UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended July 4, 1999.
- 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
CEC ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-0905805
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
4441 West Airport Freeway
Irving, Texas 75062
(Address of principal executive offices,
including zip code)
(972) 258-8507
(Registrant's telephone number,
including area code)
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 -
At July 4, 1999, an aggregate of 27,188,727 shares of the registrant's
Common Stock, par value of $.10 each (being the registrant's only class of
common stock), were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CEC ENTERTAINMENT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated balance sheets. . . . . . . . . . . . . . . . . . 2
Consolidated statements of earnings
and comprehensive income . . . . . . . . . . . . . . . . . . 3
Consolidated statement of shareholders'
equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated statements of cash flows . . . . . . . . . . . . 6
Notes to consolidated financial statements . . . . . . . . . . 7
Page 1
CEC ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(Thousands, except share data)
ASSETS
<TABLE>
July 4, January 3,
1999 1999
------ ----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . $ 5,873 $ 3,210
Accounts receivable . . . . . . . . . . . . . 4,648 4,299
Current portion of notes receivable . . . . . 19 52
Inventories . . . . . . . . . . . . . . . . . 6,614 5,842
Prepaid expenses. . . . . . . . . . . . . . . 4,086 3,643
Current portion of deferred tax asset 720 720
------- -------
Total current assets . . . . . . . . . . . . 21,960 17,766
------- -------
Property and equipment, net. . . . . . . . . . 244,361 228,531
------- -------
Deferred tax asset 330 1,036
------- -------
Notes receivable, less current portion,
including receivables from related parties of
$637 and $361, respectively . . . . . . . . . 618 363
------- -------
Other assets. . . . . . . . . . . . . . . . . . 6,037 4,532
------- -------
$273,306 $252,228
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 9,384 $ 9,383
Accounts payable and accrued liabilities 36,008 32,453
------- -------
Total current liabilities. . . . . . . . . 45,392 41,836
------- -------
Long-term debt, less current portion . . . . . 11,752 18,922
------- -------
Deferred rent. . . . . . . . . . . . . . . . . 4,025 3,915
------- -------
Other liabilities. . . . . . . . . . . . . . . 1,300 1,300
------- -------
Redeemable preferred stock, $60 par value,
redeemable for $2,974 in 2005 . . . . . . . 2,319 2,306
------- -------
Shareholders' equity:
Common stock, $.10 par value; authorized
100,000,000 shares; 33,606,141
and 33,397,955 shares issued,
respectively . . . . . . . . . . . . . . . 3,361 3,341
Capital in excess of par value. . . . . . . . 164,097 161,991
Retained earnings . . . . . . . . . . . . . . 99,839 76,157
Deferred compensation . . . . . . . . . . . . (1,140) (1,520)
Accumulated other comprehensive income. . . . 46 6
Less treasury shares of 6,417,414 and
6,352,014, respectively, at cost. . . . . . (57,685) (56,026)
------- -------
208,518 183,949
------- -------
$273,306 $252,228
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 2
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
(Thousands, except per share data)
<TABLE>
Three Months Ended
--------------------------------
July 4, 1999 July 5,1998
------------ -----------
<S> <C> <C>
Food and beverage revenues . . . . . . . . . $ 67,242 $ 56,810
Games and merchandise revenues . . . . . . . 36,858 31,050
Franchise fees and royalties . . . . . . . . 775 809
Interest income, including related
party income of $10 and $13,
respectively . . . . . . . . . . . . . . . 60 232
------- -------
104,935 88,901
------- -------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . 47,829 41,085
Selling, general and administrative
expenses. . . . . . . . . . . . . . . . . . 15,238 13,136
Depreciation and amortization . . . . . . . . 7,851 6,769
Interest expense. . . . . . . . . . . . . . . 600 680
Other operating expenses. . . . . . . . . . . 17,841 15,419
------- -------
89,359 77,089
------- -------
Income before income taxes . . . . . . . . . . 15,576 11,812
------- -------
Income taxes:
Current expense . . . . . . . . . . . . . . . 5,824 2,149
Deferred expense. . . . . . . . . . . . . . . 281 2,322
------- -------
6,105 4,471
------- -------
Net Income . . . . . . . . . . . . . . . . . . 9,471 7,341
Other comprehensive income, net of tax:
Foreign currency translation. . . . . . . . . 37
------- -------
Comprehensive income. . . . . . . . . . . . . $ 9,508 $ 7,341
======= =======
Earnings per share:
Basic:
Net income . . . . . . . . . . . . . . . . . $ .35 $ .27
======= =======
Weighted average shares outstanding. . . . . 27,056 27,360
======= =======
Diluted:
Net income . . . . . . . . . . . . . . . . . $ .34 $ .26
======= =======
Weighted average shares outstanding. . . . . 27,797 28,230
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 3
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
(Thousands, except per share data)
<TABLE>
Six Months Ended
-----------------------------------
July 4, 1999 July 5, 1998
------------ ------------
<S> <C> <C>
Food and beverage revenues . . . . . . . $ 143,785 $ 127,927
Games and merchandise revenues . . . . . 77,850 63,975
Franchise fees and royalties . . . . . . 1,587 1,679
Interest income, including related party
income of $27 and $60,
respectively . . . . . . . . . . . . . . 109 369
------- -------
223,331 193,950
------- -------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . 99,439 88,248
Selling, general and administrative
expenses. . . . . . . . . . . . . . . . . 32,274 28,111
Depreciation and amortization . . . . . . . 15,317 13,412
Interest expense. . . . . . . . . . . . . 1,295 1,379
Other operating expenses. . . . . . . . . . 35,777 31,773
------- -------
184,102 162,923
------- -------
Income before income taxes . . . . . . . . . 39,229 31,027
------- -------
Income taxes:
Current expense . . . . . . . . . . . . . . 14,671 6,914
Deferred expense. . . . . . . . . . . . . . 706 5,089
------- -------
15,377 12,003
------- -------
Net income . . . . . . . . . . . . . . . . . 23,852 19,024
Other comprehensive income, net of tax:
Foreign currency translation. . . . . . . . 40
------- -------
Comprehensive income . . . . . . . . . . . $ 23,892 $ 19,024
======= =======
Earnings per share:
Basic:
Net income . . . . . . . . . . . . . . . $ .88 $ .69
======= =======
Weighted average shares outstanding. . . 27,018 27,215
======= =======
Diluted:
Net income . . . . . . . . . . . . . . . $ .85 $ .67
======= =======
Weighted average shares outstanding. . . 27,837 28,050
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 4
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(Thousands, except per share data)
<TABLE>
Amounts Shares
------- ------
<S> <C> <C>
Common stock and capital in excess of par value
Balance, beginning of year. . . . . . . . . . . $165,332 33,398
Stock options exercised . . . . . . . . . . . . 1,455 200
Net tax benefit from exercise of options
and stock grants. . . . . . . . . . . . . . . 530
Stock issued under 401(k) plan. . . . . . . . . 141 8
------- -------
Balance, July 4, 1999 . . . . . . . . . . . . . 167,458 33,606
------- =======
Retained earnings:
Balance, beginning of year. . . . . . . . . . . 76,157
Net income. . . . . . . . . . . . . . . . . . . 23,852
Redeemable preferred stock accretion. . . . . . (51)
Redeemable preferred stock dividend,
$2.40 per share . . . . . . . . . . . . . . . (119)
-------
Balance, July 4, 1999 . . . . . . . . . . . . . 99,839
-------
Deferred compensation:
Balance, beginning of year. . . . . . . . . . . (1,520)
Amortization of deferred compensation . . . . . 380
-------
Balance, July 4, 1999 . . . . . . . . . . . . . (1,140)
-------
Accumulated other comprehensive income:
Balance, beginning of year. . . . . . . . . . . 6
Foreign currency translation. . . . . . . . . . 40
-------
Balance, July 4, 1999 . . . . . . . . . . . . . 46
-------
Treasury shares:
Balance, beginning of year. . . . . . . . . . . (56,026) 6,352
Treasury stock acquired . . . . . . . . . . . (1,659) 65
------- -------
Balance, July 4, 1999 . . . . . . . . . . . . . (57,685) 6,417
------- =======
Total shareholder's equity . . . . . . . . . . . $208,518
=======
</TABLE>
See notes to consolidated financial statements.
Page 5
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
<TABLE>
Six Months Ended
--------------------------------
July 4, 1999 July 5, 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . $23,852 $19,024
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization . . . . . . 15,317 13,412
Deferred tax expense. . . . . . . . . . . 706 5,089
Compensation expense under stock
grant plan. . . . . . . . . . . . . . . 380 380
Other . . . . . . . . . . . . . . . . . . 21 53
Net change in receivables, inventory,
prepaids, payables and
accrued liabilities . . . . . . . . . . 1,991 (4,142)
------- -------
Cash provided by operations. . . . . . 42,267 33,816
------- -------
Investing activities:
Purchases of property and equipment . . . . (30,786) (26,974)
Additions to notes receivable . . . . . . . (976) (235)
Payments received on notes receivable . . . 754 1,923
Increase in investments, deferred
charges and other assets. . . . . . . . . (1,777) (3,003)
------- -------
Cash used in investing activities. . . . . (32,785) (28,289)
------- -------
Financing activities:
Payments on debt and line of credit . . . . (17,689) (1,686)
Proceeds on long term debt. . . . . . . . . 10,520
Exercise of stock options . . . . . . . . . 1,455 2,140
Redeemable preferred stock dividends. . . . (119) (120)
Treasury stock acquired . . . . . . . . . . (1,659)
Other . . . . . . . . . . . . . . . . . . . 673 97
------- -------
Cash provided by (used in) financing
activities . . . . . . . . . . . . . . . ( 6,819) 431
------- -------
Increase in cash and cash equivalents . . . 2,663 5,958
Cash and cash equivalents, beginning
of period . . . . . . . . . . . . . . . . 3,210 7,275
------- -------
Cash and cash equivalents, end of period . . $ 5,873 $ 13,233
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 6
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim financial statements:
In the opinion of management, the accompanying financial
statements for the periods ended July 4, 1999 and July 5, 1998
reflect all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's financial
condition, results of operations and cash flows in accordance with
generally accepted accounting principles.
Certain information and footnote disclosures normally included
in the consolidated financial statements prepared in accordance
with generally accepted accounting principles have been omitted.
The unaudited consolidated financial statements referred to above
should be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-K filed with the
Securities and Exchange Commission for the year ended January 3,
1999. Results of operations for the periods ended July 4, 1999 and
July 5, 1998 are not necessarily indicative of the results for the
year.
2. Earnings per common share:
Earnings per common share were computed based on the weighted
average number of common and potential common shares outstanding
during the period adjusted retroactively for a three-for-two stock split
effected July 23, 1999. Net income available per common share has been
adjusted for the items indicated below, and earnings per common and
potential common share were computed as follows (thousands, except
per share data):
<TABLE>
Three Months Ended Six Months Ended
------------------ ----------------
July 4, July 5, July 4, July 5,
1999 1998 1999 1998
------- ------ ------ -------
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . . . $ 9,471 $ 7,341 $23,852 $19,024
Accretion of redeemable preferred
stock . . . . . . . . . . . . . (26) (26) (51) (52)
Redeemable preferred stock
dividends . . . . . . . . . . . (59) (59) (119) (119)
------ ------ ------ ------
Adjusted income applicable to common
and potential common shares. . . $ 9,386 $ 7,256 $23,682 $18,853
======= ======= ======= =======
Basic:
Weighted average common shares
outstanding . . . . . . . . . . 27,056 27,360 27,018 27,215
====== ====== ====== ======
Earnings per common share . . . . $ .35 $ .27 $ .88 $ .69
====== ====== ====== ======
Diluted:
Weighted average common shares
outstanding. . . . . . . . . . 27,056 27,360 27,018 27,215
Potential common shares for stock options
and stock grants . . . . . . . 741 870 819 835
------ ------ ------ ------
Weighted average shares
outstanding. . . . . . . . . . 27,797 28,230 27,837 28,050
====== ====== ====== ======
Earnings per common and potential
common share . . . . . . . . $ .34 $ .26 $ .85 $ .67
====== ====== ====== ======
</TABLE>
3. Subsequent transaction:
In July 1999, the Company acquired for approximately $19
million, 13 owned properties, the rights to seven leased
properties, two parcels of undeveloped real estate, and all
furniture, fixtures, equipment and intellectual properties
owned by Discovery Zone, Inc. The Company plans to
convert approximately 10 of the acquired properties to Chuck E.
Cheese's restaurants and sell the remaining properties, furniture,
fixtures and equipment.
Page 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Second Quarter 1999 Compared to Second Quarter 1998
- ---------------------------------------------------
A summary of the results of operations of the Company as a
percentage of revenues for the second quarters of 1999 and 1998 is
shown below.
<TABLE>
Three Months Ended
------------------------------
July 4, 1999 July 5, 1998
------------ ------------
<S> <C> <C>
Revenue. . . . . . . . . . . . . . . 100.0% 100.0%
----- -----
Costs and expenses:
Cost of sales. . . . . . . . . . . 45.6 46.2
Selling, general and administrative 14.5 14.8
Depreciation and amortization . . . 7.5 7.6
Interest expense. . . . . . . . . . .6 .8
Other operating expenses. . . . . . 17.0 17.3
------ ------
85.2 86.7
------ ------
Income before income taxes 14.8 13.3
Income tax expense . . . . . . . 5.8 5.0
------ ------
Net income . . . . . . . . . . . . . 9.0% 8.3%
====== ======
</TABLE>
Revenues
--------
Revenues increased to $104.9 million in the second quarter of
1999 from $88.9 million in the second quarter of 1998 due to an
increase in the number of Company-operated stores and an increase
of 7.5% in comparable store sales of the Company's Chuck E.
Cheese's stores which were open during all of the second quarters
of both 1999 and 1998. During 1998, the Company added 25 stores
including new stores and existing stores acquired from franchisees
or joint venture partners. During the first six months of 1999,
the Company opened eight new stores. Management believes that
several factors contributed to the comparable store sales increase
with the primary factor being sales increases at stores upgraded
with new game packages. Menu prices increased approximately .6%
between the periods.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to
85.2% in the second quarter of 1999 from 86.7% in the second
quarter of 1998.
Cost of sales decreased as a percentage of revenues to 45.6% in
the second quarter of 1999 from 46.2% in the comparable period of
1998. Cost of food, beverage, prize and merchandise items as a
percentage of restaurant sales decreased to 15.4% in the second
quarter of 1999 from 15.9% in the second quarter of 1998 primarily
due to an increase in game sales, reduced costs of certain beverage
and prize products and an increase in menu prices. Store labor
expenses as a percentage of store sales decreased to 27.3% during
the second quarter of 1999 compared to 27.5% in the second quarter
of 1998 primarily due to the increase in comparable store sales and
more effective utilization of hourly employees.
Selling, general and administrative expenses as a percentage of
revenues decreased to 14.5% in the second quarter of 1999 from
14.8% in the second quarter of 1998 due primarily to a decrease in
advertising expense and corporate overhead costs as a percentage of
revenues.
Depreciation and amortization expenses as a percentage of
revenues decreased slightly to 7.5% in the second quarter of 1999
from 7.6% in the second quarter of 1998 primarily due to the
increase in comparable store sales.
Page 8
Interest expense as a percentage of revenues decreased to .6% in
the second quarter of 1999 from .8% in the second quarter of 1998
due primarily to a reduction in the amount of long-term debt
outstanding and lower interest rates.
Other operating expenses decreased as a percentage of revenues
to 17.0% in the second quarter of 1999 from 17.3% in the second
quarter of 1998 primarily due to the increase in comparable store
sales and the fact that a significant portion of operating costs
are fixed.
The Company's effective income tax rate was 39.2% in the second
quarter of 1999 compared to 37.9% in the second quarter of 1998 due
to a credit recorded in the second quarter of 1998 for state income
taxes.
