the
prime rate or LIBOR plus 2%. As of March 13, 1998, there were no
borrowings under this line of credit. The Company is required to
comply with certain financial ratio tests during the terms of the
loan agreements. The Company plans to extend the maturity of its
current line of credit or enter into a new agreement prior to the
expiration date of the current agreement.
In 1998, the Company will purchase computer software which will
be Year 2000 compliant The Year 2000 issue is the result of
computer programs being written using two digits rather than four
to define the applicable year. Current systems may be unable to
accurately process certain date-based information. The cost of the
new software will be recorded as an asset and amortized over its
estimated useful life. Other maintenance or modification costs will
be expensed as incurred. Accordingly, the Company does not expect
the amounts required to be expensed over the next two years to have
a material effect on its financial position or results of
operations or cash flows. The Company expects its Year 2000 date
conversion project to be completed in 1999. The Company has
initiated formal communication with significant vendors and
suppliers to determine their efforts to remediate Year 2000 issues.
There can be no guarantee that such issues will be resolved and
could result in financial risk to the Company.
The Company has investment tax credit, job tax credit and
alternative minimum tax credit carryforwards of approximately $7
million. The investment tax credit and the job tax credit
carryforwards expire in years 1998 through 2010. The Company
currently projects future taxable income levels sufficient to
realize its tax credit carryforwards prior to their expiration.
However, there can be no assurance that the levels of taxable
income will be sufficient to realize these benefits.
Page 13
Item 8. Financial Statements and Supplementary Data
SHOWBIZ PIZZA TIME, INC.
YEARS ENDED JANUARY 2, 1998, DECEMBER 27, 1996
AND DECEMBER 29, 1995
CONTENTS
Page
----
Independent auditors' report . . . . . . . . . . . . . . . . . . . . 15
Consolidated financial statements:
Consolidated balance sheets . . . . . . . . . . . . . . . . . . . . 16
Consolidated statements of earnings . . . . . . . . . . . . . . . . 17
Consolidated statements of shareholders' equity . . . . . . . . . . 18
Consolidated statements of cash flows . . . . . . . . . . . . . . . 19
Notes to consolidated financial statements. . . . . . . . . . . . . 20
page 14
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
ShowBiz Pizza Time, Inc.
Irving, Texas
We have audited the accompanying consolidated balance sheets of
ShowBiz Pizza Time, Inc. and subsidiary as of January 2, 1998 and
December 27, 1996, and the related consolidated statements of
earnings, shareholders' equity, and cash flows for each of the
three years in the period ended January 2, 1998. 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, such consolidated financial statements present
fairly, in all material respects, the financial position of ShowBiz
Pizza Time, Inc. and subsidiary as of January 2, 1998 and December
27, 1996, and the results of their operations and their cash flows
for each of the three years in the period ended January 2, 1998, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 27, 1998
page 15
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 2, 1998 AND DECEMBER 27, 1996
(Thousands, except share data)
<TABLE>
ASSETS
January 2, December 27,
1998 1996
---------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . $ 7,275 $ 3,402
Accounts receivable, including receivables
from related parties of $240 and $675,
respectively . . . . . . . . . . . 2,996 3,543
Current portion of notes receivable,
including receivables from
related parties of $199 and $221,
respectively . . . . . . . . . . . . . 259 457
Inventories . . . . . . . . . . . . . . . 3,975 3,368
Prepaid expenses. . . . . . . . . . . . . 3,550 3,185
Current portion of deferred tax asset . . 7,237 13,633
------- -------
Total current assets . . . . . . . . . . 25,292 27,588
------- -------
Investments in related parties . . . . . . . . 668 1,315
------- -------
Property and equipment, net. . . . . . . . . . 187,433 163,998
-------- -------
Deferred tax asset . . . . . . . . . . . . . . 5,988 12,296
-------- -------
Other assets:
Notes receivable, less current portion,
including receivables from related parties
of $2,516 and $2,323, respectively . . . . 2,579 7,257
Other . . . . . . . . . . . . . . . . . . . . 4,408 4,126
------- -------
6,987 11,383
------- --------
$ 226,368 $ 216,580
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . .$ 3,376 $ 1,785
Accounts payable and accrued liabilities. . . 35,665 31,738
------- -------
Total current liabilities. . . . . . . . . 39,041 33,523
------- -------
Long-term debt, less current portion . . . . . 23,826 34,668
------- -------
Deferred credits . . . . . . . . . . . . . . . 4,052 3,795
------- -------
Other liabilities. . . . . . . . . . . . . . . 1,300 1,010
------- -------
Commitments and contingencies
Redeemable preferred stock, $60 par value,
redeemable for $2,974 in 2005 . . . . . . . 2,211 2,108
------- -------
Shareholders' equity:
Common stock, $.10 par value; authorized
50,000,000 shares; 21,912,277 and 21,519,075
shares issued, respectively . . . . . . . 2,191 2,152
Capital in excess of par value. . . . . . . 158,696 153,795
Retained earnings . . . . . . . . . . . . . 42,768 17,613
Deferred compensation . . . . . . . . . . . . (2,280) (1,821)
Less treasury shares of 3,827,676 and 3,109,176,
respectively, at cost . . . . . . . (45,437) (30,263)
-------- -------
155,938 141,476
-------- --------
$ 226,368 $ 216,580
======== ========
</TABLE>
See notes to consolidated financial statements.
page 16
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
(Thousands, except per share data)
<TABLE>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Food and beverage revenues . . . . . . . . $ 235,898 $202,624 $182,376
Games and merchandise revenues . . . . . . 109,518 86,444 76,969
Franchise fees and royalties . . . . . . . 3,227 3,675 3,464
Interest income, including related party
income of $244, $246 and
$222, respectively. . . . . . . . . . . . 1,095 1,051 872
Joint venture income . . . . . . . . . . . . 529 196 102
------- ------- -------
350,267 293,990 263,783
------- ------- -------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . 163,713 143,381 136,700
Selling, general and administrative
expenses, including related
party expenses of $31, $125 and $125,
respectively. . . . . . . . . . . . . . . 53,037 43,534 44,794
Depreciation and amortization. . . . . . . 25,524 25,057 23,184
Interest expense. . . . . . . . . . . . . . 2,866 3,476 3,118
(Gain) loss on property transactions. . . . . (104) 263 136
Other operating expenses. . . . . . . . . . 62,522 56,058 55,476
------- ------- -------
307,558 271,769 263,408
------- ------- -------
Income before income taxes . . . . . . . . . 42,709 22,221 375
Income taxes:
Current expense. . . . . . . . . . . . . . 3,417 2,855 701
Deferred (benefit) expense . . . . . . . . 13,795 6,145 (389)
------- ------ ------
17,212 9,000 312
------- ------- ------
Net income. . . .. . . . . . . . . . . . . .$ 25,497 $ 13,221 $ 63
======= ======= ======
Net income (loss) applicable to
common shares (Note 11) . . . . . . . . .$ 25,155 $ 12,880 $ (279)
======= ======= ======
Earnings per share:
Basic:
Net income (loss). . . . . . . . . . . . . $ 1.37 $ .71 $ (.02)
====== ===== ======
Weighted average shares outstanding. . . . 18,402 18,206 18,098
====== ====== ======
Diluted:
Net income (loss). . . . . . . . . . . . . $ 1.34 $ .70 $ (.02)
====== ====== ======
Weighted average shares outstanding. . . . 18,817 18,477 18,098
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
Page 17
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
(Thousands, except per share data)
<TABLE>
Common Capital in Deferred Treasury
Stock Excess of Retained Compen- Stock
Shares Par Value Par Value Earnings sation Shares Cost
- -------- --------- ---------- ---------- -------- ------- ------
<S><C> <C> <C> <C> <C> <C> <C>
Balances, December 30, 1994. . . . .
21,506 $ 2,151 $ 155,815 $ 5,012 $ (7,200) 3,109 $(30,263)
Net income. . . . . . . . . . . . .
63
Redeemable preferred stock accretion (104)
Redeemable preferred stock dividends,
$4.80 per share. . . . . . . . . . (238)
Stock options exercised . . . . . .
19 2 88
Stock grant shares forfeited. . . .
(90) (9) (1,734) 1,737
Tax benefit from exercise of stock options
and stock grants . . . . . . . . .
(654)
Amortization of deferred compensation . . . 1,821
------ ------ ------ ----- ------ ------ -------
Balances, December 29, 1995. . . . .
21,435 2,144 153,515 4,733 (3,642) 3,109 (30,263)
Net income. . . . . . . . . . . . . 13,221
Redeemable preferred stock accretion. . (103)
Redeemable preferred stock dividends,
$4.80 per share. . . . . . . . . . (238)
Stock options exercised . . . . . .
77 7 930
Tax benefit from exercise of stock options
and stock grants . . . . (655)
Amortization of deferred compensation 1,821
Stock issued under 401(k) plan. . .
8 1 51
Stock split costs . . . . . . . . .
(30)
Cancellation of fractional shares . .
(1) (16)
------ ----- ------- ------- ------- ----- -------
Balances, December 27, 1996 . . . .
21,519 2,152 153,795 17,613 (1,821) 3,109 (30,263)
Net income. . . . . . . . . . . . . 25,497
Redeemable preferred stock accretion. . . . .
(104)
Redeemable preferred stock dividends,
$4.80 per share. . . . . . . . . . (238)
Stock options exercised . . . . . .
262 26 2,566
Stock grant plan . . . . . . . . . .
128 13 2,280 (2,280)
Tax benefit from exercise of stock options
and stock grants . . . . (14)
Treasury stock acquired. . . . . . 719 (15,174)
Amortization of deferred compensation 1,821
Stock issued under 401(k) plan. . .
3 59
Stock split costs. . . . . 10
------ ------ ------- ------ ------- ------ -------
Balances, January 2, 1998 . . . .
21,912 $ 2,191 $158,696 $ 42,768 $(2,280) 3,828 $(45,437)
======= ======= ======== ======== ======= ===== ========
</TABLE>
See notes to consolidated financial statements.
page 18
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
(Thousands)
<TABLE>
1997 1996 1995
---- ----- ----
<S> <C> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . . . $25,497 $13,221 $ 63
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization . . . . . . . . 25,524 25,057 23,184
Deferred income tax expense (benefit) . . . . 13,795 6,145 (389)
(Gain) loss on property transactions. . . . . (104) 263 136
Compensation expense under stock grant plan . 1,821 1,821 1,821
Other . . . . . . . . . . . . . . . . . . . . 257 352 418
Net change in receivables, inventories, prepaids,
payables and accrued liabilities . . . . . . 2,688 1,503 2,577
----- ----- -----
Cash provided by operations . . . . . . . . 69,478 48,362 27,810
------ ------ ------
Investing activities:
Purchases of property and equipment. . . . . . (48,451) (51,719) (28,277)
Proceeds from disposition of property
and equipment . . . . . . . . . . . . . . . 20
Payments received on notes receivable. . . . . 7,376 3,534 2,503
Additions to notes receivable . . . . . . . . . (2,500) (3,568) (3,047)
Change in investments and other assets . . . . (230) (115) (1,747)
------ ------ ------
Cash used in investing activities. . . . . . (43,805) (51,868) (30,548)
Financing activities:
Proceeds from debt and line of credit. . . . . 7,600 38,895
Payments on debt and line of credit. . . . . . (9,142) (6,995) (33,054)
Redeemable preferred stock dividends . . . . . (238) (238) (238)
Acquisition of treasury stock. . . . . . . . . (15,174)
Exercise of stock options. . . . . . . . . . . 2,592 937 90
Other. . . . . . . . . . . . . . . . . . . . . 162 15 253
------ ------ ------
Cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . (21,800) 1,319 5,946
------ ------ ------
Increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . . . 3,873 (2,187) 3,208
Cash and cash equivalents, beginning
of year. . . . . . . . . . . . . . . . . . . 3,402 5,589 2,381
------ ------ ------
Cash and cash equivalents, end of year . . . . . $ 7,275 $ 3,402 $ 5,589
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
page 19
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
1. Summary of significant accounting policies:
Operations:
ShowBiz Pizza Time, Inc. (the "Company") operates and
franchises family restaurant entertainment centers as Chuck E.
Cheese's restaurants.
Fiscal year:
The Company's fiscal year is 52 or 53 weeks and ends on the
Friday nearest December 31. References to 1997, 1996 and 1995
are for the fiscal years ended January 2, 1998, December 27,
1996 and December 29, 1995, respectively. Fiscal year 1997 was
53 weeks in length, while 1996 and 1995 were each 52 weeks in
length.
Basis of consolidation:
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Cash and cash equivalents:
Cash and cash equivalents of the Company are composed of
demand deposits with banks and short-term cash investments with
remaining maturities of three months or less from the date of
purchase by the Company.
Inventories:
Inventories of food, paper products and supplies are stated at
the lower of cost or market on a first-in, first-out basis.
Property and equipment, depreciation and amortization:
Property and equipment are stated at cost. Depreciation and
amortization are provided by charges to operations over the
estimated useful lives of the assets, or the lease term if less,
by the straight-line method. During the first quarter of 1997,
the Company changed its estimate of the useful lives of certain
fixed assets. As a result of this change, income before income
taxes increased approximately $2.2 million, net income increased
approximately $1.3 million and basic and diluted earnings per
share increased approximately $.07 in 1997.
Deferred charges and related amortization:
Deferred charges are amortized over various periods of up to
16 years. All amortization is provided by the straight-line
method, which approximates the interest method.
Franchise fees and royalties:
The Company recognizes initial franchise fees upon fulfillment
of all significant obligations to the franchisee. Royalties
from franchisees are accrued as earned.
Page 20
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
1. Summary of significant accounting policies (continued):
Impairment of intangibles and long-lived assets:
Impairment losses are recognized if the future cash flows
expected to be generated by intangibles and long-lived assets
are less than the carrying value of the assets. The impairment
loss is equal to the amount by which the carrying value of the
assets exceeds the fair value of the assets.
Use of estimates and assumptions:
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 and 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 differ from those estimates.
Earnings Per Share
The Financial Accounting Standards Board has issued Statement
of Accounting Standards No. 128 ("SFAS 128") "Earnings Per
Share" effective for years ending after December 15, 1997.
SFAS 128 replaced the presentation of primary and fully
diluted earnings per common share with basic and diluted
earnings per common share (Note 11). The Company has restated
the earnings per share data of prior years to reflect this
adoption.
Accounting for stock-based compensation:
Statement of Financial Accounting Standards No. 123 ("SFAS 123")
"Accounting for Stock-Based Compensation" became effective for years
beginning after December 15, 1995. As permitted by SFAS 123, the
Company will continue to apply the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees" and has adopted only the
disclosure requirements of SFAS 123 beginning in fiscal 1996.
Accordingly, no compensation costs have been recognized in connection
with the Company's stock option plans (Note 18).
2. Significant transactions:
In September 1996, the Company purchased from its largest
franchisee 19 restaurants plus the 49% minority interest of one
restaurant previously operated as a joint venture by the Company
and seller. In addition to the cash purchase price of $2.6
million, the Company reimbursed the seller for remodeling costs
for three restaurants which had been recently remodeled. The
Company assumed no liabilities under the asset purchase.
Results of operations for the assets purchased are included in
the Company's results from the date of this acquisition.
page 21
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
3. Accounts receivable:
<TABLE>
1997 1996
---- -----
(thousands)
<S> <C> <C>
Trade . . . . . . . . . . . . . . . . . . . . . .$ 1,112 $ 538
Other . . . . . . . . . . . . . . . . . . . . . . 1,908 3,025
------ ------
3,020 3,563
Less allowance for doubtful collection. . . . . . (24) (20)
------ ------
$ 2,996 $ 3,543
====== ======
</TABLE>
4. Notes receivable:
The Company's notes receivable at January 2, 1998 and December
27, 1996 arose principally as a result of the sale of
restaurants, lines of credit established with the International
Association of ShowBiz Pizza Time Restaurants, Inc., a related
party (Note 17), and advances to franchisees, joint ventures and
managed properties. All obligors under the notes receivable are
principally engaged in the restaurant industry. The notes have
various terms, but most are payable in monthly installments of
principal and interest through 2001, with interest rates ranging
from 7.5% to 12.0%. The notes are generally collateralized by
the related property and equipment. Balances of notes
receivable are net of an allowance for doubtful collection of
$59,000 and $174,000 at January 2, 1998 and December 27, 1996,
respectively.
5. Property and equipment:
<TABLE>
Estimated
Lives 1997 1996
(in years) (thousands)
---------- ---------------
<S> <C> <C> <C>
Land and improvements. . . . . . . 0 - 20 $ 7,515 $ 5,208
Leasehold improvements . . . . . . 4 - 20 150,565 135,201
Buildings and improvements . . . . 4 - 25 10,348 9,161
Furniture, fixtures and equipment. 2 - 15 140,612 120,688
Property leased under capital
leases (Note 7). . . . . . . . . 10 - 15 1,271 1,328
------- ------
310,311 271,586
Less accumulated depreciation and
amortization (124,640) (108,345)
------- -------
185,671 163,241
Construction in progress . . . . . . . . 1,762 757
-------- --------
$ 187,433 $ 163,998
======== ========
</TABLE>
6. Accounts payable and accrued liabilities:
<TABLE>
1997 1996
-------- -------
(thousands)
<S> <C> <C>
Accounts payable. . . . . . . . . . . . . . . . . $ 13,162 $ 13,240
Salaries and wages. . . . . . . . . . . . . . . . 6,591 4,292
Insurance . . . . . . . . . . . . . . . . . . . . 8,532 8,714
Taxes, other than income. . . . . . . . . . . . . 4,096 3,037
Other . . . . . . . . . . . . . . . . . . . . . . 3,284 2,455
------- -------
$ 35,665 $31,738
======= =======
</TABLE>
Page 22
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
7. Leases:
The Company leases certain restaurants and related property
and equipment under operating and capital leases. All leases
require the Company to pay property taxes, insurance and
maintenance of the leased assets. The leases generally have
initial terms of 7 to 30 years with various renewal options.
Following is a summary of property leased under capital
leases:
<TABLE>
1997 1996
----- -----
(thousands)
<S> <C> <C>
Buildings and improvements . . . . . . . . . . $ 1,271 $1,328
Less accumulated depreciation. . . . . . . . . (1,031) (982)
----- ----
$ 240 $ 346
==== ====
</TABLE>
Scheduled annual maturities of the obligations for capital and
operating leases as of January 2, 1998, are as follows:
<TABLE>
Years Capital Operating
----- ------- ---------
(thousands)
<S> <C> <C>
1998. . . . . . . . . . . . . . . . . . . . . . . $184 $26,141
1999. . . . . . . . . . . . . . . . . . . . . . . 184 24,521
2000. . . . . . . . . . . . . . . . . . . . . . . 184 22,905
2001. . . . . . . . . . . . . . . . . . . . . . . 214 20,373
2002. . . . . . . . . . . . . . . . . . . . . . . 214 17,980
2003-2009 (aggregate payments). . . . . . . . . . 627 26,084
---- ------
Minimum future lease payments . . . . . . . . . . 1,607 $138,004
=======
Less amounts representing interest. . . . . . . . (737)
-----
Present value of future minimum lease payments. . 870
Less current portion. . . . . . . . . . . . . . . (43)
-----
$ 827
=====
</TABLE>
Certain of the Company's real estate leases, both capital and
operating, require payment of contingent rent in the event
defined revenues exceed specified levels.
The Company's rent expense is comprised of the following:
<TABLE>
1997 1996 1995
----- ----- ----
(thousands)
<S> <C> <C> <C>
Minimum . . . . . . . . . . . . . . . . . $32,694 $30,484 $28,730
Contingent. . . . . . . . . . . . . . . . 276 195 146
------- ------- -------
$32,970 $30,679 $28,876
======= ======= =======
</TABLE>
page 23
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
8. Long-term debt:
<TABLE>
1997 1996
---- ----
(thousands)
<S> <C> <C>
Term loans, 10.02%, due June 2001 . . . . . . . . $ 18,000 $ 18,000
Term loans, LIBOR plus 3.5%, due June 2000. . . . 8,332 10,000
Revolving bank loan, prime plus 0% to .5% or
LIBOR plus 2% to 3%,
due June 1998 . . . . . . . . . . . . . . . . 7,400
Obligations under capital leases (Note 7). . . . 870 1,053
------ ------
27,202 36,453
Less current portion. . . . . . . . . . . . . . . (3,376) (1,785)
------ ------
$ 23,826 $ 34,668
======= =======
</TABLE>
In August 1996, the Company's line of credit agreement was
amended to provide the Company with available borrowings of up
to $15 million expiring in June 1998. In September 1996, the
Company prepaid $5 million in term notes. As of January 2,
1998, the Company's credit facility totals $41.3 million, which
consists of $26.3 million in term notes and the $15 million line
of credit. Interest under the line of credit is dependent on
earnings and debt levels of the Company. Currently, any
borrowings under this line of credit would be at prime (8.5% at
January 2, 1998) plus 0% or, at LIBOR (5.9% at January 2, 1998)
plus 2%. At January 2, 1998, there was no outstanding balance
under the line of credit. A 3/8% commitment fee is payable on
any unused credit line. The Company is required to comply with
certain financial ratio tests during the terms of the loan
agreements.
As of January 2, 1998, scheduled annual maturities of all
long-term debt (exclusive of obligations under capital leases)
are as follows (thousands):
<TABLE>
<S> <C>
Years Amount
----- ------
1998. . . . . . . . . . . $ 3,333
1999. . . . . . . . . . . 9,332
2000. . . . . . . . . . . 7,667
2001. . . . . . . . . . . 6,000
-------
$26,332
</TABLE>
9. Litigation:
From time to time the Company is involved in litigation, most
of which is incidental to its business. In the Company's
opinion, no litigation to which the Company currently is a party
is likely to have a material adverse effect on the Company's
results of operations, financial condition or cash flows.
10. Redeemable preferred stock:
As of January 2, 1998, the Company had 49,570 shares of its
redeemable preferred stock authorized and outstanding. The
stock pays dividends at $4.80 per year, subject to a minimum
cash flow test. As of January 2, 1998, one quarterly dividend,
totaling $59,484 or $1.20 per share, was accrued but not yet
paid. The redeemable preferred stock has been recorded at the
net present value and is being accreted on the straight-line
basis. The Company's restated articles of incorporation provide
for the redemption of such shares at $60 per share in 2005.
During the continuation of any event of default by the Company,
the preferred shareholders shall be able to elect a majority of
the directors of the Company.
Page 24
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
11. Earnings per common share:
Earnings per common share ("EPS") are computed in accordance
with SFAS 128. Under SFAS 128, basic and diluted EPS replaces
primary and fully diluted EPS. Basic EPS is calculated by
dividing earnings applicable to common shares by the weighted
average number of common shares outstanding. Diluted EPS
adjusts for the effect of potential common shares. Net income
available per common share has been adjusted for the items
indicated.
Earnings per common and common equivalent share (adjusted for
a three-for-two stock split effected May 22, 1996) were computed
as follows (thousands, except per share data):
<TABLE>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net income. . . . . . . . . . . . . $ 25,497 $ 13,221 $ 63
Accretion of redeemable preferred
stock. . . . . . . . . . . . . . . (104) (103) (104)
Redeemable preferred stock
dividends. . . . . . . . . . . . . (238) (238) (238)
------- ------- ------
Net income (loss) applicable to
common shares. . . . . . . . . . . $ 25,155 $ 12,880 $ (279)
======= ======= =====
Basic:
Weighted average common shares
outstanding . . . . . . . . . . 18,402 18,206 18,098
======= ======= =======
Earnings (loss) per common shares . $ 1.37 $ .71 $ (.02)
======= ======= =======
Diluted:
Weighted average common shares
outstanding. . . . . . . . . . 18,402 18,206 18,098
Potential common shares for stock
options and stock grants . . . 415 271
------ ------ ------
Weighted average shares
outstanding. . . . . . . . . . .18,817 18,477 18,098
====== ====== ======
Earnings (loss) per common and
potential common shares. . . . . . $ 1.34 $ .70 $ (.02)
====== ======= =======
</TABLE>
12. Franchise fees and royalties:
At January 2, 1998, 63 Chuck E. Cheese's restaurants were
operated by a total of 40 different franchisees. The standard
franchise agreements grant to the franchisee the right to
develop and operate a restaurant and use the associated trade
names, trademarks and service marks within the standards and
guidelines established by the Company.
Initial franchise fees included in revenues were $172,000,
$274,000, and $98,000 in 1997, 1996 and 1995, respectively.
13. Cost of sales:
<TABLE>
1997 1996 1995
---- ---- ----
(thousands)
<S> <C> <C> <C>
Food, beverage and related
supplies . . . . . . . . . . . . . . . $ 50,355 $ 45,681 $ 43,412
Games and merchandise. . . . . . . . . . 18,339 14,816 13,285
Labor. . . . . . . . . . . . . . . . . . 95,019 82,884 80,003
------- ------- -------
$163,713 $143,381 $136,700
======= ======= =======
</TABLE>
page 25
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
14. Income taxes:
The significant components of income tax expense are as follows:
<TABLE>
1997 1996 1995
------ ------ ------
(thousands)
<S> <C> <C> <C>
Current expense . . . . . . . . . . . . .$ 3,417 $ 2,855 $ 701
Deferred expense:
Utilization of operating
loss carryforwards . . . . . . . . . . 16,693 8,664 1,138
Net tax benefits from exercise
of stockoptions and stock grants . . . (14) (655) (654)
Tax credits . . . . . . . . (475) (127)
Other (primarily temporary
differences) . . . . . . . . . . . . . (2,884) (1,389) (746)
------- ------ -----
$ 17,212 $ 9,000 $ 312
======= ====== =====
At January 2, 1998, the Company has recorded a deferred tax
asset of approximately $13.2 million reflecting $6.6 million in
tax credit carryforwards and tax effected net taxable deductions
of $6.6 million. The temporary timing differences primarily
relate to depreciation differences. Realization of tax credits
and tax deductions is dependent on generating sufficient taxable
income prior to expiration of these carryforwards. Although
realization is not assured, the Company believes it is more
likely than not that the deferred tax asset will be realized.
As of January 2, 1998, the Company has investment tax credit
and jobs tax credit carryforwards totaling $4,154,000 and
$548,000, respectively, and alternative minimum tax credits of
$1,893,000.
A schedule of expiring tax credits by fiscal year are as
follows:
</TABLE>
<TABLE>
Years Tax Credits
----- -----------
(Thousands)
<S> <C>
1998. . . . . . . . . . . . . . . . . . . . . . . . $ 4,007
1999. . . . . . . . . . . . . . . . . . . . . . . . 395
2000. . . . . . . . . . . . . . . . . . . . . . . . 149
2001. . . . . . . . . . . . . . . . . . . . . . . . 19
2002. . . . . . . . . . . . . . . . . . . . . . . . 0
2003 - 2010 . . . . . . . . . . . . . . . . . . . . 132
-------
$ 4,702
=======
</TABLE>
The Company's alternative minimum tax credits have no
expiration date.
Page 26
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
14. Income taxes (continued):
A reconciliation of the statutory rate to taxes provided is as
follows:
<TABLE>
1997 1996 1995
----- ----- -----
(thousands)
<S> <C> <C> <C>
Statutory rate. . . . . . . . . . . . . 35.0% 35.0% 34.0%
State income taxes. . . . . . . . . . . 8.1% 9.0% 106.1%
Tax credits earned. . . . . . . . . . . (2.1%) (33.9%)
Other . . . . . . . . . . . . . . . . . (2.8%) (1.4%) (23.0%)
------ ----- ------
Income taxes provided . . . . . . . . . 40.3% 40.5% 83.2%
====== ===== ======
</TABLE>
15. Fair value of financial instruments:
The Company has certain financial instruments consisting
primarily of cash, cash equivalents, notes receivable, notes
payable and redeemable preferred stock. The carrying amount of
cash and cash equivalents approximates fair value because of the
short maturity of those instruments. The carrying amount of the
Company's notes receivable and long-term debt approximates fair
value based on the interest rates charged on instruments with
similar terms and risks. The estimated fair value of the
Company's redeemable preferred stock is $3.0 million.
16. Supplemental cash flow information:
<TABLE>
1997 1996 1995
---- ---- ----
(thousands)
<S> <C> <C> <C>
Cash paid during the year for:
Interest. . . . . . . . . . . $2,961 $ 3,429 $ 3,055
Income taxes . . . . . . . . 2,753 2,222 801
Supplemental schedule of noncash
investing and financing activities:
Notes and accounts receivable canceled
in connection with the
acquisition of property and
equipment. . . . . . . . . . . . 483
</TABLE>
page 27
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
17. Related party transactions:
The Hallwood Group, Incorporated ("Hallwood") was the
beneficial owner of approximately 2.6 million shares or 14.2% of
the outstanding common stock of the Company prior to a secondary
public offering in March 1997 in which Hallwood and certain of
its affiliates sold all shares held. The directors of Hallwood
had served as a majority of the directors of the Company, but
resigned after the public offering. The Company did not receive
any proceeds from the sale of shares by the selling
stockholders. However, the Company paid $305,000 in expenses for
the offering.
The Company made payments to Hallwood of $31,000 in 1997 and
$125,000 in 1996 and 1995 for consulting services. The
consulting agreement terminated upon the closing of the public
offering. In consideration for rent reductions resulting from
Hallwood's negotiation of the Company's home office lease
agreement in December 1990, the Company had assigned to Hallwood
its sublease interest in the home office building with a fair
value of approximately $120,000 per year.
The Company has advanced amounts to joint ventures in which
the Company has a 50% interest or less. At January 2, 1998,
approximately $610,000 was outstanding under these notes.
Principal and interest are payable in monthly installments, with
interest at various rates from prime to 12%. The Company also
has miscellaneous accounts receivable from joint ventures of
approximately $229,000 and $669,000 at January 2, 1998 and
December 27, 1996, respectively. In January 1998, the Company
acquired the interest of its joint venture partner for cash plus
forgiveness of all receivables.
The Company has granted three separate operating lines of
credit to the International Association of ShowBiz Pizza Time
Restaurants, Inc. (the "Association"). In December 1997, the
lines were renewed to provide the Association with available
borrowings of $2.6 million at 10.5% interest and are due
December 31, 1998. The Association develops entertainment
attractions and produces system wide advertising. Five officers
of the Association are also officers of the Company. At January
2, 1998, approximately $2,105,000 was outstanding under these
lines of credit. The Company also had miscellaneous accounts
receivable from the Association of $11,000 and $6,000 at January
2, 1998 and December 27, 1996, respectively.
18. Employee benefit plans:
The Company has employee benefit plans that include: a)
executive bonus compensation plans based on the performance of
the Company; b) non-statutory stock option plans for its
employees and non-employee directors; c) a stock grant plan and
d) a retirement and savings plan.
In 1995, the Company increased the number of shares of the
Company's common stock which may be issued under its employee
stock option plan by 750,000 shares to an aggregate of 2,772,038
shares. Any shares granted under this plan must be granted
before December 31, 1998. In 1997, the Company adopted a new
employee stock option plan under which an additional 925,000
shares may be granted before July 31, 2007. The exercise price
for options granted under both plans may not be less than the
fair market value of the Company's common stock at date of
grant. Options may not be exercised until the employee has been
continuously employed at least one year after the date of grant.
Options which expire or terminate may be re-granted under the
plan.
page 28
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
18. Employee benefit plans (continued):
In 1995, the Company adopted a stock option plan for its non-employee
directors. The number of shares of the Company's
common stock that may be issued under this plan cannot exceed
150,000 shares and the exercise price for options granted may
not be less than the fair market value of the Company's common
stock at the date of grant.
At January 2, 1998, there were 898,283 shares available for
grant. Stock option transactions are summarized as follows for
all plans:
<TABLE>
Weighted Average
Number of Shares Exercise Price Per Share
-------------------------- -------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year. 1,010,511 848,942 759,953 $8.58 $9.08 $10.92
Granted . . . . . 944,715 276,734 391,860 17.87 8.39 6.08
Exercised. . . . . (261,445) (77,495) (19,239) 9.92 12.10 4.70
Terminated . . . . . (107,483) (37,670) (283,632) 11.36 11.01 10.17
------- ------- -------
Options outstanding,
end of year . . . .1,586,298 1,010,511 848,942 13.70 8.58 9.08
========= ========= =======
</TABLE>
All stock options are granted at fair market value of the
common stock at the grant date. The estimated fair value of
options granted during 1997 was $6.12 per share. The fair
value of each stock option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1997:
risk free interest rate of 5.9%; no dividend yield; expected
lives of four years; and expected volatility of 40%. Stock
options expire five years from the grant date. Stock options
vest over various periods ranging from one to four years. The
number of stock option shares exercisable at January 2, 1998 was
565,289. These stock options have exercise prices ranging from
$5.29 to $24.50 per share and have a weighted average exercise
price of $ 7.96 per share. In January 1998, the Company granted
328,744 additional options at an exercise price of $21.81 per
share.
The number of shares of the Company's common stock which may
be awarded to senior executives of the Company under the Stock
Grant Plan is 1,718,637 shares. In 1997, 128,500 grants were
awarded in connection with an employment agreement effective
January 1998. No grants were awarded in 1996 or 1995.
Compensation expense recognized by the Company pursuant to this
plan was $1,821,000 per year in 1997, 1996 and 1995. All shares
vest over periods ranging from 3 years to 6 years and are
subject to forfeiture upon termination of the participant's
employment by the Company. The shares are nontransferable
during the vesting periods.
