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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
SCHEDULE 13D
(Amendment No. 7)
Under the Securities Exchange Act of 1934
DISCOVERY ZONE, INC.
(Name of Issuer)
Common Stock, Par Value $.01 Per Share
(Title of Class of Securities)
25468B 10 7
(CUSIP Number)
Philippe P. Dauman, Esq.
Viacom Inc.
1515 Broadway
New York, New York 10036
Telephone: (212) 258-6000
(Name, Address and Telephone Number of
Person Authorized to Receive Notices and
Communications)
Copy to:
Creighton O' M. Condon, Esq.
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telephone: (212) 848-4000
May 24, 1995
(Date of Event which Requires Filing of this Statement)
========================================
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject
of this Schedule 13D, and is filing this schedule because of
Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with this
statement [ ].
Page 1
CUSIP No. 25468B 10 7
(1) Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
VIACOM INC.
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I.R.S. Identification No. 04-2949533
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(2) Check the Appropriate Box if a Member of Group (See
Instructions)
[ ] (a)
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[ ] (b)
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(3) SEC Use Only
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(4) Sources of Funds (See Instructions) WC
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(5) Check if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e).
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(6) Citizenship or Place of Organization Delaware
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Number of (7) Sole Voting Power
----------------------------
Shares
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Beneficially (8) Shared Voting Power 28,044,001
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Owned by
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Each (9) Sole Dispositive Power
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Reporting
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Person (10) Shared Dispositive Power 28,044,001
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With
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
28,044,001
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(12) Check if the Aggregate Amount in Row (11) Excludes Certain
Shares (See Instructions)
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(13) Percent of Class Represented by Amount in Row (11)
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49.9%
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(14) Type of Reporting Person (See Instructions) CO
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Page 2
CUSIP No. 25468B 10 7
(1) Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
SUMNER M. REDSTONE
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S.S. No.
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(2) Check the Appropriate Box if a Member of Group (See
Instructions)
[ ] (a)
---------------------------------------------
[ ] (b)
---------------------------------------------
(3) SEC Use Only
------------------------------------------------
------------------------------------------------------------
(4) Sources of Funds (See Instructions) WC
------------------------
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(5) Check if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e).
-----------------------------
(6) Citizenship or Place of Organization United States
------------------------
------------------------------------------------------------
Number of (7) Sole Voting Power
---------------------------
Shares
----------------------------------------------------
Beneficially (8) Shared Voting Power 28,044,001
-------------------------
Owned by
----------------------------------------------------
Each (9) Sole Dispositive Power
-----------------------
Reporting
-------------------------------------------------
Person (10) Shared Dispositive Power 28,044,001
----------------------
With
---------- ------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
28,044,001
------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain
Shares (See Instructions)
-----------------------------------
------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
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49.9%
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(14) Type of Reporting Person (See Instructions) IN
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Page 3
This Amendment No. 7 amends the Statement on Schedule 13D filed with
the Securities and Exchange Commission on June 3, 1993, as amended (the
"Statement") by Sumner M. Redstone and Viacom Inc. ("Viacom"). This Amendment
No. 7 is filed with respect to the shares of common stock, par value $.01 per
share (the "Common Stock"), of Discovery Zone, Inc., a Delaware corporation
(the "Issuer"), with its principal offices located at 205 North Michigan
Avenue, Chicago, Illinois 60601. Capitalized terms used but not defined
herein have the meanings assigned to such terms in the Statement.
Item 3. Source and Amount of Funds or Other Consideration.
-------------------------------------------------
See Item 4 for information which may be required by this Item 3.
Item 4. Purpose of Transaction.
----------------------
Item 4 of the Statement is hereby amended and supplemented by
adding the following at the end thereof as follows:
The transactions contemplated by the Management Services Agreement
have been consummated. The following persons (the "Viacom Designees") have
been designated by Viacom for election to the Issuer's Board of Directors:
(i) Frank J. Biondi, Jr., President, Chief Executive Officer of Viacom,
(ii) Phillipe P. Dauman, Executive Vice President, General Counsel, Chief
Administrative Officer and Secretary of Viacom, (iii) J. Brian McGrath,
(iv) John L. Muething, and (v) Sumner M. Redstone, Chairman of the Board of
Directors of Viacom. In addition, H. Wayne Huizenga and George D. Johnson, Jr.
have resigned from the Board of Directors of the Issuer. Thereafter, the
remaining directors, Messrs. Berrard and Flynn, appointed the five Viacom
Designees to the Issuer's Board of Directors. As contemplated by the
Management Services Agreement, Blockbuster Discovery Investment, Inc.
("BDI"), an indirect wholly owned subsidiary of Viacom, and the Issuer
entered into a Warrant Agreement dated as of May 24, 1995 (the "Warrant
Agreement") and the Issuer issued the Warrants to BDI pursuant thereto.
Pursuant to the Stock Purchase Agreement, BDI has purchased
3,823,647 shares of Common Stock from the Sellers. The source of funds
for this purchase was working capital of Viacom.
Pursuant to the Letter Agreement, a definitive Asset Purchase
Agreement dated as of May 24, 1995 (the "Asset Purchase Agreement") was
entered into by Blockbuster Family Fun, Inc. ("BFF"), Blockbuster
Amusement Holding Corporation ("BAHC"), Discovery Zone L.P. ("DZILP") and
the Issuer. Pursuant to the Asset Purchase Agreement, the assets of
BFF, comprised of two entertainment centers operating under the name and
mark of "Block Party", were sold to DZLIP in exchange for a $13,214,550
ten-year subordinated note of DZLIP, guaranteed by the Issuer. As
contemplated by the Asset Purchase Agreement, (i) Viacom has agreed to
assign and transfer Viacom's right, title and interest certain intellectual
property assets to DZLIP and (ii) Viacom and Blockbuster Entertainment
Inc. have licensed the mark "Block Party" to DZILP pursuant to a five year
royalty-free license agreement.
A copy of the press release issued by the Issuer on May 25, 1995
relating to the foregoing transactions, the Warrant Agreement, the
Certificate of Designations in respect of the Preferred Stock and the Asset
Purchase Agreement are attached hereto as exhibits and are incorporated
by reference herein.
Page 4
Item 5. Interest in Securities of the Issuer.
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See Item 4 for information which may be required by this Item 5.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
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to Securities of the Issuer.
---------------------------
See Item 4 for information which may be required by this Item 6.
Item 7. Material to be Filed as Exhibits.
--------------------------------
A. Asset Purchase Agreement dated as of May 24, 1995 among BAHC, BFF,
DZLIP and the Issuer.
B. Warrant Agreement dated as of May 24, 1995 between BDI and the Issuer.
C. Certificate of Designations, Powers, Preferences and Relative,
Participating or Other Rights, and the Qualifications, Limitations or
Restrictions Thereof of the Preferred Stock.
D. Press release issued by the Issuer on May 25, 1995.
Page 5
Signature
- ---------
After reasonable inquiry and to the best of our knowledge and belief,
we certify that the information set forth in this Statement is true, complete
and correct.
May 25, 1995 VIACOM INC.
By /s/ Michael D. Fricklas
------------------------------------------------
Name: Michael D. Fricklas
Title: Senior Vice President
and Deputy General Counsel
Page 6
Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
May 25, 1995
*
---------------------------------------------
Sumner M. Redstone, Individually
*By /s/ Philippe P. Dauman
------------------------------------------
Philippe P. Dauman
Attorney-in-Fact under the
Limited Power of Attorney filed
as Exhibit 99.2 to the Statement,
Amendment No. 4.
Page 7
Exhibit Index
Exhibit No. Description Page No.
- ---------- ----------- --------
A. Asset Purchase Agreement dated as of May 24, 1995 among BAHC, 9
BFF, DZLIP and the Issuer.
B. Warrant Agreement dated as of May 24, 1995 between BDI and 45
the Issuer.
C. Certificate of Designations, Powers, Preferences and 77
Relative, Participating or Other Rights, and the
Qualifications, Limitations or Restrictions Thereof of
the Preferred Stock.
D. Press release issued by the Issuer on May 25, 1995. 92
Page 8
Exhibit A
ASSET PURCHASE AGREEMENT
Dated as of May 24, 1995
by and among
Discovery Zone, Inc.,
Discovery Zone L.P.,
Blockbuster Amusement Holding Corporation,
a subsidiary of Viacom Inc.,
and
Blockbuster Family Fun, Inc.
TABLE OF CONTENTS
Page
ARTICLE I Purchase and Sale of Assets . . . . . . . . . . . . . . . . . . 1
Section 1.1 Purchased Assets . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II Purchase Price; Assumption of Liabilities . . . . . . . . . . 3
Section 2.1 Amount of the Purchase Price . . . . . . . . . . . . . . 3
Section 2.2 Assumed Liabilities . . . . . . . . . . . . . . . . . . 3
Section 2.3 Excluded Liabilities . . . . . . . . . . . . . . . . . . 3
Section 2.4 Allocation of the Purchase Price among the Purchased . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III Closing
Section 3.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2 Procedure at the Closing . . . . . . . . . . . . . . . . 5
ARTICLE IV Representations and Warranties of BAHC . . . . . . . . . . . . 6
Section 4.1 Organization, Power, Authority, Authorization . . . . . 6
Section 4.2 Financial Statements . . . . . . . . . . . . . . . . . . 7
Section 4.3 Liabilities . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.4 Real Estate . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.5 Good Title to and Condition of Purchased Assets . . . . 9
Section 4.6 Environmental Matters . . . . . . . . . . . . . . . . 10
Section 4.7 Intentionally Omitted . . . . . . . . . . . . . . . . 11
Section 4.8 Licenses and Permits . . . . . . . . . . . . . . . . . 11
Section 4.9 Intellectual Property . . . . . . . . . . . . . . . . 12
Section 4.10 Adequacy of Assets; Relationships with Suppliers . . 13
Section 4.11 Documents of and Information with Respect to BFF . . 13
Section 4.12 Tax Matters . . . . . . . . . . . . . . . . . . . . . 14
Section 4.13 Litigation . . . . . . . . . . . . . . . . . . . . . 14
Section 4.14 No Material Adverse Change . . . . . . . . . . . . . 14
Section 4.15 Absence of Certain Acts or Events . . . . . . . . . . 14
Section 4.16 Compliance with Laws . . . . . . . . . . . . . . . . 15
Section 4.17 Labor Relations of BFF . . . . . . . . . . . . . . . 15
Section 4.18 Employee Benefits . . . . . . . . . . . . . . . . . . 16
Section 4.19 Product and Other Liability Claims . . . . . . . . . 16
ARTICLE V Representations and Warranties of DZI and DZLP . . . . . . . 16
Section 5.1 Organization, Power, Authority . . . . . . . . . . . . 16
Section 5.2 Due Authorization and Binding Obligation . . . . . . . 17
ARTICLE VI Additional Covenants of BAHC . . . . . . . . . . . . . . . . 18
Section 6.1 Reasonable Efforts . . . . . . . . . . . . . . . . . . 18
Section 6.2 Conduct of Business Pending the Closing . . . . . . . 18
Section 6.3 Access to BFF's Properties and Records . . . . . . . . 18
Section 6.4 No Disclosure . . . . . . . . . . . . . . . . . . . . 19
Section 6.5 No Other Discussions . . . . . . . . . . . . . . . . . 19
Section 6.6 Interim Financial Statements . . . . . . . . . . . . . 19
i
ARTICLE VII Additional Covenants of DZI . . . . . . . . . . . . . . . . 20
Section 7.1 Reasonable Efforts . . . . . . . . . . . . . . . . . . 20
Section 7.2 No Disclosure . . . . . . . . . . . . . . . . . . . . 20
Section 7.3 Conduct Prior to Closing . . . . . . . . . . . . . . . 20
ARTICLE VIII Conditions to the Obligation of DZI and DZLP . . . . . . . 20
Section 8.1 Accuracy of Representations and Warranties
and Compliance with Obligations . . . . . . . . . . . . . . . . 20
Section 8.2 Certified Resolutions . . . . . . . . . . . . . . . . 20
Section 8.3 Receipt of Necessary Consents . . . . . . . . . . . . 21
Section 8.4 No Adverse Litigation . . . . . . . . . . . . . . . . 21
Section 8.5 No Material Adverse Change . . . . . . . . . . . . . . 21
Section 8.6 Consummation of Transactions . . . . . . . . . . . . . 21
Section 8.7 License Agreement . . . . . . . . . . . . . . . . . . 21
Section 8.8 Operating Lease . . . . . . . . . . . . . . . . . . . 21
ARTICLE IX Conditions to Obligation of BAHC and BFF . . . . . . . . . . 21
Section 9.1 Accuracy of Representations and Warranties
and Compliance with Obligations . . . . . . . . . . . . . . . . 22
Section 9.2 Certified Resolutions . . . . . . . . . . . . . . . . 22
Section 9.3 No Adverse Litigation . . . . . . . . . . . . . . . . 22
Section 9.4 No Material Adverse Change . . . . . . . . . . . . . . 22
Section 9.5 Consummation of Transactions . . . . . . . . . . . . . 22
Section 9.6 Sublease . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.7 Assignment Agreement . . . . . . . . . . . . . . . . . 22
Section 9.8 Guaranty Agreement . . . . . . . . . . . . . . . . . . 22
ARTICLE X Certain Actions After the Closing . . . . . . . . . . . . . . 23
Section 10.1 DZLP to Act as Agent for BFF . . . . . . . . . . . . 23
Section 10.2 Delivery of Property Received by BFF After
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 10.3 DZLP Appointed Attorney for Sellers . . . . . . . . . 23
Section 10.4 Execution of Further Documents . . . . . . . . . . . 23
Section 10.5 Employment by DZLP of BFF's Employees . . . . . . . . 24
Section 10.6 Employee Benefits . . . . . . . . . . . . . . . . . . 24
Section 10.7 Liquor Licenses . . . . . . . . . . . . . . . . . . . 24
Section 10.7 Net Worth . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XI Indemnification . . . . . . . . . . . . . . . . . . . . . . 25
Section 11.1 Agreement by BAHC to Indemnify . . . . . . . . . . . 25
Section 11.2 Agreement by DZI to Indemnify . . . . . . . . . . . . 26
Section 11.3 Indemnification Procedures for Third
Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.4 Credit Provisions . . . . . . . . . . . . . . . . . . 27
ARTICLE XII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 28
Section 12.1 Survival of Representations and Warranties . . . . . 28
Section 12.2 Brokers' Commission . . . . . . . . . . . . . . . . . 28
Section 12.3 Amendment and Modification . . . . . . . . . . . . . 28
Section 12.4 Binding Effect . . . . . . . . . . . . . . . . . . . 28
Section 12.5 Entire Agreement . . . . . . . . . . . . . . . . . . 28
Section 12.6 Headings . . . . . . . . . . . . . . . . . . . . . . 28
ii
Section 12.7 Execution in Counterpart . . . . . . . . . . . . . . 28
Section 12.8 Notices . . . . . . . . . . . . . . . . . . . . . . . 28
Section 12.9 Governing Law . . . . . . . . . . . . . . . . . . . . 29
Section 12.10 Publicity . . . . . . . . . . . . . . . . . . . . . 29
Section 12.11 Termination . . . . . . . . . . . . . . . . . . . . 29
Section 12.12 Expenses . . . . . . . . . . . . . . . . . . . . . 30
iii
Exhibits
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Exhibit A: Note
Exhibit B: License Agreement
Exhibit C: Sublease
Exhibit D: Assignment Agreement
Exhibit E: Guaranty Agreement
Schedules
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BFF Disclosure Schedule
DZI Disclosure Schedule
iv
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is dated as of this
____ day of May, 1995 by and among DISCOVERY ZONE, INC., a Delaware
corporation ("DZI"), DISCOVERY ZONE L.P., a Delaware limited partnership
("DZLP") and an indirect wholly-owned subsidiary of DZI, BLOCKBUSTER
AMUSEMENT HOLDING CORPORATION, a Delaware corporation ("BAHC") and a
wholly-owned subsidiary of Viacom Inc. ("Viacom"), and BLOCKBUSTER FAMILY
FUN, INC., a Delaware corporation ("BFF").
Recitals
Blockbuster Fun & Fitness Holding Corp. ("BFFHC"), which is a wholly-
owned subsidiary of BAHC, owns all of the issued and outstanding shares of
capital stock of BFF. BFF is engaged in the business of owning, operating
and developing a family entertainment center under the name and mark of
"Block Party" in each of Albuquerque, New Mexico and Indianapolis, Indiana
(the "Centers"). This Agreement provides for the sale by BFF to DZLP of
substantially all of BFF's assets, properties and business related to the
Centers (the "Business") for a purchase price consisting of a promissory
note and the assumption by DZLP of certain obligations of BFF, all as
herein provided and on the terms and conditions hereinafter set forth.
Covenants
NOW, THEREFORE, DZI, DZLP, BAHC and BFF, in consideration of the
agreements, covenants and conditions contained herein, hereby make the
following representations and warranties, give the following covenants and
agree as follows:
ARTICLE I
Purchase and Sale of Assets
Section 1.1 Purchased Assets. BFF agrees to and will sell, convey,
transfer, assign and deliver to DZLP at the Closing (as hereinafter
defined), free and clear of all liens, mortgages, pledges, encumbrances and
charges of every kind (except those which DZLP has expressly agreed in
Section 2.2 hereof to assume), on the terms and subject to the conditions
set forth in this Agreement, all of the assets, properties and business of
BFF of every kind and description, real, personal and mixed, tangible and
intangible, of BFF wherever located (except those assets of BFF which are
specifically excluded from this sale by Section 1.2 hereof) as they shall
exist at the Closing Date (as hereinafter defined), in each case used
exclusively in the Business (collectively, the "Purchased Assets").
Without limiting the generality of the foregoing, but subject to Section
1.2 hereof, the Purchased Assets shall include the following:
1.1.1 all machinery, equipment, tools, supplies, leasehold
improvements, construction in progress, furniture and fixtures, automobiles
and trucks and other fixed assets owned by BFF (the "Purchased Fixed
Assets");
1
1.1.2 all inventories of BFF (the "Purchased Inventory");
1.1.3 all receivables of BFF, including without limitation all trade
accounts receivable arising from sales of inventory in the ordinary course
of business, notes receivable and insurance proceeds receivable (the
"Purchased Receivables");
1.1.4 all of the interest of and the rights and benefits accruing to
BFF as lessee under (i) all leases of real property and all improvements to
and buildings thereon including without limitation those described in
Section 4.4.2 of the BFF Disclosure Schedule (as hereinafter defined) (the
"Purchased Leasehold Premises"), and (ii) all leases or rental agreements
covering machinery, equipment, tools, supplies, furniture and fixtures,
automobiles and trucks and other fixed assets, including without limitation
those described in Section 4.11 of the BFF Disclosure Schedule (the
"Purchased Leased Property") (the leasehold rights described in clauses (i)
and (ii) are collectively referred to as the "Purchased Leasehold Rights");
1.1.5 all of the rights and benefits accruing to BFF under all sales
orders, sales contracts, supply contracts, purchase orders and purchase
commitments made by BFF in the ordinary course of business, all other
agreements to which BFF is a party or by which it is bound and all other
choses in action, causes of action and other rights of every kind of BFF
(the "Purchased Contract and Other Rights");
1.1.6 all operating data and records of BFF, including, without
limitation, the Centers' customer lists, financial, accounting and credit
records, correspondence, budgets and other similar documents and records
(the "Purchased Records");
1.1.7 all of the proprietary rights of BFF, including without
limitation all trademarks, trade names, patents, patent applications,
licenses thereof, trade secrets, technology, know-how, formulae, designs
and drawings, computer software, slogans, copyrights, processes, operating
rights, other licenses and permits, and other similar intangible property
and rights relating to the products or business of the Centers (the
"Purchased Proprietary Rights");
1.1.8 all cash and cash equivalents and investments, whether short-
term or long-term, of the Centers, including without limitation bank
accounts, certificates of deposit, treasury bills and securities (the
"Purchased Cash and Investments");
1.1.9 all prepaid and deferred items of BFF, other than prepaid
rentals and taxes, including prepaid insurance and unbilled charges and
deposits relating to the operations of the Centers (the "Purchased Prepaid
Items"); and
1.1.10 all of the goodwill of BFF (the "Purchased Goodwill").
Section 1.2 Excluded Assets. Anything to the contrary in Section
1.1 notwithstanding, the Purchased Assets shall exclude the following
assets of BFF: (i) the Note (as hereinafter defined) and BFF's other
rights under this Agreement; (ii) any shares of capital stock of BFF which
are owned and held by BFF as treasury shares; (iii) the corporate minute
books and stock records of BFF; (iv) all trademarks and trade names and
other intangible property and
2
rights relating to, derived from, or using the name "Block Party",
"Blockbuster" or the torn-ticket logo; (v) the liquor license issued with
respect to the Albuquerque Center; (vi) the $1,785,450 in cash received by
BFF as a reimbursement by the Landlord of leasehold improvement costs with
respect to the Indianapolis Purchased Leasehold Premises; and (vii) all
property and assets of BFF not used in the operation of the Centers.
ARTICLE II
Purchase Price; Assumption of Liabilities
Section 2.1 Amount of the Purchase Price. As consideration for the
Purchased Assets (the "Purchase Price"), DZLP agrees, subject to the terms,
conditions and limitations set forth in this Agreement:
2.1.1 to deliver to BFF a promissory note, in the form of Exhibit A
attached hereto, in an aggregate principal amount of $13,214,550 (the
"Note"); and
2.1.2 to assume and be responsible for the Assumed Liabilities (as
hereinafter defined).
Section 2.2 Assumed Liabilities. DZLP agrees to and will at the
Closing assume and agree to pay, discharge and perform when lawfully due
only those liabilities, contracts, commitments and other obligations of BFF
(i) arising after the Closing Date under all leases for the Purchased
Leasehold Premises and the Purchased Leased Property or (ii) set forth in
Section 2.2 of the BFF Disclosure Schedule (the "Assumed Liabilities").