Net Income
----------
The Company had net income of $9.5 million in the second quarter
of 1999 compared to $7.3 million in the second quarter of 1998 due
to the changes in revenues and expenses discussed above. The
Company's diluted earnings per share increased to $.34 per share in
the second quarter of 1999 from $.26 per share in the second
quarter of 1998.
First Six Months of 1999 Compared to First Six Months of 1998
- -------------------------------------------------------------
A summary of the results of operations of the Company as a
percentage of revenues for the first six months of 1999 and 1998 is
shown below.
<TABLE>
Six Months Ended
----------------------------
July 4, 1999 July 5, 1998
------------ ------------
<S> <C> <C>
Revenue. . . . . . . . . . . . . . . . . 100.0% 100.0%
----- -----
Costs and expenses:
Cost of sales . . . . . . . . . . . . . 44.5 45.5
Selling, general and administrative . . 14.4 14.5
Depreciation and amortization . . . . . 6.9 6.9
Interest expense. . . . . . . . . . . . .6 .7
Other operating expenses . . . . . . . . 16.0 16.4
------ ------
82.4 84.0
------ ------
Income before income taxes 17.6 16.0
Income tax expense . . . . . . . 6.9 6.2
------ ------
Net income . . . . . . . . . . . 10.7% 9.8%
====== ======
</TABLE>
Revenues
--------
Revenues increased to $223.3 million in the first six months of
1999 from $194.0 million in the first six months of 1998 primarily
due an increase in the number of Company-operated stores and an
increase of 4.2% in comparable store sales of the Company's Chuck
E. Cheese's restaurants which were open during all of the first six
months of both 1999 and 1998. During 1998, the Company added 25
stores including new stores and existing stores acquired from
franchisees or joint venture partners. During the first six months
of 1999, the Company opened eight new stores. Management believes
that several factors contributed to the comparable store sales
increase with the primary factor being sales increases at stores
upgraded with new game packages. Menu prices increased
approximately .8% between the periods.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to
82.4% in the first six months of 1999 from 84.0%in the first six
months of 1998.
Cost of sales decreased as a percentage of revenues to 44.5% in
the first six months of 1999 from 45.5% in the comparable period of
1998. Cost of food, beverage, prize and merchandise items as a
percentage of restaurant sales decreased to 15.4% in the first six
months of 1999 from 16.0% in the first six months of 1998 primarily
due to an increase in game sales, reduced costs of certain beverage
and prize products and an increase in menu prices.
Page 9
Store labor expenses as a percentage of restaurant sales decreased
to 26.3% during the first six months of 1999 from 26.6% in the
first six months of 1998 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 slightly to 14.4% in the first six months of
1999 from 14.5% in the first six months of 1998 due to the increase
in comparable store sales.
Depreciation and amortization expenses as a percentage of
revenues were 6.9% in both the first six months of 1999 and the
first six months of 1998.
Interest expense as a percentage of revenues decreased to .6% in
the first six months of 1999 from .7% in the first six months of
1998 due primarily to a reduction in the amount of long-term debt
outstanding and lower interest rates.
Other operating expenses decreased as a percentage of revenues
to 16.0% in the first six months of 1999 from 16.4% in the first
six months of 1998 primarily due to the increase in comparable
store sales and the fact that a significant portion of operating
costs are fixed.
The Company's effective income tax rate was 39.2% in the first
six months of 1999 compared to 38.7% in the first six months of
1998 due to a credit recorded in 1998 for state income taxes.
Net Income
----------
The Company had net income of $23.9 million in the first six
months of 1999 compared to $19.0 million in the first six months of
1998 due to the changes in revenues and expenses discussed above.
The Company's diluted earnings per share was $.85 per share in the
first six months of 1999 compared to $.67 per share in the first
six months of 1998.
Financial Condition, Liquidity and Capital Resources
Cash provided by operations increased to $42.2 million in the
first six months of 1999 from $33.8 million in the comparable
period of 1998. Cash outflows from investing activities for the
first six months of 1999 were $32.8 million primarily related to
capital expenditures. Cash outflows from financing activities for
the first six months of 1999 were $6.8 million primarily related to
the repayment of debt. The Company's primary requirements for cash
relate to planned capital expenditures, the repurchase of the
Company's common stock 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 July 1999, the Company acquired for approximately $19
million, 13 owned properties, the rights to seven leased
properties, two parcels of undeveloped real estate, and all
furniture, fixtures, equipment and intellectual properties
owned by Discovery Zone, Inc. The Company plans to
convert approximately 10 of the acquired properties to Chuck E.
Cheese's restaurants and sell the remaining properties, furniture,
fixtures and equipment.
In 1999, the Company plans to add 27 to 30 stores including new
stores and acquisitions of existing stores from franchisees. The
Company currently anticipates its cost of opening such new stores
to average approximately $1.5 million per store which will vary
depending upon many factors including the size of the stores and
whether the store is an in-line or freestanding building. In
addition to such new store openings, the Company plans to expand
the customer area of 15 to 20 high sales volume stores in 1999.
The Company also plans to complete Phase II upgrades in
approximately 26 stores in 1999 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. During the first six
months of 1999, the Company opened eight new restaurants, expanded
seven restaurants and completed Phase II upgrades in 18
restaurants. The Company currently estimates that capital
expenditures in 1999, including expenditures for upgrading existing
stores, new store openings, existing store expansions and equipment
investments, will be approximately $65 million, excluding the $19
million acquisition of assets from Discovery Zone, Inc. The
Company plans to finance these expenditures through cash flow from
operations and borrowings under the Company's line of credit.
Page 10
In 1997, the Company announced that it planned to purchase
shares of the Company's common stock at an aggregate purchase price
of up to $20 million. In July 1998, the Company completed this
plan and announced an additional plan to purchase shares of the
Company's common stock at an aggregate purchase price of up to $15
million. As of August 13, 1999, the Company has purchased shares
of its common stock under the $15 million plan at an aggregate
purchase price of approximately $7.4 million.
The Company's total credit facility of $60.3 million consists of
$15.3 million in term notes and a $45 million line of credit. Term
notes totaling $12 million with annual principal payments of $6
million and annual interest of 10.02% mature in 2001. Term notes
totaling $3.3 million with quarterly principal payments of $833,000
and annual interest equal to LIBOR plus 3.5% mature in 2000.
Interest under the $45 million line of credit is dependent on
earnings and debt levels of the Company and ranges from prime minus
0.5% to plus 0.5% or, at the Company's option, LIBOR plus 1% to
2.5%. Currently, any borrowings under this line of credit would be
at prime rate minus 0.5% or LIBOR plus 1%. The Company's line of
credit agreement matures June 2001. As of July 4, 1999, $5 million
was borrowed under the line of credit. The Company is required to
comply with certain financial ratio tests during the terms of the
loan agreements.
In 1998, the Company purchased computer software which is 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. Previous systems may have been unable to
accurately process certain date-based information. The cost of the
new software has been recorded as an asset and is being amortized
over its estimated useful life. Other maintenance or modification
costs have been expensed as incurred. Accordingly, the Company
does not expect the amounts required to be expensed to have a
material effect on its financial position, results of operations or
cash flows. The Company has substantially completed its Year 2000
date conversion project and expects any remaining projects to be
completed prior to the end of 1999. The Company has initiated
formal communication with significant vendors and suppliers to
determine their efforts to remediate the Year 2000 issues.
Forward-Looking Statements
Certain statements may constitute "forward-looking statements"
which are subject to known and unknown risks and uncertainties
including, among other things, certain economic conditions,
competition, development factors and operating costs that may cause
the actual results to differ materially from results implied by
such forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to market risk in the form of interest
risk and foreign currency risk. Both interest risk and foreign
currency risk are immaterial to the Company.
Page 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
the Company or any of its subsidiaries is a party or of which any
of their property is the subject.
Item 2. Changes in Securities.
None to report during quarter for which this report is filed.
Item 3. Defaults Upon Senior Securities.
None to report during quarter for which this report is filed.
Item 4. Submission of Matters to a Vote of Security Holders
On June 24, 1999, at the Company's annual meeting of
shareholders, the Company's shareholders re-elected Richard T.
Huston, Cynthia I. Pharr and Raymond E. Wooldridge to serve the
Company as directors. The following votes were cast with respect
to the election of these directors:
For Withheld
Richard T. Huston. . . . . . 14,744,025 369,169
Cynthia I. Pharr . . . . . . 14,744,183 369,011
Raymond E. Wooldridge . . . 14,744,241 368,952
Richard M. Frank, Michael H. Magusiak, Tim T. Morris, Louis
P. Neeb and Walter Tyree's terms of office as directors of the
Company continued after the meeting.
The shareholders also approved an amendment to the Restated
Articles of Incorporation providing for a change to the Registered
Agent from The Corporation Company to Corporation Service Company,
and removal of the transfer or ownership restrictions providing
that until December 31, 2002, any attempted or purported transfer
or registration of transfer of any shares of the Common Stock of
more than 4.75% of the value of the outstanding capital stock of
the Company shall be void ab initio insofar as it purports to
transfer ownership to the transferee; provided, however, that such
restriction shall not prevent a transfer if the transferor or
purported transferee obtains the written approval of the Board of
Directors of the Company. The votes cast with respect to this
proposal to authorize the amendment to the Restated Articles of
Incorporation were as follows:
For Against Abstain No Vote
13,854,181 89,197 12,844 1,156,971
The shareholders also approved an amendment to the 1997 Non-
Statutory Stock Option Plan ("Employee Plan") providing that the
number of shares of Common Stock which may be issued under the
Employee Plan would be increased from 925,000 to 1,825,000. The
votes cast with respect to this proposal to authorize an amendment
to the Employee Plan were as follows:
For Against Abstain No Vote
12,984,854 2,116,614 11,725 0
Page 12
Item 5. Other Information.
None to report during quarter for which this report is filed.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
3(a) Amended and Restated Articles of Incorporation of
the Company.
10(a)(2) Asset Purchase Agreement, dated as of June
23, 1999, by and among CEC Entertainment,
Inc. And Discovery Zone, Inc., and
Discovery Zone Licensing, Inc., as Sellers,
and DZ Party, Inc., and Discovery Zone
(Puerto Rico), Inc., as Consenting Parties.
b) Reports on Form 8-K
None filed during the quarter for which this report is filed.
Page 13
SIGNATURES
Pursuant to the requirements 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.
CEC ENTERTAINMENT, INC.
Dated: August 13, 1999 By: /s/ Larry G. Page
----------------------
Larry G. Page
Executive Vice President
and Chief Financial Officer
Page 14
EXHIBIT INDEX
Exhibit
Number Description Page No.
------ ----------- --------
3(a) Amended and Restated Articles of Incorporation
of the Company. 16
10(a)(2) Asset Purchase Agreement, dated as of June 23,
1999, by and among CEC Entertainment, Inc. And
Discovery Zone, Inc., and Discovery Zone
Licensing, Inc., as Sellers, and DZ Party,
Inc., and Discovery Zone (Puerto Rico), Inc.,
as Consenting Parties. 34
27 Financial Data Schedule
Page 15
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CEC ENTERTAINMENT, INC.
The undersigned, CEC Entertainment, Inc., a Kansas corporation
originally incorporated on April 30, 1980 as ShowBiz Pizza Place,
Inc., for the purpose of amending and restating its Articles of
Incorporation in accordance with the Kansas General Corporation
Code, does hereby make and execute these Amended and Restated
Articles of Incorporation of CEC Entertainment, Inc., and does
hereby certify (i) that at a meeting of the Board of Directors of
said corporation on April 20, 1999, resolutions were duly adopted
setting forth proposed amendments to the Restated Articles of
Incorporation of said corporation, declaring their advisability,
and further declaring that said amendments be submitted for
approval at the annual meeting of stockholders to be held in 1999,
with the recommendation by the Board of Directors that the
stockholders approve said amendments, and (ii) the annual meeting
of the stockholders of said corporation was duly called and held on
June 24, 1999, upon notice in accordance with Section 17-6512 of
the Kansas General Corporation Code, at which meeting the necessary
number of shares as required by statute were voted in favor of said
amendments, and (iii) that said amendments were duly adopted in
accordance with the provisions of Sections 17-6602 and 17-6605 of
the Kansas General Corporation Code.
FIRST. The name of the corporation is:
CEC Entertainment, Inc.
SECOND. The address of its registered office in the State of
Kansas is 534 South Kansas Avenue, Suite 1108, Topeka, Shawnee
County, Kansas 66603. The name of its registered agent at such
address is Corporation Service Company.
THIRD. The nature of the business or objects or purposes to be
conducted, transacted, promoted or carried on by the corporation is
to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Code of the State of
Kansas.
In addition to the powers and privileges conferred upon the
corporation by law and those incidental thereto, the corporation
shall possess and may exercise all the powers and privileges which
are necessary or convenient to the conduct, promotion or attainment
of the business, objects or purposes of the corporation.
FOURTH. The total number of shares of stock that the
corporation shall have authority to issue is One Hundred Million
Five Hundred Forty-Nine Thousand Five Hundred Seventy (100,549,570)
shares, which shall be divided into three (3) classes as follows:
(i) Forty-Nine Thousand Five Hundred Seventy (49,570) shares of
Class A Preferred Stock, of the par value of Sixty Dollars ($60.00)
each (hereinafter "Preferred A Shares"); (ii) Five Hundred Thousand
(500,000) shares of Class B Preferred Stock, of the par value of
One Hundred Dollars ($100.00) each (hereinafter "Preferred B
Shares"); and One Hundred Million (100,000,000) shares of Common
Stock, of the par value of Ten Cents ($0.10) each (hereinafter
"Common Shares"). The designations, powers, preferences, and
rights of each class, and the qualifications, limitations, or
restrictions thereof, shall be as set forth in this ARTICLE FOURTH.
Section 4.1. Dividends.
4.1.1. Dividend Rate on Preferred A Shares. The holders of
Preferred A Shares shall be entitled to receive, when, as, and if
declared by the Board of Directors of the corporation to the extent
and out of funds legally available for the payment of dividends,
cash dividends at the rate of (a) Ninety Cents ($0.90) per share
per quarter for each of the eight full fiscal quarters of the
corporation following the Preferred Dividend Commencement Date (as
defined in subsection 4.1.2 hereof), and (b) One Dollar and Twenty
Cents ($1.20) per share per quarter for each full fiscal quarter
thereafter.
4.1.2. Preferred Dividend Commencement Date. The Preferred
Dividend Commencement Date shall be the first day of the fifth full
fiscal quarter of the corporation beginning after the first
issuance of Preferred A Shares (which date for reference purposes
is May 21, 1985).
4.1.3. Accrual and Cumulation of Preferred Dividends.
Dividends on the Preferred A Shares shall (a) accrue at the rates
set forth in subsection 4.1.1 hereof, whether or not earned or
declared; (b) be payable before any dividends (other than a
dividend payable solely in Common Shares or Preferred B Shares) on
Common Shares or Preferred B Shares are paid, declared, or set
aside for, payment; and (c) be cumulative, so that if dividends
accrued under this Section on the outstanding Preferred A Shares
have not been paid or set aside for payment, for any fiscal quarter
or quarters, the amount of the deficiency shall first be declared
and fully paid or set aside for payment, but without interest,
before any distribution, by dividend or otherwise (other than a
distribution solely in Common Shares or Preferred B Shares) is
declared, paid, or set aside for payment on the Common Shares or
Preferred B Shares. Unless otherwise declared by the Board of
Directors, no dividends shall accrue or cumulate on the Preferred
A Shares before the Preferred Dividend Commencement Date.
