CEC ENTERTAINMENT, INC.
4441 West Airport Freeway
Irving, Texas 75062
(972) 258-8507
May 20, 1999
Dear Stockholder:
You are cordially invited to attend the annual meeting of
stockholders of the Company to be held at 9:00 a.m. local time,
Thursday, June 24, 1999, at the Harvey Hotel located at 4545 West
John Carpenter Freeway, Irving, Texas.
At the meeting you will be asked to re-elect three current
directors, to authorize the amendment of the Restated Articles of
Incorporation to (i) change the Registered Agent of the Company,
and (ii) remove the transfer or ownership restrictions contained
therein; and to amend the Company's 1997 Non-Statutory Stock
Option Plan to increase the number of shares authorized to be
issued therein; and to transact such other business as may
properly come before the meeting.
The formal Notice of the Annual Meeting of Stockholders and Proxy
Statement accompanying this letter provide detailed information
concerning matters to be considered and acted upon at the meeting.
It is important that your shares be represented at the meeting,
whether or not you attend personally. I urge you to sign, date and
return the enclosed proxy at your earliest convenience.
Sincerely,
RICHARD M. FRANK
Chairman and Chief
Executive Officer
CEC ENTERTAINMENT, INC.
4441 West Airport Freeway
Irving, Texas 75062
(972) 258-8507
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 24, 1999
To the Stockholders of
CEC Entertainment, Inc.:
Notice is hereby given that the annual meeting of stockholders of CEC
Entertainment, Inc., a Kansas corporation, will be held at the Harvey Hotel
located at 4545 West John Carpenter Freeway, Irving, Texas on June 24, 1999,
at 9:00 a.m.local time,for the following purposes:
1. To re-elect three Class II directors to serve for a term of three
years or until their successors are elected and qualified or until
their earlier resignation or removal;
2. To authorize the amendment of the Restated Articles of Incorporation
to change the Registered Agent of the Company, and remove the
transfer or ownership restrictions contained therein;
3. To authorize the amendment of the Company's 1997 Non-Statutory Stock
Option Plan to increase the number of shares authorized to be issued
therein; and
4. To transact such other business as may properly come before the
meeting.
It is desirable that as large a proportion as possible of the stockholders'
interests be represented at the meeting. Whether or not you plan to be present
at the meeting, you are requested to sign and return the enclosed proxy in the
envelope provided so that your stock will be represented. The giving of such
proxy will not affect your right to vote in person, should you later decide to
attend the meeting. Please date and sign the enclosed proxy and return it
promptly in the enclosed envelope.
Only stockholders of record at the close of business on May 6, 1999 are entitled
to notice of, and to vote at, the meeting or any adjournment thereof.
By Order of the Board of Directors,
MARSHALL R. FISCO, JR.
Secretary
Irving, Texas
May 20, 1999
CEC ENTERTAINMENT, INC.
4441 WEST AIRPORT FREEWAY
IRVING, TEXAS 75062
(972) 258-8507
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 24, 1999
This proxy statement is furnished to stockholders of CEC Entertainment, Inc., a
Kansas corporation (the Company), in connection with the solicitation of proxies
by the Board of Directors of the Company (the Board of Directors) for use at the
annual meeting of stockholders (the Annual Meeting) to be held at 9:00 a.m.local
time, on June 24, 1999 at the Harvey Hotel located at 4545 West John Carpenter
Freeway, Irving, Texas. Proxies in the form enclosed will be voted at the Annual
Meeting, if properly executed, returned to the Company prior to the Annual
Meeting and not revoked. A proxy may be revoked at any time before it is voted
either in person at the Annual Meeting or by giving prior written notice to the
Secretary of the Company. This proxy statement was first sent or given to the
Company's stockholders on or about May 20, 1999.
OUTSTANDING CAPITAL STOCK
The record date for stockholders entitled to notice of, and to vote at, the
Annual Meeting is May 6, 1999. At the close of business on that date, the
Company had issued and outstanding and entitled to receive notice of and vote at
the Annual Meeting 18,117,006 shares of Common Stock, $0.10 par value (the
Common Stock), and 48,515 shares of Class A Preferred Stock, $60 par value (the
Preferred Stock). No other class of securities of the Company is entitled to
notice of, or to vote at, the Annual Meeting.
ACTION TO BE TAKEN AT THE ANNUAL MEETING
The accompanying proxy, unless the stockholder otherwise specifies in the proxy,
will be voted:
1. To re-elect three Class II directors to serve for a term of three
years or until their successors are elected and qualified or until their earlier
resignation or removal;
2. To authorize the amendment of the Restated Articles of Incorporation
to change the Registered Agent of the Company, and remove the transfer or
ownership restrictions contained therein;
3. To authorize the amendment of the Company's 1997 Non-Statutory Stock
Option Plan to increase the number of shares authorized to be issued therein;
and
4. To transact such other business as may properly come before the
meeting.
Where stockholders have appropriately specified how their proxies are to be
voted, they will be voted accordingly. Unless authorization to vote for a
proposal pending at the Annual Meeting is withheld, if no direction is made for
a vote cast by proxy, the proxy shall be voted for such proposal. If any other
matter or business is brought before the Annual Meeting, the proxyholders may
vote the proxies in their discretion. The Board of Directors is not presently
aware of any other matters or business to be brought before the Annual Meeting.
QUORUM AND VOTING
Each stockholder of record on the Record Date is entitled to one vote for each
share of Common Stock and/or Preferred Stock held by them. A majority of the
outstanding shares of Common Stock and Preferred Stock, represented in person or
by proxy, will constitute a quorum at the Annual Meeting; provided, however, if
a quorum is not present or represented at the Annual Meeting, the stockholders
entitled to vote at the Annual Meeting, present in person or represented by
proxy, have the power to adjourn the Annual Meeting from time to time, without
notice, other than by announcement at the Annual Meeting, until a quorum is
present or represented. At any such adjourned Annual Meeting at which a quorum
is present or represented, any business may be transacted that might have been
transacted at the original date of the Annual Meeting.
Votes cast by proxy or in person shall be counted by a person or persons
appointed by the Company to act as inspector of election for the Annual
Meeting.
The inspector of election will treat shares presented by proxies that reflect
abstentions as shares that are present and entitled to vote for the purpose of
determining the presence of a quorum. Abstentions will have no effect on other
proposals to be voted on at the Annual Meeting. Unless authorization to vote
for a proposal pending at the Annual Meeting is withheld, if no direction is
made for a vote cast by proxy, the proxy shall be voted for such proposals.
Broker non-votes occur where a broker holding shares in street name votes the
shares on some proposals but not others. Brokers are permitted to vote on
routine, non-controversial proposals in instances where they have not received
voting instructions from the beneficial owner of the shares, but are not
permitted to vote on non-routine proposals. The missing votes on non-routine
proposals are deemed to be broker non-votes. The inspector of election shall
treat broker non-votes as shares that are present and entitled to vote for the
purpose of determining the presence of a quorum. However, for the purpose of
determining the outcome of any proposal as to which the broker has indicated on
the proxy that it does not have discretionary authority to vote, those shares
will be treated as not present and not entitled to vote with respect to that
proposal (even though those shares are considered entitled to vote for quorum
purposes and may be entitled to vote on other proposals). Except for the purpose
of determining the presence of a quorum, broker non-votes will have no effect on
the outcome of the proposal to be voted on at the Meeting.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to revoke
it at any time before it is voted at the Annual Meeting. It may be revoked by
filing with the Secretary of the Company, Marshall R. Fisco, Jr., 4441 West
Airport Freeway, Irving, Texas 75062, a written notice of revocation or duly
executed proxy bearing a later date, or it may be revoked by attending the
Annual Meeting and voting in person. Attendance at the Annual Meeting will
not, by itself, revoke a proxy.