Section 2.3 Excluded Liabilities. Anything to the contrary in
Section 2.2 notwithstanding, the Assumed Liabilities shall exclude the
following liabilities, contracts, commitments and other obligations of BFF
(the "Excluded Liabilities"):
2.3.1 BFF's obligations and any liabilities arising under this
Agreement;
2.3.2 any obligation of BFF for federal, state, local or foreign
income tax liability (including interest and penalties) arising from the
operations of the Business up to the Closing Date or arising out of the
sale by BFF of the Purchased Assets pursuant hereto, including without
limitation the liabilities shown on the Financial Statements (as
hereinafter defined) as "Deferred Taxes";
2.3.3 any obligation of BFF for any transfer, sales or other taxes,
fees or levies (including motor vehicle sales taxes) imposed by any state
or other governmental entity on or arising out of the sale of the Purchased
Assets pursuant hereto;
2.3.4 any obligation of BFF for expenses incurred in connection with
the sale of the Purchased Assets pursuant hereto, including, without
limitation, the fees and expenses of their counsel;
3
2.3.5 any obligation or liability of BFF listed on Section 2.3 of the
BFF Disclosure Schedule;
2.3.6 any liability, contract, commitment or other obligation of BFF,
known or unknown, fixed or contingent, the existence of which constitutes
or will constitute a breach of any representation or warranty of BAHC
contained in or made pursuant to Article IV of this Agreement;
2.3.7 any liability relating to the employees or other personnel of
the Business prior to the Closing or in connection with the performance by
BFF of its obligations under the Sublease (as hereinafter defined),
including, without limitation, accrued salaries, liabilities under pension
or other "employee benefit plans" (as such term is used in Section 3(3) of
the Employee Retirement Income Security Act of 1974 ("ERISA")) maintained
or contributed to by BFF or any member of BFF's "control group" (as such
term is used in Section 414(b) and (c) of the Internal Revenue Code of
1986, as amended (the "Code")), expenses of such employees and other
personnel, liabilities and obligations under any collective bargaining
agreement, liabilities and obligations for Workers' Compensation claims and
liabilities and obligations for any claims arising under the Workers
Adjustment and Retraining Notification Act of 1988 or any similar law in
any jurisdiction;
2.3.8 liabilities and obligations under any Environmental Law (as
hereinafter defined) arising out of the conduct of the Business prior to
the Closing, the operation of the Albuquerque Center pursuant to the
Sublease, or the ownership, operation, or occupancy of any real property
presently or previously owned, used, or occupied by the Business; and
2.3.9 without limiting the generality of the foregoing, all other
liabilities, contracts, commitments, costs, expenses, or other obligations
of BFF not specifically assumed by DZI in Section 2.2, of any nature
whatsoever, known or unknown, liquidated or unliquidated, accrued,
absolute, contingent, or otherwise, whether or not related to the Business,
the Purchased Assets or BFF's operation of the Business, and whether
arising prior to or after the Closing Date.
Section 2.4 Allocation of the Purchase Price among the Purchased
Assets. The Purchase Price shall be allocated among each item or class of
the Purchased Assets as shall be agreed upon by the parties hereto within
60 days from the Closing Date. BFF and DZLP agree that they will prepare
and file their federal and any state or local income tax returns based on
such allocation of the Purchase Price. BFF and the DZLP agree that they
will prepare and file any notices or other filings required pursuant to
Section 1060 of the Internal Revenue Code of 1986, and that any such
notices or filings will be prepared based on such allocation of the
Purchase Price.
4
ARTICLE III
Closing
Section 3.1 Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of DZI,
on May 24, 1995 or as soon as practicable after the satisfaction or waiver
of the conditions which are set forth in Articles VIII and IX of this
Agreement and concurrent with the closing under the Stock Purchase
Agreement dated as of April 17, 1995 (the "Stock Purchase Agreement") by
and among DKB, Inc., the Kevin F. Flynn June, 1992 Non-Exempt Trust, the
Brian J. Flynn June, 1992 Non-Exempt Trust, Donald F. Flynn, Kevin F.
Flynn, Brian J. Flynn, BAHC, and BAHC's indirect wholly-owned subsidiary
Blockbuster Discovery Investment, Inc. The date on which the Closing occurs
is sometimes referred to herein as the "Closing Date."
Section 3.2 Procedure at the Closing. At the Closing, the parties
hereto agree to take the following steps in the order listed below
(provided, however, that upon their completion all such steps shall be
deemed to have occurred simultaneously):
3.2.1 BAHC shall deliver to DZI, in form and substance reasonably
satisfactory to DZI, the certificate described in Section 8.1 hereof and
all other previously undelivered documents required to be delivered by BFF
or BAHC to DZI at or prior to the Closing pursuant to the terms of this
Agreement.
3.2.2 DZI shall deliver to BAHC or BFF, in form and substance
reasonably satisfactory to BAHC, the certificate described in Section 9.1
hereof and all other previously undelivered documents required to be
delivered by DZI to BAHC or BFF at or prior to the Closing pursuant to the
terms of this Agreement.
3.2.3 BFF shall deliver to DZLP such deeds, bills of sale,
endorsements, assignments and other instruments, in such form as in each
case is reasonably satisfactory to DZI, as shall be sufficient to vest in
DZLP good and marketable title to the Purchased Assets, free and clear of
all liens, mortgages, pledges, encumbrances, and charges of every kind
(except those which DZI has expressly agreed in Section 2.2 hereof to
assume).
3.2.4 Viacom and Blockbuster Entertainment Inc. ("BEI") shall
execute and deliver to DZI a royalty-free license in the form attached
hereto as Exhibit B (the "License Agreement").
3.2.5 DZLP shall execute and deliver to BFF the Note.
3.2.6 DZLP shall deliver to BFF instruments, in such form as in
each case is satisfactory to BFF, as shall be sufficient to effect the
assumption by DZLP of the Assumed Liabilities.
3.2.7 DZLP and BFF shall execute and deliver a lease agreement in
the form attached hereto as Exhibit C (the "Sublease").
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3.2.8 Viacom shall execute and deliver a trademark assignment in
the form attached hereto as Exhibit D (the "Assignment Agreement").
3.2.9 DZI shall execute and deliver to BFF the guaranty agreement
in the form attached hereto as Exhibit E ("the Guaranty Agreement").
3.2.10 DZLP and BFF shall execute and deliver a cross receipt
acknowledging receipt from the other, respectively, of the Purchased Assets
and the Purchase Price.
ARTICLE IV
Representations and Warranties of BAHC
In order to induce DZI and DZLP to enter into this Agreement and to
purchase the Purchased Assets, subject to the disclosure schedule attached
hereto and incorporated herein by reference (the "BFF Disclosure
Schedule"), BAHC hereby makes the representations and warranties set forth
below, each of which is independently relied upon by DZI and DZLP
regardless of any other investigation made or information obtained by DZI
or DZLP, and each of which is correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Article IV). As used hereinafter in
this Article IV, (i) the term "knowledge of BAHC" shall mean actual
knowledge of the executive officers, officers or persons having the
position of district manager or higher of BAHC and/or BFF on the date
hereof after reasonable investigation and (ii) the term "BFF Material
Adverse Effect" shall mean a material adverse effect on the Business or the
Purchased Assets taken as a whole.
Section 4.1 Organization, Power, Authority, Authorization and
Binding Obligation.
4.1.1 BFF is a corporation duly organized and legally existing in
good standing under the laws of the jurisdiction of its incorporation and
has full corporate power and authority necessary (i) to own or lease its
properties and to carry on its business as it is now being conducted, and
(ii) to enter into this Agreement and the agreements contemplated hereby,
and to carry out the transactions and agreements contemplated hereby or
thereby. BFF is legally qualified to transact business as a foreign
corporation, and is in good standing, in each of the jurisdictions in which
its business or property is such as to require that it be thus qualified,
except such jurisdictions where the failure to be so qualified would not
have a BFF Material Adverse Effect. BAHC is a corporation duly organized
and legally existing in good standing under the laws of the jurisdiction of
its incorporation, with full corporate power and authority to enter into
this Agreement and to carry out the transactions and agreements
contemplated hereby or thereby.
4.1.2 The execution, delivery and performance of this Agreement,
the License Agreement, the Sublease and each of the other agreements
contemplated hereby and thereby and the consummation of the transactions
contemplated hereby and thereby have been duly
6
authorized by all necessary corporate action of each of BAHC and BFF, as
the case may be. Each of this Agreement and the License Agreement has been
duly executed and delivered by each of BAHC and BFF and is a valid and
binding obligation of BAHC and BFF, enforceable in accordance with its
terms. The Sublease has been duly authorized and, when executed and
delivered in accordance with its terms, will be a valid and binding
agreement of each of BFF enforceable in accordance with its terms. Except
as set forth on Section 4.1 of the BFF Disclosure Schedule, neither the
execution and delivery of this Agreement, the License Agreement or the
Sublease or the agreements contemplated thereby nor the consummation of the
transactions contemplated hereby or thereby will, as the case may be:
(i) conflict with or violate any provision of BAHC's or BFF's respective
certificates of incorporation or bylaws; (ii) conflict with or violate any
law, ordinance or regulation or any decree or order of any court or
administrative or other governmental body which is either applicable to,
binding upon or enforceable against BAHC or BFF; (iii) result in any breach
of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require
any notice under, any mortgage, contract, agreement, indenture, trust or
other instrument which is either binding upon or enforceable against BAHC
or BFF or the assets and properties of BAHC or BFF; or (iv) impair or in
any way limit any governmental or official license, approval, permit or
authorization of BAHC or BFF; except, in the case of each of clauses (iii)
and (iv) above, for such breaches, defaults, accelerations, creations of
any right to accelerate, terminate, modify or cancel, requirements of
notice, impairments or limitations, which would not have a BFF Material
Adverse Effect. No permit, consent, approval or authorization of, or
declaration to or filing with, any regulatory or other government authority
is required in connection with the execution and delivery of this
Agreement, the License Agreement or the Sublease or the agreements
contemplated thereby by BAHC or BFF, as the case may be, and the
consummation by each of them of the transactions contemplated hereby or
thereby, except such as shall have been obtained on or prior to the Closing
Date and such consents and approvals as are required to transfer to DZLP
the liquor license issued to BFF with respect to the Indianapolis Center.
Section 4.2 Financial Statements.
4.2.1 Set forth in Section 4.2 of the BFF Disclosure Schedule are
the following unaudited financial statements, including the notes
pertaining thereto, of BFF (collectively, the "Financial Statements"):
(i) balance sheet at March 31, 1995;
(ii) statements of income and retained earnings and cash flow for each
calendar year since the formation of BFF; and
(iii) statements of income and retained earnings and cash flow for
the four-month period ended April 23, 1995.
4.2.2 The Financial Statements present fairly the financial
position of BFF as of such balance sheet date and the results of its
operations for such periods; provided, that the unaudited balance sheet and
statements of income and retained earnings and cash flow as of and for the
four-month period ended April 23, 1995 will be subject to normal year-end
adjustments (which
7
will not be material individually or in the aggregate). The unaudited
balance sheet of BFF at March 31, 1995 included in Section 4.2 of the BFF
Disclosure Schedule is referred to herein as the "Last Balance Sheet."
Section 4.3 Liabilities. BFF does not have any liabilities or
obligations, either accrued, absolute, contingent or otherwise, except:
(i) to the extent reflected in or taken into account in determining net
worth on the Last Balance Sheet and not heretofore paid or discharged;
(ii) to the extent clearly disclosed and specifically set forth in or
incorporated by express reference in the BFF Disclosure Schedule;
(iii) liabilities incurred in the ordinary course of business (consistent
with prior practice) since the date of the Last Balance Sheet; or (iv)
liabilities which individually or in the aggregate would not have a BFF
Material Adverse Effect.
Section 4.4 Real Estate.
4.4.1 BFF does not own any real estate.
4.4.2 Section 4.4.2 of the BFF Disclosure Schedule accurately and
completely sets forth, with respect to every parcel of the Leasehold
Premises: (i) the lessor thereof and the commencement date and term of the
lease with respect to such Purchased Leasehold Premises; and (ii) the
location (including address) thereof. A true and complete copy of each
lease agreement listed on Section 4.4.2 of the BFF Disclosure Schedule and
each guaranty by BAHC or any of its subsidiaries of BFF's obligations under
any lease has been delivered or made available to DZI prior to the date
hereof, and none of such leases or guaranties has been amended or modified
except to the extent that such amendments or modifications are disclosed in
such copies or in Section 4.4.2 of the BFF Disclosure Schedule. The leases
covering the Purchased Leasehold Premises are legally binding and
enforceable agreements of BFF and are in full force and effect. BFF is not
in default or breach in any respect under any such lease except for such
defaults which would not have a BFF Material Adverse Effect. No event has
occurred which with the passage of time or the giving of notice or both
would cause a breach of or default by BFF, under any of such leases which
would have a BFF Material Adverse Effect, nor, to the knowledge of BAHC
(which knowledge qualification is not applicable for purposes of
determining whether there is a breach of this representation or warranty
giving rise to a claim for indemnifiable damages by DZI under Section 11.1
hereof), is there any breach by any other party to such leases which would
have a BFF Material Adverse Effect. Except as set forth on Section 4.4.2
of the BFF Disclosure Schedule, neither BAHC nor BFF has: (i) received any
notice from a landlord of Purchased Leasehold Premises of the termination
of any such lease, (ii) exercised or waived any expansion or renewal
options thereunder, (iii) waived in writing any of BFF's rights under any
of such leases, or (iv) sublet any Purchased Leasehold Premises.
4.4.3 BFF has a valid leasehold interest in each of its respective
Purchased Leasehold Premises, free and clear of all liens, mortgages,
options to purchase, pledges, encumbrances, charges, claims, security
interests, equities, assessments, restrictions, leases, subleases,
tenancies, covenants and easements, title defects or rights of any other
party of any kind, nature and description whatsoever (any of the preceding,
a "Defect"), except for Defects set forth on Section 4.4.3 to the BFF
Disclosure Schedule, liens for real estate taxes not yet due and payable,
8
and such Defects, if any, as are not material in character, amount or
extent and do not detract from the value, or interfere with the present
use, of such properties or otherwise impair business operations in a manner
which would have a BFF Material Adverse Effect.
4.4.4 Except as set forth on Section 4.4.4 of the BFF Disclosure
Schedule, the buildings and other improvements located on the Purchased
Leasehold Premises are each in good operating condition, normal wear and
tear excepted. All facilities located on the Purchased Leasehold Premises
have received all necessary approvals of governmental authorities
(including licenses and permits required in connection with the operation
thereof) except for such approvals the absence of which would not have a
BFF Material Adverse Effect. The operation and maintenance of such
facilities have not been in violation of any applicable laws, rules and
regulations, the violation of which would have a BFF Material Adverse
Effect.
4.4.5 Each of the Purchased Leasehold Premises: (i) has direct
access to public roads or access to public roads by means of a perpetual
access easement and has direct access and the non-exclusive right to the
use of parking areas for automobiles, such access and parking being
sufficient to satisfy the current normal transportation and parking
requirements of the Centers; and (ii) is served by all utilities in such
quantity and quality as are sufficient to satisfy the current normal
business activities as conducted at such site.
4.4.6 Neither BAHC nor BFF has received notice of: (i) any
condemnation proceeding with respect to any portion of the Purchased
Leasehold Premises or any access thereto, and to the knowledge of BAHC (but
without inquiry of any governmental authority), no proceeding is
contemplated by any governmental authority; (ii) any special assessment
which materially affects any of the Purchased Leasehold Premises, and,
except as set forth in Section 4.4.6 of the BFF Disclosure Schedule, to the
knowledge of BAHC (but without inquiry of any governmental authority), no
such special assessment is contemplated by any governmental authority; or
(iii) any change in the zoning laws applicable to any Purchased Leasehold
Premises.
Section 4.5 Good Title to and Condition of Purchased Assets.
4.5.1 BFF is the legal and beneficial owner of, and has good and
marketable title to, all of the Purchased Assets (other than the Purchased
Leasehold Premises) free and clear of all Defects, except those set forth
in Section 4.5 of the BFF Disclosure Schedule and those reflected in the
Financial Statements, and those Defects, if any, as are not material in
character, amount or extent and do not detract from the value, or interfere
with the present use, of such assets or otherwise impair business
operations, in each case in a manner which would have a BFF Material
Adverse Effect.
4.5.2 All of the Purchased Fixed Assets are in good operating
condition, normal wear and tear excepted, except for Purchased Fixed Assets
having an aggregate net book value of not in excess of $25,000, and each of
the Purchased Fixed Assets which has a book value in excess of $5,000 is in
good operating condition, normal wear and tear excepted.
4.5.3 The Purchased Inventory consists of items of a quality and
quantity usable and salable in the normal course of BFF's business at
values in the aggregate at least equal to the net
9
values at which such items are carried on BFF's books and at values at
least equal to the net values at which such items are recorded in the Last
Balance Sheet, as adjusted for operations and transactions through the
Closing Date in accordance with the past custom and practice of BFF.
Section 4.6 Environmental Matters.
4.6.1 As used in this Section 4.6, "Environmental Law" means the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), the Occupational Safety and Health Act (29
U.S.C. Sections 651 et. seq.) ("OSHA"), and the Resource Conservation and
Recovery Act of 1976, as amended ("RCRA"), together with all other
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees and rulings thereunder) of any governmental
authority relating to (i) emissions, discharges, releases, or threatened
releases of Hazardous Material (as hereinafter defined) into ambient air,
surface water, ground water, or lands, (ii) the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
Hazardous Material, (iii) worker health and safety, or (iv) pollution or
protection of the environment. "Hazardous Material" means (a) any
"hazardous waste" as defined in RCRA and the Regulations promulgated
thereunder, (b) any "hazardous substance" or "pollutant or contaminant" as
defined in CERCLA and regulations promulgated thereunder; (c) asbestos, as
that term is defined in the Toxic Substance Control Act (15 U.S.C. Sections
2601 et. seq.) (the "TSCA"); (d) any Polychlorinated Biphenyl, as that term
is defined in the TSCA; and (e) petroleum, any of its derivatives, by-
products and other petroleum-related hydrocarbons.
4.6.2 The operations of BFF are in compliance with all
Environmental Laws except for violations which would not have a BFF
Material Adverse Effect. Neither of BAHC nor BFF has received notification
of any past or present failure by BFF to comply with any Environmental Laws
applicable to BFF or the assets and properties of BFF. Without limiting
the generality of the foregoing, neither BAHC nor BFF has received any
notification (including requests for information directed to BAHC or BFF)
from any governmental agency asserting that BFF is or may be a "potentially
responsible party" for a remedial action at a waste storage, treatment or
disposal facility, pursuant to the provisions of any Environmental Law
assigning responsibility for the costs of investigating or remediating
releases of Hazardous Materials into the environment.
4.6.3 To the knowledge of BAHC or BFF, BFF has not disposed or
arranged for any third parties to dispose, of Hazardous Material upon the
Purchased Leasehold Premises or away from such property, except as
permitted by law. Except as set forth on Section 4.6 of the BFF Disclosure
Schedule (which disclosure is for information purposes only and will not
qualify this representation or warranty for purposes of determining whether
there is a breach of this representation or warranty giving rise to a claim
for indemnifiable damages by DZI under Section 11.1 hereof), there are no
Environmental Laws or licenses, permits or orders applicable to BFF related
to environmental matters requiring any work, repairs, construction or
capital expenditures by BFF with respect to the assets or properties of BFF
which would have a BFF Material Adverse Effect.
10
4.6.4 There has not occurred, nor is there presently occurring, a
release of any Hazardous Material on, into or, to the knowledge of BAHC,
beneath the surface of any of the Purchased Leasehold Premises. For
purposes of this Section 4.6, the term "release" shall mean releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing or dumping. There is no asbestos
in or on any of the Purchased Leasehold Premises, the existence of which
would have a BFF Material Adverse Effect .
4.6.5 Section 4.6 of the BFF Disclosure Schedule identifies (which
disclosure is for information purposes only and will not qualify this
representation or warranty for purposes of determining whether there is a
breach of this representation or warranty giving rise to a claim for
indemnifiable damages by DZI under Section 11.1 hereof), and BAHC has
delivered or made available to DZI final copies of, the following materials
that are in the possession of BAHC, BFF or their affiliates (and any other
such materials that, to the knowledge of BAHC, have been prepared): (i) all
environmental audits or studies, assessments or occupational health studies
relating to the assets, properties or business of the Centers undertaken by
governmental agencies or BFF or their agents; (ii) the results of any
ground, water, soil, air or asbestos monitoring undertaken with respect to
the Purchased Leasehold Premises; (iii) all written communications between
BFF and any environmental agency within the past three years; and (iv) all
citations issued to BFF within the past three years under the OSHA.
4.6.6 Except as set forth on Section 4.6 of the BFF Disclosure
Schedule (which disclosure is for information purposes only and will not
qualify this representation or warranty for purposes of determining whether
there is a breach of this representation or warranty giving rise to a claim
for indemnifiable damages by DZI under Section 11.1 hereof), BFF has not
used any underground storage tanks and there are not now nor, to the
knowledge of BAHC or BFF, have there ever been any underground storage
tanks on the Purchased Leasehold Premises. For purposes of this Section
4.6.6, the term "underground storage tanks" shall have the meaning given it
in RCRA.
Section 4.7 Intentionally Omitted
Section 4.8 Licenses and Permits. BFF possesses all licenses and
other required governmental or official approvals, permits or
authorizations, the failure to possess which would have a BFF Material
Adverse Effect. Except as set forth in Section 4.8 of the BFF Disclosure
Schedule (which disclosure is for information purposes only and will not
qualify the representation or warranty for purposes of determining whether
there is a breach of this representation and warranty giving rise to a
claim for indemnifiable damages by DZI under Section 11.1 hereof), all such
licenses, approvals, permits and authorizations are valid and in full force
and effect, BFF is in compliance with their requirements, and no proceeding
is pending or, to the knowledge of BAHC, threatened to revoke or amend any
of them. Except for liquor licenses for each of the Centers, none of such
licenses, approvals, permits or authorizations will be impaired by the
execution and delivery of this Agreement and the consummation of the
11
transactions contemplated hereby in any manner that would result in a BFF
Material Adverse Effect.
Section 4.9 Intellectual Property.
4.9.1 Section 4.9.1 of the BFF Disclosure Schedule identifies (i)
each patent, trademark or service mark registration and copyright
registration issued to BFF, (ii) each pending patent application or
application for trademark, service mark or copyright registration made by
BFF to be used in the operation of the Centers, (iii) each material
unregistered trademark, service mark and trade name owned by BFF, (iv) each
license, sublicense, agreement, or other written permission under which BFF
uses the Intellectual Property (as hereinafter defined) of any third party
in the operation of the Centers, and (v) each license, sublicense,
agreement, or other written permission under which any third party uses any
Intellectual Property of BFF constituting Purchased Assets. BFF has
delivered or made available to DZI a correct and complete copy of each
patent, trademark, service mark or copyright registration, application,
license, sublicense, agreement, or written permission listed in Section
4.9.1 of the BFF Disclosure Schedule. BFF possesses all items of
intellectual property of the types described in clauses (i) through (v) of
the first sentence of this Section 4.9.1 and other proprietary rights,
including trade secrets and other confidential business information,
inventions, technology, know how, designs and drawings, slogans, and other
similar intangible property and rights to any of the foregoing
(collectively, the "Intellectual Property"), necessary to operate the
Centers as they are now being operated.