As a result of shares awarded to the Company's Chairman of the
Board and Chief Executive Officer, the Company recognized
deferred compensation of $12.0 million in 1993 and $2.3 million
in 1997. In 1995, the Company's Chairman of the Board and Chief
Executive Officer forfeited 90,000 shares of unvested common
stock of the Company previously awarded to him under the
Company's stock grant plan in 1993. As a result of this
forfeiture, deferred compensation and capital in excess of par
value were reduced by approximately $1.7 million. The deferred
compensation is amortized over the compensated periods of
service.
page 29
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
18. Employee benefit plans (continued):
The Company applies the provisions of APB Opinion 25 and
related Interpretations in accounting for its employee benefit
plans. Accordingly, no compensation cost has been recognized
for its stock option plans. Had compensation cost for the
Company's stock -based compensation plans been determined based
on the fair value at the grant date for awards under those plans
consistent with the method prescribed by SFAS 123, the Company's
proforma net income would have been $23.1 million and $12.8
million in 1997 and 1996, respectively, and a net loss of
$154,000 in 1995. Proforma earnings per share assuming dilution
would have been $1.23 and $.67 per share in 1997 and 1996,
respectively, and a loss of $.03 per share in 1995.
The Company has adopted the ShowBiz 401(k) Retirement and
Savings Plan, to which it may at its discretion make an annual
contribution out of its current or accumulated earnings.
Contributions by the Company may be made in the form of its
common stock or in cash. In 1997, the Company made
contributions of approximately $59,000 and $37,000 in common
stock for the 1996 and 1995 plan years, respectively. The
Company plans to contribute $76,000 in common stock for the 1997
plan year.
20. Quarterly results of operations (unaudited):
The following summarizes the unaudited quarterly results of
operations for the years ended January 2, 1998 and December 27,
1996 (thousands, except per share data).
<TABLE>
Fiscal year ended January 2, 1998
March 28 June 27 Sept. 26 Jan. 2
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues. . . . . . . . . . . $ 91,594 $ 84,031 $ 85,602 $ 89,040
Income before income taxes. . 13,333 9,924 10,141 9,311
Net income. . . . . . . . . . 7,933 5,905 6,101 5,558
Earnings Per Share:
Basic . . . . . . $ .43 $ .32 $ .32 $ .30
Diluted . . . . . . . . . .42 .31 .32 .30
</TABLE>
<TABLE>
Fiscal year ended December 27, 1996
March 29 June 28 Sept. 27 Dec. 27
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues. . . . . . . . . . . $ 78,452 $ 69,848 $ 74,777 $ 70,913
Income before income taxes. . 8,771 3,840 5,993 3,617
Net income . . . . . . . . . 5,175 2,265 3,537 2,244
Earnings Per Share:
Basic . . . . . . . . . . $ .28 $ .12 $ .19 $ .12
Diluted . . . . . . . . . .28 .12 .19 .12
</TABLE>
page 30
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None
P A R T I I I
Item 10. Directors and Executive Officers of the Registrant
The information required by this item regarding the directors
and executive officers of the Company shall be included in the
Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A in connection with the Company's 1997 annual meeting
of stockholders and incorporated herein by reference thereto.
Item 11. Executive Compensation
The information required by this item regarding the directors
and executive officers of the Company shall be included in the
Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A in connection with the Company's 1997 annual meeting
of stockholders and incorporated herein by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this Item shall be included in the
Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A in connection with Company's 1997 annual meeting of
stockholders and is incorporated herein by reference thereto.
Item 13. Executive Compensation
The information required by this Item regarding the directors
and executive officers of the Company shall be included in the
Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A in connection with the Company's 1997 annual meeting
of stockholders and is incorporated herein by reference thereto.
P A R T I V
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
(a) The following documents are filed as a part of this
report:
(1) Financial Statements and Supplementary Data:
Independent auditors' report.
ShowBiz Pizza Time, Inc. consolidated financial
statements:
Consolidated balance sheets as of January 2, 1998 and
December 27, 1996.
Consolidated statements of earnings for the years
ended January 2, 1998, December 27, 1996, and December
29, 1995.
Consolidated statements of shareholders' equity for the
years ended January 2, 1998, December 27, 1996, and
December 29, 1995.
Consolidated statements of cash flows for the years
ended January 2, 1998, December 27, 1996, and December
29, 1995.
Notes to consolidated financial statements.
Page 31
(2) Financial Statement Schedules:
ShowBiz Pizza Time, Inc.
------------------------
II --- Valuation and qualifying accounts and reserves.
(3) Exhibits:
Number Description
------ -----------
3(a) Restated Articles of Incorporation of the
Company, dated November 26, 1996 (filed as
Exhibit 3.1 to the Company's Registration
Statement on Form S-3 (No. 333-22229) and
incorporated herein by reference).
3(b) Restated Bylaws of the Company, dated August 16,
1994 (filed as Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994, and incorporated
herein by reference).
3(c) Amendment to the Bylaws, dated May 5, 1995
(filed as Exhibit 3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June
30, 1995, and incorporated herein by reference).
4(a) Specimen form of certificate representing $.10
par value Common Stock (filed as Exhibit 4(a) to
the Company's Annual Report on Form 10-K for the
year ended December 28, 1990, and incorporated
herein by reference).
4(b) Specimen form of certificate representing $60
par value Class A Preferred Stock (filed as
Exhibit 4(b) to the Company's Annual Report on
Form 10-K for the year ended December 28, 1990,
and incorporated herein by reference).
10(a)(1) Amended and Restated Employment Agreement
dated April 14, 1993, between the Company and
Richard M. Frank (filed as Exhibit 10(a)(8)
to the Company's Quarterly Report on Form 10-Q for
the quarter ended April 2, 1993, and
incorporated herein by reference).
10(a)(2) Amendment No. 1 to the Amended and Restated
Employment Agreement dated July 19, 1996,
between the Company and Richard M. Frank
(filed as Exhibit 10(I) to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 27, 1996, and incorporated
herein by reference).
10(a)(3) Amendment No. 2 to the Amended and Restated
Employment Agreement dated March 3, 1997,
between the Company and Richard M. Frank
(filed as Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q for the quarter
ended March 28, 1997, and incorporated herein
by reference).
10(b) Stock Grant Trust Agreement dated January 29,
1992, among the Company, Richard M. Frank,
Ronald F. Saupe and Kevin J. Shepherd (filed
as Exhibit 10(a)(7) to the Company's Annual
Report on Form 10-K for the year ended
December 27, 1991, and incorporated herein by
reference).
10(c)(1) Employment Agreement dated January 4, 1994,
between the Company and Michael H. Magusiak
(filed as Exhibit 10(b) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1993, and incorporated herein by
reference).
Page 32
10(c)(2) Amendment to the Employment Agreement dated
December 11, 1997, between the Company and
Michael H. Magusiak.
10(d) Note Purchase Agreement dated June 15, 1995,
between Allstate Life Insurance Company,
Connecticut Mutual Life Insurance Company, C M
Life Insurance Company, MassMutual Corporate
Value Partners Limited, Massachusetts Mutual
Life Insurance Company, Modern Woodmen of
America, and the Company (filed as Exhibit 10
(a)(1) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995,
and incorporated herein by reference).
10(e) 10.02% Series A Senior Note Due 2001, in the
stated amount of $10,000,000.00, dated June
15, 1995, between Allstate Life Insurance
Company and the Company (filed as Exhibit 10
(b)(1) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995,
and incorporated herein by reference).
10(f)(1) 10.02% Series A Senior Note Due 2001, in the
stated amount of $1,000,000.00, dated June
15, 1995, between Connecticut Mutual Life
Insurance Company and the Company (filed as
Exhibit 10 (c)(1) to the Company's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1995, and incorporated herein by
reference).
10(f)(2) 10.02% Series A Senior Note Due 2001, in the
stated amount of $1,000,000.00, dated June
15, 1995, between Connecticut Mutual Life
Insurance Company and the Company (filed as
Exhibit 10 (c)(2) to the Company's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1995, and incorporated herein by
reference).
10(f)(3) 10.02% Series A Senior Note Due 2001, in the
stated amount of $1,000,000.00, dated June
15, 1995, between Connecticut Mutual Life
Insurance Company and the Company (filed as
Exhibit 10 (c)(3) to the Company's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1995, and incorporated herein by
reference).
10(g)(1) 10.02% Series A Senior Note Due 2001, in the
stated amount of $1,000,000.00, dated June
15, 1995, between C M Life Insurance Company
and the Company (filed as Exhibit 10 (d)(1)
to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, and
incorporated herein by reference).
10(g)(2) 10.02% Series A Senior Note Due 2001, in the
stated amount of $1,000,000.00, dated June
15, 1995, between C M Life Insurance Company
and the Company (filed as Exhibit 10 (d)(2)
to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, and
incorporated herein by reference).
10(h)(1) Floating Rate Series B Senior Note Due 2000,
in the stated amount of $2,000,000.00, dated
June 15, 1995, between Massachusetts Mutual
Life Insurance Company and the Company
(filed as Exhibit 10 (e)(1) to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein
by reference).
10(h)(2) Floating Rate Series B Senior Note Due 2000,
in the stated amount of $2,000,000.00, dated
June 15, 1995, between Massachusetts Mutual
Life Insurance Company and the Company
(filed as Exhibit 10 (e)(2) to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein
by reference).
10(h)(3) Floating Rate Series B Senior Note Due 2000,
in the stated amount of $2,000,000.00, dated
June 15, 1995, between Massachusetts Mutual
Life Insurance Company and the Company
(filed as Exhibit 10 (e)(3) to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein
by reference).
Page 33
10(i) Floating Rate Series B Senior Note Due 2000,
in the stated amount of $4,000,000.00, dated
June 15, 1995, between MassMutual Corporate
Value Partners Limited (I/N/O Webell & Co.)
and the Company (filed as Exhibit 10 (f)(1)
to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, and
incorporated herein by reference).
10(j) Floating Rate Series A Senior Note Due 2001,
in the stated amount of $3,000,000.00, dated
June 15, 1995, between Modern Woodmen of
America and the Company (filed as Exhibit 10
(g)(1) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995,
and incorporated herein by reference).
10(k)(1) Loan Agreement in the stated amount of
$5,000,000.00, dated June 27, 1995, between
Bank One, Texas, N.A. and the Company (filed
as Exhibit 10 (h)(1) to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein
by reference).
10(k)(2) Revolving Credit Note in the stated amount of
$5,000,000, dated June 27, 1995, between Bank
One, Texas, N.A. and the Company (filed as
Exhibit 10 (h)(2) to the Company's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1995, and incorporated herein by
reference).
10(l)(1) Modification and Extension Agreement (to the
Loan Agreement dated June 27, 1995) in the
stated amount of $15,000,000.00, dated August
1, 1996, between Bank One, Texas, N.A. and
the Company (filed as Exhibit 10 (h)(1) to
the Company's Quarterly Report on Form 10-Q
for the quarter ended September 27, 1996, and
incorporated herein by reference).
10(l)(2) Restated Revolving Credit Note in the stated
amount of $15,000,000, dated August 1, 1996,
between Bank One, Texas, N.A. and the Company
(filed as Exhibit 10 (h)(2) to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 27, 1996, and incorporated
herein by reference).
10(m)(1) Supplemental Agreement, dated as of September
29, 1997, relating to the Note Purchase
Agreements dated as of June 15, 1995, between
Allstate Life Insurance Company, Massachusetts
Mutual Life Insurance Company, MassMutual
Corporate Value Partners Limited, CM Life
Insurance Company, Modern Woodmen of America
and the Company.
10(m)(2) Supplemental Agreement, dated as of September
29, 1997, relating to the Note Purchase
Agreements dated as of June 15, 1995, between
Bank One, Texas, N.A. and the Company.
10(n)(1) 1988 Non-Statutory Stock Option Plan (filed
as Exhibit A to the Company's Proxy Statement
for Annual Meeting of Stockholders to be held
on June 8, 1995, and incorporated herein by
reference).
10(n)(2) Specimen form of Contract under the 1988 Non-Statutory
Stock Option Plan of the Company,
as amended to date (filed as Exhibit 10 (d)
to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 28, 1996, and
incorporated herein by reference).
10(o)(1) 1997 Non-Statutory Stock Option Plan (filed as
Exhibit 4.1 to Form S-8 (No. 333-41039), and
incorporated herein by reference).
10(o)(2) Specimen form of Contract under the 1997 Non-Statutory
Stock Option Plan of the Company, as
amended to date.
Page 34
10(p)(1) Stock Grant Plan of the Company, as amended to
date (filed as Exhibit 10(d)(1) to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1993, and incorporated
herein by reference).
10(p)(2) Specimen form of Certificate of Participation
to certain participants under the Stock Grant
Plan of the Company (filed as Exhibit 10(e)(3)
to the Company's Annual Report on Form 10-K
for the year ended December 29, 1989, and
incorporated herein by reference).
10(q)(1) Non-Employee Directors Stock Option Plan
(filed as Exhibit B to the Company's Proxy
Statement for Annual Meeting of Stockholders
to be held on June 8, 1995, and incorporated
herein by reference).
10(q)(2) Specimen form of Contract under the Non-Employee Directors
Stock Option Plan of the
Company, as amended to date (filed as Exhibit
10(s)(2) to the Company's Annual Report on
Form 10-K for the year ended December 27,
1996, and incorporated herein by reference).
10(r)(1) Specimen form of the Company's current
Franchise Agreement.
10(r)(2) Specimen form of the Company's current
Development Agreement.
10(s)(1) Rights Agreement, dated as on November 19,
1997, by and between the Company and the
Rights Agent (filed as Exhibit A to Exhibit
1 of the Company's Registration Statement on
Form 8-A (No. 001-13687) and incorporated
herein by reference).
10(s)(2) Form of Certificate of Designation of the
Preferred Shares under the Rights Agreement,
dated as on November 19, 1997, by and between
the Company and the Rights Agent (filed as
Exhibit B to Exhibit 1 of the Company's
Registration Statement on Form 8-A (No. 001-13687)
and incorporated herein by reference).
10(s)(3) Form of Right Certificate under the Rights
Agreement, dated as on November 19, 1997, by
and between the Company and the Rights Agent
(filed as Exhibit C to Exhibit 1 of the
Company's Registration Statement on Form 8-A
(No. 001-13687) and incorporated herein by
reference).
10(t)(1) National Advertising Fund Line of Credit, in
the stated amount of $800,000.00, dated
December 22, 1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
10(t)(2) National Advertising Fund Promissory Note, in
the stated amount of $800,000.00, dated
December 22, 1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
10(u)(1) National Media Fund Line of Credit, in the
stated amount of $1,800,000.00, dated
December 22, 1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
10(v)(2) National Media Fund Promissory Note, in the
stated amount of $1,800,000.00, dated
December 22, 1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
23 Independent Auditors Consent of Deloitte &
Touche LLP
page 35
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the fourth quarter
of 1997.
(c) Exhibits pursuant to Item 601 of Regulation S-K:
Pursuant to Item 601(b)(4) of Regulation S-K, there have
been excluded from the exhibits filed pursuant to this
report instruments defining the right of holders of long-term debt
of the Company where the total amount of the
securities authorized under each such instrument does not
exceed 10% of the total assets of the Company. The
Company hereby agrees to furnish a copy of any such
instruments to the Commission upon request.
(d) Financial Statements excluded from the annual report
to shareholders by Rule 14A - 3(b):
No financial statements are excluded from the annual
report to the Company's shareholders by Rule 14a - 3(b).
page 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: March 31, 1998 SHOWBIZ PIZZA TIME, INC.
By: /s/ Richard M. Frank
-----------------------------
Richard M. Frank
Chairman of the Board and
Chief Executive 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 registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Richard M. Frank Chairman of the Board, March 31, 1998
- ---------------------
Richard M. Frank Chief Executive Officer,
and Director (Principal
Executive Officer)
/s/ Michael H. Magusiak President and Director March 31, 1998
- ------------------------
Michael H. Magusiak
/s/ Larry G. Page Executive Vice President, March 31, 1998
- -------------------
Larry G. Page Treasurer, (Principal Financial
Officer and Principal Accounting
Officer)
/s/ Raymond E. Wooldridge Director March 31, 1998
- ---------------------------
Ray Wooldridge
/s/ Tim T. Morris Director March 31, 1998
- ---------------------------
Tim T. Morris
/s/ Walter Tyree Director March 31, 1998
- ---------------------------
Walter Tyree
/s/ Louis P. Neeb Director March 31, 1998
- ----------------------
Louis P. Neeb
/s/ Cynthia I. Pharr Director March 31, 1998
- ----------------------
Cynthia I. Pharr
page 37
EXHIBIT INDEX
-------------
Exhibit No. Description Page No.
- ---------- -----------
10(c)(2) Amendment to the Employment 39
Agreement dated December 11, 1997,
between the Company and Michael H.
Magusiak.
10(m)(1) Supplemental Agreement, dated as of 42
September 29, 1997, relating to the
Note Purchase Agreements dated as of
June 15, 1995, between Allstate Life
Insurance Company, Massachusetts
Mutual Life Insurance Company,
MassMutual Corporate Value Partners
Limited, CM Life Insurance Company,
Modern Woodmen of America and the
Company.
10(m)(2) Supplemental Agreement, dated as of 62
September 29, 1997, relating to the
Note Purchase Agreements dated as of
June 15, 1995, between Bank One,
Texas, N.A. and the Company.
10(o)(2) Specimen form of Contract under the 75
1997 Non-Statutory Stock Option Plan
of the Company, as amended to date.
10(r)(1) Specimen form of the Company's 80
current Franchise Agreement.
10(r)(2) Specimen form of the Company's 131
current Development Agreement.
10(t)(1) National Advertising Fund Line of 161
Credit, in the stated amount of
$800,000.00, dated December 22,
1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
10(t)(2) National Advertising Fund Promissory 166
Note, in the stated amount of
$800,000.00, dated December 22,
1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
10(u)(1) National Media Fund Line of Credit, 171
in the stated amount of
$1,800,000.00, dated December 22,
1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
10(v)(2) National Media Fund Promissory Note, 176
in the stated amount of
$1,800,000.00, dated December 22,
1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
23 Independent Auditors Consent of
Deloitte & Touche LLP 181
27.1 Financial Data Schedule - Fiscal 1997
27.2 Financial Data Schedule - Fiscal 1996 and
1995, Quarters 1-3, 1996
27.3 Financial Data Schedule - Quarters 1-3, 1997
Page 42
10(c)(2)
AMENDMENT TO THE EMPLOYMENT AGREEMENT
BY AND BETWEEN MICHAEL H. MAGUSIAK AND
SHOWBIZ PIZZA TIME, INC.
This Amendment (the "Amendment") is executed as of this 11th
day of December, 1997, by and between Michael H. Magusiak
("Employee") and ShowBiz Pizza Time, Inc., a Kansas corporation
("Employer").
RECITALS:
WHEREAS, on January 3, 1997, Employee and Employer entered
into that certain Employment Agreement, which was effective as of
January 6, 1997 (the "Agreement"), whereby the Employee agreed to
serve in the employ of Employer through the last day of the fiscal
year of the Employer ending on or about December 31, 1999; and
WHEREAS, Employer desires to amend said Agreement to extend
the term of the Agreement, award stock options, and amend the
automobile allowance for Employee:
NOW, THEREFORE, the Agreement is hereby amended in the
following respects:
Paragraph 2 is hereby amended to read as follows:
"2. Term. Subject to the provisions
regarding termination set forth in Sections
14, 15, and 16 hereof, the initial term of ths
Agreement shall begin as of January 6, 1997
(the "Effective Date") and shall terminate on
the last day of the fiscal year of the Company
ending on or about December 31, 2000 (the
"Initial Term")."
The Agreement is hereby amended to include Paragraph 4.1 which
shall read as follows:
"4.1. Stock Options. Employee has received
from the Company on December 11, 1997 options
(the "Stock Options) to purchase twenty-five
thousand (25,000) shares of the Company's
Common stock, par value $.10 per share
("Common Stock") pursuant to the ShowBiz Pizza
Time, Inc. Non-Statutory Stock Option Plan.
Of the Stock Options granted as described in
this Section 4.1, 100% of the options shall
vest after December 11, 2000."
Paragraph 7 is hereby amended to read as follows:
"7. Automobile. Employer shall pay to
Employee the sum of One Thousand Dollars
($1,000.00) per month (subject to adjustment
from time to time in direct proportion to
generally applicable adjustment by the Company
to its automobile allowances) to reimburse
Employee for the use of Employee's automobile
in the performance of his duties under this
Agreement and Employer shall further pay
directly or by reimbursement to Employee (as
Employer and Employee may from time to time
agree) the premiums upon a policy of collision
and liability insurance covering such
automobile. All other costs and expenses
incurred in the operation and maintenance of
Employee's automobile, including but not
limited to the cost of all fuel, oil,
maintenance and repairs, shall be paid solely
by Employee."
IN WITNESS WHEREOF, the parties have executed this Amendment
effective as of December 11, 1997.
EMPLOYER:
SHOWBIZ PIZZA TIME, INC.
By: ----------------------
Richard M. Frank
Chief Executive Officer
EMPLOYEE:
----------------------
Michael H. Magusiak
10(m)(1)
SHOWBIZ PIZZA TIME, INC.
SUPPLEMENTAL AGREEMENT
Dated as of September 29, 1997
relating to the
Loan Agreements, as amended, dated as of June 27, 1995
by and between
Bank One, Texas, N.A., as Lender
and
ShowBiz Pizza Time, Inc., as Borrower
SHOWBIZ PIZZA TIME, INC.
SUPPLEMENTAL AGREEMENT
as of September 29, 1997
Bank One, Texas, N.A.,
1717 Main Street, 3rd Floor
Dallas, Texas 75201
Re: Loan Agreement, as amended, dated June 27, 1995
executed by ShowBiz Pizza Time, Inc. and Bank One,
Texas, N.A., and Restated Revolving Credit Note
dated August 1, 1996 executed by ShowBiz Pizza
Time, Inc., and payable to Bank One, Texas, N.A. in
the original principal amount of $15,000,000
Ladies and Gentlemen:
SHOWBIZ PIZZA TIME, INC., a Kansas corporation (the
"Company"), hereby agrees with ank One, Texas, N.A., a national
banking association ("Bank") as follows:
SECTION 1. Loan Agreement and the Note; Requested Consent. Bank
extended a loan to Company pursuant to the Loan Agreement, as
amended ("Loan Agreement") dated June 27, 1995 executed by ShowBiz
Pizza Time, Inc. and Bank One, Texas, N.A., and Restated Revolving
Credit Note (the "Note") dated August 1, 1996 executed by ShowBiz
Pizza Time, Inc. In the original principal amount of $15,000,000
which are in effect on the date hereof. Unless the context
otherwise requires, capitalized terms used herein without
definition have the respective meanings ascribed thereto in the
Loan Agreement.
The Company proposes to transfer certain tangible assets at a value
not to exceed $20,000,000 and certain intellectual property owned
by the Company to direct and indirect wholly-owned subsidiaries of
the Company (such transfers referred to herein collectively as the
"Asset Sale Transaction").
In connection therewith, the Company hereby requests consents from
Bank to enter into and effectuate the Asset Sale Transaction, such
transactions being prohibited by the Loan Agreement, particularly
the limitations on asset sales pursuant to Section 8.2 of the Loan
Agreement. In consideration therefor, prior to or concurrently
with the Asset Sale Transaction, the Company will cause each of
ShowBiz Nevada, Inc., ShowBiz Merchandising, Inc. and SPT
Properties Company, Inc., each a Nevada corporation (collectively,
the "Subsidiary Guarantors"), to execute and deliver a Subsidiary
Guarantee, substantially in the form set forth in Exhibit 1 to this
Supplemental Agreement, unconditionally guaranteeing the Company's
obligations under the Note Purchase Agreements and the Notes.
SECTION 2. Consent. Bank hereby consent to the Asset Sale
Transaction.
SECTION 3. Subsidiary Indebtedness. Except for the Subsidiary
Guarantees, the Company will not permit any of the Subsidiary
Guarantors to create, assume, incur, guarantee or otherwise become
liable in respect of any Indebtedness
SECTION 4. Representations and Warranties of the Company. The
Company represents and warrants to you as follows:
Section 4.1. Organization, Authorization, Etc. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Kansas, and has all requisite power
and authority to execute, deliver and perform its obligations under
this Supplemental Agreement.
The execution, delivery and performance of this Supplemental
Agreement have been duly authorized by all necessary action on the
part of the Company. This Supplemental Agreement is a legal, valid
and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or other similar laws relating
to or affecting the enforcement of creditors' rights generally and
by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Section 4.2. Compliance with Laws, Other Instruments, Etc. The
execution, delivery and performance by the Company of this
Supplemental Agreement do not and will not (A) contravene, result
in any breach of, or constitute a default under, or result in the
creation of any Lien in respect of any property of the Company or
any Subsidiary under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter or by-laws,
or any other agreement or instrument to which the Company or any
Subsidiary is bound or by which the Company or any Subsidiary or
any of their respective properties may be bound or affected, (B)
conflict with or result in a breach of any of the terms, conditions
or provisions of any order, judgment, decree, or ruling of any
court, arbitrator or Governmental Authority applicable to the
Company or any Subsidiary or (C) violate any provision of any
statute or other rule or regulation of any Governmental Authority
applicable to the Company or any Subsidiary.
Section 4.3. Governmental Authorizations, Etc. No consent,
approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required for the
validity of the execution, delivery or performance by the
performance by the Company of this Supplemental Agreement.
Section 4.4. No Default, etc. No Event of Default or Default has
occurred and is continuing, and neither the Company nor any
Subsidiary is in default (whether or not waived) in the performance
or observance of any of the terms, covenants or conditions
contained in any instrument evidencing any Indebtedness and there
is no pending request by the Company (except pursuant to this
Supplemental Agreement or the Note Purchase Agreements dated as of
June 15, 1995 between the Company and the institutional investor
named therein (the "Note Purchase Agreements") with respect to the
Asset Sale Transaction) or any Subsidiary for any amendment or
waiver in respect of any contemplated or possible default with
respect to such Indebtedness and no event has occurred and is
continuing which, with notice or lapse of time or both, would
become such a default.
Section 4.5. No Undisclosed Fees. The Company has not, directly
or indirectly, paid or caused to be paid any consideration (as
supplemental or additional interest, a fee or otherwise) to Bank in
order to induce Bank to enter into this Supplemental Agreement or
take any other action in connection with the transactions
contemplated hereby, nor has the Company agreed to make any such
payment.
SECTION 5. Representation of the Bank. Bank represent to the
Company that Bank is the owner and holder of the Note.
Section 6. Effectiveness of this Supplemental Agreement. This
Supplemental Agreement will become effective on the date (the
"Effective Date") on which all of the following conditions
precedent shall have been satisfied:
Section 6.1. Proceedings. All proceedings taken by the Company in
connection with the transactions contemplated hereby and all
documents and papers incident thereto shall be satisfactory to
Bank, and Bank and its special counsel shall have received all such
counterpart originals or certified or other copies of such
documents and papers, all in form and substance satisfactory to
you, as you or they may reasonably request in connection therewith.
Section 6.2. Execution of this Supplemental Agreement.
Counterparts of this Supplemental Agreement shall have been
executed and delivered by the Company and Bank.
Section 6.3. Representations and Warranties. The representations
and warranties of the Company contained in Section 4 of this
Supplemental Agreement shall be true on and as of the Effective
Date as though such representations and warranties had been made on
and as of the Effective Date, and Bank shall have received a
certificate of a senior financial officer of the Company, dated the
Effective Date, to such effect.
Section 6.4. Subsidiary Guarantees. A Subsidiary Guarantee, dated
on or before the Effective Date, shall have been executed and
delivered to Bank by each of the Subsidiary Guarantors,
substantially in the form hereinabove recited.
Section 6.5. Opinion of Counsel. Bank shall have received an
opinion, dated the Effective Date, addressed to Bank and otherwise
satisfactory in scope and substance to Bank, from Marshall Fisco,
Esq., Counsel to the Company, substantially in the form set forth
in Annex A attached hereto, and covering such other matters
incident to the transactions contemplated hereby as Bank may
reasonably request.
Section 6.6. Payment of Fees. The Company shall have paid the
fees and disbursements of Bank's special counsel as contemplated by
Section 7 of this Supplemental Agreement.
Section 7. Expenses. The Company agrees, whether or not the
transactions contemplated hereby are consummated, to pay the
reasonable fees and disbursements and other charges of Thompson,
Coe, Cousins & Irons, L.L.P., Bank's special counsel, for their
services rendered in connection with such transactions and with
respect to this Supplemental Agreement and any other document
delivered pursuant to this Supplemental Agreement and reimburse
Bank for Bank's out-of-pocket expenses in connection with the
foregoing.
In furtherance of the foregoing, on the Effective Date the Company
will pay or cause to be paid the reasonable fees and disbursements
and other charges of Thompson, Coe, Cousins & Irons, L.L.P. which
are reflected in the statement of Thompson, Coe, Cousins & Irons,
L.L.P. delivered to the Company prior to the Effective Date. The
Company will also pay promptly upon receipt of supplemental
statements therefor, reasonable additional fees, if any, and
disbursements of Thompson, Coe, Cousins & Irons, L.L.P. in
connection with the transactions contemplated hereby (including
disbursements unposted as of the Effective Date).
Section 8. Ratification. The Loan Agreement, Note and all
other documents evidencing security for the Note are in all
respects ratified and confirmed and the provisions thereof shall
remain in full force and effect.
Section 9. Counterparts. This Supplemental Agreement may be
executed in two or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the
same instrument.
Section 10. Governing Law. This Supplemental Agreement shall be
governed by and construed in accordance with the laws of the State
ofTexas.
If Bank is in agreement with the foregoing, please sign the form of
acceptance in the space below provided, whereupon this Supplemental
Agreement shall become a binding agreement between Bank and the
Company, subject to becoming effective as hereinabove provided.
SHOWBIZ PIZZA TIME, INC.
By----------------------
Name:
Title:
ACCEPTED AND AGREED:
Bank:
Bank One, Texas, N.A.
By:-------------------
Name:
Title:
ANNEX A
(to Supplemental Agreement)
OPINION OF COUNSEL FOR THE COMPANY
The following opinions are to be provided by counsel for the
Company, subject to customary assumptions, limitations and
qualifications. All capitalized terms used herein without
definition shall have the meanings ascribed thereto in the
Supplemental Agreement.
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Kansas and has all
requisite power and authority to execute and deliver the
Supplemental Agreement and to perform the provisions thereof.
2. The Supplemental Agreement has been duly authorized,
executed and delivered by the Company and constitutes a legal,
valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms.
3. Each Subsidiary Guarantor is a corporation duly
organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation and has all requisite power
and authority to execute and deliver its Subsidiary Guarantee and
to perform the provisions thereof.
4. Each Subsidiary Guarantee has been duly authorized,
executed and delivered by the respective Subsidiary Guarantor and
constitutes legal, valid and binding obligations of such Subsidiary
Guarantor, enforceable against such Subsidiary Guarantor in
accordance with their terms.
5. No consent, approval or authorization of, or
registration, filing or declaration with, any Governmental
Authority is required on the part of the Company or the Subsidiary
Guarantors for the validity of the execution and delivery or for
the performance by the Company of the Supplemental Agreement or the
Subsidiary Guarantees.
6. The consummation of the transactions contemplated by the
Supplemental Agreement and the performance of the terms and
provisions of the Supplemental Agreement and the Subsidiary
Guarantees do not and will not (i) conflict with the charter, by-laws,
code of regulations or any other organic documents of the
Company or any Subsidiary, (ii) result in any breach of, or
constitute a default under, or result in the creation of any Lien
in respect of any property of the Company under, any indenture,
mortgage, deed of trust, bank loan or credit agreement, or other
agreement or instrument known to me, after due inquiry, to which
the Company or any Subsidiary is a party or by which the Company or
any Subsidiary or any of their respective properties may be bound
or affected, except for the Note Purchase Agreements with respect
to the Asset Sale Transaction, or (iii) conflict with or result in
a breach of any of the terms, conditions or provisions of any
order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority applicable to the Company or any Subsidiary
and known to me, after due inquiry, or violate any provision of any
law, statute, rule or regulation of any Governmental Authority
applicable to the Company or any Subsidiary.
* * * *
This opinion is given solely for your benefit, and for the
benefit of the holder from time to time of the Note held by you, in
connection with the transactions contemplated by the Supplemental
Agreement, and may not be relied upon by any other person for any
purpose without my prior written consent.
Exhibit 1
(to the Supplemental Agreement)
GUARANTEE AGREEMENT
GUARANTEE AGREEMENT dated as of --------, ---- made by -------------------,
a ------------- corporation (the "Guarantor"), in favor of
Bank One, Texas, N.A. (the "Obligee").