PRINCIPAL HOLDERS OF CAPITAL STOCK
The following table sets forth information, as of May 6, 1999, relating to the
beneficial ownership of the Company's Common Stock and Preferred Stock by: (i)
each director and executive officer (as hereinafter defined) of the Company as
of such date, (ii) the directors and the executive officers of the Company as a
group (10 persons) as of such date, and (iii) each person, as that term is used
in the Securities Exchange Act of 1934, as amended (the "Exchange Act"), known
to the Company to own beneficially five percent (5%) or more of the outstanding
shares of Common Stock or Preferred Stock. Except as otherwise indicated, each
of the persons named in the table is believed by the Company to possess sole
voting and investment power with respect to the shares of Common Stock or
Preferred Stock beneficially owned by such person. Information as to the
beneficial ownership of Common Stock and Preferred Stock by directors and
executive officers of the Company has been furnished by the respective
directors and executive officers.
Name (and Number of Number of Percentage
address for 5% Shares of Shares of of Class Outstanding
beneficial owners) Common Stock Preferred Stock Common Stock Preferred Stock
- ----------------- ------------ --------------- ------------ ---------------
Richard M. Frank 928,536 (A) 0 5.1% 0.0%
Michael H. Magusiak 130,481 (B) 0 (C) 0.0%
Richard T. Huston 78,568 (D) 0 (C) 0.0%
Larry G. Page 43,667 (E) 0 (C) 0.0%
Gene F. Cramm, Jr. 11,370 (F) 0 (C) 0.0%
Tim T. Morris 3,750 (G) 0 (C) 0.0%
Louis P. Neeb 5,000 (H) 0 (C) 0.0%
Cynthia I. Pharr 16,350 (I) 0 (C) 0.0%
Walter Tyree 3,750 (G) 0 (C) 0.0%
Raymond Wooldridge 7,750 (G) 0 (C) 0.0%
Directors and Executive
Officers as a Group 1,229,222 0 6.8% 0.0%
AMVESCAP PLC
11 Devonshire Square
London EC2M 4YR
England 1,127,550 (J) 0 6.2% 0.0%
FMR Corp.
82 Devonshire Street
Boston, MA 02109-3614 1,492,000 (K) 0 8.2% 0.0%
Massachusetts Financial
Services Company
500 Boylston Street
Boston, MA 02116-0741 1,088,605 (L) 0 6.0% 0.0%
Time Warner, Inc.
75 Rockefeller Plaza
New York, NY 10019 0 16,011 (M) 0.0% 33.0%
River Forest State Bank
& Trust Co.
7727 West Lake Street
River Forest, IL 60305 0 3,139 (N) 0.0% 6.5%
(Footnotes appear on the following page)
- -----------------------------------
(A) Includes 74,960 shares which are subject to forfeiture pursuant to the
terms of Mr. Frank's employment agreement. See Employment Agreements.
Includes 465,000 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 115,000 shares purchasable pursuant
to options issued under the Company's Non-Statutory Stock Option Plan
which are not exercisable within 60 days of the date hereof.
(B) Includes 97,600 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 185,000 shares purchasable pursuant
to options issued under the Company's Non-Statutory Stock Option Plan
which are not exercisable within 60 days of the date hereof.
(C) Constitutes less than 1% of the Company's outstanding Common Stock.
(D) Includes 24,150 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 56,040 shares purchasable pursuant
to options issued under the Company's Non-Statutory Stock Option Plan
which are not exercisable within 60 days of the date hereof.
(E) Includes 43,421 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 36,084 shares purchasable pursuant
to options issued under the Company's Non-Statutory Stock Option Plan
which are not exercisable within 60 days of the date hereof.
(F) Includes 11,370 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 37,902 shares purchasable pursuant
to options issued under the Company's Non-Statutory Stock Option plan
which are not exercisable within 60 days of the date hereof.
(G) Includes 3,750 shares purchasable pursuant to options issued under the
Non-Employee Directors Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 8,750 shares purchasable pursuant to
options issued under the Company's Non-Employee Directors Stock Option
Plan which are not exercisable within 60 days of the date hereof.
(H) Includes 5,000 shares purchasable pursuant to options issued under the
Non-Employee Directors Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 6,250 shares purchasable pursuant to
options issued under the Company's Non-Employee Directors Stock Option
Plan which are not exercisable within 60 days of the date hereof.
(I) Includes 11,250 shares purchasable pursuant to options issued under the
Company's 1988 Non-Statutory Stock Option Plan and 5,000 shares
purchasable pursuant to options issued under the Company's Non-Employee
Directors Stock Option Plan which are exercisable within 60 days of the
date hereof, but excludes 6,250 shares purchasable pursuant to options
issued under the Company's Non-Employee Directors Stock Option Plan which
are not exercisable within 60 days of the date hereof.
(J) Based upon information in Schedule 13G dated February 8, 1999. This
number includes 1,127,550 shares beneficially owned by AMVESCAP PLC, as a
parent company to various companies. Of its total shares, AMVESCAP PLC
has shared voting and dispositive power over 1,127,550 shares.
(K) Based upon information obtained from FMR Corp. on April 29, 1997. This
number includes 1,441,600 shares beneficially owned by Fidelity Management
& Research Company, as an investment adviser to various investment
companies and certain other funds; 47,400 shares beneficially owned by
Fidelity Management Trust Company, as a trustee or managing agent for
various private investment accounts; and 3,000 shares beneficially owned
by Fidelity International Limited, as an investment advisor to various
non-U.S. investment companies. Of its total shares, FMR Corp. has sole
voting power over 47,400 shares and sole dispositive power over 1,489,000
shares. Fidelity International Limited has sole voting and dispositive
power over 3,000 shares.
(L) Based on information in Schedule 13G dated February 11, 1999. Of its
total shares, Massachusetts Financial Services Company has sole voting and
dispositive power over 1,088,605 shares.
(M) Based on information in Amendment No. 2 to Schedule 13D dated July 1,
1994. Of its total shares, Time Warner, Inc. has shared voting and
dispositive power over 16,011 shares.
(N) Based on information obtained from the Company's Transfer Agent on May 6,
1999.
PROPOSAL 1:
ELECTION OF DIRECTORS
The terms of the Class II directors expire at the Annual Meeting of the
stockholders in 1999. The Board of Directors has nominated Richard T. Huston,
Cynthia I. Pharr and Raymond E. Wooldridge for reelection at the Annual Meeting,
to serve for a term of three years. Messrs. Huston and Wooldridge, and Ms.
Pharr. have expressed their intention to serve the entire term for which re-
election is sought.
Directors will be elected by cumulative voting. To be elected as a director, a
candidate must be among the three candidates who receive the most votes out of
all votes cast at the Annual Meeting for the election of directors. See "Quorum
and Voting.
The following table lists the names and ages (as of May 6, 1999) of the three
director nominees and the five directors whose terms of office will continue
after the Annual Meeting, the year in which each director was first elected as
a director of the Company, the class to which each director has been or will be
elected, and the Annual Meeting at which the term of each director will expire.