4.9.2 With respect to each patent, trademark registration, service
mark registration, copyright registration, patent application, and
application for trademark, service mark, copyright registration,
unregistered trademark, service mark and trade name listed in Section 4.9.1
of the BFF Disclosure Schedule, except as set forth in Section 4.9.2 of the
BFF Disclosure Schedule, (i) BFF possesses all right, title, and interest
in and to each such item of Intellectual Property, free and clear of any
Defect, (ii) such Intellectual Property is not subject to any outstanding
injunction, judgment, order, ruling, decree or charge, (iii) no action,
suit, proceeding, hearing, investigation, complaint, claim or demand is
pending, or to the knowledge of BAHC, is threatened which challenges the
legality, validity, enforceability, use or ownership of such Intellectual
Property, and (iv) to the knowledge of BAHC, there is no infringement of
any of such Intellectual Property or other Intellectual Property of BFF by
any other person. Each license, agreement, or written permission listed in
Section 4.9.1 of the BFF Disclosure Schedule (i) is legal, valid, binding
and enforceable against BFF and in full force and effect, (ii) neither BFF
nor, to the knowledge of BAHC, any other party thereto, is in breach or
default (either presently or with the giving of notice or the lapse of time
or both) under any of such licenses agreements or written permissions, and
(iii) no event has occurred which would permit the termination,
modification or acceleration of any such license, agreement or written
permission. BFF is not infringing or misappropriating the Intellectual
Property of any other person. Except as set forth in Section 4.9.2 of the
BFF Disclosure Schedule, all filing and/or registration requirements with
respect to the Intellectual Property (including the payment of filing and
registration fees, if applicable) are not past due, except where the
failure to comply with such requirement would not result in a BFF Material
Adverse Effect.
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4.9.3 Except as set forth on Section 4.9.3 of the BFF Disclosure
Schedule, BFF is the licensee, or the legal and beneficial owner of and has
good and marketable title to, each software and hardware computer-related
component currently used in connection with and necessary to support
operations at the Centers.
Section 4.10 Adequacy of Assets; Relationships with Suppliers.
Except as set forth on Section 4.10 of the BFF Disclosure Schedule, the
Purchased Assets and the intellectual property subject to the License
Agreement and the Assignment Agreement constitute, in the aggregate, all of
the property currently used in and necessary for the conduct of the
Business in the manner in which it is currently being conducted. The
Purchased Contracts and Other Rights constitute all of such contracts and
rights as are necessary to conduct the Business in the manner in which it
is currently being conducted except for such contracts and rights the
absence of which, individually or in the aggregate, would not have a BFF
Material Adverse Effect. There is, to the knowledge of BAHC, no written or
oral communication, fact, event or action which exists or has occurred
within 90 days prior to the date of this Agreement, which indicate that any
current supplier to BFF of items essential to the conduct of the Business
will terminate its business relationship with BFF.
Section 4.11 Documents of and Information with Respect to BFF.
Section 4.11 of the BFF Disclosure Schedule accurately and completely sets
forth a true and complete list of the following: (i) each material
agreement, contract or commitment between BFF on the one hand, and BAHC or
any of BAHC's other subsidiaries, on the other hand; (ii) each loan, credit
agreement, guarantee, security agreement or similar document or instrument
to which BFF is a party or by which it is bound; (iii) each lease of
personal property to which BFF is a party or by which it is bound involving
annual lease payments in excess of $50,000; (iv) any other agreement,
contract or commitment to which BFF is a party or by which it is bound
which involves a future commitment by it in excess of $50,000 and which
cannot be terminated without liability on 90 days or less notice; (v) each
collective bargaining agreement of BFF; (vi) the name and current annual
salary of each officer or other employee of BFF whose current annual salary
is in excess of $100,000 and the profit sharing, bonus or any other form of
compensation (other than salary) paid or payable by BFF to or for the
benefit of each such person for the 365-day period ended March 31, 1995,
and any employment or other agreement of BFF with any of its officers or
employees; (vii) the names of the officers and directors of BFF; and
(viii) the name and address of each bank or depository in which BFF has an
account or safe-deposit box, the name in which the account or box is held
and the names of all persons authorized to draw thereon or to have access
thereto. BAHC has previously furnished or made available to DZI a true and
complete copy of each such written (and a written summary of each of those
that are not written) agreement, contract or commitment listed on
Section 4.11 of the BFF Disclosure Schedule. None of BFF nor, to the
knowledge of BAHC, any other party thereto or bound thereby is in default
under any of the contracts, agreements or instruments listed on
Section 4.11 of the BFF Disclosure Schedule, except where such default
would not have a BFF Material Adverse Effect, and, to the knowledge of BAHC
(other than with respect to acts or omissions of BAHC or BFF), no act or
event has occurred which with notice or lapse of time, or both, would
constitute such a default. BFF is not a party to, nor is it or any of its
property bound by, any other agreement or instrument with respect to which
a default might have a BFF Material Adverse Effect. With
13
respect to all contracts, agreements and instruments listed on Section 4.11
of the BFF Disclosure Schedule and except as set forth therein each is in
full force and effect and a legally binding agreement of BFF.
Section 4.12 Tax Matters.
4.12.1 BFF has timely filed all returns and reports required to be
filed with respect to sales, use and property taxes, and has collected and
timely paid all sales, use and property taxes required to be collected or
paid by BFF, except where the failure to file such returns and reports or
collect and pay such taxes would not have a BFF Material Adverse Effect.
4.12.2 Except as provided in Section 4.12 of the BFF Disclosure
Schedule, (i) BFF has not received from any governmental authority any
written notice of proposed adjustment, deficiency or underpayment of any
sales, use or property taxes, which notice has not been satisfied by
payment or been withdrawn, (ii) there are no claims that have been asserted
or threatened relating to such taxes against BFF, and (iii) there are no
agreements for the extension of time for the assessment of any such taxes
of BFF.
Section 4.13 Litigation. Except as set forth on Section 4.13 of the
BFF Disclosure Schedule (which disclosure is for information purposes only
and will not qualify this representation or warranty for purposes of
determining whether there is a breach of this representation or warranty
giving rise to a claim for indemnifiable damages by DZI under Section 11.1
hereof), there are no actions, suits, claims, governmental investigations
or arbitration proceedings pending or, to the knowledge of BAHC, threatened
against or affecting BFF or any of its assets or properties except, in the
case of threatened actions, suits, claims, governmental investigations or
arbitration proceedings only, any such actions, suits, claims, governmental
investigations, or arbitration proceedings as would not have a BFF Material
Adverse Effect. There are no outstanding injunctions, judgments, orders,
rulings, decrees or charges of any federal, state, provincial or local
judicial, quasi-judicial or administrative authority by which BFF or any of
its assets are bound which would reasonably be expected to have a BFF
Material Adverse Effect.
Section 4.14 No Material Adverse Change. Except as disclosed on
Section 4.14 of the BFF Disclosure Schedule, since the date of the Last
Balance Sheet, (i) there has not occurred any event which would have a BFF
Material Adverse Effect, and (ii) there is, to the knowledge of BAHC, no
threatened or prospective event or condition of any character whatsoever
(other than general economic conditions) which is reasonably expected to
have a BFF Material Adverse Effect.
Section 4.15 Absence of Certain Acts or Events. Except as disclosed
on Section 4.15 of the BFF Disclosure Schedule, and except for this
Agreement and the transactions contemplated hereby, since March 31, 1995,
BFF has not: (i) made any change in the employment terms for any of its
officers or employees, paid any bonus to or increased the compensation of
any of the foregoing outside the ordinary course or granted any severance
or termination pay to, or entered into any severance agreement with any
officer or employee; (ii) established, adopted, entered into or amended, in
any material respect, or took action to
14
accelerate any rights or benefits under any employee benefit plan; (iii)
made or obligated itself to make any capital expenditures aggregating more
than $25,000, other than capital expenditures relating to the construction
or furnishing of any Centers; (iv) paid any expenses on its own behalf or
on behalf of BAHC in connection with the transactions contemplated hereby;
or (v) otherwise engaged in any business or transactions (including
purchases, sales or pledging of assets), or incurred any indebtedness,
outside of the ordinary course of business.
Section 4.16 Compliance with Laws.
4.16.1 BFF is in compliance with all laws, regulations and orders
applicable to the Purchased Assets and the Business, except where the
failure to so comply would not have a BFF Material Adverse Effect. Neither
BFF nor BAHC has received notification of any asserted past or present
failure by BFF to comply with any laws, which failure (if established)
would have a BFF Material Adverse Effect.
4.16.2 Neither BFF nor BAHC nor any officer of BFF has made any
payment of funds in connection with the business of BFF prohibited by law.
4.16.3 BFF is and at all times has been in full compliance with the
terms and provisions of the Immigration Reform and Control Act of 1986 (the
"Immigration Act"). With respect to each Employee (as defined in 8 C.F.R.
274a. 1(f)) of BFF for whom compliance with the Immigration Act by BFF as
Employer is required, BFF possesses (i) each such Employee's Form I-9
(Employment Eligibility Verification form), and (ii) all other records,
documents or other papers prepared, procured and/or retained by BFF
pursuant to the Immigration Act. BFF has not been cited, fined, served
with a Notice of Intent to Fine or with a Cease and Desist Order, nor has
any action or administrative proceeding been initiated or threatened
against BFF by reason of any actual or alleged failure to comply with the
Immigration Act.
Section 4.17 Labor Relations of BFF. Except as set forth in
Section 4.17 of the BFF Disclosure Schedule, BFF is not a party to or bound
by any collective bargaining agreement or any other agreement with a labor
union, and there has been no effort by any labor union during the 24 months
prior to the date hereof to organize any employees of BFF into one or more
collective bargaining units. There is not pending or, to the knowledge of
BAHC, threatened any labor dispute, strike or work stoppage which affects
or which may affect the business of BFF or which may interfere with their
continued operation. BAHC has not received notice (which notice
qualification is not applicable for purposes of determining whether there
is a breach of this representation or warranty giving rise to a claim for
indemnifiable damages by DZI under Section 11.1 hereof) that any of BFF or
any agent, representative or employee of BFF or BAHC has within the last 24
months committed any unfair labor practice as defined in the National Labor
Relations Act which would have a BFF Material Adverse Effect, and there is
not now pending or, to the knowledge of BAHC, threatened any charge or
complaint against BFF by or with the National Labor Relations Board or any
representative thereof. There has been no strike, walkout or work stoppage
involving any of the employees of BFF during the 24 months prior to the
date hereof.
15
Section 4.18 Employee Benefits. BFF does not maintain, contribute to
or sponsor, nor at any time since June 30, 1989, has it maintained,
contributed to or sponsored: (i) any non-qualified deferred compensation
or retirement plans or arrangements; (ii) any qualified defined
contribution retirement plans or arrangements; (iii) any qualified defined
benefit pension plan; (iv) any other plan, program, agreement or
arrangement under which former employees of BFF or their beneficiaries are
entitled, or current employees of BFF will be entitled following
termination of employment, to medical, health, life insurance or other
benefits other than pursuant to benefit continuation rights granted by
state or federal law; or (v) any other employee benefit, health, welfare,
medical, disability, life insurance, stock, stock purchase or stock option
plan, program, agreement, arrangement or policy.
Section 4.19 Product and Other Liability Claims; Product Warranties.
Section 4.19 of the BFF Disclosure Schedule sets forth all product
liability claims or liability claims related to services rendered by BFF
for injury or damage to persons or property which are pending or, to the
knowledge of BAHC, threatened against BFF with respect to products or
services sold by BFF, except for any claims which, individually, do not
exceed $5,000. Section 4.19 of the BFF Disclosure Schedule also sets
forth, for the last fiscal year of BFF and for the interim period ended on
the date hereof, the aggregate amount of product or other liability claims
paid by or on behalf of BFF.
ARTICLE V
Representations and Warranties of DZI and DZLP
In order to induce BFF and BAHC to enter into this Agreement and to
consummate the transactions contemplated hereunder subject to the
disclosure schedule attached hereto and incorporated herein by reference
(the "DZI Disclosure Schedule"), DZI makes the representations and
warranties set forth below, each of which is independently relied upon by
BAHC and BFF regardless of any other investigation made or information
obtained by BAHC and BFF, and each of which is correct and complete as of
the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article V). As
used hereinafter in this Article V, the term "DZI Material Adverse Effect"
shall mean a material adverse effect on the assets, business, financial
condition or operations of DZI and its subsidiaries considered as one
enterprise.
Section 5.1 Organization, Power, Authority. DZI is a corporation
duly organized and legally existing in good standing under the laws of the
state of its incorporation and has full corporate power and authority
necessary (i) to own or lease its properties and to carry on its business
as it is now being conducted, and (ii) to enter into this Agreement and the
agreements and instruments
16
contemplated hereby, and to carry out the transactions and agreements
contemplated hereby or thereby. DZLP is a limited partnership duly
organized and legally existing in good standing under the laws of the state
of its organization and has full power and authority necessary (i) to own
or lease its properties and to carry on its business as it is now being
conducted, and (ii) to enter into this Agreement and the agreements and
instruments contemplated hereby, and to carry out the transactions and
agreements contemplated hereby or thereby. DZI and DZLP are legally
qualified to transact business as a foreign corporation or limited
partnership, and is in good standing, in each of the jurisdictions in which
its business or property is such as to require that it be thus qualified,
except such jurisdictions where the failure to be so qualified would not
have a DZI Material Adverse Effect.
Section 5.2 Due Authorization and Binding Obligation. The execution,
delivery and performance of this Agreement, the Note, the Assignment
Agreement and the Sublease and each of the other agreements contemplated
hereby and thereby and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action of DZI
and DZLP. This Agreement has been duly executed and delivered by each of
DZI and DZLP and is a valid and binding obligation of each of DZI and DZLP,
enforceable in accordance with its terms. Each of the Note, the Assignment
Agreement and the Sublease has been duly authorized and, when executed and
delivered in accordance with the terms of this Agreement, will be a valid
and binding obligation of each of DZI and DZLP, enforceable in accordance
with its terms. Except as set forth in Section 5.2 of the DZI Disclosure
Schedule, neither the execution and delivery of this Agreement the Note,
the Assignment Agreement, the Sublease or the agreements contemplated
thereby nor the consummation of the transactions contemplated hereby or
thereby will: (i) conflict with or violate any provision of DZI's, DZLP's
or any subsidiary of DZI's respective certificates of incorporation ,
bylaws or partnership agreement; (ii) conflict with or violate any law,
ordinance or regulation or any decree or order of any court or
administrative or other governmental body which is either applicable to,
binding upon or enforceable against DZI or any subsidiary of DZI or DZLP;
(iii) result in any breach of, constitute a default under, result in the
acceleration of, create in any party the right to, or otherwise result in,
the acceleration, termination, modification or cancellation (including
pursuant to any change in control provision), or require any notice under,
any material mortgage, contract, agreement, indenture, trust or other
instrument which is either binding upon or enforceable against DZI or any
subsidiary of DZI or DZLP, or the assets and properties of DZI or any
subsidiary of DZI or DZLP; or (iv) impair or in any way limit any
governmental or official license, approval, permit or authorization of DZI
or any subsidiary of DZI or DZLP; except, in the case of clause (iv) above,
such limitations which would not have a DZI Material Adverse Effect. No
permit, consent, approval or authorization of, or declaration to or filing
with, any regulatory or other government authority is required in
connection with the execution and delivery of this Agreement, the Note, the
Assignment Agreement or the Sublease or the agreements contemplated thereby
by DZI and DZLP and the consummation by DZI and DZLP of the transactions
contemplated hereby or thereby, except such as shall have been obtained on
or prior to the Closing Date and such consents and approvals as are
required to transfer to DZLP the liquor license issued to BFF with respect
to the Indianapolis Center.
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ARTICLE VI
Additional Covenants of BAHC
Section 6.1 Reasonable Efforts. From and after the execution and
delivery of this Agreement until the Closing Date, BAHC will use, and will
cause BFF to use, its reasonable efforts to cause to be satisfied as soon
as practicable and prior to the Closing Date all of the conditions set
forth in Article VIII to the obligations of DZLP to purchase the Purchased
Assets.
Section 6.2 Conduct of Business Pending the Closing. From and after
the execution and delivery of this Agreement and until the Closing Date,
except for this Agreement and the transactions contemplated hereby and
except as otherwise provided in Section 6.2 of the BFF Disclosure Schedule
and as otherwise provided by the prior written consent of DZI:
6.2.1 BAHC will cause BFF to conduct the Business and operate the
Centers in the manner in which the same have heretofore been conducted, and
BAHC will use its reasonable efforts to cause BFF to (i) preserve its
business organization intact, and (ii) keep available to DZI the services
of its officers, employees, agents and suppliers.
6.2.2 BAHC will cause BFF to maintain the Purchased Assets in
customary repair, order and condition, reasonable wear, use and damage by
unavoidable casualty excepted, and to maintain insurance which is adequate
in character and amount to cover all of its properties and with respect to
the conduct of its business as are in effect on the date of this Agreement.
6.2.3 BAHC will not permit BFF to (i) sell, assign, transfer,
encumber, waste, alienate, or otherwise dispose of any of the Purchased
Assets, except for sales made in the ordinary course of business; (ii) make
any change in the employment terms for any of its officers or employees,
pay any bonus to or increase the compensation of any of the foregoing
outside the ordinary course or grant any severance or termination pay to,
or enter into any employment or severance agreement with any officer or
employee; (iii) establish, adopt or enter into any employee benefit plan;
(iv) enter into or engage in any transaction with any affiliate except
intercompany advances or withdrawals from BAHC or its subsidiaries to BFF
consistent with prior practice; (v) make or obligate itself to make any
capital expenditures aggregating more than $25,000 without the prior
approval of DZI; or (vi) otherwise engage in any business or transactions
(including purchases, sales or pledging of the Purchased Assets), or incur
any indebtedness, outside of the ordinary course of business with respect
to the Purchased Assets.
6.2.4 BAHC will not, and will cause BFFHC not to, sell or
otherwise transfer any of its interests, either direct or indirect, in BFF.
6.2.5 BAHC will not, and will cause BFF not to, take any action,
or omit to take any action, the result of which would cause any of the
representations and warranties made by BAHC herein to become untrue.
Section 6.3 Access to BFF's Properties and Records. From and after
the execution and delivery of this Agreement, BAHC will cause BFF to afford
to representatives of DZI access, during normal business hours and upon
reasonable notice, to BFF's offices, properties,
18
books and records to conduct a full and complete investigation, including
legal, financial, operational and environmental reviews, of the Business,
and will cause BFF to furnish or make available to such representatives
during such period all such information relating to the foregoing
investigation as DZI may reasonably request; provided, however, that any
furnishing of, or making available, such information to DZI and any
investigation by DZI shall not affect the right of DZI and DZLP to rely on
the representations and warranties made by BAHC in or pursuant to this
Agreement, and provided further that DZI and DZLP will hold in confidence
all documents and information concerning BFF so furnished, or made
available and, if the sale of Purchased Assets pursuant hereto shall not be
consummated, such confidence shall be maintained and DZI and DZLP will not
use or disclose to any person any such document or information (except to
the extent that such information can be shown to be previously available to
DZI, publicly available, or disclosed to DZI by a person who is not
obligated to maintain the confidentiality of such information).
Section 6.4 No Disclosure. Without the prior written consent of DZI,
BAHC will not, and will cause BFF not to, prior to the Closing Date,
disclose the existence of or any term or condition of this Agreement to any
person or entity except that such disclosure may be made (a) to any person
to whom such disclosure is necessary in order to satisfy any of the
conditions to the consummation of the purchase of the Purchased Assets; or
(b) if required to be disclosed pursuant to the requirements of law (in
which case BAHC shall notify DZI prior to making such disclosure).
Section 6.5 No Other Discussions. None of BAHC nor any of its
affiliates, agents or representatives, will directly or indirectly solicit,
or engage in any negotiation or exchange of information with, another
entity or person regarding the sale or transfer of all or any substantial
part of the stock or assets of BFF or to the merger or consolidation of BFF
with, or into, any person or entity other than DZI.
Section 6.6 Interim Financial Statements. From and after the
execution and delivery of this Agreement until the Closing, BAHC shall
prepare, or cause to be prepared, and furnish to DZI the following
financial statements of BFF (the "Interim Financial Statements"):
(i) unaudited balance sheets at the end of each month; and
(ii) unaudited statements of operations, stockholder's equity and cash
flow for each month.
BAHC shall prepare and furnish the Interim Financial Statements in
accordance with usual timing and prepared in a manner consistent with the
Financial Statements.
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ARTICLE VII
Additional Covenants of DZI
Section 7.1 Reasonable Efforts. DZI will use its reasonable efforts
to cause to be satisfied as soon as practicable and prior to the Closing
Date all of the conditions set forth in Article IX to the obligations of
BAHC and BFF to sell the Purchased Assets pursuant to this Agreement.
Section 7.2 No Disclosure. Without the prior written consent of
BAHC, neither DZI nor DZLP will, prior to the Closing Date, disclose the
existence of or any term or condition of this Agreement to any person or
entity except that such disclosure may be made (a) to any person to whom
such disclosure is necessary in order to satisfy any of the conditions to
the consummation of the purchase of the Purchased Assets as set forth in
this Agreement; or (b) if required to be disclosed pursuant to the
requirements of law (in which case DZI or DZLP shall consult with BAHC
prior to making such disclosure).
Section 7.3 Conduct Prior to Closing. DZI will not, and will cause
its subsidiaries not to, take any action, or omit to take any action, the
result of which would cause any of the representations and warranties made
by DZI herein to become untrue.
ARTICLE VIII
Conditions to the Obligation of DZI and DZLP
The obligations of DZLP to purchase the Purchased Assets shall be
subject to the fulfillment at or prior to the Closing Date of each of the
following conditions:
Section 8.1 Accuracy of Representations and Warranties and Compliance
with Obligations. The representations and warranties of BAHC contained in
this Agreement shall have been true and correct in all material respects at
and as of the date hereof, and they shall be true and correct in all
material respects at and as of the Closing Date with the same force and
effect as though made at and as of that time. Each of BAHC and BFF shall
have performed and complied in all material respects with all of its
respective obligations required by this Agreement to be performed or
complied with at or prior to the Closing Date. BAHC shall have delivered
to DZI a certificate, dated as of the Closing Date and signed by an
authorized officer of BAHC certifying that such representations and
warranties are thus true and correct in all material respects and that all
such obligations have been thus performed and complied with in all material
respects.
Section 8.2 Certified Resolutions. BAHC shall have delivered to DZI
copies of the resolutions adopted by the board of directors of each of
Viacom, BAHC and BFFHC and by the board of directors and the sole
stockholder of BFF authorizing the transactions contemplated by
20
this Agreement certified in each case as of the Closing Date by the
Secretary or an Assistant Secretary of Viacom, BAHC or BFF, as applicable.
Section 8.3 Receipt of Necessary Consents. The consents or approvals
of third parties set forth on Section 8.3 of the BFF Disclosure Schedule to
the transactions contemplated hereby shall have been obtained and shown by
written evidence satisfactory to DZI.
Section 8.4 No Adverse Litigation.
8.4.1 No action, suit, investigation or proceeding will have been
instituted by any person not affiliated with any of the parties hereto or
by any governmental agency to restrain, prohibit, invalidate, or otherwise
challenge the legality of the sale of the Purchased Assets to DZLP or any
other transaction contemplated hereby, which action, suit, investigation or
proceeding will have resulted in a temporary restraining order, preliminary
or permanent injunction, or other order preventing consummation of the sale
of the Purchased Assets to DZLP or any other transaction contemplated
hereby, which order or injunction is in effect at the Closing.
8.4.2 No action, suit, investigation or proceeding will have been
instituted by any person not affiliated with any of the parties hereto or
by any governmental agency to collect damages arising out of the sale of
the Purchased Assets to DZLP or any other transaction contemplated hereby,
which action, suit, investigation or proceeding is reasonably likely to
succeed and is reasonably likely to result in a material liability on the
part of DZLP or any of its affiliates.