WHEREAS, ShowBiz Pizza Time, Inc., a Kansas corporation (the
"Company"), has entered into the Loan Agreement, as amended, dated
as of June 27, 1995 (the "Loan Agreement" and terms defined therein
and not otherwise defined herein are being used herein as so
defined) with Bank One, Texas, N.A. ("Bank"), pursuant to which the
Company may borrow funds as evidenced by that Restated Revolving
Credit Note dated August 1, 1996 in the original amount of
$15,000,000 ("Note");
WHEREAS, the Company has requested the consent of Bank to
enter into certain transactions with the Guarantor that are
prohibited by the Loan Agreement; and
WHEREAS, it is a condition to obtaining the consent of Bank
that the Guarantor execute and deliver this Guarantee Agreement;
NOW, THEREFORE, in consideration of the premises the Guarantor
hereby agrees as follows:
SECTION 1. Guarantee. The Guarantor unconditionally and
irrevocably guarantees, as primary obligor and not merely as
surety,
A. the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all obligations of the
Company arising under the Notes and the Loan Agreement, including
all extensions, modifications, substitutions, amendments and
renewals thereof, whether for principal, interest (including
without limitation interest on any overdue principal, premium and
interest at the rate specified in the Note and interest accruing or
becoming owing both prior to and subsequent to the commencement of
any proceeding against or with respect to the Company under any
chapter of the Bankruptcy Code of 1978, 11 U.S.C. S101 et seq.),
fees, expenses, indemnification or otherwise, and
B. the due and punctual performance and observance by the
Company of all covenants, agreements and conditions on its part to
be performed and observed under the Note and the Loan Agreement;
(all such obligations are called the "Guaranteed Obligations");
provided that the aggregate liability of the Guarantor hereunder in
respect of the Guaranteed Obligations shall not exceed at any time
the lesser of (1) the amount of the Guaranteed Obligations and
(2)ximum amount for which the Guarantor is liable under this
Guarantee Agreement without such liability being deemed a
fraudulent transfer under applicable Debtor Relief Laws (as
hereinafter defined), as determined by a court of competent
jurisdiction. As used herein, the term "Debtor Relief Laws" means
any applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, insolvency, reorganization or similar
debtor relief laws affecting the rights of creditors generally from
time to time in effect.
The Guarantor also agrees to pay, in addition to the amount stated
above, any and all reasonable expenses (including reasonable
counsel fees and expenses) incurred by any Obligee in enforcing any
rights under this Guarantee Agreement or in connection with any
amendment of this Guarantee Agreement.
Without limiting the generality of the foregoing, this Guarantee
Agreement guarantees, to the extent provided herein, the payment of
all amounts which constitute part of the Guaranteed Obligations and
would be owed by any other Person to any Obligee but for the fact
that they are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization or similar proceeding involving
such Person.
SECTION 2. Guarantee Absolute. The obligations of the
Guarantor under Section 1 of this Guarantee Agreement constitute a
present and continuing guaranty of payment and not of
collectability and the Guarantor guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms of
the Note and the Loan Agreement, regardless of any law, regulation
or order now or hereafter in effect in any jurisdiction affecting
any of such terms or the rights of any Obligee with respect
thereto. The obligations of the Guarantor under this Guarantee
Agreement are independent of the Guaranteed Obligations, and a
separate action or actions may be brought and prosecuted against
the Guarantor to enforce this Guarantee Agreement, irrespective of
whether any action is brought against the Company or any other
Person liable for the Guaranteed Obligations or whether the Company
or any other such Person is joined in any such action or actions.
The liability of the Guarantor under this Guarantee Agreement shall
be primary, absolute, irrevocable, and unconditional irrespective
of:
A any lack of validity or enforceability of any Guaranteed
Obligation, any Note, the Loan Agreement or any agreement or
instrument relating thereto;
B. any change in the time, manner or place of payment of, or
in any other term of, all or any of the Guaranteed Obligations, or
any other amendment or waiver of or any consent to departure from
any Note, the Loan Agreement or this Guarantee Agreement;
C. any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or
consent to departure by the Guarantor or other Person liable, or
any other guarantee, for all or any of the Guaranteed Obligations;
D. any manner of application of collateral, or proceeds
thereof, to all or any of the Guaranteed Obligations, or any manner
of sale or other disposition of any collateral or any other assets
of the Company or any other Subsidiary;
E. any change, restructuring or termination of the corporate
structure or existence of the Company or any other Subsidiary; or
F. any other circumstance (including without limitation any
statute of limitations) that might otherwise constitute a defense,
offset or counterclaim available to, or a discharge of, the Company
or the Guarantor.
This Guarantee Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any
of the Guaranteed Obligations is rescinded or must otherwise be
returned by any Obligee, or any other Person upon the insolvency,
bankruptcy or reorganization of the Company or otherwise, all as
though such payment had not been made.
SECTION 3. Waivers. The Guarantor hereby irrevocably waives,
to the extent permitted by applicable law:
A. promptness, diligence, presentment, notice of acceptance
and any other notice with respect to any of the Guaranteed
Obligations and this Guarantee Agreement;
B. any requirement that any Obligee or any other Person
protect, secure, perfect or insure any Lien or any property subject
thereto or exhaust any right or take any action against the Company
or any other Person or any collateral;
C. any defense, offset or counterclaim arising by reason of
any claim or defense based upon any action by any Obligee;
D. any duty on the part of any Obligee to disclose to the
Guarantor any matter, fact or thing relating to the business,
operation or condition of any Person and its assets now known or
hereafter known by such Obligee; and
E. any rights by which it might be entitled to require suit
on an accrued right of action in respect of any of the Guaranteed
Obligations or require suit against the Company or the Guarantor or
any other Person.
SECTION 4. Waiver of Subrogation and Contribution. The
Guarantor shall not assert, enforce, or otherwise exercise (A) any
right of subrogation to any of the rights, remedies, powers,
privileges or liens of any Obligee or any other beneficiary against
the Company or any other obligor on the Guaranteed Obligations or
any collateral or other security, or (B) any right of recourse,
reimbursement, contribution, indemnification, or similar right
against the Company, and the Guarantor hereby waives any and all of
the foregoing rights, remedies, powers, privileges and the benefit
of, and any right to participate in, any collateral or other
security given tny or abligee or any other beneficiary to secure
payment of the Guaranteed Obligations, until such time as the
Guaranteed Obligations have been paid in full.
SECTION 5. Representations and Warranties. The Guarantor
hereby represents and warrants as follows:
A. The Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. The execution, delivery and performance of this
Guarantee Agreement have been duly authorized by all necessary
action on the part of the Guarantor.
B. The execution, delivery and performance by the Guarantor
of this Guarantee Agreement will not (i) contravene, result in any
breach of, or constitute a default under, or result in the creation
of any Lien in respect of any property of the Guarantor or any
Subsidiary of the Guarantor under, any indenture, mortgage, deed of
trust, loan, purchase or credit agreement, lease, corporate charter
or by-laws, or any other material agreement or instrument to which
the Guarantor or any Subsidiary of the Guarantor is bound or by
which the Guarantor or any Subsidiary of the Guarantor or any of
their respective properties may be bound or affected, (ii) conflict
with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to the Guarantor or
any Subsidiary of the Guarantor or (iii) violate any provision of
any statute or other rule or regulation of any Governmental
Authority applicable to the Guarantor or any Subsidiary of the
Guarantor.
C. The Guarantor and the Company are members of the same
consolidated group of companies and are engaged in related
businesses and the Guarantor will derive substantial direct and
indirect benefit from the execution and delivery of this Guarantee
Agreement.
SECTION 6. Amendments, Etc. No amendment or waiver of any
provision of this Guarantee Agreement and no consent to any
departure by the Guarantor therefrom shall in any event be
effective unless the same shall be in writing and signed by the
Obligee, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given;
provided that no amendment, waiver or consent shall, unless in
writing and signed by Obligee, (i) limit the liability of or
release the Guarantor hereunder, (ii) postpone any date fixed for,
or change the amount of, any payment hereunder.
SECTION 7. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing and
(A) by telecopy if the sender on the same day sends a confirming
copy of such notice by a recognized overnight delivery service
(charges prepaid), or (B) by registered or certified mail with
return receipt requested (postage prepaid), or (C) by a recognized
overnight delivery service (with charges prepaid). Such notice if
sent to the Guarantor shall be addressed to it at the address of
the Guarantor provided below its name on the signature page of this
Guarantee Agreement or at such other address as the Guarantor may
hereafter designate by notice to each Obligee, or if sent to
Obligee, shall be addressed to it as set forth in the Loan
Agreement. Notices under this Section 7 will be deemed given only
when actually received.
SECTION 8. No Waiver; Remedies. No failure on the part of
any Obligee to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 9. Continuing Guarantee. This Guarantee Agreement is
a continuing guarantee of payment and performance and shall (A)
remain in full force and effect until payment in full of the
Guaranteed Obligations and all other amounts payable under this
Guarantee Agreement, (B) be binding upon the Guarantor, its
successors and assigns and (C) inure to the benefit of and be
enforceable by the Obligee and their successors, transferees and
assigns.
SECTION 10. Jurisdiction and Process; Waiver of Jury Trial.
The Guarantor irrevocably submits to the non-exclusive in personam
jurisdiction of any Texas State or federal court sitting in Dallas
County, Texas, over any suit, action or proceeding arising out of
or relating to this Guarantee Agreement. To the fullest extent
permitted by applicable law, the Guarantor irrevocably waives and
agrees not to assert, by way of motion, as a defense or otherwise,
any claim that it is not subject to the in personam jurisdiction of
any such court, any objection that it may now or hereafter have to
the laying of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action
or proceeding brought in any such court has been brought in an
inconvenient forum.
The Guarantor consents to process being served in any suit, action
or proceeding of the nature referred to in this Section by mailing
a copy thereof by registered or certified mail, postage prepaid,
return receipt requested, to the Guarantor at its address specified
in Section 7 or at such other address of which Obligee shall then
have been notified pursuant to said Section. The Guarantor agrees
that such service upon receipt (i) shall be deemed in every respect
effective service of process upon it in any such suit, action or
proceeding and (ii) shall, to the fullest extent permitted by
applicable law, be taken and held to be valid personal service upon
and personal delivery to the Guarantor. Notices hereunder shall be
conclusively presumed received as evidenced by a delivery receipt
furnished by the United States Postal Service or any recognized
courier or overnight delivery service.
Nothing in this Section 10 shall affect the right of Obligee to
serve process in any manner permitted by law, or limit any right
Obligee may have to bring proceedings against the Guarantor in the
courts of any appropriate jurisdiction or to enforce in any lawful
manner a judgment obtained in one jurisdiction in any other
jurisdiction.
THE GUARANTOR WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH
RESPECT TO THIS GUARANTEE AGREEMENT OR ANY OTHER DOCUMENT EXECUTED
IN CONNECTION HEREWITH.
SECTION 11. Governing Law. This Guarantee Agreement shall
be construed and enforced in accordance with, and the rights of the
Guarantor and the Obligees shall be governed by, the laws of the
State of Texas excluding choice-of-law principles of the law of
such State that would require the application of the laws of a
jurisdiction other than such State.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee
Agreement to be duly executed and delivered as of the date first
above written.
[GUARANTOR]
By:-----------------------
Title:
Address:
Attention:
Telephone:
Telecopy:
10(m)(2)
SHOWBIZ PIZZA TIME, INC.
-----------------------
SUPPLEMENTAL AGREEMENT
Dated as of September 29, 1997
relating to the
Note Purchase Agreements dated as of June 15, 1995
-------------------
10.02% Series A Senior Notes due 2001
Floating Rate Series B Senior Notes due 2000
SHOWBIZ PIZZA TIME, INC.
SUPPLEMENTAL AGREEMENT
as of September 29,
1997
Re: 10.02% Series A Senior Notes due 2001
Floating Rate Series B Senior Notes due 2000
TO THE SEVERAL NOTEHOLDERS
WHOSE NAMES APPEAR IN THE
ACCEPTANCE FORM AT THE END HEREOF
Ladies and Gentlemen:
SHOWBIZ PIZZA TIME, INC., a Kansas corporation (the "Company"),
hereby agrees with you as follows:
SECTION 1. Note Purchase Agreements and the Notes; Requested
Consent. Pursuant to the several Note Purchase Agreements dated as
of June 15, 1995 (the "Note Purchase Agreements") entered into by
the Company with the institutional investors named in Schedule A
thereto, the Company issued and sold $18,000,000 aggregate
principal amount of its 10.02% Series A Senior Notes due 2001 (the
"Series A Notes") and $10,000,000 aggregate principal amount of its
Floating Rate Series B Senior Notes due 2000 (the "Series B Notes"
and, together with the Series A Notes, the "Notes"), all of which
remain outstanding on the date hereof. Unless the context
otherwise requires, capitalized terms used herein without
definition have the respective meanings ascribed thereto in the
Note Purchase Agreements.
The Company proposes to transfer certain tangible assets at a
value not to exceed $20,000,000 and certain intellectual property
owned by the Company to direct and indirect wholly-owned
subsidiaries of the Company (such transfers referred to herein
collectively as the "Asset Sale Transaction").
In connection therewith, the Company hereby requests consents
from the holders of the Notes to enter into and effectuate the
Asset Sale Transaction, such transactions being prohibited by the
Note Purchase Agreements, particularly the limitations on asset
sales pursuant to Section 10.3 of the Note Purchase Agreements. In
consideration therefor, prior to or concurrently with the Asset
Sale Transaction, the Company will cause each of ShowBiz Nevada,
Inc., ShowBiz Merchandising, Inc. and SPT Properties Company, Inc.,
each a Nevada corporation (collectively, the "Subsidiary
Guarantors"), to execute and deliver a Subsidiary Guarantee,
substantially in the form set forth in Exhibit 1 to this
Supplemental Agreement, unconditionally guaranteeing the Company's
obligations under the Note Purchase Agreements and the Notes.
SECTION 2. Consent. The holders of the Notes hereby consent
to the Asset Sale Transaction.
SECTION 3. Subsidiary Indebtedness. Except for the
Subsidiary Guarantees, the Company will not permit any of the
Subsidiary Guarantors to create, assume, incur, guarantee or
otherwise become liable in respect of any Indebtedness (as defined
in the Note Purchase Agreements).
SECTION 4. Representations and Warranties of the Company.
The Company represents and warrants to you as follows:
Section 4.1 Organization, Authorization, Etc. The Company is
a corporation duly organized, validly existing and in good standing
under the laws of the State of Kansas, and has all requisite power
and authority to execute, deliver and perform its obligations under
this Supplemental Agreement.
The execution, delivery and performance of this Supplemental
Agreement have been duly authorized by all necessary action on the
part of the Company. This Supplemental Agreement is a legal, valid
and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or other similar laws relating
to or affecting the enforcement of creditors' rights generally and
by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Section 4.2 Compliance with Laws, Other Instruments, Etc.
The execution, delivery and performance by the Company of this
Supplemental Agreement do not and will not (A) contravene, result
in any breach of, or constitute a default under, or result in the
creation of any Lien in respect of any property of the Company or
any Subsidiary under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter or by-laws,
or any other agreement or instrument to which the Company or any
Subsidiary is bound or by which the Company or any Subsidiary or
any of their respective properties may be bound or affected, (B)
conflict with or result in a breach of any of the terms, conditions
or provisions of any order, judgment, decree, or ruling of any
court, arbitrator or Governmental Authority applicable to the
Company or any Subsidiary or (C) violate any provision of any
statute or other rule or regulation of any Governmental Authority
applicable to the Company or any Subsidiary.
Section 4.3 Governmental Authorizations, Etc. No consent,
approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required for the
validity of the execution, delivery or performance by the
performance by the Company of this Supplemental Agreement.
Section 4.4 No Default, etc. No Event of Default or Default
has occurred and is continuing, and neither the Company nor any
Subsidiary is in default (whether or not waived) in the performance
or observance of any of the terms, covenants or conditions
contained in any instrument evidencing any Indebtedness and there
is no pending request by the Company (except pursuant to this
Supplemental Agreement or the Loan Agreement dated as of June 27,
1995 between the Company and Bank One, Texas, N.A. (the "Bank One
Agreement") with respect to the Asset Sale Transaction) or any
Subsidiary for any amendment or waiver in respect of any
contemplated or possible default with respect to such Indebtedness
and no event has occurred and is continuing which, with notice or
lapse of time or both, would become such a default.
Section 4.5 No Undisclosed Fees. The Company has not,
directly or indirectly, paid or caused to be paid any consideration
(as supplemental or additional interest, a fee or otherwise) to any
holder of Notes in order to induce such holder to enter into this
Supplemental Agreement or take any other action in connection with
the transactions contemplated hereby, nor has the Company agreed to
make any such payment.
SECTION 5. Representation of the Noteholder. You represent
to the Company that you are the beneficial owner of Notes in the
aggregate unpaid principal amount set forth below your name in the
acceptance form of this Supplemental Agreement.
SECTION 6. Effectiveness of this Supplemental Agreement.
This Supplemental Agreement will become effective on the date (the
"Effective Date") on which all of the following conditions
precedent shall have been satisfied:
Section 6.1 Proceedings. All proceedings taken by the
Company in connection with the transactions contemplated hereby and
all documents and papers incident thereto shall be satisfactory to
you, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such
documents and papers, all in form and substance satisfactory to
you, as you or they may reasonably request in connection therewith.
Section 6.2 Execution of this Supplemental Agreement.
Counterparts of this Supplemental Agreement shall have been
executed and delivered by the Company and the Required Holders.
Section 6.3 Representations and Warranties. The
representations and warranties of the Company contained in Section
4 of this Supplemental Agreement shall be true on and as of the
Effective Date as though such representations and warranties had
been made on and as of the Effective Date, and you shall have
received a certificate of a senior financial officer of the
Company, dated the Effective Date, to such effect.
Section 6.4 Subsidiary Guarantees. A Subsidiary Guarantee,
dated on or before the Effective Date, shall have been executed and
delivered to you by each of the Subsidiary Guarantors,
substantially in the form hereinabove recited.
Section 6.5 Opinion of Counsel. You shall have received an
opinion, dated the Effective Date, addressed to you and otherwise
satisfactory in scope and substance to you, from Marshall Fisco,
Esq., Counsel to the Company, substantially in the form set forth
in Annex A attached hereto, and covering such other matters
incident to the transactions contemplated hereby as you may
reasonably request.
Section 6.6 Payment of Fees. The Company shall have paid the
fees and disbursements of your special counsel as contemplated by
Section 7 of this Supplemental Agreement.
SECTION 7. Expenses. Without limiting the generality of
Section 15.1 of the Note Purchase Agreements, the Company agrees,
whether or not the transactions contemplated hereby are
consummated, to pay the reasonable fees and disbursements and other
charges of Willkie Farr & Gallagher, your special counsel, for
their services rendered in connection with such transactions and
with respect to this Supplemental Agreement and any other document
delivered pursuant to this Supplemental Agreement and reimburse you
for your out-of-pocket expenses in connection with the foregoing.
In furtherance of the foregoing, on the Effective Date the
Company will pay or cause to be paid the reasonable fees and
disbursements and other charges of Willkie Farr & Gallagher which
are reflected in the statement of Willkie Farr & Gallagher
delivered to the Company prior to the Effective Date. The Company
will also pay promptly upon receipt of supplemental statements
therefor, reasonable additional fees, if any, and disbursements of
Willkie Farr & Gallagher in connection with the transactions
contemplated hereby (including disbursements unposted as of the
Effective Date).
SECTION 8. Ratification. The Note Purchase Agreements are in
all respects ratified and confirmed and the provisions thereof
shall remain in full force and effect.
SECTION 9. Counterparts. This Supplemental Agreement may be
executed in two or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the
same instrument.
SECTION 10. Governing Law. This Supplemental Agreement shall
be governed by and construed in accordance with the laws of the
State of New York.
If you are in agreement with the foregoing, please sign the form of
acceptance in the space below provided, whereupon this Supplemental
Agreement shall become a binding agreement between you and the
Company, subject to becoming effective as hereinabove provided.
SHOWBIZ PIZZA TIME, INC.
By:-----------------------
Name:
Title:
ACCEPTED AND AGREED:
NOTEHOLDERS:
ALLSTATE LIFE INSURANCE COMPANY
By:--------------------------
Name:
Title:
By:--------------------------
Name:
Title:
Principal Amount of Series A Notes Held: $10,000,000
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By:----------------------------------------
Name:
Title:
Principal Amount of Series A Notes Held: $3,000,000
Principal Amount of Series B Notes Held: $6,000,000
MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED
By:---------------------------------------
Name:
Title:
Principal Amount of Series B Notes Held: $4,000,000
CM LIFE INSURANCE COMPANY
By-------------------------
Name:
Title:
Principal Amount of Series A Notes Held: $2,000,000
MODERN WOODMEN OF AMERICA
By--------------------------
Name:
Title:
Principal Amount of Series A Notes Held: $3,000,000
ANNEX A
(to Supplemental Agreement)
OPINION OF COUNSEL FOR THE COMPANY
The following opinions are to be provided by counsel for the
Company, subject to customary assumptions, limitations and
qualifications. All capitalized terms used herein without
definition shall have the meanings ascribed thereto in the
Supplemental Agreement.
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Kansas and has all
requisite power and authority to execute and deliver the
Supplemental Agreement and to perform the provisions thereof.
2. The Supplemental Agreement has been duly authorized,
executed and delivered by the Company and constitutes a legal,
valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms.
3. Each Subsidiary Guarantor is a corporation duly
organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation and has all requisite power
and authority to execute and deliver its Subsidiary Guarantee and
to perform the provisions thereof.
4. Each Subsidiary Guarantee has been duly authorized,
executed and delivered by the respective Subsidiary Guarantor and
constitutes legal, valid and binding obligations of such Subsidiary
Guarantor, enforceable against such Subsidiary Guarantor in
accordance with their terms.
5. No consent, approval or authorization of, or
registration, filing or declaration with, any Governmental
Authority is required on the part of the Company or the Subsidiary
Guarantors for the validity of the execution and delivery or for
the performance by the Company of the Supplemental Agreement or the
Subsidiary Guarantees.
6. The consummation of the transactions contemplated by the
Supplemental Agreement and the performance of the terms and
provisions of the Supplemental Agreement and the Subsidiary
Guarantees do not and will not (i) conflict with the charter, by-laws,
code of regulations or any other organic documents of the
Company or any Subsidiary, (ii) result in any breach of, or
constitute a default under, or result in the creation of any Lien
in respect of any property of the Company under, any indenture,
mortgage, deed of trust, bank loan or credit agreement, or other
agreement or instrument known to me, after due inquiry, to which
the Company or any Subsidiary is a party or by which the Company or
any Subsidiary or any of their respective properties may be bound
or affected, except for the Bank One Agreement with respect to the
Asset Sale Transaction, or (iii) conflict with or result in a
breach of any of the terms, conditions or provisions of any order,
judgment, decree or ruling of any court, arbitrator or Governmental
Authority applicable to the Company or any Subsidiary and known to
me, after due inquiry, or violate any provision of any law,
statute, rule or regulation of any Governmental Authority
applicable to the Company or any Subsidiary.
* * * *
This opinion is given solely for your benefit, and for the benefit
of the institutional investor holders from time to time of the
Notes held by you, in connection with the transactions contemplated
by the Supplemental Agreement, and may not be relied upon by any
other person for any purpose without my prior written consent.
Exhibit 1
(to the Supplemental Agreement)
GUARANTEE AGREEMENT
GUARANTEE AGREEMENT dated as of ------------, ----- made by
- -------------------,a --------------- corporation (the "Guarantor"),
in favor of the holders from time to time of the Notes referred to
below (collectively the "Obligees").
WHEREAS, ShowBiz Pizza Time, Inc., a Kansas corporation (the
"Company"), has entered into several Note Purchase Agreements dated
as of June 15, 1995 (collectively the "Note Agreements" and terms
defined therein and not otherwise defined herein are being used
herein as so defined) with the institutional purchasers listed in
Schedule A thereto, pursuant to which the Company has issued and
sold to such purchasers $18,000,000 aggregate principal amount of
its 10.02% Series A Senior Notes due 2001 (the "Series A Notes")
and $10,000,000 aggregate principal amount of its Floating Rate
Series B Senior Notes due 2000 (the "Series B Notes" and, together
with the Series A Notes, the "Notes");
WHEREAS, the Company has requested the consent of the holders
of the Notes to enter into certain transactions with the Guarantor
that are prohibited by the Note Agreements; and
WHEREAS, it is a condition to obtaining the consent of such
holders that the Guarantor execute and deliver this Guarantee
Agreement;
NOW, THEREFORE, in consideration of the premises the Guarantor
hereby agrees as follows:
SECTION 1. Guarantee. The Guarantor unconditionally and
irrevocably guarantees, as primary obligor and not merely as
surety,
A. the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all obligations of
the Company arising under the Notes and the Note Agreements,
including all extensions, modifications, substitutions,
amendments and renewals thereof, whether for principal,
interest (including without limitation interest on any overdue
principal, premium and interest at the rate specified in the
Notes and interest accruing or becoming owing both prior to
and subsequent to the commencement of any proceeding against
or with respect to the Company under any chapter of the
Bankruptcy Code of 1978, 11 U.S.C. S101 et seq.), Make-Whole
Amount, Additional Amounts, fees, expenses, indemnification or
otherwise, and
B. the due and punctual performance and observance by
the Company of all covenants, agreements and conditions on its
part to be performed and observed under the Notes and the Note
Agreements;
(all such obligations are called the "Guaranteed Obligations");
provided that the aggregate liability of the Guarantor hereunder in
respect of the Guaranteed Obligations shall not exceed at any time
the lesser of (1) the amount of the Guaranteed Obligations and (2)
the maximum amount for which the Guarantor is liable under this
Guarantee Agreement without such liability being deemed a
fraudulent transfer under applicable Debtor Relief Laws (as
hereinafter defined), as determined by a court of competent
jurisdiction. As used herein, the term "Debtor Relief Laws" means
any applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, insolvency, reorganization or similar
debtor relief laws affecting the rights of creditors generally from
time to time in effect.
The Guarantor also agrees to pay, in addition to the amount
stated above, any and all reasonable expenses (including reasonable
counsel fees and expenses) incurred by any Obligee in enforcing any
rights under this Guarantee Agreement or in connection with any
amendment of this Guarantee Agreement.
Without limiting the generality of the foregoing, this
Guarantee Agreement guarantees, to the extent provided herein, the
payment of all amounts which constitute part of the Guaranteed
Obligations and would be owed by any other Person to any Obligee
but for the fact that they are unenforceable or not allowable due
to the existence of a bankruptcy, reorganization or similar
proceeding involving such Person.
SECTION 2. Guarantee Absolute. The obligations of the
Guarantor under Section 1 of this Guarantee Agreement constitute a
present and continuing guaranty of payment and not of
collectability and the Guarantor guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms of
the Notes and the Note Agreements, regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of any Obligee with
respect thereto. The obligations of the Guarantor under this
Guarantee Agreement are independent of the Guaranteed Obligations,
and a separate action or actions may be brought and prosecuted
against the Guarantor to enforce this Guarantee Agreement,
irrespective of whether any action is brought against the Company
or any other Person liable for the Guaranteed Obligations or
whether the Company or any other such Person is joined in any such
action or actions. The liability of the Guarantor under this
Guarantee Agreement shall be primary, absolute, irrevocable, and
unconditional irrespective of:
A. any lack of validity or enforceability of any
Guaranteed Obligation, any Note, the Note Agreements or any
agreement or instrument relating thereto:
B. any change in the time, manner or place of payment
of, or in any other term of, all or any of the Guaranteed
Obligations, or any other amendment or waiver of or any
consent to departure from any Note, the Note Agreements or
this Guarantee Agreement;:
C. any taking, exchange, release or non-perfection of
any collateral, or any taking, release or amendment or waiver
of or consent to departure by the Guarantor or other Person
liable, or any other guarantee, for all or any of the
Guaranteed Obligations:
D. any manner of application of collateral, or proceeds
thereof, to all or any of the Guaranteed Obligations, or any
manner of sale or other disposition of any collateral or any
other assets of the Company or any other Subsidiary:
E. any change, restructuring or termination of the
corporate structure or existence of the Company or any other
Subsidiary; :
F. any other circumstance (including without limitation
any statute of limitations) that might otherwise constitute a
defense, offset or counterclaim available to, or a discharge
of, the Company or the Guarantor.
This Guarantee Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any
of the Guaranteed Obligations is rescinded or must otherwise be
returned by any Obligee, or any other Person upon the insolvency,
bankruptcy or reorganization of the Company or otherwise, all as
though such payment had not been made.
SECTION 3. Waivers. The Guarantor hereby irrevocably waives,
to the extent permitted by applicable law::
A. promptness, diligence, presentment, notice of
acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Guarantee Agreement;:
B. any requirement that any Obligee or any other Person
protect, secure, perfect or insure any Lien or any property
subject thereto or exhaust any right or take any action
against the Company or any other Person or any collateral;:
C. any defense, offset or counterclaim arising by
reason of any claim or defense based upon any action by any
Obligee;:
D. any duty on the part of any Obligee to disclose to
the Guarantor any matter, fact or thing relating to the
business, operation or condition of any Person and its assets
now known or hereafter known by such Obligee; and:
E. any rights by which it might be entitled to require
suit on an accrued right of action in respect of any of the
Guaranteed Obligations or require suit against the Company or
the Guarantor or any other Person.
SECTION 4. Waiver of Subrogation and Contribution. The
Guarantor shall not assert, enforce, or otherwise exercise (A) any
right of subrogation to any of the rights, remedies, powers,
privileges or liens of any Obligee or any other beneficiary against
the Company or any other obligor on the Guaranteed Obligations or
any collateral or other security, or (B) any right of recourse,
reimbursement, contribution, indemnification, or similar right
against the Company, and the Guarantor hereby waives any and all of
the foregoing rights, remedies, powers, privileges and the benefit
of, and any right to participate in, any collateral or other
security given to any Obligee or any other beneficiary to secure
payment of the Guaranteed Obligations, until such time as the
Guaranteed Obligations have been paid in full.
SECTION 5. Representations and Warranties. The Guarantor
hereby represents and warrants as follows::
A. The Guarantor is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation. The execution, delivery and
performance of this Guarantee Agreement have been duly
authorized by all necessary action on the part of the
Guarantor:
B. The execution, delivery and performance by the
Guarantor of this Guarantee Agreement will not (i) contravene,
result in any breach of, or constitute a default under, or
result in the creation of any Lien in respect of any property
of the Guarantor or any Subsidiary of the Guarantor under, any
indenture, mortgage, deed of trust, loan, purchase or credit
agreement, lease, corporate charter or by-laws, or any other
material agreement or instrument to which the Guarantor or any
Subsidiary of the Guarantor is bound or by which the Guarantor
or any Subsidiary of the Guarantor or any of their respective
properties may be bound or affected, (ii) conflict with or
result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any
court, arbitrator or Governmental Authority applicable to the
Guarantor or any Subsidiary of the Guarantor or (iii) violate
any provision of any statute or other rule or regulation of
any Governmental Authority applicable to the Guarantor or any
Subsidiary of the Guarantor:
C. The Guarantor and the Company are members of the
same consolidated group of companies and are engaged in
related businesses and the Guarantor will derive substantial
direct and indirect benefit from the execution and delivery of
this Guarantee Agreement.
SECTION 6. Amendments, Etc. No amendment or waiver of any
provision of this Guarantee Agreement and no consent to any
departure by the Guarantor therefrom shall in any event be
effective unless the same shall be in writing and signed by the
Required Holders, and then such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given; provided that no amendment, waiver or
consent shall, unless in writing and signed by all Obligees, (i)
limit the liability of or release the Guarantor hereunder, (ii)
postpone any date fixed for, or change the amount of, any payment
hereunder or (iii) change the percentage of Notes the holders of
which are, or the number of Obligees, required to take any action
hereunder.
SECTION 7. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing and (A)
by telecopy if the sender on the same day sends a confirming copy
of such notice by a recognized overnight delivery service (charges
prepaid), or (B) by registered or certified mail with return
receipt requested (postage prepaid), or (C) by a recognized
overnight delivery service (with charges prepaid). Such notice if
sent to the Guarantor shall be addressed to it at the address of
the Guarantor provided below its name on the signature page of this
Guarantee Agreement or at such other address as the Guarantor may
hereafter designate by notice to each holder of Notes, or if sent
to any holder of Notes, shall be addressed to it as set forth in
the Note Agreements. Any notice or other communication herein
provided to be given to the holders of all outstanding Notes shall
be deemed to have been duly given if sent as aforesaid to each of
the registered holders of the Notes at the time outstanding at the
address for such purpose of such holder as it appears on the Note
register maintained by the Company in accordance with the
provisions of Section 13.1 of the Note Agreements. Notices under
this Section 7 will be deemed given only when actually received.
SECTION 8. No Waiver; Remedies. No failure on the part of
any Obligee to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 9. Continuing Guarantee. This Guarantee Agreement is
a continuing guarantee of payment and performance and shall (A)
remain in full force and effect until payment in full of the
Guaranteed Obligations and all other amounts payable under this
Guarantee Agreement, (B) be binding upon the Guarantor, its
successors and assigns and (C) inure to the benefit of and be
enforceable by the Obligees and their successors, transferees and
assigns.
SECTION 10. Jurisdiction and Process; Waiver of Jury Trial.
The Guarantor irrevocably submits to the non-exclusive in personam
jurisdiction of any New York State or federal court sitting in the
Borough of Manhattan, The City of New York, over any suit, action
or proceeding arising out of or relating to this Guarantee
Agreement. To the fullest extent permitted by applicable law, the
Guarantor irrevocably waives and agrees not to assert, by way of
motion, as a defense or otherwise, any claim that it is not subject
to the in personam jurisdiction of any such court, any objection
that it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding brought in any such court and any
claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum.
The Guarantor consents to process being served in any suit,
action or proceeding of the nature referred to in this Section by
mailing a copy thereof by registered or certified mail, postage
prepaid, return receipt requested, to the Guarantor at its address
specified in Section 7 or at such other address of which you shall
then have been notified pursuant to said Section. The Guarantor
agrees that such service upon receipt (i) shall be deemed in every
respect effective service of process upon it in any such suit,
action or proceeding and (ii) shall, to the fullest extent
permitted by applicable law, be taken and held to be valid personal
service upon and personal delivery to the Guarantor. Notices
hereunder shall be conclusively presumed received as evidenced by
a delivery receipt furnished by the United States Postal Service or
any recognized courier or overnight delivery service.