Director Term
Nominee Directors Age Since Class Expires
- ----------------- ----- -------- ----- -------
Richard T. Huston............... 53 1999 II 1999
Cynthia I. Pharr................ 50 1994 II 1999
Raymond E. Wooldridge........... 60 1997 II 1999
Continuing Directors
Richard M. Frank................. 51 1985 III 2000
Tim T. Morris.................... 52 1997 III 2000
Louis P. Neeb ................... 60 1994 III 2000
Michael H. Magusiak............. 43 1988 I 2001
Walter Tyree.................... 47 1997 I 2001
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE NAMED NOMINEES.
ADDITIONAL INFORMATION ABOUT THE EXECUTIVE OFFICERS, BOARD OF
DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
EXECUTIVE OFFICERS
The following table sets forth the names and certain other information regarding
the executive officers of the Company as of May 6, 1999.
Year first elected
Name Age Position as Executive Officer
- ------ ----- -------- ---------------------------
Richard M. Frank..... 51 Chairman of the Boardand 1985
Chief Executive Officer
Michael H. Magusiak.. 43 President 1988
Richard T. Huston.... 53 Executive VicePresident, 1986
Marketing
Larry G. Page........ 55 Executive Vice President, Chief 1994
Financial Officer and Treasurer
Gene F. Cramm, Jr. .. 41 Executive Vice President, 1997
Construction and Entertainment
BUSINESS HISTORY OF EXECUTIVE OFFICERS AND DIRECTORS
A brief description of the business history of the directors and executive
officers of the Company is provided below.
RICHARD M. FRANK has been Chairman of the Board and Chief Executive Officer of
the Company since March 1986 and has been a director of the Company since June
1985. He served as President and Chief Operating Officer from June 1985 until
October 1988. He joined the Company in 1985. He has served as a director for
Monterey Acquisition Corp. from May 1994 to June 1997.
MICHAEL H. MAGUSIAK was elected President of the Company in June 1994. He had
previously served as Executive Vice President, Chief Financial Officer and
Treasurer since June 1988. He has also served as a director of the Company
since 1988. He was Vice President of the Company from October 1987 to June
1988 and Controller of the Company from October 1987 to January 1989. He
joined the Company in July 1987. He has served as a director for Monterey
Acquisition Corp.from May 1994 to June 1997.
RICHARD T. HUSTON has served as Executive Vice President of the Company since
July 1986 and as Director of Marketing and Strategic Development since January
1993. He has also served as a director of the Company since 1999. His
responsibilities as an officer of the Company were expanded from June 1994 to
March 1997 to include Entertainment as well as Marketing. He served as Director
of Marketing and Development from October 1988 to January 1993. He served as
Vice President from October 1985 to July 1986, and as Director of Marketing from
October 1985 to October 1988. He joined the Company in 1985.
LARRY G. PAGE has served as Executive Vice President, Chief Financial Officer
and Treasurer of the Company since October 1994. Prior to joining the
Company, Mr.Page served as Vice President and Regional General Manager in the
retail services division of Comdata Holdings Corporation, a publicly-held
financial services company, from July 1985 to October 1994. Mr. Page is a
Certified Public Accountant and was a partner in various national and regional
public accounting firms, including Arthur Andersen LLP, from August 1978
through July 1985.
GENE F. CRAMM, JR. has served as Executive Vice President of the Company since
September 1997. Prior to that time he served as a Senior Vice President since
September 1989. He assumed the duties of Director of Construction in June
1994. Mr. Cramm has held various positions with the Company since 1980,
including Director of Entertainment and Games, Senior Vice President,
International Development and Special Projects, Senior Vice President,
Operational Support, and Vice President and Director of Purchasing.
TIM T. MORRIS was elected as a director of the Company in June 1997. Mr. Morris
is currently a Partner of River Associates, LLC, an investment firm; he has
served in that position since 1990. From 1981 through 1990 Mr. Morris was an
Office Managing Partner of Deloitte & Touche, an accounting firm. From 1977
through 1981 Mr. Morris was a Partner of Rogers, Morris, Millsaps & Underwood,
CPA's, an accounting firm. From 1968 through 1977 Mr. Morris was a Partner of
Hazlett, Lewis & Bieter, CPA's, an accounting firm.
LOUIS P. NEEB was elected as a director in August 1994. Mr. Neeb has served as
Chairman of the Board and Chief Executive Officer of Casa Ole' Restaurants, Inc.
from October 1995 to the present. From August 1982 to present, Mr. Neeb has
been President of Neeb Enterprises, Inc., a management consulting firm
specializing in consulting to restaurant companies. From July 1991 through
January 1994, Mr. Neeb was President and Chief Executive Officer of Spaghetti
Warehouse, Inc. Mr.Neeb has also had other extensive experience in the
restaurant industry including serving as Chairman of the Board of Burger King
Corporation. Mr. Neeb is a member of the Board of Directors of the Franchise
Finance Corporation of America,a publicly-traded real estate trust which
provides real estate for restaurants, and Silver Diner, Inc., a publicly-
traded restaurant company.
CYNTHIA I. PHARR was elected as a director of the Company in August 1994. She
is currently President and owner of C. Pharr & Company, a communications
management consulting firm. She has served in that position since March 1993.
From May 1989 through February 1993, Ms. Pharr was President and Chief Executive
Officer of Tracy - Locke/Pharr P R, a public relations firm. From August 1986
through April 1989, she was President and owner of C. Pharr & Company, Inc. a
public relations agency. Ms. Pharr has served as a member of the Board of
Directors of Spaghetti Warehouse, Inc. since August 1991, as well as Chairman
of the Board of GuestCare, Inc., a privately held technology company, from
February 1994 to present.
WALTER TYREE was elected as a director of the Company in June 1997. Mr. Tyree is
currently Chief Operating Officer of BCBM Southwest, Inc., a Boston Market
franchisee. Mr. Tyree has served in that position since January 1993. From
1980 through 1992, Mr. Tyree served in various positions with Steak and Ale, a
restaurant company, most recently as a Regional Director.
RAYMOND E. WOOLDRIDGE was elected as a director of the Company in June 1997. Mr.
Wooldridge is currently Vice Chairman and Chairman of the Executive Committee of
Southwest Securities Group, Inc., a publicly owned holding firm. Mr. Wooldridge
is also a director of Dadco, Inc., a subsidiary of D. A. Davidson & Company, a
member of NASD and the Pacific Stock Exchange. Mr. Wooldridge has served in
these positions since 1986. From 1964 through 1986, Mr. Wooldridge served in
various positions with Eppler, Guerin and Turner, Inc., a regional brokerage and
investment banking firm, most recently as the firm's President and Chief
Executive Officer.
Except as set forth above, none of the directors of the Company hold
directorships in any company with a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act") or
subject to the requirements of Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
Four regularly scheduled and five special meetings of the Board of Directors
were held during 1998. Each of the directors attended at least 75% of the
meetings held by the Board of Directors, and by each committee on which he or
she served in 1998.
The Board of Directors has established an Executive Committee, an Audit
Committee, a Compensation Committee, a Stock Option Committee and a Stock Grant
Committee. The responsibilities and composition of each of these committees are
described below.
The Executive Committee consists of four directors. The Executive Committee is
responsible for assisting the Board of Directors in carrying out its duties and
acts in the place of the Board of Directors when the Board of Directors is not
in session and may exercise substantially all of the powers of the Board of
Directors other than those powers specifically required by law or by the
Company's Bylaws to be exercised by the full Board of Directors. The Executive
Committee (comprised of Messrs. Frank, Magusiak, and Neeb and Ms. Pharr in 1998)
held a number of informal meetings in person and by telephone in 1998.