Section 8.5 No Material Adverse Change. Except as set forth on the
BFF Disclosure Schedule, since the Last Balance Sheet, there shall not have
been any change or event which would have a BFF Material Adverse Effect.
Section 8.6 Consummation of Transactions. Prior to or concurrently
with the Closing under this Agreement the transactions contemplated by the
Stock Purchase Agreement shall have been consummated.
Section 8.7 License Agreement. Viacom and BEI shall have executed
and delivered to DZI the License Agreement.
Section 8.8 Sublease. BFF shall have executed and delivered to DZLP
the Sublease.
ARTICLE IX
Conditions to Obligation of BAHC and BFF
The obligations of BAHC and BFF to sell the Purchase Assets shall be
subject to the fulfillment at or prior to the Closing Date of each of the
following conditions:
21
Section 9.1 Accuracy of Representations and Warranties and Compliance
with Obligations. The representations and warranties of DZI contained in
this Agreement shall have been true and correct in all material respects at
and as of the date hereof, and they shall be true and correct in all
material respects at and as of the Closing Date with the same force and
effect as though made at and as of that time. DZI and DZLP shall have
performed and complied in all material respects with all of their
respective obligations required by this Agreement to be performed or
complied with at or prior to the Closing Date. DZI shall have delivered to
BAHC a certificate, dated as of the Closing Date and signed by an
authorized officer of DZI, certifying that such representations and
warranties are thus true and correct in all material respects and that all
such obligations have been thus performed and complied with in all material
respects.
Section 9.2 Certified Resolutions. DZI shall have delivered to BAHC
copies of the resolutions adopted by the board of directors of DZI and by
the general partner of DZLP authorizing the transactions contemplated by
this Agreement.
Section 9.3 No Adverse Litigation.
9.3.1 No action, suit, investigation or proceeding will have been
instituted by any person not affiliated with any party hereto or by any
governmental agency to restrain, prohibit, invalidate, or otherwise
challenge the legality of the sale of the Purchased Assets to DZLP or any
other transaction contemplated hereby, which action, suit, investigation or
proceeding will have resulted in a temporary restraining order, preliminary
or permanent injunction, or other order preventing consummation of the sale
of the Purchased Assets to DZLP or any other transaction contemplated
hereby, which order or injunction is in effect at the Closing.
9.3.2 No action, suit, investigation or proceeding will have been
instituted by any person not affiliated with any party hereto or by any
governmental agency to collect damages arising out of the sale of the
Purchased Assets to DZLP or any other transaction contemplated hereby,
which action, suit, investigation or proceeding is reasonably likely to
succeed and is reasonably likely to result in a material liability on the
part of BAHC or any of its affiliates.
Section 9.4 No Material Adverse Change. Except as set forth on the
DZI Disclosure Schedule, since December 31, 1994, there shall not have been
any change or event which would have a DZI Material Adverse Effect.
Section 9.5 Consummation of Transactions. Prior to or concurrently
with the Closing under this Agreement the transactions contemplated by the
Stock Purchase Agreement shall have been consummated.
Section 9.6 Sublease. DZLP shall have executed and delivered to BFF
the Sublease.
Section 9.7 Assignment Agreement. DZLP shall have executed and
delivered to BFF the Assignment Agreement.
Section 9.8 Guaranty Agreement. DZI shall have executed and
delivered to BFF the Guaranty Agreement.
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ARTICLE X
Certain Actions After the Closing
10.1 DZLP to Act as Agent for BFF. This Agreement shall not
constitute an agreement to assign any claim, contract, license, lease,
commitment, sales order or purchase order if any attempted assignment of
the same without the consent of the other party thereto would constitute a
breach thereof or in any way affect the rights of BFF thereunder. If such
consent is not obtained or if any attempted assignment would be ineffective
or would affect BFF's rights thereunder so that DZLP would not in fact
receive all such rights, then subject to the terms and conditions of
Section 10.3 hereof, DZLP shall act as the agent for BFF in order to obtain
for DZLP the benefits thereunder.
10.2 Delivery of Property Received by BFF After Closing. From and
after the Closing, DZLP shall have the right and authority to collect, for
the account of DZLP, all receivables and other items which shall be trans-
ferred or are intended to be transferred to DZLP as part of the Purchased
Assets as provided in this Agreement, and to endorse with the name of BFF
any checks or drafts received on account of any such receivables or other
items of the Purchased Assets. BFF agrees that it will transfer or deliver
to DZLP, promptly after the receipt thereof, any cash or other property
which BFF receives after the Closing Date in respect of any claims, con-
tracts, licenses, leases, commitments, sales orders, purchase orders,
receivables of any character or any other items transferred or intended to
be transferred to DZLP as part of the Purchased Assets under this
Agreement.
10.3 DZLP Appointed Attorney for Sellers. Effective at the Closing
Date, BFF hereby constitutes and appoints DZLP, its successors and assigns,
the true and lawful attorney of BFF, in the name of either DZLP or BFF (as
DZLP shall determine in its sole discretion) but for the benefit and at the
expense of DZLP (except as otherwise herein provided), (i) to institute and
prosecute all proceedings which DZLP may deem proper in order to collect,
assert or enforce any claim, right or title of any kind in or to the
Purchased Assets as provided for in this Agreement; (ii) subject to Article
XI, to defend or compromise any and all actions, suits or proceedings in
respect of any of the Purchased Assets, and to do all such acts and things
in relation thereto as DZLP shall deem advisable; and (iii) to take all
action which DZLP may reasonably deem proper in order to provide for DZLP
the benefits under any of the Purchased Assets where any required consent
of another party to the sale or assignment thereof to DZLP pursuant to this
Agreement shall not have been obtained. BFF acknowledges that the
foregoing powers are coupled with an interest and shall be irrevocable.
DZLP shall be entitled to retain for its own account any amounts collected
pursuant to the foregoing powers, including any amounts payable as interest
in respect thereof.
Section 10.4 Execution of Further Documents. From and after the
Closing and upon the reasonable request of a party hereto, each party
hereto shall execute, acknowledge and deliver all such further acts, deeds,
bills of sale, assignments, assumptions, transfers, conveyances, powers of
attorney and assurances as may be required to convey and transfer to and
vest in DZLP and protect its right, title and interest in the Purchased
Assets and to assume the Assumed
23
Liabilities, and as may be appropriate otherwise to carry out the
transactions contemplated by this Agreement and the agreements contemplated
hereby.
Section 10.5 Employment by DZLP of BFF's Employees.
10.5.1 BFF and BAHC shall use their best efforts to aid DZLP in
engaging such of BFF's employees as are employed at the Centers on the
Closing Date. BFF shall continue to employ all of such employees that are
employed at the Albuquerque Center as are necessary to perform BFF's
obligations under the Sublease. DZLP shall employ all of such employees
that are employed at the Indianapolis Center as soon as practicable after
the Closing Date and for at least 60 days after the Closing Date (other
than such employees DZLP terminates for cause), provided, however, that
DZLP shall reimburse BFF for its costs with respect to the employment of
such persons from the Closing Date until the commencement of employement of
such persons by DZLP.
10.5.2 DZLP shall have no obligation to continue, or institute any
replacement or substitution for, any vacation, severance, incentive, bonus,
profit sharing, pension or other employee benefit plan or program of BFF
other than as set forth in Section 10.6 hereof.
Section 10.6 Employee Benefits. DZLP agrees, with respect to all of
its medical, hospitalization and dental benefit plans for employees of BFF
that DZLP employs that: (a) it will consider all BFF service before the
Closing Date in determining the eligibility to participate of BFF employees
who are such employees both immediately before and immediately after the
Closing Date ("Continuing Employees"); (b) it will offer medical,
hospitalization and dental coverage to such Continuing Employees on the
same terms and conditions as such benefits are generally available to
similarly situated DZLP employees who were not hired as a result of an
acquisition of an entity which previously had employees and (c) it will
cover from the time of the Closing and will waive any exclusions for pre-
existing conditions for all such Continuing Employees who, immediately
before the Closing Date were covered by the medical, hospitalization and
dental plans offered by BFF to its employees.
Section 10.7 Liquor Licenses. From and after the Closing and until
the later of such time as (i) DZLP shall have obtained a new liquor license
with respect to the Albuquerque Center and (ii) the transfer of the
existing liquor license with respect to the Indianapolis Center from BFF to
DZLP shall have been approved and effected by all necessary governmental
entities, BFF shall maintain its corporate existence, accounts, and state
and federal licenses, permits and tax identification numbers, shall
maintain such employees, officers, and agents as are necessary to retain
such liquor licenses and shall assist DZLP in the procurement and transfer
of such liquor licenses, and BFI and DZLP shall fully perform their
respective obligations under the Sublease.
Section 10.8 Net Worth. BAHC agrees that, until such time as its
potential obligations under Article XI are extinguished, it will maintain a
minimum net worth equal to or greater than the total Purchase Price.
24
ARTICLE XI
Indemnification
Section 11.1 Agreement by BAHC to Indemnify.
11.1.1 BAHC agrees that it will defend, indemnify and hold DZI and
its affiliates harmless in respect of the aggregate of all indemnifiable
damages of DZI. For this purpose, "indemnifiable damages" of DZI means the
aggregate of all expenses, losses, costs, deficiencies, liabilities and
damages (including related and reasonable counsel fees and expenses, and
compensatory and demonstrable consequential damages) incurred or suffered
by DZI as a direct result of (i) any inaccurate representation or warranty
made by BAHC in or pursuant to this Agreement or any facts giving rise to
such inaccurate representation or warranty; provided, however,
notwithstanding anything to the contrary elsewhere herein, for the purpose
of determining "indemnifiable damages," such representations and warranties
shall be read as and deemed to be representations and warranties without
any qualification regarding materiality (including any qualification
regarding a BFF Material Adverse Effect); provided, further, that any such
expenses, losses, costs, deficiencies, liabilities or damages resulting
from any item or items relating to a common set of facts or circumstances
in connection with an inaccurate representation or warranty shall not be
considered "indemnifiable damages" unless the amount involved is greater
than $2,500; (ii) any default in the performance of any of the covenants or
agreements made by BAHC in this Agreement; (iii) the failure to obtain the
consent of any landlord of any of the Purchased Leasehold Premises to any
of the transactions contemplated by this Agreement; or (iv) DZLP becoming
obligated to purchase an additional theater system from Iwerks
Entertainment, Inc. ("Iwerks") pursuant to a contract between BFF and
Iwerks dated February 1, 1994. DZI shall not make claims against BAHC for
indemnifiable damages more than once per calendar month.
11.1.2 Each of the representations and warranties, and the
covenants set forth in Sections 6.2.3 and 6.2.5, made by BAHC in this
Agreement shall survive until and including the first anniversary of the
Closing Date, notwithstanding any investigation at any time made by or on
behalf of DZI, and thereafter all such representations and warranties shall
be extinguished; provided, however, the representations and warranties made
by BAHC in Sections 4.1, 4.2 and 4.5.1 hereof shall in each case survive
forever and those made in Section 4.6 shall in each case survive for a
period of seven years and six months from the Closing Date. No claim for
the recovery of indemnifiable damages based upon the inaccuracy of such
representations and warranties may be asserted by DZI after such
representations and warranties shall be thus extinguished; provided,
however, that claims first asserted within the applicable period (whether
or not the amount of any such claim has become ascertainable within such
period) shall not thereafter be barred.
11.1.3 BAHC shall only be liable for any claim for indemnifiable
damages arising out of any inaccuracy of any representation or warranty or
any facts giving rise to such inaccurate representation or warranty if the
aggregate amount of all such indemnifiable damages exceeds $50,000, in
which case BAHC shall be liable for all indemnifiable damages arising out
of such
25
inaccuracies and defaults, including the first $50,000. Notwithstanding
any other provisions of this Agreement to the contrary, (i) the
indemnification obligations herein of BAHC for any indemnifiable damages of
DZI and its affiliates arising from a breach of the representations or
warranties in Section 4.6 which breach first becomes known to DZI after the
first anniversary of the Closing Date or from a default in the performance
by BAHC of its obligations under any other covenant or agreement contained
herein shall not be subject to the limitation contained in the preceding
sentence and (ii) any indemnifiable damages in respect of any such default
referred to in clause (i) shall not be included in the amount of
indemnifiable damages for purposes of determining whether the $50,000
limitation contained in the preceding sentence has been exceeded. The total
amount of indemnifiable damages of DZI shall be limited to the total amount
of the Purchase Price.
11.1.4 Except as expressly stated herein, the remedies provided for
in this Section 11.1 shall be the sole monetary remedy available to DZI
under this Agreement.
Section 11.2 Agreement by DZI to Indemnify.
11.2.1 DZI agrees that it will defend, indemnify and hold BAHC and
its affiliates harmless in respect of the aggregate of all indemnifiable
damages of BAHC. For this purpose, "indemnifiable damages" of BAHC means
the aggregate of all expenses, losses, costs, deficiencies, liabilities and
damages (including related and reasonable counsel fees and expenses, and
compensatory and demonstrable consequential damages) incurred or suffered
by BAHC as a direct result of any (i) inaccurate representation or warranty
made by DZI in or pursuant to this Agreement or any facts giving rise to
such inaccurate representation or warranty; provided, however,
notwithstanding anything to the contrary elsewhere herein, for the purpose
of determining "indemnifiable damages," such representations and warranties
shall be read as and deemed to be representations and warranties without
any qualification regarding materiality (including any qualification
regarding a DZI Material Adverse Effect); provided, further, that any such
expenses, losses, costs, deficiencies, liabilities or damages resulting
from any item or items relating to a common set of facts or circumstances
in connection with an inaccurate representation or warranty shall not be
considered "indemnifiable damages" unless the amount involved is greater
than $2,500; or (ii) default in the performance of any of the covenants or
agreements made by DZI in this Agreement.
11.2.2 Each of the representations and warranties made by DZI in
this Agreement shall survive forever.
11.2.3 DZI shall be liable only for any claim for indemnifiable
damages arising out of any inaccuracy of any representation or warranty or
any facts giving rise to such inaccurate representation or warranty if the
aggregate amount of all such indemnifiable damages exceeds $50,000 in which
case DZI shall be liable for all indemnifiable damages arising out of such
inaccuracies or defaults, including the first $50,000. The total amount of
indemnifiable damages of BAHC shall be limited to the total amount of the
Purchase Price.
11.2.4 Except as expressly stated herein, the remedies provided for
in this Section 11.2 shall be the sole monetary remedy available to BAHC
under this Agreement.
26
Section 11.3 Indemnification Procedures for Third Party Claims. In
the event that subsequent to the Closing Date any claim is asserted by a
third party against a party hereto as to which such party is entitled to
indemnification hereunder, such party (the "indemnified party") shall as
promptly as possible notify the party obligated to indemnify it (the
"indemnifying party") thereof in writing. No delay on the part of the
indemnified party to notify the indemnifying party of a claim shall relieve
any obligation of the indemnifying party to indemnify the indemnified party
with respect to such claim unless (and then solely to the extent) the
indemnifying party is prejudiced in its ability to defend against the
subject claim by the delay in such notification. The indemnifying party
shall have the right, upon written notice to the indemnified party within
ten (10) days after receipt from the indemnified party of notice of such
claim, to conduct at its expense and with counsel of its choice reasonably
satisfactory to the indemnified party the defense against such claim in its
own name, or, if necessary, in the name of the indemnified party. In the
event that the indemnifying party shall fail to give such notice, it shall
be deemed to have elected not to conduct the defense of the subject claim,
and in such event the indemnified party shall have the right to conduct
such defense and to compromise and settle the claim without prior consent
of the indemnifying party, and the indemnifying party will remain
responsible for all indemnifiable damages suffered by the indemnified party
relating to the subject claim. In the event that the indemnifying party
does elect to conduct the defense of the subject claim, the indemnified
party will cooperate with and make available to the indemnifying party such
assistance and materials as may be reasonably requested by it, all at the
expense of the indemnifying party, and the indemnified party shall have the
right at its expense to participate in the defense, provided that the
indemnified party shall have the right to compromise and settle the claim
only with the prior written consent of the indemnifying party (such consent
not to be unreasonably withheld). The indemnifying party will not consent
to the entry of any judgment with respect to a subject claim or enter into
any settlement with respect thereto, which does not include a provision
whereby the plaintiff or claimant releases the indemnified party from all
liability with respect thereto, or, in cases involving equitable relief,
puts the indemnified party in the same position as it was prior to the
initiation of the claim without the prior written consent of the
indemnified party (such consent not to be unreasonably withheld so long as
such settlement involves the payment of money damages).
Section 11.4 Credit Provisions. In the event that,
notwithstanding the limitations contained in this Article XI, an
indemnifying party nevertheless becomes liable to an indemnified party
hereunder, the indemnifying party shall be entitled to a credit or offset
against any such liability of an amount equal to the value of any net tax
benefit realized by the indemnified party in connection with the loss or
damage suffered by the indemnified party which forms the basis of the
indemnifying party's liability hereunder and the receipt of the
indemnification payment by the indemnified party.
27
ARTICLE XII
Miscellaneous
Section 12.1 Survival of Representations and Warranties. All of the
respective representations, warranties, covenants, agreements and
indemnification and hold harmless obligations of the parties to this
Agreement shall survive the consummation of the transactions contemplated
hereby; provided that any recovery for a breach of representation,
warranty, covenant or agreement under this Agreement shall be subject to
the provisions of Article XI.
Section 12.2 Brokers' Commission. DZI will indemnify and hold
harmless BAHC from the commission, fee or claim of any person, firm or
corporation employed or retained or claiming to be employed or retained by
DZI to bring about, or to represent it in, the transactions contemplated
hereby. BAHC will indemnify and hold harmless DZI from the commission, fee
or claim of any person, firm or corporation employed or retained or
claiming to be employed or retained by BFF or BAHC to bring about, or to
represent them in, the transactions contemplated hereby.
Section 12.3 Amendment and Modification. The parties hereto may
amend, modify and supplement this Agreement in such manner as may be agreed
upon by them in writing.
Section 12.4 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors, assignees, heirs and legal representatives. Nothing in this
Agreement shall confer upon any person, firm or corporation not a party to
this Agreement, or the legal representatives of such person, firm or
corporation, any rights or remedies of any nature or kind whatsoever by
reason of this Agreement.
Section 12.5 Entire Agreement. This Agreement and the Schedules and
Exhibits attached hereto contain the entire agreement of the parties hereto
with respect to the sale of the Purchased Assets to DZLP and supersede all
prior understandings and agreements of the parties with respect to the
subject matter hereof. Except for the representations and warranties made
herein and the other agreements being executed in connection herewith, no
other representations or warranties, express or implied, have been made
with respect to the subject matter hereof. Any reference herein to this
Agreement shall be deemed to include the Schedules and Exhibits attached
hereto.
Section 12.6 Headings. The descriptive headings in this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
Section 12.7 Execution in Counterpart. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original.
Section 12.8 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given when received, whether
personally, by telegram, telex, facsimile transmission (followed by regular
mail) or registered or certified mail (return receipt
28
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to BAHC, Blockbuster Amusement Holding
addressed to: Corporation
One Blockbuster Plaza
Ft. Lauderdale, Florida 33301
Attention: President
Fax No.: (305) 832-3909
If to DZI, Discovery Zone, Inc.
addressed to: 205 North Michigan Avenue
Suite 3400
Chicago, Illinois 60601
Attention: President
Fax No.: (312) 616-3830
Section 12.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable
to contracts made and to be performed therein, without regard to the
conflicts of laws principles thereof.
Section 12.10 Publicity. No press release or other public
announcement related to this Agreement or the transactions contemplated
hereby will be issued by any party hereto without the prior approval of the
other parties, except that any party may make such public disclosure which
it believes in good faith to be required by law (in which case such party
will consult with the other parties prior to making such disclosure).
Section 12.11 Termination.
12.11.1 Anything to the contrary herein notwithstanding, prior to the
Closing Date this Agreement may be terminated and the transactions
contemplated hereby and thereby may be abandoned:
(i) by the mutual written consent of all of the parties hereto at any
time prior to the Closing Date;
(ii) by BAHC in the event of the material breach by DZI of any
provision of this Agreement (it being agreed that if the breach
in question is a breach by DZI of a representation or warranty
contained in Article V of this Agreement, such breach will not be
considered a material breach unless it would result in a DZI
Material Adverse Effect), which breach is not remedied by DZI
within 10 days after receipt of notice thereof from BAHC; or
(iii) by DZI in the event of the material breach by BAHC of any
provision of this Agreement (it being agreed that if the breach
in question is a breach by BAHC of any representation or warranty
contained in Article IV of this Agreement, such breach will not
be considered a material breach unless it would result in a BFF
29
Material Adverse Effect), which breach is not remedied by BAHC
within 10 days after receipt of notice thereof from DZI; or
(iv) by any party hereto if the Closing has not taken place by June
30, 1995.
If this Agreement is terminated pursuant to clause 12.11.1 (i) above, no
party shall have any liability for any cost, expense, loss of anticipated
profit or any further obligation for breach of warranty or otherwise to any
other party to this Agreement. Any termination of this Agreement pursuant
to clauses 12.11.1 (ii), (iii) or (iv) above shall be without prejudice to
any other rights or remedies of the respective parties.
12.11.2 The risk of any loss to the assets and properties of BFF and
all liability with respect to injury and damage occurring in connection
therewith shall be the sole responsibility of BAHC until the completion of
the Closing. If any material part of said properties shall be damaged by
fire or other casualty prior to the completion of the Closing hereunder,
DZI shall have the right and option:
(i) to terminate this Agreement, without liability to any party
hereto; or
(ii) to proceed with the Closing hereunder, in which event such
casualty shall not constitute a breach by BAHC of any
representation, warranty or covenant in this Agreement, and DZI
shall be entitled to receive and retain the insurance proceeds
arising from such casualty.
Section 12.12 Expenses. Whether or not the transactions contemplated
hereby are consummated, all costs and expenses incurred in connection with
the transactions contemplated hereby shall be paid by the party incurring
such expenses.
30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
DISCOVERY ZONE, INC. BLOCKBUSTER FAMILY FUN, INC.
By: /s/ Victor M. Casini By: /s/ Adam Phillips
---------------------------- ----------------------------------
Name: Victor M. Casini Name: Adam Phillips
Title: Senior Vice President Title: Senior Vice President
DISCOVERY ZONE L.P. BLOCKBUSTER AMUSEMENT
HOLDING CORPORATION
By: DZGP, Inc.
Its General Partner
By: /s/ Adam Phillips
----------------------------------
Name: Adam Phillips
By: /s/ Victor M. Casini Title: Senior Vice President
----------------------------
Name: Victor M. Casini
Title: Senior Vice President
31
Exhibit B
EXECUTION COPY
WARRANT AGREEMENT
between
DISCOVERY ZONE, INC.
and
BLOCKBUSTER DISCOVERY INVESTMENT, INC.