4.1.4. Restriction on Dividends on Other Stock. The
corporation shall not declare, pay, or set aside for payment any
dividend or other distribution with respect to the Common Shares or
Preferred B Shares (other than a distribution solely in Common
Shares or Preferred B Shares)
(a) until after the first dividend required to be paid on the
Preferred A Shares pursuant to subsection 4.1.1 hereof has been
declared and paid or set aside for payment; and (b) unless an
amount equal to all dividends on the Preferred A Shares required to
be paid under this Section, including an unpaid cumulated
dividends, has been declared and paid or set aside for payment.
4.1.5. Definition of "Set Aside for Payment". For the
purpose of this ARTICLE FOURTH, a dividend or other distribution to
the holders of the Preferred A Shares shall be deemed to have been
"set aside for payment" if and only if funds sufficient for the
payment in full of such dividend or distribution have been
deposited with a bank or trust company in the States of Texas, New
York, or California, as a trust fund, with irrevocable instructions
and authority to the bank or trust company to pay said amounts to
the holders of the Preferred A Shares on the date for payment
thereof and to pay to the corporation all interest and other income
earned with respect to such amounts so deposited.
4.1.6. Record Date: Payment Date. With respect to each
fiscal quarter of the corporation for which the holders of the
Preferred A Shares are entitled to receive a dividend and for which
the Board of Directors of the corporation has declared a dividend
on the Preferred A Shares ('Dividend Quarter"), such dividend shall
be payable to the holders of record of Preferred A Shares on the
last day of the Dividend Quarter and shall be paid no later than 90
days after the last day of the Dividend Quarter (the "Preferred
Dividend Payment Date").
4.1.7. Dividends on Common Shares. Subject to all the
provisions hereof and of any resolution or resolutions (the
"Preferred B Resolutions") of the Board of Directors of this
corporation providing for the issuance of any series of Preferred
B Shares, and further subject to the prior rights and privileges of
the holders of Preferred A Shares and Preferred B Shares, the
holders of Common Shares shall be entitled to receive dividends
when, as, and if declared by the Board of Directors of the
corporation, to the extent and out of funds legally available for
the payment of dividends.
Section 4.2. Liquidation Preference. In the event of the
voluntary or involuntary liquidation, dissolution, or winding up of
the corporation, the holders of Preferred A Shares shall be
entitled to be paid out of the net assets of the corporation an
amount equal to the sum of Sixty Dollars ($60.00) per share, plus
all unpaid dividends cumulated in respect of the outstanding
Preferred A Shares, before any distribution or payment is made to
the holders of Preferred B Shares or Common Shares. In the event
that the net assets of the corporation are insufficient to pay the
full amount then due to the holders of Preferred A Shares, the
entire net assets of the corporation shall be distributed among the
holders of Preferred A Shares in direct proportion to the number of
Preferred A Shares held by each. The consolidation or merger of
the corporation into or with any other corporation or corporations,
in the manner provided by law, shall not be deemed to be a
liquidation, dissolution, or winding up of the affairs of the
corporation. After the payment to the holders of Preferred A
Shares of all amounts to which they are entitled, as herein above
provided, the holders of the shares of each series of the Preferred
B Shares then outstanding shall be entitled to receive out of the
remaining net assets of the corporation, but, only in accordance
with the preferences, if any, provided for such series, before any
distribution or payment shall be made to the holders of the Common
Shares, the amount per share fixed by the Preferred B Resolutions
to be received by the holders of shares of each such series on such
voluntary or involuntary liquidation, dissolution, or winding-up,
as the case may be. If such payment shall have been made in full
to the holders of all outstanding Preferred B Shares of all series,
or duly provided for, the remaining net assets of the corporation,
if any, shall be distributed to the holders of the Common Shares in
direct proportion to the number of Common Shares held by each.
However, if upon any such liquidation, dissolution, or winding-up,
the net assets of the corporation available for distribution among
the holders of any one or more series of the Preferred B Shares,
that (a) are entitled to a preference over the holders of the
Common Shares upon such liquidation, dissolution, or winding-up,
and (b) rank equally in connection therewith, shall be insufficient
to make payment in full of the preferential amount to which the
holders of such shares shall be entitled, then such assets shall be
distributed among the holders of each such series of the Preferred
B Shares ratably according to the respective amounts to which they
would be entitled with respect to the shares held by them upon such
distribution if all amounts payable on or with respect to such
shares were paid in full.
Section 4.3. Redemption of Preferred A Shares.
4.3.1. Optional Redemption. The corporation may, at any time
or from time to time at its sole option, redeem all or part of the
outstanding Preferred A Shares. The redemption price of a
Preferred A Share under this subsection is Sixty Dollars ($60.00)
plus the amount of all unpaid dividends cumulated with respect to
such share under subsection 4.1.3 hereof.
4.3.2. Mandatory Purchase. The corporation shall redeem, at
the price specified in subsection 4.3.1 above, or purchase in the
open market, such number of Preferred A Shares at such time or
times, if any, as may be necessary to reduce the number of.
Preferred A Shares outstanding on the last day of each of the
corporation's fiscal years set forth below to not more than the
number of shares set forth opposite such year, as follows:
Maximum
Number of
Year Shares Outstanding
---- ------------------
1990 483,333
1991 466,666
1992 450,006
1993 433,333
1994 416,666
1995 400,000
1996 383,333
1997 366,666
1998 350,000
1999 333,333
2000 316,666
2001 300,000
2002 283,333
2003 266,666
2004 250,000
2005 -0-
4.3.3. Mandatory Purchase Upon Payment of Guaranteed Debt.
4.3.3.1. Definitions.
(a) For purposes hereof, the term "BHC Affiliate"
shall mean and refer to (i) Brock Hotel Corporation,
a Delaware corporation ("BHC"), (ii) any corporation,
partnership, or other entity in which BHC has an
interest, (iii) any individual or any corporation,
partnership, or other entity owning at least ten
percent (10%) of the issued and outstanding voting
stock of BHC or (iv) any other entity controlling,
controlled by, or under common control with BHC.
(b) For purposes hereof, the term "Approved Loan"
shall mean and refer to a loan, capitalized or other
lease, or other financing arrangement with respect to
which (i) the proceeds are used to prepay Guaranteed
Obligations (as hereinafter defined), (ii) the
interest rate does not exceed the blended interest
rates of the Guaranteed Obligations that are prepaid
with such proceeds, and (iii) the amortization of
which is no less favorable to the corporation than
the aggregate schedule of payments or mandatory
prepayments (other than by reason of a default on a
Guaranteed Obligation) required pursuant to the
Guaranteed Obligations so prepaid.
(c) For purposes hereof, the term "Equity Holder"
shall mean and refer to any party having an equity
interest in the corporation.
4.3.3.2. Mandatory Purchase.
(a) In the event that the corporation prepays (as
opposed to any regularly scheduled payment or
mandatory prepayment, other than by reason of' a
default on a Guaranteed Obligation) or refinances for
any reason (other than out of the proceeds of (i) any
capital contributions or Approved Loans made to the
corporation by a BHC Affiliate or by any Equity
Holder, or (ii) any loans made to the corporation
that are guaranteed by BHC or any Equity Holder), at
any time prior to January 1, 1988, any debt,
liability or obligation of the corporation that is
guaranteed by BHC or any Equity Holder (such debts,
liabilities and obligations collectively, the
"Guaranteed Obligations"), so that immediately
following such prepayment or refinancing there
remains outstanding Guaranteed Obligations in an
aggregate amount of less than Fifty Million Dollars
($50,000,000), the corporation shall repurchase,
either through redemption or through purchase on the
open market, that number of Preferred A Shares with
an aggregate par value equal to the product of (a)
the amount of Guaranteed Obligations reduced by such
prepayment or refinancing (but only in the amount
such prepaid or refinanced Guaranteed Obligations
reduce the total Guaranteed Obligations below
$50,000,000, or thereafter continue to reduce the
Guaranteed Obligations) multiplied by (b) thirty-five
percent (35%).
(b) In addition, if, prior to January 1, 1988, any
event occurs which, either under applicable law or
under the provisions of any agreement governing any
Guaranteed Obligation (whether or not such provision
is enforceable as a matter of law), would, either
immediately, or with the passage of time or giving of
notice (or both), accelerate the time that payment on
such Guaranteed Obligation is due and payable, or
otherwise result in such Guaranteed Obligation being
deemed to have matured, in whole or in part, before
its regularly scheduled due date, and if, at any time
after such event occurs, and prior to the
reinstatement, if any, of the regular payment
schedule on such Guaranteed Obligation by the
agreement of the creditor thereon, any payment or
distribution is made out of assets of the corporation
on account of such Guaranteed Obligation (whether
before or after January 1, 1988), so that,
immediately following such payment or distribution,
there remains Outstanding Guaranteed Obligations in
an aggregate amount of less than Fifty Million
Dollars ($50,000,000), the corporation shall
repurchase, either through redemption or through
purchases on the open market, that number of
Preferred A Shares with an aggregate par value equal
to the product of (a) the amount of the Guaranteed
Obligations so reduced (but only in the amount such
payment or distribution reduces the total Guaranteed
Obligations below $50,000,000, or thereafter
continues to reduce the Guaranteed Obligations)
multiplied by (b) thirty-five percent (35%).
(c) Furthermore, in the event that prior to
January l, 1988 the corporation pays, or assets of
the corporation are used to repay, BHC or any Equity
Holder (other than out of positive cash flow
generated by the corporation from operations in
accordance with past practices, which past practices
shall not be deemed to include the sale of real
estate or the sale of any entire restaurant as a
unit), on account of funds advanced to the
corporation by BHC or such Equity Holder to repay any
Guaranteed Obligations, and such repayment to BHC or
such Equity Holder occurs at a time when the
remaining outstanding Guaranteed Obligations are in
an aggregate amount of less than $50,000,000, then
the corporation shall repurchase, either through
redemption or purchases on the open market, that
number of Preferred A Shares with an aggregate par
value equal to the product of (a) the amount of such
repayment to BHC or such Equity Holder (but not to
exceed the amount by which the Guaranteed Obligations
total less than $50,000,000) multiplied by (b) thirty
five percent (35%). For purposes of this paragraph
(c): (1) any funds advanced by BHC or such Equity
Holder to the corporation from and after the date on
which Preferred A Shares are first issued (the
"Beginning Date") to fund negative cash flow (other
than funds specifically advanced and earmarked for
the upgrading of existing restaurants or the
construction of new restaurants) shall be deemed to
have been advanced to repay Guaranteed Obligations
repaid by the corporation since the Beginning Date up
to the amount of the Guaranteed Obligations paid by
the corporation after the Beginning Date; (2) an
amount equal to the net proceeds of any sales of
assets made after the Beginning Date that are not
consistent with the corporation's past practices
(which past practices shall not be deemed to include
the sale of real estate or the sale of any entire
restaurant as a unit) shall be deemed to have been
advanced by BHC or an Equity Holder to the
corporation after the Beginning Date to repay
Guaranteed obligations, and repaid by the corporation
to BHC or such Equity Holder after the Beginning
Date; (3) any repayments made to BHC or an Equity
Holder on account of advances made by BHC or such
Equity Holder to the corporation shall be deemed to
have been applied first to repay advances made by BHC
or such Equity Holder to the corporation to repay
Guaranteed Obligations; and (4) any repayments of
Approved Loans made to any BHC Affiliate other than
BHC shall be deemed to have been repaid to BHC on
account of funds advanced by BHC to repay Guaranteed
Obligations.
(d) The corporation's obligation to redeem or
repurchase Preferred A Shares in accordance with any
of the foregoing subparagraphs (a), (b), and (c) of
this subsection 4.3.3.2 shall not be affected by any
prior purchase or redemption of Preferred A Shares by
the corporation or any BHC Affiliate other than a
redemption or purchase of Preferred A Shares made
within twenty (20) days prior to the time such
obligation arises and made for the specific purpose
of satisfying such obligation, as evidenced by a
statement to such effect included in any written
confirmations regarding such redemption or purchase
forwarded to a selling broker by the corporation, any
purchasing BHC Affiliate, or their purchasing broker.
4.3.4. Procedure-for Redemption.
4.3.4.1. Date and Place of Redemption. The Board of
Directors of the corporation may, by
resolution, fix the date and place of
redemption (which place may be within or
without the State of Kansas).
4.3.4.2. Notice. The corporation shall notify each
holder of Preferred A Shares to be redeemed
of the amount of his shares to be redeemed
and the date and place of redemption by
United States Mail, first-class postage
prepaid, addressed to each such stockholder
at his last known post office address as
shown on the stock record books of the
corporation, mailed no later than twenty (20)
days before the date of redemption.
4.3.4.3. Effectiveness of Redemption. If the notice
required by subsection 4.3.4.2 above has been
duly given and, on or before the date fixed
for redemption, the funds necessary to effect
such redemption have been set aside for
payment to the holders of the Preferred A
Shares to be redeemed, then, whether or not a
certificate evidencing shares to be redeemed
has been surrendered, the shares evidenced
thereby shall no longer be outstanding, and
the right to receive dividends thereon, the
right to vote the same, and all other rights
with respect to such shares shall cease and
terminate on the date so fixed for
redemption, except only the right of the
holder of such Preferred A Shares to receive
the redemption price therefor, without
interest, upon surrender of the certificate
or certificates evidencing the same, duly
endorsed for transfer.
4.3.4.4. Selection of Shares for Redemption.If at any
time less than all of the outstanding
Preferred A Shares are to be redeemed, the
shares to be redeemed shall be selected by
lot or in such other manner as the Board of
Directors of the corporation may deem fair
and appropriate.
4.3.4.5. Board of Directors' Authority. Subject to
the limitations and provisions hereof, the
Board of Directors shall have the full power
and authority to prescribe the manner in
which, and the terms and conditions upon
which, Preferred A Shares shall be redeemed.
4.3.5. Cancellation. All Preferred A Shares redeemed,
purchased, or otherwise acquired by the corporation in any manner
shall be canceled and shall not be reissued.
Section 4.4. Voting Rights.
4.4.1. Generally. The holders of the Common Shares have one
(1) vote for each Common Share so held. The holders of the
Preferred A Shares have one (1) vote for each Preferred A Share so
held, and shall vote along with the holders of Common Shares and
not as a separate class (except as hereafter provided or as
otherwise provided by law), upon each and any matter submitted to
a vote of the stockholders of the corporation. Subject to Section
4.10 hereof, the holders of the Preferred B Shares shall have such
voting rights as are provided in the Preferred B Resolutions.
4.4.2. Upon Default. Upon the occurrence and during the
continuance of any Event of Default (as defined at Section 4.5
below), the holders of the Preferred A Shares, voting separately as
a class, shall be entitled to elect the smallest number of
directors that then shall constitute a majority of the directors of
all of the then authorized number of directors of the corporation.
The holders of the Common Shares and the holders of the Preferred
B Shares (to the extent provided by the Preferred B Resolutions)
shall elect the remaining directors. In such event, only holders
of Preferred A Shares may vote for directors to be elected by
holders of the Preferred A Shares and only holders of Common Shares
and the holders of the Preferred B Shares (to the extent provided
by the Preferred B Resolutions) may vote for directors to be
elected by holders of the Common Shares and the holders of the
Preferred B Shares (to the extent provided by the Preferred B
Resolutions).
4.4.3. Approval for Certain Transactions.
4.4.3.1. Certain Transactions. Unless the corporation
has first obtained the approval of the holders of two-thirds
(2/3) of the outstanding Preferred A Shares, the corporation
shall not:
(a) amend these Articles of Incorporation in a
manner that would materially adversely affect the
holders of the Preferred A Shares; or
(b) increase the authorized number of Preferred A
Shares; or
(c) merge or consolidate with any other
corporation; or
(d) sell, convey, or otherwise, dispose of all or
substantially all of the property or business of the
corporation; or
(e) amend Sections 4.1 and 4.2 above if such
amendment would materially adversely affect the
holders of the Preferred A Shares.