The Audit Committee consists of three directors. The Audit Committee is
responsible for (i) considering the Company's system of internal controls, (ii)
reviewing the performance and findings of the Company's Internal Audit
Department, and (iii) reviewing services provided by the Company's independent
auditors. The Audit Committee (comprised of Messrs. Morris, Tyree and
Wooldridge in 1998) held two meetings in 1998.
The Compensation Committee consists of three directors. The Compensation
Committee is responsible for (i) recommending the compensation, including
performance bonuses, payable to the Company's executive officers (excluding Mr.
Frank), and (ii) recommending the performance bonuses for other employees of the
Company. The Compensation Committee (comprised of Messrs. Frank, Neeb and
Wooldridge in 1998) held two meetings in 1998. Effective April 5, 1999, the
Compensation Committee is comprised of Ms. Pharr, and Messrs. Neeb and
Wooldridge.
The Stock Option Committee and a Stock Grant Committee each consist of two
directors who are responsible for administering the 1988 Non-Statutory Stock
Option Plan, the 1997 Non-Statutory Stock Option Plan and the Company's Stock
Grant Plan, respectively. The Stock Option Committee and a Stock Grant
Committee were each comprised of Messrs. Neeb and Wooldridge in 1998. The
Stock Option Committee and Stock Grant Committee held three and zero meetings,
respectively,in 1998.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to the Chief Executive
Officer and to each of the other most highly paid executive officers of the
Company (the Named Executive Officers) for the fiscal years ended December 27,
1996, January 4, 1998 and January 3, 1999 (designated herein as fiscal years
1996, 1997 and 1998, respectively.)
Long Term
Annual Compensation Compensation Awards
------------------------------ -----------------
Restricted Securities
Other Annual Stock Underlying
Name (and Fiscal Compensation Awards Options
Principal Position) Year Salary($) Bonus($) ($)(A) ($) (#)(B)
- ------------------ ---- --------- -------- ----------- ---- ------
Richard M. Frank 1998 1,000,000 433,703(C) 39,988 $-- 0
(Chief Executive 1997 1,000,000 0 29,841 -- 500,000
Officer) 1996 1,000,000 0 27,333 -- 0
Michael H. Magusiak 1998 250,000 194,873(C) 18,194 $-- 0
(President) 1997 250,000 94,879(D) 17,874 -- 125,000
1996 240,000 113,736(E) 15,846 -- 28,800
Richard T. Huston 1998 167,600 54,521(C) 16,771 $-- 17,640
(Executive Vice 1997 160,000 52,003(D) 15,672 -- 16,800
President) 1996 150,000 60,930(E) 15,869 -- 15,750
Larry G. Page 1998 136,519 44,524(C) 17,650 $-- 14,385
(Executive Vice 1997 134,500 43,789(D) 14,923 -- 14,123
President and 1996 132,000 53,618(E) 14,176 -- 13,860
Chief Financial Officer)
Gene F. Cramm, Jr. 1998 135,000 43,912(C) 14,930 $-- 14,175
(Executive Vice 1997 120,593 34,699(D) 9,191 -- 13,984
President) 1996 109,423 37,235(E) 7,981 -- 9,900
- ----------------
(A) Includes annual car allowances for (i) Mr. Frank of $13,600 (in 1996),
$15,600 (in 1997), and $15,600 (in 1998); (ii) Mr. Magusiak of $9,000 (in
1996, $9,000 (in 1997), and $12,000 (in 1998); (iii) Messrs. Huston and
Page of $9,000 (in 1996), $9,000 (in 1997), and $10,200 (in 1998); and
(iv) Mr. Cramm of $6,000, (in 1996) $6,000 (in 1997), and $10,200 (in
1998).
(B) On May 22, 1996, the Common Stock of the Company split 3-for-2, resulting
in an acquisition of additional shares of Common Stock by the Named
Executive Officers for fiscal year 1996. The amounts listed above have
been adjusted to reflect the stock split.
(C) Includes bonus compensation earned in 1998 and paid in 1999.
(D) Includes bonus compensation earned in 1997 and paid in 1998.
(E) Includes bonus compensation earned in 1996 and paid in 1997.
EMPLOYMENT AGREEMENTS
On March 3, 1997, Richard M. Frank entered an employment agreement with the
Company providing for a three-year term commencing on January 1, 1998. Mr.
Frank's employment agreement provides for an annual base salary of $1,000,000,
105,000 shares of the Company's Common Stock issued under the Company's Stock
Grant Plan, a cash bonus, payable annually, if earned, based upon the
achievement of targets for corporate revenue and profitability, and such
additional benefits and/or compensation as may be determined by the Compensation
Committee or the Board of Directors.
On April 28, 1999, Michael H. Magusiak entered into an employment agreement with
the Company providing for a five-year term commencing on January 4, 1999. Mr.
Magusiak's employment agreement provides for an annual base salary of $300,000
(paid monthly), 100,000 shares of the Company's Common Stock issued under the
Company's 1997 Non-Statutory Stock Option Plan, a cash bonus, payable annually,
if earned, based upon the achievement of targets for corporate revenue and
profitability, and such additional benefits and/or compensation as may be
determined by the Compensation Committee or the Board of Directors.
Under the terms of the respective employment agreements (the Employment
Agreements), if the covered executive's employment with the Company is
terminated by the Company (other than as a result of death or permanent
disability (as defined in the Employment Agreements)) Mr. Frank will be
entitled to receive a severance amount equal to $3,000,000, and Mr. Magusiak
will be entitled to receive a severance amount equal to twenty four times his
then current monthly base salary (together, the Severance Amounts). In the
event of the executive's death, his estate is entitled to receive his base
salary through the date of his death.
The Employment Agreements also provide that each of Messrs. Frank and Magusiak
will receive his respective Severance Amount in the event there is a Change of
Control (as defined below) of the Company and the covered executive voluntarily
terminates his employment within one year after such a Change of Control. A
Change of Control is deemed to have occurred with respect to the Company if (i)
any person or group of persons acting in concert in which the covered executive
is not an investor, partner, officer, director or member, shall acquire,
directly or indirectly, the power to vote, or direct the voting of, more than
33% of the then outstanding voting securities of the Company or (ii) during
any consecutive 18 month period a majority of the Board of Directors is elected
or appointed and consists of persons who were not directors of the Company as
of the date of the respective Employment Agreement and whose election or
appointment as directors of the Company is actively opposed by the covered
executive.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted to
each of the Named Executive Officers in the fiscal year ended January 3, 1999.
Potential Realizable
Value at Assumed
Annual Rates of
Number % of Total Stock Price
of Securities Options Appreciation for
Underlying Granted to Exercise Option Term ($)
Options Employees in Price Expiration -------------
Granted(#) Fiscal Year ($/Share) Date 5% 10%
--------- ------------ --------- -------- ---- ----
Richard M. Frank 0 0.00% -- -- -- --
Michael H. Magusiak 0 0.00% -- -- -- --
Richard T. Huston(A) 17,640 5.31% 21.813 01/09/05 156,606 365,157
Larry G. Page(A) 14,385 4.47% 21.813 01/09/05 127,708 297,777
Gene F.Cramm, Jr.(A) 14,175 4.27% 21.813 01/09/05 125,844 293,430
- ------------
(A) Options to acquire these shares are exercisable as follows: (i) fifty
percent (50%) of the option after January 9, 2000, and (ii) an aggregate
of seventy-five percent (75%) of the option after January 9, 2001, and
(iii) an aggregate of one hundred percent (100%) of the option after
January 9, 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, for each of the Named Executive Officers,
information regarding his exercise of stock options during the fiscal year ended
January 3, 1999 and the value of his unexercised stock options as of January 3,
1999. The closing price for the Company's Common Stock, as reported by the New
York Stock Exchange, on December 31, 1998 (the last trading day of the fiscal
year) was $27.75.