Nothing in this Section 10 shall affect the right of any
holder of a Note to serve process in any manner permitted by law,
or limit any right that the holders of any of the Notes may have to
bring proceedings against the Guarantor in the courts of any
appropriate jurisdiction or to enforce in any lawful manner a
judgment obtained in one jurisdiction in any other jurisdiction.
THE GUARANTOR WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT ON OR
WITH RESPECT TO THIS GUARANTEE AGREEMENT OR ANY OTHER DOCUMENT
EXECUTED IN CONNECTION HEREWITH.
SECTION 11. Governing Law. This Guarantee Agreement shall
be construed and enforced in accordance with, and the rights of the
Guarantor and the Obligees shall be governed by, the laws of the
State of New York excluding choice-of-law principles of the law of
such State that would require the application of the laws of a
jurisdiction other than such State.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee
Agreement to be duly executed and delivered as of the date first
above written.
[GUARANTOR]
By--------------------
Title:
Address:
Attention:
Telephone:
Telecopy:
10(o)(2)
SHOWBIZ PIZZA TIME, INC.
1997 NON-STATUTORY STOCK OPTION CONTRACT
THIS 1997 NON-STATUTORY STOCK OPTION CONTRACT (hereinafter
referred to as "Contract") is made and entered into on ---------
(the "Granting Date"), by and between SHOWBIZ PIZZA TIME, INC., a
Kansas corporation (the "Company"), and -------- (the "Optionee").
WITNESSETH:
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") has adopted the ShowBiz Pizza Time, Inc. 1997 Non-Statutory
Stock Option Plan (the "Plan"), pursuant to which the
Stock Option Committee of the Board of Directors (the "Committee")
may grant, from time to time, on or prior to July 31, 2007, non-statutory
options to purchase shares of the Common Stock of ShowBiz
Pizza Time, Inc. to individuals who are directors or key employees
of the Company or of any of its subsidiary corporations, in such
amounts and under such form of agreement as shall be determined by
the Committee; and
WHEREAS, pursuant to the Plan, the Committee has determined
that the Optionee shall be granted an option to purchase shares of
the Common Stock of ShowBiz Pizza Time, Inc. on the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained and other good and valuable
consideration, the parties hereto do hereby agree as follows:
1. Incorporation of the Plan. A copy of the Plan is attached
hereto and incorporated herein by reference, and all of the
terms, conditions and provisions contained therein shall be
deemed to be terms, conditions and provisions of this
Contract. All terms used herein which are defined in the Plan
shall have the meanings given them in the Plan.
2. Grant of Option. Pursuant to the authorization of the Board
of Directors, and subject to the terms, conditions and
provisions contained in the Plan and this Contract, the
Company hereby grants to the Optionee, an option (the
"Option") to purchase from the Company all or any part of an
aggregate of --------- (----) shares of the Common Stock of
ShowBiz Pizza Time, Inc., at the purchase price of ------
Dollars ($-------) per share. The date first written above
shall be deemed to be the Granting Date of the Option.
3. Period of Exercise. The Option granted hereunder shall be
exercisable from time to time by the Optionee subject to the
following restrictions:
Page 1 of 4
(a) Vesting and Expiration Dates. Optionee may exercise up
to an aggregate of __________ percent (____%) of the
option after __________, and an aggregate of __________
percent (____%) of the option after __________. The
Option shall expire at 12:00 midnight on __________.
(b) Exercise During Lifetime of Optionee. The Option shall
be exercisable during the lifetime of the Optionee only
by him.
(c) Exercise after Death of Optionee. The Option shall be
exercisable after the death of the Optionee only if the
Optionee shall at the time of his death have been an
employee of the Company or a subsidiary, and then (i)
only by or on behalf of such person or persons to whom
the Optionee's rights under the Option shall have been
passed by the Optionee's will or, if the right to
exercise the Option is not specifically bequeathed by
will, by his legal representative or representatives,
(ii) only to the extent that the Optionee was entitled to
exercise said Option at the date of his death, and (iii)
only if said Option is exercised prior to the expiration
of three (3) months from the date of his death.
(d) Cessation of Employment. The Option may not be exercised
by the Optionee except while he is an employee of the
Company or a subsidiary, or, if he shall cease to be an
employee for any other reason other than death after he
has been continuously so employed, for at least one (1)
year after the Granting Date, he may, but only within ten
(10) business days next succeeding such cessation of
employment, exercise his option.
4. Manner of Exercise. The Option granted hereunder shall be
exercised by delivering to the Company from time to time
within the time limits specified in Paragraph 3 hereof a
notice specifying the number of shares the Optionee then
desires to purchase (and with respect to which the Optionee
has acquired the right to purchase, as described in Paragraph
3(a) above), together with either: (i) a cashier's check
payable in United States currency (unless a personal check
shall be acceptable to the Company) to the order of the
Company for an amount equal to the option price for such
number of shares; or (ii) with the prior consent of the
Committee, and upon receipt of all regulatory approvals,
certificate for Common Stock of the Company, valued at the
Fair Market Value (determined as provided in the Plan) of such
Common Stock on the date of exercise of this option, as
payment of all or any portion of the option price for such
number of shares; and (iii) such other instruments or
agreements duly signed by the Optionee as in the opinion of
counsel for the Company may be necessary or advisable in order
that the issuance of such number of shares comply with
applicable rules and regulations under the Securities Act of
1933, as amended (the "Act"), any appropriate state securities
laws or any requirement of any national securities exchange or
market system on which such stock may be traded. As soon as
practicable after any such exercise of the Option in whole or
in part by the Optionee, the Company will deliver to the
Optionee at
Page 2 of 4
Optionee's address, as set forth below, a certificate for the
number of shares with respect to which the Option shall have
been so exercised, issued in the Optionee's name. Such stock
certificate shall carry such appropriate legend, and such
written instructions shall be given to the Company's transfer
agent, as may be deemed necessary or advisable by counsel for
the Company to satisfy the requirements of the Act or any
state securities law.
5. Withholding. To the extent required by law the Company shall
withhold any taxes required to be withheld under any
applicable Federal, state or other law and transmit such
withheld amounts to the appropriate taxing authority. The
Company may condition the transfer of stock after the exercise
of the Option upon the Optionee's agreement to remit to the
Company the amount of employment taxes which are required to
be withheld or, with the consent of the Committee, to satisfy
such withholding obligation by means of Share Withholding, as
such term is defined in the Plan.
6. Notices. All notices, surrenders and other communications
required or allowed to be made or given in connection with the
Option granted hereunder shall be in writing, shall be
effective when received, and shall be hand delivered or sent
by registered or certified mail (i) if to the Company, to
ShowBiz Pizza Time, Inc., 4441 West Airport Freeway, Irving,
Texas 75062, or (ii) if to the Optionee, to the Optionee at
the address shown beneath his signature hereto, or to such
other address as to which may have notified the company
pursuant to this section.
7. Binding Effect. This Contract shall bind, and except as
specifically provided in the Plan and this Contract, shall
inure to the benefit of, the respective heirs and legal
representatives of the parties hereto.
8. Governing Law. This Contract and the rights of all persons
claiming hereunder shall be construed and determined in
accordance with the laws of the State of Texas.
9. Multiple Counterparts. This Contract may be executed in two
or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
10. Expiration of Offer. If Optionee has not accepted the
Company's offer herein contained by signing and returning to
the Company one (1) duplicate original of this Contract prior
to the expiration of one hundred and twenty (120) days after
the Granting Date, then the offer herein contained shall be,
withdrawn, void and of no further force or effect.
Page 3 of 4
IN WITNESS WHEREOF, the Company has caused this Contract to be
executed by its officer hereunto duly authorized and its corporate
seal to be hereunto affixed, and the Optionee has hereunto set his
hand, as of the date and year first written above.
SHOWBIZ PIZZA TIME, INC.
(CORPORATE SEAL)
By: ------------------------------
Richard M. Frank
Chairman and Chief Executive Officer
ATTEST
- ---------------------------------
Marshall R. Fisco, Jr., Secretary
-----------------------------
Optionee Signature
Printed Name : --------------
Tax I.D. Number:-------------
Address: 4441 West Airport
Freeway
Irving, Texas 75062
Page 4 of 4
10(r)(1)
SHOWBIZ PIZZA TIME, INC.
FRANCHISE AGREEMENT
-----------------------------------------------------------------
[TERRITORY]
4441 West Airport Freeway
P.O. Box 152077
Irving, TX 75062
TABLE OF CONTENTS
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . .1
2. GRANT OF RIGHTS . . . . . . . . . . . . . . . . . . . . . .5
2.1 Grant. . . . . . . . . . . . . . . . . . . . . . . . .5
2.2 Exclusivity. . . . . . . . . . . . . . . . . . . . . .5
2.3 Limitation of Rights . . . . . . . . . . . . . . . . .5
3. FEES AND CONTRIBUTIONS. . . . . . . . . . . . . . . . . . .5
3.1 Franchise Fee. . . . . . . . . . . . . . . . . . . . .5
3.1.1 Termination prior to Site Approval . . . . .6
3.1.2 Termination after Site Approval. . . . . . .6
3.1.3 Termination after Construction . . . . . . .6
3.2 Royalty Fees . . . . . . . . . . . . . . . . . . . . .6
3.3 Entertainment Fund . . . . . . . . . . . . . . . . . .6
3.4 Advertising Fund . . . . . . . . . . . . . . . . . . .6
3.5 Payments and Taxes . . . . . . . . . . . . . . . . . .6
3.6 Overdue Payments . . . . . . . . . . . . . . . . . . .6
4. SITE SELECTION. . . . . . . . . . . . . . . . . . . . . . .7
4.1 Criteria for Site Approval . . . . . . . . . . . . . .7
4.2 Approval by Franchisor . . . . . . . . . . . . . . . .7
4.3 Costs of On-Site Evaluation. . . . . . . . . . . . . .7
4.4 Executed Lease or Purchase Agreement . . . . . . . . .7
4.5 Extensions . . . . . . . . . . . . . . . . . . . . .7
4.6 Relocation . . . . . . . . . . . . . . . . . . . . . .8
5. CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . .8
5.1 Pre-Construction Approval Criteria . . . . . . . . . .8
5.2 Pre-Construction Approval. . . . . . . . . . . . . . .9
5.3 Commencement of Construction and Extensions. . . . . .9
5.4 Construction . . . . . . . . . . . . . . . . . . . . .9
5.5 Opening Assistance . . . . . . . . . . . . . . . . . .9
5.6 Inspection . . . . . . . . . . . . . . . . . . . . . 10
5.7 Continuing Statements. . . . . . . . . . . . . . . . 10
5.8 Installation of Animated Entertainment . . . . . . . 10
5.9 Approval for Opening . . . . . . . . . . . . . . . . 10
6. TRAINING. . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Minimum Training . . . . . . . . . . . . . . . . . . 10
6.2 Location and Expenses. . . . . . . . . . . . . . . . 10
6.3 Additional Training. . . . . . . . . . . . . . . . . 11
7. OPERATION . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Operational Policies and Cornerstones. . . . . . . . 11
7.2 Suppliers. . . . . . . . . . . . . . . . . . . . . . 12
7.3 General Maintenance. . . . . . . . . . . . . . . . . 12
7.4 Maintenance of Animated Entertainment. . . . . . . . 13
7.5 Scheduled Refurbishment. . . . . . . . . . . . . . . 13
7.6 Inspection . . . . . . . . . . . . . . . . . . . . . 13
7.6.1 Testing. . . . . . . . . . . . . . . . . . 13
7.6.2 Recommendations. . . . . . . . . . . . . . 14
7.6.3 Failure to Correct Deficiencies. . . . . . 14
7.7 Accounting and Records . . . . . . . . . . . . . . . 14
7.7.1 General Accounting Principles. . . . . . . 14
7.7.2 Accounting Statements. . . . . . . . . . . 14
7.7.3 Inspection of Accounting and Records . . . 14
7.7.4 Records of Ownership Interests in Franchisee15
7.7.5 Sales Records. . . . . . . . . . . . . . . 15
8. ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . 15
8.1 General Requirements . . . . . . . . . . . . . . . . 15
8.2 Pre-approved Advertising . . . . . . . . . . . . . . 15
8.3 New Advertising. . . . . . . . . . . . . . . . . . . 16
8.4 Minimum Advertising Expenditures . . . . . . . . . . 16
8.5 Advertising and Entertainment Funds. . . . . . . . . 16
8.6 Advertising Cooperative. . . . . . . . . . . . . . . 17
9. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . 17
9.1 Representations, Warranties and Covenants of Franchisee17
9.1.1 Due Incorporation. . . . . . . . . . . . . 17
9.1.2 Authorization. . . . . . . . . . . . . . . 18
9.1.3 Execution and Performance. . . . . . . . . 18
9.1.4 Corporate Documents. . . . . . . . . . . . 18
9.1.5 Non-Competition during Term of Agreement . 18
9.1.6 Non-Competition after Termination or
Non-Renewal of Agreement. . . . . . . . .18
9.1.7 Additional Covenants . . . . . . . . . . . 19
9.1.8 Guaranty . . . . . . . . . . . . . . . . . 19
9.2 Representations, Warranties and Covenants of Franchisor . 19
9.2.1 Due Incorporation. . . . . . . . . . . . . 19
9.2.2 Authorization. . . . . . . . . . . . . . . 19
9.2.3 Execution and Performance. . . . . . . . . 19
10. PROPRIETARY RIGHTS AND INFORMATION. . . . . . . . . . . . 20
10.1 Confidential Information . . . . . . . . . . . . . . 20
10.1.1 Confidentiality Agreements . . . . . . . . 20
10.1.2 Improvements . . . . . . . . . . . . . . . 20
10.2 Proprietary Marks. . . . . . . . . . . . . . . . . . 20
10.3 Copyrights . . . . . . . . . . . . . . . . . . . . . 21
11. TRANSFER OF INTEREST. . . . . . . . . . . . . . . . . . . 22
11.1 Transfer by Franchisor . . . . . . . . . . . . . . . 22
11.2. Transfer by Franchisee. . . . . . . . . . . . . 22
11.2.1 General Requisites . . . . . . . . . . . . 22
11.2.2 Transfer involving Controlling Interest. . 23
11.3 Transfer of Interest in Franchisee. . . . . . . . . 23
11.4 Transfer upon Death. . . . . . . . . . . . . . . . . 23
11.5 Public Offerings . . . . . . . . . . . . . . . . . . 23
12. INSURANCE AND INDEMNITY . . . . . . . . . . . . . . . . . 24
12.1 Insurance. . . . . . . . . . . . . . . . . . . . . . 24
12.2 Insurance Prior to Commencement. . . . . . . . . . . 24
12.3 Indemnities. . . . . . . . . . . . . . . . . . . . . 25
12.2.1 Indemnification. . . . . . . . . . . . . . . 25
12.2.2. Notice and Counsel . . . . . . . . . . . . 26
12.2.3 Settlement and Remedial Actions. . . . . . 26
12.2.4 Expenses . . . . . . . . . . . . . . . . . 26
12.2.5 Third Party Recovery . . . . . . . . . . . 26
12.2.6 Survival . . . . . . . . . . . . . . . . . 26
13. TERM, RENEWAL AND TERMINATION . . . . . . . . . . . . . . 27
13.1 Term . . . . . . . . . . . . . . . . . . . . . . . . 27
13.2 Renewal. . . . . . . . . . . . . . . . . . . . . . . 27
13.3 Termination. . . . . . . . . . . . . . . . . . . . . 27
13.3.1 Termination without Notice . . . . . . . . 27
13.3.2 Termination with Ten Day Notice. . . . . . 28
13.3.3 Termination with Thirty Day Notice . . . 28
13.4 Obligations upon Termination or Expiration . . . . . 28
13.5 Option to Purchase . . . . . . . . . . . . . . . . . 29
14. REMEDIES AND LIQUIDATED DAMAGES . . . . . . . . . . . . . 30
14.1 Remedies . . . . . . . . . . . . . . . . . . . . . . 30
14.1.1 Cure . . . . . . . . . . . . . . . . . . . 30
14.1.2 Specific Enforcement . . . . . . . . . . . 30
14.2 Liquidated Damages . . . . . . . . . . . . . . . . . 30
15. DUE DILIGENCE AND ASSUMPTION OF RISK. . . . . . . . . . . 30
16. DISPUTE RESOLUTION. . . . . . . . . . . . . . . . . . . . 31
16.1 Mediation. . . . . . . . . . . . . . . . . . . . . . 31
16.2 Applicable Law . . . . . . . . . . . . . . . . . . . 31
16.3 Jurisdiction and Venue . . . . . . . . . . . . . . . 31
17. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 32
17.1 Independent Contractors. . . . . . . . . . . . . . . 32
17.2 Entire Agreement . . . . . . . . . . . . . . . . . . 32
17.3 No Waiver. . . . . . . . . . . . . . . . . . . . . . 32
17.4 Severability . . . . . . . . . . . . . . . . . . . . 32
17.5 Notice . . . . . . . . . . . . . . . . . . . . . . . 32
17.6 Counterparts . . . . . . . . . . . . . . . . . . . . 33
17.7 Headings . . . . . . . . . . . . . . . . . . . . . . 33
17.8 Further Assurances . . . . . . . . . . . . . . . . . 33
17.9 Compliance with Laws . . . . . . . . . . . . . . . . 33
Schedule 1.15 - Schedule of Franchisee's Principals. . . . . . 37
Attachment A - Cornerstones. . . . . . . . . . . . . . . . . . 38
Attachment B - Operational Policies. . . . . . . . . . . . . . 39
Attachment C - Site Approval Form. . . . . . . . . . . . . . . 40
Attachment D - Lease Rider . . . . . . . . . . . . . . . . . . 41
Attachment E - Advertising Cooperative Agreement . . . . . . . 42
Attachment F - Guaranty Agreement. . . . . . . . . . . . . . . 43
Attachment G - Principal's Confidentiality Agreement . . . . . 44
Attachment H - Employee's Confidentiality Agreement. . . . . . 45
SHOWBIZ PIZZA TIME, INC.
FRANCHISE AGREEMENT
This Franchise Agreement is entered into this ------- of -----1997,
by and between ShowBiz Pizza Time, Inc., a Kansas
corporation ("Franchisor"), and ------------ a ----------
corporation ("Franchisee").
RECITALS
1. Franchisor has developed and is the owner of a System for the
establishment, development and operation of family-oriented pizza
restaurants;
2. Franchisor has developed and is the owner of, or licensee with
rights to sublicense, certain Animated Entertainment and
Proprietary Marks which are utilized in connection with and
identify the System;
3. Franchisee desires to obtain from Franchisor certain rights to
use the System, the Animated Entertainment and the Proprietary
Marks to develop and establish a Franchised Restaurant at the Site;
and
4. Franchisor desires like to grant to Franchisee certain rights
to use the System, the Animated Entertainment and the Proprietary
Marks to develop and establish a Franchised Restaurants at the
Site.
NOW THEREFORE, Franchisor and Franchisee in consideration of the
undertakings and commitments set forth herein, agree as follows:
1. DEFINITIONS
As used in this Agreement and the above Recitals, the
following capitalized terms shall have the meanings attributed to
them in this Section:
1.1 "Action" means any cause of action, suit, proceeding, claim,
demand, investigation or inquiry (whether a formal proceeding or
otherwise) with respect to which Franchisee's indemnity applies.
1.2 "Advertising Cooperative" means a group of two or more
Franchised Restaurants, as determined by Franchisor, for the
purpose of funding, administering and developing regional
advertising and promotion programs.
1.3 "Advertising Fund" means the fund to which Franchisee will
contribute a stated percentage of Gross Sales on a monthly basis
and which will be administered by the Association for the
maintenance, administration, direction and preparation of
advertising for the System, Proprietary Marks and Animated
Entertainment as more fully discussed in Sections 3.4 and 8.5.
1.4 "Agreement" means this Franchise Agreement and all
attachments.
1.5 "Animated Entertainment" means the computer hardware and
software, artistic designs, scripts and musical scores, staging and
lighting techniques and configurations, plans, manuals and
specifications, manufacturing know-how and other intellectual
property relating to video display entertainment and to three
dimensional computer controlled animated characters, including
present and future improvements, patents, trademarks, copyrights
and other intellectual and artistic property.
1.6 "Area of Dominant Influence" means the geographic area which
includes the Protected Territory and an additional ------(----)
mile zone extending from the boundaries of the Protected Territory.
1.7 "Association" means the International Association of ShowBiz
Pizza Time Restaurants, Inc. which will administer the
Entertainment Fund and the Advertising Fund, in accordance with the
Association's bylaws and this Agreement and to which Franchisee
will have the right to be a member so long as Franchisee is in
compliance with this Agreement and the Association's bylaws.
1.8 "Change in Control" means a Transfer of an Equity Interest in
Franchisee which, directly or indirectly, causes a change in the
number of Persons which can vote more than fifty percent (50%) of
the total Equity Interests in Franchisee.
1.9 "Competing Business" means a business which operates a
restaurant or food service outlet in combination with entertainment
in the form of video games, video displays or computer controlled
animated characters.
1.10 "Confidential Information" means the terms of this
Franchise Agreement and Attachments and any amendments hereto, the
System, the Animated Entertainment, the Operational Policies,
Cornerstones, manuals, written directives and all drawings,
equipment, recipes, and all other information know-how, techniques,
materials and data imparted or made available by Franchisor to
Franchisee which is (i) designated as confidential, (ii) known by
Franchisee to be considered confidential by Franchisor, or (iii) by
its nature inherently or reasonably to be considered confidential.
1.11"Cornerstones" means the general principals and guidelines
under which the Franchisee agrees to establish and operate the
Franchised Restaurant, as such principles and guidelines reasonably
modified from time to time by Franchisor in order to improve the
quality and efficiency of the operation of the System and the
Franchised Restaurant. A copy of the current version of the
Cornerstones is attached as Attachment A hereto.
1.12 "Entertainment Fund" means the fund to which Franchisee will
contribute a monthly basis and to be administered by the
Association for the purchase, lease, shipping and installation of
software programs and new hardware for Animated Entertainment
including the cost of shipping and installation as more fully
described in Section 3.3 and 8.5.
1.13 "Equity Interest" means a direct or indirect ownership
interest in the capital stock of, partnership or membership
interest in, or other equity or ownership interest in (including
the right to vote) any type of legal entity.
1.14 "Execution Date" means the date upon which a Franchise
Agreement is duly executed between a franchisee and Franchisor.
1.15 "Franchisee" means -------------------------------------.
1.16 "Franchisee's Principals" means Franchisee's spouse, if
Franchisee is an individual, all officers and directors of
Franchisee and all holders of an ownership interest in Franchisee
and of any entity directly or indirectly controlling Franchisee,
all as listed ion Schedule 1.7 attached hereto..
1.17 "Franchised Restaurant" means the family-oriented pizza
restaurant that is established and operated by Franchisee utilizing
the System, the Proprietary Marks and the Animated Entertainment in
accordance with the terms and conditions of this Agreement.
1.18 "Franchisor" means ShowBiz Pizza Time, Inc. or any person or
legal entity to which ShowBiz Pizza Time, Inc. assigns or otherwise
transfers its rights and obligations contained in this Agreement.
1.19 "Gross Sales" means the total of all sales (not including
taxes collected) related to or arising from the operation of the
Franchised Restaurant including, without limitation, all monies and
receipts from the sale of all beverages, food, merchandise and the
operation of rides, amusement games and other attractions in the
Franchised Restaurant, as well as all revenue from the sale of
tokens.
1.20 "Indemnitees" means the Association, Franchisor and its
subsidiaries and affiliates and their respective directors,
officers, employees, shareholders, affiliates, successors and
assigns.
1.21 "Losses and Expenses" means compensatory, exemplary or
punitive damages, fines, penalties, charges, assessments and fees
(including reasonable attorneys', experts', accountants' and
consultants' fees); interest, court costs, settlement or judgment
amounts and other similar amounts incurred, charged against or
suffered by the Indemnitees in connection with any Action.
1.22 "Media Fee" means a monthly contribution by Franchisee to the
Advertising Fund as more fully discussed in Section 3.4 and 8.5 of
this Agreement, the proceeds of which will be used exclusively by
the Association for the purpose of purchasing national network
television advertising.
1.23 "Minority Interest" means a direct or indirect ownership
interest of less than five percent (5%) of the capital stock of,
partnership interest in, or other equity interest in (including the
right to vote) any type of legal entity.
1.24 "Operational," used in reference to the Franchised Restaurant,
means that the Franchised Restaurant that is fully constructed and
finished out as approved by Franchisor and is legally permitted to
render its services to, and is open to, the general public pursuant
to this Agreement.
1.25 "Operational Policies" means the written standards,
procedures, rules, regulations, and policies for the operation of
a Franchised Restaurant pursuant to the System, as issued from time
to time by Franchisor, the current version of which is attached as
Attachment B hereto.
1.26 "Person" means an individual, corporation, limited liability
company, partnership, association, joint stock company, trust or
trustee thereof, estate or executor thereof, unincorporated
organization or joint venture, court or governmental unit or any
agency or subdivision thereof, or any other legally recognizable
entity.
1.27 "Proprietary Marks" means the trademarks, trade names, service
marks, logos, emblems and other indicia of origin as designated
from time to time by Franchisor, which may be owned by Franchisor
or licensed to Franchisor with sublicensing rights, including, but
not limited to, the marks: "Chuck E. Cheese" and "ShowBiz Pizza
Time".
1.28 "Protected Territory" means ------------ in which the
Franchisor, so long as Franchisee complies with this Agreement,
agrees not to establish or operate other Franchised Restaurants.
1.29 "Site" means the location for the establishment and operation
of the Franchised Restaurant which is approved as per Section 4.2
of this Agreement.
1.30 "System" means the unique system developed and owned by
Franchisor for the establishment, development, and operation of
family-oriented pizza restaurants, the distinguishing
characteristics of which include without limitation, Animated
Entertainment; separate areas with a variety of rides, amusement
games and other attractions; characteristic decorations,
furnishings and materials; specially-designed equipment and
equipment layouts; trade secret food products and other special
recipes, menus and food and beverage designations; food and
beverage preparation and service procedures and techniques;
operating procedures for sanitation and maintenance; methods and
techniques for inventory and cost controls, record keeping and
reporting, personnel training and management, and advertising and
promotional programs; Cornerstones; and Operational Policies; all
of which may be changed, improved or further developed by
Franchisor from time to time.
1.31 "Transfer" means the sale, assignment, conveyance, pledge,
gift, mortgage or other encumbrance, whether direct or indirect, in
whole or in part, or in one or a series of related transactions or
occurrences, of this (i) Agreement or of any or all rights or
obligations of herein, (ii) any Equity Interests in Franchisee, or
(iii) in the assets of Franchisee.
2. GRANT OF RIGHTS
2.1 Grant Franchisor hereby grants to Franchisee the right, and
Franchisee undertakes the obligation, pursuant to the terms and
conditions of this Agreement, to establish and operate the
Franchised Restaurant at duly approved Site in the Protected
Territory.
2.2 Exclusivity For so long as Franchisee is in full compliance
with this Agreement , Franchisor will not, without Franchisee's
prior written consent, establish or operate, or license anyone
other than Franchisee to establish or operate, a Franchised
Restaurant(s) in the Protected Territory during the term of this
Agreement.
2.3 Limitation of Rights Notwithstanding the provision of
Section 2.2, Franchisor reserves the right to sell, market, and
distribute goods and services, without obtaining the prior approval
of Developer, under any marks (including the Proprietary Marks)
through any retail, wholesale, or other channel of distribution,
regardless of whether the goods or services are: (i) now existing
or hereinafter developed; (ii) part of the System; or (iii) now or
at any time hereafter authorized for use or sale at any Franchised
Restaurant.
Franchisee shall have no right under this Agreement to sub-license
others to use or grant any rights in the Proprietary Marks,
the Animated Entertainment or the System.
3. FEES AND CONTRIBUTIONS
3.1 Franchise Fee Prior to or upon the execution of this
Agreement, Franchisee shall deliver a franchise fee of Sixty Five
Thousand Dollars (US$65,000.00) in readily available funds. In the
event that this Agreement is terminated by Franchisor due to a
default of Franchisee, upon Franchisor's receipt of written
acknowledgment of termination from Franchisee (including a waiver
of claims against Franchisor and a continuing confidentiality and
noncompetition undertaking as set forth herein), Franchisor and
Franchisee agree to observe the following:
3.1.1 Termination prior to Site Approval Franchisor will
refund eighty percent (80%) of the Franchise Fee if the Agreement
is terminated prior to Site approval in accordance with Section
4.2.
3.1.2 Termination after Site Approval Franchisor will
refund fifty percent (50%) of the franchisee fee after the Site has
been approved but prior to commencement of construction of the
Franchised Restaurant.
3.1.3 Termination after Construction After construction
of the Franchised Restaurant commences, both Franchisor and
Franchisee agree that the franchise fee will be fully earned by
Franchisor and nonrefundable.
3.2 Royalty Fees Beginning the calendar month in which the
Franchised Restaurant is Operational, on or before the fifteenth
(15th) day of each calendar month thereafter, Franchisee agrees to
pay a continuing monthly royalty fee equal to [five percent (5%)]
of the Gross Sales for the immediately preceding calendar month.
3.3 Entertainment Fund Beginning the calendar month in which the
Franchised Restaurant is Operational, on or before the fifteenth
(15th) day of each calendar month thereafter, Franchisee agrees to
contribute to the Entertainment Fund a continuing monthly
contribution equal to four tenths of one percent (.4%) of the Gross
Sales for the immediately preceding calendar month.
3.4 Advertising Fund Beginning the calendar month in which the
Franchised Restaurant is Operational, on or before the fifteenth
(15th) day of each calendar month thereafter, Franchisee agrees to
contribute to the Advertising Fund a continuing monthly
contribution equal to four tenths of one percent (.4%) of the Gross
Sales for the previous calendar month.
Franchisee also agrees to contribute to the Advertising Fund
a continuing monthly Media Fee equal to one percent (1%) of the
Gross Sales for the previous calendar month to be used exclusively
for the purchase of national network television advertising.
3.5 Payments and Taxes All franchise and royalty fees shall be
paid directly to Franchisor or its designee. All contributions to
the Entertainment Fund and Advertising Fund shall be made directly
to the Association unless the Association directs Franchisee
otherwise. All payments and contributions shall be in United
States dollars and will be made free and clear of any tax,
deduction, offset or withholding of any kind. All taxes and
penalties on any payment made by Franchisee pursuant to this
Agreement now or in the future will be fully borne by Franchisee.
3.6 Overdue Payments Any payment not actually received by
Franchisor or its designee when due shall accrue late charges equal
to one and one-half percent (1.5%) per month or the maximum rate
permitted by law, whichever is less from the date it was due until
paid. Such interest charges will be in addition to any other
remedies that may be available to Franchisor.
4. SITE SELECTION
4.1 Criteria for Site Approval Franchisor agrees that prior to or
within one hundred and twenty (120) days after the execution of
a Franchise Agreement, it will locate and obtain the approval of
Franchisor for a Site within the Protected Territory for the
establishment and operation of the Franchised Restaurant.
To qualify for approval, Franchisee must submit to Franchisor:
(a) a completed site review form substantially in the form of
Attachment C.
(b) if the premises for the proposed Site are to be leased,
satisfactory evidence that the lessor will agree to the minimum
requirements contained in the Lease Rider to be executed between
Franchisor, Franchisee and the lessor attached hereto as Attachment
D; and
(c) any other information or materials as Franchisor
reasonably requires, such as a letter of intent or other document
which confirms Franchisee's favorable prospects for obtaining the
proposed Site.
4.2 Approval by Franchisor Upon receipt of all requested
documentation as required in Section 4.1, Franchisor will notify
Franchisee of its approval or disapproval in writing within a
period of 30 (thirty) days from Franchisor's receipt of the
complete information requested. Franchisor agrees that it will act
in a commercially reasonable manner when approving or disapproving
any proposed Site. However, Franchisee agrees that Franchisor will
have absolute discretion in approving any proposed Site and
Franchisee agrees to accept any of Franchisor's decisions as final.
Franchisee hereby acknowledges and agrees that Franchisor's
approval of a site does not constitute an assurance, representation
or warranty of any kind, express or implied, as to the suitability
of the Site for the Franchised Restaurant or for any other purpose
or of the financial success of operating the Franchised Restaurant
at such Site.
4.3 Costs of On-Site Evaluation If necessary, Franchisor will
undertake for Franchisee one (1) on-site evaluation of a proposed
Site free of charge. For all subsequent on-site evaluations,
Franchisee agrees to re-imburse Franchisor for its reasonable
expenses, including, without limitation, travel expenses and a per
diem charge for room and board.
4.4 Executed Lease or Purchase Agreement Franchisee will provide
Franchisor with a fully executed copy of the lease or purchase
agreement with respect to the approved Site within ten (10) days
after execution thereof.
4.5 Extensions Franchisor, at its sole discretion and without
obligation, may grant a written extension or extensions to the
period for approval of a proposed Site. In the event Franchisor
grants an extension, Franchise agrees to pay the Franchisor a non-
refundable extension fee of US ---------- (--------) for every
seven (7) day period of the agreed extension.