4.4.3.2. Junior Preferred Stock. Unless the
corporation has first obtained the approval of the holders of
two-thirds (2/3) of the outstanding Preferred A Shares, the
corporation shall not, whether in the Preferred B Resolutions or
otherwise:
(a) create any class of preferred stock having
preferences over or being on a par with the Preferred
A Shares as to dividends, redemption, or liquidation;
or
(b) create any class of preferred stock that are
subject to redemption while any of the Preferred A
Shares are outstanding; or
(c) create any class of preferred stock upon which
dividends are to be paid at any time in an amount
that, when calculated as a percentage of the par
value of such preferred stock, is in excess of the
dividends payable at such time pursuant to subsection
4.1.1 hereof on the Preferred A Shares, when
calculated as a percentage of the par value of the
Preferred A Shares, or
(d) create any class of preferred stock upon -
which dividends shall by payable prior to the
Preferred Dividend Commencement Date or upon which
dividends shall be payable if dividends accrued under
subsection 4.1.3 on the outstanding Preferred A
Shares have not been paid or set aside for payment
for any fiscal quarter or quarters; or
(e) create any class of preferred stock that is
convertible into Common Shares at a price below the
greater of (i) Three Dollars and Fifty Cents ($3.50)
per Common Share or (ii) an amount that is one
hundred fifty percent (150%) of the average of the
mean between the bid and asked prices of the Common
Shares during the twenty (20) trading days prior to
the issuance of such junior preferred stock.
Section 4.5. Default.
4.5.1. Events of Default. The occurrence of any of the
following events shall be deemed to be an "Event of Default" for
purposes of this ARTICLE FOURTH:
(a) any failure to redeem or purchase Preferred A Shares as
required by subsections 4.3.2 and 4.3.3 hereof in the manner and
amount and at the time and place specified in Section 4.3
hereof, if such shares are not otherwise purchased in the manner
and amount and at the time and place specified in Section 4.3
hereof by a BHC Affiliate; and
(b) the failure of the corporation, whether or not declared and
whether or not funds are legally available, for the payment
thereof, on or before any Preferred Dividend Payment Date, to
pay the lesser of: (i) the dividends cumulated in respect of the
Preferred A Shares at the end of the fiscal quarterly accounting
period ended next preceding such Preferred Dividend Payment
Date; or (ii) twenty-five percent (25%) of the Available Cash
Flow (as hereinafter defined) of the corporation during the four
(4) consecutive fiscal quarterly accounting periods ending with
the next preceding fiscal quarterly accounting period prior to
such Preferred Dividend Payment Date. The term "Available Cash
Flow," as used herein with respect to any given period of four
(4) fiscal quarterly accounting periods shall mean and refer to
an amount equal to: (A) the after-tax net income of the
corporation during such period, plus (B) the depreciation,
amortization and other similar non-cash charges deducted by the
corporation during such period in determining its after tax net
income, minus (C) mandatory (as opposed to voluntary) payments
during such period of the principal portion (as opposed to
interest) of rental payments under leases capitalized on the
books of the corporation for financial reporting purposes minus
(D) all dividends paid by the corporation on Preferred A Shares
during such period, minus (E) all principal and interest
payments, if any, made by the corporation to Pizza Time Theatre,
Inc., or its successors and assigns, with respect to
indebtedness with an original term in excess of six (6) months,
and minus (F) the sum of Seven Million Five Hundred Thousand
Dollars ($7,500,000.00).
4.5.2. Effect of Failure to Redeem or Purchase. The sole
effect of the occurrence and continuance of any such Event of
Default (as hereinafter defined) shall be:
(a) the adjustment of voting rights of the holders of
Preferred A Shares as provided in subsection 4.4.2 hereof; and
(b) the continuance of all dividend, voting and other rights
of the holders of Preferred A Shares not so redeemed as herein
required, including, without limitation, the right to receive
dividends pursuant to Section 4.1 hereof and to be redeemed
pursuant to Section 4.3 hereof, to the extent that the
corporation has funds legally available for such purposes.
4.5.3. Cure. An Event of Default shall be deemed to continue
until such time as (a) the number. of Preferred A Shares then held
by holders other than the corporation or a BHC Affiliate does not
exceed the maximum number of Preferred A Shares then permitted to
be outstanding pursuant to subsections 4.3.2 and 4.3.3 hereof; and
(b) the corporation shall have declared, and paid or set aside for
payment, such aggregate amount as would have been theretofore
required to have been declared and paid on all past Dividend
Payment Dates to prevent an Event of Default from having occurred
with respect to any Preferred A Shares then outstanding.
4.5.4. Certain Shares Purchased by a BHC Affiliate.
4.5.4.1. Redemption Restriction. In the event any of
the Preferred A Shares required to be redeemed or purchased
pursuant to Section 4.3 hereof are purchased by a BHC Affiliate
other than the corporation, as permitted in paragraph (a) of
subsection 4.5.1 or in subsection 4.5.3 hereof, then such
Preferred A Shares shall not be later redeemed or purchased
pursuant to subsection 4.3 hereof until all other Preferred A
Shares have been redeemed or purchased from all holders other
than a BHC Affiliate.
4.5.4.2. Resale Restriction. In the event any
Preferred A Shares required to be redeemed or purchased pursuant
to Section 4.3 hereof are purchased by a BHC Affiliate other
than the corporation, as permitted in paragraph (a) of
subsection 4.5.1 or in subsection 4.5.3 hereof, then such
Preferred A Shares shall not be sold by such purchaser so long
as any Preferred A Shares are held by any holder that is not a
BHC Affiliate. A legend setting forth such restriction shall be
placed on each certificate representing the Preferred A Shares
subject to the restriction imposed by this subsection 4.5.4.2.
Section 4.6. Election of New Directors Upon Default.
4.6.1. Number of Directors. Upon the occurrence of any Event
of Default and the election held pursuant to subsection 4.6.4
hereof, the number of the corporation's directors shall be five
(5).
4.6.2. New Election.
4.6.2.1. Notice. Within ten (10) days after receipt of
a written request or requests for a shareholder's meeting from
the holder or holders of five percent (5%) or more of the Preferred
A Shares after the occurrence of an Event of Default, the Secretary
of the corporation shall notice and call a meeting of the
shareholders of the corporation for the purpose of electing new
directors.
4.6.2.2. Time and Place. Such meeting shall occur at
the principal office of the corporation or such other location as
the Board of Directors in good faith determines to be convenient to
the majority of the shareholders. The meeting shall occur within
fifty (50) days after the last day the Secretary is required to
notice and call the meeting. The meeting may be a special meeting
or an annual meeting.
4.6.2.3. Other Matters. The shareholders may consider
other matters as they are permitted to consider by these Articles,
the bylaws of the corporation, or by law, provided that nomination
and election of new directors by the holders of the Preferred A
Shares shall be the first item of business.
4.6.2.4. Quorum. Holders of one-third (1/3) of the
Preferred A Shares shall constitute a quorum for the election of
directors to be elected by the holders of the Preferred A Shares.
4.6.3. Resignations of Directors During Continuance of an
Event of Default. All members of the Board of Directors shall be
deemed to have resigned on the date of the meeting held pursuant to
subsection 4.6.2.2 hereof.
4.6.4. Election of Directors During Continuance of an Event
of Default. At the meeting held pursuant to subsection 4.6.2.2
hereof, the holders of Preferred A Shares, Preferred B Shares, and
Common Shares shall be entitled to vote for the election of
directors of the corporation as provided in subsection 4.4.2
hereof.
4.6.5. Vacancies. During the continuance of an Event of
Default, vacancies on the Board of Directors created other than by
the operation of subsection 4.6.3 may be filled only by action of
directors who were elected by holders of shares of stock of the
same class as those who elected the director whose successor is to
be chosen. All other vacancies shall be filed as provided in the
Bylaws of the corporation.
4.6.6. Termination of Event of Default. The terms of the
directors elected or appointed by or on behalf of the holders of
Preferred A Shares shall expire, and the number of the
corporation's directors shall revert to the number that existed
immediately prior to the Event of Default that resulted in the
election of directors by classes, automatically at such time as
there is no Event of Default continuing under this ARTICLE FOURTH.
Section 4.7. No Conversion Rights. The Preferred A Shares
shall not be convertible into Common Shares.
Section 4.8. All Shares Non-assessable. All shares of
stock of the corporation of any class shall be non-assessable.
Section 4.9. No Preemptive Rights. No holder of any shares
of the corporation shall be entitled as such, as a matter of right,
to purchase or subscribe for any shares of -stock of the
corporation of any class, whether now or hereafter authorized or
whether issued for cash, property bonds, notes, debentures, other
securities, or stock convertible into shares of stock of the
corporation or carrying or evidencing any right to purchase shares
of stock of any class.
Section 4.10. No Nonvoting Equity Securities. The
corporation shall not authorize or issue any class or series o f
non-voting equity securities.
Section 4.11. Preferred B Shares.
4.11.1. Issuance. Preferred B Shares may be issued in
one or more series at such time or times as the Board of Directors
may determine. All shares of any one series shall be of equal rank
and identical in all respects. Preferred B Shares may be issued
for such consideration or considerations as the Board of Directors
may determine, provided that the value of such consideration or
considerations shall equal or exceed, in the good faith business
judgment of the Board of Directors, the greater of (i) the
aggregate par value of the Preferred B Shares to be issued or (ii)
the fair market value of the Preferred B Shares to be issued, if an
active trading market has developed for the series of Preferred B
Shares being so issued.
4.11.2. Authorization. Subject to the restrictions
set forth in subsection 4.4.3.2 hereof, authority is hereby
expressly granted to the Board of Directors to fix from time to
time, by resolution or resolutions providing for the issue of any
series of Preferred B Shares, the powers, designations,
preferences, and relative, participating, optional, or other
rights, if any, and the qualifications, limitations, or
restrictions thereof, if any, of such series, including, without
limiting the generality of the foregoing, the following:
(a) The distinctive designation and number of shares
comprising such series, which number may (except where otherwise
provided by the Board of Directors in creating such series) be
increased or decreased (but not below the number of shares then
outstanding) from time to time by action of the Board of
Directors;
(b) The dividend rate or rates on the shares of such series
and the preferences, if any, over any other series of Preferred
B Shares (or of any other series of Preferred B Shares over such
series) with respect to dividends, the terms and conditions upon
which and the periods with respect to which dividends shall be
payable, whether and upon what conditions such dividends shall
be cumulative and, if cumulative, the date or dates from which
dividends shall cumulate;
(c) Whether or not the shares of such series shall be
redeemable, the limitations and restrictions with respect to
such redemptions, the time or times when, the price or prices at
which, and the manner in which such shares shall be redeemable,
including the manner of selecting shares of such series for
redemption if less than all shares of such series are to be
redeemed;
(d) The rights to which the holders of shares of such series
shall be entitled, and the preferences if any, over any other
series of Preferred B Shares (or of any other series of
Preferred B Shares over such series), upon the voluntary or
involuntary liquidation, dissolution, or winding-up of the
corporation, which rights may vary depending on whether such
liquidation, dissolution, or winding-up is voluntary or
involuntary, and, if voluntary, may vary at different dates;
(e) Whether or not the shares of such series shall be
subject to the operation of a purchase, retirement, or sinking
fund, and, if so, whether and upon what conditions such
purchase, retirement, or sinking fund shall be cumulative or
non-cumulative, the extent to which and the manner in which such
fund shall be applied to the purchase or redemption of the
shares of such series for retirement or to other corporate
purposes and the terms and provisions relative to the operation
thereof;
(f) Whether or not the shares of such series shall be
convertible into or exchangeable for shares of stock of any
other class or classes, or of any other series of the same class
and, if so convertible or exchangeable, the price or prices or
the rate or rates of conversion or exchange and the method, if
any, of adjusting the same, and any other terms and conditions
of such conversion or exchange;
(g) The voting powers, full and/or limited, if any, of the
shares of such series; and whether or not and under what
conditions the shares of such series (alone or together with the
shares of one or more other series of Preferred B Shares having
similar provisions) shall be entitled to vote separately as a
single class for the election of one or more directors of the
corporation in case of dividend arrearages or other specified
events, or upon other matters;
(h) Whether or not the issuance of any additional shares of
such series, or of any shares of any other series, shall be
subject to restrictions as to issuance, or as to the powers,
preferences, or rights of any such other series; and
(i) Any other preferences, privileges, and powers, and
relative, participating, optional, or other special rights, and
qualifications, limitations, or restrictions of such series, as
the Board of Directors may deem advisable and as shall not be
inconsistent with the provisions of these Articles of
Incorporation or law.
4.11.3. Dividends. After the requirements with
respect to preferential dividends on the Preferred A Shares (fixed
pursuant to Section 4.1 hereof) shall have been met:
4.11.3.1. Fixing of Dividends. The shares of each
series of Preferred B Shares shall entitle the holders thereof
to receive, when, as, and if declared by the Board of Directors
out of funds legally available for dividends, cash dividends at
the rate, under the conditions, for the periods, and on the
dates fixed by the resolution or resolutions of the Board of
Directors pursuant to authority granted in this Section 4., for
each series, and no more, before any dividends on the Common
Shares (other than a distribution solely in Common Shares) shall
be paid, declared, or set apart for payment.
4.11.3.2. Restrictions on Dividends on Common and other
Junior Stock. Unless dividends on all outstanding shares of
each series of the Preferred B Shares shall have been fully paid
or declared and set aside for payment, for all past quarterly
dividend periods, and unless all required sinking fund payments,
if any, shall have been made or provided for, no dividend
(except a dividend payable in Common Shares and/or shares of any
other class of stock ranking junior to the Preferred B Shares)
shall be paid upon or declared. or set apart for the Common
Shares or any other class of stock ranking junior to the
Preferred B Shares.
4.11.4. Re-issuance of Preferred B Shares. Preferred B
Shares redeemed, converted, exchanged, purchased, retired, or
surrendered to the corporation, or which have been issued and
reacquired in any manner, shall have the status of authorized and
unissued Preferred B Shares and may be reissued by the Board of
Directors as shares of the same or any other series of Preferred B
Shares.
4.12. Share Combination. Each ten (10) shares of previously
authorized Common Stock, par value $.10 per share, of the
Corporation ("Old Common Stock"), shall be hereby combined into one
(1) share of Common Stock, par value $.10 per share of the
Corporation ("New Common Stock"). Each previously issued
certificate which represented shares of Old Common Stock shall
hereafter represent the number of shares of New Common Stock into
which the shares of Old Common Stock represented by such
certificate shall be combined; provided, however, that each person
holding of record a stock certificate or certificate which
represented shares of Old Common Stock, shall receive, upon
surrender of such certificate or certificate, a new certificate or
certificates evidencing and representing the number of shares of
New Common Stock to which such person is entitled and provided
further that the Corporation shall not issue fractional shares of
New Common Stock with respect to this combination. In lieu of
fractional shares, the Corporation shall pay stockholders cash for
such fractional shares, on the basis of the fair value of such
fractional shares as of the date of effectiveness of this Section.
The Board of Directors (or the Executive Committee thereof) shall
determine in good faith the fair value for such fractional shares,
and such determination shall be conclusive evidence thereof.
FIFTH. The number of directors of the corporation shall be as
provided in the Bylaws of the corporation.