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares January 3, 1999 January 3, 1999
Acquired on Value (exercisable/ (exercisable/
Exercise(#) Realized(A) unexercisable)(#) unexercisable($)(B)
---------- ----------- ---------------- -------------------
Richard M. Frank -- -- 265,000(E) 2,759,995(E)
250,000(U) 2,462,500(U)
Michael H. Magusiak 0 1,894,395 43,200(E) 916,315(E)
139,400(U) 1,511,575(U)
Richard T. Huston 39,500 1,174,643 7,875(E) 153,303(E)
42,315(U) 434,431(U)
Larry G. Page -- -- 29,430(E) 640,211(E)
35,438(U) 368,602(U)
Gene F. Cramm, Jr. 0 258,277 1,200(E) 23,360(E)
33,109(U) 311,179(U)
- ----------------
(A) Calculated by determining the difference between the fair market value of
the securities underlying the options and the exercise price of the
options at the time of exercise.
(B) Calculated by determining the difference between the exercise price of the
options and the fair market value of the securities underlying the options
at fiscal year-end.
(E) Options which are exercisable at January 3, 1999.
(U) Options which are not exercisable at January 3, 1999.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The executive compensation program of the Company is designed as a tool to
reinforce the Company's strategic principles to be a premier and progressive
growth company, with an objective of enhancing long term stockholder value. To
this end, the following principles have guided the development of the executive
compensation program:
-- Provide competitive levels of compensation to attract and retain the
best qualified executive talent. The Compensation Committee
strongly believes that the caliber of the Company's management group
makes a significant difference in the Company's success over the
long term.
-- Embrace a pay-for-performance philosophy by placing significant
amounts of compensation at risk that is, a significant component of
the compensation payouts to executives must vary according to the
overall performance of the Company.
-- Directly link executives' interests with those of stockholders by
providing opportunities for long term incentive compensation based
on changes in stockholder value.
The executive compensation program is intended to appropriately balance the
Company's short term operating goals with its long term strategy through a
careful mix of base salary, annual bonuses (payable upon satisfaction by the
Company of established revenue and profitability objectives) and long term
performance compensation through the issuance of stock options under the 1988
Non-Statutory Stock Option Plan and the 1997 Non-Statutory Stock Option Plan,
and stock grants through the Stock Grant Plan.
The compensation of the executive officers of the Company (excluding Messrs.
Frank and Magusiak) is reviewed and determined annually by the Compensation
Committee. The compensation of such executive officers in 1998 was based on
individual and corporate performances as well as assigned responsibilities. In
establishing and reviewing executive compensation, consideration is also given
to executive salary ranges of comparable companies. Individual performance is
reflected in the executive officer's salary. Corporate performance is reflected
in a bonus, payable annually, if earned, to each executive officer, based on the
achievement of targets for corporate revenue and profitability. Although no
bonus compensation was paid in 1998 based upon performances in 1998, Messrs.
Frank, Magusiak, Huston, Page and Cramm and all executive officers as a group
received $433,703, $194,873, $54,521, $44,524, and $43,912, respectively, and
$771,533 (collectively) in 1999, in bonus compensation pursuant to such plan for
services rendered in 1998.
The Stock Option Committee and the Stock Grant Committee are made up of the
non-employee director members of the Compensation Committee. The Stock Option
Committee and Stock Grant Committee ratify and approve option and grant
recommendations, respectively, made by the Compensation Committee. In 1998, the
Compensation Committee determined the number of options to issue in accordance
with the 1997 NonStatutory Stock Option Plan based upon base salaries and levels
of responsibility.
CEO Performance Evaluation
Although Mr. Frank's salary is established by the terms of his Employment
Agreement (see Employment Agreements), the Compensation Committee, excluding Mr.
Frank, nevertheless annually evaluates his performance based on the same
criteria as is applied to the other executive officers of the Company. Stock
option issuances, restricted stock grants to Mr. Frank, and any increase in his
annual base salary or the granting of a bonus, are based on individual and
corporate performance, applying the same factors for him as described above
for the Company's other executives. The Compensation Committee also considers
the number of unvested shares available to Mr. Frank under his current
Employment Agreement and the Stock Grant Plan at such time.
The Compensation Committee has also considered the potential impact of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code),
adopted under the Omnibus Budget Reconciliation Act of 1993. This section
disallows a tax deduction for any publicly-held corporation for individual
compensation to certain executives of such corporation exceeding $1,000,000 in
any taxable year, unless compensation is performance-based. As discussed above,
Mr. Frank's annual base salary is $1,000,000. It is the intent of the Company
and the Compensation Committee to qualify to the maximum extent possible its
executives' compensation for deductibility under applicable tax laws. The
Compensation Committee will continue to monitor the impact of such limitations
on tax deductions and will take other appropriate actions if warranted in the
future.
The Compensation Committee was comprised of Messrs. Frank, Neeb and Wooldridge
in 1998. The Stock Option Committee and the Stock Grant Committee were both
comprised of Messrs. Neeb and Wooldridge in 1998.
Richard M. Frank
Louis P. Neeb
Raymond E. Wooldridge
Effective April 5, 1999, the Compensation Committee is comprised of Ms. Pharr,
and Messrs. Neeb and Wooldridge.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company or its affiliates, receive a retainer from
the Company at the rate of $10,000 per year, plus $750 for each meeting of the
Board of Directors attended. In addition thereto, on the day a Non-Employee
Director is first elected or appointed to the Board, such Non-Employee Director
shall be granted an option to purchase 7,500 shares of the Common Stock of the
Company. Each January thereafter, a Non-Employee Director who was previously
elected to the Board and who continues to serve in such capacity shall be
granted an option to purchase 2,500 shares of the Common Stock of the Company.
Other directors, who are either officers or employees of the Company or its
affiliates, do not receive separate compensation for their services as
directors of the Company.
PROPOSAL 2:
AMENDMENT OF THE RESTATED ARTICLES OF INCORPORATION
The Restated Articles of Incorporation of the Company currently provide
that the Registered Agent of the Company is The Corporation Company and 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.
In April 1999, the Board of Directors adopted, subject to the approval of the
Company's stockholders, an amendment to the Restated Articles of Incorporation
providing for a change to the Registered Agent of the Company (Article
Second), and removal of the transfer or ownership restrictions (Article
Fourth, Section 4.13)contained therein. The description of the Amended
Articles of Incorporation contained herein is not intended to be complete and
is qualified in its entirety by reference to Exhibit A attached hereto, which
contains the complete text of the proposed Amended Articles of Incorporation.
The Board of Directors believes that the proposed amendment to the Restated
Articles of Incorporation will provide the Company with flexibility and ensure
the unrestricted transfer of shares by its shareholders and investors.
THE BOARD OF DIRECTORS HAS APPROVED THE ABOVE DESCRIBED AMENDMENT AND
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE RESTATED ARTICLES OF
INCORPORATION.