Dated as of May 24, 1995
TABLE OF CONTENTS
Page
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. DEFINITIONS
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Blockbuster . . . . . . . . . . . . . . . . . . . . . . . . . . 1
BDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Change of Control . . . . . . . . . . . . . . . . . . . . . . . 2
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 2
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Current Market Price . . . . . . . . . . . . . . . . . . . . . 3
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 3
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . 3
Excluded Offering . . . . . . . . . . . . . . . . . . . . . . . 3
Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . 4
Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . 4
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Management Services Agreement . . . . . . . . . . . . . . . . . 4
McDonald's Agreement . . . . . . . . . . . . . . . . . . . . . 4
McDonald's Corporation . . . . . . . . . . . . . . . . . . . . 4
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Piggyback Registration Rights . . . . . . . . . . . . . . . . . 4
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . 4
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Registrable Common Stock . . . . . . . . . . . . . . . . . . . 5
Registration Demand . . . . . . . . . . . . . . . . . . . . . . 5
Registration Rights . . . . . . . . . . . . . . . . . . . . . . 5
Registration Statement . . . . . . . . . . . . . . . . . . . . 5
Requesting Holders . . . . . . . . . . . . . . . . . . . . . . 6
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . 6
Special Committee . . . . . . . . . . . . . . . . . . . . . . . 6
Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Triggering Event . . . . . . . . . . . . . . . . . . . . . . . 6
Underlying Preferred Stock . . . . . . . . . . . . . . . . . . 6
Warrant Certificates . . . . . . . . . . . . . . . . . . . . . 6
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ii
Page
2. ORIGINAL ISSUE OF WARRANTS
2.1. Form of Warrant Certificates . . . . . . . . . . . . . . . . . . 6
2.2. Execution and Delivery of Warrant Certificates . . . . . . . . . 7
3. EXERCISE PRICE; EXERCISE AND WARRANTS GENERALLY
3.1. Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2. Exercise of Warrants . . . . . . . . . . . . . . . . . . . . . . 7
3.3. Expiration of Warrants . . . . . . . . . . . . . . . . . . . . . 7
3.4. Method of Exercise; Payment of Exercise Price . . . . . . . . . 7
4. REGISTRATION RIGHTS AND PROCEDURES
4.1. Demand Registration . . . . . . . . . . . . . . . . . . . . . . 8
4.2. Piggyback Registration Rights . . . . . . . . . . . . . . . . . 11
4.3. Company's Ability to Postpone Registration Rights . . . . . . . 12
4.4. Holder Withdrawal Rights . . . . . . . . . . . . . . . . . . . . 13
4.5. Blackout Periods . . . . . . . . . . . . . . . . . . . . . . . . 13
4.6. Transferability . . . . . . . . . . . . . . . . . . . . . . . . 13
5. REGISTRATION PROCEDURES
5.1. Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . 13
5.2. Registration Expenses . . . . . . . . . . . . . . . . . . . . . 14
6. BANKRUPTCY, DISSOLUTION, LIQUIDATION OR WINDING UP; CERTAIN
TRANSACTIONS
6.1. Bankruptcy, Dissolution, Liquidation or Winding Up . . . . . . . 16
6.2. Certain Transactions . . . . . . . . . . . . . . . . . . . . . . 16
7. ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. RESTRICTIONS ON TRANSFER
8.1 Stock Certificate Legend . . . . . . . . . . . . . . . . . 16
8.2 Restriction on Transfer . . . . . . . . . . . . . . . . . 17
8.3 Representation of BDI . . . . . . . . . . . . . . . . . . 17
9. WARRANT TRANSFERABILITY AND WARRANT TRANSFER BOOKS
iii
Page
10. WARRANT HOLDERS
10.1. No Voting Rights . . . . . . . . . . . . . . . . . . . . . . . 19
10.2. Right of Action . . . . . . . . . . . . . . . . . . . . . . . . 19
11. COVENANTS OF THE COMPANY
11.1. Reservation of Preferred Stock for Issuance on Exercise of
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.2. Notice of Dividends . . . . . . . . . . . . . . . . . . . . . . 19
12. MISCELLANEOUS
12.1. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . 19
12.2. Surrender of Certificates . . . . . . . . . . . . . . . . . . . 20
12.3. Mutilated, Destroyed, Lost and Stolen Warrant Certificates . . 20
12.4. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.5. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . 21
12.6. Persons Benefitting . . . . . . . . . . . . . . . . . . . . . . 21
12.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.8. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.9. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.10 Rights Under This Agreement . . . . . . . . . . . . . . . . . . 22
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
EXHIBIT A Form of Warrant Certificate . . . . . . . . . . . . . . . . . . A-1
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of May 24, 1995 between Discovery
Zone, Inc., a Delaware corporation (the "Company"), and Blockbuster
Discovery Investment, Inc., a Delaware corporation ("BDI").
The Company proposes to issue and deliver its warrant
certificates (the "Warrant Certificates") evidencing three classes of
warrants (collectively, the "Warrants") to acquire, under certain
circumstances, up to an aggregate of 473,463 shares of Series A Convertible
Voting Participating Preferred Stock, par value $.01 per share (the
"Preferred Stock"), of the Company, subject to adjustment, pursuant to a
Management Services Agreement dated April 17, 1995 (the "Management
Services Agreement") among the Company, Viacom Inc., a Delaware corporation
("Viacom"), and Blockbuster Entertainment Group ("Blockbuster"), a division
of Viacom. The Warrants will be divided into three classes, Series A
Warrants, Series B Warrants and Series C Warrants, each of which will be
exercisable for up to 157,821 shares of Preferred Stock, subject to
adjustment. Each Warrant will entitle the Holder thereof to purchase,
subject to terms and conditions set forth herein, one share of the
Preferred Stock at an exercise price of $249.00 per share for the Series A
Warrants, $286.344 per share for the Series B Warrants and $343.608 per
share for the Series C Warrants, in each case subject to adjustment.
In consideration of the foregoing and for the purpose of defining
the terms and provisions of the Warrants and the respective rights and
obligations thereunder of the Company and the Holders, each of the Company
and BDI hereby agrees as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
Affiliate: when used with reference to any Person, any other
---------
Person who, directly or indirectly, is in control of, is controlled by or
is under common control with the former Person; and "control" (including
the terms "controlling," "controlled by," or "under common control with")
means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.
Blockbuster: the meaning set forth in the preamble to this
-----------
Agreement and its successors and assigns.
BDI: the meaning set forth in the preamble to this Agreement and
---
its successors and assigns.
2
Change of Control: shall be deemed to have occurred at such time
-----------------
as either of the following events shall occur:
(i) There shall be consummated any consolidation or merger of
the Company (A) in which the Company is not the continuing or
surviving corporation or (B) pursuant to which the Common Stock would
be converted into cash, securities or other property, in each case,
other than a consolidation or merger of the Company in which the
holders of the Common Stock immediately prior to the consolidation or
merger have, directly or indirectly, at least a majority of the common
equity of the continuing or surviving corporation immediately after
such consolidation or merger; or
(ii) There is a report filed on Schedule 13D or 14D-1 (or any
successor schedule, form or report) pursuant to the Exchange Act,
disclosing that any person (for the purposes of this definition only,
as the term "person" is used in Section 13(d)(3) or Section 14(d)(2)
of the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule
or regulation promulgated under the Exchange Act) of 50% or more (80%
or more with respect to Viacom, its successors or any of its
affiliates) of the voting power of the Common Stock then outstanding;
provided, however, that a person shall not be deemed beneficial owner
-------- -------
of, or to own beneficially, (A) any securities tendered pursuant to a
tender or exchange offer made by or on behalf of such person or any of
such person's affiliates or associates until such tendered securities
are accepted for purchase or exchange thereunder, or (B) any
securities if such beneficial ownership (1) arises solely as a result
of a revocable proxy delivered in response to a proxy or consent
solicitation made pursuant to the applicable rules and regulations
under the Exchange Act, and (2) is not also then reportable on
Schedule 13D (or any successor schedule) under the Exchange Act.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
have occurred by virtue of the Company, any subsidiary thereof, any
employee stock ownership plan or any other employee benefit plan of the
Company or any subsidiary thereof, any person holding Common Stock for or
pursuant to the terms of any such employee benefit plan, or Donald F. Flynn
or any person controlled by Donald F. Flynn filing or becoming obligated to
file a report under or in response to Schedule 13D or Schedule 13D-1 (or
any successor schedule, form or report) under the Exchange Act disclosing
beneficial ownership by it of Common Stock, whether in excess of 50% or
otherwise.
Common Stock: the Common Stock, par value $.01 per share, of the
------------
Company and any other capital stock of the Company into which such common
stock may be converted, changed or reclassified or that may be issued in
respect of, in exchange for, or in
3
substitution of, such common stock by reason of any stock splits, stock
dividends, distributions, mergers, consolidations or other like events.
Company: the meaning set forth in the preamble to this Agreement
-------
and its successors and assigns.
Current Market Price: as of a particular date, the last
--------------------
reported sales price at which a share of Common Stock shall have been sold
regular way, or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices regular way for such day, in
each case on the principal national securities exchange or in the Nasdaq
National Market System on which the shares of Common Stock are listed or to
which such shares are admitted to trading, or, if not listed or admitted to
trading, the average of the closing bid and asked prices of the Common
Stock in the over-the-counter market as reported by Nasdaq or such other
comparable system then in use, or the average of the closing bid and asked
prices as furnished by two members of the National Association of
Securities Dealers, Inc. making a market in the Common Stock, selected from
time to time by the Company for that purpose.
Effective Date: the effective date of this Agreement, which
--------------
shall be the date the Management Service Agreement becomes effective in
accordance with its terms.
Exchange Act: the Securities Exchange Act of 1934.
------------
Excluded Offering: (i) any registration of the Company's
-----------------
securities to be issued pursuant to a stock option or employee benefit
plan, (ii) a registration of the Company's securities to be issued to or
for the benefit of, or resold by, the owners of one or more businesses,
franchises, development or management rights or other assets to be acquired
by the Company in consideration, in whole or in part, of such securities,
(iii) any registration in connection with the issuance by the Company of
(x) securities or rights convertible into or exchangeable for shares of
Common Stock having a conversion or exchange premium at the time of initial
offering of such securities or rights of at least 10% in excess of the then
Current Market Price of the Common Stock or (y) warrants exercisable for
shares of Common Stock having an exercise price at the time of the initial
offering of such warrants of at least 50% in excess of the then Current
Market Price of the Common Stock or (iv) any registration effected pursuant
to the Company's shelf Registration Statement (Registration No. 33-85978)
or any successor Registration Statement filed pursuant to the undertakings
contained in Section 5 of the McDonald's Agreement or in the Registration
Rights Agreement dated as of October 21, 1994, as amended and in effect on
the date of this Agreement, between the Company, DKB, Inc., Kevin F. Flynn
June, 1992 Non-Exempt Trust, Brian J. Flynn June, 1992 Non-Exempt Trust,
Robert W. Flynn, James R. Gabbard, Antoinette Gagliardo, Keith J. Skibicki
and Yvonne Y. Sperandeo.
4
Exercise Price: the meaning set forth in Section 3.1.
--------------
Expiration Date: the fifth anniversary of the Effective Date;
---------------
provided that the Expiration Date of the Warrants shall be extended for an
- --------
additional period or periods in the event and so long as the Management
Services Agreement is continued for such period or periods after the
initial term thereof; provided, however, that (i) with respect to the
-------- -------
Series A Warrants, the Expiration Date shall be the date the Management
Services Agreement is terminated by (x) the Company because of a material
breach by Blockbuster or (y) Blockbuster (other than a termination for a
material breach by the Company), in each case only if such termination
occurs prior to the first anniversary of the Effective Date, (ii) with
respect to the Series B Warrants, the Expiration Date shall be the date the
Management Services Agreement is terminated by (x) the Company because of a
material breach by Blockbuster or (y) Blockbuster (other than a termination
for a material breach by the Company), in each case only if such
termination occurs prior to the second anniversary of the Effective Date
and (iii) with respect to the Series C Warrants, the Expiration Date shall
be the date the Management Services Agreement is terminated by (x) the
Company because of a material breach by Blockbuster or (y) Blockbuster
(other than a termination for a material breach by the Company), in each
case only if such termination occurs prior to the third anniversary of the
Effective Date.
Holders: from time to time, the registered holders of the
-------
Warrants and, unless otherwise provided or indicated herein, shares of
Underlying Preferred Stock and Registrable Common Stock.
Management Services Agreement: the meaning set forth in the
-----------------------------
preamble to this Agreement.
McDonald's Agreement: Sale Restriction and Registration Rights
--------------------
Agreement dated as of August 30, 1994 between the Company and McDonald's
Corporation as in effect on the date of this Agreement.
McDonald's Corporation: McDonald's Corporation, a Delaware
----------------------
corporation, and its successors or assigns.
Person: any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Piggyback Registration Rights: the meaning set forth in
-----------------------------
Section 4.2.
Preferred Stock: the meaning set forth in the preamble to this
---------------
Agreement.
5
Prospectus: the prospectus included in any Registration
----------
Statement, as amended or supplemented by any prospectus supplement with
respect to the terms of the offering of any of the Registrable Common Stock
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
Registrable Common Stock: all shares of Common Stock issuable or
------------------------
issued upon the conversion of shares of Preferred Stock; provided, however,
-------- -------
that particular shares of such Common Stock underlying the Preferred Stock
shall cease to be Registrable Common Stock (i) when a registration
statement covering the sale of such shares shall have been declared
effective under the Securities Act and such shares shall have been disposed
of in accordance with such registration statement; (ii) if, within a nine-
month period, the Holder of such shares can sell all of its shares of
Registrable Common Stock under Rule 144 (or any successor provision) under
the Securities Act; provided, however, that this clause (ii) shall not
-------- -------
apply with respect to shares registered by a Registration Statement made
pursuant to a Registration Demand except for purposes of determining
whether the Holders of a majority of the shares of Registrable Common Stock
have made a Registration Demand; (iii) if such shares shall have otherwise
been transferred and new shares not subject to transfer restrictions under
the Securities Act and not bearing any legend restricting further transfer
shall have been delivered by the Company, and no other applicable and
legally binding restriction on transfer under the Securities Act shall
exist; or (iv) if such shares shall have been transferred to a Person to
whom Registration Rights may not be transferred as provided in Section 4.6.
As used in Section 4, the number of shares of "Registrable Common
Stock deemed outstanding" on a particular date shall be equal to the sum of
(i) the number of shares of Registrable Common Stock issuable upon the
conversion of the Underlying Preferred Stock and not theretofore converted
into Registrable Common Stock on such date, plus (ii) the number of shares
of Registrable Common Stock outstanding on such date.
Registration Demand: the meaning set forth in Section 4.1.
-------------------
Registration Rights: the rights of Holders set forth in
-------------------
Sections 4.1 and 4.2 to have shares of Registrable Common Stock registered
under the Securities Act for sale under one or more effective Registration
Statements.
Registration Statement: any registration statement filed by the
----------------------
Company under the Securities Act that covers any of the Registrable Common
Stock, including the Prospectus, any amendments and supplements to such
Registration Statement, including post-effective amendments, and all
exhibits and all material incorporated by reference in such registration
statement.
6
Requesting Holders: Holders that have requested to participate
------------------
in an offering pursuant to Section 4.1 or 4.2.
SEC: the Securities and Exchange Commission.
---
Securities Act: the Securities Act of 1933.
--------------
Special Committee: a special committee of the Board of
-----------------
Directors, comprised of independent directors as such term is defined in
Schedule D to the By-laws of the National Association of Securities
Dealers, Inc., or any person or persons acting under the direction of such
committee.
Transaction: any transaction, including, without limitation, a
-----------
merger, consolidation, sale of all or substantially all of the Company's
assets or recapitalization of the Common Stock, and excluding any
transaction as to which Section 7 applies.
Triggering Event: any of the following: (i) a Change of
----------------
Control or (ii) a sale of a sufficient number of shares of Common Stock
such that Viacom beneficially owns (as such term is defined in Rule 13d-3
under the Exchange Act) shares of Common Stock constituting less than 20%
of the total number of shares of Common Stock then outstanding.
Underlying Preferred Stock: the shares of Preferred Stock
--------------------------
issuable or issued upon the exercise of the Warrants and any other capital
stock of the Company into which such Preferred Stock may be converted,
changed or reclassified or that may be issued in respect of, in exchange
for, or in substitution of, such Preferred Stock by reason of any stock
splits, stock dividends, distributions, mergers, consolidations or other
like events.
Warrant Certificates: the meaning set forth in the preamble to
--------------------
this Agreement.
Warrants: the meaning set forth in the preamble to this
--------
Agreement.
Certain terms, used principally in Sections 4 and 5, are defined
in those Sections.
2. ORIGINAL ISSUE OF WARRANTS.
2.1. Form of Warrant Certificates. The Warrant Certificates
----------------------------
shall be in registered form only and substantially in the form attached
hereto as Exhibit A, shall be dated the Effective Date and may have such
legends and endorsements thereon as the Company may deem appropriate and as
are not inconsistent with the provisions of this
7
Agreement, or as may be required to comply with any law or with any rule or
regulation pursuant thereto or to conform to usage.
2.2. Execution and Delivery of Warrant Certificates. The
----------------------------------------------
Warrant Certificates shall evidence 157,821 Series A Warrants, 157,821
Series B Warrants and 157,821 Series C Warrants, and shall be executed, on
or before the Effective Date, by the Company and delivered to BDI on the
Effective Date. The Warrant Certificates shall be manually executed on
behalf of the Company by its Chief Executive Officer, President or any Vice
President. In case the Chief Executive Officer, President or any Vice
President of the Company who shall have signed any of the Warrant
Certificates shall thereafter cease to be an officer of the Company, such
Warrant Certificates shall, nevertheless, have the same force and effect as
though such Person had not ceased to be an officer of the Company.
3. EXERCISE PRICE; EXERCISE AND WARRANTS GENERALLY.
3.1. Exercise Price. Each Warrant Certificate shall entitle the
--------------
Holder thereof, subject to the provisions of this Agreement, to purchase
one share of Preferred Stock for each Warrant represented thereby at an
exercise price (the "Exercise Price") of, in the case of the Series A
Warrants, $249.000 per preferred share, in the case of the Series B
Warrants, $286.344 per preferred share and, in the case of the Series C
Warrants, $343.608 per preferred share, in each case subject to adjustment
as herein provided.
3.2. Exercise of Warrants. Subject to the terms and conditions
--------------------
set forth herein, the Warrants shall be exercisable at any time or from
time to time on or after the earlier of (a) December 16, 1998 and (b) the
occurrence of a Triggering Event, and on or prior to the Expiration Date;
provided, however, that in no event shall the Warrants be exercisable prior
- -------- -------
to (x) with respect to the Series A Warrants, the first anniversary of the
Effective Date, (y) with respect to the Series B Warrants, the second
anniversary of the Effective Date and (z) with respect to the Series C
Warrants, the third anniversary of the Effective Date; provided further,
-------- -------
however, that to the extent approval by the holders of shares of Common
- -------
Stock to exercise any portion of the Series A Warrants is required under
the rules and regulations of the National Association of Securities
Dealers, Inc., such Warrants will not become exercisable unless and until
such approval is obtained.
3.3. Expiration of Warrants. Each series of Warrants shall
----------------------
terminate and become void as of the close of business on its respective
Expiration Date.
3.4. Method of Exercise; Payment of Exercise Price. In order to
---------------------------------------------
exercise a Warrant, a Holder must surrender the Warrant Certificate
evidencing such Warrant to the Company, with one of the forms on the
reverse of or attached to the Warrant Certificate duly executed, together
with payment in full of the Exercise Price then in effect for the share of
8
Underlying Preferred Stock as to which such Warrant is submitted for
exercise. Any such payment of the Exercise Price shall be by certified or
official bank check or checks payable in New York Clearing House or similar
next-day funds payable to the order of the Company.
If fewer than all the Warrants represented by a Warrant
Certificate are surrendered, such Warrant Certificate shall be surrendered
and a new Warrant Certificate of the same tenor and for the number of
Warrants that were not surrendered shall be executed by the Company.
Subject to the transfer restrictions set forth in Section 8, the Company
shall register such new Warrant Certificate in such name or names as may be
directed in writing by the Holder and deliver the new Warrant Certificate
to such Person or Persons entitled to receive the same.
Upon surrender of a Warrant Certificate in conformity with the
foregoing provisions, the Company shall transfer to the Holder of such
Warrant Certificate appropriate evidence of ownership of any shares
(including fractions thereof) of Underlying Preferred Stock or other
securities or property (including any money) to which the Holder is
entitled, registered or otherwise placed in, or payable to the order of,
such name or names as may be directed in writing by the Holder, and shall
deliver such evidence of ownership and any other securities or property
(including any money) to the Person or Persons entitled to receive the
same.
4. REGISTRATION RIGHTS AND PROCEDURES.
4.1. Demand Registration. (a) The Holders of at least a
-------------------
majority of the shares of Registrable Common Stock then deemed outstanding
shall have the right to request in writing that the Company effect a
registration of such Holders' Registrable Common Stock pursuant to the
provisions of this Section 4.1 (a "Registration Demand"), provided,
--------
however, that the Company shall not be obligated to file a Registration
- -------
Statement relating to any Registration Demand unless the number of shares
of Registrable Common Stock proposed to be registered pursuant to such
Registration Demand have an aggregate Current Market Price equal to at
least $25,000,000. Subject to Sections 4.1(l) and 4.3(b), the Company
shall not be obligated to honor more than one Registration Demand pursuant
to this Agreement. The Registration Demand shall specify the number of
shares of Registrable Common Stock that each such Holder proposes to sell
in the offering and the intended method of distribution thereof.
(b) Upon receipt of a Registration Demand, the Company shall
give written notice thereof to all the other Holders of Registrable Common
Stock then deemed outstanding at least 30 days prior to the initial filing
of a Registration Statement relating to such Registration Demand. Each of
the other Holders shall have the right, within 20 days after
9
the delivery of such notice, to request that the Company include all or a
portion of such Holder's Registrable Common Stock in such Registration
Statement.
(c) Subject to Sections 4.1(j), 4.1(k) and 4.1(l), as promptly
as practicable and in no event later than 90 days after the Company
receives a Registration Demand, the Company shall file with the SEC a
Registration Statement, on any form that shall be available and appropriate
for the sale of the Registrable Common Stock in accordance with the
intended method of distribution thereof. The Company shall include in such
Registration Statement all of the Registrable Common Stock of such
requesting Holders that such Holders have requested to be included therein
pursuant to Sections 4.1(a) and 4.1(b); provided, however, that, if the
-------- -------
requested registration involves an underwritten offering, (i) the
Registrable Common Stock to be registered may be reduced if the managing
underwriter delivers a Cutback Notice pursuant to Section 4.1(g) or 4.1(h)
and (ii) the filing of such Registration Statement may be delayed pursuant
to Section 4.1(l).
(d) The Company shall use its best efforts to cause each such
Registration Statement to be declared effective and to keep such
Registration Statement continuously effective and usable for resale of such
Registrable Common Stock for a period of 90 days from the date on which the
SEC declares such Registration Statement effective or such shorter period
as is necessary to complete the distribution of the securities registered
thereunder.