Commencing with the annual meeting of stockholders in 1988, in
lieu of electing the whole number of directors annually, the
directors shall be divided into three (3) classes, Class I, Class
II and Class III, with three (3) directors in Class I and two in
each of Classes II and III. At the annual meeting of stockholders
of 1988, directors of Class I shall be elected to hold office for
a term expiring at the next succeeding annual meeting of
stockholders; directors of Class II shall be elected to hold office
for a term expiring at the second succeeding annual meeting of
stockholders; and directors of Class III shall be elected to hold
office for a term expiring at the third succeeding annual meeting
of stockholders. At each annual meeting of stockholders subsequent
to the annual meeting of stockholders in 1988, the successors to
the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding
annual meeting. Each director shall hold office for the term for
which he was elected and until his successor is elected and
qualified or until his earlier resignation or removal. Any
increase or decrease in the authorized number of directors shall be
apportioned by the Board of Directors among the classes so as to
make all classes as nearly equal in number as possible. No
decrease in the authorized number of directors shall shorten the
term of any incumbent director. A director who is chosen in the
manner provided in the Bylaws to fill a vacancy in the Board of
Directors or to fill a newly-created directorship resulting from an
increase in the authorized number of directors shall hold office
until the next election of the class for which such director shall
have been chosen and until his successor is elected and qualified
or until his earlier resignation or removal. Directors of the
corporation may be removed only for cause.
Upon the occurrence of any Event of Default (as defined in the
Amended Articles of Incorporation of the corporation) and the
election held pursuant to Subsection 4.6.4. of the Amended Articles
of Incorporation of the corporation, the effectiveness of the
provisions of the immediately preceding paragraph shall be
suspended, and the five (5) directors elected in accordance with
Section 4.6 of the Amended Articles of Incorporation shall serve
until the next annual meeting of stockholders and until their
respective successors are elected and qualified or until their
successors are elected and qualified or until their earlier
registration or removal. Upon the discontinuance of an Event of
Default, the suspension of the effectiveness of the provisions of
the immediately preceding paragraph shall automatically cease; the
directors whose terms shall not have expired by reason of the
discontinuance of such Event of Default shall be designated as
Class III directors; the remaining directors, subject to applicable
Kansas law, may appoint directors in accordance with the provisions
of Section 14 of the Bylaws or may call a special meeting of
stockholders to elect directors to fill the vacancies created by
the expiration of the terms of directors elected or approved by or
on behalf of the holders of the Class A Preferred Stock of this
corporation and to fill any newly created directorships resulting
from an increase in the number of directors due to a cessation in
such suspension; and the terms of each class of directors shall be
determined by the provisions of the immediately preceding paragraph
as though such directors had been elected at the 1988 annual
meeting of stockholders.
SIXTH. The corporation is to have perpetual existence.
SEVENTH. The private property of the stockholders shall not be
subject to the payment of corporate debts to any extent whatsoever.
EIGHTH. Elections of directors need not be by ballot unless
the Bylaws of the corporation so provide.
NINTH. The provisions of the Bylaws of this corporation
contained in Section 13 of 14 thereof may be amended, altered,
changed or repealed from time to time by directors constituting at
least two-thirds ( ) of the authorized number of directors of the
corporation; provided, however, that the stockholders at an annual
meeting, or special meeting, may also amend, alter, change or
repeal such provisions by the affirmative vote of the holders of
two-thirds ( ) of the issued and outstanding shares of all classes
of stock of the corporation entitled to vote thereon, voting as one
class. All provisions of the Bylaws, other than those referred to
above in this paragraph, may be amended or repealed and new Bylaws
not inconsistent or in conflict with those provisions referred to
above in this paragraph may be added from time to time by a
majority of the Board of Directors then in office; provided,
however, that the stockholders at an annual meeting, or special
meeting, may also from time to time amend all provisions of the
Bylaws, other than those referred to above in this paragraph, and
add new Bylaws not inconsistent or in conflict with those
provisions referred to above in this paragraph by the affirmative
vote of the holders of a majority of all classes of stock of the
corporation entitled to vote thereon, voting as one class. Any
amendment to the Bylaws adopted by the stockholders as aforesaid
may thereafter be further amended by the directors as aforesaid
unless the stockholders shall have provided otherwise in such
amendment.
TENTH. The corporation may agree to the terms and conditions
upon which any director, officer, employee or agent accepts his
office or position and in its Bylaws, by contract or in any other
manner may agree to indemnify and protect any director, officer,
employer or agent of the corporation, or any person who serves at
the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, to the extent permitted by the laws of the State
of Kansas.
ELEVENTH. Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them or
between this corporation and its stockholders or any class of them,
any court of competent jurisdiction within the State of Kansas, on
the application in a summary way of this corporation or of any
creditor or stockholder thereof or on the application of any
receiver or receivers appointed for this corporation under the
provisions of Section 104 of the General Corporation Code of Kansas
or on the application of trustees in dissolution or of any receiver
or receivers appointed for this corporation under the provisions of
Section 98 of the General Corporation Code of Kansas, may order a
meeting of the creditors or class of creditors, or of the
stockholders or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, or of the
stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any
reorganization of this corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and
the said reorganization, if sanctioned by the court to which the
said application has been made, shall be binding on all the
creditors or class of creditors, or on all the stockholders or
class of stockholders, of this corporation, as the case may be, and
also on this corporation.
TWELFTH. Except as may be otherwise provided by statute, the
corporation shall be entitled to treat the registered holder of any
shares of the corporation as the owner of such shares and of all
rights derived from such shares for all purposes, and the
corporation shall not be obligated to recognize any equitable or
other claim to or interest in such shares or rights on the part of
any other person, including, but without limiting the generality of
the term "person," a purchaser, pledgee, assignee or transferee of
such shares or rights, unless and until such person becomes the
registered holder of such shares. The foregoing shall apply
whether or not the corporation shall have either actual or
constructive notice of the interest of such person.
THIRTEENTH. Meetings of stockholders may be held within or
without the State of Kansas, as the Bylaws may provide. The books
of the corporation may be kept (subject to any provision contained
in the statutes of Kansas) outside the State of Kansas at such
place or places as may be designated from time to time by the Board
of Directors or in the Bylaws of the corporation.
FOURTEENTH. The corporation reserves the right to amend,
alter, change or repeal any provisions contained in these Amended
Articles of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation. The
provisions contained in the Articles FIFTH, NINTH and FOURTEENTH of
these Amended Articles of Incorporation may be amended, altered,
changed or repealed from time to time only upon (1) the approval of
directors constituting at least two-thirds ( ) of the authorized
number of directors of the corporation, and (2) the affirmative
vote of the holders of two-thirds ( ) of the issued and outstanding
shares of all classes of stock of the corporation entitled to vote
thereon, voting as one class at any annual or special meeting of
the stockholders. All provisions of these Amended Articles of
Incorporation, other than those referred to above in this Article,
may be amended, altered, changed or replaced in the manner now or
hereafter prescribed by statute.
FIFTEENTH. No director shall be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this Article shall not eliminate
or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under
the provisions of K.S.A. 17-6424 and amendments thereto or (iv) for
any transaction from which the director derived an improper
personal benefit.
IN WITNESS WHEREOF, these Amended and Restated Articles of
Incorporation of CEC Entertainment, Inc. have been executed on
behalf of the corporation by its Chief Executive Officer and
attested by its Secretary on this 23rd day of July, 1999.
CEC ENTERTAINMENT, INC.
By:--------------------
Richard M. Frank
[CORPORATE SEAL] Chief Executive Officer
ATTEST:
- ---------------------------------
Marshall R. Fisco, Jr., Secretary
STATE OF TEXAS $
$
COUNTY OF DALLAS $
BEFORE ME, the undersigned authority, on this day personally
appeared Richard M. Frank, known to me to be the person and officer
whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of CEC Entertainment,
Inc., a corporation, and that he executed the same as the act of
such corporation.
Given under my hand and seal of office this 23rd day of July,
1999.
------------------------
Notary Public in and for
the State of Texas
My commission expires:
- ------------------------
[Seal]
<Exhibit 10(a)(2)>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is dated as of June 23, 1999, by
and among CEC Entertainment, Inc. ("Purchaser") and Discovery Zone,
Inc., and Discovery Zone Licensing, Inc., each a debtor and
debtor-in-possession under Chapter 11 Case No. 99-941 (JJF),
jointly administered (individually each a "Seller" and collectively
"Sellers"). In consideration of the mutual covenants, agreements
and warranties herein contained, the parties hereto agree as
follows:
CERTAIN DEFINITIONS
Unless otherwise defined herein, terms used herein shall have
the meanings set forth below:
"Agreement" means this Asset Purchase Agreement, including all
Exhibits and Schedules hereto, as the same may be amended from time
to time in accordance with its terms.
"Acquired Assets" shall have the meaning set forth in Article I
hereof.
"Bankruptcy Code" means title 11 of the United States Code, $$
101-1330.
"Bankruptcy Court" means the United States Bankruptcy Court for
the District of Delaware, having jurisdiction over Sellers and
their assets in the Chapter 11 Cases.
"Business" means the business conducted utilizing those
operating assets and operations of Sellers for the purpose of
operating family entertainment centers in the United States.
"Chapter 11 Cases" means the pending cases commenced by Sellers
on April 20, 1999 under chapter 11 of the Bankruptcy Code, pending
in the Bankruptcy Court under docket no. 99-941 (JJF), jointly
administered.
"Claim" means any claim, lawsuit, demand, suit, inquiry made,
hearing, investigation, notice of violation, litigation,
proceeding, arbitration, or other dispute, whether civil, criminal,
administrative or otherwise.
"Closing" means the consummation of the transactions
contemplated herein in accordance with Article IX hereof.
"Closing Date" means the date set forth in Section 9.1 of this
Agreement.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Contaminant" means any substance regulated under any
Environmental Law, or any substance defined as or included in the
statutory or regulatory definitions of pollutant, hazardous
substances, hazardous or toxic wastes, hazardous materials, or
"toxic substances" under any Environmental Law.
"Contract" means any agreement, contract, commitment, or other
binding arrangement or understanding, whether written or oral, to
which Sellers are a party.
"Dollars" or "$" means dollars of the United States of America.
"Environmental Law" means any Regulation that relates to or
otherwise imposes liability or standards of conduct concerning
discharges, releases or threatened releases of noxious odors or any
Contaminants into ambient air, water or land, or otherwise relating
to the manufacture, processing, generation, distribution, use,
treatment, storage, disposal, cleanup, transport or handling of
Contaminants.
"Environmental Liabilities and Costs" means all losses from any
claim, by a Person, whether based on contract, tort, implied or
express warranty, strict liability, criminal or civil statute,
including under any Remedial Action, any Environmental Law, any
Permit required by or pursuant to any applicable Environmental Law,
any Lien in favor of any authority for Environmental Liabilities
and Costs, any Order or agreement with any authority, arising from
environmental, health or safety conditions, or the Release of a
Contaminant into the environment.
"Escrow Agreement" means an escrow agreement in such form as
may be mutually agreeable to Purchaser and Sellers, to be entered
into by the Purchaser and Sellers, with respect to the
establishment and maintenance of acounts to hold the Third-Party
Escrow and the Adjustment Escrow
"FunCenters" means the premises identified in Schedule 1.2 and
as items 1 through 13 in Schedule 3.5 from which Sellers operate
the Business.
"FunCenter Lease" means, individually, any lease of a FunCenter
or Other FunCenter.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations thereunder.
"Indebtedness" with respect to any Person means any obligation
of such Person for borrowed money, and in any event shall include
(a) any obligation incurred for all or any part of the purchase
price of property or other assets or for the cost of property or
other assets constructed or of improvements thereto, other than
accounts payable included in current liabilities and incurred in
respect of property purchased in the ordinary course of business,
(b) the face amount of all letters of credit issued for the account
of such Person, (c) obligations (whether or not such Person has
assumed or become liable for the payment of such obligation)
secured by Liens, (d) capitalized lease obligations, (e) all
guarantees of such Person, (f) all accrued interest, fees and
charges in respect of any Indebtedness, and (g) all prepayment
premiums and penalties, and any other fees, expenses, indemnities
and other amounts payable as a result of the prepayment or
discharge of any Indebtedness.
"Lien" means any security interest, lien, charge, mortgage,
deed, assignment, pledge, hypothecation, encumbrance, easement,
restriction or interest of another Person of any kind or nature.
"Order" means any decree, order, injunction, rule, judgment,
consent of or by any court or governmental authority.
"Ordinary Course of Business" means the operation of the
Business by Sellers in the usual and ordinary course in a manner
substantially similar to the manner in which Sellers have operated
since the commencement of the Chapter 11 Cases.
"Other FunCenters" means any family entertainment centers
operated by Sellers other than the FunCenters.
"Person" means any corporation, partnership, joint venture,
limited liability company, organization, entity, authority or
natural person.
"Purchaser" means, as applicable herein, CEC Entertainment, Inc.
"Regional Headquarters" means the administrative offices of
Sellers identified in Schedule 1.3(g).
"Regulation" means any law, statute, regulation, ruling, rule or
order of, administered or enforced by or on behalf of any court or
governmental authority.
"Release" means any release, spill, emission, leaking, pumping,
disposal, discharge, dispersal or migration of any Contaminant into
the indoor or outdoor environment or into or out of any property or
assets (including the Acquired Assets) owned or leased by Sellers,
including the movement of Contaminants through or in the air, soil,
surface water, groundwater or property.
"Remedial Action" means all actions required under any
applicable Environmental Law to (a) clean up, remove, treat or in
any other way address Contaminants in the indoor or outdoor
environment; (b) prevent the Release or threat of Release or
minimize the further Release of Contaminants so they do not migrate
or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; or (c) perform pre-remedial studies
and investigations and post-remedial monitoring and care.
"Sale Order" means that certain order(s) to be entered by the
Bankruptcy Court in the Chapter 11 Cases, in substantially the form
attached as Exhibit "B" to this Agreement, inter alia, approving
the transactions contemplated by this Agreement.
"Schedules" means the schedules hereto.
"Sellers" means Discovery Zone, Inc. and Discovery Zone
Licensing, Inc.
"Taxes" means all taxes, charges, fees, duties, levies or other
assessments, including, without limitation, income, gross receipts,
net proceeds, ad valorem, turnover, real and personal property
(tangible and intangible), sales, use, franchise, excise, value
added, license, payroll, unemployment, environmental, customs
duties, capital stock, disability, stamp, leasing, lease, user,
transfer, fuel, excess profits, occupational and interest
equalization, windfall profits, severance and employees' income
withholding and Social Security taxes imposed by the United States
or any other country or by any state, municipality, subdivision or
instrumentality of the United States or of any other country or by
any other tax authority, including all applicable penalties and
interest, and such term shall include any interest, penalties or
additions to tax attributable to such Taxes.
"Tax Return" means any report, return or other information
required to be supplied to a taxing authority in connection with
Taxes.
"Third Party" means any Person other than Sellers, Purchaser or
any of their respective affiliates.
ARTICLE I
PURCHASE AND SALE; ASSUMPTION OF CERTAIN LIABILITIES
1.1 Purchase and Sale of Assets. Subject to the terms and
conditions set forth in this Agreement, at the Closing, Sellers
shall sell, assign, transfer and deliver, free and clear of all
liens, security interests and other encumbrances, to Purchaser, and
Purchaser shall purchase, acquire and take assignment and delivery
of the following assets owned by Sellers (wherever located) related
to, or used in conjunction with, the Business, and all of Sellers'
right, title and interest therein and thereto, but not including
those assets specifically excluded in Section 1.3 (all of the
assets to be sold, assigned, transferred and delivered to Purchaser
hereunder shall be deemed included in the term "Acquired Assets" as
used herein):
(a) cash in the amount necessary to assure that on the day
immediately following the Closing each FunCenter location will have
cash on hand equal to the sum of $1,500.00 per location.
(b) all supplies, materials and inventories actually located
at any FunCenter prior to the Closing (collectively, the
"Inventory");
(c) all machinery, equipment, tools, vehicles, furniture,
furnishings, leasehold improvements, goods, and other tangible
personal property owned by Sellers, except to the extent the same
are located within the Other FunCenters located in the Commonwealth
of Puerto Rico ("FFE");
(d) all transferable licenses, permits, approvals,
certificates of occupancy, authorizations, operating permits,
registrations, plans and the like applicable to the FunCenters
(collectively, the "Permits");
(e) the Owned Intellectual Property (as defined in Section
3.9 hereof);
(f) all game tokens and prize redemption tickets owned by
Sellers at the FunCenters and Other FunCenters (collectively,
"Tokens");
(g) all real estate owned by any Sellers identified in
Schedule 3.5 ("Owned Real Property"); and
(h) all structural plans and diagrams in Sellers' possession
for FunCenters located on Owned Real Property or upon any real
property leased pursuant to an Assumed FunCenter Lease.