PROPOSAL 3:
AMENDMENT OF THE COMPANY'S 1997 NON-STATUTORY STOCK OPTION PLAN
The 1997 Non-Statutory Stock Option Plan (Employee Plan) became effective
in September, 1997. The purpose of the Employee Plan is to secure for the
Company and its shareholders the benefits of the incentives inherent in stock
ownership by key employees of the Company and its subsidiaries. The Employee
Plan terminates on July 31, 2007, and no option may be granted after such date
pursuant to the Employee Plan. The Employee Plan is currently administered by
the Stock Option Committee. The Stock Option Committee determines, in its
discretion but subject to the limitations set forth in the Employee Plan, the
persons to whom options are granted, the number of shares covered by options and
the exercise price of options. The Stock Option Committee also determines the
conditions, if any, imposed upon the granting of options under the Employee
Plan.
To date, the Stock Option Committee has issued options under the Employee Plan
to eligible employees in proportion to their respective responsibilities to the
Company. The Stock Option Committee provides for various periods of time to pass
before options become exercisable according to the Company's long term strategic
plans. In April 1999, the Board of Directors adopted, subject to the approval
of the Company's stockholders, an amendment to the 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 description of the Employee
Plan contained herein is not intended to be complete and is qualified in its
entirety by reference to Exhibit B attached hereto, which contains the complete
text of the proposed Employee Plan.
The Board of Directors believes that the proposed amendment to the Employee
Plan will enable the Company and its stockholders, through future stock options,
to continue to secure the benefits of the incentive inherent in stock ownership
by certain of its employees.
THE BOARD OF DIRECTORS HAS APPROVED THE ABOVE DESCRIBED AMENDMENT AND
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO COMPANY'S 1997
NON-STATUTORY STOCK OPTION PLAN.
INDEMNIFICATION
The Bylaws of the Company provide for each director and officer of the Company
to be indemnified by the Company, as of right, to the full extent permitted or
authorized by the laws of the State of Kansas against any liability, judgment,
fine, amount paid in settlement, cost and expense asserted or threatened against
or incurred by such person in his capacity, or arising out of his status, as a
director or officer. The Company's Restated Articles of Incorporation include
a provision which eliminates director liability for monetary damages for breach
of the director's duty of due care, as permitted under Kansas law.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION;
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was a party to an agreement with Monterey's Acquisition Corp., which
was later assumed by Casa Ole' Restaurants, Inc., (Casa Ole'). This agreement
required the Company to provide Casa Ole' with certain accounting services in
consideration for $300,000 per year, until it expired on December 27, 1998.
Louis P. Neeb is currently on the Board of Directors of the Company and is also
serving as Chairman of the Board and Chief Executive Officer of Casa Ole'.
The Board of Directors intends that transactions with officers, directors and
affiliates will be entered into on terms no less favorable to the Company than
could be obtained from unrelated third parties and will be approved by at least
a simple majority of the uninterested directors of the Company.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative yearly total stockholder return
(change in share price plus reinvestment of any dividends) on the Company's
Common Stock since January 3, 1989 (the date the Company's Common Stock first
traded on the NASDAQ system), versus two indexes. The graph assumes $100 was
invested on January 3, 1989. The Company has not paid any cash dividends on its
Common Stock during the applicable period. The share price of the Company's
Common Stock has been adjusted for three-for-two stock splits in the form of
stock dividends distributed on March 26, 1991, March 20, 1992 and May 22, 1996.
The Company's Common Stock is labeled on the graph as CEC Entertainment, Inc.
The index labeled NYSE Stocks, which was prepared by the Center for Research in
Securities Prices (CRSP) at The University of Chicago, Graduate School of
Business, 1101 East 58th Street, Chicago, Illinois 60637 (telephone 312-702-
7467) measures the total return (weighted for the market capitalization of the
component companies) on the approximately 35 domestic and foreign companies
which operate restaurants or other eating and drinking places (SIC Code 58)
and whose equity securities are traded on the New York Stock Exchange. The
identities of the companies included in the NYSE Stocks index will be made
available in a prompt manner to any stockholder upon written request
addressed to Investor Relations at the Company's Irving address. The index
labeled NYSE Stock Market, also prepared by CRSP, measures the total return
on the approximately 3,100 United States companies whose common stock is
traded on the New York Stock Exchange.
<GRAPH>
Legend
------
Symbol
CRSP Total Returns Index For: 01/1989 12/1991 12/1993 12/1995 01/1998 12/1998
- ---------------------------- ------ ------ ------ ------ ------ -----
CEC Entertainment, Inc. 100.0 872.7 542.0 496.0 1411.4 1702.8
NYSE Stock Market(US Companies) 100.0 159.9 196.9 266.9 430.7 516.1
NYSE Stocks (SIC 5800-5899
US Companies) Eating
and Drinking Places 100.0 134.3 207.0 275.6 312.5 457.4
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 1/3/1989.
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and the persons who own more than ten percent
of the Company's Common Stock to file initial reports of ownership of Common
Stock and reports of changes of ownership with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. and to
furnish the Company with copies of such reports. Based on review of such copies
and other records of the Company, the Company has no reason to believe that any
reports were untimely filed or that any Form 5 filings were made by any
executive officers, directors or persons owning more than ten percent of the
Company's Common Stock.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP served as the Company's independent public
accountants for the fiscal year ending January 3, 1999. A representative of
Deloitte & Touche LLP is expected to be present and available at the Annual
Meeting of stockholders to respond to appropriate questions and will be given an
opportunity to make a statement, if desired.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder who wishes to present a proposal for action at the 2000 annual
meeting of stockholders and who wishes to have it set forth in the proxy
statement and identified in the form of proxy prepared by the Company, must
deliver such proposal to the Company at its principal executive offices, not
less than 60 days nor more than 90 days prior to the date of the applicable
annual meeting of stockholders; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made, notice by the stockholder to be timely must be so
received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the applicable annual
meeting was mailed or such public disclosure of the date of such annual
meeting was made, whichever first occurs.
For purposes of this section, the date of a public disclosure shall include, but
not be limited to, the date on which such disclosure is made in a press release
reported by the Dow Jones News Services, the Associated Press or any comparable
national news service or in a document publicly filed by the corporation with
the Securities and Exchange Commission pursuant to Sections 13, 14, or 15(d)
(or the rules and regulations thereunder) of the Securities Exchange Act of
1934, as amended (the Exchange Act).
To be in proper written form, a stockholder's notice to the Secretary of the
Company must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class or series and number of shares of capital stock of
the corporation that are owned beneficially or of record by the person and (iv)
any other information relating to the person that would be required to be
disclosed in a proxy statement or other filing required to be made in connection
with solicitations of proxies for election of directors pursuant to Section 14
of the Exchange Act and (b) as to the stockholder giving the notice (i) the name
and record address of such stockholder, (ii) the class or series and number of
shares of capital stock of the corporation that are owned beneficially or of
record by such stockholder, (iii) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by such stockholders, (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice and (v) any other information relating to such stockholder
that would be required to be disclosed in a proxy statement or other filing
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a written
consent of each proposed nominee to being named as a nominee and to serve as a
director if elected.
MISCELLANEOUS
The accompanying proxy is being solicited on behalf of the Board of Directors of
the Company. The expense of preparing, printing and mailing the proxy and the
material used in the solicitation thereof will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by directors and
officers and employees of the Company by means of personal interview, telephone
or telegram. Arrangements may also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of stock held of record by such persons,
and the Company may reimburse them for reasonable out-of-pocket expenses of
such solicitation.
By Order of the Board of Directors,
----------------------------------
MARSHALL R. FISCO, JR.