(e) The Holders of a majority of the shares of Registrable
Common Stock to be included in any registration requested pursuant to a
Registration Demand shall determine the method of distribution of such
shares.
(f) If a Registration Demand involves an underwritten offering,
the Holders of at least a majority of the Registrable Common Stock to be
included in such underwritten offering shall have the right to select the
managing underwriter for such offering; provided that such managing
--------
underwriter shall be reasonably satisfactory to the Company.
(g) If the proposed offering only includes shares of Registrable
Common Stock to be offered for the account of requesting Holders pursuant
to a Registration Demand, the provisions of this Section 4.1(g) shall be
applicable if the managing underwriter delivers a Cutback Notice stating
that, in its good faith opinion, the number of shares of Registrable Common
Stock that the Holders have requested to be sold exceeds the maximum number
of shares specified by the managing underwriter in such Cutback Notice that
may be distributed without materially and adversely affecting the price,
timing or distribution of the Registrable Common Stock being distributed.
If the managing underwriter delivers such Cutback Notice, the number of
shares of Registrable Common Stock entitled to be included in such
10
Registration Statement shall be allocated among requesting Holders, in
proportion to the respective number of shares of Registrable Common Stock
that each Holder owns of record.
(h) In the event that the proposed offering is an underwritten
offering and includes shares of Common Stock to be offered for the account
of selling stockholders, whether or not such selling stockholders have the
right to include shares in such offering (the "Other Demand Shares"), plus
securities to be offered for the account of the Company (the "Company
Demand Shares"), the provisions of this Section 4.1(h) shall be applicable
if the managing underwriter delivers a written notice (a "Cutback Notice")
stating that, in its good faith opinion, the aggregate number of shares of
Registrable Common Stock, plus the Other Demand Shares and the Company
Demand Shares proposed to be sold therein, exceeds the maximum number of
shares specified by the managing underwriter in such Cutback Notice that
may be distributed without materially and adversely affecting the price,
timing or distribution of the Common Stock being distributed. If the
managing underwriter delivers such a Cutback Notice, (i) selling
stockholders who have the right, pursuant to a written agreement entered
into with the Company prior to April 17, 1995 (a "Preexisting Agreement"),
to include their Other Demand Shares in the proposed offering prior to the
requesting Holders shall first be entitled to include their Other Demand
Shares in such offering, (ii) then the requesting Holders, and other
selling stockholders who have the right, pursuant to a Preexisting
Agreement, to include their Other Demand Shares on a pro rata basis with
the Registrable Common Stock, shall be entitled to include in such offering
the Registrable Common Stock such requesting Holders desire to sell therein
and such Other Demand Shares (allocated in accordance with such Preexisting
Agreement and thereafter allocated among the requesting Holders and such
other selling stockholders in proportion to the respective numbers of
shares of Registrable Common Stock and such Other Demand Shares owned of
record) and (iii) then the Company and any other selling stockholders shall
be entitled to participate in such offering in the proportions that they
shall have agreed to. The Company represents that the McDonald's Agreement
is the only Preexisting Agreement to which the Company is a party providing
for registration rights that would affect the Holders' rights to include
Registrable Common Stock in a Registration Statement pursuant to a
Registration Demand and the Company agrees that it shall not grant any
Person registration rights that entitle such Person to register its shares
of Common Stock prior to or on a pro rata basis with the Holders of
Registrable Common Stock in a Registration Statement pursuant to a
Registration Demand.
(i) The underwriting agreement relating to the Registration
Demand shall provide that each requesting Holder shall have the right to
sell either its Warrants, its Preferred Stock or its Registrable Common
Stock to the underwriters, subject, in the case of the Warrants, to payment
by such Holder to the underwriters of the exercise price thereof.
11
(j) No Registration Demand may be made until the expiration of
a 180-day period after the effective date of any Registration Statement as
to which the Holders of Registrable Common Stock could have exercised
Piggyback Registration Rights.
(k) The Registration Demand may not be made for a Registration
Statement to be filed pursuant to Rule 415 (or any successor rule) under
the Securities Act.
(l) In the event that the Registration Demand is for an
underwritten offering, the provisions of this Section 4.1(l) shall be
applicable if prior to the time of such Registration Demand (i) the Company
has in good faith commenced the preparation of a registration statement for
an underwritten offering of its securities (the "Company Offering") and
(ii) the managing underwriter delivers a written opinion (a "Transaction
Deferral Opinion") to the requesting Holders stating, in its good faith
opinion, that the proposed offering pursuant to the Registration Demand
will materially and adversely affect the Company Offering. In such case,
the Company will be permitted to defer the filing of the Registration
Statement pursuant to the Registration Demand until the earliest of (a) the
abandonment of the Company Offering, (b) 60 days after receipt by the
requesting Holders of the Transaction Deferral Opinion (unless the Company
Offering has become effective on or prior to such 60th day) and (c) if the
Company Offering has commenced on or prior to such 60th day, 90 days after
the effective date of the Company Offering (or such shorter period as may
be requested by the managing underwriter for the Company Offering). The
Company will not be permitted to defer a Registration Demand pursuant to
this Section 4.1(l) more than once in any 12-month period. If the Company
defers any registration statement pursuant to this Section 4.1(l) and the
requesting Holders determine not to proceed with such registration on or
prior to the end of the permitted deferral period, the Holders' one
Registration Demand will be reinstated.
4.2. Piggyback Registration Rights. (a) The Company shall give
-----------------------------
written notice to all the Holders of exercisable Warrants, Preferred Stock
or Registrable Common Stock at least 10 business days prior to a filing of
a Registration Statement relating to an offering of its securities other
than an Excluded Offering. Each such Holder shall have the right, within 5
business days after delivery of such notice, to request in writing that the
Company include all or a portion of such Holder's Registrable Common Stock
in such Registration Statement ("Piggyback Registration Rights"); provided
--------
that, in the case of an underwritten offering, such Holder may not include
Registrable Common Stock if (i) the Common Stock (or, if the Common Stock
at the time in question consists of more than one class or series of
capital stock, Common Stock of the same class or series as the Registrable
Common Stock proposed to be registered) is not otherwise being registered
and sold in such offering and (ii) the managing underwriter for such
offering determines that the inclusion of the Registrable Common Stock
would materially and adversely affect such offering.
12
(b) In the event that the proposed offering is an underwritten
offering, the provisions of this Section 4.2(b) shall be applicable if the
managing underwriter delivers a written Cutback Notice stating that, in its
good faith opinion, the aggregate number of shares of Registrable Common
Stock, plus the other securities proposed to be sold in such offering,
exceeds the maximum number of shares specified by the managing underwriter
in such Cutback Notice that may be distributed without materially and
adversely affecting the price, timing or distribution of the securities
being distributed. If the managing underwriter delivers such Cutback
Notice, the securities to be included in such offering shall be determined
according to the following priority: first, all securities the Company or
the other Person or Persons initiating such offering proposes to sell for
its own account; second, the shares of Registrable Common Stock such
requesting Holders desire to sell therein and the securities desired to be
sold by selling stockholders who have the right, pursuant to a Preexisting
Agreement, to include such securities in such offering on a pro rata basis
with such Registrable Common Stock (allocated in accordance with such
Preexisting Agreement and thereafter allocated among the requesting Holders
and such selling stockholders in proportion to the respective numbers of
shares of Registrable Common Stock and such securities owned of record);
and third, any securities proposed to be sold by other selling
stockholders.
(c) If at any time after giving written notice of its intention
to register any securities as to which the Holders shall have the rights
provided in this Section 4.2 and prior to the effective date of the
Registration Statement with respect thereto, the Company shall determine
for any reason not to register or to delay registration of such securities,
the Company may, at its election, give written notice of such determination
to the Holders and, thereupon, (i) in the case of a determination not to
register, the Company shall be relieved of its obligation to register any
Registrable Common Stock in connection with such registration and (ii) in
the case of a determination to delay such registration, the Company shall
be permitted to delay registration of any Registrable Common Stock
requested to be included in such registration for the same period as the
delay in registering the other securities proposed to be registered by the
Company, but, in either such case, without prejudice to the rights of the
Holders under Section 4.1.
4.3. Company's Ability to Postpone Registration Rights.
-------------------------------------------------
(a) The Company shall have the right to postpone the filing of any
Registration Statement relating to a Registration Demand for a reasonable
period of time of not more than 90 days in any 365-day period if it has
been advised by legal counsel for the Company that: (i) the Company would
be required to disclose in such Registration Statement information not
otherwise then required by law to be publicly disclosed and (ii) the
Company has a bona fide business reason for preserving such information as
confidential and disclosure of such information would have a material
adverse effect on the Company (as reasonably determined in good faith by
the Company).
13
(b) If the Company postpones any registration statement pursuant
to Section 4.3(a) and the requesting Holders determine not to proceed with
such registration on or prior to the end of such deferral period, the
Holders' one Registration Demand will be reinstated.
(c) The Company shall as promptly as practicable notify the
requesting Holders of any postponement pursuant to this Section 4.3.
4.4. Holder Withdrawal Rights. The Company shall withdraw from
------------------------
registration any Registrable Common Stock on request of a requesting
Holder, but such Holder shall remain liable for its share of expenses
incurred prior to such withdrawal pursuant to Section 5.2.
4.5. Blackout Periods. (a) If requested by the managing
----------------
underwriter of an offering by the Company of its securities, the Holders of
Registrable Common Stock having Registration Rights shall agree not to sell
any Registrable Common Stock or other Common Stock held by them, during the
30 days prior to and the 90 days after the effectiveness of the
registration statement for such offering (or such shorter period as
requested by such managing underwriter), except for sales as part of such
offering and private sales.
(b) If requested by the managing underwriter for any offering
pursuant to Section 4.1, the Company will agree not to sell any Common
Stock, or securities exercisable or exchangeable for or convertible into
Common Stock, subject to customary exceptions, for 90 days after the
effective date of the Registration Statement filed pursuant to Section 4.1.
4.6. Transferability. Holders may transfer Registration Rights
---------------
granted hereunder to any transferee of Warrants, Preferred Stock or
Registrable Common Stock if at least 25% of the number of shares of
Registrable Common Stock represented by the Warrants on the date hereof are
being transferred. On or before a transfer of Registration Rights pursuant
to this Section 4.6, the Holder proposing to transfer such Registration
Rights shall deliver to the Company a written notice stating the name and
address of the proposed transferee and identifying the number of shares of
Registrable Common Stock with respect to which the rights under this
Agreement are being transferred as permitted herein. Any person to whom
Registration Rights are granted hereunder shall agree in writing to be
bound by the terms of this Agreement.
5. REGISTRATION PROCEDURES.
5.1. Underwriting Agreement. (a) In connection with a
----------------------
registration of an underwritten public offering pursuant to Section 4.1,
the Company shall, if requested by the underwriters of such offering, enter
into an underwriting agreement with such underwriters,
14
containing terms and provisions customarily contained in underwriting
agreements for secondary distributions, except the Company shall not be
required, in entering into any such underwriting agreement, to agree to any
terms providing for contribution to underwriters, selling stockholders or
any other Person.
(b) In connection with a registration of an underwritten public
offering pursuant to Section 4.2, the Company may require that any
Registrable Common Stock to be included in such offering be included on the
same terms and conditions as shall be applicable to other securities being
sold by the underwriters in such offering, including entering into an
underwriting agreement with such underwriters containing terms and
conditions applicable to the requesting Holders that are customarily
contained in underwriting agreements for secondary distributions.
5.2. Registration Expenses. (a) The Company will pay and bear
---------------------
all costs and expenses incident to the performance of its obligations under
this Agreement with respect to a registration pursuant to Section 4.1 so
long as such registration under the Securities Act can be filed on Form S-3
(or any successor form). Such costs and expenses include:
(i) the preparation, printing and filing of the Registration
Statement (including financial statements and exhibits), as originally
filed and as amended, any preliminary prospectuses and the Prospectus
and any amendments or supplements thereto, and the cost of furnishing
copies thereof to the selling holders or the underwriters or agents,
as the case may be;
(ii) the preparation, printing and distribution of any
underwriting or agency agreement, certificates representing the
registered securities, any Blue Sky Survey and other documents
relating to the performance by the Company of and compliance by the
Company with this Agreement;
(iii) the fees and disbursements of the Company's counsel and
accountants, provided that the Company's accountants shall not be
required to perform any audit activities other than in connection with
providing a customary comfort letter;
(iv) the fees and disbursements of the underwriters or agents
customarily paid by issuers of securities in connection with secondary
distributions and the reasonable fees and expenses of any special
experts retained in connection with the Registration Statement, but
excluding underwriting discounts and commissions and transfer taxes,
if any;
(v) the qualification of the registered securities under
applicable state securities or Blue Sky laws and any filing for review
of the offering with the National Association of Securities Dealers,
Inc., including filing fees and fees and
15
disbursements of counsel for the selling holders and the underwriters
or agents, as the case may be, in connection with such qualification,
filing or review and in connection with the preparation of any Blue
Sky Survey; and
(vi) all fees and expenses incurred in connection with the
listing or admission to trading, if any, of any of the registered
securities on any securities exchange or computerized trading system,
including the Nasdaq National Market System, on which the Common Stock
is then listed or traded.
(b) With respect to each registration pursuant to
Section 4.1 that cannot be filed on Form S-3 (or any successor form), the
Company and the requesting Holders will each pay and bear 50% of the costs
and expenses enumerated in Section 5.1(a) incident to the performance of
the Company's obligations under this Agreement. If, in connection with a
registration pursuant to Section 4.1, the Company's independent public
accountants are required to perform any audit activities other than in
connection with providing a customary comfort letter and other than any
audit activities that would otherwise be performed for the Company on or
about such time in the ordinary course of its business, the Company and the
requesting Holders will each pay and bear 50% of the costs and expenses of
such accountants incident to such additional audit activities. The Company
shall be entitled to allocate such costs pro rata based on the number of
shares being registered.
(c) The requesting Holders will bear their own internal expenses
with respect to any registration pursuant to Section 4.1, including the
payment of any fees and disbursements of any legal counsel, investment
banker, accountant or other professional advisor retained by such Holders.
The requesting Holders will pay their pro rata share of (i) any
underwriting discounts, selling concessions or commissions payable to
underwriters or agents in connection with such registration and (ii) any
stock transfer taxes payable upon the sale of securities sold pursuant to
such registration (collectively, the fees and expenses described in
subclauses (i) and (ii) above are hereinafter referred to as "Selling
Expenses").
(d) The Company will be responsible for its own internal
expenses with respect to any registration pursuant to Section 4.1.
(e) With respect to each registration pursuant to Section 4.2,
the Company will pay all of the costs and expenses enumerated in Section
5.1(a), except the requesting Holders' pro rata share of Selling Expenses.
(f) Notwithstanding anything to the contrary set forth herein,
the requesting Holders shall not be responsible for the payment or
reimbursement of any fees, expenses or any other costs arising out of or in
connection with the registration, offering or sale of securities by the
Company for its own account or any other securityholders of the Company.
16
6. BANKRUPTCY, DISSOLUTION, LIQUIDATION OR WINDING UP; CERTAIN
TRANSACTIONS.
6.1. Bankruptcy, Dissolution, Liquidation or Winding Up. If
--------------------------------------------------
prior to the Expiration Date a voluntary or involuntary case or proceeding
by or against the Company is commenced under any bankruptcy, insolvency or
similar law or the stockholders of the Company approve the dissolution,
liquidation or winding up of the Company, the Company shall give written
notice thereof to the Holders of Warrants and Preferred Stock, at the
earliest practicable time but in no event (x) in the case of any
involuntary bankruptcy or insolvency proceeding, more than 20 days after
the date on which such proceeding was instituted and (y) in the case of any
voluntary bankruptcy or insolvency proceeding or any proposed dissolution,
liquidation or winding up of the affairs of the Company, less than 20 days
prior to the date on which such transaction is expected to become effective
or, if earlier, the record date for such transaction.
6.2. Certain Transactions. The Company shall not be a party to
--------------------
any Transaction and it shall not consent or agree to the occurrence of any
Transaction unless the terms of such Transaction provide that each Warrant
that is outstanding after the consummation of such Transaction shall
thereafter be exercisable for preferred stock of the surviving corporation,
having substantially the same terms as the Preferred Stock and the
surviving corporation shall have complied with the terms and conditions set
forth in Section (6) of the Certificate of Designations for the Preferred
Stock. The provisions of this Section 6.2 shall similarly apply to
successive Transactions.
7. ADJUSTMENTS.
In case the Company shall take any action affecting the Preferred
Stock that would materially affect the conversion rights of the Holders of
Warrants, the Exercise Price and the number of shares of Preferred Stock
issuable upon exercise of the Warrants shall be adjusted to the extent
permitted by law in such manner and at such time as the Special Committee
in good faith may determine to be equitable under the circumstances.
8. RESTRICTIONS ON TRANSFER.
8.1 Stock Certificate Legend. A copy of this Agreement shall be
------------------------
filed with the Secretary of the Company and kept with the records of the
Company. Each certificate representing shares of Underlying Preferred
Stock and Registrable Common Stock shall bear the following legends:
First Legend:
------------
17
"The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be offered, sold, assigned, pledged,
hypothecated or otherwise transferred in the absence of such
registration or pursuant to an exemption therefrom under the Act
or if the Act does not apply."
Second Legend:
-------------
"The shares evidenced by this certificate may not be
offered, sold, assigned, pledged, hypothecated or otherwise
transferred (collectively, a "Transfer") unless and until such
Transfer complies with the Warrant Agreement, dated as of May 24,
1995, a copy of which is on file at the office of the issuer."
The Company shall remove the First Legend from a share
certificate or issue to the Holder thereof a new certificate therefor free
of the First Legend at such time as the First Legend shall no longer apply
to the shares evidenced by such certificate.
8.2 Restriction on Transfer. None of the Warrants, the
-----------------------
Underlying Preferred Stock and the Registrable Common Stock shall be sold,
assigned, pledged, hypothecated or otherwise transferred except (i)
pursuant to an effective registration statement, (ii) to a qualified
institutional buyer in compliance with Rule 144A under the Securities Act,
(iii) pursuant to another exemption from the registration requirements of
the Securities Act (if available) or (iv) in a transaction to which the
registration requirements of the Securities Act do not apply. In the case
of clause (ii) above, the transferee shall represent and warrant that it is
purchasing the shares for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such
account is a "qualified institutional buyer" within the meaning of Rule
144A under the Securities Act of 1933, as amended, and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that it
has received such information regarding the Company as such transferee has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon such
transferee's foregoing representations in order to claim the exemption from
registration provided by Rule 144A. In the case of clauses (iii) or (iv)
above, prior to such transfer, the transferring Holder shall furnish to the
Company such certificates, legal opinions or other information as it may
reasonably require to confirm that such transfer is being made pursuant to
an exemption from, or in a transaction not subject to, the Securities Act
or state securities or Blue Sky laws.
8.3 Representation of BDI. BDI represents that it is acquiring
---------------------
the Warrants for its own account and not with a view to the distribution of
the Warrants or the Underlying Preferred Stock or Registrable Common Stock
(within the meaning of the Securities Act) that would be in violation of
the securities laws of the United States, but subject, nevertheless, to
18
the disposition of its property being at all times within its control. BDI
understands that the Warrants and the Underlying Preferred Stock and the
Registrable Common Stock have not been, and will not be (except as provided
in this Agreement), registered under the Securities Act.
9. WARRANT TRANSFERABILITY AND WARRANT TRANSFER BOOKS.
The Warrant Certificates shall not be transferred to any Person
other than Viacom or any of its Affiliates.
The Warrant Certificates shall be issued in registered form only.
The Company shall keep a register at its executive offices in which the
Company shall provide for the registration of Warrant Certificates and of
transfers or exchanges of Warrant Certificates as herein provided.
Warrant Certificates may be exchanged at such office upon payment
of the charges hereinafter provided. Whenever any Warrant Certificates are
so surrendered for exchange, the Company shall execute the Warrant
Certificates that the Holder making the exchange is entitled to receive.
All Warrant Certificates issued upon any registration of transfer
or exchange of Warrant Certificates shall be the valid obligations of the
Company, evidencing the same obligations, and entitled to the same benefits
under this Agreement, as the Warrant Certificates surrendered for such
registration of transfer or exchange.
Every Warrant Certificate surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company, duly executed
by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer
or exchange of Warrant Certificates. The Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Warrant Certificates.
When a Warrant Certificate shall have been duly endorsed, the
Holder thereof may be treated by the Company and all other persons dealing
therewith as the absolute owner thereof for any purpose and as the Person
entitled to exercise the rights represented thereby, or to the transfer
thereof on the register of the Company, any notice to the contrary
notwithstanding; but until such transfer on such register, the Company may
treat the registered Holder thereof as the owner for all purposes.
19
10. WARRANT HOLDERS.
10.1. No Voting Rights. Prior to the exercise of the Warrants,
----------------
no Holder of a Warrant Certificate, as such, shall be entitled to any
rights of a stockholder of the Company, including, without limitation, the
right to vote, to consent, to exercise any preemptive right, to receive any
notice of meetings of stockholders for the election of directors of the
Company or any other matter or to receive any notice of any proceedings of
the Company, except as may be specifically provided for herein.
10.2. Right of Action. All rights of action in respect of this
---------------
Agreement are vested in the Holders, and any Holder may, in such Holder's
own behalf and for such Holder's own benefit, enforce, and may institute
and maintain any suit, action or proceeding against the Company suitable to
enforce, or otherwise in respect of, such Holder's right to exercise,
convert or exchange, register or sell such Holder's securities in the
manner provided in this Agreement.
11. COVENANTS OF THE COMPANY.
11.1. Reservation of Preferred Stock for Issuance on Exercise of
----------------------------------------------------------
Warrants. The Company covenants that it will at all times reserve and keep
- --------
available, free from pre-emptive rights, out of its authorized but unissued
Preferred Stock, solely for the purpose of issue upon exercise of Warrants
as herein provided, such number of shares of Preferred Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Preferred Stock which shall be so issuable
shall, upon such issue, be duly and validly issued and fully paid and
non-assessable.
11.2. Notice of Dividends. At any time when the Company
-------------------
declares any dividend on its Preferred Stock or Common Stock, it shall give
notice to the Holders of all the then outstanding Warrants of any such
declaration not less than 50 days prior to the related record date for
payment of the dividend so declared.
12. MISCELLANEOUS.
12.1. Payment of Taxes. The Company shall pay all federal and
----------------
state transfer taxes and other similar governmental charges that may be
imposed in respect of the issuance and delivery of the Warrants or any
securities deliverable upon exercise of Warrants. The Company shall not be
required, however, to pay any tax or other charge imposed in connection
with any transfer involved in the transfer or delivery of the Warrants to a
Person other than, or the issue of any certificate for shares of Preferred
Stock or other
20
securities underlying the Warrants or payment of cash to any Person other
than, the Holder of a Warrant Certificate surrendered upon the exchange,
transfer or exercise of a Warrant, and in case of such transfer or
exercise, the Company shall not be required to issue any preferred stock
certificate or pay any cash until such tax or other charge has been paid or
it has been established to the Company's satisfaction that no such tax or
other charge is due.