4.6 Relocation Once the Franchised Restaurant is established at
the proposed Site in accordance with this Agreement, Franchisee may
relocate the Franchise Restaurant only upon the prior written
consent of Franchisor. Franchisor will not unreasonably withhold
its approval of such relocation if: (i) Franchisee has provided
Franchisor with at least ninety (90) days prior written notice of
its intent to relocate; (ii) Franchisee is not in default under
this Agreement; (iii) Franchisee has paid a relocation fee in an
amount equal to fifty (50%) of the then-current initial franchise
fee for a new franchisee; (iv) the new location is within the
Protected Territory; and (v) Franchisee agrees to execute the then-
current form of the Franchise Agreement. The Franchisee will
receive written notification of Franchisor's decision regarding
relocation of the Franchised Restaurant. Upon approval by
Franchisor, Franchisee must relocate the Franchised Restaurant
within one hundred and eighty (180) days.
5. CONSTRUCTION
5.1 Pre-Construction Approval Criteria Prior to commencing
construction on the Site, Franchisor shall provide Franchisee, with
plans and specifications for a standard Franchised Restaurant as
well as a floor plan for the Site. Franchisee, at its own cost,
shall submit to Franchisor for its prior written approval:
(a) Complete plans and specifications which adapt the
Franchisor's standard plans and specifications for a Franchised
Restaurant in accordance with local or state laws, regulations or
ordinances, and which conform to Franchisor's floor plan for the
Site. Once approved by Franchisor pursuant to Section 5.2 below,
such plans and specifications shall not be modified without the
prior written consent of Franchisor;
(b) A statement in the form prescribed by Franchisor and
signed by Franchisee, certifying that Franchisee has:
i. complied with all local or state laws,
regulations or ordinances in preparing its plans and
specifications.
ii. employed a qualified architect or engineer to
prepare construction documents and supervise the construction of
the Franchised Restaurant and completion of all improvements (such
statement shall also identify the architect or engineer and
describe his qualifications in detail);
iii. obtained all such permits and certifications
required for lawful construction and operation of the Franchised
Restaurant, including, without limitation, zoning, access, sign and
fire requirements; and
iv. obtained required licenses to sell beer and/or
wine, unless otherwise prohibited, and to operate rides, amusement
games and other attractions as required herein.
(c) A construction schedule acceptable to Franchisor.
5.2 Pre-Construction Approval Upon receipt of the above
documents, Franchisor will notify Franchisee of its approval or
disapproval in writing within a period of --------- (----) days.
Franchisor agrees that it will act reasonably in approving or
disapproving any plans, specifications, statements and schedules.
However, given that the construction and appearance of Franchise
Restaurants is critical to the continued success and viability of
the System, Franchisee agrees that Franchisor will have absolute
discretion in making such decision and Franchisee agrees to accept
any of Franchisor's decisions as final.
5.3 Commencement of Construction and Extensions Once the pre-construction
approval has been obtained and within six (6) months
from the date of execution of this Agreement, Franchisee will
commence construction and provide Franchisor with written notice of
such commencement within ------ (----) days of such commencement of
construction.
Franchisor, at its sole discretion and without obligation, may
grant to Franchisee written extensions of this six (6) month period
with the understanding that, if granted, Franchisee shall pay to
Franchisor a non-refundable extension fee of Two Thousand Five
Hundred Dollars ($2,500) for each thirty (30) day period of
extension.
5.4 Construction Franchisee shall complete construction,
including all exterior and interior carpentry, electrical, painting
and finishing work, and installation of all fixtures, equipment and
signs, in accordance with the plans and specifications for the
approved Site within:
(a) six (6) months of commencement of construction if the
construction is a space conversion of existing premises, or
(b) twelve (12) months of commencement of construction if the
construction is the erection of a free-standing building.
Franchisor, at its sole discretion and without obligation, may
extend these periods in writing and pursuant to the terms and
conditions imposed by Franchisor as consideration for granting such
extension.
5.5 Opening Assistance. Franchisor shall provide one (1)
representative to provide on-site opening assistance and
supervision for a period of seven (7) to ten (10) days, at no
charge to Franchisee, if Franchisee requires any additional opening
assistance, Franchisor reserves the right to charge an additional
fee for such assistance, in addition to obtaining reimbursement
from related travel, meals and lodging expenses.
5.6 Inspection Franchisee agrees that Franchisor and its agents
shall have the right to inspect the construction at all reasonable
times.
5.7 Continuing Statements Beginning with the calendar month offer
the pre-construction approval issued by Franchisor and each
calendar month thereafter until one (1) calendar month the
Franchised Restaurant is Operational, Franchisee shall provide
Franchisor, on or before the first Monday of each such month, with
a statement in the form prescribed by Franchisor and signed by
Franchisee, certifying Franchisee's continued compliance with and
maintenance of the requirements of Section 5.1 (b).
5.8 Installation of Animated Entertainment No later than one
hundred fifty (150) days prior to the anticipated date of
completion of construction of the Franchised Restaurant, Franchisee
shall order the Animated Entertainment and related components
specified by Franchisor from the supplier or suppliers designated
by Franchisor. All payment terms for the Animated Entertainment
shall be agreed to between Franchisee and respective suppliers.
Franchisor shall not have any liability to Franchisee for
delivery or the condition of the Animated Entertainment ordered
from the supplier or suppliers designated by Franchisor.
After delivery of the Animated Entertainment and preparation
for installation of the Animated Entertainment by Franchisee,
Franchisor will provide a technician to install the Animated
Entertainment. If the technician is required for more than ten
(10) days, the Franchisee will pay Franchisor a fee of --------
(------) per day and shall reimburse Franchisor for additional actual
air travel expenses and a per diem charge for room and board.
Franchisor and Franchisee shall agree upon the date for
installation.
5.9 Approval for Opening Once construction is completed and
within ------- (----) days of obtaining Franchisor's written
approval for opening, Franchisee shall open the Franchised
Restaurant to the public.
6. TRAINING
6.1 Minimum Training. Franchisee shall at all times employ at
least one general manager for the Franchised Restaurant and one
technician for the maintenance of the Animated Entertainment.
Prior to rendering their services, both the general manager and
technician shall attend and complete, to Franchisor's satisfaction,
initial training conducted by Franchisor.
6.2 Location and Expenses. Franchisor will not charge Franchisee
any fee for the training of Franchisee's first restaurant general
manager and technician. Franchisor reserves the right to charge a
reasonable fee to Franchisee for any additional required or
optional training and training for subsequent general managers,
managers and technicians. All training shall be provided at such
location as Franchisor may designate and Franchisee shall be
responsible for Franchisee's employees' travel expenses and room,
board and wages during such training.
6.3 Additional Training. Franchisor may periodically make other
mandatory or optional training available to Franchisee's employees,
as well as other programs, seminars and materials, and Franchisee
shall ensure that all employees, as Franchisor may direct,
satisfactorily complete any required training within the time
specified.
7. OPERATION
7.1 Operational Policies and Cornerstones. Franchisee acknowledges
that every detail of the Franchised Restaurant is important to
Franchisee, Franchisor and other franchisees in order to develop
and maintain the high standards and public image of the System, to
increase the demand for the products and services sold by all
franchisees under the System, and to protect Franchisor's
reputation and goodwill. As such, Franchisee agrees to:
(a) Operate the Franchised Restaurant in accordance with the
Operational Policies and Cornerstones to ensure that the highest
degree of quality and service is uniformly maintained. If amended
or modified by Franchisor, Franchisee agrees that it will fully
implement Franchisor's amended Cornerstones and Operational
Policies within a period of ----- (-----) months after receipt of
notice of such amendment or modification;
(b) Devote the requisite time, energy and best efforts to the
management and operation of the Franchised Restaurant;
(c) Use, prepare, maintain in sufficient supply and offer for
sale only such products, materials, ingredients, supplies and paper
goods as conform with Franchisor's standards and specifications;
(d) Sell or offer for sale only such products and menu items
as meet Franchisor's uniform standards of quality and quantity, as
have been expressly approved for sale in writing by Franchisor, and
as have been prepared in accordance with Franchisor's methods and
techniques;
(e) Use at the Franchised Restaurant only such menus and
animated character costumes which comply with the style, pattern
and design prescribed by Franchisor;
(f) Purchase and install, at Franchisee's expense, all
fixtures, furnishings, signs, and equipment (including, without
limitation, video display software which must be updated from time
to time, point-of-sale computer hardware and software control
systems, and a telephone modem) as Franchisor may reasonably direct
from time to time in the Operational Policies or otherwise in
writing;
(g) Employ security officers if necessary for secure
operation of the Franchised Restaurant;
(h) Employ at least the minimum number of other employees as
may be prescribed by Franchisor and to comply with all applicable
federal, state and local laws, rules and regulations with respect
to such employees;
(i) Cause all employees to wear uniforms of the color,
style, and design prescribed by Franchisor;
(j) Make daily and regular use of a Chuck E. Cheese walk-around
character costume and all other animated character costumes
designated by Franchisor and to maintain such costumes in good
condition, as provided in the Operational Policies;
(k) Use the Site only for the operation of the Franchised
Restaurant as well as keep and maintain the Franchised Restaurant
open and operational for the minimum number of hours and days as
reasonably required by Franchisor;
(l) Meet and maintain the highest health standards and
ratings applicable to the operation of the Franchised Restaurant;
and
(m) Purchase or Lease and maintain the minimum number and
type of rides, amusement games and other attractions required by
Franchisor, in the understanding that Franchisee is prohibited from
leasing any of the foregoing on a "shared revenue" or "coin
sharing" basis.
7.2 Suppliers Franchisee shall purchase all equipment, supplies
and other products and materials (including animated character
costumes) required for the operation of the Franchised Restaurant
solely from suppliers approved in writing by Franchisor. To
qualify for approval, such suppliers should (i) demonstrate the
ability to meet Franchisor's reasonable standards and
specifications for such items, and (ii) possess adequate quality
controls and capacity to supply Franchisee's needs promptly and
reliably.
Franchisor shall have the right to require that its
representatives be permitted to inspect the supplier's facilities
and that samples from the supplier be delivered, at Franchisor's
option, either to Franchisor or to an independent, certified
laboratory designated by Franchisor for testing. A charge not to
exceed the reasonable cost of the inspection and the actual cost of
the test shall be paid by Franchisee or the supplier to Franchisor.
Franchisor reserves the right, at its option, to re-inspect the
facilities and products of any such approved supplier and to revoke
its approval upon the supplier's failure to continue to meet, in
Franchisor's discretion, any of Franchisor's criteria.
7.3 General Maintenance Franchisee shall at all times maintain
the Franchised Restaurant in the highest degree of sanitation,
repair and condition. Nevertheless, within three (3) months after
receipt of notice from Franchisor, Franchisee agrees to make any
additions, alterations repairs and replacements that Franchisor
reasonably requires for that purpose, including, without
limitation, such periodic repainting, equipment repairs and
replacement of obsolete signs, games, rides, equipment, and floor
coverings (including carpet and tile) as Franchisor may reasonably
direct.
7.4 Maintenance of Animated Entertainment Franchisee shall at all
times maintain the Animated Entertainment and its components in
good repair and working order. Franchisee shall also assist in the
installation of all retrofits and replacements to the Animated
Entertainment components which are required by Franchisor and paid
for out of the Entertainment Fund. Franchisee shall relinquish and
deliver to the Entertainment Fund title and possession of any
existing components which are replaced by the Fund, and all such
replacements shall become the property of Franchisee.
7.5 Scheduled Refurbishment Commencing on January 1 of the second
calendar year following the opening of the Franchised Restaurant,
Franchisee, at its own expense, shall upgrade and refurbish the
Franchised Restaurant annually. Such upgrades and refurbishment
include, without limitation, those necessary to conform to the
building decor, floor plan, trade dress, exterior signage and
decor, color schemes, rides, amusement games and other attractions,
food and beverage service, and presentation of trademarks and
service marks consistent with the public image then prevailing in
the latest of upgraded System restaurants operated by Franchisor.
The amount expended for such upgrades and/or refurbishments shall
be at least the lesser of:
(a) Fifty Thousand Dollars ($50,000), or
(b) Four percent (4%) of the Gross Sales of the Franchised
Restaurant during the prior calendar year.
Each such upgrade and refurbishment shall be completed by
Franchisee on or before June 30 of each respective year.
Franchisee shall provide to Franchisor, on or before June 30 of
each such year, such reports, records, receipts and other
information as Franchisor may request evidencing Franchisee's
compliance with this requirement.
Franchisor may, in its sole discretion, defer in writing all
or any portion of Franchisee's obligations to upgrade or refurbish
the Franchised Restaurant.
7.6 Inspection Franchisee agrees to permit Franchisor or its
agents, at any reasonable time, access to the Franchised Restaurant
to conduct inspections to ensure compliance with Franchisor's then-current
standards and specifications.
7.6.1 Testing In conducting its inspections, Franchisor
will have the right to obtain samples of any inventory items
without payment therefor, in amounts reasonably necessary for
testing by Franchisor or an independent certified laboratory to
determine whether said samples meet Franchisor's then-current
standards and specifications. Franchisor may require Franchisee to
bear the cost of such testing if the item or supplier of the item
has not previously been approved by Franchisor or if the sample
fails to conform to Franchisor's specifications.
7.6.2 Recommendations Franchisee acknowledges that
Franchisor or its agents will have the authority to make immediate
recommendations and resolutions to correct any deficiencies
detected during such inspections (including ceasing of the use of
the non-conforming equipment, advertising materials, products or
supplies).
7.6.3 Failure to Correct Deficiencies In the event
Franchisee fails or refuses to implement recommendations or
resolutions, Franchisor shall have the right to enter upon the
Franchised Restaurant premises for the purpose of making or causing
to be made such corrections as may be required, with all costs to
be paid by Franchisee.
7.7 Accounting and Records
7.7.1 General Accounting Principles Franchisee shall
maintain for at least five (5) years from the dates of preparation,
full, complete and accurate books, records and accounts in
accordance with generally-accepted accounting principles and in the
form and manner prescribed by Franchisor from time to time in the
Operational Policies or otherwise in writing.
7.7.2 Accounting Statements In addition to the general
accounting requirements, at Franchisee's cost, Franchisee shall
submit to Franchisor:
(a) Unaudited quarterly profit and loss statements (in the
form prescribed by Franchisor and showing the sources of all income
and the amount expended each month during the period on local
advertising) and balance sheet within forty five (45) days of the
end of each fiscal quarter during the term hereof; and
(b) Unaudited annual statements, as well as a schedule of
capital expenditures and a schedule of advertising expenditures,
within ninety (90) days of the end of each fiscal year during the
term hereof.
7.7.3 Inspection of Accounting and Records. Franchisor or
its representatives (including independent auditors, attorneys or
agents) shall have the right at all reasonable times to examine,
copy (and to remove and return the materials to be copied from the
premises on which they are located), at Franchisor's expense, the
books, records, and tax returns of Franchisee.
If an inspection should reveal that payments have been
understated in any report to Franchisor, then Franchisee shall
immediately pay to Franchisor the amount understated upon demand,
in addition to interest from the date such amount was due until
paid, at one and one-half percent (1.5%) per month or the maximum
rate permitted by law, whichever is less.
Notwithstanding the foregoing, if an inspection discloses
an understatement in any report of two percent (2%) or more,
Franchisee shall reimburse Franchisor for any and all costs and
expenses connected with the inspection (including, without
limitation, reasonable accounting and attorneys' fees). The
foregoing remedies shall be in addition to any other remedies
Franchisor may have, including, without limitation, the remedies
for default.
7.7.4 Records of Ownership Interests in Franchisee During
the term of this Agreement, within ninety (90) days after the end
of the Franchisee's fiscal year, Franchisee shall provide
Franchisor a list of all Persons owning an Equity Interest in the
Franchisee; provided, however, that if Franchisee's shares are
publicly traded on a nationally recognized stock exchange, the list
of shareholders required shall include only those owning five
percent (5%) or more of the shares outstanding.
7.7.5 Sales Records. Franchisee shall record all food,
beverage and token sales on cash registers or other machines
approved by Franchisor, which shall contain devices or systems that
will record accumulated sales and provide such other information
and reports as Franchisor may prescribe.
Within eighteen (18) months after receipt of written
notification from Franchisor, Franchisee shall install at the
Franchised Restaurant as designated by Franchisor, such point-of-sale
computer hardware and software control systems and telephone
modems as prescribed by Franchisor. Franchisee will enter into
software license agreements as designated by Franchisor for such
purposes.
Franchisee shall permit Franchisor to access such systems
by telephone at all reasonable times for the purpose of inspecting,
monitoring and retrieving information concerning the operation of
the Franchised Restaurant. Franchisor shall have telephone access
as provided herein at such times, and in such manner as Franchisor
shall from time to time specify.
8. ADVERTISING
8.1 General Requirements Recognizing the importance of the
standardization of advertising programs to the furtherance of the
goodwill and public image of the System, the Franchisor and
Franchisee agree that all advertising by Franchisee shall be
conducted in a commercially acceptable manner and shall conform to
such standards and requirements as Franchisor may specify from time
to time in writing.
8.2 Pre-approved Advertising Franchisor may offer from time to
time to provide, upon Franchisee's request and at Franchisee's
expense, approved local advertising and promotional plans and
materials, including, without limitation, newspaper slicks,
promotional leaflets and coupons. Television commercials and other
advertising material are periodically produced through the
Advertising Fund and are available for use by each Franchisee.
8.3 New Advertising Samples of all planned advertising, not
previously approved by Franchisor, must be submitted to Franchisor
(through the mail, return receipt requested), for Franchisor's
prior approval. Upon receipt of such planned advertising,
Franchisor will notify Franchisee no later than fifteen (15) days
after receipt of the proposed advertising whether such advertising
has been approved, with no response being understood as approval.
8.4 Minimum Advertising Expenditures Franchisee shall spend a
monthly a minimum of three percent (3.0%) of the Gross Sales of the
Franchised Restaurant for local advertising and promotion in
Franchisee's Area of Dominant Influence at least two-thirds (2/3)
of which amount shall be spent for television advertising or
advertising in some other media approved by Franchisor.
[During the term of this Agreement, Franchisor may, upon
ninety (90) days prior notice to Franchisee, increase the minimum
expenditure amount to an amount not to exceed 5.0% of the Gross
Sales of the Franchised Restaurant.]
The minimum expenditure amount will be reduced by an amount
equal to Franchisee's contributions to: (i) an Advertising
Cooperative, and (ii) the Media Fee while the Media Fee remains in
effect.
8.5 Advertising and Entertainment Funds Franchisee and Franchisor
agree that the Association or its designee shall maintain and
administer an Advertising Fund and Entertainment Fund in accordance
with the Association's bylaws. However, the Association and the
administration of the Funds will have the following
characteristics:
(a) Franchisee will have the right to be a voting member of
the Association if it is in compliance with this Agreement and the
Association's bylaws;
(b) Except for the Media Fees which will be used as
discussed in Section 8.5(c), the Advertising Fund shall be used
exclusively to meet any and all costs of maintaining,
administering, directing and preparing any type of advertising
campaign and other public relations activities;
(c) The Media Fees which are contributed to the
Advertising Fund shall only be used to purchase national network
television advertising;
(d) The Entertainment Fund shall be used to purchase or lease
software programs and new hardware for Animated Entertainment for
all System restaurants, including the cost of shipping and
installation. The Entertainment Fund may also be used to design,
test and implement new entertainment concepts which may not be
directly related to the current Animated Entertainment;
(e) All sums paid by Franchisee to the Advertising and
Entertainment Fund shall be deposited in accounts with financial
institutions maintained by the Association, separate from funds of
Franchisor and shall not be used to pay for any of Franchisor's
general operating expenses, except for such reasonable
administrative costs and overhead, if any, as Franchisor may incur
from time to time related to the administration or direction of the
Advertising Fund and Entertainment Fund, including, without
limitation, conducting market research, preparing marketing and
advertising materials, negotiating purchase and lease contracts and
collecting and accounting for assessments for the Advertising and
Entertainment Funds;
(f) Excess amounts remaining in the Advertising and
Entertainment Funds at the end of any taxable year, shall be
applied to expenditures in the following taxable year(s);
(g) The Advertising and Entertainment Fund shall not be an
asset of Franchisor or its designee.;
(h) Franchisor has the right to terminate the Advertising
Fund. The Advertising Fund shall not be terminated, however, until
all monies in the Advertising Fund have been expended for
advertising and/or promotional purposes, or returned to
contributing franchised businesses or those operated by Franchisor
or an affiliate, without interest, on the basis of their respective
contributions; and
(i) Franchisee and Franchisor agree and acknowledge that the
Association or its designees undertake no obligation in
administering the Advertising and Entertainment Fund to make
expenditures which yield benefits to Franchisee which are
equivalent or proportionate to Franchisee's contributions or to
ensure that any particular franchisee benefits directly or pro rata
from the placement of advertising.
8.6 Advertising Cooperative Franchisor shall have the right, in
its discretion, to designate any geographical area as a region for
purposes of establishing an Advertising Cooperative to which
Franchisee will be a member. Such Cooperative will be established
and operated in accordance with an advertising cooperative
agreement which is attached hereto as Attachment "E"
9. REPRESENTATIONS AND WARRANTIES
9.1 Representations, Warranties and Covenants of Franchisee
9.1.1 Due Incorporation Franchisee is a corporation,
limited liability company or general or limited partnership duly
organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with all requisite power and
authority to enter into this Agreement and perform the obligations
contained herein.
9.1.2 Authorization The execution, delivery and
performance by Franchisee of this Agreement and all other
agreements contemplated herein has been duly authorized by all
requisite actions on the part of Franchisee and no further actions
are necessary to make this Agreement or such other agreements valid
and binding upon it and enforceable against it in accordance with
their respective terms.
9.1.3 Execution and Performance Neither the execution,
delivery nor performance by Franchisee of this Agreement or any
other agreements contemplated hereby will conflict with, or result
in a breach of any term or provision of Franchisee's charter by-laws,
articles of organization, or partnership agreement and/or
other governing documents and any amendments thereto, any
indenture, mortgage, deed of trust or other material contract or
agreement to which Franchisee is a party or by which it or any of
its assets are bound, or breach any order, writ, injunction or
decree of any court, administrative agency or governmental body.
9.1.4 Corporate Documents Certified copies of
Franchisee's charter by-laws, articles of organization, partnership
agreement and/or other governing documents and any amendments
thereto, including board of director's or partner's resolutions
authorizing this Agreement have been delivered to Franchisor. Any
amendments or changes to such governing or charter documents
subsequent to the date of this Agreement, shall not be undertaken
without Franchisor's prior written consent.
9.1.5 Non-Competition during Term of Agreement Unless
approved by Franchisor in writing, during the term of this
Agreement, Franchisee and Franchisee's Principals shall not,
directly or indirectly:
(a) Divert or attempt to divert business of any
Franchised Restaurant established pursuant to a Franchise Agreement
to any competitor, or do or perform any other act injurious or
prejudicial to the goodwill associated with Franchisor's
Proprietary Marks, the Animated Entertainment and the System;
(b) Employ or seek to employ any person who is employed
by Franchisor or by any other franchisee of Franchisor; and
(c) Except as provided for herein, own, maintain, engage
in, or have an Equity Interest in a Competing Business; provided
that this provision shall not apply to any Minority Interest
collectively held by Franchisee or Franchisee's Principals in any
publicly-held corporation listed on a national stock exchange.
9.1.6 Non-Competition after Termination or Non-Renewal of
Agreement Unless approved by Franchisor in writing, for a period
of one (1) year after the expiration and non-renewal or termination
of this Agreement or after the approved transfer by Franchisee of
its interest in this Agreement, Franchisee and Franchisee's
Principals shall not, directly or indirectly:
(a) Divert or attempt to divert business of any
Franchised Restaurant established pursuant to a Franchise Agreement
to any competitor, or do or perform any other act injurious or
prejudicial to the goodwill associated with Franchisor's
Proprietary Marks, the Animated Entertainment and the System;
(b) Employ or seek to employ any person who is employed
by Franchisor or by any other franchisee of Franchisor; and
(c) Except as provided for herein, own, maintain, engage
in, or have within a twenty five (25) mile radius of the Territory;
provided that this provision shall not apply to any Minority
Interest collectively held by Franchisee or Franchisee's Principals
in any publicly-held corporation listed on a national stock
exchange.
9.1.7 Additional Covenants At Franchisor's request,
Franchisee shall require and obtain for the benefit of Franchisor
execution of covenants similar to those set forth in this Section
from any and all of its employees having access to materials or
information furnished or disclosed to Franchisee by Franchisor.
9.1.8 Guaranty As an inducement and as a condition to
Franchisor's execution and acceptance of this Agreement, Franchisor
may require any or all of Franchisee's Principals to execute a
Guaranty in the form of Attachment F hereto.
9.2 Representations, Warranties and Covenants of Franchisor
9.2.1 Due Incorporation Franchisor is a corporation duly
organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with all requisite power and
authority to enter into this Agreement and perform the obligations
contained herein.
9.2.2 Authorization The execution, delivery and
performance by Franchisor of this Agreement and all other
agreements contemplated herein has been duly authorized by all
requisite corporate actions and no further actions are necessary to
make this Agreement or such other agreements valid and binding upon
it and enforceable against it in accordance with their respective
terms.
9.2.3 Execution and Performance Neither the execution,
delivery nor performance by Franchisor of this Agreement or any
other agreements contemplated hereby will conflict with, or result
in a breach of any term or provision of Franchisor's articles of
incorporation or by-laws, or any indenture, mortgage, deed of trust
or other contract or agreement to which Franchisor is a party or by
which it or any of its assets are bound, or breach any order, writ,
injunction or decree of any court, administrative agency or
governmental body.
10. PROPRIETARY RIGHTS AND INFORMATION
10.1 Confidential Information The Franchisee and the Franchisee's
Principals shall only communicate, disclose or use the Confidential
Information as expressly permitted herein or as required by law.
Franchisee and Franchisee's Principals shall disclose the
Confidential Information only to such of Franchisee's employees,
agents, or independent contractors who must have access to it in
connection with their employment.
10.1.1 Confidentiality Agreements Franchisee shall cause
Franchisee's Principals and employees having access to the
Confidential Information to execute confidentiality agreements
substantially in the form of Attachments G and H stating that they
will preserve in confidence all Confidential Information. Neither
Franchisee, Franchisee's Principal's or their respective employees
may at any time, without Franchisor's prior written consent, copy,
duplicate, record or otherwise reproduce the Confidential
Information, in whole or in part, nor otherwise make the same
available to any unauthorized person.
10.1.2 Improvements If Franchisee makes any improvements
(as determined by Franchisor) to the Confidential Information,
Franchisee and the Franchisee's Principals shall each execute an
amendment to this Agreement reflecting such improvements and
Franchisor's exclusive ownership thereof. All such improvements
shall be considered Confidential Information.
10.2 Proprietary Marks Franchisee acknowledges Franchisor's
exclusive ownership, or right to sublicense, of the Proprietary
Marks and shall neither directly or indirectly, infringe, contest
or otherwise impair Franchisor's exclusive ownership of, and/or
license, with respect to the Proprietary Marks either during or
after the termination or expiration of this Agreement. Franchisee
also expressly acknowledges and agrees that:
(a) The Proprietary Marks will only be used by Franchisee in
connection with the operation of the Franchised Restaurant under
the System and only in the manner authorized and prescribed by
Franchisor herein or by written notification.
(b) Except for the non-exclusive license to use granted
herein, Franchisee and Franchisee's Principals acquire no right,
title or interest in (or any goodwill associated with) the System,
the Proprietary Marks and the Animated Entertainment.
(c) Upon the expiration or termination of this Agreement, no
monetary amount shall be assigned as attributable to any goodwill
associated with Franchisee's use of the System, the Proprietary
Marks or the Animated Entertainment and all goodwill associated
with Franchisees use of the System, the Proprietary Marks and the
Animated Entertainment will inure to the benefit of Franchisor or
Franchisor's licensors, as the case may be.
(d) Franchisee and Franchisee's Principals shall promptly
notify Franchisor of any use by any third party of the Proprietary
Marks of which the Franchisee and Franchisee's Principals know or
have reason to know is unauthorized.
(e) Franchisee and Franchisee's Principals shall promptly
notify Franchisor of any litigation action or claim instituted by
any person or legal entity against Franchisor, Franchisee or
Franchisee's Principals involving the Proprietary Marks and, if
necessary, shall execute any and all documents, and to render such
assistance as may, in the opinion of Franchisor's counsel, be
reasonably requested to carry out such defense or prosecution.
(f) Franchisee shall operate, advertise and promote the
Franchised Restaurant under the Proprietary Marks designated by
Franchisor, without prefix or suffix, and shall use no other name
or mark and shall refrain from using any of the Proprietary Marks
in conjunction with any word or symbol without Franchisor's prior
written consent.
(g) This license to use the Proprietary Marks is
nonexclusive, and Franchisor has the right: (i) to grant other
franchises for the Proprietary Marks, in addition to those
franchises already granted to existing franchisees, (ii) to use the
Proprietary Marks in connection with the sale of food and other
products at wholesale and/or retail outlets in the Protected
Territory, and (iii) to develop and establish other systems for the
same or similar products and services utilizing the same
Proprietary Marks, or any similar or other proprietary marks, and
to grant licenses thereto without providing Franchisee any right
therein.
(h) Franchisee will use, promote and offer for sale under the
Proprietary Marks only those products and services which meet
Franchisor's prescribed standards and specifications, as they may
be revised by Franchisor from time to time.
(i) Franchisee will execute all documents requested by
Franchisor or its counsel that are necessary to obtain protection
for the Proprietary Marks or to maintain their continued validity
or enforceability and to take no action that would jeopardize the
validity or enforceability thereof.
10.3 Copyrights Franchisee and Franchisee's Principals acknowledge
that Franchisor owns the worldwide copyright and other ownership
rights to all materials provided by Franchisor (in all forms or
media now or hereafter known) including, without limitation, the
Cornerstones, the Operational Policies, the Animated Entertainment,
promotional materials and software. Franchisee also agrees:
(a) If registration of the copyright of any of the materials
mentioned above is required by law or deemed advisable by
Franchisor, Franchisee agrees to cooperate with and assist
Franchisor in obtaining the registration in the name of Franchisor
and will not register or attempt to register or assist or be
involved in any way with the registration (either directly or
indirectly) of such materials;
(b) Franchisee agrees to use proper copyright and other
proprietary notices in connection with all copyright materials and
conform with Franchisor's standards for protecting its rights; and
(c) Franchisee agrees to promptly cause the execution of any
assignments, waivers of rights, or other documents, and take any
further actions needed or advisable to ensure that Franchisor has
such copyright and other rights described in this Section.
11. TRANSFER OF INTEREST
11.1 Transfer by Franchisor Franchisor shall have the right to
transfer or assign this Agreement, its rights to the Proprietary
Marks, and all or any part of its rights or obligations herein to
any person or legal entity without the consent of Franchisee or
Franchisee's Principals. Upon such transfer by Franchisor, any
transferee or assignee of Franchisor shall become solely
responsible for all obligations of Franchisor under this Agreement
from the date of transfer or assignment.
11.2. Transfer by Franchisee Franchisee and Franchisee's
Principals understand and acknowledge that the rights and duties
set forth in this Agreement are personal to Franchisee and are
granted, in part, in reliance upon the skill, aptitude, business
and financial capacity of Franchisee and Franchisee's Principals
and their intention of complying with its terms and conditions.
Therefore, if the Franchisee and/or Franchisee's Principals desire
to Transfer any interest in this Agreement, they must first obtain
the prior written approval of Franchisor.
11.2.1 General Requisites Prior to authorizing a Transfer
by Franchisee of any interest in this Agreement, Franchisor may
require satisfaction of the following:
(a) Franchisee shall be in compliance with all of the terms
and conditions of this Agreement;
(b) Franchisee and/or any Franchisee's Principal shall remain
liable for the performance of its obligations contained in this
Agreement through the date of transfer and shall execute all
instruments reasonably requested by Franchisee to evidence such
liability;
(c) The transferee shall satisfy, in Franchisor's judgment,
Franchisor's then existing criteria for a franchisee including,
without limitation: (i) education; (ii) business skill, experience
and aptitude; (iii) character and reputation; and (iv) financial
resources; and
(d) The transferee and all owners of any record or beneficial
interest in the capital stock (or other interest) of transferee
shall execute all instruments (including a new franchise agreement
and guarantee) reasonably requested by Franchisor to evidence
acceptance and assumption of all of the terms and conditions of
this Agreement.
11.2.2 Transfer involving Controlling Interest If the
Franchisee does not have a Controlling Interest (as reasonably
determined by Franchisor) in the transferee, in addition to the
requisite in Section 11.2.1, Franchisor may also require:
(a) Franchisee pay a transfer fee equal to one-half (1/2) of
the then current initial franchise fee for Franchise Agreements;
(b) At the transferee's expense, the transferee and any of
the transferee's employees responsible for the operation of the
Franchised Restaurant have satisfactorily completed such training
as Franchisor may then require; and
(c) The transferee has complied with Franchisor's then-current
application requirements for a new franchise.
11.3 Transfer of Interest in Franchisee In the event that
Franchisee and/or any of Franchisee's Principals desire to accept
a bona fide offer from a third party to purchase an Equity Interest
in Franchisee, Franchisee and Franchisee's Principals shall notify
Franchisor in writing of each such offer, and Franchisor shall have
the right and option, exercisable within twenty-one (21) days after
receipt of such written notice, to send written notice to the
seller that Franchisor or its nominee intends to purchase seller's
interest on the same terms and conditions offered by the third
party.
In the event the consideration, terms, and/or conditions
offered by the third party are such that Franchisor or its nominee
may not reasonably be able to furnish the same consideration,
terms, and/or conditions, then Franchisor or its nominee, as
appropriate, may purchase the interest proposed to be sold for the
reasonable equivalent in cash. If the parties cannot agree, within
a reasonable time, on the reasonable equivalent in cash of the
consideration, terms, and/or conditions offered by the third party,
an independent appraiser shall be designated by Franchisor, and
such appraiser's determination shall be binding.