Corporate Secretary
Irving, Texas
May 20, 1999
Exhibit A
PROPOSAL 2:
AMENDMENT OF THE RESTATED ARTICLES OF INCORPORATION
AMENDED 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
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 amendment,
and (iii) that said amendment was duly adopted in accordance with the provisions
of Section 17-6602 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 Fifty Million
Dollars ($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 Fifty Million Dollars
($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 Fifty
Million Dollars ($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 cancelled 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 Nonassessable. All shares of stock of the
corporation of any class shall be nonassessable.
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 of 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 noncumulative, 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. Reissuance 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 (2/3) 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(2/3) 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 (2/3) of the authorized number of directors of
the corporation, and (2) the affirmative vote of the holders of two-thirds (2/3)
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 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 ___ day of June, 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 ---- day of June, 1999.
-----------------------
Notary Public in and for
the State of Texas
My commission expires:
- ----------------------
[Seal]
Exhibit B
PROPOSAL 3:
AMENDMENT OF THE COMPANY'S 1997 NON-STATUTORY STOCK OPTION PLAN
CEC ENTERTAINMENT, INC.
1997 NON-STATUTORY STOCK OPTION PLAN
CEC ENTERTAINMENT, INC., a corporation organized and existing under the
laws of the state of Kansas (the Company), hereby formulates and adopts, with
respect to the shares of common stock of the Company (Common Stock), a non-
statutory stock option plan for certain individuals who are key employees of the
Company or its subsidiaries, as follows:
1. Purpose of Plan. The purpose of this 1997 Non-Statutory Option Plan
(the Plan)is to encourage certain individuals who are directors or key employees
to participate in the ownership of the Company, and to provide additional
incentive for such individuals to promote the success of its business through
sharing in the future growth of such business.
2. Effective Date of the Plan. The provisions of this Plan became
effective on August 1, 1997.
3. Administration. This Plan shall be administered by the Stock Option
Committee of the Board of Directors of the Company (the Committee), which shall
be comprised of two (2) or more directors, each of whom shall be Non-Employee
Directors, as defined in Rule 16b-3(c),promulgated under the Securities Exchange
Act of 1934, as amended (the Exchange Act), and who are also Outside Directors,
as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended
from time to time (the Code), and any Treasury Regulations that may be
promulgated thereunder. The Committee shall have full power and authority to
construe, interpret and administer this Plan, and may from time to time adopt
such rules and regulations for carrying out this Plan as it may deem proper and
in the best interests of the Company. Subject to the terms, provisions and
conditions of this Plan, the Committee shall have the authority to select the
individuals to whom options shall be granted, to determine the number of shares
subject to each option, to determine the time or times when options will be
granted, to determine the option price of the shares subject to each option, to
determine the time when each option may be exercised, to fix such other
provisions of each option agreement as the Committee may deem necessary or
desirable, consistent with the terms of this Plan, and to determine all other
questions relating to the administration of this Plan. The interpretation and
construction of this Plan by the Committee shall be final,conclusive and binding
upon all persons.
4. Eligibility. Options to purchase shares of Common Stock shall be
granted under this Plan only to those individuals selected by the Committee from
time to time who, in the sole discretion of the Committee, are key employees at
the time of the grant and who have made material contributions in the past, or
who are expected to make material contributions in the future, to the successful
performance of the Company.
5. Shares Subject to the Plan. Options granted under this Plan shall
be granted solely with respect to shares of Common Stock. Subject to any
adjustments made pursuant to the provisions of Section 12, the aggregate number
of shares of Common Stock which may be issued upon exercise of all the options
which may be granted under this Plan shall not exceed 1,825,000. If any option
granted under this Plan shall expire or terminate for any reason without having
been exercised in full, the unpurchased shares subject to such options shall be
added to the number of shares otherwise available for options which may be
granted in accordance with the terms of this Plan. The shares to be delivered
upon exercise of the options granted under this Plan shall be made available, at
the discretion of the Committee, from either the authorized but unissued shares
of Common Stock or any treasury shares of Common Stock held by the Company.
6. Option Certificate or Contract. Each option granted under this Plan
shall be evidenced by either a certificate or a non-statutory stock option
contract which shall be signed by an officer of the Company, and by the
individual to whom the option is granted (the Optionee),in the event a contract
has been issued. The terms of said contract shall be in accordance with the
provisions of this Plan, but it may include such other provisions as may be
approved by the Committee. The grant of an option under this Plan shall be
deemed to occur on the date on which the certificate or contract evidencing such
option is executed by the Company,and every Optionee shall be bound by the terms
and restrictions of this Plan and such certificate or contract; provided,
however, if an Optionee does not sign and return to the Company one(1) duplicate
original of their option contract prior to the expiration of one hundred and
twenty (120) days after the grant date, then the grant shall be withdrawn, and
the option shall be void and of no further force or effect.
7. Option Price. The price at which shares of Common Stock may be
purchased under an option granted pursuant to this Plan shall be determined by
the Committee, but in no event shall the price be less than 100 percent (100%)
of the fair market value of such shares on the date that the option is
granted.
The fair market value of shares of Common Stock for purposes of this Plan shall
be determined by the Committee, in it sole discretion.
8. Period and Exercise of Option.
(a) Period -- Subject to the provisions of Section 9 and 10 hereof
with respect to the death or termination of employment of an Optionee,the period
during which each option granted under this Plan may be exercised shall be fixed
by the Committee at the time such option is granted, provided that such period
shall expire no later than seven (7) years from the date on which the option is
granted (the Grant Date).
(b) Employment -- The option may not be exercised to any extent
until the Optionee has been continuously, for a period of at least one (1) year
after the Grant Date, employed by the Company or a subsidiary of the Company.
(c) Exercise -- Any option granted under this Plan may be exercised
by the Optionee only by delivering to the Company, or its agent, written or
verbal notice, as may be specified by the Company from time to time, of the
number of shares with respect to which he is exercising his option right, paying
in full the option price of the purchased shares, and furnishing to the Company,
or its agent, a representation in writing signed by the Optionee that he is
familiar with the business and financial condition of the Company, is purchasing
the shares of stock in good faith for himself for investment purposes and not
with a view towards the sale or distribution thereof, and will not effect any
sale in violation of any laws or regulations of the United States or any
state.
Subject to the limitations of this Plan and the terms and conditions of the
respective stock option certificate or contract, each option granted under this
Plan shall be exercisable in whole or in part at such time or times as the
Committee may specify in such stock option certificate or contract.
(d) Payment for Shares -- Payment for shares of Common Stock
purchased pursuant to an option granted under this Plan may be made in either
cash or in shares of Common Stock.
(e) Delivery of Certificates -- As soon as practicable after
receipt by the Company of the notice and representation described in Subsection
(c), and of payment in full of the option price for all of the shares being
purchased pursuant to an option granted under this Plan, a certificate or
certificates, or book entry with the Company's transfer agent, representing such
shares of stock shall be registered in the name of the Optionee and any such
certificate(s) shall be delivered to the Optionee. However, no certificate or
book entry for fractional shares of stock shall be issued or recorded by the
Company notwithstanding any request therefor. Neither any Optionee, nor the
legal representative, legatee or distributee of any Optionee, shall be deemed to
be a holder of any shares of stock subject to an option granted under this Plan
unless and until the certificate or certificates, or book entry with the
Company's transfer agent, for such shares have been issued or recorded,
respectively. All stock certificates issued upon the exercise of any options
granted pursuant to this Plan may bear such legend as the Committee shall deem
appropriate regarding restrictions upon the transfer or sale of the shares
evidenced thereby.