12.2. Surrender of Certificates. Any Warrant Certificate
-------------------------
surrendered for exchange, transfer or exercise shall be delivered to the
Company and shall be promptly cancelled by the Company and shall not be
reissued by the Company. The Company shall destroy such cancelled Warrant
Certificates.
12.3. Mutilated, Destroyed, Lost and Stolen Warrant
---------------------------------------------
Certificates. If any mutilated Warrant Certificate is surrendered to the
- ------------
Company and it receives evidence to its reasonable satisfaction of the
destruction, loss or theft of any Warrant Certificate, and there is
delivered to the Company such security or indemnity as may be required by
it to save it harmless, then, in the absence of notice to the Company that
such Warrant Certificate has been acquired by a bona fide purchaser, the
Company shall execute and deliver, in exchange for any such mutilated
Warrant Certificate or in lieu of any such destroyed, lost or stolen
Warrant Certificate, a new Warrant Certificate of like tenor and for a like
aggregate number of Warrants.
Upon the issuance of any new Warrant Certificate under this
Section 12.3, the Company may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and other expenses in connection therewith.
Every new Warrant Certificate executed and delivered pursuant to
this Section 12.3 in lieu of any destroyed, lost or stolen Warrant
Certificate shall constitute an original contractual obligation of the
Company, whether or not the destroyed, lost or stolen Warrant Certificate
shall be at any time enforceable by anyone, and shall be entitled to the
benefits of this Agreement equally and proportionately with any and all
other Warrant Certificates duly executed and delivered hereunder.
The provisions of this Section 12.3 are exclusive and shall
preclude (to the extent lawful) all other rights or remedies with respect
to the replacement of mutilated, destroyed, lost or stolen Warrant
Certificates.
12.4. Notices. (a) Except as otherwise provided in
-------
Section 12.4(b), any notice, demand or delivery authorized by this
Agreement shall be sufficiently given or made when mailed if sent by
first-class mail, postage prepaid, addressed to any Holder at such Holder's
address shown on the register of the Company and to the Company as follows:
21
If to the Company: Discovery Zone, Inc.
205 North Michigan Avenue, Suite 3400
Chicago, Illinois 60601
Attention: General Counsel
If to BDI: c/o Blockbuster Entertainment Group
One Blockbuster Plaza
Fort Lauderdale, Florida 33301
Attention: General Counsel
with a copy to:
Viacom Inc.
1515 Broadway
New York, New York 10036
Attention: General Counsel
or such other address as shall have been furnished to the party giving or
making such notice, demand or delivery.
(b) Any notice required to be given by the Company to the
Holders pursuant to Section 4.1, 4.2, 4.3, 6.1 or 6.2 shall be made by
mailing by registered mail, return receipt requested, to the Holders at
their respective addresses shown on the register of the Company. Any
notice that is mailed in the manner herein provided shall be conclusively
presumed to have been duly given when mailed, whether or not the Holder
receives the notice.
12.5. Applicable Law. This Agreement and each Warrant issued
--------------
hereunder and all rights arising hereunder shall be governed by the laws of
the State of Delaware.
12.6. Persons Benefitting. This Agreement shall be binding upon
-------------------
and inure to the benefit of the parties hereto, and their respective
successors, assigns, beneficiaries, executors and administrators, and the
Holders from time to time. Nothing in this Agreement is intended or shall
be construed to confer upon any Person, other than the parties hereto and
the Holders, any right, remedy or claim under or by reason of this
Agreement or any part hereof.
12.7. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed an original, but all
of which together constitute one and the same instrument.
22
12.8. Amendments. This Agreement may not be amended except by a
----------
written instrument signed by both of the parties hereto.
12.9. Headings. The descriptive headings of the several
--------
Sections of this Agreement are inserted for convenience and shall not
control or affect the meaning or construction of any of the provisions
hereof.
12.10 Rights Under This Agreement. The rights and duties of the
---------------------------
Company under this Agreement shall be exercised by a Special Committee.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
DISCOVERY ZONE, INC.
By:
-----------------------------------
Name:
Title:
BLOCKBUSTER DISCOVERY
INVESTMENT, INC.
By:
-----------------------------------
Name:
Title:
Exhibit A
FORM OF WARRANT CERTIFICATE
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. NO REGISTRATION OF TRANSFER OF
SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE
COMPANY UNLESS SUCH TRANSFER IS MADE IN CONNECTION
WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT, OR SUCH ACT
DOES NOT APPLY.
WARRANTS TO PURCHASE PREFERRED STOCK
OF DISCOVERY ZONE, INC.
No. ______ Certificate for _____ [Series A] [Series B] [Series C] Warrants
This certifies that ____________________, or registered assigns,
is the registered holder of the number of Warrants set forth above. Each
Warrant entitles the holder thereof (a "Holder"), subject to the provisions
contained herein and in the Warrant Agreement referred to below, to
purchase from Discovery Zone, Inc., a Delaware corporation (the "Company"),
one (1) share of Preferred Stock, par value $.01 per share, of the Company
("Preferred Stock"), at the exercise price (the "Exercise Price") of
[$249.000 per preferred share -- the Series A Warrants] [$286.344 per
preferred share -- the Series B Warrants] [$343.608 per preferred share --
the Series C Warrants], subject to adjustment upon the occurrence of
certain events.
This Warrant Certificate is issued under and in accordance with
the Warrant Agreement dated as of May 24, 1995 (the "Warrant Agreement";
all terms used in this Warrant Certificate that are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant
Agreement) between the Company and Blockbuster Discovery Investment, Inc.,
and is subject to the terms and provisions contained in the Warrant
Agreement, to all of which terms and provisions the Holder of this Warrant
Certificate consents by acceptance hereof. The Warrant Agreement is hereby
incorporated herein by reference and made a part hereof. Reference is
hereby made to the Warrant Agreement for a full statement of the respective
rights, limitations of rights, duties, obligations and immunities
thereunder of the Company and the Holders of the Warrants.
This Warrant Certificate shall terminate and become void on the
fifth anniversary of the Effective Date; provided that the Expiration Date
--------
of the Warrants shall be extended for additional period or periods in the
event and so long as the Management
A-2
Services Agreement described in the Warrant Agreement is continued for such
period or periods after the initial term thereof; provided further that
-------- -------
this Warrant Certificate may terminate and become void under certain
circumstances in connection with the termination of such Management
Services Agreement.
As provided in the Warrant Agreement and subject to the terms and
conditions therein set forth, the Warrants evidenced hereby shall be
exercisable at any time or from time to time on or after the earlier of (a)
December 16, 1998 and (b) the occurrence of a Triggering Event, and on or
prior to the Expiration Date, provided, however, that in no event shall the
-------- -------
Warrants be exercisable prior to [with respect to the Series A Warrants--
the first anniversary of the Effective Date] [with respect to the Series B
Warrants--the second anniversary of the Effective Date] [with respect to
the Series C Warrants--the third anniversary of the Effective Date] [;
provided further, however, that to the extent approval by the holders of
- -------- ------- -------
shares of Common Stock to exercise any portion of the Series A Warrants is
required under the rules and regulations of the National Association of
Securities Dealers, Inc., such Warrants will not become exercisable unless
and until such approval is obtained -- Series A Warrant Certificate only].
The Exercise Prices per share of Preferred Stock issuable upon
the exercise of each Warrant are subject to adjustment as provided in the
Warrant Agreement.
All shares of Preferred Stock issuable by the Company upon the
exercise of Warrants shall, upon such issue, be duly and validly issued and
fully paid and nonassessable.
In order to exercise a Warrant, the registered holder hereof must
surrender this Warrant Certificate to the Company, with the Exercise
Subscription Form duly executed by the Holder hereof, together with any
required payment in full of the Exercise Price then in effect for the
share(s) of Underlying Preferred Stock as to which the Warrant(s)
represented by this Warrant Certificate are submitted for exercise, all
subject to the terms and conditions hereof and of the Warrant Agreement.
Any such payment of the Exercise Price shall be by certified or official
bank check payable or checks payable in New York Clearing House or similar
next-day funds payable to the order of the Company.
The Company shall pay all federal and state transfer taxes and
other similar governmental charges that may be imposed in respect of the
issuance or delivery of the Warrants or any securities deliverable upon
exercise of Warrants. The Company shall not be required, however, to pay
any tax or other charge imposed in connection with any transfer involved in
the transfer or delivery of the Warrants to a Person other than, or the
issue of any certificate for shares of Preferred Stock or other securities
underlying the Warrants or payment of cash to any Person other than, the
Holder of a Warrant Certificate surrendered upon the exchange, transfer or
exercise of a Warrant, and in case of such transfer or exercise, the
Company shall not be required to issue any preferred stock certificate or
pay
A-3
any cash until such tax or other charge has been paid or it has been
established to the Company's satisfaction that no such tax or other charge
is due.
This Warrant Certificate is not transferrable to any Person other
than Viacom or any of its Affiliates. This Warrant Certificate and all
rights hereunder are transferable by the registered holder hereof, in whole
or in part, only on the register of the Company, upon surrender of this
Warrant Certificate for registration of transfer at the executive offices
of the Company duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company duly executed by, the Holder
hereof or his attorney duly authorized in writing, with signature
guaranteed. Upon any partial transfer, the Company will issue and deliver
to such holder a new Warrant Certificate or Certificates with respect to
any portion not so transferred.
No service charge shall be made for any registration of transfer
or exchange of the Warrant Certificates, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
Each taker and holder of this Warrant Certificate, by taking or
holding the same, consents and agrees that when this Warrant Certificate
shall have been endorsed, the holder hereof may be treated by the Company
and all other persons dealing with this Warrant Certificate as the absolute
owner hereof for any purpose and as the person entitled to exercise the
rights represented hereby, or to the transfer hereof on the register of the
Company, any notice to the contrary notwithstanding, but until such
transfer on such register, the Company may treat the registered Holder
hereof as the owner for all purposes.
This Warrant Certificate and the Warrant Agreement are subject to
amendment as provided in the Warrant Agreement.
Dated:
DISCOVERY ZONE, INC.
By:
-----------------------------------
Name
Title:
A-4
EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: Discovery Zone, Inc.
The undersigned irrevocably exercises _______________ of the
[Series A] [Series B] [Series C] Warrants for the purchase of one (1) share
(subject to adjustment) of Preferred Stock, par value $.01 per share, of
Discovery Zone, Inc., for each [Series A] [Series B] [Series C] Warrant
represented by the Warrant Certificate and herewith makes payment of
$__________ (such payment being by certified or official bank check payable
to the order of Discovery Zone, Inc.), all at the Exercise Price and on the
terms and conditions specified in the within Warrant Certificate and the
Warrant Agreement therein referred to, surrenders this Warrant Certificate
and all right, title and interest therein to Discovery Zone, Inc. and
directs that the shares of Preferred Stock deliverable upon the exercise of
such Warrants be registered or placed in the name and at the address
specified below and delivered thereto.
Date:
(1)
-------------------------------------
(Signature of Owner)
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip Code)
- --------------------
(1) The signature must correspond with the name as written upon the face
of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatever.
A-5
Securities and/or check to be issued to:
Please insert identifying number:
Name:
Street Address:
City, State and Zip Code:
Any unexercised Warrants evidenced by the within Warrant Certificate to be
issued to:
Please insert identifying number:
Name:
Street Address:
City, State and Zip Code:
A-6
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered holder of the within
Warrant Certificate hereby sells, assigns, and transfers unto the
Assignee(s) named below (including the undersigned with respect to any
Warrants constituting a part of the Warrants evidenced by the within
Warrant Certificate not being assigned hereby) all of the right of the
undersigned under the within Warrant Certificate, with respect to the
number of Warrants set forth below:
Name(s) of
Assignee(s) Address No. of Warrants
----------- ------- ---------------
Please insert social security or other identifying number of Assignee(s).
and does hereby irrevocably constitute and appoint the
undersigned's attorney to make such transfer on the books of
maintained for the purposes, with full power of substitution in the
premises.
(1)
-------------------------------------
(Signature of Owner)
- --------------------
(1) The signature must correspond with the name as written upon the face
of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatever.
Exhibit C
CERTIFICATE OF THE DESIGNATIONS, POWERS, PREFERENCES AND
RELATIVE, PARTICIPATING OR OTHER RIGHTS, AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, OF
SERIES A CONVERTIBLE VOTING PARTICIPATING PREFERRED STOCK
($0.01 Par Value)
OF
DISCOVERY ZONE, INC.
___________________
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
___________________
Discovery Zone, Inc., a Delaware corporation (the "Corporation"), does
hereby certify that the following resolutions were duly adopted by the
Board of Directors of the Corporation pursuant to authority conferred upon
the Board of Directors by Article Fourth of the Certificate of
Incorporation of the Corporation, which authorizes the issuance of up to
ten million (10,000,000) shares of Preferred Stock, at a meeting of the
Board of Directors duly held on May 23, 1995:
RESOLVED, that the issue of a series of Preferred Stock, par value
$0.01 per share, of the Corporation is hereby authorized and the
designation, powers, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions
thereof, in addition to those set forth in the Certificate of Incorporation
of the Corporation, are hereby fixed as follows:
(1) Number of Shares and Designation. 473,463 shares of the
--------------------------------
Preferred Stock, par value $0.01 per share, of the Corporation are hereby
constituted as a series of the Preferred Stock designated as the Series A
Convertible Voting Participating Preferred Stock (the "Series A Preferred
Stock"). The number of shares of the Series A Preferred Stock may not be
increased and may not be decreased below the number of then currently
outstanding shares of Series A Preferred Stock.
(2) Definitions. For purposes of the Series A Preferred Stock, the
-----------
following terms shall have the meanings indicated:
"Affiliate," when used with reference to any Person, shall mean
any other Person who, directly or indirectly, is in control of, is
controlled by or is under common control with the former Person; and
"control" (including the terms "controlling," "controlled by," or
"under common control with") means the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.
"Board of Directors" shall mean the board of directors of the
Corporation or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series A
Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
"Common Stock" shall mean the Common Stock of the Corporation,
par value $.01 per share, and any other capital stock of the Company
into which such common stock may be converted, changed or reclassified
or that may be issued in respect of, in exchange for, or in
substitution of, such common stock by reason of any stock splits,
stock dividends, distributions, mergers, consolidations or other like
events.
"Conversion Rate" shall mean the number of shares of Common Stock
into which each share of Series A Preferred Stock is convertible, as
such Conversion Rate may be adjusted pursuant to Section (6) hereof.
The initial Conversion Rate will be twenty-four (24) shares of Common
Stock for each share of Series A Preferred Stock.
"Current Market Price" shall mean, as of a particular date, the
last reported sales price at which a share of Common Stock shall have
been sold regular way, or, in case no such reported sale takes place
on such day, the average of the closing bid and asked prices regular
way for such day, in each case on the principal national securities
exchange or in the Nasdaq National Market System on which the shares
of Common Stock are listed or to which such shares are admitted to
trading, or, if not listed or admitted to trading, the average of the
closing bid and asked prices of the Common Stock in the over-the-
counter market as reported by Nasdaq or such other comparable system
then in use, or the average of the closing bid and asked prices as
furnished by two members of the National Association of Securities
Dealers, Inc. making a market in the Common Stock, selected from time
to time by the Corporation for that purpose.
"Current Market Value" shall have the meaning set forth in
Subsection (6)(d)(v) hereof.
"Person" shall mean any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision
thereof.
3
"Special Committee" shall mean a special committee of the Board
of Directors, comprised of independent directors as such term is
defined in Schedule D to the By-laws of the National Association of
Securities Dealers, Inc., or any person or persons acting under the
direction of such committee.
"Transfer Agent" shall mean such agent or agents of the
Corporation as may be designated by the Board of Directors as the
transfer agent for the Series A Preferred Stock.
"Viacom" shall mean Viacom Inc., a Delaware corporation.
"Warrant Agreement" shall mean the Warrant Agreement dated as of
May __, 1995 between the Corporation and Blockbuster Discovery
Investment, Inc., a wholly owned subsidiary of Viacom.
"Warrants" shall mean, collectively, the 157,821 Series A
Warrants, 157,821 Series B Warrants and 157,821 Series C Warrants
issued under the Warrant Agreement, entitling the holders thereof,
subject to certain terms and conditions, to purchase, in the
aggregate, 473,463 shares of Series A Preferred Stock at an exercise
price of $249.00 per share of Series A Preferred Stock, with respect
to the Series A Warrants, $286.344 per share of Series A Preferred
Stock, with respect to the Series B Warrants, and $343.608 per share
of Series A Preferred Stock, with respect to the Series C Warrants, in
each case subject to adjustment.
(3) Dividends. (a) Subject to the rights of the holders of any
---------
shares of any series of Preferred Stock ranking prior to the Series A
Preferred Stock with respect to dividends, the holders of shares of Series
A Preferred Stock shall be entitled to receive, out of funds legally
available therefor, noncumulative dividends at the rate equal to the
greater of (i) 5% per annum of the liquidation preference per share of
Series A Preferred Stock per annum, when and if declared by the Board of
Directors and (ii) an amount equal to the Series A Preferred Stock's pro
rata share of cash dividends paid with respect to the Common Stock
(determined based on the number of shares of Common Stock into which each
share of Series A Preferred Stock would be convertible). Each such
dividend shall be payable to the holders of record of shares of Series A
Preferred Stock, as they appear on the stock records of the Corporation at
the close of business on such record dates for such dividend as shall be
fixed by the Board of Directors, which record date shall be not more than
60 days prior to the date fixed for payment of such dividend; provided that
--------
holders of outstanding shares of Series A Preferred Stock shall only be
entitled to receive dividends pursuant to clause (ii) above if such shares
of Series A Preferred Stock were outstanding on the record date for the
dividend paid with respect to the Common Stock.
4
(b) So long as any shares of Series A Preferred Stock are
outstanding, no cash dividends shall be declared or paid or set apart for
payment or other distribution declared or made upon the Common Stock or any
stock of the Corporation ranking junior to the Series A Preferred Stock, as
to dividends nor shall any Common Stock, nor any other such stock of the
Corporation ranking junior to the Series A Preferred Stock, as to dividends
or upon liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) by the Corporation
(except by conversion into or exchange for stock of the Corporation ranking
junior to the Series A Preferred Stock, as to dividends and upon
liquidation) unless, in each case, sufficient funds shall have been set
apart for the payment of all accrued but unpaid dividends declared by the
Board of Directors payable pursuant to Subsection (3)(a)(i) with respect to
the Series A Preferred Stock and all accrued but unpaid dividends, whether
or not declared, payable pursuant to Subsection (3)(a)(ii) with respect to
the Series A Preferred Stock.
(4) Liquidation Preference. In the event of any liquidation,
----------------------
dissolution or winding up of the Corporation, whether voluntary or
involuntary, before any payment or distribution of the assets of the
Corporation (whether capital or surplus) shall be made to or set apart for
the holders of Common Stock or any other series or class or classes of
stock of the Corporation ranking on a parity with the Common Stock upon
liquidation, dissolution or winding up of the Corporation, the holders of
the shares of Series A Preferred Stock shall be entitled to receive $0.10
per share and thereafter will participate equally (determined based on the
number of shares of Common Stock into which each share of Series A
Preferred Stock would be convertible) in all remaining assets of the
Corporation to be paid or distributed to the holders of Common Stock or any
other series or class or classes of stock of the Corporation ranking on a
parity with the Common Stock, upon liquidation, dissolution or winding up
of the Corporation. If upon any liquidation, dissolution or winding up of
the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of the shares of Series A Preferred Stock
shall be insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other shares of stock ranking, as to
liquidation, dissolution or winding up, on a parity with the Series A
Preferred Stock, then such assets, or the proceeds thereof, shall be
distributed among the holders of shares of Series A Preferred Stock and any
such other stock ratably in accordance with the respective amounts which
would be payable on such shares of Series A Preferred Stock and any such
other stock if all amounts payable thereon were paid in full. For purposes
of this Section (4), (i) a consolidation or merger of the Corporation with
one or more corporations, (ii) a sale or transfer of all or substantially
all of the Corporation's assets or (iii) a statutory share exchange shall
not be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the Corporation.
5
(5) Shares to be Retired. All shares of Series A Preferred Stock
--------------------
purchased or converted shall be retired and cancelled and shall be restored
to the status of authorized but unissued shares of Preferred Stock, without
designation as to series.
(6) Conversion. Holders of shares of Series A Preferred Stock shall
----------
have the right to convert all or a portion of such shares into shares of
Common Stock, as follows:
(a) The shares of Series A Preferred Stock shall automatically
be converted into twenty-four (24) fully paid and nonassessable shares
of Common Stock, subject to adjustment as provided below, immediately
upon, but only following, the sale or other transfer of such shares of
Series A Preferred Stock to a Person that is not an Affiliate of
Viacom. If a fraction of a share of Series A Preferred Stock is sold
or otherwise transferred to such a Person, then the Corporation will
convert such fractional share into shares of Common Stock (subject to
paragraph (c) of this Section (6)) and shall issue a fractional share
of Series A Preferred Stock evidencing the remaining interest.
(b) The holder of each share of Series A Preferred Stock to be
converted must surrender the certificate representing such share, duly
endorsed or assigned to the Corporation in blank, at the office of the
Transfer Agent in the Borough of Manhattan, City of New York,
accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or such holder's duly
authorized attorney and an amount sufficient to pay any transfer or
similar tax (or evidence reasonably satisfactory to the Corporation
demonstrating that such taxes have been paid).
Holders of shares of Series A Preferred Stock at the close of
business on a dividend record date shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment
date notwithstanding the conversion thereof following such dividend
record date and prior to such dividend payment date; provided that if
--------
a dividend pursuant to Subsection (3)(a)(ii) is paid on shares of
Series A Preferred Stock as aforesaid and the record date for the
dividend to holders of the Common Stock is after the date the
Preferred Stock is converted, then the holders of the Common Stock
issued upon such conversion after the record date for the dividend to
holders of the Preferred Stock and prior to the record date for the
dividend to holders of the Common Stock shall not be entitled to
receive such dividends payable on such Common Stock.
As promptly as practicable after the surrender of certificates
for shares of Series A Preferred Stock as aforesaid, the Corporation
shall issue and shall deliver at such office to such holder, or on his
or her written order, a certificate or certificates for the number of
full shares of Common Stock issuable upon the conversion of such
6
shares in accordance with the provisions of this Section (6), and any
fractional interest in respect of a share of Common Stock arising upon
such conversion shall be settled as provided in paragraph (c) of this
Section (6).
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates
for shares of Series A Preferred Stock shall have been surrendered for
conversion as aforesaid, and the Person or Persons in whose name or
names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby at such
time on such date and such conversion shall be at the Conversion Rate
in effect at such time on such date, unless the stock transfer books
of the Corporation shall be closed on that date, in which event such
Person or Persons shall be deemed to have become the holder or holders
of record at the close of business on the next succeeding day on which
such stock transfer books are open, but such conversion shall be at
the Conversion Rate in effect on the date upon which such shares shall
have been surrendered. All shares of Common Stock delivered upon
conversions of the Series A Preferred Stock will upon delivery be duly
and validly issued and fully paid and nonassessable.