1.2 Assignment and Assumption of FunCenter Leases. Subject
to the terms and conditions set forth in this Agreement, Sellers
will assign and transfer to Purchaser, effective as of the Closing
Date, all of Sellers' right, title and interest in and to, and
Purchaser will take assignment of and assume, the FunCenter Leases
identified in Schedule 1.2 ("Assumed FunCenter Leases"). All
right, title and interest of Sellers (or any of them) under the
Assumed FunCenter Leases shall be deemed included in the term
"Acquired Assets" as used herein. Notwithstanding the foregoing,
on or prior to the seventh day before the Closing Date, Purchaser,
in Purchaser's sole discretion, may make a determination that it
will not assume any or all of the Assumed FunCenter Leases. In the
event Purchaser notifies Sellers that it will not assume one or
more Assumed FunCenter Leases, (i) the family entertainment centers
operated under such Assumed FunCenter Leases shall be deemed to be
Other FunCenters; and (ii) there shall be no adjustment to the
Purchase Price payable by Purchaser under this Agreement.
1.3 Excluded Assets. Notwithstanding anything to the
contrary in this Agreement, the following assets of Sellers, as
well as any other assets not defined as Acquired Assets, shall be
retained by Sellers and are not being sold or assigned to Purchaser
hereunder (all of the following are referred to collectively as the
"Excluded Assets"):
(a) any and all personal property of Sellers, wherever
located, that is held pursuant to any lease including, without
limitation, any capital lease;
(b) any stock held by any Seller or any affiliates of
Sellers;
(c) any and all avoidance claims or causes of action
arising under the Bankruptcy Code or applicable state law,
including, without limitation, all rights and avoidance claims of
Sellers arising under Sections 544, 547, 548, 549 and 550 of the
Bankruptcy Code;
(d) all instruments, prepaid assets and deposits,
receivables, unbilled costs and fees, tax refunds, co-op
advertising allowances, and accounts;
(e) all Claims (excluding Claims relating to existing
violations of any rights with respect to Owned Intellectual
Property) and rights of action and all choses in action arising out
of occurrences before or after the consummation of the proposed
transactions contemplated herein;
(f) all cash, except as provided in Section 1.1(a);
(g) the Regional Headquarters identified in Schedule 1.3(g)
and the leases for the Other FunCenters; and
(h) subject to the terms of Section 1.6 hereof, all
machinery, equipment, tools, vehicles, furniture, furnishings,
leasehold improvements, goods, supplies, materials and inventory,
including redemption merchandise, and other tangible personal
property owned by Sellers, located within the Other FunCenters
located in the Commonwealth of Puerto Rico.
1.4 No Other Liabilities Assumed. Sellers acknowledge and
agree that pursuant to the terms and provisions of this Agreement
and under any Contract, Purchaser will not assume any obligation of
Sellers (including any Cure Amounts), other than obligations
assumed under the Assumed FunCenter Leases. In furtherance and not
in limitation of the foregoing, neither Purchaser nor any of its
affiliates shall assume, and shall not be deemed to have assumed,
other than as specifically set forth in Section 1.2 above, any
debt, claim, obligation or other liability of Sellers or any of its
affiliates whatsoever, including, but not limited to: (i) any
Environmental Liabilities and Costs for any act, omission,
condition, event or circumstance to the extent occurring or
existing prior to the Closing Date, including without limitation
all Environmental Liabilities and Costs relating in any manner to
Sellers' direct or indirect handling, transportation or disposal of
any Contaminants, (ii) any of Sellers' liabilities in respect of
Taxes, (iii) any brokers' or finders' fees arising by reason of
Sellers' dealings with brokers or other third parties, or other
liability of Sellers for costs and expenses (including legal fees
and expenses) incurred in connection with this Agreement, (iv) any
Indebtedness, (v) except as otherwise provided in Section 6.2
hereof with respect to the accrued and unused vacation of Sellers'
Employees, any obligations or liabilities for Sellers' Employees,
including severance, pension, profit sharing or any other employee
benefit plans, compensation or retiree medical and other benefits
and obligations, (vi) any obligation or liability arising as a
result of or whose existence is a breach of Sellers'
representations, warranties, agreements or covenants herein, (vii)
any liability subject to compromise, (viii) any obligation of any
affiliate of Sellers, and (ix) rebates, allowances, deductions
and/or price discrepancies relating in any manner to products or
services sold in pursuit of the Business prior to the Closing Date.
Disclosure of any obligation or liability on any schedule to this
Agreement shall not create any liability of Purchaser.
1.5 Other FunCenters to be Closed. (a) Sellers and
Purchaser acknowledge that (i) effective June 14, 1999 Sellers were
operating one hundred thirty (130) family entertainment centers
including both the FunCenters and Other FunCenters , a complete
list of which is attached hereto as Schedule 1.5; and (ii) after
the Closing Sellers will not operate the Other FunCenters. Upon
the closing of any Other FunCenters, Sellers shall adequately
secure the premises upon which such Other FunCenters are located
and the Purchase Price shall be adjusted by an amount not to
exceed $10,000 per Other FunCenter if the FFE at any Other
FunCenter is materially different from the amount of FFE reflected
in the "Master Inventory of FunCenter Assets" schedule of FFE
previously delivered to Purchaser by Sellers on or about June 19,
1999.
(b) Sellers shall deliver written notice to Purchaser two
(2) business days' prior to the availability of any FFE and Tokens
at any Other FunCenter(s) (each an "Availability Notice"). For a
period of seven (7) days after delivery of an Availability Notice
("Removal Period"), Purchaser shall have the right to remove FFE
and Tokens from the Other FunCenter(s) referenced in such
Availability Notice. Any FFE and Tokens not removed from an Other
FunCenter at the expiration of the Removal Period shall be excluded
from the Acquired Assets and not purchased by Purchaser and there
shall be no adjustment to the Purchase Price payable by Purchaser
with respect to such FFE and Tokens.
(c) In the event that Purchaser removes FFE and Tokens from
any Other FunCenter and a Closing does not occur under this
Agreement, at Purchaser's election, Purchaser shall either (i)
liquidate such removed FFE and Tokens on behalf of Sellers and
deliver the proceeds of such liquidation to Sellers, or (ii)
purchase such removed FFE and Tokens from Sellers at such price as
Purchaser and Sellers shall mutually agree.
1.6 Puerto Rico. Sellers and Purchaser hereby acknowledge
that Sellers will sell the two (2) Other FunCenters located in the
Commonwealth of Puerto Rico including, without limitation, the
furniture, fixtures and equipment located therein to a Person
unrelated to Purchaser; and will remove, or cause to be removed,
any identifying signage and other indicia of the Owned Intellectual
Property from such Other FunCenters on or before the earlier of (i)
Closing Date, and (ii) the date such Other FunCenters are sold.
ARTICLE II
PURCHASE PRICE AND PAYMENT
2.1 Payment of Purchase Price. The aggregate purchase price
for the Acquired Assets (the "Purchase Price") shall be the sum of
the following:
(a) The earnest money deposit equal to $100,000.00 paid by
Purchaser pursuant to bidding procedures approved by the Bankruptcy
Court in the Chapter 11 Cases; plus
(b) An additional earnest money deposit of $1,800,000.00 to
be paid by Purchaser and to be held in escrow upon entry of the
Sale Order pursuant to a Deposit Escrow Agreement by and among
Sellers, Purchaser and Young Conaway Stargatt & Taylor, LLP of even
date herewith; plus
(c) In accordance with Section 1.2 hereof, Purchaser's
assumption of the Assumed FunCenter Leases; plus
(d) Purchaser's payment to Sellers of an amount equal to
$16,100,000.00 less any amount set aside as the Adjustment Escrow
pursuant to Section 2.3 hereof, in immediately available funds at
Closing; plus
(e) Purchaser's payment to the escrow agent under the Escrow
Agreement of the sum of $1,000,000.00 (the "Third-Party Escrow
Amount") to be held by such escrow agent pursuant to the terms of
the Escrow Agreement; plus
(f) A sum equal to the aggregate amount of any cash
purchased by Purchaser pursuant to Section 1.1(a).
2.2 Further Assurances. From time to time after the Closing
and without further consideration, (i) Sellers, upon the request of
Purchaser and at Sellers' expense, shall execute and deliver such
documents and instruments of conveyance and transfer as Purchaser
may reasonably request in order to consummate more effectively the
purchase and sale of the Acquired Assets as contemplated hereby and
to vest in Purchaser title to the Acquired Assets transferred
hereunder, provided that (x) Sellers shall not be required to
execute or deliver any document or instrument pursuant to this
Section 2.2 that includes any provision(s) that impose obligations
upon Sellers that are greater than those imposed upon Sellers under
the other provisions of this Agreement or the documents executed
pursuant hereto, and (y) in no event shall Sellers be required to
incur any material cost or expense in the performance of its
obligations under this Section 2.2, Section 5.1 or Section 5.3 (it
being understood that notwithstanding the foregoing, the Purchaser
shall in any event be entitled to require Sellers to take such
action as Sellers would otherwise be required to take pursuant to
this Section 2.2, Section 5.1 or Section 5.3 but for the cost
thereof by advancing to Sellers the amounts Sellers reasonably
anticipate incurring in excess of immaterial costs and expenses in
taking the action), and (ii) Purchaser, upon the request of Sellers
and at Purchaser's expense, shall execute and deliver such
documents and instruments of assumption as Sellers may reasonably
request in order to confirm Purchaser's liability for the
obligations under the Assumed FunCenter Leases or otherwise more
fully consummate the transactions contemplated by this Agreement.
2.3 Owned Real Estate.
(a) Within two (2) business days of execution of this
Agreement, Sellers shall deliver to Purchaser title reports on each
parcel of Owned Real Property ("Title Reports"). After the receipt
of the Title Reports, but in no event later than July 6, 1999,
Purchaser shall identify to Sellers, in writing, each parcel of
Owned Real Property that Purchaser determines, on a commercially
reasonable basis, as to which there exists use restrictions of
record that would individually or in the aggregate (i) with respect
to Owned Real Property located at Kennesaw, Georgia and Sterling
Heights, Michigan, prevent the construction or operation of a
prototypical Chuck E. Cheese's restaurant or (ii) with respect to
any of the Owned Real Property, other than Kennesaw or Sterling
Heights properties, materially detracts from the value of, or
impairs the use of, the affected properties (each a "NCP").
(b) In the event Purchaser shall identify one or more NCPs,
such NCPs shall be transferred to Purchaser at Closing and the
entire Purchase Price shall be paid. If one or more NCPs are
identified by Purchaser, $1,000,000.00 of the Purchase Price shall
be deposited with the escrow agent under the Escrow Agreement in a
separate escrow account (the "Adjustment Escrow") for purposes of
satisfying any Purchase Price adjustment required under this
Section 2.3. All liens, claims and encumbrances that now attach to
the Owned Real Property shall attach in their current order of
validity, priority and enforceability to the Adjustment Escrow
pending resolution and payment of any Purchase Price adjustment, if
any.
(c) Within thirty (30) days of Closing, the Purchase Price
shall be adjusted with respect to each NCP by such amount as (i)
Purchaser, Sellers and McDonald's Corporation ("McDonald's") shall
mutually agree within thirty (30) days of Closing, or (ii)
thereafter as is determined through binding "Baseball Arbitration".
For this purpose, Baseball Arbitration shall mean an arbitration
where Sellers, Purchaser and McDonald's each propose a price
adjustment for each NCP (based on whatever factors each believes
are relevant) and the arbitral panel chooses one of the submissions
without any hearing.
(d) "Baseball Arbitration" shall be conducted as set forth
in this subparagraph (d).
(i) There shall be a panel of three (3)
arbitrators; one each to be selected by each of Purchaser, Sellers
and McDonald's, with each arbitrator to have professional
experience in the marketing and valuation of retail real estate in
the geographic area in which the subject NCPs are located;
(ii) The adjustment to the purchase price with
respect to each NCP will be determined assuming an aggregate
purchase price for all Owned Real Property of $15,500,000.00 (net
of selling and carry costs), to be offset by positive EBITDA less
direct overhead allocated to acquired Owned Real Property.
(A) If the aggregate value of the fifteen (15)
properties (including NCPs) equals or exceeds $15,500,000.00 no
adjustment will be made to the Purchase Price.
(B) If the aggregate value of the fifteen (15)
properties (including NCPs) is less than $15,500,000.00 an
adjustment will be made to reduce the Purchase Price based on the
determination of the arbitrators of the impairment of NCP property,
but in no event will the adjustment to the Purchase Price increase
the value of the fifteen (15) properties above $15,500,000.00;
provided, however, the reduction to the Purchase Price will not, in
any event, exceed $1,000,000.00 in aggregate, and shall be payable
out of the Adjustment Escrow. Any payment remitted to Purchaser in
satisfaction of any Purchase Price shall be free of liens, claims
and encumbrances.
(e) McDonald's shall be a third party beneficiary of this
Agreement solely to the extent of this Section 2.3, provided,
however, that upon the payment in full of McDonald's allowed claim
in the Chapter 11 Cases, whether on consent or otherwise, any
rights of McDonald's under this Section 2.3 shall automatically
terminate.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers jointly and severally represent and warrant to Purchaser
as of the date of this Agreement and the Closing Date, as follows:
3.1 Due Incorporation; Valid Existence. Sellers are
corporations incorporated under the laws of the state(s) of their
respective incorporation and are validly existing as of the date
hereof and as of the Closing.
3.2 Authority. The execution, delivery and performance of
this Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the
Bankruptcy Court.
3.3 No Conflict; Required Filings and Consents. Assuming
the satisfaction of the conditions set forth in Article VII and
compliance with the applicable requirements for consents,
approvals, authorizations, permits or filings referred to in this
Section 3.3, the execution and delivery, of this Agreement by
Sellers does not, and the performance of this Agreement by Sellers
will not, (a) violate any provisions of Sellers' respective
certificates of incorporation, bylaws or other organizational
documents, or (b) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental
authority, domestic or foreign, or of any other Person except (i)
approvals of the Bankruptcy Court, (ii) applicable requirements, if
any, under the HSR Act, and (iii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such
filings or notifications would not prevent or materially delay the
consummation by Sellers of the transactions contemplated by this
Agreement.
3.4 Title To and Condition of Properties. At and as of the
Closing Date, Sellers will have good title to, and will have the
right to sell, convey, transfer, assign and deliver to Purchaser
the Acquired Assets. At and as of the Closing Date, the Bill of
Sale, the Assignment and Assumption and Deed of Assignment (each as
defined in Section 9.2 below) together with the deeds for the Owned
Real Property and the Sale Order will be effective, when recorded,
where required, to vest in Purchaser good title to the Acquired
Assets. To Sellers' knowledge, at and as of the Closing Date,
Sellers will have good title to, and will have the right to sell,
convey, transfer, assign and deliver to Purchaser the Owned
Intellectual Property.
3.5 Owned Real Property. Schedule 3.5 lists all Owned Real
Property to be conveyed to Purchaser at Closing free and clear of
all encumbrances other than (a) non-material matters set forth in
title reports delivered by Sellers to Purchaser, (b) non-material
liens for Taxes not yet due and payable, and (c) laws, ordinances
and governmental regulations, and (d) other matters of record and
imperfections of title, easements and encumbrances.