11.4 Transfer upon Death If the interest of the Franchisee or any
of Franchisee's Principals is transferred upon death or permanent
disability of Franchisee or Franchisee's Principal to the spouse,
parents, siblings, nieces, nephews, descendants or spouse's
descendants of such Franchisee or Franchisee's Principal, the
transferee shall be required to execute a copy of this Agreement,
the Guaranty and any ancillary documents required by Franchisor in
its sole discretion. All other transfers upon death will be
subject to the same conditions as any other inter-vivos transfer.
11.5 Public Offerings Equity Interests in Franchisee and
Franchisee's Principals may be offered, only with the prior written
consent of Franchisor, which consent shall not be unreasonably
withheld. Such approval will be subject to the following:
(a) All registration materials required for such offering by
federal or state law shall be submitted to Franchisor for review
prior to their being filed with any government agency;
(b) No offering material (for either a public or private
offering) shall express or imply (by use of the Proprietary Marks
or otherwise) that Franchisor is participating in an underwriting,
issuance or public offering of Franchisee, Franchisee's Principals,
or Franchisor securities. Franchisor may, at its option, require
such offering materials to contain a written statement prescribed
by Franchisor concerning the limitations described in the preceding
sentence;
(c) Franchisee, Franchisee's Principals and the other
participants in the registration and offering must fully indemnify
Franchisor in connection with the offering;
(d) For each proposed public offering, other than offerings
which are exempt from registration, Franchisee shall pay to
Franchisor a nonrefundable fee of Ten Thousand Dollars ($10,000) or
such greater amount as is necessary to reimburse Franchisor for its
reasonable costs and expenses associated with reviewing the
proposed offering, including, without. limitation, legal and
accounting fees; and
(e) Franchisee and Franchisee's Principals shall give
Franchisor at least sixty (60) days' prior written notice prior to
the effective date of any offering or other transaction covered by
this Section 11.5.
12. INSURANCE AND INDEMNITY
12.1 Insurance. Franchisee shall obtain at least thirty (30) days
prior to commencement of Restaurant construction of the Franchised
Restaurant, and maintain throughout the term, such property,
casualty and general liability insurance as may be (i) required by
law; or (ii) reasonably to protect Franchisee from the risks
inherent in construction and operation of the Franchised
Restaurant. Franchisor shall have the right to reasonably consent
to the types and amounts of coverage and the issuing companies.
Such insurance shall:
(a) name the Indemnitees as additional insured parties;
(b) contain no provision which limits or reduces
coverage in the event of a claim by any one (1) or more of the
Indemnitees;
(c) provide that policy limits shall not be reduced,
coverage restricted, canceled, allowed to lapse or otherwise
altered or such policy(ies) amended without Franchisor's consent;
and
(d) be obtained from reputable insurance companies
authorized to do business in all jurisdictions in which the
Restaurant is located.
12.2 Insurance Prior to Commencement. Prior to the commencement of
construction and for the entire term of this Agreement, Franchisee
shall obtain and maintain insurance protecting Franchisee and the
Indemnitees against any demand or claim arising or occurring in
connection with the construction and operation of the Franchised
Restaurant. Such policies shall: (i) be of the types and for the
minimum amounts of coverage indicated in the Operational Policies;
(ii) contain a waiver of subrogation in favor of Franchisor; and
(iii) shall name the Indemnitees as additional insureds. Franchisee
also acknowledges and agrees to:
(a) furnish Franchisor with evidence that Franchisee has
obtained the required insurance at least fifteen (15) days prior to
the commencement of construction, and each year afterwards, and at
any other time a carrier or coverage is changed;
(b) increase the insurance coverage amounts in the amounts
indicated by Franchisor upon thirty (30) days prior written notice
from Franchisor; and
(c) re-imburse Franchisor for any insurance policies obtained
by Franchisor on behalf of Franchisee if Franchisee fails to obtain
the insurance required by this Section.
12.3 Indemnities
12.2.1 Indemnification Franchisee and Franchisee's
Principals agree to and hereby, jointly and severally, indemnify,
defend (by counsel chosen by Franchisor) and agree to hold harmless
each Indemnitee from all Losses and Expenses alleged, incurred or
assessed in connection with:
(a) Franchisee's or any Franchisee's Principal's
alleged infringement or alleged violation of any
trademark or other proprietary name, mark, or right
allegedly owned or controlled by a third party;
(b) The violation, breach or asserted violation or
breach, by Franchisee or any of Franchisee's
Principals, of any federal, state or local law,
regulation, ruling, standard or directive or any
industry standard;
(c) Libel, slander or any other form of defamation of
Franchisor, the System or any franchisee or
franchisee operating under the System, by
Franchisee or by any of Franchisee's Principals;
(d) The violation or breach by Franchisee or any of
Franchisee's Principals, of any warranty,
representation, agreement or obligation in this
Agreement or in any other agreement, between
Franchisee, its subsidiaries and affiliates and
Franchisor, its subsidiaries and affiliates or the
officers, directors, shareholders, partners,
agents, representatives, independent contractors
and employees thereof; and
(e) Acts, errors, or omissions of Franchisee, any of
Franchisee's subsidiaries or affiliates or any of
Franchisee's Principals and the officers,
directors, shareholders, partners, agents,
representatives, independent contractors and
employees of Franchisee and its subsidiaries and
affiliates in connection with the development
activities contemplated under this Agreement or
the operation of the Franchised Restaurant.
12.2.2. Notice and Counsel Franchisee and each of
Franchisee's Principals agree to give Franchisor immediate notice
of any Action. Franchisor may engage, at its expense, separate
counsel to represent the Indemnitees in such Action and/or elect to
assume (but under no circumstance is obligated to undertake) the
defense and/or reasonable settlement of any Action. Franchisor's
election to settle shall not diminish Franchisee's and each of
Franchisee's Principal's obligation to defend, indemnify and hold
the Indemnitees harmless from all Losses and Expenses.
12.2.3 Settlement and Remedial Actions In order to protect
persons or property, or its reputation or goodwill, or the
reputation or goodwill of others, Franchisor may, at any time and
without notice, as it, in its sole judgment deems appropriate,
consent or agree to settlements or take such other remedial or
corrective actions it deems expedient with respect to any Action
if, in Franchisor's sole judgment, there are reasonable grounds to
believe that:
(a) any of the acts or circumstances enumerated in
Section 12.2.1 ((a) through (d)) above have occurred;
(b) any act, error, or omission as described in Section
12.2.1 (e) may result directly or indirectly in damage, injury, or
harm to any person or any property.
12.2.4 Expenses All Losses and Expenses incurred under
this Section shall be chargeable to and paid by Franchisee or any
of Franchisee's Principals pursuant to Franchisee's obligations of
indemnity under this paragraph regardless of any actions, activity
or defense undertaken by Franchisor or the subsequent success or
failure of such actions, activity, or defense.
12.2.5 Third Party Recovery Under no circumstances shall
the Indemnitees be required or obligated to seek recovery from
third parties or otherwise mitigate their losses in order to
maintain a claim against Franchisee or any of Franchisee's
Principals. Franchisee and each of Franchisee's Principals agree
that the failure to pursue such recovery or mitigate loss will in
no way reduce the amounts recoverable from Franchisee or any of
Franchisee's Principals by the Indemnitees.
12.2.6 Survival Franchisee and Franchisee's Principals
expressly agree that the terms of this Section 8 shall survive the
termination, expiration or transfer of this Agreement or any
interest herein.
13. TERM, RENEWAL AND TERMINATION
13.1 Term Unless terminated as provided for herein, the term of
this franchise shall be fifteen (15) years starting from the date
of opening of the Franchised Restaurant which date shall be
specified in writing by Franchisor.
13.2 Renewal Franchisee may, at Franchisee's option, renew this
Agreement for one (1) additional period of ten (10) years, provided
that at the end of the initial term:
(a) Franchisee has given Franchisor written notice of
election to renew not less than nine (9) months nor more than
twelve (12) months prior to the end of the initial term;
(b) Franchisee shall have completed to Franchisor's
satisfaction all maintenance, refurnishing, renovating and
remodeling of the premises and equipment as Franchisor shall
require in order to meet Franchisor's then-current standards for
Franchised Restaurants;
(c) Franchisee is in compliance with all of the terms of
this Agreement and any other agreement between Franchisee and
Franchisor;
(d). Franchisee shall have executed upon renewal
hereunder Franchisor's then current form of Franchise Agreement,
which agreement may have different terms from this Agreement
including, without limitation, a royalty fee, contributions and
System assessments; provided, however, Franchisee shall be required
to pay, in lieu of the then-current initial franchise fee, a
renewal fee which shall be fifty percent (50%) of the then-current
initial franchise fee as then charged set by Franchisor;
(e) Franchisee and Franchisee's Principals shall execute
a general release, in a form prescribed by Franchisor, of any and
all claims against Indemnitees.
13.3 Termination
13.3.1 Termination without Notice This Agreement shall
automatically terminate without notice to Franchisee if Franchisee:
(a) ceases to do business at the Franchised Restaurant;
(b) causes a threat or danger to the public health or safety
in the construction or operation of the Franchised Restaurant;
(c) or any of Franchisee's Principals is convicted of a
felony or any other crime or offense that is reasonably likely, in
the sole opinion of Franchisor, to adversely affect the System, the
Proprietary Marks, the Animated Entertainment, the goodwill
associated therewith, or Franchisor's interest therein;
(d) copies or duplicates any Animated Entertainment programs
or materials or purports to transfer ownership or possession of any
Animated Entertainment components or materials without the prior
written consent of Franchisor;
(e) violates the requirements for Transfers contained in
Section 11;
(f) fail to comply with the representations and warranties in
Section xxx hereof;
(g) discloses or divulges the contents of the Operational
Policies or other trade secret or confidential information provided
Franchisee by Franchisor contrary to the provisions of this
Agreement;
(h) fails to maintain the insurance(s) required by Section
9.1;
(i) knowingly maintains false books or records, or submits
any false reports to Franchisor; or
(j) fails to cure any default of which it has been given
prior notices on two occasions.
13.3.2 Termination with Ten Day Notice Franchisee shall
have ten (10) days after its receipt from Franchisor of a written
notice to remedy Franchisee's failure, refusal, or neglect to pay
promptly any monies due under this Agreement or to submit the
financial information or other reports required by Franchisor under
this Agreement. If such default is not cured within that time,
this Agreement shall terminate without further notice to Franchisee
effective immediately upon the expiration of the ten (10) day
period.
13.3.3 Termination with Thirty Day Notice Except as
otherwise provided in this Section, Franchisee shall have thirty
(30) days after its receipt from Franchisor of a written notice
within which to remedy any default of the terms of this Agreement
and the Attachments hereunder and provide evidence thereof to
Franchisor. If any such default is not cured within that time,
this Agreement shall terminate without further notice to Franchisee
effective immediately upon the expiration of the thirty (30) day
period.
13.4 Obligations upon Termination or Expiration Upon termination
or expiration of this Agreement for any reason, all rights of
Franchisee under this Agreement will immediately terminate and
Franchisee will have the following duties which will survive
termination of this Agreement:
(a) Franchisee will promptly pay to Franchisor and its
affiliates all sums due under this Agreement and any other
agreements, including, without limitation, all damages, costs,
expenses, and reasonable attorneys' fees incurred by Franchisor by
reason of default on the part of Franchisee, whether or not the
expenses occur before or after the termination or expiration of
this Agreement;
(b) Franchisee will immediately cease to operate the
Franchised Restaurant and use of the Proprietary Marks, the
Animated Entertainment, the System, and the Operational Policies in
any manner including any advertising, equipment, format,
confidential methods, procedures and techniques associated with the
Franchised Restaurant, the Proprietary Marks, the Animated
Entertainment, the System, and the Operational Policies;
(c) Franchisee shall immediately return all manuals,
including the Operational Policies, records, files, instructions,
correspondence, all materials related to operating the Franchised
Restaurant, and shall retain no copy or record of any of the
foregoing, excepting only Franchisee's copy of this Agreement and
of any correspondence between the parties, and any other documents
which Franchisee and Franchisee's Principals reasonably need for
compliance with any provision of law;
(d) Franchisee will immediately cease to use in any manner
whatsoever, any Proprietary Marks and distinctive trade dress,
forms, slogans, signs, symbols, devices, or animated character
costumes associated with the System;
(e) Franchisee shall take such action as may be necessary to
cancel any assumed name or equivalent registration which contains
any of the Proprietary Marks, and Franchisee and Franchisee's
Principals shall furnish Franchisor with evidence satisfactory to
Franchisor of compliance with this obligation within thirty (30)
days after termination or expiration of this Agreement; and
(f) Franchisee and Franchisee's Principals shall make such
modifications or alterations to the Franchised Restaurant premises
and contents operated hereunder immediately upon termination or
expiration of this Agreement as may be necessary to prevent the
operation of any business thereon by Franchisee, Franchisee's
Principals, or others after expiration or termination.
13.5 Option to Purchase Franchisor shall have the right, but not
the obligation, to purchase at fair market value (as determined
below) any or all of Franchisee's interest in the Franchised
Restaurant, including but not limited to (i) the Animated
Entertainment components and software, (ii) rides, amusement games
and other attractions, (iii) the real estate component of the
Franchised Restaurant, (iv) furnishings, fixtures and equipment,
and (v) signs, advertising materials and supplies.
Franchisor shall exercise its rights under this Section by
giving written notice thereof to Franchisee within thirty (30) days
after termination or expiration of this Agreement. Within thirty
(30) days after such notice is given by Franchisor, Franchisee and
Franchisor shall each, at its own cost, appoint an appraiser who
has at least five (5) years of relevant commercial appraisal
experience to make an appraisal of the fair market value of
Franchisee's interest in each component of the Franchised
Restaurant as indicated in Franchisor's initial notice and cause
such appraiser to deliver a copy of his appraisal to the other
party. The "fair market value" shall be the average of the two
appraisals and Franchisor will notify Franchisee if it plans on
exercising such right.
14. REMEDIES AND LIQUIDATED DAMAGES
14.1 Remedies Upon the occurrence of an uncured breach, Franchisor
may exercise one or more of the following remedies or such other
remedies as may be available at law or in equity:
14.1.1 Cure Franchisor, a Franchisor's discretion and
without obligation, may cure such breach at Franchisee's expense
and, in connection therewith, Franchisee (i) hereby grants to
Franchisor all rights and powers necessary or appropriate to
accomplish such cure; (ii) shall indemnify and hold the Indemnitees
harmless from and against all costs, expenses (including reasonable
fees of counsel and other engaged professionals), liabilities,
claims, demands and causes of action (including actions of third
parties) incurred by or alleged against any Indemnitee in
connection with Franchisor's cure; and (iii) shall reimburse or pay
such costs or damages within ten (10) days of receipt of
Franchisor's invoice therefor; or
14.1.2 Specific Enforcement Franchisor may, in addition to
pursuing any other remedies, specifically enforce Franchisee's and
Franchisee's Principal's obligations, covenants and agreements or
obtain injunctive or other equitable relief in connection with the
violation or anticipated violation of such obligations, covenants
and agreements without the necessity of showing (i) actual or
threatened harm; (ii) the inadequacy of damages as a remedy; or
(iii) likelihood of success on the merits, and without being
required to furnish bond or other security. Nothing in this
Agreement shall impair Franchisor's right to obtain equitable
relief.
14.2 Liquidated Damages Franchisee acknowledges that its uncured
breach of any of the terms of this Agreement will materially and
adversely affect Franchisor and that the quantum of such damages
may not be easily ascertainable. Accordingly, Franchisee agrees
that, as liquidated damages for the non-performance of its
obligations under this Agreement, in addition to any other remedy
available to Franchisor, Franchisee shall pay to Franchisor US$---
- ------------------ initially and US$------------------- per month
per violation for so long as each such violation remains uncured;
provided, however, that this provision will only be operative upon
material breaches of this Agreement which are in Franchisee's or
Franchisee's Principals' control.
15. DUE DILIGENCE AND ASSUMPTION OF RISK
Franchisee and Franchisee's Principals have received, read and
understood this Agreement, the documents referred to herein and the
Attachments and Schedules hereto including the bylaws of the
Association. Franchisee and Franchisee's Principals further
acknowledge that they have received the disclosure documents
required by the Federal Trade Commission trade regulation rule
entitled Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures, at least ten (10)
business days prior to the date on which this Agreement was
executed. Franchisee and Franchisee's Principals: (i) have had
ample time and opportunity to consult with their advisors
concerning the potential benefits and risks of entering into this
Agreement (ii) have conducted such due diligence and investigation
as they desire; (iii) recognize that the business venture described
herein involves risks; and (iv) acknowledge that the success of
such business venture is dependent upon, among other factors
unrelated to Franchisor, the abilities of Franchisee and
Franchisee's Principals. FRANCHISOR EXPRESSLY DISCLAIMS THE MAKING
OF, AND FRANCHISEE AND EACH OF FRANCHISEE'S PRINCIPALS ACKNOWLEDGE
THAT THEY HAVE NOT RECEIVED OR RELIED UPON, ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO THE POTENTIAL PERFORMANCE OR
VIABILITY OF THE BUSINESS VENTURE CONTEMPLATED BY THIS AGREEMENT.
16. DISPUTE RESOLUTION
16.1 Mediation Except for infringement of Proprietary Marks,
Animated Entertainment or other violation of Franchisor's
intellectual property rights, regarding which Franchisor may apply
for emergency, special, or injunctive relief, both Franchisor and
Franchisee will attempt in good faith to settle any dispute related
to this Agreement. If Franchisor and Franchisee are unable to do
so, they hereby agree to submit to non-binding mediation prior to
bringing such claim, controversy or dispute in a court. The
mediation shall be conducted through either an individual mediator
or a mediator appointed by a mediation services organization or
body, experienced in the mediation of food service business
disputes, as agreed upon by Franchisor and Franchisee. The costs
and expenses of mediation, including compensation of the mediator,
shall be borne by the parties equally. If the parties are unable
to resolve the claim, controversy or dispute within ------ (-----)
days after the mediator has been appointed, unless such time period
is extended by written agreement of the parties, then either party
may bring a legal proceeding under the following to resolve such
claim,
16.2 Applicable Law Franchisor and Franchisee agree that this
Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Texas without regard to
its conflicts of laws provisions.
16.3 Jurisdiction and Venue Franchisor and Franchisee hereby
irrevocably submit themselves to the jurisdiction of the state
courts of Dallas County, Texas and the Federal District Court for
the Northern District of Texas, Dallas Division. However, with
respect to any action (i) for monies owed, (ii) for injunctive or
other extraordinary relief, or (iii) involving ownership or use of
the Proprietary Marks or the Animated Entertainment, Franchisor may
bring such action in any state or federal district court which has
jurisdiction.
17. MISCELLANEOUS
17.1 Independent Contractors In performing this Agreement, the
parties specifically agree that Franchisor and Franchisee's
relationship is and always will be solely that of independent
contractors. Neither Franchisor or Franchisee shall not represent
itself or permit any of its employees, agents, servants, or
representatives to represent itself as an employee, agent, servant,
or joint venturer of the other. Neither party shall have no right
to and shall not attempt to enter into contracts or commitments in
the name of or on behalf of the other in any respect whatsoever.
17.2 Entire Agreement This Agreement and the Attachments hereto
constitute the entire agreement between Franchisor, Franchisee and
Franchisee's Principals concerning the subject matter hereof. All
prior agreements, discussions, representations, warranties and
covenants are merged herein. THERE ARE NO WARRANTIES,
REPRESENTATIONS, COVENANTS OR AGREEMENTS, EXPRESS OR IMPLIED,
BETWEEN THE PARTIES EXCEPT THOSE EXPRESSLY SET FORTH IN THIS
AGREEMENT. Except those permitted to be made unilaterally by
Franchisor, any amendments or modifications of this Agreement shall
be in writing and executed by Franchisor and Franchisee.
17.3 No Waiver Either party's failure to exercise any right or
remedy or to enforce any obligation, covenant or agreement herein
shall not constitute a waiver by, or estoppel of, such party's
right to enforce strict compliance with any such obligation,
covenant or agreement. No custom or practice shall modify or amend
this Agreement. Either party's waiver of, or failure or inability
to enforce, any right or remedy shall not impair such party's
rights or remedies with respect to subsequent default of the same,
similar or different nature. Acceptance of any payment shall not
waive any default.
17.4 Severability Should any term, covenant or provision hereof,
or the application thereof, be determined by a valid, final, non-
appealable order to be invalid or unenforceable, the remaining
terms, covenants or provisions hereof shall continue in full force
and effect without regard to the invalid or unenforceable
provision. In such event such term, covenant or provision shall be
deemed modified to impose the maximum duty permitted by law and
such term, covenant or provision shall be valid and enforceable in
such modified form as if separately stated in and made a part of
this Agreement. Notwithstanding the foregoing, if any term hereof
is so determined to be invalid or unenforceable and such
determination adversely affects, in Franchisor's reasonable
judgment, Franchisor's ability to preserve its rights in, or the
goodwill underlying, the Proprietary Marks, the Animated
Entertainment, the System and/or the Confidential Information, or
materially effects Franchisor's other rights hereunder, Franchisor
may terminate this Agreement upon notice to Franchisee.
17.5 Notice All notices required or desired to be given hereunder
shall be in writing and shall be sent by personal delivery,
expedited delivery service, return receipt requested or facsimile
to the
following addresses or such other addresses as designated by
Franchisor or Franchisee in writing pursuant to this Section:
Notices to FRANCHISOR: Director of Franchising
ShowBiz Pizza Time, Inc.
4441 W. Airport Freeway
Post Office Box 152077
Irving, Texas 75062
Tel.
Notices to Franchisee: --------------------------
Tel.
Fax.
Notices posted by personal delivery or given by facsimile
shall be deemed given upon receipt. Notice to Franchisee shall
constitute notice to Franchisee's Principals.
17.6 Counterparts This Agreement may be executed in any number of
counterparts each of which when so executed shall be an original,
but all of which together shall constitute one (1) and the same
instrument.
17.7 Headings The section headings in this Agreement are for
convenient reference only and shall be given no substantive or
interpretive effect.
17.8 Further Assurances Franchisor and Franchisee shall execute
and deliver any and all additional papers, documents, and other
assurances and shall do any and all acts and things reasonably
necessary in connection with the performance of their obligations
hereunder and to carry out the intent of the parties hereto.
17.9 Compliance with Laws Franchisee agrees to comply at its sole
expense with all laws and regulations applicable to this Agreement
and the operation of the Franchised Restaurants.
[Signatures appear on following pages]
IN WITNESS WHEREOF, the parties hereto have fully executed,
sealed and delivered this Agreement in duplicate on the day and
year first above written.
SHOWBIZ PIZZA TIME, INC.
FRANCHISOR
By:------------------------
Name:----------------------
Title:---------------------
STATE OF TEXAS S
S
COUNTY OF DALLAS S
Before me personally appeared -------------- who, after being
duly sworn, says that he is the ------------- of ShowBiz Pizza
Time, Inc., a corporation, organized and existing under the laws of
Kansas, and that he has authority to execute under oath and has so
executed the above Agreement for and on behalf of such corporation
for such purposes therein contained.
WITNESS my hand and official seal this ----day of ----------,
19--.
(SEAL)
Notary Public
FRANCHISEE
By: ---------------------------
Name:---------------------------
Title:--------------------------
STATE OF ---------- S
S
COUNTY OF --------- S
Before me personally appeared ------------ who, after being
duly sworn, says that he is the --------------- of ----------, a
(corporation) (partnership), organized and existing under the
laws of -------------, and that he has authority to execute under
oath and has so executed the above Agreement for and on behalf of
such (corporation) (partnership) for the purposes therein
contained.
WITNESS my hand and official seal this ----- day of -------,
199-.
(seal) Notary Public
Schedule 1.15
Schedule of Franchisee's Principals
Attachment A
Cornerstones
Attachment B
Operational Policies
Attachment C
Site Approval Form
Attachment D
Lease Rider
Attachment E
Advertising Cooperative Agreement
Attachment F
Guaranty Agreement
Attachment G
Principal's Confidentiality Agreement
Attachment H
Employee's Confidentiality Agreement
10(r)(2)
SHOWBIZ PIZZA TIME, INC.
DEVELOPMENT AGREEMENT
--------------------------------
[TERRITORY]
4441 West Airport Freeway
P.O. Box 152077
Irving, TX 75062
TABLE OF CONTENTS
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . .1
2. GRANT OF RIGHTS . . . . . . . . . . . . . . . . . . . . . .4
2.1 Grant. . . . . . . . . . . . . . . . . . . . . . . . .4
2.2 Exclusivity. . . . . . . . . . . . . . . . . . . . . .4
2.3 Right of First Refusal . . . . . . . . . . . . . . . .4
2.4 Limitation of Rights . . . . . . . . . . . . . . . . .5
3. FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.1 Development Fee. . . . . . . . . . . . . . . . . . . .5
3.2 Franchise Fees . . . . . . . . . . . . . . . . . . . .5
3.3 Payment and Taxes. . . . . . . . . . . . . . . . . . .5
4. DEVELOPMENT SCHEDULE. . . . . . . . . . . . . . . . . . . .5
4.1 Development Schedule . . . . . . . . . . . . . . . . .5
4.2 Ownership Interest . . . . . . . . . . . . . . . . . .6
4.3 Site Location and Approval . . . . . . . . . . . . . .6
4.4 Operational Date . . . . . . . . . . . . . . . . . . .6
4.5 Extensions . . . . . . . . . . . . . . . . . . . . . .6
5. REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . . . .6
5.1 Representations, Warranties and Covenants of Developer6
5.1.1 Due Incorporation. . . . . . . . . . . . . .6
5.1.2 Authorization. . . . . . . . . . . . . . . .7
5.1.3 Execution and Performance. . . . . . . . . .7
5.1.4 Corporate Documents. . . . . . . . . . . . .7
5.1.5 Non-Competition during Term of Agreement . .7
5.1.6 Non-Competition after Termination or
Non-renewal of Agreement . . . . . . . . 7
5.1.7 Additional Covenants . . . . . . . . . . . .8
5.1.8 Guaranty . . . . . . . . . . . . . . . . . .8
5.2 Representations, Warranties and Covenants of Franchisor8
5.2.1 Due Incorporation. . . . . . . . . . . . . .8
5.2.2 Authorization. . . . . . . . . . . . . . . .8
5.2.3 Execution and Performance. . . . . . . . . .8
6. PROPRIETARY INFORMATION . . . . . . . . . . . . . . . . . .9
6.1 Confidential Information . . . . . . . . . . . . . . .9
6.1.1 Confidentiality Agreements . . . . . . . . .9
6.1.2 Improvements . . . . . . . . . . . . . . . .9
6.2 Proprietary Marks. . . . . . . . . . . . . . . . . . .9
7. TRANSFER OF INTEREST. . . . . . . . . . . . . . . . . . . .9
7.1 Transfer by Franchisor . . . . . . . . . . . . . . . .9
7.2. Transfer by Franchisee . . . . . . . . . . . . . . . .9
8. INSURANCE AND INDEMNITY . . . . . . . . . . . . . . . . . 10
8.1 Insurance. . . . . . . . . . . . . . . . . . . . . . 10
8.2 Indemnities. . . . . . . . . . . . . . . . . . . . . 11
8.2.1 Indemnification. . . . . . . . . . . . . . 11
8.2.2. Notice and Counsel . . . . . . . . . . . . 11
8.2.3 Settlement and Remedial Actions. . . . . . 11
8.2.4 Expenses . . . . . . . . . . . . . . . . . 12
8.2.5 Third Party Recovery . . . . . . . . . . . 12
8.2.6 Survival . . . . . . . . . . . . . . . . . 12
9. TERM AND TERMINATION. . . . . . . . . . . . . . . . . . . 12
9.1 Term . . . . . . . . . . . . . . . . . . . . . . . . 12
9.3 Termination with Notice. . . . . . . . . . . . . . . 13
10. REMEDIES AND LIQUIDATED DAMAGES . . . . . . . . . . . . . 13
10.1 Remedies . . . . . . . . . . . . . . . . . . . . . . 13
10.1.1 Reduction of Exclusivity . . . . . . . . . 13
10.1.2 Cure . . . . . . . . . . . . . . . . . . . 13
10.1.3 Specific Enforcement . . . . . . . . . . . 14
10.2 Liquidated Damages . . . . . . . . . . . . . . . . . 14
11. DUE DILIGENCE AND ASSUMPTION OF RISK. . . . . . . . . . . 14
12. DISPUTE RESOLUTION. . . . . . . . . . . . . . . . . . . . 15
12.1 Mediation. . . . . . . . . . . . . . . . . . . . . . 15
12.2 Applicable Law . . . . . . . . . . . . . . . . . . . 15
12.3 Jurisdiction and Venue . . . . . . . . . . . . . . . 15
13. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 15
13.1 Independent Contractors. . . . . . . . . . . . . . . 15
13.2 Entire Agreement . . . . . . . . . . . . . . . . . . 15
13.3 No Waiver. . . . . . . . . . . . . . . . . . . . . . 16
13.4 Severability . . . . . . . . . . . . . . . . . . . . 16
13.5 Notice . . . . . . . . . . . . . . . . . . . . . . . 16
13.6 Counterparts . . . . . . . . . . . . . . . . . . . . 17
13.7 Headings . . . . . . . . . . . . . . . . . . . . . . 17
13.8 Further Assurances . . . . . . . . . . . . . . . . . 17
13.9 Compliance with Laws . . . . . . . . . . . . . . . . 17
ATTACHMENT "A" - FRANCHISE AGREEMENT . . . . . . . . . . . . . 21
ATTACHMENT "B" - DEVELOPER'S PRINCIPALS
CONFIDENTIALITY AGREEMENT22 . . . . . . . . . .
ATTACHMENT "C" - EMPLOYEE CONFIDENTIALITY AGREEMENT. . . . . . 23
ATTACHMENT "D" - GUARANTY. . . . . . . . . . . . . . . . . . . 24
<PAGE>
SHOWBIZ PIZZA TIME, INC.
DEVELOPMENT AGREEMENT
This Development Agreement is entered into as of this ----day
of , 1997, by and between ShowBiz Pizza Time, Inc., a Kansas
corporation ("Franchisor"), and ---------- a -----------
corporation ("Developer").
RECITALS
1. Franchisor has developed and is the owner of a System for the
establishment, development and operation of family-oriented pizza
restaurants;
2. Franchisor has developed and is the owner of, or licensee with
rights to sublicense, certain Animated Entertainment and
Proprietary Marks which are utilized in connection with and
identify the System;
3. Developer desires to obtain from Franchisor certain rights to
use the System, the Animated Entertainment and the Proprietary
Marks to develop and establish Franchised Restaurants in the
Territory; and
4. Franchisor desires to grant to Developer certain rights to use
the System, the Animated Entertainment and the Proprietary Marks to
develop and establish Franchised Restaurants in the Territory.
NOW THEREFORE, Franchisor and Developer in consideration of the
undertakings and commitments set forth herein, agree as follows:
1. DEFINITIONS
As used in this Agreement and the above Recitals, the
following capitalized terms shall have the meanings attributed to
them in this Section:
1.1 "Action" means any cause of action, suit, proceeding, claim,
demand, investigation or inquiry (whether a formal proceeding or
otherwise) with respect to which Developer's indemnity applies.
1.2 "Agreement" means this Development Agreement and all
attachments.
1.3 "Animated Entertainment" means the computer hardware and
software, artistic designs, scripts and musical scores, staging and
lighting techniques and configurations, plans, manuals and
specifications, manufacturing know-how and other intellectual
property relating to video display entertainment and to three
dimensional computer controlled animated characters, including
present and future improvements, patents, trademarks, copyrights
and other intellectual and artistic property.
1.4 "Change in Control" means a transfer of an Equity Interest in
Developer which, directly or indirectly, causes a change in the
number of Persons which can vote more than fifty percent (50%) of
the total Equity Interest in Developer.
1.5 "Competing Business" means a business which operates a
restaurant or food service outlet in combination with entertainment
in the form of video games, video displays or computer controlled
animated characters.
1.6 "Confidential Information" means the terms of the Development
Agreement and Franchise Agreement and any amendments thereto, the
System, the Animated Entertainment, manuals, written directives and
all drawings, equipment, recipes, and all other information know-how,
techniques, materials and data imparted or made available by
Franchisor which is (i) designated as confidential, (ii) known by
Developer to be considered confidential by Franchisor or (iii) by
its nature inherently or reasonably considered confidential.
1.7 "Developer" means -------------------------.
1.8 "Developer's Principals" means Developer's spouse, if
Developer is an individual, all officers and directors of Developer
and all holders of an ownership interest in Developer and of any
entity directly or indirectly controlling Developer, all as listed
on Schedule 1.7 attached hereto.
1.9 "Development Schedule" means the schedule pursuant to which
the Developer will establish Franchised Restaurants as set forth in
Section 4.
1.10 "Equity Interest" means a direct or indirect ownership
interest in the capital stock of, partnership or membership
interest in, or other equity or ownership interest in Developer
(including the right to vote) any type of legal entity.
1.11 "Execution Date" means the date upon which a Franchise
Agreement is duly executed between a franchisee and Franchisor.
1.12 "Franchise Agreement" means the then-current form of franchise
agreement approved by Franchisor and to be executed with
franchisees in accordance with this Agreement, the current form of
which is attached as Attachment "A."