(c) No fractional shares or scrip representing fractions of
shares of Common Stock shall be issued upon conversion of the Series A
Preferred Stock. Instead of any fractional interest in a share of
Common Stock which would otherwise be deliverable upon the conversion
of a share of Series A Preferred Stock, the Corporation shall pay to
the Person entitled to such fractional interest an amount in cash
(computed to the nearest cent) based upon the Current Market Price of
Common Stock on the trading day immediately preceding the date of
conversion. If more than one share of Series A Preferred Stock is
sold or otherwise transferred to any Person and surrendered for
conversion at one time, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Preferred Stock so surrendered.
(d) The Conversion Rate shall be adjusted from time to time as
follows:
(i) In case the Corporation shall after April 17, 1995 (A)
pay a dividend or make a distribution on its Common Stock in
shares of its capital stock, (B) subdivide its outstanding Common
Stock, (C) combine its outstanding Common Stock into a smaller
number of shares or (D) issue any shares of capital stock in a
reclassification of the Common Stock (including any such
reclassification in connection with a merger, consolidation,
share exchange or other business combination in which the Company
is the continuing corporation), the Conversion Rate in effect
immediately prior
7
thereto shall be adjusted so that each share of Series A
Preferred Stock shall thereafter be convertible into the kind and
number of shares of Common Stock or other securities of the
Corporation which such holder would have owned or have been
entitled to receive after the happening of any of the events
described above had such Series A Preferred Stock been converted
immediately prior to the happening of such event or the record
date therefor, whichever is earlier. An adjustment made pursuant
to this subparagraph (i) shall become effective immediately after
the effective date of such event retroactive to the record date,
if any, for such event.
(ii) In case the Corporation shall issue (in a transaction
in which Subsection (6)(d)(i) is inapplicable) or sell (each, an
"Issuance"), after April 17, 1995, shares of Common Stock, or
rights, options, warrants or convertible or exchangeable
securities (other than securities issued in a transaction in
which a pro rata share of such securities have been reserved by
the Corporation for distribution to the holders of Series A
Preferred Stock upon conversion) containing the right to
subscribe for or purchase shares of Common Stock, at a price per
share of Common Stock (determined in the case of such rights,
options, warrants or convertible or exchangeable securities, by
dividing (x) the aggregate amount received or receivable by the
Corporation in consideration of the Issuance of such rights,
options, warrants or convertible or exchangeable securities, plus
the total consideration, if any, payable to the Corporation upon
exercise, conversion or exchange thereof, by (y) the total number
of shares of Common Stock covered by such rights, options,
warrants or convertible or exchangeable securities) that is lower
than the Current Market Value of the Common Stock on the date of
such Issuance, then in each such case the Conversion Rate in
effect immediately prior to such Issuance shall be adjusted so
that it shall thereafter equal an amount determined by
multiplying the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock by a fraction, the
numerator of which shall be the product of (A) the total number
of shares of Common Stock outstanding immediately after such
Issuance (determined as provided in the next paragraph)
multiplied by (B) the Current Market Value on the date of such
Issuance, and the denominator of which shall be an amount equal
to the sum of (i) the number of shares of Common Stock
outstanding immediately prior to such Issuance multiplied by such
Current Market Value plus (ii) the aggregate consideration
received by the Corporation (determined as provided below) for
such Issuance. Such adjustments shall be made successively
whenever any such Issuance is made.
For purposes of such adjustments, the shares of Common Stock
which the holder of any such rights, options, warrants or
convertible or exchangeable
8
securities shall be entitled to subscribe for or purchase shall
be deemed to be issued and outstanding as of the date of the
Issuance (and the subsequent issuance of such shares of Common
Stock upon such exercise, conversion or exchange shall not be an
"Issuance") and the consideration received by the Corporation
therefor shall be deemed to be the consideration received by the
Corporation for such rights, options, warrants or convertible or
exchangeable securities, plus the consideration or premiums
stated in such rights, options, warrants or convertible or
exchangeable securities to be paid for the shares of Common Stock
covered thereby.
In case the Corporation shall issue or sell shares of Common
Stock or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase
shares of Common Stock for a consideration consisting, in whole
or in part, of property other than cash, then in determining the
"price per share of Common Stock" and the "consideration received
by the Corporation" for purposes of the first paragraph of this
Subsection (6)(d)(ii), the Board of Directors shall determine, in
good faith, the fair value of such property. In case the
Corporation shall issue or sell Common Stock or rights, options,
warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock,
together with one or more other securities as part of a unit at a
price per unit, then in determining the "price per share of
Common Stock" and the "consideration received by the Corporation"
for purposes of the first paragraph of this Subsection
(6)(d)(ii), the Board of Directors shall determine, in good
faith, the respective fair values of the Common Stock or rights,
options, warrants or convertible or exchangeable securities then
being sold as part of such unit.
Notwithstanding the foregoing, no adjustment shall be made
under this Subsection (6)(d)(ii) with respect to any shares of
Series A Preferred Stock as a result of (A) an Issuance of Common
Stock, rights, options, warrants or convertible or exchangeable
securities to an Affiliate of the holder of such Series A
Preferred Stock, other than in respect of an Issuance offered or
issued on the same terms to all stockholders of the Corporation
or (B) the Issuance of shares of Common Stock upon the exercise,
conversion or exchange in accordance with their terms of rights,
options, warrants or convertible or exchangeable securities
outstanding on April 17, 1995.
(iii) In case the Corporation shall fix a record date for
the making of a distribution to all holders of its Common Stock
of evidences of indebtedness of the Corporation, assets or
securities (excluding those referred to in Subsections (6)(d)(i)
and (ii) above and excluding any cash dividends or distributions
as to
9
which the holders of the Series A Preferred Stock receive their
pro rata portion as provided in Section (3)) (any such evidences
of indebtedness, assets or securities being the "assets or
securities"), then in each case the Conversion Rate in effect
immediately prior to such record date shall be adjusted so that
it shall thereafter equal an amount determined by multiplying the
number of shares of Common Stock issuable upon the conversion of
the Series A Preferred Stock immediately prior to such record
date by a fraction, the numerator of which shall be the then
Current Market Value per share of Common Stock on the record date
for such distribution and the denominator of which shall be the
then Current Market Value per share of Common Stock on the record
date for such distribution less an amount equal to the then fair
value (as determined by the Board of Directors acting in good
faith) of the assets or securities applicable to one share of
Common Stock; provided that, in the event the fair value of such
--------
assets or securities as so determined is equal to or greater than
such Current Market Value, in lieu of the foregoing adjustment,
at the time of such distribution, the Corporation shall deposit
the assets or securities each holder of Series A Preferred Stock
(including Series A Preferred Stock issuable upon exercise of the
Warrants) would have received had such Series A Preferred Stock
been converted immediately prior to the record date for such
distribution in escrow with a bank having a combined capital and
surplus of not less than $100 million and upon the conversion of
any Series A Preferred Stock, each holder shall be entitled to
receive, in addition to the shares of Common Stock, the assets or
securities to which such holder would have been entitled as a
holder of Common Stock on the record date for such distribution
and any income earned on such assets or securities. Such
adjustment shall be made whenever any such distribution is made,
and shall become effective on the date of distribution
retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
(iv) Upon the expiration of any rights, options, warrants
or conversion or exchange privileges that have previously
resulted in an adjustment under Subsection (6)(d)(ii) above, if
any thereof shall not have been exercised, the Conversion Rate
shall, upon such expiration, be readjusted and the number of
shares of Common Stock issuable upon conversion of the Series A
Preferred Stock shall thereafter, upon any future conversion, be
such as it would have been had such Conversion Rate been adjusted
(or, had the original adjustment not be required, as the case may
be) as if (x) the only shares of Common Stock so issued were the
shares of Common Stock, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion or
exchange rights and (y) such shares of Common Stock, if any, were
issued or sold for the consideration actually received by the
Corporation upon such exercise plus the consideration, if any,
actually received by the Corporation
10
for issuance, sale or grant of all such rights, options, warrants
or conversion or exchange rights whether or not exercised;
provided that no such readjustment shall have the effect of
--------
decreasing the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock by a number in excess
of the amount or number of the adjustment initially made in
respect to the issuance, sale or grant of such rights, options,
warrants or conversion or exchange rights (giving effect to any
interim adjustments to the Conversion Rate required under this
Section (6)).
(v) For purposes of any computation under this Subsection
(6)(d), the "Current Market Value" per share of Common Stock on
any date means the average of the daily Current Market Prices for
any ten (10) consecutive trading day period determined by the
Board of Directors (or if the period specified in the next clause
contains fewer than ten (10) trading days, the number of trading
days in such period), commencing no earlier than the later to
occur of (x) the date next succeeding the first public
announcement of the event giving rise to the required adjustment
and (y) the 30th day prior to the date as of which the market
price is to be computed, and ending on or prior to the earlier to
occur of (A) the date as of which the market price is to be
computed and (B) the last full trading day before the
commencement of "ex-dividend" trading in the Common Stock
relating to the event giving rise to the required adjustment. In
the absence of all of the foregoing, the Board of Directors, in
good faith, shall determine the Current Market Value by reference
to the cash price that would be paid between a fully informed
buyer and seller under no compulsion to buy or sell (without
giving effect to any discount attributable to any lack of
liquidity of the Common Stock or to the fact that the Corporation
may have no class of equity securities registered under the
Securities Exchange Act of 1934 and without giving effect to any
minority discount or any premium associated with the sale of
control of the Corporation to any Person).
(vi) No adjustment in the number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock shall be
required unless such adjustment would require an increase or
decrease of at least one-hundredth of one percent (.01%) in the
number of shares issuable upon conversion of each share of Series
A Preferred Stock; provided, however, that any adjustments which
-------- -------
by reason of this Subsection (6)(d)(vi) are not required to be
made shall be carried forward and taken into account in any
subsequent adjustment. All calculations shall be made to the
nearest one-thousandth of a share.
(e) In case the Corporation shall be a party to any transaction
(including, without limitation, a merger, consolidation, sale of all
or substantially all of the Corporation's assets or recapitalization
of the Common Stock and excluding any
11
transaction as to which Subsection (6)(d)(i) applies) (each of the
foregoing being referred to as a "Transaction"), in each case as a
result of which shares of Common Stock shall be converted into the
right to receive stock, securities or other property (including cash
or any combination thereof), each share of Series A Preferred Stock
which is not converted into the right to receive stock, securities or
other property in connection with such Transaction shall thereafter be
convertible into the kind and amount of shares of stock and other
securities and property receivable (including cash) upon the
consummation of such Transaction by a holder of that number of shares
or fraction thereof of Common Stock into which one share of Series A
Preferred Stock was convertible immediately prior to such Transaction.
The Corporation shall not be a party to any Transaction unless the
terms of such Transaction are consistent with the provisions of this
Subsection (6)(e) and the Corporation shall not consent or agree to
the occurrence of any Transaction until it has entered into an
agreement with the successor or purchasing entity, as the case may be,
for the benefit of the holders of Series A Preferred Stock which will
contain provisions enabling the holders of Series A Preferred Stock
which remains outstanding after such Transaction (or would be
outstanding upon the exercise of any Warrants which remain outstanding
after such Transaction) to convert such Series A Preferred Stock into
the consideration received by holders of Common Stock as aforesaid.
The provisions of this Subsection (6)(e) shall similarly apply to
successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock (other than a cash dividend to
which Section 3 applies);
(ii) the Corporation shall authorize the granting to the
holders of Common Stock of rights or warrants to subscribe for or
purchase any shares of any class or any other rights or warrants;
or
(iii) there shall be any reclassification of the Common
Stock (other than an event to which Subsection (6)(d)(i) applies)
or any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the
Corporation is required, or the sale or transfer of all or
substantially all of the assets of the Corporation,
then the Corporation shall cause to be filed with the Transfer Agent
and shall cause to be mailed to the holders of Warrants and the
holders of shares of Series A Preferred Stock at their respective
addresses as shown on the records of the Corporation, as promptly as
practicable, but at least fifteen (15) days prior to the applicable
date
12
specified in clauses (A) and (B) below, a notice stating (A) the date
on which a record is to be taken for the purpose of such dividend,
distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to
be entitled to such dividend, distribution or rights or warrants are
to be determined or (B) the date on which such reclassification,
consolidation, merger, sale or transfer is expected, and such notice
shall also state that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification, consolidation,
merger, sale or transfer. Failure to give such notice or any defect
therein shall not affect the legality or validity of any action taken
by the Corporation described in this Section (6).
(g) Whenever the Conversion Rate is adjusted as herein provided,
the Corporation shall promptly file with the Transfer Agent an
officers' certificate, and mail to the holders of Warrants and the
holders of shares of Series A Preferred Stock a notice, setting forth
the Conversion Rate after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(h) For purposes of this Section (6), the number of shares of
Common Stock at any time outstanding shall not include any shares of
Common Stock then owned or held by or for the account of the
Corporation.
(i) In case the Corporation shall take any action affecting the
Common Stock, other than action described in this Section (6), which
would adversely affect the conversion rights of the Series A Preferred
Stock, the Conversion Rate for the Series A Preferred Stock shall be
adjusted, to the extent permitted by law, in such manner and at such
time as the Special Committee in good faith may determine to be
equitable in the circumstances. Notwithstanding the foregoing, no
adjustment shall be made under this Subsection (6)(i) with respect to
shares of Series A Preferred Stock held by an Affiliate of the
Corporation, or purchaseable upon exercise of Warrants held by an
Affiliate of the Corporation.
(j) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock (or other
securities issuable upon conversion of the Series A Preferred Stock)
or its issued shares of Common Stock (or other securities) held in its
treasury, or both, for the purpose of effecting conversion of the
Series A Preferred Stock, the full number of shares of Common Stock
(or other securities) deliverable upon the conversion of all
outstanding shares of Series A Preferred Stock not theretofore
converted. For purposes of this Subsection (6)(j), the number of
shares of Common Stock which shall be deliverable upon the conversion
of all outstanding Series A Preferred Stock shall be computed as if,
at the time of
13
computation, all outstanding unexpired Warrants had been exercised and
all such shares of Series A Preferred Stock were held by a single
holder.
Prior to the delivery of any securities which the Corporation
shall be obligated to deliver upon conversion of the Series A
Preferred Stock, the Corporation will use all reasonable efforts to
comply with all federal and state laws and regulations thereunder
requiring the registration of such securities with, or any approval of
or consent to the delivery thereof by, any governmental authority;
provided, however, that the Corporation shall not be obligated
-------- -------
hereunder to register such securities under the Securities Act of
1933.
(7) Ranking. The Series A Preferred Stock shall rank junior to all
-------
other series of Preferred Stock with respect to the payment of dividends
and the distribution of assets upon liquidation, dissolution or winding up
of the Corporation.
(8) Voting. Except as herein provided or as otherwise from time to
------
time required by law, the holders of Series A Preferred Stock shall have
the general right to vote together with the holders of Common Stock as a
single class on all matters submitted for stockholder approval. Each
holder of Series A Preferred Stock shall be entitled to one vote for each
share of Common Stock into which such holder's shares of Series A Preferred
Stock shall then be convertible; provided, however, that so long as any
-------- -------
shares of Series A Preferred Stock remain outstanding, the consent of the
holders of at least a majority of the shares of Series A Preferred Stock
then outstanding, given in person or by proxy, either in writing or at any
special or annual meeting, voting as a separate class, shall be necessary
to (a) increase or decrease the aggregate number of authorized shares of
the Series A Preferred Stock, (b) increase or decrease the par value of the
Series A Preferred Stock or (c) alter, amend or repeal, whether by merger,
consolidation or otherwise, any of the powers, preferences or special
rights of the shares of Series A Preferred Stock so as to affect them
adversely.
(9) No Redemption. The shares of Series A Preferred Stock shall not
-------------
be subject to redemption by the Corporation or at the option of any holder
of Series A Preferred Stock; provided, however, that the Corporation may
-------- -------
purchase or otherwise acquire outstanding shares of Series A Preferred
Stock in the open market or by offer to any holder or holders of shares of
Series A Preferred Stock.
(10) Record Holders. The Corporation and the Transfer Agent may deem
--------------
and treat the record holder of any shares of Series A Preferred Stock as
the true and lawful owner thereof for all purposes, and neither the
Corporation nor the Transfer Agent shall be affected by any notice to the
contrary.
14
(11) Special Committee. The rights and duties of the Board of
-----------------
Directors or the Corporation with respect to the Series A Preferred Stock
shall be exercised by the Special Committee.
15
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
made under the seal of the Corporation and signed by ______________, its
___________, and attested by ______________, its Assistant Secretary, this
____ day of May, 1995.
DISCOVERY ZONE, INC.
By:
-----------------
Name:
Title:
{Corporate Seal}
Attest:
By:
----------------------
Name:
Title:
EXHIBIT D
Discovery Zone Closes Management Agreement with Blockbuster
Board Members, Key Management Positions Named
CHICAGO, IL, May 25, 1995 -- Discovery Zone Inc. (NASDAQ: ZONE) today said
it has closed the previously announced five-year Management Services Agreement
with Blockbuster Entertainment Group, a unit of Viacom Inc. (AMEX: VIA, VIA.B).
Also, in conjunction with this agreement, Viacom completed its purchase of an
additional 3,823,647 shares of Discovery Zone common stock from the family of
Donald F. Flynn, the company's chairman of the board of directors.
Under the terms of the Management Services Agreement, Discovery Zone
granted Viacom warrants to acquire an aggregate of up to 473,463 shares of a new
class of non-cumulative, convertible, participating preferred stock. Each share
of preferred stock is convertible into 24 shares of Discovery Zone common stock
by any holder who is not affiliated with Viacom. Viacom now owns approximately
49.9 percent of Discovery Zone's outstanding common stock.
On May 11, 1995, Flynn and certain members of his family contributed to
Discovery Zone warrants to purchase Discovery Zone common stock, together with
cash in an amount equal to the $26.7 million warrant exercise price, in exchange
for approximately 7.2 million shares of the company's common stock. The
proceeds from this transaction will be used to reduce Discovery Zone's debt.
Discovery Zone today also announced the appointment of several new members
to the board of directors. Under the Management Services Agreement, Discovery
Zone board members who were not affiliated with Viacom (with the exception of
1
Donald Flynn and Steven Berrard, Blockbuster Entertainment president and chief
executive officer) resigned effective at closing.
Named to the Discovery Zone board were:
-- Sumner Redstone, chairman of the board of Viacom Inc.; and president,
chief executive officer and chairman of National Amusements, Inc..
-- Frank Biondi, Jr., president and chief executive officer of Viacom Inc.
-- Philippe Dauman, executive vice president, general counsel and chief
administrative officer of Viacom Inc.
-- J. Brian McGrath, commissioner of the Thoroughbred Racing Associations,
president of TRA Enterprises, which is the managing general partner of Equibase
Holding Partners; and a member of the board of directors of Spelling
Entertainment Group, a unit of Blockbuster Entertainment.
-- John Muething, of counsel to the Cincinnati, Ohio law firm of Keating,
Muething & Kleakamp, and also a member of the board of directors of Spelling.
In a related announcement, Berrard, who continues as interim chief
executive officer of Discovery Zone, named a number of executives to the
following positions at the company:
Debra D. Joester becomes senior vice president, marketing of Discovery
Zone. She will oversee the company's efforts to develop and expand Discovery
Zone's marketing and merchandising efforts, as well as explore new ways to
capitalize on Discovery Zone's popular brands.
Joester has been with Hamilton Projects, Inc., a New York-based
international licensing agency, for 11 years, most recently as president. She
has had broad
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responsibilities for the development of entertainment licensing, strategic brand
extension programs and special-events marketing.
Joester has designed licensing programs for widely recognized entertainment
brand names including "Beverly Hills, 90210," and "Melrose Place," and for
consumer-products from manufacturers such as Miller Brewing and Chrysler
Corporation.
Hamilton Projects is a division of Spelling Entertainment.
James O. George becomes Discovery Zone's senior vice president, operations.
He will be responsible for the overall operations of Discovery Zone's 330-plus
locations.
George has held management positions in operations for Blockbuster Video as
well as other multiple-location retail chains. Formerly a vice president of
Blockbuster Video's Central Zone, he successfully oversaw the operations of more
than 500 retail stores.
He had been with Blockbuster Video since 1987.
Albert J. Detz becomes senior vice president and chief financial officer of
Discovery Zone. Detz will oversee the company's accounting and finance
functions, including investor-relations.
In addition to his Discovery Zone role, Detz will also continue in his
present capacity as senior vice president and chief financial officer of the
Blockbuster Entertainment Group. At Blockbuster, he is responsible for
overseeing financial, accounting and other administrative aspects of a $5
billion business organization. He joined Blockbuster in 1991.
John E. Vollmer has been named vice president, finance and administration
of Discovery Zone. Vollmer most recently was vice president of finance for
Blockbuster
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Entertainment. He joined the company in 1992 when Blockbuster acquired Sound
Warehouse, Inc., where he was chief financial officer of a 146-store music
retail chain.
David A. Barclay becomes vice president and general counsel of Discovery
Zone. Barclay most recently served as Blockbuster Entertainment's senior
corporate counsel. He joined Blockbuster in 1991.
Robert W. Levis becomes vice president, corporate development and finance
of Discovery Zone. He will be responsible for strategic planning and management
of the company's zone financial structure.
Levis most recently was Blockbuster Entertainment's director, corporate
development. He joined the company in 1993.
John Chapman becomes vice president and controller, Discovery Zone.
Chapman was formerly assistant controller for Blockbuster Entertainment. He had
been with the company since 1991.
In commenting on these appointments, Berrard said, "All of these
individuals have been instrumental in growing Blockbuster Entertainment from a
small video retailer to a broad-based entertainment company. Their professional
backgrounds will help us focus on enhancing the quality of Discovery Zone's
operations, and strategic marketing and merchandising initiatives, as well as
enable us to further develop its intellectual properties.
"As we proceed with repositioning Discovery Zone for the future, we plan to
develop and utilize a proprietary database and increase our efforts to cross-
promote Discovery Zone FunCenters with other Blockbuster group businesses.
Berrard also stated that, "We continue to actively search for a president
and
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other senior positions within the company. It is our intention to name the most
qualified and capable individuals to those areas as soon as possible."
In addition to the above announcements, Discovery Zone today said it will
be relocating its corporate offices to Ft. Lauderdale.
Discovery Zone is the nation's leading operator of children's indoor
entertainment and fitness facilities.
Blockbuster Entertainment Group is a worldwide leader in entertainment
retailing, television and film production, live entertainment and premium
television. The Group's operations include Blockbuster Video, Blockbuster
Music, Showtime Networks Inc., Discovery Zone FunCenters, Spelling Entertainment
Group Inc., and Paramount Parks.
Viacom is one of the world's largest entertainment and publishing companies
and a leading force in nearly every segment of the international media
marketplace. The operations of Viacom Inc. also include MTV Networks, Paramount
Pictures, Paramount Television, Simon & Schuster and Viacom Interactive Media,
as well as radio and television stations, cable systems and movie screens in 11
countries.
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