(f) Withholding -- The Company shall have the right to deduct any
sums that the Committee reasonably determines that Federal, state or local tax
law requires to be withheld with respect to the exercise of any option or as
otherwise may be required by those laws. The Company may require as a condition
to issuing shares of Common Stock upon exercise of the option that the Optionee
or other person exercising the option pay any sums that Federal, state or local
tax law required to be withheld with respect to the exercise. The Company shall
not be obligated to advise any Optionee of the existence of the tax or the
amount which the Company will be so required to withhold. Upon exercise of an
option, if tax withholding is required, an Optionee may, with the consent of the
Committee, have shares of Common Stock withheld (Share Withholding) by the
Company from the shares otherwise to be received; provided, however, that if the
Optionee is subject to the provisions of Section 16 under the Exchange Act, no
Share Withholding shall be permitted unless such transaction complies with the
requirements of Rule 16b-3(e) promulgated under the Exchange Act. The number of
shares so withheld should have an aggregate fair market value (as determined in
accordance with the terms of this Plan) on the date of exercise sufficient to
satisfy the applicable withholding taxes.
9. Termination of Employment. If an Optionee shall cease to be an
employee of the Company or subsidiary of the Company for any reason other than
death after he shall have served in such capacity continuously for at lease one
(1) year from the Grant Date, he may, but only within ten(10) business days next
succeeding such cessation,exercise his option to the extent that he was entitled
to exercise it at the date of such cessation. Nothing in this Plan or any stock
option certificate or contract shall be construed as an obligation on the part
of the Company or of any of its subsidiary corporations to continue the Optionee
as an employee.
10. Death of Optionee. In the event of the death of an Optionee while
serving as an employee of the Company or its subsidiary, any option or
unexercised portion thereof granted to him under this Plan which is otherwise
exercisable may be exercised by the person or persons to whom such Optionee's
rights under the option pass by operation of the Optionee's will or the laws of
descent and distribution, at any time within a period of three (3) months
following the death of the Optionee (even though such period is later than the
expiration date of the option as specified in Section 8(a) and in the respective
stock option certificate or contract). Such option shall be exercisable even
though the Optionee's death occurs before he has continuously served as an
employee of the Company or its subsidiary for a period of one (1) year after the
date of grant.
11. Non-Transferability of Options. Each option granted under this Plan
shall not be transferable or assignable by the Optionee other than by will or
the laws of descent and distribution, and during the lifetime of the Optionee
may otherwise be exercised only by him.
12. Adjustments upon Changes in Capitalization. In the event of any
change in the capital structure of the Company, including but not limited to a
change resulting from a stock dividend, stock split, reorganization, merger,
consolidation, liquidation or any combination or exchange of shares, and the
Company continues thereafter as the surviving entity, then the number of shares
of Common Stock subject to this Plan and the number of such shares subject to
each option granted hereunder shall be correspondingly adjusted by the
Committee.
The option price for which shares of Common Stock may be purchased pursuant to
an option granted under this Plan shall be adjusted so that there will be no
change in the aggregate purchase price payable upon the exercise of any option.
13. Amendment and Termination of Plan. No option shall be granted
pursuant to this Plan after July 31, 2007, on which date this Plan shall expire
except as to options then outstanding under this Plan,which options shall remain
in effect until they have been exercised or have expired. The Committee may at
any time before such date, amend, modify or terminate this Plan. No amendment,
modification or termination of this Plan may adversely affect the rights of any
Optionee under any then outstanding option granted hereunder without the consent
of such Optionee.
14. Termination of Old Option Certificate or Contract and Grant of New
Option Certificate or Contract. An option may be granted under this Plan which
may be conditioned upon the termination of a non-statutory stock option
certificate or contract previously granted to the Optionee which has not yet
been terminated or been exercised; provided, however, that the price for which
shares of Common Stock may be purchased under the new option may not be less
than the price of shares of Common Stock that were subject to purchase under the
terminated option unless the shareholders of the Company approve the issuance at
a lower price.
15. Change of Control. If while unexercised options remain outstanding
under this Plan, a Change of Control (as hereinafter defined) shall have
occurred, then all such options shall be exercisable in full, notwithstanding
Section 8(b) hereof or any other provision in this Plan or option certificate or
contract to the contrary. For purposes of this Plan, a Change of Control shall
be deemed to have occurred with respect to the Company: (A) on the date in which
the Company executes an agreement or an agreement in principle (i) with respect
to any merger, consolidation or other business combination by the Company with
or into another entity and the Company is not the surviving entity, or (ii) to
sell or otherwise dispose of all or substantially all of its assets, or (iii) to
adopt a plan of liquidation; or (B) on the date in which public announcement is
made that the beneficial ownership (as defined in Rule 13d-3 under the Exchange
Act)of securities representing more than 50% of the combined voting power of the
Company is being acquired by a person within the meaning of sections 13(d) and
14(d) of the Exchange Act; or (C) if, during any period of eighteen (18)
consecutive months, individuals who at the beginning of such period were members
of the Board of Directors cease for any reason to constitute at least a majority
thereof (unless the appointment or election, or the nomination for election by
the Company's shareholders, of each new director was approved by a vote of at
least a majority of the directors then still in office who were directors at the
beginning of such period); provided, however, that in no event shall a change in
the composition of the Company's Board of Directors pursuant to an election of
Board members pursuant to Section 4.6 of the Company's Articles of
Incorporation, as amended, constitute or result in a Change of Control for
purposes of this Section 15.
The Committee shall have the right, at the time of grant or subsequently,
in its sole discretion, to establish conditions under which a specific employee
may cease to be a full-time employee of the Company or any of its subsidiaries
but not be deemed to have terminated his employment with the Company or any of
its subsidiaries for purposes of this Plan, including but not limited to
conditions involving part-time employment or consulting services. Unless
otherwise specifically provided for in an employee's stock option certificate or
contract or in an amendment or supplement thereto, an employee's employment with
the Company or any of its subsidiaries shall be deemed to terminate when he
ceases to be a full-time employee of the Company or any of its subsidiaries.
In the event of a merger, consolidation, reorganization or recapitalization
of the Company, the Committee shall have the right to accelerate the vesting
schedule with respect to all or any portion of the shares of Common Stock
granted to any or all of the employees under this Plan, if and to the extent
it deems appropriate in its sole discretion.
16. Restrictions Applicable to Executive Officers. The provisions of
this Section 16 shall apply only to those executive officers whose compensation
is required to be reported in the Company's proxy statement pursuant to Item
402(a)(3)(i) (or any successor thereto) and of Regulation S-K (or any successor
thereto) under the general rules and regulations under the Exchange Act
(Executive Officers). In the event of any inconsistencies between this Section
16 and the other provisions of this Plan, as they pertain Executive Officers,
the provisions of this Section shall control.
No amendment of this Plan with respect to any Executive Officer may be made
which would (i) increase the maximum amount that can be paid to any one
Executive Officer pursuant to this Plan or (ii) modify the requirements as to
the Executive Officer's eligibility for participation in this Plan, unless
the Company's shareholders have first approved such amendment in a manner
which would permit the deduction under Section 162(m) (or any successor
thereto) of the Code of such payment in the fiscal year it is paid. The
Committee shall amend this Section 16 and such other provisions as it deems
appropriate, to cause amounts payable to certain Executive Officers to
satisfy the requirements of Section 162(m) (or any successor thereto) and
the Treasury Regulations that may be promulgated thereunder.
The maximum number of shares of Common Stock with respect to which options
may be granted hereunder to any Executive Officer during any calendar year may
not exceed two hundred and fifty thousand (250,000) shares, subject to any
adjustments made pursuant to the provisions of Section 12.