3.6 FunCenter Leases. Schedule 1.2 lists all Assumed
FunCenter Leases. True, correct and complete copies of the Assumed
FunCenter Leases in effect as of the date hereof have heretofore
been delivered by Sellers to Purchaser. Except for Assumed
FunCenter Leases that have expired pursuant to their terms, upon
the Closing and subject to any condemnation or casualty and such
limitations arising under the Chapter 11 Cases, (a) all Assumed
FunCenter Leases will be valid, binding leases therefor that are in
full force and effect and enforceable by Sellers in accordance with
their respective terms; (b) Sellers have the full right to occupy
the real property leased under the Assumed FunCenter Leases; and
(c) the Assumed FunCenter Leases have not been assumed or rejected
(as such terms are used in Section 365 of the Bankruptcy Code).
3.7 Personal Property. As of the Closing, except for any
Excluded Assets, Sellers own or have a valid leasehold interests in
or have legal right to use all of the tangible personal property
necessary to carry on the Business of Sellers consistent with past
practice, free and clear of all encumbrances, other than
encumbrances that, upon the Closing, will be released.
3.8 Brokers. Sellers have incurred no liability to any
broker, finder or agent with respect to the payment of any
commission regarding the consummation of the transactions
contemplated hereby, except for certain fees and commissions
payable to Ladenburg Thalman in connection with the consummation of
the transactions contemplated herein, the payment of which shall be
the sole responsibility of Sellers. Sellers agree that if any
claims for commissions, fees or other compensation, including,
without limitation, brokerage fees, finder's fees, or commissions
are ever asserted against Purchaser or the Sellers in connection
with this transaction, all such claims shall be handled and paid by
the party whose actions form the basis of such claim and such party
shall indemnify, defend (with counsel reasonably satisfactory to
the party(ies) entitled to indemnification), protect and save and
hold the other harmless from and against any and all such claims or
demands asserted by any person, firm or corporation in connection
with the transaction contemplated hereby.
3.9 Intellectual Property Rights. The sole assets of
Discovery Zone Licensing, Inc. consist of the patents, patent
applications, licenses, service names, service marks, trade names,
trademarks, trade name and trademark registrations (and
applications therefor), copyrights and copyright registrations (and
applications therefor), inventions and designs set forth in
Schedule 3.9 and any of their derivatives as used on products
related to the Business and goodwill, trade secrets, processes and
know-how that relate in any manner to the Business (collectively,
the "Owned Intellectual Property"). Prior to or at Closing,
Sellers will deliver all Sellers' customer lists to Purchasers and
such customer lists shall be deemed to be included in the Owned
Intellectual Property. The Owned Intellectual Property is all
intellectual property owned by Sellers and the Consenting Parties
(excluding any rights to the use of the name "Block Party").
Sellers hold free and clear of all material encumbrances (other
than encumbrances that, upon the Closing, will be released) and
free from material contractual restrictions and any other material
restrictions good title to, or valid and subsisting licenses in,
all registrations and applications for registration, extensions or
renewals of the Owned Intellectual Property used by Sellers in the
conduct of the Business. Sellers are not in material default, and
no event has occurred that with notice or lapse of time would
constitute a material default under any of the agreements, licenses
or sublicenses of Sellers relating to the Owned Intellectual
Property.
3.10 Environmental Matters. To Sellers' knowledge:
(a) All Owned Real Property and all real property leased
under the Assumed FunCenter Leases are in material compliance with
all applicable Environmental Laws;
(b) Sellers have not received written notice of any pending
or threatened claims, complaints, or other information with respect
to any alleged material violation of any Environmental Laws with
respect to the Acquired Assets;
(c) Sellers have been issued and are in compliance with
all material permits, certificates, approvals, licenses and
registrations required under Environmental Laws with respect to the
Acquired Assets; and
(d) Sellers have disclosed all material environmental
reports in its possession or control pertaining to Owned Real
Property and real property leased under the FunCenter Leases.
3.11 Insurance. All policies of fire and casualty, property,
liability. workers' compensation, extended coverage, business
interruption, public and product liability, and other forms of
insurance providing insurance to or for Sellers have been provided
or made available to the Purchaser. All such policies of insurance
are maintained for the benefit of Sellers and will be maintained by
Sellers through the Closing Date.
3.12 Licenses and Permits: Compliance with Laws. Sellers have
all material licenses, permits and authorizations necessary in
order to operate and conduct the Business as presently conducted
and as proposed to be conducted.
3.13 Exclusivity of Representations. (a) The representations
and warranties made by Sellers in this Agreement are in lieu of and
are exclusive of all other representations and warranties,
including, without limitation, any implied warranties. Sellers
hereby disclaim any such other or implied representations or
warranties. notwithstanding the delivery or disclosure to Purchaser
or its officers, directors, employees, agents, or representatives
of any documentation or other information (including any financial
projections or other supplemental data).
(b) Notwithstanding any other provision to the contrary,
Sellers make no representation or warranty with respect to the
Excluded Assets.
As used herein, the term "Sellers' knowledge" and similar terms
shall mean and refer only to matters actually known to the
President, Chief Financial Officer and General Counsel of Discovery
Zone, Inc. holding such offices as of the execution date hereof,
without any inquiry or investigation. None of the representations
and warranties of Sellers contained in this Article III shall
survive the Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Sellers as follows:
4.1 Due Incorporation; Valid Existence. Purchaser is a
corporation incorporated under the laws of the state of its
incorporation, and is validly existing as of the date hereof and
the date of Closing.
4.2 Authority. The execution, delivery and performance of
this Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized and do
not and will not violate any provisions of the certificate of
organization, partnership agreement, limited liability company
agreement, by-laws, or similar instrument of Purchaser.
4.3 Consents. No notice to, filing with, authorization of,
exemption by, or consent of any authority is required in order for
Purchaser to consummate the transactions contemplated hereby.
4.4 Brokers. Purchaser has incurred no liability to any
broker, finder or agent with respect to the payment of any
commission regarding the consummation of the transactions
contemplated hereby. Purchaser agrees that if any claims for
commissions, fees or other compensation, including, without
limitation, brokerage fees, finder's fees, or commissions are ever
asserted against Purchaser or the Sellers in connection with this
transaction, all such claims shall be handled and paid by the party
whose actions form the basis of such claim and such party shall
indemnify, defend (with counsel reasonably satisfactory to the
party(ies) entitled to indemnification), protect and save and hold
the other harmless from and against any and all such claims or
demands asserted by any person, firm or corporation in connection
with the transaction contemplated hereby.
4.5 "AS IS" Purchase. Purchaser hereby acknowledges and
agrees that, except as otherwise expressly provided herein, (i)
Sellers make no representations or warranties whatsoever, express
or implied, with respect to any matter relating to the Acquired
Assets, and (ii) Purchaser shall accept the Acquired Assets "AS
IS," "WHERE IS," and "WITH ALL FAULTS" as of the Closing Date.
Without in any way limiting the foregoing, Sellers hereby disclaim
any warranty (express or implied) of merchantability or fitness for
any particular purpose as to any Acquired Asset.
None of the representations and warranties of Purchaser contained
in this Article IV shall survive the Closing.
ARTICLE V
COVENANTS OF SELLERS
5.1 Consents and Approvals. Sellers shall use their
reasonable efforts (i) to obtain all consents and approvals, as
reasonably requested by Purchaser, to consummate the purchase and
sale of the Acquired Assets and the assignment of the Assumed
Obligations, together with any other necessary consents and
approvals to consummate the transactions contemplated hereby,
including, without limitation, obtaining the Sale Order, (ii) to
make, as reasonably requested by Purchaser, all filings,
applications, statements and reports to all authorities that are
required to be made prior to the Closing Date by or on behalf of
Sellers or any of their affiliates pursuant to any applicable
Regulation in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, all required
filings under the HSR Act, and (iii) to obtain, as reasonably
requested by Purchaser, all required consents and approvals (if
any) to assign and transfer the Permits to Purchaser at Closing
and, to the extent that one or more of the Permits are not
transferable, to assist Purchaser in obtaining replacements
therefor; provided that Sellers shall not be required to make any
filing in connection with the transfer of a Permit or take any
other action required by this sentence unless Purchaser advances
any and all fees and other charges imposed by any applicable
authority in connection with such filing, transfer or other
requested action. In the event that certain Permits are not
transferable or replacements therefor are not obtainable on or
before the Closing, but such Permits are transferable or
replacements therefor are obtainable after the Closing, Sellers
shall continue to use such reasonable efforts in cooperation with
Purchaser after the Closing as may be required to obtain all
required consents and approvals to transfer, or obtain replacements
for, such Permits after Closing and shall do all things reasonably
necessary to give Purchaser the benefits that would be obtained
under such Permits; provided, however, Sellers shall in no event be
required to make any filing in connection with the transfer of a
Permit or take any other action required by this sentence unless
Purchaser advances any and all fees and other charges imposed by
any applicable authority in connection with such filing, transfer
or other requested action.
5.2 Insurance. Provided that any claim by Purchaser in no
way prejudices or otherwise affects Sellers' right to look to such
policies with respect to claims arising prior to the Closing Date,
Purchaser, to the extent Sellers would have the right to do so,
shall be entitled to make claims against Sellers' insurance
policies and coverage that are occurrence policies from and after
the Closing Date for all matters, injuries and claims arising prior
to the Closing Date relating in any way to the Acquired Assets or
Assumed Obligations in the same manner and subject to the same
terms, conditions and limitations as Sellers prior to the Closing
Date and provided that Sellers shall not incur any cost by virtue
of such claims by Purchaser. Purchaser will have no obligations or
liabilities under such insurance policies for premiums, additional
premiums or similar payments after the Closing Date, either due to
retroactive adjustments, audits, roll-backs or otherwise. Subject
to the provisions of Section 2.2 and to the same proviso as is set
forth at the beginning of this Section 5.2, and at no cost or
expense to Sellers, Sellers will cooperate after the Closing Date
with Purchaser and its insurance carriers and agents in connection
with the foregoing and with Purchaser in establishing new insurance
policies and coverage for Purchaser from and after the Closing
Date. Without in any way limiting the foregoing, Purchaser shall
be entitled to make claims against Sellers' insurance policies and
coverage only to the extent permitted by the carriers of such
insurance. Notwithstanding the foregoing, this Section 5.2 shall
not entitle Purchaser to any portion of, or claim against, any
self-insured retention of Sellers and Sellers shall have no duty or
obligation to continue any self-insured retention after the Closing
Date.
5.3 Sellers' Employees. Except as provided in Section 6.2,
Purchaser has not agreed to hire any of Sellers' employees or
independent contractors retained by Sellers.
5.4 Cure Amounts. On or before the Closing Date, Sellers
shall (i) cure all defaults and arrearages under the Assumed
FunCenter Leases, pursuant to $ 365 of the Bankruptcy Code
(hereinafter, individually a "Cure Amount," and collectively the
"Cure Amounts"); and (ii) pay all real and personal property taxes,
apportioned as of the Closing Date, that create or constitute a
lien upon any Acquired Assets. All Cure Amounts and taxes required
to be paid pursuant to this Section 5.4 shall be paid on or before
the Closing Date out of the Third-Party Escrow Amount.
5.5 Operation of FunCenters. Sellers will make all
reasonable efforts to continue to operate the FunCenters through
the Closing Date in the Ordinary Course of Business.
ARTICLE VI
COVENANTS OF PURCHASER
6.1 Assumed Obligations. Subsequent to the Closing and
except for the Cure Amounts, Purchaser agrees to assume and perform
the Assumed FunCenter Leases and shall indemnify and hold Sellers
harmless with respect to the Assumed FunCenter Leases.
6.2 Employees. Effective as of the Closing, Purchaser shall
have no obligation to offer employment to any active employees of
Sellers.
6.3 Payment of Transfer Costs. Purchaser shall pay, on the
Closing Date, the title insurance premium for the owner's policy
(including all the costs of endorsements thereto and expanded
coverage thereunder), and all other charges of the title company
customarily paid by the purchaser in transactions of the same or
similar nature in the county in which the any Owned Real Property
is located.
6.4 Removal of FFE. Purchaser covenants that any contractor
hired to remove FFE and Tokens from any Other FunCenter will be
fully bonded and that such contractor shall have sufficient
casualty, liability and workers' compensation insurance with
respect to its employees, subcontractors and the work to be
performed by such contractor in connection with the removal of the
FFE and Tokens at any Other FunCenter.
6.5 HSR Filing. Within five (5) business days after
execution of this Agreement, Purchaser shall make any initial
filing required to be made by Purchaser under the HSR Act in
connection with the transactions contemplated hereunder and shall
promptly respond to any additional requests for information
received from any governmental authority in connection with or
pursuant to the HSR Act.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF PURCHASER
The obligations of Purchaser under this Agreement are, at the
option of Purchaser, subject to satisfaction of the following
conditions precedent on or before the Closing Date.
7.1 Warranties True as of Both Present Date and Closing
Date. Each of the representations and warranties of Sellers
contained herein shall be true and correct in all material respects
on and as of the date of this Agreement, and shall also be true and
correct in all material respects (except for such changes as are
contemplated by the terms of this Agreement) on and as of the
Closing Date with the same force and effect as though made on and
as of the Closing Date.
7.2 Bankruptcy Condition. The Sale Order shall have been
entered by the Bankruptcy Court and no stay with respect thereto
shall be in effect as of the Closing Date.
7.3 Purchaser's Investigation. Purchaser acknowledges that
prior to executing this Agreement Purchaser has conducted due
diligence regarding the Business and the FunCenters. Immediately
upon Sellers' execution and delivery of this Agreement, Sellers
shall continue to provide Purchaser (or its designated
representatives) full and complete access to Sellers' employees,
books and records, corporate offices and other facilities for the
purpose of conducting such additional investigation as Purchaser
deems appropriate or necessary respecting the Business at the
FunCenters, in its discretion, in order to facilitate Purchaser's
efforts to consummate the transaction provided for herein. Sellers
shall hereby covenant and agree to cooperate with Purchaser in this
regard.
7.4 HSR Act. Any waiting period (and any extension thereof)
applicable to the consummation of the purchase of the Acquired
Assets under the HSR Act shall have expired or been terminated.
7.5 Bankruptcy Court Approval. Entry of the Sale Order,
inter alia, approving the sale of the Acquired Assets to Purchaser,
pursuant to the terms of this Agreement. The Sale Order shall be
in substantially the form attached hereto as Exhibit "B".
7.6 Lease Assumption and Assignment. The Sale Order shall
approve and authorize the assumption and assignment of the Assumed
FunCenter Leases set forth in Schedule 1.2.
7.7 Sale Order Deadline. The Sale Order shall be entered by
June 29, 1999.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS
The obligations of Sellers under this Agreement are, at the
option of Sellers, subject to the satisfaction of the following
conditions precedent on or before the Closing Date.
8.1 Warranties True as of Both Present Date and Closing
Date. The representations and warranties of Purchaser contained
herein shall be true and correct in all material respects on and as
of the date of this Agreement, and shall also be true in all
material respects (except for such changes as are contemplated by
the terms of this Agreement) on and as of the Closing Date with the
same force and effect as though made by Purchaser on and as of the
Closing Date.
8.2 HSR Act. Any waiting period (and any extension thereof)
applicable to the consummation of the purchase of the Acquired
Assets under the HSR Act shall have expired or been terminated.
8.3 Bankruptcy Condition. The Sale Order shall have been
entered by the Bankruptcy Court and no stay with respect thereto
shall be in effect as of the Closing Date.
ARTICLE IX
CLOSING
9.1 Closing. Provided that the Sale Order shall have been
entered by the Bankruptcy Court on or before the date set forth in
Section 7.7 and no stay with respect thereto shall be in effect,
the Closing shall take place on a date and time to be mutually
agreed upon by Sellers and Purchaser, but in no event later than
thirty (30) days after entry of the Sale Order.