1.13 "Franchised Restaurant" means a Restaurant opened pursuant to
the Development Schedule and operated (i) at a Site approved by
Franchisor pursuant to this Agreement and (ii) pursuant to a duly
executed Franchise Agreement.
1.14 "Franchisee" means any person or legal entity approved by
Franchisor to enter into a Franchise Agreement and to establish a
Franchised Restaurant.
1.15 "Franchisor" means ShowBiz Pizza Time, Inc. or any person or
legal entity to which ShowBiz Pizza Time, Inc. assigns or otherwise
transfers its rights and obligations contained in this Agreement.
1.16 "Indemnitees" means Franchisor and is subsidiaries and
affiliates, and directors, officers, employees, shareholders,
affiliates, successors and assigns.
1.17 "Losses and Expenses" means compensatory, exemplary or
punitive damages, fines, penalties, charges, assessments and fees
(including reasonable attorneys', experts', accountants' and
consultants' fees); interest, court costs, settlement or judgment
amounts and other similar amounts incurred, charged against or
suffered by the Indemnitees in connection with any Action.
1.18 "Minority Interest" means a direct or indirect ownership
interest of less than five percent (5%) of the capital stock of,
partnership interest in, or other equity interest in (including the
right to vote) any type of legal entity.
1.19 "Operational" used in reference to a Franchised Restaurant,
means a Franchised Restaurant that is fully constructed and
finished out as approved by Franchisor and is legally permitted to
render its services to the general public pursuant to a duly
executed Franchise Agreement.
1.20 "Person" means an individual, corporation, limited liability
company, partnership, association, joint stock company, trust or
trustee thereof, estate or executor thereof, unincorporated
organization or joint venture, court or governmental unit or any
agency or subdivision thereof, or any other legally recognizable
entity.
1.21 "Proprietary Marks" means the trademarks, trade names, service
marks, logos, emblems and other indicia of origin as designated
from time to time by Franchisor, which may be owned by Franchisor
or licensed to Franchisor with sublicensing rights, including, but
not limited to, the marks: "Chuck E. Cheese" and "ShowBiz Pizza
Time."
1.22 "Restaurant" means a family-oriented pizza restaurant operated
utilizing the System, the Proprietary Marks and the Animated
Entertainment.
1.23 "Site" means the location for the construction and operation
of a Franchised Restaurant which has been approved as per Section
4 of this Agreement.
1.24 "System" means the unique system developed and owned by
Franchisor for the establishment, development, and operation of
family-oriented pizza restaurants, the distinguishing
characteristics of which include without limitation, Animated
Entertainment; separate areas with a variety of rides, amusement
games and other attractions; characteristic decorations,
furnishings and materials; specially-designed equipment and
equipment layouts; trade secret food products and other special
recipes, menus and food and beverage designations; food and
beverage preparation and service procedures and techniques;
operating procedures for sanitation and maintenance; methods and
techniques for inventory and cost controls, record keeping and
reporting, personnel training and management, and advertising and
promotional programs; cornerstones of operation; and operational
policies; all of which may be changed, improved or further
developed by Franchisor from time to time.
1.25 "Territory" means ------------ in which the Developer develop
the System in accordance with the terms and conditions of this
Agreement.
1.26 "Transfer" means the sale, assignment, conveyance, pledge,
mortgage or other encumbrance, whether direct or indirect, in whole
or in part, or in one or a series of related transactions or
occurrences, of (i) this Agreement, (ii) any Franchise Agreement
between Franchisor and Developer, (iii) any Equity Interests in
Developer, or (iv) in the assets of Developer.
2. GRANT OF RIGHTS
2.1 Grant Franchisor hereby grants to Developer the right, and
Developer undertakes the obligation, pursuant to the terms and
conditions of this Agreement, to establish and operate ----------
(---) Franchised Restaurants at duly approved Sites in the
Territory and pursuant to duly executed Franchise Agreements.
2.2 Exclusivity For so long as Developer is in compliance with
this Agreement, Franchisor will not, without Developer's prior
written consent, establish or operate, or license anyone other than
Developer to establish or operate Franchised Restaurant in the
Territory prior to the last date specified in the Development
Schedule.
2.3 Right of First Refusal For a period of two (2) years after
the successful and timely completion of the Development Schedule,
if Franchisor proposes to establish any additional Franchised
Restaurants in the Territory, Developer shall have the right to
enter into a new Development Agreement and/or Franchise Agreement
to establish such additional Franchised Restaurants under the terms
and conditions of the then-current form of Development and/or
Franchise Agreements. If the Developer and Franchisor have not
executed a new Development and/or Franchise Agreement within a
period of thirty (30) days after Franchisor provides written notice
to Developer of Franchisor's desire to further develop the
Territory, Franchisor will have the right, to the exclusion of
Developer, to further develop or establish additional Franchised
Restaurant in the Territory on its own or with others.
2.4 Limitation of Rights Notwithstanding Section 2.2, Franchisor
reserves the right to sell, market, and distribute goods and
services, without obtaining the prior approval of Developer, under
any marks (including the Proprietary Marks) through any retail,
wholesale, or other channel of distribution, regardless of whether
the goods or services are: (i) now existing or hereinafter
developed; (ii) part of the System; or (iii) now or at any time
hereafter authorized for use or sale at any Franchised Restaurant.
This Agreement is not a Franchise Agreement, and Developer
shall have no right to use, or to license to others in any manner,
the Proprietary Marks, the Animated Entertainment or the System by
virtue hereof.
3. FEES
3.1 Development Fee Upon the execution of this Agreement,
Franchisor shall deliver a nonrefundable development fee of ----------Dollars
($-------) in consideration for the administrative and
other expenses incurred by Franchisor and for the development
opportunities lost or deferred as a result of Franchisor's entering
into this Agreement with Developer.
3.2 Franchise Fees Upon the execution of this Agreement,
Developer shall deliver a non-refundable franchise fee of Fifteen
Thousand Dollars ($15,000) for the first Franchise Agreement to be
executed pursuant to the Development Schedule. Such non-refundable
fee, which shall be deemed earned by Franchisor when received, is
in consideration for administrative and other expenses incurred by
Franchisor and for the development opportunities lost or deferred
as a result of Franchisor's entering into this Agreement with
Developer. The Developer will deliver all future franchise fees
upon the execution of and in accordance with the terms (including
franchise fee amounts) and conditions of the respective Franchise
Agreement.
3.3 Payment and Taxes All payments made by Developer to
Franchisor pursuant to this Agreement will be in United States
dollars and will be made free and clear of any tax, deduction,
offset or withholding of any kind. All taxes and penalties on any
payment made by Developer pursuant to this Agreement now or in the
future will be fully borne by Developer.
4. DEVELOPMENT SCHEDULE
4.1 Development Schedule The Developer agrees to execute a
Franchise Agreement and establish Franchised Restaurants at Sites
in the Territory in accordance with the following Development
Schedule:
Execution Date:
Number of Franchised Restaurants
Operated by Developer Directly:
Number of Franhised Restaurants
operated by an Entity in which
Developer has a Majority Equity Interest:
Total Number of Franchised Restaurants:
4.2 Ownership Interest Franchisor and Developer agree that the
Developer shall enter into a Franchise Agreement and establish and
operate the Franchised Restaurants either directly or by using
subsidiaries in which it has a majority Equity Interest.
4.3 Site Location and Approval Developer agrees that prior to or
within one hundred and twenty (120) days after the execution of
a Franchise Agreement, it will locate or cause the franchisee under
the Franchise Agreement in question to locate a Site within the
Territory for the establishment and operation of the respective
Franchised Restaurant. Within the same one hundred and twenty
(120) day period, Developer also agrees that it will cause the
franchisee under the respective Franchise Agreement to obtain the
approval for such Site from the Franchisor as per the terms and
conditions of the respective Franchise Agreement.
4.4 Operational Date Developer agrees that, within a period of -----
- ---------- (---) days from the approval by Franchisor of the
Site, it will cause the respective Franchised Restaurant to be
fully Operational.
4.5 Extensions Developer shall at all times comply with the
Development Schedule. However, Franchisor, at its sole discretion
and without obligation, may grant a written extension or
extensions to Developer for the period of time that the Developer
requests. In the event Franchisor grants an extension, Developer
agrees to pay Franchisor a non-refundable extension fee of
US$________ (_____) for every seven (7) day period of the
extension.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS
5.1 Representations, Warranties and Covenants of Developer
5.1.1 Due Incorporation Developer is a corporation,
limited liability company, or limited or general partnership duly
organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with all requisite power and
authority to enter into this Agreement and perform the obligations
contained herein.
5.1.2 Authorization. The execution, delivery and
performance by Developer of this Agreement and all other agreements
contemplated herein has been duly authorized by all requisite
actions on the part of Developer and no further actions are
necessary to make this Agreement or such other agreements valid and
binding upon it and enforceable against it in accordance with their
respective terms.
5.1.3 Execution and Performance Neither the execution,
delivery nor performance by Developer of this Agreement or any
other agreements contemplated hereby will conflict with, or result
in a breach of any term or provision of Developer's charter, by-laws,
articles of organization, or partnership agreement and/or
other governing documents and any amendments thereto, any
indenture, mortgage, deed of trust or other material contract or
agreement to which Developer is a party or by which it or any of
its assets are bound, or breach any order, writ, injunction or
decree of any court, administrative agency or governmental body.
5.1.4 Corporate Documents Certified copies of Developer's
charter, by-laws, articles of organization, partnership agreement
and/or other governing documents and any amendments thereto,
including board of director's or partner's resolutions authorizing
this Agreement have been delivered to Franchisor. Any amendments
or changes to such governing or charter documents subsequent to the
date of this Agreement, shall not be undertaken without
Franchisor's prior written consent.
5.1.5 Non-Competition during Term of Agreement Unless
approved by Franchisor in writing, during the term of this
Agreement, Developer and Developer's Principals shall not, directly
or indirectly:
(a) Divert or attempt to divert business of any
Franchised Restaurant established pursuant to a Franchise Agreement
to any competitor, or do or perform any other act injurious or
prejudicial to the goodwill associated with Franchisor's
Proprietary Marks, the Animated Entertainment and the System;
(b) Employ or seek to employ any person who is employed
by Franchisor or by any other franchisee or developer of
Franchisor; and
(c) Except as provided for herein, own, maintain, engage
in, or have an Equity Interest in a Competing Business; provided
that this provision shall not apply to any Minority Interest
collectively held by Developer or Developer's Principals in any
publicly-held corporation listed on a national stock exchange.
5.1.6 Non-Competition after Termination or Non-renewal
of Agreement Unless approved by Franchisor in writing, for a
period of one (1) year after the expiration transfer by Developer
of its interest in this Agreement, Developer and Developer's
Principals shall not, directly or indirectly:
(a) Divert or attempt to divert business of any
Franchised Restaurant established pursuant to a Franchise Agreement
to any competitor, or do or perform any other act injurious or
prejudicial to the goodwill associated with Franchisor's
Proprietary Marks, the Animated Entertainment and the System;
(b) Employ or seek to employ any person who is employed
by Franchisor or by any other franchisee or developer of
Franchisor; and
(c) Except as provided for herein, own, maintain, engage
in, or have an Equity Interest in a Competing Business within
twenty five (25) miles from the outer boundaries of the Territory;
provided that this provision shall not apply to any Minority
Interest collectively held by Developer or Developer's Principals
in any publicly-held corporation.
5.1.7 Additional Covenants At Franchisor's request,
Developer shall require and obtain for the benefit of Franchisor
execution of covenants similar to those set forth in this Section
from any and all of its employees having access to materials or
information furnished or disclosed to Developer by Franchisor.
5.1.8 Guaranty As an inducement and as a condition to
Franchisor execution and acceptance of this Agreement, Franchisor
may require any or all of Developer's Principals to execute a
Guaranty in the form of Attachment D hereto.
5.2 Representations, Warranties and Covenants of Franchisor
5.2.1 Due Incorporation Franchisor is a corporation duly
organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with all requisite power and
authority to enter into this Agreement and perform the obligations
contained herein.
5.2.2 Authorization The execution, delivery and
performance by Franchisor of this Agreement and all other
agreements contemplated herein has been duly authorized by all
requisite corporate actions and no further actions are necessary to
make this Agreement or such other agreements valid and binding upon
it and enforceable against it in accordance with their respective
terms.
5.2.3 Execution and Performance Neither the execution,
delivery nor performance by Franchisor of this Agreement or any
other agreements contemplated hereby will conflict with, or result
in a breach of any term or provision of Franchisor's articles of
incorporation or by-laws, or any indenture, mortgage, deed of trust
or other contract or agreement to which Franchisor is a party or by
which it or any of its assets are bound, or breach any order, writ,
injunction or decree of any court, administrative agency or
governmental body.
6. PROPRIETARY INFORMATION
6.1 Confidential Information The Developer and the Developer's
Principals shall only communicate, disclose or use the Confidential
Information as expressly permitted herein or as required by law.
Developer and Developer's Principals shall disclose the
Confidential Information only to such of Developer's employees,
agents, or independent contractors who must have access to it in
connection with their employment.
6.1.1 Confidentiality Agreements Developer shall cause
Developer's Principals and employees having access to the
Confidential Information to execute confidentiality agreements
substantially in the form of Attachments B and C stating that they
will preserve in confidence all Confidential Information. Neither
Developer, Developer's Principal's or their respective employees
may at any time, without Franchisor's prior written consent, copy,
duplicate, record or otherwise reproduce the Confidential
Information, in whole or in part, nor otherwise make the same
available to any unauthorized person.
6.1.2 Improvements If Developer makes any improvements
(as determined by Franchisor) to the Confidential Information,
Developer and the Developer's Principals shall each execute an
amendment to this Agreement reflecting such improvements and
Franchisor's exclusive ownership thereof. All such improvements,
which are hereby assigned to Franchisor, shall be considered
Confidential Information.
6.2 Proprietary Marks Developer acknowledges Franchisor's
exclusive ownership of the Proprietary Marks and shall neither
directly or indirectly contest or impair Franchisor's exclusive
ownership of, and/or license with respect to, the Proprietary
Marks.
7. TRANSFER OF INTEREST
7.1 Transfer by Franchisor Franchisor shall have the right to
transfer or assign this Agreement, its rights to the Proprietary
Marks, and all or any part of its rights or obligations herein to
any person or legal entity without the consent of Developer or
Developer's Principals. Upon such transfer by Franchisor, any
transferee or assignee of Franchisor shall become solely
responsible for all obligations of Franchisor under this Agreement
from the date of transfer or assignment.
7.2. Transfer by Franchisee Developer and Developer's Principals
understand and acknowledge that the rights and duties set forth in
this Development Agreement are personal to Developer and are
granted, in part, in reliance upon the skill, aptitude, business
and financial capacity of Developer and Developer's Principals and
their intention of complying with its terms and conditions.
Therefore, if the Developer and/or Developer's Principals desire to
Transfer any interest in this Agreement, they must first obtain the
prior written approval of Franchisor.
Prior to authorizing such Transfer, Franchisor may require,
among other things, satisfaction of the following:
(a) Developer shall be in compliance with all of the terms
and conditions of this Agreement;
(b) Developer and/or any Developer's Principal shall remain
liable for the performance of its obligations contained in this
Agreement through the date of transfer and shall execute all
instruments reasonably requested by Developer to evidence such
liability;
(c) The transferee shall satisfy, in Franchisor's judgment,
Franchisor's then existing criteria for a developer including,
without limitation: (i) education; (ii) business skill, experience
and aptitude; (iii) character and reputation; and (iv) financial
resources;
(d) The transferee and all owners of any record or beneficial
interest in the capital stock (or other interest) of transferee
shall execute all instruments (including a new development
agreement and guarantee) reasonably requested by Franchisor to
evidence acceptance and assumption of all of the terms and
conditions of this Agreement; and
(e) If the Developer does not have a majority Equity Interest
(as reasonably determined by Franchisor) in the transferee,
Franchisor may request a transfer fee equal to one-half (1/2) of the
development fee contained herein.
8. INSURANCE AND INDEMNITY
8.1 Insurance During the entire term of this Agreement, Developer
must maintain comprehensive general liability insurance (including
property damage), and personal injury coverage, workers'
compensation and employer's liability insurance, automobile
liability insurance, and other insurance that is required or
customary in the Territory. The insurance must be underwritten by
an insurance company satisfactory to Franchisor and name Franchisor
as an additional insured party. The insurance policies must
provide that they may not be canceled or changed without at least
thirty (30) days prior written notice to Franchisor. Developer
must furnish Franchisor with evidence that Developer has obtained
the required insurance before the first Franchised Restaurant is
opened, and each year afterwards, and at any other time a carrier
or coverage is changed. Franchisor may, in its sole discretion,
require Developer to increase its insurance coverage amounts by
providing thirty (30) days prior written notice. If Developer
fails to obtain the insurance required by this Section, Franchisor
may (but is not required to) purchase insurance on Developer's
behalf at Developer's sole cost and expense.
8.2 Indemnities
8.2.1 Indemnification Developer and Developer's
Principals agree to and hereby, jointly and severally, indemnify,
defend (by counsel chosen by Franchisor) and agree to hold harmless
each Indemnitee from all Losses and Expenses alleged, incurred or
assessed in connection with:
(a) Developer's or any Developer's Principal's alleged
infringement or alleged violation of any trademark
or other proprietary name, mark, or right allegedly
owned or controlled by a third party;
(b) The violation, breach or asserted violation or
breach, by Developer or any of Developer's
Principals, of any federal, state or local law,
regulation, ruling, standard or directive or any
industry standard;
(c) Libel, slander or any other form of defamation of
Franchisor, the System or any developer or
franchisee operating under the System, by Developer
or by any of Developer's Principals;
(d) The violation or breach by Developer or any of
Developer's Principals, of any warranty,
representation, agreement or obligation in this
Agreement or in any other agreement, between
Developer, its subsidiaries and affiliates and
Franchisor, its subsidiaries and affiliates or the
officers, directors, shareholders, partners,
agents, representatives, independent contractors
and employees thereof; and
(e) Acts, errors, or omissions of Developer, any of
Developer's subsidiaries or affiliates or any of
Developer's Principals and the officers, directors,
shareholders, partners, agents, representatives,
independent contractors and employees of Developer
and its subsidiaries and affiliates in connection
with the development activities contemplated under
this Agreement or the operation of a Franchised
Restaurant.
8.2.2. Notice and Counsel Developer and each of
Developer's Principals agree to give Franchisor immediate notice of
any Action. Franchisor may engage, at its expense, separate
counsel to represent the Indemnitees in such Action and/or elect to
assume (but under no circumstance is obligated to undertake) the
defense and/or reasonable settlement of any Action. Franchisor's
election to settle shall not diminish Developer's and each of
Developer's Principal's obligation to defend, indemnify and hold
the Indemnitees harmless from all Losses and Expenses.
8.2.3 Settlement and Remedial Actions In order to protect
persons or property, or its reputation or goodwill, or the
reputation or goodwill of others, Franchisor may, at any time and
without notice, as it, in its sole judgment deems appropriate,
consent or agree to settlements or take such other remedial or
corrective actions it deems expedient with respect to any Action
if, in Franchisor's sole judgment, there are reasonable grounds to
believe that:
(a) any of the acts or circumstances enumerated in
Section 8.2.1 ((a) through (d)) above have occurred;
(b) any act, error, or omission as described in Section
8.2.1 (e) may result directly or indirectly in damage, injury, or
harm to any person or any property.
8.2.4 Expenses All Losses and Expenses incurred under
this Section shall be chargeable to and paid by Developer or any of
Developer's Principals pursuant to Developer's obligations of
indemnity under this paragraph regardless of any actions, activity
or defense undertaken by Franchisor or the subsequent success or
failure of such actions, activity, or defense.
8.2.5 Third Party Recovery Under no circumstances shall
the Indemnitees be required or obligated to seek recovery from
third parties or otherwise mitigate their losses in order to
maintain a claim against Developer or any of Developer's
Principals. Developer and each of Developer's Principals agree
that the failure to pursue such recovery or mitigate loss will in
no way reduce the amounts recoverable from Developer or any of
Developer's Principals by the Indemnitees.
8.2.6 Survival Developer and Developer's Principals
expressly agree that the terms of this Section 8 shall survive the
termination, expiration or transfer of this Agreement or any
interest herein.
9. TERM AND TERMINATION
9.1 Term Unless terminated as provided for herein, the term of
this Agreement and all rights granted hereunder shall expire on the
date on which Developer successfully and in a timely manner
completes the Development Schedule.
9.2 Termination without Notice This Agreement shall automatically
terminate without notice to Developer if:
(a) Developer is adjudicated bankrupt or makes a general
assignment for the benefit of creditors;
(b) A bankruptcy petition is filed against, by or with the
consent of, Developer;
(c) Developer is adjudicated bankrupt, or a bill in equity or
other proceeding for the appointment of a receiver of
Developer or other custodian or Trustee for Developer's
business or assets is filed and consented to by
Developer;
(d) A receiver or other custodian or trustee (permanent or
temporary) of Developer's assets or property, or any part
thereof, is appointed by any court of competent
jurisdiction;
(e) Proceedings for a composition with creditors under any
state or federal law is instituted by or against
Developer, or a final judgment remains unsatisfied or of
record for thirty (30) days or longer (unless a
supersedeas bond is filed);
(f) Execution is levied against Developer's assets or
property, or suit to foreclose any lien or mortgage
against the premises or equipment of any restaurant
established pursuant hereto is instituted against
Developer and not dismissed within thirty (30) days.
9.3 Termination with Notice Franchisor or Developer may terminate
this Agreement upon the breach or non-compliance by the other of
any material obligation contained in this Agreement. Upon such
breach or non-compliance, the non-breaching party will provide the
breaching party with written notice of such breach. The breaching
party shall have a period of thirty (30) working days from the date
of the receipt of the notice to remedy the breach or non-compliance.
If the breach or default is not remedied within the
aforementioned period, this Agreement shall be terminated without
the need for further notice or court order.
10. REMEDIES AND LIQUIDATED DAMAGES
10.1 Remedies Upon the occurrence of an uncured breach and
subsequent termination pursuant to section 9, Franchisor may
exercise one or more of the following remedies or such other
remedies as may be available at law or in equity (each of the
following remedies are nonexclusive and noncumulative):
10.1.1 Reduction of Exclusivity Franchisor, at its sole
discretion, can completely terminate or, alternatively, reduce the
number of Franchised Restaurants that Developer was given the right
to develop and establish pursuant to the Development Schedule or
terminate or reduce the territorial exclusivity granted Developer
pursuant to Section 2 in the understanding that this Agreement will
remain in effect and will be considered to be amended accordingly.
10.1.2 Cure Franchisor, at Franchisor's discretion and
without obligation, may cure such breach at Developer's expense
and, in connection therewith, Developer (i) hereby grants to
Franchisor all rights and powers necessary or appropriate to
accomplish such cure; (ii) shall indemnify and hold the Indemnitees
harmless from and against all costs, expenses (including reasonable
fees of counsel and other engaged professionals), liabilities,
claims, demands and causes of action (including actions of third
parties) incurred by or alleged against any Indemnitee in
connection with Franchisor's cure; and (iii) shall reimburse or pay
such costs or damages within ten (10) days of receipt of
Franchisor's invoice therefor;
10.1.3 Specific Enforcement Franchisor may, in addition to
pursuing any other remedies, specifically enforce Developer's and
Developer's Principal's obligations, covenants and agreements or
obtain injunctive or other equitable relief in connection with the
violation or anticipated violation of such obligations, covenants
and agreements without the necessity of showing (i) actual or
threatened harm; (ii) the inadequacy of damages as a remedy; or
(iii) likelihood of success on the merits, and without being
required to furnish bond or other security. Nothing in this
Agreement shall impair Franchisor's right to obtain equitable
relief.
10.2 Liquidated Damages Developer acknowledges that its uncured
breach of any of the terms of this Agreement will materially and
adversely affect Franchisor and that the quantum of such damages
may not be easily ascertainable. Accordingly, Developer agrees
that, as liquidated damages for the non-performance of its
obligations under this Agreement, in addition to any other remedy
available to Franchisor, Developer shall pay to Franchisor US$--------
initially and US$------- per month per violation for so long as
each such violation remains uncured; provided, however, that this
provision will only be operative upon material breaches of this
Agreement which are in Developer's or Developer's Principals'
control.
11. DUE DILIGENCE AND ASSUMPTION OF RISK
Developer and Developer's Principals have received, read and
understood this Agreement, the documents referred to herein and the
Attachments and Schedules hereto. Developer and Developer's
Principals further acknowledge that they have received the
disclosure documents required by the Federal Trade Commission trade
regulation rule entitled Disclosure Requirements and Prohibitions
Concerning Franchising and Business Opportunity Ventures, at least
ten (10) business days prior to the date on which this Agreement
was executed. Developer and Developer's Principals: (i) have had
ample time and opportunity to consult with their advisors
concerning the potential benefits and risks of entering into this
Agreement; (ii) have conducted such due diligence and investigation
as they desire; (iii) recognize that the business venture described
herein involves risks; and (iv) acknowledge that the success of
such business venture is dependent upon, among other factors
unrelated to Franchisor, the abilities of Developer and
Developer's Principals. FRANCHISOR EXPRESSLY DISCLAIMS THE MAKING
OF, AND DEVELOPER AND EACH OF DEVELOPER'S PRINCIPALS ACKNOWLEDGE
THAT THEY HAVE NOT RECEIVED OR RELIED UPON, ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO THE POTENTIAL PERFORMANCE OR
VIABILITY OF THE BUSINESS VENTURE CONTEMPLATED BY THIS AGREEMENT.
12. DISPUTE RESOLUTION
12.1 Mediation Except for infringement of Proprietary Marks,
Animated Entertainment or other violation of Franchisor's
intellectual property rights, regarding which Franchisor may apply
for emergency, special, or injunctive relief, both Franchisor and
Developer will attempt in good faith to settle any dispute related
to this Agreement. If Franchisor and Developer are unable to do
so, they hereby agree to submit to non-binding mediation prior to
bringing such claim, controversy or dispute in a court. The
mediation shall be conducted through either an individual mediator
or a mediator appointed by a mediation services organization or
body, experienced in the mediation of food service business
disputes, as agreed upon by Franchisor and Developer. The costs
and expenses of mediation, including compensation of the mediator,
shall be borne by the parties equally. If the parties are unable
to resolve the claim, controversy or dispute within -------- (---)
days after the mediator has been appointed, unless such time period
is extended by written agreement of the parties, then either party
may bring a legal proceeding under the following to resolve such
claim,
[CONSIDER BINDING ARBITRATION CLAUSE]
12.2 Applicable Law Franchisor and Developer agree that this
Agreement shall be governed, construed and enforced in accordance
with the laws of the State of Texas without regard to its conflicts
of laws provisions.
12.3 Jurisdiction and Venue Franchisor and Developer hereby
irrevocably submit themselves to the jurisdiction of the state
courts of Dallas County, Texas and the Federal District Court for
the Northern District of Texas, Dallas Division. However, with
respect to any action (i) for monies owed, (ii) for injunctive or
other extraordinary relief, or (iii) involving ownership or use of
the Proprietary Marks or the Animated Entertainment, Franchisor may
bring such action in any state or federal district court which has
jurisdiction.
13. MISCELLANEOUS
13.1 Independent Contractors In performing this Agreement, the
parties specifically agree that Franchisor and Developer's
relationship is and always will be solely that of independent
contractors. Neither Franchisor or Developer shall not represent
itself or permit any of its employees, agents, servants, or
representatives to represent itself as an employee, agent, servant,
or joint venturer of the other. Neither party shall have no right
to and shall not attempt to enter into contracts or commitments in
the name of or on behalf of the other in any respect whatsoever.
13.2 Entire Agreement This Agreement and the Attachments hereto
constitute the entire agreement between Franchisor, Developer and
Developer's Principals concerning the subject matter hereof. All
prior agreements, discussions, representations, warranties and
covenants are merged herein. THERE ARE NO WARRANTIES,
REPRESENTATIONS, COVENANTS OR AGREEMENTS, EXPRESS OR IMPLIED,
BETWEEN THE PARTIES EXCEPT THOSE EXPRESSLY SET FORTH IN THIS
AGREEMENT. Except those permitted to be made unilaterally by
Franchisor, any amendments or modifications of this Agreement shall
be in writing and executed by Franchisor and Developer.
13.3 No Waiver Either party's failure to exercise any right or
remedy or to enforce any obligation, covenant or agreement herein
shall not constitute a waiver by, or estoppel of, such party's
right to enforce strict compliance with any such obligation,
covenant or agreement. No custom or practice shall modify or amend
this Agreement. Either party's waiver of, or failure or inability
to enforce, any right or remedy shall not impair such party's
rights or remedies with respect to subsequent default of the same,
similar or different nature. Acceptance of any payment shall not
waive any default.
13.4 Severability Should any term, covenant or provision hereof,
or the application thereof, be determined by a valid, final, non-
appealable order to be invalid or unenforceable, the remaining
terms, covenants or provisions hereof shall continue in full force
and effect without regard to the invalid or unenforceable
provision. In such event such term, covenant or provision shall be
deemed modified to impose the maximum duty permitted by law and
such term, covenant or provision shall be valid and enforceable in
such modified form as if separately stated in and made a part of
this Agreement. Notwithstanding the foregoing, if any term hereof
is so determined to be invalid or unenforceable and such
determination adversely affects, in Franchisor's reasonable
judgment, Franchisor's ability to preserve its rights in, or the
goodwill underlying, the Proprietary Marks, the Animated
Entertainment, the System and/or the Confidential Information, or
materially effects Franchisor's other rights hereunder, Franchisor
may terminate this Agreement upon notice to Developer.
13.5 Notice All notices required or desired to be given hereunder
shall be in writing and shall be sent by personal delivery,
expedited delivery service, return receipt requested or facsimile
to the following addresses or such other addresses as designated by
Franchisor or Developer in writing pursuant to this Section:
Notices to FRANCHISOR: Director of Franchising
ShowBiz Pizza Time, Inc.
4441 W. Airport Freeway
Post Office Box 152077
Irving, Texas 75062
Tel.
Fax.
Notices to DEVELOPER:
Tel.
Fax.
Notices posted by personal delivery or given by facsimile
shall be deemed given upon receipt. Notice to Developer shall
constitute notice to Developer's Principals.
13.6 Counterparts This Agreement may be executed in any number of
counterparts each of which when so executed shall be an original,
but all of which together shall constitute one (1) and the same
instrument.
13.7 Headings The section headings in this Agreement are for
convenient reference only and shall be given no substantive or
interpretive effect.
13.8 Further Assurances Franchisor and Developer shall execute and
deliver any and all additional papers, documents, and other
assurances and shall do any and all acts and things reasonably
necessary in connection with the performance of their obligations
hereunder and to carry out the intent of the parties hereto.
13.9 Compliance with Laws Developer agrees to comply at its sole
expense with all laws and regulations applicable to this Agreement
and the operation of the Franchised Restaurants.
[Signatures appear on following pages]
IN WITNESS WHEREOF, the parties hereto have fully executed and
delivered this Agreement on the day and year first above written.
SHOWBIZ PIZZA TIME, INC.
By:
Name:
Title:
STATE OF TEXAS S
S
COUNTY OF DALLAS S
Before me personally appeared------------- who, after being
duly sworn, says that he is the ------------- of ShowBiz Pizza
Time, Inc., a corporation, organized and existing under the laws of
Kansas, and that he has authority to execute under oath and has so
executed the above Agreement for and on behalf of such corporation
for such purposes therein contained.
WITNESS my hand and official seal this ---day of -----------,
19--.
(SEAL)
Notary Public
DEVELOPER:
By:
Name:
Title:
STATE OF S
S
COUNTY OF S
Before me personally appeared ---------- who, after being duly
sworn, says that he is the ---------- of --------, a (corporation)
(partnership), organized and existing under the laws of ----------,
and that he has authority to execute under oath and has so executed
the above Agreement for and on behalf of such (corporation)
(partnership) for the purposes therein contained.
WITNESS my hand and official seal this --- day of -------,
199-.
(seal) Notary Public
SCHEDULE 1.7
SCHEDULED DEVELOPER'S PRINCIPALS
ATTACHMENT "A" - FRANCHISE AGREEMENT
ATTACHMENT "B" - DEVELOPER'S PRINCIPALS CONFIDENTIALITY AGREEMENT
ATTACHMENT "C" - EMPLOYEE CONFIDENTIALITY AGREEMENT
ATTACHMENT "D" - GUARANTY
As an inducement to ShowBiz Pizza Time, Inc. ("Franchisor") to
execute the foregoing Development Agreement and the Attachments,
the undersigned, jointly and severally, hereby agree to be
individually bound by all the terms and conditions of the above
Development Agreement including any amendments or modifications
thereto whenever made (hereinafter the "Agreement") and
unconditionally and irrevocably guarantee to Franchisor and its
successors and assigns that all of Developer's obligations under
the Agreement will be punctually paid and performed.
Upon default by Developer or notice from Franchisor, the
undersigned will immediately make each payment and perform each
obligation required of Developer under the Agreement. Without
affecting the obligations of the undersigned under this Guaranty,
Franchisor may, without notice to the undersigned, renew, extend,
modify, amend or release any indebtedness or obligation of
Developer, or settle, adjust, or compromise any claims against
Developer.
The undersigned waive all demands and notices of every kind
with respect to this Guaranty and the Agreement, including, without
limitation, notice of the amendment or modification of this
Guaranty or the Agreement the demand for payment or performance by
Developer, any default by Developer or any guarantor, and any
release of any guarantor or other security for the Agreement or the
obligations of Developer.