9.2 Deliveries by Sellers. At the Closing, Sellers will
deliver the following to Purchaser: (a) a bill of sale in form and
content mutually satisfactory to Purchaser and Sellers ("Bill of
Sale"); (b) an Assignment and Assumption of the Assumed FunCenter
Leases in form and content mutually satisfactory to Purchaser and
Sellers (the "Assignment and Assumption"); (c) an Intellectual
Property Deed of Assignment in form and content mutually
satisfactory to Purchaser and Sellers (the "Deed of Assignment");
and (d) limited or special warranty deeds to convey the Owned Real
Property.
9.3 Deliveries by Purchaser. At the Closing, Purchaser will
deliver the following: (a) the Purchase Price payable pursuant to
and in accordance with Section 2.1; and (b) the duly-executed
Assignment and Assumption.
9.4 Termination. Purchaser may terminate this agreement if:
(a) the conditions set forth in Sections 7.2, 7.4,
7.5, and 7.6 are not satisfied on or prior to the expiration of the
thirty-day period after entry of the Sale Order; provided, however,
that the parties shall extend the Closing Date for a reasonable
amount of time not to exceed one hundred twenty (120) days after
entry of the Sale Order, to obtain HSR Act approval; or
(b) the condition set forth in Section 7.1, but
only to the extent that such condition relates to Sections 3.4,
3.5(a) through (c), 3.6, 3.9, and 3.10, is not satisfied on or
prior to the expiration of the thirty-day period after entry of the
Sale Order; provided, however, that the parties shall extend the
Closing Date for a reasonable amount of time not to exceed one
hundred twenty (120) days after entry of the Sale Order to allow
Sellers to cure any material breach of the representations and
warranties set forth in Sections 3.4, 3.5(a) through (c), 3.6, 3.9,
and 3.10; or
(c) the Chapter 11 Cases are converted to cases
under Chapter 7 of the Bankruptcy Code or a trustee is appointed
under the Chapter 11 Cases and, in either event, the trustee
appointed for such purposes does not agree and consent to a closing
hereunder and the Bankruptcy Court does not otherwise order the
trusee to close upon the transactions contemplated hereunder within
one hundred twenty (120) days after entry of the Sale Order.
In the event of a termination in accordance with this Section 9.4,
and provided that each of Sellers and Purchaser have used their
best efforts to effectuate a closing of the transactions
contemplated hereunder, except as provided in Section 1.5(c),
neither Sellers nor Purchaser shall suffer any liability or
obligation to the other.
ARTICLE X
MISCELLANEOUS
10.1 Expenses. Each party hereto shall bear its own costs
and expenses, including attorneys' fees, with respect to the
transactions contemplated hereby. Notwithstanding the foregoing,
in the event of any action or proceeding to interpret or enforce
this Agreement, the prevailing party in such action or proceeding
(i.e., the party who, in light of the issues contested or
determined in the action or proceeding, was more successful) shall
be entitled to have and recover from the non-prevailing party such
costs and expenses (including, without limitation, all court costs
and reasonable attorneys' fees) as the prevailing party may incur
in the pursuit or defense thereof.
10.2 Amendment. This Agreement may be amended, modified or
supplemented but only in writing signed by all of the parties
hereto.
10.3 Notices. Any notice, request, instruction or other
document to be given hereunder by a party hereto shall be in
writing and shall be deemed to have been given, (a) when received
if given in person, (b) on the date of transmission if sent by
telex, telecopy or other wire transmission (with answer back
confirmation of such transmission), (c) upon delivery, if delivered
by a nationally known commercial courier service providing next day
delivery service (such as Federal Express), or (d) upon delivery,
or refusal of delivery, if deposited in the U.S. mail, certified or
registered mail, postage prepaid:
If to Sellers, addressed as follows:
Discovery Zone, Inc.
6600 NW 16th Street
Plantation, Florida 33313
Attn: Mr. Leighton J. Weiss
Telephone: (914) 345-4500
Facsimile: (914) 345-4527
with copies to:
Young Conaway Stargatt & Taylor, LLP
11th Floor, Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
Attn: Laura Davis Jones, Esq.
Telephone: (302) 571-6634
Facsimile: (302) 571-1253
Foothill Capital Corporation
60 State St., Suite 1150
Boston, MA 02109
Attn: Mr. Scott Ryan
Telephone: (617) 624-4421
Facsimile: (617) 722-9493
Otterbourg, Steindler, Houston & Rosen, P.C.
230 Park Avenue
New York, NY 10169
Attn: Andrew M. Kramer, Esq.
Telephone: (212) 661-9100
Facsimile: (212) 682-6104
If to Purchaser, addressed as follows:
CEC Entertainment, Inc.
4441 West Airport Freeway
Irving, TX 75062
Attn: Legal Department
Telephone: (972) 258-5461
Facsimile: (972) 258-5527
with a copy to:
Winstead Sechrest & Minick, P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270-2199
Attn: David W. Elmquist, Esq.
Telephone: (214) 745-5384
Facsimile: (214) 745-5390
or to such other individual or address as a party hereto may
designate for itself by notice given as herein provided.
10.4 Waivers. The failure of a party hereto at any time or
times to require performance of any provision hereof shall in no
manner affect its right at a later time to enforce the same. No
waiver by a party of any condition or of any breach of any term,
covenant, representation or warranty contained in this Agreement
shall be effective unless in writing, and no waiver in any one or
more instances shall be deemed to be a further or continuing waiver
of any such condition or breach in other instances or a waiver of
any other condition or breach of any other term, covenant,
representation or warranty.
10.5 Counterparts and Execution. This Agreement may be
executed simultaneously in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one
and the same instrument. Any counterpart may be executed by
facsimile signature and such facsimile signature shall be deemed an
original.
10.6 Headings. The headings preceding the text of Articles
and Sections of this Agreement and the Schedules thereto are for
convenience only and shall not be deemed part of this Agreement.
10.7 APPLICABLE LAW AND JURISDICTION. THIS AGREEMENT (AND
ALL DOCUMENTS, INSTRUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED
PURSUANT TO THE TERMS AND PROVISIONS HEREOF (COLLECTIVELY,
"ANCILLARY DOCUMENTS")) SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WHOLLY WITHIN
SUCH JURISDICTION. PURCHASER AND SELLERS FURTHER AGREE THAT THE
BANKRUPTCY COURT SHALL HAVE EXCLUSIVE JURISDICTION OVER ALL
DISPUTES AND OTHER MATTERS RELATING TO (a) THE INTERPRETATION AND
ENFORCEMENT OF THIS AGREEMENT OR ANY ANCILLARY DOCUMENT; AND/OR (b)
THE ACQUIRED ASSETS AND/OR ASSUMED FUNCENTER LEASES AND PURCHASER
EXPRESSLY CONSENTS TO AND AGREES NOT TO CONTEST SUCH EXCLUSIVE
JURISDICTION.
10.8 Binding Nature; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interest or obligations hereunder
shall be assigned by any of the parties hereto without prior
written consent of the other parties; except, that (i) Purchaser
may assign any of its rights hereunder to any affiliate or
wholly-owned subsidiary, (ii) Purchaser may grant a security
interest in its rights and interests hereunder to its lenders, and
(iii) as otherwise provided in this Agreement. Nothing contained
herein, express or implied, is intended to confer on any Person
other than the parties hereto or their successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of
this Agreement.
10.9 No Third Party Beneficiaries. Except as provided in
Section 2.3 hereof as to McDonald's, this Agreement is solely for
the benefit of the parties hereto and their respective affiliates
and no provision of this Agreement shall be deemed to confer upon
third parties any remedy, claim, liability, reimbursement, claim of
action or other right in excess of those existing without reference
to this Agreement.
10.10 Tax Matters. Purchaser shall be responsible for the
timely payment of all sales, use, transfer (including, without
limitation, documentary transfer, stamp and like taxes) and similar
taxes payable in connection with the consummation of the
transactions contemplated by this Agreement.
10.11 Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to this
Agreement to express their mutual intent, and no rule of strict
construction shall be applied against any party. Any reference to
any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
10.12 Entire Understanding. This Agreement, the Exhibits and
Schedules hereto, and the Ancillary Documents contemplated
hereunder set forth the entire agreement and understanding of the
parties hereto in respect to the transactions contemplated hereby
and the Agreement, the Exhibits and Schedules hereto and the
Ancillary Documents contemplated hereunder supersede all prior
agreements, arrangements and understandings relating to the subject
matter hereof and is not intended to confer upon any other person
any rights or remedies hereunder. There have been no
representations or statements, oral or written, that have been
relied on by any party hereto, except those expressly set forth in
this Agreement, the Exhibits and Disclosure Schedules hereto, and
the Ancillary Documents contemplated hereunder.
{Signature Page Follows}
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered on the date first above
written.
PURCHASER:
CEC ENTERTAINMENT, INC.
By:--------------------
Name:
Title:
SELLERS:
DISCOVERY ZONE, INC.
By:
Name: Jeffrey Sasson
Title: Chief Operating
Officer
DISCOVERY ZONE LICENSING, INC.
By:
Name: Leighton Weiss
Title: Vice President -
Licensing
The undersigned corporations hereby acknowledge and consent to
the transactions contemplated in the foregoing Agreement and have
caused this Agreement to be executed as of the date and year first
above-written.
CONSENTING PARTIES
DZ PARTY, INC.
By:--------------------
Name:
Title:
DISCOVERY ZONE
(PUERTO RICO), INC.
By:
Name:
Title:
Exhibit "A"
Form of Sale Order
Schedule 1.2
Assumed FunCenter Leases
------------------------
1. #504 - 124 E. FM 1960 Bypass, Humble , TX
2. #563 - 2541-43 El Camino Real, Redwood City, CA
3. #566 - 930 N. San Fernando, Burbank, CA
4. #780 - 7601 W. Ridgewood Road, Cleveland, OH
5. #745 - 2030 S. Hurstbourne Parkway, Louisville, KY
6. #319 - 7730 Streamwalk Lane, Manassas, VA
7. #406 - 620 Hanes Mall Boulevard, Winston-Salem, NC
Schedule 1.3(g)
Regional Headquarters
1. 565 Taxter Road, Elmsford, NY
2. 6600 NW 16th Street, Plantation, FL
3. 6226 S. Cass Avenue, Westmont, IL
Schedule 1.5
Operating FunCenters
1 #201 Baltimore, MD
2 #215 Rockaway, NJ
3 #217 East Brunswick, NJ
4 #219 New Hartford, NY
5 #222 Catonsville, MD
6 #223 Rochester, NY
7 #225 Whitehall, PA
8 #226 Poughkeepsie, NY
9 #228 Cherry Hill, NJ
10 #229 Dewitt, NY
11 #233 Hanover, MA
12 #242 Frederick, MD
13 #245 Bronx, NY
14 #246 Middle Village, NY
15 #249 Brooklyn, NY
16 #260 Paramus, NJ
17 #263 Fairless Hills, PA
18 #264 Elmira, NY
19 #266 Middletown, NY
20 #267 Wilmington, DE
21 #270 E. Greenwich, RI
22 #273 York, PA
23 #303 Westmont, IL
24 #304 Greenvield, WI
25 #306 Cincinnati, OH
26 #307 Indianapolis, In
27 #308 Overland Park, KS
28 #309 Orland Park, IL
29 #311 Stone Mtn., GA
30 #315 Independence, MO
31 #317 West Mifflin, PA
32 #319 Manassas, VA
33 #320 Mesquite, TX
34 #321 Manchester, MO
35 #324 Exton, PA
36 #326 Amherst, NY
37 #334 Kennesaw, GA
38 #335 Schaumburg, IL
39 #338 Littleton, CO
40 #339 Columbus, OH
41 #340 Coon Rapids, MN
42 #342 Royal Palm Beach, FL
43 #343 Forest Park, OH
44 #344 Leon Valley, TX
45 #347 Arlington, TX
46 #348 San Antonio, TX
47 #349 Sterling Heights, MI
48 #353 Aurora, CO
49 #358 Roswell, GA
50 #362 Rancho Cucomonga, CA
51 #405 Knoxville, TN
52 #406 Winston-Salem, NC
53 #407 Falls Church, VA
54 #408 Newport News, VA
55 #409 Greenville, SC
56 #410 Huntsville, AL
57 #413 Mobile, AL
58 #415 Memphis, TN
59 #416 Annapolis, MD
60 #428 West Hills, CA
61 #430 Richmond, VA
62 #431 Flint, MI
63 #433 Pensacola, FL
64 #442 Tallahassee, FL
65 #451 Marietta, GA
66 #452 Portage, MI
67 #455 W. Bloomfield, MI
68 #458 Lafayette, LA
69 #461 Corona, CA
70 #463 Fayetteville, NC
71 #474 Chula Vista, CA
72 #477 Roanoke, VA
73 #478 Fairfax, VA
74 #501 Houston, TX
75 #502 Houston, TX
76 #504 Humble, TX
77 #506 Plano, TX
78 #511 Ft. Worth, TX
79 #512 Dallas, TX
80 #514 Stockton, CA
81 #516 Oklahoma City, OK
82 #517 Tulsa, OK
83 #518 Colorado Springs, CO
84 #521 Sacramento, CA
85 #522 Tucson, AR
86 #526 Citrus Hts., CA
87 #527 Modesto, CA
88 #532 Albuquerque, NM
89 #541 Lubbock, TX
90 #542 Oklahoma City, OK
91 #546 Austin, TX
92 #547 Waipahu, HI
93 #549 Taylorsville, UT
94 #553 Beaumont, TX
95 #554 Wichita, KS
96 #556 Westminster, CO
97 #561 Milpitas, CA
98 #563 Redwood City, CA
99 #565 Springfield, OR
100 #566 Burbank, CA
101 #571 Vancouver, WA
102 #720 Merrillville, IN
103 #725 Akron, OH
104 #732 Canton, OH
105 #733 Winter Park, FL
106 #734 Jacksonville, FL
107 #736 Speedway, IN
108 #738 Louisville, KY
109 #740 Hallandale, FL
110 #745 Louisville, KY
111 #746 Ft. Wayne, IN
112 #750 Miami, FL
113 #753 St. Louis, MO
114 #755 Pembroke Pines, FL
115 #761 Columbus, OH
116 #763 Madison, WI
117 #769 Springfield, MO
118 #771 Toledo, OH
119 #779 Des Moines, IA
120 #780 Parma, OH
121 #785 Kokomo, IN
122 #787 Peoria, IL
123 #788 Monroeville, PA
124 #792 Ft. Myers, FL
125 #796 Greenwood, IN
126 #797 Birmingham, AL
127 #802 Morrow, GA
128 #804 Marrero, LA
129 #901 Hatillo, Puerto Rico
130 #905 San Juan, Puerto Rico
Schedule 3.5
Owned Real Property
1. #307 - 3720 E. 82nd Street, Indianapolis, IN
2. #335 - 2570 West Schaumburg Road, Schaumburg, IL
3. #338 - 7510 Parkway Drive, Littleton, CO
4. #339 - 5705 Chantry Drive, Columbus, OH
5. #340 - 8601 Springbrook Drive, NE, Coon Rapids, MN
6. #343 - 1140 Smiley Road, Forest Park, OH
7. #344 - 5751 NW Loop 410, Leon Valley, TX
8. #347 - 1118 West Arbrook, Arlington, TX
9. #348 - 13722 Embassy Row, San Antonio, TX
10. #349 - 13745 Lakeside Circle, Sterling Heights, MI
11. #353 - 14281 E. Exposition Avenue, Aurora, CO
12. #512 - 15240 Dallas Parkway, Dallas, TX
13. #334 - 824 Earnest W. Barrett Parkway, Kennesaw, GA
14. Vacant land located in Vancouver, WA
15. Vacant land located in Franklin Mills, PA
Schedule 3.9
Owned Intellectual Property
ATTACHED
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2,319
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