Franchisor may pursue its rights against the undersigned
without first exhausting its remedies against Developer and without
joining any other guarantor hereto and no delay on the part of
Franchisor in the exercise of any right or remedy shall operate as
a waiver of such right or remedy, and no single or partial exercise
by Franchisor of any right or remedy shall preclude the further
exercise of such right or remedy.
Upon receipt by Franchisor of notice of the death of an
individual guarantor, the estate of such guarantor will be bound by
this Guaranty but only for defaults and obligations hereunder
existing at the time of death, and the obligations of the other
guarantors hereunder will continue in full force and effect.
IN WITNESS WHEREOF, each of the undersigned has signed this
Guaranty as of the date of the Agreement.
Witnesses: Guarantors:
STATE OF S
S
COUNTY OF S
Before me personally appeared the following persons, ------------,
- ---------------- who are known to me to be the persons who
executed the foregoing Guaranty and each acknowledged the same to
be his or her free act and deed for the purposes therein
contained.
WITNESS my hand and official seal this ---day of ----------,
199-.
Notary Public in and for
the State of ------------
10(t)(1)
NATIONAL ADVERTISING FUND LINE OF CREDIT
By this Agreement, dated as of December 22, 1997, SHOWBIZ
PIZZA TIME, INC. ("Lender") and INTERNATIONAL ASSOCIATION OF
SHOWBIZ PIZZA TIME RESTAURANTS, INC., ("Borrower") (hereinafter
collectively referred to as "Parties") hereby agree as follows:
1. Revolving Commitment. Subject to the terms and
conditions in this Agreement, Lender agrees to advance to Borrower
from time to time amounts not to exceed Eight Hundred Thousand and
no/100 Dollars ($800,000.00) in the aggregate outstanding at any
one time. No new advance shall be made under this Agreement after
December 31, 1998. Subject to the foregoing limitations, Borrower
may borrow, repay, prepay and reborrow amounts under this
Agreement.
2. Note. Borrower's obligation to repay amounts borrowed
under this Agreement is further evidenced by an National
Advertising Production Fund Promissory Note, (the "Note") bearing
the same date as this Agreement. Payment of principal and
interest, and accrual of interest, on amounts borrowed under this
Agreement shall be as provided in the Note.
3. Use of Proceeds. Borrower shall use amounts borrowed
under this Agreement only to purchase goods and services related to
the production of electronic and hardcopy advertising materials
(collectively, the "Project"). Upon Lender's reasonable request,
Borrower shall provide copies of invoices and other documents which
evidence Borrower's compliance with this Section 3.
4. Records and Reports. Upon Lender's reasonable request,
Borrower shall provide reports and copies of invoices, canceled
checks and other business records pertaining a proposed advance, to
the Project, this Agreement or the Note.
5. Condition to Loans. The obligation of Lender to make
advances under this Agreement is subject to the satisfaction of
each of the following conditions:
(a) No default under this Agreement, and no event which
would constitute a default but for the giving of
notice or the passage of time thereafter, shall
have occurred and be continuing on the date of such
advance;
(b) The representations and warranties of Borrower set
forth in this Agreement shall be true as of the
date of such advance;
(c) Borrower pursuant to this Agreement; and
(d) No material adverse change has occurred, in
Lender's sole determination, in the businesses of
Lender's restaurants or in the financial condition
of Borrower.
6. Representation and Warranties. Borrower represents and
warrants that: (a) Borrower is a corporation duly incorporated,
validly existing and in good standing under the laws of the State
of Texas; (b) the execution delivery and performance of this
Agreement and the Note have been duly authorized by all necessary
corporate action; and (c) this Agreement and the Note constitute
the valid and binding obligations of Borrower and are enforceable
in accordance with their terms.
7. Default. Borrower shall be in default under this
Agreement if one or more of the following events shall have
occurred and be continuing:
(a) The failure by Borrower to make any payment of
principal or interest on the Note within ten (10)
days after the same becomes due and payable;
(b) The failure by Borrower to perform any of its
obligations, except the payment of principal and
interest, arising under the Note, this Agreement or
any other agreement between Borrower and Lender
with in five (5) days after written notice of such
failure; or
(c) The filing by or against the Borrower of a
voluntary or involuntary proceeding seeking
liquidation, reorganization or other relief with
respect to Borrower or its debts under any
bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other
similar official for Borrower or any substantial
part of its property and, in the case of any
involuntary proceeding not consented to by
Borrower, such proceeding is not dismissed within
sixty (60) days.
8. Remedies. The following remedies are available to Lender
if Borrower is in default
under this Agreement: (a) the outstanding principal and accrued
interest under the Note shall mature and become automatically due
and payable, without notice or demand; (b) Lender may terminate its
commitment to advance monies under this Agreement; and (c) Lender
may exercise any other remedies permitted by law or equity.
9. Notices. Any notice under this Agreement shall be
effective upon actual receipt or
upon delivery to the United States Postal Service, with first class
postage, addressed as follow (or to such other address subsequently
provided by the party hereto):
To Lender:
ShowBiz Pizza Time, Inc.
4441 West Airport Freeway
Irving, Texas 75062
Attention: Counsel
To Borrower:
International Association of ShowBiz Pizza Time
Restaurants, Inc.
4441 West Airport Freeway
Irving, Texas 75062
Attention: Mike Hilton
10. Miscellaneous.
(a) No failure or delay by Lender in exercising any
right, power or privilege under this Agreement or
the Note shall operate as a waiver thereof, nor
shall any single or partial exercise thereof
preclude any further exercise thereof or the
exercise of any other right, power or privilege.
(b) The captions used in this Agreement are for
convenience only and shall not be deemed to
amplify, modify or limit the provisions hereof.
(c) Words of any gender used in the Agreement shall be
construed to include any other gender, and words in
the singular shall include the plural and vice
versa, unless the context otherwise requires.
(d) This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and
their respective heirs, legal representatives,
successors and assigns.
(e) This Agreement, together with the Note, contains
the entire agreement of the parties hereto with
respect to the subject matter hereof and can be
altered, amended or modified only by written
instrument executed by both parties.
(f) This Agreement may be executed in multiple copies,
each of which shall be deemed an original, and all
of such copies shall together constitute one and
the same instrument.
(g) Time is of the essence in the performance of each
obligation, covenant and condition under this
Agreement.
(h) This Agreement shall be governed by the laws of the
State of Texas.
11. Prior Agreements. This Agreement amends, supersedes, and
replaces all previous agreements related to the Project.
IN WITNESS HEREOF, the parties have caused this Agreement to
be executed by their duly authorized representatives as of the date
first appearing above.
SHOWBIZ PIZZA TIME, INC.
By: -------------------------
Richard M. Frank
Chairman and Chief
Executive Officer
INTERNATIONAL ASSOCIATION OF
SHOWBIZ PIZZA TIME RESTAURANTS, INC.
By: ----------------------------
Michael A. Hilton
President
10(t)(2)
NATIONAL ADVERTISING FUND
PROMISSORY NOTE
Dated as of
$800,000.00 Irving, Texas December 22, 1997
FOR VALUE RECEIVED, the undersigned INTERNATIONAL ASSOCIATION
OF SHOWBIZ PIZZA TIME RESTAURANTS, INC. ("Borrower"), a Texas
corporation, promises to pay to SHOWBIZ PIZZA TIME, INC.
("Lender"), a Kansas corporation (hereinafter collectively referred
to as "Parties"), the principal sum of EIGHT HUNDRED THOUSAND AND
NO/100 DOLLARS ($800,000.00), or so much thereof as may from time
to time be advanced, together with interest accrued on the unpaid
principal balance hereof as set forth below.
1 . Interest Rate. The unpaid principal amount hereof from
time to time outstanding from the date hereof until maturity shall
bear interest at ten and one-half percent (10.5%). Interest shall
be calculated at the end of each Lender's monthly accounting
periods (which will not correspond with calendar months due to
Lender's 52 week fiscal year) based on the average between the
principal amounts outstanding and unpaid at the beginning of the
monthly accounting period and at the end of such period, but shall
be charged and collected based on the actual number of days
elapsed.
2. Payment of Principal and Interest. Each payment by
Borrower to Lender on this Note shall be applied first to fees
and/or costs, if any, pursuant to Section 8 hereof and then applies
to any accrued interest, and then any remaining portion of the
payment after such applications shall be applied to reduction of
outstanding principal balance of this Note.
3. Revolving Note. This Note is a "revolving line of
credit" note. Principal advances may be made, from time to time,
up to the principal amount of this Note, and principal advances may
be made, from time to time, up to the principal amount of this
Note, and principal payments may, from time to time, be made by
Borrower to reduce the principal balance owing pursuant to this
Note. This Note may be prepaid in whole or in part at any time
without penalty or premium. In no event shall any principal
advance be made after December 31, 1998, and all amounts
outstanding will be due and payable at that time.
4. Line of Credit Agreement. This Note is issued pursuant
to, is entitled to the benefit of, and is subject to the provisions
of the National Advertising Production Fund Line of Credit
Agreement (the "Agreement") between Borrower and Lender dated the
same date as this Note.
5. Events of Default. The outstanding principal and accrued
interest hereon shall mature and become automatically due and
payable, without notice or demand, upon the occurrence and during
the continuance of any of the following events of default:
(a) The failure by Borrower to make a payment of any
principal or interest on the Note within ten (10)
days after the same becomes due and payable;
(b) The failure by Borrower to perform any of its
obligations, except the payment of principal and
interest, arising under this Note, the Agreement or
any other agreement between Borrower and Lender
within five (5) days after receipt of written
notice of such failure; or
(c) The filing by or against the Borrower of a
voluntary or involuntary proceeding seeking
liquidation, reorganization or other relief with
respect to Borrower or its debts under any
bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other
similar official for Borrower or any substantial
part of its property and, in the case of any
involuntary proceeding not consented to by
Borrower, such proceeding is not dismissed within
sixty (60) days of its filing.
6. Remedies. The following remedies are available to Lender
if Borrower is in default under this Note: (a) the outstanding
principal and accrued interest under the Note shall mature and
become automatically due and payable, without notice or demand; (b)
Lender may terminate its commitment to advance monies under this
Note; and (c) Lender may exercise any other remedies available to
it at law or in equity.
7. Waiver. Borrower, sureties, endorsers, guarantors and
any other party now or hereafter liable for the payment of this
Note, in whole or in part, hereby severally (a) waive presentment
for payment, notice of nonpayment, protest, notice of protest,
notice of intent to accelerate, notice of acceleration and all
other notices, filing of suit and diligence in collecting this Note
or enforcing any other security with respect to same, (b) agree to
any substitution, subordination, exchange or release of any such
security or the release of any parties primarily or secondarily
liable hereon, (c) agree that the Lender shall not be required
first to institute suit or exhaust its remedies hereon against the
Borrower, or other any party liable or to become liable hereon or
to enforce its rights against any or all of them or any security
with respect to same, and (d) consent to any extension or
postponement of time of payment of this Note and to any other
indulgence with respect hereto without notice hereof to any of
them.
8. Collection Fees. If this Note is not paid at maturity
and is placed in the hands of a collection agency or an attorney
for collection, or if it is collected through a bankruptcy or any
other court after maturity, then the Lender shall be entitled to
reasonable fees and court costs for collection.
9. Limitation of Agreements. All agreements between the
Borrower and the Lender, whether now existing or hereafter arising
and whether written or oral, are hereby expressly limited so that
in no contingency or event, whether by reason of demand or
otherwise, shall the amount paid, or agreed to be paid to the
Lender for the use, forbearance, or detention of the money to be
loaned under this Note or otherwise or for the payment or
performance of any covenant or obligation contained herein or in
any other document evidencing security or pertaining to the loan
evidenced hereby, exceed the maximum amount permissible under
applicable law, as now existing or as hereafter amended. If from
any circumstances whatsoever fulfillment of any provision hereof or
in any of such other documents at the time performance of such
provision shall be due, shall involve transcending the limit of
validity prescribed by law, then ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity, and if
from any such circumstances the Lender shall ever receive interest
(or anything which might be deemed interest under applicable law)
which would exceed the highest rate of interest allowed by
applicable law, such amount which would be excessive interest shall
be applied to the reduction of the principal due hereunder and not
to the payment of interest, or if such excessive interest exceeds
the unpaid balance of principal of this Note, such excess shall be
refunded to the Borrower. All sums paid or agreed to be paid to
the Lender shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term
of such indebtedness until payment in full so that the actual rate
of interest on account of such indebtedness is uniform, or does not
exceed the maximum rate permitted by applicable law as now existing
or hereafter amended, throughout the term thereof. The terms and
provisions of this paragraph shall control and supersede every
other provision of all agreements between the Lender and the
Borrower.
10. Records. Borrower hereby appoints Lender as the
authorized agent of Borrower with full authority to record on the
Payment Grid ("Grid") attached hereto as Exhibit A, and
incorporated herein by reference for all purposes, the dates of
each transaction, amounts of all principal advances, as well as
principal and interest payments, made under this Note, and balance
due on the Note. This Grid (and all notations made thereto) shall
be conclusive evidence of the actual amounts of principal and
accrued interest advanced and/or outstanding under this Note.
11. Notice. Any notice required to be provided to Borrower
hereunder shall be in writing and shall be deemed sufficiently
given or furnished if delivered by personal delivery, telecopy,
expedited delivery service with proof of delivery, or by registered
or certified United States mail, postage prepaid, at Borrower's
address shown below or at Borrower's most current address on file
with Lender. Any such notice shall be deemed to have been given at
the time of personal delivery, or in the case of telecopy, upon
receipt, or in the case of delivery service or mail, as of the date
of the first attempted delivery at the address and in the manner
provided herein. Borrower promises to give Lender prompt notice of
any change in Borrower's address.
12. Miscellaneous.
(a) No failure or delay by Lender in exercising any
right, power or privilege under this Note or the
Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise thereof
preclude any further exercise thereof or the
exercise or any other right, power or privilege.
(b) The captions used in this Note are for convenience
only and shall not be deemed to amplify, modify or
limit any provision hereof.
(c) Words of any gender used in this Note shall be
construed to include any other gender, and words in
the singular shall include the plural and vice
versa, unless the context otherwise requires.
(d) This Note shall be binding upon and inure to the
benefit of the Parties and their respective heirs,
legal representatives, successors and assigns.
(e) This Note, together with the Agreement, contains
the entire agreement between the Parties with
respect to the subject matter hereof and can be
altered, amended or modified only by a written
instrument executed by both Parties.
(f) This Note may be executed in multiple copies, each
of which shall be deemed an original, and all of
such copies shall together constitute one and the
same instrument.
(g) Time is of the essence in the performance of each
obligation, covenant and condition under this Note.
(h) This Note shall be governed by the laws of the
State of Texas.
(i) This Note is performable in Dallas County, Texas.
Address:
4441 West Airport Freeway
Irving, Texas 75062
INTERNATIONAL ASSOCIATION OF SHOWBIZ
PIZZA TIME REST INC.
By: ---------------------------------
Michael A. Hilton
President
10(u)(1)
NATIONAL MEDIA FUND LINE OF CREDIT
By this Agreement, dated as of December 22, 1997, SHOWBIZ
PIZZA TIME, INC. ("Lender") and INTERNATIONAL ASSOCIATION OF
SHOWBIZ PIZZA TIME RESTAURANTS, INC. ("Borrower") (hereinafter
collectively referred to as "Parties"), hereby agree as follows:
1. Revolving Commitment. Subject to the terms and
conditions in this Agreement, Lender agrees to advance to Borrower
from time to time amounts not to exceed One Million Eight Hundred
Thousand and no/100 Dollars ($1,800,000.00) in the aggregate
outstanding at any one time. No new advance shall be made under
this Agreement after December 31, 1998. Subject to the foregoing
limitations, Borrower may borrow, repay, prepay and reborrow
amounts under this Agreement.
2. Note. Borrower's obligation to repay amounts borrowed
under this Agreement is further evidenced by an National Media Fund
Promissory Note, (the "Note") bearing the same date as this
Agreement. Payment of principal and interest, and accrual of
interest, on amounts borrowed under this Agreement shall be as
provided in the Note.
3. Use of Proceeds. Borrower shall use amounts borrowed
under this Agreement only to purchase goods and services related to
network media services (collectively, the "Project"). Upon
Lender's reasonable request, Borrower shall provide copies of
invoices and other documents which evidence Borrower's compliance
with this Section 3.
4. Records and Reports. Upon Lender's reasonable request,
Borrower shall provide reports and copies of invoices, canceled
checks and other business records pertaining a proposed advance, to
the Project, this Agreement or the Note.
5. Condition to Loans. The obligation of Lender to make
advances under this Agreement is subject to the satisfaction of
each of the following conditions:
(a) No default under this Agreement, and no event which
would constitute a default but for the giving of
notice or the passage of time thereafter, shall
have occurred and be continuing on the date of such
advance;
(b) The representations and warranties of Borrower set
forth in this Agreement shall be true as of the
date of such advance;
(c) Lender shall have received any document or
information previously requested from Borrower
pursuant to this Agreement; and
(d) No material adverse change has occurred, in
Lender's sole determination, in the businesses of
Lender's restaurants or in the financial condition
of Borrower.
6. Representation and Warranties. Borrower represents and
warrants that: (a) Borrower is a corporation duly incorporated,
validly existing and in good standing under the laws of the State
of Texas; (b) the execution, delivery and performance of this
Agreement and the Note have been duly authorized by all necessary
corporate action; and (c) this Agreement and the Note constitute
the valid and binding obligations of Borrower and are enforceable
in accordance with their terms.
7. Default. Borrower shall be in default under this
Agreement if one or more of the following events shall have
occurred and be continuing:
(a) The failure by Borrower to make any payment of
principal or interest on the Note within ten (10)
days after the same becomes due and payable;
(b) The failure by Borrower to perform any of its
obligations, except the payment of principal and
interest, arising under the Note, this Agreement or
any other agreement between Borrower and Lender
with in five (5) days after written notice of such
failure; or
(c) The filing by or against the Borrower of a
voluntary or involuntary proceeding seeking
liquidation, reorganization or other relief with
respect to Borrower or its debts under any
bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other
similar official for Borrower or any substantial
part of its property and, in the case of any
involuntary proceeding not consented to by
Borrower, such proceeding is not dismissed within
sixty (60) days.
8. Remedies. The following remedies are available to Lender
if Borrower is in default under this Agreement: (a) the outstanding
principal and accrued interest under the Note shall mature and
become automatically due and payable, without notice or demand; (b)
Lender may terminate its commitment to advance monies under this
Agreement; and (c) Lender may exercise any other remedies permitted
by law or equity.
9. Notices. Any notice under this Agreement shall be
effective upon actual receipt or upon delivery to the United States
Postal Service, with first class postage, addressed as follow (or
to such other address subsequently provided by the party hereto):
To Lender:
ShowBiz Pizza Time, Inc.
4441 West Airport Freeway
Irving, Texas 75062
Attention: Counsel
To Borrower:
International Association of ShowBiz Pizza
Time Restaurants, Inc.
4441 West Airport Freeway
Irving, Texas 75062
Attention: Mike Hilton
10. Miscellaneous.
(a) No failure or delay by Lender in exercising any
right, power or privilege under this Agreement or
the Note shall operate as a waiver thereof, nor
shall any single or partial exercise thereof
preclude any further exercise thereof or the
exercise of any other right, power or privilege.
(b) The captions used in this Agreement are for
convenience only and shall not be deemed to
amplify, modify or limit the provisions hereof
(c) Words of any gender used in the Agreement shall be
construed to include any other gender, and words in
the singular shall include the plural and vice
versa, unless the context otherwise requires.
(d) This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and
their respective heirs, legal representatives,
successors and assigns.
(e) This Agreement, together with the Note, contains
the entire agreement of the parties hereto with
respect to the subject matter hereof and can be
altered, amended or modified only by written
instrument executed by both parties.
(f) This Agreement may be executed in multiple copies,
each of which shall be deemed an original, and all
of such copies shall together constitute one and
the same instrument.
(g) Time is of the essence in the performance of each
obligation, covenant and condition under this
Agreement.
(h) This Agreement shall be governed by the laws of the
State of Texas.
11. Prior Agreements. This Agreement amends, supersedes, and
replaces all previous agreements related to the Project.
IN WITNESS HEREOF, the parties have caused this Agreement to
be executed by their duly authorized representatives as of the date
first appearing above.
SHOWBIZ PIZZA TIME, INC.
By: -------------------------
Richard M. Frank
Chairman and Chief Executive
Officer
INTERNATIONAL ASSOCIATION OF SHOWBIZ
PIZZA TIME RESTAURANTS, INC.
By: -------------------------
Michael A. Hilton
President
10(v)(2)
NATIONAL MEDIA FUND
PROMISSORY NOTE
Dated as of
$1,800,000.00 Irving, Texas December 22, 1997
FOR VALUE RECEIVED, the undersigned INTERNATIONAL ASSOCIATION
OF SHOWBIZ PIZZA TIME RESTAURANTS, INC. ("Borrower"), a Texas
corporation, promises to pay to SHOWBIZ PIZZA TIME, INC.
("Lender"), a Kansas corporation (hereinafter collectively referred
to as "Parties"), the principal sum of ONE MILLION EIGHT HUNDRED
THOUSAND AND NO/100 DOLLARS ($1,800,000.00), or so much thereof as
may from time to time be advanced, together with interest accrued
on the unpaid principal balance hereof as set forth below.
1. Interest Rate. The unpaid principal amount hereof from
time to time outstanding from the date hereof until maturity shall
bear interest at ten and one-half percent (10.5%). Interest shall
be calculated at the end of each Lender's monthly accounting
periods (which will not correspond with calendar months due to
Lender's 52 week fiscal year) based on the average between the
principal amounts outstanding and unpaid at the beginning of the
monthly accounting period and at the end of such period, but shall
be charged and collected based on the actual number of days
elapsed.
2. Payment of Principal and Interest. Each payment by
Borrower to Lender on this Note shall be applied first to fees
and/or costs, if any, pursuant to Section 8 hereof and then applies
to any accrued interest, and then any remaining portion of the
payment after such applications shall be applied to reduction of
outstanding principal balance of this Note.
3. Revolving Note. This Note is a "revolving line of
credit" note. Principal advances may be made, from time to time,
up to the principal amount of this Note, and principal advances may
be made, from time to time, up to the principal amount of this
Note, and principal payments may, from time to time, be made by
Borrower to reduce the principal balance owing pursuant to this
Note. This Note may be prepaid in whole or in part at any time
without penalty or premium, In no event shall any principal advance
be made after December 31, 1998, and all amounts outstanding will
be due and payable at that time.
4. Line of Credit Agreement. This Note is issued pursuant
to, is entitled to the benefit of, and is subject to the provisions
of the National Media Fund Line of Credit Agreement (the
"Agreement") between Borrower and Lender dated the same date as
this Note.
5. Events of Default. The outstanding principal and accrued
interest hereon shall mature and become automatically due and
payable, without notice or demand, upon the occurrence and during
the continuance of any of the following events of default:
(a) The failure by Borrower to make a payment of any
principal or interest on the Note within ten (10)
days after the same becomes due and payable;
(b) The failure by Borrower to perform any of its
obligations, except the payment of principal and
interest, arising under this Note, the Agreement or
any other agreement between Borrower and Lender
within five (5) days after receipt of written
notice of such failure; or
(c) The filing by or against the Borrower of a
voluntary or involuntary proceeding seeking
liquidation, reorganization or other relief with
respect to Borrower or its debts under any
bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other
similar official for Borrower or any substantial
part of its property and, in the case of any
involuntary proceeding not consented to by
Borrower, such proceeding is not dismissed within
sixty (60) days of its filing.
6. Remedies. The following remedies are available to Lender
if Borrower is in default under this Note: (a) the outstanding
principal and accrued interest under the Note shall mature and
become automatically due and payable, without notice or demand; (b)
Lender may terminate its commitment to advance monies under this
Note, and (c) Lender may exercise any other remedies available to
it at law or in equity.
7. Waiver. Borrower, sureties, endorsers, guarantors and
any other party now or hereafter liable for the payment of this
Note, in whole or in part, hereby severally (a) waive presentment
for payment, notice of nonpayment, protest, notice of protest,
notice of intent to accelerate, notice of acceleration and all
other notices, filing of suit and diligence in collecting this Note
or enforcing any other security with respect to same, (b) agree to
any substitution, subordination, exchange or release of any such
security or the release of any parties primarily or secondarily
liable hereon, (c) agree that the Lender shall not be required
first to institute suit or exhaust its remedies hereon against the
Borrower, or other any party liable or to become liable hereon or
to enforce its rights against any or all of them or any security
with respect to same, and (d) consent to any extension or
postponement of time of payment of this Note and to any other
indulgence with respect hereto without notice hereof to any of
them.
8. Collection Fees. If this Note is not paid at maturity
and is placed in the hands of a collection agency or an attorney
for collection, or if it is collected through a bankruptcy or any
other court after maturity, then the Lender shall be entitled to
reasonable fees and court costs for collection.
9. Limitation of Agreements. All agreements between the
Borrower and the Lender, whether now existing or hereafter arising
and whether written or oral, are hereby expressly limited so that
in no contingency or event, whether by reason of demand or
otherwise, shall the amount paid, or agreed to be paid to the
Lender for the use, forbearance, or detention of the money to be
loaned under this Note or otherwise or for the payment or
performance of any covenant or obligation contained herein or in
any other document evidencing security or pertaining to the loan
evidenced hereby, exceed the maximum amount permissible under
applicable law, as now existing or as hereafter amended, If from
any circumstances whatsoever fulfillment of any provision hereof or
in any of such other documents at the time performance of such
provision shall be due, shall involve transcending the limit of
validity prescribed by law, then ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity, and if
from any such circumstances the Lender shall ever receive interest
(or anything which might be deemed interest under applicable law)
which would exceed the highest rate of interest allowed by
applicable law, such amount which would be excessive interest shall
be applied to the reduction of the principal due hereunder and not
to the payment of interest, or if such excessive interest, exceeds
the unpaid balance of principal of this Note, such excess shall be
refunded to the Borrower. All sums paid or agreed to be paid to
the Lender shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term
of such indebtedness until payment in full so that the actual rate
of interest on account of such indebtedness is uniform, or does not
exceed the maximum rate permitted by applicable law as now existing
or hereafter amended, throughout the term thereof. The terms and
provisions of this paragraph shall control and supersede every
other provision of all agreements between the Lender and the
Borrower.
10. Records. Borrower hereby appoints Lender as the
authorized agent of Borrower with full authority to record on the
Payment Grid ("Grid") attached hereto as Exhibit A, and
incorporated herein by reference for all purposes, the dates of
each transaction, amounts of all principal advances, as well as
principal and interest payments, made under this Note, and balance
due on the Note. This Grid (and all notations made thereto) shall
be conclusive evidence of the actual amounts of principal and
accrued interest advanced and/or outstanding under this Note.
11. Notice. Any notice required to be provided to Borrower
hereunder shall be in writing and shall be deemed sufficiently
given or furnished if delivered by personal delivery, telecopy,
expedited delivery service with proof of delivery, or by registered
or certified United States mail, postage prepaid, at Borrower's
address shown below or at Borrower's most current address on file
with Lender. Any such notice shall be deemed to have been given at
the time of personal delivery, or in the case of telecopy, upon
receipt, or in the case of delivery service or mail, as of the date
of the first attempted delivery at the address and in the manner
provided herein. Borrower promises to give Lender prompt notice of
any change in Borrower's address.
12. Miscellaneous.
(a) No failure or delay by Lender in exercising any
right, power or privilege under this Note or the
Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise thereof
preclude any further exercise thereof or the
exercise or any other right, power or privilege.
(b) The captions used in this Note are for convenience
only and shall not be deemed to amplify, modify or
limit any provision hereof.
(c) Words of any gender used in this Note shall be
construed to include any other gender, and words in
the singular shall include the plural and vice
versa, unless the context otherwise requires.
(d) This Note shall be binding upon and inure to the
benefit of the Parties and their respective heirs,
legal representatives, successors and assigns.
(e) This Note, together with the Agreement, contains
the entire agreement between the Parties with
respect to the subject matter hereof and can be
altered, amended or modified only by a written
instrument executed by both Parties.
(f) This Note may be executed in multiple copies, each
of which shall be deemed an original, and all of
such copies shall together constitute one and the
same instrument.
(g) Time is of the essence in the performance of each
obligation, covenant and condition under this Note.
(h) This Note shall be governed by the laws of the
State of Texas.
(i) This Note is performable in Dallas County, Texas.
Address:
4441 West Airport Freeway
Irving, Texas 75062
INTERNATIONAL ASSOCIATION OF SHOWBIZ
PIZZA TIME RESTAURANTS, INC.
By: -------------------------
Michael A. Hilton
President
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement (No. 333-41039)of ShowBiz Pizza Time,Inc. on Form S-8 of
our report dated February 27, 1998, appearing in the Annual Report
on Form 10-K of ShowBiz Pizza Time, Inc. for the year ended January
2, 1998.
Deloitte & Touche LLP
Dallas, Texas
April 1, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1998
PERIOD-END> JAN-02-1998
<CASH> 7,725
<SECURITIES> 0
<RECEIVABLES> 3,255
<ALLOWANCES> 24
<INVENTORY> 3,975
<CURRENT-ASSETS> 25,292
<PP&E> 312,073
<DEPRECIATION> 124,640
<TOTAL-ASSETS> 226,368
<CURRENT-LIABILITIES> 39,041
<BONDS> 23,826
<COMMON> 2,191
2,211
0
<OTHER-SE> 153,747
<TOTAL-LIABILITY-AND-EQUITY> 226,368
<SALES> 345,416
<TOTAL-REVENUES> 350,267
<CGS> 163,713
<TOTAL-COSTS> 307,558
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,866
<INCOME-PRETAX> 42,709
<INCOME-TAX> 17,212
<INCOME-CONTINUING> 25,497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,497
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.34
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
<RESTATED>
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR QTR 1 QTR 2 QTR 3
<FISCAL-YEAR-END> DEC-27-1996 DEC-29-1995 DEC-27-1996 DEC-27-1996 DEC-27-1996
<PERIOD-END> DEC-27-1996 DEC-29-1995 MAR-29-1996 JUN-28-1996 SEP-27-1996
<CASH> 3,402 5,589 11,100 10,006 3,798
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 4,000 3,935 3,089 3,077 4,081
<ALLOWANCES> 20 75 33 82 30
<INVENTORY> 3,368 3,589 4,000 3,808 3,791
<CURRENT-ASSETS> 27,588 20,041 27,150 29,479 24,420
<PP&E> 272,343 231,962 235,426 245,221 262,476
<DEPRECIATION> 108,345 94,781 93,101 98,940 104,557
<TOTAL-ASSETS> 216,580 199,010 206,883 207,146 212,341
<CURRENT-LIABILITIES>
33,523 29,931 33,843 31,567 35,544
<BONDS> 34,668 35,753 34,031 33,997 31,735
<COMMON> 2,108 2,144 1,431 2,056 2,082
2,152 2,005 2,030 2,146 2,147
0 0 0 0 0
<OTHER-SE> 139,324 124,343 130,590 132,334 136,110
<TOTAL-LIABILITY-AND-EQUITY>
216,580 199,010 206,883 207,146 212,341
<SALES> 289,068 259,345 76,960 145,672 219,142
<TOTAL-REVENUES> 293,990 263,783 78,452 148,300 223,077
<CGS> 143,381 136,700 37,460 72,160 108,290
<TOTAL-COSTS> 271,769 263,408 69,681 135,689 204,473
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 3,476 3,118 891 1,753 2,635
<INCOME-PRETAX> 22,221 375 8,771 12,611 18,604
<INCOME-TAX> 9,000 312 3,596 5,171 7,627
<INCOME-CONTINUING> 13,221 63 5,175 7,440 10,977
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 13,221 63 5,175 7,440 10,977
<EPS-PRIMARY> .71 (.02) .28 .40 .59
<EPS-DILUTED> .70 (.02) .28 .39 .58
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> QTR 1 QTR 2 QTR 3
<FISCAL-YEAR-END> JAN-02-1998 JAN-02-1998 JAN-02-1998
<PERIOD-END> MAR-28-1997 JUN-27-1997 SEP-26-1997
<CASH> 10,966 12,677 21,098
<SECURITIES> 0 0 0
<RECEIVABLES> 3,360 3,016 4,153
<ALLOWANCES> 15 8 39
<INVENTORY> 3,864 3,731 4,189
<CURRENT-ASSETS> 36,612 39,319 48,994
<PP&E> 274,559 285,197 292,835
<DEPRECIATION> 106,000 112,116 118,376
<TOTAL-ASSETS> 224,152 227,573 231,027
<CURRENT-LIABILITIES> 39,374 37,013 35,858
<BONDS> 26,402 25,516 24,672
<COMMON> 2,164 2,178 2,186
2,133 2,159 2,185
0 0 0
<OTHER-SE> 149,149 155,671 161,059
<TOTAL-LIABILITY-AND-EQUITY> 224,152 227,573 231,027
<SALES> 90,280 173,126 257,507
<TOTAL-REVENUES> 91,594 175,625 261,227
<CGS> 42,194 81,582 121,385
<TOTAL-COSTS> 78,261 152,368 227,829
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 690 1,417 2,148
<INCOME-PRETAX> 13,333 23,257 33,398
<INCOME-TAX> 5,400 9,419 13,459
<INCOME-CONTINUING> 7,933 13,838 19,939
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 7,933 13,838 19,939
<EPS-PRIMARY> .43 .74 1.07
<EPS-DILUTED> .42 .72 1.04
</TABLE>
